<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JANUARY 27, 1999
Securities Act Registration No. 33--66080
Investment Company Act Registration No. 811-7874
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM N-lA
---
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [ X ]
---
POST-EFFECTIVE AMENDMENT NO. 10 [ X ]
and
---
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT [ X ]
OF 1940
---
AMENDMENT NO. 12 [ X ]
ONE GROUP(R) INVESTMENT TRUST
(Exact Name of Registrant as Specified in Charter)
THREE NATIONWIDE PLAZA
COLUMBUS, OHIO 43215
(Address of Principal Executive Offices)
(614) 249-7111
(Registrant's Telephone Number)
CHRISTOPHER A. CRAY
THREE NATIONWIDE PLAZA
COLUMBUS, OHIO 43215
(Name and Address of Agent for Service)
Copies To:
Alan G. Priest, Esquire Elizabeth Davin, Esquire
Ropes & Gray Druen, Dietrich, Reynolds & Koogler
One Franklin Square One Nationwide Plaza
1301 K Street, N.W., Suite 800E Columbus, Ohio 43216
Washington, D.C. 20005
Approximate Date of Proposed Public Offering: Immediately upon effectiveness
It is proposed that this filing will become effective (check appropriate box)
Immediately upon filing pursuant to paragraph (b)
------
on (date) pursuant to paragraph (b)
------
X 60 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:
This post-effective amendment designates a new effective
------ date for a previously filed post-effective amendment.
Title of Securities Being Registered: Units of Beneficial Interest, without par
value.
In accordance with Rules 24f-1 and 24f-2 under the Investment Company Act of
1940, upon the effective date of its registration statement, Registrant shall be
deemed to have registered an indefinite amount of securities and will pay
registration fees no later than 90 days after its fiscal year end.
2
<PAGE> 2
ONE GROUP(R) INVESTMENT TRUST
CROSS REFERENCE SHEET
---------------------
<TABLE>
<CAPTION>
FORM N-1A PART A ITEM PROSPECTUS CAPTION
- --------------------- ------------------
<S> <C>
1. Front and Back Cover Pages ........................................... Cover Pages
2. Risk/Return Summary: Investments, Risks and Performance................ Risk/Return Summaries
3. Risk/Return Summary: Fee Table ....................................... Not Applicable
4. Investment Objectives, Principal Investment Strategies,
and Related Risks...................................................... Risk/Return Summaries;
More About the Portfolios;
Principal Investment Strategies;
Appendix A
5. Management's Discussion of Fund Performance ........................... Not Applicable--Information
included in Annual Report
6. Management, Organization, and Capital Structure ....................... Management of the Portfolios
7. Shareholder Information ............................................... Shareholder Information
8. Distribution Arrangements ............................................. Not Applicable
9. Financial Highlights Information ...................................... Financial Highlights
</TABLE>
<TABLE>
<CAPTION>
STATEMENT OF
ADDITIONAL INFORMATION
FORM N-1A PART B ITEM CAPTION
- --------------------- -------
<S> <C>
10. Cover Page and Table of Contents Cover Page and Table of Contents
11. Fund History The Trust
12. Description of the Fund and Its Investments and Risks The Trust; Additional Information -
Description of Shares
13. Management of the Fund Management of the Trust
14. Control Persons and Principal Additional Information - Shareholders
Holders of Securities
15. Investment Advisory and Other Management of the Trust
Services
16. Brokerage Allocation and Other Practices Management of the Trust
17. Capital Stock and Other Securities Valuation; Valuation; Additional Information
Regarding the Calculation of Per Share Net
Asset Value
18. Purchase, Redemption and Pricing of Shares Valuation; Additional Information
Regarding the Calculation of Per Share Net
Asset Value
19. Taxation of the Fund Investment Objectives and Policies -
Additional Tax Information Concerning All
Funds
20. Underwriters Not Applicable
21. Calculation of Performance Data Additional Information - Calculation of
Performance Data
22. Financial Statements Financial Statements will be included in a
subsequent filing made pursuant to Rule 485(b)
</TABLE>
PART C
Information required to be included in Part C is set forth under the appropriate
Item, so numbered, in Part C of the Registration Statement.
3
<PAGE> 3
ONE GROUP(R) INVESTMENT TRUST
PROSPECTUS ONE GROUP INVESTMENT TRUST BOND PORTFOLIO
MARCH , 1999 ONE GROUP INVESTMENT TRUST GOVERNMENT BOND PORTFOLIO
ONE GROUP INVESTMENT TRUST BALANCED PORTFOLIO
ONE GROUP INVESTMENT TRUST LARGE CAP GROWTH PORTFOLIO
ONE GROUP INVESTMENT TRUST EQUITY INDEX PORTFOLIO
ONE GROUP INVESTMENT TRUST DIVERSIFIED EQUITY PORTFOLIO
ONE GROUP INVESTMENT TRUST MID CAP GROWTH PORTFOLIO
ONE GROUP INVESTMENT TRUST DIVERSIFIED MID CAP PORTFOLIO
ONE GROUP INVESTMENT TRUST MID CAP VALUE PORTFOLIO
The Securities and Exchange
Commission has not approved
the shares of any of the Portfolios
as an investment or determined whether
this prospectus is accurate or
complete. Anyone who tells
you otherwise is committing
a crime.
<PAGE> 4
TABLE OF CONTENTS
Page
RISK/RETURN SUMMARIES 3
One Group Investment Trust Bond Portfolio 3
One Group Investment Trust Government Bond Portfolio 5
One Group Investment Trust Balanced Portfolio 7
One Group Investment Trust Large Cap Portfolio 10
One Group Investment Trust Equity Index Portfolio 12
One Group Investment Trust Diversified Equity Portfolio 13
One Group Investment Trust Mid Cap Growth Portfolio 15
One Group Investment Trust Diversified Mid Cap Portfolio 17
One Group Investment Trust Mid Cap Value Portfolio 19
MORE ABOUT THE PORTFOLIOS 21
Types of Portfolios 21
One Group Investment Trust 21
Portfolio Quality 21
Illiquid Investments 22
Temporary Defensive Positions 22
Portfolio Turnover 22
SHAREHOLDER INFORMATION 23
Pricing of Portfolio Shares 23
Purchase of Portfolio Shares 23
Voting and Meetings 23
Redemption of Portfolio Shares 23
Dividends 23
Questions 24
Tax Information 24
Qualified Plans ??
MANAGEMENT OF THE PORTFOLIOS 25
The Advisor 25
The Portfolio Managers 26
Year 2000 26
PRINCIPAL INVESTMENT STRATEGIES 28
FINANCIAL HIGHLIGHTS 31
APPENDIX A: INVESTMENT PRACTICES 40
APPENDIX B: DESCRIPTION OF RATINGS 64
2
<PAGE> 5
RISK/RETURN SUMMARIES
ONE GROUP INVESTMENT TRUST BOND PORTFOLIO
WHAT IS THE GOAL OF THE BOND PORTFOLIO?
The Portfolio seeks to maximize total return by investing primarily in a
diversified portfolio of intermediate and long-term debt securities. (The
Portfolio was formerly called the Bond Fund).
WHAT ARE THE BOND PORTFOLIO'S MAIN INVESTMENT STRATEGIES?
The Portfolio invests mainly in investment grade bonds and debt securities.
These include mortgage-backed and other types of asset-backed securities. Banc
One Investment Advisors selects securities for the Portfolio by analyzing both
individual securities and different market sectors. For more information about
the Bond Portfolio's investment strategies, please read "More About the
Portfolios" and "Principal Investment Strategies."
WHAT IS A "BOND"?
A "bond" is a debt security with a remaining maturity of ninety days or more
issued by the U.S. Government or its agencies and instrumentalities, a
corporation, or a municipality, securities issued or guaranteed by a foreign
government or its agencies and instrumentalities, securities issued or
guaranteed by domestic and supranational banks, mortgage-related and
mortgage-backed securities, asset-backed securities, stripped government
securities, and zero coupon obligations.
WHAT ARE THE MAIN RISKS OF INVESTING IN THE BOND PORTFOLIO?
The main risks of investing in the Bond Portfolio and the circumstances likely
to adversely affect your investment are described below. Like all non-money
market mutual funds, the share price of the Bond Portfolio and its yield will
change every day in response to interest rates and other market conditions. You
may lose money if you invest in the Bond Portfolio.
Interest Rate Risk. The Bond Portfolio's investments in bonds and other
debt securities will increase or decrease in value based on changes in
interest rates. When interest rates go up, the value of the Portfolio's
investments generally goes down. On the other hand, if interest rates
go down, the value of the Portfolio's investments generally goes up.
Your investment will decline in value if the value of the Portfolio's
investments decrease.
Credit Risk. There is a risk that issuers and counterparties will not
make payments on securities and repurchase agreements held by the
Portfolio. In addition, the credit quality of securities held by the
Portfolio may be lowered if an issuer's financial condition changes.
Lower credit quality may lead to greater volatility in the price of a
security and in shares of a Portfolio. Lower credit quality also may
affect a security's liquidity and make it difficult for the Portfolio
to sell.
Prepayment Risk. The issuers of mortgage-backed and asset-backed
securities held by the Portfolio may be able to repay principal in
advance, especially when interest rates fall. Changes in pre-payment
rates can make the price and yield of mortgage and asset-backed
securities volatile. When mortgage and other obligations are pre-paid,
the Portfolio may have to reinvest in securities with a lower yield.
The Portfolio also may fail to recover premiums paid for the
securities, resulting in an unexpected capital loss.
Derivative Risk. The Portfolio invests in securities that are
considered to be DERIVATIVES. The value of derivative securities (like
mortgage-backed securities or asset-backed securities) is dependent
upon the performance of underlying assets or securities. If the
underlying assets do not perform as expected, the
3
<PAGE> 6
value of the derivative security and your investment in the Portfolio
declines. Derivatives are more volatile and are riskier in terms of
both liquidity and value than traditional investments.
Not FDIC insured. An investment in the Portfolio is not a deposit of
BANK ONE CORPORATION or any of its affiliates and is not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other
governmental agency.
HOW HAS THE BOND PORTFOLIO PERFORMED?
The charts and table below help show how the Bond Portfolio's performance may
vary. The charts and table reflect that the Bond Portfolio inherited the
financial history of the Pegasus Variable Bond Fund. This information may help
you evaluate the risks of investing in the Portfolio. The charts show changes in
the Portfolio's performance from year to year. The table shows how the
Portfolio's average annual returns for the periods indicated compare to those of
a broad measure of market performance. Total returns assume reinvestment of
dividends and distributions. PLEASE REMEMBER THAT THE BOND PORTFOLIO'S
PERFORMANCE IN THE PAST IS NOT NECESSARILY AN INDICATION OF HOW THE PORTFOLIO
WILL PERFORM IN THE FUTURE.
ONE GROUP INVESTMENT TRUST BOND PORTFOLIO
TOTAL RETURN (PER CALENDAR YEAR)(1)
<TABLE>
<CAPTION>
<S> <C> <C>
8.25% 8.66%
1997 1998
</TABLE>
1. Total return for 1997 is from the date of the Portfolio's inception
(i.e, May 1, 1997) through December 31, 1997.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
Highest and Lowest Return
(Quarterly 1997-1998)
- -------------------------------------------------------------------------------
<S> <C> <C>
Quarter Ending
Highest 4.78 % September 30, 1998
Lowest -0.11% December 31, 1998
- -------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
Average Annual Total Returns
(through December 31, 1998)
- -------------------------------------------------------------------------------
<S> <C> <C>
1 Year Life of Fund
(Since 5/1/97)
One Group Investment Trust Bond 8.66% 10.21%
Portfolio
Lehman Brothers Aggregate Bond Index(1) 8.69% 10.46%
- --------------------------------------- --------------------------------------
</TABLE>
- ----------------------------------
1 Lehman Brothers Aggregate Bond Index is a widely recognized, unmanaged index.
4
<PAGE> 7
ONE GROUP INVESTMENT TRUST GOVERNMENT BOND PORTFOLIO
WHAT IS THE GOAL OF THE GOVERNMENT BOND PORTFOLIO?
The Portfolio seeks a high level of current income with liquidity and safety of
principal. (The Portfolio was formerly called the Government Bond Fund).
WHAT ARE THE GOVERNMENT BOND PORTFOLIO'S MAIN INVESTMENT STRATEGIES?
The Portfolio mainly invests in Government Bonds. Banc One Investment Advisors
selects securities for the Portfolio by analyzing both individual securities and
different market sectors. For more information about the Government Bond
Portfolio's investment strategies, please read "More About the Portfolios" and
"Principal Investment Strategies."
WHAT IS A "GOVERNMENT BOND"?
A "government bond" is a debt instrument with principal and interest guaranteed
by the U.S. Government and its agencies and instrumentalities, as well as
stripped government securities and mortgage-related and mortgage-backed
securities.
WHAT ARE THE MAIN RISKS OF INVESTING IN THE GOVERNMENT BOND PORTFOLIO?
The main risks of investing in the Government Bond Portfolio and the
circumstances likely to adversely affect your investment are described below.
Like all non-money market mutual funds, the share price of the Government Bond
Portfolio and its yield will change every day in response to interest rates and
other market conditions. You may lose money if you invest in the Government
Bond Portfolio.
Interest Rate Risk. The Government Bond Portfolio's investments in
bonds and other debt securities will increase or decrease in value
based on changes in interest rates. When interest rates go up, the
value of the Portfolio's investments generally goes down. On the other
hand, if interest rates go down, the value of the Portfolio's
investments generally goes up. Your investment will decline in value if
the value of the Portfolio's investments decrease.
Yield. Although the Portfolio's investment may be less risky than other
types of securities, the Portfolio's ability to achieve higher income
is not as great as that of Portfolios that invest in lower-quality
instruments.
Prepayment Risk. The issuers of mortgage-backed and asset-backed
securities held by the Portfolio may be able to repay principal in
advance, especially when interest rates fall. Changes in pre-payment
rates can make the price and yield of mortgage and asset-backed
securities volatile. When mortgage and other obligations are pre-paid,
the Portfolio may have to reinvest in securities with a lower yield.
The Portfolio may also fail to recover premiums paid for the
securities, resulting in an unexpected capital loss.
Derivative Risk. The Portfolio invests in securities that are
considered to be derivatives. The value of derivative securities (like
mortgage-backed securities or asset-backed securities) is dependent
upon the performance of underlying assets or securities. If the
underlying assets do not perform as expected, the value of the
derivative security and your investment in the Portfolio declines.
Derivatives are more volatile and are riskier in terms of both
liquidity and value than traditional investments.
Not FDIC insured. An investment in the Portfolio is not a deposit of
BANK ONE CORPORATION or any of its affiliates and is not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other
governmental agency.
5
<PAGE> 8
HOW HAS THE GOVERNMENT BOND PORTFOLIO PERFORMED?
The charts and table below help show how the Government Bond Portfolio's
performance may vary. This may help you evaluate the risks of investing in the
Portfolio. The charts show changes in the Portfolio's performance from year to
year. The table shows how the Portfolio's average annual returns for the periods
indicated compare to those of a broad measure of market performance. Total
returns assume reinvestment of dividends and distributions. PLEASE REMEMBER THAT
THE GOVERNMENT BOND PORTFOLIO'S PERFORMANCE IN THE PAST IS NOT NECESSARILY AN
INDICATION OF HOW THE PORTFOLIO WILL PERFORM IN THE FUTURE.
ONE GROUP INVESTMENT TRUST GOVERNMENT BOND PORTFOLIO
TOTAL RETURN (PER CALENDAR YEAR)(1)
<TABLE>
<S> <C> <C> <C> <C> <C>
-.90% 16.69% 2.69% 9.67% 7.32%
1994 1995 1996 1997 1998
</TABLE>
1. Total return for 1994 is from the date of the Portfolio's inception
(i.e., August 1, 1994) through December 31, 1994.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
HIGHEST AND LOWEST RETURN
(Quarterly 1994-1998)
- -------------------------------------------------------------------------------
Quarter Ending
<S> <C> <C>
Highest 5.00% June 30, 1995
Lowest -2.05% March 31, 1996
- -------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS
(through December 31, 1998)
- -------------------------------------------------------------------------------
1 Year Life of Fund
(Since 8/1/94)
<S> <C> <C>
One Group Investment Trust Government 7.32% 7.87%
Bond Portfolio
Salomon Brothers 3-7 Year Treasury 9.20% 8.09%
- -------------------------------------------------------------------------------
</TABLE>
6
<PAGE> 9
ONE GROUP INVESTMENT TRUST BALANCED PORTFOLIO
WHAT IS THE GOAL OF THE BALANCED PORTFOLIO?
The Portfolio seeks to provide total return while preserving capital. (The
Portfolio was formerly called the Asset Allocation Fund).
WHAT ARE THE BALANCED PORTFOLIO'S MAIN INVESTMENT STRATEGIES?
The Portfolio invests in a combination of stocks, fixed income securities and
money market instruments. The investment advisor, Banc One Investment Advisors
will regularly review the Fund's asset allocations and vary them over time to
favor investments that 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 returns. Because the Portfolio 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. For more information about
the Balanced Portfolio's investment strategies, please read "More About the
Portfolios" and "Principal Investment Strategies."
WHAT ARE THE MAIN RISKS OF INVESTING IN THE BALANCED PORTFOLIO?
The main risks of investing in the Balanced Portfolio and the circumstances
likely to adversely affect your investment are described below. Like all
non-money market mutual funds, the share price of the Balanced Portfolio and its
yield will change every day in response to interest rates and other market
conditions. You may lose money if you invest in the Balanced Portfolio.
Market Risk. The Portfolio invests in equity securities (such as
stocks) which are more volatile and carry more risks than some other
forms of investment. The price of equity securities may rise or fall
because of economic or political changes or changes in a company's
financial condition. Equity securities are also subject to "stock
market risk" meaning that stock prices in general may decline over
short or extended periods of time. When the value of the Portfolio's
securities goes down, your investment in the Fund decreases in value.
Smaller Companies. The Portfolio's investments in smaller, newer
companies may be riskier than investments in larger, more established
companies. Small companies may be more vulnerable to economic, market,
and industry changes. Because economic events have a greater impact on
smaller companies, there may be greater and more frequent changes in
their stock price. This may cause unexpected and frequent decreases in
the value of your investment in the Portfolio.
Interest Rate Risk. The Portfolio's investments in bonds and other debt
securities will increase or decrease in value based on changes in
interest rates. When interest rates go up, the value of the Portfolio's
investments generally goes down. On the other hand, if interest rates
go down, the value of the Portfolio's investments generally goes up.
Your investment will decline in value if the value of the Portfolio's
investments decrease.
Credit Risk. There is a risk that issuers and counterparties will not
make payments on securities and repurchase agreements held by the
Portfolio. In addition, the credit quality of securities held by the
Portfolio may be lowered if an issuer's financial condition changes.
Lower credit quality may lead to greater volatility in the price of a
security and in shares of a Portfolio. Lower credit quality also may
affect a security's liquidity and make it difficult for the Portfolio
to sell.
Derivative Risk. The Portfolio invests in securities that are
considered to be derivatives. The value of derivative securities (like
mortgage-backed securities or asset-backed securities) is dependent
upon the performance of underlying assets or securities. If the
underlying assets do not perform as expected, the
7
<PAGE> 10
value of the derivative security and your investment in the Portfolio
declines. Derivatives are more volatile and are riskier in terms of
both liquidity and value than traditional investments.
Prepayment Risk. The issuers of mortgage-backed and asset-backed
securities held by the Portfolio may be able to repay principal in
advance, especially when interest rates fall. Changes in pre-payment
rates can make the price and yield of mortgage and asset-backed
securities volatile. When mortgage and other obligations are pre-paid,
the Portfolio may have to reinvest in securities with a lower yield.
The Portfolio may also fail to recover premiums paid for the
securities, resulting in an unexpected capital loss.
Foreign Securities. Investments in foreign securities involve risks in
addition to those of U.S. investments. These risks include political
and economic risks, currency fluctuations, higher transaction costs,
and delayed settlement. In addition, the "Euro" began serving as a new
common currency for participating European nations on January 1, 1999.
It is unclear whether the newly created accounting, clearing,
settlement, and payment systems for the new currency will be adequate.
Not FDIC insured. An investment in the Portfolio is not a deposit of
BANK ONE CORPORATION or any of its affiliates and is not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other
governmental agency.
HOW HAS THE BALANCED PORTFOLIO PERFORMED?
The charts and table below help show how the Balanced Portfolio's performance
may vary. This may help you evaluate the risks of investing in the Portfolio.
The charts show changes in the Portfolio's performance from year to year. The
table shows how the Portfolio's average annual returns for the periods indicated
compare to those of a broad measure of market performance. Total returns assume
reinvestment of dividends and distributions. PLEASE REMEMBER THAT THE BALANCED
PORTFOLIO'S PERFORMANCE IN THE PAST IS NOT NECESSARILY AN INDICATION OF HOW THE
PORTFOLIO WILL PERFORM IN THE FUTURE.
ONE GROUP INVESTMENT TRUST BALANCED PORTFOLIO
TOTAL RETURN (PER CALENDAR YEAR)(1)
<TABLE>
<S> <C> <C> <C> <C> <C>
-1.32% 20.69% 11.92% 22.90% 19.09%
1994 1995 1996 1997 1998
</TABLE>
1. Total return for 1994 is from the date of the Portfolio's inception (i.e.,
August 1, 1994) through December 31, 1994
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
HIGHEST AND LOWEST RETURN
(Quarterly 1994-1998)
- -------------------------------------------------------------------------------
Quarter Ending
<S> <C> <C>
Highest 11.84% June 30, 1997
Lowest -3.63% September 30, 1998
- -------------------------------------------------------------------------------
</TABLE>
8
<PAGE> 11
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS
(through December 31, 1998)1
- -------------------------------------------------------------------------------
1 Year Life of Fund
(Since 8/1/94)
<S> <C> <C>
One Group Investment Trust Balanced 19.09% 16.32%
Portfolio
S&P 500 (60%) and Lipper Intermediate 20.41% 19.60%
Gov't Corp. (40%)
Lehman Brothers Intermediate 8.44% 7.79%
Government Corp.
S&P 500 Index 28.58% 27.62%
- -------------------------------------------------------------------------------
</TABLE>
- -----------------------------------------
1 The table above compares the average annual return of the Portfolio, which
holds a mix of stocks, bonds and other debt securities to an unmanaged
stock index and an unmanaged bond index for the periods indicated.
9
<PAGE> 12
ONE GROUP INVESTMENT TRUST LARGE CAP GROWTH PORTFOLIO
WHAT IS THE GOAL OF THE LARGE CAP GROWTH PORTFOLIO?
The Portfolio seeks long-term capital appreciation and growth of income by
investing primarily in equity securities. (The Portfolio was formerly called the
Large Company Growth Fund).
WHAT ARE THE LARGE CAP GROWTH PORTFOLIO'S MAIN INVESTMENT STRATEGIES?
The Portfolio invests mainly in equity securities of large, well-established
companies. The weighted average capitalization of companies in which the
Portfolio invests normally will exceed the market median capitalization of the
Standard & Poor's 500 Composite Stock Price Index ("S&P 500 Index").(1) For more
information about the Large Cap Growth Portfolio's investment strategies, please
read "More About the Portfolios" and "Principal Investment Strategies."
WHAT ARE THE MAIN RISKS OF INVESTING IN THE LARGE CAP GROWTH PORTFOLIO?
The main risks of investing in the Large Cap Growth Portfolio and the
circumstances likely to adversely affect your investment are described below.
Like all non-money market mutual funds, the share price of the Large Cap Growth
Portfolio will change every day in response market conditions. You may lose
money if you invest in the Large Cap Growth Portfolio.
Market Risk. The Portfolio invests in equity securities (such as
stocks) that are more volatile and carry more risks than some other
forms of investment. The price of equity securities may rise or fall
because economic or political changes or changes in a company's
financial condition. Equity securities are also subject to "stock
market risk" meaning that stock prices in general (or large cap growth
stock prices in particular) may decline over short or extended periods
of time. When the value of the Portfolio's securities goes down, your
investment in the Portfolio decreases in value.
Foreign Securities. Investments in foreign securities involve risks in
addition to those of U.S. investments. These risks include political
and economic risks, currency fluctuations, higher transaction costs,
and delayed settlement. In addition, the "Euro" began serving as a new
common currency for participating European nations on January 1, 1999.
It is unclear whether the newly created accounting, clearing,
settlement, and payment systems for the new currency will be adequate.
Not FDIC insured. An investment in the Portfolio is not a deposit of
BANK ONE CORPORATION or any of its affiliates and is not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other
governmental agency.
- ------------------------------------
1 "S&P 500" is a registered service mark of Standard & Poor's Corporation,
which does not sponsor and is in no way affiliated with One Group
Investment Trust.
10
<PAGE> 13
HOW HAS THE LARGE CAP GROWTH PORTFOLIO PERFORMED?
The charts and table below help show how the Large Cap Growth Portfolio's
performance may very. This information may help you evaluate the risks of
investing in the Portfolio. The charts show changes in the Portfolio's
performance from year to year. The table shows how the Portfolio's average
annual returns for the periods indicated compare to those of a broad measure of
market performance. Total returns assume reinvestment of dividends and
distributions. PLEASE REMEMBER THAT THE LARGE CAP GROWTH PORTFOLIO'S PERFORMANCE
IN THE PAST IS NOT NECESSARILY AN INDICATION OF HOW THE PORTFOLIO WILL PERFORM
IN THE FUTURE.
ONE GROUP INVESTMENT TRUST LARGE CAP GROWTH PORTFOLIO
TOTAL RETURN (PER CALENDAR YEAR)(1)
<TABLE>
<S> <C> <C> <C> <C> <C>
0.52% 24.13% 16.67% 31.93% 41.27%
1994 1995 1996 1997 1998
</TABLE>
1. Total return for 1994 is from the date of the Portfolio's inception (i.e.
August 1, 1994) through December 31, 1994.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
HIGHEST AND LOWEST RETURN
(Quarterly 1994-1998)
- -------------------------------------------------------------------------------
Quarter Ending
<S> <C> <C>
Highest 23.96% December 31, 1998
Lowest -6.79% September 30, 1998
- -------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS
(through December 31, 1998)
- -------------------------------------------------------------------------------
1 Year Life of Fund
(Since 8/1/94)
<S> <C> <C>
One Group Investment Trust Large Cap
Growth Portfolio 41.27% 25.34%
S&P/Barra 500 Growth 42.08% 32.43%
- -------------------------------------------------------------------------------
</TABLE>
11
<PAGE> 14
ONE GROUP INVESTMENT TRUST EQUITY INDEX PORTFOLIO
WHAT IS THE GOAL OF THE EQUITY INDEX PORTFOLIO?
The Portfolio seeks investment results that correspond to the aggregate price
and dividend performance of securities in the Standard & Poor's 500 Composite
Stock Price Index ("S&P 500 Index").(1) (The Portfolio used to be called the
Equity Index Fund).
WHAT ARE THE EQUITY INDEX PORTFOLIO'S MAIN INVESTMENT STRATEGIES?
The Portfolio invests mainly in stocks included in the S&P 500 Index. The
Portfolio may also invest in stock index futures. Banc One Investment Advisors
attempts to track the performance of the S&P 500 Index to achieve a correlation
of 0.95 between the performance of the Fund and that of the S&P 500 Index. For
more information about the Equity Index Portfolio's investment strategies,
please read "More About the Portfolios" and "Principal Investment Strategies."
WHAT ARE THE MAIN RISKS OF INVESTING IN THE EQUITY INDEX PORTFOLIO?
The main risks of investing in the Equity Index Portfolio and the circumstances
likely to adversely affect your investment are described below. Like all
non-money market mutual funds, the share price of the Equity Index Portfolio
will change every day in response to market conditions. You may lose money if
you invest in the Equity Index Portfolio.
Index Investing. The Portfolio attempts to track the performance of the
S&P 500 Index. Therefore, securities may be purchased, retained and
sold by the Portfolio at times when an actively managed fund would not
do so. If the value of securities that are heavily weighted in the
index changes, you can expect a greater risk of loss than would be the
case if the Portfolio were not fully invested in such securities.
Because of this, the Portfolio's share price can be volatile and there
may be sudden, and sometimes substantial, fluctuations in the value of
your investment.
Market Risk. The Portfolio invests in stocks that are more volatile and
carry more risks than some other forms of investment. The price of
equity securities may rise or fall because of economic or political
changes or changes in a company's financial condition. Equity
securities are also subject to "stock market risk" meaning that stock
prices in general (or S&P 500 Index stock prices in particular) may
decline over short or extended periods of time. When the value of the
Portfolio's securities goes down, your investment in the Portfolio
decreases in value.
Not FDIC insured. An investment in the Portfolio is not a deposit of
BANK ONE CORPORATION or any of its affiliates and is not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other
governmental agency.
The Portfolio began operations on May 1, 1998 and does not have a full calendar
year of investment returns at the date of this Prospectus.
- ---------------------------------------
1 "S&P 500" is a registered service mark of Standard & Poor's Corporation, which
does not sponsor and is in no way affiliated with One Group Investment Trust.
12
<PAGE> 15
ONE GROUP INVESTMENT TRUST DIVERSIFIED EQUITY PORTFOLIO
WHAT IS THE GOAL OF THE DIVERSIFIED EQUITY PORTFOLIO?
The Portfolio seeks long term capital growth and growth of income with a
secondary objective of providing a moderate level of current income. (The
Portfolio was formerly called the Value Growth Fund).
WHAT ARE THE DIVERSIFIED EQUITY PORTFOLIO'S MAIN INVESTMENT STRATEGIES?
The Portfolio invests mainly in common stocks of overlooked or undervalued
companies that have the potential for earnings growth over time. The Portfolio
uses a multi-style approach, meaning that it may invest across different
capitalization levels targeting both value and growth oriented companies.
Because the Portfolio seeks return over the long term, Banc One Investment
Advisors will not attempt to time the market. For more information about the
Diversified Equity Portfolio's investment strategies, please read "More About
the Portfolios" and "Principal Investment Strategies."
WHAT ARE THE MAIN RISKS OF INVESTING IN THE DIVERSIFIED EQUITY PORTFOLIO?
The main risks of investing in the Diversified Equity Portfolio and the
circumstances likely to adversely affect your investment are described below.
Like all non-money market mutual funds, the share price of the Diversified
Equity Portfolio will change every day in response to market conditions. You may
lose money if you invest in the Diversified Equity Portfolio.
Market Risk. The Portfolio invests in equity securities (such as
stocks) that are more volatile and carry more risks than some other
forms of investment. The price of equity securities may rise or fall
because of economic or political changes or changes in a company's
financial condition. Equity securities are also subject to "stock
market risk" meaning that stock prices in general may decline over
short or extended periods of time. When the value of the Portfolio's
securities goes down, your investment in the Portfolio decreases in
value.
Yield. The Portfolio may invest up to 35% of its assets in U.S.
Government Securities and other investment grade fixed income
securities. Although these investment may be less risky than other
types of securities, the Portfolio's ability to achieve higher income
is not as great as that of Portfolios that invest in lower-quality
securities.
Smaller Companies. The Portfolio's investments in smaller, newer
companies may be riskier than investments in larger, more established
companies. Small companies may be more vulnerable to economic, market,
and industry changes. Because economic events have a greater impact on
smaller companies, there may be greater and more frequent changes in
their stock price. This may cause unexpected and frequent decreases in
the value of your investment in the Portfolio.
Foreign Securities. Investments in foreign securities involve risks in
addition to those of U.S. investments. These risks include political
and economic risks, currency fluctuations, higher transaction costs,
and delayed settlement. In addition, the "Euro" began serving as a new
common currency for participating European nations on January 1, 1999.
It is unclear whether the newly created accounting, clearing,
settlement, and payment systems for the new currency will be adequate.
Not FDIC insured. An investment in the Portfolio is not a deposit of
BANK ONE CORPORATION or any of its affiliates and is not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other
governmental agency.
13
<PAGE> 16
HOW HAS THE DIVERSIFIED EQUITY PORTFOLIO PERFORMED?
The charts and table below help show how the Diversified Equity Portfolio's
performance may vary. The charts and table reflect that the Diversified Equity
Portfolio inherited the financial history of the Pegasus Variable Growth and
Value Fund. This information may help you evaluate the risks of investing in the
Portfolio. The charts show changes in the Portfolio's performance from year to
year. The table shows how the Portfolio's average annual returns for the periods
indicated compare to those of a broad measure of market performance. Total
returns assume reinvestment of dividends and distributions. PLEASE REMEMBER THAT
THE DIVERSIFIED EQUITY PORTFOLIO'S PERFORMANCE IN THE PAST IS NOT NECESSARILY AN
INDICATION OF HOW THE PORTFOLIO WILL PERFORM IN THE FUTURE.
