<PAGE> 1
Exhibits start on page _________
As filed with the Securities and Exchange Commission on April 24, 1997
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. 5 X
and/or
REGISTRATION STATEMENT UNDER THE X
INVESTMENT COMPANY ACT OF 1940
Amendment No. 7 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:
David E. Simaitis Alan G. Priest
Druen, Rath & Dietrich Ropes & Gray
One Nationwide Plaza 1301 K Street, N.W.
Columbus, Ohio 43216 Suite 800 East
Washington, D.C. 20005
It is proposed that this filing will become effective (check appropriate box)
_ immediately upon filing pursuant to paragraph (b)
X on April 30, 1997 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, 1996 on February 27,
1997.
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THE ONE GROUP(R) INVESTMENT TRUST
GOVERNMENT BOND FUND
ASSET ALLOCATION FUND
GROWTH OPPORTUNITIES FUND
LARGE COMPANY GROWTH FUND
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CROSS REFERENCE SHEET
N-1A Item No. Location
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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
<PAGE> 3
CROSS REFERENCE SHEET
N-1A Item No. Location
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PART B
Item 22. Calculation of Performance Data...........Calculation of Performance
Data
Item 23. Financial Statements......................Financial Statements
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.
<PAGE> 4
PROSPECTUS
MAY 1, 1997
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 AnnuitySM and to 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, 1997, 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.
1
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FINANCIAL HIGHLIGHTS
The following financial highlights of the One Group 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.
THE ONE GROUP(R) INVESTMENT TRUST
Financial Highlights Of The Trust
Selected per share data and ratios for a share outstanding throughout the period
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<TABLE>
<CAPTION>
Government Bond Asset Allocation
------------------------------------- -------------------------------------------
Year Ended Year Ended August 1, - Year Ended Year Ended August 1, -
December 31, December 31, December 31, December 31, December 31, December 31,
1996 1995 1994 * 1996 1995 1994 *
---------- --------- --------- ------------ --------- ---------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE -
BEGINNING OF PERIOD $ 10.48 $ 9.69 $ 10.00 $ 11.24 $ 9.81 $ 10.00
---------- --------- --------- ------------ --------- ---------
Net investment income 0.59 0.64 0.22 0.34 0.36 0.06
Net realized and unrealized
appreciation (depreciation) (0.33) 0.94 (0.31) 0.98 1.64 (0.19)
---------- --------- --------- ------------ --------- ---------
Total from investment operations 0.26 1.58 (0.09) 1.32 2.00 (0.13)
---------- --------- --------- ------------ --------- ---------
Distributions from net investment
income (0.59) (0.64) (0.22) (0.34) (0.36) (0.06)
Distributions from net realized
gains from investment
transactions -- (0.15) -- (0.23) (0.21) --
Distributions in excess net
realized gains from investment
transactions -- -- -- (0.04) -- --
Tax return of capital distribution -- -- -- (0.02) -- --
---------- --------- --------- ------------ --------- ---------
Total distributions (0.59) (0.79) (0.22) (0.63) (0.57) (0.06)
---------- --------- --------- ------------ --------- ---------
Net increase (decrease) in net
asset value (0.33) 0.79 (0.31) 0.69 1.43 (0.19)
---------- --------- --------- ------------ --------- ---------
NET ASSET VALUE -
END OF PERIOD $ 10.15 $ 10.48 $ 9.69 $ 11.93 $ 11.24 $ 9.81
========== ========= ========= ============ ========= =========
Total return 2.69% 16.69% (0.90%) 11.92% 20.69% (1.32%)
Ratios and supplemental data:
Net assets end of period (000) $ 14,622 $ 9,016 $ 5,112 $ 14,883 $ 5,455 $ 2,063
Ratio of expenses to average
net assets 0.75% 0.75% 0.75%** 1.00% 1.00% 1.00%**
Ratio of expenses to average
net assets excluding
waivers/reimbursements*** 1.01% 1.47% 1.94%** 1.44% 1.96% 2.36%**
Ratio of net investment income
to average net assets 6.11% 6.54% 6.09%** 3.27% 3.66% 1.88%**
Ratio of net investment income
to average net assets excluding
waivers/reimbursements *** 5.85% 5.80% 4.90%** 2.83% 2.70% 0.52%**
Portfolio turnover 21.3% 34.1% 3.5% 64.8% 66.3% --
Average commission rate paid**** -- -- -- 4.4023c -- --
</TABLE>
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* Initial public offering was August 1, 1994. Total Return is not
annualized.
** Ratios are annualized for periods of less than one year.
*** Ratios calculated as if no expenses were waived.
**** Represents the total amount of commission paid in portfolio equity
transactions divided by the total number of shares purchased and sold by
the Fund which commissions were charged.
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.
2
<PAGE> 6
FINANCIAL HIGHLIGHTS
The following financial highlights of the One Group 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.
THE ONE GROUP(R) INVESTMENT TRUST
Financial Highlights Of The Trust
Selected per share data and ratios for a share outstanding throughout the period
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Growth Opportunities Large Company Growth
------------------------------------------- ------------------------------------------
Year Ended Year Ended August 1, - Year Ended Year Ended August 1, -
December 31, December 31, December 31, December 31, December 31, December 31,
1996 1995 1994 * 1996 1995 1994 *
------------ --------- ------- ------------ ---------- ---------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE -
BEGINNING OF PERIOD $ 11.52 $ 9.70 $ 10.00 $ 12.12 $ 9.99 $ 10.00
------------ --------- ------- ------------ ---------- ---------
Net investment income 0.18 0.04 -- 0.16 0.20 0.05
Net realized and unrealized
appreciation (depreciation) 1.62 2.29 (0.30) 1.86 2.20 0.01
------------ --------- ------- ------------ ---------- ---------
Total from investment
operations 1.80 2.33 (0.30) 2.02 2.40 0.06
------------ --------- ------- ------------ ---------- ---------
Distributions from net investment
income (0.19) (0.04) -- (0.16) (0.20) (0.05)
Distributions from net realized
gains from investment
transactions (0.78) (0.47) -- (0.30) (0.07) (0.02)
Distributions in excess net
realized gains from investment
transactions (0.24) -- -- (0.01) -- --
------------ --------- ------- ------------ ---------- ---------
Total distributions (1.21) (0.51) -- (0.47) (0.27) (0.07)
------------ --------- ------- ------------ ---------- ---------
Net increase (decrease) in net
asset value 0.59 1.82 (0.30) 1.55 2.13 (0.01)
------------ --------- ------- ------------ ---------- ---------
NET ASSET VALUE -
END OF PERIOD $ 12.11 $ 11.52 $ 9.70 $ 13.67 $ 12.12 $ 9.99
============ ========= ======= ============ ========== =========
Total return 15.67% 24.06% (3.00%) 16.67% 24.13% 0.52%
Ratios and supplemental data:
Net assets end of period (000)$ 22,339 $ 6,685 $ 940 $ 42,893 $ 16,119 $ 4,175
Ratio of expenses to average
net assets 1.06% 0.90% 0.90%** 0.98% 0.90%
0.90%**
Ratio of expenses to average
net assets excluding
waivers/reimbursements*** 1.40% 2.78% 2.96%** 1.16% 1.64% 2.08%**
Ratio of net investment income
to average net assets 1.85% .46% (0.17%)** 1.29% 2.02% 1.39%**
Ratio of net investment income
to average net assets excluding
waivers/reimbursements *** 1.51% (1.42%) (2.22%)** 1.11% 1.28% 0.22%**
Portfolio turnover 326.9% 193.3% 3.5% 38.7% 37.4% 4.4%
Average commission rate paid**** 3.1357(cent) -- -- 3.6143(cent) -- --
</TABLE>
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* Initial public offering was August 1, 1994. Total Return is not
annualized.
** Ratios are annualized for periods of less than one year.
*** Ratios calculated as if no expenses were waived.
**** Represents the total amount of commission paid in portfolio equity
transactions divided by the total number of shares purchased and sold by
the Fund which commissions were charged.
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.
3
<PAGE> 7
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 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 by investing
primarily in equity securities. 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. The Adviser is an indirect subsidiary of BANC ONE CORPORATION. The
Adviser may voluntarily agree to waive all or part of its fees in order to limit
the Funds' operating expenses. A more detailed discussion of the Adviser, its
services and compensation can be found in the Prospectus under the heading "The
Adviser".
Who is the Administrator? Nationwide Advisory Services, Inc. (NAS), (formly
known as Nationwide Financial Services, Inc.) serves as Administrator of the
Trust and is entitled to a fee, for services provided for the Trust. 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 obligations 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 AnnuitySM, refer
to the prospectus of The One(R) Investors AnnuitySM 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 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.
4
<PAGE> 8
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.
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 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. 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 deman 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 which limit their
investments to U.S. Government obligations, 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"), 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.
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<PAGE> 9
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.
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.
6
<PAGE> 10
To the extent the Fund is engaged in a temporary defensive position, the
Fund will not be pursuing its investment objective.
--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 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.
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<PAGE> 11
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 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.
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 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 15% of its total assets in
restricted securities, including unsponsored ADRs. There
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<PAGE> 12
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."
Illiquid Investments
Each Fund may invest up to 15% of its net assets in illiquid investment,
including restricted securities or private placements that are not deemed to be
liquid by Banc One Advisers. An illiquid investment is a security that can not
be disposed of promptly in seven (7) days. Banc One Advisors may determine that
securities that cannot be sold to the general public but may be sold to
instititutional investors (for example Rule 144A securities and privately placed
commercial paper) are liquid. In making liquidity determinations, Banc One
Advisers will follow guidelines established by the Board of Trustees.
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.
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<PAGE> 13
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 publicly available about
and less regulation of foreign issuers than U.S. companies. Transaction costs
are generally higher 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 investment or transaction settlement 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 years ended December 31, 1996 and 1995, the portfolio turnover
rates for the equity funds were: Large Company Growth Fund 38.7% and 37.4%,
respectively, Growth Opportunities Fund 326.9% and 193.3%, respectively, and
Asset Allocation Fund 64.8% and 66.3%, respectively. The higher portfolio
turnover rates for the Growth Opportunities Fund was a result of a conscience
shift into larger capitalization issues and the volatility in small and
mid-capitalization technology stocks. 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.
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, 1996, BANC ONE CORPORATION had assets of
$98 billion. BANC ONE CORPORATION now operates 42 banks throughout the United
States. 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
Portfolio Manager and Title Business Experience
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.
Ashi Parikh Co-Fund Manager of the Growth
Fund Manager Opportunities Fund of the One
GroupAE Investment Trust effective
May 1, 1997. Upon joining the
adviser and its affliates in 1992,
Mr. Parikh worked as a Research
Analyst and Assistant Fund Manager.
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 Co-Fund Manager of the equity
Director of Equity Research portion of the Asset Allocation
Fund of The One Group(R) Investment
Trust effective May 1, 1997. Prior
to May 1, 1997, he manged the
equity portion of the Asset
Allocation Fund since its
inception. Before 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.
Daniel J. Kapusta Co-Fund Manager of the equity
Equity Research Analyst portion of the Asset Senior
Allocation Fund effective May 1,
1997. Mr. Kapusta has been an
equity analyst at Banc One Advisors
since 1992. He followed the
industrial commodities sector for
two years and currently follows
approximately 65 companies in the
retail sector. Before joining Banc
One Investment Advisors, he worked
at Robert W. Baird, Inc. in
Milwaukee as a sell-side equity
analyst.
Scott Grimshaw Fund Manager of the fixed income
Director of Derivative Research portion of the Asset Allocation
Fund of The One Group(R) Investment
Trust effective May 1, 1997. Mr.
Grimshaw served as the Senior
Investment Officer in the
Quantitative Research and Analysis
Group for the Adviser and its
affliates prior to his current
position.
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.
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<PAGE> 16
The Administrator
Nationwide Advisory Services, Inc. (the "Administrator"), a wholly owned
subsidiary of Nationwide Life Insurance Company, which in turn is a wholly owned
subsidiary of Nationwide Financial Services, Inc., a 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 $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 AnnuitySM 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 irreconcilable conflicts
possibly may arise. The Trust's Board will monitor events in order to identify
the existence 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 AnnuitySM.
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.
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<PAGE> 17
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.
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 AnnuitySM 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
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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 AnnuitySM 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 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 AnnuitySM 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
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Independent Accountants
Price Waterhouse LLP, 2 Easton Oval, Columbus, OH 43219, 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.
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.
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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.
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.
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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 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 of the Funds may invest in commercial paper
issued in reliance on the exemption from registration afforded by Section 4(2)
of the Securities Act of 1933 and other restricted securities. Section 4(2)
commercial paper is restricted as to disposition under federal securities law
and is generally sold to institutional investors, such as the Funds, who agree
that they are purchasing the paper for investment purposes and not with a view
to public distribution. Any resale by the purchaser must be in an exempt
transaction. Section 4(2) commercial paper is normally resold to other
institutional investors like the Funds through or with the assistance of the
issuer or investment dealers who make a market in Section 4(2) commercial paper,
thus providing liquidity. The Funds believe that Section 4(2) commercial paper
and possibly certain other restricted securities which meet the criteria for
liquidity established by the Trustees are quite liquid. The Funds intend,
therefore, to treat the restricted securities which meet the criteria for
liquidity established by the Trustees, including Section 4(2) commercial paper,
as determined by the Funds' Adviser, as liquid and not subject to the investment
limitation applicable to illiquid securities.
