<PAGE> 1
EXHIBITS START ON PAGE _________
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 24, 1996
Securities Act Registration No. 33-66080
Investment Company Act Registration No. 811-7874
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 / /
Pre-Effective Amendment No. _____ / /
Post-Effective Amendment No. 4 / /
and/or
REGISTRATION STATEMENT UNDER THE /x/
INVESTMENT COMPANY ACT OF 1940
Amendment No. 6 /x/
(Check appropriate box or boxes)
THE ONE GROUP(R) INVESTMENT TRUST
(Exact Name of Registrant as Specified in Charter)
ONE NATIONWIDE PLAZA
COLUMBUS, OHIO 43216
(Address of Principal Executive Office)(Zip Code)
Registrant's Telephone Number, including Area Code: (614) 249-7111
W. SIDNEY DRUEN
ONE NATIONWIDE PLAZA
COLUMBUS, OHIO 43216
(Name and Address of Agent for Service)
Copies to:
MARK B. KOOGLER ALAN G. PRIEST
DRUEN, RATH & DIETRICH ROPES & GRAY
ONE NATIONWIDE PLAZA 1001 PENNSYLVANIA AVENUE, N.W.
COLUMBUS, OHIO 43216 SUITE 1200 SOUTH
WASHINGTON, D.C. 20004
It is proposed that this filing will become effective (check appropriate box)
/ / immediately upon filing pursuant to paragraph (b)
/X/ on April 30, 1996 pursuant to paragraph (b)
/ / days after filing pursuant to paragraph (a)(i)
/ / on (date pursuant to paragraph (a)(i)
/ / days after filing pursuant to paragraph (a)(ii)
/ / on (date) pursuant to paragraph (a)(ii) of Rule 485.
/ / If appropriate, check the following box:
/ / this post-effective amendment designates a new effective date for
a previously filed post-effective amendment.
In accordance with Rule 24f-2(a)(1) under the Investment Company Act of
1940, the Registrant has registered an indefinite number of shares by the prior
Registration Statement. Pursuant to paragraph (a)(3) thereof, a non-refundable
fee in the amount of $500.00 has been paid to the Commission. Registrant filed
its 24f-2 notice for the fiscal year ended December 31, 1995 on February 28,
1996.
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- --------------------------------------------------------------------------------
THE ONE GROUP(R) INVESTMENT TRUST
GOVERNMENT BOND FUND
ASSET ALLOCATION FUND
GROWTH OPPORTUNITIES FUND
LARGE COMPANY GROWTH FUND
- --------------------------------------------------------------------------------
CROSS REFERENCE SHEET
<TABLE>
<CAPTION>
N-1A Item No. Location
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
PART A
Item 1. Cover Page . . . . . . . . . . . . . . . . . . . . . . . . Cover Page
Item 2. Synopsis . . . . . . . . . . . . . . . . . . . . . . . . . Summary
Item 3. Condensed Financial Information . . . . . . . . . . . . . Financial Highlights
Item 4. General Description of Registrant . . . . . . . . . . . . Description of the Trust
Item 5. Management of the Fund . . . . . . . . . . . . . . . . . . Management of the Trust
Item 6. Capital Stock and Other Securities . . . . . . . . . . . . Description of Shares
Item 7. Purchase of Securities Being Offered . . . . . . . . . . . Shareholder Rights
Item 8. Redemption or Repurchase . . . . . . . . . . . . . . . . . Share Redemption
Item 9. Pending Legal Proceedings . . . . . . . . . . . . . . . . Not Applicable
PART B
Item 10. Cover Page . . . . . . . . . . . . . . . . . . . . . . . . Cover Page
Item 11. Table of Contents . . . . . . . . . . . . . . . . . . . . Table of Contents
Item 12. General Information and History . . . . . . . . . . . . . The Trust
Item 13. Investment Objectives and Policies . . . . . . . . . . . . Investment Objectives and Policies
Item 14. Management of the Registrant . . . . . . . . . . . . . . . Management of the Trust
Item 15. Control Persons and Principal
Holders of Securities . . . . . . . . . . . . . . . . . . Shareholders
Item 16. Investment Advisory and Other Services . . . . . . . . . . Management of the Trust-
Investment Adviser
Item 17. Brokerage Allocation . . . . . . . . . . . . . . . . . . . Management of the Trust-
Portfolio Transactions
Item 18. Capital Stock and Other Securities . . . . . . . . . . . . Additional Information-
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . Shareholders
Item 19. Purchase, Redemption and Pricing of
Securities Being Offered . . . . . . . . . . . . . . . . . Additional Information
Regarding the Calculation
of Per Share Net Asset Value
Item 20. Tax Status . . . . . . . . . . . . . . . . . . . . . . . . Investment Objectives and
Policies-Additional Tax
Information Concerning All
Funds of the Trust
Item 21. Underwriters . . . . . . . . . . . . . . . . . . . . . . . Not Applicable
</TABLE>
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CROSS REFERENCE SHEET
<TABLE>
<S> <C> <C> <C>
N-1A Item No. Location
- ------------------------------------------------------------------------------------------------------
PART B
Item 22. Calculation of Performance Data . . . . . . . . . . . . . Calculation of Performance Data
Item 23. Financial Statements . . . . . . . . . . . . . . . . . . . Financial Statements
</TABLE>
PART C
Information required to be included in Part C is set forth under the
appropriate item, so numbered, in Part C to this Registration statement
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PROSPECTUS
MAY 1, 1996
Shares of Beneficial Interest
THE ONE GROUP(R) INVESTMENT TRUST
Government Bond Fund
Asset Allocation Fund
Growth Opportunities Fund
Large Company Growth Fund
One Nationwide Plaza
Columbus, Ohio 43216
For Information and Assistance, Call
1-800-860-3946
The One Group(R) Investment Trust (the "Trust") is a diversified, open-end
management investment company organized under the laws of Massachusetts, by a
Declaration of Trust, dated June 7, 1993, as amended. The Trust offers shares
in the four separate mutual funds (the "Funds") shown above, each with its own
investment objective. The shares of the Funds are sold to Nationwide Life and
Annuity Insurance Company (formerly Financial Horizons Life Insurance Company)
to fund the benefits of The One(R) Investors Annuity(SM) and certain other
separate accounts funding variable annuity and variable life contracts issued
by other life insurance companies, and qualified pension and retirement plans.
THE TRUST'S SHARES ARE NOT OBLIGATIONS OR DEPOSITS OF, OR ENDORSED OR
GUARANTEED BY, BANC ONE CORPORATION OR ANY OF ITS AFFILIATES OR CORRESPONDENTS.
THE TRUST'S SHARES ARE NOT FEDERALLY INSURED BY THE FDIC, THE FEDERAL RESERVE
BOARD, OR BY ANY OTHER AGENCY. AN INVESTMENT IN MUTUAL FUND SHARES INVOLVES
INVESTMENT RISKS, INCLUDING THE POSSIBLE LOSS OF THE PRINCIPAL AMOUNT INVESTED.
BANC ONE INVESTMENT ADVISORS CORPORATION RECEIVES FEES FROM THE TRUST FOR
ADVISORY SERVICES.
This Prospectus provides you with the basic information you should know
before investing in the Funds. You should read it and keep it for future
reference. A Statement of Additional Information, dated May 1, 1996, has been
filed with the Securities and Exchange Commission, and is incorporated into
this Prospectus by reference. You can obtain a copy without charge by calling
or writing the Trust at the telephone number or address shown above.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE COMMISSION
OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY
OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
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The following financial highlights of the One Group(R) Investment Trust have
been derived from the audited financial statements of the Trust. Such
financial statements are included in the Statement of Additional Information,
which may be obtained free of charge upon request. Such financial highlights
should be read in conjunction with the audited financial statements of the
Trust.
<TABLE>
<CAPTION>
THE ONE GROUP(R) INVESTMENT TRUST
Financial Highlights Of The Trust
Government Asset Growth Large Company
Bond Allocation Opportunities Growth
Fund Fund Fund* Fund
---- ---- ---- ----
Selected per share data and Year Period Year Period Year Period Year Period
ratios for a share outstanding Ended Ended Ended Ended Ended Ended Ended Ended
throughout the period Dec. 31, Dec. 31, Dec. 31, Dec. 31, Dec. 31, Dec. 31, Dec. 31, Dec. 31,
1995 1994** 1995 1994** 1995 1994** 1995 1994**
---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE -
BEGINNING OF PERIOD $ 9.69 $10.00 $ 9.81 $10.00 $ 9.70 $10.00 $ 9.99 $10.00
----- ------ ----- ------ ----- ------ ----- ------
Net investment income .64 .22 .36 .06 .04 - .20 .05
Net realized gain (loss) and
unrealized appreciation .94 (.31) 1.64 (.19) 2.29 (.30) 2.20 .01
(depreciation) --- ----- ---- ----- ---- ----- ---- ---
Total from investment 1.58 (.09) 2.00 (.13) 2.33 (.30) 2.40 .06
---- ----- ---- ----- ---- ----- ---- ---
operations
Dividends from net investment (.64) (.22) (.36) (.06) (.04) - (.20) (.05)
income
Distributions from net realized
gain from security transactions (.15) - (.21) - (.47) - (.07) (.02)
----- ----- ----- ----- ----- ----- ----- -----
Total distributions (.79) (.22) (.57) (.06) (.51) - (.27) (.07)
----- ----- ----- ----- ----- ----- ----- -----
NET ASSET VALUE -
END OF PERIOD $10.48 $9.69 $11.24 $9.81 $11.52 $9.70 $12.12 $9.99
====== ===== ====== ===== ====== ===== ====== =====
Total return 16.7% (.9%) 20.7% (1.3%) 24.1% (3.0%) 24.1% .5%
Expenses to average net assets .75% .75% 1.00% 1.00% .90% .90% .90% .90%
Net investment income
to average net assets 6.54% 6.09% 3.66% 1.88% .46% (.17%) 2.02% 1.39%
Expenses to average net assets+ 1.47% 1.94% 1.96% 2.36% 2.78% 2.96% 1.64% 2.08%
Net investment income
to average net assets+ 5.80% 4.90% 2.70% .52% (1.42%) (2.22%) 1.28% .22%
Portfolio turnover 34.1% 3.5% 66.3% - 193.3% 3.5% 37.4% 4.4%
Net assets, end of period (000) $9,016 $5,112 $5,455 $2,063 $6,685 $940 $16,119 $4,175
</TABLE>
*Formerly known as the Small Company Growth Fund.
[/R]
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**August 1, 1994 (date of initial public offering) through December 31, 1994
+Ratios calculated as if no expenses were waived or reimbursed. Waived and
reimbursed expenses per share for the year ended December 31, 1995 and the
period ended December 31, 1994, respectively: Government Bond Fund $.074 and
$.042, Asset Allocation Fund $.100 and $.041, Growth Opportunities Fund $.212
and $.037, Large Company Growth Fund $.092 and $.037.
Ratios are annualized. Total return and portfolio turnover are not annualized.
The information in the Financial Highlights has been audited by Price
Waterhouse LLP, Independent Accountants, whose report on the financial
statements containing the financial highlights appears in the Statement of
Additional Information. The Statement of Additional Information and the Annual
Report for the Funds which contains further information about the Funds'
performance may be obtained free of charge by calling 1- 800-860-3946.
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SUMMARY
The One Group(R) Investment Trust (the "Trust") is a diversified, open-end
management investment company, organized as a Massachusetts business trust,
offering shares in four separate mutual funds ("Funds").
WHAT IS THE INVESTMENT OBJECTIVE? The Government Bond Fund seeks a high
level of current income with liquidity and safety of principal. The Asset
Allocation Fund seeks to provide total return while preserving capital. The
Growth Opportunities Fund (formerly known as the Small Company Growth Fund)
seeks growth of capital and, secondarily, current income, by investing
primarily in equity securities. The Large Company Growth Fund seeks long-term
capital appreciation and growth of income. See "INVESTMENT OBJECTIVE."
WHAT ARE THE PERMITTED INVESTMENTS? The Government Bond Fund will normally
invest at least 65% of total assets in obligations issued or guaranteed by the
U.S. Government or its agencies and instrumentalities. The Asset Allocation
Fund will invest in a combination of common stocks and fixed income securities
and will invest at least 25% of its total assets in senior fixed income
securities and at least 40% of its total assets in equity securities. The
Growth Opportunities Fund and Large Company Growth Fund will invest primarily
in common stocks, but may also invest in debt securities and preferred stock
which are convertible into common stock. Equity securities such as those in
which the Asset Allocation, Growth Opportunities and Large Company Growth Funds
may invest are more volatile and carry more risk than some other forms of
investment. Accordingly, the net asset value per share of such a Fund may be
more prone to a decrease over time. Each of these Funds may only invest in
select derivatives; their characteristics and limitations on their use are more
fully described in "APPENDIX A -- DESCRIPTION OF PERMITTED INVESTMENTS AND
ASSOCIATED RISKS." There are many types of derivative securities with varying
degrees of potential risk and return. See "INVESTMENT POLICIES."
WHO IS THE ADVISER? Banc One Investment Advisors Corporation serves as the
Adviser of the Trust and is entitled to a fee, which is calculated daily and
paid monthly, at an annual rate of 0.45% for the Government Bond Fund, 0.65%
for the Growth Opportunities Fund and the Large Company Growth Fund,
respectively, and 0.70% for the Asset Allocation Fund, as a percentage of each
such Fund's average daily net assets. The Adviser is an indirect subsidiary of
BANC ONE CORPORATION.
FEE WAIVERS. The Adviser has voluntarily agreed to waive all or part of its
fees in order to limit the Funds' operating expenses to not more than .75% of
the average daily net assets of the Government Bond Fund, not more than 1.10%
of the average daily net assets of the Growth Opportunities Fund and and not
more than 1.00% of the average daily net assets of each of the Large Company
Growth Fund and Asset Allocation Fund.
WHO IS THE ADMINISTRATOR? Nationwide Financial Services, Inc. serves as
Administrator of the Trust and is entitled to a fee, which is calculated daily
and paid monthly, at an annual rate not to exceed 0.24% of each Fund's average
daily net assets. See "The Administrator."
WHO IS THE TRANSFER AGENT? Nationwide Investors Services, Inc. serves as
transfer agent for the Trust. See "Transfer and Dividend Paying Agent."
HOW ARE SHARES PURCHASED AND REDEEMED? Shares of the Funds will be purchased
by the Nationwide VA Separate Account-C, a separate account of Nationwide Life
and Annuity Insurance Company, to fund the obligation of The One(R) Investors
AnnuitySM and by other insurance company separate accounts to fund variable
life annuity and variable life contracts and qualified pension and retirement
plans. See "Investment In Fund Shares." For information concerning the purchase
and redemption of shares by The One(R) Investors Annuity(SM), refer to the
prospectus of The One(R) Investors Annuity(SM) which accompanies the Trust's
prospectus.
INVESTMENT OBJECTIVES
THE ONE GROUP(R) GOVERNMENT BOND FUND
The investment objective of this Fund is to seek a high level of current income
with liquidity and safety of principal.
THE ONE GROUP(R) ASSET ALLOCATION FUND
The investment objective of this Fund is to seek total return while preserving
capital.
THE ONE GROUP(R) GROWTH OPPORTUNITIES FUND
The investment objective of this Fund is to seek growth of capital and,
secondarily, current income, by investing primarily in equity securities.
The Growth Opportunities Fund was formerly known as the Small Company Growth
Fund.
THE ONE GROUP(R) LARGE COMPANY GROWTH FUND
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<PAGE> 8
The investment objective of this Fund is to seek long-term capital
appreciation and growth of income by investing primarily in equity securities.
THERE IS NO ASSURANCE THAT THE INVESTMENT OBJECTIVE OF ANY FUND WILL
BE MET.
INVESTMENT POLICIES
-- THE ONE GROUP(R) GOVERNMENT BOND FUND
PERMITTED INVESTMENTS
THE ONE GROUP(R) GOVERNMENT BOND FUND intends to seek to achieve its
investment objective principally through investment in securities issued by the
U.S. Government and its agencies and instrumentalities. At least 65% of total
assets will be invested in obligations guaranteed as to principal and interest
by the U.S. Government or its agencies and instrumentalities, some of which may
be subject to repurchase agreements, and other securities representing an
interest in or collaterized by mortgages which are issued or guaranteed by the
U.S. Government, its agencies or instrumentalities. The primary issuers or
guarantors of such securities currently include the Government National
Mortgage Association ("Ginnie Mae"), The Federal National Mortgage Association
("Fannie Mae"), and the Federal Home Loan Mortgage Corporation ("Freddie Mac"),
although the Fund may invest in securities issued or guaranteed by other
agencies or instrumentalities in the future. The Fund's ability to achieve
higher income is not as great as that of funds that may invest in lower-quality
instruments.
The average weighted remaining maturity of the Government Bond Fund is
expected to be between three and fifteen years. However, the Fund's average
weighted remaining maturity may be outside this range if warranted by market
conditions.
The balance of the Fund's assets may be invested in debt securities and
Municipal Securities. Debt securities generally will be rated in one of the
three highest rating categories by at least one nationally recognized
statistical rating organization ("NRSRO") at the time of investment (for
example, A or better by Standard & Poor's Corporation ("S&P") or Moody's
Investors Service ("Moody's")) or, if unrated, determined by the Adviser to be
of comparable quality. However, the Adviser reserves the right to invest in
debt securities which present attractive opportunities and are rated in the
fourth highest rating category by at least one NRSRO at the time of investment
(for example, BBB by S&P or Baa by Moody's).
Preferred stock must be rated in one of the four highest rating categories
by at least one NRSRO at the time of investment (for example, BBB or better by
S&P or Baa or better by Moody's) or, if unrated, determined by the Adviser to
be of comparable quality. Securities that are rated in the fourth highest
rating category by an NRSRO are deemed by these ratings services to have some
speculative characteristics.
The Fund may also purchase taxable or tax-exempt municipal securities
("Municipal Securities"). Municipal Securities, if bonds, must be rated in one
of the four highest rating categories by at least one NRSRO at the time of
investment (for example, BBB or better by S&P or Baa or better by Moody's) or,
if unrated, determined by the Adviser to be of comparable quality. Other
Municipal Securities, such as tax-exempt commercial paper, notes or variable
rate demand obligations must be rated in one of the three highest rating
categories by at least one NRSRO at the time of investment (such as A-2 by S&P
or P-2 by Moody's, with respect to tax-exempt commercial paper; SP-2 by S&P or
MIG-2 by Moody's, with respect to notes; and A-2 by S&P or VMIG-2 by Moody's,
with respect to variable rate demand obligations) or, if unrated, determined by
the Adviser to be of comparable quality.
The Fund will normally invest in U.S. Treasury obligations, obligations
issued or guaranteed by the U.S. government or its agencies and
instrumentalities and repurchase agreements collateralized by such obligations.
In addition to the permissible investments described above, the Fund may
also invest in mortgage-backed securities, securities purchased on a
when-issued basis and forward commitments, variable and floating rate notes,
restricted securities, time deposits, certificates of deposit, receipts, which
may include Treasury Receipts ("TRS"), Treasury Investment Growth Receipts
("TIGRS") and Certificates of Accrual on Treasury Securities ("CATS"), U.S.
Treasury obligations, which may include Separately Traded Registered Interest
and Principal Securities ("STRIPS") and Coupon Under Book Entry Safekeeping
("CUBES"), securities of other investment companies, bankers' acceptances,
commercial paper, repurchase agreements, reverse repurchase agreements, and
mortgage dollar rolls. The Fund may also invest in: options, futures contracts,
options on futures contracts, municipal securities, securities subject to demand
features, multiple class pass-through securities and collateralized mortgage
obligations ("CMOs"), real estate mortgage investment conduits ("REMICs"),
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<PAGE> 9
adjustable rate mortgage loans ("ARMS"), stripped mortgage-backed securities,
fixed rate mortgage loans, inverse floating rate instruments, asset backed
securities, corporate securities, swap transactions, structured instruments,
municipal leases, and the Fund may also engage in securities lending
transactions.
In addition, the Fund may invest in new options, futures contracts and other
financial products that may be developed, to the extent that these products are
consistent with the Fund's investment objective and policies.
This list of permissible investments includes select securities that may be
commonly considered to be derivatives, including: mortgage dollar rolls,
options, futures contracts, options on futures contracts, multiple class
pass-through securities and collateralized mortgage obligations (CMOs and
REMICs), stripped mortgage-backed securities (IOs and POs), inverse floating
rate instruments, asset-backed securities, swap, cap and floor transactions,
new financial products and structured instruments. These securities and
limitations on their use are more fully described in "APPENDIX A -- DESCRIPTION
OF PERMITTED INVESTMENTS AND ASSOCIATED RISKS."
For a description of the Fund's permitted investments and ratings, see
"APPENDIX A--DESCRIPTION OF PERMITTED INVESTMENTS AND ASSOCIATED RISKS" and
"APPENDIX B--DESCRIPTION OF RATINGS" and the Statement of Additional
Information. For a description of permitted investments for temporary defensive
purposes, see "Temporary Defensive Position." In the event a security owned by
the Fund is downgraded below these rating categories, the Adviser will review
and take appropriate action with regard to the security.
RISK FACTORS
The Government Bond Fund's investments in mortgage pass-through securities
and other securities representing an interest in or collateralized by
adjustable rate and fixed rate mortgage loans ("Mortgage-Backed Securities")
entail certain risks. These risks include the failure of an issuer or guarantor
to meet its obligations, adverse interest rate changes, adverse economic, real
estate or unemployment trends, failures in connection with processing of
transactions and the effects of prepayments on mortgage cash flows. The Fund's
policy of investing primarily in securities issued or guaranteed by the U.S.
government, its agencies or instrumentalities, however, is designed to minimize
credit and performance related risks otherwise associated with Mortgage-Backed
Securities.
The investment characteristics of Mortgage-Backed Securities differ from
traditional debt securities. These differences can result in significantly
greater price and yield volatility than is the case with traditional fixed
income securities. The major differences typically include more frequent
interest and principal payments, usually monthly, the adjustability of interest
rates, 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. During periods of
declining interest rates, prepayment rates can be expected to accelerate.
Under certain interest rate and prepayment rate scenarios, the Fund may fail to
recoup fully its investment in Mortgage-Backed Securities notwithstanding a
direct or indirect governmental or agency guarantee. In general, changes in the
rate of prepayments on a Mortgage-Backed Security will change that security's
market value and its yield to maturity. When interest rates fall, high
prepayments could force the Fund to reinvest principal at a time when
investment opportunities are not attractive. Thus, Mortgage-Backed Securities
may not be an effective means for the Fund to lock in long-term interest rates.
Conversely, during periods when interest rates rise, slow prepayments could
cause the average life of the security to lengthen and the value to decline
more than anticipated.
The market value of the Government Bond Fund's fixed income investments will
change in response to interest rate changes and other factors. During periods
of falling interest rates, the values of outstanding fixed income securities
generally rise. Conversely, during periods of rising interest rates, the values
of such securities generally decline. Moreover, while securities with longer
maturities tend to produce higher yields, the prices of longer maturity
securities are also subject to greater market fluctuations as a result of
changes in interest rates. Changes by recognized agencies in the rating of any
fixed income security and in the ability of an issuer to make payments of
interest and principal also affect the value of these investments. Except under
conditions of default, changes in the value of Fund securities will not affect
cash income derived from these securities but will affect a Fund's net asset
value.
Certain investment management techniques that the Fund may use may expose
the Fund to special risks. These include, but are not limited to, engaging in
hedging transactions (including mortgage and interest rate swaps and interest
rate floors and caps), purchasing and selling futures and options, making
forward commitments, purchasing structured instruments, lending portfolio
securities and entering into mortgage dollar rolls. These practices could
expose the Fund to potentially greater risk of loss than more traditional fixed
income investments.
Securities rated in the fourth highest rating category by an NRSRO are
generally considered to be investment grade, although such securities are
deemed to have some speculative characteristics. Changes in economic conditions
or other
Page 9 of 91
<PAGE> 10
circumstances are more likely to lead to a weakened capacity of the issuers of
such securities to make principal and interest payments than is the case with
higher grade securities.
For additional information on the Fund's permitted investments and
associated risks, see "APPENDIX A--DESCRIPTION OF PERMITTED INVESTMENTS AND
ASSOCIATED RISKS."
Temporary Defensive Position
For temporary defensive purposes when the Adviser determines that market
conditions warrant, the Fund may invest up to 100% of its assets in money
market instruments, and may hold a portion of its assets in cash for liquidity
purposes.
To the extent the Fund is engaged in a temporary defensive position, the
Fund will not be pursuing its investment objective.
PORTFOLIO TURNOVER
For the period August 1, 1994 through December 31, 1994, the portfolio
turnover rate for the Government Bond Fund was 3.5%. For the year ended
December 31, 1995, the portfolio turnover rate for the Fund was 34.1%. Higher
portfolio turnover rates will likely result in higher brokerage expenses and
higher levels of capital gains to the Fund.
--THE EQUITY FUNDS (ASSET ALLOCATION, GROWTH OPPORTUNITIES AND LARGE COMPANY
GROWTH)
PERMITTED INVESTMENTS
THE ONE GROUP(R) ASSET ALLOCATION FUND will invest in a combination of
equity securities, fixed income securities and money market instruments. Fixed
income securities in which the Fund may invest are U.S. Government securities,
mortgage-backed securities, including collateralized mortgage obligations
("CMOs") and real estate mortgage investment conduits ("REMICs"), corporate
bonds, and bank obligations. Under normal conditions, the Fund will invest
between 25% and 60% of its total assets in senior fixed income securities
consisting of bonds, debentures, notes, and similar obligations or instruments
which constitute a security and evidence indebtedness. For purposes of this
policy, "bonds" include debt instruments issued by the U.S. Treasury, U.S.
Government agencies, corporations, municipalities and foreign entities,
mortgage related securities, asset-backed securities and stripped government
securities. The Fund also may invest in asset-backed securities, municipal
securities, corporate securities, mortgage dollar rolls, ARMS, stripped
mortgage-backed securities, swaps, and structured instruments, and may engage
in securities lending transactions.
Corporate bonds generally will be rated in one of the three highest rating
categories by at least one nationally recognized statistical rating
organization ("NRSRO") at the time of investment (for example, A or better by
Standard & Poor's Corporation ("S&P") or Moody's Investors Service ("Moody's"))
or, if unrated, determined by the Adviser to be of comparable quality. However,
the Adviser reserves the right to invest in corporate bonds which present
attractive opportunities and are rated in the fourth highest rating category by
an NRSRO at the time of investment (for example, BBB by S&P and Baa by Moody's)
or, if unrated, determined by the Adviser to be of comparable quality.
Municipal Securities, if bonds, must be rated BBB or better by S&P or Baa or
better by Moody's at the time of investment or be of comparable quality as
determined by the Adviser. Other municipal securities must be rated as follows
at the time of investment or be of comparable quality as determined by the
Adviser: tax-exempt commercial paper--A-2 by S&P or P-2 by Moody's: notes--SP-2
by S&P or MIG-2 by Moody's: variable rate demand obligations--A-2 by S&P or
VMIG-2 by Moody's.
Under normal conditions, the Asset Allocation Fund will invest between 40%
and 75% of its total assets in equity securities, depending on the Adviser's
assessment of market conditions. Equity issuers may include companies listed on
a national exchange and companies which represent both large and small
capitalization, as well as growth and value securities, since the Fund is an
asset allocation Fund that represents all of the various equity styles of the
Trust. Up to 20% of the Fund's assets allocated to equity investments (from 8%
to 15% of its total assets) may be invested in the securities of foreign
issuers, such as common and preferred stocks, securities convertible into
common stocks, warrants, and investment companies that invest in securities of
foreign issuers. The Fund may also invest in securities of foreign issuers by
purchasing American Depository Receipts. The balance of the total assets of the
Fund, other than fixed income and equity assets, will be invested in money
market instruments.
The Adviser will regularly review the allocations of the Asset Allocation
Fund's assets among equity securities, fixed income securities and money market
instruments, and will gradually vary them over time in favor of investments
that, in the Adviser's judgment, provide the most favorable total return
outlook. In making allocation decisions, the Adviser will
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<PAGE> 11
evaluate projections of risk, market and economic conditions, volatility, yields
and expected return. For example, the Adviser will seek to reduce the risk
relative to investments in common stocks by increasing the allocations of the
Fund's assets in fixed income securities and money market instruments when it
believes that common stocks are overvalued. Because the Asset Allocation Fund
seeks total return over the long-term, the Adviser will not attempt to time
major changes in asset allocations. Rather, shifts in allocations among equity
securities, fixed income securities and money market instruments will be made
gradually over time.
The money market instruments in which the Fund may invest include U.S.
Dollar-denominated U.S. Treasury obligations, obligations issued or guaranteed
as to principal and interest by the agencies or instrumentalities of the U.S.
government, commercial paper of U.S. issuers rated in the two highest
short-term rating categories by at least one NRSRO at the time of investment
(for example, AA by S&P or Aa by Moody's), or, if unrated, determined by the
Adviser to be of comparable quality, obligations (certificates of deposit, time
deposits and bankers' acceptances) of U.S. commercial banks, U.S. savings and
loan institutions, and U.S. and London branches of foreign banks that have
total assets of $1 billion or more as shown on their last published financial
statements at the time of investment, that are insured by the Federal Deposit
Insurance Corporation and that are of comparable quality and security meeting
the above ratings, short-term corporate obligations of U.S. issuers of
commercial paper of comparable quality and security meeting the above ratings
or, if not rated, determined by the Adviser to be of comparable quality.
In addition to the instruments and techniques listed above, the Fund may
invest in new options, futures contracts and other financial products that may
be developed, to the extent that these products are consistent with the Fund's
investment objective and policies.
All of the Fund's investments, where applicable, must possess one of the
ratings described below in "APPENDIX B--DESCRIPTION OF RATINGS" at the time of
investment or, if unrated, must be determined by the Adviser to be of
comparable quality. In the event a security owned by the Fund is downgraded
below these rating categories, the Adviser will review and take appropriate
actions with regard to the security.
THE ONE GROUP(R) GROWTH OPPORTUNITIES FUND will, under normal conditions,
invest at least 80% of the value of its total assets in equity securities
consisting of common stocks and debt securities and preferred stocks which are
convertible into common stocks. The Fund will invest in issues which are
identified and selected based on the potential to produce above-average
earnings growth per share over a one to three year period. It is expected that
issuers will generally include established companies with a history of
above-average growth or companies that are expected to enter periods of
above-average growth, and smaller companies which, in the opinion of the
advisor, are positioned in emerging growth industries. The Fund may invest in
securities listed on a stock exchange as well as those traded over-the-counter.
The Adviser, in its discretion, may purchase securities of companies which do
not pay dividends but which are believed to have superior growth potential.
THE ONE GROUP(R) LARGE COMPANY GROWTH FUND will normally invest
substantially all, but in no event less than 65%, of the value of its total
assets in equity securities consisting of common stocks, warrants and any
rights to purchase common stocks. The weighted average capitalization of the
companies in which the Fund invests will under normal conditions be in excess
of the market median capitalization of the S&P 500 Index. The Fund may also
invest in foreign securities through the purchase of ADRs, and may also invest
in other foreign securities.
The Large Company Growth Fund may invest the remainder of its assets in any
combination of nonconvertible fixed income securities, repurchase agreements,
options and futures contracts. The nonconvertible fixed income securities will
consist of corporate notes, bonds and debentures that, as a matter of
non-fundamental policy, are rated within the three highest rating categories
assigned by at least one nationally recognized statistical rating organization
("NRSRO") or, if unrated, are determined by the Adviser to be of comparable
quality, and Treasury bills, notes and bonds issued by the United States
government or its agencies or instrumentalities. The Fund may, for daily cash
management purposes, invest in repurchase agreements and cash equivalents rated
within one of the rating categories assigned by at least one nationally
recognized statistical rating organization ("NRSRO"), which categories are
described below in "APPENDIX B--DESCRIPTION OF RATINGS," at the time of
investment or, if unrated, determined by the Adviser to be of comparable
quality.
Each Equity Fund may enter into futures contracts, provided that the value
of these contracts does not exceed 25% of such Fund's total assets. In
addition, each Fund may write covered call options on securities it owns and
enter into related closing purchase transactions when such activity will
further the Fund's investment objective, and may also engage in other options
transactions in furtherance of their investment objectives. The balance of each
Fund's assets will be held in cash
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<PAGE> 12
equivalents rated within one of the commercial paper rating categories assigned
by at least one NRSRO, which categories are described below in "APPENDIX
B--DESCRIPTION OF RATINGS" at the time of investment or be of comparable quality
as determined by the Adviser.
Each Equity Fund invests in common stocks (including sponsored and
unsponsored American Depository Receipts ("ADRs")) and convertibles only if
they are listed on registered exchanges or actively traded in the
over-the-counter market, except that each Fund may invest up to 5% of its total
assets in restricted securities, including unsponsored ADRs. There may be less
information available on the foreign issuers of unsponsored ADRs than on the
issuers of sponsored ADRs. In addition, each of the Equity Funds may invest in
convertible securities, U.S. Treasury Obligations, including Separately Traded
Registered Interest and Principal Securities ("STRIPS") and Coupon Under Book
Entry Safekeeping ("CUBES"), receipts, including Treasury Receipts ("TRs"),
Treasury Investment Growth Receipts ("TIGRs"), and Certificates of Accrual on
Treasury Securities ("CATS"), certificates of deposits; time deposits, U.S.
Government agency securities, repurchase agreements, reverse repurchase
agreements, securities of other investment companies, when-issued securities,
forward commitments, options, futures contracts, options on futures contracts,
variable and floating rate instruments; bankers' acceptances, commercial paper,
and securities of foreign issuers.
This list of permissible investments includes select securities that may be
commonly considered to be derivatives, including: mortgage dollar rolls,
options, futures contracts, options on futures contracts, warrants, multiple
class pass-through securities and collateralized mortgage obligations (CMOs and
REMICs), stripped-mortgage backed securities (IOs and POs), asset-backed
securities, swap, cap and floor transactions, new financial products and
structured instruments. These securities and limitations on their use are more
fully described in "APPENDIX A--DESCRIPTION OF PERMITTED INVESTMENTS AND
ASSOCIATED RISKS."
All of the Equity Funds' investments, where applicable, must possess one of
the ratings described below in the "APPENDIX B--RATINGS" at the time of
investment, or be of comparable quality, as determined by the Adviser.
For a description of the Fund's permitted investments and associated risks,
see "APPENDIX A--DESCRIPTION OF PERMITTED INVESTMENTS AND ASSOCIATED RISKS" and
the Statement of Additional Information. For a description of permitted
investments for temporary defensive purposes, see "Temporary Defensive
Position."
Risk Factors
The market value of the Asset Allocation Fund's fixed income investments
will change in response to interest rate changes and other factors. During
periods of falling interest rates, the values of outstanding fixed income
securities generally rise. Conversely, during periods of rising interest rates,
the values of such securities generally decline. Moreover, while securities
with longer maturities tend to produce higher yields, the price of longer
maturity securities are also subject to greater market fluctuations as a result
of changes in interest rates. Changes by recognized agencies in the rating of
any fixed income security and in the ability of an issuer to make payments of
interest and principal also affect the value of these investments. Changes in
the value of portfolio securities will not affect cash income derived from
these securities but will affect the Asset Allocation Fund's net asset value.
