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File No. 333-
811-
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM S-6
FOR REGISTRATION UNDER THE SECURITIES ACT OF 1933
OF SECURITIES OF UNIT INVESTMENT TRUSTS
REGISTERED ON FORM N-8B-2
Exact name of trust: Dow Target 10 Trust, _____________ 1998 Series
Name of depositor: Ohio National Equities, Inc.
Complete address of depositor's principal executive offices:
One Financial Way
Montgomery, Ohio 45242
Name and complete address of agent for service:
Ronald L. Benedict, Esq.
Ohio National Financial Services
P.O. Box 237
Cincinnati, Ohio 45201
Notice to:
W. Randolph Thompson, Esq. (of counsel)
Jones & Blouch L.L.P.
Suite 405 West
1025 Thomas Jefferson Street, NW
Washington, DC 20007
It is proposed that this filing will become effective (check appropriate box):
immediately upon filing pursuant to paragraph (b) _ _ on (date) pursuant to
- --- paragraph (b)
60 days after filing pursuant to paragraph (a)(1)
- ---
on (date) pursuant to paragraph (a)(1) of Rule 485.
- ---
This post-effective amendment designates a new effective date for a
- --- previously filed post-effective amendment.
Title of securities being registered: DOW TARGET 10 TRUST, ______________ 1998
Series.
Approximate date of proposed public offering: As soon after the effective date
of this registration statement as is practicable.
The registrant hereby amends this registration statement on such date or dates
as may be necessary to delay its effective date until the registrant shall file
a further amendment which specifically states that this registration statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until the registration statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
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DOW TARGET 10 TRUST
[MONTH] 1998 SERIES
PROSPECTUS
[DATE], 1998
The Dow(R) Target 10 Trust consists of a portfolio of the common stocks of the
ten companies in the Dow Jones Industrial Average(SM) (the "Dow") having the
highest dividend yield as of the close of business on the stock selection date.
These ten companies are popularly known as the "Dogs of the Dow." The stock
selection date is on or about the last business day of the month preceding this
trust series.
The objective of the Trust is to provide above-average total return through both
capital appreciation and dividend income. The Trust may or may not achieve that
objective. The ten stocks held in the Trust are not expected to reflect the
entire index, and the prices of Trust units are not intended to parallel or
correlate with movements in the Dow. The Dow consists of 30 stocks selected by
Dow Jones & Company, Inc. (publishers of The Wall Street Journal) as
representative of the broader domestic stock market and of American industry.
The Trust will terminate approximately 12 months after the stock selection date.
Variable contract values held in the Trust will then automatically be
transferred into a new series of the Dow Target 10 Trust.
The Trust was created under Ohio law pursuant to a trust agreement (the
"indenture") effective on the stock selection date. The trustee is Star Bank,
NA. The depositor is The Ohio National Life Insurance Company ("Ohio National
Life").
Units of the Trust are not offered directly to the public. Units are purchased
principally for the account of certain separate accounts of Ohio National Life,
Ohio National Life Assurance Corporation ("ONLAC") and other insurers. ONLAC is
wholly-owned by Ohio National Life. Both are Ohio life insurers located in
Montgomery, Ohio. Star Bank is a national chartered bank located in Cincinnati,
Ohio.
- ------------------------------------------------------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION, NOR HAS THE SEC PASSED UPON THE ACCURACY OR ADEQUACY OF
THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
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TRUST UNITS
Each Trust unit represents an undivided interest in the ten stocks held by the
Trust. On the stock selection date, the Trust makes its initial investments in
the ten Dogs of the Dow stocks (as determined on that day). At that point, the
Trust establishes the proportionate relationships among the ten stocks. These
investments normally will be purchased in substantially equal dollar amounts for
each of the ten companies.
After the stock selection date, and until the end of the initial month of the
Trust series, Ohio National Life may deposit with the Trustee additional shares
of the ten stocks (or cash with instructions to purchase additional shares) in
order to create additional new Trust units. These additional deposits will
duplicate, as nearly as is practicable, the original proportionate relationships
among the ten stocks and not the then-current proportionate relationships as of
any date after the stock selection date. Since the prices of each of the ten
stocks will change nearly every day, the ratio of the price of each to the total
price of the entire group of ten will also change daily. However, the proportion
of stocks represented by each unit will not change materially as a result of the
addition of units to the Trust.
After the end of the initial month of the Trust series, no further units will be
added to the Trust. Units may be liquidated and redeemed before the end of the
12 month term. On the last business day of the 12 month term, the stocks will be
sold or redeemed in kind and all the units will be liquidated . At that point,
the Trust's assets (including to the extent appropriate, its stocks) will
automatically be transferred to a new series of the Dow Target 10 Trust with its
stock selection date being the same day that this series terminates.
It generally will not be possible for the Trust to be 100% invested in the
prescribed mix of ten stocks at any time. To the extent that the Trust is not
fully invested, the interests of Trust investors may be diluted and total return
may not directly track the investment results of the ten stocks. To minimize
this effect, the Trustee will try, to the extent practicable, to maintain a
minimum cash position at all times. Normally, the only cash items to be held
will represent amounts expected to be deducted as charges and amounts too small
to purchase additional proportionate round lots of Dogs of the Dow stocks.
A service charge, approximately equivalent to 0.25% of Trust assets, is deducted
from the Trust over the course of the 12 month term of the Trust at a daily rate
of 0.000685%. The service charge is paid to Ohio National Life. Ohio National
Life uses the service charge to pay any expenses related to the Trust that are
not otherwise paid by the Trust.
The Trust pays its operating expenses including expenses for legal, accounting
and auditing services, brokerage fees for the purchase and sale of the stocks,
the Trustee's fees, license fees and the actual costs of other administrative
services and
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operating the Trust. Ohio National Life has agreed to reimburse the Trust for
any of its operating expenses in excess of 0.85% of assets on an annual basis.
Other fees and charges are deducted from the values of the variable contracts
that invest in the Trust. These are described in the prospectus for each
variable contract.
UNIT PRICING
The price of each unit equals (1) the sum of the per-share sale prices of the
ten Dogs of the Dow stocks as of the close of business on the New York Stock
Exchange on the stock selection date, plus (2) any dividends paid to the Trust,
minus (3) the deferred sales charge, plus (4) any increases in the prices of the
stocks since the stock selection date, minus (5) any decreases in the prices of
the stocks since that date, minus (6) any daily accrual of Trust expenses, plus
or minus (7) adjustments for stock splits, stock dividends and other corporate
transactions.
The price of units is determined at 4:00 p.m. Eastern time on each day the New
York Stock Exchange is open for unrestricted trading. Any purchase of units in
the first month after the selection date and any redemption of units after the
stock selection date will be effected at the unit price next determined after
Ohio National Life receives the order for purchase or redemption.
SEPARATE ACCOUNT FUNDING
The Trust is not offered directly to the public. Trust units are currently
offered only to the separate accounts of Ohio National Life and ONLAC. In the
future, units may also be offered to the separate accounts of other life
insurance companies. The separate accounts use Trust units as an underlying
investment medium to support certain benefits under variable annuity and
variable life insurance contracts.
It is conceivable that in the future it may become disadvantageous for both
variable annuity and variable life separate accounts to invest in the Trust.
Although no such disadvantage is now foreseen, Ohio National Life and ONLAC will
monitor events in order to identify any material conflict between variable
annuity and variable life contract owners and to determine what action, if any,
should be taken in response thereto. Such action could be the discontinuance of
a separate account's participation in the Trust. Material conflicts could result
from such things as changes in state insurance law or changes in federal income
tax law.
RISKS
Investing in the ten Dogs of the Dow stocks amounts to a moderately contrarian
strategy because, while these ten stocks represent large established companies
recognized as industry leaders, they also represent investments that are
currently
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out of favor relative to the twenty other Dow stocks. While the relatively high
dividends paid by these companies may account for a substantial portion of the
Trust's total return, there is no guarantee that the companies will meet their
expected dividend distributions throughout the term of the Trust, nor can there
be any assurance that the stocks will appreciate in price during the term.
The Trust is not actively managed and the stocks held in the Trust will not be
sold prior to the end of the term to take advantage of changing market
conditions. The Dogs of the Dow strategy selects the ten stocks by formula
without any consideration being given to why some companies might currently be
out of favor with investors. Thus, a company experiencing financial difficulties
or business reverses will represent 10% of the Trust if, as of the stock
selection date, it is among the ten Dow stocks having the highest current
dividend yields. In addition to factors affecting the prices for each of the
individual stocks, all ten are subject to general market and economic trends
that might negatively impact the Trust's total return.
Being limited to ten stocks, the Trust does not represent a diversified
portfolio. This could expose the Trust to potentially greater market
fluctuations than might be experienced by a diversified portfolio. Variable
contract owners, in light of their own financial situations and goals, should
consider other additional funding options in order to diversify the allocations
of their contract assets.
THE DOW JONES INDUSTRIAL AVERAGE(SM).
The Dow Jones Industrial Average was first published in The Wall Street Journal
in 1896. Initially consisting of just 12 stocks, it expanded to 20 stocks in
1916 and to its present size of 30 stocks in 1928. The stocks are chosen by the
editors of The Wall Street Journal as representative of the broad stock market
and of American industry. The companies are major factors in their industries
and their stocks are widely held by individuals and institutional investors.
Changes in the components of the Dow Jones Industrial Average are made entirely
by the editors of The Wall Street Journal without consultation with the
companies, the stock exchange or any official agency. For the sake of
continuity, changes are made rarely. Most substitutions have been the result of
mergers, but from time to time, changes may be made to achieve a better
representation. The components of the Dow Jones Industrial Average may be
changed at any time, for any reason. Any changes in the components of the Dow
Jones Industrial Average made after the stock selection date will not cause a
change in the identity of the ten stocks included in the Trust. The following is
a list of the companies which currently comprise the Dow Jones Industrial
Average.
AT&T Corporation Hewlett-Packard Co.
Allied Signal International Business Machines Corporation
Aluminum Company of America International Paper Company
American Express Company Johnson & Johnson
Boeing Company McDonald's Corporation
Caterpillar Inc. Merck & Company, Inc.
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Chevron Corporation Minnesota Mining & Manufacturing Company
Coca-Cola Company J.P. Morgan & Company, Inc.
Walt Disney Company Philip Morris Companies, Inc.
E.I. duPont de Nemours & Company Procter & Gamble Company
Eastman Kodak Company Sears, Roebuck & Company
Exxon Corporation Travelers Group, Inc.
General Electric Company Union Carbide Corporation
General Motors Corporation United Technologies Corporation
Goodyear Tire & Rubber Company Wal-Mart Stores, Inc.
The Trust is not sponsored, endorsed, sold or promoted by Dow Jones. Dow Jones
makes no representation or warranty, express or implied, to the Trust's unit
owners or any member of the public regarding the advisability of purchasing the
Trust. Dow Jones' only relationship to Ohio National Life, ONLAC or the Trustee
is the licensing of certain copyrights, trademarks, servicemarks and service
names of Dow Jones. Dow Jones has no obligation to take the needs of Ohio
National Life, ONLAC, the Trustee or the Trust's unit owners into consideration
in determining, composing or calculating the Dow Jones Industrial Average. Dow
Jones is not responsible for and has not participated in the determination of
the terms and conditions of the Trust, including the pricing of units or the
amount payable under variable contracts. Dow Jones has no obligation or
liability in connection with the administration or marketing of the Trust.
DOW JONES DOES NOT GUARANTEE THE ACCURACY AND/OR THE COMPLETENESS OF THE DOW
JONES INDUSTRIAL AVERAGE(SM) OR ANY DATA INCLUDED THEREIN AND DOW JONES SHALL
HAVE NO LIABILITY FOR ANY ERRORS, OMISSION, OR INTERRUPTIONS THEREIN. DOW JONES
MAKES NO WARRANTY, EXPRESS OR IMPLIED, AS TO RESULTS TO BE OBTAINED BY OHIO
NATIONAL LIFE, ONLAC OR THE TRUSTEE OR THE TRUST'S UNIT OWNERS OR ANY OTHER
PERSON OR ENTITY FROM THE USE OF THE DOW JONES INDUSTRIAL AVERAGE (SM) OR ANY
DATA INCLUDED THEREIN. DOW JONES MAKES NO EXPRESS OR IMPLIED WARRANTIES AND
EXPRESSLY DISCLAIMS ALL WARRANTIES, OF MERCHANTABILITY OR FITNESS FOR A
PARTICULAR PURPOSE OR USE WITH RESPECT TO THE DOW JONES INDUSTRIAL AVERAGE (SM)
OR ANY DATA INCLUDED THEREIN. WITHOUT LIMITING ANY OF THE FOREGOING, IN NO EVENT
SHALL DOW JONES HAVE ANY LIABILITY FOR ANY LOST PROFITS OR INDIRECT, PUNITIVE,
SPECIAL OR CONSEQUENTIAL DAMAGES (INCLUDING LOST PROFITS), EVEN IF NOTIFIED OF
THE POSSIBILITY OF SUCH DAMAGES.
TOTAL RETURN HISTORY
The following table compares the annual total returns of the Dogs of the Dow
(the ten highest dividend yielding stocks among the thirty Dow companies) and
the annual total returns of the Dow Jones Industrial Average for each of the
last 25 calendar years. The ten highest yielding dividend stocks for each year
were selected as of the beginning of each year.
This table is presented for comparative purposes only. The total returns shown
are no indication of returns that might be expected in the future. The table
does not
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reflect the Trust's charges and expenses which diminish the Trust's actual
returns. (See "Charges and Expenses".) The Trust will not be 100% invested at
all times, nor is it possible for it to perfectly maintain its prescribed
relative weightings of the ten stocks at all times throughout its term.
<TABLE>
<CAPTION>
Year Dogs DJIA
---- ---- ----
<S> <C> <C>
1973 4.01% -13.20%
1974 -1.02% -23.64%
1975 56.10% 44.46%
1976 35.18% 22.80%
1977 -1.95% -12.91%
1978 0.03% 2.66%
1979 13.01% 10.60%
1980 27.90% 21.90%
1981 7.46% -3.61%
1982 27.12% 26.85%
1983 39.07% 25.82%
1984 6.22% 1.29%
1985 29.54% 33.28%
1986 35.63% 27.00%
1987 5.59% 5.66%
1988 24.57% 16.03%
1989 26.97% 32.09%
1990 -7.82% -0.73%
1991 34.20% 24.19%
1992 7.69% 7.39%
1993 27.08% 16.87%
1994 4.21% 5.03%
1995 36.85% 36.67%
1996 28.35% 28.71%
1997 21.68% 24.82%
</TABLE>
Based on the above annual returns, the average annual total return for the 25
year period were 18.44% for the ten Dogs of the Dow and 13.08% for the thirty
Dow stocks. There can be no assurance that future returns will continue to
follow this pattern. In any event, the Trust's actual returns will be less than
those of the ten selected stocks because of the Trust's charges and expenses.
PERFORMANCE DATA
From time to time, Ohio National Life or its affiliates may advertise historical
total returns of the Trust. Ohio National Life or ONLAC may advertise the
returns of their variable contract subaccounts based on those returns of the
Trust (adjusted for contract charges and expenses). These figures will be
calculated according to standardized methods prescribed by the SEC. The Trust's
total returns may be
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compared to returns on the DJIA for comparable periods in
such advertising. Historical returns are not predictive of future performance.
Ohio National Life or its affiliates may also advertise average annual total
return or other performance data for the Trust in non-standard formats. Any such
information will be accompanied by standardized performance data.
FIRST TRUST ADVISORS
First Trust Advisors L.P. has been granted a license by Dow Jones & Company,
Inc. to use certain copyright, trademark and proprietary rights and trade
secrets of Dow Jones. Ohio National Life has entered into agreements with First
Trust Advisors, giving Ohio National Life permission to use and refer to the Dow
Jones marks and rights in connection with the use of the Trust in the separate
accounts of Ohio National Life and ONLAC. First Trust Advisors also provides
other services to Ohio National Life related to the Trust, including
identification of the specific stocks constituting the Dogs of the Dow as of
each stock selection date. For the services and rights provided by First Trust
Advisors, First Trust Advisors is paid fees equal to an annual rate of 0.35% of
the Trust's assets. This amount is included in the operating expenses of the
Trust.
OHIO NATIONAL LIFE
Ohio National Life is a mutual life insurer organized in 1909 as a stock life
insurer under the laws of Ohio. It writes life, accident and health insurance in
47 states, the District of Columbia and Puerto Rico. Its assets are now in
excess of $6.5 billion and its equity is in excess of $600 million. Ohio
National Life's policyholders have approved a plan of reorganization that, if
approved by the Ohio Superintendent of Insurance, would convert Ohio National
Life to a stock company ultimately owned by a mutual holding company (Ohio
National Mutual Holdings, Inc.) with the majority ownership of the latter being
by Ohio National Life's policyholders. ONLAC is wholly-owned by Ohio National
Life.
