<PAGE> 1
PROSPECTUS ONE Financial Way
NOVEMBER 1, 1996 Cincinnati, Ohio 45242
ONE FUND, INC. Telephone 1-800-578-8078
CONTENTS
- --------
2 Key Features ONE Fund Inc. ("ONE Fund") is an open-end
management investment company with 9 diversified
portfolios, Through the different portfolios,
ONE Fund's objectives are to provide:
3 Summary of Expenses MONEY MARKET PORTFOLIO - current income
consistent with preservation of capital and
liquidity
5 Financial Highlights TAX FREE INCOME PORTFOLIO - high current income
exempt from federal income taxes.
12 About ONE Fund INCOME PORTFOLIO - high current income.
Preservation of capital is a secondary
objective.
22 Dividends, Distributions INCOME & GROWTH PORTFOLIO - moderate income with
and Taxes the potential for increasing income over time.
Growth of capital is also a primary objective.
23 ONE Fund GROWTH PORTFOLIO - long-term capital growth.
Management
CORE GROWTH PORTFOLIO - long-term capital
appreciation.
27 Buying Shares SMALL CAP PORTFOLIO - maximum capital growth by
investing primarily in common stocks of small
and medium sized companies
28 Reducing the Sales Charge INTERNATIONAL PORTFOLIO - long-term capital
growth by investing primarily in common stocks
of foreign companies.
30 Flexibility Features GLOBAL CONTRARIAN PORTFOLIO - long-term growth
of capital by investing in foreign and domestic
securities believed to be undervalued or
presently out of favor.
32 Redeeming shares This prospectus sets forth concisely the
information about ONE Fund that you should know
before investing. This prospectus should be
34 Fund Performance retained for future reference. Additional
information about ONE Fund has been filed with
the Securities and Exchange Commission in a
Statement of Additional Information, dated
November 1, 1996, which is incorporated herein
by reference. The Statement of Additional
Information is available upon request and
without charge by calling or writing ONE Fund at
the toll-free telephone number or the address
shown above.
INVESTMENTS IN THE MONEY MARKET PORTFOLIO ARE NEITHER INSURED NOR GUARANTEED BY
THE UNITED STATES GOVERNMENT. THERE CAN BE NO ASSURANCE THAT THE MONEY MARKET
PORTFOLIO WILL BE ABLE TO MAINTAIN A STABLE NET ASSET VALUE OF $1.00 PER SHARE.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
1
<PAGE> 2
KEY FEATURES OF ONE FUND
ONE FUND WITH ONE Fund is a series mutual fund offering you a
9 PORTFOLIOS selection of 9 investment options (portfolios).
See "About ONE Fund" on page 12. ONE Fund shares
are subject to the risks that the securities in
which each portfolio is invested might decrease
in value (market risk) or that issuers of
income-producing securities might not be able to
pay the interest or principal when due (credit
risk). Changes in interest rates, securities
markets in general or the overall economy can
affect the value of ONE Fund shares or the level
of dividends.
PROFESSIONAL MANAGEMENT ONE Fund's assets are managed by Ohio National
Investments, Inc. (the "Adviser"). It receives
annual compensation, based on each portfolio's
net assets, at maximum rates of 0.30% for the
Money Market Portfolio, 0.50% for the Income,
Income & Growth and Growth Portfolios, 0.60% for
the Tax-Free Income Portfolio, 0.65% for the
Small Cap Portfolio, 0.90% for the International
and Global Contrarian Portfolios and 0.95% for
the Core Growth Portfolio. See "The Adviser" on
page 23 and "The Adviser's Compensation" on page
25. The Adviser contracts with Pilgrim Baxter &
Associates, Ltd. ("PBA") (see page 26) for the
management of the Core Growth Portfolio and
Societe Generale Asset Management Corp. ("SGAM")
(See page 26) for the management of the
International and Global Contrarian Portfolios.
DIVERSIFICATION ONE Fund's portfolios are fully diversified.
Your investments are pooled with those of other
investors to purchase a greater variety of
securities than you might purchase by yourself.
See "Diversification" on page 20, and "About ONE
Fund" on page 12.
LIQUIDITY ONE Fund shares may be redeemed, in whole or in
part, at their net asset value upon request. See
"Redeeming Shares" on page 32.
FLEXIBILITY ONE Fund offers a number of privileges designed
to increase your flexibility. Some of these
features include the open account plan, dividend
payment options, exchange privileges and the
automatic withdrawal plan. See "Dividends,
Distributions and Taxes" on page 22, and
"Flexibility Features" on page 30.
SERVICE ONE Fund's principal underwriter is The O.N.
Equity Sales Company ("ONESCO"). However, upon
receipt of necessary regulatory approvals, Ohio
National Equities, Inc. ("ONE, Inc.") an
affiliate of ONESCO, will become the principal
underwriter. You may purchase ONE Fund shares at
any time by contacting your registered
representative. The purchase of ONE Fund shares
includes a maximum sales charge of 5% of the
offering price (3% for the Tax-Free Income and
Income Portfolios). A number of methods are
available for reducing or eliminating the sales
charge. There is no sales charge for the Money
Market Portfolio. See "Sales Charges" on page
27, and "Reducing the Sales Charge" on page 28.
2
<PAGE> 3
ONE Fund investors may direct service requests
to their registered representative or directly
to ONE Fund at the toll-free telephone number
and address shown on page 1. A shareholder
service fee, not to exceed an annual rate of
0.30% (0.17% maximum for the Money Market
Portfolio) is paid to ONESCO and other qualified
dealers. See "Sales Charges" on page 27.
SUMMARY OF ONE FUND EXPENSES
This table and example are provided to help you understand the expenses of
investing in ONE Fund and your share of ONE Fund's operating expenses. A variety
of ways to reduce the sales charge are available. See "Sales Charges" on page
27, and "Reducing the Sales Charge" on page 28.
The Example enables you to compare the long-term cost of owning ONE Fund versus
other funds. Funds with higher recurring operating expenses might, over time,
be more expensive than a fund with a higher sales charge but lower recurring
operating expenses.
THE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
EXPENSES. ACTUAL EXPENSES MAY BE MORE OR LESS THAN THOSE SHOWN.
SHAREHOLDER TRANSACTION EXPENSES:
Maximum Sales Charge Imposed on Purchases (as a percentage of offering
price) (1)
Money Market Portfolio None
Tax-Free Income Portfolio 3.00%
Income Portfolio 3.00%
Income & Growth Portfolio 5.00%
Growth Portfolio 5.00%
Core Growth Portfolio 5.00%
Small Cap Portfolio 5.00%
International Portfolio 5.00%
Global Contrarian Portfolio 5.00%
ANNUAL OPERATING EXPENSES (AS A PERCENTAGE OF AVERAGE NET ASSETS):
<TABLE>
<CAPTION>
TOTAL OPERATING
MANAGEMENT FEES 12B-1 OTHER EXPENSES
(AFTER WAIVER)(2) FEES(3) EXPENSES (AFTER WAIVER)
----------------- ------- -------- --------------
<S> <C> <C> <C> <C>
Money Market Portfolio 0.15% 0.15% 0.42% 0.72%
Tax-Free Income Portfolio 0.45% 0.25% 0.39% 1.09%
Income Portfolio 0.35% 0.25% 0.47% 1.07%
Income & Growth Portfolio 0.35% 0.25% 0.39% 0.99%
Growth Portfolio 0.35% 0.25% 0.40% 1.00%
Core Growth Portfolio (4) 0.95% 0.25% 0.65% 1.85%
Small Cap Portfolio 0.50% 0.25% 0.37% 1.12%
International Portfolio 0.90% 0.25% 0.57% 1.72%
Global Contrarian Portfolio 0.90% 0.25% 0.99% 2.14%
</TABLE>
3
<PAGE> 4
EXAMPLE:
A hypothetical investment of $1,000 would incur the following expenses, assuming
a 5% annual return:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
Money Market Portfolio $ 7 $ 23 $ 40 $ 90
Tax-Free Income Portfolio 41 64 89 159
Income Portfolio 41 63 88 157
Income & Growth Portfolio 60 80 102 166
Growth Portfolio 60 80 103 167
Core Growth Portfolio (4) 68 106 146 258
Small Cap Portfolio 61 84 109 180
International Portfolio 67 102 139 244
Global Contrarian Portfolio 71 114 160 287
</TABLE>
If the maximum management fees and 12b-1 fees were assessed, the expenses in
this hypothetical example would be:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
Money Market Portfolio $ 9 29 50 110
Tax-Free Income Portfolio 43 70 99 182
Income Portfolio 43 69 98 180
Income & Growth Portfolio 62 86 112 188
Growth Portfolio 62 86 113 189
Core Growth Portfolio (4) 69 107 148 263
Small Cap Portfolio 63 90 119 202
International Portfolio 67 103 142 249
Global Contrarian Portfolio 71 116 163 292
</TABLE>
(1)The Maximum Sales Charge scales down for purchases of $25,000 or more and
becomes a contingent deferred sales charge of 0.5%, for 2 years following
purchase, for accounts of at least $1 million.
(2)The Adviser is presently voluntarily waiving 0.15% of its Management Fees
for certain portfolios. Without those waivers, the Management Fees would be
0.30% for the Money Market Portfolio, 0.60% for the Tax-Free Income
Portfolio, 0.50% for the Income, Income & Growth and Growth Portfolios, and
0.65% for the Small Cap Portfolio and the Total Operating Expenses would have
been 0.87% for the Money Market Portfolio, 1.24% for the Tax-Free Income
Portfolio, 1.22% for the Income Portfolio, 1.14% for the Income & Growth
Portfolio, 1.15% for the Growth Portfolio and 1.27% for the Small Cap
Portfolio.
(3)The 12b-1 Fees shown are based on an estimate that no individual sales
representative will reach critical production levels this year. In later
years, these fees could be slightly higher, but no higher than 0.17% for the
Money Market Portfolio and 0.30% for the other portfolios.
(4)For the Core Growth Portfolio, the "Other Expenses" (and, accordingly, the
Total Operating Expenses) are based on estimates.
4
<PAGE> 5
ONE FUND, INC.
FINANCIAL HIGHLIGHTS
The following information has been audited by KPMG Peat Marwick LLP, independent
certified public accountants, and is an integral part of ONE Fund's audited
financial statements which appear in the Statement of Additional Information
(which may be obtained by shareholders), incorporated by reference herein, and
should be read in conjunction with the financial statements.
<TABLE>
<CAPTION>
PORTFOLIO
---------------------------------------------------------------
MONEY MARKET TAX-FREE INCOME
---------------------------------------- -----------------
8-18-92 YEAR 11-1-94
YEAR ENDED JUNE 30, TO ENDED TO
1996 1995 1994 6-30-93 6-30-96 6-30-95
------ ------ ------ ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Per share data (for a share
outstanding throughout
each period):
Net asset value, beginning
of period .................................................... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $10.66 $10.00
Income from investment operations:
Net investment income ..................................... 0.05 0.05 0.03 0.02 0.56 0.35
Net realized and unrealized gain
(loss) on investments and
foreign currency transactions ........................... 0.00 0.00 0.00 0.00 0.13 0.66
------ ------ ------ ------ ------ ------
Total from investment operations .......................... 0.05 0.05 0.03 0.02 0.69 1.01
------ ------ ------ ------ ------ ------
Less distributions:
Dividends from net
investment income ....................................... (0.05) (0.05) (0.03) (0.02) (0.56) (0.35)
Distributions from net realized
capital gains and foreign
currency transactions ................................... 0.00 0.00 0.00 0.00 0.00 0.00
------ ------ ------ ------ ------ ------
Total distributions .......................................... (0.05) (0.05) (0.03) (0.02) (0.56) (0.35)
------ ------ ------ ------ ------ ------
Net asset value, end of period ............................... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $10.79 $10.66
====== ====== ====== ====== ====== ======
Total return (a) ............................................. 5.18% 5.06% 3.06% 2.67%(b) 6.59% 10.26%(b)
====== ====== ====== ====== ====== ======
Ratio (to average net assets)/
supplemental data:
Ratios net of fees waived
by adviser (d,e):
Expenses .................................................. 0.57% 0.51% 0.44% 0.43%(c) 0.94% 0.91%(c)
Net investment income ..................................... 5.14% 4.99% 2.97% 2.70%(c) 5.20% 5.04%(c)
Ratios assuming no waiver of management fees by adviser (d,e):
Expenses ................................................. 0.87% 0.81% 0.74% 0.73%(c) 1.24% 1.21%(c)
Net investment income .................................... 4.84% 4.69% 2.67% 2.40%(c) 4.90% 4.74%(c)
Portfolio turnover rate ...................................... N/A N/A N/A N/A 8% 0%
Net assets at end of period (millions) ....................... $ 15.8 $ 14.1 $ 12.3 $ 21.3 $ 6.3 $ 5.7
</TABLE>
(a) Total return does not reflect the initial sales charge imposed on
purchases (see page 27).
(b) Calculated on an aggregate basis (not annualized).
(c) Annualized.
(d) For the periods shown, the investment adviser elected to waive the entire
management fee for the Money Market Portfolio and one-half of the
management fees for the Tax-Free Income, Income, Income & Growth, and
Small Cap Portfolios, but it may cease those waivers, in whole or in part,
without prior notice.
(e) The investment adviser has reimbursed certain operating expenses of the
International and Global Contrarian Portfolios. Had the investment adviser
not reimbursed such expenses, the annualized ratio of expenses to net
assets would have been 1.72%, 1.51%, 2.22% and 4.13% for the International
Portfolio for the periods ended June 30, 1996, 1995, 1994 and 1993
respectively, and 2.40% and 2.59% for the Global Contrarian Portfolio for
the periods ended June 30, 1996 and June 30, 1995, respectively. The
annualized ratio of net investment income to net assets would have been
.70%, (1.10%), (.26%) and .12% for the International Portfolio for the
periods ended June 30, 1996, 1995, 1994 and 1993 respectively, and 1.23%
and (2.31%) for the Global Contrarian Portfolio for the periods ended June
30, 1996 and 1995, respectively.
5
<PAGE> 6
<TABLE>
<CAPTION>
PORTFOLIO
-----------------------------------------------------------------------------
INCOME INCOME & GROWTH
----------------------------------- ----------------------------------
8-18-92 8-18-92
YEAR ENDED JUNE 30, TO YEAR ENDED JUNE 30, TO
1996 1995 1994 6-30-93 1996 1995 1994 6-30-95
----------------------------------- ----------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Per share data (for a share
outstanding throughout
each period):
Net asset value, beginning
of period .............................. $ 9.78 $ 9.39 $ 10.43 $10.00 $11.57 $10.65 $10.96 $10.00
Income from investment operations:
Net investment income ............... 0.63 0.65 0.62 0.45 0.38 0.41 0.33 0.27
Net realized and unrealized gain
(loss) on investments and
foreign currency transactions ..... (0.19) 0.39 (0.98) 0.45 1.27 1.54 (0.11) 0.96
------ ------ ------- ------ ------ ------ ------ ------
Total from investment
operations ...................... 0.44 1.04 (0.36) 0.90 1.65 1.95 0.22 1.23
------ ------ ------- ------ ------ ------ ------ ------
Less distributions:
Dividends from net
investment income ................. (0.63) (0.65) (0.62) (0.45) (0.37) (0.41) (0.33) (0.27)
Distributions from net realized
capital gains and foreign
currency transactions ............. 0.00 0.00 (0.06) (0.02) (0.07) (0.62) (0.20) 0.00
------ ------ ------- ------ ------ ------ ------ ------
Total distributions .................... (0.63) (0.65) (0.68) (0.47) (0.44) (1.03) (0.53) (0.27)
------ ------ ------- ------ ------ ------ ------ ------
Net asset value, end of period ......... $ 9.59 $ 9.78 $ 9.39 $10.43 $12.78 $11.57 $10.65 $10.96
====== ====== ======= ====== ====== ====== ====== ======
Total return (a) ....................... 4.61% 11.58% ( 3.79%) 9.56%(b) 14.50% 19.41% 1.96% 12.49%(b)
====== ====== ======= ====== ====== ====== ====== ======
Ratio (to average net assets)/
supplemental data:
Ratios net of fees waived
by advisor (d,e):
Expenses ............................. 0.97% 0.85% 1.02% 1.11%(c) 0.89% 0.81% 0.94% 1.07%(c)
Net investment income .................. 6.50% 6.80% 6.10% 5.07%(c) 3.10% 3.69% 3.08% 3.09%(c)
Ratios assuming no waiver of management
fees by adviser (d,e):
Expenses ............................. 1.22% 1.10% 1.27% 1.36%(c) 1.14% 1.06% 1.19% 1.32%(c)
Net investment income ................ 6.25% 6.55% 5.85% 4.82%(c) 2.85% 3.44% 2.83% 2.84%(c)
Portfolio turnover rate ................ 9% 4% 6% 6% 7% 25% 14% 24%
Net assets at end of period (millions) . $ 7.0 $ 7.1 $ 4.6 $ 5.7 $10.8 $ 7.7 $ 7.5 $ 6.7
</TABLE>
6
<PAGE> 7
<TABLE>
<CAPTION>
PORTFOLIO
---------------------------------------------------------------
GROWTH SMALL CAP
--------------------------------------- ------------------
8-18-92 YEAR 11-1-94
YEAR ENDED JUNE 30, TO ENDED TO
1996 1995 1994 6-30-93 6-30-96 6-30-95
------ ------ ------ ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Per share data (for a share
outstanding throughout
each period):
Net asset value, beginning
of period ................................. $13.03 $11.67 $11.63 $10.00 $10.63 $10.00
Income from investment operations:
Net investment income .................. 0.14 0.16 0.12 0.12 0.26 0.22
Net realized and unrealized gain
(loss) on investments and
foreign currency transactions ........ 2.72 2.17 0.22 1.69 2.26 0.67
------ ------ ------ ------ ------ ------
Total from investment
operations ......................... 2.86 2.33 0.34 1.81 2.52 0.89
------ ------ ------ ------ ------ ------
Less distributions:
Dividends from net
investment income .................... (0.14) (0.16) (0.12) (0.12) (0.25) (0.22)
Distributions from net realized
capital gains and foreign
currency transactions ................ (0.28) (0.81) (0.18) (0.06) (0.08) (0.04)
------ ------ ------ ------ ------ ------
Total distributions ....................... (0.42) (0.97) (0.30) (0.18) (0.33) (0.26)
------ ------ ------ ------ ------ ------
Net asset value, end of period ............ $15.47 $13.03 $11.67 $11.63 $12.82 $10.63
====== ====== ====== ====== ====== ======
Total return (a) .......................... 22.22% 20.54% 2.85% 18.26%(b) 24.10% 8.91%(b)
====== ====== ====== ====== ====== ======
Ratio (to average net assets)/
supplemental data:
Ratios net of fees waived
by advisor (d,e):
Expenses ................................ 0.90% 0.83% 1.04% 1.30%(c) 0.94% 1.00%(c)
Net investment income ..................... 0.99% 1.35% 1.04% 1.31%(c) 2.21% 3.19%(c)
Ratios assuming no waiver of management
fees by adviser (d,e):
Expenses ................................ 1.15% 1.08% 1.30% 1.55%(c) 1.27% 1.31%(c)
Net investment income ................... 0.74% 1.10% 0.79% 1.06%(c) 1.88% 2.88%(c)
Portfolio turnover rate ................... 22% 24% 8% 26% 34% 8%
Net assets at end of period (millions) .... $11.8 $ 7.0 $ 5.3 $ 4.3 $ 4.5 $ 2.9
</TABLE>
7
<PAGE> 8
<TABLE>
<CAPTION>
PORTFOLIO
------------------------------------------------------------------------
INTERNATIONAL GLOBAL CONTRARIAN
--------------------------------------------- ---------------------
4-30-93 YEAR 11-1-94
YEAR ENDED JUNE 30, TO ENDED TO
1996 1995 1994 6-30-93 6-30-96 6-30-95
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Per share data (for a share
outstanding throughout
each period):
Net asset value, beginning
of period .............................. $ 12.89 $ 13.32 $ 9.90 $ 10.00 $ 10.01 $ 10.00
Income from investment operations:
Net investment income ............... 0.10 0.14 0.05 0.03 0.16 0.17
Net realized and unrealized gain
(loss) on investments and
foreign currency transactions ..... 2.24 0.63 4.01 (0.10) 1.61 0.13
--------- --------- --------- --------- --------- ---------
Total from investment
operations ...................... 2.34 0.77 4.06 (0.07) 1.77 0.30
--------- --------- --------- --------- --------- ---------
Less distributions:
Dividends from net
investment income ................. (0.39) (0.14) (0.05) (0.03) (0.23) (0.17)
Distributions from net realized
capital gains and foreign
currency transactions ............. (0.37) (1.06) (0.59) 0.00 (0.07) (0.12)
--------- --------- --------- --------- --------- ---------
Total distributions .................... (0.76) (1.20) (0.64) (0.03) (0.30) (0.29)
--------- --------- --------- --------- --------- ---------
Net asset value, end of period ......... $ 14.47 $ 12.89 $ 13.32 $ 9.90 $ 11.48 $ 10.01
========= ========= ========= ========= ========= =========
Total return (a) ....................... 18.65% 6.44% 40.65% (0.68%)(b) 17.84% 2.99%(b)
========= ========= ========= ========= ========= =========
Ratio (to average net assets)/
supplemental data:
Ratios net of fees waived
by advisor (d,e):
Expenses ............................. 1.72% 1.50% 1.50% 2.32%(c) 2.14% 2.05%(c)
Net investment income ................ 0.70% 1.11% 0.46% 1.93%(c) 1.49% 2.85%(c)
Ratios assuming no waiver of management
fees by advisor (d,e):
Expenses ............................. 1.72% 1.50% 1.50% 2.32%(c) 2.14% 2.05%(c)
Net investment income ................ 0.70% 1.11% 0.46% 1.93%(c) 1.49% 2.85%(c)
Portfolio turnover rate ................ 20% 39% 27% 0% 26% 8%
Net assets at end of period (millions) . $ 15.1 $ 12.0 $ 10.4 $ 3.2 $ 5.7 $ 3.9
</TABLE>
8
<PAGE> 9
COMPARISONS OF CHANGE IN VALUE OF $10,000 INVESTMENTS
IN ONE FUND PORTFOLIOS AND VARIOUS INDEXES
<TABLE>
<CAPTION>
TAX FREE INCOME &
INCOME INCOME GROWTH GROWTH
------ ------ ------ ------
<C> <C> <C> <C> <C>
8/18/92 -- $ 9,700 $ 9,500 $ 9,500
12/31/92 -- 9,758 9,487 10,178
4/30/93 -- -- -- --
6/30/93 -- 10,628 10,687 11,234
12/31/93 -- 10,850 11,048 11,917
6/30/94 -- 10,224 10,896 11,554
11/1/94 $ 9,700 -- -- --
12/31/94 9,863 10,263 11,073 11,989
6/30/95 10,694 11,407 12,865 13,928
12/31/95 11,447 11,980 13,798 15,366
6/30/96 11,356 11,933 14,730 17,022
</TABLE>
<TABLE>
<CAPTION>
SMALL GLOBAL
CAP INTERNATIONAL CONTRARIAN
--- ------------- ----------
<C> <C> <C> <C>
8/18/92 -- -- --
12/31/92 -- -- --
4/30/93 -- $ 9,500 --
6/30/93 -- 9,435 --
12/31/93 -- 12,271 --
6/30/94 -- 13,270 --
11/1/94 $ 9,500 -- $ 9,500
12/31/94 9,537 13,443 9,145
6/30/95 10,343 14,086 9,781
12/31/95 11,979 15,061 10,523
6/30/96 12,835 16,713 11,526
</TABLE>
9
<PAGE> 10
<TABLE>
<CAPTION>
LEHMAN LEHMAN
MUNICIPAL INTERMEDIATE S&P 500
--------- ------------ -------
<C> <C> <C> <C>
8/18/92 -- $10,000 $10,000
12/31/92 -- 10,200 10,452
4/30/93 -- -- --
6/30/93 -- 10,842 10,966
12/31/93 -- 11,105 11,353
6/30/94 -- 10,814 10,814
11/1/94 $10,000 -- --
12/31/94 10,035 10,891 11,290
6/30/95 11,003 11,937 13,571
12/31/95 11,787 13,134 16,028
6/30/96 11,734 13,013 17,643
</TABLE>
<TABLE>
<CAPTION>
RUSSELL MORGAN MORGAN
2,000 EAFE WORLD
----- ---- -----
<S> <C> <C> <C>
8/18/92 -- -- --
12/31/92 -- -- --
4/30/93 -- $10,000 --
6/30/93 -- 10,052 --
12/31/93 -- 10,724 --
6/30/94 -- 11,595 --
11/1/94 $10,000 -- $10,000
12/31/94 9,877 11,481 9,667
6/30/95 11,190 11,683 10,460
12/31/95 12,656 12,957 11,080
6/30/96 13,972 13,543 11,800
</TABLE>
10
<PAGE> 11
MANAGEMENT'S DISCUSSION OF ONE FUND
PERFORMANCE
(FISCAL YEAR JULY 1995 THROUGH JUNE 1996)
Economic conditions in the U.S. were favorable in the
second half of 1995 with rising sales, strong
corporate earnings, declining interest rates and low
inflation. Stocks and bonds advanced strongly, but,
foreign markets were generally more volatile and did
not share in this rally. As 1995 drew to a close, our
economy was growing at a moderate pace. However,
inflationary pressures began to be felt in 1996 with
growing consumer debt and spending, wage growth,
lower savings, higher interest rates and labor
shortages. Both domestic and foreign stocks generally
finished the fiscal year on a strong note despite
increasing price volatility and growing
uncertainties. Bond prices weakened in the face of
rising interest rates during the first half of 1996.
TAX FREE INCOME PORTFOLIO The emphasis has been on high quality municipal bonds
with intermediate or longer maturities. The average
maturity at the end of the fiscal year was 17 years,
while short-term balances (short-term debt securities
and cash equivalents) were approximately 8% of the
portfolio.
INCOME PORTFOLIO During the fiscal year, purchase activity continued
to focus on corporate bonds with 5 to 10 year
maturities. The average maturity at the end of the
fiscal year was about 7 years. During the fiscal
year, short-term balances were decreased from about
10% to 2%.
INCOME & GROWTH During the fiscal year, most purchases were in
PORTFOLIO dividend-paying common stocks with moderate growth
potential. At the end of the fiscal year, the
portfolio was 71% common and preferred stocks, 16%
bonds and 13% short-term balances.
GROWTH PORTFOLIO During the fiscal year, most purchases were in common
stocks with above-average growth potential. The
portfolio's short-term balances were increased during
the year and, at the end of June 1996, the portfolio
was 89% invested in common and preferred stocks.
SMALL CAP PORTFOLIO The portfolio continued to purchase stocks of small
to medium sized companies with moderate to above
average growth potential. At the end of the fiscal
year, the portfolio was 91% common and preferred
stocks and 9% short-term balances.
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INTERNATIONAL PORTFOLIO During the fiscal year, SGAM remained cautious while
continuing to seek investment opportunities in
specific stocks expected to provide good value and
attractive long-term returns. Foreign stocks remained
at approximately 89% of assets during the fiscal year
while most of the remainder consisted of foreign
short-term investments and convertible debentures.
GLOBAL CONTRARIAN This portfolio has maintained a significant exposure
PORTFOLIO to both U.S. and foreign "hard asset"
commodity-related stocks based on SGAM's belief that
this category, having performed poorly in recent
years, will rebound. In fact, this category did begin
to perform better in the first quarter of 1996, but
remained uncertain as the fiscal year ended. The
portfolio was, at fiscal year-end, invested
approximately 34% in U.S. stocks, 50% in foreign
stocks, 6% in domestic short-term balances and 10% in
foreign bonds.
ABOUT ONE FUND
ONE Fund was incorporated in Maryland on April 24,
1992. It is an open-end management investment
company, commonly called a "mutual fund". ONE Fund
has 9 fully diversified portfolios as described
below. Equity interests in each portfolio are
represented by a separate class of ONE Fund's capital
shares having a par value of one tenth of one cent
per share.
Shares of each portfolio All shares of all portfolios have one vote per share
participate equally in and are freely transferable, except that only shares
its assets and dividends. of a particular portfolio are entitled to vote on
matters affecting only that portfolio. Approval of
certain matters by a vote of all ONE Fund
shareholders may not be binding on a portfolio whose
shareholders have not approved that matter. Each
share of each portfolio is entitled to participate
equally in its dividends, distributions and net
assets.
The Adviser is a wholly-owned subsidiary of The Ohio
National Life Insurance Company ("ONLI"). They and
other Ohio National companies are located at One
Financial Way, Cincinnati, Ohio 45242.
Each portfolio has its Each portfolio of ONE Fund has a different investment
own investment objectives objective and pursues that objective through its own
and policies. investment policies. These differences mean that the
total returns and risks for each portfolio will be
different. Of course, the achievement of investment
objectives cannot be assured because of the risks of
fluctuating prices of the underlying securities.
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<PAGE> 13
The investment objectives and the fundamental
investment restrictions (which are described in the
Statement of Additional Information) for each
portfolio can only be changed if approved by a vote
of the shareholders of the affected portfolio. All
other investment practices may be changed by ONE
Fund's Board of Directors.
MONEY MARKET PORTFOLIO The objective of the Money Market Portfolio is to
Current income, provide current income consistent with preservation
preservation of capital of capital and liquidity. Essentially all the assets
and liquidity. of this portfolio will be invested in high quality
cash equivalent securities maturing in 13 months or
less, including securities issued by (or guaranteed
by) the U.S. Government or its agencies or
instrumentalities, commercial paper, corporate bonds
and notes, certificates of deposit, bankers'
acceptances and repurchase agreements. Commercial
paper consists of unsecured promissory notes issued
by corporations to finance short-term credit needs.
The dollar-weighted average maturity of all
securities in this portfolio will never be more than
90 days. The Statement of Additional Information
provides a more complete description of the types of
financial instruments in which this portfolio may
invest.
Money Market Portfolio The Money Market Portfolio offers a high degree of
risk factors. safety (although not guaranteed), but little
opportunity for above-average long-term return.
Income will fluctuate with changes in the level of
short-term interest rates.
ONE Fund intends to maintain the net asset value of
the Money Market Portfolio at a constant $1 per share
by paying out all income in the form of daily share
dividends. To avoid fluctuations in the prices of
portfolio securities, ONE Fund intends to hold all
securities in this portfolio to maturity and to value
securities based on the amortized-cost method.