In addition, the Asset Allocation Fund's investments in mortgage- related
securities subject the Fund to the risks associated with such investments,
described above under "The One Group(R) Government Bond Fund--Risk Factors."
Securities rated in the fourth-highest rating category by an NRSRO (for
example, BBB by S&P or Baa by Moody's), in which the Asset Allocation Fund may
invest, are generally considered to be investment grade, although such
securities are deemed to have speculative characteristics. Changes in economic
conditions or other circumstances are more likely to lead to a weakened
capacity of the issuers of such securities to make principal and interest
payments than is the case with higher grade securities.
Because the Equity Funds invest in equity securities, which fluctuate in
value, the Funds' shares will fluctuate in value. Smaller, less seasoned
companies in which the Growth Opportunites Fund and Asset Allocation Fund may
invest, may be subject to greater business risks than larger, established
companies. They may be more vulnerable to changes in economic conditions,
specific industry conditions, market fluctuations and other factors affecting
the profitability of companies. Therefore, the stock price of smaller
capitalization companies may be subject to greater price fluctuations than that
of larger, established companies. Due to these and other risk factors, the net
asset value of a share of the Funds will fluctuate.
Investments by the Equity Funds in securities of foreign issuers may involve
greater risks than are present in U.S. investments. In general, issuers in many
foreign countries are not subject to accounting, auditing and financial
reporting standards, practices and requirements comparable to those applicable
to U.S. companies. There is generally less information publically available
about and less regulation of foreign issuers than U.S. companies. Transaction
costs are generally higher
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<PAGE> 13
for investments in foreign issuers. Securities of some foreign companies are
less liquid, and their prices more volatile, than securities of comparable U.S.
companies. Settlement of transactions in some foreign markets may be delayed or
may be less frequent than in the United States, which could adversely affect the
liquidity of the Funds. In addition, with respect to some foreign countries,
there is the possibility of expropriation or confiscatory taxation, imposition
of additional taxes or tax withholding, limitations on the removal of
securities, property or other assets of the Funds, political or social
instability, or diplomatic developments which could affect the value of
investments in those countries.
Certain investment management techniques which the Equity Funds may use may
expose the Funds to special risks, including, but not limited to, the purchase
and sale of futures and options, making forward commitments, and, with respect
to the Asset Allocation Fund, engaging in hedging transactions (including
mortgage and interest rate floors and caps), purchasing structured instruments
and entering into mortgage dollar rolls. These practices could expose the Funds
to potentially greater risk of loss than more traditional equity (and, with
respect to the Asset Allocation Fund, fixed income) investments.
As a result of these risk factors, the share price of each of the Equity
Funds may be volatile, and investors should be able to sustain fluctuations in
the value of their investments.
For further discussion of these practices and associated risks and special
considerations, see "APPENDIX A--DESCRIPTION OF PERMITTED INVESTMENTS AND
ASSOCIATED RISKS" and the Statement of Additional Information.
TEMPORARY DEFENSIVE POSITION
For temporary defensive purposes during periods when the Adviser determines
that market conditions warrant, each Equity Fund may invest up to 100% of its
assets in cash equivalents (including securities issued or guaranteed as to
principal and interest by the U.S. government, its agencies or
instrumentalities, repurchase agreements, certificates of deposit and bankers'
acceptances issued by banks or savings and loan associations having net assets
of at least $1 billion as of the end of their most recent fiscal year,
commercial paper rated in the two highest short-term rating categories, variable
amount master demand notes and bank money market deposit accounts), and may hold
cash for liquidity purposes. To the extent a Fund is engaged in a temporary
defensive position, the Fund will not be pursuing its investment objective.
PORTFOLIO TURNOVER
Each Equity Fund may engage in short-term trading, which involves selling
securities for a short time in order to increase the potential for capital
appreciation and/or income of an Equity Fund or to take advantage of a
temporary disparity in the normal price or yield relationship between two
securities or changes in market industry or company conditions or outlook. Any
such trading would increase a Fund's turnover rate and its transaction costs.
For the period August 1, 1994 through December 31, 1994, the portfolio
turnover rate for the Large Company Growth Fund, Growth Opportunities Fund
(formerly Small Company Growth Fund) and the Asset Allocation Fund was 4.4%,
3.5% and 0%, respectively. For the year ended December 31, 1995, the portfolio
turnover rate for the Large Company Growth Fund and Growth Opportunities Fund
was 37.4% and 193.3%, respectively. The 193.3% portfolio turnover rate for the
Growth Opportunities Fund results from volatility in the market and the fact
that the Fund is an aggressive growth fund. The Asset Allocation Fund portfolio
turnover rate for the year ended December 31, 1995 is composed of an equity
portfolio turnover rate of 30.7% and a fixed portfolio turnover rate of 75.8%.
Higher turnover rates will generally result in higher brokerage expenses and
higher levels of capital gain to each fund. The portfolio turnover rates for
any fund may vary greatly from year to year and within a particular year.
Higher portfolio turnover rates will likely result in higher brokerage
expenses and higher levels of capital gains to each Fund.
INVESTMENT LIMITATIONS
The investment objective and the following investment limitations are
fundamental policies of each Fund. Fundamental policies cannot be changed with
respect to a Fund without the consent of the holders of a majority of the
Fund's outstanding shares. The term "majority of the outstanding shares" means
the vote of (i) 67% or more of the Fund's shares present at a meeting, if more
than 50% of the outstanding shares of the Fund are present or represented by
proxy, or (ii) more than 50% of the Fund's outstanding shares, whichever is
less.
Each Fund may not:
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<PAGE> 14
1. Purchase securities of any issuer (except securities issued or guaranteed
by the United States, its agencies or instrumentalities and
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 this limitation, a security is considered to be
issued by the government entity whose assets and revenues guarantee or back
the security. With respect to private activity bonds or industrial
development bonds backed only by the assets and revenues of a
nongovernmental user, such user would be considered the issuer.
2. Purchase any securities which would cause more than 25% of the total
assets of the Fund to be invested in the securities of one or more issuers
conducting their principal business activities in the same industry,
provided that this limitation does not apply to investments in the
obligations issued or guaranteed by the U.S. Government or its agencies and
instrumentalities and repurchase agreements involving such securities. For
purposes of this limitation (i) utility companies will be divided according
to their services, for example, gas, gas transmission, electric and
telephone will each be considered a separate industry; and (ii) wholly-owned
finance companies will be considered to be in the industries of their
parents if their activities are primarily related to financing the
activities of their parents.
3. Make loans, except that a Fund may (i) purchase or hold debt
instruments in accordance with its investment objectives and policies; (ii)
enter into repurchase agreements; and (iii) engage in securities lending as
described in this Prospectus and in the Statement of Additional Information.
The foregoing percentages will apply at the time of the purchase of a
security. Additional investment limitations are set forth in the Statement of
Additional Information.
MANAGEMENT OF THE TRUST
THE TRUSTEES
The Trust is organized as a Massachusetts business trust. The overall
responsibility for the supervision of the affairs of the Trust vests in the
Trustees. The Trustees meet periodically to review the affairs of the Trust and
to establish certain guidelines which the Adviser is expected to follow in
implementing the investment policies and objectives of the Trust.
THE ADVISER
The Trust and Banc One Investment Advisors Corporation (the "Adviser") have
entered into an advisory agreement (the "Advisory Agreement"). Under the
Advisory Agreement, the Adviser makes the investment decisions for the assets
of each Fund and continuously reviews, supervises and administers each Fund's
investment program. The Adviser discharges its responsibilities 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 the Adviser and
are not guaranteed by the FDIC or any other government agency.
Banc One Investment Advisers Corporation is an indirect wholly-owned
subsidiary of BANC ONE CORPORATION, a multi-state bank holding company located
in Columbus, Ohio. As of December 31, 1995, BANC ONE CORPORATION had assets of
$90.5 billion and common equity of $7.9 billion. BANC ONE CORPORATION now
operates 56 banks with 1,558 offices in Arizona, Colorado, Illinois, Indiana,
Kentucky, Louisiana, Ohio, Oklahoma, Texas, Utah, West Virginia and Wisconsin.
BANC ONE CORPORATION also operates several additional corporations that engage
in data processing, venture capital, investment and merchant banking, trust,
brokerage, investment management, equipment leasing, mortgage banking, consumer
finance, and insurance.
Gary J. Madich, CFA, is Senior Managing Director of Fixed Income Securities.
Mr. Madich joined the Adviser in February, 1995. Prior to joining the Adviser,
Mr. Madich was a Senior Vice President and Portfolio Manager with Federated
Investors. Mr. Madich has 17 years of investment experience.
Richard R. Jandrain, III, Senior Managing Director of Equity Securities, is
responsible for the development and implementation of the equity investment
policies of the Adviser. Mr. Jandrain has over 18 years of investment
experience and has served in various investment management positions with the
Adviser and its affiliates for the past five years.
Set forth below are the names and business experience for the past five
years of the primary managers of the Funds, each of whom also serves as Fund
Manager of the fund of The One Group(R) that corresponds to the fund of The
One Group(R) Investment Trust set forth below:
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<PAGE> 15
<TABLE>
<CAPTION>
PORTFOLIO MANAGER AND TITLE BUSINESS EXPERIENCE
<S> <C>
Thomas E. Donne, CFA Fund Manager of the Government Bond
Fund Manager Fund of The One Group(R) Investment
Trust since March, 1995. For the past seven years, Mr. Donne
has held various investment management positions with the Adviser or
its affiliates.
Richard R. Jandrain, III Fund Manager of the Growth Opportunities
Fund Manager Fund of The One Group(R) Investment Trust effective May 1,
1995. Mr. Jandrain is Senior Managing Director of Equity
Securities for the Adviser and has served in various investment
management positions with the Adviser and its affiliates for the
past five years.
Lynn Yturri, Fund Manager of the Large Company
Fund Manager Growth Fund of The One Group(R) Investment
Trust since its inception. For the past 25 years, Mr. Yturri has held
various investment management positions with the Adviser and its
affiliates.
Michael D. Weiner, CFA Fund Manager of the equity portion of the
Director of Equity Research Asset Allocation Fund of The One Group(R) Investment Trust since its
inception. Prior to joining the Adviser in June of 1994, Mr. Weiner
served as the Director of Research and Head of U.S. Equities for the
Dupont Pension Fund Investment Company of Wilmington, Delaware, from
1986 to 1994.
Roger Craig, Fund Manager of the fixed income portion
Fund Manager of the Asset Allocation Fund of The One Group(R) Investment Trust
since March 1995. For the past seven years, Mr. Craig has served as
Fixed Income Manager for the Adviser and its affiliates.
</TABLE>
The Adviser is entitled to a fee, which is calculated daily and paid
monthly, at the following annual percentages of the average daily net assets of
each Fund: 0.45% for the Government Bond Fund, 0.65% for each of the Growth
Opportunities Fund and the Large Company Growth Fund, and 0.70% for the Asset
Allocation Fund. The Adviser has voluntarily agreed to waive all or part of its
fees in order to limit the Funds' total operating expenses on an annual basis
to not more than .75% of the average daily net assets of the Government Bond
Fund, not more than 1.10% of the average daily net assets of the Growth
Opportunities Fund and not more than 1.00% of the average daily net assets of
each of the Large Company Growth Fund and Asset Allocation Fund. These fee
waivers are voluntary and may be terminated at any time.
THE ADMINISTRATOR
Nationwide Financial Services, Inc. (the "Administrator"), a wholly owned
subsidiary of Nationwide Life Insurance Company, which in turn is a wholly
owned subsidiary of the Nationwide Corporation, a downstream holding company of
the Nationwide Insurance Enterprise, and the Trust are parties to an
administration agreement relating to the Funds (the "Administration
Agreement"). Under the terms of the Administration Agreement, the Administrator
is responsible for providing administrative services other than investment
advisory services, regulatory reporting, all necessary office space, equipment,
personnel and facilities. Under the Administration Agreement, the Administrator
provides the Trust with office space, facilities and simple business equipment
and provides the services of executive and clerical personnel for administering
the affairs of the Trust.
The Administrator is entitled to a fee for these services, which is
calculated daily and paid monthly, at the following percentages (annualized)
of the average net assets of the Trust: 0.24% of the Trust's average net assets
that are less than $250 million, 0.19% of the Trust's average net assets that
are greater than $250 million but less than
Page 15 of 91
<PAGE> 16
$500 million, 0.16% of the Trust's average net assets that are greater than
$500 million but less than $1 billion, and 0.14% of the Trust's average net
assets that are greater than $1 billion.
TRANSFER AND DIVIDEND PAYING AGENT
Nationwide Investors Services, Inc., a wholly-owned subsidiary of the
Administrator, acts as the transfer agent and dividend disbursing agent for the
Trust and in doing so performs certain bookkeeping, data processing and
administrative services.
EXPENSES OF THE TRUST
Each Fund bears all expenses of its operations other than those incurred by
the Adviser and the Administrator under their respective Advisory Agreement and
Administration Agreement with the Trust. In particular, the Funds pay:
investment advisory fees, custodian fees and expenses, legal, accounting and
auditing fees, brokerage fees, interest and taxes, registration fees and
expenses, expenses of the transfer and dividend disbursing agent, the
compensation and expenses of Trustees who are not otherwise affiliated with the
Trust, the Adviser or any of its affiliates, expenses of printing and mailing
reports and notices and proxy material to beneficial shareholders of the Trust,
and any extraordinary expenses. Expenses incurred jointly by the Funds are
allocated among the Funds in a manner determined by the Trustees to be fair and
equitable.
The organizational expenses of each of the Funds have been capitalized and
will be amortized during the first five years of the Funds' operations. Such
amortization will reduce the amount of income available for payment as
dividends.
DESCRIPTION OF THE TRUST
SHAREHOLDER RIGHTS
Shares of the Trust are sold at net asset value to the Nationwide VA
Separate Account-C, a separate account of Nationwide Life and Annuity Insurance
Company, to fund the benefits of The One(R) Investors Annuity(SM) and other
separate accounts funding variable annuity and variable life contracts issued by
other life insurance companies, and qualified pension and retirement plans
(collectively "the Separate Accounts"). Material irreconciliable conflicts
possibly may arise. The Trust's Board will monitor events in order to identify
the existance of any material irreconcilable conflicts and to determine what
action, if any, should be taken in response to any such conflict. All
investments in the Trust are credited to the shareholder's account in the form
of full or fractional shares of the designated Fund (rounded to the nearest
1/1000 of a share). The Trust does not issue share certificates. Initial and
subsequent purchase payments allocated to a specific Fund are subject to the
limits applicable to The One(R) Investors Annuity(SM).
Pursuant to current interpretations of the Investment Company Act of 1940,
as amended ("1940 Act"), Nationwide Life and Annuity Insurance Company will
solicit voting instructions from The One(R) Investors AnnuitySM owners with
respect to any matters that are presented to a vote of shareholders. On any
matter submitted to a vote of shareholders, all the shares of the Trust then
issued and outstanding and entitled to vote shall be voted in the aggregate and
not by Fund except for matters concerning only a specific Fund. Certain matters
approved by a vote of shareholders of one Fund of the Trust may not be binding
on a Fund whose shareholders have not approved such matters. The holders of
each share of the Trust shall be entitled to one vote for each full share and a
fractional vote for each fractional share. Shares of one Fund may not bear the
same economic relationship to the Trust as shares of another Fund.
The Trust is not required to hold Annual Meetings of shareholders and does
not plan to do so. The Trustees may call Special Meetings of shareholders for
action by shareholder vote as may be required by the 1940 Act or the Trust's
Declaration of Trust. The Declaration of Trust provides that shareholders can
remove Trustees by a vote of two-thirds of the vote of the outstanding shares
and the Declaration sets out the procedures to be followed. The Trustees will
be a self-perpetuating body until fewer than 50% of the Trustees, then serving
as Trustees, are Trustees who were elected by shareholders. At that time a
meeting of shareholders will be called to elect additional Trustees.
The Declaration of Trust may not be amended without the affirmative vote of
a majority of the outstanding shares of the Trust, except that the Trustees may
amend the Declaration of the Trust without the vote or consent of shareholders
to:
(i) designate series of the Trust; (ii) change the name of the Trust; or
(iii) supply any omission, cure, correct, or supplement any ambiguous,
defective, or inconsistent provision to conform the Declaration of Trust to the
requirements of applicable federal and state laws or regulations if they deem
it necessary.
Page 16 of 91
<PAGE> 17
Shares have no pre-emptive or conversion rights. Shares are fully paid and
nonassessable, except as set forth below. When a majority is required, it means
the lesser of 67% or more of the shares present at a meeting when the holders
of more than 50% of the outstanding shares are present or represented by proxy,
or more than 50% of the outstanding shares.
DESCRIPTION OF SHARES
The Declaration of Trust permits the Trustees to issue an unlimited number
of full and fractional shares of beneficial interest of each Fund and to divide
or combine such shares into a greater or lesser number of shares without
thereby changing the proportionate beneficial interests in the Trust. Each
share of a Fund represents an interest in that Fund which is proportionately
equal to that of each other share of such Fund. The Trust reserves the right
to create and issue a number of different Funds. In that case, the shares of
each Fund would participate equally in the earnings, dividends, and assets of
the particular Fund, and shares of all Funds would vote together in the
election of Trustees. Upon liquidation of a Fund, its shareholders are entitled
to share pro rata in the net assets of such Fund available for distribution to
shareholders.
INQUIRIES
Any inquiries regarding the Trust should be directed to the Trust at the
telephone number or address shown on the cover page of this Prospectus. All
inquiries regarding The One(R) Investors Annuity(SM) should be directed to
Nationwide Life and Annuity Insurance Company, as indicated in the annuity
prospectus included herewith.
SHARE REDEMPTION
Investing Separate Accounts and qualified pension and retirement plans
redeem shares to make benefit or surrender payments to policyholders.
Redemptions are processed on any day on which the Trust is open for business
and are effected at net asset value next determined after the redemption order,
in proper form, is received by the Trust's transfer agent, Nationwide Investors
Services, Inc.
The net asset value per share of each Fund is determined once daily, as of
4:00 P.M. on each business day the New York Stock Exchange is open and on such
other days as the Board of Trustees determines and on any other day during
which there is a sufficient degree of trading in the Fund's portfolio
securities that the net asset value of the Fund is materially affected by
changes in the value of portfolio securities.
The Trust may suspend the right of redemption only under the following
unusual circumstances: (i) when the New York Stock Exchange is closed (other
than weekends and holidays) or trading is restricted; (ii) when an emergency
exists, making disposal of portfolio securities or the valuation of net assets
not reasonably practicable; or (iii) during any period when the Securities and
Exchange Commission has by order permitted a suspension of redemption for the
protection of shareholders.
NET ASSET VALUE
The net asset value per share is calculated by adding the value of all
securities and other assets of a Fund, deducting its liabilities, and dividing
by the number of shares of the Fund that are outstanding.
DIVIDENDS
All dividends are distributed to the Separate accounts and any qualified
pension and retirement plans on a quarterly basis and will be automatically
reinvested in Trust shares. Dividends and distributions made by the Funds to
the Separate accounts and any qualified pension and retirement plans are
taxable, if at all, to Nationwide Life and Annuity Insurance Company and any
other insurance company sponsoring a separate account which invests in shares
of the Funds or any qualified pension or retirement plan. Dividends are not
taxable to annuity policy holders or qualified pension and retirement plan
participants.
TAX STATUS
Each Fund is treated as a separate entity for Federal income tax purposes
and is not combined with the Trust's other Funds. It is the intention of each
Fund to qualify as a "regulated investment company" under Subchapter M of the
Internal Revenue Code of 1986, as amended (the "Code"), and meet all other
requirements necessary for it to be relieved of Federal taxes on that part of
its net investment income and net capital gains distributed to its
shareholders. Each Fund intends to distribute all of its net investment income
and net capital gains to its shareholders on a current basis.
For a discussion of the tax consequences of variable annuity contracts,
refer to the prospectus of The One(R) Investors Annuity(SM) or the prospectuses
of other separate accounts funding variable annuity and variable life
contracts and qualified pensions and retirement plans. Variable annuity
contracts purchased through insurance company separate accounts provide for the
accumulation of all earnings from interest, dividends, and capital appreciation
without current federal income tax liability for the owner. Depending on the
variable annuity contract, distributions from the contract may be subject to
ordinary income tax and, in addition, on distributions before age 59-1/2, a 10%
penalty tax. Only the portion of a distribution
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attributable to income on the investment in the contract is subject to federal
income tax. Investors should consult with competent tax advisors for a more
complete discussion of possible tax consequences in a particular situation.
Section 817(h) of the Code provides that investments of a separate account
underlying a variable annuity contract (or the investments of a mutual fund,
the shares of which are owned by the variable annuity separate account) must be
"adequately diversified" in order for the annuity contract to be treated as an
annuity for tax purposes. The Treasury Department has issued regulations
prescribing these diversification requirements. Each Fund intends to comply
with these requirements. If a separate account underlying a variable annuity
contract were not adequately diversified, the owner of such variable annuity
contract would be immediately subject to tax on the earnings allocable to the
contract.
Additional information about the tax status of the Funds is provided in the
Statement of Additional Information.
ADDITIONAL INFORMATION
PERFORMANCE
From time to time, each Fund may advertise yield and total return. 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 one year and is shown as a percentage of
the investment.
The total return of a Fund refers to the average compounded rate of return
to a hypothetical investment, for designated time periods (including but not
limited to, the period from which the Fund commenced operations through the
specified date), assuming that the entire investment is redeemed at the end of
each period and assuming the reinvestment of all dividend and capital gain
distributions.
Yields and total returns contained in advertisements include the effect of
deducting a Fund's expenses, but may not include charges and expenses
attributable to The One(R) Investors Annuity(SM) or any other Separate Account.
Since shares may only be purchased by the Separate Accounts, contract owners
should carefully review the annuity prospectus for information on fees and
expenses. Excluding such fees and expenses from a Fund's total return
quotations has the effect of increasing the performance quoted.
Each Fund's performance may from time to time be compared to other mutual
funds tracked by mutual fund rating services, to broad groups of comparable
mutual funds or to unmanaged indices which may assume investment of dividends
but generally do not reflect deductions for administrative and management
costs.
ALL PERFORMANCE INFORMATION AND COMPARATIVE MATERIAL ADVERTISED BY THE FUNDS
IS HISTORICAL IN NATURE AND IS NOT INTENDED TO REPRESENT OR GUARANTEE FUTURE
RESULTS. THE SHARES WHEN REDEEMED MAY BE WORTH MORE OR LESS THAN ORIGINAL COST.
Additional information concerning each Fund's performance appears in the
Statement of Additional Information of the Trust.
THE CUSTODIAN
State Street Bank and Trust Company, P.O. Box 8500, Boston, MA 02266-8500
acts as Custodian of the assets of the Trust.
INDEPENDENT ACCOUNTANTS
Price Waterhouse LLP, 41 South High Street, Columbus, OH 43215, serves as
independent accountants to the Trust.
COUNSEL
Ropes & Gray, One Franklin Square, 1301 K Street, N.W., Suite 800 East,
Washington, D.C. 20005-3333, acts as Counsel for the Trust.
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APPENDIX A
DESCRIPTION OF PERMITTED INVESTMENTS AND ASSOCIATED RISKS
The following is a description of the permitted investments of the Funds.
Unless indicated otherwise, each of these instruments is a permissible
investment of all of the Funds.
U.S. TREASURY OBLIGATIONS--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").
RECEIPTS--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 Treasury notes and Treasury Bonds into a special
account at a custodian bank. The custodian holds the interest and principal
payments for the benefit of the registered owners of the certificates or
receipts. The custodian arranges for the issuance of the certificates or
receipts evidencing ownership and maintains the register. Receipts include
"Treasury Receipts" ("TRS"), "Treasury Investment Growth Receipts" ("TIGRS"),
and "Certificates of Accrual on Treasury Securities" ("CATS").
STRIPS, CUBES, TRS, TIGRS AND CATS are sold as zero coupon securities which
means that they are sold at a substantial discount and redeemed at face value
at their maturity date without interim cash payments of interest or principal.
This discount is amortized over the life of the security, and such amortization
will constitute the income earned on the security for both accounting and tax
purposes. Because of these features, such securities may be subject to greater
interest rate volatility than interest-paying Permitted Investments. Each Fund
may invest up to an aggregate of 20% of its total assets in STRIPS sold as zero
coupon securities, CUBES, TRS, TIGRS and CATS, combined, when consistent with
its investment objectives and policies.
REPURCHASE AGREEMENTS--Agreements by which a person obtains a security and
simultaneously commits to return the security to the seller at an agreed upon
price (including principal and interest) on an agreed upon date within a number
of days from the date of purchase. The Custodian or its agent will hold the
security as collateral for the repurchase agreement. Collateral must be
maintained at a value at least equal to 100% of the repurchase price. The Fund
bears a risk of loss in the event the other party defaults on its obligations
and the Fund is delayed or prevented from its right to dispose of the
collateral securities or if the Fund realizes a loss on the sale of the
collateral securities. The Adviser will enter into repurchase agreements on
behalf of the Fund only with financial institutions deemed to present minimal
risk of bankruptcy during the term of the agreement based on guidelines
established and periodically reviewed by the Trustees. Repurchase agreements
are considered by the Securities and Exchange Commission to be loans under the
Investment Company Act of 1940.
REVERSE REPURCHASE AGREEMENTS--Reverse repurchase agreements are agreements
by which a Fund sells a security to financial institutions and simultaneously
agrees to repurchase those securities at a mutually agreed upon date and price.
At the time a Fund enters into a reverse repurchase agreement, the Adviser will
place liquid assets having a value equal to the repurchase price (including
accrued interest) in a segregated custodial account and monitor the account to
ensure equivalent value is maintained. Reverse repurchase agreements involve
the risk that the market value of securities sold by a Fund may decline below
the price at which the Fund is obligated to repurchase the securities. Reverse
repurchase agreements are considered by the Securities and Exchange Commission
to be borrowings by the Fund under the Investment Company Act of 1940.
U.S. GOVERNMENT AGENCIES--Certain Federal agencies have been established as
instrumentalities of the U.S. Government to supervise and finance specific
types of activities. Select agencies, 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 credit of
the Instrumentality and have the right to borrow from the U.S. Treasury, others
are supported by the authority of the U.S. Government to purchase the agency's
obligations, while still others, such as the Federal Farm Credit Banks and the
Federal Home Loan Mortgage Corporation ("Freddie Mac"), are supported solely by
the credit of the instrumentality itself. 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.
Obligations of U.S. Government Agencies include debt issues and mortgage-backed
securities issued or guaranteed by select Agencies, as well as structured
instruments (described below).
BANKERS' ACCEPTANCES--Bills of exchange or time drafts drawn on and accepted
by (i.e., made an obligation of) a commercial bank. They are used by
corporations to finance the shipment and storage of goods and to furnish dollar
exchange. Maturities are generally six months or less.
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CERTIFICATES OF DEPOSIT--Negotiable interest-bearing instruments with a
specific maturity. Certificates of Deposit ("CDs") are issued by banks and
savings and loan institutions in exchange for the deposit of funds and normally
can be traded in the secondary market prior to maturity.
TIME DEPOSITS--Non-negotiable receipts issued by a bank in exchange for the
deposit of funds. Like a certificate of deposit, a time deposit ("TD") earns a
specified rate of interest over a definite period of time; however, it cannot
be traded in the secondary market. Time deposits with a withdrawal penalty are
considered to be illiquid securities; therefore, each of the Funds will not
invest more than 15% of its total assets in such time deposits and other
illiquid securities.
VARIABLE AND FLOATING RATE INSTRUMENTS--Certain of the obligations purchased
by the Funds may carry variable or floating rates of interest, may involve a
conditional or unconditional demand feature and may include variable amount
master demand notes. A demand instrument with a demand notice period exceeding
seven days may be considered illiquid if there is no secondary market for such
security; therefore, none of the Funds will invest more than 15% of its total
assets in such instruments and other illiquid securities. The interest rate on
these securities may be reset daily, weekly, quarterly, or some other reset
period and may have a floor or ceiling on interest rate charges. There is a
risk that the current interest rate on such obligations may not accurately
reflect existing market interest rates. There is no limit on the extent to
which a Fund may purchase variable and floating rate instruments that are not
illiquid. The Funds will purchase variable and floating rate instruments to
facilitate portfolio liquidity and to achieve favorable rates of return.
COMMERCIAL PAPER--The term used to designate unsecured short-term promissory
notes issued by corporations and other entities. Maturities on these issues
vary from a few days to nine months.
INVESTMENT COMPANY SECURITIES--Each Fund may invest up to 5% of its total
assets in the securities of any one investment company, but may not own more
than 3% of the securities of any one investment company or invest more than 10%
of its assets in the securities of other investment companies. Such companies
may include companies in which the Adviser of the Trust, or an affiliate of
such Adviser, serves as investment adviser, administrator or distributor, in
accordance with an exemptive order issued with respect to the Trust by the
Securities and Exchange Commission. Because such other investment companies
employ an investment adviser, such investment by a Fund may cause shareholders
to bear duplicative fees. The Adviser will waive its fee attributable to the
assets of the Funds invested in a Money Market Fund of the Trust, and, to the
extent required by the laws of any state in which shares of the Trust are sold,
the Adviser will waive its fee with respect to assets of Funds invested in any
investment company.
SECURITIES LENDING--In order to generate additional income, a Fund may lend
up to 33% of the securities in which it is invested pursuant to agreements
requiring that the loan be continuously secured by cash, securities of the U.S.
Government or its agencies, shares of an investment trust or mutual fund or any
combination of cash and such securities as collateral equal at all times to at
least 100% of the market value of the securities lent. The Fund will continue
to receive interest on the securities lent while simultaneously seeking to earn
interest on the investment of cash collateral in U.S. Government securities,
shares of an investment trust or mutual fund. Collateral is marked to market
daily to provide a level of collateral at least equal to the market value of
the securities lent. There may be risks of delay in recovery of the securities
or even loss of rights in the collateral should the borrower of the securities
fail financially. However, loans will only be made to borrowers deemed by the
Adviser to be of good standing and when, in the judgement of the Adviser, the
consideration which can be earned currently from such securities loans
justifies the attendant risk. Each Fund will enter into loan arrangements only
with counterparties which the Adviser has deemed to be creditworthy under
guidelines established by the Board of Trustees. Loans are subject to
termination by a Fund or the borrower at any time and are therefore not
considered to be illiquid.
PURCHASE ON A WHEN-ISSUED BASIS AND FORWARD COMMITMENTS --Each Fund may
purchase securities on a when-issued basis when deemed by the Adviser 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. Although the purchase of securities
on a when-issued basis is not considered leveraging, it has the effect of
leveraging. When the Adviser purchases a when-issued security, the Custodian
will set aside cash or liquid securities to satisfy the purchase commitment.
The Fund generally will not pay for such securities or earn interest on them
until received. Commitments to purchase when-issued securities will not, under
normal market conditions, exceed 40% of the Government Bond Fund's and 25% of
each of the Asset Allocation, Growth Opportunities, and Large Company Growth
Funds', total assets. A commitment will not exceed 180 days, with respect to
the Government Bond Fund, and 90 days, with respect to the Asset Allocation,
Growth Opportunities, and Large Company Growth Funds. The Fund will only
purchase when-issued securities for the purpose of acquiring portfolio
securities and not for speculative purposes. In a forward commitment
transaction, a Fund contracts to purchase securities for a fixed price at a
future date beyond customary settlement time. Each 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
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sufficient to meet the purchase price. Alternatively, a Fund may enter into
offsetting contracts for the forward sale of other securities that it owns. 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. Although a Fund would generally purchase securities on a
when-issued or forward commitment basis with the intention of actually
acquiring securities for its portfolio, a Fund may dispose of a when-issued
security or forward commitment prior to settlement if the Adviser deems it
appropriate to do so.
ASSET-BACKED SECURITIES (GOVERNMENT BOND FUND AND ASSET ALLOCATION FUND
ONLY)--The Government Bond Fund and Asset Allocation Fund may invest in
securities backed by automobile receivables, home equity loans, truck and auto
loans, leases, and credit-card receivables.The collateral backing asset-backed
securities cannot be foreclosed upon. Asset-backed securities purchased by the
Funds must be rated in one of the three highest rating categories by at least
one NRSRO at the time of investment, or if unrated, determined by the Adviser
to be of comparable quality. These issues are normally traded over-the-counter
and typically have a short-intermediate maturity structure, depending on the
pay down characteristics of the underlying financial assets which are passed
through to the security holder. There is no limit on the extent to which these
Funds may invest in asset-backed securities. Asset-backed securities may be
purchased for the purpose of enhancing yield. Under certain interest rate and
repayment rate scenarios, the Funds may fail to recoup fully their investment
in asset-backed securities.
RESTRICTED SECURITIES--Each 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. Section 4(2) commercial paper is restricted as to
disposition under federal securities law and is generally sold to institutional
investors, such as the Funds, who agree that they are purchasing the paper for
investment purposes and not with a view to public distribution. Any resale by
the purchaser must be in an exempt transaction. Section 4(2) commercial paper
is normally resold to other institutional investors like the Funds through or
with the assistance of the issuer or investment dealers who make a market in
Section 4(2) commercial paper, thus providing liquidity. The Funds believe that
Section 4(2) commercial paper and possibly certain other restricted securities
which meet the criteria for liquidity established by the Trustees are quite
liquid. The Funds intend, therefore, to treat the restricted securities which
meet the criteria for liquidity established by the Trustees, including Section
4(2) commercial paper, as determined by the Funds' investment adviser, as
liquid and not subject to the investment limitation applicable to illiquid
securities. In addition, because Section 4(2) commercial paper is liquid, the
Funds intend to not subject such paper to the limitation applicable to
restricted securities.
The ability of the Trustees to determine the liquidity of certain restricted
securities is permitted under a Securities and Exchange Commission ("SEC")
Staff position set forth in the adopting release for Rule 144A under the
Securities Act of 1933 (the "Rule"). The Rule is a nonexclusive safe-harbor for
certain secondary market transactions involving securities subject to
restrictions on resale under federal securities laws. The Rule provides an
exemption from registration for resales of otherwise restricted securities to
qualified institutional buyers. The Rule was expected to further enhance the
liquidity of the secondary market for securities eligible for resale under Rule
144A. The Funds believe that the Staff of the SEC has left the question of
determining the liquidity of all restricted securities to the Trustees. The
Trustees have directed the Adviser 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.
OPTIONS--The Funds may purchase and write (i.e., sell) call options and put
options on securities and indices, which options are traded on national
securities exchanges. A call option gives the purchaser the right to buy, and
the writer the obligation to sell, the underlying security at the agreed upon
exercise (or "strike") price during the option period. A put option gives the
purchaser the right to sell, and the writer the obligation to buy, the
underlying security at the strike price during the option period. Purchasers of
options pay an amount, known as a premium, to the option writer in exchange for
the right under the option contract. Option contracts may be written with terms
which would permit the holder of the option to purchase or sell the underlying
security only upon the expiration date of the option. The initial purchase
(sale) of an option contract is an "opening transaction". In order to close out
an option position, a Fund may enter into a "closing transaction", 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.
The Funds may purchase put and call options in hedging transactions to
protect against a decline in the market value of the securities in the Funds
(e.g., by the purchase of a put option) and to protect against an increase in
the cost of fixed-income securities that the Funds may seek to purchase in the
future (e.g., by the purchase of a call option). In the event that paying
premiums for put and call options, together with price movements in the
underlying securities, are such that exercise
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of the options would not be profitable for a Fund, losses of the premiums paid
may be offset by an increase in the value of the Fund's securities (in the case
of a purchase of put options) or by a decrease in the cost of acquisition of
securities by the Fund (in the case of a purchase of call options).