Ohio National Life's principal officers and directors, and their principal
business experience during the last five years, are:
David B. O'Maley Director and Chairman, President
and Chief Executive Office of
Ohio National Life and ONLAC.
Neil A. Armstrong Director of Ohio National Life;
Director and Chairman of AIL
Systems, Inc.
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Dale P. Brown Director of Ohio National Life;
Director, President and Chief
Executive Office of Sive/Young &
Rubicam, Inc.
Jack E. Brown Director of Ohio National Life;
Director and Chairman of BBI
Marketing Services, Inc.
William R. Burleigh Director of Ohio National Life;
Director, President and Chief
Executive Officer of E. W. Scripps
Co.
Victoria B. Buyniski Director of Ohio National Life;
Director, President, Chief
Executive Officer and Chairperson
of United Medical Resources, Inc.
Raymond R. Clark Director of Ohio National Life;
Retired; Prior to July 1995 was
Director, President and Chief
Executive Officer of Cincinnati
Bell Telephone Company
Alvin H. Crawford, M.D. Director of Ohio National Life;
Director of Pediatric Orthopaedic
Surgery, Cincinnati Children's
Hospital Medical Center; Professor
of Pediatrics and Orthopaedic
Surgery, University of Cincinnati
College of Medicine
Bannus B. Hudson Director of Ohio National Life;
Director, President and Chief
Executive Officer of Beverages &
More, Inc. ; Prior to June 1995 was
Director, President and Chief
Executive Officer of U.S. Shoe
Corporation
Charles S. Mechem, Jr. Director of Ohio National Life;
Director and Chairman of the
Board of Cincinnati Bell, Inc.;
Until 1995 was Commissioner of
Ladies Professional Golf
Association
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James C. Orr Director of Ohio National Life;
Director and Chief Operating
Officer of Cincinnati Bell, Inc.
Oliver W. Waddell Director of Ohio National Life;
Retired; Prior to 1998 was Director
and Chairman of Star Bank
Corporation and Director and Vice
Chairman of Star Bank, N.A.
Thomas A. Barefield Senior Vice President, Insti-
tutional Sales of Ohio National
Life and ONLAC; Prior to
December 1997 was Senior Vice
President of Life Insurance
Company of Virginia
Howard C. Becker Senior Vice President, Individual
Insurance & Corporate Services of
Ohio National Life and ONLAC
R. Allen Bowen Senior Vice President, Information
Systems of Ohio National Life and
ONLAC; Prior to June 1997 was
Senior Vice President of Life
Insurance Company of Virginia
Joseph P. Brom Director of ONLAC; Senior Vice
President & Chief Investment
Officer of Ohio National Life and
ONLAC
David W. Cook Senior Vice President & Actuary of
Ohio National life and ONLAC
Ronald J. Dolan Director of ONLAC; Senior Vice
President & Chief Financial
Officer of Ohio National Life and
ONLAC
John J. Palmer Director of ONLAC; Senior Vice
President, Strategic Initiatives of
Ohio National Life and ONLAC;
Prior to February 1997 was Senior
Vice President of Life Insurance
Company of Virginia
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D. Gates Smith Senior Vice President, Sales of
Ohio National Life and ONLAC
Stuart G. Summers Director of ONLAC; Senior Vice
President & General Counsel of
Ohio National Life and ONLAC
Ronald L. Benedict Corporate Vice President, Counsel
and Secretary of Ohio National
Life and ONLAC
Roylene M. Broadwell Vice President and Treasurer of
Ohio National Life and ONLAC
THE TRUSTEE
The Trustee is Star Bank, N.A. with its principal place of business at 425
Walnut Street, Cincinnati, Ohio 45202. The Trustee's duties are ministerial in
nature. It does not participate in the selection of the securities held in the
Trust.
The Trustee and any successor trustee may resign by giving written notice to
Ohio National Life. Upon receipt of such notice, Ohio National Life shall
appoint a successor trustee promptly. Ohio National Life may remove the Trustee
at any time and appoint a successor. In any event, the resignation or removal of
the Trustee does not take effect until a successor trustee has accepted the
appointment.
THE YEAR 2000 ISSUE
Ohio National Life has considered the impact of "Year 2000" issues on the Trust.
Ohio National Life, ONLAC and the Trustee have developed remedial plans for
their computer systems and applications. Conversion activities are presently in
process and on schedule. Each of Ohio National Life and ONLAC expects conversion
testing and implementation to be completed by December 31, 1998. Ohio National
has also been assured by the Trustee and by other suppliers of services that
their systems will be Year 2000 compliant by December 31, 1998. Ohio National
Life's internal auditors intend to independently test all internal systems
affecting the Trust to verify their compliance early in 1999. Ongoing assurance
will also be sought from the Trustee and other suppliers of services to the
Trust.
The failure of Ohio National, the Trustee or other suppliers of services to the
Trust to achieve complete and timely compliance could impair the operation of
the Trust and the achievement of its objectives. While it is believed that each
entity is diligently pursuing a well-conceived remedial plan, there can be no
certainty of complete success. Further, it is possible that the Trust could be
adversely affected by the noncompliance of third parties beyond the knowledge or
control of Ohio National Life, ONLAC or the Trustee.
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FINANCIAL STATEMENTS
No financial statements for the Trust are included in this prospectus because
the Trust had not commenced operations as of the date of this prospectus.
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CONTENTS OF REGISTRATION STATEMENT
This registration statement comprises the following papers and documents:
The facing sheet
The prospectus consisting of 11 pages
The undertaking to file reports:
Subject to the terms and conditions of Section 15(d) of the Securities Exchange
Act of 1934, the undersigned registrant hereby undertakes to file with the
Securities and Exchange Commission such supplementary and periodic information,
documents and reports as may be prescribed by any rule or regulation of the
Commission heretofore or hereafter duly adopted pursuant to authority conferred
in that section.
The signatures.
Written consents of the following persons:
KPMG Peat Marwick LLP
The following exhibits:
A(1) Proposed Trust and Custody Agreement between the Depositor and
the Trustee.
A(6)(i) Copy of Articles of Incorporation of the Depositor, as amended.
A(6)(ii) Copy of Code of Regulations of the Depositor, as amended.
A(9)(i) Copy of proposed Service Agreement between the Depositor and
First Trust Advisors, L.P.
A(9)(ii) Copy of proposed Sublicense Agreement among the Depositor, First
Trust Advisors, L.P. and Dow Jones & Company, Inc.
E Copy of the Financial Statements of the Depositor as of December
31, 1997, with Independent Auditor's Report.
<PAGE> 14
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant, Dow
Target 10 Trust, has duly caused this registration statement to be signed on its
behalf by the undersigned thereunto duly authorized, in the city of Montgomery
and state of Ohio on the 22nd day of July, 1998.
DOW TARGET 10 TRUST, ______ 1998 Series
(Registrant)
By: THE OHIO NATIONAL LIFE
INSURANCE COMPANY
Attest: s/Ronald L. Benedict By: s/John J. Palmer
------------------------------- ------------------------------------
Ronald L. Benedict, Secretary John J. Palmer, Senior Vice President
Strategic Initiatives
Pursuant to the requirements of the Securities Act of 1933, the depositor has
duly caused this registration statement to be signed on its behalf by the
undersigned thereunto duly authorized in the city of Montgomery and state of
Ohio on the 22nd day of July, 1998.
THE OHIO NATIONAL LIFE
INSURANCE COMPANY
(Depositor)
Attest: s/Ronald L. Benedict By: s/John J. Palmer
----------------------------- ------------------------------------
Ronald L. Benedict, Secretary John J. Palmer, Senior Vice President
Strategic Initiatives
<PAGE> 15
As required by the Securities Act of 1933, this pre-effective amendment to the
registration statement has been signed below by the following persons in the
capacities and on the dates indicated.
s/David B. O'Maley Chairman and July 22, 1998
- --------------------------- Director
David B. O'Maley
*s/Neil A. Armstrong Director July 22, 1998
- -------------------------
Neil A. Armstrong
*s/Dale P. Brown Director July 22, 1998
- -------------------------
Dale P. Brown
*s/Jack E. Brown Director July 22, 1998
- -------------------------
Jack E. Brown
*s/William R. Burleigh Director July 22, 1998
- ---------------------------
William R. Burleigh
*s/Victoria B. Buyniski Director July 22, 1998
- -------------------------
Victoria B. Buyniski
*s/Raymond R. Clark Director July 22,1998
- -------------------------
Raymond R. Clark
*s/Alvin H. Crawford Director July 22, 1998
- -------------------------
Alvin H. Crawford
*s/Bannus B. Hudson Director July 22, 1998
- -------------------------
Bannus B. Hudson
*s/Charles S. Mechem, Jr. Director July 22, 1998
- -------------------------
Charles S. Mechem, Jr.
<PAGE> 16
*s/James F. Orr Director July 22, 1998
- -------------------------
James F. Orr
*s/Oliver W. Waddell Director July 22, 1998
- -------------------------
Oliver W. Waddell
*By: s/John J. Palmer
- -------------------------
John J. Palmer, Attorney in Fact pursuant to Powers of Attorney, copies of which
have previously been filed as exhibits to the registration statement for Ohio
National Variable Account A, File Nos. 2-91213 and 811-01978.
<PAGE> 17
INDEX OF CONSENTS AND EXHIBITS
Exhibit
Number Description
Consent of KPMG Peat Marwick LLP
A(1) Proposed Trust and Custody Agreement between the Depositor and
the Trustee
A(6)(i) Copy of Articles of Incorporation of the Depositor, as amended
A(6)(ii) Copy of Code of Regulations of the Depositor, as amended
A(9)(i) Copy of proposed Service Agreement between the Depositor and
First Trust Advisors, L.P.
A(9)(ii) Copy of proposed Sublicense Agreement among the Depositor, First
Trust Advisors, L.P. and Dow Jones & Company, Inc.
E Copy of the Financial Statements of the Depositor as of December
31, 1997, with Independent Auditors Report
<PAGE> 18
Independent Auditors' Consent
The Board of Directors
The Ohio National Life Insurance Company:
We consent to the inclusion of our report included herein.
KPMG Peat Marwick LLP
Cincinnati, Ohio
July 22, 1998
<PAGE> 1
TRUST AND CUSTODY AGREEMENT
for the
DOW TARGET 10 TRUST,
_____________ 1998 SERIES
and SUBSEQUENT SERIES
(the "Trust")
between
THE OHIO NATIONAL LIFE INSURANCE COMPANY
(the "Depositor")
and
STAR BANK, N.A.
(the "Trustee")
<PAGE> 2
This Agreement, made and entered into as of this ______ day of _________, 1998,
between The Ohio National Life Insurance Company (the "Depositor"), an Ohio
corporation, and Star Bank, N.A. (the "Trustee"), a nationally chartered bank,
is entered into for the benefit of the Dow Target 10 Trust, _______ 1998 Series
(the "initial Series") and subsequent Series (the "Trust"), unit investment
trusts established by Depositor under Ohio law and registered under the
Investment Company Act of 1940. The terms of this Agreement shall apply to the
initial Series and to all subsequent Series.
1. Deposit of Trust Assets
-----------------------
At the inception of the initial Series of the Trust (as of the initial Date of
Deposit), Depositor has deposited the assets of the initial Series of the Trust
in the trust and custody of the Trustee. During the term of this Agreement, the
Depositor shall deposit with the Trustee all assets of each subsequent Series of
the Trust on the Date of Deposit for each such subsequent Series. During the
term of each Series, the Depositor shall deposit with the Trustee any additional
assets of the Trust.
2. Acceptance of Trust
-------------------
The Trustee hereby accepts the deposit of the assets of the initial Series of
the Trust as of the initial Date of Deposit and any additions thereto made
during the term of the initial Series, and further agrees to accept the deposit
of assets for each subsequent Series on the Dates of Deposit and during the
respective terms thereof. The Trustee agrees to segregate and hold the assets of
each Series in trust for the use and benefit of the unit holders subject to the
terms and conditions of this Agreement.
3. Depositor's Responsibilities
----------------------------
As between the Depositor and the Trustee, the Depositor shall have sole
responsibility for determining the amount and kind of any and all securities and
other forms of assets to be deposited into the Trust and the Trustee shall have
no obligation or liability with respect to the selection of securities to be
deposited into the Trust.
The Depositor shall identify for the Trustee the unit holders of each Series of
the Trust and the number of units held for the benefit of each unit holder at
all times.
The Depositor shall daily determine the valuation of the units of the Trust.
As between the Depositor and the Trustee, the Depositor shall be solely
responsible for registering the Trust and each Series thereof under the
Investment Company Act of 1940, and for registering the securities issued by the
Trust under the Securities Act of 1933.
As between the Depositor and the Trustee, the Depositor shall be solely
responsible for all accounting and auditing of the Trust's assets.
2
<PAGE> 3
As between the Depositor and the Trustee, the Depositor shall be solely
responsible for preparing and submitting all reports on behalf of the Trust to
regulatory and taxing authorities and to unit holders.
As between the Depositor and the Trustee, the Depositor shall be solely
responsible for retaining and employing legal counsel on behalf of the Trust.
The Depositor may use one or more agents or other service providers to assist it
in the performance of its duties and obligations hereunder including, but not
limited to, the determination of the amounts and issues of securities and other
assets to be deposited into the Trust, the identity of the Trust's unit holders,
and the value of each unit of the Trust. However, under the terms of this
Agreement, and as between the Depositor and the Trustee, the Trustee shall look
solely to the Depositor for the performance of the Depositor's duties and
obligations hereunder. The Depositor agrees to be solely responsible for its
performance under this Agreement and it hereby agrees to indemnify and hold the
Trustee harmless for any failure of an agent or other service provider of the
Depositor to satisfactorily perform or provide any services for or on behalf of
the Depositor.
4. The Trustee
-----------
The Trustee and any successor trustee shall at all times during the term of this
Agreement be a bank having aggregate capital, surplus and undivided profits that
shall never be less than the minimum amounts prescribed under subsection
26(a)(1) of the Investment Company Act of 1940 as amended.
The Trustee shall be under no liability for any action taken by it in good faith
in the reasonable exercise of its fiduciary duties to the Trust. The Trustee
shall be indemnified and held harmless by the Depositor for any reliance by the
Trustee upon any written instructions given by the Depositor to the Trustee
within the terms of this Agreement. The Trustee shall, in its discretion,
undertake such actions as it deems necessary at any time to protect the Trust
and the rights and interests of unit holders therein.
In no event shall the Trustee be liable for any taxes or similar charges with
respect to securities held by the Trust. The Trustee shall be reimbursed for any
such taxes or other charges out of the Trust's income, to the extent available,
and then from the corpus of the Trust.
5. Custody of Trust Assets and Administration of the Trust
-------------------------------------------------------
The Trustee shall, in its discretion, undertake any and all actions that it
deems necessary to protect the Trust and the rights of unit holders therein. The
expenses and costs of such actions shall be reimbursable to the Trustee from the
Trust's income, to the extent available, and then from the corpus of the Trust
and shall be charged as operating expenses of the Trust.
3
<PAGE> 4
All securities held in the Trust which are issued or issuable only in bearer
form shall be held by the Trustee in that form; all other securities held for
the Trust shall be registered in the name of the Trustee or its nominee. The
Depositor agrees to furnish to the Trustee appropriate instruments to enable the
Trustee to hold, or deliver in proper form for transfer, any securities that it
may hold for the account of the Trust and which may, from time to time, be
registered in the name of the Trust.
With respect to all securities held for the Trust, the Trustee shall on a timely
basis: (1) collect all income due and payable with respect to such securities;
(2) present for payment and collect amounts payable upon all securities which
may mature or be called, redeemed, or retired, or otherwise become payable; (3)
surrender securities in temporary form for definitive securities; and (4)
execute, as agent, any necessary declarations or certificates of ownership under
the federal income tax laws or the laws or regulations of any other taxing
authority, including any foreign taxing authority, now or hereafter in effect.
