<PAGE> 1
OHIO NATIONAL FUND, INC.
ONE FINANCIAL WAY
CINCINNATI, OHIO 45242
TELEPHONE (513) 794-6316
JANUARY 3, 1997
Ohio National Fund, Inc. (the "Fund") is a series investment company which
consists of 16 separate investment portfolios that seek the following investment
objectives:
EQUITY PORTFOLIO - long-term growth of capital by investing principally in
common stocks or other equity securities. Current income is a secondary
objective.
MONEY MARKET PORTFOLIO- maximum current income consistent with preservation of
capital and liquidity by investing in high quality money market instruments.
BOND PORTFOLIO - high level of return consistent with preservation of capital by
investing primarily in high quality intermediate and long-term debt securities.
OMNI PORTFOLIO - high level of long-term total return consistent with
preservation of capital by investing in stocks, bonds and money market
instruments.
INTERNATIONAL PORTFOLIO - long-term capital growth by investing primarily in
common stocks of foreign companies.
CAPITAL APPRECIATION PORTFOLIO - maximum capital growth by investing primarily
in common stocks that are (1) considered to be undervalued or temporarily out of
favor with investors, or (2) expected to increase in price over the short term.
SMALL CAP PORTFOLIO - maximum capital growth by investing primarily in common
stocks of small and medium size companies.
GLOBAL CONTRARIAN PORTFOLIO - long-term growth of capital by investing in
foreign and domestic securities believed to be undervalued or presently out of
favor.
AGGRESSIVE GROWTH PORTFOLIO - capital growth.
CORE GROWTH PORTFOLIO - long-term capital appreciation.
GROWTH & INCOME PORTFOLIO -long-term total return by investing in equity and
debt securities focusing on small- and mid-cap companies that offer potential
for capital appreciation, current income, or both.
S&P 500 INDEX PORTFOLIO - total return that approximates that of the Standard &
Poor's 500 Index ("S&P 500" (R)) by investing in common stocks and in stock
index futures contracts hedged by U.S. Government obligations, investment-grade
corporate bonds and cash equivalents.
SOCIAL AWARENESS PORTFOLIO - long-term capital growth by investing primarily in
common stocks and other equity securities of companies that, in the Adviser's
opinion, conduct their business in a way that enhances society's quality of
life.
STRATEGIC INCOME PORTFOLIO - high current income by investing at least 40% of
its assets in a core group of U.S. government and corporate fixed income
securities and the remainder in other income producing securities.
Continued on page 2.
- --------------------------------------------------------------------------------
THIS PROSPECTUS SETS FORTH CONCISELY THE INFORMATION ABOUT THE FUND THAT A
PROSPECTIVE PURCHASER OF A VARIABLE CONTRACT DESCRIBED IN THE ACCOMPANYING
PROSPECTUS OUGHT TO KNOW BEFORE PURCHASING SUCH A CONTRACT. THIS PROSPECTUS
SHOULD BE RETAINED FOR FUTURE REFERENCE. ADDITIONAL INFORMATION ABOUT THE FUND
HAS BEEN FILED WITH THE SECURITIES AND EXCHANGE COMMISSION IN A STATEMENT OF
ADDITIONAL INFORMATION, DATED, JANUARY 3, 1997, WHICH IS INCORPORATED HEREIN BY
REFERENCE. THE STATEMENT OF ADDITIONAL INFORMATION IS AVAILABLE UPON REQUEST AND
WITHOUT CHARGE BY WRITING OR CALLING THE FUND AT THE ADDRESS SHOWN ABOVE.
INVESTMENTS IN THE MONEY MARKET PORTFOLIO ARE NEITHER INSURED NOR GUARANTEED BY
THE UNITED STATES GOVERNMENT. THERE CAN BE NO ASSURANCE THAT THE MONEY MARKET
PORTFOLIO WILL BE ABLE TO MAINTAIN A STABLE NET ASSET VALUE OF $10 PER SHARE.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
1
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STELLAR PORTFOLIO - maximum total return by investing in domestic and foreign
securities (equity and fixed income), real estate securities, precious metal
securities and money market securities.
RELATIVE VALUE PORTFOLIO - maximum total return consistent with reasonable risk
by investing primarily in equity securities.
The Fund's shares are not offered directly to the public but are purchased
principally for the account of certain separate accounts of The Ohio National
Life Insurance Company ("ONLI"), Ohio National Life Assurance Corporation
("ONLAC") and other insurers. Some variable contracts do not permit allocations
to all portfolios of the Fund. The accompanying variable contract prospectus
identifies the portfolios available under that contract.
TABLE OF CONTENTS
Page
Financial Highlights ................................................... 2
General Description of the Fund ........................................ 6
Investment Objectives and Policies ..................................... 7
Investment Restrictions ................................................ 13
Management of the Fund ................................................. 18
Capital Stock .......................................................... 21
Dividends, Distributions and Taxes ..................................... 22
Purchase and Redemption of Shares ...................................... 22
Fund Performance ....................................................... 23
About the S&P 500 ...................................................... 23
FINANCIAL HIGHLIGHTS
OF
OHIO NATIONAL FUND, INC.
FOR THE TEN YEARS ENDED DECEMBER 31, 1995
The following information has been audited by KPMG Peat Marwick LLP, independent
certified public accountants, and is an integral part of the Fund's audited
financial statements which appear in the Statement of Additional Information
(which may be obtained by variable contract owners and prospective purchasers),
incorporated by reference herein, and should be read in conjunction with those
financial statements.
<TABLE>
<CAPTION>
EQUITY PORTFOLIO
- ----------------------------------------------------------------------------------------------------------------------------------
1995 1994 1993 1992 1991 1990
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $ 23.20 $ 23.90 $ 21.63 $ 20.61 $ 18.02 $ 20.09
Income from investment operations:
Net investment income .50 .45 .41 .50 .60 .86
Net realized and unrealized
gains (losses) on investments
and foreign currency
transactions 5.56 (.39) 2.57 1.02 2.97 (1.62)
Total from investment operations 6.15 .06 2.98 1.52 3.57 (.76)
Less distributions:
Dividends from net
investment income (.39) (.44) (.42) (.50) (.63) (.87)
Distributions from realized
capital gains (.38) (.32) (.29) -- (.35) (.44)
Total distributions (.77) (.76) (.71) (.50) (.98) (1.31)
Net asset value, end of period $ 28.58 $ 23.20 $ 23.90 $ 21.63 $ 20.61 $ 18.02
Total return(a) 27.20% 0.25% 14.09% 7.55% 20.18% (3.85%)
Ratios/supplemental data:
Net Assets, end of period
(000's omitted) $ 175,695 $ 123,327 $ 109,858 $ 87,396 $ 68,164 $ 49,209
Ratio of expenses to
average net assets .73% .62% .63% .65% .66% .69%
Ratio of net investment
income to average
net assets 1.90% 1.90% 1.91% 2.44% 3.12% 4.75%
Portfolio turnover rate 14% 8% 18% 12% 23% 5%
</TABLE>
<TABLE>
<CAPTION>
EQUITY PORTFOLIO
- --------------------------------------------------------------------------------------------------
1989 1988 1987 1986
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net asset value,
beginning of period $ 17.99 $ 16.82 $ 15.94 $ 15.15
Income from investment operations:
Net investment income .71 .66 .53 .44
Net realized and unrealized
gains (losses) on investments
and foreign currency
transactions 3.42 1.86 1.22 3.10
Total from investment operations 4.13 2.52 1.75 3.54
Less distributions:
Dividends from net
investment income (.66) (.67) (.50) (.44)
Distributions from realized
capital gains (1.37) (.68) (.37) (2.31)
Total distributions (2.03) (1.35) (.87) (2.75)
Net asset value, end of period $ 20.09 $ 17.99 $ 16.82 $ 15.94
Total return(a) 23.21% 15.01% 10.81% 23.31%
Ratios/supplemental data:
Net Assets, end of period
(000's omitted) $ 42,835 $ 33,323 $ 30,828 $ 23,175
Ratio of expenses to
average net assets 0.70% 0.71% 0.68% 0.71%
Ratio of net investment
income to average
net assets 3.55% 3.59% 2.89% 2.50%
Portfolio turnover rate 16% 9% 7% 24%
</TABLE>
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<TABLE>
<CAPTION>
MONEY MARKET PORTFOLIO
- ---------------------------------------------------------------------------------------------------------------------
1995 1994 1993 1992 1991 1990
---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $ 10.00 $ 10.00 $ 10.00 $ 10.00 $ 10.00 $ 10.00
Income from
investment operations:
Net investment income .54 .39 .27 .31 (.54) .76
Net realized and unrealized
gains (losses) on investments
and foreign currency
transactions -- -- -- -- -- --
Total from investment operations .54 .39 .27 .31 .54 .76
Less distributions:
Dividends from net
investment income (.54) (.39) (.27) (.31) (.54) (.76)
Distributions from realized
capital gains -- -- -- --
Total distributions (.54) (.39) (.27) (.31) (.54) (.76)
Net asset value, end of period $ 10.00 $ 10.00 $ 10.00 $ 10.00 $ 10.00 $ 10.00
Total return(a) 5.62% 4.00% 2.71% 3.12% 5.39% 7.60%
Ratios/supplemental data:
Net Assets, end of period
(000's omitted) $ 15,716 $ 13,058 $ 19,123 $ 20,583 $ 24,230 $ 26,055
Ratio of expenses to
average net assets(c) .44% .39% .53% 0.66% 0.67% 0.68%
Ratio of net investment
income to average
net assets(c) 5.39% 3.69% 2.71% 3.16% 5.41% 7.57%
</TABLE>
<TABLE>
<CAPTION>
MONEY MARKET PORTFOLIO
- -----------------------------------------------------------------------------------------
1989 1988 1987 1986
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Net asset value,
beginning of period $ 10.00 $ 10.00 $ 10.00 $ 10.00
Income from
investment operations:
Net investment income .86 .69 .61 .61
Net realized and unrealized
gains (losses) on investments
and foreign currency
transactions -- -- -- --
Total from investment operations .86 .69 .61 .61
Less distributions:
Dividends from net
investment income (.86) (.69) (.61) (.61)
Distributions from realized
capital gains -- -- --
Total distributions (.86) (.69) (.61) (.61)
Net asset value, end of period $ 10.00 $ 10.00 $ 10.00 $ 10.00
Total return(a) 8.56% 6.89% 6.10% 6.10%
Ratios/supplemental data:
Net Assets, end of period
(000's omitted) $ 23,643 $ 22,796 $ 21,141 $ 21,023
Ratio of expenses to
average net assets(c) 0.70% 0.71% 0.76% 0.75%
Ratio of net investment
income to average
net assets(c) 8.51% 6.87% 6.06% 6.12%
</TABLE>
<TABLE>
<CAPTION>
BOND PORTFOLIO
- ----------------------------------------------------------------------------------------------------------------------
1995 1994 1993 1992 1991 1990
<S> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $ 9.70 $ 10.87 $ 10.45 $ 10.37 $ 9.89 $ 9.93
Income from investment operations:
Net investment income .70 .67 .69 .67 .74 .79
Net realized and unrealized
gains (losses) on investments
and foreign currency
transactions 1.08 (1.07) .41 .10 .49 (.05)
Total from investment operations 1.78 (.40) 1.10 .77 1.23 .74
Less distributions:
Dividends from net
investment income (.55) (.69) (.68) (.69) (.75) (.78)
Distributions from realized
capital gains -- (.08) -- -- -- --
Total distributions (.55) (.77) (.68) (.69) (.75) (.78)
Net asset value, end of period $ 10.93 $ 9.70 $ 10.87 $ 10.45 $ 10.37 $ 9.89
Total return(a) 18.90% (3.84%) 10.69% 7.55% 12.96% 7.82%
Ratios/supplemental data:
Net Assets, end of period
(000's omitted) $ 18,064 $ 13,148 $ 11,979 $ 8,872 $ 5,899 $ 4,686
Ratio of expenses to
average net assets .75% .63% .62% 0.65% 0.65% 0.70%
Ratio of net investment
income to average
net assets 6.76% 6.71% 6.33% 6.73% 7.42% 8.02%
Portfolio turnover rate 4% 5% 13% 20% 18% 4%
</TABLE>
<TABLE>
<CAPTION>
BOND PORTFOLIO
- ------------------------------------------------------------------------------------------
1989 1988 1987 1986
<S> <C> <C> <C> <C>
Net asset value,
beginning of period $ 9.72 $ 9.84 $ 10.71 $ 10.36
Income from investment operations:
Net investment income .81 .77 .83 .91
Net realized and unrealized
gains (losses) on investments s
and foreign currency
transactions .20 (.13) (.76) .35
Total from investment operations 1.01 .64 .07 1.26
Less distributions:
Dividends from net
investment income (.80) (.76) (.83) (.91)
Distributions from realized
capital gains -- -- (.11) --
Total distributions (.80) (.76) (.94) (.91)
Net asset value, end of period $ 9.93 $ 9.72 $ 9.84 $ 10.71
Total return(a) 10.71% 6.74% 0.74% 12.49%
Ratios/supplemental data:
Net Assets, end of period
(000's omitted) $ 4,003 $ 3,651 $ 3,830 $ 3,756
Ratio of expenses to
average net assets 0.70% 0.79% 1.09% 0.91%
Ratio of net investment
income to average
net assets 8.21% 7.50% 7.78% 8.37%
Portfolio turnover rate -- 27% 13% 70%
</TABLE>
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<TABLE>
<CAPTION>
OMNI PORTFOLIO
- ----------------------------------------------------------------------------------------------------------------------------
1995 1994 1993 1992 1991 1990
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $ 14.76 $ 15.38 $ 14.14 $ 13.63 $ 12.16 $ 12.76
Income from
