<PAGE> 1
File No. 2-67464
File No. 811-3015
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 / X /
Post-Effective Amendment No. 35 / X /
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 / X /
Amendment No.
---------------
OHIO NATIONAL FUND, INC.
(Exact Name of Registrant)
One Financial Way
Cincinnati, Ohio 45242
(Address of Principal Executive Office)
Area Code (513) 794-6316
(Registrant's Telephone Number)
Ronald L. Benedict, Secretary
Ohio National Fund, Inc.
One Financial Way
Cincinnati, Ohio 45242
(Name and Address of Agent for Service)
Notice to:
W. Randolph Thompson, Esq.
Of Counsel
Jones & Blouch L.L.P.
Suite 405 West
1025 Thomas Jefferson Street, N.W.
Washington, D.C. 20007
---------------
Approximate Date of Proposed Public Offering: as soon after the effective date
of this amendment as is practicable.
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)
___
X 75 days after filing pursuant to paragraph (a)(2)
___
on (date), pursuant to paragraph (a)(3) of Rule 485.
___
If appropriate, check the following box:
___ this post-effective amendment designates a new effective date
for a previously filed post-effective amendment.
<PAGE> 2
OHIO NATIONAL FUND, INC.
CROSS REFERENCE TO ITEMS
REQUIRED BY RULE 404(a)
N-1A Item of Part A Caption in Prospectus
------------------- ---------------------
1. Cover Page
2. Not Applicable
3. Financial Highlights
4. General Description of the Fund;
Investment Objectives and Policies;
Investment Restrictions
5. Management of the Fund
6. Capital Stock, Dividends,
Distributions and Taxes
7. Purchase and Redemption of Shares
8. Purchase and Redemption of Shares
9. Not Applicable
Caption in Statement of
N-1A Item of Part B Additional Information
------------------- ----------------------
10. Cover Page
11. Table of Contents
12. The Fund
13. Investment Objectives and Policies
(Money Market Instruments);
Investment Restrictions (Hedging
Transactions, Covered Call Options
and Secured Put Options, Risk Factors
with Options, Futures Contracts,
Options on Futures Contracts and
Financial Indexes, Risk Factors with
Futures and Options on Futures, Risk
Factors with Foreign Investments);
Condensed Financial Information
(Portfolio Turnover)
14. Management of the Fund (Directors and
Officers of the Fund)
15. Management of the Fund (Controlling
Shareholders)
16. Management of the Fund (Investment
Advisory and Other Services); Experts
<PAGE> 3
Caption in Statement of
N-1A Item of Part B Additional Information
------------------- ----------------------
17. Brokerage Allocation
18. Capital Stock (in prospectus)
19. Purchase and Redemption of Shares
20. Tax Status
21. Not Applicable
22. Fund Performance
23. Financial Statements
<PAGE> 4
PART A.
INFORMATION REQUIRED IN A PROSPECTUS
<PAGE> 5
OHIO NATIONAL FUND, INC.
ONE FINANCIAL WAY
CINCINNATI, OHIO 45242
TELEPHONE (513) 794-6316
MAY 1, 1998
Ohio National Fund, Inc. (the "Fund") is a series investment company which
consists of 20 separate investment portfolios that seek the following investment
objectives:
EQUITY PORTFOLIO - long-term growth of capital by investing principally in
common stocks or other equity securities. Current income is a secondary
objective.
MONEY MARKET PORTFOLIO- maximum current income consistent with preservation of
capital and liquidity by investing in high quality money market instruments.
BOND PORTFOLIO - high level of return consistent with preservation of capital by
investing primarily in high quality intermediate and long-term debt securities.
OMNI PORTFOLIO - high level of long-term total return consistent with
preservation of capital by investing in stocks, bonds and money market
instruments.
INTERNATIONAL PORTFOLIO - long-term capital growth by investing primarily in
common stocks of foreign companies.
CAPITAL APPRECIATION PORTFOLIO - maximum capital growth by investing primarily
in common stocks that are (1) considered to be undervalued or temporarily out of
favor with investors, or (2) expected to increase in price over the short term.
SMALL CAP PORTFOLIO - maximum capital growth by investing primarily in common
stocks of small and medium size companies.
GLOBAL CONTRARIAN PORTFOLIO - long-term growth of capital by investing in
foreign and domestic securities believed to be undervalued or presently out of
favor.
AGGRESSIVE GROWTH PORTFOLIO - capital growth.
CORE GROWTH PORTFOLIO - long-term capital appreciation.
GROWTH & INCOME PORTFOLIO -long-term total return by investing in equity and
debt securities focusing on small- and mid-cap companies that offer potential
for capital appreciation, current income, or both.
S&P 500 INDEX PORTFOLIO - total return that approximates that of the Standard &
Poor's 500 Index ("S&P 500" (R)) by investing in common stocks and in stock
index futures contracts hedged by U.S. Government obligations, investment-grade
corporate bonds and cash equivalents.
SOCIAL AWARENESS PORTFOLIO - long-term capital growth by investing primarily in
common stocks and other equity securities of companies that, in the Adviser's
opinion, conduct their business in a way that enhances society's quality of
life.
STRATEGIC INCOME PORTFOLIO - high current income by investing at least 40% of
its assets in a core group of U.S. government and corporate fixed income
securities and the remainder in other income producing securities.
Continued on page 2.
- --------------------------------------------------------------------------------
THIS PROSPECTUS SETS FORTH CONCISELY THE INFORMATION ABOUT THE FUND THAT A
PROSPECTIVE PURCHASER OF A VARIABLE CONTRACT DESCRIBED IN THE ACCOMPANYING
PROSPECTUS OUGHT TO KNOW BEFORE PURCHASING SUCH A CONTRACT. THIS PROSPECTUS
SHOULD BE RETAINED FOR FUTURE REFERENCE. ADDITIONAL INFORMATION ABOUT THE FUND
HAS BEEN FILED WITH THE SECURITIES AND EXCHANGE COMMISSION IN A STATEMENT OF
ADDITIONAL INFORMATION, DATED MAY 1, 1998, WHICH IS INCORPORATED HEREIN BY
REFERENCE. THE STATEMENT OF ADDITIONAL INFORMATION IS AVAILABLE UPON REQUEST AND
WITHOUT CHARGE BY WRITING OR CALLING THE FUND AT THE ADDRESS SHOWN ABOVE.
INVESTMENTS IN THE MONEY MARKET PORTFOLIO ARE NEITHER INSURED NOR GUARANTEED BY
THE UNITED STATES GOVERNMENT. THERE CAN BE NO ASSURANCE THAT THE MONEY MARKET
PORTFOLIO WILL BE ABLE TO MAINTAIN A STABLE NET ASSET VALUE OF $10 PER SHARE.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
1
<PAGE> 6
STELLAR PORTFOLIO - maximum total return by investing in domestic and foreign
securities (equity and fixed income), real estate securities, precious metal
securities and money market securities.
RELATIVE VALUE PORTFOLIO - maximum total return consistent with reasonable risk
by investing primarily in equity securities.
EMERGING GROWTH PORTFOLIO - capital appreciation by investing primarily in
common stocks of emerging growth companies.
HIGH INCOME BOND PORTFOLIO - high current income by investing primarily in lower
rated corporate debt obligations commonly referred to as "junk bonds."
Investments of this type are subject to a greater risk of loss of principal and
interest than investments in higher rated bonds. Purchasers should carefully
assess the risks associated with investment in this Portfolio.
EQUITY INCOME PORTFOLIO - above-average income and capital appreciation by
investing primarily in income-producing equity securities.
BLUE CHIP PORTFOLIO - growth of capital and income by investing in securities of
high quality companies.
The Fund's shares are not offered directly to the public but are purchased
principally for the account of certain separate accounts of The Ohio National
Life Insurance Company ("ONLI"), Ohio National Life Assurance Corporation
("ONLAC") and other insurers. Some variable contracts do not permit allocations
to all portfolios of the Fund. The accompanying variable contract prospectus
identifies the portfolios available under that contract.
TABLE OF CONTENTS
Page
Financial Highlights ................................................... 2
General Description of the Fund ........................................ 6
Investment Objectives and Policies ..................................... 7
Investment Restrictions ................................................ 13
Management of the Fund ................................................. 18
Capital Stock .......................................................... 21
Dividends, Distributions and Taxes ..................................... 22
Purchase and Redemption of Shares ...................................... 22
Fund Performance ....................................................... 23
About the S&P 500 ...................................................... 23
The Year 2000 Issue .................................................... --
FINANCIAL HIGHLIGHTS
OF
OHIO NATIONAL FUND, INC.
FOR THE TEN YEARS ENDED DECEMBER 31, 1997
The following information has been audited by KPMG Peat Marwick LLP, independent
certified public accountants, and is an integral part of the Fund's audited
financial statements which appear in the Statement of Additional Information
(which may be obtained by variable contract owners and prospective purchasers),
incorporated by reference herein, and should be read in conjunction with those
financial statements.
<TABLE>
<CAPTION>
EQUITY PORTFOLIO
- ------------------------------------------------------------------------------------------------------------------------
1997 1996 1995 1994 1993 1992
------- ------- -------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $ 28.58 $ 23.20 $ 23.90 $ 21.63 $ 20.61
Income from investment operations:
Net investment income .47 .50 .45 .41 .50
Net realized and unrealized
gains (losses) on investments
and foreign currency
transactions 4.58 5.56 (.39) 2.57 1.02
Total from investment operations 5.05 6.15 .06 2.98 1.52
Less distributions:
Dividends from net
investment income (.46) (.39) (.44) (.42) (.50
Distributions from realized
capital gains (.87) (.38) (.32) (.29) --
Total distributions (1.33) (.77) (.76) (.71) (.50
Net asset value, end of period $ 32.30 $ 28.58 $ 23.20 $ 23.90 $ 21.63
Total return(a) 18.35% 27.20% 0.25% 14.09% 7.55
Ratios/supplemental data:
Net Assets, end of period
(000,000's omitted) $ 232.8 $ 175.7 $ 123.3 $ 109.9 $ 87.4
Ratio of expenses to
average net assets .73% .73% .62% .63% .65
Ratio of net investment
income to average
net assets 1.60% 1.90% 1.90% 1.91% 2.44
Portfolio turnover rate 11% 14% 8% 18% 12
Average commission rate (f) .069 N/A N/A N/A N/A
</TABLE>
<TABLE>
<CAPTION>
EQUITY PORTFOLIO
- --------------------------------------------------------------------------------------------
1991 1990 1989 1988
--------- ---------- ----------- -----------
<S> <C> <C> <C> <C>
Net asset value,
beginning of period $ 18.02 $ 20.09 $ 17.99 $ 16.82
Income from investment operations:
Net investment income .60 .86 .71 .66
Net realized and unrealized
gains (losses) on investments
and foreign currency
transactions 2.97 (1.62) 3.42 1.86
Total from investment operations 3.57 (.76) 4.13 2.52
Less distributions:
Dividends from net
investment income (.63) (.87) (.66) (.67)
Distributions from realized
capital gains (.35) (.44) (1.37) (.68)
Total distributions (.98) (1.31) (2.03) (1.35)
Net asset value, end of period $ 20.61 $ 18.02 $ 20.09 $ 17.99
Total return(a) 20.18% (3.85%) 23.21% 15.01%
Ratios/supplemental data:
Net Assets, end of period
(000,000's omitted) $ 68.2 $ 49.2 $ 42.8 $ 33.3
Ratio of expenses to
average net assets .66% .69% 0.70% 0.71%
Ratio of net investment
income to average
net assets 3.12% 4.75% 3.55% 3.59%
Portfolio turnover rate 23% 5% 16% 9%
Average commission rate (f) N/A N/A N/A N/A
</TABLE>
2
<PAGE> 7
<TABLE>
<CAPTION>
MONEY MARKET PORTFOLIO
- -----------------------------------------------------------------------------------------------------------------------------
1997 1996 1995 1994 1993 1992 1991
------- -------- -------- ------- -------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $ 10.00 $ 10.00 $ 10.00 $ 10.00 $ 10.00 $ 10.00
Income from
investment operations:
Net investment income .50 .54 .39 .27 .31 (.54)
Net realized and unrealized
gains (losses) on investments
and foreign currency
transactions -- -- -- -- -- --
Total from investment operations .50 .54 .39 .27 .31 .54
Less distributions:
Dividends from net
investment income (.50) (.54) (.39) (.27) (.31) (.54)
Distributions from realized
capital gains -- -- -- --
Total distributions (.50) (.54) (.39) (.27) (.31) (.54)
Net asset value, end of period $ 10.00 $ 10.00 $ 10.00 $ 10.00 $ 10.00 $ 10.00
Total return(a) 5.17% 5.62% 4.00% 2.71% 3.12% 5.39%
Ratios/supplemental data:
Net Assets, end of period
(000,000's omitted) $ 25.5 $ 15.7 $ 13.1 $ 19.1 $ 20.6 $ 24.2
Ratio of expenses to
average net assets(c) .44% .44% .39% .53% 0.66% 0.67%
Ratio of net investment
income to average
net assets(c) 4.98% 5.39% 3.69% 2.71% 3.16% 5.41%
</TABLE>
<TABLE>
<CAPTION>
MONEY MARKET PORTFOLIO
- --------------------------------------------------------------------------
1990 1989 1988
--------- ---------- ----------
<S> <C> <C> <C>
Net asset value,
beginning of period $ 10.00 $ 10.00 $ 10.00
Income from
investment operations:
Net investment income .76 .86 .69
Net realized and unrealized
gains (losses) on investments
and foreign currency
transactions -- -- --
Total from investment operations .76 .86 .69
Less distributions:
Dividends from net
investment income (.76) (.86) (.69)
Distributions from realized
capital gains -- --
Total distributions (.76) (.86) (.69)
Net asset value, end of period $ 10.00 $ 10.00 $ 10.00
Total return(a) 7.60% 8.56% 6.89%
Ratios/supplemental data:
Net Assets, end of period
(000,000's omitted) $ 26.1 $ 23.6 $ 22.8
Ratio of expenses to
average net assets(c) 0.68% 0.70% 0.71%
Ratio of net investment
income to average
net assets(c) 7.57% 8.51% 6.87%
</TABLE>
<TABLE>
<CAPTION>
BOND PORTFOLIO
- ---------------------------------------------------------------------------------------------------------------------------------
1997 1996 1995 1994 1993 1992 1991
------- -------- --------- --------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $ 10.93 $ 9.70 $ 10.87 $ 10.45 $ 10.37 $ 9.89
Income from investment operations:
Net investment income .69 .70 .67 .69 .67 .74
Net realized and unrealized
gains (losses) on investments
and foreign currency
transactions (.32) 1.08 (1.07) .41 .10 .49
Total from investment operations .37 1.78 (.40) 1.10 .77 1.23
Less distributions:
Dividends from net
investment income (.68) (.55) (.69) (.68) (.69) (.75)
Distributions from realized
capital gains -- -- (.08) -- -- --
Total distributions (.68) (.55) (.77) (.68) (.69) (.75)
Net asset value, end of period $ 10.62 $ 10.93 $ 9.70 $ 10.87 $ 10.45 $ 10.37
Total return(a) 3.71% 18.90% (3.84%) 10.69% 7.55% 12.96%
Ratios/supplemental data:
Net Assets, end of period
(000,000's omitted) $ 20.8 $ 18.1 $ 13.1 $ 12.0 $ 8.9 $ 5.9
Ratio of expenses to
average net assets .79% .75% .63% .62% 0.65% 0.65%
Ratio of net investment
income to average
net assets 6.54% 6.76% 6.71% 6.33% 6.73% 7.42%
Portfolio turnover rate 3% 4% 5% 13% 20% 18%
</TABLE>
<TABLE>
<CAPTION>
BOND PORTFOLIO
- ------------------------------------------------------------------------------
1990 1989 1988
-------- ---------- ----------
<S> <C> <C> <C>
Net asset value,
beginning of period $ 9.93 $ 9.72 $ 9.84
Income from investment operations:
Net investment income .79 .81 .77
Net realized and unrealized
gains (losses) on investments
and foreign currency
transactions (.05) .20 (.13)
Total from investment operations .74 1.01 .64
Less distributions:
Dividends from net
investment income (.78) (.80) (.76)
Distributions from realized
capital gains -- -- --
(.78)
Total distributions (.80) (.76)
Net asset value, end of period $ 9.89 $ 9.93 $ 9.72
Total return(a) 7.82% 10.71% 6.74%
Ratios/supplemental data:
Net Assets, end of period
(000,000's omitted) $ 4.7 $ 4.0 $ 3.7
Ratio of expenses to
average net assets 0.70% 0.70% 0.79%
Ratio of net investment
income to average
net assets 8.02% 8.21% 7.50%
Portfolio turnover rate 4% -- 27%
</TABLE>
3
<PAGE> 8
<TABLE>
<CAPTION>
OMNI PORTFOLIO
- -----------------------------------------------------------------------------------------------------------------------------------
1997 1996 1995 1994 1993 1992 1991
------ -------- --------- -------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $ 17.60 $ 14.76 $ 15.38 $ 14.14 $ 13.63 $ 12.16
Income from
investment operations:
Net investment income .53 .58 .55 .58 .63 .65
Net realized and unrealized
gains (losses) on investments
and foreign currency
transactions 2.10 2.72 (.63) 1.21 .51 1.49
Total from investment operations 2.63 3.30 (.08) 1.79 1.14 2.14
Less distributions:
Dividends from net
investment income (.52) (.46) (.54) (.54) (.63) (.67)
Distributions from realized
capital gains (.31) -- -- -- -- --
Total distributions (.83) (.46) (.54) (.55) (.63) (.67)
Net asset value, end of period $ 19.40 $ 17.60 $ 14.76 $ 15.38 $ 14.14 $ 13.63
Total return(a) 15.54% 22.75% (0.53%) 12.85% 8.61% 18.14%
Ratios/supplemental data:
Net Assets, end of period
(000,000's omitted) $ 145.5 $ 109.6 $ 85.0 $ 74.2 $ 46.4 $ 36.5
Ratio of expenses to
average net assets .76% .75% .62% .62% 0.65% 0.67%
Ratio of net investment
income to average
net assets 2.89% 3.56% 3.67% 3.74% 4.66% 5.04%
Portfolio turnover rate 12% 10% 7% 17% 16% 15%
Average commission rate (f) .072 N/A N/A N/A N/A N/A
</TABLE>
<TABLE>
<CAPTION>
OMNI PORTFOLIO
- -------------------------------------------------------------------------------------------
1990 1989 1988
--------- ----------- -----------
<S> <C> <C> <C>
Net asset value,
beginning of period $ 12.76 $ 11.89 $ 11.23
Income from
investment operations:
Net investment income .78 .75 .67
Net realized and unrealized
gains (losses) on investments
and foreign currency
transactions (.54) 1.07 .99
Total from investment operations .24 1.82 1.66
Less distributions:
Dividends from net
investment income (.78) (.73) (.66)
Distributions from realized
capital gains (06) (.22) (.34)
Total distributions (.84) (.95) (1.00)
Net asset value, end of period $ 12.16 $ 12.76 $ 11.89
Total return(a) 1.92% 15.45% 15.05%
Ratios/supplemental data:
Net Assets, end of period
(000,000's omitted) $ 35.4 $ 31.8 $ 26.1
Ratio of expenses to
average net assets 0.69% 0.70% 0.71%
Ratio of net investment
income to average
net assets 6.32% 5.99% 5.40%
Portfolio turnover rate 7% 24% 14%
Average commission rate (f) N/A N/A N/A
</TABLE>
<TABLE>
<CAPTION>
INTERNATIONAL CAPITAL APPRECIATION
PORTFOLIO PORTFOLIO
------------------------------------------------------ -------------------------------------
1997 1996 1995 1994 1993(e) 1997 1996 1995 1994(e)
------ -------- -------- ------- -------- ------ ------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $ 14.38 $ 13.30 $ 12.48 $ 10.00 $ 11.99 $ 10.25 $ 10.00
Income from
investment operations:
Net investment income (loss) .25 .31 .16 .02 .48 .39 .22
Net realized and unrealized
gains (losses) on investments and
foreign currency transactions 1.76 1.28 .84 2.47 1.31 1.85 .23
Total from investment operations 2.01 1.59 1.00 2.49 1.79 2.24 .45
Less distributions:
Dividends from net
investment income (.63) (.28) (.12) (.01) (.44) (.29) (.20)
Distributions from realized
capital gains (.27) (.23) (.06) -- (.41) (.21) --
Total distributions (.90) (.51) (.18) (.01) (.85) (.50) (.20)
Net asset value, end of period $ 15.49 $ 14.38 $ 13.30 $ 12.48 $ 12.93 $ 11.99 $ 10.25
Total return(a)
14.48% 12.10% 8.07% 24.96% 15.75% 22.62% 4.53%
Ratios/supplemental data:
Net Assets, end of period
(000,000's omitted) $ 137.3 $ 90.6 $ 62.9 $ 17.5 $ 38.3 $ 19.3 $ 6.8
Ratio of expenses to
average net assets(d) 1.15% 1.12% 1.05% 1.13%(b) .97% .96% .98%
Ratio of net investment
income to average
net assets(d) 1.64% 2.29% 1.23% .41%(b) 3.90% 3.47% 3.24%
Portfolio turnover rate 14% 7% 16% 8% 37% 32% 20%
Average commission rate (f) .031 N/A N/A N/A .053 N/A N/A
</TABLE>
<TABLE>
<CAPTION>
SMALL CAP
PORTFOLIO
----------------------------------------------------------
1997 1996 1995 1994(e)
-------- ------- ---------- ----------
<S> <C> <C> <C>
Net asset value,
beginning of period $ 15.85 $ 11.99 $ 10.00
Income from
investment operations:
Net investment income (loss) (.08) (.02) .18
Net realized and unrealized
gains (losses) on investments and
foreign currency transactions 2.80 3.95 1.94
Total from investment operations 2.72 3.93 2.12
Less distributions:
Dividends from net
investment income -- (.07) (.13)
Distributions from realized
capital gains (.54) -- --
Total distributions (.54) (.07) (1.31)
Net asset value, end of period $ 18.03 $ 15.85 $ 11.99
Total return(a)
17.71% 33.01% 21.26%
Ratios/supplemental data:
Net Assets, end of period
(000,000's omitted) $ 38.5 $ 16.0 $ 3.3
Ratio of expenses to
average net assets(d) .96% .96% .91%(b)
Ratio of net investment
income to average
net assets(d) (.48%) (.11%) 3.27%
Portfolio turnover rate 70% 75% 222%
Average commission rate (f) .060 N/A N/A
</TABLE>
4
<PAGE> 9
<TABLE>
<CAPTION>
GLOBAL AGGRESSIVE
CONTRARIAN GROWTH
----------------------------------- ----------------------------
1997 1996 1995(e) 1997 1996 1995(e)
------- ------- -------- ------ -------- ---------
<S> <C> <C> <C> <C>
Net asset value,
beginning of period $ 10.80 $ 10.00 $ 11.84 $ 10.00
Income from
investment operations:
Net investment income (loss) .28 .13 1.64 1.56
Net realized and unrealized
gains (losses) on investments and
foreign currency transactions 1.00 .75 (1.59) 1.08.
Total from investment operations 1.28 .88 .05 2.64
Less distributions:
Dividends from net
investment income (.33) (.08) (1.86) (.80)
Distributions from realized
capital gains (.09) -- -- --
Total distributions (.42) (.08) (1.86) (.80)
Net asset value, end of period $ 11.66 $ 10.80 $ 10.03 $ 11.84
Total return(a) 12.09% 8.89% .76% 26.95%
Ratios/supplemental data:
Net Assets, end of period
(000,000's omitted) $ 11.3 $ 4.4 $ 12.0 $ 4.0
Ratio of expenses to
average net assets(d) 1.29% 1.58%(b) 1.01% 1.02%(b)
Ratio of net investment
income to average
net assets(d) 2.44% 1.64%(b) 15.81% 18.18%(b)
Portfolio turnover rate 18% 6%(b) 1,987% 1,488%(b)
Average commission rate (f) .028 N/A .034 N/A
</TABLE>
FINANCIAL HIGHLIGHTS FOOTNOTES
(a) This total return information does not reflect expenses that apply to any
separate account or the related variable annuity or variable life insurance
contracts. Inclusion of those charges would reduce the total return figures
for all periods shown.
(b) Annualized.
(c) On and after June 17, 1993, the investment adviser has waived part of the
management fee with respect to the Money Market Portfolio, to the extent
such fee exceeds an annual rate of 0.25% of the Money Market Portfolio's
daily net asset value. Had the fee not been waived, the annualized ratio of
net expenses to average net assets would have been 0.49%, 0,55%, 0.59% and
0.63%, and the annualized ratio of net investment income to average net
assets would have been 4.93%, 5.27%, 3.51% and 2.60%, respectively, for
1996, 1995, 1994 and 1993.
(d) The investment adviser reimbursed certain operating expenses of the
International Portfolio in 1993, the Capital Appreciation and Small Cap
Portfolios in 1994, and the Global Contrarian Portfolio in 1995. Had the
investment adviser not reimbursed such expenses, the annualized ratio of
expenses to average net assets would have been 1.39% and the annualized
ratio of net investment income to average net assets would have been 0.15%
for the International Portfolio in 1993. Had the investment adviser not
reimbursed such expenses of the Capital Appreciation and Small Cap
Portfolios, the annualized ratio of expenses to average net assets would
have been 1.05% and 0.95%, respectively in 1994. The annualized ratio of
net investment income to average net assets would have been 3.18% and
3.24%, respectively, for the Capital Appreciation and Small Cap Portfolios.
Had the investment adviser not reimbursed such expenses of the Global
Contrarian Portfolio, the annualized ratio of expenses to average net
assets would have been 1.90% and the annualized ratio of net investment
income to average net assets would have been 1.32% for the Global
Contrarian Portfolio in 1995.
5
<PAGE> 10
(e) Total return was calculated on an aggregate basis (not annualized) for the
International Portfolio from the commencement of its operations on April
30, 1993, through December 31, 1993, for the Capital Appreciation and Small
Cap Portfolios, from their commencement of operations, May 1, 1994, through
December 31, 1994, for the Global Contrarian and Aggressive Growth
Portfolios from their commencement of operations, March 31, 1995, through
December 31, 1995, and for the Core Growth, Growth & Income, S&P 500 Index,
Social Awareness, Strategic Income, Stellar and Relative Value Portfolios,
from the commencement of their operations, January 3, 1997, though December
31, 1997.
(f) Represents the total amount of commissions paid on equity security
transactions divided by the total number of shares purchased and sold by
the respective portfolio for which commissions were charged.
GENERAL DESCRIPTION OF THE FUND
The Fund, incorporated under the laws of Maryland on March 6, 1980, is an
open-end diversified management investment company commonly referred to as a
"mutual fund." It is a "no-load" fund which sells and redeems its shares at net
asset value without any sales or redemption charge. The Fund is organized as a
"series" company, which means that it has several different investment
portfolios. Currently there are 20 investment portfolios as listed on pages 1
and 2. Interests in each portfolio are represented by a separate class of
common stock, par value $1. Each class represents an undivided interest in the
assets of the portfolio attributable to that class.
Fund shares are currently offered only to the separate accounts of ONLI (a
mutual life insurance company organized under Ohio law) and ONLAC (a stock life
insurer organized under Ohio law and wholly owned by ONLI), but may in the
future be offered to the separate accounts of other life insurance companies
(the "separate accounts"). Such separate accounts use Fund shares as the
underlying investment medium to support certain benefits under variable annuity
and variable life insurance contracts. As is described in the accompanying
variable contract prospectus, each contract owner will select the Fund portfolio
or portfolios that will support certain benefits under his or her contract. The
value of such benefits will vary with the investment experience of the
underlying portfolio(s) of the Fund. Consequently, each prospective contract
owner should carefully review the objectives, policies and risks of each
portfolio and the operation of the Fund generally as set forth in this
prospectus.
It is conceivable that in the future it may become disadvantageous for both
variable life and variable annuity separate accounts to invest in the Fund.
Although ONLI, ONLAC and the Fund do not currently foresee any such
disadvantage, the Board of Directors of the Fund will monitor events in order to
identify any material conflict between variable life and variable annuity
contract owners and to determine what action, if any, should be taken in
response thereto. Such action could include the withdrawal of a separate account
from participation in the Fund. Material conflicts could result from such things
as (1) changes in state insurance law; (2) changes in federal income tax law;
(3) changes in the investment management of any portfolio of the Fund; or (4)
differences between voting instructions given by variable life and variable
annuity contract owners.
The Fund may be used in the future to support benefits under other types of
contracts or for other purposes. Fund shares are not now, and without a change
in applicable law will never be, offered directly to the public. Consequently,
the separate accounts will be the sole shareholders of the Fund. Fund shares
attributable to contracts participating in such separate accounts will be voted
by such separate accounts as directed by the contract owners.
The investment and reinvestment of Fund assets is managed by Ohio National
Investments Inc. (the "Adviser") directly or through sub-advisers. See
"Management of the Fund," page 17. The investment and reinvestment of the assets
of the following portfolios are managed by the firms indicated as sub-advisers:
<TABLE>
<CAPTION>
PORTFOLIO SUB-ADVISER
- --------- -----------
<S> <C>
International and Global Contrarian Societe Generale Asset Management Corp. ("SGAM")
Capital Appreciation T. Rowe Price Associates, Inc. ("TRPA")
Small Cap Founders Asset Management, LLC ("FAM ")
Aggressive Growth Strong Capital Management, Inc. ("SCM")
Core Growth Pilgrim Baxter & Associates, Ltd. ("PBA")
Growth & Income and Emerging Growth Robertson Stephens Investment Management, L.P. ("RSIM")
Strategic Income, Stellar and Relative Value Star Bank, N.A. ("Star")
High Income Bond, Equity Income and Blue Chip Federated Investment Counseling ("FIC")
</TABLE>
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INVESTMENT OBJECTIVES AND POLICIES
Each portfolio has a different investment objective which it pursues through
separate investment policies as described below. The differences in objectives
and policies among the portfolios can be expected to affect the return of each
portfolio and the degree of market and financial risk to which each portfolio is
subject. Financial risk refers to the ability of an issuer of a debt security to
pay principal and interest on such security, and to the earnings stability and
overall financial soundness of an issuer of an equity security. Market risk
refers to the volatility of the price of a security in response to changes in
conditions in the securities markets in general and, particularly in the case of
debt securities, changes in the overall level of interest rates. There is no
assurance that the investment objective of any portfolio will be realized.
The investment objectives of each portfolio discussed below and in the Statement
of Additional Information may not be changed without the approval of the holders
of a majority of the outstanding shares of that portfolio. Each portfolio may
invest any portion of its assets in cash, short-term obligations and U.S.
government securities for defensive purposes during times of unusual market or
economic conditions or pending selection of securities in accordance with a
portfolio's policies. The relatively high portfolio turnover rates for the Small
Cap, Aggressive Growth, Core Growth, Growth & Income and Strategic Income
Portfolios and expected for the Emerging Growth Portfolio will result in
correspondingly higher brokerage costs that must be borne by these portfolios.
The Statement of Additional Information provides a fuller description of the
types of financial instruments in which the Money Market Portfolio may invest
and definitions of debt ratings of nationally recognized statistical rating
organizations, and information about portfolio turnover rates for each
portfolio.
EQUITY PORTFOLIO
The principal investment objective of the Equity Portfolio is long-term growth
of capital. Current income is a secondary consideration although growth of
income may accompany growth of capital. This Portfolio will seek to attain its
objective of capital growth by investing primarily in common stocks or
securities convertible into, or which carry the right to buy, common stocks. It
may also invest to a limited degree in non-convertible preferred stocks, debt
securities and readily marketable mortgage notes.
This Portfolio will invest primarily in securities listed on national securities
exchanges, but from time to time it may also purchase securities traded in the
over-the-counter market and foreign securities. In general, investment in shares
of this Portfolio should involve greater market and financial risk than an
investment in any of the Money Market, Bond, Omni or Capital Appreciation
Portfolios, but less risk than investments in the International, Small Cap,
Global Contrarian or Aggressive Growth Portfolios.
MONEY MARKET PORTFOLIO
The objective of the Money Market Portfolio is to obtain maximum current income
consistent with preservation of principal and liquidity. This Portfolio seeks to
achieve its objective by investing in high quality money market instruments,
including:
1. obligations maturing in 13 months or less and issued or guaranteed as to
principal and interest by the United States Government, or any agency or
authority controlled or supervised by and acting as an instrumentality of
the U.S. Government pursuant to authority granted by Congress;
2. commercial paper, certificates of deposit and bankers' acceptances that
have received the highest rating by any two nationally recognized
statistical rating organizations ("NRSRO's"), or the highest rating by one
NRSRO if that is the only NRSRO having rated the security, or whose issuer
has received such a rating or ratings with respect to a class of short-term
debt obligations that is now comparable in priority and security to those
to be purchased;
3. commercial paper, certificates of deposit, bankers' acceptances or other
corporate obligations maturing in 13 months or less and which, although not
rated by any NRSRO, the Board of Directors determines to be of a quality
comparable to that of instruments receiving either of the two highest
ratings, provided, that any security determined to be comparable in quality
to the second highest rating shall be included in the 5% limitation under
item 5; and
4. repurchase agreements with respect to any of the foregoing obligations.
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<PAGE> 12
5. as to no more than 5% of the Portfolio's assets, in commercial paper,
certificates of deposit or bankers' acceptances receiving the second
highest rating by any two NRSRO's (or by one NRSRO if (a) that is the only
NRSRO having rated the security or (b) one other NRSRO has given the
security its highest rating), or whose issuer has received such a rating or
ratings with respect to a class of short-term debt obligations that is now
comparable in priority and security to those to be purchased, provided,
that no more than $1 million (or 1% of Portfolio assets, if greater) may be
invested in such securities of any one issuer;
This Portfolio may invest up to 50% of its assets in the securities of foreign
issuers (including private issuers and foreign governments or political
subdivisions, agencies or instrumentalities of foreign governments), provided
they meet the above quality standards and they are denominated in U.S. dollars
and held in custody in the United States.
The investments of this Portfolio in such money market instruments are subject
to the terms and conditions of Rule 2a-7 under the Investment Company Act of
1940, including the requirement that they be limited to those instruments which
the Board of directors determines, present minimal credit risks.
Generally, this Portfolio will purchase money market securities with the
intention of holding them until maturity, at which time they will be redeemed.
To the extent it is able to do so, the Portfolio will not realize any gain or
loss on these securities. There may be times, however, when it may be necessary
or appropriate to sell securities prior to maturity in order to shorten the
Portfolio's average maturity, to meet redemptions, or because of a reevaluation
of an issuer's credit-worthiness.
Rule 2a-7 permits this Portfolio to value its assets on the basis of amortized
cost as a means of maintaining the net asset value of the Money Market shares at
$10 per share. Under the terms of the rule, the Portfolio may neither purchase
any debt security having a remaining maturity of more than 397 days nor maintain
a dollar-weighted average portfolio maturity of more than 90 days. Under the
amortized cost method, all such debt securities are valued at their cost on the
date of acquisition with a daily adjustment being made to accrued income to
reflect amortization of premium or accretion of discount to the maturity date.
If such method results in a deviation in excess of 1/2 of 1% from value based
on available market quotations, the Board of Directors will promptly consider
what, if any, action it should initiate. Such action may include selling
portfolio instruments; withholding dividends; recapitalizing outstanding shares;
requiring shareholders to contribute shares to capital or using available market
quotations.
An investor's rate of return will vary as short-term interest rates vary. The
rate of return will also be affected by other factors such as the operating
expenses of the Portfolio and the sales, if any, of portfolio securities prior
to maturity. On balance, however, investment in this Portfolio should involve
less market and financial risk than an investment in any other portfolio.
BOND PORTFOLIO
The principal investment objective of the Bond Portfolio is to obtain a high
level of income and opportunity for capital appreciation consistent with
preservation of capital. Investments will be made primarily in intermediate-term
and long-term fixed-income securities.
At least 80% of the total assets of this Portfolio (exclusive of cash and U.S.
government securities) will be invested in: (1) publicly traded, investment
grade, non-convertible corporate debt securities issued by United States
corporations and assigned within the four highest bond ratings by Moody's or
Standard and Poor's ("S&P"); and (2) corporate debt securities used for
short-term investment and limited to the top grade of these two rating
services.
Up to 20% of the total assets of the Portfolio may be invested in: (1)
securities having high potential for capital appreciation; (2) preferred stocks,
convertible securities and securities carrying warrants to purchase equity
securities; and (3) debt securities issued by U.S. banks and savings and loan
associations which at the date of investment have capital, surplus and undivided
profits as of the date of their most recent financial statements in excess of
$100,000,000.
This Portfolio will not invest in common stocks directly, but it may retain for
reasonable periods of time up to 10% of its total assets in common stocks
acquired upon the conversion of debt securities or upon the exercise of warrants
acquired with debt securities.
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<PAGE> 13
It is expected that this Portfolio will include debt securities with varying
maturities selected from various industries, depending upon the Adviser's
evaluation of current and anticipated market conditions. The market values of
debt instruments will vary depending upon their respective yields; therefore,
the net asset value per share of the Portfolio will change from time to time as
the general level of interest rates changes. Consequently, an investment in the
shares of this Portfolio involves substantial market risk, but should involve
less financial risk than an investment in any of the portfolios other than the
Money Market Portfolio.
OMNI PORTFOLIO
The principal investment objective of the Omni Portfolio is to realize a high
level of long-term total rate of return consistent with prudent investment
risks. Total rate of return consists of current income including dividends,
interest and discount accruals and capital appreciation.
This Portfolio will seek to attain its objectives by investing in any of the
securities in which the Equity, Money Market and Bond Portfolios may invest. The
mix of investments will be adjusted from time to time among the various market
sectors (stocks, bonds and money market instruments) to capitalize on perceived
variations in return potential produced by the interaction of changing market
and economic conditions. The Portfolio may at times be invested in less than all
three of the market sectors. No minimum portion of the Portfolio is required to
be invested in any sector. The frequency of changes in investment mix depends
upon market and economic conditions.
The Portfolio's principal investment objective is supplemented and limited by
the investment objectives, policies and restrictions established for each of the
market sectors. Within the equity sector, the Portfolio will attempt to obtain
long-term growth of capital while current income will be a secondary
consideration. Within the bond sector, the Portfolio will attempt to obtain a
high level of income and opportunity for capital appreciation consistent with
preservation of capital. Within the money market sector, the Portfolio will
attempt to obtain maximum current income consistent with the preservation of
principal and liquidity. Investment in this Portfolio involves all of the risks
associated with investing in the other portfolios. In addition, there is the
risk that at any given time this Portfolio will invest too much or too little in
each of the respective market sectors.
INTERNATIONAL PORTFOLIO
The principal investment objective of the International Portfolio is to obtain
long-term capital growth by investing primarily in common stocks (and securities
convertible into common stocks) of foreign companies. This Portfolio may also
invest in fixed-income securities of foreign issuers. When deemed appropriate
for short-term investment or for defensive purposes, it may invest in short-term
debt instruments of U.S. or foreign issuers, in U.S. government obligations, or
in U.S. common stocks.
This Portfolio enables variable contractowners to diversify their investment by
participating in companies and economies outside the U.S. However, investing in
foreign securities may involve a greater degree of risk than investing in
domestic securities because of the possibilities of currency exchange rate
fluctuations, currency exchange controls, less publicly available information,
more volatile markets, thinner markets (less trading volume), slower settlement
of trades, greater likelihood of trade failures, less securities regulation,
less favorable tax provisions, lack of uniformity of accounting, auditing and
financial reporting standards, war and expropriation. Foreign investments also
generally involve higher brokerage commissions, higher custodian costs, and
currency conversion fees. Investment in this Portfolio will generally involve a
greater degree of market and financial risk than any of the portfolios except
for the Global Contrarian Portfolio.
CAPITAL APPRECIATION PORTFOLIO
The principal investment objective of the Capital Appreciation Portfolio is to
maximize capital growth through investment primarily in common stocks. This
Portfolio seeks to achieve capital appreciation by investing in securities of
companies that are undervalued in relation to the company's assets, earnings,
market position or breakup value; are currently out of favor in the investment
community; or have attractive growth potential in their business markets.
Securities are also sought that have been over-discounted due to adverse
operating results, deteriorating economic or industry conditions, or unfavorable
publicity.
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<PAGE> 14
The Portfolio may also invest in fixed-income securities and money market
instruments to preserve its principal value during uncertain or declining market
conditions. The Portfolio's total return will consist principally of capital
appreciation (or depreciation) and, to a lesser extent, current income. The
Portfolio's active management may result in a higher portfolio turnover rate and
correspondingly higher brokerage costs. Investment in this Portfolio will
generally involve market and financial risks that are comparable to, or somewhat
less than, those of the Equity Portfolio.
SMALL CAP PORTFOLIO
To achieve its investment objective of capital appreciation, this Portfolio
invests primarily in the common stocks of small and medium sized companies.
Ordinarily, these companies are not listed on a national securities exchange but
will be traded over the counter. Under normal market conditions, at least 65% of
this Portfolio's assets will be invested in common stocks of companies with
market capitalizations of less than $1 billion. However it may also invest in
larger companies if they appear to present better prospects for capital
appreciation. This Portfolio may invest up to 30% of its assets in foreign
securities.
Small and medium sized companies selected for this Portfolio are generally those
that are still in the developing stages of their life cycles and are able to
achieve rapid growth in sales, earnings and share prices. Investments in such
companies involve greater volatility and risk than is customarily associated
with more established companies because such companies often have limited
product lines, markets or financial resources, and their securities may be
subject to more abrupt or erratic movements in price than securities of larger
companies or the market averages. Investment in this Portfolio generally
involves a higher degree of market and financial risks than those of the Equity
Portfolio.
GLOBAL CONTRARIAN PORTFOLIO
The objective of the Global Contrarian Portfolio is to provide long-term growth
of capital by investing in foreign and domestic securities that, in the judgment
of the portfolio manager, are undervalued or presently out of favor with other
investors but have positive prospects for eventual appreciation. While this
Portfolio will primarily invest in common stocks (and securities convertible
into common stocks), it may also invest in fixed income securities that appear
to be undervalued or out of favor.
A substantial portion (at least 25%) of this Portfolio will be invested in
foreign securities, in at least three countries, under normal market conditions.
To that extent, the risk factors described in the second paragraph under
"International Portfolio," above, will apply. In addition, "contrarian"
investing generally involves substantial risks, particularly in the short term.
Companies or markets that appear to be undervalued or are out of favor with
investors may remain so for an extended period of time or may never recover.
Therefore, this Portfolio should be considered primarily for long-term
investments. Investment in this Portfolio generally involves a high degree of
market and financial risk.
AGGRESSIVE GROWTH PORTFOLIO
The investment objective of the Aggressive Growth Portfolio is to seek capital
growth. The Portfolio invests in a diversified portfolio of securities believed
to represent attractive growth opportunities. The Portfolio normally emphasizes
equity securities, although it has the flexibility to invest in any type of
security that is believed to have the potential for capital appreciation. The
Portfolio may invest up to 100% of its assets in equity securities, including
common stocks, preferred stocks, securities that are convertible into common or
preferred stocks, such as convertible bonds, and warrants. The Portfolio may
invest up to 100% of its assets in intermediate - to long-term corporate or U.S.
government debt securities. Although the debt securities in which the Portfolio
invests will be primarily investment-grade debt securities, the Portfolio may
invest up to 5% of its total assets in non-investment-grade debt securities.
The Portfolio may invest up to 15% of its assets in foreign securities, which
involve certain risks.
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<PAGE> 15
The Portfolio seeks to uncover emerging investment trends and attractive growth
opportunities. In its search for potential investments, the Portfolio attempts
to identify companies that are poised for accelerated earnings growth due to
innovative products or services, new management, or favorable economic or market
cycles. These companies may be small, unseasoned firms in the early stages of
development, or they may be mature organizations. The Portfolio engages in
substantial short-term trading, which involves significant risk and may be
deemed speculative. Such trading results in a higher portfolio turnover rate and
correspondingly higher brokerage costs. Investment in this Portfolio involves a
high degree of market and financial risk.
CORE GROWTH PORTFOLIO
The objective of the Core Growth Portfolio is to provide long-term capital
appreciation by investing primarily in equity securities of large, medium and
small companies that PBA believes have strong earnings growth and long-term
capital appreciation prospects. PBA seeks companies poised for rapid growth that
have a history of above-average earnings growth, demonstrate the ability to
sustain that growth, and operate in industries or markets experiencing increased
demand for their products or services.
In managing the Core Growth Portfolio, PBA uses both quantitative and
fundamental processes focusing on quality earnings growth. PBA begins by
creating a universe of rapidly growing companies having desired quality
characteristics. Using proprietary software and research models that incorporate
attributes of successful growth (such as positive earnings surprises, upward
earnings estimate revisions, and accelerating sales and earnings growth), PBA
creates a universe of growing companies. Then, using fundamental research, PBA
evaluates each company's earnings quality and assesses the sustainability of the
company's current growth trends. Through this highly disciplined process, PBA
seeks to construct an investment portfolio having strong growth characteristics.
This portfolio's investments in small and medium capitalization companies may
experience greater price volatility than portfolios investing primarily in
larger, more established companies. Because the universe of companies in which
this portfolio invests will experience stock price volatility, it is important
that investors maintain a long-term investment perspective.
GROWTH & INCOME PORTFOLIO
The Growth & Income Portfolio's investment objective is long-term total return.
