<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 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 SMALL CAP VALUE FUND (THE "SMALL CAP VALUE FUND")
1
<PAGE> 2
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")
ONE GROUP MUNICIPAL CASH MANAGEMENT MONEY MARKET FUND (THE "MUNICIPAL CASH
MANAGEMENT MONEY MARKET FUND")
ONE GROUP REAL ESTATE FUND (THE "REAL ESTATE FUND")
ONE GROUP TECHNOLOGY FUND (THE "TECHNOLOGY FUND")
ONE GROUP U.S. GOVERNMENT SECURITIES MONEY MARKET FUND (THE "US GOVERNMENT
SECURITIES MONEY MARKET FUND") AND
ONE GROUP TREASURY PRIME MONEY MARKET FUND (THE "TREASURY PRIME MONEY
MARKET FUND")
(EACH A "FUND," AND COLLECTIVELY THE "FUNDS")
NOVEMBER 1, 1999
This Statement of Additional Information is not a Prospectus, but supplements
and should be read in conjunction with the Prospectuses dated November 1, 1999.
This Statement of Additional Information is incorporated in its entirety into
each Fund's Prospectus. The Annual Report for the Funds for the fiscal year
ended June 30, 1999 is incorporated by reference into this Statement of
Additional Information. A copy of the Annual Report and 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.
2
<PAGE> 3
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
THE TRUST
INVESTMENT OBJECTIVES AND POLICIES........................................................................ 10
Additional Information on Fund Instruments .......................................................... 10
Asset-Backed Securities ......................................................................... 10
Bank Obligations ................................................................................ 10
Commercial Paper ................................................................................ 11
Common Stock .................................................................................... 11
Convertible Securities .......................................................................... 12
Demand Features ................................................................................. 12
Foreign Investments ............................................................................. 12
Risk Factors of Foreign Investments ........................................................ 12
Limitations on the Use of Foreign Investments .............................................. 13
Foreign Currency Transactions ................................................................... 14
Position Hedging ........................................................................... 15
Forward Foreign Currency Exchange Contracts ................................................ 15
Foreign Currency Futures Contracts ......................................................... 16
Foreign Currency Options ................................................................... 17
Foreign Currency Conversion ................................................................ 18
Other Foreign Currency Hedging Strategies .................................................. 18
Risk Factors in Hedging Transactions ....................................................... 18
Futures and Options Trading ..................................................................... 19
Futures Contracts .......................................................................... 19
Limitations on the Use of Futures Contracts ................................................ 20
Risk Factors in Futures Transactions ....................................................... 21
Options Contracts .......................................................................... 22
Writing (Selling) Covered Calls ............................................................ 23
Purchasing Call Options .................................................................... 25
Purchasing Put Options ..................................................................... 25
Secured Puts ............................................................................... 25
Straddles and Spreads ...................................................................... 25
Risk Factors in Options Transactions ....................................................... 25
Limitations on the Use of Options .......................................................... 26
Government Securities ........................................................................... 26
High Quality Investments With Regard to the Money Market and
Institutional Money Market Funds ........................................................... 27
High Yield/High Risk Securities/Junk Bonds ...................................................... 28
Index Investing by the Equity Index, Market Expansion Index
and International Equity Index Funds ....................................................... 30
Index Shares..................................................................................... 31
Investment Company Securities ................................................................... 32
Loan Participations and Assignments ............................................................. 32
Mortgage-Related Securities ..................................................................... 33
Mortgage-Backed Securities (CMOs and REMICs) ............................................... 33
Limitations on the Use of Mortgage Backed Securities ....................................... 35
Mortgage Dollar Rolls ...................................................................... 36
Stripped Mortgage Backed Securities ........................................................ 36
Adjustable Rate Mortgage Loans.............................................................. 37
Risk Factors of Mortgage-Related Securities ................................................ 38
Municipal Securities ............................................................................ 39
Risk Factors in Municipal Securities ....................................................... 40
Limitations on the Use of Municipal Securities ............................................. 41
Arizona Municipal Securities ............................................................... 42
Kentucky Municipal Securities .............................................................. 43
Louisiana Municipal Securities ............................................................. 43
Michigan Municipal Securities .............................................................. 44
Ohio Municipal Securities .................................................................. 46
West Virginia Municipal Securities ......................................................... 46
New Financial Products .......................................................................... 47
PERCS ........................................................................................... 47
</TABLE>
3
<PAGE> 4
<TABLE>
<CAPTION>
PAGE
<S> <C>
Preferred Stock ................................................................................. 47
Real Estate Investment Trusts ("REITs").......................................................... 48
Repurchase Agreements ........................................................................... 48
Reverse Repurchase Agreements ................................................................... 49
Restricted Securities ........................................................................... 49
Securities Lending .............................................................................. 50
Short-term Funding Agreements ................................................................... 51
Structured Instruments .......................................................................... 51
Swaps, Caps and Floors .......................................................................... 52
Treasury Receipts ............................................................................... 54
U.S. Treasury Obligations ....................................................................... 54
Variable and Floating Rate Instruments .......................................................... 55
Warrants ........................................................................................ 56
When-Issued Securities and Forward Commitments .................................................. 56
Ratings of Portfolio Securities ..................................................................... 57
Investment Restrictions ............................................................................. 70
Portfolio Turnover .................................................................................. 76
Additional Tax Information Concerning All Funds ..................................................... 78
Additional Tax Information Concerning the Tax-Advantaged Funds ...................................... 81
Additional Tax Information Concerning the International Funds ....................................... 83
Foreign Tax Credit .................................................................................. 83
Additional Tax Information Concerning the Funds of Funds ............................................ 84
VALUATION
Valuation of the Money Market and Institutional Money Market Funds .................................. 85
Valuation of the Equity Funds, the Bond Funds and the Municipal
Bond Funds ...................................................................................... 85
ADDITIONAL INFORMATION REGARDING THE CALCULATION OF PER SHARE
NET ASSET VALUE ..................................................................................... 86
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION ........................................................... 86
Exchanges ........................................................................................... 87
Redemptions.......................................................................................... 88
MANAGEMENT OF THE TRUST .................................................................................. 89
Trustees & Officers ................................................................................. 89
Investment Advisor and Sub-Advisors ................................................................. 93
Glass-Steagall Act .................................................................................. 100
Portfolio Transactions .............................................................................. 100
Administrator ....................................................................................... 103
Distribution Plan ................................................................................... 110
Predecessor Funds' Distribution and Shareholder Servicing Plans ..................................... 112
Cash Compensation to Shareholder Servicing Agents.................................................... 114
Custodian, Transfer Agent and Dividend Disbursing Agent.............................................. 114
Subcustodian ........................................................................................ 115
Experts ............................................................................................. 115
ADDITIONAL INFORMATION ................................................................................... 117
Description of Shares ............................................................................... 117
Shareholder and Trustee Liability ................................................................... 118
Performance ......................................................................................... 119
Calculation of Performance Data ..................................................................... 119
Miscellaneous ....................................................................................... 131
FINANCIAL STATEMENTS
</TABLE>
4
<PAGE> 5
THE TRUST
One Group Mutual Funds (the "TRUST") is an open-end management
investment company. The Trust was formed as a Massachusetts Business Trust on
May 23, 1985. The Trust changed its name from The One Group(R) to One Group
Mutual Funds in March, 1999. 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, the
Michigan Municipal Money Market Fund (formerly, Pegasus Michigan
Municipal Money Market Fund), the U.S. Government Securities Money
Market Fund, and the Treasury Prime Money Market Fund (these seven
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), the Real Estate
Fund, and the Technology Fund (these sixteen Funds being collectively
referred to as the "EQUITY FUNDS"),
Bond Funds: The Intermediate Bond Fund, the Income 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 (formerly, Pegasus Short Municipal Bond Fund),
the Ohio 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 ten
Funds being collectively referred to as the "MUNICIPAL BOND FUNDS"),
Institutional Money Market Funds: 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
5
<PAGE> 6
Cash Management Fund) (these nine 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 Conservative Growth Fund, and the Investor
Balanced Fund (these four 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
following which are non-diversified:
1. the Ohio Municipal Bond Fund,
2. the Kentucky Municipal Bond Fund,
3. the West Virginia Municipal Bond Fund,
4. the Arizona Municipal Bond Fund,
5. the Michigan Municipal Bond Fund,
6. the Michigan Municipal Money Market Fund,
7. the Ohio Municipal Money Market Fund,
8. the Louisiana Municipal Bond Fund,
9. the Real Estate Fund, and
10. the Technology Fund.
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. The following chart shows the share classes offered (or which are
anticipated to be offered) by each of the Funds as of the date of this Statement
of Additional Information:
6
<PAGE> 7
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------------
FUND Class A Class B Class C Service Class S Class I
Class
<S> <C> <C> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------------------
1. Small Cap Growth X X X X
- ---------------------------------------------------------------------------------------------------------------------------------
2. Small Cap Value X X X X
- ---------------------------------------------------------------------------------------------------------------------------------
3. Mid Cap Growth X X X X
- ---------------------------------------------------------------------------------------------------------------------------------
4. Mid Cap Value X X X X
- ---------------------------------------------------------------------------------------------------------------------------------
5. Diversified Mid X X X X
Cap
- ---------------------------------------------------------------------------------------------------------------------------------
6. Large Cap Growth X X X X
- ---------------------------------------------------------------------------------------------------------------------------------
7. Large Cap Value X X X
- ---------------------------------------------------------------------------------------------------------------------------------
8. Equity Income X X X X
- ---------------------------------------------------------------------------------------------------------------------------------
9. Diversified Equity X X X X
- ---------------------------------------------------------------------------------------------------------------------------------
10. Balanced X X X
- ---------------------------------------------------------------------------------------------------------------------------------
11. Equity Index X X X X
- ---------------------------------------------------------------------------------------------------------------------------------
12. Market Expansion X X X X
Index
- ---------------------------------------------------------------------------------------------------------------------------------
13. International X X X X
Equity Index
- ---------------------------------------------------------------------------------------------------------------------------------
14. Diversified X X X X
International
- ---------------------------------------------------------------------------------------------------------------------------------
15. Real Estate X* X* X* X*
- ---------------------------------------------------------------------------------------------------------------------------------
16. Ultra Short-Term X X X
Bond
- ---------------------------------------------------------------------------------------------------------------------------------
17. Short-Term Bond X X X
- ---------------------------------------------------------------------------------------------------------------------------------
18. Intermediate Bond X X X X
- ---------------------------------------------------------------------------------------------------------------------------------
19. Bond X X X X
- ---------------------------------------------------------------------------------------------------------------------------------
20. Income Bond X X X
- ---------------------------------------------------------------------------------------------------------------------------------
21. Government Bond X X X X
- ---------------------------------------------------------------------------------------------------------------------------------
22. Treasury & Agency X X X
- ---------------------------------------------------------------------------------------------------------------------------------
23. High Yield Bond X X X X
- ---------------------------------------------------------------------------------------------------------------------------------
24. Short-Term X X X
Municipal Bond
- ---------------------------------------------------------------------------------------------------------------------------------
25. Intermediate Tax- X X X
Free Bond
- ---------------------------------------------------------------------------------------------------------------------------------
26. Tax-Free Bond X X X
- ---------------------------------------------------------------------------------------------------------------------------------
27. Municipal Income X X X X
- ---------------------------------------------------------------------------------------------------------------------------------
28. Arizona Municipal X X X
Bond
- ---------------------------------------------------------------------------------------------------------------------------------
29. Kentucky X X X
Municipal Bond
- ---------------------------------------------------------------------------------------------------------------------------------
30. Louisiana X X X
Municipal Bond
- ---------------------------------------------------------------------------------------------------------------------------------
31. Michigan X X X
Municipal Bond
- ---------------------------------------------------------------------------------------------------------------------------------
32. Ohio Municipal X X X
Bond
- ---------------------------------------------------------------------------------------------------------------------------------
33. West Virginia X X X
Municipal Bond
- ---------------------------------------------------------------------------------------------------------------------------------
34. Investor Growth X X X X
- ---------------------------------------------------------------------------------------------------------------------------------
35. Investor Growth & X X X X
Income
- ---------------------------------------------------------------------------------------------------------------------------------
36. Investor Balanced X X X X
- ---------------------------------------------------------------------------------------------------------------------------------
37. Investor X X X X
Conservative Growth
- ---------------------------------------------------------------------------------------------------------------------------------
38. Cash Management X X
Money Market
- ---------------------------------------------------------------------------------------------------------------------------------
39. Treasury Cash X X
Management Money
Market
- ---------------------------------------------------------------------------------------------------------------------------------
40. Treasury Prime X X
Cash Management Money
Market
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
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<PAGE> 8
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------------
FUND Class A CLASS B Class C Service Class S CLASS I
Class
<S> <C> <C> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------------------
41. U.S. Government X X
Securities Cash
Management Money
Market
- ---------------------------------------------------------------------------------------------------------------------------------
42. Municipal Cash X X
Management Money
Market
- ---------------------------------------------------------------------------------------------------------------------------------
43. Prime Money X X X X X
Market
- ---------------------------------------------------------------------------------------------------------------------------------
44. U.S. Treasury X X X X X
Securities Money
Market
- ---------------------------------------------------------------------------------------------------------------------------------
45. Municipal Money X X X X
Market
- ---------------------------------------------------------------------------------------------------------------------------------
46. Michigan X X X
Municipal Money Market
- ---------------------------------------------------------------------------------------------------------------------------------
47. Ohio Municipal X X X
Money Market
- ---------------------------------------------------------------------------------------------------------------------------------
48. Treasury Prime X* X* X* X*
Money Market
- ---------------------------------------------------------------------------------------------------------------------------------
49. U.S. Government X* X* X* X*
Securities Money
Market
- ---------------------------------------------------------------------------------------------------------------------------------
50. Institutional X** X
Prime Money Market
- ---------------------------------------------------------------------------------------------------------------------------------
51. Treasury Only X** X
Money Market
- ---------------------------------------------------------------------------------------------------------------------------------
52. Government Money X** X
Market
- ---------------------------------------------------------------------------------------------------------------------------------
53. Tax-Exempt Money X* X*
Market
- ---------------------------------------------------------------------------------------------------------------------------------
54. Technology X* X* X* X*
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* As of the date of this Statement of Additional Information, the Fund
had not commenced operations.
** As of the date of this Statement of Additional Information, the shares
had not commenced operations.
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 CONSOLIDATION. In March, 1999, the Funds of the Trust consolidated with
the Pegasus Funds pursuant to an Agreement and Plan of Reorganization. Except
for the 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:
8
<PAGE> 9
<TABLE>
<CAPTION>
NAME OF FORMER PEGASUS FUND ONE GROUP MUTUAL FUNDS' NAME
<S> <C> <C> <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 11. the Michigan Municipal Money
Market Fund 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 14. the Treasury Prime Cash
Management Fund Management Money Market Fund
15. Pegasus U.S. Government Securities 15. the U.S. Government Securities
Cash Management Fund 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' names.
9
<PAGE> 10
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.
Prepayment Risks. These securities involve prepayment risk, which is the risk
that the issuers of asset-backed securities may be able to repay principal in
advance if interest rates fall. Also, the underlying assets (for example, the
underlying credit card debt) may be refinanced or paid off prior to maturity
during periods of declining interest rates. If asset-backed securities are
pre-paid, a Fund may have to reinvest the proceeds from the securities at a
lower rate. In addition, potential market gains on a security subject to
prepayment risk may be more limited than potential market gains on a comparable
security that is not subject to prepayment risk. Under certain prepayment rate
scenarios, a Fund may fail to recoup any premium paid on asset-backed
securities.
BANK OBLIGATIONS
Bank obligations consist of bankers' acceptances, certificates of
deposit, and demand and time deposits.
Bankers' Acceptances are negotiable drafts or bills of exchange
typically drawn by an importer or exporter to pay for specific merchandise,
which are "accepted" by a bank, meaning, in effect, that the bank
unconditionally agrees to pay the face value of the instrument on maturity.
Bankers' acceptances invested in by the Funds will be those guaranteed by
domestic and foreign banks and savings and loan associations having, at the time
of investment, total assets in excess of $1 billion (as of the date of their
most recently published financial statements).
Certificates of Deposit are negotiable certificates issued against
funds deposited in a commercial bank or a savings and loan association for a
definite period of time and earning a specified return. Certificates of deposit
will be those of domestic and foreign branches of U.S. commercial banks which
are members of the Federal Reserve System or the deposits of which are insured
by the Federal Deposit Insurance Corporation, and in certificates of deposit of
domestic savings and loan associations the deposits of which are insured by the
Federal Deposit Insurance Corporation if, at the time of purchase, such
institutions have total assets in excess of $1 billion (as of the date of their
most recently published financial statements). Certificates of deposit may also
include those issued by foreign banks outside the United States with total
assets at the time of purchase in excess of the equivalent of $1 billion. The
Funds may also invest in Eurodollar certificates of deposit, which are U.S.
dollar-denominated certificates of deposit issued by branches of foreign and
domestic banks located outside the United States, and Yankee certificates of
deposit, which are certificates of deposit issued by a U.S. branch of a foreign
bank denominated in U.S. dollars and held in the United States. Certain Funds
may also invest in obligations (including banker's acceptances and certificates
of deposit) denominated in foreign currencies (see "Foreign Investments"
herein).
10
<PAGE> 11
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.
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.
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(Equity securities such as common stock will generally comprise no more than 10%
of the High Yield Bond Fund's total assets).
CONVERTIBLE SECURITIES
Convertible securities have characteristics similar to both fixed
income and equity securities. Convertible securities may be issued as bonds or
preferred stock. Because of the conversion feature, the market value of
convertible securities tends to move together with the market value of the
underlying stock. As a result, the Funds' selection of convertible securities is
based, to a great extent, on the potential for capital appreciation that may
exist in the underlying stock. The value of convertible securities is also
affected by prevailing interest rates, the credit quality of the issuer, and any
call provisions.
DEMAND FEATURES
Some of the Funds may acquire securities that are subject to puts and
standby commitments ("DEMAND FEATURES") to purchase the securities at their
principal amount (usually with accrued interest) within a fixed period (usually
seven days) following a demand by the Fund. The demand feature may be issued by
the issuer of the underlying securities, a dealer in the securities or by
another third party, and may not be transferred separately from the underlying
security. The underlying securities subject to a put may be sold at any time at
market rates. The Funds expect that they will acquire puts only where the puts
are available without the payment of any direct or indirect consideration.
However, if advisable or necessary, a premium may be paid for put features. A
premium paid will have the effect of reducing the yield otherwise payable on the
underlying security.
Under a "STAND-BY COMMITMENT," a dealer would agree to purchase, at a
Fund's option, specified municipal securities at a specified price. A Fund will
acquire these commitments solely to facilitate portfolio liquidity and does not
intend to exercise its rights thereunder for trading purposes. Stand-by
commitments 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 Bankers' 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.
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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 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. 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.
o 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.
o 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.
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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.
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 Funds generally arising in connection
with the purchase or sale of their 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 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.
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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 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 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.
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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.
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
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option permitting it to purchase the same futures or forward contract at a price
no higher than the price at which the short position was established. Where a
Fund sells a call option on a futures or forward contract, it may cover either
by entering into a long position in the same contract at a price no higher than
the strike price of the call option or by owning the instruments or currency
underlying the futures or forward contract. The Fund could also cover this
position by holding a separate call option permitting it to purchase the same
futures or forward contract at a price no higher than the strike price of the
call option sold by the Fund.
At the maturity of a futures contract, the Fund may either accept
or make delivery of the currency specified in the contract, or at or prior to
maturity enter into a closing transaction involving the purchase or sale of an
offsetting contract. Closing transactions with respect to forward contracts are
usually effected with the currency trader who is a party to the original forward
contract. Closing transactions with respect to futures contracts are effected on
a commodities exchange; a clearing corporation associated with the exchange
assumes responsibility for closing out such contracts.
Positions in the foreign currency futures contracts may be closed
out only on an exchange or board of trade which provides a secondary market in
such contracts. Although the International 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
the opportunity to profit without limit from increases in the relative value of
the yen to the dollar.
Certain differences exist between these foreign currency hedging
instruments. Foreign currency options provide the holder thereof the right to
buy or to sell a currency at a fixed price on a future date. Listed options are
third-party contracts (i.e., performance of the parties' obligations is
guaranteed by an exchange or clearing corporation) which are issued by a
clearing corporation, traded on an exchange and have standardized strike prices
and expiration dates. OTC options are two-party contracts and have negotiated
strike prices and expiration dates. Options on futures contracts are traded on
boards of trade or futures exchanges. Currency swap contracts 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,
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the International Funds will not hedge a currency substantially in excess (as
determined by Banc One Investment Advisors) 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 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 a Fund's securities.
Liquidity. In addition, these instruments may not be liquid in all
circumstances. As a result, in volatile markets, the Funds 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.
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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.
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.
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After a futures contract position is opened, the value of the
contract is marked to market daily. If the futures contract price changes to the
extent that the margin on deposit does not satisfy margin requirements, payment
of additional "variation" margin will be required. Conversely, change in the
contract value may reduce the required margin, resulting in a repayment of
excess margin to the contract holder. Variation margin payments are made to and
from the futures broker for as long as the contract remains open. The Funds
expect to earn interest income on their margin deposits.
Traders in futures contracts may be broadly classified as either
"hedgers" or "speculators." Hedgers use the futures markets primarily to offset
unfavorable changes in the value of securities otherwise held for investment
purposes or expected to be acquired by them. Speculators are less inclined to
own the securities underlying the futures contracts which they trade, and use
futures contracts with the expectation of realizing profits from fluctuations in
the prices of underlying securities. The Funds intend to enter into futures
contracts, options on futures contracts, index futures and options thereon that
are traded on an exchange regulated by the CFTC if, to the extent that such
futures and options are not for "bona fide hedging purposes" (as defined by the
CFTC), the aggregate initial margin and premiums on such positions (excluding
the amount by which options are in the money) do not exceed 5% of the Fund's
total assets at current value. A Fund, however, may invest more than such amount
for bona fide hedging purposes, and also may invest more than such amount if it
obtains authority to do so from the CFTC without rendering the fund a commodity
pool operator or adversely affecting its status as an investment company for
federal securities laws.
A Fund may buy and sell futures contracts and related options to
manage its exposure to changing interest rates and security prices. When
interest rates are expected to rise or market values of portfolio securities are
expected to fall, a Fund can seek through the sale of futures contracts to
offset a decline in the value of its portfolio securities. When interest rates
are expected to fall or market values are expected to rise, a Fund, through the
purchase of such contracts, can attempt to secure better rates or prices for the
Fund than might later be available in the market when it effects anticipated
purchases.
Although techniques other than the sale and purchase of futures
contracts could be used to control the Funds' exposure to market fluctuations,
the use of futures contracts may be a more effective means of managing this
exposure. While the Funds will incur commission expenses in both opening and
closing out futures positions, these costs may be lower than transaction costs
that would be incurred in the purchase and sale of the underlying securities.
A Fund's ability to effectively utilize futures trading depends on
several factors. First, it is possible that there will not be a perfect price
correlation between the futures contracts and their underlying reference
security or index. Second, it is possible that a lack of liquidity for futures
contracts could exist in the secondary market, resulting in an inability to
close a futures position prior to its maturity date. Third, the purchase of a
futures contract involves the risk that a Fund could lose more than the original
margin deposit required to initiate a futures transaction.
LIMITATIONS ON THE USE OF FUTURES CONTRACTS
None of the Funds will enter into futures contract transactions
for purposes other than bona fide hedging purposes to the extent that,
immediately thereafter, the sum of its initial margin deposits and premiums on
open contracts exceeds 5% of the market value of the respective Fund's total
assets. The Funds of Funds will not enter into futures contract transactions,
however, the One Group Mutual Funds in which they invest may do so as described
herein. In addition, none of the Equity Funds will enter into futures contracts
to the extent that the value of the futures contracts held would exceed 25% of
the respective Fund's total assets.
The Funds have undertaken to restrict their futures contract
trading as follows: first, the Funds will not engage in transactions in futures
contracts for speculative purposes; second, the Funds will not market themselves
to the public as
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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.
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
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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.
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
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"premium." The seller (or "writer") of a put option must purchase futures
contracts or securities at a strike price if the option is exercised. In the
case of a call option, the seller must sell the futures contract or security in
the underlying futures contract or security at the strike price if the option is
exercised.
A NAKED OPTION is an option written by a party who does not own
the underlying futures contract or security. A COVERED OPTION is an option
written by a party who does own the underlying position. The initial purchase
(sale) of an option is an "opening transaction." In order to close out an option
position, the Fund may enter into a "closing transaction". This involves the
sale (purchase) of an option contract on the same security with the same
exercise price and expiration date as the option contract originally opened. A
call option on a futures contract or security is said to be "in-the-money" if
the strike price is below current market levels and "out-of-the-money" if the
strike price is above current market levels. A put option is "in-the-money" if
the strike price is above current market levels, and "out-of-the-money" if the
strike price is below current market levels.
Options have limited life spans, usually tied to the delivery or
settlement date of the underlying futures contract or security. Some options,
however, expire significantly in advance of such dates. An option that is
"out-of-the-money" and not offset by the time it expires becomes worthless. On
certain exchanges "in-the-money" options are automatically exercised on their
expiration date, but on others unexercised options simply become worthless after
their expiration date. Options usually trade at a premium (referred to as the
"time value" of the option) above their intrinsic value (the difference between
the market price for the underlying futures contract or equity security and the
strike price). As an option nears its expiration date, the market value and the
intrinsic value move into parity as the time value diminishes.
Increased market volatility generally increases the value of
options by increasing the probability of favorable market swings, putting
outstanding options "in-the-money." Although purchasing options is a limited
risk trading approach, significant losses can be incurred by doing so.
WRITING (SELLING) COVERED CALLS
Some of the Funds may write (sell) covered call options and
purchase options to close out options previously written by the Fund. The Funds'
purpose in writing covered call options is to generate additional premium
income. This premium income will serve to enhance a Fund's total return and will
reduce the effect of any price decline of the security involved in the option.
Generally, the Funds will write covered call options on securities which, in the
opinion of Banc One Investment Advisors or the applicable Sub-Advisor, are not
expected to make any major price moves in the near future but which, over the
long term, are deemed to be attractive investments for the Fund. The Funds will
write only covered call options. This means that a Fund will only write a call
option on a security which a Fund already owns.
Fund securities on which call options may be written will be
purchased solely on the basis of investment considerations consistent with each
Fund's investment objectives. The writing of covered call options is a
conservative investment technique believed to involve relatively little risk (in
contrast to the writing of naked options, which a Fund will not do), but capable
of enhancing the Fund's total return. When writing a covered call option, a
Fund, in return for the premium, gives up the opportunity for profit from a
price increase in the underlying security above the exercise price, but
conversely retains the risk of loss should the price of the security decline.
Unlike one who owns securities not subject to an option, a Fund has no control
over when it may be required to sell the underlying securities, since it may be
assigned an exercise notice at any time prior to the expiration of its
obligation as a writer. Thus, the security could be "called away" at a price
substantially below the fair market value of the security. If a call option
which a Fund has written expires, a Fund will realize a gain in the amount of
the premium; however, such gain may be offset by a decline in the market value
of the underlying security during the option period. If the call option is
exercised, a Fund will realize a gain or loss from the sale of the underlying
security. The security covering the call will be maintained in a segregated
account of the Fund's custodian.
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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.
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 option it
will seek to effect a closing transaction prior to, or concurrently with, the
sale of the security. There is, of course, no assurance that 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.
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
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applicable Sub-Advisor to assess interest rate and market movements
correctly and to accurately calculate the fair price of the option.
The effective use of options also depends on a Fund's ability to
terminate option positions at times when Banc One Investment Advisors
or the applicable Sub-Advisor, deems it desirable to do so. A Fund
will take an option position only if Banc One Investment Advisors or
the applicable Sub-Advisor believes there is a liquid secondary
market for the option, however, there is no assurance that a Fund
will be able to effect closing transactions at any particular time or
at an acceptable price.
Liquidity. If a secondary trading market in options were to become
unavailable, a Fund could no longer engage in closing transactions.
Lack of investor interest might adversely affect the liquidity of the
market for particular options or series of options. A marketplace may
discontinue trading of a particular option or options generally. In
addition, a market could become temporarily unavailable if unusual
events, such as volume in excess of trading or clearing capability,
were to interrupt normal market operations. A marketplace may at
times find it necessary to impose restrictions on particular types of
options transactions, which may limit a Fund's ability to realize its
profits or limit its losses.
Market Restrictions. Disruptions in the markets for the securities
underlying options purchased or sold by a Fund could result in losses
on the options. If trading is interrupted in an underlying security,
the trading of options on that security is normally halted as well.
As a result, a Fund as purchaser or writer of an option will be
unable to close out its positions until option trading resumes, and
it may be faced with losses if trading in the security reopens at a
substantially different price. In addition, the Options Clearing
Corporation ("OCC") or other options markets may impose exercise
restrictions. If a prohibition on exercise is imposed at the time
when trading in the option has also been halted, a Fund as purchaser
or writer of an option will be locked into its position until one of
the two restrictions has been lifted. If a prohibition on exercise
remains in effect until an option owned by a Fund has expired, the
Fund could lose the entire value of its option.
Foreign Investment Risks. Special risks are presented by
internationally-traded options. Because of time differences between
the United States and the various foreign countries, and because
different holidays are observed in different countries, foreign
option markets may be open for trading during hours or on days when
U.S. markets are closed. As a result, option premiums may not reflect
the current prices of the underlying interest in the United States.
LIMITATIONS ON THE USE OF OPTIONS
Each Fund will limit the writing of put and call options to 25% of
its net assets. Some Funds may enter into over-the-counter option transactions.
There will be an active over-the-counter market for such options which will
establish their pricing and liquidity. Broker/Dealers with whom the Trust will
enter into such option transactions shall have a minimum net worth of
$20,000,000.
GOVERNMENT SECURITIES
Obligations of certain agencies and instrumentalities of the U.S.
government, such as the Government National Mortgage Association ("GINNIE MAE")
and the Export-Import Bank, are supported by the full faith and credit of the
U.S. Treasury; others, such as the Federal National Mortgage Association
("FANNIE MAE"), are supported by the right of the issuer to borrow from the
Treasury; others are supported by the discretionary authority of the U.S.
government to purchase the agency's obligations; and still others, such as the
Federal Farm Credit Banks and the Federal Home Loan Mortgage Corporation
("FREDDIE MAC") are 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
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Advisors or the applicable Sub-Advisor believes that the credit risk with
respect thereto is minimal. For information on mortgage-related securities
issued by certain agencies or instrumentalities of the U.S. government, see
"Investment Objectives and Policies--Mortgage-Related Securities" in this
Statement of Additional Information.
HIGH QUALITY INVESTMENTS WITH REGARD TO THE MONEY MARKET AND
INSTITUTIONAL MONEY MARKET FUNDS
The Money Market and Institutional Money Market Funds, may invest
only in obligations determined by the Fund's investment Advisor, Banc One
Investment Advisors to present minimal credit risks under guidelines adopted by
the Trust's Board of Trustees.
The 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 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.
With regard to the Money Market Funds and the Institutional Money
Market Funds, 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.
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
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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 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
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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.
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.
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INDEX INVESTING BY THE EQUITY INDEX, MARKET EXPANSION INDEX AND
INTERNATIONAL EQUITY INDEX FUNDS
Equity Index Fund. The Equity Index Fund attempts to track the
performance of the S&P 500 Index (the "INDEX") to achieve a correlation between
the performance of its portfolio and that of the Index of at least 0.95, without
taking into account expenses. A correlation of 1.00 would indicate perfect
correlation, which would be achieved when the Fund's net asset value, including
the value of its dividend and capital gains distributions, increases or
decreases in exact proportion to changes in the Index. The Fund's ability to
correlate its performance with the Index, however, may be affected by, among
other things, changes in securities markets, the manner in which the Index is
calculated by Standard & Poor's Corporation ("S&P") and the timing of purchases
and redemptions. In the future, the Trustees of the Trust, subject to the
approval of Shareholders, may select another index if such a standard of
comparison is deemed to be more representative of the performance of common
stocks.
S&P chooses the stocks to be included in the Index largely on a
statistical basis. Inclusion of a stock in the Index in no way implies an
opinion by S&P as to its attractiveness as an investment. The Index is
determined, composed and calculated by S&P without regard to the Equity Index
Fund. S&P is neither a sponsor of, nor in any way affiliated with the Equity
Index Fund, and S&P makes no representation or warranty, expressed or implied on
the advisability of investing in the Equity Index Fund or as to the ability of
the Index to track general stock market performance, and S&P disclaims all
warranties of merchantability or fitness for a particular purpose or use with
respect to the Index or any data included in the Index. "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. (Not all of the stocks in the Indices are
included in the Fund). 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 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.
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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.
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 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.
INDEX SHARES
Certain of the Funds may invest in Index Shares. Index shares are
ownership interests in unit investment trusts and other pooled investment
vehicles that hold a portfolio of securities or stocks designed to track the
price performance and dividend yield. Index shares include Standard & Poor's
Depository Receipts ("SPDRS") and Nasdaq-100 Trusts (NASDAQ-100S). Nasdaq-100s
and SPDRs are interests in unit investment trusts. SPDRs 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.
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Nasdaq-100s invest in a securities portfolio that includes substantially all of
the securities of the Nasdaq-100 index. SPDRs and Nasdaq 100's are traded on the
American Stock Exchange, but may not be redeemed. The results of SPDRs and
Nasdaq-100s will not match the performance of the designated index due to
reductions in the performance attributable to transaction and other expenses,
including fees paid by the SPDR or Nasdaq-100s to service providers. SPDRs
distribute dividends on a quarterly basis.
SPDRs and Nasdaq-100s are not actively managed. Rather, a SPDR's
or Nasdaq-100s objective is to track the performance of a specified index.
Therefore, securities may be purchased, retained and sold 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 the SPDR or Nasdaq-100 was not fully invested in such securities.
A Fund will limit its investments in any one SPDR or Nasdaq-100s
to 5% of the Fund's total assets and 3% of the outstanding voting securities of
the SPDR or Nasdaq-100. Moreover, a Fund's investments in SPDRs and Nasdaq-100s
will not exceed 10% of the Fund's total assets, when aggregated with all other
investments in investment companies.
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 money market funds 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 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 Participation and not an Assignment. A Fund may have difficulty
disposing of Assignments and Participations because to do so it will have
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to assign such securities to a third party. Because there is no liquid market
for such securities, the Funds anticipate that such securities could be sold
only to a limited number of institutional investors. The lack of a liquid
secondary market may have an adverse impact on the value of such securities and
a Fund's ability to dispose of particular Assignments or Participations when
necessary to meet a Fund's liquidity needs in response to a specific economic
event such as a deterioration in the creditworthiness of the borrower. The lack
of a liquid secondary market for Assignments and Participations also may make it
more difficult for a Fund to assign a value to those securities for purposes of
valuing a Fund's portfolio and calculating its net asset value.
MORTGAGE-RELATED SECURITIES
MORTGAGE-BACKED SECURITIES (CMOS AND REMICS). Certain of the Funds
may invest in mortgage-backed securities including collateralized mortgage
obligations ("CMOS") and Real Estate Mortgage Investment Conduits ("REMICS").
Mortgage-backed securities represent pools of mortgage loans assembled for sale
to investors by various governmental agencies such as Ginnie Mae and
government-related organizations such as Fannie Mae and Freddie Mac, as well as
by nongovernmental issuers such as commercial banks, savings and loan
institutions, mortgage bankers, and private mortgage insurance companies. Such
non-governmental mortgage securities cannot be treated as U.S. government
securities for purposes of investment policies. A REMIC is a CMO that qualifies
for special tax treatment under the Code and invests in certain mortgages
principally secured by interests in real property and other permitted
investments.
There are a number of important differences among the agencies and
instrumentalities of the U.S. government that issue mortgage-related securities
and among the securities that they issue.
