<PAGE> 1
EXHIBITS START ON PAGE 74
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 13, 1998
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 |x|
Pre-Effective Amendment No. _____ |_|
Post-Effective Amendment No. 7 |x|
and/or
REGISTRATION STATEMENT UNDER THE |X|
INVESTMENT COMPANY ACT OF 1940
Amendment No. 9 |X|
(Check appropriate box or boxes)
THE ONE GROUP(R) INVESTMENT TRUST
(Exact Name of Registrant as Specified in Charter)
THREE NATIONWIDE PLAZA
COLUMBUS, OHIO 43215
(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 43215
(Name and Address of Agent for Service)
Copies to:
DAVID E. SIMAITIS ALAN G. PRIEST
DRUEN, DIETRICH, REYNOLDS & KOOGLER ROPES & GRAY
ONE NATIONWIDE PLAZA 1301 K STREET, N.W.
COLUMBUS, OHIO 43215 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 May 1, 1998 pursuant to paragraph (b)
[ ] days after filing pursuant to paragraph (a)(1)
[ ] on (date pursuant to paragraph (a)(1)
[ ] 75 days after filing pursuant to paragraph (a)(2)
[ ] on (date) pursuant to paragraph (a)(2) of Rule 485.
If appropriate, check the following box:
[X] this post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
<PAGE> 2
- --------------------------------------------------------------------------------
THE ONE GROUP(R) INVESTMENT TRUST
GOVERNMENT BOND FUND
ASSET ALLOCATION FUND
GROWTH OPPORTUNITIES FUND
LARGE COMPANY GROWTH FUND
EQUITY INDEX FUND
<TABLE>
- ------------------------------------------------------------------------------------------------------------------------
CROSS REFERENCE SHEET
N-1A Item No. Location
- ------------------------------------------------------------------------------------------------------------------------
PART A
<S> <C> <C> <C>
Item 1. Cover Page....................................................Cover Page
Item 2. Synopsis......................................................Summary
Item 3. Condensed Financial Information...............................Financial Highlights
Item 4. General Description of Registrant.............................Organization and Management of the Funds
Item 5. Management of the Fund........................................The Advisor
Item 6. Capital Stock and Other Securities............................Shareholder Rights
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 Advisor
Item 17. Brokerage Allocation..........................................Management of the Trust-
Portfolio Transactions
Item 18. Capital Stock and Other Securities............................Additional Information-
..............................................................Shareholders
Item 19. Purchase, Redemption and Pricing of
Securities Being Offered......................................Additional Information
Regarding the Calculation
of Per Share Net Asset Value
Item 20. Tax Status....................................................Investment Objectives and
Policies-Additional Tax
Information Concerning All
Funds of the Trust
Item 21. Underwriters..................................................Not Applicable
</TABLE>
<PAGE> 3
<TABLE>
<CAPTION>
CROSS REFERENCE SHEET
N-1A Item No. Location
- ----------------------------------------------------------------------------------------------------------------
PART B
<S> <C> <C>
Item 22. Calculation of Performance Data...............................Calculation of Performance Data
Item 23. Financial Statements..........................................Financial Statements
</TABLE>
PART C
Information required to be included in Part C is set forth under the appropriate
item, so numbered, in Part C to this registration statement.
<PAGE> 4
THE ONE GROUP(R) INVESTMENT TRUST
GOVERNMENT BOND FUND
ASSET ALLOCATION FUND
GROWTH OPPORTUNITIES FUND
LARGE COMPANY GROWTH FUND
EQUITY INDEX FUND
Prospectus
May 1, 1998
Three Nationwide Plaza
Columbus, Ohio 43215
For Information and Assistance, Call
1-800-860-3946
This prospectus describes five mutual funds (the "Funds"), 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 Investors Annuity(SM), to certain other
separate accounts that fund variable annuity and variable life contracts issued
by other life insurance companies, and to qualified pension and retirement
plans.
PLEASE REMEMBER THAT SHARES OF THE FUNDS: - ARE NOT DEPOSITS OR OBLIGATIONS
OF, OR GUARANTEED BY BANC ONE CORPORATION OR ITS AFFILIATES; - ARE NOT INSURED
OR GUARANTEED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION OR BY ANY FEDERAL OR
STATE GOVERNMENTAL AGENCY; - INVOLVE INVESTMENT RISK, INCLUDING THE POSSIBLE
LOSS OF THE PRINCIPAL AMOUNT INVESTED.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
<PAGE> 5
<TABLE>
<S> <C>
A BRIEF PREVIEW OF THE FUNDS................................ 1
ABOUT THE FUNDS
Government Bond Fund..................................... 2
Asset Allocation Fund.................................... 3
Growth Opportunities Fund................................ 4
Large Company Growth Fund................................ 5
Equity Index Fund........................................ 6
MORE ABOUT THE FUNDS........................................ 7
Portfolio Quality........................................ 7
Illiquid Investments..................................... 7
Special Risk Considerations.............................. 7
Shareholder Rights....................................... 8
Questions................................................ 8
Share Redemption......................................... 8
Net Asset Value.......................................... 8
Dividends................................................ 8
Tax Status............................................... 8
ORGANIZATION AND MANAGEMENT OF THE FUNDS.................... 10
The Funds................................................ 10
The Board of Trustees.................................... 10
The Advisor.............................................. 10
The Administrator........................................ 10
Transfer and Dividend Paying Agent....................... 10
The Custodian............................................ 10
Independent Accountants.................................. 10
Expenses of the Funds.................................... 10
DETAILS ABOUT THE FUNDS' INVESTMENT PRACTICES AND
POLICIES.................................................. 12
Investment Practices..................................... 12
Investment Risks......................................... 15
Investment Policies...................................... 16
ADDITIONAL INFORMATION...................................... 17
Performance.............................................. 17
APPENDIX: DESCRIPTION OF RATINGS............................ 18
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.
</TABLE>
table of contents
<PAGE> 6
1
a brief preview of the funds
WHAT ARE THE GOALS OF THE FUNDS?
The Funds are designed for a variety of investment objectives,
including current income, total return, capital appreciation,
and investment results that correspond to the price and
dividend performance of securities in the Standard & Poor's
500 Composite Stock Price Index.* Each Fund pursues a
different objective and involves different risks. Please read
about each Fund before investing.
WHAT ARE THE FUNDS' INVESTMENT STRATEGIES?
The Government Bond Fund ("Bond Fund") will invest in
obligations issued or guaranteed by the U.S. government, its
agencies and instrumentalities. The Asset Allocation Fund,
Growth Opportunities Fund, Large Company Growth Fund and
Equity Index Fund (collectively, the "Equity Funds"), will
invest in a variety of equity securities, including common
stocks. The Equity Funds also may invest in debt securities
and preferred stocks which are convertible into common stocks.
Most of the Equity Funds may invest in securities of foreign
issuers.
WHAT ARE THE MAIN RISKS OF INVESTING IN THE FUNDS?
The Bond Fund invests in fixed-income investments that are
subject to market fluctuations as a result of changes in
interest rates. As a result, the value of investments in the
Bond Fund may decrease during periods of rising interest rates
and increase during periods of declining interest rates. In
addition, the Bond Fund invests in mortgage-related securities
which have significantly greater price and yield volatility
than traditional fixed-income securities. The Equity Funds
invest in equity securities that are more volatile and carry
more risk than some other forms of investment. In addition,
investments in foreign securities may expose the Equity Funds
to risks that are different from investments in U.S.
securities. The Funds may invest in derivative securities.
These securities may expose the Funds to special risks. As
with all investments, you may lose money by investing in the
Funds. For more information about risks, please read "More
About the Funds" and "Investment Risks."
WHO MANAGES THE FUNDS?
Banc One Investment Advisors Corporation ("Banc One Investment
Advisors"), an indirect subsidiary of BANC ONE CORPORATION
serves as the advisor of the Funds. Banc One Investment
Advisors is paid a fee for its services. A more detailed
discussion regarding Banc One Investment Advisors, its
services and compensation can be found in the Prospectus under
the heading "The Advisor".
HOW WILL SHARES BE 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
Investors Annuity(SM), and may be purchased by separate
accounts of other insurance companies to fund variable life
annuity and variable life contracts and by qualified pension
and retirement plans. For information concerning the purchase
and redemption of shares by The One Investors Annuity(SM),
refer to the prospectus of The One Investors Annuity(SM) which
accompanies this prospectus.
---------------------------------
* "S & P 500 Index" is a registered service mark of Standard &
Poor's Corporation, which does not sponsor and is in no way
affiliated with the Fund.
<PAGE> 7
The One Group Investment Trust
Government Bond Fund
LOGO INVESTMENT OBJECTIVE
The Fund seeks a high level of
current income with liquidity and
safety of principal.
LOGO INVESTMENT STRATEGY
The Fund limits its investments to
securities issued by the U.S.
Government and its agencies and
instrumentalities or related to
securities issued by the U.S.
Government and its agencies and
instrumentalities. The Fund's
average weighted remaining maturity
will ordinarily range between three
and fifteen years, taking into
account expected prepayment of
principal on certain investments.
However, the Fund's average weighted
remaining maturity may be outside
this range if warranted by market
conditions.
LOGO PORTFOLIO SECURITIES
At least 65% of the Fund's total
assets will be invested in debt
instruments with principal and
interest guaranteed 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 secured by mortgages
that are issued or guaranteed by
certain U.S. government agencies or
instrumentalities. For purposes of
the Fund, "bonds" include debt
instruments issued by the U.S.
Treasury, U.S. Government agencies
and instrumentalities, stripped
government securities and mortgage-
related securities. For a list of
all the securities in which the Fund
may invest, please read "Investment
Practices."
LOGO RISK CONSIDERATIONS
The Fund's ability to achieve higher
income is not as great as that of
funds that invest in lower-quality
instruments. In addition, the Fund
invests in fixed-income securities.
The value of these securities will
change in response to interest rate
changes and other factors. The Fund
also invests in mortgage-related
securities which may have greater
price and yield volatility than
traditional fixed income securities.
Before you invest, please read "More
About the Funds" and "Investment
Risks."
LOGO FUND MANAGEMENT
Thomas E. Donne, CFA, has been a
Manager of the Fund since March,
1995. Since 1988, Mr. Donne has held
various portfolio management
positions with Banc One Investment
Advisors and its affiliates.
Michael J. Sais, CFA, is head of
mortgage research for Banc One
Investment Advisors and has been a
Manager of the Fund since December,
1997. Before joining Banc One
Investment Advisors in 1995, Mr.
Sais was a Eurodollar trader with
Citibank, a senior portfolio manager
for Valley National Bank of Arizona
(now Bank One, Arizona, N.A.), and
head portfolio manager for PRIMERIT
Bank FSB. Mr. Sais has over ten
years of investment management
experience.
FINANCIAL HIGHLIGHTS
The Financial Highlights are intended to help you understand the Fund's
financial performance since inception. The
total returns in the table represent the
rate a shareholder would have earned on an
investment in the Fund (assuming
reinvestment of all dividends and
distributions). This information has been
derived from financial statements audited
by Price Waterhouse LLP, whose report,
along with the Fund's financial
statements, is included in the Statement
of Additional Information, which is
available upon request.
<TABLE>
<CAPTION>
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD 1997 1996
<S> <C> <C>
NET ASSET VALUE -- BEGINNING OF PERIOD $ 10.15 $ 10.48
------- -------
Net investment income 0.60 0.59
Net realized and unrealized appreciation
(depreciation) 0.35 (0.33)
------- -------
Total from Investment Operations 0.95 0.26
------- -------
Distributions:
From net investment income (0.60) (0.59)
From net realized gains from
investments (0.02) --
In excess of realized gains from investment
transactions -- --
Tax return of capital -- --
------- -------
Total Distributions (0.62) (0.59)
------- -------
Net increase (decrease) in net asset value 0.33 (0.33)
------- -------
NET ASSET VALUE -- END OF PERIOD $ 10.48 $ 10.15
======= =======
Total Return** 9.67% 2.69%
RATIOS AND SUPPLEMENTAL DATA:
Net assets end of period (000) $22,365 $14,622
Ratio of expenses to average net assets 0.75% 0.75%
Ratio of expenses to average net assets
excluding waivers/ reimbursements*** 0.88% 1.01%
Ratio of net investment income to average
net assets 6.06% 6.11%
Ratio of net investment income to average
net assets excluding waivers/
reimbursements*** 5.93% 5.85%
Portfolio turnover** 21.3% 21.3%
<CAPTION>
1995 1994*
<C> <C>
$ 9.69 $10.00
------ ------
0.64 0.22
0.94 (0.31)
------ ------
1.58 (0.09)
------ ------
(0.64) (0.22)
(0.15) --
== ==
------ ------
(0.79) (0.22)
------ ------
0.79 (0.31)
------ ------
$10.48 $ 9.69
====== ======
16.69% (.90%)
$9,016 $5,112
0.75% 0.75%**
1.47% 1.94%**
6.54% 6.09%**
5.80% 4.90%**
34.1% 3.5%
</TABLE>
* Initial public offering was August 1, 1994.
** Ratios are annualized for periods of less than one year. Total return
and portfolio turnover are not annualized.
*** Ratios calculated as if no expenses were waived.
2
<PAGE> 8
The One Group Investment Trust
Asset Allocation Fund
LOGO INVESTMENT OBJECTIVE
The Fund seeks to provide total
return while preserving capital.
LOGO INVESTMENT STRATEGY
The Fund invests in a combination of
stocks, fixed income securities and
money market instruments. Banc One
Investment Advisors will regularly
review the Fund's asset allocations
and vary them over time to favor
investments which it believes will
provide the most favorable total
return. In making asset allocation
decisions, Banc One Investment
Advisors will evaluate projections
of risk, market and economic
conditions, volatility, yields and
expected return. Because the Fund
seeks total return over the long
term, Banc One Investment Advisors
will not attempt to time the market.
Rather, asset allocation shifts will
be made gradually over time.
LOGO PORTFOLIO SECURITIES
The Fund normally will invest
between 40% and 75% of its total
assets in all types of equity
securities, including the stock of
both large and small capitalization
companies, as well as growth and
value securities. Up to 20% of the
equities held by the Fund may be
foreign securities, including
American Depository Receipts.
Between 25% and 60% of the Fund's
total assets will be invested in
fixed income securities, including
bonds, notes, and other debt
securities. The balance of the
Fund's total assets will be invested
in money market instruments. For a
list of all the securities in which
the Fund may invest, please read
"Investment Practices."
LOGO RISK CONSIDERATIONS
The Fund invests in equity
securities, which may increase or
decrease in value. As a result, the
value of your investment in the Fund
may increase or decrease in value.
The Fund also will invest in fixed
income securities. The value of
these securities will change in
response to interest rate changes
and other factors. This is
especially true to the extent the
Fund invests in debt securities in
the lowest investment grade
category. Such securities have
speculative characteristics. Before
you invest, please read "More About
the Funds" and "Investment Risks."
LOGO FUND MANAGEMENT
Scott Grimshaw is the Manager of the
fixed income portion of the Fund,
having served in that position since
November, 1996. He has been employed
as a research analyst for Banc One
Investment Advisors or its
affiliates since 1988.
Since May, 1997, Dan Kapusta has
served as Manager of the equity
portion of the Fund. Mr. Kapusta has
been an equity analyst with Banc One
Investment Advisors since 1992.
Before joining Banc One Investment
Advisors, Mr. Kapusta worked for
Robert W. Baird, Inc. in Milwaukee,
Wisconsin as an equity analyst.
FINANCIAL HIGHLIGHTS
The Financial Highlights are intended to help you understand the Fund's
financial performance since inception. The
total returns in the table represent the
rate a shareholder would have earned on an
investment in the Fund (assuming
reinvestment of all dividends and
distributions). This information has been
derived from financial statements audited
by Price Waterhouse LLP, whose report,
along with the Fund's financial
statements, is included in the Statement
of Additional Information, which is
available upon request.
<TABLE>
<CAPTION>
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD 1997 1996
<S> <C> <C>
NET ASSET VALUE -- BEGINNING OF PERIOD $ 11.93 $ 11.24
------- -------
Net investment income 0.39 0.34
Net realized and unrealized appreciation
(depreciation) 2.31 0.98
------- -------
Total from Investment Operation 2.70 1.32
------- -------
Distributions:
From net investment income (0.39) (0.34)
From net realized gains from investments (1.05) (0.23)
In excess of realized gains from investment
transactions -- (0.04)
Tax return of capital -- (0.02)
------- -------
Total Distributions (1.44) (0.63)
------- -------
Net increase (decrease) in net asset value 1.26 0.69
------- -------
NET ASSET VALUE -- END OF PERIOD $ 13.19 $ 11.93
======= =======
Total Return** 22.90% 11.92%
RATIOS AND SUPPLEMENTAL DATA:
Net assets end of period (000) $41,446 $14,883
Ratio of expenses to average net assets 1.00% 1.00%
Ratio of expenses to average net assets
excluding waivers/reimbursements*** 1.15% 1.44%
Ratio of net investment income to average
net assets 3.24% 3.27%
Ratio of net investment income to average
net assets excluding
waivers/reimbursements*** 3.07% 2.83%
Portfolio turnover** 60.9% 64.8%
Average commission rate paid**** $ .045 $ .044
<CAPTION>
1995 1994*
<C> <C>
$ 9.81 $10.00
------ ------
0.36 0.06
1.64 (0.19)
------ ------
2.00 (0.13)
------ ------
(0.36) (0.06)
(0.21) --
== ==
------ ------
(0.57) (0.06)
------ ------
1.43 (0.19)
------ ------
$11.24 $ 9.81
====== ======
20.69% (1.32%)
$5,455 $2,063
1.00% 1.00%**
1.96% 2.36%**
3.66% 1.88%**
2.70% 0.52%**
66.3% --
-- --
</TABLE>
* Initial public offering was August 1, 1994.
** Ratios are annualized for periods of less than one year. Total return
and portfolio turnover are not annualized.
*** 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.
3
<PAGE> 9
The One Group Investment Trust
Growth Opportunities Fund
LOGO INVESTMENT OBJECTIVE
The Fund seeks growth of capital and
secondarily, current income by
investing primarily in equity
securities.
LOGO INVESTMENT STRATEGY
The Fund invests in securities that
have the potential to produce
above-average earnings growth per
share over a one-to-three year
period. Typically, the Fund acquires
shares of established companies with
a history of above-average growth,
as well as those companies expected
to enter periods of above-average
growth. Not all the securities
purchased by the Fund will pay
dividends. The Fund also invests in
smaller companies in emerging growth
industries.
LOGO PORTFOLIO SECURITIES
The Fund normally invests at least
80% of its total assets in equity
securities, including common stocks
and debt securities and preferred
stocks that are convertible to
common stock. A portion of the
Fund's assets will be held in cash
equivalents. For a list of all the
securities in which the Fund may
invest, please read "Investment
Practices."
LOGO RISK CONSIDERATIONS
The Fund invests in equity
securities which may increase or
decrease in value. Therefore, the
value of your investment in the Fund
may increase or decrease in value.
Also, the stocks of smaller
companies may be subject to greater
risks than those of larger
companies. Before you invest, please
read "More About the Funds" and
"Investment Risks."
LOGO FUND MANAGEMENT
The Fund is managed by a team of
portfolio managers, research
analysts, and other investment
management professionals. Each team
member makes recommendations about
the securities in the Fund. The
research analysts provide in-depth
industry analysis and
recommendations, while the portfolio
managers determine strategy,
industry weightings, Fund holdings,
and cash positions.
FINANCIAL HIGHLIGHTS
The Financial Highlights are intended to help you understand the Fund's
financial performance since inception. The
total returns in the table represent the
rate a shareholder would have earned on an
investment in the Fund (assuming
reinvestment of all dividends and
distributions). This information has been
derived from financial statements audited
by Price Waterhouse LLP, whose report,
along with the Fund's financial
statements, is included in the Statement
of Additional Information, which is
available upon request.
<TABLE>
<CAPTION>
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD 1997 1996
<S> <C> <C>
NET ASSET VALUE -- BEGINNING OF PERIOD... $ 12.11 $ 11.52
------- -------
Net investment income (loss)... (0.03) 0.18
Net realized and unrealized appreciation
(depreciation)... 3.63 1.62
------- -------
Total from Investment Operations... 3.60 1.80
------- -------
Distributions:
From net investment income... -- (0.19)
From net realized gains from investments... (1.48) (0.78)
In excess of realized gains from investment
transactions... -- (0.24)
Tax return of capital... (0.02) --
------- -------
Total Distributions... (1.50) (1.21)
------- -------
Net increase (decrease) in net asset value... 2.10 0.59
------- -------
NET ASSET VALUE END OF PERIOD... $ 14.21 $ 12.11
======= =======
Total Return**... 29.81% 15.67%
RATIOS AND SUPPLEMENTAL DATA:
Net assets, end of period (000)... $50,707 $22,339
Ratio of expenses to average net assets... 1.10% 1.06%
Ratio of expenses to average net assets
excluding waivers/reimbursements***... 1.11% 1.40%
Ratio of net investment income to average
net assets... (.25%) 1.85%
Ratio of net investment income to average
net assets excluding
waivers/reimbursements***... (.26%) 1.51%
Portfolio turnover**... 175.6% 326.9%
Average commission rate paid****... $ .051 $ .031
<CAPTION>
1995 1994*
<C> <C>
$ 9.70 $10.00
------ ------
0.04 --
2.29 (0.30)
------ ------
2.33 (0.30)
------ ------
(0.04) --
(0.47) --
== ==
------ ------
(0.51) --
------ ------
1.82 (0.30)
------ ------
$11.52 $ 9.70
====== ======
24.06% (3.00%)
$6,685 $ 940
0.90% 0.90%**
2.78% 2.96%**
0.46% (0.17%)**
(1.42%) (2.22%)**
193.3% 3.5%
-- --
</TABLE>
* Initial public offering was August 1, 1994.
** Ratios are annualized for periods less than one year. Total return and
portfolio turnover are not annualized.
*** 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.
4
<PAGE> 10
The One Group Investment Trust
Large Company Growth Fund
LOGO INVESTMENT OBJECTIVE
The Fund seeks long-term capital
appreciation and growth of income by
investing primarily in equity
securities.
LOGO INVESTMENT STRATEGY
The Fund invests primarily in equity
securities of large,
well-established companies. The
weighted average capitalization of
companies in which the Fund invests
normally will exceed the market
median capitalization of the
Standard & Poor's 500 Composite
Stock Price Index ("S&P 500
Index").*
LOGO PORTFOLIO SECURITIES
The Fund normally invests at least
65% of its total assets in the
equity securities of companies
described above, including common
stock, warrants and rights to buy
common stocks. The remainder of the
Fund's total assets will be invested
in nonconvertible fixed income
securities, options and futures,
repurchase agreements, and
securities issued by the U.S.
government and its agencies and
instrumentalities. For daily cash
management purposes, the Fund may
invest in repurchase agreements and
cash equivalents. For a list of all
the securities in which the Fund may
invest, please read "Investment
Practices."
LOGO RISK CONSIDERATIONS
The Fund invests in equity
securities, which may increase or
decrease in value. As a result, the
value of your investment in the Fund
may increase or decrease in value.
The Fund also will invest in fixed
income securities. The value of
these securities will change in
response to interest rate changes
and other factors. This is
especially true to the extent the
Fund invests in debt securities with
speculative characteristics. Before
you invest, please read "More About
the Funds" and "Investment Risks."
LOGO FUND MANAGEMENT
The Fund is managed by a team of
portfolio managers, research
analysts, and other investment
management professionals. Each team
member makes recommendations about
the securities in the Fund. The
research analysts provide in-depth
industry analysis and
recommendations, while the portfolio
managers determine strategy,
industry weightings, Fund holdings,
and cash positions.
* "S & P 500 Index" is a registered
service mark of Standard & Poor's
Corporation, which does not
sponsor and is in no way
affiliated with the Fund.
FINANCIAL HIGHLIGHTS
The Financial Highlights are intended to help you understand the Fund's
financial performance since inception. The
total returns in the table represent the
rate a shareholder would have earned on an
investment in the Fund (assuming
reinvestment of all dividends and
distributions). This information has been
derived from financial statements audited
by Price Waterhouse LLP, whose report,
along with the Fund's financial
statements, is included in the Statement
of Additional Information, which is
available upon request.
<TABLE>
<CAPTION>
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD 1997 1996
<S> <C> <C>
NET ASSET VALUE -- BEGINNING OF PERIOD $ 13.67 $ 12.12
------- -------
Net investment income (loss) 0.10 0.16
Net realized and unrealized appreciation
(depreciation) 4.25 1.86
------- -------
Total from Investment Operations 4.35 2.02
------- -------
Distributions:
From net investment income (0.10) (0.16)
From net realized gains from investments (0.71) (0.30)
In excess of realized gains from investment
transactions -- (0.01)
Tax return of capital -- --
------- -------
Total Distributions (0.81) (0.47)
------- -------
Net increase (decrease) in net asset value 3.54 1.55
------- -------
NET ASSET VALUE -- END OF PERIOD $ 17.21 $ 13.67
======= =======
Total Return** 31.93% 16.67%
RATIOS AND SUPPLEMENTAL DATA:
Net assets, end of period (000) $99,628 $42,893
Ratio of expenses to average net assets 1.00% 0.98%
Ratio of expenses to average net assets
excluding waivers/reimbursements*** 1.00% 1.16%
Ratio of net investment income to average
net assets 0.69% 1.29%
Ratio of net investment income to average
net assets excluding
waivers/reimbursements*** 0.69% 1.11%
Portfolio turnover** 34.4% 38.7%
Average commission rate paid**** $ .035 $ .036
<CAPTION>
1995 1994*
<C> <C>
$ 9.99 $10.00
------- ------
0.20 0.05
2.20 0.01
------- ------
2.40 0.06
------- ------
(0.20) (0.05)
(0.07) (0.02)
== ==
------- ------
(0.27) (0.07)
------- ------
2.13 (0.01)
------- ------
$ 12.1 $ 9.99
======= ======
24.13% 0.52%
$16,119 $4,175
0.90% 0.90%**
1.64% 2.08%**
2.02% 1.39%**
1.28% 0.22%**
37.4% 4.4%
-- --
</TABLE>
* Initial public offering was August 1, 1994.
** Ratios are annualized for periods less than one year. Total return and
portfolio turnover are not annualized.
*** 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.
5
<PAGE> 11
The One Group Investment Trust
Equity Index Fund
LOGO INVESTMENT OBJECTIVE
The Fund seeks investment results
that correspond to the aggregate
price and dividend performance of
securities in the S&P 500 Index.*
LOGO INVESTMENT STRATEGY
The Fund invests primarily in stocks
included in the S&P 500 Index and,
secondarily in stock index futures.
Banc One Investment Advisors will
seek to achieve a correlation
between the performance of the Fund
and that of the S&P 500 Index. To
implement this strategy, Banc One
Investment Advisors generally
selects stocks in the order of their
weightings in the S&P 500 Index
beginning with the heaviest weighted
stocks. The Fund will attempt to
achieve a correlation between the
performance of its portfolio and
that of the S&P 500 Index of at
least 0.95, without taking into
account expenses. Perfect
correlation would be 1.00.
LOGO PORTFOLIO SECURITIES
The percentage of a stock that the
Fund holds will be approximately the
same percentage that the stock
represents in the S&P Index. In
addition, the Fund may hold up to
10% of its net assets in cash or
cash equivalents. For a list of all
the securities in which the Fund may
invest, please read "Investment
Practices."
LOGO RISK CONSIDERATIONS
The Fund invests in equity
securities, which may increase or
decrease in value. Therefore, the
value of your investment in the Fund
may increase or decrease in value.
Because the Fund's investments are
tied to an index, fluctuations in
the index will affect the value of
your investment in the Fund. Before
you invest, please read "More About
the Funds" and "Investment Risks."
LOGO FUND MANAGEMENT
Michael D. Weiner is the Manager of
the Fund. Mr. Weiner also serves as
the Managing Director of Equity
Research for Banc One Investment
Advisors. Before joining Banc One
Investment Advisors, 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.
*"S & P 500 Index" is a registered
service mark of Standard & Poor's
Corporation, which does not sponsor
and is in no way affiliated with
the Fund.
This section would normally include Financial Highlights for the Fund. Because
the Fund will not begin operations until
after May 1, 1998, there are no Financial
Highlights for the Fund.
6
<PAGE> 12
more about the funds
7
Portfolio Quality
- ----------------------------------------------------
The Funds only purchase securities that meet the following criteria:
- - The Government Bond Fund may invest in debt securities rated in any of the
three highest investment grade rating categories.
- - If the Funds invest in municipal bonds, the bonds must be rated as investment
grade.
- - Other municipal securities, such as tax-exempt commercial paper, notes and
variable rate demand obligations, must be rated in one of the two highest
investment grade categories at the time of investment.
- - Corporate bonds generally will be rated in one of the three highest investment
grade categories.
- - Banc One Investment Advisors reserves the right to invest in corporate bonds
which present attractive opportunities and are rated in the lowest investment
grade category. These corporate bonds may be riskier than higher rated bonds.
If the securities are unrated, Banc One Investment Advisors must determine that
they are of comparable quality to rated securities. Banc One Investment Advisors
will look at a security's rating at the time of investment. For more information
about ratings, please see "Description of Ratings" in the Appendix.
Illiquid Investments
- ----------------------------------------------------
Each Fund may invest up to 15% of its net assets in illiquid investments. A
security is illiquid if it cannot be sold at approximately the value assessed by
the Fund within seven (7) days. Banc One Investment Advisors will follow
guidelines adopted by The One Group Investment Trust Board of Trustees (the
"Board of Trustees" or "Trustees"), in determining whether an investment is
illiquid.
Special Risk
Considerations
- ----------------------------------------------------
FIXED INCOME SECURITIES: Investments in fixed income securities (for example,
bonds) will increase or decrease in value based on changes in interest rates. If
rates increase, the value of a Fund's investments generally declines. On the
other hand, if rates fall, the value of the investments generally increases. The
value of your investment in a Fund will increase and decrease as the value of a
Fund's investments increase and decrease. While securities with longer duration
and maturities tend to produce higher yields, they also are subject to greater
fluctuations in value when interest rates change. Usually, changes in the value
of fixed income securities will not affect cash income generated, but may affect
the value of your investment.
DERIVATIVES: The Funds invest in securities that are considered to be
derivatives. These securities may be more volatile than other investments. These
include:
- - >options, futures contracts, and options on futures contracts
- - warrants
- - mortgage-backed securities, including collateralized mortgage obligations and
Real Estate Mortgage Investment Conduits (CMOs and REMICs) and stripped
mortgage-backed securities (IOs and POs)
- - asset-backed securities
- - >swap, cap and floor transactions
- - new financial products
- - structured instruments
- - inverse floating rate instruments
Derivatives may be riskier than traditional investments.
SMALL CAPITALIZATION COMPANIES: Investments in smaller, younger companies may be
riskier than investments in larger, more established companies. These companies
may be more vulnerable to changes in economic conditions, specific industry
conditions, market fluctuations, and other factors affecting the profitability
of other companies. Because economic events may have a greater impact on smaller
companies, there may be a greater and more frequent fluctuation in their stock
price. This may cause frequent and unexpected increases or decreases in the
value of your investment.
EQUITY INDEX FUND: An index fund's investment objective is to track the
performance of a specified index. Therefore, securities may be purchased,
retained and sold by an index fund at times when an actively managed fund would
not do so. As a result, you can expect greater risk of loss (and a
correspondingly greater prospect of gain) from changes in the value of
securities that are heavily weighted in the index than would be the case if the
funds were not fully invested in such securities. Because of this, an index
fund's share price can be volatile and you should be able to handle sudden, and
sometimes substantial, fluctuations in the value of your investment.
Shareholder Rights
- ----------------------------------------------------
Shares of the Funds are sold at net asset value to, a separate account of
Nationwide Life and Annuity Insurance Company ("Nationwide Annuity") to fund the
benefits of The One Investors Annuity(SM) and may in the future be sold to other
separate accounts funding variable annuity and variable life contracts issued by
other life insurance companies,
<PAGE> 13
and qualified pension and retirement plans (collectively, with the Nationwide
Annuity, the "Separate Accounts"). Material irreconcilable conflicts between
Separate Accounts possibly may arise due to management, regulatory, or other
differences. The Board of Trustees will monitor events for such conflicts and,
should they arise, will determine what action, if any, should be taken in
response. All investments in the Funds are credited to the shareholder's account
in the form of full or fractional shares of the designated Fund. The Funds do
not issue share certificates. Initial and subsequent purchase payments allocated
to a specific Fund are subject to the limits applicable to the Separate
Accounts.
Under current practices, Nationwide Annuity will solicit voting instructions
from The One Investors Annuity(SM) owners with respect to any matters that are
presented to a vote of shareholders. Each Fund votes separately on matters
relating solely to that Fund or which affect that Fund differently. However, all
shareholders will have equal voting rights on matters that affect all
shareholders equally. The holders of each share shall be entitled to one vote
for each share held.
The One Group Investment Trust (the "Trust") does not hold Annual Meetings of
shareholders but may hold Special Meetings. Special meetings are held, for
example, to elect or remove Trustees, change a Fund's fundamental investment
objectives, or approve an investment advisory contract.
Questions
- ----------------------------------------------------
- - Any questions regarding the Funds should be directed to the The One Group
Investment Trust, Three Nationwide Plaza, Columbus, Ohio 43215 1-800-860-3946.
- - All questions regarding The One Investors Annuity(SM) should be directed to
Nationwide Life and Annuity Insurance Company, as indicated in the annuity
prospectus included herewith.
- - All questions regarding other Separate Accounts should contact the address
indicated in the prospectuses and plan documents accompanying those accounts.
Share Redemption
- ----------------------------------------------------
- - Separate Accounts redeem shares to make benefit or surrender payments to
policyholders. Redemptions are processed on any day on which the Funds are
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 Funds are open for business (each, a "Business Day") other than weekends
and the following holidays: New Years Day, Martin Luther King, Jr. Day,
President's Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving, and Christmas.
Net Asset Value
- ----------------------------------------------------
- - The net asset value ("NAV") per share for each Fund is determined as of the
close of regular trading on the New York Stock Exchange (usually 4 P.M.
Eastern Time), on each Business Day.
- - The NAV 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 on a quarterly basis
and will be automatically reinvested in Fund shares.
- - Dividends are not taxable as current income 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 other Funds. Each Fund intends 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 Investors Annuity(SM), the prospectuses of other
Separate Accounts that fund variable annuity and variable life contracts, or
qualified pension and retirement plan documents. 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
8
<PAGE> 14
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.
9
<PAGE> 15
organization and management of the funds
10
THE FUNDS
Each Fund is a series of The One Group Investment Trust, an open-end management
investment company. Each Fund described in this prospectus is diversified. Each
Fund is supervised by the Board of Trustees.
THE BOARD OF TRUSTEES
The Trustees oversee the management and administration of the Funds. The
Trustees are responsible for making major decisions about each Fund's investment
objectives and policies, but delegate the day-to-day administration of the Funds
to the officers of the Trust.
THE ADVISOR
Banc One Investment Advisors makes the day-to-day investment decisions for the
Funds and continuously reviews, supervises and administers each Fund's
investment program. Banc One Investment Advisors discharges its responsibilities
subject to the supervision of, and policies established by, the Trustees of the
Trust.
As of December 31, 1997, Banc One Investment Advisors, an indirect wholly-owned
subsidiary of BANC ONE CORPORATION, managed over $52 billion in assets.
Banc One Investment Advisors 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, 0.30% for the
Equity Index Fund and 0.70% for the Asset Allocation Fund. Banc One Investment
Advisors 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
0.55% of the average daily net assets of the Equity Index Fund, not more than
0.75% 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. For the fiscal year ended December 31, 1997 the Funds
paid advisory fees at the following rates: 0.32% of the average daily net assets
of the Government Bond Fund, 0.64% of the average daily net assets of the Growth
Opportunities Fund, 0.65% of the average daily net assets of the Large Company
Growth Fund and 0.54% of the average daily net assets of the Asset Allocation
Fund.
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, serves as the Funds' administrator. The
Administrator is responsible for providing administrative services including
regulatory reporting, all necessary office space, equipment, facilities and the
services of executive and clerical personnel for administering the affairs of
the Funds.
For these services, the Administrator receives a fee based on the net assets of
the Trust. For all the Funds (except the Equity Index Fund), the fee is computed
on a daily basis at annual rates equal to the following percentages of the
average net assets of the Trust (less the assets of the Equity Index Fund):
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 $1 billion or greater. For the Equity Index Fund, the fee, which
does not decline, is 0.14% of the average daily net assets of the Equity Index
Fund. The Administrator's fees are calculated daily and paid monthly.
TRANSFER AND DIVIDEND PAYING AGENT
Nationwide Investors Services, Inc., a wholly owned subsidiary of the
Administrator, acts as the transfer agent and dividend paying agent for the
Trust and in doing so performs certain bookkeeping, data processing and
administrative services.
THE CUSTODIAN
State Street Bank and Trust Company, P.O. Box 8500, Boston, MA 02266-8500 acts
as Custodian. As the Funds' custodian, State Street holds the Funds' assets,
settles all portfolio trades and assists in calculating the Funds' NAV.
INDEPENDENT ACCOUNTANTS
Price Waterhouse LLP, 1177 Avenue of the Americas, New York, NY, 10036, serves
as independent accountants to the Funds.
EXPENSES OF THE FUNDS
Each Fund bears all expenses of its operations other than those incurred by Banc
One Investment Advisors and the Administrator under their respective Advisory
Agreement and Administration Agreement with the Funds. 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 Paying Agent, the compensation
and expenses of Trustees who are not otherwise affiliated with the Trust, Banc
One Investment Advisors or any of its
<PAGE> 16
11
affiliates, expenses of printing and mailing reports and notices and proxy
material to beneficial shareholders of the Trust, and any extraordinary
expenses. The Equity Index Fund also pays all expenses incurred in valuing
portfolio securities. Expenses incurred jointly by the Funds are allocated among
the Funds in a manner determined by the Trustees to be fair and equitable. For
the fiscal year ended December 31, 1997 the total expenses of each of the Funds,
after fee waivers, were as follows: 0.75% of the average daily net assets of the
Government Bond Fund, 1.10% of the average daily net assets of the Growth
Opportunities Fund, 1.00% of the average daily net assets of the Large Company
Growth Fund and 1.00% of the average daily net assets of the Asset Allocation
Fund.
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.
<PAGE> 17
details about the funds' investment practices and policies
fund name
12
Investment Practices
The Funds invest in a variety of securities and employ a number of investment
techniques. Each security and technique involves certain risks. What follows is
a list of the securities and techniques utilized by the Funds, as well as the
risks inherent in their use. Equity securities are subject mainly to market
risk. Fixed income securities are primarily influenced by market, credit and
prepayment risks, although certain securities may be subject to additional
risks. For a more complete discussion, see the Statement of Additional
Information. Following the table is a more complete discussion of risk.
<TABLE>
<CAPTION>
fund code
<S> <C> <C> <C>
The One Group Investment Trust Government Bond Fund 1
The One Group Investment Trust Asset Allocation Fund 2
The One Group Investment Trust Growth Opportunities
Fund 3
The One Group Investment Trust Large Company Growth
Fund 4
The One Group Investment Trust Equity Index Fund 5
</TABLE>
<TABLE>
<CAPTION>
INSTRUMENT FUND CODE RISK TYPE
<S> <C> <C>
U.S. TREASURY OBLIGATIONS: Bills, notes, bonds, STRIPS, and 1-5 Market
CUBES.
TREASURY RECEIPTS: TRS, TIGRS, and CATS. 1-5 Market
U.S. GOVERNMENT AGENCY SECURITIES: Securities issued by 1-5 Market
agencies and instrumentalities of the U.S. Government. These Credit
include Ginnie Mae, Fannie Mae, and Freddie Mac.
CERTIFICATES OF DEPOSIT: Negotiable instruments with a 2-5 Market
stated maturity. Credit
Liquidity
TIME DEPOSITS: Non-negotiable receipts issued by a bank in 2-5 Liquidity
exchange for the deposit of funds. Credit
Market
COMMON STOCK: Shares of ownership of a company. 2-5 Market
REPURCHASE AGREEMENTS: The purchase of a security and the 1-5 Credit
simultaneous commitment to return the security to the seller Market
at an agreed upon price on an agreed upon date. This is Liquidity
treated as a loan.
REVERSE REPURCHASE AGREEMENT: The sale of a security and the 1-5 Market
simultaneous commitment to buy the security back at an Leverage
agreed upon price on an agreed upon date. This is treated as
a borrowing by a Fund.