The Portfolio will pursue this objective primarily by investing in equity and
debt securities, focusing on small- and mid-cap companies that offer the
potential for capital appreciation, current income, or both.
The Portfolio will normally invest the majority of its assets in common stocks,
convertible securities, bonds, and notes. Although the Portfolio is intended to
focus on companies with market capitalizations of up to $3 billion, the
Portfolio will remain flexible and may invest in securities of larger companies.
The Portfolio may also engage in short sales of securities expected to decline
in price. Small- and mid-cap companies may present greater opportunities for
investment return than do larger companies, but may also involve greater risks.
They may have limited product lines, marketing or financial resources, or may
depend on a limited management group. Their securities may trade less frequently
and in limited volume. As a result, the prices of these securities may fluctuate
more than prices of securities of larger, widely traded companies.
S&P 500 INDEX PORTFOLIO
The investment objective of the S&P 500 Index Portfolio is to seek total return
approximating that of the S&P 500, including reinvestment of dividends, at a
risk level consistent with that of the S&P 500. It will seek this objective by
investing primarily in (a) common stocks and other securities that need not be
included among the 500 stocks in the S&P 500, and/or (b) S&P 500 stock index
futures contracts which will be hedged by investing in securities issued or
guaranteed by the U.S. government, its agencies or instrumentalities,
investment-grade corporate bonds and cash equivalents. This strategy is intended
to replicate the performance of the S&P 500. However, Portfolio expenses will
reduce the Portfolio's ability to exactly track the S&P 500 and there can be no
assurance that the Portfolio's investments will have the desired effect.
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<PAGE> 16
The value of S&P 500 stock index futures contracts is tied directly to the
fluctuations of the S&P 500. The Portfolio's ability to use futures contracts as
a substitute for maintaining a fully-invested market position in the 500 stocks
comprising the S&P 500 obligates the Portfolio to hedge its position by
delivering a specific dollar amount equal to the difference between the value of
the S&P 500 at the time the contract was made and the closing of the contract.
The futures contracts can result in a high degree of leverage so that, were the
Portfolio's position in the contracts not to be hedged by its position in U.S.
government obligations, investment-grade corporate bonds and cash equivalents, a
relatively small decline in the S&P 500 could result in a substantial loss to
the Portfolio, including part or all of the margin deposits required on the
contracts. See "About the S&P 500" on page 23.
SOCIAL AWARENESS PORTFOLIO
The objective of the Social Awareness Portfolio is to provide long-term growth
of capital by investing primarily in the common stocks and other equity
securities of companies that, in the Adviser's opinion, conduct their business
in a way that enhances society's quality of life. The Portfolio's social concern
criteria will necessarily limit the universe of securities that may be selected
for this Portfolio. However, the Adviser believes the Portfolio's objective of
long-term capital growth can be achieved despite this limitation.
In choosing investments, the Adviser will consider a company's record in (a)
quality and safety of its products and services, (b) environmental protection
and enhancement, (c) employee relations, opportunities and safety, (d) consumer
relations and protection, (e) community involvement, and (f) expectations for
the creation of new jobs and economic development due to anticipated company
growth. In addition, each potential investment will be subject to the Adviser's
standards of investment analysis. As a matter of operating policy that may be
modified by the Board of Directors, the Portfolio will not invest in any company
substantially engaged in the manufacture of or distribution of tobacco products,
alcoholic beverages or weapons, or the operation of gambling casinos, or the
support of repressive regimes. The Adviser will attempt to monitor and respond
to changes in business practices of the companies selected for investment and,
in case of any adverse development, will consider whether or not the Portfolio's
policies would require it to sell its position in that company. Any sale under
those circumstances would, however, be subject to prudent market considerations.
STRATEGIC INCOME PORTFOLIO
The investment objective of the Strategic Income Portfolio is to generate high
current income by investing at least 80% of its assets in income producing
securities, including at least 40% of its assets in a core asset group of U.S.
government and corporate fixed income securities, and 5% to 20% of its assets in
each of the following satellite categories: (a) foreign bonds, (b) real estate
investment trusts, (c) domestic equity securities, (d) money market securities
and (e) the following structured fixed income securities: mortgage backed
securities, collateralized mortgage obligations ("CMOs"), adjustable rate
mortgage securities ("ARMS") and asset-backed securities.
The core assets are selected based on the outlook for interest rates and their
yield in relation to other fixed income securities of similar quality and
maturity and only include investment grade bonds (i.e., those rated Baa or
higher by Moody's, or BBB or higher by S&P or Fitch or which, if unrated, are
deemed by Star to be of comparable quality). The foreign bonds are of non-U.S.
companies and governments. They are investment grade, are denominated in
currencies other than U.S. dollars and may include American Depositary Receipts
and International Depositary Receipts. The Portfolio may also invest in shares
of investment companies that invest primarily in foreign bonds. Real estate
investment trusts include equity or mortgage real estate trusts integrated to
capture income diversified by sector (e.g., shopping malls, apartment buildings
and health care facilities) and by geographic location. The domestic equity
category consists of high-dividend common and preferred stocks of U.S. companies
with a history of stable earnings and/or growing dividends. The domestic equity
category may also include warrants and securities convertible into the common
stocks of these U.S. companies. The money market category includes (a)
commercial paper and Europaper (dollar-denominated commercial paper issued
outside the U.S.) having at least one rating in one of the two highest
categories of any NRSRO; (b) instruments of domestic and foreign banks and
savings and loans (such as certificates of
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<PAGE> 17
deposit, demand and time deposits, savings shares and bankers acceptances) if
they have capital, surplus and individual profits of over $100,000,000, or if
the principal amount of the instrument is insured by a fund administered by the
Federal Deposit Insurance Corporation ("FDIC insured"), including Eurodollar
Certificates of Deposit ("ECDs"), Yankee Certificates of Deposit ("Yankee CDs")
and Eurodollar Time Deposits ("ETDs"); (c) obligations of the U.S. government or
its agencies or instrumentalities; (d) repurchase agreements, and (e) other
unrated short-term instruments deemed by Star to be of comparable quality to the
other obligations in which the Portfolio may invest. This Portfolio may also
engage in short sales from time to time. See "Risks Related to Short Sales" on
page 17.
STELLAR PORTFOLIO
The investment objective of the Stellar Portfolio is to maximize total return by
investing approximately 15% to 25% of its assets in each of the following
categories: (a) domestic equity securities which Star deems to be undervalued
relative to stocks contained in the S&P 500 Composite Stock Index; (b) domestic
fixed income securities including investment grade corporate debt obligations
and obligations of the U.S. government and its agencies and instrumentalities;
(c) foreign securities including securities of non-U.S. companies, investment
grade corporate and government fixed income securities denominated in currencies
other than U.S. dollars, and investment companies that invest primarily in
foreign securities; (d) real estate securities including publicly traded equity
and convertible debt securities of real estate related companies and real estate
investment trusts, and (e) precious metal securities and/or money market
securities. Precious metal securities include equity securities of domestic and
foreign companies that explore for, extract, process, or deal in precious metals
such as gold, silver, palladium and platinum. Up to 5% of the Portfolio may be
invested in domestic and foreign asset-based securities for which the principal
amount, redemption terms or conversion terms are related to the market price of
some precious metals. Money market securities in which the Portfolio may invest
are U.S. and foreign short-term money market instruments including commercial
paper and Europaper (dollar-denominated commercial paper issued outside the
U.S.) having at least one rating in one of the two highest categories of any
NRSRO; instruments of domestic and foreign banks and savings and loans (such as
certificates of deposit, demand and time deposits, savings shares and bankers'
acceptances) if they have capital, surplus and undivided profits of over
$100,000,000, or if the principal amount of the instrument is FDIC insured
(these may include ECDs, Yankee CDs and ETDs); obligations of the U.S.
government or its agencies or instrumentalities; repurchase agreements, or other
short-term instruments deemed by Star to be of comparable quality to the other
foregoing money market securities.
RELATIVE VALUE PORTFOLIO
The investment objective of the Relative Value Portfolio is to obtain the
highest total return as is consistent with reasonable risk by investing
primarily in stocks which Star deems to represent characteristics with low
volatility, above-average yields, and are undervalued relative to the stocks
comprising the S&P Composite Stock Index. Unless it is in a defensive position,
at least 70% of the Portfolio's assets will be invested in common stocks of
companies in the top 25% of their industries with regard to revenues. However,
other factors, such as product position or market share, will also be considered
and may outweigh revenues.
The Portfolio will also invest in fixed income securities, including convertible
securities; domestic corporate debt obligations (rated or A or higher by Moody's
or S&P or Fitch); and obligations of the U.S. government or its agencies or
instrumentalities.
EMERGING GROWTH PORTFOLIO
The investment objective of the Emerging Growth Portfolio is capital
appreciation. To achieve this objective, the Portfolio invests in an actively
managed portfolio of equity securities (principally common stocks) of emerging
growth companies. These are companies that, in RSIM's opinion, have the
potential, based on superior products or services, operating characteristics,
and financing capabilities, for more rapid growth than the over-all economy.
Investments generally are held in companies in industry segments experiencing
rapid growth or in companies with proprietary advantages. In evaluating
potential investments, RSIM may consider a number of factors including the rate
of earnings growth, the quality of management, the extent of proprietary
operating advantage, the return on equity and/or the financial condition of the
company. Up to 30% of this Portfolio's assets may be invested in foreign
securities.
Smaller companies may present greater opportunities for investment return than
do larger companies, but may also involve greater risks. They may have limited
product lines, markets or financial resources, and they may depend on a limited
management group. Their securities may trade less frequently and in limited
volume. As a result, the prices of these securities may fluctuate more than
prices of larger, more widely traded companies. The Portfolio may experience
some difficulty in establishing or closing out positions in these securities at
prevailing market prices. There may be less publicly available information about
the issuers or less market interest in their securities than in the case of
larger companies, and it may take longer for prices of these securities to
reflect the full value of their issuers' underlying earnings potential or
assets. Securities of some smaller issuers may be restricted as to resale or may
otherwise be illiquid, thus limiting the Portfolio's ability to dispose of the
securities.
HIGH INCOME BOND PORTFOLIO
The objective of the High Income Bond Portfolio is to seek high current income.
The Portfolio invests primarily in lower rated corporate debt obligations
commonly referred to as "junk bonds." Some of these fixed income securities may
involve equity features. Capital growth will be considered, but only when
consistent with the objective of high current income. Under normal
circumstances, the Portfolio will not invest more than 10% of the value of its
assets in equity securities and their equivalents. Fixed income securities in
which the Portfolio invests include, but are not limited to, preferred stocks,
bonds, debentures, notes, equipment lease certificates and equipment trust
certificates. The Portfolio's investments are generally rated Baa or lower by
Moody's, or BBB or lower by S&P or Fitch, or are not rated but are determined by
FIC to be of comparable quality, and may include bonds in default. There is no
lower limit with respect to rating categories for securities in which the
Portfolio may invest. These lower rated securities have speculative
characteristics. Changes in economic conditions or other circumstances are more
likely to lead to weakened capacity to make principal and interest payments than
highly rated bonds.
The Portfolio may invest in various kinds of convertible securities that can be
exchanged for or converted into common stock. Convertible securities are often
rated below investment grade or not rated because they fall below debt
obligations and just above common stock in order of preference on the issuer's
balance sheet. The Portfolio may invest up to 30% of its assets in foreign
securities, including those not publicly traded in the United States. The
Portfolio may also invest in debt and equity securities issued by real estate
investment trusts.
EQUITY INCOME PORTFOLIO
The investment objective of the Equity Income Portfolio is to provide
above-average income and capital appreciation. The Portfolio invests primarily
in income-producing equity securities including common stocks, preferred stocks,
real estate investment trusts and securities (including debt securities)
convertible into common stocks. The Portfolio emphasizes those common stocks in
each sector that have good value, attractive yield and dividend growth
potential. Convertible securities are used because they typically offer high
yields and good potential for capital appreciation.
The Portfolio invests in convertible securities without regard to their rating.
They are often rated below investment grade, or not rated, because they fall
below debt obligations and just above common equity in order of preference or
priority on the issuer's balance sheet. Hence, an issuer with investment grade
senior debt may issue convertible securities with ratings below investment grade
or not rated. These securities may be subject to some of the same risks as those
inherent in junk bonds as described for the High Income Portfolio.
This Portfolio may invest in foreign securities, and it may also engage in short
sales from time to time.
BLUE CHIP PORTFOLIO
The investment objective of the Blue Chip Portfolio is to seek growth of capital
and income by concentrating investment decisions in securities of high quality
companies. The Portfolio pursues its investment objective by investing primarily
in a portfolio of securities issued by companies selected from "The Leaders
List." "The Leaders List" is the proprietary trade name for a list of blue chip
companies selected by FIC principally on the basis of fundamental research
techniques and standards with emphasis on earning power, financial condition and
valuation. The companies are among the leaders in their industries in terms of
sales, earnings, and/or market capitalization. FIC places emphasis on earning
power, financial condition and valuation when making portfolio selections, and
it believes that these companies' securities represent diversified and highly
marketable investments.
The securities in which the Portfolio invests include, but are not limited to,
common stocks, preferred stocks, domestic corporate debt obligations,
convertible securities, warrants, American depository receipts and foreign
securities. Corporate debt obligations will be rated Baa or better by Moody's,
or BBB or better by S&P or Fitch, or if not rated, will be determined by FIC to
be of comparable quality. If a security loses its rating or has its rating
reduced after the Portfolio has purchased it, the Portfolio is not required to
drop the security from the Portfolio, but that will be considered. Bonds rated
below Baa or BBB have some speculative characteristics.
INVESTMENT RESTRICTIONS
The Fund is subject to a number of restrictions in implementing its investment
policies. The following is a list of certain significant restrictions for all
portfolios other than the Capital Appreciation, Aggressive Growth, High Income
Bond, Equity Income and Blue Chip Portfolios, the restrictions for which are
listed separately. The Statement of Additional Information provides a complete
list of all investment restrictions applicable to the Fund. Restriction number
8 is a fundamental policy of the Global Contratrian Portfolio, and restrictions
number 4, 7 and 8 are fundamental policies of the Equity, Money Market, Bond,
Omni and International Portfolios, and nonfundamental as to the remaining
portfolios. Nonfundamental policies may be changed by the Board of Directors.
Fundamental policies may not be changed without the affirmative vote of a
majority of the outstanding voting securities of the Fund or of a particular
portfolio, as appropriate.
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Each portfolio of the Fund (other than the Capital Appreciation, Aggressive
Growth, High Income Bond, Equity Income and Blue Chip Portfolios) will not:
1. invest more than 5% of the value of the total assets of such portfolio in
the securities of any one insurer (except U.S. government securities);
2. purchase more than 10% of the outstanding voting securities of any one
issuer, and the Money Market Portfolio will not acquire the voting
securities of any issuer except in connection with a merger, consolidation
or other reorganization;
3. invest more than 25% of the value of its total assets in any one industry,
except that each portfolio may invest more than 25% of the value of its
total assets in obligations issued or guaranteed by the U.S. government,
its agencies or instrumentalities or in certificates of deposit, bankers'
acceptances, bank time deposits or other obligations of banks or financial
institutions. However, it is the intention of management not to invest in
time deposits which involve any penalty or other restriction on withdrawal;
4. invest more than 15% of the value of its assets (10% in the case of the
Equity, Money Market, Bond, Omni and International Portfolios) in
securities or other investments, including repurchase agreements maturing
in more than seven days, that are subject to legal or contractual
restrictions upon resale or are otherwise not readily marketable;
5. other than the Growth & Income, Strategic Income and Emerging Growth
Portfolios, borrow money, except for temporary or emergency purposes from
banks, in which event the aggregate amount borrowed shall not exceed 5% of
the value of the assets of the portfolio. In the case of such borrowing,
each portfolio may pledge, mortgage or hypothecate up to 5% of its assets.
Reverse repurchase agreements are not considered to be borrowing money for
purposes of this restriction. The Growth & Income, Strategic Income and
Emerging Growth Portfolios may borrow money directly or through reverse
repurchase agreements in amounts up to one-third of the value of each of
their total net assets, other than the amount borrowed;
6. purchase or sell commodities or commodity contracts except that (a) each
portfolio other than the Money Market Portfolio may, for hedging purposes,
purchase and sell financial futures contracts and options thereon within
the limits of investment restriction 7 below, (b) notwithstanding
restriction 7 below, the S&P 500 Index Portfolio may purchase and sell
stock index futures contracts in accordance with its stated investment
objectives, and (c) the Stellar Portfolio may purchase or sell precious
metal securities;
7. other than the S&P 500 Index Portfolio, purchase or sell put or call
options, except that each portfolio other than the Money Market Portfolio
may, for hedging purposes, (a) write call options traded on a registered
national securities exchange if such portfolio owns the underlying
securities subject to such options, and purchase call options for the
purpose of closing out positions in options it has written, (b) purchase
put options on securities owned, and sell such options in order to close
its positions in put options, (c) purchase and sell financial futures
contracts and options thereon, and (d) purchase and sell financial index
options; provided, however, that no option or futures contract shall be
purchased or sold if, as a result, more than one-third of the total assets
of the portfolio would be hedged by options or futures contracts, and no
more than 5% of any portfolio's total assets, at market value, may be used
for premiums on open options and initial margin deposits on futures
contracts;
8. other than the International and Global Contrarian Portfolios, invest in
securities of foreign issuers except that (a) each of the Equity, Bond,
Omni, Core Growth, Growth & Income, S&P 500 Index, Social Awareness and
Relative Value Portfolios may (i) invest up to 15% of their respective
assets in securities of foreign issuers (including private issuers and
foreign governments or political subdivisions, agencies or
instrumentalities of foreign governments), American Depository Receipts,
and securities of United States domestic issuers denominated in foreign
currency, and (ii) invest up to an additional 10% of the assets of the
portfolio in securities issued by foreign governments or political
subdivisions, agencies or instrumentalities thereof, (b) each of the
Small Cap and Emerging Growth Portfolios may invest up to 30% of its
assets in the securities of foreign issuers, (c) the Money Market
Portfolio may invest up to 50% of its assets in the securities of foreign
issuers, provided the securities are denominated in U.S. dollars and held
in custody in the United States, (d) the Strategic Income Portfolio may
invest up to 20% of its assets in foreign bonds and (e) the Stellar
Portfolio may invest up to 25% of its assets in the securities of foreign
issuers. For purposes of this restriction number 8, U.S. dollar
denominated depository receipts traded in domestic markets do not
constitute foreign securities;
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As nonfundamental policies of each portfolio other than the Capital
Appreciation, Aggressive Growth, High Income Bond, Equity Income and Blue Chip
Portfolios, which policies may be changed at any time by the vote of a majority
of the Board of Directors, (a) no portfolio will invest more than 20% of its
assets in securities of issuers located in any one foreign country, except that
up to an additional 5% of its assets may be invested in securities of issuers
located in each of any three of Australia, Canada, France, Germany, Japan or
the United Kingdom; and (b) each portfolio other than the Money Market
Portfolio, in order to hedge against changes in the exchange rates of foreign
currencies in relation to the U.S. dollar, may engage in forward foreign
currency contracts, foreign currency options and foreign currency futures
contracts in connection with the purchase, sale or ownership of specific
securities (but, not more than 5% of a portfolio's assets may be invested in
such currency hedging contracts).
If a percentage restriction is adhered to at the time of an investment, a later
increase or decrease in the investment's percentage of the value of a
portfolio's total assets resulting from a change in such values or assets will
not constitute a violation of the percentage restriction.
CAPITAL APPRECIATION PORTFOLIO FUNDAMENTAL POLICIES As a matter of fundamental
policy, the Portfolio may not:
C.A.1. Borrow money except that the Portfolio may (i) borrow for
non-leveraging, temporary or emergency purposes and (ii) engage in
reverse repurchase agreements and make other investments or engage in
other transactions, which may involve a borrowing, in a manner
consistent with the Portfolio's investment objective and program,
provided that the combination of (i) and (ii) shall not exceed 33 1/3%
of the value of the Portfolio's total assets (including the amount
borrowed) less liabilities (other than borrowings) or such other
percentage permitted by law. Any borrowings which come to exceed this
amount will be reduced in accordance with applicable law. The Portfolio
may borrow from banks, other portfolios managed by TRPA or other
persons to the extent permitted by applicable law;
C.A.2. Purchase or sell physical commodities; except that it may enter into
futures contracts and options thereon;
C.A.3. Purchase the securities of any issuer if, as a result, more than 25% of
the value of the Portfolio's total assets would be invested in the
securities of issuers having their principal business activities in the
same industry;
C.A.4. Make loans, although the Portfolio may (i) lend portfolio securities
and participate in an interfund lending program with other portfolios
managed by TRPA provided that no such loan may be made if, as a result,
the aggregate of such loans would exceed 33 1/3% of the value of the
Portfolio's total assets; (ii) purchase money market securities and
enter into repurchase agreements; and (iii) acquire
publicly-distributed or privately-placed debt securities and purchase
debt;
C.A.5. Purchase a security if, as a result, with respect to 75% of the value
of its total assets, more than 5% of the value of the Portfolio's total
assets would be invested in the securities of a single issuer, except
securities issued or guaranteed by the U.S. government or any of its
agencies or instrumentalities;
C.A.6. Purchase a security if, as a result, with respect to 75% of the value
of the Portfolio's total assets, more than 10% of the outstanding
voting securities of any issuer would be held by the Fund (other than
obligations issued or guaranteed by the U.S. government, its agencies
or instrumentalities);
C.A.7. Purchase or sell real estate unless acquired as a result of ownership
of securities or other instruments (but this shall not prevent the
Portfolio from investing in securities or other instruments backed by
real estate or in securities of companies engaged in the real estate
business);
C.A.8. Issue senior securities except in compliance with the Investment
Company Act of 1940; or
C.A.9. Underwrite securities issued by other persons, except to the extent
that the Portfolio may be deemed to be an underwriter within the
meaning of the Securities Act of 1933 in connection with the purchase
and sale of its portfolio securities in the ordinary course of pursuing
its investment program.
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<PAGE> 20
With respect to investment restrictions C.A.1. and C.A.4., the Portfolio will
not borrow from or lend to any other portfolios managed by TRPA unless they
apply for and receive an exemptive order from the SEC or the SEC issues rules
permitting such transactions. The Portfolio has no current intention of engaging
in any such activity and there is no assurance the SEC would grant any order
requested by the Portfolio or promulgate any rules allowing the transactions.
With respect to investment restriction C.A.2., the Portfolio does not consider
currency contracts or hybrid investments to be commodities.
For purposes of investment restriction C.A.3., U.S., state or local governments,
or related agencies or instrumentalities, are not considered an industry.
For purposes of investment restriction C.A.4., the Portfolio will consider the
acquisition of a debt security to include the execution of a note or other
evidence of an extension of credit with a term of more than nine months.
AGGRESSIVE GROWTH PORTFOLIO FUNDAMENTAL POLICIES
As a matter of fundamental policy, the Portfolio:
A.G.1. May not with respect to 75% of its total assets, purchase the
securities of any issuer (except securities issued or guaranteed by the
U.S. government or its agencies or instrumentalities) if, as a result,
(i) more than 5% of the Portfolio's total assets would be invested in
the securities of that issuer, or (ii) the Portfolio would hold more
than 10% of the outstanding voting securities of that issuer.
A.G.2. May (i) borrow money from banks and (ii) make other investments or
engage in other transactions permissible under the Investment Company
Act of 1940 which may involve a borrowing, provided that the
combination of (i) and (ii) shall not exceed 33 1/3% of the value of
the Portfolio's total assets (including the amount borrowed), less the
Portfolio's liabilities (other than borrowings), except that the
Portfolio may borrow up to an additional 5% of its total assets (not
including the amount borrowed) from a bank for temporary or emergency
purposes (but not for leverage or the purchase of investments). The
Portfolio may also borrow money from the other mutual funds managed by
SCM or other persons to the extent permitted by applicable law.
A.G.3. May not issue senior securities, except as permitted under the
Investment Company Act of 1940.
A.G.4. May not act as an underwriter or another issuer's securities, except to
the extent that the Portfolio may be deemed to be an underwriter within
the meaning of the Securities Act of 1933 in connection with the
purchase and sale of portfolio securities.
A.G.5. May not purchase or sell physical commodities unless acquired as a
result of ownership of securities or other instruments (but this shall
not prevent the Portfolio from purchasing or selling options, futures
contracts, or other derivative instruments, or from investing in
securities or other instruments backed by physical commodities).
A.G.6. May not make loans if, as a result, more than 33 1/3% of the
Portfolio's total assets would be lent to other persons, except through
(i) purchases of debt securities or other debt instruments, or (ii)
engaging in repurchase agreements.
A.G.7. May not purchase the securities of any issuer if, as a result, more
than 25% of the Portfolio's total assets would be invested in the
securities of issuers, the principal business activities of which are
in the same industry.
A.G.8. May not purchase or sell real estate unless acquired as a result of
ownership of securities or other instruments (but this shall not
prohibit the Portfolio from purchasing or selling securities or other
instruments backed by real estate or of issuers engaged in real estate
activities.
HIGH YIELD BOND, EQUITY INCOME AND BLUE CHIP PORTFOLIO FUNDAMENTAL POLICIES
As a matter of fundamental policy:
F.I.1 The portfolios will not issue senior securities, except that a
portfolio may borrow money directly or through reverse repurchase
agreements as a temporary, extraordinary, or emergency measure to
facilitate management of the portfolio by enabling it to meet
redemption requests when liquidation of portfolio securities is deemed
to be inconvenient or disadvantageous, and then only in amounts not in
excess of one-third of the value of its total assets; provided that,
while borrowings and reverse repurchase agreements outstanding exceed
5% of a portfolio's total assets, any such borrowings will be repaid
before additional investments are made. The portfolios will not borrow
money or engage in reverse repurchase agreements for investment
leverage purposes.
F.I.2. The portfolios will not purchase securities if, as a result of such
purchase, 25% or more of a portfolio's total assets would be invested
in any one industry. However, a portfolio may at any time invest 25% or
more of its total assets in cash or cash items and securities issued
and/or guaranteed by the U.S. government, its agencies or
instrumentalities.
F.I.3. The portfolios will not purchase or sell real estate, although they may
invest in securities of companies whose business involves the purchase
or sale of real estate or in securities secured by real estate or
interests in real estate.
F.I.4. The portfolios will not lend any of their assets, except a portfolio's
securities, up to one-third of its total assets. This shall not prevent
a portfolio from purchasing or holding corporate or U.S. government
bonds, debentures, notes, certificates of indebtedness or other debt
securities of an issuer, entering into repurchase agreements, or
engaging in other transactions which are permitted by the portfolio's
investment objectives and policies.
F.I.5. The portfolios will not underwrite any issue of securities, except as a
portfolio may be deemed to be an underwriter under the Securities Act
of 1933 in connection with the sale of securities in accordance with
its investment objectives, policies, and limitations.
F.I.6. With respect to 75% of its total assets, a portfolio will not purchase
the securities of any one issuer (other than cash, cash items, or
securities issued and/or guaranteed by the U.S. government, its
agencies or instrumentalities, and repurchase agreements collateralized
by such securities) if, as a result, more than 5% of its total assets
would be invested in the securities of that issuer. Also, a portfolio
will not purchase more than 10% of any class of the outstanding voting
securities of any one issuer. For these purposes, the portfolios
consider common stock and all preferred stock of an issuer each as a
single class, regardless of priorities, series, designations, or other
differences.
F.I.7. The portfolios will not purchase any securities on margin, but they may
obtain such short-term credits as are necessary for clearance of
transactions. The deposit or payment by a portfolio of initial or
variation margin in connection with financial futures contracts or
related options transactions is not considered the purchase of a
security on margin.
F.I.8. The portfolios will not purchase or sell commodities, except that a
portfolio may purchase and sell financial futures contracts and related
options.
REPURCHASE AGREEMENTS
Under a repurchase agreement, the portfolio purchases a security and obtains a
simultaneous commitment from the seller (a member bank of the Federal Reserve
System or a government securities dealer recognized by the Federal Reserve
Board) to repurchase the security at a mutually agreed upon price and date. It
may also be viewed as a loan of money by the portfolio to the seller. The resale
price is normally in excess of the purchase price and reflects an agreed upon
market rate. The rate is effective for the period of time the portfolio is
invested in the agreement and unrelated to the coupon rate on the purchased
security. The period of these repurchase agreements will usually be short, from
overnight to one week, and at no time will the portfolio invest in repurchase
agreements for more than one year. These transactions afford an opportunity for
the portfolio to earn a return on temporarily available cash. Although
repurchase agreements carry certain risks not associated with direct investments
in securities, the Fund intends to enter into repurchase agreements only with
financial institutions believed by the Adviser and any sub-adviser to present
minimal credit risks in accordance with criteria established by the Fund's Board
of Directors. The Adviser or sub-adviser will review and monitor the
creditworthiness of such institutions under the Board's general supervision. The
Fund will only enter into repurchase agreements pursuant to master repurchase
agreements that provide that all transactions be fully collateralized and that
the collateral be in the actual or constructive possession of the Fund. These
agreements must also provide that the Fund will always receive as collateral
securities whose market value, including accrued interest, will be at least
equal to 100% of the dollar amount invested by the portfolio in each agreement,
and the portfolio will make payment for such securities only upon physical
delivery or evidence of book entry transfer to the account of the custodian. If
the seller were to default, the portfolio might incur a loss if the value of the
collateral securing the repurchase agreement declines and may incur disposition
costs in connection with liquidating the collateral. In addition, if bankruptcy
proceedings are commenced with respect to the seller of the security,
realization upon the collateral by the portfolio may be delayed or limited and a
loss may be incurred if the collateral securing the repurchase agreement
declines in value during the bankruptcy proceedings.
REVERSE REPURCHASE AGREEMENTS
Under a reverse repurchase agreement, a portfolio sells a debt security and
agrees to repurchase it at an agreed upon time and at an agreed upon price. The
portfolio retains record ownership of the security and the right to receive
interest and principal payments thereon. At an agreed upon future date, the
portfolio repurchases the security by remitting the proceeds previously
received, plus interest. The difference between the amount the portfolio
receives for the security and the amount it pays on repurchase is deemed to be
payment of interest. The portfolio will maintain in a segregated custodial
account cash, Treasury bills or other U.S. government securities having an
aggregate value equal to the amount of such commitment to repurchase including
accrued interest, until payment is made. In certain types of agreements, there
is no agreed-upon repurchase date and interest payments are calculated daily,
often based on the prevailing overnight repurchase rate. The Securities and
Exchange Commission views these transactions as collateralized borrowings by the
portfolio and the portfolio will abide by the limitations set out in the
investment restrictions with respect to the borrowing of money.
CONVERTIBLE SECURITIES
Convertible securities include a variety of instruments that can be exchanged
for or converted into common stock, including convertible bonds or debentures,
convertible preferred stock, units consisting of usable bonds and warrants, and
securities that cap or otherwise limit returns to the security holder. Examples
of these include dividend enhanced convertible stock or debt exchangeable for
common stock (DECS), liquid yield option notes (LYONS), preferred equity
redemption cumulative stock (PERCS), preferred redeemable increased dividend
securities (PRIDES) and zero coupon convertible securities.
As with all fixed-income securities, various market forces influence the market
value of convertible securities, including changes in the level of interest
rates. As the level of interest rates increases, the market value of convertible
securities may decline and, conversely, as interest rates decline, the market
value of convertible securities may increase. The unique investment
characteristic of convertible securities, the right to be exchanged for the
issuer's common stock, causes the market value of convertible securities to
increase when the underlying common stock increases. However, since securities
prices fluctuate, there can be no assurance of capital appreciation, and most
convertible securities will not reflect quite as much capital appreciation as
their underlying common stocks. When the underlying common stock is experiencing
a decline, the value of the convertible security tends to decline to a level
approximating the yield-to-maturity basis of straight nonconvertible debt of
similar quality, often called "investment value," and may not experience the
same decline as the underlying common stock.
Many convertible securities sell at a premium over their conversion values
(i.e., the number of shares of common stock to be received upon conversion
multiplied by the current market price of the stock). This premium represents
the price investors are willing to pay for the privilege of purchasing a
fixed-income security with a possibility of capital appreciation due to the
conversion privilege. If this appreciation potential is not realized, the
premium may not be recovered.
ZERO-COUPON AND PAY-IN-KIND DEBT SECURITIES
Zero-coupon securities (or "step-ups") in which a portfolio may invest are debt
obligations which are generally issued at a discount and payable in full at
maturity, and which do not provide for current payments of interest prior to
maturity. Pay-in-kind securities make periodic interest payments in the form of
additional securities (as opposed to cash). Zero-coupon and pay-in-kind
securities usually trade at a deep discount from their face or par value and are
subject to greater market value fluctuations from changing interest rates than
debt obligations of comparable maturities which make current distributions of
interest. As a result, the net asset value of shares of a portfolio investing in
zero-coupon and pay-in-kind securities may fluctuate over a greater range than
shares of other mutual funds investing in securities making current
distributions of interest and having similar maturities.
LOWER-RATED DEBT SECURITIES
Certain of the portfolios may purchase lower-rated debt securities, sometimes
referred to as "junk bonds" (those rated BB or lower by S&P or Fitch, or Ba or
lower by Moody's). See below for a description of S&P's ratings. Other ratings
are in the Appendix to the Statement of Additional Information. Under current
circumstances, only the High Income Bond Portfolio will purchase these
securities if, as a result, more than 35% of the Portfolio's assets would be
invested in securities rated below BB or Ba.
The lower ratings of certain securities held by a portfolio reflect a greater
possibility that adverse changes in the financial condition of the issuer, or in
general economic conditions, or both, or an unanticipated rise in interest
rates, may impair the ability of the issuer to make payments of interest and
principal. The inability (or perceived inability) of issuers to make timely
payment of interest and principal would likely make the values of securities
held by a portfolio more volatile and could limit the portfolio's ability to
sell its securities at prices approximating the values that portfolio had placed
on such securities. It is possible that legislation may be adopted in the future
limiting the ability of certain financial institutions to purchase lower rated
securities; such legislation may adversely affect the liquidity of such
securities. In the absence of a liquid trading market for securities held by it,
a portfolio may be unable at times to establish the fair market value of such
securities. The rating assigned to a security by Moody's, S&P or Fitch does not
reflect an assessment of the volatility of the security's market value or of the
liquidity of an investment in the security.
Like those of other fixed-income securities, the values of lower-rated
securities fluctuate in response to changes in interest rates. Thus, a decrease
in interest rates generally will result in an increase in the value of a
portfolio's fixed-income securities. Conversely, during periods of rising
interest rates, the value of a portfolio's fixed-income securities generally
will decline. In addition, the values of such securities are also affected by
changes in general economic conditions and business conditions affecting the
specific industries of their issuers. Changes by recognized rating services in
their ratings of any fixed-income security and in the ability of an issuer to
make payments of interest and principal may also affect the value of these
investments. Changes in the value of portfolio securities generally will not
affect cash income derived from such securities, but will affect the portfolio's
net asset value. A portfolio will not necessarily dispose of a security when its
rating is reduced below its rating at the time of purchase, although the Adviser
or sub-adviser will monitor the investment to determine whether continued
investment in the security will assist in meeting the portfolio's investment
objective.
Issuers of lower-rated securities are often highly leveraged, so that their
ability to service their debt obligations during an economic downturn or during
sustained periods of rising interest rates may be impaired. In addition, such
issuers may not have more traditional methods of financing available to them,
and may be unable to repay debt at maturity by refinancing. The risk of loss due
to default in payment of interest or principal by such issuers is significantly
greater because such securities frequently are unsecured and subordinated to the
prior payment of senior indebtedness. Certain of the lower-rated securities in
which the portfolios may invest are issued to raise funds in connection with the
acquisition of a company in so-called "leveraged buy-out" transactions. The
highly leveraged capital structure of such issuers may make them especially
vulnerable to adverse changes in economic conditions.
Under adverse market or economic conditions or in the event of adverse changes
in the financial condition of the issuer, a portfolio could find it more
difficult to sell lower-rated securities when the Adviser or sub-adviser
believes it advisable to do so or may be able to sell such securities only at
prices lower than if such securities were more widely held. In many cases, such
securities may be purchased in private placements and, accordingly, will be
subject to restrictions on resale as a matter of contract or under securities
laws. Under those circumstances, it may also be more difficult to determine the
fair value of the securities for purposes of computing a portfolio's net asset
value. In order to enforce its rights in the event of a default, a portfolio may
be required to take possession of and manage assets securing the issuer's
obligations on such securities, which may increase the portfolio's operating
expenses and adversely affect the portfolio's net asset value. A portfolio may
also be limited in its ability to enforce its rights and may incur greater costs
in enforcing its rights in the event an issuer becomes the subject of bankruptcy
proceedings.
Certain securities held by a portfolio may permit the issuer at its option to
"call," or redeem, its securities. If an issuer were to redeem securities held
by a portfolio during a time of declining interest rates, the portfolio may not
be able to reinvest the proceeds in securities providing the same investment
return as the securities redeemed.
S&P LOWER BOND RATINGS
Debt rated `BB,' `B,' `CC,' and `C,' is regarded as having predominantly
speculative characteristics with respect to capacity to pay interest and repay
principal. `BB' indicates the least degree of speculation and `C' the highest.
While such debt will likely have some quality and protective characteristics,
these are outweighed by large uncertainties of major exposures to adverse
markets.
BB Debt rated `BB' has less near-term vulnerability to default than other
speculative issues. However, it faces major ongoing uncertainties or
exposure to adverse business, financial, or economic conditions which
could lead to inadequate capacity to meet timely interest and principal
payments. The `BB' rating category is also used for debt subordinated to
senior debt that is assigned an actual or implied `BBB-' rating.
B Debt rated `B' has a greater vulnerability to default but currently has
the capacity to meet interest payments and principal repayments. Adverse
business, financial, or economic conditions will likely impair capacity
or willingness to pay interest and repay principal. The `B' rating
category is also used for debt subordinated to senior debt that is
assigned an actual or implied `BB' or `BB-' rating.
CCC Debt rated `CCC' has a currently identifiable vulnerability to default,
and is dependent upon favorable business, financial, and economic
conditions to meet timely payment of interest and repayment of principal.
In the event of adverse business, financial, or economic conditions, it
is not likely to have the capacity to pay interest and repay principal.
The `CCC' rating category is also used for debt subordinated to senior
debt that is assigned an actual or implied `B' or `B-" rating.
CC The rating `CC' typically is applied to debt subordinated to senior debt
that is assigned an actual or implied `CCC' rating.
C The rating `C' typically is applied to debt subordinated to senior debt
that is assigned an actual or implied `CCC-' rating. The `C' rating may
be used to cover a situation where a bankruptcy petition has been filed,
but debt service payments are continued.
CI The rating `CI' is reserved for income bonds on which no interest is
being paid.
D Debt rated `D' is in payment default. The `D' rating category is used
when interest payments or principal payments are not made on the date due
even if the applicable grace period has not expired, unless S&P believes
that such payments will be made during such grace period. The `D' rating
will also be used upon the filing of a bankruptcy petition if debt
service payments are jeopardized.
The ratings from `BB' to `CCC' may be modified by the addition of a plus (+) or
minus (-) to show relative standing within the major rating categories.
RESTRICTED AND ILLIQUID SECURITIES
Restricted securities are securities in which a portfolio may otherwise invest
pursuant to its investment objective and policies, but which are subject to
restrictions on resale under federal securities law. Under criteria established
by the Board of Directors, certain restricted securities are deemed to be
liquid. The Directors consider the following criteria in determining the
liquidity of restricted securities: (a) the frequency of trades and quotes for
the security; (b) the number of dealers willing to purchase or sell the
security, and the number of other potential buyers; (c) dealer undertakings to
make a market in the security; and (d) the nature of the security and the nature
of the marketplace trades.
SECURITIES LENDING
A portfolio may lend its portfolio securities, provided: (1) the loan is secured
continuously by collateral consisting of U.S. Government securities, cash or
cash equivalents adjusted daily to have market value at least equal to the
current market value of the securities loaned; (2) the portfolio may at any time
call the loan and regain the securities loaned; (3) a portfolio will receive any
interest or dividend paid on the loaned securities; and (4) the aggregate market
value of any portfolio's securities loaned will not at any time exceed one-third
(or such other limit as the Board of Directors may establish) of the total
assets of the portfolio. In addition, it is anticipated that a portfolio may
share with the borrower some of the income received on the collateral for the
loan or that the portfolio will be paid a premium for the loan.
Before a portfolio enters into a loan, the Adviser or sub-adviser considers all
relevant facts and circumstances, including the creditworthiness of the
borrower. The risks in lending portfolio securities, as with other extensions of
credit, consist of possible delay in recovery of the securities or possible loss
of rights in the collateral should the borrower fail financially. Although
voting rights or rights to consent with respect to the loaned securities pass to
the borrower, a portfolio retains the right to call the loans at any time on
reasonable notice, and it will do so in order that the securities may be voted
by a portfolio if the holders of such securities are asked to vote upon or
consent to matters materially affecting the investment. A portfolio will not
lend its securities to borrowers affiliated with the Fund, the Adviser or that
portfolio's sub-adviser.
WARRANTS
Warrants basically are options to purchase common stock at a specific price
(usually at a premium above the market value of the optioned common stock at
issuance) valid for a specific period of time. Warrants may have a life ranging
from less that a year to twenty years or may be perpetual. However, warrants
have expiration dates after which they are worthless. In addition, if the market
price of the common stock does not exceed the warrant's exercise price during
the life of the warrant, the warrant will expire as worthless. Warrants have no
voting rights, pay no dividends, and have no rights with respect to the assets
of the corporation issuing them. The percentage increase or decrease in the
market price of the warrant may tend to be greater than the percentage increase
or decrease in the market price of the optioned common stock.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS
These transactions are made to secure what is considered to be an advantageous
price or yield for a portfolio. No fees or other expenses, other than normal
transaction costs, are incurred. However, liquid assets of the portfolio
sufficient to make payment for the securities to be purchased are segregated on
the portfolio's records at the trade date. These assets are marked to market
daily and are maintained until the transaction has been settled. No portfolio
will engage in when-issued and delayed delivery transactions to an extent that
would cause the segregation of more than 20% of the total value of its assets.
RISK FACTORS WITH OPTIONS
The purchaser of an option pays the option writer a "premium" for the option. In
the case of a covered call option written by a portfolio, if the purchaser does
not exercise the call option, the premium will generate additional capital gain
to the portfolio. If the market price of the underlying security declines, the
premium received for the call option will reduce the amount of the loss the
portfolio would otherwise incur. However, if the market price of the underlying
security rises above the exercise price and the call option is exercised, the
portfolio will lose its opportunity to profit from that portion of the rise
which is in excess of the exercise price plus the option premium. Therefore, the
Fund will write call options only when the Adviser believes that the option
premium will yield a greater return to the portfolio than any capital
appreciation that might occur on the underlying security during the life of the
option.
In the case of a put option purchased by a portfolio, if the market price of the
underlying security remains or rises above the exercise price of the option, the
portfolio will not exercise the option and the premium paid for such option will
reduce the gain the portfolio would otherwise have earned. Conversely, if the
market price of the underlying security falls below the exercise price less the
premium paid for the option, the portfolio will exercise the option, thereby
reducing the loss the portfolio would have otherwise suffered. Accordingly, a
portfolio will purchase put options only when the Adviser believes that the
market price of the underlying security is more likely to decrease than
increase.
Whenever a portfolio enters into a closing transaction, the portfolio will
realize a gain (or loss) if the premium plus commission it pays for a closing
call option is less (or greater) than the premium it received on the sale of the
original call option. Conversely, the portfolio will realize a gain (or loss) if
the premium it receives, less commission, for a closing put option is greater
(or less) than the premium it paid for the original put option. The portfolio
will realize a gain if a call option it has written lapses unexercised, and a
loss if a put option it has purchased lapses unexercised.
RISK FACTORS WITH FUTURES, OPTIONS ON FUTURES AND OPTIONS ON INDEXES
One risk of entering into financial futures contracts, buying options on such
contracts and buying options on financial indexes is that there may not be
enough buyers and sellers in the market to permit the Fund to close a position
when it wants to do so. In such event, besides continuing to be subject to the
margin requirements, the Fund would experience a gain or loss to the extent that
the price movement of the securities subject to the hedge differed from the
position. To limit the risk, the Fund will invest only where there is an
established secondary market.
A risk applicable to both futures contracts and related options is that changes
in the value of the contracts or option may not correlate with changes in the
underlying financial index or with changes in the value of the securities
subject to hedge or both. This failure may be due, in part, to temporary
activity of speculators in the futures markets. To the extent there is not a
perfect correlation, changes in the value of the Fund's assets would not be
offset by change in the value of the contracts and options it had bought.
When the Fund buys an option on a futures contract or an option on a financial
index, its risk of loss is limited to the amount of the premium paid. When the
Fund enters into a futures contract, there is no such limit. However, the loss
on an options contract would exceed that of a futures contract if the change in
the value of the index does not exceed the premium paid for the option.
The success of a hedge depends upon the Adviser's ability to predict increases
or decreases in the relevant financial index. If this expectation proves
incorrect, the Fund could suffer a loss, and would be better off if those
futures contracts or options had not been purchased. The skills involved in
determining whether to enter into a futures contract or purchase or sell an
option are different from those involved in determining whether to buy or sell a
security. The Adviser has had only limited experience using financial futures
contracts, options on financial futures and options on financial indexes.