investment operations:
Net investment income .58 .55 .58 .63 .65 .78
Net realized and unrealized
gains (losses) on investments
and foreign currency
transactions 2.72 (.63) 1.21 .51 1.49 (.54)
Total from investment operations 3.30 (.08) 1.79 1.14 2.14 .24
Less distributions:
Dividends from net
investment income (.46) (.54) (.54) (.63) (.67) (.78)
Distributions from realized
capital gains -- -- -- -- -- (06)
Total distributions (.46) (.54) (.55) (.63) (.67) (.84)
Net asset value, end of period $ 17.60 $ 14.76 $ 15.38 $ 14.14 $ 13.63 $ 12.16
Total return(a) 22.75% (0.53%) 12.85% 8.61% 18.14% 1.92%
Ratios/supplemental data:
Net Assets, end of period
(000's omitted) $ 109,577 $ 84,966 $ 74,208 $ 46,415 $ 36,484 $ 35,435
Ratio of expenses to
average net assets .75% .62% .62% 0.65% 0.67% 0.69%
Ratio of net investment
income to average
net assets 3.56% 3.67% 3.74% 4.66% 5.04% 6.32%
Portfolio turnover rate 10% 7% 17% 16% 15% 7%
</TABLE>
<TABLE>
<CAPTION>
OMNI PORTFOLIO
- ----------------------------------------------------------------------------------------------
1989 1988 1987 1986
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net asset value,
beginning of period $ 11.89 $ 11.23 $ 12.18 $ 10.95
Income from
investment operations:
Net investment income .75 .67 .59 .49
Net realized and unrealized
gains (losses) on investments
and foreign currency
transactions 1.07 .99 (.76) 1.45
Total from investment operations 1.82 1.66 (.17) 1.94
Less distributions:
Dividends from net
investment income (.73) (.66) (.58) (.48)
Distributions from realized
capital gains (.22) (.34) (.20) (.23)
Total distributions (.95) (1.00) (.78) (.71)
Net asset value, end of period $ 12.76 $ 11.89 $ 11.23 $ 12.18
Total return(a) 15.45% 15.05% (1.70%) 17.94%
Ratios/supplemental data:
Net Assets, end of period
(000's omitted) $ 31,842 $ 26,096 $ 28,032 $ 19,637
Ratio of expenses to
average net assets 0.70% 0.71% 0.69% 0.60%
Ratio of net investment
income to average
net assets 5.99% 5.40% 4.88% 4.72%
Portfolio turnover rate 24% 14% 12% 29
</TABLE>
<TABLE>
<CAPTION>
INTERNATIONAL CAPITAL APPRECIATION
PORTFOLIO PORTFOLIO
---------------------------------------- --------------------------
1995 1994 1993(e) 1995 1994(e)
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $ 13.30 $ 12.48 $ 10.00 $ 10.25 $ 10.00
Income from
investment operations:
Net investment income (loss) .31 .16 .02 .39 .22
Net realized and unrealized
gains (losses) on investments and
foreign currency transactions 1.28 .84 2.47 1.85 .23
Total from investment operations 1.59 1.00 2.49 2.24 .45
Less distributions:
Dividends from net
investment income (.28) (.12) (.01) (.29) (.20)
Distributions from realized
capital gains (.23) (.06) -- (.21) --
Total distributions (.51) (.18) (.01) (.50) (.20)
Net asset value, end of period $ 14.38 $ 13.30 $ 12.48 $ 11.99 $ 10.25
Total return(a)
12.10% 8.07% 24.96% 22.62% 4.53%
Ratios/supplemental data:
Net Assets, end of period
(000's omitted) $ 90,594 $ 62,875 $ 17,477 $ 19,320 $ 6,755
Ratio of expenses to
average net assets(d) 1.12% 1.05% 1.13%(b) .96% .98%(b)
Ratio of net investment
income to average
net assets(d) 2.29% 1.23% .41%(b) 3.47% 3.24%(b)
Portfolio turnover rate 7% 16% 8% 32% 20%
</TABLE>
<TABLE>
<CAPTION>
SMALL CAP
PORTFOLIO
--------------------------
1995 1994(e)
---------- ----------
<S> <C> <C>
Net asset value,
beginning of period $ 11.99 $ 10.00
Income from
investment operations:
Net investment income (loss) (.02) .18
Net realized and unrealized
gains (losses) on investments and
foreign currency transactions 3.95 1.94
Total from investment operations 3.93 2.12
Less distributions:
Dividends from net
investment income (.07) (.13)
Distributions from realized
capital gains -- --
Total distributions (.07) (1.31)
Net asset value, end of period $ 15.85 $ 11.99
Total return(a)
33.01% 21.26%
Ratios/supplemental data:
Net Assets, end of period
(000's omitted) $ 16,038 $ 3,256
Ratio of expenses to
average net assets(d) .96% .91%(b)
Ratio of net investment
income to average
net assets(d) (11%) 3.27%(b)
Portfolio turnover rate 75% 222%
</TABLE>
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<TABLE>
<CAPTION>
GLOBAL AGGRESSIVE
CONTRARIAN GROWTH
--------- ---------
1995(e) 1995(e)
--------- ---------
<S> <C> <C>
Net asset value,
beginning of period $ 10.00 $ 10.00
Income from
investment operations:
Net investment income (loss) .13 1.56
Net realized and unrealized
gains (losses) on investments and
foreign currency transactions .75 1.08.
Total from investment operations .88 2.64
Less distributions:
Dividends from net
investment income (.08) (.80)
Distributions from realized
capital gains -- --
Total distributions (.08) (.80)
Net asset value, end of period $ 10.80 $ 11.84
Total return(a)
8.89% 26.95%
Ratios/supplemental data:
Net Assets, end of period
(000's omitted) $ 4,421 $ 4,005
Ratio of expenses to
average net assets(d) 1.58%(b) 1.02%(b)
Ratio of net investment
income to average
net assets(d) 1.64%(b) 18.18%(b)
Portfolio turnover rate 6%(b) 1,488%(b)
</TABLE>
FINANCIAL HIGHLIGHTS FOOTNOTES
(a) This total return information does not reflect expenses that apply to any
separate account or the related variable annuity or variable life insurance
contracts. Inclusion of those charges would reduce the total return figures
for all periods shown.
(b) Annualized.
(c) On and after June 17, 1993, the investment adviser has waived part of the
management fee with respect to the Money Market Portfolio, to the extent
such fee exceeds an annual rate of 0.25% of the Money Market Portfolio's
daily net asset value. Had the fee not been waived, the annualized ratio of
net expenses to average net assets would have been 0.59%, 0.59% and 0.63%,
and the annualized ratio of net investment income to average net assets
would have been 5.27%, 3.51% and 2.60%, respectively, for 1995, 1994 and
1993.
(d) The investment adviser reimbursed certain operating expenses of the
International Portfolio in 1993, the Capital Appreciation and Small Cap
Portfolios in 1994, and the Global Contrarian Portfolio in 1995. Had the
investment adviser not reimbursed such expenses, the annualized ratio of
expenses to average net assets would have been 1.39% and the annualized
ratio of net investment income to average net assets would have been 0.15%
for the International Portfolio in 1993. Had the investment adviser not
reimbursed such expenses of the Capital Appreciation and Small Cap
Portfolios, the annualized ratio of expenses to average net assets would
have been 1.05% and 0.95%, respectively in 1994. The annualized ratio of
net investment income to average net assets would have been 3.18% and
3.24%, respectively, for the Capital Appreciation and Small Cap Portfolios.
Had the investment adviser not reimbursed such expenses of the Global
Contrarian Portfolio, the annualized ratio of expenses to average net
assets would have been 1.90% and the annualized ratio of net investment
income to average net assets would have been 1.32% for the Global
Contrarian Portfolio in 1995.
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(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, and for the Global Contrarian and Aggressive Growth
Portfolios from their commencement of operations, March 31, 1995, through
December 31, 1995.
GENERAL DESCRIPTION OF THE FUND
The Fund, incorporated under the laws of Maryland on March 6, 1980, is an
open-end diversified management investment company commonly referred to as a
"mutual fund." It is a "no-load" fund which sells and redeems its shares at net
asset value without any sales or redemption charge. The Fund is organized as a
"series" company, which means that it has several different investment
portfolios. Currently there are 16 investment portfolios: the Equity Portfolio,
the Money Market Portfolio, the Bond Portfolio, the Omni Portfolio, the
International Portfolio, the Capital Appreciation Portfolio, the Small Cap
Portfolio, the Global Contrarian Portfolio, the Aggressive Growth Portfolio, the
Core Growth Portfolio, the Growth & Income Portfolio, the S&P 500 Index
Portfolio, the Social Awareness Portfolio, the Strategic Income Portfolio, the
Stellar Portfolio and the Relative Value Portfolio. Interests in each portfolio
are represented by a separate class of common stock, par value $1. Each class
represents an undivided interest in the assets of the portfolio attributable to
that class.
Fund shares are currently offered only to the separate accounts of ONLI (a
mutual life insurance company organized under Ohio law) and ONLAC (a stock life
insurer organized under Ohio law and wholly owned by ONLI), but may in the
future be offered to the separate accounts of other life insurance companies
(the "separate accounts"). Such separate accounts use Fund shares as the
underlying investment medium to support certain benefits under variable annuity
and variable life insurance contracts. As is described in the accompanying
variable contract prospectus, each contract owner will select the Fund portfolio
or portfolios that will support certain benefits under his or her contract. The
value of such benefits will vary with the investment experience of the
underlying portfolio(s) of the Fund. Consequently, each prospective contract
owner should carefully review the objectives, policies and risks of each
portfolio and the operation of the Fund generally as set forth in this
prospectus.
It is conceivable that in the future it may become disadvantageous for both
variable life and variable annuity separate accounts to invest in the Fund.
Although ONLI, ONLAC and the Fund do not currently foresee any such
disadvantage, the Board of Directors of the Fund will monitor events in order to
identify any material conflict between variable life and variable annuity
contract owners and to determine what action, if any, should be taken in
response thereto. Such action could include the withdrawal of a separate account
from participation in the Fund. Material conflicts could result from such things
as (1) changes in state insurance law; (2) changes in federal income tax law;
(3) changes in the investment management of any portfolio of the Fund; or (4)
differences between voting instructions given by variable life and variable
annuity contract owners.
The Fund may be used in the future to support benefits under other types of
contracts or for other purposes. Fund shares are not now, and without a change
in applicable law will never be, offered directly to the public. Consequently,
the separate accounts will be the sole shareholders of the Fund. Fund shares
attributable to contracts participating in such separate accounts will be voted
by such separate accounts as directed by the contract owners.
The investment and reinvestment of Fund assets is managed by Ohio National
Investments Inc. (the "Adviser") directly or through sub-advisers. See
"Management of the Fund," page 17. The investment and reinvestment of the assets
of the following portfolios is managed by the firms indicated as sub-advisers:
<TABLE>
<CAPTION>
PORTFOLIO SUB-ADVISER
- --------- -----------
<S> <C>
International and Global Contrarian Societe Generale Asset Management Corp. ("SGAM")
Capital Appreciation T. Rowe Price Associates, Inc. ("TRPA")
Small Cap Founders Asset Management, Inc. ("FAM ")
Aggressive Growth Strong Capital Management, Inc. ("SCM")
Core Growth Pilgrim Baxter & Associates, Ltd. ("PBA")
Growth & Income Robertson Stephens Investment Management, L.P. ("RSIM")
Strategic Income, Stellar and Relative Value Star Bank, N.A. ("Star")
</TABLE>
6
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INVESTMENT OBJECTIVES AND POLICIES
Each portfolio has a different investment objective which it pursues through
separate investment policies as described below. The differences in objectives
and policies among the portfolios can be expected to affect the return of each
portfolio and the degree of market and financial risk to which each portfolio is
subject. Financial risk refers to the ability of an issuer of a debt security to
pay principal and interest on such security, and to the earnings stability and
overall financial soundness of an issuer of an equity security. Market risk
refers to the volatility of the price of a security in response to changes in
conditions in the securities markets in general and, particularly in the case of
debt securities, changes in the overall level of interest rates. There is no
assurance that the investment objective of any portfolio will be realized. The
investment objectives of each portfolio discussed below and in the Statement of
Additional Information may not be changed without the approval of the holders of
a majority of the outstanding shares of that portfolio. The relatively high
portfolio turnover rates expected for the Small Cap, Aggressive Growth, Core
Growth, Growth & Income and Strategic Icome Portfolios will result in
correspondingly higher brokerage costs that must be borne by these portfolios.
