<PAGE> 1
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-14
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
<TABLE>
<S> <C>
Pre-Effective Amendment No. 1 _ Post-Effective Amendment No.
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</TABLE>
(Check appropriate box or boxes)
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<TABLE>
<S> <C>
Exact Name of Registrant as Specified in Charter: Area Code and Telephone Number:
ONE Fund, Inc. (513) 794-6316
</TABLE>
Address of Principal Executive Offices: (Number, Street, City, State, Zip Code)
One Financial Way, Cincinnati, Ohio 45242
Name and Address of Agent for Service: With a copy to:
Ronald L. Benedict, Esq. W. Randolph Thompson, Esq.
ONE Fund, Inc. Of Counsel
One Financial Way Jones & Blouch L.L.P.
Cincinnati, Ohio 45242 1025 Thomas Jefferson Street, NW
Suite 405 West
Washington, D.C. 20007
Approximate Date of Proposed Public Offering: As soon as practicable after the
effective date of this registration statement.
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Title of Securities Being Registered: Common stock (par value $.001 per share)
No filing fee is due because of reliance on Section 24(f) of the Investment
Company Act of 1940.
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It is proposed that this filing will become effective on October 15, 1999,
pursuant to Rule 488.
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<PAGE> 2
PART A
<PAGE> 3
One Financial Way
Cincinnati, Ohio
45242
Post Office Box 371
Cincinnati, Ohio
45201-0371
Telephone:
One FundSM 800-578-8078
October 15, 1999
Dear ONE Fund Shareholder:
Enclosed are information and voting instructions from your ONE Fund Board of
Directors regarding important proposals related to the proposed merger of the
International and Global Contrarian Portfolios and the Income and Tax-Free
Income Portfolios. A special meeting of the Global Contrarian and Tax-Free
Income Portfolio's shareholders will be held on November 1, 1999 to seek your
approval of the proposed mergers. Shareholders of the Tax-Free Income Portfolio
are only entitled to vote regarding the Tax-Free Income Portfolio merger.
Shareholders of the Global Contrarian Portfolio are only entitled to vote
regarding the Global Contrarian Portfolio merger. If you own shares of both
Portfolios, you may vote regarding both proposals.
Your Board of Directors believes that the proposed mergers are in your best
interests. We recommend that you vote FOR the applicable proposal.
Your vote is important! To avoid extra expenses to ONE Fund, please complete,
sign and return the proxy promptly in the envelope provided. No postage is
needed if you mail it in the United States. As always, we thank you for your
confidence and support.
Sincerely,
JOHN J. PALMER
John J. Palmer
President
[OHIO NATIONAL FINANCIAL SERVICES LOGO]
<PAGE> 4
ONE FUND, INC.
One Financial Way
Montgomery, Ohio 45242
------------------------
GLOBAL CONTRARIAN PORTFOLIO
TAX-FREE INCOME PORTFOLIO
------------------------
NOTICE OF MEETING OF SHAREHOLDERS
November 1, 1999
A special meeting of the shareholders of the Tax-Free Income and the Global
Contrarian Portfolios of ONE Fund, Inc. will be held in ONE Fund's offices at
One Financial Way in Montgomery, Ohio. The meeting will begin at 8:30 a.m.
Eastern time on November 1, 1999. The reason for the meeting is to act on these
proposals:
1. To approve the merger of the Global Contrarian Portfolio into the
International Portfolio.
2. To approve the merger of the Tax-Free Income Portfolio into the
Income Portfolio.
3. To transact any other business that may properly come before the
meeting.
You are entitled to receive this notice and to vote at the special meeting
if you were a shareholder of record of any of these two portfolios at the close
of business on September 1, 1999. You are only entitled to vote if you are a
shareholder of either or both the Tax-Free Income or Global Contrarian
Portfolios.
FOR THE REASONS GIVEN IN THE ATTACHED PROXY STATEMENT, WE (ONE FUND'S
MANAGEMENT AND BOARD OF DIRECTORS) RECOMMEND THAT YOU VOTE FOR THE PROPOSALS.
RONALD L. BENEDICT
Ronald L. Benedict
Secretary
October 15, 1999
1
<PAGE> 5
PROSPECTUS/PROXY STATEMENT
OCTOBER 15, 1999
------------------------
ONE FUND, INC.
One Financial Way
Cincinnati, Ohio 45242
Telephone 1-800-578-8078
This prospectus/proxy statement relates to two proposed mergers of portfolios of
ONE Fund, Inc. ("ONE Fund") -- the Tax Free Income Portfolio into the Income
Portfolio and the Global Contrarian Portfolio into the International Portfolio.
The merged portfolios will then continue as the Income Portfolio and the
International Portfolio, respectively. As a result of the mergers, each
shareholder of the Tax-Free Income Portfolio and of the Global Contrarian
Portfolio will own that number of shares, including fractional shares, of the
Income Portfolio and International Portfolio, respectively, equal in dollar
value at the time of the mergers to the value of the shareholder's shares of the
Tax-Free Income Portfolio or Global Contrarian Portfolio, as applicable. The
terms and conditions of the mergers are fully described in this prospectus/proxy
statement and in the Plan of Merger and Liquidation attached hereto as an
appendix.
This prospectus/proxy statement sets forth concisely the information you should
know before voting on the Plan of Merger and Liquidation. You should retain it
for future reference.
For more information, you can obtain a free copy of the Statement of Additional
Information ("SAI") dated October 15, 1999. The SAI has been filed with the
Securities and Exchange Commission ("SEC") and is incorporated by reference into
this prospectus/proxy statement. To obtain your free copy, call us at (800) 578-
8078 or write to One Financial Way, Cincinnati, Ohio 45242. At your request, we
can also provide you with a free copy of the current prospectus of ONE Fund.
THE SEC HAS NOT APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE
ADEQUACY OR ACCURACY OF THIS PROSPECTUS/PROXY STATEMENT. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
2
<PAGE> 6
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
INTRODUCTION AND VOTING INFORMATION......................... 4
Special Meeting; Voting of Proxies; Adjournment........... 4
Proxy Solicitation........................................ 4
Revocation of Proxies..................................... 5
Additional Information.................................... 5
SUMMARY..................................................... 5
Proposed Mergers.......................................... 5
Reasons for the Mergers................................... 5
Investment Objectives and Policies........................ 6
Fees and Expenses......................................... 6
Purchase and Redemption................................... 6
Dividends and Distributions............................... 7
Federal Income Tax Consequences........................... 7
Exchange Offer............................................ 8
PRINCIPAL RISK FACTORS...................................... 8
THE PLAN.................................................... 13
Plan of Merger and Liquidation............................ 13
Reasons for the Mergers................................... 13
Federal Income Tax Consequences........................... 13
Capitalization............................................ 14
ADDITIONAL INFORMATION ABOUT INVESTMENT OBJECTIVES AND RISK
FACTORS................................................... 14
Investment Objectives..................................... 14
Additional Risk Factors................................... 15
MANAGEMENT.................................................. 17
Investment Adviser and Subadviser......................... 17
Investment Style.......................................... 17
Portfolio Managers........................................ 18
Fund Services............................................. 18
SHAREHOLDER INFORMATION..................................... 19
Buying Shares............................................. 19
Purchase Price............................................ 19
12b-1 Fees................................................ 19
Sales Contests............................................ 19
Reducing the Sales Charge................................. 19
Flexibility Features...................................... 21
Redeeming Shares.......................................... 22
Dividend, Distributions and Taxes......................... 22
ADDITIONAL INFORMATION ABOUT THE PORTFOLIOS................. 23
FINANCIAL HIGHLIGHTS........................................ 23
APPENDIX: PLAN OF MERGER AND LIQUIDATION.................... 28
</TABLE>
3
<PAGE> 7
INTRODUCTION AND VOTING INFORMATION
SPECIAL MEETING; VOTING OF PROXIES; ADJOURNMENT
We are furnishing this prospectus/proxy statement to you in connection with
the solicitation by ONE Fund's Board of Directors of proxies to be used at a
special meeting of the shareholders of the Tax-Free Income Portfolio and the
Global Contrarian Portfolio to be held on November 1, 1999, and at any
adjournment thereof. The purpose of the meeting is to vote on a Plan of Merger
and Liquidation providing for the merger of the Tax-Free Income Portfolio into
the Income Portfolio and the Global Contrarian Portfolio into the International
Portfolio, as more fully described below. The shareholders of the Tax-Free
Income Portfolio will vote on the merger of the Tax-Free Income Portfolio into
the Income Portfolio and the shareholders of the Global Contrarian Portfolio
will vote on the merger of the Global Contrarian Portfolio into the
International Portfolio. The prospectus/proxy statement is being furnished to
shareholders on or about October 15, 1999.
THE BOARD OF DIRECTORS OF ONE FUND HAS APPROVED THE PLAN AND RECOMMENDS
THAT THE SHAREHOLDERS OF THE TAX-FREE INCOME PORTFOLIO AND THE GLOBAL CONTRARIAN
PORTFOLIO VOTE FOR THE PLAN AND THE MERGERS WHICH IT CONTEMPLATES.
Shareholders of record of each of the portfolios at the close of business
on September 1, 1999, the record date, are entitled to vote at the meeting. As
of the record date, the number of issued and outstanding shares of the
portfolios were 629,110.528 for the Tax-Free Income Portfolio and 384,592.778
for the Global Contrarian Portfolio. At that time, The Ohio National Life
Insurance Company ("ONLI") was a controlling person of the Tax-Free Income
Portfolio and of the Global Contrarian Portfolio because it owned 553,939.869
shares (88.1% of the total) and 273,068.988 shares (71.0% of the total),
respectively. Shareholders are entitled to one vote for each share held. A
quorum must be present for the transaction of business at the meeting. The
holders of record of one-third of the shares outstanding at the close of
business on the record date present in person or represented by proxy will
constitute a quorum for the meeting. The approval of the plan requires the
affirmative vote of a majority of all the votes entitled to be cast by
shareholders of the portfolios. Abstentions and broker non-votes (proxies from
brokers or nominees indicating that they have not received instructions from the
beneficial owners on an item for which the broker or nominee does not have
discretionary power) are counted toward a quorum but do not represent votes cast
for the plan or any other issue.
The proxies will vote in accordance with your direction, as indicated on
your proxy ballot, if the proxy ballot is received and is properly executed. If
you properly execute your proxy and give no voting instructions with respect to
the plan, the proxies will vote your shares in favor of the plan. The proxies,
in their discretion, may vote upon such other matters as may properly come
before the meeting. We are not aware of any other matters to come before the
meeting.
If either (i) a quorum is not present at the meeting or (ii) a quorum is
present but sufficient votes in favor of approving the plan are not received by
8:30 a.m., Eastern time, November 1, 1999, then the persons named as proxies in
the enclosed form of proxy may propose one or more adjournments of the meeting
to permit further solicitation of proxies. Any such adjournment will require the
affirmative vote of at least a majority of the shares of the Tax-Free Income
Portfolio and/or Global Contrarian Portfolio represented, in person or by proxy,
at the session of the meeting to be adjourned. The proxies will vote those
proxies that they are required to vote FOR the plan in favor of such an
adjournment and will vote those proxies required to be voted AGAINST the plan
against such an adjournment.
PROXY SOLICITATION
We will solicit proxies primarily by mail. Additional solicitations may be
made by telephone, facsimile or personal contact by officers or employees of ONE
Fund or its investment adviser, Ohio National Investments, Inc., who will not be
specially compensated for these services. Ohio National Investments, Inc. will
bear the costs and expenses of the mergers, including costs of preparing,
filing, printing and mailing proxy solicitation material and disclosure
documents and the related legal fees. Banks, brokers, and other
4
<PAGE> 8
persons holding shares of the Tax-Free Income Portfolio and the Global
Contrarian Portfolio as nominees will be reimbursed for their reasonable
expenses incurred in sending proxy materials to and obtaining voting information
from the beneficial owners of those shares.
REVOCATION OF PROXIES
You may revoke your proxy before the meeting by giving written notice to
the Secretary of ONE Fund or by appearing in person at the meeting and notifying
the Secretary that you intend to revoke your proxy. Your latest proxy revokes
earlier ones. All proxies that are properly signed and received in time and not
revoked will be voted as marked.
ADDITIONAL INFORMATION
As indicated above, ONLI is a controlling person of all the portfolios,
except the International Portfolio, based on its ownership of a majority of
shares of the portfolios. In addition, as of that date, Bradley Warnemunde of
Cincinnati, Ohio owned 51,495,932 shares of the International Portfolio having a
total net asset value of $550,492 and representing 7.8% of the portfolio. As of
that date, no other shareholder owned more than 5% of the shares of any of the
portfolios. The amount of shares of each portfolio held by officers and
directors of ONE Fund, as a group was less than 1%.
SUMMARY
The following is a summary of certain information contained in or
incorporated by reference into this prospectus/proxy statement. It is qualified
in its entirety by the more detailed information appearing elsewhere in, or
incorporated by reference into this prospectus/proxy statement.
PROPOSED MERGERS
ONE Fund currently has nine fully diversified portfolios. The Board of
Directors of ONE Fund has approved the merger of the Tax-Free Income Portfolio
into the Income Portfolio and the merger of the Global Contrarian Portfolio into
the International Portfolio. Each merger is to be effective upon approval by a
majority vote of the shareholders of the relevant portfolio. If you are a
shareholder of the Tax-Free Income Portfolio, you are being asked to approve the
merger of the Tax-Free Income Portfolio into the Income Portfolio. If you are a
shareholder of the Global Contrarian Portfolio, you are being asked to approve
the merger of the Global Contrarian Portfolio into the International Portfolio.
We expect each merger to be effective on November 1, 1999.
After the merger of the Tax-Free Income Portfolio into the Income
Portfolio, the merged portfolios will continue as the Income Portfolio with its
investment objective being high current income by investing primarily in
investment-grade fixed income securities and the equivalent, with preservation
of capital as a secondary objective. After the merger, the Income Portfolio will
not include the tax-free municipal securities that have constituted most of the
assets of the Tax-Free Income Portfolio. Income received from investments in the
Income Portfolio will be subject to income taxation.
After the merger of the Global Contrarian Portfolio into the International
Portfolio, the merged portfolios will continue as the International Portfolio.
Both portfolios currently have as their investment objective total return on
assets by investing primarily in securities of foreign companies. Accordingly,
the merger of the Global Contrarian Portfolio into the International Portfolio
will not result in any change in investment objective.
REASONS FOR THE MERGERS
We believe that the mergers will provide shareholders of the Tax-Free
Income Portfolio and the Global Contrarian Portfolio with an investment in a
larger portfolio with the same or similar investment objective, more favorable
expense ratio and greater possibilities for economies of scale. The Board of
Directors, including a majority of the directors who are not interested persons
of ONE Fund, has determined that the
5
<PAGE> 9
mergers are consistent with the best interests of ONE Fund and its shareholders,
that the terms of the mergers are fair and reasonable, and that the interests of
the shareholders of the Tax-Free Income Portfolio and the Global Contrarian
Portfolio will not be diluted as a result of the mergers.
INVESTMENT OBJECTIVES AND POLICIES
The investment objectives, policies and restrictions of the Tax-Free Income
Portfolio and the Income Portfolio are similar. The principal differences are
that the Tax-Free Income Portfolio generally invests only in securities that pay
interest which is exempt from federal income tax and it only purchases
investment grade securities. By contrast, the Income Portfolio invests in
securities that pay taxable interest and may invest in below-investment grade
securities.
The investment objectives, policies and restrictions of the Global
Contrarian Portfolio and the International Portfolio are the same. Both
portfolios seek total return on assets by investing primarily in securities of
foreign companies.
FEES AND EXPENSES
Following the proposed merger, the fees and expenses of the Income and
International Portfolios will remain unchanged.
The management fees and other operating expenses of the portfolios as a
percentage of average daily net assets for the fiscal year ended June 30, 1999
were as follows:
<TABLE>
<CAPTION>
MANAGEMENT 12B-1 OTHER TOTAL OPERATING
FEES FEES(1) EXPENSES EXPENSES
---------- ------- -------- ---------------
<S> <C> <C> <C> <C>
Tax-Free Income Portfolio(2).................. 0.60% 0.25% 0.77% 1.62%
Income Portfolio(2)........................... 0.50% 0.25% 0.80% 1.55%
Global Contrarian Portfolio................... 0.90% 0.25% 2.25% 3.40%
International Portfolio....................... 0.90% 0.25% 1.41% 2.56%
</TABLE>
- ---------------
(1) The 12b-1 fees shown above are based on an estimate that no individual sales
representative will reach critical production levels this year. In later
years, these fees could be slightly higher, but no higher than 0.30%.
(2) The investment adviser for the portfolios is presently voluntarily waiving
0.15% of its management fees for certain portfolios. With those waivers, the
management fees are 0.45% for the Tax-Free Income Portfolio and 0.35% for
the Income Portfolio. Current total operating expenses are 1.47% for the
Tax-Free Income Portfolio and 1.39% for the Income Portfolio.
The following is an example intended to help you compare the cost of
investing in these portfolios versus other portfolios. The example assumes that
you invest $10,000 in the portfolio for the time periods shown and then redeem
all of your shares at the end of those periods. The example also assumes that
your investment has a 5% annual return 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>
Tax-Free Income Portfolio............................... $459 $ 794 $1,151 $2,154
Income Portfolio........................................ $453 $ 775 $1,120 $2,090
Global Contrarian Portfolio............................. $746 $1,257 $1,793 $3,248
International Portfolio................................. $677 $1,049 $1,443 $2,544
</TABLE>
PURCHASE AND REDEMPTION
Each portfolio's shares are continuously offered through One Fund's
principal underwriter, Ohio National Equities, Inc. ("ONEQ"), and through other
securities dealers that execute a distribution agreement with ONEQ. The shares
are offered at the public offering price which is the net asset value per share
plus a
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<PAGE> 10
sales charge, if applicable. The sales charge is a variable percentage of the
offering price depending upon the amount of the sale. The following sales
charges are imposed on purchases:
<TABLE>
<CAPTION>
TAX-FREE INCOME PORTFOLIO GLOBAL CONTRARIAN PORTFOLIO
AND INCOME PORTFOLIO AND INTERNATIONAL PORTFOLIO
------------------------------------ ------------------------------------
SALES CHARGE AS A % OF: SALES CHARGE AS A % OF:
----------------------- -----------------------
OFFERING NET AMOUNT DEALER OFFERING NET AMOUNT DEALER
AMOUNT OF PURCHASE PRICE INVESTED CONCESSION PRICE INVESTED CONCESSION
------------------ --------- ----------- ---------- --------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
Less than $25,000............. 3.00% 3.09% 2.80% 5.00% 5.26% 4.70%
$25,000 -- $49,999............ 3.00% 3.09% 2.80% 4.50% 4.71% 4.25%
$50,000 -- $99,999............ 2.50% 2.56% 2.35% 4.00% 4.17% 3.80%
$100,000 -- $249,999.......... 2.50% 2.56% 2.35% 3.50% 3.63% 3.35%
$250,000 -- $499,999.......... 2.00% 2.04% 1.90% 2.50% 2.56% 2.40%
$500,000 -- $999,999.......... 1.50% 1.52% 1.45% 2.00% 2.04% 1.95%
$1,000,000 and over........... None* None* None** None* None* None**
</TABLE>
- ---------------
* While no initial sales charge is imposed on investments of $1 million or
more, a contingent deferred sales charge of 0.50% of the amount redeemed (up
to 0.50% 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.
Shares of the portfolios may be redeemed at any time at a price equal to
the net asset value of the shares next computed following the receipt of a
request for redemption in proper form. Payment is normally sent within three
business day after receipt of the request. 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). Redemption is without charge except in the case of
investments of $1 million or more. While no initial sales charge is imposed on
such investments, a contingent deferred sales charge of 0.5% of the amount
redeemed is imposed within two years of purchase.
DIVIDENDS AND DISTRIBUTIONS
For the Tax-Free Income Portfolio and the Income Portfolio, all of the
undistributed net income is accrued as daily dividends to shareholders of record
immediately before each computation of the net asset value of these portfolios.
Dividends, representing net investment income, will normally be paid monthly to
shareholders.
Dividends will normally be paid at the end of March, June, September and
December to International Portfolio and Global Contrarian Portfolio
shareholders. Any net realized capital gains for these portfolios will be
distributed annually. However, ONE Fund's Board of Directors may declare such
dividends at other intervals.
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.
FEDERAL INCOME TAX CONSEQUENCES
The merger of the Tax-Free Income Portfolio into the Income Portfolio will
not qualify as a tax-free reorganization under Section 368(a)(1) of the Internal
Revenue Code of 1986, as amended (the "Code"). However, no gain or loss will be
recognized by either portfolio or its shareholders in connection with the merger
and the tax cost basis of the Income Portfolio shares received by Tax-Free
Income Portfolio shareholders will equal the tax cost basis of their shares in
the Tax-Free Income Portfolio.
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<PAGE> 11
The merger of the Global Contrarian Portfolio into the International
Portfolio will qualify as a tax-free reorganization under Section 368(a)(1) of
the Code. As a tax-free reorganization, no gain or loss will be recognized by
the portfolios or their respective shareholders as a result of the merger.
EXCHANGE OFFER
Through ONEQ we will offer to exchange without a sales charge shares of
certain tax-free portfolios for shares of the Tax-Free Income Portfolio or
shares of the Income Portfolio issued as a result of the merger. The exchange
offer is designed to provide a tax-exempt investment alternative. It will
commence on the day after the shareholders approve the proposed merger of the
Tax-Free Income Portfolio into the International Portfolio and will continue for
30 days after that date.
PRINCIPAL RISK FACTORS
TAX-FREE INCOME PORTFOLIO
The financial risk for this portfolio is kept fairly low by restricting
purchases to investment grade securities and further restricting the purchase of
securities in the fourth highest rating category to a maximum of 25% of assets.
Securities in the fourth highest category, while considered investment grade,
may have some speculative characteristics and the issuer's ability to pay
interest or repay principal may be weaker under adverse economic conditions or
changing circumstances.
The bar chart and table shown below provide an indication of the risks of
investing in the Tax-Free Income Portfolio by showing changes in the portfolio's
performance for full calendar years since its inception on November 1, 1994 and
by showing how the portfolio's average annual returns for one year and since
inception compare to those of a broad-based securities market index. How the
portfolio has performed in the past is not necessarily an indication of how the
portfolio will perform in the future. Sales loads are not reflected in the
chart. If they were reflected, returns would be less than those shown.
TAX-FREE INCOME PORTFOLIO
<TABLE>
<CAPTION>
'1995' 16.4
- ------ ----
<S> <C>
'1996' 3.93
'1997' 8.50
'1998' 3.10
</TABLE>
8
<PAGE> 12
During the period shown in the bar chart, the highest return for a quarter
was 6.53% (quarter ended March 31, 1995) and the lowest return for a quarter was
- -1.99% (quarter ended June 30, 1999).
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS PAST ONE SINCE INCEPTION
(FOR THE PERIODS ENDED JUNE 30, 1999) YEAR (11/94)
------------------------------------- -------- ---------------
<S> <C> <C>
Tax-Free Income Portfolio................................... -2.06% 6.00%
Lehman Brothers
Municipal Bond Index*..................................... 2.77% 7.78%
</TABLE>
- ---------------
* The Lehman Brothers Municipal Bond Index is a widely recognized, unmanaged
municipal bond index.
INCOME PORTFOLIO
The Income Portfolio is primarily invested in securities that the
investment adviser believes present relatively low risk. To the extent deemed
prudent, the investment adviser will also seek to increase the income to this
portfolio by positioning no more than 15% of its assets in high yield bonds,
provided that the differences in yield appear to be sufficient to justify the
higher risks involved. The market value of such a security is likely to
fluctuate more than that of an investment grade bond, especially during periods
of economic uncertainty or when the issuer's ability to pay the interest or
principal might be in doubt. The portfolio's ability to sell a security or to
obtain current pricing information might be impaired at times when an issuer's
creditworthiness is not perceived to be sound.
With debt securities, the degree of financial risk generally increases the
lower the security is rated, and the degree of market risk increases with the
length of time remaining to maturity. During periods of rising interest rates,
the market prices of all income producing securities will tend to decline. When
interest rates fall, the market prices of such securities will tend to rise.
Thus, there is always a risk of principal loss or gain associated with this
portfolio. In addition, changes in economic conditions in general, or changes in
an issuer's financial condition, might impair the ability of an issuer to timely
pay interest and principal, thus adversely affecting the market price of such
securities.
The bar chart and table shown below provide an indication of the risks of
investing in the Income Portfolio by showing changes in the portfolio's
performance for full calendar years since its inception on August 18, 1992 and
by showing how the portfolio's average annual returns for one year, five years,
and since inception compare to those of a broad-based securities market index.
How the portfolio has performed in the past is not necessarily an indication of
how the portfolio will perform in the future. Sales loads are not reflected in
the chart. If they were reflected, returns would be less than those shown.
9
<PAGE> 13
INCOME PORTFOLIO
<TABLE>
<CAPTION>
'1993' 17.85
- ------ -----
<S> <C>
'1994' -10.75
'1995' 16.73
'1996' 4.85
'1997' 8.17
'1998' 6.74
</TABLE>
During the period shown in the bar chart, the highest return for a quarter
was 5.94% (quarter ended March 31, 1993) and the lowest return for a quarter was
- -3.77% (quarter ended March 31, 1994).
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS PAST ONE PAST FIVE SINCE INCEPTION
(FOR THE PERIODS ENDED JUNE 30, 1999) YEAR YEARS (8/92)
------------------------------------- -------- --------- ---------------
<S> <C> <C> <C>
Income Portfolio.................................. (0.43%) 6.43% 5.45%
Lehman Brothers
Government/Corporate Bond
Index -- Intermediate*.......................... 4.18% 7.04% 6.15%
</TABLE>
- ---------------
* The Lehman Brothers Government/Corporate Bond Index -- Intermediate is a
widely recognized, unmanaged intermediate government and corporate bond index.
GLOBAL CONTRARIAN PORTFOLIO
Investing in foreign securities may involve a greater degree of risk than
investing in domestic securities. See the discussion under "Foreign Securities."
The bar chart and table below provide an indication of the risks of
investing in the Global Contrarian Portfolio by showing changes in the
portfolio's performance for full calendar years since its inception on November
1, 1994 and by showing how the portfolio's average annual returns for one year
and since inception compare to those of a broad-based securities market index.
How the portfolio has performed in the past is not necessarily an indication of
how the portfolio will perform in the future. Sales loads are not reflected in
the chart. If they were reflected, returns would be less than those shown.
10
<PAGE> 14
GLOBAL CONTRARIAN PORTFOLIO
<TABLE>
<CAPTION>
'1994' -3.7
- ------ ----
<S> <C>
'1995' 15.06
'1996' 10.02
'1997' 10.20
'1998' -8.15
</TABLE>
During the period shown in the bar chart, the highest return for a quarter
was 7.54% (quarter ended June 30, 1997) and the lowest return for a quarter was
- -12.27% (quarter ended September 30, 1998).
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS
(FOR THE PERIODS ENDED PAST ONE SINCE INCEPTION
JUNE 30, 1999) YEAR (11/94)
---------------------------- -------- ---------------
<S> <C> <C>
Global Contrarian Portfolio................................. (16.29%) 2.39%
MSCI World Index*........................................... 15.67% 16.82%
</TABLE>
- ---------------
* The MSCI World Index is the Morgan Stanley Capital International World Index,
a widely recognized, unmanaged index of world stock prices.
INTERNATIONAL PORTFOLIO
Investing in foreign securities may involve a greater degree of risk than
investing in domestic securities. See the discussion under "Foreign Securities."
The bar chart and table shown below provide an indication of the risks of
investing in the International Portfolio by showing changes in the portfolio's
performance for full calendar years since its inception on May 1, 1993 and by
showing how the portfolio's average annual returns for one year, five years, and
since inception compare to those of a broad-based securities market index. How
the portfolio has performed in the past is not necessarily an indication of how
the portfolio will perform in the future. Sales loads are not reflected in the
chart. If they were reflected, returns would be less than those shown.
11
<PAGE> 15
<TABLE>
<CAPTION>
'1994' 9.59
- ------ ----
<S> <C>
'1995' 11.89
'1996' 13.95
'1997' 1.24
'1998' -2.71
</TABLE>
During the period shown in the bar chart, the highest return for a quarter
was 8.85% (quarter ended March 31, 1994) and the lowest return for a quarter was
- -15.25% (quarter ended September 30, 1998).
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS PAST ONE PAST FIVE SINCE INCEPTION
(FOR THE PERIODS ENDED JUNE 30, 1999) YEAR YEARS (5/93)
------------------------------------- -------- --------- ---------------
<S> <C> <C> <C>
International Portfolio........................... (18.20%) 2.91% 8.01%
MSCI EAFE Index*.................................. 6.49% 8.51% 8.41%
</TABLE>
- ---------------
* The MSCI EAFE Index is the Morgan Stanley Capital International Europe, Asia,
Far East Index, a widely recognized, unmanaged index of international stock
prices.
12
<PAGE> 16
THE PLAN
PLAN OF MERGER AND LIQUIDATION
Under the plan, the Income Portfolio and International Portfolio will
acquire all of the assets and assume all of the liabilities of the Tax-Free
Income Portfolio and the Global Contrarian Portfolio, respectively, and will
issue to the shareholders of those portfolios the number of shares that have a
net asset value equal to the net asset value of those portfolios. We expect that
the closing date will be November 1, 1999, and that the effective time will be
4:00 p.m., Eastern time, or soon thereafter, on that date. The portfolios will
determine their net asset values as of the effective time in the manner
described below under "Purchase Price."
On the closing date, prior to effecting the mergers, the Tax-Free Income
Portfolio and the Global Contrarian Portfolio will distribute and pay to their
respective shareholders of record dividends representing substantially all of
the portfolios' undistributed income and net realized capital gains, if any.
In exchange for your shares of the Tax-Free Income Portfolio or Global
Contrarian Portfolio, you will receive a number of shares, including fractional
shares, of the Income Portfolio or International Portfolio equal in dollar value
to the number of whole and fractional shares that you own in the Tax-Free Income
Portfolio or Global Contrarian Portfolio. You will then become a shareholder of
the Income Portfolio or International Portfolio, as applicable.
Upon completion of the mergers, both the Tax-Free Income Portfolio and the
Global Contrarian Portfolio will be terminated and no further shares of common
stock will be issued by either of them. The classes of ONE Fund's common stock,
par value one-tenth of a cent ($0.001) per share, representing the Tax-Free
Income Portfolio and the Global Contrarian Portfolio will be closed and the
shares previously authorized for those classes may be reclassified by the Board
of Directors.
The adviser, Ohio National Investments, Inc., will bear the costs and
expenses of the mergers.
REASONS FOR THE PROPOSED MERGERS
The purpose of the mergers is to provide shareholders of the Tax-Free
Income Portfolio and the Global Contrarian Portfolio with an investment in a
larger portfolio with the same or similar investment objective, more favorable
expense ratio, and greater possibilities for economies of scale. At a meeting
held on May 20, 1999, the Board of Directors, including a majority of the
directors who are not interested persons of ONE Fund, approved the proposed
mergers and recommended approval of the Plan of Merger and Liquidation by the
shareholders of the Tax-Free Income Portfolio and of the Global Contrarian
Portfolio. The Board of Directors determined that the mergers are consistent
with the best interests of ONE Fund and its shareholders, that the terms of the
mergers are fair and reasonable, and that the interests of the shareholders of
the Tax-Free Income Portfolio and the Global Contrarian Portfolio will not be
diluted as a result of the mergers. In making those determinations, the Board of
Directors considered the following factors: (1) possible alternatives to the
plan; (2) the terms and conditions of the plan and whether the plan would result
in dilution of shareholder interest; (3) the advantage to shareholders of
investing in a larger asset pool with greater diversification; (4) any direct or
indirect costs incurred by the portfolios as a result of the mergers; (5)
expense ratios and available information regarding the fees and expenses of the
portfolios; (6) tax consequences of the plan; and (7) the compatibility of
investment objectives.
FEDERAL INCOME TAX CONSEQUENCES
To be considered a tax-free "reorganization" under the applicable
provisions of the Code, a reorganization must exhibit a continuity of business
enterprise. Because the Income Portfolio will not use the Tax-Free Income
Portfolio's assets in its business or continue the Tax-Free Income Portfolio's
historic business, the merger of the Tax-Free Income Portfolio into the Income
Portfolio will not exhibit a continuity of business enterprise. Therefore, the
merger will not be considered a tax-free reorganization under Section 368(a)(1)
of the Code. Although the merger will not be considered a tax-free
reorganization, no gain or loss will be recognized by either portfolio or its
shareholders in connection with the merger and the tax
13
<PAGE> 17
cost basis of the Income Portfolio shares received by Tax-Free Income Portfolio
shareholders will equal the tax cost basis of their shares in the Tax-Free
Income Portfolio.
The merger of the Global Contrarian Portfolio into the International
Portfolio will qualify as a tax-free reorganization under Section 368(a)(1) of
the Code. As a tax-free reorganization, no gain or loss will be recognized by
the portfolios or their respective shareholders as a result of the merger.
The foregoing is only a summary of the principal federal income tax
consequences that are expected to result from the mergers and should not be
considered to be tax advice. There can be no assurance that the Internal Revenue
Service will concur on all or any of the issues discussed above. You may wish to
consult with your own tax adviser regarding the federal, state, and local tax
consequences with respect to the foregoing matters and any other considerations
which may apply in your particular circumstances.
CAPITALIZATION
The following tables show the capitalization of each of the portfolios
separately as of September 7, 1999, and combined (unaudited) as of that date
giving effect to the proposed mergers:
<TABLE>
<CAPTION>
TAX-FREE INCOME INCOME
PORTFOLIO PORTFOLIO COMBINED
----------------- ------------- -------------
<S> <C> <C> <C>
Net Assets: $ 6,714,561 $ 6,199,891 $ 12,914,452
Net Asset Value Per Share: $10.67 $9.51
Shares Outstanding: 629,293.4 651,933.9 1,357,986.58
</TABLE>
<TABLE>
<CAPTION>
GLOBAL CONTRARIAN INTERNATIONAL
PORTFOLIO PORTFOLIO COMBINED
----------------- ------------- -------------
<S> <C> <C> <C>
Net Assets: $ 3,360,179 $ 7,031,737 $ 10,391,916
Net Asset Value Per Share: $8.74 $11.96
Shares Outstanding: 384,459.8 587,937.8 868,889.22
</TABLE>
ADDITIONAL INFORMATION ABOUT
INVESTMENT OBJECTIVES AND RISK FACTORS
INVESTMENT OBJECTIVES
TAX-FREE INCOME PORTFOLIO. The objective of the Tax-Free Income Portfolio
is to provide high current income exempt from federal income taxes. Preservation
of capital is a secondary objective.
Normally, substantially all (at least 85%) of the assets of this portfolio
will be invested in investment grade municipal securities. As a temporary
defensive measure, during times of adverse market conditions, up to 50% of the
portfolio's assets may be invested in short-term securities, including those
which are not municipal securities. Interest income from investments other than
municipal securities will be taxable to you as ordinary income.
This portfolio will only purchase investment grade securities. Generally,
bonds rated in one of the top four rating categories are considered investment
grade. No more than 25% of its assets may be invested in securities having, at
the time of purchase, the fourth highest rating (Baa by Moody's and BBB by
Standard & Poor's).
INCOME PORTFOLIO. The objective of the Income Portfolio is to provide high
current income. Preservation of capital is a secondary objective. The investment
adviser will seek to preserve capital by shortening the average maturity of this
portfolio during times of volatile interest rates. Shorter maturities reduce
exposure to interest risk and correspondingly reduce the risk of loss of
capital.
Normally, at least 85% of the assets of this portfolio will be invested in
investment-grade fixed income securities and the equivalent, including corporate
bonds, securities issued by (or guaranteed by) the U.S.
14
<PAGE> 18
Government or its agencies or instrumentalities, mortgage-backed securities, and
cash equivalents. The remainder may be invested in below-investment-grade
corporate bonds ("junk bonds").
While this portfolio may invest in high-yield, or "junk" bonds, at no time
will any such bond be purchased if it would result in more than 15% of the
assets of this portfolio being represented by such securities. Bonds rated below
the second highest below-investment-grade category (B) by Moody's or Standard &
Poor's will not be purchased.
GLOBAL CONTRARIAN PORTFOLIO AND INTERNATIONAL PORTFOLIO. The objective of
the Global Contrarian and International Portfolios is to provide total return on
assets by investing primarily in securities of foreign companies. These
portfolios may also invest in fixed-income securities of foreign issuers. When
deemed appropriate for temporary defensive purposes, it may invest in short-term
debt instruments of U.S. or foreign issuers, in U.S. government obligations, or
in U.S. common stocks.
While there is no restriction limiting the countries in which the portfolio
may invest, it normally will invest only in countries with developed securities
markets and developed or developing economies, and for which the Board of
Directors has determined custody arrangements are reasonable.
ADDITIONAL RISK FACTORS
DIVERSIFICATION. Each portfolio is fully diversified. No more than 5% of
the value of the total assets of each 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 each portfolio, as of the time
any portfolio security is purchased, will be invested in any one industry. The
"industry" restriction does not apply to domestic banks or, with respect to the
Tax-Free Income Portfolio, to municipal securities (other than industrial
revenue bonds).
CREDIT AND MARKET RISKS. All securities are subject, to some degree, to
credit risk and market risk. Credit risk refers to the ability of an issuer of a
debt security to pay its principal and interest, and to the earnings stability
and overall financial soundness of an issuer of an equity security. Market risk
refers to the volatility of a security's price in response to changes in
conditions in securities markets in general and, particularly in the case of
debt securities, changes in the overall level of interest rates. Higher risk
levels are usually equated to higher potential total return, but higher risk
investments have a greater potential for loss as well. Generally, 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.
