<PAGE> 1
PROSPECTUS
DECEMBER 15, 1999
ONE FUND, INC.
S&P 500 INDEX PORTFOLIO
One Financial Way
Cincinnati, Ohio 45242
Telephone 1-800-578-8078
This prospectus contains information regarding the ONE Fund, Inc. S&P 500 Index
Portfolio. The S&P 500 Index Portfolio's investment objective is total return.
ONE Fund, Inc. ("ONE Fund") is a mutual fund with eight diversified portfolios.
This prospectus sets forth concisely the information about ONE Fund's S&P 500
Index Portfolio that you should know before investing. This prospectus should be
retained for future reference.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
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TABLE OF CONTENTS
<TABLE>
<S> <C>
Fee Table................................................... 3
Risk/Return Summary......................................... 3
Additional Strategies and Risk Factors...................... 5
ONE Fund Management......................................... 7
Board of Directors and Investment Adviser................. 7
Fund Services............................................. 8
Shareholder Information..................................... 8
Buying Shares............................................. 8
Purchase Price............................................ 8
Sales Charges............................................. 8
12b-1 Fees................................................ 8
Sales Contests............................................ 9
Reducing the Sales Charge................................... 9
Flexibility Features........................................ 11
Redeeming Shares............................................ 13
Dividends, Distributions and Taxes.......................... 14
</TABLE>
STATEMENT OF ADDITIONAL INFORMATION CONTENTS
Investment Policies and Restrictions
Controlling Persons and Principal Shareholders
Brokerage Allocation
Tax Status
Underwriters
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ABOUT ONE FUND
ONE Fund has eight fully diversified portfolios.
ONE Fund's assets are managed by Ohio National
Investments, Inc. (the "Adviser") which is a
wholly-owned subsidiary of The Ohio National Life
Insurance Company ("ONLI"). The principal
underwriter of ONE Fund is Ohio National Equities,
Inc. ("ONEQ") which is also a wholly-owned
subsidiary of ONLI. Each of these companies is
located at One Financial Way, Cincinnati, Ohio
45242.
FEE TABLE
This table and example describe the fees and expenses that you may pay if you
buy and hold shares of the ONE Fund S&P 500 Index Portfolio.
SHAREHOLDER FEES (FEES PAID DIRECTLY FROM YOUR INVESTMENT):
Maximum Sales Charge (Load) Imposed on Purchases (as a percentage of offering
price)(1)
<TABLE>
<S> <C>
S&P 500 Index Portfolio..................................... 5.00%
</TABLE>
ANNUAL FUND OPERATING EXPENSES (EXPENSES THAT ARE DEDUCTED FROM ONE FUND
ASSETS):
<TABLE>
<CAPTION>
DISTRIBUTION TOTAL ANNUAL
MANAGEMENT (12b-1) OTHER PORTFOLIO OPERATING
FEES FEES EXPENSES EXPENSES
---------- ------------ -------- -------------------
<S> <C> <C> <C> <C>
S&P 500 Index Portfolio............... 0.40% 0.25% 0.20%* 0.85%*
---- ---- ---- ----
</TABLE>
* Estimated
- ---------------
(1) The Maximum Sales Charge scales down for purchases of $25,000 or more and
becomes a contingent deferred sales charge of 0.5%, for 2 years following
purchase, for accounts of at least $1 million. If you transfer funds from
lower load portfolios, you pay the additional load at the time of transfer.
EXAMPLE:
The Example enables you to compare the long-term cost of owning shares of the
ONE Fund S&P 500 Index Portfolio versus other mutual funds.
The Example assumes that you invest $10,000 in the S&P 500 Index Portfolio for
the time periods indicated and then redeem all of your shares at the end of
those periods. The Example also assumes that your investment has a 5% return
each year and that the Portfolio's operating expenses remain the same. Although
your actual costs may be higher or lower, based on these assumptions your costs
would be:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
S&P 500 Index Portfolio............................... $83 $259 $449 $1,000
</TABLE>
RISK/RETURN SUMMARY
- S&P 500 INDEX PORTFOLIO
The objective of the S&P 500 Index Portfolio is
total return approximating that of the Standard &
Poor's 500 Index ("S&P 500(R)") including
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reinvestment of dividends, at a risk level
consistent with that of the S&P 500(R). It seeks
this objective by investing at least 65% of its
assets in:
- common stocks, or derivative securities thereof
including futures contracts, currently listed
among the stocks in the S&P 500(R)
The balance of the portfolios assets will be
invested in:
- Standard & Poor's Depositary Receipts(R)
("SPDRs(R)"),
- S&P 500(R) stock index futures contracts hedged
by investing in securities issued or guaranteed
by the U.S. government, its agencies or
instrumentalities, investment-grade corporate
bonds and money market instruments, but
primarily as a hedging technique for future
contracts, and/or
- common stocks and other securities that need not
be included among the 500 stocks in the S&P
500(R).
This strategy is intended to replicate the
performance of the S&P 500(R). However, portfolio
expenses reduce the portfolio's ability to exactly
track the S&P 500(R). There can be no assurance
that the portfolio's investments will have the
desired effect.
