<PAGE> 1
ONE FUND, INC.
One Financial Way
Cincinnati, Ohio 45242
Telephone 1-800-578-8078
STATEMENT OF ADDITIONAL INFORMATION
November 1, 1998
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, 1998.
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 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
Tax-equivalent Yield of Tax-Free Income Portfolio
Total Return
6 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
Convertible Securities
Zero-Coupon and Pay-in-Kind Debt Securities
Securities Lending
Warrants
When-Issued and Delayed Delivery Transactions
Borrowing Money
19 Management of ONE Fund
Directors and Officers of ONE Fund
Compensation of Directors
Shareholders' Meetings
Controlling Persons and Principal Shareholders
Investment Advisory and Other Services
24 Brokerage Allocation
</TABLE>
<PAGE> 2
<TABLE>
<S> <C>
25 Purchase and Redemption of Shares
Reducing the Sales Charge
27 Tax Status
27 Underwriters
27 Experts
28 Legal Counsel
28 The Year 2000 Issue
29 Appendix
Debt Security Ratings
32 Financial Statements
</TABLE>
2
<PAGE> 3
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 825 Duportail Road, Wayne, Pennsylvania 19087. The investment and
reinvestment 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.
All shares of all portfolios have one vote per share and are freely
transferable. When matters arise that affect only one portfolio, only shares of
that portfolio are entitled to vote on those matters. 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 the portfolio's dividends, distributions
and net assets.
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, Russell
3000 Growth 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, Wilshire 5000 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> 4
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.
TAX-EQUIVALENT YIELD OF THE TAX-FREE INCOME PORTFOLIO
The Tax-Free Income Portfolio's tax-equivalent yield is the rate that an
investor would have to earn from a taxable investment, before taxes, to equal
the Portfolio's tax-free yield. The tax-equivalent yield is calculated by
dividing the Portfolio's actual yield by the result of one minus the investor's
marginal federal income tax rate. If only a portion of the Portfolio's yield is
tax-exempt, only that portion is adjusted in the calculation.
The following table shows the effect of an investor's federal income tax bracket
on the effective yield, assuming hypothetical yields of 3% to 7% for the
Tax-Free Income Portfolio and assuming that none of the Portfolio's investments
yielded taxable income.
<TABLE>
<CAPTION>
Marginal Portfolio Tax-equivalent
Tax Rate Yield Yield
-------- --------- --------------
<S> <C> <C>
28% 3% 4.17%
28% 4% 5.56%
28% 5% 6.94%
28% 6% 8.33%
28% 7% 9.72%
31% 3% 4.35%
31% 4% 5.80%
31% 5% 7.26%
31% 6% 8.70%
31% 7% 10.14%
</TABLE>
4
<PAGE> 5
<TABLE>
<S> <C> <C>
31% 7% 10.14%
36% 3% 4.69%
36% 4% 6.25%
36% 5% 7.81%
36% 6% 9.38%
36% 7% 10.94%
39.6% 3% 4.97%
39.6% 4% 6.62%
39.6% 5% 8.28%
39.6% 6% 9.93%
39.6% 7% 11.59%
</TABLE>
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.
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).
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, 1998, are as follows:
<TABLE>
<CAPTION>
Aggregate
One Avg. Annual From Five Year From Inception
Year Five Year Inception Aggregate Inception Date
---- --------- ----------- --------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Money Market 4.87% 4.59% 4.26% 25.15% 28.49% 8/18/92
Tax-Free Income 2.60% N/A 7.42% N/A 29.98% 11/01/94
Income 5.31% 5.06 5.93% 32.12% 40.40% 8/18/92
Income & Growth 9.04% 13.14 13.18% 94.09% 106.85% 8/18/92
Growth 8.43% 14.28 15.30% 106.61% 130.52% 8/18/92
Core Growth 2.13% N/A (0.40) N/A -7.69% 11/01/96
Small Cap 5.03% N/A 14.24% N/A 62.92% 11/01/94
International -9.76% 13.14 12.31% 97.79% 86.74% 4/30/93
Global Contrarian -6.00% N/A 9.72% N/A 26.71% 11/01/94
</TABLE>
5
<PAGE> 6
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, 1998 (assuming
a hypothetical initial investment of $1,000 and payment of the maximum
applicable sales charge) were as follows:
<TABLE>
<CAPTION>
One Five From Inception
Year Year Inception Date
<S> <C> <C> <C>
Money Market $1,049 $1,251 1,285 8/18/92
Tax-Free Income $1,056 N/A 1,300 11/01/94
Income $1,085 $1,309 1,404 8/18/92
Income & Growth $1,484 $1,912 2,069 8/18/92
Growth $1,138 $2,041 2,305 8/18/92
Core Growth $ 990 N/A 923 11/01/96
Small Cap $1,100 N/A 1,629 11/01/94
International $ 966 $2,027 1,867 4/30/93
Global Contrarian $ 983 N/A 1,267 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.
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.
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 4% 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 40% 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 39% for
the last fiscal year.
6
<PAGE> 7
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 40% 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%. The rate was 116% for the
last fiscal year.
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 77% 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 12% 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 25% for the last fiscal
year.
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.
7
<PAGE> 8
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)
l. 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 l0% 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 l933 in
selling portfolio securities;
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);
8
<PAGE> 9
(Nonfundamental)
10. invest more than 15% 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. 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
9
<PAGE> 10
15. 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 (Hong Kong, Shanghai and Shenzhen Exchanges), Czech Republic,
Egypt, Greece, 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.
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.
10
<PAGE> 11
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.
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 or Sub-adviser to present minimal
credit risks in accordance with criteria established by ONE Fund's Board of
Directors. The Adviser or Sub-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
11
<PAGE> 12
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 repurchase 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.
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.
12
<PAGE> 13
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.
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
13
<PAGE> 14
(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.
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
14
<PAGE> 15
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 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.
15
<PAGE> 16
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.
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.
16
<PAGE> 17
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 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.
CONVERTIBLE SECURITIES
Convertible securities include a variety of instruments that can be exchanged
for or converted into common stock, including convertible bonds or debentures,
convertible preferred stock, units consisting of usable bonds and warrants, and
securities that cap or otherwise limit returns to the security holder. Examples
of these include dividend enhanced convertible stocks or debt exchangeable for
common stock (DECS), liquid yield option notes (LYONS), preferred equity
redemption cumulative stock (PERCS), preferred redeemable increased dividend
securities (PRIDES) and zero coupon convertible securities.
As with all fixed-income securities, various market forces influence the market
value of convertible securities, including changes in the level of interest
rates. As the level of interest rates increases, the market value of convertible
securities may decline and, conversely, as interest rates decline, the market
value of convertible securities may increase. The unique investment
characteristic of convertible securities, the right to be exchanged for the
issuer's common stock, causes the market value of convertible securities to
increase when the underlying common stock increases. However, since securities
priced fluctuate, there can be no assurance of capital appreciation, and most
convertible securities will not reflect quite as much capital appreciation as
their underlying common stocks. When the underlying common stock is experiencing
a decline, the value of the convertible security tends to decline to a level
approximating the yield-to-maturity basis of straight nonconvertible debt of
similar quality, often call "investment value," and may not experience the same
decline as the underlying commons stock.
Many convertible securities sell at a premium over their conversion values
(i.e., the number of shares of common stock to be received upon conversion
multiplied by the current market price of the stock). This premium represents
the price investors are willing to pay for the privilege of purchasing a
fixed-income security with a possibility of capital appreciation due to the
conversion privilege. If this appreciation potential is not realized, the
premium may not be recovered.
ZERO-COUPON AND PAY-IN-KIND DEBT SECURITIES
Zero-coupon securities (or "step-ups") in which a portfolio may invest are debt
obligations which are generally issued at a discount and payable in full at
maturity, and which do not provide for current payments of interest prior to
maturity. Pay-in-kind securities make periodic interest payments in the form of
additional securities (as opposed to cash). Zero-coupon and pay-in-kind
securities usually trade at a deep discount from their face or par value and are
subject to greater market value fluctuations from changing interest rates than
debt obligations of comparable maturities which make current distributions of
interest. As a result, the net asset value of shares of a portfolio investing in
zero-coupon and pay-in-kind securities may fluctuate over a greater range than
shares of other mutual funds investing in securities making current
distributions of interest and having similar maturities.
SECURITIES LENDING
A portfolio may lend its portfolio securities, provided: (1) the loan is secured
continuously by collateral consisting of U.S. Government securities, cash or
cash equivalents adjusted daily to have market value at least equal to the
current market value of the securities loaned; (2) the portfolio may at any time
call the loan and regain the securities loaned; (3) a portfolio will receive any
interest or dividend paid on the loaned securities; and (4) the aggregate market
value of any portfolio's securities loaned bill not at any time exceed one-third
(or such other limit as the Board of Directors may establish) of the total
assets of the portfolio. In addition, it is anticipated that a portfolio may
share with the borrower some of the income received on the collateral for the
loan or that the portfolio will be paid a premium for the loan.
Before a portfolio enters into a loan, the Adviser or sub-adviser considers all
relevant facts and circumstances, including the creditworthiness of the
borrower. The risks in lending portfolio securities, as with other extensions of
credit, consist of possible delay in recovery of the securities or possible loss
of rights in the collateral should the borrower fail financially. Although
voting rights or rights to consent with respect to the loaned securities pass to
the borrower, a portfolio retains the right to call the loans at any time on
reasonable notice, and it will do so in order that the securities may be voted
by a portfolio if the holders of such securities are asked to vote upon or
consent to matters materially affecting the investment.
WARRANTS
Warrants basically are options to purchase common stock at a specific price
(usually at a premium above the market value of the optioned common stock at
issuance) valid for a specified period of time. Warrants may have a life ranging
from less than a year to twenty years or may be perpetual. However, warrants
have expiration dates after which they are worthless. In addition, if the market
price of the common stock does not exceed the warrant's exercise price during
the life of the warrant, the warrant will expire as worthless. Warrants have no
voting rights, pay no dividends, and have no rights with respect to the assets
of the corporation issuing them. The percentage increase or decrease in the
market price of the warrant may tend to be greater than the percentage increase
or decrease in the market price of the optioned common stock.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS
These transactions are made to secure what is considered to be an advantageous
price or yield for a portfolio. No fees or other expenses, other than normal
transaction costs, are incurred. However, liquid assets of the portfolio
sufficient to make payment for the securities to be purchased are segregated on
the portfolio's records at the trade date. These assets are marked to market
daily and are maintained until the transaction has been settled. No portfolio
will engage in when-issued and delayed delivery transactions to an extent that
would cause the segregation of more than 20% of the total value of its assets.
BORROWING MONEY
The portfolios will not borrow money except as a temporary measure for
extraordinary or emergency purposes and then only in amounts not in excess of 5%
of the value of a portfolio's total assets. In addition, certain portfolios may
enter into reverse repurchase agreements and otherwise borrow up to one-third of
the value of the portfolio's total assets, including the amount borrowed, in
order to meet redemption requests without immediately selling portfolio
securities. This latter practice is not for investment leverage but solely to
facilitate management of a portfolio by enabling it to meet redemption requests
when the liquidation of portfolio instruments would be inconvenient or
disadvantageous.
Interest paid on borrowed funds will not be available for investment and will
reduce net income. A portfolio will liquidate any such borrowings as soon as
possible and may not purchase any portfolio securities while the borrowings are
outstanding. However, during the period any reverse repurchase agreements are
outstanding, but only to the extent necessary to assure completion of the
reverse repurchase agreements, the purchase of portfolio securities will be
limited to money market instruments maturing on or before the expiration date of
the reverse repurchase agreements.
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 Corporate Vice President, Counsel
One Financial Way Director and Secretary, ONLI; Secretary
Cincinnati, Ohio of the Adviser and Ohio National Equities
Inc.; Secretary and Director of ONF.
George E. Castrucci Director Director of ONF; Retired; Formerly
8355 Old Stable Road President and Chief Operating
Cincinnati, Ohio Officer of Great American
Communications Co. and Chairman and Chief
Executive Officer of Great
American Broadcasting Co.; Director
of Benchmark Savings Bank; Director of
Baldwin Piano & Organ Co.
Ross Love Director President & CEO, Blue Chip Broadcasting,
615 Windings Way Ltd.; Trustee, Health Alliance of Greater
Cincinnati, Ohio Cincinnati; Director, Partnership for a
Drug Free America (Chairman of African-
American Task Force); Advisory Board,
Syracuse University School of Management;
Director of ONF; Director, Association of
National Advertisers; Until 1996 was Vice
President of Advertising, Procter & Gamble Co.
John J. Palmer* President and Senior Vice President,
One Financial Way Director Strategic Initiatives, ONLI;
Cincinnati, Ohio President and Director of ONF;
President and Director of ONLI's
broker-dealers; Prior to March
1997 was Senior Vice President
of Life Insurance Company of
Virginia.
</TABLE>
17
<PAGE> 18
<TABLE>
<S> <C> <C>
George M. Vredeveld Director Professor of Economics, University of
University of Cincinnati Cincinnati; Director of Center for
P.O. Box 210223 Economic Education; Private
Cincinnati, Ohio Consultant; Director of Benchmark
Savings Bank.
Thomas A. Barefield Vice President Sr. Vice President, Institutional
One Financial Way Sales, ONLI; Vice President of ONF;
Cincinnati, Ohio Sr. Vice President of ONEQ.
Prior to December 1997, Senior Vice
President, Life Insurance Company
of Virginia.
Michael A. Boedeker Vice President Vice President, Fixed Income
One Financial Way Securities, ONLI; Vice President
Cincinnati, Ohio and Director 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 the Adviser;
Vice President of ONF.
Stephen T. Williams Vice President Vice President of Equity Securities, ONLI;
One Financial Way Vice President and Director of
Cincinnati, Ohio the Adviser; Vice President of ONF.
Dennis R. Taney Treasurer Mutual Funds Financial Operations
One Financial Way Director, ONLI; Treasurer of
Cincinnati, Ohio the Adviser; Treasurer of ONF
William Hilbert, Jr. Compliance Director From May 1996 until December
One Financial Way & Assistant Treasurer 1997, was an investment
Cincinnati, Ohio administrator for ONLI; worked
as a contractor for Fidelity
Investments (1994-5) and for
Procter & Gamble (1995-6)
Theresa M. Brunsman Assistant Secretary Senior Attorney, ONLI
One Financial Way
Cincinnati, Ohio
</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, PBA or SGAM were compensated as
follows during the fiscal year ended June 30, 1998:
<TABLE>
<CAPTION>
Aggregate Compensation Total Compensation
Name of Director from ONE Fund from Fund Complex*
- ---------------- ---------------------- ------------------
<S> <C> <C>
George E. Castrucci $ 4,600 $15,000
Ross Love 4,600 15,000
George M. Vredeveld 4,600 15,000
</TABLE>
18
<PAGE> 19
*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.
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. The Adviser is also 100% owned by
ONLI.
As of August 12, 1998, 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 5,515,918 $ 5,515,918 34.3%
Tax-Free Income 554,051 $ 6,221,984 86.7%
Income 511,428 $ 5,114,283 76.9%
Income & Growth 348,524 $ 5,231,338 37.1%
Growth 276,814 $ 4,705,831 40.2%
Core Growth 263,257 $ 2,495,674 55.1%
Small Cap 219,240 $ 2,635,264 52.8%
International 33,105 $ 400,240 3.2%
Global Contrarian 274,752 $ 2,796,976 61.3%
</TABLE>
In addition, as of that date, Bradley Warnemunde of Cincinnati, Ohio owned
91,702 shares of the International Portfolio having a total net asset value of
$1,112,349 and representing 8.8% 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
19
<PAGE> 20
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 Fund for clerical and related
administrative services (other than those provided by the custodian agreements
with Star Bank and Investors Fiduciary Trust Company, and the agency agreement
with American Data Services, Inc.), 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 0.65% 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>
1998 Earned Waived Net Fees
------ ------ --------
<S> <C> <C> <C>
Money Market $ 45,452 ($ 22,726) $ 22,726
Tax-Free Income 42,613 ( 10,653) 31,960
Income 33,928 ( 10,178) 23,750
Income & Growth 73,633 ( 22,090) 51,543
Growth 71,522 ( 21,457) 50,065
Core Growth 51,878 0 51,878
Small Cap 38,468 ( 8,886) 29,582
International 152,991 0 152,991
Global Contrarian 54,075 0 54,075
---------- --------- --------
$ 564,560 ( $95,990) $ 468,570
</TABLE>
<TABLE>
<CAPTION>
1997 Earned Waived Net Fees
------ ------ --------
<S> <C> <C> <C>
Money Market $ 54,943 ($ 37,694) $ 17,249
Tax-Free Income 40,001 ( 13,228) 26,773
Income 33,991 ( 12,594) 21,397
Income & Growth 58,563 ( 21,373) 37,190
Growth 61,743 ( 22,671) 39,072
Core Growth 27,257 0 27,257
Small Cap 30,439 ( 9,644) 20,795
International 151,632 0 151,632
Global Contrarian 52,669 0 52,669
-------- --------- --------
$511,238 ($117,204) $ 394,034
1996 Earned Waived Net Fees
------ ------ --------
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> 21
* All fees earned prior to May 1, 1996 were paid to ONIMCO. On and
after that date, fees were payable to the Adviser. The Core Growth
Portfolio is not shown for the year ended June 30, 1996 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 1%, on an annualized basis, of the portfolio's average daily net
asset value, the Adviser will pay such expenses. During the last fiscal year,
the Adviser reimbursed the Core Growth Portfolio $2,864, the International
Portfolio $16,448, and the Global Contrarian Portfolio $23,873 under these
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. 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 31, 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 26, 1998.
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' 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
21
<PAGE> 22
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 Core Growth, International and Global Contrarian Portfolios,
and selects the brokers to handle such transactions. The sub-advisers (PBA
and SGAM) select the brokers and dealers that execute the transactions for the
portfolios managed by them. It is the intention of the Adviser and each of the
sub-advisers to place orders for the purchase and sale of securities with the
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 and
sub-advisers 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
and sub-advisers consider a number of factors including the quality, efficiency
of execution and value of 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 or sub-adviser
may use a broker whose commission in effecting a securities transaction is in
excess of that of some other broker if the Adviser or sub-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. In
effecting a transaction for one portfolio, a broker may also offer services of
benefit to other portfolios managed by the Adviser or sub-adviser, or to the
benefit of its affiliates.
Generally, it is not possible to place a dollar value on research and related
services provided by brokers to the Adviser or a sub-adviser. However, receipt
of such services may tend to reduce the expenses of the Adviser or a
sub-adviser. Research, statistical and similar information furnished by brokers
may be of incidental assistance to ONLI, ONF or other clients or affiliates of
the Adviser or the sub-advisers and conversely, transaction costs paid by ONLI,
ONF or other clients or affiliates of the Adviser or the sub-advisers may
generate information which is beneficial to ONE Fund.
Consistent with these polices, the sub-advisers may, with the Board of
Directors' approval and subject to its review, direct portfolio transactions to
be executed by a broker affiliated with the sub-adviser 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.
22
<PAGE> 23
For each of the fiscal years ended June 30, the following brokerage commission
amounts were paid by each portfolio:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Money Market None None None
Tax-Free Income None None None
Income None None $ 720
Income & Growth $ 4,194 $ 6,954 4,438
Growth 6,150 14,710 8,034
Core Growth 7,700 5,362 N/A
Small Cap 6,253 6,888 4,880
International 17,067 23,484 22,094
Global Contrarian 16,385 6,658 10,126
------- ------- -------
Total $57,749 $64,056 $50,291
</TABLE>
During the fiscal year ended June 30, 1998, 100% of such commissions were paid
to brokers who furnished statistical data and research information to the
Adviser, PBA or SGAM. 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. (One Fund seeks 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.)
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.
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.
23
<PAGE> 24
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, 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.
24
<PAGE> 25
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
$l.
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 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.
25
<PAGE> 26
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
Ohio National Equities, Inc., a wholly-owned subsidiary of ONLI, has served as
principal underwriter for ONE Fund shares since March 26, 1997. ONE Fund shares
are offered by the registered representatives of another wholly-owned
subsidiary of ONLI, 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, 1998 and for the periods
indicated herein included in this Statement of Additional Information and the
Financial Highlights included in the prospectus dated November 1, 1998 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 Corporate Vice President, Counsel and Secretary 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.
THE YEAR 2000 ISSUE
ONE Fund and the Adviser have considered the impact on the Fund of "Year 2,000"
issues. They have developed a remedial plan for their computer systems and
applications. Conversion activities are presently in process and the conversion
testing and implementation are expected to be completed by December 31, 1998.
While ONE Fund and the Adviser have been assured by suppliers of financial
services (including the custodians, the transfer agent and the accounting
agent) that their systems either are already compliant or will be so by
December 31, 1998, ONE Fund's internal auditors intend to independently test
those systems to verify their compliance. The failure of ONE Fund, the Adviser
or one of their service suppliers to achieve timely and complete compliance
could materially impair the ability to conduct their business, including the
ability to accurately and timely value portfolio securities.
26
<PAGE> 27
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.
28
<PAGE> 28
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.
29
<PAGE> 29
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.
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.
30
<PAGE> 30
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.
31
<PAGE> 31
ONE FUND, INC.
MONEY MARKET PORTFOLIO
SCHEDULE OF INVESTMENTS JUNE 30,1998
<TABLE>
<CAPTION>
FACE MARKET
AMOUNT SHORT-TERM NOTES VALUE
- -----------------------------------------------------------------
<S> <C> <C>
AUTOMOTIVE AND
RELATED (6.1%)
$726,000 American Honda
5.520% 07-20-98 $ 723,885
274,000 Ford Motor Credit Corp.
5.490% 08-05-98 272,538
-----------
996,423
-----------
CHEMICALS (3.5%)
577,000 Great Lakes Chemicals
5.520% 07-21-98 575,231
-----------
CONSUMER PRODUCTS (15.5%)
473,000 American Home Products
5.490% 07-30-98 470,908
428,000 Eastman Kodak
5.500% 07-07-98 427,608
412,000 Fortune Brands (b)
6.150% 07-01-98 412,000
687,000 Kellogg Co.
5.500% 07-24-98 684,586
548,000 PHH Corp.
5.850% 07-08-98 547,377
-----------
2,542,479
-----------
ELECTRICAL EQUIPMENT (3.2%)
528,000 Avnet Inc.
5.580% 07-23-98 526,200
-----------
FINANCE (23.5%)
548,000 American Express
5.510% 07-02-98 547,916
596,000 Block Financial Corp.