Generally, the greatest degree of market and credit risk can be expected
with the International Portfolio. A more detailed summary of risk factors is
contained in the SAI.
FOREIGN SECURITIES. The Income 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 U.S. domiciled
issuers with values expressed in foreign currency. The Tax-Free Income Portfolio
will not invest in foreign securities. Normally, all of Global Contrarian
Portfolio and International Portfolio assets will be invested in foreign
securities at all times.
15
<PAGE> 19
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.
Except for the Global Contrarian and International Portfolios, foreign
investments will not normally constitute a substantial portion of the other
portfolios' assets. However, the investment adviser may invest in foreign
securities whenever deemed prudent, particularly when deemed advantageous to
offset market or economic factors prevailing in the U.S. In addition, a number
of large, multi-national foreign corporations have a substantial business
presence in the U.S. and their securities are widely traded in this country.
HEDGING TRANSACTIONS. Each portfolio, 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 a portfolio would be
hedged by options or futures contracts, and no more than 5% of the total assets,
at market value, of a portfolio may be used for premiums on open options and
initial margin deposits on futures contracts, and not more than 5% of any
portfolio's assets may be invested in foreign currency hedging transactions.
Hedging transactions and their associated risks are more fully described in the
SAI.
RESTRICTED AND ILLIQUID SECURITIES. Restricted securities are securities in
which a portfolio may otherwise invest pursuant to its investment objective and
policies, but which are subject to restrictions on resale under federal
securities law. Under criteria established by the Board of Directors, certain
restricted securities are deemed to be liquid. The Directors consider the
following criteria in determining the liquidity of restricted securities:
- the frequency of trades and quotes for the security;
- the number of dealers willing to purchase or sell the security, and
the number of other potential buyers;
- dealer undertakings to make a market in the security;
- the nature of the security; and
- the nature of the marketplace trades.
MUNICIPAL SECURITIES. Municipal securities are debt obligations issued by
or on behalf of states, cities, municipalities and other public authorities. The
portfolio primarily will hold "general obligation" securities and "revenue"
securities. General obligation securities are secured by the issuer's pledge of
its full faith, credit and taxing power for the payment of principal and
interest. Revenue securities are payable only from the revenues derived from a
particular facility or class of facilities or, in some cases, from the proceeds
of a special excise tax or other specific revenue source such as the user of a
facility being financed. Revenue securities may include private activity bonds.
Such bonds may be issued by or on behalf of public authorities to finance
various privately operated facilities and are not payable from the unrestricted
revenues of the issuer. As a result, the credit quality of private activity
bonds is frequently related directly to the credit standing of private
corporations or other entities. In addition, the interest on private activity
bonds issued after August 7, 1986 is subject to the federal alternative minimum
tax. For this reason, the portfolio will not invest more than 5% of its assets
in such obligations.
16
<PAGE> 20
MANAGEMENT
INVESTMENT ADVISER AND SUBADVISER
Ohio National Investments, Inc. (the "Adviser") manages the investment and
reinvestment of ONE Fund assets, subject to the supervision of the Board of
Directors. The Board of Directors is responsible for ONE Fund's overall
management and direction. The Board of Directors approves all significant
agreements, including those with the Adviser, the Global Contrarian and
International Portfolios' subadviser, Federated Global Investment Management
Corp. ("FGIM"), ONE Fund's principal underwriter (ONEQ), custodians (Investors
Fiduciary Trust Co. for the Global Contrarian and International Portfolios and
Firstar Bank for the other portfolios), and 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. As a result of ONLI's ownership of ONE Fund shares, it is a controlling
person of each portfolio of ONE Fund other than the International Portfolio.
For managing ONE Fund's assets, the Adviser receives a quarterly management
fee based on each portfolio's net assets, at maximum rates of 0.60% for the
Tax-Free Income Portfolio, 0.50% for the Income, 0.90% for the Global Contrarian
and International Portfolios. The Adviser is now waiving 0.15% of the fees to
which it is entitled from the Tax-Free Income and Income Portfolios and it has
agreed to waive its fees in excess of 0.85% of the average daily net assets of
the International Portfolio, but it may cease those waivers, in whole or in
part, without prior notice. During ONE Fund's most recent fiscal year, July 1,
1998 to June 30, 1999, the aggregate fee received for each portfolio as a
percentage of average net assets was 0.45% for the Tax-Free Income Portfolio,
0.35% for the Income, and 0.90% for the Global Contrarian and International
Portfolios.
The Adviser contracts with FGIM for the management of the Global Contrarian
and International Portfolios. FGIM manages the assets of the Global Contrarian
and International Portfolios under the Adviser's supervision. FGIM is located at
175 Water Street in New York City and is an indirect wholly-owned subsidiary of
Federated Investors, Inc., a leading mutual fund advisory firm. It formed FGIM
in 1995 for the purpose of managing mutual funds and other pooled investment
accounts consisting primarily of foreign securities. FGIM presently manages more
than $1.5 billion of international assets. Its portfolio managers have an
average of 19 years each of investment experience.
The Adviser pays FGIM for its services as subadviser at an annual rate of
0.45% of the first $200 million and 0.40% of any average daily net assets in
excess of $200 million of the International Portfolio. The Adviser pays FGIM at
an annual rate of 0.75% of the first $100 million and 0.65% of any average daily
net assets in excess of $100 million of the Global Contrarian Portfolio.
INVESTMENT STYLE
The Adviser's basic mutual fund investment philosophy is to seek value at
reasonable prices. This philosophy is implemented through both macroeconomic and
microeconomic analyses using both quantitative and qualitative measurements.
The Adviser's value investing style uses both a top-down and a bottom-up
approach. The macroeconomic (top-down) analysis generates a forecast based on
economic, political and demographic trends. This macro view identifies those
business sectors and industries most likely to benefit from expected conditions
or events. Once these sectors and industries are determined, a universe of
potential investments is selected. The macroeconomic analysis also tests the
reasonableness of current securities valuations in anticipation of short-term
and intermediate-term capital market movements. The microeconomic (bottom-up)
analysis of the selected universe of securities is carried out jointly by the
Adviser's securities analysts and portfolio managers.
Stock selection is determined primarily through fundamental research.
Through both proprietary and nonproprietary research capabilities, the Adviser
anticipates a company's future earnings potential. Then, certain quantitative
factors are reviewed to assure that the stock's current price is consistent with
its historical
17
<PAGE> 21
range and earnings potential. These and other technical indicators are reviewed
to gain an understanding of how investors perceive the stock relative to its
industry and the overall market.
Bond selection is determined primarily through credit analysis. Initially,
credit analysis evaluates the probability that the issuer will meet its
scheduled interest and principal payments. This requires the Adviser to conduct
industry-, company- and indenture-specific analyses. A second dimension of bond
selection is to anticipate bond price movements which are caused by changes in
prevailing interest rates.
The value investing approach is used by the Adviser both to determine
securities to be acquired and those to be sold.
PORTFOLIO MANAGERS
The individuals primarily responsible for the day-to-day management of the
portfolios are Joseph Brom, Michael Boedeker, Drew Collins, and Henry Frantzen.
Joseph Brom is president of the Adviser and senior vice president and chief
investment officer of ONLI. He oversees the management of the Tax-Free Income
and Income Portfolios. He is a chartered financial analyst with a bachelor's
degree in economics and finance and a law degree from the University of
Wisconsin. He is executive vice president of ONLI and has been a senior
investment officer of ONLI since 1975 and previously had 15 years of experience
in securities management.
Michael Boedeker, a vice president of the Adviser, has managed the Tax-Free
Income and Income Portfolios from the inception of each. He is a chartered
financial analyst with a bachelor's degree in business and a master of business
administration degree in finance from Indiana University. He is vice president
and senior investment officer of ONLI. He was vice president of fixed income
securities for ONLI from 1989 to 1999 and previously had over 20 years of
experience in fixed income securities and mutual fund management, most recently
as senior vice president and chief investment office of Mutual Security Life
Insurance Co. for more than five years.
Drew Collins, a senior vice president of FGIM, co-manages the Global
Contrarian and International Portfolios. He has directed portfolio management
and investment research for FGIM since its establishment in 1995. For one year
prior to that he was vice president and international portfolio manager of
Arnhold and S. Bleichroeder, Inc., and for eight years before that he was a
portfolio manager for College Retirement Equities Fund. Mr. Collins is a
chartered financial analyst with a bachelor's degree from Oberlin College and a
master of business administration degree in finance from the Wharton School of
the University of Pennsylvania.
Henry Frantzen, the chief investment officer, international, of FGIM,
co-manages the Global Contrarian and International Portfolios. He joined FGIM as
its executive vice president when it was established in 1995. For four years
prior to that, he served as chief investment officer of international securities
at Brown Brothers Harriman & Co. and for three years before that he was the
executive vice president of equities at Oppenheimer Management Corporation. He
is a financial analyst fellow.
FUND SERVICES
Firstar Bank, 425 Walnut Street, Cincinnati, Ohio 45202, is the custodian
for the assets of the Tax-Free Income Portfolio and the Income Portfolio. The
assets of the Global Contrarian and International Portfolios 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. 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.
18
<PAGE> 22
SHAREHOLDER INFORMATION
BUYING SHARES
The portfolios' shares are continuously offered through ONE Fund's
principal underwriter, ONEQ, and through other securities dealers that execute a
distribution agreement with ONEQ. 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
The net asset value of the shares of each portfolio is 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 each portfolio is computed by
dividing the value of the securities in that portfolio plus any cash or other
assets less all liabilities of the portfolio, by the number of capital shares
outstanding for that portfolio. Securities held by the portfolios are valued at
current market value.
The portfolios' shares are offered at the public offering price. This is
the net asset value per share plus a sales charge, if applicable. The sales
charge is a variable percentage of the offering price depending upon the amount
of the sale. See the sales charge table under "Purchase and Redemption."
12B-1 FEES
Qualified dealers are paid a continuing shareholder service fee of 0.25%
annually of each portfolio's average daily net assets to compensate them for
providing certain services to shareholders and to promote growth of ONE Fund's
assets. These services include submitting purchase and redemption transactions,
establishing shareholder accounts and providing information and assistance
regarding ONE Fund. The proceeds of ONE Fund's 12b-1 Distribution Plan are used
only to pay these shareholder service fees. Because these fees are paid out of
the portfolios' 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. 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 contract or
insurance policy is applied for until 5 days after that contract or policy is
delivered. The amount of the annual or single premium of the Ohio National
annuity contract or insurance policy will then be added to the amount of your
concurrent ONE Fund purchase to determine the percentage of sales charge to
apply to your ONE Fund purchase.
LETTER OF INTENT. You may reduce sales charges on all investments 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
19
<PAGE> 23
the intended amount will be held in escrow to cover additional sales charges
that may be due if your total investments, net of redemptions, over the stated
period are insufficient to qualify for a sales charge reduction. You have up to
90 days after investing to sign a letter of intent to reduce the sales charges
on your investments including the investments made in the 90 days before the
letter. Shares you currently own will apply toward meeting your letter of
intent.
RIGHT OF ACCUMULATION. Your sales charge may also be reduced by taking 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. 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. 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 Tax-Free
Income and Income Portfolios.
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 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. 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.
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.
20
<PAGE> 24
FLEXIBILITY FEATURES
OPEN ACCOUNTS. 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. You may make regular monthly or quarterly investments
through automatic charges to your bank account or, if your employer approves,
from your paycheck. Once a plan is established, your account will normally be
charged on the 1st or 15th day of the month, as you choose.
AUTOMATIC REINVESTING. Unless you indicate otherwise in your account
application, dividends and capital gains distributions are reinvested in
additional shares at no sales charge. You may elect to have dividends and/or
capital gains distributions paid to you by check.
CROSS INVESTING. You may elect to have your dividends or 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. 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 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. 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. 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
21
<PAGE> 25
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.
REDEEMING SHARES
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 previously described.)
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 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 Code. It is ONE Fund's policy to comply with the provisions
of the Code regarding distributions of net investment income and net realized
capital gains so that ONE Fund will not be subject to federal income tax on
amounts distributed. Consequently, ONE Fund distributes to its shareholders each
year substantially all of its net investment income and net realized capital
gains (if any).
ONE Fund shareholders are taxed on distributed income and capital gains. To
the extent that Tax-Free Income Portfolio dividends are derived from tax-exempt
interest, they are exempt from federal income tax, but you are still required to
report them as tax-exempt interest income on your tax return. Shareholders who
are not subject to income tax would not be required to pay tax on amounts
distributed to them. ONE Fund will inform shareholders of the amount and federal
income tax status of distributed income and capital gains.
22
<PAGE> 26
For the Tax-Free Income and Income Portfolios, all of the undistributed net
income is accrued as daily dividends to shareholders of record immediately
before each computation of the net asset value of these portfolios. Dividends
(representing net investment income) will normally be paid monthly to those
shareholders.
Dividends will normally be paid at the end of March, June, September and
December to Global Contrarian and International 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.
ADDITIONAL INFORMATION ABOUT THE PORTFOLIOS
ONE Fund and each of the portfolios is subject to the informational
requirements of the Securities Exchange Act of 1934, as amended, and the
Investment Company Act of 1940, as amended. Accordingly, ONE Fund files,
reports, proxy materials, and other information with the SEC. You can inspect
and copy those reports, proxy materials, and other information at the public
reference facilities maintained by the SEC at 450 Fifth Street, N.W.,
Washington, D.C. 20549. Copies of such material also can be obtained at
prescribed rates from the Public Reference Branch, Office of Consumer Affairs
and Information Services, Securities and Exchange Commission, 450 Fifth Street,
N.W., Washington, D.C. 20549 or at no charge from the EDGAR database on the
SEC's website at "www.sec.gov."
FINANCIAL HIGHLIGHTS
The financial highlights table is intended to help you understand the
portfolios' financial performance for the past five years (or any shorter period
of existence for particular portfolios). Certain information reflects financial
results for a single share. The total returns in the table represent the rate
that an investor would have earned or lost on an investment in the portfolio
(assuming reinvestment of all dividends and distributions). This information has
been audited by KPMG LLP, whose report, along with ONE Fund's financial
statements, are included in the SAI, which is available upon request.
23
<PAGE> 27
ONE FUND, INC.
TAX-FREE INCOME PORTFOLIO
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30, 11-1-94
--------------------------------------- TO
1999 1998 1997 1996 6-30-95
------ ------ ------ ------ --------
<S> <C> <C> <C> <C> <C>
Per share data:
Net asset value, beginning of
period.............................. $11.24 $11.09 $10.79 $10.66 $10.00
Income from investment operations:
Net investment income............... 0.47 0.49 0.53 0.56 0.35
Net realized & unrealized gain
(loss) on investments............ (0.35) 0.15 0.30 0.13 0.66
------ ------ ------ ------ ------
Total income from investment
operations..................... 0.12 0.64 0.83 0.69 1.01
------ ------ ------ ------ ------
Less distributions:
Dividends from net investment
income........................... (0.47) (0.49) (0.53) (0.56) (0.35)
------ ------ ------ ------ ------
Net asset value, end of period........ $10.89 $11.24 $11.09 $10.79 $10.66
====== ====== ====== ====== ======
Total return.......................... 0.97% 5.77% 7.82% 6.59% 10.26%(b)
Ratios and supplemental data:
Ratio net of fees waived or reimbursed
by advisor (c):
Expenses............................ 1.47% 1.45% 1.24% 0.94% 0.91%(a)
Net investment income............... 4.18% 4.30% 4.81% 5.20% 5.04%(a)
Ratios assuming no fees waived or
reimbursed by advisor:
Expenses............................ 1.62% 1.60% 1.45% 1.24% 1.21%(a)
Net investment income............... 4.03% 4.15% 4.60% 4.90% 4.74%(a)
Portfolio turnover rate............... 0% 4% 6% 8% 0%
Net assets at end of period
(millions).......................... $ 6.9 $ 7.2 $ 6.8 $ 6.3 $ 5.7
</TABLE>
- ---------------
(a) Annualized.
(b) Calculated on an aggregate basis (not annualized).
(c) The advisor has elected to waive management fees equal to 0.15% of average
net assets for the Tax Free Income portfolio, but it may cease that waiver,
in whole or in part , without prior notice. In addition, the advisor has
reimbursed certain operating expenses.
The accompanying notes are an integral part of these financial statements.
24
<PAGE> 28
ONE FUND, INC.
INCOME PORTFOLIO
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
--------------------------------------------------
1999 1998 1997 1996 1995
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Per share data:
Net asset value, beginning of period...... $ 9.99 $ 9.75 $ 9.59 $ 9.78 $ 9.39
Income (loss) from investment operations:
Net investment income................... 0.57 0.59 0.61 0.63 0.65
Net realized & unrealized gain (loss) on
investments.......................... (0.30) 0.24 0.16 (0.19) 0.39
------ ------ ------ ------ ------
Total income from investment
operations......................... 0.27 0.83 0.77 0.44 1.04
------ ------ ------ ------ ------
Less distributions:
Dividends from net investment income.... (0.57) (0.59) (0.61) (0.63) (0.65)
Distributions from net realized capital
gains................................ 0.00 0.00 0.00 0.00 0.00
------ ------ ------ ------ ------
Total distributions.................. (0.57) (0.59) (0.61) (0.63) (0.65)
------ ------ ------ ------ ------
Net asset value, end of period............ $ 9.69 $ 9.99 $ 9.75 $ 9.59 $ 9.78
====== ====== ====== ====== ======
Total return.............................. 2.65% 8.56% 8.26% 4.61% 11.58%
Ratios and supplemental data:
Ratio net of fees waived or reimbursed by
advisor (a):
Expenses................................ 1.40% 1.39% 1.21% 0.97% 0.85%
Net investment income................... 5.70% 5.91% 6.29% 6.50% 6.80%
Ratios assuming no fees waived or
reimbursed by advisor:
Expenses................................ 1.55% 1.54% 1.51% 1.22% 1.10%
Net investment income................... 5.55% 5.76% 5.99% 6.25% 6.55%
Portfolio turnover rate................... 4% 40% 10% 9% 4%
Net assets at end of period (millions).... $ 6.4 $ 6.9 $ 6.6 $ 7.0 $ 7.1
</TABLE>
- ---------------
(a) The advisor has elected to waive management fees equal to 0.15% of average
net assets for the Income portfolio, but it may cease that waiver, in whole
or in part, without prior notice.
The accompanying notes are an integral part of these financial statements.
25
<PAGE> 29
ONE FUND, INC.
INTERNATIONAL PORTFOLIO
<TABLE>
<CAPTION>
YEARS ENDED JUNE 30,
-----------------------------------------------
1999 1998 1997 1996 1995
------- ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Per share data:
Net asset value, beginning of period........ $ 12.92 $15.45 $14.47 $12.89 $13.32
Income (loss) from investment operations:
Net investment income (loss).............. (0.04) 0.12 0.14 0.10 0.14
Net realized and unrealized gain (loss) on
investments and foreign currency
transactions........................... (1.74) (0.63) 1.92 2.24 0.63
------- ------ ------ ------ ------
Total income (loss) from investment
operations........................... (1.78) (0.51) 2.06 2.34 0.77
------- ------ ------ ------ ------
Less distributions:
Dividends from net investment income...... 0.00 (0.12) (0.15) (0.39) (0.14)
Distributions from net realized capital
gains and foreign currency
transactions........................... (0.32) (1.90) (0.93) (0.37) (1.06)
------- ------ ------ ------ ------
Total distributions.................... (0.32) (2.02) (1.08) (0.76) (1.20)
------- ------ ------ ------ ------
Net asset value, end of period.............. $ 10.82 $12.92 $15.45 $14.47 $12.89
======= ====== ====== ====== ======
Total return................................ (13.90)% (4.84)% 14.76% 18.65% 6.44%
Ratios and supplemental data:
Ratios net of fees reimbursed by advisor
(a):
Expenses.................................. 2.13% 2.10% 1.87% 1.72% 1.50%
Net investment income (loss).............. (0.32)% 0.85% 0.99% 0.70% 1.11%
Ratios assuming no fees reimbursed by
advisor:
Expenses.................................. 2.56% 2.20% 1.98% 1.72% 1.50%
Net investment income (loss).............. (0.75)% 0.75% 0.88% 0.70% 1.11%
Portfolio turnover rate..................... 217% 12% 9% 20% 39%
Net assets at end of period (millions)...... $ 6.9 $ 14.6 $ 19.3 $ 15.1 $ 12.0
</TABLE>
- ---------------
(a) The advisor has elected to reimburse certain operating expenses of the
International Portfolio, but it may cease that waiver, in whole or in part,
without prior written notice.
The accompanying notes are an integral part of these financial statements.
26
<PAGE> 30
ONE FUND, INC.
GLOBAL CONTRARIAN PORTFOLIO
<TABLE>
<CAPTION>
YEARS ENDED JUNE 30, 11-1-94
---------------------------------------- TO
1999 1998 1997 1996 6-30-95
------- ------ ------ ------ -------
<S> <C> <C> <C> <C> <C>
Per share data:
Net asset value, beginning of
period.............................. $ 10.76 $11.79 $11.48 $10.01 $10.00
Income (loss) from investment
operations:
Net investment income............... 0.09 0.14 0.20 0.16 0.17
Net realized & unrealized gain
(loss) on investment and foreign
currency transactions............ (1.29) (0.26) 0.99 1.61 0.13
------- ------ ------ ------ ------
Total income (loss) from
investment operations.......... (1.20) (0.12) 1.19 1.77 0.30
------- ------ ------ ------ ------
Less distributions:
Dividends from net investment
income........................... (0.06) (0.13) (0.21) (0.16) (0.17)
Distributions from net realized
capital gains and foreign
currency transactions............ (1.62) (0.78) (0.67) (0.14) (0.12)
------- ------ ------ ------ ------
Total distributions.............. (1.68) (0.91) (0.88) (0.30) (0.29)
------- ------ ------ ------ ------
Net asset value, end of period........ $ 7.88 $10.76 $11.79 $11.48 $10.01
======= ====== ====== ====== ======
Total return.......................... (11.88)% (1.05)% 11.11% 17.84% 2.99%(b)
Ratios and supplemental data:
Ratios net of fees reimbursed by
advisor (c):
Expenses............................ 2.15% 2.13% 2.02% 2.14% 2.05%(a)
Net investment income............... 0.96% 1.28% 1.78% 1.49% 2.85%(a)
Ratios assuming no fees reimbursed by
advisor:
Expenses............................ 3.40% 2.53% 2.21% 2.14% 2.05%(a)
Net investment income (loss)........ (0.30)% 0.88% 1.59% 1.49% 2.85%(a)
Portfolio turnover rate............... 254% 25% 6% 26% 8%
Net assets at end of period
(millions).......................... $ 3.1 $ 5.1 $ 6.3 $ 5.7 $ 3.9
</TABLE>
- ---------------
(a) Annualized.
(b) Calculated on an aggregate basis (not annualized).
(c) The advisor has elected to reimburse certain operating expenses of the
Global Contrarian portfolio, but it may cease that waiver, in whole or in
part, without prior notice.
27
<PAGE> 31
APPENDIX:
PLAN OF MERGER AND LIQUIDATION
28
<PAGE> 32
PLAN OF MERGER AND LIQUIDATION
This plan of merger and liquidation has been entered into on the twentieth
day of May, 1999, by ONE Fund, Inc. ("ONE Fund"), a Maryland corporation, on
behalf of its Global Contrarian and Tax-Free Income portfolios (the "Liquidating
portfolios") and its International and Income portfolios (the "Surviving
portfolios").
Whereas, ONE Fund is a registered investment company under the Investment
Company Act of 1940 as amended (the "1940 Act");
Whereas the Board of Directors of ONE Fund has determined that the
transactions described herein are in the best interests of the shareholders of
each of the Liquidating portfolios and Surviving portfolios;
Whereas the Board of Directors has determined that the transactions
described herein will not dilute the interests of any shareholder of the
Liquidating portfolios and the Surviving portfolios;
Whereas paragraph (2)(e) of Article Sixth of ONE Fund's Articles of
Incorporation provides for the equitable liquidation of any particular class of
the common stock of ONE Fund;
Whereas the Board of Directors has agreed that the Global Contrarian
portfolio should be merged into the International portfolio, and that the
Tax-Free Income portfolio should be merged into the Income portfolio; and
Whereas the Board of Directors has recommended that this plan of merger and
liquidation be approved by the shareholders of each of the Liquidating
portfolios,
Now, therefore, all the assets, liabilities and interests of the
Liquidating portfolios shall be transferred on the closing date to the
corresponding Surviving portfolios as described below, provided, however, that
these transactions shall not be effected as to either Liquidating portfolio
unless and until this plan shall have first been approved by a majority of the
shareholders of that portfolio as provided in ONE Fund's By-laws.
1. The closing date shall be a day on which ONE Fund is open for business
and the New York Stock Exchange is open for unrestricted trading. It
shall be a day determined by ONE Fund's management as soon as
practicable after approval of this plan by the Liquidating portfolios'
shareholders.
2. On or before the closing date, and prior to effecting the transactions,
ONE Fund shall have received a satisfactory written opinion of legal
counsel that the transactions described herein shall qualify as a tax-
free reorganization under Section 368(a)(1) of the Internal Revenue Code
of 1986, as amended.
3. On the closing date, prior to the effecting of the transactions
described in paragraph 4 below, each of the Liquidating portfolios shall
distribute and pay to its respective shareholders of record, dividends
representing substantially all of the portfolios' undistributed income
and net realized capital gains, if any.
4. In exchange for all of his or her shares of the Liquidating portfolios,
each shareholder of a Liquidating portfolio shall receive a number of
shares, including fractional shares, of the corresponding Surviving
portfolio equal in dollar value to the number of whole and fractional
shares that shareholder owns in the Liquidating portfolio. Each
shareholder of a Liquidating portfolio shall thereupon become a
shareholder in the corresponding Surviving portfolio.
5. For purposes of these transactions, the shares of each portfolio shall
be determined as of 4:00 p.m., eastern time, on the closing date. Those
valuations shall be made in the usual manner as provided in ONE Fund's
prospectus.
6. Upon completion of the foregoing transactions, both of the Liquidating
portfolios shall be terminated and no further shares of common stock
shall be issued by either of them. The classes of ONE Fund's common
stock, par value one-tenth of a cent ($0.001) per share, representing
the Liquidating portfolios shall thereupon be closed and the shares
previously authorized for those classes may be reclassified by the Board
of Directors as provided in Article Fifth of ONE Fund's Articles of
Incorporation. ONE Fund's Board of Directors and management shall take
whatever actions are necessary under Maryland law and the 1940 Act to
effect the termination of the Liquidating portfolios.
29
<PAGE> 33
7. As provided in the Investment Advisory Agreement, the costs and expenses
of these transactions, including the preparation, filing, printing and
mailing of proxy solicitation material, disclosure documents and related
legal fees shall be borne by each of the Liquidating portfolios and
Surviving portfolios pro rata based upon the total amount of net assets
of each portfolio as a fraction of the total net assets of all four
portfolios at the time any such costs and expenses are paid.
In witness whereof, ONE Fund, on behalf of each of the Liquidating
portfolios and Surviving portfolios, has caused this plan of merger and
liquidation to be executed and attested in the City of Montgomery, State of
Ohio, on the date first written above.
ONE Fund, Inc.
By: /s/ JOHN J. PALMER
------------------------------------
John J. Palmer, President
Attest:
By: /s/ RONALD L. BENEDICT
------------------------------------
Ronald L. Benedict, Secretary
30
<PAGE> 34
PROXY
ONE FUND, INC.
I (we) acknowledge receipt of a copy of the Notice of Shareholders'
Meeting, Prospectus/Proxy Statement and Plan of Merger and Liquidation. I (we)
appoint each of Ronald L. Benedict and John J. Palmer to be my (our) proxies and
attorneys with full power of substitution and revocation to vote my (our) ONE
Fund, Inc. shares at the special meeting of shareholders to be held on November
1, 1999 (and at any adjournments of that meeting) as specified below, and in
accordance with their best judgment on any other business that may properly come
before the meeting. THIS PROXY RELATES TO A SOLICITATION BY THE BOARD OF
DIRECTORS.
- --------------------------------------------------------------------------------
You may check ONE of these boxes instead of voting on each of the numbered
items below:
<TABLE>
<S> <C> <C> <C> <C> <C>
For or Against or Abstain on all the Board of Directors Recommendations
[ ] [ ] [ ]
- -----------------------------------------------------------------------------------------------
1. If you are a shareholder of the Global Contrarian Portfolio; to approve the merger of the
Global Contrarian Portfolio into the International Portfolio:
For or Against or Abstain
[ ] [ ] [ ]
- -----------------------------------------------------------------------------------------------
2. If you are a shareholder of the Tax-Free Income Portfolio; to approve the merger of the
Tax-Free Income Portfolio into the Income Portfolio:
For or Against or Abstain
[ ] [ ] [ ]
- -----------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<S> <C>
Dated: --------------- , 1999 -----------------------------------------------------------
Signature of Shareholder(s)
</TABLE>
Please sign your name as it appears on the back of this form. If signing
for an estate, trust or corporation, state your title or capacity. If joint
owners, each should sign. Your shares will be voted in accordance with your
directions. PLEASE RETURN THIS PROXY IN THE ENVELOPE PROVIDED.
<PAGE> 35
PART B
<PAGE> 36
STATEMENT OF ADDITIONAL INFORMATION
OCTOBER 15, 1999
ONE FUND, INC.
One Financial Way
Cincinnati, Ohio 45242
Telephone 1-800-578-8078
This Statement of Additional Information ("SAI") is not a prospectus and should
be read in conjunction with the prospectus/proxy statement dated October 15,
1999, for the special meeting of the shareholders of the Tax-Free Income
Portfolio and the Global Contrarian Portfolio. Both the Tax-Free Income
Portfolio and the Global Contrarian Portfolio are portfolios of ONE Fund, Inc.
("ONE Fund"), a mutual fund with nine diversified portfolios. The meeting is to
be held on November 1, 1999.
The prospectus/proxy statement describes the proposed mergers of the Tax-Free
Income Portfolio into the Income Portfolio and the Global Contrarian Portfolio
into the International Portfolio pursuant to the terms of a Plan of Merger and
Liquidation. Under the plan, the Income Portfolio and the International
Portfolio would acquire all of the assets and assume all of the liabilities of
the Tax-Free Income Portfolio and the Global Contrarian Portfolio, respectively,
and issue their shares in exchange. As a result of the mergers, each shareholder
will own that number of shares, including fractional shares, of the Income
Portfolio or International Portfolio, as applicable, equal in dollar value at
the time of the mergers to the value of such shareholder's shares of the
Tax-Free Income Portfolio or Global Contrarian Portfolio, respectively.
To obtain a free copy of the prospectus/proxy statement, call or write to us at
the telephone number or address shown above. The information contained in the
prospectus/proxy statement and this SAI relates to the merging portfolios only.
For information on the remaining portfolios of ONE Fund, please see ONE Fund's
prospectus and SAI dated November 1, 1998.
<PAGE> 37
TABLE OF CONTENTS
<TABLE>
<S> <C>
ONE FUND...........................................................................................................
PERFORMANCE........................................................................................................
Current Yield of Tax-Free Income and Income Portfolios........................................................
Tax-Equivalent Yield of Tax-Free Income Portfolio.............................................................
Total Return..................................................................................................
PORTFOLIO TURNOVER.................................................................................................
INVESTMENT RESTRICTIONS............................................................................................
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...............................................................................................
MANAGEMENT.........................................................................................................
Directors and Officers........................................................................................
Compensation of Directors.....................................................................................
Shareholders' Meetings........................................................................................
Controlling Persons and Principal Shareholders................................................................
Investment Advisory and Other Services........................................................................
BROKERAGE ALLOCATION...............................................................................................
</TABLE>
2
<PAGE> 38
<TABLE>
<S> <C>
PURCHASE AND REDEMPTION OF SHARES..................................................................................
REDUCING THE SALES CHARGE..........................................................................................
TAX STATUS.........................................................................................................
UNDERWRITERS.......................................................................................................
EXPERTS............................................................................................................
LEGAL COUNSEL......................................................................................................
YEAR 2000..........................................................................................................
APPENDIX: DEBT SECURITY RATINGS....................................................................................
FINANCIAL STATEMENTS...............................................................................................
</TABLE>
3
<PAGE> 39
ONE FUND
ONE Fund is an open-end diversified management investment company which
presently consists of 9 separate portfolios -- Money Market Portfolio, Tax-Free
Income Portfolio, Income Portfolio, Income & Growth Portfolio, Growth Portfolio,
Core Growth, Small Cap Portfolio, International Portfolio, and Global Contrarian
Portfolio. The investments held by each portfolio are maintained separately from
those held by the other portfolios. ONE Fund was incorporated in Maryland on
April 24, 1992. The Money Market, Income, Income & Growth, and Growth Portfolios
were first offered in August 1992. The International Portfolio was first offered
in May 1993. The Tax-Free Income, Small Cap and Global Contrarian Portfolios was
first offered in November 1994. The Core Growth Portfolio was first offered in
November 1996.
The investment and reinvestment of Tax-Free Income Portfolio and Income
Portfolio assets is directed by ONE Fund's investment adviser, Ohio National
Investments, Inc. (the "Adviser"), a wholly-owned subsidiary of The Ohio
National Life Insurance Company ("ONLI"). The Adviser is also the investment
adviser to Ohio National Fund, Inc. ("ONF"), a mutual fund formed by ONLI to
support variable benefits under variable annuities and variable life insurance
policies written by ONLI and its subsidiary, Ohio National Life Assurance
Corporation. The principal business address of all these Ohio National companies
is One Financial Way, Cincinnati, Ohio 45242. The investment and reinvestment of
Global Contrarian Portfolio and International Portfolio assets is managed by
Federated Global Investment Management Corp. ("FGIM") as subadviser. The
principal business address of FGIM is 175 Water Street, New York, New York.
The shares of each portfolio, when issued, will be fully paid and
non-assessable, have no preemptive, conversion, cumulative dividend or similar
rights, and are freely transferable. ONE Fund shares do not have cumulative
voting rights, which means the holders of more than half of the ONE Fund shares
voting for election of directors can elect all of the directors if they so
choose. In such event, the holders of the remaining shares would not be able to
elect any directors.
PERFORMANCE
ONE Fund may distribute sales literature using graphs, charts, tables or
examples comparing the performance of its portfolios to the Consumer Price Index
or to established market indices including, but not limited to, the Dow Jones
Industrial Average, Standard & Poor's 500 Index, IBC's Money Fund Reports, one
or more of Lehman Brothers Bond Indices, Value Line Composite Index, New York
Stock Exchange Composite Index, Russell 2000 Index, Russell 3000 Growth Index,
Morgan Stanley Europe Australia and Far East Index, Morgan Stanley World Index,
American Stock Exchange Index, National Association of Securities Dealers
Automated Quotations Composite Index, Wilshire 5000 Index, Investors Business
Daily 6000 Index, or other mutual funds having investment objectives similar to
the portfolio being compared. These comparisons may include graphs, charts,
tables or examples. The average total return and cumulative total returns for
each portfolio may also be advertised.
4
<PAGE> 40
ONE Fund may also advertise the performance rankings assigned to certain
portfolios or their subadvisers by various statistical services, including
Morningstar, Inc. and Lipper Analytical Services, Inc., or as they appear in
various publications including The Wall Street Journal, Investors Business
Daily, The New York Times, Barron's, Forbes, Fortune, Business Week, Financial
Services Week, Financial World, Kiplinger's Personal Finance, and Money
Magazine.
The prospectus sets forth in tabular form under the caption "Financial
Highlights" certain information concerning the Tax-Free Income, Income, Global
Contrarian, and International Portfolios. The following discussion describes the
methods of calculating current yields and total return, and states ONE Fund's
policy with respect to each portfolio's turnover rate.
CURRENT YIELD OF TAX-FREE INCOME AND INCOME PORTFOLIOS
- ------------------------------------------------------
Current yield for these two portfolios is calculated by dividing the net
investment income per share earned during a recent 30-day period by the
portfolio's maximum offering price on the last day of the period and annualizing
the result (assuming compounding of interest) in order to arrive at an annual
percentage rate. In some instances, it may be necessary to use an estimate of
the expected dividends and expenses. When estimates are used to calculate
yields, actual dividends and expenses for that period may be different because
the composition of the portfolio may change, resulting in a change in actual
yield. When yield is used in sales literature for these portfolios, their total
return will also be shown.
TAX-EQUIVALENT YIELD OF TAX-FREE INCOME PORTFOLIO
- -------------------------------------------------
The Tax-Free Income Portfolio's tax-equivalent yield is the rate that an
investor would have to earn from a taxable investment, before taxes, to equal
the portfolio's tax-free yield. The tax-equivalent yield is calculated by
dividing the portfolio's actual yield by the result of one minus the investor's
marginal federal income tax rate. If only a portion of the portfolio's yield is
tax-exempt, only that portion is adjusted in the calculation. The following
table shows the effect of an investor's federal income tax bracket on the
effective yield, assuming hypothetical yields of 3% to 7% for the Tax-Free
Income Portfolio and assuming that none of the portfolio's investments yielded
taxable income.
<TABLE>
<CAPTION>
Marginal Portfolio Tax-Equivalent
Tax Rate Yield Yield
-------- --------- --------------
<S> <C> <C>
28% 3% 4.17%
28% 4% 5.56%
28% 5% 6.94%
28% 6% 8.33%
28% 7% 9.72%
</TABLE>
5
<PAGE> 41
<TABLE>
<S> <C> <C>
31% 3% 4.35%
31% 4% 5.80%
31% 5% 7.26%
31% 6% 8.70%
31% 7% 10.14%
31% 7% 10.14%
36% 3% 4.69%
36% 4% 6.25%
36% 5% 7.81%
36% 6% 9.38%
36% 7% 10.94%
39.6% 3% 4.97%
39.6% 4% 6.62%
39.6% 5% 8.28%
39.6% 6% 9.93%
39.6% 7% 11.59%
</TABLE>
From time to time, proposals have been introduced before Congress for the
purpose of restricting or eliminating the federal income tax exemption for
interest on municipal securities.