Ginnie Mae Securities. Mortgage-related securities issued by
Ginnie Mae include Ginnie Mae Mortgage Pass-Through Certificates
which are guaranteed as to the timely payment of principal and
interest by Ginnie Mae and such guarantee is backed by the full faith
and credit of the United States. Ginnie Mae is a wholly-owned U.S.
government corporation within the Department of Housing and Urban
Development. Ginnie Mae certificates also are supported by the
authority of Ginnie Mae to borrow funds from the U.S. Treasury to
make payments under its guarantee.
Fannie Mae Securities. Mortgage-related securities issued by
Fannie Mae include Fannie Mae Guaranteed Mortgage Pass-Through
Certificates which are solely the obligations of Fannie Mae and are
not backed by or entitled to the full faith and credit of the United
States. Fannie Mae is a government-sponsored organization owned
entirely by private stock-holders. Fannie Mae Certificates are
guaranteed as to timely payment of the principal and interest by
Fannie Mae.
Freddie Mac Securities. Mortgage-related securities issued by
Freddie Mac include Freddie Mac Mortgage Participation Certificates.
Freddie Mac is a corporate instrumentality of the United States,
created pursuant to an Act of Congress, which is owned entirely by
Federal Home Loan Banks.
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
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multiple class pass-through securities. Investors may purchase beneficial
interests in REMICs, which are known as "regular" interests or "residual"
interests. The Funds do not currently intend to purchase residual interests in
REMICs. The REMIC Certificates represent beneficial ownership interests in a
REMIC Trust, generally consisting of mortgage loans or Fannie Mae, Freddie Mac
or Ginnie Mae guaranteed mortgage pass-through certificates (the "MORTGAGE
ASSETS"). The obligations of Fannie Mae, Freddie Mac or Ginnie Mae under their
respective guaranty of the REMIC Certificates are obligations solely of Fannie
Mae, Freddie Mac or Ginnie Mae, respectively.
Fannie Mae REMIC Certificates are issued and guaranteed as to
timely distribution of principal and interest by Fannie Mae. In addition, Fannie
Mae will be obligated to distribute the principal balance of each class of REMIC
Certificates in full, whether or not sufficient funds are otherwise available.
For Freddie Mac REMIC Certificates, Freddie Mac guarantees the
timely payment of interest, and also guarantees the payment of principal as
payments are required to be made on the underlying mortgage participation
certificates ("PCs"). PCs represent undivided interests in specified residential
mortgages or participation therein purchased by Freddie Mac and placed in a PC
pool. With respect to principal payments on PCs, Freddie Mac generally
guarantees ultimate collection of all principal of the related mortgage loans
without offset or deduction. Freddie Mac also guarantees timely payment of
principal on certain PCs referred to as "Gold PCs."
Ginnie Mae REMIC Certificates guarantee the full and timely
payment of interest and principal on each class of securities (in accordance
with the terms of those classes as specified in the related offering circular
supplement). The Ginnie Mae guarantee is backed by the full faith and credit of
the United States of America.
REMIC Certificates issued by Fannie Mae, Freddie Mac and Ginnie
Mae are treated as U.S. government securities for purposes of investment
policies. CMOs and REMIC Certificates provide for the redistribution of cash
flow to multiple classes. Each class of CMOs or REMIC Certificates, often
referred to as a "tranche," is issued at a specific adjustable or fixed interest
rate and must be fully retired no later than its final distribution date. This
reallocation of interest and principal results in the redistribution of
prepayment risk across to different classes. This allows for the creation of
bonds with more or less risk than the underlying collateral exhibits. Principal
prepayments on the mortgage loans or the Mortgage Assets underlying the CMOs or
REMIC Certificates may cause some or all of the classes of CMOs or REMIC
Certificates to be retired substantially earlier than their final distribution
dates. Generally, interest is paid or accrues on all classes of CMOs or REMIC
Certificates on a monthly basis.
The principal of and interest on the Mortgage Assets may be
allocated among the several classes of CMOs or REMIC Certificates in various
ways. In certain structures (known as "sequential pay" CMOs or REMIC
Certificates), payments of principal, including any principal prepayments, on
the Mortgage Assets generally are applied to the classes of CMOs or REMIC
Certificates in the order of their respective final distribution dates. Thus, no
payment of principal will be made on any class of sequential pay CMOs or REMIC
Certificates until all other classes having an earlier final distribution date
have been paid in full.
Additional structures of CMOs and REMIC Certificates include,
among others, "parallel pay" CMOs and REMIC Certificates. Parallel pay CMOs or
REMIC Certificates are those which are structured to apply principal payments
and prepayments of the Mortgage Assets to two or more classes concurrently on a
proportionate or disproportionate basis. These simultaneous payments are taken
into account in calculating the final distribution date of each class.
A wide variety of REMIC Certificates may be issued in the parallel
pay or sequential pay structures. These securities include accrual certificates
(also known as "Z-BONDS"), which only accrue interest at a 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
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require that specified amounts of principal be applied on each payment date to
one or more classes of REMIC Certificates (the "PAC CERTIFICATES"), even though
all other principal payments and prepayments of the Mortgage Assets are then
required to be applied to one or more other classes of the certificates. The
scheduled principal payments for the PAC Certificates generally have the highest
priority on each payment date after interest due has been paid to all classes
entitled to receive interest currently. Shortfalls, if any, are added to the
amount of principal payable on the next payment date. The PAC Certificate
payment schedule is taken into account in calculating the final distribution
date of each class of PAC. In order to create PAC tranches, one or more tranches
generally must be created that absorb most of the volatility in the underlying
Mortgage Assets. These tranches tend to have market prices and yields that are
much more volatile than the PAC classes. The Z-Bonds in which the Funds may
invest may bear the same non-credit- related risks as do other types of Z-Bonds.
Z-Bonds in which the Fund may invest will not include residual interest.
LIMITATIONS ON THE USE OF MORTGAGE-BACKED SECURITIES
Equity Funds. The 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.
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
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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 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 prepayments 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 strategies.
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.
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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, 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 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
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significantly, ARMs could be subject to higher prepayment rates than if
prevailing interest rates remain constant because the availability of fixed rate
mortgage loans at competitive interest rates may encourage mortgagors to
refinance their ARMs to "lock-in" a lower fixed interest rate. Conversely, if
prevailing interest rates rise significantly, ARMs may prepay at lower rates
than if prevailing rates remain at or below those in effect at the time such
ARMs were originated. As with fixed rate mortgages, there can be no certainty as
to the rate of prepayments on the ARMs in either stable or changing interest
rate environments. In addition, there can be no certainty as to whether
increases in the principal balances of the ARMs due to the addition of deferred
interest may result in a default rate higher than that on ARMs that do not
provide for negative amortization. Other factors affecting prepayment of ARMs
include changes in mortgagors' housing needs, job transfers, unemployment,
mortgagors' net equity in the mortgage properties and servicing decisions.
RISKS FACTORS OF MORTGAGE-RELATED SECURITIES
Guarantor Risk. There can be no assurance that the U.S. government
would provide financial support to Fannie Mae, Freddie Mac or Ginnie
Mae if necessary in the future. Although certain mortgage-related
securities are guaranteed by a third party or otherwise similarly
secured, the market value of the security, which may fluctuate, is
not so secured.
Interest Rate Sensitivity. If a Fund purchases a mortgage-related
security at a premium, that portion may be lost if there is a decline
in the market value of the security whether resulting from changes in
interest rates or prepayments in the underlying mortgage collateral.
As with other interest-bearing securities, the prices of such
securities are inversely affected by changes in interest rates.
However, though the value of a mortgage-related security may decline
when interest rates rise, the converse is not necessarily true since
in periods of declining interest rates the mortgages underlying the
securities are prone to prepayment. For this and other reasons, a
mortgage-related security's stated maturity may be shortened by
unscheduled prepayments on the underlying mortgages and, therefore,
it is not possible to predict accurately the security's return to the
Funds. In addition, regular payments received in respect of
mortgage-related securities include both interest and principal. No
assurance can be given as to the return the Funds of the Trust will
receive when these amounts are reinvested.
Market Value. The market value of the Fund's adjustable rate
Mortgage-Backed Securities may be adversely affected if interest
rates increase faster than the rates of interest payable on such
securities or by the adjustable rate mortgage loans underlying such
securities. Furthermore, adjustable rate Mortgage-Backed Securities
or the mortgage loans underlying such securities may contain
provisions limiting the amount by which rates may be adjusted upward
and downward and may limit the amount by which monthly payments may
be increased or decreased to accommodate upward and downward
adjustments in interest rates.
Prepayments. Although having less risk of decline during periods
of rising interest rates, adjustable rate Mortgage-Backed Securities
have less potential for capital appreciation than fixed rate
Mortgage-Backed Securities because their coupon rates will decline in
response to market interest rate declines. The market value of fixed
rate Mortgage-Backed Securities may be adversely affected as a result
of increases in interest rates and, because of the risk of
unscheduled principal prepayments, may benefit less 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,
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usually monthly, and the possibility that prepayments of principal
may be made at any time. Prepayment rates are influenced by changes
in current interest rates and a variety of economic, geographic,
social and other factors and cannot be predicted with certainty. As
with fixed rate mortgage loans, adjustable rate mortgage loans may be
subject to a greater prepayment rate in a declining interest rate
environment. The yields to maturity of the Mortgage-Backed Securities
in which the Funds invest will be affected by the actual rate of
payment (including prepayments) of principal of the underlying
mortgage loans. The mortgage loans underlying such securities
generally may be prepaid at any time without penalty. In a
fluctuating interest rate environment, a predominant factor affecting
the prepayment rate on a pool of mortgage loans is the difference
between the interest rates on the mortgage loans and prevailing
mortgage loan interest rates (giving consideration to the cost of any
refinancing). In general, if mortgage loan interest rates fall
sufficiently below the interest rates on fixed rate mortgage loans
underlying mortgage pass-through securities, the rate of prepayment
would be expected to increase. Conversely, if mortgage loan interest
rates rise above the interest rates on the fixed rate mortgage loans
underlying the mortgage pass-through securities, the rate of
prepayment may be expected to decrease.
MUNICIPAL SECURITIES
Municipal Securities are issued to obtain funds for various public
purposes, including the construction of a wide range of public facilities such
as bridges, highways, roads, schools, water and sewer works, and other
utilities. Other public purposes for which Municipal Securities may be issued
include refunding outstanding obligations, obtaining funds for general operating
expenses and obtaining funds to lend to other public institutions and
facilities. In addition, certain debt obligations known as "PRIVATE ACTIVITY
BONDS" may be issued by or on behalf of municipalities and public authorities to
obtain funds to provide certain water, sewage and solid waste facilities,
qualified residential rental projects, certain local electric, gas and other
heating or cooling facilities, qualified hazardous waste facilities, high-speed
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 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
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principal of and interest on industrial development revenue bonds is the
responsibility of the corporate user (and any guarantor).
The Funds may also acquire "moral obligation" issues, which are
normally issued by special purpose authorities, and in other tax-exempt
investments including pollution control bonds and tax-exempt commercial paper.
Each Fund may purchase short-term tax-exempt General Obligations Notes, Tax
Anticipation Notes, Bond Anticipation Notes, Revenue Anticipation Notes, Project
Notes, and other forms of short-term tax-exempt loans. Such notes are issued
with a short-term maturity in anticipation of the receipt of tax funds, the
proceeds of bond placements, or other revenues. Project Notes are issued by a
state or local housing agency and are sold by the Department of Housing and
Urban Development. While the issuing agency has the primary obligation with
respect to its Project Notes, they are also secured by the full faith and credit
of the United States through agreements with the issuing authority which provide
that, if required, the federal government will lend the issuer an amount equal
to the principal of and interest on the Project Notes.
There are, of course, variations in the quality of Municipal
Securities, both within a particular classification and between classifications,
and the yields on Municipal Securities depend upon a variety of factors,
including general money market conditions, the financial condition of the
issuer, general conditions of the municipal bond market, the size of a
particular offering, the maturity of the obligations, and the rating of the
issue. The ratings of Moody's and S&P represent their opinions as to the quality
of Municipal Securities. It should be emphasized, however, that ratings are
general and are not absolute standards of quality, and Municipal Securities with
the same maturity, interest rate and rating may have different yields while
Municipal Securities of the same maturity and interest rate with different
ratings may have the same yield. Subsequent to its purchase by a Fund, an issue
of Municipal Securities may cease to be rated or its rating may be reduced below
the minimum rating required for purchase by the Fund. Banc One Investment
Advisors or the applicable Sub-Advisor will consider such an event in
determining whether the Fund should continue to hold the obligations.
Municipal securities may include OBLIGATIONS OF MUNICIPAL HOUSING
AUTHORITIES and SINGLE-FAMILY MORTGAGE REVENUE BONDS. Weaknesses in Federal
housing subsidy programs and their administration may result in a decrease of
subsidies available for payment of principal and interest on housing authority
bonds. Economic developments, including fluctuations in interest rates and
increasing construction and operating costs, may also adversely impact revenues
of housing authorities. In the case of some housing authorities, inability to
obtain additional financing could also reduce revenues available to pay existing
obligations. Single-family mortgage revenue bonds are subject to extraordinary
mandatory redemption at par in whole or in part from the proceeds derived from
prepayments of underlying mortgage loans and also from the unused proceeds of
the issue within a stated period which may be within a year from the date of
issue.
MUNICIPAL LEASES are obligations issued by state and local
governments or authorities to finance the acquisition of equipment and
facilities and may be considered to be illiquid. They may take the form of a
lease, an installment purchase contract, a conditional sales contract, or a
participation interest in any of the above. Banc One Investment Advisors 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
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qualification under relevant provisions of the Code and on other
provisions of Federal law. These provisions of Federal law contain
certain ongoing requirements relating to the cost and location of the
residences financed with the proceeds of the single-family mortgage
bonds and the income levels of tenants of the rental projects
financed with the proceeds of the multi-family housing bonds. While
the issuers of the bonds, and other parties, including the
originators and servicers of the single-family mortgages and the
owners of the rental projects financed with the multi-family housing
bonds, covenant to meet these ongoing requirements and generally
agree to institute procedures designed to insure that these
requirements will be consistently met, there is no assurance that the
requirements will be consistently met. The failure to meet these
requirements could cause the interest on the bonds to become taxable,
possibly retroactively from the date of issuance, thereby reducing
the value of the bonds and subjecting Shareholders to unanticipated
tax liabilities and possibly requiring a Fund to sell the bonds at
the reduced value. Furthermore, any failure to meet these ongoing
requirements might constitute an event of default under the
applicable mortgage or permit the holder to accelerate payment of the
bond or require the issuer to redeem the bond. In any event, where
the mortgage is insured by the Federal Housing Administration
("FHA"), the consent of the FHA may be required before insurance
proceeds would become payable to redeem the mortgage subsidy.
Information Risk. Information about the financial condition of
issuers of Municipal Securities may be less available than about
corporations having a class of securities registered under the
Securities Exchange Act of 1934.
State and Federal Laws. An issuer's obligations under its
Municipal Securities are subject to the provisions of bankruptcy,
insolvency, and other laws affecting the rights and remedies of
creditors, such as the federal bankruptcy code, and laws, if any,
which may be enacted by Congress or state legislatures extending the
time for payment of principal or interest, or both, or imposing other
constraints upon the enforcement of such obligations. The power or
ability of an issuer to meet its obligations for the payment of
interest on and principal of its Municipal Securities may be
materially adversely affected by litigation or other conditions.
Litigation and Current Developments. Such litigation or conditions
may from time to time have the effect of introducing uncertainties in
the market for tax-exempt obligations, or 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 Kentucky Municipal Bond Fund, the Louisiana Municipal Bond Fund, the
West Virginia Municipal Bond Fund, the Arizona Municipal Bond Fund, and the
Tax-Exempt Money Market Fund will be invested in Municipal Securities. Other
Funds may also invest in Municipal Securities if Banc One Investment Advisors or
the applicable Sub-Advisor determines that such Municipal Securities offer
attractive yields. The Funds may invest in Municipal Securities either by
purchasing them directly or by
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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 1997 and a substantially similar percentage increase in
1998. Current State projections include continuing population gains averaging
approximately 2.7% per year through the year 2002.Arizona's employment rate
increased 6.7% in 1994, 6.1% in 1995, 5.6% in 1996,4.4% in 1997 and 4.7% in
1998. More significantly, Arizona was ranked the fastest growing state seven out
of 12 months during 1998 and ranked second during the other five months. Job
growth is expected to continue, but at a somewhat slower pace. The two-year
forecast indicates that 155,000 new jobs will be created in Arizona, which
translates into an average annual growth rate of 3.7% per year. The State's
unemployment rate was 5.5% in 1996, 4.0% in 1997 and 4.1% in 1998.
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 from $60.9 billion in 1990 to $100.6
billion in 1998, an increase of 65.2% and an average annual growth rate of 8.1%
per year.
Despite an increase in population, employment and aggregate
personal income, retail sales growth rates declined between 1994 and 1997, but
have recently begun to rise again. The retail sales growth rate was 11.8% for
fiscal year 1994-1995, 7.4% for fiscal year 1995-1996, 5% for 1996-1997, 7.8%
for fiscal year 1997-1998 and 8.2% for fiscal year 1998-1999.
After experiencing several years of budget shortfalls requiring
mid-year adjustments, the State of Arizona has had significant budget surpluses
each year from 1993 through 1998. However, during fiscal year 1999, a
significant portion of the accumulated surpluses were committed to construction
and renovation of public school
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facilities, reducing the projected surplus at June 30, 1998 to approximately $70
million. 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 districts
to issue bonds. This legislation should have no effect on the obligation or
ability of Arizona school districts to pay debt service on currently outstanding
bonds.
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, 1999, Kentucky had an unemployment rate of 4.6%,
slightly more than the 4.5% national average. For calendar year 1998, Kentucky's
per capita income ranked 39th 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 $731,323,000 as of June 30, 1998, which was
$535,699,000 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
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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.
Louisiana has reduced its per capita debt to more moderate levels in recent
years. Available general fund revenue was $5,788 million in fiscal year
1997/1998 and 1999/2000 will be $5,814 million and $5,879 million, respectively.
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.
Increases in personal income exceed the national rates during 1990
to 1994 on both a total and per capita basis, but these increases have slowed in
recent years. During the next two fiscal years, personal income in the state is
projected to increase by 4.5% and 4.3%, respectively. With regard to employment,
Louisiana's annual average employment growth rate was 2.3% during the 90's.
Employment is projected to increase by 1.4% and 1.3%, respectively, during the
next two fiscal years.
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
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units is required by the following fiscal year; which means the year following
the determinations of the shortfall, according to an opinion issued by the
State's Attorney General. Spending for local units met this requirement for
fiscal years 1986-87 through 1991-92. As the result of litigation, the State
agreed to reclassify certain expenditures, beginning with fiscal year 1992-93,
and has recalculated the required percentage of spending paid to local
government units to be 48.97%.
The 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 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
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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.
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.
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 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 Municipal Securities, the
West Virginia
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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. Coal mining,
chemicals and manufacturing make up an important part of that economy. The coal
industry, however, is under increased scrutiny which may affect the economic
feasibility of conducting mining operations in the future. State and local
governments 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.
In recent years, the State and local government have had adequate
financial resources. But, with little or no population growth, unemployment
statewide remaining above the national average, the continuing decline in school
enrollment, and an aging population, 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 options and futures contracts, continue to be developed
and certain of the Funds may invest in any such options, contracts and products
as may be developed to the extent consistent with each Fund's investment
objective, policies and restrictions and the regulatory requirements applicable
to investment companies.
These various products may be used to adjust the risk and return
characteristics of each Fund's investments. These various products may increase
or decrease exposure to security prices, interest rates, commodity prices, or
other factors that affect security values, regardless of the issuer's credit
risk. If market conditions do not perform consistent with expectations, the
performance of each Fund would be less favorable than it would have been if
these products were not used. In addition, losses may occur if counterparties
involved in transactions do not perform as promised. These products may expose
the Fund to potentially greater return as well as potentially greater risk of
loss than more traditional fixed income investments.
PERCS*
The Equity Funds may invest in Preferred Equity Redemption
Cumulative Stock ("PERCS") which is a form of convertible preferred stock that
actually has more of an equity component than it does fixed income
characteristics. These instruments permit companies to raise capital via a
surrogate for common equity. PERCS are preferred stock which convert to common
stock after a specified period of time, usually three years, and are considered
the equivalent of equity by the ratings agencies. Issuers pay holders a
substantially higher dividend yield than that on the underlying common, and in
exchange, the holder's appreciation is capped, usually at about 30 percent.
PERCS are callable at any time. The PERC is mandatorily convertible into common
stock, but is callable at any time at an initial call price that reflects a
substantial premium to the stock's issue price. PERCS offer a higher dividend
than that available on the common stock, but in exchange the investors agree to
the company placing a cap on the potential price appreciation. The call price
declines daily in an amount that reflects the incremental dividend that holders
enjoy. PERCS are listed on an exchange where the common stock is listed.
*PERCS is a registered trademark of Morgan Stanley, which does not
sponsor and is in no way affiliated with 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.
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REAL ESTATE INVESTMENT TRUSTS ("REITS")
Certain of the Funds may invest in equity interests or debt
obligations issued by REITs. REITs are pooled investment vehicles which invest
primarily in income producing real estate or real estate related loans or
interest. REITs are generally classified as equity REITs, mortgage REITs or a
combination of equity and mortgage REITs. Equity REITs invest the majority of
their assets directly in real property and derive income primarily from the
collection of rents. Equity REITs can also realize capital gains by selling
property that has appreciated in value. Mortgage REITs invest the majority of
their assets in real estate mortgages and derive income from the collection of
interest payments. Similar to investment companies, REITs are not taxed on
income distributed to shareholders provided they comply with several
requirements of the Code. A Fund will indirectly bear its proportionate share of
expenses incurred by REITs in which a Fund invests in addition to the expenses
incurred directly by a Fund.
Investing in REITs involves certain unique risks in addition to
those risks associated with investing in the real estate industry in general.
Equity REITs may be affected by changes in the value of the underlying property
owned by the REITs, while mortgage REITs may be affected by the quality of any
credit extended. REITs are dependent upon management skills, are not
diversified, are subject to heavy cash flow dependency, default by borrowers and
self-liquidation. REITs are also subject to the possibilities of failing to
qualify for tax free pass-through of income under the Code and failing to
maintain their exemption from registration under the Act.
REITs (especially mortgage REITs) are also subject to interest
rate risks. When interest rates decline, the value of a REIT's investment in
fixed rate obligations can be expected to rise. Conversely, when interest rates
rise, the value of a REIT's investment in fixed rate obligations can be expected
to decline. In contrast, as interest rates on adjustable rate mortgage loans are
reset periodically, yields on a REIT's investment in such loans will gradually
align themselves to fluctuate less dramatically in response to interest rate
fluctuations than would investments in fixed rate obligations.
Investment in REITs involves risks similar to those associated
with investing in small capitalization companies. REITs may have limited
financial resources, may trade less frequently and in a limited volume and may
be subject to more abrupt or erratic price movements than larger company
securities. Historically, small capitalization stocks, such as REITs, have been
more volatile in price than the larger capitalization stocks included in the S&P
Index of 500 Common Stocks.
REPURCHASE AGREEMENTS
Under the terms of a repurchase agreement, a Fund would acquire
securities from a seller, subject to the seller's agreement to repurchase such
securities at a mutually agreed-upon date and price. The repurchase price would
generally equal the price paid by the Fund plus interest negotiated on the basis
of current short-term rates, which may be more or less than the rate on the
underlying portfolio securities. The seller under a repurchase agreement will be
required to maintain the value of collateral held pursuant to the agreement at
not less than the repurchase price (including accrued interest).
If the seller were to default on its repurchase obligation or
become insolvent, the Fund holding such obligation would suffer a loss to the
extent that the proceeds from a sale of the underlying portfolio securities were
less than the repurchase price under the agreement, or to the extent that the
disposition of such securities by the Fund were delayed pending court action.
Additionally, there is no controlling legal precedent under U.S. law and there
may be no controlling legal precedents under the laws of certain foreign
jurisdictions confirming that a Fund would be entitled, as against a claim by
such seller or its receiver or trustee in bankruptcy, to retain the underlying
securities, although (with respect to repurchase agreements subject to U.S. law)
the Board of Trustees of the Trust believes that, under the regular procedures
normally in effect for custody of a Fund's securities subject to repurchase
agreements and under federal laws, a court of competent jurisdiction would rule
in favor of the Trust if presented with the question.
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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 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:
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o the frequency of trades and quotes for the security;
o the number of dealers willing to purchase or sell the security
and the number of other potential buyers;
o dealer undertakings to make a market in the security; and
o 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:
o The 4(2) paper must not be traded flat or in default as to
principal or interest;
o 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
o Banc One Investment Advisors or the applicable Sub-Advisor must
consider the trading market for the specific security, taking into account all
relevant factors, including but not limited, to whether the paper is the subject
of a commercial paper program that is administered by an issuing and paying
agent bank and for which there exists a dealer willing to make a market in that
paper, or is administered by a direct issuer pursuant to a direct placement
program; and
o 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
One Group Mutual Funds, 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
o 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 Cash Management Money Market Funds, the U.S. Treasury Securities Money
Market Fund, the Municipal Money Market Fund, the Ohio Municipal Money Market
Fund, the Michigan Money Market Fund, the Treasury Prime Money Market Fund, the
U.S. Government Securities 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
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may be risks of delay in recovery of the securities or even loss of rights in
the collateral should the borrower of the securities fail financially. However,
loans will only be made to borrowers deemed by Banc One Investment Advisors to
be of good standing under guidelines established by the Trust's Board of
Trustees and when, in the judgment of Banc One Investment Advisors, the
consideration which can be earned currently from such securities loans justifies
the attendant risk. Loans are subject to termination by the Funds or the
borrower at any time, and are therefore, not considered to be illiquid
investments.
SHORT-TERM FUNDING AGREEMENTS
Some Funds may, in order to enhance yield, make limited
investments in short-term funding agreements issued by banks and highly rated
U.S. insurance companies. Short-term funding agreements issued by insurance
companies are sometimes referred to as Guaranteed Investment Contracts ("GICs"),
while those issued by banks are referred to as Bank Investment Contracts
("BICs"). Pursuant to such agreements, the Funds make cash contributions to a
deposit account at a bank or insurance company. The bank or insurance company
then credits to the Funds on a monthly basis guaranteed interest at either a
fixed, variable or floating rate. These contracts are general obligations of the
issuing bank or insurance company (although they may be the obligations of an
insurance company separate account) and are paid from the general assets of the
issuing entity.
The Funds will purchase short-term funding agreements only from
banks and insurance companies which, at the time of purchase, are rated in one
of the three highest rating categories and have assets of $1 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.
STRUCTURED INSTRUMENTS
Structured instruments are debt securities issued by agencies of
the U.S. government (such as Ginnie Mae, Fannie Mae, and Freddie Mac), banks,
corporations, and other business entities whose interest and/or principal
payments are indexed to certain specific foreign currency exchange rates,
interest rates, or one or more other reference indices. Structured instruments
frequently are assembled in the form of medium-term notes, but a variety of
forms are available and may be used in particular circumstances. Structured
instruments are commonly considered to be derivatives.
The terms of such structured instruments provide that their
principal and/or interest payments are adjusted upwards or downwards to reflect
changes in the reference index while the structured instruments are outstanding.
In addition, the reference index may be used in determining when the principal
is redeemed. As a result, the interest and/or principal payments that may be
made on a structured product may vary widely, depending on a variety of factors,
including the volatility of the reference index and the effect of changes in the
reference index on principal and/or interest payment.
While structured instruments may offer the potential for a
favorable rate of return from time to time, they also entail certain risks.
Structured instruments may be less liquid than other debt securities, and the
price of structured instruments may be more volatile. If the value of the
reference index changes in a manner other than that expected by Banc One
Investment Advisors or the applicable Sub-Advisor, principal and/or interest
payments on the structured instrument may be substantially less than expected.
In addition, although structured instruments may be sold in the form of a
corporate debt obligation, they may not have some of the protection against
counterparty default that may be available with respect to publicly traded debt
securities (i.e., the existence of a trust indenture). In that respect, the
risks of default associated with structured instruments may be similar to those
associated with swap contracts. See "Swaps, Caps and Floors."
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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.
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
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basis, which means that the two payment streams (one from the Fund to the
counterparty, one to the Fund from the counterparty) are netted out, with the
Fund receiving or paying, as the case may be, only the net amount of the two
payments. Interest rate swaps do not involve the delivery of securities, other
underlying assets, or principal, except for the purposes of collateralization as
discussed below. Accordingly, the risk of loss with respect to interest rate
swaps entered into on a net basis would be limited to the net amount of the
interest payments that the Fund is contractually obligated to make. If the other
party to an interest rate swap defaults, the Fund's risk of loss consists of the
net amount of interest payments that a Fund is contractually entitled to
receive. In addition, the Fund may incur a market value adjustment on securities
held upon the early termination of the swap. To protect against losses related
to counterparty default, the Funds may enter into swaps that require transfers
of collateral for changes in market value. In contrast, currency swaps and other
types of swaps may involve the delivery of the entire principal value of one
designated currency or financial instrument in exchange for the other designated
currency or financial instrument. Therefore, the entire principal value of such
swaps may be subject to the risk that the other party will default on its
contractual delivery obligations.
In addition, because swap contracts are individually negotiated
and ordinarily non-transferable, there also may be circumstances in which it
would be impossible for a Fund to close out its obligations under the swap
contract prior to its maturity. Under such circumstances, the Fund might be able
to negotiate another swap contract with a different counterparty to offset the
risk associated with the first swap contract. Unless the Fund is able to
negotiate such an offsetting swap contract, however, the Fund could be subject
to continued adverse developments, even after Banc One Investment Advisors or
the applicable Sub-Advisor has determined that it would be prudent to close out
or offset the first swap contract.
The Funds (other than the High Yield Bond Fund) will not enter
into any mortgage swap, interest rate swap, cap or floor transaction unless the
unsecured commercial paper, senior debt, or the claims paying ability of the
other party thereto is rated in one of the top two rating categories by at least
one NRSRO, or if unrated, determined by Banc One Investment Advisors to be of
comparable quality.
The use of swaps involves investment techniques and risks
different from and potentially greater than those associated with ordinary Fund
securities transactions. If Banc One Investment Advisors or the applicable
Sub-Advisor is incorrect in its expectations of market values, interest rates,
or currency exchange rates, the investment performance of the Funds would be
less favorable than it would have been if this investment technique were not
used. In addition, in certain circumstances entry into a swap contract that
substantially eliminates risk of loss and the opportunity for gain in an
"appreciated financial position" will accelerate gain to the Funds.
The Staff of the SEC is presently considering its position with
respect to swaps, caps and floors as senior securities. Pending a determination
by the Staff, the Funds will either treat swaps, caps and floors as being
subject to their senior securities restrictions or will refrain from engaging in
swaps, caps and floors. Once the Staff has expressed a position with respect to
swaps, caps and floors, the Funds intend to engage in swaps, caps and floors, if
at all, in a manner consistent with such position. To the extent the net amount
of an interest rate or mortgage swap is held in a segregated account, consisting
of cash or liquid, high grade debt securities, the Funds and Banc One Investment
Advisors believe that swaps do not constitute senior securities under the
Investment Company Act of 1940 and, accordingly, will not treat them as being
subject to each Fund's borrowing restrictions. The net amount of the excess, if
any, of each Fund's obligations over its entitlements with respect to each
interest rate swap will be accrued on a daily basis and an amount of cash or
liquid securities having an aggregate net asset value at least equal to the
accrued excess will be maintained in a segregated account by the Funds'
Custodian. Each of the Bond Funds generally will limit their investments in
swaps, caps and floors to 25% of its total assets.
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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 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 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.
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(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 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, please read "Ratings of Portfolios Securities". 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
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delivery beyond the normal settlement date at a stated price and yield, thereby
involving the risk that the yield obtained will be less than that available in
the market at delivery. The Funds generally will not pay for such securities or
earn interest on them until received. Although the purchase of securities on a
when-issued basis is not considered to be leveraging, it has the effect of
leveraging. When Banc One Investment Advisors or the applicable Sub- Advisor
purchases a when-issued security, the Custodian will set aside cash or liquid
securities to satisfy the purchase commitment. In such a case, a Fund may be
required subsequently to place additional assets in the separate account in
order to assure that the value of the account remains equal to the amount of the
Fund's commitment. The Fund's net assets may fluctuate to a greater degree when
it sets aside portfolio securities to cover such purchase commitments than when
it sets aside cash. In addition, when a Fund engages in "when-issued"
transactions, it relies on the seller to consummate the trade. Failure of the
seller to do so may result in the Fund's incurring a loss or missing the
opportunity to obtain a price considered to be advantageous.
In a forward commitment transaction, the Funds contract to
purchase securities for a fixed price at a future date beyond customary
settlement time. The Funds are required to hold and maintain in a segregated
account until the settlement date, cash, U.S. government securities or liquid
high-grade debt obligations in an amount sufficient to meet the purchase price.
Alternatively, the Funds may enter into offsetting contracts for the forward
sale of other securities that they own. The purchase of securities on a
when-issued or forward commitment basis involves a risk of loss if the value of
the security to be purchased declines prior to the settlement date.
Limitations on the Use of When Issued Securities and Forward
Commitments. No Fund intends to purchase "when-issued" securities for
speculative purposes but only for the purpose of acquiring portfolio securities.
Because a Fund will set aside cash or liquid portfolio securities to satisfy its
purchase commitments in the manner described, the Fund's liquidity and the
ability of Banc One Investment Advisors and the Sub-Advisor to manage the Fund
might, as described in the Prospectuses, be affected in the event 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.
RATINGS OF PORTFOLIO SECURITIES
The following is a summary of published ratings by major credit rating agencies.
Credit ratings evaluate only the safety of principal and interest payments, not
the market value risk of lower quality securities. Credit rating agencies may
fail to change credit ratings to reflect subsequent events on a timely basis.
Although Banc One Investment Advisors considers security ratings when making
investment decisions, it also performs its own investment analysis and does not
rely solely on the ratings assigned by credit agencies.
Unrated securities will be treated as non-investment grade securities unless
Banc One Investment Advisors determines that such securities are the equivalent
of investment grade securities. Securities that have received different ratings
from more than one agency are considered investment grade if at least one agency
has rated the security investment grade.
DESCRIPTION OF COMMERCIAL PAPER RATINGS
Duff & Phelps Credit Rating Co. ("Duff")
D-1+ Highest certainty of timely payment. Short-term liquidity, including
internal operating factors and/or access to alternative sources of
funds, is outstanding and safety is just below risk-free U.S. Treasury
obligations.
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D-1 Very high certainty of timely payment. Liquidity factors are excellent
and supported by good fundamental protection factors. Risk factors are
minor.
D-1- High certainty of timely payment. Liquidity factors are strong and
supported by good fundamental protection factors. Risk factors are very
small.
D-2 Good certainty of timely payment. Liquidity facts and company
fundamentals are sound. Although ongoing funding needs may enlarge
total financing requirements, access to capital markets is good. Risk
factors are small.
D-3 Satisfactory liquidity and other protection factors qualify issues as
to investment grade. Risk factors are larger and subject to more
variation. Nevertheless, timely payment is expected.
D-4 Speculative investment characteristics. Liquidity is not sufficient to
insure against disruption in debt service. Operating factors and market
access may be subject to a high degree of variation.
D-5 Issuer failed to meet scheduled principal and/interest payments.
Standard & Poor's Corporation ("S&P")
A-1 Highest category of commercial paper. Capacity to meet financial
commitment is strong. Obligations designated with a plus sign (+)
indicate that capacity to meet financial commitment is extremely
strong.
A-2 Issues somewhat more susceptible to adverse effects of changes in
circumstances and economic conditions than obligations in higher rating
categories. However, the capacity to meet financial commitments is
satisfactory.