5.520% 08-07-98 592,619
511,000 Caterpillar Financial
5.490% 08-08-98 508,195
268,000 G.E. Capital
5.490% 08-05-98 266,569
627,000 Household Finance Corp.
5.520% 08-10-98 623,154
800,000 Houston Industries (b)
5.730% 07-15-98 798,217
508,000 USAA Capital Corp.
5.470% 08-12-98 504,758
-----------
3,841,428
-----------
HOUSING, FURNITURE &
RELATED (6.8%)
399,000 Sherman Williams
5.510% 07-06-98 398,695
712,000 Stanley Works
5.480% 07-16-98 710,374
-----------
1,109,069
-----------
</TABLE>
<TABLE>
<CAPTION>
FACE MARKET
AMOUNT SHORT-TERM NOTES VALUE
- ---------------------------------------------------------------
<S> <C> <C>
INDUSTRIAL (7.6%)
$750,000 BAT Capital
5.620% 07-14-98 $ 748,478
500,000 Flour Corp.
5.580% 08-11-98 496,822
-----------
1,245,300
-----------
INSURANCE (6.2%)
510,000 Allstate Corp.
5.530% 08-04-98 507,336
507,000 Reliastar Mortgage
5.600% 07-13-98 506,054
-----------
1,013,390
-----------
MACHINERY AND
EQUIPMENT (4.7%)
769,000 John Deere Capital
5.510% 08-18-98 763,350
-----------
MEDIA AND
PUBLISHING (3.2%)
525,000 Tribune Co. (b)
5.500% 07-08-98 524,358
-----------
OIL, ENERGY, AND
NATURAL GAS (6.6%)
416,000 Atlantic Richfield (b)
5.530% 08-17-98 412,997
670,000 Texaco Inc.
5.500% 08-25-98 664,370
-----------
1,077,367
-----------
RETAIL (10.4%)
516,000 J.C. Penny (b)
5.500% 08-03-98 513,399
604,000 Sears Roebuck
5.480% 07-22-98 602,069
583,000 Winn-Dixie
5.500% 07-28-98 580,595
-----------
1,696,063
-----------
UTILITIES (3.7%)
610,000 Carolina Power & Light
5.520% 07-06-98 609,532
-----------
TOTAL HOLDINGS
(COST $16,520,190(a) $16,520,190
===========
</TABLE>
(a) Also represents cost for Federal income tax purposes.
(b) Security exempt from registration under Rule 144A of the Securities Act of
1933. These securities may be resold in transactions exempt from
registration, normally to qualified institutional buyers. At the period
end, the value of these securities amounted to $2,660,971 or 16.2% of net
assets.
The accompanying notes are an integral part of these financial statements.
<PAGE> 32
ONE FUND, INC.
MONEY MARKET PORTFOLIO
<TABLE>
<CAPTION>
STATEMENT OF ASSETS AND LIABILITIES JUNE 30 1998
<S> <C>
Assets:
Investments in securities at amortized cost
and market value (note 1) ............... $16,520,190
Cash in bank .............................. 294
Receivable for fund shares sold ........... 57,908
Other ..................................... 2,789
-----------
Total assets ............................ 16,581,181
-----------
Liabilities:
Payable for fund shares redeemed .......... 174,238
Payable for investment management
services (note 3) ....................... 2,000
Accrued 12b-1 fees (note 6) ............... 5,825
Other accrued expenses .................... 14,443
Dividends payable ......................... 23,708
-----------
Total liabilities ....................... 220,214
-----------
Net assets at market value ................... $16,360,967
===========
Net assets consist of:
Par value, $.001 per share ................ $ 16,361
Paid-in capital in excess of par value .... 16,344,526
Accumulated undistributed net realized
loss on investments ........... 80
-----------
Net assets at market value ................... $16,360,967
===========
Shares outstanding ........................... 16,360,967
Net asset value per share .................... $ 1.00
===========
Maximum offering price per share ............. $ 1.00
===========
</TABLE>
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
For Year Ended June 30, 1998
<S> <C>
Investment income:
Interest ................................... $ 856,986
-----------
Expenses:
Management fees (note 3) ................... 45,452
12b-1 fees (note 6) ........................ 22,727
Custodian fees (note 3) .................... 6,300
Directors' fees (note 3) ................... 2,385
Professional fees .......................... 9,814
Transfer agent and accounting fees.......... 49,700
Filing fees ................................ 11,925
Printing, proxy and postage fees ........... 6,476
Organizational expense (note 1) ............ 455
Other ...................................... 160
-----------
Total expenses ........................... 155,394
Less expenses voluntarily reduced
or reimbursed (note 3) ................. (22,726)
-----------
Net expenses ............................. 132,668
-----------
Net investment income .................... 724,318
-----------
Net increase in net
assets from operations ............... $ 724,318
===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE> 33
ONE FUND, INC.
MONEY MARKET PORTFOLIO
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
Year Ended Year Ended
June 30, 1998 June 30, 1997
------------- -------------
<S> <C> <C>
From operations:
Net investment income ..................................................... $ 724,318 $ 800,904
------------ ------------
Net increase in assets from operations ................................ 724,318 800,904
------------ ------------
Dividends and distributions to shareholders:
Dividends paid from net investment income ................................. (724,318) (800,904)
------------ ------------
From capital share transactions (note 4):
Received from shares sold ................................................. 21,996,755 17,151,447
Received from dividends reinvested ........................................ 455,744 545,914
Paid for shares redeemed .................................................. (20,456,024) (19,142,752)
------------ ------------
Increase (decrease) in net assets derived from capital share transactions 1,996,475 (1,445,391)
------------ ------------
Increase (decrease) in net assets ..................................... 1,996,475 (1,445,391)
------------ ------------
Net Assets:
Beginning of period ....................................................... 14,364,492 15,809,883
------------ ------------
End of period ............................................................. $ 16,360,967 $ 14,364,492
============ ============
</TABLE>
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
Years Ended June 30,
1998 1997 1996 1995 1994
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Per share data:
Net asset value, beginning of period ................... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
Income from investment operations:
Net investment income ............................... 0.05 0.05 0.05 0.05 0.03.
Less distributions:
Dividends from net investment income ................ (0.05) (0.05) (0.05) (0.05) (0.03)
---------- ---------- ---------- ---------- ----------
Net asset value, end of period ......................... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
========== ========== ========== ========== ==========
Total return ........................................... 4.87% 4.77% 5.18% 5.06% 3.06%
Ratios and supplemental data:
Ratio net of fees waived or reimbursed by advisor (a):
Expenses ............................................ 0.88% 0.80% 0.57% 0.51% 0.44%
Net investment income ............................... 4.81% 4.71% 5.14% 4.99% 2.97%
Ratios assuming no fees waived or reimbursed by advisor:
Expenses ............................................ 1.03% 1.04% 0.87% 0.81% 0.74%
Net investment income ............................... 4.66% 4.47% 4.84% 4.69% 2.67%
Net assets at end of period (millions) ................. $ 16.4 $ 14.4 $ 15.8 $ 14.1 $ 12.3
</TABLE>
(a) The advisor has elected to waive management fees equal to 0.15% of average
net assets for the Money Market portfolio, but it may cease that waiver, in
whole or in part, without prior notice. In addition, the advisor has
reimbursed certain operating expenses.
The accompanying notes are an integral part of these financial statements.
<PAGE> 34
TAX-FREE INCOME PORTFOLIO
ONE FUND, INC.
OBJECTIVE
To provide high current income exempt from federal income taxes. Preservation of
capital is a secondary objective. Normally, at least 85% of the assets of this
portfolio will be invested in investment grade municipal securities.
PERFORMANCE AS OF JUNE 30, 1998
Average Annual Total Returns:
Without With max.
sales charge sales charge
One-year 5.77% 2.60%
Three-Year 6.71% 5.64%
Since inception (11/1/94) 8.32% 7.42%
The maximum sales charge is 3%. All returns represent past performance and
neither predict nor guarantee future investment results. Your investment return
and principal value will fluctuate so that shares, when redeemed, may be worth
more or less than their original cost. The advisor is currently waiving fees of
.15% for this portfolio. Had the fees not been waived, returns would have been
lower.
COMMENTS
Over the past year, tax-exempt funds have not performed as well as government or
corporate bonds of equal maturity. The performance of the ONE Fund Tax-Free
Income Portfolio lagged that of its benchmark, the Lehman Tax-Free Intermediate
Bond Index, with a return of 5.77 percent for the portfolio versus 7.42 percent
for the index. The main reason for the underperformance was credit deterioration
in an industrial revenue bond that has since been sold.
Our expectation is for reasonable stability in the overall level of interest
rates for the near term. The portfolio as currently structured should outperform
the index under such circumstances.
CHANGE IN VALUE OF $10,000 INVESTMENT
<TABLE>
<CAPTION>
Tax-Free Income Portfolio (with max.
sales charge) (Commenced operations
November 1, 1994)
Data Value
---- -----
<S> <C>
12/12/94 $ 9,860.10
12/31/95 $11,480.30
12/31/96 $11,930.00
12/31/97 $12,950.30
06/30/98 $13,003.40
</TABLE>
<TABLE>
<CAPTION>
Lehman Bros. Municipal Bond Index-
Intermediate
Data Value
---- -----
<S> <C>
12/31/94 $10,026.00
12/31/95 $11,834.40
12/31/96 $12,313.80
12/31/97 $13,397.90
06/31/98 $13,397.90
</TABLE>
Hypothetical illustration based on past performance. Future performance will
vary. All returns reflect reinvested dividends. The portfolio's holdings may
differ significantly from the securities in the index. The index is unmanaged
and therefore does not reflect the cost of portfolio management or trading. It
is not open to direct investment.
TOP 10 HOLDINGS AS OF JUNE 30, 1998
% of Portfolio
1. Washington St Pub Pwr Sub Sys Nuclear
5.70% 7/1/2012 4.45
2. Chicago Illinois Midway Airport 5.5% 1/1/2029 4.32
3. North Carolina Med Care Commn Healthcare
5.25% 5/1/2026 4.19
4. New York St Medical Care Facs 6.75% 8/15/2014 4.04
5. Metropolitan Atlanta Rapid Trans Authority
6.80% 7/1/2014 4.01
6. Pennsylvania Intergvt Coop Auth Spl Tax
6.75% 6/15/2021 4.00
7. Nevada State G.O. 6.60% 12/1/2013 3.92
8. Matagorda Cnty Texas Nav Dist No 1 6.70%
3/1/2027 3.80
9. Clark Cnty Nevada School Dist 7.00% 6/1/2009 3.80
10. Richland Cnty South Carolina Poll Ctl 5.90%
11/1/2020 3.80
TOP 5 CATEGORIES AS OF JUNE 30, 1998
% of Portfolio
Power Revenue 18.2
Insured Bonds 15.9
Hospital Revenue 14.8
Pollution Control/Industrial Revenue 11.1
General Obligation Bonds 11.0
<PAGE> 35
ONE FUND, INC.
TAX-FREE INCOME PORTFOLIO
SCHEDULE OF INVESTMENTS JUNE 30,1998
<TABLE>
<CAPTION>
FACE MARKET
AMOUNT MUNICIPAL BONDS VALUE
- -----------------------------------------------------------------
<S> <C> <C>
AIRPORT REVENUE (7.8%)
$300,000 Chicago Illinois Midway Airport
5.500% 01-01-29 $ 309,540
250,000 Chicago Illinois O'Hare Airport
5.000% 01-01-13 248,345
------------
557,885
------------
CONVENTION COMPLEX &
HOSPITALITY FACILITIES (3.0%)
200,000 Metropolitan Pier
6.250% 07-01-17 217,700
------------
GENERAL OBLIGATION BONDS (11.0%)
100,000 Clairborne County Mississippi
7.300% 05-01-25 105,620
150,000 Commonwealth of Puerto Rico
5.500% 07-01-17 154,596
250,000 State of Nevada
6.600% 12-01-13 281,303
250,000 State of Washington
5.000% 05-01-17 248,325
------------
789,844
------------
HOSPITAL REVENUE (14.8%)
250,000 Hawaii Department of Budget
6.000% 07-01-20 269,388
250,000 Massachusetts State Hospital
6.200% 10-01-16 271,060
300,000 North Carolina Medical Care Comm.
5.250% 10-01-26 300,714
200,000 Wisconsin Health and Education
6.125% 11-15-15 217,992
------------
1,059,154
------------
HOUSING REVENUE (2.2%)
150,000 Alaska Housing
5.875% 12-01-24 156,890
------------
INSURED BONDS (15.9%)
250,000 Atlanta RTA
6.800% 07-01-14
(Insured MBIA) 287,795
250,000 Matagorde Texas
6.700% 07-01-14
(Insured AMBAC) 272,726
250,000 New York State Med Care
6.750% 08-15-14
(Insured AMBAC) 289,605
250,000 Pennsylvania Intergovernment
Corp.
6.750% 06-15-21
(Insured FGIC) 287,060
------------
1,137,186
------------
POLLUTION CONTROL &
INDUSTRIAL REVENUE (11.1%)
250,000 Lawrenceburg, Indiana
5.900% 11-01-19 259,138
250,000 Richland County, S. Carolina
6.550% 11-01-20 272,122
250,000 West Feliciana, Louisiana
8.000% 12-01-24 266,243
------------
797,503
------------
</TABLE>
<TABLE>
<CAPTION>
FACE MARKET
AMOUNT MUNICIPAL BONDS VALUE
- -----------------------------------------------------------------
<S> <C> <S>
POWER REVENUE (18.2%)
$250,000 Jacksonville Florida
Municipal Electric
5.500% 10-01-14 $ 257,728
250,000 North Carolina Eastern Power
6.000% 01-01-22 0267,927
250,000 Salt River Arizona Project
5.000% 01-01-13 0250,853
200,000 Southern California
Public Power
6.000% 07-01-18 208,428
300,000 Washington Power
5.700% 07-01-12 318,873
--------------
1,303,809
--------------
SCHOOL REVENUE (3.8%)
250,000 Clark County,
Nevada School District
7.000% 06-01-09 272,602
--------------
WATER REVENUE (3.6%)
250,000 Metropolitan Water
District of
S. California
5.500% 07-01-13 259,230
--------------
TOTAL MUNICIPAL BONDS
(91.4%)(COST 551,770,314) $ 6,551,803
--------------
</TABLE>
<TABLE>
<CAPTION>
FACE MARKET
AMOUNT SHORT-TERM NOTES VALUE
- -----------------------------------------------------------------
<S> <C> <C>
AUTOMOTIVE & RELATED (4.6%)
$199,000 Ford Motor Credit Corp.
5.630% 07-02-98 $ 198,969
129,000 General Motors
Acceptance Corp.
5.590% 07-06-98 128,900
--------------
327,869
--------------
FINANCIAL SERVICES (1.5%)
108,000 GE Capital Corp.
5.650% 07-01-98 107,898
--------------
RETAIL (1.6%)
116,000 Sears Roebuck Acceptance Corp.
5.450% 07-01-98 116,000
-------------
TOTAL SHORT-TERM NOTES
(7.7%) (COST $551,767) $ 551,767
-------------
TOTAL HOLDINGS
(COST $6,322,081)(a) $ 7,103,570
=============
</TABLE>
(a) Also represents cost for Federal income tax purposes.
The accompanying notes are an integral part of these financial statements.
<PAGE> 36
ONE FUND, INC.
TAX-FREE INCOME PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES
<TABLE>
<CAPTION>
June 30, 1998
<S> <C>
Assets:
Investments in securities at market
value (note 1) (Cost $6,322,081) ....... $ 7,103,570
Cash in bank ............................. 904
Receivable for fund shares sold .......... 121
Dividends and accrued interest receivable 107,820
Deferred organizational expenses (note 1) 748
Other .................................... 1,606
-----------
Total assets ........................... 7,214,769
-----------
Liabilities:
Payable for fund shares redeemed ......... 6,000
Payable for investment management
services (note 3) ...................... 2,648
Accrued 12b-1 fees (note 6) .............. 4,312
Other accrued expenses ................... 6,840
Dividends payable ........................ 25,187
-----------
Total liabilities ...................... 44,987
-----------
Net assets at market value .................. $ 7,169,782
===========
Net assets consist of:
Par value, $.001 per share ............... $ 638
Paid-in capital in excess of par value ... 6,498,887
Accumulated undistributed net realized
loss on investments .................... (111,345)
Net unrealized appreciation on investments 781,489
Undistributed net investment income ...... 113
-----------
Net assets at market value .................. $ 7,169,782
===========
Shares outstanding .......................... 637,969
Net asset value per share ................... $ 11.24
===========
Maximum offering price per share
($11.24/97%) .............................. $ 11.59
===========
</TABLE>
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
For Year Ended June 30, 1998
<S> <C>
Investment income:
Interest ...................................... $ 407,962
---------
Expenses:
Management fees (note 3) ...................... 42,613
12b-1 fees (note 6) ........................... 17,756
Custodian fees (note 3) ....................... 5,550
Directors' fees (note 3) ...................... 1,125
Professional fees ............................. 4,629
Transfer agent and accounting fees ............ 32,500
Filing fees ................................... 6,268
Printing, proxy and postage fees .............. 2,200
Organizational expense (note 1) ............... 465
Other ......................................... 290
---------
Total expenses .............................. 113,396
Less expenses voluntarily reduced
or reimbursed (note 3) .................... (10,653)
---------
Net expenses ................................ 102,743
---------
Net investment income ....................... 305,219
---------
Realized and unrealized gain/loss on investments:
Net realized loss from investments ............ (100,005)
Net increase in unrealized
appreciation on investments ................. 186,945
---------
Net gain on investments ....................... 86,940
---------
Net increase in net
assets from operations ...................... $ 392,159
=========
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE> 37
ONE FUND, INC.
TAX-FREE INCOME PORTFOLIO
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
Year Ended Year Ended
June 30, 1998 June 30, 1997
--------------- ---------------
<S> <C> <C>
From operations:
Net investment income .......................................... $ 305,219 $ 320,171
Realized loss on investments ................................... (100,005) (4,042)
Unrealized gain on investments ................................. 186,945 185,075
--------------- ---------------
Net increase in assets from operations ..................... 392,159 501,204
--------------- ---------------
Dividends and distributions to shareholders:
Dividends paid from net investment income ...................... (305,219) (320,058)
--------------- ---------------
From capital share transactions (note 4):
Received from shares sold ...................................... 457,036 436,076
Received from dividends reinvested ............................. 32,007 153,756
Paid for shares redeemed ....................................... (232,821) (227,986)
--------------- ---------------
Increase in net assets derived from capital share transactions 256,222 361,846
--------------- ---------------
Increase in net assets ....................................... 343,162 542,992
--------------- ---------------
Net Assets:
Beginning of period ............................................ 6,826,620 6,283,628
--------------- ---------------
End of period .................................................. $ 7,169,782 $ 6,826,620
=============== ===============
Includes undistributed net investment income of ................ $ 113 $ 113
=============== ===============
</TABLE>
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
11-1-94
Year End June 30, to
1998 1997 1996 6-30-95
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Per share data:
Net asset value, beginning of period ................... $ 11.09 $ 10.79 $ 10.66 $ 10.00
Income from investment operations:
Net investment income ............................... 0.49 0.53 0.56 0.35
Net realized and unrealized gain on investments ..... 0.15 0.30 0.13 0.66
------------ ------------ ------------ ------------
Total income from investment operations ........... 0.64 0.83 0.69 1.01
------------ ------------ ------------ ------------
Less distributions:
Dividends from net investment income ................ (0.49) (0.53) (0.56) (0.35)
------------ ------------ ------------ ------------
Net asset value, end of period ......................... $ 11.24 $ 11.09 $ 10.79 $ 10.66
============ ============ ============ ============
Total return ........................................... 5.77% 7.82% 6.59% 10.26%
Ratios and supplemental data:
Ratio net of fees waived or reimbursed by advisor (c):
Expenses ............................................ 1.45% 1.24% 0.94% 0.91%
Net investment income ............................... 4.30% 4.81% 5.20% 5.04%
Ratios assuming no fees waived or reimbursed by advisor:
Expenses ............................................ 1.60% 1.45% 1.24% 1.21%
Net investment income ............................... 4.15% 4.60% 4.90% 4.74%
Portfolio turnover rate ................................ 4% 6% 8% 0%
Net assets at end of period (millions) ................. $ 7.2 $ 6.8 $ 6.3 $ 5.7
</TABLE>
(a) Annualized
(b) Calculated on an aggregate basis (not annualized).
(c) The advisor has elected to waive management fees equal to 0.15% of average
net assets for the Tax-Free Income portfolio, but it may cease that waiver,
in whole or in part, without prior notice. In addition, the advisor has
reimbursed certain operating expenses.
The accompanying notes are an integral part of these financial statements.
<PAGE> 38
INCOME PORTFOLIO
ONE FUND, INC.
OBJECTIVE
To provide high current income. Preservation of capital is a secondary
objective. Normally, at least 85% of the assets of this portfolio will be
invested in investment-grade fixed-income securities and the equivalent. The
remainder may be invested in below investment-grade corporate bonds.
PERFORMANCE AS OF JUNE 30, 1998
Average Annual Total Returns:
Without With max.
sales charge sales charge
One-year 8.56% 5.31%
Three-year 7.12% 6.04%
Five-year 5.70% 5.06%
Since inception (8/18/92) 6.49% 5.93%
The maximum sales charge is 3%. All returns represent past performance and
neither predict nor guarantee future investment results. Your investment return
and principal value will fluctuate so that shares, when redeemed, may be worth
more or less than their original cost. The advisor is currently waiving fees of
.15% for this portfolio. Had the fees not been waived, returns would have been
lower.
COMMENTS
The ONE Fund Income Portfolio returned 8.56 percent over the past year, slightly
better than the Lehman Government/Corporate Intermediate Bond Index. The
portfolio has a slightly longer maturity structure than the index and has
benefited from a general decline in interest rates during the period.
We expect reasonable stability in interest rates over the next several
months. If that expectation should prove correct, our portfolio maturity
structure should allow the portfolio to perform slightly better than the index.