The Statement of Additional Information provides a fuller description of the
types of financial instruments in which the Money Market Portfolio may invest
and definitions of debt ratings of nationally recognized statistical rating
organizations, and information about portfolio turnover rates for each
portfolio.
EQUITY PORTFOLIO
The principal investment objective of the Equity Portfolio is long-term growth
of capital. Current income is a secondary consideration although growth of
income may accompany growth of capital.
This Portfolio will seek to attain its objective of capital growth by investing
primarily in common stocks or securities convertible into, or which carry the
right to buy, common stocks. It may also invest to a limited degree in
non-convertible preferred stocks, debt securities and readily marketable
mortgage notes. When in management's opinion market or economic conditions
warrant a defensive posture, the Portfolio may place any portion of its assets
in investment-grade debt securities, preferred stocks, Government securities or
cash. (The short-term investment position of the Portfolio at December 31, 1995
was 14.1%). The Portfolio may also maintain reasonable amounts in cash or
short-term debt securities pending selection of investments in accordance with
its policies.
This Portfolio will invest primarily in securities listed on national securities
exchanges, but from time to time it may also purchase securities traded in the
over-the-counter market and foreign securities. In general, investment in shares
of this Portfolio should involve greater market and financial risk than an
investment in any of the Money Market, Bond, Omni or Capital Appreciation
Portfolios, but less risk than investments in the International, Small Cap,
Global Contrarian or Aggressive Growth Portfolios.
MONEY MARKET PORTFOLIO
The objective of the Money Market Portfolio is to obtain maximum current income
consistent with preservation of principal and liquidity. This Portfolio seeks to
achieve its objective by investing in high quality money market instruments,
including:
1. obligations maturing in 13 months or less and issued or guaranteed as to
principal and interest by the United States Government, or any agency or
authority controlled or supervised by and acting as an instrumentality of
the U.S. Government pursuant to authority granted by Congress;
2. commercial paper, certificates of deposit and bankers' acceptances that
have received the highest rating by any two nationally recognized
statistical rating organizations ("NRSRO's"), or the highest rating by one
NRSRO if that is the only NRSRO having rated the security, or whose issuer
has received such a rating or ratings with respect to a class of short-term
debt obligations that is now comparable in priority and security to those
to be purchased;
3. commercial paper, certificates of deposit, bankers' acceptances or other
corporate obligations maturing in 13 months or less and which, although not
rated by any NRSRO, the Board of Directors determines to be of a quality
comparable to that of instruments receiving either of the two highest
ratings, provided, that any security determined to be comparable in quality
to the second highest rating shall be included in the 5% limitation under
item 5; and
4. repurchase agreements with respect to any of the foregoing obligations.
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5. as to no more than 5% of the Portfolio's assets, in commercial paper,
certificates of deposit or bankers' acceptances receiving the second
highest rating by any two NRSRO's (or by one NRSRO if (a) that is the only
NRSRO having rated the security or (b) one other NRSRO has given the
security its highest rating), or whose issuer has received such a rating or
ratings with respect to a class of short-term debt obligations that is now
comparable in priority and security to those to be purchased, provided,
that no more than $1 million (or 1% of Portfolio assets, if greater) may be
invested in such securities of any one issuer;
This Portfolio may invest up to 50% of its assets in the securities of foreign
issuers (including private issuers and foreign governments or political
subdivisions, agencies or instrumentalities of foreign governments), provided
they meet the above quality standards and they are denominated in U.S. dollars
and held in custody in the United States.
The investments of this Portfolio in such money market instruments are subject
to the terms and conditions of Rule 2a-7 under the Investment Company Act of
1940, including the requirement that they be limited to those instruments which
the Board of directors determines, present minimal credit risks.
Generally, this Portfolio will purchase money market securities with the
intention of holding them until maturity, at which time they will be redeemed.
To the extent it is able to do so, the Portfolio will not realize any gain or
loss on these securities. There may be times, however, when it may be necessary
or appropriate to sell securities prior to maturity in order to shorten the
Portfolio's average maturity, to meet redemptions, or because of a reevaluation
of an issuer's credit-worthiness.
Rule 2a-7 permits this Portfolio to value its assets on the basis of amortized
cost as a means of maintaining the net asset value of the Money Market shares at
$10 per share. Under the terms of the rule, the Portfolio may neither purchase
any debt security having a remaining maturity of more than 397 days nor maintain
a dollar-weighted average portfolio maturity of more than 90 days. Under the
amortized cost method, all such debt securities are valued at their cost on the
date of acquisition with a daily adjustment being made to accrued income to
reflect amortization of premium or accretion of discount to the maturity date.
If such method results in a deviation in excess of 1/2 of 1% from value based
on available market quotations, the Board of Directors will promptly consider
what, if any, action it should initiate. Such action may include selling
portfolio instruments; withholding dividends; recapitalizing outstanding shares;
requiring shareholders to contribute shares to capital or using available market
quotations.
An investor's rate of return will vary as short-term interest rates vary. The
rate of return will also be affected by other factors such as the operating
expenses of the Portfolio and the sales, if any, of portfolio securities prior
to maturity. On balance, however, investment in this Portfolio should involve
less market and financial risk than an investment in any other portfolio.
BOND PORTFOLIO
The principal investment objective of the Bond Portfolio is to obtain a high
level of income and opportunity for capital appreciation consistent with
preservation of capital. Investments will be made primarily in intermediate-term
and long-term fixed-income securities.
At least 80% of the total assets of this Portfolio (exclusive of cash and
Government securities) will be invested in:
1. publicly traded, investment grade, non-convertible corporate debt
securities issued by United States corporations and assigned within the
four highest bond ratings by Moody's or Standard and Poor's ("S&P"); and
2. corporate debt securities used for short-term investment and limited to
the top grade of these two rating services.
Up to 20% of the total assets of the Portfolio may be invested in: (1)
securities having high potential for capital appreciation; (2) preferred stocks,
convertible securities and securities carrying warrants to purchase equity
securities; and (3) debt securities issued by U.S. banks and savings and loan
associations which at the date of investment have capital, surplus and undivided
profits as of the date of their most recent financial statements in excess of
$100,000,000.
This Portfolio will not invest in common stocks directly, but it may retain for
reasonable periods of time up to 10% of its total assets in common stocks
acquired upon the conversion of debt securities or upon the exercise of warrants
acquired with debt securities.
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It is expected that this Portfolio will include debt securities with varying
maturities selected from various industries, depending upon the Adviser's
evaluation of current and anticipated market conditions. The market values of
debt instruments will vary depending upon their respective yields; therefore,
the net asset value per share of the Portfolio will change from time to time as
the general level of interest rates changes. Consequently, an investment in the
shares of this Portfolio involves substantial market risk, but should involve
less financial risk than an investment in any of the portfolios other than the
Money Market Portfolio.
OMNI PORTFOLIO
The principal investment objective of the Omni Portfolio is to realize a high
level of long-term total rate of return consistent with prudent investment
risks. Total rate of return consists of current income including dividends,
interest and discount accruals and capital appreciation.
This Portfolio will seek to attain its objectives by investing in any of the
securities in which the Equity, Money Market and Bond Portfolios may invest. The
mix of investments will be adjusted from time to time among the various market
sectors (stocks, bonds and money market instruments) to capitalize on perceived
variations in return potential produced by the interaction of changing market
and economic conditions. The Portfolio may at times be invested in less than all
three of the market sectors. No minimum portion of the Portfolio is required to
be invested in any sector. The frequency of changes in investment mix depends
upon market and economic conditions.
The Portfolio's principal investment objective is supplemented and limited by
the investment objectives, policies and restrictions established for each of the
market sectors. Within the equity sector, the Portfolio will attempt to obtain
long-term growth of capital while current income will be a secondary
consideration. Within the bond sector, the Portfolio will attempt to obtain a
high level of income and opportunity for capital appreciation consistent with
preservation of capital. Within the money market sector, the Portfolio will
attempt to obtain maximum current income consistent with the preservation of
principal and liquidity. Investment in this Portfolio involves all of the risks
associated with investing in the other portfolios. In addition, there is the
risk that at any given time this Portfolio will invest too much or too little in
each of the respective market sectors.
INTERNATIONAL PORTFOLIO
The principal investment objective of the International Portfolio is to obtain
long-term capital growth by investing primarily in common stocks (and securities
convertible into common stocks) of foreign companies. This Portfolio may also
invest in fixed-income securities of foreign issuers. When deemed appropriate
for short-term investment or for defensive purposes, it may invest in short-term
debt instruments of U.S. or foreign issuers, in U.S. Government obligations, or
in U.S. common stocks.
This Portfolio enables variable contractowners to diversify their investment by
participating in companies and economies outside the U.S. However, investing in
foreign securities may involve a greater degree of risk than investing in
domestic securities because of the possibilities of currency exchange rate
fluctuations, currency exchange controls, less publicly available information,
more volatile markets, thinner markets (less trading volume), slower settlement
of trades, greater likelihood of trade failures, less securities regulation,
less favorable tax provisions, lack of uniformity of accounting, auditing and
financial reporting standards, war and expropriation. Foreign investments also
generally involve higher brokerage commissions, higher custodian costs, and
currency conversion fees. Investment in this Portfolio will generally involve a
greater degree of market and financial risk than any of the portfolios except
for the Global Contrarian Portfolio.
CAPITAL APPRECIATION PORTFOLIO
The principal investment objective of the Capital Appreciation Portfolio is to
maximize capital growth through investment primarily in common stocks. This
Portfolio seeks to achieve capital appreciation by investing in securities of
companies that are undervalued in relation to the company's assets, earnings,
market position or breakup value; are currently out of favor in the investment
community; or have attractive growth potential in their business markets.
Securities are also sought that have been over-discounted due to adverse
operating results, deteriorating economic or industry conditions, or unfavorable
publicity.
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The Portfolio may also invest in fixed-income securities and money market
instruments to preserve its principal value during uncertain or declining market
conditions. The Portfolio's total return will consist principally of capital
appreciation (or depreciation) and, to a lesser extent, current income. The
Portfolio's active management may result in a higher portfolio turnover rate and
correspondingly higher brokerage costs. Investment in this Portfolio will
generally involve market and financial risks that are comparable to, or somewhat
less than, those of the Equity Portfolio.
SMALL CAP PORTFOLIO
To achieve its investment objective of capital appreciation, this Portfolio
invests primarily in the common stocks of small and medium sized companies.
Ordinarily, these companies are not listed on a national securities exchange but
will be traded over the counter. Under normal market conditions, at least 65% of
this Portfolio's assets will be invested in common stocks of companies with
market capitalizations of less than $1 billion. However it may also invest in
larger companies if they appear to present better prospects for capital
appreciation. This Portfolio may invest up to 30% of its assets in foreign
securities.
Small and medium sized companies selected for this Portfolio are generally those
that are still in the developing stages of their life cycles and are able to
achieve rapid growth in sales, earnings and share prices. Investments in such
companies involve greater volatility and risk than is customarily associated
with more established companies because such companies often have limited
product lines, markets or financial resources, and their securities may be
subject to more abrupt or erratic movements in price than securities of larger
companies or the market averages. Investment in this Portfolio generally
involves a higher degree of market and financial risks than those of the Equity
Portfolio.
GLOBAL CONTRARIAN PORTFOLIO
The objective of the Global Contrarian Portfolio is to provide long-term growth
of capital by investing in foreign and domestic securities that, in the judgment
of the portfolio manager, are undervalued or presently out of favor with other
investors but have positive prospects for eventual appreciation. While this
Portfolio will primarily invest in common stocks (and securities convertible
into common stocks), it may also invest in fixed income securities that appear
to be undervalued or out of favor.
A substantial portion (at least 25%) of this Portfolio will be invested in
foreign securities, in at least three countries, under normal market conditions.
To that extent, the risk factors described in the second paragraph under
"International Portfolio," above, will apply. In addition, "contrarian"
investing generally involves substantial risks, particularly in the short term.
Companies or markets that appear to be undervalued or are out of favor with
investors may remain so for an extended period of time or may never recover.
Therefore, this Portfolio should be considered primarily for long-term
investments. Investment in this Portfolio generally involves a high degree of
market and financial risk.
