<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION
ON JUNE 2, 2000
REGISTRATION NOS. 2-95973 AND 811-4236
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 |X|
POST-EFFECTIVE AMENDMENT NO. 52 |X|
AND
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT |X|
OF 1940
AMENDMENT NO. 53 |X|
ONE GROUP(R) MUTUAL FUNDS
(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)
3435 STELZER ROAD
COLUMBUS, OHIO 43219
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
(800) 480-4311
(REGISTRANT'S TELEPHONE NUMBER)
MARK S. REDMAN
3435 STELZER ROAD
COLUMBUS, OHIO 43219
(NAME AND ADDRESS OF AGENT FOR SERVICE)
COPIES TO:
ALAN G. PRIEST, ESQUIRE MICHAEL V. WIBLE, ESQUIRE
ROPES & GRAY BANK ONE CORPORATION
ONE FRANKLIN SQUARE 100 EAST BROAD STREET, 5TH FL.
1301 K STREET, N.W., SUITE 800E COLUMBUS, OHIO 43271-0152
WASHINGTON, D.C. 20005
APPROXIMATE DATE OF PROPOSED PUBLIC OFFERING: IMMEDIATELY UPON EFFECTIVENESS
IT IS PROPOSED THAT THIS FILING WILL BECOME EFFECTIVE (CHECK APPROPRIATE BOX)
_____ Immediately upon filing pursuant to paragraph (b)
_____ on November 1, 1999 pursuant to paragraph(b)
_____ 60 days after filing pursuant to paragraph(a)(1)
_____ on (Date) pursuant to paragraph(a)(1)
__X__ 75 days after filing pursuant to paragraph(a)(2)
_____ on (Date) pursuant to paragraph(a)(2) of Rule 485.
If appropriate, check the following box:
_____ post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
<PAGE> 2
ONE GROUP MUTUAL FUNDS
CROSS REFERENCE SHEET
<TABLE>
<CAPTION>
FORM N-1A PART A ITEM PROSPECTUS CAPTION
--------------------- ------------------
<S> <C>
1. Front and Back Cover Page Cover Page
2. Risk/Return Summary: Investments, Risks & Performance Fund Summaries: Investments, Risk &
Performance
3. Risk/Return Summary: Fee Table Fund Summaries: Investments, Risk
& Performance
4. Investment Objectives, Principal Investment Strategies Fund Summaries: Investments, Risk
&Performance, More About the Funds,
Appendix A
5. Management's Discussion of Fund Performance Annual Report
6. Management, Organization, and Capital Structure Management of One Group Mutual Funds
7. Shareholder Information How To Do Business with One
Group Mutual Funds, Shareholder
Information
8. Distribution Arrangements How To Do Business with
One Group Mutual Funds
9. Financial Highlights Financial Highlights
10. Cover Page and Table of Contents Cover Page and Table of Contents
11. Fund History The Trust
12. Description of Fund and its Investments and Risk The Trust; Investment Objectives
and Policies Additional Information
- Description of Shares
13. Management of the Fund Management of the Trust
14. Control Persons and Principal Additional Information -
Holders of Securities Miscellaneous
15. Investment Advisory and Other
Services Management of the Trust
16. Brokerage Allocation and Other Practices Management of the Trust -
Portfolio Transactions
</TABLE>
<PAGE> 3
<TABLE>
<CAPTION>
FORM N-1A PART A ITEM PROSPECTUS CAPTION
--------------------- ------------------
<S> <C>
17. Capital Stock and Other Securities Valuation; Additional
Information Regarding the
Calculation of Per Share Net
Asset Value; Additional Purchase
and Redemption Information;
Additional Information
18. Purchase, Redemption and Pricing of The Trust, Valuation; Additional
Shares Information Regarding the
Calculation Per Share Net Asset
Value; Additional Purchase and
Redemption Information;
Management of the Trust
19. Taxation of the Fund Investment Objectives and Policies -
Additional Tax Information
Concerning the Fund
20. Underwriters Management of the Trust - Distributor
21. Calculation of Performance Data Additional Information - Calculation
of Performance Data
22. Financial Statements Incorporated by reference
</TABLE>
<PAGE> 4
PART A
Part A of Post Effective Amendment No. 51 (filed October 22, 1999) to the
Trust's Registration Statement on Form N-1A, as supplemented on November 19,
1999 and March 17, 2000, is incorporated herein by reference.
<PAGE> 5
<TABLE>
<S> <C>
TABLE OF
C O N T E N T S
FUND SUMMARY: INVESTMENTS, RISKS AND PERFORMANCE
One Group Mortgage-Backed Securities Fund
MORE ABOUT THE FUND
Principal Investment Strategy
Investment Risks
Investment Policies
Portfolio Quality
Temporary Defensive Positions
Portfolio Turnover
HOW TO DO BUSINESS WITH ONE GROUP MUTUAL FUNDS
Purchasing Fund Shares
Exchanging Fund Shares
Redeeming Fund Shares
SHAREHOLDER INFORMATION
Voting Rights
Dividend Policies
Tax Treatment of Shareholders
Shareholder Inquiries
MANAGEMENT OF ONE GROUP MUTUAL FUNDS
The Advisor
The Fund Managers
FINANCIAL HIGHLIGHTS
APPENDIX A: INVESTMENT PRACTICES
</TABLE>
<PAGE> 6
FUND SUMMARIES
INVESTMENTS, RISK & PERFORMANCE
<PAGE> 7
FUND SUMMARY: INVESTMENTS, RISKS & PERFORMANCE
ONE GROUP MORTGAGE-BACKED SECURITIES FUND
WHAT IS THE GOAL OF THE
MORTGAGE-BACKED SECURITIES FUND? The Fund seeks to
maximize total return by investing
primarily in a diversified portfolio
of debt securities backed by pools
of residential and/or commercial
mortgages.
WHAT ARE THE MORTGAGE-BACKED SECURITIES
FUND'S MAIN INVESTMENT STRATEGIES? The Fund invests mainly in
investment grade bonds and debt
securities. These include
mortgage-backed securities issued by
the Government National Mortgage
Association (GNMA), the Federal
National Mortgage Association
(FNMA), and the Federal Home Loan
Mortgage Corporation (FHLMC),
commercial mortgage securities, and
collateralized mortgage obligations.
The Fund also may invest in other
types of non-mortgage related debt
securities, including U.S.
Government securities, asset backed
securities, municipal securities and
corporate debt securities. Banc One
Investment Advisors analyzes four
major factors in managing and
constructing the Fund: duration,
market sector, maturity
concentrations, and individual
securities. Banc One Investment
Advisors selects individual
securities after performing a
risk/reward analysis that includes
an evaluation of interest rate risk,
credit risk, and the complex legal
and technical structure of the
transaction. For more information
about the Mortgage-Backed Securities
Fund's investment strategies, please
read "More About the Funds" and
"Principal Investment Strategies."
WHAT IS A BOND? A "bond" is a debt security with a
remaining maturity of ninety days or
more issued by the U.S. Government
or its agencies and
instrumentalities, a corporation, or
a municipality, securities issued or
guaranteed by a foreign government
or its agencies and
instrumentalities, securities issued
or guaranteed by domestic and
supranational banks,
mortgage-related and mortgage-backed
securities, asset-backed securities,
stripped government securities, and
zero coupon obligations.
WHAT ARE THE MAIN RISKS OF
INVESTING IN THE MORTGAGE-BACKED
SECURITIES FUND? The main risks of investing in the
Fund and the circumstances likely to
adversely affect your investment are
described below. The share price of
the Fund and its yield will change
every day in response to interest
rates and other market conditions.
You may lose money if you invest in
the Fund. For additional information
on risk, please read "Investment
Risks."
<PAGE> 8
ONE GROUP MORTGAGE-BACKED SECURITIES FUND
MAIN RISKS
Interest Rate Risk. The Fund mainly
invests in bonds and other debt
securities. These securities will
increase or decrease in value based
on changes in interest rates. If
rates increase, the value of the
Fund's investments generally
declines. On the other hand, if
rates fall, the value of the
investments generally increases.
Your investment will decline in
value if the value of the Fund's
investments decrease. Securities
with greater interest rate
sensitivity and longer maturities
tend to produce higher yields, but
are subject to greater fluctuations
in value. Usually, changes in the
value of fixed income securities
will not affect cash income
generated, but may affect the value
of your investment.
Credit Risk. There is a risk that
issuers and counterparties will not
make payments on securities and
repurchase agreements held by the
Fund. Such default could result in
losses to the Fund. In addition, the
credit quality of securities held by
the Fund may be lowered if an
issuer's financial condition
changes. Lower credit quality may
lead to greater volatility in the
price of a security and in shares of
a Fund. Lower credit quality also
may affect a security's liquidity
and make it difficult for the Fund
to sell the security.
Prepayment and Call Risk. As part of
its main investment strategy, the
Fund invests in mortgage-backed and
asset-backed securities. The issuers
of these securities and other
callable securities may be able to
repay principal in advance,
especially when interest rates fall.
Changes in pre-payment rates can
affect the return on investment and
yield of mortgage and asset-backed
securities. When mortgage and other
obligations are pre-paid and when
securities are called, the Fund may
have to reinvest in securities with
a lower yield. The Fund may also
fail to recover additional amounts
(i.e., premiums) paid for the
securities with higher interest
rates, resulting in an unexpected
capital loss.
Derivative Risk. The Fund invests in
securities that may be considered to
be DERIVATIVES. The value of
derivative securities is dependent
upon the performance of underlying
assets or securities. If the
underlying assets do not perform as
expected, the value of the
derivative security and your
investment in the Fund declines.
Derivatives generally are more
volatile and are riskier in terms of
both liquidity and value than
traditional investments.
Not FDIC insured. An investment in
the Fund is not a deposit of Bank
One Corporation or any of its
affiliates and is not insured or
guaranteed by the Federal Deposit
Insurance Corporation or any other
government agency.
<PAGE> 9
HOW HAS THE MORTGAGE-BACKED SECURITIES FUND PERFORMED?
By showing the variability of the Mortgage-Backed Securities Fund's performance
from year to year, the chart and table below help show the risk of investing in
the Fund. PLEASE REMEMBER THAT THE PAST PERFORMANCE OF THE MORTGAGE
BACKED-SECURITIES FUND IS NOT NECESSARILY AN INDICATION OF HOW THE FUND WILL
PERFORM IN THE FUTURE.
The Bar Chart shows changes in the Fund's performance from year to year. Total
returns assume reinvestment of dividends and distributions. The returns shown DO
NOT reflect applicable sales charges. If these charges were included, the
returns would be lower than those shown.
BAR CHART (per calendar year)(1),(2)--CLASS I SHARES
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
10.41% 15.12% 6.90% 11.57% -8.12% 29.03% 8.87%
1990 1991 1992 1993 1994 1995 1996
12.19% 5.99% 2.21%
1997 1998 1999
</TABLE>
(1) For the period January 1, 2000 through March 31, 2000, the Fund's
total return was 1.57%
(2) The Fund commenced operations subsequent to the transfer of assets
from a common trust fund with materially equivalent investment
objectives, policies, guidelines and restrictions as the Fund. The
quoted performance of the Fund includes the performance of the
common trust fund for the periods prior to the commencement of
operations of the Fund as adjusted to reflect the expenses
associated with the Fund. The common trust fund was not registered
with the SEC and was not subject to the investment restrictions,
limitations, and diversification requirements imposed by law on
registered mutual funds. If the common trust fund had been
registered, its return may have been lower.
Best Quarter: 9.08% 2 Q1995 Worst Quarter: -2.84% 4Q1994
The Average Annual Total Return Table shows how the Fund's average annual
returns for the periods indicated compare to those of a broad measure of market
performance. Average annual total returns for more than one year tend to smooth
out variations in the Fund's total returns and are not the same as actual
year-by-year results. The average annual returns shown on the Average Annual
Total Return Table DO include applicable sales charges. If these charges were
included, the returns would be lower than those shown.
AVERAGE ANNUAL TOTAL RETURNS through December 31, 19991
<TABLE>
<CAPTION>
CLASS I 1 YEAR 5 YEARS 10 YEARS LIFE
(Since 12/31/83 )
<S> <C> <C> <C> <C>
One Group Mortgage-Backed Securities Fund 2.21% 11.29% 9.02% 10.55%
Lehman Brothers Mortgage-Backed Securities Index(2) 1.86% 7.98% 7.78% 9.93%
</TABLE>
(1) The quoted performance of the Fund includes the performance of the
common trust fund for periods prior to the commencement of
operations of the Fund as adjusted to reflect the expenses
associated with the Fund. The common trust fund was not registered
with the SEC and was not subject to the investment restrictions,
limitations, and diversification requirements imposed by law on
registered mutual funds. If the common trust fund had been
registered, its returns may have been lower. The Fund also offers
Class A shares. Class A shares had not commenced operations as of
the date of this prospectus.
(2) The Lehman Brothers Mortgage-Backed Securities Index is an unmanaged
market value weighted index of 15 and 30 year fixed-rate securities
backed by mortgage pools of the Government National Mortgage
Association (GNMA), the Federal National Mortgage Association
(FNMA), and the Federal Home Loan Mortgage Corporation (FHLMC), and
balloon mortgages with fixed rate coupons. The performance of the
index does not reflect the deduction of expenses associated
<PAGE> 10
with a mutual fund, such as investment management fees. By contrast,
the performance of the Fund reflects the deduction of these expenses.
<PAGE> 11
FUND SUMMARY
ONE GROUP MORTGAGE-BACKED SECURITIES FUND
FEES AND EXPENSES
This table describes the fees and expenses that you may pay if you buy and hold
shares of the Fund.
<TABLE>
<CAPTION>
SHAREHOLDER FEES
(fees paid directly from your investment) CLASS A CLASS I
------- -------
<S> <C> <C>
Maximum Sales Charge (Load) Imposed on Purchases 4.50% NONE
(as a percentage of offering price)
MAXIMUM DEFERRED SALES CHARGE (LOAD)(1) NONE NONE
(AS A PERCENTAGE OF ORIGINAL PURCHASE PRICE OF REDEMPTION PROCEEDS, AS APPLICABLE)
REDEMPTION FEE NONE NONE
EXCHANGE FEE NONE NONE
ANNUAL FUND OPERATING EXPENSES
(EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS) CLASS A CLASS I
------- -------
INVESTMENT ADVISORY FEES .35% .35%
DISTRIBUTION [AND/OR SERVICE] (12B-1) FEES .35% NONE
OTHER EXPENSES(2) .25% .25%
TOTAL ANNUAL FUND OPERATING EXPENSES .95% .60%
FEE WAIVER AND/OR EXPENSE REIMBURSEMENT(3) (.30%) (.20%)
NET EXPENSES .65% .40%
</TABLE>
1 Except for purchases of $1 million or more. Please see "Sales Charges".
2. Expense information is based on estimated amounts for the Fund's current
fiscal year.
3. Banc One Investment Advisors Corporation and The One Group Services Company
have contractually agreed to waive fees and/or reimburse expenses to limit
total annual fund operating expenses to .40% for Class I shares and .65%
for Class A shares for the period from the commencement of operations and
ending on October 31, 2001.
<PAGE> 12
EXAMPLES
The example is intended to help you compare the cost of investing in the Fund
with the cost of investing in other mutual funds. The example assumes that you
invest $10,000 in the Fund for the time periods indicated and reflect what you
would pay if either you redeemed all of your shares or if you continued to hold
them at the end of the periods shown. The Examples also assume that your
investment has a 5% return each year and that the Fund's operating expenses
remain the same. Your actual costs may be higher or lower than those shown
below.
CLASS A
1 Year(1) $513
3 Years 711
CLASS I
1 Year(1) $ 41
3 Years 172
(1) Without contractual fee waivers, 1 Year expenses would be $543 for Class A
shares and $61 for Class I shares.
<PAGE> 13
ONE GROUP(R)
MORE ABOUT THE FUND
The Fund described in this Prospectus is a series of One Group Mutual Funds and
is managed by Banc One Investment Advisors Corporation. For more information
about One Group and Banc One Investment Advisors, please read "Management of One
Group Mutual Funds" and the Statement of Additional Information.
PRINCIPAL INVESTMENT STRATEGY
The One Group Mortgage-Backed Securities Fund is designed to maximize total
return. Banc One Investment analyzes four major factors in managing and
constructing the Fund: duration, market sector, maturity concentrations, and
individual securities. The portfolio attempts to enhance total return by
selecting market sectors that offer risk/reward advantages based on structural
risks and credit trends. Individual securities that are purchased by the Fund
are subject to a disciplined risk/reward analysis both at the time of purchase
and on an ongoing basis. This analysis includes an evaluation of interest rate
risk, credit risk and risks associated with the complex legal and technical
structure of the investment (e.g., mortgage-backed securities). In addition, the
principal investment strategy that is used to meet the Fund's investment
objective is described in Fund Summary: Investments, Risks, & Performance in the
front of this prospectus. It is also described below.
--------------------------------------------------------------------------------
FUNDAMENTAL POLICIES
A Fund's investment strategy may involve "fundamental policies." A policy is
fundamental if it cannot be changed without the consent of a majority of the
outstanding shares of the Fund.
--------------------------------------------------------------------------------
There can be no assurance that the Fund will achieve its investment objective.
Please note that the Fund may also use strategies that are not described below,
but which are described in the Statement of Additional Information.
The Fund will invest in mortgage-backed securities and other securities
representing an interest in or secured by mortgages.
- The Fund invests at least 65% of its total assets in mortgage-backed
securities.
- As a matter of fundamental policy, at least 65% of the Fund's total assets
will consist of bonds.
- The Fund will purchase securities issued or guaranteed by the Government
National Mortgage Association (GNMA), the Federal National Mortgage
Association (FNMA), and the Federal Home Loan Mortgage Corporation (FHLMC).
The Fund also may purchase mortgage-backed securities and asset-backed
securities that are issued by non-governmental entities. Such securities
may or may not have private insurer guarantees of timely payments.
- The Fund may purchase taxable or tax-exempt municipal securities.
- The Fund may invest in debt securities that are rated in the lowest
investment grade category.
- The Fund's average weighted maturity will normally range between two and
ten years although the Fund may shorten its weighted average if deemed
appropriate for temporary defensive purposes.
<PAGE> 14
--------------------------------------------------------------------------------
WHAT IS AVERAGE WEIGHTED MATURITY?
Average weighted maturity is the average of all the current maturities (that is,
the term of the securities) of the individual securities in a fund calculated so
as to count most heavily those securities with the highest dollar value. Average
weighted maturity is important to investors as an indication of a fund's
sensitivity to changes in interest rates. The longer the average weighted
maturity, the more fluctuation in share price you can expect. Mortgage related
securities are subject to prepayment of principal, which can shorten the average
weighted maturity of the Fund's portfolio. Therefore, in the case of a Fund
holding mortgage-backed securities, the average weighted maturity of the Fund is
equivalent to its weighted average life. Weighted average life is the average
weighted maturity of the cash flows in the securities held by the Fund given
certain prepayment assumptions.
--------------------------------------------------------------------------------
INVESTMENT RISKS
The risks associated with investing in the Fund are described below and in Fund
Summary: Investments, Risks, & Performance at the front of this prospectus.
FIXED INCOME SECURITIES. Investments by the Fund in fixed income securities (for
example, bonds) will increase or decrease in value based on changes in interest
rates. If rates increase, the value of the Fund's investments generally
declines. On the other hand, if rates fall, the value of the investments
generally increases. The value of the securities in the Fund, and the value of
your investment in the Fund, will increase and decrease as the value of the
Fund's investments increase and decrease.
DERIVATIVES. The Fund invests in securities that are considered to be
DERIVATIVES. These securities may be more volatile than other investments.
Derivatives present, to varying degrees, market, credit, leverage, liquidity,
and management risks.
--------------------------------------------------------------------------------
WHAT IS A DERIVATIVE?
Derivatives are securities or contracts (like futures and options) that derive
their value from the performance of underlying assets or securities.
--------------------------------------------------------------------------------
LOWER RATED SECURITIES. The Fund may purchase debt securities rated in the
lowest investment grade category. Securities in this rating category are
considered to have speculative characteristics. Changes in economic conditions
or other circumstances may have a greater effect on the ability of issuers of
these securities to make principal and interest payments than they do on issuers
of higher-grade securities.
For more information about risks associated with the types of investments that
the Fund purchases, please read Fund Summary: Investments, Risks, & Performance,
Appendix A and the Statement of Additional Information.
INVESTMENT POLICIES
The Fund's investment objective and the investment policies summarized below are
fundamental. This means that they cannot be changed without the consent of a
majority of the outstanding shares of the Fund. The full text of the fundamental
policies can be found in the Statement of Additional Information.
The Fund will not:
1. Purchase an issuer's securities if as a result more then 5% of its total
assets would be invested in the securities of that issuer or the Fund would
own more than 10% of the outstanding voting securities of that issuer. This
does
<PAGE> 15
not include mortgage- backed securities or securities issued or guaranteed
by the United States, its agencies or instrumentalities, securities of
other registered investment companies and repurchase agreements involving
these securities. This restriction applies with respect to 75% of the
Fund's total assets.
2. Concentrate its investments in the securities of one or more issuers
conducting their principal business in a particular industry or group of
industries. This does not include obligations issued or guaranteed by the
U.S. Government or its agencies and instrumentalities and repurchase
agreements involving such securities.
3. Make loans, except that the Fund may (i) purchase or hold debt instruments
in accordance with its investment objective and policies; (ii) enter into
repurchase agreements; and (iii) engage in securities lending.
PORTFOLIO QUALITY
Various rating organizations (like Standard & Poor's Corporation and Moody's
Investor Service) assign ratings to securities (other than equity securities).
Generally, ratings are divided into two main categories: "Investment Grade
Securities" and "Non-Investment Grade Securities." Although there is always a
risk of default, rating agencies believe that issuers of Investment Grade
Securities have a high probability of making payments on such securities.
Non-Investment Grade Securities include securities that, in the opinion of the
rating agencies, are more likely to default than Investment Grade Securities.
Banc One Investment Advisors will look at a security's rating at the time of
investment. If the securities are unrated, Banc One Investment Advisors must
determine that they are of comparable quality to rated securities.
The Mortgage-Backed Securities Fund only purchases securities that meet the
following criteria:
BONDS
- The Fund may invest in bonds rated in any of the four investment grade
rating categories.
PREFERRED STOCK
- The Fund may only invest in preferred stock rated in any of the three
highest rating categories.
MUNICIPAL SECURITIES
- The Fund may only invest in municipal bonds rated in any of the three
investment grade rating categories.
- The Fund may only invest in other municipal securities, such as
tax-exempt commercial paper, notes, and variable rate demand
obligations that are rated in the highest or second highest investment
grade rating categories.
COMMERCIAL PAPER
- The Fund may invest in commercial paper rated in the highest or second
highest rating category.
For more information about ratings, please see "Description of Ratings" in the
Statement of Additional Information.
TEMPORARY DEFENSIVE POSITIONS
To provide liquidity and to allow the Fund to respond to unusual market
conditions, the Fund may invest all or a portion of its assets in cash and CASH
EQUIVALENTS for temporary defensive purposes. Investments in cash and cash
equivalents may result in a lower yield than lower-quality or longer term
investments and may prevent the Fund from meeting its investment objective.
While the Fund is engaged in a temporary defensive position, it will not be
pursuing its investment objective. Therefore, the Fund will pursue a temporary
defensive position only when market conditions warrant.
<PAGE> 16
--------------------------------------------------------------------------------
WHAT IS A CASH EQUIVALENT?
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, money market mutual funds and
bank money market deposit accounts.
--------------------------------------------------------------------------------
PORTFOLIO TURNOVER
The Fund may engage in active and frequent trading of portfolio securities to
achieve its principal investment strategies. Portfolio turnover may vary greatly
from year to year, as well as within a particular year.
Higher portfolio turnover rates will likely result in higher transaction costs
to the Fund. The Fund anticipates a portfolio turnover rate of between 50 -
100%.
<PAGE> 17
HOW TO DO BUSINESS WITH ONE GROUP MUTUAL FUNDS
PURCHASING FUND SHARES
WHERE CAN I BUY SHARES?
You may purchase Fund shares from the following sources:
- The One Group Services Company, and
- Shareholder Servicing Agents. These include investment advisors,
brokers, financial planners, banks, insurance companies, retirement or
401(k) plan sponsors, or other intermediaries. Shares purchased this
way will be held for you by the Shareholder Servicing Agent.
WHEN CAN I BUY SHARES?
- Purchases may be made on any business day. This includes any day that
the Fund is open for business, other than weekends and days on which
the New York Stock Exchange ("NYSE") is closed, including the
following holidays: New Year's Day, Martin Luther King, Jr. Day,
Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor
Day, Thanksgiving, and Christmas.
- Purchase requests received by The One Group Services Company before 4
p.m. Eastern Time ("ET") will be effective that day. On occasion, the
NYSE will close before 4 p.m. ET. When that happens, purchase requests
received after the NYSE closes will be effective the following
business day.
- In addition, the Fund's Custodian, State Street Bank and Trust
Company, must receive "federal funds" by 4:00 p.m. ET, (i) on the
business day after the order is placed if you are buying Class I
shares, and (ii) on the third business day if you are purchasing Class
A shares. If State Street Bank and Trust Company does not receive
federal funds by the cut-off time, the purchase order will not be
effective until the next business day on which federal funds are
timely received by State Street Bank and Trust Company.
- If a Shareholder Servicing Agent holds your shares, it is the
responsibility of the Shareholder Servicing Agent to send your
purchase or redemption order to the Fund. Your Shareholder Servicing
Agent may have an earlier cut-off time for purchase and redemption
requests.
- The One Group Services Company can reject a purchase order if it does
not think that it is in the best interests of a Fund and/or its
shareholders to accept the order.
- Shares are electronically recorded. Therefore, certificates will not
be issued.
WHAT KIND OF SHARES CAN I BUY?
The Fund offers the following classes of shares:
- Class A shares are available to the general public. .
- Class I shares are available to institutional investors and any
organization authorized to act in a fiduciary, advisory, custodial or
agency capacity. We will refer to these entities as "Intermediaries."
HOW MUCH DO SHARES COST?
- Shares are sold at net asset value ("NAV") plus a sales charge, if
any.
- Each class of shares has a different NAV. This is primarily because
each class has different distribution expenses.
<PAGE> 18
- NAV per share is calculated by dividing the total market value of the
Fund's investments and other assets allocable to a class (minus class
expenses) by the number of outstanding shares in that class.
- NAV is calculated each business day following the close of the
NYSE at 4:00 p.m. ET. On occasion, the NYSE will close before 4
p.m. ET. When that happens, NAV will be calculated as of the time
the NYSE closes.
HOW DO I OPEN AN ACCOUNT?
1. Read the prospectus carefully.
2. Decide how much you want to invest.
- The minimum initial investment is $200,000. You also must maintain a
minimum account balance of $200,000.
- Subsequent investments must be at least $5,000.
- The One Group Services Company may waive these minimums.
3. Complete the Account Application Form. Be sure to sign up for all of the
Account privileges that you plan to take advantage of. Doing so now means
that you will not have to complete additional paperwork later.
4. Send the completed application and authorize a wire to:
STATE STREET BANK AND TRUST COMPANY
C/O ONE GROUP
P.O. BOX 8528
BOSTON, MA 02266-8528
5. If you purchase shares through a Shareholder Servicing Agent, you may be
required to complete additional forms or follow additional procedures. You
should contact your Shareholder Servicing Agent regarding purchases,
exchanges and redemptions.
6. If you have any questions, contact your Shareholder Servicing Agent or call
The One Group Services Company at 1-877-691-1118.
CAN I PURCHASE SHARES OVER THE TELEPHONE?
Yes. Simply select this option on your Account Application Form and then:
- Contact your Shareholder Servicing Agent or The One Group Services Company
at 1-877-691-1118 to relay your purchase instructions.
- Initiate a wire transfer payable to "One Group Mutual Funds" to State
Street Bank and Trust Company to the following wire address:
STATE STREET BANK AND TRUST COMPANY
ATTN: CUSTODY AND SHAREHOLDER SERVICES
ABA 011 000 028
DDA 99034167
FBO ONE GROUP FUND
<PAGE> 19
(EX: ONE GROUP MORTGAGE-BACKED SECURITIES FUND)
YOUR ACCOUNT NUMBER
(EX: 123456789)
YOUR ACCOUNT REGISTRATION
(EX: ABC CORPORATION)
- One Group uses reasonable procedures to confirm that instructions given by
telephone are genuine. These procedures include recording telephone
instructions and asking for personal identification. If these procedures
are followed, One Group will not be responsible for any loss, liability,
cost or expense of acting upon unauthorized or fraudulent instructions; you
bear the risk of loss.
- You may revoke your right to make purchases over the telephone by sending a
letter to:
STATE STREET BANK AND TRUST COMPANY
C/O ONE GROUP
P.O. BOX 8528
BOSTON, MA 02266-8528
SALES CHARGES
The One Group Services Company compensates Shareholder Servicing Agents who sell
shares of One Group Mutual Funds. Compensation comes from sales charges, 12b-1
fees and payments by The One Group Services Company from its own resources. The
tables below show the charges for each class of shares and the percentage of
your investment that is paid as a commission to a Shareholder Servicing Agent.
CLASS A SHARES
If you buy Class A shares, the following table shows the amount of sales charge
you pay and the commissions paid to Shareholder Servicing Agents.
<TABLE>
<CAPTION>
AMOUNT SALES CHARGE SALES CHARGE COMMISSION
OF AS A % OF THE AS A % AS A %
PURCHASES OFFERING PRICE OF YOUR INVESTMENT OF OFFERING PRICE
<S> <C> <C> <C>
LESS THAN $100,000 4.50% 4.71% 4.05%
$100,000-$249,999 3.50% 3.63% 3.05%
$250,000-$499,999 2.50% 2.56% 2.05%
$500,000-$999,999 2.00% 2.04% 1.60%
$1,000,000* 0.00% 0.00% 0.00%
</TABLE>
*If you purchase $1 million or more of Class A shares and are not assessed a
sales charge at the time of purchase, you will be charged the equivalent of 1%
of the purchase price if you redeem any or all of the Class A shares within one
year of purchase and 0.50% of the purchase price if you redeem within two years
of purchase, unless The One Group Services Company receives notice before you
invest indicating that your Shareholder Servicing Agent is waiving its
commission.