CHANGE IN VALUE OF $10,000 INVESTMENT
<TABLE>
<CAPTION>
Income Portfolio (with max. sales charge)
(Commenced operations August 18, 1922)
Data Value
---- -----
<S> <C>
12/31/92 $ 9,757.20
12/31/93 $11,050.70
12/31/94 $10,449.30
12/31/95 $12,201.70
12/31/96 $12,771.30
12/31/97 $13,809.60
06/30/98 $14,281.90
</TABLE>
<TABLE>
<CAPTION>
Lehman Bros. Govt./Corporate Bond
Index-intermediate
Date Value
---- -----
<S> <C>
12/31/92 $10,100.00
12/31/93 $10,980.60
12/31/94 $10,766.60
12/31/95 $12,413.90
12/31/96 $12,916.80
12/31/97 $13,933.10
06/30/98
</TABLE>
Hypothetical illustration based on past performance. Future performance will
vary. All returns reflect reinvested dividends. The portfolio's holdings may
differ significantly from the securities in the index. The index is unmanaged
and therefore does not reflect the cost of portfolio management or trading. It
is not open to direct investment.
TOP 10 HOLDINGS AS OF JUNE 30, 1998
% of Portfolio
1. U.S. Treasury Note 6.375% 8/15/02 14.88
2. Texas Utilities Electric Co. 7.48% 1/1/17 4.68
3. Mississippi Chemical Corp 7.25% 11/15/07 4.56
4. Watson Pharmaceuticals Inc 7.125% 5/15/08 4.35
5. Mirage Resorts Inc 6.75% 2/1/08 4.29
6. ITT Destinations Inc 6.75% 11/15/05 4.16
7. El Paso Electric Co 8.90% 2/1/06 4.04
8. Tenneco Inc 8.075% 8/1/03 3.86
9. ITT Rayonier Inc 7.50% 10/15/02 3.81
10. IBM Corp 7.25% 11/1/02 3.79
TOP 5 INDUSTRIES AS OF JUNE 30, 1998
% of Portfolio
Utilities 19.9
Government 14.9
Hotel/Lodging 11.3
Oil, Energy & Natural Gas 8.4
Transportation and Equipment 6.6
<PAGE> 39
ONE FUND, INC.
INCOME PORTFOLIO
SCHEDULE OF INVESTMENTS JUNE 30, 1998
<TABLE>
<CAPTION>
FACE MARKET
AMOUNT LONG-TERM BONDS & NOTES VALUE
- ------------------------------------------------------------
<S> <C> <C>
GOVERNMENT (14.9%)
$1,000,000 U.S. Treasury Note
6.375% 08-15-02 $1,030,626
----------
CHEMICALS (4.6%)
300,000 Mississippi Chemical Corp.
7.250% 11-15-07 315,986
----------
COMMUNICATIONS (1.6%)
100,000 Comcast Cable Communications
8.375% 05-01-07 112,494
----------
COMPUTER AND RELATED (3.8%)
250,000 International Business Machines
7.250% 11-01-02 262,481
----------
CONSUMER GOODS (3.6%)
250,000 RJR Nabisco, Inc.
7.625% 09-15-03 248,713
----------
DRUGS (4.3%)
300,000 Watson Pharmaceuticals, Inc.
7.125% 05-15-08 301,327
----------
FORESTRY AND PAPER PRODUCTS (3.8%)
250,000 ITT Rayonier, Inc.
7.500% 10-15-02 263,762
----------
HOTEL/LODGING (11.3%)
200,000 Hilton Hotels Corp.
7.200% 12-15-09 197,502
300,000 ITT Destinations, Inc.
6.750% 11-15-05 287,920
300,000 Mirage Resorts Inc.
6.750% 02-01-08 296,922
----------
782,344
----------
MEDICAL AND RELATED (3.8%)
250,000 Bergen Brunswig Corp.
7.375% 01-15-03 262,133
----------
OIL, ENERGY AND NATURAL GAS (8.4%)
200,000 PDV America, Inc.
7.875% 08-01-03 209,075
100,000 Seagull Energy
7.875% 08-01-03 101,990
250,000 Tenneco Inc.
8.075% 10-01-02 267,537
----------
578,602
----------
REAL ESTATE (3.0%)
200,000 Avalon Properties Inc.
7.375% 09-15-02 208,044
----------
FACE MARKET
AMOUNT LONG-TERM BONDS & NOTES VALUE
- ------------------------------------------------------------
TEXTILES AND RELATED (3.6%)
$250,000 Fruit of the Loom Corp.
7.875% 10-15-99 $252,031
----------
TRANSPORTATION & EQUIPMENT (6.6%)
250,000 Illinois Central Gulf Railroad
6.750% 05-15-03 256,534
200,000 ABC Rail Product Corp.
8.750% 12-01-04 199,000
----------
455,534
----------
UTILITIES (14.3%)
250,000 El Paso Electric Co.
8.900% 02-01-06 280,000
200,000 Niagra Mohawk Power Corp.
7.750% 10-01-08 206,250
178,501 Puget Power
6.450% 04-11-05 179,867
300,000 Texas Utilities Electric
7.480% 01-01-17 323,881
----------
989,998
----------
TOTAL LONG-TERM BONDS & NOTES
(87.6%) (Cost $5,853,606) $6,064,075
----------
MARKET
SHARES PREFERRED STOCK VALUE
- ------------------------------------------------------------
UTILITIES (5.6%)
8,000 GTE Delaware, 8.750 $209,500
7,000 Connecticut Light, Power & Capital
9.300% Series A 179,375
----------
388,875
----------
TOTAL PREFERRED STOCK
(5.6%) (COST $3751,000) $388,875
----------
FACE MARKET
AMOUNT SHORT-TERM NOTES VALUE
- ------------------------------------------------------------
AUTOMOTIVE AND RELATED (3.3%)
$231,000 Ford Motor Acceptance Corp.
5.630% 07-02-98 $230,964
----------
Retail (2.5%)
170,000 Sears Roebuck Acceptance Corp.
5.900% 07-01-98 170,000
----------
TOTAL SHORT-TERM NOTES
(5.8%) (COST $400,964) $400,964
----------
TOTAL HOLDINGS
(COST $6,629,570)(a) $6,853,914
==========
</TABLE>
(a) Also represents cost for Federal income tax purposes.
The accompanying notes are an integral part of these financial statements.
<PAGE> 40
ONE FUND, INC.
INCOME PORTFOLIO
<TABLE>
<CAPTION>
STATEMENT OF ASSETS AND LIABILITIES
June 30,1998
<S> <C>
Assets:
Investments in securities at market
value (note 1) (Cost $6,629,570) ........................................ $ 6,853,914
Cash in bank .............................................................. 759
Receivable for fund shares sold ........................................... 12,021
Dividends and accrued interest receivable ................................. 113,953
Other ..................................................................... 1,583
-----------
Total assets ............................................................ 6,982,230
-----------
Liabilities:
Payable for investment management
services (note 3) ....................................................... 1,972
Accrued 12b-1 fees (note 6) ............................................... 4,045
Other accrued expenses .................................................... 16,952
Dividends payable ......................................................... 34,876
-----------
Total liabilities ....................................................... 57,845
-----------
Net assets at market value .................................................. $ 6,924,385
===========
Net assets consist of:
Par value, $.001 per share ................................................ $ 692
Paid-in capital in excess of par value .................................... 6,754,823
Accumulated undistributed net realized
loss on investments ..................................................... (55,474)
Net unrealized appreciation on investments ................................ 224,344
-----------
Net assets at market value .................................................. $ 6,924,385
===========
Shares outstanding .......................................................... 692,940
Net asset value per share ................................................... $ 9.99
===========
Maximum offering price per share ($9.99/97%) ................................ $ 10.30
===========
STATEMENT OF OPERATIONS
For Year Ended June 30, 1998
Investment income:
Interest .................................................................. $ 495,090
-----------
Expenses:
Management fees (note 3) .................................................. 33,928
12b-1 fees (note 6) ....................................................... 16,964
Custodian fees (note 3) ................................................... 5,500
Directors' fees (note 3) .................................................. 1,095
Professional fees ......................................................... 4,505
Transfer agent and accounting fees ........................................ 33,700
Filing fees ............................................................... 6,062
Printing, proxy and postage fees .......................................... 2,080
Organizational expense (note 1) ........................................... 455
Other ..................................................................... 299
-----------
Total expenses .......................................................... 104,588
Less expenses voluntarily reduced
or reimbursed (note 3) ................................................ (10,178)
-----------
Net expenses ............................................................ 94,410
-----------
Net investment income ................................................... 400,680
-----------
Realized and unrealized gain on investments:
Net realized gain from investments ........................................ 48,077
Net increase in unrealized
appreciation on investments ............................................. 117,144
-----------
Net gain on investments ............................................... 165,221
-----------
Net increase in net
assets from operati ................................................. $ 565,901
===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE> 41
ONE FUND, INC.
INCOME PORTFOLIO
<TABLE>
<CAPTION>
STATEMENT OF CHANGES IN NET ASSETS
Year Ended Year Ended
June 30, 1998 June 30, 1997
------------- -------------
<S> <C> <C>
From operations:
Net investment income .................................................... $ 400,680 $ 420,873
Realized gain on investments ............................................. 48,077 7,352
Unrealized gain on investments ........................................... 117,144 98,941
------------- -------------
Net increase in assets from operations ................................ 565,901 527,166
------------- -------------
Dividends and distributions to shareholders:
Dividends paid from net investment income ................................ (400,680) (420,873)
------------- -------------
From capital share transactions (note 4):
Received from shares sold ................................................ 759,219 201,790
Received from dividends reinvested ....................................... 79,395 224,885
Paid for shares redeemed ................................................. (702,729) (892,262)
------------- -------------
Increase (decrease) in net assets derived from capital share transactions 135,885 (465,587)
------------- -------------
Increase (decrease) in net assets .................................... 301,106 (359,294)
------------- -------------
Net Assets:
Beginning of period ...................................................... 6,623,279 6,982,573
------------- -------------
End of period ............................................................ $ 6,924,385 $ 6,623,279
============= =============
</TABLE>
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS
Year Ended June 30,
1998 1997 1996 1995 1994
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Per share data:
Net asset value, beginning of period ................... $ 9.75 $ 9.59 $ 9.78 $ 9.39 $ 10.43
Income (loss) from investment operations:
Net investment income ................................. 0.59 0.61 0.63 0.65 0.62
Net realized and unrealized gain (loss) on investments 0.24 0.16 (0.19) 0.39 (0.98)
--------- --------- --------- --------- ---------
Total income (loss) from investment operations ....... 0.83 0.77 0.44 1.04 (0.36)
--------- --------- --------- --------- ---------
Less distributions:
Dividends from net investment income .................. (0.59) (0.61) (0.63) (0.65) (0.62)
Distributions from net realized capital gains ......... 0.00 0.00 0.00 0.00 (0.06)
--------- --------- --------- --------- ---------
Total distributions .................................. (0.59) (0.61) (0.63) (0.65) (0.68)
--------- --------- --------- --------- ---------
Net asset value, end of period ......................... $ 9.99 $ 9.75 $ 9.59 $ 9.78 $ 9.39
========= ========= ========= ========= =========
Total return ........................................... 8.56% 8.26% 4.61% 11.58% (3.79%)
Ratios and supplemental data:
Ratio net of fees waived or reimbursed by advisor (a):
Expenses .............................................. 1.39% 1.21% 0.97% 0.85% 1.02%
Net investment income ................................. 5.91% 6.29% 6.50% 6.80% 6.10%
Ratios assuming no fees waived or reimbursed by advisor:
Expenses .............................................. 1.54% 1.51% 1.22% 1.10% 1.27%
Net investment income ................................. 5.76% 5.99% 6.25% 6.55% 5.85%
Portfolio turnover rate ................................ 40% 10% 9% 4% 6%
Net assets at end of period (millions) ................. $ 6.9 $ 6.6 $ 7.0 $ 7.1 $ 4.6
</TABLE>
(a) The advisor has elected to waive management fees equal to 0.15% of average
net assets for the Income portfolio, but it may cease that waiver, in whole
or in part, without prior notice. In addition, the advisor has reimbursed
certain operating expenses.
The accompanying notes are an integral part of these financial statements.
<PAGE> 42
INCOME & GROWTH PORTFOLIO
ONE FUND, INC.
OBJECTIVE
To provide moderate income with the potential for increasing income over time.
Growth of capital is also a primary objective. 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 stock.
PERFORMANCE AS OF JUNE 30, 1998
AVERAGE ANNUAL TOTAL RETURNS:
Without With max.
sales charge sales charge
One-year 14.77% 9.04%
Three-year 17.13% 15.15%
Five-year 14.11% 12.95%
Since inception (8/18/92) 14.18% 13.18%
The maximum sales charge is 5%. All returns represent past performance and
neither predict nor guarantee future investment results. Your investment return
and principal value will fluctuate so that shares, when redeemed, may be worth
more or less than their original cost. The advisor is currently waiving fees of
.15% for this portfolio. Had the fees not been waived, returns would have been
lower.
COMMENTS
We continued to see an increasing yet volatile stock market led
by blue chips and a select number of growth stocks during the twelve months
ending June 30, 1998. The valuation spread between the largest companies and
most others are near all-time highs. The breadth of the stock market continues
to narrow. Interest rates moved lower with the largest part of the move
occurring during the second half of 1997. The interest rate spread between
Treasury securities and corporate bonds have widened during the second quarter
of 1998 due to investor's concerns about Asia and other uncertainties.
The Income and Growth Portfolio return was 14.8% for the period. The
strongest performing sectors included Utilities, Consumer Staples, Healthcare
and Financials. The weaker performing sectors included Capital Goods, Real
Estate and certain issues in the Technology sector.
As spreads continue to increase between Treasury securities and corporate
bonds, we are looking to add to our holdings of high-quality corporate bonds. We
expect the stock market volatility to continue through the remainder of the year
as investors contend with Asian concerns, potential slowdowns in other parts of
the world, Year 2000 issues and reduced corporate profits. On the other hand,
several countries continue to experience steady economic growth, and many
companies (small, medium and large) should continue to report very good earnings
growth. Investments in these areas and companies should provide positive results
for investors over time.
CHANGE IN VALUE OF $10,000 INVESTMENT
<TABLE>
<CAPTION>
Income and Growth Portfolio (with max. sales charge)
(Commenced operations August 18, 1992)
Data Value
---- -----
<S> <C>
12/31/92 $ 9,487.70
12/31/93 $11,146.40
12/31/94 $11,066.70
12/31/95 $13,796.00
12/31/96 $15,976.10
12/31/97 $19,635.90
06/30/98 $20,682.50
<CAPTION>
S&P 500 Index
Data Value
---- -----
<S> <C>
12/31/92 $10,627.00
12/31/93 $11,688.40
12/31/94 $11,841.80
12/31/95 $16,273.90
12/31/96 $20,030.30
12/31/97 $26,690.10
06/30/98 $31,416.90
</TABLE>
Hypothetical illustration based on past performance. Future performance will
vary. All returns reflect reinvested dividends. The portfolio's holdings may
differ significantly from the securities in the index. The index is unmanaged
and therefore does not reflect the cost of portfolio management or trading. It
is not open to direct investment.
TOP 10 HOLDINGS AS OF JUNE 30, 1998
% of Portfolio
1. Camco International Inc 3.88
2. Texas Instruments Inc 2.91
3. Allied Signal 2.76
4. Microsoft Corp 2.70
5. CBS Corporation 2.37
6. Williams Cos Inc 2.21
7. Regal Beloit Corp 2.13
8. PDV America, Inc NT 7.875% 8/1/03 1.95
9. Hewlett-Packard Co 1.86
10. Intel Corp 1.85
TOP 5 INDUSTRIES AS OF JUNE 30, 1998
% of Portfolio
Oil, Energy & Natural Gas 17.2
Computer & Related 13.0
Real Estate 7.2
Industrial Services 6.1
Electrical Equipment 5.9
<PAGE> 43
ONE FUND, INC.
INCOME & GROWTH PORTFOLIO
SCHEDULE OF INVESTMENTS JUNE 30, 1998
<TABLE>
<CAPTION>
MARKET
SHARES COMMON STOCK VALUE
- ----------------------------------------------------------
AEROSPACE (2.8%)
<S> <C> <C>
10,000 Allied Signal, Inc. $443,750
-----------
AUTOMOTIVE AND RELATED (3.3%)
3,300 Chrysler Corp. 186,038
3,500 Cooper Tire & Rubber Co. 72,188
4,000 Magna International, Inc. CL A 274,500
-----------
532,726
-----------
BANKING (3.0%)
5,970 First State Bancorporation 144,026
807 First Union Corp. 47,034
3,500 Flagstar Bancorp, Inc. 85,312
1,000 Star Banc Corp. 63,875
3,750 Susquehanna Bancshares Inc. 140,156
-----------
480,403
-----------
BUSINESS SERVICES (2.4%)
5,000 First Data Corp. 166,563
4,000 Manpower Inc. 114,750
6,000 Reynolds and Reynolds CL A 109,125
-----------
390,438
-----------
CHEMICALS (4.4%)
1,250 Hanson Trust PLC 37,891
13,000 Hawkins Chemical Inc. 156,000
5,000 Minerals Technologies, Inc. 254,375
6,000 OM Group, Inc. 247,500
-----------
695,766
-----------
COMPUTER AND RELATED (11.4%)
2,000 *3Com Corp. 61,375
3,000 Computer Associates International 166,688
5,000 Hewlett Packard Co. 299,375
4,000 Intel Corp. 296,500
10,000 MacNeal-Schwendler Corp. 98,125
4,000 *Microsoft Corp. 433,500
8,000 Texas Instruments, Inc. 466,500
-----------
1,822,063
-----------
ELECTRICAL EQUIPMENT (5.0%)
12,000 CBS Corporation 381,000
5,000 Hubbell Inc. CL B 208,125
3,000 Varian Associates, Inc. 117,000
1,000 Xerox Corp. 101,625
-----------
807,750
-----------
ENTERTAINMENT AND LEISURE (1.7%)
10,000 Cedar Fair 276,250
-----------
FINANCE (1.3%)
18,500 Bando McGlocklin Capital Corp. 212,750
-----------
FOOD AND RELATED (2.2%)
3,000 H.J. Heinz Co. 168,375
6,000 Panamerican Beverages Inc. Cl A 188,625
-----------
357,000
-----------
FORESTRY AND PAPER PRODUCTS (0.7%)
3,630 Sonoco Products Co. 109,808
-----------
HOUSING, FURNITURE & RETLATED (1.8%)
7,100 Haverty Furniture Co. 157,088
6,200 Shelby Williams Industries Inc. 93,000
-----------
250,088
-----------
MARKET
SHARES COMMON STOCK VALUE
- ----------------------------------------------------------
INDUSTRIAL SERVICES (6.1%)
9,000 Clarcor Inc. $189,000
7,000 Health & Retirement Property Trust 131,688
5,000 Pall Corporation 102,500
12,000 Regal Beloit Corp. 342,000
5,000 York International, Corp. 217,813
-----------
983,001
-----------
INSURANCE SERVICES (0.9%)
4,000 Blanch EW Holdings Inc. 147,000
-----------
MEDICAL AND RELATED (2.0%)
500 Allegiance Corporation 25,625
2,500 Baxter International, Inc. 134,531
2,150 *National Healthcare LP 70,950
1,500 United Healthcare Corp.. 95,250
-----------
326,356
-----------
METALS AND MINING (0.6%)
6,000 Worthington Industries, Inc. 90,375
-----------
OIL, ENERGY AND GAS (8.8%)
8,000 Camco International, Inc. 623,000
1,400 Kerr-McGee Corp. 81,025
5,000 Pacific Gulf Properties, Inc. 106,562
6,000 WD-40 Co. 162,750
4,000 Westcoast Energy, Inc. 89,250
10,500 Williams Cos., Inc. 354,375
-----------
1,416,962
-----------
REAL ESTATE (6.8%)
5,000 Bershire Realty Company, Inc. 58,437
3,000 Camden Property Trust 89,250
8,000 Commercial Net Lease Realty 129,500
10,000 Corporate Office Properties Trust 88,750
4,000 First Industrial Realty Trust 127,250
7,000 Great Lakes REIT Inc. 122,062
6,000 Healthcare Realty Trust, Inc. 163,500
6,000 Liberty Property Trust 153,375
4,500 National Health Investors, Inc. 149,063
-----------
1,081,187
-----------
TEXTILES AND RELATED (1.0%)
4,500 Oxford Industries, Inc. 157,219
-----------
TRANSPORTATION (2.6%)
2,000 Burlington Northern Santa Fe 196,375
3,000 CNF Transportation, Inc. 127,500
4,500 *Wisconsin Central Trans. Corp. 98,435
-----------
422,310
-----------
UTILITIES (0.3%)
2,000 UGI Corp. 49,750
-----------
TOTAL COMMON STOCK
(68.9%) (COST $6,5,09,816) $11,052,952
-----------
MARKET
SHARES PREFERRED STOCK VALUE
- ----------------------------------------------------------
AUTOMOTIVE AND RELATED (0.3%)
2,000 Walbro Capital Trust Conv. 8.00% $44,250
-----------
(continued)
</TABLE>
<PAGE> 44
ONE FUND, INC.
INCOME & GROWTH PORTFOLIO (CONTINUED)
SCHEDULE OF INVESTMENTS JUNE 30, 1998
<TABLE>
<CAPTION>
MARKET
SHARES PREFERRED STOCK VALUE
- ----------------------------------------------------------
<S> <C> <C>
BANKING (0.7%)
4,000 National Australia Bank Ltd. Conv. $114,750
-----------
BUSINESS SERVICES (0.6%)
4,000 Flagstar Capital 8.50% 99,750
-----------
OIL, ENERGY AND GAS (1.3%)
3,000 Consumers Energy II 8.20% Conv. 75,750
3,000 Howell Corp. $3.50 Series A Conv. 129,000
-----------
204,750
-----------
REAL ESTATE (0.4%)
2,400 Camden Property $2.25 Series A Conv. 63,600
-----------
TOTAL PREFERRED STOCK
(3.3%) (COST $538,113) $527,100
-----------
FACE MARKET
AMOUNT LONG-TERM BONDS & NOTES VALUE
- ----------------------------------------------------------
COMMUNICATIONS (0.7%)
$100,000 Comcast Cable Communications
8.375% 05-01-07 $112,494
-----------
COMPUTER AND RELATED (1.6%)
250,000 IBM Corp.
7.250% 11-01-02 262,481
-----------
FINANCE (2.6%)
100,000 Citifed Bancorp, Inc. 100,502
8.250% 09-01-03
50,000 ESI Tractebel Acq. Corp.
7.990% 12-30-11 50,875
250,000 Geon Corp.
7.500% 12-15-15 261,588
-----------
412,965
-----------
FOOD AND RELATED (0.5%)
75,000 Marsh Supermarkets, Inc.