Because of the low margin deposits required, futures trading involves a high
degree of leverage. As a result, a relatively small price movement in a futures
contract may result in immediate and substantial gain or loss. A purchase or
sale of a futures contract may result in losses in excess of the amount invested
in the futures contract. However, the Fund would presumably have sustained
comparable losses if, instead of the futures contract, it had invested in the
underlying financial instrument.
Most futures exchanges limit the amount of fluctuation permitted in futures
contract prices during a single trading day. The daily limit establishes the
maximum amount that the price of a futures contract may vary either up or down
from the previous day's settlement price at the end of a trading session. Once
the daily limit has been reached in a particular type of contract, no more
trades may be made on that day at a price beyond that limit. The daily limit
governs only price movements during a particular trading day and therefore does
not limit potential losses because the limit may prevent the liquidation of
unfavorable positions. Futures contract prices have occasionally moved to the
daily limit for several consecutive trading days with little or no trading,
thereby preventing prompt liquidation of futures and subjecting some futures
traders to substantial losses.
RISK FACTORS WITH FOREIGN INVESTMENTS
Investments in foreign securities involve considerations not normally associated
with investing in domestic issuers. Such factors include changes in currency
exchange rates, currency exchange control regulations, the possibility of
seizure or nationalization of companies, political or economic instability,
imposition of unforeseen taxes, the possibility of financial information being
difficult to obtain or difficult to interpret under foreign accounting
standards, the necessity of trading in markets that in relation to U.S. markets
may be less efficient and have available less information concerning issuers, or
the imposition of other restraints that might adversely affect investments.
In selecting foreign investments, the Fund seeks to minimize these factors. It
seeks to invest in securities having investment characteristics and qualities
comparable to the kinds of domestic securities in which it invests. Securities
prices in developing countries can be significantly more volatile than in
developed countries, reflecting the greater uncertainties of investing in lesser
developed markets and economies. In particular, developing countries may have
relatively unstable governments, and may present the risk of nationalization of
businesses, expropriation, confiscatory taxation or, in certain instances,
reversion to closed market, centrally planned economies. Such countries may also
have restrictions on foreign ownership or prohibitions on the repatriation of
assets, and may have less protection of property rights than developed
countries. The economies of developing countries may be predominantly based on
only a few industries or dependent on revenues from particular commodities or on
international aid or development assistance, may be highly vulnerable to changes
in local or global trade conditions, and may suffer from extreme and volatile
debt burdens or inflation rates. In addition, securities markets in developing
countries may trade a small number of securities and may be unable to respond
effectively to increased trading volume, potentially resulting in a lack of
liquidity and in volatility in the price of securities traded on those markets.
Also, securities markets in developing countries typically offer less regulatory
protection for investors. In the past, U.S. government policies have discouraged
or restricted certain investments abroad by investors such as the Fund. Although
the Fund is unaware of any current restrictions, these policies could be
reinstituted.
Since investments in foreign securities, other than U.S. dollar denominated
securities, involve currencies of foreign countries, the value of a portfolio's
assets, as measured in U.S. dollars may be affected favorably or unfavorably by
changes in currency exchange rates and in currency exchange control regulations.
FOREIGN CURRENCY HEDGING TRANSACTIONS
In order to hedge against changes in the exchange rates of foreign currencies in
relation to the U.S. dollar, each portfolio, other than the Money Market
Portfolio, may engage in forward foreign currency contracts, foreign currency
options and foreign currency futures contracts in connection with the purchase,
sale or ownership of a specific security. A forward contract involves an
obligation to purchase or sell a specific currency at a future date, which may
be any fixed number of days from the date of the contract agreed upon by the
parties, at a price set at the time of the contract. In this manner, a portfolio
may obtain protection against a possible loss resulting from an adverse change
in the relationship between the U.S. dollar and the foreign currency during the
period between the date the security is purchased or sold and the date upon
which payment is made or received. Although such contracts tend to minimize the
risk of loss due to the decline in the value of the hedged currency, at the same
time they tend to limit any potential gain which might result should the value
of such currency increase.
At the consummation of a forward contract for delivery by a portfolio of a
foreign currency, the portfolio may either make delivery of the foreign currency
or terminate its contractual obligation to deliver the foreign currency by
purchasing an offsetting contract obligating it to purchase, at the same
maturity date, the same amount of the foreign currency. If the portfolio chooses
to make delivery of the foreign currency, it may be required to obtain such
currency through the sale of its securities denominated in such currency or
through conversion of other portfolio assets into such currency. It is
impossible to forecast the market value of portfolio securities at the
expiration of the forward contract. Accordingly, it may be necessary for the
portfolio to purchase additional foreign currency on the spot market (and bear
the expense of such purchase) if the market value of the security is less than
the amount of foreign currency the portfolio is obligated to deliver, and if a
decision is made to sell the security and make delivery of the foreign currency.
Conversely, it may be necessary for the portfolio to sell on the spot market
some of the foreign currency received on the sale of its hedged security if the
security's market value exceeds the amount of foreign currency the portfolio is
obligated to deliver.
Buyers and sellers of foreign currency options and futures contracts are subject
to the same risks previously described with respect to options and futures
generally (see "Risk Factors with Options" and "Risk Factors with Futures,
Options on Futures and Options on Indexes," above). In addition, settlement of
currency options and futures contracts with respect to most currencies must
occur at a bank located in the issuing nation. The ability to establish and
close out positions on such options is subject to the maintenance of a liquid
market that may not always be available. Currency rates may fluctuate based on
political considerations and governmental actions as opposed to purely economic
factors.
Predicting the movements of foreign currency in relation to the U.S. dollar is
difficult and requires different skills than those necessary to predict
movements in the securities market. There is no assurance that the use of
foreign currency hedging transactions can successfully protect a portfolio
against loss resulting from the movements of foreign currency in relation to the
U.S. dollar. These methods of protecting the value of a portfolio's securities
against a decline in the value of a currency does not eliminate fluctuations in
the underlying prices of the securities. It simply establishes a rate of
exchange which can be achieved at some future point in time.
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RISKS RELATED TO HEDGING TECHNIQUES. The use for hedging purposes of options and
futures contracts on securities and foreign currencies involves certain risks,
including whether the Adviser or a sub-adviser will be able to predict correctly
the direction of movement of stock prices, interest rates, currency prices and
other economic factors, whether sufficient market liquidity will exist to permit
a portfolio to close out positions taken, and whether price movements of
portfolio securities subject to a hedge follow price movements of securities or
currencies underlying options and futures contracts, none of which can be
assured. A discussion of the risks involved in the use of such hedging
techniques is contained in the Statement of Additional Information.
RISKS RELATED TO LEVERAGING. The Capital Appreciation, Aggressive Growth, Growth
& Income, Strategic Income, Emerging Growth, High Income Bond, Equity Income and
Blue Chip Portfolios may borrow for investment purposes. This borrowing, which
is known as leveraging, generally will be unsecured, except to the extent the
Portfolios enter into the reverse repurchase agreements described below. The
Investment Company Act of 1940 requires these Portfolios to maintain continuous
asset coverage (that is, total assets including borrowings, less liabilities
exclusive of borrowings) of 300% of the amount borrowed. If the 300% asset
coverage should decline as a result of market fluctuations or other reasons, a
Portfolio may be required to sell some of its portfolio holdings within three
days to reduce the debt and restore the 300% asset coverage, even though it may
be disadvantageous from an investment standpoint to sell securities at that
time.
Borrowing creates an opportunity for increased net income to the Portfolios but,
at the same time, creates special risk considerations. For example, leveraging
may exaggerate the effect on net asset value of any increase or decrease in the
market value of a Portfolio's securities. To the extent the income derived from
securities purchased with borrowed funds exceeds the interest a Portfolio will
have to pay, that Portfolio's net income will be greater than if borrowing were
not used. Conversely, if the income from the assets retained with borrowed funds
is not sufficient to cover the cost of borrowing, the net income of that
Portfolio will be less than if borrowing were not used and , therefore, the
amount available for distribution to shareholders as dividends will be reduced.
The Portfolios also may be required to maintain minimum average balances in
connection with borrowing or to pay a commitment or other fee to maintain a line
of credit; either of these requirements would increase the cost of borrowing
over the stated interest rate.
Among the forms of borrowing in which the Capital Appreciation, Aggressive
Growth, Growth & Income, Strategic Income, Emerging Growth, High Income Bond,
Equity Income and Blue Chip Portfolios may engage is the entry into reverse
repurchase agreements with banks, brokers or dealers. These transactions
involve the transfer by a Portfolio of an underlying debt instrument in return
for cash proceeds based on a percentage of the value of the security. The
Portfolio retains the right to receive interest and principal payments on the
security. At an agreed upon future date, the Portfolio repurchases the security
at an agreed-upon price. In certain types of agreements, there is no agreed
upon repurchase date, and interest payments are calculated daily, often based
on the prevailing U.S. government securities or other high-quality liquid debt
securities at least equal to the aggregate amount of its reverse repurchase
obligations, plus accrued interest, in certain cases, in accordance with
releases promulgated by the Securities and Exchange Commission. The Commission
views reverse repurchase transactions as collateralized borrowings by the
Portfolio. These agreements, which are treated as if reestablished each day,
can provide the Portfolios with a flexible borrowing tool.
RISKS RELATED TO SHORT SALES. From time to time, the Aggressive Growth,
Strategic Income, High Income Bond, Equity Income and Blue Chip Portfolios may
engage in short sales which are transactions in which the Portfolio sells a
security it does not own in anticipation of a decline in the market value of
that security. To complete such a transaction, the Portfolio must borrow the
security to make delivery to the buyer. The Portfolio then is obligated to
replace the security borrowed by purchasing it at the market price at the time
of replacement. The price at such time may be more or less than the price at
which the security was sold by the Portfolio. Until the security is replaced,
the Portfolio is required to pay to the lender amounts equal to any dividends or
interest which accrue during the period of the loan. To borrow the security, the
Portfolio also may be required to pay a premium, which would increase the cost
of the security sold. The proceeds of the short sale will be retained by the
broker, to the extent necessary to meet margin requirements, until the short
position is closed out.
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It is anticipated that the frequency of short sales will vary substantially
under different market conditions. As an operating policy of the Aggressive
Growth, Strategic Income, High Income Bond, Equity Income and Blue Chip
Portfolios which may be changed without shareholder approval, no securities
will be sold short if, after effect is given to that short sale, the total
market value of all securities sold short would exceed 25% of the value of the
Portfolio's net assets. These Portfolios may not sell short the securities of
any single issuer listed on a national securities exchange to the extent of more
than 2% of the value of the Portfolio's net assets. These Portfolios may not
sell short the securities of any class of an issuer to the extent, at the time
of the transaction, of more than 2% of the outstanding securities of that class.
The Aggressive Growth, Strategic Income, High Income Bond, Equity Income and
Blue Chip Portfolios will incur a loss as a result of a short sale if the price
of the security increases between the date of the short sale and the date on
which the Portfolio replaces the borrowed security; conversely, the Portfolio
will realize a gain if the security declines in price between those dates. This
result is the opposite of what one would expect from a cash purchase of a long
position in a security. The amount of any gain will be decreased, and the
amount of any loss increased, by the amount of any premium or amounts in lieu
of interest the Portfolio may be required to pay in connection with a short
sale.
RISKS RELATED TO REAL ESTATE SECURITIES. Although real estate investments will
be limited to publicly traded securities secured by real estate or interests
therein or issued by companies that invest in real estate or interests therein,
these investments may be subject to risks associated with direct ownership of
real estate. These include declines in the value of real estate, risks related
to general and local economic conditions and increases in interest rates. Real
estate investment trusts are often not diversified and are, therefore, subject
to the risk of financing projects. They may also be subject to heavy cash flow
dependency, defaults by borrowers and self-liquidation. Those real estate
investment trusts that hold equity positions in real estate may be affected by
any changes in the value of the underlying property. Those real estate
investment trusts that lend money to property developers may be affected by the
quality of any credit extended.
RISKS RELATED TO PRECIOUS METALS. The prices of precious metals and precious
metal securities have historically been subject to high volatility. The earnings
and financial condition of precious metal companies may be adversely affected by
volatile precious metal prices.
MANAGEMENT OF THE FUND
The Fund's Board of Directors is responsible for directing the management of the
business and affairs of the Fund. The Board of Directors has the power to amend
the Fund's By-laws, to elect its officers, to declare and pay dividends, and to
exercise all the powers of the Fund except those reserved to the shareholders.
The Adviser is a wholly-owned subsidiary of ONLI and is located at One Financial
Way, Cincinnati, Ohio 45242. It has served as the Fund's investment adviser
since May 1, 1996. Prior to that date, the Fund's investment adviser was O.N.
Investment Management Company, an indirect wholly-owned subsidiary of ONLI
which, like the Adviser, made use of ONLI's investment personnel and
administrative systems.
The Adviser engages sub-advisers to direct the investments and reinvestments of
certain portfolios.
SGAM, located at 1221 Avenue of the Americas, New York, NY 10020, is owned by
Societe Generale, one of the largest banks in Europe. SGAM and its predecessors
have been investment advisers to international mutual funds since 1970. It has
managed the assets of the International Portfolio since 1993, and the Global
Contrarian Portfolio since 1995.
TRPA, located at 100 East Pratt Street, Baltimore, Maryland 21202, manages
assets for various individual and institutional investors, particularly the T.
Rowe Price group of mutual funds. It is the successor to an investment firm
founded in 1937. It has managed the assets of the Capital Appreciation
Portfolio since 1994.
FAM, located at 2930 East Third Avenue, Denver, Colorado 80206, manages the
assets of the Founders group of mutual funds as well as private accounts. It was
established in 1938 and, in 1998, it became a subsidiary of Mellon Bank. It has
managed the assets of the Small Cap Portfolio since 1994.
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SCM, located at 100 Heritage Reserve, Milwaukee, Wisconsin 53051, manages the
assets of the Strong group of mutual funds as well as pension funds and private
accounts. It was established in 1974. It has managed the assets of the
Aggressive Growth Portfolio since 1995.
PBA, located at 825 Duportail Road, Wayne, Pennsylvania 19087, is controlled by
United Asset Management Corp. located in Boston, Massachusetts. With its
predecessors, PBA has been an investment adviser since 1982 and it manages the
PBHG mutual funds. It has managed the assets of the Core Growth Portfolio since
1997.
RSIM, located at 555 California Street, San Francisco, California 94104, has
been an investment adviser since 1978. It specializes in growth companies and
manages the Robertson Stephens mutual funds as well as private and institutional
asset pools. It became a subsidiary of BankAmerica in 1997. It has managed the
assets of the Growth & Income Portfolio since 1997, and the Emerging Growth
Portfolio since 1998.
Star, located at 425 Walnut Street, Cincinnati, Ohio 45202, is a national bank
founded in 1863. It is the largest bank and trust organization of StarBanc
Corporation. It has managed commingled funds since 1957. It has managed the
assets of the Strategic Income, Stellar and Relative Value Portfolios since
1997.
FIC, located at Federated Investors Tower, Pittsburgh, Pennsylvania 15222, is a
subsidiary of Federated Investors and, together with other Federated
affiliates, it manages the assets of the Federated group of mutual funds. FIC
has been an investment adviser since 1989 and has managed the assets of the
High Income Bond, Equity Income and Blue Chip Portfolios since 1998.
The individuals primarily responsible for the day-to-day management of the
Fund's portfolios are Joseph Brom, Michael Boedeker, Stephen Williams, Douglas
Hundley, Keith Hanson, Jean-Marie Eveillard, Richard Howard, Michael Haines,
Richard Strong, James McCall, Ellen McGee, John Wallace, Randolph Bateman,
Joseph Belew, Kirk Mentzer, Peter Sorrentino, James Callinan, Mark Durbiano,
Stephanie Bachhuber, Linda Duessel, Stephen Lehman, Scott Schermerhorn and
Michael Donnelly.
Joseph Brom is president of the Adviser and senior vice president and chief
investment officer of ONLI. He oversees the management of the Equity, Money
Market, Bond, Omni, S&P 500 Index and Social Awareness Portfolios. He is a
chartered financial analyst with a bachelor's degree in economics and finance
and a law degree from the University of Wisconsin. He has been an investment
officer of ONLI since 1975 and previously had 15 years of experience in
securities management.
Michael Boedeker, a vice president of the Adviser, has managed the Bond
Portfolio since 1989. He is a chartered financial analyst with a bachelor's
degree in business and a master of business administration degree in finance
from Indiana University. He has been vice president of fixed income securities
for ONLI since 1989 and previously had over 20 years of experience in fixed
income securities and mutual fund management, most recently as senior vice
president and chief investment officer of Mutual Security Life Insurance Co. for
more than 5 years.
Stephen Williams, a vice president of the Adviser, has managed the Equity and
Omni Portfolios since 1987. He has a bachelor's degree in finance from the
University of Cincinnati. He has been vice president of equity securities for
ONLI since 1997 and was an investment analyst and director of securities for
ONLI for 20 years before that.
Douglas Hundley, a vice president of the Adviser, has been the portfolio manager
of the S&P 500 Index Portfolio since its inception in 1997, and he has managed
the Money Market Portfolio since 1996. He has a bachelor's degree in accounting
and economics from Northern Kentucky University, a master of business
administration degree in finance from the University of Texas, and is a
certified public accountant in Ohio. He has been an investment officer of ONLI
since 1995. For more than seven years prior to that he was an assistant
portfolio manager for the Metropolitan Life Insurance Co. and was a financial
analyst for Star for a year.
Keith Hanson, a vice president of the Adviser, has been the portfolio manager
of the Social Awareness Portfolio since its inception in 1997. He is a
chartered financial analyst with a bachelor's degree in business administration
from Marquette University. He has been an investment officer of ONLI since
1994. For a year prior to that he was a research analyst in the valuation of
small businesses for Blum & Colombe, SC, and for seven years before that he was
a securities analyst for Johnson Asset Management.
Jean-Marie Eveillard, president of SGAM, has managed the International Portfolio
since its inception in 1993 and the Global Contrarian Portfolio since its
inception in 1995. He is a graduate of the Ecole des Hautes Etudes Commerciales
in Paris. He has been president of SoGen International Fund since 1984 and for
21 years prior to that had been a securities analyst and mutual fund manager of
Societe Generale and SoGen International Fund.
Richard Howard, president of the T. Rowe Price Capital Appreciation Fund and a
vice president of TRPA, has been the portfolio manager of the Capital
Appreciation Portfolio since its inception in 1994. He is a chartered financial
analyst with a bachelor's degree in engineering from Millikin University and a
master of business administration degree from Harvard. He joined TRPA in 1982
and previously worked as an industry specialist for Fidelity Management and
Research and for CG Investment Management Company.
Michael Haines, senior vice president of investment of FAM, has been the
portfolio manager of the Small Cap Portfolio since its inception in 1994. He
has a bachelor's degree from the Colorado College and a master of business
administration from the University of Denver. He has been a portfolio manager
for FAM since 1990 and for 5 years prior to that was a financial analyst for
FAM.
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<PAGE> 24
Richard Strong, chairman of the board of SCM, has been the portfolio manager of
the Aggressive Growth Portfolio since its inception in 1995. He has a
bachelor's degree from Baldwin Wallace College and a master's degree in finance
from the University of Wisconsin. He founded SCM in 1974 after 8 years of
investment experience with several other firms.
James McCall, a portfolio manager with PBA since 1994, co-manages the Core
Growth Portfolio, being primarily responsible for the Portfolio's large and mid-
cap investments. He has a bachelor's degree from the Philadelphia College of
Pharmacy and Science and masters degrees in pharmacy and business administration
from the University of Utah. Prior to joining PBA, he spent nine years as a vice
president and portfolio manager with First National Bank of Maryland and as
mutual fund portfolio manager for Provident Mutual Management Co. He spent ten
years as a pharmacist before entering the investment field.
Ellen McGee co-manages the Core Growth Portfolio, being primarily responsible
for the Portfolio's small and micro-cap investments. She is a chartered
financial analyst and has been a portfolio manager with PBA since 1997. For
three years prior to that she was a senior portfolio manager for First Union
National Bank and NationsBank, and she spent eight years before that managing
institutional portfolios for First National Bank of Maryland. Ms. McGee has a
bachelor's degree from Rutgers University.
John Wallace, a managing director of RSIM, has been the portfolio manager of
the Growth & Income Portfolio since its inception in 1997. He has a bachelor's
degree in Spanish and Anthropology from the University of Idaho and a master of
business administration degree from Pace University. He joined RSIM in 1995.
For nine years prior to that he was a mutual fund portfolio manager for
Oppenheimer Management Corp. Prior to that, he had been the co-founder, owner
and operator of an Ecuadorian export firm.
Randolph Bateman, senior vice president and chief investment officer of Star's
trust financial services group, manages the foreign bonds component of the
Strategic Income Portfolio and the foreign securities component of the Stellar
Portfolio. He oversees investment policy and research for the Star trust group's
capital management division. He is a chartered financial analyst with a
bachelor's degree in economics from North Carolina State University. He has been
an investment officer of Star since 1988. Prior to that, he had 17 years of
investment experience including serving as president of MPACT Securities.
Joseph Belew, vice president and trust officer of Star, manages the Relative
Value Portfolio. He has a bachelor's degree in business management from Belmont
College. He has been a trust officer and investment manager of Star since 1979.
Kirk Mentzer, senior trust officer and director of fixed income research for
the capital management division of Star, manages the domestic and structured
fixed income components of the Strategic Income Portfolio and the domestic
fixed income and REIT components of the Stellar Portfolio. He also manages the
money market components of the Strategic Income, Stellar and Relative Value
Portfolios. He is responsible for fixed income investment policy and strategy
for Star's capital management division. He has a bachelor's degree in finance
and insurance from the University of Cincinnati and a master's degree in
finance from Xavier University. He has been a trust officer for Star since 1989.
Peter Sorrentino, vice president and director of portfolio management and
research for the capital management division of Star, manages the domestic
equity components of the Strategic Income and Stellar Portfolios. He is a
chartered financial analyst and has bachelor's degrees in both finance and
accounting from the University of Cincinnati. He has been an investment officer
of Star since 1996 and for 9 years prior to that was a vice president and
regional director of portfolio management for Bank One Investment Advisers.
Under the Investment Advisory Agreement dated May 1, 1996, and supplemented
January 2, 1997 and May 1, 1998, the Adviser provides portfolio management and
investment advice to the Fund and administers its other affairs, subject to the
supervision of the Fund's Board of Directors. As compensation for its services
to the Equity, Bond, Omni and Social Awareness Portfolios, the Adviser is paid
fees at an annual rate of 0.60% of the first $100 million of each Portfolio's
net assets, 0.50% of the next $150 million, 0.45% of the next $250 million,
0.40% of the next $500 million, 0.30% of the next $1 billion and 0.25% of net
assets over $2 billion. For the Money Market Portfolio, the Adviser is paid a
fee at an annual rate of 0.30% of the first $100 million, 0.25% of the next
$150 million, 0.23% of the next $250 million, 0.20% of the next $500 million
and 0.15% of net assets over $1 billion. However, as to the Money Market
Portfolio, the Adviser is presently waiving any of its fee in excess of 0.25%.
For the International, Global Contrarian, Relative Value, Emerging Growth and
Blue Chip Portfolios, the Adviser is paid fees at an annual rate of 0.90% of
each Portfolio's average daily net asset value.
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<PAGE> 25
The Adviser is paid fees at an annual rate of 0.80% of the average daily net
asset value of each of the Capital Appreciation, Small Cap, Aggressive Growth
and Strategic Income Portfolios. The Adviser is paid fees at an annual rate of
0.95% of the first $150 million of the average daily net asset value of the Core
Growth Portfolio and 0.80% of net assets over $150 million. The Adviser is paid
fees at an annual rate of 0.85% of the first $200 million of the average daily
net asset value of the Growth & Income Portfolio and 0.80% of net assets over
$200 million. The Adviser is paid fees at an annual rate of 0.40% of the first
$100 million of the average daily net asset value of the S&P 500 Index
Portfolio, 0.35% of the next $150 million and 0.33% of net assets over $250
million. The Adviser is paid fees at an annual rate of 1.00% of the average
daily net asset value of the Stellar Portfolio. The Adviser is paid fees at an
annual rate of 0.75% of the average daily net asset value of each of the High
Income Bond and Equity Income Portfolios.
Pursuant to Sub-Advisory Agreements dated May 1, 1996, the Adviser (1) pays SGAM
fees at an annual rate of 0.75% of the International and Global Contrarian
Portfolios' average daily net asset value for directing the investment and
reinvestment of those Portfolios' assets, (2) pays TRPA a fee at an annual rate
of 0.70% of the first $5 million, and 0.50% of average daily net asset value in
excess of $5 million for directing the investment and reinvestment of the
Capital Appreciation Portfolio's assets and (3) pays SCM a fee at an annual
rate of 0.70% of the first $50 million and 0.50% of average daily net asset
value in excess of $50 million for directing the investment and reinvestment of
the Aggressive Growth Portfolio's assets. Pursuant to Sub-Advisory Agreements
dated January 2, 1997, the Adviser (1) pays PBA fees at an annual rate of 0.75%
of the first $50 million, 0.70% of the next $100 million, and 0.50% of average
daily net asset value in excess of $150 million for directing the investment
and reinvestment of the Core Growth Portfolio's assets, (2) pays Star a fee at
an annual rate of 0.55 % of the first $50 million and 0.50% of average daily
net asset value in excess of $50 million for directing the investment and
reinvestment of Strategic Income Portfolio assets, (3) pays Star a fee at an
annual rate of 0.75% of the first $50 million and 0.70% of average daily net
asset value in excess of $50 million for directing the investment and
reinvestment of Stellar Portfolio assets and (4) pays Star a fee at an annual
rate of 0.65% of the first $50 million and 0.60% of average daily net asset
value in excess of $50 million for directing the investment and reinvestment of
Relative Value Portfolio assets.
Pursuant to a Sub-Advisory Agreement dated October 1, 1997, the Adviser pays
RSIM a fee at an annual rate of 0.60% of the first $100 million, 0.55% of the
next $100 million, and 0.50% of average daily net asset value in excess of $200
million for directing the investment and reinvestment of the Growth & Income
Portfolio's assets. Pursuant to a Sub-Advisory Agreement dated March ___, 1998,
the Adviser pays FAM a fee at an annual rate of 0.65% of the first $75 million,
0.60% of the next $75 million, and 0.55% of average daily net asset value in
excess of $150 million for directing the investment and reinvestment of the
Small Cap Portfolio's assets. Pursuant to Sub-Advisory Agreements dated May 1,
1998, the Adviser (1) pays RSIM a fee at an annual rate of 0.64% of the first
$100 million, 0.60% of the next $100 million and 0.50% of the average daily net
asset value in excess of $200 million for directing the investment and
reinvestment of the Emerging Growth Portfolio's assets, (2) pays FIC a fee at an
annual rate of 0.50% of the first $30 million, 0.40% of the next $20 million,
0.30% of the next 25 million, and 0.25% of average daily net asset value in
excess of $75 million for directing the investment and reinvestment of the High
Income Bond Portfolio's assets, and (3) pays FIC fees at an annual rate of 0.50%
of the first $35 million, 0.35% of the next $65 million and 0.25% of average
daily net asset value in excess of $100 million of the Equity Income and Blue
Chip Portfolios for directing the investment and reinvestment of those
Portfolios' assets.
Under a service agreement among the Fund, the Adviser and ONLI, the latter has
agreed to furnish the Adviser, at cost, such research facilities, services and
personnel as may be needed by the Adviser in connection with its performance
under the Investment Advisory Agreement. The Adviser reimburses ONLI for its
expenses in this regard.
The Fund also incurs other miscellaneous expenses for legal and accounting
services, registration and filing fees, custodial services and shareholder
services.
The Fund's transfer agent and Fund accounting agent is American Data Services,
Inc., 150 Motor Parkway, Suite 109, Hauppsuge, New York 11788. The custodian for
those portfolios other than the International and Global Contrarian Portfolios
is Star, which is located at 425 Walnut Street, Cincinnati, Ohio 45202. The
custodian for the International and Global Contrarian Portfolios is Investors
Fiduciary Trust Company, 801 Pennsylvania Street, Kansas City, Missouri. For
assets held outside the United States, the custodians enter into subcustodial
agreements, subject to approval by the Board of Directors.
CAPITAL STOCK
The Fund's authorized capital consists of 250 million shares of capital stock
with a par value of $1 per share; 20 million of such shares are allocated to
each of the Equity, Omni and International Portfolios, and 10 million of such
shares are allocated to each of the other portfolios. These shares may be
reallocated by the Board of Directors to another of the existing portfolios or
to any new portfolio.
All shares of all portfolios have equal voting rights, except that only shares
of a particular portfolio are entitled to vote on matters pertaining only to
that portfolio. Pursuant to the Investment Company Act of 1940 and the rules and
regulations thereunder, certain matters approved by a vote of all Fund
shareholders may not be binding on a portfolio whose shareholders have not
approved such matter.
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<PAGE> 26
Each issued and outstanding share is entitled to one vote and to participate
equally in dividends and distributions declared by the respective portfolio and
in net assets of such portfolio remaining upon liquidation or dissolution after
satisfaction of outstanding liabilities. The shares of each portfolio, when
issued, will be fully paid and non-assessable, have no preemptive, conversion,
cumulative dividend or similar rights, and are freely transferable. Fund shares
do not have cumulative voting rights, which means that the holders of more than
half of the Fund shares voting for election of directors can elect all of the
directors if they so choose. In such event, the holders of the remaining shares
would not be able to elect any directors.
All of the outstanding Fund shares are owned of record by ONLI and ONLAC and are
held in their various separate accounts. The shares held in connection with
those separate accounts are voted by ONLI or ONLAC in accordance with
instructions received from the owners of variable contracts issued in connection
with such separate accounts and persons receiving payments under the variable
contracts. Fund shares attributable to contracts owned by ONLI and ONLAC, and
Fund shares not attributable to variable contracts, will be voted in proportion
to instructions received from all variable contract owners.
DIVIDENDS, DISTRIBUTIONS AND TAXES
Each portfolio seeks to qualify as a regulated investment company under
Subchapter M of the Internal Revenue Code. It is the Fund's policy to comply
with the provisions of the Code regarding distribution of investment income and
net realized capital gains so that the Fund will not be subject to federal
income tax on amounts distributed. Consequently, the Fund distributes to its
shareholders each year substantially all of its net investment income and net
realized capital gains (if any). For the Money Market Portfolio, all of the
undistributed net investment income is determined and paid as a dividend to
shareholders of record immediately before each computation of the net asset
value of Money Market shares. For the other portfolios, dividends representing
net investment income will normally be distributed quarterly and any net
realized capital gains will be distributed annually. However, the Fund's Board
of Directors may declare such dividends at more frequent intervals. Dividends
and distributions are automatically reinvested in additional shares of their
respective portfolios at net asset value without a sales charge unless a
shareholder requests that they be paid in cash.
PURCHASE AND REDEMPTION OF SHARES
Fund shares are sold without a sales charge and may be redeemed at their net
asset value next computed after a purchase or redemption order is received by
the Fund. (The net asset value of the Money Market Portfolio is normally $10 per
share.) Depending upon the net asset values at that time, the amount paid upon
redemption may be more or less than the cost of the shares redeemed. Payment for
shares redeemed will be made as soon as possible, but in any event within seven
days after evidence of ownership of the shares is tendered to the Fund except in
extraordinary circumstances as described in the Statement of Additional
Information.
The net asset value of the Fund's shares is determined on each day on which an
order for purchase or redemption of the Fund's shares is received and there is a
sufficient degree of trading in portfolio securities that the current net asset
value of its shares might be materially affected. Such determination is made as
of 4:00 p.m. Eastern time on each business day. The net asset value of each
portfolio is computed by dividing the value of the securities in that portfolio
plus any cash or other assets less all liabilities of the portfolio, by the
number of shares outstanding for that portfolio.
Shares of one portfolio may be exchanged for shares of another portfolio of the
Fund on the basis of the relative net asset values next computed after an
exchange order is received by the Fund.
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<PAGE> 27
FUND PERFORMANCE
From time to time, the current yield, average annual total return and cumulative
total returns for the portfolios will be advertised. The results might be
compared to other similar mutual funds or unmanaged indices. Management's
discussion and analysis of the Fund's performance is included in the Fund's
most-recent annual report and is available free upon request.
Total return for a portfolio reflects the sum of all of its earnings plus any
changes in the value of its assets, reduced by all expenses accrued during a
measurement period. For this purpose, it is assumed that all dividends and
capital gains distributions are reinvested. The average annual total return is
expressed as a percentage of an amount invested for a one-year period. Each
portfolio's average return is computed by a formula in which a hypothetical
initial investment of $1,000 is equated to an ending redeemable value from the
inception of the portfolio for one-, five- and ten-year periods. Cumulative
total return reflects a portfolio's aggregate performance, expressed as a dollar
amount change, from the beginning to the end of the period.
Percentage changes in net asset value per share and total returns quoted for a
portfolio include the effect of deducting that portfolio's expenses, but do not
include charges and expenses attributable to any particular insurance product.
The amount by which variable annuity separate account charges and expenses would
reduce Fund's total return may be demonstrated by comparing the Fund's total
return to that of the variable annuity separate account for the same period.
Variable life insurance separate account charges vary significantly, depending
upon a variety of demographic factors (such as age, sex and health status) and
several contract-specific factors (such as stated amount of death benefit), but
in all cases would have the result of lowering the total return of the Fund.
From time to time the annualized yield and "effective" yield will be quoted for
the Money Market Portfolio. The Money Market Portfolio's yield refers to the
income generated by an investment in the Portfolio over the seven-day period
indicated. This income is then "annualized" by assuming that the same amount of
income generated by the Portfolio that week is generated over a 52-week period
and is shown as a percentage of the investment. "Effective" yield is calculated
similarly but, when annualized, the income earned by an investment in the
Portfolio is assumed to be reinvested. The effective yield will be slightly
higher than the yield because of the compounding effect of this assumed
reinvestment.
All performance quotations are based on historical investment performance and
are not intended to indicate future performance
ABOUT THE S&P 500
The S&P 500 is a widely publicized index that tracks 500 companies traded on the
New York and American Stock Exchanges and in the over-the-counter market. It is
weighted by market value so that each company's stock influences the S&P 500 in
proportions to its relative market capitalization. Most of the stocks in the S&P
500 are issued by companies that are among the 500 largest in the United States
in terms of aggregate market value. However, for diversification purposes, some
stocks of smaller companies are included in the S&P 500.
"Standard & Poor's (R)," "S&P (R)," "S&P 500 (R)" and "Standard & Poor's 500"
are trademarks of The McGraw-Hill Companies, Inc. and have been licensed for use
by the Adviser. The S&P 500 Index Portfolio is not sponsored, endorsed, sold or
promoted by Standard & Poor's ("S&P") and S&P makes no representation regarding
the advisability of investing in the S&P 500 Index Portfolio. S&P makes no
representation or warranty, express or implied, to the owners of the Portfolio
or any member of the public regarding the advisability of investing in
securities generally or in the Portfolio particularly or the ability of the S&P
500 Index to track general stock market performance. S&P's only relationship to
the Adviser is the licensing of certain trademarks and trade names of S&P and of
the S&P 500 Index which is determined, composed and calculated by S&P without
regard to the Adviser or the Portfolio. S&P has no obligation to take the needs
of the Adviser or the owners of the Portfolio into consideration in determining,
composing
23
<PAGE> 28
or calculating the S&P 500 Index. S&P is not responsible for and has not
participated in the determination of the prices and amount of the Portfolio or
the timing of the issuance or sale of the Portfolio or in the determination or
calculation of the equation by which the Portfolio is to be converted into cash.
S&P has no obligation or liability in connection with the administration,
marketing or trading of the Portfolio.
S&P DOES NOT GUARANTEE THE ACCURACY AND/OR THE COMPLETENESS OF THE S&P 500 INDEX
OR ANY DATA INCLUDED THEREIN AND S&P SHALL HAVE NO LIABILITY FOR ANY ERRORS,
OMISSIONS, OR INTERRUPTIONS THEREIN. S&P MAKES NO WARRANTY, EXPRESS OR IMPLIED,
AS TO RESULTS TO BE OBTAINED BY THE ADVISER, OWNERS OF THE PORTFOLIO, OR ANY
OTHER PERSON OR ENTITY FROM THE USE OF THE S&P 500 INDEX OR ANY DATA INCLUDED
THEREIN. S&P MAKES NO EXPRESS OR IMPLIED WARRANTIES, AND EXPRESSLY DISCLAIMS ALL
WARRANTIES OR MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR USE WITH
RESPECT TO THE S&P 500 INDEX OR ANY DATA INCLUDED THEREIN. WITHOUT LIMITING ANY
OF THE FOREGOING, IN NO EVENT SHALL S&P HAVE ANY LIABILITY FOR ANY SPECIAL,
PUNITIVE, INDIRECT, OR CONSEQUENTIAL DAMAGES (INCLUDING LOST PROFITS), EVEN IF
NOTIFIED OF THE POSSIBILITY OF SUCH DAMAGES.
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<PAGE> 29
PART B.
INFORMATION REQUIRED IN A STATEMENT OF ADDITIONAL INFORMATION
<PAGE> 30
OHIO NATIONAL FUND, INC.
One Financial Way
Cincinnati, Ohio 45242
Telephone (5l3) 794-6316
STATEMENT OF ADDITIONAL INFORMATION
May 1, 1998
This Statement of Additional Information is not a prospectus. It should be read
in conjunction with the prospectus of Ohio National Fund, Inc. (the "Fund")
dated May 1, 1998.
To obtain a free copy of the Fund's prospectus, write or call the Fund at the
above address.
Table of Contents
-----------------
<TABLE>
<CAPTION>
Page
----
<S> <C>
The Fund ................................................................. 3
Fund Performance ......................................................... 3
Current Yield of Money Market Portfolio
Total Return
Portfolio Turnover
Investment Objectives and Policies ....................................... 7
Money Market Instruments
Investment Restrictions .................................................. 9
Hedging Transactions
Covered Call Options and Put Options
Futures Contracts
Options on Futures Contracts and Financial Indexes
Foreign Currency Hedging Transactions
Short Sales
Borrowing Money
Zero-Coupon and Pay-in-kind Debt Securities
Precious Metals
Management of the Fund ................................................... 20
Directors and Officers
Compensation of Directors
Shareholders' Meetings
Investment Advisory and Other Services
Brokerage Allocation ..................................................... 24
Purchase and Redemption of Shares ........................................ 25
Tax Status ............................................................... 27
Experts .................................................................. 27
Legal Counsel ............................................................ 27
The S&P 500 .............................................................. 27
</TABLE>
The Year 2000 Issue
<PAGE> 31
<TABLE>
<S> <C>
Appendix ................................................................. 63
Debt Security Ratings
</TABLE>
<PAGE> 32
THE FUND
The Fund is an open-end diversified management investment company which
currently consists of 20 separate portfolios - the Equity Portfolio, the Money
Market Portfolio, the Bond Portfolio, the Omni Portfolio, the International
Portfolio, the Capital Appreciation Portfolio, the Small Cap Portfolio, the
Global Contrarian Portfolio, the Aggressive Growth Portfolio, the Core Growth
Portfolio, the Growth & Income Portfolio, the S&P 500 Index Portfolio, the
Social Awareness Portfolio, the Strategic Income Portfolio, the Stellar
Portfolio, the Relative Value Portfolio, the Emerging Growth Portfolio, the High
Income Bond Portfolio, the Equity Income Portfolio and the Blue Chip Portfolio.
At present, the Fund sells its shares only to separate accounts of The Ohio
National Life Insurance Company ("ONLI") and Ohio National Life Assurance
Corporation ("ONLAC") to support certain benefits under variable contracts
issued by ONLI and ONLAC. In the future, Fund shares may be used for other
purposes, but absent a change in applicable law, will not be sold directly to
the public.
The Fund was created on November 2, 1982 as the result of a plan of
reorganization and an agreement of merger entered into by O.N. Fund, Inc. and
O.N. Market Yield Fund, Inc., both of which were Maryland corporations. O.N.
Fund, Inc. was merged into O.N. Market Yield Fund, Inc., which acquired all of
O.N. Fund's assets and assumed all of O.N. Fund's liabilities. The shares of
O.N. Fund were converted to an equal number of shares of the Equity Portfolio of
O.N. Market Yield Fund and all shares of O.N. Market Yield Fund were converted
into an equal number of shares of the Money Market Portfolio. The name of O.N.
Market Yield Fund was changed to the Fund's current name, Ohio National Fund,
Inc., and a Bond Portfolio was created. The Omni Portfolio was added in 1984,
the International Portfolio in 1993, and the Capital Appreciation and Small Cap
Portfolios in 1994, the Global Contrarian and Aggressive Growth Portfolios in
1995, the Core Growth, Growth & Income, S&P 500 Index, Social Awareness,
Strategic Income, Stellar and Relative Value Portfolios in 1997, and the
Emerging Growth, High Income Bond, Equity Income and Blue Chip Portfolios in
1998. The investments held by each portfolio are maintained separately from
those held by the other portfolios.
The investment and reinvestment of the assets of the Equity, Money Market, Bond,
Omni, S&P 500 Index and Social Awareness Portfolios is directed by the Fund's
investment adviser, Ohio National Investments, Inc. (the "Adviser"), a
wholly-owned subsidiary of ONLI. The principal business address of ONLI, ONLAC
and the Adviser is One Financial Way, Cincinnati, Ohio 45242. The investment and
reinvestment of International and Global Contrarian Portfolio assets is managed
by Societe Generale Asset Management Corp. ("SGAM") as sub-adviser. The
principal business address of SGAM is 1221 Avenue of the Americas, New York, New
York 10020. The investment and reinvestment of Capital Appreciation Portfolio
assets is managed by T. Rowe Price Associates, Inc. ("TRPA") as sub-adviser. The
principal business address of TRPA is 100 East Pratt Street, Baltimore, Maryland
21202. The investment and reinvestment of Small Cap Portfolio assets is managed
by Founders Asset Management LLC ("FAM") as sub-adviser. The principal
business address of FAM is 2930 East Third Avenue, Denver, Colorado 80206. The
investment and reinvestment of Aggressive Growth Portfolio assets is managed by
Strong Capital Management, Inc. ("SCM") as sub-adviser. The principal business
address of SCM is 100 Heritage Reserve, Milwaukee, Wisconsin 53051. The
investment and reinvestment of Core Growth Portfolio assets is managed by
Pilgrim Baxter & Associates, Ltd. ("PBA") as sub-adviser. The principal business
address of PBA is 825 Duportail Road, Wayne, Pennsylvania 19087. The investment
and reinvestment of Growth & Income and Emerging Growth Portfolio assets is
managed by Robertson Stephens Investment Management, L.P. ("RSIM") as
sub-adviser. The principal business address of RSIM is 555 California Street,
San Francisco, California 94104. The investment and reinvestment of Strategic
Income, Stellar and Relative Value Portfolio assets is managed by Star Bank,
N.A. ("Star") as subadviser. The principal business address of Star is 425
Walnut Street, Cincinnati, Ohio 45202. The Investment and reinvestent of High
Income Bond, Equity Income and Blue Chip Portfolio assets is managed by
Federated Investment Counseling ("FIC") as sub-adviser. The principal business
address of FIC is Federated Investors Tower, Pittsburgh, Pennsylvania 15222.
FUND PERFORMANCE
The Fund may distribute sales literature comparing the percentage change in net
asset value per share for any of its portfolios against the Consumer Price Index
or such established market indices as the Dow Jones Industrial Average, the
Standard & Poor's 500 Stock Index, one or more of Lehman Brothers Bond Indices,
the Morgan Stanley Europe, Australia and Far East Index, the Morgan Stanley
World Index, the Russell 2000 Index, the New York Stock Exchange Composite
Index, the American Stock Exchange Index, the National Association of
3
<PAGE> 33
Securities Dealers Automated Quotations Composite Index, the Value Line
Composite Index, the Investors Business Daily 6000 Index, IBC's Money Fund
Reports, or other management investment companies having investment objectives
similar to the portfolio being compared. These comparisons may include graphs,
charts, tables or examples. The average annual total return and cumulative total
returns for each portfolio may also be advertised.
The Fund may also advertise the performance ratings or rankings assigned to
certain portfolios or their subadvisers by various statistical services,
including Morningstar, Inc. and Lipper Analytical Services, Inc., or as they
appear in various publications including The Wall Street Journal, Investors
Business Daily, The New York Times, Barron's, Forbes, Fortune, Business Week,
Financial Services Week, Financial World, Kiplinger's Personal Finance and
Money Magazine.
The prospectus sets forth in tabular form, under the caption "Financial
Highlights," certain information concerning the Fund and its individual
portfolios. The following discussion describes the methods of calculating the
current yield of the Money Market Portfolio and the total return of all
portfolios, and states the Fund's policy with respect to each portfolio's
turnover rate.
CURRENT YIELD OF MONEY MARKET PORTFOLIO
Current annualized yield quotations for the Money Market Portfolio are based on
the portfolio's net investment income for a seven-day period and exclude any
realized or unrealized gains or losses on portfolio securities. Current
annualized yield is computed by determining the net change (exclusive of
realized gains and losses from the sale of securities and unrealized
appreciation and depreciation) in the value of a hypothetical account having a
balance of one share at the beginning of such seven-day period, dividing such
net change in account value by the value of the account at the beginning of the
period, and annualizing this quotient on a 365-day basis. The net change in
account value reflects the value of any additional shares purchased with
dividends from the original share in the account during the seven-day period,
any dividends declared on such original share and any such additional shares
during the period, and expenses accrued during the period. The Fund may also
disclose the effective yield of the Money Market Portfolio for a seven-day
period for which the current annualized yield is computed by expressing the
unannualized return on a compounded, annualized basis.