ONE GROUP INVESTMENT TRUST DIVERSIFIED EQUITY PORTFOLIO
TOTAL RETURN (PER CALENDAR YEAR)(1)
<TABLE>
<S> <C> <C> <C> <C>
17.62% 18.81% 26.78% 13.10%
1995 1996 1997 1998
</TABLE>
1. Total return for 1995 is from the date of the Portfolio's inception (i.e.,
March 30, 1995) through December 31, 1995
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------
HIGHEST AND LOWEST RETURN
(Quarterly 1995-1998)
- -------------------------------------------------------------------------------
Quarter Ending
<S> <C> <C>
Highest 15.80% December 31, 1998
Lowest - 9.92% September 30, 1998
- -------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS
(through December 31, 1998)
- --------------------------------------- ---------------------------------------
1 Year Life of Fund
(Since 3/30/95)
<S> <C> <C>
One Group Investment Trust
Diversified Equity Portfolio
13.10% 20.31%
S&P 500 Index(1) 28.58% 29.52%
S&P 1500 Supercomposite Index(2) 26.32%
- --------------------------------------- ---------------------------------------
</TABLE>
- --------
1 The S&P 500 is the Standard & Poor's Composite Index of 500 Stocks, a
widely recognized, unmanaged index of common stock prices.
2 Information on this index is not available prior to __________.
14
<PAGE> 17
ONE GROUP INVESTMENT TRUST MID CAP GROWTH PORTFOLIO
WHAT IS THE GOAL OF THE MID CAP GROWTH PORTFOLIO?
The Portfolio seeks growth of capital and secondarily, current income by
investing primarily in equity securities. (The Portfolio was formerly called the
Growth Opportunities Fund).
WHAT ARE THE MID CAP GROWTH PORTFOLIO'S MAIN INVESTMENT STRATEGIES?
The Portfolio invests in securities that have the potential to produce
above-average earnings growth per share over a one-to-three year period. (Mid
Cap Companies typically have market capitalizations of $500 million to $6
billion). Typically, the Portfolio 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
Portfolio will pay dividends. The Portfolio also invests in smaller companies in
emerging growth industries. For more information about the Mid Cap Growth
Portfolio's investment strategies, please read "More About the Portfolios" and
"Principal Investment Strategies."
WHAT ARE THE MAIN RISKS OF INVESTING IN THE MID CAP GROWTH PORTFOLIO?
The main risks of investing in the Mid Cap Growth Portfolio and the
circumstances likely to adversely affect your investment are described below.
Like all non-money market mutual funds, the share price of the Mid Cap Growth
Portfolio will change every day in response to market conditions. You may lose
money if you invest in the Mid Cap Growth Portfolio.
Market Risk. The Portfolio invests in equity securities (such as
stocks) that are more volatile and carry more risks than some other
forms of investment. The price of equity securities may rise or fall
because of economic or political changes or changes in a company's
financial condition. Equity securities are also subject to "stock
market risk" meaning that stock prices in general (or mid cap growth
stock prices in particular) may decline over short or extended periods
of time. When the value of the Portfolio's securities goes down, your
investment in the Portfolio decreases in value.
Smaller Companies. Investments in smaller, newer companies may be
riskier than investments in larger, more established companies. Small
companies may be more vulnerable to economic, market, and industry
changes. Because economic events have a greater impact on smaller
companies, there may be greater and more frequent changes in their
stock price. This may cause unexpected and frequent decreases in the
value of your investment in the Portfolio.
Foreign Securities. Investments in foreign securities involve risks in
addition to those of U.S. investments. These risks include political
and economic risks, currency fluctuations, higher transaction costs,
and delayed settlement. In addition, the "Euro" began serving as a new
common currency for participating European nations on January 1, 1999.
It is unclear whether the newly created accounting, clearing,
settlement, and payment systems for the new currency will be adequate.
Not FDIC insured. An investment in the Portfolio is not a deposit of
BANK ONE CORPORATION or any of its affiliates and is not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other
governmental agency.
15
<PAGE> 18
HOW HAS THE MID CAP GROWTH PORTFOLIO PERFORMED?
The charts and table below help show how the Mid Cap Growth Portfolio's
performance may vary. This may help you evaluate the risks of investing in the
Portfolio. The charts show changes in the Portfolio's performance from year to
year. The table shows how the Portfolio's average annual returns for the periods
indicated compare to those of a broad measure of market performance. Total
returns assume reinvestment of dividends and distributions. PLEASE REMEMBER THAT
THE MID CAP GROWTH PORTFOLIO'S PERFORMANCE IN THE PAST IS NOT NECESSARILY AN
INDICATION OF HOW THE PORTFOLIO WILL PERFORM IN THE FUTURE.
<TABLE>
<CAPTION>
ONE GROUP INVESTMENT TRUST MID CAP GROWTH PORTFOLIO
TOTAL RETURN (PER CALENDAR YEAR)(1)
<S> <C> <C> <C> <C> <C>
-3.00% 24.06% 15.67% 29.81% 38.82%
1994 1995 1996 1997 1998
</TABLE>
1. Total return for 1994 is from the date of the Portfolio's inception (i.e.
August 1, 1994) through December 31, 1994.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
HIGHEST AND LOWEST RETURN
(Quarterly 1994-1998)
- ------------------------------------------------------------------------------
Quarter Ending
<S> <C> <C>
Highest 40.10% December 31, 1998
Lowest -14.67% September 30, 1998
- -------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS
(through December 31, 1998)
- -------------------------------------------------------------------------------
1 Year Life of Fund
(Since 8/1/94)
<S> <C> <C>
One Group Investment Trust Mid Cap 38.82% 23.13%
Growth Portfolio
S&P/Barra Mid Cap 400 Growth 34.73% 39.01%
- -------------------------------------------------------------------------------
</TABLE>
16
<PAGE> 19
ONE GROUP INVESTMENT TRUST DIVERSIFIED MID CAP PORTFOLIO
WHAT IS THE GOAL OF THE DIVERSIFIED MID CAP PORTFOLIO?
The Portfolio seeks long term capital growth by investing primarily in equity
securities of companies with intermediate capitalizations. (The Portfolio was
formerly called the Mid Cap Opportunities Fund).
What are the Diversified Mid Cap Portfolio's main investment strategies?
The Portfolio invests mainly in equity securities of companies with
capitalizations of $500 million to $5 billion. The Portfolio intends to invest
in companies of this size with strong growth potential, stable market share, and
an ability to quickly respond to new business opportunities. The Portfolio uses
a multi-style approach, meaning that it may invest in mid cap and other
companies across different capitalization levels targeting both value and growth
oriented companies. Because the Portfolio seeks return over the long term, Banc
One Investment Advisors will not attempt to time the market. For more
information about the Diversified Mid Cap Portfolio's investment strategies,
please read "More About the Portfolios" and "Principal Investment Strategies."
WHAT ARE THE MAIN RISKS OF INVESTING IN THE DIVERSIFIED MID CAP PORTFOLIO?
The main risks of investing in the Diversified Mid Cap Portfolio and the
circumstances likely to adversely affect your investment are described below.
Like all non-money market mutual funds, the share price of the Diversified Mid
Cap Portfolio will change every day in response to market conditions. You may
lose money if you invest in the Diversified Mid Cap Portfolio.
Market Risk. The Portfolio invests in equity securities (such as
stocks) that are more volatile and carry more risks than some other
forms of investment. The price of equity securities may rise or fall
because of economic or political changes or changes in a company's
financial condition. Equity securities also are subject to "stock
market risk" meaning that stock prices in general (or mid cap stock
prices in particular) may decline over short or extended periods of
time. When the value of the Portfolio's securities goes down, your
investment in the Portfolio decreases in value.
Smaller Companies. Investments in smaller, newer companies may be
riskier than investments in larger, more established companies. Small
companies may be more vulnerable to economic, market, and industry
changes. Because economic events have a greater impact on smaller
companies, there may be greater and more frequent changes in their
stock price. This may cause unexpected and frequent decreases in the
value of your investment in the Portfolio.
Foreign Securities. Investments in foreign securities involve risks in
addition to those of U.S. investments. These risks include political
and economic risks, currency fluctuations, higher transaction costs,
and delayed settlement. In addition, the "Euro" began serving as a new
common currency for participating European nations on January 1, 1999.
It is unclear whether the newly created accounting, clearing,
settlement, and payment systems for the new currency will be adequate.
Lower Rated Securities. The Portfolio may invest in lower rated
convertible securities. Such securities are speculative and may be
classified as "junk bonds."
Not FDIC insured. An investment in the Portfolio is not a deposit of
BANK ONE CORPORATION or any of its affiliates and is not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other
governmental agency.
17
<PAGE> 20
HOW HAS THE DIVERSIFIED MID CAP PORTFOLIO PERFORMED?
The charts and table below help show how the Diversified Mid Cap Portfolio's
performance may vary. The charts and table reflect that the Diversified Mid Cap
Portfolio inherited the financial history of the Pegasus Variable Mid Cap
Opportunity Fund. This information may help you evaluate the risks of investing
in the Portfolio. The charts show changes in the Portfolio's performance from
year to year. The table shows how the Portfolio's average annual returns for the
periods indicated compare to those of a broad measure of market performance.
Total returns assume reinvestment of dividends and distributions. PLEASE
REMEMBER THAT THE DIVERSIFIED MID CAP PORTFOLIO'S PERFORMANCE IN THE PAST IS NOT
NECESSARILY AN INDICATION OF HOW THE PORTFOLIO WILL PERFORM IN THE FUTURE.
ONE GROUP INVESTMENT TRUST DIVERSIFIED MID CAP PORTFOLIO
TOTAL RETURN (PER CALENDAR YEAR)(1)
<TABLE>
<S> <C> <C> <C> <C>
10.73% 24.52% 26.63% 4.91%
1995 1996 1997 1998
</TABLE>
1. Total return for 1995 is from the date of the Portfolio's inception (i.e.,
March 30, 1995) through December 31, 1995.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
HIGHEST AND LOWEST RETURN
(Quarterly 1995-1998)
- -------------------------------------------------------------------------------
Quarter Ending
<S> <C> <C>
Highest 22.38% December 31, 1998
Lowest -20.05% September 30, 1998
- ------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS
(through December 31, 1998)
- -------------------------------------------------------------------------------
1 Year Life Fund
(Since 3/30/95)
<S> <C> <C>
One Group Investment Trust 4.91% 17.47%
Diversified Mid Cap Portfolio
Russell 2500 Index 0.38% 17.34%
S&P 400 Mid Cap 19.09% 24.27%
- ------------------------------------------------------------------------------
</TABLE>
18
<PAGE> 21
ONE GROUP INVESTMENT TRUST MID CAP VALUE PORTFOLIO
WHAT IS THE GOAL OF THE MID CAP VALUE PORTFOLIO?
The Portfolio seeks capital appreciation with the secondary goal of achieving
current income by investing primarily in equity securities. (The Portfolio was
formerly called the Mid Cap Value Fund).
WHAT ARE THE MID CAP VALUE PORTFOLIO'S MAIN INVESTMENT STRATEGIES?
The Portfolio invests mainly in equity securities of companies with below-market
average price-to-earnings and price-to-book value ratios and with market
capitalizations of $500 million to $5 billion. In choosing investments, the
Portfolio considers the issuer's soundness and earnings prospects. If Banc One
Investment Advisors thinks that a company's fundamentals are declining or that a
company's ability to pay dividends has been impaired, it likely will eliminate
the Portfolio's holding of the company's stock. For more information about the
Mid Cap Value Portfolio's investment strategies, please read "More About the
Portfolios" and "Principal Investment Strategies."
WHAT ARE THE MAIN RISKS OF INVESTING IN THE MID CAP VALUE PORTFOLIO?
The main risks of investing in the Mid Cap Value Portfolio and the circumstances
likely to adversely affect your investment are described below. Like all
non-money market mutual funds, the share price of the Mid Cap Value Portfolio
and its yield will change every day in response to interest rates and other
market conditions. You may lose money if you invest in the Mid Cap Value
Portfolio.
Market Risk. The Portfolio invests in equity securities (such as
stocks) which are more volatile and carry more risks than some other
forms of investment. The price of equity securities may rise or fall
because economic or political changes or changes in a company's
financial condition. Equity securities are also subject to "stock
market risk" meaning that stock prices in general (or mid cap value
stock prices in particular) may decline over short or extended periods
of time. When the value of the Portfolio's securities goes down, your
investment in the Fund decreases in value.
Foreign Securities. Investments in foreign securities involve risks in
addition to those of U.S. investments. These risks include political
and economic risks, currency fluctuations, higher transaction costs,
and delayed settlement. In addition, the "Euro" began serving as a new
common currency for participating European nations on January 1, 1999.
It is unclear whether the newly created accounting, clearing,
settlement, and payment systems for the new currency will be adequate.
Smaller Companies. The Portfolio's investments in smaller, newer
companies may be riskier than investments in larger, more established
companies. Small companies may be more vulnerable to economic, market,
and industry changes. Because economic events have a greater impact on
smaller companies, there may be greater and more frequent changes in
their stock price. This may cause unexpected and frequent decreases in
the value of your investment in the Portfolio.
Not FDIC insured. An investment in the Portfolio is not a deposit of
BANK ONE CORPORATION or any of its affiliates and is not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other
governmental agency.
19
<PAGE> 22
HOW HAS THE MID CAP VALUE PORTFOLIO PERFORMED?
The charts and table below help show how the Mid Cap Value Portfolio's
performance may vary. The charts and table reflect that the Mid Cap Value
Portfolio inherited the financial history of the Pegasus Variable Intrinsic
Value Fund. This information may help you evaluate the risks of investing in the
Portfolio. The charts show changes in the Portfolio's performance from year to
year. The table shows how the Portfolio's average annual returns for the periods
indicated compare to those of a broad measure of market performance. Total
returns assume reinvestment of dividends and distributions. PLEASE REMEMBER THAT
THE MID CAP VALUE PORTFOLIO'S PERFORMANCE IN THE PAST IS NOT NECESSARILY AN
INDICATION OF OW THE PORTFOLIO WILL PERFORM IN THE FUTURE.
ONE GROUP INVESTMENT TRUST MID CAP VALUE PORTFOLIO
TOTAL RETURN (PER CALENDAR YEAR)(1)
<TABLE>
<S> <C> <C>
16.69% -3.31%
1997 1998
</TABLE>
1. Total return for 1997 is from the date of the Portfolio's inception (i.e.,
May 1, 1997) through December 31, 1997.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
HIGHEST AND LOWEST RETURN
(Quarterly 1997-1998)
- -------------------------------------------------------------------------------
Quarter Ending
<S> <C> <C>
Highest 8.35% December 31, 1998
Lowest -14.07% September 30, 1998
- -------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS
(through December 31, 1998)
- -------------------------------------------------------------------------------
1 Year Life of Fund
(Since 5/1/97)
<S> <C> <C>
One Group Investment Trust Mid Cap -3.31%% 7.65%
Value Portfolio
S&P 500(1) 28.58% 31.27%
S&P/Barra Mid Cap 400 34.73% 39.01%
- -------------------------------------------------------------------------------
</TABLE>
1. The S&P 500 is the Standard & Poor's Composite Index of 500 Stocks, a
widely recognized, unmanaged index of common stock prices.
20
<PAGE> 23
1. MORE ABOUT THE PORTFOLIOS
TYPES OF PORTFOLIOS. The following pages describe investment strategies that are
used in more than one Portfolio. Where indicated, the strategies only apply to
the Bond Portfolios or the Equity Portfolios.
The BOND PORTFOLIOS include:
- One Group Investment Trust Bond Portfolio and
- One Group Investment Trust Government Bond Portfolio.
The EQUITY PORTFOLIOS include :
- One Group Investment Trust Balanced Portfolio,
- One Group Investment Trust Large Cap Growth Portfolio,
- One Group Investment Trust Equity Index Portfolio,
- One Group Investment Trust Diversified Equity Portfolio,
- One Group Investment Trust Mid Cap Growth Portfolio,
- One Group Investment Trust Diversified Mid Cap Portfolio, and
- One Group Investment Trust Mid Cap Value Portfolio.
- -------------------------------------------------------------------------------
ONE GROUP INVESTMENT TRUST
ALTHOUGH ONE GROUP INVESTMENT TRUST PORTFOLIOS HAVE THE SAME OR SIMILAR
INVESTMENT OBJECTIVES AND INVESTMENT STRATEGIES AS SIMILARLY NAMED FUNDS OF ONE
GROUP(R), ONE GROUP INVESTMENT TRUST PORTFOLIOS:
- ARE NOT THE SAME FUNDS AS ONE GROUP FUNDS;
- ARE SMALLER THAN ONE GROUP FUNDS; AND
- HAVE DIFFERENT PERFORMANCE THAN ONE GROUP FUNDS.
PORTFOLIO QUALITY. Various rating organizations (like Standard & Poor's
Corporation and Moody's Investor Service) assign ratings to securities.
Generally, ratings are divided into two main categories: "Investment Grade
Securities" and "Non-Investment Grade Securities." Although there is always a
risk of default, rating agencies believe that issuers of Investment Grade
Securities have a high to medium probability of making payments on such
securities. Non-Investment Grade Securities include securities that, in the
opinion of the rating agencies, are more likely to default than Investment Grade
Securities. The Portfolios only purchase securities that meet the rating
criteria described below. Banc One Investment Advisors will look at a security's
rating at the time of investment. If the securities are unrated, Banc One
Investment Advisors must determine that they are of comparable quality to rated
securities.
RATINGS OF THE BOND PORTFOLIOS' SECURITIES
Short-term corporate obligations such as commercial paper notes and
variable demand obligations must be rated in one of the two highest
investment grade categories at the time of investment.
One Group Investment Trust Government Bond Portfolio only may invest in
debt securities rated in any of the three highest investment grade
rating categories.
21
<PAGE> 24
One Group Investment Trust Bond Portfolio may purchase corporate and
municipal bonds that are rated in ANY category. Bonds in the lowest
rating categories are speculative and may be classified as "junk
bonds." The Bond Portfolio will invest no more than 5% of its net
assets in securities rated below investment grade.
RATINGS OF THE EQUITY PORTFOLIOS' SECURITIES
Municipal securities and short-term corporate obligations, such as
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 that present attractive
opportunities and are rated in the lowest investment grade category.
These corporate bonds may be riskier than higher rated bonds. The
Diversified Mid Cap Portfolio may invest in lower rated convertible
securities. These securities are speculative and may be classified as
"junk bonds."
For more information about ratings, please see "Description of Ratings" in
Appendix B.
ILLIQUID INVESTMENTS. Each Portfolio 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 in determining whether an investment is illiquid.
TEMPORARY DEFENSIVE POSITIONS. To respond to unusual market conditions, the
portfolios may invest all or most of their assets in CASH EQUIVALENTS (see
below) for temporary defensive purposes. These investments may result in a lower
yield than lower-quality or longer term investments and may prevent the
Portfolios from meeting their investment objectives.
Bond Portfolios. For temporary defensive purposes as determined by
Banc One Investment Advisors, the Bond Portfolios may invest up to
100% of their assets in cash equivalents, and may hold a portion of
their assets in cash for liquidity purposes.
Equity Portfolios. For temporary defensive purposes as determined by
Banc One Investment Advisors, the Equity Portfolios (except the Equity
Index Portfolio and Diversified Mid Cap Portfolio), may invest 100% of
its total assets in cash and cash equivalents. The Diversified Mid Cap
Portfolio may invest up to 20% and the Equity Index Portfolio may
invest 10% of their total assets in cash and cash equivalents.
- -------------------------------------------------------------------------------
WHAT IS A CASH EQUIVALENT?
Cash Equivalents are highly liquid, high quality instruments with
maturities of three months or less on the date they are purchased.
They include securities issued by the U.S. Government, its agencies
and instrumentalities, repurchase agreements (other than equity
repurchase agreements), certificates of deposit, bankers' acceptances,
commercial paper (rated in one of the two highest rating categories),
variable rate master demand notes, and bank money market deposit
accounts.
- -------------------------------------------------------------------------------
PORTFOLIO TURNOVER. It is estimated that portfolio turnover rate for each of the
Bond Portfolios will not exceed 50% and portfolio turnover for each of the
Equity Portfolios will not exceed 100%. However, the portfolio managers actively
manage the Portfolios and may trade securities frequently, resulting, from time
to time, in an annual portfolio turnover rate of over 100%. Active trading may
increase the amount of fees and transaction costs.
For more information about each of the Portfolios, please read "Investment
Practices."
22
<PAGE> 25
SHAREHOLDER INFORMATION
PRICING OF PORTFOLIO SHARES
HOW ARE PORTFOLIO SHARES PRICED? The net asset value or 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 day the Portfolios are open for
business. The NAV per share is calculated by adding the value of all securities
and other assets of a Portfolio, deducting its liabilities, and dividing by the
number of shares of the Portfolio that are outstanding.
WHEN ARE THE PORTFOLIOS' BUSINESS DAYS? The Portfolios are open for business on
days that the New York Stock Exchange is open for business and days 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.
PURCHASE OF PORTFOLIO SHARES
WHO CAN PURCHASE SHARES OF THE PORTFOLIOS? Shares of the Portfolios are sold at
net asset value to SEPARATE ACCOUNTS of insurance companies to fund variable
annuity and variable life contracts. You and other purchasers of variable life
or variable annuity contracts will not own shares of the Fund directly. Rather,
all shares will be held by the separate accounts for your benefit and the
benefit of other purchasers of variable annuity and variable life contracts. All
investments in the Portfolios are credited to the shareholder's account in the
form of full or fractional shares of the designated Portfolios. The Portfolios
do not issue share certificates. The interests of different separate accounts
are not always the same and material, irreconcilable conflicts may arise. The
Board of Trustees will monitor events for such conflicts and, should they arise,
will determine what action, if any, should be taken.
ARE THERE LIMITS ON PORTFOLIO PURCHASES? Yes. Initial and subsequent purchase
payments allocated to a specific Portfolio are subject to any limits set by your
variable annuity or variable life contract. For information concerning the
purchase and redemption of shares through your variable annuity or variable life
contract, refer to the literature that you received when you purchased your
variable annuity or variable life contract.
VOTING AND MEETINGS
HOW ARE SHARES OF THE PORTFOLIO VOTED? The insurance company that issued your
variable annuity or variable life contract will solicit voting instructions from
you and other purchasers of variable annuity or variable life contracts with
respect to any matters that are presented to a vote of shareholders. Each
Portfolio votes separately on matters relating solely to that Portfolio or which
affect that Portfolio 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.
WHEN ARE SHAREHOLDER MEETINGS HELD? One Group Investment 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 Portfolio's
fundamental investment objectives, or approve an investment advisory contract.
REDEMPTION OF PORTFOLIO SHARES
Separate accounts may redeem shares to make benefit or surrender payments to you
and other purchasers of variable annuity or variable life contracts. Redemptions
are processed on any day on which the Portfolios are open for business. Shares
are redeemed at the net asset value next determined after the redemption order,
in proper form, is received by the One Group Investment Trust's transfer agent,
Nationwide Investors Services, Inc.
DIVIDENDS
_ All dividends are distributed to the separate accounts on a
quarterly basis and will be automatically reinvested in portfolio
shares.
23
<PAGE> 26
- Dividends are not taxable as current income to you or other
purchasers of variable annuity or variable life insurance
contracts.
QUESTIONS
- Any questions regarding the Portfolios should be directed to One
Group Investment Trust, Three Nationwide Plaza, Columbus, Ohio
43215 1-800-860-3946. All questions regarding variable annuities
or life insurance contract should be directed to the address
indicated in the prospectuses that you received when you
purchased your variable annuity or variable life product.
TAX INFORMATION
Generally, owners of variable annuity and variable life contracts are
not taxed currently on income or gains realized with respect to such contracts.
However, some distributions from such contracts may be taxable at ordinary
income tax rates. In addition, distributions made to an owner who is younger
than 59 1/2 may be subject to a 10% penalty tax. Investors should ask their own
tax advisors for more information on their own tax situation, including possible
state or local taxes.
In order for investors to receive the favorable tax treatment available
to holders of variable annuity and variable life contracts, the separate
accounts underlying such contracts, as well as the Portfolios in which such
accounts invest, must meet certain diversification requirements. Each Portfolio
intends to comply with these requirements. If a Portfolio does not meet such
requirements, income allocable to the contracts would be taxable currently to
the holders of such contracts.
Please refer to the Statement of Additional Information for more
information regarding the tax treatment of the Portfolios. Please refer to the
prospectus of the separate accounts that hold interest in the Portfolios for a
discussion of the tax consequences of variable annuity and variable life
contracts.
QUALIFIED PLANS. In the future, shares of the portfolios may also be sold to
qualified pension and retirement plans for the benefit of plan participants. For
information about the purchase and redemption of shares by qualified pension and
retirement plans as well as the tax consequences impacting such plans, refer to
the literature received from your plan administrator.
24
<PAGE> 27
MANAGEMENT OF THE PORTFOLIOS
THE ADVISOR
Banc One Investment Advisors (1111 Polaris Parkway, P.O. Box 71021, Columbus,
Ohio 43271-0211) makes the day-to-day investment decisions for the Portfolios
and continuously reviews, supervises and administers each Portfolio's investment
program. Banc One Investment Advisors performs its responsibilities subject to
the supervision of, and policies established by, the Trustees of One Group
Investment Trust. Banc One Investment Advisors has served as investment advisor
to the Trust since its inception. In addition, Banc One Investment Advisors
serves as investment advisor to other mutual funds and individual corporate,
charitable, and retirement accounts. As of December 31, 1998, Banc One
Investment Advisors, an indirect wholly-owned subsidiary of BANK ONE
CORPORATION, managed over $54 billion in assets.
Banc One Investment Advisors is entitled to a fee, which is calculated daily and
paid monthly, of the following annual percentages of the average daily net
assets of each Portfolio:
<TABLE>
<CAPTION>
PORTFOLIO FEE
- ---------------------------------------------------------------
<S> <C>
Bond Portfolio 0.60%
Government Bond Portfolio 0.45%
Balanced Portfolio 0.70%
Large Cap Growth Portfolio 0.65%
Equity Index Portfolio 0.30%
Diversified Equity Portfolio 0.74%
Mid Cap Growth Portfolio 0.65%
Diversified Mid Cap Portfolio 0.74%
Mid Cap Value Portfolio 0.74%
</TABLE>
Banc One Investment Advisors has voluntarily agreed to waive all or part of its
fees in order to limit the Portfolios' total operating expenses on an annual
basis to not more than the following percentages of the average daily net
assets:
<TABLE>
<CAPTION>
PORTFOLIO PERCENTAGE
- -------------------------------------------------------------------
<S> <C>
Bond Portfolio 0.75%
Government Bond Portfolio 0.75%
Balanced Portfolio 1.00%
Large Cap Growth Portfolio 1.00%
Equity Index Portfolio 0.55%
Diversified Equity Portfolio 0.95%
Mid Cap Growth Portfolio 1.10%
Diversified Mid Cap Portfolio 0.95%
Mid Cap Value Portfolio 0.95%
</TABLE>
These fee waivers are voluntary and may be terminated at any time.
25
<PAGE> 28
For the fiscal year ended December 31, 1998, the Portfolios paid advisory fees
to Banc One Investment Advisors at the following rates:
<TABLE>
<CAPTION>
PORTFOLIO FEES
- ---------------------------------------------------
<S> <C>
Government Bond Portfolio
Balanced Portfolio
Large Cap Growth Portfolio
Equity Index Portfolio
Mid Cap Growth Portfolio
</TABLE>
For the fiscal year ended December 31, 1998, the predecessor funds of the
following Portfolios paid investment advisory fees to First Chicago NBD
Investment Management Company, an indirect, wholly owned subsidiary of BANK ONE
CORPORATION and an affiliate of Banc One Investment Advisors Corporation:
<TABLE>
<CAPTION>
PORTFOLIO FEES
- --------------------------------------------------
<S> <C>
Bond Portfolio
Diversified Equity Portfolio
Diversified Mid Cap Portfolio
Mid Cap Value Portfolio
</TABLE>
THE PORTFOLIO MANAGERS
The Bond Portfolios are managed by teams of portfolio managers, research
analysts and fixed income traders. The team works together to establish general
duration and sector strategies for the Portfolio. Each team member makes
recommendations about securities in the Portfolio. The research analysts and
trading personnel provide individual security and sector recommendations, while
the portfolio managers select and allocate individual securities in a manner
designed to meet the investment objectives of the Portfolio.
The Equity Portfolios are managed by teams of portfolio managers, research
analysts, and other investment management professionals. For all Equity
Portfolios except the Equity Index Portfolio which is not actively managed, each
team member makes recommendations about the securities in a Portfolio. The
research analysts provide in-depth industry analysis and recommendations, while
the portfolio managers determine strategy, industry weightings, portfolio
holdings, and cash positions.
YEAR 2000
Preparing for the Year 2000 is a high priority for the Portfolios. Both One
Group Investment Trust's Administrator, Nationwide Advisory Services, Inc. and
Banc One Investment Advisors have formed dedicated teams to help them
successfully achieve Year 2000 readiness. In addition, these teams are
responsible for assessing the readiness of all other service providers to the
Portfolios. Year 2000 readiness efforts are directed toward both information
technology and non-information technology systems. Non-information technology
systems include elevators, photocopy machines, and facsimile machines, and
should have no significant impact on the delivery of services to Portfolios.
Banc One Investment Advisors has identified information technology systems and
interfaces that provide service and support to the Portfolios. Many, if not all,
of the systems are owned or operated by third party servicers (for example, One
Group Investment Trust's Custodian). Consequently, readiness efforts must be
made by those servicers. Banc One Investment Advisors and the Administrator
have, and will continue to, monitor the readiness progress of the service
providers. This process involves documentation, on-site visits, and review of
readiness plans and test results. Neither the Portfolios nor their shareholders
will bear any of the direct expenses involved in Year 2000 readiness efforts.
26
<PAGE> 29
Neither the Administrator nor Banc One Investment Advisors currently anticipate
that the move to Year 2000 will have a material impact on their ability to
continue to provide the Portfolios with service at current levels. Likewise, One
Group Investment Trust currently anticipates that the move to Year 2000 will not
have a material impact on its operations.
27
<PAGE> 30
PRINCIPAL INVESTMENT STRATEGIES
The principal investment strategies of the Portfolios are described below. In
the opinion of Banc One Investment Advisors, these strategies are important in
trying to achieve each Portfolio's investment objective. There can be no
assurance that the Portfolios will achieve their investment objectives. Please
note that each Portfolio may also use strategies that are not described below,
but which are described in the Statement of Additional Information. For a list
of all of the types of securities in which the Portfolios may invest, please
read "Investment Practices" in Appendix A.
THE BOND PORTFOLIOS
Banc One Investment Advisors selects securities for the Bond Portfolios by
analyzing both individual securities and different industry sectors. Rather than
attempting to time the market, Banc One Investment Advisors looks for sectors
and securities that will perform consistently well over time as measured by
total return. The Portfolios do not concentrate in any one sector. Instead, the
Bond Portfolios attempt to enhance total return by diversifying their holding
across sectors that offer risk/reward advantages based on structural risks and
credit trends. Individual securities that are purchased by the Portfolios are
subject to a disciplined risk/ reward analysis both at the time of purchase and
on an ongoing basis. This analysis includes an evaluation of interest rate risk,
credit risk, and risks associated with the structure of the investment (e.g.,
asset-backed securities). (The risks associated with the types of investments
the Portfolio purchases are described in detail in Appendix A). Additional
investment strategies used by each of the Bond Portfolios are described below:
ONE GROUP INVESTMENT TRUST BOND PORTFOLIO. The Portfolio invests
primarily in investment grade debt securities as well as convertible
securities, preferred stock, and loan participations. The Portfolio's
weighted average maturity will normally range between four and twelve
years, although the Portfolio may shorten its weighted average for
temporary defensive purposes.
- At least 65% of the Portfolio's total assets will be invested in
all types of debt securities.
- At least 65% of the Portfolio's total assets consist of "bonds."
ONE GROUP INVESTMENT TRUST GOVERNMENT BOND PORTFOLIO. The Portfolio
limits its investments to securities and related to securities issued
by the U.S. Government and its agencies and instrumentalities. At least
65% of the Portfolio's total assets will be invested in:
- all types of debt securities with principal and interest
guaranteed by the U.S. Government and its agencies and
instrumentalities. (Some of these securities may be subject to
repurchase agreements.)
- other securities representing an interest in or secured by
mortgages that are issued or guaranteed by certain U.S.
government agencies or instrumentalities.
THE EQUITY PORTFOLIOS
The investment strategies utilized by the Equity Portfolios are described in the
Risk/Return Summaries and below.