The Funds may also write secured put and covered call options as a means of
increasing the yield on the Funds and as a means of providing limited
protection against decreases in market value of the Funds.
There are risks associated with such investments including the following:
(i) the success of a hedging strategy may depend on the ability of the Adviser
to predict movements in the prices of the individual securities, fluctuations
in markets and movements in interest rates; (ii) there may be an imperfect or
no correlation between the changes in market value of the securities held by a
Fund and the prices of options; (iii) there may not be a liquid secondary
market for options; and (iv) while a Fund will receive a premium when it writes
covered call options, it may not participate fully in a rise in the market
value of the underlying security. It is expected that each Fund will only
engage in option transactions with respect to permitted investments and related
indices.
Generally, the policy of each of these Funds, in order to avoid the exercise
of an option sold by it, will be 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 interest. A closing
purchase transaction consists of a 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 a Fund will pay in executing a
closing purchase transaction may be higher (or lower) than the premium received
when the option was sold, depending in large part upon the relative price of
the underlying security at the time of each transaction. To the extent options
sold by a Fund are exercised and the Fund either delivers securities to the
holder of a call option or liquidates securities as a source of funds to
purchase securities put to the Fund, the Fund's turnover rate will increase,
which would cause the Fund to incur additional brokerage expenses.
During the option period, a Fund, as a covered call writer, gives up the
potential appreciation above the exercise price should the underlying security
rise in value, and a Fund, as a secured put writer, retains the risk of loss
should the underlying security decline in value. For the covered call writer,
substantial appreciation in the value of the underlying security would result
in the security being "called away" at the strike price of the option, which
may be substantially below the fair market value of such security. 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 such security. If a covered call option or a secured put option
expires unexercised, the writer realizes a gain, and the buyer a loss, in the
amount of the premium.
The Securities and Exchange Commission requires that obligations of
investment companies such as each of the Funds, in connection with option sale
positions, must comply with certain segregation or coverage requirements, which
are more fully described in the Statement of Additional Information.
Each Fund may write covered call options on its securities provided the
aggregate market value of such options and the Fund's obligations under such
written puts does not exceed 25% of the Fund's total assets as of the time
such options are entered into by the Fund.
The Government Bond Fund may also engage in straddles and spreads with
respect to 15% of its assets, and each of the Equity Funds may engage in such
transactions with respect to 5% of its assets. In a straddle transaction, a
Fund either buys a call and a put or sells a call and a put on the same
security. In a spread, a Fund purchases and sells a call or a put. A Fund will
sell a straddle when the Adviser 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 a Fund to make a hedged investment that the price of a security
will increase or decline.
FUTURES CONTRACTS AND RELATED OPTIONS--A Fund may enter into futures
contracts, options on futures contracts, index futures and options thereon that
are traded on an exchange regulated by the Commodities Futures Trading
Commission ("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 that Fund's total assets at current
value. Each of the Funds, however, may invest more than such amount for bona
fide hedging purposes, and may also invest more than such amount if it obtains
authority to do so from the appropriate regulatory agencies without rendering
the Fund a commodity pool operator or adversely affecting its status as an
investment company for federal securities law or income tax purposes. However,
a Fund may enter into futures contracts and options on futures only to the
extent that obligations under such contracts or transaction, together with
options on securities, represent not more than 25% of the Fund's total assets.
In addition, certain provisions of the Internal Revenue Code may limit the
Fund's investments in such futures and options.
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A Fund may buy and sell futures contracts and related options to manage its
exposure to changing interest rates and security prices. Some futures
strategies, including selling futures, buying puts and writing calls, reduce a
Fund's exposure to price fluctuations. Other strategies, including buying
futures, writing puts 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 Funds expect to enter
into these transactions to "lock in" a return or spread on a particular
investment or portion of its assets, to protect against any increase in the
price of securities the Funds anticipate purchasing at a later date, or for
other risk management strategies.
Options and futures can be volatile instruments, and involve certain risks.
If the Adviser applies a hedge at an inappropriate time or judges interest
rates incorrectly, options and futures strategies may lower a Fund's return. A
Fund could also experience losses if the prices of its options and futures
positions were poorly correlated with its other instruments, or if it could not
close out its positions because of an illiquid secondary market.
Typically, investment in these contracts requires a Fund to deposit with
the applicable exchange or other specified financial intermediary as a good
faith deposit for its obligations, known as "initial margin," an amount of cash
or specified debt securities which initially is 1%-15% of the face amount of
the contract and which thereafter fluctuates on a periodic basis as the value
of the contract fluctuates. Thereafter, the Fund must make additional deposits
equal to any net losses due to unfavorable price movements of the contract and
will be credited with an amount equal to any net gains due to favorable price
movements. These additional deposits or credits are calculated and acquired
daily and are known as "variation margin."
The Securities and Exchange Commission requires that when each of the Funds
effects transactions of the foregoing nature, it must either segregate cash or
high quality, readily marketable portfolio securities with its custodian in the
amount of its obligations under the foregoing transactions or must cover such
obligations by maintaining positions in portfolio securities, futures contracts
or options that would serve to satisfy or offset the risk of such obligations.
When effecting transactions of the foregoing nature, the Funds will comply with
such segregation or cover requirements. No limitation exists on the amount of
the Funds' assets which may be used to comply with such segregation or cover
requirements.
SWAPS, CAPS, AND FLOORS--In order to protect the value of the Funds from
interest rate fluctuations and to hedge against fluctuations in the floating
rate market in which the Funds' investments are traded, each Fund may enter
into swaps, caps, and floors on various securities (such as U.S. government
securities), securities indexes, interest rates, prepayment rates, foreign
currencies or other financial instruments or indexes, for both hedging and
non-hedging purposes. While swaps, caps, and floors (sometimes hereinafter
collectively referred to as "swap contracts") are different from futures
contracts (and options on futures contracts) in that swap contracts are
individually negotiated with specific counterparties, the Funds will use swap
contracts for purposes similar to the purposes for which it uses options,
futures, and options on futures. Those uses of swap contracts (i.e., risk
management and hedging) present the Funds with risks and opportunities similar
to those associated with options contracts, futures contracts, and options on
futures. See "Futures Contracts and Related Options;" and "Options."
The Funds may enter into these transactions to manage exposure to changing
interest rates and other market factors. Some transactions may reduce the
Funds' exposure to market fluctuations, while others may tend to increase
market exposure.
Swap contracts typically involve an exchange of obligations by two
sophisticated parties. For example, in an interest rate swap, a Fund may
exchange with another party their respective rights to receive interest, such
as an exchange of fixed rate payments for floating rate payments. Currency
swaps involve the exchange of respective rights to make or receive payments in
specified currencies. Mortgage swaps are similar to interest rate swaps in that
they represent commitments to pay and receive interest. The notional principal
amount, however, is tied to a reference pool or pools of mortgages.
Caps and floors are variations on swaps. The purchase of a cap entitles the
purchaser to receive a principal amount from the party selling the cap to the
extent that a specified index exceeds a predetermined interest rate or amount.
The purchase of an interest rate floor entitles the purchaser to receive
payments on a notional principal amount from the party selling the floor to the
extent that a specified index falls below a predetermined interest rate or
amount. Caps and floors are similar in many respects to over-the-counter
options transactions, and may involve investment risks that are similar to
those associated with options transactions and options on futures contracts.
Because swap contracts are individually negotiated, they remain the
obligation of the respective counterparties, and there is a risk that a
counterparty will be unable to meet its obligations under a particular swap
contract. If a counterparty defaults on a swap contract with a Fund, the Fund
may suffer a loss. To address this risk, a 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 purposes of
collateralization, as discussed below. Accordingly, the risk of loss with
respect to interest rate swaps entered
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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. To
protect against losses related to counterparty default, each Fund may enter
into swap contracts that require transfers of collateral for changes in market
value. In contrast, currency swaps and other types of swap contracts may
involve the delivery of the entire principal value of one designated currency
or financial instrument in exchange for the other designated currency or
financial instrument. Therefore, the entire principal value of such swaps may
be subject to the risk that the other party will default on its contractual
delivery obligations.
In addition, because swap contracts are individually negotiated and
ordinarily non-transferable, there also may be circumstances in which it would
be impossible for a Fund to close out its obligations under the swap contract
prior to its maturity. Under such circumstances, the Fund might be able to
negotiate another swap contract with a different counterparty to offset the
risk associated with the first swap contract. Unless a Fund is able to
negotiate such an offsetting swap contract, however, the Fund could be subject
to continued adverse developments, even after the Adviser has determined that
it would be prudent to close out or offset the first swap contract.
The Funds 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 the highest or
second highest rating category by at least one NRSRO at the time of investment
or, if unrated, determined by the Adviser to be of comparable quality.
The use of swaps involves investment techniques and risks different from and
potentially greater than those associated with ordinary portfolio securities
transactions. If the Adviser is incorrect in its expectations of market values,
interest rates, or currency exchange rates, the investment performance of the
Funds would be less favorable than it would have been if this investment
technique were not used.
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
its 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 Adviser believes that swaps
do not constitute senior securities under the 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.
Each of the Funds will generally limit its investments in swaps, caps and
floors to 25% of its total assets.
STRUCTURED INSTRUMENTS--Each Fund may invest, from time to time, in one or
more structured instruments. Structured instruments are debt securities issued
by agencies of the U.S. government (such as the Student Loan Marketing
Association ("Sallie Mae"), 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 indexes. 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.
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 payments.
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 the Adviser, principal
and/or interest payments on the structured instrument may be substantially less
than expected. The Fund will only invest in structured securities that are
consistent with its investment objectives, policies and restrictions, based on
the Adviser's Outlook on market conditions.In some cases, depending on the
terms of the reference index, a structured instrument may provide that the
principal and/or interest payments may be adjusted below zero; however, a Fund
will not invest in structured instruments if the terms of the structured
instrument provide that the Fund may be obligated to pay more than its initial
investment in the structured instrument, or to repay any interest or principal
that has already been collected or paid back. 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 portfolio securities. Each of the
Funds would treat such an instrument as illiquid, and limit its investments in
such instruments to no more than 15% of its
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total assets, when combined with all other illiquid investments of the Fund.
Structured instruments that are registered under federal securities laws may be
treated as liquid. In addition, although structured instruments may be sold in
the form of a corporate debt obligation, they may not have some of the
protections against counterparty default that may be available with respect to
publicly traded debt securities (i.e., the existence of a trust indenture). In
that respect, the risks of default associated with structured instruments may
be similar to those associated with swap contracts. See "Swaps, Caps, and
Floors."
NEW FINANCIAL PRODUCTS--New options and futures contracts and other
financial products, and various combinations thereof, continue to be developed
and the Funds may invest in any such options, contracts and products as may be
developed to the extent consistent with its investment objective, policies and
restrictions and the regulatory requirements applicable to investment
companies.
These various products may be used to adjust the risk and return
characteristics of the Funds' portfolios of 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 will 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.
MORTGAGE-BACKED SECURITIES (GOVERNMENT BOND FUND AND ASSET ALLOCATION FUND
ONLY)--Mortgage-backed securities are debt obligations secured by real estate
loans and pools of loans on single family homes, multi-family homes, mobile
homes, and, in some cases, commercial properties.
These Funds may acquire securities representing an interest in a pool of
mortgage loans that are issued or guaranteed by a U.S. Government agency. The
primary issuers or guarantors of these mortgage-backed securities are Fannie
Mae, Ginnie Mae, and Freddie Mac. With respect to the Asset Allocation Fund
only, mortgage-backed securities may also be issued by non-governmental
entities and may or may not have private insurer guarantees of timely payments.
Such non-governmental mortgage securities cannot be treated as U.S. Government
Securities for purposes of investment policies.
These Funds may also invest in mortgage-backed securities issued by
non-government entities, which consists of collateralized mortgage obligations
("CMOs") and real estate mortgage investment conduits ("REMICS") that are
rated in the highest or second-highest rating category by at least one NRSRO at
the time of investment or, if unrated, determined by the Adviser to be of
comparable quality. The mortgages backing these securities include
conventional thirty-year fixed rate mortgages, graduated payment mortgages, and
adjustable rate mortgages. The Funds will only purchase CMOs and REMICs that
are backed solely by Ginnie Mae certificates or other mortgage pass-through
instruments issued or guaranteed by the U.S. government or its agencies and
instrumentalities. However, the guarantees do not extend to the mortgage-backed
securities' value, which is likely to vary inversely with fluctuations in
interest rates. Mortgage-backed securities are in most cases "pass- through"
instruments, through which the holder receives a share of all interest and
principal payments from the mortgages underlying the certificate. Because the
prepayment characteristics of the underlying mortgages vary, it is not possible
to predict accurately the average life or realized yield of a particular issue
of pass-through certificates. During periods of declining interest rates,
prepayment of mortgages underlying mortgage-backed securities can be expected
to accelerate. When the mortgage obligations are prepaid, the Funds reinvest
the prepaid amounts in securities the yield of which reflects interest rates
prevailing at the time. Moreover, prepayment of mortgages which underlie
securities purchased at a premium could result in capital losses.
These Funds may also invest in multiple class securities issued by U.S.
government agencies and instrumentalities such as Fannie Mae, Freddie Mac and
Ginnie Mae, or private issuers, including guaranteed CMOs and REMIC
pass-through or participation certificates, when consistent with the Fund's
investment objectives, policies and limitations. A REMIC is a CMO that
qualifies for special tax treatment under the Internal Revenue Code and invests
in certain mortgages principally secured by interests in real property and
other permitted investments.
CMOs and guaranteed REMIC pass-through certificates ("REMIC Certificates")
issued by Fannie Mae, Freddie Mac and Ginnie Mae are types of multiple class
pass-through securities. Investors may purchase beneficial interests in REMICs,
which are known as "regular" interests or "residual" interests. The Funds do
not currently intend to purchase residual interests in REMICs. The REMIC
Certificates represent beneficial ownership interests in a REMIC trust,
generally consisting of mortgage loans or Fannie Mae, Freddie Mac or Ginnie Mae
guaranteed mortgage pass- through certificates (the "Mortgage Assets"). The
obligations of Fannie Mae, Freddie Mac or Ginnie Mae under their respective
guaranty of the REMIC Certificates are obligations solely of Fannie Mae,
Freddie Mac or Ginnie Mae, respectively.
Fannie Mae REMIC Certificates are issued and guaranteed as to timely
distribution of principal and interest by Fannie Mae. In addition, Fannie Mae
will be obligated to distribute the principal balance of each class of REMIC
Certificates in full, whether or not sufficient funds are otherwise available.
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For Freddie Mac REMIC Certificates, Freddie Mac guarantees the timely
payment of interest, and also guarantees the payment of principal as payments
are required to be made on the underlying mortgage participation certificates
("PCs"). PCs represent undivided interests in specified residential mortgages
or participations therein purchased by Freddie Mac and placed in a PC pool.
With respect to principal payments on PCs, Freddie Mac generally guarantees
ultimate collection of all principal of the related mortgage loans without
offset or deduction. Freddie Mac also guarantees timely payment of principal on
certain PCs referred to as "Gold PCs."
Ginnie Mae REMIC Certificates guarantee the full and timely payment of
interest and principal on each class of securities (in accordance with
the terms of those classes as specified in the related offering circular
supplement). The Ginnie Mae guarantee is backed by the full faith and credit of
the United States of America.
REMIC Certificates issued by Fannie Mae, Freddie Mac and Ginnie Mae are
treated as U.S. Government securities for purposes of investment policies. CMOs
and REMIC Certificates are issued in 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. 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.
Although the Funds invest only in securities issued or guaranteed by the
U.S. Government, its agencies or instrumentalities, the Z-Bonds in which the
Fund may invest may bear the same non-credit-related risks as do other types of
Z-Bonds. See "Mortgage-Backed Securities" above. Z- Bonds in which the Funds
may invest will not include residual interest.
There can be no assurance that the United States Government would provide
financial support to Fannie Mae, Freddie Mac or Ginnie Mae if necessary in the
future.
Each of the Funds will generally limit its investments in mortgage-backed
securities to 25% of its total assets.
REGULATION OF MORTGAGE LOANS--Mortgage loans are subject to a variety of
state and federal regulations designed to protect mortgagors which may impair
the ability of the mortgage lender to enforce its rights under the mortgage
documents. These regulations include legal restraints on foreclosures,
homeowner rights of redemption after foreclosure, federal and state bankruptcy
and debtor relief laws, restrictions on enforcement of mortgage loans "due on
sales" clauses and state usury laws. Even though the Funds will invest in
Mortgage-Backed Securities issued or guaranteed by the U.S. Government, its
agencies or instrumentalities, these regulations may adversely affect the Funds
investments by delaying the Fund's receipt of payments derived from principal
or interest on mortgage loans affected by such regulations.
MUNICIPAL SECURITIES (GOVERNMENT BOND FUND AND ASSET ALLOCATION FUND ONLY)--
Municipal securities consist of i) debt obligations issued by or on behalf of
public authorities to obtain funds to be used for various public
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facilities, for refunding outstanding obligations, for general operating
expenses, and for lending such funds to other public institutions and
facilities, and ii) certain private activity and industrial development bonds
issued by or on behalf of public authorities to obtain funds to provide for the
construction, equipment, repair, or improvement of privately operated
facilities. Municipal notes include general obligation notes, tax anticipation
notes, revenue anticipation notes, bond anticipation notes, certificates of
indebtedness, demand notes and construction loan notes and participation
interests in municipal notes. Municipal bonds include general obligation bonds,
revenue or special obligation bonds, private activity and industrial
development bonds, and participation interests in municipal bonds. General
obligation bonds are backed by the taxing power of the issuing municipality.
Revenue bonds are backed by the revenues of a project or facility, tolls from a
toll bridge for example. The payment of principal and interest on private
activity and industrial development bonds generally is dependent solely on the
ability of the facility's user to meet its financial obligations and the
pledge, if any, of real and personal property so financed as security for such
payment. The Government Bond Fund may also invest in municipal leases, which
are obligations issued by state and local governments or authorities to finance
the acquisition of equipment and facilities and may be considered to be
illiquid. They may take the form of a lease, an installment purchase contract,
a conditional sales contract, or a participation interest in any of the
foregoing. The Government Bond Fund will limit its investment in municipal
leases to no more than 5% of its assets. The Board of Trustees is responsible
for determining the credit quality of unrated municipal leases, on an
ongoing basis, including an assessment of the likelihood that the lease will
not be cancelled.
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.
The exclusion from gross income for federal income tax purposes for certain
housing authority bonds depends on qualification under relevant provisions of
the Internal Revenue Code (the "Code") and on other provisions of federal law.
These provisions of federal law contain certain ongoing requirements relating
to the cost and location of the residences financed with the proceeds of the
single-family mortgage bonds and the income levels of tenants of the rental
projects financed with the proceeds of the multi-family housing bonds. While
the issuers of the bonds, and other parties, including the originators and
servicers of the single-family mortgages and the owners of the rental projects
financed with the multi-family housing bonds, covenant to meet these ongoing
requirements and generally agree to institute procedures designed to insure
that these requirements are met, there can be no assurance that these ongoing
requirements will be consistently met. The failure to meet these requirements
could cause the interest on the bonds to become taxable, possibly retroactively
from the date of issuance, thereby reducing the value of the bonds, subjecting
shareholders to unanticipated tax liabilities. Furthermore, any failure to
meet these ongoing requirements might not constitute an event of default under
the applicable mortgage or permit the holder to accelerate payment of the bond
or require the issuer to redeem the bond. In any event, where the mortgage is
insured by the Federal Housing Administration ("FHA"), the consent of the FHA
may be required before insurance proceeds would become payable to redeem the
mortgage subsidy bonds.
STRIPPED MORTGAGE-BACKED SECURITIES (GOVERNMENT BOND FUND AND ASSET
ALLOCATION FUND ONLY)--These Funds may, to enhance revenues or hedge against
interest rate risk, invest in stripped mortgage-backed securities ("SMBS"),
which are derivative multiclass mortgage securities. The Funds may only invest
in SMBS issued or guaranteed by the U.S. Government, its agencies or
instrumentalities.
SMBS are usually structured with two classes that receive different
proportions of the interest and principal distributions from a pool of Mortgage
Assets. A common type of SMBS will have one class receiving all of the interest
from the Mortgage Assets, while the other class will receive all of the
principal. However, in some instances, one class will receive some of the
interest and most of the principal while the other class will receive most of
the interest and the remainder of the principal. If the underlying Mortgage
Assets experience greater than anticipated prepayments of principal, the Fund
may fail to fully recoup its initial investment in these securities. Although
the market for such securities is increasingly liquid, certain SMBS may not be
readily marketable and will be considered illiquid for purposes of a Fund's
limitation on investments in illiquid securities. Any determination that a SMBS
is liquid will be made pursuant to guidelines and standards established by the
Board of Trustees. The market value of the class consisting entirely of
principal payments generally is unusually volatile in response to changes in
interest rates. The yields on a class of SMBS that receives all or most of the
interest from Mortgage Assets are generally higher than prevailing market
yields on other Mortgage-Backed Securities because their cash flow patterns are
more volatile and there is a greater risk that the initial investment will not
be fully recouped. The Adviser will
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seek to manage these risks (and potential benefits) by investing in a variety
of such securities and by using certain hedging techniques. Each of these
Funds will generally limit its investment in SMBS to 15% of its total assets.
ADJUSTABLE RATE MORTGAGE LOANS ("ARMS") (GOVERNMENT BOND FUND AND ASSET
ALLOCATION FUND ONLY)--ARMS eligible for inclusion in a mortgage pool will
generally provide for a fixed initial mortgage interest rate for a specified
period of time. Thereafter, the interest rates (the "Mortgage Interest Rates")
may be subject to periodic adjustment based on changes in the applicable index
rate (the "Index Rate"). The adjusted rate would be equal to the Index Rate
plus a gross margin, which is a fixed percentage spread over the Index Rate
established for each ARM at the time of its origination.
Adjustable interest rates can cause payment increases that some mortgage
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 payments protect
borrowers from unlimited interest rate and payment increases.
There are two main categories of indices which provide the basis for rate
adjustments on ARMs: those based on U.S. Treasury securities and those derived
from a calculated measure such as a cost of funds index or a moving average of
mortgage rates. Commonly utilized indices include the one-year, three-year and
five-year constant maturity Treasury 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.
MORTGAGE DOLLAR ROLLS (GOVERNMENT BOND FUND AND ASSET ALLOCATION FUND
ONLY)--The Government Bond Fund and the Asset Allocation Fund may enter into
mortgage "dollar rolls" in which the Fund sells securities for delivery in the
current month and simultaneously contracts to repurchase substantially similar
(same type, coupon and maturity) securities on a specified future date. The
Fund gives up the right to receive principal and interest paid on the
securities sold. However, the Fund would benefit to the extent of any
difference between the price received for the securities sold and the lower
forward price for the future purchase (often referred to as the "drop") or fee
income plus the interest earned on the cash proceeds of the securities sold
until the settlement date of the forward purchase. Unless such benefits exceed
the income, capital appreciation and gain or loss due to mortgage prepayments
that would have been realized on the securities sold as part of the mortgage
dollar roll, the use of this technique will diminish the investment performance
of the Fund compared with what such performance would have been without the use
of mortgage dollar rolls. The Fund will hold and maintain in a segregated
account until the settlement date, cash or liquid, high grade debt
securities in an amount equal to the forward purchase price. The benefits
derived from the use of mortgage dollar rolls may depend upon the Adviser's
ability to predict correctly mortgage prepayments and interest rates. There is
no assurance that mortgage dollar rolls can be successfully employed.
For financial reporting and tax purposes, the Fund proposes to treat
mortgage dollar rolls as two separate transactions: one involving the purchase
of a security and a separate transaction involving a sale. The Fund does not
currently intend to enter into mortgage dollar rolls that are accounted for as
a financing.
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For purposes of diversification and investment limitations, mortgage dollar
rolls are considered to be mortgage-backed securities.
CORPORATE SECURITIES--Including corporate bonds, convertible and
non-convertible debt securities, and preferred stocks, as well as commercial
paper (short-term promissory notes issued by corporations). Issuers of
corporate bonds and notes are divided into many different categories by bond
market sector, such as electric utilities, gas utilities, telephone utilities,
consumer finance companies, wholesale finance companies and industrial
companies. Within each major category of issuer, there are many sub-categories.
FIXED RATE MORTGAGE LOANS (GOVERNMENT BOND FUND ONLY)--Generally, fixed rate
mortgage loans eligible for inclusion in a mortgage pool (the "Fixed Rate
Mortgage Loans") will bear simple interest at fixed annual rates and have
original terms to maturity ranging from 5 to 40 years. The Fund may invest in
fixed rate mortgage loans which are privately issued and not issued or
guaranteed by the U.S. government. Fixed Rate Mortgage Loans generally provide
for monthly payments of principal and interest in substantially equal
installments for the contractual term of the mortgage note in sufficient
amounts to fully amortize principal by maturity, although certain fixed rate
mortgage loans provide for a large final balloon payment upon maturity. The
Funds may invest in Fixed Rate Mortgage Loans or mortgage loan pools to enhance
yield.
INVERSE FLOATING RATE INSTRUMENTS (GOVERNMENT BOND FUND ONLY)--The Funds may
seek to increase yield by investing in leveraged inverse floating rate debt
instruments ("inverse floaters"). The interest rate on an inverse floater
resets in the opposite direction from the market rate of interest to which the
inverse floater is indexed. An inverse floater may be considered to be
leveraged to the extent that its interest rate varies by a magnitude that
exceeds the magnitude of the change in the index rate of interest. The higher
degree of leverage inherent in inverse floaters is associated with greater
volatility in their market values. Accordingly, the duration of an inverse
floater may exceed its stated final maturity.
Each of the Funds will generally limit its investment in inverse floating
rate instruments to 15% of its total assets.
DEMAND FEATURES (GOVERNMENT BOND FUND AND ASSET ALLOCATION FUND ONLY)--These
Funds may acquire securities that are subject to puts and stand-by 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 municipal securities subject to a put may be sold at any time
at the market rates. However, unless the put was an integral part of the
security as originally issued, it may not be marketable or assignable;
therefore, the put would only have value to the Fund. The Funds expect that
they will generally acquire puts only where the puts are available without the
payment of any direct or indirect consideration. However, if advisable or
necessary, in certain cases 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. 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 in municipal securities. The
Fund will limit its put transactions to institutions which the Adviser believes
present minimal credit risk.
There is no limit to the percentage of portfolio securities that may be
purchased subject to a put. However, the Fund will not acquire a put which was
not an integral part of the security as originally issued if such acquisition
would cause the aggregate value of all such puts held in the portfolio to
exceed 1/2 of 1% of the value of the Fund's total assets.
Under a "stand-by commitment," a dealer would agree to purchase, at the
Fund's option, specified municipal securities at a specified price. When
entering into stand-by commitments, a Fund will set aside sufficient assets
invested in cash-equivalent securities to pay for all stand-by
commitments on their scheduled delivery dates. These Funds will acquire these
commitments solely to facilitate portfolio liquidity and do not intend to
exercise their rights thereunder for trading purposes. Stand-by commitments may
also be referred to as put options. Each of these Funds will generally limit
its investment in stand-by commitments to 25% of its total assets.
CONVERTIBLE SECURITIES (EQUITY FUNDS ONLY)--Convertible securities have
characteristics similar to both fixed income and equity securities. 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, a
Fund's selection of convertible securities is based, to a great extent, on the
potential for capital appreciation that may exist in the underlying stock. The
value of convertible securities is also affected by prevailing interest rates,
the credit quality of the issuer, and any call provisions.
SECURITIES OF FOREIGN ISSUERS (EQUITY FUNDS ONLY)--Each Fund may invest in
securities of foreign issuers to achieve income or capital appreciation.
Foreign investments involve risks that are different from investments in
securities of U.S. issuers. These risks may include future unfavorable
political and economic developments, possible withholding taxes, seizure of
foreign deposits, currency controls, interest limitations or other governmental
restrictions which might affect payment of principal or interest. Additionally,
there may be less public information available about foreign
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issuers. Foreign branches of foreign banks are not regulated by U.S. banking
authorities and generally are not bound by accounting, auditing and financial
reporting standards comparable to U.S. banks. The Funds may invest in
commercial paper of foreign issuers and obligations of foreign branches of U.S.
banks, U.S. and London branches of foreign banks, and supranational entities
which are established through the joint participation of several governments
(e.g., the Asian Development Bank and the Inter-American Development Bank).
Securities of foreign issuers may include sponsored and unsponsored American
Depository Receipts ("ADRs"), which are securities typically issued by a U.S.
financial institution that evidence ownership interests in a pool of
securities issued by a foreign issuer. There may be less information available
on the foreign issuers of unsponsored ADRs than on the issuers of sponsored
ADRs. ADRs include American Depository Shares and New York Shares.
WARRANTS--The Large Company Growth Fund and Asset Allocation Fund may invest
in Warrants, which are instruments giving holders the right, but not the
obligation, to buy shares of a Company at a given price during a specified
period. Each Fund will not invest more than 5% of its total assets in warrants.
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APPENDIX B
DESCRIPTION OF RATINGS
DESCRIPTION OF COMMERCIAL PAPER RATINGS
The following descriptions of commercial paper ratings have been
published by Standard & Poor's Corporation ("S&P"), Moody's Investors Service
("Moody's"), Fitch's Investors Service ("Fitch"), Duff and Phelps ("Duff") and
IBCA Limited ("IBCA"), respectively.
Commercial paper rated A by S&P regarded by S&P as having the greatest
capacity for timely payment. Issues rated A are further refined by use of the
numbers 1+, 1 and 2 to indicate the relative degree of safety. Issues rated
A-1+ are those with an "overwhelming degree" of credit protection. Those rated
A-1 reflect a "very strong" degree of safety regarding timely payment. Those
rated A-2 reflect a high degree of safety regarding timely payment but not as
high as A-1.
Commercial paper issues rated Prime-1 and Prime-2 by Moody's are judged
by Moody's to be of the "highest" quality and "higher" quality respectively on
the basis of relative repayment capacity.
The rating Fitch-1 (Highest Grade) is the highest commercial rating
assigned by Fitch. Paper rated Fitch-1 is regarded as having the strongest
degree of assurance for timely payment. The rating Fitch-2 (Very Good Grade) is
the second highest commercial paper rating assigned by Fitch which reflects an
assurance of timely payment only slightly less in degree than the strongest
issues.
The rating Duff-1 is the highest commercial paper rating assigned by
Duff. Paper rated Duff-1 is regarded as having very high certainty of timely
payment with excellent liquidity factors which are supported by ample asset
protection. Risk factors are minor. Paper rated Duff-2 is regarded as having
good certainty of timely payment, good access to capital markets and sound
liquidity factors and company fundamentals. Risk factors are small.
The designation A1 by IBCA indicates that the obligation is supported
by a very strong capacity for timely repayment. Those obligations rated A1+ are
supported by the highest capacity for timely repayment. Obligations rated A2
are supported by a strong capacity for timely repayment, although such capacity
may be susceptible to adverse changes in business, economic or financial
conditions.
DESCRIPTION OF CORPORATE/MUNICIPAL BOND RATINGS
The following descriptions of S&P's and Moody's corporate bond ratings have
been published by S&P and Moody's respectively.
Bonds rated AAA have the highest rating S&P assigns to a debt
obligation. Such a rating indicates an extremely strong capacity to pay
principal and interest. Bonds rated AA also qualify as high-quality debt
obligations. Capacity to pay principal and interest is very strong and differ
from AAA issues only in small degree. Debt rated A has a strong capacity to pay
interest and repay principal although it is somewhat more susceptible to the
adverse effects of changes in circumstances and economic conditions than debt
in higher rated categories.
Debt rated BBB is regarded as having an adequate capacity to pay
interest and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than in higher rated categories.
Bonds which are rated Aaa by Moody's are judged to be of the best
quality. They carry the smallest degree of investment risk and are generally
referred to as "gilt edge". Interest payments are protected by a large, or an
exceptionally stable, margin and principal is secure. While the various
protective elements are likely to change, such changes as can be visualized are
most unlikely to impair the fundamentally strong position of such issues. Bonds
rated Aa by Moody's are judged by Moody's to be of high quality by all
standards. Together with bonds rated Aaa, they comprise what are generally
known as high-grade bonds. They are rated lower than the best bonds because
margins of protection may not be as large as in Aaa securities or fluctuation
of protective elements may be of greater amplitude or there may be other
elements present which make the long-term risks appear somewhat larger than in
Aaa securities.
Bonds which are rated A 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.
Bonds which are rated Baa are considered as medium-grade obligations
(i.e., they are neither highly protected nor poorly secured). Interest payments
and principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
DESCRIPTION OF MUNICIPAL NOTE RATINGS
Moody's highest rating for state and municipal and other short-term
notes is MIG-1 and VMIG-1. Short-term municipal securities rated MIG-1 or
VMIG-1 are of the best quality. They have strong protection from established
cash flows of funds for their servicing or from established and broad-based
access to the market for refinancing or both. Short-term
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municipal securities rated MIG-2 and VMIG-2 are of high quality. Margins of
protection are ample although not so large as in the preceding group.
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. The following criteria will be used in making that
assessment.
- -- Amortization schedule (the larger the final maturity relative to other
maturities the more likely it will be treated as a note).
- -- Source of Payment (the more dependent the issue is on the market for its
refinancing, the more likely it will be treated as a note).
Note rating symbols are as follows:
SP-1 Very strong or 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.
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TABLE OF CONTENTS
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FINANCIAL HIGHLIGHTS ...................................................... 2
SUMMARY ................................................................... 4
INVESTMENT OBJECTIVES ..................................................... 4
Government Bond Fund ........................................ 4
Asset Allocation Fund ....................................... 4
Growth Opportunities Fund ................................... 4
Large Company Growth Fund ................................... 4
INVESTMENT POLICIES ....................................................... 5
The Government Bond Fund .................................... 5
Permitted Investments ............................ 5
Risk Factors ..................................... 6
Temporary Defensive Position ..................... 7
Portfolio Turnover ............................... 7
The Equity Funds
(Asset Allocation, Growth Opportunities Fund
and Large Company Growth) ....................... 7
Permitted Investments ............................ 7
Asset Allocation Fund ............................ 7
Growth Opportunities Fund ........................ 8
Large Company Growth Fund ........................ 8
Risk Factors ..................................... 9
Temporary Defensive Position ..................... 10
Portfolio Turnover ............................... 10
INVESTMENT LIMITATIONS .................................................... 10
MANAGEMENT OF THE TRUST ................................................... 11
The Trustees ................................................ 11
The Adviser ................................................. 11
The Administrator ........................................... 12
Transfer and Dividend Paying Agent .......................... 13
Expenses of the Trust ....................................... 13
DESCRIPTION OF THE TRUST .................................................. 13
Shareholder Rights .......................................... 13
Description of Shares ....................................... 14
Inquiries ................................................... 14
Share Redemption ............................................ 14
Net Asset Value ............................................. 14
Dividends ................................................... 14
Tax Status .................................................. 14
ADDITIONAL INFORMATION .................................................... 15
Performance ................................................. 15
The Custodian ............................................... 15
Independent Accountants ..................................... 15
Counsel ..................................................... 15
APPENDIX A: DESCRIPTION OF PERMITTED INVESTMENTS AND
ASSOCIATED RISKS......................................................... 16
APPENDIX B: DESCRIPTION OF RATINGS......................................... 28
</TABLE>
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS AND THE STATEMENT
OF ADDITIONAL INFORMATION AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATIONS MAY NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE TRUST.