SECURITIES LENDING: The lending of up to 33% of the 1-5 Credit
securities owned by a Fund. In return the Fund will receive Market
cash, other securities or letters of credit as collateral. Leverage
WHEN-ISSUED SECURITIES AND FORWARD COMMITMENTS: Purchase or 1-5 Market
contract to purchase securities at a fixed price for Leverage
delivery at a future date. Liquidity
INVESTMENT COMPANY SECURITIES: Shares of other mutual funds, 2-5 Market
including money market funds of The One Group and shares of
other investment companies for which Banc One Investment
Advisors serves as investment advisor or administrator. Banc
One Investment Advisors will waive certain fees when
investing in funds for which it serves as investment
advisor.
CONVERTIBLE SECURITIES: Bonds or preferred stock that 2-5 Market
convert to common stock. Credit
CALL AND PUT OPTIONS: A call option gives the buyer the 1-5 Management
right to buy, and obligates the seller of the option to Liquidity
sell, a security at a specified price. A put option gives Credit
the buyer the right to sell, and obligates the seller of the Market
option to buy, a security at a specified price. The Funds Leverage
will sell only covered call and secured put options.
</TABLE>
<PAGE> 18
13
<TABLE>
<CAPTION>
INSTRUMENT FUND CODE RISK TYPE
<S> <C> <C>
FUTURES AND RELATED OPTIONS: A contract providing for the 1-5 Management
future sale and purchase of a specified amount of a Market
specified security, class of securities, or an index at a Credit
specified time in the future and at a specified price. Liquidity
Leverage
REAL ESTATE INVESTMENT TRUSTS ("REITS"): Pooled investment 2-5 Liquidity
vehicles which invest primarily in income producing real Management
estate or real estate related loans or interest. Market
Regulatory
Tax
Pre-payment
BANKERS' ACCEPTANCES: Bills of exchange or time drafts drawn 2-5 Credit
on and accepted by a commercial bank. Maturities are Liquidity
generally six months or less. Market
COMMERCIAL PAPER: Secured and unsecured short-term 2-5 Credit
promissory notes issued by corporations and other entities. Liquidity
Maturities generally vary from a few days to nine months. Market
FOREIGN SECURITIES: Stocks issued by foreign companies, as 2-4 Market
well as commercial paper of foreign issuers and obligations Political
of foreign banks, overseas branches of U.S. banks and Liquidity
supranational entities. Includes American Depository Foreign Investment
Receipts.
RESTRICTED SECURITIES: Securities not registered under the 2-5 Liquidity
Securities Act of 1933, such as privately placed commercial Market
paper and Rule 144A securities.
VARIABLE AND FLOATING RATE INSTRUMENTS: Obligations with 1-4 Credit
interest rates which are reset daily, weekly, quarterly or Liquidity
some other period and which may be payable to the Fund on Market
demand.
WARRANTS: Securities, typically issued with preferred stock 2, 4 Market
or bonds, that give the holder the right to buy a Credit
proportionate amount of common stock at a specified price.
PREFERRED STOCK: A class of stock that generally pays a 2-5 Market
dividend at a specified rate and has preference over common
stock in the payment of dividends and in liquidation.
MORTGAGE-BACKED SECURITIES: Debt obligations secured by real 1-2 Pre-payment
estate loans and pools of loans. These include Market
collateralized mortgage obligations ("CMOs") and Real Estate Credit
Mortgage Investment Conduits ("REMICs"). Regulatory
CORPORATE DEBT SECURITIES: Corporate bonds and 2 Market
non-convertible debt securities. Credit
DEMAND FEATURES: Securities that are subject to puts and 2 Market
standby commitments to purchase the securities at a fixed Liquidity
price (usually with accrued interest) within a fixed period Management
of time following demand by a Fund.
ASSET-BACKED SECURITIES: Securities secured by company 2 Pre-payment
receivables, home equity loans, truck and auto loans, Market
leases, credit card receivables and other securities backed Credit
by other types of receivables or other assets.
MORTGAGE DOLLAR ROLLS: A transaction in which a Fund sells 1-2 Pre-payment
securities for delivery in a current month and Market
simultaneously contracts with the same party to repurchase Regulatory
similar but not identical securities on a specified future
date.
ADJUSTABLE RATE MORTGAGE LOANS ("ARMS"): Loans in a mortgage 1-2 Pre-payment
pool which provide for a fixed initial mortgage interest Market
rate for a specified period of time, after which the rate Credit
may be subject to periodic adjustments. Regulatory
SWAPS, CAPS AND FLOORS: A Fund may enter into these 1-5 Management
transactions to manage its exposure to changing interest Credit
rates and other factors. Swaps involve an exchange of Liquidity
obligations by two parties. Caps and floors entitle a Market
purchaser to a principal amount from the seller of the cap
or floor to the extent that a specified index exceeds or
falls below a predetermined interest rate or amount.
NEW FINANCIAL PRODUCTS: New options and futures contracts 1-5 Management
and other financial products, continue to be developed and Credit
the Funds may invest in such options, contracts and Market
products. Liquidity
STRUCTURED INSTRUMENTS: Debt securities issued by agencies 1-2 Market
and instrumentalities of the U.S. government, banks, Liquidity
municipalities, corporations and other businesses whose Management
interest and/or principal payments are indexed to foreign Credit
currency exchange rates, interest rates, or one or more Foreign Investment
other references indices.
</TABLE>
<PAGE> 19
14
<TABLE>
<CAPTION>
INSTRUMENT FUND CODE RISK TYPE
<S> <C> <C>
MUNICIPAL SECURITIES: Securities issued by a state or 2 Market
political subdivision to obtain funds for various public Credit
purposes. Municipal securities include private activity Political
bonds and industrial development bonds, as well as General Tax
Obligation Notes, Tax Anticipation Notes, Bond Anticipation
Notes, Revenue Anticipation Notes, Project Notes, other
short-term tax-exempt obligations, municipal leases, and
obligations of municipal housing authorities and single
family revenue bonds.
STRIPPED MORTGAGE-BACKED SECURITIES: Derivative multi-class 1 Pre-payment
mortgage securities which are usually structured with two Market
classes of shares that receive different proportions of the Credit
interest and principal from a pool of mortgage assets. These Regulatory
include IOs and POs. The Government Bond Fund only invests
in Stripped Mortgage-Backed Securities issued or guaranteed
by the U.S. government, its agencies or instrumentalities.
INVERSE FLOATING RATE INSTRUMENTS: Leveraged floating rate 1 Market
debt instruments with interest rates that reset in the Leverage
opposite direction from the market rate of interest to which Credit
the inverse floater is indexed.
</TABLE>
<PAGE> 20
15
Investment Risks
- ----------------------------------------------------
Below is a more complete discussion of the types of risks inherent in the
securities and investment techniques listed above. Because of these risks, the
value of the securities held by the Funds may fluctuate, as will the value of
your investment in the Funds. Certain investments are more susceptible to these
risks than others.
- - >CREDIT RISK. The risk that the issuer of a security, or the counterparty to a
contract, will default or otherwise become unable to honor a financial
obligation. Credit risk is generally higher for non-investment grade
securities. The price of a security can be adversely affected prior to actual
default as its credit status deteriorates and the probability of default
rises.
- - >LEVERAGE RISK. The risk associated with securities or practices that multiply
small index or market movements into large changes in value. Leverage is
often associated with investments in derivatives, but also may be embedded
directly in the characteristics of other securities.
- HEDGED. When a derivative (a security whose value is based on another
security or index) is used as a hedge against an opposite position that the
fund also holds, any loss generated by the derivative should be
substantially offset by gains on the hedged investment, and vice versa.
While hedging can reduce or eliminate losses, it can also reduce or
eliminate gains. Hedges are sometimes subject to imperfect matching between
the derivative and underlying security, and there can be no assurance that
a Fund's hedging transactions will be effective.
- SPECULATIVE. To the extent that a derivative is not used as a hedge, the
Fund is directly exposed to the risks of that derivative. Gains or losses
from speculative positions in a derivative may be substantially greater
than the derivative's original cost.
- - >LIQUIDITY RISK. The risk that certain securities may be difficult or
impossible to sell at the time and the price that would normally prevail in
the market. The seller may have to lower the price, sell other securities
instead or forego an investment opportunity, any of which could have a
negative effect on Fund management or performance. This includes the risk of
missing an investment opportunity because the assets necessary to take
advantage of it are tied up in less advantageous investments.
- - >MANAGEMENT RISK. The risk that a strategy used by a Fund's management may
fail to produce the intended result. This includes the risk that changes in
the value of a hedging instrument will not match those of the asset being
hedged. Incomplete matching can result in unanticipated risks.
- - >MARKET RISK. The risk that the market value of a security may move up and
down, sometimes rapidly and unpredictably. These fluctuations may cause a
security to be worth less than the price originally paid for it, or less than
it was worth at an earlier time. Market risk may affect a single issuer,
industry, sector of the economy or the market as a whole. There is also the
risk that the current interest rate may not accurately reflect existing
market rates. For fixed income securities, market risk is largely, but not
exclusively, influenced by changes in interest rates. A rise in interest
rates typically causes a fall in values, while a fall in rates typically
causes a rise in values. Finally, key information about a security or market
may be inaccurate or unavailable. This is particularly relevant to
investments in foreign securities.
- - >POLITICAL RISK. The risk of losses attributable to unfavorable governmental
or political actions, seizure of foreign deposits, changes in tax or trade
statutes, and governmental collapse and war.
- - >FOREIGN INVESTMENT RISK. The risk associated with higher transaction costs,
delayed settlements, currency controls and adverse economic developments.
This also includes the risk that fluctuations in the exchange rates between
the U.S. dollar and foreign currencies may negatively affect an investment.
Adverse changes in exchange rates may erode or reverse any gains produced by
foreign currency denominated investments and may widen any losses. Exchange
rate volatility also may affect the ability of an issuer to repay U.S. dollar
denominated debt, thereby increasing credit risk.
- - >PRE-PAYMENT RISK. The risk that the principal repayment of a security will
occur at an unexpected time, especially that the repayment of a mortgage or
asset-backed security occurs either significantly sooner or later than
expected. Changes in pre-payment rates can result in greater price and yield
volatility. Pre-payments generally accelerate when interest rates decline.
When mortgage and other obligations are pre-
<PAGE> 21
16
paid, a Fund may have to reinvest in securities with a lower yield. Further,
with early prepayment, a Fund may fail to recover any premium paid, resulting
in an unexpected capital loss.
- - TAX RISK. The risk that the issuer of the securities will fail to comply with
certain requirements of the Internal Revenue Code, which would cause adverse
tax consequences.
- - REGULATORY RISK. The risk associated with Federal and state laws which may
restrict the remedies that a mortgage lender has when a borrower defaults on
mortgage loans. These laws include restrictions on foreclosures, redemption
rights after foreclosure, Federal and state bankruptcy and debtor relief laws,
restrictions on "due on sale" clauses, and state usury laws.
Investment Policies
- ----------------------------------------------------
Each Fund's investment objective and the investment policies summarized below
are fundamental. This means that they cannot be changed without the consent of a
majority of the outstanding shares of the Funds. The full text of the
fundamental policies can be found in the Statement of Additional Information.
Each Fund may not:
1. Purchase an issuer's securities if as a result more than 5% of its total
assets would be invested in the securities of that issuer or the Fund would
own more than 10% of the outstanding voting securities of that issuer. This
does not include securities issued or guaranteed by the United States, its
agencies or instrumentalities, and repurchase agreements involving these
securities. This restriction applies with respect to 75% of a Fund's total
assets.
2. Concentrate its investments in the securities of one or more issuers
conducting their principal business in a particular industry or group of
industries. This does not include obligations issued or guaranteed by the
U.S. government or its agencies and instrumentalities and repurchase
agreements involving such securities.
3. Make loans, except that a Fund may (i) purchase or hold debt instruments in
accordance with its investment objective and policies; (ii) enter into
repurchase agreements; and (iii) engage in securities lending.
>The Equity Index Fund may not:
1. Invest more than 10% of its total assets in securities issued or guaranteed
by the United States, its agencies or instrumentalities.
Additional investment policies can be found in the Statement of Additional
Information.
TEMPORARY DEFENSIVE POSITION
BOND FUND. For temporary defensive purposes as determined by Banc One Investment
Advisors, 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. While the Fund is engaged in a temporary defensive position, it will
not be pursuing its investment objective. Therefore, the Fund will pursue a
temporary defensive position only when market conditions warrant.
EQUITY FUNDS. For temporary defensive purposes as determined by Banc One
Investment Advisors, each Equity Fund (except the Equity Index 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. The Equity
Index Fund may invest up to 10% of its total assets in cash and cash
equivalents. While a Fund is engaged in a temporary defensive position, it will
not be pursuing its investment objective. Therefore, the Fund will pursue a
temporary defensive position only when market conditions warrant.
PORTFOLIO TURNOVER
Portfolio turnover may vary greatly from year to year, as well as within a
particular year. Higher portfolio turnover rates will likely result in higher
transaction costs. 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.
The portfolio turnover rate for each Fund for the fiscal year ended December 31,
1997 is shown on the Financial Highlights.
<PAGE> 22
additional information
17
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 Investors Annuity(SM) or any other Separate Account.
Since shares may only be purchased by The One Investors Annuity(SM) and Separate
Accounts, contract owners should carefully review the Separate Account documents
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.
<PAGE> 23
appendix
18
Description of Ratings
The following is a summary of published ratings by major credit rating agencies.
Credit ratings evaluate only the safety of principal and interest payments, not
the market value risk of lower quality securities. Credit rating agencies may
fail to change credit ratings to reflect subsequent events on a timely basis.
Although Banc One Investment Advisors considers security ratings when making
investment decisions, it also performs its own investment analysis and does not
rely solely on the ratings assigned by credit agencies.
Unrated securities will be treated as non-investment grade securities unless
Banc One Investment Advisors determines that such securities are the equivalent
of investment grade securities. Securities that have received different ratings
from more than one agency are considered investment grade if at least one agency
has rated the security investment grade.
DESCRIPTION OF COMMERCIAL PAPER RATINGS
DUFF & PHELPS CREDIT RATING CO. ("DUFF")
D-1+ Highest certainty of timely payment. Short-term liquidity, including
internal operating factors and/or access to alternative sources of
funds, is outstanding and safety is just below risk-free U.S. Treasury
obligations.
D-1 Very high certainty of timely payment. Liquidity factors are excellent
and supported by good fundamental protection factors. Risk factors are
minor.
D-1- High certainty of timely payment. Liquidity factors are strong and
supported by good fundamental protection factors. Risk factors are very
small.
STANDARD & POOR'S CORPORATION ("S&P")
A-1 Highest category of commercial paper. Capacity to meet financial
commitment is strong. Obligations designated with a plus sign (+)
indicate that capacity to meet financial commitment is extremely
strong.
A-2 Issues somewhat more susceptible to adverse effects of changes in
circumstances and economic conditions than obligations in higher rating
categories. However, the capacity to meet financial commitments is
satisfactory.
FITCH'S INVESTORS SERVICE, L.P. ("FITCH")
F-1+ Exceptionally strong credit quality. Strongest degree of assurance for
timely payment.
F-1 Very strong credit quality. Assurance of timely payment is only
slightly less in degree than issues rated F-1+.
F-2 Good credit quality. Satisfactory degree of assurance for timely
payment, but the margin of safety is not as good as for issues assigned
F-1+ and F-1 ratings.
IBCA LIMITED ("IBCA")
A1 Highest capacity for timely repayment. Those issues rated A1+ possess a
particularly strong credit feature.
A2 Satisfactory capacity for timely repayment although such capacity may
be susceptible to adverse changes in business, economic or financial
conditions.
MOODY'S INVESTORS SERVICE ("MOODY'S")
PRIME-1 Superior ability for repayment.
PRIME-2 Strong ability for repayment.
DESCRIPTION OF BANK RATINGS
MOODY'S
These ratings represent Moody's opinion of a bank's intrinsic safety and
soundness.
A These banks possess exceptional intrinsic financial strength. Typically
they will be major financial institutions with highly valuable and
defensible business franchises, strong financial fundamentals, and a
very attractive and stable operating environment.
B These banks possess strong intrinsic financial strength. Typically,
they will be important institutions with valuable and defensible
business franchises, good financial fundamentals, and an attractive and
stable operating environment.
C These banks possess good intrinsic financial strength. Typically, they
will be institutions with valuable and defensible business franchises.
These banks will demonstrate either acceptable financial fundamentals
within a stable operating environment, or better than average financial
fundamentals within an unstable operating environment.
<PAGE> 24
19
S&P
S&P's credit rating is a current opinion of an obligor's overall financial
capacity (its credit worthiness) to pay its financial obligation.
AAA The highest rating assigned by S&P. The obligor's capacity to meet its
financial commitment on the obligation is extremely strong.
AA The obligor's capacity to meet its financial commitments on the
obligation is very strong.
A The obligation is somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions than obligations in
higher rated categories. However, the obligor's capacity to meet its
financial commitment on the obligation is still strong.
DESCRIPTION OF INSURANCE RATINGS
MOODY'S
These ratings represent Moody's opinions of the ability of insurance companies
to pay punctually senior policyholder claims and obligations.
AAA Insurance companies rated in this category offer exceptional financial
security. While the financial strength of these companies is likely to
change, such changes as can be visualized are most unlikely to impair
their fundamentally strong position.
AA These insurance companies offer excellent financial security. Together
with the Aaa group, they constitute what are generally known as high
grade companies. They are rated lower than Aaa companies because
long-term risks appear somewhat larger.
A Insurance companies rated in this category offer good financial
security. However, elements may be present which suggest a
susceptibility to impairment sometime in the future.
S&P
S&P's credit rating is a current opinion of the creditworthiness of an obligor
with respect to a specific financial obligation, a specific class of financial
obligations, or a specific financial program.
AAA This is the highest rating assigned by S&P. The obligor's capacity to
meet its financial commitment on the obligation is extremely strong.
AA The obligor's capacity to meet its financial commitments on the
obligation is very strong.
A An obligation rated A is somewhat more susceptible to the adverse
effects of changes in circumstances and economic conditions than
obligations in higher rated categories. However, the obligor's capacity
to meet its financial commitment on the obligation is still strong.
DESCRIPTION OF CORPORATE/
MUNICIPAL BOND RATINGS
S&P
Investment Grade
AAA The highest rating. The rating indicates an extremely strong capacity to
meet its financial commitment.
AA Differs from AAA issues only in a small degree. The obligor's capacity
to meet its financial commitment is very strong.
A These bonds are somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions than debt in higher
rated categories. However, capacity to meet its financial commitment on
the obligation is still strong.
BBB Exhibits adequate protection parameters. However, adverse economic
conditions or changing circumstances are more likely to lead to a
weakened capacity to meet its financial commitment on the obligation.
Speculative Grade
BB Less vulnerable to non-payment than other speculative issues. However,
these bonds face major ongoing uncertainties or exposure to adverse
business, financial or economic conditions which could lead to
inadequate capacity to meet financial commitment on the obligation.
B More vulnerable to non-payment than obligations rated BB, but currently
has the capacity to meet its financial commitment on the obligation.
Adverse business, financial or economic conditions will likely impair
capacity or willingness to meet its financial commitment on the
obligation.
CCC Currently vulnerable to non-payment, and is dependent upon favorable
business, financial, and economic conditions to meet its financial
commitment on the obligation. In the event of adverse busi-
<PAGE> 25
20
ness, financial, or economic conditions, they are not likely to have the
capacity to meet its financial commitment on the obligation.
CC Currently highly vulnerable to non-payment.
C This rating may be used to cover a situation where a bankruptcy
petition has been filed, or similar action has been taken, but payments
on this obligation are being continued.
D Bonds in payment default.
Ratings from AA to CCC may be modified by a plus (+) or minus (-) to show
relative standing within the major rating categories.
MOODY'S
Investment Grade
AAA Best quality. They carry the smallest degree of investment risk and are
generally referred to as "gilt edged." Interest payments are protected
by a large, or an exceptionally stable, margin and principal is secure.
AA High quality by all standards. Margins of protection may not be as
large as in Aaa securities, fluctuation of protective elements may be
greater, or there may be other elements present that make the long-term
risks appear somewhat larger than in Aaa securities.
A These bonds possess many favorable investment attributes and are to be
considered as upper-medium grade obligations. Factors giving security
to principal and interest are considered adequate, but elements may be
present which suggest a susceptibility to impairment sometime in the
future.
BAA These bonds are considered medium-grade obligations (i.e., they are
neither highly protected nor poorly secured). Interest payments and
principal security appear adequate for the present but certain
protective elements may be lacking or may be characteristically
unreliable over any great length of time. Such bonds lack outstanding
investment characteristics and in fact have speculative characteristics
as well.
Non-Investment Grade
BA These bonds have speculative elements; their future cannot be
considered as well assured. The protection of interest and principal
payments may be very moderate and thereby not well safeguarded during
good and bad times over the future.
B These bonds lack the characteristics of a desirable investment (i.e.,
potentially low assurance of timely interest and principal payments or
maintenance of other contract terms over any long period of time may be
small).
CAA Bonds in this category have poor standing and may be in default. These
bonds carry an element of danger with respect to principal and interest
payments.
CA Speculative to a high degree and could be in default or have other
marked shortcomings. Ca is the lowest rating.
DESCRIPTION OF MUNICIPAL NOTE RATINGS
MOODY'S
MIG1 &
VMIG1
Short-term municipal securities rated MIG1 or VMIG1 are of the best quality.
They have strong protection from established cash flows, superior
liquidity support or demonstrated broad-based access to the market for
refinancing.
MIG2 &
VMIG2
These Short-term municipal securities are of high quality. Margins of protection
are ample although not so large as in the preceding group.
MIG3 &
VMIG3
Favorable quality. All security elements are accounted for, but the undeniable
strength of the preceding grades is lacking. Liquidity and cash flow
protection may be narrow and marketing access for refinancing is
likely to be less well established.
S&P
An S&P note rating reflects the liquidity concerns and market access risks
unique to notes. Notes due in three years or less will likely receive a note
rating. Notes maturing beyond three years will most likely receive a long-term
debt rating.
SP-1 Strong capacity to pay principal and interest. Those issues determined
to possess overwhelming safety characteristics will be given a plus (+)
designation.
SP-2 Satisfactory capacity to pay principal and interest.
SP-3 Speculative capacity to pay principal and interest.
DESCRIPTION OF PREFERRED STOCK RATINGS
MOODY'S
AAA Top-quality preferred stock. This rating indicates good asset
protection and the
<PAGE> 26
21
least risk of dividend impairment within the universe of preferred
stocks.
AA High-grade preferred stock. This rating indicates that there is a
reasonable assurance the earnings and asset protection will remain
relatively well maintained in the foreseeable future.
A Upper-medium grade preferred stock. While risks are judged to be
somewhat greater than in the "aaa" and "aa" classification, earnings
and asset protection are, nevertheless, expected to be maintained at
adequate levels.
BAA Medium-grade preferred stock, neither highly protected nor poorly
secured. Earnings and asset protection appear adequate at present but
may be questionable over any great length of time.
S&P
S&P's preferred stock rating is an assessment of the capacity and willingness of
an issuer to pay preferred stock dividends and any applicable sinking fund
obligations.
AAA Highest rating. This rating indicates an extremely strong capacity to
pay the preferred stock obligations.
AA High-quality, fixed-income security. The capacity to pay preferred stock
obligations is very strong, although not as overwhelming as for issues
rated "AAA."
A Backed by a sound capacity to pay the preferred stock obligations,
although it is somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions.
BBB Backed by an adequate capacity to pay the preferred stock obligations.
Whereas the issuer normally exhibits adequate protection parameters,
adverse economic conditions or changing circumstances are more likely to
lead to a weakened capacity to make payments for a preferred stock in
this category than for issues in the "A" category.
SHORT-TERM DEBT RATINGS
Thompson Bank Watch, Inc. ("TBW") assigns ratings to specific debt instruments
with original maturities of one year or less. The TBW Short-Term ratings
specifically assess the likelihood of an untimely payment of principal and
interest.
TBW-1 Very high degree of likelihood that principal and interest will be paid
on a timely basis.
TBW-2 While degree of safety regarding timely repayment of principal and
interest is strong, the relative degree is not as high as for issues
rated TBW-1.
TBW-3 Lowest investment grade category. While more susceptible to adverse
developments than obligations with higher ratings, capacity to service
principal and interest in a timely fashion is considered adequate.
TBW-4 Non-investment grade and, therefore, speculative.
<PAGE> 27
INVESTMENT ADVISOR
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 PAYING 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
1177 Avenue of the Americas
New York, NY 10036
THE STATEMENT OF ADDITIONAL INFORMATION CONTAINS MORE DETAILED INFORMATION
ABOUT THE FUNDS. THE CURRENT STATEMENT OF ADDITIONAL INFORMATION HAS BEEN FILED
WITH THE SECURITIES AND EXCHANGE COMMISSION, AND IS AVAILABLE WITHOUT CHARGE BY
CALLING 1-800-860-3946 OR WRITING THE TRUST AT ONE NATIONWIDE PLAZA, COLUMBUS,
OHIO 43216. THE STATEMENT OF ADDITIONAL INFORMATION IS INCORPORATED INTO THIS
PROSPECTUS BY REFERENCE. THE SEC MAINTAINS A WEB SITE (WWW.SEC.GOV) THAT
CONTAINS THE STATEMENT OF ADDITIONAL INFORMATION, MATERIALS INCORPORATED BY
REFERENCE AND OTHER INFORMATION REGARDING THE ONE GROUP(R) INVESTMENT TRUST.
<PAGE> 28
STATEMENT OF ADDITIONAL INFORMATION
THE ONE GROUP(R) INVESTMENT TRUST
- GOVERNMENT BOND FUND
- ASSET ALLOCATION FUND
- GROWTH OPPORTUNITIES FUND
- LARGE COMPANY GROWTH FUND
- EQUITY INDEX FUND
MAY 1, 1998
================================================================================
This Statement of Additional Information is not a Prospectus, but
should be read in conjunction with the Prospectus for The One Group
Investment Trust (the "Trust"). The Prospectus of the 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 43215, 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-7
Purchasing Call Options.......................................B-8
Purchasing Put Options........................................B-8
Risk Factors in Options Transactions..........................B-8
Mortgage-related Securities ..................................B-9
Yield, Market Value and Risk Considerations of Mortgage-Backed
Securities ..............................................B-9
Mortgage Dollar Rolls ........................................B-11
Stripped Mortgage-Backed Securities ("SMBS") .................B-11
Adjustable Rate Mortgages ....................................B-12
Structured Instruments .......................................B-13
Real Estate Investment Trusts ................................B-13
PERCs ........................................................B-14
Foreign Investments ..........................................B-14
When-Issued Securities and Forward Commitments................B-14
Securities Lending ...........................................B-15
Variable and Floating Rate Notes..............................B-15
Municipal Securities..........................................B-16
Demand Features...............................................B-17
Index Investing by the Equity Index Fund......................B-18
Restricted Securities ........................................B-18
Common Stock .................................................B-19
Preferred Stock ..............................................B-19
Investment Company Securities ................................B-19
Convertible Securities .......................................B-19
Warrants .....................................................B-19
Asset-Backed Securities ......................................B-20
New Financial Products .......................................B-20
Swaps, Caps and Floors .......................................B-20
Inverse Floating Rate Instruments ............................B-21
Investment Restrictions ......................................B-21
Portfolio Turnover ...........................................B-23
Additional Tax Information Concerning All Funds of the
Trust ...................................................B-23
VALUATION ..........................................................B-24
Valuation of the Funds ................................................B-24
B-1
<PAGE> 29
ADDITIONAL INFORMATION REGARDING THE CALCULATION
OF PER SHARE NET ASSET VALUE...........................................B-24
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION..............................B-25
MANAGEMENT OF THE TRUST ....................................................B-25
Trustees & Officers ...................................................B-25
Major Shareholders.....................................................B-27
Investment Advisor ....................................................B-27
Glass-Steagall Act ....................................................B-28
Portfolio Transactions ................................................B-29
Administrator .........................................................B-29
Custodian and Transfer Agent ..........................................B-30
Independent Accountants ...............................................B-30
Legal Counsel .........................................................B-31
ADDITIONAL INFORMATION .....................................................B-31
Description of Shares .................................................B-31
Shareholder and Trustee Liability .....................................B-31
Shareholders...........................................................B-32
Calculation of Performance Data........................................B-32
Miscellaneous..........................................................B-34
FINANCIAL STATEMENTS........................................................B-37
THE TRUST
The Trust is a diversified, open-end management investment company. The
Trust consists of five series of units of beneficial interest ("Shares") each
representing interests in one of five separate investment portfolios, i.e., the
Government Bond Fund, the Asset Allocation Fund, the Growth Opportunities Fund,
the Large Company Growth Fund and the Equity Index Fund (the "Funds"). The Asset
Allocation Fund, the Growth Opportunities Fund, the Large Company Growth Fund
and the Equity Index Fund are collectively referred to herein as the "Equity
Funds." The Government Bond Fund is referred to herein as the Government Bond
Fund or the "Bond Fund". 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 summarized in the Prospectus.
ADDITIONAL INFORMATION ON FUND INSTRUMENTS
The following contains additional information on Fund instruments. Not all
Funds can invest in all instruments described below. For a list of the
securities in which a Fund may invest, please read "Investment Practices" in the
prospectus.
BANK OBLIGATIONS
Bank Obligations consist of bankers' acceptances, certificates of deposit,
and demand and time deposits.
Bankers' acceptances are negotiable drafts or bills of exchange typically
drawn by an importer or exporter to pay for specific merchandise, which are
"accepted" by a bank, meaning, in effect, that the bank unconditionally agrees
to pay the face value of the instrument on maturity. Bankers' acceptances
invested in by the Funds will be those guaranteed by domestic and foreign banks
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
B-2
<PAGE> 30
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. A time deposit
earns a specific rate of interest over a definite period of time. Time deposits
cannot be traded on the secondary market and those that exceed seven days and
have a withdrawal penalty are considered to be illiquid. Demand deposits are
funds deposited in a commercial bank or a savings and loan association which,
without prior notice to the bank, may be withdrawn generally by negotiable
draft. Time and demand deposits will be maintained only at banks or savings and
loan associations from which a Fund could purchase certificates of deposit.
COMMERCIAL PAPER
Commercial paper consists of secured and 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.
The Funds (except the Government Bond Fund ) may purchase commercial paper
consisting of issues rated at the time of purchase in the highest or second
highest rating category by at least one Nationally Recognized Statistical Rating
Organization ("NRSRO") (such as A-2 or better by Standard & Poor's Corporation
("S&P"), 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
Banc One Investment Advisors Corporation ("Banc One Investment Advisors") to be
of comparable quality.
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 Banc One Investment
Advisors 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 by the
Securities and Exchange Commission to be loans by a Fund under the Investment
Company Act of 1940.
REVERSE REPURCHASE AGREEMENTS
The Funds may borrow money for temporary purposes by entering into reverse
repurchase agreements. Pursuant to such agreements, a Fund would sell portfolio
securities to financial institutions such as banks and broker-dealers, and agree
to repurchase them at a mutually agreed-upon date and price. A Fund would enter
into reverse repurchase agreements only to avoid otherwise selling securities
during unfavorable market conditions to meet redemptions. At the time a Fund
entered into a reverse repurchase agreement, it would place in a segregated
custodial account assets, such as cash or liquid securities consistent with the
Fund's investment restrictions and having a value equal to the repurchase price
(including accrued interest), and would subsequently monitor the account to
ensure that such equivalent value was maintained. Reverse repurchase agreements
involve the risk that the market value of the securities sold by a Fund may
decline below the price at which the Fund is obligated to repurchase the
securities. Reverse repurchase agreements are considered by the Securities and
Exchange Commission to be borrowings by a Fund under the Investment Company Act
of 1940.
GOVERNMENT SECURITIES
Obligations of certain agencies and instrumentalities of the U.S.
Government, such as the Government National Mortgage Association ("Ginnie Mae")
and the Export-Import Bank, are supported by the full faith and credit of the
U.S. Treasury; others, such
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as the Federal National Mortgage Association ("Fannie Mae") are supported by the
right of the issuer to borrow from the Treasury; others are supported by the
discretionary authority of the U.S. Government to purchase the agency's
obligations; and still others are supported only by the credit of the
instrumentality. No assurance can be given that the U.S. Government would
provide financial support to U.S. Government-sponsored agencies or
instrumentalities if it is not obligated to do so by law. A Fund will invest in
the obligations of such agencies or instrumentalities only when Banc One
Investment Advisors 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.
FUTURES AND OPTIONS TRADING
FUTURES CONTRACTS
Futures contracts provide for the future sale by one party and purchase
by another party of a specified amount of a specific security, class of
securities, or an index at a specified future time and at a specified price. A
stock index futures contract is a bilateral agreement pursuant to which two
parties agree to take or make delivery of an amount of cash equal to a specified
dollar amount times the difference between the stock index value at the close of
trading of the contracts and the price at which the futures contract is
originally struck. Futures contracts which are standardized as to maturity date
and underlying financial instrument are traded on national futures exchanges.
Futures exchanges and trading are regulated under the Commodity Exchange Act by
the Commodity Futures Trading Commission ("CFTC"), a U.S. Government Agency.
Although futures contracts by their terms call for actual delivery and
acceptance of the underlying securities, in most cases the contracts are closed
out before the settlement date without the making or taking of delivery. Closing
out an open futures position is done by taking an opposite position ("buying a
contract which has previously been "sold," or "selling" a contract previously
purchased) in an identical contract to terminate the position. The acquisition
of put and call options on futures contracts will, respectively, give a Fund the
right (but not the obligation), for a specified price, to sell or to purchase
the underlying futures contract, upon exercise of the option, at any time during
the option period. Brokerage commissions are incurred when a futures contract is
bought or sold.
When making Futures trades, the Funds are required to make a good faith
margin deposit in cash or government securities with a broker or custodian to
initiate and maintain open positions in futures contracts. A margin deposit is
intended to assure completion of the contract (delivery or acceptance of the
underlying security) if it is not terminated prior to the specified delivery
date. Minimal initial margin requirements are established by the futures
exchange and may be changed. Brokers may establish deposit requirements which
are higher than the exchange minimums. Initial margin deposits on futures
contracts are customarily set at levels much lower than the prices at which the
underlying securities are purchased and sold, typically ranging upward from less
than 5% of the value of the contract being traded.
After a futures contract position is opened, the value of the contract is
marked to market daily. If the futures contract price changes to the extent that
the margin on deposit does not satisfy margin requirements, payment of
additional "variation" margin will be required. Conversely, change in the
contract value may reduce the required margin, resulting in a repayment of
excess margin to the contract holder. Variation margin payments are made to and
from the futures broker for as long as the contract remains open. The Funds
expect to earn interest income on their margin deposits.
Traders in futures contracts may be broadly classified as either "hedgers"
or "speculators." Hedgers use the futures markets primarily to offset
unfavorable changes in the value of securities otherwise held for investment
purposes or expected to be acquired by them. Speculators are less inclined to
own the securities underlying the futures contracts which they trade, and use
futures contracts with the expectation of realizing profits from fluctuations in
the prices of underlying securities. The Funds intend to enter into futures
contracts only for bona fide hedging purposes.
A Fund may buy and sell futures contracts and related options to manage
its exposure to changing interest rates and security prices. When interest rates
are expected to rise or market values of portfolio securities are expected to
fall, a Fund can seek through the sale of futures contracts to offset a decline
in the value of its portfolio securities. When interest rates are expected to
fall or market values are expected to rise, a Fund, through the purchase of such
contracts, can attempt to secure better rates or prices for the Fund than might
later be available in the market when it effects anticipated purchases.
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 managing this exposure. While
the Funds will incur
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commission expenses in both opening and closing out futures positions, these
costs may be lower than transactions costs that would be 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 reference
security or index. Second, it is possible that a lack of liquidity for futures
contracts could exist in the secondary market, resulting in an inability to
close a futures position prior to its maturity date. Third, the purchase of a
futures contract involves the risk that a Fund could lose more than the original
margin deposit required to initiate a futures transaction.
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 and premiums 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. In certain circumstances, entry into a
futures contract that substantially eliminates risk of loss and the opportunity
for gain in an "appreciated financial position" will also accelerate gains to
the Funds.
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 such
positions. The Funds will minimize the risk that they will be unable to close
out a futures contract by only entering into futures contracts which are traded
on national futures exchanges and for which there appears to be a liquid
secondary market.
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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 participations 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 by the Funds are only for hedging purposes, Banc
One Investment Advisors does not believe that the Funds are subject to the risks
of loss frequently associated with futures transactions. Each Fund would
presumably have sustained comparable losses if, instead of the futures contract,
it had invested in the underlying financial instrument and sold it after the
decline.
Utilization of futures transactions by a Fund does involve the risk of
imperfect or no correlation where the securities underlying futures contracts
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 Funds 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 (buy) position in the underlying futures contract or security, and the
purchaser of a "put" option acquires the right to take a short (sell) 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 (i.e., sell the futures contract or security) 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 (i.e., buy the futures contract or security) 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, and
"out-of-the-money" if the strike price is above current market levels.
Similarly, a put option on a futures contract or security is said to be
"in-the-money" if the strike price is above current market levels, and
"out-of-the-money" if the strike price is below current market levels.
Options have limited life spans, usually tied to the delivery or
settlement date of the underlying futures contract or security. Some options,
however, expire significantly in advance of such dates. An option that is
"out-of-the-money" and not offset by the time it expires becomes worthless. On
certain exchanges "in-the-money" options are automatically exercised on their
expiration date, but on others unexercised options simply become worthless after
their expiration date. Options usually trade at a premium (referred to as the
"time value" of the option) above their intrinsic value (the difference between
the market price for the underlying futures contract or equity security and the
strike price). As an option nears its expiration date, the market value and the
intrinsic value move into parity as the time value diminishes.
The Funds will enter into such option transactions available on an
exchange or over the counter. 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 net assets at the time such options are
written.
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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. 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 Banc
One Investment Advisors, are not expected to make any major price moves in the
near future but which, over the long term, are deemed to be attractive
investments for the Fund.
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 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.
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. Thus, the security could be "called away" at a price
substantially below the fair market value of the security. If a call option
which a Fund has written expires, a Fund will realize a gain in the amount of
the premium; however, such gain may be offset by a decline in the market value
of the underlying security during the option period. If the call option is
exercised, a Fund will realize a gain or loss from the sale of the underlying
security. The security covering the call will be maintained in a segregated
account of the Fund's custodian. The Funds do not consider a security covered by
a call to be "pledged" as that term is used in each Fund's policy which limits
the pledging or mortgaging of its assets.
The premium received is the market value of an option. The premium each
Fund will receive from writing a call option will reflect, among other things,
the current market price of the underlying security, the relationship of the
exercise price to such market price, the historical price volatility of the
underlying security, and the length of the option period. Once the decision to
write a call option has been made, Banc One Investment Advisors, 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.
Generally, a Fund, in order to avoid the exercise of an option sold by it,
will be able to cancel its obligation under the option by entering into a
closing purchase transaction, if available, unless selling (in the case of a
call option) or purchasing (in the case of a put option) the underlying
securities is determined to be in a Fund's best interest. A closing purchase
transaction consists of a Fund purchasing an option having the same terms as the
option sold by a Fund, and has the effect of cancelling a Fund's position as a
seller. The premium which a Fund will pay in executing a closing purchase
transaction may be higher (or lower) than the premium received when the option
was sold, depending in large part upon the relative price of the underlying
security at the time of each transaction. To the extent options sold by a Fund
are exercised and a Fund delivers securities to the holder of a call option, a
Fund's turnover rate will increase, which would cause a Fund to incur additional
brokerage expenses.
Closing transactions will be effected in order to realize a profit on an
outstanding call option, to prevent an underlying security from being called, or
to permit the sale of the underlying security. Furthermore, effecting a closing
transaction will permit a Fund to
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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.
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. In the event that paying premiums for a call option, together with a
price movement in the underlying security, is such that exercise of the option
would not be profitable to the Fund, loss of the premium may be offset by a
decrease in the acquisition cost of securities by the Fund.
PURCHASING PUT OPTIONS
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.
However, any loss of premium may be offset by an increase in the value of the
Fund's securities.
RISK FACTORS IN OPTIONS TRANSACTIONS
The successful use of the Funds' options strategies depends on the ability
of Banc One Investment Advisors 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 Banc One Investment Advisors deems it desirable
to do so. A Fund will take an option position only if Banc One Investment
Advisors believes there is a liquid secondary market for the option, however
there is no assurance that a Fund will be able to effect closing transactions at
any particular time or at an acceptable price.
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
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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
Mortgage-related securities, for purposes of the Funds' Prospectus and
this Statement of Additional Information, represent pools of mortgage loans
assembled for sale to investors by various governmental agencies such as the
Ginnie Mae and government-related organizations such as Fannie Mae and Freddie
Mac, as well as by nongovernmental issuers such as commercial banks, savings and
loan institutions, mortgage bankers, and private mortgage insurance companies.