At least 95% of the assets of the Money Market
Portfolio will be invested in "first-tier" short-term
debt instruments. Purchases of other short-term debt
instruments of a single issuer will be limited to the
greater of 1% of its total assets or $1 million. In
addition to U.S. Government securities, the first
tier includes commercial paper, certificates of
deposit and bankers' acceptances that have received
the highest rating by any two nationally recognized
statistical rating organizations ("NRSROs"), or the
highest rating by one NRSRO if that is the only NRSRO
having rated the security, or whose issuer has
received such a rating or ratings with respect to a
class of short term debt obligations that is now
comparable in priority and security to those to be
purchased.
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<PAGE> 14
TAX-FREE INCOME PORTFOLIO The objective of the Tax-Free Income Portfolio is
High current income exempt to provide high current income exempt
from federal income taxes. from federal income taxes. Preservation of capital
is a secondary objective.
Normally, substantially all (at least 85%) of the
assets of this portfolio will be invested in
investment grade municipal securities. As a
temporary defensive measure, during times of
adverse market conditions, up to 50% of the
portfolio's assets may be invested in short-term
securities, including those which are not
municipal securities. Interest income from
investments other than municipal securities will
be taxable to you as ordinary income.
Municipal securities are debt obligations issued
by or on behalf of states, cities, municipalities
and other public authorities. The two principal
classifications of municipal securities that may
be held by the Portfolio are "general obligation"
securities and "revenue" securities. General
obligation securities are secured by the issuer's
pledge of its full faith, credit and taxing power
for the payment of principal and interest. Revenue
securities 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 tax or other specific revenue
source such as the user of a facility being
financed. Revenue securities may include private
activity bonds. Such bonds may be issued by or on
behalf of public authorities to finance various
privately operated facilities and are not payable
from the unrestricted revenues of the issuer. As a
result, the credit quality of private activity
bonds is frequently related directly to the credit
standing of private corporations or other
entities. In addition, the interest on private
activity bonds issued after August 7, 1986 is
subject to the federal alternative minimum tax.
For this reason, the Portfolio will not invest
more than 5% of its assets in such obligations.
Investment grade This portfolio will only purchase investment grade
Municipal securities. securities. Generally, bonds rated in one of the
top four rating categories are considered
investment grade. No more than 25% of its assets
may be invested in securities having, at the time
of purchase, the fourth highest rating (Baa by
Moody's and BBB by Standard & Poor's).
Tax-Free Income The financial risk for this portfolio is kept
Portfolio risk factors. fairly low by restricting purchases to investment
grade securities and further restricting the
purchase of securities in the fourth highest
rating category to a maximum of 25% of assets.
Securities in the fourth highest category, while
considered investment grade, may have some
speculative characteristics and the issuer's
ability to pay interest or repay principal may be
weaker under adverse economic conditions or
changing circumstances.
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<PAGE> 15
The degree of market risk for debt securities
increases with the length of time remaining to
their maturity. During periods of rising interest
rates, the market prices of all income producing
securities tend to decline. Conversely, when
interest rates fall, the market prices of such
securities tend to rise. The values of such
securities will also vary as a result of changing
economic conditions or changing evaluations by
investors and rating organizations of the ability
of the issuers to meet interest and principal
payments. Thus, there is always a risk of
principal loss or gain associated with the
portfolio. However, changes in the values of
municipal securities held by the portfolio will
not affect income derived from those securities
unless the issuer defaults on its interest
payments.
From time to time, proposals have been introduced
before Congress for the purpose of restricting or
eliminating the federal income tax exemption for
interest on municipal securities.
INCOME PORTFOLIO The objective of the Income Portfolio is to
High current income and provide high current income. Preservation of
preservation of capital. capital is a secondary objective. The Adviser will
seek to preserve capital by shortening the average
maturity of this portfolio during times of
volatile interest rates. Shorter maturities reduce
exposure to interest risk and correspondingly
reduce the risk of loss of capital.
Normally, at least 85% of the assets of this
portfolio will be invested in investment-grade
fixed income securities and the equivalent,
including corporate bonds, securities issued by
(or guaranteed by) the U.S. Government or its
agencies or instrumentalities, mortgage-backed
securities, and cash equivalents. The remainder
may be invested in below-investment-grade
corporate bonds. Generally, bonds rated in one of
the top four rating categories are considered
investment grade. However, those in the fourth
highest category (Moody's Baa or Standard & Poor's
BBB) may have speculative characteristics and the
issuer's ability to pay interest or repay
principal under adverse economic conditions or
changing circumstances may be weaker.
While this portfolio may invest in high-yield, or
"junk" bonds, at no time will any such bond be
purchased if it would result in more than 15% of
the assets of this portfolio being represented by
such securities. Bonds rated below the second
highest below-investment grade category (B) by
Moody's or Standard & Poor's will not be
purchased.
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<PAGE> 16
Income Portfolio The Income Portfolio is primarily invested in
risk factors. securities that the Adviser believes present
relatively low risk. To the extent deemed prudent,
the Adviser will also seek to increase the income
to this portfolio by positioning no more than 15%
of its assets in junk bonds, provided that the
differences in yield appear to be sufficient to
justify the higher risks involved. The market
value of such a security is likely to fluctuate
more than that of an investment grade bond,
especially during periods of economic uncertainty
or when the issuer's ability to pay the interest
or principal might be in doubt. At times when an
issuer's credit-worthiness is not perceived to be
sound, the portfolio's ability to sell the
security or to obtain current pricing information
might also be impaired.
With debt securities, the degree of financial risk
generally increases the lower the security is
rated, and the degree of market risk increases
with the length of time remaining to maturity.
During periods of rising interest rates, the
market prices of all income producing securities
will tend to decline. Conversely, when interest
rates fall, the market prices of such securities
will tend to rise. Thus, there is always a risk of
principal loss or gain associated with this
portfolio. In addition, changes in economic
conditions in general, or changes in an issuer's
financial condition, might impair the ability of
an issuer to timely pay interest and principal,
thus adversely affecting the market price of such
securities.
INCOME & GROWTH The objective of the Income & Growth Portfolio is
PORTFOLIO to provide moderate income with the potential for
Moderate income with the increasing income over time. Growth of capital is
potential for increasing also a primary objective.
income and growing capital.
At least 90% of the assets of this portfolio will
be invested in income producing securities.
Normally, at least 50% of the assets will be
invested in dividend-paying common stocks. The
remaining assets will be invested in preferred
stocks, corporate bonds, convertible bonds,
securities issued by (or guaranteed by) the U.S.
Government or its agencies or instrumentalities,
mortgage-backed securities, or cash and cash
equivalents. See the discussion of investment
grade bonds under "Income Portfolio," above.
Income & Growth The risk factors related to the Income Portfolio
Portfolio risk factors. will also apply to the debt security portion of
this portfolio, and the risk factors related to
the Growth Portfolio will apply to the stock
portion of this portfolio. However, market risk
factors for debt securities and stocks often (but
not always) tend to offset each other.
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<PAGE> 17
GROWTH PORTFOLIO The objective of the Growth Portfolio is to
Long-term growth. provide long-term capital growth. Current income
is incidental to the objective of capital growth.
Normally, at least 90% of the assets of this
portfolio will be invested in common stocks and
securities convertible into common stocks.
Selection of stocks is not limited with regard to
whether the stocks are exchange-listed or
dividend-paying or whether they are issued by
companies of any particular size. The remaining
assets will be held in preferred stocks,
investment grade corporate bonds, U.S. Government
securities, or short term obligations and cash
equivalents.
There may be circumstances where the Adviser deems
it prudent to temporarily invest a larger portion
of the assets in cash or cash equivalents for
defensive purposes or to meet anticipated
redemption requests.
Growth Portfolio Stocks are selected for this portfolio based on
risk factors. their equity characteristics. Securities ratings
are generally not a factor in stock selection.
While common stocks offer greater opportunities
than other securities for long-term total return,
their prices are subject to substantial
fluctuation. Among factors affecting stock prices
in general are economic and financial trends,
expectations about business activity, and
anticipation of changes in corporate earnings.
CORE GROWTH PORTFOLIO The objective of the Core Growth Portfolio is to
Long-term capital provide long-term capital appreciation by
appreciation. investing primarily in equity securities of large,
medium and small companies that PBA believes have
strong earnings growth and long-term capital
appreciation prospects. PBA seeks companies poised
for rapid growth that have a history of
above-average earnings growth, demonstrate the
ability to sustain that growth, and operate in
industries or markets experiencing increased
demand for their products or services.
PBA's investment In managing the Core Growth Portfolio, PBA uses
process. both quantitative and fundamental processes
focusing on quality earnings growth. PBA begins by
creating a universe of rapidly growing companies
having desired quality characteristics. Using
proprietary software and research models that
incorporate attributes of successful growth (such
as positive earnings surprises, upward earnings
estimate revisions, and accelerating sales and
earnings growth), PBA creates a universe of
growing companies. Then, using fundamental
research, PBA evaluates each company's earnings
quality and assesses the sustainability of the
company's current growth trends. Through this
highly disciplined process, PBA seeks to construct
an investment portfolio having strong growth
characteristics.
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<PAGE> 18
Core Growth Portfolio This portfolio's investments in small and medium
risk factors. capitalization companies may experience greater
price volatility than portfolios investing
primarily in larger, more established companies.
Because the universe of companies in which this
portfolio invests will experience stock price
volatility, it is important that investors
maintain a long-term investment perspective. There
can be no assurance that PBA's techniques will be
successful.
SMALL CAP PORTFOLIO The objective of the Small Cap Portfolio is to
Capital growth through provide maximum capital growth by investing
stocks of small and medium primarily in common stocks of small and medium
sized companies. sized companies. Ordinarily, these companies are
not listed on a national securities exchange but
will be traded over the counter.
Under normal market conditions, at least 65% of
this portfolio's assets will be invested in common
stocks of companies with market capitalizations of
less than $1 billion. However, under unusual
market conditions, it may temporarily invest more
than 35% of its assets in larger companies if they
appear to present better prospects for capital
appreciation.
Small Cap Portfolio Investments in this portfolio generally involve a
risk factors. high degree of market and financial risk. Small
and medium sized companies selected for this
portfolio are generally those that are still in
the developing stages of their life cycles and are
able to achieve rapid growth in sales, earnings
and share prices. Investments in these companies
involve greater risk than is customarily
associated with more established companies because
smaller or newer companies often (a) are dependent
on one-person management, (b) have limited product
lines, markets or financial resources, (c) their
securities may have limited marketability, and (d)
the price of their common stock may be subject to
more abrupt or erratic movements than securities
of larger, more established companies or the
market averages.
INTERNATIONAL PORTFOLIO The objective of the International Portfolio is to
Long-term growth provide long-term capital growth by investing
through foreign stocks. primarily in common stocks (and securities
convertible into common stocks) of foreign
companies. This portfolio may also invest in
fixed-income securities of foreign issuers. When
deemed appropriate for temporary defensive
purposes, it may invest in short-term debt
instruments of U.S. or foreign issuers, in U.S.
Government obligations, or in U.S. common stocks.
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<PAGE> 19
As a nonfundamental policy, this portfolio will
not invest more than 20% of its assets in
securities of issuers located in any one foreign
country, except that up to an additional 5% of its
assets may be invested in securities of issuers
located in each of any three of Australia, Canada,
France, Germany, Japan or the United Kingdom.
While there is no restriction limiting the
countries in which the portfolio may invest, it
normally will invest only in countries with
developed securities markets and developed or
developing economies, and for which the Board of
Directors has specifically approved custody
arrangements.
International Portfolio This portfolio provides a means for you to
risk factors. diversify your investments by participating in
companies and economies outside the U.S. However,
as described below, investing in foreign
securities may involve a greater degree of risk
than investing in domestic securities. See the
discussion of risk factors under "Foreign
Securities" on page 21.
GLOBAL CONTRARIAN The objective of the Global Contrarian Portfolio
PORTFOLIO is to provide long-term growth of capital by
Long-term growth. investing in foreign and domestic securities that,
Foreign and domestic in the judgment of the portfolio manager, are
undervalued or out-of-favor undervalued or presently out of favor with other
securities. investors, including securities that are presently
trading below their historic prices, but have
positive prospects for eventual recovery. While
this portfolio will primarily invest in common
stocks (and securities convertible into common
stocks), it may also invest in fixed income
securities that appear to be undervalued or out of
favor. Not more than 20% of the Portfolio's assets
may be invested in fixed income securities rated
below investment grade. Under normal market
conditions, at least 65% of the Portfolio's assets
will be invested in conformity with its investment
objectives.
As a nonfundamental policy, this portfolio will
not invest more than 20% of its assets in
securities of issuers located in any one foreign
country, except that up to an additional 5% of its
assets may be invested in securities of issuers
located in each of any three of Australia, Canada,
France, Germany, Japan or the United Kingdom.
There is no other restriction limiting the
countries in which the portfolio may invest, but
it will only invest in countries for which the
Board of Directors has specifically approved
custody arrangements.
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<PAGE> 20
Global Contrarian A substantial portion of this portfolio (not less
Portfolio risk factors. than 25%) will be invested in foreign securities,
in at least three countries, under normal market
conditions. To that extent, the risk factors
described under "Foreign Securities" will apply.
See page 21. Fixed income securities rated below
investment grade present the higher risk
characteristics described under "Income Portfolio
risk factors" on page 16. In addition,
"contrarian" investing generally involves
substantial risks, particularly in the short term.
Companies or market segments that appear to be
undervalued or are out of favor with investors may
remain so for an extended period of time or may
never recover. Investors should only consider this
portfolio for long-term investments and to the
extent that they are willing to be exposed to a
higher degree of risk than is present with the
other portfolios.
DIVERSIFICATION Each portfolio is fully diversified. No more than
No more than 5% will 5% of the value of the total assets of each
be invested in one company portfolio, as of the time any portfolio security
and 25% in one industry. is purchased, will be invested in the securities
of any one issuer. No more than 25% of the value
of the total assets of each portfolio, as of the
time any portfolio security is purchased, will be
invested in any one industry. For the Money Market
Portfolio, these restrictions do not apply to U.S.
Government securities, and the "industry"
restriction does not apply to financial
institutions or, with respect to the Tax-Free
Income Portfolio, to municipal securities (other
than industrial revenue bonds). Each portfolio
other than the Money Market and Tax-Free Income
Portfolios, to the limited extent permitted by its
investment restrictions and applicable law,
reserves the right to purchase securities of
closed-end investment companies with appropriate
investment restrictions.
CREDIT AND MARKET RISKS All securities are subject, to some degree, to
credit risk and market risk. Credit risk refers to
the ability of an issuer of a debt security to pay
its principal and interest, and to the earnings
stability and overall financial soundness of an
issuer of an equity security. Market risk refers
to the volatility of a security's price in
response to changes in conditions in securities
markets in general and, particularly in the case
of debt securities, changes in the overall level
of interest rates. Higher risk levels are usually
equated to higher potential total return, but
higher risk investments have a greater potential
for loss as well.
Generally, the greatest degree of market and
credit risk can be expected with the International
Portfolio, and the lowest degree of such risks can
be expected with the Money Market Portfolio. A
more detailed summary of risk factors is contained
in the Statement of Additional Information.
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<PAGE> 21
FOREIGN SECURITIES The Income, Income & Growth, Growth, Core Growth
Up to 20% may be and Small Cap Portfolios may each invest up to 20%
invested in other countries. of its assets in the securities of foreign issuers
(including private issuers and foreign governments
or political subdivisions, agencies or
instrumentalities of foreign governments),
American Depository Receipts, and the securities
of United States domiciled issuers that are
denominated in foreign currency. The Money Market
Portfolio may invest up to 50% of its assets in
such securities, provided they are denominated in
U.S. dollars and held in custody in the United
States. The Tax-Free Income Portfolio will not
invest in foreign securities. At least 25% of
Global Contrarian Portfolio assets, and normally
all of International Portfolio assets, will be
invested in foreign securities at all times.
Foreign Securities Investments in foreign securities involve added
risk factors. risk factors. These factors include changes in
currency exchange rates, currency exchange control
regulations, the possibility of seizure or
nationalization of companies, political or
economic instability, imposition of unforeseen
taxes, the possibility of financial information
being difficult to obtain or difficult to
interpret under foreign accounting standards, the
necessity of trading in markets that in relation
to U.S. markets may be more volatile or less
efficient and have available less information
concerning issuers, or the imposition of other
restraints that might adversely affect
investments.
Except for the International and Global Contrarian
Portfolios, foreign investments will not normally
constitute a substantial portion of ONE Fund
assets. However, the Adviser may invest in foreign
securities whenever deemed prudent, particularly
when deemed advantageous to offset market or
economic factors prevailing in the U.S. In
addition, a number of large, multi-national
foreign corporations have a substantial business
presence in the U.S. and their securities are
widely traded in this country.
HEDGING TRANSACTIONS Each portfolio, other than the Money Market
Hedging transactions seek Portfolio, for hedging purposes, may (a) write
to limit portfolio call options traded on a registered national
volatility. securities exchange, if the portfolio owns the
underlying securities, and purchase call options
for the purpose of closing out options it has
written, (b) purchase put options on securities
owned, and sell such options in order to close its
positions in put options, (c) purchase and sell
financial futures contracts and options thereon,
(d) purchase and sell financial index options, and
(e) engage in forward foreign currency contracts,
foreign currency options and foreign currency
futures contracts in connection with the purchase,
sale or ownership of specific securities. However,
no option or futures contract shall be
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<PAGE> 22
purchased or sold if, as a result, more than
one-third of the total assets of a portfolio would
be hedged by options or futures contracts, and no
more than 5% of the total assets, at market value,
of a portfolio may be used for premiums on open
options and initial margin deposits on futures
contracts, and not more than 5% of portfolio's
assets may be invested in foreign currency hedging
transactions. Each type of instrument listed above
is commonly known as a "derivative" instrument and
involves risks even when used solely for hedging
purposes. Hedging transactions and their
associated risks are more fully described in the
Statement of Additional Information.
DIVIDENDS, DISTRIBUTIONS AND TAXES
Each portfolio intends to qualify as a regulated
investment company under Subchapter M of the
Internal Revenue Code. It is ONE Fund's policy to
comply with the provisions of the Code regarding
distributions of net investment income and net
realized capital gains so that ONE Fund will not
be subject to federal income tax on amounts
distributed. Consequently, ONE Fund distributes to
its shareholders each year substantially all of
its net investment income and net realized capital
gains (if any).
ONE Fund shareholders are taxed on distributed
income and capital gains. To the extent that
Tax-Free Income Portfolio dividends are derived
from tax-exempt interest, they are exempt from
federal income tax, but you are still required to
report them as tax-exempt interest income on your
tax return. Shareholders who are not subject to
income tax would not be required to pay tax on
amounts distributed to them. ONE Fund will inform
shareholders of the amount and federal income tax
status of distributed income and capital gains.
Money Market, For the Money Market, Tax-Free Income, and Income
Tax-Free Income, Portfolios, all of the undistributed net income
and Income Portfolio is accrued as daily dividends to shareholders of
dividends are accrued record immediately before each computation of the
daily and paid monthly. net asset value of these portfolios. Dividends
(representing net investment income) will normally
be paid monthly to shareholders of those 3
portfolios.
Dividends for the other Dividends will normally be paid at the end of
portfolios are paid at March, June, September and December to Income &
the end of each quarter. Growth, Growth, Core Growth, Small Cap,
International. and Global Contrarian Portfolio
shareholders. Any net realized capital gains for
all portfolios will be distributed annually.
However, ONE Fund's Board of Directors may declare
such dividends at other intervals.
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<PAGE> 23
ONE FUND MANAGEMENT
The Directors are The Board of Directors is responsible for ONE
elected by the shareholders Fund's overall management and direction. The Board
and are responsible for approves all significant agreements including
overall management. those with the Adviser, the Core Growth
Portfolio's subadviser (PBA), the International
and Global Contrarian Portfolios' subadviser
(SGAM), ONE Fund's principal underwriter (ONESCO),
its custodians (Investors Fiduciary Trust Co. for
the International and Global Contrarian Portfolios
and The Provident Bank for the other portfolios),
and its transfer agent (The Provident Bank). Board
members are elected by the shareholders for
three-year terms. Shareholder meetings are
normally held every 3 years. As a result of ONLI's
ownership of ONE Fund shares, it is a controlling
person of each portfolio of ONE Fund other than
the International Portfolio.
THE ADVISER The Adviser manages the investment and
reinvestment of ONE Fund assets, subject to the
supervision of the Board of Directors.
The Adviser also serves as the investment adviser
to Ohio National Fund, Inc. It has served in both
advisory capacities since May 1, 1996. The
Adviser's predecessor, O.N. Investment Management
Company, was the investment adviser to ONE Fund
since ONE Fund's inception in 1992 and to Ohio
National Fund, Inc. since its inception in 1970.
The Adviser, like its predecessor, uses ONLI's
investment personnel and administrative systems.
ONE Fund's Portfolio The individuals primarily responsible for the
Managers. day-to-day management of ONE Fund's portfolios
from their inception are Joseph Brom, Michael
Boedeker, Stephen Williams, James McCall, and
Jean-Marie Eveillard.
Joseph Brom is president of the Adviser and senior
vice president and chief investment officer of
ONLI. He oversees the management of the Money
Market, Tax-Free Income, Income, Income & Growth,
Growth and Small Cap Portfolios. He is a chartered
financial analyst with a bachelor's degree in
economics and finance and a law degree from the
University of Wisconsin. He has been an investment
officer of ONLI since 1975 and previously had 15
years of experience in securities management.
Michael Boedeker, a vice president of the Adviser,
manages the Money Market, Tax-Free Income, and
Income Portfolios. He is a chartered financial
analyst with a bachelor's degree in business and a
master of business administration degree in
finance from Indiana
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<PAGE> 24
University. He has been vice president of fixed
income securities for ONLI since 1989 and
previously had over 20 years of experience in
fixed income securities and mutual fund
management, most recently as senior vice
president and chief investment office of Mutual
Security Life Insurance Co. for more than 5
years.
Stephen Williams, a vice president of the
Adviser, manages the Income & Growth, Growth,
and Small Cap Portfolios. He has a bachelor's
degree in finance from the University of
Cincinnati. He has been an investment analyst
and director of securities for ONLI since 1977.
James McCall manages the Core Growth Portfolio.
He has been a portfolio manager with PBA since
1994. For nine years prior to that he was a
portfolio manager with First National Bank of
Maryland. Mr. McCall is a chartered financial
analyst. He has a bachelor's degree from the
Philadelphia College of Pharmacy & Science and
masters degrees in pharmacy and business
administration from the University of Utah. He
spent ten years as a pharmacist before entering
the investment field.
Jean-Marie Eveillard, president of SGAM, manages
the International and Global Contrarian
Portfolios. He is a graduate of the Ecole des
Hautes Etudes Commerciales in Paris. He has been
president of SoGen International Fund since 1984
and for 21 years prior to that had been a
securities analyst and mutual fund manager of
Societe Generale and SoGen International Fund.
THE ADVISER'S The Adviser's basic mutual fund investment
INVESTMENT STYLE philosophy is to seek value at reasonable
prices. This philosophy is implemented through
both macroeconomic and microeconomic analyses
using both quantitative and qualitative
measurements.
The Adviser's value investing The macroeconomic (top-down) analysis generates
style uses both a top-down and a forecast based on economic, political and
a bottom-up approach. demographic trends. This macro view identifies
those business sectors and industries most
likely to benefit from expected conditions or
events. Once these sectors and industries are
determined, a universe of potential investments
is selected. The macroeconomic analysis also
tests the reasonableness of current securities
valuations in anticipation of short-term and
intermediate-term capital market movements.
The microeconomic (bottom-up) analysis of the
selected universe of securities is carried out
jointly by the Adviser's securities analysts and
portfolio managers.
24
<PAGE> 25
Stock selection is based Stock selection is determined primarily through
on fundamental research fundamental research. Through both proprietary
and technical indicators. and nonproprietary research capabilities, the
Adviser anticipates a company's future earnings
potential. Then, certain quantitative factors
are reviewed to assure that the stock's current
price is consistent with its historical range
and earnings potential. These and other
technical indicators are reviewed to gain an
understanding of how investors perceive the
stock relative to its industry and the overall
market.
Bond selection is based on Bond selection is determined primarily through
credit analysis and interest credit analysis. Initially, credit analysis
rate forecasts. evaluates the probability that the issuer will
meet its scheduled interest and principal
payments. This requires the Adviser to conduct
industry-, company- and indenture-specific
analyses. A second dimension of bond selection
is to anticipate bond price movements which are
caused by changes in prevailing interest rates.
The Adviser uses The value investing approach is used by the
sell disciplines. Adviser both to determine securities to be
acquired and those to be sold.
THE ADVISER'S ONE Fund pays the Adviser a quarterly management
COMPENSATION fee as compensation for its investment advisory
services. The fee is based on the average daily
net asset value of each portfolio's assets.
Presently the fee, as an annualized percentage
of net assets, after any applicable voluntary
fee waiver, is 0.15% for the Money Market
Portfolio, 0.45% for the Tax-Free Income
Portfolio, 0.35% for the Income, Income &
Growth, and Growth Portfolios, 0.95% for the
Core Growth Portfolio, 0.50% for the Small Cap
Portfolio, and 0.90% for the International and
Global Contrarian Portfolios.
The Adviser is now waiving 0.15% of the fees to
which it is entitled from the Money Market,
Tax-Free Income, Income, Income & Growth, Growth
and Small Cap Portfolios, but it may cease those
waivers, in whole or in part, without prior
notice.
25
<PAGE> 26
PBA PBA manages the assets of the Core Growth
Sub-adviser for the Portfolio under the Adviser's supervision. PBA
Core Growth Portfolio. is located at 1255 Drummer's Lane in Wayne,
Pennsylvania. Its controlling shareholder is
United Asset Management Corp. located in Boston,
Massachusetts. With its predecessors, PBA has
been an investment adviser since 1982 and it
manages the PBHG mutual funds. The Adviser pays
PBA, for its services as sub-adviser, a fee at
an annual rate of 0.75% of the average daily net
asset value of the first $50 million of Core
Growth Portfolio assets, 0.70% of the next $100
million and 0.50% of Portfolio assets in excess
of $150 million.
SGAM SGAM manages the assets of the International and
Sub-adviser for the Global Contrarian Portfolios under the Adviser's
International and Global supervision. SGAM is located at 1221 Avenue of
Contrarian Portfolios. the Americas in New York City and is owned by
Societe Generale, one of the largest banks in
Europe. SGAM and its predecessors have been
investment advisers to international mutual
funds since 1970. The Adviser pays SGAM, for its
services as sub-adviser, fees at an annual rate
of 0.75% of the average daily net asset value of
the International and Global Contrarian
Portfolios.
CUSTODY OF ASSETS The Provident Bank, One East Fourth Street,
Cincinnati, Ohio 45202, is the custodian for all
ONE Fund assets except those of the
International and Global Contrarian Portfolios.
The assets of those two portfolios are in the
custody of Investors Fiduciary Trust Company,
127 West Tenth Street, Kansas City, Missouri
64105. For assets held outside the United
States, Investors Fiduciary Trust Company enters
into subcustodial agreements, subject to
approval by the Board of Directors. The
Provident Bank also serves as ONE Fund's
transfer agent and its agent for bookkeeping,
dividend disbursing and certain shareholder
services.
BUYING SHARES
ONE Fund's shares are continuously offered
through its principal underwriter, ONESCO, and
through other securities dealers that execute a
distribution agreement with ONESCO.
Investments can be The minimum initial investment is $500.
as small as $50. Subsequent investments must be at least $50.
These minimums may be waived when the shares are
purchased through plans providing for regular
periodic investments. ONE Fund and ONESCO
reserve the right to refuse any purchase order.
26
<PAGE> 27
PURCHASE PRICE The net asset value of the shares of each
ONE Fund shares are portfolio is determined at 4:00 p.m. Eastern
valued each day the time on each day the New York Stock Exchange is
NYSE is open. open for unrestricted trading. The net asset
value of each portfolio is computed by dividing
the value of the securities in that portfolio
plus any cash or other assets less all
liabilities of the portfolio, by the number of
capital shares outstanding for that portfolio.
Securities held by the Money Market Portfolio
are valued at amortized cost. Securities held by
the other portfolios are valued at current
market value.
ONE Fund's shares are offered at the public
offering price. This is the net asset value per
share plus a sales charge, if applicable. The
sales charge is a variable percentage of the
offering price depending upon the amount of the
sale. The Money Market Portfolio seeks to
maintain a constant price of $1 per share.
SALES CHARGES THE SALES CHARGE DOES NOT APPLY TO THE MONEY
MARKET PORTFOLIO.
<TABLE>
<CAPTION>
TAX-FREE INCOME AND
INCOME PORTFOLIOS OTHER PORTFOLIOS
------------------------------------- ----------------------------------------
SALES CHARGE AS A % OF: SALES CHARGE AS A % OF:
AMOUNT OF OFFERING NET AMOUNT DEALER OFFERING NET AMOUNT DEALER
PURCHASE PRICE INVESTED CONCESSION PRICE INVESTED CONCESSION
- -------- ----- -------- ---------- ----- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
Less than $25,000 3.00% 3.09% 2.80% 5.00% 5.26% 4.70%
$25,000 - $49,999 3.00% 3.09% 2.80% 4.50% 4.71% 4.25%
$50,000 - $99,999 2.50% 2.56% 2.35% 4.00% 4.17% 3.80%
$100,000 - $249,999 2.50% 2.56% 2.35% 3.50% 3.63% 3.35%
$250,000 - $499,999 2.00% 2.04% 1.90% 2.50% 2.56% 2.40%
$500,000 - $999,999 1.50% 1.52% 1.45% 2.00% 2.04% 1.95%
$1,000,000 and over None* None* None** None* None* None**
</TABLE>
*While no initial sales charge is imposed on investments of $1 million or more,
a contingent deferred sales charge of 0.5% of the amount redeemed (up to 0.5%
of the amount invested with no initial sales charge) is imposed within 2 years
of such a purchase. This charge does not apply to amounts held continuously in
the Money Market Portfolio. See "Redeeming Shares" on page 32.
**ONESCO will pay a dealer concession of 0.50% to securities dealers who
initiate and are responsible for any purchase of $1 million or more.
ONESCO and other qualified dealers are paid a
continuing shareholder service fee not to exceed
0.30% (0.17% for the Money Market Portfolio)
annually to compensate them for providing
certain services to shareholders and to promote
growth of ONE Fund's assets. These services
include submitting purchase and redemption
transactions, establishing shareholder accounts
and providing information and assistance
regarding ONE Fund. The proceeds of ONE Fund's
12b-1 Distribution Plan are used only to pay
these shareholder service fees.
27
<PAGE> 28
REDUCING THE SALES CHARGE
For purposes of Right of Accumulation, Combined
Purchases and Group Purchases, "holdings" means
the current value of your shares at the full
offering price. Your registered representative
can help you to take advantage of any of the
following methods of reducing the sales charge
if you qualify. These rights may be requested on
your ONE Fund account application.