The portfolio will attempt to achieve a
correlation between its performance and that of
the S&P 500(R) of at least 0.95 on a monthly
basis, without taking into account expenses. A
correlation of 1.00 would indicate perfect
correlation, which would be achieved when the
portfolio's net asset value, including the value
of its dividend and capital gains distributions,
increases or decreases in exact proportion to
changes in the S&P 500(R). The portfolio's ability
to correlate its performance with the S&P 500(R)
may be affected by, among other things, changes in
securities markets, the manner in which the S&P
500(R) is calculated by Standard & Poor's and the
timing of purchases and redemptions. If the
Adviser is unable to correlate the portfolio's
performance with that of the S&P 500(R), it is
anticipated that the Adviser will liquidate and
purchase securities necessary to bring the
performance back into correlation.
The S&P 500 Index Portfolio may invest up to 5% of
its assets in SPDRs(R); provided, however, that
the portfolio reserves the right to increase the
percentage of assets it may invest in SPDRs(R) to
10% to the extent that such an increase would be
permitted by applicable law. SPDRs(R) are units of
beneficial interest in a unit investment trust,
representing proportionate undivided interests in
a portfolio of securities in substantially the
same weighting as the component common stocks of
the S&P 500(R).
The value of S&P 500(R) stock index futures
contracts is tied directly to the fluctuations of
the S&P 500(R). The portfolio's ability to use
futures contracts as a substitute for maintaining
a fully-invested market position in the 500 stocks
comprising the S&P 500(R) obligates the portfolio
to hedge its position by delivering a specific
dollar amount equal to the difference between the
value of the S&P 500(R) at the time the contract
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was made and the closing of the contract. The
futures contracts can result in a high degree of
leverage so that a relatively small decline in the
S&P 500(R) could result in a substantial loss to
the portfolio, including part or all of the margin
deposits required on the contracts. The portfolio
seeks to offset that risk by maintaining
investments in U.S. government obligations,
investment-grade corporate bonds and money market
instruments. The income from these fixed income
investments and money market instruments tends to
offset the costs of the futures contracts.
Primary risks: As with all investments, the value
of the investment is subject to price fluctuation
and may, as a result, be worth more or less than
the price paid for the security. Because the
Adviser intends for the performance of the
portfolio to correlate to the performance of the
S&P 500(R), when that index experiences periods of
poor performance as compared to other investments,
the portfolio will also experience poor
performance. The S&P 500(R) is comprised of
securities in several industry sectors. If a
particular sector or specific industry represented
in a sector experiences poor performance, the S&P
500(R) and the portfolio may also experience poor
performance.
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.
ADDITIONAL STRATEGIES AND RISK FACTORS
- DIVERSIFICATION/CONCENTRATION
No more than 5% will be
invested in one company
and 25% in one industry. The S&P 500 Index Portfolio is fully diversified.
No more than 5% of the value of the total assets
of the portfolio, as of the time any portfolio
security is purchased, will be invested in the
securities of any one issuer. No more than 25% of
the value of the total assets of the portfolio, as
of the time any portfolio security is purchased,
will be invested in any one industry.
- CREDIT AND MARKET RISKS
"Credit Risk" is the ability
of an issuer to pay its
debts. "Market Risk"
measures the volatility of
a security's price in a
fluctuating market.
The portfolio may invest in debt securities to
offset costs associated with futures contract.
All securities are subject, to some degree, to
credit risk and market risk. Credit risk refers to
the ability of an issuer of a debt security to pay
its principal and interest, and to the earnings
stability and overall financial
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soundness of an issuer of an equity security.
Market risk refers to the volatility of a
security's price in response to changes in
conditions in securities markets in general and,
particularly in the case of debt securities,
changes in the overall level of interest rates.
Higher risk levels are usually equated to higher
potential total return, but higher risk
investments have a greater potential for loss as
well. Generally, bonds rated in one of the top
four rating categories are considered investment
grade. However, those in the fourth highest
category (Moody's Baa or Standard & Poor's BBB)
may have speculative characteristics and the
issuer's ability to pay interest or repay
principal under adverse economic conditions or
changing circumstances may be weaker.
The degree of market risk for debt securities
increases with the length of time remaining to
their maturity. During periods of rising interest
rates, the market prices of all income producing
securities tend to decline. When interest rates
fall, the market prices of such securities tend to
rise. The values of such securities will also vary
as a result of changing economic conditions or
changing evaluations by investors and rating
organizations of the ability of the issuers to
meet interest and principal payments. Thus, there
is always a risk of principal loss or gain
associated with the portfolio. However, changes in
the values of debt securities held by a portfolio
will not affect income derived from those
securities unless the issuer defaults on its
interest payments.
- FOREIGN SECURITIES
Up to 20% may be invested in
other countries. The Portfolio may invest up to 20% of its assets
in the securities of foreign issuers (including
private issuers and foreign governments or
political subdivisions, agencies or
instrumentalities of foreign governments),
American Depository Receipts, and the securities
of United States domiciled issuers with values
expressed in foreign currency. However, the
Adviser does not anticipate investing over 5% in
such securities. Such foreign investments would be
made or maintained usually in the event of and
acquisition by a foreign corporation of a company
listed on the S&P 500(R) based on the stock
performance, the Adviser may decide to maintain
the holding rather than sell the stock. If the
retained holding performs as anticipated, the
return may tend to offset the costs of the futures
contracts and may offset the operating expenses of
the portfolio and cause a closer correlation of
the portfolios performance to that of the S&P
500(R) itself.
