<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 18, 2000
Securities Act Registration No. 33--66080
Investment Company Act Registration No. 811-7874
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM N-lA
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REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 / X /
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POST-EFFECTIVE AMENDMENT NO. 13 / X /
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and
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REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT / X /
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OF 1940
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AMENDMENT NO. 15 / X /
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ONE GROUP(R)INVESTMENT TRUST
(Exact Name of Registrant as Specified in Charter)
1111 POLARIS PARKWAY, SUITE B2
COLUMBUS, OHIO 43271-0211
(Address of Principal Executive Offices)
1-800-480-4111
(Registrant's Telephone Number)
MARK S. REDMAN
1111 POLARIS PARKWAY, SUITE B2
COLUMBUS, OHIO 43271-0211
(Name and Address of Agent for Service)
Copies To:
Alan G. Priest, Esquire Jessica K. Ditullio, Esquire
Ropes & Gray Bank One Corporation
One Franklin Square 100 East Broad Street, 5th Floor
1301 K Street, N.W., Suite 800E Columbus, Ohio 43215
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)
_X_ on May 1, 2000 pursuant to paragraph (b)
___ 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:
_X_ This post-effective amendment designates a new effective date for
a previously filed post-effective amendment.
<PAGE> 2
ONE GROUP(R) INVESTMENT TRUST
PROSPECTUS
MAY 1, 2000
One Group(R) Investment Trust Bond Portfolio
One Group(R) Investment Trust Government Bond Portfolio
One Group(R) Investment Trust Balanced Portfolio
One Group(R) Investment Trust Large Cap Growth Portfolio
One Group(R) Investment Trust Equity Index Portfolio
One Group(R) Investment Trust Diversified Equity Portfolio
One Group(R) Investment Trust Mid Cap Growth Portfolio
One Group(R) Investment Trust Diversified Mid Cap Portfolio
One Group(R) Investment Trust Mid Cap Value Portfolio
THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED OR DISAPPROVED 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> 3
TABLE OF
CONTENTS
<TABLE>
<C> <S>
FUND SUMMARIES: INVESTMENTS, RISK & PERFORMANCE
One Group Investment Trust Bond Portfolio 2
---------
One Group Investment Trust Government Bond Portfolio 5
---------
One Group Investment Trust Balanced Portfolio 8
---------
One Group Investment Trust Large Cap Growth Portfolio 11
---------
One Group Investment Trust Equity Index Portfolio 13
---------
One Group Investment Trust Diversified Equity Portfolio 15
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One Group Investment Trust Mid Cap Growth Portfolio 17
---------
One Group Investment Trust Diversified Mid Cap Portfolio 19
---------
One Group Investment Trust Mid Cap Value Portfolio 21
---------
</TABLE>
<TABLE>
<C> <S>
MORE ABOUT THE PORTFOLIOS
Principal Investment Strategies 23
---------
Types of Portfolios 23
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One Group Investment Trust 23
---------
Investment Risks 27
---------
Investment Policies 28
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Temporary Defensive Positions 29
---------
Portfolio Turnover 30
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</TABLE>
<TABLE>
<C> <S>
SHAREHOLDER INFORMATION
Pricing Portfolio Shares 30
---------
Purchasing Portfolio Shares 31
---------
Voting and Meetings 31
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Redeeming Portfolio Shares 31
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Dividends 32
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Questions 32
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Tax Information 32
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Qualified Plans 32
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</TABLE>
<TABLE>
<C> <S>
MANAGEMENT OF ONE GROUP INVESTMENT TRUST
The Advisor 33
---------
The Portfolio Managers 34
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</TABLE>
<TABLE>
<C> <S>
FINANCIAL HIGHLIGHTS 35
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APPENDIX A: INVESTMENT PRACTICES 44
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</TABLE>
<PAGE> 4
FUND SUMMARIES
Investments, Risk & Performance
<PAGE> 5
ONE GROUP(R)
INVESTMENT TRUST
- ---------------------------
2
FUND SUMMARY: INVESTMENTS, RISK & PERFORMANCE
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.
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
asset-backed securities. Banc One Investment Advisors
analyzes four major factors in managing and constructing
the Portfolio: duration, market sector, maturity
concentrations, and individual securities. Banc One
Investment Advisors selects individual securities that
it believes will perform well over time. Banc One
Investment Advisors is value oriented and selects
individual securities after performing a risk/reward
analysis that includes an evaluation of interest rate
risk, credit risk, and structural risk. 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. 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.
For additional information on risk, please read
"Investment Risks."
MAIN RISKS
- --------------------------
Interest Rate Risk. The Portfolio mainly invests in
bonds and other debt securities. These securities will
increase or decrease in value based on changes in
interest rates. If rates increase, the value of the
Portfolio's investments generally declines. On the other
hand, if rates fall, the value of the investments
generally increases. Your investment will decline in
value if the value of the Portfolio's investments
decreases. Securities with greater interest rate
sensitivity and longer maturities tend to produce higher
yields, but are subject to greater fluctuations in
value. Usually, changes in the value of fixed income
securities will not affect cash income generated, but
may affect the value of your investment.
<PAGE> 6
- ---------------------------
Bond Portfolio
3
Credit Risk. There is a risk that issuers and
counterparties will not make payments on securities and
repurchase agreements held by the Portfolio. Such
default could result in losses to 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 the security.
Prepayment and Call Risk. As part of its main investment
strategy, the Portfolio invests in mortgage-backed and
asset-backed securities. The issuers of these securities
and other callable securities may be able to repay
principal in advance, especially when interest rates
fall. Changes in prepayment rates affect the return on
investment and yield of mortgage and asset-backed
securities. When mortgage and other obligations are
prepaid and when securities are called, the Portfolio
may have to reinvest in securities with a lower yield.
The Portfolio also may fail to recover additional
amounts paid (i.e., premiums) for securities with higher
interest rates, resulting in an unexpected capital loss.
Derivative Risk. The Portfolio invests in securities
that may be considered to be DERIVATIVES (e.g., certain
types of mortgage-backed securities, CMOs, IOs, POs, and
inverse floaters). The value of derivative securities is
dependent upon the performance of underlying assets or
securities. If the underlying assets do not perform as
expected, the value of the derivative security and your
investment in the Portfolio declines. Derivatives
generally are more volatile and are riskier in terms of
both liquidity and value than traditional investments.
Not FDIC insured. An investment in the 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
government agency.
<PAGE> 7
4
ONE GROUP(R)
INVESTMENT TRUST
- ---------------------------
Bond Portfolio
HOW HAS THE BOND
PORTFOLIO PERFORMED? By showing the variability of the Bond Portfolio's
performance from year to year, the chart and table below
help show the risk of investing in the Portfolio. The
chart and table reflect that the Bond Portfolio became
the accounting successor to the financial history of the
Pegasus Variable Bond Fund on March 31, 1999. The
returns in the bar chart and table below DO NOT reflect
insurance separate account charges. If these charges
were included, the returns would be lower than shown.
PLEASE REMEMBER THAT THE PAST PERFORMANCE OF THE BOND
PORTFOLIO IS NOT NECESSARILY AN INDICATION OF HOW THE
PORTFOLIO WILL PERFORM IN THE FUTURE.
The Bar Chart shows changes in the Portfolio's performance from year to year.
Total returns assume reinvestment of dividends and distributions.
BAR CHART (per calendar year)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
1998 8.66%
1999 -1.50%
</TABLE>
- --------------------------------------------------------------------------------
Best Quarter: 4.78% 3Q1998 Worst Quarter: -0.97% 1Q1999
- --------------------------------------------------------------------------------
The Average Annual Total Return Table shows how the Portfolio's average annual
returns for the periods indicated compare to those of a broad measure of market
performance. Average annual total returns for more than one year tend to smooth
out variations in the Portfolio's total returns and are not the same as actual
year-by-year results.
AVERAGE ANNUAL TOTAL RETURNS through December 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1 YEAR LIFE OF FUND
(since 5/1/97)
<S> <C> <C>
One Group Investment Trust Bond
Portfolio -1.50% 5.67%
----------------------------------------------------------------------
Lehman Brothers Aggregate Bond Index(1) -0.83% 6.51%
</TABLE>
(1) The Lehman Brothers Aggregate Bond Index is an
unmanaged index generally representative of the
bond market as a whole. The performance of the
index does not reflect the deduction of expenses
associated with a mutual fund, such as investment
management fees. By contrast, the performance of
the Portfolio reflects the deduction of these
expenses.
<PAGE> 8
ONE GROUP(R)
INVESTMENT TRUST
- ---------------------------
5
FUND SUMMARY: INVESTMENTS, RISK & PERFORMANCE
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.
WHAT ARE THE GOVERNMENT
BOND PORTFOLIO'S MAIN
INVESTMENT STRATEGIES?The Portfolio limits its investments to securities
issued by the U.S. Government and its agencies and
instrumentalities (i.e., government bonds) or related to
securities issued by the U.S. Government and its
agencies and instrumentalities. The Portfolio mainly
invests in government bonds with intermediate to long
remaining maturities including mortgage-backed
securities. Banc One Investment Advisors is value
oriented and looks for individual securities that it
believes will perform well over market cycles. The
Government Bond Portfolio spreads its holdings across
various security types within the Government market
sector (e.g., treasuries, U.S. Government agency
securities, and agency mortgage-backed securities). Banc
One Investment Advisors selects individual securities
after performing a risk/reward analysis that includes an
evaluation of interest rate risk, credit risk, and
structural risk. 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 issued or
guaranteed by the U.S. Government or its agencies and
instrumentalities. Government bonds may include stripped
government securities and mortgage-related and
mortgage-backed securities. Certain agency securities
purchased by the Portfolio may be guaranteed only by the
credit of the issuer and not by the full faith and
credit of the U.S. Government.
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. 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. For additional
information on risk, please read "Investment Risks."
MAIN RISKS
- --------------------------
Interest Rate Risk. The Portfolio mainly invests in
bonds and other debt securities. These securities will
increase or decrease in value based on changes in
interest rates. If rates increase, the value of the
Portfolio's investments generally declines. On the other
hand, if rates fall, the value of the investments
generally increases. Your investment will decline in
value if the value of the Portfolio's investments
decreases. Securities with greater interest rate
sensitivity and longer maturities tend to produce higher
yields, but are subject to greater fluctuations in
value. Usually, changes in the value of fixed income
securities will not affect cash income generated, but
may affect the value of your investment.
<PAGE> 9
- ---------------------------
Government Bond Portfolio
6
Prepayment and Call Risk. As part of its main investment
strategy, the Portfolio invests in mortgage-backed and
asset-backed securities. The issuers of these securities
and other callable securities may be able to repay
principal in advance, especially when interest rates
fall. Changes in prepayment rates affect the return on
investment and yield of mortgage and asset-backed
securities. When mortgage and other obligations are
prepaid and when securities are called, the Portfolio
may have to reinvest in securities with a lower yield.
The Portfolio also may fail to recover additional
amounts (i.e., premiums) paid for securities with higher
interest rates, resulting in an unexpected capital loss.
Derivative Risk. The Portfolio invests in securities
that may be considered to be DERIVATIVES. The value of
derivative securities is dependent upon the performance
of underlying assets or securities. If the underlying
assets do not perform as expected, the value of the
derivative security and your investment in the Portfolio
declines. Derivatives generally are more volatile and
are riskier in terms of both liquidity and value than
traditional investments.
Not FDIC insured. An investment in the 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
government agency.
<PAGE> 10
7
ONE GROUP(R)
INVESTMENT TRUST
- ---------------------------
Government Bond Portfolio
HOW HAS THE GOVERNMENT
BOND PORTFOLIO
PERFORMED? By showing the variability of the Government Bond
Portfolio's performance from year to year, the chart and
table below help show the risk of investing in the
Portfolio. The returns in the bar chart and table below
DO NOT reflect insurance separate account charges. If
these charges were included, the returns would be lower
than shown. PLEASE REMEMBER THAT THE PAST PERFORMANCE OF
THE GOVERNMENT BOND PORTFOLIO IS NOT NECESSARILY AN
INDICATION OF HOW THE PORTFOLIO WILL PERFORM IN THE
FUTURE.
The Bar Chart shows changes in the Portfolio's performance from year to year.
Total returns assume reinvestment of dividends and distributions.
BAR CHART (per calendar year)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C>
1995 16.69%
1996 2.69%
1997 9.67%
1998 7.32%
1999 -1.31%
</TABLE>
- --------------------------------------------------------------------------------
Best Quarter: 5.00% 2Q1995 Worst Quarter: -2.05% 1Q1996
- --------------------------------------------------------------------------------
The Average Annual Total Return Table shows how the Portfolio's average annual
returns for the periods indicated compare to those of a broad measure of market
performance. Average annual total returns for more than one year tend to smooth
out variations in the Portfolio's total returns and are not the same as actual
year-by-year results.
AVERAGE ANNUAL TOTAL RETURNS through December 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1 YEAR 5 YEARS LIFE OF FUND
(since 8/1/94)
<S> <C> <C> <C>
One Group Investment Trust Government Bond
Portfolio -1.31% 6.84% 6.12%
-----------------------------------------------------------------------------------------------
Lehman Brothers Government Bond Index (1) -0.43% 7.27% 6.46%
-----------------------------------------------------------------------------------------------
Salomon Brothers 3-7 Year Treasury Index (2) -2.25% 7.43% 6.85%
</TABLE>
(1) The Lehman Brothers Government Bond Index is an
unmanaged market weighted index that encompasses
U.S. Treasury and agency securities with
maturities between 5 and 10 years. The
performance of the index does not reflect the
deduction of expenses associated with a mutual
fund, such as investment management fees. By
contrast, the performance of the Portfolio
reflects the deduction of these expenses. The
benchmark index for the Government Bond Portfolio
has been changed from the Salomon Brothers 3-7
Year Treasury Index to the Lehman Brothers
Government Bond Index in order to better
represent the investment policies of the
Portfolio for comparison purposes.
(2) The Salomon Brothers 3 to 7 Year Treasury Index
is an unmanaged index comprised of U.S.
Government agency and Treasury securities and
agency mortgage-backed securities. The
performance of the index does not reflect the
deduction of expenses associated with a mutual
fund, such as investment management fees. By
contrast, the performance of the Portfolio
reflects the deduction of these expenses.
<PAGE> 11
ONE GROUP(R)
INVESTMENT TRUST
- ---------------------------
8
FUND SUMMARY: INVESTMENTS, RISK & PERFORMANCE
Balanced Portfolio
WHAT IS THE GOAL OF THE
BALANCED PORTFOLIO? The Portfolio seeks to provide total return while
preserving capital.
WHAT ARE THE BALANCED
PORTFOLIO'S MAIN
INVESTMENT STRATEGIES?The Portfolio invests in a combination of stocks
(including both growth and value securities), fixed
income securities and money market instruments. Banc One
Investment Advisors will regularly review the
Portfolio'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. 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. For additional information on risk,
please read "Investment Risks."
MAIN RISKS
- --------------------------
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 Portfolio decreases in value.
Interest Rate Risk. In connection with the Portfolio's
fixed income strategy, the Portfolio invests in bonds
and other debt securities. These securities will
increase or decrease in value based on changes in
interest rates. If rates increase, the value of the
Portfolio's investments generally declines. On the other
hand, if rates fall, the value of the investments
generally increases. Your investment will decline in
value if the value of the Portfolio's investments
decrease. Securities with greater interest rate
sensitivity and longer maturities tend to produce higher
yields, but are subject to greater fluctuations in
value. Usually, changes in the value of fixed income
securities will not affect cash income generated, but
may affect the value of your investment.
<PAGE> 12
- ---------------------------
Balanced Portfolio
9
Credit Risk. There is a risk that issuers and
counterparties will not make payments on securities and
repurchase agreements held by the Portfolio. Such
default could result in losses to 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 the security.
Derivative Risk. The Portfolio invests in securities
that may be considered to be DERIVATIVES. The value of
derivative securities is dependent upon the performance
of underlying assets or securities. If the underlying
assets do not perform as expected, the value of the
derivative security and your investment in the Portfolio
declines. Derivatives may be more volatile and are
riskier in terms of both liquidity and value than
traditional investments.
Prepayment and Call Risk. As part of its fixed income
strategy, the Portfolio invests in mortgage-backed and
asset-backed securities. 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 prepayment rates can
affect the return on investment and yield of mortgage
and asset-backed securities. When mortgage and other
obligations are prepaid and when securities are called,
the Portfolio may have to reinvest in securities with a
lower yield. The Portfolio may also fail to recover
additional amounts (i.e. premiums) paid for securities
with higher interest rates, resulting in an unexpected
capital loss.
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
government agency.
<PAGE> 13
10
ONE GROUP(R)
INVESTMENT TRUST
- ---------------------------
Balanced Portfolio
HOW HAS THE BALANCED
PORTFOLIO PERFORMED? By showing the variability of the Balanced Portfolio's
performance from year to year, the chart and table below
help show the risk of investing in the Portfolio. The
returns in the bar chart and table below DO NOT reflect
insurance separate account charges. If these charges
were included, the returns would be lower than shown.
PLEASE REMEMBER THAT THE PAST PERFORMANCE OF THE
BALANCED PORTFOLIO IS NOT NECESSARILY AN INDICATION OF
HOW THE PORTFOLIO WILL PERFORM IN THE FUTURE.
The Bar Chart shows changes in the Portfolio's performance from year to year.
Total returns assume reinvestment of dividends and distributions.
BAR CHART (per calendar year)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C>
1995 20.69%
1996 11.92%
1997 22.90%
1998 19.09%
1999 8.20%
</TABLE>
- --------------------------------------------------------------------------------
Best Quarter: 11.84% 2Q1997 Worst Quarter: -3.63% 3Q1998
- --------------------------------------------------------------------------------
The Average Annual Total Return Table shows how the Portfolio's average annual
returns for the periods indicated compare to those of a broad measure of market
performance. Average annual total returns for more than one year tend to smooth
out variations in the Portfolio's total returns and are not the same as actual
year-by-year results.
AVERAGE ANNUAL TOTAL RETURNS through December 31,
1999(1)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1 YEAR 5 YEARS LIFE OF FUND
(since 8/1/94)
<S> <C> <C> <C>
One Group Investment Trust Balanced
Portfolio 8.20% 16.43% 14.79%
------------------------------------------------------------------------------------
S&P 500 Index(2) 21.04% 28.56% 27.39%
------------------------------------------------------------------------------------
Lehman Brothers Intermediate
Government/Corporate Bond Index(3) 0.39% 7.09% 6.59%
------------------------------------------------------------------------------------
Lipper Balanced Funds Index(4) 5.64% 14.32% 13.44%
</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, broad-based index (i.e., the S&P 500
Index) as well as supplemental indices for the
periods indicated.
(2) The S&P 500 Index is an unmanaged index generally
representative of the performance of large
companies in the U.S. stock market. The
performance of the index does not reflect the
deduction of expenses associated with a mutual
fund, such as investment management fees. By
contrast, the performance of the Portfolio
reflects the deduction of these expenses.
(3) The Lehman Brothers Intermediate
Government/Corporate Bond Index is an unmanaged
market weighted index which encompasses U.S.
Treasury and agency securities and investment
grade corporate and international
(dollar-denominated) bonds, with maturities
between 5 and 10 years. The performance of the
index does not reflect the deduction of expenses
associated with a mutual fund, such as investment
management fees. By contrast, the performance of
the Portfolio reflects the deduction of these
expenses.
(4) The Lipper Balanced Funds Index is an index of
funds whose primary objective is to conserve
principal by maintaining at all times a balanced
portfolio of both stocks and bonds. Unlike the
indices shown above, the performance of the index
reflects the deduction of expenses associated
with mutual funds, such as investment management
fees. These expenses are not identical to the
expenses charged by the Portfolio.
<PAGE> 14
ONE GROUP(R)
INVESTMENT TRUST
- ---------------------------
11
FUND SUMMARY: INVESTMENTS, RISK & PERFORMANCE
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.
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. The share
price of the Large Cap Growth Portfolio will change
every day in response to market conditions. You may lose
money if you invest in the Large Cap Growth Portfolio.
For additional information on risk, please read
"Investment Risks."
MAIN RISKS
- --------------------------
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
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.
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
government 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.
<PAGE> 15
12
- ---------------------------
Large Cap Growth Portfolio
HOW HAS THE LARGE CAP
GROWTH PORTFOLIO
PERFORMED? By showing the variability of the Large Cap Growth
Portfolio's performance from year to year, the chart and
table below help show the risk of investing in the
Portfolio. The returns in the bar chart and table below
DO NOT reflect insurance separate account charges. If
these charges were included, the returns would be lower
than shown. PLEASE REMEMBER THAT THE PAST PERFORMANCE OF
THE LARGE CAP GROWTH PORTFOLIO IS NOT NECESSARILY AN
INDICATION OF HOW THE PORTFOLIO WILL PERFORM IN THE
FUTURE.
The Bar Chart shows changes in the Portfolio's performance from year to year.
Total returns assume reinvestment of dividends and distributions.
BAR CHART (per calendar year)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
1995 24.13%
1996 16.67%
1997 31.93%
1998 41.27%
1999 29.26%
</TABLE>
- --------------------------------------------------------------------------------
Best Quarter: 23.96% 4Q1998 Worst Quarter: -6.79% 3Q1998
- --------------------------------------------------------------------------------
The Average Annual Total Return Table shows how the Portfolio's average annual
returns for the periods indicated compare to those of a broad measure of market
performance. Average annual total returns for more than one year tend to smooth
out variations in the Portfolio's total returns and are not the same as actual
year-by-year results.
AVERAGE ANNUAL TOTAL RETURNS through December 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1 YEAR 5 YEARS LIFE OF FUND
(since 8/1/94)
<S> <C> <C> <C>
One Group Investment Trust Large Cap
Growth Portfolio 29.26% 28.39% 26.07%
---------------------------------------------------------------------------------------
Russell 1000 Index (1) 33.16% 32.42% 30.74%
---------------------------------------------------------------------------------------
S&P 500/BARRA Growth Index (2) 28.25% 33.64% 32.91%
</TABLE>
(1) The Russell 1000 Index is an unmanaged index
representing the performance of those Russell
1000 companies with higher price-to-book ratios
and higher forecasted growth values. The
performance of the index does not reflect the
deduction of expenses associated with a mutual
fund, such as investment management fees. By
contrast, the performance of the Portfolio
reflects the deduction of these expenses. The
benchmark index for the Large Cap Growth
Portfolio has been changed from the S&P 500/BARRA
Growth Index to the Russell 1000 index in order
to better represent the investment policies of
the Portfolio for comparison purposes.
(2) The S&P 500/BARRA Growth Index is an unmanaged
index representing the performance of those
companies in the S&P 500 Index with the highest
price to book ratios. The performance of the
index does not reflect the deduction of expenses
associated with a mutual fund, such as investment
management fees. By contrast, the performance of
the Portfolio reflects the deduction of these
expenses.
<PAGE> 16
ONE GROUP(R)
INVESTMENT TRUST
- ---------------------------
13
FUND SUMMARY: INVESTMENTS, RISK & PERFORMANCE
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)
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 and other equity derivatives. 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 Portfolio and that of the
S&P 500 Index without taking into account the
Portfolio's expenses. 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. 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. For
additional information on risk, please read "Investment
Risks."
MAIN RISKS
- --------------------------
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.
Market Risk. The Portfolio invests in equity securities
(such as stocks) that are more volatile and carry more
risks than 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.
Derivative Risk. The Portfolio invests in securities
that may be considered to be DERIVATIVES. The value of
derivative securities is dependent upon the performance
of underlying assets or securities. If the underlying
assets do not perform as expected, the value of the
derivative security and your investment in the Portfolio
declines. Derivatives generally are more volatile and
are riskier in terms of both liquidity and value than
traditional investments.
Not FDIC insured. An investment in the 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
government 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.
<PAGE> 17
14
- ---------------------------
Equity Index Portfolio
HOW HAS THE EQUITY INDEX
PORTFOLIO PERFORMED? By showing the variability of the Equity Index
Portfolio's performance from year to year, the chart and
table below help show the risk of investing in the
Portfolio. The returns in the bar chart and table below
DO NOT reflect insurance separate account charges. If
these charges were included, the returns would be lower
than shown. PLEASE REMEMBER THAT THE PAST PERFORMANCE OF
THE EQUITY INDEX PORTFOLIO IS NOT NECESSARILY AN
INDICATION OF HOW THE PORTFOLIO WILL PERFORM IN THE
FUTURE.
The Bar Chart shows changes in the Portfolio's performance from year to year.
Total returns assume reinvestment of dividends and distributions.
BAR CHART (per calendar year)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C>
1999 21.11%
</TABLE>
- --------------------------------------------------------------------------------
Best Quarter: 14.61% 4Q1999 Worst Quarter: -6.09% 3Q1999
- --------------------------------------------------------------------------------
The Average Annual Total Return Table shows how the Portfolio's average annual
returns for the periods indicated compare to those of a broad measure of market
performance. Average annual total returns for more than one year tend to smooth
out variations in the Portfolio's total returns and are not the same as actual
year-by-year results.
AVERAGE ANNUAL TOTAL RETURNS through December 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1 YEAR LIFE OF FUND
(since 5/1/98)
<S> <C> <C>
One Group Investment Trust Equity Index
Portfolio 21.11% 19.09%
-------------------------------------------------------------------------
S&P 500 Index(1) 21.04% 22.22%
</TABLE>
(1) The S&P 500 Index is an unmanaged index generally
representative of the performance of large
companies in the U.S. stock market. The
performance of the index does not reflect the
deduction of expenses associated with a mutual
fund, such as investment management fees. By
contrast, the performance of the Portfolio
reflects the deduction of these expenses.
<PAGE> 18
ONE GROUP(R)
INVESTMENT TRUST
- ---------------------------
15
FUND SUMMARY: INVESTMENTS, RISK & PERFORMANCE
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.
WHAT ARE THE DIVERSIFIED
EQUITY PORTFOLIO'S MAIN
INVESTMENT STRATEGIES?The Portfolio invests mainly in common stocks of
companies that have good fundamentals and reasonable
valuations with the potential for continued 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. 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.
For additional information on risk, please read
"Investment Risks."
MAIN RISKS
- --------------------------------
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.
Smaller Companies. Investments in smaller, newer
companies may be riskier than investments in larger,
more established companies. Securities of smaller
companies tend to be less liquid than securities of
larger companies. In addition, 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
government agency.
<PAGE> 19
16
- ---------------------------
Diversified Equity Portfolio
HOW HAS THE DIVERSIFIED
EQUITY PORTFOLIO
PERFORMED? By showing the variability of the Diversified Equity
Portfolio's performance from year to year, the chart and
table below help show the risk of investing in the
Portfolio. The chart and table reflect that the
Diversified Equity Portfolio became the accounting
successor to the financial history of the Pegasus
Variable Growth and Value Fund on March 31, 1999. The
returns in the bar chart and table below DO NOT reflect
insurance separate account charges. If these charges
were included, the returns would be lower than shown.
PLEASE REMEMBER THAT THE PAST PERFORMANCE OF THE
DIVERSIFIED EQUITY PORTFOLIO IS NOT NECESSARILY AN
INDICATION OF HOW THE PORTFOLIO WILL PERFORM IN THE
FUTURE.
The Bar Chart shows changes in the Portfolio's performance from year to year.
Total returns assume reinvestment of dividends and distributions.
BAR CHART (per calendar year)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C>
1996 18.75%
1997 26.80%
1998 13.10%
1999 9.13%
</TABLE>
- --------------------------------------------------------------------------------
Best Quarter: 15.80% 4Q1998 Worst Quarter: -9.92% 3Q1998
- --------------------------------------------------------------------------------
The Average Annual Total Return Table shows how the Portfolio's average annual
returns for the periods indicated compare to those of a broad measure of market
performance. Average annual total returns for more than one year tend to smooth
out variations in the Portfolio's total returns and are not the same as actual
year-by-year results.
AVERAGE ANNUAL TOTAL RETURNS through December 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1 YEAR LIFE OF FUND
(since 3/30/95)
<S> <C> <C>
One Group
Investment Trust
Diversified
Equity Portfolio 9.13% 17.88%
---------------------------------------------------
S&P SuperComposite
1500 Index(1) 20.25% 28.70%
</TABLE>
(1) The S&P SuperComposite 1500 Index is an unmanaged
index consisting of those stocks making up the
S&P 500, S&P MidCap 400 and S&P SmallCap 600
Indices representing approximately 87% of the
total U.S. equity market capitalization. The
performance of the index does not reflect the
deduction of expenses associated with a mutual
fund, such as investment management fees. By
contrast, the performance of the Portfolio
reflects the deduction of these expenses.
<PAGE> 20
ONE GROUP(R)
INVESTMENT TRUST
- ---------------------------
17
FUND SUMMARY: INVESTMENTS, RISK & PERFORMANCE
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.
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. The Portfolio
typically invests in mid cap companies with market
capitalizations of $500 million to $10 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. 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. For
additional information on risk, please read "Investment
Risks."
MAIN RISKS
- --------------------------------
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. Securities of smaller
companies tend to be less liquid than securities of
larger companies. In addition, 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
government agency.
<PAGE> 21
18
- ---------------------------
Mid Cap Growth Portfolio
HOW HAS THE MID CAP
GROWTH PORTFOLIO
PERFORMED? By showing the variability of the Mid Cap Growth
Portfolio's performance from year to year, the chart and
table below help show the risk of investing in the
Portfolio. The returns in the bar chart and table below
DO NOT reflect insurance separate account charges. If
these charges were included, the returns would be lower
than shown. PLEASE REMEMBER THAT THE PAST PERFORMANCE OF
THE MID CAP GROWTH PORTFOLIO IS NOT NECESSARILY AN
INDICATION OF HOW THE PORTFOLIO WILL PERFORM IN THE
FUTURE.
The Bar Chart shows changes in the Portfolio's performance from year to year.
Total returns assume reinvestment of dividends and distributions.
BAR CHART (per calendar year)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C>
1995 24.06%
1996 15.67%
1997 29.81%
1998 38.82%
1999 25.42%
</TABLE>
- --------------------------------------------------------------------------------
Best Quarter: 40.10% 4Q1998 Worst Quarter: -14.67% 3Q1998
- --------------------------------------------------------------------------------
The Average Annual Total Return Table shows how the Portfolio's average annual
returns for the periods indicated compare to those of a broad measure of market
performance. Average annual total returns for more than one year tend to smooth
out variations in the Portfolio's total returns and are not the same as actual
year-by-year results.
AVERAGE ANNUAL TOTAL RETURNS through December 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1 YEAR 5 YEARS LIFE OF FUND
(Since 8/1/94)
<S> <C> <C> <C>
One Group Investment
Trust Mid Cap Growth
Portfolio 25.42% 26.53% 23.56%
---------------------------------------------------------------------
S&P Mid Cap 400/BARRA
Growth Index(1) 28.74% 27.80% 27.05%
</TABLE>
(1) The S&P Mid Cap 400/BARRA Growth Index is an
unmanaged index representing the performance of
the highest price to book securities in the S&P
Mid Cap 400 Index. The performance of the index
does not reflect the deduction of expenses
associated with a mutual fund, such as investment
management fees. By contrast, the performance of
the Portfolio reflects the deduction of these
expenses.
<PAGE> 22
ONE GROUP(R)
INVESTMENT TRUST
- ---------------------------
19
FUND SUMMARY: INVESTMENTS, RISK & PERFORMANCE
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.
WHAT ARE THE DIVERSIFIED
MID CAP PORTFOLIO'S
MAIN INVESTMENT
STRATEGIES? The Portfolio invests mainly in equity securities of mid
cap companies. Mid cap companies are defined as
companies with market capitalizations of $500 million to
$10 billion. The Portfolio looks for companies of this
size with strong growth potential, stable market share,
and an ability to quickly respond to new business
opportunities. In choosing securities, the Portfolio
invests 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. 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. For additional information on risk, please
read "Investment Risks."
MAIN RISKS
- --------------------------
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. Securities of smaller
companies tend to be less liquid than securities of
larger companies. In addition, 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
government agency.
<PAGE> 23
20
- ---------------------------
Diversified Mid Cap Portfolio
HOW HAS THE DIVERSIFIED
MID CAP PORTFOLIO
PERFORMED? By showing the variability of the Diversified Mid Cap
Portfolio's performance from year to year, the chart and
table below help show the risk of investing in the
Portfolio. The chart and table reflect that the
Diversified Mid Cap Portfolio became the accounting
successor to the financial history of the Pegasus
Variable Mid-Cap Opportunity Fund on March 31, 1999. The
returns in the bar chart and table below DO NOT reflect
insurance separate account charges. If these charges
were included, the returns would be lower than shown.
PLEASE REMEMBER THAT THE PAST PERFORMANCE OF THE
DIVERSIFIED MID CAP PORTFOLIO IS NOT NECESSARILY AN
INDICATION OF HOW THE PORTFOLIO WILL PERFORM IN THE
FUTURE.
The Bar Chart shows changes in the Portfolio's performance from year to year.
Total returns assume reinvestment of dividends and distributions.
BAR CHART (per calendar year)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C>
1996 24.53%
1997 26.65%
1998 4.91%
1999 10.50%
</TABLE>
%------------------------------------------------------------------------------
Best Quarter: 22.38% 4Q1998 Worst Quarter: -20.05% 3Q1998
- -------------------------------------------------------------------------------
The Average Annual Total Return Table shows how the Portfolio's average annual
returns for the periods indicated compare to those of a broad measure of market
performance. Average annual total returns for more than one year tend to smooth
out variations in the Portfolio's total returns and are not the same as actual
year-by-year results.
AVERAGE ANNUAL TOTAL RETURNS through December 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1 YEAR LIFE OF FUND
(Since 3/30/95)
<S> <C> <C>
One Group Investment Trust Diversified
Mid Cap Portfolio 10.50% 15.98%
--------------------------------------------------------------------------
S&P Mid Cap 400 Index(1) 14.72% 23.24%
</TABLE>
(1) The S&P Mid Cap 400 Index is an unmanaged index
representing the mid-size company segment of the
U.S. market. The performance of the index does
not reflect the deduction of expenses associated
with a mutual fund, such as investment management
fees. By contrast, the performance of the
Portfolio reflects the deduction of these
expenses.
<PAGE> 24
ONE GROUP(R)
INVESTMENT TRUST
- ---------------------------
21
FUND SUMMARY: INVESTMENTS, RISK & PERFORMANCE
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.
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 $10 billion. In
choosing investments, the Portfolio considers the
issuer's soundness and earnings prospects. In seeking to
achieve the objective of capital appreciation, Banc One
Investment Advisors looks at anticipated changes that
may positively impact the value of the company such as
new products, deployment of new technologies, cost
cutting efforts and changes in management. As a
secondary consideration, Banc One Investment Advisors
looks for companies that have the potential to increase
their dividends over time. 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 may 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. 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. For additional information
on risk, please read "Investment Risks."
MAIN RISKS
- --------------------------
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 (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 Portfolio decreases in value.
Smaller Companies. The Portfolio's investments in
smaller, newer companies may be riskier than investments
in larger, more established companies. Securities of
small companies tend to be less liquid than securities
of larger companies. In addition, 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
government agency.
<PAGE> 25
22
- ---------------------------
Mid Cap Value Portfolio
HOW HAS THE MID CAP
VALUE PORTFOLIO
PERFORMED? By showing the variability of the Mid Cap Value
Portfolio's performance from year to year, the chart and
table below help show the risk of investing in the
Portfolio. The chart and table reflect that the Mid Cap
Value Portfolio became the accounting successor to the
financial history of the Pegasus Variable Intrinsic
Value Fund on March 31, 1999. The returns in the bar
chart and table below DO NOT reflect insurance separate
account charges. If these charges were included, the
returns would be lower than shown. PLEASE REMEMBER THAT
THE PAST PERFORMANCE OF THE MID CAP VALUE PORTFOLIO IS
NOT NECESSARILY AN INDICATION OF HOW THE PORTFOLIO WILL
PERFORM IN THE FUTURE.
The Bar Chart shows changes in the Portfolio's performance from year to year.
Total returns assume reinvestment of dividends and distributions.
BAR CHART (per calendar year)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C>
1998 -3.31%
1999 -1.84%
</TABLE>
- --------------------------------------------------------------------------------
Best Quarter: 11.30% 2Q1999 Worst Quarter: -14.07% 3Q1998
- --------------------------------------------------------------------------------
The Average Annual Total Return Table shows how the Portfolio's average annual
returns for the periods indicated compare to those of a broad measure of market
performance. Average annual total returns for more than one year tend to smooth
out variations in the Portfolio's total returns and are not the same as actual
year-by-year results.
AVERAGE ANNUAL TOTAL RETURNS through December 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1 YEAR LIFE OF FUND
(since 5/1/97)
<S> <C> <C>
One Group
Investment Trust
Mid Cap Value
Portfolio -1.84% 3.99%
---------------------------------------------------
S&P Mid Cap
400/BARRA Value
Index(1) 2.32% 14.64%
</TABLE>
(1) The S&P Mid Cap 400/BARRA Value Index is an
unmanaged index representing the performance of
the lowest price to book securities in the S&P
Mid Cap 400 Index. The performance of the index
does not reflect the deduction of expenses
associated with a mutual fund, such as investment
management fees. By contrast, the performance of
the Portfolio reflects the deduction of these
expenses.
<PAGE> 26
ONE GROUP(R)
INVESTMENT TRUST
- ---------------------------
23
More About The Portfolios
Each of the nine portfolios described in this Prospectus
is a series of One Group Investment Trust and is managed
by Banc One Investment Advisors Corporation. For more
information about One Group Investment Trust and Banc
One Investment Advisors, please read "Management of One
Group Investment Trust" and the Statement of Additional
Information.
- --------------------------------------------------------------------------------
PRINCIPAL
INVESTMENT
STRATEGIES This Prospectus describes nine mutual funds with a
variety of investment objectives. The principal
investment strategies that are used to meet each
Portfolio's investment strategy are described in Fund
Summaries: Investments, Risk, & Performance in the front
of this prospectus. They are also described below. 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.
- -----
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) MUTUAL FUNDS, ONE
GROUP INVESTMENT TRUST PORTFOLIOS:
- ARE NOT THE SAME FUNDS AS ONE GROUP MUTUAL FUNDS;
- ARE SMALLER THAN ONE GROUP MUTUAL FUNDS; AND
- HAVE DIFFERENT PERFORMANCE, FEES AND EXPENSES THAN ONE
GROUP MUTUAL FUNDS.
<PAGE> 27
24
FUNDAMENTAL POLICIES
Each Portfolio's investment strategy may involve
"fundamental policies." A policy is fundamental if it
cannot be changed without the consent of a majority of
the outstanding shares of the Portfolio.
- -----
THE BOND PORTFOLIOS. Banc One Investment Advisors
analyzes four major factors in managing and constructing
the Portfolio: duration, market sector, maturity
concentrations, and individual securities. Rather than
attempting to time the market, Banc One Investment
Advisors looks for sectors and securities that it
believes will perform consistently well over time as
measured by total return. The Bond Portfolios attempt to
enhance total return by selecting market sectors and
securities that offer risk/reward advantages based on
market trends, structural make-up, 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
complex legal and technical structure of the investment
(e.g., asset-backed securities).
- -----
ONE GROUP INVESTMENT TRUST BOND PORTFOLIO. The Portfolio
invests in all types of debt securities rated as
investment grade, as well as convertible securities,
preferred stock, and loan participations.
- The Portfolio invests at least 65% of its total assets
in debt securities of all types with intermediate to
long maturities.
- As a matter of fundamental policy, at least 65% of the
Portfolio's total assets will consist of bonds.
- The Portfolio also may purchase taxable or tax-exempt
municipal securities.
- The Portfolio's AVERAGE WEIGHTED MATURITY will
ordinarily range between four and twelve years,
although the Portfolio may shorten its average
weighted maturity if deemed appropriate for temporary
defensive purposes.
WHAT IS AVERAGE WEIGHTED MATURITY?
Average weighted maturity is the average
of all the current maturities (that is,
the term of the securities) of the
individual securities in a Portfolio
calculated so as to count most heavily
those securities with the highest dollar
value. Average weighted maturity is
important to bond investors as an
indication of a Portfolio's sensitivity to
changes in interest rates. Usually, the
longer the average weighted maturity, the
more fluctuation in share price you can
expect.
- -----
ONE GROUP INVESTMENT TRUST GOVERNMENT BOND PORTFOLIO.