TOTAL RETURN
- ------------
Total returns quoted in advertising reflect all aspects of a portfolio's
investment return, including the effects of reinvesting dividends and capital
gain distributions, as well as changes in the portfolio's net asset value per
share over the period shown. Average annual returns are calculated by
determining the growth or decline in value of a hypothetical historical
investment in a portfolio over a stated period, and then calculating the annual
compounded percentage rate that would have produced the same result had the rate
of growth or decline been constant over that period. While average annual
returns are a convenient means of comparing investment alternatives, no
portfolio will experience a constant rate of growth or decline over time.
The average annual compounded rate of return for a portfolio over a given period
is found by equating the initial amount invested to the ending redeemable value
using the following formula:
P(1 + T)n = ERV
where: P = a hypothetical initial payment of $1,000,
T = the average annual total return,
n = the number of years, and
<PAGE> 42
ERV = the ending redeemable value of a hypothetical
$1,000 beginning-of-period payment at the end of the
period (or fractional portion thereof).
The average annual and aggregate total return rates for each of the portfolios
from its inception (assuming payment of the maximum applicable sales charge) and
for the year ended on June 30, 1999, are as follows:
<TABLE>
<CAPTION>
Avg. Aggregate
One Annual From Five Year From Inception
Year Five Year Inception Aggregate Inception Date
---- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Tax-Free Income -2.06% N/A 6.00% N/A 35.36% 11/01/94
Income -0.43% 6.43% 5.45% 33.75% 43.64% 8/18/92
Global Contrarian -16.27% N/A 2.39% N/A 17.56% 11/01/94
International -18.20% 2.91% 8.01% 15.43% 69.56% 4/30/93
</TABLE>
In addition to total return rates, advertising may reflect cumulative total
returns that simply reflect the change in value of an investment in a portfolio
over a period. This may be expressed as either a percentage change, from the
beginning to the end of the period, or the end-of-period dollar value of an
initial hypothetical investment. The cumulative total returns for each of the
portfolios from its inception and for the year ended on June 30, 1999 (assuming
a hypothetical initial investment of $10,000 and payment of the maximum
applicable sales charge) were as follows:
<TABLE>
<CAPTION>
From Inception
One Year Five Year Inception Date
-------- --------- --------- ----------
<S> <C> <C> <C> <C>
Tax-Free Income $9,304 N/A $13,130 11/01/94
Income $9,956 $13,661 $14,659 8/18/92
Global Contrarian $8,371 N/A $11,168 11/01/94
International $8,180 $11,278 $16,549 4/30/93
</TABLE>
PORTFOLIO TURNOVER
Each portfolio has an expected rate of portfolio turnover. However, the rate of
portfolio turnover will not be a limiting factor when the management of ONE Fund
deems it appropriate to purchase or sell securities for a portfolio. ONE Fund's
policy with respect to each portfolio is as follows:
7
<PAGE> 43
Tax-Free Income Portfolio - Transactions in the securities of this portfolio may
be made without regard to the length of time particular investments have been
held if the Adviser believes that such transactions will help achieve the
overall objectives of the portfolio. Portfolio securities may or may not be held
to maturity. The rate of portfolio turnover will vary from time to time, but is
not expected to exceed 75% annually. It was 0% for the last fiscal year.
Income Portfolio - The Income Portfolio will engage in transactions when the
Adviser believes that they will help to achieve the overall objectives of this
portfolio. Portfolio securities may or may not be held to maturity. The rate of
portfolio turnover will vary from time to time but is not expected to exceed 50%
annually. It was 49% for the last fiscal year.
Global Contrarian Portfolio - Prior to April 5, 1999, because of the long-term
growth objective and the purchase of under-valued and out-of-favor securities,
this portfolio generally tended to hold portfolio securities for a relatively
longer time with the expectation of eventual price appreciation. As a result,
the portfolio turnover rate was not expected to exceed 50% annually. However, it
could be substantially higher at times due to repositioning of the portfolio. On
April 5, 1999, the portfolio's investment objective and policies were changed,
as reflected in the prospectus and this SAI, to match those of the International
Portfolio. The portfolio turnover rate was 254% for the last fiscal year.
International Portfolio - Although this portfolio will not normally engage in
short-term trading, purchases and sales of securities will be made whenever
deemed appropriate to achieve the portfolio's objective of total return on
assets. The rate of portfolio turnover will not be a limiting factor when
portfolio changes are deemed appropriate to achieve this portfolio's stated
objective. Under normal circumstances, the portfolio turnover rate for this
portfolio is not expected to exceed 75% annually. It was 217% for the last
fiscal year.
INVESTMENT RESTRICTIONS
The prospectus lists the most significant investment restrictions to which the
portfolios are subject. A complete list of the portfolios investment
restrictions is shown below. There are fundamental and nonfundamental investment
restrictions. The fundamental investment restrictions may not be changed without
the affirmative vote of the majority of the outstanding voting securities of ONE
Fund or a particular portfolio, as appropriate. A "majority vote" means the vote
of the lesser of (i) 67% of the shares represented at a meeting at which more
than 50% of the outstanding shares are represented or (ii) more than 50% of the
outstanding voting securities. With respect to the submission of a change in an
investment policy to the holders of outstanding voting securities of a
particular portfolio, such matter shall be deemed to have been effectively acted
upon with respect to that portfolio if a majority of the outstanding voting
securities of the portfolio vote for the approval of such matter,
notwithstanding (1) that the matter has not been approved by the holders of a
majority of the outstanding voting securities of any other portfolio affected by
the matter, and (2) that the matter has not been approved by the vote of a
majority of
8
<PAGE> 44
the outstanding voting securities of ONE Fund. The nonfundamental investment
restrictions may be changed by the Board of Directors without shareholder
approval.
The fundamental investment restrictions for the Tax-Free Income and Income
Portfolios are as follows:
l. The portfolio will not invest more than 5% of the value of its total
assets in the securities of any one issuer (except U.S. government
securities).
2. The portfolio will not purchase more than 10% of the outstanding voting
securities of any one issuer.
3. The portfolio will not invest more than 25% of the value of its total
assets in any one industry, except that the Tax-Free Income Portfolio
may invest more than 25% of its assets in municipal securities. For
purposes of this restriction, ONE Fund considers each foreign
government to constitute an "industry." ONE Fund interprets the word
"bank," as used in this investment restriction, to mean "domestic
bank."
4. The portfolio will not issue senior securities, except that the
portfolio may borrow money 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. The portfolio will not 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. The portfolio will not underwrite securities of other issuers except
insofar as ONE Fund may be considered an underwriter under the
Securities Act of 1933 in selling portfolio securities.
7. The portfolio will not 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. The portfolio will not 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
9
<PAGE> 45
be loaned if collateral values are continuously maintained at no less
than 100% by marking to market daily.
9. The portfolio will not purchase securities of other investment
companies, except in connection with a merger, consolidation or
reorganization, or except the purchase by any portfolio other than the
Tax-Free Income Portfolio of the securities of closed-end investment
companies if after the purchase: (i) the portfolio does not own more
than 3% of the total outstanding voting stock of the other investment
company, or (ii) the value of the securities of all investment
companies held by such portfolio does not exceed 10% of the value of
the total assets of that portfolio. Purchases of investment company
securities will be made (a) only on the open market or through dealers
or underwriters receiving the customary sales loads, or (b) as part of
a merger, consolidation or plan of reorganization.
The fundamental investment restrictions for the Global Contrarian and
International Portfolios are as follows:
1. The portfolio will not issue senior securities, except that the
portfolio may borrow money directly or through reverse repurchase
agreements in amounts not in excess of one-third of the value of its
total assets; provided that, while borrowings and reverse repurchase
agreements outstanding exceed 5% of the portfolio's total assets, any
such borrowings will be repaid before additional investments are made.
2. The portfolio will not purchase securities if, as a result of such
purchase, 25% or more of the portfolio's total assets would be invested
in any one industry. However, the portfolio may at any time invest 25%
or more of its total assets in cash or items and securities issued
and/or guaranteed by the U.S. government, its agencies or
instrumentalities.
3. The portfolio will not purchase or sell real estate, although it may
invest in securities of companies whose business involves the purchase
or sale of real estate or in securities secured by real estate or
interests in real estate.
4. The portfolio will not lend any of its assets, except the portfolio's
securities, up to one-third of its total assets. This shall not prevent
the portfolio from purchasing or holding corporate or U.S. government
bonds, debentures, notes, certificates of indebtedness or other debt
securities of an issuer, entering into repurchase agreements, or
engaging in other transactions which are permitted by the portfolio's
investment objectives and policies.
5. The portfolio will not underwrite any issue of securities, except as
the portfolio may be deemed to be an underwriter under the Securities
Act of 1933 in connection with the sale of securities in accordance
with its investment objectives, policies, and limitations.
10
<PAGE> 46
6. With respect to 75% of its total assets, the portfolio will not
purchase the securities of any one issuer (other than cash, cash items,
or securities issued and/or guaranteed by the U.S. government, its
agencies or instrumentalities, and repurchase agreements collateralized
by such securities) if, as a result, more than 5% of its total assets
would be invested in the securities of that issuer. Also, the portfolio
will not purchase more than 10% of any class of the outstanding voting
securities of any one issuer. For these purposes, the portfolio
considers common stock and all preferred stock of an issuer each as a
single class, regardless of priorities, series, designations, or other
differences.
7. The portfolio will not purchase any securities on margin, but it may
obtain such short-term credits as are necessary for clearance of
transactions. The deposit or payment by the portfolio of initial or
variation margin in connection with financial futures contracts or
related options transactions is not considered the purchase of a
security on margin.
8. The portfolio will not purchase or sell commodities, except the
portfolio may purchase and sell financial futures contracts and related
options.
The nonfundamental investment restrictions for the Tax-Free Income and Income
Portfolios are as follows:
1. The portfolio will not 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.
2. The portfolio will not purchase or sell put or call options, except
that each 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.
3. The portfolio will not invest in securities of foreign issuers, except
that the Income 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. For purposes
of this restriction, U.S. dollar denominated depository receipts traded
in domestic markets do not constitute foreign securities.
11
<PAGE> 47
4. The portfolio will not sell securities short or purchase securities on
margin except such short-term credits as are required to clear
transactions.
5. The portfolio will not 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 Tax-Free Income 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).
The nonfundamental investment restrictions for the Global Contrarian and
International Portfolios are as follows :
1. The portfolio will not pledge, mortgage or hypothecate any assets
except to secure permitted borrowings. In those cases, the portfolio
may pledge, mortgage or hypothecate assets having a market value not
exceeding the lesser of the dollar amounts borrowed or 15% of the value
of its total assets at the time of borrowing.
2. The portfolio will not sell securities short unless during the time the
short position is open, the portfolio owns an equal amount of the
securities sold or securities readily and freely convertible into or
exchangeable, without payment of additional consideration, for
securities of the same issue as, and equal in amount to, the securities
sold short; and not more than 10% of the portfolio's net assets (taken
at current value) is held as collateral for such sales at any one time.
3. The portfolio will not invest more than 15% of its net assets in
illiquid securities, including, among others, repurchase agreements
providing for the settlement more than seven days after notice, and
certain restricted securities not determined by the Board of Directors
to be liquid.
Under normal market conditions, at least 65% of the assets of the Global
Contrarian Portfolio and International Portfolio will be invested in foreign
securities, including securities of issuers in at least three different foreign
countries. As of the date of this SAI, the Board of Directors has approved
investment by the portfolios, other than the Tax-Free Income Portfolio, in 50
countries with developed securities markets, including the following countries
with developed economies: Australia, Austria, Belgium, Canada, Denmark, Finland,
France, Germany, Ireland, Israel, Italy, Japan, Luxembourg, Netherlands, New
Zealand, Norway, Spain, Sweden, Switzerland and the United Kingdom; and the
following countries with developing economies: Argentina, Bangladesh, Brazil,
Chile, China (Hong Kong, Shanghai and Shenzhen Exchanges), Czech Republic,
Egypt, Greece, Hungary, Indonesia, Jordan, Malaysia, Mexico, Morocco, Pakistan,
Peru, Philippines, Poland, Portugal, Singapore, South Africa, South Korea, Sri
Lanka, Taiwan, Thailand, Turkey, Uruguay, Venezuela, and Zimbabwe.
12
<PAGE> 48
INVESTMENT POLICIES
The portfolios may invest in money market 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 SAI.
MONEY MARKET INSTRUMENTS
- ------------------------
U.S. Government Obligations - Bills, notes, bonds and other debt securities
issued or guaranteed as to principal or interest by the United States or by
agencies or authorities controlled or supervised by and acting as
instrumentalities of the U.S. government established under authority granted by
Congress, including, but not limited to, the Government National Mortgage
Association, the Tennessee Valley Authority, the Bank for Cooperatives, the
Farmers Home Administration, and Federal Home Loan Banks. Some obligations of
U.S. government agencies, authorities and other instrumentalities are supported
by the full faith and credit of the U.S. Treasury; others by the right of the
issuer to borrow from the U.S. Treasury; and others only by the credit of the
issuer. Certain of the foregoing may be purchased on a "when issued" basis at
which time the rate of return will not have been set.
Certificates of Deposit - Certificates issued against funds deposited in a bank
for a definite period of time at a specified rate of return. Normally, they are
negotiable.
Bankers' Acceptances - Short-term credit instruments issued by corporations to
finance the import, export, transfer or storage of goods. They are termed
"accepted" when a bank guarantees their payment at maturity and reflect the
obligation of both the bank and drawer to pay the face amount of the instrument
at maturity.
Commercial Paper - Promissory notes issued by corporations to finance their
short-term credit needs. Commercial paper obligations may include variable
amount master demand notes. Variable amount master demand notes are obligations
that permit the investment of fluctuating amounts by the portfolio at varying
rates of interest pursuant to direct arrangements between the portfolio, as
lender, and the borrower. These notes permit daily changes in the amounts
borrowed. The portfolio has the right to increase the amount under the note at
any time up to the full amount provided by the note agreement, or to decrease
the amount, and the borrower may prepay up to the full amount of the note
without penalty. Because variable amount master demand notes are direct lending
arrangements between the lender and the borrower, it is not generally
contemplated that such instruments will be traded, and there is no secondary
market for these notes, although they are redeemable (and thus immediately
repayable by the borrower) at face value, plus accrued interest, at any time. In
connection with a master demand note arrangement, the Adviser will monitor, on
an ongoing basis, the earning power, cash flow, and other liquidity ratios of
the issuer and its ability to pay principal and interest on demand. While
13
<PAGE> 49
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 subadvisers to present minimal
credit risks in accordance with criteria established by ONE Fund's Board of
Directors. The Adviser or subadvisers will review and monitor the
creditworthiness of such institutions under the Board's general supervision. ONE
Fund will only enter into repurchase agreements pursuant to a master repurchase
agreement that provides that all transactions be fully collateralized and that
the collateral be in the actual or constructive possession of ONE Fund. The
agreement must also provide that ONE Fund will always receive as collateral
securities whose market value, including accrued interest, will be at least
equal to 100% of the dollar amount invested by the portfolio in each agreement,
and the portfolio will make payment for such securities only upon physical
delivery or evidence of book entry transfer to the account of the custodian. If
the seller were to default, the portfolio might incur a loss if the value of the
collateral securing the repurchase agreement declines and may incur disposition
costs in connection with liquidating the collateral. In addition, if bankruptcy
proceedings are commenced with respect to the seller of the security,
realization upon the collateral by the portfolio may be delayed or limited and a
loss may be incurred if the collateral securing the repurchase agreement
declines in value during the bankruptcy proceedings.
REVERSE REPURCHASE AGREEMENTS
- -----------------------------
Under a reverse repurchase agreement, a portfolio sells a debt security and
agrees to repurchase it at an agreed upon time and at an agreed upon price. The
portfolio retains record ownership of the security and the right to receive
interest and principal payments thereon. At an agreed upon
14
<PAGE> 50
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 the fundamental investment restrictions 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 the investment restrictions, is
to reduce the Risk of fluctuation of portfolio securities values or to take
advantage of expected market fluctuations. However, while such transactions are
defensive in nature and are not speculative, some risks remain.
The use of options and futures contracts may help ONE Fund to gain exposure or
to protect itself from changes in market values. For example, ONE Fund may have
a substantial amount of cash at the beginning of a market rally. Conventional
procedures of purchasing a number of individual issues requires time and may
result in missing a significant market movement. By using futures contracts, ONE
Fund can obtain immediate exposure to the market. The buying program will then
proceed and, once it is completed (or as it proceeds), the futures contracts
will be closed. Conversely, in the early stages of a market decline, market
exposure can be promptly offset by selling futures contracts, and individual
securities can be sold over a longer period under cover of the resulting short
contract position.
COVERED CALL OPTIONS AND PUT OPTIONS
- ------------------------------------
In writing (i.e., selling) "covered" call options on securities owned by a
portfolio, the portfolio gives the purchaser of the call option the right to
purchase the underlying securities owned by the portfolio at a specified
"exercise" price at any time prior to the expiration of the option, normally
within nine months. In purchasing put options on securities owned by a
portfolio, the portfolio pays the seller of the put option a premium for the
right of the portfolio to sell the underlying securities owned by the portfolio
at a specified exercise price prior to the expiration of the option.
Whenever a portfolio has a covered call option outstanding, the underlying
securities will be segregated by ONE Fund's custodian and held in an escrow
account to assure that such securities will be delivered to the option holder if
the option is exercised. While the underlying securities are subject to the
option, the portfolio remains the record owner of the securities, entitling it
to
15
<PAGE> 51
receive dividends and to exercise any voting rights. In order to terminate its
position as the writer of a call option or the purchaser of a put option, the
portfolio may enter into a "closing" transaction, which is the purchase of a
call option or sale of a put option on the same underlying securities and having
the same exercise price and expiration date as the option previously sold or
purchased by the portfolio.
RISK FACTORS WITH OPTIONS
- -------------------------
The purchaser of an option pays the option writer a "premium" for the option. In
the case of a covered call option written by a portfolio, if the purchaser does
not exercise the call option, the premium will generate additional capital gain
to the portfolio. If the market price of the underlying security declines, the
premium received for the call option will reduce the amount of the loss the
portfolio would otherwise incur. However, if the market price of the underlying
security rises above the exercise price and the call option is exercised, the
portfolio will lose its opportunity to profit from that portion of the rise
which is in excess of the exercise price plus the option premium. Therefore, ONE
Fund will write call options only when the Adviser believes that the option
premium will yield a greater return to the portfolio than any capital
appreciation that might occur on the underlying security during the life of the
option.
In the case of a put option purchased by a portfolio, if the market price of the
underlying security remains or rises above the exercise price of the option, the
portfolio will not exercise the option and the premium paid for such option will
reduce the gain the portfolio would otherwise have earned. Conversely, if the
market price of the underlying security falls below the exercise price less the
premium paid for the option, the portfolio will exercise the option, thereby
reducing the loss the portfolio would have otherwise suffered. Accordingly, a
portfolio will purchase put options only when the Adviser believes that the
market price of the underlying security is more likely to decrease than
increase.
Whenever a portfolio enters into a closing transaction, the portfolio will
realize a gain (or loss) if the premium plus commission it pays for a closing
call option is less (or greater) than the premium it received on the sale of the
original call option. Conversely, the portfolio will realize a gain (or loss) if
the premium it receives, less commission, for a closing put option is greater
(or less) than the premium it paid for the original put option. The portfolio
will realize a gain if a call option it has written lapses unexercised, and a
loss if a put option it has purchased lapses unexercised.
FUTURES CONTRACTS
- -----------------
Each portfolio 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
16
<PAGE> 52
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 (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
17
<PAGE> 53
position. To limit the Risk, the portfolios will invest only where there is an
established secondary market.
A risk applicable to both futures contracts and related options is that changes
in the value of the contracts or option may not correlate with changes in the
underlying financial index or with changes in the value of the securities
subject to hedge or both. This failure may be due, in part, to temporary
activity of speculators in the futures markets. To the extent there is not a
perfect correlation, changes in the value of a portfolio's assets would not be
offset by changes in the value of the contracts and options it had bought.
When a portfolio buys an option on a futures contract or an option on a
financial index, its Risk of loss is limited to the amount of the premium paid.
When a portfolio enters into a futures contract, there is no such limit.
However, the loss on an options contract would exceed that of a futures contract
if the change in the value of the index does not exceed the premium paid for the
option.
The success of a hedge depends upon the Adviser's ability to predict increases
or decreases in the relevant financial index. If this expectation proves
incorrect, a portfolio could suffer a loss, and would be better off if those
futures contracts or options had not been purchased. The skills involved in
determining whether to enter into a futures contract or purchase or sell an
option are different from those involved in determining whether to buy or sell a
security. The Adviser has had only limited experience using financial futures
contracts, options on financial futures and options on financial indexes.
Because of the low margin deposits required, futures trading involves a high
degree of leverage. As a result, a relatively small price movement in a futures
contract may result in immediate and substantial gain or loss. A purchase or
sale of a futures contract may result in losses in excess of the amount invested
in the futures contract. However, the portfolio would presumably have sustained
comparable losses if, instead of the futures contract, it had invested in the
underlying financial instrument.
Most futures exchanges limit the amount of fluctuation permitted in futures
contract prices during a single trading day. The daily limit establishes the
maximum amount that the price of a futures contract may vary either up or down
from the previous day's settlement price at the end of a trading session. Once
the daily limit has been reached in a particular type of contract, no more
trades may be made on that day at a price beyond that limit. The daily limit
governs only price movements during a particular trading day and therefore does
not limit potential losses because the limit may prevent the liquidation of
unfavorable positions. Futures contract prices have occasionally moved to the
daily limit for several consecutive trading days with little or no trading,
thereby preventing prompt liquidation of futures and subjecting some futures
traders to substantial losses.
RISK FACTORS WITH FOREIGN INVESTMENTS
- -------------------------------------
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<PAGE> 54
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 U.S. 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 Tax-Free Income
Portfolio, may engage, to the extent permitted by the investment restrictions 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
19
<PAGE> 55
set at the time of the contract. In this manner, a portfolio may obtain
protection against a possible loss resulting from an adverse change in the
relationship between the U.S. dollar and the foreign currency during the period
between the date the security is purchased or sold and the date upon which
payment is made or received. Although such contracts tend to minimize the Risk
of loss due to the decline in the value of the hedged currency, at the same time
they tend to limit any potential gain which might result should the value of
such currency increase.
Forward contracts are traded in the interbank market conducted directly between
currency traders (usually large commercial banks) and their customers. Generally
a forward contract has no deposit requirement, and no commissions are charged.
Although foreign exchange dealers do not charge a fee for conversion, they do
realize a profit based on the difference between the prices at which they buy
and sell various currencies. When the portfolio manager believes that the
currency of a particular foreign country may suffer a substantial decline
against the U.S. dollar, a portfolio may enter into a forward contract to sell,
for a fixed amount of dollars, the amount of foreign currency approximating the
value of some or all of that portfolio's securities denominated in such foreign
currency. No portfolio will enter into such forward contracts or maintain a net
exposure to such contracts where the consummation of the contracts would
obligate the portfolio to deliver an amount of foreign currency in excess of the
value of its assets denominated in that currency.
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
20
<PAGE> 56
loss to the extent the price of the currency it has agreed to purchase exceeds
the price of the currency it has agreed to sell.
Buyers and sellers of foreign currency options and futures contracts are subject
to the same risks previously described with respect to options and futures
generally (see "Risk Factors With Options" and "Risk Factors With Futures,
Options on Futures and Options on Indexes," above). In addition, settlement of
currency options and futures contracts with respect to most currencies must
occur at a bank located in the issuing nation. The ability to establish and
close out positions on such options is subject to the maintenance of a liquid
market that may not always be available. Currency rates may fluctuate based on
political considerations and governmental actions as opposed to purely economic
factors.
Predicting the movements of foreign currency in relation to the U.S. dollar is
difficult and requires different skills than those necessary to predict
movements in the securities market. There is no assurance that the use of
foreign currency hedging transactions can successfully protect a portfolio
against loss resulting from the movements of foreign currency in relation to the
U.S. dollar. In addition, it must be remembered that these methods of protecting
the value of a portfolio's securities against a decline in the value of a
currency do not eliminate fluctuations in the underlying prices of the
securities. They simply establish rates of exchange which can be achieved at
some future point in time. Additionally, although such contracts tend to
minimize the Risk of loss due to the decline in the value of the hedged
currency, at the same time they tend to limit any potential gain which might
result should the value of such currency increase.
RISK FACTORS WITH HIGH-YIELD, HIGH-RISK SECURITIES
- --------------------------------------------------
The high-yield, high-risk securities in which the Income Portfolio may invest up
to 15% of its assets present special risks to investors. The market value of
lower-rated securities may be more volatile than that of higher-rated securities
and generally tends to reflect the market's perception of the creditworthiness
of the issuer and short-term market developments to a greater extent than more
highly-rated securities, which primarily reflect fluctuations in prevailing
interest rates. Periods of economic uncertainty and change can be expected to
result in increased volatility in the market value of lower-rated securities.
Further, such securities may be subject to greater risks of loss of income and
principal, particularly in the event of adverse economic changes or increased
interest rates, because their issuers generally are not as financially secure or
as creditworthy as issuers of higher-rated 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
21
<PAGE> 57
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
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<PAGE> 58
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 subadviser 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.
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<PAGE> 59
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
DIRECTORS AND OFFICERS
- ----------------------
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 ONE FUND DURING PAST FIVE YEARS
- ---------------- -------- ----------------------
<S> <C> <C>
Ronald L. Benedict* Secretary and Director Corporate Vice President, Counsel and Secretary,
One Financial Way ONLI; Secretary of the Adviser and Ohio National
Cincinnati, Ohio Equities Inc.; Secretary and Director of ONF.
George E. Castrucci Director Director of ONF, Retired; Formerly President and
8355 Old Stable Road Chief Operating Officer of Great American
Cincinnati, Ohio Communications Co. and Chairman and Chief
Executive Officer of
</TABLE>
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<PAGE> 60
<TABLE>
<CAPTION>
POSITION WITH PRINCIPAL OCCUPATION
NAME AND ADDRESS ONE FUND DURING PAST FIVE YEARS
- ---------------- -------- ----------------------
<S> <C> <C>
Great American Broadcasting Co.; Director of Benchmark
Savings Bank; Director of Baldwin Piano & Organ Co.
Ross Love Director President and CEO, Blue Chip Broadcasting, Ltd.;
615 Windings Way Trustee, Health Alliance of Greater Cincinnati;
Cincinnati, Ohio 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 Director Senior Vice President, Strategic Initiatives, ONLI;
One Financial Way President and Director of ONF; President and
Cincinnati, Ohio Director of ONLI's broker-dealers; prior to March
1997 was Senior Vice President of Life Insurance
Company of Virginia.
George M. Vredeveld Director Professor of Economics, University of Cincinnati;
University of Cincinnati Director of Center for Economic Education; Private
P.O. Box 210223 Consultant; Director of Benchmark Savings Bank.
Cincinnati, Ohio
Thomas A. Barefield Vice President Senior Vice President, Institutional Sales, ONLI;
One Financial Way Vice President of ONF; Senior Vice President of
Cincinnati, Ohio ONEQ; prior to December 1997, Senior Vice President,
Life Insurance Company of Virginia.
Michael A. Boedeker Vice President Vice President, Senior Investment Officer, ONLI;
One Financial Way Vice President and Director of the Adviser; Vice
Cincinnati, Ohio President of ONF.
Joseph P. Brom Vice President Executive Vice President, ONLI; President and
One Financial Way Director of the Adviser; Vice President of ONF.
Cincinnati, Ohio
Stephen T. Williams Vice President Vice President of Equity Securities, ONLI;
</TABLE>
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<PAGE> 61
<TABLE>
<CAPTION>
POSITION WITH PRINCIPAL OCCUPATION
NAME AND ADDRESS ONE FUND DURING PAST FIVE YEARS
- ---------------- -------- ----------------------
<S> <C> <C>
One Financial Way Vice President and Director of the Adviser; Vice
Cincinnati, Ohio President of ONF.
Dennis R. Taney Treasurer Mutual Funds Financial Operations Director, ONLI;
One Financial Way Treasurer of the Adviser; Treasurer of ONF.
Cincinnati, Ohio
William Hilbert, Jr. Compliance Director & From May 1996 until December 1997, investment
One Financial Way Assistant Treasurer administrator for ONLI; Contractor for Fidelity
Cincinnati, Ohio Investments (1994-95) and for Procter & Gamble
(1995-96).
Marcus L. Collins Assistant Secretary Senior Attorney, ONLI; Counsel to Countrywide
One Financial Way Financial Services, Inc. (1998) and legal contract
Cincinnati, Ohio 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, the Adviser, FGIM, or Pilgrim Baxter &
Associates, Ltd. 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>
* 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
- ----------------------
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<PAGE> 62
ONE Fund's by-laws provide that shareholders' meetings need only be held every
three years unless matters requiring shareholder approval should occur more
frequently. It is anticipated that shareholders' meetings will generally occur
every three years.
CONTROLLING PERSONS AND PRINCIPAL SHAREHOLDERS
- ----------------------------------------------
Because of its ownership of ONE Fund shares, ONLI is a controlling person of
each portfolio of ONE Fund other than the International Portfolio. As a result,
ONLI likely will be able to control the outcome of a shareholder vote for any of
those portfolios unless and until the percentage of shares of a portfolio held
by other investors significantly expands. The Adviser is also 100% owned by
ONLI.
As of June 9, 1999, ONLI's ownership of the portfolios' shares was as follows:
<TABLE>
<CAPTION>
Number of Net Asset Percent of
Portfolio Shares Value Portfolio
- --------- ------ ----- ---------
<S> <C> <C> <C>
Tax-Free Income 554,040 $ 6,094,440 87.6%
Income 510,744 $ 4,938,894 77.5%
Global Contrarian 267,142 $ 2,070,351 67.5%
International 33,100 $ 1,069 0.0%
</TABLE>
In addition, as of that date, Bradley Warnemunde of Cincinnati, Ohio owned
51,495.93 shares of the International Portfolio having a total net asset value
of $550,491.51 and representing 7.8% of the portfolio. As of that date, no other
shareholder owned more than 5% of the shares of any of the portfolios. The
amount of shares of each portfolio held by officers and directors of ONE Fund,
as a group, was less than 1%.
INVESTMENT ADVISORY AND OTHER SERVICES
- --------------------------------------
The Adviser is an Ohio corporation organized on January 17, 1996 to provide
investment advice and management services to funds affiliated with ONLI. The
Adviser is a wholly-owned subsidiary of ONLI. The Adviser succeeded O.N.
Investment Management Company ("ONIMCO") as ONE Fund's investment adviser on May
1, 1996. Prior to that date, ONIMCO had been the investment adviser from ONE
Fund's inception. The Adviser, like ONIMCO before it, uses ONLI's investment
personnel and administrative systems. The Adviser regularly furnishes to ONE
Fund's Board of Directors recommendations with respect to an investment program
consistent with the investment policies of each investment portfolio. Upon
approval of an investment program by ONE Fund's Board of Directors, the Adviser
implements the program by placing the orders for the purchase and sale of
securities or, in the case of the International Portfolio, delegates that
implementation to FGIM.
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<PAGE> 63
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: (a) for those assets held in the Income Portfolio,
the fee is at an annual rate of 0.50% of the first $100 million of assets in
each portfolio, 0.40% of the next $150 million, and 0.30% of assets over $250
million; (b) for assets held in the Tax-Free Income Portfolio, the fee is at an
annual rate of 0.60% of the first $100 million of assets, 0.50% of the next $150
million, and 0.40% of assets over $250 million; and (c) for assets held in the
Global Contrarian and International Portfolios, the fee is at an annual rate of
0.90% of assets in each portfolio.
Under the investment advisory agreement, ONE Fund authorizes the Adviser to
retain a subadviser for the Global Contrarian and International Portfolios,
subject to the approval of ONE Fund's Board of Directors. The Adviser has
entered into a subadvisory agreement with FGIM to manage the investment and
reinvestment of Global Contrarian and International Portfolio assets, subject to
the supervision of the Adviser. As compensation for its services, the Adviser
pays FGIM at the annual rate of 0.45% of the first $200 million and 0.40% of any
average daily net assets in excess of $200 million of the International
Portfolio. The Adviser pays FGIM at an annual rate of 0.75% of the first $100
million and 0.65% of any average daily net assets in excess of $100 million of
the Global Contrarian Portfolio.
For each of the fiscal years ended June 30, investment advisory fees from each
of ONE Fund's portfolios were paid to ONIMCO (the Adviser's predecessor) and to
the Adviser as follows:
<TABLE>
<CAPTION>
1999 Earned Waived Net Fees
- ---- ------ ------ --------
<S> <C> <C> <C>
Tax-Free Income $43,382 $10,766 $32,616
Income 33,132 9,973 23,159
Global Contrarian 34,827 0 34,827
International 88,376 0 88,376
</TABLE>
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<PAGE> 64
<TABLE>
<CAPTION>
1998 Earned Waived Net Fees
- ---- ------ ------ --------
<S> <C> <C> <C>
Tax-Free Income $ 42,613 ($10,653) $ 31,960
Income 33,928 ( 10,178) 23,750
Global Contrarian 54,075 0 54,075
International 152,991 0 152,991
</TABLE>
<TABLE>
<CAPTION>
1997 Earned Waived Net Fees
- ---- ------ ------ --------
<S> <C> <C> <C>
Tax-Free Income $ 40,001 ($13,228) $ 26,773
Income 33,991 ( 12,594) 21,397
Global Contrarian 52,669 0 52,669
International 151,632 0 151,632
</TABLE>
The investment advisory agreement also provides that if, and to the extent that,
the total expenses applicable to any portfolio during any calendar quarter
(excluding taxes, brokerage commissions, interest and the investment advisory
fee) exceed 1%, on an annualized basis, of the portfolio's average daily net
asset value, the Adviser will pay such expenses. During the last fiscal year,
the Adviser reimbursed $47,996 to the Global Contrarian Portfolio and $43,677 to
the International Portfolio under these terms.
Under a service agreement among ONE Fund, the Adviser and ONLI, the latter has
agreed to furnish the Adviser, at cost, such research facilities, services and
personnel as may be needed by the Adviser in connection with its performance
under the investment advisory agreement. The Adviser reimburses ONLI for its
expenses in this regard.
The investment advisory agreement 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. The subadvisory agreement for the Global Contrarian and
International Portfolios was approved by a vote of ONE Fund's Board of Directors
on December 7, 1998, and the shareholders on April 5, 1999. These agreements
will continue in force from year to year hereafter, if such continuance is
specifically approved at least annually by a majority of ONE Fund's directors
who are not parties to such agreements or interested persons of any such party,
with votes to be cast in person at a meeting called for the purpose of voting on
such continuance, and also by a majority of ONE Fund's Board of Directors or by
a majority of the outstanding voting securities of each portfolio voting
separately. The foregoing agreements were approved by the Board of Directors for
continuance on August 29, 1999.
The investment advisory, subadvisory and service agreements may be terminated at
any time, without the payment of any penalty, on 60 days written notice to the
Adviser by ONE Fund's Board of Directors or, as to any portfolio, by a vote of
the majority of the portfolio's outstanding
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<PAGE> 65
voting securities. The investment advisory agreement may be terminated by the
Adviser on 90 days written notice to ONE Fund. The Service Agreement may be
terminated, without penalty, by the Adviser or ONLI on 90 days written notice to
ONE Fund and the other party. The subadvisory agreement may be terminated,
without penalty, by the Adviser or FGIM on 90 days written notice to ONE Fund
and the other party. The agreements will automatically terminate in the event of
their assignment.
ONE Fund's 12b-1 Plan is used solely to compensate broker-dealers that sell ONE
Fund shares (the "Selling Dealers") for shareholder services and for sales. The
basic payment is 0.25% of the average net assets of each other portfolio. The
fees are increased to the extent necessary to pay incentive bonuses to
individual registered representatives who service $5 million or more of ONE Fund
shares. Such increases can never increase the fees paid to more than 0.17% and
0.30% respectively. No interested person of ONE Fund other than the Selling
Dealers has a direct or indirect financial interest in ONE Fund's 12b-1 Plan.
ONE Fund benefits from the 12b-1 Plan payments to Selling Dealers by having the
registered representatives of those dealers answer shareholder questions and by
having those registered representatives motivated to sell ONE Fund shares to
persons likely to remain shareholders for a period of time.
BROKERAGE ALLOCATION
The Adviser buys and sells the portfolio securities for all the portfolios,
other than the Global Contrarian and International Portfolios, and selects the
brokers to handle such transactions. FGIM, as subadviser to the Global
Contrarian and International Portfolios, selects the brokers and dealers that
execute the transactions for those portfolios. It is the intention of the
Adviser and FGIM 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 FGIM
will, where possible, deal directly with dealers that make a market in the
securities unless better prices and execution are available elsewhere. Such
dealers usually act as principals for their own account.
In selecting brokers through which to effect transactions, the Adviser and FGIM
consider a number of factors including the quality, efficiency of execution and
value of research, statistical, quotation and valuation services provided.
Research services by brokers include advice, either directly or through
publications or writings, as to the value of securities, the advisability of
purchasing or selling securities, the availability of securities or purchasers
or sellers of securities, and analyses and reports concerning issuers,
industries, securities, economic factors and trends, and portfolio strategy. In
making such determination, the Adviser or FGIM may use a broker whose commission
in effecting a securities transaction is in excess of that of some other broker
if
30
<PAGE> 66
the Adviser or FGIM 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
FGIM, or to the benefit of its affiliates.