CONCURRENT PURCHASES You may qualify for a reduced sales charge by
... combining your purchases combining concurrent products underwritten by
of ONE Fund and contracts ONESCO or its affiliates (the Ohio National
issued by its affiliates. companies). A concurrent purchase occurs
whenever ONE Fund shares are purchased at any
time from the day any Ohio National annuity or
insurance policy is applied for until 5 days
after that contract is delivered. The amount of
the annual (or single) premium of the Ohio
National annuity or insurance policy will then
be added to the amount of your concurrent ONE
Fund purchase to determine the percentage of
sales charge to apply to your ONE Fund purchase.
LETTER OF INTENT You may reduce sales charges on all investments
...committing to invest a by meeting the terms of a nonbinding letter of
certain amount over 13 months. your intent to invest a certain amount within a
13-month period. Shares representing up to 5% of
the intended amount will be held in escrow to
cover additional sales charges that may be due
if your total investments, net of redemptions,
over the stated period are insufficient to
qualify for a sales charge reduction. You have
up to 90 days after investing to sign a letter
of intent to reduce the sales charges on your
investments including the investments made in
the 90 days before the letter. Shares you
currently own will apply toward meeting your
letter of intent.
RIGHT OF ACCUMULATION Your sales charge may also be reduced by taking
...adding up all your into account your existing holdings in ONE Fund.
ONE Fund holdings. Holdings will be valued at the greater of their
full offering price at the time a new purchase
is made under a right of accumulation or the sum
of all your purchases (including reinvested
dividends) less any redemptions.
COMBINED PURCHASES Your sales charge may be reduced by aggregating
...with those of your holdings for the account(s) of you, your spouse,
family members. your children and grandchildren. This may
include purchases through employee benefit plans
such as an IRA, an individual-type 403(b) plan
or a single-participant Keogh plan, or by a
business solely controlled by these individuals
(for example, they own the entire business) or
by a trust (or other fiduciary arrangement)
solely for the benefit of these individuals.
28
<PAGE> 29
GROUP PURCHASES A member of a qualified group may purchase ONE
...by members of a Fund shares at the reduced sales charge
qualified group. applicable to the aggregate holdings of the
group as a whole. (For example, if members of
the group had previously purchased $100,000 of
ONE Fund shares and still held those shares, and
now were purchasing an additional $25,000, the
sales charge would be 3.50%, or 2.50% for the
Tax-Free Income and Income Portfolios.)
A "qualified group" is one that (a) has been in
existence more than 6 months (unless it is a
tax-qualified plan), (b) has a purpose other
than acquiring mutual fund shares, and (c)
satisfies uniform criteria enabling ONESCO to
realize economies of scale in its costs of
distributing shares. A qualified group must have
at least 6 members, must be available to arrange
for group meetings between representatives of
dealers who sell ONE Fund shares and the
members, must agree to include sales literature
and other materials relating to ONE Fund in its
publications and mailings to members at reduced
or no cost to ONE Fund or to dealers that sell
its shares, and must seek to arrange for payroll
deduction or other bulk transmission of ONE Fund
purchases.
GROUP LETTER OF INTENT Qualified groups may reduce sales charges on all
...by qualified groups investments by meeting the terms of a nonbinding
committing to invest a certain letter of the group's intention to invest a
amount over 24 months. certain amount over a 24-month period. Shares
representing 5% of the investments of each group
member during that period will be held in escrow
to cover additional sales charges. The group has
up to 90 days after investing to enter into the
group letter of intent.
PURCHASES WITHOUT Within 60 days preceding their purchase of ONE
A SALES CHARGE Fund shares, investors who have redeemed an
...by redeeming other investment in another mutual fund that imposed a
shares that had a sales charge. sales charge and which has investment objectives
similar to any portfolio(s) of ONE Fund, may
purchase ONE Fund shares, up to the amount
redeemed, without paying any sales charge.
Officers, directors, employees, retirees, agents
and registered representatives of the Ohio
National companies, any employee benefit plan
with respect to them, and their spouses,
children and grandchildren, may purchase ONE
Fund shares without a sales charge.
29
<PAGE> 30
FLEXIBILITY FEATURES
OPEN ACCOUNTS Your account is opened in accordance with your
You will receive statements registration instructions. It offers many
every quarter. features allowing you to change your investment
program at any time as circumstances change.
Transactions in your account, such as additional
investments and dividend reinvestments, will be
reflected on regular confirmation statements
from The Provident Bank. Any of the following
features may be established through your ONE
Fund account application or by contacting your
registered representative or ONE Fund.
AUTOMATIC INVESTING You may make regular monthly or quarterly
...from your bank account investments through automatic charges to your
or pay check. bank account or, if your employer approves, from
your pay check. Once a plan is established, your
account will normally be charged on the 1st or
15th day of the month, as you choose.
AUTOMATIC REINVESTING Unless you indicate otherwise in your account
...of income and capital gains. application, dividends and capital gains
distributions are reinvested in additional
shares at no sales charge. You may elect to have
dividends and/or capital gains distributions
paid to you by check.
CROSS INVESTING You may elect to have your dividends or
...of income and dividends and capital gains distributions from
capital gains into one portfolio invested in another portfolio. To
other portfolios. use this service, the value of your account in
the paying portfolio must be at least $5,000.
TRANSFERRING You may transfer your account balances among the
...among the various portfolios in amounts of at least $50.
9 portfolios. There is currently no charge for transfers. The
transfer privilege is available in any state
where it may legally be made. ONE Fund reserves
the right to limit the number, frequency, method
or amount of transfers or to impose charges on
transfers. Transfers from any portfolio on any
one day may be limited to 1% of the previous
day's total net assets of that portfolio if ONE
Fund or the Adviser, in its or their discretion,
believes that the portfolio might otherwise be
damaged.
30
<PAGE> 31
TELEPHONE TRANSACTIONS If you have previously authorized it in writing,
You must preauthorize you or your registered representative may do the
in writing. following transactions by telephoning ONE Fund
at 1-800-578-8078:
-- Make transfers among the portfolios as
provided above under "Transferring."
-- Change the amount of automatic investments,
or discontinue them as provided above under
"Automatic Investing."
-- Change your election for payment of
dividends and capital gains as provided
above under "Automatic Reinvesting" and
"Cross Investing."
-- Redeem your shares as provided under "By
Telephone" on page 33. Initiate, change or
discontinue automatic redemptions of your
shares as provided under "Automatically" on
page 33.
-- Change your address on our records.
Telephone transaction requests received after
4:00 p.m. Eastern time will be made at the net
asset values computed at the close of the
following business day. ONE Fund and its
transfer agent will honor telephone transaction
instructions from anyone giving such
instructions who is able to provide the personal
identifying information requested, but we
reserve the right to refuse to honor any such
request if that seems prudent. ONE Fund will use
reasonable procedures to confirm that telephone
instructions are genuine. If we do not, ONE Fund
may be liable for any losses due to unauthorized
or fraudulent instructions. ONE Fund will send
you a written confirmation of each telephone
transaction. During periods of drastic market
fluctuations or technical difficulties, it might
be difficult to execute telephone transactions.
In such situations, you may need to send written
instructions to ONE Fund. Telephone transaction
privileges may be modified or discontinued at
any time.
AUTOMATIC TRANSFERS You may automatically transfer shares (in
... among the 9 portfolios. increments of $50 or more) among any of the
portfolios. This will occur on or about the 10th
day of each month. Automatic transfers may be
used, for example, to implement a
"dollar-cost-averaging" investment strategy.
SALES CHARGE ON No sales charge applies for transfers to a
CERTAIN TRANSFERS portfolio having a sales charge equal to or less
than that of the portfolio from which the
transfer is made. For transfers from a portfolio
with a lower sales charge to one with a higher
sales charge, an additional charge is made equal
to the difference between the sales charge for
the portfolio being purchased and any sales
charges that previously applied to the account
balance being transferred.
31
<PAGE> 32
CHECK WRITING You may write checks against the balance of your
...for the Money Market Money Market Portfolio account. Checks will be
Portfolio. provided free, upon request. You may not write a
check for less than $100. Checks will be written
through The Provident Bank. Provident will
charge $15 for any check that is not honored
because of an insufficient Money Market
Portfolio account balance. Checks may not be
written against account balances held for less
than 15 days. ONE Fund reserves the right to
amend, suspend or discontinue check-writing
privileges at any time without prior notice.
REDEEMING SHARES
Payment is normally You may redeem your shares at any time by
sent within contacting ONE Fund or the broker-dealer through
3 business days. whom you purchased your shares. If you are no
longer serviced by an authorized registered
representative, you may contact ONESCO's
principal office by calling 1-800-578-8078, or
by writing to P. O. Box 371, Cincinnati, Ohio
45201. The price you receive for redeemed shares
is the next net asset value after your request
is received. Payment is normally sent within 3
business days. However, the proceeds of
redemption will not be sent until after your
check for your investment has cleared (which may
take up to 15 days). (Note also, the contingent
deferred sales charge of 0.5% on certain
redemptions, within 2 years of purchase with no
initial sales charge, of investments of $1
million or more as described under "Sales
Charges" on page 27.)
REQUEST IN WRITING When making a written request for redemption,
specify the name of the portfolio, the number of
shares or dollar amount to be redeemed (if less
than your entire account), your name and
address, account number and your signature. In
addition, (a) for any redemption over $50,000,
or (b) for redemptions of $50,000 or less where
the check is to be paid or mailed to someone
other than you at your address of record, a
signature guarantee is required. You may obtain
a signature guarantee from a bank or savings &
loan that is federally insured or from a member
firm of the National Association of Securities
Dealers, Inc., or any other eligible guarantor
institution. Additional documentation may be
required for redemption of shares held in
corporate, partnership or fiduciary accounts.
32
<PAGE> 33
BY TELEPHONE As provided under "Telephone Transactions" on
page 31, you or your registered representative
may call ONE Fund to redeem up to $50,000. You
may pre-authorize that the proceeds be (a) in a
check, payable to you and mailed to your address
of record, or (b) by wire to your bank account.
Checks will normally be mailed 3 business days,
and no more than 7 days, after your request.
Wire transfers to your bank account will
normally be made the next business day. Wire
proceeds may not be for less than $1,000. The
Provident Bank will deduct a fee (presently $10)
from the proceeds of each wire redemption.
AUTOMATICALLY If your account is $5,000 or more, you may
establish an automatic withdrawal plan. More
than one plan may be set up if your account is
at least $10,000. Under each plan, you may make
automatic withdrawals for $50 or more each at
specified intervals. Automatic withdrawals are
made on or about the 10th day of each designated
month and, if withdrawals are to be made
semimonthly, also on or about the 25th day of
each month. Additional purchases (other than to
the Money Market Portfolio) may be inadvisable,
when an automatic withdrawal plan is in effect,
because of sales charges and possible tax
liabilities. If, due to your redemptions, your
account balance is less than $300 (or a larger
amount specified by the Board of Directors), ONE
Fund may choose to close your account by
redeeming your shares and sending you the
proceeds. ONE Fund will give you at least 30
days' written notice before closing your
account, and you may purchase additional ONE
Fund shares to avoid the closing.
FUND PERFORMANCE
From time to time, the current yield, average
annual total return and cumulative total returns
for the portfolios will be advertised. The
results might be compared to other similar
mutual funds or unmanaged indices.
For the Money Market Portfolio, yield refers to
the income generated by an investment in the
portfolio over a recent 7-day period. This
income is then "annualized" by assuming that the
same amount of income is generated over a
52-week period. "Effective" yield is calculated
similarly but, when annualized, the income
earned by an investment in the portfolio is
assumed to be reinvested. The effective yield
will be slightly higher than the yield because
of the compounding effect of this assumed
reinvestment. For the other portfolios, yield is
calculated by dividing a portfolio's annualized
net investment income per share during a recent
30-day period by the public offering price per
share (including the maximum sales charge) on
the last day of that period.
33
<PAGE> 34
Average annual total return is based on a
hypothetical $1,000 investment, reflecting the
reinvestment of all dividends and distributions
and the impact of the maximum sales charge at
the beginning of each 1-, 5- and 10- year period
shown. Cumulative total return reflects the
aggregate performance of a portfolio, expressed
as a dollar amount change, during the period.
ALL PERFORMANCE QUOTATIONS ARE BASED ON
HISTORICAL INVESTMENT PERFORMANCE AND ARE NOT
INTENDED TO INDICATE FUTURE PERFORMANCE.
34
<PAGE> 35
ONE FUND, INC.
One Financial Way
Cincinnati, Ohio 45242
Telephone 1-800-578-8078
STATEMENT OF ADDITIONAL INFORMATION
NOVEMBER 1, 1996
This Statement of Additional Information is not a prospectus. It should be read
in conjunction with the prospectus of ONE Fund, Inc. ("ONE Fund") as amended
November 1, 1996.
To obtain a free copy of ONE Fund's prospectus, call or write ONE Fund at the
toll-free telephone number or the address shown above.
<TABLE>
<CAPTION>
Page Table of Contents
- ---- -----------------
<S> <C>
3 ONE Fund
3 ONE Fund Performance
Current Yield of Money Market Portfolio
Current Yield of Tax-Free Income, Income and Income & Growth Portfolios
Total Return
5 Portfolio Turnover
7 Investment Restrictions
(Fundamental)
(Nonfundamental)
10 Investment Policies
Money Market Instruments
Repurchase Agreements
Reverse Repurchase Agreements
Hedging Transactions
Covered Call Options and Put Options
Risk Factors with Options
Futures Contracts
Options on Futures Contracts and Financial Indexes
Risk Factors with Futures, Options on Futures and Options on Indexes
Risk Factors with Foreign Investments
Foreign Currency Hedging Transactions
Risk Factors with High-Yield, High-Risk Securities
17 Management of ONE Fund
Directors and Officers
Compensation of Directors
Shareholders' Meetings
Controlling Persons and Principal Shareholders
Investment Advisory and Other Services
22 Brokerage Allocation
</TABLE>
<PAGE> 36
<TABLE>
<S> <C>
23 Purchase and Redemption of Shares
Reducing the Sales Charge
25 Tax Status
26 Underwriters
26 Experts
26 Legal Counsel
27 Financial Statements
48 Appendix
Debt Security Ratings
</TABLE>
2
<PAGE> 37
ONE FUND
ONE Fund is an open-end diversified management investment company which
presently consists of 9 separate portfolios - Money Market Portfolio, Tax-Free
Income Portfolio, Income Portfolio, Income & Growth Portfolio, Growth Portfolio,
Core Growth, Small Cap Portfolio, International Portfolio and Global Contrarian
Portfolio. The investments held by each portfolio are maintained separately from
those held by the other portfolios. ONE Fund was incorporated in Maryland on
April 24, 1992. The Money Market, Income, Income & Growth, and Growth Portfolios
were first offered in August 1992, the International Portfolio in May 1993, the
Tax-Free Income, Small Cap and Global Contrarian Portfolios in November 1994,
and the Core Growth Portfolio in November 1996.
The investment and reinvestment of ONE Fund assets other than International and
Global Contrarian Portfolio assets is directed by ONE Fund's investment adviser,
Ohio National Investments, Inc. (the "Adviser"), a wholly-owned subsidiary of
The Ohio National Life Insurance Company ("ONLI"). The Adviser is also the
investment adviser to Ohio National Fund, Inc. ("ONF"), a mutual fund formed by
ONLI to support variable benefits under variable annuities and variable life
insurance policies written by ONLI and its subsidiary, Ohio National Life
Assurance Corporation. The principal business address of all these Ohio National
companies is One Financial Way, Cincinnati, Ohio 45242. The investment and
reinvestment of Core Growth Portfolio assets is managed by Pilgrim Baxter &
Associates, Ltd. ("PBA") as sub-adviser. The principal business address of PBA
is 1255 Drummers Lane, Wayne, Pennsylvania 19087. The investment and
reinvestmeent of International and Global Contrarian Portfolio assets is managed
by Societe Generale Asset Management Corp. ("SGAM") as sub-adviser. The
principal business address of SGAM is 1221 Avenue of the Americas, New York, New
York 10020.
The shares of each portfolio, when issued, will be fully paid and
non-assessable, have no preemptive, conversion, cumulative dividend or similar
rights, and are freely transferable. ONE Fund shares do not have cumulative
voting rights, which means the holders of more than half of the ONE Fund shares
voting for election of directors can elect all of the directors if they so
choose. In such event, the holders of the remaining shares would not be able to
elect any directors.
ONE FUND PERFORMANCE
ONE Fund may distribute sales literature using graphs, charts, tables or
examples comparing the performance of its portfolios to the Consumer Price Index
or to established market indices including, but not limited to, the Dow Jones
Industrial Average, the Standard & Poor's 500 Index, IBC's Money Fund Reports,
one or more of Lehman Brothers Bond Indices, Value Line Composite Index, New
York Stock Exchange Composite Index, Russell 2000 Index, Morgan Stanley Europe
Australia and Far East Index, Morgan Stanley World Index, American Stock
Exchange Index, National Association of Securities Dealers Automated Quotations
Composite Index, Investors Business Daily 6000 Index, or other mutual funds
having investment objectives similar to the portfolio being compared. These
comparisons may include graphs, charts, tables or examples. The average total
return and cumulative total returns for each portfolio may also be advertised.
ONE Fund may also advertise the performance rankings assigned to certain
portfolios or their subadvisers by various statistical services, including
Morningstar, Inc. and Lipper Analytical Services, Inc., or as they appear in
various publications including The Wall Street Journal, Investors Business
Daily, The New York Times, Barron's, Forbes, Fortune, Business Week, Financial
Services Week, Financial World, Kiplinger's Personal Finance and Money Magazine.
The prospectus sets forth in tabular form, under the caption "Financial
Highlights" certain information concerning ONE Fund and its individual
portfolios. The following discussion describes
3
<PAGE> 38
the methods of calculating current yields and total return, and states ONE
Fund's policy with respect to each portfolio's turnover rate.
CURRENT YIELD OF MONEY MARKET PORTFOLIO
Current yield quotations for the Money Market Portfolio are based on that
portfolio's net investment income for a seven-day period and exclude any
realized or unrealized gains or losses on portfolio securities. Current yield is
computed by determining the net change (exclusive of realized gains and losses
from the sale of securities and unrealized appreciation and depreciation) in the
value of a hypothetical account having a balance of one share at the beginning
of such seven-day period, dividing such net change in account value by the value
of the account at the beginning of the period, and annualizing this quotient on
a 365-day basis. The net change in account value reflects the value of any
additional shares (or fraction thereof) purchased with dividends from the
original share in the account during the seven-day period, any dividends
declared on such original share and any such additional shares during the
period, and expenses accrued during the period. ONE Fund may also disclose the
effective yield of the Money Market Portfolio for a seven-day period for which
the current annualized yield is computed by expressing the unannualized return
on a compounded, annualized basis.
CURRENT YIELD OF TAX-FREE INCOME, INCOME, AND INCOME & GROWTH PORTFOLIOS
Current yield for these three portfolios is calculated by dividing the net
investment income per share earned during a recent 30-day period by the
portfolio's maximum offering price on the last day of the period, and
annualizing the result (assuming compounding of interest) in order to arrive at
an annual percentage rate. In some instances, it may be necessary to use an
estimate of the expected dividends and expenses. When estimates are used to
calculate yields, actual dividends and expenses for that period may be different
because the composition of the portfolio may change, resulting in a change in
actual yield. When yield is used in sales literature for these portfolios, their
total return will also be shown.
TOTAL RETURN
Total returns quoted in advertising reflect all aspects of a portfolio's
investment return, including the effects of reinvesting dividends and capital
gain distributions as well as changes in the portfolio's net asset value per
share over the period shown. Average annual returns are calculated by
determining the growth or decline in value of a hypothetical historical
investment in a portfolio over a stated period, and then calculating the annual
compounded percentage rate that would have produced the same result had the rate
of growth or decline been constant over that period. While average annual
returns are a convenient means of comparing investment alternatives, no
portfolio will experience a constant rate of growth or decline over time.
The average annual compounded rate of return for a portfolio over a given period
is found by equating the initial amount invested to the ending redeemable value
using the following formula:
P(1 + T)n = ERV
where: P = a hypothetical initial payment of $1,000,
T = the average annual total return,
n = the number of years, and
ERV= the ending redeemable value of a hypothetical $1,000
beginning-of-period payment at the end of the period (or
fractional portion thereof).
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<PAGE> 39
The average annual and aggregate total return rates for each of the portfolios
from its inception (assuming payment of the maximum applicable sales charge) and
for the year ended on June 30, 1996, are as follows:
<TABLE>
<CAPTION>
Avg. Annual Aggregate
One From From Inception
Year Inception Inception Date
---- ----------- --------- ---------
<S> <C> <C> <C> <C>
Money Market 5.18% 4.13% 16.93% 8/18/92
Tax-Free Income 6.59% 10.19% 13.56% 11/01/94
Income 4.61% 5.50% 19.33% 8/18/92
Income & Growth 14.50% 12.01% 47.30% 8/18/92
Growth 22.22% 16.27% 70.22% 8/18/92
Core Growth N/A N/A N/A 11/01/96
Small Cap 24.10% 19.86% 28.35% 11/01/94
International 18.65% 19.54% 67.13% 4/30/93
Global Contrarian 17.84% 12.33% 15.26% 11/01/94
</TABLE>
In addition to total return rates, advertising may reflect cumulative total
returns that simply reflect the change in value of an investment in a portfolio
over a period. This may be expressed as either a percentage change, from the
beginning to the end of the period, or the end-of-period dollar value of an
initial hypothetical investment. The cumulative total returns for each of the
portfolios from its inception and for the year ended on June 30, 1996 (assuming
a hypothetical initial investment of $1,000 and payment of the maximum
applicable sales charge) were as follows:
<TABLE>
<CAPTION>
One From Inception
Year Inception Date
---- --------- ----------
<S> <C> <C> <C>
Money Market $1,052 $1,169 8/18/92
Tax-Free Income $1,034 $1,136 11/01/94
Income $1,015 $1,193 8/18/92
Income & Growth $1,088 $1,473 8/18/92
Growth $1,161 $1,702 8/18/92
Core Growth N/A N/A 11/01/96
Small Cap $1,179 $1,280 11/01/94
International $1,127 $1,671 4/30/93
Global Contrarian $1,119 $1,153 11/01/94
</TABLE>
PORTFOLIO TURNOVER
Each portfolio has a different expected rate of portfolio turnover. However, the
rate of portfolio turnover will not be a limiting factor when the management of
ONE Fund deems it appropriate to purchase or sell securities for a portfolio,
except in the following circumstances. ONE Fund intends to comply with the
various requirements of the Internal Revenue Code so as to qualify as a
"regulated investment company" thereunder. Among such requirements is a
limitation of less than 30% of the amount of gross income which each portfolio
may derive from gains on the sale or other disposition of securities held for
less than three months. Accordingly, the ability of any portfolio to effect
certain portfolio transactions at a given time may be limited. ONE Fund's policy
with respect to each portfolio is as follows:
Money Market Portfolio - Since the assets of the Money Market Portfolio
consist of short-term instruments, replacement of portfolio securities
will occur frequently. However, since purchases are generally effected
with dealers or issuers on a net basis, it is not expected that the Money
Market Portfolio will incur significant brokerage commissions.
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<PAGE> 40
Tax-Free Income Portfolio - Transactions in the securities of this
portfolio may be made without regard to the length of time particular
investments have been held if the Adviser believes that such transactions
will help achieve the overall objectives of the portfolio. Portfolio
securities may or may not be held to maturity. The rate of portfolio
turnover will vary from time to time, but is not expected to exceed 75%
annually. It was 8% for the last fiscal year.
Income Portfolio - The Income Portfolio will engage in transactions when
the Adviser believes that they will help to achieve the overall objectives
of this portfolio. Portfolio securities may or may not be held to
maturity. The rate of portfolio turnover will vary from time to time but
is not expected to exceed 50% annually. It was 9% for the last fiscal
year.
Income & Growth Portfolio - The rate of portfolio turnover will vary from
time to time but is not expected to exceed 50% annually. It was 7% for the
last fiscal year.
Growth Portfolio - Although this portfolio will not normally purchase
securities with the intention of obtaining short-term capital
appreciation, purchases and sales will be made whenever deemed prudent and
consistent with the investment objectives of the portfolio. During periods
of relatively stable market and economic conditions, it is anticipated
that the annual portfolio turnover rate of the Growth Portfolio is not
expected to exceed 75% annually. During periods when changing market or
economic conditions are foreseen, shifts in portfolio emphasis may cause
the rate of portfolio turnover to increase. The rate was 22% for the last
fiscal year.
Core Growth Portfolio - Although this portfolio will not normally engage
in short-term trading, turnover will tend to rise during periods of
economic turbulence. Under normal market conditions, the annual portfolio
turnover rate is not expected to exceed 100%.
Small Cap Portfolio - While this portfolio purchases and holds securities
with the goal of meeting its investment objectives, portfolio changes are
made whenever the Adviser believes they are advisable, usually without
reference to the length of time a security has been held. The engagement
in a number of short-term transactions may result in relatively high
portfolio turnover rates, but the rate is not normally expected to exceed
150%. It was 34% for the last fiscal year.
International Portfolio - Although this portfolio will not normally engage
in short-term trading, purchases and sales of securities will be made
whenever deemed appropriate to achieve the portfolio's objective of
long-term capital growth. The rate of portfolio turnover will not be a
limiting factor when portfolio changes are deemed appropriate to achieve
this portfolio's stated objective. Under normal circumstances, the
portfolio turnover rate for this portfolio is not expected to exceed 75%
annually. It was 20% for the last fiscal year.
Global Contrarian Portfolio - Because of the long-term growth objective
and the purchase of under-valued and out-of-favor securities, this
portfolio will generally tend to hold portfolio securities for a
relatively longer time with the expectation of eventual price
appreciation. As a result, the portfolio turnover rate is not expected to
exceed 50% annually. However, it could be substantially higher at times
due to repositioning of the portfolio. It was 26% for the last fiscal
year.
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<PAGE> 41
INVESTMENT RESTRICTIONS
The prospectus lists the most significant investment restrictions to which ONE
Fund is subject. (See "About ONE Fund" in the prospectus.) A complete list of
ONE Fund's investment restrictions is shown below. The first nine investment
restrictions are fundamental policies that may not be changed without the
affirmative vote of the majority of the outstanding voting securities of ONE
Fund or a particular portfolio, as appropriate. A "majority vote" means the vote
of the lesser of (i) 67% of the shares represented at a meeting at which more
than 50% of the outstanding shares are represented or (ii) more than 50% of the
outstanding voting securities. With respect to the submission of a change in an
investment policy to the holders of outstanding voting securities of a
particular portfolio, such matter shall be deemed to have been effectively acted
upon with respect to that portfolio if a majority of the outstanding voting
securities of the portfolio vote for the approval of such matter,
notwithstanding (1) that the matter has not been approved by the holders of a
majority of the outstanding voting securities of any other portfolio affected by
the matter, and (2) that the matter has not been approved by the vote of a
majority of the outstanding voting securities of ONE Fund. Investment
restrictions 10 and following are nonfundamental. They may be changed by the
Board of Directors without shareholder approval.
ONE Fund may not issue senior securities, except to the extent that the
borrowing of money in accordance with restriction 4. or the purchase of reverse
repurchase agreements may constitute the issuance of a senior security, and each
portfolio of ONE Fund will not:
(Fundamental)
1. invest more than 5% of the value of its total assets in the
securities of any one issuer (except U.S. Government securities);
2. purchase more than 10% of the outstanding voting securities of any
one issuer, and the Money Market Portfolio will not acquire the
voting securities of any issuer except in connection with a merger,
consolidation or other reorganization;
3. invest more than 25% of the value of its total assets in any one
industry, except that the Money Market Portfolio may invest more
than 25% of the value of its total assets in obligations issued or
guaranteed by the U.S. Government, its agencies or instrumentalities
or in certificates of deposit, bankers' acceptances, bank time
deposits or other obligations of banks, and the Tax-Free Income
Portfolio may invest more than 25% of its assets in municipal
securities; (For purposes of this restriction, ONE Fund considers
each foreign government to constitute an "industry." ONE Fund
interprets the word "bank," as used in this investment restriction,
to mean "domestic bank.")
4. borrow money, except by means of reverse repurchase agreements or,
for temporary or emergency purposes, from banks, and the aggregate
amount borrowed shall not exceed 5% of the value of the assets of
the portfolio (In the case of such borrowing, each portfolio may
pledge, mortgage or hypothecate up to 5% of its assets);
5. purchase or sell commodities or commodity contracts except that each
portfolio other than the Money Market Portfolio may, for hedging
purposes, purchase and sell financial futures contracts and options
thereon;
6. underwrite securities of other issuers except insofar as ONE
Fund may be considered an underwriter under the Securities Act of
1933 in selling portfolio securities;
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<PAGE> 42
7. purchase or sell real estate, including limited partnerships, except
that each portfolio may invest in securities secured by real estate
or interests therein or securities issued by companies which invest
in real estate or interests therein (For purposes of this
restriction, "real estate" does not include investments in readily
marketable notes or other evidence of indebtedness secured by
mortgages or deeds of trust relating to real property);
8. lend money or other assets to other persons, in excess of 5% of a
portfolio's total assets, except by the purchase of obligations in
which the portfolio is authorized to invest and by entering into
repurchase agreements (Portfolio securities may be loaned if
collateral values are continuously maintained at no less than 100%
by marking to market daily);
9. purchase securities of other investment companies, except in
connection with a merger, consolidation or reorganization, or except
the purchase by any portfolio other than the Money Market or
Tax-Free Income Portfolio of the securities of closed-end investment
companies if after the purchase: (i) the portfolio does not own more
than 3% of the total outstanding voting stock of the other
investment company or (ii) the value of the securities of all
investment companies held by such portfolio does not exceed 10% of
the value of the total assets of that portfolio (Purchases of
investment company securities will be made (a) only on the open
market or through dealers or underwriters receiving the customary
sales loads, or (b) as part of a merger, consolidation or plan of
reorganization);
(Nonfundamental)
10. invest more than 15% (or such lesser amount as might be required by
federal or state regulatory authorities, currently 10%) of the value
of its assets in securities or other investments, including
repurchase agreements maturing in more than seven days, that are not
readily marketable;
11. purchase or sell put or call options, except that each
portfolio other than the Money Market Portfolio may, for hedging
purposes, (a) write call options traded on a registered national
securities exchange if the portfolio owns the underlying securities
subject to such options, and purchase call options for the purpose
of closing out positions in options it has written; (b) purchase put
options on securities owned, and sell such options in order to close
its positions in put options; (c) purchase and sell financial
futures contracts and options thereon; and (d) purchase and sell
financial index options; provided, however, that no option or
futures contract shall be purchased or sold if, as a result, more
than one-third of the total assets of the portfolio would be hedged
by options or futures contracts, and no more than 5% of any
portfolio's total assets, at market value, may be used for premiums
on open options and initial margin deposits on futures contracts;
12. other than the International and Global Contrarian Portfolios,
invest in securities of foreign issuers except that (a) each of the
Income, Income & Growth, Growth, Core Growth and Small Cap
Portfolios may invest up to 20% of its assets in securities of
foreign issuers (including foreign governments or political
subdivisions, agencies or instrumentalities of foreign governments)
American Depository Receipts, and securities of United States
domestic issuers denominated in foreign currency, and (b) the Money
Market Portfolio may invest up to 50% of its assets in such
securities, provided they are denominated in U.S. dollars and held
in custody in the United States; (For purposes of this restriction,
U.S. dollar denominated depository receipts traded in domestic
markets do not constitute foreign securities.)