12b-1 FEES
The Fund has adopted a plan under Rule 12b-1 that allows it to pay distribution
and shareholder servicing fees for the sale and distribution of shares of the
Fund. These fees are called 12b-1 fees. The Fund pays 12b-1 fees to The One
Group Services Company as compensation for its services and expenses. The One
Group Services Company in turn pays all or part of the 12b-1 fee to Shareholder
Servicing Agents that sell shares of One Group.
The 12b-1 fees vary by share class as follows:
<PAGE> 20
1. Class A shares pay a 12b-1 fee of .35% of the average daily net assets of
the Fund, which is currently being waived to .25%.
2. There are no 12b-1 fees for Class I shares.
- The One Group Services Company may use up to .25% of the fees for
shareholder servicing and up to .75% for distribution.
- The One Group Services Company may pay 12b-1 fees to its affiliates and to
Banc One Investment Advisors and its affiliates (or any sub-advisor) for
brokerage and other agency transactions.
Because 12b-1 fees are paid out of Fund assets on an on-going basis, over time
these fees will increase the cost of your investment and may cost you more than
paying other types of sales charges.
SALES CHARGE REDUCTIONS AND WAIVERS
REDUCING YOUR CLASS A
There are several ways you can reduce the sales charges you pay on Class A
shares:
SALES CHARGES
1. Right of Accumulation: You may add the market value of any Class A shares
of a One Group Fund (except a money market fund) that you (and your spouse
and minor children) already own to the amount of your next Class A purchase
for purposes of calculating the sales charge. An Intermediary also may take
advantage of this option.
2. Letter of Intent: With an initial investment of $2,000, you may purchase
Class A shares of one or more One Group Funds over the next 13 months and
pay the same sales charge that you would have paid if all shares were
purchased at once. A percentage of your investment will be held in escrow
until the full amount covered by the Letter of Intent has been invested.
To take advantage of the accumulation privilege or letter of intent, complete
the appropriate section of your fund application, or contact your investment
representative. To determine if you are eligible for the accumulation privilege,
contact The One Group Services Company at 1-877-691-1118. These programs may be
terminated or amended at any time.
WAIVER OF THE CLASS A SALES CHARGE
No sales charge is imposed on Class A shares of the Fund if the shares were:
1. Bought with the reinvestment of dividends and capital gains distributions.
2. Acquired in exchange for other Fund shares if a comparable sales charge has
been paid for the exchanged shares.
3. Bought by officers, directors or trustees, retirees and employees (and
their spouses and immediate family members) of:
- One Group.
- Bank One Corporation and its subsidiaries and affiliates.
- The One Group Services Company and its subsidiaries and affiliates.
<PAGE> 21
- State Street Bank and Trust Company and its subsidiaries and
affiliates.
- Broker/dealers who have entered into dealer agreements with One Group
and their subsidiaries and affiliates.
- An investment sub-advisor of a fund of One Group and such
sub-advisor's subsidiaries and affiliates.
4. Bought by:
- Affiliates of Bank One Corporation and certain accounts (other than
IRA Accounts) for which an Intermediary acts in a fiduciary, advisory,
agency, or custodial capacity or Accounts which participate in select
affinity programs with Bank One Corporation and its affiliates and
subsidiaries.
- Accounts as to which a bank or broker-dealer charges an asset
allocation fee, provided the bank or broker-dealer has an agreement
with The One Group Services Company.
- Accounts that participate in select affinity programs with Bank One
Corporation and its subsidiaries and affiliates.
- Certain retirement and deferred compensation plans and trusts used to
fund those plans, including, but not limited to, those defined in
sections 401(a), 403(b) or 457 of the Internal Revenue Code and "rabbi
trusts."
- Shareholder Servicing Agents who have a dealer arrangement with The
One Group Services Company, who place trades for their own accounts or
for the accounts of their clients and who charge a management,
consulting or other fee for their services, as well as clients of such
Shareholder Servicing Agents who place trades for their own accounts
if the accounts are linked to the master account of such Shareholder
Servicing Agent.
5. Bought with proceeds from the sale of Class I shares of a One Group Fund or
acquired in an exchange of Class I shares of a Fund for Class A shares of
the same Fund, but only if the purchase is made within 60 days of the sale
or distribution.
6. Bought with proceeds from the sale of shares of a mutual fund, including
Class A shares of a One Group Fund, for which a sales charge was paid, but
only if the purchase is made within 60 days of the sale or distribution.
7. Bought in an IRA with the proceeds of a distribution from an employee
benefit plan, but only if the purchase is made within 60 days of the sale
or distribution and, at the time of the distribution, the employee benefit
plan had plan assets invested in a One Group Fund.
8. Bought with assets of One Group.
9. Bought in connection with plans of reorganization of a Fund, such as
mergers, asset acquisitions and exchange offers to which a Fund is a party.
EXCHANGING FUND SHARES
WHAT ARE MY EXCHANGE PRIVILEGES?
You may make the following exchanges:
- Class I shares of the Fund may be exchanged for Class A shares of the Fund
or for Class A or Class I shares of another One Group Fund.
<PAGE> 22
Class A shares of the Fund may be exchanged for Class I shares of the Fund or
for Class A or Class I shares of another One Group Fund, but only if you are
eligible to purchase those shares.
- One Group does not charge a fee for this privilege. In addition, One Group
may change the terms and conditions of your exchange privileges upon 60
days written notice.
WHEN ARE EXCHANGES PROCESSED?
Exchanges are processed the same business day they are received, provided:
- State Street Bank and Trust Company receives the request by 3:00 p.m. ET.
- You have provided One Group with all of the information necessary to
process the exchange.
- You have received a current prospectus of the Fund or Funds in which you
wish to invest.
- You have contacted your Shareholder Servicing Agent, if necessary.
ARE EXCHANGES TAXABLE?
Generally:
- An exchange between Funds is considered a sale and may result in a capital
gain or loss for Federal income tax purposes.
- You should talk to your tax advisor before making an exchange.
ARE THERE LIMITS ON EXCHANGES?
Yes. The exchange privilege is not intended as a way for you to speculate on
short-term movements in the market. Therefore:
- To prevent disruptions in the management of the Funds, One Group limits
excessive exchange activity.
- Exchange activity is excessive if it EXCEEDS TWO SUBSTANTIVE EXCHANGE
REDEMPTIONS (WITHIN 30 DAYS OF EACH OTHER) WITHIN A TWELVE MONTH PERIOD.
- In addition, One Group reserves the right to reject any exchange request
(even those that are not excessive) if the Fund reasonably believes that
the exchange will result in excessive transaction costs or otherwise
adversely affect other shareholders.
DO I PAY A SALES CHARGE ON AN EXCHANGE?
Generally, you will not pay a sales charge on an exchange. However:
- You will pay a sales charge if you own Class I shares of a Fund and you
want to exchange those shares for Class A shares, unless you qualify for a
sales charge waiver.
- You will pay a sales charge if you bought Class A shares of a Fund:
1. That does not charge a sales charge and you want to exchange them for
shares of a Fund that does, in which case you would pay the sales
charge applicable to the Fund into which you are exchanging.
<PAGE> 23
2. That charged a lower sales charge than the Fund into which you are
exchanging, in which case you would pay the difference between that
Fund's sales charge and all other sales charges you have already paid.
REDEEMING FUND SHARES
WHEN CAN I REDEEM SHARES?
You may redeem all or some of your shares on any day that the Fund is open for
business.
- Redemption requests received by The One Group Services Company before 4:00
p.m. ET will be effective that day.
HOW DO I REDEEM SHARES?
Unless you have selected the telephone option on your Account Application Form,
you must send a written redemption request to your Shareholder Servicing Agent,
if applicable, or to State Street Bank and Trust Company at the following
address:
STATE STREET BANK AND TRUST COMPANY
C/O ONE GROUP
P.O. BOX 8528
BOSTON, MA 02266-8528
- You may request redemption forms by calling The One Group Services Company
at 1-877-691-1118
- State Street Bank and Trust Company may require that the signature on your
redemption request be guaranteed by a participant in the Securities
Transfer Association Medallion Program or the Stock Exchange Medallion
Program, unless:
1. the redemption is payable to the shareholder of record; and
2. the redemption check is mailed to the shareholder at the record
address; and
3. the redemption is payable by wire or bank transfer (ACH) to a
pre-existing bank account.
- On the Account Application Form you may elect to have the redemption
proceeds mailed or wired to:
1. A designated commercial bank; or
2. Your Shareholder Servicing Agent.
- Your redemption proceeds will ordinarily be paid within seven days after
receipt of the redemption request.
WHAT WILL MY SHARES BE WORTH?
- You will receive the NAV calculated after the redemption request is
received. Please read "How Much Do My Shares Cost?"
CAN I REDEEM BY TELEPHONE?
Yes, if you selected this option on your Account Application Form.
<PAGE> 24
- Call your Shareholder Servicing Agent or The One Group Services Company at
1-877-691-1118 to relay your redemption request.
- Your redemption proceeds will be mailed or wired to the commercial bank
account you designated on your Account Application Form.
- One Group uses reasonable procedures to confirm that instructions
given by telephone are genuine. These procedures include recording
telephone instructions and asking for personal identification. If
these procedures are followed, One Group will not be responsible for
any loss, liability, cost or expense of acting upon unauthorized or
fraudulent instructions; you bear the risk of loss.
ADDITIONAL INFORMATION REGARDING REDEMPTIONS
- Generally, all redemptions will be for cash. However, if you redeem shares
worth $500,000 or more, the Fund reserves the right to pay part or all of
your redemption proceeds in readily marketable securities instead of cash.
If payment is made in securities, the Fund will value the securities
selected in the same manner in which it computes its NAV. This process
minimizes the effect of large redemptions on the Fund and its remaining
shareholders.
- One Group may suspend your ability to redeem when:
1. Trading on the NYSE is restricted.
2. The NYSE is closed (other than weekend and holiday closings).
3. The SEC has permitted a suspension.
4. An emergency exists.
The Statement of Additional Information offers more details about this
process.
- You generally will recognize a gain or loss on a redemption for Federal
income tax purposes. You should talk to your tax adviser before making a
redemption.
SHAREHOLDER INFORMATION
VOTING RIGHTS
The Fund does not hold annual shareholder meetings, but may hold special
meetings. The special meetings are held, for example, to elect or remove
Trustees, change the Fund's fundamental investment objective, or approve an
investment advisory contract.
As a Fund shareholder, you have one vote for each share you own. The Fund, and
each class of shares within each Fund, votes separately on matters relating
solely to that Fund or class, or which affect that Fund or class differently.
However, all shareholders will have equal voting rights on matters that affect
all shareholders equally.
DIVIDEND POLICIES
DIVIDENDS. The Fund generally declares dividends on each business day. Dividends
are distributed on the first business day of the next month after they are
declared. Capital gains, if any, for the Fund are distributed at least annually.
The Fund pays dividends and distributions on a per-share basis. This means that
the value of your shares will be reduced by the amount of the payment.
<PAGE> 25
Dividends payable on Class I shares will be more than those payable on Class A
shares. This is because Class A shares have higher distribution expenses.
DIVIDEND REINVESTMENT. You automatically will receive all income dividends and
capital gain distributions in additional shares of the same Fund and class. The
value of the shares distributed is the NAV determined immediately following the
dividend record date.
TAX TREATMENT OF SHAREHOLDERS
TAXATION OF DISTRIBUTIONS. The Fund will distribute substantially all of its net
investment income (including, for this purpose, the excess of net short-term
capital gains over net long-term capital losses) and net capital gains (i.e.,
the excess of net long-term capital gains over net short-term capital losses) on
at least an annual basis.
TAXATION OF RETIREMENT PLANS
Distributions by the Fund to qualified retirement plans generally will not be
taxable. However, if shares are held by a plan that ceases to qualify for
tax-exempt treatment or by an individual who has received shares as a
distribution from a retirement plan, the distributions will be taxable to the
plan or individual. If you are considering purchasing shares with qualified
retirement plan assets, you should consult your tax advisor for a more complete
explanation of the Federal, state, local and (if applicable) foreign tax
consequences of making such an investment.
TAXATION OF ZERO-COUPON SECURITIES
The Fund may acquire certain securities issued with original issue discount
(including zero-coupon securities). Current Federal tax requires that a holder
(such as the Fund) of such a security must include in taxable income a portion
of the original issue discount which accrues during the tax year on such
security even if the Fund receives no payment in cash on the security during the
year. As an investment company, the Fund must pay out substantially all of its
net investment income each year, including any original issue discount.
Accordingly, the Fund may be required to pay out in income distribution each
year an amount that is greater than the total amount of cash interest the Fund
actually received. Such distributions will be made from the cash assets of the
Fund or by liquidation of investments if necessary. If a distribution of cash
necessitates the liquidation of investments, Banc One Investment Advisors will
select which securities to sell.
SHAREHOLDER INQUIRIES
If you have any questions or need additional information, please write The One
Group Services Company at 3435 Stelzer Road, Columbus, OH 43219, call
1-877-691-1118 or visit www.onegroup.com.
REPORTING
In March and September you will receive a financial report from One Group. In
addition, One Group will periodically send you proxy statements and other
reports.
<PAGE> 26
MANAGEMENT OF ONE GROUP MUTUAL FUNDS
THE ADVISOR
Banc One Investment Advisors (1111 Polaris Parkway, P.O. Box 710211, Columbus,
Ohio 43271-0211) makes the day-to-day investment decisions for the Fund and
continuously reviews, supervises and administers the Fund's investment program.
Banc One Investment Advisors performs its responsibilities subject to the
supervision of, and policies established by, the Trustees of One Group Mutual
Funds. Banc One Investment Advisors has served as investment advisor to the
Trust since its inception. In addition, Banc One Investment Advisors serves as
investment advisor to other mutual funds and individual corporate, charitable,
and retirement accounts. As of June 30, 2000, Banc One Investment Advisors, an
indirect wholly-owned subsidiary of Bank One Corporation, managed over
$___billion in assets.
THE FUND MANAGERS
The Fund is managed by a team of Fund managers, research analysts, and fixed
income traders. The team works together to establish general duration and sector
strategies for the Fund. Each team member makes recommendations about securities
in the Fund. The research analysts and trading personnel provide individual
security and sector recommendations, while the portfolio managers select and
allocate individual securities in a manner designed to meet the investment
objective of the Fund.
<PAGE> 27
APPENDIX A
INVESTMENT PRACTICES
The Fund invests in a variety of securities and employs a number of investment
techniques. Each security and technique involves certain risks. What follows is
a list of some of the securities and techniques utilized by the Fund, as well as
the risks inherent in their use. Fixed income securities are primarily
influenced by market, credit and prepayment risks, although certain securities
may be subject to additional risks. For a more complete discussion, see the
Statement of Additional Information. Following the table is a more complete
discussion of risk.
<TABLE>
<CAPTION>
INSTRUMENT RISK TYPE
---------- ---------
<S> <C>
U.S. Treasury Obligations: Bills, notes, bonds, STRIPS,
and CUBES. Market
Treasury Receipts: TRS, TIGRs, and CATS. Market
U.S. Government Agency Securities: Securities issued by agencies and Market
instrumentalities of the U.S. Government. These include Ginnie Mae,
Fannie Mae, and Freddie Mac. Credit
Certificates of Deposit: Negotiable instruments with a stated maturity. Market
Credit
Liquidity
Time Deposits: Non-negotiable receipts issued by a bank in exchange Liquidity
for the deposit of funds. Credit
Market
Repurchase Agreements: The purchase of a security and the simultaneous Credit
commitment to return the security to the seller at an agreed upon Market
price on an agreed upon date. This is treated as a loan. Liquidity
Reverse Repurchase Agreements: The sale of a security and the Market
simultaneous commitment to buy the security back at an agreed upon Leverage
price on an agreed upon date. This is treated as a borrowing by a Fund.
Securities Lending: The lending of up to 33 1/3% of the Fund's total Credit
assets. In return the Fund will receive cash, other securities, and/or Market
letters of credit as collateral. Leverage
</TABLE>
<PAGE> 28
<TABLE>
<CAPTION>
INSTRUMENT RISK TYPE
---------- ---------
<S> <C>
When-Issued Securities and Forward Commitments: Purchase or contract Market
to purchase securities at a fixed price for delivery at a future date. Leverage
Liquidity
Credit
Investment Company Securities: Shares of other mutual funds, including Market
One Group money market funds and shares of other money market funds for which
Banc One Investment Advisors or its affiliates serve as investment advisor or
administrator. Banc One Investment Advisors will waive certain fees when
investing in funds for which it serves as investment advisor.
Convertible Securities: Bonds or preferred stock that can convert to common stock. Market
Credit
Call and Put Options: A call option gives the buyer the right to buy, Management
and obligates the seller of the option to sell, a security at a specified Liquidity
price. A put option gives the buyer the right to sell, and obligates the Credit
seller of the option to buy, a security at a specified price. The Fund Market
will sell covered call and secured put options. Leverage
Futures and Related Options: A contract providing for the future sale Management
and purchase of a specified amount of a specified security, class of Market
securities, or an index at a specified time in the future and at a Credit
specified price. Liquidity
Leverage
Real Estate Investment Trusts ("REITs"): Pooled investment vehicles Liquidity
which invest primarily in income producing real estate or real estate Management
related loans or interest. Market
Regulatory
Tax
Prepayment
Bankers' Acceptances: Bills of exchange or time drafts drawn on Credit
and accepted by a commercial bank. Maturities are generally six Liquidity
months or less. Market
Commercial Paper: Secured and unsecured short-term promissory Credit
notes issued by corporations and other entities. Maturities Liquidity
generally vary from a few days to nine months. Market
</TABLE>
<PAGE> 29
<TABLE>
<CAPTION>
INSTRUMENT RISK TYPE
---------- ---------
<S> <C>
Foreign Securities: Stocks issued by foreign companies, as well Market
as commercial paper of foreign issuers and obligations of foreign Political
banks, overseas branches of U.S. banks and supranational entities. Liquidity
Includes American Depository Receipts and Global Depositary Foreign
Receipts, and American Depositary Securities. Investment
Restricted Securities: Securities not registered under the Securities Liquidity
Act of 1933, such as privately placed commercial paper Market
and Rule 144A securities. Credit
Variable and Floating Rate Instruments: Obligations with interest Credit
rates which are reset daily, weekly, quarterly or some other period Liquidity
and which may be payable to the Fund on demand. Market
Preferred Stock: A class of stock that generally pays a dividend Market
at a specified rate and has preference over common stock in the
payment of dividends and in liquidation.
Mortgage-Backed Securities: Debt obligations secured by real estate Prepayment
loans and pools of loans. These include collateralized mortgage Market
obligations ("CMOs") and Real Estate Mortgage Investment Conduits Credit
("REMICs"). Regulatory
Corporate Debt Securities: Corporate bonds and non-convertible Market
debt securities. Credit
Demand Features: Securities that are subject to puts and Market
standby commitments to purchase the securities at a fixed Liquidity
price (usually with accrued interest) within a fixed period of Management
time following demand by the Fund.
Asset-Backed Securities: Securities secured by company Prepayment
receivables, home equity loans, truck and auto loans, leases, Market
credit card receivables and other securities backed by other Credit
types of receivables or other assets. Regulatory
Mortgage Dollar Rolls: A transaction in which the Fund sells Prepayment
securities for delivery in a current month and simultaneously Market
contracts with the same party to repurchase similar but not Regulatory
identical securities on a specified future date.
</TABLE>
<PAGE> 30
<TABLE>
<CAPTION>
INSTRUMENT RISK TYPE
---------- ---------
<S> <C>
Adjustable Rate Mortgage Loans ("ARMS"): Loans in a mortgage pool Prepayment
which provide for a fixed initial mortgage interest rate for a Market
specified period of time, after which the rate may be subject to Credit
periodic adjustments. Regulatory
Swaps, Caps and Floors: The Fund may enter into these transactions Management
to manage its exposure to changing interest rates and other Credit
factors. Swaps involve an exchange of obligations by two parties. Liquidity
Caps and floors entitle a purchaser to a principal amount from Market
the seller of the cap or floor to the extent that a specified
index exceeds or falls below a predetermined interest rate
or amount.
New Financial Products: New options and futures contracts and Management
other financial products continue to be developed and the Fund Credit
may invest in such options, contracts and products. Market
Liquidity
Structured Instruments: Debt securities issued by agencies and Market
instrumentalities of the U.S. Government, banks, municipalities, Liquidity
corporations and other businesses whose interest and/or principal Management
payments are indexed to foreign currency exchange rates, Credit
interest rates, or one or more other referenced indices. Foreign
Investment
Municipal Securities: Securities issued by a state or political Market
subdivision to obtain funds for various public purposes. Credit
Municipal securities include private activity bonds and industrial Political
development bonds, as well as General Obligation Notes, Tax
Tax Anticipation Notes, Bond Anticipation Notes, Revenue Regulatory
Anticipation Notes, Project Notes, other short-term tax-exempt
obligations, municipal leases, and obligations of municipal
housing authorities and single family revenue bonds.
Zero Coupon Debt Securities: Bonds and other debt that pay no Credit
interest, but are issued at a discount from their value at maturity. Market
When held to maturity, their entire return equals the difference Zero-Coupon
between their issue price and their maturity value.
Zero-Fixed-Coupon Debt Securities: Zero coupon debt securities which Credit
convert on a specified date to interest bearing debt securities. Market
Zero Coupon
</TABLE>
<PAGE> 31
<TABLE>
<CAPTION>
INSTRUMENT RISK TYPE
---------- ---------
<S> <C>
Stripped Mortgage-Backed Securities: Derivative multi-class Prepayment
mortgage securities usually structured with two classes of Market
shares that receive different proportions of the interest and Credit
principal from a pool of mortgage-backed obligations. These Regulatory
include IOs and POs.
Inverse Floating Rate Instruments: Floating rate debt Market
instruments with interest rates that reset in the opposite direction Leverage
from the market rate of interest to which the inverse floater is indexed. Credit
Loan Participations and Assignments: Participations in, or assignments Credit
of all or a portion of loans to corporations or to governments, Political
including governments of the less developed countries ("LDC's"). Liquidity
Foreign
Investment
Market
Fixed Rate Mortgage Loans: Investments in fixed rate mortgage loans Credit
or mortgage pools which bear simple interest at fixed annual rates Prepayment
and have short to long term final maturities. Regulatory
Market
Short-Term Funding Agreements: Investments in short-term funding Credit
agreements issued by banks and highly rated U.S. insurance companies Liquidity
such as Guaranteed Investment Contracts ("GIC's") and Bank Investment Market
Contracts ("BIC's").
</TABLE>
<PAGE> 32
INVESTMENT RISKS
Below is a more complete discussion of the types of risks inherent in the
securities and investment techniques listed above. Because of these risks, the
value of the securities held by the Fund may fluctuate, as will the value of
your investment in the Fund. Certain investments are more susceptible to these
risks than others.
Credit Risk. The risk that the issuer of a security, or the counterparty
to a contract, will default or otherwise become unable to honor a
financial obligation. Credit risk is generally higher for non-investment
grade securities. The price of a security can be adversely affected prior
to actual default as its credit status deteriorates and the probability
of default rises.
Leverage Risk. The risk associated with securities or practices that
multiply small index or market movements into large changes in value.
Leverage is often associated with investments in derivatives, but also
may be embedded directly in the characteristics of other securities.
Hedged. When a derivative (a security whose value is based on another
security or index) is used as a hedge against an opposite position that
the Fund also holds, any loss generated by the derivative should be
substantially offset by gains on the hedged investment, and vice versa.
While hedging can reduce or eliminate losses, it can also reduce or
eliminate gains. Hedges are sometimes subject to imperfect matching
between the derivative and underlying security, and there can be no
assurance that the Fund's hedging transactions will be effective.
- Speculative. To the extent that a derivative is not used as a
hedge, the Fund is directly exposed to the risks of that
derivative. Gains or losses from speculative positions in a
derivative may be substantially greater than the derivative's
original cost.
- Liquidity Risk. The risk that certain securities may be difficult
or impossible to sell at the time and the price that would
normally prevail in the market. The seller may have to lower the
price, sell other securities instead or forego an investment
opportunity, any of which could have a negative effect on Fund
management or performance. This includes the risk of missing out
on an investment opportunity because the assets necessary to take
advantage of it are tied up in less advantageous investments.
Management Risk. The risk that a strategy used by the Fund's management
may fail to produce the intended result. This includes the risk that
changes in the value of a hedging instrument will not match those of the
asset being hedged. Incomplete matching can result in unanticipated
risks.
Market Risk. The risk that the market value of a security may move up and
down, sometimes rapidly and unpredictably. These fluctuations may cause a
security to be worth less than the price originally paid for it, or less
than it was worth at an earlier time. Market risk may affect a single
issuer, industry, sector of the economy or the market as a whole. There
is also the risk that the current interest rate may not accurately
reflect existing market rates. For fixed income securities, market risk
is largely, but not exclusively, influenced by changes in interest rates.
A rise in interest rates typically causes a fall in values, while a fall
in rates typically causes a rise in values. Finally, key information
about a security or market may be inaccurate or unavailable. This is
particularly relevant to investments in foreign securities.
Political Risk. The risk of losses attributable to unfavorable
governmental or political actions, seizure of foreign deposits, changes
in tax or trade statutes, and governmental collapse and war.
Foreign Investment Risk. The risk associated with higher transaction
costs, delayed settlements, currency controls and adverse economic
developments. This also includes the risk that fluctuations in the
exchange rates between the U.S. dollar and foreign currencies may
negatively affect an investment. Adverse changes in exchange rates may
erode or reverse any gains produced by foreign currency denominated
investments and may widen any losses. Exchange rate volatility also may
affect the ability of an issuer to repay U.S. dollar denominated debt,
thereby increasing credit risk.
PrePayment Risk. The risk that the principal repayment of a security will
occur at an unexpected time, especially that the repayment of a mortgage
or asset-backed security occurs either significantly sooner or later than
<PAGE> 33
expected. Changes in prepayment rates can result in greater price and
yield volatility. Prepayments generally accelerate when interest rates
decline. When mortgage and other obligations are pre-paid, the Fund may
have to reinvest in securities with a lower yield. Further, with early
prepayment, the Fund may fail to recover any premium paid, resulting in
an unexpected capital loss.
Tax Risk. The risk that the issuer of the securities will fail to comply
with certain requirements of the Internal Revenue Code, which could cause
adverse tax consequences Also the risk that the tax treatment of
municipal or other securities would be changed by Congress thereby
affecting the value of outstanding securities .
Regulatory Risk. The risk associated with Federal and state laws that may
restrict the remedies that a lender has when a borrower defaults on
loans. These laws include restrictions on foreclosures, redemption rights
after foreclosure, Federal and state bankruptcy and debtor relief laws,
restrictions on "due on sale" clauses, and state usury laws.
Zero Coupon Risk. The market prices of securities structured as zero
coupon or pay-in-kind securities are generally affected to a greater
extent by interest rate changes. These securities tend to be more
volatile than securities that pay interest periodically.
<PAGE> 34
If you want more information about the Fund, the following documents are free
upon request:
ANNUAL/Semi-Annual Reports: Additional information about the Fund's investments
is available in the Fund's annual and semi-annual reports to shareholders. In
the Fund's annual report, you will find a discussion of the market conditions
and investment strategies that significantly affected the Fund's performance
during its last fiscal year.
STATEMENT OF ADDITIONAL INFORMATION ("SAI"): The SAI provides more detailed
information about the Fund and is incorporated into this prospectus by
reference.
HOW CAN I GET MORE INFORMATION? You can get a free copy of the semiannual/annual
reports or the SAI, request other information or discuss your questions about
the Fund by contacting your Plan Administrator.
You can also review and copy the Fund's reports and the SAI at the Public
Reference Room of the Securities and Exchange Commission ("SEC"). (For
information about the SEC's Public Reference Room call 1-202-942-8090). You can
also get reports and other information about the Funds from the EDGAR Database
on the SEC's web site at http://www.sec.gov. Copies of this information may be
obtained, after paying a copying charge, by electronic request at the following
e-mail address: [email protected] or by writing the Public Reference Section of
the SEC, Washington, D.C. 20549-6009.
(Investment Company Act File No. 811-4236)
TOG-F-228
<PAGE> 35
PART B
Part B of Post Effective Amendment 43 (filed October 22, 1999) to the Trust's
Registration Statement on form N-1A is incorporated herein by reference.
<PAGE> 36
STATEMENT OF ADDITIONAL INFORMATION
ONE GROUP(R) MUTUAL FUNDS
ONE GROUP MORTGAGE-BACKED SECURITIES FUND
(THE "FUND" OR THE "MORTGAGE-BACKED SECURITIES FUND")_
AUGUST __, 2000
This Statement of Additional Information is not a Prospectus, but supplements
and should be read in conjunction with the Prospectus for the One Group
Mortgage-Backed Securities Fund, dated August __, 2000. This Statement of
Additional Information is incorporated in its entirety into the Fund's
Prospectus. A copy of the Prospectus is available without charge by writing to
The One Group Services Company, 3435 Stelzer Road, Columbus, Ohio 43219, or by
calling toll free (800) 480-4111.
<PAGE> 37
TABLE OF CONTENTS
PAGE
THE TRUST
INVESTMENT OBJECTIVES AND POLICIES.......................................
Additional Information on Fund Instruments.............................
Asset-Backed Securities............................................
Bank Obligations...................................................
Commercial Paper...................................................
Convertible Securities.............................................
Demand Features....................................................
Foreign Investments................................................
Risk Factors of Foreign Investments............................
Limitations on the Use of Foreign Investments..................
Futures and Options Trading........................................
Futures Contracts..............................................
Limitations on the Use of Futures Contracts................
Risk Factors in Futures Transactions.......................
Options Contracts..............................................
Writing (Selling) Covered Calls................................
Purchasing Call Options........................................
Purchasing Put Options.........................................
Secured Puts...................................................
Straddles and Spreads..........................................
Risk Factors in Options Transactions...........................
Limitations on the Use of Options..............................
Government Securities..............................................
Investment Company Securities....................................
Loan Participations and Assignments................................
Mortgage-Related Securities........................................
Mortgage-Backed Securities (CMOs and REMICs)....................
Limitations on the Use of Mortgage Backed Securities...........
Mortgage Dollar Rolls...........................................
Stripped Mortgage Backed Securities.............................
Adjustable Rate Mortgage Loans..................................
Risk Factors of Mortgage-Related Securities.....................
Municipal Securities...............................................
Risk Factors in Municipal Securities...........................
Limitations on the Use of Municipal Securities.................
New Financial Products............................................
Preferred Stock....................................................
Real Estate Investment Trusts ("REITs")............................
Repurchase Agreements..............................................