The Portfolio limits its investments to securities
issued by the U.S. Government and its agencies and
instrumentalities 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 debt instruments with principal and
interest guaranteed by the U.S. Government or its
agencies and instrumentalities, some of which may be
subject to repurchase agreements, and other securities
representing an interest in or secured by mortgages
that are issued or guaranteed by certain U.S.
Government agencies or instrumentalities.
<PAGE> 28
25
- The Portfolio's average weighted maturity will
ordinarily range between three and fifteen years,
taking into account expected prepayment of principal
on certain investments. However, the Portfolio's
average weighted remaining maturity may be outside
this range if warranted by market conditions.
- -----
THE EQUITY PORTFOLIOS. The investment strategies
utilized by the Equity Portfolios are described in Fund
Summaries; Investments, Risk & Performance and below.
- -----
ONE GROUP INVESTMENT TRUST BALANCED PORTFOLIO. The
Portfolio 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 Depositary 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.
- -----
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 S&P 500 Index.
- At least 65% of the Portfolio's total assets will be
invested in the equity securities of large,
well-established companies.
- -----
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 and other equity derivatives.) Banc One
Investment Advisors seeks to achieve a correlation of
0.95 between the performance of the Portfolio and that
of the S&P 500 Index. The Portfolio may hold up to 10%
of its total assets in cash or cash equivalents. (Assets
held in margin deposits and segregated accounts for
futures contracts are not considered cash or cash
equivalents for purposes of the 10% limitation).
- The percentage of a stock that the Portfolio holds
will be approximately the same percentage that the
stock represents in the S&P 500 Index.
- Banc One Investment Advisors generally picks stocks 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.
<PAGE> 29
26
- -----
ONE GROUP INVESTMENT TRUST DIVERSIFIED EQUITY PORTFOLIO.
The Portfolio invests mainly in common stocks of
companies that have the potential for continued earnings
growth with strong fundamentals and a reasonable value.
- At least 65% of the Portfolio's total assets will be
invested in equity securities.
- Although the Portfolio may invest up to 35% of the
Portfolio's total assets in U.S. government
securities, other investment grade fixed income
securities, cash, and cash equivalents, the
Portfolio's main investment strategy is to invest in
equity securities.
- -----
ONE GROUP INVESTMENT TRUST DIVERSIFIED MID CAP
PORTFOLIO. The Portfolio invests mainly in equity
securities of mid capitalization companies. Mid cap
companies are defined as companies with market
capitalizations of $500 million to $10 billion.
- At least 65% of the Portfolio's total assets will be
invested in common and preferred stock, rights,
warrants, convertible securities, and other equity
securities of mid capitalization companies.
- 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 invested in U.S.
Government Securities, other investment grade fixed
income securities, cash, and cash equivalents.
Although the Portfolio may use these strategies more
in the future, the Portfolio's main investment
strategy is to invest in equity securities of mid
capitalization companies.
- -----
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 80% of the Portfolio's total assets will be
invested in equity securities of mid cap companies,
including common stocks and debt securities and
preferred stocks that are convertible to common stock.
Mid cap companies are defined as companies with market
capitalizations of $500 million to $10 billion.
- A portion of the Portfolio's assets will be held in
cash equivalents.
- -----
ONE GROUP INVESTMENT TRUST MID CAP VALUE PORTFOLIO. The
Portfolio invests mainly in equity securities of mid cap
companies with below-market average price-to-earnings
and price-to-book value ratios. Mid cap companies are
defined as companies with market capitalizations of $500
million to $10 billion.
- At least 80% of the Portfolio's total assets will be
invested in equity securities, including common stock
and debt securities and preferred stocks both of which
are convertible into common stock.
- A portion of the Portfolio's assets will be held in
cash equivalents.
<PAGE> 30
27
- --------------------------------------------------------------------------------
INVESTMENT RISKS The risks associated with investing in the Portfolios
are described below and in Fund Summaries: Investments,
Risk & Performance at the front of this prospectus. For
information concerning risks associated with specific
types of investments, please read Appendix A.
- -----
FIXED INCOME SECURITIES: Investments in fixed income
securities (for example, bonds) will increase or
decrease in value based on changes in interest rates. If
rates increase, the value of a Portfolio's investments
generally declines. On the other hand, if rates fall,
the value of the investments generally increases. The
value of your investment in a Bond Portfolio (or an
Equity Portfolio such as the Balanced Portfolio that
uses bonds as part of its main investment strategy) will
increase and decrease as the value of a Portfolio's
investments increases and decreases. While securities
with longer duration and maturities tend to produce
higher yields, they also are subject to greater
fluctuations in value when interest rates change.
Usually, changes in the value of fixed income securities
will not affect cash income generated, but may affect
the value of your investment. Fixed income securities
also are subject to the risk that the issuer of the
security will be unable to meet its repayment
obligation.
- -----
DERIVATIVES: The Portfolios may invest in securities
that may be considered to be DERIVATIVES. These
securities may be more volatile than other investments.
Derivatives present, to varying degrees, market, credit,
leverage, liquidity, and management risks.
WHAT IS A DERIVATIVE?
Derivatives are securities or contracts
(like futures and options) that derive
their value from the performance of
underlying assets or securities.
- -----
SMALL CAPITALIZATION COMPANIES: Investments in smaller,
younger companies may be riskier and more volatile than
investments in larger, more established companies. These
companies may be more vulnerable to changes in economic
conditions, specific industry conditions, market
fluctuations, and other factors affecting the
profitability of other companies. Because economic
events may have a greater impact on smaller companies,
there may be a greater and more frequent fluctuation in
their stock price. This may cause frequent and
unexpected increases or decreases in the value of your
investment.
- -----
LOWER RATED SECURITIES: The Bond Portfolio may purchase
corporate and municipal bonds that are rated in ANY
category. Bonds in the lowest investment grade rating
category are considered to have speculative
characteristics. Changes in economic conditions or other
circumstances may have a greater effect on the ability
of issuers of these securities to make principal and
interest payments than they do on issuers of higher
grade securities. Bonds rated below investment grade are
considered speculative and may be classified as "junk
bonds." JUNK BONDS are considered to be high risk
investments. These risks include greater risk of loss,
greater sensitivity to economic changes, valuation
difficulties, and liquidity difficulties. The Bond
Portfolio will invest no more than 5% of its net assets
in securities rated below investment grade.
<PAGE> 31
28
- --------------------------------------------------------------------------------
INVESTMENT
POLICIES Each Portfolio's investment objective and the investment
policies summarized below are fundamental. This means
that they cannot be changed without the consent of a
majority of the outstanding shares of the Portfolios.
The full text of the fundamental policies can be found
in the Statement of Additional Information.
- -----
Each Portfolio may not:
1. Purchase the securities of an issuer if as a result
more than 5% of its total assets would be invested in
the securities of that issuer or the Portfolio would
own more than 10% of the outstanding voting
securities of that issuer. This does not include
securities issued or guaranteed by the United States,
its agencies or instrumentalities, securities of
registered investment companies, and repurchase
agreements involving these securities. This
restriction applies with respect to 75% of a
Portfolio's total assets.
2. Concentrate its investments in the securities of one
or more issuers conducting their principal business
in a particular industry or group of industries. This
does not include obligations issued or guaranteed by
the U.S. Government or its agencies and
instrumentalities and repurchase agreements involving
such securities.
3. Make loans, except that a Portfolio may:
(i) purchase or hold debt instruments in accordance
with its investment objective and policies;
(ii) enter into repurchase agreements; and
(iii) engage in securities lending.
The Equity Index Portfolio may not:
1. Invest more than 10% of its total assets in
securities issued or guaranteed by the United States,
its agencies or instrumentalities. Repurchase
agreements held in margin deposits and segregated
accounts for futures contracts are not considered
issued or guaranteed by the United States, its
agencies or instrumentalities for purposes of the 10%
limitation.
Additional investment policies can be found in the
Statement of Additional Information.
- --------------------------------------------------------------------------------
PORTFOLIO QUALITY Various rating organizations (like Standard & Poor's
Corporation and Moody's Investor Service) assign ratings
to securities (other than equity securities). Generally,
ratings are divided into two main categories:
"Investment Grade Securities" and "Non-Investment Grade
Securities." Although there is always a risk of default,
rating agencies believe that issuers of Investment Grade
Securities have a high probability of making payments on
such securities. Non-Investment Grade Securities include
securities that, in the opinion of the rating agencies,
are more likely to default than Investment Grade
Securities. 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.
<PAGE> 32
29
- -----
RATINGS OF THE BOND PORTFOLIOS' SECURITIES
One Group Investment Trust Government Bond Portfolio
only may invest in debt securities rated in any of the
three highest investment grade rating categories.
One Group Investment Trust Bond Portfolio may purchase
securities that meet the following rating criteria:
- corporate and municipal bonds -- rated in any rating
category.
- preferred stock -- rated in any of the four
investment grade rating categories.
- commercial paper -- rated in the highest or second
highest rating categories.
- -----
RATINGS OF THE EQUITY PORTFOLIOS' SECURITIES
- If a Portfolio invests in municipal bonds, the bonds
must be rated as investment grade.
- Other municipal securities, such as tax exempt
commercial paper, notes and variable rate demand
obligations, must be rated in one of the two highest
investment grade categories at the time of investment.
- Corporate bonds generally will be rated in one of the
three highest investment grade categories.
Banc One Investment Advisors reserves the right to
invest in corporate bonds that present attractive
opportunities and are rated in the lowest investment
grade category. These corporate bonds may be riskier
than higher rated bonds.
For more information about ratings, please see
"Description of Ratings" in the Statement of Additional
Information.
- --------------------------------------------------------------------------------
TEMPORARY
DEFENSIVE
POSITIONS To respond to unusual market conditions, the Portfolios
may invest their assets in cash and CASH EQUIVALENTS for
temporary defensive purposes. These investments may
result in a lower yield than lower-quality or longer
term investments and may prevent the Portfolios from
meeting their investment objectives.
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.
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.
<PAGE> 33
30
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 their
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. (Assets held in
margin deposits and segregated accounts for futures
contracts are not considered cash or cash equivalents
for purposes of the 10% limitation in the Equity Index
Portfolio).
- --------------------------------------------------------------------------------
PORTFOLIO
TURNOVER The Portfolios may engage in active and frequent trading
of portfolio securities to achieve their principal
investment strategies. Portfolio turnover may vary
greatly from year to year, as well as within a
particular year.
Higher portfolio turnover rates will likely result in
higher transaction costs to the Portfolios. The
portfolio turnover rate for each Portfolio for the
fiscal year ended December 31, 1999 is shown on the
Financial Highlights.
- --------------------------------------------------------------------------------
SHAREHOLDER
INFORMATION
PRICING
PORTFOLIO SHARES
- --------------------------------
HOW ARE PORTFOLIO SHARES PRICED? The net asset value or
NAV per share for each Portfolio 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. On occasion, the New
York Stock Exchange will close before 4 P.M. Eastern
Time. When that happens, the NAV will be calculated as
of the time the New York Stock Exchange closes. 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. The Portfolios will be
closed on weekends and days on which the New York Stock
Exchange is closed including the following holidays: New
Year's Day, Martin Luther King, Jr. Day, President's
Day, Good Friday, Memorial Day, Independence Day, Labor
Day, Thanksgiving, and Christmas.
<PAGE> 34
31
PURCHASING
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 Portfolios 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? If required by
the SEC, 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. Shareholders 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.
REDEEMING
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 or for other
reasons described in the separate account literature
that you received when you purchased your variable
annuity or variable life contract. 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 One Group Investment Trust's
transfer agent, State Street Bank and Trust Company.
<PAGE> 35
32
DIVIDENDS
- --------------------------------
- All dividends are distributed to the separate
accounts on a quarterly basis and will be
automatically reinvested in Portfolio shares.
- 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, 1111 Polaris
Parkway, Suite B-2, Columbus, Ohio 43271-0211,
1-800-480-4111. All questions regarding variable
annuities or variable life insurance contracts
should be directed to the address indicated in the
prospectuses or other literature 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. For a discussion of the tax consequences of
variable annuity and variable life contracts, please
refer to the prospectuses or other documents that you
received when you purchased your variable annuity or
variable life product.
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.
<PAGE> 36
ONE GROUP(R)
INVESTMENT TRUST
- ---------------------------
33
Management of One Group
Investment Trust
- --------------------------------------------------------------------------------
THE ADVISOR Banc One Investment Advisors (1111 Polaris Parkway, P.O.
Box 710211, Columbus, Ohio 43271-0211) makes the
day-to-day investment decisions for the 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, 1999, Banc
One Investment Advisors, an indirect wholly-owned
subsidiary of Bank One Corporation, managed over $127
billion in assets.
- --------------------------------------------------------------------------------
ADVISORY FEES Banc One Investment Advisors is paid a fee based on an
annual percentage of the average daily net assets of
each Portfolio. For the fiscal year ended December 31,
1999, the Portfolios paid advisory fees at the following
rates:
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ANNUAL RATE
AS PERCENTAGE OF
PORTFOLIO AVERAGE DAILY NET ASSETS
<S> <C>
Government Bond
Portfolio .45%
------------------------------------------------
Balanced Portfolio .70%
------------------------------------------------
Large Cap Growth
Portfolio .65%
------------------------------------------------
Equity Index
Portfolio .27%(2)
------------------------------------------------
Mid Cap Growth
Portfolio .65%
------------------------------------------------
Bond Portfolio(1) .45%(2)
------------------------------------------------
Diversified Equity
Portfolio(1) .68%(2)
------------------------------------------------
Diversified Mid
Cap Portfolio(1) .60%(2)
------------------------------------------------
Mid Cap Value
Portfolio(1) .63%(2)
------------------------------------------------
</TABLE>
(1)On March 31, 1999, the Bond Portfolio, the
Diversified Equity Portfolio, the Diversified Mid
Cap Portfolio, and Mid Cap Value Portfolio were
substituted for certain Pegasus Variable Funds.
The investment advisory fees include fees paid to
First Chicago NBD Investment Management Company
("FCNIMCo"), an affiliate of Banc One Investment
Advisors, as advisor to the Pegasus Variable
Funds.
(2)A portion of the advisory fees for the fiscal year
ended December 31, 1999 for the Equity Index
Portfolio, the Bond Portfolio, the Diversified
Equity Portfolio, the Diversified Mid Cap
Portfolio, and the Mid Cap Value Portfolios were
voluntarily waived. Without such waivers, the
investment advisory fees would have been as
follows:
<TABLE>
<CAPTION>
ANNUAL RATE AS PERCENTAGE
PORTFOLIO OF AVERAGE DAILY NET ASSETS
<S> <C>
Equity Index Portfolio .30%
Bond Portfolio .55%*
Diversified Equity Portfolio .70%*
Diversified Mid Cap Portfolio .71%*
Mid Cap Value Portfolio .70%*
</TABLE>
(*)Represents a blended contractual rate
consisting of the contractual fees payable to
FCNIMCo for the period January 1, 1999 through
March 31, 1999 and the contractual fees
payable to Banc One Investment Advisors from
March 31, 1999 through December 31, 1999.
<PAGE> 37
34
- -----------------------------------------------------------------------------
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
support 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, each team member
makes recommendations about the securities in a
Portfolio. The research analysts support in-depth
industry analysis and recommendations, while the
portfolio managers determine strategy, industry
weightings, portfolio holdings, and cash positions.
<PAGE> 38
ONE GROUP(R)
INVESTMENT TRUST
- ---------------------------
FINANCIAL HIGHLIGHTS
Bond Portfolio
35
The Financial Highlights table is intended to help you understand the
Portfolio's performance for the last five years or the period of the Portfolio's
operations, whichever is shorter. 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 the Portfolio
(assuming reinvestment of all dividends and distributions). This information for
the Portfolio has been audited by PricewaterhouseCoopers LLP and other
independent accountants. PricewaterhouseCoopers LLP's report, along with the
Portfolio's financial statements, is incorporated by reference in the Statement
of Additional Information, which is available upon request.
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, MAY 1 TO
------------------- DECEMBER 31,
1999(A) 1998 1997(B)
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 10.73 $ 10.44 $ 10.00
- -----------------------------------------------------------------------------------------------------
Investment Operations:
Net investment income 0.60 0.57 0.37
Net realized and unrealized appreciation (depreciation) (0.76) 0.31 0.45
- -----------------------------------------------------------------------------------------------------
Total from investment operations (0.16) 0.88 0.82
- -----------------------------------------------------------------------------------------------------
Distributions:
From net investment income (0.59) (0.58) (0.37)
From net realized gains from investments - (0.01) (0.01)
- -----------------------------------------------------------------------------------------------------
Total distributions (0.59) (0.59) (0.38)
- -----------------------------------------------------------------------------------------------------
Net increase (decrease) in net asset value (0.75) 0.29 0.44
- -----------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $ 9.98 $ 10.73 $ 10.44
- -----------------------------------------------------------------------------------------------------
Total return (1.50%) 8.66% 12.29%(C)
RATIOS AND SUPPLEMENTAL DATA:
Net assets, end of period (000) $67,844 $60,892 $34,230
Ratio of expenses to average net assets 0.75% 0.75% 0.75%(C)
Ratio of expenses to average net assets excluding
waivers/reimbursements (D) 0.85% 0.81% 0.77%(C)
Ratio of net investment income to average net assets 5.86% 5.36% 5.97%(C)
Portfolio turnover 7.50% 14.50% 14.80%(C)
</TABLE>
(A) On March 31, 1999, the One Group Investment Trust Bond Portfolio was
substituted for the Pegasus Variable Bond Fund. Financial highlights for the
period prior to March 31, 1999 represent the Pegasus Variable Bond Fund. (B)
Commenced operations on May 1, 1997. (C) Annualized. (D) Ratios calculated as if
no expenses were waived.
<PAGE> 39
36
ONE GROUP(R)
INVESTMENT TRUST
- ---------------------------
FINANCIAL HIGHLIGHTS
Government Bond Portfolio
The Financial Highlights table is intended to help you understand the
Portfolio's performance for the last five years or the period of the Portfolio's
operations, whichever is shorter. 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 the Portfolio
(assuming reinvestment of all dividends and distributions). This information for
the Portfolio has been audited by PricewaterhouseCoopers LLP whose report, along
with the Portfolio's financial statements, is incorporated by reference in the
Statement of Additional Information, which is available upon request.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------------------
1999 1998 1997 1996 1995
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 10.64 $ 10.48 $ 10.15 $ 10.48 $ 9.69
- -----------------------------------------------------------------------------------------------------------------------------
Investment Operations:
Net investment income 0.56 0.56 0.60 0.59 0.64
Net realized and unrealized appreciation (depreciation) (0.70) 0.20 0.35 (0.33) 0.94
- -----------------------------------------------------------------------------------------------------------------------------
Total from investment operations (0.14) 0.76 0.95 0.26 1.58
- -----------------------------------------------------------------------------------------------------------------------------
Distributions:
From net investment income (0.54) (0.56) (0.60) (0.59) (0.64)
In excess of net investment income - (0.01) - - -
From net realized gains from investments - (0.03) (0.02) - (0.15)
- -----------------------------------------------------------------------------------------------------------------------------
Total distributions (0.54) (0.60) (0.62) (0.59) (0.79)
- -----------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net asset value (0.68) 0.16 0.33 (0.33) 0.79
- -----------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $ 9.96 $ 10.64 $ 10.48 $ 10.15 $ 10.48
- -----------------------------------------------------------------------------------------------------------------------------
Total return (1.31%) 7.32% 9.67% 2.69% 16.69%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000) $64,159 $42,187 $22,365 $14,622 $ 9,016
Ratio of expenses to average net assets 0.73% 0.75% 0.75% 0.75% 0.75%
Ratio of expenses to average net assets excluding
waivers/reimbursements (A) 0.73% 0.78% 0.88% 1.01% 1.47%
Ratio of net investment income to average net assets 5.68% 5.56% 6.06% 6.11% 6.54%
Ratio of net investment income to average net assets
excluding waivers/reimbursements (A) 5.68% 5.53% 5.93% 5.85% 5.80%
Portfolio turnover 55.15% 40.40% 21.30% 21.30% 34.10%
</TABLE>
(A) Ratios calculated as if no expenses were waived.
<PAGE> 40
ONE GROUP(R)
INVESTMENT TRUST
- ---------------------------
FINANCIAL HIGHLIGHTS
Balanced Portfolio
37
The Financial Highlights table is intended to help you understand the
Portfolio's performance for the last five years or the period of the Portfolio's
operations, whichever is shorter. 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 the Portfolio
(assuming reinvestment of all dividends and distributions). This information for
the Portfolio has been audited by PricewaterhouseCoopers LLP whose report, along
with the Portfolio's financial statements, is incorporated by reference in the
Statement of Additional Information, which is available upon request.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------------------
1999 1998 1997 1996 1995
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 15.14 $ 13.19 $ 11.93 $ 11.24 $ 9.81
- -----------------------------------------------------------------------------------------------------------------------
Investment Operations:
Net investment income 0.39 0.39 0.39 0.34 0.36
Net realized and unrealized appreciation 0.83 2.14 2.31 0.98 1.64
- -----------------------------------------------------------------------------------------------------------------------
Total from investment operations 1.22 2.53 2.70 1.32 2.00
- -----------------------------------------------------------------------------------------------------------------------
Distributions:
From net investment income (0.38) (0.39) (0.39) (0.34) (0.36)
From net realized gains from investments (0.30) (0.19) (1.05) (0.23) (0.21)
In excess of realized gains from investments - - - (0.04) -
Tax return of capital - - - (0.02) -
- -----------------------------------------------------------------------------------------------------------------------
Total distributions (0.68) (0.58) (1.44) (0.63) (0.57)
- -----------------------------------------------------------------------------------------------------------------------
Net increase in net asset value 0.54 1.95 1.26 0.69 1.43
- -----------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $ 15.68 $ 15.14 $ 13.19 $ 11.93 $ 11.24
- -----------------------------------------------------------------------------------------------------------------------
Total return 8.20% 19.09% 22.90% 11.92% 20.69%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000) $183,980 $102,845 $41,446 $14,883 $ 5,455
Ratio of expenses to average net assets 0.95% 1.00% 1.00% 1.00% 1.00%
Ratio of expenses to average net assets excluding
waivers/reimbursements (A) 0.95% 1.00% 1.15% 1.44% 1.96%
Ratio of net investment income to average net assets 2.74% 2.66% 3.24% 3.27% 3.66%
Ratio of net investment income to average net assets
excluding waivers/reimbursements (A) 2.74% 2.66% 3.07% 2.83% 2.70%
Portfolio turnover 60.13% 32.10% 60.90% 64.80% 66.30%
</TABLE>
(A) Ratios calculated as if no expenses were waived.
<PAGE> 41
38
ONE GROUP(R)
INVESTMENT TRUST
- ---------------------------
FINANCIAL HIGHLIGHTS
Large Cap Growth Portfolio
The Financial Highlights table is intended to help you understand the
Portfolio's performance for the last five years or the period of the Portfolio's
operations, whichever is shorter. 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 the Portfolio
(assuming reinvestment of all dividends and distributions). This information for
the Portfolio has been audited by PricewaterhouseCoopers LLP whose report, along
with the Portfolio's financial statements, is incorporated by reference in the
Statement of Additional Information, which is available upon request.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------------------
1999 1998 1997 1996 1995
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 22.63 $ 17.21 $ 13.67 $ 12.12 $ 9.99
- -----------------------------------------------------------------------------------------------------------------------
Investment Operations:
Net investment income 0.02 0.06 0.10 0.16 0.20
Net realized and unrealized appreciation 6.60 7.03 4.25 1.86 2.20
- -----------------------------------------------------------------------------------------------------------------------
Total from investment operations 6.62 7.09 4.35 2.02 2.40
- -----------------------------------------------------------------------------------------------------------------------
Distributions:
From net investment income (0.02) (0.06) (0.10) (0.16) (0.20)
In excess of net investment income (0.02) - - - -
From net realized gains from investments (2.65) (1.61) (0.71) (0.30) (0.07)
In excess of realized gains from investments - - - (0.01) -
- -----------------------------------------------------------------------------------------------------------------------
Total distributions (2.69) (1.67) (0.81) (0.47) (0.27)
- -----------------------------------------------------------------------------------------------------------------------
Net increase in net asset value 3.93 5.42 3.54 1.55 2.13
- -----------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $ 26.56 $ 22.63 $ 17.21 $ 13.67 $ 12.12
- -----------------------------------------------------------------------------------------------------------------------
Total Return 29.26% 41.27% 31.93% 16.67% 24.13%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000) $360,018 $202,035 $99,628 $42,893 $16,119
Ratio of expenses to average net assets 0.88% 0.93% 1.00% 0.98% 0.90%
Ratio of expenses to average net assets excluding
waivers/reimbursements(A) 0.88% 0.93% 1.00% 1.16% 1.64%
Ratio of net investment income to average net assets 0.08% 0.32% 0.69% 1.29% 2.02%
Ratio of net investment income to average net assets
excluding waivers/reimbursements(A) 0.08% 0.32% 0.69% 1.11% 1.28%
Portfolio turnover 94.18% 61.00% 34.40% 38.70% 37.40%
</TABLE>
(A) Ratios calculated as if no expenses were waived.
<PAGE> 42
ONE GROUP(R)
INVESTMENT TRUST
- ---------------------------
FINANCIAL HIGHLIGHTS
Equity Index Portfolio
39
The Financial Highlights table is intended to help you understand the
Portfolio's performance for the last five years or the period of the Portfolio's
operations, whichever is shorter. 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 the Portfolio
(assuming reinvestment of all dividends and distributions). This information for
the Portfolio has been audited by PricewaterhouseCoopers LLP whose report, along
with the Portfolio's financial statements, is incorporated by reference in the
Statement of Additional Information, which is available upon request.
<TABLE>
<CAPTION>
YEAR ENDED MAY 1 TO
DECEMBER 31, DECEMBER 31,
1999 1998(A)
- ----------------------------------------------------------------------------------------------
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 10.97 $ 10.00
- ----------------------------------------------------------------------------------------------
Investment Operations:
Net investment income 0.17 0.08
Net realized and unrealized appreciation 2.13 0.97
- ----------------------------------------------------------------------------------------------
Total from investment operations 2.30 1.05
- ----------------------------------------------------------------------------------------------
Distributions:
From net investment income (0.17) (0.08)
From net realized gains from investments (0.16) -
- ----------------------------------------------------------------------------------------------
Total distributions (0.33) (0.08)
- ----------------------------------------------------------------------------------------------
Net increase in net asset value 1.97 0.97
- ----------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $ 12.94 $ 10.97
- ----------------------------------------------------------------------------------------------
Total return 21.11% 10.52%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000) $55,128 $14,481
Ratio of expenses to average net assets 0.55% 0.55%(B)
Ratio of expenses to average net asset excluding
waivers/reimbursements(c) 0.58% 1.13%(B)
Ratio of net investment income to average net assets 1.67% 1.45%(B)
Ratio of net investment income to average net assets
excluding waivers/reimbursements(c) 1.64% 0.87%(B)
Portfolio turnover 1.50% 2.30%
</TABLE>
(A) Commenced operations on May 1, 1998. (B) Annualized. (C) Ratios calculated
as if no expenses were waived.
<PAGE> 43
ONE GROUP(R)
INVESTMENT TRUST
- ---------------------------
FINANCIAL HIGHLIGHTS
Diversified Equity Portfolio
40
The Financial Highlights table is intended to help you understand the
Portfolio's performance for the last five years or the period of the Portfolio's
operations, whichever is shorter. 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 the Portfolio
(assuming reinvestment of all dividends and distributions). This information for
the Portfolio has been audited by PricewaterhouseCoopers LLP and other
independent accountants. PricewaterhouseCoopers LLP's report, along with the
Portfolio's financial statements, is incorporated by reference in the Statement
of Additional Information, which is available upon request.
<TABLE>
<CAPTION>
MARCH 30
YEAR ENDED DECEMBER 31, TO
------------------------------------------- DECEMBER 31,
1999(A) 1998 1997 1996 1995(B)
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 17.80 $ 16.22 $ 13.19 $ 11.63 $ 10.00
- --------------------------------------------------------------------------------------------------------------------------
Investment Operations:
Net investment income 0.10 0.11 0.13 0.15 0.13
Net realized and unrealized appreciation 1.51 2.00 3.38 2.02 1.63
- --------------------------------------------------------------------------------------------------------------------------
Total from investment operations 1.61 2.11 3.51 2.17 1.76
- --------------------------------------------------------------------------------------------------------------------------
Distributions:
From net investment income (0.10) (0.12) (0.13) (0.14) (0.13)
From net realized gains from investments (1.73) (0.41) (0.35) (0.47) -
In excess of realized gains from investments (0.01) - - - -
- --------------------------------------------------------------------------------------------------------------------------
Total distributions (1.84) (0.53) (0.48) (0.61) (0.13)
- --------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net asset value (0.23) 1.58 3.03 1.56 1.63
- --------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $ 17.57 $ 17.80 $ 16.22 $ 13.19 $ 11.63
- --------------------------------------------------------------------------------------------------------------------------
Total return 9.13% 13.10% 26.80% 18.75% 22.75%(C)
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000) $71,066 $59,560 $38,705 $ 8,603 $ 3,754
Ratio of expenses to average net assets 0.95% 0.95% 0.93% 0.85% 0.85%(C)
Ratio of expenses to average net assets excluding
waivers/reimbursements (D) 0.97% 1.02% 1.10% 2.27% 4.93%(C)
Ratio of net investment income to average net assets 0.54% 0.69% 0.93% 1.35% 1.78%(C)
Portfolio turnover 91.90% 43.20% 31.10% 46.80% 17.50%(C)
</TABLE>
(A) On March 31, 1999, the One Group Investment Trust Diversified Equity
Portfolio was substituted for the Pegasus Variable Growth and Value Fund.
Financial highlights for the period prior to March 31, 1999 represent the
Pegasus Variable Growth and Value Fund. (B) Commenced operations on March 30,
1995. (C) Annualized. (D) Ratios calculated as if no expenses were waived.
<PAGE> 44
ONE GROUP(R)
INVESTMENT TRUST
- ---------------------------
FINANCIAL HIGHLIGHTS
Mid Cap Growth Portfolio
41
The Financial Highlights table is intended to help you understand the
Portfolio's performance for the last five years or the period of the Portfolio's
operations, whichever is shorter. 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 the Portfolio
(assuming reinvestment of all dividends and distributions). This information for
the Portfolio has been audited by PricewaterhouseCoopers LLP whose report, along
with the Portfolio's financial statements, is incorporated by reference in the
Statement of Additional Information, which is available upon request.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------------------
1999 1998 1997 1996 1995
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 18.52 $ 14.21 $ 12.11 $ 11.52 $ 9.70
- -----------------------------------------------------------------------------------------------------------------------
Investment Operations:
Net investment income (loss) (0.03) (0.03) (0.03) 0.18 0.04
Net realized and unrealized appreciation 4.73 5.95 3.63 1.62 2.29
- -----------------------------------------------------------------------------------------------------------------------
Total from investment operations 4.70 5.92 3.60 1.80 2.33
- -----------------------------------------------------------------------------------------------------------------------
Distributions:
From net investment income - - - (0.19) (0.04)
From net realized gains from investments (2.67) (1.38) (1.48) (0.78) (0.47)
In excess of realized gains from investments - (0.03) - (0.24) -
Tax return of capital - (0.20) (0.02) - -
- -----------------------------------------------------------------------------------------------------------------------
Total distributions (2.67) (1.61) (1.50) (1.21) (0.51)
- -----------------------------------------------------------------------------------------------------------------------
Net increase in net asset value 2.03 4.31 2.10 0.59 1.82
- -----------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $ 20.55 $ 18.52 $ 14.21 $ 12.11 $ 11.52
- -----------------------------------------------------------------------------------------------------------------------
Total return 25.42% 38.82% 29.81% 15.67% 24.06%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000) $140,451 $92,674 $50,707 $ 22,339 $ 6,685
Ratio of expenses to average net assets 0.92% 0.97% 1.10% 1.06% 0.90%
Ratio of expenses to average net assets excluding
waivers/reimbursements(A) 0.92% 0.97% 1.11% 1.40% 2.78%
Ratio of net investment income to average net assets (0.21%) (0.25%) (0.25%) 1.85% 0.46%
Ratio of net investment income to average net assets
excluding waivers/reimbursements(A) (0.21%) (0.25%) (0.26%) 1.51% (1.42%)
Portfolio turnover 167.61% 87.70% 175.60% 326.90% 193.30%
</TABLE>
(A) Ratios calculated as if no expenses were waived.
<PAGE> 45
ONE GROUP(R)
INVESTMENT TRUST
- ---------------------------
FINANCIAL HIGHLIGHTS
Diversified Mid Cap Portfolio
42
The Financial Highlights table is intended to help you understand the
Portfolio's performance for the last five years or the period of the Portfolio's
operations, whichever is shorter. 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 the Portfolio
(assuming reinvestment of all dividends and distributions). This information for
the Portfolio has been audited by PricewaterhouseCoopers LLP and other
independent accountants. PricewaterhouseCoopers LLP's report, along with the
Portfolio's financial statements, is incorporated by reference in the Statement
of Additional Information, which is available upon request.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, MARCH 30 TO
------------------------------------------- DECEMBER 31,
1999(A) 1998 1997 1996 1995(B)
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 14.76 $ 14.38 $ 13.46 $ 11.02 $ 10.00
- --------------------------------------------------------------------------------------------------------------------------
Investment Operations:
Net investment income 0.03 (0.01) 0.01 0.03 0.05
Net realized and unrealized appreciation 1.50 0.70 3.55 2.67 1.02
- --------------------------------------------------------------------------------------------------------------------------
Total from investment operations 1.53 0.69 3.56 2.70 1.07
- --------------------------------------------------------------------------------------------------------------------------
Distributions:
From net investment income (0.02) - (0.01) (0.03) (0.05)
From net realized gains from investments (1.09) (0.31) (2.63) (0.23) -
- --------------------------------------------------------------------------------------------------------------------------
Total distributions (1.11) (0.31) (2.64) (0.26) (0.05)
- --------------------------------------------------------------------------------------------------------------------------
Net increase in net asset value 0.42 0.38 0.92 2.44 1.02
- --------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $ 15.18 $ 14.76 $ 14.38 $ 13.46 $ 11.02
- --------------------------------------------------------------------------------------------------------------------------
Total return 10.50% 4.91% 26.65% 24.53% 14.20%(C)
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000) $21,625 $18,160 $11,668 $ 9,216 $ 4,972
Ratio of expenses to average net assets 0.92% 0.95% 0.91% 0.85% 0.85%(C)
Ratio of expenses to average net assets excluding
waivers/reimbursements (D) 1.03% 1.52% 1.49% 2.11% 4.64%(C)
Ratio of net investment income to average net assets 0.26% (0.10%) 0.04% 0.28% 0.67%(C)
Portfolio turnover 58.77% 26.20% 80.70% 37.40% 32.10%(C)
</TABLE>
(A) On March 31, 1999, the One Group Investment Trust Diversified Mid Cap
Portfolio was substituted for the Pegasus Variable Mid-Cap Opportunity Fund.
Financial highlights for the period prior to March 31, 1999 represent the
Pegasus Variable Mid-Cap Opportunity Fund. (B) Commenced operations on March
30, 1995. (C) Annualized. (D) Ratio calculated as if no expenses were waived.
<PAGE> 46
ONE GROUP(R)
INVESTMENT TRUST
- ---------------------------
FINANCIAL HIGHLIGHTS
Mid Cap Value Portfolio
43
The Financial Highlights table is intended to help you understand the
Portfolio's performance for the last five years or the period of the Portfolio's
operations, whichever is shorter. 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 the Portfolio
(assuming reinvestment of all dividends and distributions). This information for
the Portfolio has been audited by PricewaterhouseCoopers LLP and other
independent accountants. PricewaterhouseCoopers LLP's report, along with the
Portfolio's financial statements, is incorporated by reference in the Statement
of Additional Information, which is available upon request.
<TABLE>
<CAPTION>
MAY 1
YEAR ENDED TO
DECEMBER 31, DECEMBER 31,
1999(A) 1998 1997(B)
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 10.70 $ 11.53 $ 10.00
- ----------------------------------------------------------------------------------------------------------
Investment Operations:
Net investment income 0.11 0.21 0.12
Net realized and unrealized appreciation (depreciation) (0.31) (0.58) 1.57
- ----------------------------------------------------------------------------------------------------------
Total from investment operations (0.20) (0.37) 1.69
- ----------------------------------------------------------------------------------------------------------
Distributions:
From net investment income (0.11) (0.21) (0.12)
From net realized gains from investments - (0.20) (0.04)
In excess of realized gains from investments - (0.05) -
- ----------------------------------------------------------------------------------------------------------
Total distributions (0.11) (0.46) (0.16)
- ----------------------------------------------------------------------------------------------------------
Net increase (decrease) in net asset value (0.31) (0.83) 1.53
- ----------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $ 10.39 $ 10.70 $ 11.53
- ----------------------------------------------------------------------------------------------------------
Total return (1.84%) (3.31%) 25.26%(C)
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000) $ 28,489 $22,501 $13,926
Ratio of expenses to average net assets 0.95% 0.95% 0.95%(C)
Ratio of expenses to average net assets excluding
waivers/reimbursements(D) 1.02% 1.27% 1.22%(C)
Ratio of net investment income to average net assets 1.90% 1.90% 1.83%(C)
Portfolio turnover 198.01% 39.30% 19.60%(C)
</TABLE>
(A) On March 31, 1999, the One Group Investment Trust Mid Cap Value
Portfolio was substituted for the Pegasus Variable Intrinsic Value Fund.
Financial highlights for the period prior to March 31, 1999 represent the
Pegasus Variable Intrinsic Value Fund. (B) Commenced operations on May 1,
1997. (C) Annualized. (D) Ratios calculated as if no expenses were waived.
<PAGE> 47
ONE GROUP(R)
INVESTMENT TRUST
- ---------------------------
44
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 some of the securities and techniques which may
be 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> <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 Diversified Equity
Portfolio 6
----------------------------------------------------------------------
One Group Investment Trust Equity Index Portfolio 7
----------------------------------------------------------------------
One Group Investment Trust Diversified Mid Cap
Portfolio 8
----------------------------------------------------------------------
One Group Investment Trust Mid Cap Value Portfolio 9
----------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
PORTFOLIO RISK
INSTRUMENT CODE TYPE
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
U.S. Treasury Obligations: Bills, notes, bonds, 1-9 Market
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 the Credit
U.S. Government. These include Ginnie Mae, Fannie
Mae, and Freddie Mac.
-------------------------------------------------------------------------------
Certificates of Deposit: Negotiable instruments 1, 3-9 Market
with a stated maturity. Credit
-------------------------------------------------------------------------------
Time Deposits: Non-negotiable receipts issued by a 1, 3-9 Liquidity
bank in exchange for the deposit of funds. Credit
Market
-------------------------------------------------------------------------------
</TABLE>
<PAGE> 48
45
<TABLE>
<CAPTION>
PORTFOLIO RISK
INSTRUMENT CODE TYPE
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Common Stock: Shares of ownership of a company. 3-9 Market
-------------------------------------------------------------------------------
Repurchase Agreements: The purchase of a security 1-9 Credit
and the simultaneous commitment to return the Market
security to the seller at an agreed upon price on Liquidity
an agreed upon date. This is treated as a loan.
-------------------------------------------------------------------------------
Reverse Repurchase Agreement: The sale of a 1-9 Market
security and the simultaneous commitment to buy Leverage
the security back at an agreed upon price on an
agreed upon date. This is treated as a borrowing
by a Portfolio.
-------------------------------------------------------------------------------
Securities Lending: The lending of up to 33 1/3% 1-9 Credit
of the Portfolio's total assets. In return the Market
Portfolio will receive cash, other securities, Leverage
and/or letters of credit as collateral.
-------------------------------------------------------------------------------
When-Issued Securities and Forward Commitments: 1-9 Market
Purchase or contract to purchase securities at a Leverage
fixed price for delivery at a future date. Liquidity
Credit
-------------------------------------------------------------------------------
Investment Company Securities: Shares of other 1-9 Market
mutual funds, including money market funds of One
Group Mutual Funds and shares of other money
market funds for which Banc One Investment
Advisors or its affiliates serve as investment
advisor or administrator. Banc One Investment
Advisors will waive certain fees when investing in
funds for which it serves as investment advisor.