Such non-governmental mortgage securities cannot be treated as U.S. government
securities for purposes of investment policies. The Government Bond Fund and the
Asset Allocation Fund may invest in mortgage-backed securities issued or
guaranteed by the U.S. government, or its agencies and instrumentalities. The
Asset Allocation Fund also may invest in mortgage-backed securities issued by
non-government entities, which consist of COLLATERALIZED MORTGAGE OBLIGATIONS
("CMOS") and REAL ESTATE MORTGAGE INVESTMENT CONDUITS ("REMICS") that are rated
in one of the four highest rating categories by at least one NRSRO at the time
of investment or, if unrated, determined by Banc One Investment Advisors to be
of comparable quality. The Asset Allocation Fund and the Government Bond Fund
also may invest in multiple class securities issued by U.S. government agencies
and instrumentalities such as Fannie Mae, Freddie Mac and Ginnie Mae. The Asset
Allocation Fund may invest in multiple class securities issued by private
issuers including guaranteed CMOs and REMIC pass-through or Participations
certificates, when consistent with a Fund's investment objective, policies and
limitations. A REMIC is a CMO that qualifies for special tax treatment under the
Code and invests in certain mortgages principally secured by interests in real
property and other permitted investments.
CMOs and guaranteed REMIC pass-through certificates ("REMIC Certificates")
issued by Fannie Mae, Freddie Mac, Ginnie Mae and private issuers are types of
multiple class pass-through securities. Investors may purchase beneficial
interests in REMICs, which are known as "regular" interests or "residual"
interests. The Funds do not currently intend to purchase residual interests in
REMICs. The REMIC Certificates represent beneficial ownership interests in a
REMIC Trust, generally consisting of mortgage loans or Fannie Mae, Freddie Mac
or Ginnie Mae guaranteed mortgage pass-through certificates (the "Mortgage
Assets"). The obligations of Fannie Mae, Freddie Mac or Ginnie Mae under their
respective guaranty of the REMIC Certificates are obligations solely of Fannie
Mae, Freddie Mac or Ginnie Mae, respectively.
Fannie Mae REMIC Certificates are issued and guaranteed as to timely
distribution of principal and interest by Fannie Mae. In addition, Fannie Mae
will be obligated to distribute the principal balance of each class of REMIC
Certificates in full, whether or not sufficient funds are otherwise available.
For Freddie Mac REMIC Certificates, Freddie Mac guarantees the timely
payment of interest, and also guarantees the payment of principal as payments
are required to be made on the underlying mortgage participation certificates
("PCS"). PCS represent undivided interests in specified residential mortgages or
participation therein purchased by Freddie Mac and placed in a PC pool. With
respect to principal payments on PCS, Freddie Mac generally guarantees ultimate
collection of all principal of the related mortgage loans without offset or
deduction. Freddie Mac also guarantees timely payment of principal on certain
PCS referred to as "Gold PCS."
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Ginnie Mae REMIC Certificates guarantee the full and timely payment of
interest and principal on each class of securities (in accordance with the terms
of those classes as specified in the related offering circular supplement). The
Ginnie Mae guarantee is backed by the full faith and credit of the United States
of America.
REMIC Certificates issued by Fannie Mae, Freddie Mac and Ginnie Mae are
treated as U.S. government securities for purposes of investment policies. CMOs
and REMIC Certificates provide for the redistribution of cash flow to multiple
classes. Each class of CMOs or REMIC Certificates, often referred to as a
"tranche," is issued at a specific adjustable or fixed interest rate and must be
fully retired no later than its final distribution date. This reallocation of
interest and principal results in the redistribution of prepayment risk across
different classes. This allows for the creation of bonds with more or less risk
than the underlying collateral exhibits. Principal prepayments on the mortgage
loans or the Mortgage Assets underlying the CMOs or REMIC Certificates may cause
some or all of the classes of CMOs or REMIC Certificates to be retired
substantially earlier than their final distribution dates. Generally, interest
is paid or accrues on all classes of CMOs or REMIC Certificates on a monthly
basis.
The principal of and interest on the Mortgage Assets may be allocated
among the several classes of CMOs or REMIC Certificates in various ways. In
certain structures (known as "sequential pay" CMOs or REMIC Certificates),
payments of principal, including any principal prepayments, on the Mortgage
Assets generally are applied to the classes of CMOs or REMIC Certificates in the
order of their respective final distribution dates. Thus, no payment of
principal will be made on any class of sequential pay CMOs or REMIC Certificates
until all other classes having an earlier final distribution date have been paid
in full.
Additional structures of CMOs and REMIC Certificates include, among
others, "parallel pay" CMOs and REMIC Certificates. Parallel pay CMOs or REMIC
Certificates are those which are structured to apply principal payments and
prepayments of the Mortgage Assets to two or more classes concurrently on a
proportionate or disproportionate basis. These simultaneous payments are taken
into account in calculating the final distribution date of each class.
A wide variety of REMIC Certificates may be issued in the parallel pay or
sequential pay structures. These securities include accrual certificates (also
known as "Z-Bonds"), which only accrue interest at a specified rate until all
other certificates having an earlier final distribution date have been retired
and are converted thereafter to an interest-paying security, and planned
amortization class ("PAC") certificates, which are parallel pay REMIC
Certificates which generally require that specified amounts of principal be
applied on each payment date to one or more classes of REMIC Certificates (the
"PAC Certificates"), even though all other principal payments and prepayments of
the Mortgage Assets are then required to be applied to one or more other classes
of the certificates. The scheduled principal payments for the PAC Certificates
generally have the highest priority on each payment date after interest due has
been paid to all classes entitled to receive interest currently. Shortfalls, if
any, are added to the amount of principal payable on the next payment date. The
PAC Certificate payment schedule is taken into account in calculating the final
distribution date of each class of PAC. In order to create PAC tranches, one or
more tranches generally must be created that absorb most of the volatility in
the underlying Mortgage Assets. These tranches tend to have market prices and
yields that are much more volatile than the PAC classes.
The Z-Bonds in which the Funds may invest may bear the same non-credit-
related risks as do other types of Z-Bonds. Z-Bonds in which the Fund may invest
will not include residual interest.
There can be no assurance that the U.S. government would provide financial
support to Fannie Mae, Freddie Mac or Ginnie Mae if necessary in the future.
Although certain mortgage-related securities are guaranteed by a third
party or otherwise similarly secured, the market value of the security, which
may fluctuate, is not so secured. If a Fund purchases a mortgage-related
security at a premium, that portion may be lost if there is a decline in the
market value of the security whether resulting from changes in interest rates or
prepayments in the underlying mortgage collateral. As with other
interest-bearing securities, the prices of such securities are inversely
affected by changes in interest rates. However, though the value of a
mortgage-related security may decline when interest rates rise, the converse is
not necessarily true since in periods of declining interest rates the mortgages
underlying the securities are prone to prepayment. For this and other reasons, a
mortgage-related security's stated maturity may be shortened by unscheduled
prepayments on the underlying mortgages and, therefore, it is not possible to
predict accurately the securities' return to the Funds. In addition, regular
payments received in respect of mortgage-related securities include both
interest and principal. No assurance can be given as to the return the Funds
will receive when these amounts are reinvested.
The market value of the Fund's adjustable rate Mortgage-Backed Securities
may be adversely affected if interest rates increase faster than the rates of
interest payable on such securities or by the adjustable rate mortgage loans
underlying such securities. Furthermore, adjustable rate Mortgage-Backed
Securities or the mortgage loans underlying such securities may contain
provisions limiting the amount by which rates may be adjusted upward and
downward and may limit the amount by which monthly payments may be increased or
decreased to accommodate upward and downward adjustments in interest rates.
Certain adjustable rate mortgage loans may provide for periodic
adjustments of scheduled payments in order to amortize fully the mortgage loan
by its stated maturity. Other adjustable rate mortgage loans may permit their
stated maturity to be extended or
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shortened in accordance with the portion of each payment that is applied to
interest as affected by the periodic interest rate adjustments.
Although having less risk of decline during periods of rising interest
rates, adjustable rate Mortgage-Backed Securities have less potential for
capital appreciation than fixed rate Mortgage-Backed Securities because their
coupon rates will decline in response to market interest rate declines. The
market value of fixed rate Mortgage-Backed Securities may be adversely affected
as a result of increases in interest rates and, because of the risk of
unscheduled principal prepayments, may benefit less than other fixed rate
securities of similar maturity from declining interest rates. Finally, to the
extent Mortgage-Backed Securities are purchased at a premium, mortgage
foreclosures and unscheduled principal prepayments may result in some loss of
the Fund's principal investment to the extent of the premium paid. On the other
hand, if such securities are purchased at a discount, both a scheduled payment
of principal and an unscheduled prepayment of principal will increase current
and total returns and will accelerate the recognition of income.
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 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. Freddie Mac is a
corporate instrumentality of the United States, created pursuant to an Act of
Congress, which is owned entirely by Federal Home Loan Banks. Freddie Mac
Certificates are not guaranteed by the United States or by any Federal Home Loan
Banks and do not constitute a debt or obligation of the United States or of any
Federal Home Loan Bank. Freddie Mac Certificates entitle the holder to timely
payment of interest, which is guaranteed by Freddie Mac. Freddie Mac guarantees
either ultimate collection or timely payment of all principal payments on the
underlying mortgage loans. When Freddie Mac does not guarantee timely payment of
principal, Freddie Mac may remit the amount due on account of its guarantee of
ultimate payment of principal at any time after default on an underlying
mortgage, but in no event later than one year after it becomes payable.
The yield characteristics of Mortgage-Backed Securities differ from those
of traditional fixed income securities. The major differences typically include
more frequent interest and principal payments, usually monthly, and the
possibility that prepayments of principal may be made at any time. Prepayment
rates are influenced by changes in current interest rates and a variety of
economic, geographic, social and other factors and cannot be predicted with
certainty. As with fixed rate mortgage loans, adjustable rate mortgage loans may
be subject to a greater prepayment rate in a declining interest rate
environment. The yields to maturity of the Mortgage-Backed Securities in which
the Funds invest will be affected by the actual rate of payment (including
prepayments) of principal of the underlying mortgage loans. The mortgage loans
underlying such securities generally may be prepaid at any time without penalty.
In a fluctuating interest rate environment, a predominant factor affecting the
prepayment rate on a pool of mortgage loans is the difference between the
interest rates on the mortgage loans and prevailing mortgage loan interest rates
(giving consideration to the cost of any refinancing). In general, if mortgage
loan interest rates fall sufficiently below the interest rates on fixed rate
mortgage loans underlying mortgage pass-through securities, the rate of
prepayment would be expected to increase. Conversely, if mortgage loan interest
rates rise above the interest rates on the fixed rate mortgage loans underlying
the mortgage pass-through securities, the rate of prepayment may be expected to
decrease.
MORTGAGE DOLLAR ROLLS are investments in which the Funds sell securities
for delivery in the current month and simultaneously contract with the same
counterparty to repurchase similar (same type, coupon and maturity) but not
identical securities on a specified future date. When a Fund enters into
mortgage dollar rolls, the Fund will hold and maintain a segregated account
until the settlement date, of cash or liquid, high grade debt securities in an
amount equal to the forward purchase price. The Funds benefit to the extent of
any difference between the price received for the securities sold and the lower
forward price for the future purchase (often referred to as the "drop") or fee
income plus the interest earned on the cash proceeds of the securities sold
until the settlement date of the forward purchase. Unless such benefits exceed
the income, capital appreciation and gain or loss due to mortgage prepayments
that would have been realized on the securities sold as part of the mortgage
dollar roll, the use of this technique will diminish the investment performance
of the Funds compared with what such performance would have been without the use
of mortgage dollar rolls. The benefits derived from the use of mortgage dollar
rolls may depend upon Banc One Investment Advisors' ability to predict correctly
mortgage prepayments and interest rates. There is no assurance that mortgage
dollar rolls can be successfully employed. The Funds currently intend to enter
into mortgage dollar rolls that are accounted for as a financing transaction.
For purposes of diversification and investment limitations, mortgage dollar
rolls are considered to be mortgage-backed securities.
STRIPPED MORTGAGE-BACKED SECURITIES ("SMBS") are extremely sensitive to
changes in prepayments and interest rates. Even though such securities have been
guaranteed by the U.S. government or an agency or instrumentality of the U.S.
government, under certain interest rate or prepayment rate scenarios, the Funds
may fail to fully recover their investment in such securities. The Funds may
invest in SMBS to enhance revenues or hedge against interest rate risk. SMBS are
derivative multi-class 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 (" IOs"), while the other class will receive all of the
principal ("POs"). Mortgage IOs receive monthly interest payments based upon a
notional amount that declines over time as a result of the normal monthly
amortization and unscheduled prepayments of principal on the associated mortgage
POs. Changes in prepayment rates can cause the return on investment in IOs to be
highly volatile, and under
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extremely high prepayment conditions IOs can incur significant losses. POs are
bought at a discount to the ultimate principal repayment value. The rate of
return on a PO will vary with prepayments, rising as prepayment increase and
falling as prepayments decrease. Although the market for such securities is
increasingly liquid, certain SMBS may not be readily marketable and will be
considered illiquid for purposes of the Funds' limitations on investments in
illiquid securities. The market value of the class consisting entirely of
principal payments generally is unusually volatile in response to changes in
interest rates. The yields on a class of SMBS that receives all or most of the
interest from mortgage assets are generally higher than prevailing market yields
on other mortgage-backed securities because their cash flow patterns are more
volatile and there is a greater risk that any premium paid will not be fully
recouped. Banc One Investment Advisors will seek to manage these risks (and
potential benefits) by investing in a variety of such securities and by using
certain analytical and hedging techniques.
ADJUSTABLE RATE MORTGAGE LOANS ("ARMS") eligible for inclusion in a
mortgage pool will generally provide for a fixed initial mortgage interest rate
for a specified period of time. Thereafter, the interest rates (the "Mortgage
Interest Rates") may be subject to periodic adjustment based on changes in the
applicable index rate (the "Index Rate"). The adjusted rate would be equal to
the Index Rate plus a gross margin, which is a fixed percentage spread over the
Index Rate established for each ARM at the time of its origination.
Adjustable interest rates can cause payment increases that some borrowers
may find difficult to make. However, certain ARMs may provide that the Mortgage
Interest Rate may not be adjusted to a rate above an applicable lifetime maximum
rate or below an applicable lifetime minimum rate for such ARM. Certain ARMs may
also be subject to limitations on the maximum amount by which the Mortgage
Interest Rate may adjust for any single adjustment period (the "Maximum
Adjustment"). Other ARMs ("Negatively Amortizing ARMs") may provide instead or
as well for limitations on changes in the monthly payment on such ARMs.
Limitations on monthly payments can result in monthly payments which are greater
or less than the amount necessary to amortize a Negatively Amortizing ARM by its
maturity at the Mortgage Interest Rate in effect in any particular month. In the
event that a monthly payment is not sufficient to pay the interest accruing on a
Negatively Amortizing ARM, any such excess interest is added to the principal
balance of the loan, causing negative amortization and will be repaid through
future monthly payments. It may take borrowers under Negatively Amortizing ARMs
longer periods of time to achieve equity and may increase the likelihood of
default by such borrowers. In the event that a monthly payment exceeds the sum
of the interest accrued at the applicable Mortgage Interest Rate and the
principal payment which would have been necessary to amortize the outstanding
principal balance over the remaining term of the loan, the excess (or
"accelerated amortization") further reduces the principal balance of the ARM.
Negatively Amortizing ARMs do not provide for the extension of their original
maturity to accommodate changes in their Mortgage Interest Rate. As a result,
unless there is a periodic recalculation of the payment amount (which there
generally is), the final payment may be substantially larger than the other
payments. These limitations on periodic increases in interest rates and on
changes in monthly payment protect borrowers from unlimited interest rate and
payment increases.
There are two main categories of indices which provide the basis for rate
adjustments on ARMs: those based on U.S. Treasury securities and those derived
from a calculated measure such as a cost of funds index or a moving average of
mortgage rates. Commonly utilized indices include the one-year, three-year and
five-year constant maturity Treasury bill rates, the three-month Treasury bill
rate, the 180-day Treasury bill rate, rates on longer-term Treasury securities,
the 11th District Federal Home Loan Bank Cost of Funds, the National Median Cost
of Funds, the one-month, three-month, six-month or one-year London Interbank
Offered Rate ("LIBOR"), the prime rate of a specific bank, or commercial paper
rates. Some indices, such as the one-year constant maturity Treasury rate,
closely mirror changes in market interest rate levels. Others, such as the 11th
District Federal Home Loan Bank Cost of Funds index, tend to lag behind changes
in market rate levels and tend to be somewhat less volatile. The degree of
volatility in the market value of the Fund's portfolio and therefore in the net
asset value of the Fund's shares will be a function of the length of the
interest rate reset periods and the degree of volatility in the applicable
indices.
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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 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.
STRUCTURED INSTRUMENTS
The Government Bond Fund and the Asset Allocation Fund may invest in
structured instruments. Structured instruments are debt securities issued by
U.S. government agencies and government-related organizations (such as Ginnie
Mae, Fannie Mae, and Freddie Mac), banks, corporations, and other business
entities whose interest and/or principal payments are indexed to certain
specific foreign currency exchange rates, interest rates, or one or more other
reference indices. Structured instruments frequently are assembled in the form
of medium-term notes, but a variety of forms are available and may be used in
particular circumstances. Structured instruments are commonly considered to be
derivatives.
The terms of such structured instruments provide that their principal
and/or interest payments are adjusted upwards or downwards to reflect changes in
the reference index while the structured instruments are outstanding. In
addition, the reference index may be used in determining when the principal is
redeemed. As a result, the interest and/or principal payments that may be made
on a structured product may vary widely, depending on a variety of factors,
including the volatility of the reference index and the effect of changes in the
reference index on principal and/or interest payment.
While structured instruments may offer the potential for a favorable rate
of return from time to time, they also entail certain risks. Structured
instruments may be less liquid than other debt securities, and the price of
structured instruments may be more volatile. If the value of the reference index
changes in a manner other than that expected by Banc One Investment Advisors,
principal and/or interest payments on the structured instrument may be
substantially less than expected. The Funds will invest only in structured
securities that are consistent with each Fund's investment objective, policies
and restrictions and Banc One Investment Advisors' outlook on market conditions.
In some cases, depending on the terms of the reference index, a structured
instrument may provide that the principal and/or interest payments may be
adjusted below zero; however, the Funds will not invest in structured
instruments if the terms of the structured instrument provide that the Funds may
be obligated to pay more than their initial investment in the structured
instrument, or to repay any interest or principal that has already been
collected or paid back. Structured instruments that are registered under the
federal securities laws may be treated as liquid. In addition, many structured
instruments may not be registered under the federal securities laws. In that
event, a Fund's ability to resell such a structured instrument may be more
limited than its ability to resell other Fund securities. The Funds will treat
such instruments as illiquid, and will limit their investments in such
instruments to no more than 15% of each Fund's net assets, when combined with
all other illiquid investments of each Fund. In addition, although structured
instruments may be sold in the form of a corporate debt obligation, they may not
have some of the protection against counterparty default that may be available
with respect to publicly traded debt securities (i.e., the existence of a trust
indenture). In that respect, the risks of default associated with structured
instruments may be similar to those associated with swap contracts. See "Swaps,
Caps and Floors."
REAL ESTATE INVESTMENT TRUSTS ("REITS")
The Funds (except the Government Bond Fund) may invest without limitation
in shares of REITs. REITs are pooled investment vehicles which invest primarily
in income producing real estate or real estate related loans or interest. REITs
are generally classified as equity REITs, mortgage REITs or a combination of
equity and mortgage REITs. Equity REITs invest the majority of their assets
directly in real property and derive income primarily from the collection of
rents. Equity REITs can also realize capital gains by selling property that has
appreciated in value. Mortgage REITs invest the majority of their assets in real
estate mortgages and derive income from the collection of interest payments.
Similar to investment companies, REITs are not taxed on income distributed to
shareholders provided they comply with several requirements of the Internal
Revenue Code of 1986, as amended (the "Code"). A Fund will indirectly bear its
proportionate share of expenses incurred by REITs in which a Fund invests in
addition to the expenses incurred directly by a Fund.
Investing in REITS involves certain unique risks in addition to those
risks associated with investing in the real estate industry in general. Equity
REITs may be affected by changes in the value of the underlying property owned
by the REITs, while mortgage REITS may be affected by the quality of any credit
extended. REITs are dependent upon management skills, are not diversified, are
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subject to heavy cash flow dependency, default by borrowers and
self-liquidation. REITs are also subject to the possibilities of failing to
qualify for tax free pass-through of income under the Code and failing to
maintain their exemption from registration under the Act.
REITs (especially mortgage REITs) are also subject to interest rate risks.
When interest rates decline, the value of a REIT's investment in fixed rate
obligations can be expected to rise. Conversely, when interest rates rise, the
value of a REIT's investment in fixed rate obligations can be expected to
decline. In contrast, as interest rates on adjustable rate mortgage loans are
reset periodically, yields on a REIT's investments in such loans will gradually
align themselves to fluctuate less dramatically in response to interest rate
fluctuations than would investments in fixed rate obligations.
Investment in REITs involves risks similar to those associated with
investing in small capitalization companies. REITs may have limited financial
resources, may trade less frequently and in a limited volume and may be subject
to more abrupt or erratic price movements than larger company securities.
Historically, small capitalization stocks, such as REITs, have been more
volatile in price than the larger capitalization stocks included in the S&P
Index of 500 Common Stocks.
FOREIGN INVESTMENTS
Certain of the Funds may also invest in certain obligations or securities
of foreign issuers. Possible investments include equity securities of foreign
entities, obligations of foreign branches of U.S. banks and of foreign banks,
including, without limitation, 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 which is
commercial paper issued by a Canadian corporation or a Canadian counterpart of a
U.S. corporation, foreign securities and Europaper which is U.S. dollar
denominated commercial paper of a Foreign issuer. 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.
Foreign investments may subject a Fund to investment risks that differ in
some respects from those related to investments in obligations of U.S. domestic
issuers. Such risks include future adverse political and economic developments,
the possible imposition of withholding taxes on interest or other income,
possible seizure, nationalization, or expropriation of foreign deposits, the
possible establishment of exchange controls or taxation at the source, greater
fluctuations in value due to changes in exchange rates, or the adoption of other
foreign governmental restrictions which might adversely affect the payment of
principal and interest on such obligations. 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 are not regulated by U.S. Banking authorities and may be subject
to less stringent reserve requirements than those applicable to domestic
branches of U.S. banks. In addition, foreign banks generally are not bound by
the accounting, auditing and financial reporting standards comparable to those
applicable to U.S. banks. Investments in all types of foreign obligations or
securities will not exceed 25% of the net assets of the Asset Allocation Fund,
the Growth Opportunities Fund and the Large Company Growth Fund.
PERCS*
The Equity Funds may invest in Preferred Equity Redemption Cumulative
Stock ("PERCS") which is a form of convertible preferred stock that actually has
more of an equity component than it does fixed income characteristics. These
instruments permit companies to raise capital via a surrogate for common equity.
PERCS are preferred stock which converts to common stock after a specified
period of time, usually three years, and are considered the equivalent of equity
by the rating agencies. Issuers pay holders a substantially higher dividend
yield than that on the underlying common, and in exchange, the holder's
appreciation is capped, usually at about 30 percent. PERCS are callable at any
time. The PERC is mandatorily convertible into common stock, but is callable at
any time at an initial call price that reflects a substantial premium to the
stock's issue price. PERCS offer a higher dividend than that available on the
common stock, but in exchange the investors agree to the company placing a cap
on the potential price appreciation. The call price declines daily in an amount
that reflects the incremental dividend that holders enjoy. PERCS are listed on
an exchange where the common stock is listed.
*PERCS is a registered trademark of Morgan Stanley, which does not sponsor
and is in no way affiliated with The One Group.
WHEN-ISSUED SECURITIES AND FORWARD COMMITMENTS
The Funds may purchase securities on a "when-issued" and forward
commitment basis. When a Fund agrees to purchase securities, the Fund's
custodian will set aside cash or liquid portfolio securities equal to the amount
of the commitment in a separate account. When Banc One Investment Advisors
purchases a when-issued security, 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 for the purpose of
acquiring portfolio securities. Because a Fund will set aside cash or liquid
portfolio securities to satisfy its purchase commitments in
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the manner described, the Fund's liquidity and the ability of Banc One
Investment Advisors to manage the Fund might be affected in the event its
commitments to purchase when-issued securities ever exceeded 40% of the value of
its assets.
When a Fund engages in "when-issued" transactions, it relies on the seller
to consummate the trade. Failure of the seller to do so may result in the Fund's
incurring a loss or missing the opportunity to obtain a price considered to be
advantageous.
SECURITIES LENDING
In order to generate additional income, each Fund may lend up to 33% of
the securities in which it is invested pursuant to agreements requiring that the
loan be continuously secured by cash, securities of the U.S. Government or its
agencies, shares of an investment trust or mutual fund, letters of credit or any
combination of cash, such securities, shares, or letters of credit as collateral
equal at all times to at least 100% of the market value plus accrued interest of
the securities lent. A Fund will continue to receive an amount equal to the
interest on the securities lent while simultaneously seeking to earn interest on
the investment of cash collateral in U.S. Government securities, shares of an
investment trust or mutual fund, or other short-term, highly liquid investments.
Collateral is marked to market daily to provide a level of collateral at least
equal to the market value of the securities lent. There may be risks of delay in
recovery of the securities or even loss of rights in the collateral should the
borrower of the securities fail financially. However, loans will only be made to
borrowers deemed by Banc One Investment Advisors to be of good standing under
guidelines established by the Trust's Board of Trustees and when, in the
judgment of Banc One Investment Advisors, the consideration which can be earned
currently from such securities loans justifies the attendant risk. Loans are
subject to termination by a Fund or the borrower at any time, and are therefore
not considered to be illiquid investments.
VARIABLE AND FLOATING RATE NOTES
Certain of the Funds may acquire variable and floating rate notes.
Variable amount master demand notes are either secured or 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. Banc One Investment Advisors 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.
Variable or floating rate notes with stated maturities of more than 397
days may, under the Securities and Exchange Commission's amortized cost rule,
Rule 2a-7 under the 1940 Act, be deemed to have shorter maturities as follows:
(1) Adjustable Rate Government Securities. A Government Security which is
a Variable Rate Security where the variable rate of interest is readjusted no
less frequently than every 762 days shall be deemed to have a maturity equal to
the period remaining until the next readjustment of the interest rate. A
Government Security which is a Floating Rate Security shall be deemed to have a
remaining maturity of one day.
(2) Short-Term Variable Rate Securities. A Variable Rate Security, the
principal amount of which, in accordance with the terms of the security, must
unconditionally be paid in 397 calendar days or less shall be deemed to have
maturity equal to the earlier of the period remaining until the next
readjustment of the interest rate or the period remaining until the principal
amount can be recovered through demand.
(3) Long-Term Variable Rate Securities. A Variable Rate Security, the
principal amount of which is scheduled to be paid in more than 397 days, that is
subject to a Demand Feature shall be deemed to have a maturity equal to the
longer of the period remaining until the next readjustment of the interest rate
or the period remaining until the principal amount can be recovered through
demand.
(4) Short-Term Floating Rate Securities. A Floating Rate Security, the
principal amount of which, in accordance with the terms of the security, must
unconditionally be paid in 397 calendar days or less shall be deemed to have a
maturity of one day.
(5) Long-Term Floating Rate Securities. A Floating Rate Security, the
principal amount of which is scheduled to be paid in more than 397 days, that is
subject to a demand feature, shall be deemed to have a maturity equal to the
period remaining until the principal amount can be recovered through demand.
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As used above, a note is "subject to a demand feature" where the Fund is
entitled to receive the principal amount of the note either at any time on no
more than thirty days' notice or at specified intervals not exceeding 397
calendar days and upon no more than 30 days notice.
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 Banc
One Investment Advisors under guidelines established by the Trust's Board of
Trustees to be of comparable quality at the time of purchase to rated
instruments eligible for purchase under the Fund's investment policies. In
making such determinations, Banc One Investment Advisors will consider the
earning power, cash flow and other liquidity ratios of the issuers of such 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 or other assets.
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 net 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. There is no limit on the
extent to which a Fund may purchase demand notes that are not illiquid. If not
rated, such instruments must be found by Banc One Investment Advisors, under
guidelines established by the Trust's Board of Trustees, to be of comparable
quality to instruments that are rated high quality. A rating may be relied upon
only if it is provided by a nationally recognized statistical rating
organization that is not affiliated with the issuer or guarantor of the
instruments.
MUNICIPAL SECURITIES
Municipal Securities are issued to obtain funds for various public
purposes, including the construction of a wide range of public facilities such
as bridges, highways, roads, schools, water and sewer works, and other
utilities. Other public purposes for which Municipal Securities may be issued
include refunding outstanding obligations, obtaining funds for general operating
expenses and obtaining funds to lend to other public institutions and
facilities. In addition, certain debt obligations known as "private activity
bonds" may be issued by or on behalf of municipalities and public authorities to
obtain funds to provide certain water, sewage and solid waste facilities,
qualified residential rental projects, certain local electric, gas and other
heating or cooling facilities, qualified hazardous waste facilities, high-speed
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 credit of the bank selected to
provide the letter of credit underlying the bond if any.
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Payment of principal and interest on industrial development revenue bonds is the
responsibility of the corporate user (and any guarantor).
"Moral obligation" issues, are normally issued by special purpose
authorities, and in other tax-exempt investments including pollution control
bonds and tax-exempt commercial paper. Municipal securities also include
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. Banc One Investment Advisors will consider such an event
in determining whether a Fund should continue to hold the obligations.
Information about the financial condition of issuers of Municipal
Securities may be less available than about corporations having a class of
securities registered under the Securities Exchange Act of 1934.
An issuer's obligations under its Municipal Securities are subject to the
provisions of bankruptcy, insolvency, and other laws affecting the rights and
remedies of creditors, such as the federal bankruptcy code, and laws, if any,
which may be enacted by Congress or state legislatures extending the time for
payment of principal or interest, or both, or imposing other constraints upon
the enforcement of such obligations. The power or ability of an issuer to meet
its obligations for the payment of interest on and principal of its Municipal
Securities may be materially adversely affected by litigation or other
conditions.
Such litigation or conditions may from time to time have the effect of
introducing uncertainties in the market for tax-exempt obligations or certain
segments thereof, or may materially affect the credit risk with respect to
particular bonds or 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.
DEMAND FEATURES
The Asset Allocation Fund may acquire securities that are subject to puts
and standby commitments ("demand features") to purchase the securities at their
principal amount (usually with accrued interest) within a fixed period (usually
seven days) following a demand by the Fund. The demand feature may be issued by
the issuer of the underlying securities, a dealer in the securities or by
another third party, and may not be transferred separately from the underlying
security.
Under a "stand-by commitment," a dealer would agree to purchase, at a
Fund's option, specified municipal securities at a specified price. A Fund will
acquire these commitments solely to facilitate portfolio liquidity and does not
intend to exercise its rights thereunder for trading purposes. Stand-by
commitments may also be referred to as put options. A Fund will generally limit
its investments in stand-by commitments to 25% of its total assets.
The purpose of engaging in transactions involving puts is to maintain
flexibility and liquidity to permit the Fund to meet redemption requests and
remain as fully invested as possible.
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INDEX INVESTING BY THE EQUITY INDEX FUND
It is anticipated that the indexing approach that will be employed by
the Equity Index Fund will be an effective method of substantially tracking
percentage changes in the S&P 500 Composite Stock Price Index (the "Index"). It
is a reasonable expectation that there will be a close correlation between the
Fund's performance and that of the Index in both rising and falling markets. The
Fund will attempt to achieve a correlation between the performance of its
portfolio and that of the Index of at least 0.95, without taking into account
expenses. A correlation of 1.00 would indicate perfect correlation, which would
be achieved when the Fund's net asset value, including the value of its dividend
and capital gains distributions, increases or decreases in exact proportion to
changes in the Index. The Fund's ability to correlate its performance with the
Index, however, may be affected by, among other things, changes in securities
markets, the manner in which the Index is calculated by Standard & Poor's
Corporation ("S&P") and the timing of purchases and redemptions. In the future,
the Trustees of the Funds, subject to the approval of Shareholders, may select
another index if such a standard of comparison is deemed to be more
representative of the performance of common stocks.
S&P chooses the stocks to be included in the Index largely on a
statistical basis. Inclusion of a stock in the Index in no way implies an
opinion by S&P as to its attractiveness as an investment. The Index is
determined, composed and calculated by S&P without regard to the Equity Index
Fund. S&P is neither a sponsor of, nor in any way affiliated with the Equity
Index Fund, and S&P makes no representation or warranty, expressed or implied on
the advisability of investing in the Equity Index Fund or as to the ability of
the Index to track general stock market performance, and S&P disclaims all
warranties of merchantability or fitness for a particular purpose or use with
respect to the Index or any data included therein. "Standard & Poor's 500" is a
service mark of S&P.
The weightings of stocks in the Index are based on each stock's relative
total market value, i.e., market price per share times the number of shares
outstanding. Because of this weighting, approximately 50% of the Index is
currently composed of the 50 largest companies in the Index, and the Index
currently represents over 65% of the market value of all U.S. common stocks
listed on the New York Stock Exchange. Typically, companies included in the
Index are the largest and most dominant firms in their respective industries.
Banc One Investment Advisors generally selects stocks for the Equity Index
Fund in the order of their weightings in the Index beginning with the heaviest
weighted stocks. The percentage of the Equity Index Fund's assets to be invested
in each stock is approximately the same as the percentage it represents in the
Index. No attempt is made to manage the Equity Index Fund in the traditional
sense using economic, financial and market analysis. The Equity Index Fund is
managed using a computer program to determine which stocks are to be purchased
and sold to replicate the Index to the extent feasible. From time to time,
administrative adjustments may be made in the Fund because of changes in the
composition of the Index, but such changes should be infrequent.
RESTRICTED SECURITIES
The Funds (except the Government Bond Fund) may invest in commercial paper
issued in reliance on the exemption from registration afforded by Section 4(2)
of the Securities Act of 1933 and other restricted securities. Section 4(2)
commercial paper is restricted as to disposition under federal securities law
and is generally sold to institutional investors, such as the Funds, who agree
that they are purchasing the paper for investment purposes and not with a view
to public distribution. Any resale by the purchaser must be in an exempt
transaction. Section 4(2) commercial paper is normally resold to other
institutional investors like the Funds through or with the assistance of the
issuer or investment dealers who make a market in Section 4(2) commercial paper,
thus providing liquidity. The Funds believe that Section 4(2) commercial paper
and possibly certain other restricted securities which meet the criteria for
liquidity established by the Trustees are quite liquid. The Funds intend,
therefore, to treat restricted securities that meet the liquidity criteria
established by the Board of Trustees, including Section 4(2) commercial paper
and Rule 144A Securities, as determined by Banc One Investment Advisors, as
liquid and not subject to the investment limitation applicable to illiquid
securities.
The ability of the Trustees to determine the liquidity of certain
restricted securities is permitted under a 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 Banc One Investment Advisors to consider the following
criteria in determining the liquidity of certain restricted securities:
- the frequency of trades and quotes for the security;
- the number of dealers willing to purchase or sell the security and
the number of other potential buyers;
- dealer undertakings to make a market in the security; and
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- the nature of the security and the nature of the marketplace trades.
Certain Section 4(2) commercial paper programs cannot rely on Rule 144a
because, among other things, they were established before the adoption of the
rule. However, the Trustees may determine for purposes of the Trust's liquidity
requirements that an issue of 4(2) commercial paper is liquid if the following
conditions, which are set forth in a 1994 SEC no-action letter, are met:
- The 4(2) paper must not be traded flat or in default as to principal
or interest;
- The 4(2) paper must be rated in one of the two highest rating
categories by a least two nationally recognized statistical rating organizations
("NRSROs"), or if only one NRSRO rates the security, by that NRSRO, or if
unrated, is determined by Banc One Investment Advisors to be of equivalent
quality; and
- Banc One Investment Advisors must consider the trading market for the
specific security, taking into account all relevant factors, including but not
limited, to whether the paper is the subject of a commercial paper program that
is administered by an issuing and paying agent bank and for which there exists a
dealer willing to make a market in that paper, or is administered by a direct
issuer pursuant to a direct placement program; and
- Banc One Investment Advisors shall monitor the liquidity of the 4(2)
commercial paper purchased and shall report to the Board of Trustees promptly if
any such securities are no longer determined to be liquid if such determination
causes a fund to hold more than 15% of its net assets in illiquid securities in
order for the Board of Trustees to consider what action, if any, should be taken
on behalf of the Trust unless Banc One Investment Advisors is able to dispose of
illiquid assets in an orderly manner in an amount that reduces the Fund's
holdings of illiquid assets to less than 15% of its net assets; and
Banc One Investment Advisors shall report to the Board of Trustees on the
appropriateness of the purchase and retention of liquid restricted securities
under these Guidelines no less frequently that quarterly.
COMMON STOCK
Common stock represents a share of ownership in a company and usually
carries voting rights and earns dividends. Unlike preferred stock, dividends on
common stock are not fixed but are declared at the discretion of the issuer's
board of directors.
PREFERRED STOCK
Preferred stock is a class of stock that generally pays dividends at a
specified rate and has preference over common stock in the payment of dividends
and liquidation. Preferred stock generally does not carry voting rights. As with
all equity securities, the price of preferred stock fluctuates based on changes
in a company's financial condition and on overall market and economic
conditions.
INVESTMENT COMPANY SECURITIES
The Equity Funds may invest up to 5% of their 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 their total
assets in the securities of other investment companies. Other investment company
securities may include securities for which Banc One Investment Advisors serves
as investment advisor or administrator. Because other investment companies
employ an investment advisor, such investments by the Funds may cause
Shareholders to bear duplicative fees. Banc One Investment Advisors will waive
its fee attributable to the assets of the investing fund invested in other funds
advised by Banc One Investment Advisors; and, to the extent required by the laws
of any state in which shares of the Trust are sold, Banc One Investment Advisors
will waive its fees attributable to the assets of any Fund invested in any
investment company.
CONVERTIBLE SECURITIES
Convertible securities have characteristics similar to both fixed
income and equity securities. Convertible securities may be issued as bonds or
preferred stock. Because of the conversion feature, the market value of
convertible securities tends to move together with the market value of the
underlying stock. As a result, the Equity Funds' selection of convertible
securities is based, to a great extent, on the potential for capital
appreciation that may exist in the underlying stock. The value of convertible
securities is also affected by prevailing interest rates, the credit quality of
the issuer, and any call provisions.
WARRANTS
Warrants are securities, typically issued with preferred stock or
bonds, that give the holder the right to buy a proportionate amount of common
stock at a specified price, usually at a price that is higher than the market
price at the time of issuance of the warrant. The right may last for a period of
years or indefinitely.
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ASSET-BACKED SECURITIES
Asset-backed securities consist of securities secured by company
receivables, home equity loans, truck and auto loans, leases, credit card
receivables and other securities backed by other types of receivables or other
assets. These securities are generally pass-through securities, which means that
principal and interest payments on the underlying securities (less servicing
fees) are passed through to shareholders on a pro rata basis. These securities
involve prepayment risk, which is the risk that the underlying debt may be
refinanced or paid off prior to their maturities during periods of declining
interest rates. In that case, a portfolio manager may have to reinvest the
proceeds from the securities at a lower rate. Potential market gains on a
security subject to prepayment risk may be more limited than potential market
gains on a comparable security that is not subject to prepayment risk. Under
certain prepayment rate scenarios, the Fund may fail to recoup any premium paid
on asset-backed securities.
NEW FINANCIAL PRODUCTS
New options and futures contracts and other financial products, and
various combinations thereof, continue to be developed and certain of the Funds
may invest in any such options, contracts and products as may be developed to
the extent consistent with each Fund's investment objective, policies and
restrictions and the regulatory requirements applicable to investment companies.
These various products may be used to adjust the risk and return
characteristics of each Fund's investments. These various products may increase
or decrease exposure to security prices, interest rates, commodity prices, or
other factors that affect security values, regardless of the issuer's credit
risk. If market conditions do not perform consistent with expectations, the
performance of each Fund would be less favorable than it would have been if
these products were not used. In addition, losses may occur if counterparties
involved in transactions do not perform as promised. These products may expose
the Funds to potentially greater return as well as potentially greater risk of
loss than more traditional fixed income investments.
SWAPS, CAPS AND FLOORS
The Funds may enter into swaps, caps, and floors on various securities
(such as U.S. government securities), securities indexes, interest rates,
prepayment rates, foreign currencies or other financial instruments or indexes,
in order to protect the value of the Fund from interest rate fluctuations and to
hedge against fluctuations in the floating rate market in which the Fund's
investments are traded, for both hedging and non-hedging purposes. While swaps,
caps, and floors (sometimes hereinafter collectively referred to as "swap
contracts") are different from futures contracts (and options on futures
contracts) in that swap contracts are individually negotiated with specific
counterparties, the Funds will use swap contracts for purposes similar to the
purposes for which they use options, futures, and options on futures. Those uses
of swap contracts (i.e., risk management and hedging) present the Funds with
risks and opportunities similar to those associated with options contracts,
futures contracts, and options on futures. See "Futures Contracts" and "Risk
Factors in Futures Contracts."