AGGRESSIVE GROWTH PORTFOLIO
The investment objective of the Aggressive Growth Portfolio is to seek capital
growth. The Portfolio invests in a diversified portfolio of securities believed
to represent attractive growth opportunities. The Portfolio normally emphasizes
equity securities, although it has the flexibility to invest in any type of
security that is believed to have the potential for capital appreciation. The
Portfolio may invest up to 100% of its assets in equity securities, including
common stocks, preferred stocks, securities that are convertible into common or
preferred stocks, such as convertible bonds, and warrants. The Portfolio may
invest up to 100% of its assets in intermediate - to long-term corporate or U.S.
government debt securities. When market conditions warrant a temporary defensive
position, the Portfolio may invest without limitation in cash and short-term,
fixed-income securities, including U.S. government securities, commercial paper,
banker's acceptances, certificates of deposit, and time deposits. Although the
debt securities in which the Portfolio invests will be primarily
investment-grade debt securities, the Portfolio may invest up to 5% of its total
assets in non-investment-grade debt securities. The Portfolio may invest up to
15% of its assets in foreign securities, which involve certain risks.
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The Portfolio seeks to uncover emerging investment trends and attractive growth
opportunities. In its search for potential investments, the Portfolio attempts
to identify companies that are poised for accelerated earnings growth due to
innovative products or services, new management, or favorable economic or market
cycles. These companies may be small, unseasoned firms in the early stages of
development, or they may be mature organizations. The Portfolio engages in
substantial short-term trading, which involves significant risk and may be
deemed speculative. Such trading results in a higher portfolio turnover rate and
correspondingly higher brokerage costs. Investment in this Portfolio involves a
high degree of market and financial risk.
CORE GROWTH PORTFOLIO
The objective of the Core Growth Portfolio is to provide long-term capital
appreciation by investing primarily in equity securities of large, medium and
small companies that PBA believes have strong earnings growth and long-term
capital appreciation prospects. PBA seeks companies poised for rapid growth that
have a history of above-average earnings growth, demonstrate the ability to
sustain that growth, and operate in industries or markets experiencing increased
demand for their products or services.
In managing the Core Growth Portfolio, PBA uses both quantitative and
fundamental processes focusing on quality earnings growth. PBA begins by
creating a universe of rapidly growing companies having desired quality
characteristics. Using proprietary software and research models that incorporate
attributes of successful growth (such as positive earnings surprises, upward
earnings estimate revisions, and accelerating sales and earnings growth), PBA
creates a universe of growing companies. Then, using fundamental research, PBA
evaluates each company's earnings quality and assesses the sustainability of the
company's current growth trends. Through this highly disciplined process, PBA
seeks to construct an investment portfolio having strong growth characteristics.
This portfolio's investments in small and medium capitalization companies may
experience greater price volatility than portfolios investing primarily in
larger, more established companies. Because the universe of companies in which
this portfolio invests will experience stock price volatility, it is important
that investors maintain a long-term investment perspective.
GROWTH & INCOME PORTFOLIO
The Growth & Income Portfolio's investment objective is long-term total return.
The Portfolio will pursue this objective primarily by investing in equity and
debt securities, focusing on small- and mid-cap companies that offer the
potential for capital appreciation, current income, or both.
The Portfolio will normally invest the majority of its assets in common stocks,
convertible securities, bonds, and notes. Although the Portfolio is intended to
focus on companies with market capitalizations of up to $3 billion, the
Portfolio will remain flexible and may invest in securities of larger companies.
The Portfolio may also engage in short sales of securities expected to decline
in price. Small- and mid-cap companies may present greater opportunities for
investment return than do larger companies, but may also involve greater risks.
They may have limited product lines, marketing or financial resources, or may
depend on a limited management group. Their securities may trade less frequently
and in limited volume. As a result, the prices of these securities may fluctuate
more than prices of securities of larger, widely traded companies.
S&P 500 INDEX PORTFOLIO
The investment objective of the S&P 500 Index Portfolio is to seek total return
approximating that of the S&P 500, including reinvestment of dividends, at a
risk level consistent with that of the S&P 500. It will seek this objective by
investing primarily in (a) common stocks and other securities that need not be
included among the 500 stocks in the S&P 500, and/or (b) S&P 500 stock index
futures contracts which will be hedged by investing in securities issued or
guaranteed by the U.S. Government, its agencies or instrumentalities,
investment-grade corporate bonds and cash equivalents. This strategy is intended
to replicate the performance of the S&P 500. However, Portfolio expenses will
reduce the Portfolio's ability to exactly track the S&P 500 and there can be no
assurance that the Portfolio's investments will have the desired effect.
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The value of S&P 500 stock index futures contracts is tied directly to the
fluctuations of the S&P 500. The Portfolio's ability to use futures contracts as
a substitute for maintaining a fully-invested market position in the 500 stocks
comprising the S&P 500 obligates the Portfolio to hedge its position by
delivering a specific dollar amount equal to the difference between the value of
the S&P 500 at the time the contract was made and the closing of the contract.
The futures contracts can result in a high degree of leverage so that, were the
Portfolio's position in the contracts not to be hedged by its position in U.S.
Government obligations, investment-grade corporate bonds and cash equivalents, a
relatively small decline in the S&P 500 could result in a substantial loss to
the Portfolio, including part or all of the margin deposits required on the
contracts. See "About the S&P 500" on page 23.
SOCIAL AWARENESS PORTFOLIO
The objective of the Social Awareness Portfolio is to provide long-term growth
of capital by investing primarily in the common stocks and other equity
securities of companies that, in the Adviser's opinion, conduct their business
in a way that enhances society's quality of life. The Portfolio's social concern
criteria will necessarily limit the universe of securities that may be selected
for this Portfolio. However, the Adviser believes the Portfolio's objective of
long-term capital growth can be achieved despite this limitation.
In choosing investments, the Adviser will consider a company's record in (a)
quality and safety of its products and services, (b) environmental protection
and enhancement, (c) employee relations, opportunities and safety, (d) consumer
relations and protection, (e) community involvement, and (f) expectations for
the creation of new jobs and economic development due to anticipated company
growth. In addition, each potential investment will be subject to the Adviser's
standards of investment analysis. As a matter of operating policy that may be
modified by the Board of Directors, the Portfolio will not invest in any company
substantially engaged in the manufacture of or distribution of tobacco products,
alcoholic beverages or weapons, or the operation of gambling casinos, or the
support of repressive regimes. The Adviser will attempt to monitor and respond
to changes in business practices of the companies selected for investment and,
in case of any adverse development, will consider whether or not the Portfolio's
policies would require it to sell its position in that company. Any sale under
those circumstances would, however, be subject to prudent market considerations.
STRATEGIC INCOME PORTFOLIO
The investment objective of the Strategic Income Portfolio is to generate high
current income by investing at least 80% of its assets in income producing
securities, including at least 40% of its assets in a core asset group of U.S.
government and corporate fixed income securities, and 5% to 20% of its assets in
each of the following satellite categories: (a) foreign bonds, (b) real estate
investment trusts, (c) domestic equity securities, (d) money market securities
and (e) the following structured fixed income securities: mortgage backed
securities, collateralized mortgage obligations ("CMOs"), adjustable rate
mortgage securities ("ARMS") and asset-backed securities.
The core assets are selected based on the outlook for interest rates and their
yield in relation to other fixed income securities of similar quality and
maturity and only include investment grade bonds (i.e., those rated Baa or
higher by Moody's, or BBB or higher by S&P or Fitch or which, if unrated, are
deemed by Star to be of comparable quality). The foreign bonds are of non-U.S.
companies and governments. They are investment grade, are denominated in
currencies other than U.S. dollars and may include American Depositary Receipts
and International Depositary Receipts. The Portfolio may also invest in shares
of investment companies that invest primarily in foreign bonds. Real estate
investment trusts include equity or mortgage real estate trusts integrated to
capture income diversified by sector (e.g., shopping malls, apartment buildings
and health care facilities) and by geographic location. The domestic equity
category consists of high-dividend common and preferred stocks of U.S. companies
with a history of stable earnings and/or growing dividends. The domestic equity
category may also include warrants and securities convertible into the common
stocks of these U.S. companies. The money market category includes (a)
commercial paper and Europaper (dollar-denominated commercial paper issued
outside the U.S.) having at least one rating in one of the two highest
categories of any NRSRO; (b) instruments of domestic and foreign banks and
savings and loans (such as certificates of
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deposit, demand and time deposits, savings shares and bankers acceptances) if
they have capital, surplus and individual profits of over $100,000,000, or if
the principal amount of the instrument is insured by a fund administered by the
Federal Deposit Insurance Corporation ("FDIC insured"), including Eurodollar
Certificates of Deposit ("ECDs"), Yankee Certificates of Deposit ("Yankee CDs")
and Eurodollar Time Deposits ("ETDs"); (c) obligations of the U.S. government or
its agencies or instrumentalities; (d) repurchase agreements, and (e) other
unrated short-term instruments deemed by Star to be of comparable quality to the
other obligations in which the Portfolio may invest. This Portfolio may also
engage in short sales from time to time. See "Risks Related to Short Sales" on
page 17.
STELLAR PORTFOLIO
The investment objective of the Stellar Portfolio is to maximize total return by
investing approximately 15% to 25% of its assets in each of the following
categories: (a) domestic equity securities which Star deems to be undervalued
relative to stocks contained in the S&P 500 Composite Stock Index; (b) domestic
fixed income securities including investment grade corporate debt obligations
and obligations of the U.S. government and its agencies and instrumentalities;
(c) foreign securities including securities of non-U.S. companies, investment
grade corporate and government fixed income securities denominated in currencies
other than U.S. dollars, and investment companies that invest primarily in
foreign securities; (d) real estate securities including publicly traded equity
and convertible debt securities of real estate related companies and real estate
investment trusts, and (e) precious metal securities and/or money market
securities. Precious metal securities include equity securities of domestic and
foreign companies that explore for, extract, process, or deal in precious metals
such as gold, silver, palladium and platinum. Up to 5% of the Portfolio may be
invested in domestic and foreign asset-based securities for which the principal
amount, redemption terms or conversion terms are related to the market price of
some precious metals. Money market securities in which the Portfolio may invest
are U.S. and foreign short-term money market instruments including commercial
paper and Europaper (dollar-denominated commercial paper issued outside the
U.S.) having at least one rating in one of the two highest categories of any
NRSRO; instruments of domestic and foreign banks and savings and loans (such as
certificates of deposit, demand and time deposits, savings shares and bankers'
acceptances) if they have capital, surplus and undivided profits of over
$100,000,000, or if the principal amount of the instrument is FDIC insured
(these may include ECDs, Yankee CDs and ETDs); obligations of the U.S.
government or its agencies or instrumentalities; repurchase agreements, or other
short-term instruments deemed by Star to be of comparable quality to the other
foregoing money market securities.
RELATIVE VALUE PORTFOLIO
The investment objective of the Relative Value Portfolio is to obtain the
highest total return as is consistent with reasonable risk by investing
primarily in stocks which Star deems to represent characteristics with low
volatility, above-average yields, and are undervalued relative to the stocks
comprising the S&P Composite Stock Index. Unless it is in a defensive position,
at least 70% of the Portfolio's assets will be invested in common stocks of
companies in the top 25% of their industries with regard to revenues. However,
other factors, such as product position or market share, will also be considered
and may outweigh revenues.
The Portfolio will also invest in fixed income securities, including convertible
securities; domestic corporate debt obligations (rated or A or higher by Moody's
or S&P or Fitch); and obligations of the U.S. government or its agencies or
instrumentalities.
INVESTMENT RESTRICTIONS
The Fund is subject to a number of restrictions in implementing its investment
policies. The following is a list of certain significant restrictions for all
portfolios other than the Capital Appreciation and Aggressive Growth Portfolios,
the restrictions for which are listed separately. The Statement of Additional
Information provides a complete list of all investment restrictions applicable
to the Fund. Restrictions number 4, 7 and 8 are nonfundamental policies of the
Small Cap, Core Growth, Growth & Income, S&P 500 Index, Social Awareness,
Strategic Income, Stellar and Relative Value Portfolios, and restrictions number
4 and 7 are nonfundamental policies of the Global Contrarian Portfolio, and as
such may be changed by the Board of Directors. Otherwise, none of the following
restrictions may be changed without the affirmative vote of a majority of the
outstanding voting securities of the Fund or of a particular portfolio, as
appropriate.