A-3 Exhibits adequate protection parameters. However, adverse economic
conditions or changing circumstances are more likely to lead to a
weakened capacity of the obligor to meet its financial commitment on
the obligation.
B Regarded as having significant speculative characteristics. The obligor
currently has the capacity to meet its financial commitment on the
obligation; however, it faces major ongoing uncertainties which could
lead to the obligor's inadequate capacity to meet its financial
commitment on the obligation.
C Currently vulnerable to nonpayment and is dependent upon favorable
business, financial, and economic conditions for the obligor to meet
its financial commitment on the obligation.
D In payment default. The D rating category is used when payments on an
obligation are not made on the date due even if the applicable grace
period has not expired, unless Standard & Poor's believes that such
payments will be made during such grace period. The D rating also will
be used upon the filing of a bankruptcy petition or the taking of a
similar action if payments on an obligation are jeopardized.
Fitch's IBCA ,Inc. ("Fitch")
F1 Highest capacity for timely repayment. Those issues rated A1+ possess a
particularly strong credit feature.
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F2 Satisfactory capacity for timely repayment although such capacity may
be susceptible to adverse changes in business, economic or financial
conditions.
F3 Adequate capacity for timely repayment, but more susceptible to adverse
changes business, economic or financial conditions than for obligations
in higher categories.
B Capacity for timely repayment is susceptible to adverse changes in
business, economic or financial conditions.
C High risk of default or which are currently in default.
Moody's Investors Service ("Moody's")
Prime-1 Superior ability for repayment.
Prime-2 Strong ability for repayment.
Prime-3 Acceptable ability for repayment. The effect of industry
characteristics and market compositions may be more pronounced.
Variability in earnings and profitability may result in changes in the
level of debt protection measurements and may require relatively high
financial leverage. Adequate alternate liquidity is maintained.
Not Prime Does not fall within any of the Prime rating categories.
DESCRIPTION OF BANK RATINGS
Moody's
These ratings represent Moody's opinion of a bank's intrinsic safety and
soundness.
A These banks possess exceptional intrinsic financial strength. Typically
they will be major financial institutions with highly valuable and
defensible business franchises, strong financial fundamentals, and a
very attractive and stable operating environment.
B These banks possess strong intrinsic financial strength. Typically,
they will be important institutions with valuable and defensible
business franchises, good financial fundamentals, and an attractive and
stable operating environment.
C These banks possess good intrinsic financial strength. Typically, they
will be institutions with valuable and defensible business franchises.
These banks will demonstrate either acceptable financial fundamentals
within a stable operating environment, or better than average financial
fundamentals within an unstable operating environment.
D These banks possess adequate financial strength, but may be limited by
one or more of the following factors: a vulnerable or developing
business franchise; weak financial fundamentals; or an unstable
operating environment.
E These banks possess very weak intrinsic financial strength, require
periodic outside support or suggest an eventual need for outside
assistance. Such institutions may be limited by one or more of the
following factors: a business franchise of questionable value;
financial fundamentals that are seriously deficient in one or more
respects; or a highly unstable operating environment.
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DESCRIPTION OF TAXABLE BOND RATINGS
S&P
S&P's credit rating is a current opinion of an obligor's overall financial
capacity (its creditworthiness) to pay its financial obligation.
AAA The highest rating assigned by S&P. The obligor's capacity to meet its
financial commitment on the obligation is extremely strong.
AA The obligor's capacity to meet its financial commitments on the
obligation is very strong.
A The obligation is somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions than obligations in
higher rated categories. However, the obligor's capacity to meet its
financial commitment on the obligation is still strong.
BBB Exhibits adequate protection parameters. However, adverse economic
conditions or changing circumstances are more likely to lead to a
weakened capacity of the obligor to meet its financial commitment on
the obligation.
Obligations rated BB, B, CCC, CC, and C are regarded as having significant
speculative characteristics. BB indicates the least degree of speculation and C
the highest. While such obligations will likely have some quality and protective
characteristics, these may be outweighed by large uncertainties or major
exposures to adverse conditions.
BB Less vulnerable to nonpayment than other speculative issues. However,
such issues face major ongoing uncertainties or exposure to adverse
business, financial, or economic conditions which could lead to the
obligor's inadequate capacity to meet its financial commitment on the
obligation.
B More vulnerable to nonpayment than obligations rated BB, but the
obligor currently has the capacity to meet its financial commitment on
the obligation. Adverse business, financial, or economic conditions
will likely impair the obligor's capacity or willingness to meet its
financial commitment on the obligation.
CCC Currently vulnerable to nonpayment, and dependent upon favorable
business, financial, and economic conditions for the obligor to meet
its financial commitment on the obligation. In the event of adverse
business, financial, or economic conditions, the obligor is not likely
to have the capacity to meet its financial commitment on the
obligation.
CC Currently highly vulnerable to nonpayment.
C Used to cover a situation where a bankruptcy petition has been filed or
similar action has been taken, but payments on this obligation are
being continued.
D In payment default. Used when payments on an obligation are not made on
the date due even if the applicable grace period has not expired,
unless Standard & Poor's believes that such payments will be made
during such grace period. Also used upon the filing of a bankruptcy
petition or the taking of a similar action if payments on an obligation
are jeopardized.
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Moody's
Investment Grade
Aaa Best quality. They carry the smallest degree of investment risk and are
generally referred to as "gilt edged." Interest payments are protected
by a large, or an exceptionally stable, margin and principal is secure.
Aa High quality by all standards. Margins of protection may not be as
large as in Aaa securities, fluctuation of protective elements may be
greater, or there may be other elements present that make the long-term
risks appear somewhat larger than in Aaa securities.
A These bonds possess many favorable investment attributes and are to be
considered as upper-medium grade obligations. Factors giving security
to principal and interest are considered adequate, but elements may be
present which suggest a susceptibility to impairment sometime in the
future.
Baa These bonds are considered medium-grade obligations (i.e., they are
neither highly protected nor poorly secured). Interest payments and
principal security appear adequate for the present but certain
protective elements may be lacking or may be characteristically
unreliable over any great length of time. Such bonds lack outstanding
investment characteristics and in fact have speculative characteristics
as well.
Non-Investment Grade
Ba These bonds have speculative elements; their future cannot be
considered as well assured. The protection of interest and principal
payments may be very moderate and thereby not well safeguarded during
good and bad times over the future.
B These bonds lack the characteristics of a desirable investment (i.e.,
potentially low assurance of timely interest and principal payments or
maintenance of other contract terms over any long period of time may be
small).
Caa Bonds in this category have poor standing and may be in default. These
bonds carry an element of danger with respect to principal and interest
payments.
Ca Speculative to a high degree and could be in default or have other
marked shortcomings. C is the lowest rating.
Fitch
Investment Grade
AAA Highest rating category. The obligor's capacity for timely repayment of
principal and interest is extremely strong.
AA The obligor's capacity for timely repayment is very strong.
A Bonds and preferred stock considered to be investment grade and of high
credit quality. The obligor's ability for timely repayment is strong.
However, adverse changes in business, economic, or financial conditions
are more likely to affect the capacity for timely repayment than
obligations in higher rated categories.
BBB The obligor's capacity for timely repayment of principal and interest
is adequate. However, adverse changes in business, economic or
financial conditions and circumstances, are more likely to affect the
capacity for timely repayment than for obligations in higher rated
categories.
Non-Investment Grade
BB Obligations for which capacity for timely repayment of principal and
interest is uncertain. These obligations are speculative to some degree
and capacity for repayment remains susceptible over time to adverse
changes in business, financial or economic conditions.
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B The Obligor's capacity for timely repayment of principal and interest
is uncertain. Timely repayment of principal and interest is not
sufficiently protected against adverse changes in business, economic or
financial conditions and these obligations are far more speculative
than those in higher rated categories.
CCC Obligations for which there is a current perceived possibility of
default. Timely repayment of principal and interest is dependent on
favorable business, economic, or financial conditions and these
obligations are far more speculative than those in higher rated
categories.
CC Obligations which are highly speculative or which have a high risk of
default.
C Obligations which are currently in default.
DESCRIPTION OF INSURANCE RATINGS
Moody's
These ratings represent Moody's opinions of the ability of insurance companies
to pay punctually senior policyholder claims and obligations.
Aaa Insurance companies rated in this category offer exceptional financial
security. While the financial strength of these companies is likely to
change, such changes as can be visualized are most unlikely to impair
their fundamentally strong position.
Aa These insurance companies offer excellent financial security. Together
with the Aaa group, they constitute what are generally known as high
grade companies. They are rated lower than Aaa companies because
long-term risks appear somewhat larger.
A Insurance companies rated in this category offer good financial
security. However, elements may be present which suggest a
susceptibility to impairment sometime in the future.
Baa Insurance companies rated in this category offer adequate financial
security. However, certain protective elements may be lacking or may be
characteristically unreliable over any great length of time.
Ba Insurance companies rated in this category offer questionable financial
security. Often the ability of these companies to meet policyholder
obligations may be very moderate and thereby not well safeguarded in
the future.
B Insurance companies rated in this company offer poor financial
security. Assurance of punctual payment of policyholder obligations
over any long period of time is small.
Caa Insurance companies rated in this category offer very poor financial
security.
They may be in default on their policyholder obligations or there may be present
elements of danger with respect to punctual payment of policyholder obligations
and claims.
Ca Insurance companies rated in this category offer extremely poor
financial security. Such companies are often in default on their
policyholder obligations or have other marked shortcomings.
C Insurance companies rated in this category are the lowest rated class
of insurance company and can be regarded as having extremely poor
prospects of ever offering financial security.
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S & P
An insurer rated 'BBB' or higher is regarded as having financial security
characteristics that outweigh any vulnerabilities, and is highly likely to have
the ability to meet financial commitments.
AAA EXTREMELY STRONG financial security characteristics. 'AAA' is the
highest Insurer Financial Strength Rating assigned by Standard &
Poor's.
AA VERY STRONG financial security characteristics, differing only slightly
from those rated higher.
A STRONG financial security characteristics, but Is somewhat more likely
to be affected by adverse business conditions than are insurers with
higher ratings.
BBB GOOD financial security characteristics, but is more likely to be
affected by adverse business conditions than are higher rated insurers.
An insurer rated 'BB' or lower is regarded as having vulnerable characteristics
that may outweigh its strength. 'BB' indicates the least degree of vulnerability
within the range; 'CC' the highest.
BB MARGINAL financial security characteristics. Positive attributes exist,
but adverse business conditions could lead to insufficient ability to
meet financial commitments.
B WEAK financial security characteristics. Adverse business conditions
will likely impair its ability to meet financial commitments.
CCC VERY WEAK financial security characteristics, and is dependent on
favorable business conditions to meet financial commitments.
CC EXTREMELY WEAK financial security characteristics and is likely not to
meet some of its financial commitments.
R An insurer rated 'R' has experienced a REGULATORY ACTION regarding
solvency. The rating does not apply to insurers subject only to
nonfinancial actions such as market conduct violations.
NR NOT RATED, which implies no opinion about the insurer's financial
security.
Plus (+) or minus (-)
Following ratings from 'AA' to 'CCC' show relative standing within the major
rating categories.
DESCRIPTION OF MUNICIPAL NOTE RATINGS
Moody's
MIG1 & VMIG1 Short-term municipal securities rated MIG1 or VMIG1 are of the
best quality. They have strong protection from established cash
flows, superior liquidity support or demonstrated broad-based
access to the market for refinancing.
MIG2 & VMIG2 These Short-term municipal securities rated are of high quality.
Margins of protection are ample although not so large as in the
preceding group.
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MIG3 & VMIG3 Favorable quality. All security elements are accounted for, but
the undeniable strength of the preceding grades is lacking.
Liquidity and cash flow protection may be narrow and marketing
access for refinancing is likely to be less well established.
MIG4 & VMIG4 This denotes adequate quality protection commonly regarded as
required of an investment security is present and although not
distinctly or predominantly speculative, there is a specific
risk.
SG This denotes speculative quality. Our instruments in this
category each margins of protection.
S&P
An S&P note rating reflects the liquidity concerns and market access risks
unique to notes. Notes due in three years or less will likely receive a note
rating. Notes maturing beyond three years will most likely receive a long-term
debt rating.
SP-1 Strong capacity to pay principal and interest. Those issues determined
to possess overwhelming safety characteristics will be given a plus (+)
designation.
SP-2 Satisfactory capacity to pay principal and interest.
SP-3 Speculative capacity to pay principal and interest.
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DESCRIPTION OF PREFERRED STOCK RATINGS
Moody's
aaa Top-quality preferred stock. This rating indicates good asset
protection and the least risk of dividend impairment within the
universe of preferred stocks.
aa High-grade preferred stock. This rating indicates that there is a
reasonable assurance the earnings and asset protection will remain
relatively well maintained in the foreseeable future.
a Upper-medium grade preferred stock. While risks are judged to be
somewhat greater than in the "aaa" and "aa" classification, earnings
and asset protection are, nevertheless, expected to be maintained at
adequate levels.
baa Medium-grade preferred stock, neither highly protected nor poorly
secured. Earnings and asset protection appear adequate at present but
may be questionable over any great length of time.
ba Considered to have speculative elements and its future cannot be
considered well assured. Earnings and asset protection may be very
moderate and not well safeguarded during adverse periods. Uncertainty
of position characterizes preferred stocks in this class.
b Lacks the characteristics of a desirable investment. Assurance of
dividend payments and maintenance of other terms of the issue over any
long period of time may be small.
caa Likely to be in arrears on dividend payments. This rating designation
does not purport to indicate the future status of payments.
ca Speculative in a high degree and is likely to be in arrears on
dividends with little likelihood of eventual payments.
c Lowest rated class of preferred or preference stock. Issues so rated
can thus be regarded as having extremely poor prospects of ever
attaining any real investment standing.
Note: Moody's applies numerical modifiers 1, 2, and 3 in each rating
classification; the modifier 1 indicates that the security ranks in the higher
end of its generic rating category; the modifier 2 indicates a mid-range ranking
and the modifier 3 indicates that the issue ranks in the lower end of its
generic rating category.
S&P
S&P's preferred stock rating is an assessment of the capacity and willingness of
an issuer to pay preferred stock dividends and any applicable sinking fund
obligations.
AAA Highest rating. This rating indicates an extremely strong capacity to
pay the preferred stock obligations.
AA High-quality, fixed-income security. The capacity to pay preferred
stock obligations is very strong, although not as overwhelming as for
issues rated "AAA."
A Backed by a sound capacity to pay the preferred stock obligations,
although it is somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions.
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BBB Backed by an adequate capacity to pay the preferred stock obligations.
Whereas the issuer normally exhibits adequate protection parameters,
adverse economic conditions or changing circumstances are more likely
to lead to a weakened capacity to make payments for a preferred stock
in this category than for issues in the "A" category.
BB,
B,
CCC Regarded, on balance, as predominantly speculative with respect to the
issuer's capacity to pay preferred stock obligations. BB indicates the
lowest degree of speculation and CCC the highest. While such issues
will likely have some quality and protective characteristics, these are
outweighed by large uncertainties or major risk exposures to adverse
conditions.
CC In arrears on dividends or sinking fund payments, but that is currently
paying.
C Nonpaying issue.
D Nonpaying issue with the issuer in default on debt instruments.
N.R. No rating has been requested, insufficient information on which to base
a rating, or Standard & Poor's does not rate a particular type of
obligation as a matter of policy.
Plus (+) or minus (-)
To provide more detailed indications of preferred stock quality, ratings from AA
to CCC may be modified by the addition of a plus or minus sign to show relative
standing within the major rating categories.
SHORT-TERM DEBT RATINGS
Thompson Bank Watch, Inc. ("TBW") ratings apply only to the unsecured commercial
paper and other senior short-term and deposit obligations of entities to which
the ratings have been assigned. The TBW Short-Term ratings specifically assess
the likelihood of an untimely payment of principal and interest.
TBW-1 Very high degree of likelihood that principal and interest will be paid
on a timely basis.
TBW-2 While degree of safety regarding timely repayment of principal and
interest is strong, the relative degree is not as high as for issues
rated TBW-1.
TBW-3 Lowest investment grade category. While more susceptible to adverse
developments than obligations with higher ratings, capacity to service
principal and interest in a timely fashion is considered adequate.
TBW-4 Non-investment grade and, therefore, speculative.
DESCRIPTION OF MUNICIPAL BOND RATINGS
(INCLUDING FOREIGN, MORTGAGE AND ASSET-BACKED SECURITIES)
S&P
INVESTMENT GRADE
AAA The highest rating. The rating indicates an extremely strong capacity
to meet its financial commitment.
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AA Differs from AAA issues only in a small degree. The obligor's capacity
to meet its financial commitment is very strong.
A These bonds are somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions than debt in higher
rated categories. However, capacity to meet its financial commitment on
the obligation is still strong.
BBB Exhibits adequate protection parameters. However, adverse economic
conditions or changing circumstances are more likely to lead to a
weakened capacity to meet its financial commitment on the obligations.
SPECULATIVE GRADE
BB Less vulnerable to non-payment than other speculative issues. However,
these bonds face major ongoing uncertainties or exposure to adverse
business, financial or economic conditions which could lead to
inadequate capacity to meet financial commitment on the obligations.
B More vulnerable to non-payment than obligations rated BB, but currently
has the capacity to meet its financial commitment on the obligation.
Adverse business, financial or economic conditions will likely impair
capacity or willingness to meet its financial commitment on the
obligation.
CCC Currently vulnerable to non-payment, and is dependent upon favorable
business, financial, and economic conditions to meet its financial
commitment on the obligation. In the event of adverse business,
financial, or economic conditions, they are not likely to have the
capacity to meet its financial commitment on the obligation.
CC Currently highly vulnerable to non-payment.
C This rating may be used to cover a situation where a bankruptcy
petition has been filed, or similar action has been taken, but payments
on this obligation are being continued.
D Bonds in payment default.
Ratings from AA to CCC may be modified by a plus (+) or minus (-) to show
relative standing within the major rating categories.
MOODY'S
INVESTMENT GRADE
Aaa Best quality. They carry the smallest degree of investment risk and are
generally referred to as "gilt edged." Interest payments are protected
by a large, or an exceptionally stable, margin and principal is secure.
Aa High quality by all standards. Margins of protection may not be as
large as in Aaa securities, fluctuation of protective elements may be
greater, or there may be other elements present that make the long-term
risks appear somewhat larger than in Aaa securities.
A These bonds possess many favorable investment attributes and are to be
considered as upper-medium grade obligations. Factors giving security
to principal and interest are considered adequate, but elements may be
present which suggest a susceptibility to impairment sometime in the
future.
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Baa These bonds are considered medium-grade obligations (i.e., they are
neither highly protected nor poorly secured). Interest payments and
principal security appear adequate for the present but certain
protective elements may be lacking or may be characteristically
unreliable over any great length of time. Such bonds lack outstanding
investment characteristics and in fact have speculative characteristics
as well.
NON-INVESTMENT GRADE
Ba These bonds have speculative elements; their future cannot be
considered as well assured. The protection of interest and principal
payments may be very moderate and thereby not well safeguarded during
good and bad times over the future.
B These bonds lack the characteristics of a desirable investment (i.e.,
potentially low assurance of timely interest and principal payments or
maintenance of other contract terms over any long period of time may be
small).
Caa Bonds in this category have poor standing and may be in default. These
bonds carry an element of danger with respect to principal and interest
payments.
Ca Speculative to a high degree and could be in default or have other
marked shortcomings. Ca is the lowest rating.
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SHORT-TERM DEBT RATINGS
Thompson Bank Watch, Inc. ("TBW") assigns ratings to specific debt instruments
with original maturities of one year or less. The TBW Short-Term ratings
specifically assess the likelihood of an untimely payment of principal and
interest.
TBW-1 Very high degree of likelihood that principal and interest
will be paid on a timely basis.
TBW-2 While degree of safety regarding timely repayment of principal
and interest is strong, the relative degree is not as high as
for issues rated TBW-1.
TBW-3 Lowest investment grade category. While more susceptible to
adverse developments than obligations with higher ratings,
capacity to service principal and interest in a timely fashion
is considered adequate.
TBW-4 Non-investment grade and, therefore, speculative.
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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 One Group
Equity Index Fund, no more than 10% of the Fund's assets may be invested in
securities issued or guaranteed by the United States, its agencies or
instrumentalities. For purposes of these limitations, a security is considered
to be issued by the government entity whose assets and revenues guarantee or
back the security. With respect to private activity bonds or industrial
development bonds backed only by the assets and revenues of a non-governmental
user, such user would be considered the issuer.
2. Purchase any securities that would cause more than 25% of the
total assets of a Fund to be invested in the securities of one or more issuers
conducting their principal business activities in the same industry, provided
that: (i) 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; (ii) with
respect to the Real Estate Fund, this limitation does not apply to investments
in the real estate industry; and (iii) with respect to the Technology Fund, this
limitation does not apply to the technology sector. 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
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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 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 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
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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 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.
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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:
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).
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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.
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 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 and Diversified International 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 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, the
Prime Money Market Fund and the Government Money Market Fund may not:
1. Buy state, municipal, or private activity bonds.
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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, and
the Investor Balanced 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, economic or business development affecting one security
will also affect other municipal securities.
TEMPORARY DEFENSIVE POSITIONS.
To respond to unusual market conditions, the Funds may invest their assets in
cash or CASH EQUIVALENTS (see below) for temporary defensive purposes. These
investments may result in a lower yield than lower-quality or longer term
investments and may prevent the Funds from meeting their investment objectives.
The percentage of assets that a Fund may invest in cash or cash equivalents is
described in the applicable Fund's prospectus.
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Cash Equivalents are highly liquid, high quality instruments with maturities of
three months or less on the date they are purchased. They include securities
issued by the U.S. Government, its agencies and instrumentalities, repurchase
agreements (other than equity repurchase agreements), certificates of deposit,
bankers' acceptances, commercial paper (rated in one of the two highest rating
categories), variable rate master demand notes, and bank money market deposit
accounts.
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 all of the Money Market Funds were zero for the period from the
commencement of their respective operations to June 30, 1999 and are expected
to remain zero.
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The portfolio turnover rates of the Funds for the fiscal years ended June 30,
1999 and 1998 were as follows:
ONE GROUP MUTUAL FUNDS PORTFOLIO TURNOVER
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
JUNE 30,
--------
FUND 1998 1999
- ---- ---- ----
<S> <C> <C>
Equity Income...............................................................14.64% 16.22%
Mid Cap Value..............................................................106.41% 115.65%
Mid Cap Growth.............................................................158.43% 141.46%
Equity Index.................................................................4.32% 5.37%
Large Cap Value.............................................................47.35% 40.69%
Balanced....................................................................46.04% 85.81%
International Equity Index...................................................9.90% 33.99%
Large Cap Growth...........................................................117.34% 86.34%
Short-Term Bond.............................................................56.99% 37.22%
Intermediate Tax-Free Bond.................................................109.03% 108.41%
Municipal Income............................................................69.76% 55.03%
Ohio Municipal Bond.........................................................10.49% 13.69%
Government Bond.............................................................91.49% 80.86%
Ultra Short-Term Bond.......................................................41.15% 38.70%
Kentucky Municipal Bond......................................................5.81% 6.30%
Arizona Municipal Bond......................................................20.89% 16.29%
W. Virginia Municipal Bond..................................................16.69% 15.24%
Louisiana Municipal Bond....................................................12.03% 19.67%
Diversified Equity..........................................................62.37% 50.82%
Small Cap Growth............................................................83.77% 127.83%
Investor Growth..............................................................4.05% 14.62%
Investor Growth & Income....................................................11.38% 17.87%
Investor Conservative Growth.................................................3.22% 9.73%
Investor Balanced............................................................9.71% 13.51%
High Yield Bond................................................................NA* 28.02%
Treasury & Agency...........................................................41.60% 76.73%
Small Cap Value Fund.........................................................NA** 50.90%##
Diversified Mid Cap..........................................................NA** 23.53%##
Diversified International....................................................NA** 2.96%##
Market Expansion Index.......................................................NA** 36.50%##
Bond ........................................................................NA** 10.89%##
Income Bond..................................................................NA** 20.55%##
Intermediate Bond............................................................NA** 9.24%##
Short-Term Municipal Bond....................................................NA** 74.84%##
Tax-Free Bond................................................................NA** 37.90%##
Michigan Municipal Bond......................................................NA** 10.60%##
Technology Fund..............................................................NA* NA#
Real Estate Fund.............................................................NA* NA#
</TABLE>
* As of June 30, 1998, the Fund had not commenced operations.
** Prior to March 1999, the Predecessor Fund had a fiscal year end of
December 31st. See the table on the next page for information on
portfolio turnover for the fiscal years ending December 31, 1998 and
1999.
# As of June 30, 1999, the Fund had not commenced operations
## In March, 1999, the Predecessor Fund changed its fiscal year end from
December 31st to June 30th. The Portfolio Turnover Rate is for the
period beginning January 1, 1999 and ending June 30, 1999.
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<PAGE> 78
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.
Prior to the consolidation with the One Group Mutual Funds, 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%
</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.
ADDITIONAL TAX INFORMATION CONCERNING ALL FUNDS
Each Fund is treated as a separate entity for federal income tax
purposes and is not combined with One Group's other funds. Each Fund intends 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"). If the Funds so qualify, they will pay no federal income tax on the
earnings they distribute to shareholders and they will eliminate or reduce to a
nominal amount the federal income taxes to which they may be subject.
In order to qualify as a regulated investment company, each Fund
must, among other things, (1) derive at least 90% of its gross income from
dividends, interest, certain payments with respect to securities loans, gains
from the sale or other disposition of stock or securities, or foreign currencies
(to the extent such currency gains are directly related to a Fund's principal
business of investing in stock or securities, or options or futures with respect
to stock or securities) 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 (including receivables),
U.S. government securities, securities of other regulated investment companies,
and other
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<PAGE> 79
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 90% of the sum of (a) 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) its net tax-exempt
interest. 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, in order to requalify for taxation as a regulated
investment company, the Fund could be required to recognize unrealized gains,
pay substantial taxes and interest and make certain distributions.
Generally, regulated investment companies that do not distribute
in each calendar year an amount at least equal to the sum of (i) 98% of their
"ordinary income" (as defined) for the calendar year, (ii) 98% of their capital
gain net income (as defined) for the one-year period ending on October 31 of
such calendar year, and (iii) 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 (i.e., the excess, if any,
of net long-term capital gains over net short-term capital losses) that are
designated by a Fund as capital gain dividends will generally be taxable to a
Shareholder receiving such distributions as long-term capital gain (generally
taxed at a 20% tax rate for non-corporate Shareholders) regardless of how long
the Shareholder has held its shares. 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. 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.
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 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
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<PAGE> 80
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.
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 to report
properly 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, 2000. 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.
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<PAGE> 81
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.
ADDITIONAL TAX INFORMATION CONCERNING THE TAX-ADVANTAGED FUNDS
The Code permits a regulated investment company which has
invested, at the close of each quarter of its taxable year, at least 50% of its
total assets in tax-free Municipal Securities and other securities the interest
on which is exempt from the regular federal income tax to pay exempt-interest
dividends to its Shareholders.
The policy of each Tax-Advantaged Fund is to distribute each year
as exempt-interest dividends substantially all the Fund's net exempt-interest
income. An exempt-interest dividend is any dividend or part thereof (other than
a capital gain dividend) paid by a Tax-Advantaged Fund and designated as an
exempt-interest dividend in a written notice mailed to Shareholders after the
close of the Fund's taxable year, which does not exceed, in the aggregate, the
net interest income from Municipal Securities and other securities the interest
on which is exempt from the regular federal income tax received by the Fund
during the taxable year. The percentage of the total dividends paid for any
taxable year which qualifies as federal exempt-interest dividends will be the
same for all Shareholders receiving dividends from a Tax-Advantaged Fund during
such year, regardless of the period for which the Shares were held.
Exempt-interest dividends may generally be treated by a
Tax-Advantaged Fund's Shareholders as items of interest excludable from their
gross income under Section 103(a) of the Code. However, each Shareholder of a
Tax-Free Fund is advised to consult his or her tax advisor with respect to
whether such Shareholder may be treated as a "SUBSTANTIAL USER" or a "RELATED
PERSON" to such user under Section 147(a) of the Code with respect to facilities
financed through any of the tax-exempt obligations held by the Fund.
"Substantial user" is defined under U.S. Treasury Regulations to include a
non-exempt person who regularly uses a part of such facilities in his trade or
business and (a)(i) whose gross revenues derived with respect to the facilities
financed by the issuance of bonds are more than 5% of the total revenues derived
by all users of such facilities or (ii) who occupies more than 5% of the usable
area of the facility or (b) for whom such facilities or a part thereof were
specifically constructed, reconstructed or acquired.
"RELATED PERSONS" includes certain related natural persons,
affiliated corporations, partners and partnerships.
Dividends attributable to interest on certain private activity
bonds issued after August 7, 1986 must be taken into account in determining
alternative minimum taxable income for purposes of determining liability (if
any) for the alternative minimum tax applicable to individuals and the
alternative minimum tax applicable to corporations. In the case of corporations,
all tax-exempt interest dividends will be taken into account in determining
adjusted current earnings for the purpose of computing the alternative minimum
tax imposed on corporations (as defined for federal income tax purposes).
Current Federal law limits the types and volume of bonds
qualifying for Federal income tax exemption of interest, which may have an
effect on the ability of the Funds to purchase sufficient amounts of tax exempt
securities to satisfy the Code's requirements for the payment of
"exempt-interest" dividends.
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.
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<PAGE> 82
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.
Michigan Taxes. Distributions received from the Michigan Municipal
Bond Fund are exempt from Michigan personal income tax to the extent they are
derived from interest on tax-exempt securities, under the current position
of the Michigan Department of Treasury. 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.
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<PAGE> 83
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.
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
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<PAGE> 84
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 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.
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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
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, securities of the
International Funds, the principal market for which is a securities exchange,
are valued at the last available sale price, or in the case of U.K. securities,
where depending on which principal market the security trades, the quoted value
will be the last available sale price or the latest mid-market price.
Additionally, securities which trade in Germany, but are not on the national
electronic exchange, receive a Kassa price, which is a mid-day broker quote.
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.
85
<PAGE> 86
The value of a foreign security is determined in its national
currency as of the close of trading on its principal market, which value is then
converted into its U.S. dollar equivalent using the mean of the latest foreign
exchange bid and ask price at the time of the close of the London Stock
Exchange. 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, Class S 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, Class S 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. The net asset value of a Fund's Class I, Class A, Class B,
Class C, Class S 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, Class S and Service Class Shares.
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION
All of the classes of Shares in each Fund (other than Class S and
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 organization authorized to act in a fiduciary,
advisory, custodial or agency 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.
Class S Shares may be purchased by broker-dealers, other financial
intermediaries, banks and other depository institutions on behalf of clients
requiring additional services, such as reports and other information related to
maintenance of shareholders accounts.
Service Class Shares are available only in the 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).
86
<PAGE> 87
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.
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.
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.
Class S. Shares. Class S Shares may not exchange their Class S
Shares for shares of any other class, nor may shares of any other class be
exchanged for Class S 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.
87
<PAGE> 88
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.
88
<PAGE> 89
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. The Trustees are responsible for making major decisions about each Fund's
investment objectives and policies, but delegate the day-to-day administration
of the Funds to the officers of the 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 of the Trust,
their addresses, their ages, and principal occupations during the past five
years are set forth below.
<TABLE>
<CAPTION>
POSITION HELD PRINCIPAL OCCUPATION
NAME AND ADDRESS AGE WITH THE TRUST DURING THE PAST FIVE YEARS
- ---------------- --- -------------- --------------------------
<S> <C> <C> <C>
Peter C. Marshall 56 Trustee From November, 1993 to present,
DCI Marketing, Inc. President, DCI Marketing, Inc.
2727 W. Good Hope Road
Milwaukee, WI 53209
Charles I. Post 71 Trustee From July, 1986 to present, self
7615 4th Avenue West employed as a consultant.
Bradenton, FL 34209
Frederick W. Ruebeck 60 Trustee From June, 1988 to present,
Eli Lilly & Company Director of Investments, Eli
Lilly Corporate Center Lilly and Company.
307 East McCarty
Indianapolis, IN 46258
Robert A. Oden, Jr. 53 Trustee From 1995 to present, President,
Office of the President Kenyon College; from 1989 to 1995,
Ransom Hall Headmaster, The Hotchkiss School.
Kenyon College
Gambier, OH 43022
*John F. Finn 51 Trustee Since 1975, President of Gardner,
President Inc. (wholesale distributor to the
Gardner, Inc. outdoor power equipment industry).
1150 Chesapeake Avenue
Columbus, Ohio 43212
Marilyn McCoy 51 Trustee Vice President of Administration
Northwestern University and Planning, Northwestern
Office of the Vice President University (1985 to present).
Administration Planning Trustee of Pegasus Funds since
633 Clark St. Crown 2-112 1996.
Evanston, IL 60208
Julius L. Pallone 69 Trustee President, J.L. Pallone Associates
J.L. Pallone Associates (1994 to present) Trustee of
3000 Town Center Pegasus Funds since 1987.
Suite 732
Southfield, MI 48075
Donald L. Tuttle 65 Trustee Vice President (1995 to present)
Association of Management and Senior Vice President (1992 to
and Research 1995), Association for Investment
PO Box 3668 Management and Research, Trustee
560 Ray C. Hunt Drive of Pegasus Funds since 1993.
Charlottesville, VA 22903
</TABLE>
89
<PAGE> 90
* John F. Finn is an "interested person" as that term is defined in the
Investment Company Act of 1940.
The Trustees of the Trust receive fees and expenses for each
meeting of the Board of Trustees attended. No officer or employee of the
Distributor currently acts as a Trustee of the Trust.
The Compensation Table below sets forth the total compensation to
the Trustees from the Trust for the Trust's fiscal year ended June 30, 1999.
90
<PAGE> 91
COMPENSATION TABLE(1)
<TABLE>
<CAPTION>
PENSION OR
AGGREGATE RETIREMENT BENEFITS ESTIMATED ANNUAL TOTAL COMPENSATION
NAME OF PERSON, COMPENSATION ACCRUED AS PART OF BENEFITS UPON FROM THE FUND
POSITION FROM THE TRUST TRUST EXPENSES(2) RETIREMENT COMPLEX(3)
- -------- -------------- ----------------- ---------- ----------
<S> <C> <C> <C> <C>
Peter C. Marshall, $49,750 N/A N/A $52,750
Chairman
Charles I. Post, $45,500 N/A N/A $48,500
Trustee
Frederick W. Ruebeck, $46,750(4) N/A N/A $49,750
Trustee
Robert A. Oden, Jr., $46,750 N/A N/A $49,750
Trustee
John F. Finn, $46,750(4) N/A N/A $49,750
Trustee
Marilyn McCoy $11,250(5) N/A N/A $12,000
Trustee
Julius L. Pallone $11,250(5) N/A N/A $12,000
Trustee
Donald L. Tuttle $11,250(6) N/A N/A $12,000
Trustee
</TABLE>
(1) Figures are for the Trust's fiscal year ended June 30, 1999.
(2) The Trustees may defer all or a part of their compensation payable by
the Trust pursuant to the Deferred Compensation Plan (the "PLAN").
Under the Plan, the Trustees may specify Class I shares of one or more
Funds of the Trust that will be used to measure the performance of a
Trustee's deferred compensation account. A Trustee's deferred
compensation account will be paid at such times as elected by the
Trustee subject to certain mandatory payment provisions in the Plan
(e.g., death of a Trustee.)
(3) "Fund Complex" comprises the funds of One Group Mutual Funds and the
portfolios of One Group(R) Investment Trust that were operational as of
June 30, 1999.
(4) Includes $35,000 of deferred compensation.
(5) Includes $11,250 of deferred compensation.
(6) Includes $5,625 of deferred compensation.