Page 33 of 91
<PAGE> 34
INVESTMENT ADVISER
Banc One Investment Advisors Corporation
774 Park Meadow Drive
Columbus, OH 43271-0211
ADMINISTRATOR
Nationwide Financial Services, Inc.
One Nationwide Plaza
Columbus, OH 43216
TRANSFER AGENT AND DIVIDEND DISBURSING AGENT
Nationwide Investors Services, Inc.
Box 1492
One Nationwide Plaza
Columbus, OH 43216
LEGAL COUNSEL
Ropes & Gray
One Franklin Square
1301 K Street, N.W.
Suite 800 East
Washington, D.C. 20005-3333
INDEPENDENT ACCOUNTANTS
Price Waterhouse LLP
41 South High Street
Columbus, OH 43215
Page 34 of 91
<PAGE> 35
STATEMENT OF ADDITIONAL INFORMATION
THE ONE GROUP(R) INVESTMENT TRUST
* Government Bond Fund
* Asset Allocation Fund
* Growth Opportunities Fund
* Large Company Growth Fund
May 1, 1996
================================================================================
This Statement of Additional Information is not a Prospectus, but
should be read in conjunction with the Prospectus for The One Group(R)
Investment Trust. The Prospectus of The One Group(R) Investment Trust is
dated as of the same date as this Statement of Additional Information. This
Statement of Additional Information is incorporated in its entirety into the
Prospectus. A copy of the Prospectus may be obtained by writing to the Trust
at One Nationwide Plaza, Columbus, Ohio 43216, or by telephoning toll free
(800) 860-3946.
TABLE OF CONTENTS
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THE TRUST ...............................................................................B-2
INVESTMENT OBJECTIVE AND POLICIES ...............................................................B-2
Additional Information on Fund Instruments .............................................B-2
Bank Obligations ..............................................................B-2
Commercial Paper...............................................................B-3
Repurchase Agreements .........................................................B-3
Reverse Repurchase Agreements .................................................B-3
Government Securities .........................................................B-3
Futures and Options Trading ...................................................B-4
Futures Contracts .............................................................B-4
Restrictions on the Use of Futures Contracts ..................................B-5
Risk Factors in Futures Transactions ..........................................B-5
Options Contracts .............................................................B-6
Covered Calls .................................................................B-6
Purchasing Call Options........................................................B-8
Puts...........................................................................B-8
Risk Factors in Options Transactions ...................................................B-8
Mortgage-related Securities ...................................................B-8
Yield, Market Value and Risk Considerations of Mortgage-Backed Securities ..............B-9
Foreign Investments ...........................................................B-10
When-Issued Securities ........................................................B-10
Securities Lending ............................................................B-10
Variable and Floating Rate Notes........................................................B-11
Municipal Securities...........................................................B-11
Demand Features................................................................B-13
Investment Restrictions ................................................................B-13
Portfolio Turnover .....................................................................B-14
Additional Tax Information Concerning All Funds of the Trust ...........................B-14
VALUATION .......................................................................................B-15
Valuation of the Funds .................................................................B-15
ADDITIONAL INFORMATION REGARDING THE CALCULATION.................................................B-16
OF PER SHARE NET ASSET VALUE
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION...................................................B-16
</TABLE>
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MANAGEMENT OF THE TRUST .........................................................................B-17
Trustees & Officers ....................................................................B-17
Major Shareholders......................................................................B-20
Investment Adviser .....................................................................B-20
Glass-Steagall Act .....................................................................B-21
Portfolio Transactions .................................................................B-21
Administrator ..........................................................................B-22
Expenses ...............................................................................B-23
Custodian and Transfer Agent ...........................................................B-23
Independent Accountants ................................................................B-23
Legal Counsel ..........................................................................B-23
ADDITIONAL INFORMATION ..........................................................................B-24
Description of Shares ..................................................................B-24
Shareholder and Trustee Liability ......................................................B-24
Shareholders............................................................................B-24
Calculation of Performance Data.........................................................B-24
Miscellaneous...........................................................................B-26
FINANCIAL STATEMENTS.............................................................................B-27
APPENDIX ...............................................................................B-51
</TABLE>
THE TRUST
The One Group(R) Investment Trust (the "Trust") is a diversified,
open-end management investment company. The Trust consists of four series of
units of beneficial interest ("Shares") each representing interests in one of
four separate investment portfolios, i.e., the Government Bond Fund, the Asset
Allocation Fund, the Growth Opportunities Fund (formerly known as the Small
Company Growth Fund) and the Large Company Growth Fund. The Asset Allocation
Fund, the Growth Opportunities Fund and the Large Company Growth Fund are
collectively referred to herein as the "Equity Funds." Much of the information
contained herein expands upon subjects discussed in the Prospectus. No
investment in a Fund should be made without first reading the Prospectus.
INVESTMENT OBJECTIVE AND POLICIES
The following policies supplement each Fund's investment objective and
policies as set forth in the Prospectus.
ADDITIONAL INFORMATION ON FUND INSTRUMENTS
Bank Obligations
The Funds may invest in bank obligations such as bankers' acceptances,
certificates of deposit, and demand and time deposits.
Bankers' acceptances are negotiable drafts or bills of exchange typically
drawn by an importer or exporter to pay for specific merchandise, which are
"accepted" by a bank, meaning, in effect, that the bank unconditionally agrees
to pay the face value of the instrument on maturity. Bankers' acceptances
invested in by the Funds will be those guaranteed by domestic and foreign banks
having, at the time of investment, total assets in excess of $1 billion (as of
the date of their most recently published financial statements).
Certificates of deposit are negotiable certificates issued against funds
deposited in a commercial bank or a savings and loan association for a definite
period of time and earning a specified return. Certificates of deposit will be
those of domestic and foreign branches of U.S. commercial banks which are
members of the Federal Reserve System or the deposits of which are insured by
the Federal Deposit Insurance Corporation and in certificates of deposit of
domestic savings and loan associations the deposits of which are insured by the
Federal Deposit Insurance Corporation if, at the time of purchase, such
institutions have total assets in excess of $1 billion (as of the date of their
most recently published financial statements). Certificates of deposit may also
include those issued by foreign banks outside the United States with total
assets at the time of purchase in excess of the equivalent of $1 billion. The
Funds may also invest in Eurodollar certificates of deposit, which are U.S.
dollar denominated certificates of deposit issued by branches of foreign and
domestic banks located outside the United States, and Yankee certificates of
deposit, which are certificates of deposit issued by a U.S. branch of a foreign
bank denominated in U.S. dollars and held in the United States.
Time deposits are interest bearing non-negotiable deposits at a bank or a
savings and loan association that have a specific maturity date. Demand
deposits are funds deposited in a commercial bank or a savings and loan
association which,
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<PAGE> 37
without prior notice to the bank, may be withdrawn generally by negotiable
draft. Time and demand deposits will only be maintained at banks or savings
and loan associations from which a Fund could purchase certificates of deposit.
Commercial Paper
Commercial paper consists of unsecured promissory notes issued by
corporations. Except as noted below with respect to variable amount master
demand notes, issues of commercial paper normally have maturities of less than
nine months and fixed rates of return.
Each of the Funds may invest in commercial paper when consistent with its
investment objectives, policies and restrictions. Each of the Funds may
purchase commercial paper consisting of issues rated at the time of purchase in
the highest or second highest rating category by at least one NRSRO (such as
A-2 or better by Standard & Poor's Corporation ("S&P"), Prime-2, or better by
Moody's Investor Service, Inc. ("Moody's") or F-2 or better by Fitch Investor
Services ("Fitch")) or if unrated, determined by the Adviser to be of
comparable quality.
Repurchase Agreements
Securities held by each Fund may be subject to repurchase agreements.
Under the terms of a repurchase agreement, a Fund would acquire securities from
member banks of the Federal Deposit Insurance Corporation with total assets in
excess of $1 billion and registered broker-dealers which the Fund's Adviser
deems creditworthy under guidelines approved by the Board of Trustees, subject
to the seller's agreement to repurchase such securities at a mutually
agreed-upon date and price. The repurchase price would generally equal the
price paid by the Fund plus interest negotiated on the basis of current
short-term rates, which may be more or less than the rate on the underlying
portfolio securities. The seller under a repurchase agreement will be required
to maintain the value of collateral held pursuant to the agreement at not less
than the repurchase price (including accrued interest). If the seller were to
default on its repurchase obligation or become insolvent, the Fund holding such
obligation would suffer a loss to the extent that the proceeds from a sale of
the underlying portfolio securities were less than the repurchase price under
the agreement, or to the extent that the disposition of such securities by the
Fund were delayed pending court action. Additionally, there is no controlling
legal precedent under U.S. law and there may be no controlling legal precedents
under the laws of certain foreign jurisdictions confirming that a Fund would be
entitled, as against a claim by such seller or its receiver or trustee in
bankruptcy, to retain the underlying securities, although (with respect to
repurchase agreements subject to U.S. law) the Board of Trustees of the Trust
believes that, under the regular procedures normally in effect for custody of a
Fund's securities subject to repurchase agreements and under federal laws, a
court of competent jurisdiction would rule in favor of the Trust if presented
with the question. Securities subject to repurchase agreements will be held by
the Trust's custodian or another qualified custodian or in the Federal
Reserve/Treasury book-entry system. Repurchase agreements are considered to be
loans by a Fund under the Investment Company Act of 1940.
Reverse Repurchase Agreements
Each of the Funds may borrow funds for temporary purposes by entering
into reverse repurchase agreements. Pursuant to such agreements, a Fund would
sell portfolio securities to financial institutions such as banks and
broker-dealers, and agree to repurchase them at a mutually agreed-upon date and
price. A Fund would enter into reverse repurchase agreements only to avoid
otherwise selling securities during unfavorable market conditions to meet
redemptions. At the time a Fund entered into a reverse repurchase agreement, it
would place in a segregated custodial account assets, such as liquid high grade
debt securities consistent with the Fund's investment restrictions having a
value equal to the repurchase price (including accrued interest), and would
subsequently monitor the account to ensure that such equivalent value was
maintained. Reverse repurchase agreements involve the risk that the market
value of the securities sold by a Fund may decline below the price at which the
Fund is obligated to repurchase the securities. Reverse repurchase agreements
are consideredbythe Securities and Exchange Commission to be borrowings by a
Fund under the Investment Company Act of 1940.
Government Securities
Each of the Funds may invest in obligations issued or guaranteed by
agencies and instrumentalities of the U.S. Government. Obligations of certain
agencies and instrumentalities of the U.S. Government are supported by the full
faith and credit of the U.S. Treasury; others 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 are supported only by the credit of the instrumentality. No
assurance can be given that the U.S. Government would provide financial support
to U.S. Government-sponsored agencies or instrumentalities if it is not
obligated to do so by law. A Fund will invest in the obligations of such
agencies or instrumentalities only when its Adviser 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.
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<PAGE> 38
Government, see "Investment Objective and Policies--Mortgage-related
Securities" in this Statement of Additional Information.
Futures and Options Trading:
Futures Contracts. The Funds may enter into futures contracts, options, and
options on futures contracts and stock index futures contracts and options
thereon for the purposes of remaining fully invested and reducing transaction
costs. 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 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. A
futures contract on a securities index is an agreement obligating either party
to pay, and entitling the other party to receive, while the contract is
outstanding, cash payments based on the level of a specified securities index.
The acquisition of put and call options on futures contracts will,
respectively, give a Fund the right (but not the obligation), for a specified
price, to sell or to purchase the underlying futures contract, upon exercise of
the option, at any time during the option period. Brokerage commissions are
incurred when a futures contract is bought or sold.
Futures traders are required to make a good faith margin deposit in cash
or government securities with a broker or custodian to initiate and maintain
open positions in futures contracts. A margin deposit is intended to assure
completion of the contract (delivery or acceptance of the underlying security)
if it is not terminated prior to the specified delivery date. Minimal initial
margin requirements are established by the futures exchange and may be changed.
Brokers may establish deposit requirements which are higher than the exchange
minimums. Initial margin deposits on futures contracts are customarily set at
levels much lower than the prices at which the underlying securities are
purchased and sold, typically ranging upward from less than 5% of the value of
the contract being traded.
After a futures contract position is opened, the value of the contract is
marked to market daily. If the futures contract price changes to the extent
that the margin on deposit does not satisfy margin requirements, payment of
additional "variation" margin will be required. Conversely, change in the
contract value may reduce the required margin, resulting in a repayment of
excess margin to the contract holder. Variation margin payments are made to and
from the futures broker for as long as the contract remains open. The Funds
expect to earn interest income on their margin deposits.
Traders in futures contracts may be broadly classified as either
"hedgers" or "speculators." Hedgers use the futures markets primarily to offset
unfavorable changes in the value of securities otherwise held for investment
purposes or expected to be acquired by them. Speculators are less inclined to
own the securities underlying the futures contracts which they trade, and use
futures contracts with the expectation of realizing profits from fluctuations
in the prices of underlying securities. The Funds intend to use futures
contracts only for bona fide hedging purposes.
When interest rates are expected to rise or market values of portfolio
securities are expected to fall, a Fund can seek through the sale of futures
contracts to offset a decline in the value of its portfolio securities. When
interest rates are expected to fall or market values are expected to rise, a
Fund, through the purchase of such contracts, can attempt to secure better
rates or prices for the Fund than might later be available in the market when
it effects anticipated purchases.
The Funds will only sell futures contracts to protect securities they own
against price declines or purchase contracts to protect against an increase in
the price of securities they intend to purchase. When future contracts or
options thereon are purchased to protect against a price increase on securities
intended to be purchased later, the Funds expect that approximately 75% of
their futures contract purchases will be "completed," that is, equivalent
amounts of related securities will have been purchased or are being purchased
by the Funds upon sale of open futures contracts.
Although techniques other than the sale and purchase of futures contracts
could be used to control the Funds' exposure to market fluctuations, the use of
futures contracts may be a more effective means of hedging this exposure. While
the Funds will incur commission expenses in both opening and closing out
futures positions, these costs are lower than transactions costs incurred in
the purchase and sale of the underlying securities.
A Funds' 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 stock 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
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<PAGE> 39
to its maturity date. Third, the purchase of a futures contract involves
the risk that a Fund could lose more than the original margin deposit required
to initiate a futures transaction.
Restrictions on the Use of Futures Contracts. None of the Funds will enter into
futures contract transactions for purposes other than bona fide hedging
purposes to the extent that, immediately thereafter, the sum of its initial
margin deposits on open contracts exceeds 5% of the market value of the
respective Fund's total assets. In addition, none of the Funds will enter into
futures contracts to the extent that the value of the futures contracts held
would exceed 25% of the respective Fund's total assets. Futures transactions
will be limited to the extent necessary to maintain each Fund's qualification
as a regulated investment company.
The Funds have undertaken to restrict their futures contract trading as
follows: first, the Funds will not engage in transactions in futures contracts
for speculative purposes; second, the Funds will not market themselves to the
public as commodity pools or otherwise as vehicles for trading in the
commodities futures or commodity options markets; third, the Funds will
disclose to all prospective Shareholders the purpose of and limitations on
their commodity futures trading; fourth, the Funds will submit to the Commodity
Futures Trading Commission ("CFTC") special calls for information. Accordingly,
registration as a commodities pool operator with the CFTC is not required.
In addition to the margin restrictions discussed above, transactions in
futures contracts may involve the segregation of funds pursuant to requirements
imposed by the Securities and Exchange Commission. Under those requirements,
where a Fund has a long position in a futures contract, it may be required to
establish a segregated account (not with a futures commission merchant or
broker) containing cash or certain liquid assets equal to the purchase price of
the contract (less any margin on deposit). For a short position in futures or
forward contracts held by a Fund, those requirements may mandate the
establishment of a segregated account (not with a futures commission merchant
or broker) with cash or certain liquid assets that, when added to the amounts
deposited as margin, equal the market value of the instruments underlying the
futures contracts (but are not less than the price at which the short positions
were established). However, segregation of assets is not required if a Fund
"covers" a long position. For example, instead of segregating assets, a Fund,
when holding a long position in a futures contract, could purchase a put option
on the same futures contract with a strike price as high or higher than the
price of the contract held by the Fund. In addition, where a Fund takes short
positions, or engages in sales of call options, it need not segregate assets if
it "covers" these positions. For example, where a Fund holds a short position
in a futures contract, it may cover by owning the instruments underlying the
contract. The Funds may also cover such a position by holding a call option
permitting it to purchase the same futures contract at a price no higher than
the price at which the short position was established. Where a Fund sells a
call option on a futures contract, it may cover either by entering into a long
position in the same contract at a price no higher than the strike price of the
call option or by owning the instruments underlying the futures contract. A
Fund could also cover this position by holding a separate call option
permitting it to purchase the same futures contract at a price no higher than
the strike price of the call option sold by the Fund.
In addition, the extent to which a Fund may enter into transactions
involving futures contracts may be limited by the Internal Revenue Code's
requirements for qualification as a registered investment company and the
Trust's intention to qualify as such.
Risk Factors in Futures Transactions. Positions in futures contracts may be
closed out only on an exchange which provides a secondary market for such
futures. However, there can be no assurance that a liquid secondary market will
exist for any particular futures contract at any specific time. Thus, it
may not be possible to close a futures position. In the event of adverse price
movements, a Fund would continue to be required to make daily cash payments to
maintain the required margin. In such situations, if a Fund has insufficient
cash, it may have to sell portfolio securities to meet daily margin
requirements at a time when it may be disadvantageous to do so. In addition, a
Fund may be required to make delivery of the instruments underlying futures
contracts it holds. The inability to close options and futures positions also
could have an adverse impact on the ability to effectively hedge them. The
Funds will minimize the risk that they will be unable to close out a futures
contract by only entering into futures contracts which are traded on national
futures exchanges and for which there appears to be a liquid secondary market.
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 purchaser or sale of a futures contract may result in
losses in excess of the amount invested
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in the contract. However, because the futures strategies engaged in the Funds
are only for hedging purposes, the Adviser do not believe that the Funds are
subject to the risks of loss frequently associated with futures transactions.
Each Fund would presumably have sustained comparable losses if, instead of the
futures contract, it had invested in the underlying financial instrument and
sold it after the decline.
Utilization of futures transactions by a Fund does involve the risk of
imperfect or no correlation where the securities underlying futures contract
have different maturities than the portfolio securities being hedged. It is
also possible that a Fund could both lose money on futures contracts and also
experience a decline in value of its portfolio securities. There is also the
risk of loss by a Fund of margin deposits in the event of bankruptcy of a
broker with whom the Fund has an open position in a futures contract or related
option.
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 future positions and
subjecting some futures traders to substantial losses.
Options Contracts. The Adviser may use trading of options on securities
or futures contracts as a hedging device. An option on a futures contract gives
the purchaser of the option the right (but not the obligation) to take a
position at a specified price (the "striking," "strike" or "exercise" price) in
the underlying futures contract or security. A "call" option gives the
purchaser the right to take a long position in the underlying futures contract
or security, and the purchaser of a "put" option acquires the right to take a
short position in the underlying futures contract or security. The purchase
price of an option is referred to as its "premium." The seller (or "writer") of
an option is obligated to take a futures or securities position at a specified
price if the option is exercised. In the case of a call option, the seller must
stand ready to take a short position in the underlying futures contract or
security at the strike price if the option is exercised. A seller of a put
option, on the other hand, stands ready to take a long position in the
underlying futures contract or security at the strike price if the option is
exercised. A "naked" option refers to an option written by a party which does
not possess the underlying futures contract or security. A "covered" option
refers to an option written by a party which does possess the underlying
position.
A call option on a futures contract or security is said to be
"in-the-money" if the strike price is below current market levels. Similarly, a
put option on a futures contract or security is said to be "out-of-the-money"
if the strike price is below current market levels.
Options have limited life spans, usually tied to the delivery or
settlement date of the underlying futures contract or security. Some options,
however, expire significantly in advance of such dates. An option that is
"out-of-the-money" and not offset by the time it expires becomes worthless. On
certain exchanges "in-the-money" options are automatically exercised on their
expiration date, but on others unexercised options simply become worthless
after their expiration date. Options usually trade at a premium (referred to as
the "time value" of the option) above their intrinsic value (the difference
between the market price for the underlying futures contract or equity security
and the strike price). As an option nears its expiration date, the market value
and the intrinsic value move into parity as the time value diminishes.
The Funds will enter into such option transactions only when the options
are available on an exchange. There will be an active over-the-counter market
for such options which will establish their pricing and liquidity.
Broker/Dealers with whom the Trust will enter into such option transactions
shall have a minimum net worth of $20,000,000. Each Fund will limit the writing
of put and call options to 25% of its total assets at the time such options are
written.
Increased market volatility generally increases the value of options by
increasing the probability of favorable market swings, putting outstanding
options "in-the-money." Although purchasing options is a limited risk trading
approach, significant losses can be incurred by doing so.
Covered Calls.
The Funds may write (sell) only "covered" call options and purchase
options to close out options previously written by the Fund. Such options must
be listed on a national securities exchange. The Funds' purpose in writing
covered call options is to generate additional premium income. This premium
income will serve to enhance a Fund's total return and will reduce the effect
of any price decline of the security involved in the option. Covered call
options will generally be written on securities which, in the opinion of the
Fund's Adviser, are not expected to make any major price moves in the near
future but which, over the long term, are deemed to be attractive investments
for the Fund.
A call option gives the holder (buyer) the "right to purchase" a security
at a specified price (the exercise price) at any time until a certain date (the
expiration date). So long as the obligation of the writer of a call option
continues, the writer may
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be assigned an exercise notice by the broker-dealer through whom such option
was sold, requiring the writer to deliver the underlying security against
payment of the exercise price. This obligation terminates upon the expiration
of the call option, or such earlier time at which the writer effects a closing
purchase transaction by repurchasing an option identical to that previously
sold. To secure the writer's obligation to deliver the underlying security in
the case of a call option, subject to the rules of the Options Clearing
Corporation, a writer is required to deposit in escrow the underlying security
or other assets in accordance with such rules. The Funds will write only
covered call options. This means that a Fund will only write a call option on a
security which a Fund already owns. (In order to comply with the requirements
of the securities laws in several states, a Fund will not write a covered call
option if, as a result, the aggregate market value of all portfolio securities
covering call options or subject to put options exceeds 25% of the market value
of the Fund's net assets.)
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 or uncovered options, which a Fund will not do), but
capable of enhancing the Fund's total return. When writing a covered call
option, a Fund, in return for the premium, gives up the opportunity for profit
from a price increase in the underlying security above the exercise price, but
conversely retains the risk of loss should the price of the security decline.
Unlike one who owns securities not subject to an option, a Fund has no control
over when it may be required to sell the underlying securities, since it may be
assigned an exercise notice at any time prior to the expiration of its
obligation as a writer. If a call option which a Fund has written expires, a
Fund will realize a gain in the amount of the premium; however, such gain may
be offset by a decline in the market value of the underlying security during
the option period. If the call option is exercised, a Fund will realize a gain
or loss from the sale of the underlying security. The security covering the
call will be maintained in a segregated account of the Fund's custodian. The
Funds do not consider a security covered by a call to be "pledged" as that term
is used in each Fund's policy which limits the pledging or mortgaging of its
assets.
The premium received is the market value of an option. The premium each
Fund will receive from writing a call option will reflect, among other things,
the current market price of the underlying security, the relationship of the
exercise price to such market price, the historical price volatility of the
underlying security, and the length of the option period. Once the decision to
write a call option has been made, the Adviser, in determining whether a
particular call option should be written on a particular security, will
consider the reasonableness of the anticipated premium and the likelihood that
a liquid secondary market will exist for those options. The premium received by
a Fund for writing covered call options will be recorded as a liability in the
Trust'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 regular trading on 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.
Closing transactions will be effected in order to realize a profit on an
outstanding call option, to prevent an underlying security from being called,
or to permit the sale of the underlying security. Furthermore, effecting a
closing transaction will permit a Fund to write another call option on the
underlying security with either a different exercise price or expiration date
or both. If a Fund desires to sell a particular security from its portfolio on
which it has written a call option it will seek to effect a closing transaction
prior to, or concurrently with, the sale of the security. There is, of course,
no assurance that a Fund will be able to effect such closing transactions at a
favorable price. If a Fund cannot enter into such a transaction, it may be
required to hold a security that it might otherwise have sold, in which case it
would continue to be at market risk on the security. This could result in
higher transaction costs. A Fund will pay transaction costs in connection with
the writing of options to close out previously written options. Such
transaction costs are normally higher than those applicable to purchases and
sales of portfolio securities.
Call options written by a Fund will normally have expiration dates of
less than nine months from the date written. The exercise price of the options
may be below, equal to, or above the current market values of the underlying
securities at the time the options are written. From time to time, a Fund may
purchase an underlying security for delivery in accordance with an exercise
notice of a call option assigned to it, rather than delivering such security
from its portfolio. In such cases, additional costs will be incurred.
A Fund will realize a profit or loss from a closing purchase transaction
if the cost of the transaction is less or more than the premium received from
the writing of the option. Because increases in the market price of a call
option will generally reflect increases in the market price of the underlying
security, any loss resulting from the repurchase of a call option is likely to
be offset in whole or in part by appreciation of the underlying security owned
by the Fund.
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Purchasing Call Options
Each 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.
Puts
Each Fund may 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. To the
extent any Fund writes put options, all such options will be covered.
Risk Factors in Options Transactions
The successful use of the Funds' options strategies depends on the
ability of the Trust's Adviser to forecast interest rate and market movements
correctly.
When it purchases an option, a Fund runs the risk that it will lose
its entire investment in the option in a relatively short period of time,
unless the Fund exercises the option or enters into a closing sale transaction
with respect to the option during the life of the option. If the price of the
underlying security does not rise (in the case of a call) or fall (in the case
of a put) to an extent sufficient to cover the option premium and transaction
costs, a Fund will lose part or all of its investment in the option. This
contrasts with an investment by a Fund in the underlying securities, since the
Fund may continue to hold its investment in those securities notwithstanding
the lack of a change in price of those securities.
The effective use of options also depends on a Fund's ability to
terminate option positions at times when the Adviser deems it desirable to do
so. Although a Fund will take an option position only if the Adviser believes
there is a liquid secondary market for the option, there is no assurance that a
Fund will be able to effect closing transactions at any particular time or at
an acceptable price.
If a secondary trading market in options were to become unavailable, a
Fund could no longer engage in closing transactions. Lack of investor interest
might adversely affect the liquidity of the market for particular options or
series of options. A marketplace may discontinue trading of a particular option
or options generally. In addition, a market could become temporarily
unavailable if unusual events, such as volume in excess of trading or clearing
capability, were to interrupt normal market operations. A marketplace may at
times find it necessary to impose restrictions on particular types of options
transactions, which may limit a Fund's ability to realize its profits or limit
its losses.
Disruptions in the markets for the securities underlying options
purchased or sold by a Fund could result in losses on the options. If trading
is interrupted in an underlying security, the trading of options on that
security is normally halted as well. As a result, a Fund as purchaser or writer
of an option will be unable to close out its positions until option trading
resumes, and it may be faced with losses if trading in the security reopens at
a substantially different price. In addition, the Options Clearing Corporation
("OCC") or other options markets may impose exercise restrictions. If a
prohibition on exercise is imposed at the time when trading in the option has
also been halted, a Fund as purchaser or writer of an option will be locked
into its position until one of the two restrictions has been lifted. If a
prohibition on exercise remains in effect until an option owned by a Fund has
expired, the fund could lose the entire value of its option.
Special risks are presented by internationally-traded options. Because of
time differences between the United States and the various foreign countries,
and because different holidays are observed in different countries, foreign
option markets may be open for trading during hours or on days when U.S.
markets are closed. As a result, option premiums may not reflect the current
prices of the underlying interest in the United States.
Mortgage-related Securities
The Government Bond Fund and the Asset Allocation Fund may, consistent
with their investment objectives and policies, invest in mortgage-related
securities issued or guaranteed by the U.S. Government or its agencies or
instrumentalities.
Mortgage-related securities, for purposes of the Trust's Prospectus and
this Statement of Additional Information, represent pools of mortgage loans
assembled for sale to investors by various governmental agencies such as the
Government National Mortgage Association ("Ginnie Mae") and government-related
organizations such as the Federal National Mortgage Association ("Fannie Mae")
and the Federal Home Loan Mortgage Corporation ("Freddie Mac"), as well as by
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nongovernmental issuers such as commercial banks, savings and loan
institutions, mortgage bankers, and private mortgage insurance companies.
Although certain mortgage-related securities are guaranteed by a third party or
otherwise similarly secured, the market value of the security, which may
fluctuate, is not so secured. If a Fund of the Trust 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 securities' return to the Trust's Funds. In addition,
regular payments received in respect of mortgage-related securities include
both interest and principal. No assurance can be given as to the return the
Funds of the Trust will receive when these amounts are reinvested.
The Government Bond Fund and Asset Allocation Fund may invest in
mortgage-related securities which are collateralized mortgage obligations
structured on pools of mortgage pass-through certificates or mortgage loans.
Collateralized mortgage obligations will be purchased only if rated in one of
the three highest rating categories by a nationally recognized rating
organization such as Moody's or S&P.
There are a number of important differences among the agencies and
instrumentalities of the U.S. Government that issue mortgage-related securities
and among the securities that they issue. Mortgage-related securities issued by
Ginnie Mae include Ginnie Mae Mortgage Pass-Through Certificates which are
guaranteed as to the timely payment of principal and interest by Ginnie Mae and
such guarantee is backed by the full faith and credit of the United States.
Ginnie Mae is a wholly-owned U.S. Government corporation within the Department
of Housing and Urban Development. Ginnie Mae certificates also are supported by
the authority of Ginnie Mae to borrow funds from the U.S. Treasury to make
payments under its guarantee. Mortgage-related securities issued by Fannie Mae
include Fannie Mae Guaranteed Mortgage Pass-Through Certificates, which are
solely the obligations of the Fannie Mae and are not backed by or entitled to
the full faith and credit of the United States. The Fannie Mae is a
government-sponsored organization owned entirely by private stock-holders.
Fannie Mae Certificates are guaranteed as to timely payment of the principal
and interest by Fannie Mae. Mortgage-related securities issued by Freddie Mac
include Freddie Mac Mortgage Participation Certificates. The Freddie Mac is a
corporate instrumentality of the United States, created pursuant to an Act of
Congress, which is owned entirely by Federal Home Loan Banks. Freddie Mac
Certificates are not guaranteed by the United States or by any Federal Home
Loan Banks and do not constitute a debt or obligation of the United States or
of any Federal Home Loan Bank. Freddie Mac Certificates entitle the holder to
timely payment of interest, which is guaranteed by the Freddie Mac. The Freddie
Mac guarantees either ultimate collection or timely payment of all principal
payments on the underlying mortgage loans. When the 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.
Yield, Market Value and Risk Considerations of Mortgage-Backed Securities
The Government Bond Fund and Asset Allocation Fund may invest in certain
Mortgage-Backed Securities, such as Interest Only Stripped Mortgage-Backed
Securities, that are extremely sensitive to changes in prepayments and interest
rates. Even though such securities have been guaranteed by an agency or
instrumentality of the U.S. Government, under certain interest rate or
prepayment rate scenarios, a Fund may fail to fully recover its investment in
such securities.
The yield characteristics of Mortgage-Backed Securities differ from those
of traditional fixed income securities. The major differences typically include
more frequent interest and principal payments, usually monthly, and the
possibility that prepayments of principal may be made at any time. Prepayment
rates are influenced by changes in current interest rates and a variety of
economic, geographic, social and other factors and cannot be predicted with
certainty. As with fixed rate mortgage loans, adjustable rate mortgage loans
may be subject to a greater prepayment rate in a declining interest rate
environment. The yields to maturity of the Mortgage-Backed Securities in which
the Trust 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.
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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 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.
Foreign Investments
The Equity Funds may also invest in, subject to their respective
investment objectives and policies, 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, European Certificates of Deposit, European Time
Deposits, European Banker's Acceptances, Canadian Time Deposits and Yankee
Certificates of Deposits, and investments in Canadian Commercial Paper, foreign
securities and Europaper (as those terms are defined in the relevant
Prospectuses of the Trust). Securities of foreign issuers may include sponsored
and unsponsored American Depository Receipts (ADRs"). Sponsored ADRs are listed
on the New York Stock Exchange; unsponsored ADRs are not. Therefore, there may
be less information available about the issuers of unsponsored ADRs than the
issuers of sponsored ADRs. Unsponsored ADRs are restricted securities. Possible
investments include equity securities of foreign entities, obligations of
foreign branches of U.S. banks and of foreign banks, including, without
limitation, European Certificates of Deposit, European Time Deposits, European
Banker's Acceptances, Canadian Time Deposits and Yankee Certificates of
Deposit, and investments in Canadian Commercial Paper, foreign securities and
Europaper. These instruments may subject a Fund to investment risks that differ
in some respects from those related to investments in obligations of U.S.
domestic issuers. Such risks include future adverse political and economic
developments, the possible imposition of withholding taxes on interest or other
income, possible seizure, nationalization, or expropriation of foreign
deposits, the possible establishment of exchange controls or taxation at the
source, greater fluctuations in value due to changes in exchange rates, or the
adoption of other foreign governmental restrictions which might adversely
affect the payment of principal and interest on such obligations. Such
investments may also entail higher custodial fees and sales commissions than
domestic investments. Foreign issuers of securities or obligations are often
subject to accounting treatment and engage in business practices different from
those respecting domestic issuers of similar securities or obligations. Foreign
branches of U.S. banks and foreign banks may be subject to less stringent
reserve requirements than those applicable to domestic branches of U.S. banks.
Investments in all types of foreign obligations or securities will not exceed
25% of the total assets of each of the Equity Funds.
When-Issued Securities
As discussed in the Prospectus, the Funds may purchase securities on a
"when-issued" basis. When a Fund agrees to purchase securities, the Fund's
custodian will set aside cash or liquid portfolio securities equal to the
amount of the commitment in a separate account. Normally, the custodian will
set aside portfolio securities to satisfy a purchase commitment. In such a
case, a Fund may be required subsequently to place additional assets in the
separate account in order to assure that the value of the account remains equal
to the amount of the Fund's commitment. It may be expected that a Fund's net
assets will fluctuate to a greater degree when it sets aside portfolio
securities to cover such purchase commitments than when it sets aside cash. No
Fund intends to purchase "when-issued" securities for speculative purposes but
only in furtherance of its investment objective. Because a Fund will set aside
cash or liquid portfolio securities to satisfy its purchase commitments in the
manner described, the Fund's liquidity and the ability of the Adviser to manage
the Fund might, as described in the Prospectus, be affected in the event its
commitments to purchase when-issued securities ever exceeded 40% of the value
of its assets.
When a Fund engages in "when-issued" transactions, it relies on the
seller to consummate the trade. Failure of the seller to do so may result in
the Fund's incurring a loss or missing the opportunity to obtain a price
considered to be advantageous.