TOTAL RETURN
Total returns quoted in advertising reflect all aspects of a portfolio's
investment return, including the effects of reinvesting dividends and capital
gain distributions as well as changes in the portfolio's net asset value per
share over the period shown. Average annual returns are calculated by
determining the growth or decline in value of a hypothetical historical
investment in a portfolio over a stated period, and then calculating the
annually compounded percentage rate that would have produced the same result had
the rate of growth or decline been constant over that period. While average
annual returns are a convenient means of comparing investment alternatives, no
portfolio will experience a constant rate of growth or decline over time.
The average annual compounded rate of return for a portfolio over a given period
is found by equating the initial amount invested to the ending redeemable value
using the following formula:
P(1 + T)n = ERV
where: P = a hypothetical initial payment of $1,000,
T = the average annual total return,
n = the number of years, and
ERV = the ending redeemable value of a hypothetical $1,000
beginning-of-period payment at the end of the period
(or fractional portion thereof).
4
<PAGE> 34
average annual total returns for each of the portfolios from the inception
of the portfolio and for the one-, five- and ten-year periods ending on December
31, 1997, are as stated below:
<TABLE>
<CAPTION>
One Five Ten From Inception
Year Years Years Inception Date
---- ----- ----- --------- ----
<S> <C> <C> <C> <C> <C>
Equity 18.17% 15.26% 13.61% 11.07% 10-06-69
Money Market 5.37% 4.57% 5.53% 7.30% 03-20-80
Bond 9.28% 7.48% 8.30% 8.70% 11-02-82
Omni 18.15% 13.47% 12.57% 12.05% 09-10-84
International 2.11% N/A N/A 13.03% 04-30-93
Capital Appreciation 15.19% N/A N/A 15.73% 05-01-94
Small Cap 8.47% N/A N/A 21.76% 05-01-94
Global Contrarian 11.67% N/A N/A 11.93% 03-31-95
Aggressive Growth 12.53% N/A N/A 14.17% 03-31-95
Core Growth N/A N/A N/A (3.08)% 01-03-97
Growth & Income N/A N/A N/A 36.58% 01-03-97
S&P 500 Index N/A N/A N/A 31.75% 01-03-97
Social Awareness N/A N/A N/A 25.63% 01-03-97
Strategic Income N/A N/A N/A 8.74% 01-03-97
Stellar N/A N/A N/A 9.70% 01-03-97
Relative Value N/A N/A N/A 28.28% 01-03-97
Emerging Growth N/A N/A N/A N/A 05-01-98
High Income Bond N/A N/A N/A N/A 05-01-98
Equity Income N/A N/A N/A N/A 05-01-98
Blue Chip N/A N/A N/A N/A 05-01-98
</TABLE>
In addition to average annual total returns, advertising may reflect cumulative
total returns that simply reflect the change in value of an investment in a
portfolio over a period. This may be expressed as either a percentage change,
from the beginning to the end of the period, or the end-of-period dollar value
of an initial hypothetical investment. The cumulative total returns for each of
the portfolios from the inception of the portfolio and for the five- and
ten-year periods ending on December 31, 1997 (assuming a hypothetical initial
investment of $1,000) were as follows:
<TABLE>
<CAPTION>
Five Years Ten Years From Inception
---------- --------- --------------
<S> <C> <C> <C>
Equity $2,034 $3,582 $16,956
Money Market $1,250 $1,713 $ 3,413
Bond $1,434 $2,220 $ 3,543
Omni $1,881 $3,268 $ 4,542
International N/A N/A $ 1,770
Capital Appreciation N/A N/A $ 1,709
Small Cap N/A N/A $ 2,059
Global Contrarian N/A N/A $ 1,363
Aggressive Growth N/A N/A $ 1,439
Core Growth N/A N/A $ 969
Growth & Income N/A N/A $ 1,366
S&P 500 Index N/A N/A $ 1,300
Social Awareness N/A N/A $ 1,256
Strategic Income N/A N/A $ 1,087
Stellar N/A N/A $ 1,097
Relative Value N/A N/A $ 1,283
Emerging Growth N/A N/A N/A
High Income Bond N/A N/A N/A
Equity Income N/A N/A N/A
Blue Chip N/A N/A N/A
</TABLE>
5
<PAGE> 35
PORTFOLIO TURNOVER
Each portfolio has a different expected rate of portfolio turnover. However, the
rate of portfolio turnover will not be a limiting factor when the management of
the Fund deems it appropriate to purchase or sell securities for a portfolio,
except in the following circumstances. The Fund intends to comply with the
various requirements of the Internal Revenue Code so as to qualify as a
"regulated investment company" thereunder. Among such requirements is a
limitation of less than 30% of the amount of gross income which each portfolio
may derive from gains on the sale or other disposition of securities held for
less than three months. Accordingly, the ability of any portfolio to effect
certain portfolio transactions at a given time may be limited. The Small Cap,
Aggressive Growth and Strategic Income Portfolios may engage in the purchase and
sale of securities close to the ex-dividend date in order to receive the
anticipated dividend and then sell the securities after the ex-dividend date.
This practice could substantially increase the Portfolio's turnover rate.
The Fund's policy with respect to each portfolio is as follows:
Equity Portfolio - Although this Portfolio will not normally purchase
securities with the intention of obtaining short-term capital
appreciation, purchases and sales will be made whenever deemed prudent and
consistent with the investment objectives of the Portfolio. During periods
of relatively stable market and economic conditions, it is anticipated
that the annual portfolio turnover rate of the Portfolio will be moderate.
During periods when changing market or economic conditions are foreseen,
shifts in portfolio emphasis may cause the rate of portfolio turnover to
increase. During 1997 the turnover rate for this portfolio was 19%.
Money Market Portfolio - Since the assets of this Portfolio consist of
short-term instruments, replacement of portfolio securities will occur
frequently. However, since purchases are generally effected with dealers
or issuers on a net basis, it is not expected that the Portfolio will
incur significant brokerage commissions.
Bond Portfolio - This Portfolio will engage in transactions when the
Adviser believes that they will help to achieve the overall objectives of
the Portfolio. Portfolio securities may or may not be held to maturity.
The rate of portfolio turnover will vary from time to time but is not
expected to exceed 50% annually. The turnover rate for this portfolio was
10% in 1997.
Omni Portfolio - The rate of portfolio turnover will vary from time to
time but is not expected to exceed 50% annually. The turnover rate for
this portfolio was 18% in 1997.
International Portfolio - Although this Portfolio will not normally engage
in short-term trading, purchases and sales of securities will be made
whenever deemed appropriate to achieve the Portfolio's objective of
long-term capital growth. The rate of portfolio turnover will not be a
limiting factor when portfolio changes are deemed appropriate to achieve
this Portfolio's stated objective. Under normal circumstances, the
portfolio turnover rate for this portfolio is not expected to exceed 75%
annually. The turnover rate for this portfolio was 24% in 1997.
Capital Appreciation Portfolio - Although TRPA generally seeks less
volatile securities for this Portfolio, the Portfolio may be traded fairly
aggressively. Its portfolio turnover rate is normally expected to be 50%
to 150% annually. The turnover rate for this portfolio was 41% in 1997.
Small Cap Portfolio - While this Portfolio purchases and holds securities
with the goal of meeting its investment objectives, portfolio changes are
made whenever FAM believes they are advisable, usually without reference
to the length of time a security has been held. The engagement in a
substantial number of short-term transactions is expected to result in
annual portfolio turnover rates of 100% to 300%. The turnover rate for
this portfolio was 80% in 1997.
Global Contrarian Portfolio - Because of the long-term growth objective
and the purchase of under-valued and out-of-favor securities, this
Portfolio will generally tend to hold securities for a relatively longer
time
6
<PAGE> 36
with the expectation of eventual price appreciation. As a result, the
portfolio turnover rate is not expected to exceed 50% annually, However,
it could be substantially higher at times due to repositioning of the
portfolio. The turnover rate for this portfolio was 29% in 1997.
Aggressive Growth Portfolio - The securities of this Portfolio are
generally expected to be traded more aggressively than those of the other
portfolios. Its portfolio turnover rate can normally be expected to be in
the range of 100% to 300% annually. The turnover rate for this portfolio
was 193% in 1997.
Core Growth Portfolio - Although the securities held in this Portfolio are
generally held for appreciation, PBA's disciplined response to its
analytic process will occasionally result in sales without regard to the
length of time a security has been held. The annual turnover rate is
normally expected to be in the range of 50% to 250%. The turnover rate
for this portfolio was 65% in 1997.
Growth & Income Portfolio - RSIM exercises "sell" disciplines. A stock
held in this Portfolio is likely to be sold if it declines substantially
in price (at least 15%), if it reaches its upside target price, if the
company's business fundamentals turn negative, or if a more attractive
opportunity appears. The prices of small- and mid-cap company securities
in which this Portfolio invests may be more volatile than those of larger
companies. As a result, the Portfolio's annual turnover rate is normally
expected to be in the 100% to 200% range. The turnover rate for this
portfolio was 185% in 1997.
S&P 500 Index Portfolio - Securities held in this Portfolio generally will
not be actively traded. Although it will often purchase fixed-income
securities with relatively short maturities, those transactions are not
expected to generate substantial brokerage commissions. The annual
turnover rate is not expected to exceed 100%. The turnover rate for this
portfolio was 445% in 1997.
Social Awareness Portfolio - This Portfolio will not normally purchase
securities with the intention of obtaining short-term returns. Under
normal market conditions, the annual turnover rate is not expected to
exceed 50%. The turnover rate for this portfolio was 40% in 1997.
Strategic Income Portfolio - The securities of this Portfolio will
generally be traded more frequently than those of the other income
oriented portfolios. Its portfolio turnover rate can normally be expected
to be in the range of 50% to 250% annually. The turnover rate for this
portfolio was 102% in 1997.
Stellar Portfolio - Although this Portfolio does not seek short-term
profits, its securities will be sold whenever Star believes it is
appropriate to do so in light of the Portfolio's investment objective
without regard to the length of time a particular security may have been
held. Its portfolio turnover rate is normally expected to be 50% to 150%.
The turnover rate for this portfolio was 17% in 1997.
Relative Value Portfolio - Although this Portfolio does not seek
short-term profits, its securities will be sold whenever Star believes it
is appropriate to do so in light of the Portfolio's investment objective
without regard to the length of time a particular security may have been
held. Its portfolio turnover rate is not expected to exceed 75% during
normal economic and market conditions. The turnover rate for this
portfolio was 7% in 1997.
EMERGING GROWTH PORTFOLIO - Securities held in this Portfolio tend to be
actively traded. Its portfolio turnover rate is normally expected to
exceed 100%.
HIGH INCOME BOND PORTFOLIO - The rate of portfolio turnover will vary from
time to time, but it is not normally expected to exceed 100% for this
Portfolio.
EQUITY INCOME PORTFOLIO - The portfolio turnover rate for this Portfolio
is normally expected to be in the range of 50% to 150% annually.
BLUE CHIP PORTFOLIO - The Portfolio will not engage in short-term trading,
but it may dispose of securities held for a short period if, after
examination of their value, the sub-adviser believes such disposition to
be advisable in order to attain the Portfolio's investment objective. The
annual turnover rate is not normally expected to exceed 100%.
INVESTMENT OBJECTIVES AND POLICIES
The following descriptions of money market instruments supplement the Fund's
"Investment Objectives and Policies" set forth in the prospectus. The Money
Market Portfolio and the Omni, Strategic Income and Stellar Portfolios, to the
extent they invest in the money market sector, will invest extensively in these
instruments. The other Portfolios may invest in such instruments to a limited
extent (to invest otherwise idle cash) or on a temporary basis for defensive
purposes. The debt security ratings referred to in the prospectus in connection
with the investment policies of the portfolios are defined in the Appendix to
this Statement of Additional Information.
7
<PAGE> 37
MONEY MARKET INSTRUMENTS
U.S. Government Obligations - Bills, notes, bonds and other debt
securities issued or guaranteed as to principal or interest by the United
States or by agencies or authorities controlled or supervised by and
acting as instrumentalities of the U.S. Government established under
authority granted by Congress, including, but not limited to, the
Government National Mortgage Association, the Tennessee Valley Authority,
the Bank for Cooperatives, the Farmers Home Administration, and Federal
Home Loan Banks. Some obligations of U.S. Government agencies, authorities
and other instrumentalities are supported by the full faith and credit of
the U.S. Treasury; others by the right of the issuer to borrow from the
Treasury; and others only by the credit of the issuer. Certain of the
foregoing may be purchased on a "when issued" basis at which time the rate
of return will not have been set.
Certificates of Deposit - Certificates issued against funds deposited in a
bank for a definite period of time, at a specified rate of return.
Normally they are negotiable.
Bankers' Acceptances - Short-term credit instruments issued by
corporations to finance the import, export, transfer or storage of goods.
They are termed "accepted" when a bank guarantees their payment at
maturity and reflect the obligation of both the bank and drawer to pay the
face amount of the instrument at maturity.
Commercial Paper - Promissory notes issued by corporations to finance
their short-term credit needs. Commercial paper obligations may include
variable amount master demand notes. Variable amount master demand notes
are obligations that permit the investment of fluctuating amounts by the
Portfolio at varying rates of interest pursuant to direct arrangements
between the Portfolio, as lender, and the borrower. These notes permit
daily changes in the amounts borrowed. The Portfolio has the right to
increase the amount under the note at any time up to the full amount
provided by the note agreement, or to decrease the amount, and the
borrower may prepay up to the full amount of the note without penalty.
Because variable amount master demand notes are direct lending
arrangements between the lender and the borrower, it is not generally
contemplated that such instruments will be traded, and there is no
secondary market for these notes, although they are redeemable (and thus
immediately repayable by the borrower) at face value, plus accrued
interest, at any time. In connection with a master demand note
arrangement, the Adviser will monitor, on an ongoing basis, the earning
power, cash flow, and other liquidity ratios of the issuer, and the
borrower's ability to pay principal and interest on demand. While master
demand notes, as such, are not typically rated by credit rating agencies,
if not so rated the Portfolio may invest in them only if at the time of an
investment the issuer meets the criteria set forth above for all other
commercial paper issuers. Such notes will be considered to have a maturity
of the longer of the demand period or the period of the interest
guarantee.
Corporate Obligations - Bonds and notes issued by corporations in order to
finance longer-term credit needs.
Repurchase Agreements - Agreements by which the Portfolio purchases a
security and obtains a simultaneous commitment from the seller (a member
bank of the Federal Reserve System or a government securities dealer
recognized by the Federal Reserve Board) to repurchase the security at a
mutually agreed upon price and date. It may also be viewed as a loan of
money by the Portfolio to the seller. The resale price is normally in
excess of the purchase price and reflects an agreed upon market rate. The
term of these repurchase agreements will usually be short, from overnight
to one week, and at no time more than one year.
8
<PAGE> 38
INVESTMENT RESTRICTIONS
The prospectus lists the most significant investment restrictions to which the
Fund is subject. The following is a complete list of the Fund's investment
restrictions. Except as otherwise specified, all of the investment restrictions
stated in the prospectus and this Statement of Additional Information are
fundamental policies. Restriction number 8 is a fundamental policy of the Global
Contrarian Portfolio and restrictions number 4, 7, 8, 12 and 13 are fundamental
policies of the Equity, Money Market, Bond, Omni and International Portfolios
and nonfundamental as to the remaining portfolios. The fundamental policies and
nonfundamental operating policies of the Capital Appreciation, Aggressive
Growth, High Income Bond, Equity Income and Blue Chip Portfolios are shown
separately below. Fundamental policies may not be changed without the
affirmative vote of the majority of the outstanding voting securities of the
Fund or a particular portfolio, as appropriate. The Investment Company Act of
l940 defines a majority vote as the vote of the lesser of (i) 67% of the shares
represented at a meeting at which more than 50% of the outstanding shares are
represented or (ii) more than 50% of the outstanding voting securities. With
respect to the submission of a change in an investment policy to the holders of
outstanding voting securities of a particular portfolio, such matter shall be
deemed to have been effectively acted upon with respect to such portfolio if a
majority of the outstanding voting securities of such portfolio vote for the
approval of such matter, notwithstanding (1) that such matter has not been
approved by the holders of a majority of the outstanding voting securities of
any other portfolio affected by such matter, and (2) that such matter has not
been approved by the vote of a majority of the outstanding voting securities of
the Fund.
The Fund may not issue senior securities and each portfolio of the Fund (other
than the Capital Appreciation, Aggressive Growth, High Income Bond, Equity
Income and Blue Chip Portfolios) will not:
l. invest more than 5% of the value of the total assets of such
portfolio in the securities of any one issuer (except U.S.
government securities);
2. purchase more than l0% of the outstanding voting securities of any
one issuer, and the Money Market Portfolio will not acquire the
voting securities of any issuer except in connection with a
merger, consolidation or other reorganization;
3. invest more than 25% of the value of its total assets in any one
industry, except that each portfolio may invest more than 25% of
the value of its total assets in obligations issued or guaranteed
by the U.S. government, its agencies or instrumentalities or in
certificates of deposit, bankers' acceptances, bank time deposits
or other obligations of banks or financial institutions. However,
it is the intention of management not to invest in time deposits
which involve any penalty or other restriction on withdrawal;
4. invest more than 15% of the value of its assets (10% in the case
of the Equity, Money Market, Bond, Omni and International
Portfolios) in securities or other investments, including
repurchase agreements maturing in more than seven days, that are
subject to legal or contractual restrictions upon resale or are
otherwise not readily marketable;
9
<PAGE> 39
5. other than the Growth & Income, Strategic Income and Emerging
Growth Portfolios, borrow money, except for temporary or
emergency purposes from banks, in which event the aggregate
amount borrowed shall not exceed 5% of the value of the assets of
the portfolio; in the case of such borrowing, each portfolio may
pledge, mortgage or hypothecate up to 5% of its assets. Reverse
repurchase agreements are not considered to be borrowed money for
purposes of this restriction. The Growth & Income, Strategic
Income and Emerging Growth Portfolios may borrow money directly
or through reverse repurchase agreements in amounts up to
one-third of the value of each of their total net assets, other
than the amount borrowed;
6. purchase or sell commodities or commodity contracts except that
(a) each portfolio other than the Money Market Portfolio may, for
hedging purposes, purchase and sell financial futures contracts
and options thereon within the limits of investment restriction 7
below, (b) the S&P 500 Index Portfolio may purchase or sell stock
index futures contracts in accordance with its stated investment
objectives, and (c) the Stellar Portfolio may purchase or sell
precious metal securities;
7. other than the S&P 500 Index Portfolio, purchase or sell put or
call options, except that each portfolio other than the Money
Market Portfolio may, for hedging purposes, (a) write call options
traded on a registered national securities exchange if such
portfolio owns the underlying securities subject to such options,
and purchase call options for the purpose of closing out positions
in options it has written, (b) purchase put options on securities
owned, and sell such options in order to close its positions in
put options, (c) purchase and sell financial futures contracts and
options thereon, and (d) purchase and sell financial index
options; provided, however, that no option or futures contract
shall be purchased or sold if, as a result, more than one-third of
the total assets of the portfolio would be hedged by options or
futures contracts, and no more than 5% of any portfolio's total
assets, at market value, may be used for premiums on open options
and initial margin deposits on futures contracts;
8. other than the International and Global Contrarian Portfolios,
invest in securities of foreign issuers except that (a) each of
the Equity, Bond, Omni, Core Growth, Growth & Income, S&P 500
Index, Social Awareness and Relative Value Portfolios may (i)
invest up to l5% of their respective assets in securities of
foreign issuers (including foreign governments or political
subdivisions, agencies or instrumentalities of foreign
governments) American Depository Receipts, and securities of
United States domestic issuers denominated in foreign currency,
and (ii) invest up to an additional l0% of the assets of the
portfolio in securities issued by foreign governments or political
subdivisions, agencies or instrumentalities thereof, (b) each of
the Small Cap and Emerging Growth Portfolios may invest up to 30%
of its assets in the securities of foreign issuers, (c) the Money
Market Portfolio may invest up to 50% of its assets in the
securities of foreign issuers, provided the securities are
denominated in U.S. dollars and held in custody in the United
States, (d) the Strategic Income Portfolio may invest up to 20%
of its assets in foreign bonds and (e) the Stellar Portfolio may
invest up to 25% of its assets in the securities of foreign
issuers. For purposes of this restriction number 8, U.S. dollar
denominated depository receipts traded in domestic markets do not
constitute foreign securities;
9. underwrite securities of other issuers except insofar as the Fund
may be considered an underwriter under the Securities Act of l933
in selling portfolio securities;
10. purchase or sell real estate, except that each portfolio may
invest in securities secured by real estate or interests therein
or securities issued by companies which invest in real estate or
interests therein. For purposes of this restriction, "real estate"
does not include investments in readily marketable notes or other
evidence of indebtedness secured by mortgages or deeds of trust
relating to real property;
11. lend money to other persons except by the purchase of obligations
in which the portfolio is authorized to invest and by entering
into repurchase agreements. Other than the Strategic Income
Portfolio, no more than 10% of a portfolio's total assets will be
invested in repurchase agreements maturing in more than seven
days;
10
<PAGE> 40
12. sell securities short or purchase securities on margin except such
short-term credits as are required to clear transactions, except
that the Growth & Income Portfolio may sell securities short and
the Strategic Income Portfolio may sell securities short if (i) it
owns, or has a right to acquire, an equal amount of those
securities or (ii) if it does not own the securities, it has
segregated an amount of its other assets equal to the lesser of
the market value of the securities sold short or the amount
required to acquire those securities (while in a short position,
the Portfolio will retain the securities, rights or segregated
assets);
13. as to the Equity, Money Market, Bond, Omni and International
Portfolios, participate on a joint or joint and several basis in
any trading account in securities, or purchase securities for the
purpose of exercising control or management;
14. purchase securities of other investment companies, except in
connection with a merger, consolidation or reorganization, or
except the purchase by any portfolio other than the Money Market
or Bond Portfolios of the securities of closed-end investment
companies if after the purchase: (i) a portfolio does not own more
than 3% of the total outstanding voting stock of the other
investment company or (ii) the value of the securities of all
investment companies held by such portfolio does not exceed 10% of
the value of the total assets of that portfolio. Purchases of
investment company securities will be made (a) only on the open
market or through dealers or underwriters receiving the customary
sales loads, or (b) as part of a merger, consolidation or plan of
reorganization.
As nonfundamental policies of each portfolio other than the Capital
Appreciation, Aggressive Growth, High Income Bond, Equity Income and Blue Chip
Portfolios, which policies may be changed at any time by the vote of a majority
of the Board of Directors, (a) no portfolio will invest more than 20% of its
assets in securities of issuers located in any one foreign country, except that
up to an additional 5% of its assets may be invested in securities of issuers
located in each of any three of Australia, Canada, France, Germany, Japan or
the United Kingdom; and (b) each portfolio other than the Money Market
Portfolio, in order to hedge against changes in the exchange rates of foreign
currencies in relation to the U.S. dollar, may engage in forward foreign
currency contracts, foreign currency options and foreign currency futures
contracts in connection with the purchase, sale or ownership of specific
securities (but, not more than 5% of a portfolio's assets may be invested in
such currency hedging contracts).
In addition to the above restrictions, in order to comply with Rule 2a-7 under
the Investment Company Act of 1940, no more than 5% of the assets of the Money
Market Portfolio will be invested in "second-tier" short-term debt instruments,
that is those receiving the second highest rating by any two nationally
recognized statistical rating organizations ("NRSRO's") and not receiving the
highest rating from more than one NRSRO (or receiving the second highest rating
from one NRSRO if (a) that is the only NRSRO having rated the security or (b)
one other NRSRO has given the security its highest rating), or whose issuer has
received such a rating or ratings with respect to a class of short-term debt
obligations that is now comparable in priority and security to those to be
purchased. In addition, not more than $1 million (or 1% of this portfolio's
assets, if greater) may be invested in the second-tier instruments of any one
issuer.
Under normal market conditions, at least 65% of the assets of the International
Portfolio and at least 25% of the assets of the Global Contrarian Portfolio will
be invested in foreign securities, including securities of issuers in at least
three different foreign countries. As of the date of this Statement of
Additional Information, the Board of Directors has approved investment by those
portfolios other than the Money Market Portfolio in 49 countries with developed
securities markets, including the following countries with developed economies:
Australia, Austria, Belgium, Canada, Denmark, Finland, France, Germany, Ireland,
Israel, Italy, Japan, Luxembourg, Netherlands, New Zealand, Norway, Spain,
Sweden, Switzerland and the United Kingdom; and the following countries with
developing economies: Argentina, Bangla Desh, Brazil, Chile, China (Hong Kong,
Shanghai and Shenzhen Exchanges), Czech Republic, Egypt, Greece, Hungary,
Indonesia, Jordan, Malaysia, Mexico, Morocco, Pakistan, Peru, Philippines,
Poland, Portugal, Singapore, South Africa, South Korea, Sri Lanka, Taiwan,
Thailand, Turkey, Uruguay, Venezuela and Zimbabwe.
CAPITAL APPRECIATION PORTFOLIO FUNDAMENTAL POLICIES
As a matter of fundamental policy, the Portfolio may not:
11
<PAGE> 41
C.A.1. Borrow money except that the Portfolio may (i) borrow for
non-leveraging, temporary or emergency purposes and (ii)
engage in reverse repurchase agreements and make other
investments or engage in other transactions, which may
involve a borrowing, in a manner consistent with the
Portfolio's investment objective and program, provided that
the combination of (i) and (ii) shall not exceed 33 1/3% of
the value of the Portfolio's total assets (including the
amount borrowed) less liabilities (other than borrowings)
or such other percentage permitted by law. Any borrowings
which come to exceed this amount will be reduced in
accordance with applicable law. The Portfolio may borrow
from banks, other portfolios managed by TRPA or other
persons to the extent permitted by applicable law;
C.A.2. Purchase or sell physical commodities; except that it may
enter into futures contracts and options thereon;
C.A.3. Purchase the securities of any issuer if, as a result, more
than 25% of the value of the Portfolio's total assets would
be invested in the securities of issuers having their
principal business activities in the same industry;
C.A.4. Make loans, although the Portfolio may (i) lend portfolio
securities and participate in an interfund lending program
with other portfolios managed by TRPA provided that no such
loan may be made if, as a result, the aggregate of such
loans would exceed 33 1/3% of the value of the Portfolio's
total assets; (ii) purchase money market securities and
enter into repurchase agreements; and (iii) acquire
publicly-distributed or privately-placed debt securities
and purchase debt;
C.A.5. Purchase a security if, as a result, with respect to 75% of
the value of its total assets, more than 5% of the value of
the Portfolio's total assets would be invested in the
securities of a single issuer, except securities issued or
guaranteed by the U.S. Government or any of its agencies or
instrumentalities;
C.A.6. Purchase a security if, as a result, with respect to 75% of
the value of the Portfolio's total assets, more than 10% of
the outstanding voting securities of any issuer would be
held by the Fund (other than obligations issued or
guaranteed by the U.S. Government, its agencies or
instrumentalities);
C.A.7. Purchase or sell real estate unless acquired as a result of
ownership of securities or other instruments (but this
shall not prevent the Portfolio from investing in
securities or other instruments backed by real estate or in
securities of companies engaged in the real estate
business);
C.A.8. Issue senior securities except in compliance with the
Investment Company Act of 1940; or
C.A.9. Underwrite securities issued by other persons, except to
the extent that the Portfolio may be deemed to be an
underwriter within the meaning of the Securities Act of
1933 in connection with the purchase and sale of its
portfolio securities in the ordinary course of pursuing its
investment program.
With respect to investment restrictions C.A.1. and C.A.4,, the Portfolio
will not borrow from or lend to any other portfolios managed by TRPA
unless they apply for and receive an exemptive order from the SEC or the
SEC issues rules permitting such transactions. The Portfolio has no
current intention of engaging in any such activity and there is no
assurance the SEC would grant any order requested by the Portfolio or
promulgate any rules allowing the transactions.
With respect to investment restriction C.A.2., the Portfolio does not
consider currency contracts or hybrid investments to be commodities.
For purposes of investment restriction C.A.3., U.S., state or local
governments, or related agencies or instrumentalities, are not considered
an industry.
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For purposes of investment restriction C.A.4., the Portfolio will consider
the acquisition of a debt security to include the execution of a note or
other evidence of an extension of credit with a term of more than nine
months.
CAPITAL APPRECIATION PORTFOLIO NONFUNDAMENTAL OPERATING POLICIES
As a matter of nonfundamental operating policy, the Portfolio may not:
C.A.10. Purchase additional securities when money borrowed exceeds
5% of its total assets;
C.A.11. Invest in companies for the purpose of exercising
management or control;
C.A.12. Purchase a futures contract or an option thereon if, with
respect to positions in futures or options on futures which
do not represent bona fide hedging, the aggregate initial
margin and premiums on such options would exceed 5% of the
Portfolio's net asset value;
C.A.13. Purchase illiquid securities and securities of unseasoned
issuers if, as a result, more than 15% of its net assets
would be invested in such securities, provided that the
Portfolio will not invest more than 5% of its total assets
in restricted securities and not more than 5% in securities
of unseasoned issuers. Securities eligible for resale under
Rule 144A of the Securities Act of 1933 are not included in
the 5% limitation but are subject to the 15% limitation;
C.A.14. Purchase securities of open-end or closed-end investment
companies except in compliance with the Investment Company
Act of 1940 and applicable state law;
C.A.15. Purchase securities on margin, except (i) for use of
short-term credit necessary for clearance of purchases of
portfolio securities and (ii) to make margin deposits in
connection with futures contracts or other permissible
investments;
C.A.16. Mortgage, pledge, hypothecate or, in any manner, transfer
any security owned by the Portfolio as security for
indebtedness except as may be necessary in connection with
permissible borrowings or investments and then such
mortgaging, pledging or hypothecating may not exceed 33
1/3% of the Portfolio's total assets at the time of
borrowing or investment;
C.A.17. Purchase participations or other direct interests in or
enter into leases with respect to, oil, gas, or other
mineral exploration or development programs;
C.A.18. Invest in puts, calls, straddles, spreads, or any
combination thereof, except to the extent permitted by the
prospectus and Statement of Additional Information;
C.A.19. Purchase or retain the securities of any issuer if, to the
knowledge of the Fund's management, those officers and
directors of the Fund, and of the Portfolio's investment
manager, who each owns beneficially more than 0.5% of the
outstanding securities of such issuer, together own
beneficially more than 5% of such securities;
C.A.20. Effect short sales of securities;
C.A.21. Purchase a security (other than obligations issued or
guaranteed by the U.S., any foreign, state of local
government, their agencies or instrumentalities) if, as a
result, more than 5% of the value of the Portfolio's total
assets would be invested in the securities of issuers which
at the time of purchase had been in operation for less than
three years (for this purpose, the period of operation of
any issuer shall include the period of operation of any
predecessor or unconditional guarantor of such issuer).
This restriction does not apply to securities of pooled
investment vehicles or mortgage or asset-backed securities;
or
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C.A.22. Invest in warrants if, as a result thereof, more than 2% of
the value of the total assets of the Portfolio would be
invested in warrants which are not listed on the New York
Stock Exchange, the American Stock Exchange, or a
recognized foreign exchange, or more than 5% of the value
of the total assets of the Portfolio would be invested in
warrants whether or not so listed. For purposes of these
percentage limitations, the warrants will be valued at the
lower of cost or market and warrants acquired by the
Portfolio in units or attached to securities may be deemed
to be without value.
AGGRESSIVE GROWTH PORTFOLIO FUNDAMENTAL POLICIES
As a matter of fundamental policy, the Portfolio:
A.G.1. May not with respect to 75% of its total assets, purchase
the securities of any issuer (except securities issued or
guaranteed by the U.S. government or its agencies or
instrumentalities) if, as a result, (i) more than 5% of the
Portfolio's total assets would be invested in the
securities of that issuer, or (ii) the Portfolio would hold
more than 10% of the outstanding voting securities of that
issuer.
A.G.2. May (i) borrow money from banks and (ii) make other
investments or engage in other transactions permissible
under the Investment Company Act of 1940 which may involve
a borrowing, provided that the combination of (i) and (ii)
shall not exceed 33 1/3% of the value of the Portfolio's
total assets (including the amount borrowed), less the
Portfolio's liabilities (other than borrowings), except
that the Portfolio may borrow up to an additional 5% of its
total assets (not including the amount borrowed) from a
bank for temporary or emergency purposes (but not for
leverage or the purchase of investments). The Portfolio may
also borrow money from the other mutual funds managed by
SCM or other persons to the extent permitted by applicable
law.
A.G.3. May not issue senior securities, except as permitted under
the Investment Company Act of 1940.
A.G.4. May not act as an underwriter of another issuer's
securities, except to the extent that the Portfolio may be
deemed to be an underwriter within the meaning of the
Securities Act of 1933 in connection with the purchase and
sale of portfolio securities.
A.G.5. May not purchase or sell physical commodities unless
acquired as a result of ownership of securities or other
instruments (but this shall not prevent the Portfolio from
purchasing or selling options, futures contracts, or other
derivative instruments, or from investing in securities or
other instruments backed by physical commodities).
A.G.6. May not make loans if, as a result, more than 33 1/3% of
the Portfolio's total assets would be lent to other
persons, except through (i) purchases of debt securities or
other debt instruments, or (ii) engaging in repurchase
agreements.
A.G.7. May not purchase the securities of any issuer if, as a
result, more that 25% of the Portfolio's total assets would
be invested in the securities of issuers, the principal
business activities of which are in the same industry.
A.G.8. May not purchase or sell real estate unless acquired as a
result of ownership of securities or other instruments (but
this shall not prohibit the Portfolio from purchasing or
selling securities or other instruments backed by real
estate or of issuers engaged in real estate activities).
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AGGRESSIVE GROWTH PORTFOLIO NONFUNDAMENTAL OPERATING POLICIES
As a matter of nonfundamental operating policy, the Portfolio may not:
A.G.9. Sell securities short, unless the Portfolio owns or has
the right to obtain securities equivalent in kind and
amount to the securities sold short, or unless it covers
such short sale as required by the current rules and
positions of the SEC or its staff, and provided that
transactions in options, futures contracts, options on
futures contracts, or other derivative instruments are not
deemed to constitute selling securities short.
A.G.10. Purchase securities on margin, except that the Portfolio
may obtain such short-term credits as are necessary for the
clearance of transactions; and provided that margin
deposits in connection with futures contacts, options on
futures contracts, or other derivative instruments shall
not constitute purchasing securities on margin.
A.G.11. Invest in illiquid securities if, as a result of such
investment, more than 15% of its net assets would be
invested in illiquid securities, or such other amounts as
may be permitted under the Investment Company Act of 1940.
A.G.12. Purchase securities of other investment companies except in
compliance with the Investment Company Act of 1940 and
applicable state law.
A.G.13. Purchase the securities of any issuer (other than
securities issued or guaranteed by domestic or foreign
governments or political subdivisions thereof) if, as a
result, more than 5% of its total assets would be invested
in the securities of issuers that, including predecessor or
unconditional guarantors, have a record of less than three
years of continuous operation. This policy does not apply
to securities of pooled investment vehicles or mortgage or
asset-backed securities.
A.G.14. Invest in direct interests in oil, gas, or other mineral
exploration programs or leases; however, the Portfolio may
invest in the securities of issuers that engage in these
activities.
A.G.15. Engage in futures or options on futures transactions which
are impermissible pursuant to Rule 4.5 under the Commodity
Exchange Act and, in accordance with Rule 4.5, will use
futures or options on futures transactions solely for bona
fide hedging transactions (within the meaning of the
Commodity Exchange Act), provided, however, that the
Portfolio may, in addition to bona fide hedging
transactions, use futures and options on futures
transactions if the aggregate initial margin and premiums
required to establish such positions, less the amount by
which any such options positions are in the money (within
the meaning of the Commodity Exchange Act), do not exceed
5% of the Portfolio's net assets.
In addition, (i) the aggregate value of securities
underlying call options on securities written by the
Portfolio or obligations underlying put options on
securities written by the Portfolio determined as of the
date the options are written will not exceed 50% of the
Portfolio's net assets; (ii) the aggregate premiums paid on
all options purchased by the Portfolio and which are being
held will not exceed 20% of the Portfolio's net assets;
(iii) the Portfolio will not purchase put or call options,
other than hedging positions, if, as a result thereof, more
than 5% of its total assets would be so invested; and (iv)
the aggregate margin deposits required on all futures and
options on futures transactions being held will not exceed
5% of the Portfolio's total assets.
A.G.16. Pledge, mortgage or hypothecate any assets owned by the
Portfolio except as may be necessary in connection with
permissible borrowings or investments and then such
pledging, mortgaging, or hypothecating may not exceed 33
1/3% of the Portfolio's total assets at the time of the
borrowing or investment.
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A.G.17. Purchase warrants, valued at the lower of cost or market
value, in excess of 5% of the Portfolio's net assets.
Included in that amount, but not to exceed 2% of the
Portfolio's net assets, may be warrants that are not listed
on the New York Stock Exchange or the American Stock
Exchange. Warrants acquired by the Portfolio in units or
attached to securities are not subject to these
restrictions.
A.G.18. Borrow money except (i) from banks or (ii) through reverse
repurchase agreements or mortgage dollar rolls, and will
not purchase securities when bank borrowings exceed 5% of
its total assets.
A.G.19. Make any loans other than loans of portfolio securities,
except through (i) purchases of debt securities or other
debt instruments, or (ii) engaging in repurchase
agreements.
HIGH YIELD BOND, EQUITY INCOME AND BLUE CHIP PORTFOLIO FUNDAMENTAL POLICIES
As a matter of fundamental policy:
F.I.1 The portfolios will not issue senior securities, except that a
portfolio may borrow money directly or through reverse repurchase
agreements as a temporary, extraordinary, or emergency measure to
facilitate management of the portfolio by enabling it to meet
redemption requests when liquidation of portfolio securities is deemed
to be inconvenient or disadvantageous, and then only in amounts not in
excess of one-third of the value of its total assets; provided that,
while borrowings and reverse repurchase agreements outstanding exceed
5% of a portfolio's total assets, any such borrowings will be repaid
before additional investments are made. The portfolios will not borrow
money or engage in reverse repurchase agreements for investment
leverage purposes.
F.I.2. The portfolios will not purchase securities if, as a result of such
purchase, 25% or more of a portfolio's total assets would be invested
in any one industry. However, a portfolio may at any time invest 25% or
more of its total assets in cash or cash items and securities issued
and/or guaranteed by the U.S. government, its agencies or
instrumentalities.
F.I.3. The portfolios will not purchase or sell real estate, although they may
invest in securities of companies whose business involves the purchase
or sale of real estate or in securities secured by real estate or
interests in real estate.
F.I.4. The portfolios will not lend any of their assets, except a portfolio's
securities, up to one-third of its total assets. This shall not prevent
a portfolio from purchasing or holding corporate or U.S. government
bonds, debentures, notes, certificates of indebtedness or other debt
securities of an issuer, entering into repurchase agreements, or
engaging in other transactions which are permitted by the portfolio's
investment objectives and policies.
F.I.5. The portfolios will not underwrite any issue of securities, except as a
portfolio may be deemed to be an underwriter under the Securities Act
of 1933 in connection with the sale of securities in accordance with
its investment objectives, policies, and limitations.
F.I.6. With respect to 75% of its total assets, a portfolio will not purchase
the securities of any one issuer (other than cash, cash items, or
securities issued and/or guaranteed by the U.S. government, its
agencies or instrumentalities, and repurchase agreements collateralized
by such securities) if, as a result, more than 5% of its total assets
would be invested in the securities of that issuer. Also, a portfolio
will not purchase more than 10% of any class of the outstanding voting
securities of any one issuer. For these purposes, the portfolios
consider common stock and all preferred stock of an issuer each as a
single class, regardless of priorities, series, designations, or other
differences.
F.I.7. The portfolios will not purchase any securities on margin, but they may
obtain such short-term credits as are necessary for clearance of
transactions. The deposit or payment by a portfolio of initial or
variation margin in connection with financial futures contracts or
related options transactions is not considered the purchase of a
security on margin.
F.I.8. The portfolios will not purchase or sell commodities, except that a
portfolio may purchase and sell financial futures contracts and related
options.
F.I.9. The portfolios will not pledge, mortgage or hypothecate any assets
except to secure permitted borrowings. In those cases, a portfolio may
pledge, mortgage or hypothecate assets having a market value not
exceeding the lesser of the dollar amounts borrowed or 15% of the value
of its total assets at the time of borrowing.
F.I.10. The portfolios will not sell securities short unless during the time
the short position is open, a portfolio owns an equal amount of the
securities sold or securities readily and freely convertible into or
exchangeable, without payment of additional consideration, for
securities of the same issue as, and equal in amount to, the securities
sold short; and not more than 10% of a portfolio's net assets (taken at
current value) is held as collateral for such sales at any one time.
F.I.11. Each of the portfolios will not invest more than 15% of its net assets
in illiquid securities, including, among others, repurchase agreements
providing for settlement more than seven days after notice, and certain
restricted securities not determined by the Board of Directors to be
liquid.
HEDGING TRANSACTIONS
The purpose of hedging transactions using put and call options on individual
securities, financial futures contracts, and options on such contracts and on
financial indexes, all to the extent provided in investment restriction 7, is to
reduce the risk of fluctuation of portfolio securities values or to take
advantage of expected market fluctuations. However, while such transactions are
defensive in nature and are not speculative, some risks remain.
The use of options and futures contracts may help the Fund to gain exposure or
to protect itself from changes in market values. For example, the Fund may have
a substantial amount of cash at the beginning of a market rally. Conventional
procedures of purchasing a number of individual issues requires time and may
result in missing a significant market movement. By using futures contracts, the
Fund can obtain immediate exposure to the market.
The buying program will then proceed and, once it is completed (or as it
proceeds), the futures contracts will be closed. Conversely, in the early stages
of a market decline, market exposure can be promptly offset by selling futures
contracts, and individual securities can be sold over a longer period under
cover of the resulting short contract position.
COVERED CALL OPTIONS AND PUT OPTIONS
In writing (i.e., selling) "covered" call options on securities owned by a
portfolio, the portfolio gives the purchaser of the call option the right to
purchase the underlying securities owned by the portfolio at a specified
"exercise" price at any time prior to the expiration of the option, normally
within nine months. In purchasing put options on securities owned by a
portfolio, the portfolio pays the seller of the put option a premium for the
right of the portfolio to sell the underlying securities owned by the portfolio
at a specified exercise price prior to the expiration of the option.
Whenever a portfolio has a covered call option outstanding, the underlying
securities will be segregated by the Custodian and held in an escrow account to
assure that such securities will be delivered to the option holder if the option
is exercised. While the underlying securities are subject to the option, the
portfolio remains the record owner of the securities, entitling it to receive
dividends and to exercise any voting rights.
In order to terminate its position as the writer of a call option or the
purchaser of a put option, the portfolio may enter into a "closing" transaction,
which is the purchase of a call option or sale of a put option on the same
underlying securities and having the same exercise price and expiration date as
the option previously sold or purchased by the portfolio.
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FUTURES CONTRACTS
The Fund may invest in two kinds of financial futures contracts: stock index
futures contracts and interest rate futures contracts. Stock index futures
contracts are contracts developed by and traded on national commodity exchanges
whereby the buyer will, on a specified future date, pay or receive a final cash
payment equal to the difference between the actual value of the stock index on
the last day of the contract and the value of the stock index established by the
contract multiplied by the specific dollar amount set by the exchange. Futures
contracts may be based on broad-based stock indexes such as the S&P 500 or on
narrow-based stock indexes. A particular index will be selected according to the
Adviser's investment strategy for the particular portfolio. An interest rate
futures contract is an agreement whereby one party agrees to sell and another
party agrees to purchase a specified amount of a specified financial instrument
(debt security) at a specified price at a specified date, time and place.
Although interest rate futures contracts typically require actual future
delivery of and payment for financial instruments, the contracts are usually
closed out before the delivery date. A public market exists in interest rate
futures contracts covering primarily the following financial instruments: U.S.
Treasury bonds; U.S. Treasury notes; Government National Mortgage Association
(GNMA) modified pass-through mortgage-backed securities; three-month U.S.
Treasury bills; 90-day commercial paper; bank certificates of deposit; and
Eurodollar certificates of deposit. It is expected that futures contracts
trading in additional financial instruments will be authorized.
At the time the Fund enters into a contract, it sets aside a small portion of
the contract value in an account with the Fund's custodian as a good faith
deposit (initial margin) and each day during the contract period requests and
receives or pays cash equal to the daily change in the contract value (variable
margin). The Fund, its futures commission merchant and the Fund's custodian
retain control of the initial margin until the contract is liquidated.
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OPTIONS ON FUTURES CONTRACTS AND FINANCIAL INDEXES
Instead of entering into a financial futures contract, the Fund may buy an
option giving it the right to enter into such a contract at a future date. The
price paid for such an option is called a premium. The Fund also may buy options
on financial indexes that are traded on securities exchanges. Options on
financial indexes react to changes in the value of the underlying index in the
same way that options on financial futures contracts do. All settlements for
options on financial indexes also are for cash.
Financial futures contracts, options on such contracts and options on financial
indexes will only be used for hedging purposes and will, therefore, be
incidental to the Fund's activities in the securities market. Accordingly,
portfolio securities subject to options, or money market instruments having the
market value of any futures contracts, generally will be set aside to
collateralize the options or futures contracts.