The Funds may enter into these transactions to manage their exposure to
changing interest rates and other market factors. Some transactions may reduce
each Fund's exposure to market fluctuations while others may tend to increase
market exposure.
Swap contracts typically involve an exchange of obligations by two
sophisticated parties. For example, in an interest rate swap, the Fund may
exchange with another party their respective rights to receive interest, such as
an exchange of fixed rate payments for floating rate payments. Currency swaps
involve the exchange of respective rights to make or receive payments in
specified currencies. Mortgage swaps are similar to interest rate swaps in that
they represent commitments to pay and receive interest. The notional principal
amount, however, is tied to a reference pool or pools of mortgages.
Caps and floors are variations on swaps. The purchase of a cap entitles
the purchaser to receive a principal amount from the party selling the cap to
the extent that a specified index exceeds a predetermined interest rate or
amount. The purchase of an interest rate floor entitles the purchaser to receive
payments on a notional principal amount from the party selling the floor to the
extent that a specified index falls below a predetermined interest rate or
amount. Caps and floors are similar in many respects to over-the-counter options
transactions, and may involve investment risks that are similar to those
associated with options transactions and options on futures contracts. Because
swap contracts are individually negotiated, they remain the obligation of the
respective counterparties, and there is a risk that a counterparty will be
unable to meet its obligations under a particular swap contract. If a
counterparty defaults on a swap contract with a Fund, the Fund may suffer a
loss. To address this risk, each Fund will usually enter into interest rate
swaps on a net basis, which means that the two payment streams (one from the
Fund to the counterparty, one to the Fund from the counterparty) are netted out,
with the Fund receiving or paying, as the case may be, only the net amount of
the two payments. Interest rate swaps do not involve the delivery of securities,
other underlying assets, or principal, except for the purposes of
collateralization as discussed below. Accordingly, the risk of loss with respect
to interest rate swaps entered into on a net basis would be limited to the net
amount of the interest payments that the Fund is contractually obligated to
make. If the other party to an interest rate swap defaults, the Fund's risk of
loss consists of the net amount of interest payments that a Fund is
contractually entitled to receive. In addition, the Fund may incur a market
value adjustment on securities held upon the early termination of the swap. To
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protect against losses related to counterparty default, the Funds may enter into
swaps that require transfers of collateral for changes in market value. In
contrast, currency swaps and other types of swaps may involve the delivery of
the entire principal value of one designated currency or financial instrument in
exchange for the other designated currency or financial instrument. Therefore,
the entire principal value of such swaps may be subject to the risk that the
other party will default on its contractual delivery obligations.
In addition, because swap contracts are individually negotiated and
ordinarily non-transferable, there also may be circumstances in which it would
be impossible for a Fund to close out its obligations under the swap contract
prior to its maturity. Under such circumstances, the Fund might be able to
negotiate another swap contract with a different counterparty to offset the risk
associated with the first swap contract. Unless the Fund is able to negotiate
such an offsetting swap contract, however, the Fund could be subject to
continued adverse developments, even after Banc One Investment Advisors 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 one of the top
two rating categories by at least one NRSRO, or if unrated, determined by Banc
One Investment Advisors to be of comparable quality.
The use of swaps involves investment techniques and risks different
from and potentially greater than those associated with ordinary Fund securities
transactions. If Banc One Investment Advisors is incorrect in its expectations
of market values, interest rates, or currency exchange rates, the investment
performance of the Funds would be less favorable than it would have been if this
investment technique were not used. In addition, in certain circumstances entry
into a swap contract that substantially eliminates risk of loss and the
opportunity for gain in an "appreciated financial position" will accelerate gain
to the Funds.
The Staff of the Securities and Exchange Commission is presently
considering its position with respect to swaps, caps and floors as senior
securities. Pending a determination by the Staff, the Funds will either treat
swaps, caps and floors as being subject to their senior securities restrictions
or will refrain from engaging in swaps, caps and floors. Once the Staff has
expressed a position with respect to swaps, caps and floors, the Funds intend to
engage in swaps, caps and floors, if at all, in a manner consistent with such
position. To the extent the net amount of an interest rate or mortgage swap is
held in a segregated account, consisting of cash or liquid, high grade debt
securities, the Funds and Banc One Investment Advisors believe that swaps do not
constitute senior securities under the Investment Company Act of 1940 and,
accordingly, will not treat them as being subject to each Fund's borrowing
restrictions. The net amount of the excess, if any, of each Fund's obligations
over its entitlements with respect to each interest rate swap will be accrued on
a daily basis and an amount of cash or liquid securities having an aggregate net
asset value at least equal to the accrued excess will be maintained in a
segregated account by the Funds' Custodian. The Bond Fund generally will limit
its investments in swaps, caps and floors to 25% of its total assets.
INVERSE FLOATING RATE INSTRUMENTS
The Government Bond Fund may seek to increase yield by investing in
leveraged inverse floating rate debt instruments ("inverse floaters"). The
interest rate on a 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. The
Government Bond Fund will limit its investment in inverse floating rate
instruments to 15% of its total assets.
INVESTMENT RESTRICTIONS
The investment objective and the following investment restrictions 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:
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. With respect to the Equity Index Fund no
more than 10% may be invested in securities issued or guaranteed by the
United States, its agencies or instrumentalities. For purposes of this
limitation, a security is considered to be issued by the
B-21
<PAGE> 49
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 the Prospectus and in the Statement of Additional Information.
4. Purchase securities on margin, sell securities short, or participate
on a joint or joint and several basis in any securities trading account.
5. 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."
6. 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.
7. 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).
8. Invest in any issuer for purposes of exercising control or
management.
9. Purchase securities of other investment companies except as
permitted by the Investment Company Act of 1940 and the rules and regulations
thereunder.
10. 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).
11. 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 foregoing percentages will apply at the time
of the purchase of a security.
The following investment restrictions are non-fundamental except as noted
otherwise and therefore can be changed by the Board of Trustees without prior
shareholder approval.
No Fund may:
1. Purchase or retain securities of any issuer if the officers or Trustees
of the Funds or the officers or directors of Banc One Investment Advisors 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. 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, the Large
Company Growth Fund and the Equity Index 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
B-22
<PAGE> 50
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, 1997 and 1996 the portfolio turnover rates for
the funds were: Large Company Growth Fund 34.4% and 38.7%, respectively; Growth
Opportunities Fund 175.6% and 326.9%, respectively; Government Bond Fund 21.3%
and 21.3%, respectively; and Asset Allocation Fund 60.9% and 64.8%,
respectively. The higher portfolio 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. Portfolio turnover
for the Equity Index Fund is expected to be less than 100%. Higher turnover
rates will generally result in higher brokerage expenses. Portfolio turnover may
vary greatly from year to year as well as within a particular year.
ADDITIONAL TAX INFORMATION CONCERNING ALL FUNDS
It is the policy of each Fund 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 must,
among other things, (1) derive at least 90% of its gross income from dividends,
interest, payments with respect to securities loans, and gains from the sale or
other disposition of stock or securities, foreign currencies or other income
(including gains from options, futures or forward contracts) derived with
respect to its business of investing in stock, securities or currencies, and (2)
diversify its holdings so that at the end of each quarter of its taxable year
(i) at least 50% of the market value of the Fund's assets is represented by cash
or cash items, 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 limit the range of the Fund's investments. If
a Fund qualifies as a regulated investment company, it will not be subject to
federal income tax on the part of its income distributed to shareholders,
provided the Fund distributes during its taxable year at least (a) 90% of its
taxable net investment income (very generally, dividends, interest, certain
other income, and the excess, if any, of net short-term capital gain over net
long-term loss), and (b) 90% of the excess of (i) its tax-exempt interest income
less (ii) certain deductions attributable to that income. Each Fund intends to
make sufficient distributions to Shareholders to meet this requirement.
For a discussion of the tax consequences of variable annuity contracts,
refer to the prospectus of The One Investors Annuity, prospectuses of other
separate accounts offering variable life and variable annuity contracts and
qualified pension and retirement plan documents. 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.
B-23
<PAGE> 51
Section 817(h) of the Code imposes certain diversification standards on
the underlying assets of variable annuity contracts held in the Funds. 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 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 Funds
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 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 Banc One Investment Advisors
under the general supervision of the Trustees 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
Funds 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
B-24
<PAGE> 52
The net asset value of each Fund is determined and its Shares are priced
as of the times specified in the Funds' 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 Funds 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 Funds 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 Funds may redeem Shares involuntarily if redemption appears
appropriate in light of the Trust's responsibilities under the Investment
Company Act of 1940.
MANAGEMENT OF THE FUNDS
TRUSTEES & OFFICERS
Overall responsibility for management of the Funds rests with Board of
Trustees of the Funds, who are elected by the Shareholders of the Funds. There
are currently five Trustees, all of whom are not "interested persons" of the
Funds within the meaning of that term under the Investment Company Act of 1940.
The Trustees, in turn, elect the officers of the Funds to supervise actively its
day-to-day operations.
The Trustees of the Funds, their addresses, and principal occupations
during the past five years are set forth below.
<TABLE>
<CAPTION>
POSITION(S) HELD PRINCIPAL OCCUPATION
NAME AND ADDRESS WITH THE FUNDS DURING PAST 5 YEARS
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Peter C. Marshall Trustee From November, 1993,
DCI Marketing, Inc. to present, President,
2727 W. Good Hope Road DCI Marketing, Inc.; from
Milwaukee, WI 53209 1992 to November, 1993,
Vice-President-Finance and
Treasurer, DCI Marketing, Inc. From
August 1987 to 1992, served as an
officer in the corporate finance
group of Blunt, Ellis & Loewi and
its successor corporation, Kemper
Securities, Inc.
Charles I. Post Trustee From July, 1986 to
7615 4th Avenue West present has been self-
Bradenton, FL 34209 employed as a consultant.
John S. Randall Trustee Since 1972 has been self-
3005 North Lake Drive employed as a management consultant.
Milwaukee, WI 53211
Frederick W. Ruebeck Trustee From June, 1988 to
Eli Lilly & Company present has been Director
Lilly Corporate Center of Investments, Eli Lilly and Company.
307 East McCarty
Indianapolis, IN 46285
Robert A. Oden Jr. Trustee From 1995 to present, President
Office of the President Kenyon College; from 1989 to
Ransom Hall 1995, Headmaster, The Hotchkiss School
Kenyon College
Gambier, OH 43022
</TABLE>
B-25
<PAGE> 53
The Trustees of the Funds receive fees and expenses for each meeting of
the Board of Trustees attended. The Compensation Table on the next page sets
forth the total compensation to the Trustees from the Trust for the year ended
December 31, 1997.
<TABLE>
<CAPTION>
COMPENSATION TABLE (1)
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 FUNDS 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
Robert A Oden $750 N/A N/A $9,125
Trustee
Frederick W. Ruebeck, $3,000 N/A N/A $36,500
Trustee
<FN>
(1)"Fund Complex" comprises all five funds of the Trust, as well as the 33
operational funds of The One Group(R). Compensation for the "Fund Complex" is
for the year ended June 30, 1997.
</TABLE>
The officers of the Funds receive no compensation directly from the Funds for
performing the duties of their offices. The officers of the Trust, their
addresses, and principal occupations during the past five years are shown below:
<TABLE>
<CAPTION>
POSITION(S) HELD PRINCIPAL OCCUPATION
NAME AND ADDRESS WITH THE TRUST DURING PAST 5 YEARS
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C>
James F. Laird, Jr.* 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 Group(SM) 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 position of
One Nationwide Plaza and Secretary Counsel in the Office of General
Columbus, Ohio 43215 Counsel, Nationwide Mutual Insurance
Company. 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.
</TABLE>
B-26
<PAGE> 54
<TABLE>
<S> <C> <C>
Karen R. Tackett* Vice President Ms. Tackett has been a Division
Three Nationwide Plaza and Assistant Treasurer Accounting Manager of Nationwide
Columbus, Ohio 43215 Advisory Services, Inc. since
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 Compliance
Three Nationwide Plaza and Assistant Secretary Manager of Nationwide Advisory
Columbus, Ohio 43215 Services, Inc. since January, 1996. Prior to
that time, Mr. Carver served as
Financial Controls Manager of
Nationwide Advisory Services, Inc.
Christopher A. Cray* Vice President Mr. Cray has been Treasurer of
Three Nationwide Plaza and Assistant Treasurer Nationwide Advisory Services, Inc.
Columbus, Ohio 43215 since September, 1997. Prior to that time he
served as Director - Corporate Accounting - of
Nationwide Insurance Enterprise
Robert O. Cline* Vice President Mr. Cline has been Associate Vice President
Three Nationwide Plaza and Assistant Treasurer Financial Operations of Nationwide Financial
Columbus, Ohio 43215 Services since 1995. Prior to that he served
as Director Operational Controls & Treasury
Services.
<FN>
*All officers listed above are "interested persons" of the Funds as defined in
the Investment Company Act of 1940.
</TABLE>
MAJOR SHAREHOLDERS
As of February 4, 1998, Nationwide Life and Annuity Insurance
Company owned of record and beneficially 28.4% of the shares of the Government
Bond Fund, 3.7% of the shares of the Asset Allocation Fund, 0.1% of the shares
of the Growth Opportunities Fund, and 5.6% of the shares of the Large Company
Growth Fund; and held of record 71.6% of the Government Bond Fund, 94.6% of the
Asset Allocation Fund, 99.9% of the Growth Opportunities Fund and 94.4% of the
Large Company Growth Fund for the benefit of investors in the The One Group
Variable Annuity(SM). As of February 4, 1998, Banc One Capital Corporation owned
beneficially and of record 1.7% of the Asset Allocation Fund.
INVESTMENT ADVISOR
Investment advisory services to each of the Funds are provided by Banc One
Investment Advisors. Banc One Investment Advisors 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. The Funds' shares are not sponsored, endorsed or
guaranteed by, and do not constitute obligations or deposits of any bank
affiliate of Banc One Investment Advisors and are not insured by the FDIC or
issued or guaranteed by the U.S. Government or any of its agencies.
As of December 31, 1997, Banc One Investment Advisors, an indirect
wholly-owned subsidiary of BANC ONE CORPORATION, a bank holding company located
in the state of, Ohio, managed over $52 billion in assets. BANC ONE CORPORATION
has affiliate banking organizations in Arizona, Colorado, Illinois, Indiana,
Kentucky, Louisiana, Ohio, Oklahoma, Texas, Utah, West Virginia and Wisconsin.
In addition, BANC ONE CORPORATION has several affiliates that engage in data
processing, venture capital, investment and merchant banking, and other
diversified services including trust management, investment management,
brokerage, equipment leasing, mortgage banking, consumer finance, and insurance.
On a consolidated basis, BANC ONE CORPORATION had assets of over $115 billion as
of December 31, 1997.
Banc One Investment Advisors 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, five of which bear the same name as the five Funds of the Trust and are
managed similarly to such Funds) since 1985.
All investment advisory services are provided to the Funds by Banc One
Investment Advisors pursuant to an investment advisory agreement dated August 1,
1994 (the "Advisory Agreement"). Unless sooner terminated, the Advisory
Agreement will continue in effect until August 31, 1998 and will continue in
effect as to a particular Fund from year to year thereafter 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
B-27
<PAGE> 55
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 Advisor, 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.
Banc One Investment Advisors 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, 0.30% for the
Equity Index Fund and 0.70% for the Asset Allocation Fund. Banc One Investment
Advisors 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, not more than 0.55% of the
average daily net assets of the Equity Index 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, 1997, 1996 and 1995 Banc One
Investment Advisors received fees of $78,818, $23,470 and $259, respectively,
from the Government Bond Fund; $189,332, $26,690 and $1,919, respectively, from
the Asset Allocation Fund; $233,609, $43,318 and $1,078, respectively, from the
Growth Opportunities Fund; and $458,066, $136,980 and $1,432, respectively, from
the Large Company Growth Fund.
During the years ended December 31, 1997, 1996 and 1995 Banc One
Investment Advisors waived advisory fees and reimbursed expenses in the amounts
of $23,466, $31,993 and $48,289, respectively in the Government Bond Fund;
$44,906, $43,830 and $32,368, respectively in the Asset Allocation Fund; $4,114,
$48,685 and $57,665, respectively in the Growth Opportunities Fund; and $1,114,
$53,497 and $62,961, respectively in the Large Company Growth Fund.
The Advisory Agreement provides that Banc One Investment Advisors 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 Advisor 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 advisor, transfer
agent, and custodian to such an investment company. In 1981, the United States
Supreme Court held in Board of Governors of the Federal Reserve System v.
Investment Company Institute that the Board did not exceed its authority under
the Holding Company Act when it adopted its regulation and interpretation
authorizing bank holding companies and their non-bank affiliates to act as
investment advisors to registered closed-end investment companies. In the Board
of Governors case, the Supreme Court also stated that if a national bank
complied with the restrictions imposed by the Board in its regulation and
interpretation authorizing bank holding companies and their non-bank affiliates
to act as investment advisors to investment companies, a national bank
performing investment advisory services for an investment company would not
violate the Glass-Steagall Act.
In the Advisory Agreement, Banc One Investment Advisors has represented to
the Funds 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 Banc One Investment
Advisors from continuing to perform such services for the Funds. Depending upon
the nature of any changes in the services which could be provided by Banc One
Investment Advisors, the Board of Trustees of the Funds would review the Funds'
relationship with Banc One Investment Advisors and consider taking all action
necessary in the circumstances.
Should future legislative, judicial, or administrative action prohibit or
restrict the proposed activities of BANC ONE CORPORATION subsidiary banks or
their correspondent banks in connection with customer purchases of Shares of the
B-28
<PAGE> 56
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 Funds' 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, Banc One Investment Advisors
determines, subject to the general supervision of the Board of Trustees of the
Funds 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 Funds, where possible, will deal directly with the dealers who make
a market in the securities involved except in those circumstances where better
price and execution are available elsewhere. While Banc One Investment Advisors
generally seeks competitive spreads or commissions, the Funds may not
necessarily pay the lowest spread or commission available on each transaction,
for reasons discussed below.
Allocation of transactions, including their frequency, to various dealers
is determined by Banc One Investment Advisors 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 Banc One Investment Advisors may receive
orders for transactions by the Funds. Information so received is in addition to
and not in lieu of services required to be performed by Banc One Investment
Advisors and does not reduce the advisory fees payable to Banc One Investment
Advisors. Such information may be useful to Banc One Investment Advisors in
serving both the Funds and other clients and, conversely, supplemental
information obtained by the placement of business of other clients may be useful
to Banc One Investment Advisors in carrying out its obligations to the Funds.
The Funds will not execute portfolio transactions through, acquire
portfolio securities issued by, make savings deposits in, or enter into
repurchase or reverse repurchase agreements with Banc One Investment Advisors 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 are made independently from those for
the other Funds or any other investment company or account managed by Banc One
Investment Advisors. Any such other investment company or account may also
invest in the same securities as the Funds. When a purchase or sale of the same
security is made at substantially the same time on behalf of a given Fund and
another Fund, investment company or account the transaction will be averaged as
to price, and available investments allocated as to amount, in a manner which
Banc One Investment Advisors believes to be equitable to the Fund(s) and such
other investment company or account. In some instances, this investment
procedure may adversely affect the price paid or received by a Fund or the size
of the position obtained by a Fund. To the extent permitted by law, Banc One
Investment Advisors may aggregate the securities to be sold or purchased by it
for a Fund with those to be sold or purchased by it for other Funds or for other
investment companies or accounts in order to obtain best execution. As provided
by the Advisory Agreement, in making investment recommendations for the Funds,
Banc One Investment Advisors will not inquire or take into consideration whether
an issuer of securities proposed for purchase or sale by the Funds is a customer
of Banc One Investment Advisors or its parent or subsidiaries or affiliates and,
in dealing with its commercial customers, Banc One Investment Advisors and its
parent, subsidiaries, and affiliates will not inquire or take into consideration
whether securities of such customers are held by the Funds.
ADMINISTRATOR
Nationwide Advisory Services, Inc. ("NAS") serves as Administrator (the
"Administrator") to each Fund 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 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.
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<PAGE> 57
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 Funds, to maintain each such Fund's financial accounts and
records, and to furnish the Funds with data processing, clerical, accounting,
and bookkeeping services, and certain other services required by the Funds 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 Advisory Agreement, 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, 1998. 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 Board of Trustees, provided that the Administration Agreement is
also reviewed and ratified by the majority of the 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 Board of Trustees or by NFS.
The Administrator is entitled to a fee for its 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, 1997, 1996 and 1995, the
Administrator received fees in the following amounts: Government Bond Fund
$42,036, $29,580 and $16,073 respectively, Asset Allocation Fund $64,914,
$24,178 and $7,183, respectively, Growth Opportunities Fund $86,256, $33,970 and
$7,356, respectively and Large Company Growth Fund $169,132, $70,330 and
$20,501, respectively. The Administrator waived fees in the amount of $1,184 for
the Asset Allocation Fund for the period ended December 31, 1995.
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
Funds 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 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
Board of Trustees concerning the Funds' 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
Funds to maintain their securities and cash in the custody of certain eligible
banks and securities depositories.
Nationwide Investors Services, Inc. ("NIS"), One Nationwide Plaza,
Columbus, Ohio, 43215, 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 Funds; (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 Board of Trustees concerning the Funds
operations.
INDEPENDENT ACCOUNTANTS
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Price Waterhouse LLP 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.
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 five series of Shares
which represent interests in the Government Bond Fund, Asset Allocation Fund,
Growth Opportunities Fund, Large Company Growth Fund and Equity Index Fund.
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 non-assessable, 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. Shares have no subscription
or preemptive rights and only such conversion or exchange rights as the Board of
Trustees 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.
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.
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
B-31
<PAGE> 59
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
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 Investors
Annuity(SM), 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 Annuity(SM) contract owners, refer to the prospectus of The One
Investors Annuity(SM).
CALCULATION OF PERFORMANCE DATA
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 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, Banc One Investment Advisors 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 Investors Annuity(SM). Since the Funds'
shares may only be purchased by Nationwide Life and Annuity Insurance Company,
to fund the obligations under The One Investors Annuity(SM), 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 Investors Annuity(SM) prospectus, separate account
prospectus, and qualified pension and retirement plan documents 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, 1997
and the period from August 1, 1994 (date of initial public offering) through
December 31, 1997 was as follows:
One Year Since Inception
-------- ---------------
Government Bond Fund 9.67% 8.03%
Asset Allocation Fund 22.90% 15.53%
Growth Opportunities Fund 29.81% 18.88%
Large Company Growth Fund 31.93% 21.03%
B-32
<PAGE> 60
Statistical and performance information compiled and maintained by CDA
Technologies, Inc. ("CDA") 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.
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.
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 annually 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 Funds' 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 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
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<PAGE> 61
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 Funds' 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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================================================================================
THE ONE(R) GROUP(SM) INVESTMENT TRUST
ANNUAL REPORT
DECEMBER 31, 1997
================================================================================
B-35
<PAGE> 63
THE ONE(R) GROUP(SM) INVESTMENT TRUST
ANNUAL REPORT
DECEMBER 31, 1997
TABLE OF CONTENTS
<TABLE>
<S> <C>
Report of Independent Accountants........................... 1
Management Discussion of Fund Performance:
Government Bond Fund................................... 2
Asset Allocation Fund.................................. 4
Growth Opportunities Fund.............................. 6
Large Company Growth Fund.............................. 8
Statements of Investments:
Government Bond Fund................................... 10
Asset Allocation Fund.................................. 11
Growth Opportunities Fund.............................. 15
Large Company Growth Fund.............................. 18
Statements of Assets and Liabilities........................ 21
Statements of Operations.................................... 22
Statements of Changes in Net Assets......................... 23
Financial Highlights........................................ 25
Notes to Financial Statements............................... 27
</TABLE>
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<PAGE> 64
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 Group Investment Trust, hereafter referred to as the
"Trust") at December 31, 1997, 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, 1997 by correspondence with the custodian and brokers, provide a
reasonable basis for the opinion expressed above.
Price Waterhouse LLP
New York, New York
February 11, 1998
THE ONE(R) GROUP(SM) INVESTMENT TRUST ANNUAL REPORT
B-37
<PAGE> 65
THE ONE(R) GROUP(SM) INVESTMENT TRUST
MANAGEMENT DISCUSSION OF FUND PERFORMANCE
GOVERNMENT BOND FUND
DECEMBER 31, 1997
PERFORMANCE
For the year ended December 31, 1997, the Government Bond Fund posted a total
return of 9.67%.
While interest rates rose erratically during the first quarter of the year, they
showed an overall downward trend for the year, which pushed bond prices upward.
The 10-year Treasury note, for example, yielded 6.20% on December 31, 1996, and
fell to 5.74% on December 31, 1997. The Fund's 30-day SEC yield followed suit,
falling to 5.87% on December 31, 1997, from 6.32% a year earlier.
Maintaining our normally high allocations to mortgage-backed securities and
other yield producers, along with targeting certain securities that enabled us
to benefit from rising bond prices (see next section), contributed to the Fund's
strong performance. At year end, approximately 56% of the portfolio's assets
were invested in mortgage-backed securities, while 22% were invested in agencies
and 21% were invested in Treasuries.
HYPOTHETICAL $10,000 INVESTMENT
<TABLE>
<CAPTION>
8/1/94* 12/31/94 12/31/95 12/31/96 12/31/97
------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Government Bond 10,000 9,910 11,564 11,875 13,023
Solomon Bros. 3-7 Year Treas./Gov't 10,000 9,883 11,507 11,927 12,916
</TABLE>
* Initial public offering commenced August 1, 1994.
Government Bond Fund
Average Annual Total Return
<TABLE>
<CAPTION>
One Year Since Inception
-------- ---------------
<S> <C>
9.67% 8.03%
</TABLE>
Past performance is not predictive of future performance.
THE ONE(R) GROUP(SM) INVESTMENT TRUST ANNUAL REPORT
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<PAGE> 66
THE ONE(R) GROUP(SM) INVESTMENT TRUST
MANAGEMENT DISCUSSION OF FUND PERFORMANCE
GOVERNMENT BOND FUND -- (CONTINUED)
DECEMBER 31, 1997
STRATEGIES AND TACTICS
In addition to focusing on yield, another component of the Fund's investment
strategy was maintaining a neutral duration. (Duration is a measure of a fund's
price sensitivity to interest rate changes. A longer duration indicates greater
sensitivity; a shorter duration indicates less.) Early in the year, maintaining
a neutral duration helped limit the effects of rising interest rates and the
subsequent decline in bond prices.
During the second half of the year, though, the sharp decline in interest rates
caused the duration on many mortgage-backed securities to shorten dramatically.
This made our efforts to maintain a neutral duration even more important.
Specifically, when interest rates fall, bond prices rise, and funds with longer
durations tend to outperform those with shorter durations. By targeting
long-duration securities (those with relatively low prepayment risk), we were
able to overcome the effects of declining interest rates on certain
mortgage-backed securities and maintain the Fund's average duration in a neutral
range of 5.0 years to 5.25 years. This tactic also helped the Fund take
advantage of rising bond prices, which contributed to the Fund's solid one-year
return.
OUTLOOK
Looking ahead, we believe that interest rates will continue to decline in 1998
due to a slowing economy and the ongoing crises in Asia. Furthermore, rates may
get an additional push downward from investors shifting their assets away from
the stock market and into the bond market. All of this activity should bode well
for the bond market's performance in 1998.
/s/ THOMAS E. DONNE
- --------------------
Thomas E. Donne, CFA
Fund Co-Manager
/s/ MICHAEL J. SAIS
- --------------------
Michael J. Sais, CFA
Fund Co-Manager
Please refer to the prospectus and the accompanying financial statements for
further information about your Fund.
THE ONE(R) GROUP(SM) INVESTMENT TRUST ANNUAL REPORT
B-39
<PAGE> 67
THE ONE(R) GROUP(SM) INVESTMENT TRUST
MANAGEMENT DISCUSSION OF FUND PERFORMANCE
ASSET ALLOCATION FUND
DECEMBER 31, 1997
PERFORMANCE AND STRATEGY
For the year ended December 31, 1997, the Asset Allocation Fund posted a total
return of 22.90%.
Declining interest rates and stronger-than-expected corporate earnings growth
were the primary forces at work in the bond and stock markets during the year.
Our research at the beginning of the year showed that stock valuations, relative
to bond valuations, were fairly high but corporate earnings momentum, or
profitability, remained strong. As a result, the Fund's asset allocation
remained at approximately 55% stocks and 45% bonds. On November 11, 1997, after
the U.S. market began to feel the effect of the currency and economic crisis in
Southeast Asia, Banc One Investment Advisors' Asset Allocation Committee changed
the allocation to approximately 48% stocks and 41% bonds.
HYPOTHETICAL $10,000 INVESTMENT
<TABLE>
<CAPTION>
8/1/94* 12/31/94 12/31/95 12/31/96 12/31/97
------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Asset Allocation 10,000 9,868 11,909 13,329 16,382
Blended Index ** 10,000 10,054 12,933 14,864 18,327
LB Interm. Gov't Corp 10,000 10,154 13,965 17,170 22,896
S&P 500 10,000 9,928 11,950 11,913 12,851
</TABLE>
* Initial public offering commenced August 1, 1994.
** Blended Index consists of 60% S&P 500 & 40% Lipper Intermediate U.S.
Government Bond Index.
Asset Allocation Fund
Average Annual Total Return
<TABLE>
<CAPTION>
One Year Since Inception
-------- ---------------
<S> <C>
22.90% 15.53%
</TABLE>
Past performance is not predictive of future performance.
EQUITY
The strong relative performance in the Fund's stock portfolio was due primarily
to good stock selection in select economic sectors, including the consumer
cyclical, health care, technology and electric utilities sectors.
The Fund's equity philosophy is research driven. The equity portion of the Fund
reflects the "best ideas" of the equity research team. As such, portfolio
returns are driven by stock selection, not market timing or sector rotation.
Our equity process employs a systematic approach to stock selection that
involves analyzing various valuation, fundamental and risk parameters. Banc One
Investment Advisors currently researches approximately 600 issues within 15
economic sectors. Analysts annually review each company in their respective
economic sector-based coverage list. Each review is similar to a business case
study and represents a rigorous exercise in validating near-term and long-term
earnings drivers in front of a peer group of analysts and fund managers. In
1997, our analysts visited nearly 150 company management teams to discuss their
company's respective business model and long-term strategy.
THE ONE(R) GROUP(SM) INVESTMENT TRUST ANNUAL REPORT
B-40
<PAGE> 68
THE ONE(R) GROUP(SM) INVESTMENT TRUST
MANAGEMENT DISCUSSION OF FUND PERFORMANCE
ASSET ALLOCATION FUND -- (CONTINUED)
DECEMBER 31, 1997
FIXED INCOME
The bulk of the return in the Fund's bond portfolio was generated by coupon
income. We were able to enhance the portfolio's coupon returns by keeping close
to half of the portfolio's fixed-income assets (approximately 47%) in corporate
and mortgage-backed securities. The portfolio's performance further benefited
from an increase in bond prices, as bond market yields declined during the year.
Our primary strategy was to maintain a neutral duration posture of 4.1 years.
(Duration is a measure of a Fund's price sensitivity to interest rate changes. A
longer duration indicates greater sensitivity; a shorter duration indicates
less.) This helped limit the portfolio's risk profile early in the year when
interest rates increased and during the remainder of the year as interest rates
dropped.
In addition, we maintained diversity among government, agency, mortgage-backed
and corporate securities. Exposure to mortgage-backed securities helped the
Fund's performance, as this sector outperformed the others on a relative basis.
As a group, corporate bonds were the poorest-performing securities. At the end
of the year, approximately 50% of the Fund's bond portfolio was invested in
Treasury securities, 25% in mortgage-backed securities and 25% in corporate and
asset-backed securities.
Credit quality within the Fund's bond portfolio remained high, with 80% of the
portfolio's securities AAA-rated, 3% AA-rated, 12% A-rated and 5% BBB-rated.
NOTABLE STOCK HOLDINGS
The strongest market sectors during the year were the bank and financial areas,
posting gains of approximately 66% and 50%, respectively. Together, these two
sectors accounted for about 20% of the Fund's equity position. Strong earnings
and acquisition activity were the primary reasons for the favorable performance
from these sectors.
On the other hand, the weakest sectors were the communications technology and
industrial commodities sectors, gaining only 3% and 16%, respectively.
OUTLOOK
We expect the U.S. equity market to remain volatile during the short term, due
primarily to the events in Southeast Asia. Looking ahead, most of the Fund's
equity return is likely to come from earnings growth rather than price/earnings
ratio expansion. However, the market is becoming more concerned about the impact
Southeast Asia will have on earnings. As such, we believe that corporate
earnings probably have seen their peak for a while and should advance between 6%
and 7% over the next year, leading to a more tepid equity market environment in
1998.
Our outlook suggests that economic activity will moderate slightly in 1998. How
bond yields respond depends largely on whether or not the Federal Reserve takes
action on interest rates. Given the uncertainty, we will maintain a neutral
duration. In addition, we most likely will maintain a defensive posture toward
the corporate and mortgage sectors until the rewards of increasing exposure to
these sectors outweigh the risks.
/s/ DANIEL KAPUSTA
- ------------------
Daniel Kapusta
Fund Manager
/s/ SCOTT GRIMSHAW
- ------------------
Scott Grimshaw
Fund Manager
Please refer to the prospectus and the accompanying financial statements for
further information about your Fund.
THE ONE(R) GROUP(SM) INVESTMENT TRUST ANNUAL REPORT
B-41
<PAGE> 69
THE ONE(R) GROUP(SM) INVESTMENT TRUST
MANAGEMENT DISCUSSION OF FUND PERFORMANCE
GROWTH OPPORTUNITIES FUND
DECEMBER 31, 1997
PERFORMANCE AND STRATEGY
For the one-year period ended December 31, 1997, the Growth Opportunities Fund
posted a total return of 29.81%.
The market climate remained positive for most of the year as interest rates and
inflation continued to move lower. In addition, investors helped maintain a
strong level of liquidity by pouring billions of dollars into the U.S. equity
markets shattering 1996's record. The outlook for many of the Fund's mid-size
growth companies remained strong during the year due to their abilities to meet
or surpass revenue and earnings expectations.
Only late in the year did the market climate become shaky as various Asian
economies and financial markets suffered severe downturns. This forced Wall
Street analysts to revise downward their earnings and revenue projections.
Facing this scenario for the first time in several years, investors quickly
began to sell stocks. On the positive side, more money was funneled into quality
names offered in the U.S., the world's safe haven. The year ended on a strong
note but not without much volatility, particularly in the technology sector.
As influential as these events were, they did not distract us from our overall
strategy--to find attractive companies in favorable industries. Of course there
are several factors that make a company attractive, including market growth, the
positioning of that company within its industry, product cycle, revenue/earnings
prospects and, the most important factor, management's ability to execute its
business plan. The only long-term sustainable competitive advantage of any
company is its senior management team's ability to visualize and execute. Our
ongoing task, therefore, is to constantly search for the best management teams.
HYPOTHETICAL $10,000 INVESTMENT
<TABLE>
<CAPTION>
8/1/94* 12/31/94 12/31/95 12/31/96 12/31/97
------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Growth Opportunities 10,000 9,700 12,033 13,919 18,068
Russell 2000 10,000 10,258 13,092 15,257 18,648
S&P/BARRA Midcap 400 Growth 10,000 10,316 13,132 15,552 20,245
</TABLE>
* Initial public offering commenced August 1, 1994.
Growth Opportunities Fund
Average Annual Total Return
<TABLE>
<CAPTION>
One Year Since Inception
-------- ---------------
<S> <C>
29.81% 18.88%
</TABLE>
Past performance is not predictive of future performance.
THE ONE(R) GROUP(SM) INVESTMENT TRUST ANNUAL REPORT
B-42
<PAGE> 70
THE ONE(R) GROUP(SM) INVESTMENT TRUST
MANAGEMENT DISCUSSION OF FUND PERFORMANCE
GROWTH OPPORTUNITIES FUND -- (CONTINUED)
DECEMBER 31, 1997
NOTABLE STOCK HOLDINGS
We increased the Fund's financial and retail sector weights during the year. The
fundamental outlook for financial companies and domestic retailers continues to
improve and stocks in both sectors should continue to benefit from a strong
domestic economy.
We reduced the Fund's weighting in the technology and cyclical sectors where
company fundamentals and pricing power continue to deteriorate.
Among the Fund's larger holdings, Dell Computer was the best performer,
increasing more than 300% for the year. In fact, Dell appreciated so much during
the year that it moved from a medium-capitalization stock to a
large-capitalization stock. With a superb management team at its helm, the
company continues to execute a solid business model and surpass investor
expectations.
OUTLOOK
Overall, we believe that the equity markets should remain on positive ground in
1998. If interest rates decline, as we believe they may, this should reduce the
downside risk for the market. Nevertheless, the market is likely to remain
choppy until investors can better quantify the impact of the Asian crisis on
company prospects.
Until the picture on Asia is clearer and market conditions stabilize, we do not
expect to make any major changes to the Fund. At that point we will continue to
invest in companies offering the highest quality and most predictable revenue
and earnings prospects.
/s/ ASHI PARIKH
- ---------------
Ashi Parikh
Fund Manager
Please refer to the prospectus and the accompanying financial statements for
further information about your Fund.
THE ONE(R) GROUP(SM) INVESTMENT TRUST ANNUAL REPORT
B-43
<PAGE> 71
THE ONE(R) GROUP(SM) INVESTMENT TRUST
MANAGEMENT DISCUSSION OF FUND PERFORMANCE
LARGE COMPANY GROWTH FUND
DECEMBER 31, 1997
PERFORMANCE AND STRATEGY
The Large Company Growth Fund posted a total return of 31.93% for the fiscal
year ended December 31, 1997.
For most of the year, the market climate for large multinational companies
remained strong as interest rates and inflation continued to move lower.
Consequently, companies continued to meet or surpass revenue and earnings
expectations. At the same time, liquidity remained favorable as investors poured
billions of dollars into the U.S. equity markets shattering 1996's record
volume.
Conditions began to change in the fourth quarter when the impact of the Asian
financial crisis hit the U.S. stock market. Volatility increased dramatically
and Wall Street analysts were forced to revise their revenue and earnings
projections downward. Facing the possible deceleration of earnings and revenues
for the first time in several years, market participants began to sell quickly.
On the positive side, money gravitated toward the large-growth area of the
market as investors found comfort in the quality and predictability that these
companies offer. In the end, large-growth stocks performed very well for an
unprecedented third-consecutive year.
The year's events did not affect our overall strategy--to find attractive
companies in attractive industries. Of course, there are several factors that
make a company attractive including market growth, the positioning of that
company within its industry, product cycle, revenue/earnings prospects and, the
most important factor, management's ability to execute its business plan. The
only long-term sustainable competitive advantage of any company is its senior
managers' ability to visualize and execute. Our task, therefore, is to
constantly search for the best management teams.
HYPOTHETICAL $10,000 INVESTMENT
<TABLE>
<CAPTION>
8/1/94* 12/31/94 12/31/95 12/31/96 12/31/97
------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Large Co. 10,000 10,052 12,478 14,558 19,207
S&P 500 10,000 10,154 13,965 17,170 22,896
S&P/BARRA 500 Growth 10,000 10,454 14,421 17,878 24,409
</TABLE>
* Initial public offering commenced August 1, 1994.
Growth Opportunities Fund
Average Annual Total Return
<TABLE>
<CAPTION>
One Year Since Inception
-------- ---------------
<S> <C>
31.93% 21.03%
</TABLE>
Past performance is not predictive of future performance.
THE ONE(R) GROUP(SM) INVESTMENT TRUST ANNUAL REPORT
B-44
<PAGE> 72
THE ONE(R) GROUP(SM) INVESTMENT TRUST
MANAGEMENT DISCUSSION OF FUND PERFORMANCE
LARGE COMPANY GROWTH FUND -- (CONTINUED)
DECEMBER 31, 1997
NOTABLE STOCK HOLDINGS
Throughout the year the Fund was heavily invested in the pharmaceutical,
consumer non-durables and technology sectors. These sectors continued to show
consistency and predictability in earnings growth.
We made some slight sector shifts in the second half of the year by increasing
the Fund's technology and financial weightings and reducing its weightings
toward consumer cyclicals and process industries. We believe the technology
sector offers the highest underlying pure growth opportunities and the financial
sector offers strong fundamentals while continuing to serve as the backbone of
this market run. We reduced exposure to cyclicals because the sector's
fundamentals and pricing power appear to be deteriorating.