Securities Lending
In order to generate additional income, each Fund may lend up to 33% of
the securities in which it is invested pursuant to agreements requiring that
the loan be continuously secured by cash, securities of the U.S. Government or
its agencies,
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shares of an investment trust or mutual fund or any combination of cash and
such securities as collateral equal at all times to at least 100% of the market
value plus accrued interest of the securities lent. Collateral is marked
to market daily. A Fund will continue to receive interest on the securities
lent while simultaneously seeking to earn interest on the investment of cash
collateral in U.S. Government securities, shares of an investment trust or
mutual fund. Collateral is marked to market daily to provide a level of
collateral at least equal to the market value of the securities lent. There may
be risks of delay in recovery of the securities or even loss of rights in the
collateral should the borrower of the securities fail financially. However,
loans will only be made to borrowers deemed by the Adviser to be of good
standing under guidelines established by the Trust's Board of Trustees and
when, in the judgment of the Adviser, the consideration which can be earned
currently from such securities loans justifies the attendant risk. Each Fund
will enter into loan arrangements only with counterparties which the Adviser
has deemed to be creditworthy under guidelines established by the Board of
Trustees. Loans are subject to termination by a Fund or the borrower at any
time, and are therefore not considered to be illiquid investments.
Variable and Floating Rate Notes
Variable amount master demand notes are unsecured demand notes that
permit the indebtedness thereunder to vary and provide for periodic adjustments
in the interest rate according to the terms of the instrument. Because master
demand notes are direct lending arrangements between a Fund and the issuer,
they are not normally traded. Although there is no secondary market in the
notes, a Fund may demand payment of principal and accrued interest at any time.
While the notes are not typically rated by credit rating agencies, issuers of
variable amount master demand notes (which are normally manufacturing, retail,
financial, and other business concerns) must satisfy the same criteria as set
forth above for commercial paper. The Adviser 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.
As described in the Prospectus, subject to their investment objective
policies and restrictions, each Fund may acquire variable and floating rate
notes. A variable rate note is one whose terms provide for the adjustment of
its interest rate on set dates. A floating rate note is one whose terms provide
for the adjustment of its interest rate whenever a specified interest rate
changes. Such notes are frequently not rated by credit rating agencies;
however, unrated variable and floating rate notes purchased by a Fund will be
determined by the Fund's Adviser under guidelines established by the Trust's
Board of Trustees to be of comparable quality at the time of purchase to rated
instruments eligible for purchase under the Fund's investment policies. In
making such determinations, the Adviser will consider the earning power, cash
flow and other liquidity ratios of the issuers of such notes (such issuers
include financial, merchandising, bank holding and other companies) and will
continuously monitor their financial condition. Although there may be no active
secondary market, with respect to a particular variable or floating rate note
purchased by a Fund, the Fund may resell the note at any time to a third party.
The absence of such an active secondary market, however, could make it
difficult for the Fund to dispose of the variable or floating rate note
involved in the event the issuer of the note defaulted on its payment
obligations, and the Fund could, for this or other reasons, suffer a loss to
the extent of the default. Variable or floating rate notes may be secured by
bank letters of credit.
Variable and floating rate notes for which no readily available market
exists will be purchased in an amount which, together with securities with
legal or contractual restrictions on resale or for which no readily available
market exists (including repurchase agreements providing for settlement more
than seven days after notice), exceeds 15% of the Fund's total assets only if
such notes are subject to a demand feature that will permit the Fund to demand
payment of the principal within seven days after demand by the Fund. If not
rated, such instruments must be found by the Fund's Adviser, under guidelines
established by the Trust's Board of Trustees, to be of comparable quality to
instruments that are rated high quality. A rating may be relied upon only if it
is provided by a nationally recognized statistical rating organization that is
not affiliated with the issuer or guarantor of the instruments. For a
description of the rating symbols of S&P, Moody's, and Fitch used in this
paragraph, see the Appendix. The Funds may also invest in Canadian Commercial
Paper which is commercial paper issued by a Canadian corporation or a Canadian
counterpart of a U.S. corporation and in Europaper which is U.S. dollar
denominated commercial paper of a foreign issuer.
Municipal Securities
The Government Bond Fund and the Asset Allocation Fund may also invest in
Municipal Securities if the Adviser determines that such Municipal Securities
offer attractive yields. Municipal Securities are issued to obtain funds for
various public purposes, including the construction of a wide range of public
facilities such as bridges, highways, roads, schools, water and sewer works,
and other utilities. Other public purposes for which Municipal Securities may
be issued include refunding outstanding obligations, obtaining funds for
general operating expenses and obtaining funds to lend to other public
institutions and facilities. In addition, certain debt obligations known as
"private activity bonds" may be issued by or on
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behalf of municipalities and public authorities to obtain funds to provide
certain water, sewage and solid waste facilities, qualified residential rental
projects, certain local electric, gas and other heating or cooling facilities,
qualified hazardous waste facilities, high-speed intercity rail facilities,
governmentally-owned airports, docks and wharves and mass commuting facilities,
certain qualified mortgages, student loan and redevelopment bonds and bonds
used for certain organizations exempt from federal income taxation. Certain
debt obligations known as "industrial development bonds" under prior federal
tax law may have been issued by or on behalf of public authorities to obtain
funds to provide certain privately-operated housing facilities, sports
facilities, industrial parks, convention or trade show facilities, airport,
mass transit, port or parking facilities, air or water pollution control
facilities, sewage or solid waste disposal facilities, and certain facilities
for water supply. Other private activity bonds and industrial development bonds
issued to fund the construction, improvement, equipment or repair of
privately-operated industrial, distribution, research, or commercial facilities
may also be Municipal Securities, but the size of such issues is limited under
current and prior federal tax law. The aggregate amount of most private
activity bonds and industrial development bonds is limited (except in the case
of certain types of facilities) under federal tax law by an annual "volume
cap." The volume cap limits the annual aggregate principal amount of such
obligations issued by or on behalf of all governmental instrumentalities in the
state.
The two principal classifications of Municipal Securities consist of
"general obligation" and "limited" (or revenue) issues. General obligation
bonds are obligations involving the credit of an issuer possessing taxing power
and are payable from the issuer's general unrestricted revenues and not from
any particular fund or source. The characteristics and method of enforcement of
general obligation bonds vary according to the law applicable to the particular
issuer, and payment may be dependent upon appropriation by the issuer's
legislative body. Limited obligation bonds are payable only from the revenues
derived from a particular facility or class of facilities or, in some cases,
from the proceeds of a special excise or other specific revenue source. Private
activity bonds and industrial development bonds generally are revenue bonds and
thus not payable from the unrestricted revenues of the issuer. The credit and
quality of such bonds is generally related to the specific facilities or
revenue source and to the credit of the bank selected to provide the letter of
credit underlying the bond if any. Payment of principal and interest on
industrial development revenue bonds is the responsibility of the corporate
user (and any guarantor).
The Government Bond and Asset Allocation Funds may also acquire "moral
obligation" issues, which are normally issued by special purpose authorities,
and in other tax-exempt investments including pollution control bonds and
tax-exempt commercial paper. These Funds may purchase short-term tax-exempt
General Obligations Notes, Tax Anticipation Notes, Bond Anticipation Notes,
Revenue Anticipation Notes, Project Notes, and other forms of short-term
tax-exempt loans. Such loans are issued with a short-term maturity in
anticipation of the receipt of tax funds, the proceeds of bond placements, or
other revenues. Project Notes are issued by a state or local housing agency and
are sold by the Department of Housing and Urban Development. While the issuing
agency has the primary obligation with respect to its Project Notes, they are
also secured by the full faith and credit of the United States through
agreements with the issuing authority which provide that, if required, the
federal government will lend the issuer an amount equal to the principal of and
interest on the Project Notes.
There are, of course, variations in the quality of Municipal Securities,
both within a particular classification and between classifications, and the
yields on Municipal Securities depend upon a variety of factors, including
general money market conditions, the financial condition of the issuer, general
conditions of the municipal bond market, the size of a particular offering, the
maturity of the obligations, and the rating of the issue. The ratings of
Moody's and S&P represent their opinions as to the quality of Municipal
Securities. It should be emphasized, however, that ratings are general and are
not absolute standards of quality, and Municipal Securities with the same
maturity, interest rate and rating may have different yields while Municipal
Securities of the same maturity and interest rate with different ratings may
have the same yield. Subsequent to its purchase by a Fund, an issue of
Municipal Securities may cease to be rated or its rating may be reduced below
the minimum rating required for purchase by the Fund. The Funds' Adviser will
consider such an event in determining whether a Fund should continue to hold
the obligations.
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.
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.
Such litigation or conditions may from time to time have the effect of
introducing uncertainties in the market for tax-exempt obligations or certain
segments thereof, or may materially affect the credit risk with respect to
particular bonds or
Page 46 of 91
<PAGE> 47
notes. Adverse economic, business, legal or political developments might affect
all or a substantial portion of a Fund's Municipal Securities in the same
manner.
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. A recent decision of the United States Supreme Court has held that
Congress has the constitutional authority to enact such legislation. It is not
possible to determine what effect the adoption of such proposals could have on
(i) the availability of Municipal Securities for investment by the Funds, and
(ii) the value of the investment portfolios of the Funds.
The Internal Revenue Code of 1986, as amended (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. The loss of tax-exempt status of such bonds may adversely
affect the value of the bonds.
It is anticipated that distributions from the Funds attributable to
interest income from tax-exempt obligations will not qualify as exempt-interest
dividends, but shall constitute ordinary dividends.
Demand Features
The Asset Allocation and Government Bond Funds may acquire securities
that are subject to puts and standby commitments ("demand features") to
purchase the securities at their principal amount (usually with accrued
interest) within a fixed period (usually seven days) following a demand by the
Fund. The demand feature may be issued by the issuer of the underlying
securities, a dealer in the securities or by another third party, and may not
be transferred separately from the underlying security.
Investment Restrictions
Unless otherwise specifically noted, the following investment
restrictions 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.
None of the Funds may:
1. Purchase securities on margin, sell securities short, or participate on
a joint or joint and several basis in any securities trading account.
2. Underwrite the securities of other issuers except to the extent that a
Fund may be deemed to be an underwriter under certain securities laws
in the disposition of "restricted securities."
3. Purchase or sell commodities or commodity contracts, except that the
Funds may purchase or sell financial futures contracts for bona fide
hedging and other permissible purposes.
4. Purchase participation or other direct interests in oil, gas or
mineral exploration or development programs (although investments by
the Funds in marketable securities of companies engaged in such
activities are not hereby precluded).
5. Invest in any issuer for purposes of exercising control or management.
6. Purchase securities of other investment companies except as permitted
by the Investment Company Act of 1940 and the rules and regulations
thereunder.
7. Purchase or sell real estate (however, each 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).
8. Borrow money or issue senior securities, except that each Fund may
borrow from banks or enter into reverse repurchase agreements for
temporary purposes in amounts up to 10% of the value of its total
assets at the time of such borrowing; or mortgage, pledge, or
hypothecate any assets, except in connection with any such borrowing
and in amounts not in excess of the lesser of the dollar amounts
borrowed or 10% of the value of the Fund's total assets at the time of
its borrowing. A Fund will not purchase securities while its borrowings
(including reverse repurchase agreements) in excess of 5% of its total
assets are outstanding.
The following investment restrictions are non-fundamental except as noted
otherwise and therefore can be changed by the Board of Trustees without prior
shareholder approval.
No Fund may:
1. Purchase or retain securities of any issuer if the officers or
Trustees of the Trust or the officers or directors of its investment adviser
owning beneficially more than one-half of 1% of the securities of such issuer
together own beneficially more than 5% of such securities.
2. Invest more than 5% of a Fund's total assets in the securities of
issuers which together with any predecessors have a record of less than three
years continuous operation. (This restriction shall not apply to investments in
asset-backed securities and other mutual funds authorized for purchase by such
Fund, as described in its Prospectus. For purposes of this restriction,
Page 47 of 91
<PAGE> 48
an "Asset-Backed Security" means a debt obligation issued by a limited-purpose
entity whose primary business activity is acquiring and holding financial
assets.)
3. 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.
The Asset Allocation Fund, the Growth Opportunities Fund, and the Large
Company Growth Fund may not acquire securities that are subject to restrictions
on resale because they are not registered under the Securities Act of 1933, if
such investment would exceed 5% of the Fund's total assets.
The Asset Allocation Fund may not invest more than 15% of its total
assets in securities with legal or contractual restrictions on resale. However,
this restriction shall not apply to securities eligible for resale to
institutional buyers under Rule 144A of the Securities and Exchange Commission
or to securities that become a part of the Fund's assets through merger,
exchange or recapitalization involving securities already held in the Fund.
PORTFOLIO TURNOVER
The portfolio turnover rate for each Fund is calculated by dividing the
lesser of purchases or sales of portfolio securities for the year by the
monthly average value of the portfolio securities. The calculation excludes all
securities whose maturities at the time of acquisition were one year or less.
For the period August 1, 1994 through December 31, 1994, the portfolio turnover
rate for the Large Company Growth Fund, Growth Opportunities Fund, Government
Bond Fund and Asset Allocation Fund was 4.4%, 3.5%, 3.5% and 0% , respectively.
For the year ended December 31, 1995, the portfolio turnover rates for the
Large Company Growth Fund, Growth Opportunities Fund and Government Bond Fund
was 37.4%, 193.3% and 34.1%, respectively. The Asset Allocation Fund portfolio
turnover rate for the year ened December 31, 1995 is composed of an equity
portfolio turnover rate of 30.7% and a fixed portfolio turnover rate of 75.8%.
Portfolio turnover may vary greatly from year to year as well as within a
particular year, and may also be affected by cash requirements for redemptions
of Shares and by requirements which enable the Trust to receive certain
favorable tax treatments. Portfolio turnover will not be a limiting factor in
making portfolio decisions.
ADDITIONAL TAX INFORMATION CONCERNING ALL FUNDS OF THE TRUST
It is the policy of each Fund of the Trust to meet the requirements
necessary to qualify as a "regulated investment company" under Subchapter M of
the Internal Revenue Code of 1986, as amended (the "Code"). By following such
policy, each Fund expects to eliminate or reduce to a nominal amount the
federal income taxes to which it may be subject.
In order to qualify as a regulated investment company, each Fund of the
Trust must, among other things, (1) derive at least 90% of its gross income
from dividends, interest, payments with respect to securities loans, and gains
from the sale or other disposition of stock or securities, foreign currencies
or other income (including gains from options, futures or forward contracts)
derived with respect to its business of investing in stock, securities or
currencies, (2) derive less than 30% of its gross income from the sale or other
disposition of stock, securities, options, futures, forward contracts, and
certain foreign currencies (or options, futures, or forward contracts on
foreign currencies) held for less than three months, and (3) diversify its
holdings so that at the end of each quarter of its taxable year (i) at least
50% of the market value of the Fund's assets is represented by cash or cash
items, United States Government securities, securities of other regulated
investment companies, and other securities limited, in respect of any one
issuer, to an amount not greater than 5% of the value of the Fund's total
assets and 10% of the outstanding voting securities of such issuer, and (ii)
not more than 25% of the value of its total assets is invested in the
securities of any one issuer (other than United States Government securities or
the securities of other regulated investment companies) or of two or more
issuers that the Fund controls and that are engaged in the same, similar, or
related trades or businesses. These requirements may restrict the degree to
which the Fund may engage in short-term trading and limit the range of the
Fund's investments. If a Fund of the Trust qualifies as a regulated investment
company, it will not be subject to federal income tax on the part of its income
distributed to shareholders, provided the Fund distributes during its taxable
year at least (a) 90% of its taxable net investment income (very generally,
dividends, interest, certain other income, and the excess, if any, of net
short-term capital gain over net long-term loss), and (b) 90% of the excess of
(i) its tax-exempt interest income less (ii) certain deductions attributable to
that income. Each Fund of the Trust intends to make sufficient distributions to
Shareholders to meet this requirement.
For a discussion of the tax consequences of variable annuity contracts,
refer to the prospectus of The One(R) Investors AnnuitySM and prospectuses of
other separate accounts offering variable life and variable annuity contracts
and qualified pension and reitrement plans. Variable annuity contracts
purchased through insurance company separate accounts provide for the
accumulation of all earnings from interest, dividends, and capital appreciation
without current federal income tax liability for the owner. Depending on the
variable annuity contract, distributions from the contract may be subject to
ordinary income
Page 48 of 91
<PAGE> 49
tax and, in addition, on distributions before age 59 1/2, a 10% penalty tax.
Only the portion of a distribution attributable to income on the investment in
the contract is subject to federal income tax. Investors should consult with
competent tax advisors for a more complete discussion of possible tax
consequences in a particular situation.
The Code imposes a non-deductible excise tax on regulated investment
companies that do not distribute in each calendar year (regardless of whether
they otherwise have a non-calendar taxable year) an amount equal to 98% of
their "ordinary income" (as defined) for the calendar year plus 98% of their
capital gain net income (as defined) for the 1-year period ending on October 31
of such calendar year. The balance, if any, of such income must be distributed
during the next calendar year. For the foregoing purposes, a Fund is treated as
having distributed any amount on which it is subject to income tax for any
taxable year ending in such calendar year. If distributions during a calendar
year were less than the required amount, a particular Fund would be subject to
a non-deductible excise tax equal to 4% of the deficiency.
Section 817(h) of the Code imposes certain diversification standards on
the underlying assets of variable annuity contracts held in the Funds of the
Trust. The Code provides that a variable annuity contract shall not be treated
as an annuity contract for any period (and any subsequent period) for which the
investments are not, in accordance with regulations prescribed by the Treasury
Department, adequately diversified. Disqualification of the variable annuity
contract as an annuity contract would result in immediate imposition of federal
income tax on variable annuity contract owners with respect to earnings
allocable to the contract, while the liability would generally arise prior to
the receipt of payments under the contract. Section 817(h)(2) of the Code is a
safe harbor provision which provides that variable annuity contracts meet the
diversification requirements if, as of the close of each quarter, the
underlying assets meet the diversification standards for a regulated investment
company and no more than fifty-five percent (55%) of the total assets consists
of cash, cash items, U.S. Government securities and securities of other
regulated investment companies.
The Treasury Department has issued Regulations (Treas. Reg. 1.817-5),
that establish diversification requirements for the investment portfolios
underlying variable annuity contracts. The Regulations amplify the
diversification requirements for variable annuity contracts set forth in
Section 817(h) of the Code and provide an alternative to the safe harbor
provision described above. Under the Regulations, an investment portfolio will
be deemed adequately diversified if (i) no more than 55 percent of the value of
the total assets of the portfolio is represented by any one investment; (ii) no
more than 70 percent of such value is represented by any two investments; (iii)
no more than 80 percent of such value is represented by any three investments;
and (iv) no more than 90 percent of such value is represented by any four
investments. For purposes of these Regulations all securities of the same
issuer are treated as a single investment. The Code provides that for purposes
of determining whether or not the diversification standards imposed on the
underlying assets of variable annuity contracts by Section 817(h) of the Code
have been met, "each United States government agency or instrumentality shall
be treated as a separate issuer."
Each Fund of the Trust will be managed in such a manner as to comply with
the diversification requirements. It is possible that in order to comply with
the diversification requirements, less desirable investment decisions may be
made which would affect the investment performance of such Fund.
VALUATION
VALUATION OF THE FUNDS
Except as noted below, investments of the Funds 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. With regard to each of the Funds,
securities the principal market for which is not a securities exchange are
valued at the mean of their latest bid and ask quotations in such principal
market. Securities and other assets for which quotations are not readily
available are valued at their fair value as determined in good faith under
consistently applied procedures established by the Investment Adviser under the
general supervision of the Trustees of the Trust and may include yield
equivalents or a pricing matrix.
Short-term securities are valued at either amortized cost or original
cost plus accrued interest, which approximates current value.
The value of a foreign security is determined in its national currency as
of the close of trading on the foreign exchange or other principal market on
which it is traded, which value is then converted into its U.S. dollar
equivalent at the foreign exchange closing mid-market rate reported in the
Financial Times as the closing rate for that date. When an occurrence
subsequent to the time a value of a foreign security was so established is
likely to have changed the value, then the fair value of those securities will
be determined by consideration of other factors by or under the direction of
the Trustees of the Trust or their delegates.
Page 49 of 91
<PAGE> 50
Securities for which market quotations are readily available will be
valued on the basis of quotations as provided by dealers in such securities or
furnished by a pricing service.
ADDITIONAL INFORMATION REGARDING THE CALCULATION
OF PER SHARE NET ASSET VALUE
The net asset value of each Fund is determined and its Shares are priced
as of the times specified in the Trust's Prospectus. The net asset value per
Share of each Fund is calculated by determining the value of the interest in
the securities and other assets of the Fund, less liabilities and dividing such
amount by the number of Shares of the Fund outstanding.
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION
Shares of the Trust are sold continuously to Nationwide VA Separate
Account-C and other insurance company separate accounts and qualified pension
and retirement plans (see "Shareholders," below),
The Trust may suspend the right of redemption or postpone the date of
payment for Shares during any period when (a) trading on the New York Stock
Exchange (the "Exchange") is restricted by applicable rules and regulations of
the Securities and Exchange Commission, (b) the Exchange is closed for other
than customary weekend and holiday closings, (c) the Securities and Exchange
Commission has by order permitted such suspension, or (d) an emergency exists
as determined by the Securities and Exchange Commission.
The Trust may redeem Shares involuntarily if redemption appears
appropriate in light of the Trust's responsibilities under the Investment
Company Act of 1940.
Page 50 of 91
<PAGE> 51
MANAGEMENT OF THE TRUST
TRUSTEES & OFFICERS
Overall responsibility for management of the Trust rests with Board of
Trustees of the Trust, who are elected by the Shareholders of the Trust. There
are currently four Trustees, all of whom are not "interested persons" of the
Trust within the meaning of that term under the Investment Company Act of 1940.
The Trustees, in turn, elect the officers of the Trust to supervise actively
its day-to-day operations.
The Trustees of the Trust, their addresses, and principal occupations
during the past five years are set forth below.
<TABLE>
<CAPTION>
POSITION(S) HELD PRINCIPAL OCCUPATION
NAME AND ADDRESS WITH THE TRUST DURING PAST 5 YEARS
- ---------------------------------------------------------------------------------------------------
<S> <C> <C>
Peter C. Marshall Trustee From November, 1993,
DCI Marketing, Inc. to present, President,
2727 W. Good Hope Road DCI Marketing, Inc.; from
Milwaukee, WI 53209 1992 to November, 1993,
Vice-President-Finance and
Treasurer, DCI Marketing,
Inc. From August 1987 to
1992, served as an officer in
the corporate finance group
of Blunt, Ellis & Loewi and
its successor corporation,
Kemper Securities, Inc.
Charles I. Post Trustee From July, 1986 to
7615 4th Avenue West present has been self-
Bradenton, FL 34209 employed as a consultant.
John S. Randall Trustee Since 1972 has been self-
3005 North Lake Drive employed as a management consultant.
Milwaukee, WI 53211
Frederick W. Ruebeck Trustee From June, 1988 to
Eli Lilly & Company present has been Director
Lilly Corporate Center of Investments, Eli Lilly and Company.
307 East McCarty
Indianapolis, IN 46285
</TABLE>
The Trustees of the Trust receive fees and expenses for each meeting of
the Board of Trustees attended. The Compensation Table below sets forth the
total compensation to the Trustees from the Trust and the operational funds of
The One Group(R) for the year ended December 31, 1995.
COMPENSATION TABLE(1)
<TABLE>
<CAPTION>
PENSION OR
RETIREMENT BENEFITS ESTIMATED TOTAL
AGGREGATE ACCRUED AS ANNUAL COMPENSATION
NAME OF PERSON, COMPENSATION PART OF FUND BENEFITS UPON FROM THE
POSITION FROM THE TRUST EXPENSES RETIREMENT FUND COMPLEX
- -------- -------------- -------- ---------- ------------
<S> <C> <C> <C> <C>
Peter C. Marshall, $3,000 N/A N/A $31,000
Chairman
Charles I. Post, $3,000 N/A N/A $29,000
Trustee
John S. Randall, $3,000 N/A N/A $29,000
Trustee
Frederick W. Ruebeck, $3,000 N/A N/A $29,000
Trustee
</TABLE>
1"Fund Complex" comprises all four funds of the Trust, as well as the 23
operational funds of The One Group(R).
Page 51 of 91
<PAGE> 52
The officers of the Trust receive no compensation directly from the Trust for
performing the duties of their offices. The officers of the Trust, their
addresses, and principal occupations during the past five years are shown
below:
<TABLE>
<CAPTION>
POSITION(S) HELD PRINCIPAL OCCUPATION
NAME AND ADDRESS WITH THE TRUST DURING PAST 5 YEARS
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Duane C. Meek* President Mr. Meek has been
Two Nationwide Plaza President of Financial
Columbus , Ohio 43215 Horizons Distributors Agency,
Inc., an insurance agency
marketing life and annuity
products through financial
institutions, since October 1,
1994. Mr. Meek is also
President of NEA Valuebuilder
Investor Services, a position
he assumed in 1991. Prior to
that he was group Sales
Officer for the Nationwide
Insurance Enterprise.
James F. Laird, Jr.* Vice President Mr. Laird was elected Vice
One Nationwide Plaza and Treasurer President-General Manager
Columbus, Ohio 43216 of Nationwide Financial
Services, Inc., the Administrator
of The One(R) GroupSM Investment
Trust on April 5, 1995. Prior to being
elected General Manager, Mr.
Laird served as Treasurer of
Nationwide Financial Services, Inc.
since November, 1987.
Mark B. Koogler* Vice President Mr. Koogler has held the
One Nationwide Plaza and Secretary position of Associate General Counsel
Columbus, Ohio 43216 since February 1994. Prior to that
time, Mr. Koogler served in various
capacities as an attorney in the Office
of General Counsel of the Nationwide
Insurance Enterprise.
Robert O. Cline* Vice President Since November, 1995,
One Nationwide Plaza and Assistant Treasurer Mr. Cline has been Associate
Columbus, Ohio 43216 Vice President Financial Operations,
of the Nationwide Insurance Enterprise.
From October 1990 to October 1995,
Mr. Cline was Director of Treasury and
Operational Controls for Financial
Operations of the Nationwide
Insurance Enterprise.
Brian A. Klein* Vice President Mr. Klein has been a Fund
One Nationwide Plaza and Assistant Treasurer Accounting Manager of Nationwide
Columbus, Ohio 43216 Financial Services, Inc. since
January, 1988.
</TABLE>
Page 52 of 91
<PAGE> 53
<TABLE>
<S> <C> <C>
Craig A. Carver* Vice President Mr. Carver has been Financial
One Nationwide Plaza and Assistant Secretary Control Manager of Nationwide
Columbus, Ohio 43216 Financial Services, Inc. since
November 1987.
William G. Goslee* Vice President Mr. Goslee has been Treasurer of
One Nationwide Plaza and Assistant Treasurer Nationwide Financial Services, Inc.
Columbus, Ohio 43216 since September 1995. Prior to that
time, Mr. Goslee served as Vice
President and in various other
capacities with Goldman Sachs & Co.
since 1988.
<FN>
*All officers listed above are "interested persons" of the Trust as defined in
the Investment Company Act of 1940.
</TABLE>
Page 53 of 91
<PAGE> 54
MAJOR SHAREHOLDERS
As of March 31, 1996, Nationwide Life and Annuity Insurance Company owned
of record and beneficially 51.8% of the shares of the Government Bond Fund,
15.7% of the shares of the Asset Allocation Fund, 0.3% of the shares of the
Growth Opportunities Fund, and 17.2% of the shares of the Large Company Growth
Fund; and held of record 48.2% of the Government Bond Fund, 77.0% of the Asset
Allocation Fund, 99.7% of the Growth Opportunities Fund and 82.8% of the Large
Company Growth Fund for the benefit of investors in the The One Group(R)
Variable AnnuitySM. As of March 31, 1996, Banc One Capital Corporation owned
beneficially and of record 7.3% of the Asset Allocation Fund.
INVESTMENT ADVISER
Investment advisory services to each of the Trust's Funds are provided by
Banc One Investment Advisors Corporation (the "Adviser"). The Adviser makes the
investment decisions for the assets of the Funds and 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 the Adviser and are
not insured by the FDIC or issued or guaranteed by the U.S. Government or any
of its agencies.
Banc One Investment Advisers Corporation is an indirect wholly-owned
subsidiary of BANC ONE CORPORATION, a multi-state bank holding company located
in Columbus, Ohio. As of December 31, 1995, BANC ONE CORPORATION had assets of
$90.5 billion and common equity of $7.9 billion. BANC ONE CORPORATION now
operates 56 banks with 1,558 offices in Arizona, Colorado, Illinois, Indiana,
Kentucky, Louisiana, Ohio, Oklahoma, Texas, Utah, West Virginia and Wisconsin.
BANC ONE CORPORATION also operates several additional corporations that engage
in data processing, venture capital, investment and merchant banking, trust,
brokerage, investment management, equipment leasing, mortgage banking, consumer
finance, and insurance.
The Adviser represents a consolidation of the investment advisory staffs
of a number of bank affiliates of BANC ONE CORPORATION, which have considerable
experience in the management of open-end management investment company
portfolios, including The One Group(R) (an open-end management investment
company which offers units of beneficial interest in 33 separate funds, four of
which bear the same name as the four Funds of The One Group(R) Investment Trust
and are managed similarly to such Funds) since 1985.
All investment advisory services are provided to the Funds by the Adviser
pursuant to an investment advisory agreement dated August 1, 1994 (the
"Advisory Agreement"). Unless sooner terminated, the Investment Advisory
Agreement will continue in effect until July 31, 1996. The Investment Advisory
Agreement will continue in effect as to a particular Fund from year to year
after July 31,1996 if such continuance is approved at least annually by the
Trust's Board of Trustees or by vote of a majority of the outstanding Shares of
such Fund (as defined under "ADDITIONAL INFORMATION--Miscellaneous" in this
Statement of Additional Information), and a majority of the Trustees who are
not parties to the respective investment advisory agreements or interested
persons (as defined in the Investment Company Act of 1940) of any party to the
respective investment advisory agreements by votes cast in person at a meeting
called for such purpose. The Advisory Agreement is terminable as to a
particular Fund at any time on 60 days' written notice without penalty by the
Trustees, by vote of a majority of the outstanding Shares of that Fund, or by
the Fund's Adviser, as the case may be. The Advisory Agreement also terminates
automatically in the event of any assignment, as defined in the Investment
Company Act of 1940.
The Adviser is entitled to a fee, which is calculated daily and paid
monthly, at the following percentages of the average daily net assets of each
Fund: 0.45% for the Government Bond Fund, 0.65% for each of the Growth
Opportunities Fund and the Large Company Growth Fund, and 0.70% for the Asset
Allocation Fund. The Adviser has voluntarily agreed to waive all or part of its
fees in order to limit the Funds' total operating expenses to not more than
.75% of the average daily net assets of the Government Bond Fund, not more than
1.10% of the average daily net assets of the Growth Opportunities Fund and not
more than 1.00% of the average daily net assets of each of the Large Company
Growth Fund and Asset Allocation Fund. These fee waivers are voluntary and may
be terminated at any time.
The Advisor received no advisory fees during the period ended December
31, 1995. During the period ended December 31, 1994, the Advisor received fees
of $259 from the Government Bond Fund, $1,919 from the Asset Allocation Fund,
$1,078 from the Growth Opportunities Fund and $1,432 from the Large Company
Growth Fund.
During the periods ended December 31, 1995 and 1994, the Adviser waived
advisory fees and reimbursed expenses in the amounts of $48,289 and $22,158,
respectively in the Government Bond Fund, $32,368 and $8,562, respectively in
the Asset Allocation Fund, $57,665 and $3,622, respectively in the Growth
Opportunities Fund and $62,961 and $15,663, respectively in the Large Company
Growth Fund.
Page 54 of 91
<PAGE> 55
The Advisory Agreement provides that the Adviser 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 Advisory Agreement, except a loss
resulting from a breach of fiduciary duty with respect to the receipt of
compensation for services or a loss resulting from willful misfeasance, bad
faith, or gross negligence on the part of the Adviser in the performance of its
duties, or from reckless disregard by it of its duties and obligations
thereunder.
GLASS-STEAGALL ACT
In 1971 the United States Supreme Court held in Investment Company
Institute v. Camp that the Federal statute commonly referred to as the
Glass-Steagall Act prohibits a national bank from operating a fund for the
collective investment of managing agency accounts. Subsequently, the Board of
Governors of the Federal Reserve System (the "Board") issued a regulation and
interpretation to the effect that the Glass-Steagall Act and such decision: (a)
forbid a bank holding company registered under the Federal Bank Holding Company
Act of 1956 (the "Holding Company Act") or any non-bank affiliate thereof from
sponsoring, organizing, or controlling a registered, open-end investment
company continuously engaged in the issuance of its shares, but (b) do not
prohibit such a holding company or affiliate from acting as investment adviser,
transfer agent, and custodian to such an investment company. In 1981, the
United States Supreme Court held in Board of Governors of the Federal Reserve
System v. Investment Company Institute that the Board did not exceed its
authority under the Holding Company Act when it adopted its regulation and
interpretation authorizing bank holding companies and their non-bank affiliates
to act as investment advisers to registered closed-end investment companies. In
the Board of Governors case, the Supreme Court also stated that if a national
bank complied with the restrictions imposed by the Board in its regulation and
interpretation authorizing bank holding companies and their non-bank affiliates
to act as investment advisers to investment companies, a national bank
performing investment advisory services for an investment company would not
violate the Glass-Steagall Act.
In the Advisory Agreement with the Trust, the Adviser has represented to
the Trust that it possesses the legal authority to perform the investment
advisory services contemplated by the agreement and described in the Prospectus
and this Statement of Additional Information without violation of applicable
statutes and regulations. Future changes in either Federal or state statutes
and regulations relating to the permissible activities of banks or bank holding
companies and the subsidiaries or affiliates of those entities, as well as
further judicial or administrative decisions or interpretations of present and
future statutes and regulations, could prevent or restrict the Adviser from
continuing to perform such services for the Trust. Depending upon the nature of
any changes in the services which could be provided by the Adviser, the Board
of Trustees of the Trust would review the Trust's relationship with the Adviser
and consider taking all action necessary in the circumstances.
Should future legislative, judicial, or administrative action prohibit or
restrict the proposed activities of BANC ONE CORPORATION subsidiary banks or
their correspondent banks in connection with customer purchases of Shares of
the Trust, these banks might be required to alter materially or discontinue the
services offered by them to Customers. It is not anticipated, however, that any
change in the Trust's method of operations would affect its net asset value per
Share or result in financial losses to any customer.
PORTFOLIO TRANSACTIONS
Pursuant to the Advisory Agreement the Adviser determines, subject to the
general supervision of the Board of Trustees of the Trust and in accordance
with each Fund's investment objective and restrictions, which securities are to
be purchased and sold by each such Fund and which brokers are to be eligible to
execute its portfolio transactions. Purchases and sales of portfolio securities
with respect to the Government Bond Fund and, (to a varying degree) the Asset
Allocation Fund usually are principal transactions in which portfolio
securities are purchased directly from the issuer or from an underwriter or
market maker for the securities. Purchases from underwriters of portfolio
securities include a commission or concession paid by the issuer to the
underwriter and purchases from dealers serving as market makers may include the
spread between the bid and asked price. Transactions on stock exchanges (other
than certain foreign stock exchanges) involve the payment of negotiated
brokerage commissions. Transactions in the over-the-counter market are
generally principal transactions with dealers. With respect to the
over-the-counter market, the Trust, where possible, will deal directly with the
dealers who make a market in the securities involved except in those
circumstances where better price and execution are available elsewhere. While
the Adviser generally seeks competitive spreads or commissions, the Trust may
not necessarily pay the lowest spread or commission available on each
transaction, for reasons discussed below.
