<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. 39 / X /
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 / X /
Amendment No. 24
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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
Montgomery, 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)
___
75 days after filing pursuant to paragraph (a)(2)
___
X on May 1, 2000, 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
PART A.
INFORMATION REQUIRED IN A PROSPECTUS
<PAGE> 3
OHIO NATIONAL FUND, INC.
One Financial Way
Montgomery, Ohio 45242
Telephone 1-800-366-6654
Ohio National Fund, Inc. is a mutual fund with 21 separate investment
portfolios. The Fund's investment adviser is Ohio National Investments, Inc.
(the "Adviser"). Fund shares are offered only to separate accounts of The Ohio
National Life Insurance Company ("ONLI") and Ohio National Life Assurance
Corporation ("ONLAC"). The separate accounts use Fund shares as the underlying
investments for variable annuities issued by ONLI and variable life insurance
contracts issued by ONLAC. Some variable contracts do not permit allocations to
all the portfolios. Your variable contract prospectus identifies the portfolios
available under your contract.
The Fund's portfolios are:
<TABLE>
<CAPTION>
SEE
PAGE
----
<S> <C>
EQUITY PORTFOLIO 3
MONEY MARKET PORTFOLIO 4
BOND PORTFOLIO 5
OMNI PORTFOLIO 7
INTERNATIONAL PORTFOLIO 8
INTERNATIONAL SMALL COMPANY PORTFOLIO 9
CAPITAL APPRECIATION PORTFOLIO 10
SMALL CAP PORTFOLIO 11
AGGRESSIVE GROWTH PORTFOLIO 12
CORE GROWTH PORTFOLIO 13
GROWTH & INCOME PORTFOLIO 14
</TABLE>
<TABLE>
<CAPTION>
SEE
PAGE
----
<S> <C>
CAPITAL GROWTH PORTFOLIO 15
S&P 500 INDEX PORTFOLIO 16
HIGH INCOME BOND PORTFOLIO 18
EQUITY INCOME PORTFOLIO 19
BLUE CHIP PORTFOLIO 20
SOCIAL AWARENESS PORTFOLIO 21
STRATEGIC INCOME PORTFOLIO 23
FIRSTAR GROWTH & INCOME PORTFOLIO 24
RELATIVE VALUE PORTFOLIO 25
NASDAQ 100 INDEX PORTFOLIO 26
</TABLE>
- --------------------------------------------------------------------------------
THIS PROSPECTUS SETS FORTH CONCISELY THE INFORMATION ABOUT THE FUND YOU NEED TO
KNOW BEFORE YOU PURCHASE AN OHIO NATIONAL VARIABLE CONTRACT. KEEP THIS
PROSPECTUS FOR FUTURE REFERENCE.
THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED OR DISAPPROVED THESE
SECURITIES OR PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
- --------------------------------------------------------------------------------
TABLE OF CONTENTS
<TABLE>
<S> <C>
PAGE
----
Investment Policies and Primary Risks....................... 2
Risks of Certain Investments................................ 27
Fund Management............................................. 37
Purchase and Redemption of Fund Shares...................... 43
Dividends, Distributions and Taxes.......................... 44
Financial Highlights........................................ 45
</TABLE>
MAY 1, 2000
<PAGE> 4
INVESTMENT POLICIES AND PRIMARY RISKS
Each portfolio has its own investment objective which it seeks through its
separate investment policies. The differences in objectives and policies among
the portfolios affect the risks and returns of each portfolio. We can never be
sure that any portfolio will meet its investment objectives.
The investment objectives of each portfolio discussed below and in the Statement
of Additional Information may only be changed if approved by a majority vote of
that portfolio's shareholders. Each portfolio may invest 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 the portfolio's policies. The relatively high portfolio turnover
rates for the Small Cap, Aggressive Growth, Core Growth, Growth & Income,
Capital Growth and Strategic Income portfolios result in correspondingly higher
brokerage costs for 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. It also defines the debt ratings of
nationally recognized statistical rating organizations. It also gives
information about portfolio turnover rates for each portfolio.
RISKS
The primary risks of investing in each portfolio are:
Market risk refers to how much a security's price is likely to change in
response to changes in conditions in securities markets in general. Markets tend
to move in cycles with periods of rising prices and periods of falling prices.
They can decline for many reasons, including adverse political or economic
developments here or abroad, changes in investor psychology, or heavy
institutional selling. In the case of debt securities, changes in the overall
level of interest rates affect the security's price.
Financial risk refers to the ability of an issuer of a debt security, such as a
bond, to pay principal and/or interest on that security when due. It also refers
to the earnings stability and overall financial soundness of an issuer of an
equity security.
Sector risk is the possibility that a certain group or category of securities
may not perform as well as companies in other sectors or the market as a whole.
When a portfolio concentrates its investments in a limited range of securities,
it is more susceptible to any adverse economic, business or other developments
generally affecting companies in that sector.
All of the portfolios are subject to these risks. You could lose money, or have
less return than the market in general, in any of the portfolios.
Below are the most significant investment policies of each of the portfolios.
Following these are discussions of additional risks of investing in various
kinds of securities in which several or all of the portfolios may invest. Those
additional risks include the following, described on the pages indicated:
<TABLE>
<S> <C>
- - Mixed and shared funding.................................. 27
- - Small capitalization companies............................ 27
- - Foreign investments....................................... 28
- - Repurchase agreements..................................... 28
- - Convertible securities.................................... 29
- - Warrants.................................................. 30
- - Restricted and illiquid securities........................ 30
- - Hedging techniques........................................ 30
- - Options................................................... 30
- - Futures, options on futures and options on indexes........ 31
- - Foreign currency hedging transactions..................... 32
- - Zero-coupon and pay-in-kind debt securities............... 32
- - Lower-rated debt securities............................... 33
- - Special situations........................................ 34
- - Reverse repurchase agreements............................. 34
- - Leveraging (borrowing for investment purposes)............ 35
- - Securities lending........................................ 35
- - Short sales............................................... 36
- - When-issued and delayed delivery transactions............. 36
- - Real estate securities.................................... 36
</TABLE>
2
<PAGE> 5
EQUITY PORTFOLIO
The objective of the Equity portfolio is long-term growth of capital. This
portfolio invests primarily in common stocks or securities that may be converted
into, or carry the right to buy, common stocks. It may also invest in preferred
stocks, debt securities and readily marketable mortgage notes. This portfolio
invests primarily in securities listed on national securities exchanges. From
time to time it may also purchase securities traded in the over-the-counter
market and foreign securities.
This portfolio is managed by Legg Mason Fund Adviser, Inc. ("Legg Mason") under
a subadvisory agreement with the Adviser.
Legg Mason seeks long-term growth of capital using the "value" approach to
investing. It purchases securities that appear to be under-priced. These should
offer above-average potential for capital appreciation. It then tends to hold
those companies for a long time. This reduces portfolio turnover and brokerage
expenses.
Primary risks: This portfolio's primary risks are the market, financial and
sector risks described above.
The following bar chart and table indicate the risks of investing in the Equity
portfolio. They show changes in the portfolio's performance for each of the last
ten years and the portfolio's average annual returns for the last one year, five
years and ten years compared to those of a broad-based securities market index.
The portfolio's past performance does not necessarily indicate how it will
perform in the future. Variable contract charges are not reflected in the chart
or table. If they were, the returns would be less than those shown. Note that
the Adviser managed this portfolio until August 1999.
<TABLE>
<CAPTION>
'1990' -3.86
- ------ -----
<S> <C>
'91' 20.18
'92' 7.54
'93' 14.09
'94' 0.25
'95' 27.20
'96' 18.35
'97' 18.17
'98' 5.72
'99' 19.87
</TABLE>
During the period shown in the bar chart, the portfolio's highest return for a
quarter was 19.07%. That was the quarter ending on December 31, 1999. The lowest
return for a quarter was -12.47%. That was the quarter ending on September 30,
1998
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS ONE FIVE TEN
AS OF DECEMBER 31, 1999 YEAR YEARS YEARS
---------------------------- ----- ----- -----
<S> <C> <C> <C>
Equity Portfolio 19.87% 17.65% 12.35%
S&P 500 Index 21.04% 28.54% 18.20%
</TABLE>
3
<PAGE> 6
MONEY MARKET PORTFOLIO
The objective of the Money Market portfolio is maximum current income consistent
with preservation of principal and liquidity. This portfolio invests in high
quality money market instruments, including:
- - obligations maturing in 13 months or less and issued or guaranteed as to
principal and interest by the U.S. government, or any agency or authority
controlled or supervised by and acting as an instrumentality of the U.S.
government as authorized by Congress;
- - 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;
- - 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 below;
- - repurchase agreements with respect to any of these obligations;
- - 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; and
- - 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 portfolio may only invest in instruments that the Board of Directors
determines present minimal credit risks. Generally, this portfolio holds its
money market securities until maturity. They are then redeemed. The portfolio
normally will not realize any gain or loss on these securities. There may be
times when it is necessary or appropriate to sell securities before they mature
in order to shorten the portfolio's average maturity. This might be necessary to
meet redemptions or because of a reevaluation of an issuer's credit-worthiness.
Primary risks: The portfolio's rate of return varies as short-term interest
rates vary. The rate of return will also be affected by other factors such as
the portfolio's operating expenses and any sales of portfolio securities before
they mature. Generally, investment in this portfolio involves less market and
financial risk than an investment in any other portfolio of the Fund. However,
it is possible to lose money in this portfolio.
An investment in the Money Market portfolio is not a deposit of any bank. It is
not insured or guaranteed by the Federal Deposit Insurance Corporation or any
other government agency.
The following bar chart and table indicate the risks of investing in the Money
Market portfolio. They show changes in the portfolio's performance for each of
the last ten years and the portfolio's average annual returns for the last one
year, five years and ten years. The portfolio's past performance does not
necessarily indicate how it will perform in the future. Variable contract
charges are not reflected in the chart or table. If they were, the returns would
be less than those shown.
4
<PAGE> 7
MONEY MARKET PORTFOLIO
<TABLE>
<CAPTION>
'1990' 7.89
- ------ ----
<S> <C>
'91' 5.54
'92' 3.17
'93' 2.74
'94' 4.00
'95' 5.62
'96' 5.17
'97' 5.37
'98' 5.39
'99' 5.02
</TABLE>
During the period shown in the bar chart, the portfolio's highest return for a
quarter was 1.94%. That was the quarter ending on December 31, 1990. The lowest
return for a quarter was 0.64%. That was the quarter ending on June 30,1993. The
Money Market Portfolio's seven day yield ending December 31, 1999 was 5.72%.
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS ONE FIVE TEN
AS OF DECEMBER 31, 1999 YEAR YEARS YEARS
---------------------------- ---- ----- -----
<S> <C> <C> <C>
Money Market Portfolio 5.02% 5.31% 4.98%
</TABLE>
BOND PORTFOLIO
The objective of the Bond portfolio is a high level of income and opportunity
for capital appreciation consistent with preservation of capital. Investments
are primarily in intermediate-term and long-term fixed-income securities. These
generally have a remaining maturity of 5 years or more when purchased.
At least 80% of the portfolio's assets (other than cash and U.S. government
securities) will be invested in:
- - 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
- - corporate debt securities used for short-term investment and limited to the
top grade of these two rating services.
Up to 20% of the portfolio's assets may be invested in:
- - securities having high potential for capital appreciation;
- - preferred stocks, convertible securities and securities carrying warrants to
purchase equity securities; and
- - 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 million.
5
<PAGE> 8
This portfolio does not invest in common stocks directly. It may retain for
reasonable periods of time up to 10% of its total assets in common stocks
acquired by converting debt securities or exercising warrants acquired with debt
securities.
This portfolio normally includes debt securities with varying maturities
selected from various industries, depending upon the Adviser's evaluation of
current and anticipated market conditions.
Primary risks: The market values of debt instruments vary depending upon their
respective yields. Therefore, the portfolio's net asset value per share changes
from time to time as the general level of interest rates changes. Consequently,
an investment in this portfolio involves substantial market risk, but should
involve less financial risk than an investment in any of the portfolios that
invest primarily in common stocks.
The following bar chart and table indicate the risks of investing in the Bond
portfolio. They show changes in the portfolio's performance for each of the past
ten years and the portfolio's average annual returns for the last one year, five
years and ten years compared to those of a broad based securities market index.
The portfolio's past performance does not necessarily indicate how it will
perform in the future. Variable contract charges are not reflected in the chart
or table. If they were, the returns would be less than those shown.
BOND PORTFOLIO
<TABLE>
<CAPTION>
'1990' 7.82
- ------ ----
<S> <C>
'91' 12.96
'92' 7.54
'93' 10.69
'94' -3.84
'95' 18.90
'96' 3.71
'97' 9.28
'98' 5.22
'99' 0.58
</TABLE>
During the period shown in the bar chart, the portfolio's highest return for a
quarter was 6.68%. That was the quarter ending on June 30, 1995. The lowest
return for a quarter was -3.46% That was the quarter ending on March 31, 1994.
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS ONE FIVE TEN
AS OF DECEMBER 31, 1999 YEAR YEARS YEARS
---------------------------- ---- ----- -----
<S> <C> <C> <C>
Bond Portfolio 0.58% 7.35% 7.11%
Lehman Brothers Government/Corporate 0.39% 7.09% 7.26%
Bond Index -- Intermediate
</TABLE>
6
<PAGE> 9
OMNI PORTFOLIO
The objective of the Omni portfolio is a high level of long-term total return
consistent with preservation of capital by investing in stocks, bonds and money
market instruments. Total rate of return consists of current income including
dividends, interest and discount accruals and capital appreciation.
The Adviser adjusts the mix of investments from time to time among the various
market sectors (stocks, bonds and money market instruments) to capitalize on
perceived variations in return potential of changing market and economic
conditions. Sometimes the portfolio may not be invested in all three of the
market sectors.
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 stock sector, the Adviser seeks long-term growth of
capital. Current income is a secondary goal for the stock sector. Within the
bond sector, the Adviser seeks a high level of income. Capital appreciation,
consistent with capital preservation is a secondary goal of the bond sector.
Within the money market sector, the Adviser seeks maximum current income
consistent with the preservation of principal and liquidity.
Primary risks: Investment in this portfolio involves all of the risks associated
with investing in portfolios concentrating in each of the three sectors. There
is also the risk that at any given time this portfolio will invest too much or
too little in each sector. On the other hand, since the risk factors affecting
each sector are different, the risks of each sector often offset one another. As
a result, this portfolio is sometimes less volatile than a portfolio investing
only in stocks or bonds.
The following bar chart and table indicate the risks of investing in the Omni
portfolio. They show changes in the portfolio's performance for each of the past
ten years and the portfolio's average annual returns for the last one year, five
years and ten years compared to those of a broad-based securities market index.
The portfolio's past performance does not necessarily indicate how it will
perform in the future. Variable contract charges are not reflected in the chart
or table. If they were, the returns would be less than those shown.
OMNI PORTFOLIO
<TABLE>
<CAPTION>
'1990' 1.91
- ------ ----
<S> <C>
'91' 18.15
'92' 8.60
'93' 12.85
'94' -0.53
'95' 22.75
'96' 15.54
'97' 18.15
'98' 4.53
'99' 11.36
</TABLE>
During the period shown in the bar chart, the portfolio's highest return for a
quarter was 10.78%. That was the quarter ending on June 30, 1997. The lowest
return for a quarter was -16.16% That was the quarter ending on September 30,
1998.
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS ONE FIVE TEN
AS OF DECEMBER 31, 1999 YEAR YEARS YEARS
---------------------------- ----- ----- -----
<S> <C> <C> <C>
Omni Portfolio 11.36% 14.30% 11.09%
S&P 500 Index 21.04% 28.54% 18.20%
</TABLE>
7
<PAGE> 10
INTERNATIONAL PORTFOLIO
The objective of the International portfolio is total return on assets by
investing primarily in securities of foreign companies. A substantial part of
the portfolio's assets are stocks of established companies in economically
developed countries. Normally, most of its investments are in stocks denominated
in foreign currencies. It may invest in depository receipts. It may invest in
investment grade fixed-income securities and foreign government securities. It
may enter into forward commitments and foreign currency transactions. It may
maintain reserves in foreign or U.S. money market instruments. This portfolio is
managed by Federated Global Investment Management Corp. ("Federated Global")
under a subadvisory agreement with the Adviser.
In selecting portfolio securities, Federated Global uses its own quantitative
process to rank the future performance potential of companies. Federated Global
evaluates each company's earnings potential in light of its current valuation.
It then evaluates management quality. It may examine a company's suppliers,
customers and competitors. It also reviews the company's financial statements
and earnings forecasts. It evaluates the sustainability of the company's current
growth trends.
This portfolio enables you to diversify your investment by participating in
developed foreign economies and markets. If you also invest in domestic
portfolios, the International portfolio may reduce the overall volatility of
your investments because foreign countries often have business cycles, economic
policies and securities markets that do not move in harmony with those in the
United States.
Primary risks: In addition to financial risk, market risk and sector risk, this
portfolio is subject to the special risks of Foreign Investments described
following these brief summaries of each portfolio's investment policies.
The following bar chart and table indicate the risks of investing in the
International portfolio. They show changes in the portfolio's performance for
each of the complete calendar years since the portfolio's inception and the
portfolio's average annual returns for the last one year, five years and since
inception compared to those of a broad-based market index. The portfolio's past
performance does not necessarily indicate how it will perform in the future.
Variable contract charges are not reflected in the chart or table. If they were,
the returns would be less than those shown. Note that the subadviser for this
portfolio was Societe Generale Asset Management Corp. until the end of 1998.
INTERNATIONAL PORTFOLIO
<TABLE>
<S> <C>
'94' 8.07
'95' 12.10
'96' 14.48
'97' 2.11
'98' 3.88
'99' 67.40
</TABLE>
During the period shown in the bar chart, the portfolio's highest return for a
quarter was 57.21%. That was the quarter ending on December 31, 1999. The lowest
return for a quarter was -11.05% That was the quarter ending on September 30,
1998.
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS ONE FIVE SINCE
AS OF DECEMBER 31, 1999 YEAR YEARS 4/30/93
---------------------------- ----- ----- -------
<S> <C> <C> <C>
International Portfolio 67.40% 17.91% 18.39%
Morgan Stanley Capital International 26.96% 12.83% 12.02%
Europe, Australia, Far East Index
</TABLE>
8
<PAGE> 11
INTERNATIONAL SMALL COMPANY PORTFOLIO
The objective of the International Small Company portfolio is long-term growth
of capital by investing primarily in equity securities of foreign companies
having a market capitalization at time of purchase of $1.5 billion or less. Any
income received from investments is incidental. The portfolio invests in
companies located throughout the world, in both developed economies and emerging
markets. Investments will also include interests in entities such as limited
partnerships, limited liability companies and business trusts. These foreign
entities often issue securities comparable to common or preferred stock. This
portfolio is managed by Federated Global under a subadvisory agreement with the
Adviser.
Investments in foreign small companies enable you to further diversify the
investments you have in foreign markets. Price changes of small companies do not
always follow those of larger companies.
Primary risks: Generally, the prices of small company securities tend to be more
volatile and present more risk than those of larger companies. This is
especially true in the short term. In addition to financial risk, market risk
and sector risk, this portfolio is subject to the special risks of Foreign
Investments and Small Capitalization Companies described following these brief
summaries of each portfolio's investment policies.
In selecting portfolio securities, Federated Global uses its own quantitative
process to rank the future performance potential of companies. Federated Global
evaluates each company's earnings potential in light of its current valuation.
It then evaluates management quality. It may examine a company's suppliers,
customers and competitors. It also reviews the company's financial statements
and earnings forecasts. It evaluates the sustainability of the company's current
growth trends.
The following bar chart and table indicate the risks of investing in the
International Small Company portfolio. They show changes in the portfolio's
performance for each of the complete calendar years since the portfolio's
inception and the portfolio's average annual returns for the last year and since
inception compared to those of a broad-based market index. The portfolio's past
performance does not necessarily indicate how it will perform in the future.
Variable contract charges are not reflected in the chart or table. If they were,
the returns would be less than those shown. Note that the subadviser for this
portfolio was Societe Generale Asset Management Corp. until the end of 1998. In
1999, the portfolio's investment policies were substantially changed and its
name was changed from the "Global Contrarian" portfolio.
INTERNATIONAL SMALL COMPANY PORTFOLIO
<TABLE>
<S> <C>
'96' 10.52
'97' 11.67
'98' 3.53
'99' 108.51
</TABLE>
During the period shown in the bar chart, the portfolio's highest return for a
quarter was 46.35%. That was the quarter ending on December 31, 1999. The lowest
return for a quarter was -11.62% That was the quarter ending on September 30,
1998.
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS ONE SINCE
AS OF DECEMBER 31, 1999 YEAR 3/31/95
---------------------------- ------ -------
<S> <C> <C>
International Small Company Portfolio 108.51% 25.53%
Morgan Stanley Capital International
Europe, Australia, Far East Index 26.96% 13.11%
</TABLE>
9
<PAGE> 12
CAPITAL APPRECIATION PORTFOLIO
The objective of the Capital Appreciation portfolio is to seek long-term growth
of capital. Current income is a secondary objective. This portfolio is managed
by Jennison Associates LLC ("Jennison") under a subadvisory agreement with the
Adviser.
This portfolio invests primarily in common stocks of established companies with
either current or emerging earnings growth not fully appreciated or recognized
by the market. Jennison seeks companies having an attractive trade-off between
good earnings, growth prospects and low valuation characteristics.
The portfolio's focus is on mid-sized and large companies with two distinct
characteristics:
(1) Stocks of companies out of favor with investors, but expected by
Jennison to experience a dynamic earnings cycle over the next 12 to 18
months because of -
- corporate restructuring
- new product development
- industry cycle turns
- management's increased focus on shareholder value and/or
(2) Companies currently delivering good growth characteristics but which
are, in Jennison's view, under-priced by the market because of --
- short-term earnings disappointments relative to the market's
expectations and/or
- market uncertainty that the company can sustain its current
earnings growth.
Primary risks: A particular risk of this portfolio's approach is that some
stocks that Jennison perceives to be under-valued by the market may not
sufficiently appreciate in price during the time those stocks are held by the
portfolio.
The following bar chart and table indicate the risks of investing in the Capital
Appreciation portfolio. They show changes in the portfolio's performance for
each of the complete calendar years since the portfolio's inception and the
portfolio's average annual returns for the last year and since inception
compared to those of a broad-based market index. The portfolio's past
performance does not necessarily indicate how it will perform in the future.
Variable contract charges are not reflected in the chart or table. If they were,
the returns would be less than those shown. Note that the subadviser for this
portfolio was T. Rowe Price Associates, Inc. until the end of 1999.
CAPITAL APPRECIATION PORTFOLIO
<TABLE>
<S> <C>
'95' 20.90
'96' 14.13
'97' 15.19
'98' 5.91
'99' 6.46
</TABLE>
10
<PAGE> 13
During the period shown in the bar chart, the portfolio's highest return for a
quarter was 10.57%. That was the quarter ending on June 30, 1999. The lowest
return for a quarter was -2.64% That was the quarter ending on September 30,
1998.
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS ONE FIVE SINCE
AS OF DECEMBER 31, 1999 YEAR YEARS 5/1/94
- ---------------------------- ------ ------ ------
<S> <C> <C> <C>
Capital Appreciation
Portfolio 6.46% 13.01% 12.27%
S&P 500 Index 21.04% 28.54% 25.66%
</TABLE>
SMALL CAP PORTFOLIO
The objective of the Small Cap portfolio is maximum capital growth. The
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 the portfolio's assets invested in common stocks of companies with
market capitalizations of less than $1.5 billion. However it may also invest in
larger companies if they appear to present better prospects for capital growth.
This portfolio may invest up to 30% of its assets in foreign securities. This
portfolio is managed by Founders Asset Management LLC ("Founders") under a
subadvisory agreement with the Adviser.
Investments in both this portfolio and one or more portfolios investing
primarily in larger companies enable you to diversify your investments. Price
changes of small companies do not always follow those of larger companies.
Primary risks: Generally, the prices of small company securities tend to be more
volatile and present more risk than those of large companies. This is especially
true in the short term. The special risks of investing in Small Capitalization
Companies are described following these brief summaries of each portfolio's
investment policies.
The following bar chart and table indicate the risks of investing in the Small
Cap portfolio. They show changes in the portfolio's performance for each of the
complete calendar years since the portfolio's inception and the portfolio's
average annual returns for the last year and since inception compared to those
of a broad-based market index. The portfolio's past performance does not
necessarily indicate how it will perform in the future. Variable contract
charges are not reflected in the chart or table. If they were, the returns would
be less than those shown.