-------------------------------------------------------------------------------
Convertible Securities: Bonds or preferred stock 1, 3-9 Market
that can convert to common stock. Credit
-------------------------------------------------------------------------------
Call and Put Options: A call option gives the 1-9 Management
buyer the right to buy, and obligates the seller Liquidity
of the option to sell, a security at a specified Credit
price at a future date. A put option gives the Market
buyer the right to sell, and obligates the seller Leverage
of the option to buy, a security at a specified
price at a future date. The Portfolios will sell
only covered call and secured put options.
-------------------------------------------------------------------------------
</TABLE>
<PAGE> 49
46
<TABLE>
<CAPTION>
PORTFOLIO RISK
INSTRUMENT CODE TYPE
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Futures and Related Options: A contract providing 1-9 Management
for the future sale and purchase of a specified Market
amount of a specified security, class of Credit
securities, or an index at a specified time in the Liquidity
future and at a specified price. Leverage
-------------------------------------------------------------------------------
Real Estate Investment Trusts ("REITs"): Pooled 3-9 Liquidity
investment vehicles which invest primarily in Management
income producing real estate or real estate Market
related loans or interest. Regulatory
Tax
Prepayment
-------------------------------------------------------------------------------
Bankers' Acceptances: Bills of exchange or time 1, 3-9 Credit
drafts drawn on and accepted by a commercial bank. Liquidity
Maturities are generally six months or less. Market
-------------------------------------------------------------------------------
Commercial Paper: Secured and unsecured short-term 1, 3-9 Credit
promissory notes issued by corporations and other Liquidity
entities. Maturities generally vary from a few Market
days to nine months.
-------------------------------------------------------------------------------
Foreign Securities: Stocks issued by foreign 1, 3-9 Market
companies, as well as commercial paper of foreign Political
issuers and obligations of foreign banks, overseas Liquidity
branches of U.S. banks and supranational entities. Foreign
The Equity Portfolios may also invest in American Investment
Depositary Receipts, Global Depositary Receipts,
and American Depositary Securities.
-------------------------------------------------------------------------------
Restricted Securities: Securities not registered 1-9 Liquidity
under the Securities Act of 1933, such as Market
privately placed commercial paper and Rule 144A
securities.
-------------------------------------------------------------------------------
Variable and Floating Rate Instruments: 1, 3-9 Credit
Obligations with interest rates which are reset Liquidity
daily, weekly, quarterly or some other period and Market
which may be payable to the Portfolio on demand.
-------------------------------------------------------------------------------
Warrants: Securities, typically issued with 3-8 Market
preferred stock or bonds, that give the holder the Credit
right to buy a proportionate amount of common
stock at a specified price.
-------------------------------------------------------------------------------
Preferred Stock: A class of stock that generally 1, 3-9 Market
pays a dividend at a specified rate and has
preference over common stock in the payment of
dividends and in liquidation.
-------------------------------------------------------------------------------
</TABLE>
<PAGE> 50
47
<TABLE>
<CAPTION>
PORTFOLIO RISK
INSTRUMENT CODE TYPE
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Mortgage-Backed Securities: Debt obligations 1-3, 8 Prepayment
secured by real estate loans and pools of loans. Market
These include collateralized mortgage obligations Credit
("CMOs") and Real Estate Mortgage Investment
Conduits ("REMICs").
-------------------------------------------------------------------------------
Corporate Debt Securities: Corporate bonds and 1, 3, 5 Market
non-convertible debt securities. Credit
-------------------------------------------------------------------------------
Demand Features: Securities that are subject to 1, 3, 5 Market
puts and standby commitments to purchase the Liquidity
securities at a fixed price (usually with accrued Management
interest) within a fixed period of time following
demand by a Portfolio.
-------------------------------------------------------------------------------
Asset-Backed Securities: Securities secured by 1, 3, 8 Prepayment
company receivables, home equity loans, truck and Market
auto loans, leases, credit card receivables and Credit
other securities backed by other types of Regulatory
receivables or other assets.
-------------------------------------------------------------------------------
Mortgage Dollar Rolls: A transaction in which a 1-3, 8 Prepayment
Portfolio sells securities for delivery in a Market
current month and simultaneously contracts with Regulatory
the same party to repurchase similar but not
identical securities on a specified future date.
-------------------------------------------------------------------------------
Adjustable Rate Mortgage Loans ("ARMs"): Loans in 1-3 Prepayment
a mortgage pool which provide for a fixed initial Market
mortgage interest rate for a specified period of Credit
time, after which the rate may be subject to Regulatory
periodic adjustments.
-------------------------------------------------------------------------------
Swaps, Caps and Floors: A Portfolio may enter into 1-9 Management
these transactions to manage its exposure to Credit
changing interest rates and other factors. Swaps Liquidity
involve an exchange of obligations by two parties. Market
Caps and floors entitle a purchaser to a principal
amount from the seller of the cap or floor to the
extent that a specified index exceeds or falls
below a predetermined interest rate or amount.
-------------------------------------------------------------------------------
New Financial Products: New options and futures 1-9 Management
contracts and other financial products continue to Credit
be developed and the Portfolios may invest in such Market
options, contracts and products. Liquidity
-------------------------------------------------------------------------------
</TABLE>
<PAGE> 51
48
<TABLE>
<CAPTION>
PORTFOLIO RISK
INSTRUMENT CODE TYPE
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Structured Instruments: Debt securities issued by 1-9 Market
agencies and instrumentalities of the U.S. Liquidity
government, banks, municipalities, corporations Management
and other businesses whose interest and/or Credit
principal payments are indexed to foreign currency Foreign
exchange rates, interest rates, or one or more Investment
other referenced indices.
-------------------------------------------------------------------------------
Municipal Securities: Securities issued by a state 1-3 Market
or political subdivision to obtain funds for Credit
various public purposes. Municipal securities Political
include private activity bonds and industrial Tax
development bonds, as well as General Obligation
Notes, Tax Anticipation Notes, Bond Anticipation
Notes, Revenue Anticipation Notes, Project Notes,
other short-term tax-exempt obligations, municipal
leases, and obligations of municipal housing
authorities and single family revenue bonds.
-------------------------------------------------------------------------------
Index Shares: Ownership interests in unit 3-9 Market
investment trusts and other pooled investment
vehicles that hold a portfolio of securities or
stocks designed to track the price performance and
dividend yield of a particular index such as
Standard & Poor's Depository Receipts ("SPDRs")
and Nasdaq 100's. The Equity Index Portfolio
invests only in SPDRs.
-------------------------------------------------------------------------------
Obligations of Supranational Agencies: Obligations 3, 8 Credit
of supranational agencies which are chartered to Foreign
promote economic development and are supported by Investment
various governments and governmental agencies.
-------------------------------------------------------------------------------
Zero-Coupon Debt Securities: Bonds and other debt 1-3, 8 Credit
that pay no interest, but are issued at a discount Market
from their value at maturity. When held to Zero
maturity, their entire return equals the Coupon
difference between their issue price and their
maturity value.
-------------------------------------------------------------------------------
Zero-Fixed-Coupon Debt Securities: Zero coupon 1-3, 8 Credit
debt securities which convert on a specified date Market
to interest bearing debt securities. Zero
Coupon
-------------------------------------------------------------------------------
Stripped Mortgage-Backed Securities: Derivative 1-3 Prepayment
multi-class mortgage securities which are usually Market
structured with two classes of shares that receive Credit
different proportions of the interest and Regulatory
principal from a pool of mortgage assets. These
include IOs and POs.
-------------------------------------------------------------------------------
</TABLE>
<PAGE> 52
49
<TABLE>
<CAPTION>
PORTFOLIO RISK
INSTRUMENT CODE TYPE
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Inverse Floating Rate Instruments: Floating rate 1-3 Market
debt instruments with interest rates that reset in Leverage
the opposite direction from the market rate of Credit
interest to which the inverse floater is indexed.
-------------------------------------------------------------------------------
Loan Participations and Assignments: 1, 3 Credit
Participations in, or assignments of all or a Political
portion of loans to corporations or to Liquidity
governments, including governments of the less Foreign
developed countries ("LDCs"). Investment
Market
-------------------------------------------------------------------------------
Fixed Rate Mortgage Loans: Investments in fixed 1-3 Credit
rate mortgage loans or mortgage pools which bear Prepayment
simple interest at fixed annual rates and have Regulatory
original terms ranging from 5 to 40 years. Market
-------------------------------------------------------------------------------
Short-Term Funding Agreements: Funding agreements 1, 3 Credit
issued by banks and highly rated U.S. insurance Liquidity
companies such as Guaranteed Investment Contracts Market
("GICs") and Bank Investment Contracts ("BICs").
</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.
<PAGE> 53
50
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 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 may affect the ability of an issuer to
repay U.S. dollar denominated debt, thereby increasing
credit risk.
- Prepayment Risk. The risk that the principal repayment
of a security will occur at an unexpected time,
especially that the repayment of a mortgage or
asset-backed security occurs either significantly
sooner or later than expected. Changes in prepayment
rates can result in greater price and yield
volatility. Prepayments generally accelerate when
interest rates decline. When mortgage and other
obligations are prepaid, 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.
<PAGE> 54
51
- Tax Risk. The risk that the issuer of the securities
will fail to comply with certain requirements of the
Internal Revenue Code, which could cause adverse tax
consequences.
- 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.
<PAGE> 55
(Intentionally Left Blank)
<PAGE> 56
(Intentionally Left Blank)
<PAGE> 57
- --------------------------------------------------------------------------------
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 semi-annual/ annual reports or the SAI, request
other information or discuss your questions about the
Portfolios by calling 1 800-480-4111 or by writing the
Portfolios at:
ONE GROUP(R) INVESTMENT TRUST
1111 POLARIS PARKWAY, SUITE B-2
COLUMBUS, OHIO 43271-0211
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 1-202-942-8090).
You can also get reports and other information about the
Portfolios from the EDGAR Database on the SEC's web site
at http://www.sec.gov. Copies of this information may be
obtained, after paying a copying charge, by electronic
request at the following E-mail address:
[email protected] or by writing the Public Reference
Section of the SEC, Washington, D.C. 20549-6009.
VARIABLE ANNUITY AND LIFE INSURANCE CONTRACTS: This
prospectus is for use with 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 or
phone numbers in the prospectus or other materials that
you received when you purchased your variable annuity or
variable life product.
(Investment Company Act File No. 811-7874)
<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")
May 1, 2000
This Statement of Additional Information is not a Prospectus, but
supplements and should be read with the Prospectus dated May 1, 2000 for the
Portfolios (the "Prospectus"). This Statement of Additional Information is
incorporated in its entirety into the Prospectus. The Annual Report for the
Portfolios for the fiscal year ended December 31, 1999 is incorporated by
reference into this Statement of Additional Information. A copy of the Annual
Report and the Prospectus are available without charge by writing to One Group
Investment Trust (the "Trust") at 1111 Polaris Parkway, P.O. Box 710211,
Columbus, Ohio 43271-0211 or by calling toll free at 1-800-480-4111.
<PAGE> 59
<TABLE>
<S> <C>
PAGE
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
Risk Factors of Foreign Investments........................................................................... 5
Futures and Options Trading................................................................................... 5
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
Index Shares.................................................................................................. 14
Investment Company Securities................................................................................. 14
Loan Participations and Assignments........................................................................... 14
Mortgage-Related Securities................................................................................. 15
Mortgage-Backed Securities (CMOs and REMICs)................................................................ 15
Mortgage Dollar Rolls....................................................................................... 16
Stripped Mortgage Backed Securities......................................................................... 17
Adjustable Rate Mortgage Loans.............................................................................. 18
Risk Factors of Mortgage-Related Securities................................................................. 18
Municipal Securities.......................................................................................... 20
Risk Factors in Municipal Securities........................................................................ 22
PERCs.......................................................................................................... 23
Preferred Stock............................................................................................... 23
Real Estate Investment Trusts ("REITs")....................................................................... 24
Repurchase Agreements......................................................................................... 24
Reverse Repurchase Agreements................................................................................. 25
Restricted Securities......................................................................................... 25
Securities Lending............................................................................................ 26
Short-term Funding Agreements................................................................................. 26
Structured Instruments........................................................................................ 27
Swaps, Caps and Floors........................................................................................ 28
Treasury Receipts............................................................................................. 30
U.S. Treasury Obligations..................................................................................... 30
</TABLE>
i
<PAGE> 60
<TABLE>
<S> <C>
PAGE
Variable and Floating Rate Instruments........................................................................ 30
Limitations on the Use of Variable and Floating Rate Notes.................................................... 30
Warrants...................................................................................................... 31
When-Issued Securities and Forward Commitments ............................................................... 31
Investment Restrictions.......................................................................................... 32
Portfolio Turnover............................................................................................... 33
Additional Tax Information Concerning The Portfolios............................................................. 34
VALUATION. ......................................................................................................... 36
Valuation of the Portfolios......................................................................................... 36
ADDITIONAL INFORMATION REGARDING THE
CALCULATION OF PER SHARE NET ASSET VALUE............................................................................ 36
Additional Purchase and Redemption Information...................................................................... 37
Dividends........................................................................................................... 37
MANAGEMENT OF THE TRUST............................................................................................. 37
Trustees & Officers................................................................................................. 37
Investment Advisor.................................................................................................. 41
Codes of Ethics..................................................................................................... 44
Portfolio Transactions.............................................................................................. 46
Administrator....................................................................................................... 47
Sub-Administrators.................................................................................................. 50
Custodian, Sub-Custodian, and Transfer Agent........................................................................ 50
Experts ......................................................................................................... 51
ADDITIONAL INFORMATION.............................................................................................. 52
Description of Shares............................................................................................... 52
Shareholder and Trustee Liability................................................................................... 53
Shareholders........................................................................................................ 53
Calculation of Performance Data..................................................................................... 56
Administrative Services Plan........................................................................................ 57
Miscellaneous....................................................................................................... 58
FINANCIAL STATEMENTS................................................................................................ 60
Appendix A - Description of Ratings
Appendix B - Investment Practices
</TABLE>
ii
<PAGE> 61
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 31, 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
1
<PAGE> 62
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. Individual
Predecessor Funds are identified in this Statement of Additional Information by
reference to the applicable One Group Investment Trust Portfolio.
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.
2
<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 are contained in Appendix B
to this Statement of Additional Information and in the Prospectus under "Fund
Summary: Investments, Risk & Performance," "More About the Portfolios" and
Appendix A - Investment Practices.
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, or credit card receivables.
Asset-Backed Securities also include other securities backed by other types of
receivables or other assets. These securities are generally pass-through
securities, which means that principal and interest payments on the underlying
securities (less servicing fees) are passed through to shareholders on a pro
rata basis.
Prepayment Risks. The issuers of asset-backed securities may be able to repay
principal in advance if interest rates fall. Also, the underlying assets (for
example, the underlying credit card debt) may be refinanced or paid off prior to
maturity during periods of declining interest rates. If asset-backed securities
are pre-paid, 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 potential market gains on a
comparable security that is not subject to prepayment risk. Under certain
prepayment rate scenarios, a Portfolio may fail to recover additional amounts
paid (i.e., premiums) for securities with higher interest rates, resulting in
an unexpected loss.
BANK OBLIGATIONS
Bank obligations include bankers' acceptances, certificates of deposit, 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").
Time Deposits are interest-bearing non-negotiable deposits at a bank or a
savings and loan association that have a specific maturity date. A time deposit
earns a specific rate of interest over a definite period of time. Time deposits
cannot be traded on the secondary market. Time deposits that exceed seven days
and include a withdrawal penalty are considered to be illiquid. Demand Deposits
are funds deposited in a commercial bank or a savings and loan association
which, without prior notice to the bank, may be withdrawn generally by
negotiable draft. Time and demand deposits will be maintained only at banks or
savings and loan associations from which a Portfolio could purchase certificates
of deposit.
3
<PAGE> 64
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"), P-2 or better by Moody's
Investors Service, Inc. ("Moody's") or F2 or better by Fitch IBCA
("Fitch")) or if unrated, determined by Banc One Investment Advisors
Corporation ("Banc One Investment Advisors") to be of comparable
quality.
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 F2 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, the Balanced Portfolio, and the Large Cap Growth Portfolio
may invest in securities that are subject to puts and standby commitments
("Demand Features"). A Demand Feature allows a Portfolio to sell 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 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 to remain as fully invested as
possible.
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FOREIGN INVESTMENTS
Some of the Portfolios 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 Depositary
Receipts ("ADRs"). Sponsored ADRs are listed on the New York Stock Exchange;
unsponsored ADRs are not. Therefore, there may be less information available
about the issuers of unsponsored ADRs than the issuers of sponsored ADRs.
Unsponsored ADRs are restricted securities.
RISK FACTORS OF FOREIGN INVESTMENTS
Political and Exchange Risks. Foreign investments involve investment risks that
differ in some respects from those related to investments in obligations of U.S.
domestic issuers. Such risks include future adverse political and economic
developments, the possible imposition of withholding taxes on interest or other
income, possible seizure, nationalization or expropriation of foreign deposits,
the possible establishment of exchange controls or taxation at the source,
greater fluctuations in value due to changes in exchange rates, or the adoption
of other foreign governmental restrictions which might adversely affect the
payment of principal and interest on such obligations.
Higher Transaction Costs. Foreign investments may entail higher custodial fees
and sales commissions than domestic investments.
Accounting and Regulatory Differences. Foreign issuers of securities or
obligations are often subject to accounting treatment and engage in business
practices different from those of domestic issuers of similar securities
or obligations. Foreign branches of U.S. banks and foreign banks are not
regulated by U.S. banking authorities and may be subject to less stringent
reserve requirements than those applicable to domestic branches of U.S. banks.
In addition, foreign banks generally are not bound by the accounting, auditing,
and financial reporting standards comparable to those applicable to U.S. banks.
Currency Risk. Foreign securities are typically denominated in foreign
currencies. The value of a Portfolio's investments in securities denominated in
foreign currencies will be affected by: (i) changes in currency exchange rates;
(ii) the relative strength of the foreign currencies and the U.S. dollar, and
(iii) exchange control regulations. Changes in the foreign currency exchange
rates also may affect the value of dividends and interest earned, gains and
losses realized on the sale of securities, and net investment income and gains.
Limitations on the Use of Foreign Investments. With respect to all Portfolios
other than the Balanced Portfolio, investments in all types of foreign
obligations or securities will not exceed 25% of the net assets of a Portfolio.
With respect to the Balanced Portfolio, up to 20% of the equity securities may
be foreign securities, including American Depositary Receipts.
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.
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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 or adversely affecting its status as an
investment company under Federal securities laws.
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.
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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 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.
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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 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 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
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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 option it will seek to effect a closing transaction prior
to, or concurrently with, the sale of the security. There is, of course, no
assurance that a 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.
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.
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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
costs. 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 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.
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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 Objectives and Policies--Mortgage-Related Securities" in this
Statement of Additional Information.
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HIGH YIELD/HIGH RISK SECURITIES/JUNK BONDS
The Diversified Mid Cap 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. The Bond Portfolio may
invest up to 5% of its net assets in corporate and municipal bonds that are
rated below investment grade. Terms used to describe securities that are rated
below investment grade include "high yield securities," "lower rated bonds,"
"non-investment grade bonds," "below investment grade bonds" and "junk bonds."
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, a Portfolio that
invests in lower rated securities 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 investments in lower rated securities.
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INDEX SHARES
Certain of the Portfolios may invest in Index Shares. Index Shares are ownership
interests in unit investment trusts and other pooled investment vehicles that
hold a portfolio of securities or stocks designed to track the price performance
and dividend yield of a specified index. Index shares include Standard & Poor's
Depository Receipts ("SPDRS") and Nasdaq-100 Trusts (Nasdaq-100s). New types of
Index Shares continue to be developed such as select sector SPDRs and other
Index Shares that are designed to track indices other than the S&P 500 Index or
Nasdaq-100 Index. In the future, the Portfolios may invest in these types of
Index Shares.
SPDRs 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. Nasdaq-100s invest
in a securities portfolio that includes substantially all of the securities of
the Nasdaq-100 index. SPDRs and Nasdaq-100s are traded on the American Stock
Exchange, but may not be redeemed. The results of SPDRs and Nasdaq-100s will not
match the performance of the designated index due to reductions in the
performance attributable to transaction and other expenses, including fees paid
by the SPDR or Nasdaq-100s to service providers. Nasdaq-100 Shares are subject
to risks specific to the performance of a few component securities that
currently represent a highly concentrated weighting in the Nasadaq-100 Index.
SPDRs distribute dividends on a quarterly basis.
Index Shares are not actively managed. Rather, an Index Share's objective is to
track the performance of a specified index. Therefore, securities may be
purchased, retained and sold 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 the Index Share was not
fully invested in such securities.
A Portfolio will limit its investments in any one Index Share to 5% of the
Portfolio's total assets and 3% of the outstanding voting securities of the
Index Share. Moreover, a Portfolio's investments in Index Shares will not exceed
10% of the Portfolio's total assets, when aggregated with all other investments
in investment companies.
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 investment companies. Other
investment company securities may include securities of a money market fund of
One Group(R) Mutual Funds and securities of other money market funds for which
Banc One Investment Advisors or its affiliate serves as investment advisor or
administrator. Because other investment companies employ an investment advisor,
such investments by the 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 typically arranged through private negotiations between borrowers
(which may be corporate issuers or issuers of sovereign debt obligations) and
one or more financial institutions ("Lenders"). Generally, the 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
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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 securities and calculating its net asset value.
MORTGAGE-RELATED SECURITIES
Mortgage-Backed Securities (CMOs and REMICs). Mortgage-backed securities include
collateralized mortgage obligations ("CMOs") and Real Estate Mortgage Investment
Conduits ("REMICs"). (A REMIC is a CMO that qualifies for special tax 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.
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 Bank 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.
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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 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
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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.
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 prepayments increase and falling as prepayments decrease.
Generally, the market value of these securities is unusually volatile in
response to changes in interest rates.
Yield Characteristics. Although SMBS may yield more than other
mortgage-backed securities, their cash flow patterns are more volatile and
there is a greater risk that any premium paid will not be fully recouped.
Banc One Investment Advisors will seek to manage these risks (and potential
benefits) by investing in a variety of such securities and by using certain
analytical and hedging techniques.
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 Portfolio, the Government Bond
Portfolio, 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.
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Adjustable interest rates can cause payment increases that some borrowers may
find difficult to make. However, certain ARMs may provide that the Mortgage
Interest Rate may not be adjusted to a rate above 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 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.
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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.
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.
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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,
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
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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,
- - coupon rate,
- - the financial condition of the issuer,
- - general conditions of the municipal bond market,
- - the size of a particular offering,
- - the maturity of the obligations, and
- - the rating of the issue.
The ratings of Moody's and S&P represent their opinions as to the quality of
Municipal Securities. However, ratings are general and are not absolute
standards of quality. Municipal Securities with the same maturity, interest rate
and rating may have different yields while Municipal Securities of the same
maturity and interest rate with different ratings may have the same yield.
Subsequent to its purchase by 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 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.
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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;
- 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.
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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 Portfolios which invest in Municipal Securities may do so 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 Portfolios which invest in Municipal Securities may also do so 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. A
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.
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 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.
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REAL ESTATE INVESTMENT TRUSTS ("REITS")
Certain of 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 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
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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
Some of 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 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 and Guidelines
adopted by the Trust's Board of Trustees, are met:
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- 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 than quarterly.
SECURITIES LENDING
To generate additional income, each of the Portfolios may lend up to 33 1/3% of
the Portfolio's total assets 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 receive payments from the borrowers equivalent to the
dividends and interest which would have been earned on the securities lent while
simultaneously seeking to earn interest on the investment of cash collateral in
U.S. government securities, shares of an investment trust or mutual fund,
commercial paper, repurchase agreements, variable and floating rate instruments,
restricted securities, asset-backed securities, and the other types of
investments permitted by the applicable Portfolio's prospectus. Collateral is
marked to market daily to provide a level of collateral at least equal to the
market value plus accrued interest of the securities lent. There may be risks of
delay in recovery of the securities or even loss of rights in the collateral
should the borrower of the securities fail financially. However, loans will only
be made to borrowers deemed by Banc One Investment Advisors to be of good
standing under guidelines established by the Trust's Board of Trustees and when,
in the judgment of Banc One Investment Advisors, the consideration which can be
earned currently from such securities loans justifies the attendant risk. Loans
are subject to termination by the Portfolios or the borrower at any time, and
therefore are not considered to be illiquid investments.
SHORT-TERM FUNDING AGREEMENTS
To enhance yield, some of the Portfolios may make limited investments in
short-term funding agreements issued by banks and highly rated U.S. insurance
companies. Short-term funding agreements issued by insurance companies are
sometimes referred to as Guaranteed Investment Contracts ("GICs"), while those
issued by banks are referred to as Bank Investment Contracts ("BICs"). Pursuant
to these agreements, a 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.
A 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
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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.
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 payments.
While structured instruments may offer the potential for a favorable rate of
return from time to time, they also entail certain risks. Structured instruments
may be less liquid than other debt securities, and the price of structured
instruments may be more volatile. If the value of the reference index changes in
a manner other than that expected by 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.
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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, and floors (collectively, "Swap
Contracts") on various securities (such as U.S. government securities),
securities indexes, interest rates, prepayment rates, foreign currencies or
other financial instruments or indexes, in order to protect the value of the
Portfolio from interest rate fluctuations and to hedge against fluctuations in
the floating rate market in which the Portfolio's investments are traded. The
Portfolios may enter into these transactions to manage their exposure to
changing interest rates and other market factors or for non-hedging purposes.
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 those 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.
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
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<PAGE> 89
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 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.
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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:
- - Treasury Receipts ("TRS"),
- - Treasury Investment Growth Receipts ("TIGRS"), and
- - 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 also may 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 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
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<PAGE> 91
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 receive 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 ratings, 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 on this basis,
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 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 might be affected in the
event its commitments to purchase when-issued securities ever exceeded 40% of
the value of its assets. Commitments to purchase when-issued securities will
not, under normal market conditions, exceed 25% of 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.
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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. With respect to the Equity Index Portfolio, no more than 10% of the
Portfolio's assets may be invested in securities issued or guaranteed by the
United States, its agencies or instrumentalities. For purposes of this
limitation, a security is considered to be issued by the 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. Repurchase agreements held in margin deposits and segregated
accounts for futures contracts are not considered securities issued or
guaranteed by the United States, its agencies or instrumentalities ("Government
Securities") for purposes of the Equity Index Portfolio's 10% limitation on
investments in Government Securities.
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 or sell securities short.
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.
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
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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 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, 1999
and 1998 for the following Portfolios were as follows:
<TABLE>
<CAPTION>
PORTFOLIO 1999 1998
--------- ---- ----
<S> <C> <C> <C>
Government Bond Portfolio 56.52% 40.4%
Balanced Portfolio 34.65% 32.1%
Large Cap Growth Portfolio 78.54% 61.0%
Mid Cap Growth Portfolio 148.15% 87.7%
Equity Index Portfolio 0.36% 2.3%*
Bond Portfolio 7.48% NA**
Diversified Mid Cap Portfolio 58.77% NA**
Mid Cap Value Portfolio 198.81% NA**
Diversified Equity Portfolio 81.65% NA**
</TABLE>
*NOT ANNUALIZED
** The Portfolio turnover rates for the Predecessor Funds of
the Bond Portfolio, the Diversified Mid Cap Portfolio, the Mid
Cap Value Portfolio and the Diversified Equity Portfolio are
shown in the following table.
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The portfolio turnover rates for the year ended December 31, 1998 for
the Predecessor Funds of the Bond Portfolio, the Diversified Mid Cap Portfolio,
the Mid Cap Value Portfolio, and the Diversified Equity Portfolio were as
follows:
<TABLE>
<CAPTION>
PORTFOLIO 1998
--------- ----
<S> <C> <C>
Bond Portfolio 14.5%
Diversified Mid Cap Portfolio 26.2%
Mid Cap Value Portfolio 39.3%
Diversified Equity Portfolio 43.2%
</TABLE>
The increase in portfolio turnover in 1999 for the Mid Cap Growth Portfolio, the
Diversified Mid Cap Portfolio, the Mid Cap Value Portfolio, and the Diversified
Equity Portfolio is due to the higher volatility of the equity markets. 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 or other documents you received when you purchased
your variable life or variable annuity contracts. 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 or variable life 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.
In addition to the diversification requirements applicable to all
regulated investment companies discussed above, 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 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
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(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 Code generally 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.
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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 an 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 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
mean of the last quoted bid and ask prices 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 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, at the mean of the latest quoted bid and ask prices. Securities for
which either 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 Banc One Investment Advisors 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 as of the close of the London Exchange.
SECURITY VALUATION SPECIFICS
- - U.S. Government Securities, Mortgage Pools, Collateralized Mortgage
Obligations, Asset Backed Securities, Corporate Bonds, and Municipal
Securities shall be valued by an independent pricing vendor. A mean of the
latest bid and ask quotations or the last sale in the case of a listed bond
shall be used to evaluate the security. Fixed income securities with less
than 61 days to maturity shall be valued at amortized cost.
- - Securities for which the primary market is a foreign exchange shall be
valued at the last available quoted sale price on said exchange for the
current day or, if traded on the London Exchange and are not part of the
FTSE 100, the securities will receive the mid-market close. Quotations of
foreign securities shall be converted into the U.S. dollar equivalent using
a spot currency value provided by an independent pricing vendor.
- - Securities for which readily available market quotations are not available
or for which the pricing agent provides a valuation that in the judgment of
the Trust's Pricing Committee does not represent a fair value, shall be
valued in accordance with the Trust's "Securities Valuation Procedures."
ADDITIONAL 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.
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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.
DIVIDENDS
All dividends are distributed to separate accounts on a quarterly basis and will
ordinarily be automatically reinvested in Portfolio shares. Under Fund
Participation Agreements between the Trust and various insurance companies,
certain insurance companies on behalf of separate accounts may elect to receive
dividend distributions in cash.
MANAGEMENT OF THE TRUST
TRUSTEES & OFFICERS
Overall responsibility for management of the Trust rests with the Board
of Trustees of the Trust who were elected by the Shareholders of the Trust. The
Trustees are responsible for making major decisions about 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 eight
Trustees, all of whom, except John F. Finn, are not "interested persons" of the
Trust within the meaning of that term under the 1940 Act. The Trustees of the
Trust, their addresses, their ages, and principal occupations during the past
five years are set forth below.
37
<PAGE> 98
<TABLE>
<CAPTION>
POSITION
HELD WITH
NAME AND ADDRESS AGE THE TRUST PRINCIPAL OCCUPATION DURING THE PAST FIVE YEARS
- ---------------- --- --------- -----------------------------------------------
<S> <C> <C> <C>
Peter C. Marshall 57 Trustee From March, 2000 to present, Senior Vice
DCI Marketing, Inc. President, W.D. Howard, Inc. (corporate parent
2727 W. Good Hope Rd. of DCI Marketing, Inc.). From November, 1993 to
Milwaukee, WI 53209 March, 2000, President, DCI Marketing, Inc.
Charles I. Post 72 Trustee From July, 1986 to present, self employed as a
7615 4th Avenue West consultant.
Bradenton, FL 34209
Frederick W. Ruebeck 60 Trustee From January, 2000 to present, self-employed
Eli Lilly & Company as a consultant. From June, 1988 to December, 1999,
Lilly Corporate Center Director of Investments, Eli Lilly and Company.
307 East McCarty
Indianapolis, IN 46258
Robert A. Oden, Jr. 53 Trustee From 1995 to present, President, Kenyon College;
Office of the President from 1989 to 1995, Headmaster, The Hotchkiss
Ransom Hall School.
Kenyon College
Gambier, OH 43022
*John F. Finn 52 Trustee Since 1975, President of Gardner, Inc.
President (wholesale distributor to outdoor
Gardner, Inc. power equipment industry)
1150 Chesapeake Ave.
Columbus, Ohio 43212
Marilyn McCoy 51 Trustee Vice President of Administration
Northwestern University and Planning, Northwestern
Office of the Vice President University (1985 to present).
Administration Planning Trustee of Pegasus Variable Funds
633 Clark St. Crown 2-112 since 1996.
Evanston, IL 60208
Julius L. Pallone 69 Trustee President, J.L. Pallone Associates
J.L. Pallone Associates (1994 to present). Trustee of
3000 Town Center Pegasus Variable Funds since 1987.
Suite 732
Southfield, MI 48075
Donald L. Tuttle 65 Trustee Vice President (1995 to present)
Association for Investment and Senior Vice President (1992 to
Management and Research 1995), Association for Investment
PO Box 3668 Management and Research. Trustee
560 Ray C. Hunt Drive of Pegasus Variable Funds since 1993.
Charlottesville, VA 22903
</TABLE>
*John F. Finn is an "interested person" as that term is defined in the
Investment Company Act of 1940.
The Trustees of the Portfolios receive fees and expenses for each meeting of the
Board of Trustees attended. The Compensation Table below sets forth the total
compensation to the Trustees from the Trust for the fiscal year ended December
31, 1999.
38
<PAGE> 99
<TABLE>
<CAPTION>
COMPENSATION TABLE
NAME OF PERSON, AGGREGATE PENSION OR ESTIMATED ANNUAL TOTAL COMPENSATION
POSITION COMPENSATION RETIREMENT BENEFITS UPON FROM THE PORTFOLIO
FROM THE BENEFITS ACCRUED RETIREMENT COMPLEX(1)
PORTFOLIOS(2) AS PART OF
PORTFOLIO
EXPENSES
<S> <C> <C> <C> <C>
Peter C. Marshall, $3,250 NA NA $80,750
Trustee
Charles I. Post, Trustee $3,250 NA NA $75,000
Frederick W. Ruebeck, $3,250(3) NA NA $76,250
Trustee
Robert A. Oden, Jr., $3,250 NA NA $76,250
Trustee
John F. Finn, Trustee $3,250(4) NA NA $76,250
Marilyn McCoy, $2,500(5) NA NA $70,250
Trustee
Julius L. Pallone, $2,500(6) NA NA $70,250
Trustee
Donald L. Tuttle, $2,500(7) NA NA $70,250
Trustee
</TABLE>
(1) "Portfolio Complex" comprises the 9 Portfolios of the Trust, as well
as the Funds of One Group(R) Mutual Funds as of December 31, 1999.
Compensation for the "Portfolio Complex" is for the fiscal year ended
December 31, 1999.
(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 of one or more funds of One Group Mutual Funds
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 $3,250 of deferred compensation.
(4) Includes $3,250 of deferred compensation.
(5) Includes $2,500 of deferred compensation.
(6) Includes $2,500 of deferred compensation.
(7) Includes $1,500 of deferred compensation.
39
<PAGE> 100
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:
<TABLE>
<CAPTION>
POSITION(S) HELD
NAME AND ADDRESS AGE WITH THE TRUST PRINCIPAL OCCUPATION DURING PAST 5 YEARS
- ---------------- --- -------------- ----------------------------------------
<S> <C> <C> <C>
Mark A. Beeson 42 President Mr. Beeson has served as Senior Managing Director of Banc
1111 Polaris Parkway, Suite B2 One Investment Advisors Corporation since August, 1994.
Columbus, Ohio 43240 Mr. Beeson has also served as Chief Executive Officer
and President of One Group Administrative Services, Inc.
since October 26, 1999.
Robert L. Young 37 Vice President Mr. Young has served as Managing Director of Banc One
1111 Polaris Parkway, Suite B2 and Treasurer Investment Advisors Corporation since December, 1996.
Columbus, Ohio 43240 Prior to that, Mr. Young was a senior audit manager of
Deloitte & Touche until December, 1996. Previously, Mr. Young
also worked for Dayton, Power & Light as the Director of
Internal Audit. Mr. Young has also served as Vice President and
Treasurer of One Group Administrative Services, Inc. since
October 26, 1999.
Mark S. Redman 45 Secretary Mr. Redman has been an employee of BISYS Fund Services, Inc.
1111 Polaris Parkway, Suite B2 since 1989. He has also served as President of The One Group
Columbus, Ohio 43240 Services Company since November, 1997 and as an officer of The
One Group Services Company from June, 1995 to November, 1997.
Gary R. Young 30 Assistant Mr. Young has served as a Director of Mutual Fund Administration
1111 Polaris Parkway, Suite B2 Treasurer and for Banc One Investment Advisors Corporation since December,
Columbus, Ohio 43240 Assistant 1998. Prior to that, Mr. Young was Vice President and Manager
Secretary of the Mutual Fund Accounting, Custody and Financial
Administration Group at First Chicago NBD Investment Management
Company. He has also worked for One Group Administrative
Services, Inc. since January 1, 2000.
Jessica K. Ditullio 37 Assistant Ms. Ditullio has served as an attorney in the law department
Bank One Corporation Secretary of Bank One Corporation since August, 1990.
100 East Broad Street
Columbus, Ohio 43215
Nancy E. Fields 50 Assistant Ms. Fields has served as Project Manager at Banc One Investment
1111 Polaris Parkway, Suite B2 Secretary Advisors Corporation since July, 1999. Prior to that, Ms. Fields
Columbus, Ohio 43240 served as Vice President with the Ohio Bankers Association
from January, 1998 until July, 1999. Prior to that, Ms. Fields
was Vice President of BISYS Fund Services, Inc. Ms. Fields has
also worked for One Group Administrative Services, Inc. since
January 1, 2000.
Michael V. Wible 37 Assistant Mr. Wible has served as an attorney in the law department of
Bank One Corporation Secretary Bank One Corporation since September, 1994.
100 East Broad Street
Columbus, Ohio 43215
James F. Laird, Jr. 42 Vice President Mr. Laird was elected Vice President-General Manager of Nationwide
Three Nationwide Plaza and Assistant Advisory Services, Inc., on April 5, 1995. Prior to being elected
Columbus, Ohio 43215 Treasurer General Manager, Mr.Laird served as Treasurer of Nationwide
Advisory Services, Inc. since November, 1987.
</TABLE>
40
<PAGE> 101
<TABLE>
<CAPTION>
POSITION(S) HELD
NAME AND ADDRESS AGE WITH THE TRUST PRINCIPAL OCCUPATION DURING PAST 5 YEARS
- ---------------- --- -------------- ----------------------------------------
<S> <C> <C> <C>
Karen R. Tackett 32 Vice President Since August, 1998, Ms. Tackett has been Director Strategic
Three Nationwide Plaza and Assistant Development of Nationwide Advisory Services, Inc. From March, 1996
Columbus, Ohio 43215 Secretary 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.)
</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.
As of December 31, 1999, 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 $127 billion in assets. Bank One
Corporation has affiliate banking organizations in Arizona, Colorado, Florida,
Illinois, Indiana, Kentucky, Louisiana, Michigan, Ohio, Oklahoma, Texas, Utah,
West Virginia and Wisconsin. In addition, Bank One Corporation has several
affiliates that engage in data processing, venture capital, investment and
merchant banking, and other diversified services including trust management,
investment management, brokerage, equipment leasing, mortgage banking, consumer
finance, and insurance.
Banc One Investment Advisors represents a consolidation of the
investment advisory staffs of a number of bank affiliates of Bank One
Corporation, which have considerable experience in the management of open-end
management investment company portfolios, including One Group Mutual Funds (an
open-end management investment company which consists of 54 separate Funds as of
December 31, 1999, 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 Amended and Restated Investment Advisory
Agreement dated February 17, 1999 (the "Advisory Agreement"). Unless sooner
terminated, the Advisory Agreement will continue in effect until August 31,
2000, and will continue in effect as to a particular Portfolio indefinitely 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.
41
<PAGE> 102
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 Advisory 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:
NAME OF PORTFOLIO PERCENTAGE
- ----------------- ----------
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%
Banc One Investment Advisors has 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:
NAME OF PORTFOLIO PERCENTAGE
- ----------------- ----------
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%
* These fee waivers are voluntary and may be terminated at any time.