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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 Bank One Advisers to consider the following criteria in
determining the liquidity of certain restricted securities:
o the frequency of trades and quotes for the security;
o the number of dealers willing to purchase or sell the security and the
number of other potential buyers;
o dealer undertakings to make a market in the security; and
o the nature of the security and the nature of the marketplace trades.
Certain Section 4(2) commercial paper programs cannot rely on Rule 144a
because , among other things, they were established before the adoption of the
rule. However, the Trustees may determine for purposes of the Trust's liquidity
requirements that an issue of 4(2) commercial paper is liquid if the following
conditions, which set forth in a 1994 SEC no -action letter are met:
o The 4(2) paper must not be traded flat or in default as to principal
or interest;
o The 4(2) paper must be rated in one of the two highest rating
categories by at least two nationally recognized statistical rating
organizations ("NRSROs"), or if only one NRSRO rates the securitiy, by
that NRSRO , or if unrated, is determined by Banc One Advisors to be
equivalent quality; and
o Banc One Advisors must consider the trading market specific security ,
taking into account all relevant factors, including but not limited,
to whether the paper is subject of a commercial paperprogram that is
administered by an issuing and paying agent bank and for which there
exists a dealer willing to make a market paper, or is administered by
a direct issuer pursuant to a direct placement program; and
o Banc One Advisors shall monitor the liquidity of the 4(2) commercial
paper purchased and shall report to the Board of trustees promptly if
any such securities are no longer determined to be liquid if such
determination causes a fund to hold more than 15% of its total assets
illiquid securities in order for the Board of Trustees to consider
what action, if any, should be taken on behalf of The One Group,
unless Banc One Avisors is able to dispose of illiquid assets in an
orderly manner in an amount that reduces the Fund's holdings of
illiquid assets to less than 15% of its total assets; and
o Banc One Advisors shall report to the Board of Trustees on the
appropriateness of the purchase and retention of liquid restricted
securities under these Guidelines no less frequently than quarterly.
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 of the options would not be
profitable for a Fund, losses of the premiums paid may be offset by an increase
in
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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
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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.
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, The Government Bond Fund
and Asset Allocation 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.
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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 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
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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--The Government Bond Fund and Asset Allocation 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 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.
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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.
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
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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
facilities, for refunding outstanding obligations, for general operating
expenses, and for lending such funds to other public
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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
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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 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
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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.
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
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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 and Asset Allocation 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 and Asset Allocation 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
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-
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term 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
Page
FINANCIAL HIGHLIGHTS..........................................................2
SUMMARY.......................................................................4
INVESTMENT OBJECTIVES
Government Bond Fund............................................4
Asset Allocation Fund...........................................4
Growth Opportunities Fund.......................................4
Large Company Growth Fund.......................................4
INVESTMENT POLICIES
The Government Bond Fund........................................5
Permitted Investments................................5
Risk Factors.........................................6
Temporary Defensive Position.........................6
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
Illiquid Investments.................................9
Risk Factors.........................................9
Temporary Defensive Position.........................10
Portfolio Turnover...................................10
INVESTMENT LIMITATIONS........................................................10
MANAGEMENT OF THE TRUST
The Trustees....................................................11
The Adviser.....................................................11
The Administrator...............................................13
Transfer and Dividend Paying Agent..............................13
Expenses of the Trust...........................................13
DESCRIPTION OF THE TRUST
Shareholder Rights..............................................13
Description of Shares...........................................14
Inquiries.......................................................14
Share Redemption................................................14
Net Asset Value.................................................14
Dividends.......................................................14
Tax Status......................................................14
ADDITIONAL INFORMATION
Performance.....................................................15
The Custodian...................................................15
Independent Accountants.........................................16
Counsel.........................................................16
APPENDIX A: DESCRIPTION OF PERMITTED INVESTMENTS AND
ASSOCIATED RISKS.............................................................16
APPENDIX B: DESCRIPTION OF RATINGS............................................30
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.
32
<PAGE> 36
INVESTMENT ADVISER
Banc One Investment Advisors Corporation
1111 Polaris Parkway, Suite 100
Columbus, OH 43271-0211
ADMINISTRATOR
Nationwide Advisory Services, Inc.
Three Nationwide Plaza
Columbus, OH 43215
TRANSFER AGENT AND DIVIDEND DISBURSING AGENT
Nationwide Investors Services, Inc.
Box 1492
Three 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
2 Easton Oval
Columbus, OH 43219
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<PAGE> 37
STATEMENT OF ADDITIONAL INFORMATION
THE ONE GROUP(R) INVESTMENT TRUST
o Government Bond Fund
o Asset Allocation Fund
o Growth Opportunities Fund
o Large Company Growth Fund
May 1, 1997
================================================================================
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
Page
----
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-11
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
OF PER SHARE NET ASSET VALUE........................................B-16
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION...........................B-16
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Page
----
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
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-53
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> 39
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 considered by the
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. Government, see
"Investment Objective and Policies--Mortgage-related Securities" in this
Statement of Additional Information.
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<PAGE> 40
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 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.
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<PAGE> 41
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 in the contract. However, because the
futures strategies engaged in the Funds are only for hedging purposes, the
Adviser does not believe that the Funds are subject to the risks of loss
frequently associated with futures transactions. Each Fund
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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 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
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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.
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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, 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
11
<PAGE> 48
public purposes, including the construction of a wide range of public facilities
such as bridges, highways, roads, schools, water and sewer works, and other
utilities. Other public purposes for which Municipal Securities may be issued
include refunding outstanding obligations, obtaining funds for general operating
expenses and obtaining funds to lend to other public institutions and
facilities. In addition, certain debt obligations known as "private activity
bonds" may be issued by or on behalf of municipalities and public authorities to
obtain funds to provide certain water, sewage and solid waste facilities,
qualified residential rental projects, certain local electric, gas and other
heating or cooling facilities, qualified hazardous waste facilities, high-speed
intercity rail facilities, governmentally-owned airports, docks and wharves and
mass commuting facilities, certain qualified mortgages, student loan and
redevelopment bonds and bonds used for certain organizations exempt from federal
income taxation. 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
12
<PAGE> 49
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 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:
13
<PAGE> 50
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, 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 years ended December 31, 1996 and 1995, the portfolio turnover rates for
the funds were: Large Company Growth Fund 38.7% and 37.4%, respectively; Growth
Opportunities Fund 326.9% and 193.3%, respectively; Government Bond Fund 21.3%
and 34.1%, respectively; and Asset Allocation Fund 64.8% and 66.3%,
respectively. The higher portfolio rates for the Growth Opportunities Fund was a
result of a conscience shift into larger capitalization issues and the
voliatility in small and mid capitalization technology stocks. Higher turnover
rates will generally result in higher brokerage expenses and higher levels of
capital gain to each fund. Portfolio turnover may vary greatly from year to year
as well as within a particular year.
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.
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<PAGE> 51
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 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 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. A Fund is exempt from this excise tax
if at all times during the calendar year each shareholder in the Fund was either
a trust described in Section 401(a) of the Code and exempt from tax under
section 501(a) of the Code or a segregated asset account of a life insurance
company held in connection with variable contracts.
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. This 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.
The above discussion of the federal income tax treatment of the Trust
assumes that all the insurance company accounts holding shares of a Fund are
either segregated asset accounts underlying variable contracts as defined in
Section 817(d) of the Code or the general account of a life insurance company as
defined in Section 816 of the Code. Additional tax consequences may apply to
holders of variable contracts investing in a Fund if any of those contracts are
not treated as annuity, endowment or life insurance contracts.
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
15
<PAGE> 52
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.
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.
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<PAGE> 53
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.
Position(s) Held Principal Occupation
Name and Address With the Trust During Past 5 Years
- --------------------------------------------------------------------------------
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
Milwaukee, WI 53211 consultant.
Frederick W. Ruebeck Trustee From June, 1988 to
Eli Lilly & Company present has been Director
Lilly Corporate Center of Investments, Eli Lilly
307 East McCarty and Company.
Indianapolis, IN 46285
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 for the year ended December 31,
1996.
COMPENSATION TABLE1
<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 $39,000
Chairman
Charles I. Post, $3,000 N/A N/A $36,500
Trustee
John S. Randall, $3,000 N/A N/A $36,500
Trustee
Frederick W. Ruebeck, $3,000 N/A N/A $36,500
Trustee
</TABLE>
1 "Fund Complex" comprises all four funds of the Trust, as well as the 26
operational funds of The One Group(R). Compensation for the "Fund Complex"
is for the year ended June 30, 1996.
17
<PAGE> 54
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:
Position(s) Held Principal Occupation
Name and Address With the Trust During Past 5 Years
- --------------------------------------------------------------------------------
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
Three Nationwide Plaza and Treasurer President-General Manager
Columbus, Ohio 43215 of Nationwide Advisory
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 Advisory
Services, Inc. since
November, 1987.
David E. Simaitis* Vice President Mr. Simaitis holds the
One Nationwide Plaza and Secretary postion of Counsel in the
Columbus, Ohio 43216 Office of General Counsel
in the Nationwide
Insurance Enterprise. He
has held that position
since January 1994. From
November 1989 to January
1994 he was a Senior
Attorney in the Office of
General Counsel.
Robert O. Cline* Vice President Since November, 1995,
One Nationwide Plaza and Assistant Treasurer Mr. Cline has been
Columbus, Ohio 43216 Associate 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.
Karen R. Tackett* Vice President Ms. Tackett has been a
Three Nationwide Plaza and Assistant Treasurer Division Accounting Manager
Columbus, Ohio 43215 of Nationwide Advisory
Services, Inc. since
18
<PAGE> 55
March, 1996. Prior to
that, Ms. Tackett was
Audit Manager and held
various other positions
with Coopers & Lybrand
L.L.P.
Craig A. Carver* Vice President Mr. Carver has been Tax and
Three Nationwide Plaza and Assistant Secretary Compliance Manager of
Columbus, Ohio 43215 Nationwide Advisory
Services, Inc. since
January 1996. Prior to
that time, Mr. Carver
served as Financial
Controls Manager of
Nationwide Advisory
Services, Inc.
William G. Goslee* Vice President Mr. Goslee became Sales
One Nationwide Plaza and Assistant Treasurer Officer, Financial Services
Columbus, Ohio 43216 of Nationwide Life
Insurance Company in
March 1997. Prior to
that, Mr. Goslee was
Treasurer of Nationwide
Advisory Services, Inc.
since September 1995.
Prior to that time, Mr.
Goslee served as Vice
President and in various
other capacities with
Goldman Sachs & Co. since
1988.
*All officers listed above are "interested persons" of the Trust as defined in
the Investment Company Act of 1940.
19
<PAGE> 56
Major Shareholders
As of March 31, 1997, Nationwide Life and Annuity Insurance Company owned
of record and beneficially 38.7% of the shares of the Government Bond Fund, 6.9%
of the shares of the Asset Allocation Fund, 0.1% of the shares of the Growth
Opportunities Fund, and 8.9% of the shares of the Large Company Growth Fund; and
held of record 61.3% of the Government Bond Fund, 89.9% of the Asset Allocation
Fund, 99.9% of the Growth Opportunities Fund and 91.1% of the Large Company
Growth Fund for the benefit of investors in the The One Group(R) Variable
AnnuitySM. As of March 31, 1997, Banc One Capital Corporation owned beneficially
and of record 3.2% 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, 1996, BANC ONE CORPORATION had assets of
$98 billion. BANC ONE CORPORATION now operates 42 banks through out the United
States. 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.
During the years ended December 31, 1996, 1995, and the period ended
December 31, 1994, the Advisor received fees of $23,470 and $259, respectively,
from the Government Bond Fund; $26,690 and $1,919, respectively, from the Asset
Allocation Fund; $43,318 and $1,078, respectively, from the Growth Opportunities
Fund; and $136,980 and $1,432, respectively, from the Large Company Growth Fund.
The Adviser received no advisory fee during the year ended December 31, 1995.
During the years ended December 31, 1996, 1995 and the period ended
December 31, 1994, the Adviser waived advisory fees and reimbursed expenses in
the amounts of $31,993, $48,289 and $22,158, respectively in the Government Bond
Fund; $43,830, $32,368 and $8,562, respectively in the Asset Allocation Fund;
$48,685, $57,665 and $3,622,
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respectively in the Growth Opportunities Fund; and $53,497, $62,961 and $15,663,
respectively in the Large Company Growth Fund.
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.
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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, 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 Advisory Services, Inc. ("NAS")(formerly Nationwide Financial
Services, Inc.) 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 NAS 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 NAS.
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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 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, 1996, 1995 and 1994, the
Administrator received fees in the following amounts: Government Bond Fund
$29,580, $16,073 and $4,476 respectively, Asset Allocation Fund $24,178, $7,183
and $1,179, respectively, Growth Opportunities Fund $33,970, $7,356 and $423,
respectively and Large Company Growth Fund $70,330, $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.
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 NAS, 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, 2 Easton Oval, Columbus, Ohio 43219, 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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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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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, 1996
and the period from August 1, 1994 (date of initial public offering) through
December 31, 1996 was as follows:
One Year Since Inception
-------- ---------------
Government Bond Fund 2.69% 7.36%
Asset Allocation Fund 11.92% 12.61%
Growth Opportunities Fund 15.67% 14.64%
Large Company Growth Fund 16.67% 16.79%
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.