SMALL CAP PORTFOLIO
<TABLE>
<S> <C>
'95' 31.15
'96' 16.06
'97' 8.47
'98' 10.57
'99' 106.46
</TABLE>
During the period shown in the bar chart, the portfolio's highest return for a
quarter was 44.53%. That was the quarter ending on December 31, 1999. The lowest
return for a quarter was -27.98% That was the quarter ending on September 30,
1998.
11
<PAGE> 14
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS ONE FIVE SINCE
AS OF DECEMBER 31, 1999 YEAR YEARS 5/1/94
- ---------------------------- -------- ------ ------
<S> <C> <C> <C>
Small Cap Portfolio 106.46% 31.13% 31.40%
Russell 2000 Index 21.26% 16.70% 14.65%
</TABLE>
AGGRESSIVE GROWTH PORTFOLIO
The objective of the Aggressive Growth portfolio is long-term capital growth.
The portfolio invests in a variety of securities that the subadviser believes
have attractive growth opportunities. The portfolio normally emphasizes equity
securities selected for their growth potential. However, it may invest in any
type of security that the subadviser believes has the potential for capital
appreciation. The portfolio may invest most or all of its assets in common
stocks, preferred stocks, securities that are convertible into common or
preferred stocks, and warrants. At times, the portfolio may have a substantial
exposure to foreign securities. The portfolio may also invest up to 35% of its
assets in non-investment grade debt securities (known as junk bonds). The
portfolio may also invest in options, futures, forwards or other types of
derivatives for hedging purposes or to seek to enhance total return, or in
special situations. This portfolio is managed by Janus Capital Corporation
("Janus") under a subadvisory agreement with the Adviser.
Janus generally uses a "bottom up" approach in selecting investments for the
portfolio. Janus seeks to identify individual companies with earnings growth
potential that may not yet be recognized by the market at large. It makes this
assessment by looking at companies one at a time, regardless of size, country of
organization, place of business activities or other similar selection criteria.
Janus does not try to allocate foreign investments among particular countries or
geographic regions. Realization of income is not a significant consideration in
choosing the portfolio's investments.
Primary risks: The portfolio's main risk is that the value of its investments
might decrease in response to the activities of individual companies or in
response to general market and/or economic conditions. The special risks of
investing in Small Capitalization Companies, Foreign Investments, Options,
Futures and Options on Futures, Lower-Rated Debt Securities, and Special
Situations are described following these brief summaries of each portfolio's
investment policies.
The following bar chart and table indicate the risks of investing in the
Aggressive Growth portfolio. They show changes in the portfolio's performance
for each of the complete calendar years since the portfolio's inception and the
portfolio's average annual returns for the last year and since inception
compared to those of a broad-based market index. The portfolio's past
performance does not necessarily indicate how it will perform in the future.
Variable contract charges are not reflected in the chart or table. If they were,
the returns would be less than those shown. Note that the subadviser for this
portfolio was Strong Capital Management, Inc. until the end of 1999.
12
<PAGE> 15
AGGRESSIVE GROWTH PORTFOLIO
<TABLE>
<S> <C>
'96' -0.65
'97' 12.53
'98' 7.84
'99' 5.76
</TABLE>
During the period shown in the bar chart, the portfolio's highest return for a
quarter was 26.19%. That was the quarter ending on December 31, 1999. The lowest
return for a quarter was -17.01% That was the quarter ending on September 30,
1998.
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS ONE SINCE
AS OF DECEMBER 31, 1999 YEAR 3/31/95
---------------------------- ----- -------
<S> <C> <C>
Aggressive Growth Portfolio 5.76% 11.00%
Russell 2000 Index 21.26% 16.54%
</TABLE>
CORE GROWTH PORTFOLIO
The objective of the Core Growth portfolio is long-term capital appreciation.
The portfolio invests primarily in stocks of large, medium and small companies
that the subadviser believes have strong prospects for earnings growth and
long-term capital appreciation. The subadviser 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. This portfolio is
managed by Pilgrim Baxter & Associates, Ltd. ("Pilgrim Baxter") under a
subadvisory agreement with the Adviser.
In managing this portfolio, Pilgrim Baxter uses both quantitative and
fundamental processes. They focus on quality earnings growth. Pilgrim Baxter
begins by making a list of rapidly growing companies having desired quality
characteristics. Pilgrim Baxter derives this list of companies by using its
proprietary software and research models. These models incorporate attributes of
successful growth (such as positive earnings surprises, upward earnings estimate
revisions, and accelerating sales and earnings growth). Then, using fundamental
research, Pilgrim Baxter evaluates each company's earnings quality and assesses
the sustainability of the company's current growth trends. Through this highly
disciplined process, Pilgrim Baxter tries to find investments with strong growth
characteristics.
Primary risks: This portfolio's investments in small and medium capitalization
companies may experience greater price volatility than portfolios investing
primarily in larger, more established companies. The special risks of investing
in Small Capitalization Companies are described following these brief summaries
of each portfolio's investment policies. If you consider investing in this
portfolio, you need to maintain a long-term investment perspective because the
companies in which this portfolio invests will experience stock price
volatility.
13
<PAGE> 16
The following bar chart and table indicate the risks of investing in the Core
Growth portfolio. They show changes in the portfolio's performance for each of
the complete calendar years since the portfolio's inception and the portfolio's
average annual returns for the last year and since inception compared to those
of a broad-based market index. The portfolio's past performance does not
necessarily indicate how it will perform in the future. Variable contract
charges are not reflected in the chart or table. If they were, the returns would
be less than those shown.
CORE GROWTH PORTFOLIO
<TABLE>
<S> <C>
'97' -3.08
'98' 8.82
'99' 104.95
</TABLE>
During the period shown in the bar chart, the portfolio's highest return for a
quarter was 56.29%. That was the quarter ending on December 31, 1999. The lowest
return for a quarter was -21.47% That was the quarter ending on September 30,
1998.
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS ONE SINCE
AS OF DECEMBER 31, 1999 YEAR 1/3/97
---------------------------- ------- ------
<S> <C> <C>
Core Growth Portfolio 104.95% 29.40%
Russell 3000 Index 20.89% 25.52%
</TABLE>
GROWTH & INCOME PORTFOLIO
The objective of the Growth & Income portfolio is long-term total return. The
portfolio invests primarily in equity and debt securities, focusing on small-and
mid-cap companies that offer the potential for capital appreciation, current
income, or both. This portfolio is managed by RS Investment Management Co. LLC
("RSIM") under a subadvisory agreement with the Adviser.
The portfolio normally invests the majority of its assets in common stocks,
convertible securities, bonds, and notes. Although the portfolio focuses on
companies with market capitalizations of up to $5 billion, it may invest in
larger companies. The portfolio may engage in short sales of securities expected
to decline in price.
Primary risks: Small- and mid-cap companies may present greater opportunities
for investment return than do larger companies, but may also involve greater
risks. The special risks of investing in Small Capitalization Companies are
described following these brief summaries of each portfolio's investment
policies. To a large extent the same risk factors apply to investments in
mid-cap companies.
14
<PAGE> 17
The following bar chart and table indicate the risks of investing in the Growth
& Income portfolio. They show changes in the portfolio's performance for each of
the complete calendar years since the portfolio's inception and the portfolio's
average annual returns for the last year and since inception compared to those
of a broad-based market index. The portfolio's past performance does not
necessarily indicate how it will perform in the future. Variable contract
charges are not reflected in the chart or table. If they were, the returns would
be less than those shown.
GROWTH & INCOME PORTFOLIO
<TABLE>
<S> <C>
'97' 36.58
'98' 7.09
'99' 62.25
</TABLE>
During the period shown in the bar chart, the portfolio's highest return for a
quarter was 40.44%. That was the quarter ending on December 31, 1999. The lowest
return for a quarter was -13.33% That was the quarter ending on September 30,
1998.
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS ONE SINCE
AS OF DECEMBER 31, 1999 YEAR 1/3/97
---------------------------- ------ ------
<S> <C> <C>
Growth & Income Portfolio 62.25% 33.50%
Russell 2000 Index 21.26% 13.08%
</TABLE>
CAPITAL GROWTH PORTFOLIO
The objective of the Capital Growth portfolio is capital appreciation. It is
managed by RSIM under a subadvisory agreement with the Adviser. It invests in an
actively managed portfolio of equity securities (principally common stocks) of
small cap and mid cap 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.
Primary risks: Small and mid-size companies may present greater opportunities
for investment return than do larger companies. However, they also involve
greater risks. Up to 30% of this portfolio's assets may be invested in foreign
securities. The special risks of Foreign Investments and Small Capitalization
Companies are described following these brief summaries of each portfolio's
investment policies.
The following bar chart and table indicate the risks of investing in the Capital
Growth portfolio. They show changes in the portfolio's performance for each of
the complete calendar years since the portfolio's inception and the portfolio's
average annual returns for the last year and since inception compared to those
of a broad-based market
15
<PAGE> 18
index. The portfolio's past performance does not necessarily indicate how it
will perform in the future. Variable contract charges are not reflected in the
chart or table. If they were, the returns would be less than those shown.
CAPITAL GROWTH PORTFOLIO
<TABLE>
<CAPTION>
'99' 202.38
- ---- ------
<S> <C>
</TABLE>
During the period shown in the bar chart, the portfolio's highest return for a
quarter was 62.90%. That was the quarter ending on December 31, 1999. The lowest
return for a quarter was 4.22%. That was the quarter ending on September 30,
1999.
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS ONE SINCE
AS OF DECEMBER 31, 1999 YEAR 5/1/98
---------------------------- ------- -------
<S> <C> <C>
Capital Growth Portfolio.................................... 202.38% 107.06%
Russell 2000 Index.......................................... 21.26% 4.02%
</TABLE>
S&P 500 INDEX PORTFOLIO
The objective of the S&P 500 Index portfolio is total return approximating that
of the Standard & Poor's 500 Index ("S&P 500"(R)) including reinvestment of
dividends, at a risk level consistent with that of the S&P 500. It seeks this
objective by investing primarily in:
- - common stocks and other securities that need not be included among the 500
stocks in the S&P 500, and/or
- - S&P 500 stock index futures contracts hedged by investing in securities issued
or guaranteed by the U.S. government, its agencies or instrumentalities,
investment-grade corporate bonds and money market instruments.
This strategy is intended to replicate the performance of the S&P 500. However,
portfolio expenses reduce the portfolio's ability to exactly track the S&P 500.
There can be no assurance that the portfolio's investments will have the desired
effect.
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 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. The portfolio seeks to offset that risk by maintaining its
investments in U.S. government obligations, investment-grade corporate bonds and
money market instruments. The income from these investments tends to offset the
costs of the futures contracts.
16
<PAGE> 19
Primary risks: The risks involved with Hedging Techniques are described
following these brief summaries of each portfolio's investment policies. This
portfolio is subject to significant sector risk.
"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 S&P 500 Index 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. The Statement of
Additional Information contains more information about the S&P 500 Index.
The following bar chart and table indicate the risks of investing in the S&P 500
Index portfolio. They show changes in the portfolio's performance for each of
the complete calendar years since the portfolio's inception and the portfolio's
average annual returns for the last year and since inception compared to those
of a broad-based market index. The portfolio's past performance does not
necessarily indicate how it will perform in the future. Variable contract
charges are not reflected in the chart or table. If they were, the returns would
be less than those shown.
S&P 500 INDEX PORTFOLIO
<TABLE>
<S> <C>
'97' 31.75
'98' 30.00
'99' 25.63
</TABLE>
During the period shown in the bar chart, the portfolio's highest return for a
quarter was 22.27%. That was the quarter ending on December 31,1998 The lowest
return for a quarter was -9.78% That was the quarter ending on September 30,
1998.
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS ONE SINCE
AS OF DECEMBER 31, 1999 YEAR 1/3/97
---------------------------- ----- -------
<S> <C> <C>
S&P 500 Index Portfolio 25.63% 29.20%
S&P 500 Index 21.04% 24.55%
</TABLE>
17
<PAGE> 20
HIGH INCOME BOND PORTFOLIO
The objective of the High Income Bond portfolio is 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. Normally, the portfolio will not
invest more than 10% of its assets in equity securities. Lower rated debt
securities are subject to a greater risk of loss of principal and interest than
investments in higher rated bonds. You should carefully assess the risks
associated with this portfolio before investing.
This portfolio is managed by Federated Investment Counseling ("Federated
Investment") under a subadvisory agreement with the Adviser.
Low-rated debt securities have higher yields because of their greater
uncertainty of default. Federated Investment seeks to reduce this financial risk
through careful security selection and diversification by both company and
industry. Federated Investment looks for bonds offering superior potential
returns for the financial risk assumed. Federated Investment's analysis focuses
on the issuer's financial condition, competitive position and management
expertise. Federated Investment also considers current economic, market and
industry factors affecting the issuer. Federated Investment typically does not
consider interest rate risks because the prices of high yield bonds are
influenced much more by financial risks, including potential default, than by
changes in the general level of interest rates.
Fixed income securities in which the portfolio invests include 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
Federated Investment 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 likely to make it more difficult for the companies issuing the
bonds to make principal and interest payments than is the case with companies
issuing 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 its assets in foreign securities,
including those not publicly traded in the United States. The portfolio may also
invest in real estate investment trusts.
Primary risks: The special risks of investing in Lower Rated Debt Securities,
Convertible Securities and Real Estate Securities are described following these
brief summaries of each portfolio's investment policies. There is a relatively
higher risk that an issuer of low rated bonds will default by failing to pay
interest or principal when due. If that happens, the portfolio loses money.
Low-grade bonds are usually uncollateralized and they are subordinate to the
issuer's other outstanding debt.
18
<PAGE> 21
The following bar chart and table indicate the risks of investing in the High
Income Bond portfolio. They show changes in the portfolio's performance for each
of the complete calendar years since the portfolio's inception and the
portfolio's average annual returns for the last year and since inception
compared to those of a broad-based market index. The portfolio's past
performance does not necessarily indicate how it will perform in the future.
Variable contract charges are not reflected in the chart or table. If they were,
the returns would be less than those shown.
HIGH INCOME BOND PORTFOLIO
<TABLE>
<CAPTION>
'99' 1.95
- ---- ----
<S> <C>
</TABLE>
During the period shown in the bar chart, the portfolio's highest return for a
quarter was 2.80%. That was the quarter ending on December 31, 1999. The lowest
return for a quarter was - 2.70%. That was the quarter ending on September 30,
1999.
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS ONE SINCE
AS OF DECEMBER 31, 1999 YEAR 5/1/98
---------------------------- ---- ------
<S> <C> <C>
High Income Bond Portfolio.................................. 1.95% 1.10%
First Boston High Yield Index............................... 3.28% 0.10%
</TABLE>
EQUITY INCOME PORTFOLIO
The objective of the Equity Income portfolio is 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. The portfolio is
managed by Federated Investment under a subadvisory agreement with the Adviser.
Federated Investment performs a technical review of potential issuers. It
examines mostly companies with market capitalization over $1 billion which it
believes are trading at low valuation in relation to their historic market
prices and projected earnings. The portfolio's equity securities generally have
a history and expectation of paying increasing dividends.
Federated Investment performs traditional fundamental analysis to select
securities promising long-term value. It focuses on the current financial
condition of the issuer. It examines the issuer's product strength, competitive
position and management expertise. Federated Investment also considers current
economic, market and industry factors affecting the issuer. Federated Investment
uses the "value" style of investing. It selects securities with a comparatively
low volatility in share price relative to the overall market and which may
provide relatively high dividend income. With this style of investing, the
prices of portfolio securities may not always increase as rapidly as stocks
selected for their growth characteristics because Federated Investment's
investment approach is sector-neutral.
19
<PAGE> 22
The portfolio invests in convertible securities without regard to their rating.
Convertible securities are used because they typically offer high yields and
good potential for capital appreciation. 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.
Primary risks: Convertible securities may be subject to some of the same risks
as those inherent in junk bonds as described for the High Income Bond portfolio.
This portfolio may invest in foreign securities, and it may also engage in short
sales from time to time. The special risks of investing in Convertible
Securities and Foreign Investments, and engaging in Short Sales, are described
following these brief summaries of each portfolio's investment policies.
The following bar chart and table indicate the risks of investing in the Equity
Income portfolio. They show changes in the portfolio's performance for each of
the complete calendar years since the portfolio's inception and the portfolio's
average annual returns for the last year and since inception compared to those
of a broad-based market index. The portfolio's past performance does not
necessarily indicate how it will perform in the future. Variable contract
charges are not reflected in the chart or table. If they were, the returns would
be less than those shown.
EQUITY INCOME PORTFOLIO
<TABLE>
<CAPTION>
'99' 18.58
- ---- -----
<S> <C>
</TABLE>
During the period shown in the bar chart, the portfolio's highest return for a
quarter was 14.12%. That was the quarter ending on December 31, 1999. The lowest
return for a quarter was - 5.79%. That was the quarter ending on September 30,
1999.
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS ONE SINCE
AS OF DECEMBER 31, 1999 YEAR 5/1/98
---------------------------- ----- ------
<S> <C> <C>
Equity Income Portfolio..................................... 18.58% 15.50%
S&P 500 Index............................................... 21.04% 19.85%
</TABLE>
BLUE CHIP PORTFOLIO
The objective of the Blue Chip portfolio is growth of capital and income by
investing primarily in securities of high quality companies. The portfolio is
managed by Federated Investment under a subadvisory agreement with the Adviser.
Federated Investment selects investments for this portfolio 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 sales, earnings, and/or market capitalization.
20
<PAGE> 23
Federated Investment performs traditional fundamental analysis to select
securities promising long-term value. It focuses on the current financial
condition of the issuer. It examines the issuer's product strength, competitive
position and management expertise. Federated Investment also considers current
economic, market and industry factors affecting the issuer. Federated Investment
uses the "value" style of investing. It selects securities that are trading at
low valuation in relation to their historic market prices and projected growth.
With this style of investing, the prices of portfolio securities may not always
increase as rapidly as stocks selected for their growth attributes.
The portfolio invests in common stocks, preferred stocks, 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 Federated Investment to be of comparable quality. If a security loses its
rating or has its rating reduced after the portfolio has purchased it, Federated
Investment does not need to drop the security from the portfolio, but that will
be considered. Bonds rated Baa, BBB or better are considered investment grade.
Those rated below that have some speculative characteristics.
Primary risks: This portfolio's primary risks are market risk and sector risk,
described on page 2.
The following bar chart and table indicate the risks of investing in the Blue
Chip portfolio. They show changes in the portfolio's performance for each of the
complete calendar years since the portfolio's inception and the portfolio's
average annual returns for the last year and since inception compared to those
of a broad-based market index. The portfolio's past performance does not
necessarily indicate how it will perform in the future. Variable contract
charges are not reflected in the chart or table. If they were, the returns would
be less than those shown.
BLUE CHIP PORTFOLIO
<TABLE>
<CAPTION>
'99' 5.86
- ---- ----
<S> <C>
</TABLE>
During the period shown in the bar chart, the portfolio's highest return for a
quarter was 9.68%. That was the quarter ending on June 30, 1999. The lowest
return for a quarter was -10.54%. That was the quarter ending on September 30,
1999.
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS ONE SINCE
AS OF DECEMBER 31, 1999 YEAR 5/1/98
---------------------------- ----- ------
<S> <C> <C>
Blue Chip Portfolio......................................... 5.86% 5.19%
S&P 500 Index............................................... 21.04% 19.85%
</TABLE>
SOCIAL AWARENESS PORTFOLIO
The objective of the Social Awareness portfolio is long-term growth of capital.
It invests 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
21
<PAGE> 24
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 considers a company's record in:
- - quality and safety of its products and services,
- - environmental protection and enhancement,
- - employee relations, opportunities and safety,
- - consumer relations and protection,
- - community involvement, and
- - expectations for the creation of new jobs and economic development due to
anticipated company growth.
Each potential investment is also subject to the Adviser's standards of
investment analysis. As a matter of operating policy, 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. This policy
may be modified by the Board of Directors.
The Adviser monitors and responds to changes in business practices of the
companies selected for investment. In case of any adverse development, the
Adviser considers whether or not the portfolio's policies require it to sell its
position in that company. Any sale under those circumstances is, however,
subject to prudent market considerations.
Primary risks: This portfolio is susceptible to sector risk, described on page
2.
The following bar chart and table indicate the risks of investing in the Social
Awareness portfolio. They show changes in the portfolio's performance for each
of the complete calendar years since the portfolio's inception and the
portfolio's average annual returns for the last year and since inception
compared to those of a broad-based market index. The portfolio's past
performance does not necessarily indicate how it will perform in the future.
Variable contract charges are not reflected in the chart or table. If they were,
the returns would be less than those shown.
<TABLE>
<S> <C>
'97' 25.63
'98' -22.41
'99' 17.69
</TABLE>
During the period shown in the bar chart, the portfolio's highest return for a
quarter was 18.74%. That was the quarter ending on June 30, 1997. The lowest
return for a quarter was -27.95% That was the quarter ending on September 30,
1998.
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS ONE SINCE
AS OF DECEMBER 31, 1999 YEAR 1/3/97
---------------------------- ------ -------
<S> <C> <C>
Social Awareness Portfolio 17.69% 4.72%
Russell 2000 Index 21.26% 13.08%
</TABLE>
22
<PAGE> 25
STRATEGIC INCOME PORTFOLIO
The objective of the Strategic Income portfolio is high current income by
investing at least 80% of its assets in income producing securities. At least
40% of its assets are invested in a core asset group of U.S. government and
corporate fixed income securities, and 5% to 20% of its assets are invested in
each of the following sectors:
- - foreign bonds,
- - real estate investment trusts (REITs),
- - domestic equity securities,
- - money market instruments, and
- - the following structured fixed income securities:
- mortgage backed securities
- collateralized mortgage obligations (CMOs),
- adjustable rate mortgage securities (ARMS), and
- asset-backed securities.
This portfolio is managed by Firstar Bank, N.A. ("Firstar") under a subadvisory
agreement with the Adviser. Firstar selects the core assets based on the outlook
for interest rates and their yield in relation to other fixed income securities
of similar quality and maturity. They only include investment grade bonds. These
are bonds rated Baa or higher by Moody's, or BBB or higher by S&P or Fitch or
which, if unrated, are deemed by Firstar to be of comparable quality.
The foreign bonds are issued by non-U.S. companies and governments. They are
investment grade, are denominated in currencies other than U.S. dollars and may
include American Depository Receipts and International Depository Receipts. The
portfolio may also invest in shares of investment companies that invest
primarily in foreign bonds.
REITs include equity or mortgage REITs 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:
- - 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 individual profits of over $100
million, 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");
- - obligations of the U.S. government or its agencies or instrumentalities;
- - repurchase agreements, and
- - other unrated short-term instruments deemed by Firstar 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.
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<PAGE> 26
Primary risks: The special risks of investing in Foreign Investments and Real
Estate Securities, and engaging in Short Sales, are described following these
brief summaries of each portfolio's investment policies. This portfolio is
particularly susceptible to sector risks, described on page 2.
The following bar chart and table indicate the risks of investing in the
Strategic Income portfolio. They show changes in the portfolio's performance for
each of the complete calendar years since the portfolio's inception and the
portfolio's average annual returns for the last year and since inception
compared to those of a broad-based market index. The portfolio's past
performance does not necessarily indicate how it will perform in the future.
Variable contract charges are not reflected in the chart or table. If they were,
the returns would be less than those shown.
<TABLE>
<S> <C>
'97' 9.02
'98' -1.42
'99' -4.81
</TABLE>
During the period shown in the bar chart, the portfolio's highest return for a
quarter was 4.68%. That was the quarter ending on June 30, 1997. The lowest
return for a quarter was -2.28% That was the quarter ending on December 31,
1999.
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS ONE SINCE
AS OF DECEMBER 31, 1999 YEAR 1/3/97
---------------------------- ------ -------
<S> <C> <C>
Strategic Income Portfolio -4.81% 0.68%
Lehman Brothers Government/Corporate 0.39% 5.49%
Bond Index -- Intermediate
</TABLE>
FIRSTAR GROWTH & INCOME PORTFOLIO
The objective of the Firstar Growth & Income portfolio is both reasonable income
and long-term capital appreciation. The portfolio invests in income producing
securities including dividend-paying common and preferred stocks as well as
fixed-income securities in order to generate reasonable income. Capital
appreciation is sought through investments in common stocks, particularly those
of medium to large sized domestic companies whose stock is paying dividends. No
more than 25% of the portfolio will be invested in foreign securities. The
portfolio is managed by Firstar Investment Research Management Company, LLC
("FIRMCO") under a subadvisory agreement with the Adviser.