13. sell securities short or purchase securities on margin except
such short-term credits as are required to clear transactions;
14. participate on a joint or joint and several basis in any
trading account in securities;
8
<PAGE> 43
15. purchase securities for the purpose of exercising control or
management;
16. invest in any oil, gas or other mineral exploration, development or
leasing program;
17. invest in warrants, valued at the lower of cost or market,
exceeding 5% of its net assets (Warrants not listed on the New York
or American Stock Exchange shall not exceed 2% of net assets);
18. invest more than 5% of its total assets in repurchase agreements;
19. invest more than 5% of its total assets in securities on a "when
issued" basis;
20. as to the International and Global Contrarian Portfolios, invest
more than 20% of its assets in securities of issuers located in any
one foreign country, except that up to an additional 5% of its
assets may be invested in securities of issuers located in each of
any three of Australia, Canada, France, Germany, Japan or the United
Kingdom, or
21. invest in foreign currency contracts or options except that, in
order to hedge against changes in the exchange rates of foreign
currencies in relation to the U.S. dollar, each portfolio other than
the Money Market and Tax-Free Income Portfolios may engage in
forward foreign currency contracts, foreign currency options and
foreign currency futures contracts in connection with the purchase,
sale or ownership of specific securities (but not more than 5% of a
portfolio's assets may be invested in such currency hedging
contracts).
In addition to the above restrictions, in order to comply with Rule 2a-7 under
the Investment Company Act of 1940, no more than 5% of the assets of the Money
Market Portfolio will be invested in "second-tier" short-term debt instruments,
that is those receiving the second highest rating by any two nationally
recognized statistical rating organizations ("NRSRO's") (or by one NRSRO if (a)
that is the only NRSRO having rated the security or (b) one other NRSRO has
given the security its highest rating), or whose issuer has received such a
rating or ratings with respect to a class of short-term debt obligations that is
now comparable in priority and security to those to be purchased. In addition,
not more than $1 million (or 1% of this portfolio's assets, if greater) may be
invested in the second-tier instruments of any one issuer.
Under normal market conditions, at least 65% of the assets of the International
Portfolio and at least 25% of the assets of the Global Contrarian Portfolio will
be invested in foreign securities, including securities of issuers in at least
three different foreign countries. As of the date of this Statement of
Additional Information, the Board of Directors has approved investment by those
portfolios other than the Money Market and Tax-Free Income Portfolios in 50
countries with developed securities markets, including the following countries
with developed economies: Australia, Austria, Belgium, Canada, Denmark, Finland,
France, Germany, Ireland, Israel, Italy, Japan, Luxembourg, Netherlands, New
Zealand, Norway, Spain, Sweden, Switzerland and the United Kingdom; and the
following countries with developing economies: Argentina, Bangla Desh, Brazil,
Chile, China (Shanghai and Shenzhen Exchanges), Czech Republic, Egypt, Greece,
Hong Kong, Hungary, Indonesia, Jordan, Malaysia, Mexico, Morocco, Pakistan,
Peru, Philippines, Poland, Portugal, Singapore, South Africa, South Korea, Sri
Lanka, Taiwan, Thailand, Turkey Uruguay, Venezuela and Zimbabwe.
9
<PAGE> 44
INVESTMENT POLICIES
The following descriptions of money market instruments supplement the investment
objectives and policies (see "Money Market Portfolio") set forth in ONE Fund's
prospectus. The Money Market Portfolio will invest extensively in these
instruments. The other portfolios may invest in such instruments to a very
limited extent (to invest otherwise idle cash) or on a temporary basis for
defensive purposes. The debt security ratings referred to in the prospectus in
connection with the investment policies of the portfolios are defined in the
Appendix to this Statement of Additional Information.
MONEY MARKET INSTRUMENTS
U.S. Government Obligations - Bills, notes, bonds and other debt
securities issued or guaranteed as to principal or interest by the United
States or by agencies or authorities controlled or supervised by and
acting as instrumentalities of the U.S. Government established under
authority granted by Congress, including, but not limited to, the
Government National Mortgage Association, the Tennessee Valley Authority,
the Bank for Cooperatives, the Farmers Home Administration, and Federal
Home Loan Banks. Some obligations of U.S. Government agencies, authorities
and other instrumentalities are supported by the full faith and credit of
the U.S. Treasury; others by the right of the issuer to borrow from the
U.S. Treasury; and others only by the credit of the issuer. Certain of the
foregoing may be purchased on a "when issued" basis at which time the rate
of return will not have been set.
Certificates of Deposit - Certificates issued against funds deposited in a
bank for a definite period of time, at a specified rate of return.
Normally they are negotiable.
Bankers' Acceptances - Short-term credit instruments issued by
corporations to finance the import, export, transfer or storage of goods.
They are termed "accepted" when a bank guarantees their payment at
maturity and reflect the obligation of both the bank and drawer to pay the
face amount of the instrument at maturity.
Commercial Paper - Promissory notes issued by corporations to finance
their short-term credit needs. Commercial paper obligations may include
variable amount master demand notes. Variable amount master demand notes
are obligations that permit the investment of fluctuating amounts by the
portfolio at varying rates of interest pursuant to direct arrangements
between the portfolio, as lender, and the borrower. These notes permit
daily changes in the amounts borrowed. The portfolio has the right to
increase the amount under the note at any time up to the full amount
provided by the note agreement, or to decrease the amount, and the
borrower may prepay up to the full amount of the note without penalty.
Because variable amount master demand notes are direct lending
arrangements between the lender and the borrower, it is not generally
contemplated that such instruments will be traded, and there is no
secondary market for these notes, although they are redeemable (and thus
immediately repayable by the borrower) at face value, plus accrued
interest, at any time. In connection with a master demand note
arrangement, the Adviser will monitor, on an ongoing basis, the earning
power, cash flow, and other liquidity ratios of the issuer and its ability
to pay principal and interest on demand. While master demand notes, as
such, are not typically rated by credit rating agencies, if not so rated
the portfolio may invest in them only if at the time of an investment the
issuer meets the criteria set forth above for all other commercial paper
issuers. Such notes will be considered to have a maturity of the longer of
the demand period or the period of the interest guarantee.
Corporate Obligations - Bonds and notes issued by corporations in order to
finance longer-term credit needs.
10
<PAGE> 45
REPURCHASE AGREEMENTS
Under a repurchase agreement, the portfolio purchases a security and obtains a
simultaneous commitment from the seller (a member bank of the Federal Reserve
System or a government securities dealer recognized by the Federal Reserve
Board) to repurchase the security at a mutually agreed upon price and date. It
may also be viewed as a loan of money by the portfolio to the seller. The resale
price is normally in excess of the purchase price and reflects an agreed upon
market rate. The rate is effective for the period of time the portfolio is
invested in the agreement and unrelated to the coupon rate on the purchased
security. The period of these repurchase agreements will usually be short, from
overnight to one week, and at no time will the portfolio invest in repurchase
agreements for more than one year. These transactions afford an opportunity for
the portfolio to earn a return on temporarily available cash. Although
repurchase agreements carry certain risks not associated with direct investments
in securities, ONE Fund intends to enter into repurchase agreements only with
financial institutions believed by the Adviser to present minimal credit risks
in accordance with criteria established by ONE Fund's Board of Directors. The
Adviser will review and monitor the creditworthiness of such institutions under
the Board's general supervision. ONE Fund will only enter into repurchase
agreements pursuant to a master repurchase agreement that provides that all
transactions be fully collateralized and that the collateral be in the actual or
constructive possession of ONE Fund. The agreement must also provide that ONE
Fund will always receive as collateral securities whose market value, including
accrued interest, will be at least equal to 100% of the dollar amount invested
by the portfolio in each agreement, and the portfolio will make payment for such
securities only upon physical delivery or evidence of book entry transfer to the
account of the custodian. If the seller were to default, the portfolio might
incur a loss if the value of the collateral securing the repurchase agreement
declines and may incur disposition costs in connection with liquidating the
collateral. In addition, if bankruptcy proceedings are commenced with respect to
the seller of the security, realization upon the collateral by the portfolio may
be delayed or limited and a loss may be incurred if the collateral securing the
repurchase agreement declines in value during the bankruptcy proceedings.
REVERSE REPURCHASE AGREEMENTS
Under a reverse repurchase agreement, a portfolio sells a debt security and
agrees to repurchase it at an agreed upon time and at an agreed upon price. The
portfolio retains record ownership of the security and the right to receive
interest and principal payments thereon. At an agreed upon future date, the
portfolio repurchases the security by remitting the proceeds previously
received, plus interest. The difference between the amount the portfolio
receives for the security and the amount it pays on repurchases is deemed to be
payment of interest. The portfolio will maintain in a segregated custodial
account cash, Treasury bills or other U.S. Government securities having an
aggregate value equal to the amount of such commitment to repurchase including
accrued interest, until payment is made. In certain types of agreements, there
is no agreed-upon repurchase date and interest payments are calculated daily,
often based on the prevailing overnight repurchase rate. The Securities and
Exchange Commission views these transactions as collateralized borrowings by the
portfolio and the portfolio will abide by the limitations set out in fundamental
investment restriction number 4 with respect to the borrowing of money.
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<PAGE> 46
HEDGING TRANSACTIONS
The purpose of hedging transactions using put and call options on individual
securities, financial futures contracts, and options on such contracts and on
financial indexes, all to the extent provided in investment restrictions 5 and
11, is to reduce the risk of fluctuation of portfolio securities values or to
take advantage of expected market fluctuations. However, while such transactions
are defensive in nature and are not speculative, some risks remain.
The use of options and futures contracts may help ONE Fund to gain exposure or
to protect itself from changes in market values. For example, ONE Fund may have
a substantial amount of cash at the beginning of a market rally. Conventional
procedures of purchasing a number of individual issues requires time and may
result in missing a significant market movement. By using futures contracts, ONE
Fund can obtain immediate exposure to the market. The buying program will then
proceed and, once it is completed (or as it proceeds), the futures contracts
will be closed. Conversely, in the early stages of a market decline, market
exposure can be promptly offset by selling futures contracts, and individual
securities can be sold over a longer period under cover of the resulting short
contract position.
COVERED CALL OPTIONS AND PUT OPTIONS
In writing (i.e., selling) "covered" call options on securities owned by a
portfolio, the portfolio gives the purchaser of the call option the right to
purchase the underlying securities owned by the portfolio at a specified
"exercise" price at any time prior to the expiration of the option, normally
within nine months. In purchasing put options on securities owned by a
portfolio, the portfolio pays the seller of the put option a premium for the
right of the portfolio to sell the underlying securities owned by the portfolio
at a specified exercise price prior to the expiration of the option.
Whenever a portfolio has a covered call option outstanding, the underlying
securities will be segregated by ONE Fund's custodian and held in an escrow
account to assure that such securities will be delivered to the option holder if
the option is exercised. While the underlying securities are subject to the
option, the portfolio remains the record owner of the securities, entitling it
to receive dividends and to exercise any voting rights. In order to terminate
its position as the writer of a call option or the purchaser of a put option,
the portfolio may enter into a "closing" transaction, which is the purchase of a
call option or sale of a put option on the same underlying securities and having
the same exercise price and expiration date as the option previously sold or
purchased by the portfolio.
RISK FACTORS WITH OPTIONS
The purchaser of an option pays the option writer a "premium" for the option. In
the case of a covered call option written by a portfolio, if the purchaser does
not exercise the call option, the premium will generate additional capital gain
to the portfolio. If the market price of the underlying security declines, the
premium received for the call option will reduce the amount of the loss the
portfolio would otherwise incur. However, if the market price of the underlying
security rises above the exercise price and the call option is exercised, the
portfolio will lose its opportunity to profit from that portion of the rise
which is in excess of the exercise price plus the option premium. Therefore, ONE
Fund will write call options only when the Adviser believes that the option
premium will yield a greater return to the portfolio than any capital
appreciation that might occur on the underlying security during the life of the
option.
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<PAGE> 47
In the case of a put option purchased by a portfolio, if the market price of the
underlying security remains or rises above the exercise price of the option, the
portfolio will not exercise the option and the premium paid for such option will
reduce the gain the portfolio would otherwise have earned. Conversely, if the
market price of the underlying security falls below the exercise price less the
premium paid for the option, the portfolio will exercise the option, thereby
reducing the loss the portfolio would have otherwise suffered. Accordingly, a
portfolio will purchase put options only when the Adviser believes that the
market price of the underlying security is more likely to decrease than
increase.
Whenever a portfolio enters into a closing transaction, the portfolio will
realize a gain (or loss) if the premium plus commission it pays for a closing
call option is less (or greater) than the premium it received on the sale of the
original call option. Conversely, the portfolio will realize a gain (or loss) if
the premium it receives, less commission, for a closing put option is greater
(or less) than the premium it paid for the original put option. The portfolio
will realize a gain if a call option it has written lapses unexercised, and a
loss if a put option it has purchased lapses unexercised.
FUTURES CONTRACTS
Each portfolio, other than the Money Market Portfolio, may invest in two kinds
of financial futures contracts: stock index futures contracts and interest rate
futures contracts. Stock index futures contracts are contracts developed by and
traded on national commodity exchanges whereby the buyer will, on a specified
future date, pay or receive a final cash payment equal to the difference between
the actual value of the stock index on the last day of the contract and the
value of the stock index established by the contract multiplied by the specific
dollar amount set by the exchange. Futures contracts may be based on broad-based
stock indexes such as the Standard & Poor's 500 Index or on narrow-based stock
indexes. A particular index will be selected according to the Adviser's
investment strategy for the particular port- folio. An interest rate futures
contract is an agreement whereby one party agrees to sell and another party
agrees to purchase a specified amount of a specified financial instrument (debt
security) at a specified price at a specified date, time and place. Although
interest rate futures contracts typically require actual future delivery of and
payment for financial instruments, the contracts are usually closed out before
the delivery date. A public market exists in interest rate futures contracts
covering primarily the following financial instruments: U.S. Treasury bonds;
U.S. Treasury notes; Government National Mortgage Association (GNMA) modified
pass-through mortgage-backed securities; three-month U.S. Treasury bills; 90-day
commercial paper; bank certificates of deposit; and Eurodollar certificates of
deposit. It is expected that futures contracts trading in additional financial
instruments will be authorized.
At the time a portfolio enters into a contract, it sets aside a small portion of
the contract value in an account with ONE Fund's custodian as a good faith
deposit (initial margin) and each day during the contract period requests and
receives or pays cash equal to the daily change in the contract value (variable
margin). ONE Fund, its futures commission merchant and ONE Fund's custodian
retain control of the initial margin until the contract is liquidated.
OPTIONS ON FUTURES CONTRACTS AND FINANCIAL INDEXES
Instead of entering into a financial futures contract, a portfolio may buy an
option giving it the right to enter into such a contract at a future date. The
price paid for such an option is called a premium. A portfolio also may buy
options on financial indexes that are traded on securities exchanges. Options on
financial indexes react to changes in the value of the underlying index in the
same way that options on financial futures contracts do. All settlements for
options on financial indexes also are for cash.
Financial futures contracts, options on such contracts and options on financial
indexes will only be used for hedging purposes and will, therefore, be
incidental to ONE Fund's activities in the securities market. Accordingly,
portfolio securities subject to options, or money market instruments having the
market value of any futures contracts, will be set aside to collateralize the
options or futures contracts.
13
<PAGE> 48
RISK FACTORS WITH FUTURES, OPTIONS ON FUTURES AND OPTIONS ON INDEXES
One risk of entering into financial futures contracts, buying options on such
contracts and buying options on financial indexes is that there may not be
enough buyers and sellers in the market to permit the portfolio to close a
position when it wants to do so. In such event, besides continuing to be subject
to the margin requirements, the portfolio would experience a gain or loss to the
extent that the price movement of the securities subject to the hedge differed
from the position. To limit the risk, the portfolios will invest only where
there is an established secondary market.
A risk applicable to both futures contracts and related options is that changes
in the value of the contracts or option may not correlate with changes in the
underlying financial index or with changes in the value of the securities
subject to hedge or both. This failure may be due, in part, to temporary
activity of speculators in the futures markets. To the extent there is not a
perfect correlation, changes in the value of a portfolio's assets would not be
offset by changes in the value of the contracts and options it had bought.
When a portfolio buys an option on a futures contract or an option on a
financial index, its risk of loss is limited to the amount of the premium paid.
When a portfolio enters into a futures contract, there is no such limit.
However, the loss on an options contract would exceed that of a futures contract
if the change in the value of the index does not exceed the premium paid for the
option.
The success of a hedge depends upon the Adviser's ability to predict increases
or decreases in the relevant financial index. If this expectation proves
incorrect, a portfolio could suffer a loss, and would be better off if those
futures contracts or options had not been purchased. The skills involved in
determining whether to enter into a futures contract or purchase or sell an
option are different from those involved in determining whether to buy or sell a
security. The Adviser has had only limited experience using financial futures
contracts, options on financial futures and options on financial indexes.
Because of the low margin deposits required, futures trading involves a high
degree of leverage. As a result, a relatively small price movement in a futures
contract may result in immediate and substantial gain or loss. A purchase or
sale of a futures contract may result in losses in excess of the amount invested
in the futures contract. However, the portfolio would presumably have sustained
comparable losses if, instead of the futures contract, it had invested in the
underlying financial instrument.
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 more
trades may be made on that day at a price beyond that limit. The daily limit
governs only price movements 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 and subjecting some futures
traders to substantial losses.
RISK FACTORS WITH FOREIGN INVESTMENTS
Investments in foreign securities involve considerations not normally associated
with investing in domestic issuers. Such factors include changes in currency
exchange rates, currency exchange control regulations, the possibility of
seizure or nationalization of companies, political or economic instability,
imposition of unforeseen taxes, the possibility of financial information being
difficult to obtain or difficult to interpret under foreign accounting
standards, the necessity of trading in markets that in
14
<PAGE> 49
relation to U.S. markets may be less efficient and have available less
information concerning issuers, or the imposition of other restraints that might
adversely affect investments.
In selecting foreign investments, each portfolio seeks to minimize these
factors. It seeks to invest in securities having investment characteristics and
qualities comparable to the kinds of domestic securities in which it invests.
Each portfolio seeks to avoid investments in countries with volatile or unstable
political or economic conditions.
The portfolios may invest in securities of foreign issuers either directly or in
the form of American Depository Receipts (ADRs). ADRs are securities typically
issued by an American bank or trust company which evidence ownership of
underlying securities issued by a foreign corporation. ADRs enable foreign
stocks to be traded and cleared on United States markets. They bear the same
investment risks as the underlying foreign stocks. The portfolios may invest in
both sponsored and unsponsored ADRs. There may be less financial and other
information available for unsponsored ADRs than for sponsored ADRs.
Since investments in foreign securities, other than U.S. dollar denominated
securities, involve currencies of foreign countries, the value of a portfolio's
assets, as measured in U.S. dollars may be affected favorably or unfavorably by
changes in currency exchange rates and in currency exchange control regulations.
FOREIGN CURRENCY HEDGING TRANSACTIONS
In order to hedge against changes in the exchange rates of foreign currencies in
relation to the U.S. dollar, each portfolio, other than the Money Market and
Tax-Free Income Portfolios, may engage, to the extent permitted in restriction
22, above, in forward foreign currency contracts, foreign currency options and
foreign currency futures contracts in connection with the purchase, sale or
ownership of a specific security.
The portfolios generally conduct their foreign currency exchange transactions on
a spot (i.e., cash) basis at the spot rate prevailing in the foreign exchange
currency market. When a portfolio purchases or sells a security denominated in a
foreign currency, it may enter into a forward foreign currency contract
("forward contract") for the purchase or sale, for a fixed amount of dollars, of
the amount of currency involved in the underlying security transaction. A
forward contract involves an obligation to purchase or sell a specific currency
at a future date, which may be any fixed number of days from the date of the
contract agreed upon by the parties, at a price set at the time of the contract.
In this manner, a portfolio may obtain protection against a possible loss
resulting from an adverse change in the relationship between the U.S. dollar and
the foreign currency during the period between the date the security is
purchased or sold and the date upon which payment is made or received. Although
such contracts tend to minimize the risk of loss due to the decline in the value
of the hedged currency, at the same time they tend to limit any potential gain
which might result should the value of such currency increase.
Forward contracts are traded in the interbank market conducted directly between
currency traders (usually large commercial banks) and their customers. Generally
a forward contract has no deposit requirement, and no commissions are charged.
Although foreign exchange dealers do not charge a fee for conversion, they do
realize a profit based on the difference between the prices at which they buy
and sell various currencies. When the portfolio manager believes that the
currency of a particular foreign country may suffer a substantial decline
against the U.S. dollar, a portfolio may enter into a forward contract to sell,
for a fixed amount of dollars, the amount of foreign currency approximating the
value of some or all of that portfolio's securities denominated in such foreign
currency. No portfolio will enter into such forward contracts or maintain a net
exposure to such contracts where the consummation of the contracts would
obligate the portfolio to deliver an amount of foreign currency in excess of the
value of its assets denominated in that currency.
15
<PAGE> 50
At the consummation of a forward contract for delivery by a portfolio of a
foreign currency, the portfolio may either make delivery of the foreign currency
or terminate its contractual obligation to deliver the foreign currency by
purchasing an offsetting contract obligating it to purchase, at the same
maturity date, the same amount of the foreign currency. If the portfolio chooses
to make delivery of the foreign currency, it may be required to obtain such
currency through the sale of its securities denominated in such currency or
through conversion of other portfolio assets into such currency. It is
impossible to forecast the market value of portfolio securities at the
expiration of the forward contract. Accordingly, it may be necessary for the
portfolio to purchase additional foreign currency on the spot market (and bear
the expense of such purchase) if the market value of the security is less than
the amount of foreign currency the portfolio is obligated to deliver, and if a
decision is made to sell the security and make delivery of the foreign currency.
Conversely, it may be necessary for the portfolio to sell on the spot market
some of the foreign currency received on the sale of its hedged security if the
security's market value exceeds the amount of foreign currency the portfolio is
obligated to deliver.
If the portfolio retains the hedged security and engages in an offsetting
transaction, it will incur a gain or loss to the extent that there has been
movement in spot or forward contract prices. If a portfolio engages in an
offsetting transaction, it may subsequently enter into a new forward contract to
sell the foreign currency. Should forward prices decline during the period
between the portfolio's entering into a forward contract for the sale of a
foreign currency and the date it enters into an offsetting contract for the
purchase of the foreign currency, the portfolio will realize a gain to the
extent the price of the currency it has agreed to sell exceeds the price of the
currency it has agreed to purchase. Should forward prices increase, the
portfolio will suffer a loss to the extent the price of the currency it has
agreed to purchase exceeds the price of the currency it has agreed to sell.
Buyers and sellers of foreign currency options and futures contracts are subject
to the same risks previously described with respect to options and futures
generally (see "Risk Factors with Options" and "Risk Factors with Futures,
Options on Futures and Options on Indexes," above). In addition, settlement of
currency options and futures contracts with respect to most currencies must
occur at a bank located in the issuing nation. The ability to establish and
close out positions on such options is subject to the maintenance of a liquid
market that may not always be available. Currency rates may fluctuate based on
political considerations and governmental actions as opposed to purely economic
factors.
Predicting the movements of foreign currency in relation to the U.S. dollar is
difficult and requires different skills than those necessary to predict
movements in the securities market. There is no assurance that the use of
foreign currency hedging transactions can successfully protect a portfolio
against loss resulting from the movements of foreign currency in relation to the
U.S. dollar. In addition, it must be remembered that these methods of protecting
the value of a portfolio's securities against a decline in the value of a
currency do not eliminate fluctuations in the underlying prices of the
securities. They simply establish rates of exchange which can be achieved at
some future point in time. Additionally, although such contracts tend to
minimize the risk of loss due to the decline in the value of the hedged
currency, at the same time they tend to limit any potential gain which might
result should the value of such currency increase.
RISK FACTORS WITH HIGH-YIELD, HIGH-RISK SECURITIES
The high-yield, high-risk securities in which the Income Portfolio may invest up
to 15% of its assets present special risks to investors. The market value of
lower-rated securities may be more volatile than that of higher-rated securities
and generally tends to reflect the market's perception of the creditworthiness
of the issuer and short-term market developments to a greater extent than more
highly-rated securities, which primarily reflect fluctuations in prevailing
interest rates. Periods of economic uncertainty and change can be expected to
result in increased volatility in the market value of lower-rated securities.
Further, such securities may be subject to greater risks of loss of income and
principal, particularly in the event of adverse economic changes or increased
interest rates, because their issuers generally are not as financially secure or
as creditworthy as issuers of higher-rated
16
<PAGE> 51
securities. Additionally, to the extent that there is no national market system
for secondary trading of lower-rated securities, there may be a low volume of
trading in such securities which may make it more difficult to value or sell
those securities than higher-rated securities. Adverse publicity and investor
perceptions, whether or not based on fundamental analysis, may decrease the
values and liquidity of high-yield, high-risk securities, especially in a thinly
traded market.
Investors should recognize that the market for high-yield, high-risk securities
is a relatively recent development that has not been fully tested by a prolonged
economic recession. An economic downturn may severely disrupt the market for
such securities and cause financial stress to the issuers which may adversely
affect the value of such securities held by the Income Portfolio and the ability
of the issuers of such securities to pay principal and interest. A default by an
issuer may result in the Income Portfolio incurring additional expenses to seek
recovery of the amounts due it.
MANAGEMENT OF ONE FUND
DIRECTORS AND OFFICERS OF ONE FUND
The directors and officers of ONE Fund, together with information as to their
principal occupations during the past five years are listed below:
<TABLE>
<CAPTION>
Position with Principal Occupation
Name and address the Fund during past five years
- ---------------- ------------- ----------------------
<S> <C> <C>
Ronald L. Benedict* Secretary and Second Vice President and Counsel and
One Financial Way Director and Assistant Secretary, ONLI; Secretary
Cincinnati, Ohio of O.N. Investment Management Company
("ONIMCO")and of the Adviser;
Secretary and Director of ONF.
George E. Castrucci Director Business consultant and private
8355 Old Stable Road investor; Chairman & Director of
Cincinnati, Ohio Baldwin Piano & Organ Co.;
Director of ONF; Formerly
President and Chief Operating
Officer of Great American
Communications Co. and Chief
Executive Officer of Great
American Broadcasting Co.; Director
of Benchmark Savings Bank.
Maurice H. Kirby, Jr. Director Retired; Director of ONF.
6726 Farmbrook Drive Formerly Senior Vice
Cincinnati, Ohio President, First National Bank
of Cincinnati.
George M. Vredeveld Director Professor of Economics, University of
University of Cincinnati Cincinnati; Director of Center for
P.O. Box 210223 Economic Education; Private Consultant;
Cincinnati, Ohio Director of Benchmark Savings Bank.
Donald J. Zimmerman* President and Director and Senior Vice President
One Financial Way Director Insurance Operations and
Cincinnati, Ohio Secretary, ONLI; President and
Director of ONF.
</TABLE>
17
<PAGE> 52
<TABLE>
<S> <C> <C>
Michael A. Boedeker Vice President Vice President, Fixed Income
One Financial Way Securities, ONLI; Vice President
Cincinnati, Ohio and Director of ONIMCO and of
the Adviser; Vice President
of ONF.
Joseph P. Brom Vice President Senior Vice President & Chief
One Financial Way Investment Officer, ONLI; President
Cincinnati, Ohio and Director of ONIMCO and of
the Adviser; Vice President of ONF.
David G. McClure Vice President Vice President, Variable Product
One Financial Way Sales, ONLI; Vice President and
Cincinnati, Ohio Director of ONIMCO and of the Adviser.
Stephen T. Williams Vice President Director of Securities, ONLI;
One Financial Way Vice President and Director of ONIMCO
Cincinnati, Ohio and of the Adviser; Vice President of ONF.
Dennis R. Taney Treasurer Mutual Funds Financial Operations
One Financial Way Director, ONLI; Treasurer of ONIMCO
Cincinnati, Ohio and of the Adviser; Treasurer of ONF
Amy D. Starkey Assistant Secretary Compliance Director for ONLI's affiliated
One Financial Way broker-dealers. Prior to February 1994
Cincinnati, Ohio was a full-time graduate student and from
September 1990 to September 1992
was a bank internal auditor.
</TABLE>
* Indicates Directors who are "Interested Persons" as defined by the Investment
Company Act of 1940, as amended.
COMPENSATION OF DIRECTORS
Directors not affiliated with ONLI, the Adviser or SGAM were compensated as
follows during the fiscal year ended June 30, 1996:
<TABLE>
<CAPTION>
Aggregate Compensation Total Compensation
Name of Director from ONE Fund from Fund Complex*
- ---------------- ---------------------- -------------------
<S> <C> <C>
James E. Baker $2,300 $ 7,500
George E. Castrucci 4,600 15,000
Maurice H. Kirby, Jr. 4,600 15,000
George M. Vredeveld 2,300 7,500
</TABLE>
*The "Fund Complex" consists of ONE Fund and ONF.
Directors and officers of ONE Fund who are affiliated with ONLI or the Adviser
receive no compensation from the Fund Complex. ONE Fund has no pension,
retirement or deferred compensation plan for its directors or officers.
18
<PAGE> 53
SHAREHOLDERS' MEETINGS
ONE Fund's by-laws provide that shareholders' meetings need only be held every
three years unless matters requiring shareholder approval should occur more
frequently. It is anticipated that shareholders' meetings will generally occur
every three years.
CONTROLLING PERSONS AND PRINCIPAL SHAREHOLDERS
Because of its ownership of ONE Fund shares, ONLI is a controlling person of
each portfolio of ONE Fund other than the International Portfolio. As a result,
ONLI likely will be able to control the outcome of a shareholder vote for any of
those portfolios unless and until the percentage of shares of a portfolio held
by other investors significantly expands. ONLI is also a controlling person of
ONIMCO.