ONE GROUP INVESTMENT TRUST BALANCED PORTFOLIO. The Portfolios invests
in a combination of stocks, fixed income securities and money market
instruments. Normally, the Portfolio will invest:
- between 40% and 75% of total assets in all types of equity
securities (including stock of both large and small
capitalization companies and growth and value securities). Up to
20% of the equities may be foreign securities, including American
Depository Receipts.
- between 25% and 60% of total assets in mid to long term fixed
income securities, including bonds, notes, and other debt
securities. The balance will be invested in cash equivalents. For
more information on how Banc One Investment Advisors selects
fixed income securities, please read "The Bond Portfolios" above.
28
<PAGE> 31
ONE GROUP INVESTMENT TRUST MID CAP GROWTH PORTFOLIO. The Portfolio
invests in securities of companies that have the potential to produce
above-average earnings growth per share over a one-to-three year
period.
- At least 65% of the Portfolio's total assets will be invested 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.
ONE GROUP INVESTMENT TRUST LARGE CAP GROWTH PORTFOLIO The Portfolio
invests mainly in equity securities of large, well-established
companies. The weighted average capitalization of companies in which
the Portfolio invests normally will exceed the market median
capitalization of the Standard & Poor's 500 Composite Stock Price Index
("S&P 500 Index").(1)
- At least 65% of the Portfolio's total assets will be invested in
the equity securities of large, well-established companies,
including common stock, warrants and rights to buy common stock.
ONE GROUP INVESTMENT TRUST EQUITY INDEX PORTFOLIO. The Portfolio
invests in stocks included in the S&P 500 Index. (The Portfolio also
invests in stock index futures.) Banc One Investment Advisors seeks to
achieve a correlation between the performance of the Fund and that of
the S&P 500 Index. The Portfolio may hold up to 10% of its net assets
in cash or cash equivalents.
- -------------------------------------------------------------------------------
HOW DOES INDEX INVESTING WORK?
- The percentage of stock that the Portfolio holds will be
approximately the same percentage that the stock represents in
the S&P 500 Index.
- Banc One Investment Advisor generally picks stock in the order of
their weightings in the S&P 500 Index, starting with the heaviest
weighted stock.
- The Portfolio attempts 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 Portfolio expenses.
Perfect correlation would be 1.00.
- -------------------------------------------------------------------------------
ONE GROUP INVESTMENT TRUST DIVERSIFIED EQUITY PORTFOLIO. The Portfolio
invests mainly in common stocks of companies which the investment
advisor believes are overlooked or undervalued and that have the
potential for earnings growth over time.
- At least 65% of the Portfolio's total assets will be invested in
equity securities.
- Up to 35% of the Portfolio's total assets may be invested in U.S.
Government Securities, other investment grade fixed income
securities, cash, and cash equivalents.
ONE GROUP INVESTMENT TRUST DIVERSIFIED MID CAP PORTFOLIO. The Portfolio
invests mainly in equity securities of companies with capitalizations
of $500 million to $5 billion.
- At least 80% of the Portfolio's total assets will be invested in
common and preferred stock, rights, warrants, convertible
securities, and other equity securities.
- Up to 25% of the Portfolio's total assets may be invested in
foreign securities.
- Up to 20% of the Portfolio's total assets may be in invested U.S.
Government Securities, other investment grade fixed income
securities, cash, and cash equivalents.
- --------------------------------
(1) "S&P 500" is a registered service mark of Standard & Poor's Corporation,
which does not sponsor and is in no way affiliated with One Group
Investment Trust.
29
<PAGE> 32
- Up to 5% of the Portfolio's net assets may be invested in lower rated
convertible securities (including so-called "junk bonds") and
securities having common stock characteristics (like rights and
warrants).
ONE GROUP INVESTMENT TRUST MID CAP VALUE PORTFOLIO. The Portfolio invests mainly
in equity securities of companies with below-market average price-to-earnings
and price-to-book value ratios and with market capitalizations of $500 million
to $5 billion.
- At least 80% of the Portfolio's total assets will be invested in
equity securities, including common stock, debt securities and
preferred stocks that are convertible into common stock.
- A portion of the Portfolio's assets will be held in cash equivalents.
30
<PAGE> 33
FINANCIAL HIGHLIGHTS
The Financial Highlights tables are intended to help you understand each
Portfolio's performance for the period of the Portfolio's operations. Certain
information reflects financial results for a single Portfolio share. The total
returns in the table represent the rate that an investor would have earned or
lost on an investment in a Portfolio (assuming reinvestment of all dividends and
distributions). This information for the Government Bond Portfolio, the Balanced
Portfolio, the Mid Cap Growth Portfolio, the Large Cap Growth Portfolio, and the
Equity Index Portfolio has been audited by
whose report, along with the Portfolios' financial statements are
included in the Statement of Additional Information, which is available upon
request. This information for the Bond Portfolio, the Diversified Mid Cap
Portfolio, the Mid Cap Value Portfolio, and the Diversified Equity Portfolio has
been audited by , whose report, along with the Portfolios' financial
statements are included in the Statement of Additional Information, which is
available upon request.
<TABLE>
<CAPTION>
GOVERNMENT BOND PORTFOLIO
For a Share Outstanding throughout each period 1998 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)
---------- ---------- ---------- ----------
the Statement of Additional
InformationNet 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% (0.90%)
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%
</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.
31
<PAGE> 34
BALANCED PORTFOLIO
<TABLE>
<CAPTION>
For a Share Outstanding throughout each period 1998 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 Operations 2.70 1.32 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 from investment
transactions -- (0.04) -- --
Tax return of capital -- (0.02) -- --
---------- ---------- ---------- ----------
Total Distributions (1.44) (0.63) (0.57) (0.06)
---------- ---------- ---------- ----------
Net increase (decrease) in net 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% --
</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.
32
<PAGE> 35
MID CAP GROWTH PORTFOLIO
<TABLE>
<CAPTION>
For a Share Outstanding throughout each period 1998 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 (0.25%) 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%
</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.
33
<PAGE> 36
LARGE CAP GROWTH FUND
<TABLE>
<CAPTION>
For a Share Outstanding throughout each period 1998 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 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 $ 12.12 $ 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%
</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.
34
<PAGE> 37
EQUITY INDEX PORTFOLIO
For a Share Outstanding throughout each period 1998*
NET ASSET VALUE - BEGINNING OF PERIOD
Net investment income
Net realized and unrealized appreciation (depreciation)
Total from Investment Operations
Distributions:
From net investment income
From net realized gains from investments
In excess of realized gains from investment transactions
Tax return of capital
Total Distributions
Net increase (decrease) in net asset value
NET ASSET VALUE - END OF PERIOD
Total Return**
RATIOS AND SUPPLEMENTAL DATA:
Net assets end of period (000)
Ratio of expenses to average net assets
Ratio of expenses to average net assets
excluding waivers/reimbursements***
Ratio of net investment income to average net assets
Ratio of net investment income to average net assets
excluding waivers/reimbursements***
Portfolio turnover**
* Initial public offering was May 1, 1998.
** 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.
35
<PAGE> 38
BOND PORTFOLIO
For a Share Outstanding throughout each period
NET ASSET VALUE - BEGINNING OF PERIOD
Net investment income
Net realized and unrealized appreciation (depreciation)
Total from Investment Operations
Distributions:
From net investment income
From net realized gains from investments
In excess of realized gains from investment transactions
Tax return of capital
Total Distributions
Net increase (decrease) in net asset value
NET ASSET VALUE - END OF PERIOD
Total Return
RATIOS AND SUPPLEMENTAL DATA:
Net assets end of period (000)
Ratio of expenses to average net assets
Ratio of expenses to average net assets
excluding waivers/reimbursements
Ratio of net investment income to average net assets
Ratio of net investment income to average net assets
excluding waivers/reimbursements
Portfolio turnover
36
<PAGE> 39
DIVERSIFIED MID CAP PORTFOLIO
For a Share Outstanding throughout each period
NET ASSET VALUE - BEGINNING OF PERIOD
Net investment income
Net realized and unrealized appreciation (depreciation)
Total from Investment Operations
Distributions:
From net investment income
From net realized gains from investments
In excess of realized gains from investment transactions
Tax return of capital
Total Distributions
Net increase (decrease) in net asset value
NET ASSET VALUE - END OF PERIOD
Total Return
RATIOS AND SUPPLEMENTAL DATA:
Net assets end of period (000)
Ratio of expenses to average net assets Ratio
of expenses to average net assets
excluding waivers/reimbursements
Ratio of net investment income to average net assets
Ratio of net investment income to average net assets
excluding waivers/reimbursements
Portfolio turnover
<PAGE> 40
MID CAP VALUE PORTFOLIO
For a Share Outstanding throughout each period
NET ASSET VALUE - BEGINNING OF PERIOD
Net investment income
Net realized and unrealized appreciation (depreciation)
Total from Investment Operations
Distributions:
From net investment income
From net realized gains from investments
In excess of realized gains from investment transactions
Tax return of capital
Total Distributions
Net increase (decrease) in net asset value
NET ASSET VALUE - END OF PERIOD
Total Return
RATIOS AND SUPPLEMENTAL DATA:
Net assets end of period (000)
Ratio of expenses to average net assets
Ratio of expenses to average net assets
excluding waivers/reimbursements
Ratio of net investment income to average net assets
Ratio of net investment income to average net assets
excluding waivers/reimbursements
Portfolio turnover
38
<PAGE> 41
DIVERSIFIED EQUITY PORTFOLIO
For a Share Outstanding throughout each period
NET ASSET VALUE - BEGINNING OF PERIOD
Net investment income
Net realized and unrealized appreciation (depreciation)
Total from Investment Operations
Distributions:
From net investment income
From net realized gains from investments
In excess of realized gains from investment transactions
Tax return of capital
Total Distributions
Net increase (decrease) in net asset value
NET ASSET VALUE - END OF PERIOD
Total Return
RATIOS AND SUPPLEMENTAL DATA:
Net assets end of period (000)
Ratio of expenses to average net assets
Ratio of expenses to average net assets
excluding waivers/reimbursements
Ratio of net investment income to average net assets
Ratio of net investment income to average net assets
excluding waivers/reimbursements
Portfolio turnover
39
<PAGE> 42
APPENDIX A
INVESTMENT PRACTICES
The Portfolios 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 Portfolios,
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>
PORTFOLIO NAME PORTFOLIO CODE
- -------------- --------------
<S> <C>
ONE GROUP INVESTMENT TRUST BOND PORTFOLIO 1
ONE GROUP INVESTMENT TRUST GOVERNMENT BOND PORTFOLIO 2
ONE GROUP INVESTMENT TRUST BALANCED PORTFOLIO 3
ONE GROUP INVESTMENT TRUST MID CAP GROWTH PORTFOLIO 4
ONE GROUP INVESTMENT TRUST LARGE CAP GROWTH PORTFOLIO 5
ONE GROUP INVESTMENT TRUST EQUITY INDEX PORTFOLIO 6
ONE GROUP INVESTMENT TRUST DIVERSIFIED EQUITY PORTFOLIO 7
ONE GROUP INVESTMENT TRUST DIVERSIFIED MID CAP PORTFOLIO 8
ONE GROUP INVESTMENT TRUST MID CAP VALUE PORTFOLIO 9
</TABLE>
<TABLE>
<CAPTION>
INSTRUMENT PORTFOLIO CODE RISK TYPE
- ---------- -------------- ---------
<S> <C> <C>
U.S. Treasury Obligations: Bills, notes, 1-9 Market
bonds, STRIPS, and CUBES.
Treasury Receipts: TRS, TIGRs, and CATS. 1-9 Market
U.S. Government Agency Securities: Securities 1-9 Market
issued by agencies and instrumentalities of Credit
the U.S. Government. These include Ginnie Mae,
Fannie Mae, and Freddie Mac.
Certificates of Deposit: Negotiable instruments with a stated 1, 3-9 Market
maturity. Credit
Time Deposits: Non-negotiable receipts issued by a bank in 1, 3-9 Liquidity
exchange for the deposit of Portfolios. Credit
Market
Common Stock: Shares of ownership of a company. 3-9 Market
Repurchase Agreements: The purchase of a security and the 1-9 Credit
simultaneous commitment to return the security to the seller at Market
an agreed upon price on an agreed upon date. This is treated as Liquidity
a loan.
Reverse Repurchase Agreement: The sale of a security and the 1-9 Market
simultaneous commitment to buy the security back at an agreed Leverage
upon price on an agreed upon date. This is treated as a
borrowing by a Portfolio.
</TABLE>
40
<PAGE> 43
<TABLE>
<CAPTION>
INSTRUMENT PORTFOLIO CODE RISK TYPE
<S> <C> <C>
Securities Lending: The lending of up to 33-1/3% of the Portfolio's total 1-9 Credit
assets. In return the Portfolio will receive cash, other securities, Market
and/or letters of credit. Leverage
When-Issued Securities and Forward Commitments: Purchase or 1-9 Market
contract to purchase securities at a fixed price for delivery at Leverage
a future date. Liquidity
Credit
Investment Company Securities: Shares of other mutual funds, 1-9 Market
including money market funds of One Group(R) 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 or portfolios for which it serves as investment advisor.
Convertible Securities: Bonds or preferred stock that convert to 1, 3-9 Market
common stock. Credit
Call and Put Options: A call option gives the buyer the right to 1-9 Management
buy, and obligates the seller of the option to sell, a security Liquidity
at a specified price. A put option gives the buyer the right to Credit
sell, and obligates the seller of the option to buy, a security Market
at a specified price. The Portfolios will sell only covered call and Leverage
secured put options.
Futures and Related Options: A contract providing for the future 1-9 Management
sale and purchase of a specified amount of a specified security, Market
class of securities, or an index at a specified time in the Credit
future and at a specified price. Liquidity
Leverage
Real Estate Investment Trusts ("REITs"): Pooled investment 3-9 Liquidity
vehicles which invest primarily in income producing real estate Management
or real estate related loans or interest. Market
Regulatory
Tax
Pre-payment
Bankers' Acceptances: Bills of exchange or time drafts drawn on 1, 3-9 Credit
and accepted by a commercial bank. Maturities are generally six Liquidity
months or less. Market
Commercial Paper: Secured and unsecured short-term promissory 1, 3-9 Credit
notes issued by corporations and other entities. Maturities Liquidity
generally vary from a few days to nine months. Market
Foreign Securities: Stocks issued by foreign companies, as well Market
as commercial paper of foreign issuers and obligations of 1, 3-9 Political
foreign banks, overseas branches of U.S. banks and supranational Liquidity
entities. The Equity Portfolios may also invest in American Depository Foreign Investment
Receipts.
Restricted Securities: Securities not registered under the 1-9 Liquidity
Securities Act of 1933, such as privately placed commercial Market
paper and Rule 144A securities.
Variable and Floating Rate Instruments: Obligations with Credit
interest rates which are reset daily, weekly, quarterly or some 1-9 Liquidity
other period and which may be payable to the Portfolio on demand. Market
Warrants: Securities, typically issued with preferred stock or 3, 5-8 Market
bonds, that give the holder the right to buy a proportionate Credit
amount of common stock at a specified price.
Preferred Stock: A class of stock that generally pays a dividend 1, 3-9 Market
at a specified rate and has preference over common stock
in the payment of dividends and in liquidation.
</TABLE>
41
<PAGE> 44
<TABLE>
<CAPTION>
INSTRUMENT PORTFOLIO CODE RISK TYPE
<S> <C> <C>
Mortgage-Backed Securities: Debt obligations secured by real 1, 2, 8 Pre-payment
estate loans and pools of loans. These include collateralized Market
mortgage obligations ("CMOs") and Real Estate Mortgage Investment Credit
Conduits ("REMICs").
Corporate Debt Securities: Corporate bonds and non-convertible 1, 3 Market
debt securities. Credit
Demand Features: Securities that are subject to puts and standby 1, 3 Market
commitments to purchase the securities at a fixed price (usually Liquidity
with accrued interest) within a fixed period of time following Management
demand by a Portfolio.
Asset-Backed Securities: Securities secured by company 1, 8 Pre-payment
receivables, home equity loans, truck and auto loans, leases, Market
credit card receivables and other securities backed by other Credit
types of receivables or other assets. Regulatory
Mortgage Dollar Rolls: A transaction in which a Portfolio sells 1, 2, 8 Pre-payment
securities for delivery in a current month and simultaneously Market
contracts with the same party to repurchase similar but not Regulatory
identical securities on a specified future date.
Adjustable Rate Mortgage Loans ("ARMs"): Loans in a mortgage 1-3 Pre-payment
pool which provide for a fixed initial mortgage interest rate Market
for a specified period of time, after which the rate may be Credit
subject to periodic adjustments. Regulatory
Swaps, Caps and Floors: A Portfolio may enter into these transactions 1-9 Management
to manage its exposure to changing interest rates and other Credit
factors. Swaps involve an exchange of obligations by two Liquidity
parties. Caps and floors entitle a purchaser to a principal Market
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 and 1-9 Management
other financial products continue to be developed and the Portfolios Credit
may invest in such options, contracts and products. Market
Liquidity
Structured Instruments: Debt securities issued by agencies and 1-3 Market
instrumentalities of the U.S. government, banks, municipalities, Liquidity
corporations and other businesses whose interest and/or Management
principal payments are indexed to foreign currency exchange Credit
rates, interest rates, or one or more other referenced indices. Foreign Investment
Municipal Securities: Securities issued by a state or political 1-3 Market
subdivision to obtain funds for various public purposes. Credit
Municipal securities include private activity bonds and Political
industrial development bonds, as well as General Obligation Tax
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.
Obligations of Supranational Agencies: Obligations of 8 Credit
supranational agencies who are chartered to promote economic Foreign Investment
development and are supported by various governments
and governmental agencies.
Zero-Coupon Debt Securities: Bonds and other debt that pay no 1, 2, 8 Credit
interest, but are issued at a discount from their value at Market
maturity. When held to maturity, their entire return equals the Zero Coupon
difference between their issue price and their maturity value.
Standard & Poor's Depository Receipts ("SPDRs"): SPDRs represent 3-7, 9 Market
ownership in a long-term unit investment trust that holds a portfolio of
common stocks designed to track the price performance and dividend
yield of the S&P 500 Index. A SPDR entitles a holder to receive proportionate
</TABLE>
42
<PAGE> 45
<TABLE>
<S> <C> <C>
quarterly cash distributions corresponding to the dividends that accrue to the
S&P 500 Index stocks in the underlying portfolio, less trust expenses.
Zero-Fixed-Coupon Debt Securities: Zero coupon debt securities 1, 2, 8 Credit
which convert on a specified date to interest bearing debt Market
securities. Zero Coupon
Stripped Mortgage-Backed Securities: Derivative multi-class 1, 2 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.
Inverse Floating Rate Instruments: Floating rate debt 1, 2 Market
instruments with interest rates that reset in the opposite Leverage
direction from the market rate of interest to which the inverse Credit
floater is indexed.
Loan Participations and Assignments: Participations in, or 1 Credit
assignments of all or a portion of loans to corporations or to Political
governments, including governments of the less developed Liquidity
countries ("LDC's"). Foreign Investment
Market
Fixed Rate Mortgage Loans: Investments in fixed rate mortgage 1, 2 Credit
loans or mortgage pools which bear simple interest at fixed Pre-payment
annual rates and have original terms ranging from 5 to 40 years. Regulatory
Market
Short-Term Funding Agreements: Investments in short-term funding 1 Credit
agreements issued by banks and highly rated U.S. insurance Liquidity
companies such as Guaranteed Investment Contracts ("GIC's") and Market
Bank Investment Contracts ("BIC's").
</TABLE>
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 Portfolios may fluctuate, as will the value
of your investment in the Portfolios. 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 Portfolio 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 Portfolio's hedging transactions will be effective.
- - Speculative. To the extent that a derivative is not used as a hedge,
the Portfolio 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 Portfolio
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<PAGE> 46
management or performance. This includes the risk of missing out on an
investment opportunity because the assets necessary to take advantage
of it are tied up in less advantageous investments.
- - Management Risk. The risk that a strategy used by a Portfolio'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 my
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-paid, a Portfolio may have to reinvest in securities with a lower
yield. Further, with early prepayment, a Portfolio 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 lender has when a borrower defaults on
loans. These laws include restrictions on foreclosures, redemption
rights after foreclosure, Federal and state bankruptcy and debtor
relief laws, restrictions on "due on sale" clauses, and state usury
laws.
- - Zero Coupon Risk. The market prices of securities structured as zero
coupon or pay-in-kind securities are generally affected to a greater
extent by interest rate changes. These securities tend to be more
volatile than securities which pay interest periodically.
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<PAGE> 47
APPENDIX B
DESCRIPTION OF RATINGS
The following is a summary of published ratings by major credit rating agencies.
Credit ratings evaluate only the safety of principal and interest payments, not
the market value risk of lower quality securities. Credit rating agencies may
fail to change credit ratings to reflect subsequent events on a timely basis.
Although Banc One Investment Advisors considers security ratings when making
investment decisions, it also performs its own investment analysis and does not
rely solely on the ratings assigned by credit agencies.
Unrated securities will be treated as non-investment grade securities unless
Banc One Investment Advisors determines that such securities are the equivalent
of investment grade securities. Securities that have received different ratings
from more than one agency are considered investment grade if at least one agency
has rated the security investment grade.
DESCRIPTION OF COMMERCIAL PAPER RATINGS
---------------------------------------
DUFF & PHELPS CREDIT RATING CO. ("DUFF")
- ----------------------------------------
D-1+ Highest certainty of timely payment. Short-term liquidity,
including internal operating factors and/or access to
alternative sources of funding, is outstanding and safety
is just below risk-free U.S. Treasury obligations.
D-1 Very high certainty of timely payment. Liquidity factors are
excellent and supported by good fundamental protection
factors. Risk factors are minor.
D-1- High certainty of timely payment. Liquidity factors are strong
and supported by good fundamental protection factors. Risk
factors are very small.
D-2 Good certainty of timely payment. Liquidity facts and company
fundamentals are sound. Although ongoing funding needs may
enlarge total financing requirements, access to capital
markets is good. Risk factors are small.
D-3 Satisfactory liquidity and other protection factors qualify
issues as to investment grade. Risk factors are larger and
subject to more variation. Nevertheless, timely payment is
expected.
D-4 Speculative investment characteristics. Liquidity is not
sufficient to insure against disruption in debt service.
Operating factors and market access may be subject to a high
degree of variation.
D-5 Issuer failed to meet scheduled principal and/interest
payments.
STANDARD & POOR'S CORPORATION ("S&P")
- -------------------------------------
A-1 Highest category of commercial paper. Capacity to meet
financial commitment is strong. Obligations designated with a
plus sign (+) indicate that capacity to meet financial
commitment is extremely strong.
A-2 Issues somewhat more susceptible to adverse effects of changes
in circumstances and economic conditions than obligations in
higher rating categories. However, the capacity to meet
financial commitments is satisfactory.
A-3 Exhibits adequate protection parameters. However, adverse
economic conditions or changing circumstances are more likely
to lead to a weakened capacity of the obligor to meet its
financial commitment on the obligation.
B Regarded as having significant speculative characteristics.
The obligor currently has the capacity to meet its financial
commitment on the obligation; however, it faces major ongoing
uncertainties which could lead to the obligor's inadequate
capacity to meet its financial commitment on the obligation.
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<PAGE> 48
C Currently vulnerable to nonpayment and is dependent upon
favorable business, financial, and economic conditions for the
obligor to meet its financial commitment on the obligation.
D In payment default. The D rating category is used when
payments on an obligation are not made on the date due even if
the applicable grace period has not expired, unless Standard &
Poor's believes that such payments will be made during such
grace period. The D rating also will be used upon the filing
of a bankruptcy petition or the taking of a similar action if
payments on an obligation are jeopardized.
FITCH'S IBCA LIMITED ("FITCH")
- ------------------------------
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.
A3 Adequate capacity for timely repayment, but more susceptible
to adverse changes business, economic or financial conditions
than for obligations in higher categories.
B Capacity for timely repayment is susceptible to adverse
changes in business, economic or financial conditions.
C High risk of default or which are currently in default.
MOODY'S INVESTORS SERVICE ("MOODY'S")
- -------------------------------------
Prime-1 Superior ability for repayment.
Prime-2 Strong ability for repayment.
Prime-3 Acceptable ability for repayment. The effect of industry
characteristics and market compositions may be more
pronounced. Variability in earnings and profitability may
result in changes in the level of debt protection measurements
and may require relatively high financial leverage.
Adequate alternate liquidity is maintained.
Not Prime Does not fall within any of the Prime rating categories.
DESCRIPTION OF BANK RATINGS
---------------------------
MOODY'S
- -------
These ratings represent Moody's opinion of a bank's intrinsic safety and
soundness.
A These banks possess exceptional intrinsic financial strength. Typically
they will be major financial institutions with highly valuable and
defensible business franchises, strong financial fundamentals, and a
very attractive and stable operating environment.
B These banks possess strong intrinsic financial strength. Typically,
they will be important institutions with valuable and defensible
business franchises, good financial fundamentals, and an attractive and
stable operating environment.
C These banks possess good intrinsic financial strength. Typically, they
will be institutions with valuable and defensible business franchises.
These banks will demonstrate either acceptable financial fundamentals
within a stable operating environment, or better than average financial
fundamentals within an unstable operating environment.
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<PAGE> 49
D These banks possess adequate financial strength, but may be limited by
one or more of the following factors: a vulnerable or developing
business franchise; weak financial fundamentals; or an unstable
operating environment.
E These banks possess very weak intrinsic financial strength, require
periodic outside support or suggest an eventual need for outside
assistance. Such institutions may be limited by one or more of the
following factors: a business franchise of questionable value;
financial fundamentals that are seriously deficient in one or more
respects; or a highly unstable operating environment.
DESCRIPTION OF TAXABLE BOND RATINGS
-----------------------------------
S&P
- ---
S&P's credit rating is a current opinion of an obligor's overall financial
capacity (its creditworthiness) to pay its financial obligation.
AAA The highest rating assigned by S&P. The obligor's capacity to meet its
financial commitment on the obligation is extremely strong.
AA The obligor's capacity to meet its financial commitments on the obligation
is very strong.
A The obligation is somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions than obligations in higher
rated categories. However, the obligor's capacity to meet its financial
commitment on the obligation is still strong.
BBB Exhibits adequate protection parameters. However, adverse economic
conditions or changing circumstances are more likely to lead to a weakened
capacity of the obligor to meet its financial commitment on the obligation.
Obligations rated BB, B, CCC, CC, and C are regarded as having significant
speculative characteristics. BB indicates the least degree of speculation and C
the highest. While such obligations will likely have some quality and protective
characteristics, these may be outweighed by large uncertainties or major
exposures to adverse conditions.
BB Less vulnerable to nonpayment than other speculative issues. However, such
issues face major ongoing uncertainties or exposure to adverse business,
financial, or economic conditions which could lead to the obligor's
inadequate capacity to meet its financial commitment on the obligation.
B More vulnerable to nonpayment than obligations rated BB, but the obligor
currently has the capacity to meet its financial commitment on the
obligation. Adverse business, financial, or economic conditions will likely
impair the obligor's capacity or willingness to meet its financial
commitment on the obligation.
CCC Currently vulnerable to nonpayment, and dependent upon favorable business,
financial, and economic conditions for the obligor to meet its financial
commitment on the obligation. In the event of adverse business, financial,
or economic conditions, the obligor is not likely to have the capacity to
meet its financial commitment on the obligation.
CC Currently highly vulnerable to nonpayment.
C Used to cover a situation where a bankruptcy petition has been filed or
similar action has been taken, but payments on this obligation are being
continued.
D In payment default. Used when payments on an obligation are not made on the
date due even if the applicable grace period has not expired, unless
Standard & Poor's believes that such payments will be made during such
grace period. Also used upon the filing of a bankruptcy petition or the
taking of a similar action if payments on an obligation are jeopardized.
Moody's
- -------
Investment Grade
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<PAGE> 50
Aaa Best quality. They carry the smallest degree of investment risk and are
generally referred to as "gilt edged." Interest payments are protected
by a large, or an exceptionally stable, margin and principal is secure.
Aa High quality by all standards. Margins of protection may not be as
large as in Aaa securities, fluctuation of protective elements may be
greater, or there may be other elements present that make the long-term
risks appear somewhat larger than in Aaa securities.
A These bonds possess many favorable investment attributes and are to be
considered as upper-medium grade obligations. Factors giving security
to principal and interest are considered adequate, but elements may be
present which suggest a susceptibility to impairment sometime in the
future.
Baa These bonds are considered medium-grade obligations (i.e., they are
neither highly protected nor poorly secured). Interest payments and
principal security appear adequate for the present but certain
protective elements may be lacking or may be characteristically
unreliable over any great length of time. Such bonds lack outstanding
investment characteristics and in fact have speculative characteristics
as well.
Non-Investment Grade
Ba These bonds have speculative elements; their future cannot be
considered as well assured. The protection of interest and principal
payments may be very moderate and thereby not well safeguarded during
good and bad times over the future.
B These bonds lack the characteristics of a desirable investment (i.e.,
potentially low assurance of timely interest and principal payments or
maintenance of other contract terms over any long period of time may be
small).
Caa Bonds in this category have poor standing and may be in default. These
bonds carry an element of danger with respect to principal and interest
payments.
Ca Speculative to a high degree and could be in default or have other
marked shortcomings. C is the lowest rating.
FITCH
- -----
Investment Grade
AAA Highest rating category. The obligor's capacity for timely repayment of
principal and interest is extremely strong.
AA The obligor's capacity for timely repayment is very strong.
A Bonds and preferred stock considered to be investment grade and of high
credit quality. The obligor's ability for timely repayment is strong.
However, adverse changes in business, economic, or financial conditions
are more likely to affect the capacity for timely repayment than
obligations in higher rated categories.
BBB The obligor's capacity for timely repayment of principal and interest
is adequate. However, adverse changes in business, economic or
financial conditions and circumstances, are more likely to affect the
capacity for timely repayment than for obligations in higher rated
categories.
B The Obligor's capacity for timely repayment of principal and interest
is uncertain. Timely repayment of principal and interest is not
sufficiently protected against adverse changes in business, economic or
financial conditions and these obligations are far more speculative
than those in higher rated categories.
CCC Obligations for which there is a current perceived possibility of
default. Timely repayment of principal and interest is dependent on
favorable business, economic, or financial conditions and these
obligations are far more speculative than those in higher rated
categories.
CC Obligations which are highly speculative or which have a high risk of
default.
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<PAGE> 51
C Obligations which are currently in default.
DESCRIPTION OF INSURANCE RATINGS
--------------------------------
MOODY'S
- -------
These ratings represent Moody's opinions of the ability of insurance companies
to pay punctually senior policyholder claims and obligations.
Aaa Insurance companies rated in this category offer exceptional financial
security. While the financial strength of these companies is likely to
change, such changes as can be visualized are most unlikely to impair
their fundamentally strong position.
Aa These insurance companies offer excellent financial security. Together
with the Aaa group, they constitute what are generally known as high
grade companies. They are rated lower than Aaa companies because
long-term risks appear somewhat larger.
A Insurance companies rated in this category offer good financial
security. However, elements may be present which suggest a
susceptibility to impairment sometime in the future.
Baa Insurance companies rated in this category offer adequate financial
security. However, certain protective elements may be lacking or may be
characteristically unreliable over any great length of time.
Ba Insurance companies rated in this category offer questionable financial
security. Often the ability of these companies to meet policyholder
obligations may be very moderate and thereby not well safeguarded in
the future.
B Insurance companies rated in this company offer poor financial
security. Assurance of punctual payment of policyholder obligations
over any long period of time is small.
Caa Insurance companies rated in this category offer very poor financial
security. They may be in default on their policyholder obligations or
there may be present elements of danger with respect to punctual
payment of policyholder obligations and claims.
Ca Insurance companies rated in this category offer extremely poor
financial security. Such companies are often in default on their
policyholder obligations or have other marked shortcomings.
C Insurance companies rated in this category are the lowest rated class
of insurance company and can be regarded as having extremely poor
prospects of ever offering financial security.
S & P
- -----
An insurer rated `BBB' or higher is regarded as having financial security
characteristics that outweigh any vulnerabilities, and is highly likely to have
the ability to meet financial commitments.
AAA EXTREMELY STRONG financial security characteristics. `AAA' is the
highest Insurer Financial Strength Rating assigned by Standard &
Poor's.
AA VERY STRONG financial security characteristics, differing only slightly
from those rated higher.
A STRONG financial security characteristics, but is somewhat more likely
to be affected by adverse business conditions than are insurers with
higher ratings.
BBB GOOD financial security characteristics, but is more likely to be
affected by adverse business conditions than are higher rated insurers.