Primary risks: The primary risks of this portfolio are market risk, financial
risk and sector risk.
24
<PAGE> 27
The following bar chart and table indicate the risks of investing in the Firstar
Growth & Income portfolio. They show changes in the portfolio's performance for
each of the complete calendar years since the portfolio's inception and the
portfolio's average annual returns for the last year and since inception
compared to those of a broad-based market index. The portfolio's past
performance does not necessarily indicate how it will perform in the future.
Variable contract charges are not reflected in the chart or table. If they were,
the returns would be less than those shown. Note that, until May 1999, the
subadviser for this portfolio was Firstar, an affiliate of FIRMCO. The portfolio
was called the Stellar portfolio when managed by Firstar and its investment
policies were substantially different at that time.
FIRSTAR GROWTH & INCOME PORTFOLIO
<TABLE>
<S> <C>
'97' 9.70
'98' 2.92
'99' 1.76
</TABLE>
During the period shown in the bar chart, the portfolio's highest return for a
quarter was 8.50%. That was the quarter ending on December 31, 1999. The lowest
return for a quarter was -9.27% That was the quarter ending on September 30,
1999.
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS ONE SINCE
AS OF DECEMBER 31, 1999 YEAR 1/3/97
---------------------------- ----- ------
<S> <C> <C>
Firstar Growth & Income Portfolio 1.76% 4.75%
S&P 500 Index 21.04% 27.55%
</TABLE>
RELATIVE VALUE PORTFOLIO
The objective of the Relative Value portfolio is to obtain the highest total
return that is consistent with reasonable risk. The portfolio invests primarily
in stocks which Firstar believes will have low volatility, above-average yields,
and are undervalued relative to the stocks comprising the S&P 500. Unless it is
in a defensive position, at least 70% of the portfolio's assets will be invested
in common stocks of companies whose revenues are in the top 25% of their
industries. However, other factors, such as product position or market share,
will also be considered and may outweigh revenues.
The portfolio also invests in fixed income securities. These include:
- - convertible securities;
- - investment grade domestic corporate debt obligations that are rated or A or
higher by Moody's, S&P or Fitch; and
- - obligations of the U.S. government or its agencies or instrumentalities.
This portfolio is managed by Firstar under a subadvisory agreement with the
Adviser.
Primary risks: The primary risks of this portfolio are market risk, financial
risk and sector risk.
25
<PAGE> 28
The following bar chart and table indicate the risks of investing in the
Relative Value portfolio. They show changes in the portfolio's performance for
each of the complete calendar years since the portfolio's inception and the
portfolio's average annual returns for the last year and since inception
compared to those of a broad-based market index. The portfolio's past
performance does not necessarily indicate how it will perform in the future.
Variable contract charges are not reflected in the chart or table. If they were,
the returns would be less than those shown.
RELATIVE VALUE PORTFOLIO
<TABLE>
<S> <C>
'97' 28.28
'98' 20.72
'99' 7.43
</TABLE>
During the period shown in the bar chart, the portfolio's highest return for a
quarter was 21.27%. That was the quarter ending on December 31, 1998. The lowest
return for a quarter was -10.16% That was the quarter ending on September 30,
1998.
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS ONE SINCE
AS OF DECEMBER 31, 1999 YEAR 1/3/97
---------------------------- ----- ------
<S> <C> <C>
Relative Value Portfolio 7.43% 18.54%
S&P 500 Index 21.04% 27.55%
</TABLE>
NASDAQ 100 INDEX PORTFOLIO
The objective of the Nasdaq 100 Index portfolio is long-term growth of capital.
The portfolio invests primarily in stocks that are included in the Nasdaq 100(R)
Index. It may also invest in other securities whose performance is expected to
correlate to that of the Nasdaq 100 Index, including "Qubes." Qubes are
derivatives issued by the Nasdaq 100 Trust.
The portfolio does not attempt to hold all of the stocks represented in the
Nasdaq 100 Index. The Index is a modified capitalization-weighted index. While
it is composed of 100 of the largest non-financial companies listed on the
National Association of Securities Dealers Automated Quotation system, its
capitalization weighting gives a small number (less than 10) of the 100 stocks a
majority of the market value of the Index. Thus, the Adviser believes the
portfolio can replicate the Index without owning all 100 stocks. It is the
Adviser's policy generally to not invest more than 20% of the portfolio's assets
in the stock and other securities of any single issuer, even if that issuer
represents more than 20% of the Index.
The Nasdaq 100(R), Nasdaq 100 Index(R) and Nasdaq(R) are trade or service marks
of The Nasdaq Stock Market, Inc. ("Nasdaq"). The Adviser has licensed these
marks for the portfolio's use. Nasdaq has not passed on the portfolio's legality
or suitability. Nasdaq does not sponsor, endorse, sell or promote the portfolio.
NASDAQ MAKES NO WARRANTIES AND BEARS NO LIABILITY WITH RESPECT TO THE PORTFOLIO.
26
<PAGE> 29
Primary risks: Unlike the other portfolios, THE NASDAQ 100 INDEX PORTFOLIO IS A
NON-DIVERSIFIED FUND. This portfolio is not limited by the diversification
standards that restrict the other portfolios (as to at least 75% of their
assets) to not invest more than 5% of assets in the securities of any one
issuer. Several individual stocks represented in the Nasdaq 100 Index each
comprise substantially more than 5% of the market value of the Index. The
diversification standards of the other portfolios also prevent them from
investing more than 25% of their assets in any one industry. The Nasdaq 100
Index is predominated by issuers in the technology sector.
The portfolio's concentration among relatively few companies and its
concentration largely within a narrow range of related industries renders the
portfolio vulnerable to greater volatility than is likely to be experienced by
diversified portfolios. Changes in the prices of one or a few stocks can greatly
affect the net asset value of the portfolio, either up or down. For this reason,
investors should consider limiting their investments in this portfolio.
The portfolio invests mostly in small and mid-sized companies. The special risks
of investing in Small Capitalization Companies are described following these
brief summaries of each portfolio's investment policies.
This portfolio began its operations in May 2000.
RISKS OF CERTAIN INVESTMENTS
The kinds of investments described on the following pages can be made by most of
the portfolios. These risk considerations and others are further explained in
the Statement of Additional Information.
MIXED AND SHARED FUNDING
In the future, it could possibly be disadvantageous for both variable life and
variable annuity separate accounts to invest in the Fund. ONLI, ONLAC and the
Fund do not currently foresee any such disadvantage. The Board of Directors will
monitor events to identify any material conflict between variable life and
variable annuity contract owners. If that happens, the Board will determine what
action, if any, should be taken. This action could include the withdrawal of a
separate account from participation in the Fund. Material conflicts could result
from such things as:
- - changes in state insurance law;
- - changes in federal income tax law;
- - changes in the investment management of any portfolio; or
- - 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. ONLI's and
ONLAC's separate accounts are the sole Fund shareholders. ONLI and ONLAC will
vote the Fund shares attributable to your contracts as you direct.
SMALL CAPITALIZATION COMPANIES
Small capitalization companies generally have a market capitalization of less
than $1.5 billion. (Market capitalization is the number of shares outstanding
for a company multiplied times the price per share.) These companies are often
still in their developing stage. Small companies are often selected for
investment in a portfolio because the Adviser or subadivser believes the
companies can achieve rapid growth in sales, earnings and share prices. They
often do not pay dividends.
Small companies usually present more share price volatility and risk than do
larger, more established companies. Smaller and newer companies often have
limited product lines, markets and financial resources. Their management often
depends on one or a few key people. Their securities may be subject to more
abrupt or erratic price changes
27
<PAGE> 30
than those of larger companies or the market averages. Often, there is less
publicly available information for smaller companies than for larger ones. Small
company securities are sometimes less liquid than those of larger companies.
This is because they have fewer shares outstanding and they trade less often.
That might make it harder for a portfolio to buy or sell significant amounts of
a small company's shares, or those transactions might impact the shares' market
prices unfavorably.
All of the portfolios except Money Market and Blue Chip can invest in small
companies. The International Small Company, Small Cap, Aggressive Growth, Core
Growth, Growth & Income, Capital Growth and Nasdaq 100 Index portfolios may
concentrate their investments in these securities
FOREIGN INVESTMENTS
Investments in foreign securities involve risks not normally associated with
investing in domestic issuers. These include:
- - changes in currency rates
- - currency exchange control regulations
- - seizure or nationalization of companies
- - political or economic instability
- - unforeseen taxes
- - difficulty of obtaining or interpreting financial information under foreign
accounting standards
- - trading in markets that are less efficient than in the U.S.
- - lack of information regarding securities issuers
- - imposition of legal restraints affecting investments
- - reversion to closed markets or controlled economies
- - national economies based on a few industries or dependent on revenue from
certain commodities
- - local economies and/or markets vulnerable to global conditions
- - volatile inflation rates and debt burdens
- - less regulatory protection.
Many of these factors are more likely to occur in emerging or developing
countries and may cause abrupt and severe price declines. These factors are
generally less typical of the developed counties.
In selecting foreign investments, the Adviser and subadvisers seek to minimize
these risks. They select investments in securities appearing to have
characteristics and qualities comparable to the kinds of domestic securities in
which the portfolio may invest.
All of the portfolios can invest in foreign securities, although foreign
securities purchased by the Money Market portfolio must be denominated in U.S.
dollars and held in custody in the United States. The International and
International Small Company portfolios may be invested entirely in foreign
securities.
REPURCHASE AGREEMENTS
Under a repurchase agreement, a portfolio purchases a security and obtains a
simultaneous commitment from the seller to repurchase the security at a mutually
agreed upon price and date. The seller is a member bank of the Federal Reserve
System or a government securities dealer recognized by the Federal Reserve
Board. This may also be viewed as
28
<PAGE> 31
a loan of money by the portfolio to the seller. The resale price is normally
greater than the purchase price and reflects an agreed upon interest rate. The
rate is effective for the period of time the portfolio is invested in the
agreement. It is not related to the coupon rate on the purchased security.
Although repurchase agreements carry certain risks not associated with direct
investments in securities, the Fund enters into repurchase agreements only with
financial institutions believed by the Adviser or subadviser to present minimal
credit risks in accordance with criteria established by the Fund's Board of
Directors. The Adviser and subadvisers review and monitor the creditworthiness
of sellers under the Board's general supervision. The Fund only enters into
repurchase agreements under master repurchase agreements that require that all
transactions are fully collateralized and that the Fund have possession of the
collateral. 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 amount invested in each
agreement. The portfolio only pays for such securities upon physical delivery or
evidence of book entry transfer to the account of the Fund's custodian.
If the seller were to default, the portfolio might incur a loss if the value of
the collateral securing the repurchase agreement declines. A portfolio might
also incur disposition costs when liquidating the collateral. If the seller goes
bankrupt, the portfolio might have a delay in obtaining its collateral. The
portfolio would then have a loss if the collateral declines in value.
All of the portfolios may invest in repurchase agreements. The period of these
repurchase agreements is usually short, from overnight to one week. At no time
will a portfolio invest in repurchase agreements for more than one year. These
transactions enable a portfolio to earn a return on temporarily available cash.
The Strategic Income portfolio may invest more than 10% of its assets in
agreements maturing in more than seven days.
CONVERTIBLE SECURITIES
Convertible securities can be exchanged for or converted into common stock.
These include 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. Conversely, as interest rates decline, the market value
of convertible securities may increase. The unique investment characteristic of
convertible securities is the right to be exchanged for the issuer's common
stock. This 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. Most convertible
securities will not reflect quite as much capital appreciation as their
underlying common stocks. When the underlying common stock price goes down, the
value of the convertible security tends to decline to about the level of the
yield-to-maturity basis of straight nonconvertible debt of similar quality. This
is often called "investment value." The convertible security then may not
experience the same decline as the underlying common stock.
Many convertible securities sell at a premium over their conversion values. The
conversion value is the number of shares of common stock to be received upon
conversion multiplied by the current market price of the stock. This premium is
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. The premium may not be recovered if this appreciation
potential is not realized.
All of the portfolios other than the Money Market portfolio can purchase
convertible securities.
29
<PAGE> 32
WARRANTS
Warrants are options to purchase common stock at a specific price. They are
valid for a specific period of time. They usually sell at a premium above the
market value of the optioned common stock. Warrants may have a life ranging from
less that a year to twenty years or they may even be perpetual. However, after
they expire they are worthless. 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 in 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.
All of the portfolios other than the Money Market portfolio can purchase
warrants.
RESTRICTED AND ILLIQUID SECURITIES
Restricted securities are subject to restrictions on resale under federal
securities law. Each of the Money Market, Bond and Omni portfolios may invest up
to 10% of its assets in illiquid securities. Each of the other portfolios may
invest up to 15% in illiquid securities. Under criteria established by the Board
of Directors, certain restricted securities are deemed to be liquid. The
Directors consider the following criteria in determining the liquidity of
restricted securities:
- - the frequency of trades and quotes for the security;
- - the number of dealers willing to purchase or sell the security, and the number
of other potential buyers;
- - dealer undertakings to make a market in the security; and
- - the nature of the security and the nature of the marketplace trades.
HEDGING TECHNIQUES
Each portfolio (other than the Money Market portfolio) may, primarily for
hedging purposes, buy and sell various kinds of put and call options, financial
futures contracts, index futures contracts, forward foreign currency contracts,
foreign currency options and foreign currency futures contracts. The use for
hedging purposes of options and futures contracts on securities and foreign
currencies involves certain risks. These include:
- - whether the Adviser or subadviser can predict correctly the direction of
changes in stock prices, interest rates, currency prices and other economic
factors,
- - whether there is enough market liquidity to permit a portfolio to close out
positions taken, and
- - whether price changes in portfolio securities subject to a hedge follow price
changes in securities or currencies underlying options and futures contracts.
None of these can be assured. A more complete discussion of the risks involved
with hedging techniques is contained in the Statement of Additional Information.
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, a
portfolio may write call options when the Adviser or subadviser believes that
the option premium will yield a greater return to the portfolio than might occur
on the underlying security during the life of the option.
30
<PAGE> 33
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 that 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. This will
reduce the loss the portfolio would have otherwise suffered. Therefore, a
portfolio may purchase put options when the Adviser or subadviser believes that
the market price of the underlying security is more likely to decrease than
increase or as a hedge against a decrease in the price of a security held by the
portfolio.
Whenever a portfolio enters into a closing transaction, the portfolio will
realize a gain (or loss) if the premium plus commission it pays for a closing
call option is less (or greater) than the premium it received on the sale of the
original call option. Conversely, the portfolio will realize a gain (or loss) if
the premium it receives, less commission, for a closing put option is greater
(or less) than the premium it paid for the original put option. The portfolio
will realize a gain if a call option it has written lapses unexercised, and a
loss if a put option it has purchased lapses unexercised.
FUTURES, 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 a portfolio to close a
position when it wants to do so. Then, besides continuing to be subject to the
margin requirements, the portfolio would have a gain or loss to the extent that
the price change in the securities subject to the hedge differed from the
position. To limit this risk, a portfolio 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 partly due to temporary activity
of speculators in the futures markets. To the extent there is not a perfect
correlation, changes in the value of the portfolio's assets would not be offset
by a change in the value of the contracts and options it had bought.
When a portfolio buys an option on a futures contract or an option on a
financial index, its risk of loss is limited to the amount of the premium paid.
There is no such limit when a portfolio enters into a futures contract. However,
the loss on an options contract would exceed that of a futures contract if the
change in the value of the index is not more than the premium paid for the
option.
The success of a hedge depends upon the Adviser's or subadviser's ability to
predict increases or decreases in the relevant financial index. If this
expectation proves incorrect, the portfolio could suffer a loss and it 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 change in a futures
contract may result in an immediate big gain or loss. A purchase or sale of a
futures contract may result in losses in excess of the amount invested in the
futures contract. However, the portfolio would presumably have sustained
comparable losses if, instead of the futures contract, it had invested in the
underlying financial instrument.
Most futures exchanges limit the amount of fluctuation permitted in futures
contract prices during a single trading day. The daily limit establishes the
maximum amount that the price of a futures contract may vary either up or down
from the previous day's settlement price. 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. It does not limit potential losses because the limit may
prevent the liquidation of unfavorable positions. Futures contract prices
sometimes move to the daily limit for several consecutive trading days
31
<PAGE> 34
with little or no trading. When this happens, futures cannot be liquidated
promptly and some futures traders have big losses.
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. Buyers and sellers of foreign currency
options and futures contracts are subject to the same risks previously described
for options and futures generally.
A forward contract involves an obligation to purchase or sell a specific
currency at a future date. This may be any fixed number of days from the date of
the contract as agreed upon by the parties. The price is set at the time of the
contract. This way a portfolio may protect against a possible loss 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. These contracts tend to
minimize the risk of loss due to the decline in the value of the hedged
currency. On the other hand, they tend to limit potential gains if the value of
that currency increases.
When a forward contract's delivery date arrives, the portfolio may either
deliver of the foreign currency or end its 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
has to deliver the foreign currency, it may have to obtain the currency by
selling securities.
It is impossible to forecast the market value of portfolio securities at the
expiration of the forward contract. Therefore, the portfolio may have to buy
more foreign currency on the spot market (and bear the expense of that purchase)
if the market value of the security is less than the amount of foreign currency
the portfolio is obligated to deliver. Conversely, the portfolio may have to
sell some currency on the spot market when its hedged security is sold if the
security's market value exceeds the amount of foreign currency the portfolio is
obligated to deliver.
Settlement of currency options and futures contracts for most currencies must
occur at a bank in the issuing nation. The ability to establish and close out
positions on such options requires 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. The use of foreign currency hedging
transactions might not 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 do not eliminate fluctuations in the underlying prices
of the securities. They simply establish a rate of exchange for a future time.
ZERO-COUPON AND PAY-IN-KIND DEBT SECURITIES
Zero-coupon securities (or "step-ups") in which a portfolio may invest are debt
obligations. They are generally issued at a discount and payable in full at
maturity. They generally 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. They
are subject to greater market value fluctuations from changing interest rates
than interest-paying debt obligations of comparable maturities which make
current distributions of interest. As a result, the net asset value of a
portfolio investing in zero-coupon and pay-in-kind securities may fluctuate more
than shares of other mutual funds investing in interest-paying securities with
similar maturities.
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All of the portfolios other than the Money Market portfolio can invest in these
securities. The Capital Appreciation and High Income Bond portfolios may invest
more than 10% of their assets in these.
LOWER-RATED DEBT SECURITIES
Certain portfolios may purchase lower-rated debt securities, sometimes referred
to as "junk bonds." These are rated BB or lower by S&P or Fitch, or Ba or lower
by Moody's). As an example, the S&P lower bond ratings are described below.
Other ratings are in the Appendix to the Statement of Additional Information.
Only the High Income Bond portfolio invests more than 35% of its assets in junk
bonds. The Capital Appreciation, Aggressive Growth and Equity Income portfolios
may invest more than 10% of their assets in these securities.
When bonds have lower ratings it is more likely that adverse changes in the
issuer's financial condition and/or in general economic conditions, or an
unanticipated rise in interest rates, may impair the issuer's ability to pay the
bond's interest and principal. If an issuer cannot pay interest and principal on
time, it is likely to make the bond's values more volatile and it could limit
the portfolio's ability to sell its securities at prices approximating the
values that portfolio had placed on such securities. If there is no liquid
trading market for its securities, a portfolio may not be able to establish the
fair market value of such securities. The rating assigned to a security by
Moody's, S&P or Fitch does not necessarily reflect an assessment of the
volatility of the security's market value or liquidity.
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 changes in the ability of an
issuer to pay 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. The Adviser or
subadviser will monitor the investment to determine if continuing to hold the
security will meet the portfolio's investment objective.
Issuers of lower-rated securities are often highly leveraged. During an economic
downturn or during sustained periods of rising interest rates, issuers may be
unable to service their debt obligations. 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. Sometimes lower-rated securities are issued to
raise funds in connection with the acquisition of a company in a "leveraged
buy-out" transaction. The highly leveraged capital structure of those issuers
may make them especially vulnerable to adverse changes in economic conditions.
Under adverse market or economic conditions or adverse changes in the issuer's
financial condition it may be harder for a portfolio to sell lower-rated
securities or the portfolio may have to sell the securities at a loss. In many
cases, such securities may be purchased in private placements. Then they are
subject to restrictions on resale as a matter of contract or under securities
laws. Then it may also be harder to determine the fair value of the securities
or to compute a portfolio's net asset value. In order to enforce its rights in
the event of a default, a portfolio may have to take possession of and manage
assets securing the issuer's obligations on such securities. This might increase
the portfolio's operating expenses and adversely affect the portfolio's net
asset value. A portfolio may also be unable to enforce its rights and it may
incur greater costs in enforcing its rights if an issuer enters bankruptcy.
Trading opportunities are more limited for low rated securities. This may make
it more difficult for a portfolio to sell or buy these securities at a favorable
price or time. This lack of liquidity also increases the risk of price
volatility.
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A portfolio may hold securities that give the issuer the option to "call," or
redeem, its securities. If an issuer redeems 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.
<TABLE>
<S> <C>
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.
</TABLE>
The ratings from "BB" to "CCC" may be modified by adding a plus (+) or minus (-)
to show relative standing within the major rating categories.
SPECIAL SITUATIONS
Portfolios may invest in special situations. These arise when the portfolio
manager believes the securities of a particular issuer are likely to appreciate
in value because of a development that will give the issuer an advantage over
its competitors. Developments creating a special situation might include a new
product or new process, a technological breakthrough, a management change or
other extraordinary corporate event, or difference in market supply of and
demand for the security. The portfolio's performance could suffer if the
anticipated development in a special situation investment does not occur or if
it does not attract the expected attention of later investors.
REVERSE REPURCHASE AGREEMENTS
Under a reverse repurchase agreement, a portfolio sells a debt security to a
bank or broker-dealer. The portfolio 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 its interest and principal payments on the
security. At the agreed future date, the
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portfolio repurchases the security by paying back 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. Until the portfolio pays back the full amount, it maintains
in a segregated custodial account assets with a value equal to the amount of the
commitment to repurchase, including interest. In some agreements, there is no
agreed-upon repurchase date and interest payments are calculated daily. These
are often based on the prevailing overnight repurchase rate. The Securities and
Exchange Commission views these transactions as collateralized borrowings by the
portfolio. The portfolios must abide by their investment restrictions for
borrowing money.
All of the portfolios other than the Money Market portfolio may invest in
reverse repurchase agreements. Only the International, International Small
Company, Capital Appreciation, Aggressive Growth, High Income Bond, Equity
Income, Blue Chip and Strategic Income portfolios may invest more than 10% of
their assets in reverse repurchase agreements.
LEVERAGING (BORROWING FOR INVESTMENT PURPOSES)
The Capital Appreciation, Aggressive Growth, Growth & Income, Strategic Income,
Capital Growth, High Income Bond, Equity Income and Blue Chip portfolios may
borrow for investment purposes. This is generally unsecured, except to the
extent the portfolios enter into reverse repurchase agreements. The Investment
Company Act of 1940 requires these portfolios to maintain continuous asset
coverage three times the amount borrowed. Asset coverage means total assets
including borrowings less liabilities exclusive of borrowings. If the asset
coverage declines as a result of market fluctuations or other reasons, a
portfolio may have to sell some of its holdings within three days to reduce the
debt and restore the asset coverage to the required three times. From an
investment standpoint, it may hurt the portfolio to sell securities then.
Borrowing may increase a portfolio's net income. However, it also adds risk. For
example it 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 it had not borrowed. Conversely, if the income from the assets
retained with borrowed funds does not cover the cost of borrowing, the net
income of that portfolio will be less than if borrowing were not used.
Therefore, the amount available for distribution as dividends will be reduced.
The portfolios also may have to maintain minimum average balances in connection
with borrowing or they may have 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.
SECURITIES LENDING
A portfolio (other than the Money Market portfolio) may increase its total
return by lending its securities. It may do this if:
- - the loan is secured 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;
- - the portfolio may at any time call the loan and regain the securities loaned;
- - the portfolio will receive any interest or dividend paid on the loaned
securities; and
- - the aggregate market value of any securities loaned never exceeds one-third
(or such other limit as the Board of Directors may establish) of the total
assets of the portfolio.