Upon receipt from the Depositor of written instructions, the Trustee shall: (1)
execute and deliver to such persons as may be designated in such instructions
proxies, consents, authorizations, and any other instruments whereby the
authority of the Trust as owner of record of any securities may be exercised;
(2) deliver any securities in exchange for other securities or cash issued or
paid in connection with the liquidation, reorganization, refinancing, merger,
consolidation, or recapitalization of any trust, or the exercise of any
conversion privilege; (3) deliver any securities to any protective committee,
reorganization committee, or other person in connection with the reorganization,
refinancing, merger, consolidation, recapitalization, or sale of assets of any
trust, and receive and hold under the terms of this Agreement such certificates
of deposit, interim receipts or other instruments or documents as may be issued
to it to evidence such delivery; and (4) deliver any securities held for the
Trust to the depository agent for tender or other similar offers.
The Trustee shall promptly deliver to the Depositor all notices, proxy material
and executed but unvoted proxies pertaining to shareholder meetings of
securities held by the Trust. The Trustee shall not vote or authorize the voting
of any securities or give any consent, waiver or approval with respect thereto
unless so directed by the Depositor in a written instruction.
The Trustee shall promptly deliver to Depositor all information received by the
Trustee and pertaining to securities held by the Trust with respect to tender or
exchange offers, calls for redemption or purchase, or expiration of rights.
The Trustee shall provide to the Depositor any and all pricing and accounting
information and reports as are necessary for the Depositor and its agents or
service providers to perform their duties and responsibilities to the unit
holders including, but not limited to, the Depositor's daily valuation of units,
periodic tax reporting, reporting to state and federal regulators having
jurisdiction and the preparation of financial reports for each Series of the
Trust.
4
<PAGE> 5
If at any time the Depositor shall fail to undertake or perform any of its
duties under this Agreement, the Trustee may, in its discretion and for the
protection and benefit of the Trust and its unit holders, retain and employ the
services of agents or service providers to perform those services and the
Trustee may then charge the reasonable and necessary expenses and costs thereby
incurred as operating expenses of the Trust.
6. Trust Expenses
--------------
Expenses of the Trust shall be paid by the Trustee within ten days after the end
of each calendar month in which such expenses are charged or incurred (or within
five days of receiving written instructions therefor, if later). Payment shall
be made from the Trust's income, to the extent available, and then from the
corpus of the Trust.
The Trustee may first pay its fee for its services rendered under this
Agreement. The amount of that fee shall be computed at an annual rate of ____%
of the average daily total value of the Trust's assets. The Trustee shall next
pay any and all other expenses of or related to the Trust which are for services
rendered or licenses granted by any entity other than the Depositor or any
affiliate of the Depositor. The Trustee shall rely upon the Depositor to provide
the Trustee with written instructions of all amounts to be paid in connection
with such services and licenses, and the Trustee shall make such payments to the
Depositor or, at the Depositor's written direction, to other payees entitled
thereto as directed by the Depositor. In no event shall the total of all the
foregoing amounts, including the Trustee's fees, exceed 0.85% of the Trust's
average daily total assets per year.
In addition to the foregoing, the Trustee shall, within ten days after the end
of each calendar month, pay the Depositor a service fee from the income of the
Trust, to the extent available, and then from the corpus of the Trust, in order
to reimburse the Depositor for services performed and expenses incurred by the
Depositor and its affiliates on behalf of the Trust and its unit holders. The
amount of this fee shall be at a daily rate of 0.000685% of the total assets of
the Trust.
7. Series of the Trust
-------------------
Each Series of the Trust is a separate and distinct trust for all purposes. The
assets of one Series may not be commingled with the assets of any other Series
nor shall any of the expenses or liabilities of one Series be charged against
another. The units of each Series represent the ownership of an undivided
fractional interest in that Series and are not exchangeable for units
representing the ownership of an undivided fractional interest in any other
Series, provided, however, that upon the termination of each Series, as directed
by the Depositor, any or all of the units of that Series may be "rolled over" or
exchanged for units in a new Series having a Date of Deposit on or about the
date of termination of the earlier Series.
5
<PAGE> 6
8. Termination of Series and Distribution of Assets
------------------------------------------------
Each Series of the Trust shall terminate on its termination date. The Trustee
shall thereupon distribute to each unit holder that unit holder's pro rata share
of the Trust assets from that Series. The termination of a Series shall not be
effective until the distribution of its assets is completed in the manner
described herein.
Distribution of the Trust assets of a terminating Series shall be made as
follows: (1) if, and to the extent so instructed in writing by the Depositor,
the Trustee shall distribute part or all of the assets of the Series by wire
order into a unit holder's account, and (2) to the extent that the Depositor has
not instructed the Trustee to distribute part or all of the Series assets by the
aforementioned method, the Series assets shall be transferred into a new Series
for the benefit of each unit holder. The date of deposit of the new Series will
be the same as the date of termination of the terminating Series.
9. Resignation or Removal of Trustee
---------------------------------
The Trustee or any successor trustee under this Agreement shall not resign as
trustee, nor shall a trustee be removed as such, until either (a) the Trust, and
each Series thereof, has been completely liquidated and terminated with the
proceeds thereof having been distributed to the unit holders, or (b) a successor
trustee having at least the minimum qualifications prescribed in subsection
26(a)(1) of the Investment Company Act of 1940 as amended shall have been
designated and have accepted such trusteeship.
In witness whereof, the Depositor and the Trustee have caused this Agreement to
be executed in the City of Cincinnati and State of Ohio on the day, month and
year first above written.
STAR BANK, N.A.
(Trustee)
Attest: By:
----------------------- ---------------------------
THE OHIO NATIONAL LIFE
INSURANCE COMPANY
(Depositor)
Attest: By:
----------------------- ---------------------------
6
<PAGE> 1
AMENDED ARTICLES OF INCORPORATION
OF
THE OHIO NATIONAL LIFE INSURANCE COMPANY
Amended May 3, 1991
FIRST: The name of this Corporation shall continue to be The Ohio
National Life Insurance Company.
SECOND: The principal office and place of business of this Corporation
shall be located in the City of Cincinnati, County of Hamilton,
State of Ohio, but other offices and places of business may be
established elsewhere.
THIRD: The Corporation is formed for the purpose of making insurance on
the lives of persons in and out of the State of Ohio; making
insurance against accident to, sickness, temporary or permanent
physical disability of, hospital expense and medical care for
persons, and taking any and all risks appertaining thereto and
connected therewith; granting, purchasing and disposing of
annuities providing either fixed or variable benefits or both;
establishing and operating separate accounts; and doing any and
all other acts either permitted or not prohibited under the laws
of the State of Ohio for a mutual life insurance corporation.
FOURTH: Each policyholder of the Corporation shall be a member of the
Corporation. The term "policyholder" as used herein means the
person insured under an individual policy of life insurance, and
the person to whom any annuity or pure endowment is presently or
prospectively payable by the terms of an individual annuity or
pure endowment contract, except where the policy or contract
declares some other person to be the owner or holder thereof, in
which case such owner or policyholder shall be deemed the
policyholder, and except in the cases of assignment or transfer
as hereinafter provided. In the case of any individual policy or
contract insuring two or more persons jointly, or in case the
policy or contract declares two or more persons to be the owner,
the persons insured or declared to be the owner are considered as
one policyholder. In case any such policy or contract has been
assigned or transferred by an assignment or transfer absolute on
its face to an assignee or transferee other than the Corporation
and such assignment or transfer is filed at the principal office
of the Corporation, then such assignee or transferee shall be
deemed the policyholder, but for the purpose of determining
voting rights such assignment or transfer is not effective until
thirty days after it has been filed with the Corporation. Except
as provided herein an assignee or transferee of a policy or
contract shall not be deemed a policyholder. In the case of group
policies the employer, trustee, creditor or other holder of the
group master contract shall be the policyholder for the purpose
of this Article and the one qualified to vote. The holders of
certificates issued under such group master contracts shall not
be qualified to vote. Each policyholder who is insured in the sum
of at least One Thousand Dollars, or who is the holder of an
annuity which at normal date of maturity requires the payment of
One Hundred Dollars or more annually, and whose insurance or
contract of annuity is then in force and has been in force at
-1-
<PAGE> 2
least one year prior to a policyholders' meeting, shall be
entitled to only one vote, irrespective of the number of policies
or contracts held by him or the amount thereof, but said voting
qualifications shall be subject to any change or amendment as may
be prescribed by the laws of the State of Ohio or which may be
adopted by the Corporation pursuant to the laws of the State of
Ohio.
FIFTH: The corporate powers of the Corporation shall be exercised by,
and the business and affairs of the Corporation shall be under
the control of, a Board of Directors composed of fifteen natural
persons, unless this number is changed (1) by the policyholders
by the affirmative vote of a majority of the policyholders
present in person or by proxy at the annual meeting of
policyholders or at any other meeting of policyholders called for
the purpose of electing Directors, or (2) by the Board of
Directors by the vote of at least two-thirds of the Directors in
office, unless this authority has been expressly denied to the
Directors by the affirmative vote of a majority of the
policyholders present in person or by proxy at the most recent
annual meeting of policyholders. Directors in office may not
increase or decrease the number of Directors to a number which is
greater than eighteen persons nor less than twelve persons. The
age, residence, citizenship, membership and other qualifications
of the Directors shall be those prescribed by the laws of Ohio.
The Directors shall be elected by a ballot of the policyholders
entitled to vote under the provisions of Article Fourth, either
in person or by proxy, at an annual meeting to be held at the
principal office of the Corporation in Cincinnati, Ohio on the
first Friday in May at 10:00 a.m. prevailing local time or at
such other time and place as may be set forth in an advance
written notice to policyholders meeting the requirements of Ohio
law. Directors shall be elected for terms expiring at the annual
meeting of policyholders three years from the meeting at which
they are elected except as hereinafter provided. Directors shall
be divided into three classes according to the calendar year in
which their terms expire, the number of Directors in each class
being as nearly equal as possible. In all events, except for a
vacancy, Directors will remain in office until their successors
are duly elected and qualified. No reduction in the number of
Directors shall, of itself, have the effect of shortening the
term of any incumbent Director. Directors who are then in office
shall have the authority to fill any vacancy on the Board for the
unexpired term and to fill any Director's office created by an
increase in the number of Directors. When the number of Directors
is increased or decreased, Directors thereafter elected or
appointed will be assigned to one of the three classes of
Directors, and their terms of office established accordingly,
such that the number of Directors in each class will at all times
be made as nearly equal as possible. No Director may be removed
from office other than for incapacity or for cause except upon
the vote of at least two-thirds of the policyholders present in
person or by proxy at the annual meeting of policyholders or at a
special meeting of policyholders called for the purpose of
electing or removing Directors. Directors in office as of the
effective date of this Amended Article Fifth shall continue in
office for the remainder of their elected terms according to the
provisions of these Articles as previously in effect.
-2-
<PAGE> 3
SIXTH: Each former, present and future Director, Officer or Employee of
the Corporation (and his heirs, executors or administrators), or
any such person (and his heirs, executors or administrators) who
serves at the Corporation's request as a director, officer,
partner, member or employee of another corporation, partnership
or business organization or association of any type whatsoever
shall be indemnified by the Corporation against reasonable
expenses, including attorneys' fees, judgments, fines and amounts
paid in settlement actually and reasonably incurred by him in
connection with the defense of any contemplated, pending or
threatened action, suit or proceeding, civil, criminal,
administrative or investigative, other than an action by or in
the right of the Corporation, to which he is or may be made a
party by reason of being or having been such Director, Officer,
or Employee of the Corporation or having served at the
Corporation's request as such director, officer, partner, member
or employee of any other business organization or association, or
in connection with any appeal therein, provided a determination
is made by majority vote of a disinterested quorum of the Board
of Directors (a) that such a person acted in good faith and in a
manner he reasonably believed to be in or not opposed to the best
interests of the Corporation, and (b) that, in any matter the
subject of criminal action, suit or proceeding, such person had
no reasonable cause to believe his conduct was unlawful. The
termination of any action, suit or proceeding by judgment, order,
settlement, conviction, or upon a plea of nolo contendere or its
equivalent, shall not, of itself, create a presumption that the
person did not act in good faith in any manner which he
reasonably believed to be in or not opposed to the best interests
of the Corporation, and with respect to any criminal action or
proceeding, he had reasonable cause to believe that his conduct
was unlawful. Such right of indemnification shall not be deemed
exclusive of any other rights to which such person may be
entitled. The manner by which the right to indemnification shall
be determined in the absence of a disinterested quorum of the
Board of Directors shall be set forth in the Code of Regulations
or in such other manner as permitted by law. Each former,
present, and future Director, Officer or Employee of the
Corporation (and his heirs, executors or administrators) or any
such person (and his heirs, executors or administrators) who
serves at the Corporation's request as a director, officer,
partner, member or employee of another corporation, partnership
or business organization or association of any type whatsoever
shall be indemnified by the Corporation against reasonable
expenses, including attorney's fees, actually and reasonably
incurred by him in connection with the defense or settlement of
any contemplated, pending or threatened action, suit or
proceeding by or in the right of the Corporation to procure a
judgment in its favor, to which he is or may be a party by reason
of being or having been such Director, Officer or Employee of the
Corporation or having served at the Corporation's request as such
director, officer, partner, member or employee of any other
business organization or association, or in connection with any
appeal therein, provided a determination is made by majority vote
of a disinterested quorum of the Board of Directors (a) that such
person was not, and has not been adjudicated to have been,
negligent or guilty of misconduct in the performance of his duty
to the Corporation or to such other business organization or
association,
-3-
<PAGE> 4
and (b) that such person acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests
of the Corporation. Such right of indemnification shall not be
deemed exclusive of any other rights to which such person may be
entitled. The manner by which the right of indemnification shall
be determined in the absence of a disinterested quorum of the
Board of Directors shall be as set forth in the Code of
Regulations or in such other manner as permitted by law.
SEVENTH: The Corporation shall have no capital stock but shall conduct its
business as a mutual life insurance corporation.
EIGHTH: The power to alter, amend or repeal the Code of Regulations of
the Corporation shall be vested in the Board of Directors.
NINTH: These articles may be amended from time to time in any manner
which may now or hereafter be permitted by the Revised Code of
Ohio at any annual or special meeting of the policyholders by an
affirmative vote of two-thirds of the policyholders present in
person or by proxy at any annual meeting of policyholders or at a
special meeting of policyholders called for that purpose.
TENTH: Notwithstanding any provision in Article Fifth to the contrary,
the term of any Director who is an officer of the Corporation
will expire concurrently with the Director's resignation or
termination as an officer of the Corporation, and the term of any
Board-nominated Director or successor may be limited to one or
two years if the Director would not be eligible for election to a
longer term by reason of any applicable limitation in the Code of
Regulations.
-4-
<PAGE> 1
CODE OF REGULATIONS
OF
THE OHIO NATIONAL LIFE INSURANCE COMPANY
AMENDED EFFECTIVE August 5, 1994
ARTICLE I--POLICYHOLDERS' MEETINGS
- ----------------------------------
1. The annual meeting of policyholders shall be held at the Home Office of the
Corporation in the City of Cincinnati, Ohio, at 10:00 o'clock A.M. on the
first Friday in May of each year or at such other time and place as may be
set forth in an advance written notice to policyholders meeting the
requirements of Ohio law. Special meetings of policyholders may be held upon
call by a majority of the Board of Directors, either by vote or in writing
signed by them. The Chief Executive officer of the corporation shall preside
as chairman of policyholders' meetings.
2. Each policyholder of the Corporation shall be a member of the Corporation.
The term "policyholder" as used herein means the person insured under an
individual policy of life insurance, and the person to whom any annuity or
pure endowment is presently or prospectively payable by the terms of an
individual annuity or pure endowment contract, except where the policy or
contract declares some other person to be the owner or holder thereof, in
which case such owner or policyholder shall be deemed the policyholder, and
except in cases of assignment or transfer as hereinafter provided. In the
case of any individual policy or contract insuring two or more persons
jointly, or in case the policy or contract declares two or more persons to
be the owner, the persons insured or declared to be the owner are considered
as one policyholder. In case any such policy or contract has been assigned
or transferred by an assignment or transfer absolute on its face to an
assignee or transferee other than the corporation and such assignment or
transfer is filed at the principal office of the Corporation, then such
assignee or transferee shall be deemed the policyholder, but for the purpose
of determining voting rights such assignment or transfer is not effective
until thirty days after it has been filed with the Corporation. Except as
provided herein an assignee or transferee of a policy or contract shall not
be deemed a policyholder. in the case of group policies the employer,
trustee, creditor or other holder of the group master contract shall be the
policyholder and the one qualified to vote. The holders of certificates
issued under such group master contracts shall not be qualified to vote.
Each policyholder who is insured in the sum of at least one Thousand
Dollars, or who is the holder of an annuity which at normal date of maturity
requires the payment of One Hundred Dollars or more annually, and whose
insurance or contract of annuity is then in force and has been in force at
least one year prior to a policyholders' meeting, shall be entitled to only
one vote, irrespective of the number of policies or contracts held by the
policyholder or the amount thereof, but said voting qualifications shall be
subject to any change or amendment as may be prescribed by the laws of the
State of Ohio or which may be adopted by the Corporation pursuant to the
laws of the State of Ohio.