Generally, it is not possible to place a dollar value on research and related
services provided by brokers to the Adviser or FGIM. However, receipt of such
services may tend to reduce the expenses of the Adviser or FGIM. Research,
statistical and similar information furnished by brokers may be of incidental
assistance to ONLI, ONF or other clients or affiliates of the Adviser or FGIM
and conversely, transaction costs paid by ONLI, ONF or other clients or
affiliates of the Adviser or FGIM may generate information which is beneficial
to ONE Fund.
Consistent with these polices, FGIM may, with the Board of Directors' approval
and subject to its review, direct portfolio transactions to be executed by a
broker affiliated with FGIM so long as the commission paid to the affiliated
broker is reasonable and fair compared to the commission that would be charged
by an unaffiliated broker in a comparable transaction.
For each of the fiscal years ended June 30, the following brokerage commission
amounts were paid by each portfolio:
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Tax Free Income None None None
Income None None None
Global Contrarian $ 53,148 $ 16,385 $ 6,658
International $ 123,546 $ 17,067 $ 23,484
</TABLE>
During the fiscal year ended June 30, 1999, 100% of such commissions were paid
to brokers who furnished statistical data and research information to the
Adviser, Societe General Asset Management Corp., the subadviser to the Global
Contrarian and International Portfolios from their respective inception dates
through December 31, 1998, or FGIM.
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
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<PAGE> 67
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.
Shares of one portfolio may be exchanged for shares of another portfolio of ONE
Fund on the basis of the relative net asset values next computed after an
exchange order is received by ONE Fund. However, in the case of transfers from
the Money Market Portfolio to another portfolio, the sales charge will be levied
unless such assets had previously been subjected to a sales charge by having
been earlier transferred from another portfolio to the Money Market Portfolio.
The net asset value of ONE Fund's shares is determined at 4 p.m., Eastern time,
on each day the New York Stock Exchange is open for unrestricted trading. That
is normally each weekday (Monday through Friday) except for the following
holidays: New Year's 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.
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
32
<PAGE> 68
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.
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.
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<PAGE> 69
Shareholders should consult their own tax advisers with regard to the tax status
of One Fund distributions.
UNDERWRITERS
Ohio National Equities, Inc., a wholly-owned subsidiary of ONLI, has served as
principal underwriter for ONE Fund shares since March 26, 1997. ONE Fund shares
are offered by the registered representatives of another wholly-owned subsidiary
of ONLI, The O.N. Equity Sales Company, and other broker-dealers with whom the
principal underwriter enters into distribution agreements. ONE Fund shares are
offered on a best-efforts basis. The offering is continuous.
EXPERTS
The financial statements of ONE Fund as of June 30, 1999, and for the periods
indicated herein, included in this SAI and the Financial Highlights included in
the prospectus dated October 15, 1999, have been included herein and in the
prospectus in reliance upon the report of KPMG LLP, independent certified public
accountants, appearing in this SAI, and upon the authority of said firm as
experts in accounting and auditing. KPMG LLP's business address is 201 East
Fifth Street, Cincinnati, Ohio 45202.
LEGAL COUNSEL
Messrs. Jones & Blouch L.L.P., Washington, D.C., have passed on matters
pertaining to the federal securities laws and Ronald L. Benedict, Esq.,
Secretary of ONE Fund and Corporate Vice President, Counsel and Secretary of
ONLI, has passed on all other legal matters relating to the legality of the
shares described in the prospectus and this SAI.
YEAR 2000
ONE Fund, the Adviser, and related entities believe they have succeeded in
remedying the Year 2000 problem for all mission critical internal computer
systems and applications. Conversion testing and implementation for those
systems were completed by December 31, 1998. During the remainder of 1999,
peripheral personal computer systems will continue to be upgraded and tested for
Year 2000 implementation. While ONE Fund and the Adviser have been assured by
suppliers of financial services (including the custodians, the transfer agent,
and the accounting agent) that their systems either are already compliant or
will be so in sufficient time, ONE Fund's internal auditors intend to
independently test those systems to verify their compliance. ONE Fund, the
Adviser, and related entities are also developing contingency plans to be
prepared for the possibility that one or more service providers might not be
compliant. The failure of ONE Fund, the Adviser, or one of their service
providers to achieve timely and complete compliance could materially impair the
ability to conduct their business, including the ability to accurately and
timely value portfolio securities.
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<PAGE> 70
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.
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."
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<PAGE> 71
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.
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.
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+.
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<PAGE> 72
A-2 Capacity for timely payment on issues with this designation is
satisfactory. However, the relative degree of safety is not as high as
for issues designated as A-1.
BONDS:
AAA Bonds rated AAA by S&P are the highest grade obligations. They possess
the ultimate degree of protection as to principal and interest. Market
prices move with interest rates, and hence provide maximum safety on
all counts.
AA Bonds rated AA by S&P also qualify as high grade obligations, and in
the majority of instances differ from AAA issues only in small degree.
Here, too, prices move with the long-term money market.
A Bonds rated A by S&P are regarded as upper medium grade. They have
considerable investment strength but are not entirely free from the
adverse effects of changes in economic and trade conditions. Interest
and principal are regarded as safe. They predominantly reflect money
rates in their market behavior, but to some extent, also economic
conditions.
BBB The BBB or medium grade category is the borderline between definitely
sound obligations and those where the speculative element begins to
predominate. These bonds have adequate asset coverage and normally are
protected by satisfactory earnings. Their susceptibility to changing
conditions, particularly to depressions, necessitates constant
watching. Marketwise, the bonds are more responsive to business and
trade conditions than to interest rates. This is the lowest group which
qualifies for commercial bank investments.
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.
COMMERCIAL PAPER:
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<PAGE> 73
D & P's short-term ratings have incorporated gradations of "1+" and "1-" in
recognition of quality differences within the first tier.
D-1+ Highest certainty of timely payment. Short-term liquidity, including
internal operating factors and/or access to alternative sources of
funds, is outstanding, and safety is just below Risk-free U.S. Treasury
short-term obligations.
D-1 Very high certainty of timely payment. Liquidity factors are excellent
and supported by good fundamental protection factors. Risk factors are
minor.
D-1- High certainty of timely payment. Liquidity factors are strong and
supported by good fundamental protection.
D-2 Good certainty of timely payment. Liquidity factors and company
fundamentals are sound. Although ongoing funding needs may enlarge
total financing requirements, access to capital markets is good. Risk
factors are small.
FITCH INVESTORS SERVICE, INC.
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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FINANCIAL STATEMENTS
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<PAGE> 75
TAX-FREE INCOME PORTFOLIO
ONE FUND, INC.
OBJECTIVE
To provide high current income exempt from federal income taxes. Preservation of
capital is a secondary objective. Normally, at least 85% of the assets of this
portfolio will be invested in investment grade municipal securities.
PERFORMANCE AS OF JUNE 30, 1999
AVERAGE ANNUAL TOTAL RETURNS:
<TABLE>
<CAPTION>
Without With max.
sales charge sales charge
<S> <C> <C>
One-year 0.97% (2.06)%
Three-year 4.81% 3.75%
Since inception
(11/1/94) 6.70% 6.00%
</TABLE>
The maximum sales charge is 3%. All returns represent past performance and
neither predict nor guarantee future investment results. Your investment return
and principal value will fluctuate so that shares, when redeemed, may be worth
more or less than their original cost. The advisor is currently waiving fees of
.15% for this portfolio. Had the fees not been waived, returns would have been
lower.
COMMENTS
ONE FUND TAX-FREE INCOME PORTFOLIO
The Tax-Free Fund has lagged its benchmark, the Lehman Tax Free Intermediate
Bond Index for the six months and twelve months ended June 30, 1999. For six
months we lagged -1.66% to -1.01% and for 12 months .97% to 2.83%. Our
comparisons have suffered previously from the fact that our portfolio has a
somewhat longer maturity profile than the index and increases in interest rate
levels over the past year have impacted our market value more negatively. We do
feel with the economy expected to slow somewhat in the second half of 1999,
interest rates may be more stable and our performance should improve versus the
index.
CHANGE IN VALUE OF $10,000 INVESTMENT
<TABLE>
<CAPTION>
TAX-FREE INCOME PORTFOLIO (WITH MAX.
SALES CHARGE)|(COMMENCED OPERATIONS LEHMAN BROS. MUNICIPAL BOND INDEX
NOVEMBER 1, 1994) -INTERMEDIATE
------------------------------------ ---------------------------------
<S> <C> <C>
9,700.00 10,000.00
'94 9,860.00 10,264.00
10,690.00 11,248.00
'95 11,480.00 11,834.00
11,400.00 11,810.00
'96 11,930.00 12,314.00
12,290.00 12,662.00
'97 12,950.00 13,398.00
13,003.00 13,758.00
'98 13,352.00 14,267.00
13,130.00 14,139.00
</TABLE>
Hypothetical illustration based on past performance. Future performance will
vary. All returns reflect reinvested dividends. The portfolio's holdings may
differ significantly from the securities in the index. The index is unmanaged
and therefore does not reflect the cost of portfolio management or trading.
Neither the portfolio nor the index is open to direct investment.
TOP 10 HOLDINGS AS OF JUNE 30, 1999
<TABLE>
<CAPTION>
% of Portfolio
<C> <S> <C>
1. Washington St Pub Pwr Sup Sys
Nuclear 4.54
2. Chicago Illinois Midway Airport 4.37
3. North Carolina Med Care Commn
Healthcare 4.15
4. New York St Med Care Facs Fin Agy
Rev 4.11
5. Metropolitan Atlanta Rapid Tran
Auth 4.10
6. Pennsylvania Intergvt Coop Auth
Spl Tax 4.07
7. Nevada State Gen Oblig 4.01
8. Richland Cnty South Carolina Poll
Ctl 3.91
9. Matagorda Cnty Texas Nav Dist No
1 3.91
10. Clark Cnty Nevada School District 3.89
</TABLE>
TOP 5 CATEGORIES AS OF JUNE 30, 1999
<TABLE>
<CAPTION>
% of Portfolio
<S> <C>
1. Power Revenue 18.41
2. Hospital Revenue 18.29
3. Insured 16.06
4. Pollution Control & Industrial
Revenue 11.27
5. General Obligation 11.18
</TABLE>
<PAGE> 76
ONE FUND, INC.
TAX-FREE INCOME PORTFOLIO
SCHEDULE OF INVESTMENTS JUNE 30, 1999
<TABLE>
<CAPTION>
FACE MARKET
AMOUNT MUNICIPAL BONDS VALUE
- -------------------------------------------------------------
<C> <S> <C>
AIRPORT REVENUE (7.8%)
$300,000 Chicago Illinois Midway Airport 5.500%
01/01/29............................. $ 298,914
250,000 Chicago Illinois O'Hare Intl Airport
5.000% 01/01/13...................... 240,153
----------
539,067
----------
CONVENTION COMPLEX & HOSPITALITY FACILITIES (3.0%)
200,000 Metropolitan Pier & Exp ILL Hosp Facs
6.250% 07/01/17...................... 209,454
----------
GENERAL OBLIGATION BONDS (11.2%)
100,000 Clairborne County Mississippi 7.300%
05/01/25............................. 104,368
150,000 Commonwealth of Puerto Rico 5.500%
07/01/17............................. 152,180
250,000 Nevada State 6.600% 12/01/13.......... 273,860
250,000 State of Washington 5.000% 05/01/17... 239,590
----------
769,998
----------
HOSPITAL REVENUE (18.2%)
250,000 Hawaii Department of Budget 6.000%
07/01/20............................. 258,872
250,000 Maricopa Cnty Arizona Indl Dev 5.250%
11/15/37............................. 241,390
250,000 Massachusetts St Health & Edl Facs
6.200% 10/01/16...................... 264,647
300,000 North Carolina Medical Care Comm
Healthcare Facs 5.250% 05/01/26...... 283,302
200,000 Wisconsin St Health & Edl Facs 6.125%
11/15/15............................. 211,652
----------
1,259,863
----------
HOUSING REVENUE (2.3%)
150,000 Alaska St Housing Fin Corp 5.875%
12/01/24............................. 155,687
----------
INSURED BONDS (16.1%)
250,000 Matagorde Cnty Texas Nav Dist #1
6.700% 03/01/27 (AMBAC).............. 266,965
250,000 Metropolitan Atlanta Rapid Trans
6.800% 07/01/14 (MBIA)............... 280,163
250,000 New York State Med Care Facs 6.750%
08/15/14 (AMBAC)..................... 281,090
250,000 Pennsylvania Intergvt Coop 6.750%
06/15/21 (FGIC)...................... 278,347
----------
1,106,565
----------
</TABLE>
<TABLE>
<CAPTION>
FACE MARKET
AMOUNT MUNICIPAL BONDS VALUE
- -------------------------------------------------------------
<C> <S> <C>
POLLUTION CONTROL & INDUSTRIAL REVENUE (11.3%)
$250,000 Lawrenceburg, Indiana 5.900%
11/01/19............................. $ 251,063
250,000 Richland County, S Carolina 6.550%
11/01/20............................. 266,987
250,000 West Feliciana, Louisiana 8.000%
12/01/24............................. 258,315
----------
776,365
----------
POWER REVENUE (18.4%)
250,000 Jacksonville Florida Electric 5.500%
10/01/14............................. 252,760
250,000 N Carolina Eastern Power System 6.000%
01/01/22............................. 253,248
250,000 Salt River Arizona Project Power
5.000% 01/01/13...................... 246,502
200,000 Southern California Public Power
6.000% 07/01/18...................... 205,274
300,000 Washington St Pub Pwr Sys Nuclear
5.700% 07/01/12...................... 310,173
----------
1,267,957
----------
SCHOOL REVENUE (3.9%)
250,000 Clark Cnty Nevada School District
7.000% 06/01/09...................... 265,972
----------
TRANSPORTATION REVENUE (3.2%)
250,000 Central Pudget Sound RTA Washington
4.750% 02/01/28...................... 221,650
----------
WATER REVENUE (3.7%)
250,000 Metropolitan Water District of S.
California 5.500% 07/01/13........... 253,760
----------
TOTAL MUNICIPAL BONDS (99.1%) (COST
$6,267,256).......................... $6,826,338
----------
TOTAL HOLDINGS (99.1%)
(COST $6,267,256) (A)................ $6,826,338
----------
CASH & RECEIVABLES,
NET OF LIABILITIES (0.9%)............ 61,845
----------
TOTAL NET ASSETS (100.0%)............. $6,888,183
==========
</TABLE>
- ---------------
(a) Also represents cost for Federal income tax purposes.
The accompanying notes are an integral part of these financial statements.
<PAGE> 77
ONE FUND, INC.
TAX-FREE INCOME PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES
June 30, 1999
<TABLE>
<S> <C>
Assets:
Investments in securities at market value
(note 1) (Cost $6,267,256)............... $6,826,338
Dividends & accrued interest receivable.... 111,035
Deferred organizational expenses (note
1)....................................... 176
Other...................................... 1,654
----------
Total assets............................. 6,939,203
----------
Liabilities:
Payable for investment management services
(note 3)................................. 2,820
Accrued 12b-1 fees (note 6)................ 4,253
Other accrued expenses..................... 19,510
Dividends payable.......................... 24,437
----------
Total liabilities........................ 51,020
----------
Net assets at market value................... $6,888,183
==========
Net assets consist of:
Par value, $.001 per share................. $ 632
Paid-in capital in excess of par value..... 6,439,701
Accumulated undistributed net realized loss
on investments........................... (111,345)
Net unrealized appreciation on
investments.............................. 559,082
Undistributed net investment income........ 113
----------
Net assets at market value................... $6,888,183
==========
Shares outstanding........................... 632,397
Net asset value per share.................... $ 10.89
==========
Maximum offering price per share
($10.89/97%)............................... $ 11.23
==========
</TABLE>
STATEMENT OF OPERATIONS
For Year Ended June 30, 1999
<TABLE>
<S> <C>
Investment income:
Interest................................... $ 408,845
----------
Expenses:
Management fees (note 3)................... 43,382
12b-1 fees (note 6)........................ 18,120
Custodian fees (note 3).................... 4,906
Directors' fees (note 3)................... 1,275
Professional fees.......................... 4,437
Transfer agent & accounting fees........... 33,918
Filing fees................................ 8,153
Printing, proxy and postage fees........... 2,211
Organizational expense (note 1)............ 573
Other...................................... 185
----------
Total expenses........................... 117,160
Less expenses voluntarily reduced or
reimbursed (note 3).................... (10,766)
----------
Net expenses............................. 106,394
----------
Net investment income.................... 302,451
----------
Unrealized loss on investments:
Net decrease in unrealized appreciation on
investments.............................. (222,407)
----------
Net loss on investments................ (222,407)
----------
Net increase in net assets from
operations.......................... $ 80,044
==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
8
<PAGE> 78
ONE FUND, INC.
TAX-FREE INCOME PORTFOLIO
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
JUNE 30, 1999 JUNE 30, 1998
------------- -------------
<S> <C> <C>
From operations:
Net investment income..................................... $ 302,451 $ 305,219
Realized loss on investments.............................. 0 (100,005)
Unrealized gain (loss) on investments..................... (222,407) 186,945
---------- ----------
Net increase in assets from operations................ 80,044 392,159
---------- ----------
Dividends and distributions to shareholders:
Dividends paid from net investment income................. (302,451) (305,219)
---------- ----------
From capital share transactions (note 4):
Received from shares sold................................. 303,312 457,036
Received from dividends reinvested........................ 36,968 32,007
Paid for shares redeemed.................................. (399,472) (232,821)
---------- ----------
Increase (decrease) in net assets derived from capital
share transactions................................... (59,192) 256,222
---------- ----------
Increase (decrease) in net assets.................. (281,599) 343,162
---------- ----------
Net Assets:
Beginning of period....................................... 7,169,782 6,826,620
---------- ----------
End of period............................................. $6,888,183 $7,169,782
========== ==========
Includes undistributed net investment income of........... $ 113 $ 113
========== ==========
</TABLE>
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30, 11-1-94
--------------------------------------- TO
1999 1998 1997 1996 6-30-95
------ ------ ------ ------ --------
<S> <C> <C> <C> <C> <C>
Per share data:
Net asset value, beginning of period........................ $11.24 $11.09 $10.79 $10.66 $10.00
Income from investment operations:
Net investment income..................................... 0.47 0.49 0.53 0.56 0.35
Net realized & unrealized gain (loss) on investments...... (0.35) 0.15 0.30 0.13 0.66
------ ------ ------ ------ ------
Total income from investment operations................. 0.12 0.64 0.83 0.69 1.01
------ ------ ------ ------ ------
Less distributions:
Dividends from net investment income...................... (0.47) (0.49) (0.53) (0.56) (0.35)
------ ------ ------ ------ ------
Net asset value, end of period.............................. $10.89 $11.24 $11.09 $10.79 $10.66
====== ====== ====== ====== ======
Total return................................................ 0.97% 5.77% 7.82% 6.59% 10.26%(b)
Ratios and supplemental data:
Ratio net of fees waived or reimbursed by advisor (c):
Expenses.................................................. 1.47% 1.45% 1.24% 0.94% 0.91%(a)
Net investment income..................................... 4.18% 4.30% 4.81% 5.20% 5.04%(a)
Ratios assuming no fees waived or reimbursed by advisor:
Expenses.................................................. 1.62% 1.60% 1.45% 1.24% 1.21%(a)
Net investment income..................................... 4.03% 4.15% 4.60% 4.90% 4.74%(a)
Portfolio turnover rate..................................... 0% 4% 6% 8% 0%
Net assets at end of period (millions)...................... $ 6.9 $ 7.2 $ 6.8 $ 6.3 $ 5.7
</TABLE>
- ---------------
(a) Annualized.
(b) Calculated on an aggregate basis (not annualized).
(c) The advisor has elected to waive management fees equal to 0.15% of average
net assets for the Tax Free Income portfolio, but it may cease that waiver,
in whole or in part , without prior notice. In addition, the advisor has
reimbursed certain operating expenses.
The accompanying notes are an integral part of these financial statements.
<PAGE> 79
INCOME PORTFOLIO
ONE FUND, INC.
OBJECTIVE
To provide high current income. Preservation of capital is a secondary
objective. Normally, at least 85% of the assets of this portfolio will be
invested in investment-grade fixed-income securities and the equivalent. The
remainder may be invested in below investment-grade corporate bonds.
PERFORMANCE AS OF JUNE 30, 1999
AVERAGE ANNUAL TOTAL RETURNS:
<TABLE>
<CAPTION>
Without With max.
sales charge sales charge
<S> <C> <C>
One-year 2.65% (0.43)%
Three-year 6.46% 5.38%
Five-year 7.08% 6.43%
Since inception
(8/18/92) 5.92% 5.45%
</TABLE>
The maximum sales charge is 3%. All returns represent past performance and
neither predict nor guarantee future investment results. Your investment return
and principal value will fluctuate so that shares, when redeemed, may be worth
more or less than their original cost. The advisor is currently waiving fees of
.15% for this portfolio. Had the fees not been waived, returns would have been
lower.
COMMENTS
The Income Portfolio was about even with the Lehman Government/Corporate
Intermediate Bond Index for the first six months of 1999 losing -.54% versus
- -.58% for the Index. For the year ended 6-30-99, the fund trailed the Index
2.65% to 4.19%. Corporate bond performance especially in the Baa category was
poor relative to U.S. Treasury Securities in the last half of 1998. So far this
year corporates in that category have done better than U.S. Treasury Securities.
The economy is expected to slow somewhat in the second half of 1999 and interest
rates will likely be more stable than the first half of this year when long U.S.
Treasury Bond yields increased by about 1%.
CHANGE IN VALUE OF $10,000 INVESTMENT
<TABLE>
<CAPTION>
INCOME PORTFOLIO (WITH MAX. SALES
CHARGE)|(COMMENCED OPERATIONS LEHMAN BROS. GOVT./CORPORATE BOND
AUGUST 18, 1992) INDEX - INTERMEDIATE
--------------------------------- ---------------------------------
<S> <C> <C>
9,700.00 10,000.00
'92 9,757.00 10,100.00
10,827.00 10,721.00
'93 11,051.00 10,981.00
10,409.00 10,691.00
'94 10,449.00 10,767.00
11,621.00 11,799.00
'95 12,202.00 12,414.00
12,150.00 12,388.00
'96 12,771.00 12,917.00
13,158.00 13,282.00
'97 13,810.00 13,933.00
14,282.00 14,411.00
'98 14,739.00 15,101.00
14,659.00 15,014.00
</TABLE>
Hypothetical illustration based on past performance. Future performance will
vary. All returns reflect reinvested dividends. The portfolio's holdings may
differ significantly from the securities in the index. The index is unmanaged
and therefore does not reflect the cost of portfolio management or trading.
Neither the portfolio nor the index is open to direct investment.
TOP 10 BONDS AS OF JUNE 30, 1999
<TABLE>
<CAPTION>
% of Portfolio
<C> <S> <C>
1. U.S. Treasury Note 14.51
2. Texas Utilities Electric Co. 4.82
3. Watson Pharmaceuticals, Inc 4.54
4. Mirage Resorts Inc. 4.42
5. ITT Destinations Inc. 4.30
6. Mississippi Chemical Corp. 4.27
7. El Paso Electric Co. 4.24
8. Lyondell Chemicals, Inc. Series
144A 4.08
9. IBM Corp. 4.07
10. Tenneco Inc. 4.07
</TABLE>
TOP 5 INDUSTRIES AS OF JUNE 30, 1999
<TABLE>
<CAPTION>
% of Portfolio
<C> <S> <C>
1. Utilities 20.40
2. U.S. Treasury Notes 14.42
3. Hotel/Lodging 11.72
4. Oil, Energy, and Natural Gas 8.70
5. Chemicals 8.30
</TABLE>
<PAGE> 80
ONE FUND, INC.
INCOME PORTFOLIO
SCHEDULE OF INVESTMENTS JUNE 30, 1999
<TABLE>
<CAPTION>
FACE MARKET
AMOUNT LONG-TERM BONDS & NOTES VALUE
- -------------------------------------------------------------
<C> <S> <C>
GOVERNMENT (14.4%)
$900,000 U.S. Treasury Note 6.375% 08/15/02.... $ 917,438
----------
CHEMICALS (8.3%)
250,000 Lyondell Chemicals Inc. (144A) 9.625%
05/01/07............................. 258,125
300,000 Mississippi Chemical Corp. 7.250%
11/15/07............................. 270,015
----------
528,140
----------
COMMUNICATIONS (1.7%)
100,000 Comcast Cable Communications 8.375%
05/01/07............................. 106,918
----------
COMPUTER & RELATED (4.1%)
250,000 IBM Corp. 7.250% 11/01/02............. 257,723
----------
DRUGS (4.5%)
300,000 Watson Pharmaceuticals Inc. 7.125%
05/15/08............................. 287,618
----------
FORESTRY & PAPER PRODUCTS (4.0%)
250,000 ITT Rayonier Inc. 7.500% 10/15/02..... 256,812
----------
HOTEL/LODGING (11.7%)
200,000 Hilton Hotels Corp. 7.200% 12/15/09... 191,733
300,000 ITT Destinations Inc. 6.750%
11/15/05............................. 272,209
300,000 Mirage Resorts Inc. 6.750% 02/01/08... 279,878
----------
743,820
----------
MEDICAL & RELATED (4.0%)
250,000 Bergen Brunswig Corp. 7.375%
01/15/03............................. 251,369
----------
OIL, ENERGY & NATURAL GAS (8.7%)
200,000 PDV America, Inc. 7.875% 08/01/03..... 195,745
100,000 Seagull Energy 7.875% 08/01/03........ 100,410
250,000 Tenneco Inc. 8.075% 10/01/02.......... 257,629
----------
553,784
----------
REAL ESTATE (3.1%)
200,000 Avalon Properties Inc. 7.375%
09/15/02............................. 200,575
----------
TEXTILES & RELATED (3.9%)
250,000 Fruit of the Loom Corp. 7.875%
10/15/99............................. $ 250,086
----------
TRANSPORTATION & EQUIPMENT (6.9%)
200,000 ABC Rail Product Corp. 8.750%
12/01/04............................. 188,000
250,000 Illinois Central Gulf Railroad 6.750%
05/15/03............................. 251,453
----------
439,453
----------
</TABLE>
<TABLE>
<CAPTION>
FACE MARKET
AMOUNT LONG-TERM BONDS & NOTES VALUE
- -------------------------------------------------------------
<C> <S> <C>
UTILITIES (14.4%)
$250,000 El Paso Electric Co. 8.900%
02/01/06............................. $ 268,301
200,000 Niagara Mohawk Power Corp. 7.750%
10/01/08............................. 206,154
137,426 Puget Power 6.450% 04/11/05........... 136,685
300,000 Texas Utilities Electric 7.480%
01/01/17............................. 304,992
----------
916,132
----------
TOTAL LONG-TERM BONDS & NOTES (89.7%)
(COST $5,716,850).................... $5,709,868
----------
</TABLE>
<TABLE>
<CAPTION>
MARKET
SHARES PREFERRED STOCK VALUE
- -------------------------------------------------------------
<C> <S> <C>
UTILITIES (6.0%)
8,000 GTE Delaware 8.750% Series B....... $ 203,000
7,000 Connecticut Light, Power & Capital
9.300% Series A................... 179,375
-----------
382,375
-----------
TOTAL PREFERRED STOCK (6.0%)
(COST $375,000)................... $ 382,375
-----------
</TABLE>
<TABLE>
<CAPTION>
FACE MARKET
AMOUNT SHORT-TERM NOTES VALUE
- -------------------------------------------------------------
<C> <S> <C>
FINANCIAL SERVICES (3.6%)
$230,000 Household Finance 5.450% 07/01/99..... $ 230,000
----------
TOTAL SHORT-TERM NOTES (3.6%)
(COST $230,000)...................... $ 230,000
----------
TOTAL HOLDINGS (99.3%)
(COST $6,321,850) (A)................ $6,322,243
----------
CASH & RECEIVABLES, NET OF LIABILITIES
(0.7%)............................... 42,191
----------
TOTAL NET ASSETS (100.0%)............. $6,364,434
==========
</TABLE>
- ---------------
(a) Also represents cost for Federal income tax purposes.
(144A) Security exempt from registration under Rule 144A of the Securities Act
of 1933. These Securities may be resold in transactions exempt from
registration, normally to qualified buyers. At the period end, the value
of these securities amounted to $258,125 or 4.1% of net assets.
<PAGE> 81
ONE FUND, INC.
INCOME PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES
June 30, 1999
<TABLE>
<S> <C>
Assets:
Investments in securities at market value
(note 1) (Cost $6,321,850)............... $6,322,243
Cash in bank............................... 756
Dividends & accrued interest receivable.... 113,375
Other...................................... 1,627
----------
Total assets............................. 6,438,001
----------
Liabilities:
Payable for shares redeemed................ 21,601
Payable for investment management services
(note 3)................................. 2,019
Accrued 12b-1 fees (note 6)................ 3,418
Other accrued expenses..................... 18,860
Dividends payable.......................... 27,669
----------
Total liabilities........................ 73,567
----------
Net assets at market value................... $6,364,434
==========
Net assets consist of:
Par value, $.001 per share................. $ 657
Paid-in capital in excess of par value..... 6,399,072
Accumulated undistributed net realized loss
on investments........................... (35,688)
Net unrealized appreciation on
investments.............................. 393
----------
Net assets at market value................... $6,364,434
==========
Shares outstanding........................... 657,044
Net asset value per share.................... $ 9.69
==========
Maximum offering price per share
($9.69/97%)................................ $ 9.99
==========
</TABLE>
STATEMENT OF OPERATIONS
For Year Ended June 30, 1999
<TABLE>
<S> <C>
Investment income:
Interest.................................... $ 470,680
---------
Expenses:
Management fees (note 3).................... 33,132
12b-1 fees (note 6)......................... 16,542
Custodian fees (note 3)..................... 5,023
Directors' fees (note 3).................... 1,275
Professional fees........................... 4,437
Transfer agent & accounting fees............ 34,276
Filing fees................................. 5,999
Printing, proxy and postage fees............ 2,081
Other....................................... 194
---------
Total expenses............................ 102,959
Less expenses voluntarily reduced or
reimbursed (note 3)..................... (9,973)
---------
Net expenses.............................. 92,986
---------
Net investment income..................... 377,694
---------
Realized and unrealized gain (loss) on
investments:
Net realized gain from investments............ 19,787
Net decrease in unrealized appreciation on
investments............................... (223,951)
---------
Net loss on investments................. (204,164)
---------
Net increase in net assets from
operations........................... $ 173,530
=========
</TABLE>
<PAGE> 82
ONE FUND, INC.
INCOME PORTFOLIO
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
JUNE 30, 1999 JUNE 30, 1998
------------- -------------
<S> <C> <C>
From operations:
Net investment income..................................... $ 377,694 $ 400,680
Realized gain on investments.............................. 19,787 48,077
Unrealized gain (loss) on investments..................... (223,951) 117,144
---------- ----------
Net increase in assets from operations................ 173,530 565,901
---------- ----------
Dividends and distributions to shareholders:
Dividends paid from net investment income................. (377,694) (400,680)
---------- ----------
From capital share transactions (note 4):
Received from shares sold................................. 327,145 759,219
Received from dividends reinvested........................ 66,015 79,395
Paid for shares redeemed.................................. (748,947) (702,729)
---------- ----------
Increase (decrease) in net assets derived from capital
share transactions................................... (355,787) 135,885
---------- ----------
Increase (decrease) in net assets.................. (559,951) 301,106
---------- ----------
Net Assets:
Beginning of period....................................... 6,924,385 6,623,279
---------- ----------
End of period............................................. $6,364,434 $6,924,385
========== ==========
</TABLE>
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
--------------------------------------------------
1999 1998 1997 1996 1995
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Per share data:
Net asset value, beginning of period........................ $ 9.99 $ 9.75 $ 9.59 $ 9.78 $ 9.39
Income (loss) from investment operations:
Net investment income..................................... 0.57 0.59 0.61 0.63 0.65
Net realized & unrealized gain (loss) on investments...... (0.30) 0.24 0.16 (0.19) 0.39
------ ------ ------ ------ ------
Total income from investment operations................. 0.27 0.83 0.77 0.44 1.04
------ ------ ------ ------ ------
Less distributions:
Dividends from net investment income...................... (0.57) (0.59) (0.61) (0.63) (0.65)
Distributions from net realized capital gains............. 0.00 0.00 0.00 0.00 0.00
------ ------ ------ ------ ------
Total distributions..................................... (0.57) (0.59) (0.61) (0.63) (0.65)
------ ------ ------ ------ ------
Net asset value, end of period.............................. $ 9.69 $ 9.99 $ 9.75 $ 9.59 $ 9.78
====== ====== ====== ====== ======
Total return................................................ 2.65% 8.56% 8.26% 4.61% 11.58%
Ratios and supplemental data:
Ratio net of fees waived or reimbursed by advisor (a):
Expenses.................................................. 1.40% 1.39% 1.21% 0.97% 0.85%
Net investment income..................................... 5.70% 5.91% 6.29% 6.50% 6.80%
Ratios assuming no fees waived or reimbursed by advisor:
Expenses.................................................. 1.55% 1.54% 1.51% 1.22% 1.10%
Net investment income..................................... 5.55% 5.76% 5.99% 6.25% 6.55%
Portfolio turnover rate..................................... 4% 40% 10% 9% 4%
Net assets at end of period (millions)...................... $ 6.4 $ 6.9 $ 6.6 $ 7.0 $ 7.1
</TABLE>
- ---------------
(a) The advisor has elected to waive management fees equal to 0.15% of average
net assets for the Income portfolio, but it may cease that waiver, in whole
or in part, without prior notice.
<PAGE> 83
INTERNATIONAL PORTFOLIO
ONE FUND, INC.
OBJECTIVE
To provide long-term capital growth by investing primarily in common stock (and
securities convertible into common stocks) of foreign companies. When deemed
appropriate for temporary defensive purposes, it may invest in short-term debt
instruments, U.S. Government obligations or in U.S. common stock.
PERFORMANCE AS OF DECEMBER 31, 1998
AVERAGE ANNUAL TOTAL RETURNS:
<TABLE>
<CAPTION>
Without With max.
sales charge sales charge
<S> <C> <C>
One-year (13.90)% (18.20)%
Three-year (1.28)% (2.95)%
Five-year 3.97% 2.91%
Since inception
(5/1/93) 8.91% 8.01%
</TABLE>
The maximum sales charge is 5%. All returns represent past performance and
neither predict nor guarantee future investment results. Your investment return
and principal value will fluctuate so that shares, when redeemed, may be worth
more or less than their original cost.
COMMENTS
We finally began to see investors focus again on emerging markets and Japan
after a notable period of underperformance. This turnaround was attributable to
investor optimism that the "Asian Crisis" is finally over. This rally however
came at the expense of the markets in Western Europe. Concerns over economic
slowdown, a weak Euro currency, and fund outflows were factors. The year-to-date
performance ending June 30, 1999 for the One Fund International Portfolio stood
at -4.75%. This compared with 3.97% for the Morgan Stanley International Europe,
Australia, and Far East Index. The fund's underperformance was due to the timing
in the first half of 1999 in restructuring the fund. In the second-half of 1999
the fund better matched our investment strategy. Our investment discipline is
driven by security selection where we are looking for well positioned companies
with strong bottom line growth that are trading at reasonable valuations.
Moreover, the fund was well positioned when the Japanese equity market began to
rally. Secondly, positions in the telecom and media sectors in Western Europe
continued to pay dividends. Finally, some of our top holdings include, Softbank,
a leading Japanese based software and media company and Nortel Networks, a
leading provider of global high-capacity data networks for telephone and the
internet.
CHANGE IN VALUE OF $10,000 INVESTMENT
<TABLE>
<CAPTION>
INTERNATIONAL PORTFOLIO (WITH MAX.
SALES CHARGE)|(COMMENCED OPERATIONS MORGAN STANLEY CAPTL. INTL. EAFE
MAY 1, 1993) INDEX
----------------------------------- --------------------------------
<S> <C> <C>
9,500.00 10,000.00
9,930.00 10,052.00
'93 12,920.00 10,826.00
13,940.00 11,792.00
'94 14,160.00 11,699.00
14,830.00 12,021.00
'95 15,840.00 13,049.00
17,600.00 13,659.00
'96 18,050.00 13,880.00
20,200.00 15,457.00
'97 18,271.00 14,041.00
19,219.00 16,299.00
'98 17,374.00 16,742.00
16,549.00 17,407.00
</TABLE>
Hypothetical illustration based on past performance. Future performance will
vary. All returns reflect reinvested dividends. The portfolio's holdings may
differ significantly from the securities in the index. The index is unmanaged
and therefore does not reflect the cost of portfolio management or trading. It
is not open to direct investment.
TOP 10 HOLDINGS AS OF JUNE 30, 1999
<TABLE>
<CAPTION>
% of Portfolio
<C> <S> <C>
1. Vivendi Ex Gen Des Faux 1.69
2. Sony Corp 1.55
3. British Telecom PLC 1.28
4. Mobilcom AG 1.25
5. Nortel Networks Corp 1.20
6. Global Telesystems Group, Inc 1.19
7. Softbank Corp 1.16
8. M-6 Metropole Television 1.13
9. Bouygues 1.11
10. Mannesmann AG 1.07
</TABLE>
TOP 5 COUNTRIES/REGIONS AS OF JUNE 30, 1999
<TABLE>
<CAPTION>
% of Portfolio
<C> <S> <C>
1. Japan 25.52
2. United Kingdom 13.72
3. France 11.88
4. Germany 7.12
5. Canada 6.26
</TABLE>
<PAGE> 84
ONE FUND, INC.