Reverse Repurchase Agreements......................................
Restricted Securities..............................................
Securities Lending.................................................
Short-term Funding Agreements......................................
Structured Instruments.............................................
Swaps, Caps and Floors.............................................
Treasury Receipts..................................................
<PAGE> 38
U.S. Treasury Obligations..........................................
Variable and Floating Rate Instruments.............................
Warrants...........................................................
When-Issued Securities and Forward Commitments.....................
Investment Restrictions....................................
Portfolio Turnover.................................................
Additional Tax Information Concerning the Fund.....................
VALUATION
Valuation of the Fund..........................................
Additional Information Regarding the Calculation of Per Share
Net Asset Value....................................................
Additional Purchase and Redemption Information.....................
Exchanges..........................................................
Redemptions........................................................
MANAGEMENT OF THE TRUST ...................................................
Trustees & Officers....................................................
Investment Advisor.....................................................
Codes of Ethics........................................................
Portfolio Transactions.................................................
Administrator and Sub-Administrator....................................
Distribution Plan......................................................
Cash Compensation to Shareholder Servicing Agents......................
Custodian, Transfer Agent and Dividend Disbursing Agent................
Subcustodian...........................................................
Experts ...........................................................
ADDITIONAL INFORMATION.................................................
Description of Shares..................................................
Shareholder and Trustee Liability......................................
Performance ...........................................................
Calculation of Performance Data........................................
Miscellaneous..........................................................
FINANCIAL STATEMENTS...................................................
Appendix A - Description of Ratings
<PAGE> 39
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-five series of units of
beneficial interest ("Shares") each representing interests in one of fifty-five
separate investment portfolios ("Funds"). This Statement of Additional
Information contains information relating to the One Group Mortgage-Backed
Securities Fund only.
Information relating to the Funds other than the One Group
Mortgage-Backed Securities Fund is contained in separate prospectuses and a
separate Statement of Additional Information dated November 1, 1999 which are
incorporated by reference and which may be obtained by writing to the
Distributor for the Trust, The One Group Services Company, 3435 Stelzer Road,
Columbus, Ohio 43219, or by calling toll free 1 (800) 480-4111.
The Fund is diversified, as defined under the Investment Company Act of
1940, as amended (the "1940 Act). The Shares of the Fund are or will be offered
in two separate Classes: Class A or Class I.
INVESTMENT OBJECTIVES AND POLICIES
The following policies supplement the Fund's investment objective and
policies as set forth in the Prospectus for the 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, or credit card
receivables. Asset-backed securities also include 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. 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, the 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, the Fund may fail to recover additional amounts paid
(i.e., premiums) for securities with higher interest rates, resulting in an
unexpected loss.
BANK OBLIGATIONS
Bank obligations consist of bankers' acceptances, certificates of
deposit, 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).
<PAGE> 40
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 Fund may also invest in Eurodollar certificates of deposit, which
are U.S. dollar-denominated certificates of deposit issued by branches of
foreign and domestic banks located outside the United States, and Yankee
certificates of deposit, which are certificates of deposit issued by a U.S.
branch of a foreign bank denominated in U.S. dollars and held in the United
States. The Fund may also invest in obligations (including banker's acceptances
and certificates of deposit) denominated in foreign currencies (see "Foreign
Investments" herein).
Time Deposits are interest-bearing non-negotiable deposits at a bank or
a savings and loan association that have a specific maturity date. A time
deposit earns a specific rate of interest over a definite period of time. Time
deposits cannot be traded on the secondary market and those exceeding seven days
and with a withdrawal penalty are considered to be illiquid. Demand Deposits are
funds deposited in a commercial bank or a savings and loan association which,
without prior notice to the bank, may be withdrawn generally by negotiable
draft. Time and demand deposits will be maintained only at banks or savings and
loan associations from which the Fund could purchase certificates of deposit.
COMMERCIAL PAPER
Commercial paper consists of promissory notes issued by corporations.
Although such notes are generally unsecured, the Fund 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 Fund only purchases commercial paper
that meets the following criteria:
The 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"), P-2 or better by
Moody's Investors Service, Inc. ("Moody's") or F2 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.
CONVERTIBLE SECURITIES
Convertible securities are similar to both fixed income and equity
securities. Convertible securities may be issued as bonds or preferred stock.
Because of the conversion feature, the market value of convertible securities
tends to move together with the market value of the underlying stock. As a
result, the Fund bases its selection of convertible securities 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.
5
<PAGE> 41
DEMAND FEATURES
The Fund may acquire securities that are subject to puts and standby
commitments ("Demand Features ") to purchase the securities at their principal
amount (usually with accrued interest) within a fixed period (usually seven
days) following a demand by the Fund. The Demand Feature may be issued by the
issuer of the underlying securities, a dealer in the securities or by another
third party, and may not be transferred separately from the underlying security.
The underlying securities subject to a put may be sold at any time at market
rates. The Fund expects that it will acquire puts only where the puts are
available without the payment of any direct or indirect consideration. However,
if advisable or necessary, a premium may be paid for put features. A premium
paid will have the effect of reducing the yield otherwise payable on the
underlying security.
Under a "Stand-By Commitment," a dealer would agree to purchase, at the
Fund's option, specified securities at a specified price. The Fund will acquire
these commitments solely to facilitate portfolio liquidity and does not intend
to exercise its rights thereunder for trading purposes. Stand-by commitments may
also be referred to as put options. The Fund will generally limit its
investments in stand-by commitments to 25% of its total assets.
The purpose of engaging in transactions involving puts is to maintain
flexibility and liquidity to permit the Fund to meet redemption requests and
remain as fully invested as possible.
FOREIGN INVESTMENTS
The Fund 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 Depositary 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 the Fund
to investment risks that differ in some respects from those related to
investments in obligations of U.S. domestic issuers. Such risks include
future adverse political and economic developments, the possible
imposition of withholding taxes on interest or other income, possible
seizure, nationalization or expropriation of foreign deposits, the
possible establishment of exchange controls or taxation at the source,
greater fluctuations in value due to changes in exchange rates, or the
adoption of other foreign governmental restrictions which might
adversely affect the payment of principal and interest on such
obligations.
Higher Transaction Costs. Foreign investments may entail higher
custodial fees and sales commissions than domestic investments.
Accounting and Regulatory Differences. Foreign issuers of securities or
obligations are often subject to accounting treatment and engage in
business practices different from those respecting domestic issuers of
similar securities or obligations. Foreign branches of U.S. banks and
foreign banks are not regulated 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. Foreign securities are typically denominated in foreign
currencies. The value of the Fund's investments denominated in foreign
currencies and any funds held in foreign currencies will be affected
by: (i) changes in currency exchange rates; (ii) the relative strength
of those currencies and the U.S. dollar, and (iii) exchange control
regulations. 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
6
<PAGE> 42
the 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.
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 Fund.
FUTURES AND OPTIONS TRADING
The Fund may enter into futures contracts, options, options on futures
contracts and stock index futures contracts and options thereon for the purposes
of remaining fully invested, reducing transaction costs, or managing interest
rate risk.
FUTURES CONTRACTS
Futures contracts provide for the future sale by one party and purchase
by another party of a specified amount of a specific security, class of
securities, or an index at a specified future time and at a specified price. A
stock index futures contract is a bilateral agreement pursuant to which two
parties agree to take or make delivery of an amount of cash equal to a specified
dollar amount times the difference between the stock index value at the close of
trading of the contracts and the price at which the futures contract is
originally struck. Futures contracts which are standardized as to maturity date
and underlying financial instrument are traded on national futures exchanges.
Futures exchanges and trading are regulated under the Commodity Exchange Act by
the Commodity Futures Trading Commission ("CFTC"), a U.S. government agency.
Although most futures contracts by their terms call for actual delivery
and acceptance of the underlying securities, in most cases the contracts are
closed out before the settlement date without the making or taking of delivery.
Closing out an open futures position is done by taking an opposite position
("buying" a contract which has previously been "sold," or "selling" a contract
previously "purchased") in an identical contract to terminate the position. The
acquisition of put and call options on futures contracts will, respectively,
give the Fund the right (but not the obligation), for a specified price, to sell
or to purchase the underlying futures contract, upon exercise of the option, at
any time during the option period. Brokerage commissions are incurred when a
futures contract is bought or sold.
When making futures trades, the Fund is required to make a good faith
margin deposit in cash or government securities with a broker or custodian to
initiate and maintain open positions in futures contracts. A margin deposit is
intended to assure completion of the contract (delivery or acceptance of the
underlying security) if it is not terminated prior to the specified delivery
date. Minimal initial margin requirements are established by the futures
exchange and may be changed. Brokers may establish deposit requirements which
are higher than the exchange minimums. Initial margin deposits on futures
contracts are customarily set at levels much lower than the prices at which the
underlying securities are purchased and sold, typically ranging upward from less
than 5% of the value of the contract being traded.
After a futures contract position is opened, the value of the contract
is marked to market daily. If the futures contract price changes to the extent
that the margin on deposit does not satisfy margin requirements, payment of
additional "variation" margin will be required. Conversely, change in the
contract value may reduce the required margin, resulting in a repayment of
excess margin to the contract holder. Variation margin payments are made to and
from the futures broker for as long as the contract remains open. The Fund
expects to earn interest income on 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 Fund intends to enter into futures
contracts, options on futures contracts, index futures and options thereon that
are traded on an exchange regulated by the CFTC if, to the extent that such
futures and options are not for "bona fide hedging purposes" (as defined by the
CFTC), the aggregate initial margin and premiums on such positions (excluding
the amount by which options are in the money) do not exceed 5% of the Fund's
total assets at current value. The Fund, however, may invest more than such
amount for bona fide hedging purposes, and also may invest more than such amount
if it obtains authority to do so from the CFTC without rendering the Fund a
commodity pool operator or adversely affecting its status as an investment
company for federal securities laws.
7
<PAGE> 43
The Fund may buy and sell futures contracts and related options to
manage its exposure to changing interest rates and security prices. When
interest rates are expected to rise or market values of portfolio securities are
expected to fall, the Fund can seek through the sale of futures contracts to
offset a decline in the value of its portfolio securities. When interest rates
are expected to fall or market values are expected to rise, the Fund, through
the purchase of such contracts, can attempt to secure better rates or prices for
the Fund than might later be available in the market when it effects anticipated
purchases.
Although techniques other than the sale and purchase of futures
contracts could be used to control the Fund's exposure to market fluctuations,
the use of futures contracts may be a more effective means of managing this
exposure. While the Fund will incur commission expenses in both opening and
closing out futures positions, these costs may be lower than transaction costs
that would be incurred in the purchase and sale of the underlying securities.
The Fund's ability to effectively utilize futures trading depends on
several factors. First, it is possible that there will not be a perfect price
correlation between the futures contracts and their underlying reference
security or index. Second, it is possible that a lack of liquidity for futures
contracts could exist in the secondary market, resulting in an inability to
close a futures position prior to its maturity date. Third, the purchase of a
futures contract involves the risk that the Fund could lose more than the
original margin deposit required to initiate a futures transaction.
LIMITATIONS ON THE USE OF FUTURES CONTRACTS
The Fund 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 Fund's total assets.
The Fund has undertaken to restrict its futures contract trading as
follows:
1. The Fund will not engage in transactions in futures contracts
for speculative purposes;
2. The Fund will not market itself to the public as a commodity
pool or otherwise as a vehicle for trading in the commodities
futures or commodity options markets;
3. The Fund will disclose to all prospective Shareholders the
purpose of and limitations on its commodity futures trading;
and
4. The Fund will submit to the CFTC special calls for
information. Accordingly, registration as a commodities pool
operator with the CFTC is not required.
In addition to the margin restrictions discussed above, transactions in
futures contracts may involve the segregation of funds pursuant to requirements
imposed by the SEC. Under those requirements, where the Fund has a long position
in a futures contract, it may be required to establish a segregated account (not
with a futures commission merchant or broker) containing cash or certain liquid
assets equal to the purchase price of the contract (less any margin on deposit).
For a short position in futures or forward contracts held by the Fund, those
requirements may mandate the establishment of a segregated account (not with a
futures commission merchant or broker) with cash or certain liquid assets that,
when added to the amounts deposited as margin, equal the market value of the
instruments underlying the futures contracts (but are not less than the price at
which the short positions were established). However, segregation of assets is
not required if the Fund "covers" a long position. For example, instead of
segregating assets, the Fund, when holding a long position in a futures
contract, could purchase a put option on the same futures contract with a strike
price as high or higher than the price of the contract held by the Fund. In
addition, where the Fund takes short positions, or engages in sales of call
options, it need not segregate assets if it "covers" these positions. For
example, where the Fund holds a short position in a futures contract, it may
cover by owning the instruments underlying the contract. The Fund may also cover
such a position by holding a call option permitting it to purchase the same
futures contract at a price no higher than the price at which the short position
was established. Where the Fund sells a call option on a futures contract, it
may cover either by entering into a long position in the same contract at a
price no higher than the strike price of the call option or by owning the
instruments underlying the futures contract. The Fund could also cover this
position by holding a separate call option
8
<PAGE> 44
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 Fund.
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, the Fund would continue to be
required to make daily cash payments to maintain the required margin.
In such situations, if the Fund has insufficient cash, it may have to
sell portfolio securities to meet daily margin requirements at a time
when it may be disadvantageous to do so. In addition, the Fund may be
required to make delivery of the instruments underlying futures
contracts it holds. The inability to close options and futures
positions also could have an adverse impact on the ability to
effectively hedge such positions. The Fund will minimize the risk that
they will be unable to close out a futures contract by only entering
into futures contracts which are traded on national futures exchanges
and for which there appears to be a liquid secondary market.
Risk of Loss. The risk of loss in trading futures contracts in
some strategies can be substantial, due both to the low margin
deposits required, and the extremely high degree of leverage involved
in futures pricing. Because the deposit requirements in the futures
markets are less onerous than margin requirements in the securities
market, there may be increased participation by speculators in the
futures market which may also cause temporary price distortions. A
relatively small price movement in a futures contract may result in
immediate and substantial loss (as well as gain) to the investor. For
example, if at the time of purchase, 10% of the value of the futures
contract is deposited as margin, a subsequent 10% decrease in the
value of the futures contract would result in a total loss of the
margin deposit, before any deduction for the transaction costs, if the
account were then closed out. A 15% decrease would result in a loss
equal to 150% of the original margin deposit if the contract were
closed out. Thus, a purchase or sale of a futures contract may result
in losses in excess of the amount invested in the contract. However,
because the futures strategies engaged in by the Fund are only for
risk management purposes, Banc One Investment Advisors does not
believe that the Fund is subject to the risks of loss frequently
associated with futures transactions. The Fund would presumably have
sustained comparable losses if, instead of the futures contract, it
had invested in the underlying financial instrument and sold it after
the decline.
Correlation Risk. The Fund's use of futures transactions
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 the 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
the 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 the Fund's exposure to price fluctuations.
Other strategies, including buying futures, and buying calls, tend to increase
market exposure. Futures and options may be combined with each other in order to
adjust the risk and return characteristics of the overall portfolio. The Fund
expects to enter into these transactions to manage a return or spread on a
particular investment or portion of its assets, to protect against any increase
in the price of securities the Fund anticipates purchasing at a later date, or
for other risk management strategies.
9
<PAGE> 45
OPTIONS CONTRACTS
The Fund may use options on securities or futures contracts as a
hedging device. An option gives the buyer of the option the right (but not the
obligation) to purchase a futures contract or security at a specified price
(also called the Strike price). A Call Option gives the buyer the "right to
purchase" a security at a specified price (the exercise price) at any time until
a certain date (the expiration date). So long as the obligation of the writer of
a call option continues, the writer may be assigned an exercise notice by the
broker-dealer through whom such option was sold, requiring the writer to deliver
the underlying security against payment of the exercise price. This obligation
terminates upon the expiration of the call option, or such earlier time at which
the writer effects a closing purchase transaction by repurchasing an option
identical to that previously sold. To secure the writer's obligation to deliver
the underlying security in the case of a call option, subject to the rules of
the Options Clearing Corporation, a writer is required to deposit in escrow the
underlying security or other assets in accordance with such rules.
A Put Option gives the buyer the right to sell the underlying futures
contract or security. The purchase price of an option is referred to as its
"premium." The seller (or "writer") of a put option must purchase futures
contracts or securities at a strike price if the option is exercised. In the
case of a call option, the seller must sell the futures contract or security in
the underlying futures contract or security at the strike price if the option is
exercised.
A Naked Option is an option written by a party who does not own the
underlying futures contract or security. A Covered Option is an option written
by a party who does own the underlying position. The initial purchase (sale) of
an option is an "opening transaction." In order to close out an option position,
the Fund may enter into a "closing transaction." This involves the sale
(purchase) of an option contract on the same security with the same exercise
price and expiration date as the option contract originally opened. A call
option on a futures contract or security is said to be "in-the-money" if the
strike price is below current market levels and "out-of-the-money" if the strike
price is above current market levels. A put option is "in-the-money" if the
strike price is above current market levels, and "out-of-the-money" if the
strike price is below current market levels.
Options have limited life spans, usually tied to the delivery or
settlement date of the underlying futures contract or security. Some options,
however, expire significantly in advance of such dates. An option that is
"out-of-the-money" and not offset by the time it expires becomes worthless. On
certain exchanges "in-the-money" options are automatically exercised on their
expiration date, but on others unexercised options simply become worthless after
their expiration date. Options usually trade at a premium (referred to as the
"time value" of the option) above their intrinsic value (the difference between
the market price for 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
The Fund may write (sell) covered call options and purchase options to
close out options previously written by the Fund. The Fund' purpose in writing
covered call options is to generate additional premium income. This premium
income will serve to enhance the Fund's total return and will reduce the effect
of any price decline of the security involved in the option. Generally, the Fund
will write covered call options on securities which, in the opinion of Banc One
Investment Advisors, 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 Fund will write only covered call options. This means that the
Fund will only write a call option on a security which the Fund already owns.
Fund securities on which call options may be written will be purchased
solely on the basis of investment considerations consistent with 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 the Fund will not do), but capable of
enhancing the Fund's total return. When writing a covered call option, the Fund,
in return for the premium, gives up the opportunity for profit from a price
increase in the underlying security above the exercise price, but conversely
retains the risk of
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loss should the price of the security decline. Unlike one who owns securities
not subject to an option, the Fund has no control over when it may be required
to sell the underlying securities, since it may be assigned an exercise notice
at any time prior to the expiration of its obligation as a writer. Thus, the
security could be "called away" at a price substantially below the fair market
value of the security. If a call option which the Fund has written expires, the
Fund will realize a gain in the amount of the premium; however, such gain may be
offset by a decline in the market value of the underlying security during the
option period. If the call option is exercised, the Fund will realize a gain or
loss from the sale of the underlying security. The security covering the call
will be maintained in a segregated account of the Fund's custodian.
The Fund does not consider a security covered by a call to be "pledged"
as that term is used in the Fund's policy which limits the pledging or
mortgaging of its assets.
The premium received is the market value of an option. The premium the
Fund will receive from writing a call option will reflect, among other things,
the current market price of the underlying security, the relationship of the
exercise price to such market price, the historical price volatility of the
underlying security, and the length of the option period. Once the decision to
write a call option has been made, the Fund's Advisor, in determining whether a
particular call option should be written on a particular security, will consider
the reasonableness of the anticipated premium and the likelihood that a liquid
secondary market will exist for those options. The premium received by the Fund
for writing covered call options will be recorded as a liability in the Fund's
statement of assets and liabilities. This liability will be adjusted daily to
the option's current market value, which will be the latest sale price at the
time at which the net asset value per Share of the Fund is computed (close of
the New York Stock Exchange), or, in the absence of such sale, the latest asked
price. The liability will be extinguished upon expiration of the option, the
purchase of an identical option in the closing transaction, or delivery of the
underlying security upon the exercise of the option.
Generally, the Fund, in order to avoid the exercise of an option sold
by it, will be able to cancel its obligation under the option by entering into a
closing purchase transaction, if available, unless selling (in the case of a
call option) or purchasing (in the case of a put option) the underlying
securities is determined to be in the Fund's best interest. A closing purchase
transaction consists of the Fund purchasing an option having the same terms as
the option sold by the Fund, and has the effect of cancelling the Fund's
position as a seller. The premium which the 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 the Fund is exercised and the Fund delivers securities to the holder of a
call option, the Fund's turnover rate will increase, which would cause the Fund
to incur additional brokerage expenses.
Closing transactions will be effected in order to realize a profit on
an outstanding call option, to prevent an underlying security from being called,
or to permit the sale of the underlying security.
Furthermore, effecting a closing transaction will permit the Fund to
write another call option on the underlying security with either a different
exercise price or expiration date or both. If the Fund desires to sell a
particular security from its portfolio on which it has written a call option it
will seek to effect a closing transaction prior to, or concurrently with, the
sale of the security. There is, of course, no assurance that the Fund will be
able to effect such closing transactions at a favorable price. If the Fund
cannot enter into such a transaction, it may be required to hold a security that
it might otherwise have sold, in which case it would continue to be at market
risk on the security. This could result in higher transaction costs. The Fund
will pay transaction costs in connection with the writing of options to close
out previously written options. Such transaction costs are normally higher than
those applicable to purchases and sales of portfolio securities.
Call options written by the Fund will normally have expiration dates of
less than nine months from the date written. The exercise price of the options
may be below, equal to, or above the current market values of the underlying
securities at the time the options are written. From time to time, the Fund may
purchase an underlying security for delivery in accordance with an exercise
notice of a call option assigned to it, rather than delivering such security
from its portfolio. In such cases, additional costs will be incurred.
The Fund will realize a profit or loss from a closing purchase
transaction if the cost of the transaction is less or more than the premium
received from the writing of the option. Because increases in the market price
of a call option will generally
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reflect increases in the market price of the underlying security, any loss
resulting from the repurchase of a call option is likely to be offset in whole
or in part by appreciation of the underlying security owned by the Fund.
PURCHASING CALL OPTIONS
The Fund may purchase call options to hedge against an increase in the
price of securities that the Fund wants ultimately to buy. Such hedge protection
is provided during the life of the call option since the Fund, as holder of the
call option, is able to buy the underlying security at the exercise price
regardless of any increase in the underlying security's market price. In order
for a call option to be profitable, the market price of the underlying security
must rise sufficiently above the exercise price to cover the premium and
transaction costs. These costs will reduce any profit the Fund might have
realized had it bought the underlying security at the time it purchased the call
option. In the event that paying a premium for a call option, together with a
price movement in the underlying security, is such that exercise of the option
would not be profitable to the Fund, loss of the premium may be offset by a
decrease in the acquisition cost of securities by the Fund.
PURCHASING PUT OPTIONS
The Fund may also purchase put options to protect its portfolio
holdings in an underlying security against a decline in market value. Such hedge
protection is provided during the life of the put option since the Fund, as
holder of the put option, is able to sell the underlying security at the put
exercise price regardless of any decline in the underlying security's market
price. For a put option to be profitable, the market price of the underlying
security must decline sufficiently below the exercise price to cover the premium
and transaction costs. By using put options in this manner, the Fund will reduce
any profit it might otherwise have realized from appreciation of the underlying
security by the premium paid for the put option and by transaction cost.
However, any loss of premium may be offset by an increase in the value of the
Fund's securities.
SECURED PUTS
The Fund may write secured puts. For the secured put writer,
substantial depreciation in the value of the underlying security would result in
the security being "put to" the writer at the strike price of the option which
may be substantially in excess of the fair market value of the security. If a
secured put option expires unexercised, the writer realizes a gain in the amount
of the premium.
STRADDLES AND SPREADS
The Fund also may engage in straddles and spreads. In a straddle transaction,
the Fund either buys a call and a put or sells a call and a put on the same
security. In a spread, the Fund purchases and sells a call or a put. The Fund
will sell a straddle when Banc One Investment Advisors 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, the Fund runs the
risk that it will lose its entire investment in the option in a
relatively short period of time, unless the Fund exercises the option
or enters into a closing sale transaction with respect to the option
during the life of the option. If the price of the underlying security
does not rise (in the case of a call) or fall (in the case of a put)
to an extent sufficient to cover the option premium and transaction
costs, the Fund will lose part or all of its investment in the option.
This contrasts with an investment by the Fund in the underlying
securities, since the Fund may continue to hold its investment in
those securities notwithstanding the lack of a change in price of
those securities. In addition, there may be imperfect or no
correlation between the changes in market value of the securities held
by the Fund and the prices of the options.
Judgement of Advisor. The successful use of the options
strategies depends on the ability of Banc One Investment Advisors 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 the Fund's ability to terminate option positions at
times when Banc One Investment Advisors, deems it desirable to do so.
The Fund will take an option position only if Banc One
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Investment Advisors believes there is a liquid secondary market for the
option, however, there is no assurance that the Fund will be able to
effect closing transactions at any particular time or at an acceptable
price.
Liquidity. If a secondary trading market in options were to
become unavailable, the Fund could no longer engage in closing
transactions. Lack of investor interest might adversely affect the
liquidity of the market for particular options or series of options. A
marketplace may discontinue trading of a particular option or options
generally. In addition, a market could become temporarily unavailable
if unusual events, such as volume in excess of trading or clearing
capability, were to interrupt normal market operations. A marketplace
may at times find it necessary to impose restrictions on particular
types of options transactions, which may limit the Fund's ability to
realize its profits or limit its losses.
Market Restrictions. Disruptions in the markets for the
securities underlying options purchased or sold by the Fund could
result in losses on the options. If trading is interrupted in an
underlying security, the trading of options on that security is
normally halted as well. As a result, the Fund as purchaser or writer
of an option will be unable to close out its positions until option
trading resumes, and it may be faced with losses if trading in the
security reopens at a substantially different price. In addition, the
Options Clearing Corporation ("OCC") or other options markets may
impose exercise restrictions. If a prohibition on exercise is imposed
at the time when trading in the option has also been halted, the Fund
as purchaser or writer of an option will be locked into its position
until one of the two restrictions has been lifted. If a prohibition on
exercise remains in effect until an option owned by the Fund has
expired, the Fund could lose the entire value of its option.
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
The Fund will limit the writing of put and call options to 25% of its
net assets. The Fund may enter into over-the-counter option transactions. There
will be an active over-the-counter market for such options which will establish
their pricing and liquidity. Broker/Dealers with whom the Trust will enter into
such option transactions shall have a minimum net worth of $20,000,000.
GOVERNMENT SECURITIES
The Fund invests in securities issued by agencies and instrumentalities
of the U.S. Government. Not all securities issued by U.S. Government agencies
and instrumentalities are backed by the full faith and credit of the U.S.
Treasury.
- 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.
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- No assurance can be given that the U.S. Government would
provide financial support to U.S. Government-sponsored
agencies or instrumentalities if it is not obligated to do so
by law. The Fund will invest in the obligations of such
agencies or instrumentalities only when Banc One Investment
Advisors 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.
INVESTMENT COMPANY SECURITIES
The Fund may invest up to 5% of its 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 its total assets in the securities of other investment companies. Other
investment company securities may include securities of a money market fund of
the Trust, and securities of other money market funds for which Banc One
Investment Advisors or its affiliate serves as investment advisor or
administrator. Because other investment companies employ an investment advisor,
such investments by the Fund 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. Banc One Investment Advisors will also
waive its fees attributable to the assets of the Fund invested in any investment
company if required by the laws of any state in which shares of the Trust are
sold.
LOAN PARTICIPATIONS AND ASSIGNMENTS
The Fund may invest in fixed and floating rate loans ("Loans"). Loans
are typically arranged through private negotiations between borrowers (which may
be corporate issuers or issuers of sovereign debt obligations) and one or more
financial institutions ("Lenders"). Generally, the Fund invests in Loans by
purchasing Loan Participations ("Participations") or assignments of all or a
portion of Loans ("Assignments") from third parties.
Typically, the Fund will have a contractual relationship only with the
Lender and not with the borrower when it purchases a Participation. In contrast,
the Fund has direct rights against the borrower on the Loan when it purchases an
Assignment. Because Assignments are arranged through private negotiations
between potential assignees and potential assignors, however, the rights and
obligations acquired by the Fund as the purchaser of an Assignment may differ
from, and be more limited than, those held by the assigning Lender.
Limitations on Investments in Loan Participations and Assignments. Loan
participants and assignments may be illiquid. As a result, the Fund will invest
no more than 15% of its net assets in these investments. If a government entity
is a borrower on a Loan, the Fund will consider the government to be the issuer
of a Participation 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).
Risk Factors of Loan Participations and Assignments. The Fund may have
difficulty disposing of Assignments and Participations because to do so it will
have to assign such securities to a third party. Because there is no liquid
market for such securities, the Fund anticipates that such securities could be
sold only to a limited number of institutional investors. The lack of a liquid
secondary market may have an adverse impact on the value of such securities and
the Fund's ability to dispose of particular Assignments or Participations when
necessary to meet the Fund's liquidity needs in response to a specific economic
event such as a deterioration in the creditworthiness of the borrower. The lack
of a liquid secondary market for Assignments and Participations also may make it
more difficult for the Fund to assign a value to those securities when valuing
the Fund's securities and calculating its net asset value.
MORTGAGE-RELATED SECURITIES
Mortgage-Backed Securities (CMOs and REMICs). Mortgage-backed securities include
collateralized mortgage obligations ("CMOs") and Real Estate Mortgage Investment
Conduits ("REMICs"). (A REMIC is a CMO that qualifies for special tax
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treatment under the Code and invests in certain mortgages principally secured by
interests in real property and other permitted investments).
Mortgage-backed securities represent pools of mortgage loans assembled for sale
to investors by:
- various governmental agencies such as Ginnie Mae;
- government-related organizations such as Fannie Mae and Freddie Mac;
- Non-governmental issuers such as commercial banks, savings and loan
institutions, mortgage bankers, and private mortgage insurance
companies. (Non-governmental mortgage securities cannot be treated as
U.S. Government securities for purposes of investment policies).
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. Ginnie Mae's 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 stockholders. 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 Bank. Freddie Mac Certificates are not guaranteed by
the United States or by any Federal Home Loan Banks and do not
constitute a debt or obligation of the United States or of any Federal
Home Loan Bank. Freddie Mac Certificates entitle the holder to timely
payment of interest, which is guaranteed by Freddie Mac. Freddie Mac
guarantees either ultimate collection or timely payment of all
principal payments on the underlying mortgage loans. When Freddie Mac
does not guarantee timely payment of principal, Freddie Mac may remit
the amount due on account of its guarantee of ultimate payment of
principal at any time after default on an underlying mortgage, but in
no event later than one year after it becomes payable.