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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.
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FINANCIAL STATEMENTS
The following financial statements of the Funds are included in Part B:
I. Audited Financial Statements as of December 31, 1996
(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) Financial Highlights
(g) Notes to Financial Statements
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REPORT OF INDEPENDENT ACCOUNTANTS
To the Trustees and Shareholders of
The One(R) Group(SM) 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 Growth Opportunities Fund, and the Large Company Growth
Fund (constituting The One(R) Group(SM) Investment Trust, hereafter referred to
as the "Trust") at December 31, 1996, the results of each of their operations
for the year then ended, the changes in each of their net assets for each of the
two years in the period then ended 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 reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits, which included confirmation of securities at
December 31, 1996 by correspondence with the custodian and brokers, provide a
reasonable basis for the opinion expressed above.
Price Waterhouse LLP
New York, New York
February 7, 1997
THE ONE(R) GROUP(SM) INVESTMENT TRUST ANNUAL REPORT 1
<PAGE> 65
THE ONE(R) GROUP(SM) INVESTMENT TRUST
MANAGEMENT DISCUSSION OF FUND PERFORMANCE
GOVERNMENT BOND FUND
DECEMBER 31, 1996
The Government Bond Fund is managed by Thomas E. Donne, Chartered Financial
Analyst. Its investment objective is to seek a high level of current income,
consistent with capital preservation, by investing in securities issued or
backed by the U.S. government and its agencies.
Market perceptions of economic growth and the attendant prospects for inflation
again drove bond market returns in 1996. The year started with severe weather
conditions, a budget face off and the intermittent government shut downs in the
first quarter. Subsequent quarters demonstrated above average economic growth
with inflation still well contained. Nevertheless, bond market performance
overall for the year was disappointing. For example, the Salomon Brothers 3-7
Year Treasury/Government Index returned 3.65%.
The Government Bond Fund did fall below the index returning 2.69% for the year
ended December 31, 1996. The Fund's return was generated by emphasizing higher
yielding mortgage-backed securities. For most of the year, the Fund maintained a
neutral or slightly defensive maturity and duration posture which helped contain
some of the market's overall poor price performance.
The bond market is starting 1997 with a negative bias. Price appreciation is not
expected to contribute to performance until at least the second half of the
year. Accordingly, the Fund will continue to emphasize coupon income as the
major source of returns.
<TABLE>
<CAPTION>
HYPOTHETICAL $10,000 INVESTMENT
8/31/94* 12/31/94 12/31/95 12/31/96
<S> <C> <C> <C> <C>
Government Bond $10,000
Salomon Bros 3-7 Yr. Treas./Gov't
<FN>
* Initial public offering commenced August 1, 1994.
</TABLE>
<TABLE>
<CAPTION>
Government Bond Fund
Average Annual Total Return
<S> <C>
One Year 2.69%
Since Inception 7.36%
</TABLE>
Past performance is not predictive of future performance.
2 THE ONE(R) GROUP(SM) INVESTMENT TRUST ANNUAL REPORT
<PAGE> 66
THE ONE(R) GROUP(SM) INVESTMENT TRUST
MANAGEMENT DISCUSSION OF FUND PERFORMANCE
ASSET ALLOCATION FUND
DECEMBER 31, 1996
The equity portion of the Asset Allocation Fund is managed by Michael D. Weiner
and the fixed-income portion is managed by Roger Craig. The Fund seeks total
return while preserving capital by investing in common stocks, bonds and money
market securities.
The Asset Allocation Fund performed below the narrowly defined blended index,
60% of the S&P 500 and 40% of the Lipper Intermediate U.S. Government Bond
Index, with a total return for the year ended December 31, 1996 of 11.92% versus
14.93% for the index. The broader indices, the S&P 500 and the Lehman Brothers
Intermediate Government/Corporate Bond Index, returned 22.96% and 4.05% over the
same one year period. The Fund's performance can be attributed to stock
selection resulting from a bottom-up process. Strong performance in the bank,
health care, energy, consumer non-durable and retail sectors underlined the
year's relative equity performance. The year 1997 should offer an environment in
which stocks will continue to do well, but returns should revert back to the
high single digits or the low double digits.
The bond market continued to exhibit a Jekyll and Hyde personality, turning in a
lackluster performance last year after a good year in 1995. The year began
promisingly enough as most participants expected continued slow economic growth,
low inflation, and a Congressional budget deal to maintain momentum toward lower
interest rates. All hope was abandoned early on as the budget deal collapsed,
and fears of a quickened pace of economic activity and a pick-up in inflation
rapidly overtook investors. Late in the year the market finally recovered its
footing enough to finish the year with positive returns. Fortunately, the bond
exposure in the Asset Allocation Fund is somewhat shorter in duration than
comparable funds. This serves to dampen the impact of rising interest rates and
helps boost returns in balanced accounts.
<TABLE>
<CAPTION>
HYPOTHETICAL $10,000 INVESTMENT
8/1/94* 12/31/94 12/31/95 12/31/96
<S> <C> <C> <C> <C>
Asset Allocation $10,000 $13,329
LB interm. Gov't Corp $10,000 $11,913
Blended Index** $10,000 $14,864
S&P 500 $10,000 $17,170
<FN>
* Initial public offering commenced August 1, 1994.
**Blended Index consists of 60% S&P 500 & 40% Lipper Intermediate
U.S. Government Bond Index
</TABLE>
<TABLE>
<CAPTION>
Asset Allocation Fund
Average Annual Total Return
<S> <C>
One Year 11.92%
Since Inception 12.61%
</TABLE>
Past performance is not predictive of future performance.
THE ONE(R) GROUP(SM) INVESTMENT TRUST ANNUAL REPORT 3
<PAGE> 67
THE ONE(R) GROUP(SM) INVESTMENT TRUST
MANAGEMENT DISCUSSION OF FUND PERFORMANCE
GROWTH OPPORTUNITIES FUND
DECEMBER 31, 1996
The Growth Opportunities Fund is managed by Richard R. Jandrain III. The Fund
seeks capital appreciation and, secondarily, current income by investing
primarily in common stocks of small and mid-size companies selected for growth
potential.
The Growth Opportunities Fund performed well for the year ended December 31,
1996, returning 15.67% versus 18.43% and 16.55% for its comparative indices, the
S&P/BARRA Midcap 400 Growth Index and the Russell 2000, respectively. The Fund
focused its investments in liquid and seasoned mid-cap growth companies. The
overall stock market once again managed to surpass most investors' expectations.
The financial services, technology and energy sectors led the market throughout
the year. Large investments in these areas significantly contributed to the
overall performance of the Fund in 1996. A continual focus on technology, health
care and services companies has paid off and will be just as important over the
next several years.
Continued low interest rates and a slow but steady economy should push corporate
earnings moderately higher. We expect 1997 to be another good year for equity
investors. The Federal Reserve is driving the economy slowly and predictably,
but with more consistency than ever before. Inflation has been steady and we
expect the same in 1997. Consistently low interest rates mixed with stable
economic growth are giving consumers and corporations the confidence to spend
and invest. Current stock valuations for mid-cap and small-cap growth companies
are not high relative to the overall market. Historical research leads us to
believe that mid and small-cap growth stock valuations will expand and fuel the
market even higher in 1997.
<TABLE>
<CAPTION>
HYPOTHETICAL $10,000 INVESTMENT
8/1/94* 12/31/94 12/31/95 12/31/96
<S> <C> <C> <C> <C>
Growth Opportunities $10,000 $13,919
S&P/BARRA Midcap 400 Growth $10,000 $15,552
Russell 2000 $10,000 $15,257
<FN>
* Initial public offering commenced August 1, 1994.
</TABLE>
<TABLE>
<CAPTION>
Growth Opportunities Fund
Average Annual Total Return
<S> <C>
One Year 15.67%
Since Inception 14.64%
Past performance is not predictive of future performance.
</TABLE>
The Russell 2000, an unmanaged index, is generally representative of small to
mid-sized companies. The S&P/BARRA Midcap 400 Growth Index, an unmanaged index,
represents the highest price to book securities in the S&P Midcap 400 Index. The
S&P/BARRA Midcap 400 Growth Index better represents the investment policies of
the Fund for comparison purposes.
4 THE ONE(R) GROUP(SM) INVESTMENT TRUST ANNUAL REPORT
<PAGE> 68
THE ONE(R) GROUP(SM) INVESTMENT TRUST
MANAGEMENT DISCUSSION OF FUND PERFORMANCE
LARGE COMPANY GROWTH FUND
DECEMBER 31, 1996
The Large Company Growth Fund is managed by R. Lynn Yturri. The Fund's objective
is to achieve above-average long-term capital appreciation and growth of income
by investing primarily in common stocks of companies with large market
capitalizations.
In 1996, the stock market continued to perform in an impressive manner, rising
over 20% for the second year in a row. A solid background of stable inflation
and interest rates coupled with good growth in corporate profits has led
investors to accelerate investment of cash into equities. The primary
beneficiary of this enthusiasm for common stocks has been larger, well-known
companies that are leaders in their industries. The Large Company Growth Fund
has benefited from its ownership of many of these growth companies.
The total return of the Fund for the year ended December 31, 1996 was 16.67%
compared to the S&P/ BARRA 500 Growth Index and the S&P 500 Index total returns
of 23.97% and 22.96%, respectively. During the year, the primary investment
strategy was to move fund assets toward a higher growth profile. This has been
accomplished by reducing exposure to more cyclical industries and building
exposure to companies that offer more consistent growth. Having a greater growth
orientation has meant higher weightings in the health care, technology and
consumer sectors and lower exposure to energy and utilities. Large growth
companies typically perform well in an environment of slow growth and low
interest rates. However, higher interest rates would likely cause a correction
in growth stocks.
With the expectation of slowing corporate profit growth in 1997, we are being
quite selective in our stock purchases. We are working to identify companies
that have a strong new product cycle, companies that will benefit from lower
commodity prices or companies that are benefiting from secular or cyclical
growth in their industries. We are reducing exposure to companies that have
become overvalued and are experiencing either margin pressures or slowing
top-line growth.
<TABLE>
<CAPTION>
HYPOTHETICAL $10,000 INVESTMENT
8/1/94* 12/31/94 12/31/95 12/31/96
<S> <C> <C> <C> <C>
Large Co. $10,000 $14,558
S&P/BARRA 500 Growth $10,000 $17,878
S&P 500 $10,000 $17,170
<FN>
* Initial public offering commenced August 1, 1994.
</TABLE>
<TABLE>
<CAPTION>
Large Company Growth Fund
Average Annual Total Return
<S> <C>
One Year 16.67%
Since Inception 16.79%
Past performance is not predictive of future performance.
</TABLE>
The S&P 500, an unmanaged index, is generally representative of the performance
of large companies in the US stock market. The S&P/ BARRA 500 Growth Index, an
unmanaged index, represents the highest price to book securities in the S&P 500.
The benchmark index for the Large Company Growth Fund will be changing from the
S&P 500 to the S&P/BARRA 500 Growth Index in order to better represent the
investment policies of the Fund for comparison purposes.
THE ONE(R) GROUP(SM) INVESTMENT TRUST ANNUAL REPORT 5
<PAGE> 69
THE ONE(R) GROUP(SM) INVESTMENT TRUST
GOVERNMENT BOND FUND
STATEMENT OF INVESTMENTS -- DECEMBER 31, 1996
<TABLE>
<CAPTION>
- ---------------------------------------------------------
PRINCIPAL SECURITY VALUE
- ---------------------------------------------------------
<S> <C> <C>
U.S. GOVERNMENT AND AGENCY OBLIGATIONS
(28.3%)
$1,000,000 Resolution Funding Corp.,
Principal STRIP, 2000 $ 794,529
2,000,000 Resolution Funding Corp.,
Principal STRIP, 2016 505,298
1,000,000 Resolution Funding Corp.,
Principal STRIP, 2020 200,029
1,000,000 U.S. Treasury Bond, 6.25%, 2023 937,187
900,000 U.S. Treasury Note, 7.50%, 2001 947,531
750,000 U.S. Treasury Note, 6.50%, 2005 755,156
-----------
TOTAL U.S. GOVERNMENT AND AGENCY
OBLIGATIONS 4,139,730
(cost $4,186,610) -----------
MORTGAGE-BACKED SECURITIES (69.0%)
614,481 FHLMC GOLD 5Y,
Pool #G50324, 6.50%, 2001 613,524
341,522 FHLMC GOLD 15Y, Pool #E20150,
8.50%, 1999 355,838
302,319 FHLMC GOLD 15Y, Pool #E62574,
6.50%, 2011 297,028
946,691 FHLMC GOLD 15Y, Pool #E63959,
7.00%, 2011 946,394
967,651 FHLMC GOLD 30Y, Pool #D55955,
8.00%, 2024 986,096
984,839 FHLMC GOLD 30Y, Pool #D65545,
6.50%, 2025 941,444
448,915 FNMA 7Y, 7.00%,
Pool #359952, 2003 450,039
797,261 FNMA 15Y, 7.50%,
Pool #279759, 2009 807,974
<CAPTION>
- ---------------------------------------------------------
PRINCIPAL SECURITY VALUE
- ---------------------------------------------------------
<S> <C> <C>
MORTGAGE-BACKED SECURITIES
(CONTINUED)
$252,500 FNMA 15Y, 6.50%,
Pool #356206, 2011 $ 247,923
471,856 FNMA 30Y, 6.50%,
Pool #250375, 2025 450,632
998,717 FNMA 30Y, 6.50%,
Pool #341811, 2026 952,838
882,410 FNMA 30Y, 8.50%,
Pool #348707, 2026 913,570
638,657 GNSF 30Y, 7.50%,
Pool #326977, 2023 639,056
882,181 GNSF 30Y, 7.00%,
Pool #404252, 2025 863,158
126,469 GNSF 30Y, 7.00%,
Pool #405535, 2025 123,742
500,000 GNSF 30Y, 7.50%,
Pool #2341, 2026 497,188
-----------
TOTAL MORTGAGE-BACKED SECURITIES 10,086,444
(cost $10,069,023) -----------
REPURCHASE AGREEMENT (2.0%)
290,000 Lehman Government Securities
Inc., 7.02%, dated 12/31/96, due
01/02/97, Collateralized by
$295,000 FCOR, due 12/04/00,
market value $296,855 290,000
-----------
TOTAL INVESTMENTS $14,516,174
(cost $14,545,633) ===========
</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
FCOR Federal Farm Credit--Medium Term Note--Structured
Portfolio holding percentages represent market value as a
percentage of net assets.