The risks in lending portfolio securities include the possible delay in
recovering the securities or possible loss of rights in the collateral if the
borrower fails financially. Before a portfolio enters into a loan, the Adviser
or subadviser considers all relevant facts and circumstances. These include the
creditworthiness of the borrower. Voting rights on the loaned securities pass to
the borrower. However, the portfolio retains the right to call the loans at any
time on
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reasonable notice. The portfolio will do so if the holders of such securities
are asked to vote upon or consent to matters materially affecting the
investment.
SHORT SALES
The Aggressive Growth, Strategic Income, High Income Bond, Equity Income and
Blue Chip portfolios may engage in short sales. In these transactions, the
portfolio sells a security it does not own because the subadviser expects the
market value of that security to decline. To complete such a transaction, the
portfolio must borrow the security to make delivery to the buyer. The portfolio
then has to replace the borrowed security by purchasing it at the current market
price. The price may then be more or less than the price at which the portfolio
sold the security. Until the security is replaced, the portfolio has to pay the
lender amounts equal to any dividends or interest that accrue during the period
of the loan. The portfolio also may have to pay a premium to borrow the
security. This increases the cost of the security sold. The broker keeps the
proceeds of the short sale to the extent necessary to meet margin requirements
until the portfolio closes its short position.
The frequency of short sales that the portfolios engage in varies under
different market conditions. 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 a portfolio's net assets. This is a
nonfundamental operating policy and it may be changed without shareholder
approval. 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. Portfolios may not sell short more than 2%
of the outstanding securities of any class of an issuer.
A portfolio 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, a portfolio will realize a
gain if the security declines in price between those dates. This result is the
opposite of what you 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 a
portfolio may have to pay in a short sale.
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. There are no fees or other expenses, other than
normal transaction costs. However, the portfolio must set aside enough of its
liquid assets to pay for the securities to be purchased. 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 the portfolio would have to set aside more than 20% of the total
value of its assets. The Money Market portfolio does not engage in these
transactions.
REAL ESTATE SECURITIES
Real estate investments generally represent a substantial portion of the
Strategic Income portfolio. The High Income Bond portfolio may also have
significant amounts of real estate investments. The real estate investments are
limited to securities secured by real estate or interests therein and securities
issued by companies that invest in real estate or interests therein. These
investments may have risks associated with direct ownership of real estate.
These risks 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 (REITs) are pooled investment vehicles that invest
primarily in income producing real estate, or real estate related loans or
interests. REITs are often not diversified. They are subject to the risk of
financing projects. They may also be subject to heavy cash flow dependency,
defaults by borrowers and self-liquidation. REIT's often depend upon the skills
of property managers.
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REITs are generally classified as equity REITs, mortgage REITs, or hybrid REITs.
Equity REITs invest the majority of their assets directly in real property and
derive income primarily from the collection of rents. Equity REITs can also
realize capital value. Mortgage REITs invest the majority of their assets in
real estate mortgages and derive income from the collection of interest
payments. Hybrid REITs invest their assets in both real property and mortgages.
A REIT is not taxed on income distributed to owners if the REIT complies with
Internal Revenue Code requirements.
REITs may subject a portfolio to certain risks associated with the direct
ownership of real estate. These risks include:
- - possible declines in the value of real estate;
- - possible lack of availability of mortgage funds;
- - extended vacancies of properties;
- - risks related to general and local economic conditions;
- - overbuilding;
- - increases in competition, property taxes and operating expenses;
- - changes in zoning laws;
- - costs resulting from the clean-up of, and liability to third parties for
damages resulting from, environmental problems;
- - casualty or condemnation losses;
- - uninsured damages from floods, earthquakes or other natural disasters;
- - limitations on and variations in rents; and
- - changes in interest rates.
Investing in REITs involves certain unique risks in addition to those risks
associated with investing in the real estate industry in general. Equity REITs
may be affected by changes in the value of the underlying property owned by the
REITs. Mortgage REITs may be affected by the quality of any credit extended or
changes in interest rates.
FUND MANAGEMENT
The Adviser is a wholly-owned subsidiary of ONLI. The Adviser uses ONLI's
investments personnel and administrative systems. It is located at One Financial
Way, Montgomery, Ohio 45242. It has served as the Fund's investment adviser
since May 1996. Before that, the Fund's investment adviser was O.N. Investment
Management Company, an indirect wholly-owned subsidiary of ONLI.
ONLI provides its investment personnel, systems and related services to the
Adviser at cost. This is done under a service agreement among ONLI, the Adviser
and the Fund. These services are paid for by the Adviser, not the Fund. The
Adviser provides portfolio management, investment advice and administrative
services to the Fund. This is done under an investment advisory agreement.
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INVESTMENT ADVISORY FEES
As compensation for the Adviser's services, the Fund pays the Adviser annual
fees on the basis of each portfolio's average daily net assets during the month
for which the fees are paid. The fees are based on the following schedule:
- - for the Equity portfolio, 0.80% of the first $500 million, and 0.75% of
average daily net assets over $500 million;
- - for each of the Bond, Omni and Social Awareness portfolios, 0.60% of the first
$100 million, 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
average daily net assets over $2 billion;
- - for the Money Market portfolio, 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 average daily net assets over $1 billion; (The Adviser
is presently waiving any of its fees for the Money Market portfolio in excess
of 0.25%)
- - for each of the International, Relative Value, Capital Growth, Blue Chip and
Firstar Growth & Income portfolios, 0.90% of each portfolio's average daily
net assets; (The Adviser is presently waiving any of its fees for the
International portfolio in excess of 0.85%)
- - For each of the Capital Appreciation, Small Cap, Aggressive Growth and
Strategic Income portfolios, 0.80% of each portfolio's average daily net
assets;
- - for the Core Growth portfolio, 0.95% of the first $150 million, and 0.80% of
average daily net assets over $150 million;
- - for the Growth & Income portfolio, 0.85% of the first $200 million, and 0.80%
of average daily net assets over $200 million;
- - for the S&P 500 Index portfolio 0.40% of the first $100 million, 0.35% of the
next $150 million, and 0.33% of average daily net assets over $250 million;
- - for the International Small Company portfolio, 1.00% of that portfolio's
average daily net assets, and
- - for each of the High Income Bond, Equity Income and Nasdaq 100 Index
portfolios, 0.75% of each portfolio's average daily net assets.
In 1999, the Fund paid the Adviser at the following effective rates:
<TABLE>
<S> <C> <C> <C>
Equity Portfolio....................... 0.64% Growth & Income Portfolio.............. 0.85%
*Money Market Portfolio................. 0.25% Capital Growth Portfolio............... 0.90%
Bond Portfolio......................... 0.60% S&P 500 Index Portfolio................ 0.38%
Omni Portfolio......................... 0.54% High Income Bond Portfolio............. 0.75%
*International Portfolio................ 0.85% Equity Income Portfolio................ 0.75%
International Small Company 0.90% Blue Chip Portfolio.................... 0.90%
Portfolio............................
Capital Appreciation Portfolio......... 0.80% Social Awareness Portfolio............. 0.60%
Small Cap Portfolio.................... 0.80% Strategic Income Portfolio............. 0.80%
Aggressive Growth Portfolio............ 0.80% Firstar Growth & Income Portfolio...... 0.90%
Core Growth Portfolio.................. 0.95% Relative Value Portfolio............... 0.90%
Nasdaq 100 Index Portfolio............. N/A
</TABLE>
* Without the voluntary fee waiver, the rate would have been 0.30% for the Money
Market portfolio and 0.90% for the International portfolio.
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MANAGEMENT OF PORTFOLIOS
The Adviser's president is Christopher Carlson. He is a vice president and
senior investment officer of ONLI. He oversees the management of the Money
Market, Bond, Omni, S&P 500 Index, Social Awareness and Nasdaq 100 Index
portfolios. Mr. Carlson has a bachelor's degree in psychology from the
University of Richmond and a master of business administration degree in finance
from the University of Cincinnati. He has been an investment officer of ONLI
since 1993. For twelve years before that he was involved in developing
commercial real estate.
Michael Boedeker is a vice president of the Adviser. He 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,
both from Indiana University. Mr. Boedeker is vice president and senior
investment officer of ONLI. He has been responsible for fixed income securities
for ONLI since 1989. Before that, he 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.
Douglas Hundley is a vice president of the Adviser. He has been the portfolio
manager of the S&P 500 Index portfolio since 1997. He has managed the Omni
portfolio since 1999. He has managed the Nasdaq 100 Index portfolio since 2000.
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. Mr. Hundley has been an investment officer
of ONLI since 1995. For more than seven years before to that he was an assistant
portfolio manager for the Metropolitan Life Insurance Co. and was a financial
analyst for Firstar for a year.
Stephen Komrska is a vice president of the Adviser. He has been the portfolio
manager of the Social Awareness portfolio since 1999. He has been an investment
officer of ONLI and has managed equity securities for ONLI and the Adviser since
1997. For six years before that he was a fixed income securities analyst and
high yield bond portfolio manager for Ohio Casualty Insurance Company. Mr.
Komrska is a chartered financial analyst with a bachelor of business
administration degree in finance and marketing from the University of Michigan.
The Adviser uses other investment adviser firms as subadvisers to direct the
investments of certain portfolios. The subadvisers are:
LEGG MASON FUND ADVISER, INC. (Legg Mason) has managed the EQUITY portfolio
since August 1999. Legg Mason is located at 100 Light Street, Baltimore,
Maryland 21202. It was founded in 1982 to manage equity mutual funds. Legg Mason
is wholly owned by Legg Mason, Inc. Before August 1999, the Equity portfolio was
managed by the Adviser.
The portfolio manager of the Equity portfolio is William Miller. He is Legg
Mason's chief executive officer and president. He is a chartered financial
analyst with an economics degree from Washington and Lee University and graduate
studies in the Ph.D. program at John Hopkins University. Mr. Miller has been the
portfolio manager of the Legg Mason Value Trust, Inc. since 1990. Until then, he
served as that fund's co-manager from its inception in 1982. Before that he was
a corporate treasurer.
FEDERATED GLOBAL INVESTMENT MANAGEMENT CORP. (Federated Global) has managed the
INTERNATIONAL and INTERNATIONAL SMALL COMPANY portfolios since January 1999.
Federated Global is located at 175 Water Street, New York, New York 10038. It is
affiliated with Federated Investors, Inc. Federated Global was formed in 1995 to
manage mutual funds and other pooled investment accounts consisting primarily of
foreign securities. Before 1999, Societe Generale Asset Management Corp. managed
the International and International Small Company portfolios. The International
Small Company portfolio then had different investment objectives and its name
was the Global Contrarian portfolio.
The portfolio managers of the International portfolio are Alexandre de Bethmann
and Henry Frantzen. Mr. de Bethmann has been a vice president and senior
portfolio manager for Federated Global since 1995. Before that, he
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had been assistant vice president and portfolio manager for Japanese and Korean
equities at the College Retirement Equities Fund. Mr. de Bethmann is a chartered
financial analyst. He has a bachelor of science degree from the Universite Paris
X, Nanterre, and a master of business administration degree in finance from Duke
University.
Henry Frantzen is the chef investment officer, international, of Federated
Global. He joined Federated Global as its executive vice president when it was
established in 1995. For four years prior to that, he served as chief investment
officer of international securities at Brown Brothers Harriman & Co., and for
three years before that he was the executive vice president and director of
equities at Oppenheimer Management Corporation. He is a financial analyst
fellow. He has a bachelor of science degree from the University of North Dakota.
The portfolio managers of the International Small Company portfolio are Leonardo
Vila and Henry Frantzen. Mr. Vila has been an assistant vice president and
senior investment analyst with Federated Global since 1998. For three years
before that, he was a quantitative analyst for Federated Investment Counseling.
He held earlier positions as an equity research manager for the American Stock
Exchange, a systems analyst for Kemper Group, a senior programming analyst for
Manufacturers Hanover Trust and an associate of J.P. Morgan & Co. Mr. Vila has a
bachelor of science degree from Arizona State University and a master of
business administration degree emphasizing quantitative research from St. John's
University.
JENNISON ASSOCIATES LLC (Jennison) has managed the CAPITAL APPRECIATION
portfolio since 2000. Jennison is located at 466 Lexington Avenue, New York, New
York 10017. It is an investment adviser that has managed large pools of assets
for tax-free institutions since 1969. It is wholly owned by The Prudential
Insurance Company of America. Before 2000, T. Rowe Price Associates, Inc.
managed the Capital Appreciation portfolio.
The portfolio manager of the Capital Appreciation portfolio is Bradley Goldberg.
He is a director, executive vice president, balanced portfolio manager and
chairman of the asset allocation committee of Jennison. Before joining Jennison
in 1974, Mr. Goldberg was vice chairman and group head in the investment
research division of Bankers Trust Co. Mr. Goldberg is a chartered financial
analyst with a bachelor of science degree from the University of Illinois and a
master of business administration degree from New York University.
FOUNDERS ASSET MANAGEMENT LLC (Founders) has managed the SMALL CAP portfolio
since 1994. Founders is located at 2930 East Third Avenue, Denver, Colorado
80206. It manages the Founders group of mutual funds and private investment
accounts. Founders was established in 1938. In 1998 it became a subsidiary of
Mellon Bank.
The portfolio manager of the Small Cap portfolio is Robert Ammann. Robert Ammann
is vice president of investments of Founders. He has managed the Small Cap
portfolio since 1999. He has been a portfolio manager for Founders since 1997
and for four year before that he was a securities research analyst for Founders.
Before that he was a financial statistician for S&P Compustat Services, Inc. Mr.
Ammann is a chartered financial analyst. He has a bachelor's degree in finance
from Colorado State University.
JANUS CAPITAL CORPORATION (Janus) has managed the AGGRESSIVE GROWTH portfolio
since 2000. Janus is located at 100 Fillmore Street, Denver, Colorado 80206. It
has been an investment adviser since 1970. It manages all the Janus mutual
funds; it is the subadviser for several private label mutual funds, and it also
manages institutional accounts. Janus is a subsidiary of Kansas City Southern
Industries. Before 2000, Strong Capital Management , Inc. managed the Aggressive
Growth portfolio.
The portfolio manager of the Aggressive Growth portfolio is Claire Young. She
has been executive vice president and portfolio manager of the Janus Olympus
Fund since 1997. Prior to that, she served as assistant portfolio manager of the
Janus Growth & Income Fund and the Janus Twenty Fund. Ms. Young joined Janus in
January 1992. Ms. Young is a chartered financial analyst with a bachelor of
science degree in electrical engineering from Yale University.
PILGRIM BAXTER & ASSOCIATES, LTD. (Pilgrim Baxter) has managed the Core Growth
portfolio since 1997. Pilgrim Baxter is located at 825 Duportail Road, Wayne,
Pennsylvania 19087. It is controlled by United Asset Management
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Corp. located in Boston, Massachusetts. With its predecessors, Pilgrim Baxter
has been an investment adviser since 1982. It manages the PBHG mutual funds.
The portfolio manager of the Core Growth portfolio is Jeffrey Wrona. He is also
the portfolio manager of the PBHG Growth II portfolio, co-manager of the PBHG
Technology & Communications Fund and has managed other small and mid cap
portfolios for Pilgrim Baxter since 1997. He was a senior portfolio manager at
Munder Capital Management for seven years. He has also been a securities analyst
for Drexel Burnham Lambert and a design engineer for Ford Motor Company. Mr.
Wrona is a chartered financial analyst. He has a bachelor's degree in
engineering and a master of business administration degree from the University
of Michigan.
RS INVESTMENT MANAGEMENT, CO. LLC (RSIM) has managed the GROWTH & INCOME
portfolio since 1997 and the CAPITAL GROWTH portfolio since 1998. RSIM is
located at 555 California Street, San Francisco, California 94104. It has been
an investment adviser since 1978. RSIM specializes in growth companies. It
manages the Robertson Stephens mutual funds plus private and institutional
investment pools.
The portfolio manager of the Growth & Income portfolio is John Wallace. He is a
managing director of RISM. He has managed the Growth & Income portfolio since
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 before 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.
The portfolio manager of the Capital Growth portfolio is James Callinan. He
joined RSIM as the portfolio manager of its Small Cap Growth Fund in 1996. For
ten years before that he was employed by Putnam Investments, the last two years
of which he served as portfolio manager of the OTC Putnam Emerging Growth Fund.
Mr. Callinan is a chartered financial analyst. He has a bachelor's degree in
economics from Harvard College, a master of science in accounting from New York
University and a master of business administration degree from Harvard Business
School.
FEDERATED INVESTMENT COUNSELING (Federated Investment) has managed the HIGH
INCOME BOND, EQUITY INCOME and BLUE CHIP portfolios since 1998. Federated
Investment is located at 1001 Liberty Avenue, Pittsburgh, Pennsylvania 15222.
FIC has been an investment adviser since 1989. It is a subsidiary of Federated
Investors, Inc. Together with other Federated affiliates, Federated Investment
manages the Federated group of mutual funds.
The portfolio managers of the High Income Bond portfolio are Mark Durbiano and
Constantine Kartsonas. Mark Durbiano has been a senior vice president of
Federated Investment since 1996 and he was a vice president for 8 years before
that. He has been with Federated Investment and its affiliates since 1982 and
has managed the Federated High Income Bond Fund II since 1994. He is a chartered
financial analyst. He has a bachelor's degree in economics from Dickinson
College and a master of business administration in finance from the University
of Pittsburgh.
Constantine Kartsonas joined Federated Investment in 1994 as an investment
analyst. He has been an assistant vice president of Federated Investment since
1997. From 1990 to 1993, Mr. Kartsonas served as an operations analyst at Lehman
Brothers. He received his master's degree in business administration with a
concentration in economics from the University of Pittsburgh.
The portfolio managers of the Equity Income portfolio are Linda Duessel and
Steven Lehman. Linda Duessel has been a vice president of Federated Investment
since 1995. She was an assistant vice president for four years before that. Ms.
Duessel is a chartered financial analyst. She has a bachelor's degree in
economics from the University of Pittsburgh and a master of science in
industrial administration from Carnegie Mellon University. She is also a
certified public accountant.
Steven Lehman has been a vice president of Federated Investment since 1997. For
twelve years before that he served as a portfolio manager, then vice president
and senior portfolio manager, at First Chicago NBD Investment Manage-
41
<PAGE> 44
ment Company. Mr. Lehman is a chartered financial analyst. He has a bachelor's
degree in economics from Ripon College and a master's degree from the University
of Chicago.
The portfolio managers of the Blue Chip portfolio are Michael Donnelly and
Arthur Barry. Michael Donnelly has been a vice president of Federated Investment
since 1994. He was an investment analyst and assistant vice president of
Federated Investment for five years prior to that. He is a chartered financial
analyst. He has a bachelor's degree in economics from Georgetown University and
a master of business administration from the University of Virginia.
Arthur Barry joined an affiliate of Federated Investment in 1994 as an
investment analyst. He has been a vice president of Federated Investment since
July 1998. He is a chartered financial analyst. He has a master of science
degree in finance and accounting from Carnegie Mellon University.
FIRSTAR BANK, N.A. (Firstar) has managed the STRATEGIC INCOME AND RELATIVE VALUE
portfolios since 1997. Firstar is located at 425 Walnut Street, Cincinnati, Ohio
45202. It is a national bank founded in 1863. It has managed commingled funds
since 1957.
The portfolio manager of the Strategic Income portfolio is Kirk Mentzer. Kirk
Mentzer is senior trust officer and director of fixed income research for the
capital management division of Firstar. He manages the REIT, structured fixed
income and money market components of the Strategic Income portfolio. He is
responsible for fixed income investment policy and strategy for Firstar'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 Firstar since 1989.
The portfolio manager of the Relative Value portfolio is Joseph Belew. He is a
vice president and trust officer of Firstar. He has been a trust officer and
investment manager of Firstar since 1979. He has a bachelor's degree in business
management from Belmont College.
FIRSTAR INVESTMENT RESEARCH & MANAGEMENT COMPANY, LLC (FIRMCO) has managed the
FIRSTAR GROWTH & INCOME portfolio since 1999. FIRMCO is located at 777 East
Wisconsin Avenue, Milwaukee, Wisconsin 53202. FIRMCO is an affiliate of Firstar.
It is the investment adviser to the Firstar Funds family of mutual funds. Before
1999 Firstar managed this portfolio. The portfolio then had different investment
objectives and its name was the Stellar portfolio.
The portfolio managers of the Firstar Growth & Income portfolio are Marian
Zentmyer and David Lettenberger. Marian Zentmyer has been chief equity
investment officer of FIRMCO since 1998. She became an equity fund manager of
FIRMCO in 1989 after having joined Firstar as a financial planning and research
analyst seven years earlier. She was a financial planner with a brokerage firm
for four years before that. Ms. Zentmyer is a chartered financial analyst. She
has a bachelor's degree from Stanford University.
David Lettenberger is vice president and portfolio manager of FIRMCO. He has
been a portfolio manager and research analyst with Firstar since 1999. For four
years before that, he managed a small cap growth fund for M&I Investment
Management, an affiliate of Marshall & Ilsley Bank. Mr. Lettenberger is a
chartered financial analyst and he has a bachelor's degree in finance and
economics from Marquette University.
SUBADVISORY FEES
As compensation for their subadvisory services the Adviser (and not the Fund)
pays:
- - Legg Mason a fee at the annual rate of 0.45% of the first $500 million, and
0.40% of average daily net assets in excess of $500 million of the Equity
portfolio;
- - Federated Global fees at the annual rate of
- 0.40% of the first $200 million, and 0.35% of average daily net assets in
excess of $200 million of the International portfolio, and
42
<PAGE> 45
- 0.75% of the first $100 million, and 0.65% of average daily net assets in
excess of $100 million of the International Small Company portfolio;
- - Jennison a fee at the annual rate of 0.75% of the first $10 million, 0.50% of
the next $30 million, 0.35% of the next $25 million, 0.25% of the next $335
million, 0.22% of the next $600 million, and 0.20% of average daily net assets
in excess of $1 billion of the Capital Appreciation portfolio;
- - Founders a fee at the annual rate of 0.55% of the first $150 million, 0.50% of
the next $150 million, and 0.40% of average daily net assets in excess of $300
million of the Small Cap portfolio;
- - Janus a fee at the annual rate of 0.55% of the first $100 million, 0.50% of
the next $400 million, and 0.45% of average daily net assets in excess of $500
million of the Aggressive Growth portfolio;
- - Pilgrim Baxter a fee at the annual rate of 0.65% of the first $50 million,
0.60% of the next $100 million, and 0.50% of average daily net assets in
excess of $150 million of the Core Growth portfolio;
- - RSIM fees at the annual rate of
- 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
- 0.64% of the first $100 million, 0.60% of the next $100 million, and
0.55% of average daily net assets in excess of $200 million of the
Capital Growth portfolio;
- - Federated Investment fees at the annual rate of
- 0.50% of the first $30 million, 0.40% of the next $20 million. 0.30% of
the next $25 million, 0.25% of average daily net assets in excess of $75
million of the High Income Bond portfolio, and
- 0.50% of the first $35 million, 0.35% of the next $65 million, and 0.25%
of average daily net assets in excess of $100 million of the assets of
each of the Equity Income and Blue Chip portfolios;
- - Firstar fees at the annual rate of
- 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, and
- 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
- - FIRMCO a fee at the annual rate of 0.65% of the first $50 million, and 0.60%
of average daily net assets in excess of $50 million of the Firstar Growth &
Income portfolio.
PURCHASE AND REDEMPTION OF FUND SHARES
Fund shares are offered only to separate accounts of ONLI and ONLAC in
connection with ONLI's variable annuities and ONLAC's variable life insurance.
You may select Fund portfolios as described in your variable contract
prospectus. The value of your variable benefits will vary with the investment
experience of the portfolios you select.
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.
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
enough trading in portfolio securities that the current net asset value of its
shares might be materially affected. The values are determined as of 4:00 p.m.
eastern time on each day the New York Stock Exchange is open for unrestricted
trading.
43
<PAGE> 46
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. Each year the Fund distributes to its
shareholders 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 immediately before
each daily computation of the portfolio's net asset value. For the other
portfolios, dividends representing net investment income are normally
distributed quarterly. Any net realized capital gains are distributed annually.
However, the Board of Directors may declare dividends at other times. Dividends
and distributions are automatically reinvested in additional portfolio shares
(at net asset value without a sales charge).
44
<PAGE> 47
FINANCIAL HIGHLIGHTS OF OHIO NATIONAL FUND, INC.
FOR THE TEN YEARS ENDED DECEMBER 31, 1999
The following information has been audited by KPMG LLP, independent certified
public accountants. It is an integral part of the Fund's audited financial
statements contained in the Statement of Additional Information (which you may
obtain), incorporated by reference herein. This should be read in conjunction
with those financial statements.