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Each portfolio of the Fund (other than the Capital Appreciation and Aggressive
Growth Portfolios) will not:
1. invest more than 5% of the value of the total assets of such portfolio in
the securities of any one insurer (except U.S. Government securities);
2. purchase more than 10% of the outstanding voting securities of any one
issuer, and the Money Market Portfolio will not acquire the voting
securities of any issuer except in connection with a merger, consolidation
or other reorganization;
3. invest more than 25% of the value of its total assets in any one industry,
except that each portfolio may invest more than 25% of the value of its
total assets in obligations issued or guaranteed by the U.S. Government,
its agencies or instrumentalities or in certificates of deposit, bankers'
acceptances, bank time deposits or other obligations of banks or financial
institutions. However, it is the intention of management not to invest in
time deposits which involve any penalty or other restriction on withdrawal;
4. invest more than 10% of the value of its assets (15% in the case of the
Small Cap, Core Growth and Growth & Income 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 and Strategic Income Portfolios, borrow
money, except for temporary or emergency purposes from banks, in which
event the aggregate amount borrowed shall not exceed 5% of the value of the
assets of the portfolio. In the case of such borrowing, each portfolio may
pledge, mortgage or hypothecate up to 5% of its assets. Reverse repurchase
agreements are not considered to be borrowing money for purposes of this
restriction. The Growth & Income and Strategic Income Portfolios may borrow
money directly or through reverse repurchase agreements in amounts up to
one-third of the value of each of their total net assets, other than the
amount borrowed;
6. purchase or sell commodities or commodity contracts except that (a) each
portfolio other than the Money Market Portfolio may, for hedging purposes,
purchase and sell financial futures contracts and options thereon within
the limits of investment restriction 7 below, (b) notwithstanding
restriction 7 below, the S&P 500 Index Portfolio may purchase and sell
stock index futures contracts in accordance with its stated investment
objectives, and (c) the Stellar Portfolio may purchase or sell precious
metal securities;
7. purchase or sell put or call options, except that each portfolio other than
the Money Market Portfolio may, for hedging purposes, (a) write call
options traded on a registered national securities exchange if such
portfolio owns the underlying securities subject to such options, and
purchase call options for the purpose of closing out positions in options
it has written, (b) purchase put options on securities owned, and sell such
options in order to close its positions in put options, (c) purchase and
sell financial futures contracts and options thereon, and (d) purchase and
sell financial index options; provided, however, that no option or futures
contract shall be purchased or sold if, as a result, more than one-third of
the total assets of the portfolio would be hedged by options or futures
contracts, and no more than 5% of any portfolio's total assets, at market
value, may be used for premiums on open options and initial margin deposits
on futures contracts;
8. other than the International and Global Contrarian Portfolios, invest in
securities of foreign issuers except that (a) each of the Equity, Bond,
Omni, Core Growth, Growth & Income, S&P 500 Index, Social Awareness and
Relative Value Portfolios may (i) invest up to 15% of their respective
assets in securities of foreign issuers (including private issuers and
foreign governments or political subdivisions, agencies or
instrumentalities of foreign governments), American Depository Receipts,
and securities of United States domestic issuers denominated in foreign
currency, and (ii) invest up to an additional 10% of the assets of the
portfolio in securities issued by foreign governments or political
subdivisions, agencies or instrumentalities thereof, (b) the Small Cap
Portfolio may invest up to 30% of its assets in the securities of foreign
issuers, (c) the Money Market Portfolio may invest up to 50% of its assets
in the securities of foreign issuers, provided the securities are
denominated in U.S. dollars and held in custody in the United States, (d)
the Strategic Income Portfolio may invest up to 20% of its assets in
foreign bonds and (e) the Stellar Portfolio may invest up to 25% of its
assets in the securities of foreign issuers. For purposes of this
restriction number 8, U.S. dollar denominated depository receipts traded in
domestic markets do not constitute foreign securities;
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As nonfundamental policies of each portfolio other than the Capital Appreciation
and Aggressive Growth Portfolios, which policies may be changed at any time by
the vote of a majority of the Board of Directors, (a) no portfolio will invest
more than 20% of its assets in securities of issuers located in any one foreign
country, except that up to an additional 5% of its assets may be invested in
securities of issuers located in each of any three of Australia, Canada, France,
Germany, Japan or the United Kingdom; and (b) each portfolio other than the
Money Market Portfolio, in order to hedge against changes in the exchange rates
of foreign currencies in relation to the U.S. dollar, may engage in forward
foreign currency contracts, foreign currency options and foreign currency
futures contracts in connection with the purchase, sale or ownership of specific
securities (but, not more than 5% of a portfolio's assets may be invested in
such currency hedging contracts).
If a percentage restriction is adhered to at the time of an investment, a later
increase or decrease in the investment's percentage of the value of a
portfolio's total assets resulting from a change in such values or assets will
not constitute a violation of the percentage restriction.
CAPITAL APPRECIATION PORTFOLIO FUNDAMENTAL POLICIES As a matter of fundamental
policy, the Portfolio may not:
C.A.1. Borrow money except that the Portfolio may (i) borrow for
non-leveraging, temporary or emergency purposes and (ii) engage in
reverse repurchase agreements and make other investments or engage in
other transactions, which may involve a borrowing, in a manner
consistent with the Portfolio's investment objective and program,
provided that the combination of (i) and (ii) shall not exceed 33 1/3%
of the value of the Portfolio's total assets (including the amount
borrowed) less liabilities (other than borrowings) or such other
percentage permitted by law. Any borrowings which come to exceed this
amount will be reduced in accordance with applicable law. The Portfolio
may borrow from banks, other portfolios managed by TRPA or other
persons to the extent permitted by applicable law;
C.A.2. Purchase or sell physical commodities; except that it may enter into
futures contracts and options thereon;
C.A.3. Purchase the securities of any issuer if, as a result, more than 25% of
the value of the Portfolio's total assets would be invested in the
securities of issuers having their principal business activities in the
same industry;
C.A.4. Make loans, although the Portfolio may (i) lend portfolio securities
and participate in an interfund lending program with other portfolios
managed by TRPA provided that no such loan may be made if, as a result,
the aggregate of such loans would exceed 33 1/3% of the value of the
Portfolio's total assets; (ii) purchase money market securities and
enter into repurchase agreements; and (iii) acquire
publicly-distributed or privately-placed debt securities and purchase
debt;
C.A.5. Purchase a security if, as a result, with respect to 75% of the value
of its total assets, more than 5% of the value of the Portfolio's total
assets would be invested in the securities of a single issuer, except
securities issued or guaranteed by the U.S. Government or any of its
agencies or instrumentalities;
C.A.6. Purchase a security if, as a result, with respect to 75% of the value
of the Portfolio's total assets, more than 10% of the outstanding
voting securities of any issuer would be held by the Fund (other than
obligations issued or guaranteed by the U.S. Government, its agencies
or instrumentalities);
C.A.7. Purchase or sell real estate unless acquired as a result of ownership
of securities or other instruments (but this shall not prevent the
Portfolio from investing in securities or other instruments backed by
real estate or in securities of companies engaged in the real estate
business);
C.A.8. Issue senior securities except in compliance with the Investment
Company Act of 1940; or
C.A.9. Underwrite securities issued by other persons, except to the extent
that the Portfolio may be deemed to be an underwriter within the
meaning of the Securities Act of 1933 in connection with the purchase
and sale of its portfolio securities in the ordinary course of pursuing
its investment program.
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With respect to investment restrictions C.A.1. and C.A.4., the Portfolio will
not borrow from or lend to any other portfolios managed by TRPA unless they
apply for and receive an exemptive order from the SEC or the SEC issues rules
permitting such transactions. The Portfolio has no current intention of engaging
in any such activity and there is no assurance the SEC would grant any order
requested by the Portfolio or promulgate any rules allowing the transactions.
With respect to investment restriction C.A.2., the Portfolio does not consider
currency contracts or hybrid investments to be commodities.
For purposes of investment restriction C.A.3., U.S., state or local governments,
or related agencies or instrumentalities, are not considered an industry.
For purposes of investment restriction C.A.4., the Portfolio will consider the
acquisition of a debt security to include the execution of a note or other
evidence of an extension of credit with a term of more than nine months.
AGGRESSIVE GROWTH PORTFOLIO FUNDAMENTAL POLICIES
As a matter of fundamental policy, the Portfolio:
A.G.1. May not with respect to 75% of its total assets, purchase the
securities of any issuer (except securities issued or guaranteed by the
U.S. government or its agencies or instrumentalities) if, as a result,
(i) more than 5% of the Portfolio's total assets would be invested in
the securities of that issuer, or (ii) the Portfolio would hold more
than 10% of the outstanding voting securities of that issuer.
A.G.2. May (i) borrow money from banks and (ii) make other investments or
engage in other transactions permissible under the Investment Company
Act of 1940 which may involve a borrowing, provided that the
combination of (i) and (ii) shall not exceed 33 1/3% of the value of
the Portfolio's total assets (including the amount borrowed), less the
Portfolio's liabilities (other than borrowings), except that the
Portfolio may borrow up to an additional 5% of its total assets (not
including the amount borrowed) from a bank for temporary or emergency
purposes (but not for leverage or the purchase of investments). The
Portfolio may also borrow money from the other mutual funds managed by
SCM or other persons to the extent permitted by applicable law.
A.G.3. May not issue senior securities, except as permitted under the
Investment Company Act of 1940.
A.G.4. May not act as an underwriter or another issuer's securities, except to
the extent that the Portfolio may be deemed to be an underwriter within
the meaning of the Securities Act of 1933 in connection with the
purchase and sale of portfolio securities.
A.G.5. May not purchase or sell physical commodities unless acquired as a
result of ownership of securities or other instruments (but this shall
not prevent the Portfolio from purchasing or selling options, futures
contracts, or other derivative instruments, or from investing in
securities or other instruments backed by physical commodities).
A.G.6. May not make loans if, as a result, more than 33 1/3% of the
Portfolio's total assets would be lent to other persons, except through
(i) purchases of debt securities or other debt instruments, or (ii)
engaging in repurchase agreements.
A.G.7. May not purchase the securities of any issuer if, as a result, more
than 25% of the Portfolio's total assets would be invested in the
securities of issuers, the principal business activities of which are
in the same industry.
A.G.8. May not purchase or sell real estate unless acquired as a result of
ownership of securities or other instruments (but this shall not
prohibit the Portfolio from purchasing or selling securities or other
instruments backed by real estate or of issuers engaged in real estate
activities.
FOREIGN INVESTMENTS. Investments in foreign securities involve considerations
not normally associated with investing in domestic issuers. For a summary of
such considerations, see the second paragraph under "International Portfolio" on
page 9.
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RISKS RELATED TO HEDGING TECHNIQUES. The use for hedging purposes of options and
futures contracts on securities and foreign currencies involves certain risks,
including whether the Adviser or a sub-adviser will be able to predict correctly
the direction of movement of stock prices, interest rates, currency prices and
other economic factors, whether sufficient market liquidity will exist to permit
a portfolio to close out positions taken, and whether price movements of
portfolio securities subject to a hedge follow price movements of securities or
currencies underlying options and futures contracts, none of which can be
assured. A discussion of the risks involved in the use of such hedging
techniques is contained in the Statement of Additional Information.
RISKS RELATED TO LEVERAGING. The Growth & Income and Strategic Income Portfolios
may borrow for investment purposes pursuant to a fundamental policy. This
borrowing, which is known as leveraging, generally will be unsecured, except to
the extent the Portfolios enter into the reverse repurchase agreements described
below. The Investment Company Act of 1940 requires these Portfolios to maintain
continuous asset coverage (that is, total assets including borrowings, less
liabilities exclusive of borrowings) of 300% of the amount borrowed. If the 300%
asset coverage should decline as a result of market fluctuations or other
reasons, a Portfolio may be required to sell some of its portfolio holdings
within three days to reduce the debt and restore the 300% asset coverage, even
though it may be disadvantageous from an investment standpoint to sell
securities at that time.
Borrowing creates an opportunity for increased net income to the Portfolios but,
at the same time, creates special risk considerations. For example, leveraging
may exaggerate the effect on net asset value of any increase or decrease in the
market value of a Portfolio's securities. To the extent the income derived from
securities purchased with borrowed funds exceeds the interest a Portfolio will
have to pay, that Portfolio's net income will be greater than if borrowing were
not used. Conversely, if the income from the assets retained with borrowed funds
is not sufficient to cover the cost of borrowing, the net income of that
Portfolio will be less than if borrowing were not used and , therefore, the
amount available for distribution to shareholders as dividends will be reduced.
The Portfolios also may be required to maintain minimum average balances in
connection with borrowing or to pay a commitment or other fee to maintain a line
of credit; either of these requirements would increase the cost of borrowing
over the stated interest rate.