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FOREIGN CURRENCY HEDGING TRANSACTIONS
In order to hedge against changes in the exchange rates of foreign currencies in
relation to the U.S. dollar, each portfolio, other than the Money Market
Portfolio, may engage in forward foreign currency contracts, foreign currency
options and foreign currency futures contracts in connection with the purchase,
sale or ownership of a specific security.
The portfolios generally conduct their foreign currency exchange transactions on
a spot (i.e., cash) basis at the spot rate prevailing in the foreign exchange
currency market. When a portfolio purchases or sells a security denominated in a
foreign currency, it may enter into a forward foreign currency contract
("forward contract") for the purchase or sale, for a fixed amount of dollars, of
the amount of currency involved in the underlying security transaction. A
forward contract involves an obligation to purchase or sell a specific currency
at a future date, which may be any fixed number of days from the date of the
contract agreed upon by the parties, at a price set at the time of the contract.
In this manner, a portfolio may obtain protection against a possible loss
resulting from an adverse change in the relationship between the U.S. dollar and
the foreign currency during the period between the date the security is
purchased or sold and the date upon which payment is made or received. Although
such contracts tend to minimize the risk of loss due to the decline in the value
of the hedged currency, at the same time they tend to limit any potential gain
which might result should the value of such currency increase.
Forward contracts are traded in the interbank market conducted directly between
currency traders (usually large commercial banks) and their customers. Generally
a forward contract has no deposit requirement, and no commissions are charged.
Although foreign exchange dealers do not charge a fee for conversion, they do
realize a profit based on the difference between the prices at which they buy
and sell various currencies. When the portfolio manager believes that the
currency of a particular foreign country may suffer a substantial decline
against the U.S. dollar, a portfolio may enter into a forward contract to sell,
for a fixed amount of dollars, the amount of foreign currency approximating the
value of some or all of that portfolio's securities denominated in such foreign
currency. No portfolio will enter into such forward contracts or maintain a net
exposure to such contracts where the consummation of the contracts would
obligate the portfolio to deliver an amount of foreign currency in excess of the
value of its assets denominated in that currency.
At the consummation of a forward contract for delivery by a portfolio of a
foreign currency, the portfolio may either make delivery of the foreign currency
or terminate its contractual obligation to deliver the foreign
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currency by purchasing an offsetting contract obligating it to purchase, at the
same maturity date, the same amount of the foreign currency. If the portfolio
chooses to make delivery of the foreign currency, it may be required to obtain
such currency through the sale of its securities denominated in such currency or
through conversion of other portfolio assets into such currency. It is
impossible to forecast the market value of portfolio securities at the
expiration of the forward contract. Accordingly, it may be necessary for the
portfolio to purchase additional foreign currency on the spot market (and bear
the expense of such purchase) if the market value of the security is less than
the amount of foreign currency the portfolio is obligated to deliver, and if a
decision is made to sell the security and make delivery of the foreign currency.
Conversely, it may be necessary for the portfolio to sell on the spot market
some of the foreign currency received on the sale of its hedged security if the
security's market value exceeds the amount of foreign currency the portfolio is
obligated to deliver.
If the portfolio retains the hedged security and engages in an offsetting
transaction, it will incur a gain or loss to the extent that there has been
movement in spot or forward contract prices. If a portfolio engages in an
offsetting transaction, it may subsequently enter into a new forward contract to
sell the foreign currency. Should forward prices decline during the period
between the portfolio's entering into a forward contract for the sale of a
foreign currency and the date it enters into an offsetting contract for the
purchase of the foreign currency, the portfolio will realize a gain to the
extent the price of the currency it has agreed to sell exceeds the price of the
currency it has agreed to purchase. Should forward prices increase, the
portfolio will suffer a loss to the extent the price of the currency it has
agreed to purchase exceeds the price of the currency it has agreed to sell.
Buyers and sellers of foreign currency options and futures contracts are subject
to the same risks previously described with respect to options and futures
generally (see "Risk Factors with Options" and "Risk Factors with Futures,
Options on Futures and Options on Indexes," above). In addition, settlement of
currency options and futures contracts with respect to most currencies must
occur at a bank located in the issuing nation. The ability to establish and
close out positions on such options is subject to the maintenance of a liquid
market that may not always be available. Currency rates may fluctuate based on
political considerations and governmental actions as opposed to purely economic
factors.
Predicting the movements of foreign currency in relation to the U.S. dollar is
difficult and requires different skills than those necessary to predict
movements in the securities market. There is no assurance that the use of
foreign currency hedging transactions can successfully protect a portfolio
against loss resulting from the movements of foreign currency in relation to the
U.S. dollar. In addition, it must be remembered that these methods of protecting
the value of a portfolio's securities against a decline in the value of a
currency does not eliminate fluctuations in the underlying prices of the
securities. It simply establishes a rate of exchange which can be achieved at
some future point in time. Additionally, although such contracts tend to
minimize the risk of loss due to the decline in the value of the hedged
currency, at the same time they tend to limit any potential gain which might
result should the value of such currency increase.
SHORT SALES
Until a borrowed security borrowed in connection with a short sale (as
described in the prospectus) is replaced, a portfolio will be required to
maintain daily a segregated account, containing cash or U.S. government
securities, at such a level that (i) the amount deposited in the account plus
the amount deposited with the broker as collateral will at all times be equal
to at least 100% of the current value of the security sold short and (ii) the
amount deposited in the segregated account plus the amount deposited with the
broker as collateral will not be less than the market value of the security at
the time it was sold short. A portfolio may purchase call options to provide a
hedge against an increase in the price of a security sold short. When a
portfolio purchases a call option, it has to pay a premium to the person
writing the option and a commission to the broker selling the option. If the
option is exercised by a portfolio, the premium and the commission paid may be
more than the amount of the brokerage commission charged if the security were
to be purchased directly. See "Hedging Transactions" and "Covered Call Options
and Put Options." In addition to the short sales discussed above, a portfolio
also may make short sales "against the box," a transaction in which a portfolio
enters into a short sale of a security which the portfolio owns. The proceeds
of the short sale are held by a broker until the settlement date, at which time
the portfolio delivers the security to close the short position. A Portfolio
receives the net proceeds from the short sale. No portfolio will, at any time,
have more than 5% of the value of its net assets in deposits on short sales
against the box.
BORROWING MONEY
The portfolios will not borrow money except as a temporary measure for
extraordinary or emergency purposes and then only in amounts not in excess of 5%
of the value of a portfolio's total assets. In addition, certain portfolios may
enter into reverse repurchase agreements and otherwise borrow up to one-third of
the value of the portfolio's total assets, including the amount borrowed, in
order to meet redemption requests without immediately selling portfolio
securities. This latter practice is not for investment leverage but solely to
facilitate management of a portfolio by enabling it to meet redemption requests
when the liquidation of portfolio instruments would be inconvenient or
disadvantageous.
Interest paid on borrowed funds will not be available for investment and will
reduce net income. A portfolio will liquidate any such borrowings as soon as
possible and may not purchase any portfolio securities while the borrowings are
outstanding. However, during the period any reverse repurchase agreements are
outstanding, but only to the extent necessary to assure completion of the
reverse repurchase agreements, the purchase of portfolio securities will be
limited to money market instruments maturing on or before the expiration date of
the reverse repurchase agreements.
ZERO-COUPON AND PAY-IN-KIND DEBT SECURITIES
Zero-coupon securities (or "step-ups") in which a portfolio may invest are debt
obligations which are generally issued at a discount and payable in full at
maturity, and which do not provide for current payments of interest prior to
maturity. Pay-in-kind securities make periodic interest payments in the form of
additional securities (as opposed to cash). Zero-coupon and pay-in-kind
securities usually trade at a deep discount from their face or par value and are
subject to greater market value fluctuations from changing interest rates than
debt obligations of comparable maturities which make current distributions of
interest. As a result, the net asset value of shares of a portfolio investing in
zero-coupon and pay-in-kind securities may fluctuate over a greater range than
shares of other mutual funds investing in securities making current
distributions of interest and having similar maturities.
When debt obligations have been stripped of their unmatured interest coupons by
the holder, the stripped coupons are sold separately. The principal or corpus is
sold at a deep discount because the buyer receives only the right to receive a
future fixed payment on the security and does not receive any rights to periodic
cash interest payments. Once stripped or separated, the corpus and coupons may
be sold separately. Typically, the coupons are sold separately or grouped with
other coupons with like maturity dates and sold in such bundled form. Purchasers
of stripped obligations acquire, in effect, discount obligations that are
economically identical to the zero-coupon securities issued directly by the
obligor.
Zero-coupon convertible securities are debt instruments issued at a discount to
their face amount and convertible to common stock (see "Convertible Securities,"
above). These securities usually have put features giving the holder the
opportunity to sell them back to the issuer at a stated price prior to maturity.
The prices of zero-coupon convertible securities are generally more sensitive to
interest rate fluctuations than are conventional convertible securities.
Zero-coupon securities allow an issuer to avoid the need to generate cash to
meet current interest payments. Even though zero-coupon securities do not pay
current interest in cash, federal income tax law requires zero-coupon holders to
recognize accrued income prior to receipt of actual cash payment (i.e., at
maturity). In order to avoid federal income tax liability and maintain its
status as a regulated investment company, a portfolio may have to sell these
securities at disadvantageous times in order to generate cash for the
distribution of accrued income.
PRECIOUS METALS
The value of the investments of certain portfolios may be affected by changes in
the price of gold and other precious metals. Gold has been subject to
substantial price fluctuations over short periods of time and may be affected by
unpredictable international monetary and other governmental policies, such as
currency devaluations or revaluations; economic and social conditions within a
country; trade imbalances, or trade or currency restrictions between countries.
Because much of the world's known gold reserves are located in South Africa,
political and social conditions there may pose special risks to investments in
gold. For instance, social upheaval and related economic difficulties in South
Africa could cause a decrease in the share values of South African issuers.
In addition to its investments in securities, a portfolio may, as described in
the prospectus, invest a portion of its assets in precious metals, such as gold,
silver, platinum, and palladium, and precious metal options and futures. The
prices of precious metals are affected by broad economic and political
conditions, but are less subject to local and company-specific factors than
securities of individual companies. As a result, precious metals and precious
metal options and futures may be more or less volatile in price than securities
of companies engaged in precious metals-related businesses. Precious metals may
be purchased in any form, including bullion and coins, provided that the Fund
intends to purchase only those forms of precious metals that are readily
marketable and that can be stored in accordance with custody regulations
applicable to mutual funds. A portfolio may incur higher custody and transaction
costs for precious metals than for securities. Also, precious metals investments
do not pay income.
Under current federal income tax law, gains for selling precious metals (and
certain other assets) may not exceed 10% of a portfolio's annual gross income.
This tax requirement could prompt a portfolio to hold or sell precious metals,
securities, options, or futures when it would not otherwise do so.
20
<PAGE> 50
MANAGEMENT OF THE FUND
DIRECTORS AND OFFICERS OF THE FUND
The directors and officers of the Fund, together with information as to their
principal occupations during the past five years are listed below:
<TABLE>
<CAPTION>
Position with Principal Occupation
Name and address the Fund during past five years
- ---------------- -------- ----------------------
<S> <C> <C>
Ronald L. Benedict* Secretary and Corporate Vice President, Counsel and
One Financial Way Director Secretary, ONLI; Secretary of the
Cincinnati, Ohio Adviser
George E. Castrucci Director Retired; formerly President and
8355 Old Stable Rd. Chief Operating Officer of Great
Cincinnati, Ohio American Communications Co and
Chairman and Chief Executive
Officer of Great American
Broadcasting Co.; Director of Benchmark
Savings Bank; Director of Baldwin
Piano & Organ Co.
Ross Love Director President & CEO, Blue Chip Broadcasting
615 Windings Way Ltd.; Trustee, Health Alliance of Greater
Cincinnati, Ohio Cincinnati; Director, Partnership for a
Drug Free America (Chairman of African-
American Task Force); Advisory Board,
Syracuse University School of Management;
Director, Association of National Advertisers;
Until 1996 was Vice President of Advertising,
Procter & Gamble Co.
John J. Palmer* President and Senior Vice President, Strategic
One Financial Way Director Initiatives, ONLI; Prior to
Cincinnati, Ohio March, 1997, was Senior Vice
President of Life Insurance
Company of Virginia
George M. Vredeveld Director Professor of Economics, University of
University of Cincinnati of Cincinnati; Director of Center for
P.O. Box 210223 Economic Education; Private Consultant;
Cincinnati, Ohio Director of Benchmark Savings Bank
Thomas A. Barefield Vice President Senior Vice President,
One Financial Way Institutional Sales, ONLI;
Cincinnati, Ohio Prior to November, 1997,
was Senior Vice President
of Life Insurance Company of
Virginia
Michael A. Boedeker Vice President Vice President, Fixed Income
One Financial Way Securities, ONLI; Vice President
Cincinnati, Ohio and Director of Adviser
Joseph P. Brom Vice President Vice President, Investments,
One Financial Way ONLI; President and Director
Cincinnati, Ohio of the Adviser
Stephen T. Williams Vice President Vice President Equity Securities,
One Financial Way ONLI; Vice President and Director of
Cincinnati, Ohio the Adviser
Dennis R. Taney Treasurer Mutual Funds Financial Operations,
One Financial Way ONLI; Treasurer of the Adviser
Cincinnati, Ohio
</TABLE>
*Indicates Directors who are "Interested Persons" as defined by the Investment
Company Act of 1940, as amended.
21
<PAGE> 51
All directors and officers of the Fund hold similar positions with ONE Fund,
Inc. ("ONE Fund"), another mutual fund sponsored by ONLI and managed by the
Adviser.
COMPENSATION OF DIRECTORS
Directors who are not affiliated with the Adviser, ONLI, ONLAC or a sub-adviser
were compensated as follows in 1997:
<TABLE>
<CAPTION>
Aggregate Compensation Total Compensation
Director From the Fund From Fund Complex*
- -------- ------------- ------------------
<S> <C> <C>
George E. Castrucci $ 10,400 $ 15,000
Maurice H. Kirby, Jr 2,000 2,850
Ross Love 8,400 12,150
George M. Vredeveld 10,400 15,000
</TABLE>
* The "Fund Complex" consists of the Fund and ONE Fund, Inc.
Directors and officers of the Fund who are affiliated with the Adviser, ONLI or
ONLAC receive no compensation from the Fund Complex. The Fund has no pension,
retirement or deferred compensation plan for its directors or officers.
SHAREHOLDERS' MEETINGS
The Fund's by-laws provide that shareholders meetings need only be held every
three years unless matters requiring shareholder approval should occur more
frequently. It is anticipated that shareholder meetings will generally occur
every three years.
INVESTMENT ADVISORY AND OTHER SERVICES
The Adviser is an Ohio corporation organized on January 17, 1996 to provide
investment advice and management services to funds affiliated with ONLI. The
Adviser is a wholly-owned subsidiary of ONLI. The Adviser succeeded O.N.
Investment Management Company ("ONIMCO") as the Fund's investment adviser on May
1, 1996. Prior to that date, ONIMCO had been the investment adviser from the
Fund's inception. The Adviser, like ONIMCO before it, uses ONLI's investment
personnel and administrative systems.
The Adviser regularly furnishes to the Fund's Board of Directors recommendations
with respect to an investment program consistent with the investment policies of
each portfolio. Upon approval of an investment program by the Fund's Board of
Directors, the Adviser implements the program by placing the orders for the
purchase and sale of securities or, in the case of the International, Capital
Appreciation, Small Cap, Global Contrarian, Aggressive Growth, Core Growth,
Growth & Income, Strategic Income, Stellar, Relative Value, Emerging Growth,
High Income Bond, Equity Income and Blue Chip Portfolios, by delegating that
implementation to SGAM, TRPA, FAM, SCM, PBA, RSIM, Star, or FIC as the case may
be.
The Adviser's services are provided under an Investment Advisory Agreement with
the Fund. Under the Investment Advisory Agreement, the Adviser provides
personnel, including executive officers for the Fund. The Adviser also furnishes
at its own expense or pays the expenses of the Fund for clerical and related
administrative services (other than those provided by the custodian agreements
with Star and Investors Fiduciary Trust Company and an agency agreement with
American Data Services, Inc.), office space, and other facilities. The Fund pays
corporate expenses incurred in its operations, including, among others, local
income, franchise, issuance or other taxes; certain printing costs; brokerage
commissions on portfolio transactions; custodial and transfer agent fees;
auditing and legal expenses; and expenses relating to registration of its shares
for sale and shareholders' meetings.
As compensation for its services, the Adviser receives from the Fund annual fees
on the basis of each portfolio's average daily net assets during the quarterly
period for which the fees are paid based on the following schedule: (a) for each
of the Equity, Bond, Omni and Social Awareness Portfolios, 0.60% of the first
$100 million of each Portfolio's net assets, 0.50% of the next $150 million of
net assets, 0.45% of the next $250 million of net assets,
22
<PAGE> 52
0.40% of the next $500 million of net assets, 0.30% of the next $1 billion of
net assets, and 0.25% of net assets over $2 billion; (b) for the Money Market
Portfolio, 0.30% of the first $100 million of net assets, 0.25% of the next
$150 million of net assets, 0.23% of the next $250 million of net assets, 0.20%
of the next $500 million of net assets, and 0.15% of net assets over $1
billion; (c) for the International, Global Contrarian, Relative Value, Emerging
Growth and Blue Chip Portfolios, 0.90% of each Portfolio's net assets; (d) for
the Capital Appreciation, Small Cap, Aggressive Growth and Strategic Income
Portfolios, 0.80% of each Portfolio's net assets, (e) for the Core Growth
Portfolio, 0.95% of the first $150 million of net assets, and 0.80% of net
assets over $150 million; (f) for the Growth & Income Portfolio, 0.85% of the
first $200 million of net assets, and 0.80% of net assets over $200 million,
(g) for the S&P 500 Index Portfolio, 0.40% of the first $100 million of net
assets, 0.35% of the next $150 million of net assets, and 0.33% of net assets
over $250 million; (h) for the Stellar Portfolio, 1.00% of that Portfolio's net
assets, and (i) for the High Income Bond and Equity Income Portfolios, 0.75% of
each portfolio's net assets. However, as to the Money Market Portfolio, the
Adviser is presently waiving any of its fee in excess of 0.25%.
Under the Investment Advisory Agreement, the Fund authorizes the Adviser to
retain sub-advisers for the International, Capital Appreciation, Small Cap,
Global Contrarian, Aggressive Growth, Core Growth, Growth & Income, Strategic
Income, Stellar, Relative Value, Emerging Growth, High Income Bond, Equity
Income and Blue Chip Portfolios, subject to the approval of the Fund's Board of
Directors. The Adviser has entered into Sub-Advisory Agreements with SGAM,
TRPA, FAM, SCM, PBA, RSIM, Star, and FIC, as the case may be, to manage the
investment and reinvestment of those Portfolios' assets, subject to the
supervision of the Adviser. As compensation for their services, (a) SGAM
receives from the Adviser fees at the annual rate of 0.75% of the International
and Global Contrarian Portfolios' average daily net assets during the quarter
for which the fee is paid; (b) TRPA receives from the Adviser a fee at an
annual rate of 0.70% of the first $5 million, and 0.50% of average daily net
asset value in excess of $5 million, of the Capital Appreciation Portfolio; (c)
FAM receives from the Adviser a fee at an annual rate of 0.65% of the first $75
million, 0.60% of the next $75 million, and 0.55% of the average daily net
asset value in excess of $150 million of the Small Cap Portfolio; (d) SCM
receives from the Adviser a fee at an annual rate of 0.70% of the first $50
million, and 0.50% of average daily net asset value in excess of $50 million of
the Aggressive Growth Portfolio; (e) PBA receives from the Adviser a fee at an
annual rate of 0.75% of the first $50 million, 0.70% of the next $100 million,
and 0.50% of average daily net assets in excess of $150 million of the Core
Growth Portfolio; (f) RSIM receives from the Adviser fees at an annual rate of
(i) 0.60% of the first $100 million, 0.55% of the next $100 million, and 0.50%
of average daily net assets in excess of $200 million of the Growth & Income
Portfolio and (ii) 0.64% of the first $100 million, 0.60% of the next $100
million and 0.50% of average daily net assets in excess of $200 million of the
Emerging Growth Portfolio; (g) Star receives from the Adviser fees at an annual
rate of (i) 0.55% of the first $50 million and 0.50% of average daily net
assets in excess of $50 million of the Strategic Income Portfolio, (ii) 0.75%
of the first $50 million and 0.70% of average daily net assets in excess of $50
million of the Stellar Portfolio and (iii) 0.65% of the first $50 million and
0.60% of average daily net assets in excess of $50 million of the Relative
Value Portfolio, and (h) FIC receives from the Advisor fees at an annual rate
of (i) 0.50% of the first $80 million, 0.40% of the next $20 million, 0.80% of
the next $25 million, and 0.25% of average daily net assets in excess of $75
million for directing the investment and reinvestment of the High Income Bond
Portfolio's assets, and (ii) 0.50% of the first $85 million, 0.35% of the next
$65 million and 0.25% of average daily net assets in excess of $100 million for
directing the investment and reinvestment of the assets of the Equity Income
and Blue Chip Portfolios.
For each of the indicated years, ending December 31*, the following investment
advisory fees from each of the Fund's portfolios were paid to ONIMCO and the
Adviser as follows:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Equity $1,431,415 $1,124,431 $ 812,156
Money Market** 71,176 48,721 31,228
Bond 121,188 117,359 87,798
Omni 948,021 735,210 542,756
International 1,416,777 1,045,160 678,133
Capital Appreciation 386,595 229,794 96,082
Small Cap 378,436 212,875 69,124
Global Contrarian 130,704 70,122 21,955
Aggressive Growth 125,078 63,707 11,898
Core Growth 62,237 N/A N/A
Growth & Income 61,464 N/A N/A
S&P 500 Index 43,376 N/A N/A
Social Awareness 16,529 N/A N/A
Strategic Income 18,818 N/A N/A
Stellar 23,440 N/A N/A
Relative Value 80,639 N/A N/A
Emerging Growth N/A N/A N/A
High Income Bond N/A N/A N/A
Equity Income N/A N/A N/A
Blue Chip N/A N/A N/A
-------- ---------- ----------
$5,265,388 $3,647,379 $2,351,130
</TABLE>
23
<PAGE> 53
* The International Portfolio commenced operations on April 30, 1993. The
Capital Appreciation and Small Cap Portfolios commenced operations on May 1,
1994. The Global Contrarian and Aggressive Growth Portfolios commenced
operations on March 31, 1995. The Core Growth, Growth & Income, S&P 500 Index,
Social Awareness, Strategic Income, Stellar and Relative Value Portfolios
commenced operations on January 3, 1997. The Emerging Growth, High Income Bond,
Equity Income and Blue Chip Portfolios commenced operations on May 1, 1998.
** An additional $______, $9,697, and $14,932 was earned but waived in 1997,
1996 and 1995, respectively, as described above.
The Investment Advisory Agreement also provides that if the total expenses
applicable to any portfolio during any calendar quarter (excluding taxes,
brokerage commissions, interest and the investment advisory fee) exceed 1%, on
an annualized basis, of such portfolio's average daily net asset value, the
Adviser will pay such expenses. Under these terms, ONIMCO paid the Global
Contrarian Portfolio $8,127 in 1995. No other such amounts were paid to any
portfolio during the three years ended December 31, 1997.
Under a Service Agreement among the Fund, the Adviser and ONLI, the latter has
agreed to furnish the Adviser, at cost, such research facilities, services and
personnel as may be needed by the Adviser in connection with its performance
under the Investment Advisory Agreement. The Adviser reimburses ONLI for its
expenses in this regard.
The current Investment Advisory, Service and Sub-Advisory Agreements were
initially approved by the votes of the Board of Directors and by the
shareholders of the respective portfolios on the dates indicated below:
<TABLE>
<CAPTION>
Board of
Directors Shareholders
--------- ------------
<S> <C> <C>
Equity 01-24-96 3-28-96
Money Market 01-24-96 3-28-96
Bond 01-24-96 3-28-96
Omni 01-24-96 3-28-96
International 01-24-96 3-28-96
Capital Appreciation 01-24-96 3-28-96
Small Cap (Investment Advisory and Service) 01-24-96 3-28-96
Small Cap (Sub-Advisory) 11-19-97 2-17-98
Global Contrarian 01-24-96 3-28-96
Aggressive Growth 01-24-96 3-28-96
Core Growth 08-22-96 1-02-97
Growth & Income (Investment Advisory and Service) 08-22-96 1-02-97
Growth & Income (Sub-Advisory) 08-27-97 9-26-97
S&P 500 Index 08-22-96 1-02-97
Social Awareness 08-22-96 1-02-97
Strategic Income 08-22-96 1-02-97
Stellar 08-22-96 1-02-97
Relative Value 08-22-96 1-02-97
Emerging Growth 02-11-98 4-30-98
High Income Bond 02-11-98 4-30-98
Equity Income 02-11-98 4-30-98
Blue Chip 02-11-98 4-30-98
</TABLE>
These agreements will continue in force from year to year hereafter, if such
continuance is specifically approved at least annually by a majority of the
Fund's directors who are not parties to such agreements or interested persons of
any such party, with votes to be cast in person at a meeting called for the
purpose of voting on such continuance, and also by a majority of the Board of
Directors or by a majority of the outstanding voting securities of each
portfolio voting separately.
The Investment Advisory, Service, and Sub-Advisory Agreements may be terminated
at any time, without the payment of any penalty, on 60 days' written notice to
the Adviser by the Fund's Board of Directors or, as to any portfolio, by a vote
of the majority of the portfolio's outstanding voting securities. The Investment
Advisory Agreement may be terminated by the Adviser on 90 days' written notice
to the Fund. The Service Agreement may be terminated, without penalty, by the
Adviser or ONLI on 90 days' written notice to the Fund and the other party. The
Sub-Advisory Agreements may be terminated, without penalty, by the Adviser or
the sub-adviser on 90 days' written notice to the Fund and the other party. The
Agreements will automatically terminate in the event of their assignment.
BROKERAGE ALLOCATION
The Adviser buys and sells the portfolio securities for the Equity, Money
Market, Bond, Omni, S&P 500 Index and Social Awareness Portfolios and selects
the brokers and dealers to handle such transactions. Each of the sub-advisers
selects the brokers and dealers that execute the transactions for the portfolios
managed by the respective sub-adviser. It is the intention of the Adviser and of
each sub-adviser to place orders for the purchase and sale of securities with
the objective of obtaining the most favorable price consistent with good
brokerage service. The cost of securities transactions for each portfolio will
consist primarily of brokerage commissions or dealer or underwriter spreads.
Bonds and money market securities are generally traded on a net basis and do not
normally involve either brokerage commissions or transfer taxes.
24
<PAGE> 54
Occasionally, securities may be purchased directly from the issuer. For
securities traded primarily in the over-the-counter market, the Adviser and
sub-advisers will, where possible, deal directly with dealers who make a market
in the securities unless better prices and execution are available elsewhere.
Such dealers usually act as principals for their own account.
In selecting brokers or dealers through whom to effect transactions, the Adviser
and sub-advisers consider a number of factors including the quality, difficulty
and efficiency of execution, and value of research, statistical, quotation and
valuation services provided. Research services by brokers include advice, either
directly or through publications or writings, as to the value of securities, the
advisability of purchasing or selling securities, the availability of securities
or purchasers or sellers of securities, and analyses and reports concerning
issuers, industries, securities, economic factors and trends, and portfolio
strategy. In making such determination, the Adviser or sub-adviser may use a
broker whose commission in effecting a securities transaction is in excess of
that of some other broker if the Adviser or sub-adviser determines in good faith
that the amount of such commission is reasonable in relation to the value of the
research and related services provided by such broker. In effecting a
transaction for one portfolio, a broker may also offer services of benefit to
other portfolios managed by the Adviser or sub-adviser, or of benefit to its
affiliates.
Generally, it is not possible to place a dollar value on research and related
services provided by brokers to the Adviser or a sub-adviser. However, receipt
of such services may tend to reduce the expenses of the Adviser or the
sub-advisers. Research, statistical and similar information furnished by brokers
may be of incidental assistance to other clients of the Adviser or the
sub-advisers and conversely, transaction costs paid by other clients of the
Adviser or the sub-advisers may generate information which is beneficial to the
Fund.
Consistent with these policies, the sub-advisers may, with the Board of
Directors' approval and subject to its review, direct portfolio transactions to
be executed by a broker affiliated with the sub-adviser so long as the
commission paid to the affiliated broker is reasonable and fair compared to the
commission that would be charged by an unaffiliated broker in a comparable
transaction.
For each of the indicated years, ending on December 3l, the following brokerage
commission amounts were paid by each portfolio:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Equity $ 76,647 $ 81,091
Money Market None None
Bond None 630
Omni 41,879 39,073
International 187,147 153,524
Capital Appreciation 33,327 16,786
Small Cap 48,973 16,688
Global Contrarian 17,514 12,257
Aggressive Growth 173,952 42,839
Core Growth N/A N/A
Growth & Income N/A N/A
S&P 500 Index N/A N/A
Social Awareness N/A N/A
Strategic Income N/A N/A
Stellar N/A N/A
Relative Value N/A N/A
Emerging Growth N/A N/A
High Income Bond N/A N/A
Equity Income N/A N/A
Blue Chip N/A N/A
-------- --------
$579,439 $362,888
</TABLE>
In l997, substantially all of such commissions were paid to brokers who
furnished statistical data and research information to the Adviser,
SGAM, TRPA, FAM, or SCM, PBA, RSIM or Star.
25
<PAGE> 55
PURCHASE AND REDEMPTION OF SHARES
Fund shares are sold without a sales charge and may be redeemed at their net
asset value next computed after a purchase or redemption order is received by
the Fund. (The net asset value for the Money Market Portfolio is normally $l0
per share.) Depending upon the net asset values at that time, the amount paid
upon redemption may be more or less than the cost of the shares redeemed.
Payment for shares redeemed will be made as soon as possible, but in any event
within seven days after evidence of ownership of the shares is tendered to the
Fund. However, the Fund may suspend the right of redemption or postpone the date
of payment beyond seven days during any period when (a) trading on the New York
Stock Exchange is restricted, as determined by the Securities and Exchange
Commission, or such Exchange is closed for other than weekends and holidays; (b)
an emergency exists, as determined by the Commission, as a result of which
disposal by the Fund of securities owned by it is not reasonably practicable, or
it is not reasonably practicable for the Fund fairly to determine the value of
its net assets; or (c) the Commission by order so permits for the protection of
security holders of the Fund.
Shares of one portfolio may be exchanged for shares of another portfolio of the
Fund on the basis of the relative net assets value next computed after an
exchange order is received by the Fund.
The net asset value of the Fund's shares is determined on each day on which an
order for purchase or redemption of the Fund's shares is received and there is a
sufficient degree of trading in portfolio securities that the current net asset
value of its shares might be materially affected. Such determination is made as
of 4:00 p.m. Eastern time on each business day. "Business day" means each
weekday (Monday through Friday) except for the following holidays: New Years
Day, Presidents Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day and Christmas. The net asset value of each portfolio is
computed by dividing the value of the securities in that portfolio plus any cash
or other assets less all liabilities of the portfolio, by the number of shares
outstanding for that portfolio.
Securities which are held in a portfolio and listed on a securities exchange are
valued at the last sale price or, if there has been no sale that day, at the
last bid price reported as of 4 p.m. Eastern time. Over-the-counter securities
are valued at the last bid price as of 4 p.m. Eastern time.
Short-term debt securities in all portfolios other than the Money Market and
Omni Portfolios, with remaining maturities of 60 days or less, are valued at
amortized cost. The Fund has obtained an exemptive order from the Commission
permitting it to value all short-term debt securities in the Omni Portfolio at
amortized cost. The Fund relies on Rule 2a-7 under the Investment Company Act of
1940 to value the assets of the Money Market Portfolio on the basis of amortized
cost with a view toward stabilizing the net asset value at $l0 per share and
allowing dividend payments to reflect net interest income as earned.
Accordingly, the short-term debt assets of the Omni and Money Market Portfolios
are valued at their cost on the date of acquisition with a daily adjustment
being made to accrued income to reflect amortization of premium or accretion of
discount to the maturity date. All other assets of the Omni Portfolio and of
those portfolios other than the Money Market Portfolio, including restricted
debt securities and other investments for which market quotations are not
readily available, are valued at their fair value as determined in good faith by
the Board of Directors.
As a condition of the exemptive order, the Fund has agreed, with respect to
short-term debt securities in its Omni Portfolio, to maintain a dollar-weighted
average maturity of not more than l20 days and to not purchase any such debt
security having a maturity of more than one year. In relying on Rule 2a-7 with
respect to short-term debt securities in its Money Market Portfolio, the Fund
has agreed to maintain a dollar-weighted average portfolio maturity of not more
than 90 days and to not purchase any such debt security having a maturity of
more than 397 days. The dollar-weighted average maturity of short-term debt
securities is determined by dividing the sum of the dollar value of each such
security times the remaining days to maturity of such security by the sum of the
dollar value of all short-term debt securities. Should the disposition of a
short-term debt security result in a dollar-weighted average maturity of more
than the number of days allowed under the exemptive order or Rule 2a-7, as the
case may be, the Portfolio will invest its available cash so as to reduce such
average maturity to the required number of days or less as soon as reasonably
practicable. The Fund normally holds short-term debt
26
<PAGE> 56
securities to maturity and realizes par therefor unless an earlier sale is
required to meet redemption requirements.
In addition, the Omni and Money Market Portfolios are required to limit their
short-term debt investments, including repurchase agreements, to those United
States dollar denominated instruments which the Board of Directors determines
present minimal credit risks and which are in the top two rating categories of
any nationally recognized statistical rating organizations or, in the case of
any instrument that is not rated, of comparable quality as determined by the
Board of Directors. Although the use of amortized cost provides certainty in
valuation, it may result in periods during which value so determined is higher
or lower than the price the Fund would receive if it liquidated its securities.
The Fund's Board of Directors is obligated, as a particular responsibility
within the overall duty of care owed to Money Market Portfolio shareholders, to
establish procedures reasonably designed, taking into account current market
conditions and the investment objective of such Portfolio, to stabilize the
Portfolio's net asset value per share as computed for the purpose of
distribution, redemption and repurchase, at $l0 per share. The procedures
adopted by the Board of Directors include periodically reviewing, as it deems
appropriate and at such intervals as are reasonable in light of current market
conditions, the extent of deviation, if any, between the net asset value per
share based on available market quotations and such value based on the
Portfolio's $l0 amortized cost price. If such deviation exceeds 1/2 of 1
percent, or if there is any other deviation which the Board of Directors
believes would result in a material dilution to shareholders or purchasers, the
Board of Directors will promptly consider what action, if any, it should
initiate. Such action may include redemption in kind; selling portfolio
instruments prior to maturity to realize capital gains or losses, or to shorten
the average portfolio maturity; withholding dividends; splitting, combining or
otherwise recapitalizing outstanding shares; or using available market
quotations to determine net asset value per share. The Portfolio may reduce the
number of its outstanding shares by requiring shareholders to contribute to
capital proportionately the number of full and fractional shares as is necessary
to maintain the net asset value per share of $l0. ONLI and ONLAC, the sole
shareholders of the Money Market Portfolio, have agreed to this procedure and
contract owners who allocate purchase payments to the Money Market Portfolio
will be bound by such agreement.
TAX STATUS
At December 3l, 1997 the Fund qualified as a regulated investment company under
Subchapter M of the Internal Revenue Code (the "Code"). Under such provisions,
the Fund is not subject to federal income tax on such part of its net ordinary
income and net realized capital gains which it distributes to shareholders. Each
portfolio is treated as a separate entity for federal income tax purposes,
including determining whether it qualifies as a regulated investment company and
determining its net ordinary income (or loss) and net realized capital gains (or
losses). To qualify for treatment as a regulated investment company, each
portfolio must, among other things, derive in each taxable year at least 90% of
its gross income from dividends, interest and gains from the sale or other
disposition of securities and derive less than 30% of its gross income in each
taxable year from the gains (without deduction for losses) from the sale or
other disposition of securities held for less than three months. Each portfolio
also intends to comply with the diversification requirements or regulations
under Section 817(h) of the Code.
The foregoing is a general and abbreviated summary of the applicable provisions
of the Code and Treasury Regulations currently in effect. For the complete
provisions, reference should be made to the pertinent Code sections and the
Treasury Regulations promulgated thereunder. Since the only eligible
shareholders of the Fund are separate accounts of ONLI, ONLAC and other
insurance companies, no discussion is stated herein as to the federal income tax
consequences at the shareholder level.
EXPERTS
The financial statements of Ohio National Fund, Inc. as of December 3l, l997 and
for the earlier periods indicated herein included in this Statement of
Additional Information and the Financial Highlights included in the prospectus
have been included herein and in the prospectus in reliance upon the report of
KPMG Peat Marwick LLP,
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<PAGE> 57
independent certified public accountants, appearing in this Statement of
Additional Information, and upon the authority of said firm as experts in
accounting and auditing. KPMG Peat Marwick LLP's business address is 201 East
Fifth Street, Cincinnati, Ohio 45202.
LEGAL COUNSEL
Messrs. Jones & Blouch L.L.P., Washington, D.C., have passed on matters
pertaining to the federal securities laws and Ronald L. Benedict, Esq.,
Secretary of the Fund and Corporate Vice President, Counsel and Secretary of
ONLI, has passed on all other legal matters relating to the legality of the
shares described in the prospectus and this Statement of Additional Information.
THE S&P 500
"Standard & Poor's (R)," "S&P (R)," "S&P 500 (R)" and "Standard & Poor's 500"
are trademarks of The McGraw-Hill Companies, Inc. and have been licensed for use
by the Adviser. The S&P 500 Index Portfolio is not sponsored, endorsed, sold or
promoted by Standard & Poor's ("S&P") and S&P makes no representation regarding
the advisability of investing in the S&P 500 Index Portfolio. S&P makes no
representation or warranty, express or implied, to the owners of the Portfolio
or any member of the public regarding the advisability of investing in
securities generally or in the Portfolio particularly or the ability of the S&P
500 Index to track general stock market performance. S&P's only relationship to
the Adviser is the licensing of certain trademarks and trade names of S&P and of
the S&P 500 Index which is determined, composed and calculated by S&P without
regard to the Adviser or the Portfolio. S&P has no obligation to take the needs
of the Adviser or the owners of the Portfolio into consideration in determining,
composing or calculating the S&P 500 Index. S&P is not responsible for and has
not participated in the determination of the prices and amount of the Portfolio
or the timing of the issuance or sale of the Portfolio or in the determination
or calculation of the equation by which the Portfolio is to be converted into
cash. S&P has no obligation or liability in connection with the administration,
marketing or trading of the Portfolio.
S&P DOES NOT GUARANTEE THE ACCURACY AND/OR THE COMPLETENESS OF THE S&P 500 INDEX
OR ANY DATA INCLUDED THEREIN AND S&P SHALL HAVE NO LIABILITY FOR ANY ERRORS,
OMISSIONS, OR INTERRUPTIONS THEREIN. S&P MAKES NO WARRANTY, EXPRESS OR IMPLIED,
AS TO RESULTS TO BE OBTAINED BY THE ADVISER, OWNERS OF THE PORTFOLIO, OR ANY
OTHER PERSON OR ENTITY FROM THE USE OF THE S&P 500 INDEX OR ANY DATA INCLUDED
THEREIN. S&P MAKES NO EXPRESS OR IMPLIED WARRANTIES, AND EXPRESSLY DISCLAIMS ALL
WARRANTIES OR MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR USE WITH
RESPECT TO THE S&P 500 INDEX OR ANY DATA INCLUDED THEREIN. WITHOUT LIMITING ANY
OF THE FOREGOING, IN NO EVENT SHALL S&P HAVE ANY LIABILITY FOR ANY SPECIAL,
PUNITIVE, INDIRECT, OR CONSEQUENTIAL DAMAGES (INCLUDING LOST PROFITS), EVEN IF
NOTIFIED OF THE POSSIBILITY OF SUCH DAMAGES.
THE YEAR 2000 ISSUE
The Fund and the Adviser have considered the impact on the Fund of "Year 2000"
issues. They have developed a remedial plan for their computer systems and
applications. Conversion activities are presently in process and conversion
testing and implementation are expected to be completed by December 31, 1998.
While the Fund and the Adviser have been assured by suppliers of financial
services (including the custodians, the transfer agent and the accounting agent)
that their systems either are already compliant or will be so by December 31,
1998, the Fund's internal auditors and independent public accountants intend to
independently test those systems to verify their compliance. The failure of the
Fund, the Adviser or one of their service suppliers to achieve timely and
complete compliance could materially impair the ability to conduct their
business, including the ability to accurately and timely value portfolio
securities.
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APPENDIX
DEBT SECURITY RATINGS
The Commission has designated six nationally recognized statistical rating
organizations: Duff and Phelps, Inc. ("D & P"), Fitch Investors Service, Inc.
("Fitch"), Moody's Investors Service, Inc. (Moody's"), Standard & Poor's Corp.
("S & P"), and, with respect to bank-supported debt and debt issued by banks,
broker-dealers and their affiliates, IBCA Inc. and its British affiliate, IBCA
Limited ("IBCA") and Thompson Bankwatch, Inc. ("TBW"). The Adviser may use the
ratings of all six such rating organizations as factors to consider in
determining the quality of debt securities, although it will generally only
follow D&P, Fitch, Moody's and S&P. IBCA and TBW will only be consulted if fewer
than two of the other four rating organizations have given their top rating to a
security. Only the ratings of Moody's, S & P and Fitch will be considered in
determining the eligibility of bonds for acquisition by the Fund.
MOODY'S INVESTORS SERVICE, INC. ("MOODY'S")
Commercial Paper:
Moody's short-term debt ratings are opinions of the ability of issuers to
punctually repay senior debt obligations having an original maturity not
exceeding one year.
P-1 The Prime-1 (P-1) rating is the highest commercial paper rating assigned
by Moody's. Issuers (or supporting institutions) rated P-1 have a superior
ability for repayment of senior short-term debt obligations. P-1 repayment
ability will often be evidenced by many of the following characteristics:
leading market positions in well-established industries, high rates of
return on funds employed, conservative capitalization structure with
moderate reliance on debt and ample asset protection, broad margins in
earnings coverage of fixed financial charges and high internal cash
generation, and well-established access to a range of financial markets
and assured sources of alternate liquidity.
P-2 Issuers (or supporting institutions) rated Prime-2 (P-2) have a strong
ability for repayment of senior short-term obligations. This will normally
be evidenced by many of the characteristics cited above for P-1, but to a
lesser degree. Earnings trends and coverage ratios, while sound, may be
more subject to variation. Capitalization characteristics, while still
appropriate, may be more affected by external conditions. Ample alternate
liquidity is maintained.
Bonds:
Aaa Bonds which are rated Aaa by Moody's are judged to be of the best quality.
They carry the smallest degree of investment risk and are generally
referred to as "gilt edge." Interest payments are protected by a large or
by an exceptionally stable margin and principal is secure. While the
various protective elements are likely to change, such changes as can be
visualized are most unlikely to impair the fundamentally strong position
of such issues.
Aa Bonds which are rated as Aa by Moody's are judged to be of high quality by
all standards. Together with the Aaa group, they comprise what are
generally known as high grade bonds. They are rated lower than the best
bonds because margins of protection may not be as large as in Aaa
securities or fluctuation of protective elements may be of greater
amplitude or there may be other elements present which make the long-term
risks appear somewhat larger than in Aaa securities.
A Bonds which are rated A by Moody's possess many favorable investment
attributes and are to be considered as upper medium grade obligations.
Factors giving security to principal and interest are considered adequate
but elements may be present which suggest a susceptibility to impairment
sometime in the future.
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Baa Bonds which are rated Baa by Moody's are considered as medium grade
obligations, that is, they are neither highly protected nor poorly
secured. Interest payments and principal security appear adequate for the
present but certain protective elements may be lacking or may be
characteristically unreliable over any great length of time. Such bonds
lack outstanding investment characteristics and in fact have speculative
characteristics as well.
Ba Bonds which are Ba are judged to have speculative elements; their future
cannot be considered as well assured. Often the protection of interest
and principal payments may be very moderate and thereby not well
safeguarded during both good and bad times over the future. Uncertainty
of position characterizes bonds in this class.
B Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of
maintenance of other terms of the contract over any long period of time
may be small.
Caa Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to
principal or interest.
Ca Bonds which are rated Ca represent obligations which are speculative in
a high degree. Such issues are often in default or have other marked
shortcomings.
C Bonds which are rated C are the lowest rated class of bonds and issues
so rated can be regarded as having extremely poor prospects of ever
attaining any real investment standing.
Moody's applies numerical modifiers, 1, 2, and 3, in each generic rating
classification from Aa through B in its corporate bond rating system. The
modifier 1 indicates that the security ranks in the higher end of its generic
rating category; the modifier 2 indicates a mid-range ranking; and the modifier
3 indicates that the issue ranks in the lower end of its generic rating
category.
STANDARD & POOR'S CORP. ("S & P")
Commercial Paper:
An S & P commercial paper rating is a current assessment of the likelihood of
timely payment of debt having an original maturity of no more than one year.
A-1 This is S & P's highest category and it indicates that the degree of
safety regarding timely payment is strong. Those issues determined to
possess extremely strong safety characteristics are designated A-1+.