8.875% 08-01-07 77,063
-----------
FORESTRY AND PAPER PRODUCTS (1.6%)
250,000 ITT Rayonier, Inc.
7.500% 10-15-02 263,762
-----------
HOUSING, FURNITURE AND RELATED (0.6%)
100,000 Owens Corning
7.500% 05-01-05 102,080
-----------
RESTAURANTS (0.6%)
100,000 Tricon Global Restaurants
7.450% 05-15-05 101,045
-----------
UTILITIES (0.7%)
100,000 Niagara Mohawk Power Corp.
7.750% 10-01-08 103,125
-----------
FACE MARKET
AMOUNT LONG-TERM BONDS & NOTES VALUE
- ----------------------------------------------------------
OIL, ENERGY AND NATURAL GAS (5.8%)
300,000 PDV America, Inc.
7.875% 08-01-03 313,612
100,000 R&B Falcon Corp.
6.750% 04-15-05 100,726
250,000 Tenneco, Inc.
8.075% 10-01-02 267,536
250,000 Union Texas Petroleum
8.250% 11-15-99 256,986
-----------
938,860
-----------
TOTAL LONG-TERM BONDS & NOTES
(14.7%) (Cost $2,270,057) $2,373,875
-----------
FACE MARKET
AMOUNT CONVERTIBLE DEBENTURES VALUE
- ----------------------------------------------------------
ELECTRICAL EQUIPMENT (0.9%)
$150,000 Richey Electronics
7.000% 03-01-06 $137,625
-----------
OIL, ENERGY AND NATURAL GAS (1.3%)
100,000 Offshore Logistics
6.000% 12-15-06 206,500
-----------
TOTAL CONVERTIBLE DEBENTURES
(2.2%) (COST $345,369) $344,125
-----------
FACE MARKET
AMOUNT SHORT-TERM NOTES VALUE
- ----------------------------------------------------------
AUTOMOTIVE AND RELATED (2.9%)
$197,000 Ford Motor Credit Corp.
5.620% 07-06-98 $196,846
270,000 General Motors Acceptance Corp.
5.580% 07-15-98 269,414
-----------
466,260
-----------
FINANCE (4.5%)
257,000 GE Capital Corp.
5.300% 07-01-98 257,000
462,000 Household Financial Corp.
5.500% 07-02-98 461,929
-----------
718,929
-----------
INSURANCE (1.8%)
301,000 Prudential Funding
5.750% 07-06-98 300,760
-----------
RETAIL (1.9%)
302,000 Sears Roebuck
5.560% 07-10-98 301,580
-----------
TOTAL SHORT-TERM NOTES
(11.1%) (COST $1,787,529) $1,787,529
-----------
TOTAL HOLDINGS
(COST $11,450,884)(a) $16,085,581
===========
</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> 45
ONE FUND, INC.
INCOME & GROWTH PORTFOLIO
<TABLE>
<CAPTION>
STATEMENT OF ASSETS AND LIABILITIES
June 30, 1998
<S> <C>
Assets:
Investments in securities at market
value (note 1) (Cost $11,450,884) ...................................... $ 16,085,581
Cash in bank ............................................................ 691
Receivable for fund shares sold ......................................... 262
Dividends and accrued interest receivable ............................... 74,651
Other ................................................................... 1,755
------------
Total assets ........................................................... 16,162,940
------------
Liabilities:
Payable for fund shares redeemed ........................................ 38,316
Payable for investment management
services (note 3) ...................................................... 4,579
Accrued 12b-1 fees (note 6) ............................................. 9,579
Other accrued expenses .................................................. 17,151
Dividends payable ....................................................... 38,817
------------
Total liabilities ...................................................... 108,442
------------
Net assets at market value ............................................... $ 16,054,498
============
Net assets consist of:
Par value, $.001 per share .............................................. $ 1,012
Paid-in capital in excess of par value .................................. 11,311,721
Accumulated undistributed net realized
gain on investments .................................................... 107,068
Net unrealized appreciation on investments .............................. 4,634,697
------------
Net assets at market value ............................................... $ 16,054,498
============
Shares outstanding ....................................................... 1,012,631
Net asset value per share ................................................ $ 15.85
============
Maximum offering price per share ($15.85/95%) ............................ $ 16.69
============
STATEMENT OF OPERATIONS
For Year Ended June 30, 1998
Investment income:
Interest ................................................................ $ 260,799
Dividends ............................................................... 302,487
------------
Total investment income ................................................ 563,286
------------
Expenses:
Management fees (note 3) ................................................ 73,633
12b-1 fees (note 6) ..................................................... 36,816
Custodian fees (note 3) ................................................. 6,200
Directors' fees (note 3) ................................................ 2,175
Professional fees ....................................................... 8,947
Transfer agent and accounting fees ...................................... 53,700
Filing fees ............................................................. 10,875
Printing, proxy and postage fees ........................................ 4,133
Organizational expense (note 1) ......................................... 446
Other ................................................................... 526
------------
Total expenses ......................................................... 197,451
Less expenses voluntarily reduced
or reimbursed (note 3) ................................................ (22,090)
------------
Net expenses ........................................................... 175,361
------------
Net investment income .................................................. 387,925
------------
Realized and unrealized gain on investments:
Net realized gain from investments ...................................... 664,230
Net increase in unrealized
appreciation on investments ............................................ 887,079
------------
Net gain on investments ............................................... 1,551,309
------------
Net increase in net
assets from operations ............................................... $ 1,939,234
============
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE> 46
ONE FUND, INC.
INCOME & GROWTH PORTFOLIO
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
Year Ended Year Ended
June 30, 1998 June 30, 1997
------------- -------------
<S> <C> <C>
From operations:
Net investment income ............................................................. $ 387,925 $ 321,700
Realized gain on investments ...................................................... 664,230 129,214
Unrealized gain on investments .................................................... 887,079 1,933,894
------------ ------------
Net increase in assets from operations .......................................... 1,939,234 2,384,808
------------ ------------
Dividends and distributions to shareholders:
Dividends paid from net investment income ......................................... (391,040) (320,587)
Capital gains distributions ....................................................... (676,652) (243,651)
------------ ------------
Total dividends and distributions ............................................... (1,067,692) (564,238)
------------ ------------
From capital share transactions (note 4):
Received from shares sold ......................................................... 3,431,737 2,484,392
Received from dividends reinvested ................................................ 615,775 427,145
Paid for shares redeemed .......................................................... (1,979,004) (2,386,862)
------------ ------------
Increase in net assets derived from capital share transactions ................... 2,068,508 524,675
------------ ------------
Increase in net assets ......................................................... 2,940,050 2,345,245
------------ ------------
Net Assets:
Beginning of period ............................................................... 13,114,448 10,769,203
------------ ------------
End of period ..................................................................... $ 16,054,498 $ 13,114,448
============ ============
Includes undistributed net investment income of ................................... $ 0 $ 3,115
============ ============
</TABLE>
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS
Years Ended June 30,
1998 1997 1996 1995 1994
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Per share data:
Net asset value, beginning of period ..................... $14.89 $12.78 $11.57 $10.65 $10.96
Income from investment operations:
Net investment income ................................... 0.42 0.38 0.38 0.41 0.33
Net realized and unrealized gain (loss) on investments .. 1.73 2.39 1.27 1.54 (0.11)
------ ------ ------ ------ ------
Total income from investment operations ................ 2.15 2.77 1.65 1.95 0.22
------ ------ ------ ------ ------
Less distributions:
Dividends from net investment income .................... (0.42) (0.38) (0.37) (0.41) (0.33)
Distributions from net realized capital gains ........... (0.77) (0.28) (0.07) (0.62) (0.20)
------ ------ ------ ------ ------
Total distributions .................................... (1.19) (0.66) (0.44) (1.03) (0.53)
------ ------ ------ ------ ------
Net asset value, end of period ........................... $15.85 $14.89 $12.78 $11.57 $10.65
====== ====== ====== ====== ======
Total return ............................................. 14.77% 22.34% 14.50% 19.41% 1.96%
Ratios and supplemental data:
Ratio net of fees waived or reimbursed by advisor (a):
Expenses ................................................ 1.20% 1.12% 0.89% 0.81% 0.94%
Net investment income ................................... 2.65% 2.77% 3.10% 3.69% 3.08%
Ratios assuming no fees waived or reimbursed by advisor:
Expenses ................................................ 1.35% 1.31% 1.14% 1.06% 1.19%
Net investment income ................................... 2.50% 2.58% 2.85% 3.44% 2.83%
Average commission rate (b) .............................. $ 0.07 $ 0.07 NR NR NR
Portfolio turnover rate .................................. 39% 14% 7% 25% 14%
Net assets at end of period (millions) ................... $ 16.1 $ 13.1 $ 10.8 $ 7.7 $ 7.5
</TABLE>
(a) The advisor has elected to waive management fees equal to 0.15% of average
net assets for the Income & Growth portfolio, but it may cease that waiver,
in whole or in part, without prior notice. In addition, the advisor has
reimbursed certain operating expenses.
(b) Represents the total dollar amount of commission paid on equity security
transactions divided by the total number of shares purchased and sold for
which commissions were charged.
NR Not required prior to June, 1997
The accompanying notes are an integral part of these financial statements.
<PAGE> 47
GROWTH PORTFOLIO
ONE FUND, INC.
OBJECTIVE
To provide long-term capital growth. Current income is incidental. Normally at
least 90% of the assets of this portfolio will be invested in common stocks.
Selection of stocks is not limited with regard to whether stocks are
exchange-listed or dividend-paying or whether they are issued by companies of
any particular size.
PERFORMANCE AS OF JUNE 30, 1998
AVERAGE ANNUAL TOTAL RETURNS:
Without With max.
sales charge sales charge
One-year 14.13% 8.43%
Three-year 18.28% 16.27%
Five-year 15.45% 14.28%
Since inception (8/18/92) 16.31% 15.30%
The maximum sales charge is 5%. All returns represent past performance and
neither predict nor guarantee future investment results. Your investment return
and principal value will fluctuate so that shares, when redeemed, may be worth
more or less than their original cost. The advisor is currently waiving fees of
.15% for this portfolio. Had the fees not been waived, returns would have been
lower.
COMMENTS
We continued to see an increasing yet volatile stock market led
by blue chips and a select number of growth stocks during the twelve months
ending June 30, 1998. The valuation spread between the largest companies and
most others are near all-time highs. The breadth of the stock market continues
to narrow. Interest rates moved lower with the largest part of the move
occurring during the second half of 1997. The interest rate spread between
Treasury securities and corporate bonds have widened during the second quarter
of 1998 due to investor's concerns about Asia and other uncertainties.
The Growth Portfolio return was 14.1% for the period. The strongest
performing sectors were Consumer Staples, Financials, Healthcare and selected
Technology issues. The weaker sectors included Energy, Consumer Cyclicals and
selected technology issues. The portfolio's invested position averaged 93%
during the period.
We expect the stock market volatility to continue through the remainder of
the year as investors contend with Asian concerns, potential slowdowns in other
parts of the world, Year 2000 issues and reduced corporate profits. On the other
hand, several countries continue to experience steady economic growth, and many
companies (small, medium and large) should continue to report very good earnings
growth. Investments in these areas and companies should provide positive results
for investors over time.
CHANGE IN VALUE OF $10,000 INVESTMENT
<TABLE>
<CAPTION>
Growth Portfolio (with max. sales charge)
(Commenced operations August 18, 1992)
Data Value
---- -----
<S> <C>
12/31/92 $10,178.30
12/31/93 $11,917.10
12/31/94 $11,987.60
12/31/95 $15,367.30
12/31/96 $18,098.30
12/31/97 $21,126.80
06/30/98 $23,051.50
</TABLE>
<TABLE>
<CAPTION>
S&P 500 Index
Data Value
---- -----
<S> <C>
12/31/92 $10,627.00
12/31/93 $11,688.40
12/31/94 $11,841.80
12/31/95 $16,273.90
12/31/96 $20,030.30
12/31/97 $26,690.10
06/30/98 $31,416.90
</TABLE>
Hypothetical illustration based on past performance. Future performance will
vary. All returns reflect reinvested dividends. The portfolio's holdings may
differ significantly from the securities in the index. The index is unmanaged
and therefore does not reflect the cost of portfolio management or trading. It
is not open to direct investment.
TOP 10 HOLDINGS AS OF JUNE 30, 1998
% of Portfolio
1. Cisco Systems Inc. 4.37
2. Microsoft Corp 3.05
3. Allied Signal Corp 2.81
4. Camco International 2.74
5. Texas Instruments 2.67
6. Magna International Cl A 2.41
7. Hardinge Inc 2.19
8. Kendle International Inc 2.13
9. Health South Corp 1.88
10. Computer Associates 1.76
TOP 5 INDUSTRIES AS OF JUNE 30, 1998
% of Portfolio
Computer & Related 17.6
Medical & Related 11.1
Oil, Energy & Natural Gas 8.3
Electrical Equipment 7.0
Automotive and Related 6.0
The prices of small company stocks are generally more volatile than the prices
of large company stocks.
<PAGE> 48
ONE FUND, INC.
GROWTH PORTFOLIO
SCHEDULE OF INVESTMENTS JUNE 30, 1998
<TABLE>
<CAPTION>
MARKET
SHARES COMMON STOCK VALUE
- -----------------------------------------------------
<S> <C> <C>
AEROSPACE (4.3%)
9,000 Allied Signal, Inc. $399,375
336 Boeing Co. 14,973
4,000 Rockwell International Corp. 192,250
---------
606,598
---------
AUTOMOTIVE AND RELATED (6.0%)
5,500 Arvin Industries, Inc. 199,719
3,000 Chrysler Corp. 169,125
2,000 Cooper Tire & Rubber 41,250
5,000 Magna International, Inc. CL A 343,125
7,000 Walbro Corp. 98,875
---------
852,094
---------
BANKING (4.4%)
6,614 Charter One Financial, Inc. 222,809
2,985 First State Bancorp 72,013
807 First Union Corp. 47,034
3,500 Flagstar Bancorp, Inc. 85,313
1,000 Star Banc Corp. 63,875
3,750 Susquehanna Bancshares 140,156
---------
631,200
---------
BUSINESS SERVICES (5.5%)
8,500 *Alternative Resources Corp. 105,188
5,000 First Data Corp. 166,563
7,500 *Lo Jack Corp. 93,281
3,500 Manpower Inc. 100,406
5,500 *Mapics Inc. 108,281
6,000 Reynolds and Reynolds CL A 109,125
4,500 Wackenhut Corp. CL B 96,750
---------
779,594
---------
CHEMICALS (3.4%)
12,000 Hawkins Chemicals Inc. 144,000
3,500 Minerals Technologies, Inc. 178,063
4,000 OM Group Inc. 165,000
---------
487,063
---------
COMMUNICATIONS (0.5%)
3,187 *Mastec Inc. 76,090
---------
COMPUTER AND RELATED (17.6%)
2,000 *3Com Corp. 61,375
6,750 *Cisco Systems, Inc. 621,422
4,500 Computer Associates Intl. 250,031
4,000 Hewlett Packard Co. 239,500
3,000 Intel Corp. 222,375
1,000 *LSI Logic 23,063
10,000 MacNeal-Schwendler Corp. 98,125
4,000 *Microsoft Corp. 433,500
1,000 *Structural Dynamics Research Corp. 23,125
6,500 Texas Instruments, Inc. 379,031
3,500 *Zebra Tech. Corp. CL A 149,625
---------
2,501,172
---------
CONSUMER GOODS (0.9%)
4,000 *Sola International 130,750
---------
DRUGS (0.5%)
5,000 *Applied Analytical Industries 71,875
---------
</TABLE>
<TABLE>
<CAPTION>
MARKET
SHARES COMMON STOCK VALUE
- -----------------------------------------------------
ELECTRICAL EQUIPMENT (7.0%)
<S> <C> <C>
5,000 *Advanced Lighting Tech. Inc. $116,250
6,666 *Analog Devices, Inc. 163,734
7,500 *Anixter International, Inc. 142,969
4,800 BMC Industries, Inc. 42,000
7,000 CBS Corporation 222,250
7,000 *Richey Electronics, Inc. 54,687
4,000 Varian Associates, Inc. 156,000
1,000 Xerox Corp. 101,625
---------
999,515
---------
ENTERTAINMENT AND LEISURE (2.2%)
8,000 Cedar Fair 221,000
5,000 *Livent, Inc. 43,750
5,000 *Royal Olympic Cruise Lines 50,000
---------
314,750
---------
FOOD AND RELATED (2.1%)
10,000 Food Lion Inc. CL A 106,250
6,000 Panamerican Beverages Inc. CL A 188,625
---------
294,875
---------
FORESTRY AND PAPER PRODUCTS (0.7%)
3,300 Sonoco Products Co. 99,825
---------
HOTEL/ LODGING (1.7%)
6,500 *Guest Supply, Inc. 108,875
2,000 La Quinta Inns 42,250
4,000 *Mirage Resorts, Inc. 85,250
---------
236,375
---------
HOUSING, FURNITURE & RELATED (1.2%)
5,000 *Meadowcraft Inc. 55,000
7,500 Shelby Williams Industries, Inc. 112,500
---------
167,500
---------
INDUSTRIAL SERVICES (3.3%)
3,500 *Hawk Corp. 61,687
10,000 *Medar Inc. 21,250
8,000 Regal Beloit Corp. 228,000
3,500 York International Corp. 152,469
---------
463,406
---------
INSURANCE (2.2%)
4,000 Blanch (EW) Holdings, Inc. 147,000
3,800 St. Paul Cos. 159,838
---------
306,838
---------
MEDICAL AND RELATED (11.1%)
700 Allegiance Corp. 35,875
3,500 Baxter International 188,344
5,500 *Cephalon Inc. 43,312
3,900 *Foundation Health Corp. 102,863
10,000 *Health South Corp. 266,875
2,000 *Humana Inc. 62,375
10,000 *Kendle Intl. Inc. 302,500
5,000 Mylan Laboratories 150,312
3,350 *National Healthcare LP 110,550
8,250 *Quorum Health Group, Inc. 218,625
1,500 United Healthcare Corp. 95,250
---------
1,576,881
---------
(continued)
</TABLE>
<PAGE> 49
ONE FUND, INC.
GROWTH PORTFOLIO (CONTINUED)
SCHEDULE OF INVESTMENTS JUNE 30, 1998
<TABLE>
<CAPTION>
MARKET
SHARES COMMON STOCK VALUE
- -------------------------------------------------------------
MACHINERY (2.2%)
<S> <C> <C>
12,750 Hardinge Inc. $ 310,781
METAL FABRICATING (2.8%)
10,000 Amcast Industrial Corp. 186,250
3,250 *Wolverine Tube, Inc. 123,500
6,000 Worthington Industries Inc. 90,375
-----------
400,125
-----------
NON-HAZARDOUS WASTE
DISPOSAL (0.5%)
5,000 *Stericycle Inc. 72,500
-----------
OIL, ENERGY AND
NATURAL GAS (7.5%)
4,500 *Belco Oil & Gas Corp. 38,812
5,000 Camco International, Inc. 389,375
7,000 *Louis Dreyfus Natural Gas Corp. 132,563
2,500 *Offshore Logistics Inc. 44,375
8,000 *Santa Fe Energy Resources, Inc. 86,000
6,700 *Tesoro Petroleum Corp. 106,363
5,400 *The Meridian Resource Corp. 38,137
5,000 Williams Cos., Inc. 168,750
6,100 Wiser Oil Co. 67,481
-----------
1,071,856
-----------
RESTAURANTS (1.9%)
10,000 *Buffets Inc. 156,875
5,000 *Consolidated Products 105,625
-----------
262,500
-----------
RETAIL (0.4%)
10,000 *Ridgeview Inc. 60,000
-----------
RETIREMENT/AGED CARE (0.6%)
7,500 *Capital Senior Living Corp. 90,000
-----------
TEXTILES AND RELATED (0.9%)
3,000 Warnaco Group, CL A $ 127,313
-----------
</TABLE>
<TABLE>
<CAPTION>
MARKET
SHARES COMMON STOCK VALUE
- ------------------------------------------------------------
<S> <C> <C>
TRANSPORTATION (4.6%)
4,000 *Atlas Air Inc. $ 135,250
955 Burlington Northern Santa Fe 93,767
3,000 Consolidated Freightways, Inc. 127,500
6,566 *Halter Marine Group Inc. 98,900
3,000 Trinity Industries 124,500
3,500 *Wisconsin Central Trans. Corp. 76,563
-----------
656,480
-----------
TOTAL COMMON STOCK
(95.7%) (COST $9,013,912) $13,647,956
-----------
MARKET
SHARES PREFERRED STOCK VALUE
- ------------------------------------------------------------
OIL, ENERGY AND NATURAL
GAS (0.8%)
2,500 Howell Corp. $3.50 Series A Conv. $ 107,500
-----------
Total Preferred Stock
(0.8%) (Cost $128,075) $107,500
-----------
FACE MARKET
AMOUNT SHORT-TERM NOTES VALUE
- -------------------------------------------------------------
AUTOMOTIVE AND RELATED (1.5%)
$224,000 Ford Motor Credit Corp.
5.630% 07-0 2-98 $ 223,965
-----------
FINANCIAL SERVICES (0.8%)
109,000 Prudential Funding
5.750% 07-06-98 108,913
-----------
RETAIL (1.0%)
140,000 Sears Acceptance Corp.
5.900% 07-01-98 140,000
-----------
TOTAL SHORT-TERM NOTES
(3.3%) (COST $472,878) $ 472,878
-----------
TOTAL HOLDINGS
(COST $9,614,865)(a) $14,228,334
===========
</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> 50
ONE FUND, INC.