<PAGE> 2
3. Policyholders may vote in person or by proxy. All proxies must be filed with
the Secretary of the Corporation not less than ten days before the day of
meetings at which they are to be voted. There shall be a policyholders'
proxy committee composed of five policyholders, each of whom shall be
qualified to vote under the terms of Article Fourth of the Amended Articles
of Incorporation of the Corporation. Said committee shall be appointed by
the Board of Directors and the members thereof shall hold office at the
pleasure of the Board. Vacancies on the committee shall be filled by the
Board, but until such vacancy shall be filled the remaining members of the
committee shall be fully empowered to act. The committee shall solicit,
receive and vote proxies on behalf of the policyholders.
4. Notice of annual meetings of policyholders may be given to policyholders by
printing the same either on policies, premium notices, or on the printed
annual statements of the corporation mailed to the policyholders, or by a
special form of notice mailed to the policyholders not longer than one year
prior to said meeting. Notice of special meetings of policyholders shall be
given to each policyholder not more than sixty days nor less than thirty
days before the day of the meeting by depositing such notice in the mail,
addressed to the policyholder, postage prepaid, at the policyholder's last
address appearing on the records of the Corporation.
5. Those policyholders present in person or by proxy at a meeting shall
constitute a quorum for the transaction of business, and the vote of a
majority of those present in person or by proxy shall be sufficient to take
any action properly before the meeting.
6. The Board shall nominate persons who are or will become policyholders for
election as Directors to serve for terms commencing at the following annual
policyholders' meeting. Nominations shall be made at least sixty days before
the date of the annual policyholders' meeting at which the persons nominated
are to be voted upon, except that a vacancy in the list of nominees caused
by the death, resignation or removal of a nominee may be filled at any time.
7. Other nominations for election to the Board for terms commencing at an
annual meeting may be made by petition containing the signatures of not less
than five thousand policyholders qualified to vote at such election, not
more than five per cent of whom shall be policyholders residing in the
territory assigned to any one general agency of the Corporation. Each such
nominee shall be or become a member of the Corporation. Such petition shall
be filed with the Secretary of the Corporation at its Home Office not later
than one hundred twenty days before the date of the annual policyholders'
meeting at which the persons therein nominated are to be voted upon. Each
petition shall be accompanied by a statement giving the names, residences
and business addresses, and the business or professional affiliations of the
nominees, and a written acceptance of the nominations filed for each
nominee. In order that the policyholders may be informed adequately about
the persons so nominated, the Corporation shall send by first-class United
States mail to each policyholder entitled to vote at the next annual meeting
of policyholders the information furnished by the candidates as required by
the preceding sentence, and also similar information about the persons
nominated by the Board. Such notice shall be mailed not less
2
<PAGE> 3
than sixty days before the date of the annual meeting at which the election
is to be held. All costs incidental to preparing and mailing said notice and
information shall be borne by the candidate.
8. At all meetings for the election of Directors the chairman shall appoint
three inspectors who shall have the powers and perform the duties provided
by the Revised Code of Ohio for inspectors of elections, provided that no
person who is a candidate for the Office of Director shall be appointed as
an inspector.
9. No person shall be nominated to or be eligible for renomination to the Board
of Directors for a term which extends beyond the annual meeting of
policyholders next following the person's 70th birthday. This provision
shall not be applicable to any Directors nominated in accordance with the
provisions of Article I, Section 7 of the Code of Regulations.
ARTICLE-II--BOARD OF DIRECTORS
- ------------------------------
1. The Board of Directors shall be elected in the manner and for the term
specified in the Amended Articles of Incorporation.
2. Vacancies in the Board shall be filled by a majority vote of the remaining
Directors. In the event of the expiration of the term of any Director as a
result of the operation of Article Tenth of the Amended Articles of
Incorporation, a vacancy shall be deemed to exist in the class of which the
Director was a member. The Board may fill the resulting vacancy including,
without limitation, by re-election of the Director whose term had expired in
the case of a person who has served as Chief Executive officer, but such
person shall not then or thereafter be eligible for election to a term
extending beyond the annual meeting of policyholders next following the
person's 65th birthday, unless the Board approves one or more additional
one-year terms to which such person may be eligible for election.
3. The Board shall hold regular meetings not less frequently than quarterly on
dates and at times fixed by the Board. The Chief Executive officer, the
Executive Committee or any six members of the Board may convene special
meetings of the Board at any time. Notice of any meeting of the Board shall
be given to each Director not less than four days prior to the date of the
meeting by delivery to the Director or by depositing it in the mail
addressed to the Director at the Director's address appearing on the books
of the corporation, but such notice may be waived by any Director in
writing.
4. A majority of the members of the Board shall constitute a quorum for the
transaction of business. meetings of the Directors or of committees of the
Directors may be held through the use of any form of communications
equipment if all persons participating can hear each other person
participating. Participation in such a meeting shall constitute presence at
the meeting.
3
<PAGE> 4
ARTICLE III--EXECUTIVE COMMITTEE
- --------------------------------
1. The Board of Directors, by a resolution adopted by a majority of the whole
Board, may designate an Executive Committee composed of not less than three
nor more than six Directors.
2. The Executive Committee shall, to the extent provided in such resolution or
in the Code of Regulations, have and exercise during the interim between
meetings of the Board, all of the authority of the Board in the control of
the business and affairs of the corporation except such as the Board only,
by law, is authorized to perform or exercise.
3. The Board may appoint one or more Directors as alternate members of the
Executive Committee, who may take the place of any absent member or members
at any meeting of such Committee or who may, as authorized by the Board,
attend and vote at any meeting of the Executive Committee expanded to
include both its regular and alternate members.
4. The Board shall designate the chairman and vice chairman of the Executive
Committee.
5. The Executive Committee shall meet at approximately monthly intervals
between meetings of the Board of Directors, and at such other times as the
needs of the business require. A majority of the Executive Committee, and a
majority of the expanded Executive Committee when it meets, shall constitute
a quorum. The Committee may act by a majority of those members present at a
meeting at which a quorum is present or by a writing or writings signed by
all of its members. The committee shall keep records of its proceedings and
report them at the regular meetings of the Board.
ARTICLE IV--NOMINATING COMMITTEE
- --------------------------------
1. The Board of Directors may designate a Nominating Committee, composed of not
less than three Directors, to recommend to the Board criteria and guidelines
for evaluating candidates for nomination as Directors and to identify,
recruit and recommend to the Board suitable candidates for nomination as
Directors. The Chief Executive officer shall serve ex officio as a member of
the Committee.
2. The Board shall designate the chairman of the Nominating Committee.
3. The Nominating Committee shall meet at least annually and at such other
times as the needs of the Board require. The Committee shall keep records of
its proceedings and report them at regular meetings of the Board.
ARTICLE V--INVESTMENT REVIEW COMMITTEE
- --------------------------------------
1. The Board of Directors, by a resolution adopted by a majority of the whole
Board, may designate an Investment Review Committee, composed of not less
than three nor more than six Directors.
4
<PAGE> 5
2. The Investment Review Committee shall review and oversee the investment and
management of the corporation's assets in accordance with the investment
policy approved by the Board.
3. The Board shall designate the chairman of the Investment Review Committee.
4. The Investment Review Committee shall meet at least semi-annually and at
such other times as the needs of the business require. The Committee shall
keep records of its proceedings and report them at the regular meetings of
the Board.
5. The Investment Review Committee shall recommend to the Board the designation
of certain executive officers of the Corporation to serve as an Investment
Management Committee whose members, individually or in groups, shall be
authorized by the Board to exercise investment authority in approving the
purchase or sale of the Corporation's general account assets. All actions
taken by the Investment Management Committee or by its members individually
or in groups shall be reported to the Board at such times and in such manner
as the Board shall direct.
ARTICLE VI--COMPENSATION REVIEW COMMITTEE
- -----------------------------------------
1. The Board of Directors, by a resolution adopted by a majority of the whole
Board, may designate a Compensation Review Committee composed of not less
than three nor more than six Directors, none of whom (except the Chief
Executive officer who shall be an additional ex-officio member of the
Committee) shall be a present or former full-time salaried officer of the
Corporation.
2. The Compensation Review Committee shall review the policies of the
Corporation relating to compensation and fringe benefits for all salaried
personnel other than fees paid to Directors or members of any committee of
Directors.
3. The Board shall designate the chairman of the Compensation Review Committee.
4. The Chief Executive Officer of the Corporation may fix or change salaries
(except his own or except that of any other position specifically limited by
the Board) as the needs of the business may require. All salaries of
executive officers, however, and all other major changes in salary policy
shall be reviewed by the Compensation Review Committee at least annually.
5. The Compensation Review Committee shall maintain records of its proceedings
and report them at the regular meetings of the Board.
5
<PAGE> 6
ARTICLE VII--AUDIT REVIEW COMMITTEE
- -----------------------------------
1. The Board of Directors, by a resolution adopted by a majority of the whole
Board, may designate an Audit Review Committee composed of not less than
three nor more than six Directors.
2. The Audit Review Committee shall recommend the engagement of the independent
accountants, review their independence and the scope of their audit, and
review and evaluate the reports and performance of the independent
accountants and the internal auditor, including a review of auditing
procedures, internal controls, compliance reporting, conflict-of-interest
reports, regulatory examination reports and financial processes, systems and
statements.
3. The Board shall designate the chairman of the Audit Review Committee.
4. The Audit Review Committee shall meet at least semi-annually. The Committee
shall maintain records of its proceedings and report them at the regular
meetings of the Board.
ARTICLE VIII--OTHER COMMITTEES AND COMMITTEE RULES
- --------------------------------------------------
1. The Board of Directors may create such other committees as it deems
advisable and define their duties.
2. Unless contrary rules and provisions are specified in this Code of
Regulations or in the resolution of the Board of Directors designating or
creating a committee as authorized hereby, the rules and provisions set
forth in this section shall apply to the formation of, or conduct of
business by, any such committee:
(a) A committee shall meet at the call of its chairman or by written
request of a majority of its members.
(b) A committee may adopt its own rules to provide for reasonable and
sufficient advance notice of its meetings, but such notice may be
waived in writing by any member.
(c) A majority of members shall constitute a quorum. A committee may
act by a majority of its members present at a meeting at which a
quorum is present or by a writing or writings signed by all
members.
(d) A committee shall appoint a secretary from among its members and
is authorized to designate a presiding chairman to serve in the
event of the temporary absence or incapacity of its permanent
chairman.
6
<PAGE> 7
(e) A committee may adopt such other rules and procedures, or make
other administrative appointments from among its members,
consistent herewith, as may be necessary or convenient to the
conduct of its business.
3. In appointing the members of any committee, the Board of Directors may
appoint alternates or make other special appointments as deemed appropriate.
Vacancies or any committee, except the Executive Committee, may be
temporarily filled by action of the Executive Committee until the next
meeting of the full Board.
ARTICLE IX--OFFICERS
- --------------------
1. The executive officers of the Corporation shall be a President, who shall be
a member of the Board, one or more Vice Presidents (with such other
descriptive or limiting titles as may be appropriate), a Secretary and a
Treasurer, and such other executive officers with appropriate titles as the
needs of the business may require. Executive officers shall be elected by
the Board of Directors at the regular meeting of Directors in May of each
year and shall hold office during the pleasure of the Board.
2. The Board may remove or suspend any executive officer without cause and
without notice. Vacancies may be filled by the Board at any time, except
that the Executive committee may not permanently fill a vacancy in the
position of Chairman, Vice Chairman, Chief Executive Officer or President.
3. Any two offices may be held simultaneously by the same person, except that
the Chairman, President or Chief Executive officer may not simultaneously
serve as a Vice President.
4. The Board may elect from among its members a Chairman and Vice Chairman;
otherwise the President shall serve as Chairman of the Board.
5. Executive officers may create and fill by appointment other necessary
management positions provided, however, that the creation of and appointment
to a management position classified as an appointed officer shall be first
approved by the Chief Executive officer.
ARTICLE X--DUTIES OF OFFICERS
- -----------------------------
1. CHAIRMAN: The Chairman shall preside at meetings of the Board and shall
perform such other duties as may be assigned by the Board.
2. VICE CHAIRMAN: The Vice Chairman, if any, shall substitute for the Chairman
at meetings of the Board and shall perform such other duties as may be
assigned by the Board and, if not in conflict, by the Chairman.
7
<PAGE> 8
3. PRESIDENT: The President shall perform such duties as may be assigned by the
Chief Executive Officer or by the Board if the Chief Executive Officer is
the President. The President shall report to the Chief Executive Officer
unless the President has that designation. In the absence of a Chairman and
Vice Chairman, the President shall serve as Chairman of the Board.
4. CHIEF EXECUTIVE OFFICER: Either the Chairman or the President shall be
designated the Chief Executive Officer by the Board of Directors. The Chief
Executive Officer shall serve at the pleasure of the Board. The Chief
Executive Officer shall be responsible for the general management and
direction of the business of the Company, and shall report directly to the
Board of Directors. The Chief Executive Officer shall preside as chairman at
policyholders' meetings. The Executive Committee may, in any emergency,
designate the President or a Vice President to temporarily act in the place
of the Chief Executive Officer and may designate a Vice President to
temporarily act in the place of the President, if the latter is not the
Chief Executive Officer.
5. VICE PRESIDENTS: The Vice Presidents (with such other descriptive or
limiting titles as appropriate) shall assist in the executive management of
the Corporation and shall perform such duties as may be assigned to them by
the Chief Executive Officer or by the executive officer to whom they report
if not the Chief Executive Officer.
6. SECRETARY: The Secretary shall keep the Minutes of the meetings of the
policyholders and, if a member thereof, of the Board of Directors and record
them in books kept for that purpose. If the Secretary is not a member of the
Board, the Board shall designate a Clerk of the Board to take the Minutes
thereof, which Minutes shall be kept in the custody of the Secretary. The
Secretary shall perform such other duties as may be assigned by the Board.
7. TREASURER: The Treasurer shall perform the usual duties of such office and
such other duties as may be assigned by the Board.
8. Appointed officers shall act under the direction of the officers to whom
they report but shall be subject to the final authority of the Chief
Executive Officer.
ARTICLE XI--EXECUTION OF INSTRUMENTS
- ------------------------------------
Any one of the following officers, namely: the Chairman, the Vice Chairman, the
President, a Vice President, the Secretary, an Assistant Secretary, the
Treasurer or an Assistant Treasurer, shall execute transfers of stocks and
bonds, releases or satisfactions of mortgages, conveyances and transfers of real
and personal property, and all contracts, deeds, transfers, releases and any
other papers necessary to the transaction of the business of the corporation.
The Board or the Executive Committee may authorize other officers to execute
instruments and to attach the corporate seal thereto.
8
<PAGE> 9
ARTICLE XII--INDEMNIFICATION
- ----------------------------
If any director, officer or employee of the Corporation may be entitled to
indemnification by reason of Article Sixth of the Amended Articles of
Incorporation, indemnification shall be made upon either (a) a determination in
writing of the majority of disinterested directors present, at a meeting of the
Board at which all disinterested directors present constitute a quorum, that the
director, officer or employee in question was acting in good faith and in a
manner such person reasonably believed to be in or not opposed to the best
interests of this corporation or of such other business organization or
association in which such person served at the Corporation's request, and that,
in any matter which is the subject of a criminal action, suit or proceeding,
such person had no reasonable cause to believe that the conduct in question was
unlawful and in an action by or in the right of the Corporation to procure a
judgment in its favor that such person was not and has not been adjudicated to
have been negligent or guilty of misconduct in the performance of such person's
duty to the Corporation or to such other business organization or association;
or (b) if the number of all disinterested directors would not be sufficient at
any time to constitute a quorum, or if the number of disinterested directors
present at two consecutive meetings of the Board has not been sufficient to
constitute a quorum, a determination to the same effect as set forth in the
foregoing clause (a) shall be made in a written opinion by independent legal
counsel other than an attorney, or a firm having association with it an
attorney, who has been retained by or who has performed services for this
Corporation, or for any person to be indemnified, within the past five years, or
by the majority vote of the policyholders, or by the Court of Common Pleas or
the court in which such action, suit or proceeding was brought. Prior to making
any such determination, the Board of Directors shall first have received the
written opinion of General Counsel that a number of directors sufficient to
constitute a quorum, as named therein, are disinterested directors. Any director
who is a party to or threatened with the action, suit or proceeding in question,
or any related action, suit or proceeding, or has had or has an interest therein
adverse to that of the Corporation, or who question of indemnification. Anything
in this Article to the contrary notwithstanding, if a judicial or administrative
body determines as part of the settlement of any action, suit or proceeding that
the Corporation should indemnify a director, officer or employee for the amount
of the settlement, the Corporation shall so indemnify such person in accordance
with such determination. Expenses incurred with respect to any action, suit or
proceeding which may qualify for indemnification may be advanced by the
Corporation prior to final disposition thereof upon receipt of an undertaking by
or on behalf of the director, officer or employee to repay such amount if it is
ultimately determined hereunder that such person is not entitled to
indemnification or to the extent that the amount so advanced exceeds the
indemnification to which such person is ultimately determined to be entitled.