A-2 Capacity for timely payment on issues with this designation is
satisfactory. However, the relative degree of safety is not as high as for
issues designated as A-1.
Bonds:
AAA Bonds rated AAA by S&P are the highest grade obligations. They possess the
ultimate degree of protection as to principal and interest. Market prices
move with interest rates, and hence provide maximum safety on all counts.
AA Bonds rated AA by S&P also qualify as high grade obligations, and in the
majority of instances differ from AAA issues only in small degree. Here,
too, prices move with the long-term money market.
A Bonds rated A by S&P are regarded as upper medium grade. They have
considerable investment strength but are not entirely free from the
adverse effects of changes in economic and trade conditions. Interest and
principal are regarded as safe. They predominantly reflect money rates in
their market behavior, but to some extent, also economic conditions.
BBB The BBB or medium grade category is the borderline between definitely
sound obligations and those where the speculative element begins to
predominate. These bonds have adequate asset coverage and normally are
protected by satisfactory earnings. Their susceptibility to changing
conditions, particularly to depressions, necessitates constant watching.
Marketwise, the bonds are more responsive to business and trade conditions
than to interest rates. This is the lowest group which qualifies for
commercial bank investments.
Debt rated 'BB,' 'B,' 'CC,' and 'C,' is regarded as having predominantly
speculative characteristics with respect to capacity to pay interest and repay
principal. 'BB' indicates the least degree of speculation and 'C' the highest.
While such debt will likely have some quality and protective characteristics,
these are outweighed by large uncertainties of major exposures to adverse
markets.
BB Debt rated 'BB' has less near-term vulnerability to default than other
speculative issues. However, it faces major ongoing uncertainties or
exposure to adverse business, financial, or economic conditions which
could lead to inadequate capacity to meet timely interest and principal
payments. The 'BB' rating category is also used for debt subordinated to
senior debt that is assigned an actual or implied 'BBB-' rating.
B Debt rated 'B' has a greater vulnerability to default but currently has
the capacity to meet interest payments and principal repayments. Adverse
business, financial, or economic conditions will likely impair capacity
or willingness to pay interest and repay principal. The 'B' rating
category is also used for debt subordinated to senior debt that is
assigned an actual or implied 'BB' or 'BB-' rating.
CCC Debt rated 'CCC' has a currently identifiable vulnerability to default,
and is dependent upon favorable business, financial, and economic
conditions to meet timely payment of interest and repayment of principal.
In the event of adverse business, financial, or economic conditions, it
is not likely to have the capacity to pay interest and repay principal.
The 'CCC' rating category is also used for debt subordinated to senior
debt that is assigned an actual or implied 'B' or 'B-" rating.
CC The rating 'CC' typically is applied to debt subordinated to senior debt
that is assigned an actual or implied 'CCC' rating.
C The rating 'C' typically is applied to debt subordinated to senior debt
that is assigned an actual or implied 'CCC-' rating. The 'C' rating may
be used to cover a situation where a bankruptcy petition has been filed,
but debt service payments are continued.
CI The rating 'CI' is reserved for income bonds on which no interest is
being paid.
D Debt rated 'D' is in payment default. The 'D' rating category is used
when interest payments or principal payments are not made on the date due
even if the applicable grace period has not expired, unless S&P believes
that such payments will be made during such grace period. The 'D' rating
will also be used upon the filing of a bankruptcy petition if debt
service payments are jeopardized.
The ratings from 'AA' to 'CCC' may be modified by the addition of a plus (+) or
minus (-) to show relative standing within the major rating categories.
DUFF & PHELPS, INC. ("D & P")
Commercial Paper:
D & P's short-term ratings have incorporated gradations of "1+" and "1-" in
recognition of quality differences within the first tier.
D-1+ Highest certainty of timely payment. Short-term liquidity, including
internal operating factors and/or access to alternative sources of
funds, is outstanding, and safety is just below risk-free U.S. Treasury
short-term obligations.
D-1 Very high certainty of timely payment. Liquidity factors are excellent
and supported by good fundamental protection factors. Risk factors are
minor.
D-1- High certainty of timely payment. Liquidity factors are strong and
supported by good fundamental protection.
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D-2 Good certainty of timely payment. Liquidity factors and company
fundamentals are sound. Although ongoing funding needs may enlarge total
financing requirements, access to capital markets is good. Risk factors
are small.
FITCH INVESTORS SERVICE, INC. ("FITCH")
Commercial Paper
Fitch's short-term ratings apply to debt obligations that are payable on demand
or have original maturities of up to three years, including commercial paper,
certificates of deposit, medium-term notes, and municipal and investment notes.
Fitch's short-term ratings emphasize the existence of liquidity necessary to
meet the issuer's obligations in a timely manner.
F-1+ Exceptionally strong credit quality. Issues assigned this rating are
regarded as having the strongest degree of assurance for timely payment.
F-1 Very strong credit quality. Issues assigned this rating reflect an
assurance of timely payment only slightly less in degree than issues
rated F-1+.
F-2 Good credit quality. Issues carrying this rating have a satisfactory
degree of assurance for timely payment, but the margin of safety is not
as great as the F-1+ and F-1 categories.
Bonds
AAA Bonds considered to be investment grade and of the highest credit
quality. The obligor has an exceptionally strong ability to pay interest
and repay principal, which is unlikely to be affected by reasonably
foreseeable events.
AA Bonds considered to be investment grade and of very high credit quality.
The obligor's ability to pay interest and repay principal is very
strong, although not quite as strong as bonds rated 'AAA.' Because bonds
rated in the 'AAA' and 'AA' categories are not significantly vulnerable
to foreseeable future developments, short-term debt of these issuers is
genrally rated 'F-1+.'
A Bonds considered to be investment grade and of high credit quality. The
obligor's ability to pay interest and repay principal is considered to
be strong, but may be more vulnerable to adverse changes in economic
conditions and circumstances than bonds with higher ratings.
BBB Bonds considered to be investment grade and of satisfactory credit
quality. The obligor's ability to pay interst and repay principal is
considered to be adequate. Adverse changes in economic conditions and
circumstances, however, are more likely to have adverse impact on these
bonds, and therefore impair timely payment. The likelihood that the
rating of these bonds will fall below investment grade is higher than
for bonds with higher ratings.
BB Bonds are considered to be speculative. The obligor's ability to pay
interest and repay principal may be affected over time by adverse
economic changes. However, business and financial alternatives can be
identified which could assist the obligor in satisfying its debt service
requirements.
B Bonds are considered highly speculative. While bonds in this class are
currently meeting debt service requirements, the probability of
continued timely payment of principal and interest reflects the
obligor's limited margin of safety and the need for reasonable business
and economic activity throughout the life of the issues.
CCC Bonds have certain identifiable characteristics that, if not remedied,
may lead to default. The ability to meet obligations requires an
advantageous business and economic environment.
CC Bonds are minimally protected. Default in payment of interest and/or
principal seems probable.
C Bonds are in imminent default in payment of interest or principal.
DDD, DD and D Bonds in default on interest and/or principal payments. Such
bonds are extremely speculative and should be valued on the basis of
their ultimate recovery value in liquidation or reorganization of the
obligor. 'DDD' represents the highest potential for recovery on these
bonds, and 'D' represents the lowest potential for recovery.
Note: Fitch ratings (other than 'AAA,' 'DDD,' 'DD,' or 'D' categories) may be
modified by the addition of a plus (+) or minus (-) sign to show relative
position of a credit within the rating category.
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OHIO NATIONAL FUND, INC.
Form N-1A
PART C.
OTHER INFORMATION
<PAGE> 62
FINANCIAL STATEMENTS AND EXHIBITS
The following audited financial statements are included in Part B of this
registration statement and will be furnished by a post-effective amendment
hereto:
Statements of Assets and Liabilities as of December 31, 1997
Statements of Operations for the Year Ended December 31, 1997
Statements of Changes in Net Assets for the Years Ended December
31, 1997 and 1996
Schedule of Investments at December 31, 1997 -- Equity Portfolio
Schedule of Investments at December 31, 1997 -- Money Market
Portfolio
Schedule of Investments at December 31, 1997 -- Bond Portfolio
Schedule of Investments at December 31, 1997 -- Omni Portfolio
Schedule of Investments at December 31, 1997 -- International
Portfolio
Schedule of Investments at December 31, 1997 -- Capital
Appreciation Portfolio
Schedule of Investments at December 31, 1997 -- Small Cap
Portfolio
Schedule of Investments at December 31, 1997 -- Global Contrarian
Portfolio
Schedule of Investments at December 31, 1997 -- Aggressive Growth
Portfolio
Schedule of Investments at December 31, 1997 -- Core Growth
Portfolio
Schedule of Investments at December 31, 1997 -- Growth & Income
Portfolio
Schedule of Investments at December 31, 1997 -- S&P 500 Index
Portfolio
Schedule of Investments at December 31, 1997 -- Social Awareness
Portfolio
Schedule of Investments at December 31, 1997 -- Strategic Income
Portfolio
Schedule of Investments at December 31, 1997 -- Stellar Portfolio
Schedule of Investments at December 31, 1997 -- Relative Value
Portfolio
Notes to Financial Statements for December 31, 1997
Independent Auditors' Report of KPMG Peat Marwick LLP dated
January 30, 1998
The following audited financial information is included in Part A of this
registration statement and will be furnished by a post-effective amendment
hereto:
Financial Highlights (Ten years ended December 31, 1997)
Written Consents of the Following Persons:
Ronald L. Benedict, Esq. as Legal Counsel to the Registrant
Jones & Blouch L.L.P. as Legal Counsel to the Registrant
Exhibits:
(5)(a)(1) Schedule A, amended effective May 1, 1998, to the Investment
Advisory Agreement dated May 1, 1996, between the Registrant
and Ohio National Investments, Inc.
(5)(b)(1) Amendment, effective January 1, 1998, to the Sub-Advisory
Agreement dated May 1, 1996 (for the International and Global
Contrarian Portfolios) between Ohio National Investments, Inc.
and Societe Generale Asset Management Corp.
(5)(c)(1) Amendment, effective January 1, 1998, to the Sub-Advisory
Agreement dated May 1, 1996 (for the Capital Appreciation
Portfolio) between Ohio National Investments, Inc. and T. Rowe
Price Associates, Inc.
(5)(d) Sub-Advisory Agreement dated March ____, 1998 (for the Small
Cap Portfolio) between Ohio National Investments, Inc. and
Founders Asset Management LLC.
(5)(g) Sub-Advisory Agreement dated October 1, 1997 (for the Growth &
Income Portfolio) between Ohio National Investments, Inc. and
Robertson Stephens Investment Management, L.P.
(5)(i) Sub-Advisory Agreement dated May 1, 1998 (for the Emerging
Growth Portfolio) between Ohio National Investments, Inc. and
Robertson Stephens Investment Management, L.P.
(5)(j) Sub-Advisory Agreement dated May 1, 1998 (for the High Income
Bond, Equity Income and Blue Chip Portfolios) between Ohio
National Investments, Inc. and Federated Investment
Counseling.
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<PAGE> 63
All other relevant exhibits, which have previously been filed with the
Commission and are incorporated herein by reference, are as follows:
(1) Articles of Incorporation of the Registrant (amended as
of November 2, 1982) were filed as Exhibit (1) of the
Registrant's Form N-1, Post-effective Amendment No. 6,
on August 3, 1982.
(1)(a) Articles Supplementary of the Registrant, effective
December 30, 1992, were filed as Exhibit (1)(a) of the
Registrant's Form N-1A, Post-effective amendment No. 21,
on February 26, 1993.
(1)(b) Articles Supplementary of the Registrant, effective
March 1, 1994, were filed as Exhibit (1)(b) of the
Registrant's Form N-1A, Post-effective Amendment No. 24,
on March 2, 1994.
(1)(c) Articles Supplementary of the Registrant, effective
December 15, 1994 were filed as Exhibit (1)(c) of the
Registrant's Form N-1A, Post-effective Amendment No. 27,
on December 30, 1994.
(1)(d) Articles Supplementary of the Registrant, effective
September 16, 1996 were filed as Exhibit no. (1)(d) of
the Registrant's Form N-1A, Post-effective Amendment
no. 32, on October 21, 1996.
(2) By-laws of the Registrant (as amended March 16, 1989)
were filed as Exhibit (2) of the Registrant's Form N-1A,
Post-effective Amendment No. 17, on March 27, 1989.
(4) Specimen of certificated securities of the Registrant's
International Portfolio was filed as Exhibit (4) of the
Registrant's Form N-1A, Post-effective Amendment No. 21,
on February 26, 1993.
(4)(a) Specimen of certificated securities of the Registrant's
Capital Appreciation Portfolio was filed as Exhibit
(4)(a) of the Registrant's Form N-1A, Post-effective
Amendment No. 25, on March 25, 1994.
(4)(b) Specimen of certificated securities of the Registrant's
Small Cap Portfolio was filed as Exhibit (4)(b) of the
Registrant's Form N-1A, Post-effective Amendment No. 25,
on March 25, 1994.
(4)(c) Specimens of certificated securities of the Registrant's
Global Contrarian and Aggressive Growth Portfolios were
filed as Exhibit (4)(c) of the Registrant's Form N-1A,
Post-effective Amendment No. 27, on December 30, 1994.
(4)(d) Specimens of certificated securities of the Registrant's
Core Growth, Growth & Income, S&P 500 Index, Social
Awareness, Strategic Income, Stellar and Relative Value
Portfolios were filed as Exhibit no. (4)(d) of the
Registrant's Form N-1A, Post-effective Amendment no.
32, on October 21, 1996.
(5)(a) Investment Advisory Agreement between the Registrant and
Ohio National Investments, Inc., dated May 1, 1996, was
filed as Exhibit (5)(a) of the Registrant's Form N-1A,
Post-effective Amendment No. 31, on March 1, 1996.
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<PAGE> 64
(5)(b) Sub-Advisory Agreement (for the International and Global
Contraian Portfolios) between Ohio National Investments,
Inc. and Societe Generale Asset Management Corp., dated
May 1, 1996, was filed as Exhibit (5)(b) of the
Registrant's Form N-1A, Post-effective Amendment No. 31,
on March 1, 1996.
(5)(c) Sub-Advisory Agreement (for the Capital Appreciation
Portfolio) between Ohio National Investments, Inc. and
T. Rowe Price Associates, Inc. dated May 1, 1996, was
filed as Exhibit 5(c) of the Registrant's Form N-1A,
Post-effective Amendment No. 31, on March 1, 1996.
(5)(e) Sub-Advisory Agreement (for the Aggressive Growth
Portfolio) between Ohio National Investments, Inc. and
Strong Capital Management, Inc., dated May 1, 1996, was
filed as Exhibit (5)(e) of the Registrant's Form N-1A,
Post-effective Amendment No. 31, on March 1, 1996.
(5)(f) Sub-Advisory Agreement (for the Core Growth Portfolio)
between Ohio National Investments, Inc. and Pilgrim
Baxter & Associates, Ltd., dated January 3, 1997
was filed as Exhibit no. (5)(f) of the Registrant's
Form N-1A, Post-effective Amendment no. 32, on
October 21, 1996.
(5)(h) Sub-Advisory Agreement (for the Strategic Income,
Stellar and Relative Value Portfolios) between Ohio
National Investments, Inc. and Star Bank, N.A., dated
January 3, 1997 was filed as Exhibit no. (5)(h) of the
Registrant's Form N-1A, Post-effective Amendment
no. 32, on October 21, 1996.
(8) Custody Agreement between the Registrant and Star Bank,
N.A. was filed as Exhibit (8) of the Registrant's Form
N-1A, Post-effective Amendment no. 33, on April 25,
1997.
(8)(a) Custody Agreement (for the International Portfolio)
between the Registrant and Investors Fiduciary Trust
Company was filed as Exhibit (8)(a) of the Registrant's
Form N-1A, Post-effective Amendment No. 22, on April 22,
1993.
(8)(a)(i) First Amendment of Custody Agreement (adding the Global
Contrarian Portfolio) between the Registrant and
Investors Fiduciary Trust Company was filed as Exhibit
(8)(a)(i) of the Registrant's Form N-1A, Post-effective
Amendment No. 27, on December 30, 1994.
(9) Fund Accounting Services Agreement between the
Registrant and American Data Services, Inc. was filed
as Exhibit (9) of the Registrant's Form N-1A,
Post-effective Amendment no. 33, on April 25, 1997.
(9)(a) Transfer Agency and Service Agreement between the
Registrant and American Data Services, Inc. was filed
as Exhibit (9)(a) of the Registrant's Form N-1A,
Post-effective Amendment no. 33, on April 25, 1997.
(9)(b) Service Agreement among the Registrant, Ohio
National Investments, Inc. and The Ohio National
Life Insurance Company, dated May 1, 1996, was
filed as Exhibit (9)(b) of the Registrant's Form N-1A,
Post-effective Amendment No. 31, on March 31, 1996.
(9) (c) Master Repurchase Agreement between the Registrant and
Star Bank, N.A. was filed as Exhibit (9)(c) of the
Registrant's Form N-1A, Post-effective Amendment
no. 33, on April 25, 1997.
(9)(d) Joint Insured Agreement among the Registrant, ONE Fund,
Inc. and Ohio National Investments, Inc., dated May 1,
1996, was filed as Exhibit (9)(d) of the Registrant's
Form N-1A, Post-effective Amendment No. 31, on March 1,
1996.
(9)(e) Services Agreement (for the International Portfolio)
between the Registrant and Interactive Data Corporation
was filed as Exhibit (9)(e) of the Registrant's Form
N-1A, Post-effective Amendment No.
23, on October 29, 1993.
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<PAGE> 65
(10) Opinion and consent of Ronald L. Benedict, Esq., as to
the shares of the Registrant's International Portfolio
was filed as Exhibit (10) of the Registrant's Form N-1A,
Post-effective Amendment No. 21, on February 26, 1993.
(10)(a) Opinion and consent of Ronald L. Benedict, Esq., as to
the shares of the Registrant's Capital Appreciation,
Small Cap, Global Contrarian and Aggressive Growth
Portfolios was filed as Exhibit (10)(a) of the
Registrant's Form N-1A, Post-effective Amendment No. 27,
on December 30, 1994.
(10)(b) Opinion and consent of Ronald L. Benedict, Esq., as to
the shares of the Registrant's Core Growth, Growth &
Income, S&P 500 Index, Social Awareness, Strategic
Income, Stellar and Relative Value Portfolios was filed
as Exhibit no. (10)(b) of the Registrant's Form N-1A,
Post-effective Amendment no. 32, on October 21, 1996.
(13) Investment letter for the initial subscription of
capital stock of the Registrant's International
Portfolio was filed as Exhibit (13) of the Registrant's
Form N-1A, Post-effective Amendment No. 22, on April 22,
1993.
(13)(a) Investment letters for the initial subscriptions of
capital stock of the Registrant's Capital Appreciation,
Small Cap, Global Contrarian and Aggressive Growth
Portfolios were filed as Exhibit (13)(a) of the
Registrant's Form N-1A, Post-effective Amendment No. 27,
on December 30, 1994.
(13)(b) Investment letter for the initial subscirption of stock
of the Registrant's Core Growth, Growth & Income, S&P
500 Index, Social Awareness, Strategic Income, Stellar
and Relative Value Portfolios was filed as Exhibit
(13)(b) of the Registrant's Form N-1A Post-effective
Amendment no. 33, on April 25, 1997.
(16) Computation of Performance Data was filed as exhibits
(16) of the Registrant's Form N-1A, Post-effective
Amendments No. 18 on March 2, 1990, No. 19 on April 18,
1991, No. 20 on April 29, 1992, No. 21 on February 26,
1993, No. 24 on March 2, 1994, No. 28 on February 17,
1995, No. 31 on March 1, 1996, and No. 33 on April 25,
1997.
PERSONS UNDER COMMON CONTROL WITH REGISTRANT
The Registrant is an affiliate of The Ohio National Life Insurance Company
("ONLI"). The diagram on page 4A shows all persons under common control with the
Registrant. ONLI is a mutual life insurer and it owns 100% of the voting
securities of each of its subsidiaries. As of February 1, 1998, it also owned
91.7% of the voting securities of the Registrant, which are held of record in
the separate accounts of ONLI. The remaining 8.3% of the Registrant's voting
securities were owned by Ohio National Life Assurance Corporation ("ONLAC") and
held of record in ONLAC's separate account. ONLI owns 100% of the voting
securities of Ohio National Investments, Inc. (the "Adviser"). ONLI also owned
42.0% of the voting shares of ONE Fund, Inc. ("ONE Fund") as of that date.
NUMBER OF HOLDERS OF SECURITIES
As of February 1, 1998, the securities of the Registrant were held as follows:
<TABLE>
<CAPTION>
Title of Class Number of Record Holders
-------------- ------------------------
<S> <C>
Equity 5
Money Market 5
Bond 5
Omni 5
International 5
Capital Appreciation 5
Small Cap 5
Global Contrarian 5
Aggressive Growth 5
Core Growth 5
Growth & Income 5
S&P 500 Index 5
Social Awareness 5
Strategic Income 1
Stellar 1
Relative Value 1
Emerging Growth 0
High Income Bond 0
Equity Income 0
Blue Chip 0
</TABLE>
-4-
<PAGE> 66
INDEMNIFICATION
Under Section 2-418 of the Maryland General Corporation Law, with respect to any
proceedings against a present or former director, officer, agent or employee (a
"corporate representative") of the Registrant (a Maryland corporation), except a
proceeding brought by or on behalf of the Registrant, the Registrant may
indemnify the corporate representative against expenses, including attorneys'
fees, and judgments, fines, penalties, and amounts paid in settlement, if such
expenses were actually and reasonably incurred by the corporate representative
in connection with the proceeding, if: (i) he or she acted in good faith; (ii)
in the case of conduct in his or her official capacity he or she reasonably
believed that his or her conduct was in the best interests of the Registrant,
and in all other cases he or she reasonably believed that his or her conduct was
not opposed to the best interests of the Registrant; and (iii) with respect to
any criminal proceeding, he or she had no reasonable cause to believe his or her
conduct was unlawful. The Registrant is also authorized under Section 2-418 of
the Maryland General Corporation Law to indemnify a corporate representative
under certain circumstances against reasonable expenses incurred in connection
with the defense of a suit or action by or in the right of the Registrant except
where the corporate representative has been adjudged liable to the Registrant.
Under Article 11 of the Registrant's By-laws, directors and officers of
Registrant are entitled to indemnification by the Registrant to the fullest
extent permitted under Maryland law and the Investment Company Act of 1940.
Reference is made to Article 11 of Registrant's By-laws and Section 2-418 of the
Maryland General Corporation Law.
BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER
Ohio National Investments, Inc. (the "Adviser") is engaged in providing
investment management services to the Registrant and to ONE Fund. The Adviser is
also authorized to provide such services to others. The Adviser has not engaged
in any other business of a substantial nature during the past two fiscal years.
The names of each director and officer of the Adviser and the business of a
substantial nature of each during the past two fiscal years are as follows:
<TABLE>
<CAPTION>
Position with Business of a Substantial
Name the Adviser Nature During Past Two Years
- ---- ----------- ----------------------------
<S> <C> <C>
Joseph P. Brom Director and Senior Vice President and Chief
President Investment Officer of ONLI; Vice President of
Registrant; Senior Vice President of ONLAC; Vice
President of ONE Fund; Until 1997 was Director and
President of ONIMCO
Michael A. Boedeker Director and Vice President, Fixed Income Securities
Vice President of ONLI; Vice President of ONLAC; Vice President of
Registrant; Vice President of ONE Fund; Until 1997
was Director and Vice President of ONIMCO
Stephen T. Williams Director and Vice President, Equity Investments of ONLI; Vice
Vice President President of Registrant; Vice President of ONE
Fund; Until 1997 was Director and Vice President of ONIMCO
Michael D. Stohler Director and Vice President, Mortgages & Real Estate ONLI;
Vice President Director and President Enterprise Park, Inc.
Keith O. Hanson Vice President Investment Officer and Portfolio Manager of ONLI.
R. Douglas Hundley Vice President Investment Officer and Portfolio Manager of ONLI.
Jed R. Martin Vice President Investment Officer and portfolio Manager of ONLI.
</TABLE>
-5-
<PAGE> 67
<TABLE>
<CAPTION>
Position with Business of a Substantial
Name the Adviser Nature During Past Two Years
- ---- ----------- ----------------------------
<S> <C> <C>
Ronald L. Benedict Secretary Corporate Vice President, Counsel and Secretary of ONLI;
Director and Secretary of Registrant; Director and Secretary
of ONE Fund; Secretary of ONLAC; Secretary of ONE, Inc.;
Until 1997 was Secretary of ONIMCO and ONESCO
Dennis R. Taney Treasurer Mutual Fund Financial Operations Director of ONLI;
Treasurer of Registrant; Treasurer of ONE Fund;
Until 1997 was Treasurer of ONIMCO
</TABLE>
BUSINESS AND OTHER CONNECTIONS OF SGAM
Societe Generale Asset Management Corp. ("SGAM") provides investment management
services to the International and Global Contrarian Portfolios of the Registrant
and of ONE Fund. SGAM's primary business is managing SoGen International Fund,
Inc. and SoGen Funds, Inc. ("SoGen"), diversified investment companies of the
management type registered under the 1940 Act. The officers and directors of
SGAM and their business of a substantial nature during the past two fiscal years
are as follows:
<TABLE>
<CAPTION>
Position Business of a Substantial
Name with SGAM Nature During Past Two Years
- ---- --------- ----------------------------
<S> <C> <C>
Philip J. Bafundo Secretary and VicePresident, Secretary and
Treasurer Treasurer of SoGen; Certified
Public Accountant (New York)
Frances G. Bijon Director International Director of Societe Generale
Asset Management S.A.
Jean-Marie Eveillard President and President and Director of
Director SoGen
Jean-Pierre Gentil Chairman of the Chairman of the Board and
Board and Director Director of SoGen; Manager of
the Investment and Custody
Department of Societe Generale
Jean-Roger Huet Director President of New York Branch
of Societe Generale.
Jean-Marie Stein Director Director of French Funds of
Societe Generale
</TABLE>
BUSINESS AND OTHER CONNECTIONS OF TRPA
T. Rowe Price Associates, Inc. ("TRPA") provides investment management services
to the Capital Appreciation Portfolio of the Registrant. TRPA's primary business
is the management of assets for individual and institutional investors,
particularly the T. Rowe Price group of mutual funds. The officers and directors
of TRPA and their business of a substantial nature during the past two fiscal
years are as follows:
-6-
<PAGE> 68
<TABLE>
<CAPTION>
Position Business of a Substantial
Name with TRPA Nature during Past Two Years
- ---- --------- ----------------------------
<S> <C> <C>
George J. Collins President, Chief Director of Rowe Price-
Executive Officer Fleming International, Inc.
and Managing Director ("Price-Fleming"); Director of
T. Rowe Price Retirement Plan
Services, Inc. ("RPS");
Director of T. Rowe Price
Trust Company ("Trust Co.");
Chairman of the Board of T.
Rowe Price mutual funds
("Price Funds")
James S. Riepe Managing Director Chairman of the Board of T.
Rowe Price Services, Inc.
("Price Services"); Chairman
of the Board of RPS; Chairman
of the Board of Trust Co.;
President and Director of
T. Rowe Price Investment
Services, Inc. ("Investment
Services"); Vice President and
Trustee of Price Funds
Henry H. Hopkins Managing Director Vice President and Director of
Investment Services; Vice
President and Director of
Price Services; Vice President
and Director of Trust Co.;
Vice President of Price-
Fleming; Vice President of
RPS; Director of ICI Mutual
Insurance Company; Vice
President of Price Funds
James W. Halbkat, Jr. Director President of U.S. Monitor
Corp.
John W. Rosenblum Director Taylor Murphy Professor of Darden Graduate
School of Business Administration,
University of Virginia; Director of Chesapeake
Corporation; Director of Cadmus
Communications Corp.; Director of Comdial
Corp.; Director of Cone Mills Corp.
Robert L. Strickland Director Chairman of Lowe's Companies, Inc.
Philip C. Walsh Director Consultant to and Director of Cyprus
Minerals Corp.; Director of Piedmont Mining
Co., Inc.
George A. Roche Chief Financial Vice President and Director of Price-Fleming
Officer and Managing
Director
</TABLE>
-7-
<PAGE> 69
<TABLE>
<CAPTION>
Position Business of a Substantial
Name with TRPA Nature during Past Two Years
- ---- --------- ----------------------------
<S> <C> <C>
M. David Testa Managing Director Chairman of the Board of Price-Fleming
Charles P. Smith Managing Director Vice President of Price-Fleming
Peter Van Dyke Managing Director Vice President of Price-Fleming
Robert P. Campbell Vice President Vice President of Price-Fleming
Robert C. Howe Vice President Vice President of Price-Fleming
Veena A. Kutler Vice President Vice President of Price-Fleming
George A. Murnaghan Vice President Vice President of Price-Fleming;
Assistant Vice President of
Investment Services
William F. Wendler, II Vice President Vice President of Price-Fleming;
Assistant Vice President of Investment
Services
Edward A. Wiese Vice President Vice President of Price-Fleming
Price-Fleming
Alvin M. Younger, Jr. Managing Director, Secretary and Treasurer of
Secretary and Price-Fleming
Treasurer
Joseph P. Croteau Vice President Controller of Price-Fleming
Nolan L. North Vice President and Assistant Treasurer of Price-Fleming
Assistant Treasurer
Arthur B. Cecil Vice President Vice President of Price Funds
Charles A. Morris Vice President Vice President of Price Funds
David A. Rea Vice President Vice President of Price Funds
Alan R. Stuart Vice President Vice President of Price Funds
Lenora V. Hornung Vice President Secretary of Price Funds
Carmen F. Deyesu Vice President Vice President of Price Services;
Vice President of Trust Co.;
Treasurer of Price Funds
David S. Middleton Vice President Vice President of Price Services;
Vice President of Trust Co.; Controller
of Price Funds
Richard P. Howard Vice President President and portfolio manager
of T. Rowe Price Capital Appreciation Fund
</TABLE>
-8-
<PAGE> 70
Wholly-owned subsidiaries of TRPA include the following:
Investment Services, a Maryland corporation, is the principal
underwriter and distributor of the Price Funds;
Price Services, a Maryland corporation, provides transfer agent,
dividend disbursing and shareholder services to the Price Funds;
RPS, a Maryland corporation, provides administrative,
recordkeeping and subaccounting services to administrators of
employee benefit plans;
Trust Co., a Maryland limited purpose trust company, provides
fiduciary and custodial services to employee benefit plans and
common trust funds;
T. Rowe Price Real Estate Group, Inc., a Maryland corporation,
provides real estate services and is the investment manager of
several real estate investment trusts, funds and limited
partnerships;
T. Rowe Price Stable Asset Management, Inc., a Maryland
corporation, is an investment adviser specializing in management
of portfolios seeking stable and consistent returns;
T. Rowe Price Recovery Fund Associates, Inc., a Maryland
corporation, is the general partner of T. Rowe Price Recovery
Fund, LP, a Delaware limited partnership that invests in
financially distressed companies;
T. Rowe Price (Canada), Inc., a Maryland corporation, is an
investment adviser which may register as such under the Securities
Act of Ontario.
Tower Venture, Inc., a Maryland corporation, serves as a general
partner of 100 East Pratt Street, LP, a Maryland limited
partnership (whose limited partners include TRPA) formed to
improve TRPA's headquarters property;
TRP Suburban, Inc., a Maryland corporation, is involved in the
construction of an office building to house certain administrative
functions of TRPA in Owings Mills, MD;
TRP Finance, Inc. and TRP Finance MRT, Inc., are Delaware
corporations managing passive corporate investments and other
intangible assets.
TRP Distribution, Inc., a Maryland corporation, is a wholly-owned subsidiary of
Investment Services and engages in the sale of investment products prepared by
Investment Services.
Price-Fleming, a Maryland corporation, is a joint venture 50% owned by TRP
Finance, Inc., and provides investment counsel service with respect to foreign
securities for U.S. institutional investors.
BUSINESS AND OTHER CONNECTIONS OF FAM
Founders Asset Management, LLC ("FAM"), a wholly-owned subsidiary of Mellon
Bank, provides investment management services to the Small Cap Portfolio of the
Registrant. FAM's primary business is the management of the Founders group of
mutual funds. It also serves as investment adviser to private accounts. The
officers and directors of FAM and their business of a substantial nature during
the past two fiscal years are as follows:
<TABLE>
<CAPTION>
Position Business of a Substantial
Name with FAM Nature During Past Two Years
- ---- -------- ----------------------------
<S> <C> <C>
Bjorn K. Borgen President President, Executive Committee
member and Director of
Founders Funds, Inc.
</TABLE>
-9-
<PAGE> 71
<TABLE>
<CAPTION>
Position Business of a Substantial
Name with FAM Nature During Past Two Years
- ---- -------- ----------------------------
<S> <C> <C>
Michael K. Haines SeniorVice President Portfolio manager for
of Investments Founders Discovery Fund and
Founders Frontier Fund
David L. Ray Vice President, Vice President, Secretary and
Assistant Secretary Treasurer of Founders Funds,
and Treasurer Inc.
Michael W. Gerding Vice President of Portfolio manager for
Investments Founders Worldwide Growth
Fund and Founders Passport
Fund
Charles W. Hooper Vice President of Portfolio manager for
Investments Founders Special Fund
Gregory P. Contillo Vice President of N/A
Institutional Marketing
James P. Rankin Vice President of N/A
Shareholder Services
Lois F. Wong Vice President of N/A
Advertising
</TABLE>
BUSINESS AND OTHER CONNECTIONS OF SCM
Strong Capital Management, Inc. ("SCM") provides investment management services
to the Aggressive Growth Portfolio of the Registrant. SCM's primary business is
the management of the Strong group of mutual funds ("Strong Funds"). It also
serves as investment adviser to individual and institutional accounts. The
officers and directors of SCM and their business of a substantial nature during
the past two fiscal years are as follows:
<TABLE>
<CAPTION>
Position Business of a Substantial
Name with SCM Nature During Past Two Years
- ---- -------- ----------------------------
<S> <C> <C>
Richard S. Strong Chairman and Director Chairman and Director of the Strong
Funds; Chairman and Director of
Strong Holdings, Inc.; Chairman and Director
of Strong Funds Distributors, Inc.; Chairman
and Director of Heritage Reserve Development
Corp.; Managing board member of Fussville
Real Estate Holdings LLC and Fussville
Development LLC.
John Dragisic Vice Chairman and Director Vice Chairman and Director of the Strong
Funds; Director of Strong Holdings, Inc.;
Director of Strong Funds Distributors, Inc.;
Until July 1994 was President and Chief
Executive Officer of Grunau Company, Inc.
Richard T. Weiss Director N/A
Rochelle Lamm Wallach President and Director of Until November, 1994, was President and
Strong Advisory Services, Director of AAL Capital Management
a division of SCM Corporation and the AAL Mutual Funds.
</TABLE>
-10-
<PAGE> 72
<TABLE>
<CAPTION>
Position Business of a Substantial
Name with SCM Nature During Past Two Years
- ---- -------- ----------------------------
<S> <C> <C>
Thomas P. Lemke Senior Vice President, Senior Vice President of the Strong Funds;
Secretary and General Until September 1994 was Resident Counsel
Counsel for Funds Management at J.P. Morgan & Co.
Ronald A. Neville Senior Vice President Until January, 1995, was Treasurer and Chief
and Chief Financial Officer Financial Officer of Twentieth Century Securities.
Bruce Behling Senior Vice President N/A
Lloyd Cole Senior Vice President N/A
Lawrence A. Totsky Senior Vice President Senior Vice President of the Strong Funds
Thomas M. Zoeller Treasurer Treasurer of the Strong Funds; Treasurer
of Strong Holdings, Inc.; Treasurer and
Secretary of Strong Funds Distributors, Inc.;
Treasurer of Heritage Reserve Development
Corp.; Treasurer of Fussville Real Estate
Holdings LLC and Fussville Development
LLC.
</TABLE>
Strong Holdings, Inc., a Wisconsin corporation, is a subsidiary of SCM. Strong
Funds Distributors, Inc., a Wisconsin corporation, is a subsidiary of Strong
Holdings, Inc. Heritage Reserve Development Corp., a Wisconsin corporation, is a
subsidiary of Strong Holdings, Inc. Fussville Real Estate Holdings LLC and
Fussville Development LLC, Wisconsin limited liability companies, are
subsidiaries of SCM.
BUSINESS AND OTHER CONNECTIONS OF PBA
Pilgrim Baxter & Associates, Ltd. ("PBA") provides investment management
services to the Core Growth Portfolios of the Registrant and of ONE Fund. PBA
also serves as investment adviser to the PBHG Funds, Inc., diversified
investment companies of the management type registered under the 1940 Act. PBA
also provides investment advisory services to pension and profit-sharing plans,
charitable institutions, corporations, individual investors, trusts, estates and
other investment companies. PBA's controlling interest is owned by United Asset
Management Corp. The officers and directors of PBA and their business of a
substantial nature during the past two fiscal years are as follows:
<TABLE>
<CAPTION>
Position Business of a Substantial
Name with PBA Nature During Past Two Years
- ---- -------- ----------------------------
<S> <C> <C>
Harold J. Baxter Director, Chairman Director of United Asset
and Chief Executive Management, Corp.; Director,
Officer Chairman & Chief Executive Officer
of PBHG Funds, Inc.
Gary L. Pilgrim Director, President, President of PBHG Funds, Inc.
Secretary, Treasurer
and Chief Investment
Officer
Brian F. Bereznak Director and Chief Vice President and Assistant
Operating Officer Secretary of PBHG Funds, Inc.
Eric C. Schneider Chief Financial Officer N/A
</TABLE>
-11-
<PAGE> 73
BUSINESS AND OTHER CONNECTIONS OF RSIM
Robertson Stephens Investment Management, L.P. ("RSIM"), a wholly-owned
subsidiary of BankAmerica, provides investment management services to the
Growth & Income Portfolio of the Registrant. RSIM, a California limited
partnership, also serves as investment adviser to the Robertson Stephens group
of mutual funds as well as private and institutional asset pools. The principal
officers of RSIM and their business of a substantial nature during the past two
fiscal years are as follows:
<TABLE>
<CAPTION>
Position Business of a Substantial
Name with RSIM Nature During Past Two Years
- ---- --------- ----------------------------
<S> <C> <C>
Sanford R. Robertson Chairman Managing Director and Member of
Robertson, Stephens & Co., LLC
("RS & Co.")
Paul H. Stephens Chief Investment Managing Director and Member of
Officer RS & Co.
G. Randy Hecht Chief Operating Managing Director and Member of RS & Co.;
Officer and Executive President, Chief Executive Officer
Vice President and Trustee of Robertson Stephens
Funds
Michael G. McCaffery President and Chief Managing Director and Member of
Executive Officer RS & Co.
John L. Wallace Portfolio Manager Managing Director and Member of
RS & Co.; formerly Vice President and
Portfolio Manager of Oppenheimer
Main Street Income & Growth Fund and
Oppenheimer Total Return Fund
</TABLE>
BUSINESS AND OTHER CONNECTIONS OF STAR
Star Bank, N.A. ("Star") provides investment management services to the
Strategic Income, Stellar and Relative Value Portfolios of the Registrant. Star
is a national bank and trust organization which has a substantial business in
managing commingled funds including registered investment companies. Star also
serves as the custodian of the Registrant's assets other than those in the
Registrant's International and Global Contrarian Portfolios. The directors and
principal officers of Star and their business of a substantial nature during the
last two fiscal years are as follows:
<TABLE>
<CAPTION>
Position Business of a Substantial
Name with Star Nature During Past Two Years
- ---- --------- ----------------------------
<S> <C> <C>
Jerry A. Grundhofer Chairman, President, Chairman, President, Chief
Chief Executive Officer Executive Officer and Director of
and Director Star Banc Corp.
James R. Bridgeland, Jr. Director Partner of Taft, Stettinius &
Hollister
Laurance L. Browning, Jr. Director Formerly Vice Chairman, Emerson
Electric Co.
Victoria B. Buyniski Director President & Chief Executive
Officer, United Medical Resouces, Inc.
</TABLE>
<TABLE>
<CAPTION>
Position Business of a Substantial
Name with Star Nature During Past Two Years
- ---- --------- ----------------------------
<S> <C> <C>
Samuel M. Cassidy Director Formerly President & Chief
Executive Office of Star
Raymond R. Clark Director Formerly President & Chief
Executive Officer of Cincinnati Bell
Telephone Co.
V. Anderson Coombe Director Chairman of Wm. Powell Co.
John C. Dannemiller Director Chairman & Chief Executive
Officer of Bearings, Inc.
J.P. Hayden, Jr. Director Chairman & Chief Executive
Officer of The Midland Co.
Roger L. Howe Director Chairman of U.S. Precision Lens, Inc.
Thomas J. Klinedinst, Jr. Director Chairman, President, Chief Executive
Officer & Chief Operating Officer of
Thomas E. Wood, Inc.
Charles S. Mechem, Jr. Director Commissioner Emeritus of Ladies
Professional Golf Assoc.; formerly
Chairman of U.S. Shoe Corp.
Daniel J. Meyer Director Chairman & Chief Executive
Officer of Cincinnati Milacron, Inc.
David B. O'Maley Director Chairman, President & Chief
Executive Officer of ONLI
O'dell M. Owens Director Director of Reproductive Endocrinology
and Infertility of Christ Hospital
Thomas E. Petry Director Chairman & Chief Executive Officer
of Eagle-Picher Industries, Inc.
William C. Portman Director Chairman of Portman Equipment Co.
Oliver W. Waddell Director Formerly Chairman of Star Banc
Corp. and Vice Chairman of Star
Daniel B. Benhase Executive Vice President N/A
Joseph A. Campanella Executive Vice President N/A
Richard K. Davis Executive Vice President N/A
S. Kay Geiger Executive Vice President N/A
Timothy J. Fogarty Executive Vice President N/A
Jerome C. Kohlhepp Executive Vice President N/A
Thomas J. Lakin Executive Vice President, N/A
General Counsel and
Secretary
David M. Moffett Executive Vice President N/A
& Chief Financial Officer
David R. Noe Executive Vice President N/A
Andrew E. Randall Executive Vice President N/A
Wayne J. Shircliff Executive Vice President N/A
Stephen E. Smith Executive Vice President N/A
</TABLE>
BUSINESS AND OTHER CONNECTIONS OF FIC
Federated Investment Counseling and other subsidiaries of Federated Investors
serve as investment advisers to a number of investment companies and private
accounts. Certain other subsidiaries also provide administrative services to a
number of investment companies. With over $120 billion invested across more than
300 funds under management and/or administration by its subsidiaries, as of
December 31, 1997, Federated Investors is one of the largest mutual fund
investment managers in the United States. The Trustees of the Sub-Adviser, their
position with the Sub-Adviser, and in parentheses, their principal occupations
are as follows: John F. Donahue, Trustee (Trustee, Chairman and Chief Executive
Officer, Federated Investors; Director and Chairman, Federated Research Corp.;
Trustee and Chairman, Federated Advisers, Federated Management, Federated
Research, and Federated Global Research Corp.; Director, Federated Investors,
Inc. and Federated Investors Building Corp.; Trustee, Federated Investment
Counseling and Federated Investors Management Company; Chairman, Passport
Research, Ltd.); J. Christopher Donahue, Trustee, (Trustee, President, chief
Executive Officer and Chief Operating Officer, Federated Advisers, Federated
Global Research corp., Federated Management and Federated Research; Director,
President, Chief Executive Officer and Chief Operating Officer, Federated
Research Corp.; Trustee, President and Chief Operating Officer, Federated
Investors; Director, chairman and Chief Executive Officer, Federated Investors,
Inc.; President, Passport Research Ltd.; Trustee, Federated Investment
Counseling, Federated Investors Management Company, Federated Shareholder
Services Company, Federated Administrative Services, Federated International
Management, Ltd., Federated Shareholder Services, Retirement Plan Service
Company of America, Advanced Information Systems, Federated Services Company and
Federated Bank and Trust; Director, Federated Administrative Services, Inc.,
Federated Financial Services, Inc. Federated Investors Building Corp., FFSI
Insurance Agency, Inc. and FS Holdings, Inc.); John W. McGonigle, Trustee,
(Director and president, Federated Financial Services, Inc., FII Holdings, Inc.,
FFSI Insurance Agency, Inc.; Directors, President and Chief Executive Officer,
Federated Investors Building Corp.; Director, President, Chief Operating
Officer and Secretary, Federated Investors, Inc.; Trustee, Chairman, President
and Chief Executive Officer, Federated Shareholder Services; Director, Executive
Vice President and Secretary, Federated Investors, Inc. Trustee, Executive Vice
President and Secretary, Federated Investors; Trustee and President, Federated
Investors Management Company, Trustee, Federated Advisers, Federated Global
Research Corp., Federated Management, Federated Research, Federated
International Management, Ltd., Federated Investment Counseling; Director,
Federated Research Corp.); Mark D. Olson, Trustee (Trustee, Federated Advisers,
Federated Management, Federated Research, Federated Administrative Services,
Federated Investment Counseling, Advanced Information Systems, Federated
Investors, Federated Shareholder Services, Federated Shareholder Services
Company, Retirement Plan Service Company of America; Partner, Wilson, Halbrook &
Baynard, 107 W. Market Street, Georgetown, Delaware 19947). The business address
of the Trustees, with the exception of Mark D. Olson, is Federated Investors
Tower, Pittsburgh, Pennsylvania 15222-3779.