For the fiscal years ended December 31, 1999, 1998, and 1997, the following
Portfolios paid investment advisory fees as follows:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED DECEMBER 31,
1999 1998 1997
---- ---- ----
PORTFOLIO NET WAIVED NET WAIVED NET WAIVED
- --------- --- ------ --- ------ --- ------
<S> <C> <C> <C> <C> <C> <C>
Government Bond Portfolio $ 247,016 -- $ 128,907 $ 9,393 $ 78,818 $ 23,446
Balanced Portfolio $ 1,016,442 -- $ 490,270 $ 2,862 $ 189,332 $ 44,906
Mid Cap Growth Portfolio $ 677,449 -- $ 431,700 $ -- $ 233,609 $ 4,114
Large Cap Growth Portfolio $ 1,821,847 -- $ 948,112 $ -- $ 458,066 $ 1,114
</TABLE>
42
<PAGE> 103
<TABLE>
<CAPTION>
Fiscal Year Ended December 31,
1999 1998 1997
---- ---- ----
Portfolio Net Waived Net Waived Net Waived
- --------- --- ------ --- ------ --- ------
<S> <C> <C> <C> <C> <C> <C>
Equity Index Portfolio $ 86,991 $10,237 $ -- $ 15,432 NA* NA*
Bond Portfolio $221,900** $55,226** NA*** NA*** NA*** NA***
Diversified Mid Cap Portfolio $100,907** $ 0** NA*** NA*** NA*** NA***
Mid Cap Value Portfolio $129,307** $ 795** NA*** NA*** NA*** NA***
Diversified Equity Portfolio $340,573** $ 8,591** NA*** NA*** NA*** NA***
</TABLE>
* The Equity Index Portfolio commenced operations on May 1, 1998.
** For the period from the substitution until December 31, 1999.
*** No fees were paid to Banc One Investment Advisors Corporation prior to the
substitution of the Predecessor Funds on March 31, 1999.
Prior to March 31, 1999, First Chicago NBD Investment Management Company
("FCNIMCO") provided investment management services to the Predecessor Funds of
the Bond Portfolio, the Diversified Mid Cap Portfolio, the Mid Cap Value
Portfolio, and the Diversified Equity Portfolio. FCNIMCO was an indirect
subsidiary of Bank One Corporation and an affiliate of Banc One Investment
Advisors. For the fiscal years ended December 31, 1999, 1998, and 1997, the
following Portfolios paid investment advisory fees to FCNIMCO as follows:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED DECEMBER 31,
1999* 1998 1997
----- ---- ----
PORTFOLIO NET WAIVED NET WAIVED NET WAIVED
- --------- --- ------ --- ------ --- ------
<S> <C> <C> <C> <C> <C> <C>
Bond Portfolio $ 57,476 $ 3,259 $ 164,396 $ 26,975 $59,313 $ 2,899
Diversified Mid Cap Portfolio $ 6,879 $ 19,137 $ 5,234 $ 82,956 $ 2,396 $ 58,356
Mid Cap Value Portfolio $ 16,041 $ 16,043 $ 50,740 $ 57,553 $20,834 $ 17,342
Diversified Equity Portfolio $ 82,912 $ 4,958 $ 263,173 $ 33,240 $96,428 $ 37,901
</TABLE>
*For the period from January 1, 1999 until the substitution on March 31, 1999.
43
<PAGE> 104
CODE OF ETHICS
The Trust and Banc One Investment Advisors have adopted codes of ethics
under Rule 17j-1 of the Investment Company Act of 1940. The Trust's code of
ethics includes policies which require "access persons" (as defined in Rule
17j-1) to: (i) place the interest of Trust Shareholders first; (ii) conduct
personal securities transactions in a manner that avoids any actual or potential
conflict of interest or any abuse of a position of trust and responsibility; and
(iii) refrain from taking inappropriate advantage of his or her position with
the Trust or with a Portfolio. The Trust's code of ethics prohibits any access
person from: (i) employing any device, scheme or artifice to defraud the Trust
or a Portfolio; (ii) making to the Trust any untrue statement of a material fact
or omit to state to the Trust or a Portfolio a material fact necessary in order
to make the statements made, in light of the circumstances under which they are
made, not misleading; (iii) engaging in any act, practice, or course of business
which operates or would operate as a fraud or deceit upon the Trust or a
Portfolio; or (iv) engaging in any manipulative practice with respect to the
Trust or a Portfolio. The Trust's code of ethics permits personnel subject to
the code to invest in securities, including securities that may be purchased or
held by a Portfolio so long as such investment transactions are not in
contravention of the above noted policies and prohibitions.
Banc One Investment Advisors' code of ethics requires that all
employees must: (i) place the interest of the accounts which are managed by Banc
One Investment Advisors first; (ii) conduct all personal securities transactions
in a manner that is consistent with the code of ethics and the individual
employee's position of trust and responsibility; and (iii) refrain from taking
44
<PAGE> 105
inappropriate advantage of their position. Banc One Investment Advisors' code of
ethics permits personnel subject to the code to invest in securities including
securities that may be purchased or held by a Portfolio subject to certain
restrictions. However, all employees are required to preclear securities trades
(except for certain types of securities such as mutual fund shares and U.S.
government securities).
45
<PAGE> 106
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:
<TABLE>
<CAPTION>
PORTFOLIO AGGREGATE BROKERAGE COMMISSIONS
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Balanced Portfolio $ 98,922 $ 47,608 $ 34,413
Large Cap Growth Portfolio $ 370,126 $ 109,720 $ 40,915
Equity Index Portfolio $ 7,831 $ 6,217 NA*
Diversified Equity Portfolio $ 114,909 $ 76,844 $ 46,091
Mid Cap Growth Portfolio $ 256,852 $ 92,962 $ 125,008
Diversified Mid Cap Portfolio $ 28,237 $ 21,501 $ 19,787
Mid Cap Value Portfolio $ 118,892 $ 17,896 $ 16,891
</TABLE>
* The Equity Index Portfolio commenced operations of May 1, 1998.
As of December 31, 1999, the following Portfolios held investments in securities
of their regular broker-dealers as follows:
<TABLE>
<CAPTION>
SHARES OR
PORTFOLIO SECURITY PRINCIPAL AMOUNT VALUE
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Balanced Portfolio Goldman Sachs Group, 7.20%, 03/01/07 300,000 288,310.80
Morgan Stanley Dean Witter, & Co. 12,980 1,852,895.00
Morgan Stanley Group, 6.50%, 03/30/01 200,000 199,424.80
====================================================================================================
Mid Cap Growth Portfolio Legg Mason, Inc. 12,000 435,000.00
====================================================================================================
Large Cap Growth Portfolio Morgan Stanley Dean Witter, & Co. 12,300 1,755,825.00
====================================================================================================
Equity Index Portfolio Merrill Lynch & Co. 1,000 83,500.00
State Street Corp. 400 29,225.00
====================================================================================================
Diversified Equity Portfolio Morgan Stanley Dean Witter, & Co. 8,340 1,190,535.00
====================================================================================================
Bond Portfolio Goldman Sachs Group, 6.25%, 02/01/03 500,000 485,082.00
====================================================================================================
</TABLE>
46
<PAGE> 107
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. In the last fiscal year, Banc One Investment
Advisors directed brokerage commissions to brokers who provided research
services to Banc One Investment Advisors. Total compensation paid to such
brokers amounted to $2,424,457.28.
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
Effective January 1, 2000, One Group Administrative Services, Inc.,
1111 Polaris Parkway, Columbus, Ohio 43240 began serving as administrator for
the Trust ("One Group Administrative Services" or the "Administrator"). One
Group Administrative Services is an affiliate of Banc One Investment Advisors,
the advisor of the Trust, and an indirect wholly-owned subsidiary of Bank One
Corporation.
The Administrator assists in supervising all operations of each
Portfolio to which it serves (other than those performed under the Advisory
Agreement, the Custodian Agreement and the Transfer Agency Agreement for that
Portfolio). Under the Administration Agreement, the Administrator has agreed to
maintain the necessary office space for the Portfolios, to price the Portfolio
securities of each Portfolio it serves and compute the net asset value and net
income of the Portfolios on a daily basis, to maintain each Portfolio's
financial accounts and records, and to furnish 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, and generally assists in all aspects of
the Trust's operations other than those performed under the Advisory Agreement,
the Custodian Agreement and the Transfer Agency Agreement. Under the
47
<PAGE> 108
Administration Agreement, the Administrator may, at its expense, subcontract
with any entity or person concerning the provision of services under the
Administration Agreement.
Unless sooner terminated, the Administration Agreement between the
Trust and One Group Administrative Services will continue in effect through
November 1, 2000. The Administration Agreement thereafter shall be renewed
automatically for successive one year terms, unless written notice not to renew
is given by the non-renewing party to the other party at least sixty days prior
to the expiration of the then-current term. The Administration Agreement 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 One Group Administrative Services.
The Administrator is entitled to a fee for its services, which is
calculated daily and paid monthly, at the annual rates specified below:
For all Portfolios except the Equity Index Portfolio:
- .18% on the first $250 million in Trust assets (except for the
Equity Index Portfolio)
- .14% on Trust assets in excess of $250 million (other than assets
in the Equity Index Portfolio)
For the Equity Index Portfolio:
- .14% on Equity Index Portfolio 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.
Prior to January 1, 2000, Nationwide Advisory Services, Inc. Three
Nationwide Plaza, Columbus, Ohio 43215 ("NAS") served as Administrator to each
Portfolio pursuant to an administration agreement with the Trust. (NAS is a
wholly-owned subsidiary of Nationwide Life Insurance Company, which in turn is a
wholly-owned subsidiary of Nationwide Financial Services, Inc., a holding
company of the Nationwide Insurance Enterprise).
For the fiscal years ended December 31, 1999, 1998, and 1997, the
following Portfolios paid administration fees to NAS as follows:
<TABLE>
<CAPTION>
FISCAL YEAR END DECEMBER 31,
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Government Bond Portfolio $ 97,129 $ 69,649 $ 42,036
Balanced Portfolio $ 255,799 $ 158,161 $ 64,914
Mid Cap Growth Portfolio $ 184,404 $ 151,830 $ 86,256
Large Cap Growth Portfolio $ 493,954 $ 330,612 $ 169,132
Equity Index Portfolio $ 45,373 $ 7,202 NA*
Bond Portfolio $ 79,398*** NA** NA**
Diversified Equity Portfolio $ 80,691*** NA** NA**
Diversified Mid Cap Portfolio $ 23,418*** NA** NA**
Mid Cap Value Portfolio $ 30,188*** NA** NA**
</TABLE>
48
<PAGE> 109
* The Equity Index Portfolio commenced operations on May 1, 1998.
** FCNIMCO and BISYS Fund Services, Inc. ("BISYS") rather than NAS served as
co-administrators to the Predecessor Funds of the Bond Portfolio, the
Diversified Mid Cap Portfolio, the Mid Cap Value Portfolio, and the
Diversified Equity Portfolio for the fiscal years ended December 31, 1997
and December 31, 1998.
*** Represents amounts paid to NAS from April 1, 1999 through December 31,
1999. For the period from January 1, 1999 through March 31, 1999 (the
date of the substitution of the Predecessor Funds, the following Portfolios
paid administration fees to FCNIMCO as follows:
Fees for period
from January 1, 1999
Portfolio through March 31, 1999
----------- -------------------------
Bond Portfolio $22,756
Diversified Equity Portfolio $21,967
Diversified Mid Cap Portfolio $ 6,504
Mid Cap Value Portfolio $ 8,021
FCNIMCO and BISYS served as co-administrators to the Predecessor Funds of the
Bond Portfolio, the Diversified Mid Cap Portfolio, the Mid Cap Value Portfolio,
and the Diversified Equity Portfolio. For the fiscal years ended December 31,
1999, 1998 and 1997, the following Portfolios paid administration fees to
FCNIMCO and BISYS as follows:
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<PAGE> 110
<TABLE>
<CAPTION>
FISCAL YEAR ENDED DECEMBER 31,
1999* 1998 1997
----- ---- ----
PORTFOLIO NET WAIVED NET WAIVED NET WAIVED
- --------- --- ------ --- ------ --- ------
<S> <C> <C> <C> <C> <C> <C>
Bond Portfolio $ 22,756 $-- $ 71,764 $-- $ $23,329
Diversified Mid Cap Portfolio $ 6,504 $-- $ 22,048 $-- $ $15,188
Mid Cap Value Portfolio $ 8,021 $-- $ 27,073 $-- $ $ 9,544
Diversified Equity Portfolio $ 21,967 $-- $ 74,103 $-- $ $33,582
* For the period from January 1, 1999 until the substitution of the Predecessor Funds on March 31, 1999.
</TABLE>
SUB-ADMINISTRATORS
For the period beginning November 14, 1998 and ending March 31, 1999,
NAS served as sub-administrator to the Predecessor Funds and received fees equal
to 0.15% of the average net assets of the Predecessor Funds from the Predecessor
Funds' administrator.
The Board of Trustees of the Trust approved a Sub-Administration
Agreement between Banc One Investment Advisors and NAS that was effective on
April 1, 1999. Under the contract, Banc One Investment Advisors was entitled to
a fee equal to 0.05% of the average net assets of the Trust. For the period from
April 1, 1999 through December 31, 1999, NAS paid Banc One Investment Advisors
fees for subadministration equal to $311,456.64. The contract terminated on
December 31, 1999 with the termination of the administration agreement between
the Trust and NAS.
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.
State Street may, at its own expense, open and maintain a sub-custody account or
accounts on behalf of the Trust, provided that State Street shall remain liable
for the performance of all of its duties under the Custodian Agreement.
NBD Bank ("NBD"), an indirect wholly-owned subsidiary of Bank One Corporation,
served as Custodian for the Predecessor Funds pursuant to a custodian agreement.
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<PAGE> 111
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 Sub-Custodian. 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. State Street Bank and Trust Company ("State Street"),
225 Franklin Street, Boston, Massachusetts 02110, serves as Transfer Agent for
each Portfolio pursuant to a Transfer Agency and Service Agreement with the
Trust (the "Transfer Agency Agreement"). Under the Transfer Agency Agreement,
State Street has agreed to perform the customary services of a transfer agent
and dividend disbursing agent including issuing and redeeming Shares of the
Portfolios, maintaining Shareholder accounts, and preparing and mailing account
statements and activity statements to Shareholders.
EXPERTS
Independent Public Accountants. The financial statements for the fiscal year
ended December 31, 1999 have been audited by PricewaterhouseCoopers LLP, 100
East Broad Street, Columbus, Ohio 43215, independent public accountants to the
Trust, as indicated in their reports with respect thereto, and are incorporated
herein by reference, in reliance upon the authority of said firm as experts in
accounting and auditing in giving said reports.
The financial statements for the Predecessor Funds for the fiscal year ended
December 31, 1998 have been audited by the predecessor auditors for such
Predecessor Funds.
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.
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<PAGE> 112
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. 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 or to conform the Declaration of Trust to
the requirements of applicable federal and state laws or regulations if they
deem it necessary.
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.
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<PAGE> 113
The Trust may suspend the right of redemption only under the following
unusual circumstances:
(i) when the New York Stock Exchange is closed (other than weekends and
holidays) or trading is restricted;
(ii) when an emergency exists, making disposal of portfolio
securities or the valuation of net assets not reasonably practicable; or
(iii) during any period when the Securities and Exchange Commission has
by order permitted a suspension of redemption for the protection of
shareholders.
SHAREHOLDER AND TRUSTEE LIABILITY
Under Massachusetts law, holders of units of beneficial interest in a
business trust may, under certain circumstances, be held personally liable as
partners for the obligations of the Trust. However, the Trust's Declaration of
Trust provides that Shareholders shall not be subject to any personal liability
for the obligations of the Trust, and that every written agreement, obligation,
instrument, or undertaking made by the Trust shall contain a provision to the
effect that the Shareholders are not personally bound 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. 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 or other
documents that you received when you purchased your variable life or variable
insurance contract.
As of April 4, 2000, the Trust believes that no Shareholder owned
beneficially more than 25% of the outstanding shares of any Portfolio of the
Trust.
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<PAGE> 114
5% SHAREHOLDERS
In addition, as of April 4, 2000, 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>
HARTFORD LIFE & ANNUITY Bond Portfolio 66.97% Record
SEPARATE ACCOUNT SIX
C/O CAROL LEWIS C-4
200 HOPMEADOW ST
WEATOGUE CT 06089-9793
NATIONWIDE LIFE & ANNUITY INSURANCE Bond Portfolio 25.72% Record
NWVA-C
C/O IPO PORTFOLIO ACCOUNTING
PO BOX 182029
COLUMBUS OH 43218-2029
NATIONWIDE LIFE & ANNUITY INSURANCE Government Bond Portfolio 96.01% Record
NWVA-C
C/O IPO PORTFOLIO ACCOUNTING
PO BOX 182029
COLUMBUS OH 43218-2029
NATIONWIDE LIFE & ANNUITY INSURANCE Balanced Portfolio 99.28% Record
NWVA-C
C/O IPO PORTFOLIO ACCOUNTING
PO BOX 182029
COLUMBUS OH 43218-2029
NATIONWIDE LIFE & ANNUITY INSURANCE Large Cap Growth Portfolio 90.48% Record
NWVA-C
C/O IPO PORTFOLIO ACCOUNTING
PO BOX 182029
COLUMBUS OH 43218-2029
HARTFORD LIFE & ANNUITY Large Cap Growth Portfolio 7.36% Record
SEPARATE ACCOUNT SIX
C/O CAROL LEWIS C-4
200 HOPMEADOW ST
WEATOGUE CT 06089-9793
NATIONWIDE LIFE & ANNUITY INSURANCE Equity Index Portfolio 96.53% Record
NWVA-C
C/O IPO PORTFOLIO ACCOUNTING
PO BOX 182029
COLUMBUS OH 43218-2029
HARTFORD LIFE & ANNUITY Diversified Equity Portfolio 78.17% Record
SEPARATE ACCOUNT SIX
C/O CAROL LEWIS C-4
200 HOPMEADOW ST
WEATOGUE CT 06089-9793
NATIONWIDE LIFE & ANNUITY INSURANCE Diversified Equity Portfolio 18.37% Record
NWVA-C
C/O IPO PORTFOLIO ACCOUNTING
PO BOX 182029
COLUMBUS OH 43218-2029
NATIONWIDE LIFE & ANNUITY INSURANCE Mid Cap Growth Portfolio 98.41% Record
NWVA-C
C/O IPO PORTFOLIO ACCOUNTING
PO BOX 182029
COLUMBUS OH 43218-2029
</TABLE>
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<PAGE> 115
<TABLE>
<S> <C> <C> <C>
HARTFORD LIFE & ANNUITY Diversified Mid Cap Portfolio 70.92% Record
SEPARATE ACCOUNT SIX
C/O CAROL LEWIS C-4
200 HOPMEADOW ST
WEATOGUE CT 06089-9793
NATIONWIDE LIFE & ANNUITY INSURANCE Diversified Mid Cap Portfolio 25.79% Record
NWVA-C
C/O IPO PORTFOLIO ACCOUNTING
PO BOX 182029
COLUMBUS OH 43218-2029
HARTFORD LIFE & ANNUITY Mid Cap Value Portfolio 81.19% Record
SEPARATE ACCOUNT SIX
C/O CAROL LEWIS C-4
200 HOPMEADOW ST
WEATOGUE CT 06089-9793
NATIONWIDE LIFE & ANNUITY INSURANCE Mid Cap Value Portfolio 15.39% Record
NWVA-C
C/O IPO PORTFOLIO ACCOUNTING
PO BOX 182029
COLUMBUS OH 43218-2029
</TABLE>
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As of April 4, 2000, 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.
From time to time, Banc One Investment Advisors and/or Administrator
may voluntarily waive all or a portion of their respective fee(s) 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
are 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 indicate 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 funds. Interactive Data Corporation is a statistical access
service that maintains a database of various industry indicators, such as
historical and current price/earning information and individual stock and fixed
income security 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.
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<PAGE> 117
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 the performance of
various indices and investments for which reliable performance data is
available, as well as averages, performance rankings or other information
prepared by recognized mutual fund statistical services or 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.
The average annual total return for the one year ended December 31,
1999 and for the life of each Portfolio was as follows:
<TABLE>
<CAPTION>
DATE
PORTFOLIO
COMMENCED
ONE YEAR LIFE OPERATION
-------- ---- ---------
<S> <C> <C> <C>
Bond Portfolio -1.50% 5.67% 5/1/97
Government Bond Portfolio -1.31% 6.12% 8/1/94
Balanced Portfolio 8.20% 14.79% 8/1/94
Mid Cap Growth Portfolio 25.42% 23.56% 8/1/94
Large Cap Growth Portfolio 29.26% 26.07% 8/1/94
Equity Index Portfolio 21.11% 19.09% 5/1/98
Diversified Equity Portfolio 9.13% 17.88% 3/30/95
Diversified Mid Cap Portfolio 10.50% 15.98% 3/30/95
Mid Cap Value Portfolio -1.84% 3.99% 5/1/97
</TABLE>
The 30 day yield as of 12/31/99 for the Portfolios listed below was as
follows:
30 Day Yield @ 12/31/99
Bond Portfolio 6.33%
Government Bond Portfolio 6.17%
Balanced Portfolio 2.66%
ADMINISTRATIVE SERVICES PLAN
On November 17, 1999, a majority of the disinterested Trustees of the
Trust approved an Administrative Services Plan (the "Plan") and authorized any
officer of the Trust to execute and deliver, in the name and on behalf of the
Portfolios, written agreements in substantially the form presented to the Board
of Trustees of the Trust ("Servicing Agreements") with insurance companies and
other entities which are shareholders of record or which have a servicing
relationship ("Service Organization") with the beneficial owners of a class of a
Portfolio's shares of beneficial interest ("Shares"). Such Servicing Agreements
must provide that the Service Organizations are required to provide
administrative support services to their customers who own Shares of record or
beneficially. In consideration for providing such services, a Service
Organization will receive a fee, computed
57
<PAGE> 118
daily and paid monthly, of up to the annual rate of 0.25% of the average daily
net assets of the Portfolio owned beneficially by its customers. Any bank, trust
company, thrift institution, broker-dealer, insurance company or other financial
institution is eligible to become a Service Organization and to receive fees
under the Plan. All expenses incurred by a Portfolio with respect to its Shares
in connection with the Servicing Agreements and the implementation of the Plan
shall be borne entirely by the holders of Shares of that Portfolio.
The Plan further provides that the Trustees shall review, at least
quarterly, a written report of the amounts expended pursuant to the Plan and the
purposes for which such expenditures were made. Unless sooner terminated, the
Plan shall continue until November 31, 2000, and thereafter, shall continue
automatically for successive annual periods provided such continuance is
approved at least annually by a majority of the Board of Trustees, including a
majority of the Disinterested Trustees.
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 that 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 funds or payments derived from any
reinvestment of such proceeds, and any general assets of the Trust not readily
identified as belonging to a particular 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 assets 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
assets for the general liabilities and expenses of the Trust. The timing of
allocations of general assets and general liabilities and expenses of the Trust
to particular 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.
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<PAGE> 119
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
The financial statements of the Trust are incorporated by reference
into this Statement of Additional Information. The financial statements for the
fiscal year ended December 31, 1999 have been audited by PricewaterhouseCoopers
LLP, independent public accountants to the Trust, as indicated in their reports
with respect thereto, and are incorporated hereby reference in reliance upon the
authority of said firm as experts in accounting and auditing in giving said
reports.
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<PAGE> 120
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APPENDIX A--DESCRIPTION OF RATINGS
The following is a summary of published ratings by major credit rating agencies.
Credit ratings evaluate only the safety of principal and interest payments, not
the market value risk of lower quality securities. Credit rating agencies may
fail to change credit ratings to reflect subsequent events on a timely basis.
Although Banc One Investment Advisors considers security ratings when making
investment decisions, it also performs its own investment analysis and does not
rely solely on the ratings assigned by credit agencies.
Unrated securities will be treated as non-investment grade securities unless
Banc One Investment Advisors determines that such securities are the equivalent
of investment grade securities. Securities that have received different ratings
from more than one agency are considered investment grade if at least one agency
has rated the security investment grade.
DESCRIPTION OF COMMERCIAL PAPER RATINGS
DUFF & PHELPS CREDIT RATING CO. ("DUFF")
D-1+ Highest certainty of timely payment. Short-term liquidity, including
internal operating factors and/or access to alternative sources of
funding, is outstanding and safety is just below risk-free U.S.
Treasury obligations.
D-1 Very high certainty of timely payment. Liquidity factors are excellent
and supported by good fundamental protection factors. Risk factors are
minor.
D-1- High certainty of timely payment. Liquidity factors are strong and
supported by good fundamental protection factors. Risk factors
are very small.
D-2 Good certainty of timely payment. Liquidity facts and company
fundamentals are sound. Although ongoing funding needs may enlarge
total financing requirements, access to capital markets is good. Risk
factors are small.
D-3 Satisfactory liquidity and other protection factors qualify issues as
to investment grade. Risk factors are larger and subject to more
variation. Nevertheless, timely payment is expected.
D-4 Speculative investment characteristics. Liquidity is not sufficient to
insure against disruption in debt service. Operating factors and
market access may be subject to a high degree of variation.
D-5 Issuer failed to meet scheduled principal and/or interest payments.
STANDARD & POOR'S CORPORATION ("S&P")
A-1 Highest category of commercial paper. Capacity to meet financial
commitment is strong. Obligations designated with a plus sign (+)
indicate that capacity to meet financial commitment is extremely
strong.
A-2 Issues somewhat more susceptible to adverse effects of changes in
circumstances and economic conditions than obligations in higher
rating categories. However, the capacity to meet financial commitments
is satisfactory.
A-3 Exhibits adequate protection parameters. However, adverse economic
conditions or changing circumstances are more likely to lead to a
weakened capacity of the obligor to meet its financial commitment on
the obligation.
A-1
<PAGE> 122
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.
C Currently vulnerable to nonpayment and is dependent upon
favorable business, financial, and economic conditions
for the obligor to meet its financial commitment on the
obligation.
D In payment default. The D rating category is used when
payments on an obligation are not made on the date due
even if the applicable grace period has not expired,
unless Standard & Poor's believes that such payments
will be made during such grace period. The D rating also
will be used upon the filing of a bankruptcy petition or
the taking of a similar action if payments on an
obligation are jeopardized.
FITCH'S IBCA ("FITCH")
F1 Highest capacity for timely repayment. Those issues rated F1+ possess
a particularly strong credit feature.
F2 Satisfactory capacity for timely repayment although such capacity may
be susceptible to adverse changes in business, economic or financial
conditions.
F3 Adequate capacity for timely repayment, but more susceptible to
adverse changes in business, economic or financial conditions than for
obligations in higher categories.
B Capacity for timely repayment is susceptible to adverse changes in
business, economic or financial conditions.
C High risk of default or which are currently in default.
MOODY'S INVESTORS SERVICE ("MOODY'S")
Prime-1 Superior ability for repayment.
Prime-2 Strong ability for repayment.
Prime-3 Acceptable ability for repayment. The effect of industry
characteristics and market compositions may be more pronounced.
Variability in earnings and profitability may result in changes
in the level of debt protection measurements and may require
relatively high financial leverage. Adequate alternate liquidity
is maintained.
Not Prime Does not fall within any of the Prime rating categories.
A-2
<PAGE> 123
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.
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.
A-3
<PAGE> 124
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
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.
A-4
<PAGE> 125
NON-INVESTMENT GRADE
Ba These bonds have speculative elements; their future cannot be
considered as well assured. The protection of interest and principal
payments may be very moderate and thereby not well safeguarded
during good and bad times over the future.
B These bonds lack the characteristics of a desirable investment
(i.e., potentially low assurance of timely interest and principal
payments or maintenance of other contract terms over any long period
of time may be small).
Caa Bonds in this category have poor standing and may be in default.
These bonds carry an element of danger with respect to principal and
interest payments.
Ca Speculative to a high degree and could be in default or have other
marked shortcomings. C is the lowest rating.
C The lowest rated class of bonds, and issues so rated can be regarded
as having extremely poor prospects of ever attaining any real
investment standing.
FITCH
INVESTMENT GRADE
AAA Highest rating category. The obligor's capacity for timely repayment
of principal and interest is extremely strong.
AA The obligor's capacity for timely repayment is very strong.
A Bonds and preferred stock considered to be investment grade and of
high credit quality. The obligor's ability for timely repayment is
strong. However, adverse changes in business, economic, or financial
conditions are more likely to affect the capacity for timely
repayment than obligations in higher rated categories.
BBB The obligor's capacity for timely repayment of principal and
interest is adequate. However, adverse changes in business, economic
or financial conditions and circumstances are more likely to affect
the capacity for timely repayment than for obligations in higher
rated categories.
NON-INVESTMENT GRADE
BB Obligations for which capacity for timely repayment of principal and
interest is uncertain. These obligations are speculative to some
degree and capacity for repayment remains susceptible over time to
adverse changes in business, financial or economic conditions.
B The obligor's capacity for timely repayment of principal and
interest is uncertain. Timely repayment of principal and interest is
not sufficiently protected against adverse changes in business,
economic or financial conditions and these obligations are far more
speculative than those in higher rated categories.
CCC Obligations for which there is a current perceived possibility of
default. Timely repayment of principal and interest is dependent on
favorable business, economic, or financial conditions and these
obligations are far more speculative than those in higher rated
categories.
CC Obligations which are highly speculative or which have a high risk
of default.
C Obligations which are currently in default.
A-5
<PAGE> 126
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 category offer poor financial
security. Assurance of punctual payment of policyholder obligations
over any long period of time is small.
Caa Insurance companies rated in this category offer very poor financial
security. They may be in default on their policyholder obligations
or there may be present elements of danger with respect to punctual
payment of policyholder obligations and claims.
Ca Insurance companies rated in this category offer extremely poor
financial security. Such companies are often in default on their
policyholder obligations or have other marked shortcomings.
C Insurance companies rated in this category are the lowest rated
class of insurance company and can be regarded as having extremely
poor prospects of ever offering financial security.
S & P
An insurer rated "BBB" or higher is regarded as having financial security
characteristics that outweigh any vulnerabilities, and is highly likely to have
the ability to meet financial commitments.
AAA EXTREMELY STRONG financial security characteristics. "AAA" is the
highest Insurer Financial Strength Rating assigned by Standard &
Poor's.
AA VERY STRONG financial security characteristics, differing only
slightly from those rated higher.
A STRONG financial security characteristics, but is somewhat more
likely to be affected by adverse business conditions than are
insurers with higher ratings.
A-6
<PAGE> 127
BBB GOOD financial security characteristics, but is more likely to be
affected by adverse business conditions than are higher rated
insurers.
An insurer rated "BB" or lower is regarded as having vulnerable characteristics
that may outweigh its strength. "BB" indicates the least degree of vulnerability
within the range; "CC" the highest.
BB MARGINAL financial security characteristics. Positive attributes
exist, but adverse business conditions could lead to insufficient
ability to meet financial commitments.
B WEAK financial security characteristics. Adverse business conditions
will likely impair its ability to meet financial commitments.
CCC VERY WEAK financial security characteristics, and is dependent on
favorable business conditions to meet financial commitments.
CC EXTREMELY WEAK financial security characteristics and is likely not
to meet some of its financial commitments.
R An insurer rated "R" has experienced a REGULATORY ACTION regarding
solvency. The rating does not apply to insurers subject only to
nonfinancial actions such as market conduct violations.
NR NOT RATED, which implies no opinion about the insurer's financial
security.
Plus (+)
or
minus (-) Following ratings from "AA" to "CCC" show relative standing within
the major rating categories.
A-7
<PAGE> 128
DESCRIPTION OF MUNICIPAL NOTE RATINGS
MOODY'S
MIG1 & VMIG1 Short-term municipal securities rated MIG1 or VMIG1 are
of the best quality. They have strong protection from
established cash flows, superior liquidity support or
demonstrated broad-based access to the market for
refinancing.
MIG2 & VMIG2 These short-term municipal securities rated are
of high quality. Margins of protection are ample
although not so large as in the preceding group.
MIG3 & VMIG3 Favorable quality. All security elements are
accounted for, but the undeniable strength of the
preceding grades is lacking. Liquidity and cash flow
protection may be narrow and marketing access for
refinancing is likely to be less well established.
MIG4 & VMIG4 This denotes adequate quality protection commonly
regarded as required of an investment security is
present and although not distinctly or predominantly
speculative, there is a specific risk.
SG This denotes speculative quality.
S&P
An S&P note rating reflects the liquidity concerns and market access risks
unique to notes. Notes due in three years or less will likely receive a note
rating. Notes maturing beyond three years will most likely receive a long-term
debt rating.
SP-1 Strong capacity to pay principal and interest. Those
issues determined to possess overwhelming safety
characteristics will be given a plus (+) designation.
SP-2 Satisfactory capacity to pay principal and interest.
SP-3 Speculative capacity to pay principal and interest.
DESCRIPTION OF PREFERRED STOCK RATINGS
MOODY'S
aaa Top-quality preferred stock. This rating indicates good
asset protection and the least risk of dividend
impairment within the universe of preferred stocks.
aa High-grade preferred stock. This rating indicates that
there is a reasonable assurance the earnings and asset
protection will remain relatively well maintained in the
foreseeable future.
a Upper-medium grade preferred stock. While risks are
judged to be somewhat greater than in the "aaa" and "aa"
classifications, earnings and asset protection are,
nevertheless, expected to be maintained at adequate
levels.
baa Medium-grade preferred stock, neither highly protected
nor poorly secured. Earnings and asset protection appear
adequate at present but may be questionable over any
great length of time.
ba Considered to have speculative elements and its future
cannot be considered well assured. Earnings and asset
protection may be very moderate and not well safeguarded
during adverse periods. Uncertainty of position
characterizes preferred stocks in this class.
A-8
<PAGE> 129
b Lacks the characteristics of a desirable investment.
Assurance of dividend payments and maintenance of other
terms of the issue over any long period of time may be
small.
caa Likely to be in arrears on dividend payments. This
rating designation does not purport to indicate the
future status of payments.
ca Speculative in a high degree and is likely to be in
arrears on dividends with little likelihood of eventual
payments.
c Lowest rated class of preferred or preference stock.
Issues so rated can thus be regarded as having extremely
poor prospects of ever attaining any real investment
standing.
Note: Moody's applies numerical modifiers 1, 2, and 3 in each rating
classification; the modifier 1 indicates that the security ranks in the higher
end of its generic rating category; the modifier 2 indicates a mid-range ranking
and the modifier 3 indicates that the issue ranks in the lower end of its
generic rating category.
S&P
S&P's preferred stock rating is an assessment of the capacity and willingness of
an issuer to pay preferred stock dividends and any applicable sinking fund
obligations.
AAA Highest rating. This rating indicates an extremely
strong capacity to pay the preferred stock obligations.
AA High-quality, fixed-income security. The capacity to pay
preferred stock obligations is very strong, although not
as overwhelming as for issues rated "AAA."
A Backed by a sound capacity to pay the preferred stock
obligations, although it is somewhat more susceptible to
the adverse effects of changes in circumstances and
economic conditions.
BBB Backed by an adequate capacity to pay the preferred
stock obligations. Whereas the issuer normally exhibits
adequate protection parameters, adverse economic
conditions or changing circumstances are more likely to
lead to a weakened capacity to make payments for a
preferred stock in this category than for issues in the
"A" category.
BB, B, CCC Regarded, on balance, as predominantly speculative with
respect to the issuer's capacity to pay preferred stock
obligations. BB indicates the lowest degree of
speculation and CCC the highest. While such issues will
likely have some quality and protective characteristics,
these are outweighed by large uncertainties or major
risk exposures to adverse conditions.
CC In arrears on dividends or sinking fund payments,
but is currently paying.
C Nonpaying issue.
D Nonpaying issue with the issuer in default on debt
instruments.
N.R. No rating has been requested, insufficient information
on which to base a rating, or Standard & Poor's does not
rate a particular type of obligation as a matter of
policy.
Plus (+) or
minus (-) To provide more detailed indications of preferred stock
quality, ratings from AA to CCC may be modified by the
addition of a plus or minus sign to show relative
standing within the major rating categories.
A-9
<PAGE> 130
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, not likely to have the capacity
to meet its financial commitment on the obligation.
CC Currently highly vulnerable to non-payment.
C This rating may be used to cover a situation where a
bankruptcy petition has been filed, or similar action
has been taken, but payments on this obligation are
being continued.
D Bonds in payment default.
Ratings from AA to CCC may be modified by a plus (+) or minus (-) to show
relative standing within the major rating categories.
A-10
<PAGE> 131
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.
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.
A-11
<PAGE> 132
44
Appendix B
INVESTMENT PRACTICES
--------------------------------------------------------
The Portfolios invest in a variety of securities and
employ a number of investment techniques. What follows
is a list of some of the securities and techniques which
may be utilized by the Portfolios. For more information
concerning the Portfolio's investment practices see the
Statement of Additional Information.
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PORTFOLIO NAME PORTFOLIO CODE
-----------------------------------------------------------------------
<S> <C> <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 Diversified Equity Portfolio 6
-----------------------------------------------------------------------
One Group Investment Trust Equity Index Portfolio 7
-----------------------------------------------------------------------
One Group Investment Trust Diversified Mid Cap Portfolio 8
-----------------------------------------------------------------------
One Group Investment Trust Mid Cap Value Portfolio 9
-----------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
PORTFOLIO
INSTRUMENT CODE
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
U.S. Treasury Obligations: Bills, notes, bonds, 1-9
STRIPS,
and CUBES.
-------------------------------------------------------------------------------
Treasury Receipts: TRS, TIGRs, and CATS. 1-9
-------------------------------------------------------------------------------
U.S. Government Agency Securities: Securities 1-9
issued by agencies and instrumentalities of the
U.S. Government. These include Ginnie Mae, Fannie
Mae, and Freddie Mac.
-------------------------------------------------------------------------------
Certificates of Deposit: Negotiable instruments 1, 3-9
with a stated maturity.
-------------------------------------------------------------------------------
Time Deposits: Non-negotiable receipts issued by a 1, 3-9
bank in exchange for the deposit of funds.
-------------------------------------------------------------------------------
</TABLE>
B-1
<PAGE> 133
45
<TABLE>
<CAPTION>
PORTFOLIO
INSTRUMENT CODE
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Common Stock: Shares of ownership of a company. 3-9
-------------------------------------------------------------------------------
Repurchase Agreements: The purchase of a security 1-9
and the simultaneous commitment to return the
security to the seller at an agreed upon price on
an agreed upon date. This is treated as a loan.
-------------------------------------------------------------------------------
Reverse Repurchase Agreement: The sale of a 1-9
security and the simultaneous commitment to buy
the security back at an agreed upon price on an
agreed upon date. This is treated as a borrowing
by a Portfolio.
-------------------------------------------------------------------------------
Securities Lending: The lending of up to 33 1/3% 1-9
of the Portfolio's total assets. In return the
Portfolio will receive cash, other securities,
and/or letters of credit as collateral.
-------------------------------------------------------------------------------
When-Issued Securities and Forward Commitments: 1-9
\ Purchase or contract to purchase securities at a
fixed price for delivery at a future date.
-------------------------------------------------------------------------------
Investment Company Securities: Shares of other 1-9
mutual funds, including money market funds of One
Group Mutual Funds and shares of other money
market funds for which Banc One Investment
Advisors or its affiliates serve as investment
advisor or administrator. Banc One Investment
Advisors will waive certain fees when investing in
funds for which it serves as investment advisor.
-------------------------------------------------------------------------------
Convertible Securities: Bonds or preferred stock 1, 3-9
that can convert to common stock.
-------------------------------------------------------------------------------
Call and Put Options: A call option gives the 1-9
buyer the right to buy, and obligates the seller
of the option to sell, a security at a specified
price at a future date. A put option gives the
buyer the right to sell, and obligates the seller
of the option to buy, a security at a specified
price at a future date. The Portfolios will sell
only covered call and secured put options.
-------------------------------------------------------------------------------
</TABLE>
B-2
<PAGE> 134
46
<TABLE>
<CAPTION>
PORTFOLIO
INSTRUMENT CODE
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Futures and Related Options: A contract providing 1-9
for the future sale and purchase of a specified
amount of a specified security, class of
securities, or an index at a specified time in the
future and at a specified price.
-------------------------------------------------------------------------------
Real Estate Investment Trusts ("REITs"): Pooled 3-9
investment vehicles which invest primarily in
income producing real estate or real estate
related loans or interest.
-------------------------------------------------------------------------------
Bankers' Acceptances: Bills of exchange or time 1, 3-9
drafts drawn on and accepted by a commercial bank.
Maturities are generally six months or less.
-------------------------------------------------------------------------------
Commercial Paper: Secured and unsecured short-term 1, 3-9
promissory notes issued by corporations and other
entities. Maturities generally vary from a few
days to nine months.