An insurer rated `BB' or lower is regarded as having vulnerable characteristics
that may outweigh its strength. `BB' indicates the least degree of vulnerability
within the range; `CC' the highest.
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<PAGE> 52
BB MARGINAL financial security characteristics. Positive attributes exist,
but adverse business conditions could lead to insufficient ability to
meet financial commitments.
B WEAK financial security characteristics. Adverse business conditions
will likely impair its ability to meet financial commitments.
CCC VERY WEAK financial security characteristics, and is dependent on
favorable business conditions to meet financial commitments.
CC EXTREMELY WEAK financial security characteristics and is likely not to
meet some of its financial commitments.
R An insurer rated `R' has experienced a REGULATORY ACTION regarding
solvency. The rating does not apply to insurers subject only to
nonfinancial actions such as market conduct violations.
NR NOT RATED, which implies no opinion about the insurer's financial
security.
Plus (+) or minus (-)
Following ratings from `AA' to `CCC' show relative standing within the major
rating categories.
DESCRIPTION OF MUNICIPAL NOTE RATINGS
-------------------------------------
MOODY'S
- -------
MIG1 & VMIG1 Short-term municipal securities rated MIG1 or VMIG1 are of
the best quality. They have strong protection from established
cash flows, superior liquidity support or demonstrated
broad-based access to the market for refinancing.
MIG2 & VMIG2 These short-term municipal securities rated are of high
quality. Margins of protection are ample although not so large
as in the preceding group.
MIG3 & VMIG Favorable quality. All security elements are accounted for,
but the undeniable strength of the preceding grades is
lacking. Liquidity and cash flow protection may be narrow and
marketing access for refinancing is likely to be less well
established.
MIG4 & VMIG4 This denotes adequate quality protection commonly regarded as
required of an investment security is present and although not
distinctly or predominantly speculative, there is a specific
risk.
SG This denotes speculative quality.
S&P
- ---
An S&P note rating reflects the liquidity concerns and market access risks
unique to notes. Notes due in three years or less will likely receive a note
rating. Notes maturing beyond three years will most likely receive a long-term
debt rating.
SP-1 Strong capacity to pay principal and interest. Those issues determined
to possess overwhelming safety characteristics will be given a plus (+)
designation.
SP-2 Satisfactory capacity to pay principal and interest.
SP-3 Speculative capacity to pay principal and interest.
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DESCRIPTION OF PREFERRED STOCK RATINGS
--------------------------------------
Moody's
- -------
aaa Top-quality preferred stock. This rating indicates good asset
protection and the least risk of dividend impairment within the
universe of preferred stocks.
aa High-grade preferred stock. This rating indicates that there is a
reasonable assurance the earnings and asset protection will remain
relatively well maintained in the foreseeable future.
a Upper-medium grade preferred stock. While risks are judged to be
somewhat greater than in the "aaa" and "aa" classification, earnings
and asset protection are, nevertheless, expected to be maintained at
adequate levels.
baa Medium-grade preferred stock, neither highly protected nor poorly
secured. Earnings and asset protection appear adequate at present but
may be questionable over any great length of time.
ba Considered to have speculative elements and its future cannot be
considered well assured. Earnings and asset protection may be very
moderate and not well safeguarded during adverse periods. Uncertainty
of position characterizes preferred stocks in this class.
b Lacks the characteristics of a desirable investment. Assurance of
dividend payments and maintenance of other terms of the issue over any
long period of time may be small.
caa Likely to be in arrears on dividend payments. This rating designation
does not purport to indicate the future status of payments.
ca Speculative in a high degree and is likely to be in arrears on
dividends with little likelihood of eventual payments.
c Lowest rated class of preferred or preference stock. Issues so rated
can thus be regarded as having extremely poor prospects of ever
attaining any real investment standing.
Note: Moody's applies numerical modifiers 1, 2, and 3 in each rating
classification; the modifier 1 indicates that the security ranks in the higher
end of its generic rating category; the modifier 2 indicates a mid-range ranking
and the modifier 3 indicates that the issue ranks in the lower end of its
generic rating category.
S&P
- ---
S&P's preferred stock rating is an assessment of the capacity and willingness of
an issuer to pay preferred stock dividends and any applicable sinking Portfolio
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.
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BB, B
CCC Regarded, on balance, as predominantly speculative with respect to the
issuer's capacity to pay preferred stock obligations. BB indicates the
lowest degree of speculation and CCC the highest. While such issues
will likely have some quality and protective characteristics, these are
outweighed by large uncertainties or major risk exposures to adverse
conditions.
CC In arrears on dividends or sinking Portfolio payments, but that is
currently paying.
C Nonpaying issue.
D Nonpaying issue with the issuer in default on debt instruments.
N.R. No rating has been requested, insufficient information on which to base
a rating, or Standard & Poor's does not rate a particular type of
obligation as a matter of policy.
Plus (+) or minus (-)
To provide more detailed indications of preferred stock quality, ratings from AA
to CCC may be modified by the addition of a plus or minus sign to show relative
standing within the major rating categories.
DESCRIPTION OF MUNICIPAL BOND RATINGS
-------------------------------------
(INCLUDING FOREIGN, MORTGAGE AND ASSET-BACKED SECURITIES)
S&P
INVESTMENT GRADE
AAA The highest rating. The rating indicates an extremely strong
capacity to meet its financial commitment.
AA Differs from AAA issues only in a small degree. The obligor's
capacity to meet its financial commitment is very strong.
A These bonds are somewhat more susceptible to the adverse
effects of changes in circumstances and economic conditions
than debt in higher rated categories. However, capacity to
meet its financial commitment on the obligation is still
strong.
BBB Exhibits adequate protection parameters. However, adverse
economic conditions or changing circumstances are more likely
to lead to a weakened capacity to meet its financial
commitment on the obligations.
SPECULATIVE GRADE
BB Less vulnerable to non-payment than other speculative issues.
However, these bonds face major ongoing uncertainties or
exposure to adverse business, financial or economic conditions
which could lead to inadequate capacity to meet financial
commitment on the obligations.
B More vulnerable to non-payment than obligations rated BB, but
currently has the capacity to meet its financial commitment on
the obligation. Adverse business, financial or economic
conditions will likely impair capacity or willingness to meet
its financial commitment on the obligation.
CCC Currently vulnerable to non-payment, and is dependent upon
favorable business, financial, and economic conditions to meet
its financial commitment on the obligation. In the event of
adverse business, financial, or economic conditions, they are
not likely to have the capacity to meet its financial
commitment on the obligation.
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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 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.
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TBW-2 While degree of safety regarding timely repayment of principal
and interest is strong, the relative degree is not as high as
for issues rated TBW-1.
TBW-3 Lowest investment grade category. While more susceptible to
adverse developments than obligations with higher ratings,
capacity to service principal and interest in a timely fashion
is considered adequate.
TBW-4 Non-investment grade and, therefore, speculative.
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If you want more information about the Portfolios, the following documents are
free upon request:
ANNUAL/SEMI-ANNUAL REPORTS: Additional information about the Portfolios'
investments is available in the Portfolios' annual and semi-annual reports to
shareholders. In each Portfolio's annual report, you will find a discussion of
the market conditions and investment strategies that significantly affected the
Portfolio's performance during its last fiscal year.
STATEMENT OF ADDITIONAL INFORMATION ("SAI"): The SAI provides more detailed
information about the Portfolios and is incorporated into this prospectus by
reference.
HOW CAN I GET MORE INFORMATION? You can get a free copy of the semiannual/annual
reports or the SAI, request other information or discuss your questions about
the Portfolio by calling 1 800-860-3946 or by writing the Portfolios at:
One Group(R) Investment Trust
One Nationwide Plaza
Columbus, Ohio 43216
You can also review and copy the Portfolios' reports and the SAI at the Public
Reference Room of the Securities and Exchange Commission ("SEC"). (For
information about the SEC's Public Reference Room call 1-800-SEC-0330). You can
also get reports and other information about the Portfolios from the SEC's web
site at http://www.sec.gov or by writing the Public Reference Section of the
SEC, Washington, D.C. 20549-6009 and paying a copying charge.
VARIABLE ANNUITY AND LIFE INSURANCE CONTRACTS: This prospectus is for use with a
variable life insurance contracts and variable annuity contracts. All questions
regarding variable annuity contracts or variable life insurance contracts should
be directed to the address in the prospectus that you received when you
purchased your variable annuity or variable life product.
(Investment Company Act File No. 811-7874)
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<PAGE> 58
STATEMENT OF ADDITIONAL INFORMATION
ONE GROUP(R) INVESTMENT TRUST
ONE GROUP INVESTMENT TRUST BOND PORTFOLIO (THE "BOND PORTFOLIO")
ONE GROUP INVESTMENT TRUST GOVERNMENT BOND PORTFOLIO (THE "GOVERNMENT BOND
PORTFOLIO")
ONE GROUP INVESTMENT TRUST BALANCED PORTFOLIO (THE "BALANCED PORTFOLIO)
ONE GROUP INVESTMENT TRUST LARGE CAP GROWTH PORTFOLIO (THE "LARGE CAP GROWTH
PORTFOLIO")
ONE GROUP INVESTMENT TRUST EQUITY INDEX PORTFOLIO (THE "EQUITY INDEX
PORTFOLIO")
ONE GROUP INVESTMENT TRUST DIVERSIFIED EQUITY PORTFOLIO
(THE "DIVERSIFIED EQUITY PORTFOLIO")
ONE GROUP INVESTMENT TRUST DIVERSIFIED MID CAP PORTFOLIO
(THE "DIVERSIFIED MID CAP PORTFOLIO")
ONE GROUP INVESTMENT TRUST MID CAP GROWTH PORTFOLIO (THE "MID CAP GROWTH
PORTFOLIO")
ONE GROUP INVESTMENT TRUST MID CAP VALUE PORTFOLIO
(THE "MID CAP VALUE PORTFOLIO")
(EACH A "PORTFOLIO," AND COLLECTIVELY THE "PORTFOLIOS")
MARCH , 1999
This Statement of Additional Information is not a Prospectus, but
supplements and should be read with the Prospectus dated March , 1999 for the
Portfolios(the "Prospectus"). This Statement of Additional Information is
incorporated in its entirety into the Prospectus. A copy of the Prospectus may
be obtained by writing to One Group Investment Trust (the "Trust") at One
Nationwide Plaza, Columbus, Ohio 43215 or by calling toll free at
1-800-860-3946.
<PAGE> 59
<TABLE>
<CAPTION>
TABLE OF CONTENTS
Page
<S> <C>
THE TRUST................................................................................................................1
INVESTMENT OBJECTIVES AND POLICIES.......................................................................................3
Additional Information on Portfolio Investments.......................................................................3
Asset-Backed Securities...........................................................................................3
Bank Obligations..................................................................................................3
Commercial Paper..................................................................................................4
Common Stock......................................................................................................4
Convertible Securities............................................................................................4
Demand Features...................................................................................................4
Foreign Investments...............................................................................................5
Limitations on the Use of Foreign Investments.....................................................................5
Futures and Options Trading.......................................................................................6
Futures Contracts...............................................................................................6
Limitations on the Use of Futures Contracts.....................................................................7
Risk Factors in Futures Transactions............................................................................8
Options Contracts...............................................................................................9
Writing (Selling) Covered Calls.................................................................................9
Purchasing Call Options........................................................................................11
Purchasing Put Options.........................................................................................11
Secured Puts...................................................................................................11
Straddles and Spreads..........................................................................................11
Risk Factors in Options Transactions...........................................................................11
Limitations on the Use of Options..............................................................................12
Government Securities............................................................................................12
High Yield/High Risk Securities/Junk Bonds.......................................................................13
Investment Company Securities....................................................................................13
Loan Participations and Assignments..............................................................................14
Mortgage-Related Securities......................................................................................14
Mortgage-Backed Securities (CMOs and REMICs)...................................................................14
Mortgage Dollar Rolls..........................................................................................16
Stripped Mortgage Backed Securities............................................................................17
Adjustable Rate Mortgage Loans.................................................................................17
Risk Factors of Mortgage-Related Securities....................................................................18
Municipal Securities.............................................................................................19
Risk Factors in Municipal Securities...........................................................................21
PERCs............................................................................................................23
Preferred Stock..................................................................................................23
Real Estate Investment Trusts ("REITs")..........................................................................23
Repurchase Agreements............................................................................................24
Reverse Repurchase Agreements....................................................................................24
Restricted Securities............................................................................................24
Securities Lending...............................................................................................26
Short-term Funding Agreements....................................................................................26
SPDRs............................................................................................................26
Structured Instruments...........................................................................................27
Swaps, Caps and Floors...........................................................................................27
Treasury Receipts................................................................................................29
U.S. Treasury Obligations........................................................................................29
Variable and Floating Rate Instruments...........................................................................29
Limitations on the Use of Variable and Floating Rate Notes.......................................................30
Warrants.........................................................................................................30
When-Issued Securities and Forward Commitments.................................................................. 30
Investment Restrictions.............................................................................................31
Portfolio Turnover..................................................................................................32
Additional Tax Information Concerning All Portfolios................................................................33
VALUATION...............................................................................................................34
Valuation of the Portfolios.............................................................................................34
ADDITIONAL INFORMATION REGARDING THE
</TABLE>
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<TABLE>
<S> <C>
CALCULATION OF PER SHARE NET ASSET VALUE............................................................................35
Additional Purchase and Redemption Information..........................................................................35
MANAGEMENT OF THE TRUST.................................................................................................35
Trustees & Officers..............................................................................................35
Investment Advisor...............................................................................................37
Glass-Steagall Act...............................................................................................40
Portfolio Transactions...........................................................................................40
Administrator....................................................................................................41
Custodian and Transfer Agent.....................................................................................43
Experts .........................................................................................................44
ADDITIONAL INFORMATION..................................................................................................44
Description of Shares............................................................................................44
Shareholder and Trustee Liability................................................................................46
Shareholders.....................................................................................................46
Calculation of Performance Data..................................................................................48
Miscellaneous....................................................................................................50
</TABLE>
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THE TRUST
One Group Investment Trust(formerly called The One Group Investment Trust) (the
"Trust") is an open-end management investment company. The Trust was formed as a
Massachusetts business trust on June 7, 1993. The Trust consists of nine series
of units of beneficial interest ("Shares") each representing interests in one of
the following separate investment portfolios:
1. Bond Portfolio (formerly called the Bond Fund)
2. Government Bond Portfolio (formerly called the Government Bond
Fund)
3. Balanced Portfolio (formerly called the Asset Allocation Fund)
4. Mid Cap Growth Portfolio (formerly called the Growth
Opportunities Fund)
5. Large Cap Growth Portfolio (formerly called the Large Company
Growth Fund)
6. Equity Index Portfolio (formerly called the Equity Index Fund)
7. Diversified Equity Portfolio (formerly called the Value Growth
Fund)
8. Diversified Mid Cap Portfolio (formerly called the Mid Cap
Opportunities Fund)
9. Mid Cap Value Portfolio (formerly called the Mid Cap Value
Fund)
For ease of reference, this Statement of Additional Information sometimes refers
to the portfolios as the BOND PORTFOLIOS and the EQUITY PORTFOLIOS.
The BOND PORTFOLIOS include:
1. Bond Portfolio and
2. Government Bond Portfolio.
The EQUITY PORTFOLIOS include:
1. Balanced Portfolio,
2. Mid Cap Growth Portfolio,
3. Large Cap Growth Portfolio,
4. Equity Index Portfolio,
5. Diversified Equity Portfolio,
6. Diversified Mid Cap Portfolio, and
7. Mid Cap Value Portfolio.
All of the Portfolios are diversified, as defined under the Investment Company
Act of 1940, as amended, (the "1940 ACT").
SUBSTITUTION OF ONE GROUP INVESTMENT TRUST PORTFOLIOS FOR PEGASUS VARIABLE
FUNDS. On March __, 1999, the following portfolios of the Trust were substituted
for the following Pegasus Variable funds in separate accounts maintained by
Hartford Life and Annuity Insurance Company:
ONE GROUP INVESTMENT TRUST PORTFOLIO PEGASUS VARIABLE FUND
1. Bond Portfolio 1. Bond Fund
2. Large Cap Growth Portfolio 2. Growth Fund
3. Diversified Mid Cap Portfolio 3. Mid Cap Opportunity Fund
4. Mid Cap Value Portfolio 4. Intrinsic Value Fund
5. Diversified Equity Portfolio 5. Growth and Value Fund
With the exception of the Large Cap Growth Portfolio, the Pegasus Variable Funds
are the surviving funds for accounting purposes. The Pegasus Variable Bond Fund,
the Pegasus Variable Mid Cap Opportunity Fund, the Pegasus Variable Intrinsic
Value Fund, and the Pegasus Growth and Value Fund are referred to as the
"PREDECESSOR FUNDS" in this Statement of Additional Information.
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Much of the information in this Statement of Additional Information
expands upon subjects discussed in the Prospectus. You should not invest in the
Portfolios without first reading the Prospectus.
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<PAGE> 63
INVESTMENT OBJECTIVES AND POLICIES
The following policies supplement each Portfolio's investment objective and
policies as described in the Prospectus. Additional details about each
Portfolio's investment objectives and policies is contained in the Prospectus
under "Risk/Return Summaries" and "Principal Investment Strategies" and in
Appendix A.
ADDITIONAL INFORMATION ON PORTFOLIO INVESTMENTS
ASSET-BACKED SECURITIES
Asset-backed securities include securities secured by company receivables, home
equity loans, truck and auto loans, leases, credit card receivables.
Asset-Backed Securities also include other securities backed by other types of
receivables or other assets. These securities are generally pass-through
securities, which means that principal and interest payments on the underlying
securities (less servicing fees) are passed through to shareholders on a pro
rata basis.
Prepayment Risks. The issuers of asset-backed securities may be able to repay
principal in advance if interest rates fall. Also, the underlying assets (for
example, the underlying credit card debt) may be refinanced or paid off prior to
maturity during periods of declining interest rates If asset-backed securities
are pre-paid, a Portfolio may have to reinvest the proceeds from these
securities at a lower rate. In addition, potential market gains on a security
subject to prepayment risk may be more limited than securities that cannot be
prepaid. Under certain prepayment rate scenarios, a Portfolio may fail to
recover any premium paid on asset-backed securities.
BANK OBLIGATIONS
Bank obligations include bankers' acceptances, certificates of deposit, and
demand and time deposits. The Portfolios (other than the Government Bond
Portfolio) may invest in bank obligations.
BANKERS' ACCEPTANCES are negotiable drafts or bills of exchange typically drawn
by an importer or exporter to pay for specific merchandise. These drafts are
"accepted" by a bank, meaning, in effect, that the bank unconditionally agrees
to pay the face value of the instrument on maturity. To be eligible for purchase
by a Portfolio, a bankers' acceptance must be guaranteed by domestic and foreign
banks and savings and loan associations having, at the time of investment, total
assets in excess of $1 billion (as of the date of their most recently published
financial statements).
CERTIFICATES OF DEPOSIT are negotiable certificates issued against funds
deposited in a commercial bank or a savings and loan association for a definite
period of time and earning a specified return. To be eligible for investment, a
certificate of deposit must be issued by 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 Portfolios may also invest in Eurodollar certificates of deposit. Eurodollar
certificates of deposit are U.S. dollar-denominated certificates of deposit
issued by branches of foreign and domestic banks located outside the United
States. The Portfolios may also invest in Yankee certificates of deposit. Yankee
certificates of deposits are certificates of deposit issued by a U.S. branch of
a foreign bank denominated in U.S. dollars and held in the United States. The
Portfolios may also invest in obligations (including banker's acceptances and
certificates of deposit) denominated in foreign currencies (see "Foreign
Investments").
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 Portfolio could purchase
certificates of deposit. TIME DEPOSITS are interest-bearing non-negotiable
deposits at a bank or a savings and loan association that have a specific
maturity date. A time deposit earns a specific rate of interest over a definite
period of time. Time deposits cannot be traded on the
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<PAGE> 64
secondary market. Time deposits that exceed seven days and include a withdrawal
penalty are considered to be illiquid.
COMMERCIAL PAPER
Commercial paper consists of promissory notes issued by corporations.
Although these notes are generally unsecured, the Portfolios may also purchase
secured commercial paper. Except as noted below with respect to variable amount
master demand notes, issues of commercial paper normally have maturities of less
than nine months and fixed rates of return. The Portfolios only purchase
commercial paper that meet the following criteria.
Bond Portfolio. The Bond Portfolio may purchase commercial paper
consisting of issues rated at the time of purchase in the highest or
second highest rating category by at least one Nationally Recognized
Statistical Rating Organization ("NRSRO") (such as A-2 or better by
Standard & Poor's Corporation ("S&P"), Aa or better by Moody's Investors
Service, Inc. ("Moody's") or A2 or better by Fitch IBCA ("Fitch")) or if
unrated, determined by Banc One Investment Advisors Corporation ("BANC
ONE INVESTMENT ADVISORS") to be of comparable quality.
Equity Portfolios. The Equity Portfolios may purchase commercial paper
consisting of issues rated at the time of purchase in the highest or
second highest rating category by at least one NRSRO (such as A-2 or
better by S&P, P-2 or better by Moody's or F-2 or better by Fitch) or if
unrated, determined by Banc One Investment Advisors to be of comparable
quality.
COMMON STOCK
Common stock represents a share of ownership in a company and usually carries
voting rights and earns dividends. Unlike preferred stock, common stock
dividends are not fixed but are declared at the discretion of the issuer's board
of directors.
CONVERTIBLE SECURITIES
Convertible securities are similar to both fixed income and equity securities.
Convertible securities may be issued as bonds or preferred stock. Because of the
conversion feature, the market value of convertible securities tends to move
together with the market value of the underlying stock. As a result, the
Portfolios base selection of convertible securities, to a great extent, on the
potential for capital appreciation that may exist in the underlying stock. The
value of convertible securities is also affected by prevailing interest rates,
the credit quality of the issuer, and any call provisions.
DEMAND FEATURES
The Bond Portfolio and the Balanced Portfolio may invest in securities that are
subject to puts and standby commitments ("DEMAND FEATURES"). A demand feature
allows a Portfolio to buy securities at their principal amount (usually with
accrued interest) within a fixed period (usually seven days) following a demand
by the Portfolio. The demand feature may be issued by the issuer of the
underlying securities, a dealer in the securities or by another third party, and
may not be transferred separately from the underlying security. The underlying
securities subject to a put may be sold at any time at market rates. The
Portfolios expect that they will acquire puts only where the puts are available
without the payment of any direct or indirect consideration. However, if
advisable or necessary, a premium may be paid for put features. A premium paid
will reduce the yield otherwise payable on the underlying security.
Under a "STAND-BY COMMITMENT," a dealer agrees to purchase, at a Portfolio's
option, specified municipal securities at a specified price. A Portfolio will
acquire these commitments only to aid portfolio liquidity and does not intend to
exercise the demand feature for trading purposes. Stand-by commitments may also
be referred to as put options. Each Portfolio will generally limit its
investments in stand-by commitments to 25% of its total assets.
The Portfolios engage in put transactions to maintain flexibility and liquidity
to permit them to meet redemption requests and remain as fully invested as
possible.
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FOREIGN INVESTMENTS
All of the Portfolios (except the Government Bond Portfolio) may invest in
certain obligations or securities of foreign issuers. Possible investments
include equity securities of foreign entities, obligations of foreign branches
of U.S. banks and of foreign banks, including, without limitation, Eurodollar
Certificates of Deposit, Eurodollar Time Deposits, Eurodollar Banker's
Acceptances, Canadian Time Deposits and Yankee Certificates of Deposits, and
investments in Canadian Commercial Paper, foreign securities and Europaper.
The Equity Portfolios may purchase sponsored and unsponsored American Depository
Receipts ("ADRs"). Sponsored ADRs are listed on the New York Stock Exchange;
unsponsored ADRs are not. Therefore, there may be less information available
about the issuers of unsponsored ADRs than the issuers of sponsored ADRs.
Unsponsored ADRs are restricted securities.
RISK FACTORS OF FOREIGN INVESTMENTS
Political and Exchange Risks. Foreign investments involve investment risks that
differ in some respects from those related to investments in obligations of U.S.
domestic issuers. These risks include future adverse political and economic
developments, the possible imposition of withholding taxes on interest or other
income, possible seizure, nationalization or expropriation of foreign deposits,
the possible establishment of exchange controls or taxation at the source,
greater fluctuations in value due to changes in exchange rates, or the adoption
of other foreign governmental restrictions which might adversely affect the
payment of principal and interest on such obligations.
Higher Transaction Costs. Foreign investments may entail higher custodial fees
and sales commissions than domestic investments.
Accounting and Regulatory Differences. Foreign issuers of securities or
obligations are often subject to accounting treatment and engage in business
practices different from those respecting domestic issuers of similar securities
or obligations. Foreign branches of U.S. banks and foreign banks are not
regulated by U.S. banking authorities and may be subject to less stringent
reserve requirements than those applicable to domestic branches of U.S. banks.
In addition, foreign banks generally are not bound by the accounting, auditing,
and financial reporting standards comparable to those applicable to U.S. banks.
Currency Risk. On January 1, 1999, the European Economic and Monetary Union
introduced the "euro." The euro serves as a common currency for participating
European nations. All stocks issued by corporations located in those nations
will be denominated in euros. In addition, outstanding shares will be
redenominated in euros. All government bonds issued by participating nations
will be in euros , and outstanding government bonds will be redenominated in
euros. The introduction of the euro presents some uncertainties, such as the
adequacy of newly created accounting, clearing, settlement, and payment systems
for the new currency. These uncertainties could adversely affect the value of
the foreign securities held by the Portfolios.
LIMITATIONS ON THE USE OF FOREIGN INVESTMENTS. Investments in all types of
foreign obligations or securities will not exceed 25% of the net assets of a
Portfolio.
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FUTURES AND OPTIONS TRADING
The Portfolios may enter into futures contracts, options, options on futures
contracts and stock index futures contracts and options thereon for the purposes
of remaining fully invested, reducing transaction costs, or managing interest
rate risk.
FUTURES CONTRACTS
Futures contracts provide for the future sale by one party and purchase by
another party of a specified amount of a specific security, class of securities,
or an index at a specified future time and at a specified price. A stock index
futures contract is a bilateral agreement where 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 the terms of most futures contracts 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
Portfolio 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 Portfolios 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
Portfolios 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 Portfolios intend to enter into futures
contracts, options on futures contracts, index futures and options thereon that
are traded on an exchange regulated by the CFTC if, to the extent that these
futures and options are not for "bona fide hedging purposes" (as defined by the
CFTC), the aggregate initial margin and premiums on these positions (excluding
the amount by which options are in the money) do not exceed 5% of the
Portfolio's total assets at current value. A Portfolio, however, may invest more
than this amount for bona fide hedging purposes, and also may invest more than
that amount if it obtains authority to do so from the CFTC without rendering the
Portfolio a commodity pool operator.
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A Portfolio 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 Portfolio 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 Portfolio, through the purchase of
these contracts, can attempt to secure better rates or prices for the Portfolio
than might later be available in the market when it makes anticipated purchases.
Although techniques other than the sale and purchase of futures contracts could
be used to control the Portfolios' exposure to market fluctuations, the use of
futures contracts may be a more effective means of managing this exposure. While
the Portfolios will incur commission expenses in both opening and closing out
futures positions, these costs may be lower than transaction costs that would be
incurred in the purchase and sale of the underlying securities.
A Portfolio's ability to effectively use futures trading depends on several
factors. First, price correlation between the futures contracts and their
underlying reference security or index may not be perfect. 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 Portfolio could lose more than the original margin deposit required to
initiate a futures transaction.
LIMITATIONS ON THE USE OF FUTURES CONTRACTS
Except for bona fide hedging purposes, none of the Portfolios will enter into
futures contract transactions if immediately after the transaction, the sum of
its initial margin deposits and premiums on open contracts exceeds 5% of the
market value of the respective Portfolio's total assets. None of the Portfolios
will enter into futures contracts if the value of the futures contracts held
would exceed 25% of the applicable Portfolio's total assets.
The Portfolios restrict their futures contract trading as follows:
1. The Portfolios will not engage in transactions in futures contracts for
speculative purposes;
2. The Portfolios will not market themselves to the public as commodity
pools or otherwise as vehicles for trading in the commodities futures
or commodity options markets;
3. The Portfolios will disclose to all prospective Shareholders the
purpose of and limitations on their commodity futures trading;
4. The Portfolios will submit to the CFTC special calls for information.
Accordingly, registration as a commodities pool operator with the CFTC
is not required.
In addition to the margin restrictions discussed above, transactions in futures
contracts may involve the segregation of funds in a segregated account pursuant
to requirements imposed by the SEC. Under those requirements, where a Portfolio
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 Portfolio, 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 Portfolio "covers" a long
position. For example, instead of segregating assets, a Portfolio, 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 Portfolio. In addition, where a Portfolio takes short
positions, or engages in sales of call options, it need not segregate assets if
it "covers" these positions. For example, where a Portfolio holds a short
position in a futures contract, it may cover by owning the instruments
underlying the contract. The Portfolios 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 Portfolio 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 Portfolio could also cover this position
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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 Portfolio. In certain circumstances, entry into a futures contract that
substantially eliminates risk of loss and the opportunity for gain in an
"appreciated financial position" will also accelerate gain to the Portfolios.
RISK FACTORS IN FUTURES TRANSACTIONS
LIQUIDITY. Positions in futures contracts may be closed out only on an exchange
which provides a secondary market for such futures. However, there can be no
assurance that a liquid secondary market will exist for any particular futures
contract at any specific time. Thus, it may not be possible to close a futures
position. In the event of adverse price movements, a Portfolio would continue to
be required to make daily cash payments to maintain the required margin. In
these situations, if a Portfolio has insufficient cash, it may have to sell
portfolio securities to meet daily margin requirements even though it may be
disadvantageous to do so. In addition, a Portfolio may be required to deliver
the instruments underlying futures contracts it holds. The inability to close
options and futures positions could also adversely impact the Portfolio's
ability to effectively hedge these positions. The Portfolios will minimize the
risk that they will be unable to close out a futures contract by only entering
into futures contracts which are traded on national futures exchanges and for
which there appears to be a liquid secondary market.
RISK OF LOSS. The risk of loss in trading futures contracts in some strategies
can be substantial, due both to the low margin deposits required, and the
extremely high degree of leverage involved in futures pricing. Because the
deposit requirements in the futures markets are less onerous than margin
requirements in the securities market, there may be increased participation by
speculators in the futures market which may also cause temporary price
distortions. A relatively small price movement in a futures contract may result
in immediate and substantial loss (as well as gain) to the investor. For
example, if at the time of purchase, 10% of the value of the futures contract is
deposited as margin, a subsequent 10% decrease in the value of the futures
contract would result in a total loss of the margin deposit, before any
deduction for the transaction costs, if the account were then closed out. Thus,
a purchase or sale of a futures contract may result in losses in excess of the
amount invested in the contract. However, because the futures strategies engaged
in by the Portfolios typically are for risk management purposes, Banc One
Investment Advisors does not believe that the Portfolios are subject to the
risks of loss frequently associated with futures transactions. Each Portfolio
would presumably have sustained comparable losses if, instead of the futures
contract, it had invested in the underlying financial instrument and sold it
after the decline.
CORRELATION RISK. A Portfolio's use of futures transactions involves the risk of
imperfect or no correlation where the securities underlying futures contracts
have different maturities than the portfolio securities being hedged. A
Portfolio could also 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 Portfolio of margin deposits in the event of bankruptcy of a broker with whom
the Portfolio has an open position in a futures contract or related option.
PRICE FLUCTUATIONS. Most futures exchanges limit the amount of fluctuation
permitted in futures contract prices during a single trading day. The daily
limit establishes the maximum amount that the price of a futures contract may
vary either up or down from the previous day's settlement price at the end of a
trading session. Once the daily limit has been reached in a particular type of
contract, no trades may be made on that day at a price beyond that limit. The
daily limit governs only price movement during a particular trading day and
therefore does not limit potential losses, because the limit may prevent the
liquidation of unfavorable positions. Futures contract prices have occasionally
moved to the daily limit for several consecutive trading days with little or no
trading, thereby preventing prompt liquidation of futures positions and
subjecting some futures traders to substantial losses.
Some futures strategies, including selling futures, buying puts and writing
covered calls, may reduce a Portfolio's exposure to price fluctuations. Other
strategies, including buying futures, and buying calls, tend to increase market
exposure. Futures and options may be combined with each other in order to adjust
the risk and return characteristics of the overall portfolio. A Portfolio
expects to enter into these transactions to manage a return or spread on a
particular investment or portion of its assets, to protect against any increase
in the price of securities a Portfolio anticipates purchasing at a later date,
or for other risk management strategies.