-12-
<PAGE> 74
The remaining Officers of FIC are:
John B. Fisher President
Executive Vice Presidents: William D. Dawson, III
Henry A. Frantzen
J. Thomas Madden
Senior Vice Presidents: Drew J. Collins
Johnathan C. Conley
Deborah A. Cunningham
Mark E. Durbiano
J. Alan Minteer
Susan M. Nason
Mary Jo Ochson
Robert J. Ostrowski
Charles A. Ritter
Vice Presidents: J. Scott Albrecht
Joseph M. Balestrino
Randall S. Bauer
David A. Briggs
Kenneth J. Cody
Alexandre de Bethmann
Michael P. Donnelly
Linda A. Duessel
Donald T. Ellenberger
Kathleen M. Foody-Malus
Thomas M. Franks
Edward C. Gonzales
James E. Grefenstette
Susan R. Hill
Stephen A. Keen
Robert K. Kinsey
Robert M. Kowit
Jeff A. Kozemchak
Steven Lehman
Marian R. Marinack
Sandra L. McInerney
Scott B. Schermerhorn
Frank Semack
Aash M. Shah
Christopher Smith
William F. Stotz
Tracy P. Stouffer
Edward J. Tiedge
Paige M. Wilhelm
Jolanta M. Wysocka
Assistant Vice Presidents: Todd A. Abraham
Stefanie L. Bachhuber
Arthur J. Barry
Micheal W. Casey
Robert E. Cauley
Salvatore A. Esposito
Donna M. Fabiano
John T. Gentry
William R. Jamison
Constantine Kartsonsas
Joseph M. Natoli
Keith J. Sabol
Michael W. Sirianni
Gregg S. Tenser
<PAGE> 75
Secretary: Stephen A. Keen
Treasurer: Thomas R. Donahue
Assistant Secretaries: Thomas R. Donahue
Christine I. McGonigle
Assistant Treasurer: Richard B. Fisher
The business address of each of the Officers of the investment adviser is
Federated Investors Tower, Pittsburgh, Pennsylvania 15222-3779. These
individuals are also officers of a majority of the investment advisers to the
funds listed in Part B of this Registration Statement.
<PAGE> 76
PRINCIPAL UNDERWRITERS
Not Applicable
LOCATION OF ACCOUNTS AND RECORDS
The books and records required under Section 31(a) and Rules thereunder are
maintained and in the possession of the following persons:
(a) Journals and other records of original entry:
For those portfolios other than the International and Global
Contrarian Portfolio:
Star
425 Walnut Street
Cincinnati, Ohio 45202
and
American Data Services, Inc. ("ADS")
150 Motor Parkway, Suite 109
Hauppauge, NY 11788
For the International and Global Contrarian Portfolios:
Investors Fiduciary Trust Co. ("IFTC")
801 Pennsylvania Street
Kansas City, Missouri 64105
(b) General and auxiliary ledgers:
ADS and IFTC
(c) Securities records for portfolio securities:
ADS and IFTC
(d) Corporate charter (Articles of Incorporation), By-Laws and Minute
Books:
Ronald L. Benedict, Secretary
Ohio National Fund, Inc.
One Financial Way
Cincinnati, Ohio 45242
-14-
<PAGE> 77
(e) Records of brokerage orders:
The Adviser
(f) Records of other portfolio transactions:
The Adviser
(g) Records of options:
The Adviser
(h) Records of trial balances:
ADS and The Adviser
(i) Quarterly records of allocation of brokerage orders and
commissions:
The Adviser
(j) Records identifying persons or group authorizing portfolio
transactions:
The Adviser
(k) Files of advisory materials
The Adviser
MANAGEMENT SERVICES
Not Applicable
UNDERTAKINGS
The undersigned registrant hereby undertakes to file a post-effective amendment
to this registration statement, using financial statements (which need not be
certified) for the Emerging Growth, High Income Bond, Equity Income and Blue
Chip Portfolios, within four to six months after the effective date of this
registration statement, or earlier if at least one-half of the dollar amount of
securities registered has been raised from a public offering and has been
substantially invested pursuant to the investment objectives of the Emerging
Growth, High Income Bond, Equity Income and Blue Chip Portfolios.
-15-
<PAGE> 78
SIGNATURES
Pursuant to the requirements of the Securities Act of l933 and the Investment
Company Act of l940, Ohio National Fund, Inc. has duly caused this
post-effective amendment to the registration statement to be signed on its
behalf by the undersigned thereunto duly authorized in the City of Cincinnati
and the State of Ohio on the 13th day of February, 1998.
OHIO NATIONAL FUND, INC.
By /s/John J. Palmer
------------------------------
John J. Palmer, President
Attest /s/Ronald L. Benedict
--------------------------------
Ronald L. Benedict, Secretary
Pursuant to the requirements of the Securities Act of l933, this post-effective
amendment to the registration statement has been signed below by the following
persons in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
- --------- ----- ----
<S> <C> <C>
/s/John J. Palmer
- ------------------------- President and Director February 13, 1998
John J. Palmer (Principal Executive Officer)
/s/Dennis R. Taney
- ------------------------- Treasurer (Principal Financial February 13, 1998
Dennis R. Taney and Accounting Officer)
/s/Ronald L. Benedict
- ------------------------- Director February 13, 1998
Ronald L. Benedict
/s/George E. Castrucci
- ------------------------- Director February 13, 1998
George E. Castrucci
/s/Ross Love
- ------------------------- Director February 13, 1998
Ross Love
/s/George M. Vredeveld
- ------------------------- Director February 13, 1998
George M. Vredeveld
</TABLE>
<PAGE> 79
INDEX OF CONSENTS AND EXHIBITS
<TABLE>
<CAPTION>
Page Number in
Exhibit Sequential Numbering
Number Description System Where Located
- ------ ----------- --------------------
<S> <C> <C>
Consent of Ronald L. Benedict, Esq.
Consent of Jones & Blouch L.L.P.
</TABLE>
(5)(a)(1) Schedule A, amended effective May 1, 1998, to the Investment
Advisory Agreement dated May 1, 1996, between the Registrant
and Ohio National Investments, Inc.
(5)(b)(1) Amendment, effective January 1, 1998, to the Sub-Advisory
Agreement dated May 1, 1996 (for the International and Global
Contrarian Portfolios) between Ohio National Investments, Inc.
and Societe Generale Asset Management Corp.
(5)(c)(1) Amendment, effective January 1, 1998, to the Sub-Advisory
Agreement dated May 1, 1996 (for the Capital Appreciation
Portfolio) between Ohio National Investments, Inc. and T. Rowe
Price Associates, Inc.
(5)(d) Sub-Advisory Agreement dated March ____, 1998 (for the Small
Cap Portfolio) between Ohio National Investments, Inc. and
Founders Asset Management LLC.
(5)(g) Sub-Advisory Agreement dated October 1, 1997 (for the Growth &
Income Portfolio) between Ohio National Investments, Inc. and
Robertson Stephens Investment Management, L.P.
(5)(i) Sub-Advisory Agreement dated May 1, 1998 (for the Emerging
Growth Portfolio) between Ohio National Investments, Inc. and
Robertson Stephens Investment Management, L.P.
(5)(j) Sub-Advisory Agreement dated May 1, 1998 (for the High Income
Bond, Equity Income and Blue Chip Portfolios) between Ohio
National Investments, Inc. and Federated Investment
Counseling.
<PAGE> 80
CONSENTS
<PAGE> 81
[Letterhead]
February 13, 1998
The Board of Directors
Ohio National Fund, Inc.
237 William Howard Taft Road
Cincinnati, Ohio 452l9
Re: Ohio National Fund, Inc. Registration Statement
File Nos. 2-67464 and 811-3015
Gentlemen:
The undersigned hereby consents to the use of my name under the caption of
"Legal Counsel" in the registration statement on Form N-lA of the above
captioned registrant.
Sincerely,
/s/ Ronald L. Benedict
----------------------
Ronald L. Benedict
Secretary and Legal Counsel
RLB/nh
<PAGE> 82
Jones & Blouch L.L.P.
Suite 405-West
1025 Thomas Jefferson St., N.W.
Washington, DC 20007
(202) 223-3500
February 13, 1998
Board of Directors
Ohio National Fund, Inc.
One Financial Way
Cincinnati, OH 45242
Re: Ohio National Fund, Inc.
Registration Statement on Form N-1A
File No. 2-67464
-----------------------------------
Dear Sirs:
We hereby consent to the reference to this firm under the caption
"Legal Counsel" in the Statement of Additional Information included in
Post-Effective Amendment No. 35 under the Securities Act of 1933 to the
Registration Statement for Ohio National Fund, Inc. (File No. 2-67464).
Very truly yours,
/s/ JONES & BLOUCH L.L.P.
--------------------
Jones & Blouch L.L.P.
<PAGE> 1
EXHIBIT 5(a)(1)
SCHEDULE A
TO
INVESTMENT ADVISORY AGREEMENT
Each portfolio of Ohio National Fund, Inc. shall pay fees to Ohio National
Investments, Inc. computed at the following rates as provided in paragraph 7 of
the Agreement:
<TABLE>
<CAPTION>
Equity;
Bond;
Net Assets Omni; Money Growth & Core S&P 500
in Portfolio Social Awareness Market Income Growth Index
- ------------ ---------------- ------ ------ ------ -----
<S> <C> <C> <C> <C> <C>
First $100,000,000 0.60% 0.30% 0.85% 0.95% 0.40%
Next $50,000,000 0.50% 0.25% 0.85% 0.95% 0.35%
Next $50,000,000 0.50% 0.25% 0.85% 0.80% 0.35%
Next $50,000,000 0.50% 0.25% 0.80% 0.80% 0.35%
Next $250,000,000 0.45% 0.23% 0.80% 0.80% 0.33%
Next $500,000,000 0.40% 0.20% 0.80% 0.80% 0.33%
Next $1,000,000,000 0.30% 0.15% 0.80% 0.80% 0.33%
All Portfolio Assets
over $2,000,000,000 0.25% 0.15% 0.80% 0.80% 0.33%
</TABLE>
<TABLE>
<CAPTION>
International;
Global Strategic
Contrarian; Income;
Relative Capital High
Value; Appreciation; Income
Emerging Small Cap; Bond;
Growth; Aggressive Equity
Blue Chip Growth Stellar Income
--------- ------ ------- ------
<S> <C> <C> <C> <C>
All Portfolio Assets 0.90% 0.80% 1.00% 0.75%
</TABLE>
Agreed to and accepted as of May 1, 1998.
OHIO NATIONAL FUND, INC. OHIO NATIONAL INVESTMENTS, INC.
By: By:
---------------------------------- ----------------------------------
John J. Palmer, President Joseph P. Brom, President
<PAGE> 1
Exhibit 5(b)(1)
AMENDMENT
to the
SUB-ADVISORY AGREEMENT
The Sub-Advisory Agreement entered into by and between Ohio National
Investments, Inc. and Societe Generale Asset Management Corp. as of May 1, 1996,
for investment advisory services with respect to the International Portfolio and
Global Contrarian Portfolio of Ohio National Fund, Inc. is hereby amended,
effective for all fees accruing on and after January 1, 1998, by substituting
the following in place of the text under "Section 4, Sub-Advisory Fees":
In consideration of the Sub-Adviser's services to the Fund hereunder,
the Sub-Adviser shall be entitled to a sub-advisory fee, payable
quarterly, equal to 0.1625% of the average daily net assets of each of
the Portfolios during the quarter preceding each payment (equivalent to
an annual fee of sixty-five one hundredths of one percent (0.65%) of
the average daily net assets of each of the Portfolios during the year)
(the "Sub-Advisory Fee"). The Sub-Advisory Fee shall be accrued for
each calendar day and the sum of the daily Sub-Advisory Fee accruals
shall be paid quarterly to the Sub-Adviser on or before the fifth
business day of the next succeeding quarter. The daily fee accruals
will be computed by multiplying the fraction of one over the number of
calendar days in the quarter by 0.1625% and multiplying this product by
the net assets of each Portfolio as determined in accordance with the
Prospectus as of the close of business on the previous business day.
The Sub-Advisory Fee shall be payable solely by the Adviser, and the
Fund shall not be liable to the Sub-Adviser for any unpaid Sub-Advisory
Fee.
In Witness Whereof, this Amendment has been executed by the parties hereto as of
this eleventh day of February, 1998.
Ohio National Investments, Inc. Societe Generale Asset Management Corp.
By By
------------------------------- -----------------------------------
Joseph P. Brom, President Jean-Marie Eveillard, President
Accepted and Agreed:
Ohio National Fund, Inc.
By
--------------------------------
John J. Palmer, President
<PAGE> 1
AMENDMENT
to the
SUB-ADVISORY AGREEMENT
The Sub-Advisory Agreement entered into by and between Ohio National
Investments, Inc. and T. Rowe Price Associates, Inc. as of May 1, 1996, for
investment advisory services with respect to the Capital Appreciation Portfolio
of Ohio National Fund, Inc. is hereby amended, effective for all fees accruing
on and after January 1, 1998, by substituting the following in place of the text
under "Section 4, Sub-Advisory Fees":
In consideration of the Sub-Adviser's services to the Fund hereunder,
the Sub-Adviser shall be entitled to a sub-advisory fee, payable
monthly, at the annual rate of 0.5% of the average daily net assets of
the Portfolio during the month preceding each payment (the
"Sub-Advisory Fee"). The Sub-Advisory Fee shall be accrued for each
calendar day and the sum of the daily Sub-Advisory Fee accruals shall
be paid monthly to the Sub-Adviser on or before the fifth business day
of the next succeeding month. The daily fee accruals will be computed
on the basis of the valuations of the total net assets of the Portfolio
as of the close of business each day. The Sub-Advisory Fee shall be
payable solely by the Adviser, and the Fund shall not be liable to the
Sub-Adviser for any unpaid Sub-Advisory Fee.
In Witness Whereof, this Amendment has been executed by the parties hereto as of
this eleventh day of February, 1998.
Ohio National Investments, Inc. T. Rowe Price Associates, Inc.
By By
---------------------------------- --------------------------------
Joseph P. Brom, President George J. Collins, President,
Chief Executive Officer &
Managing Director
Accepted and Agreed:
Ohio National Fund, Inc.
By
---------------------------------
John J. Palmer, President
<PAGE> 1
Exhibit 5(d)
SUB-ADVISORY AGREEMENT
This Agreement is made as of the _____ day of March, 1998 by and between OHIO
NATIONAL INVESTMENTS, INC., an Ohio corporation (the "Adviser"), and FOUNDERS
ASSET MANAGEMENT LLC, a Delaware corporation (the "Sub-Adviser").
WHEREAS, OHIO NATIONAL FUND, INC. (the "Fund"), is a Maryland corporation that
is registered under the Investment Company Act of 1940, as amended, (together
with the regulations promulgated pursuant thereto, the "1940 Act"); and
WHEREAS, the Adviser is a registered investment adviser under the Investment
Advisers Act of 1940, as amended, (together with the regulations promulgated
pursuant thereto, the "Advisers Act"); and
WHEREAS, the Adviser has been appointed as investment adviser to the Fund in
accordance with the 1940 Act and the Advisers Act; and
WHEREAS, the Sub-Adviser is registered as an investment adviser under the
Advisers Act and engages in the business of providing investment advisory
services; and
WHEREAS, the Fund has authorized the Adviser to appoint the Sub-Adviser, subject
to the requirements of the 1940 Act and the Advisers Act, as a sub-adviser with
respect to that portion of the assets of the Fund designated as the SMALL CAP
PORTFOLIO of the Fund on the terms and conditions set forth below;
NOW, THEREFORE, IT IS HEREBY AGREED as follows:
SECTION 1. INVESTMENT ADVISORY SERVICES
(a) The Adviser hereby retains the Sub-Adviser, and the Sub-Adviser hereby
accepts engagement by the Adviser, to supervise and manage on a
fully-discretionary basis the cash, securities and other assets of the Small Cap
Portfolio that the Adviser shall from time to time place under the supervision
of the Sub-Adviser (such cash, securities and other assets initially and as same
shall thereafter be increased or decreased by the investment performance thereof
and by additions thereto and withdrawals therefrom by the Adviser shall
hereinafter be referred to as the "Portfolio").
(b) All activities by the Sub-Adviser on behalf of the Adviser and the Portfolio
shall be in accordance with the investment objectives, policies and restrictions
set forth in the 1940 Act and in the Fund's prospectus and statement of
additional information, as amended from time to time (together, the
"Prospectus") and as interpreted from time to time by the Board of Directors of
the Fund and by the Adviser. All activities of the Sub-Adviser on behalf of the
Adviser and the Portfolio shall also be subject to the due diligence oversight
and direction of the Adviser.
(c) Subject to the supervision of the Adviser, the Sub-Adviser shall have the
sole and exclusive responsibility to select members of securities exchanges,
brokers, dealers and futures commission merchants for the execution of
transactions of the Portfolio and, when applicable, shall negotiate commissions
in connection therewith. All such selections shall be made in accordance with
the Fund's policies and restrictions regarding brokerage allocation set forth in
the Prospectus.
(d) In carrying out its obligations to manage the investments and reinvestments
of the assets of the Portfolio, the Sub-Adviser shall:
<PAGE> 2
(1) obtain and evaluate pertinent economic, statistical, financial and other
information affecting the economy generally and individual companies or
industries the securities of which are included in the Portfolio or are under
consideration for inclusion therein; (2) formulate and implement a continuous
investment program for the Portfolio consistent with the investment objectives
and related investment policies and restrictions for such Portfolio as set forth
in the Prospectus; and (3) take such steps as are necessary to implement the
aforementioned investment program by placing orders for the purchase and sale of
securities.
(e) In connection with the purchase and sale of securities of the Portfolio, the
Sub-Adviser shall arrange for the transmission to the Adviser and the
Portfolio's custodian on a daily basis such confirmation, trade tickets and
other documents as may be necessary to enable them to perform their
administrative responsibilities with respect to the Portfolio. With respect to
Portfolio securities to be purchased or sold through the Depository Trust
Company, the Sub-Adviser shall arrange for the automatic transmission of the
I.D. confirmation of the trade to the Portfolio's custodian.
(f) In connection with the placement of orders for the execution of the
Portfolio's securities transactions, the Sub-Adviser shall create and maintain
all necessary records of the Portfolio as are required of an investment adviser
of a registered investment company including, but not limited to, records
required by the 1940 Act and the Advisers Act. All such records pertaining to
the Portfolio shall be the property of the Fund and shall be available for
inspection and use by the Securities and Exchange Commission, any other
regulatory authority having jurisdiction, the Fund, the Adviser or any person
retained by the Fund or the Adviser. Where applicable, such records shall be
maintained by the Sub-Adviser for the period and in the place required by Rule
31a-2 under the 1940 Act.
(g) The Sub-Adviser shall render such reports to the Adviser and/or to the Board
of Directors of the Fund concerning the investment activity and composition of
the Portfolio in such form and at such intervals as the Adviser or the Board may
from time to time reasonably require.
(h) In acting under this Agreement, the Sub-Adviser shall be an independent
contractor and not an agent of the Adviser or the Fund.
SECTION 2. EXPENSES
(a) The Sub-Adviser shall assume and pay all of its own costs and expenses,
including those for furnishing such office space, office equipment, office
personnel and office services as the Sub-Adviser may require in the performance
of its duties under this Agreement.
(b) The Fund shall bear all expenses of the Portfolio's organization and
registration, and the Fund and Adviser shall bear all of their respective
expenses of their operations and businesses not expressly assumed or agreed to
be paid by the Sub-Adviser under this Agreement. In particular, but without
limiting the generality of the foregoing, the Fund shall pay any fees due to the
Adviser, all interest, taxes, governmental charges or duties, fees, brokerage
and commissions of every kind arising hereunder or in connection herewith,
expenses of transactions with shareholders of the Portfolio, expenses of
offering interests in the Portfolio for sale, insurance, association membership
dues, all charges of custodians (including fees as custodian and for keeping
books, performing portfolio valuations and rendering other services to the
Fund), independent auditors and legal counsel, expenses of preparing, printing
and distributing all prospectuses, proxy material, reports and notices to
shareholders of the Fund, and all other costs incident to the Portfolio's
existence.
2
<PAGE> 3
SECTION 3. USE OF SERVICES OF OTHERS
The Sub-Adviser may (at its expense except as set forth in Section 2 hereof)
employ, retain or otherwise avail itself of the services or facilities of other
persons or organizations for the purpose of providing the Sub-Adviser with such
statistical or factual information, such advice regarding economic factors and
trends or such other information, advice or assistance as the Sub-Adviser may
deem necessary, appropriate or convenient for the discharge of the Sub-Adviser's
obligations hereunder or otherwise helpful to the Fund and the Portfolio.
SECTION 4. SUB-ADVISORY FEES
In consideration of the Sub-Adviser's services to the Fund hereunder, the
Sub-Adviser shall be entitled to a sub-advisory fee, payable quarterly, at the
annual rate of 0.65% of the first seventy-five million dollars ($75,000,000) of
the average daily net assets of the Portfolio during the quarter preceding each
payment, 0.6% of the next seventy-five million dollars ($75,000,000), and 0.55%
of the average daily net assets of the Portfolio in excess of one hundred and
fifty million dollars ($150,000,000) (the "Sub-Advisory Fee"). The Sub-Advisory
Fee shall be accrued for each calendar day and the sum of the daily Sub-Advisory
Fee accruals shall be paid quarterly to the Sub-Adviser on or before the fifth
business day of the next succeeding quarter. The daily fee accruals will be
computed on the basis of the valuations of the total net assets of the Portfolio
as of the close of business each day. The Sub-Advisory Fee shall be payable
solely by the Adviser, and the Fund shall not be liable to the Sub-Adviser for
any unpaid Sub-Advisory Fee.
SECTION 5. LIMITATION OF LIABILITY OF SUB-ADVISER
(a) The Sub-Adviser shall be liable for losses resulting from its own acts or
omissions caused by the Sub-Adviser's willful misfeasance, bad faith or gross
negligence in the performance of its duties hereunder or its reckless disregard
of its duties under this Agreement, and nothing herein shall protect the
Sub-Adviser against any such liability to the shareholders of the Fund or to the
Adviser. The Sub-Adviser shall not be liable to the Fund or to any shareholder
of the Fund or to the Adviser for any claim or loss arising out of any
investment or other act or omission in the performance of the Sub-Adviser's
duties under this Agreement, or for any loss or damage resulting from the
imposition by any government of exchange control restrictions which might affect
the liquidity of the Fund's assets maintained with custodians or securities
depositories in foreign countries, or from any political acts of any foreign
governments to which such assets might be exposed, or for any tax of any kind,
including without limitation any statutory, governmental, state, provincial,
regional, local or municipal imposition, duty, contribution or levy imposed by
any government or governmental agency upon or with respect to such assets or
income earned with respect thereto (collectively "Taxation").
(b) In the event the Sub-Adviser is assessed any taxation in respect of the
assets, income or activities of the Portfolio, the Adviser and the Fund jointly
will indemnify the Sub-Adviser for all such amounts wherever imposed, together
with all penalties, charges, costs and interest relating thereto and all
expenditures, including reasonable attorney's fees, incurred by the Sub-Adviser
in connection with the defense or settlement of any such assessment. The
Sub-Adviser shall undertake and control the defense or settlement of any such
assessment, including the selection of counsel or other professional advisers,
provided that the selection of such counsel and advisers and the settlement of
any assessment shall be subject to the approval of the Adviser and the Fund,
which approvals shall not be unreasonably withheld. The Adviser and the Fund
shall have the right to retain separate counsel and assume the defense or
settlement on behalf of the Adviser and the Fund, as the case may be, of any
such assessment if representation of the Adviser and the Fund by counsel
selected by the Sub-Adviser would be inappropriate due to actual or potential
conflicts of interest.
3
<PAGE> 4
SECTION 6. SERVICES TO OTHER CLIENTS AND THE FUND
(a) Subject to compliance with the 1940 Act, nothing contained in this Agreement
shall be deemed to prohibit the Sub-Adviser or any of its affiliated persons
from acting, and being separately compensated for acting, in one or more
capacities on behalf of the Fund. The Adviser and the Fund understand that the
Sub-Adviser may act as investment manager or in other capacities on behalf of
other customers including entities registered under the 1940 Act. While
information, recommendations and actions which the Sub-Adviser supplies to and
does on behalf of the Portfolio shall in the Sub-Adviser's judgment be
appropriate under the circumstances in light of the investment objectives and
policies of the Fund, as set forth in the Prospectus delivered to the
Sub-Adviser from time to time, it is understood and agreed that they may be
different from the information, recommendations and actions the Sub-Adviser or
its affiliated persons supply to or do on behalf of other clients. The
Sub-Adviser and its affiliated persons shall supply information, recommendations
and any other services to the Portfolio and to any other client in an impartial
and fair manner in order to seek good results for all clients involved. As used
herein, the term "affiliated person" shall have the meaning assigned to it in
the 1940 Act.
(b) On occasions when the Sub-Adviser deems the purchase or sale of a security
to be in the best interest of the Portfolio as well as other customers, the
Sub-Adviser may, to the extent permitted by applicable law, aggregate the
securities to be so sold or purchased in order to obtain the best execution or
lower brokerage commissions, if any. The Sub-Adviser may also on occasion
purchase or sell a particular security for one or more customers in different
amounts. On either occasion, and to the extent permitted by applicable law and
regulations, allocation of the securities so purchased or sold, as well as the
expenses incurred in the transaction, will be made by the Sub-Adviser in the
manner it considers to be the most equitable and consistent with its fiduciary
obligations to the Fund and to such other customers.
(c) The Sub-Adviser agrees to use the same skill and care in providing services
to the Fund as it uses in providing services to other similar accounts for which
it has investment responsibility. The Sub-Adviser will conform with all
applicable rules and regulations of the Securities and Exchange Commission.
SECTION 7. REPORTS TO THE SUB-ADVISER
The Adviser shall furnish to the Sub-Adviser the Prospectus, proxy statements,
reports and other information relating to the business and affairs of the Fund
as the Sub-Adviser may, at any time or from time to time, reasonably require in
order to discharge the Sub-Adviser's duties under this Agreement.
SECTION 8. TERM OF AGREEMENT
Provided that this Agreement shall have first been approved by the Board of
Directors of the Fund, including a majority of the members thereof who are not
interested persons (as defined in the 1940 Act) of either party, by a vote cast
in person at a meeting called for the purpose of voting such approval, then this
Agreement shall be effective on the date hereof. Unless earlier terminated as
hereinafter provided, this Agreement shall continue in effect for an initial
term ending September 30, 1999. Thereafter, this Agreement shall continue in
effect from year to year, subject to approval annually by the Board of Directors
of the Fund or by vote of a majority of the voting securities of the Portfolio
and also, in either event, by the vote, cast in person at a meeting called for
the purpose of voting on such approval, of a majority of the Directors of the
Fund who are not parties to this Agreement or interested persons (as defined in
the 1940 Act) of any such person.
4
<PAGE> 5
SECTION 9. TERMINATION OF AGREEMENT; ASSIGNMENT
(a) This Agreement may be terminated by either party hereto without the payment
of any penalty, upon 90 days' prior notice in writing to the other party and to
the Fund, or upon 60 days' written notice by the Fund to the two parties;
provided, that in the case of termination by the Fund such action shall have
been authorized by resolution of a majority of the Board of Directors of the
Fund or by vote of a majority of the voting securities of the Portfolio. In
addition, this Agreement shall terminate upon the later of (1) the termination
of the Adviser's agreement to provide investment advisory services to the Fund
or (2) notice to the Sub-Adviser that the Adviser's agreement to provide
investment advisory services to the Fund has terminated.
(b) This Agreement shall automatically terminate in the event of its assignment
(as defined in the 1940 Act).
(c) Termination of this Agreement for any reason shall not affect rights of the
parties that have accrued prior thereto.
SECTION 10. NOTICES
(a) The Sub-Adviser agrees to promptly notify the Adviser of the occurrence of
any of the following events: (1) any change in any of the Sub-Adviser's officers
or any portfolio manager who is providing advisory services pursuant to this
agreement; (2) the Sub-Adviser fails to be registered as an investment adviser
under the Advisers Act or under the laws of any jurisdiction in which the
Sub-Adviser is required to be registered as an investment adviser in order to
perform its obligations under this Agreement; (3) the Sub-Adviser is the subject
of any action, suit, proceeding, inquiry or investigation at law or in equity,
before or by any court, public board or body, involving the affairs of the
Portfolio; or (4) any change in control of the Sub-Adviser.
(b) Any notice given hereunder shall be in writing and may be served by being
sent by telex, facsimile or other electronic transmission or sent by registered
mail or by courier to the address set forth below for the party for which it is
intended. A notice served by mail shall be deemed to have been served seven days
after mailing and in the case of telex, facsimile or other electronic
transmission twelve hours after dispatch thereof. Addresses for notice may be
changed by written notice to the other party.
If to the Adviser:
Ohio National Investments, Inc.
P.O. Box 237
Cincinnati, Ohio 45201
Fax No. (513) 794-4506
With a copy to:
Joseph P. Brom, President
Ohio National Investments, Inc.
P.O. Box 237
Cincinnati, Ohio 45201
5
<PAGE> 6
If to the Sub-Adviser:
Gregory P. Contillo, Vice President
Founders Asset Management LLC
2930 East Third Avenue
Denver, Colorado 80206
Fax No. (303) 329-3848
With a copy to:
David L. Ray, Vice President, Treasurer & Chief Financial Officer
Founders Asset Management LLC
2930 East Third Avenue
Denver, Colorado 80206
SECTION 11. 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.
SECTION 12. APPLICABLE PROVISIONS OF LAW
The Agreement shall be subject to all applicable provisions of law, including,
without limitation, the applicable provisions of the 1940 Act, and to the extent
that any provisions herein contained conflict with any such applicable
provisions of law, the latter shall control.
SECTION 13. COUNTERPARTS
This Agreement may be entered into in any number of counterparts, each of which
when so executed and delivered shall be deemed an original, but all such
counterparts shall together constitute one and the same instrument.
IN WITNESS WHEREOF this Agreement has been executed by the parties hereto as of
the day and year first above written.
OHIO NATIONAL INVESTMENTS, INC.
By:
-----------------------------------
Joseph P. Brom
President
FOUNDERS ASSET MANAGEMENT LLC
By:
-----------------------------------
David L. Ray, Vice President,
Treasurer & Chief Financial Officer
Accepted and Agreed:
OHIO NATIONAL FUND, INC.
By:
-----------------------------------
John J. Palmer, President
6
<PAGE> 1
Exhibit 5(g)
SUB-ADVISORY AGREEMENT
This Agreement is made as of the first day of October, 1997 by and between OHIO
NATIONAL INVESTMENTS, INC., an Ohio corporation (the "Adviser"), and ROBERTSON
STEPHENS INVESTMENT MANAGEMENT, L.P., a California limited partnership (the
"Sub-Adviser").
WHEREAS, OHIO NATIONAL FUND, INC. (the "Fund"), is a Maryland corporation that
is registered under the Investment Company Act of 1940, as amended, (together
with the regulations promulgated pursuant thereto, the "1940 Act"); and
WHEREAS, the Adviser is a registered investment adviser under the Investment
Advisers Act of 1940, as amended, (together with the regulations promulgated
pursuant thereto, the "Advisers Act"); and
WHEREAS, the Adviser has been appointed as investment adviser to the Fund in
accordance with the 1940 Act and the Advisers Act; and
WHEREAS, the Sub-Adviser is registered as an investment adviser under the
Advisers Act and engages in the business of providing investment advisory
services; and
WHEREAS, the Fund has authorized the Adviser to appoint the Sub-Adviser, subject
to the requirements of the 1940 Act and the Advisers Act, as a sub-adviser with
respect to that portion of the assets of the Fund designated as the GROWTH &
INCOME PORTFOLIO of the Fund on the terms and conditions set forth below;
NOW, THEREFORE, IT IS HEREBY AGREED as follows:
SECTION 1. INVESTMENT ADVISORY SERVICES
(a) The Adviser hereby retains the Sub-Adviser, and the Sub-Adviser hereby
accepts engagement by the Adviser, to supervise and manage on a
fully-discretionary basis the cash, securities and other assets of the Growth &
Income Portfolio that the Adviser shall from time to time place under the
supervision of the Sub-Adviser (such cash, securities and other assets initially
and as same shall thereafter be increased or decreased by the investment
performance thereof and by additions thereto and withdrawals therefrom by the
Adviser shall hereinafter be referred to as the "Portfolio"). The Fund is the
owner of all cash, securities and other assets in the Portfolio, and there are
no restrictions on the pledge, hypothecation, transfer or sale of such cash,
securities or assets. To enable the Sub-Adviser to exercise fully its discretion
hereunder, the Adviser hereby appoints the Sub-Adviser as agent and
attorney-in-fact for the Portfolio with full authority to buy, sell and
otherwise deal in securities and other intangible investments and contracts
relating to the same for the Portfolio.
(b) All activities by the Sub-Adviser on behalf of the Adviser and the Portfolio
shall be in accordance with the investment objectives, policies and restrictions
set forth in the 1940 Act and in the Fund's prospectus and statement of
additional information, as amended from time to time (together, the
"Prospectus") and as interpreted from time to time by the Board of Directors of
the Fund and by the Adviser. All activities of the Sub-Adviser on behalf of the
Adviser and the Portfolio shall also be subject to the due diligence oversight
and direction of the Adviser.
(c) Subject to the supervision of the Adviser, the Sub-Adviser shall have the
sole and exclusive responsibility and discretion to select members of securities
exchanges, brokers, dealers and futures commission merchants for the execution
of transactions of the Portfolio and, when applicable, shall
<PAGE> 2
negotiate commissions in connection therewith. All such selections shall be made
in accordance with the Fund's policies and restrictions regarding brokerage
allocation set forth in the Prospectus.
(d) In carrying out its obligations to manage the investments and reinvestments
of the assets of the Portfolio, the Sub-Adviser shall: (1) in its discretion,
obtain and evaluate pertinent economic, statistical, financial and other
information affecting the economy generally and individual companies or
industries the securities of which are included in the Portfolio or are under
consideration for inclusion therein; (2) formulate and implement a continuous
investment program for the Portfolio consistent with the investment objectives
and related investment policies and restrictions for such Portfolio as set forth
in the Prospectus; and (3) take such steps as it deems necessary, in its sole
discretion, to implement the aforementioned investment program by placing orders
for the purchase and sale of securities.
(e) In connection with the purchase and sale of securities of the Portfolio, the
Sub-Adviser shall arrange for the transmission to the Adviser and the
Portfolio's custodian on a daily basis such confirmation, trade tickets and
other documents as may be necessary to enable them to perform their
administrative responsibilities with respect to the Portfolio. With respect to
Portfolio securities to be purchased or sold through the Depository Trust
Company, the Sub-Adviser shall arrange for the automatic transmission of the
I.D. confirmation of the trade to the Portfolio's custodian.
(f) In connection with the placement of orders for the execution of the
Portfolio's securities transactions, the Sub-Adviser shall create and maintain
all necessary records of the Portfolio as are required of an investment adviser
of a registered investment company including, but not limited to, records
required by the 1940 Act and the Advisers Act. All such records pertaining to
the Portfolio shall be the property of the Fund and shall be available for
inspection and use by the Securities and Exchange Commission, any other
regulatory authority having jurisdiction, the Fund, the Adviser or any person
retained by the Fund or the Adviser. Where applicable, such records shall be
maintained by the Sub-Adviser for the period and in the place required by Rule
31a-2 under the 1940 Act.
(g) The Sub-Adviser shall render such reports to the Adviser and/or to the Board
of Directors of the Fund concerning the investment activity and composition of
the Portfolio in such form and at such intervals as the Adviser or the Board may
from time to time reasonably require.
(h) In acting under this Agreement, the Sub-Adviser shall be an independent
contractor and not an agent of the Adviser or the Fund.
SECTION 2. EXPENSES
(a) The Sub-Adviser shall assume and pay all of its own costs and expenses,
including those for furnishing such office space, office equipment, office
personnel and office services as the Sub-Adviser may require in the performance
of its duties under this Agreement.
(b) The Fund shall bear all expenses of the Portfolio's organization and
registration, and the Fund and Adviser shall bear all of their respective
expenses of their operations and businesses not expressly assumed or agreed to
be paid by the Sub-Adviser under this Agreement. In particular, but without
limiting the generality of the foregoing, the Fund shall pay any fees due to the
Adviser, all interest, taxes, governmental charges or duties, fees, brokerage,
settlement charges and commissions of every kind arising hereunder or in
connection herewith, expenses of transactions with shareholders of the
Portfolio, expenses of offering interests in the Portfolio for sale, insurance,
association membership dues, all charges of custodians (including fees as
custodian and for keeping books, performing portfolio valuations and rendering
other services to the Fund), independent auditors and legal counsel, expenses of
preparing, printing and distributing all prospectuses, proxy material, reports
and notices to shareholders of the Fund, and all other costs incident to the
Portfolio's existence.
2
<PAGE> 3
SECTION 3. USE OF SERVICES OF OTHERS
The Sub-Adviser may (at its expense except as set forth in Section 2 hereof)
employ, retain or otherwise avail itself of the services or facilities of other
persons or organizations for the purpose of providing the Sub-Adviser with such
statistical or factual information, such advice regarding economic factors and
trends or such other information, advice or assistance as the Sub-Adviser may
deem necessary, appropriate or convenient for the discharge of the Sub-Adviser's
obligations hereunder or otherwise helpful to the Fund and the Portfolio.
SECTION 4. SUB-ADVISORY FEES
In consideration of the Sub-Adviser's services to the Fund hereunder, the
Sub-Adviser shall be entitled to a sub-advisory fee, payable quarterly, at the
annual rate of 0.60% of the first one hundred million dollars ($100,000,000) of
the average daily net assets of the Portfolio during the quarter preceding each
payment, 0.55% of the next one hundred million dollars ($100,000,000) of the
average daily net assets of the Portfolio, and 0.50% of the average daily net
assets of the Portfolio in excess of two hundred million dollars ($200,000,000)
(the "Sub-Advisory Fee"). The Sub-Advisory Fee shall be accrued for each
calendar day and the sum of the daily Sub-Advisory Fee accruals shall be paid
quarterly to the Sub-Adviser on or before the fifth business day of the next
succeeding quarter. The daily fee accruals will be computed on the basis of the
valuations of the total net assets of the Portfolio as of the close of business
each day. The net market value of securities held short by the Portfolio shall
be treated as a liability of the account and, together with the amount of any
margin or other loans owed by the account, shall be subtracted in determining
net market value. If this Agreement begins on a date other than the first day of
a quarter or terminates on a date other than the last day of a quarter, the
Sub-Advisory Fee payable with respect to either such quarter shall be prorated.
The Sub-Advisory Fee shall be payable solely by the Adviser, and the Fund shall
not be liable to the Sub-Adviser for any unpaid Sub-Advisory Fee.
SECTION 5. LIMITATION OF LIABILITY OF SUB-ADVISER
(a) The Sub-Adviser shall be liable for losses resulting from its own acts or
omissions caused by the Sub-Adviser's willful misfeasance, bad faith or gross
negligence in the performance of its duties hereunder or its reckless disregard
of its duties under this Agreement, and nothing herein shall protect the
Sub-Adviser against any such liability to the shareholders of the Fund or to the
Adviser. The Sub-Adviser shall not be liable to the Fund or to any shareholder
of the Fund or to the Adviser for any claim or loss arising out of any
investment or other act or omission in the performance of the Sub-Adviser's
duties under this Agreement, including, but not limited to, any error in
judgment with respect to buying or selling securities for the Portfolio, or for
any loss or damage resulting from the imposition by any government of exchange
control restrictions which might affect the liquidity of the Fund's assets
maintained with custodians or securities depositories in foreign countries, or
from any political acts of any foreign governments to which such assets might be
exposed, or for any tax of any kind (other than taxes on the Sub-Adviser's
income), including without limitation any statutory, governmental, state,
provincial, regional, local or municipal imposition, duty, contribution or levy
imposed by any government or governmental agency upon or with respect to such
assets or income earned with respect thereto (collectively "Taxation").
Notwithstanding the foregoing sentence, the Sub-Adviser shall be liable for
taxes or tax penalties incurred by the Fund for any failure of the Portfolio to
qualify as a regulated investment company under Subchapter M of the Internal
Revenue Code of 1986 as amended as a result of the Sub-Adviser's management of
the Portfolio.
(b) In the event the Sub-Adviser is assessed any Taxation in respect of the
assets, income or activities of the Portfolio, the Adviser and the Fund jointly
will indemnify the Sub-Adviser for all such amounts wherever imposed, together
with all penalties, charges, costs and interest relating thereto and all
expenditures, including reasonable attorney's fees, incurred by the Sub-Adviser
in connection with the defense or settlement of any such assessment as such
expenditures are incurred. The Sub-Adviser
3
<PAGE> 4
shall undertake and control the defense or settlement of any such assessment,
including the selection of counsel or other professional advisers, provided that
the selection of such counsel and advisers and the settlement of any assessment
shall be subject to the approval of the Adviser and the Fund, which approvals
shall not be unreasonably withheld. The Adviser and the Fund shall have the
right to retain separate counsel and assume the defense or settlement on behalf
of the Adviser and the Fund, as the case may be, of any such assessment if
representation of the Adviser and the Fund by counsel selected by the
Sub-Adviser would be inappropriate due to actual or potential conflicts of
interest.
(c) The Sub-Adviser shall have no responsibility for and shall incur no
liability to the Fund, any shareholder of the Fund or the Adviser relating to
(1) the selection or establishment by the Fund of its investment objectives,
fundamental policies and restrictions, (2) the Fund's registration or duty to
register with any government or agency, (3) the administration of any plans,
trusts or accounts investing through the Fund, or (4) the Fund's compliance with
the requirements of the 1940 Act or Subchapter M of the Internal Revenue Code
except as otherwise specified in subsection (a) of this Section 5. The Adviser
shall indemnify and defend the Sub-Adviser and its partners and employees and
hold them harmless from and against any and all claims, losses, damages,
liabilities and expenses, as they are incurred, by reason of any act or omission
of the Adviser or any custodian, broker, agent or other party selected by the
Adviser, except such as arise from the Sub-Adviser's breach of this contract or
of the Sub-Adviser's fiduciary duty to the Adviser or the Fund.
SECTION 6. SERVICES TO OTHER CLIENTS AND THE FUND
(a) Subject to compliance with the 1940 Act, nothing contained in this Agreement
shall be deemed to prohibit the Sub-Adviser or any of its affiliated persons
from acting, and being separately compensated for acting, in one or more
capacities on behalf of the Fund. The Adviser and the Fund understand that the
Sub-Adviser may act as investment manager or in other capacities on behalf of
other customers including other entities registered under the 1940 Act. This may
create conflicts of interest with the Portfolio over the Sub-Adviser's time
devoted to managing the Portfolio and the allocation of investment opportunities
among accounts (including the Portfolio) managed by the Sub-Adviser. The
Sub-Adviser shall use its best efforts to resolve all such conflicts in a manner
that is generally fair to all of its clients without prejudice to the Portfolio.
While information, recommendations and actions which the Sub-Adviser supplies to
and does on behalf of the Portfolio shall in the Sub-Adviser's judgment be
appropriate under the circumstances in light of the investment objectives and
policies of the Fund, as set forth in the Prospectus delivered to the
Sub-Adviser from time to time, it is understood and agreed that they may be
different from the information, recommendations and actions the Sub-Adviser or
its affiliated persons supply to or do on behalf of other clients. The
Sub-Adviser shall, to the extent practicable, allocate investment opportunities
to the Portfolio over a period of time on a fair and equitable basis relative to
its other clients. Nothing in this Agreement shall be deemed to obligate the
Sub-Adviser to acquire for the Portfolio any security that the Sub-Adviser or
its partners, employees or affiliated persons may acquire for its or their own
accounts or for the account of any other client if, in the absolute discretion
of the Sub-Adviser, it is not practical or desirable to acquire a position in
that security for the Portfolio. As used herein, the term "affiliated person"
shall have the meaning assigned to it in the 1940 Act.
(b) On occasions when the Sub-Adviser deems the purchase or sale of a security
to be in the best interest of the Portfolio as well as other customers of the
Sub-Adviser, the Sub-Adviser may, to the extent permitted by applicable law,
aggregate the securities to be so sold or purchased in order to obtain the best
execution, beneficial timing of transactions or lower brokerage commissions, if
any. The Sub-Adviser may also on occasion purchase or sell a particular security
for one or more customers in different amounts. On either occasion, and to the
extent permitted by applicable law and regulations, allocation of the securities
so purchased or sold, as well as the expenses incurred in the transaction, will
be made by the Sub-Adviser in the manner it considers to be the most equitable
and consistent with its fiduciary obligations to the Fund and to such other
customers. The purchase or sale of securities for the Portfolio may, in many
instances, be effected substantially simultaneously
4
<PAGE> 5
with the purchase or sale of like securities for the accounts of other clients
of the Sub-Adviser and its affiliated persons. Such transactions may be made at
slightly different prices due to the volume of securities purchased or sold. In
that event, the average price of all securities purchased or sold in such
transactions may be determined and the Portfolio may be charged or credited, as
the case may be, the average transaction price.
(c) The Sub-Adviser agrees to use the same skill and care in providing services
to the Fund as it uses in providing services to other similar accounts for which
it has investment responsibility. The Sub-Adviser will conform with all
applicable rules and regulations of the Securities and Exchange Commission.