INTERNATIONAL PORTFOLIO
SCHEDULE OF INVESTMENTS JUNE 30, 1999
<TABLE>
<CAPTION>
MARKET
SHARES FOREIGN COMMON STOCK VALUE
- -----------------------------------------------------------
<C> <S> <C>
JAPAN (25.5%)
500 Advantest Corp. (12)................. $ 54,920
1,200 Aiwa Co. Ltd. (11)................... 39,641
1,500 Asatsu Inc. (29)..................... 39,641
3,200 Capcom Co. Ltd. (9).................. 67,787
3,000 Ebara Corp. (21)..................... 35,653
1,100 Enix Corp. (9)....................... 47,966
1,000 Fujitec Co. Ltd. (4)................. 9,473
2,000 Fujitsu Ltd.(9)...................... 40,220
8,900 Furukawa Electric Co. (11)........... 40,794
4,000 Hitachi Ltd. (11).................... 37,494
5,000 Inax Corp. (4)....................... 30,516
1,600 Kao Corp. (10)....................... 44,927
200 Keyence Corp. (12)................... 34,984
1,000 Kyorin Pharmaceutical Co. (24)....... 24,859
1,400 Matsushita-Kotobuki Electronics
(12)................................ 39,542
1,100 Mycal Card Inc. (15)................. 49,965
1,600 Namco Ltd. (14)...................... 42,945
4,000 Nec Corp. (12)....................... 49,717
6,000 Nikko Securities Co. Ltd. (15)....... 38,700
3,000 Nikon Corp. (12)..................... 49,056
3,000 Nippon Conlux Co. Ltd. (11).......... 16,129
1,000 Nippon Broadcasting System (23)...... 49,552
3,000 Olympus Optical Co. Ltd. (12)........ 44,324
800 Paris Miki Inc. (23)................. 43,606
1,300 Paltek Corp. (34).................... 51,105
200 Rohm Co Ltd. (12).................... 31,300
14,000 Sanyo Electric Co. Ltd. (11)......... 56,886
3,500 Sharp Corp. (12)..................... 41,335
800 Shimamura Co. Ltd. (28).............. 67,721
1,600 Shimachu (28)........................ 35,413
3,300 Shinkawa Ltd. (12)................... 71,404
400 Softbank Corp. (34).................. 80,968
1,000 Sony Corp. (12)...................... 107,776
1,700 Square Co. Ltd. (12)................. 61,213
4,000 Sumitomo Forestry Co. Ltd. (4)....... 31,119
1,000 Takeda Chemical Industries (24)...... 46,331
2,000 Taiyo Yuden Co. Ltd. (12)............ 32,803
500 Union Tool (12)...................... 37,164
15,000 *Wako Securities Co. Ltd. (15)....... 33,200
----------
1,758,149
----------
UNITED KINGDOM (13.7%)
3,500 *Allied Domecq plc (16).............. 33,822
1,050 *Arm Holdings plc ADR (12)........... 36,619
2,927 *Baltimore Tech. Zergo Hldgs (29).... 33,222
1,100 Barclays (3)......................... 32,062
2,800 British Telecom plc (8).............. 46,788
9,207 *Cable & Wireless Communications
(8)................................. 88,825
1,487 *Colt Telecom Group plc (8).......... 31,223
950 *Eidos plc (9)....................... 31,225
27,200 Electronics Boutique plc (12)........ 39,555
2,713 *Energis plc (8)..................... 64,451
4,000 *Future Network plc (23)............. 26,641
2,762 *Icon plc ADR (29)................... 54,204
</TABLE>
<TABLE>
<CAPTION>
MARKET
SHARES FOREIGN COMMON STOCK VALUE
- -----------------------------------------------------------
<C> <S> <C>
UNITED KINGDOM, CONTINUED
1,950 Logica plc (29)...................... $ 20,442
1,912 *National Westminister Bank (3)...... 40,509
4,500 Prudential Corp. plc (20)............ 66,611
5,400 *Reuters Group plc (23).............. 71,122
150 *Sage Group plc (9).................. 5,332
7,000 Securicor plc (29)................... 61,464
2,200 *Sema Group plc (29)................. 21,207
3,400 *Shire Pharmaceuticals Group (24).... 28,272
2,800 Smithkline Beecham plc (24).......... 36,349
10,857 *Telewest Communications plc (8)..... 48,435
2,800 *W.H. Smith Group plc (22)........... 26,903
----------
945,283
----------
FRANCE (11.9%)
275 Alcatel (11)......................... 38,681
292 Bouygues (4)......................... 77,119
3,125 *Bull Sa (9)......................... 26,856
350 *Club Mediterrance (14).............. 37,112
511 Dexia France (3)..................... 68,348
150 Essolor Intl. (24)................... 46,849
48,100 *Eurotunnel Sa Esa Units (32)........ 70,877
487 *Infogrames Entertainment (14)....... 31,364
140 Labinal (11)......................... 37,047
375 M-6 Metropole Television (23)........ 78,791
500 Pernod Ricard (16)................... 33,490
2,000 *Remy Cointreau (16)................. 38,766
270 Societe Du Louvre (14)............... 19,740
175 Television Francaise (23)............ 40,754
1,600 Thomson CSF (1)...................... 55,562
1,450 Vivendi Ex Gen Des Fuax (29)......... 117,365
----------
818,721
----------
GERMANY (7.1%)
750 Bayer AG (7)......................... 31,184
420 *Consors Discount Broker (15)........ 32,026
180 *Intershop Communications AG (29).... 43,217
540 *Kinowelt Medien AG (23)............. 40,342
497 Mannesmann AG (8).................... 74,259
100 *Medion AG (34)...................... 28,646
950 Mobilcom AG (8)...................... 87,125
768 Ser Systeme AG (12).................. 44,713
900 Siemens AG (22)...................... 69,370
1,150 *Telegate AG (8)..................... 39,343
----------
490,225
----------
CANADA (6.3%)
900 *Celestcia Inc. (12)................. 38,981
1,000 Four Seasons Hotels Inc. (19)........ 43,739
9,700 *Intl Forest Producers CL A (17)..... 36,950
200 *JDS Uniphase........................ 33,227
1,800 Molson Cos. Ltd. CL A (16)........... 32,692
5,500 Nexfor Inc. (17)..................... 34,045
970 Nortel Networks Corp. (11)........... 83,137
900 Teleglobe Inc. (8)................... 26,662
</TABLE>
(continued)
<PAGE> 85
ONE FUND, INC.
INTERNATIONAL PORTFOLIO (CONTINUED)
SCHEDULE OF INVESTMENTS JUNE 30, 1999
<TABLE>
<CAPTION>
MARKET
SHARES FOREIGN COMMON STOCK VALUE
- -----------------------------------------------------------
<C> <S> <C>
CANADA, CONTINUED
3,338 *Telesystem Intl. Wireless Inc.
(8)................................. $ 60,738
856 *TLC The Laser Center (24)........... 40,759
----------
430,930
----------
NETHERLANDS (3.1%)
500 *ASM Lithography ADR (12)............ 29,688
1,107 Benckiser NV B Shares (10)........... 59,032
628 *Equant NV Reg Shares (29)........... 59,110
2,750 TNT Post Group NV (32)............... 65,601
63 United Pan-Europe Com-Sp ADR (8)..... 3,481
----------
216,912
----------
SINGAPORE & MALAYSIAN (2.2%)
22,000 Clipsal Inc. Ltd. (12)............... 34,100
9,000 Fraser & Neave Ltd. (16)............. 39,907
29,600 Kim Eng Holding (15)................. 27,641
3,000 Singapore Press Holding (23)......... 51,095
----------
152,743
----------
AUSTRALIA (2.2%)
5,018 Aust & NZ Banking Group Ltd. (3)..... 36,834
31,446 *Cable & Wireless Opus (8)........... 71,476
6,704 Publishing Broadcasting (23)......... 44,164
----------
152,474
----------
SWITZERLAND (2.1%)
45 *Distefora Holding AG (34)........... 4,627
127 Publicigroupe SA (23)................ 69,374
75 The Swath Group AG-Reg (28).......... 10,700
107 Zurich Allied AG (20)................ 60,787
----------
145,488
----------
GREECE (2.1%)
1,100 *Bank of Piraeus (3)................. 31,748
660 Commercial Bank Of Greece (3)........ 47,150
1 EFG Eurobank (3)..................... 24
1,400 Lambrakis Media Group (23)........... 35,455
1,700 Teletypos SA (8)..................... 30,194
----------
144,571
----------
HONG KONG (1.9%)
10,000 *Pacific Century Ins. (20)........... 8,094
8,000 Midland Realty Holdings Ltd. (27).... 1,155
19,300 Smartone Telecommunications (8)...... 68,656
38,000 Wheelock & Co. (27).................. 52,161
----------
130,066
----------
ITALY (1.8%)
7,564 Class Editori Spa (23)............... 60,406
1,650 Luxottica Group Spa Spon ADR (24).... 25,678
1,650 Pininfarina Spa (2).................. 36,895
----------
122,979
----------
SWEDEN (1.7%)
2,897 *Modern Times Group B Shares (23).... 62,954
18,828 Societe Europeene Comm B (8)......... 52,114
----------
115,068
----------
</TABLE>
<TABLE>
<CAPTION>
MARKET
SHARES FOREIGN COMMON STOCK VALUE
- -----------------------------------------------------------
<C> <S> <C>
BRAZIL (1.7%)
1,800 Telesp Cellular Part ADR (8)......... $ 48,150
2,100 Tele Norte Leste Participacoes (8)... 38,981
8,800 Usinas Sider Minas Gerais (25)....... 29,864
----------
116,995
----------
THAILAND (1.7%)
6,100 Bec World Public Co. Ltd. (23)....... 37,671
9,700 *Hana Microelectronics (12).......... 28,900
19,400 *Thai Airways Intl Ltd. (32)......... 36,519
4,000 *Total Access Communications (8)..... 12,800
----------
115,890
----------
INDONESIA (1.2%)
17,500 PT Indosat (8)....................... 33,723
21,000 PT Semen Gresik (4).................. 45,985
----------
79,708
----------
FINLAND (0.9%)
6,700 Merita plc (3)....................... 38,041
800 Nokian Renkaat OYJ (2)............... 24,731
----------
62,772
----------
LUXEMBOURG (0.7%)
354 Societe Europeene Satel ADR (23)..... 51,343
----------
MEXICO (0.6%)
1,000 *Groupo Televisa SA Spons GDR (23)... 44,813
----------
DENMARK (0.4%)
300 Falck A/S (29)....................... 24,525
----------
NORWAY (0.1%)
728 Schibsted (23)....................... 8,187
----------
IRELAND (0.0%)
50 *Ryanair Holdings plc SP ADR (32).... 2,650
----------
TOTAL FOREIGN COMMON STOCK (88.9%)
(COST $5,848,616)................... $6,130,492
----------
</TABLE>
<TABLE>
<CAPTION>
MARKET
SHARES US COMMON STOCK VALUE
- ----------------------------------------------------------
<C> <S> <C>
COMMUNICATIONS (1.6%)
1,020 *Global Telesystems Group Inc. ...... $ 82,620
383 *NTL Inc. Holdings Co. .............. 33,010
----------
TOTAL US COMMON STOCK (1.6%) (COST
$90,314)............................ 115,630
----------
TOTAL COMMON STOCK (90.5%) (COST
$5,938,930)......................... $6,246,122
----------
</TABLE>
(continued)
<PAGE> 86
ONE FUND, INC.
INTERNATIONAL PORTFOLIO (CONTINUED)
SCHEDULE OF INVESTMENTS JUNE 30, 1999
<TABLE>
<CAPTION>
MARKET
SHARES FOREIGN PREFERRED STOCK VALUE
- ----------------------------------------------------------
<C> <S> <C>
AUSTRALIA (1.0%)
48,032 Village Roadshow Ltd. (14)........... $ 71,726
----------
GERMANY (0.6%)
56 Wella AG (10)........................ 39,817
----------
TOTAL FOREIGN PREFERRED STOCK (1.6%)
(COST $112,589)..................... $ 111,543
----------
TOTAL HOLDINGS (92.1%) (COST
$6,051,519)(A)...................... $6,357,665
----------
CASH & RECEIVABLES, NET OF
LIABILITIES (7.9%).................. 530,896
----------
TOTAL NET ASSETS (100.0%)............ $6,888,561
==========
</TABLE>
- ---------------
(a) Also represents cost for Federal income tax purposes.
* Non-income producing securities.
INDUSTRY CLASSIFICATIONS
<TABLE>
<S> <C>
(1) Aerospace (18) Governmental
(2) Automotive (19) Hotels
(3) Banking (20) Insurance
(4) Building/Construction (21) Machinery
(5) Capital Goods (22) Manufacturing
(6) Cement (23) Media & Publishing
(7) Chemicals (24) Medical & Health Care
(8) Communications (25) Metal & Mining
(9) Computer Products (26) Packaging
(10) Consumer Products (27) Real Estate
(11) Electrical Products (28) Retailing
(12) Electronics (29) Services
(13) Energy and Oil (30) Steel
(14) Entertainment & Leisure (31) Textile
(15) Finance (32) Transportation
(16) Food & Beverage (33) Utilities
(17) Forest & Paper Products (34) Wholesale
(35) Miscellaneous
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE> 87
ONE FUND, INC
INTERNATIONAL PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES
June 30,1999
<TABLE>
<S> <C>
Assets:
Investments in securities at market value
(note 1) (Cost $6,051,519)............... $ 6,357,665
Cash in bank............................... 162,860
Unrealized gain on forward currency
contracts (note 5)....................... 241,472
Receivable for securities sold............. 620,082
Receivable for fund shares sold............ 48
Dividends & accrued interest receivable.... 36,854
Other...................................... 4,623
-----------
Total assets............................. 7,423,604
-----------
Liabilities:
Unrealized loss on forward currency
contracts (note 5)....................... 269,007
Payable for securities purchased........... 175,670
Payable for fund shares redeemed........... 56,896
Accrued 12b-1 fees (note 6)................ 5,049
Other accrued expenses..................... 28,421
-----------
Total liabilities........................ 535,043
-----------
Net assets at market value................... $ 6,888,561
===========
Net assets consist of:
Par value, $.001 per share................. $ 637
Paid-in capital in excess of par value..... 8,446,042
Accumulated undistributed net realized loss
on investments (note 1).................. (1,263,558)
Net unrealized appreciation (depreciation)
on:
Investments (note 1)..................... 306,146
Foreign currency related transactions.... (15,275)
Forward currency contracts (note 5)...... (27,535)
Undistributed net investment loss.......... (557,896)
-----------
Net assets at market value................... $ 6,888,561
===========
Shares outstanding........................... 636,602
Net asset value per share.................... $ 10.82
===========
Maximum offering price per share
($10.82/95%)............................... $ 11.39
===========
</TABLE>
STATEMENT OF OPERATIONS
For Year Ended June 30, 1999
<TABLE>
<S> <C>
Investment income:
Interest (net of $384 foreign taxes
withheld)................................ $ 57,406
Dividends (net of $11,046 foreign taxes
withheld)................................ 124,859
-----------
Total investment income.................. 182,265
Expenses:
Management fees (note 3)................... 88,376
12b-1 fees (note 6)........................ 25,116
Custodian fees (note 3).................... 67,000
Directors' fees (note 3)................... 2,560
Professional fees.......................... 8,881
Transfer agent & accounting fees........... 49,000
Filing fees................................ 12,001
Printing, proxy and postage fees........... 4,319
Other...................................... 373
-----------
Total expenses........................... 257,626
Less expenses voluntarily reduced or
reimbursed (note 3).................... (43,677)
-----------
Net expenses............................. 213,949
-----------
Net investment loss...................... (31,684)
-----------
Realized & unrealized gain (loss) on
investments & foreign currency:
Net realized loss from:
Investments.............................. (1,442,884)
Forward currency related transactions.... (526,402)
Net increase (decrease) in unrealized
appreciation (depreciation) on:
Investments............................ 367,709
Foreign currency related
transactions........................ (218,371)
-----------
Net loss on investments................ (1,819,948)
-----------
Net decrease in net assets from
operations.......................... $(1,851,632)
===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE> 88
ONE FUND, INC
INTERNATIONAL PORTFOLIO
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
JUNE 30, 1999 JUNE 30, 1998
------------- -------------
<S> <C> <C>
From operations:
Net investment income (loss).............................. $ (31,684) $ 142,380
Realized gain (loss) on investments and foreign currency
related transactions.................................... (1,969,286) 1,670,517
Unrealized gain (loss) on investments and foreign currency
related transactions.................................... 149,338 (2,430,256)
----------- -----------
Net decrease in assets from operations................ (1,851,632) (617,359)
----------- -----------
Dividends and distributions to shareholders:
Dividends paid from net investment income................. (97) (139,103)
Capital gains and foreign currency related transactions
distributions........................................... (285,520) (2,283,120)
----------- -----------
Total dividends and distributions..................... (285,617) (2,422,223)
----------- -----------
From capital share transactions (note 4):
Received from shares sold................................. 507,008 3,159,453
Received from dividends reinvested........................ 271,907 1,971,077
Paid for shares redeemed.................................. (6,315,910) (6,838,385)
----------- -----------
Decrease in net assets derived from capital share
transactions......................................... (5,536,995) (1,707,855)
----------- -----------
Decrease in net assets............................. (7,674,244) (4,747,437)
----------- -----------
Net Assets:
Beginning of period....................................... 14,562,805 19,310,242
----------- -----------
End of period............................................. $ 6,888,561 $14,562,805
=========== ===========
Includes undistributed net investment income of........... $ 0 $ 288
=========== ===========
</TABLE>
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
YEARS ENDED JUNE 30,
-----------------------------------------------
1999 1998 1997 1996 1995
------- ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Per share data:
Net asset value, beginning of period........................ $ 12.92 $15.45 $14.47 $12.89 $13.32
Income (loss) from investment operations:
Net investment income (loss).............................. (0.04) 0.12 0.14 0.10 0.14
Net realized and unrealized gain (loss) on investments and
foreign currency transactions........................... (1.74) (0.63) 1.92 2.24 0.63
------- ------ ------ ------ ------
Total income (loss) from investment operations.......... (1.78) (0.51) 2.06 2.34 0.77
------- ------ ------ ------ ------
Less distributions:
Dividends from net investment income...................... 0.00 (0.12) (0.15) (0.39) (0.14)
Distributions from net realized capital gains and foreign
currency transactions................................... (0.32) (1.90) (0.93) (0.37) (1.06)
------- ------ ------ ------ ------
Total distributions..................................... (0.32) (2.02) (1.08) (0.76) (1.20)
------- ------ ------ ------ ------
Net asset value, end of period.............................. $ 10.82 $12.92 $15.45 $14.47 $12.89
======= ====== ====== ====== ======
Total return................................................ (13.90)% (4.84)% 14.76% 18.65% 6.44%
Ratios and supplemental data:
Ratios net of fees reimbursed by advisor (a):
Expenses.................................................. 2.13% 2.10% 1.87% 1.72% 1.50%
Net investment income (loss).............................. (0.32)% 0.85% 0.99% 0.70% 1.11%
Ratios assuming no fees reimbursed by advisor:
Expenses.................................................. 2.56% 2.20% 1.98% 1.72% 1.50%
Net investment income (loss).............................. (0.75)% 0.75% 0.88% 0.70% 1.11%
Portfolio turnover rate..................................... 217% 12% 9% 20% 39%
Net assets at end of period (millions)...................... $ 6.9 $ 14.6 $ 19.3 $ 15.1 $ 12.0
</TABLE>
- ---------------
(a) The advisor has elected to reimburse certain operating expenses of the
International Portfolio, but it may cease that waiver, in whole or in part,
without prior written notice.
<PAGE> 89
GLOBAL CONTRARIAN PORTFOLIO
ONE FUND, INC.
OBJECTIVE
To provide long-term capital growth by investing in foreign and domestic
securities that, in the judgment of the portfolio manager, are undervalued or
presently out of favor with other investors but have positive prospects for
eventual recovery. Under normal market conditions, at least 65% of the
portfolio's assets will be invested in conformity with its investment
objectives.
PERFORMANCE AS OF JUNE 30, 1999
AVERAGE ANNUAL TOTAL RETURNS:
<TABLE>
<CAPTION>
Without With max.
sales charge sales charge
<S> <C> <C>
One-year (11.88)% (16.29)%
Three-year (1.05)% (2.73)%
Since inception
(11/1/94) 3.53% 2.39%
</TABLE>
The above returns reflect the maximum sales charge of 5% for this portfolio. All
returns represent past performance and neither predict nor guarantee future
investment results. Your investment return and principal value will fluctuate so
that shares, when redeemed, may be worth more or less than their original cost.
COMMENTS
We finally began to see investors focus again on emerging markets and Japan
after a notable period of underperformance. This turnaround was attributable to
investor optimism that the "Asian Crisis" is finally over. This rally however
came at the expense of the markets in Western Europe. Concerns over economic
slowdown, a weak Euro currency, and fund outflows were factors. The year-to-
date performance ending June 30, 1999 for the Global Contrarian Portfolio stood
at -4.72%. This compared with 3.97% for the Morgan Stanley International Europe,
Australia, and Far East Index. The fund's underperformance was due to the timing
in the first half of 1999 in restructuring the fund. In the second-half of 1999
the fund better matched our investment strategy. Our investment discipline is
driven by security selection where we are looking for well positioned companies
with strong bottom line growth that are trading at reasonable valuations.
Moreover, the fund was well positioned when the Japanese equity market began to
rally. Secondly, positions in the telecom and media sectors in Western Europe
continued to pay dividends. Finally, some of our top holdings include, Softbank,
a leading Japanese based software and media company and Nortel Networks, a
leading provider of global high-capacity data networks for telephone and the
internet.
CHANGE IN VALUE OF $10,000 INVESTMENT
<TABLE>
<CAPTION>
GLOBAL CONTRARIAN PORTFOLIO (WITH
MAX. SALES CHARGE)|(COMMENCED MORGAN STANLEY CAPTL. INTL. WORLD
OPERATIONS NOVEMBER 1, 1994) INDEX
--------------------------------- ---------------------------------
<S> <C> <C>
9,500.00 10,000.00
'94 9,150.00 9,654.00
9,781.00 10,066.00
'95 10,521.00 11,134.00
11,531.00 11,923.00
'96 11,581.00 12,634.00
12,811.00 14,578.00
'97 12,761.00 14,528.00
12,674.00 16,648.00
'98 11,721.00 17,631.00
11,168.00 19,132.00
</TABLE>
Hypothetical illustration based on past performance. Future performance will
vary. All returns reflect reinvested dividends. The portfolio's holdings may
differ significantly from the securities in the index. The index is unmanaged
and therefore does not reflect the cost of portfolio management or trading. It
is not open to direct investment.
TOP 10 STOCKS AS OF JUNE 30, 1999
<TABLE>
<CAPTION>
% of Portfolio
<C> <S> <C>
1. Sony Corp 2.05
2. Mannesmann AG 1.74
3. Bouygues 1.72
4. Nippon Broadcasting System 1.57
5. Prudential Corp PLC 1.45
6. Smartone Telecommunications 1.43
7. Advantest Corp 1.39
8. Cable and Wireless Comms PLC 1.33
9. Class Editori SPA 1.31
10. Mobilcom AG 1.28
</TABLE>
TOP 5 COUNTRIES AS OF JUNE 30, 1999
<TABLE>
<CAPTION>
% of Portfolio
<C> <S> <C>
1. Japan 28.11
2. United Kingdom 13.83
3. France 12.56
4. Germany 7.72
5. Canada 6.38
</TABLE>
The risk associated with investing on a worldwide basis include differences in
regulation of financial data and reporting and currency exchanges as well as
economic and political systems which may be different from those in the United
States. The prices of small company stocks are generally more volatile than the
prices of large company stocks.
<PAGE> 90
ONE FUND, INC.
GLOBAL CONTRARIAN PORTFOLIO
SCHEDULE OF INVESTMENTS JUNE 30, 1999
<TABLE>
<CAPTION>
MARKET
SHARES FOREIGN COMMON STOCK VALUE
- -------------------------------------------------------------
<C> <S> <C>
JAPAN (28.1%)
400 Advantest Corp. (12).................. $ 43,936
500 Aiwa Co. Ltd. (11).................... 16,517
600 Asatsu Inc. (29)...................... 15,857
1,300 Capcom Co. Ltd. (9)................... 27,539
1,000 Ebara Corp. (21)...................... 11,884
500 Enix Corp. (9)........................ 21,803
1,100 Fujitec Co. Ltd. (4).................. 10,420
1,000 Fujitsu Ltd. (9)...................... 20,110
4,000 Furukawa Electric Co. (11)............ 18,334
2,000 Hitachi Ltd. (11)..................... 18,747
2,000 Inax Corp. (4)........................ 12,206
700 Kao Corp. (10)........................ 19,656
100 Keyence Corp. (12).................... 17,492
1,000 Kyorin Pharmaceutical Co. (24)........ 24,859
600 Matsushita-Kotobuki Electronics
(12)................................. 16,947
500 Mycal Card Inc. (15).................. 22,711
700 Namco Ltd. (14)....................... 18,788
2,000 Nec Corp. (12)........................ 24,859
3,000 Nikko Securities Co. Ltd. (15)........ 19,350
1,000 Nikon Corp. (12)...................... 16,352
2,000 Nippon Conlux Co. Ltd. (11)........... 10,753
1,000 Nippon Broadcasting System (23)....... 49,552
1,000 Olympus Optical Co. Ltd. (12)......... 14,775
300 Paris Miki Inc. (23).................. 16,352
1,000 Paltek Corp. (34)..................... 39,311
100 Rohm Co Ltd. (12)..................... 15,650
5,000 Sanyo Electric Co. Ltd. (11).......... 20,316
1,500 Sharp Corp. (12)...................... 17,715
300 Shimamura Co. Ltd. (28)............... 25,395
700 Shimachu (28)......................... 15,493
1,500 Shinkawa Ltd. (12).................... 32,457
100 Softbank Corp. (34)................... 20,242
600 Sony Corp. (12)....................... 64,665
800 Square Co. Ltd. (12).................. 28,806
2,000 Sumitomo Forestry Co. Ltd. (4)........ 15,559
500 Takeda Chemical Industries (24)....... 23,166
1,000 Taiyo Yuden Co. Ltd. (12)............. 16,402
300 Union Tool (12)....................... 22,298
7,000 *Wako Securities Co. Ltd. (15)........ 15,493
----------
862,767
----------
UNITED KINGDOM (13.8%)
1,500 *Allied Domecq plc (16)............... 14,495
550 *Arm Holdings plc ADR (29)............ 19,181
1,583 *Baltimore Tech. Zergo Hldgs (9)...... 17,967
500 Barclays (3).......................... 14,574
1,100 British Telecom plc (8)............... 18,381
4,349 *Cable & Wireless Communications
(8).................................. 41,957
610 *Colt Telecom Group plc (8)........... 12,809
450 *Eidos plc (9)........................ 14,791
10,800 Electronics Boutique plc (12)......... 15,706
1,217 *Energis plc (8)...................... 28,911
1,900 *Future Network plc (23).............. 12,655
986 *Icon plc ADR (29).................... 19,350
775 Logica plc (29)....................... 8,124
686 *National Westminister Bank (3)....... 14,534
</TABLE>
<TABLE>
<CAPTION>
MARKET
SHARES FOREIGN COMMON STOCK VALUE
- -------------------------------------------------------------
<C> <S> <C>
UNITED KINGDOM, CONTINUED
3,100 Prudential Corp. plc (20)............. $ 45,887
2,200 *Reuters Group plc (23)............... 28,976
50 *Sage Group plc (9)................... 1,777
3,000 Securicor plc (29).................... 26,342
1,040 *Sema Group plc (29).................. 10,025
1,400 *Shire Pharmaceuticals Group (24)..... 11,642
1,200 Smithkline Beecham plc (24)........... 15,578
3,882 *Telewest Communications plc (8)...... 17,318
1,400 *W.H. Smith Group plc (22)............ 13,451
----------
424,431
----------
FRANCE (12.6%)
125 Alcatel (11).......................... 17,582
205 Bouygues (4).......................... 54,141
1,375 *Bull Sa (9).......................... 11,817
150 *Club Mediterrance (14)............... 15,905
235 Dexia France (3)...................... 31,432
60 Essolor Intl. (24).................... 18,740
19,600 *Eurotunnel Sa Esa Units (32)......... 28,881
216 *Infogrames Entertainment (14)........ 13,911
60 Labinal (11).......................... 15,877
150 M-6 Metropole Television (23)......... 31,516
200 Pernod Ricard (16).................... 13,396
950 *Remy Cointreau (16).................. 18,414
108 Societe Du Louvre (14)................ 7,896
90 Television Francaise (23)............. 20,959
1,050 Thomson CSF (1)....................... 36,462
600 Vivendi Ex Gen Des Fuax (29).......... 48,565
----------
385,494
----------
GERMANY (7.7%)
350 Bayer AG (7).......................... 14,553
190 *Consors Discount Broker (15)......... 14,488
60 *Intershop Communications AG (9)...... 14,406
256 *Kinowelt Medien AG (23).............. 19,125
367 Mannesmann AG (8)..................... 54,835
50 *Medion AG (34)....................... 14,323
440 Mobilcom AG (8)....................... 40,352
288 Ser Systeme AG (12)................... 16,767
400 Siemens AG (22)....................... 30,831
500 *Telegate AG (8)...................... 17,105
----------
236,785
----------
CANADA (6.4%)
400 *Celestcia Inc. (12).................. 17,325
400 Four Seasons Hotels Inc. (19)......... 17,495
4,000 *Intl Forest Producers CL A (17)...... 15,237
92 *JDS Uniphase (8)..................... 15,218
800 Molson Cos. Ltd. CL A (16)............ 14,530
2,400 Nexfor Inc. (17)...................... 14,856
395 Nortel Networks Corp. (11)............ 33,855
400 Teleglobe Inc. (8).................... 11,850
2,069 *Telesystem Intl. Wireless Inc. (8)... 37,648
371 *TLC The Laser Center (24)............ 17,665
----------
195,679
----------
</TABLE>
(continued)
<PAGE> 91
ONE FUND, INC.
GLOBAL CONTRARIAN PORTFOLIO (CONTINUED)
SCHEDULE OF INVESTMENTS JUNE 30, 1999
<TABLE>
<CAPTION>
MARKET
SHARES FOREIGN COMMON STOCK VALUE
- -------------------------------------------------------------
<C> <S> <C>
NETHERLANDS (3.4%)
250 *ASM Lithography ADR (12)............. $ 14,844
439 Benckiser NV B Shares (10)............ 23,410
356 *Equant NV Reg Shares (29)............ 33,509
1,250 TNT Post Group NV (32)................ 29,819
23 United Pan-Europe Com-Sp ADR (8)...... 1,271
----------
102,853
----------
HONG KONG (2.3%)
4,000 *Pacific Century Ins. (20)............ 3,238
4,000 Midland Realty Holdings Ltd. (27)..... 577
12,700 Smartone Telecommunications (8)....... 45,178
16,000 Wheelock & Co. (27)................... 21,962
----------
70,955
----------
AUSTRALIA (2.2%)
2,400 Aust & NZ Banking Group Ltd. (3)...... 17,617
14,555 *Cable & Wireless Opus (8)............ 33,083
2,689 Publishing Broadcasting (23).......... 17,714
----------
68,414
----------
ITALY (2.2%)
5,161 Class Editori Spa (23)................ 41,216
700 Luxottica Group Spa Spon ADR (24)..... 10,894
650 Pininfarina Spa (2)................... 14,534
----------
66,644
----------
GREECE (2.2%)
500 *Bank of Piraeus (3).................. 14,431
315 Commercial Bank Of Greece (3)......... 22,504
1 EFG Eurobank (3)...................... 11
600 Lambrakis Media Group (23)............ 15,195
800 Teletypos SA (8)...................... 14,209
----------
66,350
----------
SWEDEN (2.0%)
1,735 *Modern Times Group B Shares (23)..... 37,703
8,963 Societe Europeene Comm B (8).......... 24,809
----------
62,512
----------
SINGAPORE & MALAYSIAN (2.0%)
10,000 Clipsal Inc. Ltd. (12)................ 15,500
4,000 Fraser & Neave Ltd. (16).............. 17,737
12,500 Kim Eng Holding (15).................. 11,673
1,000 Singapore Press Holding (23).......... 17,032
----------
61,942
----------
SWITZERLAND (1.9%)
61 Publicigroupe SA (23)................. 33,322
40 The Swath Group AG-Reg (28)........... 5,707
35 Zurich Allied AG (20)................. 19,884
----------
58,913
----------
BRAZIL (1.7%)
750 Telesp Cellular Part ADR (8).......... 20,063
1,100 Tele Norte Leste Participacoes (8).... 20,419
3,700 Usinas Sider Minas Gerais (25)........ 12,557
----------
53,039
----------
</TABLE>
<TABLE>
<CAPTION>
MARKET
SHARES FOREIGN COMMON STOCK VALUE
- -------------------------------------------------------------
<C> <S> <C>
THAILAND (1.4%)
2,600 Bec World Public Co. Ltd. (23)........ $ 16,056
4,200 *Hana Microelectronics (12)........... 12,514
7,800 *Thai Airways Intl Ltd. (32).......... 14,683
----------
43,253
----------
INDONESIA (1.1%)
7,500 PT Indosat (8)........................ 14,453
9,000 PT Semen Gresik (4)................... 19,708
----------
34,161
----------
LUXEMBOURG (1.1%)
223 Societe Europeene Satel ADR (23)...... 32,343
----------
FINLAND (0.9%)
2,700 Merita plc (3)........................ 15,330
400 Nokian Renkaat OYJ (2)................ 12,365
----------
27,695
----------
MEXICO (0.6%)
400 *Groupo Televisa SA Spons GDR (23).... 17,925
----------
DENMARK (0.3%)
100 Falck A/S (29)........................ 8,175
----------
IRELAND (0.0%)
50 *Ryanair Holdings plc SP ADR (32)..... 2,650
----------
NORWAY (0.0%)
163 Schibsted (23)........................ 1,833
----------
TOTAL FOREIGN COMMON STOCK (93.9%)
(COST $2,731,860).................... $2,884,813
----------
</TABLE>
<TABLE>
<CAPTION>
MARKET
SHARES U.S. COMMON STOCK VALUE
- -------------------------------------------------------------
<C> <S> <C>
COMMUNICATIONS (1.6%)
440 *Global Telesystems Group Inc......... $ 35,640
161 *NTL Inc. Holdings Co................. 13,876
----------
TOTAL U.S. COMMON STOCK (1.6%) (COST
$39,366)............................. $ 49,516
----------
TOTAL COMMON STOCK (95.5%) (COST
$2,771,226).......................... $2,934,329
----------
</TABLE>
<TABLE>
<CAPTION>
MARKET
SHARES FOREIGN PREFERRED STOCK VALUE
- -------------------------------------------------------------
<C> <S> <C>
AUSTRALIA (1.1%)
22,079 Village Roadshow Ltd. (14)............ $ 32,970
GERMANY (0.7%)
30 Wella AG (10)......................... 21,330
----------
TOTAL FOREIGN PREFERRED STOCK (1.8%)
(COST $53,970)....................... $ 54,300
----------
</TABLE>
<TABLE>
TOTAL HOLDINGS (97.3%)
(Cost $2,828,086)(a). $2,988,629
<C> <S> <C>
----------
CASH & RECEIVABLES, NET OF LIABILITIES
(2.7%)............................... 80,472
----------
TOTAL NET ASSETS (100.0%)............. $3,069,101
==========
</TABLE>
(continued)
<PAGE> 92
ONE FUND, INC.
GLOBAL CONTRARIAN PORTFOLIO (CONTINUED)
SCHEDULE OF INVESTMENTS JUNE 30, 1999
- ---------------
(a) Also represents cost for Federal income tax purposes.
* Non-income producing securities.
INDUSTRY CLASSIFICATIONS
(1) Aerospace
(2) Automotive
(3) Banking
(4) Building/Construction
(5) Capital Goods
(6) Cement
(7) Chemicals
(8) Communications
(9) Computer Products
(10) Consumer Products
(11) Electrical Products
(12) Electronics
(13) Energy and Oil
(14) Entertainment & Leisure
(15) Finance
(16) Food & Beverage
(17) Forest & Paper Products
(18) Governmental
(19) Hotels
(20) Insurance
(21) Machinery
(22) Manufacturing
(23) Media & Publishing
(24) Medical & Health Care
(25) Metal & Mining
(26) Packaging
(27) Real Estate
(28) Retailing
(29) Services
(30) Steel
(31) Textile
(32) Transportation
(33) Utilities
(34) Wholesale
(35) Miscellaneous
The accompanying notes are an integral part of these financial statements.
<PAGE> 93
ONE FUND, INC.