91
<PAGE> 92
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, their ages, 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 45 President, Treasurer From November, 1997 to
The One Group Services and Assistant Secretary present, President, The One
Company Group Services Company;
3435 Stelzer Road From June, 1995 to
Columbus, Ohio 43219 November, 1997, Officer,
The One Group Services
Company; From February,
1989 to present, employee
of BISYS Fund Services,
Inc. (FKA Winsbury Company)
James T. Gillespie 32 Vice President From September, 1998 to
BISYS Fund Services, present, employee, The One
Inc. Group Services Company;
3435 Stelzer Road From February, 1992 to
Columbus, Ohio 43219 September, 1998, employee,
BISYS Fund Services, Inc.
Bryan C. Haft 34 Vice President From January, 1999 to
BISYS Fund Services, present, employee, The One
Inc. Group Services Company;
3435 Stelzer Road From November, 1992 to
Columbus, Ohio 43219 January, 1999, employee,
BISYS Fund Services, Inc.
Charles L. Booth 39 Secretary From February, 1998, to
BISYS Fund Services, present, Chief Compliance
Inc. Officer and Vice President
3435 Stelzer Road Fund Compliance
Columbus, Ohio 43219 BISYS Fund Services, Inc.;
From April, 1988, to
February, 1998, employee,
BISYS Fund Services, Inc.
Alaina J. Metz 32 Assistant Secretary From June, 1995, to
BISYS Fund Services, present, Chief
Inc. Administrator,
3435 Stelzer Road Administration and
Columbus, Ohio 43219 Regulatory Services,
BISYS Fund Services, Inc.; from
May 1989 to June 1995, Supervisor,
Mutual Fund Legal
Department, Alliance
Capital Management.
</TABLE>
92
<PAGE> 93
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 High Yield Bond
Fund which is sub-advised by a Sub-Advisor). 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, Delaware, Florida, 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 Mutual Funds
(formerly, One Group, The One Group and the Helmsman Fund) since 1985.
During the fiscal years ended June 30, 1999, 1998, and 1997, 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:
93
<PAGE> 94
ONE GROUP MUTUAL FUND ADVISORY FEES--NET
<TABLE>
<CAPTION>
FISCAL YEAR ENDED JUNE 30,
--------------------------
1999 1998 1997
---------------------- ------------------ -------------------
FUND NET WAIVED NET WAIVED NET WAIVED
- ---- --- ------ --- ------ --- ------
<S> <C> <C> <C> <C> <C> <C>
U.S. Treasury Securities
Money Market $18,197,198 $1,705,060 $ 9,337,795 $2,237,340 $5,992,323 $2,742,727
Prime Money Market $15,422,198 $1,501,456 $ 9,806,764 $1,675,435 $7,824,731 $1,899,772
Municipal Money Market $ 2,530,968 $ 827,569 $ 1,491,141 $ 596,454 $1,241,937 $ 593,593
Ohio Municipal Money Market $ 271,920 $ 68,725 $ 252,818 $ 60,211 $ 231,786 $ 36,034
Equity Income $ 7,397,328 $ 542,041 $ 6,571,128 -0- $4,104,562 $ 0
Mid Cap Value $ 6,439,398 $ 30,016 $ 4,758,742 -0- $4,129,523 $ 0
Mid Cap Growth $ 8,646,067 $ -0- $ 6,492,467 -0- $4,511,169 $ 0
Equity Index $ 2,540,532 $2,882,298 $ 992,672 $1,985,360 $ 547,238 $1,094,476
Large Cap Value $ 6,649,570 $ -0- $ 5,638,325 -0- $4,726,413 $ 0
Balanced $ 2,481,299 $ 411,428 $ 1,178,256 $ 191,626 $ 684,481 $ 142,861
International Equity Index $ 3,009,675 $ -0- $ 2,373,749 -0- $2,201,616 $ 837
Large Cap Growth $19,303,039 $ -0- $12,023,999 -0- $7,948,260 $ 0
Short-Term Bond $ 2,214,444 $1,937,618 $ 1,879,523 $1,700,459 $1,830,204 $1,830.204
Intermediate Tax-Free Bond $ 2,673,135 $1,481,010 $ 1,904,783 $1,025,646 $1,235,203 $ 776,825
Municipal Income $ 3,275,777 $ 877,859 $ 2,184,870 $ 624,243 $1,314,694 $ 387,974
Ohio Municipal Bond $ 722,143 $ 606,278 $ 544,952 $ 517,943 $ 389,001 $ 391,781
Government Bond $ 4,744,608 $ -0- $ 3,714,960 $ 80,216 $3,098,420 $ 194,800
Ultra Short-Term Bond $ 577,502 $ 789,477 $ 424,770 $ 699,133 $ 117,314 $ 342,966
Treasury Only Money Market $ 677,936 $ -0- $ 518,513 -0- $ 385,087 $ 0
Government Money Market $ 2,782,098 $ -0- $ 1,735,256 -0- $ 848,690 $ 0
Kentucky Municipal Bond $ 523,045 $ 130,764 $ 469,392 $ 117,349 $ 270,459 $ 78,137
Institutional Prime Money
Market $ -0- $ 1,671 NA## NA## NA# NA#
Tax-Exempt Money Market $ NA### $ NA### NA## NA## NA# NA#
Arizona Municipal Bond $ 999,215 $ 104,016 $ 1,007,240 $ 154,639 $ 390,737+++ $ 126,415+++
W. Virginia Municipal Bond $ 419,312 $ 90,662 $ 365,585 $ 103,485 $ 121,278+++ $ 66,525+++
Louisiana Municipal Bond $ 746,009 $ 423,067 $ 572,161 $ 355,668 $ 683,535 $ 394,121
Diversified Equity $ 8,977,465 $ -0- $ 4,485,408 -0- $2,309,475 $ 69,333
Small Cap Growth $ 986,900 $ 4,830 $ 902,099 -0- $ 699,896 $ 30,410
High Yield Bond $ 228,845 $ 134,906 NA## NA## NA# NA#
Investor Growth $ 68,885 $ 47,015 $ 35,565 $ 21,362 $ 1,552 $ 6,244++++
Investor Growth & Income $ 190,454 $ -0- $ 49,435 $ 17,732 $ 2,046 $ 8,237++++
Investor Conservative Growth $ 37,255 $ 28,268 $ 4,622 $ 18,489 $ 683 $ 2,750++++
Investor Balanced $ 153,645 $ -0- $ 53,241 $ 11,387 $ 3,107 $ 12,503++++
Treasury & Agency $ 404,427 $ 404,433 $ 232,442 $ 232,443 $ 99,224 $ 99,225+++
Small Cap Value $ 443,867** $ 87,675** NA NA NA NA
Diversified Mid Cap $ 1,978,567** $ 417,680** NA NA NA NA
Diversified International $ 1,352,519** $ 54,445** NA NA NA NA
Market Expansion Index $ -0-** $ 7,979** NA NA NA NA
Bond $ 1,664,679** $ 648,205** NA NA NA NA
Income Bond $ 1,284,532** $ 678,174** NA NA NA NA
Intermediate Bond $ 1,154,030** $ 890,093** NA NA NA NA
Short-Term Municipal Bond $ 103,108** $ 86,282** NA NA NA NA
Tax-Free Bond $ 939,456** $ 129,437** NA NA NA NA
Michigan Municipal Bond $ 359,864** $ 49,808**
Michigan Municipal Money
Market $ 103,442** $ 51,994** NA NA NA NA
Cash Management Money
Market $ 993,338** $ 317,402** NA NA NA NA
Treasury Cash Management
Money Market $ 151,668** $ 96,510** NA NA NA NA
Treasury Prime Cash
Management Money Market $ 199,693** $ 104,284** NA NA NA NA
U.S. Government Securities
Cash Management Money
Market $ 667,615** $ 118,000** NA NA NA NA
Municipal Cash Management
Money Market $ 200,734** $ 117,899** NA NA NA NA
</TABLE>
94
<PAGE> 95
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
Technology NA### NA### NA## NA## NA# NA#
Real Estate Fund NA### NA### NA## NA## NA# NA#
U.S. Government Securities Money Market NA### NA### NA## NA## NA# NA#
Treasury Prime Money Market NA### NA### NA## NA## NA# NA#
</TABLE>
### As of June 30, 1999, the Fund had not commenced operations.
## As of June 30, 1998, the Fund had not commenced operations.
# As of June 30, 1997, the Fund had not commenced operations.
* Fees for the period from November 13, 1998 to June 30, 1999
** Fee for the period from the consolidation with the Pegasus
Funds to June 30, 1999.
+++ Fees for the period from January 20, 1997 to June 30, 1997.
++++ Fees for the period from December 10, 1996 to June 30, 1997.
For the period beginning November 1, 1999 and ending October
31,2000, Banc One Investment Advisors and The One Group Services Company have
agreed to waive fees and/or reimburse expenses to limit total annual fund
operating expenses as follows for the Funds listed below:
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C CLASS I
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1. Small Cap Growth 1.30% 2.05% 2.05% 1.05%
- ---------------------------------------------------------------------------------------------------------
2. Small Cap Value 1.19% 1.94% 1.94% .94%
- ---------------------------------------------------------------------------------------------------------
3. Mid Cap Growth 1.25% N/A N/A N/A
- ---------------------------------------------------------------------------------------------------------
4. Mid Cap Value 1.21% N/A N/A N/A
- ---------------------------------------------------------------------------------------------------------
5. Diversified Mid Cap 1.11% 1.86% 1.86% .86%
- ---------------------------------------------------------------------------------------------------------
6. Large Cap Growth 1.19% N/A N/A N/A
- ---------------------------------------------------------------------------------------------------------
7. Large Cap Value 1.23% 1.98% 1.98% .98%
- ---------------------------------------------------------------------------------------------------------
8. Equity Income 1.23% N/A N/A N/A
- ---------------------------------------------------------------------------------------------------------
9. Diversified Equity 1.21% N/A N/A N/A
- ---------------------------------------------------------------------------------------------------------
10. Balanced 1.15% 1.90% 1.90% .90%
- ---------------------------------------------------------------------------------------------------------
11. Equity Index .65% 1.40% 1.40% .40%
- ---------------------------------------------------------------------------------------------------------
12. Market Expansion Index .82% 1.57% 1.57% .57%
- ---------------------------------------------------------------------------------------------------------
13. International Equity
- ---------------------------------------------------------------------------------------------------------
Index 1.20% N/A N/A N/A
- ---------------------------------------------------------------------------------------------------------
14. Diversified International 1.30% 2.05% 2.05% 1.05%
- ---------------------------------------------------------------------------------------------------------
15. Technology 1.55% 2.30% 2.30% 1.30%
- ---------------------------------------------------------------------------------------------------------
16. Real Estate 1.35% 2.10% 2.10% 1.10%
- ---------------------------------------------------------------------------------------------------------
17. Ultra Short-Term Bond .75% 1.25% 1.25% .50%
- ---------------------------------------------------------------------------------------------------------
18. Short-Term Bond .80% 1.30% 1.30% .55%
- ---------------------------------------------------------------------------------------------------------
19. Intermediate Bond .83% 1.48% 1.48% .58%
- ---------------------------------------------------------------------------------------------------------
20. Bond .85% 1.50% 1.50% .60%
- ---------------------------------------------------------------------------------------------------------
21. Income Bond .92% 1.57% 1.57% .67%
- ---------------------------------------------------------------------------------------------------------
22. Government Bond .90% 1.55% 1.55% N/A
- ---------------------------------------------------------------------------------------------------------
23. Treasury & Agency .70% 1.20% 1.20% .45%
- ---------------------------------------------------------------------------------------------------------
24. High Yield Bond 1.15% 1.80% 1.80% .90%
- ---------------------------------------------------------------------------------------------------------
25. Short-Term Municipal Bond .80% 1.45% 1.45% .55%
- ---------------------------------------------------------------------------------------------------------
26. Intermediate Tax-Free .85% 1.60% 1.60% .60%
- ---------------------------------------------------------------------------------------------------------
27. Tax-Free Bond .87% 1.52% 1.52% .62%
- ---------------------------------------------------------------------------------------------------------
28. Municipal Income .87% 1.52% 1.52% .62%
- ---------------------------------------------------------------------------------------------------------
29. Arizona Municipal Bond .90% 1.55% 1.55% .65%
- ---------------------------------------------------------------------------------------------------------
30. Kentucky Municipal Bond .90% 1.55% 1.55% .65%
- ---------------------------------------------------------------------------------------------------------
31. Louisiana Municipal Bond .90% 1.55% 1.55% .65%
- ---------------------------------------------------------------------------------------------------------
32. Michigan Municipal Bond .90% 1.55% 1.55% .65%
- ---------------------------------------------------------------------------------------------------------
</TABLE>
95
<PAGE> 96
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C CLASS I
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------
33. Ohio Municipal Bond .87% 1.52% 1.52% .62%
- ---------------------------------------------------------------------------------------------------------
34. West Virginia Municipal Bond .90% 1.55% 1.55% .65%
- ---------------------------------------------------------------------------------------------------------
35. Investor Growth .45% 1.20% 1.20% .20%
- ---------------------------------------------------------------------------------------------------------
36. Investor Growth & Income .45% 1.20% 1.20% .20%
- ---------------------------------------------------------------------------------------------------------
37. Investor Balanced .45% 1.20% 1.20% .20%
- ---------------------------------------------------------------------------------------------------------
38. Investor Conservative Growth .45% 1.20% 1.20% .20%
- ---------------------------------------------------------------------------------------------------------
</TABLE>
MONEY MARKET AND INSTITUTIONAL MONEY MARKET
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
FUND Class A Class B Class C Service Class Class S Class I
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
39. CASH
MANAGEMENT
MONEY MARKET .60% NA NA NA NA .35%
- ------------------------------------------------------------------------------------------------------------------------------------
40. TREASURY
CASH
MANAGEMENT
MONEY MARKET .60% NA NA NA NA .35%
- ------------------------------------------------------------------------------------------------------------------------------------
41. TREASURY
PRIME CASH
MANAGEMENT
MONEY MARKET .60% NA NA NA NA .35%
- ------------------------------------------------------------------------------------------------------------------------------------
42. U.S.
GOVERNMENT
SECURITIES
CASH
MANAGEMENT
MONEY MARKET .60% NA NA NA NA .35%
- ------------------------------------------------------------------------------------------------------------------------------------
42. MUNICIPAL
CASH
MANAGEMENT
MONEY MARKET .60% NA NA NA NA .35%
- ------------------------------------------------------------------------------------------------------------------------------------
44. PRIME
MONEY MARKET .77% 1.52% 1.52% 1.07% NA .52%
- ------------------------------------------------------------------------------------------------------------------------------------
45. U.S.
TREASURY
SECURITIES
MONEY MARKET .77% 1.52% 1.52% 1.07% NA .52%
- ------------------------------------------------------------------------------------------------------------------------------------
46. MUNICIPAL
MONEY MARKET .72% NA 1.47% 1.02% NA .47%
- ------------------------------------------------------------------------------------------------------------------------------------
47. MICHIGAN
MUNICIPAL
MONEY MARKET .75% NA 1.50% 1.05% NA .50%
- ------------------------------------------------------------------------------------------------------------------------------------
48. OHIO
MUNICIPAL
MONEY MARKET .70% NA 1.45% 1.00% NA .45%
- ------------------------------------------------------------------------------------------------------------------------------------
49. TREASURY
PRIME MONEY
MARKET .77% NA 1.52% 1.07% NA .52%
- ------------------------------------------------------------------------------------------------------------------------------------
50. U.S.
GOVERNMENT
SECURITIES
MONEY MARKET .77% NA 1.52% 1.07% NA .52%
- ------------------------------------------------------------------------------------------------------------------------------------
51.
INSTITUTIONAL
PRIME MONEY
MARKET NA NA NA NA .35% .18%
- ------------------------------------------------------------------------------------------------------------------------------------
52. TREASURY
ONLY MONEY
MARKET NA NA NA NA .35% .18%
- ------------------------------------------------------------------------------------------------------------------------------------
53. GOVERNMENT
MONEY MARKET NA NA NA NA .35% .18%
- ------------------------------------------------------------------------------------------------------------------------------------
54. TAX-
EXEMPT MONEY
MARKET NA NA NA NA .35% .18%
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
96
<PAGE> 97
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 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 and Sub-Advisory Agreements were renewed by the Trust's
Board of Trustees at their quarterly meeting on August 19, 1999. The Advisory
and Sub-Advisory Agreements may be terminated 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.
Prior to the consolidation 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 Bank.
Prior to the consolidation 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.
97
<PAGE> 98
PREDECESSOR FUNDS' ADVISORY FEES--NET
<TABLE>
<CAPTION>
FISCAL YEAR ENDED DECEMBER 31,
------------------------------
1999(1) 1998 1997 1996
------- ---- ---- ----
FUND NET WAIVED NET WAIVED NET WAIVED NET WAIVED
- ---- --- ------ --- ------ --- ------ --- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Small Cap Value $ 425,933 $ 17,325 $2,003,921 0 $1,283,658 0 $ 349,224 *** $ 56,427 ***
Diversified Mid
Cap $ 930,900 $ 0 $6,832,757 0 $5,355,678 0 $1,467,224 # 0
Diversified
International $ 919,346 $ 11,441 $4,577,670 0 $3,752,409 0 $1,179,691 ## $ 26,973 ##
Market Expansion
Index $ 0.00 $ 19,020 0 $ 45,584 NA* NA* NA** NA**
Bond $1,221,570 $101,107 $5,674,695 0 $4,089,788 0 $1,092,756 # $ 49,503 #
Income Bond $ 329,113 $ 26,702 $ 827,079 0 $ 562,165 0 $ 265,891 # $ 16,303 #
Intermediate Bond $ 575,602 $ 9,954 $2,349,025 0 $1,890,923 0 $ 626,682 *** $ 49,186 ***
Short-Term
Municipal Bond $ 87,893 $ 18,717 $ 144,978 $ 41,317 NA* NA* NA** NA**
Tax-Free Bond $ 783,772 $ 0.00 $2,358,313 0 $1,524,196 0 $ 531,933 ### $108,706 ###
Michigan Municipal
Bond $ 286,916 $ 0.00 $ 686,184 $ 13,410 $ 228,576 $ 43,158 $ 66,088 # $ 11,150 #
Michigan Municipal
Money Market $ 93,711 $ 22,005 $ 327,693 $ 36,792 $ 335,355 $ 44,602 $ 696,445 + $ 37,403 +
Cash Management
Money Market $ 940,792 $313,597 $3,402,847 $907,915 $1,642,225 $279,533 $ 398,138 ++ $222,088 ++
Treasury Cash
Management
Money Market $ 117,909 $ 63,489 $ 498,263 $136,100 $ 99,821 $ 33,327 NA** NA**
Treasury Prime
Cash Management
Money Market $ 176,745 $ 87,716 $ 592,066 $207,054 $ 404,248 $105,789 $ 123,521 ++ $145,816 ++
U.S. Government
Securities Cash
Management Money
Market $ 645,999 $113,999 $2,465,211 $295,457 $1,369,324 $ 88,360 $ 325,009 ++ $297,097 ++
Municipal Cash
Management
Money Market $ 236,376 $ 57,101 $ 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.
(1) For the period beginning January 1, 1999 to consolidation with the
Pegasus Funds.
98
<PAGE> 99
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")
served as investment Sub-Advisor to the International Equity Index Fund through
October 31, 1999 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 $315,098 in sub-advisory fees from Banc One
Investment Advisors for the fiscal year ended June 30, 1997; and $416,939 in
sub-advisory fees from Banc One Investment Advisors for the fiscal year ended
June 30, 1998; and $494,805 in sub-advisory fees from Banc One Investment
Advisors for the fiscal year ended June 30, 1999.
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. 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. For the fiscal year ended June 30, 1999,
Banc One Investment Advisors Corporation paid the Sub-Advisor $229,388.38 in
sub-advisory fees.
99
<PAGE> 100
GLASS-STEAGALL ACT
In 1971, the United States Supreme Court held in Investment Company Institute v.
-------------------------------
Camp that the federal statute commonly referred to as the Glass-Steagall Act
- ----
prohibits a national bank from operating a Fund for the collective investment of
managing agency accounts. Subsequently, the Board of Governors of the Federal
Reserve System (the "BOARD") issued a regulation and interpretation to the
effect that the Glass-Steagall Act and such decision: (a) forbid a bank holding
company registered under the Federal Bank Holding Company Act of 1956 (the
"HOLDING COMPANY ACT") or any non-bank affiliate thereof from sponsoring,
organizing, or controlling a registered, open-end investment company
continuously engaged in the issuance of its Shares, but (b) do not prohibit such
a holding company or affiliate from acting as investment advisor, transfer
agent, and custodian to such an investment company. In 1981, the United States
Supreme Court held in Board of Governors of the Federal Reserve System v.
---------------------------------------------------
Investment Company Institute that the Board did not exceed its authority under
- ----------------------------
the Holding Company Act when it adopted its regulation and interpretation
authorizing bank holding companies and their non-bank affiliates to act as
investment advisors to registered closed-end investment companies. In the Board
-----
of Governors case, the Supreme Court also stated that if a national bank
- ------------
complied with the restrictions imposed by the Board in its regulation and
interpretation authorizing bank holding companies and their non-bank affiliates
to act as investment advisors to investment companies, a national bank
performing investment advisory services for an investment company would not
violate the Glass-Steagall Act. In addition, state securities laws on this issue
may differ from the interpretations of federal law expressed herein and banks
and financial institutions may be required to register as dealers pursuant to
state law.
In the Investment Advisory Agreement with the Trust, Banc One Investment
Advisors has represented to the Trust that it possesses the legal authority to
perform the investment advisory services contemplated by the agreement and
described in the Prospectuses and this Statement of Additional Information
without violation of applicable statutes and regulations. Future changes in
either federal or state statutes and regulations relating to the permissible
activities of banks or bank holding companies and the subsidiaries or affiliates
of those entities, as well as further judicial or administrative decisions or
interpretations of present and future statutes and regulations, could prevent or
restrict Banc One Investment Advisors from continuing to perform such services
for the Trust. Depending upon the nature of any changes in the services which
could be provided by Banc One Investment Advisors, the Board of Trustees of the
Trust would review the Trust's relationship with Banc One Investment Advisors
and consider taking all action necessary in the circumstances.
Should future legislative, judicial, or administrative action prohibit or
restrict the proposed activities of 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
100
<PAGE> 101
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 Sub-Advisor with respect to
the Funds each serves based on their best judgment and in a manner deemed fair
and reasonable to Shareholders. The primary consideration is prompt execution of
orders in an effective manner at the most favorable price. Subject to this
consideration, dealers who provide supplemental investment research to Banc One
Investment Advisors or the Sub-Advisor may receive orders for transactions by
the Trust, even if such dealers charge commissions in excess of the lowest rates
available, provided such commissions are reasonable in light of the value of
brokerage and research services received. Such research services may include,
but are not be limited to, analysis and reports concerning economic factors and
trends, industries, specific securities, and portfolio strategies. Information
so received is in addition to and not in lieu of services required to be
performed by Banc One Investment Advisors or the 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.
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.
101
<PAGE> 102
In the fiscal years ended June 30, 1999, 1998, and 1997, each of the Funds of
the Trust (except for the Funds identified below as having fiscal years
previously ending December 31st) that paid brokerage commissions and the amounts
paid for each year were as follows:
<TABLE>
<CAPTION>
BROKERAGE COMMISSIONS
FISCAL YEAR ENDED JUNE 30,
--------------------------
FUND 1999 1998 1997
- ---- ---- ---- ----
<S> <C> <C> <C>
Equity Income $ 604,450.70 $ 331,556 $ 395,450
Mid Cap Value $ 71,045.93 $1,541,217 $1,570,859
Mid Cap Growth $ 765,709.34 $2,455,346 $3,199,337
Equity Index $2,669,088.50 $ 72,702 $ 162,178
Large Cap Value $ 336,443.05 $ 722,191 $1,378,450
Balanced $1,864,689.68 $ 154,837 $ 194,187
International Equity Index $ 69,164.97 $ 514,660 $ 349,010
Large Cap Growth $4,726,208.53 $2,935,851 $1,285,883
Small Cap Growth $ 88,795.96 $ 180,460 $ 194,127
Diversified Equity $ 297,245.14 $ 763,394 $1,005,409
Small Cap Value $ 30,414.70 NA* NA*
Diversified Mid Cap $ 74,794.39 NA* NA*
Diversified International $ 10,432.31 NA* NA*
Market Expansion Index $ 1,959.36 NA* NA*
</TABLE>
* Prior to the consolidation in March, 1999, the Fund had a fiscal year
ending December 31st.
<TABLE>
<CAPTION>
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 International $288,664 $225,448 $358,776
Market Expansion Index $ 5,850 NA* NA*
</TABLE>
* As December 31, 1997 and 1998, the Fund had not commenced operations.
As of June 30, 1999, certain Funds owned securities of their regular broker
dealers (or parents) as shown below:
<TABLE>
<CAPTION>
FUND NAME OF BROKER-DEALER VALUE OF SECURITIES OWNED
- ---- --------------------- -------------------------
(Amounts in Thousands)
<S> <C> <C>
PRIME MONEY MARKET
BEAR STERNS CO., INC. $ 53,000
CREDIT SUISSE FIRST BOSTON, GEURNSSEY $ 39,935
LEHMAN BROTHERS $ 269,741
TOTAL $ 362,676
US TREASURY SECURITIES
DONALDSON, LUFKIN & JENRETTE $ 351,000
MORGAN STANLEY & CO., INC. $ 350,000
SMITH BARNEY $ 355,000
BARCLAYS DE ZOETTE WEDD $ 350,000
DEUTSCHE MORGAN GRENFELL $ 200,000
GOLDMAN SACHS $ 380,000
J.P. MORGAN SECURITIES, INC. $ 350,000
LEHMAN BROTHERS $ 345,000
SOCIETE GENERALE $1,450,000
TOTAL $4,131,000
EQUITY INCOME
BEAR STERNS CO., INC. $ 1,938
MERRILL LYNCH $ 5,814
SMITH BARNEY $ 743
J.P. MORGAN SECURITIES, INC. $ 12,096
LEHMAN BROTHERS $ 5,965
GOLDMAN SACHS $ 4,846
TOTAL $ 31,402
INCOME BOND
MERRILL LYNCH $ 60,597
MORGAN STANLEY & CO., INC. $ 6,389
BEAR STERNS CO., INC. $ 19,175
PAINE WEBER $ 28,727
J.P. MORGAN SECURITIES, INC. $ 13,994
TOTAL $ 128,882
MID CAP VALUE
BEAR STERNS CO., INC. $ 1,813
MERRILL LYNCH $ 5,438
SMITH BARNEY $ 695
GOLDMAN SACHS $ 4,532
LEHMAN BROTHERS $ 5,665
J.P. MORGAN SECURITIES, INC. $ 2,115
TOTAL $ 20,258
MID CAP GROWTH
BEAR STERNS CO., INC. $ 8,645
MERRILL LYNCH $ 25,934
SMITH BARNEY $ 3,314
J.P. MORGAN SECURITIES, INC. $ 10,086
LEHMAN BROTHERS $ 27,014
GOLDMAN SACHS $ 23,868
TOTAL $ 98,861
SHORT-TERM BOND
MORGAN STANLEY & CO., INC. $ 1,034
MERRILL LYNCH $ 27,012
BEAR STERNS CO., INC. $ 6,752
SMITH BARNEY $ 3,376
J.P. MORGAN SECURITIES, INC. $ 6,752
GOLDMAN SACHS $ 10,129
PAINE WEBER $ 13,861
LEHMAN BROTHERS $ 6,120
TOTAL $ 75,036
EQUITY INDEX
BEAR STERNS CO., INC. $ 6,425
MERRILL LYNCH $ 22,344
SMITH BARNEY $ 1,852
LEHMAN BROTHERS $ 27,051
J.P. MORGAN SECURITIES, INC. $ 12,546
GOLDMAN SACHS $ 12,077
TOTAL $ 82,295
LARGE CAP VALUE
BEAR STERNS CO., INC. $ 8,304
MERRILL LYNCH $ 2,825
SMITH BARNEY $ 361
GOLDMAN SACHS $ 11,176
MORGAN STANLEY & CO., INC. $ 12,813
J.P. MORGAN SECURITIES, INC. $ 1,099
LEHMAN BROTHERS $ 2,942
TOTAL $ 39,520
INTERNATIONAL EQUITY INDEX
LEHMAN BROTHERS $ 123,686
TOTAL $ 123,686
GOVERNMENT MONEY MARKET
DONALDSON, LUFKIN & JENERETTE $ 94,000
BARCLAYS DE ZOETTE WEDD $ 119,000
GOLDMAN SACHS $ 605,938
J.P. MORGAN SECURITIES, INC. $ 750,000
LEHMAN BROTHERS $ 149,000
WESTDEUTSCHE LANDESBANK $ 50,000
TOTAL $1,767,938
BALANCED FUND
BEAR, STERNS $ 1,774
MERRILL LYNCH $ 5,323
SMITH BARNEY $ 680
J.P. MORGAN SECURITIES, INC. $ 2,070
GOLDMAN SACHS $ 4,764
LEHMAN BROTHERS $ 4,066
TOTAL $ 18,677
GOVERNMENT BOND
BEAR, STERNS $ 26,162
LEHMAN BROTHERS $ 11,540
TOTAL $ 37,704
ULTRA SHORT-TERM BOND
MERRILL LYNCH $ 6,624
SMITH BARNEY $ 3,980
MORGAN STANLEY & CO., INC. $ 569
TOTAL $ 11,173
INTERMEDIATE BOND FUND
MERRILL LYNCH $ 56,778
BEAR, STERNS $ 13,720
SMITH BARNEY $ 6,860
GOLDMAN SACHS $ 20,580
LEHMAN BROTHERS $ 12,434
J.P. MORGAN SECURITIES, INC. $ 13,720
PAINE WEBER $ 27,439
TOTAL $ 151,531
LARGE CAP GROWTH FUND
MERRILL LYNCH $ 11,546
BEAR, STERNS $ 3,849
SMITH BARNEY $ 1,475
GOLDMAN SACHS $ 9,622
LEHMAN BROTHERS $ 12,027
TOTAL $ 38,519
SMALL CAP GROWTH
MERRILL LYNCH $ 1,349
BEAR, STERNS $ 465
SMITH BARNEY $ 178
J.P. MORGAN SECURITIES, INC. $ 542
LEHMAN BROTHERS $ 1,065
GOLDMAN SACHS $ 1,162
TOTAL $ 4,806
DIVERSIFIED EQUITY INCOME
MERRILL LYNCH $ 3,734
BEAR, STERNS $ 11,201
SMITH BARNEY $ 1,431
MORGAN STANLEY & CO., INC. $ 27,214
J.P. MORGAN SECURITIES, INC. $ 4,356
GOLDMAN SACHS $ 9,334
LEHMAN BROTHERS $ 8,555
TOTAL $ 65,825
INSTITUTIONAL PRIME
GOLDMAN SACHS $ 1,949
TOTAL $ 1,949
TREASURY & AGENCY
BEAR STERNS $ 23,838
LEHMAN BROTHERS $ 10,513
TOTAL $ 34,351
HIGH YIELD BOND
MERRILL LYNCH $ 1,612
BEAR, STERNS $ 404
SMITH BARNEY $ 202
LEHMAN BROTHERS $ 366
J.P. MORGAN SECURITIES, INC. $ 404
PAINE WEBER $ 807
TOTAL $ 3,795
U.S. GOVERNMENT CASH MGMT MM
DONALDSON, LUFKIN & JENERETTE $ 406,000
BARCLAYS DE ZOETTE WEDD $ 81,000
GOLDMAN SACHS $ 81,000
LEHMAN BROTHERS $ 81,000
WESTDEUTSCHE LANDESBANK $ 81,000
TOTAL $ 730,000
SMALL CAP VALUE FUND
MERRILL LYNCH $ 346
BEAR, STERNS $ 115
SMITH BARNEY $ 44
LEHMAN BROTHERS $ 361
J.P. MORGAN SECURITIES, INC. $ 134
GOLDMAN SACHS $ 228
TOTAL $ 1,288
DIVERSIFIED MID CAP FUND
BEAR STERNS $ 1,818
MERRILL LYNCH $ 5,454
SMITH BARNEY $ 697
J.P. MORGAN SECURITIES, INC. $ 2,121
GOLDMAN SACHS $ 4,545
LEHMAN BROTHERS $ 4,166
TOTAL $ 18,801
MARKET EXPANSION
JEFFRIES, INC. $ 15
BEAR STERNS $ 77
MERRILL LYNCH $ 230
SMITH BARNEY $ 29
TOTAL $ 351
BOND FUND
MERRILL LYNCH $ 68,051
MORGAN STANLEY & CO., INC. $ 937
BEAR STERNS $ 7,565
SMITH BARNEY $ 7,565
TOTAL $ 84,118
</TABLE>
Investment decisions for each Fund of the Trust are made independently from
those for the other Funds or any other investment company or account managed by
Banc One Investment Advisors or the applicable Sub-Advisor. Any such other
investment company or account may also invest in the same securities as the
Trust. When a purchase or sale of the same security is made at substantially the
same time on behalf of a given Fund and another Fund, investment company or
account (or, in the case of the International Equity Index Fund, another
account), the transaction will be averaged as to price, and available
investments allocated as to amount, in a manner which Banc One Investment
Advisors or the applicable 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.
102
<PAGE> 103
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.