GROWTH PORTFOLIO
<TABLE>
<CAPTION>
STATEMENT OF ASSETS AND LIABILITIES
June 30, 1998
<S> <C>
Assets:
Investments in securities at market
value (note 1) (Cost $9,614,865) .................................... $14,228,334
Cash in bank ......................................................... 2,912
Receivable for fund shares sold ...................................... 3,369
Dividends and accrued interest receivable ............................ 11,853
Other ................................................................ 1,966
-----------
Total assets ........................................................ 14,248,434
-----------
Liabilities:
Payable for fund shares redeemed ..................................... 3,640
Payable for investment management
services (note 3) ................................................... 4,059
Accrued 12b-1 fees (note 6) .......................................... 8,864
Other accrued expenses ............................................... 22,077
-----------
Total liabilities ................................................... 38,640
-----------
Net assets at market value ............................................ $ 14,209,794
============
Net assets consist of:
Par value, $.001 per share ........................................... $ 761
Paid-in capital in excess of par value ............................... 8,706,171
Accumulated undistributed net realized
gain on investments ................................................. 889,393
Net unrealized appreciation on investments ........................... 4,613,469
-----------
Net assets at market value ............................................ $ 14,209,794
============
Shares outstanding .................................................... 760,818
Net asset value per share ............................................. $ 18.68
============
Maximum offering price per share ($18.68/95%) ......................... $ 19.66
============
</TABLE>
<TABLE>
<CAPTION>
STATEMENT OF OPERATIONS
For Year Ended June 30, 1998
<S> <C>
Investment income:
Interest ............................................................. $ 42,943
Dividends ............................................................ 135,656
-----------
Total investment income ............................................. 178,599
-----------
Expenses:
Management fees (note 3) ............................................. 71,522
12b-1 fees (note 6) .................................................. 35,761
Custodian fees (note 3) .............................................. 6,100
Directors' fees (note 3) ............................................. 2,205
Professional fees .................................................... 9,073
Transfer agent and accounting fees ................................... 56,300
Filing fees .......................................................... 11,025
Printing, proxy and postage fees ..................................... 4,189
Organizational expense (note 1) ...................................... 440
Other ................................................................ 521
-----------
Total expenses ...................................................... 197,136
Less expenses voluntarily reduced
or reimbursed (note 3) ............................................. (21,457)
-----------
Net expenses ........................................................ 175,679
-----------
Net investment income ............................................... 2,920
-----------
Realized and unrealized gain on investments:
Net realized gain from investments ................................... 1,329,264
Net increase in unrealized
appreciation on investments ......................................... 518,363
-----------
Net gain on investments ............................................ 1,847,627
-----------
Net increase in net
assets from operations ............................................ $ 1,850,547
============
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE> 51
ONE FUND, INC.
GROWTH PORTFOLIO
<TABLE>
<CAPTION>
STATEMENT OF CHANGES IN NET ASSETS
Year Ended Year Ended
June 30, 1998 June 30, 1997
<S> <C> <C>
From operations:
Net investment income ......................................... $ 2,920 $ 52,241
Realized gain on investments .................................. 1,329,264 542,097
Unrealized gain on investments ................................ 518,363 1,573,212
------------ ------------
Net increase in assets from operations ...................... 1,850,547 2,167,550
------------ ------------
Dividends and distributions to shareholders:
Dividends paid from net investment income ..................... (1,820) (53,115)
Distributions in excess of net investment income .............. (10,132) 0
Capital gains distributions ................................... (889,104) (495,835)
------------ ------------
Total dividends and capital gains distributions ............. (901,056) (548,950)
------------ ------------
From capital share transactions (note 4):
Received from shares sold ..................................... 1,982,622 2,494,756
Received from dividends reinvested ............................ 608,764 400,497
Paid for shares redeemed ...................................... (2,605,972) (2,996,818)
------------ ------------
Decrease in net assets derived from capital share transactions (14,586) (101,565)
------------ ------------
Increase in net assets ..................................... 934,905 1,517,035
------------ ------------
Net Assets:
Beginning of period ........................................... 13,274,889 11,757,854
------------ ------------
End of period ................................................. $ 14,209,794 $ 13,274,889
============ ============
Includes overdistributed net investment income of ............. $ 0 ($ 1,100)
============ ============
</TABLE>
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS
Years Ended June 30,
1998 1997 1996 1995 1994
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Per share data:
Net asset value, beginning of period ................... $ 17.52 $ 15.47 $ 13.03 $ 11.67 $ 11.63
Income from investment operations:
Net investment income ................................. 0.00 0.07 0.14 0.16 0.12
Net realized and unrealized gain on investments ....... 2.41 2.73 2.72 2.17 0.22
--------- --------- --------- --------- ---------
Total income from investment operations .............. 2.41 2.80 2.86 2.33 0.34
--------- --------- --------- --------- ---------
Less distributions:
Dividends from net investment income .................. 0.00 (0.07) (0.14) (0.16) (0.12)
Distributions in excess of net investment income ...... (0.06) 0.00 0.00 0.00 0.00
Distributions from net realized capital gains ......... (1.19) (0.68) (0.28) (0.81) (0.18)
--------- --------- --------- --------- ---------
Total distributions .................................. (1.25) (0.75) (0.42) (0.97) (0.30)
--------- --------- --------- --------- ---------
Net asset value, end of period ......................... $ 18.68 $ 17.52 $ 15.47 $ 13.03 $ 11.67
========= ========= ========= ========= =========
Total return ........................................... 14.13% 18.68% 22.22% 20.54% 2.85%
Ratios and supplemental data:
Ratio net of fees waived or reimbursed by advisor (a):
Expenses .............................................. 1.24% 1.13% 0.90% 0.83% 1.04%
Net investment income ................................. 0.02% 0.43% 0.99% 1.35% 1.04%
Ratios assuming no fees waived or reimbursed by advisor:
Expenses .............................................. 1.39% 1.32% 1.15% 1.08% 1.30%
Net investment income (loss) .......................... (0.13%) 0.24% 0.74% 1.10% 0.79%
Average commission rate (b) ............................ $ 0.07 $ 0.07 NR NR NR
Portfolio turnover rate ................................ 40% 27% 22% 24% 8%
Net assets at end of period (millions) ................. $ 14.2 $ 13.3 $ 11.8 $ 7.0 $ 5.3
</TABLE>
(a) The advisor has elected to waive management fees equal to 0.15% of average
net assets for the Growth portfolio, but it may cease that waiver, in whole
or in part, without prior notice. In addition, the advisor has reimbursed
certain operating expenses.
(b) Represents the total dollar amount of commissions paid on equity security
transactions divided by the total number of shares purchased and sold for
which commissions were charged.
NR Not required prior to June 30, 1997
The accompanying notes are an integral part of these financial statements.
<PAGE> 52
SMALL CAP PORTFOLIO
ONE FUND, INC.
OBJECTIVE
To provide maximum capital growth by investing primarily in common stocks of
small and medium sized companies. Under normal conditions, at lest 65% of this
portfolio's assets will be invested in common stocks of companies with market
capitalization of less than $1 billion.
PERFORMANCE AS OF JUNE 30, 1998
AVERAGE ANNUAL TOTAL RETURNS:
Without With max.
sales charge sales charge
One-year 10.56% 5.03%
Three-year 16.34% 14.37%
Since inception (11/1/94) 15.88% 14.24%
The maximum sales charge is 5% . All returns represent past performance and
neither predict nor guarantee future investment results. Your investment return
and principal value will fluctuate so that shares, when redeemed, may be worth
more or less than their original cost. The advisor is currently waiving fees of
.15% for this portfolio. Had the fees not been waived, returns would have been
lower.
COMMENTS
As expected, markets have continued to exhibit volatility over
the past several months. In response to the economic turmoil in the Pacific Rim,
investors have sought out highly liquid blue chip issues and Treasury securities
in a flight to quality. This has had a pronounced impact on the relative
performance of the small capitalization issues, especially in the months of
December, May and June.
During the first six months of calendar 1998, the ONE Fund Small Cap
Portfolio trailed the Russell 2000 Index return. Strong performance from the
Consumer Staples and Health Care sectors was more than offset by a handful of
earnings disappointments and lagging performance from investments in the energy
sector.
We believe an overweighting in the energy sector is appropriate. Commodity
prices have declined sharply this year, due to supply/demand imbalance resulting
from a reduction in Asian demand, a mild winter and resumption of Iraqi exports.
However, we would note production decline rates from existing fields are
accelerating and low oil prices are exerting budgetary pressures on oil
exporters. This has led to announced production cuts from major OPEC and
non-OPEC producers. Additionally, several oil producing regions are experiencing
political turmoil and weather patterns could return to normal. We feel that at
current valuation levels, energy stocks could be one of the best sector
opportunities of this decade.
Although disappointed with near-term results, we are encouraged with the
opportunities which are now presenting themselves. Cash reserves have been
worked down over the past six months. We feel the companies in the Small Cap
Portfolio have favorable risk-reward characteristics and are positioned well for
the future.
CHANGE IN VALUE OF $10,000 INVESTMENT
<TABLE>
<CAPTION>
Small Cap Portfolio (with max. sales charge)
(Commerced operations November 1, 1994)
Date Value
---- -----
<S> <C>
12/31/94 $ 9,539.90
12/31/95 $11,600.80
12/31/96 $13,571.60
12/31/97 $15,872.10
06/30/98 $16,300.60
Russell 2000 Index
Date Value
---- -----
12/31/94 $ 9,853.00
12/31/95 $12,656.00
12/31/96 $14,743.70
12/31/97 $18,026.70
06/30/98 $18,976.70
</TABLE>
Hypothetical illustration based on past performance. Future performance will
vary. All returns reflect reinvested dividends. The portfolio's holdings may
differ significantly from the securities in the index. The index is unmanaged
and therefore does not reflect the cost of portfolio management or trading. It
is not open to direct investment.
TOP 10 HOLDINGS AS OF JUNE 30, 1998
% of Portfolio
1. Kendle International Inc 2.60
2. Hardinge Inc 2.51
3. Zebra Technologies Corp CL A 2.20
4. Atlas Air Inc 2.15
5. Quorum Health Group Inc 2.13
6. Susquehanna Bancshares Inc. PA 1.92
7. Advanced Lighting Technologies Inc 1.92
8. Blanch E W Holdings Inc 1.89
9. Healthcare Realty Trust 1.87
10. WD-40 Company 1.86
TOP 5 INDUSTRIES AS OF JUNE 30, 1998
% of Portfolio
Oil, Energy & Natural Gas 13.5
Real Estate 8.0
Industrial Services 6.7
Medical and Related 6.4
Computer & Related 6.2
The prices of small company stocks are generally more volatile than the prices
of large company stocks.
<PAGE> 53
ONE FUND, INC.
Small Cap Portfolio
SCHEDULE OF INVESTMENTS JUNE 30, 1998
<TABLE>
<CAPTION>
MARKET
SHARES COMMON STOCK VALUE
- --------------------------------------------------------
<S> <C> <C>
AUTOMOTIVE AND RELATED (2.1%)
11,000 Defiance Inc. $93,500
2,000 Walbro Corp. 28,250
----------
121,750
----------
BANKING (4.4%)
2,985 First International Bancorp, Inc. 72,013
3,000 Flagstar Bancorp, Inc. 73,125
3,000 Susquehanna Bancshares 112,125
----------
257,263
----------
BUSINESS SERVICES (6.0%)
5,500 *Alternative Resources Corp. 68,062
2,500 *Mapics Inc. 49,219
2,000 Pittston Brink's Group 73,750
2,000 Reynolds & Reynolds CL A 36,375
11,000 *Source Information Management 68,063
2,500 Wackenhut Corp. CL B 53,750
----------
349,219
----------
CHEMICALS (2.2%)
4,000 Hawkins Chemical Inc. 48,000
2,000 OM Group Inc. 82,500
----------
130,500
----------
COMMUNICATIONS (0.7%)
1,687 *Mastec Inc. 40,277
----------
COMPUTER AND RELATED (6.2%)
5,000 MacNeal-Schwendler Corp. 49,062
7,500 *Map Info Corp. 80,625
4,500 *Rand A Technology Corp. 82,623
1,000 *Structural Dynamics Research Corp. 23,125
3,000 *Zebra Tech Corp. CL A 128,250
----------
363,685
----------
CONSUMER PRODUCTS (2.8%)
2,500 *Sola International, Inc. 81,719
6,500 *Lo Jack Corp. 80,844
----------
162,563
----------
DRUGS (0.5%)
2,000 *Applied Analytical Industries, Inc. 28,750
----------
DURABLE GOODS (1.5%)
3,630 Myers Industries, Inc. 87,120
----------
ELECTRICAL EQUIPMENT (4.8%)
5,000 *Anixter International, Inc. 95,312
4,800 BMC Industries, Inc. 42,000
2,000 Federal Signal Corp. 48,625
15,000 Rohn Industries, Inc. 70,313
3,000 *Richey Electronics, Inc. 23,438
----------
279,688
----------
ENTERTAINMENT AND LEISURE (2.6%)
3,000 Cedar Fair 82,875
8,000 *Livent Inc. 70,000
----------
152,875
----------
Finance (1.6%)
8,000 Bando McGlocklin Capital Corp. 92,000
----------
Forestry and Paper Products (1.2%)
4,500 *Fibermark Inc. 72,000
----------
</TABLE>
<TABLE>
<CAPTION>
MARKET
SHARES COMMON STOCK VALUE
- --------------------------------------------------------
<S> <C> <C>
HOTEL/MOTEL (1.6%)
5,500 *Guest Supply $92,125
----------
HOUSING, FURNITURE & RELATED (3.3%)
3,000 Haverty Furniture 66,375
5,000 *Medowcraft Inc. 55,000
4,800 Shelby Williams Industries, Inc. 72,000
----------
193,375
----------
INDUSTRIAL SERVICES (6.7%)
4,800 *Advanced Lighting Tech., Inc. 111,600
4,000 Clarcor Inc. 84,000
4,500 IMCO Recycling Inc. 83,250
10,000 *Medar Inc. 21,250
15,000 *Recycling Industries, Inc. 88,125
----------
388,225
----------
INSURANCE SERVICES (1.9%)
3,000 Blanch (EW) Holdings, Inc. 110,250
----------
MACHINERY (2.5%)
6,000 Hardinge Inc. 146,250
----------
MEDICAL AND RELATED (6.4%)
3,000 *Cephalon Inc. 23,625
5,000 *Kendle International Inc. 151,250
4,688 *Quorum Health Group, Inc. 124,219
5,000 *Stericycle Inc. 72,500
----------
371,594
----------
METAL AND MINING (2.7%)
2,500 Amcast Industrial Corp. 46,563
1,500 *Hawk Corp. CL A 26,437
2,250 *Wolverine Tube, Inc. 85,500
----------
158,500
----------
OIL, ENERGY AND NATURAL GAS (12.8%)
4,200 *Belco Oil & Gas Corp. 36,225
1,300 Camco International, Inc. 101,238
5,000 *Louis Dreyfus Natural Gas Corp. 94,687
10,000 *Matrix Services 72,500
10,000 *Meridian Resource Corp. 70,625
12,500 *Newstar Resources, Inc. CL A 13,673
2,500 *Offshore Logistics, Inc. 44,375
8,000 *Santa Fe Energy Resources, Inc. 86,000
5,500 *Tesoro Petroleum Corp. 87,312
4,000 WD-40 Co. 108,500
3,000 Wiser Oil Co. 33,188
----------
748,323
----------
REAL ESTATE (8.0%)
6,000 Commercial Net Lease Realty 97,125
3,000 First Industrial Realty Trust 95,438
3,000 Great Lakes REIT, Inc. 52,312
4,000 Healthcare Realty Trust, Inc. 109,000
3,000 Liberty Property Trust 76,688
1,000 National Health Investors, Inc. 33,125
----------
463,688
----------
RESTAURANTS (1.6%)
6,000 *Buffets Inc. 94,125
----------
(continued)
</TABLE>
<PAGE> 54
ONE FUND, INC.
SMALL CAP PORTFOLIO (CONTINUED)
SCHEDULE OF INVESTMENTS JUNE 30, 1998
<TABLE>
<CAPTION>
MARKET
SHARES COMMON STOCK VALUE
- --------------------------------------------------------
RETAIL (1.3%)
<S> <C> <C>
3,500 *Consolidated Products inc. $73,937
----------
RETIREMENT/AGED CARE (1.0%)
5,000 *Capital Senior Living Corp. 60,000
----------
TEXTILES & RELATED (1.0%)
10,000 *Ridgeview Inc. 60,000
----------
TRANSPORTATION & EQUIPMENT (5.5%)
3,700 *Atlas Air Inc. 125,106
3,500 *Avondale Industries, Inc. 96,578
4,500 *Halter Marine Group 67,781
3,000 *Royal Olympic Cruise Lines 30,000
----------
319,465
----------
MISCELLANEOUS (1.6%)
4,000 *Specialty Equipment 90,500
----------
TOTAL COMMON STOCK
(94.5%) (COST $4,846,646) $5,508,047
----------
MARKET
SHARES PREFERRED STOCK VALUE
- --------------------------------------------------------
OIL, ENERGY AND NATURAL GAS (0.7%)
<S> <C> <C>
1,000 Howell Corp. $3.50 Series A Conv. $43,000
----------
TOTAL PREFERRED STOCK
(0.7%) (COST $51,100) $43,000
</TABLE>
<TABLE>
<CAPTION>
FACE MARKET
AMOUNT CONVERTIBLE DEBENTURES VALUE
- --------------------------------------------------------
ELECTRICAL EQUIPMENT (0.8%)
<S> <C> <C>
$50,000 Richey Electronics
7.000% 03-01-06 $45,875
TOTAL CONVERTIBLE DEBENTURES
(0.8%) (COST $46,032) $45,875
----------
FACE MARKET
AMOUNT SHORT-TERM NOTES VALUE
- --------------------------------------------------------
AUTOMOTIVE (1.7%)
$100,000 Ford Motor Credit Corp.
5.630% 07-02-98 $99,984
----------
RETAIL (2.3%)
134,000 Sears Roebuck Acceptance Corp.
5.900% 07-01-98 134,000
----------
TOTAL SHORT-TERM NOTES
(4.0%) (COST $233,984) $233,984
----------
TOTAL HOLDINGS
(COST $5,177,762)(a) $5,830,906
==========
</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> 55
ONE FUND, INC.
SMALL CAP PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES
<TABLE>
<CAPTION>
June 30, 1998
<S> <C>
Assets:
Investments in securities at market
value (note 1) (Cost $5,177,762) ................ $ 5,830,906
Cash in bank ..................................... 560
Receivable for fund shares sold .................. 155
Dividends and accrued interest receivable ........ 8,050
Deferred organizational expenses (note 1) ........ 694
Other ............................................ 1,492
-----------
Total assets .................................... 5,841,857
-----------
Liabilities:
Payable for fund shares redeemed ................. 2,662
Payable for investment management
services (note 3) ............................... 2,396
Accrued 12b-1 fees (note 6) ...................... 3,347
Other accrued expenses ........................... 7,198
-----------
Total liabilities ............................... 15,603
-----------
Net assets at market value ........................ $ 5,826,254
===========
Net assets consist of:
Par value, $.001 per share ....................... $ 437
Paid-in capital in excess of par value ........... 4,763,808
Accumulated undistributed net realized
gain on investments ............................. 408,819
Net unrealized appreciation on investments ....... 653,144
Undistributed net investment income .............. 46
-----------
Net assets at market value ........................ $ 5,826,254
===========
Shares outstanding ................................ 437,426
Net asset value per share ......................... $ 13.32
===========
Maximum offering price per share ($13.32/95%) ..... $ 14.02
==========
</TABLE>
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
For Year Ended June 30, 1998
<S> <C>
Investment income:
Interest ......................................... $ 33,264
Dividends ........................................ 92,227
-----------
Total investment income ......................... 125,491
-----------
Expenses:
Management fees (note 3) ......................... 38,468
12b-1 fees (note 6) .............................. 14,791
Custodian fees (note 3) .......................... 5,400
Directors' fees (note 3) ......................... 870
Professional fees ................................ 3,578
Transfer agent and accounting fees ............... 35,000
Filing fees ...................................... 6,140
Printing, proxy and postage fees ................. 1,953
Organizational expense (note 1) .................. 522
Other ............................................ 251
-----------
Total expenses .................................. 106,973
Less expenses voluntarily reduced
or reimbursed (note 3) ......................... (8,886)
-----------
Net expenses .................................... 98,087
-----------
Net investment income ........................... 27,404
-----------
Realized and unrealized gain (loss) on investments:
Net realized gain from investments ............... 726,343
Net decrease in unrealized
appreciation on investments ..................... (202,189)
-----------
Net gain on investments ........................ 524,154
-----------
Net increase in net
assets from operations ........................ $ 551,558
===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE> 56
ONE FUND, INC.
SMALL CAP PORTFOLIO
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
Year Ended Year Ended
June 30, 1998 June 30, 1997
<S> <C> <C>
From operations:
Net investment income ........................................... $ 27,404 $ 41,520
Realized gain on investments .................................... 726,343 298,952
Unrealized gain (loss) on investments ........................... (202,189) 353,303
----------- -----------
Net increase in assets from operations ........................ 551,558 693,775
----------- -----------
Dividends and distributions to shareholders:
Dividends paid from net investment income ....................... (26,854) (41,809)
Capital gains distributions ..................................... (547,755) (428,367)
----------- -----------
Total dividends and distributions ............................. (574,609) (470,176)
----------- -----------
From capital share transactions (note 4):
Received from shares sold ....................................... 1,281,269 965,667
Received from dividends reinvested .............................. 274,091 204,093
Paid for shares redeemed ........................................ (909,621) (652,126)
----------- -----------
Increase in net assets derived from capital share transactions . 645,739 517,634
----------- -----------
Increase in net assets ....................................... 622,688 741,233
----------- -----------
Net Assets:
Beginning of period ............................................. 5,203,566 4,462,333
----------- -----------
End of period ................................................... $ 5,826,254 $ 5,203,566
=========== ===========
Includes undistributed (overdistributed) net investment income of $ 46 ($ 504)
=========== ===========
</TABLE>
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
11-1-94
Years Ended June 30, to
1998 1997 1996 6-30-95
------ ------ ------ ------
<S> <C> <C> <C> <C>
Per share data:
Net asset value, beginning of period ................... $13.30 $12.82 $10.63 $10.00
Income from investment operations:
Net investment income ................................. 0.06 0.11 0.26 0.22
Net realized and unrealized gain on investments ....... 1.30 1.67 2.26 0.67
------ ------ ------ ------
Total income from investment operations .............. 1.36 1.78 2.52 0.89
------ ------ ------ ------
Less distributions:
Dividends from net investment income .................. (0.06) (0.11) (0.25) (0.22)
Distributions from net realized capital gains ......... (1.28) (1.19) (0.08) (0.04)
------ ------ ------ ------
Total distributions .................................. (1.34) (1.30) (0.33) (0.26)
------ ------ ------ ------
Net asset value, end of period ......................... $13.32 $13.30 $12.82 $10.63
====== ====== ====== ======
Total return ........................................... 10.56% 14.82% 24.10% 8.91%(b)
Ratios and supplemental data:
Ratio net of fees waived or reimbursed by advisor (c):
Expenses .............................................. 1.67% 1.35% 0.94% 1.00%(a)
Net investment income ................................. 0.47% 0.89% 2.21% 3.19%(a)
Ratios assuming no fees waived or reimbursed by advisor:
Expenses .............................................. 1.82% 1.62% 1.27% 1.31%(a)
Net investment income ................................. 0.32% 0.62% 1.88% 2.88%(a)
Average commission rate (d) ............................ $ 0.07 $ 0.08 NR NR
Portfolio turnover rate ................................ 77% 34% 34% 8%
Net assets at end of period (millions) ................. $ 5.8 $ 5.2 $ 4.5 $ 2.9
</TABLE>
(a) Annualized
(b) Calculated on an aggregate basis (not annualized).