GLOBAL CONTRARIAN PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES
June 30, 1999
<TABLE>
<S> <C>
Assets:
Investments in securities at market value
(note 1) (Cost $2,825,016)............... $ 2,988,629
Unrealized gain on forward currency
contracts (note 5)....................... 7,427
Receivable for securities sold............. 218,319
Dividends & accrued interest receivable.... 12,476
Other...................................... 25,075
-----------
Total assets............................. 3,251,926
-----------
Liabilities:
Accounts payable........................... 72,439
Payable for securities purchased........... 64,172
Payable for fund shares redeemed........... 18,480
Unrealized loss on forward currency
contracts (note 5)....................... 11,286
Accrued 12b-1 fees (note 6)................ 2,003
Other accrued expenses..................... 14,445
-----------
Total liabilities........................ 182,825
-----------
Net assets at market value................... $ 3,069,101
===========
Net assets consist of:
Par value, $.001 per share................. $ 390
Paid-in capital in excess of par value..... 3,967,440
Accumulated undistributed net realized loss
on investments (note 1).................. (1,008,433)
Net unrealized appreciation (depreciation)
on:
Investments (note 1)..................... 163,613
Foreign currency related transactions.... (644)
Forward currency contracts (note 5)...... (3,859)
Undistributed net investment loss.......... (49,406)
-----------
Net assets at market value................... $ 3,069,101
===========
Shares outstanding........................... 389,704
Net asset value per share.................... $ 7.88
===========
Maximum offering price per share
($7.88/95%)................................ $ 8.29
===========
</TABLE>
STATEMENT OF OPERATIONS
For Year Ended June 30, 1999
<TABLE>
<S> <C>
Investment income:
Interest.................................... $ 35,901
Dividends
(net of $4,264 foreign taxes withheld).... 83,137
---------
Total investment income................... 119,038
---------
Expenses:
Management fees (note 3).................... 34,827
12b-1 fees (note 6)......................... 9,674
Custodian fees (note 3)..................... 48,400
Directors' fees (note 3).................... 800
Professional fees........................... 2,926
Transfer agent & accounting fees............ 26,001
Filing fees................................. 5,750
Printing, proxy and postage fees............ 1,351
Organizational expense (note 1)............. 522
Other....................................... 120
---------
Total expenses............................ 130,371
---------
Less expenses voluntarily reduced or
reimbursed (note 3)..................... (47,996)
---------
Net expenses.............................. 82,375
---------
Net investment income..................... $ 36,663
---------
Realized & unrealized gain (loss) on
investments & foreign currency:
Net realized loss from:
Investments............................... $(857,799)
Forward currency related transactions..... (62,568)
Net increase (decrease) in unrealized
appreciation (depreciation) on:
Investments............................. 372,451
Foreign currency related transactions... (32,815)
---------
Net loss on investments................. (580,731)
---------
Net decrease in net assets from
operations........................... $(544,068)
=========
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE> 94
ONE FUND, INC.
GLOBAL CONTRARIAN PORTFOLIO
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
JUNE 30, 1999 JUNE 30, 1998
------------- -------------
<S> <C> <C>
From operations:
Net investment income..................................... $ 36,663 $ 76,677
Realized gain (loss) on investments and foreign currency
related transactions.................................... (920,367) 725,189
Unrealized gain (loss) on investments and foreign currency
related transactions.................................... 339,636 (820,703)
----------- -----------
Net decrease in assets from operations................ (544,068) (18,837)
----------- -----------
Dividends and distributions to shareholders:
Dividends paid from net investment income................. (26,610) (70,667)
Capital gains and foreign currency related transactions
distributions........................................... (685,933) (405,742)
----------- -----------
Total dividends and distributions..................... (712,543) (476,409)
----------- -----------
From capital share transactions (note 4):
Received from shares sold................................. 158,234 509,252
Received from dividends reinvested........................ 242,528 211,749
Paid for shares redeemed.................................. (1,137,132) (1,459,507)
----------- -----------
Decrease in net assets derived from capital share
transactions......................................... (736,370) (738,506)
----------- -----------
Decrease in net assets............................. (1,992,981) (1,233,752)
----------- -----------
Net Assets:
Beginning of period....................................... 5,062,082 6,295,834
----------- -----------
End of period............................................. $ 3,069,101 $ 5,062,082
=========== ===========
Includes undistributed net investment income of........... $ 0 $ 3,108
=========== ===========
</TABLE>
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
YEARS ENDED JUNE 30, 11-1-94
---------------------------------------- TO
1999 1998 1997 1996 6-30-95
------- ------ ------ ------ -------
<S> <C> <C> <C> <C> <C>
Per share data:
Net asset value, beginning of period........................ $ 10.76 $11.79 $11.48 $10.01 $10.00
Income (loss) from investment operations:
Net investment income..................................... 0.09 0.14 0.20 0.16 0.17
Net realized & unrealized gain (loss) on investment and
foreign currency transactions........................... (1.29) (0.26) 0.99 1.61 0.13
------- ------ ------ ------ ------
Total income (loss) from investment operations.......... (1.20) (0.12) 1.19 1.77 0.30
------- ------ ------ ------ ------
Less distributions:
Dividends from net investment income...................... (0.06) (0.13) (0.21) (0.16) (0.17)
Distributions from net realized capital gains and foreign
currency transactions................................... (1.62) (0.78) (0.67) (0.14) (0.12)
------- ------ ------ ------ ------
Total distributions..................................... (1.68) (0.91) (0.88) (0.30) (0.29)
------- ------ ------ ------ ------
Net asset value, end of period.............................. $ 7.88 $10.76 $11.79 $11.48 $10.01
======= ====== ====== ====== ======
Total return................................................ (11.88)% (1.05)% 11.11% 17.84% 2.99%(b)
Ratios and supplemental data:
Ratios net of fees reimbursed by advisor (c):
Expenses.................................................. 2.15% 2.13% 2.02% 2.14% 2.05%(a)
Net investment income..................................... 0.96% 1.28% 1.78% 1.49% 2.85%(a)
Ratios assuming no fees reimbursed by advisor:
Expenses.................................................. 3.40% 2.53% 2.21% 2.14% 2.05%(a)
Net investment income (loss).............................. (0.30)% 0.88% 1.59% 1.49% 2.85%(a)
Portfolio turnover rate..................................... 254% 25% 6% 26% 8%
Net assets at end of period (millions)...................... $ 3.1 $ 5.1 $ 6.3 $ 5.7 $ 3.9
</TABLE>
- ---------------
(a) Annualized.
(b) Calculated on an aggregate basis (not annualized).
(c) The advisor has elected to reimburse certain operating expenses of the
Global Contrarian portfolio, but it may cease that waiver, in whole or in
part, without prior notice.
The accompanying notes are an integral part of these financial statements.
<PAGE> 95
ONE FUND, INC. June 30, 1999
NOTES TO FINANCIAL STATEMENTS
(1) BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES
ONE Fund, Inc. (Fund) is registered under the Investment Company Act of 1940
as amended (the "1940 Act"), as a diversified open-end management investment
company. The Fund is a series investment company which consists of nine
separate investment portfolios that seek the following investment objectives:
- Money Market Portfolio -- current income consistent with preservation of
capital and liquidity.
- Tax-Free Income Portfolio -- high current income exempt from federal income
taxes.
- Income Portfolio -- high current income. Preservation of capital is a
secondary objective.
- Income & Growth Portfolio -- moderate income with the potential for
increasing income over time. Growth of capital is also a primary objective.
- Growth Portfolio -- long-term capital growth.
- Small Cap Portfolio -- maximum capital growth by investing primarily in
common stocks of small- and medium-sized companies.
- International Portfolio -- long-term capital growth by investing primarily
in common stocks of foreign companies.
- Global Contrarian Portfolio -- long-term growth of capital by investing in
foreign and domestic securities believed to be under valued or presently
out of favor.
- Core Growth Portfolio -- long-term capital appreciation.
There are no assurances these objectives will be met.
These notes pertain only to the Tax-Free Income, Income, International and
Global Contrarian Portfolios.
The following is a summary of significant accounting policies:
For the Income, and Tax-Free Income portfolios, all of the undistributed net
income is accrued as daily dividends to shareholders of record immediately
before each computation of the net asset value of these portfolios. Dividends
(representing net investment income) will normally be paid monthly to the
shareholders of these three portfolios. Distributions arising from net
investment income from the remaining portfolios are declared and paid to
shareholders quarterly and are recorded on the ex-dividend date. Accumulated
net realized capital gains are distributed to shareholders at least once a
year.
All securities which are traded on U.S. and foreign stock exchanges or in the
over-the-counter markets are valued at the last sale price or, if there has
been no sale that day, at the last bid reported as of 4:00 p.m. Eastern time
on each day the New York Stock Exchange is open for unrestricted trading.
Over-the-counter securities are valued at the last bid price at 4:00 p.m.
Eastern time. Short-term investments (investments with remaining maturities
of 60 days or less) are valued at amortized cost and fixed income securities
are valued by using market quotations, or independent pricing services which
use prices provided by market makers or estimates of market value obtained
from yield data relating to instruments or securities with similar
characteristics. All investments and cash quoted in foreign currencies are
valued daily in U.S. dollars on the basis of the foreign currency exchange
rates prevailing at the time of valuation.
Foreign currency exchange rates are generally determined prior to 4:00 p.m.
Eastern time. Occasionally, events affecting the value of foreign investments
and such exchange rates occur between the time at which they are determined
and the time of valuation, which in the case of the International and Global
Contrarian Portfolios, would not be reflected in the computation of the
portfolios' net asset values. If events materially affecting the value of
such securities or currency exchange rates occurred during such time period,
the securities are valued at their fair value as determined in good faith by
or under the direction of the Fund's Board of Directors.
In connection with purchases and sales of securities denominated in foreign
currencies, the Fund may enter into forward foreign currency exchange
contracts (forward contracts). A forward contract is a commitment to purchase
or sell a foreign currency at a future date, at a negotiated rate.
Additionally, the Fund may enter into such contracts to hedge certain other
foreign currency denominated investments. These contracts are recorded at
market value, and the related realized and unrealized foreign exchange gains
and losses are included in the statement of operations. In the event that
counterparties fail
45
<PAGE> 96
ONE FUND, INC. June 30, 1999
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
to settle these currency contracts or the related foreign security trades,
the Fund could be exposed to foreign currency fluctuations.
Each portfolio may, (a) write call options traded on a registered national
securities exchange if such portfolio owns the underlying securities subject
to such options, and purchase call options for the purpose of closing out
positions it has written, (b) purchase put options on securities owned, and
sell such options in order to close its positions in put options, (c)
purchase and sell financial futures and options thereon, and (d) purchase and
sell financial index options; provided, however, that no option or futures
contract shall be purchased or sold if, as a result, more than one-third of
the total assets of the portfolio would be hedged by options or futures
contracts, and no more than 5% of any portfolio's total assets, at market
value, may be used for premiums on open options and initial margin deposits
on futures contracts. Options are recorded at market value, and the related
realized and unrealized gains and losses are included in the statement of
operations. The portfolios making use of options bear the market risk of an
unfavorable change in the price of any security underlying the options.
The Fund may invest in two kinds of financial futures contracts: stock index
futures contracts and interest rate futures contracts. Stock index futures
contracts are contracts developed by and traded on national commodity
exchanges whereby the buyer will, on a specified future date, pay or receive
a final cash payment equal to the difference between the actual value of the
stock index on the last day of the contract and the value of the stock index
established by the contract multiplied by the specific dollar amount set by
the exchange. Futures contracts may be based on broad-based stock indexes
such as the Standard & Poor's 500 Index or on narrow-based stock indexes. A
particular index will be selected according to Ohio National Investments,
Inc.'s ("ONI's"), the investment advisor to the Fund, investment strategy for
the particular portfolio. The Fund may enter into such contracts to reduce
the risk of fluctuation of portfolio securities values or to take advantage
of expected market fluctuations.
Securities transactions are recorded on a trade date basis. Dividend income
is recognized on the ex-dividend date (except in the case of the
International and Global Contrarian Portfolios in which dividends are
recorded as soon after the ex-dividend date as the Fund becomes aware of such
dividends), and interest income is accrued daily as earned. Net realized gain
or loss on investments and foreign exchange transactions are determined using
the first-in, first-out method.
The books and records of all the portfolios are maintained in U.S. dollars.
Foreign currency amounts in the International and Global Contrarian
Portfolios are translated into U.S. dollars on the following basis: (1)
market value of investments, other assets and liabilities -- at exchange
rates prevailing at the end of the period. (2) purchases and sales of
investments, income and expenses -- at the rates of exchange prevailing on
the respective dates of such transaction.
Although the net assets and the market value of the portfolios are presented
at the foreign exchange rates at the end of the period, the portfolios do not
generally isolate the effect of fluctuations in foreign exchange rates from
the effect of changes in the market price of the investments. However, the
portfolios do isolate the effect of fluctuations in foreign exchange rates
when determining the gain or loss upon sale or maturity of foreign-currency
denominated debt obligations pursuant to federal income tax regulations.
Foreign investment and currency transactions may involve certain
considerations and risks not typically associated with investing in U.S.
companies and the U.S. government. These risks, including re-evaluation of
currency and future adverse political and economic developments, could cause
investments and their markets to be less liquid and prices more volatile than
those of comparable U.S. companies and the U.S. government.
Each portfolio may acquire repurchase agreements from member banks of the
Federal Reserve System which ONI deems creditworthy under guidelines approved
by the Board of Directors, subject to the seller's agreement to repurchase
such securities at a mutually agreed upon date and price. The repurchase
price generally equals the price paid by the portfolio plus interest
negotiated on the basis of current short-term rates, which may be more or
less than the rate on the underlying portfolio securities. The seller, under
a repurchase agreement, is required to maintain as collateral for the
repurchase transaction securities in which the portfolio has a perfected
security interest with a value not less than 100% of the repurchase price
(including accrued interest). Securities subject to repurchase agreements are
held by the Fund's custodian or another qualified custodian or in the Federal
Reserve/Treasury book-entry system. Repurchase agreements are considered to
be loans by the portfolio under the 1940 Act.
46
<PAGE> 97
ONE FUND, INC. June 30, 1999
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
Net investment income (loss) and net realized gains (losses) may differ for
financial statement and tax purposes primarily due to wash sales and net
operating losses. The character of distributions made during the period from
net investment income or net realized gains, if any, may differ from their
ultimate characterization for federal income tax purposes. On the statement
of assets and liabilities, as a result of temporary book-to-tax differences,
accumulated undistributed net realized loss on investments was decreased by
$29,490 and $16,294 resulting in a reclassification adjustment to Paid-in
capital in excess of par of $29,409 and $16,294 for the International and
Global Contrarian Portfolios, respectively. These reclassifications had no
effect on net assets or net asset values per share.
For federal income tax purposes, the International and Global Contrarian
Portfolios had net capital losses of $1,442,884, and $857,799 respectively at
June 30, 1999. In addition, the Tax-Free Income, Income Portfolio also had
capital loss carryovers at June 30, 1999. If not offset by subsequent capital
gains, $7,298 and $35,681 will expire June 30, 2004 in the Tax-Free Income
and Income Portfolios, respectively, $4,042 will expire June 30, 2005 in the
Tax-Free Portfolio, $100,005 will expire June 30, 2006 in the Tax-Free Income
Portfolio, $1,442,884 and $857,799 will expire June 30, 2007 in the
International, and Global Contrarian Portfolios, respectively. The Board of
Directors does not intend to authorize a distribution of any net realized
gain for the portfolios until the capital loss carryovers have been offset or
expire.
It is the policy of the Fund to distribute to its shareholders substantially
all of its taxable income, thus gaining relief from federal income taxes
under provisions of current tax regulations applicable to investment
companies of this type. Accordingly, no provision for federal income taxes
has been made.
Expenses directly attributable to a portfolio are charged to that portfolio.
Expenses not directly attributable to a portfolio are allocated on the basis
of relative net assets.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of increases and decreases in net assets from operations
during the reporting period. Actual results could differ from those
estimates.
The gross unrealized appreciation and depreciation on investments in each
portfolio as of June 30, 1999 were as follows:
<TABLE>
<CAPTION>
PORTFOLIO
-------------------------------------------------
TAX-FREE GLOBAL
INCOME INCOME INTERNATIONAL CONTRARIAN
-------- -------- ------------- ----------
<S> <C> <C> <C> <C>
Gross unrealized:
Appreciation.............. 584,400 109,054 574,880 270,993
Depreciation.............. (25,318) (108,661) (268,734) (107,380)
Net unrealized:
Appreciation.............. 559,082 393 306,146 163,613
Depreciation.............. 0 0 0 0
</TABLE>
The Income Portfolio was organized on May 12, 1992 with the commencement of
operations on August 18, 1992. The International Portfolio was organized on
March 18, 1993 with commencement of operations on April 30, 1993. Tax-Free
Income and Global Contrarian Portfolios were organized on September 15, 1994
with the commencement of operations on November 1, 1994. Organizational
expenses of approximately $68,000 were incurred with the start up of the
original four portfolios including the Income Portfolio, $11,590 with the
start up of the International Portfolio and $7,813 with the Small Cap,
Tax-Free, and Global Contrarian Portfolios. Such expenses will be charged
against operations on a straight line basis over a period of 60 months from
the commencement of operations of the respective portfolios. The Fund's
sponsoring entity, Ohio National Life Insurance Company (ONLIC), has agreed
that it shall continue to hold the initial shares purchased by it for at
least as long as unamortized deferred organizational expenses continue to be
carried as an asset of the Fund. The initial shares purchased 2,500 shares of
the Income Portfolio and 100 shares each of the International, Tax-Free
Income and, Global Contrarian
47
<PAGE> 98
ONE FUND, INC. June 30, 1999
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
Portfolios. ONLIC and its affiliates have also purchased additional shares of
each portfolio and as of June 30, 1999 the additional shares owned were as
follows: 553,940 shares of the Tax-Free Income Portfolio, 508,244 shares of
the Income Portfolio, and 273,068 shares of the Global Contrarian Portfolio.
(2) INVESTMENT TRANSACTIONS
Purchases and sales of investment securities (excluding short-term
securities) from July 1, 1998 to June 30, 1999 were as follows:
<TABLE>
<CAPTION>
PORTFOLIO
------------------------------------------------
TAX-FREE GLOBAL
INCOME INCOME INTERNATIONAL CONTRARIAN
-------- ------- ------------- ----------
<S> <C> <C> <C> <C>
Stocks & Bonds:
Purchases................ 489,412 250,000 21,225,783 9,120,563
Sales.................... -- 304,242 29,690,582 11,703,676
U.S. Govt. Obligations:
Purchases................ -- -- -- --
Sales.................... -- 104,173 -- --
</TABLE>
(3) INVESTMENT ADVISORY AGREEMENT, SUB-ADVISORY AGREEMENTS AND TRANSACTIONS WITH
AFFILIATED PERSONS
The Fund has an investment advisory agreement with Ohio National Investments,
Inc. ("ONI"), a wholly owned subsidiary of ONLIC, under the terms of which
ONI provides portfolio management and investment advice to the Fund and
administers its other affairs, subject to the supervision of the Fund's Board
of Directors. Prior to May 1, 1996, O.N. Investment Management Company served
as the Fund's investment advisor. As compensation for its services, the Fund
pays ONI a fee based on the average daily net asset value of each portfolio's
assets.
For assets held in the Tax-Free Income and Income Portfolios, the fees are as
follows:
<TABLE>
<CAPTION>
PORTFOLIO
-----------------
TAX-FREE
INCOME INCOME
-------- ------
<S> <C> <C>
First $100 mil........................................... 0.60% 0.50%
Next $150 mil............................................ 0.50% 0.40%
Over $250 mil............................................ 0.40% 0.30%
</TABLE>
For the International and Global Contrarian Portfolios, ONI is paid a fee at
an annual rate of 0.90% of each Portfolios' average daily net asset values.
After January 1,1999, the advisor began waiving any fees in excess of 0.85%
in the International Portfolio. ONI pays Federated Investment Counseling
("FIC") fees at an annual rate of (i) 0.40% of the first $200 million and
0.35% of average net assets in excess of $200 million of International
Portfolio and (ii) 0.75% of the first $100 million and 0.65% of the average
daily net assets in excess of $100 million of the Global Contrarian Portfolio
pursuant to a sub-advisory agreement between ONI and FIC dated January 1,
1999.
ONI is presently waiving management fees equal to 0.15% of average net assets
for certain portfolios. Management fees waived by ONI for the year ended June
30, 1999 were $10,766 and $9,973, for the Tax-Free Income and Income
Portfolios, respectively. Under the agreement between the Fund and ONI, ONI
has agreed to reimburse the portfolios for expenses, other than advisory
fees, 12b-1 fees,
48
<PAGE> 99
ONE FUND, INC. June 30, 1999
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
taxes and interest, in excess of 1% of their average daily net assets. For
the year ended June 30, 1999, the reimbursement was $43,677 and $47,996 for
the International and Global Contrarian Portfolios respectively.
Each director who is not an officer of the Fund or an employee of ONI or its
corporate affiliates is paid a quarterly retainer fee of $850 plus $200 for
each meeting attended.
The Fund's transfer agent and dividend paying agent is American Data
Services, Inc., The Hauppauge Corporate Center, 150 Motor Parkway, Suite 109,
Hauppauge, New York. The Fund's custodian for those portfolios other than the
International and Global Contrarian Portfolios is Star Bank, N.A., 425 Walnut
Street, Cincinnati, Ohio. The custodian for the International and Global
Contrarian Portfolios is Investors Fiduciary Trust Company, 801 Pennsylvania,
Kansas City, Missouri. For assets held outside the United States, Star Bank
and Investors Fiduciary Trust Company enter into subcustodial agreements,
subject to approval by the Board of Directors.
Certain directors and officers of the Fund are also directors and officers of
ONI and ONLIC.
(4) CAPITAL SHARE TRANSACTIONS
Capital share transactions for the years ended June 30, 1999 and 1998 were as
follows:
<TABLE>
<CAPTION>
TAX-FREE INCOME INCOME
----------------------- -----------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
6-30-99 6-30-98 6-30-99 6-30-98
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Capital shares issued on sales....................... 26,786 40,258 32,840 76,483
Capital shares issued on reinvested dividends........ 3,288 2,820 6,655 7,995
Capital shares redeemed.............................. 35,646 20,443 75,391 70,795
</TABLE>
<TABLE>
<CAPTION>
INTERNATIONAL GLOBAL CONTRARIAN
----------------------- -----------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
6-30-99 6-30-98 6-30-99 6-30-98
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Capital shares issued on sales....................... 47,020 202,687 17,121 43,691
Capital shares issued on reinvested dividends........ 23,927 178,279 29,126 19,016
Capital shares redeemed.............................. 561,187 504,238 127,028 126,384
</TABLE>
Sales charges imposed on capital shares sold by Ohio National Equities, Inc.
(ONEQ), the Fund's principal underwriter, a wholly-owned subsidiary of ONLIC,
for the year ended June 30, 1999 were approximately $6,016, $5,203, $13,487
and $3,864 for the Tax-Free Income, Income, International and Global
Contrarian Portfolios, respectively.
The Fund is authorized to issue 10 billion of its capital shares.
(5) COMMITMENTS
The International and Global Contrarian Portfolios enter into foreign
currency exchange contracts as a way of managing foreign exchange rate risk.
The Fund may enter into these contracts for the purchase or sale of a
specific foreign currency at a fixed price on a future date as a hedge
against either specific transactions or portfolio positions. The objective of
the Fund's
49
<PAGE> 100
ONE FUND, INC. June 30, 1999
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
foreign currency hedging transactions is to reduce the risk that the U.S.
dollar value of the Fund's securities denominated in foreign currency will
decline in value due to changes in foreign currency exchange rates.
As of June 30, 1999, the International and Global Contrarian Portfolios had
entered into forward currency contracts, as set forth below summarized by
currency:
INTERNATIONAL PORTFOLIO
<TABLE>
<CAPTION>
SETTLEMENT CURRENCY TO BE DELIVERED U.S. $ CURRENCY TO BE RECEIVED U.S. $ UNREALIZED
DATES ---------------------------- VALUE AT --------------------------- VALUE AT --------------------
THROUGH AMOUNT TYPE 06/30/99 AMOUNT TYPE 06/30/99 GAIN LOSS
---------- ------------ ------------- ---------- ----------- ------------- ---------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
07/15/99 360,000 Australian $ 237,618 225,475 U.S. Dollar 225,475 -- $ (12,143)
07/15/99 228,780 U.S. Dollar 228,780 360,000 Australian $ 237,618 $ 8,838 --
07/22/99 296,000 Swiss Franc 190,654 222,556 U.S. Dollar 222,556 31,902 --
07/22/99 218,289 U.S. Dollar 218,289 296,000 Swiss Franc 190,654 -- (27,635)
07/01/99 5,646,000 French Franc 886,934 1,023,198 U.S. Dollar 1,023,197 136,263
07/01/99 1,005,530 U.S. Dollar 1,005,530 5,646,000 French Franc 886,934 -- (118,596)
07/29/99 124,916,000 Japanese Yen 1,035,144 1,099,613 U.S. Dollar 1,099,613 64,469 --
07/29/99 1,125,369 U.S. Dollar 1,125,369 124,916,000 Japanese Yen 1,035,144 -- (90,225)
10/05/01 388,000 New Zealand $ 205,077 186,046 U.S. Dollar 186,046 -- (19,031)
10/05/01 206,455 U.S. Dollar 206,455 388,000 New Zealand $ 205,078 -- (1,377)
---------- ---------- -------- ---------
$5,339,850 $5,312,315 $241,472 $(269,007)
========== ========== ======== =========
</TABLE>
GLOBAL CONTRARIAN PORTFOLIO
<TABLE>
<CAPTION>
SETTLEMENT CURRENCY TO BE DELIVERED U.S. $ CURRENCY TO BE RECEIVED U.S. $ UNREALIZED
DATES ---------------------------- VALUE AT --------------------------- VALUE AT --------------------
THROUGH AMOUNT TYPE 06/30/99 AMOUNT TYPE 06/30/99 GAIN LOSS
---------- ------------ ------------- ---------- ----------- ------------- ---------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
07/29/99 3,684,000 Japanese Yen 30,528 32,430 U.S. Dollar 32,430 $ 1,902 --
07/29/99 33,189 U.S. Dollar 33,189 3,684,000 Japanese Yen 30,528 -- $ (2,661)
11/13/99 11,720,000 Japanese Yen 104,285 109,810 U.S. Dollar 109,810 5,525 --
11/13/99 112,909 U.S. Dollar 112,909 11,720,000 Japanese Yen 104,284 -- (8,625)
---------- ---------- -------- ---------
$ 280,911 $ 277,052 $ 7,427 $ (11,286)
========== ========== ======== =========
</TABLE>
(6) DISTRIBUTION PLAN
The Fund has a distribution agreement (12b-1 Plan) with ONEQ under the terms
of which the Fund pays a fee for shareholder service and sales of Fund shares
based on the average daily net assets of the portfolio. The fee is at an
annual rate of 0.25% of average net assets and can increase to 0.30% for
sales representatives who service $5 million or more of Fund shares.
50
<PAGE> 101
INDEPENDENT AUDITORS' REPORT
The Shareholders and Board of Directors of
ONE Fund, Inc.:
We have audited the accompanying statements of assets and liabilities of ONE
Fund, Inc. (comprised of Tax-Free Income, Income, International and Global
Contrarian Portfolios, collectively the Portfolios) including the schedules of
investments, as of June 30, 1999, and the related statements of operations,
statements of changes in net assets and the financial highlights for each of the
periods indicated herein. These financial statements and the financial
highlights are the responsibility of the Portfolios' management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included verification of securities owned as of June
30, 1999, by confirmation with the custodian and brokers and other appropriate
audit procedures. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of each
of the aforementioned portfolios comprising the ONE Fund, Inc. at June 30, 1999,
and the results of their operations, the changes in their net assets and the
financial highlights for each of the periods indicated herein, in conformity
with generally accepted accounting principles.
KPMG LLP
Columbus, Ohio
July 30, 1999
51
<PAGE> 102
ONE FUND, INC. GLOBAL CONTRARIAN AND INTERNATIONAL PORTFOLIOS
PRO FORMA COMBINED STATEMENT OF ASSETS AND LIABILITIES
JUNE 30, 1999
(unaudited)
<TABLE>
<CAPTION>
(IN THOUSANDS, EXCEPT PER SHARE DATA)
GLOBAL PRO
CONTRARIAN INTERNATIONAL FORMA
PORTFOLIO PORTFOLIO COMBINED
----------- ------------- --------
<S> <C> <C> <C>
Assets:
Investments at value ................................................ $ 2,989 $ 6,358 $ 9,347
Cash in bank ........................................................ -- 163 163
Unrealized gain on forward currency contracts ....................... 7 241 248
Receivable for securities sold ...................................... 218 620 838
Dividends & accrued interest receivable ............................. 12 37 49
Other ............................................................... 26 5 31
-------- -------- --------
Total assets ..................................................... 3,252 7,424 10,676
-------- -------- --------
Liabilities:
Accounts payable .................................................... 72 -- 72
Payable for securities purchased .................................... 64 176 240
Payable for fund shares redeemed .................................... 18 57 75
Unrealized loss on forward currency contracts ....................... 11 269 280
Accrued 12b-1 fees .................................................. 2 5 7
Other accrued expenses .............................................. 16 28 44
-------- -------- --------
Total liabilities ................................................ 183 535 718
-------- -------- --------
Net Assets:
Paid-in capital ..................................................... 3,968 8,417 12,385
Accumulated undistributed net realized loss
on investments ................................................... (1,008) (1,234) (2,242)
Net unrealized appreciation (depreciation) on:
Investments ...................................................... 164 306 470
Foreign currency related transactions ............................ (1) (15) (16)
Forward currency contracts ....................................... (4) (27) (31)
Undistributed net investment loss ................................... (50) (558) (608)
-------- -------- --------
Net assets at market value $ 3,069 $ 6,889 $ 9,958
======== ======== ========
Shares outstanding .................................................... 390 637 921
Net asset value per share.............................................. $ 7.88 $ 10.82 $ 10.82
======== ======== ========
Maximum offering price per share * .................................... $ 8.29 $ 11.39 $ 11.39
======== ======== ========
</TABLE>
* Computation of offering price: $7.88/95% for the Global Contrarian
Portfolio and $10.82/95% for the International Portfolio and Combined
Portfolio.
(See Notes which are an integral part of the Pro Forma Combined Financial
Statements)
<PAGE> 103
ONE FUND, INC. GLOBAL CONTRARIAN AND INTERNATIONAL PORTFOLIOS
PRO FORMA COMBINED STATEMENT OPERATIONS
12 MONTHS ENDED JUNE 30, 1999
<TABLE>
<CAPTION>
(In thousands)
Global Pro Pro
Contrarian International Forma Forma
Portfolio Portfolio Adjustments Combined
---------- ------------- ----------- --------
<S> <C> <C> <C> <C>
Investment income:
Interest ................................... $ 36 $ 57 $ -- $ 93
Dividends .................................. 83 125 -- 208
------- ------- ------- -------
Total investment income .................. 119 182 -- 301
------- ------- ------- -------
Expenses:
Management fees (1) ....................... 35 88 (2) 121
12b-1 fees ................................. 9 25 -- 34
Custodian fees ............................. 48 67 -- 115
Directors' fees ............................ 1 3 -- 4
Professional fees (3) ...................... 3 9 (1) 11
Transfer agent & accounting fees (4) ....... 26 49 (15) 60
Filing fees (5) ............................ 6 12 (2) 16
Printing, proxy and postage fees ........... 1 4 -- 5
Organizational expense ..................... 1 -- -- 1
Other ...................................... -- 1 -- 1
------- ------- ------- -------
Total expenses ........................... 130 258 (20) 368
------- ------- ------- -------
Less expenses voluntarily reduced
or reimbursed (6) ...................... (48) (44) 18 (74)
------- ------- ------- -------
Net expenses ............................. 82 214 (2) 294
------- ------- ------- -------
Net investment income .................... 37 (32) 2 7
------- ------- ------- -------
Realized & unrealized gain (loss) on
investments & foreign currency:
Net realized loss from:
Investments .............................. (858) (1,443) -- (2,301)
Forward currency related transactions .... (63) (527) -- (590)
Net increase (decrease) in unrealized
appreciation (depreciation) on:
Investments .............................. 373 368 -- 741
Foreign currency related transactions .... (33) (218) -- (251)
------- ------- ------- -------
Net loss on investments .................. (581) (1,820) -- (2,401)
------- ------- ------- -------
Net decrease in net assets from operations $ (544) $(1,852) $ 2 $(2,394)
======= ======= ======= =======
</TABLE>
1. To adjust Advisory fees to adopt the International and Income Portfolio's
fee structure for the combined assets.
2. To adjust Custodian fees to adopt the Income Portfolio's fee structure for
the combined assets.
3. To eliminate duplicative Professional fees.
4. To adjust Transfer Agent and Accounting fees to adopt the International
and Income Portfolio's fee structure for the combined assets.
5. To adjust filing fees to adopt the International and Income Portfolio's
fee structure for the combined assets.
6. To adjust expenses voluntarily reduced for the International and Income
Portfolio's fee structure for the combined assets.