See accompanying notes to financial statements.
6 THE ONE(R) GROUP(SM) INVESTMENT TRUST ANNUAL REPORT
<PAGE> 70
THE ONE(R) GROUP(SM) INVESTMENT TRUST
ASSET ALLOCATION FUND
STATEMENT OF INVESTMENTS -- DECEMBER 31, 1996
<TABLE>
<CAPTION>
- -------------------------------------------------------
SHARES SECURITY VALUE
- -------------------------------------------------------
<S> <C> <C>
COMMON STOCK (41.0%)
CAPITAL GOODS (3.3%)
1,300 BWP-IP Holding, Inc. $ 21,450
1,800 Crane Co. 52,200
600 Fluor Corp. 37,650
1,400 General Electric Co. 138,425
400 Hubbell, Inc. Class A 15,200
500 Hubbell, Inc. Class B 21,625
800 Ingersoll Rand Co. 35,600
1,500 Mark IV Industries, Inc. 33,938
700 Teleflex, Inc. 36,488
900 Tyco International Ltd. 47,588
800 York International Corp. 44,700
-----------
484,864
-----------
CONSUMER DURABLE (1.6%)
600 Briggs & Stratton 26,400
1,500 Callaway Golf Co. 43,125
2,200 Ford Motor Co. 70,125
1,100 Harley Davidson, Inc. 51,700
400 Harman International Industries 22,250
1,700 Kaufman & Broad Home Corp. 21,887
-----------
235,487
-----------
CONSUMER NON-DURABLE (4.7%)
1,900 Archer-Daniels-Midland Co. 41,800
1,300 Coca Cola Co. 68,412
600 Colgate-Palmolive Co. 55,350
700 CPC International Inc. 54,250
700 Dole Foods, Inc. 23,712
900 First Brands Corp. 25,537
1,400 Newell Co. 44,100
1,000 PepsiCo, Inc. 29,250
1,100 Philip Morris Cos., Inc. 123,887
500 Proctor & Gamble Co. 53,750
900 Revlon, Inc. Class A* 26,887
800 RJR Nabisco Holding Corp. 27,200
800 Smithfield Foods, Inc.* 30,400
1,100 Sysco Corp. 35,887
600 Tupperware Corp. 32,175
700 Universal Corp. -- VA 22,488
-----------
695,085
-----------
CONSUMER SERVICES (2.1%)
700 Belo, (AH) Corp. 24,412
1,000 Carnival Corp. Class A 33,000
400 Walt Disney Co. 27,850
1,100 Hasbro, Inc. 42,762
1,500 Hilton Hotels Corp.* 39,187
1,300 McDonalds Co. 58,825
700 MGM Grand, Inc.* 24,412
1,500 Time Warner, Inc. 56,250
-----------
306,698
-----------
ENERGY (3.6%)
400 Atlantic Richfield 53,000
400 BJ Services* 20,400
<CAPTION>
- -------------------------------------------------------
SHARES SECURITY VALUE
- -------------------------------------------------------
<S> <C> <C>
ENERGY (CONTINUED)
900 Devon Energy Corp. $ 31,275
900 Enron Corp. 38,813
1,400 Exxon Corporation 137,200
600 Halliburton Co. 36,150
500 Helmerich & Payne 26,062
1,000 Mapco, Inc. 34,000
600 Mobil Corp. 73,350
400 Tosco Corp. 31,650
1,400 USX -- Marathon Group 33,425
800 Weatherford Enterra* 24,000
-----------
539,325
-----------
FINANCIAL SERVICES (6.1%)
300 Aames Financial Corp. 10,763
1,000 AFLAC, Inc. 42,750
500 AmSouth Bancorp 24,188
800 Bancorp Hawaii, Inc. 33,600
900 Bankamerica Corp. 89,775
800 Charter One Financial, Inc. 33,600
800 Chase Manhattan Corp. 71,400
500 CIGNA Corp. 68,313
1,400 Equitable Companies 34,475
2,100 Federal National Mortgage 78,225
Association
800 First of America Bank Corp. 48,100
1,000 Imperial Crown Industries, Inc.* 21,000
900 ITT Hartford Group 60,750
900 Keycorp 45,450
500 Morgan, J P & Co., Inc. 48,813
600 Provident Companies 29,025
1,100 SouthTrust Corp. 38,363
800 Sunamerica, Inc. 35,500
1,800 Travelers Group, Inc. 81,675
400 Washington Mutual, Inc. 17,325
-----------
913,090
-----------
HEALTH CARE (4.6%)
1,500 Abbott Laboratories 76,125
220 Allegiance Corp. 6,077
900 Amgen, Inc.* 48,936
1,100 Baxter International, Inc. 45,100
450 Cardinal Health 26,212
1,200 Columbia/HCA Health Care Corp. 48,900
300 HBO & Company 17,813
1,100 Lilly, Eli & Co. 80,300
900 Medtronic, Inc. 61,200
1,700 Merck & Co., Inc. 134,725
600 Phycor, Inc.* 17,025
1,000 Schering-Plough Corp. 64,750
700 Vencor, Inc.* 22,137
900 Watson Pharmaceuticals* 40,444
-----------
689,744
-----------
</TABLE>
THE ONE(R) GROUP(SM) INVESTMENT TRUST ANNUAL REPORT 7
<PAGE> 71
THE ONE(R) GROUP(SM) INVESTMENT TRUST
ASSET ALLOCATION FUND
STATEMENT OF INVESTMENTS -- DECEMBER 31, 1996 (CONTINUED)
<TABLE>
<CAPTION>
- ---------------------------------------------------------
SHARES SECURITY VALUE
- ---------------------------------------------------------
<S> <C> <C>
RAW MATERIALS (2.4%)
600 Aluminum Co. of America $ 38,250
600 Betzdearborn, Inc. 35,100
1,900 Crompton & Knowles 36,574
500 Du Pont (E.I.) De Nemours & Co. 47,187
600 Ferro Corp. 17,025
500 IMC Global Inc. 19,562
1,000 Monsanto Company 38,875
900 Nalco Chemical Co. 32,512
900 Praxair Inc. 41,512
500 Sigma-Aldrich Corp. 31,219
900 Wellman, Inc. 15,412
-----------
353,228
-----------
RETAIL (2.0%)
1,100 Carson Pirie Scott & Co. Ill.* 27,775
900 Dollar General Corp. 28,800
1,300 GAP, Inc. 39,162
1,100 Just For Feet, Inc.* 28,875
700 Nine West Group* 32,462
1,800 Officemax, Inc.* 19,125
800 TJX Cos. Inc. 37,900
3,500 Wal-Mart Stores, Inc. 80,062
-----------
294,161
-----------
TECHNOLOGY (6.5%)
1,100 Analog Devices* 37,263
500 Boeing Company (The) 53,187
1,300 Cicso Sytems, Inc.* 82,713
700 Compaq Computer Corp.* 51,975
400 Gateway 2000 INC.* 21,424
1,500 Intel Corp. 196,406
700 International Business Machines 105,700
400 Litton Industries* 19,050
400 Lockheed Martin Corp. 36,600
680 Lucent Technologies, Inc. 31,450
2,000 Microsoft* 165,250
1,300 National Semiconductors* 31,688
1,100 Oracle Corp.* 45,925
1000 Orbital Sciences Corp.* 17,250
800 Rohr, Inc.* 18,100
2,000 Sun Microsystems, Inc.* 51,375
-----------
965,356
-----------
UTILITIES (4.1%)
1,500 Central & Southwest Corp. 38,438
700 Century Telephone Enterprises, 21,613
Inc.
1,500 Consolidated Edison Co. NY 43,875
2,700 Edison International 53,663
1,200 GPU, Inc. 40,350
2,000 GTE Corp. 91,000
1,500 Illinova Corp. 41,250
1,400 MCN Corp. 40,425
700 National Fuel Gas Co. 28,875
1,700 New York St. Electric & Gas 36,763
Corp.
<CAPTION>
- -------------------------------------------------------
SHARES SECURITY VALUE
- -------------------------------------------------------
<S> <C> <C>
UTILITIES (CONTINUED)
1,500 SBC Communications, Inc. $ 77,625
1,200 Sprint Corporation 47,850
700 Telephone & Data Systems 25,375
1,100 Texas Utilities Co. 44,825
-----------
631,927
-----------
TOTAL COMMON STOCK 6,108,965
(cost $5,147,490) -----------
- -----------
PRINCIPAL
- -----------
CORPORATE BONDS (11.2%)
BANKS (1.7%)
$250,000 Banco Central Hispano
7.50%, due 06/15/05 253,563
-----------
BROKER-DEALERS (1.4%)
200,000 Lehman Brothers Holdings, Inc.
8.875%, due 11/01/98 208,368
-----------
DIVERSIFIED FINANCE (5.2%)
100,000 Associates Corp. of North America
100,163
6.125%, due 02/01/98
250,000 Chrysler Financial Corp.
243,500
5.875%, due 02/07/01
200,000 Ford Capital BV
219,875
9.375%, due 05/15/01
200,000 Morgan Stanley Group
6.50%, due 03/15/01 199,096
-----------
762,634
-----------
TELECOMMUNICATIONS (1.3%)
200,000 Ohio Bell Telephone Co.
5.75%, due 05/01/00 196,618
-----------
TRANSPORTATION (1.6%)
250,000 Hunt, J.B., Transport
6.25%, due 09/01/03 239,281
-----------
TOTAL CORPORATE BONDS 1,660,464
(cost $1,635,624) -----------
MORTGAGE-BACKED SECURITIES (5.5%)
190,621 Advanta Mortgage Loan Trust 94-3A2
7.60%, due 07/25/10 192,806
131,084 FNMA Pool #270725
7.00%, due 08/01/25 128,335
244,758 GNMA 15Y Pool #412559
7.00%, due 02/15/11 245,752
247,091 GNMA 30Y Pool #398663
7.50%, due 05/15/26 247,246
-----------
TOTAL MORTGAGE-BACKED SECURITIES 814,139
(cost $806,303) -----------
U.S. GOVERNMENT OBLIGATIONS
(21.1%)
15,000 U.S. Treasury Bills, 4.98%,
due 01/09/97** 14,986
10,000 U.S. Treasury Bills, 4.83%,
due 01/09/97** 9,991
15,000 U.S. Treasury Bills, 5.16%,
due 02/27/97** 14,885
</TABLE>
8 THE ONE(R) GROUP(SM) INVESTMENT TRUST ANNUAL REPORT
<PAGE> 72
THE ONE(R) GROUP(SM) INVESTMENT TRUST
ASSET ALLOCATION FUND
STATEMENT OF INVESTMENTS -- DECEMBER 31, 1996 (CONTINUED)
<TABLE>
<CAPTION>
- ------------------------------------------------------
PRINCIPAL SECURITY VALUE
- ------------------------------------------------------
<S> <C> <C>
U.S. GOVERNMENT
OBLIGATIONS (CONTINUED)
$ 30,000 U.S. Treasury Bills, 5.30%,
due 03/13/97** $ 29,709
10,000 U.S. Treasury Bills, 4.92%,
due 03/27/97** 9,885
425,000 U.S. Treasury Bond 7.875%,
due 02/15/21 480,117
1,250,000 U.S. Treasury Note 5.25%,
due 01/31/01 1,211,328
500,000 U.S. Treasury Note 6.50%,
due 08/31/01 505,469
825,000 U.S. Treasury Note 7.25%,
due 05/15/04 868,313
-----------
TOTAL U.S. GOVERNMENT
OBLIGATIONS 3,144,683
(cost $3,148,534) -----------
REPURCHASE AGREEMENTS (20.8%)
1,884,625 Aubrey Lanston Securities,**
6.80%, dated 12/31/96, due
01/02/97, Collateralized
by $1,853,000 U.S. Treasury
Notes, 8.875%, due 11/15/97,
market value $1,903,958 1,884,625
<CAPTION>
- ------------------------------------------------------
PRINCIPAL SECURITY VALUE
- ------------------------------------------------------
<S> <C> <C>
REPURCHASE AGREEMENTS
(CONTINUED)
$1,210,000 Lehman Government Securities, Inc.