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OPTIONS CONTRACTS
The Portfolios may use options on securities or futures contracts as a hedging
device. An option gives the buyer of the option the right (but not the
obligation) to purchase a futures contract or security at a specified price
(also called the STRIKE price). A CALL OPTION gives the buyer the "right to
purchase" a security at a specified price (the exercise price) at any time until
a certain date (the expiration date). So long as the obligation of the writer of
a call option continues, the writer may be assigned an exercise notice by the
broker-dealer through whom the 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 these rules.
A PUT OPTION gives the buyer the right to sell the underlying futures contract
or security. The seller (or "writer") of a put option must purchase futures
contracts or securities at a strike price if the option is exercised. In the
case of a call option, the seller must sell the futures contract or security in
the underlying futures contract or security at the strike price if the option is
exercised.
A NAKED OPTION is an option written by a party who does not own the underlying
futures contract or security. A COVERED OPTION is an option written by a party
who does own the underlying position. The initial purchase (sale) of an option
is an "opening transaction." In order to close out an option position, the
Portfolio may enter into a "closing transaction". This involves the sale
(purchase) of an option contract on the same security with the same exercise
price and expiration date as the option contract originally opened.
A call option on a futures contract or security is said to be "in-the-money" if
the strike price is below current market levels and "out-of-the-money" if the
strike price is above current market levels. A put option is "in-the-money" if
the strike price is above current market levels, and "out-of-the-money" if the
strike price is below current market levels.
Options have limited life spans, usually tied to the delivery or settlement date
of the underlying futures contract or security. Some options, however, expire
significantly in advance of such dates. An option that is "out-of-the-money" and
not offset by the time it expires becomes worthless. On certain exchanges
"in-the-money" options are automatically exercised on their expiration date, but
on others unexercised options simply become worthless after their expiration
date. Options usually trade at a premium (referred to as the "time value" of the
option) above their intrinsic value (the difference between the market price for
the underlying futures contract or equity security and the strike price). As an
option nears its expiration date, the market value and the intrinsic value move
into parity as the time value diminishes.
Increased market volatility generally increases the value of options by
increasing the probability of favorable market swings, putting outstanding
options "in-the-money." Although purchasing options is a limited risk trading
approach, significant losses can be incurred by doing so.
WRITING (SELLING) COVERED CALLS
The Portfolios may write (sell) covered call options and purchase options to
close out options previously written by the Portfolio. The Portfolios' purpose
in writing covered call options is to generate additional premium income. This
premium income will serve to enhance a Portfolio's total return and will reduce
the effect of any price decline of the security involved in the option.
Generally, the Portfolios will write covered call options on securities which,
in the opinion of Banc One Investment Advisors are not expected to make any
major price moves in the near future but which, over the long term, are deemed
to be attractive investments for the Portfolio. The Portfolios will write only
covered call options. This means that a Portfolio will only write a call option
on a security which a Portfolio already owns.
Portfolio securities on which call options may be written will be purchased
solely on the basis of investment considerations consistent with each
Portfolio's investment objectives. The writing of
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covered call options is a conservative investment technique believed to involve
relatively little risk (in contrast to the writing of naked options, which a
Portfolio will not do), but capable of enhancing the Portfolio's total return.
When writing a covered call option, a Portfolio, 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 Portfolio 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 Portfolio has written expires, a
Portfolio 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 Portfolio 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 Portfolio's custodian.
The Portfolios do not consider a security covered by a call to be "pledged" as
that term is used in each Portfolio's policy which limits the pledging or
mortgaging of its assets.
The premium received is the market value of an option. The premium each
Portfolio 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 the 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 Portfolio for writing covered call options will be recorded as a
liability in the Portfolio'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
Portfolio is computed (close of the New York Stock Exchange), or, in the absence
of such sale, the latest asked price. The liability will be extinguished upon
expiration of the option, the purchase of an identical option in the closing
transaction, or delivery of the underlying security upon the exercise of the
option.
Generally, a Portfolio, 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 Portfolio's best interest. A closing
purchase transaction consists of a Portfolio purchasing an option having the
same terms as the option sold by a Portfolio, and has the effect of cancelling a
Portfolio's position as a seller. The premium which a Portfolio 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 Portfolio are exercised and a Portfolio delivers
securities to the holder of a call option, a Portfolio's turnover rate will
increase, which would cause a Portfolio 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 permits a Portfolio to write another call option on the underlying
security with either a different exercise price or expiration date or both. If a
Portfolio desires to sell a particular security from its portfolio on which it
has written a call options 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 Portfolio will be able to effect such closing transactions at a
favorable price. If a Portfolio cannot enter into a closing 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 Portfolio 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 Portfolio 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 Portfolio may purchase
an underlying security for delivery in accordance with an exercise notice of a
call option assigned to it, rather than delivering the security from its
portfolio. In such cases, additional costs will be incurred.
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A Portfolio 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
Portfolio.
PURCHASING CALL OPTIONS
The Portfolios may purchase call options to hedge against an increase in the
price of securities that the Portfolio wants ultimately to buy. Such hedge
protection is provided during the life of the call option because the Portfolio,
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 Portfolio
might have realized had it bought the underlying security at the time it
purchased the call option. If paying a premium for a call option, together with
a price movement in the underlying security, is such that exercise of the option
would not be profitable to the Portfolio, loss of the premium may be offset by a
decrease in the acquisition cost of securities by the Portfolio.
PURCHASING PUT OPTIONS
The Portfolios may also purchase put options to protect their portfolio holdings
in an underlying security against a decline in market value. Hedge protection is
provided during the life of the put option since the Portfolio, 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 Portfolio 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 Portfolio's securities.
SECURED PUTS
The Portfolios may write secured puts. For the secured put writer, substantial
depreciation in the value of the underlying security would result in the
security being "put to" the writer at the strike price of the option which may
be substantially greater than the fair market value of the security. If a
secured put option expires unexercised, the writer realizes a gain in the amount
of the premium.
STRADDLES AND SPREADS
The Portfolios also may engage in straddles and spreads. In a straddle
transaction, a Portfolio either buys a call and a put or sells a call and a put
on the same security. In a spread, the Portfolio purchases and sells a call or a
put. The Portfolio will sell a straddle when Banc One Investment Advisors
believes the price of a security will be stable. The Portfolio will receive a
premium on the sale of the put and the call. A spread permits the Portfolio to
make a hedged investment that the price of a security will increase or decline.
RISK FACTORS IN OPTIONS TRANSACTIONS
Risk of Loss. When it purchases an option, a Portfolio runs the risk of losing
its entire investment in the option in a relatively short period of time, unless
the Portfolio 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 Portfolio will lose part or all of its investment in the option. This
contrasts with an investment by a Portfolio in the underlying securities,
because the Portfolio may continue to hold its investment in those securities
notwithstanding the lack of a change in price of those securities. In addition,
there may be imperfect or no correlation between the changes in market value of
the securities held by the Portfolios and the prices of the options.
Judgement of Advisor. The successful use of the options strategies depends on
the ability of Banc One Investment Advisors to assess interest rate and market
movements correctly and to accurately
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calculate the fair price of the option. The effective use of options also
depends on a Portfolio's ability to terminate option positions at times when
Banc One Investment Advisors deems it desirable to do so. A Portfolio 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
Portfolio will be able to effect closing transactions at any particular time or
at an acceptable price.
Liquidity. If a secondary trading market in options were to become unavailable,
a Portfolio could no longer engage in closing transactions. Lack of investor
interest might adversely affect the liquidity of the market for particular
options or series of options. A marketplace may discontinue trading of a
particular option or options generally. In addition, a market could become
temporarily unavailable if unusual events, such as volume in excess of trading
or clearing capability, were to interrupt normal market operations. A
marketplace may at times find it necessary to impose restrictions on particular
types of options transactions, which may limit a Portfolio's ability to realize
its profits or limit its losses.
Market Restrictions. Disruptions in the markets for the securities underlying
options purchased or sold by a Portfolio 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 Portfolio 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 Portfolio 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 Portfolio
has expired, the Portfolio could lose the entire value of its option.
Foreign Investment Risks. Special risks are presented by internationally-traded
options. Because of time differences between the United States and the various
foreign countries, and because different holidays are observed in different
countries, foreign option markets may be open for trading during hours or on
days when U.S. markets are closed. As a result, option premiums may not reflect
the current prices of the underlying interest in the United States.
LIMITATIONS ON THE USE OF OPTIONS.
Each Portfolio will limit the writing of put and call options to 25% of its net
assets. Some Portfolios may enter into over-the-counter option transactions.
There will be an active over-the-counter market for such options which will
establish their pricing and liquidity. The Portfolios will only enter into these
option transactions with broker/dealers who have a minimum net worth of
$20,000,000.
GOVERNMENT SECURITIES
The Portfolios invest in securities issued by agencies and instrumentalities of
the U.S. Government. Not all securities issued by U.S. Government agencies and
instrumentalities are backed by the full faith and credit of the U.S. Treasury.
- - Obligations of certain agencies and instrumentalities of the U.S.
government, such as the Government National Mortgage Association
("Ginnie Mae") and the Export-Import Bank, are supported by the full
faith and credit of the U.S. Treasury;
- - Others, such as the Federal National Mortgage Association ("Fannie
Mae"), are supported by the right of the issuer to borrow from the
Treasury;
- - Others are supported by the discretionary authority of the U.S.
government to purchase the agency's obligations; and
- - Still others, such as the Federal Farm Credit Banks and the Federal
Home Loan Mortgage Corporation ("Freddie Mac") are supported only by
the credit of the instrumentality.
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 Portfolio will invest in the obligations of these
agencies or instrumentalities only when Banc One Investment Advisors believes
that the credit risk is minimal. For information on mortgage-related securities
issued by certain agencies or instrumentalities of the U.S. government, see
"Investment
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Objectives and Policies--Mortgage-Related Securities" in this Statement of
Additional Information.
HIGH YIELD/ HIGH RISK SECURITIES/JUNK BONDS
The Mid Cap Opportunities Portfolio may invest in convertible securities that
are rated below investment grade by the primary rating agencies (BB or lower by
S&P and BA or lower by Moody's). Such convertible securities may be structured
as bonds or preferred stock that convert to common stock. Terms used to describe
these convertible securities include "high yield securities," "lower rated
bonds," "non-investment grade bonds," "below investment ". These securities are
considered to be high risk investments. The risks include the following:
GREATER RISK OF LOSS. There is a greater risk that issuers of lower
rated securities will default than issuers of higher rated securities.
Issuers of lower rated securities may be less creditworthy, highly
indebted, financially distressed, or bankrupt. These issuers are more
vulnerable to real or perceived economic changes, political changes or
adverse industry developments. If an issuer fails to pay principal or
interest, the Portfolio would experience a decrease in income and a
decline in the market value of their investments. The Portfolio may
also incur additional expenses in seeking recovery from the issuer.
SENSITIVITY TO INTEREST RATE AND ECONOMIC CHANGES. The income and
market value of lower-rated securities may fluctuate more than higher
rated securities. Although non-investment grade securities tend to be
less sensitive to interest rate changes than investment grade
securities, non-investment grade securities are more sensitive to
short-term corporate, economic and market developments. During periods
of economic uncertainty and change, the market price of the investments
in lower-rated securities may be volatile.
VALUATION DIFFICULTIES. It is often more difficult to value lower rated
securities than higher rated securities. If an issuer's financial
condition deteriorates, accurate financial and business information may
be limited or unavailable. In addition, the lower rated investments may
be thinly traded and there may be no established secondary market.
Because of the lack of market pricing and current information for
investments in lower rated securities, valuation of such investments is
much more dependent on judgment than is the case with higher rated
securities.
LIQUIDITY. There may be no established secondary or public market for
investments in lower rated securities. As a result, the Funds may be
required to sell investments at substantial losses or retain them
indefinitely even where an issuer's financial condition is
deteriorating.
HIGH YIELD BOND MARKET. Unlike investment grade securities (including
securities which were investment grade when issued but have fallen
below investment grade), the track record for bond default rates on new
issues of non-investment grade bonds is relatively short. It may be
that future default rates on new issues of non-investment grade
securities will be more widespread and higher than in the past,
especially if economic conditions deteriorate.
CREDIT QUALITY. Credit quality of non-investment grade securities can
change suddenly and unexpectedly, and even recently-issued credit
ratings may not fully reflect the actual risks posed by a particular
high-yield security.
NEW LEGISLATION. Future legislation may have a possible negative impact
on the market for high yield, high risk bonds. As an example, in the
late 1980's, legislation required federally-insured savings and loan
associations to divest their investments in high yield, high risk
bonds. New legislation, if enacted, could have a material negative
effect on a Portfolio's net asset value and investment practices.
INVESTMENT COMPANY SECURITIES
The Portfolios may invest up to 5% of their total assets in the securities of
any one investment company (another mutual fund), but may not own more than 3%
of the outstanding securities of any one investment company or invest more than
10% of their total assets in the securities of other
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investment companies. Other investment company securities may include securities
of a money market fund of One Group(R), and securities of other investment
companies for which Banc One Investment Advisors serves as investment advisor or
administrator. Because other investment companies employ an investment advisor,
such investments by the Portfolios may cause Shareholders to bear duplicate
fees. Banc One Investment Advisors will waive its fee attributable to Portfolio
assets invested in funds advised by Banc One Investment Advisors. Banc One
Investment Advisors will also waive its fees attributable to the assets of any
Portfolio invested in any investment company if required by the laws of any
state in which shares of the Trust are sold.
LOAN PARTICIPATIONS AND ASSIGNMENTS
Some of the Portfolios may invest in fixed and floating rate loans ("Loans").
Loans are arranged through private negotiations between borrowers (which may be
corporate issuers or issuers of sovereign debt obligations) and one or more
financial institutions ("Lenders"). Generally, the Portfolios invest in Loans by
purchasing Loan Participations ("Participations") or assignments of all or a
portion of Loans ("Assignments") from third parties.
Typically, a Portfolio will have a contractual relationship only with the Lender
and not with the borrower when it purchases a Participation. In contrast, a
Portfolio has direct rights against the borrower on the Loan when it purchases
an Assignment. Because Assignments are arranged through private negotiations
between potential assignees and potential assignors, however, the rights and
obligations acquired by a Portfolio as the purchaser of an Assignment may differ
from, and be more limited than, those held by the assigning Lender.
Limitations on Investments in Loan Participations and Assignments. Loan
participants and assignments may be illiquid. As a result, a Portfolio will
invest no more than 15% of its net assets in these investments. If a government
entity is a borrower on a Loan, the Portfolio will consider the government to be
the issuer of a Participation or Assignment for purposes of the Portfolio's
fundamental investment policy that it will not invest 25% or more of its total
assets in securities of issuers conducting their principal business activities
in the same industry (i.e., foreign government).
Risk Factors of Loan Participations and Assignments. A Portfolio may have
difficulty disposing of Assignments and Participations because to do so it will
have to assign such securities to a third party. Because there is no liquid
market for such securities, the Portfolios anticipate that such securities could
be sold only to a limited number of institutional investors. The lack of a
liquid secondary market may have an adverse impact on the value of such
securities and a Portfolio's ability to dispose of particular Assignments or
Participations when necessary to meet a Portfolio's liquidity needs in response
to a specific economic event such as a deterioration in the creditworthiness of
the borrower. The lack of a liquid secondary market for Assignments and
Participations also may make it more difficult for a Portfolio to assign a value
to those securities when valuing the Portfolio's portfolio and calculating its
net asset value.
MORTGAGE-RELATED SECURITIES
Mortgage-Backed Securities (CMOs and REMICs). Mortgage-backed securities include
collateralized mortgage obligations ("CMOs") and Real Estate Mortgage Investment
Conduits ("REMICs"). (A REMIC is a CMO that qualifies for special tax treatment
under the Code and invests in certain mortgages principally secured by interests
in real property and other permitted investments).
Mortgage-backed securities represent pools of mortgage loans assembled for sale
to investors by:
- - various governmental agencies such as Ginnie Mae;
- - government-related organizations such as Fannie Mae and Freddie Mac;
- - nongovernmental issuers such as commercial banks, savings and loan
institutions, mortgage bankers, and private mortgage insurance companies.
(Non-governmental mortgage securities cannot be treated as U.S. government
securities for purposes of investment policies).
There are a number of important differences among the agencies and
instrumentalities of the U.S. government that issue mortgage-related securities
and among the securities that they issue.
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Ginnie Mae Securities. Mortgage-related securities issued by Ginnie Mae
include Ginnie Mae Mortgage Pass-Through Certificates which are
guaranteed as to the timely payment of principal and interest by Ginnie
Mae. Ginnie Mae's guarantee is backed by the full faith and credit of the
United States. Ginnie Mae is a wholly-owned U.S. government corporation
within the Department of Housing and Urban Development. Ginnie Mae
certificates also are supported by the authority of Ginnie Mae to borrow
funds from the U.S. Treasury to make payments under its guarantee.
Fannie Mae Securities. Mortgage-related securities issued by Fannie Mae
include Fannie Mae Guaranteed Mortgage Pass-Through Certificates which
are solely the obligations of Fannie Mae and are not backed by or
entitled to the full faith and credit of the United States. Fannie Mae is
a government-sponsored organization owned entirely by private
stock-holders. Fannie Mae Certificates are guaranteed as to timely
payment of the principal and interest by Fannie Mae.
Freddie Mac Securities. Mortgage-related securities issued by Freddie Mac
include Freddie Mac Mortgage Participation Certificates. Freddie Mac is a
corporate instrumentality of the United States, created pursuant to an
Act of Congress, which is owned entirely by Federal Home Loan Banks.
Freddie Mac Certificates are not guaranteed by the United States or by
any Federal Home Loan Banks and do not constitute a debt or obligation of
the United States or of any Federal Home Loan Bank. Freddie Mac
Certificates entitle the holder to timely payment of interest, which is
guaranteed by Freddie Mac. Freddie Mac guarantees either ultimate
collection or timely payment of all principal payments on the underlying
mortgage loans. When Freddie Mac does not guarantee timely payment of
principal, Freddie Mac may remit the amount due on account of its
guarantee of ultimate payment of principal at any time after default on
an underlying mortgage, but in no event later than one year after it
becomes payable.
CMOs and guaranteed REMIC pass-through certificates ("REMIC Certificates")
issued by Fannie Mae, Freddie Mac, Ginnie Mae and private issuers are types of
multiple class pass-through securities. Investors may purchase beneficial
interests in REMICs, which are known as "regular" interests or "residual"
interests. The Bond Portfolio does 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.
GINNIE MAE REMIC CERTIFICATES. Ginnie Mae guarantees the full and timely
payment of interest and principal on each class of securities (in
accordance with the terms of those classes as specified in the related
offering circular supplement). The Ginnie Mae guarantee is backed by the
full faith and credit of the United States of America.
FANNIE MAE REMIC CERTIFICATES. Fannie Mae REMIC Certificates are issued
and guaranteed as to timely distribution of principal and interest by
Fannie Mae. In addition, Fannie Mae will be obligated to distribute the
principal balance of each class of REMIC Certificates in full, whether or
not sufficient funds are available.
FREDDIE MAC REMIC CERTIFICATES. Freddie Mac guarantees the timely payment
of interest, and also guarantees the payment of principal as payments are
required to be made on the underlying mortgage participation certificates
("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."
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
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reallocation of interest and principal results in the redistribution of
prepayment risk across to different classes. This allows for the creation of
bonds with more or less risk than the underlying collateral exhibits. Principal
prepayments on the mortgage loans or the Mortgage Assets underlying the CMOs or
REMIC Certificates may cause some or all of the classes of CMOs or REMIC
Certificates to be retired substantially earlier than their final distribution
dates. Generally, interest is paid or accrues on all classes of CMOs or REMIC
Certificates on a monthly basis.
The principal of and interest on the Mortgage Assets may be allocated among the
several classes of CMOs or REMIC Certificates in various ways. In certain
structures (known as "sequential pay" CMOs or REMIC Certificates), payments of
principal, including any principal prepayments, on the Mortgage Assets generally
are applied to the classes of CMOs or REMIC Certificates in the order of their
respective final distribution dates. Thus, no payment of principal will be made
on any class of sequential pay CMOs or REMIC Certificates until all other
classes having an earlier final distribution date have been paid in full.
Additional structures of CMOs and REMIC Certificates include, among others,
"parallel pay" CMOs and REMIC Certificates. Parallel pay CMOs or REMIC
Certificates are those which are structured to apply principal payments and
prepayments of the Mortgage Assets to two or more classes concurrently on a
proportionate or disproportionate basis. These simultaneous payments are taken
into account in calculating the final distribution date of each class.
A wide variety of REMIC Certificates may be issued in the parallel pay or
sequential pay structures. These securities include accrual certificates (also
known as "Z-Bonds"), which only accrue interest at a specified rate until all
other certificates having an earlier final distribution date have been retired
and are converted thereafter to an interest-paying security, and planned
amortization class ("PAC") certificates, which are parallel pay REMIC
Certificates which generally require that specified amounts of principal be
applied on each payment date to one or more classes of REMIC Certificates (the
"PAC Certificates"), even though all other principal payments and prepayments of
the Mortgage Assets are then required to be applied to one or more other classes
of the certificates. The scheduled principal payments for the PAC Certificates
generally have the highest priority on each payment date after interest due has
been paid to all classes entitled to receive interest currently. Shortfalls, if
any, are added to the amount of principal payable on the next payment date. The
PAC Certificate payment schedule is taken into account in calculating the final
distribution date of each class of PAC. In order to create PAC tranches, one or
more tranches generally must be created that absorb most of the volatility in
the underlying Mortgage Assets. These tranches tend to have market prices and
yields that are much more volatile than the PAC classes. The Z-Bonds in which
the Portfolios may invest may bear the same non-credit- related risks as do
other types of Z-Bonds. Z-Bonds in which the Portfolio may invest will not
include residual interest.
Mortgage Dollar Rolls. Some of the Portfolios may enter into Mortgage Dollar
Rolls. In a Mortgage Dollar Role transaction, the Portfolios 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 Portfolio enters into
mortgage dollar rolls, the Portfolio will hold and maintain a segregated account
until the settlement date. The segregated account will contain cash or liquid,
high grade debt securities in an amount equal to the purchase price that the
Portfolio is required to pay. The Portfolios benefit from a mortgage dollar roll
to the extent of:
- - the difference between the price received for the securities sold and the
lower price for the future purchase (often referred to as the "drop"); and
- - fee income plus the interest earned on the cash proceeds of the securities
sold until the settlement date of the future purchase.
Unless such benefits exceed the amount of income, capital appreciation or gains
on the securities sold as part of the mortgage dollar roll, the investment
performance of the Portfolios will be less than what the performance would have
been without the use of mortgage dollar rolls. The benefits of mortgage dollar
rolls may depend upon Banc One Investment Advisors' ability to predict mortgage
prepayments and interest rates. There is no assurance that mortgage dollar rolls
can be successfully employed. The Portfolios 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.
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STRIPPED MORTGAGE BACKED SECURITIES. Stripped Mortgage Backed Securities
("SMBS") are derivative multi-class mortgage securities. SMBS are usually
structured with two classes that receive different proportions of the interest
and principal distributions from a pool of mortgage assets. A common type of
SMBS will have one class receiving all of the interest from the mortgage assets
("IOs"), while the other class will receive all of the principal ("POs").
Mortgage IOs receive monthly interest payments based upon a notional amount that
declines over time as a result of the normal monthly amortization and
unscheduled prepayments of principal on the associated mortgage POs.
In addition to the risks applicable to Mortgage-Related Securities in general,
SMBS are subject to the following additional risks:
PREPAYMENT/INTEREST RATE SENSITIVITY. SMBS are extremely sensitive to
changes in prepayments and interest rates. Even though these securities
have been guaranteed by an agency or instrumentality of the U.S.
government, under certain interest rate or prepayment rate scenarios, the
Portfolios may lose money on investments in SMBS.
INTEREST ONLY SMBS. Changes in prepayment rates can cause the return on
investment in IOs to be highly volatile. Under extremely high prepayment
conditions, IOs can incur significant losses.
PRINCIPAL ONLY SMBS. POs are bought at a discount to the ultimate
principal repayment value. The rate of return on a PO will vary with
prepayments, rising as prepayment increase and falling as prepayments
decrease. Generally, the market value of these securities is unusually
volatile in response to changes in interest rates.
YIELD CHARACTERISTICS. Although SMBS may yield more than other
mortgage-backed securities, their cash flow patterns are more volatile
and there is a greater risk that any premium paid will not be fully
recouped. Banc One Investment Advisors will seek to manage these risks
(and potential benefits) by investing in a variety of such securities and
by using certain analytical and hedging techniques.
A Portfolio may only invest in SMBS issued or guaranteed by the U.S. government,
its agencies or instrumentalities. Although the market for SMBS is increasingly
liquid, certain SMBS may not be readily marketable and will be considered
illiquid for purposes of the Portfolios' limitations on investments in illiquid
securities.
ADJUSTABLE RATE MORTGAGE LOANS. The Bond Portfolios and the Balanced
Portfolio may invest in adjustable rate mortgage loans ("ARMS"). ARMs eligible
for inclusion in a mortgage pool will generally provide for a fixed initial
mortgage interest rate for a specified period of time. Thereafter, the interest
rates (the "Mortgage Interest Rates") may be subject to periodic adjustment
based on changes in the applicable index rate (the "Index Rate"). The adjusted
rate would be equal to the Index Rate plus a gross margin, which is a fixed
percentage spread over the Index Rate established for each ARM at the time of
its origination.
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 a maximum rate or below a
minimum rate. 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 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 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
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extension of their original maturity to accommodate changes in their Mortgage
Interest Rate. As a result, unless there is a periodic recalculation of the
payment amount (which there generally is), the final payment may be
substantially larger than the other payments. These limitations on periodic
increases in interest rates and on changes in monthly payment protect borrowers
from unlimited interest rate and payment increases.
Certain adjustable rate mortgage loans may provide for periodic adjustments of
scheduled payments in order to amortize fully the mortgage loan by its stated
maturity. Other adjustable rate mortgage loans may permit their stated maturity
to be extended or shortened in accordance with the portion of each payment that
is applied to interest as affected by the periodic interest rate adjustments.
There are two main categories of indices which provide the basis for rate
adjustments on ARMs: those based on U.S. Treasury securities and those derived
from a calculated measure such as a cost of funds index or a moving average of
mortgage rates. Commonly utilized indices include the one-year, three-year and
five-year constant maturity Treasury bill rates, the three-month Treasury bill
rate, the 180-day Treasury bill rate, rates on longer-term Treasury securities,
the 11th District Federal Home Loan Bank Cost of funds, the National Median Cost
of funds, the one-month, three-month, six-month or one-year London Interbank
Offered Rate ("LIBOR"), the prime rate of a specific bank, or commercial paper
rates. Some indices, such as the one-year constant maturity Treasury rate,
closely mirror changes in market interest rate levels. Others, such as the 11th
District Federal Home Loan Bank Cost of funds index, tend to lag behind changes
in market rate levels and tend to be somewhat less volatile. The degree of
volatility in the market value of the Portfolio's portfolio and therefore in the
net asset value of the Portfolio's shares will be a function of the length of
the interest rate reset periods and the degree of volatility in the applicable
indices.
In general, changes in both prepayment rates and interest rates will change the
yield on Mortgage-Backed Securities. The rate of principal prepayments with
respect to ARMs has fluctuated in recent years. As is the case with fixed
mortgage loans, ARMs may be subject to a greater rate of principal prepayments
in a declining interest rate environment. For example, if prevailing interest
rates fall significantly, ARMs could be subject to higher prepayment rates than
if prevailing interest rates remain constant because the availability of fixed
rate mortgage loans at competitive interest rates may encourage mortgagors to
refinance their ARMs to "lock-in" a lower fixed interest rate. Conversely, if
prevailing interest rates rise significantly, ARMs may prepay at lower rates
than if prevailing rates remain at or below those in effect at the time such
ARMs were originated. As with fixed rate mortgages, there can be no certainty as
to the rate of prepayments on the ARMs in either stable or changing interest
rate environments. In addition, there can be no certainty as to whether
increases in the principal balances of the ARMs due to the addition of deferred
interest may result in a default rate higher than that on ARMs that do not
provide for negative amortization. Other factors affecting prepayment of ARMs
include changes in mortgagors' housing needs, job transfers, unemployment,
mortgagors' net equity in the mortgage properties and servicing decisions.
RISKS FACTORS OF MORTGAGE-RELATED SECURITIES.
Guarantor Risk. There can be no assurance that the U.S. government would provide
financial support to Fannie Mae, Freddie Mac or Ginnie Mae if necessary in the
future. Although certain mortgage-related securities are guaranteed by a third
party or otherwise similarly secured, the market value of the security, which
may fluctuate, is not so secured.
Interest Rate Sensitivity. If a Portfolio 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 because
in periods of declining interest rates the mortgages underlying the securities
are prone to prepayment. For this and other reasons, a mortgage-related
security's stated maturity may be shortened by unscheduled prepayments on the
underlying mortgages and, therefore, it is not possible to predict accurately
the security's return to the Portfolios. In addition, regular payments received
on mortgage-related securities include both interest and principal. No assurance
can be given as to the return the Portfolios of the Trust will receive when
these amounts are reinvested.
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Market Value. The market value of the Portfolio's adjustable rate
Mortgage-Backed Securities may be adversely affected if interest rates rise
faster than the rates of interest payable on these securities or by the
adjustable rate mortgage loans underlying the securities. Furthermore,
adjustable rate Mortgage-Backed Securities or the mortgage loans underlying
these securities may contain provisions limiting the amount by which rates may
be adjusted upward and downward and may limit the amount by which monthly
payments may be increased or decreased to accommodate upward and downward
adjustments in interest rates.
Prepayments. Adjustable rate Mortgage-Backed Securities have less potential for
capital appreciation than fixed rate Mortgage-Backed Securities because their
coupon rates will decline in response to market interest rate declines. The
market value of fixed rate Mortgage-Backed Securities may be adversely affected
by 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 Portfolio's principal
investment to the extent of the premium paid. On the other hand, if these
securities are purchased at a discount, both a scheduled payment of principal
and an unscheduled prepayment of principal will increase current and total
returns and will accelerate the recognition of income.
Yield Characteristics. The yield characteristics of Mortgage-Backed Securities
differ from those of traditional fixed income securities. The major differences
typically include more frequent interest and principal payments, usually
monthly, and the possibility that prepayments of principal may be made at any
time. Prepayment rates are influenced by changes in current interest rates and a
variety of economic, geographic, social and other factors and cannot be
predicted with certainty. As with fixed rate mortgage loans, adjustable rate
mortgage loans may be subject to a greater prepayment rate in a declining
interest rate environment. The yields to maturity of the Mortgage-Backed
Securities in which the Portfolios invest will be affected by the actual rate of
payment (including prepayments) of principal of the underlying mortgage loans.
The mortgage loans underlying these securities generally may be prepaid at any
time without penalty. In a fluctuating interest rate environment, a predominant
factor affecting the prepayment rate on a pool of mortgage loans is the
difference between the interest rates on the mortgage loans and prevailing
mortgage loan interest rates (giving consideration to the cost of any
refinancing). In general, if mortgage loan interest rates fall sufficiently
below the interest rates on fixed rate mortgage loans underlying mortgage
pass-through securities, the rate of prepayment would be expected to increase.
Conversely, if mortgage loan interest rates rise above the interest rates on the
fixed rate mortgage loans underlying the mortgage pass-through securities, the
rate of prepayment may be expected to decrease.
MUNICIPAL SECURITIES
Municipal Securities are issued to obtain funds for various public purposes,
including the construction of a wide range of public facilities such as:
1. bridges,
2. highways,
3. roads,
4. schools,
5. water and sewer works, and
6. other utilities.
Other public purposes for which Municipal Securities may be issued include:
1. refunding outstanding obligations,
2. obtaining funds for general operating expenses and
3. obtaining funds to lend to other public institutions and facilities.
In addition, certain debt obligations known as "private activity bonds" may be
issued by or on behalf of municipalities and public authorities to obtain funds
to provide
1. water, sewage and solid waste facilities,
2. qualified residential rental projects,
3. certain local electric, gas and other heating or cooling facilities,
4. qualified hazardous waste facilities,
5. high-speed intercity rail facilities,
6. governmentally-owned airports, docks and wharves and mass
transportation facilities,
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7. qualified mortgages,
8. student loan and redevelopment bonds;
9. 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:
1. privately operated housing facilities,
2. sports facilities,
3. industrial parks,
4. convention or trade show facilities,
5. airport, mass transit, port or parking facilities,
6. air or water pollution control facilities,
7. sewage or solid waste disposal facilities, and
8. facilities for water supply.