Foreign securities risk
factors Investments in foreign securities involve added
risk factors. These factors include changes in
currency exchange rates, currency exchange control
regulations, the possibility of seizure or
nationalization of companies, political or
economic instability, imposition of unforeseen
taxes, the possibility of financial information
being difficult to obtain or difficult to
interpret under foreign accounting standards, the
necessity of trading in markets that in relation
to U.S. markets may be more volatile or less
efficient and have available less information
concerning issuers, or the imposition of other
restraints that might adversely affect
investments.
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Foreign investments will not normally constitute a
substantial portion of the S&P 500 Index
Portfolio's assets. However, the Adviser may
invest in foreign securities whenever deemed
prudent, particularly when deemed advantageous to
offset market or economic factors prevailing in
the U.S. In addition, a number of large,
multi-national foreign corporations have a
substantial business presence in the U.S. and
their securities are widely traded in this
country.
- HEDGING TRANSACTIONS
Hedging transactions seek to
limit
portfolio volatility. The Portfolio, for hedging purposes, may (a) write
call options traded on a registered national
securities exchange, if the portfolio owns the
underlying securities, and purchase call options
for the purpose of closing out options it has
written, (b) purchase put options on securities
owned, and sell such options in order to close its
positions in put options, (c) purchase and sell
financial futures contracts and options thereon,
(d) purchase and sell financial index options, and
(e) engage in forward foreign currency contracts,
foreign currency options and foreign currency
futures contracts in connection with the purchase,
sale or ownership of specific securities. However,
no option or futures contract shall be 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 the total assets, at market value, of the
Portfolio may be used for premiums on open options
and initial margin deposits on futures contracts,
and not more than 5% of the Portfolio's assets may
be invested in foreign currency hedging
transactions. Hedging transactions and their
associated risks are more fully described in the
Statement of Additional Information.
ONE FUND MANAGEMENT
- BOARD OF DIRECTORS AND INVESTMENT ADVISER
The Directors are elected by
the
shareholders and are
responsible for
overall management. The Adviser manages the investment and
reinvestment of the S&P 500 Index Portfolio's
assets, subject to the supervision of The Board of
Directors. The Board of Directors is responsible
for the Portfolio's overall management and
direction. The Board approves all significant
agreements including those with the Adviser, the
ONE Fund's principal underwriter ("ONEQ"), its
custodian (Firstar Bank), and its transfer agent
and fund accounting agent, American Data Services,
Inc. ("ADS"). Board members are elected by the
shareholders for three-year terms. Shareholder
meetings are normally held every 3 years.
For managing the Portfolio's assets, the Adviser
receives a quarterly management fee based on the
Portfolio's net assets, at maximum rate of 0.40%.
- FUND SERVICES
Firstar Bank, 425 Walnut Street, Cincinnati, Ohio
45202, is the custodian for the assets of the S&P
500 Index Portfolio. ADS, 150 Motor Parkway, Suite
109, Hauppauge, New York 11788, serves as ONE
Fund's
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transfer agent and its agent for bookkeeping,
dividend disbursing and certain shareholder
services.
SHAREHOLDER INFORMATION
- BUYING SHARES
Shares of the S&P 500 Index Portfolio are
continuously offered through the ONE Fund's
principal underwriter, ONEQ, and through other
securities dealers that execute a distribution
agreement with ONEQ.
Investments can be as small
as $50. The minimum initial investment is $500. Subsequent
investments must be at least $50. These minimums
may be waived when the shares are purchased
through plans providing for regular periodic
investments. ONE Fund and ONEQ reserve the right
to refuse any purchase order.
- PURCHASE PRICE
Portfolio shares are valued
each day
the NYSE is open. The net asset value of the shares of the Portfolio
are determined at 4:00 p.m. Eastern time on each
day the New York Stock Exchange is open for
unrestricted trading. The net asset value of the
Portfolio is computed by dividing the value of the
securities in the Portfolio plus any cash or other
assets less all liabilities of the Portfolio, by
the number of capital shares outstanding for the
Portfolio. Securities are valued at current market
value.
Shares are offered at the public offering price.
This is the next calculated net asset value per
share plus a sales charge, if applicable. The
sales charge is a variable percentage of the
offering price depending upon the amount of the
sale.
- SALES CHARGES
<TABLE>
<CAPTION>
SALES CHARGE AS A % OF:
----------------------------------------
OFFERING NET AMOUNT DEALER
AMOUNT OF PURCHASE PRICE INVESTED CONCESSION
------------------ -------- ---------- ----------
<S> <C> <C> <C>
Less than $25,000..................................... 5.00% 5.26% 4.70%
$25,000 -- $49,999.................................... 4.50% 4.71% 4.25%
$50,000 -- $99,999.................................... 4.00% 4.17% 3.80%
$100,000 -- $249,999.................................. 3.50% 3.63% 3.35%
$250,000 -- $499,999.................................. 2.50% 2.56% 2.40%
$500,000 -- $999,999.................................. 2.00% 2.04% 1.95%
$1,000,000 and over................................... None* None* None**
</TABLE>
- ---------------
* While no initial sales charge is imposed on investments of $1 million or
more, a contingent deferred sales charge of 0.5% of the amount redeemed (up
to 0.5% of the amount invested with no initial sales charge) is imposed
within 2 years of such a purchase.