7.02%, dated 12/31/96, due
01/02/97, Collateralized by
$1,230,000 FCOR, 6.57%, due
12/04/00, market value
$1,237,734 $ 1,210,000
-----------
TOTAL REPURCHASE AGREEMENTS 3,094,625
(cost $3,094,625) -----------
TOTAL INVESTMENTS $14,822,876
(cost $13,832,576) ===========
</TABLE>
- --------------------------------------------------------------------------------
* Denotes a non-income producing security.
** Security is segregated as collateral on futures contract.
Cost for Federal income tax purposes: $13,849,019.
The abbreviations in the above statement stand for the following:
FNMA Federal National Mortgage Association
GNMA Government National Mortgage Association
FCOR Federal Farm Credit--Medium Term Note--Structured
Portfolio holding percentages represent market value as a percentage of net
assets.
See accompanying notes to financial statements.
At December 31, 1996, the fund's open futures contracts were as follows:
<TABLE>
<CAPTION>
MARKET VALUE UNREALIZED
NUMBER OF CONTRACTS CONTRACT COVERED BY APPRECIATION
PURCHASED TYPE EXPIRATION CONTRACTS AT 12/31/96
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Long--Standard &
5 Poor's 500 March 1997 $1,861,250 $15,955
</TABLE>
THE ONE(R) GROUP(SM) INVESTMENT TRUST ANNUAL REPORT 9
<PAGE> 73
THE ONE(R) GROUP(SM) INVESTMENT TRUST
GROWTH OPPORTUNITIES FUND
STATEMENT OF INVESTMENTS -- DECEMBER 31, 1996
<TABLE>
<CAPTION>
- ------------------------------------------------------
SHARES SECURITY VALUE
- ------------------------------------------------------
<S> <C> <C>
COMMON STOCK (90.1%)
BUSINESS EQUIPMENT & SERVICES
(14.5%)
5,000 AES Corp.* $ 232,500
4,600 America Online, Inc.* 152,950
3,500 Cintas Corp. 205,625
10,900 Equifax, Inc. 333,811
3,800 Fiserv, Inc.* 139,650
1,200 HNC Software* 37,500
3,200 Imnet Systems, Inc.* 77,600
3,100 Manpower, Inc. 100,750
4,500 Office Depot, Inc.* 79,875
3,400 Olsten Corp. (The) 51,425
5,200 Omnicom Group 237,900
6,400 Paychex, Inc. 329,200
6,900 Reynolds & Reynolds 179,400
17,700 Staples, Inc.* 319,706
5,366 Sterling Commerce* 189,152
2,700 Telespectrum Worldwide, Inc.* 42,862
5,500 Trusted Information Systems,
Inc.* 59,125
6,200 USA Waste Services* 197,625
100 United Auto Group, Inc.* 2,575
1,500 Verifone* 44,250
5,500 Viking Office Products, Inc.* 146,781
2,600 Wallace Computer Services, Inc. 89,700
-----------
3,249,962
-----------
CAPITAL GOODS (5.0%)
1,650 Crane Co. 47,850
3,450 Diebold, Inc. 216,919
1,700 Fastenal Co. 77,775
1,400 Federal Signal Co. 36,225
1,700 Precision Castparts Corp. 84,363
3,700 Sundstrand Corp. 157,250
9,100 Thermo Electron Corp.* 375,375
2,100 York International Corp. 117,338
-----------
1,113,095
-----------
CONSUMER DURABLE (2.1%)
4,100 Danaher Corp. 191,163
5,900 Harley Davidson, Inc. 277,300
-----------
468,463
-----------
CONSUMER NON-DURABLE (2.9%)
2,400 Dole Foods, Inc. 81,300
2,600 Imation Corp.* 73,125
3,600 Jones Apparel Group* 134,550
1,300 Lancaster Colony 59,800
2,700 Nine West* 125,213
1,500 Payless Shoe Source* 56,250
50 Richfood Holdings, Inc. 1,213
800 Smithfield Foods, Inc.* 30,400
2,300 Tambrands, Inc. 94,012
-----------
655,863
-----------
<CAPTION>
- ------------------------------------------------------
SHARES SECURITY VALUE
- ------------------------------------------------------
<S> <C> <C>
CONSUMER SERVICES (3.9%)
2,800 Belo, (AH) Corp., Series A $ 97,650
4,200 Callaway Golf Co. 120,750
5,500 Circus Circus Entertainment,
Inc.* 189,062
8,700 International Game Technology 158,775
11,200 Mirage Resorts* 242,200
800 Scholastic Corp.* 53,800
-----------
862,237
-----------
ENERGY (6.9%)
4,000 Anadarko Petroleum Corp. 259,000
1,900 BJ Services* 96,900
4,600 Ensco International, Inc.* 223,100
12,000 Global Marine* 247,500
4,900 Nabors Industries, Inc.* 94,325
3,800 Noble Affiliates 181,925
2,600 Smith International, Inc.* 116,675
4,000 Tidewater, Inc. 181,000
2,000 Transocean Offshore, Inc. 125,250
1,000 Varco International, Inc.* 23,125
-----------
1,548,800
-----------
FINANCIAL SERVICES (9.5%)
8,000 AFLAC, Inc. 342,000
2,500 Amresco, Inc.* 66,875
6,000 Franklin Resources, Inc. 410,250
2,600 Imperial Credit Industries,
Inc.* 54,600
5,000 Price, T Rowe & Associates, Inc. 217,500
12,500 Schwab, Charles Corp. 400,000
5,400 Summit Bancorp 236,250
8,900 Sunamerica, Inc. 394,937
-----------
2,122,412
-----------
HEALTHCARE (10.8%)
2,600 Apria Healthcare Group* 48,750
5,000 Biogen, Inc.* 193,750
9,000 Cardinal Health 524,250
4,500 Centocor, Inc.* 160,875
11,100 Chiron Corp.* 206,738
1,000 Dynamic Healthcare Technologies,
Inc.* 4,750
3,300 Health Care & Retirement* 94,463
2,250 Healthcare Compare* 95,344
3,400 Healthsource, Inc.* 44,625
10,000 HealthSouth Corp.* 386,250
6,600 Ivax Corp. 67,650
8,200 Medaphis Corp.* 91,737
200 Medpartners-Mullikin* 4,200
6,300 Mylan Labs 105,524
4,000 Nellcor Puritan Bennett, Inc.* 87,500
1,400 Scherer R. P. Corp.* 70,350
2,900 Stryker Corp. 86,637
3,000 Watson Pharmaceuticals* 134,813
-----------
2,408,206
-----------
</TABLE>
10 THE ONE(R) GROUP(SM) INVESTMENT TRUST ANNUAL REPORT
<PAGE> 74
THE ONE(R) GROUP(SM) INVESTMENT TRUST
GROWTH OPPORTUNITIES FUND
STATEMENT OF INVESTMENTS -- DECEMBER 31, 1996 (CONTINUED)
<TABLE>
<CAPTION>
- ------------------------------------------------------
SHARES SECURITY VALUE
- ------------------------------------------------------
<S> <C> <C>
MULTIPLE INDUSTRY (0.6%)
600 Advanced Fibre Communications,
Inc. $ 33,375
1,100 American Residential Services
Inc.* 29,838
1,800 Dominicks Supermarkets, Inc.* 39,150
900 Mastech Corp.* 17,100
100 Saville Systems PLC Sponsored
ADR* 4,063
-----------
123,526
-----------
RAW MATERIALS (2.5%)
4,500 Airgas, Inc.* 99,000
2,100 Crompton & Knowles 40,425
1,600 Georgia Gulf Corp. 43,000
5,700 IMC Global, Inc. 223,012
4,400 Lyondell Petrochemical Co. 96,800
3,000 RPM, Inc., Ohio 51,000
-----------
553,237
-----------
RETAIL (4.9%)
4,600 Bed, Bath and Beyond* 111,550
4,200 Claires Stores, Inc. 54,600
5,625 Consolidated Stores Corp.* 181,406
7,025 Dollar General Corp. 224,800
4,100 Kohls Corp.* 160,925
2,100 Lands End Corp.* 55,650
2,900 Lone Star Steakhouse* 77,575
2,600 Outback Steakhouse* 69,550
8,600 Sunglass Hut International* 62,350
2,800 Tiffany & Co. 102,550
-----------
1,100,956
-----------
SHELTER (2.6%)
5,893 Clayton Homes, Inc. 79,556
1,600 Hon Industries, Inc. 52,800
5,600 Leggett & Platt 193,900
2,800 Redwood Trust, Inc. 104,300
3,000 Sealed Air Corp.* 124,875
1,400 Sonoco Products Co. 36,225
-----------
591,656
-----------
TECHNOLOGY (20.6%)
7,900 A D C Telecommunications, Inc.* 245,887
4,000 Adobe Systems 149,500
1,500 Altera Corp.* 109,031
6,100 American Power Conversion* 166,225
8,050 Analog Devices, Inc.* 272,694
2,300 Atmel Corp.* 76,188
<CAPTION>
- ------------------------------------------------------
SHARES SECURITY VALUE
- ------------------------------------------------------
<S> <C> <C>
TECHNOLOGY (CONTINUED)
300 Aurum Software, Inc.* $ 6,937
6,500 BMC Software, Inc.* 268,937
7,600 Cadence Design System, Inc.* 302,100
600 Cisco Systems, Inc.* 38,175
2,600 Compuware Corp.* 130,325
3,600 Electronic Arts, Inc.* 107,775
2,000 Geotel Communication Corp.* 26,000
7,000 Informix Corp.* 142,625
3,700 Ingram Micro, Inc. Class A* 85,100
4,700 Intel Corp. 615,406
2,300 International Business Machines 347,300
4,000 Linear Technology Corp. 175,500
3,500 Maxim Integrated Products* 151,375
1,100 Mentor Graphics Corp.* 10,725
2,300 Micro Warehouse, Inc.* 27,025
3,100 Octel Communications Corp.* 54,250
10,400 Parametric Technology Corp.* 534,300
1,200 Puma Technology, Inc.* 20,700
200 Shiva Corp.* 6,975
3,000 Solectron Corp.* 160,125
800 Structural Dynamics Research
Corp.* 16,000
4,000 U S Robotics Corp.* 288,000
1,900 Xilinx, Inc.* 69,944
-----------
4,605,124
-----------
TRANSPORTATION (0.7%)
4,700 Illinois Central Corp., Series A 150,400
-----------
UTILITIES (2.6%)
5,400 360 Communications Co.* 124,875
10,400 Frontier Corp. 235,300
15,400 Nextel Communication* 201,163
700 Seagull Energy Corp.* 15,400
-----------
576,738
-----------
TOTAL COMMON STOCK 20,130,675
(cost $19,643,128) -----------
</TABLE>
<TABLE>
<CAPTION>
- ---------
PRINCIPAL
- ---------
<S> <C> <C>
U.S. GOVERNMENT OBLIGATIONS
(0.1%)
U.S. Treasury Bills,
$ 15,000 4.970%, due 01/16/97** 14,972
15,000 4.990%, due 01/30/97** 14,942
-----------
TOTAL U.S. GOVERNMENT
OBLIGATIONS 29,914
(cost $29,909) -----------
</TABLE>
THE ONE(R) GROUP(SM) INVESTMENT TRUST ANNUAL REPORT 11
<PAGE> 75
THE ONE(R) GROUP(SM) INVESTMENT TRUST
GROWTH OPPORTUNITIES FUND
STATEMENT OF INVESTMENTS -- DECEMBER 31, 1996 (CONTINUED)
<TABLE>
<CAPTION>
- ------------------------------------------------------
PRINCIPAL SECURITY VALUE
- ------------------------------------------------------
<S> <C> <C>
REPURCHASE AGREEMENTS (9.6%)
$ 753,850 Aubrey Lanston Securities**
6.80%, dated 12/31/96, due
01/02/97, Collateralized by
$759,000 U.S. Treasury Note,
5.25%, due 07/31/98, market
value $769,436 $ 753,850
1,396,000 Lehman Government Securities,
Inc., 7.02%, dated 12/31/96,
due 01/02/97, Collateralized by
$1,415,000 FCOR, due 12/04/00,
market value $1,423,897 1,396,000
-----------
TOTAL REPURCHASE AGREEMENTS 2,149,850
-----------
TOTAL INVESTMENTS
(cost $21,822,887) $22,310,439
===========
</TABLE>
- --------------------------------------------------------------------------------
* Denotes a non-income producing security.
** Security is segregated as collateral on futures contract.
Cost for Federal income tax purposes: $22,232,249.
The abbreviations on the above statement stand for the following:
ADR American Depository Receipt
PLC Public Limited Company
REIT Real Estate Investment Trust
FCOR Federal Farm Credit--Medium Term Note--Structured
Portfolio holding percentages represent market value as a percentage of net
assets.
See accompanying notes to financial statements.