<TABLE>
<CAPTION>
EQUITY PORTFOLIO
---------------------------------------------------------------------------------------
1999 1998 1997 1996 1995 1994 1993 1992 1991 1990
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of
period $36.31 $35.44 $32.30 $28.58 $23.20 $23.90 $21.63 $20.61 $18.02 $20.09
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Income from investment
operations:
Net investment income 0.12 0.45 0.51 0.47 0.50 0.45 0.41 0.50 0.60 0.86
Net realized and unrealized
gain (loss) on investments 6.85 1.56 5.24 4.58 5.65 (0.39) 2.57 1.02 2.97 (1.62)
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total income from
investment operations 6.97 2.01 5.75 5.05 6.15 .06 2.98 1.52 3.57 (0.76)
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Less distributions:
Dividends from net investment
income (0.12) (0.45) (0.63) (0.46) (0.39) (0.44) (0.42) (0.50) (0.63) (0.87)
Distributions from net
realized capital gains (16.68) (0.69) (1.98) (0.87) (0.38) (0.32) (0.29) 0.00 (0.35) (0.44)
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total distributions (16.80) (1.14) (2.61) (1.33) (0.77) (0.76) (0.71) (0.50) (0.98) (1.31)
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Net asset value, end of period $26.48 $36.31 $35.44 $32.30 $28.58 $23.20 $23.90 $21.63 $20.61 $18.02
====== ====== ====== ====== ====== ====== ====== ====== ====== ======
Total return(a) 19.87% 5.72% 18.17% 18.35% 27.20% 0.25% 14.09% 7.55% 20.18% (3.85%)
Ratios/supplemental data:
Ratio of expenses to average
net assets 0.76% 0.64% 0.67% 0.73% 0.73% 0.62% 0.63% 0.65% 0.66% 0.69%
Ratio of net investment income
to average net assets 0.31% 1.25% 1.43% 1.60% 1.90% 1.90% 1.91% 2.44% 3.12% 4.75%
Portfolio turnover rate 124% 25% 19% 11% 14% 8% 18% 12% 23% 5%
Net assets, end of period
(millions) $329.6 $296.9 $288.1 $232.8 $175.7 $123.3 $109.9 $ 87.4 $ 68.2 $ 49.2
</TABLE>
<TABLE>
<CAPTION>
MONEY MARKET PORTFOLIO
---------------------------------------------------------------------------------------
1999 1998 1997 1996 1995 1994 1993 1992 1991 1990
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of
period $10.00 $10.00 $10.00 $10.00 $10.00 $10.00 $10.00 $10.00 $10.00 $10.00
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Income from investment
operations:
Net investment income 0.23 0.52 0.52 0.50 0.54 0.39 0.27 0.31 0.54 0.76
Less distributions:
Dividends from net investment
income (0.23) (0.52) (0.52) (0.50) (0.54) (0.39) (0.27) (0.31) (0.54) (0.76)
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Net asset value, end of period $10.00 $10.00 $10.00 $10.00 $10.00 $10.00 $10.00 $10.00 $10.00 $10.00
====== ====== ====== ====== ====== ====== ====== ====== ====== ======
Total return(a) 5.02% 5.39% 5.37% 5.17% 5.62% 4.00% 2.71% 3.12% 5.39% 7.60%
Ratios net of fees waived by
advisor:(c)
Ratio of expenses to average net
assets(c) 0.36% 0.36% 0.38% 0.44% 0.44% 0.39% 0.53% 0.66% 0.67% 0.68%
Ratio of net investment
income to average net
assets 4.90% 5.26% 5.11% 4.98% 5.39% 3.69% 2.71% 3.16% 5.41% 7.57%
Ratios of expenses to average
net assets assuming no fees
waived by advisor:(c) 0.41% 0.41% 0.43% 0.49% 0.55% 0.59% 0.63% N/A N/A N/A
Net assets, end of period
(millions) $ 67.2 $ 44.4 $ 29.1 $ 25.6 $ 15.7 $ 13.1 $ 19.1 $ 20.6 $ 24.2 $ 26.1
</TABLE>
45
<PAGE> 48
FINANCIAL HIGHLIGHTS OF OHIO NATIONAL FUND, INC. -- (CONTINUED)
<TABLE>
<CAPTION>
BOND PORTFOLIO
---------------------------------------------------------------------------------------
1999 1998 1997 1996 1995 1994 1993 1992 1991 1990
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of
period $10.56 $10.68 $10.62 $10.93 $ 9.70 $10.87 $10.45 $10.37 $ 9.89 $ 9.93
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Income from investment
operations:
Net investment income 0.68 0.67 0.71 0.69 0.70 0.67 0.69 0.67 0.74 0.79
Net realized and unrealized
gain (loss) on investments (0.62) (0.12) 0.23 (0.32) 1.08 (1.07) 0.41 0.10 0.49 (0.05)
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total Income (loss) from
investment operations 0.06 0.55 0.94 0.37 1.78 (0.40) 1.10 0.77 1.23 0.74
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Less distributions:
Dividends from net investment
income (0.68) (0.67) (0.88) (0.68) (0.55) (0.69) (0.68) (0.69) (0.75) (0.78)
Distributions from net
realized capital gains 0.00 0.00 0.00 0.00 0.00 (0.08) 0.00 0.00 0.00 0.00
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total distributions (0.68) (0.67) (0.88) (0.68) (0.55) (0.77) (0.68) (0.69) (0.75) (0.78)
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Net asset value, end of period $ 9.94 $10.56 $10.68 $10.62 $10.93 $ 9.70 $10.87 $10.45 $10.37 $ 9.89
====== ====== ====== ====== ====== ====== ====== ====== ====== ======
Total return(a) 0.58% 5.22% 9.28% 3.71% 18.90% (3.84%) 10.69% 7.55% 12.96% 7.82%
Ratios/supplemental data:
Ratio of expenses to average
net assets 0.77% 0.72% 0.78% 0.79% 0.75% 0.63% 0.62% 0.65% 0.65% 0.70%
Ratio of net investment income
to average net assets 6.57% 6.21% 6.67% 6.54% 6.76% 6.71% 6.33% 6.73% 7.42% 8.02%
Portfolio turnover rate 8% 12% 10% 3% 4% 5% 13% 20% 18% 4%
Net assets, end of period
(millions) $ 26.0 $ 28.4 $ 21.8 $ 20.8 $ 18.1 $ 13.1 $ 12.0 $ 8.9 $ 5.9 $ 4.7
</TABLE>
<TABLE>
<CAPTION>
OMNI PORTFOLIO
---------------------------------------------------------------------------------------
1999 1998 1997 1996 1995 1994 1993 1992 1991 1990
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of
period $21.44 $21.06 $19.40 $17.60 $14.76 $15.38 $14.14 $13.63 $12.16 $12.76
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Income (loss) from investment
operations:
Net investment income 0.48 0.58 0.56 0.53 0.58 0.55 0.58 0.63 0.65 0.78
Net realized and unrealized
gain (loss) on investments 1.91 0.38 2.87 2.10 2.72 (0.63) 1.21 0.51 1.49 (0.54)
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total Income (loss) from
investment operations 2.39 0.96 3.43 2.63 3.30 (0.08) 1.79 1.14 2.14 0.24
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Less distributions:
Dividends from net investment
income (0.48) (0.58) (0.69) (0.52) (0.46) (0.54) (0.55) (0.63) (0.67) (0.78)
Distributions from net
realized capital gains (0.80) 0.00 (1.08) (0.31) 0.00 0.00 0.00 0.00 0.00 (0.06)
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total distributions (1.28) (0.58) (1.77) (0.83) (0.46) (0.54) (0.55) (0.63) (0.67) (0.84)
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Net asset value, end of period $22.55 $21.44 $21.06 $19.40 $17.60 $14.76 $15.38 $14.14 $13.63 $12.16
====== ====== ====== ====== ====== ====== ====== ====== ====== ======
Total return(a) 11.36% 4.53% 18.15% 15.54% 22.75% (0.53%) 12.85% 8.61% 18.14% 1.92%
Ratios/supplemental data:
Ratio of expenses to average
net assets 0.67% 0.65% 0.71% 0.76% 0.75% 0.62% 0.62% 0.65% 0.67% 0.69%
Ratio of net investment income
to average net assets 2.18% 2.71% 2.69% 2.89% 3.56% 3.67% 3.74% 4.66% 5.04% 6.32%
Portfolio turnover rate 41% 18% 18% 12% 10% 7% 17% 16% 15% 7%
Net assets, end of period
(millions) $190.0 $214.4 $193.7 $145.5 $109.6 $ 85.0 $ 74.2 $ 46.6 $ 36.5 $ 35.4
</TABLE>
46
<PAGE> 49
FINANCIAL HIGHLIGHTS OF OHIO NATIONAL FUND, INC. -- (CONTINUED)
<TABLE>
<CAPTION>
INTERNATIONAL PORTFOLIO
-------------------------------------------------------------
1999 1998 1997 1996 1995 1994 1993(E)
------ ------ ------ ------ ------ ------ -------
<S> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of
period $12.86 $13.39 $15.49 $14.38 $13.30 $12.48 $10.00
------ ------ ------ ------ ------ ------ ------
Income from investment operations:
Net investment income (0.02) 0.32 0.28 0.25 0.31 0.16 0.02
Net realized and unrealized gain
on investments and foreign
currency transactions 8.67 0.24 0.08 1.76 1.28 0.84 2.47
------ ------ ------ ------ ------ ------ ------
Total income from investment
operations 8.65 0.55 0.36 2.01 1.59 1.00 2.49
------ ------ ------ ------ ------ ------ ------
Less distributions:
Dividends from net investment
income 0.00 (0.32) (0.37) (0.25) (0.28) (0.12) (0.01)
Distributions from net realized
capital gains and foreign
currency related transactions 0.00 (0.76) (2.09) (0.65) (0.23) (0.06) 0.00
------ ------ ------ ------ ------ ------ ------
Total distributions 0.00 (1.08) (2.46) (0.90) (0.51) (0.18) (0.01)
------ ------ ------ ------ ------ ------ ------
Net asset value, end of period $21.51 $12.86 $13.39 $15.49 $14.38 $13.30 $12.48
====== ====== ====== ====== ====== ====== ======
Total return(a) 67.40% 3.88% 2.11% 14.48% 12.10% 8.07% 24.96%
Ratios/supplemental data:
Ratio of expenses to average net
assets(d)(c) 1.21% 1.17% 1.22% 1.15% 1.12% 1.05% 1.13%(b)
Ratio of net investment income
(loss) to average net
assets(d) (0.15%) 2.31% 1.82% 1.64% 2.29% 1.23% 0.41%(b)
Ratio of expenses to average net
assets assuming no fees
waived by adviser:(c) 1.26% N/A N/A N/A N/A N/A N/A
Portfolio turnover rate 338% 22% 24% 14% 7% 16% 8%
Net assets, end of period
(millions) $173.0 $140.3 $156.0 $137.3 $ 90.6 $ 62.9 $ 17.5
</TABLE>
47
<PAGE> 50
FINANCIAL HIGHLIGHTS OF OHIO NATIONAL FUND, INC. -- (CONTINUED)
<TABLE>
<CAPTION>
CAPITAL APPRECIATION PORTFOLIO
----------------------------------------------------
1999 1998 1997 1996 1995 1994(E)
------ ------ ------ ------ ------ -------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period $12.92 $13.53 $12.93 $11.99 $10.25 $10.00
------ ------ ------ ------ ------ ------
Income from investment operations:
Net investment income 0.39 0.34 0.39 0.48 0.39 0.22
Net realized and unrealized gain on
investments and foreign currency
transactions 0.42 0.46 1.48 1.31 1.85 0.23
------ ------ ------ ------ ------ ------
Total income from investment operations 0.81 0.80 1.87 1.79 2.24 0.45
------ ------ ------ ------ ------ ------
Less distributions:
Dividends from net investment income (0.39) (0.34) (0.46) (0.44) (0.29) (0.20)
Distributions from net realized capital
gains and foreign currency related
transactions (1.23) (1.07) (0.81) (0.41) (0.21) 0.00
------ ------ ------ ------ ------ ------
Total distributions (1.62) (1.41) (1.27) (0.85) (0.50) (0.20)
------ ------ ------ ------ ------ ------
Net asset value, end of period $12.11 $12.92 $13.53 $12.93 $11.99 $10.25
====== ====== ====== ====== ====== ======
Total return(a) 6.46% 5.91% 15.19% 15.75% 22.6 4.53%
Ratios/supplemental data:
Ratio of expenses to average net
assets(d) 0.95% 0.93% 0.95% 0.97% 0.96% 0.98%(b)
Ratio of net investment income to average
net assets(d) 2.94% 2.52% 2.88% 3.90% 3.47% 3.24%(b)
Portfolio turnover rate 34% 45% 41% 37% 32% 20%
Net assets, end of period (millions) $ 64.6 $ 76.5 $ 59.8 $ 38.3 $ 19.3 $ 6.8
</TABLE>
<TABLE>
<CAPTION>
SMALL CAP PORTFOLIO
---------------------------------------------------------
1999 1998 1997 1996 1995 1994(E)
------ ------ ------ ------ ------ -------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period $20.70 $18.72 $18.03 $15.85 $11.99 $10.00
------ ------ ------ ------ ------ ------
Income from investment operations:
Net investment income (0.16) (0.06) (0.02) (0.08) (0.02) 0.18
Net realized and unrealized gain on
investments and foreign currency
transactions 21.96 2.04 1.54 2.80 3.95 1.94
------ ------ ------ ------ ------ ------
Total income from investment
operations 21.80 1.98 1.52 2.72 3.93 2.12
------ ------ ------ ------ ------ ------
Less distributions:
Dividends from net investment income 0.00 0.00 0.00 0.00 (0.07) (0.13)
Distributions from net realized
capital gains and foreign currency
related transactions (10.88) 0.00 (0.83) (0.54) 0.00 0.00
------ ------ ------ ------ ------ ------
Total distributions (10.88) 0.00 (0.83) (0.54) (0.07) (0.13)
------ ------ ------ ------ ------ ------
Net asset value, end of period $31.62 $20.70 $18.72 $18.03 $15.85 $11.99
====== ====== ====== ====== ====== ======
Total return(a) 106.46% 10.57% 8.47% 17.71% 33.01 21.26%
Ratios/supplemental data:
Ratio of expenses to average net
assets(d) 0.89% 0.91% 0.94% 0.96% 0.96% 0.91%(b)
Ratio of net investment income
(loss) to average net assets(d) (0.61%) (0.30%) (0.11%) (0.48%) (0.11%) 3.27%(b)
Portfolio turnover rate 166% 99% 80% 70% 75% 222%(b)
Net assets, end of period (millions) $167.9 $ 75.6 $ 58.3 $ 38.5 $ 16.0 $ 3.3
</TABLE>
48
<PAGE> 51
FINANCIAL HIGHLIGHTS OF OHIO NATIONAL FUND, INC. -- (CONTINUED)
<TABLE>
<CAPTION>
INTERNATIONAL SMALL COMPANY PORTFOLIO
----------------------------------------------------
1999 1998 1997 1996 1995(E)
------ ------ ------ ------ --------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $10.76 $11.73 $11.66 $10.80 $10.00
------ ------ ------ ------ ------
Income (loss) from investment operations:
Net investment income (loss) (0.20) 0.29 0.29 0.28 0.13
Net realized and unrealized gain (loss)
on investments 11.81 0.12 1.03 1.00 0.75
------ ------ ------ ------ ------
Total income from investment operations 11.61 0.42 1.32 1.28 0.88
------ ------ ------ ------ ------
Less distributions:
Dividends from net investment income 0.00 (0.29) (0.38) (0.24) (0.08)
Distributions from net realized capital
gains (2.12) (1.10) (0.87) (0.18) 0.00
------ ------ ------ ------ ------
Total distributions (2.12) (1.39) (1.25) (0.42) (0.08)
------ ------ ------ ------ ------
Net asset value, end of period $20.25 $10.76 $11.73 $11.66 $10.80
====== ====== ====== ====== ======
Total return(a) 108.51% 3.53% 11.67% 12.09% 8.89%
Ratios/supplemental data:
Ratio of expenses to average net
assets(d) 2.06% 1.30% 1.32% 1.29% 1.58%(b)
Ratio of net investment income (loss) to
average net assets(d) (1.44%) 2.48% 2.33% 2.44% 1.64%(b)
Portfolio turnover rate 314% 55% 29% 18% 6%(b)
Net assets, end of period (millions) $ 38.1 $ 19.8 $ 18.0 $ 11.3 $ 4.4
</TABLE>
<TABLE>
<CAPTION>
AGGRESSIVE GROWTH PORTFOLIO
------------------------------------------------
1999 1998 1997 1996 1995(E)
------ ------ ------ ------ --------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $11.15 $11.09 $10.03 $11.84 $10.00
------ ------ ------ ------ ------
Income (loss) from investment operations:
Net investment income (loss) (0.03) (0.01) (0.05) 1.64 1.56
Net realized and unrealized gain (loss) on
investments 0.67 0.88 1.29 (1.59) 1.08
------ ------ ------ ------ ------
Total income from investment operations 0.64 0.87 1.24 0.05 2.64
------ ------ ------ ------ ------
Less distributions:
Dividends from net investment income 0.00 0.00 (0.14) (1.86) (0.80)
Distributions from net realized capital gains 0.00 (0.81) (0.04) 0.00 0.00
------ ------ ------ ------ ------
Total distributions 0.00 (0.81) (0.18) (1.86) (0.80)
------ ------ ------ ------ ------
Net asset value, end of period $11.79 $11.15 $11.09 $10.03 $11.84
====== ====== ====== ====== ======
Total return(a) 5.76% 7.84% 12.53% 0.76% 26.95%
Ratios/supplemental data:
Ratio of expenses to average net assets(d) 0.95% 0.94% 0.97% 1.01% 1.02%(b)
Ratio of net investment income (loss) to
average net assets(d) (0.32%) (0.09%) (0.40%) 15.81% 18.18%(b)
Portfolio turnover rate 241% 203% 193% 1,987% 1,488%(b)
Net assets, end of period (millions) $ 23.3 $ 26.4 $ 19.9 $ 12.0 $ 4.0
</TABLE>
49
<PAGE> 52
FINANCIAL HIGHLIGHTS OF OHIO NATIONAL FUND, INC. -- (CONTINUED)
<TABLE>
<CAPTION>
CORE GROWTH PORTFOLIO GROWTH & INCOME PORTFOLIO
--------------------------- ----------------------------
1999 1998 1997(E) 1999 1998 1997(E)
------ ------ ------- ------ ------ --------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period $10.54 $ 9.68 $10.00 $13.63 $12.85 $10.00
------ ------ ------ ------ ------ ------
Loss from investment operations:
Net investment income (loss) (0.10) (0.06) (0.02) 0.02 0.14 0.11
Net realized and unrealized gain
(loss) on investments 11.05 0.92 (0.30) 8.33 0.77 3.52
------ ------ ------ ------ ------ ------
Total gain (loss) from investment
operations 10.95 0.86 (0.32) 8.35 0.91 3.63
------ ------ ------ ------ ------ ------
Less distributions:
Dividends from net investment income 0.00 0.00 0.00 (0.03) (0.13) (0.11)
Distributions from net realized
capital gains 0.00 0.00 0.00 (3.17) 0.00 (0.67)
Distributions from excess realized
capital gains 0.00 0.00 0.00 0.00 0.00 0.00
------ ------ ------ ------ ------ ------
Total Distributions 0.00 0.00 0.00 (3.20) (0.13) (0.78)
------ ------ ------ ------ ------ ------
Net asset value, end of period $16.98 $10.58 $ 9.68 $18.78 $13.63 $12.85
====== ====== ====== ====== ====== ======
Total return(a) 104.95% 8.82% (3.08%) 62.25% 7.09% 36.58%
Ratios/supplemental data:
Ratio of expenses to average net
assets(d) 1.06% 1.13% 1.11% 0.95% 0.97% 0.95%
Ratio of net investment income (loss)
to average net assets(d) (0.75%) (0.62%) (0.18%) 0.15% 1.09% 1.04%
Portfolio turnover rate 264% 134% 65% 417% 286% 185%
Net assets, end of period (millions) $ 31.5 $ 11.8 $ 9.5 $113.0 $ 51.4 $ 18.7
</TABLE>
<TABLE>
<CAPTION>
S&P 500 INDEX PORTFOLIO SOCIAL AWARENESS PORTFOLIO
--------------------------- ----------------------------
1999 1998 1997(E) 1999 1998 1997(E)
------ ------ ------- ------ ------ --------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period $14.23 $11.73 $10.00 $ 8.80 $11.40 $10.00
------ ------ ------ ------ ------ ------
Loss from investment operations:
Net investment income (loss) 0.40 0.38 (0.45) 0.04 0.06 0.09
Net realized and unrealized gain (loss) on
investments 3.28 3.09 (2.70) 1.51 (2.61) 2.47
------ ------ ------ ------ ------ ------
Total gain (loss) from investment operations 3.68 3.47 (3.15) 1.55 2.55 2.56
------ ------ ------ ------ ------ ------
Less distributions:
Dividends from net investment income (0.44) (0.33) (0.45) (0.04) 0.05 (0.07)
Distributions from net realized capital gains (1.30) (0.64) (0.91) 0.00 0.00 (1.09)
Distributions from excess realized capital
gains 0.00 0.00 (0.06) 0.00 0.00 0.00
------ ------ ------ ------ ------ ------
Total Distributions (1.74) (0.97) (1.42) (0.04) (0.05) (1.16)
------ ------ ------ ------ ------ ------
Net asset value, end of period $16.17 $14.23 $11.73 $10.31 $ 8.80 $11.40
====== ====== ====== ====== ====== ======
Total return(a) 25.63% 30.00% 31.75% 17.69% (22.41%) 25.63%
Ratios/supplemental data:
Ratio of expenses to average net assets(d) 0.49% 0.49% 0.52% 0.93% 0.81%% 0.95%
Ratio of net investment income to average net
assets(d) 2.62% 2.89% 5.29% 0.47% 0.55%% 0.75%
Portfolio turnover rate 68% 115% 445% 122% 71% 40%
Net assets, end of period (millions) $216.6 $ 94.2 $ 22.1 $ 3.6 $ 6.6 $ 4.8
</TABLE>
50
<PAGE> 53
FINANCIAL HIGHLIGHTS OF OHIO NATIONAL FUND, INC. -- (CONTINUED)
<TABLE>
<CAPTION>
STRATEGIC INCOME FIRSTAR GROWTH & INCOME RELATIVE VALUE
PORTFOLIO PORTFOLIO PORTFOLIO
--------------------------- --------------------------- ---------------------------
1999 1998 1997(E) 1999 1998 1997(E) 1999 1998 1997(E)
------ ------ ------- ------ ------ ------- ------ ------ -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $ 9.34 $10.16 $10.00 $10.56 $10.65 $10.00 $15.02 $12.68 $10.00
------ ------ ------ ------ ------ ------ ------ ------ ------
Loss from investment
operations:
Net investment
income (loss) 0.65 0.68 0.71 0.12 0.37 0.32 0.13 0.16 0.16
Net realized and
unrealized gain
(loss) on
investments (1.07) (0.82) 0.13 0.06 (0.07) 0.64 1.01 2.47 2.66
------ ------ ------ ------ ------ ------ ------ ------ ------
Total gain (loss) from
investment
operations (0.42) (0.14) 0.84 0.18 0.30 0.96 1.14 2.63 2.82
------ ------ ------ ------ ------ ------ ------ ------ ------
Less distributions:
Dividends from net
investment income (0.63) (0.68) (0.67) (0.12) (0.35) (0.31) (0.18) (0.15) (0.14)
Distributions from net
realized capital
gains 0.00 0.00 (0.01) 0.00 (0.04) 0.00 0.00 (0.14) 0.00
Distributions from
excess realized
capital gains 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
------ ------ ------ ------ ------ ------ ------ ------ ------
Total Distributions (0.63) (0.68) (0.68) (0.12) (0.39) (0.31) (0.18) (0.29) (0.14)
------ ------ ------ ------ ------ ------ ------ ------ ------
Net asset value, end
of period $ 8.29 $ 9.34 $10.16 $10.62 $10.56 $10.65 $15.98 $15.02 $12.68
====== ====== ====== ====== ====== ====== ====== ====== ======
Total return(a) (4.81%) (1.42%) 8.74% 1.76% 0.00 9.70% 7.43% 0.00 28.28%
Ratios/supplemental
data:
Ratio of expenses to
average net
assets(d) 1.27% 1.18% 1.30% 1.39% 1.43% 1.54% 1.06% 1.08% 1.18%
Ratio of net
investment income to
average net
assets(d) 7.23% 7.12 7.04% 1.16% 3.53% 3.07% 0.84% 1.19% 135%
Portfolio turnover
rate 53% 104% 102% 197% 42% 17% 9% 54% 7%
Net assets, end of
period (millions) $ 3.1 $ 4.0 $ 3.2 $ 3.3 $ 3.6 $ 2.8 $ 11.9 $ 10.0 $ 5.7
</TABLE>
51
<PAGE> 54
FINANCIAL HIGHLIGHTS OF OHIO NATIONAL FUND, INC. -- (CONTINUED)
<TABLE>
<CAPTION>
HIGH INCOME
CAPITAL GROWTH BOND EQUITY INCOME BLUE CHIP
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
---------------- ---------------- ---------------- ----------------
1999 1998(E) 1999 1998(E) 1999 1998(E) 1999 1998(E)
------ ------- ------ ------- ------ ------- ------ -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $10.47 $10.00 $ 9.59 $10.00 $10.53 $10.00 $10.22 $10.00
------ ------ ------ ------ ------ ------ ------ ------
Loss from investment operations:
Net investment income (loss) (0.08) (0.09) 0.36 0.38 0.07 0.07 0.04 0.23
Net realized and unrealized gain (loss) on
investments 21.21 0.56 (0.17) (0.40) 1.89 0.53 0.57 10.23
------ ------ ------ ------ ------ ------ ------ ------
Total gain (loss) from investment operations 21.13 0.47 0.19 (0.02) 1.96 (0.60) 0.61 (0.01)
------ ------ ------ ------ ------ ------ ------ ------
Less distributions:
Dividends from net investment income 0.00 0.00 (0.56) (0.37) (0.11) (0.07) (0.05) (0.01)
Distributions from net realized capital gains 0.00 0.00 0.00 (0.02) 0.00 0.00 (0.12) 0.00
Distributions from excess realized capital
gains 0.00 0.00 0.00 (0.39) 0.00 0.00 0.00 0.00
------ ------ ------ ------ ------ ------ ------ ------
Total Distributions 0.00 0.00 (0.56) 0.00 (0.11) (0.07) (0.17) (0.01)
------ ------ ------ ------ ------ ------ ------ ------
Net asset value, end of period $28.01 $10.47 $ 9.22 $ 9.59 $12.38 $10.53 $10.66 $10.22
====== ====== ====== ====== ====== ====== ====== ======
Total return(a) 202.38% 4.62% 1.95% (0.20%) 18.58% 5.92% 5.86% 2.34%
Ratios/supplemental data:
Ratio of expenses to average net assets(d) 1.09% 1.96% 1.13% 1.20% 1.28% 1.77% 1.35% 1.84%
Ratio of net investment income (loss) to
average net assets(d) (0.61%) (1.47%) 6.19% 5.79% 1.05% 1.04% 0.53% 0.25%
Portfolio turnover rate 185% 121% 31% 11% 50% 38% 29% 32%
Net assets, end of period (millions) $ 20.3 $ 2.3 $ 12.6 $ 10.4 $ 4.4 $ 2.2 $ 4.8 $ 2.9
</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. Including of those charges would reduce the total return figures
for all periods shown.