CMOs and guaranteed REMIC pass-through certificates ("REMIC
Certificates") issued by Fannie Mae, Freddie Mac, Ginnie Mae and private issuers
are types of multiple class pass-through securities. Investors may purchase
beneficial interests in REMICs, which are known as "regular" interests or
"residual" interests. The Fund does not currently intend to purchase residual
interests in REMICs. 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. 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.
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
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("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. Ginnie Mae guarantees the full
and timely payment of interest and principal on each class of
securities (in accordance with the terms of those classes as specified
in the related offering circular supplement). The Ginnie Mae guarantee
is backed by the full faith and credit of the United States of
America.
REMIC Certificates issued by Fannie Mae, Freddie Mac and Ginnie Mae are
treated as U.S. Government securities for purposes of investment policies.
CMOs and REMIC Certificates provide for the redistribution of cash flow
to multiple classes. Each class of CMOs or REMIC Certificates, often referred to
as a "tranche," is issued at a specific adjustable or fixed interest rate and
must be fully retired no later than its final distribution date. This
reallocation of interest and principal results in the redistribution of
prepayment risk across to different classes. This allows for the creation of
bonds with more or less risk than the underlying collateral exhibits. Principal
prepayments on the mortgage loans or the Mortgage Assets underlying the CMOs or
REMIC Certificates may cause some or all of the classes of CMOs or REMIC
Certificates to be retired substantially earlier than their final distribution
dates. Generally, interest is paid or accrues on all classes of CMOs or REMIC
Certificates on a monthly basis.
The principal of and interest on the Mortgage Assets may be allocated
among the several classes of CMOs or REMIC Certificates in various ways. In
certain structures (known as "sequential pay" CMOs or REMIC Certificates),
payments of principal, including any principal prepayments, on the Mortgage
Assets generally are applied to the classes of CMOs or REMIC Certificates in the
order of their respective final distribution dates. Thus, no payment of
principal will be made on any class of sequential pay CMOs or REMIC Certificates
until all other classes having an earlier final distribution date have been paid
in full.
Additional structures of CMOs and REMIC Certificates include, among
others, "parallel pay" CMOs and REMIC Certificates. Parallel pay CMOs or REMIC
Certificates are those which are structured to apply principal payments and
prepayments of the Mortgage Assets to two or more classes concurrently on a
proportionate or disproportionate basis. These simultaneous payments are taken
into account in calculating the final distribution date of each class.
A wide variety of REMIC Certificates may be issued in the parallel pay
or sequential pay structures. These securities include accrual certificates
(also known as "Z-Bonds"), which only accrue interest at a specified rate until
all other certificates having an earlier final distribution date have been
retired and are converted thereafter to an interest-paying security, and planned
amortization class ("PAC") certificates, which are parallel pay REMIC
Certificates which generally require that specified amounts of 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 Fund may invest may bear the same non-credit- related risks as do other
types of Z-Bonds. Z-Bonds in which the Fund may invest will not include residual
interest.
Limitations on the use of Mortgage-Backed Securities. The 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 Advisors to be of comparable quality.
Mortgage Dollar Rolls. The Fund may enter into Mortgage Dollar Rolls in
which the Fund sells securities for delivery in the current month and
simultaneously contracts with the same counterparty to repurchase similar (same
type, coupon and maturity) but not identical securities on a specified future
date. When the Fund enters into mortgage dollar rolls, the Fund will hold and
maintain a segregated account until the settlement date. The segregated account
will contain cash or liquid, high grade
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debt securities in an amount equal to the forward purchase price. The Fund
benefits from a mortgage dollar roll 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"); and
- 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 or gains
on the securities sold as a part of the mortgage dollar roll, the investment
performance of the Fund will be less than what the performance would have been
without the use of mortgage dollar rolls. The benefits of mortgage dollar rolls
may depend upon Banc One Investment Advisors' ability to predict mortgage
prepayments and interest rates. There is no assurance that mortgage dollar rolls
can be successfully employed. The Fund currently intends to enter into mortgage
dollar rolls that are accounted for as a financing transaction. For purposes of
diversification and investment limitations, mortgage dollar rolls are considered
to be mortgage-backed securities.
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 subject to the following additional risks:
Prepayment/Interest Rate Sensitivity. SMBS are extremely sensitive to
changes in prepayments and interest rates. Even though these securities
have been guaranteed by an agency or instrumentality of the U.S.
Government, under certain interest rate or prepayment rate scenarios,
the Fund may lose money on investments in SMBS.
Interest Only SMBS. Changes in prepayment rates can cause the return on
investment in IOs to be highly volatile. Under extremely high
prepayment conditions, IOs can incur significant losses.
Principal Only SMBS. 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. Generally, the market value of these securities is unusually
volatile in response to changes in interest rates.
Yield Characteristics. Although SMBS may yield more than other
mortgage-backed securities, 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 techniques.
The Fund may invest in SMBS to enhance revenues or hedge against
interest rate risk. The Fund 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 Fund's limitations on investments in
illiquid securities.
Adjustable Rate Mortgage Loans. The Fund may invest in adjustable rate
mortgage loans ("ARMS"). ARMs eligible for inclusion in a mortgage pool will
generally provide for a fixed initial mortgage interest rate for a specified
period of time. Thereafter, the interest rates (the "Mortgage Interest Rates")
may be subject to periodic adjustment based on changes in the applicable index
rate (the "Index Rate"). The adjusted rate would be equal to the Index Rate plus
a gross margin, which is a fixed percentage spread over the Index Rate
established for each ARM at the time of its origination.
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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 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.
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Interest Rate Sensitivity. If the Fund purchases a
mortgage-related security at a premium, that portion may be lost if
there is a decline in the market value of the security whether
resulting from changes in interest rates or prepayments in the
underlying mortgage collateral. As with other interest-bearing
securities, the prices of such securities are inversely affected by
changes in interest rates. However, though the value of a
mortgage-related security may decline when interest rates rise, the
converse is not necessarily true since in periods of declining
interest rates the mortgages underlying the securities are prone to
prepayment. For this and other reasons, a mortgage-related security's
stated maturity may be shortened by unscheduled prepayments on the
underlying mortgages and, therefore, it is not possible to predict
accurately the security's return to the Fund. In addition, regular
payments received in respect of mortgage-related securities include
both interest and principal. No assurance can be given as to the
return the Fund will receive when these amounts are reinvested.
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. Adjustable rate Mortgage-Backed Securities have
less potential for capital appreciation than fixed rate
Mortgage-Backed Securities because their coupon rates will decline in
response to market interest rate declines. The market value of fixed
rate Mortgage-Backed Securities may be adversely affected as a result
of increases in interest rates and, because of the risk of unscheduled
principal prepayments, may benefit less than other fixed rate
securities of similar maturity from declining interest rates. Finally,
to the extent Mortgage-Backed Securities are purchased at a premium,
mortgage foreclosures and unscheduled principal prepayments may result
in some loss of the Fund's principal investment to the extent of the
premium paid. On the other hand, if such securities are purchased at a
discount, both a scheduled payment of principal and an unscheduled
prepayment of principal will increase current and total returns and
will accelerate the recognition of income.
Yield Characteristics. The yield characteristics of
Mortgage-Backed Securities differ from those of traditional fixed
income securities. The major differences typically include more
frequent interest and principal payments, usually monthly, and the
possibility that prepayments of principal may be made at any time.
Prepayment rates are influenced by changes in current interest rates
and a variety of economic, geographic, social and other factors and
cannot be predicted with certainty. As with fixed rate mortgage loans,
adjustable rate mortgage loans may be subject to a greater prepayment
rate in a declining interest rate environment. The yields to maturity
of the Mortgage-Backed Securities in which the Fund invests will be
affected by the actual rate of payment (including prepayments) of
principal of the underlying mortgage loans. The mortgage loans
underlying such securities generally may be prepaid at any time
without penalty. In a fluctuating interest rate environment, a
predominant factor affecting the prepayment rate on a pool of mortgage
loans is the difference between the interest rates on the mortgage
loans and prevailing mortgage loan interest rates (giving
consideration to the cost of any refinancing). In general, if mortgage
loan interest rates fall sufficiently below the interest rates on
fixed rate mortgage loans underlying mortgage pass-through securities,
the rate of prepayment would be expected to increase. Conversely, if
mortgage loan interest rates rise above the interest rates on the
fixed rate mortgage loans underlying the mortgage pass-through
securities, the rate of prepayment may be expected to decrease.
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:
1. bridges,
2. highways,
3. roads,
4. schools,
5. water and sewer works, and
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6. other utilities.
Other public purposes for which Municipal Securities may be issued include:
1. refunding outstanding obligations,
2. obtaining funds for general operating expenses, and
3. 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
1. water, sewage and solid waste facilities,
2. qualified residential rental projects,
3. certain local electric, gas and other heating or cooling
facilities,
4. qualified hazardous waste facilities,
5. high-speed intercity rail facilities,
6. governmentally-owned airports, docks and wharves and mass
transportation facilities,
7. qualified mortgages,
8. student loan and redevelopment bonds, and
9. 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:
1. privately operated housing facilities,
2. sports facilities,
3. industrial parks,
4. convention or trade show facilities,
5. airport, mass transit, port or parking facilities,
6. air or water pollution control facilities,
7. sewage or solid waste disposal facilities, and
8. facilities for water supply.
Other private activity bonds and industrial development bonds issued to fund the
construction, improvement, equipment or repair of privately-operated industrial,
distribution, research, or commercial facilities may also be Municipal
Securities, but the size of such issues is limited under current and prior
Federal tax law. The aggregate amount of most private activity bonds and
industrial development bonds is limited (except in the case of certain types of
facilities) under federal tax law by an annual "volume cap." The volume cap
limits the annual aggregate principal amount of such obligations issued by or on
behalf of all governmental instrumentalities in the state.
The two principal classifications of Municipal Securities consist of
"general obligation" and "limited" (or revenue) issues. General obligation bonds
are obligations involving the credit of an issuer possessing taxing power and
are payable from the issuer's general unrestricted revenues and not from any
particular fund or source. The characteristics and method of enforcement of
general obligation bonds vary according to the law applicable to the particular
issuer, and payment may be dependent upon appropriation by the issuer's
legislative body. Limited obligation bonds are payable only from the revenues
derived from a particular facility or class of facilities or, in some cases,
from the proceeds of a special excise or other specific revenue source. Private
activity bonds and industrial development bonds generally are revenue bonds and
thus not payable from the unrestricted revenues of the issuer. The credit and
quality of such bonds is generally related to the credit of the bank selected to
provide the letter of credit underlying the bond. Payment of principal of and
interest on industrial development revenue bonds is the responsibility of the
corporate user (and any guarantor).
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The Fund 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. The Fund may purchase:
1. Short-term tax-exempt General Obligations Notes,
2. Tax Anticipation Notes,
3. Bond Anticipation Notes,
4. Revenue Anticipation Notes,
5. Project Notes, and
6. 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. Also, the yields
on Municipal Securities depend upon a variety of factors, including:
- general money market conditions,
- coupon rate,
- 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. However, ratings are general and are not
absolute standards of quality. 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 the 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 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. Municipal
leases may be considered to be illiquid. They may take the form of a lease, an
installment purchase contract, a conditional sales contract, or a participation
interest in any of the above. The Board of Trustees is responsible
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for determining the credit quality of unrated municipal leases, on an ongoing
basis, including an assessment of the likelihood that the lease will not be
canceled.
RISK FACTORS IN MUNICIPAL SECURITIES
Tax Risk. The Code imposes certain continuing requirements on
issuers of tax-exempt bonds regarding the use, expenditure and
investment of bond proceeds and the payment of rebates to the United
States of America. Failure by the issuer to comply subsequent to the
issuance of tax-exempt bonds with certain of these requirements could
cause interest on the bonds to become includable in gross income
retroactive to the date of issuance.
Housing Authority Tax Risk. The exclusion from gross income for
Federal income tax purposes for certain housing authority bonds
depends on qualification under relevant provisions of the Code and on
other provisions of Federal law. These provisions of Federal law
contain 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. Typically, 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 requirements. However, there is no assurance that the
requirements will be met. If such requirements are not met:
- the interest on the bonds may become taxable, possibly
retroactively from the date of issuance;
- the value of the bonds may be reduced;
- you and other Shareholders may be subject to unanticipated
tax liabilities;
- the Fund may be required to sell the bonds at the reduced
value;
- it may be an event of default under the applicable mortgage;
- the holder may be permitted to accelerate payment of the
bond; and
- the issuer may be required to redeem the bond.
In addition, if the mortgage securing the bonds is insured by the
Federal Housing Administration ("FHA"), the consent of the FHA may be
required before insurance proceeds would become payable.
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 the Fund's Municipal
Securities in the same manner.
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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 Fund, and
(ii) the value of the investment portfolios of the Fund.
LIMITATIONS ON THE USE OF MUNICIPAL SECURITIES
The Fund may invest in Municipal Securities either by purchasing them directly
or by purchasing certificates of accrual or similar instruments evidencing
direct ownership of interest payments or principal payments, or both, on
Municipal Securities, provided that, in the opinion of counsel to the initial
seller of each such certificate or instrument, any discount accruing on such
certificate or instrument that is purchased at a yield not greater than the
coupon rate of interest on the related Municipal Securities will to the same
extent as interest on such Municipal Securities be exempt from federal income
tax and state income tax (where applicable) and not treated as a preference item
for individuals for purposes of the federal alternative minimum tax.
The Fund 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 the Fund in connection with the arrangement. The 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.
NEW FINANCIAL PRODUCTS
New options and futures contracts and other financial products, and
various combinations options and futures contracts continue to be
developed.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 the Fund would be less favorable than it would have been if these
products were not used. In addition, losses may occur if counterparties involved
in transactions do not perform as promised. These products may expose the Fund
to potentially greater return as well as potentially greater risk of loss than
more traditional fixed income investments.
PREFERRED STOCK
Preferred stock is a class of stock that generally pays dividends at a
specified rate and has preference over common stock in the payment of dividends
and liquidation. Preferred stock generally does not carry voting rights. As with
all equity securities, the price of preferred stock fluctuates based on changes
in a company's financial condition and on overall market and economic
conditions.
REAL ESTATE INVESTMENT TRUSTS ("REITS")
The Fund may invest in equity interests or debt obligations issued by
REITs. REITs are pooled investment vehicles which invest primarily in income
producing real estate or real estate related loans or interest. REITs are
generally classified as equity REITs, mortgage REITs or a combination of equity
and mortgage REITs. Equity REITs invest the majority of their assets directly in
real property and derive income primarily from the collection of rents. Equity
REITs can also realize capital gains by selling property that 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. The Fund will
indirectly bear its proportionate share of expenses incurred by REITs in which
the Fund invests in addition to the expenses incurred directly by the Fund.
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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. These include:
- limited financial resources,
- infrequent or limited trading, and
- 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,the 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 would suffer a loss to the extent that the proceeds from a
sale of the underlying portfolio securities were less than the repurchase price
under the agreement, or to the extent that the disposition of such securities by
the Fund were delayed pending court action. Additionally, there is no
controlling legal precedent under U.S. law and there may be no controlling legal
precedents under the laws of certain foreign jurisdictions confirming that the
Fund would be entitled, as against a claim by such seller or its receiver or
trustee in bankruptcy, to retain the underlying securities, although (with
respect to repurchase agreements subject to U.S. law) the Board of Trustees of
the Trust believes that, under the regular procedures normally in effect for
custody of the Fund's securities subject to repurchase agreements and under
federal laws, a court of competent jurisdiction would rule in favor of the Trust
if presented with the question. Securities subject to repurchase agreements will
be held by the Trust's custodian or another qualified custodian or in the
Federal Reserve/Treasury book-entry system. Repurchase agreements are considered
by the SEC to be loans by the Fund under the 1940 Act.
Repurchase Agreement Counterparties. Repurchase counterparties include
Federal Reserve member banks with assets in excess of $1 billion and registered
broker dealers which Banc One Investment Advisors deems creditworthy under
guidelines approved by the Board of Trustees.
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REVERSE REPURCHASE AGREEMENTS
The Fund may borrow money for temporary purposes by entering into
reverse repurchase agreements. Pursuant to such agreements, the Fund would sell
portfolio securities to financial institutions such as banks and broker-dealers,
and agree to repurchase them at a mutually agreed-upon date and price. The Fund
would enter into reverse repurchase agreements only to avoid otherwise selling
securities during unfavorable market conditions to meet redemptions. At the time
the Fund entered into a reverse repurchase agreement, it would place in a
segregated custodial account assets, such as cash or liquid securities
consistent with the Fund's investment restrictions and having a value equal to
the repurchase price (including accrued interest), and would subsequently
monitor the account to ensure that such equivalent value was maintained. Reverse
repurchase agreements involve the risk that the market value of the securities
sold by the Fund may decline below the price at which the Fund is obligated to
repurchase the securities. Reverse repurchase agreements are considered by the
SEC to be borrowings by the Fund under the 1940 Act.
RESTRICTED SECURITIES
The Fund may invest in commercial paper issued in reliance on the
exemption from registration afforded by Section 4(2) of the Securities Act of
1933 and other restricted securities. Section 4(2) commercial paper is
restricted as to disposition under federal securities law and is generally sold
to institutional investors, such as the Fund, who agree that they are purchasing
the paper for investment purposes and not with a view to public distribution.
Any resale by the purchaser must be in an exempt transaction. Section 4(2)
commercial paper is normally resold to other institutional investors like the
Fund through or with the assistance of the issuer or investment dealers who make
a market in Section 4(2) commercial paper, thus providing liquidity. The Fund
believes that Section 4(2) commercial paper and possibly certain other
restricted securities which meet the criteria for liquidity established by the
Trustees are quite liquid. The Fund intends, therefore, to treat restricted
securities that meet the liquidity criteria established by the Board of
Trustees, including Section 4(2) commercial paper and Rule 144A Securities, as
determined by Banc One Investment Advisors, 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 Fund believes that the Staff of the SEC
has left the question of determining the liquidity of all restricted securities
to the Trustees. The Trustees have directed Banc One Investment Advisors to
consider the following criteria in determining the liquidity of certain
restricted securities:
- the frequency of trades and quotes for the security;
- the number of dealers willing to purchase or sell the security
and the number of other potential buyers;
- dealer undertakings to make a market in the security; and
- the nature of the security and the nature of the marketplace
trades.
Certain Section 4(2) commercial paper programs cannot rely on Rule 144A
because, among other things, they were established before the adoption of the
rule. However, the Trustees may determine for purposes of the Trust's liquidity
requirements that an issue of 4(2) commercial paper is liquid if the following
conditions, which are set forth in a 1994 SEC no-action letter, are met:
- The 4(2) paper must not be traded flat or in default as to
principal or interest;
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- 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 to be of equivalent quality; and
- Banc One Investment Advisors must consider the trading market for
the specific security, taking into account all relevant factors,
including but not limited, to whether the paper is the subject of
a commercial paper program that is administered by an issuing and
paying agent bank and for which there exists a dealer willing to
make a market in that paper, or is administered by a direct
issuer pursuant to a direct placement program; and
- Banc One Investment Advisors shall monitor the liquidity of the
4(2) commercial paper purchased and shall report to the Board of
Trustees promptly if any such securities are no longer determined
to be liquid if such determination causes the Fund to hold more
than 15% of its net assets in illiquid securities in order for
the Board of Trustees to consider what action, if any, should be
taken on behalf of One Group Mutual Funds, unless Banc One
Investment Advisors is able to dispose of illiquid assets in an
orderly manner in an amount that reduces the Fund's holdings of
illiquid assets to less than 15% of its net assets; and
- Banc One Investment Advisors 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
To generate additional income, the Fund may lend up to 33 1/3% of the
Fund's total assets pursuant to agreements requiring that the loan be
continuously secured by cash, securities of the U.S. Government or its agencies,
shares of an investment trust or mutual fund, letters of credit or any
combination of cash, such securities, shares, or letters of credit as collateral
equal at all times to at least 100% of the market value plus accrued interest on
the securities lent. The Fund receives payment from the borrowers equivalent to
the dividends and interest which would have been earned 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, commercial paper, repurchase agreements, variable and floating rate
instruments, restricted securities, asset-backed securities, and the other types
of investments permitted by the Fund's prospectus. Collateral is marked to
market daily to provide a level of collateral at least equal to the market value
plus accrued interest of the securities lent. There may be risks of delay in
recovery of the securities or even loss of rights in the collateral should the
borrower of the securities fail financially. However, loans will only be made to
borrowers deemed by Banc One Investment Advisors to be of good standing under
guidelines established by the Trust's Board of Trustees and when, in the
judgment of Banc One Investment Advisors, the consideration which can be earned
currently from such securities loans justifies the attendant risk. Loans are
subject to termination by the Fund or the borrower at any time, and are
therefore, not considered to be illiquid investments.
SHORT-TERM FUNDING AGREEMENTS
To enhance yield, the Fund may make limited investments in short-term
funding agreements issued by banks and highly rated U.S. insurance companies.
Short-term funding agreements issued by insurance companies are sometimes
referred to as Guaranteed Investment Contracts ("GICs"), while those issued by
banks are referred to as Bank Investment Contracts ("BICs"). Pursuant to such
agreements, the Fund makes cash contributions to a deposit account at a bank or
insurance company. The bank or insurance company then credits to the Fund on a
monthly basis guaranteed interest at either a fixed, variable or floating rate.
These contracts are general obligations of the issuing bank or insurance company
(although they may be the obligations of an insurance company separate account)
and are paid from the general assets of the issuing entity.
The Fund will purchase short-term funding agreements only from banks
and insurance companies which, at the time of purchase, are rated in one of the
three highest rating categories and have assets of $1 billion or more.
Generally, there is no active secondary market in short-term funding agreements.
Therefore, short-term funding agreements may be considered by the Fund 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 Fund only if,
at the time of purchase, no more than 15% of the Fund's net assets will be
invested in short-term funding agreements and other illiquid securities.
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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,
principal and/or interest payments on the structured instrument may be
substantially less than expected. In addition, although structured instruments
may be sold in the form of a corporate debt obligation, they may not have some
of the protection against counterparty default that may be available with
respect to publicly traded debt securities (i.e., the existence of a trust
indenture). In that respect, the risks of default associated with structured
instruments may be similar to those associated with swap contracts. See "Swaps,
Caps and Floors."
The Fund will invest only in structured securities that are consistent
with the Fund's investment objective, policies and restrictions and Banc One
Investment Advisors' outlook on market conditions. In some cases, depending on
the terms of the reference index, a structured instrument may provide that the
principal and/or interest payments may be adjusted below zero; however, the Fund
will not invest in structured instruments if the terms of the structured
instrument provide that the Fund may be obligated to pay more than 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, the Fund's
ability to resell such a structured instrument may be more limited than its
ability to resell other Fund securities. The Fund will treat such instruments as
illiquid, and will limit its investments in such instruments to no more than 15%
of the Fund's net assets, when combined with all other illiquid investments of
the Fund.
SWAPS, CAPS AND FLOORS
The Fund may enter into swaps, caps, and floors (collectively, "Swap
Contracts") 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. The Fund may
enter into these transactions to manage its exposure to changing interest rates
or other market factors or for non-hedging purposes. Some transactions may
reduce the Fund's exposure to market fluctuations while others may tend to
increase market exposure. Although different from options, futures, and options
on futures, Swap Contracts are used by the Fund for similar purposes (i.e., risk
management and hedging) and therefore, expose the Fund to generally the same
risks and opportunities as those investments.
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.
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Currency swaps involve the exchange of respective rights to make or
receive payments in specified currencies. Mortgage swaps are similar to interest
rate swaps in that they represent commitments to pay and receive interest. The
notional principal amount, however, is tied to a reference pool or pools of
mortgages.
Caps and floors are variations on swaps. The purchase of a cap entitles
the purchaser to receive a principal amount from the party selling the cap to
the extent that a specified index exceeds a predetermined interest rate or
amount. The purchase of an interest rate floor entitles the purchaser to receive
payments on a notional principal amount from the party selling the floor to the
extent that a specified index falls below a predetermined interest rate or
amount. Caps and floors are similar in many respects to over-the-counter options
transactions, and may involve investment risks that are similar to those
associated with options transactions and options on futures contracts.
Because swap contracts are individually negotiated, they remain the
obligation of the respective counterparties, and there is a risk that a
counterparty will be unable to meet its obligations under a particular swap
contract. If a counterparty defaults on a swap contract with the Fund, the Fund
may suffer a loss. To address this risk, the Fund will usually enter into
interest rate swaps on a net basis, which means that the two payment streams
(one from the Fund to the counterparty, one to the Fund from the counterparty)
are netted out, with the Fund receiving or paying, as the case may be, only the
net amount of the two payments.
Interest rate swaps do not involve the delivery of securities, other
underlying assets, or principal, except for the purposes of collateralization as
discussed below. Accordingly, the risk of loss with respect to interest rate
swaps entered into on a net basis would be limited to the net amount of the
interest payments that the Fund is contractually obligated to make. If the other
party to an interest rate swap defaults, the Fund's risk of loss consists of the
net amount of interest payments that the Fund is contractually entitled to
receive. In addition, the Fund may incur a market value adjustment on securities
held upon the early termination of the swap. To protect against losses related
to counterparty default, the Fund may enter into swaps that require transfers of
collateral for changes in market value.
In contrast, currency swaps and other types of swaps may involve the
delivery of the entire principal value of one designated currency or financial
instrument in exchange for the other designated currency or financial
instrument. Therefore, the entire principal value of such swaps may be subject
to the risk that the other party will default on its contractual delivery
obligations.
In addition, because swap contracts are individually negotiated and
ordinarily non-transferable, there also may be circumstances in which it would
be impossible for the Fund to close out its obligations under the swap contract
prior to its maturity. Under such circumstances, the Fund might be able to
negotiate another swap contract with a different counterparty to offset the risk
associated with the first swap contract. Unless the Fund is able to negotiate
such an offsetting swap contract, however, the Fund could be subject to
continued adverse developments, even after Banc One Investment Advisors has
determined that it would be prudent to close out or offset the first swap
contract.
The 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 is incorrect in its expectations
of market values, interest rates, or currency exchange rates, the investment
performance of the Fund 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 Fund.
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 Fund will either treat swaps, caps and floors as being subject to
their senior securities restrictions or will refrain from engaging in swaps,
caps and floors. Once the Staff has expressed a position with respect to swaps,
caps and floors, the Fund intends to engage in swaps, caps and floors, if at
all, in a manner consistent with such position. To the extent the net amount of
an interest rate or mortgage swap is held in a segregated account, consisting of
cash or liquid, high grade debt securities, the Fund and Banc One Investment
Advisors believes that swaps do not constitute senior securities under the
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Investment Company Act of 1940 and, accordingly, will not treat them as being
subject to the Fund's borrowing restrictions. The net amount of the excess, if
any, of the Fund's obligations over its entitlements with respect to each
interest rate swap will be accrued on a daily basis and an amount of cash or
liquid securities having an aggregate net asset value at least equal to the
accrued excess will be maintained in a segregated account by the Fund's
Custodian. The Fund generally will limit its investments in swaps, caps and
floors to 25% of its total assets.
TREASURY RECEIPTS
The Fund may purchase interests in separately traded interest and
principal component parts of U.S. Treasury obligations that are issued by banks
or brokerage firms and are created by depositing U.S. Treasury notes and U.S.
Treasury bonds into a special account at a custodian bank. Receipts include:
- Treasury Receipts ("TRS"),
- Treasury Investment Growth Receipts ("TIGRS"), and
- Certificates of Accrual on Treasury Securities ("CATS").
U.S. TREASURY OBLIGATIONS
The Fund may invest in bills, notes and bonds issued by the U.S.
Treasury and separately traded interest and principal component parts of such
obligations that are transferable through the Federal book-entry system known as
Separately Traded Registered Interest and Principal Securities ("STRIPS") and
Coupon Under Book Entry Safekeeping ("CUBES"). The Fund may also invest in
Inflation Indexed Treasury Obligations.
VARIABLE AND FLOATING RATE INSTRUMENTS
Certain obligations purchased by the Fund 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 the Fund and the issuer, they are not normally
traded. Although there is no secondary market in the notes, the Fund may demand
payment of principal and accrued interest. 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 will consider the earning power,
cash flow, and other liquidity ratios of the issuers of such notes and will
continuously monitor their financial status and ability to meet payment on
demand. In determining average weighted portfolio maturity, a variable amount
master demand note will be deemed to have a maturity equal to the period of time
remaining until the principal amount can be recovered from the issuer through
demand.
The Fund, subject to its investment objective policies and
restrictions, may acquire Variable And Floating Rate 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. The Fund 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 the Fund will be determined by Banc One Investment
Advisors 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
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policies. In making such determinations, Banc One Investment Advisors 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 the 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. The
Fund will purchase a variable or floating rate instrument to facilitate
portfolio liquidity or to permit investment of the Fund's assets at a favorable
rate of return.
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 or 15% 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 the Fund may purchase demand instruments that are
not illiquid. If not rated, such instruments must be found by Banc One
Investment Advisors, 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 see Appendix A.
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
The Fund may purchase securities on a "when-issued" and forward
commitment basis. When the Fund agrees to purchase securities on this basis, the
Fund's custodian will set aside cash or liquid portfolio securities equal to the
amount of the commitment in a separate account. The Fund may purchase securities
on a when-issued basis when deemed by Banc One Investment Advisors to present
attractive investment opportunities. When-issued securities are purchased for
delivery beyond the normal settlement date at a stated price and yield, thereby
involving the risk that the yield obtained will be less than that available in
the market at delivery. The Fund generally will not pay for such securities or
earn interest on them until received. Although the purchase of securities on a
when-issued basis is not considered to be leveraging, it has the effect of
leveraging. When Banc One Investment Advisors purchases a when-issued security,
the Custodian will set aside cash or liquid securities to satisfy the purchase
commitment. In such a case, the Fund may be required subsequently to place
additional assets in the separate account in order to assure that the value of
the account remains equal to the amount of the Fund's commitment. 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 the Fund engages in "when-issued" transactions, it relies on the seller to
consummate the trade. Failure of the seller to do so may result in the Fund's
incurring a loss or missing the opportunity to obtain a price considered to be
advantageous.
In a forward commitment transaction, the Fund contracts to purchase
securities for a fixed price at a future date beyond customary settlement time.