** ONEQ will pay a dealer concession of 0.50% to securities dealers who initiate
and are responsible for any purchase of $1 million or more.
- 12b-1 FEES
Qualified dealers are paid a continuing
shareholder service fee of 0.25% annually to
compensate them for providing certain services to
shareholders and to promote growth of the
Portfolio's assets. These services include
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submitting purchase and redemption transactions,
establishing shareholder accounts and providing
information and assistance regarding the
Portfolio. The proceeds of the Portfolio 12b-1
Distribution Plan are used only to pay these
shareholder service fees. Because these fees are
paid out of portfolio assets on an on-going basis,
over time these fees will increase the cost of
your investment and may cost you more than paying
other types of sales charges.
- SALES CONTESTS
Periodically, ONE Fund may conduct sales contests
to encourage higher production among the
registered representatives of broker-dealers that
have the authority to sell ONE Fund shares. These
contests may be restricted to registered
representatives of certain broker-dealers, or open
to all eligible firms, in the discretion of ONE
Fund management. Such contests will only be
conducted in accordance with the laws, rules and
regulations of applicable federal, state and other
regulators.
REDUCING THE SALES CHARGE
For purposes of Right of Accumulation, Combined
Purchases and Group Purchases, "holdings" means
the current value of your shares at the full
offering price. Your registered representative can
help you to take advantage of any of the following
methods of reducing the sales charge if you
qualify. These rights may be requested on your ONE
Fund account application.
- CONCURRENT PURCHASES
Combining your purchases of
ONE
Fund and contracts issued by
its
affiliates You may qualify for a reduced sales charge by
combining concurrent products underwritten by ONEQ
or its affiliates (the Ohio National companies). A
concurrent purchase occurs whenever ONE Fund
shares are purchased at any time from the day any
Ohio National annuity or insurance policy is
applied for until 5 days after that contract is
delivered. The amount of the annual (or single)
premium of the Ohio National annuity or insurance
policy will then be added to the amount of your
concurrent ONE Fund purchase to determine the
percentage of sales charge to apply to your ONE
Fund purchase.
- LETTER OF INTENT
Committing to invest a
certain
amount over 13 months You may reduce sales charges on all investments by
meeting the terms of a nonbinding letter of your
intent to invest a certain amount within a
13-month period. Shares representing up to 5% of
the intended amount will be held in escrow to
cover additional sales charges that may be due if
your total investments, net of redemptions, over
the stated period are insufficient to qualify for
a sales charge reduction. You have up to 90 days
after investing to sign a letter of intent to
reduce the sales charges on your investments
including the investments made in the 90 days
before the letter. Shares you currently own will
apply toward meeting your letter of intent.
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- RIGHT OF ACCUMULATION
Adding up all your ONE Fund
holdings Your sales charge may also be reduced by taking
into account your existing holdings in ONE Fund.
Holdings will be valued at the greater of their
full offering price at the time a new purchase is
made under a right of accumulation or the sum of
all your purchases (including reinvested
dividends) less any redemptions.
- COMBINED PURCHASES
Combining your purchases
with
those of your family members Your sales charge may be reduced by aggregating
holdings for the account(s) of you, your spouse,
your children and grandchildren. This may include
purchases through employee benefit plans such as
an IRA, an individual-type 403(b) plan or a
single-participant Keogh plan, or by a business
solely controlled by these individuals (for
example, they own the entire business) or by a
trust (or other fiduciary arrangement) solely for
the benefit of these individuals.
- GROUP PURCHASES
Available to members of a
qualified
group A member of a qualified group may purchase ONE
Fund shares at the reduced sales charge applicable
to the aggregate holdings of the group as a whole.
(For example, if members of the group had
previously purchased $100,000 of ONE Fund shares
and still held those shares, and now were
purchasing an additional $25,000, the sales charge
would be 3.50%, or 2.50% for the Income
Portfolio.)
A "qualified group" is one that (a) has been in
existence more than six months (unless it is a
tax-qualified plan), (b) has a purpose other than
acquiring mutual fund shares, and (c) satisfies
uniform criteria enabling ONEQ to realize
economies of scale in its costs of distributing
shares. A qualified group must have at least six
members, must be available to arrange for group
meetings between representatives of dealers who
sell ONE Fund shares and the members, must agree
to include sales literature and other materials
relating to ONE Fund in its publications and
mailings to members at reduced or no cost to ONE
Fund or to dealers that sell its shares, and must
seek to arrange for payroll deduction or other
bulk transmission of ONE Fund purchases.
- GROUP LETTER OF INTENT
Qualified groups committing
to
invest a certain amount over
24 months Qualified groups may reduce sales charges on all
investments by meeting the terms of a nonbinding
letter of the group's intention to invest a
certain amount over a 24-month period. Shares
representing 5% of the investments of each group
member during that period will be held in escrow
to cover additional sales charges. The group has
up to 90 days after investing to enter into the
group letter of intent.