At December 31, 1996, the Fund's open futures contracts were as follows:
<TABLE>
<CAPTION>
MARKET VALUE UNREALIZED
COVERED APPRECIATION
NUMBER OF CONTRACTS CONTRACT TYPE EXPIRATION BY CONTRACTS AT 12/31/96
- -----------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
2 Long-Standard & Poor's 500 March 1997 $744,500 $ 430
</TABLE>
12 THE ONE(R) GROUP(SM) INVESTMENT TRUST ANNUAL REPORT
<PAGE> 76
THE ONE(R) GROUP(SM) INVESTMENT TRUST
LARGE COMPANY GROWTH FUND
STATEMENT OF INVESTMENTS -- DECEMBER 31, 1996
<TABLE>
<CAPTION>
- -------------------------------------------------------
SHARES SECURITY VALUE
- -------------------------------------------------------
<S> <C> <C>
COMMON STOCK (90.9%)
BUSINESS AND EQUIPMENT (4.6%)
15,000 Automatic Data Processing, Inc. $ 643,125
1,900 Computer Science Corp. 156,037
8,600 Electronic Data Systems 371,950
8,600 Interpublic Group Cos, Inc. 408,500
11,800 WMX Technologies, Inc 384,975
-----------
1,964,587
-----------
CAPITAL GOODS (8.6%)
6,400 Emerson Electric Co. 619,200
5,100 Fluor Corp. 320,025
16,800 General Electric Co. 1,661,100
4,300 Illinois Tool Works 343,462
6,000 Ingersoll Rand Co. 267,000
7,900 Molex, Inc. 309,088
3,200 Tyco International Ltd. 169,200
-----------
3,689,075
-----------
CONSUMER NON DURABLE (18.8%)
10,100 Anheuser-Busch Co. 404,000
17,000 Coca Cola Co. 894,625
6,000 CPC International, Inc. 465,000
6,800 Colgate-Palmolive Co. 627,300
4,300 Duracell International 300,462
12,900 Heinz (H.J) Company 461,175
7,500 Hershey Foods Corp. 328,125
6,400 International Flavor and 288,000
Fragrances
7,300 Eastman Kodak Co. 585,825
19,300 PepsiCo, Inc. 564,525
10,500 Philip Morris Cos., Inc. 1,182,563
5,100 Pioneer Hi Bred International 357,000
9,900 Proctor & Gamble Co. 1,064,250
3,200 Unilever N.V. 560,800
-----------
8,083,650
-----------
CONSUMER SERVICES (4.7%)
7,700 Gannett Company, Inc 576,537
9,000 Disney, Walt Co. 626,625
10,300 McGraw-Hill Companies, Inc 475,088
9,600 Time Warner, Inc. 360,000
-----------
2,038,250
-----------
ENERGY (3.1%)
5,100 Halliburton Co. 307,275
1,700 Mobil Corp. 207,825
4,000 Schlumberger Ltd. 399,500
5,435 Union Pacific Resource Group,
Inc. 158,973
6,400 Unocal Corp. 260,000
-----------
1,333,573
-----------
<CAPTION>
- -------------------------------------------------------
SHARES SECURITY VALUE
- -------------------------------------------------------
<S> <C> <C>
FINANCIAL SERVICES (4.2%)
7,450 American International Group, $ 806,462
Inc.
3,400 Marsh & McLennan Cos., Inc. 353,600
3,400 Morgan, J P & Co. Inc. 331,925
7,100 U. S. Bancorp 319,056
-----------
1,811,043
-----------
HEALTHCARE (15.7%)
16,100 Abbott Laboratories 817,075
13,700 Alza Corp.* 354,488
3,400 Amgen, Inc. 184,875
4,400 Bard C R, Inc. 123,200
6,500 Biomet, Inc. 98,313
7,950 Cardinal Health 463,088
7,100 Columbia/HCA Health 289,324
12,000 Elan Plc ADR* 399,000
15,700 Johnson & Johnson Co. 781,075
5,100 Lilly Eli & Co. 372,300
9,600 Medtronic, Inc. 652,800
16,300 Merck & Co., Inc. 1,291,775
7,500 Pfizer, Inc. 621,562
4,300 Schering-Plough Corp. 278,425
-----------
6,727,300
-----------
MULTIPLE INDUSTRY (1.4%)
7,300 Minnesota Mining &
Manufacturing 604,988
-----------
RETAIL (6.1%)
4,300 Gap, Inc. 129,538
10,700 Home Depot, Inc. 536,338
5,800 May Department Stores 271,150
12,000 McDonalds Co. 543,000
10,700 Walgreen Co. 428,000
30,100 Wal-Mart Stores, Inc. 688,537
-----------
2,596,563
-----------
RAW MATERIALS (3.3%)
6,200 Air Products & Chemicals, Inc. 428,575
3,800 Dow Chemical Co. 297,825
6,400 Nalco Chemical Co. 231,200
17,200 Pall Corp. 438,600
-----------
1,396,200
-----------
SHELTER (1.6%)
2,500 Consolidated Papers, Inc. 122,813
6,000 Kimberly Clark Corp. 571,500
-----------
694,313
-----------
TECHNOLOGY (12.1%)
9,000 Cisco Systems, Inc. 572,625
3,800 Cabletron System, Inc. 126,350
11,200 Hewlett-Packard Co. 562,800
10,300 Intel Corp. 1,348,656
2,100 International Business Machines 317,100
6,375 Lucent Technologies, Inc. 294,844
</TABLE>
THE ONE(R) GROUP(SM) INVESTMENT TRUST ANNUAL REPORT 13
<PAGE> 77
THE ONE(R) GROUP(SM) INVESTMENT TRUST
LARGE COMPANY GROWTH FUND
STATEMENT OF INVESTMENTS -- DECEMBER 31, 1996 (CONTINUED)
<TABLE>
<CAPTION>
- -------------------------------------------------------
SHARES SECURITY VALUE
- -------------------------------------------------------
<S> <C> <C>
TECHNOLOGY (CONTINUED)
15,000 Microsoft Corp. $ 1,239,375
9,450 Oracle Corp. 394,538
4,900 Texas Instruments, Inc. 312,375
-----------
5,168,663
-----------
TRANSPORTATION (0.8%)
5,600 Union Pacific Corp. 336,700
-----------
UTILITIES (5.9%)
12,000 Alltel Corp. 376,500
17,200 AT & T Corp. 748,200
14,000 GTE Corp. 637,000
3,000 Consolidated Natural Gas 165,750
8,600 SBC Communications, Inc. 445,050
6,400 Worldcom, Inc. 166,800
-----------
2,539,300
-----------
694,060 TOTAL COMMON STOCK $38,984,205
(cost $34,148,021) -----------
<CAPTION>
- -------------------------------------------------------
PRINCIPAL SECURITY VALUE
- -------------------------------------------------------
<S> <C> <C>
REPURCHASE AGREEMENT (9.0%)
$3,861,000 Lehman Government Securities,
Inc., 7.02%, dated 12/31/96,
due 01/02/97, Collateralized by
$3,935,000 FHL2, due 12/20/00,
market value $3,941,040 $ 3,861,000
-----------
TOTAL INVESTMENTS $42,845,205
(cost $38,009,021) ===========
</TABLE>
- --------------------------------------------------------------------------------
* Denotes a non-income producing security.
Cost for Federal income tax purposes: $38,035,903.
The abbreviations on the above statement stand for the following:
ADR American Depository Receipt
FHL2 Federal Home Loan Bank Board
PLC Public Limited Company
Portfolio holding percentages represent market value as a percentage of net
assets.
See accompanying notes to financial statements.
14 THE ONE(R) GROUP(SM) INVESTMENT TRUST ANNUAL REPORT
<PAGE> 78
<TABLE>
THE ONE(R) GROUP(SM) INVESTMENT TRUST
STATEMENTS OF ASSETS AND LIABILITIES
DECEMBER 31, 1996
- ----------------------------------------------------------------------------------------------------
<CAPTION>
GOVERNMENT ASSET GROWTH LARGE COMPANY
BOND ALLOCATION OPPORTUNITIES GROWTH
----------- ----------- ----------- -------------
<S> <C> <C> <C> <C>
ASSETS
Investments in securities, at value (cost
$14,255,633, $10,737,951, $19,673,037
and $34,148,021, respectively) $14,226,174 $11,728,251 $20,160,589 $38,984,205
Repurchase agreements, at cost 290,000 3,094,625 2,149,850 3,861,000
----------- ----------- ----------- -----------
Total investments 14,516,174 14,822,876 22,310,439 42,845,205
Cash 678 635 243 532
Interest and dividends receivable 109,143 98,812 57,600 85,877
Deferred organization expenses 5,891 7,704 8,318 7,694
----------- ----------- ----------- -----------
Total assets 14,631,886 14,930,027 22,376,600 42,939,308
----------- ----------- ----------- -----------
LIABILITIES
Payable for futures variation margin -- 36,500 14,600 --
Management fee payable 3,420 -- 6,702 18,041
Administration fee payable 2,955 2,969 4,427 8,613
Other accrued expenses 3,619 7,246 12,070 19,308
----------- ----------- ----------- -----------
Total liabilities 9,994 46,715 37,799 45,962
----------- ----------- ----------- -----------
NET ASSETS $14,621,892 $14,883,312 $22,338,801 $42,893,346
=========== =========== =========== ===========
REPRESENTED BY:
Capital 14,650,892 13,909,454 22,273,389 38,081,693
Net unrealized appreciation on
investments and financial futures (29,459) 1,006,255 487,982 4,836,184
Accumulated undistributed (distributions
in excess of) net realized gain on
investments and financial futures 84 (32,397) (422,570) (24,531)
Accumulated undistributed net investment
income 375 -- -- --
----------- ----------- ----------- -----------
NET ASSETS $14,621,892 $14,883,312 $22,338,801 $42,893,346
=========== =========== =========== ===========
Shares of beneficial interest outstanding,
no par value (unlimited number of shares
authorized) 1,441,032 1,247,502 1,844,023 3,136,867
=========== =========== =========== ===========
NET ASSET VALUE, redemption and offering
price per share $ 10.15 $ 11.93 $ 12.11 $ 13.67
=========== =========== =========== ===========
</TABLE>
See accompanying notes to financial statements.
THE ONE(R) GROUP(SM) INVESTMENT TRUST ANNUAL REPORT 15
<PAGE> 79
THE ONE(R) GROUP(SM) INVESTMENT TRUST
STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
GOVERNMENT ASSET GROWTH LARGE COMPANY
BOND ALLOCATION OPPORTUNITIES GROWTH
---------- ---------- ----------- -------------
<S> <C> <C> <C> <C>
INVESTMENT INCOME:
INCOME:
Dividend income $ -- $ 91,451 $ 303,210 $ 511,734
Interest income 845,399 338,248 109,047 151,913
-------- ---------- ---------- ----------
Total income 845,399 429,699 412,257 663,647
-------- ---------- ---------- ----------
EXPENSES:
Investment advisory fees 55,463 70,520 92,003 190,477
Administration fees 29,580 24,178 33,970 70,330
Auditing fees 6,846 5,323 7,401 15,529
Legal fees 5,868 4,563 6,343 13,311
Custodian fees 11,500 28,600 45,484 28,000
Insurance expense 5,128 3,478 4,239 9,250
Trustees' fees 2,347 1,825 2,537 5,324
Other 7,699 6,086 6,489 7,584
-------- ---------- ---------- ----------
Total expenses before waivers 124,431 144,573 198,466 339,805
Less waivers (31,993) (43,830) (48,685) (53,497)
-------- ---------- ---------- ----------
Net expenses 92,438 100,743 149,781 286,308
-------- ---------- ---------- ----------
NET INVESTMENT INCOME $ 752,961 $ 328,956 $ 262,476 $ 377,339
-------- ---------- ---------- ----------
NET REALIZED AND UNREALIZED GAIN (LOSS):
Net realized gain on investments $ 3,774 $ 275,875 $ 1,162,557 $ 908,100
Net realized gain on financial futures -- 7,573 170,135 --
Net change in unrealized appreciation
(depreciation) on investments and
financial futures (319,475) 603,224 348,789 3,402,753
Net change in unrealized gain on financial
futures -- 12,010 3,590 --
-------- ---------- ---------- ----------
NET REALIZED AND UNREALIZED GAIN (LOSS) (315,701) 898,682 1,685,071 4,310,853
-------- ---------- ---------- ----------
NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS $ 437,260 $1,227,638 $ 1,947,547 $ 4,688,192
======== ========== ========== ==========
</TABLE>
See accompanying notes to financial statements.