As of August 1, 1996, ONLI's ownership of ONE Fund shares was as follows:
<TABLE>
<CAPTION>
Number of Net Asset Percent of
Portfolio Shares Value Portfolio
- --------- ---------- ----------- ----------
<S> <C> <C> <C>
Money Market 11,199,783 $11,199,783 70.0%
Tax-Free Income 544,462 $ 5,916,822 93.1%
Income 496,855 $ 4,778,467 68.6%
Income & Growth 404,431 $ 4,974,496 47.7%
Growth 329,846 $ 4,723,395 42.7%
Small Cap 210,852 $ 2,485,949 58.8%
International 122 $ 1,711 0.0%
Global Contrarian 264,296 $ 2,936,328 53.0%
</TABLE>
In addition, as of that date, A. Wayne Phillips of Sherwood, Arkansas, owned
54,699 shares of the Income Portfolio having a total net asset value of $522,920
and representing 7.5% of the Portfolio; the KZF 401(k) Investment Plan (Fay
Bauer, trustee) of Cincinnati, Ohio, owned 54,464 shares of the Growth Portfolio
having a total net asset value of $779,924 and representing 7.1% of the
Portfolio; and Russell W. Ingram of Johnson City, Tennessee, owned 39,447 shares
of the Global Contrarian Portfolio having a total net asset value of $438,255
and representing 7.9% of the Portfolio. As of that date, no other shareholder
owned more than 5% of the shares of any ONE Fund portfolio. The amount of shares
of each portfolio of ONE Fund held by officers and directors of ONE Fund, as a
group, was less than 1%.
INVESTMENT ADVISORY AND OTHER SERVICES
The Adviser is an Ohio corporation organized on January 17, 1996 to provide
investment advice and management services to funds affiliated with ONLI. The
Adviser is a wholly-owned subsidiary of ONLI. The Adviser succeeded O.N.
Investment Management Company ("ONIMCO") as ONE Fund's investment adviser on May
1, 1996. Prior to that date, ONIMCO had been the investment adviser from ONE
Fund's inception. The Adviser, like ONIMCO before it, uses ONLI's investment
personnel and administrative systems.
The Adviser regularly furnishes to ONE Fund's Board of Directors recommendations
with respect to an investment program consistent with the investment policies of
each investment portfolio. Upon approval of an investment program by ONE Fund's
Board of Directors, the Adviser implements the program by placing the orders for
the purchase and sale of securities or, in the case of the International
Portfolio, delegates that implementation to SGAM.
The Adviser's services are provided under an Investment Advisory Agreement with
ONE Fund. Under the Investment Advisory Agreement, the Adviser provides
personnel, including executive officers for ONE Fund. The Adviser also furnishes
at its own expense or pays the expenses of ONE
19
<PAGE> 54
Fund for clerical and related administrative services (other than those provided
by the custodian and agency agreements with The Provident Bank and the custodian
agreement with Investors Fiduciary Trust Company), office space, and other
facilities. ONE Fund pays corporate expenses incurred in its operations,
including, among others, local income, franchise, issuance or other taxes;
certain printing costs; brokerage commissions on portfolio transactions;
custodial and transfer agent fees; auditing and legal expenses; and expenses
relating to registration of its shares for sale and shareholders' meetings.
As compensation for its services, the Adviser receives from ONE Fund an annual
investment advisory fee based on the average daily net asset value of each
portfolio's assets during the quarterly period for which the fee is paid based
on the following schedule: (a) for those assets held in the Income, Income &
Growth and Growth Portfolios, the fee is at an annual rate of 0.5% of the first
$l00 million of assets in each portfolio, 0.4% of the next $l50 million and 0.3%
of assets over $250 million; (b) as to assets held in the Money Market
Portfolio, the fee is at an annual rate of 0.3% of the first $100 million of
assets, 0.25% of the next $150 million, and 0.2% of assets over $250 million;
(c) for assets held in the Tax-Free Income Portfolio, the fee is at an annual
rate of 0.6% of the first $100 million of assets, 0.5% of the next $150 million,
and 0.4% of assets over $250 million; (d) for assets held in the Small Cap
Portfolio, the fee is at an annual rate of 0.65% of the first $100 million of
assets, 0.55% of the next $150 million, and 0.45% of assets over $250 million;
(e) for assets held in the International and Global Contrarian Portfolios, the
fee is at an annual rate of 0.9% of assets in each portfolio, and (f) for assets
held in the Core Growth Portfolio, the fee is at an annual rate of 0.95% of the
first $150 million of assets and 0.8% of assets over $150 million.
Under the Investment Advisory Agreement, ONE Fund authorizes the Adviser to
retain sub-advisers for the Core Growth, International and Global Contrarian
Portfolios, subject to the approval of ONE Fund's Board of Directors. The
Adviser has entered into a Sub-Advisory Agreement with PBA to manage the
investment and reinvestment of Core Growth Portfolio assets, subject to the
supervision of the Adviser. As compensation for its services, PBA receives from
the Adviser fees at the annual rate of 0.75% of the first $50 million, 0.70% of
the next $100 million, and 0.50% of the average daily net assets of that
portfolio in excess of $150 million during the quarter for which the fee is
paid. The Adviser has entered into a Sub-Advisory Agreement with SGAM to manage
the investment and reinvestment of International and Global Contrarian Portfolio
assets, subject to the supervision of the Adviser. As compensation for its
services, SGAM receives from the Adviser fees at the annual rate of 0.75% of the
average daily net assets of each of those portfolios during the quarter for
which the fee is paid.
For each of the fiscal years ended June 30, investment advisory fees from each
of ONE Fund's portfolios* were paid to ONIMCO (the Adviser's predecessor) and to
the Adviser as follows:
<TABLE>
<CAPTION>
1996 Earned Waived Net Fees
------ ------ --------
<S> <C> <C> <C>
Money Market $ 48,270 ($48,270) $ 0
Tax-Free Income 36,568 (18,284) 18,284
Income 36,190 (18,095) 18,095
Income & Growth 45,898 (22,949) 22,949
Growth 47,590 (23,795) 23,795
Small Cap 24,264 (12,132) 12,132
International 119,892 0 119,892
Global Contrarian 42,132 0 42,132
-------- -------- -------
$400,804 ($143,525) $257,279
</TABLE>
20
<PAGE> 55
<TABLE>
<CAPTION>
1995 Earned Waived Net Fees
------ ------ --------
<S> <C> <C> <C>
Money Market $ 40,669 ($ 40,669) $ 0
Tax-Free Income 21,136 ( 10,568) 10,568
Income 28,148 ( 14,074) 14,074
Income & Growth 36,964 ( 18,482) 18,482
Growth 31,091 ( 15,546) 15,545
Small Cap 10,790 ( 5,395) 5,395
International 104,197 0 104,197
Global Contrarian 19,262 0 19,262
--------- --------- ---------
$ 292,257 ($104,734) $ 187,523
</TABLE>
<TABLE>
<CAPTION>
1994 Earned Waived Net Fees
------ ------ --------
<S> <C> <C> <C>
Money Market $ 58,467 ($ 58,467) $ 0
Income 26,766 ( 13,383) 13,383
Income & Growth 36,266 ( 18,133) 18,133
Growth 24,244 ( 12,122) 12,122
International 56,712 0 56,712
--------- --------- ---------
$ 202,455 ($102,105) $ 100,350
</TABLE>
* All fees earned prior to May 1, 1996 were paid to ONIMCO. On and
after that date, fees were payable to the Adviser. The Tax-Free
Income, Small Cap and Global Contrarian Portfolios are not shown for
the year ended June 30, 1994 because they did not commence
operations until November 1, 1994. The Core Growth Portfolio is not
shown because it did not commence operations until November 1, 1996.
The Investment Advisory Agreement also provides that if, and to the extent that,
the total expenses applicable to any portfolio during any calendar quarter
(excluding taxes, brokerage commissions, interest and the investment advisory
fee) exceed l%, on an annualized basis, of the portfolio's average daily net
asset value, the Adviser will pay such expenses. During the last fiscal year,
ONIMCO and the Adviser reimbursed the Global Contrarian Portfolio $12,200 under
the same terms.
Under a Service Agreement among ONE Fund, the Adviser and ONLI, the latter has
agreed to furnish the Adviser, at cost, such research facilities, services and
personnel as may be needed by the Adviser in connection with its performance
under the Investment Advisory Agreement. The Adviser reimburses ONLI for its
expenses in this regard.
The Investment Advisory Agreement, the Service Agreement and the Sub-Advisory
Agreement for the International and Global Contrarian Portfolios were approved
by a vote of ONE Fund's Board of Directors on January 24, 1996, and the
shareholders on March 28, 1996. These agreements will continue in force from
year to year hereafter, if such continuance is specifically approved at least
annually by a majority of ONE Fund's directors who are not parties to such
agreements or interested persons of any such party, with votes to be cast in
person at a meeting called for the purpose of voting on such continuance, and
also by a majority of ONE Fund's Board of Directors or by a majority of the
outstanding voting securities of each portfolio voting separately. The foregoing
agreements were approved by the Board of Directors for continuance on August 22,
1996. The Investment Advisory Agreement, the Service Agreement and the
Sub-Advisory Agreement for the Core Growth Portfolio were approved by the Board
of Directors on August 22, 1996 and by the shareholders of the Core Growth
Portfolio on October ____, 1996.
The Investment Advisory, Sub-Advisory and Service Agreements may be terminated
at any time, without the payment of any penalty, on 60 days' written notice to
the Adviser by ONE Fund's Board of Directors or, as to any portfolio, by a vote
of the majority of the portfolio's outstanding voting securities. The Investment
Advisory Agreement may be terminated by the Adviser on 90 days'
21
<PAGE> 56
written notice to ONE Fund. The Service Agreement may be terminated, without
penalty, by the Adviser or ONLI on 90 days' written notice to ONE Fund and the
other party. The Sub-advisory Agreements may be terminated, without penalty, by
the Adviser or the sub-adviser (PBA or SGAM) on 90 days' written notice to ONE
Fund and the other party. The Agreements will automatically terminate in the
event of their assignment.
ONE Fund's 12b-1 Plan is used solely to compensate broker-dealers that sell ONE
Fund shares (the "Selling Dealers") for shareholder services and for sales. The
basic payment is 0.15% (on an annualized basis) of the average net assets of the
Money Market Portfolio and 0.25% of the average net assets of each other
portfolio. The fees are increased to the extent necessary to pay incentive
bonuses to individual registered representatives who service $5 million or more
of ONE Fund shares. Such increases can never increase the fees paid to more than
0.17% and 0.30% respectively. No interested person of ONE Fund other than the
Selling Dealers has a direct or indirect financial interest in ONE Fund's 12b-1
Plan. ONE Fund benefits from the 12b-1 Plan payments to Selling Dealers by
having the registered representatives of those dealers answer shareholder
questions and by having those registered representatives motivated to sell ONE
Fund shares to persons likely to remain shareholders for a period of time.
BROKERAGE ALLOCATION
The Adviser buys and sells the portfolio securities for all the portfolios,
other than the International and Global Contrarian Portfolios, and selects the
brokers to handle such transactions. It is the Adviser's intention to place
orders for the purchase and sale of securities with the primary objective of
obtaining the most favorable price consistent with good brokerage service. The
cost of securities transactions for each portfolio will consist primarily of
brokerage commissions or dealer or underwriter spreads. Bonds and money market
securities are generally traded on a net basis and do not normally involve
either brokerage commissions or transfer taxes.
Occasionally, securities may be purchased directly from the issuer. For
securities traded primarily in the over-the-counter market, the Adviser will,
where possible, deal directly with dealers that make a market in the securities
unless better prices and execution are available elsewhere. Such dealers usually
act as principals for their own account.
In selecting brokers through which to effect transactions, the Adviser considers
a number of factors including the value, quality, efficiency of execution and
research, statistical, quotation and valuation services provided. Research
services by brokers include advice, either directly or through publications or
writings, as to the value of securities, the advisability of purchasing or
selling securities, the availability of securities or purchasers or sellers of
securities, and analyses and reports concerning issuers, industries, securities,
economic factors and trends and portfolio strategy. In making such
determination, the Adviser may use a broker whose commission in effecting a
securities transaction is in excess of that of some other broker if the Adviser
determines in good faith that the amount of such commission is reasonable in
relation to the value of the research and related services provided by such
broker.
It is not possible to place a dollar value on research and related services
provided by brokers and receipt of such services is not expected to
significantly affect the Adviser's expenses. Research, statistical and similar
information furnished by brokers may be of incidental assistance to ONLI, ONF or
other clients or affiliates of the Adviser and conversely, transaction costs
paid by ONLI, ONF or other clients or affiliates of the Adviser may generate
information which is beneficial to ONE Fund.
PBA selects brokers and dealers to effect securities transactions for the Core
Growth Portfolio. PBA seeks to obtain the most favorable net results by taking
into account various factors, including price, commission, if any, size of
transactions and difficulty of execution, the firm's general execution and
operational facilities and the firm's risk in positioning the securities
involved. While PBA seeks reasonably competitive spreads or commissions, it will
not necessarily obtain the lowest available.
22
<PAGE> 57
PBA looks for brokers and dealers that offer best price and execution or other
services of benefit to the Core Growth Portfolio. Consistent with the
Portfolio's interests, PBA may select brokers on the basis of research services
provided to PBA. If, in PBA's judgment, the Portfolio or other accounts managed
by PBA will be benefited by supplemental research services, it may pay the
broker furnishing those services higher commissions than those that another
broker might charge for effecting the same transaction. Portfolio transactions
may be executed through firms affiliated with PBA, for a commission in
conformity with the 1940 Act, the Securities Exchange Act of 1934 and rules
thereunder.
SGAM selects the brokers and dealers that execute orders for the purchase and
sale of International and Global Contrarian Portfolio securities. SGAM seeks to
obtain the best price and execution available after taking into account research
services provided by such brokers and dealers for the International Portfolio's
benefit. Consistent with this policy, portfolio transactions may be executed by
brokers affiliated with Societe Generale (SGAM's ultimate controlling person) so
long as the commission paid to the affiliated broker is reasonable and fair
compared to the commission that would be charged by an unaffiliated broker in a
comparable transaction.
For each of the fiscal years ended June 30, the following brokerage commission
amounts were paid by each portfolio:
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Money Market None None None
Tax-Free Income None None N/A
Income $ 720 None None
Income & Growth 4,438 $ 5,101 $ 960
Growth 8,034 3,776 795
Core Growth N/A N/A N/A
Small Cap 4,880 5,074 N/A
International 22,094 26,616 28,128
Global Contrarian 10,126 11,278 N/A
------- ------- --------
Total $50,291 $51,845 $ 29,883
</TABLE>
During the fiscal year ended June 30, 1996, 100% of such commissions were paid
to brokers who furnished statistical data and research information to the
Adviser or ONIMCO (the predecessor to the Adviser) or SGAM. The Tax-Free Income,
Small Cap and Global Contrarian Portfolios did not commence operations until
November 1, 1994. The Core Growth Portfolio did not commence operations until
November 1, 1996.
PURCHASE AND REDEMPTION OF SHARES
ONE Fund shares are sold at the public offering price, which is their net asset
value plus a sales charge, as described in the prospectus, if applicable. They
may be redeemed at their net asset value next computed after a purchase or
redemption order is received by ONE Fund. (The net asset value for the Money
Market Portfolio is normally $1 per share.)
Depending upon the net asset values at that time, the amount paid upon
redemption may be more or less than the cost of the shares redeemed. Payment for
shares redeemed will be made as soon as possible, but in any event within seven
days after evidence of ownership of the shares is tendered to ONE Fund. However,
ONE Fund may suspend the right of redemption or postpone the date of payment
beyond seven days during any period when (a) trading on the New York Stock
Exchange is restricted, as determined by the Securities and Exchange Commission,
or such Exchange is closed for other than weekends and holidays; (b) an
emergency exists, as determined by the Commission, as a result of which disposal
by ONE Fund of securities owned by it is not reasonably practicable, or it is
not reasonably practicable for ONE Fund fairly to determine the value of its net
assets; or (c) the Commission by order so permits for the protection of security
holders of ONE Fund.
23
<PAGE> 58
Redemptions of shares of any ONE Fund portfolio by any shareholder during any
90-day period will be paid in cash, up to the lesser of (a) $250,000 or (b) 1%
of the portfolio's total net asset value. Larger redemptions may, at ONE Fund's
discretion, be paid wholly or in part by securities or other assets of the
portfolio. A shareholder who receives securities would likely incur brokerage
expenses in disposing of them.
Shares of one portfolio may be exchanged for shares of another portfolio of ONE
Fund on the basis of the relative net asset values next computed after an
exchange order is received by ONE Fund. However, in the case of transfers from
the Money Market Portfolio to another portfolio, the sales charge will be levied
unless such assets had previously been subjected to a sales charge by having
been earlier transferred from another portfolio to the Money Market Portfolio.
The net asset value of ONE Fund's shares is determined at 4 p.m. Eastern time on
each day the New York Stock Exchange is open for unrestricted trading. That is
normally each weekday (Monday through Friday) except for the following holidays:
New Years Day, Presidents Day, Good Friday, Memorial Day, Independence Day,
Labor Day, Thanksgiving Day and Christmas. The net asset value of each portfolio
is computed by dividing the value of the securities in that portfolio plus any
cash or other assets less all liabilities of the portfolio, by the number of
shares outstanding for that portfolio.
Securities which are held in a portfolio and listed on a securities exchange are
valued at the last sale price or, if there has been no sale that day, at the
last bid price reported as of 4 p.m. Eastern time. Over-the-counter securities
are valued at the last bid price as of 4 p.m. Eastern time.
Short-term debt securities in all portfolios with remaining maturities of 60
days or less are valued at amortized cost. All other assets (not including those
of the Money Market Portfolio), including restricted debt securities and other
investments for which market quotations are not readily available, are valued at
their fair value as determined in good faith by ONE Fund's Board of Directors.
ONE Fund relies on Rule 2a-7 under the Investment Company Act of 1940 to value
the assets of the Money Market Portfolio on the basis of amortized cost with a
view toward stabilizing the net asset value at $l per share and allowing
dividend payments to reflect net interest income as earned. Accordingly, the
short-term debt assets of the Money Market Portfolio are valued at their cost on
the date of acquisition with a daily adjustment being made to accrued income to
reflect amortization of premium or accretion of discount to the maturity date.
In relying on Rule 2a-7 with respect to short-term debt securities in its Money
Market Portfolio, ONE Fund has agreed to maintain a dollar-weighted average
portfolio maturity of not more than 90 days and to not purchase any such debt
security having a maturity of more than 397 days. The dollar- weighted average
maturity of short-term debt securities is determined by dividing the sum of the
dollar value of each such security times the remaining days to maturity of such
security by the sum of the dollar value of all short-term debt securities.
Should the disposition of a short-term debt security result in a dollar-weighted
average maturity of more than the number of days allowed under the exemptive
order or Rule 2a-7, as the case may be, the Money Market Portfolio will invest
any available cash so as to reduce such average maturity to the required number
of days or less as soon as reasonably practicable. ONE Fund normally holds
short-term debt securities to maturity and realizes par therefor unless an
earlier sale is required to meet redemption requirements.
In addition, the Money Market Portfolio is required to limit its short-term debt
investments, including repurchase agreements, to those United States dollar
denominated instruments which the Board of Directors determines present minimal
credit risks and which are in the top two rating categories of any nationally
recognized statistical rating organizations or, in the case of any instrument
that is not rated, of comparable quality as determined by the Board of
Directors. Although the use of amortized cost provides certainty in valuation,
it may result in periods during which value so determined is higher or lower
than the price the portfolio would receive if it liquidated its securities.
ONE Fund's Board of Directors is obligated, as a particular responsibility
within the overall duty of care owed to the Money Market Portfolio shareholders,
to establish procedures reasonably designed,
24
<PAGE> 59
taking into account current market conditions and the investment objective of
such portfolio, to stabilize the portfolio's net asset value per share as
computed for the purpose of distribution, redemption and repurchase, at $l per
share. The procedures adopted by the Board of Directors include periodically
reviewing, as it deems appropriate and at such intervals as are reasonable in
light of current market conditions, the extent of deviation, if any, between the
net asset value per share based on available market quotations and such value
based on the portfolio's $l amortized cost price. If such deviation exceeds 1/2
of 1 percent, or if there is any other deviation which the Board of Directors
believes would result in a material dilution to shareholders or purchasers, the
Board of Directors will promptly consider what action, if any, it should
initiate. Such action may include redemption in kind; selling portfolio
instruments prior to maturity to realize capital gains or losses, or to shorten
the average portfolio maturity; withholding dividends; splitting, combining or
otherwise recapitalizing outstanding shares; or using available market
quotations to determine net asset value per share. The Money Market Portfolio
may reduce the number of its outstanding shares by requiring shareholders to
contribute to capital proportionately the number of full and fractional shares
as is necessary to maintain the net asset value per share of $1.
REDUCING THE SALES CHARGE
The prospectus describes a variety of ways you may qualify for scheduled
reductions in sales load for large purchases. In general, these special purchase
methods permit you to treat your purchase as if it were part of a larger
purchase. Certain ways to reduce sales load are available to you individually,
and other ways in combination with other investors. First, you may make a single
purchase (of shares of one or more ONE Fund portfolios) in an aggregate amount
that qualifies for a reduced sales charge (at least $25,000). Second, you may
add the amount of your existing ONE Fund holdings to the amount being purchased
(with the sum equaling your "accumulated holdings"), and pay only the percentage
sales charge that would apply to your purchase if it were part of a purchase the
size of your accumulated holdings. Third, you may add to your accumulated
holdings the amount of the annual or single premium of any Ohio National annuity
or insurance policy you purchase concurrently with the ONE Fund shares (i.e.,
ONE Fund shares are purchased in the time between application for, and 5 days
after delivery of, an Ohio National annuity or insurance policy) and pay only
the sales charge that would apply to your purchase if it were part of a purchase
the size of your accumulated holdings plus the amount of your concurrent
purchase. Fourth, you may add to your accumulated holdings (and your concurrent
purchases, if any) an amount of ONE Fund shares you state (in a letter of
intent) that you intend to purchase within a 13-month period and pay only the
sales charge that would apply to that total. To the extent that your sales
charge reduction depends on purchases pursuant to a letter of intent, a number
of the shares you purchase will be escrowed to pay the sales charge that would
apply if some or all of the future purchases under the letter of intent are not
made.
In addition, you may be able to aggregate the holdings or purchases of other
persons with the amounts determined in the methods described in the prior
paragraph. First, you are entitled to aggregate your accumulated holdings with
purchases and holdings of ONE Fund shares by your spouse, children and
grandchildren. Second, if you are a member of a "qualified group" (as described
in "Group Purchases" in the prospectus), you may aggregate your holdings and
purchases with those of the entire qualified group. However, you may not
aggregate purchases of your family members with those of a qualified group, to
which such family members do not belong, for purposes of qualifying for a
reduced sales charge. In addition, you may not aggregate the holdings or
purchases of more than one qualified group with your own holdings or purchases.
TAX STATUS
ONE Fund intends to qualify as a regulated investment company under Subchapter M
of the Internal Revenue Code (the "Code"). Under such provisions, ONE Fund is
not subject to federal income tax on such part of its net ordinary income and
net realized capital gains which it distributes to shareholders. Each portfolio
is treated as a separate entity for federal income tax purposes, including
determining
25
<PAGE> 60
whether it qualifies as a regulated investment company and determining its net
ordinary income (or loss) and net realized capital gains (or losses). To qualify
for treatment as a regulated investment company, each portfolio must, among
other things, derive in each taxable year at least 90% of its gross income from
dividends, interest and gains from the sale or other disposition of securities
and derive less than 30% of its gross income in each taxable year from the gains
(without deduction for losses) from the sale or other disposition of securities
held for less than three months.
The foregoing is a general and abbreviated summary of the applicable provisions
of the Code and Treasury Regulations currently in effect. For the complete
provisions, reference should be made to the pertinent Code sections and the
Treasury Regulations promulgated thereunder. Shareholders should consult their
own tax advisers with regard to the tax status of ONE Fund distributions.
UNDERWRITERS
The O.N. Equity Sales Company, a wholly-owned subsidiary of ONLI, has served as
principal underwriter for ONE Fund shares from ONE Fund's inception. However, on
January 17, 1996, ONLI formed another wholly-owned subsidiary, Ohio National
Equities, Inc., which will serve as ONE Fund's principal underwriter once it has
obtained all necessary regulatory approvals. ONE Fund shares are offered by the
registered representatives of The O.N. Equity Sales Company and other
broker-dealers with whom the principal underwriter enters into distribution
agreements. ONE Fund shares are offered on a best-efforts basis. The offering is
continuous.
EXPERTS
The financial statements of ONE Fund as of June 30, 1996 and for the periods
indicated herein included in this Statement of Additional Information and the
Financial Highlights included in the prospectus dated November 1, 1996 have been
included herein and in the prospectus in reliance upon the report of KPMG Peat
Marwick LLP, independent certified public accountants, appearing in this
Statement of Additional Information, and upon the authority of said firm as
experts in accounting and auditing. KPMG Peat Marwick LLP's business address is
201 East Fifth Street, Cincinnati, Ohio 45202.
LEGAL COUNSEL
Messrs. Jones & Blouch L.L.P., Washington, D.C., have passed on matters
pertaining to the federal securities laws and Ronald L. Benedict, Esq.,
Secretary of ONE Fund and Second Vice President and Counsel of ONLI, has passed
on all other legal matters relating to the legality of the shares described in
the prospectus and this Statement of Additional Information.
26
<PAGE> 61
ONE FUND, INC.
STATEMENTS OF ASSETS AND LIABILITIES
<TABLE>
<CAPTION>
June 30, 1996
PORTFOLIO
------------------------------------------------------------------------
MONEY TAX-FREE INCOME
MARKET INCOME INCOME & GROWTH GROWTH
-------------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Assets:
Investments in securities at market
value (note 1) $15,827,578 $ 6,166,452 $ 6,828,676 $10,872,933 $11,744,734
Cash in bank 52,331 50,007 78,381 44,819 59,346
Unrealized gain on forward currency
contracts (note 5) 0 0 0 0 0
Receivable for fund shares sold 0 0 0 0 0
Dividends and accrued interest receivable 0 107,298 127,556 49,029 8,995
Deferred organizational expenses (note 1) 3,926 1,735 3,926 3,926 3,895
Other 852 116 88 1,848 128
----------- ----------- ----------- ----------- -----------
Total assets 15,884,687 6,325,608 7,038,627 10,972,555 11,817,098
----------- ----------- ----------- ----------- -----------
Liabilities:
Unrealized loss on forward currency
contracts (note 5) 0 0 0 0 0
Payable for securities purchased 0 0 0 100,800 0
Payable for fund shares redeemed 0 0 0 0 0
Payable for investment management
services (note 3) 0 4,632 4,348 6,602 7,222
Accrued 12b-1 fees (note 6) 5,784 3,709 4,127 6,363 6,977
Other accrued expenses 10,943 9,296 13,080 8,500 12,852
Dividends Payable 58,077 24,343 34,499 81,087 32,193
----------- ----------- ----------- ----------- -----------
Total liabilities 74,804 41,980 56,054 203,352 59,244
----------- ----------- ----------- ----------- -----------
NET ASSETS AT MARKET VALUE $15,809,883 $ 6,283,628 $ 6,982,573 $10,769,203 $11,757,854
=========== =========== =========== =========== ===========
Net assets consist of:
Par value, $.001 per share $ 15,810 $ 582 $ 728 $ 842 $ 760
Paid-in capital in excess of par value 15,794,073 5,880,875 7,084,483 8,718,708 8,832,453
Accumulated undistributed net realized
gain (loss) on investments 0 (7,298) (110,897) 233,926 402,972
Net unrealized appreciation (depreciation) on:
Investments 0 409,469 8,259 1,813,724 2,521,894
Foreign currency related transactions 0 0 0 0 0
Forward currency contracts 0 0 0 0 0
Undistributed (overdistributed) net
investment income 0 0 0 2,003 (225)
----------- ----------- ----------- ----------- -----------
NET ASSETS AT MARKET VALUE $15,809,883 $ 6,283,628 $ 6,982,573 $10,769,203 $11,757,854
=========== =========== =========== =========== ===========
SHARES OUTSTANDING 15,809,883 582,283 728,240 842,340 759,837
----------- ----------- ----------- ----------- -----------
NET ASSET VALUE PER SHARE $ 1.00 $ 10.79 $ 9.59 $ 12.78 $ 15.47
=========== =========== =========== =========== ===========
MAXIMUM OFFERING PRICE PER SHARE $ 1.00 $ 11.12 $ 9.89 $ 13.45 $ 16.28
=========== =========== =========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
------------------------------------------
Small Global
Cap International Contrarian
-------------- ------------- ------------
<S> <C> <C> <C>
Assets:
Investments in securities at market $ 4,434,476 $ 15,003,155 $ 5,640,688
value (note 1) 46,913 55,230 10,318
Cash in bank
Unrealized gain on forward currency 0 196,091 33,546
contracts (note 5) 0 16,457 965
Receivable for fund shares sold 5,036 51,482 44,352
Dividends and accrued interest receivable 1,735 4,440 1,735
Deferred organizational expenses (note 1) 63 0 0
Other -- -- --
------------ ------------ ------------
Total assets 4,488,223 15,326,855 5,731,604
------------ ------------ ------------
Liabilities:
Unrealized loss on forward currency 0 829 0
contracts (note 5) 0 83,780 0
Payable for securities purchased 0 16,000 0
Payable for fund shares redeemed
Payable for investment management 3,518 32,971 12,387
services (note 3) 2,288 9,159 3,441
Accrued 12b-1 fees (note 6) 7,896 6,508 15,251
Other accrued expenses 12,188 94,263 37,480
Dividends Payable 25,890 243,510 68,559
------------ ------------ ------------
Total liabilities $ 4,462,333 $ 15,083,345 $ 5,663,045
============ ============ ============
NET ASSETS AT MARKET VALUE
Net assets consist of: $ 348 $ 1,042 $ 493
Par value, $.001 per share 3,600,524 12,709,293 4,998,591
Paid-in capital in excess of par value
Accumulated undistributed net realized 359,646 214,217 156,242
gain (loss) on investments
Net unrealized appreciation (depreciation) on: 502,030 1,955,327 471,307
Investments 0 16 (58)
Foreign currency related transactions 0 195,262 33,546
Forward currency contracts
Undistributed (overdistributed) net
investment income (215) 8,188 2,924
------------ ------------ ------------
NET ASSETS AT MARKET VALUE $ 4,462,333 $ 15,083,345 $ 5,663,045
============ ============ ============
SHARES OUTSTANDING 347,962 1,042,150 493,235
------------ ------------ ------------
$ 12.82 $ 14.47 $ 11.48
NET ASSET VALUE PER SHARE ============ ============ ============
$ 13.49 $ 15.23 $ 12.08
MAXIMUM OFFERING PRICE PER SHARE ============ ============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE> 62
ONE FUND, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Year Ended June 30, 1996
PORTFOLIO
---------------------------------------------------------------------------
MONEY TAX-FREE INCOME
MARKET INCOME INCOME & GROWTH GROWTH
----------- ----------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C>
Investment income:
Interest $ 917,989 $ 373,032 $ 484,744 $ 204,015 $ 70,706
Dividends 0 0 53,510 161,989 108,351
----------- ----------- ----------- ----------- -----------
Total investment income 917,989 373,032 538,254 366,004 179,057
----------- ----------- ----------- ----------- -----------
Expenses:
12b-1 fees (note 6) 24,520 15,225 18,095 22,949 23,795
Management fees (note 3) 48,270 36,568 36,190 45,898 47,590
Custodian fees (note 3) 29,424 10,982 13,029 16,523 17,133
Directors' fees (note 3) 4,003 1,892 4,293 1,834 1,950
Professional fees 11,904 3,779 4,619 5,038 5,460
Other 18,394 6,574 8,109 8,825 9,483
Organizational expense (note 1) 3,481 523 3,481 3,481 3,455
----------- ----------- ----------- ----------- -----------
Total expenses 139,996 75,543 87,816 104,548 108,866
Less expenses voluntarily reduced or
reimbursed (note 3) (48,270) (18,284) (18,095) (22,949) (23,795)
----------- ----------- ----------- ----------- -----------
Net expenses 91,726 57,259 69,721 81,599 85,071
----------- ----------- ----------- ----------- -----------
Net investment income 826,263 315,773 468,533 284,405 93,986
----------- ----------- ----------- ----------- -----------
Realized and unrealized gain (loss)
on investments and foreign currency
Net realized gain (loss) from:
Investments 0 (7,298) (49,166) 285,463 586,710
Forward currency related transactions 0 0 0 0 0
Net increase (decrease) in unrealized
appreciation (depreciation) on:
Investments 0 71,682 (89,116) 627,931 1,174,130
Foreign currency related transactions 0 0 0 0 0
----------- ----------- ----------- ----------- -----------
Net gain (loss) on investments 0 64,384 (138,282) 913,394 1,760,840
----------- ----------- ----------- ----------- -----------
Net increase in net assets
from operations $ 826,263 $ 380,157 $ 330,251 $ 1,197,799 $ 1,854,826
=========== =========== =========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
PORTFOLIO
--------------------------------------------------
SMALL GLOBAL
CAP INTERNATIONAL CONTRARIAN
----------- ------------- ----------
<S> <C> <C> <C>
Investment income:
Interest $ 35,722 $ 39,938 $ 63,707
Dividends 81,962 283,205 (a) 107,079(b)
----------- ----------- -----------
Total investment income 117,684 323,143 170,786
----------- ----------- -----------
Expenses:
12b-1 fees (note 6) 9,332 33,304 11,703
Management fees (note 3) 24,264 119,892 42,132
Custodian fees (note 3) 6,719 44,999 44,000
Directors' fees (note 3) 750 2,850 900
Professional fees 2,099 7,980 3,214
Other 3,627 18,737 10,377
Organizational expense (note 1) 523 2,328 523
----------- ----------- -----------
Total expenses 47,314 230,090 112,849
Less expenses voluntarily reduced or
reimbursed (note 3) (12,132) 0 (12,200)
----------- ----------- -----------
Net expenses 35,182 230,090 100,649
----------- ----------- -----------
Net investment income 82,502 93,053 70,137
----------- ----------- -----------
Realized and unrealized gain (loss)
on investments and foreign currency
Net realized gain (loss) from:
Investments 385,689 547,563 184,706
Forward currency related transactions 0 298,575 32,490
Net increase (decrease) in unrealized
appreciation (depreciation) on:
Investments 338,621 1,151,993 432,588
Foreign currency related transactions 0 193,633 33,319
----------- ----------- -----------
Net gain (loss) on investments 724,310 2,191,764 683,103
----------- ----------- -----------
Net increase in net assets
from operations $ 806,812 $ 2,284,817 $ 753,240
=========== =========== ===========
</TABLE>
(a) Net of $23,745 foreign taxes withheld.