103
<PAGE> 104
The Trust paid fees for administrative services to The One Group Services
Company as Administrator for the fiscal years ended June 30, 1999, 1998, and
1997 as follows:
<TABLE>
<CAPTION>
ONE GROUP MUTUAL FUNDS ADMINISTRATION FEES -- NET
-------------------------------------------------
FISCAL YEAR ENDED
JUNE 30, 1999
THE ONE GROUP BANC ONE BISYS
SERVICES COMPANY INVESTMENT ADVISORS** FUND SERVICES***
--------------------------- ---------------------------- ---------------------------
FUND NET(000's) WAIVED(000's) NET(000's) WAIVED(000's) NET(000's) WAIVED(000's)
- ---- ----------- ------------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
U.S. Treasury Securities Money Market $5,816 $ -- $3,412 $ -- $ 7 $ --
Prime Money Market $4,477 $ 361 $3,007 $ -- $ 23 $ --
Municipal Money Market $ 836 $ 142 $ 578 $ -- $ 5 $ --
Ohio Municipal Money Market $ 33 $ 83 $ 69 $ -- $ -- $ --
Equity Income $ 890 $ 207 $ 644 $ -- $ 3 $ --
Mid Cap Value $ 894 $ -- $ 525 $ -- $ 3 $ --
Mid Cap Growth $1,195 $ -- $ 701 $ -- $ -- $ --
Equity Index $ 822 $1,026 $1,085 $ -- $ 7 $ --
Large Cap Value $ 919 $ -- $ 539 $ -- $ -- $ --
Balanced $ 432 $ 23 $ 267 $ -- $ -- $ --
International Equity Index $ 652 $ -- $ 382 $ -- $ -- $ --
Large Cap Growth $2,732 $ -- $1,605 $ -- $ 7 $ --
Short-Term Bond $ 708 $ -- $ 415 $ -- $ 2 $ --
Intermediate Tax-Free Bond $ 680 $ 27 $ 415 $ -- $ 3 $ --
Municipal Income $ 944 $ -- $ 554 $ -- $ -- $ --
Ohio Municipal Bond $ 227 $ -- $ 133 $ -- $ -- $ --
Government Bond $ 738 $ 342 $ 633 $ -- $ -- $ --
Ultra Short-Term Bond $ -- $ 254 $ 5 $ 144 $ -- $ --
Treasury Only Money Market $ -- $ -- $ 424 $ -- $ -- $ --
Government Money Market $ -- $ -- $1,739 $ -- $ -- $ --
Tax-Exempt Money Market $ N/A $ N/A N/A $ N/A $ -- $ --
Arizona Municipal Bond $ 208 $ 43 $ 147 $ -- $ -- $ --
Kentucky Municipal Bond $ 131 $ 18 $ 87 $ -- $ -- $ --
W. Virginia Municipal Bond $ 91 $ 25 $ 68 $ -- $ -- $ --
Louisiana Municipal Bond $ 156 $ 44 $ 117 $ -- $ -- $ --
Diversified Equity $1,258 $ -- $ 740 $ -- $ 10 $ --
Small Cap Growth $ 101 $ 36 $ 80 $ -- $ -- $ --
High Yield Bond $ 32 $ -- $ 46 $ -- $ 1 $ --
Investor Growth $ 12 $ 265 $ -- $ -- $ -- $ --
Investor Growth & Income $ 93 $ 276 $ -- $ -- $ 2 $ --
Investor Conservative Growth $ -- $ 136 $ -- $ -- $ -- $ --
Investor Balanced $ 125 $ 182 $ -- $ -- $ 1 $ --
Treasury & Agency $ 20 $ 187 $ 121 $ -- $ -- $ --
Small Cap Value $ 58# $ 8# $ 130 $ -- $ 7 $ --
Diversified Mid Cap $ 279# $ --# $ 565 $ -- $ 31 $ --
Diversified International $ 143# $ 18# $ 279 $ -- $ 16 $ --
Market Expansion Index $ 2# $ 4# $ 12 $ -- $ 1 $ --
Bond $ 351# $ 43# $ 663 $ -- $ 39 $ --
Income Bond $ 264# $ --# $ 353 $ -- $ 10 $ --
Intermediate Bond $ 232# $ --# $ 464 $ -- $ 17 $ --
Short-Term Municipal Bond $ 25# $ 4# $ 59 $ -- $ 3 $ --
Tax-Free Bond $ 171# $ 25# $ 421 $ -- $ 23 $ --
Michigan Municipal Bond $ 66# $ 8# $ 157 $ -- $ 8 $ --
Michigan Municipal Money Market $ 49## $ 6# $ 90 $ -- $ 5 $ --
Cash Management Money Market $ 424## $ 72## $1,238 $ -- $ 43 $ --
Treasury Cash Management Money Market $ 88## $ 14## $ 198 $ -- $ 6 $ --
Treasury Prime Cash Management Money Market $ 102## $ 17## $ 270 $ -- $ 9 $ --
U.S. Government Securities Cash Management
Money Market $ 251## $ 43## $ 748 $ -- $ 11 $ --
Municipal Cash Management Money Market $ 81## $ 25## $ 298 $ -- $ 11 $ --
Institutional Prime Money Market $ -- $ -- $ -- $ -- $ -- $ --
</TABLE>
* As of June 30, 1999, 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.
*** For the period from January 1, 1999 until consolidation with the
Pegasus Funds, pursuant to the Co-Administration Agreement between the
Predecessor Funds, First Chicago NBD Investment Management Company, and
BISYS Fund Services LP.
# For the period from March 22, 1999 to June 30, 1999.
## For the period from March 29, 1999 to June 30, 1999.
104
<PAGE> 105
ONE GROUP MUTUAL FUNDS ADMINISTRATION FEES--NET
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
JUNE 30, 1998
THE ONE GROUP BANC ONE
SERVICE COMPANY 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*
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
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 Conservative Growth $ 0 $ 46,223 $ 0 $ 0
Investor Balanced $ 0 $ 129,257 $ 0 $ 0
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.
105
<PAGE> 106
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
JUNE 30, 1997
THE ONE GROUP BANC ONE
SERVICE COMPANY INVESTMENT ADVISORS**
--------------- ---------------------
FUND NET WAIVED NET WAIVED
- ---- --- ------ --- ------
<S> <C> <C> <C> <C>
U.S. Treasury Securities $4,041,160 $ 52,457 $ 0 $ 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 $ 329,84 $ 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
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
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 Conservative Growth $ 0 $ 6,866 $ 0 $ 0
Investor Balanced $ 0 $ 31,220 $ 0 $ 0
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.
106
<PAGE> 107
Prior to the consolidation 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*
<TABLE>
<CAPTION>
FISCAL YEAR ENDED DECEMBER 31, 1998
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:
107
<PAGE> 108
PREDECESSOR FUNDS -- ADMINISTRATION FEES*
FISCAL YEAR ENDED DECEMBER 31, 1997
FUND FCNIMCO
- ---- -------
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
* 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.
108
<PAGE> 109
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.
Unless sooner terminated, the Administration Agreement between the
Trust and The One Group Services Company will continue in effect through
November 30, 2000. 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.
109
<PAGE> 110
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, 3435 Stelzer Road, Columbus, Ohio 43219, a
wholly owned subsidiary of the BISYS Group, 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, 2000 and will continue from year to year if approved at least
annually (i) by the Trust's Board of Trustees or by the vote of a majority of
the outstanding Shares of the Funds (see "ADDITIONAL INFORMATION--
Miscellaneous," in this Statement of Additional Information) that are parties to
the Distribution Agreement, and (ii) by the vote of a majority of the Trustees
of the Trust who are not parties to the Distribution Agreement or interested
persons of any such party, cast in person at a meeting called for the purpose of
voting on such approval. The agreement may be terminated in the event of its
assignment, as defined in the 1940 Act. The One Group Services Company is a
broker-dealer registered with the Securities and Exchange Commission, and is a
member of the National Association of Securities Dealers, Inc.
DISTRIBUTION PLAN
The operation and fees with respect to Class A Shares, Class B Shares, Class C
Shares, and Service Class Shares of the Trust payable under the Trust's
Distribution and Shareholder Services Plans, to which Class A Shares, Class B
Shares, Class C Shares, and Service Class Shares of each Fund of the Trust are
subject, are described in each such Fund's Prospectuses and in the Multiple
Class Plan.
The Distribution and Shareholder Services Plan with respect to Class A Shares
(the "Distribution Plan") was initially approved on July 28, 1989 by the Trust's
Board of Trustees, including a majority of the Trustees who are not interested
persons of the Trust (as defined in the 1940 Act) and who have no direct or
indirect financial interest in the Distribution Plan (the "INDEPENDENT
TRUSTEES"). The Distribution Plan originally applied to the single class of
Shares of each Fund of the Trust that existed prior to the offering of the
Funds' Shares as five separate classes. An amendment to the Distribution Plan
was approved by the Independent Trustees on October 21, 1991, and became
effective on February 7, 1992. Such amendment limited fees under the
Distribution Plan only to the Class A Shares of each Fund. The Distribution Plan
was amended again on February 11, 1993 in order to make Retirement Class Shares
(now the Service Class Shares) subject to distribution fees. The Distribution
Plan was further amended on February 29, 1996, to eliminate certain "defensive"
provisions of the Distribution Plan. A Distribution and Shareholder Services
Plan (the "CDSC PLAN") for Class B and Class C Shares was initially approved on
August 12, 1993 by the Independent Trustees. The CDSC 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.
110
<PAGE> 111
During the fiscal year ending June 30, 1999, 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 (000's) CLASS B (000's) CLASS C(000's) CLASS (000's)
- ---- ----------- --------------- --------------- -------------- -------------
<S> <C> <C> <C> <C> <C>
U.S. Treasury Securities
Money Market One Group Ser. $3,964 $ 7 $ 2 0
Prime Money Market One Group Ser. $3,137 70 0 0
Municipal Money Market One Group Ser. $ 541 $ 0 $ 0 0
Ohio Municipal Money Market One Group Ser. $ 101 $ 0 $ 0 0
Equity Income One Group Ser. $ 301 $1,759 $ 8 0
Mid Cap Value One Group Ser. $ 155 $ 379 $ --(a) 0
Mid Cap Growth One Group Ser. $ 292 $1,086 $ 55 0
Equity Index One Group Ser. $ 936 $4,135 $231 0
Large Cap Value One Group Ser. $ 49 $ 187 $ --(a) 0
Balanced One Group Ser. $ 159 $1,640 $ 0 0
International Equity Index One Group Ser. $ 78 $ 146 $ 7 0
Large Cap Growth One Group Ser. $ 712 $4,013 $ 28 0
Short-Term Bond One Group Ser. $ 46 $ 39 $ 0 0
Intermediate Tax-Free Bond One Group Ser. $ 53 $ 67 $ 0 0
Municipal Income One Group Ser. $ 370 $ 699 $ 54 0
Ohio Municipal Bond One Group Ser. $ 55 $ 345 $ 0 0
Government Bond One Group Ser. $ 96 $ 356 $ 1 0
Ultra Short-Term Bond One Group Ser. $ 58 $ 42 $ 0 0
Treasury Only Money Market One Group Ser. $ 0 $ 0 $ 0 0
Government Money Market One Group Ser. $ 0 $ 0 $ 0 0
Institutional Prime Money Market One Group Ser. $ 0 $ 0 $ 0 0
Kentucky Municipal Bond One Group Ser. $ 22 $ 98 $ 0 0
Tax-Exempt Money Market* One Group Ser. N/A N/A N/A N/A
Arizona Municipal Bond One Group Ser. $ 4 $ 3 $ 0 0
W. Virginia Municipal Bond One Group Ser. $ 11 $ 52 $ 0 0
Louisiana Municipal Bond One Group Ser. $ 196 $ 80 $ 0 0
Diversified Equity One Group Ser. $ 390 $ 357 $ 35 0
Small Cap Growth One Group Ser. $ 46 $ 88 $ 1 0
High Yield Bond One Group Ser. $ 6 $ 5 $ --(a) 0
Investor Growth One Group Ser. $ 175 $1,076 $116 0
Investor Growth & Income One Group Ser. $ 257 $1,395 $ 98 0
Investor Conservative Growth One Group Ser. $ 50 $ 767 $ 55 0
Investor Balanced One Group Ser. $ 211 $1,342 $100 0
Treasury & Agency One Group Ser. $ 170 $ 382 $ 0 0
Small Cap Value** One Group Ser. $ 34 $ 16 $ --(a) 0
Diversified Mid Cap** One Group Ser. $ 306 $ 31 $ --(a) 0
Diversified International** One Group Ser. $ 48 $ 12 $ --(a) 0
Market Expansion Index** One Group Ser. $ --(a) $ 1 $ --(a) 0
Bond** One Group Ser. $ 256 $ 48 $ --(a) 0
Income Bond** One Group Ser. $ 30 $ 44 $ 0 0
Intermediate Bond** One Group Ser. $ 126 $ 89 $ 34 0
Short-Term Municipal Bond** One Group Ser. $ 1 $ --(a) $ 0 0
Tax-Free Bond** One Group Ser. $ 50 $ 9 $ 0 0
Michigan Municipal Bond** One Group Ser. $ 27 $ 16 $ 0 0
Michigan Municipal Money Market** One Group Ser. $ 87 $ 0 $ 0 0
Cash Management Money Market*** One Group Ser. $ 905 $ 0 $ 0 0
Treasury Cash Management Money Market*** One Group Ser. $ 215 $ 0 $ 0 0
Treasury Prime Cash Management Money Market*** One Group Ser. $ 312 $ 0 $ 0 0
U.S. Government Securities Cash Management
Money Market*** One Group Ser. $ 462 $ 0 $ 0 0
Municipal Cash Management Money Market*** One Group Ser. $ 45 $ 0 $ 0 0
</TABLE>
* These Funds had not commenced operations as of June 30, 1999.
** For the period from March 22, 1999 to June 30, 1999.
*** For the period from March 29, 1999 to June 30, 1999.
(a) Amount is less than a $1000.
111
<PAGE> 112
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 CDSC 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.
112
<PAGE> 113
For the period beginning January 1, 1999 until the date the Predecessor
Funds consolidated with One Group Mutual Funds in March, the distribution fees
paid by the Predecessor Funds were as follows:
<TABLE>
<CAPTION>
SHAREHOLDER SHAREHOLDER
SERVICES SERVICES 12b-1
FEES FEES FEES
FUND CLASS A CLASS B CLASS S
- ---- ------- ------- -------
<S> <C> <C> <C>
Income Bond Fund $ 8,617.14 $ 1,387.44 $ 0.00
Intermediate Bond Fund $ 46,665.19 $ 1,694.32 $ 0.00
Small Cap Value Fund $ 16,353.05 $ 7,330.92 $ 0.00
Diversified Mid Cap Fund $143,494.78 $13,711.96 $ 0.00
Diversified International Fund $ 0.00 $ 5,145.44 $ 0.00
Market Expansion Index Fund $ 16.32 $ 16.12 $ 0.00
Bond Fund $125,258.84 $20,101.96 $ 0.00
Short-Term Municipal Bond Fund $ 327.67 $ 262.56 $ 0.00
Tax-Free Bond Fund $ 23,900.13 $ 4,584.36 $ 0.00
Michigan Municipal Bond $ 12,320.17 $ 4,994.12 $ 0.00
Michigan Municipal Money
Market Fund $ 34,935.94 $ 0.00 $ 0.00
Cash Management Money Market
Fund $ 0.00 $ 0.00 $804,125.88
Treasury Cash Management Money
Market Fund $ 0.00 $ 0.00 $189,087.24
Treasury Prime Cash Management
Money Market Fund $ 0.00 $ 0.00 $226,794.11
U.S. Government Securities Cash
Management Money Market Fund $ 0.00 $ 0.00 $299,977.52
Municipal Cash Management
Money Market Fund $ 0.00 $ 0.00 $ 33,703.38
</TABLE>
During the fiscal year ending December 31, 1998, the distribution fees
paid by the Predecessor Funds were as follows:
<TABLE>
<CAPTION>
SHAREHOLDER SHAREHOLDER SERVICE
SERVICES SERVICES 12b-1 PLAN FEES
FEES FEES FEES SERVICE
FUND CLASS A CLASS B CLASS C 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>
113
<PAGE> 114
CASH COMPENSATION TO SHAREHOLDER SERVICING AGENTS
The One Group Services Company compensates Shareholder Servicing Agents
who sell shares of the Funds. Compensation comes from sales charges, 12b-1 fees
and payments by The One Group Services Company from its own resources.
Occasionally, The One Group Services Company, at its own expense, also will
provide cash incentives which will be paid to select Shareholder Servicing
Agents.
The One Group Services Company pays additional compensation to Shareholder
Servicing Agents for sales of over $1 million dollars of Class A shares.
Shareholder Servicing Agents receive 1.00% of the purchase price of Class A
shares for sales of $1 million to $5 million, 0.50% for sales of over $5 to $10
million, and 0.25% on amounts over $10 million.
CUSTODIAN, TRANSFER AGENT, AND DIVIDEND DISBURSING AGENT
Cash and securities owned by the Funds of the Trust are held by State Street
Bank and Trust Company, P.O. Box 8528, Boston, Massachusetts 02266-8528, ("STATE
STREET") as Custodian. State Street serves the respective Funds as Custodian
pursuant to a Custodian Agreement with the Trust (the "CUSTODIAN AGREEMENT").
Under the Custodian Agreement, State Street:
(i) maintains a separate account or accounts in the name of each
Fund;
(ii) makes receipts and disbursements of money on behalf of each
Fund;
(iii) collects and receives all income and other payments and
distributions on account of the Funds' portfolio securities;
(iv) responds to correspondence from security brokers and others
relating to its duties; and
(v) makes periodic reports to the Trust's Board of Trustees
concerning the Trust's operations. State Street may, at its
own expense, open and maintain a sub-custody account or
accounts on behalf of the Trust, provided that State Street
shall remain liable for the performance of all of its duties
under the Custodian Agreement.
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.
114
<PAGE> 115
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.
THE SUBCUSTODIAN
Bank One Trust Company, N.A. (the "Subcustodian") serves as Subcustodian in
connection with the Trust's securities lending activities for domestic
securities, pursuant to a Subcustodian Agreement between the Trust, State Street
and the Subcustodian and a Securities Lending Agreement between the Trust, Banc
One Investment Advisors, and the Subcustodian. The Subcustodian serves as
Subcustodian in connection with the Trust's securities lending activities for
international securities, pursuant to a Subcustodian Agreement between the
Trust, State Street and the Subcustodian and a Securities Lending Agreement
between the Trust, Banc One Investment Advisors, and the Subcustodian. The
Subcustodian is an indirect subsidiary of Bank One Corporation and an affiliate
of Banc One Investment Advisors. The Subcustodian is entitled to a fee from the
Trust under the agreements, which is calculated on an annual basis and accrued
daily, equal to:
Domestic Fee
o .05% of the value of collateral received from the borrower for
each securities loan of U.S. Government and Agency Securities;
and
o .10% of the value of collateral received from the borrower for
each loan of equities and corporate bonds.
International Fee
o .15% of the value received from the borrower for each loan of
foreign securities.
EXPERTS
The financial statements for the fiscal year ended June 30, 1999 have been
audited by PricewaterhouseCoopers LLP, 100 East Broad Street, Columbus, Ohio
43215, 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 Fund of the Kentucky Municipal Bond
Fund, the Trademark Kentucky Municipal Bond Fund, for the period from February
1, 1994 to January 19, 1995 were audited by the predecessor auditors for such
Funds.
115
<PAGE> 116
The financial statements for the Predecessor Funds for the period ended December
31, 1998, were audited by the predecessor auditors for such Funds.
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.
116
<PAGE> 117
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 Technology Fund;
16. The Real Estate Fund;
17. The Income Bond Fund;
18. The Short-Term Bond Fund;
19. The Intermediate Bond Fund;
20. The Government Bond Fund;
21. The Ultra Short-Term Bond Fund;
22. The High Yield Bond Fund;
23. The Investor Growth Fund;
24. The Investor Growth & Income Fund;
25. The Investor Conservative Growth Fund;
26. The Investor Balanced Fund;
27. The Municipal Income Fund;
28. The Intermediate Tax-Free Bond Fund;
29. The Ohio Municipal Bond Fund;
30. The West Virginia Municipal Bond Fund;
31. The Kentucky Municipal Bond Fund;
32. The Louisiana Municipal Bond Fund;
33. The Arizona Municipal Bond Fund;
34. The Treasury Only Money Market Fund;
35. The Government Money Market Fund;
36. The Tax-Exempt Money Market Fund;
37. The Institutional Prime Money Market Fund;
38. The Treasury & Agency Fund;
39. The Small Cap Value Fund;
40. The Diversified Mid Cap Fund;
41. The Diversified International Fund;
42. The Market Expansion Index Fund;
43. The Bond Fund;
44. The Short-Term Municipal Bond Fund;
45. The Tax-Free Bond Fund;
117
<PAGE> 118
46. The Michigan Municipal Bond Fund;
47. The Michigan Municipal Money Market Fund;
48. The Cash Management Money Market Fund;
49. The Treasury Cash Management Money Market Fund;
50. The Treasury Prime Cash Management Money Market Fund;
51. The U.S. Government Securities Cash Management Money Market Fund;
52. The Municipal Cash Management Money Market Fund;
53. The U.S. Government Securities Money Market Fund;
54. The Treasury Prime Money Market Fund
Generally, the Funds of the Trust (other than the Institutional Money Market
Funds, the Money Market Funds and the Cash Management Funds) offer shares in
four separate classes: Class I Shares, Class A Shares, Class B and Class C
Shares. The Institutional Money Market Funds (except for the Cash Management
Funds) may offer Class S Shares. Certain of the Money Market Funds offer Service
Class Shares. The classes of shares currently offered by the Funds can be
found on under the topic "The Trust" at the beginning of this Statement of
Additional Information. In addition, please read the relevant Prospectuses for
the 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.
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, Service Class Shares and Class S
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.
118
<PAGE> 119
The Declaration of Trust states further that no Trustee, officer, or agent of
the Trust shall be personally liable in connection with the administration or
preservation of the assets of the Trust or the conduct of the Trust's business;
nor shall any Trustee, officer, or agent be personally liable to any person for
any action or failure to act except for his own bad faith, willful misfeasance,
gross negligence, or reckless disregard of his duties. The Declaration of Trust
also provides that all persons having any claim against the Trustees or the
Trust shall look solely to the assets of the Trust for payment.
PERFORMANCE
From time to time, the Funds may advertise yield, total return and/or
distribution rate. These figures will be based on historical earnings and are
not intended to indicate future performance. The yield of a Fund refers to the
annualized income generated by an investment in the Fund over a specified 30-day
period. The yield is calculated by assuming that the income generated by the
investment during that period is generated over a one-year period and is shown
as a percentage of the investment.
Total return is the change in value of an investment in a Fund over a given
period, assuming reinvestment of any dividends and capital gains. A cumulative
total return reflects an actual rate of return over a stated period of time. An
average annual total return is a hypothetical rate of return that, if achieved
annually, would have produced the same cumulative total return if performance
had been constant over the entire period. Average annual total returns smooth
out variations in performance; they are not the same as actual year-by-year
results.
The distribution rate is computed by dividing the total amount of the dividends
per share paid out during the past period by the maximum offering price or
month-end net asset value depending on the class of a Fund. This figure is then
"annualized" (multiplied by 365 days and divided by the applicable number of
days in the period).
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 One Group Mutual
Funds. Copies of the Annual Report may be obtained without charge by calling
1-800-480-4111.
CALCULATION OF PERFORMANCE DATA
The yield for each Money Market Funds, and the Institutional Money Market Funds
was computed with respect to each class of Shares by determining the percentage
net change, excluding capital changes, in the value of an investment in one
Share of the particular class of the Fund over the base period, and multiplying
the net change by 365/7 (or approximately 52 weeks). The effective yield of each
class of each Fund represents a compounding of the yield by adding 1 to the
number representing the percentage change in value of the investment during the
base period, raising that sum to a power equal to 365/7, and subtracting 1 from
the result. No performance data is available with respect to the Tax-Exempt
Money Market Fund, the U.S. Government Securities Money Market Fund, and the
Treasury Prime Money Market Fund because those Funds had not commenced
operations as of June 30, 1999.
119
<PAGE> 120
MONEY MARKET FUNDS
<TABLE>
<CAPTION>
INCEPTION 7-DAY YIELD
CLASS I SHARES DATE 6/30/99
- -------------- ---- -------
<S> <C> <C>
U.S. Treasury Securities Money Market.....................................09/09/85 4.31%
Prime Money Market........................................................08/01/85 4.60%
Municipal Money Market....................................................06/04/87 3.27%
Ohio Municipal Money Market(1)............................................06/09/93 3.20%
Michigan Municipal Money Market...........................................01/31/91 3.09%
Treasury Only Money Market................................................04/16/93 4.46%
Government Money Market...................................................06/14/93 4.85%
Cash Management Money Market..............................................07/30/92 4.72%
U.S Government Securities Cash Management Money Market....................06/02/92 4.64%
Treasury Cash Management Money Market.....................................09/12/97 4.47%
Treasury Prime Cash Management Money Market...............................03/22/95 4.27%
Municipal Cash Management Money Market(1).................................08/18/97 3.48%
Institutional Prime Money Market..........................................04/19/99 4.97%
<CAPTION>
INCEPTION 7-DAY YIELD
CLASS A SHARES DATE 6/30/99
- -------------- ---- -------
<S> <C> <C>
U.S. Treasury Securities Money Market.....................................02/18/92 4.06%
Prime Money Market........................................................02/18/92 4.35%
Municipal Money Market....................................................02/18/92 3.02%
Ohio Municipal Money Market(1)............................................01/26/93 2.95%
Michigan Municipal Money Market(1)........................................01/31/91 2.84%
Cash Management Money Market..............................................01/17/95 4.47%
U.S Government Securities Cash Management Money Market....................01/17/95 4.39%
Treasury Cash Management Money Market.....................................09/12/97 4.22%
Treasury Prime Cash Management Money Market...............................03/22/95 4.02%
Municipal Cash Management Money Market(1).................................08/18/97 3.23%
<CAPTION> INCEPTION 7-DAY YIELD
CLASS B SHARES DATE 6/30/99
- -------------- ---- -------
<S> <C> <C>
U.S. Treasury Securities Money Market.....................................11/01/96 3.31%
Prime Money Market........................................................11/01/96 3.60%
<CAPTION> INCEPTION 7-DAY YIELD
CLASS C SHARES DATE 6/30/99
- -------------- ---- -------
<S> <C> <C>
U.S. Treasury Securities Money Market.....................................02/18/98 3.31%
</TABLE>
(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, the Treasury Prime Money Market
Fund, and the U.S. Government Securities Money Market Fund because they had not
commenced operations as of June 30, 1999. 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.
120
<PAGE> 121
TAX-EQUIVALENT YIELD
<TABLE>
<CAPTION>
7 DAY
YIELD
CLASS I SHARES 06/30/99 28% TAX 39.6% TAX
- -------------- -------- ------- ---------
<S> <C> <C> <C>
Municipal Money Market ..................................... 3.27% 4.54% 5.41%
Ohio Municipal Money Market................................. 3.20% 4.44% 5.30%
Michigan Municipal Money Market*............................ 3.09% 4.29% 5.12%
Municipal Cash Management Money Market*..................... 3.48% 4.83% 5.76%
<CAPTION> 7 DAY
CLASS A SHARES YIELD 28% TAX 39.6% TAX
- -------------- ----- ------- ---------
Municipal Money Market...................................... 3.02% 4.19% 5.00%
Ohio Municipal Money Market................................. 2.95% 4.10% 4.88%
Michigan Municipal Money Market*............................ 2.84% 3.94% 4.70%
Municipal Cash Management Money Market*..................... 3.23% 4.49% 5.35%
</TABLE>
* Prior to the consolidation with the Fund, the Predecessor Fund 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%.
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
121
<PAGE> 122
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, 1999 (calculated as described
above) is as follows:
122
<PAGE> 123
CLASS I SHARES
FIXED INCOME FUNDS
AVERAGE ANNUAL TOTAL RETURN AS OF 6/30/99
<TABLE>
<CAPTION>
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 4.67% 6.00% 6.21% 6.76% 5.66%
Intermediate Tax-Free(2) 09/04/90 1.71% 5.70% 5.84% 6.34% 4.45%
Ohio Municipal Bond(2) 07/02/91 1.84% 5.37% 5.57% 6.20% 4.35%
Municipal Income(2) 02/09/93 3.06% 6.19% 6.11% 5.47% 4.97%
Government Bond 02/08/93 1.94% 6.89% 7.27% 5.76% 6.00%
Ultra Short-Term Bond 02/02/93 4.66% 5.93% 5.71% 5.10% 5.41%
Kentucky Municipal Bond(2) 03/12/93 2.05% 5.27% 5.77% 4.96% 4.18%
Louisiana Municipal Bond(2) 12/29/89 1.92% 5.09% 5.46% 6.29% 4.24%
West Virginia Municipal Bond(1),(2) 12/31/83 1.71% 5.44% 5.31% 6.09% 7.01% 4.29%
Arizona Municipal Bond(2) 11/30/79 1.94% 5.24% 5.34% 6.24% 7.06% 4.32%
Treasury & Agency(1) 04/30/88 3.54% 6.12% 6.71% 6.87% 7.04% 5.99%
Income Bond(4) 03/05/93 1.94% 6.51% 7.15% 5.90% 6.14%
Intermediate Bond(5) 12/31/83 3.97% 7.15% 7.57% 7.60% 8.52% 6.37%
Bond(5) 12/31/83 3.25% 7.77% 8.44% 8.38% 9.59% 7.06%
Short-Term Municipal Bond(5) 05/04/98 3.21% 3.85% 3.80%
Tax-Free Bond(6) 03/01/88 1.72% 6.03% 6.89% 7.58% 7.86% 4.49%
Michigan Municipal Bond(2) 02/01/93 1.75% 6.08% 6.46% 5.84% 4.52%
</TABLE>
EQUITY FUNDS
AVERAGE ANNUAL TOTAL RETURN AS OF 6/30/99
<TABLE>
<CAPTION>
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 3.82% 17.09% 17.47% 12.46% 13.07%
Equity Income 07/02/87 11.29% 21.52% 22.02% 15.55% 13.76%
Equity Index 07/02/91 22.50% 28.76% 27.50% % 20.00%
Large Cap Value 03/01/91 17.26% 21.88% 20.29% % 14.99%
Mid Cap Growth 03/02/89 28.39% 27.37% 25.26% 19.04% 19.29%
International Equity Index(3) 10/28/92 11.27% 11.80% 10.12% % 12.61%
Balanced 04/05/93 12.74% 18.27% 17.12% % 13.56% 2.65%
Large Cap Growth 02/28/92 28.78% 32.52% 27.18% % 21.06%
Small Cap Growth 07/01/91 -0.72% 11.65% 13.57% % 14.71%
Diversified Equity 12/29/89 20.72% 28.20% 24.33% % 18.26%
Small Cap Value(4)(5) 06/30/72 -13.26% 11.70% 14.38% 13.71% 9.76%
Diversified Mid Cap(5) 12/31/83 5.47% 17.84% 17.14% 15.20% 14.69%
Diversified International(3)(5) 04/30/86 11.33% 10.60% 9.52% 7.44% 9.68%
Market Expansion Index(5) 07/31/98 14.90%
FUNDS OF FUNDS
AVERAGE ANNUAL TOTAL RETURN AS OF 6/30/99
<CAPTION> 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 7.01% 10.11% NA
Investor Balanced 12/10/96 11.16% 14.44% NA
Investor Growth & Inc. 12/10/96 14.11% 17.89% NA
Investor Growth 12/10/96 16.84% 21.43% NA
</TABLE>
123
<PAGE> 124
CLASS A SHARES
FIXED INCOME FUNDS
AVERAGE ANNUAL TOTAL RETURN AS OF 6/30/99
<TABLE>
<CAPTION>
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 4.41% 5.73% 5.94% 5.66% 5.23%
With Sales Charge 1.32% 4.67% 5.29% 5.22%
Intermediate Tax-Free(2) 02/18/92 1.45% 5.41% 5.59% 5.44% 4.01%
With Sales Charge -3.07% 3.81% 4.63% 4.78%
Ohio Municipal Bond(2) 02/18/92 1.59% 5.10% 5.31% 5.65% 3.86%
With Sales Charge -2.96% 3.49% 4.34% 4.98%
Municipal Income(2) 02/23/93 2.80% 5.94% 5.87% 5.21% 4.46%
With Sales Charge -1.85% 4.31% 4.89% 4.46%
Government Bond 03/05/93 1.69% 6.62% 7.02% 5.26% 5.48%
With Sales Charge -2.92% 5.00% 6.04% 4.50%
Ultra Short-Term Bond 03/10/93 4.40% 5.71% 5.48% 4.88% 4.99%
With Sales Charge 1.22% 4.65% 4.85% 4.37%
Kentucky Municipal Bond(2) 01/20/95 1.79% 5.01% 5.48% 4.74% 3.73%
With Sales Charge -2.78% 3.43% 4.51% 3.98%
Louisiana Municipal Bond(2) 12/29/89 1.67% 4.83% 5.35% 6.23% 3.82%
With Sales Charge -2.87% 3.23% 4.38% 5.72%
West Virginia Municipal Bond(1,2) 12/31/83 1.37% 5.24% 5.09% 5.85% 6.77% 3.82%
With Sales Charge -3.21% 3.65% 4.13% 5.36% 6.45%
Arizona Municipal Bond(1,2) 11/30/79 1.69% 4.48% 4.80% 5.83% 6.71% 3.91%
With Sales Charge -2.84% 2.90% 3.84% 5.35% 6.47%
Treasury & Agency(1) 04/30/88 3.30% 6.06% 6.54% 6.67% 6.83% 5.55%
With Sales Charge 0.22% 4.98% 5.89% 6.33% 6.54%
Bond(5) 12/31/83 2.99% 7.50% 8.28% 8.30% 9.54% 6.49%
With Sales Charge -1.62% 5.87% 7.28% 7.80% 9.22%
Income Bond(4) 03/05/93 1.72% 6.28% 6.87% 5.71% 5.65%
With Sales Charge -2.84% 4.65% 5.89% 4.95%
Intermediate Bond(5) 12/31/83 3.72% 6.85% 7.38% 7.48% 8.44% 5.79%
With Sales Charge -0.91% 5.23% 6.39% 6.99% 8.12%
Short-Term Municipal Bond(5) 05/04/98 3.06% 3.50% 3.45%
With Sales Charge -0.02% 0.81%
Tax-Free Bond(6) 03/01/88 1.46% 5.76% 6.59% 7.29% 7.58% 4.02%
With Sales Charge -3.14% 4.14% 5.62% 6.80% 7.14%
Michigan Municipal Bond(2) 02/01/93 1.58% 5.85% 6.32% 5.73% 3.97%
With Sales Charge -3.03% 4.24% 5.3%5 4.97%
High Yield Bond 11/13/98 3.53% 8.66%
With Sales Charge -1.12%
</TABLE>
124
<PAGE> 125
EQUITY FUNDS
AVERAGE ANNUAL TOTAL RETURN AS OF 6/30/99
<TABLE>
<CAPTION>
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 3.70% 16.82% 17.13% 14.07%
With Sales Charge -1.76% 14.73% 15.88% 13.23%
Equity Income 02/18/92 10.94% 21.14% 21.70% 16.53%
With Sales Charge 5.12% 18.98% 20.39% 15.68%
Equity Index 02/18/92 22.22% 28.41% 27.15% 19.82%
With Sales Charge 15.82% 26.13% 25.80% 18.94%
Large Cap Value 02/18/92 17.39% 21.75% 20.00% 14.45%
With Sales Charge 11.22% 19.59% 18.71% 13.62%
Mid Cap Growth 02/18/92 27.87% 27.06% 24.97% 17.43%
With Sales Charge 21.15% 24.80% 23.63% 16.57%
International Equity Index(3) 04/23/93 11.21% 11.61% 9.93% 10.37%
With Sales Charge 5.35% 9.62% 8.75% 9.41%
Balanced 04/02/93 12.45% 17.94% 16.80% 13.25% 2.28%
With Sales Charge 6.51% 15.83% 15.56% 12.28%
Large Cap Growth 02/22/94 28.43% 32.11% 26.77% 24.57%
With Sales Charge 21.70% 29.75% 25.42% 23.33%
Small Cap Growth 07/01/91 -0.53% 11.66% 13.48% 14.66%
With Sales Charge -5.78% 9.65% 12.27% 13.90%
Diversified Equity 12/29/89 20.36% 27.83% 24.09% 18.14%
With Sales Charge 14.02% 25.54% 22.76% 17.47%
Small Cap Value(4)(5) 06/30/72 -13.44% 11.24% 13.19% 13.19% 9.19%
With Sales Charge -17.96% 9.25% 12.70% 12.58% 8.96%
Diversified Mid Cap(5) 12/31/83 5.21% 17.54% 16.96% 15.11% 14.63%
With Sales Charge -0.32% 15.44% 15.71% 14.49% 14.23%
Diversified International 04/30/86 11.06% 10.29% 9.32% 7.35% 9.61%
With Sales Charge 5.19% 8.33% 8.14% 6.77% 9.16%
Market Expansion Index 07/31/98 14.66%
With Sales Charge 8.69%
</TABLE>
125
<PAGE> 126
FUNDS OF FUNDS
AVERAGE ANNUAL TOTAL RETURN AS OF 6/30/99
<TABLE>
<CAPTION>
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 6.77% 9.66%
With Sales Charge 1.18% 7.38%
Investor Balanced 12/10/96 10.70% 14.07%
With Sales Charge 4.85% 11.70%
Investor Growth & Income 12/10/96 13.62% 17.89%
With Sales Charge 7.68% 15.45%
Investor Growth 12/10/96 16.40% 20.83%
With Sales Charge 10.27% 18.33%
</TABLE>
CLASS B SHARES
FIXED INCOME
<TABLE>
<CAPTION>
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 4.02% 5.24% 5.43% 4.62% 4.88%
With Sales Charge 1.05% 4.64% 5.43% 4.62%
Intermediate Tax-Free(2) 01/14/94 0.80% 4.77% 4.93% 3.64% 3.52%
With Sales Charge -3.99% 3.85% 4.60% 3.49%
Ohio Muni Bond(2) 01/14/94 1.01% 4.46% 4.67% 3.49% 3.38%
With Sales Charge -3.84% 3.54% 4.33% 3.34%
Muni Income(2) 01/14/94 2.14% 5.22% 5.18% 4.35% 4.04%
With Sales Charge -2.77% 4.31% 4.85% 4.20%
Government Bond 01/14/94 1.14% 5.98% 6.39% 4.85% 5.07%
With Sales Charge -3.68% 5.08% 6.07% 4.70%
Ultra Short Term 01/14/94 3.99% 5.17% 4.98% 4.54% 4.66%
With Sales Charge 1.02% 4.57% 4.98% 4.54%
Kentucky Muni(2) 03/16/95 1.05% 4.33% 4.85% 3.28%
With Sales Charge -3.81% 3.40% 4.45%
Louisiana Muni(2) 09/16/94 1.11% 4.20% 4.62% 3.32%
With Sales Charge -3.75% 3.27% 4.26%
W.V. Muni Bond(1,2) 12/31/83 0.80% 4.62% 4.45% 5.19% 6.09% 3.34%
With Sales Charge -4.04% 3.69% 4.11% 5.19% 6.09%
Arizona Muni(1,2) 11/30/79 1.04% 2.78% 3.48% 4.83% 5.86% 3.32%
With Sales Charge -3.76% 1.83% 3.13% 4.83% 5.86%
Treas. & Agency(1) 04/30/88 2.89% 5.49% 6.01% 6.13% 6.29% 5.21%
With Sales Charge -0.03% 4.89% 6.01% 6.13% 6.29%
Income Bond(4) 03/05/93 0.86% 5.48% 6.23% 5.21% 5.23%
With Sales Charge -3.89% 4.59% 5.91% 5.21%
Intermediate Bond(5) 12/31/83 2.92% 6.21% 6.99% 7.29% 8.32% 5.52%
With Sales Charge -1.97% 5.31% 6.69% 7.29% 8.32%
Bond(5) 08/26/96 2.23% 6.87% 7.92% 8.11% 9.42% 6.07%
With Sales Charge -2.61% 5.99% 7.62% 8.11% 9.42%
Short-Term Municipal Bond 05/04/98 2.38% 2.92% 2.78%
With Sales Charge -0.61% 0.33%
Tax-Free Bond Fund(6) 04/04/95 0.76% 4.98% 5.15% 3.52%
With Sales Charge -4.08% 4.07% 4.74%
Michigan Municipal Bond 02/01/93 0.80% 5.06% 5.84% 5.37% 3.49%
With Sales Charge -4.05% 4.14% 5.52% 5.37%
High Yield Bond 11/13/98 3.30% 8.39%
With Sales Charge -1.64%
EQUITY FUNDS
Mid Cap Value 01/14/94 2.76% 15.88% 16.29% 13.76%
With Sales Charge -1.63% 15.13% 16.07% 13.65%
Equity Income 01/14/94 10.18% 20.29% 20.83% 18.18%
With Sales Charge 5.18% 19.59% 20.64% 18.10%
Equity Index 01/14/94 21.32% 27.49% 26.21% 22.48%
With Sales Charge 16.32% 26.87% 26.05% 22.40%
Large Cap Value 01/14/94 16.30% 20.71% 19.21% 16.71%
With Sales Charge 11.30% 20.02% 19.02% 16.62%
Mid Cap Growth 01/14/94 26.96% 26.04% 23.99% 19.67%
With Sales Charge 21.96% 25.40% 23.82% 19.59%
International Equity Index 01/14/94 10.15% 10.65% 8.97% 8.82%
With Sales Charge 5.15% 9.83% 8.69% 8.70%
Balanced 01/14/94 11.59% 17.07% 15.97% 13.26% 1.67%
With Sales Charge 6.59% 16.34% 15.75% 13.15%
Large Cap Growth 01/14/94 27.54% 31.18% 25.96% 23.40%
With Sales Charge 22.54% 30.60% 25.80% 23.33%
Small Cap Growth 09/12/94 -1.69% 10.65% 11.97%
With Sales Charge -6.05% 9.86% 11.70%
Diversified Equity 09/09/94 19.52% 26.84% 22.49%
With Sales Charge 14.52% 26.21% 22.29%
Small Cap Value(4,5) 06/30/72 -13.99% 10.62% 13.29% 12.88% 9.08%
With Sales Charge -18.17% 9.80% 13.04% 12.88% 9.08%
Diversified Mid Cap(5) 12/31/83 4.37% 17.04% 16.66% 14.98% 14.54%
With Sales Charge -0.63% 16.30% 16.44% 14.98% 14.54%
Diversified International(5) 04/30/86 10.33% 9.31% 8.78% 7.08% 9.40%
With Sales Charge 5.33% 8.47% 8.49% 7.08% 9.40%
Market Expansion 07/31/98 15.59%
With Sales Charge 10.59%
FUND OF FUNDS
Investor Conservative Growth 12/10/96 6.10% 9.00%
With Sales Charge 1.10% 7.96%
Investor Balanced 12/10/96 10.01% 13.42%
With Sales Charge 5.01% 12.45%
Investor Growth & Inc. 12/10/96 12.93% 17.02%
With Sales Charge 7.93% 16.09%
Investor Growth 12/10/96 15.57% 20.57%
With Sales Charge 10.57% 19.69%
</TABLE>
CLASS C SHARES
FIXED INCOME FUNDS
AVERAGE ANNUAL TOTAL RETURN AS OF 6/30/99
<TABLE>
<CAPTION>
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 2.24% 6.35% 3.93%
With Sales Charge 1.26% 6.35%
Intermediate Bond 03/22/99 -0.42% 5.53%
With Sales Charge -1.40%
Government Bond 03/22/99 -1.35% 4.83%
With Sales Charge -2.32%
High Yield Bond 03/22/99 -0.56% 8.33%
With Sales Charge -1.53%
</TABLE>
126
<PAGE> 127
EQUITY FUNDS
AVERAGE ANNUAL TOTAL RETURN AS OF 6/30/99
<TABLE>
<CAPTION>
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 10.24% 16.39%
With Sales Charge 9.24% 16.39%
Equity Index 11/04/97 21.52% 26.33%
With Sales Charge 20.52% 26.33%
Mid Cap Growth 11/04/97 27.57% 25.63%
With Sales Charge 26.57% 25.63%
International Equity
Index(3) 11/04/97 10.78% 16.60%
With Sales Charge 9.78% 16.60%
Large Cap Growth 11/04/97 27.52% 34.29%
With Sales Charge 26.52% 34.29%
Small Cap Growth 11/04/97 -1.75% 0.77%
With Sales Charge -2.62% 0.77%
Diversified Equity 11/04/97 19.57% 24.97%
With Sales Charge 18.57% 24.97%
</TABLE>
FUNDS OF FUNDS
AVERAGE ANNUAL TOTAL RETURN AS OF 6/30/99
<TABLE>
<CAPTION>
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 6.00% 8.72%
With Sales Charge 5.00% 8.72%
Investor Balanced 07/01/97 10.04% 12.84%
With Sales Charge 9.04% 12.84%
Investor Growth & Income 07/01/97 12.94% 16.00%
With Sales Charge 11.94% 16.00%
Investor Growth 07/01/97 15.65% 19.01%
With Sales Charge 14.65% 19.01%
</TABLE>
(1) The quoted performance of these funds ("MUTUAL FUNDS") advised by Banc
One Investment Advisors Corporation includes performance of certain
collective trust fund ("COMMINGLED") accounts for periods dating back
to 12/31/83 for the West Virginia Municipal Bond Fund, 11/30/79 for the
Arizona Municipal Bond, Fund and 4/30/88 for the Treasury & Agency
Fund. Prior to the Mutual Funds' commencement of operations on 1/20/97,
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
127
<PAGE> 128
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), the Bond Fund (6/1/91), and Short-Term Municipal Bond Fund
(5/04/98) 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 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
128
<PAGE> 129
investors. The performance comparisons may include the average return
of various bank instruments, some of which may carry certain return
guarantees offered by leading banks and thrifts, as monitored by the
BANK RATE MONITOR, and those of corporate and government security price
indices of various durations prepared by Shearson Lehman Brothers,
Solomon Brothers, Inc. and the IBC/Donoghue organization. These indices
are not managed for any investment goals.