-------------------------------------------------------------------------------
Foreign Securities: Stocks issued by foreign 1, 3-9
companies, as well as commercial paper of foreign
issuers and obligations of foreign banks, overseas
branches of U.S. banks and supranational entities.
The Equity Portfolios may also invest in American
Depositary Receipts, Global Depositary Receipts,
and American Depositary Securities.
-------------------------------------------------------------------------------
Restricted Securities: Securities not registered 1-9
under the Securities Act of 1933, such as
privately placed commercial paper and Rule 144A
securities.
-------------------------------------------------------------------------------
Variable and Floating Rate Instruments: 1, 3-9
Obligations with interest rates which are reset
daily, weekly, quarterly or some other period and
which may be payable to the Portfolio on demand.
-------------------------------------------------------------------------------
Warrants: Securities, typically issued with 3-8
preferred stock or bonds, that give the holder the
right to buy a proportionate amount of common
stock at a specified price.
-------------------------------------------------------------------------------
Preferred Stock: A class of stock that generally 1, 3-9
pays a dividend at a specified rate and has
preference over common stock in the payment of
dividends and in liquidation.
-------------------------------------------------------------------------------
</TABLE>
B-3
<PAGE> 135
47
<TABLE>
<CAPTION>
PORTFOLIO
INSTRUMENT CODE
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Mortgage-Backed Securities: Debt obligations 1-3, 8
secured by real estate loans and pools of loans.
These include collateralized mortgage obligations
("CMOs") and Real Estate Mortgage Investment
Conduits ("REMICs").
-------------------------------------------------------------------------------
Corporate Debt Securities: Corporate bonds and 1, 3, 5
non-convertible debt securities.
-------------------------------------------------------------------------------
Demand Features: Securities that are subject to 1, 3, 5
puts and standby commitments to purchase the
securities at a fixed price (usually with accrued
interest) within a fixed period of time following
demand by a Portfolio.
-------------------------------------------------------------------------------
Asset-Backed Securities: Securities secured by 1, 3, 8
company receivables, home equity loans, truck and
auto loans, leases, credit card receivables and
other securities backed by other types of
receivables or other assets.
-------------------------------------------------------------------------------
Mortgage Dollar Rolls: A transaction in which a 1-3, 8
Portfolio sells securities for delivery in a
the same party to repurchase similar but not
identical securities on a specified future date.
-------------------------------------------------------------------------------
Adjustable Rate Mortgage Loans ("ARMs"): Loans in 1-3
a mortgage pool which provide for a fixed initial
mortgage interest rate for a specified period of
time, after which the rate may be subject to
periodic adjustments.
-------------------------------------------------------------------------------
Swaps, Caps and Floors: A Portfolio may enter into 1-9
these transactions to manage its exposure to
involve an exchange of obligations by two parties.
Caps and floors entitle a purchaser to a principal
amount from the seller of the cap or floor to the
extent that a specified index exceeds or falls
below a predetermined interest rate or amount.
-------------------------------------------------------------------------------
New Financial Products: New options and futures 1-9
contracts and other financial products continue to
be developed and the Portfolios may invest in such
options, contracts and products.
-------------------------------------------------------------------------------
</TABLE>
B-4
<PAGE> 136
48
<TABLE>
<CAPTION>
PORTFOLIO
INSTRUMENT CODE
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Structured Instruments: Debt securities issued by 1-9
agencies and instrumentalities of the U.S.
government, banks, municipalities, corporations
and other businesses whose interest and/or
principal payments are indexed to foreign currency
exchange rates, interest rates, or one or more
other referenced indices.
-------------------------------------------------------------------------------
Municipal Securities: Securities issued by a state 1-3
or political subdivision to obtain funds for
various public purposes. Municipal securities
include private activity bonds and industrial
development bonds, as well as General Obligation
Notes, Tax Anticipation Notes, Bond Anticipation
Notes, Revenue Anticipation Notes, Project Notes,
other short-term tax-exempt obligations, municipal
leases, and obligations of municipal housing
authorities and single family revenue bonds.
-------------------------------------------------------------------------------
Index Shares: Ownership interests in unit 3-9
investment trusts and other pooled investment
vehicles that hold a portfolio of securities or
stocks designed to track the price performance and
dividend yield of a particular index such as
Standard & Poor's Depository Receipts ("SPDRs")
and Nasdaq 100's. The Equity Index Portfolio
invests only in SPDRs.
-------------------------------------------------------------------------------
Obligations of Supranational Agencies: Obligations 3, 8
of supranational agencies which are chartered to
promote economic development and are supported by
various governments and governmental agencies.
-------------------------------------------------------------------------------
Zero-Coupon Debt Securities: Bonds and other debt 1-3, 8
that pay no interest, but are issued at a discount
from their value at maturity. When held to
maturity, their entire return equals the
difference between their issue price and their
maturity value.
-------------------------------------------------------------------------------
Zero-Fixed-Coupon Debt Securities: Zero coupon 1-3, 8
debt securities which convert on a specified date
to interest bearing debt securities.
-------------------------------------------------------------------------------
Stripped Mortgage-Backed Securities: Derivative 1-3
multi-class mortgage securities which are usually
structured with two classes of shares that receive
different proportions of the interest and
principal from a pool of mortgage assets. These
include IOs and POs.
-------------------------------------------------------------------------------
</TABLE>
B-5
<PAGE> 137
49
<TABLE>
<CAPTION>
PORTFOLIO RISK
INSTRUMENT CODE TYPE
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Inverse Floating Rate Instruments: Floating rate 1-3 Market
debt instruments with interest rates that reset in Leverage
the opposite direction from the market rate of Credit
interest to which the inverse floater is indexed.
-------------------------------------------------------------------------------
Loan Participations and Assignments: 1, 3 Credit
Participations in, or assignments of all or a Political
portion of loans to corporations or to Liquidity
governments, including governments of the less Foreign
developed countries ("LDCs"). Investment
Market
-------------------------------------------------------------------------------
Fixed Rate Mortgage Loans: Investments in fixed 1-3 Credit
rate mortgage loans or mortgage pools which bear Prepayment
simple interest at fixed annual rates and have Regulatory
original terms ranging from 5 to 40 years. Market
-------------------------------------------------------------------------------
Short-Term Funding Agreements: Funding agreements 1, 3 Credit
issued by banks and highly rated U.S. insurance Liquidity
companies such as Guaranteed Investment Contracts Market
("GICs") and Bank Investment Contracts ("BICs").
</TABLE>
B-6
<PAGE> 138
PART C
OTHER INFORMATION
ITEM 23. EXHIBITS
(a) Amended and Restated Declaration of Trust dated January 5,
2000 is incorporated by reference to Post-Effective Amendment
No. 12 to the Registrant's registration statement on
Form N-1A filed on February 24, 2000.
(b) Bylaws of One Group Investment Trust as revised February 16,
2000 are incorporated by reference to Post-Effective Amendment
No. 12 to the Registrant's registration statement on
Form N-1A filed on February 24, 2000.
(c) RIGHTS OF SHAREHOLDERS.
THE FOLLOWING PORTIONS OF REGISTRANT'S AMENDED AND RESTATED
DECLARATION OF TRUST FILED AS EXHIBIT (A) TO POST-EFFECTIVE
AMENDMENT NO. 12 TO THE REGISTRANT'S REGISTRATION STATEMENT
ON FORM N-1A FILED ON FEBRUARY 24, 2000. DEFINE THE
RIGHTS OF SHAREHOLDERS:
SECTION 5.1. NO PERSONAL LIABILITY OF SHAREHOLDERS, TRUSTEES,
ETC. No Shareholder as such shall be subject to any personal
liability whatsoever to any Person in connection with Trust
Property or the acts, obligations or affairs of the Trust. No
Trustee, officer, employee or agent of the Trust shall be
subject to any personal liability whatsoever to any Person,
other than the Trust or its Shareholders, in connection with
Trust Property or the affairs of the Trust, save only that
arising from bad faith, willful misfeasance, gross negligence
or reckless disregard for his or her 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 or she 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 or her being or having been a Shareholder, and
shall reimburse such Shareholder for all legal and other
expenses reasonably incurred by him or her in connection with
any such claim or liability. The rights accruing to a
Shareholder under this Section 5.1 shall not exclude any other
right to which such Shareholder may be lawfully entitled, nor
shall anything herein contained restrict the right of the
Trust to indemnify or reimburse a Shareholder in any
appropriate situation even though not specifically provided
herein.
SECTION 6.1. BENEFICIAL INTEREST. The interest of the
beneficiaries hereunder shall be divided into transferable
shares of beneficial interest, without par value, of the
following classes or series, or such others as may be
authorized by the Trustees pursuant to Section 6.9:
One Group(R)Investment Trust Government Bond
Portfolio
One Group(R)Investment Trust Balanced Portfolio
One Group(R)Investment Trust Mid Cap Growth Portfolio
One Group(R)Investment Trust Large Cap Growth
Portfolio
One Group(R)Investment Trust Equity Index Portfolio
One Group(R)Investment Trust Bond Portfolio
One Group(R)Investment Trust Diversified Equity
Portfolio
One Group(R)Investment Trust Diversified Mid Cap
Portfolio
One Group(R)Investment Trust Mid Cap Value Portfolio
<PAGE> 139
The number of shares of beneficial interest authorized
hereunder is unlimited. All Shares issued hereunder including,
without limitation, Shares issued in connection with a
dividend in Shares or a split of Shares, shall be fully paid
and non-assessable.
SECTION 6.2. RIGHTS OF SHAREHOLDERS. The ownership of
the Trust Property of every description and the right to
conduct any business hereinbefore described are vested
exclusively in the Trustees, and the Shareholders shall have
no interest therein other than the beneficial interest
conferred by their Shares, and they shall have no right to
call for any partition or division of any property, profits,
rights or interests of the Trust, nor can they be called upon
to assume any losses of the Trust or suffer an assessment of
any kind by virtue of their ownership of Shares. The Shares
shall be personal property giving only the rights in the
Declaration specifically set forth. The Shares shall not
entitle the holder to preference, pre-emptive, appraisal,
conversion or exchange rights, except as the Trustees may
determine with respect to any series of Shares.
SECTION 6.3. TRUST ONLY. It is the intention of the
Trustees to create only the relationship of Trustee and
beneficiary between the Trustees and each Shareholder from
time to time. It is not the intention of the Trustees to
create a general partnership, limited partnership, joint stock
association, corporation, bailment or any form of legal
relationship other than a Trust. Nothing in the Declaration
shall be construed to make the Shareholders, either by
themselves or with the Trustees, partners or members of a
joint stock association.
SECTION 6.4. ISSUANCE OR SHARES. The Trustees, in
their discretion, may, from time to time without vote of
Shareholders, issue Shares, in addition to the then issued and
outstanding Shares and Shares held in the treasury to such
party or parties and for such amount and type of
consideration, including cash or property, at such time or
times (including, without limitation, each business day in
accordance with the determination of net asset value per Share
as set forth in Section 8.3 hereof), and on such terms as the
Trustees may deem best, and may in such manner acquire other
assets (including the acquisition of assets subject to, and in
connection with the assumption of liabilities) and businesses.
In connection with any issuance of Shares, the Trustees may
issue fractional Shares. The Trustees may from time to time
divide or combine the Shares into a greater or lesser number
without thereby changing the proportionate beneficial
interests in the Trust. Contributions to the Trust may be
accepted for, and Shares shall be redeemed as, whole shares
and/or 1/1,000ths of a Share or integral multiples thereof.
SECTION 6.5. REGISTER OF SHARES; SHARE CERTIFICATES.
A register will be kept at the principal office of the Trust
or at an office of the Transfer Agent which shall contain the
names and addresses of the Shareholders and the number of
Shares held by them respectively and a record of all transfers
thereof. Such register shall be conclusive as to who are the
holders of the Shares and who shall be entitled to receive
dividends or distributions or otherwise to exercise or enjoy
the rights of Shareholders. No Shareholder shall be entitled
to receive payment of any dividend or distribution, nor to
have notice given to him or her as herein or in the Bylaws
provided, until he or she has given his or her address to the
Transfer Agent or such other officer or agent of the Trustees
as shall keep the said register for entry thereon. It is not
contemplated that certificates will be issued for the Shares;
however, the Trustees, in their discretion, may authorize the
issuance of Share certificates and promulgate appropriate
rules and regulations as to their use.
SECTION 6.6. TRANSFER OF SHARES. Shares shall be
transferable on the records of the Trust only by the
recordholder thereof or by his or her agent thereunto duly
<PAGE> 140
authorized in writing, upon delivery to the Trustees or the
Transfer Agent of a duly executed instrument of transfer,
together with such evidence of the genuineness of each such
election and authorization and of other matters as may
reasonably be required. Upon such delivery, the transfer shall
be recorded on the register of the Trust. Until such record is
made, the Shareholder of record shall be deemed to be the
holder of such Shares for all purposes hereunder and neither
the Trustees nor any Transfer Agent or registrar nor any
officer, employee or agent of the Trust shall be affected by
any notice of the proposed transfer.
Any person becoming entitled to any Shares in
consequence of the death, bankruptcy, or incompetence of any
Shareholder, or otherwise by operation of law, shall be
recorded on the register of Shares as the holder of such
Shares upon production of the proper evidence thereof to the
Trustees or the Transfer Agent, but until such record is made,
the Shareholder of record shall be deemed to be the holder of
such Shares for all purposes hereunder and neither the
Trustees nor any Transfer Agent or registrar nor any officer,
employee or agent of the Trust shall be affected by notice of
the proposed transfer.
SECTION 6.7. NOTICES. Any and all notices to which
any Shareholder may be entitled and any and all communications
shall be deemed duly served or given if mailed, postage
prepaid, addressed to any Shareholder of record at his or her
last known address as recorded on the register of the Trust.
SECTION 6.8. VOTING POWERS. The Shareholders shall
have power to vote only (i) for the election of Trustees as
provided in Section 2.2 hereof or as required by Section 16(a)
of the 1940 Act; (ii) with respect to any investment advisory
or management contract as provided in Section 4.1; (iii) with
respect to termination of the Trust as provided in Section
9.2; (iv) with respect to any amendment of the Declaration to
the extent and as provided in Section 9.3.; (v) with respect
to any merger, consolidation or sale of assets as provided in
Section 9.4; (vi) with respect to incorporation of the Trust
to the extent and as provided in Section 9.5.; (vii) to the
same extent as the stockholders of a Massachusetts business
corporation as to whether or not a court action, proceeding or
claim should or should not be brought or maintained
derivatively or as a class action on behalf of the Trust or
the Shareholders; and (viii) with respect to such additional
matters relating to the Trust as may be required by the
Declaration, the Bylaws, the 1940 Act or any registration of
the Trust with the Commission (or any successor agency) or any
state, or as the Trustees may consider necessary or desirable.
Each whole Share shall be entitled to one vote as to any
matter on which it is entitled to vote and each fractional
Share shall be entitled to proportionate fractional vote,
except that Shares held in the treasury of the Trust shall not
be voted and that the Trustees may, in conjunction with the
establishment of any series of Shares, establish conditions
under which the several series shall have separate voting
rights or no voting rights. There shall be no cumulative
voting in the election of Trustees. Until Shares are issued,
the Trustees may exercise all rights of Shareholders and may
take any action required by law, the Declaration or the Bylaws
to be taken by Shareholders. The Bylaws may include further
provisions for Shareholders' votes and meetings and related
matters.
SECTION 6.9. SERIES DESIGNATION. The Trustees, in
their discretion, may authorize the division of Shares into
additional series, and the different series shall be
established and designated, and the variations in the relative
rights and preferences as between the different series shall
be fixed and determined by the Trustees, provided that all
Shares shall be identical, except that there may be variations
so fixed and determined between different series as to
investment objective, purchase price, right of redemption and
the price, terms and manner of redemption, special and
relative rights as to dividends and on liquidation, conversion
rights, and conditions under which the several series shall
<PAGE> 141
have separate voting rights. All references to Shares in the
Declaration shall be deemed to be shares of any or all series
as the context may require.
If the Trustees shall divide the shares of the Trust
into two or more series, the following provisions shall be
applicable:
(a) The number of authorized shares and the number of
shares of each series that may be issued shall be unlimited.
The Trustees may classify or reclassify any unissued shares or
any shares previously issued and reacquired of any series into
one or more series that may be established and designated from
time to time. The Trustees may hold as treasury shares (of the
same or some other series), reissue for such consideration and
on such terms as they may determine, or cancel any shares of
any series reacquired by the Trust at their discretion from
time to time.
(b) The power of the Trustees to invest and reinvest
the Trust Property shall be governed by Section 3.2 of this
Declaration with respect to the nine existing series which
represents the interests in the assets of the Trust
immediately prior to the establishment of any additional
series and the power of the Trustees to invest and reinvest
assets applicable to any such additional series shall be as
set forth in the instrument of the Trustees establishing such
series, which is hereinafter described.
(c) All consideration received by the Trust for the
issue or sale of shares of a particular series, together with
all assets in which such consideration is invested or
reinvested, all income, earnings, profits and proceeds
thereof, including any proceeds derived from the sale,
exchange or liquidation of such assets, and any funds or
payments derived from any reinvestment of such proceeds in
whatever form the same may be, shall irrevocably belong to
that series for all purposes, subject only to the rights of
creditors, and shall be so recorded upon the books of account
of the Trust. In the event that there are any assets, income,
earnings, profits, and proceeds thereof, funds, or payments
which are not readily identifiable as belonging to any
particular series, the Trustees shall allocate them among any
one or more of the series established and designated from time
to time in such manner and on such basis as they, in their
sole discretion, deem fair and equitable. Each such allocation
by the Trustees shall be conclusive and binding upon the
shareholders of all series for all purposes.
(d) The assets belonging to each particular series
shall be charged with the liabilities of the Trust in respect
of that series and all expenses, costs, charges and reserves
attributable to that series, and any general liabilities,
expenses, costs, charges or reserves of the Trust which are
not readily identifiable as belonging to any particular series
shall be allocated and charged by the Trustees to and among
any one or more of the series established and designated from
time to time in such manner and on such basis as the Trustees,
in their sole discretion, deem fair and equitable. Each
allocation of liabilities, expenses, costs, charges and
reserves by the Trustees shall be conclusive and binding upon
the holders of all series for all purposes. The Trustees shall
have full discretion, to the extent not inconsistent with the
1940 Act, to determine which items shall be treated as income
and which items as capital; and each such determination and
allocation shall be conclusive and binding upon the
shareholders.
(e) The power of Trustees to pay dividends and make
distributions shall be governed by Section 8.2 of this
Declaration with respect to the nine existing series which
represents the interests in the assets of the Trust
immediately prior to the establishment of any additional
series. With respect to any other series, dividends and
distributions on shares of a particular series may be paid
with such frequency as the Trustees may determine, which may
be daily or otherwise, pursuant to a standing resolution or
<PAGE> 142
resolutions adopted only once or with such frequency as the
Trustees may determine, to the holders of shares of that
series, from such of the income and capital gains, accrued or
realized, from the assets belonging to that series, as the
Trustees may determine, after providing for actual and accrued
liabilities belonging to that series. All dividends and
distributions on shares of a particular series shall be
distributed pro rata to the holders of that series in
proportion to the number of shares of that series held by all
such holders at the date and time of record established for
the payment of such dividends or distributions.
The establishment and designation of any series of
shares shall be effective upon the execution by a majority of
the then Trustees of an instrument setting forth such
establishment and designation and the relative rights and
preferences of such series, or as otherwise provided in such
instrument. At any time that there are no shares outstanding
of any particular series previously established and
designated, the Trustees may, by an instrument executed by a
majority of their number, abolish that series and the
establishment and designation thereof. Each instrument
referred to in this paragraph shall have the status of an
amendment to this Declaration.
SECTION 7.1. REDEMPTIONS. In case any Shareholder at
any time desires to dispose of his or her Shares, he or she
may deposit his or her certificate or certificates therefor,
duly endorsed in blank or accompanied by an instrument of
transfer executed in blank, or if the Shareholder has no
certificates, a written request or other such form of request
as the Trustees may from time to time authorized, at the
office of the Transfer Agent or at the office of any bank or
trust company, either in or outside of Massachusetts, which is
a member of the Federal Reserve System and which the said
Transfer Agent has designated in writing for that purpose,
together with an irrevocable offer in writing in a form
acceptable to the Trustees to sell the Shares represented
thereby to the Trust at the net asset value thereof per Share,
determined as provided in Section 8.1 thereof, next after such
deposit. Payment for said Shares shall be made to the
Shareholder within seven (7) days after the date on which the
deposit is made, unless: (i) the date of payment is postponed
pursuant to Section 7.2 hereof, or (ii) the receipt, or
verification of receipt, of the purchase price for the Shares
to be redeemed is delayed, in either of which event payment
may be delayed beyond seven (7) days.
SECTION 7.2. SUSPENSION OF RIGHT OF REDEMPTION. The
Trust may declare a suspension of the right of redemption or
postpone the date of payment or redemption for the whole or
any part of any period (i) during which the New York Stock
Exchange is closed other than customary weekend and holiday
closing; (ii) during which trading on the New York Stock
Exchange is restricted; (iii) during which an emergency exists
as a result of which disposal by the Trust of securities owned
by it is not reasonably practicable or it is not reasonably
practicable for the Trust fairly to determine the value of its
net assets; or (iv) during any other period when the
Commission may for the protection of security holders of the
Trust by order permit suspension of the right of redemption or
postponement of the date of payment or redemption; provided
that applicable rules and regulations of the Commission shall
govern as to whether the conditions prescribed in (ii), (iii),
or (iv) exist. Such suspension shall take effect at such time
as the Trust shall specify, but not later than the close of
business on the business day next following the declaration of
suspension, and thereafter there shall be no right of
redemption until the Trust shall declare the suspension at an
end, except that the suspension shall terminate in any event
on the first day on which said stock exchange shall have
reopened or the period specified in (ii) or (iii) shall have
expired (as to which, in the absence of an official ruling by
the Commission, the determination of the Trust shall be
conclusive). In the case of a suspension of the right of
redemption, a Shareholder may either withdraw his or her
request for redemption or receive payment based on the net
asset value existing after the termination of the suspension.
<PAGE> 143
SECTION 7.3. REDEMPTION OF SHARES; DISCLOSURE OF
HOLDING. If the Trustees shall, at any time and in good faith,
be of the opinion that direct or indirect ownership of Shares
or other securities of the Trust has or may become
concentrated in any Person to an extent which would disqualify
the Trust as a regulated investment company under the Internal
Revenue Code, then the Trustees shall have the power by lot or
other means deemed equitable by them (i) to call for
redemption by any such Person of a number, or principal
amount, of Shares or other securities of the Trust sufficient
to maintain or bring the direct or indirect ownership of
Shares or other securities of the Trust into conformity with
the requirements for such qualification; and (ii) to refuse to
transfer or issue Shares or other securities of the Trust to
any Person whose acquisition of the Shares or other securities
of the Trust in question would result in such
disqualification. The redemption shall be effected at the
redemption price and in the manner provided in Section 7.1.
The holders of Shares or other securities of the
Trust shall upon demand disclose to the Trustees in writing
such information with respect to direct and indirect ownership
of Shares or other securities of the Trust as the Trustees
deem necessary to comply with the provisions of the Internal
Revenue Code, or to comply with the requirements of any other
authority.
SECTION 7.4. REDEMPTIONS OF ACCOUNTS OF LESS THAN
$500. The Trustees shall have the power at any time to redeem
Shares of any Shareholder at a redemption price determined in
accordance with Section 7.1, if at such time the aggregate net
asset value of the Shares in such Shareholder's account is
less than $500. A Shareholder will be notified that the value
of his or her account is less than $500 and allowed thirty
(30) days to make an additional investment before redemption
is processed.
SECTION 8.1. NET ASSET VALUE. For all purposes under
this Declaration of Trust, the net asset value shall be
determined by the Trustees as soon as possible after the close
of the New York Stock Exchange on each business day upon which
such Exchange is open, such net asset value to become
effective one hour after such close and remain in effect until
the next determination of such net asset value becomes
effective; provided, however, that the Trustees may in their
discretion make a more frequent determination of the net asset
value which shall become effective one hour after the time as
of which such net asset value is determined.
Such net asset value shall be determined in the following
manner:
(a) All securities listed on any recognized Exchange
shall be appraised at the quoted closing sale prices and in
the even that there was no sale of any particular security on
such day the quoted closing bid price thereof shall be used,
or if any such security was not quoted on such day or if the
determination of the net asset value is being made as of a
time other than the close of the New York Stock Exchange, then
the same shall be appraised in such manner as shall be deemed
by the Trustees to reflect its fair value.
All other securities and assets of the Trust,
including cash, prepaid and accrued items, and dividends
receivable, shall be appraised in such manner as shall be
deemed by the Trustees to reflect their fair value.
(b) From the total value of the Trust Property as so
determined shall be deducted the liabilities of the Trust,
including reserves for taxes, and such expenses and
liabilities of the Trust as may be determined by the Trustees
to be accrued liabilities.
<PAGE> 144
(c) The resulting amount shall represent the net
asset value of the Trust Property. The net asset value of a
share of any class shall be the result of the division of the
net asset value of the underlying assets of that class by the
number of shares of that class outstanding. The net asset
value of the Trust Property and shares as so determined shall
be final and conclusive.
SECTION 8.2. DISTRIBUTIONS TO SHAREHOLDERS. The
Trustees shall from time to time distribute ratably among the
Shareholders such proportion of the net profits, surplus
(including paid-in surplus), capital, or assets held by the
Trustees as they may deem proper. Such distribution may be
made in cash or property (including without limitation any
type of obligations of the Trust or any assets thereof), and
the Trustees may distribute ratably among the Shareholders
additional Shares issuable hereunder in such manner, at such
times, and on such terms as the Trustees may deem proper. Such
distributions may be among the Shareholders of record at the
time of declaring a distribution or among the Shareholders of
record at such later date as the Trustees shall determine. The
Trustees may always retain from the net profits such amount s
they may deem necessary to pay the debts or expenses of the
Trust or to meet obligations of the Trust, or as they may deem
desirable to use in the conduct of its affairs or to retain
for future requirements or extensions of the business. The
Trustees may adopt and offer to Shareholders such dividend
reinvestment plans, cash dividend payout plans or related
plans as the Trustees shall deem appropriate.
Inasmuch as the computation of net income and gains
for Federal Income Tax purposes may vary from the computation
thereof on the books, the above provisions shall be
interpreted to give the Trustees the power in their discretion
to distribute for any fiscal year as ordinary dividends and as
capital gains distributions, respectively, additional amounts
sufficient to enable the Trust to avoid or reduce liability
for taxes.
SECTION 8.3. DETERMINATION OF NET INCOME. The term
"net income" with respect to a class of shares is hereby
defined as the gross earnings of the class, excluding gains on
sales of securities and stock dividends received, less the
expenses of the Trust allocated to the class by the Trustees
in such manner as they determine to be fair and equitable or
otherwise chargeable to the class. The expenses shall include
(1) taxes attributable to the income of the Trust exclusive of
gains on sales, and (2) other charges properly deductible for
the maintenance and administration of the Trust; but there
shall not be deducted from gross or net income any losses on
securities, realized or unrealized. The Trustees shall
otherwise have full discretion to determine which items shall
be treated as income and which items as capital and their
determination shall be binding upon the Beneficiaries.
SECTION 8.4. POWER TO MODIFY FOREGOING PROCEDURES.
Notwithstanding any of the foregoing provisions of this
Article VIII, the Trustees may prescribe, in their absolute
discretion, such other bases and times for determining the per
Share net asset value of the Shares or net income, or the
declaration and payment of dividends and distributions s they
may deem necessary or desirable. Without limiting the
generality of the foregoing, the Trustees may establish
additional series of Shares in accordance with Section 6.9.
SECTION 9.2. TERMINATION OF TRUST. (a) The Trust must
be terminated:
(i) by the affirmative vote of the holders of not
less than two-thirds of the Shares outstanding and entitled to
vote at any meeting of Shareholders, or (ii) by an instrument
in writing, without a meeting, signed by a majority of the
Trustees and consented to by the holders of not less than
two-thirds of such Shares, or by such other vote as may be
established by the Trustees with respect to any series of
Shares, or (iii) by the Trustees by written notice to the
Shareholders.
<PAGE> 145
Upon the termination of the Trust:
(i) The Trust shall carry on no business except for
the purpose of winding up its affairs.
(ii) The Trustees shall proceed to wind up the
affairs of the Trust and all of the powers of the Trustees
under this Declaration shall continue until the affairs of the
Trust shall have been wound up, including the power to fulfill
or discharge the contracts of the Trust, collect its assets,
sell, convey, assign, exchange, transfer or otherwise dispose
of all or any part of the remaining Trust Property to one or
more persons at public or private sale for consideration which
may consist in whole or in part of cash, securities or other
property of any kind, discharge or pay its liabilities, and to
do all other acts appropriate to liquidate its business;
provided that any sale, conveyance, assignment, exchange,
transfer or other disposition of all or substantially all the
Trust Property shall require Shareholder approval in
accordance with Section 9.4 hereof.
(iii) After paying or adequately providing for the
payment of all liabilities, and upon receipt of such releases,
indemnities and refunding agreements, as they deem necessary
for their protection, the Trustees may distribute the
remaining Trust Property, in cash or in kind or partly each,
among the Shareholders according to their respective rights.
(iv) After termination of the Trust and distribution
to the Shareholders as herein provided, a majority of the
Trustees shall execute and lodge among the records of the
Trust an instrument in writing setting forth the fact of such
termination, and the Trustees shall thereupon be discharged
from all further liabilities and duties hereunder, and the
rights and interests of all Shareholders shall thereupon
cease.
SECTION 9.3. AMENDMENT PROCEDURE. (a) This
Declaration may be amended by a Majority Shareholder Vote or
by any instrument in writing, without a meeting, signed by a
majority of the Trustees and consented to by the holders of
not less than a majority of the Shares outstanding and
entitled to vote. The Trustees may also amend this Declaration
without the vote or consent of Shareholders to designate
series in accordance with Section 6.9 hereof, to change the
name of the Trust, to supply any omission, to cure, correct or
supplement any ambiguous, defective or inconsistent provision
hereof, or if they deem it necessary to conform this
Declaration to the requirements of applicable federal laws or
regulations or the requirements of the regulated investment
company provisions of the Internal Revenue Code, but the
Trustees shall not be liable for failing to do so.
(b) No amendments may be made under this Section 9.3
which would change any rights with respect to any Shares of
the Trust by reducing the amount payable thereon upon
liquidation of the Trust or by diminishing or eliminating any
voting rights pertaining thereto, except with the vote or
consent of the holders of two-thirds of the Shares outstanding
and entitled to vote, or by such other vote as may be
established by the Trustees with respect to any series of
Shares. Nothing contained in this Declaration shall permit the
amendment of this Declaration to impair the exemption from
personal liability of the Shareholders, Trustees, officers,
employees and agents of the Trust or to permit assessments
upon Shareholders.
(c) A certificate signed by a majority of the
Trustees setting forth an amendment and reciting that it was
duly adopted by the Shareholders or by the Trustees as
aforesaid or a copy of the Declaration, as amended, and
executed by a majority of the
<PAGE> 146
Trustees, shall be conclusive evidence of such amendment when
lodged among the records of the Trust.
SECTION 9.4. MERGER, CONSOLIDATION AND SALE OF
ASSETS. The Trust may merge or consolidate with any other
corporation, association, trust or other organization or may
sell, lease or exchange all or substantially all of the Trust
Property, including its goodwill, upon such terms and
conditions and for such consideration when and as authorized
at any meeting of Shareholders called for the purpose by
affirmative vote of the holders of not less than two-thirds of
the Shares outstanding and entitled to vote, or by an
instrument or instruments in writing without a meeting,
consented to by the holders of not less than two-thirds of
such Shares, or by such other vote as may be established by
the Trustees with respect to any series of Shares; provided,
however, that, if such merger, consolidation, sale, lease or
exchange is recommended by the Trustees, the vote or written
consent of the holders of a majority of Shares outstanding and
entitled to vote, or by such other vote as may be established
by the Trustees with respect to any series of Shares, shall be
sufficient authorization; and any such merger, consolidation,
sale, lease or exchange shall be deemed for all purposes to
have been accomplished under and pursuant to the statutes of
the Commonwealth of Massachusetts.
SECTION 9.5. INCORPORATION. With the approval of the
holders of a majority of the Shares outstanding and entitled
to vote, or by such other vote as may be established by the
Trustees with respect to any series of Shares, the Trustees
may cause to be organized or assist in organizing a
corporation or corporations under the laws of any jurisdiction
or any other trust, partnership, association or other
organization to take over all of the Trust Property or to
carry on any business in which the Trust shall directly or
indirectly have any interest, and to sell, convey and transfer
the Trust Property to any such corporation, trust, association
or organization in exchange for the shares or securities
thereof or otherwise, and to lend money to, subscribe for the
shares or securities of, and enter into any contracts with any
such corporation, trust, partnership, association or
organization in which the Trust holds or is about to acquire
shares or any other interest. The Trustees may also cause a
merger or consolidation between the Trust or any successor
thereto and any such corporation, trust, partnership,
association or other organization if and to the extent
permitted by law, as provided under the law then in effect.
Nothing contained herein shall be construed as requiring
approval of Shareholders for the Trustees to organize or
assist in organizing one or more corporations, trusts,
partnerships, associations or other organizations and selling,
conveying or transferring a portion of the Trust Property to
such organization or entities.
ARTICLE X
REPORTS TO SHAREHOLDERS
-----------------------
The Trustees shall at least semi-annually submit to
the Shareholders a written financial report of the
transactions of the Trust, including financial statements
which shall at least annually be certified by independent
public accountants.
<PAGE> 147
THE FOLLOWING PORTIONS OF REGISTRANT'S BYLAWS FILED AS EXHIBIT
(b) TO POST-EFFECTIVE AMENDMENT NO. 12 TO THE REGISTRANT'S
REGISTRATION STATEMENT ON FORM N-1A FILED ON FEBRUARY 24,
2000 DEFINE THE RIGHTS OF SHAREHOLDERS:
ARTICLE III
SHAREHOLDERS
SECTION 1. MEETINGS. There is no requirement that the
Trustees have annual meetings of the Shareholders. In the
event the Trustees determine to have an annual meeting of the
Shareholders, it shall be held at such place within or without
the Commonwealth of Massachusetts on such day and at such time
as the Trustees shall designate. Special meetings of the
Shareholders may be called at any time by a majority of the
Trustees and shall be called by any Trustee upon written
request of Shareholders holding in the aggregate not less than
ten percent (10%) of the outstanding Shares having voting
rights, such request specifying the purpose or purposes for
which such meeting is to be called. Any such meeting shall be
held within or without the Commonwealth of Massachusetts on
such day and at such time as the Trustees shall authorize. The
holders of a majority of outstanding Shares present in person
or by proxy shall constitute a quorum at any meeting of the
Shareholders.
SECTION 2. NOTICE OF MEETINGS. Notice of all meetings
of the Shareholders, stating the time, place and purpose of
the meeting, shall be given by the Trustees by mail to each
Shareholder at his address as recorded on the register of the
Trust, mailed at least ten (10) days and not more than sixty
(60) days before the meeting. Only the business stated in the
notice of the meeting shall be considered at such meeting. Any
adjourned meeting may be held as adjourned without further
notice. No notice need by given to any Shareholder who shall
have failed to inform the Trust of his current address or if a
written waiver of notice, executed before or after the meeting
by the Shareholder or his attorney thereunto authorized, is
filed with the records of the meeting.
SECTION 3. RECORD DATE FOR MEETINGS. For the purpose
of determining the Shareholders who are entitled to notice of
and to vote at any meeting, or to participate in any
distribution, or for the purpose of any other action, the
Trustees may from time to time close the transfer books for
such period, not exceeding thirty (30) days, as the Trustees
may determine; or without closing the transfer books the
Trustees may fix a date not more than sixty (60) days prior to
the date of any meeting of Shareholders or distribution or
other action as a record date for the determination of the
persons to be treated as Shareholders of record for such
purposes, except for dividend payments which shall be governed
by the Declaration.
SECTION 4. PROXIES. At any meeting of Shareholders,
any holder of Shares entitled to vote thereat may vote by
proxy, provided that no proxy shall be voted at any meeting
unless it shall have been placed on file with the Secretary,
or with such other officer or agent of the Trust as the
Trustees may direct, for verification prior to the time at
which such vote shall be taken. Pursuant to a resolution of a
majority of the Trustees, proxies may be solicited in the name
of one or more Trustees or one or more of the officers of the
Trust. Only Shareholders of record shall be entitled to vote.
Each full Share shall be entitled to one vote and fractional
Shares shall be entitled to a vote of such fraction. When any
Share is held jointly by several persons, any one of them may
vote at any meeting in person or by proxy in respect of such
Share, but if more than one of them shall be present at such
meeting in person or by proxy, and such joint owners or their
proxies so present disagree as to any vote to be cast, such
vote shall not be received in respect of such Share. A proxy
purporting to be executed by or on behalf of a Shareholder
shall be deemed valid unless challenged at or prior to its
exercise, and the
<PAGE> 148
burden of proving invalidity shall rest on the challenger. If
the holder of any such Share is a minor or a person of unsound
mind, and subject to guardianship or to the legal control of
any other person as regards the change or management of such
Share, he may vote by his guardian or such other person
appointed or having such control, and such vote may be given
in person or by proxy.
SECTION 5. INSPECTION OF RECORDS. The records of the
Trust shall be open to inspection by Shareholders to the same
extent as is permitted shareholders of a Massachusetts
business corporation or as required by the 1940 Act.
SECTION 6. ACTION WITHOUT MEETINGS. Any action which
may be taken by Shareholders may be taken without a meeting if
a majority of Shareholders entitled to vote on the matter (or
such larger proportion thereof as shall be required by law,
the Declaration or these Bylaws for approval of such matter)
consent to the action in writing and the written consents are
filed with the records of the meetings of Shareholders. Such
consent shall be treated for all purposes as a vote taken at a
meeting of Shareholders.
(d)(1) Amended and Restated Investment Advisory Agreement dated
February 17, 1999 by and between One Group Investment Trust
and Banc One Investment Advisors Corporation is incorporated
by reference to Post Effective Amendment No. 11 to
Registrant's registration statement on Form N-1A filed on
March 26, 1999.
(e) None
(f) Deferred Compensation Plan for Trustees of The One Group
Investment Trust is incorporated by reference to
Post-Effective Amendment No. 10 to the Registrant's
registration statement on Form N-1A, filed on January 27,
1999.
(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 Agency and Service Agreement dated as of January 1,
2000 between One Group Investment Trust and State Street Bank
and Trust Company is incorporated by reference to
Post-Effective Amendment No. 12 to the Registrant's
registration statement on Form N-1A filed on February 24,
2000.
(h)(2) Amended and Restated Fund Participation Agreement dated as of
February 17, 1999 by and among Nationwide Life and Annuity
Insurance Company, One Group Investment Trust, and Nationwide
Advisory Services, Inc. is incorporated by reference to Post
Effective Amendment No. 11 to the Registrant's registration
statement on Form N-1A filed on March 26, 1999.
(h)(3) Administration Agreement effective as of January 1, 2000
between One Group Investment Trust and One Group
Administrative Services, Inc. is incorporated by reference to
Post-Effective Amendment No. 12 to the Registrant's
registration statement on Form N-1A filed on February 24,
2000.
(h)(4) Amendment to Amended and Restated Fund Participation Agreement
effective as of January 1, 2000 among Nationwide Life and
Annuity Insurance Company, One Group Investment Trust, and One
Group Administrative Services, Inc. is incorporated by
reference to Post-Effective Amendment No. 12 to the
Registrant's registration statement on Form N-1A filed on
February 24, 2000.
<PAGE> 149
(h)(5) 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.
(h)(6) Exhibit A dated as of March 22, 1999 to the 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 March 22, 1999
is filed herewith.
(h)(7) Participation Agreement effective as of March 31, 1999 among
One Group Investment Trust, Nationwide Advisory Services,
Inc., Nationwide Investors Services, Inc., Banc One Investment
Advisors Corporation, and Hartford Life and Annuity Insurance
Company is incorporated by reference to Post-Effective
Amendment No. 12 to the Registrant's registration statement
on Form N-1A filed on February 24, 2000.