Among the forms of borrowing in which the Growth & Income and Strategic Income
Portfolios may engage is the entry into reverse repurchase agreements with
banks, brokers or dealers. These transactions involve the transfer by a
Portfolio of an underlying debt instrument in return for cash proceeds based on
a percentage of the value of the security. The Portfolio retains the right to
receive interest and principal payments on the security. At an agreed upon
future date, the Portfolio repurchases the security at an agreed-upon price. In
certain types of agreements, there is no agreed upon repurchase date, and
interest payments are calculated daily, often based on the prevailing U.S.
government securities or other high-quality liquid debt securities at least
equal to the aggregate amount of its reverse repurchase obligations, plus
accrued interest, in certain cases, in accordance with releases promulgated by
the Securities and Exchange Commission. The Commission views reverse repurchase
transactions as collateralized borrowings by the Portfolio. These agreements,
which are treated as if reestablished each day, can provide the Portfolios with
a flexible borrowing tool.
RISKS RELATED TO SHORT SALES. From time to time, the Strategic Income Portfolio
may engage in short sales which are transactions in which the Portfolio sells a
security it does not own in anticipation of a decline in the market value of
that security. To complete such a transaction, the Portfolio must borrow the
security to make delivery to the buyer. The Portfolio then is obligated to
replace the security borrowed by purchasing it at the market price at the time
of replacement. The price at such time may be more or less than the price at
which the security was sold by the Portfolio. Until the security is replaced,
the Portfolio is required to pay to the lender amounts equal to any dividends or
interest which accrue during the period of the loan. To borrow the security, the
Portfolio also may be required to pay a premium, which would increase the cost
of the security sold. The proceeds of the short sale will be retained by the
broker, to the extent necessary to meet margin requirements, until the short
position is closed out.
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It is anticipated that the frequency of short sales will vary substantially
under different market conditions. As an operating policy of the Strategic
Income Portfolio which may be changed without shareholder approval, no
securities will be sold short if, after effect is given to that short sale, the
total market value of all securities sold short would exceed 25% of the value of
the Portfolio's net assets. The Portfolio 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. The Portfolio may not sell
short the securities of any class of an issuer to the extent, at the time of the
transaction, of more than 2% of the outstanding securities of that class.
The 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, the Portfolio will realize
a gain if the security declines in price between those dates. This result is the
opposite of what one would expect from a cash purchase of a long position in a
security. The amount of any gain will be decreased, and the amount of any loss
increased, by the amount of any premium or amounts in lieu of interest the
Portfolio may be required to pay in connection with a short sale.
RISKS RELATED TO REAL ESTATE SECURITIES. Although the Fund's real estate
investments will be limited to publicly traded securities secured by real estate
or interests therein or issued by companies that invest in real estate or
interests therein, these investments may be subject to risks associated with
direct ownership of real estate. These include declines in the value of real
estate, risks related to general and local economic conditions and increases in
interest rates. Real estate investment trusts are often not diversified and are,
therefore, subject to the risk of financing projects. They may also be subject
to heavy cash flow dependency, defaults by borrowers and self-liquidation. Those
real estate investment trusts that hold equity positions in real estate may be
affected by any changes in the value of the underlying property. Those real
estate investment trusts that lend money to property developers may be affected
by the quality of any credit extended.
RISKS RELATED TO PRECIOUS METALS. The prices of precious metals and precious
metal securities have historically been subject to high volatility. The earnings
and financial condition of precious metal companies may be adversely affected by
volatile precious metal prices.
MANAGEMENT OF THE FUND
The Fund's Board of Directors is responsible for directing the management of the
business and affairs of the Fund. The Board of Directors has the power to amend
the Fund's By-laws, to elect its officers, to declare and pay dividends, and to
exercise all the powers of the Fund except those reserved to the shareholders.
The Adviser is a wholly-owned subsidiary of ONLI and is located at One Financial
Way, Cincinnati, Ohio 45242. It has served as the Fund's investment adviser
since May 1, 1996. Prior to that date, the Fund's investment adviser was O.N.
Investment Management Company, an indirect wholly-owned subsidiary of ONLI
which, like the Adviser, made use of ONLI's investment personnel and
administrative systems.
The Adviser engages sub-advisers to direct the investments and reinvestments of
certain portfolios.
SGAM, located at 1221 Avenue of the Americas, New York, NY 10020, is owned by
Societe Generale, one of the largest banks in Europe. SGAM and its predecessors
have been investment advisers to international mutual funds since 1970. It has
managed the assets of the International Portfolio since 1993, and the Global
Contrarian Portfolio since 1995.
TRPA, located at 100 East Pratt Street, Baltimore, Maryland 21202, manages
assets for various individual and institutional investors, particularly the T.
Rowe Price group of mutual funds. It is the successor to an investment firm
founded in 1937. It has managed the assets of the Capital Appreciation
Portfolio since 1994.
FAM, located at 2930 East Third Avenue, Denver, Colorado 80206, manages the
assets of the Founders group of mutual funds as well as private accounts. It was
established in 1938. It has managed the assets of the Small Cap Portfolio since
1994.
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SCM, located at 100 Heritage Reserve, Milwaukee, Wisconsin 53051, manages the
assets of the Strong group of mutual funds as well as pension funds and private
accounts. It was established in 1974. It has managed the assets of the
Aggressive Growth Portfolio since 1995.
PBA, located at 1255 Drummer's Lane, Wayne, Pennsylvania 19087, is controlled by
United Asset Management Corp. located in Boston, Massachusetts. With its
predecessors, PBA has been an investment adviser since 1982 and it manages the
PBHG mutual funds. It has managed the assets of the Core Growth Portfolio since
1997.
RSIM, located at 555 California Street, San Francisco, California 94104, has
been an investment adviser since 1978. It specializes in growth companies and
manages the Robertson Stephens mutual funds as well as private and institutional
asset pools. It has managed the assets of the Growth & Income Portfolio since
1997.
Star, located at 425 Walnut Street, Cincinnati, Ohio 45202, is a national bank
founded in 1863. It is the largest bank and trust organization of StarBanc
Corporation. It has managed commingled funds since 1957. It has managed the
assets of the Strategic Income, Stellar and Relative Value Portfolios since
1997.
The individuals primarily responsible for the day-to-day management of the
Fund's portfolios are Joseph Brom, Michael Boedeker, Stephen Williams, Douglas
Hundley, Keith Hanson, Jean-Marie Eveillard, Richard Howard, Michael Haines,
Richard Strong, James McCall, John Wallace, Randolph Bateman, Joseph Belew, Fred
Brink, Kirk Mentzer and Peter Sorrentino.
Joseph Brom is president of the Adviser and senior vice president and chief
investment officer of ONLI. He oversees the management of the Equity, Money
Market, Bond, Omni, S&P 500 Index and Social Awareness Portfolios. He is a
chartered financial analyst with a bachelor's degree in economics and finance
and a law degree from the University of Wisconsin. He has been an investment
officer of ONLI since 1975 and previously had 15 years of experience in
securities management.
Michael Boedeker, a vice president of the Adviser, has managed the Bond
Portfolio since 1989. He is a chartered financial analyst with a bachelor's
degree in business and a master of business administration degree in finance
from Indiana University. He has been vice president of fixed income securities
for ONLI since 1989 and previously had over 20 years of experience in fixed
income securities and mutual fund management, most recently as senior vice
president and chief investment officer of Mutual Security Life Insurance Co. for
more than 5 years.
Stephen Williams, a vice president of the Adviser, has managed the Equity and
Omni Portfolios since 1987. He has a bachelor's degree in finance from the
University of Cincinnati. He has been an investment analyst and director of
securities for ONLI since 1977.
Douglas Hundley, a vice president of the Adviser, is the portfolio manager of
the S&P 500 Index Portfolio, and he has managed the Money Market Portfolio
since 1996. He has a bachelor's degree in accounting and economics from Northern
Kentucky University, a master of business administration degree in finance from
the University of Texas, and is a certified public accountant in Ohio. He has
been an investment officer of ONLI since 1995. For more than seven years prior
to that he was an assistant portfolio manager for the Metropolitan Life
Insurance Co. and was a financial analyst for Star for a year.
Keith Hanson, a vice president of the Adviser, is the portfolio manager of the
Social Awareness Portfolio. He is a chartered financial analyst with a
bachelor's degree in business administration from Marquette University. He has
been an investment officer of ONLI since 1994. For a year prior to that he was a
research analyst in the valuation of small businesses for Blum & Colombe, SC,
and for seven years before that he was a securities analyst for Johnson Asset
Management.
Jean-Marie Eveillard, president of SGAM, has managed the International Portfolio
since its inception in 1993 and the Global Contrarian Portfolio since its
inception in 1995. He is a graduate of the Ecole des Hautes Etudes Commerciales
in Paris. He has been president of SoGen International Fund since 1984 and for
21 years prior to that had been a securities analyst and mutual fund manager of
Societe Generale and SoGen International Fund.
Richard Howard, president of the T. Rowe Price Capital Appreciation Fund and a
vice president of TRPA, is the portfolio manager of the Capital Appreciation
Portfolio. He is a chartered financial analyst with a bachelor's degree in
engineering from Millikin University and a master of business administration
degree from Harvard. He joined TRPA in 1982 and previously worked as an industry
specialist for Fidelity Management and Research and for CG Investment Management
Company.
Michael Haines, senior vice president of investment of FAM, is the portfolio
manager of the Small Cap Portfolio. He has a bachelor's degree from the Colorado
College and a master of business administration from the University of Denver.
He has been a portfolio manager for FAM since 1990 and for 5 years prior to that
was a financial analyst for FAM.
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Richard Strong, chairman of the board of SCM, is the portfolio manager of the
Aggressive Growth Portfolio. He has a bachelor's degree from Baldwin Wallace
College and a master's degree in finance from the University of Wisconsin. He
founded SCM in 1974 after 8 years of investment experience with several other
firms.
James McCall, a portfolio manager with PBA since 1994, manages the Core Growth
Portfolio. He has a bachelor's degree from the Philadelphia College of Pharmacy
and Science and masters degrees in pharmacy and business administration from the
University of Utah. Prior to joining PBA, he spent nine years as a vice
president and portfolio manager with First National Bank of Maryland and as
mutual fund portfolio manager for Provident Mutual Management Co. He spent ten
years as a pharmacist before entering the investment field.
John Wallace, a managing director of RSIM, is the portfolio manager of the
Growth & Income Portfolio. He has a bachelor's degree in Spanish and
Anthropology from the University of Idaho and a master of business
administration degree from Pace University. He joined RSIM in 1995. For nine
years prior to that he was a mutual fund portfolio manager for Oppenheimer
Management Corp. Prior to that, he had been the co-founder, owner and operator
of an Ecuadorian export firm.
Randolph Bateman, senior vice president and chief investment officer of Star's
trust financial services group, manages the foreign bonds component of the
Strategic Income Portfolio and the foreign securities component of the Stellar
Portfolio. He oversees investment policy and research for the Star trust group's
capital management division. He is a chartered financial analyst with a
bachelor's degree in economics from North Carolina State University. He has been
an investment officer of Star since 1988. Prior to that, he had 17 years of
investment experience including serving as president of MPACT Securities.
Joseph Belew, vice president and trust officer of Star, manages the Relative
Value Portfolio. He has a bachelor's degree in business management from Belmont
College. He has been a trust officer and investment manager of Star since 1979.
Fred Brink, a trust investment officer and fund manager for the capital
management division of Star, manages the real estate securities component of the
Strategic Income and Stellar Portfolios. He manages real estate investment
trusts and mutual funds for Star. He has a bachelor's degree in finance from the
University of Cincinnati. He has been a trust investment officer for Star since
1991.
Kirk Mentzer, senior trust officer and director of fixed income research for the
capital management division of Star, manages the domestic and structured fixed
income components of the Strategic Income Portfolio and the domestic fixed
income component of the Stellar Portfolio. He also manages the money market
components of the Strategic Income, Stellar and Relative Value Portfolios. He is
responsible for fixed income investment policy and strategy for Star's capital
management division. He has a bachelor's degree in finance and insurance from
the University of Cincinnati and a master's degree in finance from Xavier
University. He has been a trust officer for Star since 1989 .
Peter Sorrentino, vice president and director of portfolio management and
research for the capital management division of Star, manages the domestic
equity components of the Strategic Income and Stellar Portfolios. He is a
chartered financial analyst and has bachelor's degrees in both finance and
accounting from the University of Cincinnati. He has been an investment officer
of Star since 1996 and for 9 years prior to that was a vice president and
regional director of portfolio management for Bank One Investment Advisers.
Under the Investment Advisory Agreement dated May 1, 1996, and supplemented
January 2, 1997, the Adviser provides portfolio management and investment advice
to the Fund and administers its other affairs, subject to the supervision of the
Fund's Board of Directors. As compensation for its services to the Equity, Bond,
Omni and Social Awareness Portfolios, the Adviser is paid fees at an annual rate
of 0.60% of the first $100 million of each Portfolio's net assets, 0.50% of the
next $150 million, 0.45% of the next $250 million, 0.40% of the next $500
million, 0.30% of the next $1 billion and 0.25% of net assets over $2 billion.