Allocation of transactions, including their frequency, to various dealers
is determined by the Adviser with respect to the Funds 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,
Page 55 of 91
<PAGE> 56
dealers who provide supplemental investment research to the Adviser of the
Trust may receive orders for transactions by the Trust. Information so received
is in addition to and not in lieu of services required to be performed by the
Adviser and does not reduce the advisory fees payable to the Adviser. Such
information may be useful to the Adviser 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 the Adviser in carrying out its
obligations to the Trust.
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 Adviser or its affiliates
except as may be permitted under the Investment Company Act of 1940, and will
not give preference to correspondents of BANC ONE CORPORATION subsidiary banks
with respect to such transactions, securities, savings deposits, repurchase
agreements, and reverse repurchase agreements.
Investment decisions for each Fund of the Trust are made independently
from those for the other Funds or any other investment company or account
managed by the Trust's Adviser. 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 the Adviser 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,
the Trust's Adviser 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 Agreement, in making investment
recommendations for the Trust, the Trust's Adviser will not inquire or take
into consideration whether an issuer of securities proposed for purchase or
sale by the Trust is a customer of the Adviser or its parent or subsidiaries or
affiliates and, in dealing with its commercial customers, the Adviser and its
parent, subsidiaries, and affiliates will not inquire or take into
consideration whether securities of such customers are held by the Trust.
ADMINISTRATOR
Nationwide Financial Services, Inc. ("NFS") serves as Administrator (the
"Administrator") to each Fund of the Trust pursuant to an administration
agreement with the Trust (the "Administration Agreement"). The Administrator
assists in supervising all operations of each Fund to which it serves (other
than those performed under the Investment Advisory Agreement, and Custodian and
Transfer Agency Agreements for that Fund). The Administrator is a broker-dealer
registered with the Securities and Exchange Commission, and is a member of the
National Association of Securities Dealers, Inc.
Under the Administration Agreement, the Administrator has agreed to price
the portfolio securities of each Fund it serves and to compute the net asset
value and net income of such Funds on a daily basis, to maintain office
facilities for the Trust, to maintain each such Fund's financial accounts and
records, and to furnish the Trust with data processing, clerical, accounting,
and bookkeeping services, and certain other services required by the Trust with
respect to each such Fund. The Administrator prepares annual and semi-annual
reports to the Securities and Exchange Commission, 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.
Unless sooner terminated, the Administration Agreement between the Trust
and NFS will continue in effect through August 31, 1997. The Administration
Agreement thereafter shall be renewed automatically for successive two 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 Investment Company Act of 1940) of any party to the
Administration Agreement, by vote cast in person at a meeting called for the
purpose of reviewing and ratifying the Administration Agreement. The
Administration Agreement is terminable with respect the Trust only upon mutual
agreement of the parties to the Administration Agreement and for cause (as
defined in the Administration Agreement) by the party alleging cause, on not
less than sixty days' notice by the Trust's Board of Trustees or by NFS.
The Administrator is entitled to a fee for these services, which is
calculated daily and paid monthly, at the following annualized percentages of
average net
Page 56 of 91
<PAGE> 57
assets: .24% of the Trust's average net assets that are less than
$250 million, 0.19% of the Trust's average net assets that are greater than
$250 million but less than $500 million, 0.16% of the Trust's average net
assets that are greater than $500 million but less than $1 billion, and 0.14%
of the Trust's average net assets that are greater than $1 billion.
During the periods ended December 31, 1995 and 1994, the Administrator
received fees in the following amounts: Government Bond Fund $16,073 and $4,476
respectively, Asset Allocation Fund $7,183 and $1,179, respectively, Growth
Opportunities Fund $7,356 and $423, respectively and Large Company Growth Fund
$20,501 and $3,191, respectively. The Administrator waived fees in the amount
of $1,184 and $335 for the Asset Allocation Fund for the periods ended December
31, 1995 and 1994, respectively.
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 gross
negligence in the performance of its duties, or from the reckless disregard by
it of its obligations and duties thereunder.
EXPENSES
If total expenses borne by any one of the Funds in any fiscal year exceed
expense limitations imposed by applicable state securities regulations, the
Adviser and the Administrator will reimburse that Fund by the amount of such
excess in proportion to their respective fees. As of the date of this
Prospectus, under the most restrictive state expense limitation applicable to
the Trust, the annual expenses of the Trust may not exceed the total of two and
one-half percent (2.5%) of the first thirty million dollars ($30,000,000) of
the Trust's average net assets, plus two percent (2.0%) of the next seventy
million dollars ($70,000,000) of the Trust's average net assets, plus one and
one-half percent (1.5%) of the remaining amount of the Trust's average net
assets. Any expense reimbursements will be estimated daily and reconciled and
paid on a monthly basis. Fees and charges associated with The One(R) Investors
AnnuitySM or any other separate accounts are not included within Fund expenses
for purposes of any such expense limitation.
CUSTODIAN AND TRANSFER AGENT
Cash and securities owned by the Funds of the Trust are held by State
Street Bank and Trust Company ("State Street") pursuant to a Custodian
Agreement with the Trust (the "Custodian Agreement"). Under the Custodian
Agreement, State Street (i) maintains a separate account or accounts in the
name of each Fund; (ii) makes receipts and disbursements of money on behalf of
each Fund; (iii) collects and receives all income and other payments and
distributions on account of the Funds' portfolio securities; (iv) responds to
correspondence from security brokers and others relating to its duties; and (v)
makes periodic reports to the Trust's Board of Trustees concerning the Trust's
operations. State Street may, at its own expense, open and maintain a
sub-custody account or accounts on behalf of the Trust, provided that State
Street shall remain liable for the performance of all of its duties under the
Custodian Agreements.
Rules adopted under the Investment Company Act of 1940 permit the
Trust to maintain its securities and cash in the custody of certain
eligible banks and securities depositories.
Nationwide Investors Services, Inc. ("NIS"), One Nationwide Plaza,
Columbus, Ohio, 43216, a subsidiary of NFS, the Administrator of the Trust,
serves as Transfer Agent and Dividend Disbursing Agent for each Fund pursuant
to Transfer Agency Agreement with the Trust (the "Transfer Agency Agreement").
Under the Transfer Agency Agreement, NIS has agreed (i) to issue and redeem
Shares of the Trust; (ii) to address and mail all communications by the Trust
to its Shareholders, including reports to Shareholders, dividend and
distribution notices, and proxy material for its meetings of Shareholders;
(iii) to respond to correspondence or inquiries by Shareholders and others
relating to its duties; (iv) to maintain Shareholder accounts and certain
sub-accounts; and (v) to make periodic reports to the Trust's Board of Trustees
concerning the Trust's operations.
INDEPENDENT ACCOUNTANTS
Price Waterhouse LLP, 41 South High Street, Columbus, Ohio 43215, serves
as the independent accountants of the Trust.
LEGAL COUNSEL
The law firm of Ropes & Gray, One Franklin Square, 1301 K Street,
N.W., Suite 800 East, Washington, D.C. 20005-3333 are counsel to the Trust.
From time to time, Ropes & Gray have rendered legal services to affiliates of
the Adviser.
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<PAGE> 58
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 June 7, 1993 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 four series of Shares which represent interests in the
Government Bond Fund, Asset Allocation Fund, Growth Opportunities Fund, and
Large Company Growth Fund.
Shares have no subscription or preemptive rights and only such conversion
or exchange rights as the Board may grant in its discretion. When issued for
payment as described in the Prospectus and this Statement of Additional
Information, the Trust's Shares will be fully paid and non-assessable. In the
event of a liquidation or dissolution of the Trust, Shares of a Fund are
entitled to receive the assets available for distribution belonging to the
Fund, and a proportionate distribution, based upon the relative asset values of
the respective Funds, of any general assets not belonging to any particular
Fund which are available for distribution.
Rule 18f-2 under the Investment Company Act of 1940 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.
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.
SHAREHOLDERS
As set forth under "INVESTMENT IN FUND SHARES" in the Prospectus, all
Shares of the Funds will be purchased by the Nationwide VA Separate Account-C,
(formerly Financial Horizons VA Separate Account-3) a separate account of
Nationwide Life and Annuity Insurance Company, (formerly Financial Horizons
Life Insurance Company) to fund the obligations of The One(R) Investors
AnnuitySM and other insurance company separate accounts to fund variable
annuity and variable life contracts and qualified pension and retirement plans.
For information concerning the purchase and redemption of Shares by The One(R)
Investors AnnuitySM contract owners, refer to the prospectus of The One(R)
Investors AnnuitySM.
CALCULATION OF PERFORMANCE DATA
As described under "PERFORMANCE" in the Trust's Prospectus, the Funds may
quote their performance in various ways. All performance information supplied
by the Funds in advertising is historical and is not intended to indicate
future
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<PAGE> 59
returns. The Funds' share prices, yields and total returns fluctuate in
response to market conditions and other factors, and the value of Fund shares
when redeemed may be more or less than their original cost.
From time to time, the Adviser and/or Administrator may voluntarily waive
all or a portion of its respective fee and absorb certain expenses for the
Funds. Performance information contained in advertisements include the effect
of deducting a Fund's expenses, but may not include charges and expenses
attributable to The One(R) Investors AnnuitySM. Since the Funds' shares may
only be purchased by Nationwide Life and Annuity Insurance Company, to fund the
obligations under The One(R) Investors AnnuitySM and other insurance company
separate accounts to fund variable annuity and variable life contracts and
qualified pension and retirement plans, annuity contract owners should
carefully review The One(R) Investors AnnuitySM prospectus for information on
the annuity contract's fees and expenses. Excluding such fees and expenses from
the Funds' performance quotations has the effect of increasing the performance
quoted.
A Fund's respective total return and average annual total return is
determined by calculating the change in the value of a hypothetical $1,000
investment in a Fund for each of the periods shown. Total return for a Fund is
computed by determining the average annual compounded rate of return over the
applicable period that would equate the initial amount invested to the ending
redeemable value of the investment. The ending redeemable value includes
dividends and capital gain distributions reinvested at net asset value. The
resulting percentages indicated the positive or negative investment results
that an investor would have experienced from changes in net asset value and
reinvestment of dividends and distributions.
Performance will fluctuate from time to time and is not necessarily
representative of future results. Accordingly, a Fund's performance may not
provide for comparison with bank deposits or other investments that pay a fixed
return for a stated period of time. Performance is a function of a Fund's
quality, composition, and maturity, as well as expenses allocated to the Fund.
The average annual total return for the one year ended December 31, 1995
and the period from August 1, 1994 (date of initial public offering) through
December 31, 1995 was as follows:
<TABLE>
<CAPTION>
One Year Since Inception
------- ---------------
<S> <C> <C>
Government Bond Fund 16.69% 10.78%
Asset Allocation Fund 20.69% 13.09%
Growth Opportunities Fund 24.06% 13.92%
Large Company Growth Fund 24.13% 16.87%
</TABLE>
Statistical and performance information compiled and maintained by CDA
Technologies, Inc. and Interactive Data Corporation may also be used. CDA is a
performance evaluation service that maintains a statistical data base of
performance, as reported by a diverse universe of independently-managed mutual
funds. Interactive Data Corporation is a statistical access service that
maintains a data base of various industry indicators, such as historical and
current price/earning information and individual stock and fixed income price
and return information.
Current interest rate and yield information on government debt
obligations of various durations, as reported weekly by the Federal Reserve
(Bulletin H. 15), may also be used. Also current rate information on municipal
debt obligations of various durations, as reported daily by the Bond Buyer, may
also be used. The Bond Buyer is published daily and is an industry-accepted
source for current municipal bond market information.
Comparative information on the Consumer Price Index may also be included.
This Index, as prepared by the U.S. Bureau of Labor Statistics, is the most
commonly used measure of inflation. It indicates the cost fluctuations of a
representative group of consumer goods. It does not represent a return on
investment. From time to time, all of the Funds may quote actual total return
performance 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 Funds may also promote the yield and/or total return performance and
use comparative performance information computed by and available from certain
industry and general market research and publications, such as Lipper
Analytical Services, Inc.
In addition, statistical and performance information compiled and
maintained by CDA Technologies, Inc. and Interactive Data Corporation.
Page 59 of 91
<PAGE> 60
The Government Bond Fund and the Asset Allocation Fund may quote actual
yield and/or total return performance in advertising and other types of
literature compared to indices or averages of alternative financial products
available to prospective investors. The performance comparisons may include the
average return of various bank instruments, some of which may carry certain
return guarantees offered by leading banks and thrifts as monitored by Bank
Rate Monitor, and those of corporate bond and government security price indices
of various durations. Comparative information on the Consumer Price Index may
also be included.
The Government Bond Fund and the Asset Allocation Fund may also use
comparative performance information computed by and available from certain
industry and general market research and publications, as well as statistical
and performance information, compiled and maintained by CDA Technologies, Inc.
and Interactive Data Corporation.
The Government Bond Fund and the Asset Allocation Fund may also use
current interest rate and yield information on government debt obligations
of various durations, as reported weekly by the Federal Reserve (Bulletin H.
15). In addition, current rate information on municipal debt obligations of
various durations, as reported daily by the Bond Buyer, may also be used.
MISCELLANEOUS
The Trust is not required to hold a meeting of Shareholders for the
purpose of electing Trustees except that (i) the Trust is required to hold a
Shareholders' meeting for the election of Trustees at such time as less than a
majority of the Trustees holding office have been elected by Shareholders and
(ii) if, as a result of a vacancy on the Board of Trustees, less than
two-thirds of the Trustees holding office have been elected by the
Shareholders, that vacancy may only be filled by a vote of the Shareholders. In
addition, Trustees may be removed from office by a written consent signed by
the holders of Shares representing two-thirds of the outstanding Shares of the
Trust at a meeting duly called for the purpose, which meeting shall be held
upon the written request of the holders of Shares representing not less than
20% of the outstanding Shares of the Trust. Except as set forth above, the
Trustees may continue to hold office and may appoint successor Trustees.
As used in the Trust's Prospectus and in this Statement of Additional
Information, "assets belonging to a Fund" means the consideration received by
the Trust upon the issuance or sale of Shares in that Fund, together with all
income, earnings, profits, and proceeds derived from the investment thereof,
including any proceeds from the sale, exchange, or liquidation of such
investments, and any funds or payments derived from any reinvestment of such
proceeds, and any general assets of the Trust not readily identified as
belonging to a particular Fund that are allocated to that Fund by the Trust's
Board of Trustees. The Board of Trustees may allocate such general assets in
any manner it deems fair and equitable. It is anticipated that the factor that
will be used by the Board of Trustees in making allocations of general assets
to particular Funds will be the relative net asset values of the respective
Funds at the time of allocation. Each Fund's direct liabilities and expenses
will be charged to the assets belonging to that Fund. Each Fund will also be
charged in proportion to its relative net asset value for the general
liabilities and expenses of the Trust. The timing of allocations of general
assets and general liabilities and expenses of the Trust to particular Funds
will be determined by the Board of Trustees of the Trust and will be in
accordance with generally accepted accounting principles. Determinations by the
Board of Trustees of the Trust as to the timing of the allocation of general
liabilities and expenses and as to the timing and allocable portion of any
general assets with respect to a particular Fund are conclusive.
As used in the Trust's Prospectuses and in this Statement of Additional
Information, a "vote of a majority of the outstanding Shares" of the Trust, a
particular Fund, or a particular class of Shares of a Fund, means the
affirmative vote of the lesser of (a) more than 50% of the outstanding Shares
of the Trust, such Fund, or such class of Shares of such Fund, or (b) 67% or
more of the Shares of the Trust, such Fund, or such class of Shares of such
Fund present at a meeting at which the holders of more than 50% of the
outstanding Shares of the Trust, such Fund, or such class of Shares of such
Fund are represented in person or by proxy.
The Trust is registered with the Securities and Exchange Commission as a
management investment company. Such registration does not involve supervision
by the Commission of the management or policies of the Trust.
The Prospectus and this Statement of Additional Information omit certain
of the information contained in the Registration Statement filed with the
Securities and Exchange Commission. Copies of such information may be obtained
from the Commission upon payment of the prescribed fee.
The Prospectus and this Statement of Additional Information are not an
offering of the securities herein described in any state in which such
offering may not lawfully be made. No salesman, dealer, or other person is
authorized to give any information or make any representation other than those
contained in the Prospectus and Statement of Additional Information.
Page 60 of 91
<PAGE> 61
FINANCIAL STATEMENTS
The following financial statements of the Funds are included in Part B:
I. Audited Financial Statements as of December 31, 1995
(a) Report of Independent Accountants
(b) Statements of Investments
(c) Statements of Assets and Liabilities
(d) Statements of Operations
(e) Statements of Changes in Net Assets
(f) Notes to Financial Statements
(g) Financial Highlights
Page 61 of 91
<PAGE> 62
[Price Waterhouse LLP Letterhead]
REPORT OF INDEPENDENT ACCOUNTANTS
February 23, 1996
To the Trustees and Shareholders of
The One(R) GroupSM Investment Trust
In our opinion, the accompanying statements of assets and liabilities,
including the statements of investments, and the related statements of
operations and of changes in net assets and the financial highlights present
fairly, in all material respects, the financial position of The Government Bond
Fund, the Asset Allocation Fund, the Small Company Growth Fund, and the Large
Company Growth Fund (constituting The One(R) GroupSM Investment Trust,
hereafter referred to as the "Trust") at December 31, 1995, the results of each
of their operations for the year then ended, the changes in each of their net
assets and the financial highlights for each of the periods presented, in
conformity with generally accepted accounting principles. These financial
statements and financial highlights (hereafter referred to as "financial
statements") are the responsibility of the Trust's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these financial statements in accordance
with generally accepted auditing standards which require that we plan and
perform the audit to obtain resonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement
presentaiton. We believe that our audits, which included confirmation of
securities at December 31, 1995 by correspondence with the custodian and
brokers, provide a reasonable basis for the opinion expressed above.
/s/ Price Waterhouse LLP
<PAGE> 63
GOVERNMENT BOND FUND
Statement of Investments - December 31, 1995
<TABLE>
<CAPTION>
U.S. GOVERNMENT AND AGENCY OBLIGATIONS (33.7%)
- ------------------------------------------------------------------------------------
PRINCIPAL VALUE (NOTE 1)
- ------------------------------------------------------------------------------------
<S> <C>
$500,000 Federal Farm Credit Bank Bond, 8.65%, 1999 $553,323
1,000,000 U.S. Treasury Bond, 6.25%, 2023 1,027,812
600,000 U.S. Treasury Note, 7.50%, 2001 661,312
750,000 U.S. Treasury Note, 6.50%, 2005 798,983
----------
Total U.S. Government and Agency Obligations 3,041,430
(cost $2,900,460) ----------
MORTGAGE BACKED SECURITIES (62.8%)
976,775 FHLMC GOLD 30Y, 8.00%, 2024 1,011,877
999,215 FHLMC GOLD 30Y, 6.50%, 2025 988,285
433,080 FHLMC GOLD 15Y, 8.50%, 1999 451,022
922,878 FNMA 15Y, 7.50%, 2009 948,834
488,461 FNMA 30Y, 6.50%, 2025 482,653
725,927 GNSF 30Y, 7.50%, 2023 746,344
128,501 GNSF 30Y, 7.00%, 2025 129,987
891,499 GNSF 30Y, 7.00%, 2025 901,807
----------
Total Mortgage Backed Securities (cost $5,511,763) 5,660,809
----------
REPURCHASE AGREEMENT (2.3%)
204,000 Lehman Government Securities Inc.,
5.96%, due 01/02/96, Collateralized by
$215,000 FMDN, due 03/18/96 - Market Value $ 212,377
(cost $204,000) 204,000
----------
Total Investments (cost $8,616,223) 8,906,239
Other Assets Less Liabilities (1.2%) 109,857
----------
Net Assets $9,016,096
==========
</TABLE>
Cost also represents cost for Federal income tax purposes.
The abbreviations in the above statement stand for the following:
FHLMC Federal Home Loan Mortgage Corporation
FNMA Federal National Mortgage Association
GNSF Ginnie Mae Single Family
FMDN Fannie Mae Discount Note
Portfolio holding percentages represent market value as a percentage of net
assets. See accompanying notes to financial statements.
5
<PAGE> 64
<TABLE>
<CAPTION>
ASSET ALLOCATION FUND
Statement of Investments - December 31,1995
- ------------------------------------------------------------- ------------------------------------------------------
VALUE VALUE
SHARES (NOTE 1) PRINCIPAL (NOTE 1)
- ------------------------------------------------------------- -------------------------------------------------------
<S> <C> <C> <C> <C> <C>
COMMON STOCKS (44.6%)
AEROSPACE/DEFENSE (1.7%) 400 UST Inc. $ 13,350
---------
300 Boeing Company (The) $23,513 91,913
----------
400 Lockheed Martin Corp. 31,600 CONSUMER GOODS MFG. (0.3%)
400 Raytheon Company 18,900 700 Newell Co. 18,112
---------
200 United Technologies Corp. 18,975
-------
92,988 DRUGS (1.7%)
-------
300 American Home Products Corp. 29,100
AUTO & AUTO PARTS (0.9%) 400 Baxter International Inc. 16,750
100 Dana Corporation 2,925 400 Bristol Meyers Squibb Co. 34,350
600 Ford Motor Co. 17,400 200 Schering-Plough Corp. 10,950
---------
400 General Motors Corp. 21,150 91,150
---------
200 Goodyear Tire & Rubber Co. 9,075 ELECTRONICS (0.8%)
-------
50,550 700 Intel Corp. 39,725
-------
BANKS (2.1%) 100 Johnson Controls Inc. 6,875
---------
500 BankAmerica Corp. 32,375 46,600
---------
300 Citicorp 20,175 ENERGY (0.6%)
300 Comerica Inc. 12,038 400 Chevron Corp. 21,000
300 Nationsbank Corp. 20,887 100 Enron Corp. 3,813
300 U.S. Bancorp 10,088 100 Schlumberger Ltd. 6,925
---------
100 Wells Fargo & Co. 21,600 31,738
------- ---------
117,163 FINANCIAL (3.0%)
-------
BUSINESS SERVICES (0.3%) 500 Allstate Corp. 20,562
400 Olsten Corp. (The) 15,800 700 American Express Co. 28,963
-------
400 American International Group Inc. 37,000
CHEMICALS (0.8%) 100 Federal Home Loan Mortgage Corp. 8,350
300 Dow Chemical Co. 21,113 300 Federal National Mortgage Assn. 37,238
300 Du Pont (E.I.) DeNemours & Co. 20,962 400 First Chicago NBD Corp. 15,800
-------
42,075 500 KeyCorp 18,125
------- ---------
COMPUTER EQUIPMENT (1.3%) 166,038
---------
400 Apple Computer Inc. 12,750 FOOD & BEVERAGE (2.7%)
500 Compaq Computer Corp.* 24,000 100 Anheuser-Busch Companies, Inc. 6,687
400 Hewlett-Packard Co. 33,500 500 Coca Cola Co. 37,125
-------
70,250 600 PepsiCo, Inc. 33,525
-------
CONSUMER CYCLICALS (0.8%) 800 Philip Morris Companies, Inc. 72,400
---------
300 Disney, (Walt) Co. 17,700 149,737
---------
400 Service Corp. International 17,600 HEALTHCARE (2.7%)
200 VF Corp. 10,550 400 Abbott Laboratories 16,700
-------
45,850 400 Johnson & Johnson 34,250
--------
CONSUMER NON-DURABLE (1.7%) 400 Medtronic Inc. 22,350
300 American Stores Co. 8,025 600 Merck & Co. Inc. 39,450
300 Hasbro Inc. 9,300 100 Pacificare Health System Inc., Class 8,700
200 Kimberly Clark Corp. 16,550 400 Pfizer Inc. 25,200
---------
400 Nike Inc., Class B 27,850 146,650
---------
300 RJR Nabisco Holdings Corp. 9,263
300 Smith's Food & Drug Centers Inc., Class 7,575
</TABLE>
<PAGE> 65
<TABLE>
<CAPTION>
ASSET ALLOCATION FUND
Statement of Investments - December 31,1995
- ------------------------------------------------------------- ------------------------------------------------------
VALUE VALUE
SHARES (NOTE 1) PRINCIPAL (NOTE 1)
- ------------------------------------------------------------- -------------------------------------------------------
<S> <C> <C> <C> <C> <C>
HEALTHCARE SERVICES (0.8%) PAPER & FOREST PRODUCTS (0.6%)
600 Columbia/HCA Healthcare Corp. $30,450 200 Georgia Pacific Corp. $ 13,725
---------
450 Health Management Association Inc.,
Class A* 11,756 POLLUTION CONTROL (0.1%)
--------
42,206 300 WMX Technologies, Inc. 8,962
-------- ---------
HOUSEHOLD PRODUCTS (0.9%)
700 Maybelline, Inc. 25,375 OIL & GAS (3.1%)
300 Procter & Gamble Co. 24,900 300 Amoco Corp. 21,563
--------
50,275 100 Atlantic Richfield Co. 11,075
--------
INDUSTRIAL COMMODITY (1.8%) 700 Exxon Corporation 56,087
400 Ball Corporation 11,000 200 Mobil Corp. 22,400
200 Consolidated Papers Inc. 11,225 300 Royal Dutch Petroleum Co. 42,338
400 Corning Inc. 12,800 200 Texaco, Inc. 15,700
---------
600 Cyprus Amax Minerals Co. 15,675 169,163
---------
400 International Paper Co. 15,150 PRINTING & PUBLISHING (0.5%)
200 Mead Corporation 10,450 600 American Greetings Corp., Class A 16,575
200 PPG Industries Inc. 9,150 200 Tribune Co. 12,225
---------
20 Schweitzer-Mauduit International 463 28,800
---------
200 Willamette Industries Inc. 11,250 RESTAURANTS (1.2%)
--------
97,163 500 Bob Evans Farms Inc. 9,500
--------
INSURANCE (0.7%) 500 Lone Star Steakhouse & Saloon* 19,187
100 ITT Hartford Group* 4,838 600 McDonalds Corp. 27,075
100 MBIA Inc. 7,500 500 Wendy's International Inc. 10,625
---------
200 Providian Corp. 8,150 66,387
---------
300 St. Paul Companies, Inc. 16,687 RETAIL (1.2%)
--------
37,175 300 Dillard Department Stores Inc., 8,550
--------
MACHINERY & CAPITAL GOODS (3.0%) 200 Home Depot Inc. 9,575
200 Alco Standard Corp. 9,125 500 Intimate Brands Inc., Class A 7,500
200 AlliedSignal Inc. 9,500 500 Sears Roebuck & Co. 19,500
600 Browning Ferris Industries 17,700 1,000 Wal-Mart Stores Inc. 22,375
---------
1,000 General Electric Co. 72,000 67,500
---------
100 Grainger, W.W. Inc. 6,625 TECHNOLOGY (3.3%)
300 Harnischfeger Industries Inc. 9,975 200 3COM Corp. 9,325
100 ITT Corp.* 5,300 400 International Business Machines 36,700
100 ITT Industries, Inc.* 2,400 500 Microsoft Corp.* 43,875
400 Tenneco Inc. 19,850 500 Motorola Inc. 28,500
200 Tyco International Ltd. 7,125 500 Silicon Graphics Inc.* 13,750
400 Westinghouse Electric Corp. 6,600 800 Sun Microsystems Inc. 36,500
--------
166,200 200 Texas Instruments Inc. 10,350
-------- ---------
MEDICAL PRODUCTS (0.2%) 179,000
---------
500 Biomet Inc.* 8,937 TELECOMMUNICATIONS (3.5%)
--------
800 AT & T Corp. 51,800
NONFERROUS METALS (0.2%) 300 Ameritech Corp. 17,700
200 Alumax, Inc. 6,125 200 Bell Atlantic Corp. 13,375
100 Aluminum Co. of America 5,287 400 Bellsouth Corp. 17,400
--------
11,412
--------
</TABLE>
<PAGE> 66
<TABLE>
<CAPTION>
ASSET ALLOCATION FUND
Statement of Investments - December 31,1995, Continued
- ------------------------------------------------------------- -------------------------------------------------------
VALUE VALUE
SHARES (NOTE 1) PRINCIPAL (NOTE 1)
- ------------------------------------------------------------- -------------------------------------------------------
<S> <C> <C> <C> <C> <C>
TELECOMMUNICATIONS (CONTINUED) MORTGAGE BACKED SECURITIES (6.6%)
700 GTE Corp. $30,800 $200,000 Advanta Mortgage Loan Trust 94-3A2
100 Nynex Corp. 5,400 7.600%, due 07/25/10 $ 206,400
300 SBC Communications Inc. 17,250 149,667 FNMA Pool #270725
900 Sprint Corp. 35,887 7.00%, due 08/01/25 150,881
--------- ----------
189,612 Total Mortgage Backed Securities 357,281
--------- (cost $345,529) ----------
TRANSPORTATION (0.8%)
300 AMR Corp.* 22,275 REPURCHASE AGREEMENT (21.6%)
200 Federal Express Corp.* 14,775 1,180,000 Lehman Government Securities Inc.
100 Norfolk Southern Corp. 7,938 5.96% due 01/02/96, Collateralized by
--------- $240,000 FNMA Discount Note, due 03/18/96
44,988 $995,000 FNMA Discount Note, due 06/21/96
--------- - market value $1,206,799
UTILITIES (1.4%) (cost $1,180,000) 1,180,000
500 Central & Southwest Corp. 13,938 ----------
700 Consolidated Edison Co. of NY, Inc. 22,400 U.S. GOVERNMENT OBLIGATIONS (17.1%)
100 Duke Power Company 4,737 35,000 U.S. Treasury Bill, 4.86%, 34,620
200 Northern States Power Co. of 9,825 due 03/21/96**
600 Texas Utilities Co. 24,675 75,000 U.S. Treasury Bond, 7.825%, 92,320
--------- due 02/15/21
75,575 725,000 U.S. Treasury Note, 7.25%, 806,563
--------- due 05/15/04 ----------
Total Common Stocks 2,433,694 Total U.S. Government Obligations 933,503
--------- (cost $904,971) ----------
(cost $2,115,855)
PRINCIPAL Total investments 5,420,654
- --------- (cost $5,033,578)
CORPORATE BONDS (9.5%) Other Assets Less Liabilities (0.6%) 33,851
----------
BROKER-DEALERS (3.9%) Net Assets $5,454,505
Lehman Brothers Holdings Inc. ==========
$200,000 8.875%, due 11/01/98 214,661
--------- * Denotes a non-income producing security.
** Security is segregated as collateral on futures contract.
DIVERSIFIED FINANCE (1.9%)
Associates Corp. of North America Cost also represents cost for Federal income tax purposes.
100,000 6.125%, due 02/01/98 101,196 Portfolio holding percentages represents market value as
--------- a percentage of net users
See accompanying notes to financial statements.
TELECOMMUNICATIONS (3.7%)
Ohio Bell Telephone Co.