- PURCHASES WITHOUT A SALES CHARGE
Redeeming other shares that
had a
sales charge Within 60 days preceding their purchase of ONE
Fund shares, investors who have redeemed an
investment in another mutual fund that imposed a
sales charge and which has investment objectives
similar to any portfolio(s) of ONE Fund, may
purchase ONE Fund shares, up to the amount
redeemed, without paying any sales charge.
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Officers, directors, employees, retirees, agents
and registered representatives of the Ohio
National companies, any employee benefit plan with
respect to them, and their spouses, children and
grandchildren, may purchase ONE Fund shares
without a sales charge.
No sales charge is imposed on ONE Fund shares
purchased by:
- institutional investors (including banks,
trust companies and thrift institutions) for
their own account or for the benefit of any
trust having at least $1,000,000 in assets;
- fee-based registered investment advisers that
do not receive any part of a sales charge for
the sale of the shares; or
- pension or retirement plans, deferred
compensation plans and employee benefit plans
that have at least $1,000,000 in assets and
the trusts used to fund those plans.
FLEXIBILITY FEATURES
- OPEN ACCOUNTS
You will receive statements
every
quarter. Your account is opened in accordance with your
registration instructions. It offers many features
allowing you to change your investment program at
any time as circumstances change. Transactions in
your account, such as additional investments and
dividend reinvestments, will be reflected on
regular confirmation statements from ADS. Any of
the following features may be established through
your ONE Fund account application or by contacting
your registered representative or ONE Fund.
- AUTOMATIC INVESTING
From your bank account or
pay
check You may make regular monthly or quarterly
investments through automatic charges to your bank
account or, if your employer approves, from your
pay check. Once a plan is established, your
account will normally be charged on the 1st or
15th day of the month, as you choose.
- AUTOMATIC REINVESTING
Income and capital gains Unless you indicate otherwise in your account
application, dividends and capital gains
distributions are reinvested in additional shares
at no sales charge. You may elect to have
dividends and/or capital gains distributions paid
to you by check.
- CROSS INVESTING
Investing income and capital
gains
into other portfolios You may elect to have your dividends or dividends
and capital gains distributions from one portfolio
invested in another portfolio with no sales
charge. To use this service, the value of your
account in the paying portfolio must be at least
$5,000.
- TRANSFERRING
Among the ONE Fund
portfolios. You may transfer your account balances among the
various portfolios in amounts of at least $50.
There is currently no charge for transfers. ONE
Fund reserves the right to limit the number,
frequency, method or amount of transfers or to
impose charges on transfers. Transfers from any
portfolio on any one day may be limited to 1% of
the previous day's
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total net assets of that portfolio if ONE Fund or
the Adviser, in its or their discretion, believes
that the portfolio might otherwise be damaged.
- TELEPHONE TRANSACTIONS
You must preauthorize in
writing. If you have previously authorized it in writing,
you or your registered representative may do the
following transactions by telephoning ONE Fund at
1-800-578-8078:
- Make transfers among the portfolios as
provided above under "Transferring."
- Change the amount of automatic investments, or
discontinue them as provided above under
"Automatic Investing".
- Change your election for payment of dividends
and capital gains as provided above under
"Automatic Reinvesting" and "Cross Investing."
- Redeem your shares as provided under "By
Telephone." Initiate, change or discontinue
automatic redemptions of your shares as
provided under "Automatically."
- Change your address on our records.
Telephone transaction requests received after 4:00
p.m. Eastern time will be made at the net asset
values computed at the close of the following
business day. ONE Fund and its transfer agent will
honor telephone transaction instructions from
anyone giving such instructions who is able to
provide the personal identifying information
requested, but we reserve the right to refuse to
honor any such request if that seems prudent. ONE
Fund will use reasonable procedures to confirm
that telephone instructions are genuine. If we do
not, ONE Fund may be liable for any losses due to
unauthorized or fraudulent instructions. ONE Fund
will send you a written confirmation of each
telephone transaction. During periods of drastic
market fluctuations or technical difficulties, it
might be difficult to execute telephone
transactions. In such situations, you may need to
send written instructions to ONE Fund. Telephone
transaction privileges may be modified or
discontinued at any time.
- AUTOMATIC TRANSFERS
Among the ONE Fund
portfolios You may automatically transfer shares (in
increments of $50 or more) among any of the
portfolios. This will occur on or about the 10th
day of each month. Automatic transfers may be
used, for example, to implement a
"dollar-cost-averaging" investment strategy.
- SALES CHARGE ON CERTAIN TRANSFERS
No sales charge applies for transfers to a
portfolio having a sales charge equal to or less
than that of the portfolio from which the transfer
is made. For transfers from a portfolio with a
lower sales charge to one with a higher sales
charge, an additional charge is made equal to the
difference between the sales charge for the
portfolio being purchased and any sales charges
that previously applied to the account balance
being transferred.
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REDEEMING SHARES
Payment is normally sent
within
three business days. You may redeem your shares at any time by
contacting ONE Fund or the broker-dealer through
whom you purchased your shares. If you are no
longer serviced by an authorized registered
representative, you may contact ONEQ's principal
office by calling 1-800-578-8078, or by writing to
P. O. Box 371, Cincinnati, Ohio 45201. The price
you receive for redeemed shares is the next net
asset value after your request is received.