(c) The advisor has elected to waive management fees equal to 0.15% of average
net assets for the Small Cap portfolio, but it may cease that waiver, in
whole or in part, without prior notice. In addition, the advisor has
reimbursed certain operating expenses.
(d) Represents the total dollar amount of commissions paid on equity security
transactions divided by the total number of shares purchased and sold for
which commissions were charged. NRNot required prior to June 30, 1997 The
accompanying notes are an integral part of these financial statements.
NR Not required prior to June 30, 1997
The accompanying notes are an integral part of these financial statements.
<PAGE> 57
INTERNATIONAL PORTFOLIO
ONE Fund, Inc.
OBJECTIVE
To provide long-term capital growth by investing primarily in common stock (and
securities convertible into common stocks) of foreign companies. When deemed
appropriate for temporary defensive purposes, it may invest in short-term debt
instruments, U.S. Government obligations or in U.S. common stock.
PERFORMANCE AS OF JUNE 30, 1998
AVERAGE ANNUAL TOTAL RETURNS:
Without With max.
sales charge sales charge
One-year -2.63% -9.76%
Three-year 9.01% 7.10%
Five-year 14.63% 13.46%
Since inception (5/1/93) 13.48% 12.31%
The maximum sales charge is 5%. All returns represent past performance and
neither predict nor guarantee future investment results. Your investment return
and principal value will fluctuate so that shares, when redeemed, may be worth
more or less than their original cost.
COMMENTS
European markets were volatile due to growing worries over Asian markets,
corporate earnings and the direction of interest rates. Once the EMU founding
members were confirmed and bilateral exchange rates were set, European blue
chips rose as meager earnings announcements continued. Overall, German, French,
Swedish and Finnish blue chips achieved significant gains while other issues
were far weaker. Yet, smaller capitalization stocks, which account for most of
the ONE Fund International Portfolio's holdings, continued to underperform large
capitalization stocks.
In Japan, stocks fell due to the gloomy economic outlook and doubts
concerning the effectiveness of the government's economic package. The yen
weakened significantly until the concerted action between the U.S. and Japanese
governments in June. Japanese authorities also announced plans for the ailing
financial sector and tax cut proposals. Smaller and domestically oriented
companies fared worse than larger stocks, which negatively affected the
portfolio's holdings in Japan.
Other Asian markets plunged due to growing instability in the Pacific Rim
(riots in Indonesia, strikes in South Korea, etc.). New Zealand and Australian
stocks were likewise negatively impacted by those events.
Canadian stocks declined, due in part to weakness in the metals sector. In
Latin America, markets fell sharply as investors fled most emerging markets.
CHANGE IN VALUE OF $10,000 INVESTMENT
<TABLE>
<CAPTION>
International Portfolio (with max. sales charge)
Commenced operations May 1, 1993)
Date Value
---- -----
<S> <C>
12/31/93 $12,920.40
12/31/94 $14,160.00
12/31/95 $15,839.70
12/31/96 $18,050.10
12/31/97 $18,270.70
06/30/98 $19,219.00
</TABLE>
<TABLE>
<CAPTION>
Morgan Stanley Captal Inti. EAFE Index
Date Value
---- -----
<S> <C>
12/31/93 $10,826.00
12/31/94 $11,698.50
12/31/95 $13,049.20
12/31/96 $13,879.90
12/31/97 $14,040.80
06/30/98 $16,298.60
</TABLE>
Hypothetical illustration based on past performance. Future performance will
vary. All returns reflect reinvested dividends. The portfolio's holdings may
differ significantly from the securities in the index. The index is unmanaged
and therefore does not reflect the cost of portfolio management or trading. It
is not open to direct investment.
TOP 10 HOLDINGS AS OF JUNE 30, 1998
% of Portfolio
1. Buderus AG 3.42
2. Fuji Photo Film Co. LTD 2.86
3. Societe Immobiliere Marseillaise 2.72
4. Taittinger C.I. 2.70
5. Shimano Inc. 2.61
6. Kuehne & Nagel International AG Bearer 2.60
7. Bank for International Settlements (U.S. Tranche) 2.47
8. Secom Co, LTD 2.37
9. Deceuninck Plastics Industries SA 2.32
10. Sika Finanz AG Bearer 2.31
TOP 5 COUNTRIES/REGIONS AS OF JUNE 30, 1998
% of Portfolio
Japan 21.5
France 14.5
Switzerland 11.6
Germany 5.7
Latin America 3.5
The risk associated with investing on a worldwide basis include differences in
regulation of financial data and reporting and currency exchanges as well as
economic and political systems which may be different from those in the United
States. The prices of small company stocks are generally more volatile than the
prices of large company stocks.
<PAGE> 58
ONE FUND, INC.
INTERNATIONAL PORTFOLIO
SCHEDULE OF INVESTMENTS JUNE 30, 1998
<TABLE>
<CAPTION>
MARKET
SHARES COMMON STOCK VALUE
- ---------------------------------------------------------------
JAPAN (21.5%)
<S> <C> <C>
40,000 Aida Engineering Limited (19) $ 155,222
12,100 Chofu Seisakusho (9) 164,342
65,000 Dai-Tokyo Fire Marine Ins. Co. Ltd. (18) 225,612
65,000 Dowa Fire & Marine Ins. Co. Ltd. (18) 193,848
12,000 Fuji Photo Film Co., Ltd. (9) 416,514
2,000 Hitachi Ltd. ADR (11) 129,000
65,000 *Iino Kaiun Kaisha (5) 123,316
5,000 Ito-Yokado Co. Ltd. (28) 234,630
45,000 Nisshinbo Industries Inc. (8) 179,476
6,000 Secom Co., Ltd. (29) 345,370
15,000 Shimano Inc. (9) 379,433
18,000 Shiseido Company (9) 203,859
25,000 Shoei Co. (27) 149,833
2,200 Toho Co. (20) 230,823
-----------
3,131,278
-----------
FRANCE (14.5%)
1,000 Vivendi (33) 213,005
1,000 Conflandey (30) 55,767
1,000 Elf Aquitaine (12) 140,243
2,000 Emin Leydier (24) 146,843
1,000 Gaumont SA (20) 77,546
1,000 Groupe Didot-Bottin (35) 147,503
1,500 Legrand ADP (10) 257,387
1,000 NSC Groupe (19) 149,978
350 Promodes C.I. (28) 128,776
200 Societe Immobillere Marseillaise (35) 395,981
700 Taittinger (13) 393,836
-----------
2,106,865
-----------
SWITZERLAND (11.6%)
55 Bank of Intl. Settlements (3) 360,151
700 Edipresse SA Bearer (20) 192,103
500 Kuehne & Nagel Intl. AG (32) 378,414
50 Lindt & Sprungli AG (13) 128,661
850 Sika Finanz AG Bearer (7) 336,196
750 Societe Generale d'Affichage (20) 293,682
-----------
1,689,207
-----------
GERMANY (5.7%)
3,000 Bayer AG (7) 154,480
1,000 Buderus AG (5) 497,788
12,000 Gerresheimer Glas AG (4) 179,867
-----------
832,135
-----------
LATIN AMERICA (3.5%)
35,000 Antofagasta Holdings plc (21) 147,356
5,000 Banco Latinoamericano 'Bladex' (3) 153,750
43,750 Cresud S.A. (1) 70,885
151,543 Ledesma SA (1) 140,956
-----------
512,947
-----------
BELGIUM (3.2%)
1,000 Deceuninck Plastics Ind. SA (4) 337,910
1,000 Engrais Rosier SA (4) 131,410
-----------
469,320
-----------
NEW ZEALAND (3.2%)
130,549 Carter Holt Harvey Limited (14) 113,532
34,370 Independent Press Comm. (20) 166,352
130,000 Shortland Properties, Ltd. (27) 43,741
300,260 Tasman Agriculture Limited (1) 139,887
-----------
463,512
-----------
</TABLE>
<TABLE>
<CAPTION>
MARKET
SHARES COMMON STOCK VALUE
- ---------------------------------------------------------------
<S> <C> <C>
HONG KONG (3.1%)
924,587 CDL Hotels Intl. Ltd. (16) $ 274,500
300,000 Shaw Brothers (Hong Kong) Ltd.(20) 182,006
-----------
456,506
-----------
CANADA (2.7%)
7,000 Canadian Pacific Ltd. (34) 198,625
10,000 Franco-Nevada Mining Corp. (21) 198,522
-----------
397,147
-----------
UNITED KINGDOM (1.9%)
50,000 *McBride plc (10) 71,907
55,000 Royal Doulton plc (9) 200,838
-----------
272,745
-----------
SINGAPORE (1.7%)
95,406 Clipsal Industries Ltd. (10) 58,175
74,400 DelGro Corp. (35) 71,746
121,627 Times Publishing Ltd. (25) 124,518
-----------
254,439
-----------
SWEDEN (1.7%)
7,000 IRO AB. (31) 91,909
10,000 PLM AB (23) 157,559
-----------
249,468
-----------
NETHERLANDS (1.6%)
4,500 Apothekers Cooperatie OPG (17) 151,233
7,000 European City Estates NV (27) 87,575
-----------
238,808
-----------
NORWAY (0.9%)
7,500 Schibsted AS (25) 126,207
-----------
ITALY (0.8%)
150,000 *Montedison non-conv. Savings SpA(34) 115,822
-----------
FINLAND (0.6%)
1,000 Vaisala Oy A (5) 80,795
-----------
MEXICO (0.6%)
25,000 Industrias Penoles SA de CV (21) 79,449
-----------
MISCELLANEOUS (2.0%)
15,000 North European Oil Royalty Tr. (12) 226,875
5,000 Minorco ADR (34) 59,688
-----------
286,563
-----------
TOTAL COMMON STOCK
(80.8%) (COST $11,780,664) $11,763,213
-----------
MARKET
SHARES PREFERRED STOCK VALUE
- ---------------------------------------------------------------
INDONESIA (2.1%)
7,000 Freeport McMoRan Pfd. 'C' (22) $ 132,563
10,500 Freeport McMoRan Pfd. 'D' (22) 177,188
-----------
309,751
-----------
TOTAL PREFERRED STOCK
(2.1%) (COST $461,433) $ 309,751
-----------
(continued)
</TABLE>
<PAGE> 59
ONE FUND, INC.
INTERNATIONAL PORTFOLIO (CONTINUED)
SCHEDULE OF INVESTMENTS JUNE 30, 1998
<TABLE>
<CAPTION>
MARKET
AMOUNT CONVERTIBLE DEBENTURES VALUE
- ------------------------------------------------------------------
<S> <C> <C>
U.S. DOLLAR (1.9%)
$250,000 Cheil Jedang Co 3.000%
due 12-31-06 (9) $ 271,250
-----------
TOTAL U.S. DOLLAR (1.9%) $ 271,250
-----------
NON U.S. DOLLAR (3.8%)
149,850 FF Gaumont SA 3.750%
due 01-01-03 (20) 34,064
780,000 FF Immobiliere Hoteliere
due 01-01-01 (33) 108,895
150,000 GB Berisford plc 5.000%
due 01-31-15 (9) 245,733
50,000 GBP BAA plc 5.750%
due 03-29-06 (32) 105,463
170,000 NZ Shortland Properties Inc. 7.500%
due 12-31-98 (27) 59,840
-----------
TOTAL NON-U.S. DOLLAR (3.8%) $ 553,995
-----------
TOTAL CONVERTIBLE DEBENTURES
(5.7%) (COST $689,826) $ 825,245
-----------
(a) Also represents cost for Federal income tax purposes.
* Non-income producing securities.
</TABLE>
<TABLE>
<CAPTION>
FACE MARKET
AMOUNT NON-CONVERTIBLE BONDS VALUE
- --------------------------------------------------------------------
<S> <C> <C>
U.S. DOLLAR (1.5%)
$250,000 United Mexican States 'C'
6.375% 12-31-19 (15) $ 224,844
-----------
NON-U.S. DOLLAR (2.3%)
300,000 AUD Queensland Treasury 8.00%
due 09-14-07 (15) 239,666
100,000 NZ Trans Power Finance Ltd. 8.00%
due 02-15-02 (15) 91,636
-----------
331,302
-----------
TOTAL NON-CONVERTIBLE BONDS
(3.8%) (COST $583,995) $ 556,146
-----------
FACE MARKET
AMOUNT SHORT-TERM NOTES VALUE
- --------------------------------------------------------------------
AUTOMOTIVE AND RELATED (4.5%)
$650,000 Toyota Motor Credit Corp.
6.160% 07-01-98 $ 650,000
-----------
FINANCE (2.7%)
393,000 American Express
5.950% 07-01-98 393,000
-----------
TOTAL SHORT-TERM NOTES
(7.2%) (COST $1,043,000) $ 1,043,000
-----------
TOTAL HOLDINGS
(COST $14,558,918) (a) $14,497,355
===========
</TABLE>
Foreign Currencies
NZ - New Zealand Dollar
FF - French Franc
GBP - British Pound
JPY - Japanese Yen
AUD - Australian Dollar
Industry Classifications
(1) Agriculture (18) Insurance
(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
(35) Holding Companies
The accompanying notes are an integral part of these financial statements.
<PAGE> 60
ONE FUND, INC.
INTERNATIONAL PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES
<TABLE>
<CAPTION>
June 30, 1998
<S> <C>
Assets:
Investments in securities at market
value (note 1) (Cost $14,558,918) ............... $ 14,497,355
Cash in bank ..................................... 28,192
Unrealized gain on forward currency
contracts (note 5) .............................. 185,635
Receivable for fund shares sold .................. 3,793
Receivable for securities sold ................... 1,421
Dividends and accrued interest receivable ........ 41,136
Other ............................................ 27,730
------------
Total assets .................................... 14,785,262
------------
Liabilities:
Accounts payable ................................. 91,192
Unrealized loss on forward currency
contracts (note 5) .............................. 8,964
Payable for fund shares redeemed ................. 54,001
Payable for investment management
services (note 3) ............................... 25,212
Accrued 12b-1 fees (note 6) ...................... 9,463
Dividends payable ................................ 17,490
Other accrued expenses ........................... 16,135
------------
Total liabilities ............................... 222,457
------------
Net assets at market value ........................ $ 14,562,805
============
Net assets consist of:
Par value, $.001 per share ....................... $ 1,127
Paid-in capital in excess of par value ........... 13,982,547
Accumulated undistributed net realized
gain on investments ............................. 464,846
Net unrealized appreciation (depreciation) on:
Investments (note 1) ............................ (61,563)
Foreign currency related transactions ........... (1,111)
Forward currency contracts (note 5) ............. 176,671
Undistributed net investment income .............. 288
------------
Net assets at market value ........................ $ 14,562,805
============
Shares outstanding ................................ 1,126,842
Net asset value per share ......................... $ 12.92
============
Maximum offering price per share ($12.92/95%) ..... $ 13.60
============
</TABLE>
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
For Year Ended June 30, 1998
<S> <C>
Investment income:
Interest (net of $1,236 foreign taxes withheld) .. $ 170,403
Dividends (net of $30,697 foreign taxes withheld) 326,493
------------
Total investment income ......................... 496,896
Expenses:
Management fees (note 3) ......................... 152,991
12b-1 fees (note 6) .............................. 42,497
Custodian fees (note 3) .......................... 78,000
Directors' fees (note 3) ......................... 3,195
Professional fees ................................ 13,143
Transfer agent and accounting fees ............... 55,000
Filing fees ...................................... 16,375
Printing, proxy and postage fees ................. 6,870
Organizational expense ........................... 2,119
Other ............................................ 774
------------
Total expenses .................................. 370,964
Less Expenses Voluntarily reduced or
reimbursed (note 3) ............................ (16,448)
------------
Net expenses .................................... 354,516
------------
Net investment income ........................... 142,380
------------
Realized and unrealized gain on investments
and foreign currency:
Net realized gain from:
Investments ..................................... 973,178
Forward currency related transactions ........... 697,339
Net increase (decrease) in unrealized
appreciation (depreciation) on:
Investments .................................... (2,464,591)
Foreign currency related transactions .......... 34,335
------------
Net loss on investments ........................ (759,739)
------------
Net decrease in net
assets from operations ........................ ($ 617,359)
============
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE> 61
ONE FUND, INC.
INTERNATIONAL PORTFOLIO
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
Year Ended Year Ended
June 30, 1998 June 30, 1997
------------- -------------
From operations:
<S> <C> <C>
Net investment income ......................................................................... $ 142,380 $ 167,390
Realized gain on investments and foreign currency related transactions ........................ 1,670,517 1,936,008
Unrealized gain (loss) on investments and foreign currency related transactions ............... (2,430,256) 393,505
------------ -----------
Net increase (decrease) in assets from operations ........................................... (617,359) 2,496,903
------------ -----------
Dividends and distributions to shareholders:
Dividends paid from net investment income ..................................................... (139,103) (178,422)
Capital gains and foreign currency related transactions distributions ......................... (2,283,120) (1,072,777)
------------ -----------
Total dividends and distributions ........................................................... (2,422,223) (1,251,199)
------------ -----------
From capital share transactions (note 4):
Received from shares sold ..................................................................... 3,159,453 4,465,324
Received from dividends reinvested ............................................................ 1,971,077 1,281,180
Paid for shares redeemed ...................................................................... (6,838,385) (2,765,311)
------------ -----------
Increase (decrease) in net assets derived from capital share transactions .................... (1,707,855) 2,981,193
------------ -----------
Increase (decrease) in net assets .......................................................... (4,747,437) 4,226,897
------------ -----------
Net Assets:
Beginning of period ........................................................................... 19,310,242 15,083,345
------------ -----------
End of period ................................................................................. $ 14,562,805 $19,310,242
============ ===========
Includes undistributed (overdistributed) net investment income of ............................. $ 288 ($ 2,989)
============ ===========
</TABLE>
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
Years Ended June 30,
1998 1997 1996 1995 1994
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Per share data:
Net asset value, beginning of period ............. $ 15.45 $ 14.47 $ 12.89 $ 13.32 $ 9.90
Income from investment operations:
Net investment income ........................... 0.12 0.14 0.10 0.14 0.05
Net realized and unrealized gain (loss) on
investments and foreign currency transactions .. (0.63) 1.92 2.24 0.63 4.01
-------- -------- -------- -------- --------
Total income (loss) from investment operations . (0.51) 2.06 2.34 0.77 4.06
-------- -------- -------- -------- --------
Less distributions:
Dividends from net investment income ............ (0.12) (0.15) (0.39) (0.14) (0.05)
Distributions from net realized capital gains and
foreign currency transactions .................. (1.90) (0.93) (0.37) (1.06) (0.59)
-------- -------- -------- -------- --------
Total distributions ............................ (2.02) (1.08) (0.76) (1.20) (0.64)
-------- -------- -------- -------- --------
Net asset value, end of period ................... $ 12.92 $ 15.45 $ 14.47 $ 12.89 $ 13.32
======== ======== ======== ======== ========
Total return ..................................... (4.84%) 14.76% 18.65% 6.44% 40.65%
Ratios and supplemental data:
Ratios net of fees reimbursed by advisor (a):
Expenses ........................................ 2.10% 1.87% 1.72% 1.50% 1.50%
Net investment income ........................... 0.85% 0.99% 0.70% 1.11% 0.46%
Ratios assuming no fees reimbursed by advisor:
Expenses ........................................ 2.20% 1.98% 1.72% 1.50% 1.50%
Net investment income ........................... 0.75% 0.88% 0.70% 1.11% 0.46%
Average commission rate (b) ...................... $ 0.01 $ 0.02 NR NR NR
Portfolio turnover rate .......................... 12% 9% 20% 39% 27%
Net assets at end of period (millions) ........... $ 14.6 $ 19.3 $ 15.1 $ 12.0 $ 10.4
</TABLE>
(a) The advisor has elected to reimburse certain operating expenses of the
International Portfolio.
(b) Represents the total dollar amount of commissions paid on equity security
transactions divided by the total number of shares purchased and sold for
which commissions were charged.
NR Not required prior to June 30, 1997
The accompanying notes are an integral part of these financial statements.
<PAGE> 62
GLOBAL CONTRARIAN PORTFOLIO
ONE FUND, INC.
OBJECTIVE
To provide long-term capital growth by investing in foreign and domestic
securities that, in the judgment of the portfolio manager, are undervalued or
presently out of favor with other investors but have positive prospects for
eventual recovery. Under normal market conditions, at least 65% of the
portfolio's assets will be invested in conformity with its investment
objectives.
PERFORMANCE AS OF JUNE 30, 1998
AVERAGE ANNUAL TOTAL RETURNS:
Without With max.
sales charge sales charge
One-year -1.05% -6.00%
Three-year 9.01% 7.16%
Since inception (11/1/94) 8.19% 6.67%
The above returns reflect the maximum sales charge of 5% for this portfolio. All
returns represent past performance and neither predict nor guarantee future
investment results. Your investment return and principal value will fluctuate so
that shares, when redeemed, may be worth more or less than their original cost.
COMMENTS
The ONE Fund Global Contrarian Portfolio owns mostly small and obscure stocks
which we believe are neglected. It also has exposure to commodity and/or "hard
asset" related stocks in the U.S. as well as foreign markets. Finally, it holds
emerging market debt instruments, both corporate and sovereign. Most commodities
and commodity-related stocks fell in the second quarter, including gold-related
securities. While the U.S. and foreign markets registered advances in the second
quarter, small capitalization stocks lagged large capitalization stocks in most
markets. Also, emerging markets were down sharply over that period.
The portfolio has been reducing its exposure to commodities-related
securities over the last nine months as weaker global economic growth is
anticipated in the medium-term following the Asian crisis. Simultaneously, the
portfolio recently started buying selected stocks and bonds that appear
depressed in a few Asian countries.