Other private activity bonds and industrial development bonds issued to fund the
construction, improvement, equipment or repair of privately-operated industrial,
distribution, research, or commercial facilities may also be Municipal
Securities, but the size of such issues is limited under current and prior
Federal tax law. The aggregate amount of most private activity bonds and
industrial development bonds is limited (except in the case of certain types of
facilities) under federal tax law by an annual "volume cap." The volume cap
limits the annual aggregate principal amount of such obligations issued by or on
behalf of all governmental instrumentalities in the state.
The two principal classifications of Municipal Securities consist of "general
obligation" and "limited" (or revenue) issues. General obligation bonds are
obligations involving the credit of an issuer possessing taxing power and are
payable from the issuer's general unrestricted revenues and not from any
particular fund or source. The characteristics and method of enforcement of
general obligation bonds vary according to the law applicable to the particular
issuer, and payment may be dependent upon appropriation by the issuer's
legislative body. Limited obligation bonds are payable only from the revenues
derived from a particular facility or class of facilities or, in some cases,
from the proceeds of a special excise or other specific revenue source. Private
activity bonds and industrial development bonds generally are revenue bonds and
thus not payable from the unrestricted revenues of the issuer. The credit and
quality of these bonds is generally related to the credit of the bank selected
to provide the letter of credit underlying the bonds. Payment of principal of
and interest on industrial development revenue bonds is the responsibility of
the corporate user (and any guarantor).
The Portfolios may also acquire "moral obligation" issues, which are normally
issued by special purpose authorities, and in other tax-exempt investments
including pollution control bonds and tax-exempt commercial paper. Each
Portfolio that may purchase municipal securities may purchase:
1. Short-term tax-exempt General Obligations Notes,
2. Tax Anticipation Notes,
3. Bond Anticipation Notes,
4. Revenue Anticipation Notes,
5. Project Notes, and
6. Other forms of short-term tax-exempt loans.
Such notes are issued with a short-term maturity in anticipation of the receipt
of tax funds, the proceeds of bond placements, or other revenues. Project Notes
are issued by a state or local housing agency and are sold by the Department of
Housing and Urban Development. While the issuing agency has the primary
obligation with respect to its Project Notes, they are also secured by the full
faith and credit of the United States through agreements with the issuing
authority which provide that, if required, the federal government will lend the
issuer an amount equal to the principal of and interest on the Project Notes.
There are, of course, variations in the quality of Municipal Securities, both
within a particular classification and between classifications. Also, the yields
on Municipal Securities depend upon a variety of factors, including:
- general money market conditions,
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- - the financial condition of the issuer,
- - general conditions of the municipal bond market,
- - the size of a particular offering,
- - the maturity of the obligations, and
- - the rating of the issue.
The ratings of Moody's and S&P represent their opinions as to the quality of
Municipal Securities. However,ratings are general and are not absolute standards
of quality. Municipal Securities with the same maturity, interest rate and
rating may have different yields while Municipal Securities of the same maturity
and interest rate with different ratings may have the same yield. Subsequent to
its purchase by a Portfolio, 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 Portfolio. Banc One Investment Advisors or the applicable
Sub-Advisor will consider such an event in determining whether the Portfolio
should continue to hold the obligations.
Municipal securities may include obligations of municipal housing authorities
and single-family mortgage revenue bonds. Weaknesses in Federal housing subsidy
programs and their administration may result in a decrease of subsidies
available for payment of principal and interest on housing authority bonds.
Economic developments, including fluctuations in interest rates and increasing
construction and operating costs, may also adversely impact revenues of housing
authorities. In the case of some housing authorities, inability to obtain
additional financing could also reduce revenues available to pay existing
obligations. Single-family mortgage revenue bonds are subject to extraordinary
mandatory redemption at par in whole or in part from the proceeds derived from
prepayments of underlying mortgage loans and also from the unused proceeds of
the issue within a stated period which may be within a year from the date of
issue.
Municipal leases are obligations issued by state and local governments or
authorities to finance the acquisition of equipment and facilities. Municipal
Leases may be considered to be illiquid. They may take the form of a lease, an
installment purchase contract, a conditional sales contract, or a participation
interest in any of the above. The Board of Trustees is responsible for
determining the credit quality of unrated municipal leases, on an ongoing basis,
including an assessment of the likelihood that the lease will not be canceled.
RISK FACTORS IN MUNICIPAL SECURITIES
Tax Risk. The Code imposes certain continuing requirements on issuers of
tax-exempt bonds regarding the use, expenditure and investment of bond
proceeds and the payment of rebates to the United States of America.
Failure by the issuer to comply after the issuance of tax-exempt bonds
with certain of these requirements could cause interest on the bonds to
become includable in gross income retroactive to the date of issuance.
Housing Authority Tax Risk. The exclusion from gross income for Federal
income tax purposes for certain housing authority bonds depends on
qualification under relevant provisions of the Code and on other
provisions of Federal law. These provisions of Federal law contain
requirements relating to the cost and location of the residences financed
with the proceeds of the single-family mortgage bonds and the income
levels of tenants of the rental projects financed with the proceeds of
the multi-family housing bonds. Typically, the issuers of the bonds, and
other parties, including the originators and servicers of the
single-family mortgages and the owners of the rental projects financed
with the multi-family housing bonds, covenant to meet these requirements.
However, there is no assurance that the requirements will be met. If such
requirements are not met:
- the interest on the bonds may become taxable, possibly retroactively
from the date of issuance;
- the value of the bonds may be reduced;
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- you and other Shareholders may be subject to unanticipated tax
liabilities;
- a Portfolio may be required to sell the bonds at the reduced value;
- it may be an event of default under the applicable mortgage;
- the holder may be permitted to accelerate payment of the bond; and
- the issuer may be required to redeem the bond.
In addition, if the mortgage securing the bonds is insured by the Federal
Housing Administration ("FHA"), the consent of the FHA may be required
before insurance proceeds would become payable.
Information Risk. Information about the financial condition of issuers of
Municipal Securities may be less available than about corporations having
a class of securities registered under the Securities Exchange Act of
1934.
State and Federal Laws. An issuer's obligations under its Municipal
Securities are subject to the provisions of bankruptcy, insolvency, and
other laws affecting the rights and remedies of creditors. These laws may
extend the time for payment of principal or interest, or restrict the
Portfolio's ability to collect payments due on Municipal Securities.
Litigation and Current Developments. 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 Portfolio's Municipal Securities in the same
manner.
New Legislation. From time to time, proposals have been introduced before
Congress that would restrict or eliminate the Federal income tax
exemption for interest on tax exempt bonds, and similar proposals may be
introduced in the future. The Supreme Court has held that Congress has
the constitutional authority to enact such legislation. It is not
possible to determine what effect the adoption of these proposals could
have on (i) the availability of Municipal Securities for investment by
the Portfolios, and (ii) the value of the investment portfolios of the
Portfolios.
LIMITATIONS ON THE USE OF MUNICIPAL SECURITIES
The Bond Portfolio may invest in Municipal Securities either by purchasing them
directly or by purchasing certificates of accrual or similar instruments
evidencing direct ownership of interest payments or principal payments, or both,
on Municipal Securities, provided that, in the opinion of counsel to the initial
seller of each certificate or instrument, any discount accruing on the
certificate or instrument that is purchased at a yield not greater than the
coupon rate of interest on the related Municipal Securities will to the same
extent as interest on such Municipal Securities be exempt from Federal income
tax and state income tax (where applicable) and not treated as a preference item
for individuals for purposes of the Federal alternative minimum tax.
The Portfolio may also invest in Municipal Securities by purchasing from banks
participation interests in all or part of specific holdings of Municipal
Securities. Such participation may be backed in whole or in part by an
irrevocable letter of credit or guarantee of the selling bank. The selling bank
may receive a fee from the Portfolio in connection with the arrangement. The
Portfolio will not purchase participation interests unless it receives an
opinion of counsel or a ruling of the Internal Revenue Service that interest
earned by it on Municipal Securities in which it holds such participation
interest is exempt from Federal income tax and state income tax (where
applicable) and not treated as a preference item for individuals for purposes of
the Federal alternative minimum tax.
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NEW FINANCIAL PRODUCTS
New options and futures contracts and other financial products, and various
combinations thereof, continue to be developed. These various products may be
used to adjust the risk and return characteristics of each Portfolio'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 as expected, the performance of each Portfolio 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 Portfolio to potentially greater return
as well as potentially greater risk of loss than more traditional fixed income
investments.
PERCS*
The Equity Portfolios may invest in Preferred Equity Redemption Cumulative Stock
("PERCS"). PERCS are preferred stock which convert to common stock after a
specified period of time, usually three years, and are considered the equivalent
of equity by the ratings agencies. PERCs are mandatorily convertible into common
stock. However, PERCS may be called 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 Investment Trust.
PREFERRED STOCK
Preferred stock is a class of stock that generally pays dividends at a specified
rate and has preference over common stock in the payment of dividends and
liquidation. Preferred stock generally does not carry voting rights. As with all
equity securities, the price of preferred stock fluctuates based on changes in a
company's financial condition and on overall market and economic conditions.
REAL ESTATE INVESTMENT TRUSTS ("REITS")
The Portfolios may invest in equity interests or debt obligations issued by
REITs. REITs are pooled investment vehicles which invest primarily in income
producing real estate or real estate related loans or interest. REITs are
generally classified as equity REITs, mortgage REITs or a combination of equity
and mortgage REITs. Equity REITs invest the majority of their assets directly in
real property and derive income primarily from the collection of rents. Equity
REITs can also realize capital gains by selling property that has appreciated in
value. Mortgage REITs invest the majority of their assets in real estate
mortgages and derive income from the collection of interest payments. Similar to
investment companies, REITs are not taxed on income distributed to shareholders
provided they comply with several requirements of the Code. A Portfolio will
indirectly bear its proportionate share of expenses incurred by REITs in which a
Portfolio invests in addition to the expenses incurred directly by a Portfolio.
Investing in REITs involves certain unique risks in addition to those risks
associated with investing in the real estate industry in general. Equity REITs
may be affected by changes in the value of the underlying property owned by the
REITs, while mortgage REITs may be affected by the quality of any credit
extended. REITs are dependent upon management skills, are not diversified, are
subject to heavy cash flow dependency, default by borrowers and
self-liquidation. Other possible risks include failing to qualify for tax free
pass-through of income under the Code and failing to maintain their exemption
from registration under the Act.
REITs (especially mortgage REITs) are also subject to interest rate risks. When
interest rates decline, the value of a REIT's investment in fixed rate
obligations can be expected to rise. Conversely, when interest rates rise, the
value of a REIT's investment in fixed rate obligations can be expected to
decline. In contrast, as interest rates on adjustable rate mortgage loans are
reset periodically, yields on a REIT's investment in such loans will gradually
align themselves to fluctuate
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less dramatically in response to interest rate fluctuations than would
investments in fixed rate obligations.
Investment in REITs involves risks similar to those associated with investing in
small capitalization companies. These risks include:
- limited financial resources
- infrequent or limited trading
- more abrupt or erratic price movements than larger company securities
Historically, small capitalization stocks, such as REITs, have been more
volatile in price than the larger capitalization stocks included in the S&P
Index of 500 Common Stocks.
REPURCHASE AGREEMENTS
Under the terms of a repurchase agreement, a Portfolio would acquire securities
from a seller, subject to the seller's agreement to repurchase such securities
at a mutually agreed-upon date and price. The repurchase price would generally
equal the price paid by the Portfolio 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 defaults on its repurchase obligation or becomes insolvent, the
Portfolio 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 Portfolio 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 Portfolio would be entitled, as against a claim
by such seller or its receiver or trustee in bankruptcy, to retain the
underlying securities. However, 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 Portfolio's securities subject to
repurchase agreements and under federal laws, a court of competent jurisdiction
would rule in favor of the Trust if presented with the question. Securities
subject to repurchase agreements will be held by the Trust's custodian or
another qualified custodian or in the Federal Reserve/Treasury book-entry
system. Repurchase agreements are considered by the SEC to be loans by a
Portfolio under the 1940 Act.
Repurchase Agreement Counterparties. Repurchase counterparties include
Federal Reserve member banks with assets in excess of $1 billion and
registered broker dealers which Banc One Investment Advisors deems
creditworthy under guidelines approved by the Board of Trustees.
REVERSE REPURCHASE AGREEMENTS
Portfolios may borrow money for temporary purposes by entering into reverse
repurchase agreements. Under these agreements, a Portfolio 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 Portfolio would
enter into reverse repurchase agreements only to avoid otherwise selling
securities during unfavorable market conditions to meet redemptions. At the time
a Portfolio entered into a reverse repurchase agreement, it would establish a
segregated custodial account. The Portfolio would deposit assets (such as cash
or liquid securities) that have a value equal to the repurchase price (including
accrued interest). The Portfolio would 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 Portfolio may decline below
the price at which the Portfolio is obligated to repurchase the securities.
Reverse repurchase agreements are considered by the SEC to be borrowings by a
Portfolio under the 1940 Act.
RESTRICTED SECURITIES
The Portfolios 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
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generally sold to institutional investors, such as the Portfolios, 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 Portfolios 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 Portfolios 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
Portfolios intend, therefore, to treat restricted securities that meet the
liquidity criteria established by the Board of Trustees, including Section 4(2)
commercial paper and Rule 144A Securities, as determined by Banc One Investment
Advisors, as liquid and not subject to the investment limitation applicable to
illiquid securities.
The ability of the Trustees to determine the liquidity of certain restricted
securities is permitted under a SEC Staff position set forth in the adopting
release for Rule 144A under the Securities Act of 1933 ("Rule 144A"). Rule 144A
is a nonexclusive safe-harbor for certain secondary market transactions
involving securities subject to restrictions on resale under federal securities
laws. Rule 144A provides an exemption from registration for resales of otherwise
restricted securities to qualified institutional buyers. Rule 144A was expected
to further enhance the liquidity of the secondary market for securities eligible
for resale. The Portfolios 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
- 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 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 Portfolio to hold more than 15% of its
net assets in illiquid securities, the Board of Trustees shall
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 Portfolio'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.
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SECURITIES LENDING
To generate additional income, each of the Portfolios may lend up to 33 1/3% of
the securities in which they are invested pursuant to agreements requiring that
the loan be continuously secured by collateral equal at all times to at least
100% of the market value plus accrued interest on the securities lent.
Collateral may include 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 such collateral. The Portfolios will continue to receive interest
on the securities lent while simultaneously seeking to earn interest on the
investment of cash collateral in U.S. government securities, shares of an
investment trust or mutual fund, commercial paper, repurchase agreements,
variable and floating rate instruments, restricted securities, asset-backed
securities, and the other types of investments permitted by the applicable
Portfolio's prospectus. Collateral is marked to market daily to provide a level
of collateral at least equal to the market value of the securities lent. There
may be risks of delay in recovery of the securities or even loss of rights in
the collateral should the borrower of the securities fail financially. However,
loans will only be made to borrowers deemed by Banc One Investment Advisors to
be of good standing under guidelines established by the Trust's Board of
Trustees and when, in the judgment of Banc One Investment Advisors, the
consideration which can be earned currently from such securities loans justifies
the attendant risk. Loans are subject to termination by the Portfolios or the
borrower at any time, and are therefore, not considered to be illiquid
investments.
SHORT-TERM FUNDING AGREEMENTS
To enhance yield, the Bond Portfolio maymake limited investments in short-term
funding agreements issued by banks and highly rated U.S. insurance companies.
Short-term funding agreements issued by insurance companies are sometimes
referred to as Guaranteed Investment Contracts ("GICs"), while those issued by
banks are referred to as Bank Investment Contracts ("BICs"). Pursuant to these
agreements, the Portfolio makes cash contributions to a deposit account at a
bank or insurance company. The bank or insurance company then credits to the
Portfolio on a monthly basis guaranteed interest at either a fixed, variable or
floating rate. These contracts are general obligations of the issuing bank or
insurance company (although they may be the obligations of an insurance company
separate account) and are paid from the general assets of the issuing entity.
The Portfolio will purchase short-term funding agreements only from banks and
insurance companies which, at the time of purchase, are rated in one of the
three highest rating categories and have assets of $1 billion or more.
Generally, there is no active secondary market in short-term funding agreements.
Therefore, short-term funding agreements may be considered by the Portfolio to
be illiquid investments. To the extent that a short-term funding agreement is
determined to be illiquid, such agreements will be acquired by the Portfolio
only if, at the time of purchase, no more than 15% of the Portfolio's net assets
will be invested in short-term funding agreements and other illiquid securities.
SPDRs
The Equity Portfolios (except for the Diversified Mid Cap Portfolio) may invest
in Standard & Poor's Depository Receipts ("SPDRs"). SPDRs are interests in unit
investment trusts. These investment trusts invest in a securities portfolio that
includes substantially all of the common stocks (in substantially the same
weights) as the common stocks included in a particular Standard & Poor's Index
such as the S&P 500. SPDRs are traded on the American Stock Exchange, but may
not be redeemed. The results of SPDRs will not match the performance of the
designated S&P Index due to reductions in the SPDRs' performance attributable to
transaction and other expenses, including fees paid by the SPDR to service
providers. SPDRs distribute dividends on a quarterly basis.
SPDRs are not actively managed. Rather, a SPDR's objective is to track the
performance of a specified index. Therefore, securities may be purchased,
retained and sold by SPDRs at times when an actively managed trust would not do
so. As a result, you can expect greater risk of loss (and a correspondingly
greater prospect of gain) from changes in the value of securities that are
heavily weighted in the index than would be the case if SPDR was not fully
invested in such securities. Because of this, a SPDR's price can be volatile,
and a Portfolio may sustain sudden, and sometimes substantial, fluctuations in
the value of its investment in SPDRs.
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A Portfolio will limit its investments in SPDRs to 5% of the Portfolio's total
assets and 3% of the outstanding voting securities of the SPDRs issuer.
Moreover, a Portfolio's investments in SPDRs will not exceed 10% of the
Portfolio's total assets, when aggregated with all other investments in
investment companies.
STRUCTURED INSTRUMENTS
Structured instruments are debt securities issued by agencies of the U.S.
government (such as Ginnie Mae, Fannie Mae, and Freddie Mac), banks,
corporations, and other business entities whose interest and/or principal
payments are indexed to certain specific foreign currency exchange rates,
interest rates, or one or more other reference indices. Structured instruments
frequently are assembled in the form of medium-term notes, but a variety of
forms are available and may be used in particular circumstances. Structured
instruments are commonly considered to be derivatives.
The terms of structured instruments provide that their principal and/or interest
payments are adjusted upwards or downwards to reflect changes in the reference
index while the structured instruments are outstanding. In addition, the
reference index may be used in determining when the principal is redeemed. As a
result, the interest and/or principal payments that may be made on a structured
product may vary widely, depending on a variety of factors, including the
volatility of the reference index and the effect of changes in the reference
index on principal and/or interest payment.
While structured instruments may offer the potential for a favorable rate of
return from time to time, they also entail certain risks. Structured instruments
may be less liquid than other debt securities, and the price of structured
instruments may be more volatile. If the value of the reference index changes in
a manner other than that expected by Banc One Investment Advisors, principal
and/or interest payments on the structured instrument may be substantially less
than expected. In addition, although structured instruments may be sold in the
form of a corporate debt obligation, they may not have some of the protection
against counterparty default that may be available for publicly traded debt
securities (i.e., the existence of a trust indenture). In that case, the risks
of default associated with structured instruments may be similar to those
associated with swap contracts. See "Swaps, Caps and Floors."
The Portfolios will invest only in structured securities that are consistent
with each Portfolio'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, a
Portfolio will not invest in structured instruments if the terms of the
structured instrument provide that the Portfolio may be obligated to pay more
than its initial investment in the structured instrument, or to repay any
interest or principal that has already been collected or paid back.
Structured instruments that are registered under the federal securities laws may
be treated as liquid. However, many structured instruments may not be registered
under the federal securities laws. In that event, a Portfolio's ability to
resell such a structured instrument may be more limited than its ability to
resell other Portfolio securities. The Portfolio will treat these instruments as
illiquid, and will limit its investments in these instruments to no more than
15% of its net assets, when combined with all other illiquid investments of the
Portfolio.
SWAPS, CAPS AND FLOORS
The Portfolios may enter into swaps, caps, (collectively, "Swap Contracts") 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 Portfolio from
interest rate fluctuations and to hedge against fluctuations in the floating
rate market in which the Portfolio's investments are traded, for both hedging
and non-hedging purposes. The Portfolios may enter into these transactions to
manage their exposure to changing interest rates and other market factors. Some
transactions may reduce each Portfolio's exposure to market fluctuations while
others may tend to increase market exposure. Although different from options,
futures and options on futures, swap contracts are used by the Portfolios for
similar purposes (i.e., risk management and hedging) and therefore, expose the
Portfolios to generally the same risks and opportunities as these investments.
Swap contracts typically involve an exchange of obligations by two sophisticated
parties. For example, in an interest rate swap, the Portfolio may exchange with
another party their respective rights to receive interest, such as an exchange
of fixed rate payments for floating rate payments.
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Currency swaps involve the exchange of respective rights to make or receive
payments in specified currencies. Mortgage swaps are similar to interest rate
swaps in that they represent commitments to pay and receive interest. The
notional principal amount, however, is tied to a reference pool or pools of
mortgages.
Caps and floors are variations on swaps. The purchase of a cap entitles the
purchaser to receive a principal amount from the party selling the cap to the
extent that a specified index exceeds a predetermined interest rate or amount.
The purchase of an interest rate floor entitles the purchaser to receive
payments on a notional principal amount from the party selling the floor to the
extent that a specified index falls below a predetermined interest rate or
amount. Caps and floors are similar in many respects to over-the-counter options
transactions, and may involve investment risks that are similar to those
associated with options transactions and options on futures contracts.
Because swap contracts are individually negotiated, they remain the obligation
of the respective counterparties, and there is a risk that a counterparty will
be unable to meet its obligations under a particular swap contract. If a
counterparty defaults on a swap contract with a Portfolio, the Portfolio may
suffer a loss. To address this risk, each Portfolio will usually enter into
interest rate swaps on a net basis, which means that the two payment streams
(one from the Portfolio to the counterparty, one to the Portfolio from the
counterparty) are netted out, with the Portfolio 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 Portfolio is contractually obligated to make. If the other party to an
interest rate swap defaults, the Portfolio's risk of loss consists of the net
amount of interest payments that a Portfolio is contractually entitled to
receive. In addition, the Portfolio may incur a market value adjustment on
securities held upon the early termination of the swap. To protect against
losses related to counterparty default, the Portfolios 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 Portfolio to close out its obligations under the swap contract
prior to its maturity. Under these circumstances, the Portfolio might be able to
negotiate another swap contract with a different counterparty to offset the risk
associated with the first swap contract. Unless the Portfolio is able to
negotiate such an offsetting swap contract, however, the Portfolio could be
subject to continued adverse developments, even after Banc One Investment
Advisors determines that it would be prudent to close out or offset the first
swap contract.
The Portfolios 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 Portfolio 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 Portfolios 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 Portfolios.
The Staff of the SEC is presently considering its position with respect
to swaps, caps and floors as senior securities. Pending a determination by the
Staff, the Portfolios 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 Portfolios intend to engage in swaps, caps and floors, if
at all, in a manner
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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 Portfolios 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 Portfolio's borrowing restrictions. The net amount of the excess, if any,
of each Portfolio'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 Portfolios'
Custodian. The Bond Portfolios generally will limit their investments in swaps,
caps and floors to 25% of their total assets.
TREASURY RECEIPTS
The Portfolios may purchase interests in separately traded interest and
principal component parts of U.S. Treasury obligations that are issued by banks
or brokerage firms and are created by depositing U.S. Treasury notes and U.S.
Treasury bonds into a special account at a custodian bank. Receipts include:
o Treasury Receipts ("TRS"),
o Treasury Investment Growth Receipts ("TIGRS"), and
o Certificates of Accrual on Treasury Securities ("CATS").
U.S. TREASURY OBLIGATIONS
The Portfolios may invest in bills, notes and bonds issued by the U.S. Treasury
and separately traded interest and principal component parts of those
obligations that are transferable through the Federal book-entry system known as
Separately Traded Registered Interest and Principal Securities ("STRIPS") and
Coupon Under Book Entry Safekeeping ("CUBES"). The Portfolios may also invest in
Inflation Indexed Treasury Obligations.
VARIABLE AND FLOATING RATE INSTRUMENTS
Certain obligations purchased by the Portfolios may carry variable or floating
rates of interest, may involve a conditional or unconditional demand feature and
may include variable amount master demand notes.
VARIABLE AMOUNT MASTER DEMAND NOTES are demand notes that permit the
indebtedness 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 Portfolio and the issuer, they
are not normally traded. Although there is no secondary market in the notes, a
Portfolio may demand payment of principal and accrued interest. While the notes
are not typically rated by credit rating agencies, issuers of variable amount
master demand notes (which are normally manufacturing, retail, financial,
brokerage, investment banking and other business concerns) must satisfy the same
criteria as set forth above for commercial paper. Banc One 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.
The Portfolios, subject to their investment objective policies and
restrictions, may acquire VARIABLE AND FLOATING RATE INSTRUMENTS. A variable
rate instrument is one whose terms provide for the adjustment of its interest
rate on set dates and which, upon adjustment, can reasonably be expected to have
a market value that approximates its par value. A floating rate instrument is
one whose terms provide for the adjustment of its interest rate whenever a
specified interest rate changes and which, at any time, can reasonably be
expected to have a market value that approximates its par value. These
instruments are frequently not rated by credit rating agencies; however, unrated
variable and floating rate instruments purchased by a Portfolio 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
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<PAGE> 90
Portfolio's investment policies. In making these determinations, Banc One
Investment Advisors will consider the earning power, cash flow and other
liquidity ratios of the issuers of these instruments (these issuers include
financial, merchandising, bank holding and other companies) and will
continuously monitor their financial condition. There may be no active secondary
market with respect to a particular variable or floating rate instrument
purchased by a Portfolio. The absence of an active secondary market, could make
it difficult for the Portfolio to dispose of the variable or floating rate
instrument involved in the event the issuer of the instrument defaulted on its
payment obligations, and the Portfolio could, for this or other reasons, suffer
a loss to the extent of the default. Variable or floating rate instruments may
be secured by bank letters of credit or other assets. A Portfolio will purchase
a variable or floating rate instrument to facilitate portfolio liquidity or to
permit investment of the Portfolio's assets at a favorable rate of return.
LIMITATIONS ON THE USE OF VARIABLE AND FLOATING RATE NOTES. Variable
and floating rate instruments for which no readily available market exists will
be purchased in an amount which, together with securities with legal or
contractual restrictions on resale or for which no readily available market
exists (including repurchase agreements providing for settlement more than seven
days after notice), exceeds 15% of the Portfolio's net assets only if these
instruments are subject to a demand feature that will permit the Portfolio to
demand payment of the principal within seven days after demand by the Portfolio.
There is no limit on the extent to which a Portfolio may purchase demand
instruments that are not illiquid. If not rated, these instruments must be found
by Banc One Investment Advisors under guidelines established by the Trust's
Board of Trustees, to be of comparable quality to instruments that are rated
high quality. A rating may be relied upon only if it is provided by a nationally
recognized statistical rating organization that is not affiliated with the
issuer or guarantor of the instruments. For a description of the rating symbols
of S&P, Moody's, and Fitch used in this paragraph, see the Appendix.
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 higher than the market price at
the time of issuance of the warrant. The right may last for a period of years or
indefinitely.
WHEN-ISSUED SECURITIES AND FORWARD COMMITMENTS
The Portfolios may purchase securities on a "when-issued" and forward
commitment basis. When a Portfolio agrees to purchase securities, the
Portfolio's custodian will set aside cash or liquid portfolio securities equal
to the amount of the commitment in a separate account. The Portfolios may
purchase securities on a when-issued basis when deemed by Banc One Investment
Advisors to present attractive investment opportunities. When-issued securities
are purchased for delivery beyond the normal settlement date at a stated price
and yield, thereby involving the risk that the yield obtained will be less than
that available in the market at delivery. The Portfolios generally will not pay
for these securities or earn interest on them until received. Although the
purchase of securities on a when-issued basis is not considered to be
leveraging, it has the effect of leveraging. When Banc One Investment Advisors
purchases a when-issued security, the Custodian will set aside cash or liquid
securities to satisfy the purchase commitment. In this case, a Portfolio may be
required subsequently to place additional assets in the separate account to
assure that the value of the account remains equal to the amount of the
Portfolio's commitment. The Portfolio's net assets may fluctuate to a greater
degree when it sets aside portfolio securities to cover purchase commitments
than when it sets aside cash. In addition, when a Portfolio engages in
"when-issued" transactions, it relies on the seller to complete the trade.
Failure of the seller to do so may result in the Portfolio's incurring a loss or
missing the opportunity to obtain a price considered to be advantageous.
In a forward commitment transaction, the Portfolios contract to
purchase securities for a fixed price at a future date beyond customary
settlement time. The Portfolios are required to hold and maintain in a
segregated account until the settlement date, cash, U.S. government securities
or liquid high-grade debt obligations in an amount sufficient to meet the
purchase price. Alternatively, the Portfolios may enter into offsetting
contracts for the forward sale of other securities that they own. The purchase
of securities on a when-issued or forward commitment basis involves a risk of
loss if the value of the security to be purchased declines prior to the
settlement date.
Limitations on the Use of When Issued Securities and Forward
Commitments. No Portfolio intends to purchase "when-issued" securities for
speculative purposes but only for the purpose of
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<PAGE> 91
acquiring portfolio securities. Because a Portfolio will set aside cash or
liquid portfolio securities to satisfy its purchase commitments in the manner
described, the Portfolio's liquidity and the ability of Banc One Investment
Advisors to manage the Portfolio mightbe affected in the event its commitments
to purchase when-issued securities ever exceeded 40% of the value of its assets.
Commitments to purchase when-issued securities will not, under normal market
conditions, exceed 25% of a Portfolio's total assets, and a commitment will not
exceed 90 days. A Portfolio may dispose of a when-issued security or forward
commitment prior to settlement if Banc One Investment Advisors deems it
appropriate to do so.
INVESTMENT RESTRICTIONS
The following investment restrictions are "fundamental policies" of
each Portfolio. The investment objectives of each Portfolio (which can be found
in response to the first question in each of the Risk/Return Summaries) are also
"fundamental policies." Fundamental policies cannot be changed with respect to a
Portfolio without the consent of the holders of a majority of the Portfolio's
outstanding shares. The term "majority of the outstanding shares" means the vote
of (i) 67% or more of the Portfolio's shares present at a meeting, if more than
50% of the outstanding shares of the Portfolio are present or represented by
proxy, or (ii) more than 50% of the Portfolio's outstanding shares, whichever is
less.
Each Portfolio 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 Portfolio would be invested in the securities of such
issuer or the Portfolio would own more than 10% of the outstanding voting
securities of such issuer. This restriction applies to 75% of the Portfolio's
assets. For purposes of this limitation, a security is considered to be issued
by the government entity whose assets and revenues guarantee or back the
security. With respect to private activity bonds or industrial development bonds
backed only by the assets and revenues of a nongovernmental user, such user
would be considered the issuer.
2. Purchase any securities which would cause more than 25% of the total
assets of the Portfolio 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 Portfolio 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 Portfolio 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
Portfolios may purchase or sell financial futures contracts for bona fide
hedging and other permissible purposes.
7. Purchase participations or other direct interests in oil, gas or
mineral exploration or development programs (although investments by the
Portfolios 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.
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<PAGE> 92
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 Portfolio 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 Portfolio
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 Portfolio's total assets
at the time of its borrowing. A Portfolio 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 Portfolio may invest in illiquid securities in an amount exceeding,
in the aggregate, 15% of the Portfolio'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 foregoing percentages apply at the time of purchase of a security.
Banc One Investment Advisors Corporation shall report to the Board of Trustees
promptly if any of a Portfolio's investments are no longer determined to be
liquid or if the market value of Portfolio assets has changed if such
determination or change causes a Portfolio 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 Portfolio's holdings to less than 15% of its net
assets.
PORTFOLIO TURNOVER
The portfolio turnover rate for each Portfolio 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. The Portfolio turnover rates for the years ended December 31, 1998
and 1997 for the following Portfolios were as follows:
<TABLE>
<CAPTION>
Portfolio 1997 1998
--------- ---- ----
<S> <C> <C>
Government Bond Portfolio 21.3%
Balanced Portfolio 60.9%
Large Cap Growth Portfolio 34.4%
Mid Cap Growth Portfolio 175.6%
Equity Index Portfolio NA*
</TABLE>
*The Equity Index Portfolio began operations on May 1, 1998.
The higher portfolio rates for the Mid Cap Growth Portfolio was the
result of a conscience shift into larger capitalization issuers and the
volatility in small and mid capitalization technology stocks.