Over the past 12 months, a number of the Fund's stock holdings provided
exceptional performance but the most noteworthy came from Dell Computer, which
increased more than 300% for the year. With a superb management team at its
helm, the company continues to execute a solid business model and surpass
investor expectations.
OUTLOOK
We believe much of the "bad news" associated with the Asian market severe
downturns has been already priced into the U.S. stock market. We therefore think
the market should stabilize and head upward again. Nevertheless, investors will
not be comfortable until they obtain more concrete facts on the Asian situation
and how it will affect company prospects.
Consequently, we do not expect to make any major strategic or tactical changes
to the Fund until the market stabilizes. At that time, we expect to strengthen
the Fund's commitment to the technology sector.
/s/ ASHI PARIKH
- ---------------
Ashi Parikh
Fund Manager
Please refer to the prospectus and the accompanying financial statements for
further information about your Fund.
THE ONE(R) GROUP(SM) INVESTMENT TRUST ANNUAL REPORT
B-45
<PAGE> 73
THE ONE(R) GROUP(SM) INVESTMENT TRUST
GOVERNMENT BOND FUND
STATEMENT OF INVESTMENTS -- DECEMBER 31, 1997
<TABLE>
<CAPTION>
- ----------------------------------------------------------
PRINCIPAL SECURITY VALUE
- ----------------------------------------------------------
<C> <S> <C>
U.S. GOVERNMENT AND AGENCY OBLIGATIONS
(43.1%)
$1,000,000 Resolution Funding Corp.,
Principal STRIP, 10/15/00 $ 853,249
1,000,000 Resolution Funding Corp.,
Principal STRIP, 10/15/16 316,099
1,000,000 Resolution Funding Corp.,
Principal STRIP, 10/15/17 297,099
2,000,000 Resolution Funding Corp.,
Principal STRIP, 01/15/20 515,318
2,000,000 Resolution Funding Corp.,
Principal STRIP, 07/15/20 499,696
900,000 U.S. Treasury Notes, 7.50%,
11/15/01 954,563
1,250,000 U.S. Treasury Notes, 5.625%,
12/31/02 1,245,313
750,000 U.S. Treasury Notes, 6.50%,
08/15/05 782,578
550,000 U.S. Treasury Notes, 6.875%,
05/15/06 588,671
1,000,000 U.S. Treasury Bond, 6.25%,
08/15/23 1,030,625
1,500,000 FHLB, 6.145%, 09/30/02 1,512,995
1,000,000 FNMA Medium Term Note, 6.54%,
09/10/07 1,033,453
-----------
TOTAL U.S. GOVERNMENT AND AGENCY
OBLIGATIONS 9,629,659
(cost $9,300,334) -----------
MORTGAGE-BACKED SECURITIES (55.8%)
211,101 FGLMC 5Y, 6.50%,
Pool #G50324, 01/01/01 211,540
271,387 FGLMC 15Y, 6.50%,
Pool #E62574, 01/01/11 271,954
843,292 FGLMC 15Y, 7.00%,
Pool #E63959, 02/01/11 856,632
994,559 FGLMC 30Y, 6.00%,
Pool #D70244, 04/01/26 962,244
918,997 FGLMC 30Y, 6.50%,
Pool #D65545, 11/01/25 909,990
277,529 FGLMC 15Y, 8.50%,
Pool #E20150, 12/01/09 289,643
898,970 FGLMC 30Y, 8.00%,
Pool #D55955, 09/01/24 931,026
</TABLE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------
PRINCIPAL SECURITY VALUE
- ----------------------------------------------------------
<C> <S> <C>
MORTGAGE-BACKED SECURITIES
(CONTINUED)
$ 425,387 FNMA 7Y, 7.00%,
Pool #359952, 09/01/03 $ 431,491
539,897 FNMA 15Y, 7.50%,
Pool #279759, 08/01/09 554,106
242,190 FNMA 15Y, 6.50%,
Pool #356206, 11/01/11 242,495
441,802 FNMA 30Y, 6.50%,
Pool #250375, 09/01/25 436,831
976,986 FNMA 30Y, 6.50%,
Pool #338417, 05/01/26 964,822
946,067 FNMA 30Y, 6.50%,
Pool #341811, 05/01/26 934,287
938,423 FNMA GOLD 30Y, 7.00%,
Pool #1936, 07/17/05 956,704
559,170 GNSF 30Y, 7.50%,
Pool #326977, 05/15/23 574,714
436,506 GNSF 30Y, 9.00%,
Pool #780029, 11/15/24 469,790
119,743 GNSF 30Y, 7.00%,
Pool #405535, 12/15/25 120,752
872,489 GNSF 30Y, 7.00%,
Pool #404252, 12/15/25 879,843
478,291 GNSF 30Y, 7.50%,
Pool #2341, 12/20/26 487,885
980,258 GNMA, 6.00%,
Pool #90094, 07/20/27 988,040
-----------
TOTAL MORTGAGE-BACKED SECURITIES 12,474,789
(cost $12,236,613) -----------
SUBTOTAL INVESTMENTS 22,104,448
-----------
(cost $21,536,947)
REPURCHASE AGREEMENT (.5%)
105,000 Prudential Securities, Inc.,
6.80%, dated 12/31/97, due
01/02/98, Collateralized by
$152,448 FHARM, 6.19%, due
10/01/24, market value $108,150
(cost $105,000) 105,000
-----------
TOTAL INVESTMENTS $22,209,448
(cost $21,641,947) ===========
</TABLE>
- --------------------------------------------------------------------------------
Cost also represents cost for federal income tax purposes.
The abbreviations in the above statement stand for the following:
FGLMC Federal Home Loan Mortgage Corporation Gold
FNMA Federal National Mortgage Association
GNMA Government National Mortgage Association
GNSF Ginnie Mae Single Family
FHLB Federal Home Loan Bank
FHARM Federal Home Loan Adjustable Rate Mortgage
STRIP Separate Trading of Registered Interest and Principal Securities
Portfolio holding percentages represent market value as a percentage of net
assets.
See accompanying notes to financial statements.
THE ONE(R) GROUP(SM) INVESTMENT TRUST ANNUAL REPORT
B-46
<PAGE> 74
THE ONE(R) GROUP(SM) INVESTMENT TRUST
ASSET ALLOCATION FUND
STATEMENT OF INVESTMENTS -- DECEMBER 31, 1997
<TABLE>
<CAPTION>
- ---------------------------------------------------------
SHARES SECURITY VALUE
- ---------------------------------------------------------
<C> <S> <C>
COMMON STOCK (47.7%)
AEROSPACE/DEFENSE (0.3%)
2,200 Boeing Company (The) $ 107,663
-----------
BROADCASTING (0.2%)
3,381 Tele-Communications, Inc.
Class A 94,457
-----------
BUSINESS EQUIPMENT/SERVICES (0.4%)
1,300 Jacobs Energy Group, Inc.* 32,988
3,700 Service Corp International 136,669
-----------
169,657
-----------
CONSUMER DURABLE (0.9%)
3,700 Autozone, Inc.* 107,300
4,500 Chrysler Corp. 158,344
2,100 Lear Corp.* 99,750
-----------
365,394
-----------
CAPITAL GOODS (3.4%)
2,100 Cooper Industries, Inc. 102,900
2,700 Emerson Electric Co. 152,381
7,200 General Electric Co. 528,300
1,900 Harsco Corp. 81,938
1,200 Hubbell Inc. Class B 59,175
2,300 Mark IV Inds., Inc. 50,313
1,100 Precision Castparts Corp. 66,344
3,600 Teleflex, Inc. 135,900
4,800 Tyco International Ltd. 216,300
-----------
1,393,551
-----------
CONSUMER NON-DURABLE (4.9%)
5,500 Archer-Daniels-Midland Co. 119,281
4,000 Coca Cola Co. 266,500
3,700 ConAgra, Inc. 121,406
3,600 Intimate Brands, Inc. 86,625
2,800 McCormick & Co., Inc. 78,400
3,500 Newell Co. 148,750
2,300 Olin Corp. 107,813
6,600 PepsiCo, Inc. 240,488
8,700 Philip Morris Companies, Inc. 394,219
1,400 Procter & Gamble Co. 111,738
2,500 Quaker Oats Co. 131,875
2,100 Revlon, Inc. Class A* 74,156
4,000 RJR Nabisco Holding Corp. 150,000
-----------
2,031,251
-----------
CONSUMER SERVICES (2.2%)
1,900 Belo, (AH) Corp. Series A 106,638
1,200 Walt Disney Co. 118,875
1,200 Estee Lauder Cos. 61,725
</TABLE>
<TABLE>
<CAPTION>
- ---------------------------------------------------------
SHARES SECURITY VALUE
- ---------------------------------------------------------
<C> <S> <C>
CONSUMER SERVICES (CONTINUED)
3,450 Hasbro, Inc. $ 108,675
4,200 Hilton Hotels Corp. 124,950
1,900 MGM Grand, Inc.* 68,519
2,800 Time Warner, Inc. 173,600
580 Tricon Global Restaurants, Inc. 16,856
2,900 Viacom, Inc. Class B 120,169
-----------
900,007
-----------
ENERGY (4.0%)
1,800 Ashland, Inc. 96,638
2,400 Atlantic Richfield Co. 192,300
1,600 Devon Energy Corp. 61,600
1,500 Dresser Industries, Inc. 62,906
7,100 Exxon Corporation 434,431
3,000 Mobil Corp. 216,563
4,600 Royal Dutch Petroleum Co. 249,263
3,700 Tosco Corp. 139,906
3,800 USX -- Marathon Group 128,250
2,000 Weatherford Enterra, Inc.* 87,500
-----------
1,669,357
-----------
FINANCIAL SERVICES (8.5%)
1,000 Allstate Corp. 90,875
1,100 American Express Co. 98,175
1,700 American International Group, 184,875
Inc.
1,800 Charter One Financial, Inc. 113,625
1,800 Chase Manhattan Corp. 197,100
700 CIGNA Corp. 121,144
2,100 Equitable Companies, Inc. 104,475
4,100 Fannie Mae 233,956
1,300 First of America Bank Corp. 100,263
4,300 First Union Corp. 220,375
2,900 Fleet Financial Group, Inc. 217,319
1,600 Hartford Financial Services 149,700
Group
2,600 Morgan Stanley Dean Witter, 153,725
Discover & Co.*
3,900 Nationsbank Corp. 237,169
3,000 PNC Bank Corp. 171,188
1,800 Provident Companies, Inc. 69,525
2,600 Regions Financial Corp. 109,687
2,600 SouthTrust Corp. 164,937
1,900 State Street Corp. 110,556
1,200 Transamerica Corp. 127,800
4,400 Travelers Group, Inc. 237,050
1,400 Washington Mutual, Inc. 89,338
600 Wells Fargo & Co. 203,662
-----------
3,506,519
-----------
</TABLE>
THE ONE(R) GROUP(SM) INVESTMENT TRUST ANNUAL REPORT
B-47
<PAGE> 75
THE ONE(R) GROUP(SM) INVESTMENT TRUST
ASSET ALLOCATION FUND
STATEMENT OF INVESTMENTS -- DECEMBER 31, 1997 (CONTINUED)
<TABLE>
<CAPTION>
- ---------------------------------------------------------
SHARES SECURITY VALUE
- ---------------------------------------------------------
<C> <S> <C>
HEALTHCARE (5.3%)
3,300 Abbott Laboratories $ 216,356
2,400 American Home Products Corp. 183,600
1,800 Amgen, Inc. 97,425
2,300 Baxter International, Inc. 116,006
3,500 Bristol-Meyers Squibb Co. 331,188
1,150 Cardinal Health, Inc. 86,394
2,000 Guidant Corp. 124,500
2,900 HealthSouth Corp.* 80,475
1,300 Johnson & Johnson Co. 85,638
4,100 Lilly Eli & Co. 285,462
2,500 Medpartners-Mulikin* 55,938
1,800 Merck & Co., Inc. 191,250
1,200 Pfizer, Inc. 89,475
2,800 Tenet Healthcare Corp.* 92,750
1,300 Warner-Lambert Co. 161,200
-----------
2,197,657
-----------
RAW MATERIALS (1.8%)
1,800 Betzdearborn, Inc. 109,913
2,700 Crompton & Knowles Corp. 71,550
2,700 Du Pont (E.I.) De Nemours & Co. 162,159
3,250 Ferro Corp. 79,016
3,700 Morton International, Inc. 127,188
2,400 Nalco Chemical Co. 94,950
2,700 Praxair, Inc. 121,500
-----------
766,276
-----------
RETAIL (3.2%)
4,000 Cendant Corp.* 137,500
4,800 CompUSA, Inc.* 148,800
2,600 Dayton Hudson Corp. 175,500
3,000 Gymboree Corp.* 82,125
5,100 Just For Feet, Inc.* 66,938
4,300 Kroger Co.* 158,831
6,600 Officemax, Inc.* 94,050
1,800 Outback Steakhouse, Inc.* 51,750
3,500 Toys 'R' Us, Inc.* 110,031
7,400 Wal-Mart Stores, Inc. 291,837
-----------
1,317,362
-----------
SHELTER (1.2%)
4,600 Kaufman & Broad Home Corp. 103,213
2,900 Kimberly Clark Corp. 143,006
2,000 Leggett & Platt, Inc. 83,750
1,800 Masco Corp. 91,575
2,200 Pentair, Inc.* 79,063
-----------
500,607
-----------
</TABLE>
<TABLE>
<CAPTION>
- ---------------------------------------------------------
SHARES SECURITY VALUE
- ---------------------------------------------------------
<C> <S> <C>
TECHNOLOGY (6.5%)
1,100 Altera Corp.* $ 36,437
3,300 Analog Devices, Inc.* 91,369
1,900 BMC Software, Inc.* 124,688
3,900 Cadence Design Systems, Inc.* 95,550
4,150 Cisco Systems, Inc.* 231,363
3,750 Compaq Computer Corp.* 211,641
2,700 Dell Computer Corp.* 226,800
900 General Motors Corp. Class H 33,244
2,200 Hewlett-Packard Co.* 137,500
5,100 Intel Corp. 358,275
3,300 International Business Machines 345,056
Co
1,200 Lockheed Martin Corp. 118,200
3,700 Microsoft Corp.* 478,225
2,900 Orbital Sciences Corp.* 86,275
506 Raytheon Co. Class A 24,960
3,200 Teradyne, Inc.* 102,400
-----------
2,701,983
-----------
UTILITIES (4.9%)
2,700 AES Corp.* 125,887
1,900 Century Telephone Enterprises, 94,644
Inc
2,100 FPL Group, Inc. 124,294
3,600 GPU, Inc. 151,650
4,400 GTE Corp. 229,900
4,900 LCI International, Inc.* 150,675
1,580 Lucent Technologies, Inc. 126,203
1,900 MCN Corp. 76,713
1,100 National Fuel Gas Co. 53,556
3,900 New York St. Electric & Gas 138,450
Corp.
3,700 SBC Communications, Inc. 271,025
3,600 Sprint Corp. 211,050
3,000 Texas Utilities Co. 124,688
4,900 WorldCom, Inc.* 148,225
-----------
2,026,960
-----------
TOTAL COMMON STOCK 19,748,701
(cost $17,716,788) -----------
<CAPTION>
- ----------
PRINCIPAL
- ----------
<C> <S> <C>
CORPORATE BONDS (9.2%)
BANKS (3.1%)
$ 250,000 Banco Central Hispano
7.50%, 06/15/05 262,449
250,000 BankAmerica Corp.
8.125%, 02/01/02 266,211
250,000 Huntington National Bank
6.75%, 06/15/03 254,419
</TABLE>
THE ONE(R) GROUP(SM) INVESTMENT TRUST ANNUAL REPORT
B-48
<PAGE> 76
THE ONE(R) GROUP(SM) INVESTMENT TRUST
ASSET ALLOCATION FUND
STATEMENT OF INVESTMENTS -- DECEMBER 31, 1997 (CONTINUED)
<TABLE>
<CAPTION>
- ---------------------------------------------------------
PRINCIPAL SECURITY VALUE
- ---------------------------------------------------------
<C> <S> <C>
BANKS (CONTINUED)
250,000 Midland Bank PLC
6.95%, 03/15/11 $ 254,375
230,000 Society National Bank
6.75%, 06/15/03 234,806
-----------
1,272,260
-----------
BROKER DEALERS (1.0%)
$ 200,000 Lehman Brothers Holdings, Inc.,
8.875%, 11/01/98 204,230
200,000 Morgan Stanley Group,
6.50%, 03/30/01 201,772
-----------
406,002
-----------
DIVERSIFIED FINANCE (2.8%)
100,000 Associates Corp. of North
America,
6.125%, 02/01/98 100,009
250,000 Chrysler Financial Corp.,
5.875%, 02/07/01 248,586
200,000 Ford Capital,
9.375%, 05/15/01 218,838
250,000 GMAC Medium Term Note,
8.25%, 02/24/04 273,334
333,000 McDonnel Douglas Finance,
6.45%, 12/05/02 336,622
-----------
1,177,389
-----------
RETAIL (0.6%)
250,000 Sears Roebuck Acceptance Corp.,
7.13%, 05/02/03 259,035
-----------
TELECOMMUNICATIONS (1.1%)
250,000 AT&T Corp.,
7.50%, 06/01/06 268,141
200,000 Ohio Bell Telephone Co.,
5.75%, 05/01/00 199,375
-----------
467,516
-----------
TRANSPORTATION (0.6%)
250,000 Hunt, J.B., Transport,
6.25%, 09/01/03 246,803
-----------
TOTAL CORPORATE BONDS 3,829,005
(cost $3,736,848) -----------
ASSET-BACKED SECURITIES (0.8%)
74,569 Advanta Mortgage Loan Trust,
94-3A2, 7.60%, 07/25/10 74,790
250,000 Circuit City 1995 1-A,
6.375%, 08/15/05 252,422
-----------
TOTAL ASSET-BACKED SECURITIES 327,212
(cost $325,634) -----------
</TABLE>
<TABLE>
<CAPTION>
- ---------------------------------------------------------
PRINCIPAL SECURITY VALUE
- ---------------------------------------------------------
<C> <S> <C>
MORTGAGE-BACKED
SECURITIES (9.8%)
465,279 FNMA 7 Year Balloon Pool,
#250357, 6.50%, 09/01/02 $ 467,028
106,871 FNMA Pool #270725,
7.00%, 08/01/25 107,861
499,197 FNMA Pool #402032,
7.50%, 10/01/27 510,803
$1,000,001 FGLMC 30Y Pool #C00476,
8.00%, 09/01/26 1,035,140
489,616 FGLMC 30Y Pool #D81027,
7.50%, 07/01/27 501,459
499,269 FGLMC Pool #D83256,
7.00%, 10/01/27 503,802
191,778 GNMA 15Y Pool #412559,
7.00%, 02/15/11 195,473
232,181 GNMA 30Y Pool #398663,
7.50%, 5/15/26 237,983
477,503 GNMA 30Y Pool #2360,
7.50%, 01/20/27 486,966
-----------
TOTAL MORTGAGE-BACKED
SECURITIES 4,046,515
(cost $3,997,947) -----------
U.S. GOVERNMENT
OBLIGATIONS (21.2%)
70,000 U.S. Treasury Bills,
5.10%, 02/26/98 69,527
40,000 U.S. Treasury Bills,
5.06%, 03/12/98 39,608
1,500,000 U.S. Treasury Note,
5.25%, 01/31/01 1,481,718
3,200,000 U.S. Treasury Note,
6.50%, 08/31/01 3,278,998
2,275,000 U.S.Treasury Note,
7.25%, 05/15/04 2,455,578
1,175,000 U.S. Treasury Bond,
7.875%, 02/15/21 1,442,679
-----------
TOTAL U.S. GOVERNMENT
OBLIGATIONS 8,768,108
(cost $8,535,532) -----------
SHORT TERM DEBT (5.6%)
2,348,000 Merrill Lynch & Company,
5.73%, 03/19/98 2,319,690
(cost $2,319,517) -----------
SUBTOTAL INVESTMENTS 39,039,231
(cost $36,632,266) -----------
</TABLE>
THE ONE(R) GROUP(SM) INVESTMENT TRUST ANNUAL REPORT
B-49
<PAGE> 77
THE ONE(R) GROUP(SM) INVESTMENT TRUST
ASSET ALLOCATION FUND
STATEMENT OF INVESTMENTS -- DECEMBER 31, 1997 (CONTINUED)
<TABLE>
<CAPTION>
- ---------------------------------------------------------
PRINCIPAL SECURITY VALUE
- ---------------------------------------------------------
<C> <S> <C>
REPURCHASE
AGREEMENT (5.2%)
2,169,000 Prudential Securities, Inc.,**
6.80%, dated 12/31/97, due
01/02/98, Collateralized by
$3,149,138 FHARM 6.207%, due
10/01/24, market value
$2,234,070 (cost $2,169,000) $ 2,169,000
-----------
TOTAL INVESTMENTS $41,208,231
(cost $38,801,266) ===========
</TABLE>
- --------------------------------------------------------------------------------
Cost for federal income tax purposes: $38,842,526
* Denotes a non-income producing security
** Security is segregated as collateral on futures contracts
The abbreviations in the above statement stand for the following:
<TABLE>
<S> <C>
FNMA Federal National Mortgage Association
GNMA Government National Mortgage Association
FGLMC Federal Home Loan Mortgage Corporation Gold
FHARM Federal Home Adjustable Rate Mortgage
PLC Public Limited Company
</TABLE>
Portfolio holding percentages represent market value as percentage of net
assets.
See accompanying notes to financial statements.
At December 31, 1997, the Fund's open futures contracts were as follows:
<TABLE>
<CAPTION>
MARKET VALUE UNREALIZED
NUMBER OF COVERED BY APPRECIATION
CONTRACTS CONTRACT TYPE EXPIRATION CONTRACTS AT 12/31/97
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
10 Long -- Standard March 1998 $2,447,750 $15,400
& Poor's 500
</TABLE>
THE ONE(R) GROUP(SM) INVESTMENT TRUST ANNUAL REPORT
B-50
<PAGE> 78
THE ONE(R) GROUP(SM) INVESTMENT TRUST
GROWTH OPPORTUNITIES FUND
STATEMENT OF INVESTMENTS -- DECEMBER 31, 1997
<TABLE>
<CAPTION>
- ------------------------------------------------------
SHARES SECURITY VALUE
- ------------------------------------------------------
<C> <S> <C>
COMMON STOCK (93.9%)
BUSINESS EQUIPMENT/SERVICES
(13.2%)
10,600 America Online, Inc.* $ 945,388
10,600 Cintas Corp. 413,400
3,900 Corrections Corporation of
America* 144,544
6,300 Fiserv, Inc.* 309,488
4,400 GTech Holdings Corp.* 140,525
400 J.D. Edwards & Co.* 11,800
9,700 Manpower, Inc. 341,925
6,000 Miller Herman, Inc. 327,375
17,800 Omnicom Group 754,275
13,300 Paychex, Inc. 673,313
3,400 Pittston Services Group* 136,850
13,400 Reynolds & Reynolds Co. 247,063
11,900 Staples, Inc.* 330,225
8,566 Sterling Commerce, Inc.* 329,255
1,200 Stewart Enterprises, Inc. 55,950
15,700 Sungard Data Systems, Inc.* 486,700
20,200 U.S.A. Waste Services, Inc.* 792,850
3,900 Viad Corp. 75,318
5,100 Wallace Computer Services, Inc. 198,262
-----------
6,714,506
-----------
CAPITAL GOODS (3.1%)
50 Crane Co. 2,170
6,475 Diebold, Inc. 327,796
5,400 Fastenal Co. 206,550
4,200 Federal Signal Corp. 90,825
5,800 Hubbell Inc. Class B 286,012
3,600 Precision Castparts Corp. 217,125
8,000 Sundstrand Corp. 403,000
700 U.S. Filter Corp.* 20,956
-----------
1,554,434
-----------
CONSUMER DURABLE (1.9%)
5,000 Danaher Corp. 315,625
3,600 Federal-Mogul Corp. 145,800
17,800 Harley-Davidson, Inc. 487,275
-----------
948,700
-----------
</TABLE>
<TABLE>
<CAPTION>
- ------------------------------------------------------
SHARES SECURITY VALUE
- ------------------------------------------------------
<C> <S> <C>
CONSUMER NON DURABLE (8.7%)
4,100 Berwinger Wine Estates
Holdings, Inc.* $ 155,800
42,100 Coca-Cola Enterprises, Inc. 1,497,182
8,400 Dial Corp. (The) 174,825
5,900 Dole Food Company, Inc. 269,925
12,600 Flowers Industries, Inc. 259,088
7,300 General Nutrition Co. 248,200
31,300 Interstate Bakeries Corp. 1,169,837
6,200 Jones Apparel Group, Inc.* 266,600
2,500 Lancaster Colony Corp. 140,937
5,900 Unifi, Inc. 240,056
-----------
4,422,450
-----------
CONSUMER SERVICES (1.4%)
7,400 Callaway Golf Co. 211,362
13,800 International Game Technology 348,450
3,000 Promus Hotel Corp.* 125,813
-----------
685,625
-----------
ENERGY (7.4%)
300 Camco International, Inc. 19,106
14,800 Ensco International, Inc. 495,800
1,400 Forcenergy, Inc. 36,662
19,600 Global Marine, Inc.* 480,200
2,200 Houston Exploration Co.* 40,425
22,400 Intelect Communications, Inc.* 114,800
14,300 Nabors Industries, Inc.* 449,556
7,000 Noble Affiliates, Inc. 246,750
13,300 Noble Drilling Corp.* 407,313
5,600 Smith International, Inc.* 343,700
5,700 Tidewater, Inc. 314,213
17,200 Tosco Corp. 650,375
7,200 Varco International, Inc.* 154,350
-----------
3,753,250
-----------
FINANCIAL SERVICES (11.6%)
15,900 AFLAC, Inc. 812,887
9,200 Capital One Financial Corp. 498,525
5,025 Charter One Financial, Inc. 317,204
2,500 ESG Re Limited* 58,750
3,100 First of America Bank Corp. 239,088
4,200 First Security Corp. 175,875
2,100 Firstar Corp. 89,118
16,200 Franklin Resources, Inc. 1,408,387
16,100 Northern Trust Corp. 1,122,975
3,900 Old Republic International
Corp. 145,032
6,000 Price, T Rowe Associates, Inc. 377,250
7,450 Robert Half International,
Inc.* 298,000
3,600 TCF Financial Corp. 122,175
3,200 Wilmington Trust Corp. 199,600
-----------
5,864,866
-----------
</TABLE>
THE ONE(R) GROUP(SM) INVESTMENT TRUST ANNUAL REPORT
B-51
<PAGE> 79
THE ONE(R) GROUP(SM) INVESTMENT TRUST
GROWTH OPPORTUNITIES FUND
STATEMENT OF INVESTMENTS -- DECEMBER 31, 1997 (CONTINUED)
<TABLE>
<CAPTION>
- ------------------------------------------------------
SHARES SECURITY VALUE
- ------------------------------------------------------
<C> <S> <C>
HEALTHCARE (8.6%)
8,500 Biogen, Inc.* $ 309,187
9,500 Centocor, Inc.* 315,875
19,500 Chiron Corp* 331,500
7,300 Dentsply International, Inc. 222,650
8,900 Foundation Health Systems, Inc. 199,137
5,500 Health Care & Retirement Corp.* 221,375
18,400 Health Management Associates,
Inc.* 464,600
4,150 Healthcare Compare Corp.* 212,169
6,500 Hillenbrand Industries, Inc. 332,719
10,100 Omnicare, Inc. 313,100
9,200 Oxford Health Plans, Inc.* 143,175
5,900 Quorum Health Group, Inc.* 154,138
2,500 R. P. Scherer Corp.* 152,500
11,500 Stryker Corp.* 428,375
2,900 Sybron International Corp.* 136,118
6,200 Vencor, Inc.* 151,513
8,800 Watson Pharmaceuticals Inc.* 285,450
-----------
4,373,581
-----------
RAW MATERIALS (3.4%)
9,000 Airgas, Inc.* 126,000
3,200 Betzdearborn, Inc. 195,400
4,800 Crompton & Knowles Corp. 127,200
3,600 Cytec Industries, Inc.* 168,975
12,800 IMC Global Inc. 419,200
4,900 Ispat International* 105,963
7,900 Lyondell Petrochemical Co. 209,350
6,250 RPM, Inc. 95,312
5,900 Solutia, Inc. 157,456
3,600 Witco Corp. 146,925
-----------
1,751,781
-----------
RETAIL (10.5%)
3,600 Barnes & Noble, Inc.* 120,150
5,500 Bed, Bath and Beyond, Inc.* 211,750
6,000 Claire's Stores, Inc. 116,625
11,500 CompUSA, Inc.* 356,500
10,231 Consolidated Stores Corp.* 449,524
15,288 Dollar General Corp. 554,190
18,050 Family Dollar Stores 529,090
79,500 Just For Feet, Inc.* 1,043,437
9,600 Kohls Corp.* 654,000
3,700 Lands End, Inc.* 129,732
5,500 Mac Frugals Bargains
Close-Outs, Inc.* 226,188
1,800 Outback Steakhouse, Inc.* 51,750
18,600 Starbucks Corp.* 713,775
4,500 Tiffany & Co. 162,282
-----------
5,318,993
-----------
</TABLE>
<TABLE>
<CAPTION>
- ------------------------------------------------------
SHARES SECURITY VALUE
- ------------------------------------------------------
<C> <S> <C>
SHELTER (2.1%)
3,400 Hon Industries, Inc. $ 200,600
10,700 Leggett & Platt, Inc. 448,063
5,000 Sealed Air Corp.* 308,750
7,400 Sunstone Hotel Investors, Inc. 127,650
-----------
1,085,063
-----------
TECHNOLOGY (17.8%)
15,400 ADC Telecommunications, Inc.* 642,950
9,100 Altera Corp.* 301,437
10,600 American Power Conversion
Corp.* 250,425
19,233 Analog Devices, Inc.* 532,513
14,000 Atmel Corp.* 259,875
12,200 BMC Software, Inc.* 800,625
24,300 Cadence Design Systems, Inc.* 595,350
27,600 Compuware Corp.* 883,200
14,800 Dell Computer Corp.* 1,243,200
3,100 Electronic Arts, Inc.* 117,218
600 Excel Switching Corp.* 10,725
6,400 Lexmark International Group,
Inc.* 243,200
7,900 Linear Technology Corp. 455,238
13,600 Maxim Integrated Products* 469,200
5,000 Networks Associates, Inc.* 264,375
6,600 Quantum Corp.* 132,413
5,800 SCI Systems, Inc.* 252,663
11,300 Solectron Corp.* 469,656
3,900 Structural Dynamics Research
Corp.* 87,750
1,400 Symbol Technologies, Inc. 52,850
5,000 Synopsys, Inc.* 178,750
11,800 Teradyne, Inc.* 377,600
2,700 Varian Associates, Inc. 136,519
7,100 Xilinx, Inc.* 248,944
-----------
9,006,676
-----------
TRANSPORTATION (0.5%)
7,300 Illinios Central Corp. Series A 248,656
-----------
UTILITIES (3.7%)
11,600 360(degree)Communications Co.* 234,175
19,700 AES Corp.* 918,513
1,100 CalEnergy Company, Inc.* 31,625
10,100 LCI International, Inc.* 310,575
7,200 Seagull Energy Corp.* 148,500
4,500 Southern New England
Telecommunications Corp. 226,406
-----------
1,869,794
-----------
TOTAL COMMON STOCK 47,598,375
(cost $43,616,821) -----------
</TABLE>
THE ONE(R) GROUP(SM) INVESTMENT TRUST ANNUAL REPORT
B-52
<PAGE> 80
THE ONE(R) GROUP(SM) INVESTMENT TRUST
GROWTH OPPORTUNITIES FUND
STATEMENT OF INVESTMENTS -- DECEMBER 31, 1997 (CONTINUED)
<TABLE>
<CAPTION>
- -------------------------------------------------------
PRINCIPAL SECURITY VALUE
- -------------------------------------------------------
<C> <S> <C>
REPURCHASE AGREEMENTS (5.6%)
$ 2,849,000 Prudential Securities
6.80%, dated 12/31/97, due
01/02/98, Collateralized by
$2,893,000 U.S. Treasury
Bill, 5.12%, due 06/25/98,
market value $2,906,435
(cost $2,849,000) $ 2,849,000
-----------
TOTAL INVESTMENTS $50,447,375
(cost $46,465,821) ===========
</TABLE>
- --------------------------------------------------------------------------------
* Denotes a non-income producing security.
Cost for federal income tax purposes: $46,792,528.
Portfolio holding percentages represent market value as a percentage of net
assets.
See accompanying notes to financial statements.
THE ONE(R) GROUP(SM) INVESTMENT TRUST ANNUAL REPORT
B-53
<PAGE> 81
THE ONE(R) GROUP(SM) INVESTMENT TRUST
LARGE COMPANY GROWTH FUND
STATEMENT OF INVESTMENTS -- DECEMBER 31, 1997
<TABLE>
<CAPTION>
- ---------------------------------------------------------
SHARES SECURITY VALUE
- ---------------------------------------------------------
<C> <S> <C>
COMMON STOCK (84.6%)
AEROSPACE/DEFENSE (0.4%)
5,500 United Technologies Corp. $ 400,469
-----------
BANKS (0.4%)
8,250 MBNA Corp. 225,328
3,800 State Street Corp. 221,113
-----------
446,441
-----------
BROADCASTING (1.0%)
36,200 Tele-Communications, Inc.
Class A* 1,011,338
-----------
BUSINESS EQUIPMENT/SERVICES
(0.3%)
1,900 Computer Science Corp.* 158,650
2,300 Interpublic Group Companies,
Inc. 114,569
-----------
273,219
-----------
CABLE (0.1%)
3,800 Comcast Corp. Class A 119,937
-----------
CAPITAL GOODS (6.0%)
68,500 General Electric Co. 5,026,188
5,500 Illinois Tool Works, Inc. 330,687
15,000 Tyco International Ltd. 675,938
-----------
6,032,813
-----------
CHEMICALS (2.4%)
2,300 Air Products & Chemicals, Inc. 189,175
28,600 Du Pont (E.I.) De Nemours & Co. 1,717,787
13,300 Monsanto Co. 558,600
-----------
2,465,562
-----------
CHEMICALS -- SPECIALTY (0.1%)
2,660 Solutia, Inc. 70,989
-----------
COMMUNICATION-EQUIPMENT (0.2%)
2,700 Bay Networks, Inc.* 69,019
3,300 Tellabs, Inc.* 174,487
-----------
243,506
-----------
COMPUTER -- EQUIPMENT (0.7%)
8,200 EMC Corp.* 224,987
4,400 International Business Machines
Corp. 460,075
-----------
685,062
-----------
</TABLE>
<TABLE>
<CAPTION>
- ---------------------------------------------------------
SHARES SECURITY VALUE
- ---------------------------------------------------------
<C> <S> <C>
COMPUTER SOFTWARE/SERVICES
(0.6%)
3,000 Automatic Data Processing, Inc. $ 184,125
8,300 First Data Corp. 242,775
4,400 HBO & Co. 211,200
-----------
638,100
-----------
CONGLOMERATES (0.2%)
2,600 Honeywell, Inc. 178,100
-----------
CONSUMER NON DURABLE (6.3%)
2,600 CPC International, Inc. 280,800
51,500 Coca Cola Enterprises, Inc. 3,431,188
9,800 Colgate-Palmolive Co. 720,300
4,800 Eastman Kodak Co. 291,900
2,700 Hershey Foods Corp. 167,231
8,300 Nike, Inc. Class B 325,775
1,100 Pioneer Hi Bred International,
Inc. 117,975
5,300 Sysco Corp. 241,481
10,800 Unilever N.V. 674,325
-----------
6,250,975
-----------
CONSUMER PRODUCTS (0.2%)
4,400 Newell Co. 187,000
-----------
CONSUMER SERVICES (1.3%)
10,000 Hilton Hotels Corp. 297,500
3,400 McGraw-Hill Companies, Inc. 251,600
11,500 Time Warner, Inc. 713,000
-----------
1,262,100
-----------
DRUGS (6.9%)
12,800 American Home Products Corp. 979,200
22,000 Bristol-Meyers Squibb Co. 2,081,750
29,500 Pfizer, Inc. 2,199,594
12,800 Schering-Plough Corp. 795,200
6,600 Warner-Lambert Co. 818,400
-----------
6,874,144
-----------
ELECTRONICS (2.6%)
37,600 Intel Corp. 2,641,400
-----------
ELECTRONICS-INSTRUMENTS (0.4%)
10,500 KLA Instruments Corp.* 405,562
-----------
ENERGY (0.3%)
5,500 Halliburton Co. 285,656
-----------
FINANCIAL-BANKS (3.9%)
13,600 American Express Co. 1,213,800
16,475 American International Group, 1,791,656
Inc.
1,600 Morgan, J P & Co., Inc. 180,600
6,522 U.S. Bancorp 730,056
-----------
3,916,112
-----------
</TABLE>
THE ONE(R) GROUP(SM) INVESTMENT TRUST ANNUAL REPORT
B-54
<PAGE> 82
THE ONE(R) GROUP(SM) INVESTMENT TRUST
LARGE COMPANY GROWTH FUND
STATEMENT OF INVESTMENTS -- DECEMBER 31, 1997 (CONTINUED)
<TABLE>
<CAPTION>
- ---------------------------------------------------------
SHARES SECURITY VALUE
- ---------------------------------------------------------
<C> <S> <C>
FINANCIAL SERVICES (4.0%)
11,600 Chase Manhattan Corp. $ 1,270,200
24,000 Fannie Mae 1,369,500
11,110 First Union Corp. 569,388
2,700 Marsh & McLennan Companies,
Inc. 201,319
4,950 Schwab, Charles Corp. 207,590
3,300 SunAmerica, Inc. 141,075
4,050 Travelers Group, Inc. 218,194
-----------
3,977,266
-----------
FOOD AND BEVERAGE (6.9%)
12,200 Anheuser-Busch Companies, Inc. 536,800
9,200 Heinz (H.J.) Co. 467,475
3,800 Kellogg Co. 188,575
34,500 PepsiCo, Inc. 1,257,094
74,600 Philip Morris Companies, Inc. 3,380,312
4,200 Quaker Oats Co. 221,550
13,900 Sara Lee Corp. 782,744
-----------
6,834,550
-----------
HEALTHCARE (9.9%)
20,300 Abbott Laboratories 1,330,919
6,600 Amgen, Inc.* 357,225
5,500 Baxter International, Inc. 277,406
4,250 Cardinal Health, Inc. 319,281
2,300 Elan PLC ADR* 117,731
1,000 Guidant Corp. 62,250
8,900 HealthSouth Corp.* 246,975
26,400 Johnson & Johnson Co. 1,739,100
25,000 Lilly Eli & Co. 1,740,625
15,000 Medtronic, Inc. 784,688
27,000 Merck & Co., Inc. 2,868,750
-----------
9,844,950
-----------
HOUSEHOLD -- PRODUCTS (3.7%)
12,487 Gillette Co. 1,254,163
30,600 Procter & Gamble Co. 2,442,263
-----------
3,696,426
-----------
INSURANCE (0.1%)
1,100 St. Paul Companies, Inc. 90,269
-----------
MACHINERY AND CAPITAL GOODS
(0.8%)
12,200 Applied Materials, Inc.* 367,525
8,100 Emerson Electric Co. 457,144
-----------
824,669
-----------
MEDICAL PRODUCTS (0.2%)
3,800 Boston Scientific, Inc.* 174,325
-----------
</TABLE>
<TABLE>
<CAPTION>
- ---------------------------------------------------------
SHARES SECURITY VALUE
- ---------------------------------------------------------
<C> <S> <C>
MULTIPLE INDUSTRY (0.9%)
6,600 Allied-Signal, Inc. $ 256,988
8,100 Minnesota Mining &
Manufacturing Co. 664,706
-----------
921,694
-----------
OFFICE EQUIPMENT AND SUPPLIES
(0.3%)
4,400 Xerox Corp. 324,775
-----------
OIL AND GAS (1.2%)
10,000 Schlumberger Ltd. 805,000
5,535 Union Pacific Resources Group, 134,224
Inc.
5,800 Unocal Corp. 225,112
-----------
1,164,336
-----------
PRINTING AND PUBLISHING (0.7%)
11,200 Gannett Co., Inc. 692,300
-----------
RAW MATERIALS (0.2%)
3,600 Praxair, Inc. 162,000
-----------
RESTAURANTS (0.9%)
16,100 McDonalds Corp. 768,775
3,450 Tricon Global Restaurants,
Inc.* 100,266
-----------
869,041
-----------
RETAIL (5.1%)
15,000 Cendant Corp.* 515,625
3,300 Dayton Hudson Corp. 222,750
9,300 Gap, Inc. 329,569
17,450 Home Depot, Inc. 1,027,369
9,700 Kroger Co.* 358,294
59,000 Wal-Mart Stores, Inc. 2,326,812
10,000 Walgreen Co. 313,750
-----------
5,094,169
-----------
SHELTER (0.7%)
14,000 Kimberly Clark Corp. 690,375
-----------
TECHNOLOGY (10.3%)
800 3COM Corp.* 27,950
3,800 Cabletron System, Inc.* 57,000
27,450 Cisco Systems, Inc.* 1,530,337
15,300 Compaq Computer Corp. 863,494
11,250 Computer Associates 594,844
International, Inc.