Payment is normally sent within three business
days. However, the proceeds of redemption will not
be sent until after your check for your investment
has cleared (which may take up to 15 days). (Note
also, the contingent deferred sales charge of 0.5%
on certain redemptions, within two years of
purchase with no initial sales charge, of
investments of $1 million or more as described
under "Sales Charges.")
- REQUEST IN WRITING
When making a written request for redemption,
specify the name of the portfolio, the number of
shares or dollar amount to be redeemed (if less
than your entire account), your name and address,
account number and your signature. In addition,
(a) for any redemption over $50,000, or (b) for
redemptions of $50,000 or less where the check is
to be paid or mailed to someone other than you at
your address of record, a signature guarantee is
required. You may obtain a signature guarantee
from a bank or savings & loan that is federally
insured or from a member firm of the National
Association of Securities Dealers, Inc., or any
other eligible guarantor institution. Additional
documentation may be required for redemption of
shares held in corporate, partnership or fiduciary
accounts.
- BY TELEPHONE
As provided under "Telephone Transactions", you or
your registered representative may call ONE Fund
to redeem up to $50,000. You may pre-authorize
that the proceeds be (a) in a check, payable to
you and mailed to your address of record, or (b)
sent by wire to your bank account. Checks will
normally be mailed three business days, and no
more than seven days, after your request. Wire
transfers to your bank account will normally be
made the next business day. Wire proceeds may not
be for less than $1,000. Firstar Bank will deduct
a fee (presently $13) from the proceeds of each
wire redemption.
- AUTOMATICALLY
If your account is $5,000 or more, you may
establish an automatic withdrawal plan. More than
one plan may be set up if your account is at least
$10,000. Under each plan, you may make automatic
withdrawals for $50 or more each at specified
intervals. Automatic withdrawals are made on or
about the 10th day of each designated month and,
if withdrawals are to be made semimonthly, also on
or about the 25th day of each month. Additional
purchases may be inadvisable, when an automatic
withdrawal plan is in effect, because of sales
charges and possible tax liabilities. If, due to
your redemptions, your account balance is less
than $300 (or a larger amount specified by the
Board of Directors), ONE
13
<PAGE> 14
Fund may choose to close your account by redeeming
your shares and sending you the proceeds. ONE Fund
will give you at least 30 days' written notice
before closing your account, and you may purchase
additional ONE Fund shares to avoid the closing.
DIVIDENDS, DISTRIBUTIONS AND TAXES
Each portfolio intends to qualify as a regulated
investment company under Subchapter M of the
Internal Revenue Code. It is ONE Fund's policy to
comply with the provisions of the Code regarding
distributions of net investment income and net
realized capital gains so that ONE Fund will not
be subject to federal income tax on amounts
distributed. Consequently, ONE Fund distributes to
its shareholders each year substantially all of
its net investment income and net realized capital
gains (if any).
ONE Fund shareholders are taxed on distributed
income and capital gains. Shareholders who are not
subject to income tax would not be required to pay
tax on amounts distributed to them. ONE Fund will
inform shareholders of the amount and federal
income tax status of distributed income and
capital gains.
Dividends for the Portfolio
are paid
at the end of each quarter. Dividends will normally be paid at the end of
March, June, September and December to Portfolio
shareholders. Any net realized capital gains for
all portfolios will be distributed annually.
However, ONE Fund's Board of Directors may declare
such dividends at other intervals.
14
<PAGE> 15
PART B
INFORMATION REQUIRED IN A STATEMENT OF ADDITIONAL INFORMATION
<PAGE> 16
ONE FUND, INC.
S&P 500 Index Portfolio
One Financial Way
Cincinnati, Ohio 45242
Telephone 1-800-578-8078
STATEMENT OF ADDITIONAL INFORMATION
December 15, 1999
This Statement of Additional Information is not a prospectus. It should be read
in conjunction with the prospectus of the ONE Fund, Inc. S&P 500 Index Portfolio
dated December 15, 1999.
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
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
Restricted and Illiquid Securities
Municipal Securities
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> 17
<TABLE>
<S> <C>
25 Purchase and Redemption of Shares
Reducing the Sales Charge
27 Tax Status
27 Underwriters
27 Experts
28 Legal Counsel
29 Appendix
Debt Security Ratings
</TABLE>
2
<PAGE> 18
ONE FUND
ONE Fund is an open-end diversified management investment company which
presently consists of eight portfolios. This Statement of Additional
Information pertains to the S&P 500 Index Portfolio (the "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 investment and reinvestment of ONE Fund 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 shares of the 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. 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 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.
3
<PAGE> 19
<PAGE> 20
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).
5
<PAGE> 21
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 the S&P 500 Index portfolio is as follows:
Securities of the S&P 500 Index Portfolio will not be actively traded. Although
it will often purchase fixed-income securities with relatively short
maturities, those transactions are not expected to generate substantial
brokerage commissions. The annual turnover rate is not normally expected to
exceed 100%.