The Money Market and Institutional Money Market Funds may also use
comparative performance information computed by and available from
certain industry and general market research and publications, such as
Lipper Analytical Services, Inc.
Statistical and performance information compiled and maintained by CDA
Technologies, Inc. and Interactive Data Corporation may also be used.
CDA is a performance evaluation service that maintains a statistical
data base of performance, as reported by a diverse universe of
independently-managed mutual funds. Interactive Data Corporation is a
statistical access service that maintains a data base of various
industry indicators, such as historical and current price/earning
information and individual stock and fixed income price and return
information.
Current interest rate and yield information on government debt
obligations of various durations, as reported weekly by the Federal
Reserve (Bulletin H. 15), may also be used. Also current rate
information on municipal debt obligations of various durations, as
reported daily by the Bond Buyer, may also be used. The BOND BUYER is
published daily and is an industry-accepted source for current
municipal bond market information.
Comparative information on the Consumer Price Index may also be
included. This Index, as prepared by the U.S. Bureau of Labor
Statistics, is the most commonly used measure of inflation. It
indicates the cost fluctuations of a representative group of consumer
goods. It does not represent a return on investment.
THE EQUITY, BOND AND MUNICIPAL BOND FUNDS AND THE FUNDS OF FUNDS may
quote actual total return performance from time to time in advertising
and other types of literature compared to results reported by the Dow
Jones Industrial Average.
The Dow Jones Industrial Average is an industry-accepted unmanaged
index of generally conservative securities used for measuring general
market performance. The performance reported will reflect the
reinvestment of all distributions on a quarterly basis and market price
fluctuations. The index does not take into account any brokerage
commissions or other fees. Comparative information on the Consumer
Price Index may also be included.
The Equity Funds, the Bond Funds, the Municipal Bond Funds and the
Funds of Funds may also promote the yield and/or total return
performance and use comparative performance information computed by and
available from certain industry and general market research and
publications, such as Lipper Analytical Services, Inc.; they may also
use indices, including those identified in the Prospectuses, 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
129
<PAGE> 130
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.
130
<PAGE> 131
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. As used in the Trust's Prospectuses and in this
Statement of Additional Information, a "vote of a majority of the outstanding
Shares" of the Trust, a particular Fund, or a particular class of Shares of a
Fund, means the affirmative vote of the lesser of (a) more than 50% of the
outstanding Shares of the Trust, such Fund, or such class of Shares of such
Fund, or (b) 67% or more of the Shares of the Trust, such Fund, or such class of
Shares of such Fund present at a meeting at which the holders of more than 50%
of the outstanding Shares of the Trust, such Fund, or such class of Shares of
such Fund are represented in person or by proxy.
The Trust is registered with the Securities and Exchange Commission as a
management investment company. Such registration does not involve supervision by
the Commission of the management or policies of the Trust.
The Prospectus and this Statement of Additional Information omit certain of the
information contained in the Registration Statement filed with the Securities
and Exchange Commission. Copies of such information may be obtained from the
Commission upon payment of the prescribed fee.
The Prospectus and this Statement of Additional Information are not an offering
of the securities herein described in any State in which such offering may not
lawfully be made. No salesman, dealer, or other person is authorized to give any
information or make any representation other than those contained in the
Prospectus and Statement of Additional Information.
131
<PAGE> 132
As of October 4, 1999, 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:
<TABLE>
<CAPTION>
PERCENT OF
BENEFICIAL
FUND
FUND OWNERSHIP
- ---- ---------
<S> <C>
Large Cap Growth Fund 85.84%
Mid Cap Value Fund 79.50%
Mid Cap Growth Fund 72.20%
Income Bond Fund 86.19%
Intermediate Tax-Free Bond Fund 95.61%
Prime Money Market Fund 49.29%
U.S. Treasury Securities Money Market Fund 18.52%
Municipal Money Market Fund 77.80%
Equity Income Fund 91.96%
Equity Index Fund 85.28%
Large Cap Value Fund 78.45%
Ohio Municipal Bond Fund 95.08%
Short-Term Bond Fund 88.48%
International Equity Index Fund 87.09%
Balanced Fund 70.15%
Ohio Municipal Money Market Fund 58.62%
Municipal Income 97.36%
Kentucky Municipal Bond Fund 94.08%
Government Bond Fund 83.75%
Ultra Short-Term Bond Fund 76.92%
Louisiana Municipal Bond Fund 85.17%
Diversified Equity Fund 76.94%
Small Cap Growth Fund 82.09%
Intermediate Bond Fund 91.15%
Arizona Municipal Bond Fund 95.75%
West Virginia Municipal Bond Fund 99.36%
Investor Growth Fund 53.16%
Investor Growth & Income Fund 45.89%
Investor Balanced Fund 55.45%
Investor Conservative Growth Fund 62.10%
Treasury Only Money Market Fund 15.93%
Government Money Market Fund 16.50%
Treasury & Agency Fund 96.38%
High Yield Bond Fund 54.08%
Bond Fund 78.03%
Cash Management Money Market Fund 60.55%
Diversified Mid Cap Fund 80.65%
Diversified International Fund 89.93%
Institutional Prime Money Market Fund 38.74%
Market Expansion Index Fund 96.89%
Michigan Municipal Bond Fund 99.93%
Michigan Municipal Money Market Fund 70.60%
Small Cap Value Fund 91.71%
Short-Term Municipal Bond Fund 99.53%
Tax-Free Bond Fund 97.95%
Treasury Cash Management Money Market Fund 6.70%
Treasury Prime Cash Management Money Market Fund 2.51%
US Government Securities Cash Management Money Market Fund 1.58%
Municipal Cash Management Money Market Fund 78.02%
</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 Treasury Only Money Market Fund, the U.S. Treasury
Securities Money Market Fund, the Treasury Cash Management Money Market Fund,
the Treasury Prime Cash Management Money Market Fund, and the U.S. Government
Securities Cash Management Money Market Fund) under the Investment Company
Act of 1940.
In addition, as of October 4, 1999, 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:
132
<PAGE> 133
25% SHAREHOLDERS AS OF OCTOBER 4, 1999
<TABLE>
<CAPTION>
NAME AND PERCENTAGE OF TYPE OF
ADDRESS FUND/CLASS OWNERSHIP OWNERSHIP
- ------- ---------- --------- ---------
<S> <C> <C> <C>
Donaldson Lufkin Jenrette Arizona Municipal Bond Fund 30.98% Record
Securities Corporation Inc. Class B
PO Box 2052
Jersey City, NJ 07303-2052
Strafe & Co Arizona Municipal Bond Fund 99.79% Record
BOIA - One Group Operations Class I
1111 Polaris Parkway
PO Box 710211
Columbus, OH 43271-0211
Strafe & Co. Balanced Fund 89.81% Record
BOIA - One Group Operations Class I
1111 Polaris Parkway
PO Box 710211
Columbus OH 43271-0211
Banc One Corporation Balanced Fund 26.46% Beneficial
1111 Polaris Parkway Class I
Columbus, OH 43271
Strafe & Co. Bond Fund 79.07% Record
BOIA - One Group Operations Class I
1111 Polaris Parkway
PO Box 710211
Columbus OH 43271-0211
NBD Bank NA Cash Management Money Market 40.45% Record &
Attn: Mary Ellen Bradley Fund Beneficial
9000 Haggerty Road Class A
Belleville, MI 48111-1632
Bank One Cash Management Money Market 35.58% Record &
Attn: Mary Ellen Bradley Fund Beneficial
9000 Haggerty Road, Suite MI1-8217 Class A
Belleville, MI 48111-1632
Strafe & Co. Cash Management Money Market 76.93% Record
BOIA - One Group Operations Fund
1111 Polaris Parkway Class I
PO Box 710211
Columbus OH 43271-0211
</TABLE>
133
<PAGE> 134
25% SHAREHOLDERS AS OF OCTOBER 4, 1999
<TABLE>
<CAPTION>
NAME AND PERCENTAGE OF TYPE OF
ADDRESS FUND/CLASS OWNERSHIP OWNERSHIP
- ------- ---------- --------- ---------
<S> <C> <C> <C>
Strafe & Co. Diversified Equity Fund 79.50% Record
BOIA - One Group Operations Class I
1111 Polaris Parkway
PO Box 710211
Columbus OH 43271-0211
The One Group Services Co Diversified International 97.11% Record &
3435 Stelzer Road Fund Beneficial
Columbus, OH 43219-6004 Class C
Strafe & Co. Diversified International 90.82% Record
BOIA - One Group Operations Fund
1111 Polaris Parkway Class I
PO Box 710211
Columbus, OH 43271-0211
State Street Bank & Trust Co. Diversified Mid Cap Fund 47.78% Record
Cust for the IRA of Class C
L. Rita Kincaid
561 Westbury Woods Ct.
Westerville, OH 43081-7705
State Street Bank & Trust Co. Diversified Mid Cap Fund 42.53% Record
Cust for the IRA of Class C
L. Rita Kincaid
561 Westbury Woods Ct.
Westerville, OH 43081-7705
State Street Bank & Trust Co. Mid Cap Value Fund 46.10% Record &
Cust for the IRA of Yvonne H. Clarke Class C Beneficial
33 Jordan Rd.
Hastings HDSN, NY 10706-3919
Strafe & Co Mid Cap Value Fund 82.64% Record
BOIA - One Group Operations Class I
1111 Polaris Parkway
PO Box 710211
Columbus, OH 43271-0211
</TABLE>
134
<PAGE> 135
25% SHAREHOLDERS AS OF OCTOBER 4, 1999
<TABLE>
<CAPTION>
NAME AND PERCENTAGE OF TYPE OF
ADDRESS FUND/CLASS OWNERSHIP OWNERSHIP
- ------- ---------- --------- ---------
<S> <C> <C> <C>
Banc One Securities Corp FBO Mid Cap Growth Fund 87.62% Record
The One Investment Solution Class C
733 Greencrest Dr
Westerville, OH 43081-4903
Strafe & Co Mid Cap Growth Fund 80.62% Record
BOIA - One Group Operations Class I
1111 Polaris Parkway
PO Box 710211
Columbus, OH 43271-0211
Strafe & Co Income Bond Fund 88.71% Record
BOIA - One Group Operations Class I
1111 Polaris Parkway
PO Box 710211
Columbus, OH 43271-0211
Strafe & Co. Institutional Prime Money 55.29% Record
BOIA-One Group Operations Market Fund
1111 Polaris Parkway
PO Box 710211
Columbus, OH 43271-0211
Pershing As Agent - Omnibus Account Prime Money Market Fund 37.22% Record
For Exclusive Benefit of Class A
One Group Customer Accounts
1 Pershing Plz
Jersey City, NJ 07399-0001
Strafe & Co Prime Money Market Fund 74.17% Record
BOIA - One Group Operations Class I
1111 Polaris Parkway
PO Box 710211
Columbus OH 43271-0211
</TABLE>
135
<PAGE> 136
25% SHAREHOLDERS AS OF OCTOBER 4, 1999
<TABLE>
<CAPTION>
NAME AND PERCENTAGE OF TYPE OF
ADDRESS FUND/CLASS OWNERSHIP OWNERSHIP
- ------- ---------- --------- ---------
<S> <C> <C> <C>
Pershing As Agent - Omnibus Account Prime Money Market Fund 99.69% Record
For Exclusive Benefit of Service Class
One Group Customer Accounts
1 Pershing Plz
Jersey City, NJ 07399-0001
Pershing As Agent - Omnibus Account US Treasury Securities Money 26.97% Record
For Exclusive Benefit of Market Fund
One Group Customer Accounts Class A
1 Pershing Plz
Jersey City, NJ 07399-0001
BISYS Fund Services Inc US Treasury Securities Money 26.62% Record
Fbo Bank One Texas Sweep Market Fund
Attn: Mike Bryan Class A
3435 Stelzer Road Suite 1000
Columbus OH 43219-6004
Donaldson Lufkin Jenrette US Treasury Securities Money 55.73% Record
Securities Corporation Inc Market Fund
PO Box 2052 Class C
Jersey City, NJ 07303-2052
Strafe & Co (N) US Treasury Securities Money 77.72% Record
BOIA - One Group Operations Market Fund
1111 Polaris Parkway Class I
PO Box 710211
Columbus OH 43271-0211
Pershing As Agent-Omnibus Account US Treasury Securities Money 96.07% Record
For Exclusive Benefit of Market Fund
One Group Customer Accounts Service Class
1 Pershing Plz
Jersey City, NJ 07399-0001
</TABLE>
136
<PAGE> 137
25% SHAREHOLDERS AS OF OCTOBER 4, 1999
<TABLE>
<CAPTION>
NAME AND PERCENTAGE OF TYPE OF
ADDRESS FUND/CLASS OWNERSHIP OWNERSHIP
- ------- ---------- --------- ---------
<S> <C> <C> <C>
Pershing As Agent - Omnibus Account Municipal Money Market Fund 47.05% Record
For Exclusive Benefit of Class A
One Group Customer Accounts
1 Pershing Plz
Jersey City, NJ 07399-0001
BISYS Fund Services Inc Municipal Money Market Fund 25.92% Record
FBO Bank One Corporate Sweep Class A
Attn: Mike Bryan
3435 Stelzer Road Suite 1000
Columbus OH 43219-6004
Strafe & Co Municipal Money Market Fund 96.13% Record
BOIA - One Group Operations Class I
1111 Polaris Parkway
PO Box 710211
Columbus, OH 43271-0211
Pershing As Agent-Omnibus Account Municipal Money Market Fund 92.73% Record
For Exclusive Benefit of Service Class
One Group Customer Accounts
1 Pershing Plz
Jersey City, NJ 07399-0001
Strafe & Co Equity Income Fund 94.13% 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 59.75% Record
The One Investment Solution Class C
733 Greencrest Dr
Westerville OH 43081-4903
</TABLE>
137
<PAGE> 138
25% SHAREHOLDERS AS OF OCTOBER 4, 1999
<TABLE>
<CAPTION>
NAME AND PERCENTAGE OF TYPE OF
ADDRESS FUND/CLASS OWNERSHIP OWNERSHIP
- ------- ---------- --------- ---------
<S> <C> <C> <C>
Strafe & Co. Equity Index Fund 93.61% Record
BOIA - One Group Operations Class I
1111 Polaris Parkway
PO Box 710211
Columbus OH 43271-0211
Strafe & Co Large Cap Growth Fund 89.90% Record
BOIA - One Group Operations Class I
1111 Polaris Parkway
PO Box 710211
Columbus, OH 43271-0211
Kemper Service Company Large Cap Value Fund 37.38% Record
Master Account Class C
FBO Participating Kemflex Plans
Attn: TA Accounting
7th Floor, 811 Main Street
Kansas City, MO 64105-2005
Donaldson Lufkin Jenrette Large Cap Value Fund 34.88% Record
Securities Corporation Inc. Class C
PO Box 2052
Jersey City, NJ 07303-2052
Strafe & Co Large Cap Value Fund 79.66% Record
BOIA - One Group Operations Class I
1111 Polaris Parkway
PO Box 710211
Columbus, OH 43271-0211
Strafe & Co. Ohio Municipal Bond Fund 91.37% Record
BOIA - One Group Operations Class I
1111 Polaris Parkway
PO Box 710211
Columbus OH 43271-0211
</TABLE>
138
<PAGE> 139
25% SHAREHOLDERS AS OF OCTOBER 4, 1999
<TABLE>
<CAPTION>
NAME AND PERCENTAGE OF TYPE OF
ADDRESS FUND/CLASS OWNERSHIP OWNERSHIP
- ------- ---------- --------- ---------
<S> <C> <C> <C>
Banc One Securities Corp Fbo International Equity Index 80.79% Record
The One Investment Solution Fund
733 Greencrest Dr Class C
Westerville OH 43081-4903
Strafe & Co. International Equity Index 88.76% Record
BOIA - One Group Operations Fund
1111 Polaris Parkway Class I
PO Box 710211
Columbus OH 43271-0211
Strafe & Co. Short-Term Bond Fund 90.59% Record
BOIA - One Group Operations Class I
1111 Polaris Parkway
PO Box 710211
Columbus OH 43271-0211
Strafe & Co. Louisiana Municipal Bond Fund 94.74% Record
BOIA - One Group Operations Class I
1111 Polaris Parkway
PO Box 710211
Columbus OH 43271-0211
Strafe & Co. Small Cap Growth Fund 81.34% Record
BOIA - One Group Operations Class I
1111 Polaris Parkway
PO Box 710211
Columbus OH 43271-0211
Donaldson Lufkin Jenrette Small Cap Value Fund 44.63% Record
Securities Corporation Inc Class C
Po Box 2052
Jersey City, NJ 07303-2052
Donaldson Lufkin Jenrette Small Cap Value Fund 31.60% Record
Securities Corporation Inc Class C
Po Box 2052
Jersey City, NJ 07303-2052
Strafe & Co. Small Cap Value Fund 92.80% Record
BOIA - One Group Operations Class I
1111 Polaris Parkway
PO Box 710211
Columbus OH 43271-0211
</TABLE>
139
<PAGE> 140
25% SHAREHOLDERS AS OF OCTOBER 4, 1999
<TABLE>
<CAPTION>
NAME AND PERCENTAGE OF TYPE OF
ADDRESS FUND/CLASS OWNERSHIP OWNERSHIP
- ------- ---------- --------- ---------
<S> <C> <C> <C>
Strafe & Co. Tax-Free Bond Fund 99.56% Record
BOIA - One Group Operations Class I
1111 Polaris Parkway
PO Box 710211
Columbus OH 43271-0211
Strafe & Co. Treasury & Agency Fund 99.84% Record
BOIA - One Group Operations Class I
1111 Polaris Parkway
PO Box 710211
Columbus OH 43271-0211
NBD Bank NA Treasury Cash Management 40.05% Record &
Attn: Mary Ellen Bradley Money Market Fund Beneficial
9000 Haggerty Road Class A
Belleville, MI 48111-1632
Bank One Treasury Cash Management 31.57% Record &
Attn: Mary Ellen Bradley Money Market Fund Beneficial
9000 Haggerty Road Class A
Suite MI1-8217
Belleville, MI 48111-1632
First National Bank of Chicago Treasury Cash Management 70.80% Record
Corporate Trust Administration Money Market Fund
Attn: Cash Sweep Coordinator Class I
1 F&B Plaza, Suite 0126
Chicago, IL 60670
Strafe & Co. Treasury Only Money Market 65.40% Record
BOIA - One Group Operations Fund
1111 Polaris Parkway Institutional
PO Box 710211
Columbus OH 43271-0211
Bank One Treasury Prime Cash 27.46% Record &
Attn: Mary Ellen Bradley Management Money Market Fund Beneficial
9000 Haggerty Rd., Ste MI1-8217 Class A
Belleville, MI 48111-1632
First National Bank of Chicago Treasury Prime Cash 45.61% Record
Corporate Trust Administration Management Money Market Fund
One N. State St., 9th Floor Class I
Mail ST 0126
Chicago, IL 60602-3300
</TABLE>
140
<PAGE> 141
25% SHAREHOLDERS AS OF OCTOBER 4, 1999
<TABLE>
<CAPTION>
NAME AND PERCENTAGE OF TYPE OF
ADDRESS FUND/CLASS OWNERSHIP OWNERSHIP
- ------- ---------- --------- ---------
<S> <C> <C> <C>
Bank One US Government Securities Cash 43.66% Record &
Attn: Mary Ellen Bradley Management Money Market Fund Beneficial
9000 Haggerty Rd., Ste MI1-8217 Class A
Belleville, MI 48111-1632
First National Bank of Chicago US Government Securities Cash 81.74% Record
Corporate Trust Administration Management Money Market Fund
One N State St, 9th Fl Class I
Chicago, IL 60602-3300
Pershing As Agent-Omnibus Account Ohio Municipal Money Market 98.51% Record
For Exclusive Benefit of Fund
One Group Customer Accounts Class A
1 Pershing Plaza
Jersey City, NJ 07399-0001
Strafe & Co. Ohio Municipal Money Market 98.06% Record
BOIA - One Group Operations Fund
1111 Polaris Parkway Class I
PO Box 710211
Columbus OH 43271-0211
Banc One Securities Corp FBO Municipal Income Fund 33.17% Record
The One Investment Solution Class A
733 Greencrest Dr
Westerville OH 43081-4903
Banc One Securities Corp FBO Municipal Income Fund 56.56% Record
The One Investment Solution Class C
733 Greencrest Dr
Westerville OH 43081-4903
Strafe & Co. Municipal Income Fund 98.94% Record
BOIA - One Group Operations Class I
1111 Polaris Parkway
PO Box 710211
Columbus OH 43271-0211
Strafe & Co. Kentucky Municipal Bond Fund 94.57% Record
BOIA - One Group Operations Class I
1111 Polaris Parkway
PO Box 710211
Columbus OH 43271-0211
</TABLE>
141
<PAGE> 142
25% SHAREHOLDERS AS OF OCTOBER 4, 1999
<TABLE>
<CAPTION>
NAME AND PERCENTAGE OF TYPE OF
ADDRESS FUND/CLASS OWNERSHIP OWNERSHIP
- ------- ---------- --------- ---------
<S> <C> <C> <C>
Strafe & Co. West Virginia Municipal Bond 99.13% Record
BOIA - One Group Operations Fund
1111 Polaris Parkway Class I
PO Box 710211
Columbus OH 43271-0211
Donaldson Lufkin Jenrette Government Bond Fund 45.22% Record
Securities Corporation Inc. Class C
P.O. Box 2052
Jersey City, NJ 07303-2052
Strafe & Co. Government Bond Fund 85.31% Record
BOIA - One Group Operations Class I
1111 Polaris Parkway
P.O. Box 710211
Columbus, OH 43271-0211
Strafe & Co. Ultra Short Term Bond Fund 86.02% Record
BOIA - One Group Operations Class I
1111 Polaris Parkway
PO Box 710211
Columbus, OH 43271-0211
Banc One Securities Corp FBO Intermediate Bond Fund 43.67% Record
The One Investment Solution Class A
733 Greencrest Dr
Westerville OH 43081-4903
Banc One Securities Corp FBO Intermediate Bond Fund 81.31% Record
The One Investment Solution Class C
733 Greencrest Dr
Westerville OH 43081-4903
Strafe & Co. Intermediate Bond Fund 93.16% Record
BOIA - One Group Operations Class I
1111 Polaris Parkway
PO Box 710211
Columbus OH 43271-0211
Strafe & Co. Investor Growth Fund Class I 68.82% Record
BOIA - One Group Operations
1111 Polaris Parkway
PO Box 710211
Columbus OH 43271-0211
</TABLE>
142
<PAGE> 143
25% SHAREHOLDERS AS OF OCTOBER 4, 1999
<TABLE>
<CAPTION>
NAME AND PERCENTAGE OF TYPE OF
ADDRESS FUND/CLASS OWNERSHIP OWNERSHIP
- ------- ---------- --------- ---------
<S> <C> <C> <C>
Banc One Sec Svgs Pl - Inv Grwth Investor Growth Fund 25.53% Beneficial
1111 Polaris Parkway Class I
Columbus, OH 43271
Strafe & Co. Investor Growth & Income Fund 59.54% Record
BOIA - One Group Operations Class I
1111 Polaris Parkway
PO Box 710211
Columbus OH 43271-0211
Bank One Trust Co. NA TTEE Investor Growth & Income Fund 29.43% Record
First Chicago NBD Svgs & Invsmt Pln Class I
c/o Putnam Investments
P.O. Box 9740
Providence, RI 02940-9740
Strafe & Co. Investor Balanced Fund 65.86% Record
BOIA - One Group Operations Class I
1111 Polaris Parkway
PO Box 710211
Columbus OH 43271-0211
Strafe & Co. Investor Conservative Growth 86.76% Record
BOIA - One Group Operations Fund
1111 Polaris Parkway Class I
PO Box 710211
Columbus OH 43271-0211
Banc One Sec Svgs Pl - Inv Con Grwth Investor Conservative Growth 25.25% Beneficial
1111 Polaris Parkway Fund
Columbus, OH 43271 Class I
Strafe & Co. Government Money Market Fund 69.82% Record
BOIA - One Group Operations Institutional
1111 Polaris Parkway
PO Box 710211
Columbus OH 43271-0211
Banc One Securities Corp FBO High Yield Bond Fund Class C 62.70% Record &
The One Investment Solution Beneficial
733 Greencrest Dr.
Westerville, OH 43081-4903
</TABLE>
143
<PAGE> 144
25% SHAREHOLDERS AS OF OCTOBER 4, 1999
<TABLE>
<CAPTION>
NAME AND PERCENTAGE OF TYPE OF
ADDRESS FUND/CLASS OWNERSHIP OWNERSHIP
- ------- ---------- --------- ---------
<S> <C> <C> <C>
Donaldson Lufkin Jenrette High Yield Bond Fund Class C 29.78% Record &
PO Box 2052 Beneficial
Jersey City, NJ 07303-2052
Strafe & Co. High Yield Bond Fund 53.34% Record
BOIA - One Group Operations Class I
1111 Polaris Parkway
PO Box 710211
Columbus OH 43271-0211
Donaldson Lufkin Jenrette Market Expansion Index Fund 37.51% Record
Securities Corporation Inc. Class C
PO Box 2052
Jersey City, NJ 07303-2052
Strafe & Co Market Expansion Index Fund 100.00% Record
BOIA-One Group Operations Class I
1111 Polaris Parkway
PO Box 710211
Columbus, OH 43271-0211
Strafe & Co. Michigan Municipal Bond Fund 99.98% Record
BOIA - One Group Operations Class I
1111 Polaris Parkway
PO Box 710211
Columbus OH 43271-0211
Pershing As Agent - Omnibus Account Michigan Municipal Money 30.63% Record
For Exclusive Benefit of Market Fund
One Group Customer Accounts Class A
1 Pershing Plz
Jersey City, NJ 07399-0001
NBD Michigan Michigan Municipal Money 27.67% Record &
Attn: M.E. Bradley Market Fund Beneficial
9000 Haggerty Road Class A
Belleville, MI 48111-1632
Strafe & Co. Michigan Municipal Money 84.01% Record
BOIA - One Group Operations Market Fund
1111 Polaris Parkway Class I
PO Box 710211
Columbus OH 43271-0211
</TABLE>
144
<PAGE> 145
25% SHAREHOLDERS AS OF OCTOBER 4, 1999
<TABLE>
<CAPTION>
NAME AND PERCENTAGE OF TYPE OF
ADDRESS FUND/CLASS OWNERSHIP OWNERSHIP
- ------- ---------- --------- ---------
<S> <C> <C> <C>
NBD Bank Municipal Cash Management 67.60% Record &
9000 Haggerty Road Money Market Fund Beneficial
Belleville, MI 48111-1632 Class A
Strafe & Co. Municipal Cash Management 100.00% Record
BOIA - One Group Operations Money Market Fund
1111 Polaris Parkway Class I
PO Box 710211
Columbus OH 43271-0211
Donaldson Lufkin Jenrette Short-Term Municipal Bond Fund 47.92% Record
Securities Corporation Inc Class A
PO Box 2052
Jersey City, NJ 07303-2052
Strafe & Co. Short-Term Municipal Bond Fund 99.92% Record
BOIA - One Group Operations Class I
1111 Polaris Parkway
PO Box 710211
Columbus OH 43271-0211
</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.
145
<PAGE> 146
THE TABLE BELOW INDICATES RECORD AND BENEFICIAL OWNERS OF OVER 5% OF ANY CLASS
OF SHARES OF ANY FUND OF THE TRUST.