(b) Net of $5,232 foreign taxes withheld.
The accompanying notes are an integral part of these financial statements.
<PAGE> 63
ONE FUND, INC.
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
Years Ended June 30, 1996 and 1995
PORTFOLIO
-----------------------------------------------------------------
MONEY MARKET TAX FREE
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
6-30-96 6-30-95 6-30-96 6-30-95 (B)
------------------------------ ------------------------------
<S> <C> <C> <C> <C>
From operations:
Net investment income $ 826,263 $ 676,851 $ 315,773 $ 180,809
Realized gain (loss) on investments and
foreign currency related transactions 0 0 (7,298) 0
Unrealized gain (loss) on investments and
foreign currency related transactions 0 0 71,682 337,787
------------ ------------ ------------ ------------
Net increase in assets from
operations 826,263 676,851 380,157 518,596
------------ ------------ ------------ ------------
Dividends and distributions to shareholders:
Dividends paid from net investment income (826,263) (676,851) (315,773) (180,809)
Capital gains distribution 0 0 0 0
------------ ------------ ------------ ------------
Total dividends and distributions (826,263) (676,851) (315,773) (180,809)
------------ ------------ ------------ ------------
From capital share transactions (note 4):
Received from shares sold 13,411,231 9,788,975 315,892 5,175,095
Received from dividends reinvested 821,475 655,189 311,840 155,845
Paid for shares redeemed (12,570,685) (8,595,276) (65,222) (11,993)
------------ ------------ ------------ ------------
Increase (decrease) in net assets derived
from capital share transactions 1,662,021 1,848,888 562,510 5,318,947
------------ ------------ ------------ ------------
Increase (decrease) in net assets 1,662,021 1,848,888 626,894 5,656,734
Net Assets:
Beginning of period 14,147,862 12,298,974 5,656,734 0
------------ ------------ ------------ ------------
End of period (a) $ 15,809,883 $ 14,147,862 $ 6,283,628 $ 5,656,734
============ ============ ============ ============
(a) Includes undistributed net investment
income of $ 0 $ 0 $ 0 $ 0
============ ============ ============ ============
</TABLE>
(b) Commenced operations November 1, 1994.
<TABLE>
<CAPTION>
PORTFOLIO
-----------------------------------------------------------------
INCOME INCOME & GROWTH
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
6-30-96 6-30-95 6-30-96 6-30-95
-----------------------------------------------------------------
<S> <C> <C> <C> <C>
From operations: $ 468,533 $ 385,323 $ 284,405 $ 274,032
Net investment income
Realized gain (loss) on investments and (49,166) (61,593) 285,463 402,083
foreign currency related transactions
Unrealized gain (loss) on investments and (89,116) 374,895 627,931 655,646
foreign currency related transactions ------------ ------------ ------------ ------------
Net increase in assets from 330,251 698,625 1,197,799 1,331,761
operations ------------ ------------ ------------ ------------
Dividends and distributions to shareholders: (468,533) (385,323) (282,680) (273,755)
Dividends paid from net investment income 0 0 (51,537) (402,083)
Capital gains distribution ------------ ------------ ------------ ------------
(468,533) (385,323) (334,217) (675,838)
Total dividends and distributions ------------ ------------ ------------ ------------
From capital share transactions (note 4): 779,610 2,020,251 2,570,771 743,255
Received from shares sold 431,894 369,674 423,830 606,182
Received from dividends reinvested (1,233,852) (165,975) (804,922) (1,767,322)
Paid for shares redeemed ------------ ------------ ------------ ------------
Increase (decrease) in net assets derived (22,348) 2,223,950 2,189,679 (417,885)
from capital share transactions ------------ ------------ ------------ ------------
(160,630) 2,537,252 3,053,261 238,038
Increase (decrease) in net assets
Net Assets: 7,143,203 4,605,951 7,715,942 7,477,904
Beginning of period ------------ ------------ ------------ ------------
$ 6,982,573 $ 7,143,203 $ 10,769,203 $ 7,715,942
End of period (a) ============ ============ ============ ============
(a) Includes undistributed net investment $ 0 $ 0 $ 2,003 $ 277
income of ============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE> 64
ONE FUND, INC.
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
Years Ended June 30,1996 and 1995
Portfolio
-----------------------------------------------------------------
GROWTH SMALL CAP
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
6-30-96 6-30-95 6-30-96 6-30-95 (b)
------------------------------ ------------------------------
<S> <C> <C> <C> <C>
From operations:
Net investment income $ 93,986 $ 84,042 $ 82,502 $ 55,079
Realized gain on investments and foreign
currency related transactions 586,710 425,561 385,689 9,797
Unrealized gain (loss) on investments and
foreign currency related transactions 1,174,130 701,680 338,621 163,409
------------ ------------ ------------ ------------
Net increase in assets from
operations 1,854,826 1,211,283 806,812 228,285
------------ ------------ ------------ ------------
Dividends and distributions to shareholders:
Dividends paid from net investment income (94,036) (84,216) (82,824) (54,972)
Capital gains distribution (185,263) (424,275) (26,043) (9,797)
------------ ------------ ------------ ------------
Total dividends and distributions (279,299) (508,491) (108,867) (64,769)
------------ ------------ ------------ ------------
From capital share transactions (note 4):
Received from shares sold 3,491,377 1,480,257 1,141,411 2,800,024
Received from dividends reinvested 530,826 226,740 111,230 47,418
Paid for shares redeemed (811,763) (783,929) (404,162) (95,049)
------------ ------------ ------------ ------------
Increase in net assets derived from
capital share transactions 3,210,440 923,068 848,479 2,752,393
------------ ------------ ------------ ------------
Increase in net assets 4,785,967 1,625,860 1,546,424 2,915,909
Net Assets:
Beginning of period 6,971,887 5,346,027 2,915,909 0
------------ ------------ ------------ ------------
End of period (a) $ 11,757,854 $ 6,971,887 $ 4,462,333 $ 2,915,909
============ ============ ============ ============
(a) Includes undistributed (overdistributed)
net investment income of ($225) ($174) ($215) $ 107
============ ============ ============ ============
</TABLE>
(b) Commenced operations November 1, 1994.
<TABLE>
<CAPTION>
Portfolio
----------------------------------------------------------------------
INTERNATIONAL GLOBAL CONTRARIAN
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
6-30-96 6-30-95 6-30-96 6-30-95 (b)
------------------------------ ---------------------------------
<S> <C> <C> <C> <C>
From operations:
Net investment income $ 93,053 $ 128,938 $ 70,137 $ 63,746
Realized gain on investments and foreign
currency related transactions 846,138 881,819 217,196 43,112
Unrealized gain (loss) on investments and
foreign currency related transactions 1,345,626 (235,774) 465,907 38,889
------------ ------------ ------------ ------------
Net increase in assets from
operations 2,284,817 774,983 753,240 145,747
------------ ------------ ------------ ------------
Dividends and distributions to shareholders:
Dividends paid from net investment income (383,429) (128,598) (99,748) (63,598)
Capital gains distribution (347,520) (868,069) (28,591) (43,088)
------------ ------------ ------------ ------------
Total dividends and distributions (730,949) (996,667) (128,339) (106,686)
------------ ------------ ------------ ------------
From capital share transactions (note 4):
Received from shares sold 3,712,934 6,323,833 1,281,031 3,771,274
Received from dividends reinvested 612,162 955,687 90,643 106,380
Paid for shares redeemed (2,767,518) (5,489,358) (190,480) (59,765)
------------ ------------ ------------ ------------
Increase in net assets derived from
capital share transactions 1,557,578 1,790,162 1,181,194 3,817,889
------------ ------------ ------------ ------------
Increase in net assets 3,111,446 1,568,478 1,806,095 3,856,950
Net Assets:
Beginning of period 11,971,899 10,403,421 3,856,950 0
------------ ------------ ------------ ------------
End of period (a) $ 15,083,345 $ 11,971,899 $ 5,663,045 $ 3,856,950
============ ============ ============ ============
(a) Includes undistributed (overdistributed)
net investment income of $ 8,188 ($11) $ 2,924 $ 45
============ ============ ============ ============
</TABLE>
(b) Commenced operations November 1, 1994.
The accompanying notes are an integral part of these financial statements.
<PAGE> 65
ONE FUND, INC.
SCHEDULE OF INVESTMENTS
June 30, 1996
MONEY MARKET PORTFOLIO
<TABLE>
<CAPTION>
FACE MARKET
AMOUNT SHORT-TERM NOTES VALUE
- -----------------------------------------------------------------------
<S> <C> <C>
AUTOMOTIVE AND RELATED (9.9%)
$680,000 Ford Motor Credit Corp.
5.290% 07-30-96 $ 677,255
100,000 Ford Motor Credit Corp.
5.380% 07-30-96 99,414
790,000 General Motors Acceptance Corp.
5.320% 09-03-96 782,528
----------
1,559,197
----------
CONSUMER DURABLES (3.2%)
500,000 Glaxo Wellcome plc
5.240% 07-19-96 498,690
----------
EDUCATION (3.3%)
525,000 University of Chicago
5.400% 09-10-96 519,409
----------
ELECTRONIC EQUIPMENT (3.2%)
500,000 G.E. Capital
5.270% 07-22-96 498,463
----------
ENTERTAINMENT AND LEISURE (4.4%)
700,000 Walt Disney Co.
5.290% 07-10-96 699,074
----------
FINANCE (19.1%)
795,000 American Express Credit Corp.
5.270% 08-22-96 788,948
800,000 Ameritech Capital Fund
5.280% 07-02-96 799,883
700,000 Heller Financial Inc.
5.350% 08-05-96 696,359
500,000 IBM Corp.
5.370% 08-19-96 496,345
250,000 Prudential Funding Corp.
5.380% 08-14-96 248,356
----------
3,029,891
----------
FOOD AND RELATED (5.0%)
790,000 Quaker Oats Co.
5.500% 07-02-96 789,879
----------
FORESTRY AND PAPER PRODUCTS (2.5%)
400,000 Temple Inland Inc.
5.370% 07-30-96 398,270
----------
</TABLE>
<TABLE>
<CAPTION>
FACE MARKET
AMOUNT SHORT-TERM NOTES VALUE
- ----------------------------------------------------------------
<S> <C> <C>
INDUSTRIAL (7.7%)
$425,000 Dupont (EI) de Nemours
5.270% 07-12-96 $ 424,316
800,000 Echlin Inc.
5.330% 07-08-96 799,171
-----------
1,223,487
-----------
INSURANCE (2.7%)
425,000 Liberty Mutual Capital
5.400% 08-27-96 421,366
-----------
MACHINERY AND EQUIPMENT (13.2%)
800,000 Deere and Company
5.290% 07-11-96 798,824
500,000 Stanley Works
5.370% 08-23-96 496,047
800,000 Stanley Works
5.300% 07-09-96 799,058
-----------
2,093,929
-----------
RETAIL (16.1%)
780,000 Hasbro Inc.
5.230% 08-16-96 774,787
600,000 Sears Roebuck Acceptance Corp.
5.290% 08-26-96 594,961
100,000 Sears Roebuck Acceptance Corp.
5.310% 08-26-96 99,276
575,000 Sherwin Williams
5.360% 08-12-96 571,404
500,000 Wal-Mart Stores Inc.
5.280% 07-05-96 499,707
-----------
2,540,135
-----------
TRANSPORTATION (4.4%)
700,000 Consolidated Rail Corp.
5.360% 07-19-96 698,124
-----------
UTILITIES (5.4%)
435,000 AT&T Corp.
5.230% 08-08-96 432,599
426,000 Alabama Power Co.
5.270% 07-16-96 425,065
-----------
857,664
-----------
TOTAL HOLDINGS
(COST $15,827,578) (A) $15,827,578
===========
</TABLE>
(a) Also represents cost for Federal income tax purposes.
The accompanying notes are an integral part of these financial statements.
<PAGE> 66
ONE FUND, INC. June 30, 1996
SCHEDULE OF INVESTMENTS TAX-FREE PORTFOLIO
<TABLE>
<CAPTION>
FACE MARKET
AMOUNT MUNICIPAL BONDS VALUE
- -------------------------------------------------------------------------------
<S> <C> <C>
GENERAL OBLIGATION BONDS (15.0%)
$200,000 Charleston County S. Carolina
7.250% 02-01-02 $ 207,870
100,000 Clairborne County Mississippi
7.300% 05-01-25 103,000
150,000 Commonwealth of Puerto Rico
5.500% 07-01-17 142,500
250,000 State of Nevada
6.600% 12-01-13 268,125
250,000 State of Washington
5.000% 05-01-17 223,438
-----------------
944,933
-----------------
INSURED BONDS (17.3%)
250,000 Atlanta RTA
6.800% 07-01-14 270,938
250,000 Mataroda Texas
6.700% 03-01-27 267,600
250,000 New York State Med Care
6.750% 08-15-14 269,375
250,000 Pennsylvania Intergovernment Corp.
6.750% 06-15-21 279,375
-----------------
1,087,188
-----------------
AIRPORT REVENUE (3.6%)
250,000 Chicago Illinois O'Hare Airport
5.000% 01-01-13 226,250
-----------------
HOSPITAL REVENUE (7.2%)
250,000 Massachusetts State Hospital
6.200% 10-01-16 252,812
200,000 Wisconsin Health and Education
6.125% 11-15-15 199,750
-----------------
452,562
-----------------
HOUSING REVENUE (2.3%)
150,000 Alaska Housing
5.875% 12-01-24 144,563
-----------------
POLLUTION CONTROL &
INDUSTRIAL REVENUE (15.4%)
250,000 Lawrenceburg, Indiana
5.900% 11-01-19 234,375
250,000 Richland County, S. Carolina
6.550% 11-01-20 261,875
250,000 San Diego, California
7.625% 07-01-21 206,894
250,000 West Feliciana, Louisiana
8.000% 12-01-24 265,625
-----------------
968,769
-----------------
POWER REVENUE (18.8%)
250,000 Jacksonville Florida Municipal Electric
5.500% 10-01-14 $ 240,937
250,000 Mobile Alabama
6.950% 01-01-20 257,187
250,000 North Carolina Eastern Power
6.000% 01-01-22 244,063
250,000 Salt River Arizona Project
5.000% 01-01-13 230,000
200,000 Southern California Public Power
6.000% 07-01-18 210,000
-----------------
1,182,187
-----------------
WATER REVENUE (3.8%)
250,000 Metropolitan Water District of
S. California
5.500% 07-01-13 239,375
-----------------
ADVANCE REFUNDED (4.4%)
250,000 Clark County, Nevada School District
7.0005 06-01-09 275,625
-----------------
CONVENTION COMPLEX &
HOSPITALITY FACILITIES (3.2%)
200,000 Metropolitan Pier
6.250% 07-01-17 195,000
-----------------
TOTAL MUNICIPAL BONDS (91.0%)
(COST $5,306,983) $ 5,716,452
-----------------
<CAPTION>
FACE MARKET
AMOUNT REPURCHASE AGREEMENTS VALUE
- -------------------------------------------------------------------------------
<S> <C> <C>
BANKING (7.2%)
$450,000 Provident Bank 4.700% due 07-01-96
repurchase price $450,235 $ 450,000
collateralized by U.S. Treasury Notes, -----------------
due 08-15-96 (Cost $450,000)
TOTAL REPURCHASE AGREEMENTS
(7.2%) (COST $450,000) $ 450,000
-----------------
TOTAL HOLDINGS
(COST $5,766,983) (a) $ 6,166,452
=================
</TABLE>
<PAGE> 67
ONE FUND, INC. June 30, 1996
SCHEDULE OF INVESTMENTS INCOME PORTFOLIO
<TABLE>
<CAPTION>
FACE MARKET
AMOUNT LONG-TERM NOTES VALUE
- -------------------------------------------------------------------------------
<S> <C> <C>
GOVERNMENT (25.9%)
$1,000,000 U.S. Treasury Note
6.375% 08-15-02 $ 991,540
800,000 U.S. Treasury Note
7.375% 11-15-97 814,504
-----------------
1,806,044
-----------------
COMPUTER AND RELATED (3.6%)
250,000 IBM Corp.
7.250% 11-01-02 254,062
----------------
CONSUMER GOODS (3.4%)
250,000 RJR Nabisco, Inc.
7.625% 09-15-03 238,125
----------------
FORESTRY AND PAPER PRODUCTS (3.6%)
250,000 ITT Rayonier, Inc.
7.500% 10-15-02 253,437
----------------
HOTEL/LODGING (2.9%)
200,000 Marriott International
7.875% 04-15-05 203,500
----------------
MEDICAL AND RELATED (6.6%)
250,000 Bergen Brunswig Corp.
7.375% 01-15-03 252,500
200,000 Manor Care, Inc.
9.500% 11-15-02 211,750
----------------
464,250
----------------
OIL, ENERGY AND NATURAL GAS (15.0%)
250,000 Maxus Energy
9.875% 10-15-02 248,438
200,000 PDV America, Inc.
7.875% 08-01-03 192,500
262,801 Puget Power
6.450% 04-11-05 258,257
100,000 Seagull Energy
7.875% 08-01-03 94,125
250,000 Tenneco Inc.
7.875% 10-01-02 257,188
----------------
1,050,508
----------------
REAL ESTATE (2.8%)
200,000 Avalon Properties Inc.
7.375% 09-15-02 195,250
----------------
RETAIL (1.4%)
100,000 Genesco, Inc.
10.375% 02-01-03 97,875
----------------
TEXTILES AND RELATED (3.7%)
$250.000 Fruit of the Loom Corp.
7.875% 10-15-99 $ 255,312
----------------
TRANSPORTATION (3.4%)
250,000 Illinois Central Gulf Railroad
6.750% 05-15-03 240,312
----------------
UTILITIES (11.3%)
250,000 El Paso Electric Co.
8.900% 02-01-06 247,812
250,000 Mississippi Power and Light
8.800% 04-01-05 255,938
300,000 Texas Utilities Electric
7.480% 01-01-17 283,500
----------------
787,250
----------------
MISCELLANEOUS (4.2%)
300,000 ITT Destinations Inc.
6.750% 11-15-05 285,751
----------------
TOTAL LONG-TERM NOTES (87.8%)
(COST $6,137,917) $ 6,131,676
----------------
</TABLE>
<TABLE>
<CAPTION>
FACE MARKET
AMOUNT SHORT-TERM NOTES VALUE
- ----------------------------------------------------------------------------
<S> <C> <C>
AUTOMOTIVE AND RELATED (2.1%)
$145,000 General Motors
5.250% 07-01-96 $145,000
-----------------
TOTAL SHORT-TERM NOTES (2.1%)
(COST $145,000) $145,000
-----------------
</TABLE>
<TABLE>
<CAPTION>
MARKET
SHARES PREFERRED STOCK VALUE
- ----------------------------------------------------------------------------
<S> <C> <C>
ELECTRICAL EQUIPMENT (3.0%)
8,000 GTE Delaware, 8.750% Series B $ 209,000
-----------------
FINANCE (2.5%)
7,000 Connecticut Light, Power & Capital 172,375
9.300% Series A -----------------
OIL, ENERGY AND NATURAL GAS (2.4%)
6,500 Phillips Gas Co., 9.320%, Series A 170,625
-----------------
TOTAL PREFERRED STOCK (7.9%)
(COST $537,500) $ 552,000
-----------------
TOTAL HOLDINGS
(COST $6,820,417) (A) $ 6,828,676
=================
</TABLE>
(a) Also represents cost for Federal income tax purposes.
The accompanying notes are an integral part of these financial statements.
<PAGE> 68
ONE FUND, INC. JUNE 30, 1996
SCHEDULE OF INVESTMENTS INCOME AND GROWTH PORTFOLIO
<TABLE>
<CAPTION>
FACE MARKET
AMOUNT LONG-TERM NOTES VALUE
- ------------------------------------------------------------------------------
<S> <C> <C>
COMPUTER AND RELATED (2.4%)
$250,000 IBM Corp.
7.250% 11-01-02 $ 254,063
----------
FORESTRY AND PAPER PRODUCTS (2.4%)
250,000 ITT Rayonier, Inc.
7.500% 10-15-02 253,438
----------
OIL, ENERGY AND NATURAL GAS (9.7%)
250,000 Maxus Energy
9.875% 10-15-02 248,437
300,000 PDV America, Inc.
7.875% 08-01-03 288,750
250,000 Tenneco, Inc.
7.875% 10-01-02 257,187
250,000 Union Texas Petroleum
8.250% 11-15-99 256,562
----------
1,050,936
----------
UTILITIES (1.9%)
200,000 Mississippi Power and Light
8.800% 04-01-05 204,750
----------
TOTAL LONG-TERM NOTES (16.4%)
(COST $1,743,353) $1,763,187
----------
</TABLE>
<TABLE>
<CAPTION>
FACE MARKET
AMOUNT SHORT-TERM NOTES VALUE
- ------------------------------------------------------------------------------
<S> <C> <C>
AUTOMOTIVE AND RELATED (2.2%)
$225,000 Ford Motor Credit Corp.
5.400% 07-09-96 $ 224,730
----------
FINANCE (9.4%)
416,000 American Express Credit Corp.
5.320% 07-02-96 415,938
350,000 Associates Corp.
5.200% 07-03-96 349,896
250,000 Household Finance Corp.
5.370% 07-08-96 249,739
----------
1,015,573
----------
OIL, ENERGY AND GAS (2.0%)
220,000 Chevron Oil
5.330% 07-05-96 219,870
----------
TOTAL SHORT-TERM NOTES (13.6%)
(COST $1,460,173) $1,460,173
----------
</TABLE>
<TABLE>
<CAPTION>
MARKET
SHARES COMMON STOCK VALUE
- ------------------------------------------------------------------------------
<S> <C> <C>
AEROSPACE (2.7%)
5,000 Allied Signal, Inc. $ 285,625
----------
AUTOMOTIVE AND RELATED (4.7%)
1,650 Chrysler Corp. 102,300
8,000 * Custom Chrome Inc. 215,000
4,000 Magna International, Inc. 184,000
----------
501,300
----------
BANKING (3.1%)
5,500 Community First Bankshares $129,250
10,000 First Colorado Bancorp 132,500
2,500 Susquehanna Bancshares 66,875
----------
328,625
----------
BUSINESS SERVICES (7.4%)
2,500 First Data Corp. 199,063
3,500 Manpower Inc. 137,375
3,000 Reynolds and Reynolds 159,750
7,000 * Verifone, Inc. 295,750
----------
791,938
----------
CHEMICALS (2.3%)
5,000 Learonal Inc. 125,000
3,000 OM Group Inc. 117,750
----------
242,750
----------
COMMUNICATIONS (0.6%)
6,500 * American Portable Telecom 69,875
----------
COMPUTER AND RELATED (8.7%)
2,000 Hewlett Packard Co. 199,250
3,000 Intel Corp. 220,312
10,000 MacNeal-Schwendler Corp. 75,000
1,000 * Microsoft Corp. 120,125
5,000 * Novell Inc. 69,375
2,750 * Teradyne Inc. 47,437
4,000 Texas Instruments, Inc. 199,500
----------
930,999
----------
CONSUMER PRODUCTS (2.6%)
3,000 Panamerican Beverages Inc. 134,250
2,000 Stanhome, Inc. 53,000
7,000 Versa Technologies 94,500
----------
281,750
----------
ELECTRICAL EQUIPMENT (1.4%)
3,000 Varian Associates, Inc. 155,250
----------
ENTERTAINMENT AND LEISURE (1.7%)
5,000 Cedar Fair 186,875
----------
FINANCE (3.9%)
15,000 Bando McGlocklin Capital 165,000
10,000 Hanson Trust, PLC 142,500
2,000 PHH Corp. 114,000
----------
421,500
----------
FOOD AND RELATED (0.8%)
3,000 H.J. Heinz Co. 91,125
----------
INDUSTRIAL SERVICES (6.2%)
5,000 Minerals Technologies, Inc. 171,250
12,000 Regal Beloit Corp. 237,000
5,000 York International, Corp. 258,750
----------
667,000
----------
MEDICAL AND RELATED (3.6%)
2,500 Baxter International 118,125
5,000 Health Care Realty Trust 118,750
4,500 National Health Investors 147,375
----------
384,250
----------
</TABLE>
(continued)
<PAGE> 69
ONE FUND, INC. JUNE 30, 1996
SCHEDULE OF INVESTMENTS INCOME AND GROWTH PORTFOLIO (CONTINUED)
<TABLE>
<CAPTION>
MARKET
SHARES COMMON STOCK VALUE
- ------------------------------------------------------------------------------
<S> <C> <C>
METALS AND MINING (1.4%)
8,000 Easco Inc. $ 66,000
6,000 Greenbrier Companies Inc. 83,250
----------
149,250
----------
OIL, ENERGY AND GAS (6.5%)
8,000 Camco International, Inc. 271,000
3,000 WD-40 Co. 141,000
8,000 Westcoast Energy, Inc. 120,000
3,500 Williams Cos., Inc. 173,250
----------
705,250
----------
REAL ESTATE (1.9%)
8,000 Commercial Net Lease Realty 111,000
4,000 First Industrial Realty Trust 94,000
----------
205,000
----------
RETAIL (0.9%)
4,800 National Propane Partners 100,800
----------
TEXTILES AND RELATED (1.2%)
8,000 Oxford Industries, Inc. 129,000
----------
TRANSPORTATION (3.9%)
3,723 Burlington Northern, Inc. 301,098
1,000 Conrail, Inc. 66,375
2,500 Consolidated Freightways Inc. 52,813
----------
420,286
----------
TOTAL COMMON STOCK (65.5%)
(COST $5,259,783) $7,048,448
----------
</TABLE>
<TABLE>
<CAPTION>
MARKET
SHARES PREFERRED STOCK VALUE
- ------------------------------------------------------------------------------
<S> <C> <C>
ELECTRICAL EQUIPMENT (2.1%)
12,000 Westinghouse Electric Co., red.,
cum., conv. $ 225,000
-----------
OIL, ENERGY AND GAS (1.4%)
3,000 Howell Corp.
$3.50 Series A 147,000
-----------
REAL ESTATE (0.6%)
2,500 Oasis Residential, Inc.,
9.000% Series A 63,750
-----------
UTILITIES (1.5%)
6,300 Phillips Gas Co., 9.320% Series A 165,375
-----------
TOTAL PREFERRED STOCK (5.6%)
(COST $595,900) $ 601,125
-----------
TOTAL HOLDINGS
(COST $9,059,209) (a) $10,872,933
===========
</TABLE>
(a) Also represents cost for Federal income tax purposes.
* Non-income producing securities.
The accompanying notes are an integral part of these financial state
<PAGE> 70
ONE FUND, INC. JUNE 30, 1996
SCHEDULE OF INVESTMENTS GROWTH PORTFOLIO
<TABLE>
<CAPTION>
FACE MARKET
AMOUNT SHORT-TERM NOTES VALUE
- ------------------------------------------------------------------------------
<S> <C> <C>
AUTOMOTIVE AND RELATED (2.5%)
$300,000 Ford Motor Credit Corp.