The Fund is required to hold and maintain in a segregated account until the
settlement date, cash, U.S. government securities or liquid high-grade debt
obligations in an amount sufficient to meet the purchase price. Alternatively,
the Fund may enter into offsetting contracts for the forward sale of other
securities that they own. The purchase of securities on a when-issued or forward
commitment basis involves a risk of loss if the value of the security to be
purchased declines prior to the settlement date.
Limitations on the Use of When Issued Securities and Forward
Commitments. The Fund does not intend to purchase "when-issued" securities for
speculative purposes but only for the purpose of acquiring portfolio securities.
Because the Fund will set aside cash or liquid portfolio securities to satisfy
its purchase commitments in the manner described, the Fund's liquidity and
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the ability of Banc One Investment Advisors 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 the Fund's total assets, and a commitment will not
exceed 90 days. The Fund may dispose of a when-issued security or forward
commitment prior to settlement if Banc One Investment Advisors deems it
appropriate to do so.
INVESTMENT RESTRICTIONS
The following investment restrictions are FUNDAMENTAL and may be
changed with respect to a particular Fund only by a vote of a majority of the
outstanding Shares of that Fund. See "ADDITIONAL INFORMATION--Miscellaneous" in
this Statement of Additional Information.
The Fund may not:
1. Purchase securities of any issuer (except securities issued or
guaranteed by the United States, its agencies or instrumentalities, and, if
consistent with the Fund's investment objective and policies, repurchase
agreements involving such securities) if as a result more than 5% of the total
assets of the Fund would be invested in the securities of such issuer or the
Fund would own more than 10% of the outstanding voting securities of such
issuer. This restriction applies to 75% of the Fund's assets. For purposes of
these limitations, a security is considered to be issued by the government
entity whose assets and revenues guarantee or back the security. With respect to
private activity bonds or industrial development bonds backed only by the assets
and revenues of a non-governmental user, such user would be considered the
issuer.
2. Purchase any securities that would cause more than 25% of the
total assets of the Fund to be invested in the securities of one or more issuers
conducting their principal business activities in the same industry, provided
that this limitation does not apply to investments in: (i) mortgage-backed
securities; or (ii) the obligations issued or guaranteed by the U.S. Government
or its agencies and instrumentalities and repurchase agreements involving such
securities. For purposes of this limitation (i) utilities will be divided
according to their services (for example, gas, gas transmission, electric and
telephone will each be considered a separate industry); and (ii) wholly-owned
finance companies will be considered to be in the industries of their parents if
their activities are primarily related to financing the activities of their
parents.
3. Make loans, except that the Fund may (i) purchase or hold debt
instruments in accordance with its investment objective and policies; (ii) enter
into repurchase agreements; and (iii) engage in securities lending as described
in the Prospectus and in this Statement of Additional Information.
4. Purchase securities on margin or sell securities short.
5. Underwrite the securities of other issuers except to the extent
that the Fund may be deemed to be an underwriter under certain securities laws
in the disposition of "restricted securities."
6. Purchase or sell commodities or commodity contracts (including
futures contracts), except that for bona fide hedging and other permissible
purposes, the Fund may purchase or sell financial futures contracts and may
purchase call or put options on financial futures contracts.
7. Purchase participation or other direct interests in oil, gas or
mineral exploration or development programs (although investments by the Fund in
marketable securities of companies engaged in such activities are not hereby
precluded).
8. Invest in any issuer for purposes of exercising control or
management.
9. Purchase securities of other investment companies except as
permitted by the 1940 Act and rules, regulations and applicable exemptive relief
thereunder.
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10. Purchase or sell real estate (however, the Fund may, to the
extent appropriate to its investment objective, purchase securities secured by
real estate or interests therein or securities issued by companies investing in
real estate or interests therein).
11. Borrow money or issue senior securities, except that the Fund
may borrow from banks or enter into reverse repurchase agreements for temporary
purposes in amounts up to 10% of the value of its total assets at the time of
such borrowing; or mortgage, pledge, or hypothecate any assets, except in
connection with any such borrowing and in amounts not in excess of the lesser of
the dollar amounts borrowed or 10% of the value of the Fund's total assets at
the time of its borrowing. The Fund will not purchase securities while its
borrowings (including reverse repurchase agreements) in excess of 5% of its
total assets are outstanding.
The following investment restrictions are NON-FUNDAMENTAL except as
noted otherwise and therefore can be changed by the Board of Trustees without
prior shareholder approval.
The Fund may not:
1. Invest in illiquid securities in an amount exceeding, in the
aggregate 15% of the Fund's net assets. An illiquid security is a security which
cannot be disposed of promptly (within seven days) and in the usual course of
business without a loss, and includes repurchase agreements maturing in excess
of seven days, time deposits with a withdrawal penalty, non-negotiable
instruments and instruments for which no market exists.
2. Acquire the securities of registered open-end investment
companies or registered unit investment trusts in reliance on Section
12(d)(1)(F) or 12(d)(1)(G) of the 1940 Act.
The foregoing percentages apply at the time of purchase of a
security. Banc One Investment Advisors shall report to the Board of Trustees
promptly if any of the 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 the Fund to hold more than 15% of its net assets in illiquid
securities in order for the Board of Trustees to consider what action, if any,
should be taken on behalf of the Trust, unless Banc One Investment Advisors is
able to dispose of illiquid assets in an orderly manner in an amount that
reduces the Fund's holdings of illiquid assets to less than 15%of its net
assets.
TEMPORARY DEFENSIVE POSITIONS.
To respond to unusual market conditions, the Fund may invest its
assets in cash or CASH EQUIVALENTS for temporary defensive purposes. These
investments may result in a lower yield than lower-quality or longer term
investments and may prevent the Fund from meeting its investment objectives.
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, money market mutual funds and
bank money market deposit accounts.
PORTFOLIO TURNOVER
The portfolio turnover rate for the Fund will be calculated by
dividing the lesser of purchases or sales of portfolio securities for the year
by the monthly average value of the portfolio securities. The calculation
excludes all securities whose maturities at the time of acquisition were one
year or less.
Higher portfolio turnover rates will likely result in higher
transaction costs to the Fund 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.
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ADDITIONAL TAX INFORMATION CONCERNING THE FUND
The Fund is treated as a separate entity for federal income tax
purposes and is not combined with One Group's other Funds. The 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 Fund so qualifies, it will pay no federal income tax on the
earnings it distributes to shareholders and it will eliminate or reduce to a
nominal amount the federal income taxes to which it may be subject.
In order to qualify as a regulated investment company, the Fund must,
among other things, (1) derive at least 90% of its gross income from dividends,
interest, 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 the 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 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 the Fund qualifies as a regulated investment
company, it will not be subject to federal income tax on the part of its income
distributed to Shareholders, provided the Fund distributes during its taxable
year at least 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. The Fund intends to make sufficient distributions to Shareholders to
qualify for this special tax treatment.
If the Fund fails to qualify as a regulated investment company
receiving special tax treatment in any taxable year, the Fund would be subject
to tax on its taxable income at corporate rates, and all distributions from
earnings and profits, including any distributions of net tax-exempt income and
net long-term capital gains, would be taxable to Shareholders as ordinary
income. In addition, 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 31st 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, the Fund is treated as having
distributed any amount on which it is subject to income tax for any taxable year
ending in such calendar year. The Fund intends to make sufficient distributions
to avoid liability for the excise tax.
Shareholders of the Fund will generally be subject to federal income
tax on distributions received from the Fund. Dividends that are attributable to
the 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 the 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 the Fund's current and
accumulated "earnings and profits" will be treated by a Shareholder receiving
such distributions as a return of capital to the extent of such Shareholder's
basis in its Shares in the Fund, and thereafter as capital gain. A return of
capital is not taxable, but reduces a Shareholder's basis in its shares.
Shareholders not subject to tax on their income generally will not be required
to pay tax on amounts distributed to them. Dividends and distributions on the
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.
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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 will be treated as long-term to the extent of
any long-term capital gain distributions received by the Shareholder with
respect to the shares. All or a portion of any loss realized upon a taxable
disposition of Fund shares will be disallowed if other Fund shares are purchased
within 30 days before or after the disposition. In such a case, the basis of the
newly purchased shares will be adjusted to reflect the disallowed loss.
Certain investment and hedging activities of the Fund, including
transactions in options, futures contracts, hedging transactions, forward
contracts, straddles, swaps, short sales, 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 the Fund's book
income and taxable income. Income earned as a result of these transactions
would, in general, not be eligible for the dividends-received deduction or for
treatment as exempt-interest dividends when distributed to Shareholders. The
Fund will endeavor to make any available elections pertaining to such
transactions in a manner believed to be in the best interest of the Fund.
Certain securities purchased by the Fund (such as STRIPS, CUBES, TRS,
TIGRS, and CATS) 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. The 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 the 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.
The Fund will be required in certain cases to withhold and remit to the
United States Treasury 31% of taxable dividends or of gross proceeds from
redemptions paid to any individual Shareholder who has provided to the Fund
either an incorrect tax identification number or no number at all, or who is
subject to withholding by the Internal Revenue Service for failure 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
the 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 the Fund. 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 the Fund are urged to consult their tax advisors with specific
reference to their own tax situation, including the potential application of
state, local and (if applicable) foreign taxes.
The foregoing discussion is based on tax laws and regulations which are
in effect on the date of this Statement of Additional Information; such laws and
regulations may be changed by legislative, judicial or administrative action,
and such changes may be retroactive.
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<PAGE> 70
VALUATION
VALUATION OF THE FUND
Except as noted below, investments of the Fund in securities the
principal market for which is a securities exchange are valued at their market
values based upon the latest available sales price or, absent such a price, by
reference to the latest available bid and asked prices in the principal market
in which such securities are normally traded.
Securities the principal market for which is not a securities exchange
are valued at the mean of their latest bid and ask quotations in such principal
market. Securities and other assets for which quotations either (1) are not
readily available; or (2) are determined by Banc One Investment Advisors 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.
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 approved by the Board. Securities for which
market quotations are not readily available and other assets will be valued at
fair value using methods approved by the Board.
ADDITIONAL INFORMATION REGARDING THE CALCULATION OF PER SHARE NET ASSET VALUE
The net asset value of the Fund is determined and its Class I and Class
A Shares are priced as of the times specified in the Prospectus. The net asset
value per share of the Fund's Class I and Class A 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 the Fund's Class I and Class A Shares may
differ from each other due to the expense of the Distribution and Shareholders
Services Plan fee applicable to the Fund's Class A Shares.
SECURITY VALUATION SPECIFICS
- Securities for which the primary market is an exchange shall be valued
at the last available quoted sale price on said exchange for the
current day. In lieu of current trade activity, the security shall be
valued at the last available quoted sale.
- Securities, which are traded in the over-the-counter market, shall be
valued at the last available quoted sale price for the current day. In
lieu of current trade activity, the security will be valued at the mean
of the latest quoted bid and ask prices.
- Options, Futures Contracts, and Options on Futures shall be valued at
the last available sale on the exchange on which they are primarily
traded. In lieu of a current day last available sale, the valuation
shall be the mean of the latest bid and ask prices.
- U.S. Government Securities, Mortgage Pools, Collateralized Mortgage
Obligations, Asset Backed Securities, Corporate Bonds, and Municipal
Securities shall be valued by an independent pricing vendor. A mean of
the latest bid and ask quotations or the last sale in the case of a
listed bond shall be used to evaluate the security. Fixed income
securities with less than 61 days to maturity shall be valued at
amortized cost.
35
<PAGE> 71
- Securities for which the primary market is a foreign exchange shall be
valued at the last available quoted sale price on said exchange for
the current day or, if traded on the London Exchange and are not part
of the FTSE 100, the securities will receive the mid-market close.
Quotations of foreign securities shall be converted into the U.S.
dollar equivalent using a spot currency value provided by an
independent pricing vendor.
- Securities for which readily available market quotations are not
available or for which the pricing agent provides a valuation that in
the judgment of the Trust's Pricing Committee does not represent a
fair value, shall be valued in accordance with the Trust's "Securities
Valuation Procedures."
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION
All of the classes of Shares in the Fund are sold on a continuous basis
by The One Group Services Company (the "Distributor"), and the Distributor has
agreed to use appropriate efforts to solicit all purchase orders.
Class I Shares in the 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 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 Shares directly from the Distributor, an
investor may purchase Class A 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.
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 the Fund may exchange their Shares for
Class A Shares of the Fund or for Class A Shares or Class I Shares of another
Fund of the Trust.
Class A Shares. Class A Shareholders may exchange their Shares for
Class I Shares of the Fund or for Class I or Class A Shares of another Fund or
the Trust, if the Shareholder is eligible to purchase such 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 the Fund, the Shareholder will be subject to
Distribution and Shareholder Services Plan Fees.
REDEMPTIONS
The Trust may suspend the right of redemption or postpone the date of
payment for Shares during any period when:
36
<PAGE> 72
(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.
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 the Fund's investment
objectives and policies, but delegate the day-to-day administration of the Fund
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.
37
<PAGE> 73
<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 57 Trustee From March, 2000 to present,
DCI Marketing, Inc. Senior Vice President, W.D. Howard,
2727 W. Good Hope Road Inc. (Corporate parent of DCI
Milwaukee, WI 53209 Marketing, Inc.). From November, 1993
to March, 2000, President, DCI
Marketing, Inc.
Charles I. Post 72 Trustee From July, 1986 to present, self
7615 4th Avenue West employed as a consultant.
Bradenton, FL 34209
Frederick W. Ruebeck 60 Trustee From April, 2000 to present,
10954 Windjammer North advisor, Jerome P. Greene & Associates,
Indianapolis, IN 46256 LLP. From January, 2000 to
April, 2000, self-employed as a
consultant. From June, 1988 to
present, Director of Investments, Eli
Lilly and Company.
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 52 Trustee Since 1975, President of Gardner,
President Inc. (wholesale distributor to the
Gardner, Inc. outdoor power equipment industry).
1150 Chesapeake Avenue
Columbus, OH 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
</TABLE>
38
<PAGE> 74
<TABLE>
<CAPTION>
POSITION HELD PRINCIPAL OCCUPATION
NAME AND ADDRESS AGE WITH THE TRUST DURING THE PAST FIVE YEARS
---------------- --- -------------- --------------------------
<S> <C> <C> <C>
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 Investment and Senior Vice President (1992 to
Management 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>
* 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.
<TABLE>
<CAPTION>
COMPENSATION TABLE(1)
PENSION OR ESTIMATED TOTAL
AGGREGATE RETIREMENT BENEFITS ANNUAL 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
39
<PAGE> 75
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.
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 46 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 33 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 35 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 40 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.
</TABLE>
40
<PAGE> 76
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Alaina J. Metz 33 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>
INVESTMENT ADVISOR
BANC ONE INVESTMENT ADVISORS CORPORATION
Investment advisory services to the Fund are provided by Banc One
Investment Advisors. Banc One Investment Advisors makes the investment decisions
for the assets of the Fund. In addition, Banc One Investment Advisors
continuously reviews, supervises and administers the Fund' s investment program,
subject to the supervision of, and policies established by, the Trustees of the
Trust. The Trust's Shares are not sponsored, endorsed or guaranteed by, and do
not constitute obligations or deposits of any bank affiliate of Banc One
Investment Advisors and are not insured by the FDIC or issued or guaranteed by
the U.S. Government or any of its agencies.
Banc One Investment Advisors is an indirect, wholly-owned subsidiary of
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.
All investment advisory services are provided to the Fund by Banc One
Investment Advisors pursuant to an investment advisory agreement dated January
11, 1993 (the "Investment Advisory Agreement"). The Investment Advisory
Agreement will continue in effect as to the 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 the Fund (as defined under
"ADDITIONAL INFORMATION--Miscellaneous" in this Statement of Additional
Information), and a majority of the Trustees who are not parties to the
respective investment advisory agreements or interested persons (as defined in
the Investment Company Act of 1940) of any party to the respective investment
advisory agreements by votes cast in person at a meeting called for such
purpose. The Advisory Agreement was approved by the Trust's Board of Trustees
with respect to the Fund at their quarterly meeting on May 18, 2000. The
Advisory Agreement may be terminated as to the Fund at any time on 60 days'
written notice without penalty by the Trustees, by vote of a majority of the
outstanding Shares of the Fund, or by the Fund's Advisor. The Advisory Agreement
also terminates automatically in the event of any assignment, as defined in the
1940 Act.
The Advisory Agreement provide that the 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
41
<PAGE> 77
misfeasance, bad faith, or gross negligence on the part of Banc One Investment
Advisors in the performance of its duties, or from reckless disregard by it of
its duties and obligations thereunder.
For its services, Banc One Investment Advisors is entitled to a fee
equal to .35% of the average daily net assets of the Fund. 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 to .65% for
Class A Shares and .40% for Class I Shares.
CODE OF ETHICS
The Trust, Banc One Investment Advisors, and The One Group Services
Company have adopted codes of ethics under Rule 17j-1 of the Investment Company
Act of 1940. The Trust's code of ethics includes policies which require "access
persons" (as defined in Rule 17j-1) to: (i) place the interest of Trust
Shareholders first; (ii) conduct personal securities transactions in a manner
that avoids any actual or potential conflict of interest or any abuse of a
position of trust and responsibility; and (iii) refrain from taking
inappropriate advantage of his or her position with the Trust or with the Fund.
The Trust's code of ethics prohibits any access person from: (i) employing any
device, scheme or artifice to defraud the Trust or the Fund; (ii) making to the
Trust any untrue statement of a material fact or omit to state to the Trust or
the Fund a material fact necessary in order to make the statements made, in
light of the circumstances under which they are made, not misleading; (iii)
engaging in any act, practice, or course of business which operates or would
operate as a fraud or deceit upon the Trust or the Fund; or (iv) engaging in any
manipulative practice with respect to the Trust or the Fund. The Trust's code of
ethics permits personnel subject to the code to invest in securities, including
securities that may be purchased or held by the Fund so long as such investment
transactions are not in contravention of the above noted policies and
prohibitions.
Banc One Investment Advisors' code of ethics requires that all
employees must: (i) place the interest of the accounts which are managed by Banc
One Investment Advisors first; (ii) conduct all personal securities transactions
in a manner that is consistent with the code of ethics and the individual
employee's position of trust and responsibility; and (iii) refrain from taking
inappropriate advantage of their position. Banc One Investment Advisors' code of
ethics permits personnel subject to the code to invest in securities including
securities that may be purchased or held by the Fund subject to certain
restrictions. However, all employees are required to preclear securities trades
(except for certain types of securities such as mutual fund shares and U.S.
government securities).
The One Group Services Company is subject to BISYS Fund Services Code
of Ethics (the "Principal Underwriter's Code of Ethics"). Under the Principal
Underwriter's Code of Ethics, directors, officers, and associates of The One
Group Services Company must: (i) place the interest of Fund shareholders first;
(ii) conduct all personal securities transactions in a manner that is consistent
with the Principal Underwriter's Code of Ethics to avoid any actual or potential
conflict of interest; and (iii) refrain from taking inappropriate advantage of
their position. The Principal Underwriter's Code of Ethics permits personnel
subject to the code to invest in securities including securities that may be
purchased or held by the Fund subject to the policies and restrictions in the
Principal Underwriter's Code of Ethics.
PORTFOLIO TRANSACTIONS
Pursuant to the Advisory Agreement, Banc One Investment Advisors
determines, subject to the general supervision of the Board of Trustees of the
Trust and in accordance with the Fund's investment objective and restrictions,
which securities are to be purchased and sold by the Fund and which brokers are
to be eligible to execute its portfolio transactions. Purchases and sales of
portfolio securities with respect to the 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 a commission or concession paid by the
issuer to the underwriter and purchases from dealers serving as market makers
may include the spread between the bid and asked price. Transactions on stock
exchanges (other than certain foreign stock exchanges) involve the payment of
negotiated brokerage commissions. Transactions in the over-the-counter market
are generally principal transactions with dealers. With respect to the
over-the-counter market, the Trust, where possible, will deal directly with the
dealers who make a market in the securities involved except in those
circumstances where better price and execution are available elsewhere. While
Banc One Investment Advisors 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.
42
<PAGE> 78
Allocation of transactions, including their frequency, to various
dealers is determined by Banc One Investment Advisors with respect to the Fund
based on its 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 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 and does not reduce the advisory fees payable to Banc One
Investment Advisors. Such information may be useful to Banc One Investment
Advisors 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 in carrying out its 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.
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. 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, the transaction will
be averaged as to price, and available investments allocated as to amount, in a
manner which Banc One Investment Advisors 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 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, in making investment
recommendations for the Trust, Banc One Investment Advisors 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 their parents
or subsidiaries or affiliates and, in dealing with its commercial customers,
Banc One Investment Advisors and their respective parent, subsidiaries, and
affiliates will not inquire or take into consideration whether securities of
such customers are held by the Trust.
ADMINISTRATOR AND SUB-ADMINISTRATOR
The One Group Services Company serves as Administrator (the
"Administrator") to the Fund pursuant to a Management and Administration
Agreement with the Trust (the "Administration Agreement"). The Board of Trustees
of the Trust approved The One Group Services Company as the sole Administrator
for each Fund of the Trust beginning December 1, 1995 and approved the
Management and Administration Agreement with respect to the Fund on May 18,
2000. The Administrator assists in supervising all operations of the Fund (other
than those performed under the respective investment advisory agreement and
Custodian and Transfer Agency Agreement for the Fund).
Under the Administration Agreement, the Administrator has agreed to
price the portfolio securities of the Fund and to compute the net asset value
and net income of the Fund on a daily basis, to maintain office facilities for
the Trust, to maintain the Fund's financial accounts and records, and to furnish
the Trust statistical and research data, data processing, clerical, accounting,
and bookkeeping services, and certain other services required by the Trust with
respect to the 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.
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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 the Fund only upon
mutual agreement of the parties to the Administration Agreement and for cause
(as defined in the Administration Agreement) by the party alleging cause, on not
less than sixty days' notice by the Trust's Board of Trustees or by The One
Group Services Company.
The Administration Agreement provides that the Administrator shall not
be liable for any error of judgment or mistake of law or any loss suffered by
the Trust in connection with the matters to which the Administration Agreement
relates, except a loss resulting from willful misfeasance, bad faith, or
negligence in the performance of its duties, or from the reckless disregard by
it of its obligations and duties thereunder.
One Group Administrative Services, Inc. serves as sub-administrator
for the Trust pursuant to a Sub-Administration Agreement between The One Group
Services Company and One Group Administrative Services, Inc. One Group
Administrative Services, Inc. is an affiliate of Banc One Investment Advisors
and an indirect wholly-owned subsidiary of Bank One Corporation.
DISTRIBUTOR
The One Group Services Company, 3435 Stelzer Road, Columbus, Ohio
43219, a wholly owned subsidiary of the BISYS Group, serves as Distributor to
the Fund pursuant to its Distribution Agreement with the Trust (the
"DISTRIBUTION AGREEMENT"). The Board of Trustees of the Trust approved The One
Group Services Company as the sole Distributor beginning November 1, 1995.
Unless otherwise terminated, the Distribution Agreement will continue in effect
until October 31, 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 payable under the Trust's Distribution and
Shareholder Services Plans, with respect to Class A Shares of the Fund are
described in the Fund's Prospectus 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. Prior to February 7, 1992, distribution
fees were waived with respect to every Fund of the Trust except the U.S.
Treasury Securities Money Market Fund and the Prime Money Market Fund.
In accordance with Rule 12b-1 under the 1940 Act, the Distribution Plan
may be terminated with respect to the Class A Shares of the Fund by a vote of a
majority of the Independent Trustees, or by a vote of a majority of the
outstanding Class A
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<PAGE> 80
Shares of the Fund. The Distribution 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 that would materially increase the distribution fee with
respect to the Class A Shares of the Fund requires the approval of the Fund's
Class A Shareholders. 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.
CASH COMPENSATION TO SHAREHOLDER SERVICING AGENTS
The One Group Services Company and Banc One Investment Advisors
Corporation compensate 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 and Banc One Investment
Advisors Corporation from their own resources. The One Group Services
Company may, on occasion, pay select Shareholder Servicing Agents, the
entire front-end sales charge applicable to Fund shares sold by such
Shareholder Servicing Agents.
Occasionally, The One Group Services Company and Banc One
Investment Advisors Corporation, at their own expense, will provide
cash incentives to select Shareholder Servicing Agents. These cash
payments may take of the form of, but are not limited to, finders' fees
and an additional commission on the sale of Fund shares subject to a
contingent deferred sales charge.
CUSTODIAN, TRANSFER AGENT, AND DIVIDEND DISBURSING AGENT
Cash and securities owned by the Fund 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 Fund 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 the
Fund;
(ii) makes receipts and disbursements of money on behalf of the
Fund;
(iii) collects and receives all income and other payments and
distributions on account of the Fund's portfolio securities;
(iv) responds to correspondence from security brokers and others
relating to its duties; and
(v) makes periodic reports to the Trust's Board of Trustees
concerning the Trust's operations. State Street may, at its
own expense, open and maintain a sub-custody account or
accounts on behalf of the Trust, provided that State Street
shall remain liable for the performance of all of its duties
under the Custodian Agreement.
Rules adopted under the 1940 Act permit the Trust to maintain its
securities and cash in the custody of certain eligible banks and securities
depositories.
State Street serves as Transfer Agent and Dividend Disbursing Agent for
the Fund pursuant to Transfer Agency Agreements with the Trust (the "Transfer
Agency Agreement"). Under the Transfer Agency Agreements, State Street has
agreed
(i) to issue and redeem Shares of the Trust;
(ii) to address and mail all communications by the Trust to its
Shareholders, including reports to Shareholders, dividend and
distribution notices, and proxy material for its meetings of
Shareholders;
(iii) to respond to correspondence or inquiries by Shareholders and
others relating to its duties;
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<PAGE> 81
(iv) to maintain Shareholder accounts and certain sub-accounts; and
(v) to make periodic reports to the Trust's Board of Trustees
concerning the Trust's operations.
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<PAGE> 82
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 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:
- .05% of the value of collateral received from the borrower for
each securities loan of U.S. Government and Agency Securities;
and
- .10% of the value of collateral received from the borrower for
each loan of equities and corporate bonds.
EXPERTS
The law firm of Ropes & Gray, One Franklin Square, 1301 K Street, N.W., Suite
800 East, Washington, D.C. 20005 is counsel to the Trust. From time to time,
Ropes & Gray has rendered legal services to Bank One Corporation and its
subsidiary banks.
ADDITIONAL INFORMATION
DESCRIPTION OF SHARES
The Trust is a Massachusetts Business Trust. The Trust's Declaration of
Trust was filed with the Secretary of State of the Commonwealth of Massachusetts
on May 23, 1985 and authorizes the Board of Trustees to issue an unlimited
number of Shares, which are units of beneficial interest, without par value. The
Trust's Declaration of Trust authorizes the Board of Trustees to establish one
or more series of Shares of the Trust, and to classify or reclassify any series
into one or more classes by setting or changing in any one or more respects the
preferences, designations, conversion, or other rights, restrictions, or
limitations as to dividends, conditions of redemption, qualifications, or other
terms applicable to the Shares of such class, subject to those matters expressly
provided for in the Declaration of Trust, as amended, with respect to the Shares
of each series of the Trust. The Trust presently includes 55 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;
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<PAGE> 83
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;
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;
55. The Mortgage-Backed Securities 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
under the topic "The Trust" at the beginning of the Statement of Additional
Information dated as of November 1, 1999. 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, this Statement of Additional
Information, and the Statement of Additional Information, dated November 1,
1999, the Trust's Shares will be fully paid and non-assessable. In the event of
a liquidation or dissolution of the Trust, Shares of the Fund is 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 B and C Shares are currently not available for purchase in all
Funds of the Trust.
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<PAGE> 84
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 each have exclusive voting rights with respect to
matters pertaining to that class under the Distribution Plan.
SHAREHOLDER AND TRUSTEE LIABILITY
Under Massachusetts law, holders of units of beneficial interest in a
business trust may, under certain circumstances, be held personally liable as
partners for the obligations of the trust. However, the Trust's Declaration of
Trust provides that Shareholders shall not be subject to any personal liability
for the obligations of the Trust, and that every written agreement, obligation,
instrument, or undertaking made by the Trust shall contain a provision to the
effect that the Shareholders are not personally liable thereunder. The
Declaration of Trust provides for indemnification out of the trust property of
any Shareholder held personally liable solely by reason of his being or having
been a Shareholder. The Declaration of Trust also provides that the Trust shall,
upon request, assume the defense of any claim made against any Shareholder for
any act or obligation of the Trust, and shall satisfy any judgment thereon.
Thus, the risk of a Shareholder incurring financial loss on account of
Shareholder liability is limited to circumstances in which the Trust itself
would be unable to meet its obligations.
The Declaration of Trust states further that no Trustee, officer, or
agent of the Trust shall be personally liable in connection with the
administration or preservation of the assets of the Trust or the conduct of the
Trust's business; nor shall any Trustee, officer, or agent be personally liable
to any person for any action or failure to act except for his own bad faith,
willful misfeasance, gross negligence, or reckless disregard of his duties. The
Declaration of Trust also provides that all persons having any claim against the
Trustees or the Trust shall look solely to the assets of the Trust for payment.
PERFORMANCE
From time to time, the Fund may advertise yield, total return and/or
distribution rate. These figures will be based on historical earnings and are
not intended to indicate future performance. The yield of the Fund refers to the
annualized income generated by an investment in the Fund over a specified 30-day
period. The yield is calculated by assuming that the income generated by the
investment during that period is generated over a one-year period and is shown
as a percentage of the investment.
Total return is the change in value of an investment in the Fund over a
given period, assuming reinvestment of any dividends and capital gains. A
cumulative total return reflects an actual rate of return over a stated period
of time. An average annual total return is a hypothetical rate of return that,
if achieved annually, would have produced the same cumulative total return if
performance had been constant over the entire period. Average annual total
returns smooth out variations in performance; they are not the same as actual
year-by-year results.
The distribution rate is computed by dividing the total amount of the
dividends per share paid out during the past period by the maximum offering
price or month-end net asset value depending on the class of the Fund. This
figure is then "annualized" (multiplied by 365 days and divided by the
applicable number of days in the period). Classes with a front-end sales charge
would incorporate the offering price into the distribution yield in place of
month-end net asset value.
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<PAGE> 85
Distribution rate is a measure of the level of income paid out in cash
to Shareholders over a specified period. It differs from yield and total return
and is not intended to be a complete measure of performance. Furthermore, the
distribution rate may include return of principal and/or capital gains. Total
return is the change in value of a hypothetical investment over a given period
assuming reinvestment of dividends and capital gain distributions. The yield
refers to the cumulative 30-day rolling net investment income, divided by
maximum offering price and multiplied by average shares outstanding during this
period.