The Portfolio turnover rates for the years ended December 31, 1998 and
1997 for the Predecessor Funds of the Bond Fund, the Diversified Mid Cap
Portfolio, the Mid Cap Value Portfolio, and the Diversified Equity Portfolio
were as follows:
<TABLE>
<CAPTION>
Portfolio 1997 1998
--------- ---- ----
<S> <C> <C>
Bond Portfolio
Diversified Mid Cap Portfolio
</TABLE>
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<PAGE> 93
Mid Cap Value Portfolio
Diversified Equity Portfolio
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 THE PORTFOLIOS
It is the policy of each Portfolio 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 Portfolio 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 Portfolio
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 Portfolio'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 Portfolio'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 Portfolio controls and that are engaged in
the same, similar, or related trades or businesses. These requirements may limit
the range of the Portfolio's investments. If a Portfolio 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 Portfolio
distributes during its taxable year at least (a) 90% of its investment company
taxable income, and (b) 90% of the excess of (i) its tax-exempt interest income
less (ii) certain deductions attributable to that income. Each Portfolio 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 prospectuses of the separate accounts offering variable life and
variable annuity contracts as they may be applicable to your situation. 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. If distributions during a calendar year were less than
the required amount, a particular Portfolio would be subject to a non-deductible
excise tax equal to 4% of the deficiency. A Portfolio is exempt from this excise
tax if at all times during the calendar year each shareholder in the Portfolio
was either a trust described in Section 401(a) of the Code and exempt from tax
under section 501(a) of the Code or a segregated asset account of a life
insurance company held in connection with variable contracts.
Section 817(h) of the Code imposes certain diversification standards on
the underlying assets of variable annuity contracts held in the Portfolios. 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
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<PAGE> 94
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, all
interests in the same real estate project and all interests in the same
commodity 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."
Treasury regulations provide that a variable annuity contract will be
able to look through to the assets held by a Portfolio for the purpose of
meeting the diversification test if the Portfolio meets certain requirements.
Each Portfolio will be managed in such a manner as to comply with the
diversification requirements and to allow the variable annuity contracts to be
treated as owning a proportionate share of such Portfolio's assets. 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 Portfolio.
The above discussion of the federal income tax treatment of the
Portfolios assumes that all the insurance company accounts holding shares of a
Portfolio 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 Portfolio if any of those
contracts are not treated as annuity, endowment or life insurance contracts.
VALUATION
VALUATION OF THE PORTFOLIOS
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 an 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 securities that have little or no trading
activity are evaluated by the independent pricing services by 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 judgment of the
Portfolio's investment adviser, represents fair value, shall each be valued in
accordance with procedures authorized by the Board of Trustees.
The Portfolios may invest in repurchase agreements with institutions that the
investment advisor has determined are creditworthy. Each repurchase agreement is
recorded at cost. 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 rate reported by the independent pricing
agent via WM/Reuters Forex as of the close of the London exchange.
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<PAGE> 95
ADDITIONAL INFORMATION REGARDING THE CALCULATION OF PER SHARE NET ASSET VALUE
The net asset value of each Portfolio is determined and its Shares are
priced as of the times specified in the Portfolios' Prospectus. The net asset
value per Share of each Portfolio is calculated by determining the value of the
interest in the securities and other assets of the Portfolio, less liabilities
and dividing such amount by the number of Shares of the Portfolio outstanding.
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION
Shares of the Portfolios are sold continuously to insurance company
separate accounts. The Portfolios 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.
MANAGEMENT OF THE TRUST
TRUSTEES & OFFICERS
The Board of Trustees oversees the management and administration of the
Portfolios. The Trustees are responsible for making major decisions about each
Portfolio's investment objectives and policies, but delegate the day-to-day
administration of the Portfolios to the officers of the Trust. There are
currently five Trustees. The Trustees, in turn, elect the officers of the
Portfolios.
The Trustees of the Portfolios, their addresses, ages and principal
occupations during the past five years are set forth below.
<TABLE>
<CAPTION>
NAME AND ADDRESS AGE POSITION HELD PRINCIPAL OCCUPATION DURING THE PAST FIVE YEARS
WITH THE TRUST
<S> <C> <C> <C>
Peter C. Marshall 56 Trustee From November, 1993 to present, President, DCI
DCI Marketing, Inc. Marketing, Inc.
2727 W. Good Hope Rd.
Milwaukee, WI 53209
Charles I. Post 70 Trustee From July, 1986 to present, self employed as a
7615 4th Avenue West consultant.
Bradenton, FL 34209
Frederick W. Ruebeck 59 Trustee From June, 1988 to present, Director of
Eli Lilly & Company Investments, Eli Lilly and Company.
Lilly Corporate Center
307 East McCarty
Indianapolis, IN 46258
Robert A. Oden, Jr. 52 Trustee From 1995 to present, President , Kenyon College;
Office of the President from 1989 to 1995, Headmaster, The Hotchkiss
Ransom Hall School.
</TABLE>
35
<PAGE> 96
<TABLE>
<S> <C> <C> <C>
Kenyon College
Gambier , OH 43022
*John F. Finn 51 Trustee Since 1975, President of Gardner, Inc.
President (Wholesale distributor to outdoor
Gardner, Inc. power equipment industry)
1150 Chesapeake Ave.
Columbus, Ohio 43212
</TABLE>
*John F. Finn is an "interested person" as that term is defined in the
Investment Company Act of 1940.
The Trustees of the Portfolios 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 fiscal year ended
December 31, 1998.
COMPENSATION TABLE (1)
<TABLE>
<CAPTION>
- -------------------------- ------------------ ------------------- --------------------- --------------------
NAME OF PERSON, AGGREGATE PENSION OR ESTIMATED ANNUAL TOTAL COMPENSATION
POSITION COMPENSATION RETIREMENT BENEFITS UPON FROM THE PORTFOLIO
FROM THE BENEFITS ACCRUED RETIREMENT COMPLEX
PORTFOLIOS(2) AS PART OF
PORTFOLIO
EXPENSES
- -------------------------- ------------------ ------------------- --------------------- --------------------
<S> <C> <C> <C> <C>
Peter C. Marshall, $3000 NA NA $51,000
Trustee
- -------------------------- ------------------ ------------------- --------------------- --------------------
Charles I. Post, Trustee $3000 NA NA $48,500
- -------------------------- ------------------ ------------------- --------------------- --------------------
Frederick W. Ruebeck, $3000 NA NA $48,500
Trustee(3)
- -------------------------- ------------------ ------------------- --------------------- --------------------
Robert A. Oden, Jr., $3000 NA NA $48,500
Trustee
- -------------------------- ------------------ ------------------- --------------------- --------------------
John F. Finn, Trustee(4) $1500 NA NA $24,500
- -------------------------- ------------------ ------------------- --------------------- --------------------
</TABLE>
(1) "Portfolio Complex" comprises the 9 Portfolios of the Trust, as well as
the Funds of The One Group(R) as of December 31, 1998 Compensation for
the "Portfolio Complex" is for the fiscal year ended December 31, 1998.
(2) Pursuant to a Deferred Compensation Plan for Trustees of One Group
Investment Trust (the "Plan") adopted at the November 19, 1998 Board of
Trustee's meeting, the Trustees may defer all or a part of their
compensation payable by the Trust. Under the Plan, the Trustees may
specify Class I Shares (formerly fiduciary class shares) of one or more
funds of The One Group to be used to measure the performance of a
Trustee's deferred compensation account. A Trustee's deferred
compensation account will be paid at such times as elected by the
Trustee subject to certain mandatory payment provisions in the Plan
(e.g., death of a Trustee).
(3) Includes $750 of deferred compensation.
(4) Includes $750 of deferred compensation.
The officers of the Portfolios receive no compensation directly from the
Portfolios for performing the duties of their offices. The officers of the
Trust, their addresses, ages and principal occupations during the past five
years are shown below:
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<PAGE> 97
<TABLE>
<CAPTION>
- -------------------------------- --------- ------------------ --------------------------------------------------------
NAME AND ADDRESS AGE POSITION(S) HELD PRINCIPAL OCCUPATION DURING PAST 5 YEARS
WITH THE TRUST
- -------------------------------- --------- ------------------ --------------------------------------------------------
<S> <C> <C> <C>
James F. Laird, Jr.* 42 President and Mr. Laird was elected Vice President-General Manager
Three Nationwide Plaza Treasurer of Nationwide Advisory Services, Inc., on April 5,
Columbus, Ohio 43215 1995. Prior to being elected General Manager, Mr.
Laird served as Treasurer of Nationwide Advisory
Services, Inc. since November, 1987.
- -------------------------------- --------- ------------------ --------------------------------------------------------
Karen R. Tackett* 32 Vice President Since August, 1998, Ms. Tackett has been Director
Three Nationwide Plaza and Assistant Strategic Development of Nationwide Advisory Services,
Columbus, Ohio 43215 Treasurer Inc. From March, 1996 until July, 1998, Ms. Tackett
was Accounting Manager for Nationwide Advisory
Services, Inc. Prior to that, Ms. Tackett was Audit
Manager and held various other positions with
PricewaterhouseCoopers LLP (formerly Coopers & Lybrand,
L.L.P.)
- -------------------------------- --------- ------------------ --------------------------------------------------------
Craig A. Carver* 44 Vice President Mr. Carver has been Compliance Manager of Nationwide
Three Nationwide Plaza and Assistant Advisory Services, Inc. since January, 1996. Prior
Columbus, Ohio 43215 Secretary to that time, Mr. Carver served as Financial Controls
Manager of Nationwide Advisory Services, Inc.
- -------------------------------- --------- ------------------ --------------------------------------------------------
Christopher A. Cray 40 Vice President Mr. Cray has been Treasurer of Nationwide Advisory
Three Nationwide Plaza and Secretary Services, Inc. since September, 1997. Prior to that
Columbus, Ohio 43215 time he served as director-Corporate Accounting of
Nationwide Insurance Enterprises.
- -------------------------------- --------- ------------------ --------------------------------------------------------
H. Carl Juckett 43 Vice President Mr. Juckett jointed Nationwide Advisory Services in
Three Nationwide Plaza and July, 1998 as the manager of Fund Accounting. Prior
Columbus, Ohio 43215 Assistant to joining Nationwide, Mr. Juckett served as a vice
Treasurer president for BISYS Fund Services where he managed
Fund Accounting during a four year period. Mr. Juckett
also spent eleven years with Huntington Bancshares
serving in a variety of positions related to
investments, trust and broker/dealer activities.
- -------------------------------- --------- ------------------ --------------------------------------------------------
</TABLE>
* All officers listed above are "interested persons" of the Portfolios as
defined in the Investment Company Act of 1940.
INVESTMENT ADVISOR
Investment advisory services to each of the Portfolios are provided by
Banc One Investment Advisors. Banc One Investment Advisors makes the investment
decisions for the assets of the Portfolios and continuously reviews, supervises
and administers the Portfolio's investment program, subject to the supervision
of, and policies established by, the Trustees. The Portfolios' 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.
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<PAGE> 98
As of December 31, 1998, Banc One Investment Advisors, an indirect
wholly-owned subsidiary of BANK ONE CORPORATION, a bank holding company located
in the state of Illinois, managed over $54 billion in assets. BANK ONE
CORPORATION has affiliate banking organizations in Arizona, Colorado, Illinois,
Indiana, Kentucky, Louisiana, Michigan, Ohio, Oklahoma, Texas, Utah, West
Virginia and Wisconsin. In addition, BANK ONE CORPORATION has several affiliates
that engage in data processing, venture capital, investment and merchant
banking, and other diversified services including trust management, investment
management, brokerage, equipment leasing, mortgage banking, consumer finance,
and insurance.
Banc One Investment Advisors represents a consolidation of the
investment advisory staffs of a number of bank affiliates of BANK ONE
CORPORATION, which have considerable experience in the management of open-end
management investment company portfolios, including One Group (an open-end
management investment company which offered units of beneficial interest in 34
separate Portfolios as of December 31, 1998, some of which have similar names as
the Portfolios of the Trust and are managed similarly to such Portfolios) since
1985.
All investment advisory services are provided to the Portfolios 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, 1999, and will
continue in effect as to a particular Portfolio 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 Portfolio (as defined
under "ADDITIONAL INFORMATION-- Miscellaneous" in this Statement of Additional
Information), and a majority of the Trustees who are not parties to the
respective investment advisory agreements or interested persons (as defined in
the Investment Company Act of 1940) of any party to the respective investment
advisory agreements by votes cast in person at a meeting called for such
purpose. The Advisory Agreement may be terminated as to a particular Portfolio
at any time on 60 days' written notice without penalty by:
1.___the Trustees,
2.___vote of a majority of the outstanding Shares of that Portfolio, or
3.___the Portfolio'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.
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 under the Agreement.
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 Portfolio:
<TABLE>
<CAPTION>
NAME OF PORTFOLIO PERCENTAGE
<S> <C>
Bond Portfolio 0.60%
Government Bond Portfolio 0.45%
Balanced Portfolio 0.70%
Mid Cap Growth Portfolio 0.65%
Large Cap Growth Portfolio 0.65%
Equity Index Portfolio 0.30%
Diversified Equity Portfolio 0.74%
Diversified Mid Cap Portfolio 0.74%
Mid Cap Value Portfolio. 0.74%
</TABLE>
38
<PAGE> 99
Banc One Investment Advisors has voluntarily agreed to waive all or
part of its fees in order to limit the Portfolios' total operating expenses on
an annual basis to not more than the following percentages of the average daily
net assets of each of the Portfolios:
<TABLE>
<CAPTION>
NAME OF PORTFOLIO PERCENTAGE
<S> <C>
Bond Portfolio 0.75%
Government Bond Portfolio 0.75%
Balanced Portfolio 1.00%
Mid Cap Growth Portfolio 1.10%
Large Cap Growth Portfolio 1.00%
Equity Index Portfolio 0.55%
Diversified Equity Portfolio 0.95%
Diversified Mid Cap Portfolio 0.95%
Mid Cap Value Portfolio 0.95%
</TABLE>
These fee waivers are voluntary and may be terminated at any time.
For the fiscal years ended December 31, 1998, 1997, and 1996, the following
Portfolios paid investment advisory fees as follows:
FISCAL YEAR ENDED DECEMBER 31,
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
Portfolio Net Waived Net Waived Net Waived
- --------- --- ------ --- ------ --- ------
<S> <C> <C> <C> <C> <C> <C>
Government Bond Portfolio $ $ $78,818 $23,446 $23,470 $31,993
Balanced Portfolio $ $ $189,332 $44,906 $26,690 $31,993
Mid Cap Growth Portfolio $ $ $233,609 $ 4,114 $43,318 $48,685
Large Cap Growth Portfolio $ $ $458,066 $ 1,114 $136,980 $53,497
Equity Index Portfolio $ $ NA* NA* NA* NA*
</TABLE>
* The Equity Index Portfolio commenced operations on May 1, 1998.
Prior to March _,1999, First Chicago NBD Investment Management Company
("FCNIMCO") provided investment management services to the Predecessor Funds of
the Bond Fund, the Diversified Mid Cap Portfolio, the Mid Cap Value Portfolio,
and the Diversified Equity Portfolio. FCNIMCO is an indirect subsidiary of BANK
ONE CORPORATION and an affiliate of Banc One Investment Advisors. For the fiscal
years ended December 31, 1998, 1997, and 1996, the following Portfolios paid
investment advisory fees to FCNIMCO as follows:
FISCAL YEAR ENDED DECEMBER 31,
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
Portfolio Net Waived Net Waived Net Waived
- --------- --- ------ --- ------ --- ------
<S> <C> <C> <C> <C> <C> <C>
Bond Portfolio $ $ $ $ $ $
Diversified Mid Cap Portfolio $ $ $ $ $ $
Mid Cap Value Portfolio $ $ $ $ $ $
Diversified Equity Portfolio $ $ $ $ $ $
</TABLE>
39
<PAGE> 100
GLASS-STEAGALL ACT
In 1971, the United States Supreme Court held in Investment Company
Institute v. Camp that the Federal statute commonly referred to as the
Glass-Steagall Act prohibits a national bank from operating a Portfolio 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 of its non-bank affiliates from
sponsoring, organizing, or controlling a registered, open-end investment company
continuously engaged in the issuance of its shares, but (b) do not prohibit a
bank holding company or affiliate from acting as investment advisor, transfer
agent, and custodian to 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 Portfolios 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 Portfolios.
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 Portfolios would
review the Portfolios' relationship with Banc One Investment Advisors and
consider taking all action necessary in the circumstances.
Should future legislative, judicial, or administrative action prohibit
or restrict the proposed activities of BANK ONE CORPORATION subsidiary banks or
their correspondent banks in connection with customer purchases of Shares of the
Trust, these banks might be required to alter materially or discontinue the
services offered by them to Customers. It is not anticipated, however, that any
change in the Portfolios' 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
Portfolios and in accordance with each Portfolio's investment objective and
restrictions, which securities are to be purchased and sold by each such
Portfolio and which brokers are to be eligible to execute its portfolio
transactions. Purchases and sales of portfolio securities with respect to the
Bond Portfolios 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 Portfolios, 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 Portfolios may not necessarily pay
the lowest spread or commission available on each transaction, for reasons
discussed below. During each of the past three fiscal years, the brokerage
commissions paid by the Portfolios were as follows:
40
<PAGE> 101
<TABLE>
<CAPTION>
Portfolio Aggregate Brokerage Commissions
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Balanced Portfolio $47,608 $34,413 $12,571
Large Cap Growth Portfolio $109,720 $40,915 $29,546
Equity Index Portfolio $6,217 NA* NA*
Diversified Equity Portfolio
Mid Cap Growth Portfolio $92,962 $125,008 $98,102
Diversified Mid Cap Portfolio
Mid Cap Value Portfolio
</TABLE>
* The Equity Index Portfolio commenced operations of May 1, 1998.
Allocation of transactions, including their frequency, to various
dealers is determined by Banc One Investment Advisors with respect to the
Portfolios 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 Portfolios. 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 Portfolios 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 Portfolios.
The Portfolios 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 BANK ONE CORPORATION
subsidiary banks with respect to such transactions, securities, savings
deposits, repurchase agreements, and reverse repurchase agreements.
Investment decisions for each Portfolio are made independently from
those for the other Portfolios 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 Portfolios. When a
purchase or sale of the same security is made at substantially the same time on
behalf of a given Portfolio and another Portfolio, 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 Portfolio(s) and such other investment company or
account. In some instances, this investment procedure may adversely affect the
price paid or received by a Portfolio or the size of the position obtained by a
Portfolio. To the extent permitted by law, Banc One Investment Advisors may
aggregate the securities to be sold or purchased by it for a Portfolio with
those to be sold or purchased by it for other Portfolios 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 Portfolios,
Banc One Investment Advisors will not inquire or take into consideration whether
an issuer of securities proposed for purchase or sale by the Portfolios 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
Portfolios.
ADMINISTRATOR
Nationwide Advisory Services, Inc, Three Nationwide Plaza, Columbus,
Ohio 43215 ("NAS") serves as Administrator (the "Administrator") to each
Portfolio pursuant to an administration agreement with the Trust (the
"Administration Agreement"). (NAS is a wholly owned subsidiary of Nationwide
Life Insurance Company, which in turn is a wholly owned
41
<PAGE> 102
subsidiary of Nationwide Financial Services, Inc., a holding company of the
Nationwide Insurance Enterprise). The Administrator assists in supervising all
operations of each Portfolio to which it serves (other than those performed
under the Advisory Agreement, and Custodian and Transfer Agency Agreements for
that Portfolio). The Administrator is a broker-dealer registered with the
Securities and Exchange Commission, and is a member of the National Association
of Securities Dealers, Inc.
Under the Administration Agreement, the Administrator has agreed to
price the portfolio securities of each Portfolio it serves and to compute the
net asset value and net income of the Portfolios on a daily basis, to maintain
office facilities for the Portfolios, to maintain each Portfolio's financial
accounts and records, and to furnish the Portfolios with data processing,
clerical, accounting, and bookkeeping services, and certain other services
required by the Portfolios with respect to each Portfolio. 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.
Unless sooner terminated, the Administration Agreement between the
Trust and NAS will continue in effect through August 31, 1999. The
Administration Agreement thereafter shall be renewed automatically for
successive one year terms, unless written notice not to renew is given by the
non-renewing party to the other party at least sixty days prior to the
expiration of the then-current term. The Administration Agreement will be
reviewed and ratified at least annually by the 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 may be terminated with respect to 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 for each of the
Portfolios (except the Equity Index Portfolio), which is calculated daily and
paid monthly, at the following annualized percentages of average net assets of
the Trust (less the assets of the Equity Index Portfolio):
<TABLE>
<CAPTION>
Fee Average Net Assets
<S> <C>
0.24% less than $250 million
0.14% greater than $250 million
</TABLE>
For the Equity Index Portfolio, the Administrator is entitled to a fee which is
calculated daily and paid monthly, equal to 0.14% of the Equity Index
Portfolio's average net assets.
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 Portfolios 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.
For the fiscal years ended December 31, 1998, 1997, and 1996, the following
Portfolios paid administration fees as follows:
42
<PAGE> 103
<TABLE>
<CAPTION>
FISCAL YEAR ENDED DECEMBER 31,
- ------------------------------
1998 1997 1996
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Portfolio Net Net Net
- -----------------------------------------------------------------------------------------
Government Bond Portfolio $ $42,036 $29,580
- -----------------------------------------------------------------------------------------
Balanced Portfolio $ $64,914 $24,178
- -----------------------------------------------------------------------------------------
Mid Cap Growth Portfolio $ $86,256 $33,970
- -----------------------------------------------------------------------------------------
Large Cap Growth Portfolio $ $169,132 $ 70,330
- -----------------------------------------------------------------------------------------
Equity Index Portfolio $ NA* NA*
- -----------------------------------------------------------------------------------------
</TABLE>
* The Equity Index Portfolio commenced operations on May 1, 1998.
Prior to March _,1999, FCNIMCO and BISYS served as co-administrators to the
Predecessor Funds of the Bond Fund, the Diversified Mid Cap Portfolio, the Mid
Cap Value Portfolio, and the Diversified Equity Portfolio. For the fiscal years
ended December 31, 1998, 1997, and 1996, the following Portfolios paid
investment advisory fees to FCNIMCO and BISYS as follows:
FISCAL YEAR ENDED DECEMBER 31,
<TABLE>
<CAPTION>
1998 1997 1996
- -----------------------------------------------------------------------------------------------------------
Portfolio Net Waived Net Waived Net Waived
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Bond Portfolio $ $ $ $ $ $
- -----------------------------------------------------------------------------------------------------------
Diversified Mid Cap Portfolio $ $ $ $ $ $
- -----------------------------------------------------------------------------------------------------------
Mid Cap Value Portfolio $ $ $ $ $ $
- -----------------------------------------------------------------------------------------------------------
Diversified Equity Portfolio $ $ $ $ $ $
- -----------------------------------------------------------------------------------------------------------
</TABLE>
SUB-ADMINISTRATOR
For the period beginning November 14, 1998 and ending March __, 1999, NAS
served as sub-administrator to the Predecessor Funds and received fees equal to
__________ from the Predecessor Funds' administrator.
The Board of Trustees of the Trust has approved a Sub-Administration
Agreement between Banc One Investment Advisors and NAS that will be effective on
or after April 1, 1999. Under the proposed contract, Banc One Investment
Advisors will be entitled to a fee equal to ________].
CUSTODIANS, SUB-CUSTODIAN AND TRANSFER AGENT
Custodian. State Street Bank and Trust Company ( "State Street"), P.O. Box
8500, Boston, MA 02266-8500 acts as custodian for the Portfolios under 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
Portfolio;
(ii) makes receipts and disbursements of money on behalf of each Portfolio;
(iii) collects and receives all income and other payments and distributions
on account of the Portfolios' portfolio securities; responds to
correspondence from security brokers and others relating to its
duties; and
(iv) makes periodic reports to the Board of Trustees concerning the
Portfolios' operations.
43
<PAGE> 104
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.
NBD ("NBD"), an indirect wholly-owned subsidiary of BANK ONE
CORPORATION, served a Custodian for the Predecessor Funds pursuant to a
Custodian Agreement. Under the Custodian Agreement, NBD was entitled to a fee of
- ------------.
Sub-Custodian. Bank One Trust Company, N.A. (the "Sub-Custodian")
serves as Sub-Custodian in connection with the Trust's securities lending
activities, pursuant to a Subcustodian Agreement, dated as of June 11, 1998
between the Trust, State Street and Bank One Trust Company and a Securities
Lending Agreement, dated as of June 15, 1998 between the Trust, Banc One
Investment Advisors, and the Subcustodian. The Sub-Custodian is an indirect
subsidiary of BANK ONE CORPORATION and an affiliate of Banc One Investment
Advisors. The Sub-Custodian is entitled to a fee from the Trust, which is
calculated on an annual basis and accrued daily, equal to:
- .05% of the value of collateral received from the Borrower for each
securities loan of U.S. Government and Agency Securities; and
- .10% of the value of collateral received from the Borrower for each
loan of equities and corporate bonds.
Use of Depositories. Rules adopted under the Investment Company Act of
1940 permit the Portfolios to maintain their securities and cash in the custody
of certain eligible banks and securities depositories.
Transfer Agent and Dividend Disbursing Agent. 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 Portfolio pursuant to Transfer Agency
Agreement with the Trust (the "Transfer Agency Agreement"). Under the Transfer
Agency Agreement, NIS has agreed to: (i) issue and redeem Shares of the
Portfolios; (ii) 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) respond to
correspondence or inquiries by Shareholders and others relating to its duties;
(iv) maintain Shareholder accounts and certain sub-accounts; and (v) make
periodic reports to the Board of Trustees concerning the Portfolios operations.
EXPERTS
Independent Public Accountants. PricewaterhouseCoopers LLP, 100 East Broad
Street, Columbus, Ohio 43215 serves as the independent accountants of the Trust.
Fund Counsel. The law firm of Ropes & Gray, One Franklin Square, 1301 K Street,
N.W., Suite 800 East, Washington, D.C. 20005-3333 is 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
44
<PAGE> 105
Declaration of Trust, as amended, with respect to the Shares of each series of
the Trust. The Trust presently includes nine series of Shares which represent
interests in the following Portfolios:
1. Bond Portfolio
2. Government Bond Portfolio
3. Balanced Portfolio
4. Mid Cap Growth Portfolio
5. Large Cap Growth Portfolio
6. Equity Index Portfolio
7. Diversified Equity Portfolio
8. Diversified Mid Cap Portfolio
9. Mid Cap Value Portfolio
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:
(1) designate series of the Trust;
(2) change the name of the Trust; or
(3) 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 those 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 Portfolio are entitled to receive the
assets available for distribution belonging to the Portfolio, and a
proportionate distribution, based upon the relative asset values of the
respective Portfolios, of any general assets not belonging to any particular
Portfolio 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 Portfolio affected by the matter. For purposes of
determining whether the approval of a majority of the outstanding Shares of a
Portfolio is required in connection with a matter, a Portfolio is deemed to be
affected by a matter unless it is clear that the interests of each Portfolio in
the matter are identical, or that the matter does not affect any interest of the
Portfolio. 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 Portfolio only if approved by a majority of the outstanding Shares of the
Portfolio. 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;
45
<PAGE> 106
(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 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 Portfolios will be purchased by insurance company
separate accounts to fund variable annuity and variable life contracts
("Insurance Contracts"). For information concerning the purchase and redemption
of Shares by Separate Accounts, you should refer to the prospectus that you
received when you purchased your variable life or variable insurance contract.
As of January 18, 1999, the Trust believes that no Shareholder owned
beneficially more than 25% of the outstanding shares of any Portfolio of the
Trust.
46
<PAGE> 107
5% SHAREHOLDERS
In addition, as of January 18, 1999, the following persons were the owners of
more than 5% of the outstanding Shares of the following Portfolios:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------
PERCENT TYPE OF
NAME AND ADDRESS PORTFOLIO OWNERSHIP OWNERSHIP
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Separate account of Government Bond Portfolio 84% Record
Nationwide Life and
Annuity Insurance Company
CO 68 c/o IPO
PO Box 182029
Columbus, Ohio 43218-2029
- ----------------------------------------------------------------------------------------------------
Nationwide Life and Annuity Insurance Government Bond Portfolio 16% Record &
Company Beneficial
CO 68 c/o IPO
PO Box 182029
Columbus, Ohio 43218-2029
- ----------------------------------------------------------------------------------------------------
</TABLE>
47
<PAGE> 108
<TABLE>
<S> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------
Separate account of
Nationwide Life and Annuity Insurance Balanced Portfolio 98% Record
Company
Financial Horizons Variable Acct 3
CO 68 c/o IPO
PO Box 182029
Columbus, Ohio 43218-2029
- ----------------------------------------------------------------------------------------------------
Separate account of
Nationwide Life and Annuity Insurance Mid Cap Growth Portfolio 99% Record
Company
CO 68 c/o IPO
PO Box 182029
Columbus, Ohio 43218-2029
- ----------------------------------------------------------------------------------------------------
Separate account of
Nationwide Life and Annuity Insurance Large Cap Growth Portfolio 96% Record
Company
CO 68 c/o IPO
PO Box 182029
Columbus, Ohio 43218-2029
- ----------------------------------------------------------------------------------------------------
Banc One Capital Corp Equity Index Portfolio 6% Record
c/o Barry Goudy Seed Account & Beneficial
150 E. Gay St. FL 24
Columbus, Ohio 43215-3130
- ----------------------------------------------------------------------------------------------------
Nationwide Life Insurance Company Equity Index Portfolio 18% Record
Nationwide Life Insurance Co Seed Account & Beneficial
One Nationwide Plaza
c/o Investment Accounting
Attn Pam Smith 1-32-05
Columbus, Ohio 43215-2239
- ----------------------------------------------------------------------------------------------------
Separate account of
Nationwide Life and Annuity Insurance Equity Index Portfolio 76% Record
Company
CO 68 c/o IPO
PO Box 182029
Columbus, Ohio 43218-2029
- ----------------------------------------- --------------------------------------- ------------------- -------------------
</TABLE>
As of January 18, 1999, the Trust believes that the trustees and
officers of the Trust, as a group, owned less than 1% of the shares of any
Portfolio of the Trust.
CALCULATION OF PERFORMANCE DATA
The Portfolios may quote their performance in various ways. All
performance information supplied by the Portfolios in advertising is historical
and is not intended to indicate future returns. The Portfolios' share prices,
yields and total returns fluctuate in response to market conditions and other
factors, and the value of Portfolio shares when redeemed may be more or less
than their original cost.
48
<PAGE> 109
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 Portfolios. Performance information contained in advertisements
includes the effect of deducting a Portfolio's expenses, but may not include
charges and expenses attributable to the variable annuity, variable life or
pension/retirement plan through which you have made your investment (a "Funding
Vehicle"). Because the Portfolios' shares may only be purchased through a
Funding Vehicle, you should carefully review your insurance contracts for
information on fees and expenses associated with the Funding Vehicle through
which your shares have been purchased. Excluding such fees and expenses from the
Portfolios' performance quotations has the effect of increasing the performance
quoted.
A Portfolio'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 Portfolio for each of the periods shown. Total return for a
Portfolio 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 Portfolio'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 Portfolio's
quality, composition, and maturity, as well as expenses allocated to the
Portfolio.
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 Portfolios. 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. 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 Portfolios 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 Portfolios 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 Portfolios 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.
49
<PAGE> 110
The Portfolios 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 Portfolios 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.
The average annual total return for the one year ended December 31,
1998 and for the life of each Portfolio was as follows:
<TABLE>
<CAPTION>
Date Portfolio
One Year Life Commenced Operation
-------- ---- -------------------
<S> <C> <C> <C>
Bond Portfolio 8.66% 10.21% 5/1/97
Government Bond Portfolio 7.32% 7.87% 8/1/94
Balanced Portfolio 19.09% 16.32% 8/1/94
Mid Cap Growth Portfolio 38.82% 23.13% 8/1/94
Large Cap Growth Portfolio 41.27% 25.34% 8/1/94
Equity Index Portfolio -- 10.52% 5/1/98
Diversified Equity Portfolio 13.10% 20.31% 3/30/95
Diversified Mid Cap Portfolio 4.91% 17.47% 3/30/95
Mid Cap Value Portfolio -3.31% 7.65% 5/1/97
</TABLE>
The 30 day yield for the Portfolios listed below is as follows:
30 Day Yield @ 12/31/98
Bond Portfolio 4.89%
---------------------------------------------------------
Government Bond Portfolio 5.24%
---------------------------------------------------------
Balanced Portfolio 1.99%
---------------------------------------------------------
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. This 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 Portfolios' Prospectus and in this Statement of
Additional Information, "assets belonging to a Portfolio" means the
consideration received by the Trust upon the issuance or sale of Shares in that
Portfolio, 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 Portfolios or payments derived from any
reinvestment of such proceeds, and any general assets of the Trust not readily
identified as belonging to a particular Portfolio that are allocated to that
Portfolio 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 Portfolios will be the relative net asset values of
the respective Portfolios at the time of allocation. Each Portfolio's direct
liabilities and expenses will be charged to the assets belonging to that
Portfolio. Each Portfolio 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
50
<PAGE> 111
to particular Portfolios will be determined by the Board of Trustees of the
Trust and will be in accordance with generally accepted accounting principles.