13,000 Dell Computer Corp.* 1,092,000
31,100 Microsoft Corp.* 4,019,675
6,600 Northern Telecom Ltd. 587,400
16,625 Oracle Corp.* 370,945
2,500 Parametric Technology, Corp.* 118,437
4,100 Sun Microsystems, Inc.* 163,487
</TABLE>
THE ONE(R) GROUP(SM) INVESTMENT TRUST ANNUAL REPORT
B-55
<PAGE> 83
THE ONE(R) GROUP(SM) INVESTMENT TRUST
LARGE COMPANY GROWTH FUND
STATEMENT OF INVESTMENTS -- DECEMBER 31, 1997 (CONTINUED)
<TABLE>
<CAPTION>
- ---------------------------------------------------------
SHARES SECURITY VALUE
- ---------------------------------------------------------
<C> <S> <C>
TECHNOLOGY (CONTINUED)
18,800 Texas Instruments, Inc. $ 846,000
-----------
10,271,569
-----------
TELECOMMUNICATIONS (1.3%)
13,875 Lucent Technologies, Inc. 1,108,266
5,600 WorldCom, Inc.* 169,400
-----------
1,277,666
-----------
TOYS (0.4%)
9,700 Mattel, Inc. 361,325
-----------
UTILITIES (2.7%)
20,600 GTE Corp. 1,076,350
21,700 SBC Communications, Inc. 1,589,525
-----------
2,665,875
-----------
TOTAL COMMON STOCK 84,326,065
(cost $66,182,212) -----------
</TABLE>
<TABLE>
<CAPTION>
- ---------------------------------------------------------
PRINCIPAL SECURITY VALUE
- ---------------------------------------------------------
<C> <S> <C>
REPURCHASE AGREEMENT (15.3%)
$15,271,000 Prudential Securities, Inc.,
6.80%, dated 12/31/97, due
01/02/98, Collateralized by
$15,325,000 U.S. Treasury
Note, 5.125%, due 02/28/98,
market value $15,312,434
(cost $15,271,000) $15,271,000
-----------
TOTAL INVESTMENTS $99,597,065
(cost $81,453,212) ===========
</TABLE>
- --------------------------------------------------------------------------------
* Denotes a non-income producing security.
Cost for federal income tax purposes: $81,468,430.
The abbreviation on the above statement stands for the following:
<TABLE>
<S> <C>
ADR American Depository Receipt
PLC Public Limited Company
</TABLE>
Portfolio holding percentages represent market value as a percentage of net
assets.
See accompanying notes to financial statements.
THE ONE(R) GROUP(SM) INVESTMENT TRUST ANNUAL REPORT
B-56
<PAGE> 84
THE ONE(R) GROUP(SM) INVESTMENT TRUST
STATEMENTS OF ASSETS AND LIABILITIES
DECEMBER 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
GOVERNMENT ASSET GROWTH LARGE COMPANY
BOND ALLOCATION OPPORTUNITIES GROWTH
----------- ----------- ------------- -------------
<S> <C> <C> <C> <C>
ASSETS
Investments in securities, at value (cost
$21,536,947, $36,632,266, $43,616,821
and $66,182,212, respectively) $22,104,448 $39,039,231 $47,598,375 $84,326,065
Repurchase agreements, at value 105,000 2,169,000 2,849,000 15,271,000
----------- ----------- ----------- -----------
Total investments 22,209,448 41,208,231 50,447,375 99,597,065
Cash 361 347 246 267
Receivable for investment securities sold -- -- 279,803 --
Interest and dividends receivable 168,514 266,027 25,063 126,099
Deferred organization expenses 2,993 4,810 5,731 4,806
----------- ----------- ----------- -----------
Total assets 22,381,316 41,479,415 50,758,218 99,728,237
----------- ----------- ----------- -----------
LIABILITIES
Payable for futures variation margin -- 500 -- --
Investment advisory fee payable 8,434 16,848 30,749 68,746
Administration fee payable 4,430 8,160 10,008 19,873
Other accrued expenses 3,880 8,231 10,761 11,977
----------- ----------- ----------- -----------
Total liabilities 16,744 33,739 51,518 100,596
----------- ----------- ----------- -----------
NET ASSETS $22,364,572 $41,445,676 $50,706,700 $99,627,641
=========== =========== =========== ===========
REPRESENTED BY:
Capital $21,797,071 $38,996,348 $47,051,854 $81,499,006
Net unrealized appreciation on investments
and financial futures 567,501 2,422,365 3,981,554 18,143,853
Accumulated undistributed (distributions in
excess of) realized gain on investments
and financial futures -- 25,093 (326,708) (15,218)
Accumulated undistributed (distributions in
excess of) net investment income -- 1,870 -- --
----------- ----------- ----------- -----------
NET ASSETS $22,364,572 $41,445,676 $50,706,700 $99,627,641
=========== =========== =========== ===========
Shares of beneficial interest outstanding, no
par value (unlimited number of shares
authorized) 2,133,652 3,141,544 3,569,560 5,789,817
=========== =========== =========== ===========
NET ASSET VALUE, redemption and offering
price per share $ 10.48 $ 13.19 $ 14.21 $ 17.21
=========== =========== =========== ===========
</TABLE>
See accompanying notes to financial statements.
THE ONE(R) GROUP(SM) INVESTMENT TRUST ANNUAL REPORT
B-57
<PAGE> 85
THE ONE(R) GROUP(SM) INVESTMENT TRUST
STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
GOVERNMENT ASSET GROWTH LARGE COMPANY
BOND ALLOCATION OPPORTUNITIES GROWTH
----------- ----------- ------------- -------------
<S> <C> <C> <C> <C>
INVESTMENT INCOME:
INCOME:
Dividend income $ -- $ 188,714 $ 160,374 $ 851,454
Interest income 1,193,358 950,985 147,397 339,033
----------- ----------- ----------- -----------
Total income 1,193,358 1,139,699 307,771 1,190,487
----------- ----------- ----------- -----------
EXPENSES:
Investment advisory fees 78,818 189,332 233,609 458,066
Administration fees 42,036 64,914 86,256 169,132
Professional fees 8,460 9,272 12,009 18,235
Custodian fees 11,000 35,000 55,000 34,214
Insurance expense 6,100 3,100 2,200 8,388
Trustees' fees 1,460 2,245 2,776 6,012
Other 6,955 7,681 7,603 11,783
----------- ----------- ----------- -----------
Total expenses before waivers 154,829 311,544 399,453 705,830
Less waivers 23,466 44,906 4,114 1,114
----------- ----------- ----------- -----------
Net expenses 131,363 266,638 395,339 704,716
----------- ----------- ----------- -----------
NET INVESTMENT INCOME (LOSS) $ 1,061,995 $ 873,061 $ (87,568) $ 485,771
----------- ----------- ----------- -----------
NET REALIZED AND UNREALIZED GAIN:
Net realized gain on investments $ 45,096 $ 2,513,172 $ 4,801,260 $ 3,943,220
Net realized gain on financial futures -- 576,198 149,850 --
Net change in unrealized appreciation on
investments 596,960 1,416,110 3,493,572 13,307,669
----------- ----------- ----------- -----------
NET REALIZED AND UNREALIZED GAIN 642,056 4,505,480 8,444,682 17,250,889
----------- ----------- ----------- -----------
NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS $ 1,704,051 $ 5,378,541 $ 8,357,114 $17,736,660
=========== =========== =========== ===========
</TABLE>
See accompanying notes to financial statements.
THE ONE(R) GROUP(SM) INVESTMENT TRUST ANNUAL REPORT
B-58
<PAGE> 86
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,
1997 1996 1997 1996
--------------------------- ---------------------------
<S> <C> <C> <C> <C>
INCREASE IN NET ASSETS:
FROM OPERATIONS:
Net investment income $ 1,061,995 $ 752,961 $ 873,061 $ 328,956
Net realized gain on investments and
financial futures 45,096 3,774 3,089,370 283,448
Net change in unrealized appreciation
(depreciation) of investments 596,960 (319,475) 1,416,110 615,234
----------- ----------- ----------- -----------
Net increase in net assets from
operations 1,704,051 437,260 5,378,541 1,227,638
----------- ----------- ----------- -----------
DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income (1,061,995) (752,586) (871,191) (323,941)
In excess of net investment income (5,056) -- --
From net realized gain from investment
transactions (41,992) (3,690) (3,031,880) (283,448)
In excess of realized gain from investment
transactions -- -- -- (39,340)
Tax return of capital distribution -- -- -- (30,180)
----------- ----------- ----------- -----------
Decrease in net assets from distributions
to shareholders (1,109,043) (756,276) (3,903,071) (676,909)
----------- ----------- ----------- -----------
CAPITAL SHARE TRANSACTIONS:
Net proceeds from sale of shares 6,514,599 5,454,874 21,414,090 8,337,534
Net asset value of shares issued to
shareholders from reinvestment of
distributions 1,109,043 756,276 3,903,071 676,909
Cost of shares redeemed (475,970) (286,338) (230,267) (136,365)
----------- ----------- ----------- -----------
Increase in net assets from capital share
transactions 7,147,672 5,924,812 25,086,894 8,878,078
----------- ----------- ----------- -----------
NET INCREASE IN NET ASSETS 7,742,680 5,605,796 26,562,364 9,428,807
----------- ----------- ----------- -----------
NET ASSETS-BEGINNING OF PERIOD 14,621,892 9,016,096 14,883,312 5,454,505
----------- ----------- ----------- -----------
NET ASSETS-END OF PERIOD $22,364,572 $14,621,892 $41,445,676 $14,883,312
=========== =========== =========== ===========
Undistributed (distributions in excess of) net
realized gain on investments and financial
futures $ -- $ 84 $ 25,093 $ (32,397)
=========== =========== =========== ===========
Undistributed (distributions in excess of) net
investment income $ -- $ 375 $ 1,870 $ --
=========== =========== =========== ===========
SHARE ACTIVITY:
Shares sold 631,011 533,833 1,615,750 716,926
Reinvestment of distributions 108,358 75,094 296,400 57,290
Shares redeemed (46,749) (28,346) (18,108) (11,806)
----------- ----------- ----------- -----------
Net increase in number of shares 692,620 580,581 1,894,042 762,410
=========== =========== =========== ===========
</TABLE>
See accompanying notes to financial statements.
THE ONE(R) GROUP(SM) INVESTMENT TRUST ANNUAL REPORT
B-59
<PAGE> 87
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,
1997 1996 1997 1996
--------------------------- ---------------------------
<S> <C> <C> <C> <C>
INCREASE IN NET ASSETS:
FROM OPERATIONS:
Net investment income (loss) $ (87,568) $ 262,476 $ 485,771 $ 377,339
Net realized gain on investments and
financial futures 4,951,110 1,332,692 3,943,220 908,100
Net change in unrealized appreciation of
investments 3,493,572 352,379 13,307,669 3,402,753
----------- ----------- ----------- -----------
Net increase in net assets from
operations 8,357,114 1,947,547 17,736,660 4,688,192
----------- ----------- ----------- -----------
DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income -- (262,683) (485,771) (378,493)
In excess of net investment income -- -- (11,566) --
From net realized gain from investment
transactions (4,757,643) (1,332,692) (3,931,556) (909,099)
In excess of realized gain from investment
transactions (17,827) (400,841) (1,846) (24,531)
Tax return of capital distribution (61,358) -- (6,585) --
----------- ----------- ----------- -----------
Decrease in net assets from distributions
to shareholders (4,836,828) (1,996,216) (4,437,324) (1,312,123)
----------- ----------- ----------- -----------
CAPITAL SHARE TRANSACTIONS:
Net proceeds from sale of shares 20,249,383 13,771,622 39,242,534 22,166,931
Net asset value of shares issued to
shareholders from reinvestment of
distributions 4,836,828 1,996,216 4,437,323 1,312,123
Cost of shares redeemed (238,598) (65,570) (244,898) (80,813)
----------- ----------- ----------- -----------
Increase in net assets from capital share
transactions 24,847,613 15,702,268 43,434,959 23,398,241
----------- ----------- ----------- -----------
NET INCREASE IN NET ASSETS 28,367,899 15,653,599 56,734,295 26,774,310
NET ASSETS-BEGINNING OF PERIOD 22,338,801 6,685,202 42,893,346 16,119,036
----------- ----------- ----------- -----------
NET ASSETS-END OF PERIOD $50,706,700 $22,338,801 $99,627,641 $42,893,346
=========== =========== =========== ===========
Distributions in excess of net realized gain
on investments and financial futures $ 326,708 $ 422,570 $ 15,218 $ 24,531
=========== =========== =========== ===========
SHARE ACTIVITY:
Shares sold 1,400,572 1,104,187 2,412,572 1,716,635
Reinvestment of distributions 342,551 164,755 258,782 97,037
Shares redeemed (17,586) (5,144) (18,404) (6,234)
----------- ----------- ----------- -----------
Net increase in number of shares 1,725,537 1,263,798 2,652,950 1,807,438
=========== =========== =========== ===========
</TABLE>
See accompanying notes to financial statements.
THE ONE(R) GROUP(SM) INVESTMENT TRUST ANNUAL REPORT
B-60
<PAGE> 88
THE ONE(R) GROUP(SM) INVESTMENT TRUST
FINANCIAL HIGHLIGHTS
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
GOVERNMENT BOND
---------------------------------------------------------
YEAR ENDED YEAR ENDED YEAR ENDED AUGUST 1, -
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1997 1996 1995 1994*
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
NET ASSET VALUE --
BEGINNING OF PERIOD $ 10.15 $ 10.48 $ 9.69 $ 10.00
Net investment income 0.60 0.59 0.64 0.22
Net realized and unrealized
appreciation (depreciation) 0.35 (0.33) 0.94 (0.31)
------- ------- ------- -------
Total from investment operations 0.95 0.26 1.58 (0.09)
------- ------- ------- -------
Distributions:
From net investment income (0.60) (0.59) (0.64) (0.22)
From net realized gains from
investments (0.02) -- (0.15) --
In excess of realized gains from
investment transactions -- -- -- --
Tax return of capital -- -- -- --
------- ------- ------- -------
Total distributions (0.62) (0.59) (0.79) (0.22)
------- ------- ------- -------
Net increase (decrease) in net
asset value 0.33 (0.33) 0.79 (0.31)
------- ------- ------- -------
NET ASSET VALUE --
END OF PERIOD $ 10.48 $ 10.15 $ 10.48 $ 9.69
======= ======= ======= =======
Total return** 9.67% 2.69% 16.69% (.90%)
RATIOS AND SUPPLEMENTAL DATA:
Net assets end of period (000) $22,365 $14,622 $ 9,016 $ 5,112
Ratio of expenses to average net
assets 0.75% 0.75% 0.75% 0.75%**
Ratio of expenses to average net
assets excluding waivers/
reimbursements*** 0.88% 1.01% 1.47% 1.94%**
Ratio of net investment income to
average net assets 6.06% 6.11% 6.54% 6.09%**
Ratio of net investment income to
average net assets excluding
waivers/reimbursements*** 5.93% 5.85% 5.80% 4.90%**
Portfolio turnover** 21.3% 21.3% 34.1% 3.5%
Average commission rate paid**** -- -- -- --
<CAPTION>
ASSET ALLOCATION
---------------------------------------------------------
YEAR ENDED YEAR ENDED YEAR ENDED AUGUST 1, -
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1997 1996 1995 1994*
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
NET ASSET VALUE --
BEGINNING OF PERIOD $ 11.93 $ 11.24 $ 9.81 $ 10.00
Net investment income 0.39 0.34 0.36 0.06
Net realized and unrealized
appreciation (depreciation) 2.31 0.98 1.64 (0.19)
------- ------- ------- -------
Total from investment operation 2.70 1.32 s 2.00 (0.13)
------- ------- ------- -------
Distributions:
From net investment income (0.39) (0.34) (0.36) (0.06)
From net realized gains from
investments (1.05) (0.23) (0.21) --
In excess of realized gains fro m
investment transactions -- (0.04) -- --
Tax return of capital -- (0.02) -- --
------- ------- ------- -------
Total distributions (1.44) (0.63) (0.57) (0.06)
------- ------- ------- -------
Net increase (decrease) in ne t
asset value 1.26 0.69 1.43 (0.19)
------- ------- ------- -------
NET ASSET VALUE --
END OF PERIOD $ 13.19 $ 11.93 $ 11.24 $ 9.81
======= ======= ======= =======
Total return** 22.90% 11.92% 20.69% (1.32%)
RATIOS AND SUPPLEMENTAL DATA:
Net assets end of period (000) $41,446 $14,883 $ 5,455 $ 2,063
Ratio of expenses to average net
assets 1.00% 1.00% 1.00% 1.00%**
Ratio of expenses to average net
assets excluding waivers/
reimbursements*** 1.15% 1.44% 1.96% 2.36%**
Ratio of net investment income to
average net assets 3.24% 3.27% 3.66% 1.88%**
Ratio of net investment income to
average net assets excluding
waivers/reimbursements*** 3.07% 2.83% 2.70% 0.52%**
Portfolio turnover** 60.9% 64.8% 66.3% --
Average commission rate paid**** 4.5286c 4.4023c -- --
</TABLE>
- ------------------------------------------------------
* Initial public offering was August 1, 1994.
** Ratios are annualized for periods of less than one year. Total return and
portfolio turnover are not annualized.
*** 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
B-61
<PAGE> 89
THE ONE(R) GROUP(SM) INVESTMENT TRUST
FINANCIAL HIGHLIGHTS
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
GROWTH OPPORTUNITIES
---------------------------------------------------------
YEAR ENDED YEAR ENDED YEAR ENDED AUGUST 1, -
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1997 1996 1995 1994*
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
NET ASSET VALUE --
BEGINNING OF PERIOD $ 12.11 $ 11.52 $ 9.70 $ 10.00
------- ------- ------- -------
Net investment income (loss) (0.03) 0.18 0.04 --
Net realized and unrealized
appreciation (depreciation) 3.63 1.62 2.29 (0.30)
------- ------- ------- -------
Total from investment operations 3.60 1.80 2.33 (0.30)
------- ------- ------- -------
Distributions:
From net investment income -- (0.19) (0.04) --
From net realized gains from
investments (1.48) (0.78) (0.47) --
In excess of realized gains from
investment transactions -- (0.24) -- --
Tax return of capital (0.02) -- -- --
------- ------- ------- -------
Total distributions (1.50) (1.21) (0.51) --
------- ------- ------- -------
Net increase (decrease) in net
asset value 2.10 0.59 1.82 (0.30)
------- ------- ------- -------
NET ASSET VALUE --
END OF PERIOD $ 14.21 $ 12.11 $ 11.52 $ 9.70
======= ======= ======= =======
Total return** 29.81% 15.67% 24.06% (3.00%)
RATIOS AND SUPPLEMENTAL DATA:
Net assets, end of period (000) $50,707 $22,339 $ 6,685 $ 940
Ratio of expenses to average net
assets 1.10% 1.06% 0.90% 0.90%**
Ratio of expenses to average net
assets excluding
waivers/reimbursements*** 1.11% 1.40% 2.78% 2.96%**
Ratio of net investment income to
average net assets (.25%) 1.85% 0.46% (0.17%)**
Ratio of net investment income to
average net assets excluding
waivers/reimbursements*** (.26%) 1.51% (1.42%) (2.22%)**
Portfolio turnover** 175.6% 326.9% 193.3% 3.5%
Average commission rate paid**** 5.1070c 3.1357c -- --
<CAPTION>
LARGE COMPANY GROWTH
-------------------------------------------------------
YEAR ENDED YEAR ENDED YEAR ENDED AUGUST 1, -
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1997 1996 1995 1994*
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
NET ASSET VALUE --
BEGINNING OF PERIOD $ 13.67 $ 12.12 $ 9.99 $ 10.00
------- ------- ------- -------
Net investment income (loss) 0.10 0.16 0.20 0.05
Net realized and unrealized
appreciation (depreciation) 4.25 1.86 2.20 0.01
------- ------- ------- -------
Total from investment operations 4.35 2.02 2.40 0.06
------- ------- ------- -------
Distributions:
From net investment income (0.10) (0.16) (0.20) (0.05)
From net realized gains from
investments (0.71) (0.30) (0.07) (0.02)
In excess of realized gains from
investment transactions -- (0.01) -- --
Tax return of capital -- -- -- --
------- ------- ------- -------
Total distributions (0.81) (0.47) (0.27) (0.07)
------- ------- ------- -------
Net increase (decrease) in net
asset value 3.54 1.55 2.13 (0.01)
------- ------- ------- -------
NET ASSET VALUE --
END OF PERIOD $ 17.21 $ 13.67 $ 12.1 $ 9.99
======= ======= ======= =======
Total return** 31.93% 16.67% 24.13% 0.52%
RATIOS AND SUPPLEMENTAL DATA:
Net assets, end of period (000) $99,628 $42,893 $16,119 $ 4,175
Ratio of expenses to average net
assets 1.00% 0.98% 0.90% 0.90%**
Ratio of expenses to average net
assets excluding
waivers/reimbursements*** 1.00% 1.16% 1.64% 2.08%**
Ratio of net investment income to
average net assets 0.69% 1.29% 2.02% 1.39%**
Ratio of net investment income to
average net assets excluding
waivers/reimbursements*** 0.69% 1.11% 1.28% 0.22%**
Portfolio turnover** 34.4% 38.7% 37.4% 4.4%
Average commission rate paid**** 3.4800c 3.6143c -- --
</TABLE>
- ------------------------------------------------------
* Initial public offering was August 1, 1994. See note 1.
** Ratios are annualized for periods less than one year. Total return and
portfolio turnover are not annualized
*** 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
B-62
<PAGE> 90
THE ONE(R) GROUP(SM) INVESTMENT TRUST
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
- --------------------------------------------------------------------------------
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, 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 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
Securities traded on a national securities exchange are valued at the last
quoted sale price on the principal exchange, or if no sale, at their fair value
as determined in good faith under consistently applied procedures authorized by
the Board of Trustees. Securities traded only in the over-the-counter (OTC)
market are valued at the last quoted sale price, or if there is no sale, at the
quoted bid price provided by and independent pricing agent. Corporate debt
securities and debt securities of U.S. issuers, including municipal securities,
are valued by a combination of daily quotes and matrix evaluations provided by
dealers or by an independent pricing service approved by the Board of Trustees.
Inactive or bonds that have little or no trading activity are evaluated by the
independent pricing services through obtaining dealer quotes. Futures contracts
and options thereon traded on a commodities exchange or board of trade are
valued at the last sales price at the close of trading, or if there was no sale,
the quoted bid price at the close of trading. Securities for which reliable
market quotations are not readily available or for which the pricing agent does
not provide a valuation that in the judgement of the Fund's investment adviser,
does not represent fair value, shall each be valued in accordance with
procedures authorized by 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
THE ONE(R) GROUP(SM) INVESTMENT TRUST ANNUAL REPORT
B-63
<PAGE> 91
THE ONE(R) GROUP(SM) INVESTMENT TRUST
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
DECEMBER 31, 1997
- --------------------------------------------------------------------------------
interest. Repurchase agreements are considered to be loans under the Investment
Company Act of 1940, as amended.
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. Net realized gains or
losses from sales of securities are determined on the specific identification
method. 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, 1997, 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>
Growth Opportunities $87,568 $(18,420) $ 69,148
Large Company Growth 11,566 6,080 (17,646)
Government Bond 4,681 (3,188) (1,493)
</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
THE ONE(R) GROUP(SM) INVESTMENT TRUST ANNUAL REPORT
B-64
<PAGE> 92
THE ONE(R) GROUP(SM) INVESTMENT TRUST
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
DECEMBER 31, 1997
- --------------------------------------------------------------------------------
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
NOTE 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 the 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, 1997, the Investment Advisor voluntarily
waived fees in the amount of $23,466 in the Government Bond Fund, $44,906 in the
Asset Allocation Fund, $4,114 in the Growth Opportunities Fund and $1,114 in the
Large Company Growth Fund, representing $0.014, $0.022, $0.002 and $0.0003 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, 1997 are summarized as
follows:
<TABLE>
<CAPTION>
SECURITIES
PURCHASES SALES
----------- -----------
<S> <C> <C>
Asset Allocation $25,793,770 $13,639,000
Growth Opportunities 77,897,420 58,724,989
Large Company Growth 49,949,011 21,858,801
</TABLE>
<TABLE>
<CAPTION>
U.S. GOVERNMENT OBLIGATIONS
PURCHASES SALES
----------- -----------
<S> <C> <C>
Government Bond $10,738,638 $ 3,620,612
Asset Allocation 9,037,184 281,619
Growth Opportunities 128,330 160,000
</TABLE>
The Asset Allocation and Growth Opportunity Funds can engage in trading of
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 funds 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
THE ONE(R) GROUP(SM) INVESTMENT TRUST ANNUAL REPORT
B-65
<PAGE> 93
THE ONE(R) GROUP(SM) INVESTMENT TRUST
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
DECEMBER 31, 1997
- --------------------------------------------------------------------------------
daily unrealized gains or losses. When the contracts are closed, the Funds
recognizes a realized gain or loss. Realized gains and losses have been computed
on the specific identification method.
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 (depreciation) on investments at December 31, 1997,
based on cost for federal income tax purposes, was as follows:
<TABLE>
<CAPTION>
GROSS GROSS
UNREALIZED UNREALIZED NET UNREALIZED
APPRECIATION DEPRECIATION APPRECIATION
------------ ------------ --------------
<S> <C> <C> <C>
Government Bond $ 568,030 $ (529) $ 567,501
Asset Allocation 2,578,935 (213,230) 2,365,705
Growth Opportunities 6,166,233 (2,511,386) 3,654,847
Large Company Growth 18,681,113 (552,478) 18,128,635
</TABLE>
NOTE 5 -- SHARES HELD BY AFFILIATES
As of December 31, 1997, Nationwide Life and Annuity Insurance Company
beneficially owned shares of the Funds with the following net asset values:
<TABLE>
<S> <C>
Government Bond $6,511,592
Asset Allocation 1,597,239
Growth Opportunities 45,170
Large Company Growth 5,762,023
</TABLE>
As of December 31, 1997, Banc One Capital Corporation owned shares of the Asset
Allocation Fund with a net asset value of $737,187.
THE ONE(R) GROUP(SM) INVESTMENT TRUST ANNUAL REPORT
B-66
<PAGE> 94
<TABLE>
<CAPTION>
PART C
OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS
<S> <C>
(a) Report of Independent Accountants dated February 18, 1998
Statements of Investments at December 31, 1997 (audited)
Statements of Assets and Liabilities at December 31, 1997 (audited)
Statements of Operations for the year ended December 31, 1997 (audited)
Statements of Changes in Net Assets for the years ended December 31, 1997 and 1996
(audited)
Notes to Financial Statements
Financial Highlights
(b) Exhibits
(1) Amended Declaration of Trust dated February 18,
1998 is filed herewith
(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) (a) 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.
(5) (b) Amended Appendix A to the Investment Advisory Agreement,
dated February 18, 1998, is filed herewith.
(6) None
(7) 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) (a) 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) (b) Amended Appendix A to the Transfer and
Dividend Disbursing Agent Agreement, dated
February 18, 1998, is filed herewith.
(9) (c) 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 Registrant's registration
statement on Form N-1A, filed on July 29, 1994.
(9) (d) Amended and Restated Administrative Services
Agreement between Registrant and Nationwide
Financial Services, Inc. dated February 18,
1998, is filed herewith.
(9) (e) Amended and Restated Fund Participation
Agreement, dated February 18, 1998, is
filed herewith.
(10) Opinion of Ropes & Gray is filed herewith.
(11) Consent of Ropes & Gray is filed herewith.
(11.1) Consent of Price Waterhouse LLP, Independent Accountants, is filed herewith.
(12) None
(13) None
(14) None
(15) None
(16) None
(17.1) Financial Data Schedule for the Government Bond Fund is filed herewith.
(17.2) Financial Data Schedule for the Asset Allocation Fund is filed herewith.
(17.3) Financial Data Schedule for the Growth Opportunities Fund is filed herewith.
</TABLE>
C-1
<PAGE> 95
(17.4) Financial Data Schedule for the Large
Company Growth Fund is filed herewith.
Copies of powers of attorney of Registrant's trustees
and officers whose names are signed to this
Registration. Statement pursuant to said powers of
attorneys are filed herewith.
ITEM 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH
REGISTRANT Registrant neither controls any person nor is under
common control with any other person.
ITEM 26. NUMBER OF HOLDERS OF SECURITIES
MARCH 30, 1998
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;
C-2
<PAGE> 96
(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
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 Advisor
are set forth in paragraph 4 of the Investment Advisory
Agreement. The Investment Advisor 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 Advisor, 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
C-3
<PAGE> 97
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 ADVISOR
Banc One Investment Advisors Corporation (the "Advisor")
performs investment advisory services for all of the Funds of
the Group. As of December 31, 1997, the Advisor, an indirect
wholly-owned subsidiary of BANC ONE CORPORATION, a bank
holding company located in the state of, Ohio, managed over
$52 billion in assets. BANC ONE CORPORATION has affiliate
banking organizations in Arizona, Colorado, Illinois, Indiana,
Kentucky, Louisiana, Ohio, Oklahoma, Texas, Utah, West
Virginia and Wisconsin. In addition, BANC ONE CORPORATION has
several affiliates that engage in data processing, venture
capital, investment and merchant banking, and other
diversified services including trust management, investment
management, brokerage, equipment leasing, mortgage banking,
consumer finance, and insurance. On a consolidated basis, BANC
ONE CORPORATION had assets of over $115 billion as of
December 31, 1997.
To the knowledge of Registrant, none of the directors or
officers of the Advisor, 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 Advisor who are
engaged in any other business, profession, vocation or
employment of a substantial nature.
<TABLE>
<CAPTION>
Banc One Investment Advisors Corporation
Position With Other
Banc One Investment Substantial Type of
Advisors Corporation Occupation Business
-------------------- ---------- --------
<S> <C> <C>
David J. Kundert Chairman, Bank One Trust Investment
Chairman & CEO Company, NA Advisor
Frederick L. Cullen Chairman/CEO, Bank One Banking
Director NA; Chairman and ,
Chief Operating Officer,
Banc One Ohio Corporation
Garrett Jamison President & Chief Executive Banking
Director Officer, Bank One Trust Company, NA
Geoffrey von Kuhn Vice Chairman Investment
Director Banc One Capital Corporation Banking
Michael J. McMennamin Executive VP & Chief Financial Banking
Director Officer, BANC ONE CORPORATION
David R. Meuse Chairman/CEO Banc One Investment
Director Capital Holding Corporation Banking
</TABLE>
ITEM 29. PRINCIPAL UNDERWRITER
Not applicable.
ITEM 30. LOCATION OF ACCOUNTS AND RECORDS
Trust Agreements, Bylaws and Minute Books:
C-4
<PAGE> 98
\ 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 43215
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.
C-5
<PAGE> 99
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 SECURITIES ACT OF 1933 AND HAS DULY CAUSED
THIS AMENDMENT TO THE REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED, THERETO DULY AUTHORIZED, IN THE CITY OF COLUMBUS, AND STATE OF OHIO
ON THE 13TH DAY OF APRIL, 1998.
THE ONE GROUP(R) INVESTMENT TRUST (Registrant)
By: James F. Laird, Jr. *
- --------------------------------------------------------------------------------
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 13TH
DAY OF APRIL, 1998.
Signature Title
- --------- -----
PETER C. MARSHALL* Trustee
- --------------------------------------------------------------------------------
Peter C. Marshall
CHARLES I. POST* Trustee
- --------------------------------------------------------------------------------
Charles I. Post
JOHN S. RANDALL* Trustee
- --------------------------------------------------------------------------------
John S. Randall
FREDERICK W. RUEBECK* Trustee
- --------------------------------------------------------------------------------
Frederick W. Ruebeck
ROBERT A. ODEN JR.* Trustee
- --------------------------------------------------------------------------------
Robert A. Oden Jr.
PRINCIPAL ACCOUNTING AND FINANCIAL OFFICER
Vice President
CHRISTOPHER A. CRAY* and Assistant Treasurer
- --------------------------------------------------------------------------------
Christopher A. Cray.
*By ALAN PRIEST
- --------------------------------------------------------------------------------
Alan Priest
Attorney-in-fact
PRINCIPAL EXECUTIVE OFFICER
JAMES F. LAIRD, JR.* President
- --------------------------------------------------------------------------------
James F. Laird, Jr.
C-6
<PAGE> 100
EXHIBIT INDEX DESCRIPTION
- ------------- -----------
(1) Amended Declaration of Trust
(5)(b) Amended Appendix A to the Investment Advisory
Agreement
(9)(b) Amended Appendix A to the Transfer and Dividend
Disbursing Agent Agreement
(9)(d) Amended and Restated Administrative Services
Agreement
(9)(e) Amended and Restated Fund Participation Agreement
(10) Opinion of Ropes & Gray
(11) Consent of Ropes & Gray
(11.1) Consent of Price Waterhouse LLP, Independent
Accountants
(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
C-7
<PAGE> 1
Exhibit 1
AMENDED
DECLARATION OF TRUST
THE ONE GROUP(R) INVESTMENT TRUST
WHEREAS, the Trustees desire to establish a trust for the investment
and reinvestment of funds contributed thereto; and
WHEREAS, the Trustees desire that the beneficial interest in the trust
assets be divided into transferable shares of beneficial interest, as
hereinafter provided:
NOW THEREFORE, the Trustees hereby declare that all money and property
contributed to the trust established hereunder shall be held and managed in
trust for the benefit of holders, from time to time, of the shares of beneficial
interest issued hereunder and subject to the provisions hereof.
ARTICLE I
NAME AND DEFINITIONS
SECTION 1.1. NAME. The name of the trust created hereby is "The One
Group(R) Investment Trust".
SECTION 1.2. DEFINITIONS. Wherever they are used herein, the following
terms have the following respective meanings:
(a) "ADMINISTRATOR" means the party other than the Trust, to the
contract described in Section 4.3 hereof.
(b) "BYLAWS" means the Bylaws referred to in Section 3.9 hereof, as
from time to time amended.
(c) The terms "COMMISSION", "INTERESTED PERSON", and "MAJORITY
SHAREHOLDER VOTE" (the 67% or 50% requirement of the third sentence of Section 2
(a) (42) of the 1940 Act, whichever may be applicable) have the meanings given
them in the 1940 Act, except to the extent that the Trustees have otherwise
defined "Majority Shareholder Vote" in conjunction with the establishment of any
series of shares.
(d) "DECLARATION" means this Declaration of Trust as amended from time
to time. Reference in this Declaration of Trust to "DECLARATION", "HEREOF",
"HEREIN" and "HEREUNDER" shall be deemed to refer to this Declaration rather
than the article or section in which such words appear.
(e) "DISTRIBUTOR" means the party, other than the Trust, to the
contract described in Section 4.2 hereof.
(f) "INVESTMENT ADVISER" means the party, other than the Trust, to the
contract described in section 4.1 hereof.
<PAGE> 2
(g) The "1940 ACT" means the Investment Company Act of 1940 and the
rules and regulations thereunder, as amended from time to time.
(h) "PERSON" means and includes individuals, corporations,
partnerships, trusts, associations, joint ventures and other entities, whether
or not legal entities, and governments and agencies and political subdivisions
thereof.
(i) "SHAREHOLDER" means a record owner of outstanding Shares.
(j) "SHARES" means the units of interest into which the beneficial
interest in the Trust shall be divided from time to time, including the shares
of any and all series which may be established by the Trustees, and includes
fractions of Shares as well as whole Shares.
(k) "TRANSFER AGENT" means the party, other than the Trust, to the
contract described in Section 4.4 hereof.
(l) The "TRUST" means The One Group(R) Investment Trust.
(m) The "TRUST PROPERTY" means any and all property, real or personal,
tangible or intangible, which is owned or held by or for the account of the
Trust or the Trustees.
(n) The "TRUSTEES" means the persons who have signed this Declaration,
so long as they shall continue in office in accordance with the terms hereof,
and all other persons who may from time to time be duly elected, qualified and
serving as Trustees in accordance with the provisions hereof, and reference
herein to a Trustee or the Trustees shall refer to such person or persons in
their capacity as trustees hereunder.
ARTICLE II
TRUSTEES
SECTION 2.1. NUMBER OF TRUSTEES. The number of Trustees shall be such
number as shall be fixed from time to time by a written instrument signed by a
majority of the Trustees, provided, however, that the number of Trustees shall
in no event be less than three (3) nor more than fifteen (15), except that the
number of Trustees may be one (1) prior to the commencement of public sale of
Trust Shares.
SECTION 2.2. ELECTION AND TERM. Except for the Trustees named herein or
appointed to fill vacancies pursuant to Section 2.4 hereof, the Trustees shall
be elected by the Shareholders at an annual meeting or at a special meeting of
Shareholders. There is no requirement that the Trustees have an annual meeting
of the Shareholders. In the event the Trustees determine to have an annual or
special meeting of the Shareholders, it shall be held at such time and place and
in such manner as the Bylaws shall provide notwithstanding anything in this
section to the contrary. Except in the event of resignations or removals
pursuant to Section 2.3 hereof, each Trustee shall hold office until the next
meeting of shareholders and until his successor is elected and qualified to
serve as Trustee.
SECTION 2.3. RESIGNATION AND REMOVAL. Any Trustee may resign his trust
(without need for prior or subsequent accounting) by an instrument in writing
signed by him and delivered to the other Trustees and such resignation shall be
effective upon such delivery, or at a later date according to the terms of the
instrument. Any of the Trustees may be removed (provided the aggregate number
<PAGE> 3
of Trustees after such removal shall not be less than the number required by
Section 2.1. hereof) with cause, by the action of two-thirds of the remaining
Trustees. Upon the resignation or removal of a Trustee, or his otherwise ceasing
to be a Trustee, he shall execute and deliver such documents as the remaining
Trustees shall require for the purpose of conveying to the Trust or the
remaining Trustees any Trust Property held in the name of the resigning or
removed Trustee. Upon the incapacity or death of any Trustee, his legal
representative shall execute and deliver on his behalf such documents as the
remaining Trustees shall require as provided in the preceding sentence.
SECTION 2.4. VACANCIES. The term of office of a Trustee shall terminate
and a vacancy shall occur in the event of the death, resignation, removal,
bankruptcy, adjudicated incompetence or other incapacity to perform the duties
of the office of a Trustee. No such vacancy shall operate to annul this
Declaration or to revoke any existing agency created pursuant to the terms of
the Declaration. In the case of an existing vacancy, including a vacancy
existing by reason of an increase in the number of Trustees, subject to the
provisions of Section 16(a) of the 1940 Act, the remaining Trustees shall fill
such vacancy by the appointment of such other person as they in their discretion
shall see fit, made by a written instrument signed by a majority of the
Trustees. Any such appointment shall not become effective, however, until the
person named in the written instrument of appointment shall have accepted in
writing such appointment and agreed in writing to be bound by the terms of the
Declaration. An appointment of a Trustee may be made in anticipation of a
vacancy to occur at a later date by reason of retirement, resignation or
increase in the number of Trustees, provided that such appointment shall not
become effective prior to such retirement, resignation or increase in the number
of Trustees. Whenever a vacancy in the number of Trustees shall occur, until
such vacancy is filled as provided in this Section 2.4., the Trustees in office,
regardless of their number, shall have all the powers granted to the Trustees
and shall discharge all the duties imposed upon the Trustees by the Declaration.
A written instrument certifying the existence of such vacancy signed by a
majority of the Trustees shall be conclusive evidence of the existence of such
vacancy.
SECTION 2.5. DELEGATION OF POWER TO OTHER TRUSTEES. Any Trustee may, by
power of attorney, delegate his power for a period not exceeding six (6) months
at any one time to any other Trustee or Trustees; provided that in no case shall
less than two (2) Trustees, personally exercise the powers granted to the
Trustees under the Declaration except as herein otherwise expressly provided.