(See Notes which are an integral part of the Pro Forma Combined Financial
Statements)
<PAGE> 104
ONE FUND, INC. GLOBAL CONTRARIAN AND INTERNATIONAL PORTFOLIOS
PRO FORMA COMBINED SCHEDULE OF INVESTMENTS
JUNE 30, 1999
(unaudited)
<TABLE>
<CAPTION>
SHARES (IN THOUSANDS) MARKET VALUE (IN THOUSANDS)
GLOBAL PRO GLOBAL PRO
CONTRARIAN INTERNATIONAL FORMA CONTRARIAN INTERNATIONAL FORMA
PORTFOLIO PORTFOLIO COMBINED FOREIGN COMMON STOCK PORTFOLIO PORTFOLIO COMBINED
- ------------- ----------------- ----------- ------------------------------------- ---------------- --------------- ---------
<S> <C> <C> <C> <C> <C> <C>
JAPAN (26.3%)
1 1 2 Advantest Corp. (12) $ 44 $ 55 $ 99
1 1 2 Aiwa Co. Ltd. (11) 17 40 57
1 2 3 Asatsu Inc. (29) 16 40 56
1 3 4 Capcom Co. Ltd. (9) 28 68 96
1 3 4 Ebara Corp. (21) 12 36 48
1 1 2 Enix Corp. (9) 22 48 70
1 1 2 Fujitec Co. Ltd. (4) 10 9 19
1 2 3 Fujitsu Ltd.(9) 20 40 60
2 9 11 Furukawa Electric Co. (11) 18 41 59
2 4 6 Hitachi Ltd. (11) 19 37 56
2 5 7 Inax Corp. (4) 12 31 43
1 2 3 Kao Corp. (10) 20 45 65
1 1 2 Keyence Corp. (12) 17 35 52
1 1 2 Kyorin Pharmaceutical Co. (24) 25 25 50
1 1 2 Matsushita-Kotobuki Electronics (12) 17 40 57
1 1 2 Mycal Card Inc. (15) 23 50 73
1 2 3 Namco Ltd. (14) 19 43 62
2 4 6 Nec Corp. (12) 25 50 75
3 6 9 Nikko Securities Co. Ltd. (15) 19 39 58
1 3 4 Nikon Corp. (12) 16 49 65
2 3 5 Nippon Conlux Co. Ltd. (11) 11 16 27
1 1 2 Nippon Broadcasting System (23) 50 50 100
1 3 4 Olympus Optical Co. Ltd. (12) 15 44 59
1 1 2 Paris Miki Inc. (23) 16 44 60
1 1 2 Paltek Corp. (34) 39 51 90
1 1 2 Rohm Co Ltd. (12) 16 31 47
5 14 19 Sanyo Electric Co. Ltd. (11) 20 57 77
1 4 5 Sharp Corp. (12) 18 41 59
1 1 2 Shimamura Co. Ltd. (28) 25 68 93
1 2 3 Shimachu (28) 15 35 50
2 3 5 Shinkawa Ltd. (12) 32 71 103
1 1 2 Soft bank Corp. (34) 20 81 101
1 1 2 Sony Corp. (12) 65 108 173
1 2 3 Square Co. Ltd. (12) 29 61 90
2 4 6 Sumitomo Forestry Co. Ltd. (4) 16 31 47
1 1 2 Takeda Chemical Industries (24) 23 46 69
1 2 3 Taiyo Yuden Co. Ltd. (12) 16 33 49
1 1 2 Union Tool (12) 22 37 59
7 15 22 * Wako Securities Co. Ltd. (15) 15 33 48
---------- ------------- ----------
862 1,759 2,621
---------- ------------- ----------
</TABLE>
(continued)
<PAGE> 105
ONE FUND, INC. GLOBAL CONTRARIAN AND INTERNATIONAL PORTFOLIOS
PRO FORMA COMBINED SCHEDULE OF INVESTMENTS (CONTINUED)
JUNE 30, 1999
(unaudited)
<TABLE>
<CAPTION>
SHARES (IN THOUSANDS) MARKET VALUE (IN THOUSANDS)
GLOBAL PRO GLOBAL PRO
CONTRARIAN INTERNATIONAL FORMA CONTRARIAN INTERNATIONAL FORMA
PORTFOLIO PORTFOLIO COMBINED FOREIGN COMMON STOCK PORTFOLIO PORTFOLIO COMBINED
- ----------------- ----------------- ----------- ---------------------------------------- --------------- -------------- -----------
<S> <C> <C> <C> <C> <C> <C>
UNITED KINGDOM (13.7%)
2 4 6 * Allied Domecq plc (16) $ 14 $ 34 $ 48
1 1 2 * Arm Holdings plc ADR (12) 19 37 56
2 3 5 * Baltimore Tech. Zergo Hldgs (29) 18 33 51
1 1 2 Barclays (3) 15 32 47
1 3 4 British Telecom plc (8) 18 47 65
4 9 13 * Cable & Wireless Communications (8) 42 89 131
1 1 2 * Colt Telecom Group plc (8) 13 31 44
1 1 2 * Eidos plc (9) 15 31 46
11 27 38 Electronics Boutique plc (12) 16 40 56
1 3 4 * Energis plc (8) 29 64 93
2 4 6 * Future Network plc (23) 13 27 40
1 3 4 * Icon plc ADR (29) 19 54 73
1 2 3 Logica plc (29) 8 20 28
1 2 3 * National Westminister Bank (3) 15 41 56
3 5 8 Prudential Corp. plc (20) 46 67 113
2 5 7 * Reuters Group plc (23) 29 71 100
1 1 2 * Sage Group plc (9) 2 5 7
3 7 10 Securicor plc (29) 26 61 87
1 2 3 * Sema Group plc (29) 10 21 31
1 3 4 * Shire Pharmaceuticals Group (24) 12 28 40
1 3 4 Smithkline Beecham plc (24) 16 36 52
4 11 15 * Telewest Communications plc (8) 17 48 65
1 3 4 * W.H. Smith Group plc (22) 13 27 40
----------------- ----------- ---------
425 944 1,369
----------------- ----------- ---------
FRANCE (12.1%)
1 1 2 Alcatel (11) 18 37 55
1 1 2 Bouygues (4) 54 77 131
1 3 4 * Bull Sa (9) 12 27 39
1 1 2 * Club Mediterrance (14) 16 37 53
1 1 2 Dexia France (3) 31 68 99
1 1 2 Essolor Intl. (24) 19 47 66
20 48 68 * Eurotunnel Sa Esa Units (32) 29 71 100
1 1 2 * Infogrames Entertainment (14) 14 31 45
1 1 2 Labinal (11) 16 37 53
1 1 2 M-6 Metropole Television (23) 32 79 111
1 1 2 Pernod Ricard (16) 13 33 46
1 2 3 * Remy Cointreau (16) 18 39 57
1 1 2 Societe Du Louvre (14) 8 20 28
1 1 2 Television Francaise (23) 21 41 62
1 2 3 Thomson CSF (1) 36 56 92
1 1 2 Vivendi Ex Gen Des Fuax (29) 49 117 166
----------------- ----------- ---------
386 817 1,203
----------------- ----------- ---------
</TABLE>
(continued)
<PAGE> 106
ONE FUND, INC. GLOBAL CONTRARIAN AND INTERNATIONAL PORTFOLIOS
PRO FORMA COMBINED SCHEDULE OF INVESTMENTS (CONTINUED)
JUNE 30, 1999
(unaudited)
<TABLE>
<CAPTION>
SHARES (IN THOUSANDS) MARKET VALUE (IN THOUSANDS)
GLOBAL PRO GLOBAL PRO
CONTRARIAN INTERNATIONAL FORMA CONTRARIAN INTERNATIONAL FORMA
PORTFOLIO PORTFOLIO COMBINED FOREIGN COMMON STOCK PORTFOLIO PORTFOLIO COMBINED
- ------------------ ----------------- -------------- ----------------------------------- ------------- ------------- --------
<S> <C> <C> <C> <C> <C> <C>
GERMANY (7.3%)
1 1 2 Bayer AG (7) $ 15 $ 31 $ 46
1 1 2 * Consors Discount Broker (15) 15 32 47
1 1 2 * Intershop Communications AG (29) 14 43 57
1 1 2 * Kinowelt Medien AG (23) 19 40 59
1 1 2 Mannesmann AG (8) 55 74 129
1 1 2 * Medion AG (34) 14 29 43
1 1 2 Mobilcom AG (8) 40 87 127
1 1 2 Ser Systeme AG (12) 17 45 62
1 1 2 Siemens AG (22) 31 69 100
1 1 2 * Telegate AG (8) 17 40 57
---------- ------------ ---------
237 490 727
---------- ------------ ---------
CANADA (6.3%)
1 1 2 * Celestcia Inc. (12) 17 39 56
1 1 2 Four Seasons Hotels Inc. (19) 17 44 61
4 10 14 * Intl Forest Producrs CL A (17) 15 37 52
1 1 2 * JDS Uniphase (8) 15 33 48
1 2 3 Molson Cos. Ltd. CL A (16) 15 33 48
2 6 8 Nexfor Inc. (17) 15 34 49
1 1 2 Nortel Networks Corp. (11) 34 83 117
1 1 2 Teleglobe Inc. (8) 12 26 38
2 3 5 * Telesystem Intl. Wireless Inc. (8) 38 61 99
1 1 2 * TLC The Laser Center (24) 18 41 59
---------- ------------ ---------
196 431 627
---------- ------------ ---------
NETHERLANDS (3.2%)
1 1 2 * ASM Lithography ADR (12) 15 30 45
1 1 2 Benckiser NV B Shares (10) 23 59 82
1 1 2 * Equant NV Reg Shares (29) 34 59 93
1 3 4 TNT Post Group NV (32) 30 66 96
1 1 2 United Pan-Europe Com-Sp ADR (8) 1 3 4
---------- ------------ ---------
103 217 320
---------- ------------ ---------
AUSTRALIA (2.2%)
2 5 7 Aust & NZ Banking Group Ltd. (3) 17 37 54
15 31 46 * Cable & Wireless Opus (8) 33 71 104
3 7 10 Publishing Broadcasting (23) 18 44 62
---------- ------------ ---------
68 152 220
---------- ------------ ---------
SINGAPORE & MALAYSIAN (2.2%)
10 22 32 Clipsal Inc. Ltd. (12) 15 34 49
4 9 13 Fraser & Neave Ltd. (16) 18 40 58
13 30 43 Kim Eng Holding (15) 12 28 40
1 3 4 Singapore Press Holding (23) 17 51 68
---------- ------------ ---------
62 153 215
---------- ------------ ---------
</TABLE>
(continued)
<PAGE> 107
ONE FUND, INC. GLOBAL CONTRARIAN AND INTERNATIONAL PORTFOLIOS
PRO FORMA COMBINED SCHEDULE OF INVESTMENTS (CONTINUED)
JUNE 30, 1999
(unaudited)
<TABLE>
<CAPTION>
SHARES (IN THOUSANDS) MARKET VALUE (IN THOUSANDS)
GLOBAL PRO GLOBAL PRO
CONTRARIAN INTERNATIONAL FORMA CONTRARIAN INTERNATIONAL FORMA
PORTFOLIO PORTFOLIO COMBINED FOREIGN COMMON STOCK PORTFOLIO PORTFOLIO COMBINED
- ------------------ ----------------- -------------- --------------------------------- -------------- ------------- -----------
<S> <C> <C> <C> <C> <C> <C>
GREECE (2.2%)
1 1 2 * Bank of Piraeus (3) $ 14 $ 32 $ 46
1 1 2 Commercial Bank Of Greece (3) 23 47 70
0 0 0 EFG Eurobank (3) - - -
1 1 2 Lambrakis Media Group (23) 15 35 50
1 2 3 Teletypos SA (8) 14 30 44
------------ ----------- -----------
66 144 210
------------ ----------- -----------
SWITZERLAND (2.1%)
- 1 1 * Distefora Holding AG (34) - 5 5
1 1 2 Publicigroupe SA (23) 33 69 102
1 1 2 The Swath Group AG-Reg (28) 6 11 17
1 1 2 Zurich Allied AG (20) 20 61 81
------------ ----------- -----------
59 146 205
------------ ----------- -----------
HONG KONG (2.0%)
4 10 14 * Pacific Century Ins. (20) 3 8 11
4 8 12 Midland Realty Holdings Ltd. (27) 1 1 2
13 19 32 Smartone Telecommunications (8) 45 69 114
16 38 54 Wheelock & Co. (27) 22 52 74
------------ ----------- -----------
71 130 201
------------ ----------- -----------
ITALY (1.9%)
5 8 13 Class Editori Spa (23) 41 60 101
1 2 3 Luxottica Group Spa Spon ADR (24) 11 26 37
1 2 3 Pininfarina Spa (2) 15 37 52
------------ ----------- -----------
67 123 190
------------ ----------- -----------
SWEDEN (1.8%)
2 3 5 * Modern Times Group B Shares (23) 38 63 101
9 19 28 Societe Europeene Comm B (8) 25 52 77
------------ ----------- -----------
63 115 178
------------ ----------- -----------
BRAZIL (1.7%)
1 2 3 Telesp Cellular Part ADR (8) 20 48 68
1 2 3 Tele Norte Leste Participacoes (8) 20 39 59
4 9 13 Usinas Sider Minas Gerais (25) 13 30 43
------------ ----------- -----------
53 117 170
------------ ----------- -----------
THAILAND (1.6%)
3 6 9 Bec World Public Co. Ltd. (23) 16 38 54
4 10 14 * Hana Microelectronics (12) 12 29 41
8 19 27 * Thai Airways Intl Ltd. (32) 15 37 52
- 4 4 * Total Access Communications (8) - 13 13
------------ ----------- -----------
43 117 160
------------ ----------- -----------
INDONESIA (1.1%)
8 18 26 PT Indosat (8) 14 34 48
9 21 30 PT Semen Gresik (4) 20 46 66
------------ ----------- -----------
34 80 114
------------ ----------- -----------
</TABLE>
(continued)
<PAGE> 108
ONE FUND, INC. GLOBAL CONTRARIAN AND INTERNATIONAL PORTFOLIOS
PRO FORMA COMBINED SCHEDULE OF INVESTMENTS (CONTINUED)
JUNE 30, 1999
(unaudited)
<TABLE>
<CAPTION>
SHARES (IN THOUSANDS) MARKET VALUE (IN THOUSANDS)
GLOBAL PRO GLOBAL PRO
CONTRARIAN INTERNATIONAL FORMA CONTRARIAN INTERNATIONAL FORMA
PORTFOLIO PORTFOLIO COMBINED FOREIGN COMMON STOCK PORTFOLIO PORTFOLIO COMBINED
- ------------------ ----------------- -------------- ------------------------------ ------------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
FINLAND (0.9%)
3 7 10 Merita plc (3) $ 15 $ 38 $ 53
1 1 2 Nokian Renkaat OYJ (2) 12 25 37
------------- ------------- ----------
27 63 90
------------- ------------- ----------
LUXEMBOURG (0.8%)
1 1 2 Societe Europeene Satel ADR (23) 32 51 83
------------- ------------- ----------
MEXICO (0.6%)
1 1 2 * Groupo Televisa SA Spons GDR (23) 18 45 63
------------- ------------- ----------
DENMARK (0.3%)
1 1 2 Falck A/S (29) 8 25 33
------------- ------------- ----------
NORWAY (0.1%)
1 1 2 Schibsted (23) 2 8 10
------------- ------------- ----------
IRELAND (0.1%)
1 1 2 * Ryanair Holdings plc SP ADR (32) 3 3 6
------------- ------------- ----------
TOTAL FOREIGN COMMON STOCK
(90.5%) (Cost 8,583) $ 2,885 $ 6,130 $ 9,015
------------- ------------- ----------
</TABLE>
<TABLE>
<CAPTION>
SHARES (IN THOUSANDS) MARKET VALUE (IN THOUSANDS)
GLOBAL PRO GLOBAL PRO
CONTRARIAN INTERNATIONAL FORMA CONTRARIAN INTERNATIONAL FORMA
PORTFOLIO PORTFOLIO COMBINED US COMMON STOCK PORTFOLIO PORTFOLIO COMBINED
- ------------------ ----------------- -------------- -------------------------------- ------------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
COMMUNICATIONS (1.7%)
1 1 2 * Global Telesystems Gourp Inc. $ 36 $ 83 $ 119
1 1 2 * NTL Inc. Holdings Co. 14 33 47
------------- ------------- ----------
TOTAL US COMMON STOCK
(1.7%) (Cost $130) $ 50 $ 116 $ 166
------------- ------------- ----------
TOTAL COMMON STOCK
(92.2%) (Cost $8,713) $ 2,935 $ 6,246 $ 9,181
------------- ------------- ----------
</TABLE>
(continued)
<PAGE> 109
ONE FUND, INC. GLOBAL CONTRARIAN AND INTERNATIONAL PORTFOLIOS
PRO FORMA COMBINED SCHEDULE OF INVESTMENTS (CONTINUED)
JUNE 30, 1999
(unaudited)
<TABLE>
<CAPTION>
SHARES (IN THOUSANDS) MARKET VALUE (IN THOUSANDS)
GLOBAL PRO GLOBAL
CONTRARIAN INTERNATIONAL FORMA CONTRARIAN INTERNATIONAL PRO
PORTFOLIO PORTFOLIO COMBINED FOREIGN PREFERRED STOCK PORTFOLIO PORTFOLIO FORMA
- ------------------ ----------------- -------------- --------------------------------- -------------- ------------ -------
<S> <C> <C> <C> <C> <C> <C>
AUSTRALIA (1.1%)
22 48 70 Village Roadshow Ltd. (14) $ 33 $ 72 $ 105
GERMANY (0.6%)
1 1 2 Wella AG (10) 21 40 61
------------- ------- -------
TOTAL FOREIGN PREFERRED STOCK
(1.7%) (COST $167) $ 54 $ 112 $ 166
------------- ------- -------
TOTAL HOLDINGS (93.9%)
(COST $8,880)(A) $ 2,989 $ 6,358 $ 9,347
------------- ------- -------
CASH & RECEIVABLES , NET OF
LIABILITIES (6.1%) 80 531 611
TOTAL NET ASSETS (100%) $ 3,069 $ 6,889 $ 9,958
============= ======= =======
</TABLE>
(a) Also represents cost for Federal income tax purposes.
* Non-income producing securities.
Industry Classifications
(1) Aerospace (18) Governmental
(2) Automotive (19) Hotels
(3) Banking (20) Insurance
(4) Building/Contruction (21) Machinery
(5) Capital Goods (22) Maufacturing
(6) Cement (23) Media & Publishing
(7) Chemicals (24) Medical & Health Care
(8) Communications (25) Metal & Mining
(9) Computer Products (26) Packaging
(10) Consumer Products (27) Real Estate
(11) Electrical Products (28) Retailing
(12) Electronics (29) Services
(13) Energy and Oil (30) Steel
(14) Entertainment & Leisure (31) Textile
(15) Finance (32) Transportation
(16) Food & Beverage (33) Utilities
(17) Forest & Paper Products (34) Wholesale
(35) Miscellaneous
(See Notes which are an integral part of the Pro Forma Combined Financial
Statements)
<PAGE> 110
ONE FUND, INC. TAX-FREE INCOME AND INCOME PORTFOLIOS
PRO FORMA COMBINED STATEMENT OF ASSETS AND LIABILITIES
JUNE 30, 1999
(unaudited)
<TABLE>
<CAPTION>
(IN THOUSANDS, EXCEPT PER SHARE DATA)
TAX-FREE PRO
INCOME INCOME FORMA
PORTFOLIO PORTFOLIO COMBINED
--------- --------- --------
<S> <C> <C> <C>
Assets:
Investments at value ...................... $ 6,826 $ 6,322 $ 13,148
Cash in bank .............................. -- 1 1
Dividends & accrued interest receivable ... 111 113 224
Other ..................................... 2 2 4
-------- -------- --------
Total assets ........................... 6,939 6,438 13,377
-------- -------- --------
Liabilities:
Payable for fund shares redeemed .......... -- 22 22
Payable for investment management services 3 2 5
Accrued 12b-1 fees ........................ 4 3 7
Other accrued expenses .................... 20 19 39
Dividends payable ......................... 24 28 52
-------- -------- --------
Total liabilities ...................... 51 74 125
-------- -------- --------
Net Assets:
Paid-in capital ........................... 6,440 6,399 12,839
Accumulated undistributed net realized loss
on investments ......................... (111) (35) (146)
Net unrealized appreciation on investments 559 -- 559
-------- -------- --------
Net assets at market value ................... $ 6,888 $ 6,364 $ 13,252
======== ======== ========
Shares outstanding ........................... 632 657 1,368
Net asset value per share .................... $ 10.89 $ 9.69 $ 9.69
======== ======== ========
Maximum offering price per share * ........... $ 11.23 $ 9.99 $ 9.99
======== ======== ========
</TABLE>
* Computation of offering price: $10.89/97% for the Tax-Free Income
Portfolio and $9.69/97% for the Income Portfolio and Combined Portfolio.
(See Notes which are an integral part of the Pro Forma Combined Financial
Statements)
<PAGE> 111
<TABLE>
<CAPTION>
ONE FUND, INC. TAX-FREE INCOME AND INCOME PORTFOLIOS
PRO FORMA COMBINED STATEMENT OPERATIONS
12 MONTHS ENDED JUNE 30, 1999
(unaudited)
(IN THOUSANDS)
TAX-FREE PRO PRO
INCOME INCOME FORMA FORMA
PORTFOLIO PORTFOLIO ADJUSTMENTS COMBINED
--------- --------- ----------- --------
Investment income:
<S> <C> <C> <C> <C>
Interest ................................................ $ 408 $ 471 $-- $ 879
----- ----- ---- -----
Expenses:
Management fees (1) ..................................... 43 33 (7) 69
12b-1 fees .............................................. 18 17 -- 35
Custodian fees (2) ..................................... 5 5 (5) 5
Directors' fees ......................................... 1 1 -- 2
Professional fees (3) ................................... 5 5 (1) 9
Transfer agent & accounting fees (4) .................... 34 34 (15) 53
Filing fees (5) ......................................... 8 6 (1) 13
Printing, proxy and postage fees ........................ 2 2 -- 4
Organizational expense .................................. 1 -- -- 1
Other ................................................... -- -- -- --
----- ----- ---- -----
Total expenses ........................................ 117 103 (29) 191
----- ----- ---- -----
Less expenses voluntarily reduced
or reimbursed ....................................... (11) (10) -- (21)
----- ----- ---- -----
Net expenses .......................................... 106 93 (29) 170
----- ----- ---- -----
Net investment income ................................. 302 378 29 709
----- ----- ---- -----
Realized & unrealized gain (loss) on investments:
Net realized gain on investments ........................ 0 20 -- 20
Net decrease in unrealized appreciation
on investments ........................................ (222) (224) -- (446)
----- ----- ---- -----
Net loss on investments ............................... (222) (204) -- (426)
----- ----- ---- -----
Net decrease in net assets from operations ............ $ 80 $ 174 $ 29 $ 283
===== ===== ==== =====
</TABLE>
1. To adjust Advisory fees to adopt the International and Income Portfolio's
fee structure for the combined assets.
2. To adjust Custodian fees to adopt the Income Portfolio's fee structure for
the combined assets.
3. To eliminate duplicative Professional fees.
4. To adjust Transfer Agent and Accounting fees to adopt the International
and Income Portfolio's fee structure for the combined assets.
5. To adjust filing fees to adopt the International and Income Portfolio's
fee structure for the combined assets.
(See Notes which are an integral part of the Pro Forma Combined Financial
Statements)
<PAGE> 112
ONE FUND, INC. TAX-FREE INCOME AND INCOME PORTFOLIOS
PRO FORMA COMBINED SCHEDULE OF INVESTMENTS
JUNE 30, 1999
(unaudited)
<TABLE>
<CAPTION>
FACE AMOUNT (IN THOUSANDS) MARKET VALUE (IN THOUSANDS)
TAX-FREE PRO TAX-FREE PRO
INCOME INCOME FORMA INCOME INCOME FORMA
PORTFOLIO PORTFOLIO COMBINED MUNICIPAL BONDS PORTFOLIO PORTFOLIO COMBINED
- --------------- -------------- -------------- ------------------------------------ ----------- ------------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
AIRPORT REVENUE (4.1%)
$ 300 $ - $ 300 Chicago Illinois Midway Airport
5.500% 01/01/29 $ 299 $ - $ 299
250 - 250 Chicago Illinois O'Hare Intl Airport
5.000% 01/01/13 240 - 240
------------ ------------ --------
539 - 539
------------ ------------ --------
CONVENTION COMPLEX &
HOSPITALITY FACILITIES (1.6%)
200 - 200 Metropolitan Pier & Exp ILL Hosp Facs
6.250% 07/01/17 209 - 209
------------ ------------ --------
GENERAL OBLIGATION BONDS (5.8%)
100 - 100 Clairborne County Mississippi
7.300% 05/01/25 104 - 104
150 - 150 Commonwealth of Puerto Rico
5.500% 07/01/17 152 - 152
250 - 250 Nevada State
6.600% 12/01/13 274 - 274
250 - 250 State of Washington
5.000% 05/01/17 240 - 240
------------ ------------ --------
770 - 770
------------ ------------ --------
HOSPITAL REVENUE (9.5%)
250 - 250 Hawaii Department of Budget
6.000% 07/01/20 259 - 259
250 - 250 Maricopa Cnty Arisona Indl Dev
5.250% 11/15/37 241 - 241
250 - 250 Massachusetts St Health & Edl Facs
6.200% 10/01/16 265 - 265
300 - 300 North Carolina Medical Care
Comm Healthcare Facs
5.250% 05/01/26 283 - 283
200 - 200 Wisconsin St Health & Edl Facs
6.125% 11/15/15 212 - 212
------------ ------------ --------
1,260 - 1,260
------------ ------------ --------
INSURED BONDS (8.3%)
250 - 250 Matagorde Cnty Texas Nav Dist#1
6.700% 03/01/27 (AMBAC) 267 - 267
250 - 250 Metropolitan Atlanta Rapid Trans
6.800% 07/01/14 (MBIA) 280 - 280
250 - 250 New York State Med Care Facs
6.750% 08/15/14 (AMBAC) 281 - 281
250 - 250 Pennsylvania Intergvt Coop
6.750% 06/15/21 (FGIC) 278 - 278
------------ ------------ --------
1,106 - 1,106
------------ ------------ --------
</TABLE>
<PAGE> 113
ONE FUND, INC. TAX-FREE INCOME AND INCOME PORTFOLIOS
PRO FORMA COMBINED SCHEDULE OF INVESTMENTS (CONTINUED)
JUNE 30, 1999
(unaudited)
<TABLE>
<CAPTION>
FACE AMOUNT (IN THOUSANDS) MARKET VALUE (IN THOUSANDS)
TAX-FREE PRO TAX-FREE PRO
INCOME INCOME FORMA INCOME INCOME FORMA
PORTFOLIO PORTFOLIO COMBINED MUNICIPAL BONDS PORTFOLIO PORTFOLIO COMBINED
- --------------- -------------- -------------- ------------------------------------ ----------- ------------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
HOUSING REVENUE (1.2%)
$ 150 $ - $ 150 Alaska St Housing Fin Corp
5.875% 12/01/24 $ 156 $ - $ 156
------------ ------------ --------
POLLUTION CONTROL &
INDUSTRIAL REVENUE (5.9%)
250 - 250 Lawrenceburg, Indiana
5.900% 11/01/19 251 - 251
250 - 250 Richland County, S Carolina
6.550% 11/01/20 267 - 267
250 - 250 West Feliciana, Louisiana
8.000% 12/01/24 258 - 258
------------ ------------ --------
776 - 776
------------ ------------ --------
POWER REVENUE (9.6%)
250 - 250 Jacksonville Florida Electric
5.500% 10/01/14 253 - 253
250 - 250 N Carolina Eastern Power System
6.000% 01/01/22 253 - 253
250 - 250 Salt River Arizona Project Power
5.000% 01/01/13 247 - 247
200 - 200 Southern California Public Power
6.000% 07/01/18 205 - 205
300 - 300 Washington St Pub Pwr Sys Nuclear
5.700% 07/01/12 310 - 310
------------ ------------ --------
1,268 - 1,268
------------ ------------ --------
SCHOOL REVENUE (2.0%)
250 - 250 Clark Cnty Nevada School District
7.000% 06/01/09 266 - 266
------------ ------------ --------
TRANSPORTATION REVENUE (1.7%)
250 - 250 Central Pudget Sound RTA
Washington
4.750% 02/01/28 222 - 222
------------ ------------ --------
WATER REVENUE (1.8%)
250 - 250 Metropolitan Water District of
S. California
5.500% 07/01/13 254 - 254
------------ ------------ --------
TOTAL MUNICIPAL BONDS
(51.5%) (Cost $6,267) $ 6,826 $ - $ 6,826
------------ ------------ --------
</TABLE>
(continued)
<PAGE> 114
ONE FUND, INC. TAX-FREE INCOME AND INCOME PORTFOLIOS
PRO FORMA COMBINED SCHEDULE OF INVESTMENTS (CONTINUED)
JUNE 30, 1999
(unaudited)
<TABLE>
<CAPTION>
FACE AMOUNT (IN THOUSANDS) MARKET VALUE (IN THOUSANDS)
TAX-FREE PRO TAX-FREE PRO
INCOME INCOME FORMA INCOME INCOME FORMA
PORTFOLIO PORTFOLIO COMBINED LONG-TERM BONDS & NOTES PORTFOLIO PORTFOLIO COMBINED
- --------------- -------------- -------------- ------------------------------------ ----------- ------------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
GOVERNMENT (6.9%)
$ - $ 900 $ 900 U.S. Treasury Note
6.375% 08/15/02 $ - $ 917 $ 917
------------ ------------ -------
CHEMICALS (4.0%)
- 250 250 Lyondell Chemicals Inc. (144A)
9.625% 05/01/07 - 258 258
- 300 300 Mississippi Chemical Corp.
7.250% 11/15/07 - 270 270
------------ ------------ -------
- 528 528
------------ ------------ -------
COMMUNICATIONS (0.8%)
- 100 100 Comcast Cable Communications
8.375% 05/01/07 - 107 107
------------ ------------ -------
COMPUTER & RELATED (1.9%)
- 250 250 IBM Corp.
7.250% 11/01/02 - 258 258
------------ ------------ -------
DRUGS (2.2%)
- 300 300 Watson Pharmaceuticals Inc.
7.125% 05/15/08 - 288 288
------------ ------------ -------
FORESTRY & PAPER PRODUCTS (1.9%)
- 250 250 ITT Rayonier Inc.
7.500% 10/15/02 - 257 257
------------ ------------ -------
HOTEL/LODGING (5.6%)
- 200 200 Hilton Hotels Corp.
7.200% 12/15/09 - 192 192
- 300 300 ITT Destinations Inc.
6.750% 11/15/05 - 272 272
- 300 300 Mirage Resorts Inc.
6.750% 02/01/08 - 280 280
------------ ------------ -------
- 744 744
------------ ------------ -------
MEDICAL & RELATED (1.9%)
- 250 250 Bergen Brunswig Corp.
7.375% 01/15/03 - 251 251
------------ ------------ -------
</TABLE>
(continued)
<PAGE> 115
ONE FUND, INC. TAX-FREE INCOME AND INCOME PORTFOLIOS
PRO FORMA COMBINED SCHEDULE OF INVESTMENTS (CONTINUED)
JUNE 30, 1999
(unaudited)
<TABLE>
<CAPTION>
FACE AMOUNT (IN THOUSANDS) MARKET VALUE (IN THOUSANDS)
TAX-FREE PRO TAX-FREE PRO
INCOME INCOME FORMA INCOME INCOME FORMA
PORTFOLIO PORTFOLIO COMBINED LONG-TERM BONDS & NOTES PORTFOLIO PORTFOLIO COMBINED
- --------------- -------------- -------------- ------------------------------------ ----------- ------------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
OIL, ENERGY & NATURAL GAS (4.2%)
$ - $ 200 $ 200 PDV America, Inc.
7.875% 08/01/03 $ - $ 196 $ 196
- 100 100 Seagull Energy
7.875% 08/01/03 - 100 100
- 250 250 Tenneco Inc.
8.075% 10/01/02 - 257 257
-------- -------------- --------
- 553 553
-------- -------------- --------
REAL ESTATE (1.5%)
- 200 200 Avalon Properties Inc.
7.375% 09/15/02 - 201 201
-------- -------------- --------
TEXTILES & RELATED (1.9%)
- 250 250 Fruit of the Loom Corp.
7.875% 10/15/99 - 250 250
-------- -------------- --------
TRANSPORTATION & EQUIPMENT (3.3%)
- 200 200 ABC Rail Product Corp.
8.750% 12/01/04 - 188 188
- 250 250 Illinois Central Gulf Railroad
6.750% 05/15/03 - 252 252
-------- -------------- --------
- 440 440
-------- -------------- --------
UTILITIES (6.9%)
- 250 250 El Paso Electric Co.
8.900% 02/01/06 - 268 268
- 200 200 Niagra Mohawk Power Corp.
7.750% 10/01/08 - 206 206
- 137 137 Puget Power
6.450% 04/11/05 - 137 137
- 300 300 Texas Utilities Electric
7.480% 01/01/17 - 305 305
-------- -------------- --------
- 916 916
-------- -------------- --------
TOTAL LONG-TERM BONDS & NOTES
(43.1%) (COST $5,717) $ - $ 5,710 $ 5,710
-------- -------------- --------
</TABLE>
(continued)
<PAGE> 116
ONE FUND, INC. TAX-FREE INCOME AND INCOME PORTFOLIOS
PRO FORMA COMBINED SCHEDULE OF INVESTMENTS (CONTINUED)
JUNE 30, 1999
(unaudited)
<TABLE>
<CAPTION>
SHARE AMOUNT (IN THOUSANDS) MARKET VALUE (IN THOUSANDS)
TAX-FREE PRO TAX-FREE PRO
INCOME INCOME FORMA INCOME INCOME FORMA
PORTFOLIO PORTFOLIO COMBINED PREFERRED STOCK PORTFOLIO PORTFOLIO COMBINED
- --------------- -------------- -------------- ------------------------------------ -------------- -------------- ---------
<S> <C> <C> <C> <C> <C> <C>
UTILITIES (2.9%)
- 8 8 GTE Delaware
8.750% Series B $ - $ 203 $ 203
- 7 7 Connecticut Light, Power & Capital
9.300% Series A - 179 179
-------------- -------------- ---------
TOTAL PREFERRED STOCK
(2.9%) (Cost $375) $ - $ 382 $ 382
-------------- -------------- ---------
FACE AMOUNT (IN THOUSANDS) MARKET VALUE (IN THOUSANDS)
Tax-Free Pro Tax-Free Pro
Income Income Forma Income Income Forma
Portfolio Portfolio Combined Short-Term Notes Portfolio Portfolio Combined
- --------------- -------------- -------------- ------------------------------------ -------------- -------------- ---------
<S> <C> <C> <C> <C> <C> <C>
FINANCIAL SERVICES (1.7%)
Household Finance
$ - $ 230 $ 230 5.450% 07/01/99 $ - $ 230 $ 230
-------------- -------------- --------
TOTAL SHORT-TERM NOTES
(1.7%) (Cost $230) $ - $ 230 $ 230
-------------- -------------- --------
TOTAL HOLDINGS (99.2%)
(Cost $12,589) (a) $ 6,826 $ 6,322 $13,148
-------------- -------------- --------
CASH & RECEIVABLES, NET OF
Liabilities (0.8%) 62 42 104
TOTAL NET ASSETS (100.0%) $ 6,888 $ 6,364 $13,252
============== ============== ========
</TABLE>
(See Notes which are an integral part of the Pro Forma Combined Financial
Statements)
<PAGE> 117
NOTES TO PRO FORMA COMBINED FINANCIAL STATEMENTS (unaudited)
- ------------------------------------------------------------
1. BASIS OF COMBINATION
The pro forma combined statements of assets and liabilities, including the pro
forma combined schedules of investments, reflect the accounts of the
International Portfolio, the Global Contrarian Portfolio, the Tax-Free Income
Portfolio and the Income Portfolio (collectively "the Portfolios") as of June
30, 1999 and the related pro forma combined statement of operations for the 12
month period ended June 30, 1999.
The pro forma combined financial statements give effect to the proposed transfer
of the assets and liabilities of the Global Contrarian Portfolio in exchange for
shares of the International Portfolio and transfer of the assets and liabilities
of the Tax-Free Income Portfolio for shares of the Income Portfolio. Under the
terms of the Plan of Merger and Liquidation between the portfolios (the "Plan"),
the combination of the Global Contrarian Portfolio into the International
Portfolio will be accounted for by the method of accounting for tax free mergers
of investment companies. The acquisition will be accomplished by an exchange of
all outstanding shares of the Global Contrarian Portfolio for shares of the
International Portfolio. Accordingly, the historical cost of investment
securities will be carried forward to the surviving Portfolio and the results of
operations of the surviving Portfolio for the pre-combining periods will not be
restated.
The Global Contrarian and the International have identical investment
objectives, which remain unchanged as a result of the combination
Under the terms of the Plan of Merger and Liquidation between the portfolios
(the "Plan"), the combination of the Tax-Free Income Portfolio into the Income
Portfolio will not qualify as a tax-free reorganization under Section 368(a)(1)
of the Internal Revenue Code. However, no gain or loss will be recognized by
either portfolio or its shareholders in connection with the merger and the tax
cost basis of the Income Portfolio shares received by Tax-Free Income Portfolio
shareholders will equal the tax basis of their shares in the Tax Free Income
Portfolio. The acquisition will be accomplished by an exchange of all
outstanding shares of the Tax-Free Income Portfolio for shares of the Income
Portfolio. Accordingly, the historical cost of investment securities will be
carried forward to the surviving Portfolio and the results of operations of the
surviving Portfolio for the pre-combining periods will not be restated.
The Tax-Free Income Portfolio and Income Portfolios have similar investment
objectives other than the fact that the Tax-Free Income Portfolio seek returns
that are exempt from federal and state income tax.
The pro forma financial statements should be read in conjunction with the
historical financial statements of each Portfolio, which are attached and made a
part of this registration statement. The pro forma combined statements of assets
and liabilities have been prepared as if the combination had taken place
June 30, 1999. Certain amounts have been reclassified to conform to current
presentation.
<PAGE> 118
NOTES TO PRO FORMA COMBINED FINANCIAL STATEMENTS (CONTINUED)
- ------------------------------------------------------------
2. PRO FORMA OPERATIONS
The pro forma combined statements of operations assumes similar rates of gross
investment income from the investments of each Portfolio. Accordingly, the
combined gross investment income is equal to the sum of the gross investment
income of each Portfolio.
Pro forma operating expenses reflect the expected expenses of the portfolio
assuming combination of the portfolios for the 12-month period ended June 30,
1999. As such, the pro forma fees for investment advisory, custodian,
professional, transfer agent and accounting, filing and expenses voluntarily
reduced or reimbursed calculated based on the fee schedules in effect at June
30, 1999.
3. PRO FORMA COMBINED SCHEDULE OF INVESTMENTS
Assuming normal market conditions, the investment advisor does not expect to
divest significant amounts of combined portfolio holdings.
4. SURVIVING ENTITY
The Income and International Portfolios will be the surviving entities for
accounting purposes. This determination was based upon the reflective size of
each Portfolio and that the surviving Portfolio will be managed by the Adviser
employing the Portfolio's current investment objectives, policies and
restrictions.
<PAGE> 119
PART C: OTHER INFORMATION
ITEM 15. INDEMNIFICATION.
----------------
Under Section 2-418 of the Maryland General Corporation Law, with respect to any
proceedings against a present or former director, officer, agent or employee (a
"corporate representative") of the Registrant (a Maryland corporation), except a
proceeding brought by or on behalf of the Registrant, the Registrant may
indemnify the corporate representative against expenses, including attorneys'
fees, and judgments, fines, penalties, and amounts paid in settlement, if such
expenses were actually and reasonably incurred by the corporate representative
in connection with the proceedings, if: (i) he or she acted in good faith; (ii)
in the case of conduct in his or her official capacity he or she reasonably
believed that his or her conduct was in the best interests of the Registrant,
and in all other cases he or she reasonably believed that his or her conduct was
not opposed to the best interests of the Registrant; and (iii) with respect to
any criminal proceeding, he or she had no reasonable cause to believe his or her
conduct was unlawful. The Registrant is also authorized under Section 2-418 of
the Maryland General Corporation Law to indemnify a corporate representative
under certain circumstances against reasonable expenses incurred in connection
with the defense of a suit or action by or in the right of the Registrant except
where the corporate representative has been adjudged liable to the Registrant.
Under Article 11 of the Registrant's By-laws, directors and officers of
Registrant are entitled to indemnification by the Registrant to the fullest
extent permitted under Maryland law and the Investment Company Act of 1940.
Reference is made to Article 11 of Registrant's By-laws and Section 2-418 of the
Maryland General Corporation Law.
ITEM 16. EXHIBITS.
---------
(1)(a) Articles of Incorporation of the Registrant, as filed in the
Maryland State Department of Assessments and Taxation on April 24,
1992, were filed as Exhibit (1) to the Registrant's Form N-1A on
May 18, 1992 (File No. 33-47811).
(1)(b) Articles of Amendment of the Registrant, as filed in the Maryland
State Department of Assessments and Taxation on July 28, 1992,
were filed as Exhibit (1)(b) to pre-effective amendment no. 2 to
the Registrant's Form N-1A on July 27, 1992 (File No. 33-47811).
(1)(c) Articles Supplementary of the Registrant, as filed in the Maryland
State Department of Assessments and Taxation on December 30, 1992,
were filed as Exhibit (1)(c) to post-effective amendment no. 1 to
the Registrant's Form N-1A on February 16, 1993 (File No.
33-47811).
(1)(d) Articles Supplementary of the Registrant, as filed in the Maryland
State Department of Assessments and Taxation on September 29,
1994, were filed as Exhibit (1)(d) to post-effective amendment no.
6 to the Registrant's Form N-1A on May 4, 1995 (File No.
33-47811).
<PAGE> 120
(1)(e) Articles Supplementary of the Registrant, as filed in the Maryland
State Department of Assessments and Taxation on September 16,
1996, were filed as Exhibit (1)(e) to post-effective amendment no.
9 to the Registrant's Form N-1A on November 12, 1996 (File No.
33-47811).
(2) By-Laws of the Registrant, as amended by the Board of Directors on
December 10, 1992, were filed as Exhibit (2) to post-effective
amendment no. 1 to the Registrant's Form -1A (File No. 33-47811)
on February 16, 1993.
(3) None
(4) Copy of Form of Plan of Merger and Liquidation (included as an
appendix to the Prospectus/Proxy Statement which is part of this
Registration Statement on Form N-14).
(5)(a) Specimen copy of certificated securities of the Income Portfolio
was filed as Exhibit (4) to Registrant's Form N-1A (File No.
33-47811) on May 18, 1992.
(5)(b) Specimen copy of certificated securities of the International
Portfolio was filed as Exhibit (4)(a) to post-effective amendment
no. 2 to the Registrant's Form N-1A (File No. 33-47811) on
February 26, 1993.
(5)(c) Specimen copies of certificated securities of the Tax-Free Income
and Global Contrarian Portfolios were filed as Exhibit (4)(b) to
post-effective amendment no. 5 to the Registrant's Form N-1A (File
No. 33-47811) on September 1, 1994.