CALCULATION OF PERFORMANCE DATA
Performance information showing the Fund's total return and/or 30-day
yield with respect to a particular class may be presented from time to time in
advertising and sales literature. A 30-day yield is calculated by dividing the
net investment income per-share earned during the 30-day base period by the
maximum offering price per share on the last day of the period, according to the
following formula:
a-b
-------------
30-Day Yield = 2[(cd +1)6-1]
In the above formula, "a" represents dividends and interest earned by a
particular class during the 30-day base period; "b" represents expenses accrued
to a particular class for the 30-day base period (net of reimbursements); "c"
represents the average daily number of Shares of a particular class outstanding
during the 30-day base period that were entitled to receive dividends; and "d"
represents the maximum offering price per share of a particular class on the
last day of the 30-day base period.
The Fund's respective cumulative total return and average annual total
return was determined by calculating the change in the value of a hypothetical
$1,000 investment in a particular class of the Fund for each of the periods
shown. Cumulative total return for a particular class of the Fund is computed by
determining the rate of return over the applicable period that would equate the
initial amount invested to the ending redeemable value of the investment. The
cumulative return is calculated as the total dollar increase or decrease in the
value of an account assuming reinvestment of all distributions divided by the
original initial investment. The average annual return for a particular class of
the Fund is computed by determining the average annual compounded rate of return
over the applicable period that would equate the initial amount invested to the
ending redeemable value of the investment. The ending redeemable value includes
dividends and capital gain distributions reinvested at net asset value. The
resulting percentages indicated the positive or negative investment results that
an investor would have experienced from changes in share price and reinvestment
of dividends and capital gains distributions.
Performance information showing the Fund's and/or particular Class's
distribution rate may be presented from time to time in advertising and sales.
The distribution rate is calculated as follows:
distribution yield = a/(b) x 365
-----------
c
In the formula, "a" represents dividends distributed by a particular
class during that period; "b" represents month end offer price or net asset
value for a particular class; "c" represents the number of days in the period
being calculated. "365" is the number of days in a year, used to annualize the
distribution yield.
Performance will fluctuate from time to time and is not necessarily
representative of future results. Accordingly, the Fund's performance may not
provide for comparison with bank deposits or other investments that pay a fixed
return for a stated period of time. Performance is a function of the Fund's
quality, composition, and maturity, as well as expenses allocated to the Fund.
Fees imposed upon customer accounts at a bank, with regard to Class I Shares, or
a Participating Organization, with regard to Class A Shares, will reduce the
Fund's effective yield to customers. Performance data for the Funds through June
30, 2000 (calculated as described above) is as follows:
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<PAGE> 86
MORTGAGE-BACKED SECURITIES FUND
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURN AS OF 6/30/00
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>
Class A...................... 12/31/83
Class I...................... 12/31/83
</TABLE>
(1) The quoted performance of the Fund for periods prior to August __, 2000 is
represented by the performance of a common trust fund managed by Banc One
Investment Advisors or its predecessors (the "Common Trust Fund") before the
effective date of the registration statement of the Fund. The quoted performance
is adjusted to reflect the estimated current fees of the Fund on a class by
class basis absent any waivers. The Common Trust Fund was not registered under
the 1940 Act and therefore was not subject to certain investment restrictions,
limitations, anddiversification requirements that are imposed by the 1940 Act
and the Code. If the Common Trust Fund had been so registered, its performance
might have been adversely affected.
The performance of the Fund 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.
In addition, the performance of each class of the Fund may from time
to time be compared to that of other mutual funds tracked by mutual
fund rating services, to that of broad groups of comparable mutual
funds or to that of unmanaged indices that may assume investment of
dividends but do not reflect deductions for administrative and
management costs. Further, the performance of each class of the Fund
may be compared to other funds or to relevant indices that may
calculate total return without reflecting sales charges; in which
case, the Fund may advertise its total return in the same manner. If
reflected, sales charges would reduce these total return calculations.
The Fund may quote actual total return performance from time to time
in advertising and other types of literature compared to results
reported by the Dow Jones Industrial Average.
The Dow Jones Industrial Average is an industry-accepted unmanaged
index of generally conservative securities used for measuring general
market performance. The performance reported will reflect the
reinvestment of all distributions on a quarterly basis and market
price fluctuations. The index does not take into account any brokerage
commissions or other fees. Comparative information on the Consumer
Price Index may also be included.
The Fund may also promote the yield and/or total return performance
and use comparative performance information computed by and available
from certain industry and general market research and publications,
such as Lipper Analytical Services, Inc.; they may also use indices,
including those identified in the Prospectus for performance
comparison. Statistical and performance information compiled and
maintained by CDA Technologies, Inc. and Interactive Data Corporation
may also be used.
The Fund may quote actual yield and/or total return performance in
advertising and other types of literature compared to indices or
averages of alternative financial products available to prospective
investors. The performance comparisons may include the average return
of various bank instruments, some of which may carry certain return
guarantees offered by leading banks and thrifts as monitored by Bank
Rate Monitor, and those of corporate bond and government security
price indices of various durations. Comparative information on the
Consumer Price Index may also be included.
The Fund may also use comparative performance information computed by
and available from certain industry and general market research and
publications, as well as statistical and performance information,
compiled and maintained by CDA Technologies, Inc. and Interactive Data
Corporation.
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<PAGE> 87
The Fund may also use current interest rate and yield information on
government debt obligations of various durations, as reported weekly
by the Federal Reserve (Bulletin H. 15). In addition, current rate
information on municipal debt obligations of various durations, as
reported daily by the Bond Buyer, may also be used.
MISCELLANEOUS
The Trust is not required to hold a meeting of Shareholders for the
purpose of electing Trustees except that (i) the Trust is required to hold a
Shareholders' meeting for the election of Trustees at such time as less than a
majority of the Trustees holding office have been elected by Shareholders and
(ii) if, as a result of a vacancy on the Board of Trustees, less than two-thirds
of the Trustees holding office have been elected by the Shareholders, that
vacancy may only be filled by a vote of the Shareholders. In addition, Trustees
may be removed from office by a written consent signed by the holders of Shares
representing two-thirds of the outstanding Shares of the Trust at a meeting duly
called for the purpose, which meeting shall be held upon the written request of
the holders of Shares representing not less than 20% of the outstanding Shares
of the Trust. Except as set forth above, the Trustees may continue to hold
office and may appoint successor Trustees.
As used in the Trust's Prospectuses, this Statement of Additional
Information and the Statement of Additional Information, dated November 1, 1999,
"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 is 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 is
conclusive. As used in the Trust's Prospectuses , this Statement of Additional
Information, and the Statement of Additional Information, dated November 1,
1999, 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 is
represented in person or by proxy.
The Trust is registered with the Securities and Exchange Commission as
a management investment company. Such registration does not involve supervision
by the Commission of the management or policies of the Trust.
The Prospectus and this Statement of Additional Information omit
certain of the information contained in the Registration Statement filed with
the Securities and Exchange Commission. Copies of such information may be
obtained from the Commission upon payment of the prescribed fee.
The Prospectus and this Statement of Additional Information are not an
offering of the securities herein described in any State in which such offering
may not lawfully be made. No salesman, dealer, or other person is authorized to
give any information or make any representation other than those contained in
the Prospectus and Statement of Additional Information.
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FINANCIAL STATEMENTS
Because the Mortgage-Backed Securities Fund is a series without assets
or operating history, there are no financial statements for the Fund.
53
<PAGE> 89
APPENDIX A--DESCRIPTION OF RATINGS
The following is a summary of published ratings by major credit rating agencies.
Credit ratings evaluate only the safety of principal and interest payments, not
the market value risk of lower quality securities. Credit rating agencies may
fail to change credit ratings to reflect subsequent events on a timely basis.
Although Banc One Investment Advisors considers security ratings when making
investment decisions, it also performs its own investment analysis and does not
rely solely on the ratings assigned by credit agencies.
Unrated securities will be treated as non-investment grade securities unless
Banc One Investment Advisors determines that such securities are the equivalent
of investment grade securities. Securities that have received different ratings
from more than one agency are considered investment grade if at least one agency
has rated the security investment grade.
DESCRIPTION OF COMMERCIAL PAPER RATINGS
DUFF & PHELPS CREDIT RATING CO. ("DUFF")
D-1+ Highest certainty of timely payment. Short-term liquidity, including
internal operating factors and/or access to alternative sources of
funding, is outstanding and safety is just below risk-free U.S.
Treasury obligations.
D-1 Very high certainty of timely payment. Liquidity factors are excellent
and supported by good fundamental protection factors. Risk factors are
minor.
D-1- High certainty of timely payment. Liquidity factors are strong and
supported by good fundamental protection factors. Risk factors are very
small.
D-2 Good certainty of timely payment. Liquidity facts and company
fundamentals are sound. Although ongoing funding needs may enlarge
total financing requirements, access to capital markets is good. Risk
factors are small.
D-3 Satisfactory liquidity and other protection factors qualify issues as
to investment grade. Risk factors are larger and subject to more
variation. Nevertheless, timely payment is expected.
D-4 Speculative investment characteristics. Liquidity is not sufficient to
insure against disruption in debt service. Operating factors and market
access may be subject to a high degree of variation.
D-5 Issuer failed to meet scheduled principal and/or 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.
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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 ("FITCH")
F1 Highest capacity for timely repayment. Those issues rated F1+ possess a
particularly strong credit feature.
F2 Satisfactory capacity for timely repayment although such capacity may
be susceptible to adverse changes in business, economic or financial
conditions.
F3 Adequate capacity for timely repayment, but more susceptible to adverse
changes in 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.
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C These banks possess good intrinsic financial strength. Typically, they
will be institutions with valuable and defensible business franchises.
These banks will demonstrate either acceptable financial fundamentals
within a stable operating environment, or better than average financial
fundamentals within an unstable operating environment.
D These banks possess adequate financial strength, but may be limited by
one or more of the following factors: a vulnerable or developing
business franchise; weak financial fundamentals; or an unstable
operating environment.
E These banks possess very weak intrinsic financial strength, require
periodic outside support or suggest an eventual need for outside
assistance. Such institutions may be limited by one or more of the
following factors: a business franchise of questionable value;
financial fundamentals that are seriously deficient in one or more
respects; or a highly unstable operating environment.
DESCRIPTION OF TAXABLE BOND RATINGS
S&P
S&P's credit rating is a current opinion of an obligor's overall financial
capacity (its creditworthiness) to pay its financial obligation.
AAA The highest rating assigned by S&P. The obligor's capacity to meet its
financial commitment on the obligation is extremely strong.
AA The obligor's capacity to meet its financial commitments on the
obligation is very strong.
A The obligation is somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions than obligations in
higher rated categories. However, the obligor's capacity to meet its
financial commitment on the obligation is still strong.
BBB Exhibits adequate protection parameters. However, adverse economic
conditions or changing circumstances are more likely to lead to a
weakened capacity of the obligor to meet its financial commitment on
the obligation.
Obligations rated BB, B, CCC, CC, and C are regarded as having significant
speculative characteristics. BB indicates the least degree of speculation and C
the highest. While such obligations will likely have some quality and protective
characteristics, these may be outweighed by large uncertainties or major
exposures to adverse conditions.
BB Less vulnerable to nonpayment than other speculative issues. However,
such issues face major ongoing uncertainties or exposure to adverse
business, financial, or economic conditions which could lead to the
obligor's inadequate capacity to meet its financial commitment on the
obligation.
B More vulnerable to nonpayment than obligations rated BB, but the
obligor currently has the capacity to meet its financial commitment on
the obligation. Adverse business, financial, or economic conditions
will likely impair the obligor's capacity or willingness to meet its
financial commitment on the obligation.
CCC Currently vulnerable to nonpayment, and dependent upon favorable
business, financial, and economic conditions for the obligor to meet
its financial commitment on the obligation. In the event of adverse
business, financial, or economic conditions, the obligor is not likely
to have the capacity to meet its financial commitment on the
obligation.
CC Currently highly vulnerable to nonpayment.
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C Used to cover a situation where a bankruptcy petition has been filed or
similar action has been taken, but payments on this obligation are
being continued.
D In payment default. Used when payments on an obligation are not made on
the date due even if the applicable grace period has not expired,
unless Standard & Poor's believes that such payments will be made
during such grace period. Also used upon the filing of a bankruptcy
petition or the taking of a similar action if payments on an obligation
are jeopardized.
MOODY'S
INVESTMENT GRADE
Aaa Best quality. They carry the smallest degree of investment risk and are
generally referred to as "gilt edged." Interest payments are protected
by a large, or an exceptionally stable, margin and principal is secure.
Aa High quality by all standards. Margins of protection may not be as
large as in Aaa securities, fluctuation of protective elements may be
greater, or there may be other elements present that make the long-term
risks appear somewhat larger than in Aaa securities.
A These bonds possess many favorable investment attributes and are to be
considered as upper-medium grade obligations. Factors giving security
to principal and interest are considered adequate, but elements may be
present which suggest a susceptibility to impairment sometime in the
future.
Baa These bonds are considered medium-grade obligations (i.e., they are
neither highly protected nor poorly secured). Interest payments and
principal security appear adequate for the present but certain
protective elements may be lacking or may be characteristically
unreliable over any great length of time. Such bonds lack outstanding
investment characteristics and in fact have speculative characteristics
as well.
NON-INVESTMENT GRADE
Ba These bonds have speculative elements; their future cannot be
considered as well assured. The protection of interest and principal
payments may be very moderate and thereby not well safeguarded during
good and bad times over the future.
B These bonds lack the characteristics of a desirable investment (i.e.,
potentially low assurance of timely interest and principal payments or
maintenance of other contract terms over any long period of time may be
small).
Caa Bonds in this category have poor standing and may be in default. These
bonds carry an element of danger with respect to principal and interest
payments.
Ca Speculative to a high degree and could be in default or have other
marked shortcomings. C is the lowest rating.
C The lowest rated class of bonds, and issues so rated can be regarded as
having extremely poor prospects of ever attaining any real investment
standing.
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.
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A Bonds and preferred stock considered to be investment grade and of high
credit quality. The obligor's ability for timely repayment is strong.
However, adverse changes in business, economic, or financial conditions
are more likely to affect the capacity for timely repayment than
obligations in higher rated categories.
BBB The obligor's capacity for timely repayment of principal and interest
is adequate. However, adverse changes in business, economic or
financial conditions and circumstances are more likely to affect the
capacity for timely repayment than for obligations in higher rated
categories.
NON-INVESTMENT GRADE
BB Obligations for which capacity for timely repayment of principal and
interest is uncertain. These obligations are speculative to some degree
and capacity for repayment remains susceptible over time to adverse
changes in business, financial or economic conditions.
B The obligor's capacity for timely repayment of principal and interest
is uncertain. Timely repayment of principal and interest is not
sufficiently protected against adverse changes in business, economic or
financial conditions and these obligations are far more speculative
than those in higher rated categories.
CCC Obligations for which there is a current perceived possibility of
default. Timely repayment of principal and interest is dependent on
favorable business, economic, or financial conditions and these
obligations are far more speculative than those in higher rated
categories.
CC Obligations which are highly speculative or which have a high risk of
default.
C Obligations which are currently in default.
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.
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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 category offer poor financial
security. Assurance of punctual payment of policyholder obligations
over any long period of time is small.
Caa Insurance companies rated in this category offer very poor financial
security. They may be in default on their policyholder obligations or
there may be present elements of danger with respect to punctual
payment of policyholder obligations and claims.
Ca Insurance companies rated in this category offer extremely poor
financial security. Such companies are often in default on their
policyholder obligations or have other marked shortcomings.
C Insurance companies rated in this category are the lowest rated class
of insurance company and can be regarded as having extremely poor
prospects of ever offering financial security.
S & P
An insurer rated "BBB" or higher is regarded as having financial security
characteristics that outweigh any vulnerabilities, and is highly likely to have
the ability to meet financial commitments.
AAA Extremely Strong financial security characteristics. "AAA" is the
highest Insurer Financial Strength Rating assigned by Standard &
Poor's.
AA Very Strong financial security characteristics, differing only slightly
from those rated higher.
A Strong financial security characteristics, but is somewhat more likely
to be affected by adverse business conditions than are insurers with
higher ratings.
BBB Good financial security characteristics, but is more likely to be
affected by adverse business conditions than are higher rated insurers.
An insurer rated "BB" or lower is regarded as having vulnerable characteristics
that may outweigh its strength. "BB" indicates the least degree of vulnerability
within the range; "CC" the highest.
BB Marginal financial security characteristics. Positive attributes exist,
but adverse business conditions could lead to insufficient ability to
meet financial commitments.
B Weak financial security characteristics. Adverse business conditions
will likely impair its ability to meet financial commitments.
CCC Very Weak financial security characteristics, and is dependent on
favorable business conditions to meet financial commitments.
CC Extremely Weak financial security characteristics and is likely not to
meet some of its financial commitments.
R An insurer rated "R" has experienced a REGULATORY ACTION regarding
solvency. The rating does not apply to insurers subject only to
nonfinancial actions such as market conduct violations.
NR Not Rated, which implies no opinion about the insurer's financial
security.
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Plus (+)
or
minus (-) Following ratings from "AA" to "CCC" show relative standing within the
major rating categories.
DESCRIPTION OF MUNICIPAL NOTE RATINGS
MOODY'S
MIG1 & VMIG1 Short-term municipal securities rated MIG1 or
VMIG1 are of the best quality. They have strong
protection from established cash flows, superior
liquidity support or demonstrated broad-based access
to the market for refinancing.
MIG2 & VMIG2 These short-term municipal securities rated are of
high quality. Margins of protection are ample
although not so large as in the preceding group.
MIG3 & VMIG3 Favorable quality. All security elements are
accounted for, but the undeniable strength of the
preceding grades is lacking. Liquidity and cash flow
protection may be narrow and marketing access for
refinancing is likely to be less well established.
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.
S&P
An S&P note rating reflects the liquidity concerns and market access risks
unique to notes. Notes due in three years or less will likely receive a note
rating. Notes maturing beyond three years will most likely receive a long-term
debt rating.
SP-1 Strong capacity to pay principal and interest. Those
issues determined to possess overwhelming safety
characteristics will be given a plus (+) designation.
SP-2 Satisfactory capacity to pay principal and interest.
SP-3 Speculative capacity to pay principal and interest.
DESCRIPTION OF PREFERRED STOCK RATINGS
MOODY'S
aaa Top-quality preferred stock. This rating indicates
good asset protection and the least risk of dividend
impairment within the universe of preferred stocks.
aa High-grade preferred stock. This rating indicates that
there is a reasonable assurance the earnings and asset
protection will remain relatively well maintained in
the foreseeable future.
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a Upper-medium grade preferred stock. While risks are
judged to be somewhat greater than in the "aaa" and
"aa" classifications, earnings and asset protection
are, nevertheless, expected to be maintained at
adequate levels.
baa Medium-grade preferred stock, neither highly protected
nor poorly secured. Earnings and asset protection
appear adequate at present but may be questionable
over any great length of time.
ba Considered to have speculative elements and its future
cannot be considered well assured. Earnings and asset
protection may be very moderate and not well
safeguarded during adverse periods. Uncertainty of
position characterizes preferred stocks in this class.
b Lacks the characteristics of a desirable investment.
Assurance of dividend payments and maintenance of
other terms of the issue over any long period of time
may be small.
caa Likely to be in arrears on dividend payments. This
rating designation does not purport to indicate the
future status of payments.
ca Speculative in a high degree and is likely to be in
arrears on dividends with little likelihood of
eventual payments.
c Lowest rated class of preferred or preference stock.
Issues so rated can thus be regarded as having
extremely poor prospects of ever attaining any real
investment standing.
Note: Moody's applies numerical modifiers 1, 2, and 3 in each rating
classification; the modifier 1 indicates that the security ranks in the higher
end of its generic rating category; the modifier 2 indicates a mid-range ranking
and the modifier 3 indicates that the issue ranks in the lower end of its
generic rating category.
S&P
S&P's preferred stock rating is an assessment of the capacity and willingness of
an issuer to pay preferred stock dividends and any applicable sinking fund
obligations.
AAA Highest rating. This rating indicates an extremely
strong capacity to pay the preferred stock
obligations.
AA High-quality, fixed-income security. The capacity to
pay preferred stock obligations is very strong,
although not as overwhelming as for issues rated
"AAA."
A Backed by a sound capacity to pay the preferred stock
obligations, although it is somewhat more susceptible
to the adverse effects of changes in circumstances and
economic conditions.
BBB Backed by an adequate capacity to pay the preferred
stock obligations. Whereas the issuer normally
exhibits adequate protection parameters, adverse
economic conditions or changing circumstances are more
likely to lead to a weakened capacity to make payments
for a preferred stock in this category than for issues
in the "A" category.
BB, B, CCC Regarded, on balance, as predominantly speculative
with respect to the issuer's capacity to pay
preferred stock obligations. BB indicates the
lowest degree of speculation and CCC the highest.
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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
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.
DESCRIPTION OF MUNICIPAL BOND RATINGS
(INCLUDING FOREIGN, MORTGAGE AND ASSET-BACKED SECURITIES)
S&P
INVESTMENT GRADE
AAA The highest rating. The rating indicates an extremely
strong capacity to meet its financial commitment.
AA Differs from AAA issues only in a small degree. The
obligor's capacity to meet its financial commitment is
very strong.
A These bonds are somewhat more susceptible to the
adverse effects of changes in circumstances and
economic conditions than debt in higher rated
categories. However, capacity to meet its financial
commitment on the obligation is still strong.
BBB Exhibits adequate protection parameters. However,
adverse economic conditions or changing circumstances
are more likely to lead to a weakened capacity to meet
its financial commitment on the obligations.
SPECULATIVE GRADE
BB Less vulnerable to non-payment than other speculative
issues. However, these bonds face major ongoing
uncertainties or exposure to adverse business,
financial or economic conditions which could lead to
inadequate capacity to meet financial commitment on
the obligations.
B More vulnerable to non-payment than obligations rated
BB, but currently has the capacity to meet its
financial commitment on the obligation. Adverse
business, financial or economic conditions will likely
impair capacity or willingness to meet its financial
commitment on the obligation.
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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, 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.
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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DESCRIPTION OF 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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REGISTRATION STATEMENT
OF ONE GROUP(R) MUTUAL FUNDS
ON FORM N-1A
PART C
ITEM 23. Exhibits
(a) Amended and Restated Declaration of Trust dated as of February 18,
1999 is incorporated by reference to Exhibit (1) to the
Registrant's Registration Statement on Form N-1A (filed March 12,
1999).
(b) Code of Regulations as amended and restated as of October 25, 1990
is incorporated by reference to Exhibit (2) to Post-Effective
Amendment No. 39 (filed August 16, 1996) to Registrant's
Registration Statement on Form N-1A.
(c) Rights of Shareholders.
The following portions of Registrant's Declaration of Trust
incorporated as Exhibit (1) hereto, define the rights of shareholders:
5.1 Shares in the Series or Classes of the Trust.
A. The Trustees shall have full power and authority, in their sole
discretion, without obtaining the prior approval of the Shareholders
(either with respect to the Trust as a whole or with respect to any
series or classes of the Trust) by vote or otherwise, to establish one
or more series of Shares of the Trust. The establishment of any such
series shall be effective upon the adoption by a majority of the
Trustees then in office of a resolution establishing such series and
setting the voting rights, preferences, designations, conversion or
other rights, restrictions, limitations as to distributions, conditions
of redemption, qualifications, or other terms of the Shares of such
series. The beneficial interest in each series of the Trust shall at
all times be divided into an unlimited number of full and fractional
transferable Shares without par value. The investment objective,
policies, and restrictions governing the management and operations of
each series of the Trust, including the management of assets belonging
to any particular series, may from time to time be changed or
supplemented by the Trustees, subject to the requirements of the Act.
The Trustees may from time to time divide or combine the outstanding
Shares of any one or more series of the Trust into a greater or lesser
number without thereby changing their proportionate beneficial
interests in the Trust assets allocated or belonging to such series.
Subject to the respective voting rights, preferences, designations,
conversion or other rights, restrictions, limitations as to
distributions, conditions of redemption, qualifications, or other terms
of the Shares of each series of the Trust, the Trustees may, without
Shareholder approval, divide the Shares of any series into two or more
classes, Shares of each such class having such voting rights,
preferences, designations, conversion or other
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rights, restrictions, limitations as to distributions, conditions of
redemption, qualifications, or other terms applicable to Shares of such
class as the Trustees may determine.
B. The holder of each Share shall be entitled to one vote for each full
Share, and a proportionate fractional vote for each fractional Share,
irrespective of the series or class, then recorded in his name on the
books of the Trust. On any matter submitted to a vote of Shareholders,
all Shares then issued and outstanding and entitled to vote,
irrespective of the series or class, shall be voted in the aggregate
and not by series or class except: (1) as otherwise required by the
Act; or (2) when the matter, as conclusively determined by the
Trustees, affects only the interests of the Shareholders of a
particular series or class of the Trust (in which case only
Shareholders of the affected series or class shall be entitled to vote
thereon).
C. Shares of each series or class of the Trust shall have the following
preferences, participating or other special rights, qualifications,
restrictions and limitations:
(1) Assets Belonging To a Series or Class. All consideration
received by the Trust for the issue or sale of Shares of any
series or class, together with all assets in which such
consideration is invested or reinvested, including any
proceeds derived from the sale, exchange, or liquidation of
such assets, and any funds or payments derived from any
reinvestment of such proceeds in whatever form the same may
be, shall be referred to as "assets belonging to" that series
or class. In addition, any assets, income, earnings, profits
or proceeds thereof, or funds or payments which are not
readily identifiable as belonging to a particular series or
class shall be allocated by the Trustees to one or more series
or class (such allocation to be conclusive and binding upon
the Shareholders of all series or class for all purposes) in
such manner as they, in their sole discretion, deem fair and
equitable, and shall also be referred to as "assets belonging
to" such series or class. Such assets belonging to a
particular series or class shall irrevocably belong for all
purposes to the Shares of the series or class, and shall be so
handled upon the books of account of the Trust. Such assets
and the income, earnings, profits, and proceeds thereof,
including any proceeds derived from the sale, exchange, or
liquidation thereof, and any funds or payments derived from
any reinvestment of such proceeds in whatever form, are herein
referred to as "assets belonging to" such a series or class.
Shareholders of any series or class shall have no right, title
or interest in or to the assets belonging to any other series
or class.
(2) Liabilities Belonging To a Series or Class. The assets
belonging to any series or class of the Trust shall be charged
with the direct liabilities in respect of such series or class
and with all expenses, costs, charges, and reserves
attributable to such series or class, and shall also be
charged with the share of such series or class of the general
liabilities, expenses, costs, charges, and reserves of the
Trust which are not readily identifiable as belonging to a
particular series or class in proportion to the relative net
assets of the respective series or class, as determined at
such time or times as may be authorized by the Trustees. Any
such determination by the Trustees shall be conclusive and
binding upon the Shareholders of all series or class
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for all purposes; PROVIDED, HOWEVER, that under no
circumstances shall the assets allocated or belonging to any
series or class of the Trust be charged with liabilities
directly attributable to any other series or class. The
liabilities so charged to a series or class are herein
referred to as "liabilities belonging to" such series or
class. All persons who may have extended credit to a
particular series or class or who have contracts or claims
with respect to a particular series or class shall look only
to the assets of that particular series or class for payment
of such contracts or claims.
(3) Liquidating Distributions. In the event of the termination of
the Trust or a particular series or class thereof and the
winding up of its affairs, the Shareholders of the Trust or
such particular series or class shall be entitled to receive
out of the assets of the Trust or belonging to the particular
series or class, as the case may be, available for
distribution to Shareholders, but other than general assets
not belonging to any particular series or class of the Trust,
the assets belonging to such series or class; and the assets
so distributable to the Shareholders of any series or class
shall be distributed among such Shareholders in proportion to
the number of Shares of such series or class held by them and
recorded in their names on the books of the Trust. In the
event that there are any general assets not belonging to any
particular series or class of the Trust available for
distribution, such distribution shall be made to the
Shareholders of all series or class subject to such
termination and winding up in proportion to the relative net
assets of the respective series or class determined as
hereinafter provided and the number of Shares of such series
or class held by them and recorded in their names on the books
of the Trust.
(4) Dividends and Distributions. Shares of each series or class
shall be entitled to such dividends and distributions in
Shares or in cash or both, as may be declared from time to
time by the Trustees, acting in their sole discretion, with
respect to such series or class, PROVIDED, HOWEVER, that
dividends and distributions on Shares of a particular series
or class shall be paid only out of the lawfully available
"assets belonging to" such series or class as such term is
defined in this Declaration of Trust.
5.2 Purchase of Shares. The Trustees may accept investments in each series
or class of the Trust from such Persons for such consideration and on
such other terms as they may from time to time authorize. The Trust may
reject any order for, or refuse to give effect on the books of the
Trust to the transfer of, any Shares as permitted under the Act. Each
such investment shall be credited to the Shareholder's account in the
form of full and fractional Shares of the appropriate series or class
of the Trust, at the net asset value per Share next computed after
receipt of the investment.
5.3 Net Asset Value Per Share. The net asset value per Share of each series
or class of the Trust shall be computed at such time or times as the
Trustees may specify pursuant to the Act. Assets shall be valued and
net asset value per Share shall be determined by such Person or Persons
as the Trustees may appoint under the supervision of the Trustees in
such manner
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not inconsistent with the Act and any orders of the Securities and
Exchange Commission received by the Trust, as the Trustees may
determine.
5.4 Ownership of Shares. The ownership of Shares shall be recorded
separately with respect to each series or class on the record books of
the Trust. Certificates for Shares shall be issued to holders of such
Shares only upon the authorization of the Trustees, in their
discretion, to issue such Shares, and shall be issued, if at all,
subject to such rules and regulations as the Trustees may determine.
The Trustees may make such rules as they consider appropriate for the
transfer of Shares and similar matters. The record books of the Trust
shall be conclusive as to the identity of holders of Shares and as to
the number of Shares of each series or class held by each Shareholder.
5.5 Preemptive Rights. Shareholders shall have no preemptive or other
rights to subscribe to any additional Shares or other securities issued
by the Trust or by the Trustees.