5% SHAREHOLDERS AS OF OCTOBER 4, 1999
<TABLE>
<CAPTION>
NAME AND PERCENTAGE OF TYPE OF
ADDRESS FUND/CLASS OWNERSHIP OWNERSHIP
- ------- ---------- --------- ---------
<S> <C> <C> <C>
Northern Trust Bank of AZ TTEE Arizona Municipal Bond Fund 20.51% Record
For Thomas A Brand & Rev Trust Class A
PO Box 92956
Chicago, IL 60675-2956
Northern Trust Bank of AZ TTEE Arizona Municipal Bond Fund 13.21% Record
Hazel I. Olson a/c# 02-01078 Class A
UA DTD 09/21/1999
PO Box 929586, 801 S. Canal
Chicago, IL 60675-2956
Donaldson Lufkin Jenrette Arizona Municipal Bond Fund 11.98% Record
Securities Corporation Inc. Class A
P.O. Box 2052
Jersey City, NJ 07303-2052
Gust Trust Under Agreement 1/17 Arizona Municipal Bond Fund 10.16% Record
Devens Gust & Mary Elizabeth Gust Class A
Co-Trustees
P.O. Box 25
Mule Creek, NM 88051-0025
Donaldson Lufkin Jenrette Arizona Municipal Bond Fund 8.10% Record
Securities Corporation Inc. Class A
P.O. Box 2052
Jersey City, NJ 07303-2052
Donaldson Lufkin Jenrette Arizona Municipal Bond Fund 6.53% Record
Securities Corporation Inc. Class A
P.O. Box 2052
Jersey City, NJ 07303-2052
J. Carl Riney & Katy Riney JT Ten Arizona Municipal Bond Fund 5.72% Record &
1155 E. Village Circle Drive N. Class A Beneficial
Phoenix, AZ 85022-4812
Donaldson Lufkin Jenrette Arizona Municipal Bond Fund 5.36% Record
Securities Corporation Inc. Class A
P.O. Box 2052
Jersey City, NJ 07303-2052
</TABLE>
146
<PAGE> 147
5% SHAREHOLDERS AS OF OCTOBER 4, 1999
<TABLE>
<CAPTION>
NAME AND PERCENTAGE OF TYPE OF
ADDRESS FUND/CLASS OWNERSHIP OWNERSHIP
- ------- ---------- --------- ---------
<S> <C> <C> <C>
Northern Trust Bank of AZ TTEE Arizona Municipal Bond Fund 20.51% Record
For Thomas A Brand & Rev Trust Class A
PO Box 92956
Chicago, IL 60675-2956
Donaldson Lufkin Jenrette Arizona Municipal Bond Fund 30.98% Record
Securities Corporation Inc. Class B
PO Box 2052
Jersey City, NJ 07303-2052
Donaldson Lufkin Jenrette Arizona Municipal Bond Fund 15.71% Record
Securities Corporation Inc. Class B
PO Box 2052
Jersey City, NJ 07303-2052
Donaldson Lufkin Jenrette Arizona Municipal Bond Fund 10.85% Record
Securities Corporation Inc. Class B
PO Box 2052
Jersey City, NJ 07303-2052
Carolyn S Ward Arizona Municipal Bond Fund 10.67% Record &
James D Ward JT TEN Class B Beneficial
825 W Annandale
Tucson, AZ 85737-6923
Donaldson Lufkin Jenrette Arizona Municipal Bond Fund 10.19% Record
Securities Corporation Inc. Class B
PO Box 2052
Jersey City, NJ 07303-2052
Donaldson Lufkin Jenrette Arizona Municipal Bond Fund 7.06% Record
Securities Corporation Inc. Class B
PO Box 2052
Jersey City, NJ 07303-2052
Donaldson Lufkin Jenrette Arizona Municipal Bond Fund 6.87% Record
Securities Corporation Inc. Class B
PO Box 2052
Jersey City, NJ 07303-2052
</TABLE>
147
<PAGE> 148
5% SHAREHOLDERS AS OF OCTOBER 4, 1999
<TABLE>
<CAPTION>
NAME AND PERCENTAGE OF TYPE OF
ADDRESS FUND/CLASS OWNERSHIP OWNERSHIP
- ------- ---------- --------- ---------
<S> <C> <C> <C>
Strafe & Co Arizona Municipal Bond Fund 99.79% Record
BOIA - One Group Operations Class I
1111 Polaris Parkway
PO Box 710211
Columbus, OH 43271-0211
Invesco Trust Co. TTEE Balanced Fund 22.57% Record
Scott Companies Profit Sharing Plan Class A
PO Box 77405
Atlanta, GA 30357
Strafe & Co. Balanced Fund 89.81% Record
BOIA - One Group Operations Class I
1111 Polaris Parkway
PO Box 710211
Columbus OH 43271-0211
Banc One Corporation Balanced Fund 26.46% Beneficial
1111 Polaris Parkway Class I
Columbus, OH 43271
OFDA Balanced Fund 7.05% Beneficial
1111 Polaris Parkway Class I
Columbus, OH 43271
Strafe & Co. Bond Fund 9.56% Record
BOIA - One Group Operations Class A
1111 Polaris Parkway
PO Box 710211
Columbus OH 43271-0211
Bank One Trust Co NA TTEE Bond Fund 6.63% Record
Market Square P/S Plan Class A
859 Willard Street MS B-3-B
Quincy, MA 02169-7428
</TABLE>
148
<PAGE> 149
5% SHAREHOLDERS AS OF OCTOBER 4, 1999
<TABLE>
<CAPTION>
NAME AND PERCENTAGE OF TYPE OF
ADDRESS FUND/CLASS OWNERSHIP OWNERSHIP
- ------- ---------- --------- ---------
<S> <C> <C> <C>
Putnam Fiduciary Trust Co. TTEE Bond Fund 6.35% Record
Elco Textron Inc. Class A
Attn: K. Barry
859 Willard St. MSE2C
Quincy, MA 02169-7428
Kemper Service Co Bond Fund 22.74% Record
FBO Participating Kemflex Plans Class C
811 Main St
Kansas City, MO 64105-2005
Donaldson, Lufkin Jenrette Bond Fund 10.70% Record
Securities Corporation Inc. Class C
PO Box 2052
Jersey City, NJ 07303-2052
NFSC FEBO #H6A-776467 Bond Fund 10.11% Record
Margaret A Huddleston Class C
1110 21st Street
Portsmouth, OH 45662-2812
Georgia Pickett Haupt Bond Fund 7.69% Record
990 East Dogwood Class C
Littleton, CO 80121-2482
Donaldson, Lufkin Jenrette Bond Fund 7.54% Record
Securities Corporation Inc. Class C
PO Box 2052
Jersey City, NJ 07303-2052
Sonia Charles Bond Fund 6.12% Record &
11523 West Briarwood Drive Class C Beneficial
Lakewood, CO 80226-3711
NFSC FEBO #H6A-778397 Bond Fund 5.56% Record
Lisa Huddleston Class C
1110 21st Street
Portsmouth, OH 45662-2812
</TABLE>
149
<PAGE> 150
5% SHAREHOLDERS AS OF OCTOBER 4, 1999
<TABLE>
<CAPTION>
NAME AND PERCENTAGE OF TYPE OF
ADDRESS FUND/CLASS OWNERSHIP OWNERSHIP
- ------- ---------- --------- ---------
<S> <C> <C> <C>
Strafe & Co. Bond Fund 79.07% Record
BOIA - One Group Operations Class I
1111 Polaris Parkway
PO Box 710211
Columbus OH 43271-0211
Henry Ford Investment Mgmt Bond Fund 6.50% Beneficial
100 E. Broad Street Class I
Columbus OH 43215-3607
NBD Bank NA Cash Management Money Market 40.45% Record &
Attn: Mary Ellen Bradley Fund Beneficial
9000 Haggerty Road Class A
Belleville, MI 48111-1632
Bank One Cash Management Money Market 35.58% Record &
Attn: Mary Ellen Bradley Fund Beneficial
9000 Haggerty Road, Suite MI1-8217 Class A
Belleville, MI 48111-1632
First National Bank of Chicago Cash Management Money Market 12.71% Record &
Attn: Commercial Products Fund Beneficial
9000 Haggerty Road Class A
Belleville, MI 48111-1632
Bank One Cash Management Money Market 10.07% Record &
Attn: Mary Ellen Bradley Fund Beneficial
9000 Haggerty Road, Suite MI1-8217 Class A
Belleville, MI 48111-1632
Strafe & Co. Cash Management Money Market 76.93% Record
BOIA - One Group Operations Fund
1111 Polaris Parkway Class I
PO Box 710211
Columbus OH 43271-0211
</TABLE>
150
<PAGE> 151
5% SHAREHOLDERS AS OF OCTOBER 4, 1999
<TABLE>
<CAPTION>
NAME AND PERCENTAGE OF TYPE OF
ADDRESS FUND/CLASS OWNERSHIP OWNERSHIP
- ------- ---------- --------- ---------
<S> <C> <C> <C>
First National Bank of Chicago Cash Management Money Market 11.08% Record
Corporate Trust Administration Fund
Attn: Cash Sweep Dept Class I
One N. State St., 9th Floor
Mail ST 0126
Chicago, IL 60602-3300
Banc One Securities Corp Fbo Diversified Equity Fund 13.05% Record
The One Investment Solution Class A
733 Greencrest Dr
Westerville OH 43081-4903
Strafe & Co. Diversified Equity Fund 6.07% Record
BOIA - One Group Operations Class A
1111 Polaris Parkway
PO Box 710211
Columbus OH 43271-0211
Strafe & Co. Diversified Equity Fund 79.50% Record
BOIA - One Group Operations Class I
1111 Polaris Parkway
PO Box 710211
Columbus OH 43271-0211
Bank One Trust Co NA TTEE Diversified Equity Fund 6.41% Record
First Chicago NBD Svgs & Invsmt Plan Class I
C/O Putnam Investments
PO Box 9740
Providence, RI 02940-9740
The One Group Investor Growth & Income Fund Diversified Equity Fund 5.13% Record &
c/o Mark S. Redman Class I Beneficial
3435 Stelzer Road
Columbus, OH 43219-6004
</TABLE>
151
<PAGE> 152
5% SHAREHOLDERS AS OF OCTOBER 4, 1999
<TABLE>
<CAPTION>
NAME AND PERCENTAGE OF TYPE OF
ADDRESS FUND/CLASS OWNERSHIP OWNERSHIP
- ------- ---------- --------- ---------
<S> <C> <C> <C>
Loan Collateral Account Diversified International 12.45% Record
Bank One MI Pledge Fund
Attn: K. Kilby Class A
Tricap Group LTD Partnership
382 Cranbrook Ct.
Bloombield, MI 48304-3525
Strafe & Co. Diversified International 7.96% Record
BOIA - One Group Operations Fund
1111 Polaris Parkway Class A
PO Box 710211
Columbus OH 43271-0211
The One Group Services Co Diversified International 97.11% Record &
3435 Stelzer Road Fund Beneficial
Columbus, OH 43219-6004 Class C
Strafe & Co. Diversified International 90.82% Record
BOIA - One Group Operations Fund
1111 Polaris Parkway Class I
PO Box 710211
Columbus, OH 43271-0211
The One Group Investor Growth & Income Fund Diversified International 5.58% Record &
3435 Stelzer Road Fund Beneficial
Columbus, OH 43219-6004 Class I
NBD Bancorp Ret Plan Diversified International 17.32% Beneficial
1111 Polaris Parkway Fund
Columbus, OH 43271 Class I
Bank One Trust Co NA TTEE Diversified Mid Cap Fund 8.96% Record
American Axle & Manufacturing Inc Class A
Personal S/P Hourly Rate Association
900 Tower Dr
Troy, MI 48098-2810
</TABLE>
152
<PAGE> 153
5% SHAREHOLDERS AS OF OCTOBER 4, 1999
<TABLE>
<CAPTION>
NAME AND PERCENTAGE OF TYPE OF
ADDRESS FUND/CLASS OWNERSHIP OWNERSHIP
- ------- ---------- --------- ---------
<S> <C> <C> <C>
Consolidated Natural Gas Diversified Mid Cap 7.72% Record
Attn: Latoya Young Class A
135 Santili Highway
AIM # 026-0027
Everett, MA 02149-1906
State Street Bank & Trust Co. Diversified Mid Cap Fund 47.78% Record
Cust for the IRA of Class C
L. Rita Kincaid
561 Westbury Woods Ct.
Westerville, OH 43081-7705
State Street Bank & Trust Co. Diversified Mid Cap Fund 42.53% Record
Cust for the IRA of Class C
L. Rita Kincaid
561 Westbury Woods Ct.
Westerville, OH 43081-7705
The One Group Services Co Diversified Mid Cap Fund 6.69% Record &
3435 Stelzer Road Class C Beneficial
Columbus OH 43219-6004
NBD Bancorp Ret Plan Diversified Mid Cap Fund 8.27% Beneficial
1111 Polaris Parkway Class I
Columus, OH 43271
Strafe & Co Mid Cap Value Fund 6.13% Record
BOIA - One Group Operations Class A
1111 Polaris Parkway
PO Box 710211
Columbus, OH 43271-0211
State Street Bank & Trust Co. Mid Cap Value Fund 46.10% Record &
Cust for the IRA of Yvonne H. Clarke Class C Beneficial
33 Jordan Rd.
Hastings HDSN, NY 10706-3919
</TABLE>
153
<PAGE> 154
5% SHAREHOLDERS AS OF OCTOBER 4, 1999
<TABLE>
<CAPTION>
NAME AND PERCENTAGE OF TYPE OF
ADDRESS FUND/CLASS OWNERSHIP OWNERSHIP
- ------- ---------- --------- ---------
<S> <C> <C> <C>
Donaldson Lufkin Jenrette Mid Cap Value Fund 23.37% Record &
Securities Corporation Inc Class C Beneficial
P.O. Box 2052
Jersey City, NJ 07303-2052
Donaldson Lufkin Jenrette Mid Cap Value Fund 18.45% Record &
Securities Corporation Inc Class C Beneficial
P.O. Box 2052
Jersey City, NJ 07303-2052
The One Group Services Co Mid Cap Value Fund 10.26% Record &
3435 Stelzer Road Class C Beneficial
Columbus, OH 43219-6004
Strafe & Co Mid Cap Value Fund 82.64% Record
BOIA - One Group Operations Class I
1111 Polaris Parkway
PO Box 710211
Columbus, OH 43271-0211
Banc One Corporation Mid Cap Value Fund 9.99% Beneficial
1111 Polaris Parkway Class I
Columbus, OH 43271
The One Group Investor Mid Cap Value Fund 7.61% Record &
Growth & Income Fund Class I Beneficial
c/o Mark S. Redman
The One Group Services Co.
3435 Stelzer Rd.
Columbus, OH 43219-6004
Emp Ret Plan of NBD Bancorp Mid Cap Value Fund 7.33% Beneficial
1111 Polaris Parkway Class I
Columbus, OH 43271
</TABLE>
154
<PAGE> 155
5% SHAREHOLDERS AS OF OCTOBER 4, 1999
<TABLE>
<CAPTION>
NAME AND PERCENTAGE OF TYPE OF
ADDRESS FUND/CLASS OWNERSHIP OWNERSHIP
- ------- ---------- --------- ---------
<S> <C> <C> <C>
The One Group Investor Growth Fund Mid Cap Value Fund 5.34% Record &
c/o Mark S. Redman Class I Beneficial
The One Group Services Co.
3435 Stelzer Rd.
Columbus, OH 43219-6004
Banc One Securities Corp FBO Mid Cap Growth Fund 22.57% Record
The One Investment Solution Class A
733 Greencrest Dr
Westerville, OH 43081-4903
Banc One Securities Corp FBO Mid Cap Growth Fund 87.62% Record
The One Investment Solution Class C
733 Greencrest Dr
Westerville, OH 43081-4903
Strafe & Co Mid Cap Growth Fund 80.62% Record
BOIA - One Group Operations Class I
1111 Polaris Parkway
PO Box 710211
Columbus, OH 43271-0211
Banc One Corporation Mid Cap Growth Fund 10.86% Beneficial
1111 Polaris Parkway Class I
Columbus, OH 43271
Donaldson Lufkin Jenrette Income Bond Fund 6.88% Record
Securities Corporation Inc. Class A
P.O. Box 2052
Jersey City, NJ 07303-2052
Strafe & Co Income Bond Fund 88.71% Record
BOIA - One Group Operations Class I
1111 Polaris Parkway
PO Box 710211
Columbus, OH 43271-0211
</TABLE>
155
<PAGE> 156
5% SHAREHOLDERS AS OF OCTOBER 4, 1999
<TABLE>
<CAPTION>
NAME AND PERCENTAGE OF TYPE OF
ADDRESS FUND/CLASS OWNERSHIP OWNERSHIP
- ------- ---------- --------- ---------
<S> <C> <C> <C>
Strafe & Co. Institutional Prime Money 55.29% Record
BOIA-One Group Operations Market Fund
1111 Polaris Parkway
PO Box 710211
Columbus, OH 43271-0211
Bank One Texas NA Institutional Prime Money 24.13% Record
1717 Main St. Market Fund
Dallas, TX 75201-4605
Arrow Door Company Institutional Prime Money 6.50% Record
4200 Roger B Chaffee Memorial Blvd. Market Fund
Grand Rapids, MI 49548
Bank One Illinois NA Institutional Prime Money 5.75% Record
Cash Management Dept. Market Fund
Attn: Tony Long
Suite 0256, 6th Floor
525 W. Monroe Street
Chicago, IL 60661-3629
Dominos Pizza Nat Adv Institutional Prime Money 10.55% Beneficial
1111 Polaris Parkway Market Fund
Columbus, OH 43271
Texas Ref Corp Institutional Prime Money 6.95% Beneficial
1111 Polaris Parkway Market Fund
Columbus, OH 43271
HSHS Pension Institutional Prime Money 5.66% Beneficial
1111 Polaris Parkway Market Fund
Columbus, OH 43271
13s Inc. Institutional Prime Money 5.65% Beneficial
1111 Polaris Parkway Market Fund
Columbus, OH 43271
</TABLE>
156
<PAGE> 157
5% SHAREHOLDERS AS OF OCTOBER 4, 1999
<TABLE>
<CAPTION>
NAME AND PERCENTAGE OF TYPE OF
ADDRESS FUND/CLASS OWNERSHIP OWNERSHIP
- ------- ---------- --------- ---------
<S> <C> <C> <C>
Pershing As Agent - Omnibus Account Prime Money Market Fund 37.22% Record
For Exclusive Benefit of Class A
One Group Customer Accounts
1 Pershing Plz
Jersey City, NJ 07399-0001
BISYS Fund Services Inc Prime Money Market Fund 20.63% Record
Fbo Bank One Corporate Sweep Class A
3435 Stelzer Road Suite 1000
Columbus OH 43219-6004
Strafe & Co Prime Money Market Fund 74.17% 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 5.39% Record
Omnibus-Corporate Cash Sweep AC Class I
Attn Cash Management DB3
235 W Schrock Rd
Westerville OH 43081-2874
Pershing As Agent - Omnibus Account Prime Money Market Fund 99.69% Record
For Exclusive Benefit of Service Class
One Group Customer Accounts
1 Pershing Plz
Jersey City, NJ 07399-0001
Pershing As Agent - Omnibus Account US Treasury Securities Money 26.97% Record
For Exclusive Benefit of Market Fund
One Group Customer Accounts Class A
1 Pershing Plz
Jersey City, NJ 07399-0001
</TABLE>
157
<PAGE> 158
5% SHAREHOLDERS AS OF OCTOBER 4, 1999
<TABLE>
<CAPTION>
NAME AND PERCENTAGE OF TYPE OF
ADDRESS FUND/CLASS OWNERSHIP OWNERSHIP
- ------- ---------- --------- ---------
<S> <C> <C> <C>
BISYS Fund Services Inc US Treasury Securities Money 26.62% Record
Fbo Bank One Texas Sweep Market Fund
Attn: Mike Bryan Class A
3435 Stelzer Road Suite 1000
Columbus OH 43219-6004
BISYS Fund Services Inc US Treasury Securities Money 18.03% Record
Fbo Bank One Corporate Sweep Market Fund
Attn: Mike Bryan Class A
3435 Stelzer Road Suite 1000
Columbus OH 43219-6004
BISYS Fund Services Inc US Treasury Securities Money 13.39% Record
Fbo Bank One Securities Market Fund
Attn: Mike Bryan Class A
3435 Stelzer Road Suite 1000
Columbus OH 43219-6004
State Street Bank & Trust Co. US Treasury Securities Money 10.50% Record
Cust for the Rollover IRA of Frederick R. Market Fund
Holliday Class B
7676 Cashel Ct.
Dublin, OH 43017-2646
State Street Bank & Trust Co. US Treasury Securities Money 7.74% Record
Director R/O Louis J. Caswell Market Fund
3825 Deer Rund Road Class B
Lake Charles, LA 70611-7023
Donaldson Lufkin Jenrette US Treasury Securities Money 7.25% Record
PO Box 2052 Market Fund
Jersey City, NJ 07303-2052 Class B
Donaldson Lufkin Jenrette US Treasury Securities Money 5.64% Record
PO Box 2052 Market Fund
Jersey City, NJ 07303-2052 Class B
</TABLE>
158
<PAGE> 159
5% SHAREHOLDERS AS OF OCTOBER 4, 1999
<TABLE>
<CAPTION>
NAME AND PERCENTAGE OF TYPE OF
ADDRESS FUND/CLASS OWNERSHIP OWNERSHIP
- ------- ---------- --------- ---------
<S> <C> <C> <C>
Donaldson Lufkin Jenrette US Treasury Securities Money 5.40% Record
PO Box 2052 Market Fund
Jersey City, NJ 07303-2052 Class B
Donaldson Lufkin Jenrette US Treasury Securities Money 55.73% Record
Securities Corporation Inc Market Fund
PO Box 2052 Class C
Jersey City, NJ 07303-2052
Donaldson Lufkin Jenrette US Treasury Securities Money 14.30% Record
Securities Corporation Inc Market Fund
PO Box 2052 Class C
Jersey City, NJ 07303-2052
Donaldson Lufkin Jenrette US Treasury Securities Money 12.38% Record
Securities Corporation Inc Market Fund
PO Box 2052 Class C
Jersey City, NJ 07303-2052
Strafe & Co (N) US Treasury Securities Money 77.72% Record
BOIA - One Group Operations Market Fund
1111 Polaris Parkway Class I
PO Box 710211
Columbus OH 43271-0211
Bank one Trust Company NA US Treasury Securities Money 10.99% Record
Omnibus-Corporate Cash Sweep AC Market Fund
235 W Schrock Rd Class I
Westerville OH 43081-2874
First National Bank of Chicago US Treasury Securities Money 6.16% Record
Corporate Trust Administration Market Fund
1 F&B Plaza, Ste. 0126 Class I
Chicago, IL 60670
Americredit 1999-c Prefunding US Treasury Securities Money 5.52% Record
1111 Polaris Parkway Market Fund
Columbus, OH 43271 Class I
</TABLE>
159
<PAGE> 160
5% SHAREHOLDERS AS OF OCTOBER 4, 1999
<TABLE>
<CAPTION>
NAME AND PERCENTAGE OF TYPE OF
ADDRESS FUND/CLASS OWNERSHIP OWNERSHIP
- ------- ---------- --------- ---------
<S> <C> <C> <C>
Pershing As Agent-Omnibus Account US Treasury Securities Money 96.07% Record
For Exclusive Benefit of Market Fund Service Class
One Group Customer Accounts
1 Pershing Plz
Jersey City, NJ 07399-0001
Pershing As Agent - Omnibus Account Municipal Money Market Fund 47.05% Record
For Exclusive Benefit of Class A
One Group Customer Accounts
1 Pershing Plz
Jersey City, NJ 07399-0001
BISYS Fund Services Inc Municipal Money Market Fund 25.92% Record
FBO Bank One Corporate Sweep Class A
Attn: Mike Bryan
3435 Stelzer Road Suite 1000
Columbus OH 43219-6004
Strafe & Co Municipal Money Market Fund 96.13% Record
BOIA - One Group Operations Class I
1111 Polaris Parkway
PO Box 710211
Columbus, OH 43271-0211
Pershing As Agent-Omnibus Account Municipal Money Market Fund 92.73% Record
For Exclusive Benefit of Service Class
One Group Customer Accounts
1 Pershing Plz
Jersey City, NJ 07399-0001
The One Group Services Company Municipal Money Market Fund 7.06% Record
c/o fund Administration Service Class
3435 Stelzer Road
Columbus, OH 43219-6004
Donaldson Lufkin Jenrette Equity Income Fund 13.59% Record
Securities Corporation Inc Class C
PO Box 2052
Jersey City, NJ 07303-2052
</TABLE>
160
<PAGE> 161
5% SHAREHOLDERS AS OF OCTOBER 4, 1999
<TABLE>
<CAPTION>
NAME AND PERCENTAGE OF TYPE OF
ADDRESS FUND/CLASS OWNERSHIP OWNERSHIP
- ------- ---------- --------- ---------
<S> <C> <C> <C>
UMB Bank Cust Fbo Equity Income Fund 7.26% Record
Bruce W Young IRA Class C
718 Sycamore Ave SPC 200
Vista CA 92083-7952
Donaldson Lufkin Jenrette Equity Income Fund 5.84% Record
Securities Corporation Inc Class C
PO Box 2052
Jersey City, NJ 07303-2052
NFSC FEBO # ALT-007870 Equity Income Fund 5.75% Record
Ragsdale Investments Limited Par Class C
5644 N Homestead Ln.
Scottsdale, AZ 85253-5013
First Union Securities, Inc. Equity Income Fund 5.60% Record
A/C 2266-9058 Class C
Clifford J Cutler PSP & Trust
111 East Kilbourn Ave.
Milwaukee, WI 53202-6611
Lillian M Tepas TTEE Equity Income Fund 5.43% Record
Under Declaration of TST Class C
510 Princeton Greens Ct.
Sun City Ctr, FL 33573-7024
Strafe & Co Equity Income Fund 94.13% 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 21.90% Record
The One Investment Solution Class A
733 Greencrest Dr
Westerville OH 43081-4903
</TABLE>
161
<PAGE> 162
5% SHAREHOLDERS AS OF OCTOBER 4, 1999
<TABLE>
<CAPTION>
NAME AND PERCENTAGE OF TYPE OF
ADDRESS FUND/CLASS OWNERSHIP OWNERSHIP
- ------- ---------- --------- ---------
<S> <C> <C> <C>
Banc One Securities Corp Fbo Equity Index Fund 59.75% Record
The One Investment Solution Class C
733 Greencrest Dr
Westerville OH 43081-4903
Strafe & Co. Equity Index Fund 93.61% 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 14.20% Beneficial
1111 Polaris Parkway Class I
Columbus, OH 43271
Cons Power Union Welfare Benefit Equity Index Fund 8.22% Beneficial
1111 Polaris Parkway Class I
Columbus, OH 43271
Banc One Securities Corp. FBO Large Cap Growth Fund 24.35% Record
The One Investment Solution Class C
733 Greencrest Dr.
Westerville, OH 43081
Kemper Service Company Large Cap Growth Fund 12.38% Record
Master Account Class C
FBO Participating Kemflex Plans
Attn: TA Accounting 7th Floor
811 Main Street
Kansas City, MO 64105-2005
Strafe & Co Large Cap Growth Fund 89.90% Record
BOIA - One Group Operations Class I
1111 Polaris Parkway
PO Box 710211
Columbus, OH 43271-0211
</TABLE>
162
<PAGE> 163
5% SHAREHOLDERS AS OF OCTOBER 4, 1999
<TABLE>
<CAPTION>
NAME AND PERCENTAGE OF TYPE OF
ADDRESS FUND/CLASS OWNERSHIP OWNERSHIP
- ------- ---------- --------- ---------
<S> <C> <C> <C>
Banc One Sec Svgs Plan Large Cap Growth Fund 8.51% Beneficial
1111 Polaris Parkway Class I
Columbus, OH 43271
Banc One Corporation Large Cap Growth Fund 7.18% Beneficial
1111 Polaris Parkway Class I
Columbus, OH 43271
Kemper Service Company Large Cap Value Fund 37.38% Record
Master Account Class C
FBO Participating Kemflex Plans
Attn: TA Accounting
7th Floor, 811 Main Street
Kansas City, MO 64105-2005
Donaldson Lufkin Jenrette Large Cap Value Fund 34.88% Record
Securities Corporation Inc. Class C
PO Box 2052
Jersey City, NJ 07303-2052
Donaldson Lufkin Jenrette Large Cap Value Fund 7.90% Record
Securities Corporation Inc. Class C
PO Box 2052
Jersey City, NJ 07303-2052
Strafe & Co Large Cap Value Fund 79.66% Record
BOIA - One Group Operations Class I
1111 Polaris Parkway
PO Box 710211
Columbus, OH 43271-0211
Banc One Corporation Large Cap Value Fund 17.90% Beneficial
1111 Polaris Parkway Class I
Columbus, OH 43271
The One Group Investor Growth & Income Fund Large Cap Value Fund 7.78% Record &
The One Group Services Company Class I Beneficial
3435 Stelzer Road
Columbus, OH 43219-6004
</TABLE>
163
<PAGE> 164
5% SHAREHOLDERS AS OF OCTOBER 4, 1999
<TABLE>
<CAPTION>
NAME AND PERCENTAGE OF TYPE OF
ADDRESS FUND/CLASS OWNERSHIP OWNERSHIP
- ------- ---------- --------- ---------
<S> <C> <C> <C>
The One Group Investor Growth Fund Large Cap Value Fund 5.76% Record &
c/o Mark S. Redman Class I Beneficial
3435 Stelzer Road
Columbus, OH 43219-6004
Donaldson Lufkin Jenrette Ohio Municipal Bond Fund 7.47% Record
Securities Corporation Inc Class A
PO Box 2052
Jersey City, NJ 07303-2052
Donaldson Lufkin Jenrette Ohio Municipal Bond Fund 5.58% Record
Securities Corporation Inc Class A
PO Box 2052
Jersey City, NJ 07303-2052
Strafe & Co. Ohio Municipal Bond Fund 91.37% 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 9.69% Beneficial