Expenses incurred by a director in defending an action, suit or proceeding shall
be paid by the Corporation as incurred by the director to the extent required by
Division (E) of section 1701.13 of the Ohio Revised Code. A director shall not
be indemnified with respect to expenses incurred in any action or suit in which
the only liability asserted against the director is pursuant to Section 1701.95
of the Ohio Revised Code.
9
<PAGE> 10
ARTICLE XIII--BY-LAWS
- ---------------------
For the government of its action and the actions of the officers of the
Corporation, the Board of Directors may adopt by-laws consistent with the
Amended Articles of Incorporation and these Regulations.
ARTICLE XIV--MISCELLANEOUS
- --------------------------
Directors and members of the Executive Committee and other committees, except
full-time salaried officers and paid consultants, shall be entitled to such
compensation and to such reimbursement or allowance for the expense of attending
meetings of the Board or its committees as may be prescribed in the by-laws.
ARTICLE XV--NON-ASSESSABILITY OF MEMBERS
- ----------------------------------------
The Corporation shall issue no policy of life insurance or annuity contract
which provides for the payment of any assessments by any policyholder or member
in addition to the regular premium charged for such insurance or annuity.
ARTICLE XVI--AMENDMENTS
- -----------------------
This Code of Regulations may be amended at any regular or special meeting of the
Board by a majority of all the Directors or in a writing signed by all the
Directors.
10
<PAGE> 1
SERVICE AGREEMENT
This Service Agreement, dated as of ______________, 1998, is made by and between
The Ohio National Life Insurance Company (the "Depositor") acting on behalf of
and as depositor for the Dow Target 10 Trust and each Series thereof, registered
unit investment trusts (the "Trust"), and First Trust Advisors, L.P. (the
"Provider").
WHEREAS, the Depositor has established the Trust as an optional funding vehicle
for certain variable annuity and variable life insurance contracts issued and
distributed by the Depositor and its affiliates;
WHEREAS, the Provider has demonstrated expertise in establishing and providing
services to other trusts and managed separate accounts having investment
strategies similar to that of the Trust;
WHEREAS, the Provider has entered into a License Agreement with Dow Jones &
Company, Inc. ("Dow") granting the Provider certain limited exclusive rights
with respect to Dow's copyright, trademark and proprietary rights and trade
secrets;
WHEREAS, the Provider, the Depositor and Dow have entered into a Sublicense
Agreement granting the Depositor a sublicense allowing the Depositor and the
Trust to use the Provider's rights with respect to Dow's copyright, trademark
and proprietary rights and trade secrets in connection with the Depositor's
offering, issuing and sale of interests in the Trust and the related variable
annuity and variable life insurance contracts issued and distributed by the
Depositor and its affiliates, and
WHEREAS, the Depositor has established the Trust pursuant to a Trust and Custody
Agreement with Star Bank, N.A. (the "Trustee"),
NOW THEREFORE, in consideration of the premises and the mutual covenants and
agreements contained herein, the parties hereto agree as follows:
1. Identification of Trust Investments
The Provider shall, as of the close of the New York Stock Exchange on the last
business day of each calendar month (the "Stock Selection Date"), determine and
identify from among the thirty companies in the Dow Jones Industrial Average
those ten companies having the highest dividend yields as of that point in time.
The Provider shall thereupon, by no later than twelve o'clock noon, Eastern
time, the next following business day, identify those ten companies to the
Depositor and to the Trustee. Such identification shall be in writing
transmitted by facsimile or by other electronic means agreed upon by the
parties.
<PAGE> 2
2. Compensation of Provider
As compensation for its services rendered under this Agreement, and in
consideration of the rights and privileges granted the Depositor and the Trust
under the Sublicense Agreement, and for other services rendered to the Trust and
the Depositor by the Provider, the Provider shall receive compensation at the
annual rate of 0.35% of the average daily total value of the Trust's assets.
This compensation shall be paid to the Provider on a monthly basis within ten
days after the end of each calendar month. The compensation shall be paid by the
Depositor or, at the Depositor's direction, it may be paid directly by the
Trustee from the Trust's income and assets.
3. Duration and Termination
This Agreement shall take effect on the later of the date first above written or
the date on which the first registration statement for the Trust shall be
rendered effective by the United States Securities and Exchange Commission.
This Agreement shall remain in effect until terminated by either the Depositor
or the Provider. The Agreement may be terminated by either the Depositor or the
Provider at any time, without payment of any penalty, but not until after the
other party has received at least ninety days' written notice from the
terminating party.
This Agreement shall terminate automatically in the event of the termination and
complete liquidation of the Trust including every series thereof.
4. Notices
Any notice given hereunder shall be in writing and shall be sent by facsimile or
by other electronic means agreed upon by the parties. Any notice related to
termination or amendment of the Agreement shall also be sent by registered mail
or by courier to the last known address of the recipient.
5. Governing Law
This Agreement shall be governed by and subject to the requirements of the laws
of the State of Ohio without reference to the choice of law provisions thereof.
2
<PAGE> 3
IN WITNESS WHEREOF, this Agreement has been executed by the parties hereto as of
the day and year first above written.
THE OHIO NATIONAL LIFE INSURANCE COMPANY
(The Depositor)
By:
--------------------------------------
[Name and Title]
FIRST TRUST ADVISORS, L.P.
(The Provider)
By:
--------------------------------------
[Name and Title]
3
<PAGE> 1
SUBLICENSE AGREEMENT
This Sublicense Agreement is made as of ________________, 1998, by and among The
Ohio National Life Insurance Company (the "Sublicensee"), First Trust Advisors,
L.P. ("Licensee") and Dow Jones & Company, Inc. ("Licensor").
WHEREAS, pursuant to that certain License Agreement dated as of November 11,
1997, by and among the Licensor and the Licensee, the Licensor has granted the
Licensee a license to use certain copyright, trademark and proprietary rights
and trade secrets of the Licensor (the "Dow Jones Marks") in connection with the
issuance, distribution, marketing and/or promotion of the specific products (the
"Products") described in Appendix A to the License Agreement as amended and
incorporated herein;
WHEREAS, for purposes of this Sublicense Agreement the parties hereto stipulate
and agree that during the term of this Sublicense Agreement the Sublicensee's
Dow Target 10 Trust, each Series thereof and any variable annuity or variable
life insurance policy issued by the Sublicensee and investing therein shall be
treated as Products;
WHEREAS, the Sublicensee and the Licensee desire to enhance the marketability,
sales and performance of the Products offered by the Sublicensee and services in
connection therewith;
WHEREAS, the Sublicensee wishes to issue and/or sell the Products and to use and
refer to the Dow Jones Marks in connection with the marketing and promotion of
the Products;
WHEREAS, the Sublicensee and the Licensee have entered into a Service Agreement
under the terms of which the Licensee has agreed to provide certain services and
advice essential to the operation of the Sublicensee's Dow Target 10 Trust; and
WHEREAS, all capitalized terms used herein shall have the meanings assigned to
them in the License Agreement unless otherwise defined herein,
NOW THEREFORE, in consideration of the premises and the mutual covenants and
agreements contained herein, the parties hereto agree as follows:
1. LICENSE. Pursuant to Section 1(d) of the License Agreement, the Licensor
hereby grants to the Sublicensee a non-exclusive and non-transferable sublicense
to use the Dow Jones Marks in connection with the issuance, distribution,
marketing and/or promotion of the Products.
<PAGE> 2
2. TERM. The term of this Sublicense Agreement (the "Sublicense Term") shall
commence as of the date hereof and shall remain in full force and effect for the
remaining term of the License Agreement unless (i) terminated earlier
automatically upon termination of the Service Agreement between the Sublicensee
and the Licensee or (ii) extended upon the mutual consent of all three parties
hereto.
3. CONSIDERATION. Each of the parties hereto anticipates that the undertakings
contemplated hereunder will increase the marketability and sales of the
Products.
4. SUBLICENSE OBLIGATIONS. The Sublicensee acknowledges that it has received and
read a copy of the License Agreement (excluding Schedule B thereof) and agrees
to be bound to the Licensor and Licensee under this Sublicense Agreement as if
the Sublicensee were the Licensee under the License Agreement by all of the
provisions therein imposing any obligations on the Licensee (including without
limitation the indemnification obligations in Section 9 thereof) insofar as such
obligations arise out of or relate to the Products to be issued, marketed and/or
sold by the Sublicensee, other than the obligation to pay the License Fees
imposed by Section 3 of the License Agreement.
5. SUBLICENSEE AS PRINCIPAL. The Sublicensee agrees that its obligations under
the License Agreement pursuant to Section 4 hereof are as a principal and shall
be unaffected by any defense or claim that the Licensee may have against the
Licensor.
6. LICENSEE LIABILITY. The Licensee makes no representation or warranty, express
or implied, to the owners of the Products or any member of the public regarding
the advisability of purchasing the Products. The Licensee has no obligation or
liability in connection with the administration or calculation of the Dow Jones
Industrial Average (SM).
LICENSEE DOES NOT GUARANTEE THE ACCURACY AND/OR THE COMPLETENESS OF THE
DOW JONES INDUSTRIAL AVERAGESM OR ANY DATA INCLUDED THEREIN AND LICENSEE SHALL
HAVE NO LIABILITY FOR ANY ERRORS, OMISSIONS, OR INTERRUPTIONS THEREIN. LICENSEE
MAKES NO WARRANTY, EXPRESS OR IMPLIED, AS TO RESULTS TO BE OBTAINED BY
SUBLICENSEE, OWNERS OF THE PRODUCTS, OR ANY OTHER PERSON OR ENTITY FROM THE USE
OF THE DOW JONES INDUSTRIAL AVERAGE SM OR ANY DATA INCLUDED THEREIN. LICENSEE
MAKES NO EXPRESS OR IMPLIED WARRANTIES, AND EXPRESSLY DISCLAIMS ALL WARRANTIES
OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR USE WITH RESPECT TO
THE DOW JONES INDUSTRIAL AVERAGE SM OR ANY DATA INCLUDED THEREIN. WITHOUT
LIMITING ANY OF THE FOREGOING, IN NO EVENT SHALL LICENSEE HAVE ANY LIABILITY FOR
ANY LOST PROFITS OR INDIRECT, PUNITIVE, SPECIAL OR CONSEQUENTIAL DAMAGES
(INCLUDING LOST PROFITS), EVEN IF NOTIFIED OF THE POSSIBILITY OF SUCH DAMAGES.
THERE ARE NO THIRD PARTY BENEFICIARIES OF ANY AGREEMENTS OR ARRANGEMENTS BETWEEN
LICENSEE AND SUBLICENSEE.
2
<PAGE> 3
7. GOVERNING LAW. This Sublicense Agreement shall be construed in
accordance with the laws of the State of New York without reference to or
inclusion of the principles of choice of law or conflicts of law of that
jurisdiction.
IN WITNESS WHEREOF, the parties hereto have executed this Sublicense Agreement
as of the day first set forth above.
THE OHIO NATIONAL LIFE INSURANCE COMPANY
(Sublicensee)
By:
--------------------------------------------
[Title]
FIRST TRUST ADVISORS, L.P.
(Licensee)
By:
--------------------------------------------
[Title]
DOW JONES & COMPANY, INC.
(Licensor)
By:
--------------------------------------------
[Title]
3
<PAGE> 1
<PAGE> 1
[KPMG PEAT MARWICK LLP LOGO]
1600 PNC Center
201 East Fifth Street
Cincinnati, OH 45202
Dayton, OH
Independent Auditors' Report
The Board of Directors
The Ohio National Life Insurance Company:
We have audited the accompanying consolidated balance sheets of The Ohio
National Life Insurance Company and subsidiaries (the Company) as of December
31, 1997 and 1996, and the related consolidated statements of income, equity and
cash flows for each of the years in the three-year period ended December 31,
1997. These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of The Ohio National
Life Insurance Company and subsidiaries as of December 31, 1997 and 1996, and
the results of their operations and their cash flows for each of the years in
the three-year period ended December 31, 1997, in conformity with generally
accepted accounting principles.
Our audits were made for the purpose of forming an opinion on the consolidated
financial statements of the Company taken as a whole. The consolidating
information included in Schedules 1 and 2 is presented for purposes of
additional analysis of the consolidated financial statements rather than to
present the financial position, results of operations, and cash flows of the
individual companies. The consolidating information has been subjected to the
auditing procedures applied in the audits of the consolidated financial
statements and, in our opinion, is fairly stated in all material respects in
relation to the consolidated financial statements taken as a whole.