(6)(a) Investment Advisory Agreement between the Registrant and Ohio
National Investments, Inc. dated May 1, 1996 was filed as Exhibit
(5) to post-effective amendment no. 8 to the Registrant's on Form
N-1A (File No. 33-47811) on August 21, 1996.
(6)(b) Sub-Advisory Agreement (for the Global Contrarian and
International Portfolios) between Ohio National Investments, Inc.
and Federated Global Investment Management Corp.
(6)(c) Schedule A, amended October 31, 1996, to the Investment Advisory
Agreement between the Registrant and Ohio National Investments,
Inc. dated May 1, 1996 was filed as Exhibit (5)(b)(1) to
post-effective amendment no. 9 to the Registrant's Form N-1A (File
No. 33-47811) on November 12, 1996.
(7) Principal Underwriting Agreement between the Registrant and Ohio
National Equities, Inc. was filed as Exhibit (6) to post-effective
amendment no. 10 to the Registrant's Form N-1A (File No. 33-47811)
on April 30, 1997.
<PAGE> 121
(8) None
(9)(1) Custodian Agreement dated May 12, 1992 between the Registrant and
The Provident Bank was filed as Exhibit (8) to Registrant's Form
-1A (File No. 33-47811) on May 18, 1992.
(9)(2) Custody Agreement (for the International Portfolio) between the
Registrant and Investors Fiduciary Trust Company was filed as
Exhibit (8)(a) to post-effective amendment no. 3 to Registrant's
Form N-1A (File No. 33-47811) on April 29, 1993.
(10) Rule 12b-1 Plan was filed as Exhibit (15) to Registrant's Form
N-1A (File No. 33-47811) on May 18, 1992.
(11) Opinion and consent of counsel as to the legality of the
securities being registered, indicating whether they will, when
sold, be legally issued, fully paid and non-assessable.
(12) Opinion and consent of counsel regarding certain tax matters and
consequences to shareholders.
(13)(a) Agency Agreement dated May 12, 1992 between the Registrant and The
Provident Bank was filed as Exhibit (9)(a) to the Registrant's
Form N-1A (File No. 33-47811) on May 18, 1992.
(13)(b) Repurchase Transactions, Terms and Conditions (master agreement)
dated May 12, 1992 between the Registrant and The Provident Bank
was filed as Exhibit (9)(b) to the Registrant's Form N-1A (File
No. 33-47811) on May 18, 1992.
(13)(c) Service Agreement among the Registrant, Ohio National Investments,
Inc. and The Ohio National Life Insurance Company dated May 1,
1996 was filed as Exhibit (9)(c) to post-effective amendment no. 8
to the Registrant's Form N-1A (File No. 33-47811) on August 21,
1996.
(13)(d) Joint Insured Agreement among the Registrant, Ohio National Fund,
Inc. and Ohio National Investments, Inc. dated May 1, 1996 was
filed as Exhibit (9)(d) to post-effective amendment no. 8 to the
Registrant's Form N-1A (File No. 33-47811) on August 21, 1996.
(13)(e) Engagement Letter of KPMG LLP as independent auditors for the
Registrant was filed as Exhibit (9)(e) to the Registrant's Form
N-1A (File No. 33-47811) on May 18, 1992.
3
<PAGE> 122
(13)(f) Services Agreement (for the International Portfolio) between the
Registrant and Interactive Data Corporation was filed as Exhibit
(9)(f) to post-effective amendment no. 4 to the Registrant's Form
N-1A (File No. 33-47811) on September 2, 1993.
(14)(a) Consent of KPMG LLP.
(14)(b) Consent of Jones & Blouch L.L.P.
(14)(c) Consent of Ronald L. Benedict, Esq.
(15) None
(16) None
(17) None
ITEM 17. UNDERTAKINGS.
-------------
The undersigned registrant agrees that prior to any public reoffering of the
securities registered through the use of a prospectus which is a part of this
registration statement by any person or party who is deemed to be an underwriter
within the meaning of Rule 145(c) of the Securities Act [17 CFR 230.145c], the
reoffering prospectus will contain the information called for by the applicable
registration form for reofferings by persons who may be deemed underwriters, in
addition to the information called for by the other items of the applicable
form.
The undersigned registrant agrees that every prospectus that is filed under
paragraph (1) above will be filed as part of an amendment to the registration
statement and will not be used until the amendment is effective, and that, in
determining any liability under the 1933 Act, each post-effective amendment
shall be deemed to be a new registration statement for the securities offered
therein, and the offering of securities at that time shall be deemed to be the
initial bona fide offering of them.
4
<PAGE> 123
SIGNATURES
As required by the Securities Act of 1933, this registration statement has been
signed on behalf by the registrant in the City of Cincinnati and State of Ohio
on the 1st day of September, 1999.
ONE FUND, INC.
By /s/ John J. Palmer
----------------------------
John J. Palmer, President
Attest /s/ Ronald L. Benedict
-----------------------------
Ronald L. Benedict, Secretary
As required by the Securities Act of 1933, this registration statement has been
signed by the following persons in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
<S> <C> <C>
/s/ John J. Palmer President and Director September 1, 1999
- -----------------------------------
John J. Palmer
/s/ Dennis R. Taney Treasurer September 1, 1999
- ---------------------------------
Dennis R. Taney
/s/ Ronald L. Benedict Director September 1, 1999
- --------------------------------
Ronald L. Benedict
/s/ George E. Castrucci Director September 1, 1999
- --------------------------------
George E. Castrucci
/s/ Ross Love Director September 1, 1999
- --------------------------------
Ross Love
/s/ George M. Vredeveld Director September 1, 1999
- -----------------------------
George M. Vredeveld
</TABLE>
<PAGE> 124
EXHIBIT INDEX
Exhibit
Number
- -------
(4) Copy of Form of Plan of Merger and Liquidation (included as an
appendix to the Prospectus/Proxy Statement which is part of this
Registration Statement on Form N-14).
(6)(b) Sub-Advisory Agreement (for the Global Contrarian and
International Portfolios) between Ohio National Investments, Inc.
and Federated Global Investment Management Corp.
(11) Opinion and consent of counsel as to the legality of the
securities being registered, indicating whether they will, when
sold, be legally issued, fully paid and non-assessable.
(12) Opinion and consent of counsel regarding certain tax matters and
consequences to shareholders discussed in the prospectus.
(14)(a) Consent of KPMG, LLP
(14)(b) Consent of Jones & Blouch L.L.P.
(14)(c) Consent of Ronald L. Benedict, Esq.
<PAGE> 1
Exhibit 4
PLAN OF MERGER AND LIQUIDATION
This plan of merger and liquidation has been entered into on the twentieth day
of May, 1999, by ONE Fund, Inc. ("ONE Fund"), a Maryland corporation, on behalf
of its Global Contrarian and Tax-Free Income portfolios (the "Liquidating
portfolios") and its International and Income portfolios (the "Surviving
portfolios").
Whereas, ONE Fund is a registered investment company under the Investment
Company Act of 1940 as amended (the "1940 Act");
Whereas the Board of Directors of ONE Fund has determined that the transactions
described herein are in the best interests of the shareholders of each of the
Liquidating portfolios and Surviving portfolios;
Whereas the Board of Directors has determined that the transactions described
herein will not dilute the interests of any shareholder of the Liquidating
portfolios and the Surviving portfolios;
Whereas paragraph (2)(e) of Article Sixth of ONE Fund's Articles of
Incorporation provides for the equitable liquidation of any particular class of
the common stock of ONE Fund;
Whereas the Board of Directors has agreed that the Global Contrarian portfolio
should be merged into the International portfolio, and that the Tax-Free Income
portfolio should be merged into the Income portfolio; and
Whereas the Board of Directors has recommended that this plan of merger and
liquidation be approved by the shareholders of each of the Liquidating
portfolios,
Now, therefore, all the assets, liabilities and interests of the Liquidating
portfolios shall be transferred on the closing date to the corresponding
Surviving portfolios as described below, provided, however, that these
transactions shall not be effected as to either Liquidating portfolio unless and
until this plan shall have first been approved by a majority of the shareholders
of that portfolio as provided in ONE Fund's By-laws.
1. The closing date shall be a day on which ONE Fund is open for business and
the New York Stock Exchange is open for unrestricted trading. It shall be a
day determined by ONE Fund's management as soon as practicable after
approval of this plan by the Liquidating portfolios' shareholders.
2. On or before the closing date, and prior to effecting the transactions, ONE
Fund shall have received a satisfactory written opinion of legal counsel
that the transactions described herein shall qualify as a tax-free
reorganization under Section 368(a)(1) of the Internal Revenue Code of
1986, as amended.
3. On the closing date, prior to the effecting of the transactions described
in paragraph 4 below, each of the Liquidating portfolios shall distribute
and pay to its respective shareholders of record, dividends representing
substantially all of the portfolios' undistributed income and net realized
capital gains, if any.
<PAGE> 2
4. In exchange for all of his or her shares of the Liquidating portfolios,
each shareholder of a Liquidating portfolio shall receive a number of
shares, including fractional shares, of the corresponding Surviving
portfolio equal in dollar value to the number of whole and fractional
shares that shareholder owns in the Liquidating portfolio. Each shareholder
of a Liquidating portfolio shall thereupon become a shareholder in the
corresponding Surviving portfolio.
5. For purposes of these transactions, the shares of each portfolio shall be
determined as of 4:00 p.m., eastern time, on the closing date. Those
valuations shall be made in the usual manner as provided in ONE Fund's
prospectus.
6. Upon completion of the foregoing transactions, both of the Liquidating
portfolios shall be terminated and no further shares of common stock shall
be issued by either of them. The classes of ONE Fund's common stock, par
value one-tenth of a cent ($0.001) per share, representing the Liquidating
portfolios shall thereupon be closed and the shares previously authorized
for those classes may be reclassified by the Board of Directors as provided
in Article Fifth of ONE Fund's Articles of Incorporation. ONE Fund's Board
of Directors and management shall take whatever actions are necessary under
Maryland law and the 1940 Act to effect the termination of the Liquidating
portfolios.
7. As provided in the Investment Advisory Agreement, the costs and expenses of
these transactions, including the preparation, filing, printing and mailing
of proxy solicitation material, disclosure documents and related legal fees
shall be borne by each of the Liquidating portfolios and Surviving
portfolios pro rata based upon the total amount of net assets of each
portfolio as a fraction of the total net assets of all four portfolios at
the time any such costs and expenses are paid.
In witness whereof, ONE Fund, on behalf of each of the Liquidating portfolios
and Surviving portfolios, has caused this plan of merger and liquidation to be
executed and attested in the City of Montgomery, State of Ohio, on the date
first written above.
ONE FUND, INC.
By: /s/ John J. Palmer
----------------------------------------
John J. Palmer, President
Attest:
/s/ Ronald L. Benedict, Secretary
- -------------------------------------------
Ronald L. Benedict, Secretary
<PAGE> 1
Exhibit (6)(b)
SUBADVISORY AGREEMENT
This Subadvisory Agreement (this "Agreement") is entered into as of the
first day of January, 1999, by and between OHIO NATIONAL INVESTMENTS, INC., an
Ohio corporation(the "Adviser") and FEDERATED GLOBAL RESEARCH CORP., a Delaware
corporation ("FGR").
WHEREAS, the Adviser has entered into advisory agreements dated May 1,
1996, (the "Advisory Agreements") with OHIO NATIONAL FUND, INC. and ONE FUND,
INC., Maryland corporations (the "Companies"), pursuant to which the Adviser
provides portfolio management services to the INTERNATIONAL PORTFOLIO, and
INTERNATIONAL SMALL COMPANY PORTFOLIO (presently designated as the Global
Contrarian Portfolio) of Ohio National Fund, Inc. and the INTERNATIONAL
PORTFOLIO and GLOBAL CONTRARIAN PORTFOLIO of ONE Fund, Inc. (said Portfolios
being referred to herein as the "Funds");
WHEREAS, the Advisory Agreements provide that the Adviser may delegate any
or all of its portfolio management responsibilities under the Advisory
Agreements to one or more subadvisers; and
WHEREAS, the Adviser and the Boards of Directors (the "Board") of the
Companies desire to retain FGR to render portfolio management services in the
manner and on the terms set forth in this Agreement.
NOW, THEREFORE, in consideration of the mutual covenants and agreements set
forth in this Agreement, the Adviser and FGR agree as follows:
1. Appointment of Subadviser. The Adviser hereby appoints FGR as
subadviser for each of the Funds and authorizes FGR, in its discretion and
without prior consultation with the Adviser, to buy, sell, lend and
otherwise trade in any stocks, bonds, instruments, financial contracts and
other investment assets ("Securities") on behalf of the Funds. Subject to
the supervision of the Adviser and the Board, FGR will manage the
investment operations of the Funds and the composition of the Funds'
respective portfolios, including the purchase, retention and disposition
of, and exercise of all rights pertaining to, the Securities comprising the
Funds. FGR may invest the Funds in such proportions of stocks, bonds,
instruments, financial contracts, cash and other investment assets as FGR
shall determine, and may dispose of Securities without regard to the length
of time the Securities have been held, the resulting rate of portfolio
turnover or any tax considerations, provided that all investments shall
conform with:
(a) the Funds' investment objectives, policies, limitations,
procedures and guidelines set forth in the documents listed on Schedule
1 to this Agreement;
(b) any additional objectives, policies or guidelines established
by the Adviser or by the Board that have been furnished in writing to
FGR;
(c) the provisions of Section 851 of the Internal Revenue Code
("IRC") applicable to "regulated investment companies";
(d) the diversification requirements specified in Section 817(h) of
the IRC, and the regulations thereunder; and
(e) the provisions of the Investment Company Act of 1940 (the "1940
Act") and the rules and regulations thereunder applicable to the Funds.
2. Representations and Warranties.
(a) FGR hereby represents and warrants to the Adviser that: (i) it
is a corporation duly formed and validly existing under the laws of
Delaware, (ii) it is duly authorized to execute and deliver this
Agreement and to perform its obligations hereunder and has taken all
necessary action to authorize such execution, delivery and performance,
(iii) it is registered with the Securities and Exchange Commission
("SEC") as an investment adviser under the Investment Advisers Act of
1940 (the "Advisers Act") and is registered or licensed as an investment
adviser under the laws of all jurisdictions in which its activities
require it to be so registered or licensed, except where the failure
1
<PAGE> 2
to be so licensed would not have a material adverse effect on its
business and (iv) it has furnished to the Adviser true and complete
copies of all the documents listed on Schedule 2 to this Agreement.
(b) The Adviser hereby represents and warrants to FGR that: (i) it
is a corporation duly formed and validly existing under the laws of
Ohio, (ii) it is duly authorized to execute and deliver this Agreement
and to perform its obligations hereunder and has taken all necessary
action to authorize such execution, delivery and performance, (iii) it
is registered with the SEC as an investment adviser under the Advisers
Act and is registered or licensed as an investment adviser under the
laws of all jurisdictions in which its activities require it to be so
registered or licensed, except where the failure to be so licensed would
not have a material adverse effect on its business and (iv) it has
furnished to FGR true and complete copies of all the documents listed on
Schedule 1 to this Agreement.
3. Information and Reports.
(a) The Adviser will promptly notify FGR of any material change in
any of the documents listed on Schedule 1 to this Agreement and will
provide FGR with copies of any such modified document. The Adviser will
also provide FGR with a list, to the best of the Adviser's knowledge, of
all affiliated persons of Adviser (and any affiliated person of such an
affiliated person) and will promptly update the list whenever the
Adviser becomes aware of any additional affiliated persons.
(b) FGR will maintain books and records relating to its management
of the Funds under its customary procedures and in compliance with
applicable regulations under the 1940 Act and the Advisers Act. All such
records pertaining to the Funds shall be the property of the Companies
and FGR will permit the Adviser, the Companies and the SEC to inspect
such books and records at all reasonable times during normal business
hours, upon reasonable notice. Prior to each Board meeting, FGR will
provide the Adviser and the Board with reports regarding its management
of the Funds during the interim period, in such form as may be mutually
agreed upon by FGR and the Adviser. FGR will also provide the Adviser
with any information regarding its management of the Fund required for
any shareholder report, amended registration statement or prospectus
supplement filed by the Company with the SEC.
4. Conditions to Agreement. FGR's and the Adviser's obligations under
this Agreement are subject to the satisfaction of the following conditions
precedent:
(a) Receipt by FGR of a certificate of an officer of each of the
Companies stating that (i) this Agreement and the Advisory Agreement
have been approved by the vote of a majority of the directors, who are
not interested persons of FGR or the Adviser, cast in person at a
meeting of the Board called for the purpose of voting on such approval,
and (ii) this Agreement and the Advisory Agreement have been approved by
the vote of a majority of the outstanding voting securities of each of
the Funds;
(b) Receipt by FGR of certified copies of instructions from the
Companies to their custodian designating the persons specified by FGR as
"Authorized Persons" under each Company's custody agreement;
(c) The Companies' execution and delivery of limited powers of
attorney in favor of FGR, in a form mutually agreeable to FGR, the
Adviser and the Board;
(d) Receipt by FGR of Board resolutions, certified by an officer of
each Company, adopting all procedures and guidelines required by any
exemptive order listed on Schedule 2 to this Agreement; and
(e) Any other documents, certificates or other instruments that FGR
or the Adviser may reasonable request from either Company.
5. Compensation. For the services provided under this Agreement, the
Adviser will pay to FGR a fee at an annual rate of 0.40% of the first $200
million and 0.35% of each of the International Portfolios'
2
<PAGE> 3
average daily net assets in excess of $200 million, and 0.75% of the first
$100 million and 0.65% of the Global Contrarian and International Small
Company Portfolios' average daily net assets in excess of $100 million.
Such fees will accrue daily and will be paid monthly. If this Agreement is
effective for only a portion of a month, the fees will be prorated for the
portion of such month during which this Agreement is in effect.
6. Allocation of Transactions and Brokerage.
(a) To the extent consistent with applicable law, FGR may aggregate
purchase or sell orders for each of the Funds with contemporaneous
purchase or sell orders of the other Funds or of other clients of FGR or
its affiliated persons. In such event, allocation of the Securities so
purchased or sold, as well as the expenses incurred in the transaction,
will be made by FGR in the manner FGR considers to be the most equitable
and consistent with its and its affiliates' fiduciary obligations to the
Funds and to such other clients. The Adviser hereby acknowledges that
such aggregation of orders may not result in a more favorable price or
lower brokerage commissions in all instances.
(b) FGR will place purchase and sell orders for the Funds with or
through such banks, brokers, dealers, futures commission merchants or
other firms dealing in Securities ("Brokers") as it determines, which
may include Brokers that are affiliated persons of FGR, provided such
orders are exempt from the provisions of Section 17(a), (d) and (e) of
the 1940 Act. FGR will use its best efforts to obtain execution of
transactions for the Funds at prices which are advantageous to the Funds
and at commission rates that are reasonable in relation to the services
received. FGR may, however, select Brokers on the basis that they
provide brokerage or research services or research products to the Funds
and/or other advisory clients of FGR and its affiliated investment
advisers as to which FGR and those affiliated investment advisers
exercise investment discretion. In selecting Brokers, FGR may also
consider the reliability, integrity and financial condition of the
Broker, and the size of and difficulty in executing the order.
(c) To the extent consistent with applicable law, and subject to
review by the Board, FGR may pay a Broker an amount of commission for
effecting a Securities transaction in excess of the amount of commission
or dealer spread another Broker would have charged for effecting that
transaction, if FGR determines in good faith that such amount of
commission was reasonable in relation to the value of the brokerage and
research products and/or research services provided by such Broker to
the Funds and/or other clients of FGR and its affiliated investment
advisers as to which FGR and those affiliated investment advisers
exercise investment discretion. This determination, with respect to
brokerage and research services or research products, may be viewed in
terms of either that particular transaction or the overall
responsibilities which FGR and its affiliates have with respect to the
Funds or their other clients as to which FGR and its affiliates exercise
investment discretion, and may include services or products that FGR
does not use in managing the Funds.
7. Nonexclusive Agreement. The investment management services provided
by FGR hereunder are not to be deemed to be exclusive, and FGR shall be
free to render similar services to other advisers, investment companies,
and other types of clients.
8. Limitation of Liability. In the absence of willful misfeasance, bad
faith or gross negligence on the part of FGR, or of reckless disregard by
FGR of its obligations and duties hereunder, FGR, shall not be subject to
any liability to the Adviser, the Funds, the Companies, any shareholder of
the Funds, or to any person, firm or organization. Subject to the
above-stated standard of care, FGR shall be liable for any taxes or tax
penalties incurred by a Fund for any failure of a Fund to qualify as a
regulated investment company under Section 851 of the IRC as a result of
FGR's management of the Funds. The Adviser, the Companies and the Funds are
hereby expressly put on notice of the limitation of liability as set forth
in the Certificate of Incorporation of FGR and each agrees that the
obligations assumed by FGR pursuant to this Agreement will be limited in
any case to FGR and its assets and the Adviser, the Companies and the Funds
shall not seek satisfaction of any such obligations from the shareholders
of FGR, the trustees of FGR, officers, employees or agents of FGR, or any
of them.
3
<PAGE> 4
FGR shall have no liability for any investment losses incurred by the Funds
or arising from transactions by the Funds prior to the effective date of this
Agreement.
The Adviser, the Companies and the Funds hereby acknowledge that FGR is not
responsible for foreign custody registration or foreign custody.
9. Pricing. The Adviser, the Companies and the Funds hereby
acknowledge that FGR is not responsible for pricing portfolio Securities,
and that the Adviser, the Companies, the Funds and FGR will rely on the
pricing agent chosen by the Board for prices of Securities, for any
purposes.
10. Limited Power of Attorney. Subject to any other written
instructions of the Adviser or the Companies, FGR is hereby appointed the
Companies' agent and attorney-in-fact for the limited purposes of executing
account documentation, agreements, contracts and other documents as FGR
shall be requested by brokers, dealers, counter parties and other persons
in connection with its management of the Funds' assets. The Adviser and the
Companies hereby ratify and confirm as good and effectual, at law or in
equity, all that FGR and its officers and employees, may do in its capacity
as attorney-in-fact. However, nothing herein shall be construed as imposing
a duty on FGR to act or assume responsibility for any matters in its
capacity as attorney-in-fact for the Companies. Any person, partnership,
corporation or other legal entity dealing with FGR in its capacity as
attorney-in-fact hereunder for the Companies is hereby expressly put on
notice that FGR is acting solely in the capacity as an agent of the
Companies and that any such person, partnership, corporation or other legal
entity must look solely to the Companies for enforcement of any claim
against the Companies as FGR assumes no personal liability whatsoever for
obligations of the Companies entered into by FGR in its capacity as
attorney-in-fact for the Companies. FGR agrees to provide the Adviser and
the Companies with copies of any such agreements executed on behalf of the
Companies.
11. Term. This Agreement shall begin as of the date first above
written and, provided that it shall have been approved by a majority vote
of the voting securities of each of the Funds not more than one hundred and
twenty days after the effective date hereof, this Agreement shall continue
in effect for a period of two years from the date hereof and thereafter for
successive periods of one year, subject to the provisions for termination
and all of the other terms and conditions hereof if such continuance is
specifically approved at least annually in conformity with the requirements
of the 1940 Act; provided, however, that this Agreement may be terminated
by one or more of the Funds at any time, without the payment of any
penalty, by the Board or by vote of a majority of the outstanding voting
securities (as defined in the 1940 Act) of one or more of the Funds, or by
the Adviser or FGR at any time, without the payment of any penalty, on not
more than 60 days' nor less that 30 days' written notice to the other
party. This Agreement will terminate automatically as to any Fund in the
event of its assignment (as defined in the 1940 Act) or upon the
termination of the Adviser's Advisory Agreement as to that Fund.
12. Counterparts. This Agreement may be executed simultaneously in two
or more counterparts, each of which will be deemed an original, but all of
which together will constitute one and the same instrument.
13. Governing Law and Construction. This Agreement will be governed by
and construed in accordance with the laws of the Commonwealth of
Pennsylvania. Any terms defined in 1940 Act, and not otherwise defined in
this Agreement, are used with the same meaning in this Agreement.
14. Use of FGR's Name. FGR hereby agrees that the Adviser, the
Companies, their affiliated broker-dealers and affiliated life insurance
companies may use FGR's name and logo in advertising and marketing
materials for the Companies and any variable insurance products through
which one or more of the Funds may be offered as funding vehicles,
provided, that FGR has reviewed and approved any such materials prior to
their use.
15. Miscellaneous. The captions in this Agreement are included for
convenience of reference only and in no way define or delimit any of the
provisions hereof or otherwise affect their construction or effect. If any
provision of this Agreement shall be held or made invalid by a court
decision, statute, rule or otherwise, the remainder of this Agreement shall
not be affected thereby.
4
<PAGE> 5
IN WITNESS WHEREOF, the parties hereto have caused this instrument to be
signed on their behalf by their duly authorized officers to be effective as of
the dates written below.
<TABLE>
<S> <C>
FOR OHIO NATIONAL INVESTMENTS, INC.: FOR FEDERATED GLOBAL RESEARCH CORP.:
/s/ JOSEPH P. BROM /s/ HENRY FRANTZEN
- -------------------------------------------- --------------------------------------------
Joseph P. Brom, President Henry Frantzen
Chief Financial Officer, International
Date: Date:
December 29, 1998 December 28, 1998
- -------------------------------------------- --------------------------------------------
Accepted and Agreed by Accepted and Agreed by
OHIO NATIONAL FUND, INC.: ONE FUND, INC.:
/s/ JOHN J. PALMER /s/ JOHN J. PALMER
- -------------------------------------------- --------------------------------------------
John J. Palmer, President John J. Palmer, President
Date: Date:
January 4, 1999 January 4, 1999
- -------------------------------------------- --------------------------------------------
</TABLE>
5
<PAGE> 1
Exhibit 11
[OHIO NATIONAL FINANCIAL SERVICES LETTERHEAD]
September 3, 1999
Board of Directors
ONE Fund, Inc.
One Financial Way
Montgomery, Ohio 45242
Re: Registration of ONE Fund, Inc.
Income and International Portfolio Shares
Opinion of Counsel
Gentlemen:
In my capacity as legal counsel for ONE Fund, Inc. (the "Fund"), I have
supervised the organization and lawful operation of the Fund and the issuance of
the Fund's capital shares, including those for the Fund's Income an
International Portfolios. In such capacity I have also participated in the
preparation of the Fund's Registration Statement on Form N-14 and the filing of
such Registration Statement under the Securities Act of 1933 and with respect to
the capital shares of the Fund, including those of its Income and International
Portfolios.
Based upon such examination of law and such corporation records and other
documents as in my judgment are necessary or appropriate, I am of the opinion
that all necessary and required corporate proceedings have been taken in
connection with the issuance of the shares of the Income and International
Portfolios being registered, and all such shares, when sold, will be legally
issued, fully paid and nonassessable.
I hereby consent to the filing of this letter as an exhibit to the Registration
Statement for the Fund.
Sincerely,
/s/ Ronald L. Benedict
Secretary and Legal Counsel
RLB/nh
<PAGE> 1
Exhibit 12
[JordenBurt Letterhead]
Wayne K. Johnson
(202) 965-8142
[email protected]
May 24, 1999
VIA TELECOPIER
- --------------
Ronald L. Benedict, Esq.
The Ohio National Life Insurance Co.
One Financial Way
Cincinnati, Ohio 45242
Re: ONE Fund Mergers
----------------
Dear Ron:
This letter summarizes the federal income tax issues presented by the
ONE Fund mergers. As we understand the transactions, their proper tax
characterization would be as follows:
(1) The merger(1) of the Global Contrarian Portfolio ("Global")
into the International Portfolio ("International") will
qualify as a tax-free reorganization under Section
368(a)(1)(C) of the Internal Revenue Code of 1986, as amended
("IRC" or "Code"); and
(2) The merger of the Tax Free Income Portfolio ("Tax Free") into
the Income Portfolio ("Income") WILL NOT qualify as a tax-free
reorganization under the Code because the "continuity of
business enterprise" requirement under Treas. Reg. Section
1.368-1(d) will not be satisfied. However, the treatment of
the merger should not cause the realization of gain or loss to
Income or the Income shareholders in addition to that which
will result from the pre-merger sale of all of the investments
that are held by Tax Free.
- --------
1 The term "merger" is used for convenience. The proposed transactions
would not be true statutory mergers because none of the four entities (i.e.,
Global, International, Tax Free or Income) is a separate corporation under state
law, although IRC Section 851(g)(1) requires that each of the entities be
treated as a corporation under federal income tax law. Instead, the transactions
would be what are sometimes called "practical mergers" in which the acquiring
company transfers its stock to the target company in exchange for the assets of
the target. The target then liquidates and distributes acquiring company stock
to its shareholders.
<PAGE> 2
Ronald L. Benedict, Esq.
May 24, 1999
Page 2
The different conclusions for the two transactions reflects the fact
that Global's investment objectives are compatible with International's
investment objectives, but Tax Free's investment objectives ARE NOT compatible
with Income's investment objectives. After the merger with Global, International
will continue to invest in a manner consistent with Global's investment
objectives, and will probably not dispose of all Global assets. After the merger
with Tax Free, Income WILL NOT invest in a manner consistent with Tax Free's
investment objectives, and WILL NOT hold Tax Free's historic business assets.
1. MERGER OF GLOBAL INTO INTERNATIONAL
Under IRC Section 368(a)(1)(C), "reorganization" means:
The acquisition by one corporation, in exchange solely for all or a
part of its voting stock (or in exchange solely for all or a part of
the voting stock of a corporation which is in control of the acquiring
corporation), of substantially all of the properties of another
corporation, but in determining whether the exchange is solely for
stock the assumption by the acquiring corporation of a liability of the
other, or the fact that property acquired is subject to a liability,
shall be disregarded.
We expect to be able to issue an opinion that the merger of Global into
International is a reorganization within the meaning of IRC Section
368(a)(1)(C), and that no gain or loss generally will be recognized by Global,
International, or by their respective shareholders pursuant to the
reorganization.
2. THE MERGER OF TAX FREE INTO INCOME
In order to qualify as a tax-free reorganization under IRC Section
368(a)(1), a transaction must comply with Treas. Reg. Section 1.368-1(b), which
states that there must be a continuity of the business enterprise. Treas. Reg.
Section 1.368-1(d) provides, in general, that the continuity of business
enterprise requirement is satisfied if the acquiring corporation in a corporate
reorganization either (a) continues the acquired corporation's historic business
or (b) uses a significant portion of the acquired corporation's historic
business assets in a business. Section 1.368-1(d) is applicable to a transaction
intended to qualify as a tax-free reorganization under IRC Section 368(a)(a)(C).
See Treas. Reg. Section 1.368-1(b). Therefore, the acquiring corporation must
either (a) continue the acquired corporation's historic business, or (b)
continue to use a significant portion of the acquired corporation's historic
business assets, for the transaction to qualify under section 368(a)(1)(C).
The Tax Free/Income transaction cannot meet the asset continuity test
since, as part of the plan of reorganization, all of Tax Free's historic assets
(i.e., its portfolio of tax-free income
<PAGE> 3
Ronald L. Benedict, Esq.
May 24, 1999
Page 3
investments) will be sold before the transaction is consummated, and the
proceeds reinvested by Income in investments with taxable income. Consequently,
the issue is whether Income will continue Tax Free's historic business.
Treas. Reg. Section 1.368-1(d)(2)(i) provides that the fact that the
acquiring corporation is in the same line of business as the acquired
corporation tends to establish the requisite continuity, but is not alone
sufficient. In Example (1) of Treas. Reg. Section 1.368-1(d)(5), the manufacture
of synthetic resins was considered a different line of business from the
manufacture of chemicals for the textile industry. In the present situation,
although Income and Tax Free are both in the business of making investments, Tax
Free's historic business of investing in assets generating tax-free income is
not the same line of business as investing in assets that generate taxable
income. See Rev. Rul. 87-76, 1987-2 C.B. 84 (although P and T were both in the
business of making investments, T's historic business of investing in corporate
stocks and bonds is not the same line of business as P's investing in municipal
bonds).
Moreover, as provided in Treas. Reg. Section 1.368-1(d)(2)(iii), "In
general, a corporation's historic business is the business it has conducted most
recently. However, a corporation's historic business is not one the corporation
enters into as part of a plan of reorganization." The business that Income will
continue after the reorganization is consummated is not the same as the historic
business Tax Free was engaged in prior to the reorganization. Therefore, the
merger of Tax Free into Income cannot qualify as a tax-free reorganization under
the Code.
However, even though the merger of Tax Free into Income will not be a
tax-free reorganization, this conclusion will have no practical effect. While
this merger will be a taxable transaction, it will not actually cause the
realization of any gain or loss to Income or Income's shareholders since upon
the sale of Tax Free's assets immediately prior to its merger into Income, Tax
Free will already have recognized all of the previously unrealized gain (or
loss) in the Tax Free portfolio pursuant to IRC Section 1001.(2)
- -----------
2 In Tax Free's short year ending with the date of merger, Tax Free's
shareholders (a) will have capital gains (or losses) to the extent they are paid
"capital gain dividends" by Tax Free, as defined in IRC Section 852(b)(3)(C), or
(b) will be taxed on Tax Free's undistributed capital gains pursuant to IRC
Section 852(b)(3)(D). Tax Free shareholders will be issued a Form 1099-DIV.
<PAGE> 4
Ronald L. Benedict, Esq.
May 24, 1999
Page 4
The acquisition of all of the assets and liabilities of Tax Free in
exchange for shares of Income stock followed by the distribution of those shares
to Tax Free shareholders in liquidation of Tax Free should also constitute a
taxable transaction under IRC Section 1001. However:
a. Because Tax Free should have no unrecognized gains or losses
in the assets it transfers to Income, as any gains and losses
should be recognized when Tax Free sells its assets prior to
its merger into Income, Tax Free should not recognize any gain
or loss on the transfer of its assets and liabilities to
Income;
b. Income should recognize no gain or loss upon receipt of the
assets and assumption of the liabilities of Tax Free in
exchange for shares of Income. IRC Section 1032;
c. The tax basis of the shares of Income acquired in exchange for
shares of Tax Free should generally be the same as the tax
basis of the shares of Tax Free exchanged therefor. IRC
Section 1012;
d. Because the exchange of shares should be a taxable event, the
holding period of the shares of Income acquired in exchange
for shares of Tax Free should begin with the receipt of the
shares of Income and not include any period during which the
shares of Tax Free were held. IRC Section 1223; and
e. Because the exchange of shares should be a taxable event, the
holding period of the assets of Tax Free received by Income
will begin with the receipt of the assets from Tax Free and
not include any period such assets were held by Tax Free. IRC
Section 1223.
We will proceed to reflect the foregoing analysis in the tax disclosure
sections of the prospectus for the two proposed reorganizations.
Please call me if you have any questions.
Very truly yours,
/s/ Wayne K. Johnson
Wayne K. Johnson
cc: Marc Collins, Esq.
<PAGE> 5
Ronald L. Benedict, Esq.
May 24, 1999
Page 5
Randolph W. Thompson, Esq.
Gary I. Horowitz, Esq.
<PAGE> 6
[JordenBurt Letterhead]
September 15, 1999
ONE Fund, Inc.
One Financial Way
Cincinnati, Ohio 45201
Dear Ladies and Gentlemen:
We hereby consent to the inclusion of our letter dated May 24,
1999, regarding certain tax matters and consequences to shareholders, as an
exhibit to Pre-Effective Amendment No. 1 to the registration statement on
Form N-14 (File No. 333-87021)to be filed with the Securities and Exchange
Commission pursuant to the Securities Act of 1933 on or about September 15,
1999.
Very truly yours,
/s/ Jorden Burt Boros Cicchetti Berenson & Johnson LLP
Jorden Burt Boros Cicchetti Berenson & Johnson LLP
<PAGE> 1
Exhibit 14(a)
INDEPENDENT AUDITOR'S CONSENT
We consent to the use of our report of the ONE Fund, Inc. pertaining to the
Tax-Free Income, Income, International and Global Contrarian Portfolios
(pre-effective amendment No. 1 to File No. 333-87021) dated July 30, 1999,
included herein, and to the use of our firm name under the headings "Financial
Highlights" in the Prospectus and "Experts" in the Statement of Additional
Information in the Registration Statement on Form N-14.
KPMG LLP
Cincinnati, Ohio
September 15, 1999
<PAGE> 1
Exhibit (14)(b)
[Jones & Blouch L.L.P. Letterhead]
September 15, 1999
ONE Fund, Inc.
One Financial Way
Cincinnati, Ohio 45242
Dear Ladies and Gentlemen:
We hereby consent to the reference to our name under the caption
"Legal Counsel" in the Statement of Additional Information included in
Pre-Effective Amendment No. 1 to the registration statement on Form N-14 (File
No. 333-87021) to be filed with the Securities and Exchange Commission pursuant
to the Securities Act of 1933 on or about September 15, 1999.
Very truly yours,
/s/ Jones & Blouch L.L.P.
Jones & Blouch L.L.P.
<PAGE> 1
Exhibit (14)(c)
[Ohio National Financial Services Letterhead]
September 15, 1999
The Board of Directors
ONE Fund, Inc.
One Financial Way
Cincinnati, Ohio 45242
RE: ONE Fund Inc. Registration Statement
Pre-Effective Amendment No. 1 to
Registration Statement on Form N-14
File No. 333-87021
Gentlemen:
The undersigned hereby consents to the use of my name under the caption "Legal
Counsel" in the Pre-Effective Amendment No. 1 to the registration statement on
Form N-14 of the above-captioned registrant.
Sincerely yours,
/s/ Ronald L. Benedict
Ronald L. Benedict
Secretary and Legal Counsel