16 THE ONE(R) GROUP(SM) INVESTMENT TRUST ANNUAL REPORT
<PAGE> 80
THE ONE(R) GROUP(SM) INVESTMENT TRUST
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
GOVERNMENT BOND ASSET ALLOCATION
-------------------------- --------------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1996 1995 1996 1995
-------------------------- --------------------------
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
FROM OPERATIONS:
Net investment income $ 752,961 $ 436,517 $ 328,956 $ 127,603
Net realized gain on investments and
financial futures 3,774 128,998 283,448 97,556
Net change in unrealized appreciation
(depreciation) on investments and
financial futures (319,475) 445,748 615,234 425,670
----------- ---------- ----------- ----------
Net increase in net assets resulting
from operations 437,260 1,011,263 1,227,638 650,829
----------- ---------- ----------- ----------
DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income (752,586) (436,517) (323,941) (127,603)
In excess of net investment income -- (47) -- (129)
From net realized gain from investment
transactions (3,690) (123,527) (283,448) (97,556)
In excess of net realized gain from
investment transactions -- -- (39,340) (3,945)
Tax return of capital distribution -- -- (30,180) --
----------- ---------- ----------- ----------
Decrease in net assets from
distributions to shareholders (756,276) (560,091) (676,909) (229,233)
----------- ---------- ----------- ----------
CAPITAL SHARE TRANSACTIONS:
Net proceeds from sale of shares 5,454,874 2,839,265 8,337,534 2,810,916
Net asset value of shares issued to
shareholders from reinvestment of
distributions 756,276 644,533 676,909 241,319
Cost of shares redeemed (286,338) (30,855) (136,365) (82,255)
----------- ---------- ----------- ----------
Increase in net assets from capital
share transactions 5,924,812 3,452,943 8,878,078 2,969,980
----------- ---------- ----------- ----------
NET INCREASE IN NET ASSETS 5,605,796 3,904,115 9,428,807 3,391,576
NET ASSETS -- BEGINNING OF PERIOD 9,016,096 5,111,981 5,454,505 2,062,929
----------- ---------- ----------- ----------
NET ASSETS -- END OF PERIOD $ 14,621,892 $9,016,096 $ 14,883,312 $5,454,505
=========== ========== =========== ==========
Undistributed (distributions in excess of)
net realized gain on investments and
financial futures $ 84 $ -- $ (32,397) $ (3,945)
=========== ========== =========== ==========
Undistributed net investment income $ 375 $ -- $ -- $ --
=========== ========== =========== ==========
SHARE ACTIVITY:
Shares sold 533,833 272,833 716,926 260,452
Reinvestment of distributions 75,094 62,835 57,290 21,991
Shares redeemed (28,346) (2,974) (11,806) (7,550)
----------- ---------- ----------- ----------
Net increase in number of shares 580,581 332,694 762,410 274,893
=========== ========== =========== ==========
</TABLE>
See accompanying notes to financial statements.
THE ONE(R) GROUP(SM) INVESTMENT TRUST ANNUAL REPORT 17
<PAGE> 81
THE ONE(R) GROUP(SM) INVESTMENT TRUST
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
GROWTH OPPORTUNITIES LARGE COMPANY GROWTH
-------------------------- ---------------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1996 1995 1996 1995
-------------------------- ---------------------------
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
FROM OPERATIONS:
Net investment income $ 262,476 $ 14,093 $ 377,339 $ 172,555
Net realized gain on investments and
financial futures 1,332,692 240,787 908,100 96,379
Net change in unrealized appreciation of
investments and financial futures 352,379 150,831 3,402,753 1,449,235
----------- ---------- ----------- -----------
Net increase in net assets resulting
from operations 1,947,547 405,711 4,688,192 1,718,169
----------- ---------- ----------- -----------
DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income (262,683) (13,886) (378,493) (172,344)
From net realized gain from investment
transactions (1,332,692) (240,787) (909,099) (95,380)
In excess of net realized gain on
investment transactions (400,841) (18,225) (24,531) --
----------- ---------- ----------- -----------
Decrease in net assets from
distributions to shareholders (1,996,216) (272,898) (1,312,123) (267,724)
----------- ---------- ----------- -----------
CAPITAL SHARE TRANSACTIONS:
Net proceeds from sale of shares 13,771,622 5,384,494 22,166,931 10,232,823
Net asset value of shares issued to
shareholders from reinvestment of
distributions 1,996,216 272,898 1,312,123 287,675
Cost of shares redeemed (65,570) (45,174) (80,813) (26,565)
----------- ---------- ----------- -----------
Increase in net assets from capital
share transactions 15,702,268 5,612,218 23,398,241 10,493,933
----------- ---------- ----------- -----------
NET INCREASE IN NET ASSETS 15,653,599 5,745,031 26,774,310 11,944,378
NET ASSETS -- BEGINNING OF PERIOD 6,685,202 940,171 16,119,036 4,174,658
----------- ---------- ----------- -----------
NET ASSETS -- END OF PERIOD $ 22,338,801 $6,685,202 $ 42,893,346 $ 16,119,036
=========== ========== =========== ===========
Undistributed (distributions in excess of)
net realized gain on investments and
financial futures $ (422,570) $ (21,729) $ (24,531) $ 999
=========== ========== =========== ===========
Undistributed net investment income $ -- $ 207 $ -- $ 1,154
=========== ========== =========== ===========
SHARE ACTIVITY:
Shares sold 1,104,187 463,544 1,716,635 889,236
Reinvestment of distributions 164,755 23,720 97,037 24,630
Shares redeemed (5,144) (3,975) (6,234) (2,361)
----------- ---------- ----------- -----------
Net increase in number of shares 1,263,798 483,289 1,807,438 911,505
=========== ========== =========== ===========
</TABLE>
See accompanying notes to financial statements.
18 THE ONE(R) GROUP(SM) INVESTMENT TRUST ANNUAL REPORT
<PAGE> 82
THE ONE(R) GROUP(SM) INVESTMENT TRUST
FINANCIAL HIGHLIGHTS
SELECTED DATA FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
GOVERNMENT BOND ASSET ALLOCATION
---------------------------------------- ----------------------------------------
YEAR ENDED YEAR ENDED AUGUST 1, - YEAR ENDED YEAR ENDED AUGUST 1, -
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1996 1995 1994* 1996 1995 1994*
------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE -- BEGINNING OF
PERIOD $ 10.48 $ 9.69 $10.00 $ 11.24 $ 9.81 $10.00
------- ------ ------ ------- ------ ------
Net investment income 0.59 0.64 0.22 0.34 0.36 0.06
Net realized and unrealized
appreciation (depreciation) (0.33) 0.94 (0.31) 0.98 1.64 (0.19)
------- ------ ------ ------- ------ ------
Total from investment
operations 0.26 1.58 (0.09) 1.32 2.00 (0.13)
------- ------ ------ ------- ------ ------
Distributions from net
investment income (0.59) (0.64) (0.22) (0.34) (0.36) (0.06)
Distributions from net
realized gains from
investment transactions -- (0.15) -- (0.23) (0.21) --
Distributions in excess of net
realized gains from
investment transactions -- -- -- (0.04) -- --
Tax return of capital
distribution -- -- -- (0.02) -- --
------- ------ ------ ------- ------ ------
Total distributions (0.59) (0.79) (0.22) (0.63) (0.57) (0.06)
------- ------ ------ ------- ------ ------
Net increase (decrease) in
net asset value (0.33) 0.79 (0.31) 0.69 1.43 (0.19)
------- ------ ------ ------- ------ ------
NET ASSET VALUE -- END OF PERIOD $ 10.15 $10.48 $ 9.69 $ 11.93 $11.24 $ 9.81
======= ====== ====== ======= ====== ======
Total return 2.69% 16.69% (0.90%) 11.92% 20.69% (1.32%)
RATIOS AND SUPPLEMENTAL DATA:
Net assets end of period (000) $ 14,622 $9,016 $5,112 $ 14,883 $5,455 $2,063
Ratio of expenses to average
net assets 0.75% 0.75% 0.75%** 1.00% 1.00% 1.00%**
Ratio of expenses to average
net assets excluding
waivers/reimbursements*** 1.01% 1.47% 1.94%** 1.44% 1.96% 2.36%**
Ratio of net investment income
to average net assets 6.11% 6.54% 6.09%** 3.27% 3.66% 1.88%**
Ratio of net investment income
to average net assets
excluding
waivers/reimbursements*** 5.85% 5.80% 4.90%** 2.83% 2.70% 0.52%**
Portfolio turnover 21.3% 34.1% 3.5% 64.8% 66.3% --
Average commission rate
paid**** -- -- -- 4.4023c -- --
</TABLE>
- ------------------------------------------------------
* Initial public offering was August 1, 1994.
** Ratios are annualized for periods of less than one year.
*** Ratios calculated as if no expenses were waived.
**** Represents the total amount of commission paid in portfolio equity
transactions divided by the total number of shares purchased and sold by
the Fund for which commissions were charged.
See accompanying notes to financial statements.
THE ONE(R) GROUP(SM) INVESTMENT TRUST ANNUAL REPORT 19
<PAGE> 83
THE ONE(R) GROUP(SM) INVESTMENT TRUST
FINANCIAL HIGHLIGHTS
SELECTED DATA FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
GROWTH OPPORTUNITIES LARGE COMPANY GROWTH
---------------------------------------- ----------------------------------------
YEAR ENDED YEAR ENDED AUGUST 1, - YEAR ENDED YEAR ENDED AUGUST 1, -
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1996 1995 1994* 1996 1995 1994*
------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE -- BEGINNING OF
PERIOD $ 11.52 $ 9.70 $10.00 $ 12.12 $ 9.99 $10.00
------- ------ ----- ------- ------- ------
Net investment income 0.18 0.04 -- 0.16 0.20 0.05
Net realized and unrealized
appreciation (depreciation) 1.62 2.29 (0.30) 1.86 2.20 0.01
------- ------ ----- ------- ------- ------
Total from investment
operations 1.80 2.33 (0.30) 2.02 2.40 0.06
------- ------ ----- ------- ------- ------
Distributions from net
investment income (0.19) (0.04) -- (0.16) (0.20) (0.05)
Distributions from net
realized gains from
investment transactions (0.78) (0.47) -- (0.30) (0.07) (0.02)
Distributions in excess of net
realized gains from
investment transactions (0.24) -- -- (0.01) -- --
------- ------ ----- ------- ------- ------
Total distributions (1.21) (0.51) -- (0.47) (0.27) (0.07)
------- ------ ----- ------- ------- ------
Net increase (decrease) in
net asset value 0.59 1.82 (0.30) 1.55 2.13 (0.01)
------- ------ ----- ------- ------- ------
NET ASSET VALUE -- END OF PERIOD $ 12.11 $11.52 $ 9.70 $ 13.67 $ 12.12 $ 9.99
======= ====== ===== ======= ======= ======
Total return 15.67% 24.06% (3.00%) 16.67% 24.13% 0.52%
RATIOS AND SUPPLEMENTAL DATA:
Net assets, end of period
(000) $ 22,339 $6,685 $ 940 $ 42,893 $ 16,119 $4,175
Ratio of expenses to average
net assets 1.06% 0.90% 0.90%** 0.98% 0.90% 0.90%**
Ratio of expenses to average
net assets excluding
waivers/reimbursements*** 1.40% 2.78% 2.96%** 1.16% 1.64% 2.08%**
Ratio of net investment income
to average net assets 1.85% 0.46% (0.17%)** 1.29% 2.02% 1.39%**
Ratio of net investment income
to average net assets
excluding
waivers/reimbursements*** 1.51% (1.42%) (2.22%)** 1.11% 1.28% 0.22%**
Portfolio turnover 326.9% 193.3% 3.5% 38.7% 37.4% 4.4%
Average commission rate
paid**** 3.1357c -- -- 3.6143c -- --
</TABLE>
- ------------------------------------------------------
* Initial public offering was August 1, 1994.
** Ratios are annualized for periods less than one year.
*** Ratios calculated as if no expenses were waived.
**** Represents the total amount of commission paid in portfolio equity
transactions divided by the total number of shares purchased and sold by
the Fund for which commissions were charged.
See accompanying notes to financial statements.
20 THE ONE(R) GROUP(SM) INVESTMENT TRUST ANNUAL REPORT
<PAGE> 84
THE ONE(R) GROUP(SM) INVESTMENT TRUST
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996
- --------------------------------------------------------------------------------
NOTE 1 - ORGANIZATION
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 Growth Opportunities (formerly 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), a subsidiary of Nationwide
Insurance Company, to fund the benefits of the ONE(R) GROUP(SM) Variable
Annuity.
Effective May 1, 1996, the Small Company Growth Fund changed its name to the
Growth Opportunities Fund.
Banc One Investment Advisors Corporation (Banc One) serves as Investment Advisor
to the Trust. Nationwide Advisory Services, Inc. (NAS), (formerly Nationwide
Financial Services, Inc.), serves as Administrator to the Trust. Nationwide
Investors Services, Inc. (NIS), an affiliate of NAS, serves as the Transfer
Agent to the Trust. For its services, NIS receives an annual fee of $2,500 for
each fund.
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 Growth Opportunities Fund.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION COSTS
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 are
being 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
Listed securities are valued at the last sales price on the principal exchange
where such securities are traded. Unlisted securities or listed securities for
which last sales prices are not available are valued at the quoted bid price in
the principal market where such securities are traded. Futures contracts are
valued at the settlement price established each day by the board of trade or
exchange on which they are traded. Investments for which there are no such
quotations are carried at fair value as determined by the Advisor under the
direction of the Board of Trustees.
The Funds may invest in repurchase agreements with institutions that the
investment advisor has determined are creditworthy. Each repurchase agreement is
recorded at cost. The Funds require that the securities purchased in a
repurchase agreement transaction be transferred to the custodian in a manner
sufficient to enable the Funds to obtain those securities in the event of a
counterparty default. The seller, under the repurchase agreement, is required to
maintain the value of the securities held at not less than the repurchase price,
including accrued interest. Repurchase agreements are considered to be loans
under the 1940 Act.
THE ONE(R) GROUP(SM) INVESTMENT TRUST ANNUAL REPORT 21
<PAGE> 85
THE ONE(R) GROUP(SM) INVESTMENT TRUST
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
DECEMBER 31, 1996
- --------------------------------------------------------------------------------
FEDERAL INCOME TAX
The Trust treats each Fund as a separate entity for Federal income tax purposes.