ARTICLE III
POWERS OF TRUSTEES
SECTION 3.1. GENERAL. The Trustees shall have exclusive and absolute
control over the Trust Property and over the business of the Trust to the same
extent as if the Trustees were the sole owners of the Trust Property and
business in their own right, but with such powers of delegation as may be
permitted by the Declaration. The Trustees shall have power to conduct the
business of the Trust and carry on its operations and maintain offices both
within and without the Commonwealth of Massachusetts, in any and all states of
the United States of America, in the District of Columbia, and in any and all
commonwealths, territories, dependencies, colonies, possessions, agencies or
instrumentalities of the United States of America and of foreign governments,
and to do all such other things and execute all such instruments as they deem
necessary, proper or desirable in order to promote the interests of the Trust
although such things are not herein specifically mentioned. Any determination as
to what is in the interest of the Trust made by the Trustees in good faith shall
be conclusive. In construing the provisions of the Declaration, the presumption
shall be in favor of a grant of power to the Trustees.
<PAGE> 4
The enumeration of any specific power herein shall not be construed as
limiting the aforesaid power. Such powers of the Trustees may be exercised
without order of or resort to any court.
SECTION 3.2. INVESTMENTS. The Trustees shall have the power to:
(a) conduct, operate and carry on the business of an investment
company;
(b) subscribe for, invest in, reinvest in, purchase or otherwise
acquire, hold, pledge, sell, assign, transfer, exchange, distribute, lend or
otherwise deal in or dispose of negotiable or non-negotiable instruments,
obligations, evidences of indebtedness, certificates of deposit or indebtedness,
commercial paper, repurchase agreements, and other securities of any kind,
including, without limitation, those issued, guaranteed or sponsored by any and
all Persons including, without limitation, states, territories and possessions
of the United States, the District of Columbia and any of the political
subdivisions, agencies or instrumentalities thereof, and by the United States
Government or its agencies or instrumentalities, or international
instrumentalities, or by any bank or savings institution, or by any corporation
or organization organized under the laws of the United States or of any state,
territory or possession thereof, and of corporations or organizations organized
under foreign laws, or in "when issued" contracts for any such securities, or
retain Trust assets in cash and from time to time change the investments of the
assets of the Trust; and to exercise any and all rights, powers and privileges
of ownership or interest in respect of any and all such investments of every
kind and description, including, without limitation, the right to consent and
otherwise act with respect thereto, with power to designate one or more persons,
firms, associations or corporations to exercise any of said rights, powers and
privileges in respect of any said instruments.
The Trustees shall not be limited to investing in obligations maturing
before the possible termination of the Trust, nor shall the Trustees be limited
by any law limiting the investments which may be made by fiduciaries.
SECTION 3.3. LEGAL TITLE. Legal title to all the Trust Property shall
be vested in the Trustees as joint tenants except that the Trustees shall have
power to cause legal title to any Trust Property to be held by or in the name of
one or more of the Trustees, or in the name of the Trust, or in the name of any
other Person as nominee, on such terms as the Trustees may determine, provided
that the interest of the Trust therein is appropriately protected. The right,
title and interest of the Trustees in the Trust Property shall vest
automatically in each Person who may hereafter become a Trustee. Upon the
resignation, removal or death of a Trustee, he shall automatically cease to have
any right, title or interest in any of the Trust Property, and the right, title
and interest of such Trustee in the Trust Property shall vest automatically in
the remaining Trustees. Such vesting and cessation of title shall be effective
whether or not conveyancing documents have been executed and delivered.
SECTION 3.4. ISSUANCE AND REPURCHASE OF SECURITIES. The Trustees shall
have the power to issue, sell, repurchase, redeem, retire, cancel, acquire,
hold, resell, reissue, dispose of, transfer, and otherwise deal in Shares and,
subject to the provisions set forth in Articles VII, VIII, and IX and Section
6.9 hereof, to apply to any such repurchase, redemption, retirement,
cancellation or acquisition of Shares any funds or property of the Trust whether
capital or surplus or otherwise, to the full extent now or hereafter permitted
by the laws of the Commonwealth of Massachusetts governing business
corporations.
SECTION 3.5. BORROWING MONEY; LENDING TRUST ASSETS. The Trustees shall
have power to borrow money or otherwise obtain credit to secure the same by
mortgaging, pledging or otherwise
<PAGE> 5
subjecting as security the assets of the Trust, to endorse, guarantee, or
undertake the performance of any obligation, contract or engagement of any other
Person and to lend Trust assets.
SECTION 3.6. DELEGATION; COMMITTEES. The Trustees shall have power to
delegate from time to time to such of their number or to officers, employees or
agents of the Trust the doing of such things and the execution of such
instruments either in the name of the Trust or the names of the Trustees or
otherwise as the Trustees may deem expedient.
SECTION 3.7. COLLECTION AND PAYMENT. The Trustees shall have power to
collect all property due to the Trust; to pay all claims, including taxes,
against the Trust Property; to prosecute, defend, compromise or abandon any
claims relating to the Trust Property; to foreclose any security interest
securing any obligations, by virtue of which any property is owed to the Trust;
and to enter into releases, agreements and other instruments.
SECTION 3.8. EXPENSES. The Trustees shall have the power to incur and
pay any expenses which in the opinion of the Trustees are necessary or
incidental to carry out any of the purposes of the Declaration, and to pay
reasonable compensation from the funds of the Trust to themselves as Trustees.
The Trustees shall fix the compensation of all officers, employees and Trustees.
SECTION 3.9. MANNER OF ACTION; BYLAWS. Except as otherwise provided
herein or in the Bylaws, any action to be taken by the Trustees may be taken by
a majority of the Trustees present at a meeting of Trustees (a quorum being
present), including any meeting held by means of a conference telephone circuit
or similar communications equipment by means of which all persons participating
in the meeting can hear each other, or by written consents of a majority of the
Trustees (unless a higher proportion is required by law). The Trustees may adopt
Bylaws not inconsistent with this Declaration to provide for the conduct of the
business of the Trust and may amend or repeal such Bylaws to the extent such
power is not reserved to the Shareholders.
SECTION 3.10. MISCELLANEOUS POWERS. The Trustees shall have the power
to: (a) employ or contract with such Persons as the Trustees may deem desirable
for the transaction of the business of the Trust; (b) enter into joint ventures,
partnerships and any other combinations or associations; (c) remove Trustees or
fill vacancies in or add to their number, elect and remove such officers and
appoint and terminate such agents or employees as they consider appropriate, and
appoint from their own number, and terminate, any one or more committee which
may exercise some or all of the power and authority of the Trustees as the
Trustees may determine; (d) purchase, and pay for out of Trust Property,
insurance policies insuring the Shareholders, Trustees, officers, employees,
agents, investment advisers, distributors, selected dealers or independent
contractors of the Trust against all claims arising by reason of holding any
such position or by reason of any action taken or omitted by any such Person in
such capacity, whether or not constituting negligence, or whether or not the
Trust would have the power to indemnify such Person against such liability; (e)
establish pension, profit-sharing, Share purchase, and other retirement,
incentive and benefit plans for any Trustees, officers, employees and agents of
the Trust; (f) to the extent permitted by law, indemnify any person with whom
the Trust has dealings, including the Investment Adviser, Distributor,
Administrator, Transfer Agent and selected dealers, to such extent as the
Trustees shall determine; (g) guarantee indebtedness or contractual obligations
of others; (h) determine and change the fiscal year of the Trust and the method
by which its accounts shall be kept; and (i) adopt a seal for the Trust, but the
absence of such seal shall not impair the validity of any instrument executed on
behalf of the Trust.
<PAGE> 6
SECTION 3.11. PRINCIPAL TRANSACTIONS. Except in transactions permitted
by the 1940 Act or any rule or regulation thereunder, or any order of exemption
issued by the Commission, the Trustees shall not, on behalf of the Trust, buy
any securities (other than Shares) from or sell any securities (other than
Shares) to, or lend any assets of the Trust to, any Trustee or officer of the
Trust or any firm of which any such Trustee or officer is a member acting as
principal, or have any such dealings with the Investment Adviser, Distributor,
Administrator or Transfer Agent or with any Interested Person of such Person;
but the Trust may employ any such Person, or firm or company in which such
Person is an Interested Person, as broker, legal counsel, registrar, transfer
agent, dividend disbursing agent or custodian upon customary terms.
SECTION 3.12. TRUSTEES AND OFFICERS AS SHAREHOLDERS. Except as
hereinafter provided, no officer, Trustee or member of the Advisory Board of the
Trust, and no member, officer, director or trustee of the Investment Adviser or
of the Distributor and no Investment Adviser or Distributor of the Trust, shall
take long or short positions in the securities issued by the Trust.
(1) The foregoing provision shall not prevent the Distributor from
purchasing from the Trust Shares if such purchases are limited (except for
reasonable allowances for clerical errors, delays and errors of transmission and
cancellation of orders) to purchases for the purpose of filling orders for
Shares received by the Distributor and provided that orders to purchase from the
Trust are entered with the Trust or the Custodian promptly upon receipt by the
Distributor of purchase orders for Shares, unless the Distributor is otherwise
instructed by its customer.
(2) The foregoing provision shall not prevent the Distributor from
purchasing Shares as agent for the account of the Trust.
(3) The foregoing provision shall not prevent the purchase from the
Trust or from the Distributor of Shares by any officer, Trustee or member of the
Advisory Board of the Trust or by any member, officer, director or trustee of
the Investment Adviser or of the Distributor at a price not lower than the net
asset value of the Shares at the moment of such purchase, provided that any such
sales are only to be made pursuant to a uniform offer described in the Trust's
current prospectus.
(4) The foregoing provision shall not prevent the Investment Adviser,
the Distributor, or any of their officers, directors or trustees from purchasing
Shares prior to the effective date of the Registration Statement relating to the
Shares under the Securities Act of 1933, as amended.
SECTION 3.13. LITIGATION. The Trustees shall have the power to engage
in and to prosecute, defend, compromise, abandon, or adjust, by arbitration, or
otherwise, any actions, suits, proceedings, disputes, claims, and demands
relating to the Trust, and out of the assets of the Trust to pay or to satisfy
any debts, claims or expenses incurred in connection therewith, including those
of litigation, and such power shall include without limitation the power of the
Trustees or any appropriate committee thereof, in the exercise of their or its
good faith business judgment, to dismiss any action, suit, proceeding, dispute,
claim, or demand, derivative or otherwise, brought by any person, including a
Shareholder in its own name or the name of the Trust, whether or not the Trust
or any of the Trustees may be named individually therein or the subject matter
arises by reason of business for or on behalf of the Trust.
<PAGE> 7
ARTICLE IV
INVESTMENT ADVISER, DISTRIBUTOR, ADMINISTRATOR
AND TRANSFER AGENT
SECTION 4.1. INVESTMENT ADVISER. Subject to a Majority Shareholder
Vote, the Trustees may, in their discretion, from time to time enter into an
investment advisory or management contract whereby the other party to such
contract shall undertake to furnish the Trust such management, investment
advisory, statistical and research facilities and services, promotional
activities, and such other facilities and services, if any, as the Trustees
shall from time to time consider desirable and all upon such terms and
conditions as the Trustees may, in their discretion, determine. Notwithstanding
any provisions of the Declaration, the Trustees may authorize the Investment
Adviser (subject to such general or specific instructions as the Trustees may
from time to time adopt) to effect purchases, sales, loans or exchanges of
portfolio securities of the Trust on behalf of the Trustees or may authorize any
officer, employee or Trustee to effect such purchases, sales, loans or exchanges
pursuant to recommendations of the Investment Adviser (and all without further
action by the Trustees). Any such purchases, sales, loans and exchanges shall be
deemed to have been authorized by all of the Trustees.
SECTION 4.2. DISTRIBUTOR. The Trustees may, in their discretion, from
time to time enter into a contract, providing for the sale of Shares of the
Trust at the net asset value per Share (as described in Article VIII hereof) ,
whereby the Trust may either agree to sell the Shares to the other party to the
contract or appoint such other party its sales agent for such Shares. In either
case, the contract shall be on such terms and conditions as the Trustees may in
their discretion determine not inconsistent with the provisions of this Article
IV or the Bylaws; and such contract may also provide for the repurchase or sale
of Shares of the Trust by such other party as principal or as agent of the Trust
and may provide that such other party may enter into selected dealer agreements
with registered securities dealers to further the purpose of the distribution or
repurchase of the Shares.
SECTION 4.3. ADMINISTRATOR. The trustees may, in their discretion, from
time to time enter into an administrative services agreement whereby the other
party to such contract shall provide facilities, equipment, and personnel to
carry out certain administrative services for the operation of the business and
affairs of the Trust and each of its separate series. The contract shall have
such terms and conditions as the Trustees may, in their discretion, determine
not inconsistent with the Declaration or the Bylaws. Such services may be
provided by one or more Persons.
SECTION 4.4. TRANSFER AGENT. The Trustees may, in their discretion,
from time to time enter into a transfer agency and shareholder service contract
whereby the other party to such contract shall undertake to furnish transfer
agency and shareholder services to the Trust. The contract shall have such terms
and conditions as the Trustees may, in their discretion, determine not
inconsistent with the Declaration or the Bylaws. Such services may be provided
by one or more Persons.
SECTION 4.5. PARTIES TO CONTRACT. Any contract of the character
described in Sections 4.1, 4.2, 4.3, and 4.4 of this Article IV or any Custodian
contract, as described in the Bylaws, may be entered into with any Person,
although one or more of the Trustees or officers of the Trust may be an officer,
director, trustee, shareholder, or member of such other party to the contract,
and no such contract shall be invalidated or rendered voidable by reason of the
existence of any such relationship; nor shall any Person holding such
relationship be liable merely by reason of such relationship for any loss or
expense to the Trust under or by reason of said contract or accountable for any
profit realized directly or indirectly therefrom, provided that the contract,
when entered into, was not
<PAGE> 8
inconsistent with the provisions of this Article IV or the Bylaws. The same
Person may be the other party to contracts entered into pursuant to Sections
4.1, 4.2, 4.3 and 4.4 above or Custodian contracts, and any individual may be
financially interested or otherwise affiliated with Persons who are parties to
any or all of the contracts mentioned in this Section 4.5.
ARTICLE V
LIMITATIONS OF LIABILITY OF SHAREHOLDERS
TRUSTEES AND OTHERS
SECTION 5.1. NO PERSONAL LIABILITY OF SHAREHOLDERS, TRUSTEES, ETC. No
Shareholder as such shall be subject to any personal liability whatsoever to any
Person in connection with Trust Property or the acts, obligations or affairs of
the 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 reasonable incurred by him in connection with any such claim or
liability. The rights accruing to a Shareholder under this Section 5.1 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.
SECTION 5.2. NON-LIABILITY OF TRUSTEES, ETC. 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.
SECTION 5.3. MANDATORY INDEMNIFICATION. (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:
<PAGE> 9
(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 or 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 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 this Section
5.3 shall be advanced by the Trust prior to final disposition thereof upon
receipt of an undertaking by or an behalf of the recipient to repay such amount
if it is ultimately determined that he is not entitled to indemnification under
this Section 5.3, 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 this Section 5.3, a "Disinterested Trustee" is one (i) who
is not an "Interested Person" of the Trust (including anyone who has been
exempted from being 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 similar
grounds is then or had been pending.
<PAGE> 10
Agents and employees of the Trust who are not Trustees or officers of
the Trust may be indemnified under the same standards and procedures set forth
in this Section 5.3., in the discretion of the Board.
SECTION 5.4. NO BOND REQUIRED OF TRUSTEES. No Trustee shall be
obligated to give any bond or other security for the performance of any of his
duties hereunder.
SECTION 5.5. NO DUTY OF INVESTIGATION; NOTICE IN TRUST INSTRUMENTS.
ETC. No purchaser, lender, Transfer Agent or other Person dealing with the
Trustees or any officer, employee or agent of the Trust shall be bound to make
any inquiry concerning the validity of any transaction purporting to be made by
the Trustees or by said officer, employee or agent or be liable for the
application of money or property paid, loaned, or delivered to or on the order
of the Trustees or of said officer, employee or agent. Every obligation,
contract, instrument, certificate, Share, other security of the Trust or
undertaking, and every other act or thing whatsoever executed in connection with
the Trust shall be conclusively presumed to have been executed or done by the
executors thereof only in their capacity as Trustees under the Declaration or in
their capacity as officers, employees or agents of the Trust. Every written
obligation, contract, instrument, certificate, Share, other security of the
Trust or undertaking made or issued by the Trustees shall recite that the same
is executed or made by them not individually, but as Trustees under the
Declaration, and that the obligations of any such instrument are not binding
upon any of the Trustees or Shareholders, individually, but bind only the Trust
estate, and may contain any further recital which they or he may deem
appropriate, but the omission of such recital shall not operate to bind the
Trustees individually. The Trustees shall at all times maintain insurance for
the protection of the Trust Property, its Shareholders, Trustees, officers,
employees and agents in such amount as the Trustees shall deem adequate to cover
possible tort liability, and such other insurance as the Trustees in their sole
judgment shall deem advisable.
SECTION 5.6. RELIANCE ON EXPERTS, ETC. Each Trustee and officer or
employee of the Trust shall, in the performance of his duties, be fully and
completely justified and protected with regard to any act or any failure to act
resulting from reliance in good faith upon the books of account or other records
of the Trust, upon an opinion of counsel, or upon reports made to the Trust by
any of its officers or employees or by the Investment Adviser, the Distributor,
the Administrator, Transfer Agent, selected dealers, accountants, appraisers or
other experts or consultants selected with reasonable care by the Trustees,
officers or employees of the Trust, regardless of whether such counsel or expert
may also be a Trustee.
ARTICLE VI
SHARES OF BENEFICIAL INTEREST
SECTION 6.1. BENEFICIAL INTEREST. The interest of the beneficiaries
hereunder shall be divided into transferable shares of beneficial interest,
without par value, of the following classes or series, or such others as may be
authorized by the Trustees pursuant to Section 6.9:
The One Group(R) Investment Trust
o Government Bond Fund
o Asset Allocation Fund
o Growth Opportunities Fund
o Large Company Growth Fund
o Equity Index Fund
<PAGE> 11
The number of shares of beneficial interest authorized hereunder is unlimited.
All Shares issued hereunder including, without limitation, Shares issued in
connection with a dividend in Shares or a split of Shares, shall be fully paid
and non-assessable.
SECTION 6.2. RIGHTS OF SHAREHOLDERS. The ownership of the Trust
Property of every description and the right to conduct any business hereinbefore
described are vested exclusively in the Trustees, and the Shareholders shall
have no interest therein other than the beneficial interest conferred by their
Shares, and they shall have no right to call for any partition or division of
any property, profits, rights or interests of the Trust nor can they be called
upon to assume any losses of the Trust or suffer an assessment of any kind by
virtue of their ownership of Shares. The Shares shall be personal property
giving only the rights in the Declaration specifically set forth. The Shares
shall not entitle the holder to preference, preemptive, appraisal, conversion or
exchange rights, except as the Trustees may determine with respect to any series
of Shares.
SECTION 6.3. TRUST ONLY. It is the intention of the Trustees to create
only the relationship of Trustee and beneficiary between the Trustees and each
Shareholder from time to time. It is not the intention of the Trustees to create
a general partnership, limited partnership, joint stock association,
corporation, bailment or any form of legal relationship other than a Trust.
Nothing in the Declaration shall be construed to make the Shareholders, either
by themselves or with the Trustees, partners or members of a joint stock
association.
SECTION 6.4. ISSUANCE OR SHARES. The Trustees, in their discretion,
may, from time to time without vote of the shareholders, issue Shares, in
addition to the then issued and outstanding Shares and Shares held in the
treasury, to such party or parties and for such amount and type of
consideration, including cash or property, at such time or times (including,
without limitation, each business day in accordance with the determination of
net asset value per Share as set forth in Section 8.3 hereof), and on such terms
as the Trustees may deem best, and may in such manner acquire other assets
(including the acquisition of assets subject to, and in connection with the
assumption of liabilities) and businesses. In connection with any issuance of
Shares, the Trustees may issue fractional Shares. The Trustees may from time to
time divide or combine the Shares into a greater or lesser number without
thereby changing the proportionate beneficial interests in the Trust.
Contributions to the Trust may be accepted for, and Shares shall be redeemed as,
whole shares and/or 1/1,000ths of a Share or integral multiples thereof.
SECTION 6.5. REGISTER OF SHARES; SHARE CERTIFICATES. A register will be
kept at the principal office of the Trust or at an office of the Transfer Agent
which shall contain the names and addresses of the Shareholders and the number
of Shares held by them respectively and a record of all transfers thereof. Such
register shall be conclusive as to who are the holders of the Shares and who
shall be entitled to receive dividends or distributions or otherwise to exercise
or enjoy the rights of Shareholders. No Shareholder shall be entitled to receive
payment of any dividend or distribution, nor to have notice given to him as
herein or in the Bylaws provided, until he has given his address to the Transfer
Agent or such other officer or agent of the Trustees as shall keep the said
register for entry thereon. It is not contemplated that certificates will be
issued for the Shares; however, the Trustees, in their discretion, may authorize
the issuance of Share certificates and promulgate appropriate rules and
regulations as to their use.
SECTION 6.6. TRANSFER OF SHARES. Shares shall be transferable on the
records of the Trust only by the record holder thereof or by his agent thereunto
duly authorized in writing, upon delivery to the Trustees or the Transfer Agent
of a duly executed instrument of transfer, together with such evidence of the
genuineness of each such execution and authorization and of other matters as may
<PAGE> 12
reasonably be required. Upon such delivery, the transfer shall be recorded on
the register of the Trust. Until such record is made, the Shareholder of record
shall be deemed to be the holder of such Shares for all purposes hereunder and
neither the Trustees nor any Transfer Agent or registrar nor any officer,
employee or agent of the Trust shall be affected by any notice of the proposed
transfer.
Any person becoming entitled to any Shares in consequence of the death,
bankruptcy, or incompetence of any Shareholder, or otherwise by operation of
law, shall be recorded on the register of Shares as the holder of such Shares
upon production of the proper evidence thereof to the Trustees or the Transfer
Agent, but until such record is made, the Shareholder of record shall be deemed
to be the holder of such Shares for all purposes hereunder and neither the
Trustees nor any Transfer Agent or registrar nor any officer or agent of the
Trust shall be affected by any notice of such death, bankruptcy or incompetence,
or other operation of law.
SECTION 6.7. NOTICES. Any and all notices to which any Shareholder may
be entitled and any and all communications shall be deemed duly served or given
if mailed, postage prepaid, addressed to any Shareholder of record at his last
known address as recorded on the register of the Trust.
SECTION 6.8. VOTING POWERS. The Shareholders shall have power to vote
only (i) for the election of Trustees as provided in Section 2.2 hereof or as
required by Section 16 (a) of the 1940 Act; (ii) with respect to any investment
advisory or management contract as provided in section 4.1; (iii) with respect
to termination of the Trust as provided in Section 9.2; (iv) with respect to any
amendment of the Declaration to the extent and as provided in Section 9.3; (v)
with respect to any merger, consolidation or sale of assets as provided in
Section 9.4; (vi) with respect to incorporation of the Trust to the extent and
as provided in Section 9.5; (vii) to the same extent as the stockholders of a
Massachusetts business corporation as to whether or not a court action,
proceeding or claim should or should not be brought or maintained derivatively
or as a class action on behalf of the Trust or the Shareholders; and (viii) with
respect to such additional matters relating to the Trust as may be required by
the Declaration, the Bylaws, the 1940 Act or any registration of the Trust with
the Commission (or any successor agency) or any state, or as the Trustees may
consider necessary or desirable. Each whole Share shall be entitled to one vote
as to any matter on which it is entitled to vote and each fractional Share shall
be entitled to proportionate fractional vote, except that Shares held in the
treasury of the Trust shall not be voted and that the Trustees may, in
conjunction with the establishment of any series of Shares, establish conditions
under which the several series shall have separate voting rights or no voting
rights. There shall be no cumulative voting in the election of Trustees. Until
Shares are issued, the Trustees may exercise all rights of Shareholders and may
take any action required by law, the Declaration or the Bylaws to be taken by
Shareholders. The Bylaws may include further provisions for Shareholders' votes
and meetings and related matters.
SECTION 6.9. SERIES DESIGNATION. The Trustees, in their discretion, may
authorize the division of Shares into additional series, and the different
series shall be established and designated, and the variations in the relative
rights and preferences as between the different series shall be fixed and
determined by the Trustees, provided, that all Shares shall be identical except
that there may be variations so fixed and determined between different series as
to investment objective, purchase price, right of redemption and the price,
terms and manner of redemption, special and relative rights as to dividends and
on liquidation, conversion rights, and conditions under which the several series
shall have separate voting rights. All references to Shares in the Declaration
shall be deemed to be shares of any or all series as the context may require.
If the Trustees shall divide the shares of the Trust into two or more
series, the following provisions shall be applicable:
<PAGE> 13
(a) the number of authorized shares and the number of shares of each
series that may be issued shall be unlimited. The Trustees may classify or
reclassify any unissued shares or any shares previously issued and reacquired of
any series into one or more series that may be established and designated from
time to time. The Trustees may hold as treasury shares (of the same or some
other series), reissue for such consideration and on such terms as they may
determine, or cancel any shares of any series reacquired by the Trust at their
discretion from time to time.
(b) The power of the Trustees to invest and reinvest the Trust Property
shall be governed by Section 3.2 of this Declaration with respect to the five
existing series which represents the interests in the assets of the Trust
immediately prior to the establishment of any additional series and the power of
the Trustees to invest and reinvest assets applicable to any such additional
series shall be as set forth in the instrument of the Trustees establishing such
series which is hereinafter described.
(c) All consideration received by the Trust for the issue or sale of
shares of a particular series, together with all assets in which such
consideration is invested or reinvested, all income, earnings, profits and
proceeds thereof, including any proceeds derived from the sale, exchange or
liquidation of such assets, and any funds or payments derived from any
reinvestment of such proceeds in whatever form the same may be, shall
irrevocably belong to that series for all purposes, subject only to the rights
of creditors, and shall be so recorded upon the books of account of the Trust.
In the event that there are any assets, income, earnings, profits, and proceeds
thereof, funds, or payments which are not readily identifiable as belonging to
any particular series, the Trustees shall allocate them among any one or more of
the series established and designated from time to time in such manner and on
such basis as they, in their sole discretion, deem fair and equitable. Each such
allocation by the Trustees shall be conclusive and binding upon the shareholders
of all series for all purposes.
(d) The assets belonging to each particular series shall be charged
with the liabilities of the Trust in respect of that series and all expenses,
costs, charges and reserves attributable to that series, and any general
liabilities, expenses, costs, charges or reserves of the Trust which are not
readily identifiable as belonging to any particular series shall be allocated
and charged by the Trustees to and among any one or more of the series
established and designated from time to time in such manner and on such basis as
the Trustees, in their sole discretion, deem fair and equitable. Each allocation
of liabilities, expenses, costs, charges and reserves by the Trustees shall be
conclusive and binding upon the holders of all series for all purposes. The
Trustees shall have full discretion, to the extent not inconsistent with the
1940 Act, to determine which items shall be treated as income and which items as
capital; and each such determination and allocation shall be conclusive and
binding upon the shareholders.
(e) The power of the Trustees to pay dividends and make distributions
shall be governed by Section 8.2 of this Trust with respect to the five existing
series which represents the interests in the assets of the Trust immediately
prior to the establishment of any additional series. With respect to any other
series, dividends and distributions on shares of a particular series may be paid
with such frequency as the Trustees may determine, which may be daily or
otherwise, pursuant to a standing resolution or resolutions adopted only once or
with such frequency as the Trustees may determine, to the holders of shares of
that series, from such of the income and capital gains, accrued or realized,
from the assets belonging to that series, as the Trustees may determine, after
providing for actual and accrued liabilities belonging to that series. All
dividends and distributions on shares of a particular series shall be
distributed pro rata to the holders of that series in proportion to the number
of shares
<PAGE> 14
of that series held by all such holders at the date and time of record
established for the payment of such dividends or distributions.
The establishment and designation of any series of shares shall be
effective upon the execution by a majority of the then Trustees of an instrument
setting forth such establishment and designation and the relative rights and
preferences of such series, or as otherwise provided in such instrument. At any
time that there are no shares outstanding of any particular series previously
established and designated, the Trustees may, by an instrument executed by a
majority of their number, abolish that series and the establishment and
designation thereof. Each instrument referred to in this paragraph shall have
the status of an amendment to this Declaration.
ARTICLE VII
REDEMPTIONS
SECTION 7.1. REDEMPTIONS. In case any Shareholder at any time desires
to dispose of his Shares, he may deposit his certificate or certificates
therefor, duly endorsed in blank or accompanied by an instrument of transfer
executed in blank, or if the Shareholder has no certificates, a written request
or other such form of request as the Trustees may from time to time authorize,
at the office of the Transfer Agent or at the office of any bank or trust
company, either in or outside of Massachusetts, which is a member of the Federal
Reserve System and which the said Transfer Agent has designated in writing for
that purpose, together with an irrevocable offer in writing in a form acceptable
to the Trustees to sell the Shares represented thereby to the Trust at the net
asset value thereof per Share, determined as provided in Section 8.1 hereof,
next after such deposit. Payment for said Shares shall be made to the
Shareholder within seven (7) days after the date on which the deposit is made,
unless (i) the date of payment is postponed pursuant to Section 7.2 hereof, or
(ii) the receipt, or verification of receipt, of the purchase price for the
Shares to be redeemed is delayed, in either of which event payment may be
delayed beyond seven (7) days.
SECTION 7.2. SUSPENSION OF RIGHT OF REDEMPTION. The Trust may declare a
suspension of the right of redemption or postpone the date of payment or
redemption for the whole or any part of any period (i) during which the New York
Stock Exchange is closed other than customary weekend and holiday closings; (ii)
during which trading on the New York Stock Exchange is restricted; (iii) during
which an emergency exists as a result of which disposal by the Trust of
securities owned by it is not reasonably practicable or it is not reasonably
practicable for the Trust fairly to determine the value of its net assets; or
(iv) during any other period when the Commission may for the protection of
security holders of the Trust by order permit suspension of the right of
redemption or postponement of the date of payment or redemption; provided that
applicable rules and regulations of the Commission shall govern as to whether
the conditions prescribed in (ii) , (iii) , or (iv) exist. Such suspension shall
take effect at such time as the Trust shall specify, but not later than the
close of business on the business day next following the declaration of
suspension, and thereafter there shall be no right of redemption until the Trust
shall declare the suspension at an end, except that the suspension shall
terminate in any event on the first day on which said stock exchange shall have
reopened or the period specified in (ii) or (iii) shall have expired (as to
which, in the absence of an official ruling by the Commission, the determination
of the Trust shall be conclusive). In the case of a suspension of the right of
redemption, a Shareholder may either withdraw his request for redemption or
receive payment based on the net asset value existing after the termination of
the suspension.
<PAGE> 15
SECTION 7.3. REDEMPTION OF SHARES: DISCLOSURE OF HOLDING. If the
Trustees shall, at any time and in good faith, be of the opinion that direct or
indirect ownership of Shares or other securities of the Trust has or may become
concentrated in any Person to an extent which would disqualify the Trust as a
regulated investment company under the Internal Revenue Code, then the Trustees
shall have the power by lot or other means deemed equitable by them (i) to call
for redemption by any such Person of a number, or principal amount, of Shares or
other securities of the Trust sufficient to maintain or bring the direct or
indirect ownership of Shares or other securities of the Trust into conformity
with the requirements for such qualification; and (ii) to refuse to transfer or
issue Shares or other securities of the Trust to any Person whose acquisition of
the Shares or other securities of the Trust in question would result in such
disqualification. The redemption shall be effected at the redemption price and
in the manner provided in Section 7.1.
The holders of Shares or other securities of the Trust shall upon
demand disclose to the Trustees in writing such information with respect to
direct and indirect ownership of Shares or other securities of the Trust as the
Trustees deem necessary to comply with the provisions of the Internal Revenue
Code, or to comply with the requirements of any other authority.
SECTION 7.4. REDEMPTIONS OF ACCOUNTS OF LESS THAN $500. The Trustees
shall have the power at any time to redeem Shares of any Shareholder at a
redemption price determined in accordance with Section 7.1, if at such time the
aggregate net asset value of the Shares in such Shareholder's account is less
than $500. A shareholder will be notified that the value of his account is less
than $500 and allowed thirty (30) days to make an additional investment before
redemption is processed.
ARTICLE VIII
DETERMINATION OF NET ASSET VALUE
NET INCOME AND DISTRIBUTIONS
SECTION 8.1. NET ASSET VALUE. For all purposes under this Declaration
of Trust, the net asset value shall be determined by the Trustees as soon as
possible after the close of the New York Stock Exchange on each business day
upon which such Exchange is open, such net asset value to become effective one
hour after such close and remain in effect until the next determination of such
net asset value becomes effective; provided, however, that the Trustees may in
their discretion make a more frequent determination of the net asset value which
shall become effective one hour after the time as of which such net asset value
is determined.
Such net asset value shall be determined in the following manner:
(a) All securities listed on any recognized Exchange shall be appraised
at the quoted closing sale prices and in the event that there was no sale of any
particular security on such day the quoted closing bid price thereof shall be
used, or if any such security was not quoted on such day or if the determination
of the net asset value is being made as of a time other than the close of the
New York Stock Exchange, then the same shall be appraised in such manner as
shall be deemed by the Trustees to reflect its fair value.
All other securities and assets of the Trust, including cash, prepaid
and accrued items, and dividends receivable, shall be appraised in such manner
as shall be deemed by the Trustees to reflect their fair value.
<PAGE> 16
(b) From the total value of the Trust Property as so determined shall
be deducted the liabilities of the Trust, including reserves for taxes, and such
expenses and liabilities of the Trust as may be determined by the Trustees to be
accrued liabilities.
(c) The resulting amount shall represent the net asset value of the
Trust Property. The net asset value of a share of any class shall be the result
of the division of the net asset value of the underlying assets of that class by
the number of shares of that class outstanding. The net asset value of the Trust
Property and shares as so determined shall be final and conclusive.
SECTION 8.2. DISTRIBUTIONS TO SHAREHOLDERS. The Trustees shall from
time to time distribute ratably among the Shareholders such proportion of the
net profits, surplus (including paid-in surplus), capital, or assets held by the
Trustees as they may deem proper. Such distribution may be made in cash or
property (including without limitation any type of obligations of the Trust or
any assets thereof), and the Trustees may distribute ratably among the
Shareholders additional Shares issuable hereunder in such manner, at such times,
and on such terms as the Trustees may deem proper. Such distributions may be
among the Shareholders of record at the time of declaring a distribution or
among the Shareholders of record at such later date as the Trustees shall
determine. The Trustees may always retain from the net profits such amount as
they may deem necessary to pay the debts or expenses of the Trust or to meet
obligations of the Trust, or as they may deem desirable to use in the conduct of
its affairs or to retain for future requirements or extensions of the business.
The Trustees may adopt and offer to Shareholders such dividend reinvestment
plans, cash dividend payout plans or related plans as the Trustees shall deem
appropriate.
Inasmuch as the computation of net income and gains for Federal Income
Tax purposes may vary from the computation thereof on the books, the above
provisions shall be interpreted to give the Trustees the power in their
discretion to distribute for any fiscal year as ordinary dividends and as
capital gains distributions, respectively, additional amounts sufficient to
enable the Trust to avoid or reduce liability for taxes.
SECTION 8.3. DETERMINATION OF NET INCOME. The term "net income" with
respect to a class of shares is hereby defined as the gross earnings of the
class, excluding gains on sales of securities and stock dividends received, less
the expenses of the Trust allocated to the class by the Trustees in such manner
as they determine to be fair and equitable or otherwise chargeable to the class.
The expenses shall include (1) taxes attributable to the income of the Trust
exclusive of gains on sales, and (2) other charges properly deductible for the
maintenance and administration of the Trust; but there shall not be deducted
from gross or net income any losses on securities, realized or unrealized. The
Trustees shall otherwise have full discretion to determine which items shall be
treated as income and which items as capital and their determination shall be
binding upon the Beneficiaries.
SECTION 8.4. POWER TO MODIFY FOREGOING PROCEDURES. Notwithstanding any
of the foregoing provisions of this Article VIII, the Trustees may prescribe, in
their absolute discretion, such other bases and times for determining the per
Share net asset value of the Shares or net income, or the declaration and
payment of dividends and distributions as they may deem necessary or desirable.
Without limiting the generality of the foregoing, the Trustees may establish
additional series of Shares in accordance with Section 6.9.
<PAGE> 17
ARTICLE IX
DURATION; TERMINATION OF TRUST
AMENDMENT; MERGERS; ETC.
SECTION 9.1. DURATION. The Trust shall continue without limitation of
time but subject to the provisions of this Article IX.
SECTION 9.2. TERMINATION OF TRUST. (a) The Trust must be terminated:
(i) by the affirmative vote of the holders of not less than two-thirds
of the Shares outstanding and entitled to vote at any meeting of Shareholders,
or (ii) by an instrument in writing, without a meeting, signed by a majority of
the Trustees and consented to by the holders of not less than two-thirds of such
Shares, or by such other vote as may be established by the Trustees with respect
to any series of Shares, or (iii) by the Trustees by written notice to the
Shareholders.
Upon the termination of the Trust:
(i) The Trust shall carry on no business except for the purpose of
winding up its affairs.
(ii) The Trustees shall proceed to wind up the affairs of the Trust and
all of the powers of the Trustees under this Declaration shall continue until
the affairs of the Trust shall have been wound up, including the power to
fulfill or discharge the contracts of the Trust, collect its assets, sell,
convey, assign, exchange, transfer or otherwise dispose of all or any part of
the remaining Trust Property to one or more persons at public or private sale
for consideration which may consist in whole or in part of cash, securities or
other property of any kind, discharge or pay its liabilities, and to do all
other acts appropriate to liquidate its business; provided that any sale,
conveyance, assignment, exchange, transfer or other disposition of all or
substantially all the Trust Property shall require Shareholder approval in
accordance with Section 9.4 hereof.
(iii) After paying or adequately providing for the payment of all
liabilities, and upon receipt of such releases, indemnities and refunding
agreements, as they deem necessary for their protection, the Trustees may
distribute the remaining Trust Property, in cash or in kind or partly each,
among the Shareholders according to their respective rights.
(iv) After termination of the Trust and distribution to the
Shareholders as herein provided, a majority of the Trustees shall execute and
lodge among the records of the Trust an instrument in writing setting forth the
fact of such termination, and the Trustees shall thereupon be discharged from
all further liabilities and duties hereunder, and the rights and interests of
all Shareholders shall thereupon cease.
SECTION 9.3. AMENDMENT PROCEDURE. (a) This Declaration may be amended
by a Majority Shareholder Vote or by any instrument in writing, without a
meeting, signed by a majority of the Trustees and consented to by the holders of
not less than a majority of the Shares outstanding and entitled to vote. The
Trustees may also amend this Declaration without the vote or consent of
Shareholders to designate series in accordance with Section 6.9 hereof, to
change the name of the Trust, to supply any omission, to cure, correct or
supplement any ambiguous, defective or inconsistent provision hereof, or if they
deem it necessary to conform this Declaration to the requirements of applicable
federal laws or regulations or the requirements of the regulated
<PAGE> 18
investment company provisions of the Internal Revenue Code, but the Trustees
shall not be liable for failing to do so.
(b) No amendment may be made under this Section 9. 3 which would change
any rights with respect to any Shares of the Trust by reducing the amount
payable thereon upon liquidation of the Trust or by diminishing or eliminating
any voting rights pertaining thereto, except with the vote or consent of the
holders of two-thirds of the Shares outstanding and entitled to vote, or by such
other vote as may be established by the Trustees with respect to any series of
Shares. Nothing contained in this Declaration shall permit the amendment of this
Declaration to impair the exemption from personal liability of the Shareholders,
Trustees, officers, employees and agents of the Trust or to permit assessments
upon Shareholders.
(c) A certificate signed by a majority of the Trustees setting forth an
amendment and reciting that it was duly adopted by the Shareholders or by the
Trustees as aforesaid or a copy of the Declaration, as amended, and executed by
a majority of the Trustees, shall be conclusive evidence of such amendment when
lodged among the records of the Trust.
SECTION 9.4. MERGER, CONSOLIDATION AND SALE OF ASSETS. The Trust may
merge or consolidate with any other corporation, association, trust or other
organization or may sell, lease or exchange all or substantially all of the
Trust Property, including its goodwill, upon such terms and conditions and for
such consideration when and as authorized at any meeting of Shareholders called
for the purpose by the affirmative vote of the holders of not less than
two-thirds of the Shares outstanding and entitled to vote, or by an instrument
or instruments in writing without a meeting, consented to by the holders of not
less than two-thirds of such Shares, or by such other vote as may be established
by the Trustees with respect to any series of Shares; provided, however, that,
if such merger, consolidation, sale, lease or exchange is recommended by the
Trustees, the vote or written consent of the holders of a majority of Shares
outstanding and entitled to vote, or by such other vote as may be established by
the Trustees with respect to any series of Shares, shall be sufficient
authorization; and any such merger, consolidation, sale, lease or exchange shall
be deemed for all purposes to have been accomplished under and pursuant to the
statutes of the Commonwealth of Massachusetts.