5.6 Redemption of Shares. To the extent of the assets of the Trust legally
available for such redemptions, a Shareholder of any series or class of
the Trust shall have the right, subject to the provisions of Section
5.7 hereof, to require the Trust to redeem his full and fractional
Shares of any series or class out of assets belonging to such series or
class at a redemption price equal to the net asset value per Share next
determined after receipt of a request to redeem in proper form as
determined by the Trustees. The Trustees shall establish such rules and
procedures as they deem appropriate for redemption of Shares; PROVIDED,
HOWEVER, that all redemptions shall be in accordance with the Act.
Without limiting the generality of the foregoing, the Trust shall, to
the extent permitted by applicable law, have the right at any time to
redeem the Shares owned by any holder thereof (i) if the value of such
Shares in an account maintained by the Trust or its transfer agent for
any Shareholder with respect to any series or class of the Trust is
$1,000 or less; PROVIDED, HOWEVER, that any such Shareholder shall be
notified that the value of his account is $1,000 or less, and shall be
allowed sixty days to make additional purchases of Shares of the
appropriate series or class so that the value of his account will
exceed $1,000 before any such involuntary redemption is processed by
the Trust; or (ii) if the net income with respect to any particular
series or class of the Trust should be negative or it should otherwise
be appropriate to carry out the Trust's responsibilities under the Act,
in each case subject to such further terms and conditions as the Board
of Trustees of the Trust may from time to time adopt. The redemption
price of Shares of any series or class of the Trust shall, except as
otherwise provided in this section, be the net asset value thereof as
determined by the Board of Trustees of the Trust from time to time in
accordance with the provisions of applicable law, less such redemption
fee or other charge, if any, as may be fixed by resolution of the Board
of Trustees of the Trust. When the net income with respect to any
particular series or class of the Trust is negative or whenever deemed
appropriate by the Board of Trustees of the Trust in order to carry out
the Trust's responsibilities under the Act, any series or class of the
Trust may, without payment of compensation but in consideration of the
interests of the Trust or a particular series or class thereof and of
the Shareholders of the Trust or of such series or class in maintaining
a constant net asset value per Share with respect to such series or
class, redeem pro rata from each holder of record on such day such
number of full and fractional Shares of such series or class as may be
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necessary to reduce the aggregate number of outstanding Shares of such
series or class in order to permit the net asset value thereof to
remain constant. Payment of the redemption price, if any, shall be made
in cash by the appropriate series or class of the Trust at such time
and in such manner as may be determined from time to time by the Board
of Trustees of the Trust unless, in the opinion of the Board of
Trustees, which shall be conclusive and binding upon the Shareholders
for all purposes, conditions exist which make payment wholly in cash
unwise or undesirable; in such event the appropriate series or class of
the Trust may make payment in the assets belonging or allocable to such
series or class, the value of which shall be determined as provided
herein.
5.7 Suspension of Right of Redemption. The Trustees may suspend the right
of redemption by Shareholders or postpone the date of payment or the
recordation of transfer of Shares of any series or class, as permitted
under the Act or applicable law. Such suspension or postponement shall
take effect at such time as the Trustees shall specify but not later
than the close of business on the business day following the
declaration of suspension or postponement, and thereafter there shall
be no right of redemption or payment or transfer until the Trustees
shall declare the suspension at an end. In case of suspension of the
right of redemption, a Shareholder may either withdraw his request for
redemption or receive payment based on the net asset value existing
after the termination of the suspension.
5.8 Conversion Rights. The Trustees shall have the authority to provide
from time to time that the holders of Shares of any series or class
shall have the right to convert or exchange said Shares for or into
Shares of one or more other series or class in accordance with such
requirements and procedures as may be established from time to time by
the Trustees.
8.1 Voting Powers. The Shareholders shall have power to vote (a) for the
election or removal of Trustees; (b) with respect to the amendment of
this Declaration of Trust as provided in Section 10.8 hereof; (c) with
respect to the approval of investment advisory and distribution
agreements entered into on behalf of the Trust or one or more series or
class thereof, and with respect to such other matters relating to the
Trust as may be required by law, by this Declaration of Trust, the
Regulations of the Trust, by any requirements applicable to or
agreement of the Trust, and as the Trustees may consider desirable; and
(d) to the same extent as the shareholders of a Massachusetts business
corporation, when considering whether a court action, proceeding, or
claim should or should not be brought or maintained derivatively or as
a class action on behalf of the Trust or the Shareholders; PROVIDED,
HOWEVER, that no Shareholder of a particular series or class shall be
entitled to bring, or to vote in respect of, any class or derivative
action not on behalf of the series or class of the Trust in respect of
which the Shareholder owns Shares. Every Shareholder of record shall
have the right to one vote for every whole Share (other than Shares
held in the treasury of the Trust) standing in his name on the books of
the Trust, and to have a proportional fractional vote for any
fractional Share, as to any matter on which the Shareholder is entitled
to vote. There shall be no cumulative voting. Shares may be voted in
person or by proxy. On any matter submitted to a vote of the
Shareholders, all Shares shall be voted in the aggregate and not by
individual series or class, except (i) where required by the Act,
Shares shall be voted by individual series or class, and (ii) if the
Trustees shall have determined that a matter affects the interests only
of one or more series or class, then only
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the Shareholders of such affected series or class shall be entitled to
vote thereon. Until Shares are issued, the Trustees may exercise all
rights of Shareholders and may take any action required or permitted to
be taken by Shareholders by law, this Declaration of Trust, or the
Regulations.
8.2 Meetings. Meetings of Shareholders may be called by the Trustees as
provided in the Regulations, and shall be called by the Trustees upon
the written request of Shareholders owning at least twenty percent of
the outstanding Shares entitled to vote.
8.3 Quorum and Required Vote. At any meeting of the Shareholders, a quorum
for the transaction of business shall consist of a majority of the
Shares of each series or class outstanding and entitled to vote with
respect to a matter appearing in person or by proxy; PROVIDED, HOWEVER,
that at any meeting at which the only actions to be taken are actions
required by the Act to be taken by vote of all outstanding Shares of
all series or class entitled to vote thereon, irrespective of series or
class, a quorum shall consist of a majority of Shares (without regard
to series or class) entitled to vote thereon, and that at any meeting
at which the only actions to be taken shall have been determined by the
Board of Trustees to affect the rights and interests of one or more but
not all series or classes of the Trust, a quorum shall consist of a
majority of the outstanding Shares of the series or class so affected;
and PROVIDED, FURTHER, that reasonable adjournments of such meeting
until a quorum is obtained may be made by vote of the Shares present in
person or by proxy. A majority of the Shares voted shall decide any
question and a plurality shall elect a Trustee, subject to any
applicable requirements of law or of this Declaration of Trust or the
Regulations; PROVIDED, HOWEVER, that when any provision of law or of
this Declaration of Trust requires the holders of Shares of any
particular series or class to vote by series or class and not in the
aggregate with respect to a matter, then the vote of the majority of
the outstanding Shares of that series or class shall decide such matter
insofar as that particular series or class shall be concerned.
8.4 Shareholder Action By Written Consent. Any action which may be taken by
Shareholders may be taken without a meeting if the holders of not less
than two-thirds of the Shares entitled to be voted with respect to the
matter consent to the action in writing and the written consent is
filed with the records of the meetings of Shareholders. Such consent
shall be treated for all purposes as a vote taken at a meeting of
Shareholders.
8.5 Code of Regulations. The Regulations may include further provisions not
inconsistent with this Declaration of Trust for Shareholders' meetings,
votes, record dates, notices of meetings, and related matters.
9.4 Limitation of Shareholder Liability. Shareholders shall not be subject
to any personal liability in connection with the assets of the Trust
for the acts or obligations of the Trust. The Trustees shall have no
power to bind any Shareholder personally or to call upon any
Shareholder for the payment of any sum of money or assessment
whatsoever other than such as the Shareholder may at any time
personally agree to pay by way of subscription to any Share or
otherwise. Every obligation, contract, instrument, certificate, Share,
other security or undertaking of the Trust, and every other act
whatsoever executed in connection
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with the Trust shall be conclusively presumed to have been executed or
done by the executors thereof only in their capacities as Trustees
under this Declaration of Trust or in their capacity as officers,
employees, or agents of the Trust, and not individually. Every note,
bond, contract, order, or other undertaking issued by or on behalf of
the Trust or the Trustees relating to the Trust or to any series or
class of the Trust, and the stationery used by the Trust, shall include
a recitation limiting the obligation represented thereby to the Trust
and its assets (but the omission of such a recitation shall not operate
to bind any Shareholder), as follows:
"The names 'One Group(R) Mutual Funds' and 'Trustees of
One Group(R) Mutual Funds' refer respectively to the Trust
created and the Trustees, as trustees but not individually
or personally, acting from time to time under a
Declaration of Trust dated May 23, 1985 to which reference
is hereby made and a copy of which is on file at the
office of the Secretary of the Commonwealth of
Massachusetts and elsewhere as required by law, and to any
and all amendments thereto so filed or hereafter filed.
The obligations of 'One Group(R) Mutual Funds' entered
into in the name or on behalf thereof by any of the
Trustees, representatives or agents are made not
individually, but in such capacities, and are not binding
upon any of the Trustees, Shareholders or representatives
of the Trust personally, but bind only the assets of the
Trust, and all persons dealing with any series of Shares
of the Trust must look solely to the assets of the Trust
belonging to such series for the enforcement of any claims
against the Trust."
The rights accruing to a Shareholder under this Section 9.4 shall not
exclude any other right to which such Shareholder may be lawfully
entitled, nor shall anything herein contained restrict the right of the
Trust to indemnify or reimburse a Shareholder in any appropriate
situation even though not specifically provided for herein, PROVIDED,
HOWEVER, that a Shareholder of any series or class of the Trust shall
be indemnified only from assets belonging to that series or class.
9.5 Indemnification of Shareholders. In case any Shareholder or former
Shareholder shall be held to be personally liable solely by reason of
his being or having been a Shareholder and not because of his acts or
omissions or for some other reason, the Shareholder or former
Shareholder (or his heirs, executors, administrators, or other legal
representatives, or, in the case of a corporation or other entity, its
corporate or other general successor) shall be entitled out of the
Trust estate to be held harmless from and indemnified against all loss
and expense arising from such liability. The Trust shall, upon request
by the Shareholder, assume the defense of any claim made against any
Shareholder for any act or obligations of the Trust, and shall satisfy
any judgment thereon.
9.6 Liabilities of a Series or Class. Liabilities belonging to any series
or class of the Trust, including, without limitation, expenses, fees,
charges, taxes, and liabilities incurred or arising in connection with
a particular series or class, or in connection with the management
thereof, shall be paid only from the assets belonging to that series or
class.
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10.3 Termination of Trust. This Trust shall continue without limitation of
time; PROVIDED, HOWEVER, that:
A. The Trustees, with the vote of a majority of the outstanding Shares of
any series or class of the Trust, may sell and convey the assets
belonging to such series or class to another trust or corporation
organized under the laws of any state of the United States, which is a
management investment company as defined in the Act, for an adequate
consideration which may include the assumption of all outstanding
obligations, taxes, and other liabilities, accrued or contingent, of
the series or class and which may include beneficial interests of such
trust or stock of such corporation. Upon making provision for the
payment of all such liabilities, by such assumption or otherwise, the
Trustees shall distribute the remaining proceeds ratably among the
holders of the Shares of the series or class then outstanding.
B. The Trustees, with the vote of a majority of the outstanding Shares of
any series or class of the Trust, may sell and convert into money all
the assets belonging to such series or class. Upon making provision for
the payment of all outstanding obligations, taxes, and other
liabilities, accrued or contingent, of the series or class, the
Trustees shall distribute the remaining assets belonging to such series
or class ratably among the holders of the outstanding Shares of the
series or class.
C. Without the vote of a majority of outstanding Shares of any series or
class of the Trust (unless Shareholder approval is otherwise required
by applicable law), the Trustees may combine the assets belonging to
any two or more series or classes into a single series or class if the
Trustees reasonably determine that such combination will not have a
material adverse effect on the Shareholders of each series or class
affected thereby.
D. After the effective date of the determination of the Trustees under
paragraph A or B above,
(1) The Trust shall carry on no business relating to the assets of
such series or class except for the purpose of winding up the
affairs of such series or class.
(2) The Trustees shall proceed to wind up the affairs of such
series or class and all of the powers of the Trustees under
this Declaration of Trust shall continue until the affairs of
such series or class shall have been wound up, including the
power to fulfill or discharge the contracts of the Trust
relating to such series or class, to collect assets of such
series or class, to sell, convey, assign, exchange, transfer,
or otherwise dispose of all or any part of the remaining
assets of such series or class to one or more Persons at
public or private sale for consideration that may consist in
whole or in part of cash, securities, or other property of any
kind, to discharge or pay its liabilities, and to do all other
acts appropriate to liquidate the business of such series or
class.
Uponcompletion of the distribution of the remaining proceeds or the
remaining assets as provided in paragraphs A and B of this section, the
Trustees may authorize the termination of that series or class of the
Trust. Such termination shall be effective upon filing with the
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State Secretary of the Commonwealth of Massachusetts of an instrument
setting forth such termination, at which time the Trustees shall be
discharged of any and all further liabilities and duties hereunder
relating to such series or class and the right, title and interest of
all parties shall be cancelled and discharged with respect to such
series or class. Such instrument shall constitute an amendment to this
Declaration of Trust when filed with the State Secretary of the
Commonwealth of Massachusetts as provided in this Title X.
10.8 Amendment Procedure.
A. This Declaration of Trust may be amended by the affirmative vote of the
holders of not less than a majority of the outstanding Shares of each
series affected thereby (as the Trustees shall determine) or by any
larger vote as may be required by any provisions of applicable law.
B. Notwithstanding any other provisions hereof, until such time as a
Registration Statement under the Securities Act of 1933, as amended,
covering the first public offering of securities of the Trust shall
have become effective, this Declaration of Trust may be terminated or
amended in any respect by the affirmative vote of a majority of the
Trustees.
C. The Trustees may also amend this Declaration without the vote of
Shareholders to cure any error or ambiguity or to change the name of
the Trust or, if they deem it necessary, to conform this Declaration of
Trust to the requirements of applicable state or federal laws or
regulations or the requirements of the regulated investment company
provisions of the Internal Revenue Code, but the Trustees shall not be
liable for failing to do so.
The following portions of Registrant's Code of Regulations incorporated as
Exhibit (2) hereto, define the rights of shareholders:
1.1 Place. An Annual Meeting of Shareholders may be held for a calendar
year if called by the Trustees acting in their sole discretion, and any
such annual or Special Meetings of Shareholders shall be held at such
place, date, and time as the Trustees may designate.
1.2 Special Meeting. Special Meetings of Shareholders may be called by the
Trustees, and shall be called by the Trustees upon the written request
of holders of at least twenty percent of the outstanding units of
beneficial interest in the Trust ("Shares") entitled to vote.
1.3 Notice. Written notice, stating the place, day and hour of each meeting
of Shareholders and, in the case of Special Meetings, the general
nature of the business to be transacted, shall be given by, or at the
direction of, the person calling the meeting to each Shareholder of
record entitled to vote at the meeting at least ten days prior to the
day named for the meeting, unless in a particular case a longer period
of notice is required by law.
1.4 Shareholder's List. The officer or agent having charge of the transfer
books for shares of the Trust shall make, at least five days before
each meeting of Shareholders, a complete list of the Shareholders
entitled to vote at the meeting, arranged in alphabetical order with
the address of and the number of Shares held by each such Shareholder.
The list shall be kept
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on file at the office of the Trust and shall be subject to inspection
by any Shareholders at any time during usual business hours, and shall
also be produced and kept open at the time and place of each meeting of
Shareholders and shall be subject to the inspection of any Shareholder
during each meeting of Shareholders.
1.5 Record Date. The Trustees may fix a time (during which they may close
the Share transfer books of the Trust) not more than ninety (90) days
prior to the date of any meeting of Shareholders, or the date fixed for
the payment of any dividend, or the date of the allotment of rights or
the date when any change or conversion or exchange of Shares shall go
into effect, as a record date for the determination of the Shareholders
entitled to notice of, or to vote at, any such meeting, or entitled to
receive payment of any such dividend, or to receive any such allotment
of rights, or to exercise such rights, as the case may be. In such
case, only such Shareholders as shall be shareholders of record at the
close of business on the date so fixed shall be entitled to notice of,
or to vote at, such meeting or to receive payment of such dividend, or
to receive such allotment of rights, or to exercise such rights, as the
case may be, notwithstanding any transfer of any Shares on the books of
the Trust after any record date, as aforesaid.
3.1 Form. Notices to Shareholders shall be in writing and delivered
personally or mailed to the Shareholders at their addresses appearing
on the books of the Trust.
3.2 Waiver. Whenever any notice of the time, place, or purpose of any
meeting of Shareholders, Trustees, or committee is required to be given
under the provisions of Massachusetts law or under the provisions of
the Declaration of Trust or these Regulations, a waiver thereof in
writing, signed by the person or persons entitled to such notice and
filed with the record of the meeting, whether before or after the
holding thereof, or actual attendance at the meeting of Shareholders in
person or by proxy, or at the meeting of Trustees or committee in
person, shall be deemed equivalent to the giving of such notice to such
persons.
(d)(1) Investment Advisory Agreement dated January 11, 1993 between
Registrant and Banc One Investment Advisors Corporation is
incorporated by reference to Exhibit 5(a) to Post-Effective
Amendment No. 27 (filed March 17, 1993) to Registrant's
Registration Statement on Form N-1A.
(d)(2) Amended and Restated Schedule A to the Investment Advisory
Agreement between Registrant and Banc One Investment Advisors
Corporation dated May 18, 2000 is filed herewith.
(d)(3) Sub-Investment Advisory Agreement, dated as of August 20, 1998
between Banc One Investment Advisors Corporation and Banc One
High Yield Partners, LLC is incorporated by reference to
Exhibit (5)(d) to Post-Effective Amendment No. 45 (filed
August 26, 1998) to Registrant's Registration Statement on
Form N-1A.
(e)(1) Re-executed Distribution Agreement dated December 13, 1995
between Registrant and The One Group Services Company is
incorporated by reference to Exhibit
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(7)(c) to Registrant's Registration Statement on Form N-14
(filed January 19, 1996).
(e)(2) Revised Schedules A-E to the Distribution Agreement between
the Registrant and The One Group Services Company dated May
18, 2000 are filed herewith.
(e)(3) Dealer's Agreement for Registrant dated November 11, 1995
between The One Group Services Company and Banc One Securities
Corporation is incorporated by reference to Exhibit (7)(d) to
Registrant's Registration Statement on Form N-14 (filed
January 19, 1996).
(e)(4) Form of Shareholder Servicing Agreement between the Registrant
and Participating Service Organizations is incorporated by
reference to Exhibit (7)(f) to Registrant's Registration
Statement on Form N-14 (filed on May 29, 1998).
(e)(5) Agency Services and Delegation Agreement between INVESCO Trust
Company and Registrant dated January 1, 1998 is incorporated
by reference to Exhibit (10)(j) to Registrant's Registration
Statement on Form N-14 (filed on May 29, 1998).
(e)(6) Amendment to Agency and Services Delegation Agreement between
INVESCO Trust Company and Registrant is incorporated by
reference to Exhibit (e)(6) to Post-Effective Amendment No. 50
(filed August 26, 1999) to Registrant's Registration Statement
on Form N-1A.
(e)(7) Processing Agreement by and between Pershing Division of
Donaldson, Lufkin & Jenrette Securities Corporation and The
One Group dated as of February, 1999 is incorporated by
reference to Exhibit (6)(f) to Registrant's Registration
Statement on Form N-1A (filed March 12, 1999).
(e)(8) Shareholder Servicing Agreement (Class S Shares) dated May 26,
2000 between One Group Mutual Funds and Bank One Trust
Company, N.A. is filed herewith.
(e)(9) Shareholder Servicing Agreement (Class S Shares) dated March
21, 2000 between One Group Mutual Funds and Bank One
Corporation is filed herewith.
(e)(10) Agency Agreement between American General Retirement Services
Co., One Group Mutual Funds and The One Group Services Company
is filed herewith.
(e)(11) Agency Agreement dated November 25, 1999 between Capstone
Financial Group, Inc., One Group Mutual Funds and The One
Group Services Company is filed herewith.
(e)(12) Agency Agreement dated April 6, 2000 between Security Trust
Company, American General Retirement Services Co., One Group
Mutual Funds and The One Group Services Company is filed
herewith.
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(e)(13) FundCircuit Program Services Agreement between Bear Sterns
Securities Corporation, The One Group Services Company, and
One Group Mutual Funds is filed herewith.
(e)(14) Services Agreement dated December 28, 1999 between Fidelity
Brokerage Services, Inc.., National Financial Services
Corporation, One Group Mutual Funds, and The One Group
Services Company is filed herewith.
(f) Deferred Compensation Plan for Trustees of The One Group is
incorporated by reference to Exhibit (7) to Post-Effective
Amendment No. 47 (filed December 23, 1998) to Registrant's
Registration Statement on Form N-1A.
(g)(1) Custodian Contract dated as of July 29, 1988 between
Registrant and State Street Bank and Trust Company is
incorporated by reference to Exhibit (8)(a) to Post Effective
Amendment No. 45 (filed August 26, 1998) to Registrant's
Registration Statement on Form N-1A.
(g)(2) Amendment to Custodian Contract dated as of July 29, 1988
between Registrant and State Street Bank and Trust Company is
incorporated by reference to Exhibit (8)(b) to Post Effective
Amendment No. 45 (filed August 26, 1998) to Registrant's
Registration Statement on Form N-1A.
(g)(3) Sub-Custodian Agreement between State Street Bank and Trust
Company, Bank One Trust Company, N.A. and the Registrant is
incorporated by reference to Exhibit (8)(b) to Post-Effective
Amendment No. 37 (filed June 13, 1996) to the Registrant's
Registration Statement on Form N-1A.
(g)(4) First Amendment to the Subcustodian Agreement dated as of
December, 1996 between State Street Bank and Trust Company,
Bank One Trust Company, N.A. and the Registrant is
incorporated by reference to Exhibit (8)(d) to Post Effective
Amendment No. 45 (filed August 26, 1998) to Registrant's
Registration Statement on Form N-1A.
(g)(5) International Securities Lending Subcustodian and Services
Agreement, dated December 29, 1997 between State Street Bank
and Trust Company, Bank One Trust Company, N.A. and the
Registrant is incorporated by reference to Exhibit (8)(c) to
Post-Effective Amendment No. 44 (filed June 5, 1998) to the
Registrant's Registration Statement on Form N-1A.
(g)(6) Sub-Custodian Agreement dated as of March 19, 1999, between
State Street Bank and Trust Company, NBD Bank and One Group
Mutual Funds is incorporated by reference to Exhibit (8)(f) to
Post-Effective Amendment No.49 (filed April 27, 1999) to the
Registrant's Registration Statement on Form N-1A.
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(h)(1) Re-executed Management and Administration Agreement dated
November 20, 1997 is incorporated by reference to Exhibit
(13)(b) to Registrant's Registration Statement on Form N-14
(filed on May 29, 1998).
(h)(2) Revised Schedule A to the Management and Administration
Agreement between the Registrant and The One Group Services
Company dated May 18, 2000 is filed herewith.
(h)(3) Transfer Agency and Service Agreement dated as of April 1,
2000 the Registrant and State Street Bank and Trust Company is
filed herewith.
(h)(4) Amendment to the Transfer Agency and Service Agreement dated
as of February 6, 1996 is incorporated by reference to Exhibit
(9)(d) to Post-Effective Amendment No. 45 (filed August 26,
1998) to the Registrant's Registration Statement on Form N-1A.
(h)(5) Fund Accounting Agreement dated December 1, 1995 between the
Registrant and The One Group Services Company is incorporated
by reference to Exhibit (13)(c) to Registrant's Registration
Statement on Form N-14 (filed January 19, 1996).
(h)(6) Revised Schedule A to the Fund Accounting Agreement between
the Registrant and The One Group Services Company dated May
18, 2000 is filed herewith.
(h)(7) Sub-Administration Agreement dated December 1, 1995 between
The One Group Services Company and Banc One Investment
Advisors Corporation dais incorporated by reference to Exhibit
(13)(d) to the Registrant's Registration Statement on Form
N-14 (filed January 19, 1996).
(h)(8) Revised Schedule A to the Sub-Administration Agreement between
The One Group Services Company and Banc One Investment
Advisors Corporation dated May 18, 2000 is filed herewith.
(h)(9) Agency Services and Delegation Agreement dated January 1, 1996
between the Registrant and BISYS Qualified Plan Services is
incorporated by reference to Exhibit (9)(g) to Post-Effective
Amendment No. 37 (filed June 13, 1996) to the Registrant's
Registration Statement on Form N-1A.
(h)(10) Amendment to Agency Services and Delegation Agreement between
Registrant and BISYS Qualified Plan Services is incorporated
by reference to Exhibit (h)(10) to Post-Effective Amendment
No. 50 (filed August 26, 1999) to Registrant's Registration
Statement on Form N-1A.
(h)(11) Recordkeeping and Late Trading Agreement between Registrant
and Bank One Trust Company, NA is incorporated by reference to
Exhibit (h)(11) to Post-Effective Amendment No. 51 (filed
October 22, 1999) to Registrant's Registration Statement on
Form N-1A.
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(h)(12) Shareholder Servicing Agreement between The One Group Services
Company and Bank One Corporation is incorporated by reference
to Exhibit 9(h) to Post-Effective Amendment No. 37 (filed June
13, 1996) to the Registrant's Registration Statement on Form
N-1A.
(h)(13) Services Agreement dated as of June 6, 1997 between the
Registrant and Charles Schwab & Company, is incorporated by
reference to Exhibit (9)(l) to Post-Effective Amendment No. 44
(filed June 5, 1998) to Registrant's Registration Statement on
Form N-1A.
(h)(14) Operating Agreement dated as of June 6, 1997 between the
Registrant and Charles Schwab & Company, is incorporated by
reference to Exhibit (9)(m) to Post-Effective Amendment No. 44
(filed June 5, 1998) to Registrant's Registration Statement on
Form N-1A.
(h)(15) Retirement Services Order Processing Agreement dated as of
June 6, 1997 between the Registrant and Charles Schwab &
Company, is incorporated by reference to Exhibit (9)(n) to
Post-Effective Amendment No. 44 (filed June 5, 1998) to
Registrant's Registration Statement on Form N-1A.
(h)(16) Securities Lending Agreement for Non-ERISA Accounts dated as
of August 1995 between the Registrant, Banc One Investment
Advisors Corporation, and Bank One Trust Company, N.A. is
incorporated by reference to Exhibit (9)(p) to Post Effective
Amendment No. 45 (filed August 26, 1998) to Registrant's
Registration Statement on Form N-1A.
(h)(17) Amendment to Securities Lending Agreement for Non-ERISA
Accounts dated as of January 21, 1997 between the Registrant,
Banc One Investment Advisors Corporation, and Bank One Trust
Company, N.A. is incorporated by reference to Exhibit (9)(q)
to Post Effective Amendment No. 45 (filed August 26, 1998) to
Registrant's Registration Statement on Form N-1A.
(h)(18) Second Amendment to the Securities Lending Agreement (Domestic
Securities), effective May 21, 1998, between the Registrant,
Banc One Investment Advisors, and Bank One Trust Company, N.A.
is incorporated by reference to Exhibit (9)(r) to Post
Effective Amendment No. 45 (filed August 26, 1998) to
Registrant's Registration Statement on Form N-1A.
(h)(19) Securities Lending Agreement for Non-ERISA Accounts dated as
of January 8, 1998 between the Registrant, Banc One Investment
Advisors, and Bank One Trust Company, N.A. is incorporated by
reference to Exhibit (9)(s) to Post Effective Amendment No. 45
(filed August 26, 1998) to Registrant's Registration Statement
on Form N-1A.
14
<PAGE> 114
(h)(20) Amendment to the Securities Lending Agreement (Foreign
Securities) effective May 21, 1998 is incorporated by
reference to Exhibit (9)(t) to Post Effective Amendment No. 45
(filed August 26, 1998) to Registrant's Registration Statement
on Form N-1A.
(h)(21) Fund Alliance Agreement by and between The One Group, The One
Group Services Company, and Putnam Fiduciary Trust Company is
incorporated by reference to Exhibit (9)(u) to Post-Effective
Amendment No. 49 (filed April 27, 1999) to Registrant's
Registration Statement on Form N-1A.
(h)(22) Agency Agreement dated as of March 18, 1997 between Pegasus
Funds and BISYS Fund Services, Inc. is incorporated by
reference to Exhibit (9)(v) to Post-Effective Amendment No. 49
(filed April 27, 1999) to Registrant's Registration Statement
on Form N-1A.
(h)(23) Amendment dated April 1, 1999, to the Agency Agreement dated
as of March 18, 1997 between Pegasus Funds and BISYS Fund
Services, Inc. is incorporated by reference to Exhibit (9)(w)
to Post-Effective Amendment No. 49 (filed April 27, 1999) to
Registrant's Registration Statement on Form N-1A.
(h)(24) Agency Agreement dated as of March 11, 1997 between Pegasus
Funds and NBD Bank is incorporated by reference to Exhibit
(9)(x) to Post-Effective Amendment No. 49 (filed April 27,
1999) to Registrant's Registration Statement on Form N-1A.
(h)(25) Amendment to the Agency Agreement dated as of March 11, 1997
between Pegasus Funds and NBD Bank is incorporated by
reference to Exhibit (9)(y) to Post-Effective Amendment No. 49
(filed April 27, 1999) to Registrant's Registration Statement
on Form N-1A.
(h)(26) Agency Agreement dated as of November 1, 1996 between Pegasus
Funds and Putnam Fiduciary Trust Company is incorporated by
reference to Exhibit (9)(z) to Post-Effective Amendment No. 49
(filed April 27, 1999) to Registrant's Registration Statement
on Form N-1A.
(h)(27) Fifth Amendment dated March 19, 1999, to the Agency Agreement
dated as of November 1, 1996 between Pegasus Funds and Putnam
Fiduciary Trust Company is incorporated by reference to
Exhibit (9)(aa) to Post-Effective Amendment No. 49 (filed
April 27, 1999) to Registrant's Registration Statement on Form
N-1A.
(h)(28) Form of Agency Distribution Agreement between The One Group
Services Company and various shareholder servicing agents is
incorporated by reference to Exhibit (9)(bb) to Post-Effective
Amendment No. 49 (filed April 27, 1999) to Registrant's
Registration Statement on Form N-1A.