Determinations by the Board of Trustees of the Trust as to the timing of the
allocation of general liabilities and expenses and as to the timing and
allocable portion of any general assets with respect to a particular Portfolio
are conclusive.
As used in the Portfolios' Prospectuses and in this Statement of
Additional Information, a "vote of a majority of the outstanding Shares" of the
Trust, a particular Portfolio, or a particular class of Shares of a Portfolio,
means the affirmative vote of the lesser of (a) more than 50% of the outstanding
Shares of the Trust, such Portfolio, or such class of Shares of such Portfolio,
or (b) 67% or more of the Shares of the Trust, such Portfolio, or such class of
Shares of such Portfolio present at a meeting at which the holders of more than
50% of the outstanding Shares of the Trust, such Portfolio, or such class of
Shares of such Portfolio 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 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.
Financial Statements for the Portfolios will be inserted into the
Statement of Additional Information in a subsequent filing made pursuant to Rule
485b.
51
<PAGE> 112
PART C
OTHER INFORMATION
ITEM 23. EXHIBITS
(a) Amended Declaration of Trust dated November 19,
1998 is incorporated by reference to Post-Effective
Amendment No. 8 to the Registrant's registration
statement on Form N-1A, filed October 7, 1998.
(b) 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.
(c) None
(d)(1) 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.
(d)(2) Amended Appendix A to the Investment Advisory
Agreement, dated November 19, 1998, is incorporated
by reference to Post-Effective Amendment No. 8 to
the Registrant's registration statement on Form
N-1A, filed October 7, 1998.
(e) None
(f) Deferred Compensation Plan for Trustees of The One
Group Investment Trust is filed herewith.
(g)(1) 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.
(g)(2) Subcustodian Agreement for The One Group
Investment Trust between State Street Bank and Trust
Company, Bank One Trust Company, N.A. and the
Registrant dated as of June 11, 1998 is incorporated
by reference to Post-Effective Amendment No. 8 to
the Registrant's registration statement on Form
N-1A, filed October 7, 1998.
(h)(1) Transfer and Dividend Disbursing Agent Agreement
between Registrant and Nationwide Investors
Services, Inc., is incorporated by reference to
Pre-Effective Amendment No. 1 to the Registrant's
registration statement on Form N-1A, filed on May
26, 1994.
(h)(2) Amended Appendix A to the Transfer and Dividend
Disbursing Agent Agreement, dated November 19, 1998,
is incorporated by reference to Post-Effective
Amendment No. 8 to the Registrant's registration
statement on Form N-1A, filed October 7, 1998.
(h)(3) Amended and Restated Fund Participation
Agreement among the Registrant, Nationwide Life and
Annuity Insurance Company, and Nationwide Advisory
Services, Inc. is dated as of May 20, 1998 is
incorporated by reference to Post-Effective
Amendment No. 8 to the Registrant's registration
statement on Form N-1A, filed October 7, 1998.
(h)(4) Amended Appendix A to the Fund Participation
Agreement dated November 19, 1998 is incorporated by
reference to Post-Effective Amendment No. 8 to the
Registrant's registration statement on Form N-1A,
filed October 7, 1998.
(h)(5) Amended and Restated Administrative Services
<PAGE> 113
Agreement between Registrant and Nationwide Advisory
Services, Inc. dated November 19, 1998, is
incorporated by reference to Post-Effective
Amendment No. 8 to the Registrant's registration
statement on Form N-1A, filed October 7, 1998.
(h)(6) Securities Lending Agreement for The One Group
Investment Trust between the Registrant, Banc One
Investment Advisors Corporation, and Bank One Trust
Company, N.A. dated as of June 15, 1998 is
incorporated by reference to Post-Effective
Amendment No. 8 to the Registrant's registration
statement on Form N-1A, filed October 7, 1998.
(i) Opinion of Ropes & Gray is filed herewith.
(j)(1) Consent of Ropes & Gray is filed herewith.
(j)(2) Consent of PricewaterhouseCoopers LLP, Independent
Accountants is filed herewith.
(k) None
(l) None
(m) None
(n) To be filed by subsequent filing pursuant to Rule
485(b)
(o) None
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 24. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT As of
the effective date of this Registration Statement, there are no persons
controlled or under common control with the Registrant.
ITEM 25. 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
<PAGE> 114
(including without limitation the failure to compel in any way any
former or acting Trustee to redress any breach of trust) except for his
own bad faith, willful misfeasance, gross negligence or reckless
disregard of his duties.
(a) Subject to the exceptions and limitations contained in
paragraph (b) below:
(i) every person who is or has been a Trustee or officer of
the Trust shall be indemnified by the Trust against all liability and
against all expenses reasonably incurred or paid by him in connection
with any claim, action, suit or proceeding in which he becomes involved
as a party or otherwise by virtue of his being or having been a Trustee
or officer and against amounts paid or incurred by him in the
settlement thereof:
(ii) the words "claim," "action," "suit" or "proceeding" shall
apply to all claims, actions, suits or proceedings (civil, criminal, or
other, including appeals), actual or threatened; and the words
"liability" and "expenses" shall include, without limitation,
attorneys' fees, costs, judgments, amounts paid in settlement, fines,
penalties and other liabilities.
(b) No indemnification shall be provided hereunder to a Trustee or
officer:
(i) against any liability to the Trust or the Shareholders by
reason of a final adjudication by the court or other body before which
the proceeding was brought that he engaged in willful misfeasance, bad
faith, gross negligence or reckless disregard of the duties involved in
the conduct of his office;
(ii) with respect to any matter as to which he shall have been
finally adjudicated not to have acted in good faith in the reasonable
belief that his action was in the best interest of the Trust:
(iii) in the event of a settlement of other disposition not
involving a final adjudication as provided in paragraphs (b) (i) or (b)
(ii) resulting in a payment by a Trustee or officer, unless there has
been either a determination that such Trustee or officer did not engage
in willful misfeasance, bad faith, gross negligence or reckless
disregard of the duties involved in the conduct of his office by the
court or other body approving the settlement or other 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
<PAGE> 115
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 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
<PAGE> 116
the Act and will be governed by the final adjudication of such issue.
ITEM 26. 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, 1998, the Advisor, an indirect wholly-owned subsidiary of
BANK ONE CORPORATION, a bank holding company located in the state of,
Illinois, managed over $54 billion in assets. BANK ONE CORPORATION has
affiliate banking organizations in Arizona, Colorado, Illinois,
Indiana, Kentucky, Louisiana, Michigan, Ohio, Oklahoma, Texas, Utah,
West Virginia and Wisconsin. In addition, BANK ONE CORPORATION has
several affiliates that engage in data processing, venture capital,
investment and merchant banking, and other diversified services
including trust management, investment management, brokerage, equipment
leasing, mortgage banking, consumer finance, and insurance.
To the knowledge of Registrant, none of the directors or officers of
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.
BANC ONE INVESTMENT ADVISORS CORPORATION
<TABLE>
<CAPTION>
POSITION WITH
BANC ONE INVESTMENT OTHER SUBSTANTIAL TYPE OF
ADVISORS CORPORATION OCCUPATION BUSINESS
- -------------------- ---------- --------
<S> <C> <C>
David J. Kundert Chairman, Bank One Trust Investment
Chairman & CEO Company, NA, 100 East Broad Street, Advisor
Columbus, Ohio 43215
Frederick L. Cullen Chairman/CEO, Bank One Banking
Director NA; Chairman and ,
Chief Operating Officer,
Banc One Ohio Corporation
100 East Broad Street, Columbus,
Ohio 43215
Garrett Jamison President & Chief Executive Banking
Director Officer, Bank One Trust Company,
NA, 100 East Broad Street, Columbus,
Ohio 43215
Geoffrey von Kuhn Vice Chairman Investment
Director Banc One Capital Corporation Banking
150 East Gay Street, Columbus,
Ohio 43215
David R. Meuse Chairman/CEO Banc One Investment
Director Capital Holding Corporation Banking
150 East Gay Street, Columbus,
Ohio 43215
</TABLE>
ITEM 27. PRINCIPAL UNDERWRITER
Not applicable.
<PAGE> 117
ITEM 28. LOCATION OF ACCOUNTS AND RECORDS
Trust Agreements, Bylaws and Minute Books:
Alan G. Priest
Ropes & Gray
One Franklin Square
1301 K Street, N.W.
Suite 800 East
Washington, D.C. 20005-3333
Records relating to investment advisory services:
Banc One Investment Advisors Corporation
1111 Polaris Parkway, Suite 100
Columbus, OH 43271-0211
All other Accounts and Records:
Christopher A. Cray
Nationwide Advisory
Services, Inc.
Three Nationwide Plaza
Columbus, OH 43215
ITEM 29. MANAGEMENT SERVICES
All management-related service contracts entered into by Registrant are
discussed in Parts A and B of this Registration Statement.
ITEM 30. UNDERTAKINGS
None
<PAGE> 118
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933 AND THE
INVESTMENT COMPANY ACT OF 1940, AS AMENDED, THE REGISTRANT 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 WASHINGTON, DISTRICT OF
COLUMBIA ON THE 27th DAY OF JANUARY, 1999.
ONE GROUP(R) INVESTMENT TRUST (Registrant)
/s/James F. Laird, Jr. *
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 27th DAY OF
JANUARY, 1999.
SIGNATURE TITLE
--------- -----
/S/PETER C. MARSHALL* Trustee
Peter C. Marshall
/S/CHARLES I. POST* Trustee
Charles I. Post
/S/FREDERICK W. RUEBECK* Trustee
Frederick W. Ruebeck
/S/ROBERT A. ODEN JR.* Trustee
Robert A. Oden Jr.
/S/JOHN F. FINN* Trustee
John F. Finn
PRINCIPAL EXECUTIVE OFFICER/PRINCIPAL ACCOUNTING AND FINANCIAL OFFICER
JAMES F. LAIRD, JR.* President
James F. Laird, Jr. and Treasurer
*By ALAN PRIEST
Alan Priest
Attorney-in-fact, pursuant to powers of attorney filed herewith.
<PAGE> 119
POWER OF ATTORNEY
-----------------
Frederick W. Ruebeck, whose signature appears below, does hereby
constitute and appoint Martin E. Lybecker, Alan G. Priest, and Alyssa
Albertelli, each individually, his true and lawful attorneys and agents, with
power of substitution or resubstitution, to do any and all acts and things and
to execute any and all instruments which said attorneys and agents, each
individually, may deem necessary or advisable or which may be required to enable
The One Group(R) Investment Trust (the "Trust"), to comply with the Investment
Company Act of 1940, as amended, and the Securities Act of 1933, as amended
("Acts"), and any rules, regulations or requirements of the Securities and
Exchange Commission in respect thereof, in connection with the filing and
effectiveness of any and all instruments and/or documents pertaining to the
federal registration of the shares of the Trust, including specifically, but
without limiting the generality of the foregoing, the power and authority to
sign in the name and on behalf of the undersigned as a director and/or officer
of the Trust any and all amendments to the Trust's Registration Statement as
filed with the Securities and Exchange Commission under said Acts, and the
undersigned does hereby ratify and confirm all that said attorneys and agents,
or either of them, shall do or cause to be done by virtue thereof.
Dated: May 21, 1998
/s/ Frederick W. Ruebeck
------------------------
Frederick W. Ruebeck
<PAGE> 120
POWER OF ATTORNEY
-----------------
John F. Finn, whose signature appears below, does hereby constitute and
appoint Martin E. Lybecker, Alan G. Priest, and Alyssa Albertelli, each
individually, his true and lawful attorneys and agents, with power of
substitution or resubstitution, to do any and all acts and things and to execute
any and all instruments which said attorneys and agents, each individually, may
deem necessary or advisable or which may be required to enable The One Group(R)
Investment Trust (the "Trust"), to comply with the Investment Company Act of
1940, as amended, and the Securities Act of 1933, as amended ("Acts"), and any
rules, regulations or requirements of the Securities and Exchange Commission in
respect thereof, in connection with the filing and effectiveness of any and all
instruments and/or documents pertaining to the federal registration of the
shares of the Trust, including specifically, but without limiting the generality
of the foregoing, the power and authority to sign in the name and on behalf of
the undersigned as a director and/or officer of the Trust any and all amendments
to the Trust's Registration Statement as filed with the Securities and Exchange
Commission under said Acts, and the undersigned does hereby ratify and confirm
all that said attorneys and agents, or either of them, shall do or cause to be
done by virtue thereof.
Dated: May 27, 1998
/s/ John F. Finn
----------------
John F. Finn
<PAGE> 121
POWER OF ATTORNEY
-----------------
Charles I. Post, whose signature appears below, does hereby constitute
and appoint Martin E. Lybecker, Alan G. Priest, and Alyssa Albertelli, each
individually, his true and lawful attorneys and agents, with power of
substitution or resubstitution, to do any and all acts and things and to execute
any and all instruments which said attorneys and agents, each individually, may
deem necessary or advisable or which may be required to enable The One Group(R)
Investment Trust (the "Trust"), to comply with the Investment Company Act of
1940, as amended, and the Securities Act of 1933, as amended ("Acts"), and any
rules, regulations or requirements of the Securities and Exchange Commission in
respect thereof, in connection with the filing and effectiveness of any and all
instruments and/or documents pertaining to the federal registration of the
shares of the Trust, including specifically, but without limiting the generality
of the foregoing, the power and authority to sign in the name and on behalf of
the undersigned as a director and/or officer of the Trust any and all amendments
to the Trust's Registration Statement as filed with the Securities and Exchange
Commission under said Acts, and the undersigned does hereby ratify and confirm
all that said attorneys and agents, or either of them, shall do or cause to be
done by virtue thereof.
Dated: May 21, 1998
/s/ Charles I. Post
-------------------
Charles I. Post
<PAGE> 122
POWER OF ATTORNEY
-----------------
Peter C. Marshall, whose signature appears below, does hereby
constitute and appoint Martin E. Lybecker, Alan G. Priest, and Alyssa
Albertelli, each individually, his true and lawful attorneys and agents, with
power of substitution or resubstitution, to do any and all acts and things and
to execute any and all instruments which said attorneys and agents, each
individually, may deem necessary or advisable or which may be required to enable
The One Group(R) Investment Trust (the "Trust"), to comply with the Investment
Company Act of 1940, as amended, and the Securities Act of 1933, as amended
("Acts"), and any rules, regulations or requirements of the Securities and
Exchange Commission in respect thereof, in connection with the filing and
effectiveness of any and all instruments and/or documents pertaining to the
federal registration of the shares of the Trust, including specifically, but
without limiting the generality of the foregoing, the power and authority to
sign in the name and on behalf of the undersigned as a director and/or officer
of the Trust any and all amendments to the Trust's Registration Statement as
filed with the Securities and Exchange Commission under said Acts, and the
undersigned does hereby ratify and confirm all that said attorneys and agents,
or either of them, shall do or cause to be done by virtue thereof.
Dated: May 21, 1998
/s/ Peter C. Marshall
---------------------
Peter C. Marshall
<PAGE> 123
POWER OF ATTORNEY
-----------------
Robert A. Oden, Jr., whose signature appears below, does hereby
constitute and appoint Martin E. Lybecker, Alan G. Priest, and Alyssa
Albertelli, each individually, his true and lawful attorneys and agents, with
power of substitution or resubstitution, to do any and all acts and things and
to execute any and all instruments which said attorneys and agents, each
individually, may deem necessary or advisable or which may be required to enable
The One Group(R) Investment Trust (the "Trust"), to comply with the Investment
Company Act of 1940, as amended, and the Securities Act of 1933, as amended
("Acts"), and any rules, regulations or requirements of the Securities and
Exchange Commission in respect thereof, in connection with the filing and
effectiveness of any and all instruments and/or documents pertaining to the
federal registration of the shares of the Trust, including specifically, but
without limiting the generality of the foregoing, the power and authority to
sign in the name and on behalf of the undersigned as a director and/or officer
of the Trust any and all amendments to the Trust's Registration Statement as
filed with the Securities and Exchange Commission under said Acts, and the
undersigned does hereby ratify and confirm all that said attorneys and agents,
or either of them, shall do or cause to be done by virtue thereof.
Dated: May 21, 1998
/s/ Robert A. Oden, Jr.
-----------------------
Robert A. Oden, Jr.
<PAGE> 124
POWER OF ATTORNEY
James F. Laird, Jr., whose signature appears below, does hereby constitute
and appoint Martin E. Lybecker and Alan G. Priest, each individually, his true
and lawful attorneys and agents, with power of substitution or resubstitution,
to do any and all acts and things and to execute any and all instruments which
said attorneys and agents, each individually, may deem necessary or advisable
or which may be required to enable The One Group(R) Investment Trust (the
"Trust") to comply with the Investment Company Act of 1940, as amended and the
Securities Act of 1933, as amended ("Acts"), and any rules, regulations or
requirements of the Securities and Exchange Commission in respect thereof, in
connection with the filing and effectiveness of any and all instruments and/or
documents pertaining to the federal registration of the shares of the Trust,
including specifically, but without limiting the generality of the foregoing,
the power and authority to sign in the name and on behalf of the undersigned as
trustee and or officer of the Trust any and all amendments to the Trust's
Registration Statement as filed with the Securities and Exchange Commission
under said Acts, and the undersigned does hereby ratify and confirm all that
said attorneys and agents, or either of them, shall do or cause to be done by
virtue thereof.
Dated February 29, 1996
/s/ James F. Laird, Jr.
------------------------------
James F. Laird, Jr.
<PAGE> 125
<TABLE>
<CAPTION>
EXHIBIT INDEX DESCRIPTION
- ------------- -----------
<S> <C>
99(f) Deferred Compensation Plan for Trustees of The One Group Investment Trust
99(i) Opinion of Ropes & Gray
99(j)(1) Consent of Ropes & Gray
99(j)(2) Consent of PricewaterhouseCoopers LLP
</TABLE>
<PAGE> 1
Exhibit 99(f)
DEFERRED COMPENSATION PLAN FOR
TRUSTEES OF THE ONE GROUP(R) INVESTMENT TRUST
This Deferred Compensation Plan for Trustees ("Plan") is designed to
permit members of the Board of Trustees of The One Group Investment Trust (the
"Trust") to elect to defer the receipt of all or a portion of the compensation
earned by them as such trustees in lieu of receiving payment of such
compensation currently.
1. ELIGIBILITY. Any member of the Board of Trustees (the "Board") of the Trust
(each a "Trustee") shall be Eligible to participate in the Plan, if he or she so
elects.
2. AMOUNT OF DEFERRAL. A Trustee participating in the Plan (a "Participating
Trustee") may defer receipt of all or a specified portion of the compensation
(including fees for attending meetings) earned by such trustee for serving as a
member of the Board, or as a member of any committee of the Board of which such
trustee from time to time may be a member. Reimbursement of expenses associated
with attending meetings of the Board or committees of the Board may not be
deferred.
3. DEFERRED COMPENSATION ACCOUNT. A book entry deferred compensation account
(the "Account") shall be established in the name of each Participating Trustee.
Under the Plan, any compensation earned by a Participating Trustee will be
credited to his or her Account on the first business day after the date such
compensation otherwise would have been payable to such Participating Trustee.
4. DEFERRED COMPENSATION ACCOUNT INVESTMENT.
(a) Participating Trustees may specify Class I shares of one or more of
the funds of The One Group ("Eligible Funds") that will be used to measure the
investment performance of the Participating Trustee's Account. A Participating
Trustee may change his or her Eligible Fund selection, and exchange amounts
credited to the Participating Trustees's Account among Eligible Funds, no more
frequently then quarterly, to be effective on the first day of the following
quarter.
(b) The value of the Account will equal the amount such Account would
have had if the amount credited to it had been invested and reinvested in shares
of the designated Eligible Funds. The initial value of the amount credited to
the Account will be effected at the Eligible Fund's current net asset value as
set forth in The One Group's Declaration of Trust and currently effective
Registration Statement The Account will be credited or charged with book
adjustments representing all interest, dividends and other earnings and all
gains and losses that would have been realized had the amounts credited to the
Account actually been invested in the Eligible Funds.
(i) In the event that an Eligible Fund
combines, reclassifies or substitutes other securities by
merger, consolidation or otherwise for its outstanding shares,
the number of shares credited to the Participating Trustee's
Account shall be adjusted to preserve rights substantially
proportionate to the rights held immediately prior to such
event.
(ii) On each payable date of a dividend or
capital gains distribution declared by the Board, the Account
will be credited with amounts representing the number of full
and fractional shares of the Eligible Fund that the shares
credited to the Account would have purchased if reinvested at
the net asset value on the record date established by the
Board with respect to such dividend and/or capital gains
distribution.
1
<PAGE> 2
(c) The Plan does not obligate the Trust to purchase, hold or dispose
of any investments, and if the Trust should choose to purchase investments,
including the shares of Eligible Funds, in order to match its obligations
exactly, all such investments will continue to be part of the general assets and
property of the Trust. If the Trust purchases shares of the Eligible Funds, the
shares will be held solely in the name of the Trust. The Trust will not purchase
shares of Eligible Funds if the purchase of such shares would result in a
violation of Section 12(d)(1) of the Investment Company Act of 1940. If the
Trust purchases shares of Eligible Funds, it will vote such shares in proportion
to the votes of all other shareholders of such Eligible Fund.
5. MANNER OF ELECTING DEFERRAL.
(a) A Participating Trustee shall elect to participate in the Plan and
defer his or her compensation by completing, signing and filing with the Trust a
Notice of Election to Defer Compensation (the "Notice of Election"), a form of
which is attached to this Plan. The Notice of Election shall include:
(i) the amount of compensation to be deferred;
(ii) the name of the Eligible Fund or Funds against which
the performance of the Account is to be measured;
(iii) the manner of payment of such deferred compensation
(i.e., in a lump sum or the number of annual
installments);
(iv) the time or times of payment of such deferred
compensation; and
(v) any beneficiary designated pursuant to Section 8(c)
of the Plan.
(b) The Participating Trustee's deferred fees will be distributed
commencing on a date specified by the Participating Trustee on the Notice of
Election, which shall be no sooner than:
(i) the first business day of January of the year
following the year in which the Participating Trustee
ceases to be a trustee, and
(ii) a date one year after the deferral election.
Notwithstanding the foregoing, deferred compensation under the Plan shall be
distributed:
(i) in the event of the Participating Trustee's death, as
provided in Section 8(c) of this Plan, or
(ii) upon the occurrence of any of the following events:
1. the dissolution, liquidation , or winding up
of the Trust, whether voluntary or
involuntary;
2. the voluntary sale, conveyance or transfer
of all or substantially all of the Trust's
assets (unless the obligations of the Trust
have been assumed by another investment
company);
2
<PAGE> 3
3. the merger of the Trust into another
investment company or its consolidation with
one or more other investment companies
(unless the obligations of the Trust are
assumed by such surviving entity and the
surviving entity is another investment
company); or
4. the date on which an unforeseeable event
causing material financial hardship occurs
which is not within the Participating
Trustee's control, subject to approval by
the Plan's Administrator.
6. EFFECTIVE DATE OF DEFERRAL ELECTIONS.
(a) Any election by a trustee, or nominee for election as a trustee, to
defer compensation pursuant to the Plan shall be irrevocable from and after the
date on which such trustee's Notice of Election is filed with the Trust (except
as provided in Section 7(b) of the Plan), and shall be effective to defer such
person's compensation as a trustee as follows:
(i) as to any trustee in office on the effective date of
the Plan who files a Notice of Election no later than
60 days after such effective date, the Notice shall
be effective to defer any compensation which is
earned by such trustee after the date of the filing
of the Notice of Election;
(ii) as to any nominee for the office of trustee who has
not previously served as a trustee and who files a
Notice of Election prior to his election as a
trustee, such election to defer shall be effective to
defer any compensation which is earned by such
nominee after his election as a trustee; and
(iii) as to any other trustee, the election to defer shall
be effective to defer any compensation that is earned
from and after January 1 of the calendar year next
succeeding the year in which the Notice of Election
is filed.
(b) Any election to defer compensation made by a trustee shall continue
in effect until the Trust is notified in writing by such trustee prior to the
end of any calendar year that he or she wishes to terminate or modify such
election with respect to (and only with respect to) compensation earned after
the calendar year in which such amended Notice of Election is filed with the
Trust. Upon receipt by the Trust of such an amended Notice of Election, any
compensation earned by such trustee from and after January 1 of the calendar
year succeeding the day on which such notice was received shall be paid
currently and no longer deferred as provided in the Plan. However, any amounts
in such Participating Trustee's Account on such January 1 shall continue to be
payable in accordance with the Notice of Election (or Notices) pursuant to which
it was deferred.
(c) A Participating Trustee who has filed a Notice of Election to
terminate deferment of compensation may thereafter again file a Notice of
Election to participate pursuant to Section 6 hereof effective for the calendar
year subsequent to the calendar year in which he or she files the new Notice.
7. PAYMENT OF DEFERRED COMPENSATION.
(a) No payment may be made from any Account except as provided in this
Section.
(b) The aggregate value of a Participating Trustee's Account will be
paid in a lump sum or in installments, as specified in his or her Notice (or
Notices) of Election and at the time or times specified in the Notice (or
Notices) of Election. If installments are elected by a Participating Trustee,
the amount of
3
<PAGE> 4
the first payment shall be a fraction of the then value of such Participating
Trustee's Account, the numerator of which is one, and the denominator of which
is the total number of installments. The amount of each subsequent payment shall
be a fraction of the then value of such Participating Trustee's Account
remaining after the prior payment, the numerator of which is one and the
denominator of which is the total number of installments elected minus the
number of installments previously paid. If a lump sum is elected, payment shall
be made in the amount credited to the Participating Trustee's Account.
(c) In the event of a Participating Trustee's death before he or she
has received payment of all amounts in such Participating Trustee's Account, the
value of such Account shall be paid in accordance with the provisions of the
Plan as soon as reasonably possible to the beneficiary designated in such
Participating Trustee's Notice of Election. If such beneficiary does not survive
the Participating Trustee or no beneficiary is designated, payment of all
amounts in the Account shall be made in a lump sum to such Participating
Trustee's estate. Any beneficiary so designated by a Participating Trustee may
be changed at any time by notice in writing from such trustee to the Trust.
Payment under this subsection shall equal the amount credited to the
Participating Trustee's Account at the time of his death.
(d) Upon the occurrence of an unforeseen event causing material
financial hardship, the administrator shall distribute to the Participating
Trustee, in a single lump sum, an amount equal to the lesser of amount requested
by the Participating Trustee and amount remaining in the Account.
8. STATEMENT OF ACCOUNT the Trust will furnish each Participating Trustee with a
quarterly statement setting forth the value of such Participating Trustee's
Account as of the end of each calendar quarter and all credits to and payments
from such Account during such quarter. Such statements will be furnished no
later than 60 days after the end of each calendar quarter.
9. RIGHTS IN ACCOUNT. Credits to Accounts shall remain part of the general
assets of the Trust, shall at all times be the sole and absolute property of the
Trust and shall in no event be deemed to constitute a fund, trust or collateral
security for the payment of the deferred compensation to which trustees are
entitled from such Accounts. The right of any Participating Trustee or his
designated beneficiary or estate to receive future payment of deferred
compensation under the provisions of the Plan shall be an unsecured claim
against general assets of the Trust, if any, available at the time of payment.
10. NON-ASSIGNABILITY. No Participating Trustee, his or her designated
beneficiary or estate, nor any other person shall have the right to encumber,
pledge, sell, assign or transfer the right to receive payments under this Plan,
except by will or by the laws of descent and distribution. All such payments and
the right thereto are expressly declared to be non-assignable.
11. ADMINISTRATION. The Plan shall be administered by such officers of the Trust
as are appointed by the Chairman of the Board or, if no Chairman of the Board
has been appointed, by the President of the Trust. All Notices shall be filed
with the officers as appointed and such officers shall be responsible for
maintaining records of all Accounts and for furnishing the quarterly statements
of account provided for in Section 8 of the Plan. Such officers shall also have
the general authority to interpret, construe and implement provisions of the
Plan. Any determination by such officers shall be binding on the Participating
Trustee and shall be final and conclusive.
12. AMENDMENT OR TERMINATION. The Plan may at any time be amended, modified or
terminated by the Board. However, no amendment, modification or termination
shall adversely affect any Participating Trustee's rights in respect of amounts
theretofore credited to his or her Account.
13. EFFECTIVE DATE. This Plan shall be effective as of __________________ and
any amendments hereto shall be effective on the date of adoption thereof by the
Board.
4
<PAGE> 5
Notice of Election to Defer Compensation
Under the
Deferred Compensation Plan
for the Trustees of
The One Group Investment Trust
I hereby elect to defer compensation to which I may hereafter become
entitled, as follows (check one):
1. Effective Date:
____ (a) Compensation earned after the date of this
election
____ (b) Compensation earned after_______________.
[future date]
2. Amount Deferred:
____ (a) All Compensation
____ (b) $________________ per quarter
____ (c) Other: ________________________________
________________________________
3. Time of Payment:
____ (a) The first business day of January of the
year following the year in which I cease to
be a Trustee
____ (b) The first business day of ________________
[specify]
.
__________________________________________
[month(s) and year(s)]
4. Manner of Payments:
____ (a) Entire amount in a lump sum
____ (b) In____________________equal installments
5. Period of Election:
Subject to my further election to change or terminate it, my
election shall continue:
____ (a) Until I cease to be a Trustee
5
<PAGE> 6
____(b) Until__________________________________.
[specify date or event]
6. Designation of Beneficiary:
I hereby designate
_____________________________________of_____________________ *
as my beneficiary to receive payments in the event of my death
before payments in full hereunder have been made. In the event
that the said beneficiary predeceases me, I hereby designate
________________________of__________________________ * as
beneficiary instead.
7. Eligible Funds
I hereby elect that my Account under the Plan be considered to
be invested as follows (in multiples of [ %]):
________________________ Fund _______________%
________________________ Fund _______________%
________________________ Fund _______________%
________________________ Fund _______________%
* If more than one beneficiary is to be designated, add a page listing
the beneficiaries and specify the percentage of each payment to be
received by each beneficiary.
6
<PAGE> 7
8. Amendment or Termination:
I hereby (amend) (terminate) my written directions as
indicated in Notice of Election to Defer Compensation dated
___________________, in accordance with Section 6(b) of the
Deferred Compensation Plan and in the following manner:
__________________________________________________________
__________________________________________________________
_______________________________
[Signature of Trustee]
Date:________________
_____________________
7
<PAGE> 1
Exhibit 99(i)
ROPES & GRAY
ONE FRANKLIN SQUARE
1301 K STREET, N.W.
SUITE 800 EAST
WASHINGTON, DC 20005-3333
<TABLE>
<S> <C> <C>
ONE INTERNATIONAL PLACE 30 KENNEDY PLAZA
BOSTON, MA 02110-2624 PROVIDENCE, RI 02903-2328
(617) 951-7000 (202) 626-3900 (401) 455-4400
(617) 951-5050 FAX: (202) 626-3961 (401) 455-4401
</TABLE>
January 25, 1999
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(a)
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 updating the Trust's financial information
and formatting disclosure in "plain English."
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 units of
beneficial interest ("Shares") 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
<PAGE> 2
The One Group(R) Investment Trust
January 25, 1999
Page 2
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.
We consent to this opinion accompanying the Post-Effective Amendment
No. 10 when filed with the Commission.
Very truly yours,
/s/ Ropes & Gray
Ropes & Gray
<PAGE> 1
Exhibit 99(j)(1)
CONSENT OF COUNSEL
We hereby consent to the use of our name and to the reference to our
firm under the caption "Legal Counsel" included in or made a part of
Post-Effective Amendment No. 10 to the Registration Statement of One Group(R)
Investment Trust on Form N-1A (Nos. 33-66080 and 811-7874) under the Securities
Act of 1933, as amended.
/s/ ROPES & GRAY
ROPES & GRAY
Washington, D.C.
January 25, 1999
<PAGE> 1
Exhibit 99(j)(2)
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the reference under the heading "Experts" in Statement of
Additional Information constituting part of this Post-Effective Amendment No. 10
to the registration statement on Form N-1A.
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
Columbus, Ohio
January 25, 1999