KPMG Peat Marwick LLP
Cincinnati, Ohio
February 12, 1998
<PAGE> 2
THE OHIO NATIONAL LIFE INSURANCE COMPANY AND SUBSIDIARIES
Consolidated Balance Sheets
December 31, 1997 and 1996
(000's omitted)
<TABLE>
<CAPTION>
Assets 1997 1996
------ ---- ----
<S> <C> <C>
Investments (notes 4, 8 and 9):
Securities available-for-sale, at fair value:
Fixed maturities $2,687,847 2,572,550
Equity securities 81,983 63,763
Fixed maturities held-to-maturity, at amortized cost 724,892 692,572
Mortgage loans on real estate, net 1,230,256 1,087,287
Real estate, net 21,820 40,759
Policy loans 153,348 151,229
Other long-term investments 42,539 42,851
Short-term investments 37,509 36,016
---------- ---------
Total investments 4,980,194 4,687,027
Cash 14,012 33,712
Accrued investment income 64,079 62,339
Deferred policy acquisition costs 250,942 246,643
Reinsurance recoverable 61,862 52,260
Other assets 42,683 37,737
Assets held in Separate Accounts 916,790 661,871
---------- ---------
Total assets $6,330,562 5,781,589
========== =========
Liabilities and Equity
Future policy benefits and claims (note 5) $4,445,474 4,288,107
Policyholders' dividend accumulations 62,423 63,574
Other policyholder funds 17,069 16,161
Note payable (net of unamortized discount of $766 in 1997
and $809 in 1996) (note 6) 84,234 84,191
Accrued Federal income tax (note 7):
Current 12,658 14,807
Deferred 65,380 37,252
Other liabilities 117,537 113,854
Liabilities related to Separate Accounts 887,542 648,634
---------- ---------
Total liabilities 5,692,317 5,266,580
---------- ---------
Equity (notes 3 and 12):
Unrealized gains on securities available-for-sale, net 102,956 46,807
Retained earnings 535,289 468,202
---------- ---------
Total equity 638,245 515,009
---------- ---------
Commitments and contingencies (notes 9 and 14)
Total liabilities and equity $6,330,562 5,781,589
========== =========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE> 3
THE OHIO NATIONAL LIFE INSURANCE COMPANY AND SUBSIDIARIES
Consolidated Statements of Income
Years ended December 31, 1997, 1996 and 1995
(000's omitted)
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Revenues (note 15):
Traditional life insurance premiums $116,402 113,176 104,514
Accident and health insurance premiums 23,921 23,478 22,455
Annuity premiums and charges 37,630 28,757 31,203
Universal life and investment product policy
charges 50,991 42,304 37,064
Net investment income (note 4) 390,547 370,702 355,027
Net realized gain (loss) on investments (note 4) 12,500 8,761 (2,751)
Other income 2,265 1,861 1,372
-------- ------- -------
634,256 589,039 548,884
-------- ------- -------
Benefits and expenses:
Benefits and claims 398,598 379,116 373,108
Provision for policyholders' dividends on
participating policies (note 12) 25,399 26,996 23,047
Amortization of deferred policy acquisition costs 23,108 19,341 21,471
Other operating costs and expenses 80,792 71,111 67,438
-------- ------- -------
527,897 496,564 485,064
-------- ------- -------
Income before Federal income tax 106,359 92,475 63,820
-------- ------- -------
Federal income tax (note 7):
Current expense 41,373 37,443 31,233
Deferred benefit (2,101) (4,571) (6,330)
-------- ------- -------
39,272 32,872 24,903
-------- ------- -------
Net income $ 67,087 59,603 38,917
======== ======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE> 4
THE OHIO NATIONAL LIFE INSURANCE COMPANY AND SUBSIDIARIES
Consolidated Statements of Equity
Years ended December 31, 1997, 1996 and 1995
(000's omitted)
<TABLE>
<CAPTION>
Unrealized
gains (losses)
on securities
available- Retained Total
for-sale, net earnings equity
------------- -------- ------
<S> <C> <C> <C>
1995:
Balance, beginning of year $(29,300) 369,682 340,382
Net income - 38,917 38,917
Unrealized gain on securities available-for-sale,
net of adjustment to deferred policy acquisition
costs and deferred Federal income taxes 115,144 - 115,144
-------- ------- -------
Balance, end of year $ 85,844 408,599 494,443
======== ======= =======
1996:
Balance, beginning of year $ 85,844 408,599 494,443
Net income 59,603 59,603
Unrealized loss on securities available-for-sale,
net of adjustment to deferred policy
acquisition costs and deferred Federal
income tax (39,037) - (39,037)
-------- ------- -------
Balance, end of year $ 46,807 468,202 515,009
======== ======= =======
1997:
Balance, beginning of year $ 46,807 468,202 515,009
Net income - 67,087 67,087
Unrealized gain on securities available-for- sale,
net of adjustment to deferred policy
acquisition costs and deferred Federal
income tax 56,149 - 56,149
-------- ------- -------
Balance, end of year $102,956 535,289 638,245
======== ======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE> 5
THE OHIO NATIONAL LIFE INSURANCE COMPANY AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Years ended December 31, 1997, 1996 and 1995
(000's omitted)
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities:
Net Income $ 67,087 59,603 38,917
Adjustments to reconcile net income to net cash
provided by operating activities:
Capitalization of deferred policy acquisition costs (48,507) (43,711) (41,403)
Amortization of deferred policy acquisition costs 23,108 19,341 21,471
Amortization and depreciation 4,342 1,095 1,342
Realized gains on invested assets, net (10,527) (7,772) (3,077)
Deferred Federal income tax (benefit) (2,101) (4,571) (6,330)
(Increase) decrease in accrued investment income (1,740) 789 (4,977)
(Increase) decrease in other assets (14,548) 3,169 (19,051)
Net increase in separate accounts (16,011) (958) (3,993)
Increase in policyholder account balances 40,843 20,249 52,265
(Decrease) increase in policyholders' dividend
accumulations and other funds (243) 28 (215)
Increase (decrease) in current Federal income tax payable (2,149) (6,842) 10,088
Increase in other liabilities 3,603 11,134 9,126
Other, net (27) 896 4,369
---------- -------- --------
Net cash provided by operating activities 43,130 52,450 58,532
---------- -------- --------
Cash flows from investing activities:
Proceeds from maturity of securities available-for-sale 298,686 145,554 83,956
Proceeds from sale of debt securities available-for-sale 51,770 74,977 46,372
Proceeds from sale of equity securities 4,996 15,001 7,245
Proceeds from maturity of fixed maturities held-to-maturity 75,530 57,129 102,565
Proceeds from repayment of mortgage loans on real estate 180,745 140,831 93,714
Proceeds from sale of real estate 19,078 4,181 15,791
Proceeds from repayment of policy loans and sale of
other invested assets 17,882 11,812 14,003
Cost of debt securities available-for-sale acquired (367,027) (331,991) (281,828)
Cost of equity securities acquired (7,205) (4,000) (12,258)
Cost of fixed maturities held-to-maturity acquired (110,982) (76,022) (226,541)
Cost of mortgage loans on real estate acquired (321,914) (332,088) (233,003)
Cost of real estate acquired (1,310) (836) (1,283)
Policy loans issued and other invested assets acquired (18,190) (18,006) (23,046)
---------- -------- --------
Net cash used in investing activities (177,941) (313,458) (414,313)
---------- -------- --------
Cash flows from financing activities:
Increase in universal life and investment product account balances 1,000,919 973,793 957,776
Decrease in universal life and investment product account balances (884,395) (745,546) (583,852)
Proceeds from note issue - 49,340 -
Repayment of note - (16,477) -
Other, net 80 68 69
---------- -------- --------
Net cash provided by financing activities 116,604 261,178 373,993
---------- -------- --------
Net increase (decrease) in cash and cash equivalents (18,207) 170 18,212
Cash and cash equivalents, beginning of year 69,728 69,558 51,346
========== ======== ========
Cash and cash equivalents, end of year $ 51,521 69,728 69,558
========== ======== ========
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE> 6
THE OHIO NATIONAL LIFE INSURANCE COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1997, 1996 and 1995
(000's omitted)
(1) Organization, Consolidation Policy and Business Description
The Ohio National Life Insurance Company (ONLIC) is a mutual life
insurance company. Ohio National Life Assurance Corporation
(ONLAC) is a wholly-owned stock life insurance subsidiary included
in the consolidated financial statements. The Company's other
wholly-owned subsidiaries are not life insurance enterprises and
are included in the consolidated financial statements on an equity
basis. These non-insurance subsidiaries are not material to the
Company's consolidated results of operations or financial
position. ONLIC and its subsidiaries are collectively referred to
as the "Company".
On February 12, 1998, ONLIC's Board of Directors approved a plan of
reorganization for the Company under the provision of sections
3913.25 to 3913.38 of the Ohio Revised Code relating to mutual
insurance holding companies. The plan of reorganization must be
approved by the Company's policyholders and by the Ohio Department
of Insurance before it is effective.
ONLIC and ONLAC are life and health insurers licensed in 47 states, the
District of Columbia and Puerto Rico. The Company offers a full
range of life, health and annuity products through exclusive
agents and other distribution channels and is subject to
competition from other insurers throughout the United States. The
Company is subject to regulation by the Insurance Departments of
states in which it is licensed and undergoes periodic examinations
by those departments.
The following is a description of the most significant risks facing life
and health insurers and how the Company mitigates those risks:
Legal/Regulatory Risk is the risk that changes in the legal or
regulatory environment in which an insurer operates will create
additional expenses not anticipated by the insurer in pricing its
products. That is, regulatory initiatives designed to reduce
insurer profits, new legal theories or insurance company
insolvencies through guaranty fund assessments may create costs
for the insurer beyond those recorded in the consolidated
financial statements. The Company mitigates this risk by offering
a wide range of products and by operating throughout the United
States, thus reducing its exposure to any single product or
jurisdiction, and also by employing underwriting practices which
identify and minimize the adverse impact of this risk.
Credit Risk is that risk that issuers of securities owned by the
Company or mortgagors on mortgage loans on real estate owned by
the Company will default or that other parties, including
reinsurers, which owe the Company money, will not pay. The Company
minimizes this risk by adhering to a conservative investment
strategy, by maintaining sound reinsurance and credit and
collection policies and by providing for any amounts deemed
uncollectible.
(Continued)
<PAGE> 7
2
THE OHIO NATIONAL LIFE INSURANCE COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(1) Organization, Consolidation Policy and Business Description, Continued
Interest Rate Risk is the risk that interest rates will change and
cause a decrease in the value of an insurer's investments. This
change in rates may cause certain interest-sensitive products to
become uncompetitive or may cause disintermediation. The Company
mitigates this risk by charging fees for non-conformance with
certain policy provisions, by offering products that transfer this
risk to the purchaser, and/or by attempting to match the maturity
schedule of its assets with the expected payouts of its
liabilities. To the extent that liabilities come due more quickly
than assets mature, an insurer would have to borrow funds or sell
assets prior to maturity and potentially recognize a gain or loss.
(2) Summary of Significant Accounting Policies
The significant accounting policies followed by the Company that
materially affect financial reporting are summarized below. The
accompanying consolidated financial statements have been prepared
in accordance with generally accepted accounting principles (GAAP)
which differ from statutory accounting practices prescribed or
permitted by regulatory authorities (see Note 3).
(a) Valuation of Investments and Related Gains and Losses
Fixed maturity securities are classified as held-to-maturity when
the Company has the positive intent and ability to hold the
securities to maturity and are stated at amortized cost.
Fixed maturity securities not classified as held-to-maturity
and all equity securities are classified as
available-for-sale and are stated at fair value, with the
unrealized gains and losses, net of adjustments to deferred
policy acquisition costs and deferred Federal income tax,
reported as a separate component of equity that would have
been required as a charge or credit to operations had such
unrealized amounts been realized. The Company has no trading
securities.
Mortgage loans on real estate are carried at the unpaid principal
balance less valuation allowances. The Company provides
valuation allowances for impairments of mortgage loans on
real estate based on a review by portfolio managers. The
measurement of impaired loans is based on the present value
of expected future cash flows discounted at the loan's
effective interest rate or, at the fair value of the
collateral, if the loan is collateral dependent. Loans in
foreclosure and loans considered to be impaired as of the
balance sheet date are placed on non-accrual status and
written down to the fair value of the existing property to
derive a new cost basis. Cash receipts on non-accrual status
mortgage loans on real estate are included in interest income
in the period received.
(Continued)
<PAGE> 8
3
THE OHIO NATIONAL LIFE INSURANCE COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(2) Summary of Significant Accounting Policies, Continued
(a) Valuation of Investments and Related Gains and Losses, Continued
Real estate is carried at cost less accumulated depreciation and
valuation allowances. Other long-term investments are carried
on the equity basis, adjusted for valuation allowances.
Realized gains and losses on the sale of investments are
determined on the basis of specific security identification.
Estimates for valuation allowances and other than temporary
declines are included in realized gains and losses on
investments.
(b) Revenues and Benefits
Traditional life insurance products include those products with
fixed and guaranteed premiums and benefits and consist
primarily of whole life, limited-payment life, term life and
certain annuities with life contingencies. Premiums for
traditional life insurance products are recognized as revenue
when due and collected. Benefits and expenses are associated
with earned premiums so as to result in recognition of
profits over the life of the contract. This association is
accomplished by the provision for future policy benefits and
the deferral and amortization of policy acquisition costs.
Universal life products include universal life, variable universal
life and other interest-sensitive life insurance policies.
Investment products consist primarily of individual and group
deferred annuities, annuities without life contingencies and
guaranteed investment contracts. Revenues for universal life
and investment products consist of net investment income and
cost of insurance, policy administration and surrender
charges that have been earned and assessed against policy
account balances during the period. Policy benefits and
claims that are charged to expense include benefits and
claims incurred in the period in excess of related policy
account balances, maintenance costs and interest credited to
policy account balances.
Accident and health insurance premiums are recognized as revenue
in accordance with the terms of the policies. Policy claims
are charged to expense in the period that the claims are
incurred.
(c) Deferred Policy Acquisition Costs
The costs of acquiring new business, principally commissions,
certain expenses of the policy issue and underwriting
department and certain variable agency expenses have been
deferred. For traditional non-participating life insurance
products, these deferred acquisition costs are predominantly
being amortized with interest over the premium paying period
of the related policies in proportion to premium revenue.
Such anticipated premium revenue was estimated using the same
assumptions as were used for computing liabilities
(Continued)
<PAGE> 9
4
THE OHIO NATIONAL LIFE INSURANCE COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(2) Summary of Significant Accounting Policies, Continued
(c) Deferred Policy Acquisition Costs, Continued
for future policy benefits. For participating life insurance
products, deferred policy acquisition costs are being
amortized in proportion to gross margins of the related
policies. Gross margins are determined for each issue year
and are equal to premiums plus investment income less death
claims, surrender benefits, administrative costs, expected
policyholder dividends, and the increase in reserve for
future policy benefits. For universal life and investment
products, deferred policy acquisition costs are being
amortized with interest over the lives of the policies in
relation to the present value of the estimated future gross
profits from projected interest margins, cost of insurance,
policy administration and surrender charges. Deferred policy
acquisition costs for participating life and universal life
business are adjusted to reflect the impact of unrealized
gains and losses on fixed maturity securities
available-for-sale (see Note 2(a)).
(d) Separate Accounts
Separate Account assets and liabilities represent contractholders'
funds which have been segregated into accounts with specific
investment objectives. The investment income and gains or
losses of these accounts accrue directly to the
contractholders. The activity of the Separate Accounts is not
reflected in the consolidated statements of income and cash
flows except for the fees the Company receives for
administrative services and risks assumed. Amounts provided
by the Company to establish Separate Account investment
portfolios, seed money, are not included in Separate Account
liabilities.
(e) Future Policy Benefits
Future policy benefits for traditional life have been calculated
using a net level premium method based on estimates of
mortality, morbidity, investment yields and withdrawals which
were used or which were being experienced at the time the
policies were issued, rather than the assumptions prescribed
by state regulatory authorities (see Note 5).
Future policy benefits for annuity policies in the accumulation
phase, universal life and variable universal life policies
have been calculated based on participants' aggregate account
values.
(Continued)
<PAGE> 10
5
THE OHIO NATIONAL LIFE INSURANCE COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(2) Summary of Significant Accounting Policies, Continued
(f) Participating Business
Participating business represents approximately 42% of the
Company's ordinary life insurance in force in 1997. In 1996
and 1995, participating business represented approximately
43% and 45%, respectively, of the Company's ordinary life
insurance in force. The provision for policyholder dividends
is based on current dividend scales. Future dividends are
provided for in future policy benefits based on dividend
scales in effect as of December 31, 1997.
(g) Reinsurance Ceded
Reinsurance premiums ceded and reinsurance recoveries on benefits
and claims incurred are deducted from the respective income
and expense accounts. Assets and liabilities related to
reinsurance ceded are reported on a gross basis.
(h) Federal Income Tax
The Company files a consolidated Federal income tax return. The
Company uses the asset and liability method of accounting for
income tax. Under the asset and liability method, deferred
tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the
financial statement carrying amounts of existing assets and
liabilities and their respective tax bases and operating loss
and tax credit carryforwards. Deferred tax assets and
liabilities are measured using enacted tax rates expected to
apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. Under
this method, the effect on deferred tax assets and
liabilities of a change in tax rates is recognized in income
in the period that includes the enactment date. Valuation
allowances are established when necessary to reduce the
deferred tax assets to the amounts expected to be realized.
(i) Cash Equivalents
For purposes of the consolidated statements of cash flows, the
Company considers all short-term investments with original
maturities of three months or less to be cash equivalents.
(j) Use of Estimates
In preparing the consolidated financial statements, management is
required to make estimates and assumptions that affect the
reported amounts of assets and liabilities and the disclosure
of contingent assets and liabilities as of the date of the
consolidated financial statements and revenues and expenses
for the reporting period. Actual results could differ
significantly from those estimates.
(Continued)
<PAGE> 11
6
THE OHIO NATIONAL LIFE INSURANCE COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(2) Summary of Significant Accounting Policies, Continued
(j) Use of Estimates, Continued
The estimates susceptible to significant change are those used in
determining deferred policy acquisition costs, the liability
for future policy benefits and claims and contingencies, and
those used in determining valuation allowances for mortgage
loans on real estate and real estate. Although some
variability is inherent in these estimates, management
believes the amounts provided are adequate.
(k) Reclassifications
Certain amounts in the 1996 and 1995 financial statements have
been reclassified to conform with 1997 presentation.
(3) Basis of Presentation
The consolidated financial statements have been prepared in accordance
with GAAP. Annual Statements on ONLIC and ONLAC, filed with the
Department of Insurance of the State of Ohio, are prepared on the
basis of accounting practices prescribed or permitted by such
regulatory authorities. Prescribed statutory accounting practices
include a variety of publications of the National Association of
Insurance Commissioners (NAIC), as well as state laws, regulations
and general administrative rules. Permitted statutory accounting
practices encompass all accounting practices not so prescribed.
The Company has no material permitted statutory accounting
practices.