For the Money Market Portfolio, the Adviser is paid a fee at an annual rate of
0.30% of the first $100 million, 0.25% of the next $150 million, 0.23% of the
next $250 million, 0.20% of the next $500 million and 0.15% of net assets over
$1 billion. However, as to the Money Market Portfolio, the Adviser is presently
waiving any of its fee in excess of 0.25%. For the International, Global
Contrarian and Relative Value Portfolios, the Adviser is paid fees at an annual
rate of 0.90% of each Portfolio's average daily net asset value.
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The Adviser is paid fees at an annual rate of 0.80% of the average daily net
asset value of each of the Capital Appreciation, Small Cap, Aggressive Growth
and Strategic Income Portfolios. The Adviser is paid fees at an annual rate of
0.95% of the first $150 million of the average daily net asset value of the Core
Growth Portfolio and 0.80% of net assets over $150 million. The Adviser is paid
fees at an annual rate of 0.85% of the first $200 million of the average daily
net asset value of the Growth & Income Portfolio and 0.80% of net assets over
$200 million. The Adviser is paid fees at an annual rate of 0.40% of the first
$100 million of the average daily net asset value of the S&P 500 Index
Portfolio, 0.35% of the next $150 million and 0.33% of net assets over $250
million. The Adviser is paid fees at an annual rate of 1.00% of the average
daily net asset value of the Stellar Portfolio.
Pursuant to Sub-Advisory Agreements dated May 1, 1996, the Adviser (1) pays SGAM
fees at an annual rate of 0.75% of the International and Global Contrarian
Portfolios' average daily net asset value for directing the investment and
reinvestment of those Portfolios' assets, (2) pays TRPA a fee at an annual rate
of 0.70% of the first $5 million, and 0.50% of average daily net asset value in
excess of $5 million for directing the investment and reinvestment of the
Capital Appreciation Portfolio's assets, (3) pays FAM a fee at an annual rate of
0.65% of the first $75 million, 0.60% of the next $75 million, and 0.55% of
average daily net asset value in excess of $150 million for directing the
investment and reinvestment of the Small Cap Portfolio's assets and (4) pays SCM
a fee at an annual rate of 0.70% of the first $50 million and 0.50% of average
daily net asset value in excess of $50 million for directing the investment and
reinvestment of the Aggressive Growth Portfolio's assets. Pursuant to
Sub-Advisory Agreements dated January 2, 1997, the Adviser (1) pays PBA fees at
an annual rate of 0.75% of the first $50 million, 0.70% of the next $100
million, and 0.50% of average daily net asset value in excess of $150 million
for directing the investment and reinvestment of the Core Growth Portfolio's
assets, (2) pays RSIM 0.60% of the first $100 million, 0.55% of the next $100
million, and 0.50% of average daily net asset value in excess of $200 million
for directing the investment and reinvestment of the Growth & Income Portfolio's
assets, (3) pays Star fees at an annual rate of 0.55 % of the first $50 million
and 0.50% of average daily net asset value in excess of $50 million for
directing the investment and reinvestment of Strategic Income Portfolio assets,
(4) pays Star fees at an annual rate of 0.75% of the first $50 million and 0.70%
of average daily net asset value in excess of $50 million for directing the
investment and reinvestment of Stellar Portfolio assets and (5) pays Star fees
at an annual rate of 0.65% of the first $50 million and 0.60% of average daily
net asset value in excess of $50 million for directing the investment and
reinvestment of Relative Value Portfolio assets.
Under a service agreement among the Fund, the Adviser and ONLI, the latter has
agreed to furnish the Adviser, at cost, such research facilities, services and
personnel as may be needed by the Adviser in connection with its performance
under the Investment Advisory Agreement. The Adviser reimburses ONLI for its
expenses in this regard.
The Fund also incurs other miscellaneous expenses for legal and accounting
services, registration and filing fees, custodial services and shareholder
services.
The Fund's transfer agent and Fund accounting agent is American Data Services,
Inc., 24 West Carver Street, Huntington, New York 11743. The custodian for those
portfolios other than the International and Global Contrarian Portfolios is
Star, which is located at 425 Walnut Street, Cincinnati, Ohio 45202. The
custodian for the International and Global Contrarian Portfolios is Investors
Fiduciary Trust Company, 127 West Tenth Street, Kansas City, Missouri. For
assets held outside the United States, the custodians enter into subcustodial
agreements, subject to approval by the Board of Directors.
CAPITAL STOCK
The Fund's authorized capital consists of 250 million shares of capital stock
with a par value of $1 per share; 20 million of such shares are allocated to
each of the Equity, Omni and International Portfolios, and 10 million of such
shares are allocated to each of the other portfolios. These shares may be
reallocated by the Board of Directors to another of the existing portfolios or
to any new portfolio.
All shares of all portfolios have equal voting rights, except that only shares
of a particular portfolio are entitled to vote on matters pertaining only to
that portfolio. Pursuant to the Investment Company Act of 1940 and the rules and
regulations thereunder, certain matters approved by a vote of all Fund
shareholders may not be binding on a portfolio whose shareholders have not
approved such matter.
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Each issued and outstanding share is entitled to one vote and to participate
equally in dividends and distributions declared by the respective portfolio and
in net assets of such portfolio remaining upon liquidation or dissolution after
satisfaction of outstanding liabilities. The shares of each portfolio, when
issued, will be fully paid and non-assessable, have no preemptive, conversion,
cumulative dividend or similar rights, and are freely transferable. Fund shares
do not have cumulative voting rights, which means that the holders of more than
half of the Fund shares voting for election of directors can elect all of the
directors if they so choose. In such event, the holders of the remaining shares
would not be able to elect any directors.
All of the outstanding Fund shares are owned of record by ONLI and ONLAC and are
held in their various separate accounts. The shares held in connection with
those separate accounts are voted by ONLI or ONLAC in accordance with
instructions received from the owners of variable contracts issued in connection
with such separate accounts and persons receiving payments under the variable
contracts. Fund shares attributable to contracts owned by ONLI and ONLAC, and
Fund shares not attributable to variable contracts, will be voted in proportion
to instructions received from all variable contract owners.
DIVIDENDS, DISTRIBUTIONS AND TAXES
Each portfolio seeks to qualify as a regulated investment company under
Subchapter M of the Internal Revenue Code. It is the Fund's policy to comply
with the provisions of the Code regarding distribution of investment income and
net realized capital gains so that the Fund will not be subject to federal
income tax on amounts distributed. Consequently, the Fund distributes to its
shareholders each year substantially all of its net investment income and net
realized capital gains (if any). For the Money Market Portfolio, all of the
undistributed net investment income is determined and paid as a dividend to
shareholders of record immediately before each computation of the net asset
value of Money Market shares. For the other portfolios, dividends representing
net investment income will normally be distributed quarterly and any net
realized capital gains will be distributed annually. However, the Fund's Board
of Directors may declare such dividends at more frequent intervals. Dividends
and distributions are automatically reinvested in additional shares of their
respective portfolios at net asset value without a sales charge unless a
shareholder requests that they be paid in cash.
PURCHASE AND REDEMPTION OF SHARES
Fund shares are sold without a sales charge and may be redeemed at their net
asset value next computed after a purchase or redemption order is received by
the Fund. (The net asset value of the Money Market Portfolio is normally $10 per
share.) Depending upon the net asset values at that time, the amount paid upon
redemption may be more or less than the cost of the shares redeemed. Payment for
shares redeemed will be made as soon as possible, but in any event within seven
days after evidence of ownership of the shares is tendered to the Fund except in
extraordinary circumstances as described in the Statement of Additional
Information.
The net asset value of the Fund's shares is determined on each day on which an
order for purchase or redemption of the Fund's shares is received and there is a
sufficient degree of trading in portfolio securities that the current net asset
value of its shares might be materially affected. Such determination is made as
of 4:00 p.m. Eastern time on each business day. The net asset value of each
portfolio is computed by dividing the value of the securities in that portfolio
plus any cash or other assets less all liabilities of the portfolio, by the
number of shares outstanding for that portfolio.
Shares of one portfolio may be exchanged for shares of another portfolio of the
Fund on the basis of the relative net asset values next computed after an
exchange order is received by the Fund.
22
<PAGE> 23
FUND PERFORMANCE
From time to time, the current yield, average annual total return and cumulative
total returns for the portfolios will be advertised. The results might be
compared to other similar mutual funds or unmanaged indices. Management's
discussion and analysis of the Fund's performance is included in the Fund's
most-recent annual report and is available free upon request.
Total return for a portfolio reflects the sum of all of its earnings plus any
changes in the value of its assets, reduced by all expenses accrued during a
measurement period. For this purpose, it is assumed that all dividends and
capital gains distributions are reinvested. The average annual total return is
expressed as a percentage of an amount invested for a one-year period. Each
portfolio's average return is computed by a formula in which a hypothetical
initial investment of $1,000 is equated to an ending redeemable value from the
inception of the portfolio for one-, five- and ten-year periods. Cumulative
total return reflects a portfolio's aggregate performance, expressed as a dollar
amount change, from the beginning to the end of the period.
Percentage changes in net asset value per share and total returns quoted for a
portfolio include the effect of deducting that portfolio's expenses, but do not
include charges and expenses attributable to any particular insurance product.
The amount by which variable annuity separate account charges and expenses would
reduce Fund's total return may be demonstrated by comparing the Fund's total
return to that of the variable annuity separate account for the same period.
Variable life insurance separate account charges vary significantly, depending
upon a variety of demographic factors (such as age, sex and health status) and
several contract-specific factors (such as stated amount of death benefit), but
in all cases would have the result of lowering the total return of the Fund.
From time to time the annualized yield and "effective" yield will be quoted for
the Money Market Portfolio. The Money Market Portfolio's yield refers to the
income generated by an investment in the Portfolio over the seven-day period
indicated. This income is then "annualized" by assuming that the same amount of
income generated by the Portfolio that week is generated over a 52-week period
and is shown as a percentage of the investment. "Effective" yield is calculated
similarly but, when annualized, the income earned by an investment in the
Portfolio is assumed to be reinvested. The effective yield will be slightly
higher than the yield because of the compounding effect of this assumed
reinvestment.
All performance quotations are based on historical investment performance and
are not intended to indicate future performance
ABOUT THE S&P 500
The S&P 500 is a widely publicized index that tracks 500 companies traded on the
New York and American Stock Exchanges and in the over-the-counter market. It is
weighted by market value so that each company's stock influences the S&P 500 in
proportions to its relative market capitalization. Most of the stocks in the S&P
500 are issued by companies that are among the 500 largest in the United States
in terms of aggregate market value. However, for diversification purposes, some
stocks of smaller companies are included in the S&P 500.
"Standard & Poor's (R)," "S&P (R)," "S&P 500 (R)" and "Standard & Poor's 500"
are trademarks of The McGraw-Hill Companies, Inc. and have been licensed for use
by the Adviser. The S&P 500 Index Portfolio is not sponsored, endorsed, sold or
promoted by Standard & Poor's ("S&P") and S&P makes no representation regarding
the advisability of investing in the S&P 500 Index Portfolio. S&P makes no
representation or warranty, express or implied, to the owners of the Portfolio
or any member of the public regarding the advisability of investing in
securities generally or in the Portfolio particularly or the ability of the S&P
500 Index to track general stock market performance. S&P's only relationship to
the Adviser is the licensing of certain trademarks and trade names of S&P and of
the S&P 500 Index which is determined, composed and calculated by S&P without
regard to the Adviser or the Portfolio. S&P has no obligation to take the needs
of the Adviser or the owners of the Portfolio into consideration in determining,
composing
23
<PAGE> 24
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.
24
<PAGE> 25
OHIO NATIONAL FUND, INC.
One Financial Way
Cincinnati, Ohio 45242
Telephone (5l3) 794-6316
STATEMENT OF ADDITIONAL INFORMATION
JANUARY 3, 1997
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 January 3, 1997.
To obtain a free copy of the Fund's prospectus, write or call the Fund at the
above address.