(h)(8) Amendment to Participation Agreement effective as of January
1, 2000 among Hartford Life and Annuity Insurance Company, One
Group Investment Trust, Banc One Investment Advisors
Corporation, and One Group Administrative Services, Inc. is
incorporated by reference to Post-Effective Amendment No. 12
to the Registrant's registration statement on Form N-1A
filed on February 24, 2000.
(h)(9) Fund Participation Agreement effective as of August 2, 1999
among American General Annuity Insurance Company, One Group
Investment Trust, Banc One Investment Advisors Corporation,
Nationwide Advisory Services, Inc., and Nationwide Investors
Services, Inc. is incorporated by reference to Post-Effective
Amendment No. 12 to the Registrant's registration statement
on Form N-1A filed on February 24, 2000.
(h)(10) Amendment to Fund Participation Agreement effective as of
January 1, 2000 among American General Annuity Insurance
Company, One Group Investment Trust, Banc One Investment
Advisors Corporation, and One Group Administrative Services,
Inc. is incorporated by reference to Post-Effective
Amendment No. 12 to the Registrant's registration statement
on Form N-1A filed on February 24, 2000.
(h)(11) Fund Participation Agreement effective as of August 2, 1999
among PFL Life Insurance Company, One Group Investment Trust,
Banc One Investment Advisors Corporation, Nationwide Advisory
Services, Inc., and Nationwide Investors Services, Inc. is
incorporated by reference to Post-Effective Amendment No. 12
to the Registrant's registration statement on Form N-1A
filed on February 24, 2000.
(h)(12) Amendment to Fund Participation Agreement effective as of
January 1, 2000 among PFL Life Insurance Company, One Group
Investment Trust, Banc One Investment Advisors Corporation,
and One Group Administrative Services, Inc. is incorporated
by reference to Post-Effective Amendment No. 12 to the
Registrant's registration statement on Form N-1A filed on
February 24, 2000.
(h)(13) Resignation Letter, dated December 28, 1999 of Nationwide
Advisory Services, Inc. and Nationwide Investors Services,
Inc. is filed herewith.
(h)(14) Fund Participation Agreement effective as of February 1, 2000
among American General Life Insurance Company, One Group
Invesment Trust, Banc One Investment Advisors Corporation,
and One Group Administrative Services, Inc. is filed
herewith.
(i) Opinion of Ropes & Gray is filed herewith.
(j)(1) Consent of Ropes & Gray is filed herewith.
(j)(2) Consent of PricewaterhouseCoopers LLP is filed herewith.
(k) None
(l) None
(m) None
<PAGE> 150
(n) None
(p)(1) One Group Mutual Funds and One Group Investment Trust Code of Ethics.
(p)(2) Policy 4.05 Personal Trading as revised January 1, 2000 from Banc One
Investment Advisors Corporation's Compliance Manual is filed herewith.
(p)(3) Policy 4.02 Employee Brokerage Accounts as amended December 31, 1997
from Banc One Investment Advisors Corporation's Compliance Manual is
filed herewith.
Copies of powers of attorney of Registrant's trustees and officers
whose names are signed to this Registration Statement pursuant to
said powers of attorneys are filed herewith.
ITEM 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 Amended and Restated Declaration of
Trust.
SECTION 5.1. NO PERSONAL LIABILITY OF SHAREHOLDERS, TRUSTEES,
ETC. No Shareholder as such shall be subject to any personal liability
whatsoever to any Person in connection with Trust Property or the acts,
obligations or affairs of the Trust. No Trustee, officer, employee or
agent of the Trust shall be subject to any personal liability
whatsoever to any Person, other than the Trust or its Shareholders, in
connection with Trust Property or the affairs of the Trust, save only
that arising from bad faith, willful misfeasance, gross negligence or
reckless disregard for his or her 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 or she 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 or her being
or having been a Shareholder, and shall reimburse such Shareholder for
all legal and other expenses reasonably incurred by him or her in
connection with any such claim or liability. The rights accruing to a
Shareholder under this Section 5.1 shall not exclude any other right to
which such Shareholder may be lawfully entitled, nor shall anything
herein contained restrict the right of the Trust to indemnify or
reimburse a Shareholder in any appropriate situation even though not
specifically provided herein.
SECTION 5.2. NON-LIABILITY OF TRUSTEES, ETC. No Trustee,
officer, employee or agent of the Trust shall be liable to the Trust,
its Shareholders, or to any Shareholder, Trustee, officer, employee or
agent thereof for any action or failure to act (including without
limitation the failure to compel in any way any former or acting
Trustee to redress any breach of trust) except for his or her own bad
faith, willful misfeasance, gross negligence or reckless disregard of
his or her duties.
SECTION 5.3. MANDATORY INDEMNIFICATION
(a) Subject to the exceptions and limitations contained in
paragraph (b) below:
(i) Every person who is, or has been a Trustee or officer of
the Trust shall be indemnified by the Trust against all liability and
against all expenses reasonably incurred or paid by him or her in
connection with any claims, action, suit or proceeding in which he or
she becomes involved as a party or otherwise by virtue of his or her
being or having been a Trustee or officer and against amounts paid or
incurred by him or her 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 limitations,
attorneys' fees, costs, judgments, amounts paid in settlement, fines,
penalties and other liabilities.
<PAGE> 151
(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 or she engaged in willful
misfeasance, bad faith, gross negligence or reckless disregard of the
duties involved in the conduct of his or her office;
(ii) with respect to any matter as to which he or she shall
have been finally adjudicated not to have acted in good faith in the
reasonable belief that his or her action was in the best interest of
the Trust;
(iii) in the event of a settlement or other disposition not
involving a final adjudication as provided in paragraphs (b)(i) or
(b)(ii) resulting in 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 or her 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 or she did not
engage in such conduct:
(A) by vote of a majority of the Disinterested Trustees
acting on the matter (provided that a majority of the Disinterested
Trustees then in office act on the matter); or
(B) by written opinion of independent legal counsel.
(c) The rights of indemnification herein provided may be insured
against by policies maintained by the Trust, shall be severable, shall
not affect any other rights to which any Trustee or officer may now or
hereafter be entitled, shall continue as to a Person who has ceased to
be such Trustee or officer and shall inure to the benefit of the heirs,
executors and administrators of such Person. Nothing contained herein
shall affect any rights to indemnification to which personnel other
than Trustees and officers may be entitled by contract or otherwise
under law.
(d) Expenses of preparation and presentation of a defense to any
claim, action, suit or proceeding of the character described in
paragraph (a) of this Section 5.3 shall be advanced by the Trust prior
to final disposition thereof upon receipt of any undertaking by or on
behalf of the recipient to repay such amount if it is ultimately
determined that he or she is not entitled to indemnification under this
Section 5.3, provided that either:
(i) such undertaking is secured by a surety bond or some other
appropriate security or the Trust shall be insured against losses
arising out of any such advances; or
(ii) a majority of the Disinterested Trustees acting on the
matter (provided that a majority of the Disinterested Trustees then in
office act on the matter) or an independent legal counsel in a written
opinion, shall determine, based upon a review of readily available
facts (as opposed to a full trial-type inquiry), that there is reason
to believe that the recipient ultimately will be found entitled to
indemnification.
As used in this Section 5.3, a "Disinterested Trustee" is one
(i) who is not an "Interested Person" of the Trust (including anyone
who has been exempted from being an "Interested Person" by any rule,
regulation or order of the Commission), and (ii) against whom none of
such actions, suits or other proceedings or another action, suit or
other proceeding on the same or similar grounds is then or had been
pending.
Agents and employees of the Trust who are not Trustees or
officers of the Trust may be indemnified under the same standards and
procedures set forth in this Section 5.3, in the discretion of the
Board.
<PAGE> 152
ITEM 26. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISOR
Banc One Investment Advisors Corporation (the "Advisor") performs
investment advisory services for all of the Portfolios of One Group
Investment Trust. As of December 31, 1999, the Advisor, an indirect
wholly-owned subsidiary of Bank One Corporation, a bank holding
company located in the state of Illinois, managed over $127 billion
in assets. Bank One Corporation has affiliate banking organizations in
Arizona, Colorado, Florida, Illinois, Indiana, Kentucky, Louisiana,
Michigan, Ohio, Oklahoma, Texas, Utah, West Virginia and Wisconsin. In
addition, Bank One Corporation has several affiliates that engage in
data processing, venture capital, investment and merchant banking, and
other diversified services including trust management, investment
management, brokerage, equipment leasing, mortgage banking, consumer
finance, and insurance.
To the knowledge of Registrant, none of the directors or officers of
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.
<PAGE> 153
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 Management
100 East Broad Street
Columbus, Ohio 43215
Peter W. Atwater Former Treasurer, Bank One Corporation Banking
Chief Operating Officer 100 East Broad Street
Columbus, Ohio 43215
Mark A. Beeson President, One Group Administrative Services, Inc. Investment
Senior Managing Director 1111 Polaris Parkway, Suite B2 Advisor,
Columbus, Ohio 43271-0211 Mutual Fund
Administration
Gary J. Madich, CFA Senior Managing Director Investment
Senior Managing Director Banc One Investment Advisors Corporation Advisor
1111 Polaris Parkway, Suite B2
Columbus, Ohio 43271-0211
Richard R. Jandrain Senior Managing Director Investment
Senior Managing Director Banc One Investment Advisors Corporation Advisor
1111 Polaris Parkway, Suite B2
Columbus, Ohio 43271-0211
</TABLE>
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 B2
Columbus, OH 43271-0211
All other Accounts and Records:
One Group Administrative Services, Inc.
1111 Polaris Parkway, Suite B2
Columbus, OH 43271-0211, Attention: Mark A. Beeson
<PAGE> 154
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
[SIGNATURE PAGES FOLLOW]
<PAGE> 155
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933 AND THE
INVESTMENT COMPANY ACT OF 1940, AS AMENDED, THE REGISTRANT CERTIFIES THAT IT
MEETS ALL OF THE REQUIREMENTS FOR EFFECTIVENESS OF THIS AMENDMENT TO THE
REGISTRATION STATEMENT UNDER RULE 485 (b) UNDER THE SECURITIES ACT OF 1933 AND
HAS DULY CAUSED THIS AMENDMENT TO THE REGISTRATION STATEMENT TO BE SIGNED ON
ITS BEHALF BY THE UNDERSIGNED, THERETO DULY AUTHORIZED, IN THE CITY OF
WASHINGTON, DISTRICT OF COLUMBIA ON THE 18th DAY OF APRIL, 2000.
ONE GROUP(R) INVESTMENT TRUST (Registrant)
/S/MARK A. BEESON*
-------------------------
By: Mark A. Beeson
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS AMENDMENT TO
THE REGISTRATION STATEMENT OF ONE GROUP(R) INVESTMENT TRUST HAS BEEN SIGNED
BELOW BY THE FOLLOWING PERSONS IN THE CAPACITIES INDICATED ON THE 18th DAY OF
APRIL, 2000.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/S/ PETER C. MARSHALL* Trustee April 18, 2000
- --------------------------------------------
Peter C. Marshall
/S/ CHARLES I. POST* Trustee April 18, 2000
- --------------------------------------------
Charles I. Post
/S/ FREDERICK W. RUEBECK* Trustee April 18, 2000
- --------------------------------------------
Frederick W. Ruebeck
/S/ ROBERT A. ODEN JR.* Trustee April 18, 2000
- --------------------------------------------
Robert A. Oden Jr.
/S/ JOHN F. FINN* Trustee April 18, 2000
- --------------------------------------------
John F. Finn
/S/ MARILYN MCCOY* Trustee April 18, 2000
- --------------------------------------------
Marilyn McCoy
/S/ JULIUS L. PALLONE* Trustee April 18, 2000
- --------------------------------------------
Julius L. Pallone
/S/ DONALD L. TUTTLE* Trustee April 18, 2000
- --------------------------------------------
Donald L. Tuttle
PRINCIPAL EXECUTIVE OFFICER/PRINCIPAL ACCOUNTING AND FINANCIAL OFFICER
/s/ Mark A. Beeson President April 18, 2000
- --------------------------------------------
Mark A. Beeson
/s/ Robert L. Young Vice President and April 18, 2000
- -------------------------------------------- Treasurer
Robert L. Young
</TABLE>
<PAGE> 156
*By /S/ MARTIN E. LYBECKER
Martin E. Lybecker
Attorney-in-fact, pursuant to powers of attorney filed herewith.
<PAGE> 157
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 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> 158
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
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> 159
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
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> 160
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 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> 161
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 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> 162
POWER OF ATTORNEY
-----------------
Marilyn McCoy, whose signature appears below, does hereby constitute
and appoint Martin E. Lybecker, Alan G. Priest, and Alyssa Albertelli, each
individually, her 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 One Group
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 19, 1999
/s/Marilyn McCoy
----------------
Marilyn McCoy
<PAGE> 163
POWER OF ATTORNEY
-----------------
Julius L. Pallone, whose signature appears below, does hereby
constitute and appoint Martin E. Lybecker, Alan G. Priest, and Alyssa
Albertelli, each individually, his true and lawful attorneys and agents, with
power of substitution or resubstitution, to do any and all acts and things and
to execute any and all instruments which said attorneys and agents, each
individually, may deem necessary or advisable or which may be required to enable
One Group 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 19, 1999
/s/Julius L. Pallone
--------------------
Julius L. Pallone
<PAGE> 164
POWER OF ATTORNEY
-----------------
Donald L. Tuttle, whose signature appears below, does hereby constitute
and appoint Martin E. Lybecker, Alan G. Priest, and Alyssa Albertelli, each
individually, his true and lawful attorneys and agents, with power of
substitution or resubstitution, to do any and all acts and things and to execute
any and all instruments which said attorneys and agents, each individually, may
deem necessary or advisable or which may be required to enable One Group
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 19, 1999
/s/Donald L. Tuttle
-------------------
Donald L. Tuttle
<PAGE> 165
POWER OF ATTORNEY
-----------------
Robert L. Young, 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 One Group
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: January 18, 2000
/s/ Robert L. Young
-------------------
Robert L. Young
<PAGE> 166
POWER OF ATTORNEY
Mark A. Beeson, 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 One Group
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: January 18, 2000
/s/Mark A. Beeson
-----------------
Mark A. Beeson
<PAGE> 167
LIST OF EXHIBITS
(h)(6) Exhibit A dated as of March 22, 1999 for the Securities Lending
Agreement for One Group Investment Trust between the Registrant,
Banc One Investment Advisors Corporation, and Bank One Trust Company,
N.A.
(h)(14) Fund Participation Agreement effective as of February 1, 2000 among
American General Life Insurance Company, One Group Investment Trust,
Banc One Investment Advisors Corporation, and One Group
Administrative Services, Inc.
(i) Opinion of Ropes & Gray.
(j)(1) Consent of Ropes & Gray.
(j)(2) Consent of PricewaterhouseCoopers LLP.
(p)(1) One Group Mutual Funds and One Group Investment Trust Code of Ethics
(p)(2) Policy 4.05 Personal Trading as revised January 1, 2000 from Banc One
Investment Advisors Corporation's Compliance Manual.
(p)(3) Policy 4.02 Employee Brokerage Accounts as amended December 31, 1997
from Banc One Investment Advisors Corporation's Compliance Manual.
<PAGE> 1
EXHIBIT (h)(6)
EXHIBIT A DATED AS OF MARCH 22, 1999 TO THE SECURITIES LENDING AGREEMENT FOR
THE ONE GROUP INVESTMENT TRUST BETWEEN THE REGISTRANT, BANC ONE
INVESTMENT ADVISORS CORPORATION, AND BANK ONE TRUST COMPANY, N.A.
<PAGE> 2
EXHIBIT A
LIST OF FUNDS
MARCH 22, 1999
Balanced Portfolio
Bond Portfolio
Diversified Equity Portfolio
Diversified Mid Cap Portfolio
Equity Index Portfolio
Government Bond Portfolio
Large Cap Growth Portfolio
Mid Cap Growth Portfolio
Mid Cap Value Portfolio
One Group Investment Trust
- --------------------------
("Lender")
By: /s/ James F. Laird, Jr.
-----------------------------------
James F. Laird, Jr., President
Banc One Investment Advisors Corporation
("Advisor")
By: /s/ Peter Atwater
-----------------------------------
Peter Atwater, Chief Operating Officer
Bank One Trust Company, N.A.
("Subcustodian")
By: /s/ Steven E. Cutler
-----------------------------------
Steven E. Cutler, Officer
1
<PAGE> 1
EXHIBIT (h)(14)
FUND PARTICIPATION AGREEMENT EFFECTIVE AS OF FEBRUARY 1, 2000 AMONG AMERICAN
GENERAL LIFE INSURANCE COMPANY, ONE GROUP INVESTMENT TRUST, BANC ONE
INVESTMENT ADVISORS CORPORATION, AND ONE GROUP ADMINISTRATIVE
SERVICES, INC.
<PAGE> 2
FUND PARTICIPATION AGREEMENT
----------------------------
This Fund Participation Agreement (the "Agreement"), effective as of
February 1, 2000, is made by and among American General Life Insurance Company
("Company"), One Group(R) Investment Trust (the "Trust"), the Trust's investment
advisor, Banc One Investment Advisors Corporation (the "Adviser"), and the
Trust's administrator, One Group Administrative Services, Inc. (the
"Administrator").
WHEREAS, the Trust engages in business as an open-end
management investment company and is available to act as the investment
vehicle for separate accounts established by insurance companies for
individual and group life insurance policies and annuity contracts with
variable accumulation and/or pay-out provisions (hereinafter referred
to individually and/or collectively as "Variable Insurance Products");
WHEREAS, insurance companies desiring to utilize the Trust as
an investment vehicle under their Variable Insurance Products are
required to enter into participation agreements with the Trust and the
Administrator (the "Participating Insurance Companies");
WHEREAS, shares of the Trust are divided into several series
of shares, each representing the interest in a particular managed
portfolio of securities and other assets, any one or more of which may
be made available for Variable Insurance Products of Participating
Insurance Companies;
WHEREAS, the Trust intends to offer shares of the series set
forth on Schedule B (each such series hereinafter referred to as a
"Portfolio") as may be amended from time to time by mutual agreement of
the parties hereto under this Agreement to the accounts of the Company
specified on Schedule A (hereinafter referred to individually as an
"Account," collectively, the "Accounts");
WHEREAS, the Trust has obtained an order from the Securities
and Exchange Commission, granting the Trust exemptions from the
provisions of Sections 9(a), 13(a), 15(a), and 15(b) of the Investment
Company Act of 1940, as amended (hereinafter the "1940 Act") and Rules
6e-2(b)(15) and 6e-3(T)(b)(15) thereunder, to the extent necessary to
permit shares of the Trust to be sold to and held by Variable Insurance
Product separate accounts of both affiliated and unaffiliated insurance
companies (hereinafter the "Shared Funding Exemptive Order");
WHEREAS, the Trust is registered as an open-end management
investment company under the 1940 Act and its shares are registered
under the Securities Act of 1933, as amended (hereinafter the "1933
Act");
WHEREAS, the Adviser is duly registered as an investment
adviser under the Investment Advisers Act of 1940, as amended, and any
applicable state securities laws;
WHEREAS, the Adviser is the investment adviser of the
Portfolios of the Trust;
WHEREAS, the Company has registered certain Variable Insurance
Products under the 1933 Act; and
WHEREAS, to the extent permitted by applicable insurance laws
and regulations, each Account intends to purchase shares of the
Portfolios to fund certain of the aforesaid Variable Insurance Products
and the Trust is authorized to sell such shares to each such Account at
net asset value.
NOW, THEREFORE, in consideration of their mutual promises, the
Company, the Trust, the Adviser, and the Administrator agree as
follows:
-1-
<PAGE> 3
ARTICLE 1
THE CONTRACTS
1. The Company represents that it has established each of the
Accounts specified on Schedule A as a separate account under Texas law,
and has registered each such Account as a unit investment trust under
the 1940 Act to serve as an investment vehicle for variable annuity
contracts and/ or variable life contracts offered by the Company (the
"Contracts"). The Contracts provide for the allocation of net amounts
received by the Company to separate divisions of the Account for
investment in the shares of the Portfolios. Selection of a particular
division is made by the Contract owner who may change such selection
from time to time in accordance with the terms of the applicable
Contract. The Company agrees to make every reasonable effort to market
its Contracts. In marketing its Contracts, the Company will comply with
all applicable state or Federal laws.
ARTICLE 2
TRUST SHARES
2.1. The Trust agrees to make available for purchase by the
Company shares of the Portfolios and shall execute orders placed for
each Account on a daily basis at the net asset value next computed
after receipt by the Trust or its designee of such order. For purposes
of this Section 2.1, the Company shall be the designee of the Trust for
receipt of such orders from the Account and receipt by such designee
shall constitute receipt by the Trust; provided that the Trust's
designated transfer agent receives notice of such order by 10:00 a.m.
Eastern Time on the next following Business Day ("Trade Date plus 1").
Notwithstanding the foregoing, the Company shall use its best efforts
to provide the Trust's designated transfer agent with notice of such
orders by 9:30 a.m. Eastern Time on Trade Date plus 1. "Business Day"
shall mean any day on which the New York Stock Exchange is open for
trading and on which the Trust calculates its net asset value pursuant
to the rules of the Securities and Exchange Commission, as set forth in
the Trust's prospectus and statement of additional information.
Notwithstanding the foregoing, the Board of Trustees of the Trust
(hereinafter the "Board") may refuse to permit the Trust to sell shares
of any Portfolio to any person, or suspend or terminate the offering of
shares of any Portfolio if such action is required by law or by
regulatory authorities having jurisdiction or is, in the sole
discretion of the Board acting in good faith and in light of their
fiduciary duties under federal and any applicable state laws, necessary
in the best interests of the shareholders of such Portfolio.
2.2. The Trust agrees that shares of the Trust will be sold
only to Participating Insurance Companies for their Variable Insurance
Products and, in the Trust's discretion, to qualified pension and
retirement plans. No shares of any Portfolio will be sold to the
general public.
2.3. The Trust agrees to redeem for cash, on the Company's
request, any full or fractional shares of the Trust held by an Account,
executing such requests on a daily basis at the net asset value next
computed after receipt by the Trust or its designee of the request for
redemption. For purposes of this Section 2.3, the Company shall be the
designee of the Trust for receipt of requests for redemption from each
Account and receipt by such designee shall constitute receipt by the
Trust; provided that the Trust's designated transfer agent receives
notice of such request for redemption on Trade Date plus 1 in
accordance with the timing rules described in Section 2.1.
2.4. The Company agrees that purchases and redemptions of
Portfolio shares offered by the then current prospectus of the Trust
shall be made in accordance with the provisions of such prospectus. The
Accounts of the Company, under which amounts may be invested in the
Trust are listed on Schedule A attached hereto and incorporated herein
by reference, as such Schedule A may be amended from time to time by
mutual written agreement of all of the parties hereto. The Company will
give the Trust and the Adviser concurrent written notice of its
intention to make available in the future, as a funding vehicle under
the Contracts, any other investment company.
-2-
<PAGE> 4
2.5. The Company will place separate orders to purchase or
redeem shares of each Portfolio. Each order shall describe the net
amount of shares and dollar amount of each Portfolio to be purchased or
redeemed. In the event of net purchases, the Company shall pay for
Portfolio shares on Trade Date plus 1. Payment shall be in federal
funds transmitted by wire. In the event of net redemptions, the
Portfolio shall pay the redemption proceeds in federal funds
transmitted by wire by 2:00 p.m. Eastern Time on Trade Date plus 1.
Notwithstanding the foregoing, if the payment of redemption proceeds on
the next Business Day would require the Portfolio to dispose of
Portfolio securities or otherwise incur substantial additional costs,
and if the Portfolio has determined to settle redemption transactions
for all shareholders on a delayed basis, proceeds shall be wired to the
Company within seven (7) days and the Portfolio shall notify in writing
the person designated by the Company as the recipient for such notice
of such delay by 3:00 p.m. Eastern Time on Trade Date plus 1.
2.6. Issuance and transfer of the Trust's shares will be by
book entry only. Share certificates will not be issued to the Company
or any Account. Shares ordered from the Trust will be recorded in an
appropriate title for each Account or the appropriate subaccount of
each Account.
2.7. On each record date, the Administrator shall use its best
efforts to furnish same day notice by 6:30 p.m. Eastern Time (by wire,
telephone, electronic media or by fax) to the Company of any dividends
or capital gain distributions payable on the Trust's shares. The
Company hereby elects to receive all such dividends and capital gain
distributions as are payable on the Portfolio shares in additional
shares of that Portfolio. The Company reserves the right to revoke this
election and to receive all such dividends and capital gain
distributions in cash. The Trust shall notify the Company of the number
of shares so issued as payment of such dividends and distributions.
2.8. The Administrator shall make the net asset value per
share of each Portfolio available to the Company on a daily basis as
soon as reasonably practical after the net asset value per share is
calculated and shall use its best efforts to make such net asset value
per share available by 6:30 p.m. Eastern Time. In the event that the
Administrator is unable to meet the 6:30 p.m. time stated immediately
above, then the Administrator shall provide the Company with additional
time to notify the Administrator of purchase or redemption orders
pursuant to Sections 2.1 and 2.3, respectively, above. Such additional
time shall be equal to the additional time that the Administrator takes
to make the net asset values available to the Company.
2.9. If the Administrator provides materially incorrect share
net asset value information through no fault of the Company, the
Company shall be entitled to an adjustment with respect to the Trust
shares purchased or redeemed to reflect the correct net asset value per
share as subsequently determined by the Administrator. The
determination of the materiality of any net asset value pricing error
shall be based on the Trust's policy for correction of pricing errors
(the "Pricing Policy"). The Company shall correct such error in its
records and in the records prepared by it for Contract owners in
accordance with information provided by the Administrator. Any material
error in the calculation or reporting of net asset value per share,
dividend or capital gain information shall be reported promptly upon
discovery to the Company.
2.10. The Administrator shall provide information to the
Company of the amount of shares traded and the associated cost per
share (NAV) total trade amount and the outstanding share balances held
by the Account in each Portfolio as of the end of each Business Day.
Such information will be furnished (electronically or by fax) by 1:00
p.m. Eastern time on the next Business Day.
ARTICLE 3
PROSPECTUSES, REPORTS TO SHAREHOLDERS AND PROXY STATEMENTS, VOTING
3.1. The Trust shall provide the Company with as many printed
copies of the Trust's current prospectus as the Company may reasonably
request. The Administrator will provide the Company with a copy of the
statement of additional information suitable for duplication. If
requested by the Company, in lieu of providing printed copies, the
Trust shall provide camera-ready film or computer diskettes containing
the Trust's prospectus and statement of additional information in order
for the Company once each year (or more frequently if the prospectus
and/or statement of additional information for the Trust is amended
during the
-3-
<PAGE> 5
year) to have the prospectus for the Contracts and the Trust's
prospectus printed together in one document or separately. The Company
may elect to print the Trust's prospectus and/or its statement of
additional information in combination with other investment companies'
prospectuses and statements of additional information.
3.2(a). Except as otherwise provided in this Section 3.2, all
expenses of preparing, setting in type and printing and distributing
Trust prospectuses and statements of additional information shall be
the expense of the Company. For prospectuses and statements of
additional information provided by the Company to its existing owners
of Contracts in order to update disclosure as required by the 1933 Act
and/or the 1940 Act, the cost of setting in type, printing and
distributing shall be borne by the Trust. If the Company chooses to
receive camera-ready film or computer diskettes in lieu of receiving
printed copies of the Trust's prospectus and/or statement of additional
information, the Trust shall bear the cost of typesetting to provide
the Trust's prospectus and/or statement of additional information to
the Company in the format in which the Trust is accustomed to
formatting prospectuses and statements of additional information,
respectively, and the Company shall bear the expense of adjusting or
changing the format to conform with any of its prospectuses and/or
statements of additional information. In such event, the Trust will
reimburse the Company in an amount equal to the product of x and y
where x is the number of such prospectuses distributed to owners of the
Contracts, and y is the Trust's per unit cost of printing the Trust's
prospectuses. The same procedures shall be followed with respect to the
Trust's statement of additional information. The Trust shall not pay
any costs of typesetting, printing and distributing the Trust's
prospectus and/or statement of additional information to prospective
Contract owners.
3.2(b). The Trust, at the Company's expense, shall provide the
Company with copies of Annual and Semi-Annual Reports (the "Reports")
in such quantity as the Company shall reasonably require for
distributing to Contract owners. The Trust, at its expense, shall
provide the Contract owners designated by the Company with copies of
its proxy statements and other communications to shareholders (except
for prospectuses and statements of additional information, which are
covered in Section 3.2(a) above, and Reports). The Trust shall not pay
any costs of distributing Reports and other communications to
prospective Contract owners.
3.2(c). The Company agrees to provide the Trust or its
designee with such information as may be reasonably requested by the
Trust to assure that the Trust's expenses do not include the cost of
typesetting, printing or distributing any of the foregoing documents
other than those actually distributed to existing Contract owners.
3.2(d). The Trust shall pay no fee or other compensation to
the Company under this Agreement, except that if the Trust or any
Portfolio adopts and implements a plan pursuant to Rule 12b-1 to
finance distribution expenses, then the Trust may make payments to the
Company or to the underwriter for the Contracts if and in amounts
agreed to by the Trust in writing.
3.2(e). All expenses, including expenses to be borne by the
Trust pursuant to Section 3.2 hereof, incident to performance by the
Trust under this Agreement shall be paid by the Trust. The Trust shall
see to it that all its shares are registered and authorized for
issuance in accordance with applicable federal law and, if and to the
extent deemed advisable by the Trust, in accordance with applicable
state laws prior to their sale. The Trust shall bear the expenses for
the cost of registration and qualification of the Trust's shares.
3.3. If and to the extent required by law, the Company shall
with respect to proxy material distributed by the Trust to Contract
owners designated by the Company to whom voting privileges are required
to be extended:
(i) solicit voting instructions from Contract owners;
(ii) vote the Trust shares in accordance with instructions
received from Contract owners; and
(iii) vote Trust shares for which no instructions have been
received in the same proportion
-4-
<PAGE> 6
as Trust shares of such Portfolio for which
instructions have been received, so long as and
to the extent that the Securities and Exchange
Commission continues to interpret the 1940 Act
to require pass-through voting privileges for
variable contract owners.
The Company reserves the right to vote Trust shares held in any
segregated asset account in its own right, to the extent permitted by
law.
ARTICLE 4
SALES MATERIAL AND INFORMATION
4.1. The Company shall furnish, or shall cause to be
furnished, to the Trust, the Adviser or their designee, drafts of the
separate accounts prospectuses and statements of additional information
and each piece of sales literature or other promotional material
prepared by the Company or any person contracting with the Company to
prepare such material in which the Trust, the Adviser or the
Administrator is described, at least ten Business Days prior to its
use. No such material shall be used if the Trust, the Adviser, the
Administrator or their designee reasonably objects to such use within
ten Business Days after receipt of such material.
4.2. Neither the Company nor any person contracting with the
Company to prepare sales literature or other promotional material shall
give any information or make any representations or statements on
behalf of the Trust or concerning the Trust in connection with the sale
of the Contracts other than the information or representations
contained in the registration statement or Trust prospectus, as such
registration statement or Trust prospectus may be amended or
supplemented from time to time, or in reports to shareholders or proxy
statements for the Trust, or in sales literature or other promotional
material approved by the Trust or its designee, except with the
permission of the Trust or its designee.
4.3. The Administrator shall furnish, or shall cause to be
furnished, to the Company or its designee, each piece of sales
literature or other promotional material prepared by the Trust in which
the Company or its Accounts, are described at least ten Business Days
prior to its use. No such material shall be used if the Company or its
designee reasonably objects to such use within ten Business Days after
receipt of such material.
4.4. Neither the Trust, the Administrator, nor the Adviser
shall give any information or make any representations on behalf of the
Company or concerning the Company, each Account, or the Contracts,
other than the information or representations contained in a
registration statement or prospectus for the Contracts, as such
registration statement or prospectus may be amended or supplemented
from time to time, or in published reports or solicitations for voting
instruction for each Account which are in the public domain or approved
by the Company for distribution to Contract owners, or in sales
literature or other promotional material approved by the Company or its
designee, except with the permission of the Company.
4.5. The Trust will provide to the Company at least one
complete copy of all registration statements, prospectuses, statements
of additional information, reports, proxy statements, applications for
exemptions, requests for no-action letters, and all amendments to any
of the above, that relate to the Trust or its shares, promptly after
the filing of such document with the Securities and Exchange Commission
or other regulatory authorities.
4.6. The Company will provide to the Trust, upon the Trust's
request, at least one complete copy of all registration statements,
prospectuses, statements of additional information, reports,
solicitations for voting instructions, sales literature and other
promotional materials, applications for exemptions, requests for no
action letters, and all amendments to any of the above, that relate to
the investment in an Account or Contract, contemporaneously with the
filing of such documents with the Securities and Exchange Commission or
other regulatory authorities.
4.7. For purposes of this Article 4, the phrase "sales
literature or other promotional material" includes, but is not limited
to, any of the following: advertisements (such as material published,
or designed for use in, a newspaper, magazine, or other periodical,
radio, television, internet, telephone or tape recording, videotape,
display, signs or billboards, motion pictures, or other public media),
sales literature (i.e., any
-5-
<PAGE> 7
written communication distributed or made generally available to
customers or the public, including brochures, circulars, research
reports, market letters, form letters, seminar texts, reprints or
excerpts of any other advertisement, sales literature, or published
article), and educational or training materials or other communications
distributed or made generally available to some or all agents or
employees.
4.8. The Company and its agents shall make no representations
concerning the Trust except those contained in the then-current
prospectus and Statement of Additional Information of the Trust and in
current printed sales literature of the Trust.
ARTICLE 5
ADMINISTRATIVE SERVICES TO CONTRACT OWNERS
5. Administrative services to Contract owners shall be the
responsibility of the Company and shall not be the responsibility of
the Trust, the Adviser or the Administrator. The Trust and the
Administrator recognize that the Account(s) will be the sole
shareholder(s) of Trust shares issued pursuant to the Contracts.
ARTICLE 6
REPRESENTATIONS AND WARRANTIES
6.1. The Trust represents that it believes, in good faith,
that each Portfolio is currently qualified as a regulated investment
company under Subchapter M of the Internal Revenue Code of 1986, as
amended (the "Code") and that it will make every effort to maintain
such qualification of the Trust and that it will notify the Company
immediately upon having a reasonable basis for believing that a
Portfolio has ceased to so qualify or that it might not so qualify in
the future.
6.2. The Company represents that it believes, in good faith,
that the Contracts will at all times be treated as annuity contracts
under applicable provisions of the Code, and that it will make every
effort to maintain such treatment and that it will notify the Trust
immediately upon having a reasonable basis for believing that the
Contracts have ceased to be so treated or that they might not be so
treated in the future.
6.3. The Trust represents that it believes, in good faith,
that the Portfolios will at all times comply with the diversification
requirements set forth in Section 817(h) of the Code and Section
1.817-5(b) of the regulations under the Code, and that it will make
every effort to maintain the Trust's compliance with such
diversification requirements, and that it will notify the Company
immediately upon having a reasonable basis for believing that a Fund
has ceased to so qualify or that a Portfolio might not so qualify in
the future.
6.4 . The Company represents and warrants that the interests
of the Contracts are or will be registered unless exempt and that it
will maintain such registration under the 1933 Act and the regulations
thereunder to the extent required by the 1933 Act and that the
Contracts will be issued and sold in compliance with all applicable
federal and state laws and regulations. The Company further represents
and warrants that it is an insurance company duly organized and in good
standing under applicable law and that it has legally and validly
established each Account prior to any issuance or sale thereof as a
segregated asset account under the Texas Insurance Code and the
regulations thereunder and has registered or, prior to any issuance or
sale of the Contracts, will maintain the registration of each Account
as a unit investment trust in accordance with and to the extent
required by the provisions of the 1940 Act and the regulations
thereunder, unless exempt therefrom, to serve as a segregated
investment account for the Contracts. The Company shall amend its
registration statement for its contracts under the 1933 Act and the
1940 Act from time to time as required in order to effect the
continuous offering of its Contracts.
6.5. The Company represents that it believes, in good faith,
that the Account is a "segregated asset account" and that interests in
the Account are offered exclusively through the purchase of a "variable
contract," within the meaning of such terms under Section 1.817-5(f)(2)
of the regulations under the Code, and that it will make every effort
to continue to meet such definitional requirements, and that it will
notify the Trust immediately upon having a reasonable basis for
believing that such requirements have ceased to be met or that they
might not be met in the future.
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6.6. The Trust represents and warrants that it is and shall
continue to be at all times covered by a blanket fidelity bond or
similar coverage for the benefit of the Trust in an amount no less than
the minimal coverage as required currently by Rule 17g-(1) of the 1940
Act or related provisions as may be promulgated from time to time. Such
bond shall include coverage for larceny and embezzlement and shall be
issued by a reputable bonding company. The Trust will notify the
Company immediately upon having a reasonable basis for believing that
the Trust no longer has the coverage required by this Section 6.6.
6.7. The Company represents and warrants that all of its
directors, officers, employees, investment advisers, and other entities
dealing with the money or securities of the Trust are and shall
continue to be at all times covered by a blanket fidelity bond or
similar coverage for the benefit of the Trust, in an amount not less
than five million dollars ($5,000,000). Such bond shall include
coverage for larceny and embezzlement and shall be issued by a
reputable bonding company. The Company agrees to make all reasonable
efforts to see that this bond or another bond containing these
provisions is always in effect and agrees to notify the Trust
immediately upon having a reasonable basis for believing that the
Company no longer has the coverage required by this Section 6.7.
6.8. The Trust represents that to the extent that it decides
to finance distribution expenses pursuant to Rule 12b-1 under the 1940
Act, the Trust undertakes to have a majority of the disinterested
members of the Board formulate and approve any plan under Rule 12b-1 to
finance distribution expenses.
6.9. The Adviser and the Administrator each represents and
warrants that it complies with all applicable federal and state laws
and regulations and that it will perform its obligations for the Trust
and the Company in compliance with the laws and regulations of its
state of domicile and any applicable state and federal laws and
regulations.
ARTICLE 7
STATEMENTS AND REPORTS
7.1. The Administrator or its designee will make available
electronically to the Company within five (5) business days after the
end of each month a monthly statement of account confirming all
transactions made during that month in the Account.
7.2. The Trust and Administrator agree to provide the Company
no later than March 1 of each year with the investment advisory and
other expenses of the Trust incurred during the Trust's most recently
completed fiscal year, to permit the Company to fulfill its prospectus
disclosure obligations under the SEC's variable annuity fee table
requirements.
ARTICLE 8
POTENTIAL CONFLICTS
8.1. The Board will monitor the Trust for the existence of any
material irreconcilable conflict between the interests of the contract
owners of all separate accounts investing in the Trust. An
irreconcilable material conflict may arise for a variety of reasons,
including: (a) an action by any state insurance regulatory authority;
(b) a change in applicable federal or state insurance, tax, or
securities laws or regulations, or a public ruling, private letter
ruling, no-action or interpretative letter, or any similar action by
insurance, tax, or securities regulatory authorities; (c) an
administrative or judicial decision in any relevant proceeding; (d) the
manner in which the investments of any Portfolio are being managed; (e)
a difference in voting instructions given by variable annuity contract
owners and variable life insurance contract owners; or (f) a decision
by a Participating Insurance Company to disregard the voting
instructions of contract owners. The Board shall promptly inform the
Company if it determines that an irreconcilable material conflict
exists and the implications thereof.
8.2. The Company will report in writing any potential or
existing material irreconcilable conflict of which it is aware to the
Administrator. Upon receipt of such report, the Administrator shall
report the
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potential or existing material irreconcilable conflict to the Board.
The Administrator shall also report to the Board on a quarterly basis
whether the Company has reported any potential or existing material
irreconcilable conflicts during the previous calendar quarter. The
Company will assist the Board in carrying out its responsibilities
under the Shared Funding Exemptive Order, by providing the Board with
all information reasonably necessary for the Board to consider any
issues raised. This includes, but is not limited to, an obligation by
the Company to inform the Board whenever Contract owner voting
instructions are disregarded.