(b) Annualized.
(c) On and after June 17, 1993, the Adviser has waived part of the management
fee for 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. On and
after January 1, 1999, the Adviser has waived part of the management fee for
the International portfolio, to the extent that fee exceeds an annual rate
of 0.85% of the International portfolio's daily net asset value.
(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 International Small
Company 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 International Small Company
portfolio in 1995.
52
<PAGE> 55
FINANCIAL HIGHLIGHTS OF OHIO NATIONAL FUND, INC. -- (CONTINUED)
(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 International Small Company and Aggressive Growth
portfolios from their commencement of operations, March 31, 1995, through
December 31, 1995; for the Core Growth, Growth & Income, S&P 500 Index,
Social Awareness, Strategic Income, Firstar Growth & Income and Relative
Value portfolios, from the commencement of their operations, January 3,
1997, through December 31, 1997, and for the Capital Growth, High Income
Bond, Equity Income and Blue Chip portfolios, from the commencement of their
operations, May 1, 1998, through December 31, 1998.
53
<PAGE> 56
ADDITIONAL INFORMATION
Additional information about Ohio National Fund has been filed with the
Securities and Exchange Commission in a Statement of Additional Information
(SAI), dated May 1, 2000, which is incorporated herein by reference.
In addition, information about the Fund's investments is available in the annual
and semi-annual reports to shareholders. In the Fund's annual report, you will
find a discussion of the market conditions and investment strategies that
significantly affected the Fund's performance during the last fiscal year.
The SAI, annual reports, and semi-annual reports are available upon request and
without charge by calling 1-800-366-6654 or writing to the Fund at One Financial
Way, Montgomery, Ohio 45242.
Information about the Fund can also be reviewed and copied at the Public
Reference Room of the Securities and Exchange Commission in Washington, D.C.
Information about the SEC's Public Reference Room is available at
1-800-SEC-0330. Reports and other information are also available in the
Securities Exchange Commission's Internet Site at http://www.sec.gov. and copies
of the information may be obtained, upon payment of a duplicating fee, by
writing the Public Reference Section of the Securities and Exchange Commission,
Washington, D.C. 20549-6009.
Ohio National Fund, Inc.
Investment Company Act file number: 811-3015
54
<PAGE> 57
PART B.
INFORMATION REQUIRED IN A STATEMENT OF ADDITIONAL INFORMATION
<PAGE> 58
OHIO NATIONAL FUND, INC.
One Financial Way
Montgomery, Ohio 45242
Telephone (800) 366-6654
STATEMENT OF ADDITIONAL INFORMATION
MAY 1, 2000
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, 2000.
To obtain a free copy of the Fund's prospectus, write or call the Fund at the
above address.
Table of Contents
-----------------
Page
----
The Fund. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .3
Fund Performance. . . . . . . . . . . . . . . . . . . . . . . . . .4
Current Yield of Money Market Portfolio
Total Return
Portfolio Turnover
Investment Objectives and Policies. . . . . . . . . . . . . . . . .9
Money Market Instruments
Investment Restrictions. . . . . . . . . . . . . . . . . . . . . . 10
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
Management of the Fund. . . . . . . . . . . . . . . . . . . . . . .22
Directors and Officers
Compensation of Directors
Shareholders' Meetings
Investment Advisory and Other Services
Brokerage Allocation. . . . . . . . . . . . . . . . . . . . . . . .27
Purchase and Redemption of Shares. . . . . . . . . . . . . . . . . 29
Tax Status. . . . . . . . . . . . . . . . . . . . . . . . . . . . .30
Experts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
Legal Counsel. . . . . . . . . . . . . . . . . . . . . . . . . . . 31
The S&P 500 . . . . . . . . . . . . . . . . . . . . . . . . . . . .31
The Nasdaq 100. . . . . . . . . . . . . . . . . . . . . . . . . . .31
1
<PAGE> 59
Appendix. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .33
Debt Security Ratings
Financial Statements. . . . . . . . . . . . . . . . . . . . . . . .38
2
<PAGE> 60
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
International Small Company 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 Firstar
Growth & Income portfolio, the Relative Value portfolio, the Capital 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 unless there is a change in applicable law, they will not be
sold directly to the public.
The Fund is a Maryland corporation. It was created on November 2, 1982 when O.N.
Fund, Inc. was merged into O.N. Market Yield Fund, Inc. The shares of O.N. Fund,
Inc. were converted to an equal number of shares of the Equity portfolio, all
shares of O.N. Market Yield Fund, Inc. were converted into an equal number of
shares of the Money Market portfolio, and the Bond portfolio was created. The
Omni portfolio was added in 1984, the International portfolio in 1993, the
Capital Appreciation and Small Cap portfolios in 1994, the International Small
Company and Aggressive Growth portfolios in 1995, the Core Growth, Growth &
Income, S&P 500 Index, Social Awareness, Strategic Income, Firstar Growth &
Income and Relative Value portfolios in 1997, the Capital Growth, High Income
Bond, Equity Income and Blue Chip portfolios in 1998, and the Nasdaq 100 Index
portfolio in 2000. 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 Money Market, Bond, Omni,
S&P 500 Index, Social Awareness and Nasdaq 100 Index 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, Montgomery, Ohio 45242.
The investment and reinvestment of Equity portfolio assets is managed by Legg
Mason Fund Adviser, Inc. ("Legg Mason") as sub-adviser. The principal business
address of Legg Mason is 100 Light Street, Baltimore, Maryland 21202.
The investment and reinvestment of International and International Small Company
portfolio assets is managed by Federated Global Investment Management Corp.
("Federated Global") as sub-adviser. The principal business address of Federated
Global is 175 Water Street, New York, New York 10038.
The investment and reinvestment of Capital Appreciation portfolio assets is
managed by Jennison Associates LLC ("Jennison") as sub-adviser. The principal
business address of Jennison is 466 Lexington Avenue, New York, New York 10017.
The investment and reinvestment of Small Cap portfolio assets is managed by
Founders Asset Management LLC ("Founders") as sub-adviser. The principal
business address of Founders is 2930 East Third Avenue, Denver, Colorado 80206.
The investment and reinvestment of Aggressive Growth portfolio assets is managed
by Janus Capital Corporation ("Janus") as sub-adviser. The principal business
address of Janus is 100 Fillmore Street, Denver, Colorado 80206.
The investment and reinvestment of Core Growth portfolio assets is managed by
Pilgrim Baxter & Associates, Ltd. ("Pilgrim Baxter") as sub-adviser. The
principal business address of Pilgrim Baxter is 825 Duportail Road, Wayne,
Pennsylvania 19087.
3
<PAGE> 61
The investment and reinvestment of Growth & Income and Capital Growth portfolio
assets is managed by RS Investment Management Co. LLC. ("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 and Relative Value portfolio
assets is managed by Firstar Bank, N.A. ("Firstar") as sub-adviser. The
principal business address of Firstar is 425 Walnut Street, Cincinnati, Ohio
45202.
The investment and reinvestment of Firstar Growth & Income portfolio assets is
managed by Firstar Investment Research & Management Company, LLC ("FIRMCO") as
sub-adviser. The principal business address of FIRMCO is 615 East Michigan
Street, Milwaukee, Wisconsin 53201.
The investment and reinvestment of High Income Bond, Equity Income and Blue Chip
portfolio assets is managed by Federated Investment Counseling ("Federated
Investment") as sub-adviser. The principal business address of Federated
Investment is Federated Investors Tower, 1001 Liberty Avenue, Pittsburgh,
Pennsylvania 15222.
Interests in each portfolio are represented by a separate class of the Fund's
capital stock, par value $1. Each class represents an undivided interest in the
assets of the portfolio corresponding to that class. All shares of each
portfolio have one vote per share and are freely transferable. When matters
arise that affect only one portfolio, shares of just that portfolio are entitled
to vote on those matters. Approval of certain matters by a vote of all Fund
shareholders may not bind a portfolio whose shareholders did not approve that
matter.
Each share of each portfolio may participate equally in the portfolio's
dividends, distributions and net assets. The shares of each portfolio, when
issued, will be fully paid and non-assessable, have no preemptive, conversion,
cumulative dividend or similar rights, and are freely transferable. Fund shares
do not have cumulative voting rights. This means the holders of more than half
of the Fund shares voting to elect directors can elect all the directors if they
so choose. In that event, the holders of the remaining shares could not 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.
American Data Services, Inc. is the Fund's transfer agent and fund accounting
agent. It is located at 150 Motor Parkway, Suite 109, Hauppauge, New York 11788.
Firstar is custodian for those portfolios other than the International and
International Small Company portfolios. The custodian for the International and
International Small Company portfolios is Investors Fiduciary Trust Company. It
is located at 801 Pennsylvania Street, Kansas City, Missouri. For assets held
outside the United States, the custodians enter into subcustodial agreements.
The Board of Directors approves all these relationships.
FUND PERFORMANCE
From time to time, we advertise the current yield, average annual total return
and cumulative total returns for the portfolios. We might compare the results 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
4
<PAGE> 62
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 the 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 from 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.
The Fund may distribute sales literature comparing the performance of its
portfolios against the Consumer Price Index or such established market indices
as the Dow Jones Industrial Average, the Standard & Poor's 500, 400, 600 or 1500
Indices, one or more of Lehman Brothers Bond Indices, the Morgan Stanley Capital
International Europe, Australia and Far East Index, the Morgan Stanley Capital
International World Index, the Russell 2000, 2500 or 3000 Indices, the New York
Stock Exchange Composite Index, the American Stock Exchange Index, the National
Association of Securities Dealers Automated Quotations Composite Index, the
Nasdaq 100 Index, the Value Line Composite Index, the Investors Business Daily
6000 Index, the Wilshire 5000 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
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<PAGE> 63
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).
The 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, 1999, are as stated below:
<TABLE>
<CAPTION>
One Five Ten From Inception
Year Years Years Inception Date
---- ------ ----- --------- -------
<S> <C> <C> <C> <C> <C> <C>
Equity* 19.87% 17.65% 12.35% 11.18% 10-06-1969
Money Market 5.02% 5.31% 4.98% 7.09% 03-20-1980
Bond 0.58% 7.35% 7.11% 8.01% 11-02-1982
Omni 11.36% 14.30% 11.09% 11.50% 09-10-1984
International* 67.40% 17.91% N/A 18.39% 04-30-1993
Capital Appreciation* 6.46% 13.01% N/A 12.27% 05-01-1994
Small Cap 106.46% 31.13% N/A 31.40% 05-01-1994
International Small Company* 108.51% N/A N/A 25.53% 03-31-1995
Aggressive Growth* 5.76% N/A N/A 11.00% 03-31-1995
Core Growth 104.95% N/A N/A 29.40% 01-03-1997
Growth & Income 62.25% N/A N/A 33.50% 01-03-1997
S&P 500 Index 25.63% N/A N/A 29.20% 01-03-1997
Social Awareness 17.69% N/A N/A 4.72% 01-03-1997
Strategic Income (4.81%) N/A N/A 0.68% 01-03-1997
Firstar Growth & Income* 1.76% N/A N/A 4.75% 01-03-1997
Relative Value 7.43% N/A N/A 18.54% 01-03-1997
Capital Growth 202.38% N/A N/A 107.07% 05-01-1998
High Income Bond 1.95% N/A N/A 1.10% 05-01-1998
Equity Income 18.58% N/A N/A 15.50% 05-01-1998
Blue Chip 5.86% N/A N/A 5.19% 05-01-1998
Nasdaq 100 Index N/A N/A N/A N/A 05-01-2000
</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
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<PAGE> 64
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, 1999 (assuming a hypothetical initial investment of
$1,000) were as follows:
Five Years Ten Years From Inception
Equity* $2,254 $3,204 $ 24,239
Money Market $1,295 $1,629 $ 3,778
Bond $1,426 $1,988 $ 3,749
Omni $1,951 $2,863 $ 5,287
International* $2,279 N/A $ 3,077
Capital Appreciation* $1,843 N/A $ 1,856
Small Cap $3,877 N/A $ 4,527
International Small Company* N/A N/A $ 2,870
Aggressive Growth* N/A N/A $ 1,602
Core Growth N/A N/A $ 2,162
Growth & Income N/A N/A $ 2,373
S&P 500 Index N/A N/A $ 2,152
Social Awareness N/A N/A $ 1,147
Strategic Income N/A N/A $ 1,020
Firstar Growth & Income* N/A N/A $ 1,149
Relative Value N/A N/A $ 1,664
Capital Growth N/A N/A $ 2,117
High Income Bond N/A N/A $ 1,017
Equity Income N/A N/A $ 1,256
Blue Chip N/A N/A $ 1,083
Nasdaq 100 Index N/A N/A N/A
*Prior to January 1, 1999, the sub-adviser of the International and
International Small Company portfolios was Societe Generale Asset Management
Corp. and the investment policies of the International Small Company portfolio
were substantially different. Prior to May 1, 1999, the Firstar Growth & Income
Portfolio's investment policies were substantially different and its sub-adviser
was Firstar Bank, N.A. Prior to August 2, 1999, the Equity portfolio was managed
by the Adviser. Prior to January 3, 2000, the Capital Appreciation portfolio was
managed by T. Rowe Price Associates, Inc. and the Aggressive Growth portfolio
was managed by Strong Capital Management, Inc.
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.
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. Higher turnover rates are often reflected in higher portfolio
brokerage expenses. 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 low.
During periods when changing market or economic conditions are foreseen,
shifts in portfolio emphasis may cause the rate of portfolio turnover to
increase. During 1999, the turnover rate for this portfolio was 124%.
MONEY MARKET PORTFOLIO - Since the assets of this portfolio consist of
short-term instruments, replacement of portfolio securities occurs
frequently. However, since purchases are generally made through dealers or
issuers on a net basis, the portfolio does not normally incur significant
brokerage commissions.
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<PAGE> 65
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 portfolio turnover rate will vary from time to time but is not
expected to exceed 50% annually. The turnover rate for this portfolio was
8% in 1999.
OMNI PORTFOLIO - The portfolio turnover rate will vary from time to time
but generally is not expected to exceed 100% annually. The turnover rate
for this portfolio was 41% in 1999.
INTERNATIONAL PORTFOLIO - Federated Global will not attempt to set or meet
a portfolio turnover rate because turnover is incidental to transactions
made in an attempt to achieve the portfolio's investment objective.
Securities will be sold whenever Federated Global believes it is
appropriate, regardless of how long they have been held. The turnover rate
for this portfolio was 338% in 1999.
CAPITAL APPRECIATION PORTFOLIO - Although Jennison 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 34% in 1999.
SMALL CAP PORTFOLIO - While this portfolio purchases and holds securities
with the goal of meeting its investment objectives, portfolio changes are
made whenever Founders 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 166% in 1999.
INTERNATIONAL SMALL COMPANY PORTFOLIO - Federated Global will not attempt
to set or meet a portfolio turnover rate because turnover is incidental to
transactions made in an attempt to achieve the portfolio's investment
objective. Securities will be sold whenever Federated Global believes it
is appropriate, regardless of how long they have been held. The turnover
rate for this portfolio was 314% in 1999.
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 241% in 1999.
CORE GROWTH PORTFOLIO - Although the securities held in this portfolio are
generally held for appreciation, Pilgrim Baxter's disciplined reponse 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 150% to 350%. The turnover rate
for this portfolio was 264% in 1999.
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 excess of 100%. The turnover rate for this portfolio was
417% in 1999.
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 normally expected to exceed 100%. The turnover rate
for this portfolio was 68% in 1999.
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 generally is not
expected to exceed 150%. The turnover rate for this portfolio was 122% in
1999.
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<PAGE> 66
STRATEGIC INCOME PORTFOLIO - The securities of this portfolio will
generally be traded more frequently than those of 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 53% in 1999.
FIRSTAR GROWTH & INCOME PORTFOLIO - Although this portfolio does not seek
short-term profits, its securities will be sold whenever FIRMCO 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
100% to 200%. The turnover rate for this portfolio was 197% in 1999.
RELATIVE VALUE PORTFOLIO - Although this portfolio does not seek
short-term profits, its securities will be sold whenver 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 9% in 1999.
CAPITAL GROWTH PORTFOLIO - Securities held in this portfolio tend to be
actively traded. Its portfolio turnover rate is normally expected to
exceed 100%. The turnover rate was 185% in 1999.
HIGH INCOME BOND PORTFOLIO - The portfolio turnover rate will vary from
time to time, but it is not normally expected to exceed 100% for this
portfolio. The turnover rate was 31% in 1999.
EQUITY INCOME PORTFOLIO - The portfolio turnover rate for this portfolio
is normally expected to be in the range of 50% to 150% annually. The
turnover rate was 50% in 1999.
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%. The turnover
rate was 29% in 1999.
NASDAQ 100 INDEX PORTFOLIO. Securities held in this portfolio are
generally only replaced when changes occur in the make-up of the Index or
in order to more closely replicate the Index. The annual turnover rate is
not expected to exceed 100%.
INVESTMENT OBJECTIVES AND POLICIES
The following descriptions of money market instruments supplement the
"Investment Objectives and Policies" set forth for each portfolio in the
prospectus. The Money Market portfolio and the Omni and Strategic Income
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.
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.
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<PAGE> 67
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 generally be short, from
overnight to one week, and at no time more than one year.
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, investment restrictions stated in
the prospectus and this Statement of Additional Information are fundamental
policies. Restrictions number 4, 7, 8, 12 and 13 are fundamental policies of the
Money Market, Bond and Omni portfolios and nonfundamental as to the remaining
portfolios. The fundamental policies and nonfundamental operating policies of
the International, International Small Company, 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.
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<PAGE> 68
The Fund may not issue senior securities and each portfolio of the Fund (other
than the International, International Small Company, 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) (this restriction does not apply to the
Nasdaq 100 Index portfolio and it only applies as to 75% of the
Equity portfolio's assets);
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 (this
restriction does not apply to the Nasdaq 100 Index portfolio);
4. invest more than 15% of the value of its assets (10% in the case of
the Money Market, Bond and Omni 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 Capital 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 Capital
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 Nasdaq 100 Index portfolio may purchase or
sell derivative securities designed to replicate the Nasdaq 100
Index;
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. invest in securities of foreign issuers except that (a) each of the
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
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<PAGE> 69
Cap and Capital 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) each of the Equity, Firstar Growth & Income, and Nasdaq 100
Index portfolios 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;
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 Money Market, Bond and Omni 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 a nonfundamental policy of each portfolio other than the Money Market,
International, International Small Company, 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,
each 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
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<PAGE> 70
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
and International Small Company Portfolios will be invested in 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 these 60
countries: Argentina, Australia, Austria, Bahamas, Bangla Desh, Belgium,
Botswana, Brazil, Canada, Chile, China (Hong Kong, Shanghai and Shenzhen
Exchanges), Colombia, Czech Republic, Denmark, Ecuador, Egypt, Estonia, Finland,
France, Germany, Ghana, Greece, Hungary, India, Indonesia, Ireland, Israel,
Italy, Japan, Jordan, Latvia, Luxembourg, Malaysia, Mauritius, Mexico, Morocco,
Netherlands, New Zealand, Norway, Pakistan, Peru, Philippines, Poland, Portugal,
Romania, Russia, Singapore, South Africa, South Korea, Spain, Sri Lanka, Sweden,
Switzerland, Taiwan, Thailand, Turkey, the United Kingdom, Uruguay, Venezuela
and Zimbabwe.
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 Jennison 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 Jennison 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
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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 Jennison
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.
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 (including securities eligible for
resale under Rule 144A of the Securities Act of 1933) and
securities of unseasoned issuers if, as a result, more than 15%
of its net assets would be invested in such securities;
C.A.14. Purchase securities of open-end or closed-end investment
companies except in compliance with the Investment Company Act
of 1940;
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;
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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 if as a result more than 5%
of the value of the total assets of the portfolio would be
invested in such 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. Effect short sales of securities;
C.A.20. Purchase any warrants if as a result the portfolio will have
more than 5% of its total assets invested in warrants; provided
that this restriction does not apply to warrants acquired as a
result of the purchase of another security; or
C.A.21. Invest more than 25% of the portfolio's total assets (excluding
reserves) in foreign securities.
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
Janus 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.
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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).
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 instrumentsshall 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.
A.G.13. 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.14. 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; and (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.
A.G.15. 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.
A.G.16. 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.
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A.G.17. 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.
INTERNATIONAL, INTERNATIONAL SMALL COMPANY, HIGH INCOME 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 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.
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.
INTERNATIONAL, INTERNATIONAL SMALL COMPANY, HIGH INCOME BOND, EQUITY INCOME AND
BLUE CHIP PORTFOLIO NONFUNDAMENTAL OPERATING POLICIES
As a matter of nonfundamental operating policy:
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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 Index or
on narrow-based stock indexes. A particular index will be selected according to
the Adviser's investment strategy for the particular portfolio. An interest rate
futures contract is an agreement whereby one party agrees to sell and another
party agrees to purchase a specified amount of a specified financial instrument
(debt security) at a specified price at a specified date, time and place.
Although interest rate futures contracts typically require actual future
delivery of and payment for financial instruments, the contracts are usually
closed out before the delivery date. A public market exists in interest rate
futures contracts covering primarily the following financial instruments: U.S.