200,000 5.75%, due 05/01/00 200,319
---------
Total Corporate Bonds (cost $487,223) 516,176
---------
</TABLE>
<TABLE>
<CAPTION>
Statement of Market Value Covered Unrealized Appreciation
Financial Futures Number of Contracts by Contracts Expiration at 12/31/95
- ----------------- ------------------- ------------ ---------- -----------
<S> <C> <C> <C> <C>
Standard & Poor's 500 3 $927,675 March 1996 $3,945
</TABLE>
8
<PAGE> 67
<TABLE>
<CAPTION>
SMALL COMPANY GROWTH FUND
STATEMENT OF INVESTMENTS - DECEMBER 31, 1995
- ------------------------------------------------------------ ---------------------------------------------------------
VALUE VALUE
SHARES (NOTE 1) SHARES (NOTE 1)
- ------------------------------------------------------------ ---------------------------------------------------------
<S> <C> <C> <C> <C> <C>
COMMON STOCKS (85.5%)
ADVERTISING (0.6%) COMPUTER EQUIPMENT (0.5%)
1,000 Omnicom Group, Inc. $ 37,250 900 Amerisource Health Corp., Class $ 29,700
-------- --------
BANKS (2.0%) COMPUTER SOFTWARE & SERVICES (1.8%)
100 Baybanks Inc. 9,825 900 Adobe Systems, Inc. 55,800
500 Commercial Federal Corp. 18,875 300 BMC Software Inc. 12,825
100 First Commerce Corp. 3,200 300 Cognos Inc.* 13,388
600 Hibernia Corp. 6,450 800 Paychex Inc. 39,900
550 Integra Financial Corp. 34,650 --------
850 Standard Federal Bancorp 33,469 121,913
1,000 Washington Mutual Inc. 28,875 --------
--------
135,344 CONSUMER CAPITAL SPENDING (1.4%)
-------- 600 Exide Corp. 27,525
630 Harman International Industries 25,279
BEVERAGES - ALCOHOLIC (0.6%) 1,050 Oakwood Homes Corp. 40,294
400 Boston Beer Inc.* 9,500 --------
900 Canandaigua Wine Inc., Class A* 29,363 93,098
-------- --------
38,863
-------- CONSUMER CYCLICALS (0.3%)
500 Apple South Inc. 10,750
BIOTECHNOLOGY (0.6%) 250 Loewen Group Inc. 6,328
500 Biogen Inc.* 30,750 --------
100 Chiron Corp.* 11,050 17,078
-------- --------
41,800
-------- CONTAINERS (0.6%)
600 Federal Paper Board Inc. 31,125
BROADCASTING (0.5%) 400 Sonoco Products Co. 10,500
1,300 American Radio Systems Corp.* 36,400 --------
-------- 41,625
--------
BUILDING (0.6%)
700 Vulcan Materials Co. 40,338 DIVERSIFIED COMMERCIAL (3.0%)
-------- 2,150 Copart Inc.* 56,437
800 Flightsafety International 40,200
BUSINESS SERVICES (0.7%) 4,100 Identix Inc.* 43,562
800 Corestaff Inc.* 29,200 1,600 Manpower Inc. 45,000
500 Olsten Corp. (The) 19,750 300 Varian Association Inc. 14,325
-------- --------
48,950 199,524
-------- --------
CHEMICALS (3.3%)
2,000 Arcadian Corp. 38,750 DRUGS (0.5%)
1,400 Betz Laboratories Inc. 57,400 1,500 Mylan Labs Inc. 35,250
1,000 Cabot Corp. 53,875 --------
2,500 Ethyl Corp. 31,250
800 IMC Global Inc. 32,700 ELECTRICAL EQUIPMENT (0.2%)
100 Vigoro Corp. 6,175 1,100 Cree Research Inc.* 16,225
-------- --------
220,150
-------- ELECTRONICS (2.7%)
1,800 Applied Innovations Inc.* 21,150
900 Applied Materials Inc.* 35,437
1,400 Argyle Television Inc.* 24,500
400 California Amplifier Inc.* 11,300
</TABLE>
9
<PAGE> 68
<TABLE>
<CAPTION>
SMALL COMPANY GROWTH FUND
STATEMENT OF INVESTMENTS - DECEMBER 31, 1995, CONTINUED
- ----------------------------------------------------------- -----------------------------------------------------------
VALUE VALUE
SHARES (NOTE 1) SHARES (NOTE 1)
- ----------------------------------------------------------- -----------------------------------------------------------
<S> <C> <C> <C> <C> <C>
ELECTRONICS (CONTINUED) 500 Occusystems Inc.* $10,000
500 Credence Systems Corp.* $11,437 50 Teva Pharmaceutical Industries 2,319
900 Garden Ridge Corp.* 34,875 1,050 Venritex Inc.* 18,244
700 Hadco Corp.* 19,687 -------
800 Vishay Intertechnology Inc. 25,200 427,649
------- -------
183,586
------- HEALTHCARE SERVICES (2.4%)
1,100 AHI Healthcare Systems Inc.* 6,325
ENERGY (1.1%) 400 Gulf South Medical Supply Inc.* 12,100
1,300 Apache Corp. 38,350 1,500 HealthSouth Corp.* 43,688
1,200 Noble Affiliates Inc. 35,850 300 Living Centers of America Inc.* 10,500
------- 300 Multicare Companies Inc.* 7,200
74,200 500 Physicians Reliance Network Inc.* 19,875
------- 500 Physicians Sales & Services Inc. 14,250
1,650 Physicians Resource Group Inc.* 32,794
FINANCIAL (7.6%) 300 Regency Health Services 3,037
700 Aames Financial Corp. 19,512 500 Rotech Med. Corp.* 13,750
1,000 Advanta Corp. 36,375 -------
100 Allied Group Inc. 3,600 163,519
1,200 California Federal Bank 18,900 -------
1,200 Donaldson Lufkin & Jenrette Inc. 37,500
3,200 Equifax Inc. 68,400 HOSPITAL MANAGEMENT (0.7%)
2,100 First Investors Financial Services 17,062 1,200 Medaphis Corp.* 44,400
300 Franklin Res. Inc. 15,112 -------
1,200 Glendale Federal Bank, FSB* 21,000
700 Great Western Financial Corp. 17,850 HOTELS - MOTELS (2.6%)
900 Green Tree Financial Corp. 23,737 1,300 Circus Circus Enterprises 36,237
1,000 Imperial Credit Industries Inc.* 21,750 1,500 Mirage Resorts, Inc.* 51,750
900 MGIC Investment Corp. 48,825 1,800 Red Lion Hotels Inc.* 31,500
1,400 Mid Ocean Ltd. 51,975 1,100 Studio Plus Hotels Inc.* 28,325
500 Mutual Risk Managment Ltd. 22,875 2,400 Sunstone Hotel Invs. Inc. 24,600
1,800 Olympic Financial Ltd. 29,250 -------
500 Protective Life Corp. 15,625 172,412
900 Schwab, (Charles) Corp. 18,112 -------
800 WFS Financial Inc.* 15,600
------- HOUSEHOLD FURNISHINGS & APPLIANCES (0.7%)
503,060 3,100 Shaw Industries Inc. 45,725
------- -------
HEALTHCARE (6.4%) INDUSTRIAL COMMODITIES (1.3%)
1,500 Cardinal Health Inc. 82,125 2,800 BMC Industries Inc. 65,100
500 Cerner Corp.* 10,250 700 Sealed Air Corp. 19,688
600 Elan Plc* 29,175 -------
400 Forest Labs Inc. Class A* 18,100 84,788
1,510 Genzyme Corp* 94,186 -------
1,350 Healthcare Compare Corp.* 58,725
1,200 Healthsource Inc.* 43,200 INSURANCE (1.1%)
1,300 Horizon/CMS Healthcare Corp.* 32,825 1,200 AFLAC Inc. 52,050
1,000 Ivax Corp. 28,500 400 Progressive Corp. 19,550
-------
71,600
-------
LEISURE / ENTERTAINMENT (0.8%)
900 Electronic Arts Inc.* 23,512
2,900 International Game Tech. 31,537
-------
55,049
-------
</TABLE>
10
<PAGE> 69
<TABLE>
<CAPTION>
SMALL COMPANY GROWTH FUND
STATEMENT OF INVESTMENTS - DECEMBER 31, 1995, CONTINUED
- ----------------------------------------------------------- -----------------------------------------------------------
VALUE VALUE
SHARES (NOTE 1) SHARES (NOTE 1)
- ----------------------------------------------------------- -----------------------------------------------------------
<S> <C> <C> <C> <C> <C>
MACHINERY AND CAPITAL GOODS (4.8%) OFFICE EQUIPMENT AND SUPPLIES (0.9%)
550 California Energy Company Inc.* $10,725 1,300 Cort Business Services $21,450
1,200 Harnischfeger Industries Inc. 39,900 700 Diebold Inc. 38,763
1,600 Mark IV Industries Inc. 31,600 -------
50 Mastec Inc.* 663 60,213
1,600 Trinity Industries Inc. 50,400 -------
3,000 Titan Wheel International Inc. 48,750
1,800 United Waste Systems Inc.* 67,050 OFFICE / PLANT AUTOMATION (1.5%)
1,000 York International Corp. 47,000 1,500 Bay Networks Inc.* 61,688
800 Zebra Technologies Corp. 27,200 1,400 Verifone Inc.* 40,075
------- -------
323,288 101,763
------- -------
MANUFACTURING - DIVERSIFIED (1.2%) OIL & GAS (4.3%)
600 Danaher Corp. 19,050 1,400 Anadarko Petroleum Corp. 75,775
1,200 Thermo Electron Corp. 62,400 500 Barrett Res. Corp.* 14,688
------- 500 Benton Oil & Gas Co.* 7,500
81,450 200 Cross Timbers Oil Co. 3,525
------- 500 Enron Oil & Gas Co. 12,000
1,000 Enserch Corp. 16,250
MANUFACTURED HOUSING (0.6%) 1,500 Lyondell Petrochemical Co. 34,312
1,975 Clayton Homes Inc. 42,216 500 MCN Corp. 11,625
------- 400 Mapco Inc. 21,850
800 Pogo Producing Co. 22,600
MEDICAL PRODUCTS (1.6%) 700 Sonat Inc. 24,937
400 Cordis Corp.* 40,200 700 Sonat Offshore Drilling Inc. 31,325
1,000 McKesson Corp. 50,625 500 Southwest Gas Corp. 8,813
600 Vivus Inc.* 18,750 -------
------- 285,200
109,575 -------
-------
OTHER CONSUMER SERVICES (0.2%)
METALS/MINING (0.5%) 1,000 Barefoot Inc. 10,500
500 Potash Corp Sask Inc. 35,438 -------
-------
PAPER AND FOREST PRODUCTS (0.3%)
MISCELLANEOUS (1.0%) 1,300 Abitibi Price Inc. 18,850
1,100 Enron Global Power & Pipelines 27,363 100 Bowater Inc. 3,550
700 G & K Services Inc. 17,850 -------
300 Gadzooks Inc.* 7,575 22,400
300 Teltrend Inc. * 14,025 -------
-------
66,813 PUBLISHING - NEWSPAPERS (0.4%)
------- 700 Belo AH Corp., Series A 24,325
-------
MOTOR VEHICLES (0.9%)
2,000 Harley Davidson Inc. 57,500 RESTAURANTS (0.7%)
------- 1,150 Lone Star Steakhouse & 44,131
-------
NATURAL GAS (0.5%)
200 Questar Corp. 6,700 RETAIL (3.5%)
1,200 Seagull Energy Corp.* 26,700 1,300 Dollar General Corp. 26,975
------- 1,000 Kohls Corp.* 52,500
33,400 1,050 Nautica Enterprises Inc.* 45,937
-------
</TABLE>
11
<PAGE> 70
<TABLE>
<CAPTION>
SMALL COMPANY GROWTH FUND
STATEMENT OF INVESTMENTS - DECEMBER 31, 1995, CONTINUED
- ----------------------------------------------------------- -----------------------------------------------------------
VALUE VALUE
SHARES (NOTE 1) SHARES (NOTE 1)
- ----------------------------------------------------------- -----------------------------------------------------------
<S> <C> <C> <C> <C> <C>
RETAIL (CONTINUED) 1,000 Sterling Software Inc.* $62,375
50 Officemax Inc. $1,119 500 Tektronix Inc. 24,562
2,300 Sunglass Hut International Inc. 54,625 1,800 Teradyne Inc. 45,000
1,300 Tommy Hilfiger Corp.* 55,088 200 U. S. Robotics Corp. 17,550
------- 1,200 Ultratech Stepper Inc. 30,900
236,244 ---------
------- 450,887
---------
RETAIL - SPECIALTY (1.3%)
600 Best Buy Inc.* 9,750 TELECOMMUNICATIONS (2.5%)
900 Intimate Brands Inc. , Class A 13,500 900 A D C Telecommunications Inc.* 32,850
2,000 Office Depot Inc.* 39,500 1,000 Applied Digital Access Inc.* 11,750
1,000 Staples Inc.* 24,375 100 Aspect Telecommunications Corp. 3,350
------- 200 Cidco Inc.* 5,100
87,125 2,100 Mobilmedia Corp.* 46,725
------- 4,400 Nextel Communications Inc.* 64,900
---------
RETAIL STORES - FOOD CHAINS (0.9%) 164,675
2,500 General Nutrition Companies. Inc. 57,500 ---------
-------
TELEPHONE (0.3%)
SEMICONDUCTORS (2.2%) 600 Telephone & Data Systems Inc. 23,700
900 Atmel Corp.* 20,138 ---------
2,000 LSI Logic Corp.* 65,500
300 Linear Technology Corp. 11,775 TEXTILES (0.4%)
2,300 National Semiconductor Corp.* 51,175 1,300 Unifi Inc. 28,763
------- ---------
148,588
------- TRANSPORTATION (1.1%)
500 America West Airlines Inc. Class 8,500
SHOES (1.4%) 300 Kansas City Southern Industries, 13,725
1,900 Just For Feet, Inc. 67,925 700 Southwest Airlines Co. 16,275
700 Nine West Group Inc.* 26,250 1,200 Tidewater Inc. 37,800
------- ---------
94,175 76,300
------- ---------
STEEL (0.5%) WATER & SEWER & COMBINED UTILITIES (0.6%)
1,700 Allegheny Ludlum Corp. 31,450 2,200 USA Waste Services Inc.* 41,525
------- ---------
Total common stocks 5,718,640
TECHNOLOGY (6.8%) ---------
600 Altera Corp.* 29,850 (cost $5,579,878)
700 Analog Devices Inc.* 24,763
600 Cadence Design System Inc. 25,200
1,400 Checkfree Corp.* 30,100
1,200 E M C Corp. Mass.* 18,450
100 Exar Corp.* 1,475
2,250 Gasonics International Corp. 30,375
600 Informix Corp. 18,000
900 Komag Inc. 41,512
300 Network Appliance Inc.* 12,038
200 Parametric Technology Corp.* 13,300
1,100 Softkey International Inc.* 25,437
</TABLE>
12
<PAGE> 71
SMALL COMPANY GROWTH FUND
STATEMENT OF INVESTMENTS - DECEMBER 31, 1995, CONTINUED
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------
VALUE
PRINCIPAL (NOTE 1)
- ------------------------------------------------------------------------------
<S> <C> <C>
REPURCHASE AGREEMENT (13.4%)
$894,000 Lehman Government Securities Inc.,
5.96% due 01/02/96, Collateralized by
940,000 FNMA Discount Note, due
06/21/96 - market value $916,124
(cost $894,000) $ 894,000
----------
GOVERNMENT OBLIGATIONS (0.2%)
15,000 U.S. Treasury Bills 5.32%,
due 02/01/96** 14,931
----------
(cost $14,931)
Total Investments 6,627,571
(cost $6,488,808)
Other Assets Less Liabilities (0.9%) (57,631)
----------
Net Assets $6,685,202
==========
</TABLE>
<TABLE>
<CAPTION>
Statement of Market Value Covered Unrealized Depreciation
Financial Futures Number of Contracts by Contracts Expiration at 12/31/95
----------------- ------------------- ------------ ---------- -----------
<S> <C> <C> <C> <C>
Standard & Poor's 500 1 $309,225 March 1996 ($3,160)
</TABLE>
*Denotes a non-income producing security.
** Security is segregated as collateral on futures contract.
Cost for Federal income tax purposes: $6,536,168.
Portfolio holding percentages represent market value as a percentage of net
assets.
See accompanying notes to financial statements.
13
<PAGE> 72
LARGE COMPANY GROWTH FUND
STATEMENT OF INVESTMENTS - DECEMBER 31, 1995
<TABLE>
- ------------------------------------------------------------- ------------------------------------------------------
VALUE VALUE
SHARES (NOTE 1) (NOTE 1)
- ------------------------------------------------------------- ------------------------------------------------------
<S> <C> <C> <C> <C>
COMMON STOCKS (85.5%)
ELECTRONICS (3.8%)
AGRICULTURAL BIOTECHNOLOGY (1.1%) 6,300 AMP, Inc. $241,762
3,200 Pioneer Hi Bred International, $ 178,000 3,700 Motorola Inc. 210,900
----------
CHEMICALS (5.4%) 3,100 Texas Instruments Inc. 160,425
----------
6,400 Abbott Laboratories 267,200 613,087
----------
4,400 Air Products & Chemicals, Inc. 232,100 ENERGY (4.9%)
3,900 Chevron Corp. 204,750
3,100 Dow Chemical Co. 218,163
2,300 Kerr Mcgee Corp. 146,050
4,900 Nalco Chemical Co. 147,612
--------- 2,300 Mobil Corp. 257,600
865,075
--------- 6,400 Unocal Corp. 186,400
COMPUTER EQUIPMENT (3.3%) ----------
794,800
2,300 Hewlett-Packard Co. 192,625 ----------
2,300 International Business Machines 211,025 ENGINEERING AND CONSTRUCTION (1.4%)
3,500 Fluor Corp. 231,000
4,400 Silicon Graphics Inc. * 121,000 ----------
--------- FINANCIAL (8.2%)
524,650
--------- 2,550 American International Group 235,875
COMPUTER SOFTWARE & SERVICE (2.6%)
3,000 Bard C R Inc. 96,750
2,900 Automatic Data Processing Inc. 215,325
3,300 Dun & Bradstreet Corp. 213,675
3,900 General Motors Corp., Class E 202,800
--------- 2,300 Marsh & McLennan Cos., Inc. 204,125
418,125
CONSUMER CYCLICALS (2.7%) -------- 2,700 Morgan J P & Co., Inc. 216,675
3,100 Eastman Kodak Co. 207,700 4,100 St. Paul Cos., Inc. 228,062
1,900 Illinois Tool Works Inc. 112,100 3,900 U.S. Bancorp 131,138
----------
5,300 Ryder Systems Inc. 131,175 1,326,300
--------- ---------
450,975
--------- FOODS AND RESTAURANTS (1.2%)
CONSUMER - NON-CYCLICALS (2.9%) 4,300 McDonalds Corp. 194,038
4,300 International Flavors & Fragrances, 206,400 ----------
3,100 Procter & Gamble Co. 257,300
--------- FOOD - GRAIN & AGRICULTURE (0.7%)
463,700
---------
5,892 Archer Daniels Midland Co. 106,056
CONSUMER PRODUCTS (7.9%) ----------
2,700 CPC International. Inc. 185,288 HEALTHCARE/MEDICAL PRODUCTS (8.4%)
5,900 Alza Corp.* 146,025
1,900 Colgate - Palmolive Co. 133,475
2,300 Cardinal Health Inc. 125,925
2,800 Disney, (Walt) Co. 165,200
3,500 Columbia / HCA Healthcare Corp. 177,625
3,000 Hershey Foods Corp. 195,000
3,500 Elan Plc ADR * 170,188
3,300 Kimberly Clark Corp. 273,075
2,700 Johnson & Johnson 231,187
3,900 PepsiCo, Inc. 217,912
2,200 Medtronic Inc. 122,925
4,000 Rubbermaid Inc. 102,000
--------- 3,700 Merck & Co., Inc. 243,275
1,271,950
--------- 2,300 Pfizer Inc. 144,900
DURABLE GOODS (1.4%) ----------
6,100 Echlin Inc. 222,650 1,362,050
---------- ---------
</TABLE>
14
<PAGE> 73
LARGE COMPANY GROWTH FUND
STATEMENT OF INVESTMENTS - DECEMBER 31, 1995, CONTINUED
<TABLE>
- ------------------------------------------------------------- ------------------------------------------------------
VALUE VALUE
SHARES (NOTE 1) SHARES (NOTE 1)
- ------------------------------------------------------------- ------------------------------------------------------
<S> <C> <C> <C>
INDUSTRIAL (4.1%) RETAIL (4.0%)
4,700 Halliburton Co. $237,937 4,100 Home Depot Inc. $196,287
7,300 Pall Corp. 196,188 3,400 Intimate Brands Inc. 51,000
3,400 Schlumberger Ltd. 235,450 8,800 Wal Mart Stores Inc. 196,900
-------
669,575 6,800 Walgreen Co. 203,150
------- ------------
MACHINERY & CAPITAL GOODS (2.6%) 647,337
------------
3,400 Emerson Electric Co. 277,950 TELECOMMUNICATIONS (2.8%)
3,900 Ingersoll Rand Co. 136,987 4,300 AT & T Corp. 278,425
-------
414,937 3,900 GTE Corp. 171,600
------- ------------
MANUFACTURING - DIVERSIFIED (4.2%) 450,025
------------
6,800 Masco Corp. 213,350 TRANSPORTATION (2.5%)
3,900 Minnesota Mining & Manufacturing Co. 258,375 2,300 Norfolk Southern Corp. 182,563
2,600 TRW Inc. 201,500 3,400 Union Pacific Corp. 224,400
------- ------------
673,225 406,963
------- ------------
METALS/MINING (1.3%) UTILITIES (0.8%)
7,800 Cyprus Amax Minerals Co. 203,775 2,700 Consolidated Natural Gas Co. 122,513
------- ------------
PAPER AND FOREST PRODUCTS (2.2%) Total Common Stocks 13,780,969
----------
2,300 Consolidated Papers Inc. 129,088 (cost $12,347,538)
5,900 International Paper Co. 223,462 PRINCIPAL
------- ---------
352,550 REPURCHASE AGREEMENT (14.3%)
-------
POLLUTION CONTROL (2.3%) $2,305,000 Lehman Government Securities Inc.,
5,000 Browning Ferris Industries 147,500 5.96%, due 01/02/96, Collateralized
$2,415,000 FNMA Discount Note, due
7,300 WMX Technologes, Inc. 218,088 06/21/96 - Market value ($2,353,659)
------- (cost $2,305,000) 2,305,000
365,588 -----------
------- Total Investments 16,085,969
PRINTING & PUBLISHING (2.8%) (cost $14,652,538)
4,100 Gannett Inc. 251,637 Other Assets Less Liabilities (0.2%)
Net Assets $16,119,036
2,300 McGraw Hill Companies Inc. 200,388 ===========
-------
452,025
-------
</TABLE>
* Denotes a non-income producing security.
Cost also represents cost for Federal income tax purposes.
Portfolio holding percentages represent market value as a percentage of net
assets.
See accompanying notes to financial statements.
15
<PAGE> 74
THE ONE(R) GROUP(TM) INVESTMENT TRUST
STATEMENTS OF ASSESTS AND LIABILITIES
DECEMBER 31, 1995
<TABLE>
<CAPTION>
Government Asset Small Company Large Company
Bond Allocation Growth Growth
------------- ---------- ------------- -------------
<S> <C> <C> <C> <C>
Assets
Investments in securities, at value
(cost $8,412,223, $3,853,578, $5,594,808
and $12,347,538, respectively) $ 8,702,239 $4,240,654 $5,733,571 $13,780,969
Repurchase agreements (cost $204,000,
$1,180,000, $894,000, and $2,305,000, respectively) 204,000 1,180,000 894,000 2,305,000
----------- ---------- ---------- ----------
Total investments 8,906,239 5,420,654 6,627,571 16,085,969
Cash 325 327 463 979
Receivable for investment securities sold - - 18,547 -
Receivable for futures variation margin - 1,050 350 -
Interest and dividends receivable 94,090 24,090 3,426 31,456
Receivable from advisor (note 2) 18,151 7,966 37,744 7,445
Deferred organization expenses (note 1) 8,790 10,598 10,904 10,592
----------- ---------- ---------- ----------
Total assets 9,027,595 5,464,685 6,699,005 16,136,441
----------- ---------- ---------- ----------
Liabilities
Administration fee payable (note 2) 2,376 988 1,321 3,196
Other accrued expenses 9,123 9,192 12,482 14,209
----------- ---------- ---------- ----------
Total liabilities 11,499 10,180 13,803 17,405
----------- ---------- ---------- ----------
NET ASSETS $ 9,016,096 $5,454,505 $6,685,202 $16,119,036
----------- ---------- ---------- ----------
Net Assets consist of:
Paid-in capital (note 3) $ 8,726,080 $5,067,429 $6,571,121 $14,683,452
Net unrealized appreciation 290,016 391,021 135,603 1,433,431
Accumulated undistributed (distributions in excess of)
realized gain - (3,945) (21,729) 999
Accumulated undistributed net investment income - - 207 1,154
----------- ---------- ---------- ----------
Net Assets $ 9,016,096 $5,454,505 $6,685,202 $16,119,036
----------- ---------- ---------- ----------
Shares of beneficial interest outstanding, no par
value (unlimited number of shares authorized) 860,451 485,092 580,225 1,329,429
----------- ---------- ---------- ----------
NET ASSET VALUE, redemption and offering
price per share $10.48 $11.24 $11.52 $12.12
------ ------ ------ ------
</TABLE>
See accompanying notes to financial statements.
16
<PAGE> 75
THE ONE(R) GROUP(TM) INVESTMENT TRUST
STATEMENTS OF OPERATIONS
DECEMBER 31, 1995
<TABLE>
<CAPTION>
Government Asset Small Company Large Company
Bond Allocation Growth Growth
---------- ---------- ------------- -------------
<S> <C> <C> <C> <C>
Investment Income:
Dividend income $ - $32,620 $15,354 $165,528
Interest income 486,746 129,844 26,323 83,906
---------- ------- ------- --------
Total investment income 486,746 162,464 41,677 249,434
---------- ------- ------- --------
Expenses (note 2):
Investment advisory fees 30,138 24,403 19,921 55,524
Administration fees 16,073 8,367 7,356 20,501
Auditing fees 17,548 8,751 6,546 20,016
Legal fees 14,401 7,018 4,278 14,645
Custodian fees 4,800 9,900 38,000 13,014
Insurance expense 6,852 3,478 2,868 8,233
Other 8,706 6,496 6,280 7,907
---------- ------- ------- --------
Total expenses 98,518 68,413 85,249 139,840
Less waived and reimbursed expenses (48,289) (33,552) (57,665) (62,961)
---------- ------- ------- --------
Net expenses 50,229 34,861 27,584 76,879
---------- ------- ------- --------
Net investment income $436,517 127,603 14,093 172,555
---------- ------- ------- --------
Net realized gain on investments (note 4) 128,998 97,556 225,307 96,379
Net realized gain on financial futures (note 4) - - 15,480 -
Net change in unrealized appreciation
(depreciation) on investments 445,748 421,725 153,991 1,449,235
Net change in unrealized gain on financial futures - 3,945 (3,160) -
---------- ------- ------- --------
Net realized and unrealized gain on investments 574,746 523,226 391,618 1,545,614
---------- ------- ------- --------
Net increase in net assets resulting from operations $1,011,263 $650,829 $405,711 $1,718,169
---------- ------- ------- --------
</TABLE>
See accompanying notes to financial statements.
17
<PAGE> 76
THE ONE(R) GROUP(TM) INVESTMENT TRUST
STATEMENTS OF CHANGE IN NET ASSETS
<TABLE>
<CAPTION>
Government Bond Asset Allocation
--------------------------- ---------------------------
Year Ended August 1,- Year Ended August 1,-
December 31, December 31, December 31, December 31,
1995 1994 * 1995 1994 *
--------------------------- ---------------------------
<S> <C> <C> <C> <C>
Net assets, beginning of period (note 1) $5,111,981 $25,000 $2,062,929 $25,000
---------- ------- ---------- -------
From Operations:
Net investment income 436,517 113,600 127,603 11,861
Net realized gain (loss) on investment 128,998 (5,471) 97,556 -
Net change in unrealized appreciation
(depreciation) of investments 445,748 (155,732) 425,670 (34,649)
---------- ------- ---------- -------
Increase (decrease) in net
assets from operations 1,011,263 (47,603) 650,829 (22,788)
---------- ------- ---------- -------
Distributions to shareholders from:
Net investment income (436,517) (113,600) (127,603) (11,861)
In excess of net investment income (47) (1,278) (129) (225)
Net realized gain from investment transactions (123,527) - (97,556) -
In excess of realized gain from investment
transactions - - (3,945) -
---------- ------- ---------- -------
Decrease in net assets from
distributions to shareholders (560,091) (114,878) (229,233) (12,086)
---------- ------- ---------- -------
Share transactions (note 3):
Net proceeds from sale of shares 2,839,265 5,304,675 2,810,916 2,091,463
Net asset value of shares issued to
shareholders from reinvestment of
dividends and distributions 644,533 30,437 241,319 -
Cost of shares redeemed (30,855) (85,650) (82,255) (18,660)
---------- ------- ---------- -------
Increase in net assets from
share transactions 3,452,943 5,249,462 2,969,980 2,072,803
---------- --------- ---------- ---------
Net increase in net assets 3,904,115 5,086,981 3,391,576 2,037,929
---------- --------- ---------- ----------
Net assets -- end of period $9,016,096 $5,111,981 $5,454,505 $2,062,929
---------- ---------- ---------- ----------
Undistributed (distributions in excess of) net
investment income in net assets at
end of period $ - $(1,278) $ - $ (225)
---------- ------- ---------- -------
</TABLE>
*Initial public offering was August 1, 1994. See note 1.
See accompanying notes to financial statements.
18
<PAGE> 77
THE ONE(R) GROUP(TM) INVESTMENT TRUST
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
Small Company Growth Large Company
--------------------------- ---------------------------
Year Ended August 1,- Year Ended August 1,-
December 31, December 31, December 31, December 31,
1995 1994 * 1995 1994 *
--------------------------- ---------------------------
<S> <C> <C> <C> <C>
Net assets, beginning of period (note 1) $940,171 $25,000 $4,174,658 $25,000
-------- ------- ---------- -------
From Operations:
Net investment income (loss) 14,093 (294) 172,555 18,535
Net realized gain (loss) on investments 240,787 (3,504) 96,379 7,338
Net change in unrealized appreciation
(depreciation) of investments 150,831 (15,228) 1,449,235 (15,804)
-------- ------- ---------- -------
Increase (decrease) in net
assets from operations 405,711 (19,026) 1,718,169 10,069
-------- ------- ---------- -------
Distributions to shareholders from:
Net investment income (13,886) - (172,344) (17,592)
Net realized gain from investment transactions (240,787) - (95,380) (7,338)
In excess of realized gain on investment transactions (18,225) - - 0
-------- ------- ---------- -------
Decrease in net assets from
distributions to shareholders (272,898) - (267,724) (24,930)
-------- ------- ---------- -------
Share transactions (note 3):
Net proceeds from sale of shares 5,384,494 937,940 10,232,823 4,159,923
Net asset value of shares issued to
shareholders from reinvestment of
dividends and distributions 272,898 - 287,675 4,980
Cost of shares redeemed (45,174) (3,743) (26,565) (384)
-------- ------- ---------- -------
Increase in net assets from
share transactions 5,612,218 934,197 10,493,933 4,164,519
-------- ------- ---------- -------
Net increase in net assets 5,745,031 915,171 11,944,378 4,149,658
-------- ------- ---------- -------
Net assets -- end of period $6,685,202 $940,171 $16,119,036 $4,174,658
-------- ------- ---------- -------
Undistributed (distributions in excess of) net
investment income in net assets at
end of period $ 207 $ - $ 1,154 $ 943
-------- ------- ---------- -------
</TABLE>
*Initial public offering was August 1, 1994. See note 1.
See accompanying notes to financial statements.
19
<PAGE> 78
THE ONE(R) GROUP(SM) INVESTMENT TRUST
FINANCIAL HIGHLIGHTS OF THE TRUST
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
<TABLE>
<CAPTION>
Government Bond Asset Allocation
-------------------------- ---------------------------
Year Ended August 1,- Year Ended August 1,-
December 31, December 31, December 31, December 31,
1995 1994 * 1995 1994 *
-------------------------- ---------------------------
<S> <C> <C> <C> <C>
Net Assets, beginning of period $9.69 $10.00 $9.81 $10.00
------ ------ ------ ------
Income from operations:
Net investment income 0.64 0.22 0.36 0.06
Net realized and unrealized gain (loss)
on investments 0.94 (0.31) 1.64 (0.19)
------ ------ ------ ------
Total from operations 1.58 (0.09) 2.00 (0.13)
------ ------ ------ ------
Less distributions to shareholders from:
Net investment income (0.64) (0.22) (0.36) (0.06)
Net realized gains on investments (0.15) - (0.21) -
------ ------ ------ ------
Total distributions (0.79) (0.22) (0.57) (0.06)
------ ------ ------ ------
Net asset value -- end of period $10.48 $9.69 $11.24 $9.81
====== ====== ====== =====
Total return 16.7% (0.9%) 20.7% (1.3%)
Ratios and supplemental data:
Net assets end of period (000) $9,016 $5,112 $5,455 $2,063
Ratio of expenses to average net assets 0.75% 0.75% 1.00% 1.00%
Ratio of expenses to average net assets
excluding waivers/reimbursements 1.47% 1.94% 1.96% 2.36%
Ratio of net investment income to
average net assets 6.54% 6.09% 3.66% 1.88%
Ratio of net investment income to average net
assets excluding waivers/reimbursements 5.80% 4.90% 2.70% 0.52%
Portfolio turnover 34.1% 3.5% 66.3% ---
</TABLE>
*Initial public offering was August 1, 1994. See note 1.
Ratios are annualized for periods of less than one year. Total return
and portfolio turnover are not annualized
See accompanying notes to financial statements.
20
<PAGE> 79
THE ONE(R) GROUP(SM) INVESTMENT TRUST
FINANCIAL HIGHLIGHTS OF THE TRUST
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
<TABLE>
<CAPTION>
Small Company Growth Large Company Growth
--------------------------- ----------------------------
Year Ended August 1,- Year Ended August 1,-
December 31, December 31, December 31, December 31,
1995 1994 * 1995 1994 *
--------------------------- ----------------------------
<S> <C> <C> <C> <C>
Net Assets, beginning of period $9.70 $10.00 $9.99 $10.00
-------- ------ ----- ------
Income from operations:
Net investment income 0.04 - 0.20 0.05
Net realized and unrealized gain (loss)
on investments 2.29 (0.30) 2.20 0.01
-------- ------ ----- ------
Total from operations 2.33 (0.30) 2.40 0.06
-------- ------ ----- ------
Less distibutions to shareholders from:
Net investment income (0.04) - (0.20) (0.05)
Net realized gains on investments (0.47) - (0.07) (0.02)
-------- ------ ----- ------
Total distributions (0.51) - (0.27) (0.07)
-------- ------ ----- ------
Net asset value -- end of period $11.52 $9.70 $12.12 $9.99
======== ====== ====== =====
Total return 24.1% (3.0%) 24.1% 0.5%
Ratios and supplemental data:
Net assets, end of period (000) $6,685 $940 $16,119 $4,175
Ratio of expenses to average net assets 0.90% 0.90% 0.90% 0.90%
Ratio of expenses to average net assets
excluding waivers/reimbursements 2.78% 2.96% 1.64% 2.08%
Ratio of net investment income to
average net assets 0.46% (.17%) 2.02% 1.39%
Ratio of net investment income to average net
assets excluding waivers/reimbursements (1.42%) (2.22%) 1.28% 0.22%
Portfolio turnover 193.3% 3.5% 37.4% 4.4%
</TABLE>
*Initial public offering was August 1, 1994. See note 1.
Ratios are annualized for periods less than one year. Total return
and portfolio turnover are not annualized
See accompanying notes to financial statements.
21
<PAGE> 80
THE ONE(R) GROUP(SM) INVESTMENT TRUST
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The ONE(R) GROUP(SM) Investment Trust (the "Trust") was organized as a
Massachusetts Business Trust on June 7, 1993. The Trust is registered under
the Investment Company Act of 1940 as an open-end management investment
company. The Trust comprises four portfolios: the Government Bond Fund, the
Asset Allocation Fund, the Small Company Growth Fund, and the Large Company
Growth Fund (the "Funds"). The shares of the Funds are sold only to Nationwide
Life and Annuity Insurance Company (formerly Financial Horizons Life Insurance
Company), an affiliate of Nationwide Insurance Company, to fund the benefits of
the ONE(R) GROUP(SM) Variable Annuity.
Banc One Investment Advisors Corporation ("Banc One") serves as Investment
Advisor to the Trust. Nationwide Financial Services, Inc. ("NFS") serves as
Administrator to the Trust. Nationwide Investors Services, Inc., an affiliate
of NFS, serves as the Transfer Agent to the Trust.
Prior to August 1, 1994 (date of initial public offering), the Funds had no
operations other than the sale to Nationwide Life and Annuity Insurance Company
of shares of the Funds, as follows:
<TABLE>
<CAPTION>
FUND SHARES PROCEEDS
---- ------ --------
<S> <C> <C>
Government Bond 2,500 $25,000
Asset Allocation 2,500 25,000
Small Company Growth 2,500 25,000
Large Company Growth 2,500 25,000
</TABLE>
Investment operations commenced on August 23, 1994 for the Government Bond and
the Large Company Growth Funds, September 29, 1994 for the Asset Allocation
Fund and November 3, 1994 for the Small Company Growth Fund.
Organization costs incurred in connection with the organization and initial
registration of the Trust were paid by the Administrator and have been
reimbursed by the Funds. Such organization costs have been deferred and will
be amortized ratably over a period of sixty months from the commencement of
operations. If any of the initial shares are redeemed before the end of the
amortization period, the proceeds of the redemption will be reduced by the pro
rata share of the unamortized organization costs.
SECURITY VALUATION
a) Securities traded on a national securities exchange (including financial
futures) are valued at the last sales price. Listed securities for which
no sale was reported on the valuation date are valued at quoted bid prices.
Short-term notes and bank certificates of deposit are valued at amortized
cost, which approximates market.
b) It is the policy of the Funds to require the custodian bank or an approved
sub-custodian to take possession, to have legally segregated in the Federal
Reserve Book Entry System, or to have segregated within the custodian
bank's vault, all securities held as collateral under repurchase agreement
transactions. Additionally, procedures have been established by the Trust
to monitor, on a daily basis, the market value of each of the repurchase
agreement's collateral to ensure that the value of the collateral at least
equals the repurchase price to be paid under the repurchase agreement
transaction.
22
<PAGE> 81
THE ONE(R) GROUP(SM) INVESTMENT TRUST
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995, CONTINUED
FEDERAL INCOME TAX
The Trust's policy is to comply with the requirements of the Internal Revenue
Code that are applicable to regulated investment companies and to distribute
all of its taxable income to shareholders. Therefore, no Federal income tax
provision is required. Each Fund of the Trust is treated as a separate taxable
entity.
SECURITY TRANSACTIONS AND INVESTMENT INCOME
Security transactions are recorded on the trade date. Dividend income is
recorded on the ex-dividend date; interest income is recorded on an accrual
basis and includes, where applicable, the pro rata amortization of premium or
accretion of discount.
DIVIDENDS TO SHAREHOLDERS
Dividends are recorded on the ex-dividend date. Dividends and distributions to
shareholders are determined in accordance with Federal income tax regulations
which may differ from generally accepted accounting principles. These
"book/tax" differences are considered either permanent or temporary in nature.