SECTION 7. TO THE SUB-ADVISER
The Adviser shall furnish to the Sub-Adviser the Prospectus, proxy statements,
reports and other information relating to the business and affairs of the Fund
as the Sub-Adviser may, at any time or from time to time, reasonably require in
order to discharge the Sub-Adviser's duties under this Agreement.
SECTION 8. TERM OF AGREEMENT
Provided that this Agreement shall have first been approved by the Board of
Directors of the Fund, including a majority of the members thereof who are not
interested persons (as defined in the 1940 Act) of either party, by a vote cast
in person at a meeting called for the purpose of voting such approval, then this
Agreement shall be effective on the date hereof. Unless earlier terminated as
hereinafter provided, this Agreement shall continue in effect until approved by
a majority vote of the voting securities of the Portfolio, at a meeting to take
place not more than one year after the effective date of the Fund's registration
statement relating to the Portfolio. Thereafter, this Agreement shall continue
in effect from year to year, subject to approval annually by the Board of
Directors of the Fund or by vote of a majority of the voting securities of the
Portfolio and also, in either event, by the vote, cast in person at a meeting
called for the purpose of voting on such approval, of a majority of the
Directors of the Fund who are not parties to this Agreement or interested
persons (as defined in the 1940 Act) of any such person.
SECTION 9. CONFIDENTIALITY
Except as required by law, the Adviser agrees to maintain in strict confidence
all investment advice and information furnished to the Adviser or the Fund by
the Sub-Adviser.
SECTION 10. TERMINATION OF AGREEMENT; ASSIGNMENT
(a) This Agreement may be terminated by either party hereto without the payment
of any penalty, upon 90 days' prior notice in writing to the other party and to
the Fund, or upon 60 days' written notice by the Fund to the two parties;
provided, that in the case of termination by the Fund such action shall have
been authorized by resolution of a majority of the Board of Directors of the
Fund or by vote of a majority of the voting securities of the Portfolio. In
addition, this Agreement shall terminate upon the later of (1) the termination
of the Adviser's agreement to provide investment advisory services to the Fund
or (2) notice to the Sub-Adviser that the Adviser's agreement to provide
investment advisory services to the Fund has terminated.
(b) This Agreement shall automatically terminate in the event of its assignment
(as defined in the 1940 Act).
5
<PAGE> 6
(c) Termination of this Agreement for any reason shall not affect rights of the
parties that have accrued prior thereto.
SECTION 11. NOTICES
(a) The Sub-Adviser agrees to promptly notify the Adviser of the occurrence of
any of the following events: (1) any change in the Portfolio's portfolio
manager; (2) the Sub-Adviser fails to be registered as an investment adviser
under the Advisers Act or under the laws of any jurisdiction in which the
Sub-Adviser is required to be registered as an investment adviser in order to
perform its obligations under this Agreement; (3) the Sub-Adviser is the subject
of any action, suit, proceeding, inquiry or investigation at law or in equity,
before or by any court, public board or body, involving the affairs of the
Portfolio; or (4) any change in control of the Sub-Adviser.
(b) Any notice given hereunder shall be in writing and may be served by being
sent by telex, facsimile or other electronic transmission or sent by registered
mail or by courier to the address set forth below for the party for which it is
intended. A notice served by mail shall be deemed to have been served seven days
after mailing and in the case of telex, facsimile or other electronic
transmission twelve hours after dispatch thereof. Addresses for notice may be
changed by written notice to the other party.
If to the Adviser:
Ohio National Investments, Inc.
P.O. Box 237
Cincinnati, Ohio 45201
Fax No. (513) 794-4506
With a copy to:
Joseph P. Brom, President
Ohio National Investments, Inc.
P.O. Box 237
Cincinnati, Ohio 45201
If to the Sub-Adviser:
David M. Elliott, Vice President
Robertson Stephens & Company
555 California Street
San Francisco, California 94104
Fax No. (415) 676-2574
With a copy to:
Dana K. Welch, Esq.
Robertson Stephens & Company
555 California Street
San Francisco, California 94104
SECTION 12. ARBITRATION
The parties waive their right to seek remedies in court, including any right to
a jury trial. The parties agree that any dispute between the parties arising out
of, relating to, or in connection with, this
6
<PAGE> 7
Agreement, shall be resolved exclusively by arbitration to be conducted only in
the county and state of the principal office of the Adviser at the time of such
dispute in accordance with the rules of the American Arbitration Association
("AAA") applying the laws of Ohio. The parties agree that such arbitration shall
be conducted by a retired judge who is experienced in dispute resolution
regarding the securities industry, that discovery shall not be permitted except
as required by the rules of AAA, that the arbitration award shall not include
factual findings or conclusions of law, and that no punitive damages shall be
awarded. The parties understand that any party's right to appeal or to seek
modification of any ruling or award of the arbitrator is severely limited. Any
award rendered by the arbitrator shall be final and binding, and judgment may be
entered upon it in any court of competent jurisdiction in the county and state
of the principal office of the Adviser at the time the award is rendered or as
otherwise provided by law.
SECTION 13. DELIVERY OF INFORMATION
The Adviser acknowledges that it has received the Sub-Adviser's brochure
required to be delivered under the Advisers Act (including the information in
Part II of the Sub-Adviser's Form ADV). If the Adviser received such information
less than forty-eight hours prior to signing this Agreement, this Agreement may
be terminated by the Adviser without penalty within five business days from the
effective date. The Sub-Adviser agrees to deliver annually without charge the
Sub-Adviser's brochure required by the Advisers Act and any and all amendments
to its Form ADV whenever filed.
SECTION 14. USE OF NAME
The Sub-Adviser hereby agrees that the Adviser may use the Sub-Adviser's name
and logo in its marketing or advertising materials, provided that the
Sub-Adviser has reviewed and approved any such materials prior to their use.
SECTION 15. ENTIRE AGREEMENT; SEVERABILITY
This Agreement is the entire agreement of the parties and supersedes all prior
or contemporaneous written or oral negotiations, correspondence, agreements and
understandings regarding the subject matter hereof. The invalidity or
unenforceability of any provision hereof shall in no way affect the validity or
enforceability of any and all other provisions hereof.
SECTION 16. NO THIRD-PARTY BENEFICIARIES
Neither party intends for this Agreement to benefit any third-party not
expressly named in this Agreement.
SECTION 17. 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.
SECTION 18. APPLICABLE PROVISIONS OF LAW
The Agreement shall be subject to all applicable provisions of law, including,
without limitation, the applicable provisions of the 1940 Act, and to the extent
that any provisions herein contained conflict with any such applicable
provisions of law, the latter shall control.
7
<PAGE> 8
SECTION 19. COUNTERPARTS
This Agreement may be entered into in any number of counterparts, each of which
when so executed and delivered shall be deemed an original, but all such
counterparts shall together constitute one and the same instrument.
IN WITNESS WHEREOF this Agreement has been executed by the parties hereto as of
the day and year first above written.
OHIO NATIONAL INVESTMENTS, INC.
By: /s/ J. P. Brom
----------------------------
Joseph P. Brom, President
ROBERTSON STEPHENS INVESTMENT MANAGEMENT, L.P.
By: /s/ George R. Hecht
----------------------------
George R. Hecht, President
Accepted and Agreed:
OHIO NATIONAL FUND, INC.
By: /s/ John J. Palmer
--------------------------
John J. Palmer, President
<PAGE> 1
Exhibit 5(i)
SUB-ADVISORY AGREEMENT
This Agreement is made as of the first day of May, 1998 by and between OHIO
NATIONAL INVESTMENTS, INC., an Ohio corporation (the "Adviser"), and ROBERTSON
STEPHENS INVESTMENT MANAGEMENT, L.P., a California limited partnership (the
"Sub-Adviser").
WHEREAS, OHIO NATIONAL FUND, INC. (the "Fund"), is a Maryland corporation that
is registered under the Investment Company Act of 1940, as amended, (together
with the regulations promulgated pursuant thereto, the "1940 Act"); and
WHEREAS, the Adviser is a registered investment adviser under the Investment
Advisers Act of 1940, as amended, (together with the regulations promulgated
pursuant thereto, the "Advisers Act"); and
WHEREAS, the Adviser has been appointed as investment adviser to the Fund in
accordance with the 1940 Act and the Advisers Act; and
WHEREAS, the Sub-Adviser is registered as an investment adviser under the
Advisers Act and engages in the business of providing investment advisory
services; and
WHEREAS, the Fund has authorized the Adviser to appoint the Sub-Adviser, subject
to the requirements of the 1940 Act and the Advisers Act, as a sub-adviser with
respect to that portion of the assets of the Fund designated as the EMERGING
GROWTH PORTFOLIO of the Fund on the terms and conditions set forth below;
NOW, THEREFORE, IT IS HEREBY AGREED as follows:
SECTION 1. INVESTMENT ADVISORY SERVICES
(a) The Adviser hereby retains the Sub-Adviser, and the Sub-Adviser hereby
accepts engagement by the Adviser, to supervise and manage on a
fully-discretionary basis the cash, securities and other assets of the Growth &
Income Portfolio that the Adviser shall from time to time place under the
supervision of the Sub-Adviser (such cash, securities and other assets initially
and as same shall thereafter be increased or decreased by the investment
performance thereof and by additions thereto and withdrawals therefrom by the
Adviser shall hereinafter be referred to as the "Portfolio"). The Fund is the
owner of all cash, securities and other assets in the Portfolio, and there are
no restrictions on the pledge, hypothecation, transfer or sale of such cash,
securities or assets. To enable the Sub-Adviser to exercise fully its discretion
hereunder, the Adviser hereby appoints the Sub-Adviser as agent and
attorney-in-fact for the Portfolio with full authority to buy, sell and
otherwise deal in securities and other intangible investments and contracts
relating to the same for the Portfolio.
(b) All activities by the Sub-Adviser on behalf of the Adviser and the Portfolio
shall be in accordance with the investment objectives, policies and restrictions
set forth in the 1940 Act and in the Fund's prospectus and statement of
additional information, as amended from time to time (together, the
"Prospectus") and as interpreted from time to time by the Board of Directors of
the Fund and by the Adviser. All activities of the Sub-Adviser on behalf of the
Adviser and the Portfolio shall also be subject to the due diligence oversight
and direction of the Adviser.
(c) Subject to the supervision of the Adviser, the Sub-Adviser shall have the
sole and exclusive responsibility and discretion to select members of securities
exchanges, brokers, dealers and futures commission merchants for the execution
of transactions of the Portfolio and, when applicable, shall
<PAGE> 2
negotiate commissions in connection therewith. All such selections shall be made
in accordance with the Fund's policies and restrictions regarding brokerage
allocation set forth in the Prospectus.
(d) In carrying out its obligations to manage the investments and reinvestments
of the assets of the Portfolio, the Sub-Adviser shall:
(1) in its discretion, obtain and evaluate pertinent economic, statistical,
financial and other information affecting the economy generally and individual
companies or industries the securities of which are included in the Portfolio or
are under consideration for inclusion therein; (2) formulate and implement a
continuous investment program for the Portfolio consistent with the investment
objectives and related investment policies and restrictions for such Portfolio
as set forth in the Prospectus; and (3) take such steps as it deems necessary,
in its sole discretion, to implement the aforementioned investment program by
placing orders for the purchase and sale of securities.
(e) In connection with the purchase and sale of securities of the Portfolio, the
Sub-Adviser shall arrange for the transmission to the Adviser and the
Portfolio's custodian on a daily basis such confirmation, trade tickets and
other documents as may be necessary to enable them to perform their
administrative responsibilities with respect to the Portfolio. With respect to
Portfolio securities to be purchased or sold through the Depository Trust
Company, the Sub-Adviser shall arrange for the automatic transmission of the
I.D. confirmation of the trade to the Portfolio's custodian.
(f) In connection with the placement of orders for the execution of the
Portfolio's securities transactions, the Sub-Adviser shall create and maintain
all necessary records of the Portfolio as are required of an investment adviser
of a registered investment company including, but not limited to, records
required by the 1940 Act and the Advisers Act. All such records pertaining to
the Portfolio shall be the property of the Fund and shall be available for
inspection and use by the Securities and Exchange Commission, any other
regulatory authority having jurisdiction, the Fund, the Adviser or any person
retained by the Fund or the Adviser. Where applicable, such records shall be
maintained by the Sub-Adviser for the period and in the place required by Rule
31a-2 under the 1940 Act.
(g) The Sub-Adviser shall render such reports to the Adviser and/or to the Board
of Directors of the Fund concerning the investment activity and composition of
the Portfolio in such form and at such intervals as the Adviser or the Board may
from time to time reasonably require.
(h) In acting under this Agreement, the Sub-Adviser shall be an independent
contractor and not an agent of the Adviser or the Fund.
SECTION 2. EXPENSES
(a) The Sub-Adviser shall assume and pay all of its own costs and expenses,
including those for furnishing such office space, office equipment, office
personnel and office services as the Sub-Adviser may require in the performance
of its duties under this Agreement.
(b) The Fund shall bear all expenses of the Portfolio's organization and
registration, and the Fund and Adviser shall bear all of their respective
expenses of their operations and businesses not expressly assumed or agreed to
be paid by the Sub-Adviser under this Agreement. In particular, but without
limiting the generality of the foregoing, the Fund shall pay any fees due to the
Adviser, all interest, taxes, governmental charges or duties, fees, brokerage,
settlement charges and commissions of every kind arising hereunder or in
connection herewith, expenses of transactions with shareholders of the
Portfolio, expenses of offering interests in the Portfolio for sale, insurance,
association membership dues, all charges of custodians (including fees as
custodian and for keeping books, performing portfolio valuations and rendering
other services to the Fund), independent auditors and legal counsel, expenses of
preparing, printing and distributing all prospectuses, proxy material, reports
and notices to shareholders of the Fund, and all other costs incident to the
Portfolio's existence.
2
<PAGE> 3
SECTION 3. USE OF SERVICES OF OTHERS
The Sub-Adviser may (at its expense except as set forth in Section 2 hereof)
employ, retain or otherwise avail itself of the services or facilities of other
persons or organizations for the purpose of providing the Sub-Adviser with such
statistical or factual information, such advice regarding economic factors and
trends or such other information, advice or assistance as the Sub-Adviser may
deem necessary, appropriate or convenient for the discharge of the Sub-Adviser's
obligations hereunder or otherwise helpful to the Fund and the Portfolio.
SECTION 4. SUB-ADVISORY FEES
In consideration of the Sub-Adviser's services to the Fund hereunder, the
Sub-Adviser shall be entitled to a sub-advisory fee, payable quarterly, at the
annual rate of 0.64% of the first one hundred million dollars ($100,000,000) of
the average daily net assets of the Portfolio during the quarter preceding each
payment, 0.60% of the next one hundred million dollars ($100,000,000) of the
average daily net assets of the Portfolio, and 0.55% of the average daily net
assets of the Portfolio in excess of two hundred million dollars ($200,000,000)
(the "Sub-Advisory Fee"). The Sub-Advisory Fee shall be accrued for each
calendar day and the sum of the daily Sub-Advisory Fee accruals shall be paid
quarterly to the Sub-Adviser on or before the fifth business day of the next
succeeding quarter. The daily fee accruals will be computed on the basis of the
valuations of the total net assets of the Portfolio as of the close of business
each day. The net market value of securities held short by the Portfolio shall
be treated as a liability of the account and, together with the amount of any
margin or other loans owed by the account, shall be subtracted in determining
net market value. If this Agreement begins on a date other than the first day of
a quarter or terminates on a date other than the last day of a quarter, the
Sub-Advisory Fee payable with respect to either such quarter shall be prorated.
The Sub-Advisory Fee shall be payable solely by the Adviser, and the Fund shall
not be liable to the Sub-Adviser for any unpaid Sub-Advisory Fee.
SECTION 5. LIMITATION OF LIABILITY OF SUB-ADVISER
(a) The Sub-Adviser shall be liable for losses resulting from its own acts or
omissions caused by the Sub-Adviser's willful misfeasance, bad faith or gross
negligence in the performance of its duties hereunder or its reckless disregard
of its duties under this Agreement, and nothing herein shall protect the
Sub-Adviser against any such liability to the shareholders of the Fund or to the
Adviser. The Sub-Adviser shall not be liable to the Fund or to any shareholder
of the Fund or to the Adviser for any claim or loss arising out of any
investment or other act or omission in the performance of the Sub-Adviser's
duties under this Agreement, including, but not limited to, any error in
judgment with respect to buying or selling securities for the Portfolio, or for
any loss or damage resulting from the imposition by any government of exchange
control restrictions which might affect the liquidity of the Fund's assets
maintained with custodians or securities depositories in foreign countries, or
from any political acts of any foreign governments to which such assets might be
exposed, or for any tax of any kind (other than taxes on the Sub-Adviser's
income), including without limitation any statutory, governmental, state,
provincial, regional, local or municipal imposition, duty, contribution or levy
imposed by any government or governmental agency upon or with respect to such
assets or income earned with respect thereto (collectively "Taxation").
Notwithstanding the foregoing sentence, the Sub-Adviser shall be liable for
taxes or tax penalties incurred by the Fund for any failure of the Portfolio to
qualify as a regulated investment company under Subchapter M of the Internal
Revenue Code of 1986 as amended as a result of the Sub-Adviser's management of
the Portfolio.
(b) In the event the Sub-Adviser is assessed any Taxation in respect of the
assets, income or activities of the Portfolio, the Adviser and the Fund jointly
will indemnify the Sub-Adviser for all such amounts wherever imposed, together
with all penalties, charges, costs and interest relating thereto and all
expenditures, including reasonable attorney's fees, incurred by the Sub-Adviser
in connection with the defense or settlement of any such assessment as such
expenditures are incurred. The Sub-Adviser
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<PAGE> 4
shall undertake and control the defense or settlement of any such assessment,
including the selection of counsel or other professional advisers, provided that
the selection of such counsel and advisers and the settlement of any assessment
shall be subject to the approval of the Adviser and the Fund, which approvals
shall not be unreasonably withheld. The Adviser and the Fund shall have the
right to retain separate counsel and assume the defense or settlement on behalf
of the Adviser and the Fund, as the case may be, of any such assessment if
representation of the Adviser and the Fund by counsel selected by the
Sub-Adviser would be inappropriate due to actual or potential conflicts of
interest.
(c) The Sub-Adviser shall have no responsibility for and shall incur no
liability to the Fund, any shareholder of the Fund or the Adviser relating to
(1) the selection or establishment by the Fund of its investment objectives,
fundamental policies and restrictions, (2) the Fund's registration or duty to
register with any government or agency, (3) the administration of any plans,
trusts or accounts investing through the Fund, or (4) the Fund's compliance with
the requirements of the 1940 Act or Subchapter M of the Internal Revenue Code
except as otherwise specified in subsection (a) of this Section 5. The Adviser
shall indemnify and defend the Sub-Adviser and its partners and employees and
hold them harmless from and against any and all claims, losses, damages,
liabilities and expenses, as they are incurred, by reason of any act or omission
of the Adviser or any custodian, broker, agent or other party selected by the
Adviser, except such as arise from the Sub-Adviser's breach of this contract or
of the Sub-Adviser's fiduciary duty to the Adviser or the Fund.
SECTION 6. SERVICES TO OTHER CLIENTS AND THE FUND
(a) Subject to compliance with the 1940 Act, nothing contained in this Agreement
shall be deemed to prohibit the Sub-Adviser or any of its affiliated persons
from acting, and being separately compensated for acting, in one or more
capacities on behalf of the Fund. The Adviser and the Fund understand that the
Sub-Adviser may act as investment manager or in other capacities on behalf of
other customers including other entities registered under the 1940 Act. This may
create conflicts of interest with the Portfolio over the Sub-Adviser's time
devoted to managing the Portfolio and the allocation of investment opportunities
among accounts (including the Portfolio) managed by the Sub-Adviser. The
Sub-Adviser shall use its best efforts to resolve all such conflicts in a manner
that is generally fair to all of its clients without prejudice to the Portfolio.
While information, recommendations and actions which the Sub-Adviser supplies to
and does on behalf of the Portfolio shall in the Sub-Adviser's judgment be
appropriate under the circumstances in light of the investment objectives and
policies of the Fund, as set forth in the Prospectus delivered to the
Sub-Adviser from time to time, it is understood and agreed that they may be
different from the information, recommendations and actions the Sub-Adviser or
its affiliated persons supply to or do on behalf of other clients. The
Sub-Adviser shall, to the extent practicable, allocate investment opportunities
to the Portfolio over a period of time on a fair and equitable basis relative to
its other clients. Nothing in this Agreement shall be deemed to obligate the
Sub-Adviser to acquire for the Portfolio any security that the Sub-Adviser or
its partners, employees or affiliated persons may acquire for its or their own
accounts or for the account of any other client if, in the absolute discretion
of the Sub-Adviser, it is not practical or desirable to acquire a position in
that security for the Portfolio. As used herein, the term "affiliated person"
shall have the meaning assigned to it in the 1940 Act.
(b) On occasions when the Sub-Adviser deems the purchase or sale of a security
to be in the best interest of the Portfolio as well as other customers of the
Sub-Adviser, the Sub-Adviser may, to the extent permitted by applicable law,
aggregate the securities to be so sold or purchased in order to obtain the best
execution, beneficial timing of transactions or lower brokerage commissions, if
any. The Sub-Adviser may also on occasion purchase or sell a particular security
for one or more customers in different amounts. On either occasion, and to the
extent permitted by applicable law and regulations, allocation of the securities
so purchased or sold, as well as the expenses incurred in the transaction, will
be made by the Sub-Adviser in the manner it considers to be the most equitable
and consistent with its fiduciary obligations to the Fund and to such other
customers. The purchase or sale of securities for the Portfolio may, in many
instances, be effected substantially simultaneously
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<PAGE> 5
with the purchase or sale of like securities for the accounts of other clients
of the Sub-Adviser and its affiliated persons. Such transactions may be made at
slightly different prices due to the volume of securities purchased or sold. In
that event, the average price of all securities purchased or sold in such
transactions may be determined and the Portfolio may be charged or credited, as
the case may be, the average transaction price.
(c) The Sub-Adviser agrees to use the same skill and care in providing services
to the Fund as it uses in providing services to other similar accounts for which
it has investment responsibility. The Sub-Adviser will conform with all
applicable rules and regulations of the Securities and Exchange Commission.
SECTION 7. REPORTS TO THE SUB-ADVISER
The Adviser shall furnish to the Sub-Adviser the Prospectus, proxy statements,
reports and other information relating to the business and affairs of the Fund
as the Sub-Adviser may, at any time or from time to time, reasonably require in
order to discharge the Sub-Adviser's duties under this Agreement.
SECTION 8. TERM OF AGREEMENT
Provided that this Agreement shall have first been approved by the Board of
Directors of the Fund, including a majority of the members thereof who are not
interested persons (as defined in the 1940 Act) of either party, by a vote cast
in person at a meeting called for the purpose of voting such approval, then this
Agreement shall be effective on the date hereof. Unless earlier terminated as
hereinafter provided, this Agreement shall continue in effect until approved by
a majority vote of the voting securities of the Portfolio, at a meeting to take
place not more than one year after the effective date of the Fund's registration
statement relating to the Portfolio. Thereafter, this Agreement shall continue
in effect from year to year, subject to approval annually by the Board of
Directors of the Fund or by vote of a majority of the voting securities of the
Portfolio and also, in either event, by the vote, cast in person at a meeting
called for the purpose of voting on such approval, of a majority of the
Directors of the Fund who are not parties to this Agreement or interested
persons (as defined in the 1940 Act) of any such person.
SECTION 9. CONFIDENTIALITY
Except as required by law, the Adviser agrees to maintain in strict confidence
all investment advice and information furnished to the Adviser or the Fund by
the Sub-Adviser.
SECTION 10. TERMINATION OF AGREEMENT; ASSIGNMENT
(a) This Agreement may be terminated by either party hereto without the payment
of any penalty, upon 90 days' prior notice in writing to the other party and to
the Fund, or upon 60 days' written notice by the Fund to the two parties;
provided, that in the case of termination by the Fund such action shall have
been authorized by resolution of a majority of the Board of Directors of the
Fund or by vote of a majority of the voting securities of the Portfolio. In
addition, this Agreement shall terminate upon the later of (1) the termination
of the Adviser's agreement to provide investment advisory services to the Fund
or (2) notice to the Sub-Adviser that the Adviser's agreement to provide
investment advisory services to the Fund has terminated.
(b) This Agreement shall automatically terminate in the event of its assignment
(as defined in the 1940 Act).
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<PAGE> 6
(c) Termination of this Agreement for any reason shall not affect rights of the
parties that have accrued prior thereto.
SECTION 11. NOTICES
(a) The Sub-Adviser agrees to promptly notify the Adviser of the occurrence of
any of the following events: (1) any change in the Portfolio's portfolio
manager; (2) the Sub-Adviser fails to be registered as an investment adviser
under the Advisers Act or under the laws of any jurisdiction in which the
Sub-Adviser is required to be registered as an investment adviser in order to
perform its obligations under this Agreement; (3) the Sub-Adviser is the subject
of any action, suit, proceeding, inquiry or investigation at law or in equity,
before or by any court, public board or body, involving the affairs of the
Portfolio; or (4) any change in control of the Sub-Adviser.
(b) Any notice given hereunder shall be in writing and may be served by being
sent by telex, facsimile or other electronic transmission or sent by registered
mail or by courier to the address set forth below for the party for which it is
intended. A notice served by mail shall be deemed to have been served seven days
after mailing and in the case of telex, facsimile or other electronic
transmission twelve hours after dispatch thereof. Addresses for notice may be
changed by written notice to the other party.
If to the Adviser:
Ohio National Investments, Inc.
P.O. Box 237
Cincinnati, Ohio 45201
Fax No. (513) 794-4506
With a copy to:
Joseph P. Brom, President
Ohio National Investments, Inc.
P.O. Box 237
Cincinnati, Ohio 45201
If to the Sub-Adviser:
David M. Elliott, Vice President
Robertson Stephens & Company
555 California Street
San Francisco, California 94104
Fax No. (415) 676-2574
With a copy to:
Dana K. Welch, Esq.
Robertson Stephens & Company
555 California Street
San Francisco, California 94104
SECTION 12. ARBITRATION
The parties waive their right to seek remedies in court, including any right to
a jury trial. The parties agree that any dispute between the parties arising out
of, relating to, or in connection with, this
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<PAGE> 7
Agreement, shall be resolved exclusively by arbitration to be conducted only in
the county and state of the principal office of the Adviser at the time of such
dispute in accordance with the rules of the American Arbitration Association
("AAA") applying the laws of Ohio. The parties agree that such arbitration shall
be conducted by a retired judge who is experienced in dispute resolution
regarding the securities industry, that discovery shall not be permitted except
as required by the rules of AAA, that the arbitration award shall not include
factual findings or conclusions of law, and that no punitive damages shall be
awarded. The parties understand that any party's right to appeal or to seek
modification of any ruling or award of the arbitrator is severely limited. Any
award rendered by the arbitrator shall be final and binding, and judgment may be
entered upon it in any court of competent jurisdiction in the county and state
of the principal office of the Adviser at the time the award is rendered or as
otherwise provided by law.
SECTION 13. DELIVERY OF INFORMATION
The Adviser acknowledges that it has received the Sub-Adviser's brochure
required to be delivered under the Advisers Act (including the information in
Part II of the Sub-Adviser's Form ADV). If the Adviser received such information
less than forty-eight hours prior to signing this Agreement, this Agreement may
be terminated by the Adviser without penalty within five business days from the
effective date. The Sub-Adviser agrees to deliver annually without charge the
Sub-Adviser's brochure required by the Advisers Act and any and all amendments
to its Form ADV whenever filed.
SECTION 14. USE OF NAME
The Sub-Adviser hereby agrees that the Adviser may use the Sub-Adviser's name
and logo in its marketing or advertising materials, provided that the
Sub-Adviser has reviewed and approved any such materials prior to their use.
SECTION 15. ENTIRE AGREEMENT; SEVERABILITY
This Agreement is the entire agreement of the parties and supersedes all prior
or contemporaneous written or oral negotiations, correspondence, agreements and
understandings regarding the subject matter hereof. The invalidity or
unenforceability of any provision hereof shall in no way affect the validity or
enforceability of any and all other provisions hereof.
SECTION 16. NO THIRD-PARTY BENEFICIARIES
Neither party intends for this Agreement to benefit any third-party not
expressly named in this Agreement.
SECTION 17. 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.
SECTION 18. APPLICABLE PROVISIONS OF LAW
The Agreement shall be subject to all applicable provisions of law, including,
without limitation, the applicable provisions of the 1940 Act, and to the extent
that any provisions herein contained conflict with any such applicable
provisions of law, the latter shall control.
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<PAGE> 8
SECTION 19. COUNTERPARTS
This Agreement may be entered into in any number of counterparts, each of which
when so executed and delivered shall be deemed an original, but all such
counterparts shall together constitute one and the same instrument.
IN WITNESS WHEREOF this Agreement has been executed by the parties hereto as of
the day and year first above written.
OHIO NATIONAL INVESTMENTS, INC.
By:
---------------------------------
Joseph P. Brom, President
ROBERTSON STEPHENS INVESTMENT MANAGEMENT, L.P.
By:
---------------------------------
George R. Hecht, President
Accepted and Agreed:
OHIO NATIONAL FUND, INC.
By:
---------------------------------
John J. Palmer, President
8
<PAGE> 1
Exhibit 5(j)
SUBADVISORY AGREEMENT
---------------------
This Subadvisory Agreement (this "Agreement") is entered into as of the first
day of May, 1998, by and between OHIO NATIONAL INVESTMENTS, INC., an Ohio
corporation(the "Adviser") and FEDERATED INVESTMENT COUNSELING, a Delaware
business trust ("FIC").
WHEREAS, the Adviser has entered into an advisory agreement dated May
1, 1996, (the "Advisory Agreement") with OHIO NATIONAL FUND, INC., a Maryland
corporation (the "Company"), pursuant to which the Adviser provides portfolio
management services to the HIGH INCOME BOND PORTFOLIO, EQUITY INCOME PORTFOLIO
and BLUE CHIP PORTFOLIO (the "Funds"), three series of the Company;
WHEREAS, the Advisory Agreement provides that the Adviser may delegate
any or all of its portfolio management responsibilities under the Advisory
Agreement to one or more subadvisers; and
WHEREAS, the Adviser and the Board of directors (the "Board") of the
Company desire to retain FIC to render portfolio management services in the
manner and on the terms set forth in this Agreement.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
set forth in this Agreement, the Adviser and FIC agree as follows:
1. APPOINTMENT OF SUBADVISER. The Adviser hereby appoints FIC as subadviser for
each of the Funds and authorizes FIC, in its discretion and without prior
consultation with the Adviser, to buy, sell, lend and otherwise trade in any
stocks, bonds, instruments, financial contracts and other investment assets
("Securities") on behalf of the Funds. Subject to the supervision of the Adviser
and the Board, FIC will manage the investment operations of the Funds and the
composition of the Funds' respective portfolios, including the purchase,
retention and disposition of, and exercise of all rights pertaining to, the
Securities comprising the Funds. FIC may invest the Funds in such proportions of
stocks, bonds, instruments, financial contracts, cash and other investment
assets as FIC shall determine, and may dispose of Securities without regard to
the length of time the Securities have been held, the resulting rate of
portfolio turnover or any tax considerations, provided that all investments
shall conform with:
(a) the Funds' investment objectives, policies, limitations,
procedures and guidelines set forth in the documents listed on
Schedule 1 to this Agreement;
(b) any additional objectives, policies or guidelines established
by the Adviser or by the Board that have been furnished in
writing to FIC;
<PAGE> 2
(c) the provisions of Section 851 of the Internal Revenue Code
("IRC") applicable to "regulated investment companies";
(d) the diversification requirements specified in Section 817(h)
of the IRC, and the regulations thereunder; and
(e) the provisions of the Investment Company Act of 1940 (the
"1940 Act") and the rules and regulations thereunder
applicable to the Funds.
2. REPRESENTATIONS AND WARRANTIES.
(a) FIC hereby represents and warrants to the Adviser that: (i) it
is a business trust duly formed and validly existing under the
laws of Delaware, (ii) it is duly authorized to execute and
deliver this Agreement and to perform its obligations
hereunder and has taken all necessary action to authorize such
execution, delivery and performance, (iii) it is registered
with the Securities and Exchange Commission ("SEC") as an
investment adviser under the Investment Advisers Act of 1940
(the "Advisers Act") and is registered or licensed as an
investment adviser under the laws of all jurisdictions in
which its activities require it to be so registered or
licensed, except where the failure to be so licensed would not
have a material adverse effect on its business and (iv) it has
furnished to the Adviser true and complete copies of all the
documents listed on Schedule 2 to this Agreement.
(b) The Adviser hereby represents and warrants to FIC that: (i) it
is a corporation duly formed and validly existing under the
laws of Ohio, (ii) it is duly authorized to execute and
deliver this Agreement and to perform its obligations
hereunder and has taken all necessary action to authorize such
execution, delivery and performance, (iii) it is registered
with the SEC as an investment adviser under the Advisers Act
and is registered or licensed as an investment adviser under
the laws of all jurisdictions in which its activities require
it to be so registered or licensed, except where the failure
to be so licensed would not have a material adverse effect on
its business and (iv) it has furnished to FIC true and
complete copies of all the documents listed on Schedule 1 to
this Agreement.
3. INFORMATION AND REPORTS.
(a) The Adviser will promptly notify FIC of any material change in
any of the documents listed on Schedule 1 to this Agreement
and will provide FIC with copies of any such modified
document. The Adviser will also provide FIC with a list, to
the best of the Adviser's knowledge, of all affiliated persons
of Adviser (and any affiliated person of such an affiliated
person) and will promptly update the list
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<PAGE> 3
whenever the Adviser becomes aware of any additional
affiliated persons.
(b) FIC will maintain books and records relating to its management
of the Funds under its customary procedures and in compliance
with applicable regulations under the 1940 Act and the
Advisers Act. All such records pertaining to the Funds shall
be the property of the Company and FIC will permit the
Adviser, the Company and the SEC to inspect such books and
records at all reasonable times during normal business hours,
upon reasonable notice. Prior to each Board meeting, FIC will
provide the Adviser and the Board with reports regarding its
management of the Funds during the interim period, in such
form as may be mutually agreed upon by FIC and the Adviser.
FIC will also provide the Adviser with any information
regarding its management of the Fund required for any
shareholder report, amended registration statement or
prospectus supplement filed by the Company with the SEC.
4. CONDITIONS TO AGREEMENT. FIC's and the Adviser's obligations under this
Agreement are subject to the satisfaction of the following conditions precedent:
(a) Receipt by FIC of a certificate of an officer of the Company
stating that (i) this Agreement and the Advisory Agreement
have been approved by the vote of a majority of the directors,
who are not interested persons of FIC or the Adviser, cast in
person at a meeting of the Board called for the purpose of
voting on such approval, and (ii) this Agreement and the
Advisory Agreement have been approved by the vote of a
majority of the outstanding voting securities of each of the
Funds;
(b) Receipt by FIC of certified copies of instructions from the
Company to its custodian designating the persons specified by
FIC as "Authorized Persons" under the Company's custody
agreement;
(c) The Company's execution and delivery of a limited power of
attorney in favor of FIC, in a form mutually agreeable to FIC,
the Adviser and the Board;
(d) Receipt by FIC of Board resolutions, certified by an officer
of the Company, adopting all procedures and guidelines
required by any exemptive order listed on Schedule 2 to this
Agreement; and
(e) Any other documents, certificates or other instruments that
FIC or the Adviser may reasonable request from the Company.
5. COMPENSATION. For the services provided under this Agreement, the Adviser
will pay to FIC a fee at an annual rate of (a) 0.50% of the first $30 million,
0.40% of the next $20 million, 0.30% of the next $25 million and 0.25% of the
High Income
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<PAGE> 4
Bond Portfolio's assets in excess of $75 million and (b) 0.50% of the first $35
million, 0.35% of the next $65 million and 0.25% of the average daily net assets
in excess of $100 million of each of the Equity Income Portfolio and the Blue
Chip Portfolio. Such fees will accrue daily and will be paid monthly. If this
Agreement is effective for only a portion of a month, the fees will be prorated
for the portion of such month during which this Agreement is in effect.
6. ALLOCATION OF TRANSACTIONS AND BROKERAGE.
(a) To the extent consistent with applicable law, FIC may
aggregate purchase or sell orders for each of the Funds with
contemporaneous purchase or sell orders of the other Funds or
of other clients of FIC or its affiliated persons. In such
event, allocation of the Securities so purchased or sold, as
well as the expenses incurred in the transaction, will be made
by FIC in the manner FIC considers to be the most equitable
and consistent with its and its affiliates' fiduciary
obligations to the Funds and to such other clients. The
Adviser hereby acknowledges that such aggregation of orders
may not result in a more favorable price or lower brokerage
commissions in all instances.
(b) FIC will place purchase and sell orders for the Funds with or
through such banks, brokers, dealers, futures commission
merchants or other firms dealing in Securities ("Brokers") as
it determines, which may include Brokers that are affiliated
persons of FIC, provided such orders are exempt from the
provisions of Section 17(a), (d) and (e) of the 1940 Act. FIC
will use its best efforts to obtain execution of transactions
for the Funds at prices which are advantageous to the Funds
and at commission rates that are reasonable in relation to the
services received. FIC may, however, select Brokers on the
basis that they provide brokerage or research services or
research products to the Funds and/or other advisory clients
of FIC and its affiliated investment advisers as to which FIC
and those affiliated investment advisers exercise investment
discretion. In selecting Brokers, FIC may also consider the
reliability, integrity and financial condition of the Broker,
and the size of and difficulty in executing the order.
(c) To the extent consistent with applicable law, and subject to
review by the Board, FIC may pay a Broker an amount of
commission for effecting a Securities transaction in excess of
the amount of commission or dealer spread another Broker would
have charged for effecting that transaction, if FIC determines
in good faith that such amount of commission was reasonable in
relation to the value of the brokerage and research products
and/or research services provided by such Broker to the Funds
and/or other clients of FIC and its affiliated investment
advisers as to which FIC and those affiliated investment
advisers exercise investment discretion. This determination,
with respect to brokerage and research services or research
products, may
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<PAGE> 5
be viewed in terms of either that particular transaction or
the overall responsibilities which FIC has with respect to the
Funds or its other clients as to which FIC exercises
investment discretion, and may include services or products
that FIC does not use in managing the Funds.
7. NONEXCLUSIVE AGREEMENT. The investment management services provided by FIC
hereunder are not to be deemed to be exclusive, and FIC shall be free to render
similar services to other advisers, investment companies, and other types of
clients.
8. LIMITATION OF LIABILITY. In the absence of willful misfeasance, bad faith or
gross negligence on the part of FIC, or of reckless disregard by FIC of its
obligations and duties hereunder, FIC, shall not be subject to any liability to
the Adviser, the Funds, the Company, any shareholder or the Funds, or to any
person, firm or organization. Subject to the above-stated standard of care, FIC
shall be liable for any taxes or tax penalties incurred by a Fund for any
failure of a Fund to qualify as a regulated investment company under Section 851
of the IRC as a result of FIC's management of the Funds. The Adviser is hereby
expressly put on notice of the limitation of liability as set forth in the
Declaration of Trust of FIC and agrees that the obligations assumed by FIC
pursuant to this Agreement will be limited in any case to FIC and its assets and
the Adviser shall not seek satisfaction of any such obligations from the
shareholders of FIC, the trustees of FIC, officers, employees or agents of FIC,
or any of them.
9. PRICING. The Adviser hereby acknowledges that FIC is not responsible for
pricing portfolio Securities, and that the Adviser and FIC will rely on the
pricing agent chosen by the Board of the Company for prices of Securities, for
any purposes.
10. LIMITED POWER OF ATTORNEY. Subject to any other written instructions of the
Adviser or the Company, FIC is hereby appointed the Company's agent and
attorney-in-fact for the limited purposes of executing account documentation,
agreements, contracts and other documents as FIC shall be requested by brokers,
dealers, counter parties and other persons in connection with its management of
the Funds' assets. The Adviser and the Company hereby ratify and confirm as good
and effectual, at law or in equity, all that FIC and its officers and employees,
may do in its capacity as attorney-in-fact. However, nothing herein shall be
construed as imposing a duty on FIC to act or assume responsibility for any
matters in its capacity as attorney-in-fact for the Company. Any person,
partnership, corporation or other legal entity dealing with FIC in its capacity
as attorney-in-fact hereunder for the Company is hereby expressly put on notice
that FIC is acting solely in the capacity as an agent of the Company and that
any such person, partnership, corporation or other legal entity must look solely
to the Company for enforcement of any claim against the Company as FIC assumes
no personal liability whatsoever for obligations of the Company entered into by
FIC in its capacity as attorney-in-fact for the Company. FIC agrees to provide
the Adviser and the Company with copies of any such agreements executed on
behalf of the Company.
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<PAGE> 6
11. TERM. This Agreement shall begin as of the date of its execution and shall
continue in effect for a period of two years from the date hereof and thereafter
for successive periods of one year, subject to the provisions for termination
and all of the other terms and conditions hereof if such continuance is
specifically approved at least annually in conformity with the requirements of
the 1940 Act; provided, however, that this Agreement may be terminated by one or
more of the Funds at any time, without the payment of any penalty, by the Board
or by vote of a majority of the outstanding voting securities (as defined in the
1940 Act) of one or more of the Funds, or by the Adviser or FIC at any time,
without the payment of any penalty, on not more than 60 days' nor less that 30
days' written notice to the other party. This Agreement will terminate
automatically as to any Fund in the event of its assignment (as defined in the
1940 Act) or upon the termination of the Adviser's Advisory Agreement as to that
Fund.
12. COUNTERPARTS. This Agreement may be executed simultaneously in two or more
counterparts, each of which will be deemed an original, but all of which
together will constitute one and the same instrument.
13. GOVERNING LAW AND CONSTRUCTION. This Agreement will be governed by and
construed in accordance with the laws of the Commonwealth of Pennsylvania. Any
terms defined in 1940 Act, and not otherwise defined in this Agreement, are used
with the same meaning in this Agreement.
14. USE OF FIC'S NAME. FIC hereby agrees that the Adviser, the Company, their
affiliated broker-dealers and affiliated life insurance companies may use FIC's
name and logo in advertising and marketing materials for the Company and any
variable insurance products through which one or more of the Funds may be
offered as funding vehicles, provided, that FIC has reviewed and approved any
such materials prior to their use.
15. MISCELLANEOUS. The captions in this Agreement are included for convenience
of reference only and in no way define or delimit any of the provisions hereof
or otherwise affect their construction or effect. If any provision of this
Agreement shall be held or made invalid by a court decision, statute, rule or
otherwise, the remainder of this Agreement shall not be affected thereby.
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IN WITNESS WHEREOF, the parties hereto have caused this instrument to be signed
on their behalf by their duly authorized officers as of the date first above
written.
For OHIO NATIONAL INVESTMENTS, INC.: For FEDERATED INVESTMENT COUNSELING:
- ---------------------------------- ------------------------------------
Date: Date:
- ----------------------- ------------------------
Accepted and Agreed by
OHIO NATIONAL FUND, INC.:
- ----------------------------------
DATE:
- ------------------------
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SCHEDULE 1 - FUND DOCUMENTATION
-------------------------------
1. The Company's Articles of Incorporation (as amended) and Bylaws.
2. 10 copies of the most current Prospectus and Statement of Additional
Information for each class of the Funds' shares.
3. Information regarding the Custody Agreement between the Company and
Star Bank, NA, as Custodian for the Funds' securities, including
information as to:
- the Funds' nominee,
- the Federal tax identification numbers of the Funds and their
nominee,
- all routing, bank, participant and account numbers and other
information necessary to provide proper instructions for transfer
and delivery of Securities to the Funds' accounts at the Custodian,
- the name, address, phone and fax numbers of the Custodian's
employees responsible for the Funds' accounts, and
- the Funds' pricing service and contact persons.
4. All policies, procedures, guidelines and codes adopted by the Board
under the 1940 Act or any regulation thereunder, including:
- Rule 10f-3 (relating to affiliated underwriting syndicates).
- Rule 17a-7 (relating to interfund transactions),
- Rule 17e-1 (relating to transactions with affiliated Brokers),
- Rule 17f-4 (relating to securities held in securities
depositories), and
- Rule 17j-1 (relating to a code of ethics).
5. All SEC exemptive orders applicable to the Funds, and all procedures
and guidelines adopted by the Board under the terms of such orders.
6. All procedures and guidelines adopted by the Board regarding:
- Repurchase agreements,
- Evaluating the liquidity of securities, include restricted
securities, municipal leases and stripped U.S. government
securities,
- Segregation of liquid assets in connection with reverse repurchase
agreements, firm commitments, standby commitments, short sales,
options and futures agreements,
- Derivative contracts and securities, and
- Affiliated bank procedures.
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7. Any master agreements that the Company has entered into on behalf of
the Funds, including:
- Master Repurchase Agreement,
- Master Futures and Options Agreements,
- Master Foreign Exchange Netting Agreements, and
- Master Swap Agreements.
8. CFTC Rule 4.5 letter.
9. Schedule of the current year's Board meetings, and the reports needed
by the Board.
10. Pricing and performance calculation entities and contact persons.
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SCHEDULE 2 - SUBADVISER DOCUMENTATION
-------------------------------------
1. Part II of FIC's Form ADV most recently filed with the SEC.
2. All exemptive orders granted by the SEC that will become applicable to
the Funds, and the procedures and guidelines followed by FIC in
accordance therewith.
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