CHANGE IN VALUE OF $10,000 INVESTMENT
<TABLE>
<CAPTION>
Global Contrarian Portfolio (with max sales charge)
(Commenced operations November 1, 1994)
<S> <C>
Date Value
---- -----
12/31/94 $ 9,150.40
12/31/95 $10,521.30
12/31/96 $11,580.90
12/31/97 $12,760.80
</TABLE>
<TABLE>
<CAPTION>
Morgan Stanley Captl. Intl. World Index
<S> <C>
12/31/94 $ 9,654.00
12/31/95 $11,134.30
12/31/96 $12,634.30
12/31/97 $14,527.90
</TABLE>
Hypothetical illustration based on past performance. Future performance will
vary. All returns reflect reinvested dividends. The portfolio's holdings may
differ significantly from the securities in the index. The index is unmanaged
and therefore does not reflect the cost of portfolio management or trading. It
is not open to direct investment.
TOP 10 HOLDINGS AS OF JUNE 30, 1998
% of Portfolio
1. San Juan Basin Royalty Trust 3.73%
2. Freeport McMoran Copper & Gold Inc.,
Preferred Ser `D' 3.33%
3. Kuehne & Nagel International AG Bearer 2.99%
4. East Texas Financial Services Inc 2.88%
5. Edipresse SA Bearer 2.71%
6. Franklin Electric Company, Inc 2.69%
7. CDL Hotels International Limited 2.37%
8. Federal Republic of Brazil EI FRN 4/15/2006 2.37%
9. Emin Leydier 2.18%
10. Lawter International, Inc 2.15%
TOP 5 COUNTRIES AS OF JUNE 30, 1998
% of Portfolio
United States 31.5
Japan 10.1
Switzerland 7.6
France 4.5
Hong Kong 3.6
The risk associated with investing on a worldwide basis include differences in
regulation of financial data and reporting and currency exchanges as well as
economic and political systems which may be different from those in the United
States. The prices of small company stocks are generally more volatile than the
prices of large company stocks.
<PAGE> 63
ONE FUND, INC.
Global Contrarian Portfolio
SCHEDULE OF INVESTMENTS JUNE 30, 1998
<TABLE>
<CAPTION>
MARKET
SHARES U.S. COMMON STOCK VALUE
<S> <C> <C>
CHEMICALS (2.2%)
10,000 Lawter International Inc. $ 108,750
-----------
CAPITAL GOODS (4.0%)
2,000 Bandag Inc. Class 'A' 69,000
2,000 Franklin Electric Co. Inc. 136,000
-----------
205,000
-----------
CONSUMER PRODUCTS (3.6%)
2,000 Allen Organ Co. Class 'B' 80,500
1,300 Dole Foods Company, Inc. 49,688
2,000 Wang Laboratories, Inc. 50,875
-----------
181,063
-----------
ELECTRICAL EQUIPMENT (1.4%)
5,000 Zero Corporation 70,938
-----------
FINANCE (4.2%)
10,500 East Texas Financial Services 145,688
4,000 First Federal Financial Corp. 68,000
-----------
213,688
-----------
FORESTRY & PAPER PRODUCTS (3.9%)
500 Georgia Pacific Corp. Timber Group 11,531
2,500 Greif Brothers Corp. Class 'A' 93,438
2,000 Rayonier Inc. 92,000
-----------
196,969
-----------
METALS AND MINING (1.1%)
1,000 Reynolds Metals Company 55,938
-----------
OIL AND ENERGY (4.8%)
1,300 Rochester & Pittsburgh Coal Co. 53,300
25,000 San Juan Basin Royalty Trust 189,063
-----------
242,363
-----------
REAL ESTATE (0.8%)
2,000 Alico, Inc. 41,000
-----------
SERVICES (5.5%)
2,000 Chemed Corp. 68,125
6,000 Kaiser Ventures Inc. 76,500
3,000 Manpower Inc. 57,375
3,000 UniFirst Corporation 75,000
-----------
277,000
-----------
TOTAL U.S. COMMON STOCK
(31.5%) (COST $1,262,702) $ 1,592,709
-----------
MARKET
SHARES FOREIGN COMMON STOCK VALUE
- ----------------------------------------------------------------------
JAPAN (10.1%)
2,500 Benesse Corp. (29) $ 87,133
10,000 Dai Tokyo Fire & Marine Ins. Co., Ltd. 34,710
15,000 Dowa Fire & Marine Ins. Co., Ltd. (18) 44,734
2,500 Fuji Photo Film Co. Ltd. (9) 86,774
4,000 Koekisha Co., Ltd. (29) 62,376
10,000 Nittetsu Mining Co., Ltd. (22) 35,931
1,000 Secom Co., Ltd. (29) 57,562
400 Toho Co. (20) 41,968
10,000 Yomeishu Seizo Co. Ltd. (13) 58,927
-----------
510,115
-----------
</TABLE>
<TABLE>
<CAPTION>
MARKET
SHARES FOREIGN COMMON STOCK VALUE
- ----------------------------------------------------------------------
<S> <C> <C>
SWITZERLAND (7.6%)
15 Bank for Intl. Settlements (3) $ 98,223
500 Edipresse SA 'Bearer' (25) 137,216
200 Kuehne & Nagel International AG (3) 151,366
-----------
386,805
-----------
FRANCE (4.5%)
1,500 Emin Leydier (14) 110,132
500 Groupe NSC (19) 74,989
600 Rougier SA (14) 40,489
-----------
225,610
-----------
HONG KONG (3.6%)
403,845 CDL Hotels Intl. Ltd. (16) 119,897
100,000 Shaw Brothers (Hong Kong) Ltd.(20) 60,669
-----------
180,566
-----------
GERMANY (3.4%)
200 Buderus AG (5) 99,557
100 Axel Springer Verlag AG (20) 73,562
-----------
173,119
-----------
LATIN AMERICA (2.8%)
10,000 Antofagasta Holding plc (21) 42,102
500,000 Grupo Fernandez Editores (25) 70,807
30,308 Ledesma SA (1) 28,191
-----------
141,100
-----------
SINGAPORE (2.5%)
100,000 Clipsal Ind. Ltd. (10) 89,500
50,000 DelGro Corp. Ltd. (35) 35,873
-----------
125,373
-----------
NETHERLANDS (2.0%)
2,000 Bosch & Keuning (20) 68,686
2,600 German City Estates NV (27) 32,528
-----------
101,214
-----------
NEW ZEALAND (1.5%)
50,000 Shortland Properties, Ltd. (27) 16,824
50,000 Wrightson Ltd. (1) 9,576
10,000 Independent Press Communications (1) 48,400
-----------
74,800
-----------
SOUTH AFRICA (1.3%)
3,000 Anglogold Ltd. ADR (22) 59,250
2,500 Western Areas Gold Mining Ltd. (21) 7,884
-----------
67,134
-----------
MEXICO (1.0%)
17,500 Industrias Penoles S.A. de C.V. (22) 55,614
-----------
CANADA (1.0%)
3,000 Noranda, Inc. (21) 51,895
-----------
INDONESIA (1.0%)
600,000 PT Rigs Tender (12) 50,676
-----------
BELGIUM (1.0%)
376 Engrais Rosier SA (34) 49,410
-----------
SWEDEN (0.9%)
5,000 Bylock & Nordsjofrakt AB 'B' (32) 16,631
5,000 Gorthon Lines (32) 27,823
-----------
44,454
-----------
</TABLE>
(continued)
<PAGE> 64
ONE FUND, INC.
GLOBAL CONTRARIAN PORTFOLIO (CONTINUED)
SCHEDULE OF INVESTMENTS JUNE 30, 1998
<TABLE>
<CAPTION>
MARKET
SHARES FOREIGN COMMON STOCK VALUE
- -----------------------------------------------------------------------
<S> <C> <C>
TOTAL FOREIGN COMMON STOCK
(44.2%) (COST $2,681,600) $2,237,885
----------
TOTAL COMMON STOCK
(75.7%) (COST $3,944,302 ) $3,830,594
----------
MARKET
SHARES FOREIGN PREFERRED STOCK VALUE
- -----------------------------------------------------------------------
INDONESIA (4.8%)
10,000 Freeport McMoRan Pfd. 'D' (22) $168,750
4,000 Freeport McMoRan Pfd. 'C' (22) 75,750
----------
244,500
----------
Total Foreign Preferred Stock
(4.8%) (Cost $331,775) $244,500
----------
FACE MARKET
AMOUNT NON-CONVERTIBLE BONDS VALUE
- -----------------------------------------------------------------------
U.S. DOLLAR (4.8%)
145,500 Federal Republic Of Brazil EI FRN
6.875% due 04-15-06 (15) 119,856
65,201 Republic of Argentina FRB
6.750% due 03-31-05 (15) 84,016
50,000 PT Pabrik Kertas Tjiwi Kimia
13.250% due 08-01-01 (14) 39,750
----------
TOTAL NON-CONVERTIBLE BONDS
(4.8%) (COST $224,002) $ 243,622
----------
(a) Also represents cost for Federal income tax purposes.
Foreign Currencies
NZ - New Zealand Dollar
FF - French Franc
</TABLE>
<TABLE>
<CAPTION>
FACE MARKET
AMOUNT CONVERTIBLE DEBENTURES VALUE
- -----------------------------------------------------------------------
<S> <C> <C>
U.S. DOLLAR (4.3%)
$55,000 Inversiones y Representaciones
4.500% 08-02-03 (27) $ 59,400
100,000 International Container Terminal Svcs Inc.
1.750% 03-13-04 (32) 85,750
100,000 Tipeo Asphalt Co.
2.750% 09-16-06 (6) 73,000
----------
218,150
----------
NON U.S. DOLLAR (1.4%)
100,000 NZ Shortland Properties Inc.
7.500% due 12-31-98 (27) 35,200
260,000 FF Immobilier Hoteliere
5.000% due 01-01-01 (16) 36,298
----------
71,498
----------
TOTAL CONVERTIBLE DEBENTURES
(5.7%) (Cost $317,121) $ 289,648
----------
FACE MARKET
AMOUNT SHORT-TERM NOTES VALUE
- -----------------------------------------------------------------------
AUTOMOTIVE AND RELALED (4.0%)
$200,000 Toyota Motor Credit Corp.
6.160% due 07-01-98 $ 200,000
----------
FINANCE (4.0%)
200,000 American Express
5.950% due 07-01-98 200,000
----------
MISCELLANEOUS (3.3%)
173,000 Pearson inc.
5.720% due 07-01-98 172,750
----------
TOTAL SHORT-TERM NOTES
(11.3%) (COST $572,750) $ 572,750
----------
TOTAL HOLDINGS
(COST $5,389,951)(a) $5,181,114
==========
</TABLE>
Industry Classifications
(1) Agriculture (18) Insurance
(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
(35) Holding Companies
The accompanying notes are an integral part of these financial statements.
<PAGE> 65
ONE FUND, INC.
GLOBAL CONTRARIAN PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES
<TABLE>
<CAPTION>
JUNE 30, 1998
<S> <C>
Assets:
Investments in securities at market
value (note 1) (Cost $5,389,951) ....................... $5,181,114
Cash in bank ............................................ 8,016
Unrealized gain on forward currency
contracts (note 5) ..................................... 28,706
Dividends and accrued interest receivable ............... 19,262
Deferred organizational expenses (note 1) ............... 692
Other ................................................... 7,223
----------
Total assets ........................................... 5,245,013
----------
Liabilities:
Payable for securities purchased ........................ 90,977
Payable for shares redeemed ............................. 1,059
Payable for investment management
services (note 3) ...................................... 26,469
Accrued 12b-1 fees (note 6) ............................. 3,424
Dividends payable ....................................... 49,520
Other accrued expenses .................................. 11,482
----------
Total liabilities ...................................... 182,931
----------
Net assets at market value ............................... $5,062,082
==========
Net assets consist of:
Par value, $.001 per share .............................. $ 470
Paid-in capital in excess of par value .................. 4,720,024
Accumulated undistributed net realized
gain on investments .................................... 519,005
Net unrealized appreciation (depreciation) on:
Investments (note 1) ................................... (208,837)
Foreign currency related transactions .................. (394)
Forward currency contracts (note 5) .................... 28,706
Undistributed net investment income ..................... 3,108
----------
Net assets at market value ............................... $5,062,082
==========
Shares outstanding ....................................... 470,485
Net asset value per share ................................ $ 10.76
==========
Maximum offering price per share ($10.76/95%) ............ $ 11.33
==========
</TABLE>
<TABLE>
<CAPTION>
FOR YEAR ENDED JUNE 30, 1998
<S> <C>
Investment income:
Interest ................................................ $ 79,056
Dividends (net of $6,802 foreign taxes withheld)......... 125,570
----------
Total investment income ................................ 204,626
----------
Expenses:
Management fees (note 3) ................................ 54,075
12b-1 fees (note 6) ..................................... 15,021
Custodian fees (note 3) ................................. 40,079
Directors' fees (note 3) ................................ 1,050
Professional fees ....................................... 4,319
Transfer agent and accounting fees ...................... 27,800
Filing fees ............................................. 6,707
Printing, proxy and postage fees ........................ 1,995
Organizational expense (note 1) ......................... 522
Other ................................................... 254
----------
Total expenses ......................................... 151,822
----------
Less expenses voluntarily reduced
or reimbursed (note 3) ................................ (23,873)
----------
Net expenses ........................................... 127,949
----------
Net investment income .................................. 76,677
----------
Realized and unrealized gain (loss) on
investments and foreign currency:
Net realized gain from:
Investments ............................................ 646,699
Forward currency related transactions .................. 78,490
Net increase (decrease) in unrealized
appreciation (depreciation) on:
Investments ........................................... (836,078)
Foreign currency related transactions ................. 15,375
----------
Net loss on investments ............................... (95,514)
----------
Net decrease in net
assets from operations ............................... ($ 18,837)
==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE> 66
ONE FUND, INC.
GLOBAL CONTRARIAN PORTFOLIO
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
Year Ended Year Ended
June 30, 1998 June 30, 1997
------------- -------------
<S> <C> <C>
From operations:
Net investment income ......................................................... $ 76,677 $ 104,098
Realized gain on investments and foreign currency related transactions ........ 725,189 388,766
Unrealized gain (loss) on investments and foreign currency related transactions (820,703) 135,383
----------- -----------
Net increase (decrease) in assets from operations ........................... (18,837) 628,247
----------- -----------
Dividends and distributions to shareholders:
Dividends paid from net investment income ..................................... (70,667) (109,924)
Capital gains and foreign currency related transactions distributions ......... (405,742) (345,450)
----------- -----------
Total dividends and distributions ........................................... (476,409) (455,374)
----------- -----------
From capital share transactions (note 4):
Received from shares sold ..................................................... 509,252 966,852
Received from dividends reinvested ............................................ 211,749 277,521
Paid for shares redeemed ...................................................... (1,459,507) (784,457)
----------- -----------
Increase in net assets derived from capital share transactions ............... (738,506) 459,916
----------- -----------
Increase (decrease) in net assets .......................................... (1,233,752) 632,789
----------- -----------
Net Assets:
Beginning of period ........................................................... 6,295,834 5,663,045
----------- -----------
End of period ................................................................. $ 5,062,082 $ 6,295,834
=========== ===========
Includes undistributed (overdistributed) net investment income of ............. $ 3,108 ($ 2,902)
=========== ===========
</TABLE>
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
11-1-94
Years Ended June 30, to
1998 1997 1996 6-30-95
------ ------ ------ -------
<S> <C> <C> <C> <C>
Per share data:
Net asset value, beginning of period ..................... $11.79 $11.48 $10.01 $10.00
Income (loss) from investment operations:
Net investment income ................................... 0.14 0.20 0.16 0.17
Net realized and unrealized gain (loss) on investments
and foreign currency transactions ..................... (0.26) 0.99 1.61 0.13
------ ------ ------ ------
Total income (loss) from investment operations ......... (0.12) 1.19 1.77 0.30
------ ------ ------ ------
Less distributions:
Dividends from net investment income .................... (0.13) (0.21) (0.16) (0.17)
Distributions from net realized capital gains and foreign
currency transactions ................................. (0.78) (0.67) (0.14) (0.12)
------ ------ ------ ------
Total distributions .................................... (0.91) (0.88) (0.30) (0.29)
------ ------ ------ ------
Net asset value, end of period ........................... $10.76 $11.79 $11.48 $10.01
======= ======= ====== =======
Total return ............................................. (1.05%) 11.11% 17.84% 2.99%(b)
Ratios and supplemental data:
Ratios net of fees reimbursed by advisor (c):
Expenses ................................................ 2.13% 2.02% 2.14% 2.05%(a)
Net investment income ................................... 1.28% 1.78% 1.49% 2.85%(a)
Ratios assuming no fees reimbursed by advisor:
Expenses ................................................ 2.53% 2.21% 2.14% 2.05%(a)
Net investment income ................................... 0.88% 1.59% 1.49% 2.85%(a)
Average commission rate (d) .............................. $ 0.01 $ 0.01 NR NR
Portfolio turnover rate .................................. 25% 6% 26% 8%
Net assets at end of period (millions) ................... $ 5.1 $ 6.3 $ 5.7 $ 3.9
</TABLE>
(a) Annualized
(b) Calculated on an aggregate basis (not annualized).
(c) The advisor has elected to reimburse certain operating expenses of the
Global Contrarian portfolio.
(d) Represents the total dollar amount of commissions paid on equity security
transactions divided by the total number of shares purchased and sold for
which commissions were charged.
NR Not required prior to June 30, 1997
The accompanying notes are an integral part of these financial statements.
<PAGE> 67
CORE GROWTH PORTFOLIO
ONE Fund, Inc.
OBJECTIVE
To provide long-term capital growth. Current income is incidental. Normally at
least 90% of the assets of this portfolio will be invested in common stocks.
Selection of stocks is not limited with regard to whether stocks are
exchange-listed or dividend-paying or whether they are issued by companies of
any particular size.
PERFORMANCE AS OF JUNE 30, 1998
AVERAGE ANNUAL TOTAL RETURNS:
Without With max.
sales charge sales charge
One-year 7.51% 2.13%
Since inception (11/1/96) 3.57% 0.40%
The above returns reflect the maximum sales charge of 5% for this portfolio. All
returns represent past performance and neither predict nor guarantee future
investment results. Your investment return and principal value will fluctuate so
that shares, when redeemed, may be worth more or less than their original cost.
COMMENTS
Cumulatively, for the first half of 1998, the ONE Fund Core Growth Portfolio
outperformed the Russell Midcap Growth Index by the 373 basis points and the
Russell 2000 Growth Index by 1,015 basis points.
It appears that the market continues to favor large cap stocks even though,
on average, earnings estimates for small cap companies are accelerating while
earnings estimates for large cap companies are decelerating. One analyst
recently observed that, "If the second quarter 1998 profit growth for the small
and mid cap segments of the market comes in close to the expectation, it will be
the fifth consecutive quarter in which profit growth for those segments has
surpassed that of the large caps." The consensus estimated average growth rate
for large cap companies for the next 12 months is 6 percent compared with 10.9
percent for the preceding 12 months. In contrast, the consensus average
estimated growth rate for the Russell 2000 Growth Index companies is 39 percent
over the next 12 months compared with 24 percent over the past 12 months. In
addition to the superior growth forecasts, we believe small cap stocks are
attractively valued at present. By our reckoning, they now stand at levels seen
every decade or two.
<TABLE>
<CAPTION>
CHANGE IN VALUE OF $10,000 INVESTMENT
12/31/96 12/31/97
-------- --------
<S> <C> <C>
Core Growth Portfolio
(with max sales charge) $ 9,389.80 $ 8,789.70
Russell 3000 Index 10,614.00 13,977.70
</TABLE>
Hypothetical illustration based on past performance. Future performance will
vary. All returns reflect reinvested dividends. The portfolio's holdings may
differ significantly from the securities in the index. The index is unmanaged
and therefore does not reflect the cost of portfolio management or trading. It
is not open to direct investment.
TOP 10 STOCKS AS OF JUNE 30, 1998
% of Portfolio
1. HBO & Co 2.91
2. Saville Sys - ADR 2.83
3. JD Edwards & Co 2.82
4. Clear Channel Communications 2.67
5. America On Line 2.59
6. Citrix Systems 2.57
7. Dell Computers 2.27
8. Cambridge Technology Partners 2.26
9. Parexel International 2.19
10. Jacor Communications 2.11
Top 5 Industries as of June 30, 1998
% of Portfolio
Computer & Related 22.6
Business Services 21.3
Medical & Related 10.1
Communications 7.6
Media and Publishing 4.8
The prices of small company stocks are generally more volatile than the prices
of large company stocks.
<PAGE> 68
ONE FUND, INC.