SECTION 9.5. INCORPORATION. With the approval of the holders of a
majority of the Shares outstanding and entitled to vote, or by such other vote
as may be established by the Trustees with respect to any series of Shares, the
Trustees may cause to be organized or assist in organizing a corporation or
corporations under the laws of any jurisdiction or any other trust, partnership,
association or other organization to take over all of the Trust Property or to
carry on any business in which the Trust shall directly or indirectly have any
interest, and to sell, convey and transfer the Trust Property to any such
corporation, trust, association or organization in exchange for the shares or
securities thereof or otherwise, and to lend money to, subscribe for the shares
or securities of, and enter into any contracts with any such corporation, trust,
partnership, association or organization in which the Trust holds or is about to
acquire shares or any other interest. The Trustees may also cause a merger or
consolidation between the Trust or any successor thereto and any such
corporation, trust, partnership, association or other organization if and to the
extent permitted by law, as provided under the law then in effect. Nothing
contained herein shall be construed as requiring approval of Shareholders for
the Trustees to organize or assist in organizing one or more corporations,
trusts, partnerships, associations or other organizations and selling, conveying
or transferring a portion of the Trust Property to such organization or
entities.
<PAGE> 19
ARTICLE X
REPORTS TO SHAREHOLDERS
The Trustees shall at least semi-annually submit to the Shareholders a
written financial report of the transactions of the Trust, including financial
statements which shall at least annually be certified by independent public
accountants.
ARTICLE XI
MISCELLANEOUS
SECTION 11.1. FILING. This Declaration and any amendment hereto shall
be filed in the office of the Secretary of the Commonwealth of Massachusetts and
in such other places as may be required under the laws of Massachusetts and may
also be filed or recorded in such other places as the Trustees deem appropriate.
Each amendment so filed shall be accompanied by a certificate signed and
acknowledged by a Trustee stating that such action was duly taken in a manner
provided herein, and unless such amendment or such certificate sets forth some
later time for the effectiveness of such amendment, such amendment shall be
effective upon its filing. A restated Declaration, integrating into a single
instrument all of the provisions of the Declaration which are then in effect and
operative, may be executed from time to time by a majority of the Trustees and
shall, upon filing with the Secretary of the Commonwealth of Massachusetts, be
conclusive evidence of all amendments contained herein and may thereafter be
referred to in lieu of the original Declaration and the various amendments
thereto.
SECTION 11.2. RESIDENT AGENT. The name of the Trust's resident agent is
The One Group(R) Investment Trust, c/o CT Corporation System, and its post
office address is 2 Oliver Street, Boston, Massachusetts 02109.
SECTION 11.3. GOVERNING LAW. This Declaration is executed by the
Trustees and delivered with reference to the laws of the Commonwealth of
Massachusetts, and the rights of all parties and the validity and construction
of every provision hereof shall be subject to and construed according to the
laws of said State.
SECTION 11.4. COUNTERPARTS. This Declaration may be simultaneously
executed in several counterparts, each of which shall be deemed to be an
original, and such counterparts, together, shall constitute one and the same
instrument, which shall sufficiently evidenced by any such original counterpart.
SECTION 11.5. RELIANCE BY THIRD PARTIES. Any certificate executed by an
individual who, according to the records of the Trust appears to be a Trustee
hereunder, certifying to: (a) the number or identity of Trustees or
Shareholders, (b) the due authorization of the execution of any instrument or
writing, (c) the form of any vote passed at a meeting of Trustees or
Shareholders, (d) the fact that the number of Trustees or Shareholders present
at any meeting or executing any written instrument satisfies the requirements of
this Declaration, (e) the form of any Bylaws adopted by or the identity of any
officers elected by the Trustees, or (f) the existence of any fact or facts
which in any manner relate to the affairs of the Trust, shall be conclusive
evidence as to the matters so certified in favor of any Person dealing with the
Trustees and their successors.
<PAGE> 20
SECTION 11.6. PROVISIONS IN CONFLICT WITH LAW OR REGULATIONS.
(a) The provisions of the Declaration are severable, and if the
Trustees shall determine, with the advice of counsel, that any of such
provisions is in conflict with the 1940 Act, the regulated investment company
provisions of the Internal Revenue Code or with other applicable laws and
regulations, the conflicting provisions shall be deemed never to have
constituted a part of the Declaration; provided, however, that such
determination shall not affect any of the remaining provisions of the
Declaration or render invalid or improper any action taken or omitted prior to
such determination.
(b) If any provision of the Declaration shall be held invalid or
unenforceable in any jurisdiction, such invalidity or unenforceability shall
attach only to such provision in such jurisdiction and shall not in any manner
affect such provision in any other jurisdiction or any other provision of the
Declaration in any jurisdiction.
SECTION 11.7. INDEX AND HEADING FOR REFERENCE ONLY. The Index and
heading preceding the text, articles and sections hereof have been inserted for
convenience and reference only and shall not be construed to affect the meaning,
construction, or effect of this Declaration.
IN WITNESS WHEREOF, the undersigned Trustees have hereunto set their hands this
18th day of February, 1998.
Address: Three Nationwide Plaza
26th Floor
Columbus, Ohio 43216
-------------------------------
Peter C. Marshall
Trustee
-------------------------------
Charles I. Post
Trustee
-------------------------------
John S. Randall
Trustee
-------------------------------
Frederick W. Ruebeck
Trustee
-------------------------------
Robert A. Oden, Jr.
Trustee
<PAGE> 1
Exhibit 5(b)
APPENDIX A
FEE PAYABLE TO ADVISER (AS A PERCENTAGE
FUNDS OF THE TRUST OF EACH FUND'S AVERAGE DAILY NET ASSETS)
Government Bond Fund 0.45%
Asset Allocation Fund 0.70%
Growth Opportunities Fund 0.65%
Large Company Growth Fund 0.65%
Equity Index Fund 0.30%
THE ONE GROUP(R) INVESTMENT TRUST
By:
---------------------------------
Title:
------------------------------
BANC ONE INVESTMENT ADVISORS
CORPORATION
By:
---------------------------------
Title:
-----------------------------
Dated: February 18, 1998
------------------------------
<PAGE> 1
Exhibit 9(b)
APPENDIX A
FUNDS OF THE TRUST
Government Bond Fund
Asset Allocation Fund
Growth Opportunities Fund
Large Company Growth Fund
Equity Index Fund
THE ONE GROUP(R) INVESTMENT TRUST
By:
---------------------------------
Title:
------------------------------
NATIONWIDE INVESTORS SERVICES, INC.
By:
---------------------------------
Title:
-----------------------------
Dated: February 18, 1998
------------------------------
<PAGE> 1
Exhibit 9(d)
SECOND
AMENDED AND RESTATED
ADMINISTRATIVE SERVICES AGREEMENT
This Second Amended and Restated Administrative Services Agreement ("Agreement")
is made as of this 18th day of February, 1998, between The One Group(R)
Investment Trust, a Massachusetts business trust (herein called the "Trust"),
and Nationwide Advisory Services, Inc., an Ohio corporation, (herein called the
"Administrator").
WHEREAS, the Trust and the Administrator executed an Administrative Services
Agreement dated May 20, 1994 and the Trust and the Administrator executed an
Amended and Restated Administrative Services Agreement on August 23, 1996; and
WHEREAS, the parties hereto desire to amend the Amended and Restated
Administrative Services Agreement; and
WHEREAS, the Trust is a Massachusetts business trust, consisting of the series
of shares listed in Appendix A hereto (the "Funds"), which operates as an
open-end management investment company and will so register under the Investment
Company Act of 1940, as amended (the "Investment Company Act"); and
WHEREAS, the Trust desires to retain the Administrator as administrator to
provide certain administrative services described below with respect to each of
the Funds, and the Administrator is willing to render such services;
NOW, THEREFORE, in consideration of the premises and mutual covenants set forth
herein, the parties hereto agree as follows:
1. APPOINTMENT OF ADMINISTRATOR. The Trust hereby appoints the
Administrator as administrator of the Funds on the terms and conditions
set forth in this Agreement; and the Administrator hereby accepts such
appointment and agrees to perform the services and duties set forth in
Section 2 of this Agreement in consideration of the compensation
provided for in Section 4 hereof.
2. SERVICES AND DUTIES. As Administrator, and subject to the supervision
and control of the Trust's Board of Trustees, the Administrator will
provide facilities, equipment, and personnel to carry out the following
administrative services for operation of the business and affairs of
the Trust and each of its Funds:
a. prepare, file, and maintain the Trust's governing documents,
including the Declaration of Trust (which has already been
prepared and filed), the Bylaws, minutes of meetings of
Trustees and shareholders, and proxy statements for meetings
of shareholders;
<PAGE> 2
b. prepare and file with the Securities and Exchange Commission
and the appropriate state securities authorities the
registration statements for the Trust and the Trust's shares
and amendments thereto, the Trust's reports pursuant to
Investment Company Act Rule 24f-2, reports to shareholders and
regulatory authorities, including form N-SAR, and
prospectuses, proxy statements, and such other documents as
may be necessary or convenient to enable the Trust to make
continuous offering of its shares and to conduct its affairs;
c. prepare, negotiate, and administer contracts on behalf of the
Trust with, among others, the Trust's custodian and transfer
agent;
d. supervise the Trust's custodian and fund accounting personnel
in the maintenance of the Trust's general ledger and in the
preparation of the Trust's financial statements, including
oversight of expense accruals and payments, determination of
the net asset value of the Trust's assets and of the Trust's
shares, and of the declaration and payments of dividends and
other distributions to shareholders;
e. calculate performance data of the Funds for dissemination to
information services covering the investment company industry;
f. prepare and file on a timely basis the Trust's Federal and
State income and other tax returns;
g. examine and review the operations of the Trust's custodian,
transfer agent and investment adviser to promote compliance
with applicable state and federal law;
h. coordinate the layout and printing of publicly disseminated
prospectuses and reports;
i. perform internal audit examinations in accordance with
procedures to be adopted by the Administrator and the Trust;
j. assist with the design, development, and operation of the
Trust;
k. provide individuals reasonably acceptable to the Trust's Board
of Trustees for nomination, appointment, or election as
officers of the Trust, who will be responsible for the
management of certain of the Trust's affairs as determined by
the Trust's Board of Trustees;
l. monitor the Trust's compliance with Section 817 and Sections
851 through 855 of the Internal Revenue Code of 1986, as
amended, and the regulations promulgated thereunder, so as to
enable the Trust to comply with the diversification
requirements applicable to investments of variable contracts
and to maintain its status as a "regulated investment
company;"
m. advise the Trust and its Board of Trustees on matters
concerning the Trust and its affairs; and
<PAGE> 3
n. provide the Trust with office space and personnel.
The foregoing, along with any additional services that the
Administrator shall agree in writing to perform for the Trust
hereunder, shall hereafter be referred to as "Administrative Services."
In compliance with the requirements of Rule 31a-3 under the Investment
Company Act, the Administrator hereby agrees that all records that it
maintains for the Trust are the property of the Trust and further
agrees to surrender promptly to the Trust any of such records upon the
Trust's request. The Administrator further agrees to preserve for the
periods prescribed by Investment Company Act Rule 31a-2 the records
required to be maintained by Investment Company Act Rule 31a-1.
Administrative Services shall not include any duties, functions, or
services to be performed for the Trust by the Trust's investment
adviser, custodian, or transfer agent pursuant to their agreements with
the Trust.
The Administrator acknowledges the importance of efficient and prompt
transmission of information to Nationwide Life and Annuity Insurance
Company, the purchaser of Trust shares to fund the obligations of
certain variable annuity contracts. The Administrator agrees to use its
best efforts to meet the deadline for transmission of pricing
information presently set by Nationwide Life and Annuity Insurance
Company and such other time deadlines as may be established from time
to time in the future.
When performing Administrative Services to the Trust, the Administrator
will comply with the provisions of the Declaration of Trust and Bylaws
of the Trust, will safeguard and promote the welfare of the Trust, and
will comply with the policies that the Trustees may from time to time
reasonably determine, provided that such policies are not in conflict
with this Agreement, the Trust's governing documents, or any applicable
statutes or regulations.
3. EXPENSES. The Administrator shall be responsible for expenses incurred
in providing all the Administrative Services to the Trust, including
the compensation of the Administrator employees who serve as Officers
of the Trust. The Trust (or the Trust's investment adviser) shall be
responsible for all other expenses incurred by the Administrator on
behalf of the Trust, including without limitation: (i) investment
advisory fees; (ii) interest and taxes; (iii) brokerage commissions and
other costs in connection with the purchase or sale of securities and
other investment instruments; (iv) all expenses incurred in valuing
portfolio securities for the Equity Index Fund; (v) fees and expenses
of the Trust's trustees, other than those who are "interested persons"
of the Administrator, distributor or investment adviser of the Trust;
(vi) legal and audit expenses; (vii) custodian, registrar and transfer
agent fees and expenses; (viii) fees and expenses related to the
registration and qualification of the Trust and the Trust's shares for
distribution under state and federal securities laws; (ix) expenses of
printing and mailing reports and notices and proxy material to
beneficial shareholders of the Trust; (x) all other expenses incidental
to holding meetings of the Trust's shareholders, including proxy
solicitations therefor, (xi) insurance premiums for fidelity and other
coverage; (xii) association membership dues; (xiii) such nonrecurring
or extraordinary expenses as may arise, including those relating to
actions, suits or proceedings to which the Trust is a party and the
legal obligation which the Trust may have to indemnify the Trust's
trustees and officers with respect thereto.
<PAGE> 4
4. COMPENSATION. For the Administrative Services provided, the Trust
hereby agrees to pay and the Administrator hereby agrees to accept as
full compensation for its services rendered hereunder an administrative
fee, payable monthly as soon as practicable after the last day of each
month. The administrative fee shall be computed on a daily basis at
annual rates equal to the following percentages of the average net
assets of the Trust (less the assets of The One Group(R) Investment
Trust Equity Index Fund): 0.24% of the Trust's average net assets that
are less than $250 million, 0.19% of 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
$1 billion or greater. The administrative fee for The One Group(R)
Investment Trust Equity Index Fund shall be payable in the manner
described above and shall be computed on a daily basis at 0.14% of the
average daily net assets of The One Group(R)Investment Trust Equity
Index Fund.
In the event the total expenses of any one of the Funds in any fiscal
year exceed expense limitations imposed by applicable state securities
regulations, the Administrator and the Trust's investment adviser shall
reimburse that Fund by the amount of such excess in proportion to their
respective fees (after giving effect to any waiver of fees agreed to by
the Administrator and investment adviser).
In case of termination of this Agreement during any month, the
administrative fee for that month shall be reduced proportionately on
the basis of the number of business days during which it is in effect,
and the fee computed upon the average net assets for the business days
it is so in effect for that month.
5. RESPONSIBILITY OF ADMINISTRATOR.
a. The Administrator 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 matters to which this Agreement
relates, except a loss resulting from willful misfeasance, bad
faith or negligence on its part in the performance of its
duties or from reckless disregard by it of its obligations and
duties under this Agreement. Any person, even though also an
officer, director, partner, employee or agent of the
Administrator, who may be or become an officer, trustee,
employee or agent of the Trust, shall be deemed, when
rendering services to the Trust or acting on any business of
the Trust (other than services or business in connection with
the duties of the Administrator hereunder) in accordance with
his responsibilities to the Trust as such officer, employee or
agent, to be rendering such services to or acting solely for
the Trust and not as an officer, director, partner, employee
or agent or one under the control or direction of the
Administrator even through paid by the Administrator.
b. The Administrator shall be kept indemnified by the Trust and
be without liability for any action taken or thing done by it
in performing the Administrative Services in accordance with
the above standards; provided, however, that the Trust will
not indemnify the Administrator for the portion of any loss or
claim caused, directly or indirectly, by the negligence of the
Administrator. In order that the indemnification provisions
contained in this Section 5 shall apply, however, it is
understood that if
<PAGE> 5
in any case the Trust may be asked to indemnify or save the
Administrator harmless, the Trust shall be fully and promptly
advised of all pertinent facts concerning the situation in
question, and it is further understood that the Administrator
will use all reasonable care to identify and notify the Trust
promptly concerning any situation which presents or appears
likely to present the probability of such a claim for
indemnification against the Trust. The Trust shall have the
option to defend the Administrator against any claim which may
be the subject of this indemnification. In the event that the
Trust so elects it will so notify the Administrator and
thereupon the Trust shall take over complete defense of the
claim, and the Administrator shall in such situation initiate
no further legal or other expenses for which it shall seek
indemnification under this Section. The Administrator shall in
no case confess any claim or make any compromise in any case
in which the Trust will be asked to indemnify the
Administrator except with the Trust's written consent.
6. Duration and Termination
a. The initial term of this Agreement shall commence as of May
20, 1994 and extend until August 31, 1997.
b. Thereafter, this Agreement shall be automatically renewed each
year for an additional term of one year, unless notice of
termination has been delivered by either party to the other no
less than 90 days before the beginning of such additional
term.
c. Notwithstanding the foregoing, this Agreement may be
terminated at any time by mutual agreement of the parties
hereto or for "cause" (as defined below), in either case on
not less than 60 days' notice given by the Trust's Board of
Trustees or given by the Administrator. For purposes of this
Agreement, "cause" shall mean (a) willful misfeasance, bad
faith, gross negligence or reckless disregard on the part of
the Administrator with respect to its obligations and duties
set forth herein; (b) a final judicial, regulatory or
administrative ruling or order in which the Administrator has
been found guilty of criminal misconduct or of unethical
behavior in the operation of its business; (c) the dissolution
or liquidation of either party or other cessation of business
other than a reorganization or recapitalization of such party
as an ongoing business; (d) financial difficulties on the part
of either party which is evidenced by the authorization or
commencement of, or involvement by way of pleading, answer,
consent, or acquiescence in, a voluntary or involuntary case
under Title 11 of the United States Code, as may be in effect
from time to time, or any applicable law, other than said
Title 11, of any jurisdiction relating to the liquidation or
reorganization of debtors or to the modification or alteration
of the rights of creditors; or (e) any other circumstances
which may substantially impair the performance of either
party's obligations and duties, or the ability to perform
those obligations and duties, as contemplated herein.
d. This Agreement shall be reviewed under the "cause" provisions
of Section 6(c) at least annually annually by the Trust's
Board of Trustees.
<PAGE> 6
e. Upon the termination of this Agreement, the Trust shall pay to
the Administrator such compensation as may be payable prior to
the effective date of such termination. In the event that the
Trust designates a successor to any of the Administrator's
obligations hereunder, the Administrator shall, at the
direction of the Trust, transfer to such successor all
relevant books, records and other data established or
maintained by the Administrator under the foregoing
provisions.
7. AMENDMENT. No provision of this Agreement may be changed, waived,
discharged or terminated orally, but only by an instrument in writing
signed by the party against which an enforcement of the change, waiver,
discharge or termination is sought.
8. LIMITATIONS OF LIABILITY OF TRUSTEES EMPLOYEES, AGENTS AND SHAREHOLDERS
OF THE TRUST. The Administrator is expressly put on notice of the
limitation of liability as set forth in the Declaration of Trust and
agrees that the obligations assumed by the Trust pursuant to this
Agreement shall be limited in any case to the Trust and its assets and
that the Administrator shall not seek satisfaction of any such
obligations from the shareholders of the Trust, the Trustees, officers,
employees or agents of the Trust, or any of them.
9. PROPRIETARY AND CONFIDENTIAL INFORMATION. The Administrator agrees on
behalf of itself and its directors, officers, and employees to treat
confidentially and as proprietary information of the Trust all records
and other information relative to the Trust and prior, present, or
potential Shareholders, and not to use such records and information for
any purpose other than performance of its responsibilities and duties
hereunder, except after prior notification to and approval in writing
by the Trust, which approval may not be withheld where the
Administrator may be exposed to civil or criminal contempt proceedings
for failure to comply, when requested to divulge such information by
duly constituted authorities, or when so requested by the Trust.
Failure by the Administrator to comply with the provisions of this
Section will constitute "cause" for purposes of Section 6(c).
10. NOTICES. Notices of any kind to be given to the Trust hereunder by the
Administrator shall be in writing and shall be duly given if delivered
to the Trust and to its investment adviser at the following address:
The One Group(R) Investment Trust
Three Nationwide Plaza
3-26-02
Columbus, Ohio 43215
Attn.: James F. Laird, Jr., President and Treasurer
Notices of any kind to be given to the Administrator hereunder by the
Trust shall be in writing and shall be duly given if delivered to the
Administrator at:
Nationwide Advisory Services, Inc.
One Nationwide Plaza
Columbus, Ohio 43216
Attn.: Christopher A. Cray, Treasurer
<PAGE> 7
11. MISCELLANEOUS. The captions in this Agreement are included for
convenience of reference only and in no way define or delimit any of
the provisions hereof or otherwise affect their construction or effect.
If any provision of this Agreement shall be held or made invalid by a
court or regulatory agency decision, statute, rule or otherwise, the
remainder of this Agreement shall not be affected thereby. Subject to
the provisions of Section 5, hereof, this Agreement shall be binding
upon and shall inure to the benefit of the parties hereto and their
respective successors and shall be governed by Massachusetts law;
provided, however, that nothing herein shall be construed in a manner
inconsistent with the Investment Company Act of 1940 or any rule or
regulation promulgated by the Securities and Exchange Commission
thereunder.
IN WITNESS WHEREOF, the parties hereto have caused this instrument to be
executed by their officers designated below as of the day and year first above
written.
THE ONE GROUP(R) INVESTMENT TRUST
By:
---------------------------------
Title:
------------------------------
NATIONWIDE ADVISORY SERVICES, INC.
By:
---------------------------------
Title:
------------------------------
<PAGE> 8
APPENDIX A
FUNDS OF THE TRUST
Government Bond Fund
Asset Allocation Fund
Growth Opportunities Fund
Large Company Growth Fund
Equity Index Fund
THE ONE GROUP(R) INVESTMENT TRUST
By:
---------------------------------
Title:
------------------------------
NATIONWIDE ADVISORY SERVICES, INC.
By:
---------------------------------
Title:
-----------------------------
Dated: February 18, 1998
------------------------------
<PAGE> 1
Exhibit 9(e)
AMENDED AND RESTATED
FUND PARTICIPATION AGREEMENT
This Amended and Restated Fund Participation Agreement (the "Agreement") , dated
as of the 29th day of July, 1994, and amended and restated as of the 21st day of
May, 1996, and further amended and restated as of the 18th day of February,
1998, is made by and among Nationwide Life and Annuity Insurance Company
("Nationwide"), The One Group(R) Investment Trust (the "Trust"), and the Trust's
administrator, Nationwide Advisory Services, Inc. (the "Administrator"), each of
which hereby agrees that shares of the series listed in Appendix A hereto (the
"Funds") shall be made available to serve as underlying investment media for The
One(R) Investors Annuity(SM) Contracts (the "Contracts") to be offered by
Nationwide 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, subject to the following conditions:
1. Nationwide represents that it has established the Nationwide VA
Separate Account-C (the "Variable Account"), a separate account under
Ohio law, and has registered it as a unit investment trust under the
Investment Company Act of 1940 ("1940 Act") to serve as an investment
vehicle for the Contracts. The Contracts provide for the allocation of
net amounts received by Nationwide to separate series of the Variable
Account for investment in the shares of the Funds. Selection of a
particular series is made by the Contract owner who may change such
selection from time to time in accordance with the terms of the
applicable Contract.
2. Nationwide agrees to make every reasonable effort to market its
Contracts. In marketing its Contracts, Nationwide will comply with all
applicable state or Federal laws.
3. The Administrator or its designee will provide closing net asset value,
dividend and capital gain information at the close of trading each
business day to Nationwide. "Business day" shall mean any day on which
the New York Stock Exchange is open for trading and on which the Trust
calculates net asset value for each Fund as set forth in the Trust's
prospectus and Statement of Additional Information. Nationwide will use
this data to calculate unit values, which will in turn be used to
process that same business day's Variable Account unit value. The
Variable Account processing will be done the same evening, and orders
for purchases or redemptions will be placed the morning of the
following business day. Orders will be sent directly to the Trust or
its specified designee. Payment for purchases will be wired to a
custodial account designated by the Trust or the Administrator and
payment for redemptions will be wired to an account designated by
Nationwide so as to coincide with the order for Trust shares. The
Administrator or its designee will execute the orders at the net asset
value as determined as of the close of trading on the prior day.
Dividends and capital gains distributions shall be reinvested in
additional shares at the ex-date net asset value. Notwithstanding the
above, the Administrator or its designee shall not be held responsible
for providing Nationwide with net asset value, dividend and capital
gain information when the New York Stock Exchange is closed, when an
emergency exists making the valuation
1
<PAGE> 2
of net assets not reasonably practicable, or during any period when the
Securities and Exchange Commission ("SEC") has by order permitted the
suspension of pricing shares for the protection of shareholders.
4. All expenses incident to the performance by the Trust under this
Agreement shall be the responsibility of the Trust or the
Administrator, as agreed to among themselves, but in no event shall
such expenses be the responsibility of Nationwide or the Variable
Account. The Trust shall pay the cost of registration of Fund shares
with the SEC. The Trust shall pay for and distribute to Nationwide,
proxy material, periodic Trust reports to shareholders and other
material the Trust may require to be sent to Contract owners. The Trust
will pay the mailing expenses of Nationwide for distributing such proxy
material, reports and other material to the Contract owners, who are
the beneficial shareholders of the Trust. The Trust shall pay the cost
of qualifying Fund shares in states where required. The Administrator
shall pay for and distribute to Nationwide, Trust prospectuses. In the
event that the Variable Account prospectus and the Trust prospectus are
printed together in one document form, the Trust's share of the
printing cost for such disclosure document will be equal to the total
cost of printing the disclosure documents multiplied by the ratio of
the total number of pages in the Trust's prospectus to the total number
of pages in the disclosure document, with Nationwide paying the rest.
The Administrator will provide Nationwide with a copy of the Statement
of Additional Information suitable for duplication.
5. Nationwide and its agents shall make no representations concerning the
Trust except those contained in the then-current prospectus and
Statement of Additional Information of the Trust and in current printed
sales literature of the Trust.
6. Administrative services to Contract owners shall be the responsibility
of Nationwide and shall not be the responsibility of the Trust or the
Administrator. The Trust and the Administrator recognize that
Nationwide will be the sole shareholder of Trust shares issued pursuant
to the Contracts.
7.1 The Trust represents that it believes, in good faith, that the Funds
will at all times qualify as regulated investment companies under
Subchapter M of the Internal Revenue Code of 1986, as amended (the
"Code") and that it will make every effort to maintain such
qualification of the Funds and that it will notify Nationwide
immediately upon having a reasonable basis for believing that a Fund
has ceased to so qualify or that it might not so qualify in the future.
7.2 Nationwide represents that it believes, in good faith, that the
Contracts will at all times be treated as annuity contracts under
applicable provisions of the Code, and that it will make every effort
to maintain such treatment and that it will notify the Trust
immediately upon having a reasonable basis for believing that the
Contracts have ceased to be so treated or that they might not be so
treated in the future.
7.3 The Trust represents that it believes, in good faith, that the Funds
will at all times comply with the diversification requirements set
forth in Section 817(h) of the Code and Section 1.817-5(b) of the
regulations under the Code, and that it will make every effort to
maintain
2
<PAGE> 3
the Fund's compliance with such diversification requirements, and that
it will notify Nationwide immediately upon having a reasonable basis
for believing that a Fund has ceased to so qualify or that a Fund might
not so qualify in the future.
7.4 Nationwide represents that it believes, in good faith, that the
Variable Account is a "segregated asset account" and that interests in
the Variable Account are offered exclusively through the purchase of a
"variable contract" within the meaning of such terms under Section
1.8170-5(f)(2) of the regulations under the Code, and that it will make
every effort to continue to meet such definitional requirements, and
that it will notify the Trust immediately upon having a reasonable
basis for believing that such requirements have ceased to be met or
that they might not be met in the future.
7.5 The Trust shall provide Nationwide within ten (10) business days after
the end of each calendar quarter a letter from the appropriate officer
of the Trust certifying to the continued accuracy of the
representations contained in Section 7.1 and Section 7.3 above, and
attaching a detailed listing of the individual securities and other
assets, if any, held by the Trust as of the end of such calendar
quarter.
8. The Administrator or its designee shall provide Nationwide within five
(5) business days after the end of each month a monthly statement of
account confirming all transactions made during that month in the
Variable Account.
9. The Trust agrees that to the extent the Trust decides in the future to
finance distribution expenses pursuant to Rule 12b-1 of the 1940 Act,
the Trust will undertake to have the board of trustees, a majority of
whom are not interested persons of the Trust, formulate and approve any
plan under Rule 12b-1 to finance distribution expenses.
10. The Trust and Administrator agree to provide Nationwide no later than
March 1 of each year with the investment advisory and other expenses of
the Trust incurred during the Trust's most recently completed fiscal
year as of March 1, to permit Nationwide to fulfill its prospectus
disclosure obligations under the SEC's variable annuity fee table
requirements.
11. This Agreement shall terminate as to the sale and issuance of new
Contracts:
(a) at the option of any party hereto upon six (6) months advance
written notice to the others;
(b) at the option of the Trust, if they determine that liquidation
of the Trust is in the best interests of the Trust and its
beneficial shareholders. Reasonable advance notice of election
to liquidate shall be furnished by the Trust to permit the
substitution of Fund shares with the shares of another
investment company, pursuant to SEC regulation;
(c) at the option of Nationwide if Trust shares are not available
for any reason to meet the requirements of Contracts as
determined by Nationwide. Reasonable advance notice of
election to terminate shall be furnished by Nationwide;
3
<PAGE> 4
(d) at the option of any party hereto upon institution of formal
proceedings against any other party hereto by the National
Association of Securities Dealers ("NASD"), the SEC or any
other regulatory body;
(e) upon a decision by Nationwide, in accordance with regulations
of the SEC, to substitute such Trust shares with the shares of
another investment company for Contracts for which the Trust
shares have been selected to serve as the underlying
investment medium. Nationwide will give sixty (60) days
written notice to the Trust and the Administrator of any
proposed vote to substitute Trust shares;
(f) upon assignment of this Agreement by any party unless made
with the written consent of each other party;
(g) in the event Trust shares are not registered, issued or sold
in conformance with Federal law or such law precludes the use
of Trust shares as an underlying investment medium of
Contracts issued or to be issued by Nationwide. Prompt notice
shall be given by either party to the other in the event the
conditions of this provision occur.
12. Termination as the result of any cause listed in the preceding
paragraph, except for paragraph 11. (b), shall not affect the Trust's
obligation to furnish Trust shares for Contracts then in force for
which the shares of the Trust serve or may serve as an underlying
medium, unless such further sale of Trust shares is proscribed by law
or the SEC or other regulatory body.
13. Each notice required by this Agreement shall be given by wire and
confirmed in writing to:
Nationwide Life and Annuity Insurance Company
One Nationwide Plaza
Columbus, Ohio 43216
Attn: Robert O. Cline, Associate Vice President
Trust
The One Group(R) Investment Trust
One Nationwide Plaza
Columbus, Ohio 43216
Attn: James F. Laird, President
Administrator
Nationwide Advisory Services, Inc.
One Nationwide Plaza
Columbus, Ohio 43216
Attn: Christopher A. Cray, Treasurer
4
<PAGE> 5
14. Advertising and sales literature with respect to the Trust prepared by
Nationwide or its agents for use in marketing its Contracts will be
submitted to the Trust for review before Nationwide submits such
material to the SEC or NASD for review.
15. So long as and to the extent that the SEC continues to interpret the
1940 Act to require pass-through voting privileges for variable
contract owners, Nationwide will distribute all proxy material
furnished by the Trust and will vote Trust shares in accordance with
instructions received from the Contract owners of such Trust shares.
Nationwide shall vote the Trust shares for which no instructions have
been received in the same proportion as Trust shares for which said
instructions have been received from Contract owners. Nationwide and
its agents will in no way recommend action in connection with or oppose
or interfere with the solicitation of proxies for the Trust shares held
for such Contract owners.
16. (a) Nationwide agrees to indemnify and hold harmless the Trust,
the Administrator and the Trust's investment adviser (the
"Adviser") and each of their directors, officers, employees,
agents and each person, if any, who controls the Trust, the
Administrator or the Adviser within the meaning of the
Securities Act of 1933 (the "Act") against any losses, claims,
damages or liabilities to which the Trust, Administrator or
the Adviser or any such director, officer, employee, agent or
controlling person may become subject, under the Act or
otherwise, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or
are based upon:
(i) any untrue statement or alleged untrue statement of
any material fact contained in information furnished
by Nationwide for use in the Registration Statement
or prospectus of the Trust or in the Registration
Statement or prospectus for the Variable Account;
(ii) the omission or the alleged omission to state in the
Registration Statement or prospectus of the Variable
Account a material fact required to be stated therein
or necessary to make the statements therein not
misleading;
(iii) conduct, statements or representations of Nationwide
or its agents, with respect to the sale and
distribution of Contracts for which Trust shares are
an underlying investment; or
(iv) the failure of Nationwide to provide the services and
furnish the materials under the terms of this
Agreement;
provided however, that Nationwide shall not be liable in any
such case to the extent any such statement, omission or
representation or such alleged statement, alleged omission or
alleged representation was made in reliance upon and in
conformity with information furnished to Nationwide by or on
behalf of the Trust, the Administrator, or the Adviser.
5
<PAGE> 6
Nationwide will reimburse any legal or other expenses
reasonably incurred by the Trust, the Administrator or the
Adviser or any such director, officer, employee, agent or
controlling person in connection with investigating or
defending any such loss, claim, damage, liability or action.
This indemnity agreement will be in addition to any liability
which Nationwide may otherwise have.
(b) The Trust agrees to indemnify and hold harmless Nationwide and
each of its directors, officers, employees, agents and each
person, if any, who controls Nationwide within the meaning of
the Act against any losses, claims, damages or liabilities to
which Nationwide or any such director, officer, employee,
agent or controlling person may become subject, under the Act
or otherwise, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or
are based upon:
(i) any untrue statement or alleged untrue statement of
any material fact contained in the Registration
Statement or prospectus or sales literature of the
Trust;
(ii) the omission or the alleged omission to state in the
Registration Statement or prospectus of the Trust a
material fact required to be stated therein or
necessary to make the statements therein not
misleading;
(iii) the Trust's failure to keep the Trust fully
diversified and qualified as a regulated investment
company as required by the applicable provisions of
the Code, the 1940 Act, and the applicable
regulations promulgated thereunder;
(iv) the Trust's or the Administrator's (1) incorrect
calculation of the daily net asset value, dividend
rate or capital gain distribution rate; (2) incorrect
reporting of the daily net asset value, dividend rate
or capital gain distribution rate; or (3) untimely
reporting of the net asset value, dividend rate or
capital gain distribution rate; or
(v) the failure of the Trust or the Administrator to
provide the services and furnish the materials under
the terms of this Agreement;
provided however, that the Trust and the Administrator will
not be liable in any such case to the extent that any such
loss, claim, damage or liability arises out of or is based
upon an untrue statement or omission or alleged omission made
in such Registration Statement or prospectus in conformity
with written information furnished to the Trust by Nationwide
specifically for use therein.
The Trust and the Administrator will reimburse any legal or
other expenses reasonably incurred by Nationwide or any such
director, officer, employee, agent or
6
<PAGE> 7
controlling person in connection with investigating or
defending any such loss, claim, damage, liability or action.
This indemnity agreement will be in addition to any liability
which the Trust and the Administrator may otherwise have.
(c) Each party shall promptly notify the other in writing of any
situation which presents or appears to involve a claim which
may be subject of indemnification hereunder and the
indemnifying party shall have the option to defend against any
such claim. In the event the indemnifying party so elects, it
will notify the indemnified party and shall assume the defense
of such claim, and the indemnified party shall cooperate fully
with the indemnifying party, at the indemnifying party's
expense, in the defense of such claim. Notwithstanding the
foregoing, the indemnified party shall be entitled to
participate in the defense of such claim at its own expense
through counsel of its own choosing. Neither party shall
confess any claim nor make any compromise in any action or
proceeding which may result in a finding of wrongdoing by the
other party without the other party's prior written consent.
Any notice given by the indemnifying party to an indemnified
party or participation in or control of the litigation of any
such claim by the indemnifying party shall in no event be
deemed to be an admission by the indemnifying party of
culpability, and the indemnifying party shall be free to
contest liability with respect to the claim among parties.
(d) It is understood and expressly agreed that the obligations and
liabilities of the Trust hereunder shall not be binding upon
any of the Trustees, shareholders, nominees, officers, agents
or employees of the Trust, personally, but shall bind only the
assets and property of the Trust, as provided in the
Declaration of Trust of the Trust. The execution and delivery
of this Agreement have been authorized by the Trustee's and
signed by an authorized officer of the Trust, acting as such,
and neither such authorization by such Trustee's nor such
execution and delivery by such officer shall be deemed to have
been made by any of them individually or to impose any
liability on any of them personally, but shall bind only the
assets and property of the Trust as provided in its
Declaration of Trust.
17. The forbearance or neglect of any party to insist upon strict
compliance by any other party, with any of the provisions of this
Agreement, whether continuing or not, or to declare a forfeiture of
termination against the other parties, shall not be construed as a
waiver of any of the rights or privileges of any party hereunder. No
waiver of any right or privilege of any party arising from any default
or failure of performance by any party shall affect the rights or
privileges of the other parties in the event of a further default or
failure of performance.
18. The obligations of The One Group(R) Investment Trust entered into in
the name or on behalf thereof by any of the Trustees, representatives
or agents are made not individually, but in such capacities, and are
not binding upon any of the Trustees, Shareholders or representatives
of the Trust personally, but bind only the assets of the Trust, and all
persons dealing with any
7
<PAGE> 8
series of Shares of the Trust must look solely to the assets of the
Trust belonging to such series for the enforcement of any claims
against the Trust.
19. This Agreement shall be construed and the provisions hereof interpreted
under and in accordance with the laws of Massachusetts. This Agreement
shall be subject to the provisions of the federal securities statutes,
rules and regulations, including such exemptions from those statutes,
rules and regulations as the SEC may grant and the terms hereof shall
be interpreted and construed in accordance therewith.
NATIONWIDE LIFE AND ANNUITY INSURANCE
COMPANY
By:
---------------------------------
Title:
------------------------------
THE ONE GROUP(R) INVESTMENT TRUST
By:
---------------------------------
Title:
------------------------------
NATIONWIDE ADVISORY SERVICES, INC.
By:
---------------------------------
Title:
------------------------------
8
<PAGE> 9
APPENDIX A
FUNDS OF THE TRUST
Government Bond Fund
Asset Allocation Fund
Growth Opportunities Fund
Large Company Growth Fund
Equity Index Fund
NATIONWIDE LIFE AND ANNUITY
INSURANCE COMPANY
By:
---------------------------------
Title:
------------------------------
THE ONE GROUP(R) INVESTMENT TRUST
By:
---------------------------------
Title:
------------------------------
NATIONWIDE ADVISORY SERVICES, INC.
By:
---------------------------------
Title:
------------------------------
Dated: February 18, 1998
------------------------------
9
<PAGE> 1
Exhibit (10) 1 of 2
ROPES & GRAY
ONE FRANKLIN SQUARE
1301 K STREET, N.W.
ONE INTERNATIONAL PLACE SUITE 800 EAST 30 KENNEDY PLAZA
BOSTON, MA 02110-2624 WASHINGTON, D.C. 20005-3333 PROVIDENCE, RI 02903-2328
(617) 951-7000 (202) 626-3900 (401) 455-4400
FAX: (617) 951-7050 FAX: (202) 626-3961 FAX: (401) 455-4401
April 13, 1998
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, 1997.
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> 2
2 of 2
ROPES & GRAY
The One Group(R) Investment Trust
April 13, 1998
Page 2
We consent to this opinion accompanying the Post-Effective Amendment No. 7
when filed with the Commission.
Very truly yours,
/s/ Ropes & Gray
Ropes & Gray
<PAGE> 1
Exhibit (11)
CONSENT OF COUNSEL
We hereby consent to the use of our name and the references to our firm
under the caption "Legal Counsel" included in or made a part of Post-Effective
Amendment No. 7 to the Registration Statement of The One Group(R) Investment
Trust (Nos. 33-66080 and 811-7874) on Form N-1A under the Securities Act of
1933, as amended.
/s/ Ropes & Gray
ROPES & GRAY
Washington, D.C.
April 13, 1998
<PAGE> 1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Statement of Additional Information
constituting part of this Post-Effective Amendment No. 7 to the registration
statement on Form N-1A (the "Registration Statement") of our report dated
February 11, 1998, relating to the financial statements and financial highlights
of The One Group 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 "Independent Accountants" in
the Statement of Additional Information and under the headings "Financial
Highlights" and "Independent Accountants" in such Prospectus.
PRICE WATERHOUSE LLP
New York, New York
April 6, 1998
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