The following reconciles the statutory net income of ONLIC as reported to
regulatory authorities to the net income as shown in the
accompanying consolidated financial statements:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Statutory net income $ 53,696 44,503 24,468
Adjustments to restate to the basis of GAAP:
Increase in deferred policy acquisition costs, net 25,399 24,018 19,485
Future policy benefits (14,868) (14,050) (10,723)
Deferred Federal income tax 2,101 4,571 6,330
Valuation allowances and other than temporary
declines accounted for directly in surplus 1,974 990 (5,829)
Interest maintenance reserve 791 383 (208)
Other, net (2,006) (812) 5,394
-------- ------ ------
Net income per accompanying consolidated
statements of income $ 67,087 59,603 38,917
======== ====== ======
</TABLE>
(Continued)
<PAGE> 12
7
THE OHIO NATIONAL LIFE INSURANCE COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(3) Basis of Presentation, Continued
The following reconciles the statutory capital and surplus of ONLIC as
reported to regulatory authorities to the equity as shown in the
accompanying consolidated financial statements:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Statutory capital and surplus $ 362,565 313,746
Add (deduct) cumulative effect of adjustments:
Deferred policy acquisition costs 250,942 246,643
Asset valuation reserve 94,391 77,604
Interest maintenance reserve 23,163 22,372
Future policy benefits (86,186) (71,318)
Deferred Federal income tax (65,380) (37,252)
Difference between amortized cost and fair value of fixed
maturity securities available-for-sale, gross 162,586 70,985
Surplus note (84,234) (84,191)
Other, net (19,602) (23,580)
--------- --------
Equity per accompanying consolidated balance sheets $ 638,245 515,009
========= ========
</TABLE>
(4) Investments
An analysis of investment income and realized gains/(losses) by
investment type follows for the years ended December 31:
<TABLE>
<CAPTION>
Realized gains (losses)
Investment income on disposition of investments
------------------------------------- -------------------------------------
1997 1996 1995 1997 1996 1997
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Securities available-for-sale:
Fixed maturities $207,377 203,271 105,928 $ 2,056 3,168 (1,062)
Equity securities 2,793 4,021 3,710 38 4,077 459
Fixed maturities held-to-mature 62,348 61,509 149,465 2,539 1,304 2,319
Mortgage loans on real estate 103,566 89,391 76,608 1,863 1,262 548
Real estate 6,123 8,693 7,771 4,418 (605) 813
Policy Loans 9,834 9,420 9,096 -- -- --
Short-term 5,010 3,419 3,779 -- -- --
Other 6,612 5,042 6,808 (387) (1,434) --
-------- ------- ------- ------- ----- ------
Total 403,663 384,766 363,165 10,527 7,772 3,077
(Deduct) Add:
Investment expenses (13,116) (14,064) (8,138)
Valuation allowances:
Mortgage loans on real estate (63) 926 (6,462)
Real estate and other 2,036 63 634
------- ----- ------
1,973 989 (5,828)
-------- ------- -------
Net investment income $390,547 370,702 355,027
======== ======= =======
Net realized gains (losses)
on disposition of
investments ------- ----- ------
$12,500 8,761 (2,751)
======= ===== ======
</TABLE>
(Continued)
<PAGE> 13
8
THE OHIO NATIONAL LIFE INSURANCE COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(4) Investments, Continued
The amortized cost and estimated fair value of securities available-for-
sale and fixed maturities held-to-maturity were as follows:
<TABLE>
<CAPTION>
December 31, 1997
-----------------------------------------------------------
Gross Gross
Amortized unrealized unrealized Estimated
cost gains losses fair value
------------- -------------- ----------- ---------------
<S> <C> <C> <C> <C>
Securities available-for-sale
Fixed maturities:
U.S. Treasury securities and obligations of
U.S. government operations and agencies $ 125,785 7,976 (184) 133,577
Obligations of states and political 53,646 4,449 (90) 58,005
subdivisions
Debt securities issued by foreign - - - -
governments
Corporate securities 1,657,487 128,028 (1,565) 1,783,950
Mortgage-backed securities 688,343 25,142 (1,170) 712,315
----------- ------- ------- ---------
Total fixed maturities $ 2,525,261 165,595 (3,009) 2,687,847
=========== ======= ======= =========
Equity securities $ 41,423 41,369 (809) 81,983
=========== ======= ======= =========
Fixed maturity securities held-to-maturity
Obligations of states and political $ 15,018 1,551 (403) 16,166
subdivisions
Corporate securities 695,480 69,463 (3,248) 761,695
Mortgage-backed securities 14,394 775 (47) 15,122
----------- ------- ------- --------
$ 724,892 71,789 (3,698) 792,983
=========== ======= ======= ========
</TABLE>
<TABLE>
<CAPTION>
December 31, 1996
---------------------------------------------------------
Gross Gross
Amortized unrealized unrealized Estimated
cost gains losses fair value
------------ -------------- ------------- --------------
<S> <C> <C> <C> <C>
Securities available-for-sale
Fixed maturities:
U.S. Treasury securities and obligations of
U.S. government operations and agencies $ 176,364 3,703 (4,321) 175,746
Obligations of states and political 29,119 1,538 (229) 30,428
subdivisions
Debt securities issued by foreign 8,078 1,920 - 9,998
governments
Corporate securities 1,675,596 75,859 (14,097) 1,737,358
Mortgage-backed securities 612,408 12,528 (5,916) 619,020
----------- ------ ------- ---------
Total fixed maturities $ 2,501,565 95,548 (24,563) 2,572,550
=========== ====== ======= =========
Equity securities $ 39,175 24,588 - 63,763
=========== ====== ======= =========
Fixed maturity securities held-to-maturity
Obligations of states and political $ 8,659 218 - 8,877
divisions
Corporate securities 677,161 58,366 (4,785) 730,742
Mortgage-backed securities 6,752 177 (102) 6,827
----------- ------ ------- ---------
$ 692,572 58,761 (4,887) 746,446
=========== ====== ======= =========
</TABLE>
(Continued)
<PAGE> 14
9
THE OHIO NATIONAL LIFE INSURANCE COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(4) Investments, Continued
The components of unrealized gains on securities available-for-sale, net,
were as follows for the years ended December 31:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Gross unrealized gain $ 203,146 95,573
Adjustment to deferred policy acquisition costs (41,350) (20,250)
Deferred federal income tax (58,840) (28,516)
========= =======
$ 102,956 46,807
========= =======
</TABLE>
The net unrealized gain on securities available for sale includes a net
unrealized gain on equity securities of $24,715 in 1997
($14,256 in 1996) and a net unrealized gain on fixed maturities
(net SFAS 115 and related transactions) of $78,241 in 1997
($32,551 in 1996).
An analysis of the change in gross unrealized gains (losses) on
securities available-for-sale and fixed maturities
held-to-maturity follows for the years ended December 31:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Securities available-for-sale:
Fixed maturities $ 91,601 (95,101) 209,108
Equity securities 15,972 4,769 13,046
Fixed maturities held-to-maturity 14,217 (39,811) 148,026
</TABLE>
The amortized cost and estimated fair value of fixed maturity securities
available-for-sale and fixed maturity securities held-to-maturity
as of December 31, 1997, by contractual maturity, are shown below.
Expected maturities will differ from contractual maturities
because borrowers may have the right to call or prepay obligations
with or without call or prepayment penalties.
<TABLE>
<CAPTION>
Fixed Maturity Securities
----------------------------------------------------------------
Available-for-Sale Held-to-Maturity
------------------------------- -----------------------------
Amortized Estimated Amortized Estimated
cost fair value cost fair value
------------- ------------- ------------ ------------
<S> <C> <C> <C> <C>
Due in one year or less $ 61,648 67,102 24,188 26,457
Due after one year through five years 382,609 407,099 188,535 206,249
Due after five years through ten years 912,222 970,410 334,080 365,474
Due after ten years 1,168,782 1,243,236 178,089 194,803
============ ========= ======= =======
$ 2,525,261 2,687,847 724,892 792,983
============ ========= ======= =======
</TABLE>
(Continued)
<PAGE> 15
10
THE OHIO NATIONAL LIFE INSURANCE COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(4) Investments, Continued
Proceeds from the sale of securities available-for-sale (excludes calls)
during 1997, 1996 and 1995 were $51,770, $74,977, and $46,372,
respectively. Gross gains of $203 ($1,667 in 1996 and $510 in
1995) and gross losses of $283 ($534 in 1996 and $2,293 in 1995)
were realized on those sales.
Investments with an amortized cost of $7,700 and $6,857 as of
December 31, 1997 and 1996, respectively, were on deposit with
various regulatory agencies as required by law.
Real estate is presented at cost less accumulated depreciation of
$11,172 in 1997 ($20,405 in 1996) and valuation allowances of $0
in 1997 and $2,100 in 1996.
The Company generally initiates foreclosure proceedings on all mortgage
loans on real estate delinquent sixty days. There were no
foreclosures of mortgage loans on real estate in 1997 and one
mortgage loan on real estate of $570 in process of foreclosure as
of December 31, 1997. In 1996, foreclosures of mortgage loans on
real estate totaled $4,099.
(5) Future Policy Benefits and Claims
The liability for future policy benefits for universal life insurance
policies and investment contracts (approximately 68% of the total
liability for future policy benefits as of December 31, 1997 and
1996) has been established based on accumulated contract values
without reduction for surrender penalty provisions. The average
interest rate credited on investment product policies was 6.8%,
6.8% and 7.0% for the years ended December 31, 1997, 1996 and
1995, respectively.
The liability for future policy benefits for traditional life policies
has been established based upon the net level premium method using
the following assumptions:
Interest rates: Interest rates vary as follows:
Year of issue Interest Rate
------------- -------------
1997, 1996 and 1995 4 - 5.5%
1994 and prior 2.25 - 6.0%
Withdrawals: Rates, which vary by issue age, type of coverage
and policy duration, are based on Company experience
Mortality: Mortality and morbidity rates are based on published
tables, guaranteed in insurance contracts.
(Continued)
<PAGE> 16
11
THE OHIO NATIONAL LIFE INSURANCE COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(6) Notes Payable
On July 11, 1994, the Company issued $50,000, 8.875% surplus notes, due
July 15, 2004. On May 21, 1996, the Company issued $50,000,
8.5% surplus notes, due May 15, 2026. Concurrent with the issue of
the new notes, $15,000 of the notes issued on July 11, 1994 were
retired. Total interest paid was $7,356, $6,290 and $4,437 during
the years ended December 31, 1997, 1996 and 1995, respectively.
The notes have been issued in accordance with Section 3941.13 of the
Ohio Revised Code. Interest payments, scheduled semi-annually,
must be approved for payment by the Director of the Department of
Insurance of the State of Ohio. All issuance costs have been
capitalized and are being amortized over the terms of the notes.
(7) Federal Income Tax
Prior to 1984, the Life Insurance Company Income Tax Act of 1959, as
amended by the Deficit Reduction Act of 1984 (DRA), permitted the
deferral from taxation of a portion of statutory income under
certain circumstances. In these situations, the deferred income
was accumulated in the Policyholders' Surplus Account (PSA).
Management considers the likelihood of distributions from the PSA
to be remote; therefore, no Federal income tax has been provided
for such distributions in the financial statements. The DRA
eliminated any additional deferrals to the PSA. Any distributions
from the PSA, however, will continue to be taxable at the then
current tax rate. The pre-tax balance of the PSA is approximately
$5,257 as of December 31, 1997.
Total income taxes for the years ended December 31, 1997, 1996 and 1995
were allocated as follows:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Income from continuing operations $ 39,272 32,872 24,903
Equity for unrealized gains (loss) on securities
available for sale 30,324 (22,045) 46,540
======== ======= ======
$ 69,596 10,827 71,443
======== ======= ======
</TABLE>
(Continued)
<PAGE> 17
12
THE OHIO NATIONAL LIFE INSURANCE COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(7) Federal Income Tax, Continued
Total Federal income tax expense for the years ended December 31, 1997,
1996 and 1995 differs from the amount computed by applying the
U.S. Federal income tax rate to income before tax as follows:
<TABLE>
<CAPTION>
1997 1996 1995
----------------------- ----------------------- -----------------------
Amount % Amount % Amount %
------------ --------- ------------ --------- ------------ ---------
<S> <C> <C> <C> <C> <C> <C>
Computed (expected)
tax expense $ 37,226 35.0 32,366 35.0 22,337 35.0
Differential earnings 3,720 3.5 3,616 3.9 5,676 8.9
Dividends received
deduction and tax
exempt interest (1,406) (1.3) (1,440) (1.6) (1,585) (2.5)
Other, net (268) (0.3) (1,670) (1.8) (1,525) (2.4)
-------- ---- ------ ---- ------ ----
$ 39,272 36.9 32,872 35.5 24,903 39.0
======== ==== ====== ==== ====== ====
</TABLE>
Total Federal income tax paid was $43,522, $44,823 and $21,145 during
the years ended December 31, 1997, 1996 and 1995, respectively.
The tax effects of temporary differences between the financial
statement carrying amounts and tax basis of assets and liabilities
that give rise to significant components of the net deferred tax
liability as of December 31, 1997 and 1996 relate to the
following:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Deferred tax assets:
Future policy benefits $ 57,903 51,461
Mortgage loans on real estate 1,986 1,950
Other assets and liabilities 14,063 11,650
--------- ---------
Total gross deferred tax assets 73,952 65,061
--------- ---------
Deferred tax liabilities:
Fixed maturity securities available-for-sale 57,290 25,604
Deferred policy acquisition costs 66,844 67,603
Other fixed maturities, equity securities and other
long-term investments 14,286 8,343
Other 912 763
--------- ---------
Total gross deferred tax liabilities 139,332 102,313
========= =========
Net deferred tax liability $ 65,380 37,252
========= =========
</TABLE>
The Company has determined that a deferred tax asset valuation allowance
was not needed as of December 31, 1997 and 1996. In assessing the
realization of deferred tax assets, management considers whether
it is more likely than not that the deferred tax assets will be
realized. The
(Continued)
<PAGE> 18
13
THE OHIO NATIONAL LIFE INSURANCE COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(7) Federal Income Tax, Continued
ultimate realization of deferred tax assets is dependent upon the
generation of future taxable income during the periods in which
those temporary differences become deductible. Management
considers primarily the scheduled reversal of deferred tax
liabilities and tax planning strategies in making this assessment
and believes it is more likely than not the Company will realize
the benefits of the deductible differences remaining as of
December 31, 1997.
(8) Disclosures about Fair Value of Financial Instruments
Statement of Financial Accounting Standards No. 107, Disclosures about
Fair Value of Financial Instruments (SFAS 107) requires disclosure
of fair value information about existing on and off-balance sheet
financial instruments. SFAS 107 excludes certain assets and
liabilities, including insurance contracts, other than policies
such as annuities that are classified as investment contracts,
from its disclosure requirements. Accordingly, the aggregate fair
value amounts presented do not represent the underlying value of
the Company. The tax ramifications of the related unrealized gains
and losses can have a significant effect on fair value estimates
and have not been considered in the estimates.
The following methods and assumptions were used by the Company in
estimating its fair value disclosures:
Cash, Short-Term Investments and Policy Loans - The carrying
amount reported in the balance sheets for these instruments
approximate their fair value.
Investment Securities - Fair value for equity securities and fixed
maturity securities are the same as market value. Market value
generally represents quoted market prices traded in the public
market place. For fixed maturity securities not actively traded,
or in the case of private placements, fair value is estimated by
discounting expected future cash flows using a current market rate
applicable to the yield, credit quality and maturity of
investments.
Separate Account Assets and Liabilities - The fair value of assets
held in Separate Accounts is based on quoted market prices. The
fair value of liabilities related to Separate Accounts is the
accumulated contract values in the Separate Account portfolios.
Mortgage Loans on Real Estate - The fair value for mortgage loans
on real estate is estimated using discounted cash flow analyses,
using interest rates currently being offered for similar loans to
borrowers with similar credit ratings. Loans with similar
characteristics are aggregated for purposes of the calculations.
(Continued)
<PAGE> 19
14
THE OHIO NATIONAL LIFE INSURANCE COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(8) Disclosures about Fair Value of Financial Instruments, Continued
Investment Contracts - Fair value for the Company's liabilities
under investment type contracts is disclosed using two methods.
For investment contracts without defined maturities, fair value is
the amount payable on demand. For investment contracts with known
or determined maturities, fair value is estimated using discounted
cash flow analysis. Interest rates used are similar to currently
offered contracts with maturities consistent with those remaining
for the contracts being valued.
Note Payable - The fair value for the note payable was determined
by discounting the scheduled cash flows of the note using a market
rate applicable to the yield, credit quality and maturity of a
similar debt instrument.
Policyholders' Dividend Accumulation and Other Policyholder Funds
- The carrying amount reported in the consolidated balance sheets
for these instruments approximates their fair value.