CORE GROWTH PORTFOLIO
SCHEDULE OF INVESTMENTS JUNE 30, 1998
<TABLE>
<CAPTION>
MARKET
SHARES COMMON STOCK VALUE
- -----------------------------------------------------------
AUTOMOTIVE AND RELATED (2.6%)
<S> <C> <C>
1,300 *Central Parking $ 59,150
2,100 Harley Davidson, Inc. 81,375
------------
140,525
------------
BUSINESS SERVICES (21.3%)
1,300 *Abacus Direct Corp. 67,519
2,900 *Apollo Group CL A 95,881
2,400 *Computer Horizons 88,950
1,500 *DA Consulting Group Inc. 21,562
3,200 *Daou Systems Inc. 73,200
1,000 *Documentum Inc. 48,000
1,400 *DST Systems, Inc. 78,400
3,000 *Ecsoft Group 97,125
1,500 *Gartner Group 52,500
2,400 *I2 Technologies 84,300
3,150 *Intl. Telcomm Data Systems 91,350
2,700 *Radiant Systems 39,150
3,400 *RWD Technologies, Inc. 80,325
1,300 *Sterling Commerce, Inc. 63,050
3,000 *Saville Systems 150,375
------------
1,131,687
------------
COMPUTER AND RELATED (22.6%)
3,800 *Bea Systems Inc. 87,162
1,200 *BMC Software Inc. 62,325
2,600 *Cadence Design Systems, Inc. 81,250
2,200 *Cambridge Technology Partners 120,175
2,000 *Citrix Systems 136,750
1,200 *Compuware Corp. 61,350
1,300 *Dell Computer Corp. 120,656
1,600 *Filenet Corp. 46,200
3,500 *JD Edwards & Co. 150,281
700 *Manugistics 17,325
300 *Microsoft Corp. 32,513
3,100 *Quadramed Corp. 84,669
1,100 *Software AG Systems 32,175
5,000 *Summit Design, Inc. 73,438
2,000 *Vision Software 95,500
------------
1,201,769
------------
COMMUNICATIONS (7.6%)
1,800 *Advanced Fibre Communications 72,112
900 *Citadel Communications Corp. 14,400
800 Lucent Technology 66,550
1,500 *Star Telecommunications Inc. 33,563
1,700 *Tekelec 76,075
800 *Tellabs Inc. 57,300
600 *Univision Communications 22,350
1,300 *Worldcom Inc. 62,969
------------
405,319
------------
DRUGS (2.2%)
3,200 *Parexel International Corp. 116,400
------------
ELECTRICAL EQUIPMENT (3.7%)
1,200 *Applied Micro Circuits Corp. 31,050
3,000 *Celestica Inc.. 56,250
1,500 *Lernout & Hausp Speech Products 89,531
750 *Level One Communications 17,625
------------
194,456
------------
</TABLE>
<TABLE>
<CAPTION>
MARKET
SHARES COMMON STOCK VALUE
- ----------------------------------------------------------
ENTERTAINMENT AND LEISURE (2.8%)
<S> <C> <C>
2,000 *Cinar Films Inc. CL B $ 39,000
2,100 *Family Golf Center 53,156
900 *Premier Parks 59,963
------------
152,119
------------
FINANCIAL SERVICES (1.9%)
1,300 Associates First Capital 99,938
------------
FOOD & RELATED (1.6%)
1,400 *Suiza Foods Corp. 83,562
------------
INDUSTRIAL SERVICES (0.5%)
1,100 *Hanover Compressor 29,768
------------
INTERNET SERVICE PROVIDER (2.6%)
1,300 *America On Line Inc. 137,800
------------
MEDIA & PUBLISHING (4.8%)
1,300 *Clear Channel Communications 141,863
1,900 *Jacor Communications 112,100
------------
253,963
------------
MEDICAL AND RELATED (10.1%)
4,400 HBO & CO 155,100
2,750 *Health Management Assoc., Inc. 91,953
700 *Healthcare Financial 42,919
2,000 *Healthsouth Corp. 53,375
2,000 *Medquist Inc. 57,750
1,700 Omnicare Inc. 64,813
1,800 *Safeskin Corp. 74,025
------------
539,935
------------
NETWORK PRODUCTS AND SECURITY (4.2%)
1,700 *Axent Technologies Inc. 52,063
1,000 *Check Point Software 32,750
500 *Cisco Systems 46,031
1,200 *Network Assoc. Inc. 57,450
1,200 *Xylan Corp. 35,775
------------
224,069
------------
OIL, ENERGY AND NATURAL GAS (2.1%)
1,000 *Friede Goldman International, Inc. 28,875
2,000 *Global Industries Ltd. 33,750
2,400 *Varco International, Inc. 47,550
------------
110,175
------------
RETAIL (4.1%)
500 *CDW Computer Centers, Inc. 25,000
700 *General Nutrition 21,788
1,200 *Hibbett Sporting Goods, Inc. 48,000
2,100 *NBTY Inc. 38,587
1,000 *United Rentals Inc. 42,000
700 *Whole Food Market, Inc. 42,350
------------
217,725
------------
TEXTILES (1.6%)
2,400 *Jones Apparel Group, Inc. 87,750
------------
(continued)
</TABLE>
<PAGE> 69
ONE FUND, INC.
CORE GROWTH PORTFOLIO (CONTINUED)
SCHEDULE OF INVESTMENTS JUNE 30, 1998
<TABLE>
<CAPTION>
MARKET
SHARES COMMON STOCK VALUE
- ------------------------------------------------------------------
<S> <C> <C>
TRANSPORTATION (1.9%)
1,300 *Coach USA Inc. $ 59,312
1,600 *Motivepower Industries, Inc. 39,200
----------
98,512
----------
TOTAL COMMON STOCK
(98.2%) (COST $4,173,129) $5,225,472
----------
</TABLE>
<TABLE>
<CAPTION>
FACE MARKET
AMOUNT REPURCHASE AGREEMENTS VALUE
- ------------------------------------------------------------------
<S> <C> <C>
FINANCIAL (3.4%)
$182,000 Star Bank 5.200% due 07-01-98
repurchase price $182,026
collateralized by GNMA certificates,
pool # 8375
due 02-20-24 (cost $182,000) $ 182,000
----------
TOTAL REPURCHASE AGREEMENTS
(3.4%) (COST $182,000) $ 182,000
----------
TOTAL HOLDINGS
(COST $4,355,129)(a) $5,407,472
==========
</TABLE>
* Non income producing security.
(a) Also represents cost for Federal income tax purposes.
The accompanying notes are an integral part of these financial statements.
<PAGE> 70
ONE FUND, INC.
CORE GROWTH PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES
June 30, 1998
<TABLE>
<S> <C>
Assets:
Investments in securities at market
value (note 1) (Cost $4,355,129) ...................... $ 5,407,472
Cash in bank ............................................ 795
Receivable for fund shares sold ......................... 164
Dividends and accrued interest receivable ............... 134
Receivable for securities sold .......................... 34,029
Other ................................................... 4,121
-----------
Total assets .......................................... 5,446,715
-----------
Liabilities:
Payable for securities purchased ........................ 112,778
Payable for fund share redeemed ......................... 1,004
Payable for investment management
services (note 3) ..................................... 6,758
Accrued 12b-1 fees (note 6) ............................. 3,201
Other accrued expenses .................................. 1,322
-----------
Total liabilities ..................................... 125,063
-----------
Net assets at market value ................................. $ 5,321,652
===========
Net assets consist of:
Par value, $ 001 per share .............................. $ 502
Paid-in capital in excess of par value .................. 4,788,949
Accumulated net realized
loss on investments ................................... (520,142)
Net unrealized appreciation on investments .............. 1,052,343
-----------
Net assets at market value ................................. $ 5,321,652
===========
Shares outstanding ......................................... 502,101
Net asset value per share .................................. $10 60
===========
Maximum offering price per share ($10 60/95%) .............. $11.16
===========
</TABLE>
STATEMENT OF OPERATIONS
For Year Ended June 30, 1998
<TABLE>
<S> <C>
Investment income:
Interest ................................................ $ 19,232
Dividends ............................................... 3,621
-----------
Total investment income ............................... 22,853
-----------
Expenses:
Management fees (note 3) ................................ 51,878
12b-1 fees (note 6) ..................................... 13,652
Custodian fees (note 3) ................................. 5,400
Directors' fees (note 3) ................................ 900
Professional fees ....................................... 3,798
Transfer agent and accounting fees ...................... 33,600
Filing fees ............................................. 4,500
Printing, proxy and postage fees ........................ 1,710
Other ................................................... 235
-----------
Total expenses ........................................ 115,673
-----------
Less expenses voluntarily reduced
or reimbursed (note 3) .............................. (2,864)
-----------
Net expenses .......................................... 112,809
-----------
Net investment loss ................................... (89,956)
-----------
Realized and unrealized gain (loss) on investments:
Net realized loss from investments ...................... (365,825)
Net increase in unrealized
appreciation on investments ........................... 836,872
-----------
Net gain on investments ............................. 471,047
-----------
Net increase in net
assets from operations ....................... $ 381,091
===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE> 71
ONE FUND, INC.
CORE GROWTH PORTFOLIO
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
11-1-96
Year Ended to
June 30, 1998 6-30-97
------------- -------------
<S> <C> <C>
From operations:
Net investment loss ....................................................... ($ 89,956) ($ 38,829)
Realized loss on investments .............................................. (365,825) (154,317)
Unrealized gain on investments ............................................ 836,872 215,471
----------- -----------
Net increase in assets from operations ................................ 381,091 22,325
----------- -----------
From capital share transactions (note 4):
Received from shares sold ................................................. 728,721 5,793,191
Paid for shares redeemed .................................................. (1,271,044) (332,632)
----------- -----------
Increase (decrease) in net assets derived from capital share transactions (542,323) 5,460,559
----------- -----------
Increase (decrease) in net assets ................................ (161,232) 5,482,884
----------- -----------
Net Assets:
Beginning of period ....................................................... 5,482,884 0
----------- -----------
End of period ............................................................. $ 5,321,652 $ 5,482,884
=========== ===========
</TABLE>
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
11-1-96
Year Ended to
6-30-98 6-30-97
----------- -----------
<S> <C> <C>
Per share data:
Net asset value, beginning of period .................... $ 9.86 $ 10.00
Income (loss) from investment operations:
Net investment loss .................................. (0.16) (0.08)
Net realized and unrealized gain (loss) on investments 0.90 (0.06)
------- -------
Total income (loss) from investment operations ..... 0.74 (0.14)
------- -------
Net asset value, end of period .......................... $ 10.60 $ 9.86
======= =======
Total return ............................................ 7.51% (1.40%)(b)
Ratios and supplemental data:
Ratio net of fees waived or reimbursed by advisor (c):
Expenses ............................................. 2.06% 1.35%(a)
Net investment loss .................................. (1.65%) (0.87%)(a)
Ratios assuming no fees waived or reimbursed by advisor:
Expenses ............................................. 2.12% 1.40%(a)
Net investment loss .................................. (1.70%) (0.92%)(a)
Average commission rate (d) ............................. $ 0.05 $ 0.05
Portfolio turnover rate ................................. 116% 80%
Net assets at end of period (millions) .................. $ 5.3 $ 5.5
</TABLE>
(a) Annualized
(b) Calculated on an aggregate basis (not annualized)
(c) The advisor has reimbursed certain operating expenses of the Core Growth
Portfolio.
(d) Represents the total dollar amount of commissions paid on equity security
transactions divided by the total number of shares purchased and sold for
which commissions were charged.
The accompanying notes are an integral part of these financial statements.
<PAGE> 72
ONE FUND, INC.
NOTES TO FINANCIAL STATEMENTS
June 30, 1998
(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 nine 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.
CORE GROWTH PORTFOLIO - long-term capital appreciation.
There are no assurances these objectives will be met.
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 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 but the Money Market portfolio, 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 reported
as of 4:00 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 the close of trading on the Exchange. 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
makers or estimates of market value 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 valuation.
Foreign currency exchange rates are generally determined prior to 4:00 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 contracts). 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.
<PAGE> 73
ONE FUND, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
June 30, 1998
Each portfolio (other than the Money Market Portfolio) may, (a) write call
options traded on a registered national securities exchange if such portfolio
owns the underlying securities subject to such options, and purchase call
options for the purpose of closing out positions 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 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. Options are recorded at market value, and
the related realized and unrealized gains and losses are included in the
statement of operations. The portfolios making use of options bear the market
risk of an unfavorable change in the price of any security underlying the
options.
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.'s ("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 fluctuations.
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 using the first-in, first-out
method.
The books and records of all the portfolios are maintained in U.S. dollars.
Foreign currency amounts in the International and Global Contrarian Portfolios
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
transaction.
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.
<PAGE> 74
ONE FUND, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
June 30, 1998
Net investment income (loss) and net realized gains (losses) may differ for
financial statement and tax purposes primarily due to wash sales and net
operating losses. The character of distributions made during the period from net
investment income or net realized gains, if any, may differ from their ultimate
characterization for federal income tax purposes. On the statement of assets and
liabilities, as a result of permanent book-to-tax differences, the following
reclassification was made in the Core Growth Portfolio: accumulated net
investment loss has been decreased by $128,785, resulting in a reclassification
adjustment to decrease Paid-in capital in excess of par value by $128,785. This
reclassification has no effect on net assets or net asset value per share.
For federal income tax purposes, the Tax-Free Income, Income and Core Growth
Portfolios had net capital losses of $111,345, $55,474, and $520,142
respectively at June 30, 1998. If not offset by subsequent capital gains, $6,302
will expire June 30, 2003 in the Income Portfolio, $7,298 and $49,166 will
expire June 30, 2004 in the Tax-Free Income and Income Portfolios, respectively,
$4,042 and $154,317 will expire June 30, 2005 in the Tax-Free Income and Core
Growth Portfolios, respectively and $80, $100,005, and $365,825 will expire June
30, 2006 in the Money Market, Tax-Free Income, and Core Growth 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.
Most expenses of the Fund can be directly attributed to a portfolio. Expenses
which cannot be directly attributed are allocated between the portfolios in the
Fund based on average net assets.
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 on investments in each
portfolio as of June 30, 1998 were as follows:
<TABLE>
<CAPTION>
PORTFOLIO
-------------------------------------------------------------------------------------------------------------
TAX-FREE INCOME & SMALL INTERNA- GLOBAL CORE
INCOME INCOME GROWTH GROWTH CAP TIONAL CONTRARIAN GROWTH
----------- ---------- ------------ ------------ ------------ ------------ ---------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Gross unrealized:
Appreciation...... 781,489 240,524 4,878,793 5,398,860 1,174,422 2,248,393 587,129 1,168,516
Depreciation...... 0 (16,180) (244,096) (785,391) (521,278) (2,309,956) (795,966) (116,173)
Net unrealized:
Appreciation/ 781,489 224,344 4,634,697 4,613,469 653,144 0 0 1,052,343
Depreciation..... 0 0 0 0 0 (61,563) (208,837) 0
</TABLE>
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. The Core Growth Portfolio was organized on
August 22, 1996 with the commencement of operations on November 1, 1996.
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, 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 initial
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, Global Contrarian and
Core Growth Portfolios. ONLIC and its affiliates have also purchased additional
shares of each portfolio and as of June 30, 1998 the additional shares owned
were as follows: 7,183,666 shares of
<PAGE> 75
ONE FUND, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
June 30, 1998
the Money Market Portfolio, 553,940 shares of the Tax-Free Income Portfolio,
508,244 shares of the Income Portfolio, 345,432 shares of the Income & Growth
Portfolio, 237,631 shares of the Growth Portfolio, 211,503 shares of the Small
Cap Portfolio, 267,042 shares of the Global Contrarian Portfolio, and 250,000
shares of the Core Growth Portfolio.
(2) INVESTMENT TRANSACTIONS
Purchases and sales of investment securities (excluding short-term securities)
from July 1, 1997 to June 30, 1998 were as follows:
<TABLE>
<CAPTION>
PORTFOLIO
--------------------------------------------------------------------------------------------------------------
TAX-FREE INCOME & SMALL GLOBAL CORE
INCOME INCOME GROWTH GROWTH CAP INTERNATIONAL CONTRARIAN GROWTH
------------ ------------ ------------- ------------ ------------- ------------- ------------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Stocks & Bonds:
Purchases ... 284,055 2,531,619 5,397,134 5,406,516 4,409,799 1,756,439 1,370,010 5,919,661
Sales ....... 354,000 2,166,346 5,073,537 6,771,833 4,207,182 3,968,372 1,565,583 10,412,717
U.S. Govt.
Obligations:
Purchases ... -- -- -- -- -- -- -- --
Sales ....... -- 800,000 -- -- -- -- -- --
</TABLE>
(3) INVESTMENT ADVISORY AGREEMENT, SUB-ADVISORY AGREEMENTS AND TRANSACTIONS WITH
AFFILIATED PERSONS
The Fund has an investment advisory agreement with Ohio National Investments,
Inc. ("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.
Prior to May 1, 1996, O.N. Investment Management Company served as the Fund's
investment advisor. 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 0.65% of the average daily net asset values for directing the investment
and reinvestment of each portfolios' assets pursuant to a sub-advisory agreement
between ONI and SGAM dated May 1, 1996. For the Core Growth Portfolio, ONI is
paid a fee at an annual rate of 0.95% of the portfolio's average daily net asset
value. ONI then pays Pilgrim Baxter & Associates (PBA) a fee at an annual rate
of 0.75% of the average daily net asset value of the first $50 million of
Portfolio assets, 0.70% of the next $100 million and 0.50% of portfolio assets
in excess of $150 million for directing the investment and reinvestment of the
portfolio's assets pursuant to a sub-advisory agreement between ONI and PBA
dated November 1, 1996.
ONI is presently waiving management fees equal to 0.15% of average net assets
for certain portfolios. Management fees waived by ONI for the year ended June
30, 1998 were $22,726, $10,653, $10,178, $22,090, $21,457 and $8,886 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 advisory fees, 12b-1
fees, taxes and interest, in excess of 1% of their average daily net assets. For
the year ended June 30, 1998, the reimbursement was $16,448, $23,873, and $2,864
for the International, Global Contrarian, and Core Growth Portfolios
respectively.
<PAGE> 76
ONE FUND, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
June 30, 1998
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 American Data Services,
Inc., The Hauppauge Corporate Center, 150 Motor Parkway, Suite 109, Hauppauge,
New York. The Fund's custodian for those portfolios other than the International
and Global Contrarian Portfolios is Star Bank, N.A., 425 Walnut Street,
Cincinnati, Ohio. The custodian for the International and Global Contrarian
Portfolios is Investors Fiduciary Trust Company, 801 Pennsylvania, Kansas City,
Missouri. For assets held outside the United States, Star Bank and Investors
Fiduciary Trust Company enter into subcustodial agreements, subject to approval
by the Board of Directors.
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, 1998 and 1997 were as
follows:
<TABLE>
<CAPTION>
MONEY MARKET TAX-FREE INCOME INCOME
----------------------------- ---------------------------------- ----------------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
06-30-98 6-30-97 06-30-98 6-30-97 06-30-98 6-30-97
----------------------------- ---------------------------------- ----------------------------
<S> <C> <C> <C> <C> <C> <C>
Capital shares
issued on sales........... 21,996,755 17,151,447 40,258 39,876 76,483 20,785
Capital shares issued
on reinvested dividends... 455,744 545,914 2,820 14,155 7,995 23,352
Capital shares redeemed..... 20,456,024 19,142,752 20,443 20,980 70,795 93,120
INCOME & GROWTH GROWTH SMALL CAP
----------------------------- ---------------------------------- ----------------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
06-30-98 6-30-97 06-30-98 6-30-97 06-30-98 6-30-97
----------------------------- ---------------------------------- ----------------------------
Capital shares
issued on sales........... 216,315 184,505 106,470 160,092 90,612 77,889
Capital shares issued
on reinvested dividends... 39,848 32,135 35,559 25,550 21,133 16,545
Capital shares redeemed..... 123,916 178,596 138,800 187,890 65,628 51,087
INTERNATIONAL GLOBAL CONTRARIAN CORE GROWTH
----------------------------- ---------------------------------- ----------------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED 11-1-96 TO
06-30-98 6-30-97 06-30-98 6-30-97 06-30-98 6-30-97
----------------------------- ---------------------------------- ----------------------------
Capital shares
issued on sales........... 202,687 324,624 43,691 88,240 74,120 592,472
Capital shares issued
on reinvested dividends... 178,279 73,771 19,016 22,545 0 0
Capital shares redeemed..... 504,238 190,431 126,384 69,585 127,889 36,602
</TABLE>
Sales charges imposed on capital shares sold by Ohio National Equities, Inc.
(ONEQ), the Fund's principal underwriter, a wholly-owned subsidiary of ONLIC,
for the year ended June 30, 1998 were approximately $10,627, $5,279, $70,443,
$45,986, $27,552, $57,623, $10,159, and $18,666 for the Tax-Free Income, Income,
Income & Growth, Growth, Small Cap, International, Global Contrarian and Core
Growth Portfolios, respectively.
<PAGE> 77
ONE FUND, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
June 30, 1998
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 eight
portfolios have been allocated 100 million shares each. The remaining shares
have not been allocated.
(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, 1998, 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 DELIVERED U.S. $ VALUE CURRENCY TO BE RECEIVED U.S. $ VALUE UNREALIZED
DATES THROUGH AMOUNT TYPE AT 06/30/98 AMOUNT TYPE AT 06/30/98 GAIN LOSS
------------- ------ ---- ----------- ------ ---- ----------- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
12/21/98 360,000 Australian Dollar $222,336 215,014 U.S. Dollar $215,014 -- $(7,322)
09/10/98 911,500 Swiss Franc 603,962 634,312 U.S. Dollar 634,312 $30,350 --
12/23/98 296,000 Swiss Franc 198,179 204,420 U.S. Dollar 204,420 6,241 --
09/17/98 553,000 Deutsche Mark 307,256 308,740 U.S. Dollar 308,740 1,484 --
12/17/98 20,000 Deutsche Mark 11,167 11,136 U.S. Dollar 11,136 -- (31)
09/22/98 1,219,500 French Franc 202,172 202,222 U.S. Dollar 202,222 50 --
09/22/98 99,671 U.S. Dollar 99,671 591,500 French Franc 98,060 -- (1,611)
12/14/98 5,646,000 French Franc 940,216 956,090 U.S. Dollar 956,090 15,874 --
09/29/98 125,820,000 Japanese Yen 915,821 1,020,026 U.S. Dollar 1,020,026 104,205 --
12/24/98 164,643,000 Japanese Yen 1,213,331 1,224,384 U.S. Dollar 1,224,384 11,053 --
10/06/98 778,000 New Zealand $ 405,142 421,520 U.S. Dollar 421,520 16,378 --
-------------- -------------- ----------- ----------
$5,119,253 $5,295,924 $185,635 $(8,964)
============== ============== =========== ==========
</TABLE>
GLOBAL CONTRARIAN PORTFOLIO
<TABLE>
<CAPTION>
SETTLEMENT CURRENCY TO BE DELIVERED U.S. $ VALUE CURRENCY TO BE RECEIVED U.S. $ VALUE UNREALIZED
DATES THROUGH AMOUNT TYPE AT 06/30/98 AMOUNT TYPE AT 06/30/98 GAIN LOSS
------------- ------ ---- ----------- ------ ---- ----------- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
12/23/98 196,000 Swiss Franc $131,227 135,359 U.S. Dollar $135,359 $ 4,132 --
12/14/98 432,000 French Franc 71,940 73,155 U.S. Dollar 73,155 1,215 --
09/29/98 11,495,000 Japanese Yen 83,670 90,755 U.S. Dollar 90,755 7,085 --
12/24/98 18,764,000 Japanese Yen 138,281 139,540 U.S. Dollar 139,540 1,259 --
11/13/00 11,720,000 Japanese Yen 94,795 109,810 U.S. Dollar 109,810 15,015 --
-------------- ---------------------------------------
$519,913 $548,619 $28,706 --
============== =======================================
</TABLE>
(6) DISTRIBUTION PLAN
The Fund has a distribution agreement (12b-1 Plan) with ONEQ under the terms of
which the Fund pays a fee for shareholder service and sales of Fund shares based
on the average daily net assets of the portfolio. 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.
<PAGE> 78
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, Global Contrarian and Core Growth Portfolios) as of June 30,
1998, 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, 1998, by correspondence with the
custodians 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, 1998, 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, 1998