Treasury bonds; U.S. Treasury notes; Government National Mortgage Association
(GNMA) modified pass-through mortgage-backed securities; three-month U.S.
Treasury bills; 90-day commercial paper; bank certificates of deposit; and
Eurodollar certificates of deposit. It is expected that futures contracts
trading in additional financial instruments will be authorized.
At the time 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.
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 primarily 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.
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
or exposed to 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
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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 or exposed to
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 or exposed to that currency.
At the consummation of a forward contract for delivery by a portfolio of a
foreign currency, the portfolio may either make delivery of the foreign currency
or terminate its contractual obligation to deliver the foreign currency by
purchasing an offsetting contract obligating it to purchase, at the same
maturity date, the same amount of the foreign currency. If the portfolio chooses
to make delivery of the foreign currency, it may be required to obtain such
currency through the sale of its securities denominated in such currency or
through conversion of other portfolio assets into such currency. It is
impossible to forecast the market value of portfolio securities at the
expiration of the forward contract. Accordingly, it may be necessary for the
portfolio to purchase additional foreign currency on the spot market (and bear
the expense of such purchase) if the market value of the security is less than
the amount of foreign currency the portfolio is obligated to deliver, and if a
decision is made to sell the security and make delivery of the foreign currency.
Conversely, it may be necessary for the portfolio to sell on the spot market
some of the foreign currency received on the sale of its hedged security if the
security's market value exceeds the amount of foreign currency the portfolio is
obligated to deliver.
If the portfolio retains the hedged security and engages in an offsetting
transaction, it will incur a gain or loss to the extent that there has been
movement in spot or forward contract prices. If a portfolio engages in an
offsetting transaction, it may subsequently enter into a new forward contract to
sell the foreign currency. Should forward prices decline during the period
between the portfolio's entering into a forward contract for the sale of a
foreign currency and the date it enters into an offsetting contract for the
purchase of the foreign currency, the portfolio will realize a gain to the
extent the price of the currency it has agreed to sell exceeds the price of the
currency it has agreed to purchase. Should forward prices increase, the
portfolio will suffer a loss to the extent the price of the currency it has
agreed to purchase exceeds the price of the currency it has agreed to sell.
Buyers and sellers of foreign currency options and futures contracts are subject
to the same risks previously described with respect to options and futures
generally (see "Risk Factors with Options" and "Risk Factors with Futures,
Options on Futures and Options on Indexes," above). In addition, settlement of
currency options and futures contracts with respect to most currencies must
occur at a bank located in the issuing nation. The ability to establish and
close out positions on such options is subject to the maintenance of a liquid
market that may not always be available. Currency rates may fluctuate based on
political considerations and governmental actions as opposed to purely economic
factors.
Predicting the movements of foreign currency in relation to the U.S. dollar is
difficult and requires different skills than those necessary to predict
movements in the securities market. There is no assurance that the use of
foreign currency hedging transactions can successfully protect a portfolio
against loss resulting from the movements of foreign currency in relation to the
U.S. dollar. In addition, it must be remembered that these methods of protecting
the value of a portfolio's securities against a decline in the value of a
currency 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.
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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.
21
<PAGE> 79
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.
MANAGEMENT OF THE FUND
DIRECTORS AND OFFICERS OF THE FUND
The Fund's Board of Directors is responsible for the Fund's management. The
Board of Directors can amend the Fund's By-laws, elect its officers, declare and
pay dividends, and exercise all the Fund's powers except those reserved to the
shareholders.
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
Cincinnati, Ohio the Adviser
James E. Bushman Director President & CEO, Cast-Fab
3040 Forrer Street Technologies, Inc.
Cincinnati, Ohio
Ross Love Director President & CEO, Blue Chip
615 Windings Way Broadcasting Ltd.; Trustee, Health
Cincinnati, Ohio Alliance of Greater 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 Initiatives,
One Financial Way Director ONLI; Prior to March 1997 was Senior Vice
Cincinnati, Ohio 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
</TABLE>
22
<PAGE> 80
<TABLE>
<S> <C> <C>
Thomas A. Barefield Vice President Senior Vice President, Institutional Sales,
One Financial Way ONLI; Prior to November 1997 was Senior
Cincinnati, Ohio Vice President of Life Insurance Company
of Virginia
Michael A. Boedeker Vice President Vice President, Senior Investment Officer,
One Financial Way ONLI; Vice President and Director of
Cincinnati, Ohio the Adviser
Christopher A. Carlson Vice President Vice President, Senior Investment Officer,
One Financial Way ONLI; President and Director of the
Cincinnati, Ohio Adviser
Dennis R. Taney Treasurer Assistant Vice President, Mutual Fund
One Financial Way Operations, ONLI; Treasurer of the
Cincinnati, Ohio Adviser
</TABLE>
*Indicates Directors who are "Interested Persons" as defined by the Investment
Company Act of 1940, as amended.
All directors and officers of the Fund hold similar positions with ONE Fund,
Inc. ("ONE Fund") and Dow Target Variable Fund LLC ("Dow Target"), other
investment companies 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 1999:
<TABLE>
<CAPTION>
Compensation Aggregate Compensation Total
Director From the Fund From Fund Complex*
- -------- ------------- ------------------
<S> <C> <C>
James E. Bushman None None
George E. Castrucci $11,200 $18,950
Ross Love 10,800 18,100
George M. Vredeveld 11,200 18,950
</TABLE>
* The "Fund Complex" consists of the Fund, ONE Fund and Dow Target.
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 do not require that shareholders meetings need be held except
when matters occur that require shareholder approval. Such matters include
election of directors, approval of investment advisory and sub-advisory
agreements, and approval of fundamental investment policies and restrictions.
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.
23
<PAGE> 81
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 Equity, International,
Capital Appreciation, Small Cap, International Small Company, Aggressive Growth,
Core Growth, Growth & Income, Strategic Income, Firstar Growth & Income,
Relative Value, Capital Growth, High Income Bond, Equity Income and Blue Chip
Portfolios, by delegating that implementation to Legg Mason, Federated Global,
Jennison, Founders, Janus, Pilgrim Baxter, RSIM, Federated Investment, Firstar
or FIRMCO 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 Firstar 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 month for
which the fees are paid based on the following schedule:
(a) for each of the Bond, Omni and Social Awareness portfolios, 0.60% of the
first $100 million of each portfolio's average daily 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 average daily net assets
over $2 billion;
(b) for the Money Market portfolio, 0.30% of the first $100 million of average
daily net assets, 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 average daily net assets
over $1 billion;
(c) for the International, Relative Value, Capital Growth, Blue Chip and Firstar
Growth & Income portfolios, 0.90% of each portfolio's average daily net assets;
(d) for the Capital Appreciation, Small Cap, Aggressive Growth and Strategic
Income portfolios, 0.80% of each portfolio's average daily net assets,
(e) for the Core Growth portfolio, 0.95% of the first $150 million of average
daily net assets, and 0.80% of average daily net assets over $150 million;
(f) for the Growth & Income portfolio, 0.85% of the first $200 million of
average daily net assets, and 0.80% of average daily net assets over $200
million,
(g) for the S&P 500 Index portfolio, 0.40% of the first $100 million of average
daily net assets, 0.35% of the next $150 million, and 0.33% of average daily net
assets over $250 million;
(h) for the High Income Bond, Equity Income and Nasdaq 100 Index portfolios,
0.75% of each portfolio's average daily net assets;
(i) for the International Small Company portfolio, 1.00% of the first $100
million of average daily net assets, and 0.90% of average daily net assets over
$100 million, and
(j) for the Equity portfolio, 0.80% of the first $500 million of average daily
net assets, and 0.75% of average daily net assets over $500 million.
However, as to the Money Market portfolio, the Adviser is presently waiving any
of its fee in excess of 0.25%, and as to the International portfolio, the
Adviser is presently waiving any of its fee in excess of 0.85%.
24
<PAGE> 82
The Fund also incurs other miscellaneous expenses for legal and accounting
services, registration and filing fees, custodial services and shareholder
services.
Under the Investment Advisory Agreement, the Fund authorizes the Adviser to
retain sub-advisers for the Equity, International, Capital Appreciation, Small
Cap, International Small Company, Aggressive Growth, Core Growth, Growth &
Income, Strategic Income, Firstar Growth & Income, Relative Value, Capital
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 Legg Mason, Federated Global, Jennison, Founders,
Janus, Pilgrim Baxter, RSIM, Firstar, FIRMCO and Federated Investment, 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 the Adviser pays:
(a) Federated Global fees at the annual rate of
(i) 0.40% of the first $200 million and 0.35% of average daily net
assets in excess of $200 million of the International portfolio, and
(ii) 0.75% of the first $100 million and 0.65% of average daily net
assets in excess of $100 million of the International Small Company
portfolio;
(b) Jennison a fee at the annual rate of 0.75% of the first $10 million, 0.50%
of the next $30 million, 0.35% of the next $25 million, 0.25% of the next $335
million, 0.22% of the next $600 million, and 0.20% of the average daily net
asset value in excess of $1 billion of the Capital Appreciation portfolio;
(c) Founders a fee at an annual rate of 0.55% of the first $150 million, 0.50%
of the next $150 million, and 0.40% of the average daily net asset value in
excess of $300 million of the Small Cap portfolio;
(d) Janus a fee at the annual rate of 0.55% of the first $100 million, 0.50% of
the next $400 million, and 0.45% of average daily net asset value in excess of
$500 million of the Aggressive Growth portfolio;
(e) Pilgrim Baxter a fee at an annual rate of 0.65% of the first $50 million,
0.60% 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 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
0.55% of average daily net assets in excess of $200 million of the
Capital Growth portfolio;
(g) Firstar 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, and
(ii) 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;
(h) Federated Investment fees at an annual rate of
(i) 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 assets in excess
of $75 million of the High Income Bond portfolio, and
(ii) 0.50% of the first $35 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 each of the
Equity Income and Blue Chip portfolios;
25
<PAGE> 83
(i) FIRMCO a fee at an annual rate of 0.65% of the first $50 million and 0.60%
of average daily net assets in excess of $50 million of the Firstar Growth
& Income portfolio, and
(j) Legg Mason a fee at an annual rate of 0.45% of the first $500 million and
0.40% of average daily net assets in excess of $500 million of the Equity
portfolio.
The following investment advisory fees from each of the Fund's portfolios were
paid to the Adviser for each of the indicated years, ending December 31*:
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Equity $1,848,965 $1,550,392 $1,431,415
Money Market** 130,264 94,306 71,176
Bond 160,182 150,300 121,188
Omni 1,070,139 1,116,792 948,021
International** 1,010,896 1,346,274 1,416,777
Capital Appreciation 574,228 559,341 386,595
Small Cap 826,722 490,439 378,436
International Small Company 239,451 175,546 130,704
Aggressive Growth 186,707 182,408 125,073
Core Growth 180,739 96,330 62,237
Growth & Income 607,062 323,909 61,464
S&P 500 Index 618,602 212,478 43,376
Social Awareness 24,814 40,259 16,529
Strategic Income 28,913 30,384 18,318
Firstar Growth & Income 32,117 32,977 23,440
Relative Value 100,255 80,506 30,639
Capital Growth 64,947 10,726 N/A
High Income Bond 86,401 50,117 N/A
Equity Income 22,667 9,909 N/A
Blue Chip 33,744 13,619 N/A
Nasdaq 100 Index N/A N/A N/A
------------ ------------- -------------
$7,848,175 $6,567,012 $5,265,388
</TABLE>
* The Core Growth, Growth & Income, S&P 500 Index, Social Awareness,
Strategic Income, Firstar Growth & Income and Relative Value portfolios
commenced operations on January 3, 1997. The Capital Growth, High Income Bond,
Equity Income and Blue Chip portfolios commenced operations on May 1, 1998. The
Nasdaq 100 Index portfolio commenced operations on May 1, 2000.
** For the Money Market portfolio, an additional $26,125, $15,718, and $14,235
was earned but waived in 1999, 1998 and 1997 respectively, as described above.
For the International portfolio, an additional $59,465 was earned but waived in
1999 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 l%, on
an annualized basis, of such portfolio's average daily net asset value, the
Adviser will pay such expenses. No such amounts were paid to any portfolio
during the three years ended December 31, 1999.
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 Board of Directors and the shareholders of the respective portfolios
initially voted to approve the current Investment Advisory, Service and
Sub-Advisory Agreements on the dates indicated below:
26
<PAGE> 84
<TABLE>
<CAPTION>
Board of
Directors Shareholders
--------- ------------
<S> <C> <C>
Equity (Investment Advisory and Service) 01-24-1996 03-28-1996
Equity (Sub-Advisory) 05-20-1999 07-22-1999
Money Market 01-24-1996 03-28-1996
Bond 01-24-1996 03-28-1996
Omni 01-24-1996 03-28-1996
International (Investment Advisory and Service) 01-24-1996 03-28-1996
International (Sub-Advisory) 12-09-1998 04-05-1999
Capital Appreciation (Investment Advisory and Service) 01-24-1996 03-28-1996
Capital Appreciation (Sub-Advisory) 11-02-1999 04-03-2000
Small Cap (Investment Advisory and Service) 01-24-1996 03-28-1996
Small Cap (Sub-Advisory) 11-19-1997 02-17-1998
International Small Company (Investment Advisory and Service) 01-24-1996 03-28-1996
International Small Company (Sub-Advisory) 12-09-1998 04-05-1999
Aggressive Growth (Investment Advisory and Service) 01-24-1996 03-28-1996
Aggressive Growth (Sub-Advisory) 11-19-1999 04-03-2000
Core Growth 08-22-1996 01-02-1997
Growth & Income (Investment Advisory and Service) 08-22-1996 01-02-1997
Growth & Income (Sub-Advisory) 02-24-1999 04-05-1999
S&P 500 Index 08-22-1996 01-02-1997
Social Awareness 08-22-1996 01-02-1997
Strategic Income 08-22-1996 01-0219-97
Firstar Growth & Income (Investment Advisory and Service) 08-22-1996 01-02-1997
Firstar Growth & Income (Sub-Advisory) 02-24-1999 04-05-1999
Relative Value 08-22-1996 01-02-1997
Capital Growth (Investment Advisory and Service) 02-11-1998 04-30-1998
Capital Growth (Sub-Advisory) 02-24-1999 04-05-1999
High Income Bond 02-11-1998 04-30-1998
Equity Income 02-11-1998 04-30-1998
Blue Chip 02-1119-98 04-30-1998
Nasdaq 100 Index 03-08-2000 05-01-2000
</TABLE>
These agreements will continue in force from year to year if 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 Money Market, Bond,
Omni, S&P 500 Index, Social Awareness and Nasdaq 100 Index 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
27
<PAGE> 85
primarily of brokerage commissions or dealer or underwriter spreads. Bonds and
money market securities are generally traded on a net basis and do not normally
involve either brokerage commissions or transfer taxes.
Occasionally, securities may be purchased directly from the issuer. For
securities traded primarily in the over-the-counter market, the Adviser and
sub-advisers will, where possible, deal directly with dealers 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:
1999 1998 1997
---- ---- ----
Equity $ 817,693 $ 249,512 $167,877
Money Market None None None
Bond None None None
Omni 224,752 130,934 96,409
International 2,225,000 253,718 286,011
Capital Appreciation 50,971 63,490 40,887
Small Cap 113,023 78,359 55,034
International Small Company 560,000 101,032 45,153
Aggressive Growth 195,628 118,001 104,590
Core Growth 50,123 17,204 12,359
Growth & Income 581,431 270,046 51,188
S&P 500 Index 81,560 48,797 74,063
Social Awareness 41,407 39,951 16,522
Strategic Income 11,024 6,613 5,127
Firstar Growth & Income 13,856 16,648 4,353
Relative Value 5,690 28,388 11,110
Capital Growth 9,804 3,000 N/A
High Income Bond 114 None N/A
Equity Income 3,954 2,017 N/A
28
<PAGE> 86
Blue Chip 3,649 4,014 N/A
Nasdaq 100 Index N/A N/A N/A
---------- ---------- ---------
$4,989,679 $1,431,724 $970,683
In l999, substantially all of such commissions were paid to brokers who
furnished statistical data and research information to the Adviser or a
sub-adviser.
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 day the New York Stock Exchange is open for
unrestricted trading. The net asset value of each portfolio is computed by
dividing the value of the securities in that portfolio plus any cash or other
assets less all liabilities of the portfolio, by the number of 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.
The Board of Directors is ultimately responsible for determining the current net
asset values of each portfolio. The Board has authorized the Adviser and its
service providers to use the following sources to determine the current daily
prices of securities owned by the portfolios: Interactive Data Corporation (and
related "Fundrun" services), Reuters, Bloomberg and any brokers making a market
in a particular security.
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
29
<PAGE> 87
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 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, 1999 the Fund and each portfolio 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. 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.
30
<PAGE> 88
EXPERTS
The financial statements of Ohio National Fund, Inc. as of December 31, 1999 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 LLP, independent certified public accountants, appearing in this Statement
of Additional Information, and upon the authority of said firm as experts in
accounting and auditing. KPMG 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
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 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 NASDAQ 100 INDEX
The Nasdaq 100 Index portfolio is not sponsored, endorsed, sold or promoted by
The Nasdaq Stock Market, Inc. (including its affiliates). The Nasdaq Stock
Market, Inc. and its affiliates are referred to
31
<PAGE> 89
herein as "Nasdaq." Nasdaq has not passed on the legality or suitability of, or
the accuracy or adequacy of descriptions and disclosures relating to, the Nasdaq
100 Index portfolio. Nasdaq makes no representation or warranty, express or
implied to investors in the portfolio or any member of the public regarding the
advisability of investing in securities generally or the portfolio particularly,
or the ability of the Nasdaq 100 Index(R) to track general stock market
performance. Nasdaq's only relationship to the Adviser (the licensee) is in the
licensing of the Nasdaq 100(R), Nasdaq 100 Index(R), and Nasdaq(R) trademarks or
service marks, and certain trade names of Nasdaq aND the use of the Nasdaq 100
Index(R) which is determined, composed and calculated by Nasdaq without regard
to the Adviser or the portfolio. Nasdaq has no obligation to take the needs of
the Adviser or investors in the portfolio into consideration in determining,
composing or calculating the Nasdaq 100 Index(R). Nasdaq is not responsible for
and has not participated in the determination of the timing of, prices at, or
quantities of the portfolio to be issued or in the determination or calculation
of the equation by which the portfolio is to be converted into cash. Nasdaq has
no liability in connection with the administration, marketing or trading of the
portfolio.
NASDAQ DOES NOT GUARANTEE THE ACCURACY AND/OR UNINTERRUPTED CALCULATION OF THE
NASDAQ 100 INDEX(R) OR ANY DATA INCLUDED THEREIN. NASDAQ MAKES NO WARRANTY,
EXPRESS OR IMPLIED, AS TO RESULTS TO BE OBTAINED BY THE ADVISER, INVESTORS IN
THE PORTFOLIO, OR ANY OTHER PERSON OR ENTITY FROM THE USE OF THE NASDAQ 100
INDEX(R) OR ANY DATA INCLUDED THEREIN. NASDAQ MAKES NO EXPRESS OR IMPLIED
WARRANTIES, AND EXPRESSLY DISCLAIMS ALL WARRANTIES OF MERCHANTABILITY OR FITNESS
FOR A PARTICULAR PURPOSE OR USE WITH RESPECT TO THE NASDAQ 100 INDEX(R) OR ANY
DATA INCLUDED THEREIN. WITHOUT LIMITING ANY OF THE FOREGOING, IN NO EVENT SHALL
NASDAQ HAVE ANY LIABILITY FOR ANY LOST PROFITS OR SPECIAL, INCIDENTAL, PUNITIVE,
INDIRECT, OR CONSEQUENTIAL DAMAGES, EVEN IF NOTIFIED OF THE POSSIBILITY OF SUCH
DAMAGES.
32
<PAGE> 90
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.
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
33
<PAGE> 91
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
34
<PAGE> 92
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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<PAGE> 93
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.
36
<PAGE> 94
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.
37
<PAGE> 95
OHIO NATIONAL FUND, INC.
Form N-1A
PART C.
OTHER INFORMATION
<PAGE> 96
FINANCIAL STATEMENTS AND EXHIBITS
The following audited financial statements are included in Part B of this
registration statement and shall be furnished by a subsequent post-effective
amendment under Rule 485(b):
Statements of Assets and Liabilities as of December 31, 1999
Statements of Operations for the Year or Periods Ended December
31, 1999
Statements of Changes in Net Assets for the Years Ended December
31, 1999 and 1998
Schedule of Investments at December 31, 1999 -- Equity Portfolio
Schedule of Investments at December 31, 1999 -- Money Market
Portfolio
Schedule of Investments at December 31, 1999 -- Bond Portfolio
Schedule of Investments at December 31, 1999 -- Omni Portfolio
Schedule of Investments at December 31, 1999 -- International
Portfolio
Schedule of Investments at December 31, 1999 -- Capital
Appreciation Portfolio
Schedule of Investments at December 31, 1999 -- Small Cap
Portfolio
Schedule of Investments at December 31, 1999 -- International
Small Company Portfolio
Schedule of Investments at December 31, 1999 -- Aggressive Growth
Portfolio
Schedule of Investments at December 31, 1999 -- Core Growth
Portfolio
Schedule of Investments at December 31, 1999 -- Growth & Income
Portfolio
Schedule of Investments at December 31, 1999 -- S&P 500 Index
Portfolio
Schedule of Investments at December 31, 1999 -- Social Awareness
Portfolio
Schedule of Investments at December 31, 1999 -- Strategic Income
Portfolio
Schedule of Investments at December 31, 1999 -- Firstar Growth &
Income Portfolio
Schedule of Investments at December 31, 1999 -- Relative Value
Portfolio
Schedule of Investments at December 31, 1999 -- High Income Bond
Portfolio
Schedule of Investments at December 31, 1999 -- Equity Income
Portfolio
Schedule of Investments at December 31, 1999 -- Blue Chip
Portfolio
Schedule of Investments at December 31, 1999 -- Capital Growth
Portfolio
Notes to Financial Statements for December 31, 1999
Independent Auditors' Report of KPMG LLP dated February 4, 2000
The following audited financial information is included in Part A of this
registration statement and shall be furnished by a subsequent post-effective
amendment under Rule 485(b):
Financial Highlights (Ten years ended December 31, 1999)
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:
(c)(6) Specimen of certificated securities of the Registrant's Nasdaq 100 Index
portfolio
(d)(1) Sub-Advisory Agreement (for the Capital Appreciation portfolio) between
Ohio National Investments, Inc. and Jennison Associates LLC dated
January 3, 2000
(d)(3) Sub-Advisory Agreement (for the Aggressive Growth portfolio) between
Ohio National Investments, Inc. and Janus Capital Corporation dated
January 3, 2000
(i)(5) Opinion and consent of Ronald L. Benedict, Esq., as to the shares of the
Registrant's Nasdaq 100 Index portfolio
(j)(5) Investment letter for the initial subscription of stock of the
Registrant's Nasdaq 100 Index portfolio
<PAGE> 97
All other relevant exhibits, which have previously been filed with the
Commission and are incorporated herein by reference, are as follows:
(a) 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.
(a)(1) 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.
(a)(2) 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.
(a)(3) 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.
(a)(4) Articles Supplementary of the Registrant, effective
September 16, 1996 were filed as Exhibit (1)(d) of
the Registrant's Form N-1A, Post-effective Amendment
no. 32, on October 21, 1996.
(a)(5) Articles Supplementary of the Registrant, effective
March 17, 1998, were filed as Exhibit (1)(e) of the
Registrant's Form N-1A, Post-effective Amendment no. 36,
on April 24, 1998.
(b) 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.
(c)(1) 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.
(c)(2) 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.
(c)(3) 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.
(c)(4) 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.
(c)(5) 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.
(d) 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, and
Schedule A, thereto effective May 1, 1998, was filed as
Exhibit (5)(a)(1) of the Registrant's Form N-1A,
Post-effective Amendment no. 35 on February 13, 1998.
<PAGE> 98
(d)(2) Sub-Advisory Agreement dated April 1, 1998 (for the
Small Cap Portfolio) between Ohio National Investments,
Inc. and Founders Asset Management LLC was filed as
Exhibit (5)(d) of the Registrant's Form N-1A,
Post-effective Amendment no. 35 on February 13, 1998
with an amendment filed as Exhibit (d)(2)(i) under Post-
effective Amendment no. 37 on February 25, 1999.