Each Fund intends to continue to qualify as a regulated investment company by
complying with the provisions available to certain investment companies as
defined in applicable sections of the Internal Revenue Code, and to make
distributions from net investment income and from net realized capital gains
sufficient to relieve it from all, or substantially all, Federal Income Taxes.
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. The Funds declare and pay income
dividends quarterly. Distributable net realized capital gains are declared and
distributed at least annually. 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.
Accordingly, as of December 31, 1996, the capital accounts have been adjusted by
the following amounts:
<TABLE>
<CAPTION>
UNDISTRIBUTED
NET INVESTMENT DISTRIBUTIONS IN EXCESS
INCOME OF NET REALIZED GAIN CAPITAL
--------------- ------------------------- ----------------
<S> <C> <C> <C>
Asset Allocation $(5,015) $41,068 $(36,053)
</TABLE>
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.
22 THE ONE(R) GROUP(SM) INVESTMENT TRUST ANNUAL REPORT
<PAGE> 86
THE ONE(R) GROUP(SM) INVESTMENT TRUST
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
DECEMBER 31, 1996
- --------------------------------------------------------------------------------
NOTE 3 - AGREEMENTS
As Investment Advisor, Banc One manages the investments of each Fund of the
Trust and earns a fee from the Funds at the following annual rates: .45% of the
average daily net assets of the Government Bond Fund, .70% of average daily net
assets of the Asset Allocation Fund, .65% of the average daily net assets of the
Growth Opportunities Fund and .65% of the average daily net asset of the Large
Company Growth Fund. Such fees are calculated daily and paid monthly.
NAS provides administrative and accounting services to the Funds. For its
services, NAS earns 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.
The Investment Advisor has voluntarily agreed to waive all or part of its fees
in order to limit the Funds' operating expenses to no more than .75% of the
average daily net assets of the Government Bond Fund, 1.00% of the average daily
net assets of the Asset Allocation Fund, 1.10% of the average daily net assets
of each of the Growth Opportunities Fund and 1.00% of the average daily net
assets of the Large Company Growth Fund. Prior to May 1, 1996, the Growth
Opportunities and Large Company Growth Funds' expense limits were both .90%.
During the year ended December 31, 1996, the Investment Advisor voluntarily
waived fees in the amount of $31,993 in the Government Bond Fund, $43,830 in the
Asset Allocation Fund, $48,685 in the Growth Opportunities Fund and $53,497 in
the Large Company Growth Fund, representing $.026, $.051, $.043 and $.024 per
average share, respectively.
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 year ended December 31, 1996, are summarized as
follows:
<TABLE>
<CAPTION>
PURCHASES SALES
----------- -----------
<S> <C> <C>
Government Bond $ 5,260,773 $ 702,824
Asset Allocation 9,036,144 4,699,566
Growth Opportunities 53,338,643 40,437,949
Large Company Growth 31,152,830 10,260,447
<CAPTION>
U.S. GOVERNMENT OBLIGATIONS
PURCHASES SALES
----------- -----------
<S> <C> <C>
Government Bond $3,062,291 $1,785,763
Asset Allocation 2,941,646 699,059
Growth Opportunities 227,163 215,000
Large Company Growth -- --
</TABLE>
The Asset Allocation and Growth Opportunities 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.
THE ONE(R) GROUP(SM) INVESTMENT TRUST ANNUAL REPORT 23
<PAGE> 87
THE ONE(R) GROUP(SM) INVESTMENT TRUST
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
DECEMBER 31, 1996
- --------------------------------------------------------------------------------
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,
1996, based on cost for Federal income tax purposes, was as follows:
<TABLE>
<CAPTION>
GROSS GROSS NET UNREALIZED
UNREALIZED UNREALIZED APPRECIATION
APPRECIATION DEPRECIATION (DEPRECIATION)
------------ ------------ --------------
<S> <C> <C> <C>
Government Bond $ 127,472 $ (156,931) $ (29,459)
Asset Allocation 1,091,037 (101,225) 989,812
Growth Opportunities 910,771 (832,151) 78,620
Large Company Growth 5,156,169 (346,867) 4,809,302
</TABLE>
NOTE 5 - SHARES HELD BY AFFILIATES
As of December 31, 1996, Nationwide Life and Annuity Insurance Company
beneficially owned shares of the Funds with the following net asset values:
<TABLE>
<S> <C>
Government Bond $5,937,700
Asset Allocation 1,299,598
Growth Opportunities 34,798
Large Company Growth 4,367,545
</TABLE>
As of December 31, 1996, Banc One Capital Corporation owned shares of the Asset
Allocation Fund with a net asset value of $599,814.
NOTE 6 - DISTRIBUTIONS OF CAPITAL GAINS
During the year ended December 31, 1996, the Government Bond Fund, Asset
Allocation Fund, Growth Opportunities Fund and Large Company Growth Fund paid to
shareholders $3,690, $150,344, $250,211, and $932,634, respectively, from net
realized long-term capital gains.
24 THE ONE(R) GROUP(SM) INVESTMENT TRUST ANNUAL REPORT
<PAGE> 88
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):
53
<PAGE> 89
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:
o 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:
o Leading market positions in well-established industries.
o High rates of return on funds employed.
o Conservative capitalization structures with moderate reliance on
debt and ample asset protection.
o Broad margins in earnings coverage of fixed financial charges and
high internal cash generation.
o Well-established access to a range of financial markets and
assured sources of alternate liquidity.
o 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.
o 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.
54
<PAGE> 90
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):
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.
55
<PAGE> 91
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.
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.
56
<PAGE> 92
PART C
OTHER INFORMATION
Item 24. Financial Statements and Exhibits
(a) Report of Independent Accountants dated February 7, 1997
(b) Statements of Investments at December 31, 1996 (audited)
(c) Statements of Assets and Liabilities at December 31, 1996
(audited)
(d) Statements of Operations for the year ended December 31, 1996
(audited)
(e) Statements of Changes in Net Assets for the years ended December
31, 1996 and 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 that
the Shares being registered have been duly authorized
and when sold will be legally issued, fully paid and
non-assessable.
(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.
(17.3) Financial Data Schedule for the Growth
Opportunities Fund.
(17.4) Financial Data Schedule for the Large Company
Growth Fund.
57
<PAGE> 93
Copy of power of attorney of Registrant's trustees 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, 1997
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
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
58
<PAGE> 94
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 BANC ONE
CORPORATION, a multi-state bank holding company located in Columbus,
Ohio. As of
59
<PAGE> 95
December 31, 1996, BANC ONE CORPORATION had assets of $90.5 billion
and common equity of $7.9 billion. BANC ONE CORPORATION now operates
42 banks throughout the United States.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
Position With Other
Banc One Investment Substantial Type of
Advisors Corporation Occupation Business
-------------------- ---------- --------
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
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
1111 Polaris Parkway, Suite 100
Columbus, OH 43271-0211
All other Accounts and Records:
James F. Laird, Jr.
Nationwide Advisory Services, Inc.
Three Nationwide Plaza
Columbus, OH 43216
60
<PAGE> 96
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.
61
<PAGE> 97
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 24 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 24 day
of April, 1996.
Signature Title Date
- --------- --------------------------------
*/s/ PETER C. MARSHALL Trustee
- --------------------------------------------------------------------------------
Peter C. Marshall
*/s/ CHARLES I. POST Trustee
- --------------------------------------------------------------------------------
Charles I. Post
*/s/ JOHN S. RANDALL Trustee
- --------------------------------------------------------------------------------
John S. Randall
*/s/ FREDERICK W. RUEBECK Trustee
- --------------------------------------------------------------------------------
Frederick W. Ruebeck
PRINCIPAL ACCOUNTING AND FINANCIAL OFFICER
*/s/ JAMES F. LAIRD JR. Vice President
- --------------------------------------------------------------------------------
James F. Laird Jr. and Treasurer
*By /s/ ALAN PRIEST
- --------------------------------------------------------------------------------
Alan Priest
Attorney-in-fact
PRINCIPAL EXECUTIVE OFFICER
/s/ DUANE C. MEEK President
- --------------------------------------------------------------------------------
Duane C. Meek
62
<PAGE> 98
Exhibit Index
Form N-1A Item No. Description
- ------------------ -----------------------------------------------------------
24(b)(10) Opinion of Ropes & Gray, Counsel for Registrant
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
63
<PAGE> 99
POWER OF ATTORNEY
-----------------
Each of the undersigned, Peter C. Marshall, Charles I. Post, John S.
Randell and Fredrick W. Rubeck, whose signature appears below, does hereby
constitute and appoint Martin E, Lybecker, Alan G. Priest, and Linda Dallas
Rich, each individually, by his true and lawful attorneys and agents, with power
of attorney or 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 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. Priest
--------------------------------------
Charles I. Priest
/s/ John S. Randall
--------------------------------------
John S. Randall
/s/ Frederick W. Ruebeck
--------------------------------------
Frederick W. Ruebeck
<PAGE> 1
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. 5 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.
/s/ Ropes & Gray
ROPES & GRAY
Washington, D.C.
April 24, 1997
<PAGE> 2
[ROPES & GRAY LETTERHEAD]
April 24, 1997
The One Group(R) Investment Trust
One Nationwide Plaza
Columbus, Ohio 43215
Ladies and Gentlemen:
You have informed us that you intend to file a Rule 485(b)
Post-Effective Amendment to your Registration Statement under the Investment
Company Act of 1940, as amended, with the Securities and Exchange Commission
(the "Commission") for the purpose of adding audited financial statements for
the year ended December 31, 1996.
We have examined your Amended and Restated Agreement and Declaration of
Trust, as further amended, as on file at the office of the Secretary of The
Commonwealth of Massachusetts. We are familiar with the actions taken by your
Trustees to authorize the issue and sale from time to time of your shares of
beneficial interest at not less than the public offering price of such shares
and have assumed that the Shares have been issued and sold in accordance with
such action. We have also examined a copy of your Code of Regulations and such
other documents as we have deemed necessary for the purposes of this opinion.
Based on the foregoing, we are of the opinion that the shares being
registered have been duly authorized and when sold will be legally issued,
fully paid and non-assessable.
The Trust is an entity of the type commonly known as a "Massachusetts
business trust." Under Massachusetts law, shareholders could, under certain
circumstances, be held personally liable for the obligations of the Trust.
However, the Declaration of Trust disclaims shareholder liability for acts or
obligations of the Trust and requires that notice of such disclaimer be given
in each agreement, obligation or instrument entered into or executed by the
Trust or its Trustees. The Declaration of Trust provides for indemnification
out of the property of the Trust for all loss and expense of any shareholder of
the Trust held personally liable solely by reason of his being or having been a
shareholder. Thus, the risk of a shareholder incurring financial loss on
account of being a shareholder is limited to circumstances in which the Trust
itself would be unable to meet its obligations.
<PAGE> 3
ROPES & GRAY
The One Group(R) Investment Trust
April 24, 1997
Page 2
We consent to this opinion accompanying the Post-Effective Amendment No.
5 when filed with the Commission.
Very truly yours,
/s/ Ropes & Gray
Ropes & Gray
<PAGE> 1
[Price Waterhouse Letterhead]
Consent of Independent Accountants
We hereby consent to the use in the Statement of Additional Information
constituting part of this Post-Effective Amendment No. 5 to the registration
statement on Form N-1A (the "Registration Statement") of our report dated
February 7, 1997, relating to the financial statements and financial highlights
of The One(r) Group(sm) Investment Trust, which appears in such Statement of
Additional Information, and to the incorporation by reference of our report into
the Prospectus which constitutes part of this Registration Statement. We also
consent to the references to us under the heading "Financial Highlights Of The
Trust" in such Prospectus and under the heading "Independent Accountants" in
such Statement of Additional Information and in such Prospectus.
/s/ Price Waterhouse LLP
Price Waterhouse LLP
2 Easton Oval
Columbus, Ohio
April 21, 1997
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<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 845,399
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<EXPENSES-NET> 92,438
<NET-INVESTMENT-INCOME> 752,961
<REALIZED-GAINS-CURRENT> 3,774
<APPREC-INCREASE-CURRENT> (319,475)
<NET-CHANGE-FROM-OPS> 437,260
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<DISTRIBUTIONS-OF-INCOME> 752,586
<DISTRIBUTIONS-OF-GAINS> 3,690
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<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
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<GROSS-EXPENSE> 124,431
<AVERAGE-NET-ASSETS> 10,954,075
<PER-SHARE-NAV-BEGIN> 10.48
<PER-SHARE-NII> 0.59
<PER-SHARE-GAIN-APPREC> (0.33)
<PER-SHARE-DIVIDEND> 0.59
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<INVESTMENTS-AT-VALUE> 14,822,876
<RECEIVABLES> 98,812
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<OTHER-ITEMS-ASSETS> 635
<TOTAL-ASSETS> 14,930,027
<PAYABLE-FOR-SECURITIES> 36,500
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 10,215
<TOTAL-LIABILITIES> 46,715
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 13,909,454
<SHARES-COMMON-STOCK> 1,247,502
<SHARES-COMMON-PRIOR> 485,092
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<OVERDISTRIBUTION-GAINS> 32,397
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<EXPENSES-NET> 100,743
<NET-INVESTMENT-INCOME> 328,956
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WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
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