6
<PAGE> 22
INVESTMENT RESTRICTIONS
The prospectus lists the most significant investment restrictions to which the
S&P 500 Index Portfolio is subject. (See "About ONE Fund" in the prospectus.) A
complete list of the 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 the portfolio. 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> 23
One of ONE Fund's fundamental restrictions is that it may not issue senior
securities, except to the extent that the borrowing of money is in accordance
with restriction 4, or that the purchase of reverse repurchase agreements may
constitute the issuance or 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;
3. invest more than 25% of the value of its total assets in any one
industry. 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, 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 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> 24
(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 the 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. invest in securities of foreign issuers except that (a) each of
the Income, Income & Growth, Growth, Core Growth, Small Cap and the
S&P 500 Index Portfolio 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;
9
<PAGE> 25
14. 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 Portfolio 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).
INVESTMENT POLICIES
The following descriptions of money market instruments supplement the investment
objectives and policies set forth in the prospectus. The S&P 500 Index Portfolio
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> 26
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> 27
incurred if the collateral securing the repurchase agreement declines in value
during the bankruptcy proceedings.
REVERSE REPURCHASE AGREEMENTS
Under a reverse repurchase agreement, the 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 the
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> 28
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
A 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 portfolio. 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> 29
(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.
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
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<PAGE> 30
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.
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<PAGE> 31
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.
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<PAGE> 32
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 common stocks.
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>
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<PAGE> 33
<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
Michael A. Boedeker Vice President Vice President, Senior Investment
One Financial Way Officer, ONLI; Vice President
Cincinnati, Ohio and Director of the Adviser;
Vice President of ONF.
Joseph P. Brom Vice President Executive Vice President, ONLI;
One Financial Way President and Director of the
Cincinnati, Ohio 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)
Marcus L. Collins Assistant Secretary Senior Attorney, ONLI. Prior
One Financial Way to 1999 was counsel to Countrywide
Cincinnati, Ohio Financial Services, Inc. (1998) and
legal contract employee for the U.S.
Department of Justice (1991-1998)
</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 or the Adviser were compensated as follows
during the fiscal year ended June 30, 1999:
<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>
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<PAGE> 34
*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.
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 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
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<PAGE> 35
program by placing the orders for the purchase and sale of securities or, in the
case of the International Portfolio, delegates that implementation to FGIM.
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 Firstar 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: for the assets held in the S&P 500 Index Portfolio,
the fee is at an annual rate of 0.40% of the first $100 million of assets,
0.35% of the next $150 million, and 0.33% of net assets over $250 million.
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<PAGE> 36
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 and the Service Agreement were approved by a
vote of ONE Fund's Board of Directors on January 24, 1996, and the shareholders
on March 28, 1996. This agreement 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 agreement
was approved by the Board of Directors for continuance on August 29, 1999.
The Investment 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 the 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.
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<PAGE> 37
ONE Fund's 12b-1 Plan is primarily a compensation plan to compensate
broker-dealers that sell ONE Fund shares (the "Selling Dealers") for shareholder
services and for sales. The basic compensation 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 may be
increased to the extent necessary to reimburse incentive bonuses paid 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 (and ONLI s a parent of a Selling Dealer) 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, and
selects the brokers to handle such transactions. It is the intention of the
Adviser 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
considers 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 may use a broker whose commission in
effecting a securities transaction is in excess of that of some other broker if
the Adviser determines in good faith that the amount of such commission is
reasonable in relation to the value of the research and related services
provided by such broker. In effecting a transaction for one portfolio, a broker
may also offer services of benefit to other portfolios managed by the 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. However, receipt of such services
may tend to reduce the expenses of the 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 and conversely,
transaction costs paid by ONLI, ONF or other clients or affiliates of the
Adviser may generate information which is beneficial to ONE Fund.
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<PAGE> 38
There were no brokerage commissions paid during the previous fiscal year as the
S&P 500 Index Portfolio did not start operations until 1999.
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.
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.
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<PAGE> 39
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 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.
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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.
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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 firm of KPMG, LLP has been retained as the independent certified public
accountants for the ONE Fund, Inc.
TRANSFER AGENT
ADS, 150 Motor Parkway, Suite 109, Hauppauge, New York 11788, serves as ONE
Fund's transfer agent and its agent for bookkeeping, dividend disbursing and
certain shareholder services.
CUSTODIAN
Firstar Bank, 425 Walnut Street, Cincinnati, Ohio 45202, is the
custodian for all ONE Fund assets except those of the International
Portfolio. The assets of the International Portfolio are in the custody of
Investors Fiduciary Trust Company, 801 Pennsylvania Street, Kansas City,
Missouri 64105. For assets held outside the United States, Investors
Fiduciary Trust Company enters into subcustodial agreements, subject to
approval by the Board of Directors.
LEGAL COUNSEL
Messrs. Jones & Blouch L.L.P., Washington, D.C., have passed on matters
pertaining to the federal securities laws and Marcus L. Collins, Esq.,
Assistant Secretary of ONE Fund and Senior Attorney 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 S&P 500
The S&P 500 is a widely publicized index that tracks 500 companies traded on
the New York and American Stock Exchanges and in the over-the-counter market.
It is weighted by market value so that each company's stock influences the S&P
500 in proportions to its relative market capitalization. Most of the stocks in
the S&P 500 are issued by companies that are among the 500 largest in the
United States in terms of aggregate market value. However, for diversification
purposes, some stocks of smaller companies are included in the S&P 500.