1111 Polaris Parkway Class I
Columbus, OH 43271
Key Trust Comp of OH CUST TTEE Ohio Municipal Bond Fund 6.92% Record
NES Group Class I
PO Box 98470
Cleveland, OH 44101-4870
Firstar Trust Co TTEE International Equity Index 7.87% Record
FBO Milwaukee Foundation - Equity Fund
P.O. Box 1787 Class A
Milwaukee WI 53201-1787
</TABLE>
164
<PAGE> 165
5% SHAREHOLDERS AS OF OCTOBER 4, 1999
<TABLE>
<CAPTION>
NAME AND PERCENTAGE OF TYPE OF
ADDRESS FUND/CLASS OWNERSHIP OWNERSHIP
- ------- ---------- --------- ---------
<S> <C> <C> <C>
Loan Collateral Account International Equity Index 7.45% Record
Bank One MI Pledgee Fund
Attn: K. Kilby Class A
Tricap Group LTD Partnership
382 Cranbrook Ct.
Bloomfienld, MI 48304-3525
Banc One Securities Corp Fbo International Equity Index 80.79% Record
The One Investment Solution Fund
733 Greencrest Dr Class C
Westerville OH 43081-4903
Kemper Service Company International Equity Index 6.03% Record
Master Account Fund
FBO Participating Kemflex Plans Class C
Attn: TA Accounting 7th Floor
811 Main Street
Kansas City, MO 64105-2005
Strafe & Co. International Equity Index 88.76% Record
BOIA - One Group Operations Fund
1111 Polaris Parkway Class I
PO Box 710211
Columbus OH 43271-0211
Banc One Corporation International Equity Index 14.70% Beneficial
1111 Polaris Parkway Fund
Columbus, OH 43271-0211 Class I
Strafe & Co. Short-Term Bond Fund 10.44% Record
BOIA - One Group Operations Class A
1111 Polaris Parkway
PO Box 710211
Columbus OH 43271-0211
Strafe & Co. Short-Term Bond Fund 90.59% Record
BOIA - One Group Operations Class I
1111 Polaris Parkway
PO Box 710211
Columbus OH 43271-0211
</TABLE>
165
<PAGE> 166
5% SHAREHOLDERS AS OF OCTOBER 4, 1999
<TABLE>
<CAPTION>
NAME AND PERCENTAGE OF TYPE OF
ADDRESS FUND/CLASS OWNERSHIP OWNERSHIP
- ------- ---------- --------- ---------
<S> <C> <C> <C>
Strafe & Co. Louisiana Municipal Bond Fund 94.74% Record
BOIA - One Group Operations Class I
1111 Polaris Parkway
PO Box 710211
Columbus OH 43271-0211
Bancroft Enterprises Louisiana Municipal Bond Fund 5.68% Beneficial
1111 Polaris Parkway Class I
Columbus, OH 43271
Melvin Skol Small Cap Growth Fund 11.44% Record &
2811 Scley St Class C Beneficial
Erie, PA 16508-1719
Judith M Torrico Small Cap Growth Fund 10.25% Record &
101 Nicholson St Class C Beneficial
Buffalo, NY 14214-1128
Donaldson Lufkin Jenrette Small Cap Growth Fund 8.13% Record
Securities Corporation Inc. Class C
PO Box 2052
Jersey City, NJ 07303-2052
Donaldson Lufkin Jenrette Small Cap Growth Fund 5.84% Record
Securities Corporation Inc. Class C
PO Box 2052
Jersey City, NJ 07303-2052
William G Hines Small Cap Growth Fund 5.80% Record
Ruth M Hines Jt Ten Class C
4101 McLaughlin Rd.
McKean, PA 16426-2034
Strafe & Co. Small Cap Growth Fund 81.34% 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 6.98% Record &
c/o Mark S. Redman Class I Beneficial
3435 Stelzer Road
Columbus OH 43219-6004
</TABLE>
166
<PAGE> 167
5% SHAREHOLDERS AS OF OCTOBER 4, 1999
<TABLE>
<CAPTION>
NAME AND PERCENTAGE OF TYPE OF
ADDRESS FUND/CLASS OWNERSHIP OWNERSHIP
- ------- ---------- --------- ---------
<S> <C> <C> <C>
Bank One Trust Co NA TTEE Small Cap Value Fund 13.11% Record
Bankers Systems Inc Class A
Employees Profit Sharing Plan
107 N Cross Street, Ste. 2092
Wheaton, IL 60187-5317
Strafe & Co. Small Cap Value Fund 9.98% Record
BOIA - One Group Operations Class A
1111 Polaris Parkway
PO Box 710211
Columbus OH 43271-0211
Donaldson Lufkin Jenrette Small Cap Value Fund 44.63% Record
Securities Corporation Inc Class C
Po Box 2052
Jersey City, NJ 07303-2052
Donaldson Lufkin Jenrette Small Cap Value Fund 31.60% Record
Securities Corporation Inc Class C
Po Box 2052
Jersey City, NJ 07303-2052
The One Group Services Co Small Cap Value Fund 19.20% Record &
3435 Stelzer Road Class C Beneficial
Columbus, OH 43219-6004
Strafe & Co. Small Cap Value Fund 92.80% Record
BOIA - One Group Operations Class I
1111 Polaris Parkway
PO Box 710211
Columbus OH 43271-0211
BF Goodrich Pension Small Cap Value Fund 11.31% Beneficial
100 E Broad Street Class I
Columbus, OH 43215-3607
Donaldson Lufkin Jenrette Tax-Free Bond Fund 6.38% Record
Securities Corporation Inc Class B
PO Box 2052
Jersey City, NJ 07303-2052
</TABLE>
167
<PAGE> 168
5% SHAREHOLDERS AS OF OCTOBER 4, 1999
<TABLE>
<CAPTION>
NAME AND PERCENTAGE OF TYPE OF
ADDRESS FUND/CLASS OWNERSHIP OWNERSHIP
- ------- ---------- --------- ---------
<S> <C> <C> <C>
Donaldson Lufkin Jenrette Tax-Free Bond Fund 5.04% Record
Securities Corporation Inc Class B
PO Box 2052
Jersey City, NJ 07303-2052
Strafe & Co. Tax-Free Bond Fund 99.56% Record
BOIA - One Group Operations Class I
1111 Polaris Parkway
PO Box 710211
Columbus OH 43271-0211
Donaldson Lufkin Jenrette Treasury & Agency Fund 9.53% Record
Securities Corporation Inc. Class A
PO Box 2052
Jersey City, NJ 07303-2052
Donaldson Lufkin Jenrette Treasury & Agency Fund 6.27% Record
Securities Corporation Inc. Class A
PO Box 2052
Jersey City, NJ 07303-2052
Strafe & Co. Treasury & Agency Fund 99.84% Record
BOIA - One Group Operations Class I
1111 Polaris Parkway
PO Box 710211
Columbus OH 43271-0211
NBD Bank NA Treasury Cash Management 40.05% Record &
Attn: Mary Ellen Bradley Money Market Fund Beneficial
9000 Haggerty Road Class A
Belleville, MI 48111-1632
Bank One Treasury Cash Management 31.57% Record &
Attn: Mary Ellen Bradley Money Market Fund Beneficial
9000 Haggerty Road Class A
Suite MI1-8217
Belleville, MI 48111-1632
Bank One Treasury Cash Management 15.85% Record &
Attn: Mary Ellen Bradley Money Market Fund Beneficial
9000 Haggerty Road Class A
Suite MI1-8217
Belleville, MI 48111-1632
</TABLE>
168
<PAGE> 169
5% SHAREHOLDERS AS OF OCTOBER 4, 1999
<TABLE>
<CAPTION>
NAME AND PERCENTAGE OF TYPE OF
ADDRESS FUND/CLASS OWNERSHIP OWNERSHIP
- ------- ---------- --------- ---------
<S> <C> <C> <C>
First National Bank of Chicago Treasury Cash Management 12.52% Record
Attn: Commercial Products Money Market Fund
9000 Haggerty Rd. Class A
Belleville, MI 48111-8217
First National Bank of Chicago Treasury Cash Management 70.80% Record
Corporate Trust Administration Money Market Fund
Attn: Cash Sweep Coordinator Class I
1 F&B Plaza, Suite 0126
Chicago, IL 60670
Strafe & Co. Treasury Cash Management 16.93% Record
BOIA - One Group Operations Money Market Fund
1111 Polaris Parkway Class I
P.O. Box 710211
Columbus, OH 43271-0211
Banc One Leasing Treasury Cash Management 8.92% Beneficial
1111 Polaris Parkway Money Market Fund
Columbus, OH 43271 Class I
First National Bank of Chicago Treasury Cash Management 8.04% Record
Corporate Trust Administration Money Market Fund
Attn: Cash Sweep Coordinator Class I
One N. State Street, 9th Floor
Chicago, IL 60602-3300
Bloomingdale S.D. Agency Treasury Cash Management 6.50% Beneficial
1111 Polaris Parkway Money Market Fund
Columbus, OH 43271 Class I
Strafe & Co. Treasury Only Money Market 65.40% Record
BOIA - One Group Operations Fund Institutional
1111 Polaris Parkway
PO Box 710211
Columbus OH 43271-0211
BISYS Fund Services Inc Treasury Only Money Market 12.00% Record
FBO Bank One Corporate Sweep Fund Institutional
3435 Stelzer Road Suite 1000
Columbus OH 43219-6004
</TABLE>
169
<PAGE> 170
5% SHAREHOLDERS AS OF OCTOBER 4, 1999
<TABLE>
<CAPTION>
NAME AND PERCENTAGE OF TYPE OF
ADDRESS FUND/CLASS OWNERSHIP OWNERSHIP
- ------- ---------- --------- ---------
<S> <C> <C> <C>
BISYS Fund Services Inc Treasury Only Money Market 6.65% Record
FBO Bank One Corporate Sweep Fund Institutional
3435 Stelzer Road Suite 1000
Columbus OH 43219-6004
First National Bank of Chicago Treasury Only Money Market 6.23% Record
Corporate Trust Administration Fund Institutional
Attn: Cash Sweep Coordinator
One N. State Street, 9th Floor
Mail St 0126
Chicago, IL 60602-3300
Bank One Treasury Prime Cash 27.46% Record &
Attn: Mary Ellen Bradley Management Money Market Fund Beneficial
9000 Haggerty Rd., Ste MI1-8217 Class A
Belleville, MI 48111-1632
American National Bank Treasury Prime Cash 23.63% Record &
Corporate Trust Division Management Money Market Fund Beneficial
Attn: SEI Trust-First Chicago Team Class A
1 Freedom Drive
Oaks, PA 19456
First National Bank of Chicago Treasury Prime Cash 21.39% Record
Corporate Trust Administration Management Money Market Fund
Attn: Cash Sweep Coordinator Class A
One N. State St., 9th Floor
Mail ST 0126
Chicago, IL 60602-3300
First National Bank of Chicago Treasury Prime Cash 14.45% Record &
Attn: Commercial Products Management Money Market Fund Beneficial
9000 Haggerty Rd. Class A
Belleville, MI 48111-8217
Bank One Treasury Prime Cash 6.11% Record &
Attn: Mary Ellen Bradley Management Money Market Fund Beneficial
9000 Haggerty Rd. Class A
Suite MI1-8217
Belleville, MI 48111-1632
</TABLE>
170
<PAGE> 171
5% SHAREHOLDERS AS OF OCTOBER 4, 1999
<TABLE>
<CAPTION>
NAME AND PERCENTAGE OF TYPE OF
ADDRESS FUND/CLASS OWNERSHIP OWNERSHIP
- ------- ---------- --------- ---------
<S> <C> <C> <C>
First National Bank of Chicago Treasury Prime Cash 45.61% Record
Corporate Trust Administration Management Money Market Fund
One N. State St., 9th Floor Class I
Mail ST 0126
Chicago, IL 60602-3300
Hella North America Holding Inc. Treasury Prime Cash 24.42% Record &
1101 Vincennes Avenue Management Money Market Fund Beneficial
P.O. Box 398 Class I
Flora, IL 62839-0398
Strafe & Co. Treasury Prime Cash 15.52% Record
BOIA - One Group Operations Management Money Market Fund
1111 Polaris Parkway Class I
P.O. Box 710211
Columbus, OH 43271-0211
Bank One Illinois NA Treasury Prime Cash 11.68% Record &
Cash Management Department Management Money Market Fund Beneficial
Attn: Tony Long Class I
Suite 0256 6th Floor
525 W. Monroe St.
Chicago, IL 60661-3629
Bank One US Government Securities Cash 43.66% Record &
Attn: Mary Ellen Bradley Management Money Market Fund Beneficial
9000 Haggerty Rd., Ste MI1-8217 Class A
Belleville, MI 48111-1632
First National Bank of Chicago US Government Securities Cash 22.93% Record &
Attn: Commercial Products Management Money Market Fund Beneficial
9000 Haggerty Rd. Class A
Belleville, MI 48111-8217
American National Bank US Government Securities Cash 14.39% Record &
Corporate Trust Division Management Money Market Fund Beneficial
Attn: SEI Trust-First Chicago Team Class A
1 Freedom Dr.
Oaks, PA 19456
Bank One US Government Securities Cash 9.46% Record &
Attn: Mary Ellen Bradley Management Money Market Fund Beneficial
9000 Haggerty Rd., Suite MI1-8217 Class A
Belleville, MI 48111-1632
</TABLE>
171
<PAGE> 172
5% SHAREHOLDERS AS OF OCTOBER 4, 1999
<TABLE>
<CAPTION>
NAME AND PERCENTAGE OF TYPE OF
ADDRESS FUND/CLASS OWNERSHIP OWNERSHIP
- ------- ---------- --------- ---------
<S> <C> <C> <C>
First National Bank of Chicago US Government Securities Cash 81.74% Record
Corporate Trust Administration Management Money Market Fund
One N State St, 9th Fl Class I
Chicago, IL 60602-3300
First National Bank of Chicago US Government Securities Cash 7.26% Record
Corporate Trust Administration Management Money Market Fund
Attn: Cash Sweep Coordinator Class I
1 F&B Plaza, Ste. 0126
Chicago, IL 60670
Strafe & Co. US Government Securities Cash 6.93% Record
BOIA - One Group Operations Management Money Market Fund
1111 Polaris Parkway Class I
PO Box 710211
Columbus OH 43271-0211
Pershing As Agent-Omnibus Account Ohio Municipal Money Market 98.51% Record
For Exclusive Benefit of Fund
One Group Customer Accounts Class A
1 Pershing Plaza
Jersey City, NJ 07399-0001
Strafe & Co. Ohio Municipal Money Market 98.06% Record
BOIA - One Group Operations Fund
1111 Polaris Parkway Class I
PO Box 710211
Columbus OH 43271-0211
Wallick Construction Ohio Municipal Money Market 11.59% Beneficial
1111 Polaris Parkway Fund
Columbus, OH 43271 Class I
Henny Penny Corp Ohio Municipal Money Market 7.68% Beneficial
1111 Polaris Parkway Fund
Columbus, OH 43271 Class I
Douglas & Lois Peacock Ohio Municipal Money Market 6.28% Beneficial
1111 Polaris Parkway Fund
Columbus, OH 43271 Class I
Harriet J. Goldberg Custody Ohio Municipal Money Market 5.89% Beneficial
1111 Polaris Parkway Fund
Columbus, OH 43271 Class I
</TABLE>
172
<PAGE> 173
5% SHAREHOLDERS AS OF OCTOBER 4, 1999
<TABLE>
<CAPTION>
NAME AND PERCENTAGE OF TYPE OF
ADDRESS FUND/CLASS OWNERSHIP OWNERSHIP
- ------- ---------- --------- ---------
<S> <C> <C> <C>
KRN LTD Partnership Ohio Municipal Money Market 5.61% Beneficial
1111 Polaris Parkway Fund
Columbus, OH 43271 Class I
Akron Stadium Reserve Account Ohio Municipal Money Market 5.32% Beneficial
100 E. Broad Street Fund
Columbus, OH 43215-3607 Class I
Banc One Securities Corp FBO Municipal Income Fund 33.17% Record
The One Investment Solution Class A
733 Greencrest Dr
Westerville OH 43081-4903
Banc One Securities Corp FBO Municipal Income Fund 56.56% Record
The One Investment Solution Class C
733 Greencrest Dr
Westerville OH 43081-4903
Strafe & Co. Municipal Income Fund 98.94% Record
BOIA - One Group Operations Class I
1111 Polaris Parkway
PO Box 710211
Columbus OH 43271-0211
Donaldson Lufkin Jenrette
Securities Corporation Inc Kentucky Municipal Bond Fund 17.13% Record
PO Box 2052 Class A
Jersey City, NJ 07303-2052
Donaldson Lufkin Jenrette Kentucky Municipal Bond Fund 5.78% Record
Securities Corporation Inc Class A
PO Box 2052
Jersey City, NJ 07303-2052
Strafe & Co. Kentucky Municipal Bond Fund 94.57% Record
BOIA - One Group Operations Class I
1111 Polaris Parkway
PO Box 710211
Columbus OH 43271-0211
Donaldson Lufkin Jenrette West Virginia Municipal Bond 14.18% Record
Securities Corporation Inc Fund
PO Box 2052 Class A
Jersey City, NJ 07303-2052
</TABLE>
173
<PAGE> 174
5% SHAREHOLDERS AS OF OCTOBER 4, 1999
<TABLE>
<CAPTION>
NAME AND PERCENTAGE OF TYPE OF
ADDRESS FUND/CLASS OWNERSHIP OWNERSHIP
- ------- ---------- --------- ---------
<S> <C> <C> <C>
Donaldson Lufkin Jenrette West Virginia Municipal Bond 11.38% Record
Securities Corporation Inc Fund
PO Box 2052 Class A
Jersey City, NJ 07303-2052
Donaldson Lufkin Jenrette West Virginia Municipal Bond 8.32% Record
Securities Corporation Inc Fund
PO Box 2052 Class A
Jersey City, NJ 07303-2052
Donaldson Lufkin Jenrette West Virginia Municipal Bond 7.72% Record
Securities Corporation Inc Fund
PO Box 2052 Class A
Jersey City, NJ 07303-2052
Donaldson Lufkin Jenrette West Virginia Municipal Bond 7.10% Record
Securities Corporation Inc Fund
PO Box 2052 Class A
Jersey City, NJ 07303-2052
Donaldson Lufkin Jenrette West Virginia Municipal Bond 6.03% Record
Securities Corporation Inc Fund
PO Box 2052 Class A
Jersey City, NJ 07303-2052
Donaldson Lufkin Jenrette West Virginia Municipal Bond 5.88% Record
Securities Corporation Inc Fund
PO Box 2052 Class A
Jersey City, NJ 07303-2052
Donaldson Lufkin Jenrette West Virginia Municipal Bond 8.54% Record
Securities Corporation Inc. Fund
PO Box 2052 Class B
Jersey City, NJ 07303-2052
Strafe & Co. West Virginia Municipal Bond 99.13% Record
BOIA - One Group Operations Fund
1111 Polaris Parkway Class I
PO Box 710211
Columbus OH 43271-0211
</TABLE>
174
<PAGE> 175
5% SHAREHOLDERS AS OF OCTOBER 4, 1999
<TABLE>
<CAPTION>
NAME AND PERCENTAGE OF TYPE OF
ADDRESS FUND/CLASS OWNERSHIP OWNERSHIP
- ------- ---------- --------- ---------
<S> <C> <C> <C>
Donaldson Lufkin Jenrette Government Bond Fund 45.22% Record
Securities Corporation Inc. Class C
P.O. Box 2052
Jersey City, NJ 07303-2052
Donaldson Lufkin Jenrette Government Bond Fund 21.80% Record
Securities Corporation Inc. Class C
P.O. Box 2052
Jersey City, NJ 07303-2052
Banc One Securities Corp. FBO Government Bond Fund 19.35% Record
The One Investment Solution Class C
733 Greencrest Drive
Westerville, OH 43081-4903
Donaldson Lufkin Jenrette Government Bond Fund 5.67% Record
Securities Corporation Inc. Class C
P.O. Box 2052
Jersey City, NJ 07303-2052
Strafe & Co. Government Bond Fund 85.31% Record
BOIA - One Group Operations Class I
1111 Polaris Parkway
P.O. Box 710211
Columbus, OH 43271-0211
Investment Company Institute Ultra Short Term Bond Fund 7.77% Record
1401 H St NW Class A
Washington, DC 20005-2110
Donaldson Lufkin Jenrette Ultra Short Term Bond Fund 5.51% Record
Securities Corporation Inc Class A
PO Box 2052
Jersey City, NJ 07303-2052
Strafe & Co. Ultra Short Term Bond Fund 86.02% Record
BOIA - One Group Operations Class I
1111 Polaris Parkway
PO Box 710211
Columbus, OH 43271-0211
</TABLE>
175
<PAGE> 176
5% SHAREHOLDERS AS OF OCTOBER 4, 1999
<TABLE>
<CAPTION>
NAME AND PERCENTAGE OF TYPE OF
ADDRESS FUND/CLASS OWNERSHIP OWNERSHIP
- ------- ---------- --------- ---------
<S> <C> <C> <C>
The One Group Investor Balanced Fd Ultra Short Term Bond Fund 5.66% Record &
c/o Mark S. Redman Class I Beneficial
The One Group Services Company
3435 Stelzer Road
Columbus, OH 43219-6004
RC Archdiocese Ultra Short Term Bond Fund 5.46% Beneficial
1111 Polaris Parkway Class I
Columbus, OH 43271
Banc One Securities Corp FBO Intermediate Bond Fund 43.67% Record
The One Investment Solution Class A
733 Greencrest Dr
Westerville OH 43081-4903
Strafe & Co. Intermediate Bond Fund 5.45% Record
BOIA - One Group Operations Class A
1111 Polaris Parkway
PO Box 710211
Columbus OH 43271-0211
Banc One Securities Corp FBO Intermediate Bond Fund 81.31% Record
The One Investment Solution Class C
733 Greencrest Dr
Westerville OH 43081-4903
Strafe & Co. Intermediate Bond Fund 93.16% Record
BOIA - One Group Operations Class I
1111 Polaris Parkway
PO Box 710211
Columbus OH 43271-0211
INVESCO Trust Co Investor Growth Fund 5.23% Record
Hudson, Potts & Bernstein Class A
LLC Employees Profit Sharing Plan
PO Box 77405
Atlanta, GA 30357-1405
Strafe & Co. Investor Growth Fund Class I 68.82% Record
BOIA - One Group Operations
1111 Polaris Parkway
PO Box 710211
Columbus OH 43271-0211
</TABLE>
176
<PAGE> 177
5% SHAREHOLDERS AS OF OCTOBER 4, 1999
<TABLE>
<CAPTION>
NAME AND PERCENTAGE OF TYPE OF
ADDRESS FUND/CLASS OWNERSHIP OWNERSHIP
- ------- ---------- --------- ---------
<S> <C> <C> <C>
Bank One TTEE Investor Growth Fund 12.31% Record
Brillion Iron Works P/S Class I
190 Heatherdown Drive
Westerville OH 43081-2868
Banc One Sec Svgs Pl - Inv Grwth Investor Growth Fund 25.53% Beneficial
1111 Polaris Parkway Class I
Columbus, OH 43271
Virginia R Corrin Investor Growth Fund 9.38% Beneficial
1111 Polaris Parkway Class I
Columbus, OH 43271
Ind. Fam Coll. Sav. Plan Investor Growth Fund 8.16% Beneficial
1111 Polaris Parkway Class I
Columbus, OH 43271
Bank One Trust Co. NA TTEE Investor Growth & Income Fund 9.90% Record
Clarian Health Partners Inc. Class A
Defined Contribution Plan
c/o Putnam Investments
P.O. Box 9740
Providence, RI 02940-9740
BISYS Brokerage Services Inc Investor Growth & Income Fund 6.90% Record
FBO Kelly Retirement Plus Class A
PO Box 4054
Concord, CA 94524-4054
Donaldson Lufkin Jenrette Investor Growth & Income Fund 6.32% Record
Securities Corporation Inc. Class C
PO Box 2052
Jersey City, NJ 07303-2052
Kemper Service Company Investor Growth & Income Fund 6.27% Record
Master Account Class C
FBO Participating Kemflex Plans
Attn: TA Accounting, 7th Floor
811 Main Street
Kansas City, MO 64105-2005
</TABLE>
177
<PAGE> 178
5% SHAREHOLDERS AS OF OCTOBER 4, 1999
<TABLE>
<CAPTION>
NAME AND PERCENTAGE OF TYPE OF
ADDRESS FUND/CLASS OWNERSHIP OWNERSHIP
- ------- ---------- --------- ---------
<S> <C> <C> <C>
Donaldson Lufkin Jenrette Investor Growth & Income Fund 5.19% Record
Securities Corporation Inc. Class C
PO Box 2052
Jersey City, NJ 07303-2052
Strafe & Co. Investor Growth & Income Fund 59.54% Record
BOIA - One Group Operations Class I
1111 Polaris Parkway
PO Box 710211
Columbus OH 43271-0211
Bank One Trust Co. NA TTEE Investor Growth & Income Fund 29.43% Record
First Chicago NBD Svgs & Invsmt Pln Class I
c/o Putnam Investments
P.O. Box 9740
Providence, RI 02940-9740
Banc One Sec Svgs Plan Investor Growth & Income Fund 12.44% Beneficial
1111 Polaris Parkway Class I
Columbus, OH 43271
Revco D.S., Inc. Serp - Trust A Investor Growth & Income Fund 5.65% Beneficial
1111 Polaris Parkway Class I
Columbus, OH 43271
DWPLLC/Target BNF-Bal Fd Investor Growth & Income Fund 5.07% Beneficial
100 E Broad Street Class I
Columbus, OH 43215-3607
Strafe & Co. Investor Balanced Fund 7.01% Record
BOIA - One Group Operations Class A
1111 Polaris Parkway
PO Box 710211
Columbus OH 43271-0211
Kemper Service Company Investor Balanced Fund 5.46% Record
Master Account Class C
FBO Participating Kemflex Plans
Attn: TA Accounting, 7th Floor
811 Main Street
Kansas City, MO 64105-2005
</TABLE>
178
<PAGE> 179
5% SHAREHOLDERS AS OF OCTOBER 4, 1999
<TABLE>
<CAPTION>
NAME AND PERCENTAGE OF TYPE OF
ADDRESS FUND/CLASS OWNERSHIP OWNERSHIP
- ------- ---------- --------- ---------
<S> <C> <C> <C>
Donaldson Lufkin Jenrette Investor Balanced Fund 5.33% Record
Securities Corporation Inc. Class C
PO Box 2052
Jersey City, NJ 07303-2052
Strafe & Co. Investor Balanced Fund 65.86% Record
BOIA - One Group Operations Class I
1111 Polaris Parkway
PO Box 710211
Columbus OH 43271-0211
First Chicago NBD TTEE Investor Balanced Fund 17.34% Record
First Chicago NBD Svgs & Invsmt Plan Class I
C/O Putnam Investments
PO Box 9740
Providence, RI 02940-9740
Kenosha Carpenters #161 Pens-Mgd Investor Balanced Fund 8.37% Beneficial
1111 Polaris Parkway Class I
Columbus, OH 43271
Centennial Liquor Retirement Plan Investor Balanced Fund 7.35% Beneficial
1111 Polaris Parkway Class I
Columbus, OH 43271
Donaldson Lufkin Jenrette Investor Conservative Growth 6.71% Record
Securities Corporation Inc. Fund
PO Box 2052 Class C
Jersey City, NJ 07303-2052
Donaldson Lufkin Jenrette Investor Conservative Growth 5.92% Record
Securities Corporation Inc. Fund
PO Box 2052 Class C
Jersey City, NJ 07303-2052
Donaldson Lufkin Jenrette Investor Conservative Growth 5.52% Record
Securities Corporation Inc. Fund
PO Box 2052 Class C
Jersey City, NJ 07303-2052
</TABLE>
179
<PAGE> 180
5% SHAREHOLDERS AS OF OCTOBER 4, 1999
<TABLE>
<CAPTION>
NAME AND PERCENTAGE OF TYPE OF
ADDRESS FUND/CLASS OWNERSHIP OWNERSHIP
- ------- ---------- --------- ---------
<S> <C> <C> <C>
Strafe & Co. Investor Conservative Growth 86.76% Record
BOIA - One Group Operations Fund
1111 Polaris Parkway Class I
PO Box 710211
Columbus OH 43271-0211
Banc One Sec Svgs Pl - Inv Con Grwth Investor Conservative Growth 25.25% Beneficial
1111 Polaris Parkway Fund
Columbus, OH 43271 Class I
Kenosha Carpenters #161 Pens-Mgd Investor Conservative Growth 14.15% Beneficial
1111 Polaris Parkway Fund
Columbus, OH 43271 Class I
Bank One Inv Option Plan Investor Conservative Growth 10.23% Beneficial
1111 Polaris Parkway Fund
Columbus, OH 43271 Class I
Strafe & Co. Government Money Market Fund 69.82% Record
BOIA - One Group Operations Institutional
1111 Polaris Parkway
PO Box 710211
Columbus OH 43271-0211
Bank One Texas NA Government Money Market Fund 9.46% Record &
1717 Main St Institutional Beneficial
Dallas TX 75201-4605
BWC - JP Morgan Government Money Market Fund 6.59% Beneficial
1111 Polaris Parkway
Columbus, OH 43271
BWC - Western Asset Government Money Market Fund 6.06% Beneficial
1111 Polaris Parkway
Columbus, OH 43271
BWC - John Hancock Government Money Market Fund 5.05% Beneficial
1111 Polaris Parkway
Columbus, OH 43271
</TABLE>
180
<PAGE> 181
5% SHAREHOLDERS AS OF OCTOBER 4, 1999
<TABLE>
<CAPTION>
NAME AND PERCENTAGE OF TYPE OF
ADDRESS FUND/CLASS OWNERSHIP OWNERSHIP
- ------- ---------- --------- ---------
<S> <C> <C> <C>
BISYS Fund Services Inc Government Money Market Fund 5.24% Record
FBO Bank One Corporate Sweep Institutional
Attn: Mike Bryan
3435 Stelzer Road Suite 1000
Columbus OH 43219-6004
Donoaldson Lufkin Jenrette High Yield Bond Fund Class B 7.37% Record
PO Box 2052
Jersey City, NJ 07303-2052
Banc One Securities Corp FBO High Yield Bond Fund Class C 62.70% Record &
The One Investment Solution Beneficial
733 Greencrest Dr.
Westerville, OH 43081-4903
Donoaldson Lufkin Jenrette High Yield Bond Fund Class C 29.78% Record &
PO Box 2052 Beneficial
Jersey City, NJ 07303-2052
Strafe & Co. High Yield Bond Fund 53.34% Record
BOIA - One Group Operations Class I
1111 Polaris Parkway
PO Box 710211
Columbus OH 43271-0211
The One Group Investor Growth & Income Fund High Yield Bond Fund 17.19% Record &
3435 Stelzer Road Class I Beneficial
Columbus OH 43219-6004
The One Group Investor Balanced Fund High Yield Bond Fund 16.34% Record &
3435 Stelzer Road Class I Beneficial
Columbus OH 43219-6004
Empl Ret Plan of NBD Bancorp High Yield Bond Fund 10.46% Beneficial
1111 Polaris Parkway Class I
Columbus, OH 43271
Banc One Corporation High Yield Bond Fund 7.55% Beneficial
1111 Polaris Parkway Class I
Columbus, OH 43271
</TABLE>
181
<PAGE> 182
5% SHAREHOLDERS AS OF OCTOBER 4, 1999
<TABLE>
<CAPTION>
NAME AND PERCENTAGE OF TYPE OF
ADDRESS FUND/CLASS OWNERSHIP OWNERSHIP
- ------- ---------- --------- ---------
<S> <C> <C> <C>
The One Group Investor Growth Fund High Yield Bond Fund 7.51% Record &
3435 Stelzer Road Class I Beneficial
Columbus OH 43219-6004
Donaldson Lufkin Jenrette Market Expansion Index Fund 13.27% Record
Securities Corporation Inc Class A
PO Box 2052
Jersey City, NJ 07303-2052
Donaldson Lufkin Jenrette Market Expansion Index Fund 13.18% Record
Securities Corporation Inc Class A
PO Box 2052
Jersey City, NJ 07303-2052
UMB Bank Cust Market Expansion Index Fund 8.45% Record
FBO Robert R. Barela IRA Class A
9578 Smoke Tree Avenue
Fountain Valley, CA 92708-7258
State Street Bank & Trust Co. Market Expansion Index Fund 6.59% Record
Cust for the IRA of Class A
FBO Michael L. Thiel
1865 Lazy Ridge Ct.
Chesterfield, MO 63017-5215
Donaldson Lufkin Jenrette Market Expansion Index Fund 6.18% Record
Securities Corporation Inc Class A
PO Box 2052
Jersey City, NJ 07303-2052
Jose B Zavala Market Expansion Index Fund 5.42% Record
Maria E. Zavala JT TEN Class A
1238 Selma
Westland, MI 48186-4031
State Street Bank and Trust Co. Market Expansion Index Fund 5.26% Record
Cust for the 403B of Darcy A. Young Class A
99 Theresa Ct.
West Seneca, NY 14224-4715
Donaldson Lufkin Jenrette Market Expansion Index Fund 37.51% Record
Securities Corporation Inc. Class C
PO Box 2052
Jersey City, NJ 07303-2052
</TABLE>
182
<PAGE> 183
5% SHAREHOLDERS AS OF OCTOBER 4, 1999
<TABLE>
<CAPTION>
NAME AND PERCENTAGE OF TYPE OF
ADDRESS FUND/CLASS OWNERSHIP OWNERSHIP
- ------- ---------- --------- ---------
<S> <C> <C> <C>
State Street Bank & Trust Co Market Expansion Index Fund 11.86% Record
Cust for the IRA of Class C
Patricia L Burke
716 Running Creek Dr
Arlington, TX 76001-7524
Donaldson Lufkin Jenrette Market Expansion Index Fund 10.99% Record
Securities Corporation Inc. Class C
PO Box 2052
Jersey City, NJ 07303-2052
State Street Bank & Trust Co Market Expansion Index Fund 9.16% Record
Cust for the 403(b) of Class C
Lois J Hayward
14110 Patterson Dr
Shelby TWP, MI 48315-4292
Donaldson Lufkin Jenrette Market Expansion Index Fund 8.69% Record
Securities Corporation Inc. Class C
PO Box 2052
Jersey City, NJ 07303-2052
Donaldson Lufkin Jenrette Market Expansion Index Fund 8.08% Record
Securities Corporation Inc. Class C
PO Box 2052
Jersey City, NJ 07303-2052
The One Group Services Co Market Expansion Index Fund 6.91% Record &
3435 Stelzer Road Class C Beneficial
Columbus, OH 43219-6004
Strafe & Co Market Expansion Index Fund 100.00% Record
BOIA-One Group Operations Class I
1111 Polaris Parkway
PO Box 710211
Columbus, OH 43271-0211
Dow Chemical Market Expansion Index Fund 7.07% Beneficial
100 E. Broad Street Class I
Columbus, OH 43215
Wendy M Alterman Michigan Municipal Bond Fund 5.42% Record &
271 Lone Pine Class A Beneficial
Bloomfield, MI 48304-3428
</TABLE>
183
<PAGE> 184
5% SHAREHOLDERS AS OF OCTOBER 4, 1999
<TABLE>
<CAPTION>
NAME AND PERCENTAGE OF TYPE OF
ADDRESS FUND/CLASS OWNERSHIP OWNERSHIP
- ------- ---------- --------- ---------
<S> <C> <C> <C>
Donaldson Lufkin Jenrette Michigan Municipal Bond Fund 5.85% Record
Securities Corporation Inc. Class B
PO Box 2052
Jersey City, NJ 07303-2052
Strafe & Co. Michigan Municipal Bond Fund 99.98% Record
BOIA - One Group Operations Class I
1111 Polaris Parkway
PO Box 710211
Columbus OH 43271-0211
Pershing As Agent - Omnibus Account Michigan Municipal Money 30.63% Record
For Exclusive Benefit of Market Fund
One Group Customer Accounts Class A
1 Pershing Plz
Jersey City, NJ 07399-0001
NBD Michigan Michigan Municipal Money 27.67% Record &
Attn: M.E. Bradley Market Fund Beneficial
9000 Haggerty Road Class A
Belleville, MI 48111-1632
James R. Donahey Michigan Municipal Money 7.41% Record &
Pat J. Donahay JT TEN Market Fund Beneficial
421 Highland Class A
Ann Arbor, MI 48104-1729
Strafe & Co. Michigan Municipal Money 84.01% Record
BOIA - One Group Operations Market Fund
1111 Polaris Parkway Class I
PO Box 710211
Columbus OH 43271-0211
Raj Vattikuti Michigan Municipal Money 9.31% Beneficial
1111 Polaris Parkway Market Fund
Columbus, OH 43271 Class I
NBD Securities Inc. Michigan Municipal Money 6.67% Record
ACMS for Woodward MI Tax-Exempt Money Martket Market Fund
Fund for Bank 021 Business Bookeeping Class I
9000 Haggerty Rd.
Belleville, MI 43111-1632
</TABLE>
184
<PAGE> 185
5% SHAREHOLDERS AS OF OCTOBER 4, 1999
<TABLE>
<CAPTION>
NAME AND PERCENTAGE OF TYPE OF
ADDRESS FUND/CLASS OWNERSHIP OWNERSHIP
- ------- ---------- --------- ---------
<S> <C> <C> <C>
Peter Basile Michigan Municipal Money 6.12% Beneficial
1111 Polaris Parkway Market Fund
Columbus, OH 43271 Class I
OK Thompson Michigan Municipal Money 5.68% Beneficial
100 E. Broad Street Market Fund
Columbus OH 43215-3607 Class I
Inner Lake & Co Michigan Municipal Money 5.04% Record
C/O State Street Bank Market Fund
One Group Michigan Muni Bond Fund Class I
Fund #8Z2D
1 Heritage Drive
North Quincy, MA 02171-2105
NBD Bank Municipal Cash Management 67.60% Record &
9000 Haggerty Road Money Market Fund Beneficial
Belleville, MI 48111-1632 Class A
Bank One Municipal Cash Management 18.15% Record &
9000 Haggerty Road Money Market Fund Beneficial
Belleville, MI 48111-1632 Class A
Bank One Municipal Cash Management 14.24% Record &
9000 Haggerty Road Money Market Fund Beneficial
Belleville, MI 48111-1632 Class A
Strafe & Co. Municipal Cash Management 100.00% Record
BOIA - One Group Operations Money Market Fund
1111 Polaris Parkway Class I
PO Box 710211
Columbus OH 43271-0211
Donaldson Lufkin Jenrette Short-Term Municipal Bond Fund 47.92% Record
Securities Corporation Inc Class A
PO Box 2052
Jersey City, NJ 07303-2052
</TABLE>
185
<PAGE> 186
5% SHAREHOLDERS AS OF OCTOBER 4, 1999
<TABLE>
<CAPTION>
NAME AND PERCENTAGE OF TYPE OF
ADDRESS FUND/CLASS OWNERSHIP OWNERSHIP
- ------- ---------- --------- ---------
<S> <C> <C> <C>
Donaldson Lufkin Jenrette Short-Term Municipal Bond Fund 19.89% Record
Securities Corporation Inc Class A
PO Box 2052
Jersey City, NJ 07303-2052
Donaldson Lufkin Jenrette Short-Term Municipal Bond Fund 6.78% Record
Securities Corporation Inc Class A
PO Box 2052
Jersey City, NJ 07303-2052
Donaldson Lufkin Jenrette Short-Term Municipal Bond Fund 24.12% Record
Securities Corporation Inc Class B
PO Box 2052
Jersey City, NJ 07303-2052
Donaldson Lufkin Jenrette Short-Term Municipal Bond Fund 23.39% Record
Securities Corporation Inc Class B
PO Box 2052
Jersey City, NJ 07303-2052
Donaldson Lufkin Jenrette Short-Term Municipal Bond Fund 13.67% Record
Securities Corporation Inc Class B
PO Box 2052
Jersey City, NJ 07303-2052
Donaldson Lufkin Jenrette Short-Term Municipal Bond Fund 8.67% Record
Securities Corporation Inc Class B
PO Box 2052
Jersey City, NJ 07303-2052
Donaldson Lufkin Jenrette Short-Term Municipal Bond Fund 5.90% Record
Securities Corporation Inc Class B
PO Box 2052
Jersey City, NJ 07303-2052
Strafe & Co. Short-Term Municipal Bond Fund 99.92% Record
BOIA - One Group Operations Class I
1111 Polaris Parkway
PO Box 710211
Columbus OH 43271-0211
Detroit Edison Short-Term Municipal Bond Fund 8.64% Record
1111 Polaris Parkway Class I
Columbus, OH 43271
</TABLE>
186
<PAGE> 187
5% SHAREHOLDERS AS OF OCTOBER 4, 1999
<TABLE>
<CAPTION>
NAME AND PERCENTAGE OF TYPE OF
ADDRESS FUND/CLASS OWNERSHIP OWNERSHIP
- ------- ---------- --------- ---------
<S> <C> <C> <C>
Haworth Inc Short-Term Municipal Bond Fund 8.21% Beneficial
1111 Polaris Parkway Class I
Columbus, OH 43271
Bruce Becker Rev Trust Short-Term Municipal Bond Fund 7.83% Beneficial
1111 Polaris Parkway Class I
Columbus, OH 43271
Charles Lefler Short-Term Municipal Bond Fund 5.14% Beneficial
1111 Polaris Parkway Class I
Columbus, OH 43271
</TABLE>
As a group, the Trustee and Officers of the Trust owned less than 1% of the
Shares of each class of the Trust.
FINANCIAL STATEMENTS
The financial statements of the Trust are incorporated by reference into this
Statement of Additional Information. The financial statements for the fiscal
year ended June 30, 1999 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.
187