5.400% 07-09-96 $ 299,640
----------
FINANCE (5.9%)
295,000 Associates Corp.
5.200% 07-03-96 294,912
400,000 Household Finance Corp.
5.370% 07-08-96 399,583
----------
694,495
----------
OIL, ENERGY AND NATURAL GAS (2.5%)
290,000 Chevron Oil
5.330% 07-05-96 289,828
----------
TOTAL SHORT-TERM NOTES (10.9%)
(COST $1,283,963) $1,283,963
----------
</TABLE>
<TABLE>
<CAPTION>
MARKET
SHARES COMMON STOCK VALUE
- ------------------------------------------------------------------------------
<S> <C> <C>
AEROSPACE (4.1%)
4,500 Allied Signal, Inc. $ 257,063
4,000 Rockwell International Corp. 229,000
----------
486,063
----------
AUTOMOTIVE AND RELATED (6.6%)
5,500 Arvin Industries, Inc. 122,375
1,500 Chrysler Corp. 93,000
7,000 * Custom Chrome Inc. 188,125
5,000 Magna International, Inc. 230,000
7,000 Walbro Corp. 141,750
----------
775,250
----------
BANKING (4.6%)
3,000 Charter One Financial Inc. 104,625
5,000 Community First Bankshares 117,500
10,000 First Colorado Bancorp 132,500
11,025 Franklin National Bank 115,763
2,500 Susquehanna Bancshares 66,875
----------
537,263
----------
BUILDING AND CONSTRUCTION (2.3%)
8,500 Hardinge Inc. 269,875
----------
BUSINESS SERVICES (9.4%)
2,500 First Data Corp. 199,063
6,500 Manpower Inc. 255,125
4,250 * Mastec Inc. 107,312
3,000 Reynolds and Reynolds 159,750
7,000 * Verifone, Inc. 295,750
4,500 Wackenhut Corp. Class B 82,687
----------
1,099,687
----------
CHEMICALS (1.2%)
11,000 * Canisco Resources Inc. 27,500
3,000 OM Group Inc. 117,750
----------
145,250
----------
CONSUMER GOODS (2.4%)
9,000 * Globe Business Resources 90,000
3,000 Panamerican Beverages Inc. 134,250
2,000 Stanhome Inc. 53,000
----------
277,250
----------
COMMUNICATIONS (5.1%)
6,500 * American Portable Telecom $69,875
7,000 * Atlantic Tele-network Inc. 168,000
7,000 * General Cable PLC 107,625
6,000 * Granite Broadcasting, Corp. 77,625
6,500 * Xpedite Systems Inc. 173,875
----------
597,000
----------
COMPUTER AND RELATED (14.5%)
6,000 * American Business Info. 109,500
9,000 * Cisco Systems Inc. 509,625
5,000 * Computron Software Inc. 24,375
9,000 * Continental Circuits Corp. 105,750
2,000 Hewlett Packard Co. 199,250
2,000 Intel Corp. 146,875
10,000 MacNeal-Schwendler Corp. 75,000
10,000 * Medar Inc. 103,750
1,000 * Microsoft Corp. 120,125
5,000 * Novell Inc. 69,375
2,750 * Teradyne Inc. 47,437
4,000 Texas Instruments, Inc. 199,500
----------
1,710,562
----------
DURABLE GOODS (0.8%)
5,000 * Zebra Technology Corp. 88,750
----------
ELECTRICAL EQUIPMENT (3.9%)
5,000 * Analog Devices, Inc. 127,500
4,500 BMC Industries, Inc. 129,375
4,000 Varian Associates, Inc. 207,000
----------
463,875
----------
ENTERTAINMENT AND LEISURE (1.6%)
5,000 Cedar Fair 186,875
----------
FINANCE (3.1%)
4,250 * Olympic Financial Ltd. 97,750
2,000 PHH Corp. 114,000
7,500 SEI Corp. 158,438
----------
370,188
----------
FOOD AND RELATED (1.0%)
10,000 * Buffets, Inc. 122,500
----------
INDUSTRIAL SERVICES (4.2%)
4,500 Minerals Technologies, Inc. 154,125
8,000 Regal Beloit Corp. 158,000
3,500 York International Corp. 181,125
----------
493,250
----------
INSURANCE (0.9%)
1,900 St. Paul Cos. 101,650
----------
MACHINERY (2.2%)
5,000 * Bridgeport Machines Inc. 82,500
2,900 Kysor Industrial Corp. 70,325
3,000 Trinity Industries, Inc. 102,000
----------
254,825
----------
</TABLE>
(continued)
<PAGE> 71
ONE FUND, INC. JUNE 30, 1996
SCHEDULE OF INVESTMENTS GROWTH PORTFOLIO (CONTINUED)
<TABLE>
<CAPTION>
MARKET
SHARES COMMON STOCK VALUE
- ------------------------------------------------------------------------------
<S> <C> <C>
MEDICAL AND RELATED (5.8%)
3,500 Baxter International 165,375
5,500 * Cephalon Inc. 108,625
4,400 Columbia HCA Healthcare 234,850
3,000 * Foundation Health Corp. 107,625
2,000 * Humana Inc. 35,750
1,000 * Quorum Health Group Inc. 26,375
-----------
678,600
-----------
METAL FABRICATING (1.7%)
10,000 Amcast Industrial Corp. 202,500
-----------
METALS AND MINING (1.2%)
7,500 Easco Inc. 61,875
6,000 Greenbrier Companies Inc. 83,250
-----------
145,125
-----------
OIL, ENERGY AND NATURAL GAS (5.3%)
5,000 * Cairn Energy USA Inc. 71,875
6,000 Camco International, Inc. 203,250
7,000 * Louis Dreyfus Natural Gas 105,000
8,000 Santa Fe Energy Resources 95,000
3,000 Williams Cos., Inc. 148,500
-----------
623,625
-----------
RETAIL (1.5%)
10,000 Family Dollar Stores 173,750
-----------
TEXTILES AND RELATED (1.1%)
8,000 Oxford Industries, Inc. 129,000
-----------
TRANSPORTATION (2.1%)
1,595 Burlington Northern Inc. 128,996
1,000 Conrail, Inc. 66,375
2,500 Consolidated Freightways Inc. 52,812
-----------
248,183
-----------
TOTAL COMMON STOCK (86.6%)
(COST $7,657,027) $10,180,896
-----------
</TABLE>
<TABLE>
<CAPTION>
MARKET
SHARES PREFERRED STOCK VALUE
- ------------------------------------------------------------------------------
<S> <C> <C>
ELECTRICAL EQUIPMENT (1.3%)
8,000 Westinghouse Electric Co., red.,
cum., conv. $ 150,000
-----------
OIL, ENERGY AND NATURAL GAS (0.8%)
2,000 Howell Corp.
$3.50 Series A 98,000
-----------
REAL ESTATE (0.3%)
1,250 Oasis Residential Inc., 9.000%
Series A 31,875
-----------
TOTAL PREFERRED STOCK (2.4%)
(COST $281,850) $ 279,875
-----------
TOTAL HOLDINGS
(COST $9,222,840)(A) $11,744,734
===========
</TABLE>
(a) Also represents cost for Federal income tax purposes.
* Non-income producing securities.
The accompanying notes are an integral part of these financial statements.
<PAGE> 72
ONE FUND, INC. JUNE 30, 1996
SCHEDULE OF INVESTMENTS SMALL CAP PORTFOLIO
<TABLE>
<CAPTION>
MARKET
SHARES COMMON STOCK VALUE
- ------------------------------------------------------------------------------
<S> <C> <C>
AUTOMOTIVE AND RELATED (3.8%)
3,500 * Custom Chrome Inc. $ 94,063
6,000 Defiance Inc. 36,750
2,000 Walbro Corp. 40,500
----------
171,313
----------
BANKING (6.1%)
4,000 Community First Bankshares 94,000
5,000 First Colorado Bancorp 66,250
5,407 Franklin National Bank 56,779
2,000 Susquehanna Bancshares 53,500
----------
270,529
----------
BUILDING AND CONSTRUCTION (4.1%)
4,000 Hardinge Inc. 127,000
4,000 * Zaring Homes, Inc. 55,000
----------
182,000
----------
BUSINESS SERVICES (3.4%)
2,000 Reynolds & Reynolds 106,500
2,500 Wackenhut Corp. Class B 45,937
----------
152,437
----------
CHEMICALS (3.0%)
3,000 Learonal Inc. 75,000
1,500 OM Group Inc. 58,875
----------
133,875
----------
COMMUNICATIONS (7.7%)
3,500 * American Portable Telecom 37,625
3,000 * Atlantic Tele-Network Inc. 72,000
5,000 * Comdial Corp. 43,125
3,000 * General Cable PLC 46,125
4,000 * Granite Broadcasting, Corp. 51,750
3,500 * Xpedite Systems Inc. 93,625
----------
344,250
----------
COMPUTER AND RELATED (6.3%)
4,000 * American Business Info. 73,000
3,000 * Computron Software Inc. 14,625
6,000 * Continental Circuits Corp. 70,500
3,000 * Ikos Systems, Inc. 63,375
5,000 MacNeal-Schwendler Corp. 37,500
2,000 * Medar Inc. 20,750
----------
279,750
----------
CONSUMER PRODUCTS (3.4%)
6,000 * Globe Business Resources 60,000
1,500 Stanhome Inc. 39,750
4,000 Versa Technologies 54,000
----------
153,750
----------
DURABLE GOODS (4.4%)
3,250 * Mastec Inc. 82,062
3,300 Myers Industries 61,462
3,000 * Zebra Technology Corp. 53,250
----------
196,774
----------
ELECTRICAL EQUIPMENT (2.7%)
2,500 BMC Industries Inc. 71,875
2,000 Federal Signal Corp. 47,000
----------
118,875
----------
ENTERTAINMENT AND LEISURE (1.3%)
1,500 Cedar Fair 56,062
----------
FINANCE (6.8%)
6,500 Bando McGlocklin Capital $ 71,500
2,750 * Olympic Financial LTD 63,250
1,500 PHH Corp. 85,500
4,000 SEI Corp. 84,500
----------
304,750
----------
FOOD AND RELATED (1.6%)
6,000 * Buffets, Inc. 73,500
----------
FORESTRY AND PAPER PRODUCTS (2.0%)
6,000 * Specialty Paperboard 87,750
----------
MACHINERY (2.1%)
2,000 * Bridgeport Machines Inc. 33,000
2,500 Kysor Industrial Corp. 60,625
----------
93,625
----------
MEDICAL AND RELATED (6.4%)
9,000 * Bio Whittaker Inc. 75,375
3,000 * Cephalon Inc. 59,250
4,000 Healthcare Realty Trust 95,000
3,000 * ICU Medical 41,250
625 * Quorum Health Group Inc. 16,484
----------
287,359
----------
METAL AND MINING (3.1%)
2,500 Amcast Industrial Corp. 50,625
4,500 Easco Inc. 37,125
3,500 Greenbrier Companies Inc. 48,563
----------
136,313
----------
OIL, ENERGY AND NATURAL GAS (9.4%)
5,000 * Cairn Energy USA Inc. 71,875
2,500 Camco International, Inc. 84,688
5,000 * Louis Dreyfus Natural Gas 75,000
8,000 Santa Fe Energy Resources 95,000
2,000 WD-40 Co. 94,000
----------
420,563
----------
REAL ESTATE (4.8%)
6,000 Commercial Net Lease Realty 83,250
3,000 First Industrial Realty Trust 70,500
3,000 Liberty Property Trust 59,625
----------
213,375
----------
RETAIL (1.9%)
5,000 Family Dollar Stores 86,875
----------
TRANSPORTATION (0.7%)
1,500 * Genesee & Wyoming 30,750
----------
MISCELLANEOUS (4.5%)
6,000 * Offshore Logistics Inc. 83,250
2,000 Pittston Brink's Group 58,250
1,000 Pittston Burlington Group 21,625
1,000 * Whittman-Hart Inc. 36,000
----------
199,125
----------
TOTAL COMMON STOCK (89.5%)
(COST $3,850,096) $3,993,600
----------
</TABLE>
(continued)
<PAGE> 73
ONE FUND, INC. JUNE 30, 1996
SCHEDULE OF INVESTMENTS SMALL CAP PORTFOLIO (CONTINUED)
<TABLE>
<CAPTION>
MARKET
SHARES PREFERRED STOCK VALUE
- ------------------------------------------------------------------------------
<S> <C> <C>
REAL ESTATE (0.7%)
1,250 Oasis Residential, Inc.,
9.000% Series A $ 31,876
----------
OIL, ENERGY AND NATURAL GAS (1.1%)
1,000 Howell Corp.
$3.50 Series A 49,000
----------
TOTAL PREFERRED STOCK (1.8%)
(COST $82,350) $ 80,876
----------
</TABLE>
<TABLE>
<CAPTION>
FACE MARKET
AMOUNT REPURCHASE AGREEMENT VALUE
- ------------------------------------------------------------------------------
<S> <C> <C>
BANKING (8.1%)
$360,000 Provident Bank 4.700% due 07-01-96
repurchase price $360,188
collateralized by U.S. Treasury Notes,
due 08-15-96 (Cost $360,000) $ 360,000
----------
TOTAL REPURCHASE AGREEMENTS
(8.1%) (COST $360,000) $ 360,000
----------
TOTAL HOLDINGS
(COST $3,932,446)(a) $4,434,476
==========
</TABLE>
(a) Also represents cost for Federal income tax purposes.
* Non-income producing securities
The accompanying notes are an integral part of these financial statements.
<PAGE> 74
ONE FUND, INC. JUNE 30, 1996
SCHEDULE OF INVESTMENTS INTERNATIONAL PORTFOLIO
<TABLE>
<CAPTION>
MARKET
SHARES COMMON AND PREFERRED STOCK VALUE
- -------------------------------------------------------------------------------
<S> <C> <C>
JAPAN (20.1%)
15,000 Aida Engineering Limited (19) $ 125,473
3,000 Asatsu Inc. (20) 129,989
3,000 Chofu Seisakusho (9) 74,709
50,000 Dai Tokyo Fire Marine Inc. Co. Ltd.(18) 376,283
35,000 Dowa Fire & Marine (18) 190,924
1,500 Hitachi Ltd. ADR (11) 140,625
12,000 Fuji Photo Film Co. Ltd. (9) 378,746
25,000 * Iino Kaiun Kaisha (5) 135,234
5,000 Ito-Yokado Co. Ltd. (28) 301,482
25,000 Nisshinbo Industries Inc. (8) 246,294
10,000 Shimano Inc. (9) 178,791
25,000 Shoei Co. (27) 294,185
1,800 Toho Co. (20) 318,541
3,000 Tsutsumi Jewelry Co. (9) 145,040
----------
3,036,316
----------
FRANCE (9.5%)
2,000 Compagnic Generale des Eaux (33) 223,143
2,500 Elf Aquitaine (12) 183,656
2,000 Emin Leydier (24) 176,574
3,000 Gaumont SA (20) 224,113
2,000 Legrand ADP (10) 234,785
1,000 Nicolas Schlumberger et Cie (19) 131,945
1,000 Promodes C.I. (28) 181,425
350 Taittinger (13) 74,976
----------
1,430,617
----------
LATIN AMERICA (7.5%)
30,000 Antofagasta Holding plc (21) 150,340
5,500 Bladex (3) 309,375
25,000 Cresud S.A. (1) 50,519
150,000 Ledesma S.A. (1) 216,081
300,000 Siderca S.A.I.C. (12) 409,654
----------
1,135,969
----------
SWITZERLAND (7.2%)
50 Bank for Intl. Settements (3) 438,772
500 Kuehne & Nagel Intl. AG (32) 282,010
75 Lindt & Sprungli AG PC (9) 128,640
50 Schindler Holding AG PC (5) 53,052
100 Schindler Warrants AG PC (5) 180
500 Sika Finanz AG Bearer (7) 121,659
200 Vetropack Holdings AG PC (23) 62,226
----------
1,086,539
----------
CANADA (5.1%)
10,000 Canadian Pacific Ltd. (34) 220,000
5,000 Dofasco, Inc. (30) 73,689
2,750 Franco-Nevada Mining Corp. (21) 174,414
15,000 Noranda, Inc. (21) 307,402
----------
775,505
----------
GERMANY (4.6%)
7,500 Bayer AG (7) 263,508
1,000 Buderus AG (5) 423,187
----------
686,695
----------
NETHERLANDS (4.3%)
4,500 German City Estates NV (27) 57,925
3,500 Apothekers Cooperatie OPG (17) 93,587
4,500 Randstad Holding NV (29) 331,754
5,000 Philips Electronics NV ADR (11) 163,125
----------
646,391
----------
NEW ZEALAND (4.2%)
50,000 Apple Fields, Ltd. (14) $21,973
100,549 Carter Holt Harvey Limited (14) 229,910
130,000 Shortland Properties, Ltd. (27) 73,197
240,260 Tasman Agriculture Limted (1) 206,218
15,000 Wilson & Horton Ltd. (1) 99,908
----------
631,206
----------
HONG KONG (3.7%)
500,000 CDL Hotels Intl. Ltd. (16) 274,523
250,000 Shaw Brothers (Hong Kong) Ltd.(20) 290,671
----------
565,194
----------
SINGAPORE (3.4%)
75,000 Clipsal Industries Ltd. (10) 210,750
15,000 Singapore Bus Service Ltd. (32) 106,293
100,000 Thakral Corporation (10) 75,500
50,000 Times Publishing Ltd. (25) 121,882
----------
514,425
----------
SWEDEN (3.3%)
8,500 AssiDoman AB (14) 197,811
12,000 Bylock & Nordsjofrakt AB 'B' (32) 118,393
7,000 IRO AB (19) 71,699
7,500 Orrefors Kosta Boda 'Free' (9) 111,841
----------
499,744
----------
INDONESIA (2.7%)
5,500 Freeport McMoRan Pfd. 'C' (22) 176,000
10,500 Freeport McmoRan Pfd. 'D' (22) 229,688
----------
405,688
----------
UNITED KINGDOM (1.8%)
25,000 Berisford plc (34) 70,205
45,000 * McBride plc (9) 91,461
25,000 Royal Doulton plc (9) 106,666
----------
268,332
----------
DENMARK (1.4%)
3,500 Carlsberg International A/S 'B' (9) 205,619
----------
NORWAY (1.3%)
15,000 Schibsted AS (20) 193,661
----------
ITALY (1.2%)
300,000 * Montedison NC Savings SPA (34) 179,661
----------
FINLAND (0.8%)
2,500 Vaisala Oy A (5) 126,037
----------
MEXICO (0.7%)
25,000 Industrias Penoles SA de CV (21) 114,371
----------
ISRAEL (0.6%)
35,000 Israel Land Development Co. Ltd. (34) 86,521
----------
SPAIN (0.5%)
1,000 Corporacion Financiera Alba SA (34) 83,076
----------
BELGIUM (0.6%)
571 Engrais Rosier SA (34) 83,029
----------
</TABLE>
(continued)
<PAGE> 75
ONE FUND, INC. JUNE 30, 1996
SCHEDULE OF INVESTMENTS INTERNATIONAL PORTFOLIO (CONTINUED)
<TABLE>
<CAPTION>
MARKET
SHARES COMMON AND PREFERRED STOCK VALUE
- -------------------------------------------------------------------------------
<S> <C> <C>
SOUTH KOREA (0.5%)
10,000 L.G. Electronics Pfd GDR (11) $ 75,500
-----------
TURKEY (0.4%)
2,662,640 Medya Holdings SA (25) 58,129
-----------
MISCELLANEOUS (3.2%)
12,000 North European Oil Royalty Tr. (12) 160,500
3,000 Minorco ADR (34) 71,250
85,000 Lonrho plc (34) 243,973
-----------
475,723
TOTAL COMMON & PREFERRED STOCK -----------
(88.6%) ( COST $11,510,083) $13,363,948
===========
</TABLE>
<TABLE>
<CAPTION>
FACE MARKET
AMOUNT SHORT-TERM NOTES VALUE
- -------------------------------------------------------------------------------
<S> <C> <C>
FINANCE (5.3%)
$138,000 American Express
5.390% 07-01-96 (15) $138,000
655,000 Unilever Capital Corp.
5.270% 07-09-96 (15) 654,233
--------
792,233
TOTAL SHORT-TERM NOTES (5.3%) --------
( COST $792,233) $792,233
--------
</TABLE>
<TABLE>
<CAPTION>
FACE MARKET
AMOUNT NON-CONVERTIBLE BONDS VALUE
- -------------------------------------------------------------------------------
<S> <C> <C>
U.S. DOLLAR (0.8%)
$150,000 Federal Republic of Brazil 6.500%
due 04-15-06 (15) $120,516
--------
TOTAL NON CONVERTIBLE BONDS
(0.8%) ( COST $93,942) $120,516
--------
</TABLE>
<TABLE>
<CAPTION>
FACE MARKET
AMOUNT CONVERTIBLE DEBENTURES VALUE
- -------------------------------------------------------------------------------
<S> <C> <C>
U.S. DOLLAR (3.6%)
$250,000 Cheil Foods & Chemicals Co.
3.000% due 12-31-06 (9) $ 307,500
75,000 Ssangyong Cement Co.
3.000% due 12-31-05 (6) 92,625
50,000 PT Pabrik Kertas Tjiwi Kimia
7.250% due 4-12-01 (24) 47,875
100,000 Tubos de Acero de Mexico SA
7.500% due 6-12-97 (12) 99,000
-----------
547,000
-----------
NON-U.S. DOLLAR (1.2%)
170,000 NZ Shortland Properties Inc.
7.500% due 12-31-98 (27) 101,556
7,000,000 JPY Nippon Yusen
2.000% due 09-29-00 (32) 77,902
-----------
179,458
Total Convertible Debentures -----------
(4.8%) ( Cost $651,570) $ 726,458
-----------
Total Holdings
(Cost $13,047,828)(a) $15,003,155
===========
</TABLE>
(a) Also represents cost for Federal income tax purposes.
* Non-income producing securities.
<TABLE>
<CAPTION>
FOREIGN CURRENCIES INDUSTRY CLASSIFICATIONS
<S> <C> <C>
NZ - New Zealand Dollar (1) Agriculture (18) Insurance
JPY - Japanese Yen (2) Automotive (19) Machinery
(3) Banking (20) Media
(4) Building Products (21) Metal (non-ferrous)
(5) Capital Goods (22) Mining
(6) Cement (23) Packaging
(7) Chemicals (24) Paper
(8) Computer Products (25) Publishing
(9) Consumer Products (26) Rail Equipment
(10) Electrical Products (27) Real Estate
(11) Electronics (28) Retailing
(12) Energy and Oil (29) Services
(13) Food & Beverage (30) Steel
(14) Forest Products (31) Textile
(15) Governmental (32) Transportation
(16) Hotels (33) Utilities
(17) Health Care (34) Miscellaneous
</TABLE>
The accompanying notes are an integral part of these financial statements
<PAGE> 76
ONE FUND, INC. JUNE 30, 1996
SCHEDULE OF INVESTMENTS GLOBAL CONTRARIAN PORTFOLIO
<TABLE>
<CAPTION>
MARKET
SHARES COMMON AND PREFERRED STOCK VALUE
- ------------------------------------------------------------------------------
<S> <C> <C>
U.S STOCKS
CHEMICALS (1.1%)
5,000 Lawter International Inc. $ 62,500
----------
CAPITAL GOODS (0.8%)
1,000 Bandag Inc. Class 'A' 46,875
----------
CONSUMER PRODUCTS (6.1%)
2,000 Allen Organ Co. Class 'B' 75,500
1,300 Dole Foods Company, Inc. 55,900
10,000 Furniture Brands Intl., Inc. 110,000
5,000 Unifirst Corp. 105,625
----------
347,025
----------
ELECTRONICS (3.5%)
5,000 * Avid Technology, Inc. 92,500
5,000 Zero Corp. 106,875
----------
199,375
----------
FINANCE (4.8%)
5,000 * Classic Bancshares Inc. 52,500
7,000 East Texas Financial Services 101,500
5,000 * First Federal Financial Corp. 55,000
5,000 Southern Banc Company, Inc. 63,125
----------
272,125
----------
FOREST PRODUCTS (3.3%)
500 Georgia Pacific Corporation 35,500
2,500 Greif Brothers Corp. Class 'A' 78,438
2,000 Rayonier Inc. 76,000
----------
189,938
----------
MEDIA (2.0%)
2,000 Cowles Media Co. Pfd. 48,000
8,000 Integrity Music, Inc. 'A' 18,000
5,000 * Plasti Line, Inc. 45,000
----------
111,000
----------
METALS AND MINERALS (2.4%)
3,000 Asarco, Inc. 82,875
1,000 Reynolds Metals Company 52,125
----------
135,000
----------
OIL AND ENERGY (4.9%)
6,500 North European Oil Royalty Trust 86,938
1,300 Rochester & Pittsburgh Coal Co. 40,950
10,000 San Juan Basin Royalty Trust 61,250
2,957 * Weatherford Enterra Corporation 88,710
----------
277,848
----------
REAL ESTATE (2.7%)
2,000 Alico, Inc. 39,000
2,000 Catellus Development Pfd. 106,000
433 * Castle & Cooke, Inc. 6,928
----------
151,928
----------
UTILITIES (0.8%)
2,000 Montana Power Co. 44,500
----------
MISCELLANEOUS (1.1%)
6,000 * Kaiser Ventures Inc. 61,500
----------
TOTAL U.S. (33.5%) $1,899,614
----------
FOREIGN
JAPAN (8.2%)
5,000 Airport Facilities Co., Ltd. (32) $ 43,375
6,000 Dai Tokyo Fire & Marine Ins. Co., Ltd. (18) 45,154
10,000 Dowa Fire & Marine Ins. Co., Ltd. (18) 54,550
2,500 Fuji Photo Film Co. Ltd. (9) 78,905
7,000 Nittetsu Mining Co., Ltd. (22) 71,517
400 Toho Co. (20) 70,787
4,000 Tokio Marine Fire & Ins. Co., Ltd. (18) 53,272
3,000 Yoshimoto Kogyo Co. (20) 45,427
----------
462,987
----------
FRANCE (6.3%)
5 Bank for Intl. Settlements (3) 41,330
650 Emin Leydier (14) 57,386
83 FIMALAC SA (34) 36,381
1,100 Gaumont SA (20) 82,175
500 Legrand ADP (10) 58,696
250 Nicolas Schlumberger et Cie (19) 32,987
600 Rougier SA (14) 50,062
----------
359,017
----------
LATIN AMERICA (4.2%)
10,000 Antofagasta Holding plc (21) 50,113
150,000 * Grupo Fernandez Editores (25) 61,107
25,000 IRSA Inversiones y Rep. SA (27) 85,532
30,000 Ledesma SA (1) 43,216
----------
239,968
----------
GERMANY (4.1%)
2,500 Bayer AG (7) 87,836
200 Buderus AG (5) 84,637
100 Axel Springer Verlag AG (20) 62,330
----------
234,803
----------
SWITZERLAND (4.0%)
5 Bank for Intl. Settlements (3) 43,877
200 Kuehne & Nagel International AG (3) 112,804
65 Schindler Holding AG PC (5) 68,967
65 Schindler Holding AG 'Warrants' (5) 117
----------
225,765
----------
INDONESIA (3.2%)
2,500 Freeport McMoRan Pfd. 'D' (22) 54,687
4,000 Freeport McMoRan Pfd. 'C' (22) 128,000
----------
182,687
----------
NEW ZEALAND (3.2%)
50,000 Carter Holt Harvey Ltd. (14) 114,327
50,000 Shortland Properties, Ltd. (27) 28,153
50,000 Wrightson Ltd. (1) 36,736
----------
179,216
----------
BELGIUM (2.2%)
376 Engrais Rosier SA (34) 54,674
30 Socfinasia SA (34) 68,974
----------
123,648
----------
UNITED KINGDOM (2.2%)
45,000 ED & F Man (34) 121,482
----------
SOUTH AFRICA (2.1%)
10,000 Vaal Reefs Exploration Ltd. ADR (21) 80,000
2,500 Western Areas Gold Mining Ltd. (21) 38,968
----------
118,968
----------
</TABLE>
(continued)
<PAGE> 77
ONE FUND, INC. JUNE 30, 1996
SCHEDULE OF INVESTMENTS GLOBAL CONTRARIAN PORTFOLIO
<TABLE>
<CAPTION>
MARKET
SHARES COMMON AND PREFERRED STOCK VALUE
- ------------------------------------------------------------------------------
<S> <C> <C>
HONG KONG (2.0%)
100,000 CDL Hotels Intl. Ltd. (16) $ 54,905
50,000 Shaw Brothers (Hong Kong) Ltd.(20) 58,134
----------
113,039
----------
PORTUGAL (1.8%)
8,000 Espirito Santo Financial Holdings (3) 102,000
----------
SWEDEN (1.7%)
5,000 Bylock & Nordsjofrakt AB 'B' (32) 49,331
2,500 Terra Mining AB (22) 47,824
----------
97,155
----------
CANADA (1.1%)
3,000 Noranda, Inc. (21) 61,480
----------
SINGAPORE (0.8%)
6,500 Singapore Bus Service Ltd. (32) 46,060
----------
AUSTRALIA (0.8%)
30,000 Barlile Corp. Limited (1) 44,862
----------
NETHERLANDS (0.6%)
2,500 German City Estates NV (27) 32,181
----------
ISRAEL (0.4%)
10,000 Israel Land Development Co. Ltd. (34) 24,720
----------
MISCELLANEOUS (1.3%)
25,000 Lonrho plc (34) 71,757
----------
TOTAL FOREIGN (50.2%) $2,841,795
----------
TOTAL COMMON & PREFERRED STOCK
(83.7%) (COST $4,315,737) $4,741,409
----------
<CAPTION>
FACE MARKET
AMOUNT SHORT-TERM NOTES VALUE
- ------------------------------------------------------------------------------
<S> <C> <C>
FINANCE (2.2%)
$121,000 American Express Credit Corp.
5.390% due 07-01-96 $121,000
--------
CONSUMER PRODUCTS (4.3%)
246,000 Coca Cola Co.