"Standard & Poor's(R)," "S&P(R)," "S&P 500(R)" and "Standard & Poor's 500" are
trademarks of The McGraw-Hill Companies, Inc. and have been licensed for use by
the Advisor. The S&P 500 Index Portfolio is not sponsored, endorsed, sold or
promoted by Standard & Poor's ("S&P") and S&P makes no representation regarding
the advisability of investing in the S&P 500 Index Portfolio. S&P makes no
representation or warranty, express or implied, to the owners of the Portfolio
or any member of the public regarding the advisability of investing in
securities generally or in the Portfolio particularly or the ability of the S&P
500 Index to track general stock market performance.
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APPENDIX
DEBT SECURITY RATINGS
The Securities and Exchange Commission has designated six nationally recognized
statistical rating organizations: Duff and Phelps, Inc. ("D & P"), Fitch
Investors Service, Inc. ("Fitch"), Moody's Investors Service, Inc. (Moody's"),
Standard & Poor's Corp. ("S & P"), and, with respect to bank-supported debt and
debt issued by banks, broker-dealers and their affiliates, IBCA Inc. and its
British affiliate, IBCA Limited ("IBCA") and Thompson Bankwatch, Inc. ("TBW").
ONIMCO may use the ratings of all six such rating organizations as factors to
consider in determining the quality of debt securities, although it will
generally only follow D&P, Fitch, Moody's and S&P. IBCA and TBW will only be
consulted if fewer than two of the other four rating organizations have given
their top rating to a security. Only the ratings of Moody's and S & P will be
considered in determining the eligibility of bonds for acquisition by the ONE
Fund.
MOODY'S INVESTORS SERVICE, INC. ("MOODY'S")
COMMERCIAL PAPER:
Moody's short-term debt ratings are opinions of the ability of issuers to
punctually repay senior debt obligations having an original maturity not
exceeding one year.
P-1 The Prime-1 (P-1) rating is the highest commercial paper rating assigned
by Moody's. Issuers (or supporting institutions) rated P-1 have a superior
ability for repayment of senior short-term debt obligations. P-1 repayment
ability will often be evidenced by many of the following characteristics:
leading market positions in well-established industries, high rates of
return on funds employed, conservative capitalization structure with
moderate reliance on debt and ample asset protection, broad margins in
earnings coverage of fixed financial charges and high internal cash
generation, and well-established access to a range of financial markets
and assured sources of alternate liquidity.
P-2 Issuers (or supporting institutions) rated Prime-2 (P-2) have a strong
ability for repayment of senior short-term obligations. This will normally
be evidenced by many of the characteristics cited above for P-1, but to a
lesser degree. Earnings trends and coverage ratios, while sound, may be
more subject to variation. Capitalization characteristics, while still
appropriate, may be more affected by external conditions. Ample alternate
liquidity is maintained.
BONDS:
Aaa Bonds which are rated Aaa by Moody's are judged to be of the best quality.
They carry the smallest degree of investment risk and are generally
referred to as "gilt edge." Interest payments are protected by a large or
by an exceptionally stable margin and principal is secure.
While the various protective elements are likely to change, such changes
as can be visualized are most unlikely to impair the fundamentally strong
position of such issues.
Aa Bonds which are rated as Aa by Moody's are judged to be of high quality by
all standards. Together with the Aaa group, they comprise what are
generally known as high grade bonds. They are rated lower than the best
bonds because margins of protection may not be as large as in Aaa
securities or fluctuation of protective elements may be of greater
amplitude or there may be other elements present which make the long-term
risks appear somewhat larger than in Aaa securities.
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A Bonds which are rated A by Moody's possess many favorable investment
attributes and are to be considered as upper medium grade obligations.
Factors giving security to principal and interest are considered adequate
but elements may be present which suggest a susceptibility to impairment
sometime in the future.
Baa Bonds which are rated Baa by Moody's are considered as medium grade
obligations, that is, they are neither highly protected nor poorly
secured. Interest payments and principal security appear adequate for the
present but certain protective elements may be lacking or may be
characteristically unreliable over any great length of time. Such bonds
lack outstanding investment characteristics and in fact have speculative
characteristics as well.
Ba Bonds which are rated Ba by Moody's are judged to have speculative
elements. Their future cannot be considered as well assured. Often the
protection of interest and principal payments may be very moderate and
thereby not well safeguarded during other good and bad times over the
future. Uncertainty of position characterizes bonds in this class.
B Bonds which are rated B by Moody's generally lack characteristics of the
desirable investment. Assurance of interest and principal payments or of
maintenance of other term of the contract over any long period of time may
be small.
STANDARD & POOR'S CORP. ("S & P")
COMMERCIAL PAPER:
An S & P commercial paper rating is a current assessment of the likelihood of
timely payment of debt having an original maturity of no more than one year.
A-1 This is S & P's highest category and it indicates that the degree of
safety regarding timely payment is strong. Those issues determined to
possess extremely strong safety characteristics are designated A-1+.
A-2 Capacity for timely payment on issues with this designation is
satisfactory. However, the relative degree of safety is not as high as for
issues designated as A-1.
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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.
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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.
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