The carrying amount and estimated fair value of financial instruments
subject to SFAS 107 were as follows as of December 31:
<TABLE>
<CAPTION>
1997 1996
----------------------------- -----------------------------
Carrying Estimated Carrying Estimated
Assets amount fair value amount fair value
-------------- -------------- -------------- ------------
<S> <C> <C> <C> <C>
Investments:
Securities available-for-sale:
Fixed maturities $ 2,687,847 2,687,847 2,572,550 2,572,550
Equity securities 81,983 81,983 63,763 63,763
Fixed maturities held-to-
maturity 724,892 792,983 692,572 746,446
Mortgage loans on real estate 1,230,256 1,324,735 1,087,287 1,130,717
Policy loans 153,348 153,348 151,229 151,229
Short-term investments 37,509 37,509 36,016 36,016
Cash 14,012 14,012 33,712 33,712
Assets held in Separate Accounts 916,790 916,790 661,871 661,871
Liabilities
Guaranteed investment contracts $ 1,041,271 1,050,429 1,028,129 1,025,298
Individual deferred annuity contracts 1,088,355 1,056,643 1,081,048 1,056,372
Other annuity contracts 921,100 957,977 910,941 911,897
Note payable 84,234 95,544 84,191 90,037
Dividend accumulations and
other policyholder funds 79,492 79,492 79,735 79,735
Liabilities related to separate 887,542 887,542 648,634 648,634
accounts
</TABLE>
(Continued)
<PAGE> 20
15
THE OHIO NATIONAL LIFE INSURANCE COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(9) Additional Financial Instruments Disclosure
(a) Financial Instruments with Off-Balance-Sheet Risk
The Company is a party to financial instruments with off-balance-
sheet risk in a normal course of business through management
of its investment portfolio. The Company had outstanding
commitments to fund mortgage loans, bonds and venture capital
partnerships of approximately $144,000 and $182,000 as of
December 31, 1997 and 1996, respectively. These commitments
involve, in varying degrees, elements of credit and market
risk in excess of amounts recognized in the financial
statements. The credit risk of all financial instruments,
whether on- or off-balance sheet, is controlled through
credit approvals, limits, and monitoring procedures.
(b) Significant Concentrations of Credit Risk
Mortgage loans are collateralized by the underlying properties.
Collateral must meet or exceed 125% of the loan at the time
the loan is made. The Company grants mainly commercial
mortgage loans to customers throughout the United States. The
Company has a diversified loan portfolio, and total loans in
any state do not exceed 10% of the total loan portfolio as of
December 31, 1997. The summary below depicts loan exposure of
remaining principal balances by type as of December 31, 1997
and 1996:
<TABLE>
<CAPTION>
1997 1996
Mortgage assets by type ---- ----
-----------------------
<S> <C> <C>
Office $ 345,313 300,158
Retail 332,621 291,341
Apartment 297,647 251,720
Industrial 159,425 152,175
Other 104,886 101,467
---------- ----------
1,239,892 1,096,861
Less valuation allowances 9,636 9,574
---------- ----------
Total mortgage loans on real estate, net $1,230,256 1,087,287
========== ==========
</TABLE>
(10) Pension Plans
The Company sponsors pension plans covering all eligible employees and
certain general agents. Retirement benefits are based on years of
service and either the highest average earnings in five of the
last ten years or specific elements of compensation earned in the
last five and ten years of service. Other pension plans covering
employees where benefits exceed 401(a)(17) and Code 415 limits are
also in effect.
(Continued)
<PAGE> 21
16
THE OHIO NATIONAL LIFE INSURANCE COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(10) Pension Plans, Continued
The net periodic pension cost for the plans for the years ended
December 31, 1997, 1996 and 1995 follows:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Service cost (benefits earned
during the period) $ 2,596 2,169 1,725
Interest cost on projected
benefit obligations 3,072 2,896 2,720
Actual return on plan assets (2,269) (2,447) (2,811)
Net amortization and deferral 466 904 1,639
======== ======= =======
Net periodic pension cost $ 3,865 3,522 3,273
======== ======= =======
</TABLE>
Basis for measurements, net periodic pension cost:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Weighted average discount rate 6.70% 6.25% 6.90%
Rate of increase in future compensation levels 5.50% 5.50% 4.75%
Expected long-term rate of return on plan assets 9.00% 8.50% 7.25%
</TABLE>
The following table sets forth the funded status and amounts
recognized in the accompanying consolidated financial statements
as of December 31, 1997 and 1996 for the Company's pension plans.
<TABLE>
<CAPTION>
Assets Exceed Accumulated Benefits
Accumulated Benefits Exceed Assets
-------------------------- --------------------------
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Accumulated benefit obligation:
Vested $ 17,551 15,585 13,675 10,747
Nonvested 353 247 631 661
========= ========= ========= ========
$ 17,904 15,832 14,306 11,408
========= ========= ========= ========
Projected benefit obligation for services rendered
to date $ 27,283 24,434 18,300 14,614
Plan assets at fair value 24,597 23,807 257 243
--------- --------- --------- --------
Plan assets less projected benefit
obligation (2,686) (627) (18,043) (14,371)
Unrecognized prior service cost (1,617) (1,741) 31 35
Unrecognized net losses 5,677 3,783 3,010 375
Unrecognized net transitional assets (2,138) (2,375) 2,911 3,202
Amount to recognize additional liability - - (2,471) (1,537)
========= ========= ========= ========
Net pension liability $ (764) (960) (14,562) (12,296)
========= ========= ========= ========
Measurement basis:
Weighted average discount rate 5.90% 6.50% 6.40% 7.00%
Rate of increase in future compensation levels 6.00% 6.00% 4.60% 4.60%
</TABLE>
(Continued)
<PAGE> 22
17
THE OHIO NATIONAL LIFE INSURANCE COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(10) Pension Plans, Continued
Career Agent and Other Plans
Contributions to the Career Agent's Pension Plan are subject to the
minimum funding required under Internal Revenue Code Section 412.
The expense reported for contributions to the plan for 1997, 1996,
and 1995 were $576, $590, and $497, respectively.
The Company has other deferred compensation and supplemental pension
plans. The expenses for these plans in 1997, 1996 and 1995 were
$3,949, $2,950 and $1,936, respectively.
The Company also maintains a qualified contributory defined contribution
profit sharing plan covering substantially all of its employees.
Company contributions to the Profit Sharing Plan are in part based on the
net earnings of the Company and are payable at the sole discretion
of management. The expense reported for contributions to the plan
for 1997, 1996, and 1995 were $1,825, $1,614 and $1,609,
respectively.
(11) Postretirement Benefits Other Than Pensions
The Company currently offers eligible retirees the opportunity to
participate in a health plan. The Company has two health plans,
one is offered to home office employees, the other is offered to
career agents.
Home Office Employee Health Plan
The Company provides a declining service schedule. Only home
office employees hired prior to January 1, 1996, may become
eligible for these benefits provided that the employee meets the
age and years of service requirements. The plan states that an
employee becomes eligible as follows: age 55 with 20 years of
credited service at retirement, age 56 with 18 years of service,
age 57 with 16 years of service grading to age 64 with two years
of service. The health plan is contributory with retirees
contributing approximately 15% of premium for coverage.
Career Agents Health Plan
Only career agents with contracts effective prior to January 1,
1996, may become eligible for these benefits provided that the
agent is at least age 55 and has 15 years of credited service at
retirement. The health plan is contributory, with retirees
contributing approximately 47% of medical costs.
(Continued)
<PAGE> 23
18
THE OHIO NATIONAL LIFE INSURANCE COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(11) Postretirement Benefits Other Than Pensions, Continued
Actuarial assumptions for the measurement of the December 31, 1997
accumulated postretirement benefit obligation include a discount
rate of 6.9% (7.5% in 1996 and 1995) and an assumed health care
cost trend rate of 10% (11% in 1996 and 12% in 1995), declining 1%
each year to an ultimate rate of 5%.
Information regarding the funded status of the plan as a whole as of
December 31, 1997 and 1996 follows:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Accumulated postretirement benefit obligations:
Retirees $ 3,034 2,926
Fully eligible, active plan participants 1,235 1,051
Other active plan participants 2,734 2,256
-------- --------
Accumulated postretirement benefit obligation 7,003 6,233
Unrecognized net gains 1,651 2,066
Unrecognized plan amendments 5,918 6,285
======== ========
Accrued postretirement benefit obligation $ 14,572 14,584
======== ========
</TABLE>
The amount of net periodic postretirement benefit cost for the plan as a
whole for the years ended December 31, 1997 and 1996 is as
follows:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Net periodic postretirement benefit cost:
Service cost - benefits attributed to
employee service during the year $ 301 467 497
Interest cost on accumulated postretirement
benefit obligation 468 768 869
Actual return on plan assets - - -
Net amortization and deferral (474) (199) (82)
======= ====== =======
Net periodic postretirement benefit cost $ 295 1,036 1,284
======= ====== =======
</TABLE>
The health care cost trend rate assumption has a significant effect on
the amounts reported. A one percentage point increase in the
assumed health care cost trend rate would increase the accumulated
postretirement benefit obligation as of December 31, 1997 and 1996
by $1,078 and $943, respectively, and the net periodic
postretirement benefit cost for the years ended December 31, 1997,
1996, and 1995 by $36, $111 and $149, respectively.
(Continued)
<PAGE> 24
19
THE OHIO NATIONAL LIFE INSURANCE COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(12) Regulatory Risk-Based Capital, Retained Earnings and Dividend
Restrictions
ONLIC and ONLAC exceed the minimum risk-based capital requirements as
established by the NAIC as of December 31, 1997.
The Company has designated a portion of retained earnings for separate
account contingencies and investment guarantees totaling $1,673
and $1,688 as of December 31, 1997 and 1996, respectively.
The payment of dividends by the Company to its participating
policyholders is based on the dividend scale declared at least
annually by the Company's Board of Directors.
(13) Bank Lines of Credit
As of December 31, 1997 and 1996, ONLIC had a $10,000 unsecured line of
credit which was not utilized during 1997 and 1996.
(14) Contingencies
The Company and its subsidiaries are defendants in various legal actions
arising in the normal course of business. While the outcome of
such matters cannot be predicted with certainty, management
believes such matters will be resolved without material adverse
impact on the financial condition of the Company.
The Company routinely enters into reinsurance transactions with other
insurance companies which are not material to the consolidated
financial statements. This reinsurance involves either ceding
certain risks to or assuming risks from other insurance companies.
The primary purpose of ceded reinsurance is to protect the Company
from potential losses in excess of levels that it is prepared to
accept. Reinsurance does not discharge the Company from its
primary liability to policyholders and to the extent that a
reinsurer should be unable to meet its obligations, the Company
would be liable to policyholders. The Company has reinsurance
recoverables of $61,862 and $52,260 at December 31, 1997 and 1996,
respectively. Ceded premiums approximated 11%, 11%, and 10% of
gross earned life and accident and health premiums during 1997,
1996 and 1995, respectively.
(15) Major Lines of Business
The Company operates in the life and annuity lines of business in the
life insurance industry. Life insurance operations include whole
life, universal life, variable universal life, and endowments, as
well as term life, health insurance, and other miscellaneous
insurance products provided to individuals and groups. Annuity
operations include guaranteed investment and accumulated deposit
contracts issued to groups and deferred and immediate annuities
issued to individuals.
(Continued)
<PAGE> 25
20
THE OHIO NATIONAL LIFE INSURANCE COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(15) Major Lines of Business, Continued
The following table summarizes the revenues and income before Federal
income tax for the years ended December 31, 1997, 1996 and 1995
and assets as of December 31, 1997, 1996 and 1995, by line of
business.
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Revenues:
Premiums, policy charges and net investment income:
Life and other insurance $ 314,379 295,860 270,782
Annuities 307,377 284,418 280,853
---------- --------- ---------
621,756 580,278 551,635
---------- --------- ---------
Realized capital gains (losses):
Life and other insurance 7,892 3,330 (771)
Annuities 4,608 5,431 (1,980)
---------- --------- ---------
12,500 8,761 (2,751)
---------- --------- ---------
Total revenues:
Life and other insurance 322,271 299,190 270,011
Annuities 311,985 289,849 278,873
---------- --------- ---------
$ 634,256 589,039 548,884
========== ========= =========
Total income before Federal income tax:
Life and other insurance $ 49,013 45,057 33,475
Annuities 57,346 47,418 30,345
========== ========= =========
$ 106,359 92,475 63,820
========== ========= =========
Assets:
Life and other insurance $2,972,192 2,522,004 2,213,391
Annuities 3,358,370 3,259,585 3,078,984
========== ========= =========
$6,330,562 5,781,589 5,292,375
========== ========= =========
</TABLE>
<PAGE> 26
Schedule 1
THE OHIO NATIONAL LIFE INSURANCE COMPANY AND SUBSIDIARIES
Consolidating Information - Balance Sheet
December 31, 1997
(000's omitted)
<TABLE>
<CAPTION>
The Ohio Ohio
National Life National Life
Insurance Assurance
Assets Company Corporation Eliminations Consolidated
------ ---------------- ---------------- --------------- ---------------
<S> <C> <C> <C> <C>
Investments:
Securities available-for-sale at fair value:
Fixed maturities $2,177,401 510,446 - 2,687,847
Equity securities 266,562 - (184,579) 81,983
Fixed maturities held-to-maturity, at
amortized cost 667,538 57,354 - 724,892
Mortgage loans on real estate, net 1,015,026 215,230 - 1,230,256
Real estate, net 21,820 - - 21,820
Policy loans 115,222 38,126 - 153,348
Other long-term investments 42,539 - - 42,539
Short-term investments 18,516 18,993 - 37,509
----------- ----------- ----------- -----------
Total investments 4,324,624 840,149 (184,579) 4,980,194
Cash 6,924 7,088 - 14,012
Accrued investment income 53,896 10,183 - 64,079
Deferred policy acquisition costs 127,281 123,661 - 250,942
Reinsurance recoverable 19,566 81,378 (39,082) 61,862
Other assets 43,880 2,863 (4,060) 42,683
Assets held in Separate Accounts 840,856 75,934 - 916,790
----------- ----------- ----------- -----------
Total assets $5,417,027 1,141,256 (227,721) 6,330,562
=========== =========== =========== ===========
Liabilities and Equity
Future policy benefits and claims $3,634,243 850,313 (39,082) 4,445,474
Policyholders' dividend accumulations 62,423 - - 62,423
Other policyholder funds 14,567 2,502 - 17,069
Note payable, net 84,234 - - 84,234
Accrued Federal income tax:
Current 11,784 874 - 12,658
Deferred 53,201 12,179 - 65,380
Other liabilities 106,722 14,875 (4,060) 117,537
Liabilities related to Separate Accounts 811,608 75,934 - 887,542
---------- --------- -------- ---------
Total liabilities 4,778,782 956,677 (43,142) 5,692,317
---------- --------- -------- ---------
Equity:
Common stock and paid-in-capital - 336,625 (36,625) -
Unrealized gains on securities
available-for-sale, net 102,956 10,327 (10,327) 102,956
Retained earnings 535,289 137,627 (137,627) 535,289
---------- --------- -------- ---------
Total equity 638,245 184,579 (184,579) 638,245
---------- --------- -------- ---------
Total liabilities and equity $5,417,027 1,141,256 (227,721) 6,330,562
========== ========= ======== =========
</TABLE>
See accompanying independent auditors' report.
<PAGE> 27
Schedule 2
THE OHIO NATIONAL LIFE INSURANCE COMPANY AND SUBSIDIARIES
Consolidating Information - Statement of Income
Year ended December 31, 1997
(000's omitted)
<TABLE>
<CAPTION>
The Ohio Ohio
National Life National Life
Insurance Assurance
Company Corporation Eliminations Consolidated
---------------- ---------------- --------------- ---------------
<S> <C> <C> <C> <C>
Revenues:
Traditional life insurance premiums $115,437 3,147 (2,182) 116,402
Accident and health insurance premiums 16,000 7,921 - 23,921
Annuity premiums and charges 37,205 425 - 37,630
Universal life and investment policy charges - 50,991 - 50,991
Net investment income 352,941 61,348 (23,742) 390,547
Net realized gain on investments 11,089 1,411 - 12,500
Other income - 2,265 - 2,265
--------- --------- ---------- ---------
532,672 127,508 (25,924) 634,256
--------- --------- ---------- ---------
Benefits and expenses:
Benefits and claims 330,971 67,627 - 398,598
Provision for policyholders' dividends on
participating policies 25,399 - - 25,399
Amortization of deferred policy acquisition
costs 17,321 5,787 - 23,108
Other operating costs and expenses 67,298 15,676 (2,182) 80,792
--------- --------- ---------- ---------
440,989 89,090 (2,182) 527,897
--------- --------- ---------- ---------
Income before Federal income tax 91,683 38,418 (23,742) 106,359
--------- --------- ---------- ---------
Federal income tax:
Current expense 27,012 14,361 - 41,373
Deferred (benefit) expense (2,416) 315 - (2,101)
--------- --------- ---------- ---------
24,596 14,676 - 39,272
--------- --------- ---------- ---------
Net income $ 67,087 23,742 (23,742) 67,087
========= ========= ========== =========
</TABLE>
See accompanying independent auditors' report.