8.3. If it is determined by a majority of the Board, or a
majority of its disinterested trustees, that a material irreconcilable
conflict exists, the Company and other Participating Insurance
Companies shall, at their expense and to the extent reasonably
practicable (as determined by a majority of the disinterested
trustees), take whatever steps are necessary to remedy or eliminate the
irreconcilable material conflict, up to and including: (1) withdrawing
the assets allocable to some or all of the separate accounts from the
Trust or any Portfolio and reinvesting such assets in a different
investment medium, including (but not limited to) another Portfolio of
the Trust, or submitting the question whether such segregation should
be implemented to a vote of all affected Contract owners and, as
appropriate, segregating the assets of any appropriate group (i.e.,
annuity contract owners, life insurance policy owners, or variable
contract owners of one or more Participating Insurance Companies) that
votes in favor of such segregation, or offering to the affected
Contract owners the option of making such a change; and (2)
establishing a new registered management investment company or managed
separate account. No charge or penalty will be imposed as a result of
such withdrawal. The Company agrees that it bears the responsibility to
take remedial action in the event of a Board determination of an
irreconcilable material conflict and the cost of such remedial action,
and these responsibilities will be carried out with a view only to the
interests of Contract owners.
8.4. If a material irreconcilable conflict arises because of a
decision by the Company to disregard Contract owner voting instructions
and that decision represents a minority position or would preclude a
majority vote, the Company may be required, at the Trust's election, to
withdraw the affected Account's investment in the Trust and terminate
this Agreement with respect to such Account (at the Company's expense);
provided, however that such withdrawal and termination shall be limited
to the extent required by the foregoing material irreconcilable
conflict as determined by a majority of the disinterested members of
the Board. No charge or penalty will be imposed as a result of such
withdrawal. The Company agrees that it bears the responsibility to take
remedial action in the event of a Board determination of an
irreconcilable material conflict and the cost of such remedial action,
and these responsibilities will be carried out with a view only to the
interests of Contract owners.
8.5. For purposes of Sections 8.3 through 8.4 of this
Agreement, a majority of the disinterested members of the Board shall
determine whether any proposed action adequately remedies any
irreconcilable material conflict, but in no event will the Trust be
required to establish a new funding medium for the Contracts. The
Company shall not be required by Section 8.3 through 8.4 to establish a
new funding medium for the Contracts if an offer to do so has been
declined by vote of a majority of Contract owners materially adversely
affected by the irreconcilable material conflict.
8.6. If and to the extent that Rule 6e-2 and Rule 6e-3(T) are
amended, or Rule 6e-3 is adopted, to provide exemptive relief from any
provision of the 1940 Act or the rules promulgated thereunder with
respect to mixed or shared funding (as defined in the Shared Funding
Exemptive Order) on terms and conditions materially different from
those contained in the Shared Funding Exemptive Order, then the Trust
and/or the Participating Insurance Companies, as appropriate, shall
take such steps as may be necessary to comply with Rules 6e-2 and
6e-3(T), as amended, and Rule 6e-3, as adopted, to the extent such
rules are applicable.
8.7. Each of the Company and the Adviser shall at least
annually submit to the Board such reports, materials or data as the
Board may reasonably request so that the Board may fully carry out the
obligations imposed upon them by the provisions hereof and in the
Shared Funding Exemptive Order, and said reports, materials and data
shall be submitted more frequently if deemed appropriate by the Board.
Without limiting the generality of the foregoing or the Company's
obligations under Section 8.2, the Company shall provide to the
Administrator a written report to the Board no later than January 15th
of each year indicating whether any material irreconcilable conflicts
have arisen during the prior fiscal year of the Trust. All reports
received by the Board of potential or existing conflicts, and all Board
action with regard to determining the
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<PAGE> 10
existence of a conflict, notifying Participating Insurance Companies of
a conflict, and determining whether any proposed action adequately
remedies a conflict, shall be properly recorded in the minutes of the
Board or other appropriate records, and such minutes or other records
shall be made available to the Securities and Exchange Commission upon
request.
ARTICLE 9
INDEMNIFICATION
9.1. INDEMNIFICATION BY THE COMPANY
9.1 (a). The Company agrees to indemnify and hold harmless the
Trust, the Administrator, the Adviser, and each member of their
respective Boards and officers and each person, if any, who controls
the Trust within the meaning of Section 15 of the 1933 Act
(collectively, the "Indemnified Parties" for purposes of this Section
9.1) against any and all losses, claims, damages, liabilities
(including amounts paid in settlement with the written consent of the
Company) or litigation (including legal and other expenses), to which
the Indemnified Parties may become subject under any statute,
regulation, at common law or otherwise, insofar as such losses, claims,
damages, liabilities or expenses (or actions in respect thereof) or
settlements are related to the sale or acquisition of the Trust's
shares or the Contracts and:
(i) arise out of or are based upon any untrue statements
or alleged untrue statements of any material fact
contained in the registration statement or prospectus
for the Contracts or contained in the Contracts or
sales literature for the Contracts (or any amendment
or supplement to any of the foregoing), or arise out
of or are based upon the omission or the alleged
omission to state therein a material fact required to
be stated therein or necessary to make the statements
therein not misleading, provided that this agreement
to indemnify shall not apply as to any Indemnified
Party if such statement or omission or such alleged
statement or omission was made in reliance upon and
in conformity with information furnished to the
Company by or on behalf of the Trust for use in the
registration statement or prospectus for the
Contracts or in the Contracts or sales literature (or
any amendment or supplement) or otherwise for use in
connection with the sale of the Contracts or Trust
shares; or
(ii) arise out of or as a result of statements or
representations (other than statements or
representations contained in the registration
statement, prospectus or sales literature of the
Trust not supplied by the Company, or persons under
its control and other than statements or
representations authorized by the Trust) or unlawful
conduct of the Company or persons under its control,
with respect to the sale or distribution of the
Contracts or Trust shares; or
(iii) arise out of or as a result of any untrue statement
or alleged untrue statement of a material fact
contained in a registration statement, prospectus, or
sales literature of the Trust or any amendment
thereof or supplement thereto or the omission or
alleged omission to state therein a material fact
required to be stated therein or necessary to make
the statements therein not misleading if such a
statement or omission was made in reliance upon and
in conformity with information furnished to the Trust
by or on behalf of the Company; or
(iv) arise as a result of any failure by the Company to
provide the services and furnish the materials under
the terms of this Agreement; or
(v) arise out of or result from any material breach of
any representation and/or warranty made by the
Company in this Agreement or arise out of or result
from any other material breach of this Agreement by
the Company; as limited by and in accordance with the
provisions of Section 9.1(b) and 9.1(c) hereof.
9.1(b). The Company shall not be liable under this
indemnification provision with respect to any losses, claims, damages,
liabilities or litigation incurred or assessed against an Indemnified
Party as such may arise from such Indemnified Party's willful
misfeasance, bad faith, or gross negligence in the performance of
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such Indemnified Party's duties or by reason of such Indemnified
Party's reckless disregard of obligations or duties under this
Agreement.
9.1(c). The Company shall not be liable under this
indemnification provision with respect to any claim made against an
Indemnified Party unless such Indemnified Party shall have notified the
Company in writing within a reasonable time after the summons or other
first legal process giving information of the nature of the claim shall
have been served upon such Indemnified Party (or after such Indemnified
Party shall have received notice of such service on any designated
agent), but failure to notify the Company of any such claim shall not
relieve the Company from any liability which it may have to the
Indemnified Party against whom such action is brought otherwise than on
account of this indemnification provision. In case any such action is
brought against the Indemnified Parties, the Company shall be entitled
to participate, at as own expense, in the defense of such action. The
Company also shall be entitled to assume the defense thereof, with
counsel satisfactory to the Indemnified Party named in the action.
After notice from the Company to such Indemnified Party of the
Company's election to assume the defense thereof, the Indemnified Party
shall bear the fees and expenses of any additional counsel retained by
it, and the Company shall not be liable to such Indemnified Party under
this Agreement for any legal or other expenses subsequently incurred by
such Indemnified Party independently in connection with the defense
thereof other than reasonable costs of investigation.
9.1(d). The Indemnified Parties will promptly notify the
Company of the commencement of any litigation or proceedings against
them in connection with the issuance or sale of the Trust shares or the
Contracts or the operation of the Trust.
9.2. INDEMNIFICATION BY ADMINISTRATOR
9.2(a). The Administrator agrees to indemnify and hold
harmless the Company and each of its directors and officers and each
person, if any, who controls the Company within the meaning of Section
15 of the 1933 Act (collectively, the "Indemnified Parties" for
purposes of this Section 9.2) against any and all losses, claims,
damages, liabilities (including amounts paid in settlement with the
written consent of the Administrator) or litigation (including legal
and other expenses) to which the Indemnified Parties may become subject
under any statute, at common law or otherwise, insofar as such losses,
claims, damages, liabilities or expenses (or actions in respect
thereof) or settlements:
(i) arise out of or are based upon any untrue statement
or alleged untrue statement of any material fact
contained in the registration statement or prospectus
or sales literature of the Trust (or any amendment or
supplement to any of the foregoing), or arise out of
or are based upon the omission or the alleged
omission to state therein a material fact required to
be stated therein or necessary to make the statements
therein not misleading, provided that this agreement
to indemnify shall not apply as to any Indemnified
Party if such statement or omission or such alleged
statement or omission was made in reliance upon and
in conformity with information furnished to the Trust
or the Administrator by or on behalf of the Company,
the Adviser, Counsel for the Trust, the independent
public accountant to the Trust, or any person or
entity that is not acting as agent for or controlled
by the Administrator for use in the registration
statement or prospectus for the Trust or in sales
literature (or any amendment or supplement) or
otherwise for use in connection with the sale of the
Contracts or Portfolio shares; or
(ii) arise out of or as a result of any untrue statement
or alleged untrue statement of a material fact
contained in a registration statement, prospectus, or
sales literature covering the Contracts, or any
amendment thereof or supplement thereto, or the
omission or alleged omission to state therein a
material fact required to be stated therein or
necessary to make the statement or statements therein
not misleading, if such statement or omission was
made in reliance upon information furnished to the
Company by or on behalf of the Administrator; or
(iii) arise as a result of any failure by the Administrator
to provide the services and furnish the materials
under the terms of this Agreement; or
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<PAGE> 12
(iv) arise out of or result from any material breach of
any representation and/or warranty made by the
Administrator in this Agreement or arise out of or
result from any other material breach of this
Agreement by the Administrator; as limited by and in
accordance with the provisions of Section 9.2(b) and
9.2(c) hereof.
9.2(b). The Administrator shall not be liable under this
indemnification provision with respect to any losses, claims, damages,
liabilities or litigation incurred or assessed against an Indemnified
Party as such may arise from such Indemnified Party's willful
misfeasance, bad faith, or gross negligence in the performance of such
Indemnified Party's duties or by reason of such Indemnified Party's
reckless disregard of obligations and duties under this Agreement.
9.2(c). The Administrator shall not be liable under this
indemnification provision with respect to any claim made against an
Indemnified Party unless such Indemnified Party shall have notified the
Administrator in writing within a reasonable time after the summons or
other first legal process giving information of the nature of the claim
shall have been served upon such Indemnified Party (or after such
Indemnified Party shall have received notice of such service on any
designated agent), but failure to notify the Administrator of any such
claim shall not relieve the Administrator from any liability which it
may have to the Indemnified Party against whom such action is brought
otherwise than on account of this indemnification provision. In case
any such action is brought against the Indemnified Parties, the
Administrator will be entitled to participate, at its own expense, in
the defense thereof. The Administrator also shall be entitled to assume
the defense thereof, with counsel satisfactory to the Indemnified Party
named in the action. After notice from the Administrator to such
Indemnified Party of the Administrator's election to assume the defense
thereof, the Indemnified Party shall bear the fees and expenses of any
additional counsel retained by it, and the Administrator will not be
liable to such Indemnified Party under this Agreement for any legal or
other expenses subsequently incurred by such Indemnified Party
independently in connection with the defense thereof other than
reasonable costs of investigation.
9.2(d). The Company agrees promptly to notify the
Administrator of the commencement of any litigation or proceedings
against it or any of its officers or directors in connection with the
issuance or sale of the Contracts or the operation of each Account in
which the Portfolios are made available.
9.3. INDEMNIFICATION BY THE ADVISER
9.3(a). The Adviser agrees to indemnify and hold harmless the
Company and its directors and officers and each person, if any, who
controls the Company within the meaning of Section 15 of the 1933 Act
(hereinafter collectively, the "Indemnified Parties" and individually,
"Indemnified Party," for purposes of this Section 9.3) against any and
all losses, claims, damages, liabilities (including amounts paid in
settlement with the written consent of the Adviser) or litigation
(including legal and other expenses) to which the Indemnified Parties
may become subject under any statute, at common law or otherwise,
insofar as such losses, claims, damages, liabilities or expenses (or
actions in respect thereof) or settlements:
(i) arise out of or are based upon any untrue statement
or alleged untrue statement of any material fact
contained in the registration statement or prospectus
or sales literature of the Trust (or any amendment or
supplement to any of the foregoing), or arise out of
or are based upon the omission or the alleged
omission to state therein a material fact required to
be stated therein or necessary to make the statements
therein not misleading, provided that this agreement
to indemnify shall not apply as to any Indemnified
Party if such statement or omission or such alleged
statement or omission was made in reliance upon and
in conformity with information furnished to the
Adviser or the Trust by or on behalf of the Company,
the Administrator, Counsel for the Trust, the
independent public accountant to the Trust, or any
person or entity that is not acting as agent for or
controlled by the Adviser for use in the registration
statement or prospectus for the Trust or in sales
literature (or any amendment or supplement) or
otherwise for use in connection with the sale of the
Contracts or Portfolio shares; or
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<PAGE> 13
(ii) arise out of or as a result of any untrue statement
or alleged untrue statement of a material fact
contained in a registration statement, prospectus, or
sales literature covering the Contracts, or any
amendment thereof or supplement thereto, or the
omission or alleged omission to state therein a
material fact required to be stated therein or
necessary to make the statement or statements therein
not misleading, if such statement or omission was
made in reliance upon information furnished to the
Company by or on behalf of the Adviser; or
(iii) arise as a result of any failure by the Adviser to
provide the services and furnish the materials under
the terms of this Agreement; or
(iv) arise out of or result from any material breach of
any representation and/or warranty made by the
Adviser in this Agreement or arise out of or result
from any other material breach of this Agreement by
the Adviser; as limited by and in accordance with the
provisions of Section 9.3(b) and 9.3(c) hereof.
9.3(b). The Adviser shall not be liable under this
indemnification provision with respect to any losses, claims, damages,
liabilities or litigation incurred or assessed against an Indemnified
Party as may arise from such Indemnified Party's willful misfeasance,
bad faith, or gross negligence in the performance of such Indemnified
Party's duties or by reason of such Indemnified Party's reckless
disregard of obligations and duties under this Agreement.
9.3(c). The Adviser shall not be liable under this
indemnification provision with respect to any claim made against an
Indemnified Party unless such Indemnified Party shall have notified the
Adviser in writing within a reasonable time after the summons or other
first legal process giving information of the nature of the claim shall
have been served upon such Indemnified Party (or after such Indemnified
Party shall have received notice of such service on any designated
agent), but failure to notify the Adviser of any such claim shall not
relieve the Adviser from any liability which it may have to the
Indemnified Party against whom such action is brought otherwise than on
account of this indemnification provision. In case any such action is
brought against the Indemnified Parties, the Adviser will be entitled
to participate, at its own expense, in the defense thereof. The Adviser
also shall be entitled to assume the defense thereof, with counsel
satisfactory to the Indemnified Party named in the action. After notice
from the Adviser to such Indemnified Party of the Adviser's election to
assume the defense thereof, the Indemnified Party shall bear the fees
and expenses of any additional counsel retained by it, and the Adviser
will not be liable to such Indemnified Party under this Agreement for
any legal or other expenses subsequently incurred by such Indemnified
Party independently in connection with the defense thereof other then
reasonable costs of investigation.
9.3(d). The Company agrees to promptly notify the Adviser of
the commencement of any litigation or proceedings against it or any of
its respective officers or directors in connection with this Agreement,
the issuance or sale of the Contracts, with respect to the operation of
each Account, or the sale or acquisition of shares of the Trust.
9.4. INDEMNIFICATION BY THE TRUST
9.4(a). The Trust agrees to indemnify and hold harmless the
Company and its directors and officers and each person, if any, who
controls the Company within the meaning of Section 15 of the 1933 Act
(hereinafter collectively, the "Indemnified Parties" and individually,
"Indemnified Party," for purposes of this Section 9.4) against any and
all losses, claims, damages, liabilities (including amounts paid in
settlement with the written consent of the Trust) or litigation
(including legal and other expenses) to which the Indemnified Parties
may become subject under any statute, at common law or otherwise,
insofar as such losses, claims, damages, liabilities or expenses (or
actions in respect thereof) or settlements:
(i) arise out of or are based upon any untrue statement
or alleged untrue statement of any material fact
contained in the registration statement or prospectus
or sales literature of the Trust (or any amendment or
supplement to any of the foregoing), or arise out of
or are based upon the omission or the alleged
omission to state therein a material fact required to
be stated therein or necessary to make the statements
therein not misleading, provided that this
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<PAGE> 14
agreement to indemnify shall not apply as to any
Indemnified Party if such statement or omission or
such alleged statement or omission was made in
reliance upon and in conformity with information
furnished the Trust by or on behalf of the Adviser,
the Company, or the Administrator for use in the
registration statement or prospectus for the Trust or
in sales literature (or any amendment or supplement)
or otherwise for use in connection with the sale of
the Contracts or Portfolio shares; or
(ii) arise out of or as a result of any untrue statement
or alleged untrue statement of a material fact
contained in a registration statement, prospectus, or
sales literature covering the Contracts, or any
amendment thereof or supplement thereto, or the
omission or alleged omission to state therein a
material fact required to be stated therein or
necessary to make the statement or statements therein
not misleading, if such statement or omission was
made in reliance upon information furnished to the
Company by or on behalf of the Trust; or
(iii) arise as a result of any failure by the Trust to
provide the services and furnish the materials under
the terms of this Agreement; or
(iv) arise out of or result from any material breach of
any representation and/or warranty made by the Trust
in this Agreement or arise out of or result from any
other material breach of this Agreement by the Trust;
as limited by and in accordance with the provisions
of Section 9.4(b) and 9.4(c) hereof.
9.4(b). The Trust shall not be liable under this
indemnification provision with respect to any losses, claims, damages,
liabilities or litigation incurred or assessed against an Indemnified
Party as may arise from such Indemnified Party's willful misfeasance,
bad faith, or gross negligence in the performance of such Indemnified
Party's duties or by reason of such Indemnified Party's reckless
disregard of obligations and duties under this Agreement.
9.4(c). The Trust shall not be liable under this
indemnification provision with respect to any claim made against an
Indemnified Party unless such Indemnified Party shall have notified the
Trust in writing within a reasonable time after the summons or other
first legal process giving information of the nature of the claim shall
have been served upon such Indemnified Party (or after such Indemnified
Party shall have received notice of such service on any designated
agent), but failure to notify the Trust of any such claim shall not
relieve the Trust from any liability which it may have to the
Indemnified Party against whom such action is brought otherwise than on
account of this indemnification provision. In case any such action is
brought against the Indemnified Parties, the Trust will be entitled to
participate, at its own expense, in the defense thereof. The Trust also
shall be entitled to assume the defense thereof, with counsel
satisfactory to the Indemnified Party named in the action. After notice
from the Trust to such Indemnified Party of the Trust's election to
assume the defense thereof, the Indemnified Party shall bear the fees
and expenses of any additional counsel retained by it, and the Trust
will not be liable to such Indemnified Party under this Agreement for
any legal or other expenses subsequently incurred by such Indemnified
Party independently in connection with the defense thereof other then
reasonable costs of investigation.
9.4(d). The Company agrees to promptly notify the Trust of the
commencement of any litigation or proceedings against it or any of its
respective officers or directors in connection with this Agreement, the
issuance or sale of the Contracts, with respect to the operation of
each Account, or the sale or acquisition of shares of the Trust.
ARTICLE 10
APPLICABLE LAW
10.1. This Agreement shall be construed and the provisions
hereof interpreted under and in accordance with the laws of the State
of Massachusetts.
10.2. This Agreement shall be subject to the provisions of the
1933, 1934 and 1940 Acts, and the rules and
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regulations and rulings thereunder, including such exemptions from
those statutes, rules and regulations as the Securities and Exchange
Commission may grant (including, but not limited to, the Shared Funding
Exemptive Order) and the terms hereof shall be interpreted and
construed in accordance therewith.
ARTICLE 11
TERMINATION
11.1. This Agreement shall continue in full force and effect until the
first to occur of:
(a) termination by any party for any reason upon ninety
days advance written notice delivered to the other
parties; or
(b) termination by the Company by written notice to the
Trust, the Adviser, and the Administrator with
respect to any Portfolio based upon the Company's
determination that shares of such Portfolio are not
reasonably available to meet the requirements of the
Contracts. Reasonable advance notice of election to
terminate shall be furnished by the Company, said
termination to be effective ten (10) days after
receipt of notice unless the Trust makes available a
sufficient number of shares to reasonably meet the
requirements of the Account within said ten (10) day
period; or
(c) termination by the Company upon written notice to the
Trust, the Adviser, and the Administrator with
respect to any Portfolio in the event any of the
Portfolio's shares are not registered, issued or sold
in accordance with applicable state and/or federal
law or such law precludes the use of such shares as
the underlying investment medium of the Contracts
issued or to be issued by the Company. The
terminating party shall give prompt notice to the
other parties of its decision to terminate; or
(d) termination by the Company upon written notice to the
Trust, the Adviser and the Administrator with respect
to any Portfolio in the event that such portfolio
ceases to qualify as a Regulated Investment Company
under Subchapter M of the Code or under any successor
or similar provision; or
(e) termination by the Company upon written notice to the
Trust, the Adviser, and the Administrator with
respect to any Portfolio in the event that such
Portfolio fails to meet the diversification
requirements specified in Section 6.3 hereof; or
(f) termination by either the Trust, the Adviser, or the
Administrator by written notice to the Company, if
either one or more of the Trust, the Adviser, or the
Administrator, shall determine, in its or their sole
judgment exercised in good faith, that the Company
and/or their affiliated companies has suffered a
material adverse change in its business, operations,
financial condition or prospects since the date of
this Agreement or is the subject of material adverse
publicity, provided that the Trust, the Adviser, or
the Administrator will give the Company sixty (60)
days' advance written notice of such determination of
its intent to terminate this Agreement, and provided
further that after consideration of the actions taken
by the Company and any other changes in circumstances
since the giving of such notice, the determination of
the Trust, the Adviser, or the Administrator shall
continue to apply on the 60th day since giving of
such notice, then such 60th day shall be the
effective date of termination; or
(g) termination by the Company by written notice to the
Trust, the Adviser, and the Administrator, if the
Company shall determine, in its sole judgment
exercised in good faith, that either the Trust, the
Adviser, or the Administrator has suffered a material
adverse change in its business, operations, financial
condition or prospects since the date of this
Agreement or is the subject of material adverse
publicity, provided that the Company will give the
Trust, the Adviser, and the Administrator sixty (60)
days' advance written notice of such determination of
its intent to terminate this Agreement, and provided
further that after consideration of the actions taken
by the Trust, the Adviser, or the Administrator and
any
-14-
<PAGE> 16
other changes in circumstances since the giving of
such notice, the determination of the Company shall
continue to apply on the 60th day since giving of
such notice, then such 60th day shall be the
effective date of termination; or
(h) termination by the Trust, the Adviser, or the
Administrator by written notice to the Company, if
the Company gives the Trust, the Adviser, and the
Administrator the written notice specified in Section
2.4 hereof and at the time such notice was given
there was no notice of termination outstanding under
any other provision of this Agreement; provided,
however any termination under this Section 11.1(h)
shall be effective sixty (60) days after the notice
specified in Section 2.4 was given; or
(i) termination by any party upon the other party's
breach of any representation in Article 6 or any
material provision of this Agreement, which breach
has not been cured to the satisfaction of the
terminating party within ten (10) days after written
notice of such breach is delivered to the Trust or
the Company, as the case may be; or
(j) termination by the Trust, the Adviser, or
Administrator by written notice to the Company in the
event an Account or Contract is not registered
(unless exempt from registration) or sold in
accordance with applicable federal or state law or
regulation, or the Company fails to provide
pass-through voting privileges as specified in
Section 3.3.
11.2. EFFECT OF TERMINATION. Notwithstanding any termination
of this Agreement, the Trust shall at the option of the Company,
continue to make available additional shares of the Trust pursuant to
the terms and conditions of this Agreement, for all Contracts in effect
on the effective date of termination of this Agreement (hereinafter
referred to as "Existing Contracts") unless such further sale of Trust
shares is proscribed by law, regulation or applicable regulatory body,
or unless the Trust determines that liquidation of the Trust following
termination of this Agreement is in the best interests of the Trust and
its shareholders. Specifically, without limitation, the owners of the
Existing Contracts shall be permitted to direct reallocation of
investments in the Trust, redemption of investments in the Trust and/or
investment in the Trust upon the making of additional purchase payments
under the Existing Contracts. The parties agree that this Section 11.2
shall not apply to any terminations under Article 8 and the effect of
such Article 8 terminations shall be governed by Article 8 of this
Agreement.
11.3. The Company shall not redeem Trust shares attributable
to the Contracts (as distinct from Trust shares attributable to the
Company's assets held in the Account) except (i) as necessary to
implement Contract owner initiated or approved transactions, or (ii) as
required by state and/or federal laws or regulations or judicial or
other legal precedent of general application (hereinafter referred to
as a "Legally Required Redemption") or (iii) as permitted by an order
of the SEC pursuant to Section 26(b) of the 1940 Act. Upon request, the
Company will promptly furnish to the Trust, the Adviser and the
Administrator the opinion of counsel for the Company (which counsel
shall be reasonably satisfactory to the Trust and the Adviser) to the
effect that any redemption pursuant to clause (ii) above is a Legally
Required Redemption. Furthermore, except in cases where permitted under
the terms of the Contracts, the Company shall not prevent Contract
Owners from allocating payments to a Portfolio that was otherwise
available under the Contracts without first giving the Trust or the
Adviser 30 days notice of its intention to do so.
ARTICLE 12
NOTICES
Any notice shall be sufficiently given when sent by registered
or certified mail to the other party at the address of such party set
forth below or at such other address as such party may from time to
time specify in writing to the other party.
-15-
<PAGE> 17
If to the Trust:
One Group Investment Trust
1111 Polaris Parkway, Suite B2
Columbus, Ohio 43271-0211
Attn: Fund President
If to the Administrator:
One Group Administrative Services, Inc.
1111 Polaris Parkway, Suite B2
Columbus, Ohio 43271-0211
Attention: President
If to the Adviser:
Banc One Investment Advisors Corporation
1111 Polaris Parkway, Suite B2
Columbus, Ohio 43271-0211
Attn: Peter Atwater
If to the Company:
American General Life Insurance Company
2929 Allen Parkway, A40-04
Houston, Texas 77019
Attn: General Counsel
ARTICLE 13
MISCELLANEOUS
13.1. All persons dealing with the Trust must look solely to
the property of the Trust for the enforcement of any claims against the
Trust as neither the Board, officers, agents or shareholders assume any
personal liability for obligations entered into on behalf of the Trust.
Each of the Company, the Adviser, and the Administrator acknowledges
and agrees that, as provided by the Trust's Amended and Restated
Declaration of Trust, the shareholders, trustees, officers, employees
and other agents of the Trust and the Portfolios shall not personally
be bound by or liable for matters set forth hereunder, nor shall resort
be had to their private property for the satisfaction of any obligation
or claim hereunder. The Trust's Amended and Restated Declaration of
Trust is on file with the Secretary of State of Massachusetts.
13.2. Subject to the requirements of legal process and
regulatory authority, each party hereto shall treat as confidential the
names and addresses of the owners of the Contracts and all information
reasonably identified as confidential in writing by any other party
hereto and, except as permitted by this Agreement, shall not disclose,
disseminate or utilize such names and addresses and other confidential
information until such time as it may come into the public domain
without the express written consent of the affected party.
13.3. The captions in this Agreement are included for
convenience of reference only and in no way define or delineate any of
the provisions hereof or otherwise affect their construction or effect.
13.4. This Agreement may be executed simultaneously in two or
more counterparts, each of which taken together shall constitute one
and the same instrument.
-16-
<PAGE> 18
13.5. If any provision of this Agreement shall be held or made
invalid by a court decision, statute, rule or otherwise, the remainder
of this Agreement shall not be affected thereby.
13.6. Each party hereto shall cooperate with each other party
and all appropriate governmental authorities (including without
limitation the Securities and Exchange Commission, the National
Association of Securities Dealers and state insurance regulators) and
shall permit such authorities (and other parties hereto) reasonable
access to its books and records in connection with any investigation or
inquiry relating to this Agreement or the transactions contemplated
hereby.
13.7. The rights, remedies and obligations contained in this
Agreement are cumulative and are in addition to any and all rights,
remedies and obligations at law or in equity, which the parties hereto
are entitled to under state and federal laws.
13.8. This Agreement or any of the rights and obligations
hereunder may not be assigned by any party without the prior written
consent of all parties hereto; provided, however, that the Adviser may,
with advance written notice to the other parties hereto, assign this
Agreement or any rights or obligations hereunder to any affiliate of or
company under common control with the Adviser if such assignee is duly
licensed and registered to perform the obligations of the Adviser under
this Agreement.
13.9. The Company shall furnish, or shall cause to be
furnished, to the Trust or its designee upon request, copies of the
following reports:
(a) the Company's annual statement (prepared under statutory
accounting principles) and annual report (prepared under generally
accepted accounting principles ("GAAP"), if any), as soon as practical
and in any event within 90 days after the end of each fiscal year;
(b) the Company's June 30th quarterly statements (statutory),
as soon as practical and in any event within 45 days following such
period;
(c) any financial statement, proxy statement, notice or report
of the Company sent to stockholders and/or policyholders, as soon as
practical after the delivery thereof to stockholders;
(d) any registration statement (without exhibits) and
financial reports the Company filed with the Securities and Exchange
Commission or any state insurance regulator, as soon as practical after
the filing thereof; and
(e) any other public report submitted to the Company by
independent accountants in connection with any annual, interim or
special audit made by them of the books of the Company, as soon as
practical after the receipt thereof.
13.10. The names "One Group(R) Investment Trust" and `Trustees
of One Group(R) Investment Trust" refer respectively to the Trust
created and the Trustees, as trustees but not individually or
personally, acting from time to time under a Declaration of Trust dated
June 7, 1993 to which reference is hereby made and a copy of which is
on file at the office of the Secretary of the Commonwealth of
Massachusetts and elsewhere as required by law, and to any and all
amendments thereto so filed or hereafter filed. The obligations of `One
Group Investment Trust' entered into in the name or on behalf thereof
by any of the Trustees, representatives or agents are made not
individually, but in such capacities, and are not binding upon any of
the Trustees, Shareholders or representatives of the Trust personally,
but bind only the assets of the Trust, and all persons dealing with any
series of Shares of the Trust must look solely to the assets of the
Trust belonging to such series for the enforcement of any claims
against the Trust.
13.11. The Trust and the Administrator agree to consult with
the Company concerning whether any Portfolio of the Trust qualifies to
provide a foreign tax credit pursuant to Section 853 of the Code.
[SIGNATURE PAGES FOLLOW]
-17-
<PAGE> 19
AMERICAN GENERAL LIFE INSURANCE COMPANY
By: /s/ Don Ward
-------------------------------------
Title: SVP
--------------------------------------
ONE GROUP INVESTMENT TRUST
By: /s/ Mark A. Beeson
-----------------------------------------
Title: President
---------------------------------------
BANC ONE INVESTMENT ADVISORS CORPORATION
By: /s/Peter W. Atwater
-------------------------------------------
Title: COO
--------------------------------------
ONE GROUP ADMINISTRATIVE SERVICES, INC.
By: /s/ Robert L. Young
------------------------------------------
Title: V.P.
---------------------------------------
-18-
<PAGE> 20
SCHEDULE A
SEPARATE ACCOUNTS AND CONTRACTS
-------------------------------
<TABLE>
<CAPTION>
- ---------------------------------------------- ------------------------------
Name of Separate Account and Date Form Number
Established by Board of Directors Funded by Separate Account
- ---------------------------------------------- ------------------------------
<S> <C>
American General Life Insurance Company Contract Form Nos:
Separate Account VL-R, May 6, 1997 99615
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
</TABLE>
-19-
<PAGE> 21
SCHEDULE B
PORTFOLIOS OF THE TRUST
One Group Investment Trust Government Bond 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
-20-
<PAGE> 1
EXHIBIT I
OPINION OF ROPES & GRAY
<PAGE> 2
Ropes & Gray
One Franklin Square
1301 K Street, N.W.
Suite 800 East
Washington, DC 20005
April 14, 2000
One Group(R) Investment Trust
1111 Polaris Parkway
P.O. Box 710211
Columbus, Ohio 43271
Ladies and Gentlemen:
You have informed us that you intend to file a Rule 485(b)
Post-Effective Amendment to your Registration Statement under the Investment
Company Act of 1940, as amended, with the Securities and Exchange Commission
(the "Commission") for the purpose of updating the Trust's financial
information.
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 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. 13 when
<PAGE> 3
One Group(R) Investment Trust
April 14, 2000
Page 2
filed with the Commission.
Very truly yours,
/s/ Ropes & Gray
Ropes & Gray
<PAGE> 1
EXHIBIT (J)(1)
CONSENT OF ROPES & GRAY
<PAGE> 2
CONSENT OF COUNSEL
We hereby consent to the use of our name and to the reference to our
firm under the caption "Experts" included in or made a part of Post-Effective
Amendment No. 13 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.
April 14, 2000
<PAGE> 1
EXHIBIT (J)(2)
CONSENT OF PRICEWATERHOUSECOOPERS LLP
<PAGE> 2
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in this Registration
Statement on Form N-1A of our report dated February 24, 2000, relating to the
financial statements and financial highlights of the Bond Portfolio, the
Government Bond Portfolio, the Balanced Portfolio, the Large Cap Growth
Portfolio, the Equity Index Portfolio, the Diversified Equity Portfolio, the Mid
Cap Growth Portfolio, the Diversified Mid Cap Portfolio and the Mid Cap Value
Portfolio (separate portfolios constituting the One Group Investment Trust,
hereafter referred to as the "Trust"), which appear in the December 31, 1999
Annual Report to Shareholders of One Group Investment Trust, which is also
incorporated by reference into the Registration Statement. We also consent to
the references to us under the headings "Financial Highlights", "Experts" and
"Financial Statements" in such Registration Statement.
/s/ PRICEWATERHOUSECOOPERS LLP
Columbus, Ohio
April 14, 2000
<PAGE> 1
EXHIBIT (P)(1)
ONE GROUP MUTUAL FUNDS AND ONE GROUP INVESTMENT TRUST CODE OF ETHICS
<PAGE> 2
ONE GROUP(R) MUTUAL FUNDS
AND
ONE GROUP(R) INVESTMENT TRUST
CODE OF ETHICS
--------------
A. Legal Requirements.
------------------
Rule 17j-1(b) under the Investment Company Act of 1940 (the
"Act") makes it unlawful for any officer or trustee (as well as other access
persons) of One Group(R) Mutual Funds and/or One Group(R) Investment Trust (each
referred individually and collectively as the "Trust"), in connection with
purchase or sale1 by such person of a security "held or to be acquired" by any
investment portfolio of the Trust (a "Fund"):
(1) To employ any device, scheme or artifice to defraud the
Trust or a Fund;
(2) To make to the Trust any untrue statement of a material
fact or omit to state to the Trust or a Fund a material fact necessary
in order to make the statements made, in light of the circumstances
under which they are made, not misleading;
(3) To engage in any act, practice, or course of business
which operates or would operate as a fraud or deceit upon the Trust or
a Fund; or
(4) To engage in any manipulative practice with respect to the
Trust or a Fund.
A security is "held or to be acquired" if it is a covered
security(2) (or an option for or exchangeable for a covered security)
and within the most recent 15 days (i) the covered security is or has
been held by the Trust or a Fund, or (ii) the covered security is being
or has been considered by the Trust or a Fund or the investment adviser
for the Trust or a Fund for purchase by the Trust or the Fund.
- --------
(1) A purchase or sale includes the writing of an option to purchase
or sell.
(2) A "covered security" is any security under the broad definition of
Section 2(a)(36) of the Act except: (i) direct obligations of the United
States, (ii) bankers' acceptances, bank CDs, commercial paper, high quality
short-term debt instruments (including repurchase agreements), and (iii)
shares of open-end investment companies.
-1-
<PAGE> 3
B. Trust Policies.
--------------
1. It is the policy of the Trust that no "access person"3 of the Trust
or of a Fund shall engage in any act, practice or course or conduct that would
violate the provisions of Rule 17j-1(b) set forth above.
2. In keeping with the recommendations of the Board of Governors of the
Investment Company Institute, the following general policies shall govern
personal investment activities of access persons of the Trust or of a Fund:
(a) It is the duty of all access persons of the Trust or of a Fund to
place the interest of Trust shareholders first;
(b) All access persons of the Trust or of a Fund shall conduct personal
securities transactions in a manner that is consistent with this Code of Ethics
and that avoids any actual or potential conflict of interest or any abuse of a
position of trust and responsibility; and
(c) No access person of the Trust or of a Fund shall take inappropriate
advantage of his or her position with the Trust or with a Fund.
- --------
(3) An "access person" is (i) each trustee or officer of the Trust, (ii)
each employee (if any) of the Trust who, in connection with his regular
duties, makes, participates in, or obtains information about the purchase or
sale of a security by the Trust or a Fund or whose functions relate to the
making of any recommendations with respect to such purchases or sales, and
(iii) any natural person in a control relationship to the Trust or a Fund
who obtains information concerning recommendations made to the Trust or to a
Fund with regard to the purchase or sale of covered securities.
-2-
<PAGE> 4
C. Reporting Requirements.(4)
----------------------
In order to provide the Trust with information to enable it to
determine with reasonable assurance whether the Trust's policies are being
observed by its access persons:
(a) Each person becoming an access person of the Trust or of a
Fund on or after March 1, 2000, other than a trustee who is not an
"interested person" of the Trust (as defined in the Act), shall no
later than 10 days after becoming such an access person submit a report
in the form attached hereto as Exhibit A (an "Initial Holdings Report")
to the Trust's President or President's delegate showing all holdings
in "covered securities" in which the person had any direct or indirect
beneficial ownership.(5) Such Initial Holdings Report shall also
indicate all broker/dealers and banks with which the access person held
direct or indirect ownership of securities. Such reports need not show
holdings over which such person had no direct or indirect influence or
control.
- --------
(4) An access person of the Trust who is also an access person of the
Trust's principal underwriter, administrator, investment adviser, or
sub-adviser may submit reports required by this Section on forms prescribed
by the Code of Ethics of such principal underwriter, investment adviser, or
sub-adviser PROVIDED that such forms contain substantially the same
information as called for in the forms required by this Section C and comply
with the requirements of Rule 17j-1(d)(1). Moreover, in the case of reports
under paragraph (b) of this Section C, any access person may supply to the
Trust in lieu of such reports with duplicate copies of broker trade
confirmations or account statements with respect to the access person
PROVIDED such confirmations and/or account statements are: (i) received by
the Trust within the time period and (ii) contain all the information
required by paragraph (b) of Section C. No Trustee is required to file a
report if the sole purpose for doing so would be to indicate the absence of
reportable transactions in covered securities during the relevant period.
(5) "Beneficial ownership" of a security as used in this Section C is
determined in the same manner as it would be for the purposes of Section 16
of the Securities Exchange Act of 1934, except that such determination
should apply to all covered securities. Generally, a person should consider
himself the beneficial owner of covered securities held by his spouse, his
minor children, a relative who shares his home, or other persons if by
reason of any contract, understanding, relationship, agreement or other
arrangement, he obtains from such covered securities benefits substantially
equivalent to those of ownership. He should also consider himself the
beneficial owner of securities if he can vest or revest title in himself now
or in the future.
-3-
<PAGE> 5
(b) Each access person of the Trust or of a Fund, other than a
trustee who is not an "interested person" of the Trust (as defined in
the Act), shall submit reports each quarter in the form attached hereto
as Exhibit B (a "Securities Transaction Report") to the Trust's
President or President's delegate showing all transactions in "covered
securities" in which the person had, or by reason of such transaction
acquired, any direct or indirect beneficial ownership. Such reports
shall be filed no later than 10 days after the end of each calendar
quarter, but need not show transactions over which such person had no
direct or indirect influence or control.