To the extent that these differences are permanent in nature, such amounts are
reclassified within the capital accounts based on their nature for Federal
income tax purposes; temporary differences do not require reclassification.
Dividends and distributions that exceed net investment income and net realized
gains for financial reporting purposes but not for tax purposes are reported as
dividends in excess of net investment income and net realized gains. To the
extent distributions exceed current and accumulated earnings and profits for
Federal income tax purposes, they are reported as distributions of paid-in
capital.
EXPENSES
Direct expenses of a Fund are allocated to that Fund. The general expenses of
the Trust are allocated to the Funds based on the relative net assets of the
Funds at the time the expense is incurred.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
NOTE 2 - AGREEMENTS
As Investment Advisor, Banc One manages the investments of each Fund of the
Trust. Banc One is entitled to receive a fee from the Funds at the following
annual rates: .45% of the average daily net assets of the Government Bond
Fund, .65% of the average daily net assets of the Small Company Growth Fund
and the Large Company Growth Fund, and .70% of average daily net assets of the
Asset Allocation Fund. Such fees are calculated daily and paid monthly.
23
<PAGE> 82
THE ONE GROUP(SM) INVESTMENT TRUST
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995, CONTINUED
NOTE 2 - AGREEMENTS (CONTINUED)
As Administrator, NFS assists in supervising the operations of the Trust. For
its services, NFS is entitled to receive a fee from the Trust at an annual rate
of .24% of the Trust's aggregate average daily net assets up to $250 million,
.19% of such net assets in excess of $250 million but less that $500 million,
.16% of such net assets in excess of $500 million but less than $1 billion, and
.14% of such net assets in excess of $1 billion. During the year ended
December 31, 1995, the Administrator voluntarily waived fees in the amount of
$1,184 in the Asset Allocation Fund representing $.004 per share.
The Investment Advisor has voluntarily agreed to waive all or part of its fees
and reimburse expenses in order to limit the Funds' operating expenses to no
more than .75% of the average daily net assets of the Government Bond Fund,
.90% of the average daily net assets of each of the Small Company Growth Fund
and the Large Company Growth Fund, and no more than 1.00% of the average daily
net assets of the Asset Allocation Fund. Effective May 1, 1996, the Small
Company Growth and Large Company Growth Funds will change their expense limits
to 1.10% and 1.00%, respectively. During the year ended December 31, 1995, the
Investment Advisor voluntarily waived fees and reimbursed expenses in the
amount of $48,289 in the Government Bond Fund, $32,368 in the Asset Allocation
Fund, $57,665 in the Small Company Growth Fund and $62,961 in the Large
Company Growth Fund, representing $.074, $.100, $.212 and $.092 per share,
respectively.
NOTE 3 - CAPITAL SHARE TRANSACTIONS
The Trust is authorized to issue an unlimited number of shares of beneficial
interest, with no par value.
Transactions in capital stock for the year ended December 31, 1995 and the
period ended December 31, 1994 were as follows:
<TABLE>
<CAPTION>
Year ended December 31, 1995 August 1 through December 31, 1994
-------------------------------------------------------------------- --------------------------------------------
Reinvestment Reinvestment
Shares Purchases of Dividends Redemptions Purchases of Dividends Redemptions
------ --------- ------------ ----------- --------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
Government Bond 272,833 62,835 (2,974) 530,985 3,093 (8,821)
Asset Allocation 260,452 21,991 (7,550) 209,567 - (1868)
Small Company Growth 463,544 23,720 (3,975) 94,832 - (396)
Large Company Growth 889,236 24,630 (2,361) 414,970 492 (38)
Dollars
-------
Government Bond $2,839,265 644,533 (30,855) 5,304,675 30,437 (85,650)
Asset Allocation 2,810,917 241,319 (82,256) 2,091,463 - (18,660)
Small Company Growth 5,384,494 272,898 (45,174) 937,940 - (3,743)
Large Company Growth 10,232,823 287,675 (26,565) 4,159,923 4,980 (384)
</TABLE>
NOTE 4 - INVESTMENT TRANSACTIONS
Purchases and sales of securities (excluding U.S. Government obligations,
short-term securities and financial futures), and purchases and sales of U.S.
Government obligations for the period ended December 31, 1995 are summarized as
follows:
24
<PAGE> 83
THE ONE GROUP(SM) INVESTMENT TRUST
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995, CONTINUED
NOTE 4 - INVESTMENT TRANSACTIONS (CONTINUED)
<TABLE>
<CAPTION>
Purchases Sales
--------- -----
<S> <C> <C>
Government Bond $ 3,231,883 $1,182,394
Asset Allocation 2,501,897 946,939
Small Company Growth 10,017,633 5,185,334
Large Company Growth 11,122,876 2,714,103
</TABLE>
<TABLE>
<CAPTION>
U.S. Government Obligations
<S> <C> <C>
Purchases Sales
--------- -----
Government Bond $2,019,871 $ 924,000
Asset Allocation 1,756,194 1,127,039
Small Company Growth 14,812 -
Large Company Growth - -
</TABLE>
The Asset Allocation and Small Company Growth Funds are engaged in trading
financial futures contracts. The funds are exposed to market risks in excess
of the amounts recognized in the statement of assets and liabilities as a
result of changes in the value of the underlying financial instruments.
Investments in financial futures require the fund to "mark to market" such
futures on a daily basis, to reflect the change in the market value of the
contract at the close of each day's trading. Typically, variation margin
payments are made or received to reflect daily unrealized gains or losses.
When the contracts are closed, the fund recognizes a realized gain or loss.
Realized gains and losses have been computed on the first-in, first-out basis.
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 was originally struck. The Funds' purpose in entering into futures
contracts is to remain fully invested and reduce transaction costs.
Net unrealized appreciation on investments and financial futures at December
31, 1995, based on cost for Federal income tax purposes, was as follows:
<TABLE>
<CAPTION>
Unrealized Unrealized Net Unrealized
Appreciation Depreciation Appreciation
------------ ------------ ------------
<S> <C> <C> <C>
Government Bond $ 290,016 $ - $ 290,016
Asset Allocation 443,409 ( 56,333) 387,076
Small Company Growth 454,146 (362,743) 91,403
Large Company Growth 1,572,468 (139,037) 1,433,431
</TABLE>
25
<PAGE> 84
THE ONE GROUP(SM) INVESTMENT TRUST
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995, CONTINUED
NOTE 5 - SHARES HELD BY AFFILIATES
As of December 31, 1995, Nationwide Life and Annuity Insurance Company
beneficially owned shares of the Funds with the following net asset values:
<TABLE>
<S> <C>
Government Bond $5,782,043
Asset Allocation 1,161,138
Small Company Growth 30,084
Large Company Growth 3,743,368
</TABLE>
As of December 31, 1995, Banc One Capital Corporation owned shares of the Asset
Allocation Fund with a net asset value of $535,910.
NOTE 6 - DISTRIBUTIONS OF LONG-TERM CAPITAL GAINS
During the year ended December 31, 1995, the Government Bond Fund, Asset
Allocation Fund and Large Company Growth Fund paid to shareholders $.1475,
$.0600 and $.0250 per share, respectively, from net realized long-term capital
gains.
26
<PAGE> 85
APPENDIX
The nationally recognized statistical rating organizations (individually, an
"NRSRO") that may be utilized by the Adviser with regard to portfolio
investments for the Funds include Moody's Investors Service, Inc. ("Moody's"),
Standard & Poor's Corporation ("S&P"), Duff & Phelps, Inc. ("Duff"), Fitch
Investors Service, Inc. ("Fitch"), IBCA Limited and its affiliate, IBCA Inc.
(collectively, "IBCA"), and Thomson BankWatch, Inc. ("Thomson"). Set forth
below is a description of the relevant ratings of each such NRSRO. The NRSROs
that may be utilized by the Advisers and Sub-advisers and the description of
each NRSRO's ratings is as of the date of this Statement of Additional
Information, and may subsequently change.
Long-Term Debt Ratings (may be assigned, for example, to corporate and
municipal bonds)
Description of the four highest long-term debt ratings by Moody's (Moody's
applies numerical modifiers (1, 2, and 3) in each rating category to indicate
the security's ranking within the category):
Aaa Bonds which are rated Aaa are judged to be of the best quality.
They carry the smallest degree of investment risk and are generally
referred to as "gilt edged." Interest payments are protected by a
large or by an exceptionally stable margin and principal is secure.
While the various protective elements are likely to change, such
changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.
Aa Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally
known as high grade bonds. They are rated lower than the best bonds
because margins of protection may not be as large as in Aaa securities
or fluctuation of protective elements may be of greater amplitude or
there may be other elements present which make the long-term risk
appear somewhat larger than in Aaa securities.
A Bonds which are rated A 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 some time in the future.
Baa Bonds which are rated Baa are considered as medium grade
obligations, i.e., they are neither highly protected nor poorly
secured. Interest payments and principal security appear adequate for
the present but certain protective elements may be lacking or may be
characteristically unreliable over any great length of time. Such
bonds lack outstanding investment characteristics and in fact have
speculative characteristics as well.
Description of the four highest long-term debt ratings by S&P (S&P may apply a
plus (+) or minus (-) to a particular rating classification to show relative
standing within that classification):
AAA Debt rated AAA has the highest rating assigned by S&P. Capacity to
pay interest and repay principal is extremely strong.
AA Debt rated AA has a very strong capacity to pay interest and repay
principal and differs from the higher rated issues only in small
degree.
A Debt rated A has a strong capacity to pay interest and repay
principal although it is somewhat more susceptible to the adverse
effects of changes in circumstances and economic conditions than debt
in higher rated categories.
BBB Debt rated BBB is regarded as having an adequate capacity to pay
interest and repay principal. Whereas it normally exhibits adequate
protection parameters, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to pay
interest and repay principal for debt in this category than in higher
rated categories.
Description of the four highest long-term debt ratings by Duff:
AAA Highest credit quality. The risk factors are negligible being only
slightly more than for risk-free U.S. Treasury debt.
AA+ High credit quality Protection factors are strong.
AA Risk is modest but may vary slightly from time to time because of
economic conditions.
A+ Protection factors are average but adequate. However, A risk
factors are more variable and greater in periods A-of economic stress.
Description of the three highest long-term debt ratings by Fitch (plus or minus
signs are used with a rating symbol to indicate the relative position of the
credit within the rating category):
Page 81 of 91
<PAGE> 86
AAA Bonds considered to be investment grade and of the highest credit
quality. The obligor has an exceptionally strong ability to pay
interest and repay principal, which is unlikely to be affected by
reasonably foreseeable events.
AA Bonds considered to be investment grade and of very high credit
quality. The obligor's ability to pay interest and repay principal is
very strong, although not quite as strong as bonds rated "AAA." Because
bonds rated in the "AAA" and "AA" categories are not significantly
vulnerable to foreseeable future developments, short-term debt of these
issues is generally rated "[-]+."
A Bonds considered to be investment grade and of high credit
quality. The obligor's ability to pay interest and repay principal is
considered to be strong, but may be more vulnerable to adverse changes
in economic conditions and circumstances than bonds with higher
ratings.
IBCA's description of its three highest long-term debt ratings:
AAA Obligations for which there is the lowest expectation of
investment risk. Capacity for timely repayment of principal and
interest is substantial such that adverse changes in business, economic
or financial conditions are unlikely to increase investment risk
significantly.
AA Obligations for which there is a very low expectation of
investment risk. Capacity for timely repayment of principal and
interest is substantial. Adverse changes in business, economic, or
financial conditions may increase investment risk albeit not very
significantly.
A Obligations for which there is a low expectation of investment
risk. Capacity for timely repayment of principal and interest is
strong, although adverse changes in business, economic or financial
conditions may lead to increased investment risk.
Short-Term Debt Ratings (may be assigned, for example, to commercial paper,
master demand notes, bank instruments, and letters of credit)
Moody's description of its three highest short-term debt ratings:
* Prime-1 Issuers rated Prime-1 (or supporting institutions) have a
superior capacity for repayment of senior short-term promissory
obligations. Prime-1 repayment capacity will normally be evidenced
by many of the following characteristics:
* Leading market positions in well-established industries.
* High rates of return on funds employed. Conservative
capitalization structures with moderate reliance on debt and
ample asset protection.
* Broad margins in earnings coverage of fixed financial charges
and high internal cash generation.
* Well-established access to a range of financial markets and
assured sources of alternate liquidity.
* Prime-2 Issuers rated Prime-2 (or supporting institutions) have a
strong capacity for repayment of senior short-term debt obligations.
This will normally be evidenced by many of the characteristics cited
above but to a lesser degree. Earnings trends and coverage ratios,
while sound, may be more subject to variation. Capitalization
characteristics, while still appropriate, may be more affected by
external conditions. Ample alternate liquidity is maintained.
* Prime-3 Issuers rated Prime-3 (or supporting institutions) have an
acceptable ability for repayment of senior short-term obligations.
The effect of industry characteristics and market compositions may
be more pronounced. Variability in earnings and profitability may
result in changes in the level of debt protection measurements and
may require relatively high financial leverage. Adequate alternate
liquidity is maintained.
S&P's description of its three highest short-term debt ratings:
A-1 This designation indicates that the degree of safety regarding
timely payment is strong. Those issues determined to have extremely
strong safety characteristics are denoted with a plus sign (+).
A-2 Capacity for timely payment on issues with this designation is
satisfactory. However, the relative degree of safety is not as high as
for issues designated "A-1."
A-3 Issues carrying this designation have adequate capacity for timely
payment. They are, however, more vulnerable to the adverse effects of
changes in circumstances than obligations carrying the higher
designations.
Duff's description of its five highest short-term debt ratings (Duff
incorporates gradations of "1+" (one plus) and "1-" (one minus) to assist
investors in recognizing quality differences within the highest rating
category):
Page 82 of 91
<PAGE> 87
DUFF 1+ Highest certainty of timely payment. Short-term liquidity,
including internal operating factors and/or access to alternative
sources of funds, is outstanding, and safety is just below risk-free
U.S. Treasury short-term obligations.\
DUFF 1 Very high certainty of timely payment. Liquidity factors are
excellent and supported by good fundamental protection factors. Risk
factors are minor.
DUFF 1- High certainty of timely payment. Liquidity factors are strong
and supported by good fundamental protection factors. Risk factors are
very small.
DUFF 2 Good certainty of timely payment. Liquidity factors and company
fundamentals are sound. Although ongoing funding needs may enlarge
total financing requirements, access to capital markets is good. Risk
factors are small.
DUFF 3 Satisfactory liquidity and other protection factors qualify
issue as to investment grade. Risk factors are larger and subject to
more variation. Nevertheless, timely payment is expected.
Fitch's description of its four highest short-term debt ratings:
F-1+ Exceptionally Strong Credit Quality. Issues assigned this rating
are regarded as having the strongest degree of assurance for timely
payment.
F-1 Very Strong Credit Quality. Issues assigned this rating reflect an
assurance of timely payment only slightly less in degree than issues
rated F-1+.
F-2 Good Credit Quality. Issues assigned this rating have a
satisfactory degree of assurance for timely payment, but the margin of
safety is not as great as for issues assigned F-1+ or F-1 ratings.
F-3 Fair Credit Quality. Issues assigned this rating have
characteristics suggesting that the degree of assurance for timely
payment is adequate, however, near-term adverse changes could cause
these securities to be rated below investment grade
IBCA's description of its three highest short-term debt ratings:
A+ Obligations supported by the highest capacity for timely repayment.
A1 Obligations supported by a very strong capacity for timely
repayment.
A2 Obligations supported by a strong capacity for timely repayment,
although such capacity may be susceptible to adverse changes in
business, economic or financial conditions.
Short-Term Loan/Municipal Note Ratings
Moody's description of its two highest short-term loan/municipal note ratings:
MIG-1/VMIG-1 This designation denotes best quality. There is
present strong protection by established cash flows, superior
liquidity support or demonstrated broadbased access to the market
for refinancing.
MIG-2/VMIG-2 This designation denotes high quality. Margins of
protection are ample although not so large as in the preceding group.
S&P's description of its two highest municipal note ratings:
SP-1 Very strong or 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.
Short-Term Debt Ratings
Thomson BankWatch, Inc. ("TBW") ratings are based upon a qualitative and
quantitative analysis of all segments of the organization including, where
applicable, holding company and operating subsidiaries.
BankWatch(TM) Ratings do not constitute a recommendation to buy or sell
securities of any of these companies. Further, BankWatch does not suggest
specific investment criteria for individual clients.
The TBW Short-Term Ratings apply to commercial paper, other senior short-term
obligations and deposit obligations of the entities to which the rating has been
assigned.
The TBW Short-Term Ratings apply only to unsecured instruments that have a
maturity of one year or less.
The TBW Short-Term Ratings specifically assess the likelihood of an untimely
payment of principal or interest.
TBW-1 The highest category; indicates a very high degree of likelihood
that principal and interest will be paid on a timely basis.
Page 83 of 91
<PAGE> 88
TBW-2 The second highest category; while the degree of safety
regarding timely repayment of principal and interest is strong, the
relative degree of safety is not as high as for issues rated "TBW-1."
TBW-3 The lowest investment grade category; indicates that while more
susceptible to adverse developments (both internal and external) than
obligations with higher ratings, capacity to service principal and
interest in a timely fashion is considered adequate.
TBW-4 The lowest rating category; this rating is regarded as
non-investment grade and therefore speculative.
Page 84 of 91
<PAGE> 89
PART C
OTHER INFORMATION
Item 24. Financial Statement and Exhibits
(a) Report of Independent Accountants dated
February 23, 1996
(b) Statements of Investments at December 31, 1995
(audited)
(c) Statements of Assets and Liabilities at December 31,
1995 (audited)
(d) Statements of Operations for period ended December
31, 1995 (audited)
(e) Statements of Changes in Net Assets for period ended
December 31, 1995 (audited)
(f) Notes to Financial Statements
(g) Financial Highlights
(b) Exhibits
(1) Amended Declaration of Trust dated August
1, 1994, is incorporated by reference to
Pre-Effective Amendment No. 2 to
Registrant's registration statement on Form
N-1A, filed on July 29, 1994.
(2) Registrant's Bylaws Dated July 8, 1993, are
incorporated by reference to Registrant's
registration statement on Form N-1A, filed
on July 14, 1993.
(3) None
(4) None
(5) Investment Advisory Agreement is
incorporated by reference to Pre- Effective
Amendment No. 2 to the Registrant's
registration statement on Form N-1A, filed
on July 29, 1994.
(6) None
(8) Custodian Agreement with State Street Bank
and Trust Company, is incorporated by
reference to Pre-Effective Amendment
No. 1 to the Registrant's registration
statement on Form N-1A, filed on May 26,
1994
(9.1) Transfer and Dividend Disbursing Agent
Agreement between Registrant and Nationwide
Investors Services, Inc., is incorporated by
reference to Pre-Effective Amendment No. 1
to the Registrant's registration statement
on Form N-1A, filed on May 26, 1994.
(9.2) Fund Participation Agreement among the
Registrant, Financial Horizons Life
Insurance Company (now known as Nationwide
Life and Annuity Insurance Company), and
Nationwide Financial Services, Inc. is
incorporated by reference to Pre-Effective
Amendment No. 2 to Regis- trant's
registration statement on Form N-1A, filed
on July 29, 1994.
(9.3) Administrative Services Agreement between
Registrant and Nation- wide Financial
Services, Inc. is incorporated by reference
to Pre- Effective Amendment No. 1 to the
Registrant's registration statement on Form
N-1A, filed on May 26, 1994.
(10) Opinion of Ropes & Gray, Counsel for
Registrant, as to legality of shares is
incorporated by reference to Registrant's
24f-2 Notice, filed on February 28, 1996.
(11) Consent of Ropes & Gray, Counsel for
Registrant.
(11.1) Consent of Price Waterhouse LLP,
Independent Accountants.
(12) None
(13) None
(14) None
(15) None
(16) None
(17.1) Financial Data Schedule for the Government
Bond Fund.
(17.2) Financial Data Schedule for the Asset
Allocation Fund.
Page 85 of 91
<PAGE> 90
(17.3) Financial Data Schedule for the Growth
Opportunities Fund.
(17.4) Financial Data Schedule for the Large
Company Growth Fund.
Copies of powers of attorney of Registrant's trustees and
officers whose names are signed to this Registration
Statement pursuant to said powers of attorneys are filed
herewith.
ITEM 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH
REGISTRANT
Registrant neither controls any person nor is
under common control with any other person.
ITEM 26. NUMBER OF HOLDERS OF SECURITIES
March 31, 1996
The One Group(R)Investment Trust
Government Bond Fund 1
Asset Allocation Fund 2
Growth Opportunities Fund 1
Large Company Growth Fund 1
ITEM 27. INDEMNIFICATION
Limitation of Liability and Indemnification provisions for
Trustees, Shareholders, officers, employees and agents of Registrant are set
forth in Article V, Sections 5.1 through 5.3 of the Declaration of Trust. No
Trustee, officer, employee or agent of the Trust shall be subject to any
personal liability whatsoever to any Person other than the Trust or its
Shareholders, in connection with Trust Property or the affairs of the Trust,
save only that arising from bad faith, willful misfeasance, gross negligence or
reckless disregard for his duty to such Person; and all such Persons shall look
solely to the Trust Property for satisfaction of claims of any nature arising
in connection with the affairs of the Trust. If any Shareholder, Trustee,
officer, employee or agent, as such, of the Trust is made a party to any suit
or proceeding to enforce any such liability, he shall not, on account thereof,
be held to any personal liability. The Trust shall indemnify and hold each
Shareholder harmless from and against all claims and liabilities, to which such
Shareholder may become subject by reason of his being or having been a
Shareholder, and shall reimburse such Shareholder for all legal and other
expenses reasonably incurred by him in connection with any such claim or
liability. The rights accruing to a Shareholder under Section 5.1 of the
Declaration of Trust 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 herein.
No Trustee, officer, employee or agent of the Trust shall be
liable to the Trust, its Shareholders, or to any Shareholder, Trustee, officer,
employee or agent thereof for any action or failure to act (including without
limitation the failure to compel in any way any former or acting Trustee to
redress any breach of trust) except for his own bad faith, willful misfeasance,
gross negligence or reckless disregard of his duties.
(a) Subject to the exceptions and limitations contained
in paragraph (b) below:
(i) every person who is or has been a Trustee
or officer of the Trust shall be indemnified by the Trust against all
liability and against all expenses reasonably incurred or paid by him in
connection with any claim, action, suit or proceeding in which he becomes
involved as a party or otherwise by virtue of his being or having been a
Trustee or officer and against amounts paid or incurred by him in the
settlement thereof:
(ii) the words "claim," "action," "suit" or
"proceeding" shall apply to all claims, actions, suits or proceedings (civil,
criminal, or other, including appeals), actual or threatened; and the words
"liability" and "expenses" shall include, without limitation, attorneys' fees,
costs, judgments, amounts paid in settlement, fines, penalties and other
liabilities.
(b) No indemnification shall be provided hereunder to a
Trustee or officer:
(i) against any liability to the Trust or the
Shareholders by reason of a final adjudication by the court or other body
before which the proceeding was brought that he engaged in willful
misfeasance, bad faith, gross negligence or reckless disregard of the
duties involved in the conduct of his office;
(ii) with respect to any matter as to which he
shall have been finally adjudicated not to have acted in good faith in the
reasonable belief that his action was in the best interest of the Trust:
(iii) in the event of a settlement of other
disposition not involving a final adjudication as provided in paragraphs (b)
(i) or (b) (ii) resulting in a payment by a Trustee or officer, unless there
has been either a
Page 86 of 91
<PAGE> 91
determination that such Trustee or officer did not engage in willful
misfeasance, bad faith, gross negligence or reckless disregard of the duties
involved in the conduct of his office by the court or other body approving the
settlement or other disposition or a reasonable determination, based upon a
review of readily available facts (as opposed to a full trial-type inquiry)
that he did not engage in such conduct:
(A) by vote of a majority of the Disinterested
Trustees acting on the matter (provided that a majority of the Disinterested
Trustees then in office act on the matter); or
(B) by written opinion of independent legal
counsel.
(c) The rights of indemnification herein provided may be
insured against by policies maintained by the Trust, shall be severable, shall
not affect any other rights to which any Trustee or officer may now or
hereafter be entitled, shall continue as to a Person who has ceased to be such
Trustee or officer and shall inure to the benefit of the heirs, executors and
administrators of such Person. Nothing contained herein shall affect any rights
to indemnification to which personnel other than Trustees and officers may be
entitled by contract or otherwise under law.
(d) Expenses of preparation and presentation of a
defense to any claim, action, suit or proceeding of the character described in
paragraph (a) of Section 5.3 of the Declaration of Trust shall be advanced by
the Trust prior to final disposition thereof upon receipt of an undertaking by
or on behalf of the recipient to repay such amount if it is ultimately
determined that he is not entitled to indemnification under Section 5.3 of the
Declaration of Trust, provided that either:
(i) such undertaking is secured by a surety
bond or some other appropriate security or the Trust shall be insured
against losses arising out of any such advances; or
(ii) a majority of the Disinterested Trustees
acting on the matter (provided that a majority of the Disinterested Trustees
then in office act on the matter) or an independent legal counsel in a written
opinion, shall determine, based upon a review of readily available facts (as
opposed to a full trial-type inquiry), that there is reason to believe that the
recipient ultimately will be found entitled to indemnification.
As used in Section 5.3 of the Declaration of Trust, a "Disinterested
Trustee" is one (i) who is not an "Interested Person" by any rule, regulation
or order of the Commission), and (ii) against whom none of such actions, suits
or other proceedings or another action, suit or other proceeding on the same or
similar grounds is then or had been pending. See Item 24(b)(1) (Exhibit 1)
above, whose terms and conditions as summarized herein are hereby incorporated
by reference.
Limitation of liability provisions for the Investment Adviser are set
forth in paragraph 4 of the Investment Advisory Agreement. The Investment
Adviser shall not be liable for any instructions, action or failure to act, or
for any loss sustained by reason of the adoption of any investment policy or
the purchase, sale or retention of any security on the recommendation of the
Investment Adviser, whether or not such recommendation shall have been based
upon its own investigation and research made by any other individual, firm or
corporation, if such recommendation shall have been made and such other
individual, firm or corporation shall have been selected with due care and in
good faith; but nothing herein contained shall be construed to protect the
Manager against any liability to the Trust or its security holders by reason of
willful misfeasance, bad faith or gross negligence in the performance of its
duties or by reason of its reckless disregard of its obligations and duties
under this agreement. See item 24(b)(5) above (Exhibit 3), whose terms and
conditions as summarized herein are hereby incorporated by reference.
Registrant undertakes that it will comply with the indemnification
provisions of its Declaration of Trust, Investment Advisory Agreement, and any
other agreement to which the Registrant is a party containing indemnification
provisions in accordance with the provisions of Investment Company Act of 1940
Release No. 11330, as modified from time to time.
Insofar as indemnification for liability arising under the Securities
Act of 1933 may be permitted to Trustees, officers and controlling persons of
the Registrant pursuant to the Registrant's Bylaws, or otherwise, the
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 the
Registrant of expenses incurred or paid by a Trustee, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the 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 whether
such indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
ITEM 28. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER
Banc One Investment Advisers Corporation (the "Adviser")
performs investment advisory services for all of the Funds of
the Group. The Adviser is an indirect wholly-owned subsidiary
of
Page 87 of 91
<PAGE> 92
BANC ONE CORPORATION, a multi-state bank holding company
located in Columbus, Ohio. As of December 31, 1995, BANC ONE
CORPORATION had assets of $90.5 billion and common equity of
$7.9 billion. BANC ONE CORPORATION now operates 56 banks with
1,558 offices in Arizona, Colorado, Illinois, Indiana,
Kentucky, Louisiana, Ohio, Oklahoma, Texas, Utah, West
Virginia and Wisconsin. BANC ONE CORPORATION also operates
several additional corporations that engage in data
processing, venture capital, investment and merchant banking,
trust, brokerage, investment management, equipment leasing,
mortgage banking, consumer finance, and insurance. To the
knowledge of Registrant, none of the directors or officers of
the Adviser, except as set forth 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 the Adviser who are
engaged in any other business, profession, vocation or
employment of a substantial nature.
Banc One Investment Advisors Corporation
<TABLE>
<CAPTION>
Position With Other
Banc One Investment Substantial Type of
Advisors Corporation Occupation Business
-------------------- ---------- --------
<S> <C> <C>
David J. Kundert President and CEO, Banc One Investment
Chairman Investment Advisors Corp.; Adviser
Chairman, Banc One Trust
Company, NA
Frederick L. Cullen Chairman/CEO, Banc One Banking
Director Columbus, NA; President, Banc
One Ohio Corporation
Garrett Jamison Senior Managing Director, Banking
Director Banc One Trust Company, NA
Geoff Von Kuhn Senior Managing Director, Banking
Director Banc One Trust Company, NA
Michael J. McMennamin Executive VP Banking
Director Banc One Corporation
David R. Meuse Chairman/CEO Banc One Investment
Director Capital Holding Corporation Banking
</TABLE>
ITEM 29. PRINCIPAL UNDERWRITER
Not applicable.
ITEM 30. LOCATION OF ACCOUNTS AND RECORDS
Trust Agreements, Bylaws and Minute Books:
Alan G. Priest
Ropes & Gray
One Franklin Square
1301 K Street, N.W.
Suite 800 East
Washington, D.C. 20005-3333
Records relating to investment advisory services:
Banc One Investment Advisors Corporation
744 Park Meadow Drive
Columbus, OH 43271-0211
All other Accounts and Records:
William G. Goslee
Page 88 of 91
<PAGE> 93
Nationwide Financial Services, Inc.
One Nationwide Plaza
Columbus, OH 43216
ITEM 31. MANAGEMENT SERVICES
All management-related service contracts entered into by
Registrant are discussed in Parts A and B of this Registration Statement.
ITEM 32. UNDERTAKINGS
Registrant undertakes to furnish to each person to whom a
prospectus is delivered a copy of Registrant's latest annual report to
shareholders upon request and without charge.
Registrant undertakes to call a meeting of Shareholders, at
the request of at least 10% of the Registrant's outstanding shares, for the
purpose of voting upon the question of removal of a trustee or trustees and to
assist in communications with other shareholders as required by Section 16(c)
of the Investment Company Act of 1940.
Page 89 of 91
<PAGE> 94
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, as amended, the Registrant certifies that it
meets all of the requirements for effectiveness of this Registration Statement
pursuant to Rule 485(b) under the 1933 Act and has duly caused this Amendment
to the Registration Statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of Columbus, Ohio on the 24th day of
April, 1996.
THE ONE GROUP(R) INVESTMENT TRUST (Registrant)
By: /s/ * Duane C. Meek
- --------------------------------------------------------------------------------
Pursuant to the requirement of the Securities Act of 1933, this Amendment
to the Registration Statement of The One Group(R) Investment Trust has been
signed below by the following persons in the capacities indicated on the 24th
day of April, 1996.
<TABLE>
<CAPTION>
Signature Title Date
- --------- -------------------------------------
<S> <C>
*/s/ Peter C. Marshall Trustee 4/24/96
- ---------------------------------------------------------------------------------------------
Peter C. Marshall
*/s/ Charles I. Post Trustee 4/24/96
- ---------------------------------------------------------------------------------------------
Charles I. Post
*/s/ John S. Randall Trustee 4/24/96
- ---------------------------------------------------------------------------------------------
John S. Randall
*/s/ Frederick W. Ruebeck Trustee 4/24/96
- ---------------------------------------------------------------------------------------------
Frederick W. Ruebeck
PRINCIPAL ACCOUNTING AND FINANCIAL OFFICER
*/s/ James F. Laird Jr. Vice President 4/24/96
- ---------------------------------------------------------------------------------------------
James F. Laird Jr. and Treasurer
*By /s/ Alan Priest 4/24/96
- ---------------------------------------------------------------------------------------------
Alan Priest
Attorney-in-fact
PRINCIPAL EXECUTIVE OFFICER
/s/ * Duane C. Meek President 4/24/96
- ---------------------------------------------------------------------------------------------
Duane C. Meek
</TABLE>
Page 91 of 91
<PAGE> 95
POWER OF ATTORNEY
-----------------
Each of the undersigned, Duane C. Meek and James F. Laird, Jr., whose
signature appears below, does hereby constitute and appoint Martin E. Lybecker,
Alan G. Priest, and Linda Dallas Rich, each individually, his true and lawful
attorneys and agents, with pwer 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(R) GroupSM Investment Trust (the
"Trust"), 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 Trust,
including specifically, but without limiting the generality of the foregoing,
the power and authority to sign in the name and on behalf of the respective
undersigned as a director and/or officer of the Trust any and all amendments to
the Trust's Registration Statement as filed with the Securities and Exchange
Commission under said Acts, and each 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: March 1, 1996
/s/ Duane C. Meek
-------------------------
Duane C. Meek
/s/ James F. Laird, Jr.
-------------------------
James F. Laird, Jr.
<PAGE> 96
POWER OF ATTORNEY
-----------------
Each of the undersigned, Peter C. Marshall, Charles I. Post, John S.
Randall and Frederick W. Ruebeck, whose signature appears below, does hereby
constitute and appoint Martin E. Lybecker, Alan G. Priest, and Linda Dallas
Rich, 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(R) Group(SM) Investment Trust (the "Trust"), 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 Trust, including specifically, but
without limiting the generality of the foregoing, the power and authority to
sign in the name and on behalf of the respective undersigned as a director
and/or officer of the Trust any and all amendments to the Trust's Registration
Statement as filed with the Securities and Exchange Commission under said Acts,
and each 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: 5/16/94
---------------------------
/s/ Peter C. Marshall
-----------------------------------
Peter C. Marshall
/s/ Charles I. Post
-----------------------------------
Charles I. Post
/s/ John S. Randall
-----------------------------------
John S. Randall
/s/ Frederick W. Ruebeck
-----------------------------------
Frederick W. Ruebeck
<PAGE> 97
EXHIBIT INDEX
Form N-1A Item No. Description
24(b)(11) Consent of Ropes & Gray,
Counsel for Registrant
24(b)(11.1) Consent of Price Waterhouse LLP,
Independent Accountants
24(b)(17.1) Financial Data Schedule for the
Government Bond Fund
24(b)(17.2) Financial Data Schedule for the
Asset Allocation Fund
24(b)(17.3) Financial Data Schedule for the
Growth Opportunities Fund
24(b)(17.4) Financial Data Schedule for the
Large Company Growth Fund
<PAGE> 1
Exhibit 24(b)(11)
CONSENT OF COUNSEL
We hereby consent to the use of our name and to the reference to our firm
under the caption "Legal Counsel" included in or made a part of Post-Effective
Amendment No. 4 to the Registration Statement of The One Group(R) Investment
Trust on Form N-1A (Nos. 33-66080 and 811-7874) under the Securities Act of
1933, as amended.
Ropes & Gray
Washington, D.C.
April 24, 1996
<PAGE> 2
AUDITORS' CONSENT
To the Trustees and Shareholders of The One(R) Group(SM) Investment Trust:
We consent to the use of our report dated February 23,
1996 included in the Statement of Additional
Information and to the reference to our firm under the
heading "Financial Highlights" in the prospectus.
Price Waterhouse LLP
Columbus, Ohio
April 12, 1996
Page 90 of 91
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