5.300% due 07-24-96 245,167
Total Short-Term Notes (6.5%) --------
(Cost $366,167) $366,167
--------
<CAPTION>
FACE MARKET
AMOUNT NON-CONVERTIBLE BONDS VALUE
- ------------------------------------------------------------------------------
<S> <C> <C>
U.S. DOLLAR
$50,000 Aracruz Cellulose SA 9.000%
due 07-22-98 (14) $ 49,875
50,000 Cemex SA 10.000%
due 11-05-99 (6) 49,937
50,000 Noble Drilling 9.250%
due 10-01-03 (12) 49,875
150,000 Federal Republic Of Brazil EI FRN
6.500% due 04-15-06 (15) 120,516
148,500 Republic of Argentina FRB
6.312% due 03-31-05 (15) 116,062
50,000 PT Pabrik Kertas Tjiwi Kimia
13.250% due 08-01-01 (14) 56,063
--------
TOTAL NON-CONVERTIBLE BONDS
(7.8%) (COST $389,835) $442,328
--------
<CAPTION>
FACE MARKET
AMOUNT CONVERTIBLE DEBENTURES VALUE
- ------------------------------------------------------------------------------
<S> <C> <C>
NON U.S. DOLLAR
$100,000 NZ Shortland Properties Inc.
7.500% due 12-31-98 (27) $ 59,738
100,000 FF Immobilier Hoteliere
5.000% due 01-01-01 (16) 31,046
----------
TOTAL CONVERTIBLE DEBENTURES
(1.6%) (COST $97,642) $ 90,784
----------
TOTAL HOLDINGS
(COST $5,169,381)(A) $5,640,688
==========
</TABLE>
(a) Also represents cost for Federal income tax purposes.
* Non-income producing securities.
FOREIGN CURRENCIES
NZ - New Zealand Dollar
FF - French Franc
<TABLE>
<CAPTION>
INDUSTRY CLASSIFICATIONS
<S> <C> <C>
(1) Agriculture (12) Energy and Oil (23) Packaging
(2) Automotive (13) Food & Beverage (24) Paper
(3) Banking (14) Forest Products (25) Publishing
(4) Building Products (15) Governmental (26) Rail Equipment
(5) Capital Goods (16) Hotels (27) Real Estate
(6) Cement (17) Health Care (28) Retailing
(7) Chemicals (18) Insurance (29) Services
(8) Computer Products (19) Machinery (30) Steel
(9) Consumer Products (20) Media (31) Textile
(10) Electrical Products (21) Metal (non-ferrous) (32) Transportation
(11) Electronics (22) Mining (33) Utilities
(34) Miscellaneous
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE> 78
ONE FUND, INC.
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1996
(1) BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES
ONE Fund, Inc. (Fund) is registered under the Investment Company Act of
1940 as amended (the "1940 Act"), as a diversified open-end management
investment company. The Fund is a series investment company which consists
of eight separate investment portfolios that seek the following investment
objectives:
MONEY MARKET PORTFOLIO -- current income consistent with preservation of
capital and liquidity.
TAX-FREE INCOME PORTFOLIO -- high current income exempt from federal income
taxes.
INCOME PORTFOLIO -- high current income. Preservation of capital is a
secondary objective.
INCOME & GROWTH PORTFOLIO -- moderate income with the potential for
increasing income over time. Growth of capital is also a primary objective.
GROWTH PORTFOLIO -- long-term capital growth.
SMALL CAP PORTFOLIO -- maximum capital growth by investing primarily in
common stocks of small and medium sized companies.
INTERNATIONAL PORTFOLIO -- long-term capital growth by investing primarily
in common stocks of foreign companies.
GLOBAL CONTRARIAN PORTFOLIO -- long-term growth of capital by investing in
foreign and domestic securities believed to be under valued or presently
out of favor.
The following is a summary of significant accounting policies:
Investments in the Money Market Portfolio are valued at amortized cost in
accordance with Rule 2a-7 which approximates market value. Premiums and
discounts are amortized on a straight line basis. For the Money Market,
Income and the Tax-Free Income Portfolios, all of the undistributed net
income is accrued as daily dividends to shareholders of record immediately
before each computation of the net asset value of these portfolios.
Dividends (representing net investment income) will normally be paid
monthly to the shareholders of these three portfolios. Distributions
arising from net investment income from the remaining portfolios are
declared and paid to shareholders quarterly and are recorded on the
ex-dividend date. Accumulated net realized capital gains are distributed to
shareholders at least once a year.
For all other portfolios, securities which are traded on U.S. and foreign
stock exchanges or in the over-the-counter markets are valued at the last
sale price or, if there has been no sale that day, at the last bid price
reported as of 4 p.m. Eastern time on each day the New York Stock Exchange
is open for unrestricted trading. Over-the-counter securities are valued at
the last bid price as of that time. Short-term investments (investments
with remaining maturities of 60 days or less) are valued at amortized cost
and fixed income securities are valued by using market quotations, or
independent pricing services which use prices provided by market markers or
estimates of market values obtained from yield data relating to instruments
or securities with similar characteristics. All investments and cash quoted
in foreign currencies are valued daily in U.S. dollars on the basis of the
foreign currency exchange rates prevailing at the time of such valuation.
Foreign currency exchange rates are generally determined prior to 4 p.m.
Eastern time. Occasionally, events affecting the value of foreign
investments and such exchange rates occur between the time at which they
are determined and the time of valuation, which in the case of the
International and Global Contrarian Portfolios, would not be reflected in
the computation of the portfolios' net asset values. If events materially
affecting the value of such securities or currency exchange rates occurred
during such time period, the securities are valued at their fair value as
determined in good faith by or under the direction of the Fund's Board of
Directors.
In connection with purchases and sales of securities denominated in foreign
currencies, the Fund may enter into forward foreign currency exchange
contracts (forward contract). A forward contract is a commitment to
purchase or sell a foreign currency at a future date, at a negotiated rate.
Additionally, the Fund may enter into such contracts to hedge certain other
foreign currency denominated investments. These contracts are recorded at
market value, and the related realized and unrealized foreign exchange
gains and losses are included in the statement of operations. In the event
that counterparties fail to settle these currency contracts or the related
foreign security trades, the Fund could be exposed to foreign currency
fluctuations.
The Fund may invest in two kinds of financial futures contracts: stock
index futures contracts and interest rate futures contracts. Stock index
futures contracts are contracts developed by and traded on national
commodity exchanges whereby the buyer will, on a specified future date, pay
or receive a final cash payment equal to the difference between the actual
value of the stock index on the last day of the contract and the value of
the stock index established by the contract multiplied by the specific
dollar amount set by the exchange. Futures contracts may be based on
broad-based stock indexes such as the Standard & Poor's 500 Index or on
narrow-based stock indexes. A particular index will be selected according
to Ohio National Investments, Inc. ("ONI's"), the investment advisor to the
Fund, investment strategy for the particular portfolio. The Fund may enter
into such contracts to reduce the risk of fluctuation of portfolio
securities values or to take advantage of expected market flucuations.
(continued)
<PAGE> 79
ONE FUND, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1996
Securities transactions are recorded on a trade date basis. Dividend income
is recognized on the ex-dividend date (except in the case of the
International and Global Contrarian Portfolios in which dividends are
recorded as soon after the ex-dividend date as the fund becomes aware of
such dividends), and interest income is accrued daily as earned. Net
realized gain or loss on investments and foreign exchange transactions are
determined on the basis of identified cost.
The books and records of the International and Global Contrarian Portfolios
are maintained in U.S. dollars. Foreign currency amounts are translated
into U.S. dollars on the following basis:
(1) market value of investments, other assets and liabilities -- at
exchange rates prevailing at the end of the period.
(2) purchases and sales of investments, income and expenses -- at the rates
of exchange prevailing on the respective dates of such transactions.
Although the net assets and the market value of the portfolios are
presented at the foreign exchange rates at the end of the period, the
portfolios do not generally isolate the effect of fluctuations in foreign
exchange rates from the effect of changes in the market price of the
investments. However, the portfolios do isolate the effect of fluctuations
in foreign exchange rates when determining the gain or loss upon sale or
maturity of foreign-currency denominated debt obligations pursuant to
Federal income tax regulations.
Foreign investment and currency transactions may involve certain
considerations and risks not typically associated with investing in U.S.
companies and the U.S. Government. These risks, including re-evaluation of
currency and future adverse political and economic developments, could
cause investments and their markets to be less liquid and prices more
volatile than those of comparable U.S. companies and the U.S. Government.
Each portfolio may acquire repurchase agreements from member banks of the
Federal Reserve System which ONI deems creditworthy under guidelines
approved by the Board of Directors, subject to the seller's agreement to
repurchase such securities at a mutually agreed upon date and price. The
repurchase price generally equals 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, is required to maintain as collateral
for the repurchase transaction securities in which the portfolio has a
perfected security interest with a value not less than 100% of the
repurchase price (including accrued interest). Securities subject to
repurchase agreements are held by the Fund's custodian or another qualified
custodian or in the Federal Reserve/Treasury book-entry system. Repurchase
agreements are considered to be loans by the portfolio under the 1940 Act.
For Federal income tax purposes, the Tax- Free Income and Income Portfolios
had net capital losses of $7,298 and $110,897 respectively at June 30,
1996. If not offset by subsequent capital gains, $50,933 will expire June
30, 2003 in the Income Portfolio and $7,298 and $59,964 will expire June
30, 2004 in the Tax-Free Income and Income Portfolios, respectively. The
Board of Directors does not intend to authorize a distribution of any net
realized gain for the portfolios until the capital loss carryovers have
been offset or expire.
It is the policy of the Fund to distribute to its shareholders
substantially all of its taxable income, thus gaining relief from Federal
income taxes under provisions of current tax regulations applicable to
investment companies of this type. Accordingly, no provision for Federal
income taxes has been made.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of increases and decreases in
net assets from operations during the reporting period. Actual results
could differ from those estimates.
The gross unrealized appreciation and depreciation of investments in each
portfolio as of June 30, 1996 were as follows:
<TABLE>
<CAPTION>
PORTFOLIO
----------------------------------------------------------------------------------------------------
MONEY TAX-FREE INCOME & SMALL INTER- GLOBAL
MARKET INCOME INCOME GROWTH GROWTH CAP NATIONAL CONTRARIAN
----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Gross unrealized:
Appreciation .... $ -- $420,367 $ 85,528 $2,153,386 $3,070,363 $ 741,040 $2,580,415 $ 690,367
Depreciation .... (10,898) (77,269) (339,662) (548,469) (239,010) (625,088) (219,060)
----------------------------------------------------------------------------------------------------
Net unrealized
Appreciation .... $ -- $409,469 $ 8,259 $1,813,724 $2,521,894 $ 502,030 $1,955,327 $ 471,307
====================================================================================================
</TABLE>
(continued)
<PAGE> 80
ONE FUND, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1996
The Money Market, Income, Income & Growth and Growth Portfolios were
organized on May 12, 1992 with the commencement of operations on August 18,
1992. The International Portfolio was organized on March 18, 1993 with
commencement of operations on April 30, 1993. The Small Cap, Tax-Free
Income and Global Contrarian Portfolios were organized on September 15,
1994 with the commencement of operations on November 1, 1994.
Organizational expenses of approximately $68,000 were incurred with the
start up of the original four portfolios, $11,590 with the start up of the
International Portfolio and $7,813 with the Small Cap, Tax-Free Income and
Global Contrarian Portfolios. Such expenses will be charged against
operations on a straight line basis over a period of 60 months from the
commencement of operations of the respective portfolios. The Fund's
sponsoring entity, Ohio National Life Insurance Company (ONLIC), has agreed
that it shall continue to hold the intial shares purchased by it for at
least as long as unamortized deferred organizational expenses continue to
be carried as an asset of the Fund. The initial shares purchased were
25,000 shares of the Money Market Portfolio, 2,500 shares each of the
Income, Income & Growth and Growth Portfolios and 100 shares each of the
International, Small Cap, Tax-Free Income and Global Contrarian Portfolios.
ONLIC and its affiliates have also purchased additional shares of each
portfolio and as of June 30, 1996 the additional shares owned were as
follows: 11,844,570 shares of the Money Market Portfolio, 544,462 shares of
the Tax-Free Income Portfolio, 496,855 shares of the Income Portfolio,
404,431 shares of the Income & Growth Portfolio, 289,013 shares of the
Growth Portfolio, 210,852 shares of the Small Cap Portfolio and 264,296
shares of the Global Contrarian Portfolio.
(2) INVESTMENT TRANSACTIONS
Purchases and sales of investment securities (excluding short-term
securities) from July 1, 1995 to June 30, 1996 were as follows:
<TABLE>
<CAPTION>
PORTFOLIO
----------------------------------------------------------------------------------------------------
MONEY TAX-FREE INCOME & SMALL INTER- GLOBAL
MARKET INCOME INCOME GROWTH GROWTH CAP NATIONAL CONTRARIAN
----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Common and Preferred
Stocks and bonds:
Purchases............ $ -- $938,547 $799,239 $2,173,061 $ 3,938,170 $2,373,624 $ 4,020,828 $2,098,419
----------------------------------------------------------------------------------------------------
Sales................ -- 477,250 185,630 545,122 1,822,326 1,041,545 2,571,099 1,166,746
----------------------------------------------------------------------------------------------------
U. S. Government:
Purchases ........... -- -- -- -- -- -- -- --
----------------------------------------------------------------------------------------------------
Sales................ -- -- 406,969 -- -- -- -- --
====================================================================================================
</TABLE>
(3) INVESTMENT ADVISORY AGREEMENT, SUB-ADVISORY AGREEMENT AND TRANSACTIONS WITH
AFFILIATED PERSONS
The Fund has an investment advisory agreement with ONI, a wholly owned
subsidiary of ONLIC, under the terms of which ONI provides portfolio
management and investment advice to the Fund and administers its other
affairs, subject to the supervision of the Fund's Board of Directors. As
compensation for its services, the Fund pays ONI a fee based on the average
daily net asset value of each portfolio's assets.
For assets held in the Money Market, Tax-Free Income, Income, Income &
Growth, Growth and Small Cap Portfolios, the fees are as follows:
<TABLE>
<CAPTION>
PORTFOLIO
---------------------------------------------------------------
MONEY TAX-FREE INCOME & SMALL
MARKET INCOME INCOME GROWTH GROWTH CAP
---------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
First $100 mil ..... 0.30% 0.60% 0.50% 0.50% 0.50% 0.65%
Next $150 mil ...... 0.25% 0.50% 0.40% 0.40% 0.40% 0.55%
Over $250 mil ...... 0.20% 0.40% 0.30% 0.30% 0.30% 0.45%
</TABLE>
For the International and Global Contrarian Portfolios, ONI is paid a fee
at an annual rate of 0.90% of each Portfolios' average daily net asset
values. ONI then pays Societe Generale Asset Management Corporation (SGAM)
fees at an annual rate of 0.75% of the average daily net asset value for
directing the investment and reinvestment of each portfolios' assets
pursuant to a sub-advisory agreement between ONI and SGAM dated May 1,
1996. On May 1,1996, ONI succeeded O.N. Investment Management Company
("ONIMCO") as the Fund's investment adviser. Currently, the entire
management fee for the Money Market portfolio and one-half of the
management fees for the Tax-Free Income, Income, Income & Growth, Growth
and Small Cap Portfolios are being waived by
(continued)
<PAGE> 81
ONE FUND, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
JUNE 30,1996
ONI. Management fees waived by ONI and ONIMCO for the year ended June 30,
1996 were $48,270 ($.003 per share), $18,284 ($.033 per share), $18,095
($.024 per share), $22,949 ($.031 per share), $23,795 ($.037 per share),
and $12,132 ($.038 per share) for the Money Market, Tax Free Income,
Income, Income & Growth, Growth and Small Cap Portfolios, respectively.
Under the agreement between the Fund and ONI, ONI has agreed to reimburse
the portfolios for expenses, other than the advisory fees, 12b-1 fees,
taxes and interest, in excess of 1% of their average daily net assets. For
the year ended June 30, 1996 the reimbursement to the Global Contrarian
Portfolio by ONI and ONIMCO was $12,200.
Each director who is not an officer of the Fund or an employee of ONI or
its corporate affiliates is paid a quarterly retainer fee of $850 plus $200
for each meeting attended.
The Fund's transfer agent and dividend paying agent is The Provident Bank,
One East Fourth Street, Cincinnati, Ohio. The Provident Bank is also the
custodian for all Portfolios other than the International and Global
Contrarian Portfolios. The custodian for the International and Global
Contrarian Portfolios is Investors Fiduciary Trust Company, 127 West Tenth
Street, Kansas City, Missouri. International and Global Contrarian
Portfolio assets held outside the United States are held under subcustodial
agreements between the depository and Investors Fiduciary Trust Company,
subject to approval by the Board of Directors of the Fund.
Certain directors and officers of the Fund are also directors and officers
of ONI and ONLIC.
(4) CAPITAL SHARE TRANSACTIONS
Capital share transactions for the years ended June 30,1996 and 1995 were
as follows:
<TABLE>
<CAPTION>
MONEY MARKET TAX-FREE INCOME INCOME
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
---------- ---------- ---------- ---------- ---------- ----------
6-30-96 6-30-95 6-30-96 6-30-95(a) 6-30-96 6-30-95
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Capital shares
issued on sales ......... 13,411,231 9,788,975 29,199 516,664 79,707 218,237
Capital shares issued
on reinvested dividends.. 821,475 655,189 28,673 14,929 44,241 39,464
Capital shares
redeemed ................ 12,570,685 8,595,276 6,062 1,120 126,327 17,716
<CAPTION>
INCOME & GROWTH
YEAR ENDED YEAR ENDED
---------- ----------
6-30-96 6-30-95
------- -------
<S> <C> <C>
Capital shares
issued on sales ......... 205,769 67,968
Capital shares issued
on reinvested dividends.. 35,442 57,059
Capital shares
redeemed ................ 65,893 160,244
<CAPTION>
GROWTH SMALL CAP INTERNATIONAL
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
---------- ---------- ---------- ---------- ---------- ----------
6-30-96 6-30-95 6-30-95 6-30-95(a) 6-30-96 6-30-95
------- ------- ------- ---------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Capital shares
issued on sales ......... 241,707 121,570 98,533 278,900 269,792 469,800
Capital shares issued
on reinvested dividends.. 39,278 19,094 9,214 4,622 45,454 75,358
Capital shares
redeemed ................ 56,076 63,769 34,177 9,130 201,916 397,410
<CAPTION>
GLOBAL CONTRARIAN
YEAR ENDED YEAR ENDED
---------- ----------
6-30-96 6-30-95(a)
------- -------
<S> <C> <C>
Capital shares
issued on sales ......... 116,554 380,856
Capital shares issued
on reinvested dividends.. 8,493 10,626
Capital shares
redeemed ................ 17,222 6,072
</TABLE>
(a)Commenced operations November 1, 1994
Sales charges imposed on capital shares sold by ONESCO, the Fund's
principal underwriter, a wholly owned subsidiary of ONLIC, for the year
ended June 30, 1996 were approximately $7,200, $17,700, $69,100, $61,400,
$27,800, $84,700 and $27,000 for the Tax-Free Income, Income, Income &
Growth, Growth, Small Cap, International and Global Contrarian Portfolios,
respectively.
The Fund is authorized to issue 10 billion of its capital shares. The Money
Market Portfolio has been allocated 200 million shares and the other seven
portfolios have been allocated 100 million shares each. The remaining
shares have not been allocated.
(continued)
<PAGE> 82
ONE FUND, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
JUNE 30,1996
(5) COMMITMENTS
The International and Global Contrarian Portfolios enter into foreign
currency exchange contracts as a way of managing foreign exchange rate
risk. The Fund may enter into these contracts for the purchase or sale of a
specific foreign currency at a fixed price on a future date as a hedge
against either specific transactions or portfolio positions. The objective
of the Fund's foreign currency hedging transactions is to reduce the risk
that the U.S. dollar value of the Fund's securities denominated in foreign
currency will decline in value due to changes in foreign currency exchange
rates. As of June 30, 1996 the International and Global Contrarian
Portfolios had entered into forward currency contracts, as set forth below
summarized by currency:
INTERNATIONAL PORTFOLIO
<TABLE>
<CAPTION>
SETTLEMENT CURRENCY TO BE U.S. $ VALUE CURRENCY TO BE U.S. $ VALUE UNREALIZED
DATES THROUGH DELIVERED AT 6/30/96 RECEIVED AT 6/30/96 GAIN (LOSS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
08/09/96 603,000 Swiss Franc 482,516 508,469 U.S. Dollar 508,469 $ 25,953 --
12/27/96 105,000 Swiss Franc 82,547 84,209 U.S. Dollar 84,209 1,662 --
08/16/96 310,000 Deutsche Mark 203,914 212,587 U.S. Dollar 212,587 8,673 --
10/11/96 213,000 Deutsche Mark 140,599 143,442 U.S. Dollar 143,442 2,843 --
07/11/96 3,000,000 French Franc 582,338 605,241 U.S. Dollar 605,241 22,903 --
08/23/96 3,140,000 French Franc 610,675 622,203 U.S. Dollar 622,203 11,528 --
10/18/96 551,000 French Franc 107,438 106,609 U.S. Dollar 106,609 -- $ (829)
07/18/96 70,000,000 Japenese Yen 640,000 707,071 U.S. Dollar 707,071 67,071
08/30/96 85,200,000 Japanese Yen 783,628 823,932 U.S. Dollar 823,932 40,304 --
10/25/96 45,750,000 Japanese Yen 424,063 439,217 U.S. Dollar 439,217 15,154 --
--------- ------------------------------------
4,057,718 4,252,980 $196,091 $ (829)
========= ====================================
</TABLE>
(6) DISTRIBUTION PLAN
The Fund has a distribution agreement (12b-1 Plan) with ONESCO under the
terms of which the Fund pays a fee for shareholders services and sales of
Fund shares based on the average daily net assets of the portfolios. For
those assets not in the Money Market Portfolio, the fee is at an annual
rate of 0.25% of average net assets and can increase to 0.30% for sales
representatives who service $5 million or more of Fund shares. The fee for
the Money Market Portfolio is 0.15% of average net assets and can increase
to a maximum of 0.17% for the aforementioned servicing level.
GLOBAL CONTRARIAN PORTFOLIO
<TABLE>
<CAPTION>
SETTLEMENT CURRENCY TO BE U.S. $ VALUE CURRENCY TO BE U.S. $ VALUE UNREALIZED
DATES THROUGH DELIVERED AT 6/30/96 RECEIVED AT 6/30/96 GAIN (LOSS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
07/03/96 150,000 Deutsche Mark 98,422 104,969 U.S. Dollar 104,969 $ 6,547 --
10/11/96 28,000 Deutsche Mark 18,482 18,644 U.S. Dollar 18,644 162 --
07/11/96 700,000 French Franc 135,879 141,223 U.S. Dollar 141,223 5,344 --
07/18/96 9,000,000 Japanese Yen 82,286 90,909 U.S. Dollar 90,909 8,623 --
08/30/96 15,000,000 Japanese Yen 137,963 146,499 U.S. Dollar 146,499 8,536 --
10/25/96 14,400,000 Japanese Yen 133,476 137,810 U.S. Dollar 137,810 4,334 --
--------- ------------------------------------
606,508 640,054 $ 33,546 --
========= ====================================
</TABLE>
(7) The Financial Highlights on pages 5 through 8 of the prospectus are a part
of these Financial Statements.
<PAGE> 83
ONE FUND, INC.
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders
ONE Fund, Inc.:
We have audited the accompanying statements of assets and liabilities and the
schedules of investments of ONE Fund, Inc. (comprising, respectively, the Money
Market, Tax-Free Income, Income, Income & Growth, Growth, Small Cap,
International and Global Contrarian Portfolios) as of June 30, 1996, and the
related statements of operations, statements of changes in net assets and the
financial highlights for each of the periods indicated herein. These financial
statements and financial highlights are the responsibility of the fund's
management. Our responsibility is to express an opinion on these financial
statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. Our procedures included
confirmation of securities owned as of June 30, 1996, by correspondence with the
custodian and brokers. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of each
of the portfolios comprising ONE Fund, Inc. as of June 30, 1996, and the results
of their operations, the changes in their net assets and their financial
highlights for each of the periods indicated herein, in conformity with
generally accepted accounting principles.
KPMG PEAT MARWICK LLP
Cincinnati, Ohio
July 24, 1996
<PAGE> 84
APPENDIX
DEBT SECURITY RATINGS
The Securities and Exchange Commission has designated six nationally recognized
statistical rating organizations: Duff and Phelps, Inc. ("D & P"), Fitch
Investors Service, Inc. ("Fitch"), Moody's Investors Service, Inc. (Moody's"),
Standard & Poor's Corp. ("S & P"), and, with respect to bank-supported debt and
debt issued by banks, broker-dealers and their affiliates, IBCA Inc. and its
British affiliate, IBCA Limited ("IBCA") and Thompson Bankwatch, Inc. ("TBW").
ONIMCO may use the ratings of all six such rating organizations as factors to
consider in determining the quality of debt securities, although it will
generally only follow D&P, Fitch, Moody's and S&P. IBCA and TBW will only be
consulted if fewer than two of the other four rating organizations have given
their top rating to a security. Only the ratings of Moody's and S & P will be
considered in determining the eligibility of bonds for acquisition by the ONE
Fund.
MOODY'S INVESTORS SERVICE, INC. ("MOODY'S")
COMMERCIAL PAPER:
Moody's short-term debt ratings are opinions of the ability of issuers to
punctually repay senior debt obligations having an original maturity not
exceeding one year.
P-1 The Prime-1 (P-1) rating is the highest commercial paper rating assigned
by Moody's. Issuers (or supporting institutions) rated P-1 have a superior
ability for repayment of senior short-term debt obligations. P-1 repayment
ability will often be evidenced by many of the following characteristics:
leading market positions in well-established industries, high rates of
return on funds employed, conservative capitalization structure with
moderate reliance on debt and ample asset protection, broad margins in
earnings coverage of fixed financial charges and high internal cash
generation, and well-established access to a range of financial markets
and assured sources of alternate liquidity.
P-2 Issuers (or supporting institutions) rated Prime-2 (P-2) have a strong
ability for repayment of senior short-term obligations. This will normally
be evidenced by many of the characteristics cited above for P-1, but to a
lesser degree. Earnings trends and coverage ratios, while sound, may be
more subject to variation. Capitalization characteristics, while still
appropriate, may be more affected by external conditions. Ample alternate
liquidity is maintained.
BONDS:
Aaa Bonds which are rated Aaa by Moody's are judged to be of the best quality.
They carry the smallest degree of investment risk and are generally
referred to as "gilt edge." Interest payments are protected by a large or
by an exceptionally stable margin and principal is secure.
While the various protective elements are likely to change, such changes
as can be visualized are most unlikely to impair the fundamentally strong
position of such issues.
Aa Bonds which are rated as Aa by Moody's are judged to be of high quality by
all standards. Together with the Aaa group, they comprise what are
generally known as high grade bonds. They are rated lower than the best
bonds because margins of protection may not be as large as in Aaa
securities or fluctuation of protective elements may be of greater
amplitude or there may be other elements present which make the long-term
risks appear somewhat larger than in Aaa securities.
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A Bonds which are rated A by Moody's 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 Bonds which are rated Baa by Moody's are considered as medium grade
obligations, that is, 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.
Ba Bonds which are rated Ba by Moody's are judged to have speculative
elements. Their future cannot be considered as well assured. Often the
protection of interest and principal payments may be very moderate and
thereby not well safeguarded during other good and bad times over the
future. Uncertainty of position characterizes bonds in this class.
B Bonds which are rated B by Moody's generally lack characteristics of the
desirable investment. Assurance of interest and principal payments or of
maintenance of other term of the contract over any long period of time may
be small.
STANDARD & POOR'S CORP. ("S & P")
COMMERCIAL PAPER:
An S & P commercial paper rating is a current assessment of the likelihood of
timely payment of debt having an original maturity of no more than one year.
A-1 This is S & P's highest category and it indicates that the degree of
safety regarding timely payment is strong. Those issues determined to
possess extremely strong safety characteristics are designated A-1+.
A-2 Capacity for timely payment on issues with this designation is
satisfactory. However, the relative degree of safety is not as high as for
issues designated as A-1.
Bonds:
AAA Bonds rated AAA by S&P are the highest grade obligations. They possess the
ultimate degree of protection as to principal and interest. Market prices
move with interest rates, and hence provide maximum safety on all counts.
AA Bonds rated AA by S&P also qualify as high grade obligations, and in the
majority of instances differ from AAA issues only in small degree. Here,
too, prices move with the long-term money market.
A Bonds rated A by S&P are regarded as upper medium grade. They have
considerable investment strength but are not entirely free from the
adverse effects of changes in economic and trade conditions. Interest and
principal are regarded as safe. They predominantly reflect money rates in
their market behavior, but to some extent, also economic conditions.
BBB The BBB or medium grade category is the borderline between definitely
sound obligations and those where the speculative element begins to
predominate. These bonds have adequate asset coverage and normally are
protected by satisfactory earnings. Their susceptibility to changing
conditions, particularly to depressions, necessitates constant watching.
Marketwise, the bonds are more responsive to business and trade conditions
than to interest rates. This is the lowest group which qualifies for
commercial bank investments.
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BB Debt rated BB by S&P has less near-term vulnerability to default than
other speculative issues. However, it faces major ongoing uncertainties or
exposure to adverse business, financial or economic conditions which could
lead to inadequate capacity to meet timely interest and principal
payments. The BB rating category is also used for debt subordinated to
senior debt that is assigned an actual or implied BBB rating.
B Debt rated B by S&P has a greater vulnerability to default but currently
has the capacity to meet interest payments and principal repayments.
Adverse business, financial or economic conditions will likely impair
capacity or willingness to pay interest and repay principal. The B rating
category is also used for debt subordinated to senior debt that is
assigned an actual or implied BB or BB- rating.
DUFF & PHELPS, INC. ("D & P")
COMMERCIAL PAPER:
D & P's short-term ratings have incorporated gradations of "1+" and "1-" in
recognition of quality differences within the first tier.
D-1+ Highest certainty of timely payment. Short-term liquidity, including
internal operating factors and/or access to alternative sources of funds,
is outstanding, and safety is just below risk-free U.S. Treasury
short-term 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.
D-2 Good certainty of timely payment. Liquidity factors and company
fundamentals are sound. Although ongoing funding needs may enlarge total
financing requirements, access to capital markets is good. Risk factors
are small.
FITCH INVESTORS SERVICE, INC. ("FITCH")
COMMERCIAL PAPER
Fitch's short-term ratings apply to debt obligations that are payable on demand
or have original maturities of up to three years, including commercial paper,
certificates of deposit, medium-term notes, and municipal and investment notes.
Fitch's short-term ratings emphasize the existence of liquidity necessary to
meet the issuer's obligations in a timely manner.
F-1+ Exceptionally strong credit quality. Issues assigned this rating are
regarded as having the strongest degree of assurance for timely payment.
F-1 Very strong credit quality. Issues assigned this rating reflect an
assurance of timely payment only slightly less in degree than issues rated
F-1+.
F-2 Good credit quality. Issues carrying this rating have a satisfactory
degree of assurance for timely payment, but the margin of safety is not as
great as the F-1+ and F-1 categories.