(h)(29) Sub-Transfer Agency Agreement between One Group Mutual Funds
and the Pershing Division of Donaldson, Lufkin & Jenrette
Securities Corporation, is
15
<PAGE> 115
incorporated by reference to Exhibit (h)(29) to Post-Effective
Amendment No. 50 (filed August 26, 1999) to Registrant's
Registration Statement on Form N-1A.
(h)(30) Form of Sub-Transfer Agency Agreement is incorporated by
reference to Exhibit (9)(dd) to Post-Effective Amendment No.
49 (filed April 27, 1999) to Registrant's Registration
Statement on Form N-1A.
(h)(31) Form of Order Processing Agreement is incorporated by
reference to Exhibit (9)(ee) to Post-Effective Amendment No.
49 (filed April 27, 1999) to Registrant's Registration
Statement on Form N-1A.
(h)(32) Services Agreement between One Group Mutual Funds, Bank One
Trust Company, NA, Kemper Services Company, Kemper
Distributors, Inc. and The One Group Services Company is
incorporated by reference to Exhibit (h)(32) to Post-Effective
Amendment No. 50 (filed August 26, 1999) to Registrant's
Registration Statement on Form N-1A.
(h)(33) Sub-Transfer Agency Agreement between Nationwide Investment
Services and One Group Mutual Funds is incorporated by
reference to Exhibit (h)(33) to Post-Effective Amendment No.
50 (filed August 26, 1999) to Registrant's Registration
Statement on Form N-1A.
(h)(34) FundVest Institutional No Transaction Fee Agreement between
Pershing Division of Donaldson Lufkin & Jenrette Securities
Corporation, The One Group Services Company, and One Group
Mutual Funds is incorporated by reference to Exhibit (h)(34)
to Post-Effective Amendment No. 51 (filed October 22, 1999) to
Registrant's Registration Statement on Form N-1A.
(h)(35) Sub-Transfer Agency Agreement dated March 1, 2000 between
Ceridian Retirement Plan Services and One Group Mutual Funds
is filed herewith.
(h)(36) Sub-Transfer Agency Agreement dated March 30, 2000 between
National Deferred Compensation, Inc. and One Group Mutual
Funds is filed herewith.
(h)(37) Late Order Processing Agreement between American General
(VALIC) Retirement Services Co. and One Group Mutual Funds is
filed herewith.
(h)(38) Late Order Processing Agreement dated April 6,2000 between
Security Trust Company and One Group Mutual Funds is filed
herewith.
(i) Opinion and consent of counsel is filed herewith.
(j)(1) Consent of PricewaterhouseCoopers LLP is filed herewith.
(j)(2) Consent of Ropes & Gray is filed herewith.
16
<PAGE> 116
(k) None
(l) Purchase Agreement dated July 18, 1985, between Registrant and
Physicians Insurance Company of Ohio is incorporated by
reference to Exhibit (13) to Post Effective Amendment No. 45
(filed August 26, 1998) to Registrant's Registration Statement
on Form N-1A.
(m)(1) Re-Executed Distribution and Shareholder Services Plan - Class
A and Service Class shares dated November 1, 1995, as amended
August 20, 1997, between the Registrant and The One Group
Services Company is incorporated by reference to Exhibit
(15)(a) to Post-Effective Amendment No. 43 (filed August 29,
1997) to Registrant's Registration Statement on Form N-1A.
(m)(2) Revised Schedule A to the Distribution and Shareholder
Services Plan - Class A and Service Class Shares is filed
herewith.
(m)(3) Distribution and Shareholder Services Plan - Class B and Class
C Shares dated January 1, 1994, as amended August 20, 1997,
between the Registrant and The One Group Services Company is
incorporated by reference to Exhibit (15)(b) to Post-Effective
Amendment No. 43 (filed August 29, 1997) to Registrant's
Registration Statement on Form N-1A.
(m)(4) Revised Schedules A and B to the Distribution and Shareholder
Services Plan - Class B and Class C Shares is incorporated by
reference to Exhibit (m)(4) to Post-Effective Amendment No. 50
(filed August 26, 1999) to Registrant's Registration Statement
on Form N-1A.
(n) Multiple Class Plan for the Registrant adopted by the Board of
Trustees on May 22, 1995, as amended May 20, 1999 is
incorporated by reference to Exhibit (n) to Post-Effective
Amendment No. 50 (filed August 26, 1999) to Registrant's
Registration Statement on Form N-1A.
(p)(1) One Group Mutual Funds and One Group Investment Trust Code of
Ethics is filed herewith.
(p)(2) Policy 4.05 Personal Trading as revised May 1, 2000 from Banc
One Investment Advisors Corporation's Compliance Manual is
filed herewith.
(p)(3) Policy 4.02 Employee Brokerage Accounts as amended October 11,
1999 from Banc One Investment Advisors Corporation's
Compliance Manual is filed herewith.
(p)(4) BISYS Fund Services Code of Ethnics
ITEM 24. Persons Controlled by or under Common Control with Registrant
As of the effective date of this Registration Statement there are no persons
controlled or under common control with the Registrant.
17
<PAGE> 117
ITEM 25. Indemnification.
Article IX, Section 9.2 of the Registrant's Declaration of
Trust, incorporated as Exhibit (1) hereto, provides for the
indemnification of Registrant's trustees and officers.
Indemnification of the Registrant's principal underwriter,
custodians, investment advisers, administrator, and transfer
agents is provided for in the Registrant's respective
Agreements with those service providers as filed or
incorporated by reference as Exhibits hereto. As of the
effective date of this Registration Statement, the Registrant
has obtained from a major insurance carrier a trustees and
officers' liability policy covering certain types of errors
and omissions. In no event will Registrant indemnify any of
its trustees, officers, employees, or agents against any
liability to which such person would otherwise be subject by
reason of his willful misfeasance, bad faith, or gross
negligence in the performance of his duties, or by reason of
his reckless disregard of the duties involved in the conduct
of his office or under his agreement with Registrant.
Registrant will comply with Rule 484 under the Securities Act
of 1933 and Release 11330 under the Investment Company Act of
1940 in connection with any indemnification.
Insofar as indemnification for liability arising under the
Securities Act of 1933 may be permitted to trustees, officers,
and controlling persons of Registrant pursuant to the
foregoing provisions, or otherwise, Registrant has been
advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as
expressed in the Act and is, therefore, unenforceable. In the
event that a claim for indemnification against such
liabilities (other than the payment by Registrant of expenses
incurred or paid by a trustee, officer or controlling person
of Registrant in the successful defense of any action, suit or
proceeding) is asserted by such trustee, officer, or
controlling person in connection with the securities being
registered, Registrant will, unless in the opinion of its
counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question of
whether such indemnification by it is against public policy as
expressed in the Act and will be governed by the final
adjudication of such issue.
18
<PAGE> 118
ITEM 26. Business and Other Connections of Investment Advisers
Banc One Investment Advisors Corporation ("Banc One Investment
Advisors") performs investment advisory services for all of
the Funds of The One Group. Independence International
Associates, Inc. performs investment sub-advisory services for
the International Equity Index Fund. Banc One High Yield
Partners, LLC provides investment advisory services for the
High Yield Bond Fund.
Banc One Investment Advisors is an indirect wholly-owned
subsidiary of BANK ONE CORPORATION, a bank holding company
incorporated in the state of Delaware. BANK ONE CORPORATION
now operates affiliate banking organizations in Arizona,
Colorado, 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.
To the knowledge of Registrant, none of the directors or
officers of Banc One Investment Advisors, Independence
International Associates, Inc. or Banc One High Yield
Partners, LLC, except as set forth or incorporated herein, is
or has been, at any time during the past two calendar years,
engaged in any other business, profession, vocation or
employment of a substantial nature. Set forth below are the
names and principal businesses of the directors of Banc One
Investment Advisors who are engaged in any other business,
profession, vocation or employment of a substantial nature.
BANC ONE INVESTMENT ADVISORS
<TABLE>
<CAPTION>
POSITION WITH BANC OTHER
ONE INVESTMENT ADVISORS SUBSTANTIAL OCCUPATION TYPE OF BUSINESS
----------------------- ---------------------- ----------------
<S> <C> <C>
David J. Kundert, Chairman, Chairman, Bank One Investment
President, and CEO Trust Company, NA,
100 East Broad
Street, Columbus,
Ohio 43215
Peter W. Atwater,Director Former Treasurer, Investment
and Chief Operating Officer Bank One Corporation,
Chief Operating Officer
Banc One Investment Advisers
Corporation;
1111 Polaris Parkway
Columbus, Ohio 43271
POSITION WITH BANC OTHER
ONE INVESTMENT ADVISORS SUBSTANTIAL OCCUPATION TYPE OF BUSINESS
----------------------- ---------------------- ----------------
</TABLE>
19
<PAGE> 119
<TABLE>
<CAPTION>
<S> <C> <C>
Mark A. Beeson, Director President, One Group Investment
Administrative Services, Inc.
1111 Polaris Parkway
Columbus, Ohio 43271
Gary Madich, Director Senior Managing Director Investment
Banc One Investment Advisors
Corporation,
1111 Polaris Parkway,
Columbus, Ohio 43271
Richard Jandrain, Director Senior Managing Director Investment
Banc One Investment Advisors
Corporation,
1111 Polaris Parkway,
Columbus, Ohio 43271
</TABLE>
The principal business address of the principal executive officer and directors
of Banc One Investment Advisors is 1111 Polaris Parkway, P.O. Box 710211,
Columbus, Ohio 43271-0211.
20
<PAGE> 120
BANC ONE HIGH YIELD PARTNERS, LLC
Banc One High Yield Partners, LLC is the Sub-Investment Advisor to the
High Yield Bond Fund ("Banc One Partners"). Banc One Partners, a limited
liability company organized under the laws of Ohio, provides investment advice
to the High Yield Bond Fund. Set forth below are the names and principal
businesses of the managers and investment officers of Banc One Partners who are
engaged in any other business, profession, vocation or employment of a
substantial nature.
<TABLE>
<CAPTION>
POSITION WITH OTHER SUBSTANTIAL TYPE OF
BANC ONE PARTNERS OCCUPATION BUSINESS
----------------- ---------- --------
<S> <C> <C>
James P. Shanahan, Manager Pacholder Associates,
Investment
Inc., Managing Director
& General Counsel, 8044
Montgomery Road, Suite
#382, Cincinnati, Ohio
45236
William J. Morgan, Manager Pacholder Associates,
Investment
Inc., President, 8044
Montgomery Road, Suite
#382, Cincinnati, Ohio
45236
Mark A. Beeson, President One Group Administrative
Investment
Services, Inc.
1111Polaris Parkway,
Columbus, Ohio 43271
Peter W. Atwater Banc One Investment
Investment
Advisors, Chief
Operating Officer,
1111 Polaris Parkway,
Columbus, OH 43271
Gary Madich, Manager Banc One Investment
Investment
Advisors, Senior
Managing Director, 1111
Polaris Parkway,
Yvonne M. Goetz, Vice Pacholder
Investment
</TABLE>
21
<PAGE> 121
President -- Senior Analyst Associates, Inc., Vice
President, 8044
Montgomery Road, Suite
#382, Cincinnati, Ohio
45236
<TABLE>
<CAPTION>
POSITION WITH OTHER SUBSTANTIAL TYPE OF
BANC ONE PARTNERS OCCUPATION BUSINESS
----------------- ---------- --------
<S> <C> <C>
Anthony L. Longi, Jr., Vice
President -- Portfolio Manager Pacholder
Investment
Associates, Inc.,
Executive Vice
President, 8044
Montgomery Road, Suite
#382, Cincinnati, Ohio
45236
</TABLE>
ITEM 27. Principal Underwriters
(a) The One Group Services Company acts as administrator and
distributor for each of the Fund's Portfolios.
(b) The directors and officers of The One Group Services Company are
set forth below. The business address of each director or officer is
3435 Stelzer Road, Columbus, Ohio 43219.
<TABLE>
<CAPTION>
POSITIONS AND OFFICES
WITH THE ONE GROUP
NAME SERVICES COMPANY POSITIONS WITH REGISTRANT
---- ---------------- -------------------------
<S> <C> <C>
Lynn J. Mangum Chairman and Chief None
Executive Officer
Dennis Sheehan Director None
Kevin J. Dell Vice President/Secretary/ None
Michael D. Burns Vice President None
Steven Ludwig Compliance Officer None
Robert Tuch Assistant Secretary None
David P. Blackmore Vice President/ None
Chief Financial Officer
</TABLE>
22
<PAGE> 122
<TABLE>
<S> <C> <C>
Mark S. Redman President President
Mark J. Ryberczyk Senior Vice President None
</TABLE>
(c) Not applicable.
ITEM 28. Location of Accounts and Records
(1) Banc One Investment Advisors Corporation, 1111 Polaris Parkway,
P.O. Box 710211, Columbus, Ohio 43271-0211 (records relating to
its functions as Investment Adviser and Sub-Administrator).
(2) Independence International Associates, Inc., 75 State Street,
Boston, MA 02109 (records relating to its functions as
Sub-Investment Adviser to the International Equity Index Fund).
(3) Banc One High Yield Partners, LLC, 1111 Polaris Parkway, P.O.
Box 710211, Columbus, Ohio 43271-0211 and 8044 Montgomery Road,
Suite #382, Cincinnati, Ohio 45236 (records relating to its
functions as Sub-Investment Advisor to the High Yield Bond
Fund).
(4) The One Group Services Company, 3435 Stelzer Road, Columbus, OH
43219 (records relating to its functions as Distributor for all
Funds).
(5) The One Group Services Company, 3435 Stelzer Road, Columbus, OH
43219 (records relating to its functions as Administrator for
all Funds).
(6) State Street Bank and Trust Company, 470 Atlantic Avenue, Fifth
Floor, Boston, MA 02205-9087 (records relating to its functions
as custodian and transfer agent to all Funds).
(7) Ropes & Gray, One Franklin Square, 1301 K Street, N.W., Suite
800 East, Washington, D.C. 20005 (Declaration of Trust, Code of
Regulations, and Minute Books).
ITEM 29. Management Services
N/A
ITEM 30. Undertakings
The Registrant undertakes to call a meeting of Shareholders, at
the request of at least 10% of the Registrant's outstanding
shares, for the purpose of voting upon the question of removal
of a trustee or trustees and to assist in communications
23
<PAGE> 123
with other shareholders as required by Section 16(c) of the
Investment Company Act of 1940.
The Registrant undertakes to furnish to each person to whom a
prospectus for a particular fund is delivered a copy of the
Registrant's latest annual report to shareholders relating to
that fund upon request and without charge.
24
<PAGE> 124
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the Investment
Company Act of 1940, the Registrant certifies that it meets all the requirements
for effectiveness to this Post-Effective Amendment pursuant to Rule 485(b) under
the 1933 Act and has duly caused this Post-Effective Amendment No. 52 to the
Registration Statement to be signed on its behalf by the undersigned, thereto
duly authorized, in the City of Washington, D.C. on the 2nd day of June, 2000.
One Group(R) Mutual Funds
(Registrant)
By: /s/ Mark S. Redman
-----------------------------
*Mark S. Redman
Pursuant to the requirements of the Securities Act of 1933, this Amendment to
the Registration Statement has been signed below by the following persons in the
capacities and on the date indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ MARK S. REDMAN President June 2, 2000
--------------------------------------------
* Mark S. Redman
/s/ PETER C. MARSHALL Trustee June 2, 2000
--------------------------------------------
*Peter C. Marshall
/s/ CHARLES I. POST Trustee June 2, 2000
--------------------------------------------
*Charles I. Post
/s/ FREDERICK W. RUEBECK Trustee June 2, 2000
--------------------------------------------
*Frederick W. Ruebeck
/s/ ROBERT A. ODEN Trustee June 2, 2000
--------------------------------------------
*Robert A. Oden
/s/ JOHN F. FINN Trustee June 2, 2000
--------------------------------------------
*John F. Finn
/s/ MARILYN MCCOY Trustee June 2, 2000
--------------------------------------------
*Marilyn McCoy
/s/ DONALD L. TUTTLE Trustee June 2, 2000
--------------------------------------------
*Donald L. Tuttle
/s/ JULIUS L. PALLONE Trustee June 2, 2000
--------------------------------------------
*Julius L. Pallone
*By: /s/ ALAN G. PRIEST
--------------------------------------------
Alan G. Priest
Attorney-in-Fact, pursuant to powers of attorney filed herewith.
</TABLE>
25
<PAGE> 125
POWER OF ATTORNEY
Mark S. Redman, whose signature appears below, does hereby constitute
and appoint Martin E. Lybecker, Alan G. Priest, and Alyssa Albertelli, each
individually, his true and lawful attorneys and agents, with power of
substitution or resubstitution, to do any and all acts and things and to execute
any and all instruments which said attorneys and agents, each individually, may
deem necessary or advisable or which may be required to enable The One Group(R)
(the "Group"), to comply with the Investment Company Act of 1940, as amended,
and the Securities Act of 1933, as amended ("Acts"), and any rules, regulations
or requirements of the Securities and Exchange Commission in respect thereof, in
connection with the filing and effectiveness of any and all instruments and/or
documents pertaining to the federal registration of the shares of the Group,
including specifically, but without limiting the generality of the foregoing,
the power and authority to sign in the name and on behalf of the undersigned as
a director and/or officer of the Group any and all amendments to the Group's
Registration Statement as filed with the Securities and Exchange Commission
under said Acts, and the undersigned does hereby ratify and confirm all that
said attorneys and agents, or either of them, shall do or cause to be done by
virtue thereof.
Dated: May 21, 1998
/s/ Mark S. Redman
-------------------------
Mark S. Redman
26
<PAGE> 126
POWER OF ATTORNEY
Peter C. Marshall, whose signature appears below, does hereby
constitute and appoint Martin E. Lybecker, Alan G. Priest, and Alyssa
Albertelli, each individually, his true and lawful attorneys and agents, with
power of substitution or resubstitution, to do any and all acts and things and
to execute any and all instruments which said attorneys and agents, each
individually, may deem necessary or advisable or which may be required to enable
The One Group(R) (the "Group"), to comply with the Investment Company Act of
1940, as amended, and the Securities Act of 1933, as amended ("Acts"), and any
rules, regulations or requirements of the Securities and Exchange Commission in
respect thereof, in connection with the filing and effectiveness of any and all
instruments and/or documents pertaining to the federal registration of the
shares of the Group, including specifically, but without limiting the generality
of the foregoing, the power and authority to sign in the name and on behalf of
the undersigned as a director and/or officer of the Group any and all amendments
to the Group's Registration Statement as filed with the Securities and Exchange
Commission under said Acts, and the undersigned does hereby ratify and confirm
all that said attorneys and agents, or either of them, shall do or cause to be
done by virtue thereof.
Dated: May 21, 1998
/s/ Peter C. Marshall
-------------------------
Peter C. Marshall
27
<PAGE> 127
POWER OF ATTORNEY
Charles I. Post, whose signature appears below, does hereby constitute
and appoint Martin E. Lybecker, Alan G. Priest, and Alyssa Albertelli, each
individually, his true and lawful attorneys and agents, with power of
substitution or resubstitution, to do any and all acts and things and to execute
any and all instruments which said attorneys and agents, each individually, may
deem necessary or advisable or which may be required to enable The One Group(R)
(the "Group"), to comply with the Investment Company Act of 1940, as amended,
and the Securities Act of 1933, as amended ("Acts"), and any rules, regulations
or requirements of the Securities and Exchange Commission in respect thereof, in
connection with the filing and effectiveness of any and all instruments and/or
documents pertaining to the federal registration of the shares of the Group,
including specifically, but without limiting the generality of the foregoing,
the power and authority to sign in the name and on behalf of the undersigned as
a director and/or officer of the Group any and all amendments to the Group's
Registration Statement as filed with the Securities and Exchange Commission
under said Acts, and the undersigned does hereby ratify and confirm all that
said attorneys and agents, or either of them, shall do or cause to be done by
virtue thereof.
Dated: May 21, 1998
/s/ CHARLES I. POST
-------------------------
Charles I. Post
28
<PAGE> 128
POWER OF ATTORNEY
Frederick W. Ruebeck, whose signature appears below, does hereby
constitute and appoint Martin E. Lybecker, Alan G. Priest, and Alyssa
Albertelli, each individually, his true and lawful attorneys and agents, with
power of substitution or resubstitution, to do any and all acts and things and
to execute any and all instruments which said attorneys and agents, each
individually, may deem necessary or advisable or which may be required to enable
The One Group(R) (the "Group"), to comply with the Investment Company Act of
1940, as amended, and the Securities Act of 1933, as amended ("Acts"), and any
rules, regulations or requirements of the Securities and Exchange Commission in
respect thereof, in connection with the filing and effectiveness of any and all
instruments and/or documents pertaining to the federal registration of the
shares of the Group, including specifically, but without limiting the generality
of the foregoing, the power and authority to sign in the name and on behalf of
the undersigned as a director and/or officer of the Group any and all amendments
to the Group's Registration Statement as filed with the Securities and Exchange
Commission under said Acts, and the undersigned does hereby ratify and confirm
all that said attorneys and agents, or either of them, shall do or cause to be
done by virtue thereof.
Dated: May 21, 1998
/s/ FREDERICK W. RUEBECK
-------------------------------
Frederick W. Ruebeck
29
<PAGE> 129
POWER OF ATTORNEY
Robert A. Oden, Jr., whose signature appears below, does hereby
constitute and appoint Martin E. Lybecker, Alan G. Priest, and Alyssa
Albertelli, each individually, his true and lawful attorneys and agents, with
power of substitution or resubstitution, to do any and all acts and things and
to execute any and all instruments which said attorneys and agents, each
individually, may deem necessary or advisable or which may be required to enable
The One Group(R) (the "Group"), to comply with the Investment Company Act of
1940, as amended, and the Securities Act of 1933, as amended ("Acts"), and any
rules, regulations or requirements of the Securities and Exchange Commission in
respect thereof, in connection with the filing and effectiveness of any and all
instruments and/or documents pertaining to the federal registration of the
shares of the Group, including specifically, but without limiting the generality
of the foregoing, the power and authority to sign in the name and on behalf of
the undersigned as a director and/or officer of the Group any and all amendments
to the Group's Registration Statement as filed with the Securities and Exchange
Commission under said Acts, and the undersigned does hereby ratify and confirm
all that said attorneys and agents, or either of them, shall do or cause to be
done by virtue thereof.
Dated: May 21, 1998
/s/ ROBERT A. ODEN, JR.
-----------------------
Robert A. Oden, Jr.
30
<PAGE> 130
POWER OF ATTORNEY
John F. Finn, whose signature appears below, does hereby constitute and
appoint Martin E. Lybecker, Alan G. Priest, and Alyssa Albertelli, each
individually, his true and lawful attorneys and agents, with power of
substitution or resubstitution, to do any and all acts and things and to execute
any and all instruments which said attorneys and agents, each individually, may
deem necessary or advisable or which may be required to enable The One Group(R)
(the "Group"), to comply with the Investment Company Act of 1940, as amended,
and the Securities Act of 1933, as amended ("Acts"), and any rules, regulations
or requirements of the Securities and Exchange Commission in respect thereof, in
connection with the filing and effectiveness of any and all instruments and/or
documents pertaining to the federal registration of the shares of the Group,
including specifically, but without limiting the generality of the foregoing,
the power and authority to sign in the name and on behalf of the undersigned as
a director and/or officer of the Group any and all amendments to the Group's
Registration Statement as filed with the Securities and Exchange Commission
under said Acts, and the undersigned does hereby ratify and confirm all that
said attorneys and agents, or either of them, shall do or cause to be done by
virtue thereof.
Dated: May 21, 1998
/s/ JOHN F. FINN
----------------------------
John F. Finn
31
<PAGE> 131
POWER OF ATTORNEY
Marilyn McCoy, whose signature appears below, does hereby constitute
and appoint Martin E. Lybecker, Alan G. Priest, and Alyssa Albertelli, each
individually, his true and lawful attorneys and agents, with power of
substitution or resubstitution, to do any and all acts and things and to execute
any and all instruments which said attorneys and agents, each individually, may
deem necessary or advisable or which may be required to enable The One Group(R)
(the "Group"), to comply with the Investment Company Act of 1940, as amended,
and the Securities Act of 1933, as amended ("Acts"), and any rules, regulations
or requirements of the Securities and Exchange Commission in respect thereof, in
connection with the filing and effectiveness of any and all instruments and/or
documents pertaining to the federal registration of the shares of the Group,
including specifically, but without limiting the generality of the foregoing,
the power and authority to sign in the name and on behalf of the undersigned as
a director and/or officer of the Group any and all amendments to the Group's
Registration Statement as filed with the Securities and Exchange Commission
under said Acts, and the undersigned does hereby ratify and confirm all that
said attorneys and agents, or either of them, shall do or cause to be done by
virtue thereof.
Dated: May 19, 1999
/s/ MARILYN MCCOY
----------------------------
Marilyn McCoy
32
<PAGE> 132
POWER OF ATTORNEY
Donald L. Tuttle, whose signature appears below, does hereby constitute
and appoint Martin E. Lybecker, Alan G. Priest, and Alyssa Albertelli, each
individually, his true and lawful attorneys and agents, with power of
substitution or resubstitution, to do any and all acts and things and to execute
any and all instruments which said attorneys and agents, each individually, may
deem necessary or advisable or which may be required to enable The One Group(R)
(the "Group"), to comply with the Investment Company Act of 1940, as amended,
and the Securities Act of 1933, as amended ("Acts"), and any rules, regulations
or requirements of the Securities and Exchange Commission in respect thereof, in
connection with the filing and effectiveness of any and all instruments and/or
documents pertaining to the federal registration of the shares of the Group,
including specifically, but without limiting the generality of the foregoing,
the power and authority to sign in the name and on behalf of the undersigned as
a director and/or officer of the Group any and all amendments to the Group's
Registration Statement as filed with the Securities and Exchange Commission
under said Acts, and the undersigned does hereby ratify and confirm all that
said attorneys and agents, or either of them, shall do or cause to be done by
virtue thereof.
Dated: May 19, 1999
/s/ DONALD L. TUTTLE
-----------------------------
Donald L. Tuttle
33
<PAGE> 133
POWER OF ATTORNEY
Julius L. Pallone, whose signature appears below, does hereby
constitute and appoint Martin E. Lybecker, Alan G. Priest, and Alyssa
Albertelli, each individually, his true and lawful attorneys and agents, with
power of substitution or resubstitution, to do any and all acts and things and
to execute any and all instruments which said attorneys and agents, each
individually, may deem necessary or advisable or which may be required to enable
The One Group(R) (the "Group"), to comply with the Investment Company Act of
1940, as amended, and the Securities Act of 1933, as amended ("Acts"), and any
rules, regulations or requirements of the Securities and Exchange Commission in
respect thereof, in connection with the filing and effectiveness of any and all
instruments and/or documents pertaining to the federal registration of the
shares of the Group, including specifically, but without limiting the generality
of the foregoing, the power and authority to sign in the name and on behalf of
the undersigned as a director and/or officer of the Group any and all amendments
to the Group's Registration Statement as filed with the Securities and Exchange
Commission under said Acts, and the undersigned does hereby ratify and confirm
all that said attorneys and agents, or either of them, shall do or cause to be
done by virtue thereof.
Dated: May 19, 1999
/s/ JULIUS L. PALLONE
-------------------------------
Julius L. Pallone
34
<PAGE> 134
EXHIBITS
(d)(2) Amended and Restated Schedule A to the Investment Advisory
Agreement between Registrant and Banc One Investment Advisors
Corporation dated May 18, 2000.
(e)(2) Revised Schedules A-E to the Distribution Agreement between
the Registrant and The One Group Services Company dated May
18, 2000.
(e)(8) Shareholder Servicing Agreement (Class S Shares) dated May 26,
2000 between One Group Mutual Funds and Bank One Trust
Company, N.A.
(e)(9) Shareholder Servicing Agreement (Class S Shares) dated March
21, 2000 between One Group Mutual Funds and Bank One
Corporation is filed herewith.
(e)(10) Agency Agreement between American General Retirement Services
Co., One Group Mutual Funds and The One Group Services
Company.
(e)(11) Agency Agreement dated November 25, 1999 between Capstone
Financial Group, Inc., One Group Mutual Funds and The One
Group Services Company.
(e)(12) Agency Agreement dated April 6, 2000 between Security Trust
Company, American General Retirement Services Co., One Group
Mutual Funds and The One Group Services Company.
(e)(13) FundCircuit Program Services Agreement between Bear Sterns
Securities Corporation, The One Group Services Company, and
One Group Mutual Funds.
(e)(14) Services Agreement dated December 28, 1999 between Fidelity
Brokerage Services, Inc., National Financial Services
Corporation, One Group Mutual Funds, and The One Group
Services Company.
(h)(2) Revised Schedule A to the Management and Administration
Agreement between the Registrant and The One Group Services
Company dated May 18, 2000.
(h)(3) Transfer Agency and Service Agreement dated as of April 1,
2000 the Registrant and State Street Bank and Trust Company.
(h)(6) Revised Schedule A to the Fund Accounting Agreement between
the Registrant and The One Group Services Company dated May
18, 2000.
(h)(8) Revised Schedule A to the Sub-Administration Agreement between
The One Group Services Company and Banc One Investment
Advisors Corporation dated May 18, 2000.
(h)(35) Sub-Transfer Agency Agreement dated March 1, 2000 between
Ceridian Retirement Plan Services and One Group Mutual Funds.
35
<PAGE> 135
(h)(36) Sub-Transfer Agency Agreement dated March 30, 2000 between
National Deferred Compensation, Inc. and One Group Mutual
Funds.
(h)(37) Late Order Processing Agreement between American General
(VALIC) Retirement Services Co. and One Group Mutual Funds.
(h)(38) Late Order Processing Agreement dated April 6, 2000 between
Security Trust Company and One Group Mutual Funds.
(i) Opinion and Consent of Ropes & Gray.
(j)(1) Consent of PricewaterhouseCoopers LLP.
(j)(2) Consent of Ropes & Gray.
(m)(2) Revised Schedule A to the Distribution and Shareholder
Services Plan - Class A and Service Class Shares dated May 18,
2000.
(p)(1) One Group Mutual Funds and One Group Investment Trust Code of
Ethics.
(p)(2) Policy 4.05 Personal Trading as revised May 1, 2000 from Banc
One Investment Advisors Corporation's Compliance Manual.
(p)(3) Policy 4.02 Employee Brokerage Accounts as amended October 11,
1999 from Banc One Investment Advisors Corporation's
Compliance Manual.
(p)(4) BISYS Fund Services Code of Ethics
36