(d)(4) Sub-Advisory Agreement (for the Core Growth Portfolio)
between Ohio National Investments, Inc. and Pilgrim
Baxter & Associates, Ltd., date January 3, 1997 was
filed as Exhibit no. (5)(f) of the Registrant's
October 21, 1996 with an amendment filed as Exhibit
(d)(4)(i) under Post-effective Amendment no. 37 on
February 25, 1999.
(d)(5) Sub-Advisory Agreement (for the Strategic Income 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.
(d)(6) 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 was filed as Exhibit (5)(j) of the
Registrant's Form N-1A Post-effective Amendment no. 35
on February 13, 1998.
(d)(7) Subadvisory Agreement (for the International and
International Small Company Portfolios) between Ohio
National Investments, Inc. and Federated Global Research
Corp. was filed as Exhibit (d)(7) of the Registrant's
Form N-1A, Post-effective Amendment no. 37 on February
25, 1999.
(d)(8) Subadvisory Agreement (for the Growth & Income and
Capital Growth Portfolios) between Ohio National
Investments, Inc. and Robertson Stephens Investment
Management, L.P. was filed as Exhibit no. (d)(8) of the
Registrant's Form N-1A, Post-effective Amendment no. 37
on February 25, 1999.
(d)(9) Subadvisory Agreement (for the Firstar Growth & Income
Portfolio) between Ohio National Investments, Inc. and
Firstar Investment Research & Management Company, LLC
was filed as Exhibit (d)(9) of the Registrant's Form
N-1A, Post-effective Amendment no. 37 on February 25,
1999.
(g) 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.
(g)(1) 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, and the First Amendment thereto (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.
(h)(1) 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.
(h)(2) 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.
(h)(3) 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.
(h)(4) 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.
(h)(5) 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.
(h)(6) Joint Insured Agreement among the Registrant, ONE Fund,
Inc., Dow Target Variable Fund LLC and Ohio National
Investments, Inc. was filed as Exhibit no. (h)(6) of the
Registrant's Form N-1A, Post-effective Amendment no. 37
on February 25, 1999.
<PAGE> 99
(i)(1) 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.
(i)(2) 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.
(i)(3) 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.
(i)(4) Opinion and consent of Ronald L. Benedict, Esq., as to
the shares of the Registrant's Small Cap Growth, High
Income Bond, Equity Income and Blue Chip Portfolios was
filed as Exhibit (10)(c) of the Registrant's Form N-1A,
Post-Effective Amendment no. 36 on April 24, 1998.
(j)(1) 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.
(j)(2) 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.
(j)(3) Investment letter for the initial subscription 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.
(j)(4) Investment letter for the initial subscription of stock
of the Registrant's Small Cap Growth, High Income Bond,
Equity Income and Blue Chip Portfolios was filed as
Exhibit (13)(c) of the Registrant's Form N-1A
Post-Effective Amendment no. 36 on April 24, 1998.
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, 2000, 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
International Small Company 5
Aggressive Growth 5
Core Growth 5
Growth & Income 5
S&P 500 Index 5
Social Awareness 5
Strategic Income 5
Firstar Growth & Income 5
Relative Value 5
Capital Growth 5
High Income Bond 5
Equity Income 5
Blue Chip 5
Nasdaq 100 Index 0
</TABLE>
<PAGE> 100
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 AND SUBADVISERS
Information related to the Registrant's investment adviser (Ohio National
Investments, Inc.) and each of the subadvisers retained by the investment
adviser for the management of the Registrant's portfolios is contained in the
registration statement currently on file with the Commission for each such
entity on Form ADV and is incorporated herein by reference. The file numbers of
the investment adviser and each subadviser are listed below:
Investment Adviser or Subadviser File No.
- -------------------------------- --------
Ohio National Investments, Inc. 801-51396
Federated Global Investment Management Corp. 801-49470
Federated Investment Counseling 801-34611
Jennison Associates LLC 801-05608
Founders Asset Management LLC 801-55220
Janus Capital Corporation 801-13991
Pilgrim Baxter & Associates, Ltd. 801-48872
RS Investment Management Co. LLC 801-29888
Firstar Investment Research & Management Company, LLC 801-28084
Legg Mason Fund Adviser, Inc. 801-16958
-5-
<PAGE> 101
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
International Small Company Portfolios:
Firstar
425 Walnut Street
Cincinnati, Ohio 45202
and
American Data Services, Inc. ("ADS")
150 Motor Parkway, Suite 109
Hauppauge, NY 11788
For the International and International Small Company
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
Montgomery, Ohio 45242
-14-
<PAGE> 102
(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
Not Applicable
-15-
<PAGE> 103
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the Investment
Company Act of 1940, 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 Montgomery
and the State of Ohio on the 4th day of February, 2000.
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 1933, 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 4, 2000
John J. Palmer (Principal Executive Officer)
/s/Dennis R. Taney
- ------------------------- Treasurer (Principal Financial February 4, 2000
Dennis R. Taney and Accounting Officer)
/s/Ronald L. Benedict
- ------------------------- Director February 4, 2000
Ronald L. Benedict
/s/George E. Castrucci
- ------------------------- Director February 4, 2000
George E. Castrucci
/s/Ross Love
- ------------------------- Director February 4, 2000
Ross Love
/s/George M. Vredeveld
- ------------------------- Director February 4, 2000
George M. Vredeveld
</TABLE>
<PAGE> 104
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>
Exhibits:
(c)(6) Specimen of certificated securities of the Registrant's Nasdaq 100 Index
portfolio
(d)(1) Sub-Advisory Agreement (for the Capital Appreciation portfolio) between
Ohio National Investments, Inc. and Jennison Associates LLC dated
January 3, 2000
(d)(3) Sub-Advisory Agreement (for the Aggressive Growth portfolio) between
Ohio National Investments, Inc. and Janus Capital Corporation dated
January 3, 2000
(i)(5) Opinion and consent of Ronald L. Benedict, Esq., as to the shares of the
Registrant's Nasdaq 100 Index portfolio
(j)(5) Investment letter for the initial subscription of stock of the
Registrant's Nasdaq 100 Index portfolio
<PAGE> 105
CONSENTS
<PAGE> 106
[Letterhead]
February 4, 2000
The Board of Directors
Ohio National Fund, Inc.
One Financial Way
Montgomery, Ohio 45242
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> 107
Jones & Blouch L.L.P.
Suite 405-West
1025 Thomas Jefferson St., N.W.
Washington, DC 20007
(202) 223-3500
February 4, 2000
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. 39 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 (c)(6)
Number Shares
000 [Certificate] **100**
Ohio National Fund, Inc.
Organized under the laws of the State of Maryland
This Certifies that ________________________________________ is the owner of
One Hundred fully paid and nonassessable common shares of the par value of $1.00
each of:
Ohio National Fund, Inc.
Nasdaq 100 Index Portfolio
transferable only on the books of the corporation by the holder hereof in person
or by duly authorized attorney upon the surrender of this certificate properly
endorsed.
Witness the seal of the corporation and the signatures of its duly authorized
officers.
Date: _________________
/s/ John J. Palmer /s/ Ronald L. Benedict
_______________________ _______________________
President Secretary
<PAGE> 1
Exhibit (d)(1)
SUB-ADVISORY AGREEMENT
This Agreement is made as of the third day of January, 2000 by and between OHIO
NATIONAL INVESTMENTS, INC., an Ohio corporation (the "Adviser"), and JENNISON
ASSOCIATES LLC, a [state] limited liability company (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 CAPITAL
APPRECIATION 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 Capital
Appreciation 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 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
<PAGE> 2
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) 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 trade
data 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 monthly, at the
annual rate of 0.75% of the first ten million dollars ($10,000,000) of the
average daily net assets of the Portfolio during the month preceding each
payment, 0. 50% of the next thirty million dollars ($30,000,000), 0.35% of the
next twenty-five million dollars ($25,000,000), 0.25% of the next three hundred
and thirty-five million dollars ($335,000,000), 0.22% of the next six hundred
million dollars ($600,000,000), and 0.20% of the average daily net assets of the
Portfolio in excess of one billion dollars ($1,000,000,000) (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 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.
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"). 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. 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
3
<PAGE> 4
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.
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. PROXIES
Unless the Adviser instructs the Sub-Adviser otherwise in writing, the
Sub-Adviser will vote proxies for securities held by the Fund in accordance with
the Sub-Adviser's policies for proxy voting. The Sub-Adviser is authorized to
instruct the custodian to forward to the Sub-Adviser copies of all proxies and
shareholder communications relating to securities held by the Portfolio (other
than materials relating to legal proceedings). The Adviser agrees that the
Sub-Adviser will not be liable for failing to vote any proxies where it has not
received such proxies or related shareholder communications on a timely basis.
SECTION 8. 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
4
<PAGE> 5
from time to time, reasonably require in order to discharge the Sub-Adviser's
duties under this Agreement.
SECTION 9. 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 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).
(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.
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If to the Adviser:
Ohio National Investments, Inc.
P.O. Box 237
Cincinnati, Ohio 45201
Fax No. (513) 794-4506
With a copy to:
Ronald L. Benedict, Secretary
Ohio National Investments, Inc.
P.O. Box 237
Cincinnati, Ohio 45201
If to the Sub-Adviser:
Jennison Associates LLC
466 Lexington Avenue
New York, New York 10017
Fax No. 212-986-0603
With a copy to:
SECTION 12. 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 13. 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 14. 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/ Michael A. Boedeker
-----------------------
Michael A. Boedeker
Vice President
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<PAGE> 7
JENNISON ASSOCIATES LLC
By: /s/ Karen E. Kohler
-------------------
Karen E. Kohler
Senior Vice President
Accepted and Agreed:
OHIO NATIONAL FUND, INC.
By: /s/ John J. Palmer
-------------------------
John J. Palmer, President
7
<PAGE> 1
Exhibit (d)(3)
SUB-ADVISORY AGREEMENT
This Agreement is made as of the nineteenth day of January, 2000 by and between
OHIO NATIONAL INVESTMENTS, INC., an Ohio corporation (the "Adviser"), and JANUS
CAPITAL CORPORATION, a Colorado 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 AGGRESSIVE
GROWTH PORTFOLIO ("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 and exclusive basis the cash, securities and other assets of
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"). 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. The Sub-Adviser is authorized, subject to the
supervision of the Adviser and the Board of Directors of the Fund, to place
orders for the purchase and sale of the Portfolio's investments with or through
such persons, brokers or dealers, including the Sub-Adviser or affiliates
thereof, and to negotiate commissions to be paid on such transactions in
accordance with
<PAGE> 2
the Fund's policy with respect to brokerage as set forth in the Statement of
Additional Information. The Sub-Adviser may, on behalf of the Portfolio, pay
brokerage commissions to a broker which provides brokerage and research services
to the Sub-Adviser in excess of the amount another broker would have charged for
effecting the transaction, provided (i) the Sub-Adviser determines in good faith
that the amount is reasonable in relation to the value of the brokerage and
research services provided by the executing broker in terms of the particular
transaction or in terms of the Sub-Adviser's overall responsibilities with
respect to the Portfolio and the accounts as to which the Sub-Adviser exercises
investment discretion, (ii) such payment is made in compliance with Section
28(e) of the Securities Exchange Act of 1934, as amended, and any other
applicable laws and regulations, and (iii) in the opinion of the Sub-Adviser,
the total commissions paid by the Portfolio will be reasonable in relation to
the benefits to the Portfolio over the long term. It is recognized that the
services provided by such brokers may be useful to the Sub-Adviser in connection
with the Sub-Adviser's services to other clients. The Adviser shall provide such
assistance in setting up brokerage or other accounts as the Sub-Adviser may
reasonably request.
(d) In carrying out its obligations to manage the investments and reinvestments
of the assets of the Portfolio, the Sub-Adviser shall: (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) The Sub-Adviser will maintain all books and records required to be
maintained pursuant to the Investment Company Act and the rules and regulations
promulgated thereunder with respect to transactions made by it on behalf of the
Portfolio including, without limitation, the books and records required by
Subsections (b)(1), (5), (6), (7), (9), (10) and (11) and Subsection (f) of Rule
31a-1 under the 1940 Act and shall timely furnish to the Adviser all information
relating to the Sub-Adviser's services hereunder needed by the Adviser to keep
such other books and records of the Portfolio required by Rule 31a-1 under the
1940 Act. The Sub-Adviser will also preserve all such books and records for the
periods prescribed in Rule 31a-2 under the 1940 Act, and agrees that such books
and records shall remain the sole property of the Fund and shall be immediately
surrendered to the Fund upon request. The Sub-Adviser further agrees that all
books and records maintained hereunder shall be made available to the Fund or
the Adviser at any time upon reasonable request, including telecopy at the
Adviser's expense without unreasonable delay, during any business day.
(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, other than proprietary information and
provided that the Sub-Adviser shall not be responsible for portfolio accounting
nor shall it be required to generate information derived from Portfolio
accounting data.
(h) The Sub-Adviser shall be responsible for the preparation and filing of
Schedule 13G and Form 13F on behalf of the Portfolio. The Sub-Adviser shall not
be responsible for the preparation
2
<PAGE> 3
or filing of any reports required of the Portfolio by any governmental or
regulatory agency, except as expressly agreed to in writing.
(i) The Sub-Adviser shall have no responsibility to monitor certain limitations
or restrictions, including without limitation, the 90%-source test, for which
the Sub-Adviser determines it has not been provided sufficient information in
accordance with Section 8 of this Agreement or otherwise. All such monitoring
shall be the responsibility of the Adviser.
(j) The Portfolio assets shall be maintained in the custody of its custodian.
Any assets added to the Portfolio shall be delivered directly to such custodian.
The Sub-Adviser shall have no liability for the acts or omissions of any
custodian of the Portfolio's assets. The Sub-Adviser shall have no
responsibility for the segregation requirement of the 1940 Act or other
applicable law.
SECTION 2. EXPENSES
(a) Except as otherwise stated in this Agreement, 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.
SECTION 3. USE OF SERVICES OF OTHERS
The Sub-Adviser may (at its expense except as set forth in Sections 1(c) and 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 monthly, at the
annual rate of 0.55% of the first one hundred million dollars ($100,000,000) of
the average daily net assets of the Portfolio during the month preceding each
payment, 0.50% of the next four hundred million dollars ($400,000,000), and
0.45% of the average daily net assets of the Portfolio in excess of five hundred
million dollars ($500,000,000) (the "Sub-Advisory Fee") during such period. 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
3
<PAGE> 4
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) In the absence of willful misfeasance, bad faith or gross negligence in the
performance of its duties hereunder or its reckless disregard of its duties
under this Agreement, the Sub-Adviser shall not be subject to any liability to
the Fund, 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
and severally 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.
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 clients of the
Sub-Adviser, the Sub-Adviser may, but shall be under no obligation, 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-
4
<PAGE> 5
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 clients.
(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 fiduciary accounts for which it
has investment responsibility. The Sub-Adviser will comply with all applicable
rules and regulations of the Securities and Exchange Commission.
SECTION 7. PROXIES
Unless the Adviser instructs the Sub-Adviser otherwise in writing, the
Sub-Adviser will vote proxies for securities held by the Fund in accordance with
the Sub-Adviser's policies for proxy voting. The Sub-Adviser is authorized to
instruct the custodian to forward to the Sub-Adviser copies of all proxies and
shareholder communications relating to securities held by the Portfolio (other
than materials relating to legal proceedings). The Adviser agrees that the
Sub-Adviser will not be liable for failing to vote any proxies where it has not
received such proxies or related shareholder communications on a timely basis.
SECTION 8. REPORTS TO THE SUB-ADVISER
(a) 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. The
Adviser shall forward to the Sub-Adviser drafts of all amendments to the Fund's
registration statement that are related to the Portfolio, and the Adviser shall
afford the Sub-Adviser an opportunity to comment thereon prior to filing with
the Securities and Exchange Commission.
SECTION 9. 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 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
5
<PAGE> 6
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 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 manager of the
Janus Olympus Fund or the Portfolio; (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; or
(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.
(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:
Ronald L. Benedict, Secretary
Ohio National Investments, Inc.
P.O. Box 237
Cincinnati, Ohio 45201
If to the Sub-Adviser:
Janus Capital Corporation
100 Fillmore Street
Denver, Colorado 80206
Attention: General Counsel
Fax No. (303) 394-7714
SECTION 12. 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.
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<PAGE> 7
SECTION 13. 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 14. 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.
SECTION 15. REPRESENTATIONS AND WARRANTIES OF SUB-ADVISER
The Sub-Adviser represents and warrants to the Adviser and the Fund as follows:
(a) The Sub-Adviser is registered as an investment adviser under the Advisers
Act;
(b) The Sub-Adviser is a corporation duly organized and validly existing under
the laws of the State of Colorado with the power to own and possess its assets
and carry on its business as it is now being conducted;
(c) The execution, delivery and performance by the Sub-Adviser of this Agreement
are within the Sub-Adviser's powers and have been duly authorized, and no action
by or in respect of, or filing with, any governmental body, agency or official
is required on the part of the Sub-Adviser for the execution, delivery and
performance by the Sub-Adviser of this Agreement, and the execution, delivery
and performance by the Sub-Adviser of this Agreement do not contravene or
constitute a default under (i) any provision of applicable law, rule or
regulation, (ii) the Sub-Adviser's governing instruments, or (iii) any
agreement, judgment, injunction, order, decree or other instrument binding upon
the Sub-Adviser;
(d) This Agreement is a valid and binding agreement of the Sub-Adviser;
(e) A true and complete copy of the Form ADV of the Sub-Adviser, as amended to
the date hereof and filed with the Commission has been furnished to the Adviser,
and the information contained therein is accurate and complete in all material
respects and does not omit to state any material fact necessary in order to make
the statements made, in light of the circumstances under which they were made,
not misleading.
(f) The Sub-Adviser agrees to observe and comply with Rule 17j-1 under the 1940
Act and the Sub-Adviser's Code of Ethics, as may be amended from time to time.
The Sub-Adviser shall not be subject to any other code of ethics, including that
of the Adviser, unless specifically adopted by the Sub-Adviser.
SECTION 16. REPRESENTATIONS AND WARRANTIES OF ADVISER.
The Adviser represents and warrants to the Sub-Adviser as follows:
(a) The Adviser is registered as an investment adviser under the Advisers Act;
(b) The Fund has filed a Notice of Eligibility under Rule 4.5 of the CEA, with
the Commodity Futures Trading Commission (the "CFTC") and the National Futures
Association;
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<PAGE> 8
(c) The Adviser is a corporation duly organized and validly existing under the
laws of the State of Ohio with the power to own and possess its assets and carry
on its business as it is now being conducted;
(d) The execution, delivery and performance by the Adviser of this Agreement are
within the Adviser's powers and have been duly authorized, and no action by or
in respect of, or filing with, any governmental body, agency or official is
required on the part of the Adviser for the execution, delivery and performance
by the Adviser of this Agreement, and the execution, delivery and performance by
the Adviser of this Agreement do not contravene or constitute a default under
(i) any provision of applicable law, rule or regulation, (ii) the Adviser's
governing instruments, or (iii) any agreement, judgment, injunction, order,
decree or other instrument binding upon the Adviser;
(e) This Agreement is a valid and binding agreement of the Adviser;
(f) A true and complete copy of the Form ADV of the Adviser, as amended to the
date hereof and filed with the Commission has been furnished to the Sub-Adviser,
and the information contained therein is accurate and complete in all material
respects and does not omit to state any material fact necessary in order to make
the statements made, in light of the circumstances under which they were made,
not misleading;
(g) The Adviser acknowledges that it received a copy of the Sub-Adviser's Form
ADV at least 48 hours prior to the execution of this Agreement.
(h) The Adviser agrees to observe and comply with Rule 17j-1 under the 1940 Act
and the Adviser's Code of Ethics as may be amended from time to time.
SECTION 17. SURVIVAL OF REPRESENTATIONS AND WARRANTIES: DUTY TO UPDATE
INFORMATION.
All representations and warranties made by the Sub-Adviser and the Adviser
pursuant to Sections 15 and 16 hereof shall survive for the duration of this
Agreement and the Parties hereto shall immediately notify, but in no event later
than five (5) business days, each other in writing upon becoming aware that any
of the foregoing representations and warranties are no longer true. In addition,
the Sub-Adviser will deliver to the Adviser and the Fund copies of any
amendments, supplements or updates to any of the information provided to the
Adviser and attached as exhibits hereto within fifteen (15) days after becoming
available.
SECTION 18. CONFIDENTIALITY
Subject to the duties of the Adviser, the Fund and the Sub-Adviser to comply
with applicable law, including any demand of any regulatory or taxing authority
having jurisdiction, the parties hereto shall treat as confidential all
information pertaining to the Fund and the actions of the Sub-Adviser, the
Adviser and the Fund in respect thereof.
The Adviser will not, directly or indirectly, and will not permit its
affiliates, employees, officers, directors, agents, contractors, or the
Portfolio to, in any form or by any means, use, disclose, or furnish, to any
person or entity, records or information concerning the business of the
Sub-Adviser, except as necessary for the performance of its duties under this
Agreement or the Investment Advisory Agreement, or as required by law upon prior
written notice to the Sub-Adviser. The Sub-Adviser is the sole owner of the name
and mark "Janus." The Adviser shall not, and shall not permit the Portfolio to,
without prior written consent of the Sub-Adviser, use the name or mark "Janus"
or make representations regarding the Sub-Adviser or its affiliates. Upon
termination of this
8
<PAGE> 9
Agreement for any reason, the Sub-Adviser shall immediately cease, and the
Adviser shall cause the Portfolio to immediately cease, all use of the Janus
name or any Janus mark.
SECTION 19. NON-EXCLUSIVITY
Adviser acknowledges and agrees that this Agreement and the arrangements
described herein are intended to be non-exclusive and that Sub-Adviser is free
to enter into similar agreements and arrangements with other entities.
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/ Michael A. Boedeker
------------------------
Michael A. Boedeker
Vice President
JANUS CAPITAL CORPORATION
By: /s/ Bonnie M. Howe
------------------------
Bonnie M. Howe
Assistant Vice President
Accepted and Agreed:
OHIO NATIONAL FUND, INC.
By: /s/ John J. Palmer
------------------
John J. Palmer
President
9
<PAGE> 1
[OHIO NATIONAL FINANCIAL SERVICES LETTERHEAD]
February 1, 2000
Board of Directors
Ohio National Fund, Inc.
One Financial Way
Montgomery, Ohio 45242
Re: Registration of Ohio National Fund, Inc.
Nasdaq 100 Index Portfolio Shares
Opinion of Counsel
Gentlemen:
In my capacity as legal counsel for Ohio National Fund, Inc. (the "Fund"), I
have supervised the organization and lawful operation of the Fund and the
issuance of the Fund's capital shares, including those for the Fund's Nasdaq 100
Index Portfolio. In such capacity I have also participated in the preparation of
the Fund's Registration Statement on Form N-1A and the filing of such
Registration Statement under the Securities Act of 1933 and with respect to the
capital shares of the Fund, including those of its Nasdaq 100 Index Portfolio.
Based upon such examination of law and such corporation records and other
documents as in my judgment are necessary or appropriate, I am of the opinion
that all necessary and required corporate proceedings have been taken in
connection with the issuance of the shares of the Nasdaq 100 Index Portfolio
being registered, and all such shares, when sold, will be legally issued, fully
paid and nonassessable.
I hereby consent to the filing of this letter as an exhibit to the Registration
Statement for the Fund.
Sincerely,
/s/Ronald L. Benedict
Ronald L. Benedict
Secretary and Legal Counsel
RLB/nh
<PAGE> 1
[OHIO NATIONAL FINANCIAL SERVICES LETTERHEAD]
February 1, 2000
John J. Palmer, President
Ohio National Fund, Inc.
One Financial Way
Cincinnati, Ohio 45242
Re: Subscription of Capital Stock of
Ohio National Fund, Inc. Portfolio
Dear John:
The Ohio National Life Insurance Company, an Ohio domiciled mutual life insurer,
hereby subscribes to 100 shares of the Nasdaq 100 Index Portfolio of Ohio
National Fund, Inc. (the "Fund") for a consideration of $1,000. The
consideration for such shares is hereby tendered.
The undersigned subscriber declares its intentions to purchase the said shares
of the Fund for investment purposes only, with no present intention to resell,
redistribute or redeem such securities, subject however, to any requirements of
applicable law that the disposition of the undersigned's properly shall be and
remain in its control at all times.
THE OHIO NATIONAL LIFE INSURANCE COMPANY
By: /s/ Christopher A. Carlson
-------------------------------------------------
Christopher A. Carlson, Vice President and Senior
Investment Officer