(c) Each trustee who is not an "interested person" of the
Trust (as defined in the Act) shall submit the same quarterly report as
required under paragraph (b), but only for a transaction in a covered
security where he knew at the time of the transaction or, in the
ordinary course of fulfilling his official duties as a trustee, should
have known that during the 15-day period immediately preceding or after
the date of the transaction such security is or was purchased or sold,
or considered for purchase or sale, by the Trust or the Fund. No report
is required if the trustee had no direct or indirect influence or
control over the transaction.
(d) Each access person of the Trust or of a Fund, other than a
trustee who is not an "interested person" (as defined in the Act),
shall by January 10 of each year submit to the Trust's President or
President's delegate a report in the form attached hereto as Exhibit A
(an "Annual Holdings Report") showing all holdings in covered
securities in which the person had any direct or indirect beneficial
ownership as of a date no more than 30 days before the report is
submitted. Such report need not show holdings over which such person
had no direct or indirect influence or control.
D. Preclearance Procedures.
-----------------------
Investment personnel of the Trust or a Fund shall obtain
approval from the President of the Trust or his or her delegate before directly
or indirectly acquiring beneficial ownership in any securities in an initial
public offering or in a limited offering.(6)
- --------
6 "Investment personnel of the Trust or a Fund" means (i) any employee
of the Trust (or of a company in a control relationship to the Fund) who, in
connection with his or her regular functions or duties, makes or
participates in making recommendations regarding the purchase or sale of
securities by the Trust or a Fund, and (ii) any natural person who controls
the Trust or a Fund and who obtains information concerning recommendations
made to the Trust or a Fund regarding the purchase or sale of securities.
"initial public offering" and "limited offering" shall have the same meaning
as set forth in Rule 17j-1(a)(6) and (8), respectively.
-4-
<PAGE> 6
E. Notice to, and Review of, Holdings Reports by Access Persons.
1. The President of the Trust or his or her delegate shall
notify each access person of the Trust or of a Fund who may be required to make
reports pursuant to this Code that such person is subject to this reporting
requirement and shall deliver a copy of this Code to each such person.
2. The President of the Trust or his or her delegate shall
review reports submitted under Section C of this Code within 21 days of
submission.
3. The President of the Trust or his or her delegate shall
establish and maintain records of access persons of the Trust who are required
to make reports under Section C of this Code and shall establish and maintain
records of any delegate responsible for reviewing such reports.
F. Reports to Trustees.
-------------------
1. The President of the Trust or his or her delegate shall
report to the Board of Trustees:
(a) at the next meeting following the receipt of any
Securities Transaction Report with respect to each reported transaction
in a security which was held or acquired by the Trust or a Fund within
15 days before or after the date of the reported transaction or at a
time when, to the knowledge of the Secretary, the Trust, a Fund, or the
respective investment adviser or sub-adviser for the Trust or a Fund,
was considering the purchase or sale of such security, unless the
amount involved in the transaction was less than $50,000;
(b) with respect to any transaction or holdings not required
to be reported to the Board by the operation of subparagraph (a) that
the President of the Trust or his or her delegate believes nonetheless
may evidence a violation of this Code; and
(c) any apparent violation of the reporting requirements of
Section C of this Code.
2. The Board shall consider reports made to it hereunder and
shall determine whether the policies established in section B of this Code have
been violated, and what sanctions, if any, should be imposed.
-5-
<PAGE> 7
G. Approval of Codes and Material Amendments Thereto.
-------------------------------------------------
1. The Board of Trustees of the Trust, including a majority of
the independent Trustees thereof, shall approve the Codes of Ethics of the
Trust, of any principal underwriter of the Trust, and of each investment adviser
and sub-adviser to any Fund. All such approvals of entities serving the Trust as
of January 20, 2000 shall occur prior to September 1, 2000. No principal
underwriter of the Trust or investment adviser or sub-adviser to any Fund may be
appointed subsequent to January 20, 2000 unless and until the Code of Ethics of
that entity has been approved by the Board of Trustees of the Trust, including a
majority of the independent Trustees thereof. Following initial approval of the
Code of Ethics of any principal underwriter of the Trust or any investment
adviser or sub-adviser to any Fund, any material change to such Code must be
approved by the Board of Trustees of the Trust, including a majority of the
independent Trustees thereof, within six months of said amendment. No amendment
of this Code may be made unless and until approved by the Board of Trustees of
the Trust, including a majority of the independent Trustees thereof.
2. In approving a Code of Ethics, the Board of Trustees shall
have secured a certificate from the entity that adopted the Code that it has
adopted procedures reasonably necessary to prevent its access persons from
violating the Code in question.
H. Annual Report
The Trust, any principal underwriter thereof, and any
investment adviser or sub-adviser to any Fund shall, not less frequently than
annually, furnish the Board of Trustees of the Trust with a written report that:
1. describes any issues arising under its Code of Ethics
or procedures since the last report to the Board of
Trustees, including, but not limited to, information
about material violations of such Code or procedures
and sanctions imposed in response, and
2. certifies that the Fund, principal underwriter, or
investment adviser or sub-adviser, as applicable, has
adopted procedures reasonably necessary to prevent
its access persons from violating its Code of Ethics.
This Code, a copy of each Securities Transaction and Holdings
Report by an access person, any written report hereunder by the President of the
Trust or his or her delegate, and lists of all persons required to make reports
shall be preserved with the Trust's records for the period required by Rule
17j-1.
-6-
<PAGE> 8
As Amended: February 16, 2000 (One Group(R)Investment Trust) and
February 17, 2000 (One Group(R)Mutual Funds)
The Board of Trustees
One Group(R) Mutual Funds
One Group(R) Investment Trust
-7-
<PAGE> 9
Exhibit A
ONE GROUP(R) MUTUAL FUNDS
AND
ONE GROUP(R) INVESTMENT TRUST
Holdings Report
[ ] Initial Holdings Report of ___________, 200__
(date a reporting person became an access person)
[ ] Annual Holdings Report as of ____________, 200__
(date not more than 30 days prior to submission)
I. To the President or President's delegate of One Group(R)"Mutual Funds
and One Group(R)Investment Trust:
[ ] As of the above date, I had direct or indirect beneficial
ownership of the following covered securities:
Principal
Number Amount of
Title of Shares Security
- -------------------------------------------------------------------------
[ ] I have no covered securities to report.
II. As of that same date, I held direct or indirect beneficial ownership
of securities with the following broker/dealer(s) or bank(s) (note:
list accounts, not securities)
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
[ ] I have no accounts to report.
This report (i) excludes securities with respect to which I had no
direct or indirect influence or control, (ii) excludes securities not required
to be reported, and (iii) is not an admission that I have or had any direct or
indirect beneficial ownership in the securities listed above.
Date:_________________ Signature:________________________
<PAGE> 10
Exhibit B
ONE GROUP(R)MUTUAL FUNDS
AND
ONE GROUP(R)INVESTMENT TRUST
Securities Transaction Report
For the Calendar Quarter Ended: , 200__
To the President or President's delegate of the One Group(R) Mutual Funds and
One Group(R) Investment Trust:
I. [ ] During the quarter referred to above, the following transactions were
effected in securities of which I had, or by reason of such transaction
acquired, direct or indirect beneficial ownership, and which are required to be
reported pursuant to the Trust's Code of Ethics:
<TABLE>
<CAPTION>
Title of Broker/
Security (and Dealer
interest rate No. of Shares and Nature of Price at or Bank
and maturity Principal Dollar Transaction Which Through
date, if Date of Amount of (Purchase, Transaction Whom
applicable) Transaction Transaction (Price) Sale, Other) Effected Effected
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
</TABLE>
[ ] I have no securities transactions to report.
II. [ ] During the quarter referred to above, I established the
following account in which securities were held for my direct or indirect
benefit during the quarter (note: list accounts, not securities):
Broker/Dealer or
Bank With Whom Date the Account
Account Established Was Established
- -------------------------------------------------------------------------------
[ ] I have no accounts to report.
This report (i) excludes transactions with respect to which I had no direct or
indirect influence or control, (ii) excludes transactions not required to be
reported, and (iii) is not an admission that I have or had any direct or
indirect beneficial ownership in the securities listed above.
Date:_________________ Signature:________________________
<PAGE> 1
EXHIBIT (P)(2)
POLICY 4.05 PERSONAL TRADING AS REVISED JANUARY 1, 2000 FROM BANC ONE
INVESTMENT ADVISORS CORPORATION'S COMPLIANCE MANUAL
<PAGE> 2
Policies and Procedures
4.05 Personal Trading
Banc One Investment Advisors Corporation / Compliance Manual
General Principles
It is the policy of Banc One Investment Advisors Corporation ("Investment
Advisors") that all employees must (1) at all times place the interest of the
accounts which are managed by Investment Advisors first; (2) conduct all
personal securities transactions in a manner that is consistent with the
Personal Trading Policy of Investment Advisors and the individual employee's
position of trust and responsibility; and (3) adhere to the fundamental standard
that Investment Advisors employees must not take inappropriate advantage of
their position.
Trading while in possession of material, non-public information, which may or
may not be obtained through an Investment Advisors analyst's research function
is prohibited. The disclosure of any such material, non-public information to
any person is also prohibited.
Governing Standards
This Personal Trading Policy is designed to comply with Rule 17j-1 of the
Investment Company Act of 1940, Rule 204-2(a)(12) of the Investment Advisers Act
of 1940 and the Investment Company Institute's ("ICI") Guidelines on Personal
Investing issued in 1994.
Investment Advisors has determined that even though this action exceeds the
standards set forth by the entities previously listed, this Personal Trading
Policy, unless otherwise specifically stated, shall apply to all employees of
Investment Advisors. This policy will also apply to members of the Board of
Directors of Investment Advisors only if: (1) they are an employee of Investment
Advisors or (2) a non-Investment Advisors employee whose job responsibilities
regularly expose them to material, non-public information regarding the
activities of Investment Advisors. Corporate Legal Counsel, the President & CEO
of Investment Advisors and the Chief Compliance Officer will determine which
members of the Board of Directors must adhere to the policy. These decisions
will be documented in writing and maintained by the Chief Compliance Officer.
Restrictions on Personal Trading Activities
1. Initial Public Offerings
All employees of Investment Advisors are prohibited from acquiring any security
in an initial public offering. There are three (3) exceptions. They are: 1)
mutual savings bank conversions where an employee maintains an account with the
converting savings bank; 2) insurance company offering where an employee is a
policy holder of the insurance company; and, 3) an offering that is made to an
employee's spouse by the spouse's employer. In all cases, the employee must
provide documentation of the offering.
2. Private Placements
<PAGE> 3
All employees must, when purchasing securities in a private placement:
a. obtain the prior written approval of Investment Advisors Corporate Legal
Counsel, and
b. disclose the investment, in writing, when they are involved in any subsequent
decision to invest in the issuer on behalf of an account (i.e. mutual fund,
clones, common/collective funds, personal trust and institutional accounts)
which they manage and refer the decision to purchase securities of the issuer
for the account to the Senior Managing Director of Equity Securities or Senior
Managing Director of Fixed Income Securities. A copy of the written disclosure
must be provided to the appropriate Senior Managing Director listed above in
order for the appropriate Senior Managing Director to make a decision on the
purchase of the securities.
3. Blackout Periods
a. Same Day
All employees are prohibited from executing a securities transaction (buy or
sell) on a day when a mutual fund or clone account of the mutual fund (i.e.
institutional clones or common/collective trust funds) has a pending "buy or
sell" order in the same (or equivalent) security until that mutual fund or clone
account order is executed or withdrawn. An exception will be granted for trades
pending ONLY in one of the following funds: Equity Index, Market Expansion Index
or International Equity Index. Any personal trades executed within the
proscribed blackout periods will be considered a violation of the Policy and
subject to the sanctions contained within the Penalty Section of the Policy.
b. Seven Day
All mutual fund team members are prohibited from buying or selling a security
within at least seven (7) calendar days before and after the mutual fund or
clone fund (i.e. institutional clones or common/collective trust funds) they
manage trades in the same (or equivalent) security. Any personal trades executed
by any employee listed above, within the proscribed blackout period, will be
considered a violation of the Policy and subject to the sanctions contained
within the Penalty Section of the Policy.
4. Ban on Short-Term Trading Profits
All employees are prohibited from profiting in the purchase and sale, or the
sale and purchase of the same (or equivalent) securities within sixty (60)
calendar days. Any personal trades executed within the banned period will be
considered a violation of the Policy and subject to the sanctions contained
within the Penalty Section of the Policy. This prohibition does not apply to:
1.) transactions in exempted securities (i.e. governments, mutual funds); 2.)
incentive compensation stock option transactions; 3.) transactions which result
in a loss.
5. Gifts
All employees must follow the guidelines of the Bank One Corporation Code of
Ethics, which is incorporated into Investment Advisors Compliance Policy No.
4.01, Conflicts of Interest & Business Ethics, when receiving any gift or other
thing of value.
6. Service as a Director
<PAGE> 4
All employees must follow the guidelines of the Bank One Corporation Code of
Ethics, which is incorporated into Investment Advisors Compliance Policy No.
4.01, Conflicts of Interest & Business Ethics, regarding their ability to serve
as a corporate director.
7. Internal Research Reports
Trading in an employee account is prohibited for 48 hours (two (2) trading days)
before and after a research report regarding a particular security is
distributed. The Director of Fixed Income Research and all fixed income research
analysts and the Director of Equity Research and all equity research analysts
are not permitted to trade in a security which is the subject of a research
report, initial or supplemental, during the time of its review. Trading of a
security in an employee account is also not permitted for 48 hours (2 trading
days) before and after the addition or deletion of the security to or from an
Approved List or Model Portfolio. No employee is permitted to trade securities
in a manner contrary to recommendations by Investment Advisors without written
permission from a Compliance Officer.
8. Bank One Securities
The Bank One Corporation Insider Trading Policy (which is a part of Investment
Advisors Insider Trading Policy) states:
As an officer or employee of a Bank One Corporation affiliate, you are
prohibited from trading in Bank One securities at any time that you are in
possession of inside information. Additionally, you are strongly advised to
limit your trading in Bank One securities to the "window period" commencing 48
hours after Bank One's release of its quarterly financial results and ending
fifteen (15) days prior to the quarter end. During such "window period" the
investing public presumably is in possession of all material financial
information about Bank One.
However, if you have inside information relative to Bank One, you may not trade
even during the "window period." Reporting Persons (as defined in the Bank One
Corporation Insider Trading Policy), may not be able to trade in Bank One
securities during a "window period" even when they are not in possession of
inside information.
ALL employees of a Bank One Corporation affiliate, are prohibited from selling
Bank One stock which they do not own ("selling short") and purchasing or selling
options on shares of Bank One stock (except for the exercise of stock options
granted under a Bank One stock option or similar Bank One plan). This
prohibition also applies to a Bank One announced acquisition target, a Bank One
supplier or candidate for entering into a joint venture or other significant
business relationship with Bank One.
9. Investment Clubs
All employees of Investment Advisors are prohibited from participating in an
investment club.
Disclosure and Reporting Requirements
1. Preclearance
<PAGE> 5
All employees are required to preclear all securities transactions (buys and
sells) in which the employee has, or by reason of the transaction acquires, any
direct or indirect beneficial ownership, with the Senior Managing Director of
Equity Securities, or in their absence the Manager of the Equity Trading Desk or
some other designee, for all transactions in equity securities and the Senior
Managing Director of Fixed Income Securities, or in their absence the Director
of Fixed Income Research or the Manager of the Fixed Income Trading Desk for all
transactions in fixed income securities. Those individuals listed above must
receive preclearance from the Chief Compliance Officer. Preclearance is good
only for the business day on which it is granted and for the following business
day. For example, if you received clearance to trade a security on Monday, you
must trade that security on Monday or Tuesday. If you decide you do not want to
place the trade on Monday or Tuesday and want to place the trade on Wednesday
instead, you must obtain new preclearance for Wednesday.
The employee may receive preclearance orally from one of the above-referenced
individuals which must then be followed up in writing by the individual granting
preclearance within 24 hours after clearance is granted. A copy of the
preclearance approval must be sent to the employee as well as to the Chief
Compliance Officer. Any trade for which a preclearance approval in writing is
not received may be considered a violation of this Personal Trading Policy.
It is not necessary to receive preclearance for the following transactions: (1)
securities issued or guaranteed by the United States Government, its agencies or
instrumentalities or (2) shares of registered open-end investment companies
(mutual funds).
Beneficial ownership of a security is determined in the following manner: an
employee should consider themselves the beneficial owner of securities held by
their spouse, their minor children, another person who shares their home or
other persons if by reason of any contact, understanding, relationship agreement
or other arrangement they obtain from such ownership. The employee should also
consider themselves the beneficial owner of securities if they can invest or
revest title in themselves now or in the future.
Both the Investment Company Act of 1940 and the Investment Advisers Act of 1940
define securities as: any note, stock, treasury stock, bond, debenture, evidence
of indebtedness, certificate of interest or participation in any profit-sharing
agreement, collateral-trust certificate, preorganization certificate or
subscription, transferable share, investment contract, voting-trust certificate,
certificate of deposit for a security, fractional undivided interest in oil, gas
or other mineral rights, any put, call, straddle, option or privilege on any
security, (including a certificate of deposit) or on any group or index of
securities including any interest therein (or based on the value thereof) or any
put, call, straddle, option or privilege entered into on a national securities
exchange relating to foreign currency, or, in general, any interest or
instrument commonly known as a "security", or any certificate of interest or
participation in, temporary or interim certificate for, receipt for, guarantee
of, or warrant or right to subscribe to or purchase any of the foregoing.
2. Records of Securities Transactions
All employees are required to direct, in writing with a copy to the Chief
Compliance Officer, their brokers to provide the Chief Compliance Officer with
duplicate copies of confirmations of all reportable personal securities
transactions and copies of all statements for all securities accounts.
<PAGE> 6
Reportable transactions do not include (1) securities issued or guaranteed by
the United States Government, its agencies or instrumentalities; (2) shares of
non-affiliated (affiliated companies include any mutual funds for which
Investment Advisors acts as the investment adviser or the fund families of any
investment adviser who acts as a sub-adviser to a fund for which Investment
Advisors is the adviser) registered open-end investment companies.
3. Disclosure of Personal Holdings
All employees are required to disclose all (the two (2) non-reportable types of
securities must be included in the annual disclosure report) personal securities
holdings in writing to the Chief Compliance Officer upon commencement of
employment and thereafter on an annual basis. Reports must be received within
ten (10) calendar days of employment and within ten (10) calendar days of each
year end (i.e., January 10).
4. Certification of Compliance with the Personal Trading Policy
All employees are required to certify annually in writing to the Chief
Compliance Officer that they have read and understand the Personal Trading
Policy. Each employee must further certify that they have complied with the
requirements of the Personal Trading Policy and that they have disclosed or
reported all personal securities transactions required to be disclosed or
reported.
Compliance Procedures
In order to provide information to determine with reasonable assurance whether
the provisions of the Personal Trading Policy are being observed by all
employees:
1. The Chief Compliance Officer shall notify each employee of the reporting
requirements of the Personal Trading Policy and deliver a copy of the Policy to
each employee.
2. Each employee and director to whom this policy applies must submit to the
Chief Compliance Officer on an annual basis, an Annual Certification of
Compliance with the Personal Trading Policy as prescribed in the attached
Exhibit A.
The annual certification must be filed with the Chief Compliance Officer within
ten (10) calendar days after year-end.
3. Each employee and director to whom this policy applies must submit to the
Chief Compliance Officer upon commencement of employment and thereafter on an
annual basis, reports in the form prescribed in the attached Exhibit B, Personal
Securities Holdings. The annual report must be filed with the Chief Compliance
Officer within ten (10) calendar days after year-end.
4. Each employee and director to whom this policy applies, must submit to the
Chief Compliance Officer on a quarterly basis, reports in the form prescribed in
the attached Exhibit C, Personal Securities Transactions. The quarterly report
must be filed with the Chief Compliance Officer within ten (10) calendar days
after each quarter-end. If an employee is on an approved leave of absence (i.e.:
military, maternity, etc.) over a quarter end, the Chief Compliance Officer may
waive the requirement of quarterly reporting for the employee. Circumstances
<PAGE> 7
which will be considered in granting a reporting waiver include: past trading
history, current brokerage arrangements and any other relevant factors.
5. Decisions regarding the preclearance of all securities transactions must be
documented in writing by the individual granting the preclearance. The written
preclearance authorization must document that the trade does not violate any
terms of the Personal Trading Policy.
6. The Compliance Department will review all trades for violations of the ban on
short-term trading profits.
7. All employees are required to direct, in writing with a copy to the Chief
Compliance Officer, their brokers to provide the Chief Compliance Officer with
duplicate copies of confirmations of all reportable personal securities
transactions and copies of all statements for all securities accounts. The
Compliance Department will verify on a quarterly basis that all statements for
accounts reported are received.
8. The Chief Compliance Officer must report to Senior Management of Investment
Advisors, to Investment Advisors' Board of Directors and to the Trustees of One
Group at the next meeting following the receipt of the annual report of holdings
or quarterly report of securities transactions, the result of the review and any
apparent violation of the reporting requirements.
9. The following sanctions will be imposed for violations of the Policy:
(a) Personal Security Transaction Violations
Employees will be required to break or unwind the transaction (e.g. if the trade
is a buy, the employee must sell the security or if the trade is a sell, the
employee must buy back the security ) and pay a penalty of 25% of the market
value of the transactions. The penalty will be paid to a charity that the
employee chooses. The employee must provide a copy of a letter and check made
payable to the charity for the amount of the penalty to the Compliance
Department. In addition, the employee must provide a copy of the canceled check
once it is available.
This penalty will be imposed for failure to preclear a Transaction, violations
of the Same Day and Seven Day Blackout Periods and violations of the Ban on
Short-Term Trading Profits.
Non-investment employees of Investment Advisors will be granted one "grace
trade" exception from the policy. A second violation will result in the
sanctions being imposed.
This exception will not be granted to employees of Investment Advisors who are
investment personnel (i.e., all employees of any division of the Fixed Income
Deparment or Equity Department, except for support staff, and NAMD portfolio
managers). Any violation of this policy will result in the sanctions being
imposed.
A third violation by any employee of Investment Advisors of section 9(a) of this
policy will result in termination.
(b) Failure to Provide Brokerage Statements for Reportable Accounts
Each employee will be required to pay a $100.00 fine for every missing brokerage
<PAGE> 8
statement for a reportable account. Missing statements will be identified during
quarterly reviews of all personal trading files. The fine will be paid to a
charity chosen by the employee. The employee must provide to the Compliance
Department a copy of a letter and check made payable to the charity for the
amount of the penalty. In addition, the employee must provide a copy of the
cancelled check once it is available. This fine may be waived, at the discretion
of the Chief Compliance Officer, if its is determined that the employee was not
responsible for non-receipt of account statement(s).
(c) Failure to Disclose a Reportable Brokerage Account Opened During the
Calendar Year
Any employee who opens a new brokerage account and fails to report the new
brokerage account on Exhibit C at the end of the quarter in which the account
was opened will be required to pay a $100.00 fine. The fine will be paid to a
charity chosen by the employee. The employee must provide to the Compliance
Department a copy of a letter and check made payable to the charity for the
amount of the penalty. In addition, the employee must provide a copy of the
cancelled check once it is available.
(d) Failure to Disclose a Reportable Brokerage Account
Any employee who fails to disclose a reportable brokerage account either on the
Outside Brokerage Account Information Form (at the time of employment or at the
time of the annual renewal) or on Exhibit C (quarterly), will be required to pay
a $100.00 fine for the first identified account which was not reported. The fine
will be paid to a charity chosen by the employee. The employee must provide to
the Compliance Department a copy of a letter and check made payable to the
charity for the amount of the penalty, In addition, the employee must provide a
copy of the cancelled check once it is available.
Any subsequent violations of this section of the policy could, at the discretion
of Senior Management, result in termination.
Senior Management may also decide, if appropriate, to either impose additional
sanctions for a policy violation or may choose not to impose any sanction for a
policy violation. This determination will be made by a majority vote of the
Personal Trading Violations Committee which will meet on a regular basis to
review all violations of the policy. All non-unanimous decisions of the
Committee will be reviewed by the Chief Operating Officer of Investment
Advisors. Senior Management, the Board of Directors of Investment Advisors and
the Trustees of One Group must review the operation of this policy at least
annually or as dictated by changes in applicable securities regulation.
10. An EXCEPTION to the policy is Bank One stock. Buys and sells in ONE are not
subject to the preclearance requirement of the policy. It is also not necessary
for employees to report, at the time of employment and on an annual basis
thereafter, information regarding holdings in ONE. This exception is effective
01/01/99.
11. The Personal Securities Policy, a copy of each Personal Securities Holding
Report and Personal Securities Transactions Report, any written report prepared
by the Chief Compliance Officer and lists of all persons required to make
reports will be preserved by the Chief Compliance Officer for the period
required by the Investment Company Act of 1940 and The Investment Advisers Act
of 1940.
Amended: January 1, 2000
<PAGE> 9
EXHIBIT A
BANC ONE INVESTMENT ADVISORS CORPORATION
PERSONAL TRADING POLICY
ANNUAL CERTIFICATION OF COMPLIANCE
As an employee or director of Banc One Investment Advisors Corporation to whom
this policy applies I certify that I have read and understand the Personal
Trading Policy. I further certify that I will comply with the requirements of
the Policy and that I will disclose or report all personal securities holdings
and/or transactions required to be disclosed or reported by the Policy.
___________________________________
Signature
___________________________________
Print Name
_______________
Date
<PAGE> 10
EXHIBIT B
BANC ONE INVESTMENT ADVISORS CORPORATION
PERSONAL TRADING POLICY
PERSONAL SECURITIES HOLDINGS DISCLOSURE
(New Employees)
Employment Start Date _______________
As an employee or director of Banc One Investment Advisors to whom this policy
applies, I am disclosing the following information regarding all personal
securities holdings to comply with the Personal Trading Policy.
1. I certify that I have no personal securities holdings that require disclosure
as of ____________________ which is my employment start date with Banc One
Investment Advisors Corporation.
___________________________________
Signature
___________________________________
Print Name
_______________
Date
2. I certify that the attached report containing the name, value, par/share
amount, and the brokerage firm of bank (if any) which hold, all personal
securities holdings which require disclosure by me is accurate and complete as
of ____________________ which is my employment start date with Banc One
Investment Advisors Corporation.
___________________________________
Signature
___________________________________
Print Name
_______________
Date
<PAGE> 11
EXHIBIT C
BANC ONE INVESTMENT ADVISORS CORPORATION
PERSONAL TRADING POLICY
PERSONAL SECURITIES TRANSACTION REPORT
For the Calendar Quarter Ending _______________
As an employee or director of Banc One Investment Advisors Corporation to whom
this policy applies, I am reporting the following information, in addition to
the required duplicate confirmations and periodic statements, regarding my
personal securities transactions to comply with the Personal Trading Policy. I
further understand that the Policy does not require me to report transactions in
(1) securities issued or guaranteed by the United States Government, its
agencies or instrumentalities and (2) shares of non-affiliated, registered
open-end investment companies.
1. I certify that no purchases or sales of personal securities that require
reporting were made during the quarter ending _______________.
___________________________________
Signature
___________________________________
Print Name
_______________
Date
2. I certify that duplicate confirmations and statements were provided by the
executing broker/dealer for all personal security transaction(s) which require
reporting made during the quarter ending __________.
___________________________________
Signature
___________________________________
Print Name
_______________
Date
3. I certify that the attached report contains the following information
regarding personal security transaction(s) made during the quarter ending
__________ for which no duplicate confirmation or statement was provided: name
of security, price of security, amount of security, interest rate and maturity
date (if applicable), date of transaction, nature of transaction (buy/sell),
name, if any, of broker or bank used.
___________________________________
Signature
___________________________________
Print Name
_______________
Date
<PAGE> 12
EXHIBIT B
BANC ONE INVESTMENT ADVISORS CORPORATION
PERSONAL TRADING POLICY
PERSONAL SECURITIES HOLDINGS DISCLOSURE
Calendar Year Ending _______________
As an employee or director of Banc One Investment Advisors to whom this policy
applies, I am disclosing the following information regarding all personal
securities holdings to comply with the Personal Trading Policy.
1. I certify that I have no personal securities holdings that require disclosure
as of ____________________ .
___________________________________
Signature
___________________________________
Print Name
_______________
Date
2. I certify that the attached report containing the name, value, par/share
amount, and the brokerage firm or bank (if any) which hold, all personal
securities holdings which require disclosure by me is accurate and complete as
of ____________________ .
___________________________________
Signature
___________________________________
Print Name
_______________
Date
BANC ONE INVESTMENT ADVISORS CORPORATION
PERSONAL TRADING POLICY
NEW EMPLOYEE CERTIFICATION OF COMPLIANCE
As an employee or director to whom this policy applies of Banc One Investment
Advisors Corporation I certify that I have read and understand the Personal
Trading Policy. I further certify that I will comply with the requirements of
the Policy and that I will disclose or report all personal securities holdings
and/or transactions required to be disclosed or reported by the Policy.
___________________________________
Signature
___________________________________
Print Name
___________________________________
Date
<PAGE> 13
Banc One Investment Advisors Corporation
Initial Public Offering Request Form
Employee Name: __________________________________________________
BOIA Division: ___________________________________________________
Telephone Number (Office): _________________________________________
Fax Number (Office): ______________________________________________
Initial Public Offering (IPO): ________________________________________
(Name of Company and Symbol)
Describe how you obtained access to the IPO:
_______________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
Please attach all supporting documentation.
<PAGE> 14
Banc One Investment Advisors Corporation
Private Placement Request Form
Employee Name: __________________________________________________
BOIA Division: ___________________________________________________
Telephone Number (Office): _________________________________________
Fax Number (Office): ______________________________________________
Describe the Private Placement Offering:
_______________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
Describe how you obtained access to the private placement:
_______________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
Please attach all supporting documentation.
<PAGE> 15
GUIDE TO THE PERSONAL TRADING POLICY FOR
BANC ONE INVESTMENT ADVISORS CORPORATION
On your employment start date with Banc One Investment Advisors and on an annual
basis (12/31), every employee must complete and return the following forms
within 10 calendar days:
Exhibit A: Every employee must read and abide by the terms of the BOIA Personal
Trading Policy #4.05 and its related policies. Your signature on this form
positively confirms that you have completed this requirement.
Exhibit B: This form requires the disclosure of all personal security holdings,
as defined in the policy. The disclosure requirement applies to all securities
owned by you, your spouse, your children, etc. Complete the form by signing:
Option #1 - if you own no securities (stocks, bonds, affiliated/unaffiliated
mutual funds, etc.) outside of any type of 401(k) plan, or
Option #2 - if you own any securities (stocks, bonds, affiliated/unaffiliated
mutual funds, etc.) outside of a 401(k) plan. List your security holdings and
the par/share amount that you own on the form, attach a separate report or
attach account statements to satisfy the disclosure requirement.
Helpful Hints: It is not necessary to report any holdings in 401(k) plans on
Exhibit B. Never sign both Option #1 and Option #2. You should sign one or the
other. Stocks owned in DRIPS, Stock Purchase Plans, etc. must be reported.
Outside Brokerage Account Information Form
You must report every account in which you have a direct or indirect beneficial
ownership, such as :
- - Your personal brokerage accounts
- - Your spouse=s brokerage accounts
- - Your children's brokerage accounts
- - Brokerage accounts for any adults living in the same household as you
- Joint brokerage accounts (you & your spouse, you & a parent, you & a
significant other)
- - Self-directed IRA accounts (yours, your spouse's, etc.)
- - Accounts in which you act as a guardian or trustee
- Affiliated mutual fund accounts such as One Group Funds, Churchill,
Tax-Free Trust of Arizona, etc.
- - IT IS NOT NECESSARY TO REPORT ANY 401(k) ACCOUNT
- - IT IS NOT NECESSARY TO REPORT UNAFFILIATED MUTUAL FUND ACCOUNTS (I.E.
FIDELITY, FEDERATED, ETC.)
EXCEPTION: if the account currently or will hold securities other than
unaffiliated mutual funds, you must report the account and provide
duplicate confirmations and statements for the transactions
- - IT IS NOT NECESSARY TO REPORT ANY BROKERAGE ACCOUNTS IN WHICH YOU (OR A PERSON
LISTED ABOVE) DO NOT DIRECT THE TRADING ACTIVITY (I.E.: DRIPs, STOCK PURCHASE
PLANS (INCLUDING BANK ONE))
Quarterly, you must complete and return within 10 calendar days:
<PAGE> 16
Exhibit C: This form fulfills the policy requirement that you must positively
confirm that you are providing the Compliance Department with the required
information regarding your personal trading activity.
Helpful Hint: you should sign either #1 or #2 or #3 or sometimes #2 and #3, but
never all three. If you sign #3, be sure to attach the required information.
Some helpful tips to make sure you=re in compliance with the policy:
1. Contact each brokerage firm, in writing, to request that duplicate
confirmations and statements be sent to: Banc One Investment Advisors
Corporation, 1111 Polaris Parkway, P.O.Box 710211, Columbus, Ohio 43271-0211,
Attn: Compliance Department. Provide a copy of the letter to the Compliance
Department.
2. Duplicate trade confirmations and statements do not have to be provided for
non-affiliated mutual funds (i.e. Fidelity, Federated, etc.). However you must
provide duplicate confirmations and statements for affiliated mutual funds (i.e.
The One Group and Churchill).
3. ALL TRADES except for U.S. governments, agencies, open-end mutual funds
(closed-end funds and UITs must be precleared!) and Bank One stock must be
precleared! Preclearance contact is Mike Girard: 614/213-1841
(phone)/614/213-1842 (fax) or Pat Hollis: 614/213-1840 (phone)/614-213-9909
(fax). The preclearance request form can be found on Infobank.
4. Preclearance is good only for the trading day on which it was granted and the
next trading day (i.e.: preclearance granted on Monday, you must trade on Monday
or Tuesday).
5. You are not permitted to participate in Initial Public Offerings (IPOs) or
Investment Clubs. Contact the Compliance Department for IPO policy exceptions.
6. If you are on one of the fixed income or equity mutual fund money management
teams, you must adhere to a 7 day blackout.
7. You may not profit from the purchase and sale or the sale and purchase of the
same or equivalent security within 60 calendar days. This prohibition does not
apply to "exempted" securities or incentive compensation stock option trades, or
if you incur a loss.
8. Compliance Department matches duplicate confirmations and preclearance forms.
You will hear from us if information does not match up.
9. Compliance Department matches trades to account statement. You will hear from
us if information doesn't match up.
10. Non-investment personnel only get one "oops!" violation of the policy. The
second violation of the policy will cause specific penalties to be imposed.
Investment personnel (employees, except for support staff, of any division of
the Fixed Income Department or Equity Department, and NAMD Portfolio Managers)
will incur the penalties noted in the policy for any violation of the policy.
11. A third violation of the policy will result in termination.
12. There is a BIG EXCEPTION to the policy - Bank One Stock (AONE@).
Transactions (buys and sells) in ONE do not need to be precleared. In addition,
you don't have to report any holdings (at time of
employment or annually) in ONE.
Questions???????????
Review Policy #4.05 or
Call Eimile O'Connell @ 614/213-9808 (A-K) or Penny Grandominico@ 614/213-8693
(L-Z)
Revised: 1/2000
<PAGE> 1
Exhibit (P)(3)
POLICY 4.02 EMPLOYEE BROKERAGE ACCOUNTS AS AMENDED DECEMBER 31, 1997
FROM BANC ONE INVESTMENT ADVISORS CORPORATION'S COMPLIANCE MANUAL
<PAGE> 2
Policies and Procedures
4.02 Employee Brokerage Accounts
Banc One Investment Advisors Corporation / Compliance Manual
Section 204-2(a)(12) of The Investment Advisers Act of 1940 requires Banc One
Investment Advisors Corporation to maintain a record of every transaction in a
security by an "advisory representative" in which a direct or indirect
beneficial ownership is acquired. In order to comply with this regulation as
well as section of The Investment Company Act of 1940, Investment Advisors
requires each employee to complete an Outside Brokerage Account Form and report
security transactions in affiliated (Banc One Securities Corporation, Banc One
Capital Corporation, etc.) or non-affiliated brokerage accounts to the
Compliance Department. Brokerage accounts include accounts of the employee,
accounts of employee family members including spouse, minor children or adults
living in the same household, accounts where the employee is named as trustee,
affiliated mutual fund accounts (i.e. The One Group) or any account in which the
employee exercises discretion (i.e. self-directed IRA's, custodial accounts). It
is not necessary to report brokerage accounts which hold only unaffiliated
mutual funds.
In order to meet the requirements set forth above, each employee must contact
the broker/dealer and request that the broker/dealer, not the employee, send
duplicate confirmations of each security transaction and copies of brokerage
statements to the Compliance Department. The Compliance Officer will review
employee statements, as needed, for compliance with requirements specified in
other policies of Investment Advisors. Those accounts selected will be carefully
reviewed for any transactions which appear to be exceptions to firm policy or
regulations. The Compliance Officer must obtain a written explanation from the
employee and must note any disciplinary action taken against the employee on the
report.
Every employee will complete the Brokerage Account Information form at the time
of their initial employment with Investment Advisors. In addition, on an annual
basis, each employee will be required to update their Brokerage Account Form.
Employees will confirm previously reported accounts, provide information on new
accounts and report the closing of any accounts. Employees should also contact
the Compliance Department immediately upon opening or closing a brokerage
account that was not reported at the time of their initial employment or during
an annual account update.
The Compliance Officer must maintain the reviewed account statements in a
separate file entitled, "Employee Account Review" in employee order. These files
must be preserved for a continuous period of seven years.
Amended: December 31, 1997
BROKERAGE ACCOUNT INFORMATION
(New Employees)
Information must be provided for all brokerage accounts including those of the
employee, the employees' immediate family members (spouse, children, adults
living in the same household), affiliated mutual funds (i.e. The One Group),
accounts for which the employee acts as trustee, or any other type of account
<PAGE> 3
for which the employee exercises discretion (i.e. self-directed IRA's, custodial
accounts). Accounts which hold only non-affiliated mutual funds accounts do not
need to be reported.
<TABLE>
<CAPTION>
Broker Account Account Relationship
Name Name Number to BOIA Employee
<S> <C> <C> <C>
_________________ __________________ ___________________ ______________________
_________________ __________________ ___________________ ______________________
_________________ __________________ ___________________ ______________________
_________________ __________________ ___________________ ______________________
</TABLE>
Signature: ___________________________________________
Print Name: ___________________________________________
Date: ______________________
Amended: December 31, 1997
<PAGE> 4
BROKERAGE ACCOUNT INFORMATION
(Annual Update)
Information must be provided for all brokerage accounts including those of the
employee, the employees' immediate family members (spouse, children, adults
living in the same household), affiliated mutual funds (i.e. The One Group),
accounts for which the employee acts as trustee, or any other type of account
for which the employee exercises discretion (i.e. self-directed IRA's, custodial
accounts). Accounts which hold only non-affiliated mutual funds accounts do not
need to be reported.
Existing Accounts
<TABLE>
<CAPTION>
Broker Account Account Relationship
Name Name Number to BOIA Employee
<S> <C> <C> <C>
____________________ ____________________ __________ _______________
____________________ ____________________ __________ _______________
____________________ ____________________ __________ _______________
____________________ ____________________ __________ _______________
____________________ ____________________ __________ _______________
</TABLE>
Accounts Opened During the Past Year
<TABLE>
<CAPTION>
Broker Account Account Relationship
Name Name Number to BOIA Employee
<S> <C> <C> <C>
____________________ ____________________ __________ _______________
____________________ ____________________ __________ _______________
____________________ ____________________ __________ _______________
____________________ ____________________ __________ _______________
____________________ ____________________ __________ _______________
</TABLE>
Accounts Closed During the Past Year
<TABLE>
<CAPTION>
Broker Account Account Relationship
Name Name Number to BOIA Employee
<S> <C> <C> <C>
____________________ ____________________ __________ _______________
____________________ ____________________ __________ _______________
____________________ ____________________ __________ _______________
____________________ ____________________ __________ _______________
____________________ ____________________ __________ _______________
</TABLE>
Date: _______________ Signature: ___________________________________
Amended: December 31, 1997