Table of Contents
-----------------
<TABLE>
<CAPTION>
Page
----
<S> <C>
The Fund ................................................................. 3
Fund Performance ......................................................... 3
Current Yield of Money Market Portfolio
Total Return
Portfolio Turnover
Investment Objectives and Policies ....................................... 7
Money Market Instruments
Investment Restrictions .................................................. 9
Hedging Transactions
Covered Call Options and Put Options
Risk Factors with Options
Futures Contracts
Options on Futures Contracts and Financial Indexes
Risk Factors with Futures, Options on Futures and Options on Indexes
Risk Factors with Foreign Investments
Foreign Currency Hedging Transactions
Short Sales
Management of the Fund ................................................... 21
Directors and Officers
Compensation of Directors
Shareholders' Meetings
Investment Advisory and Other Services
Brokerage Allocation ..................................................... 24
Purchase and Redemption of Shares ........................................ 26
Tax Status ............................................................... 27
Experts .................................................................. 27
Legal Counsel ............................................................ 28
The S&P 500 .............................................................. 28
Financial Statements ..................................................... 29
</TABLE>
<PAGE> 26
<TABLE>
<S> <C>
Appendix ................................................................. 61
Debt Security Ratings
</TABLE>
<PAGE> 27
THE FUND
The Fund is an open-end diversified management investment company which
currently consists of 16 separate portfolios - the Equity Portfolio, the Money
Market Portfolio, the Bond Portfolio, the Omni Portfolio, the International
Portfolio, the Capital Appreciation Portfolio, the Small Cap Portfolio, the
Global Contrarian Portfolio, the Aggressive Growth Portfolio, the Core Growth
Portfolio, the Growth & Income Portfolio, the S&P 500 Index Portfolio, the
Social Awareness Portfolio, the Strategic Income Portfolio, the Stellar
Portfolio and the Relative Value Portfolio. At present, the Fund sells its
shares only to separate accounts of The Ohio National Life Insurance Company
("ONLI") and Ohio National Life Assurance Corporation ("ONLAC") to support
certain benefits under variable contracts issued by ONLI and ONLAC. In the
future, Fund shares may be used for other purposes, but absent a change in
applicable law, will not be sold directly to the public.
The Fund was created on November 2, 1982 as the result of a plan of
reorganization and an agreement of merger entered into by O.N. Fund, Inc. and
O.N. Market Yield Fund, Inc., both of which were Maryland corporations. O.N.
Fund, Inc. was merged into O.N. Market Yield Fund, Inc., which acquired all of
O.N. Fund's assets and assumed all of O.N. Fund's liabilities. The shares of
O.N. Fund were converted to an equal number of shares of the Equity Portfolio of
O.N. Market Yield Fund and all shares of O.N. Market Yield Fund were converted
into an equal number of shares of the Money Market Portfolio. The name of O.N.
Market Yield Fund was changed to the Fund's current name, Ohio National Fund,
Inc., and a Bond Portfolio was created. The Omni Portfolio was added in 1984,
the International Portfolio in 1993, and the Capital Appreciation and Small Cap
Portfolios in 1994, the Global Contrarian and Aggressive Growth Portfolios in
1995, and the Core Growth, Growth & Income, S&P 500 Index, Social Awareness,
Strategic Income, Stellar and Relative Value Portfolios in 1997. The investments
held by each portfolio are maintained separately from those held by the other
portfolios.
The investment and reinvestment of the assets of the Equity, Money Market, Bond,
Omni, S&P 500 Index and Social Awareness Portfolios is directed by the Fund's
investment adviser, Ohio National Investments, Inc. (the "Adviser"), a
wholly-owned subsidiary of ONLI. The principal business address of ONLI, ONLAC
and the Adviser is One Financial Way, Cincinnati, Ohio 45242. The investment and
reinvestment of International and Global Contrarian Portfolio assets is managed
by Societe Generale Asset Management Corp. ("SGAM") as sub-adviser. The
principal business address of SGAM is 1221 Avenue of the Americas, New York, New
York 10020. The investment and reinvestment of Capital Appreciation Portfolio
assets is managed by T. Rowe Price Associates, Inc. ("TRPA") as sub-adviser. The
principal business address of TRPA is 100 East Pratt Street, Baltimore, Maryland
21202. The investment and reinvestment of Small Cap Portfolio assets is managed
by Founders Asset Management, Inc. ("FAM") as sub-adviser. The principal
business address of FAM is 2930 East Third Avenue, Denver, Colorado 80206. The
investment and reinvestment of Aggressive Growth Portfolio assets is managed by
Strong Capital Management, Inc. ("SCM") as sub-adviser. The principal business
address of SCM is 100 Heritage Reserve, Milwaukee, Wisconsin 53051. The
investment and reinvestment of Core Growth Portfolio assets is managed by
Pilgrim Baxter & Associates, Ltd. ("PBA") as sub-adviser. The principal business
address of PBA is 1255 Drummers Lane, Wayne, Pennsylvania 19087. The investment
and reinvestment of Growth & Income Portfolio assets is managed by Robertson
Stephens Investment Management, L.P. ("RSIM") as sub-adviser. The principal
business address of RSIM is 555 California Street, San Francisco, California
94104. The investment and reinvestment of Strategic Income, Stellar and Relative
Value Portfolio assets is managed by Star Bank, N.A. ("Star") as subadviser. The
principal business address of Star is 425 Walnut Street, Cincinnati, Ohio 45202.
FUND PERFORMANCE
The Fund may distribute sales literature comparing the percentage change in net
asset value per share for any of its portfolios against the Consumer Price Index
or such established market indices as the Dow Jones Industrial Average, the
Standard & Poor's 500 Stock Index, one or more of Lehman Brothers Bond Indices,
the Morgan Stanley Europe, Australia and Far East Index, the Morgan Stanley
World Index, the Russell 2000 Index, the New York Stock Exchange Composite
Index, the American Stock Exchange Index, the National Association of
3
<PAGE> 28
Securities Dealers Automated Quotations Composite Index, the Value Line
Composite Index, the Investors Business Daily 6000 Index, IBC's Money Fund
Reports, or other management investment companies having investment objectives
similar to the portfolio being compared. These comparisons may include graphs,
charts, tables or examples. The average annual total return and cumulative total
returns for each portfolio may also be advertised.
The Fund may also advertise the performance rankings assigned to certain
portfolios or their subadvisers by various statistical services, including
Morningstar, Inc. and Lipper Analytical Services, Inc., or as they appear in
various publications including The Wall Street Journal, Investors Business
Daily, The New York Times, Barron's, Forbes, Fortune, Business Week, Financial
Services Week, Financial World, Kiplinger's Personal Finance and Money Magazine.
The prospectus sets forth in tabular form, under the caption "Financial
Highlights," certain information concerning the Fund and its individual
portfolios. The following discussion describes the methods of calculating the
current yield of the Money Market Portfolio and the total return of all
portfolios, and states the Fund's policy with respect to each portfolio's
turnover rate.
CURRENT YIELD OF MONEY MARKET PORTFOLIO
Current annualized yield quotations for the Money Market Portfolio are based on
the portfolio's net investment income for a seven-day period and exclude any
realized or unrealized gains or losses on portfolio securities. Current
annualized yield is computed by determining the net change (exclusive of
realized gains and losses from the sale of securities and unrealized
appreciation and depreciation) in the value of a hypothetical account having a
balance of one share at the beginning of such seven-day period, dividing such
net change in account value by the value of the account at the beginning of the
period, and annualizing this quotient on a 365-day basis. The net change in
account value reflects the value of any additional shares purchased with
dividends from the original share in the account during the seven-day period,
any dividends declared on such original share and any such additional shares
during the period, and expenses accrued during the period. The Fund may also
disclose the effective yield of the Money Market Portfolio for a seven-day
period for which the current annualized yield is computed by expressing the
unannualized return on a compounded, annualized basis.
TOTAL RETURN
Total returns quoted in advertising reflect all aspects of a portfolio's
investment return, including the effects of reinvesting dividends and capital
gain distributions as well as changes in the portfolio's net asset value per
share over the period shown. Average annual returns are calculated by
determining the growth or decline in value of a hypothetical historical
investment in a portfolio over a stated period, and then calculating the
annually compounded percentage rate that would have produced the same result had
the rate of growth or decline been constant over that period. While average
annual returns are a convenient means of comparing investment alternatives, no
portfolio will experience a constant rate of growth or decline over time.
The average annual compounded rate of return for a portfolio over a given period
is found by equating the initial amount invested to the ending redeemable value
using the following formula:
P(1 + T)n = ERV
where: P = a hypothetical initial payment of $1,000,
T = the average annual total return,
n = the number of years, and
ERV = the ending redeemable value of a hypothetical $1,000
beginning-of-period payment at the end of the period
(or fractional portion thereof).
4
<PAGE> 29
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, 1995, are as stated below:
<TABLE>
<CAPTION>
One Five Ten From Inception
Year Years Years Inception Date
---- ----- ----- --------- ----
<S> <C> <C> <C> <C> <C>
Equity 27.20% 13.46% 13.35% 10.17% 10-06-69
Money Market 5.62% 4.21% 5.74% 7.57% 03-20-80
Bond 18.90% 8.98% 8.31% 9.05% 11-02-82
Omni 22.75% 12.07% 10.75% 11.22% 09-10-84
International 12.10% N/A N/A 16.87% 04-30-93
Capital Appreciation 22.62% N/A N/A 16.04% 05-01-94
Small Cap 33.01% N/A N/A 33.18% 05-01-94
Global Contrarian N/A N/A N/A 12.05% 03-31-95
Aggressive Growth N/A N/A N/A 37.53% 03-31-95
Core Growth N/A N/A N/A N/A 01-03-97
Growth & Income N/A N/A N/A N/A 01-03-97
S&P 500 Index N/A N/A N/A N/A 01-03-97
Social Awareness N/A N/A N/A N/A 01-03-97
Strategic Income N/A N/A N/A N/A 01-03-97
Stellar N/A N/A N/A N/A 01-03-97
Relative Value N/A N/A N/A N/A 01-03-97
</TABLE>
In addition to average annual total returns, advertising may reflect cumulative
total returns that simply reflect the change in value of an investment in a
portfolio over a period. This may be expressed as either a percentage change,
from the beginning to the end of the period, or the end-of-period dollar value
of an initial hypothetical investment. The cumulative total returns for each of
the portfolios from the inception of the portfolio and for the five- and
ten-year periods ending on December 31, 1995 (assuming a hypothetical initial
investment of $1,000) were as follows:
<TABLE>
<CAPTION>
Five Years Ten Years From Inception
---------- --------- --------------
<S> <C> <C> <C>
Equity $1,880 $3,501 $13,676
Money Market $1,229 $1,747 $ 3,080
Bond $1,537 $2,221 $ 3,126
Omni $1,768 $2,353 $ 3,327
International N/A N/A $ 1,514
Capital Appreciation N/A N/A $ 1,282
Small Cap N/A N/A $ 1,613
Global Contrarian N/A N/A $ 1,089
Aggressive Growth N/A N/A $ 1,270
Core Growth N/A N/A N/A
Growth & Income N/A N/A N/A
S&P 500 Index N/A N/A N/A
Social Awareness N/A N/A N/A
Strategic Income N/A N/A N/A
Stellar N/A N/A N/A
Relative Value N/A N/A N/A
</TABLE>
5
<PAGE> 30
PORTFOLIO TURNOVER
Each portfolio has a different expected rate of portfolio turnover. However, the
rate of portfolio turnover will not be a limiting factor when the management of
the Fund deems it appropriate to purchase or sell securities for a portfolio,
except in the following circumstances. The Fund intends to comply with the
various requirements of the Internal Revenue Code so as to qualify as a
"regulated investment company" thereunder. Among such requirements is a
limitation of less than 30% of the amount of gross income which each portfolio
may derive from gains on the sale or other disposition of securities held for
less than three months. Accordingly, the ability of any portfolio to effect
certain portfolio transactions at a given time may be limited. The Small Cap,
Aggressive Growth and Strategic Income Portfolios may engage in the purchase and
sale of securities close to the ex-dividend date in order to receive the
anticipated dividend and then sell the securities after the ex-dividend date.
This practice could substantially increase the Portfolio's turnover rate. The
Fund's policy with respect to each portfolio is as follows:
Equity Portfolio - Although this Portfolio will not normally purchase
securities with the intention of obtaining short-term capital
appreciation, purchases and sales will be made whenever deemed prudent and
consistent with the investment objectives of the Portfolio. During periods
of relatively stable market and economic conditions, it is anticipated
that the annual portfolio turnover rate of the Portfolio will be moderate.
During periods when changing market or economic conditions are foreseen,
shifts in portfolio emphasis may cause the rate of portfolio turnover to
increase. During 1995, the turnover rate for this portfolio was 14%.
Money Market Portfolio - Since the assets of this Portfolio consist of
short-term instruments, replacement of portfolio securities will occur
frequently. However, since purchases are generally effected with dealers
or issuers on a net basis, it is not expected that the Portfolio will
incur significant brokerage commissions.
Bond Portfolio - This Portfolio will engage in transactions when the
Adviser believes that they will help to achieve the overall objectives of
the Portfolio. Portfolio securities may or may not be held to maturity.
The rate of portfolio turnover will vary from time to time but is not
expected to exceed 50% annually. The turnover rate for this portfolio was
4% in 1995.
Omni Portfolio - The rate of portfolio turnover will vary from time to
time but is not expected to exceed 50% annually. The turnover rate for
this portfolio was 10% in 1995.
International Portfolio - Although this Portfolio will not normally engage
in short-term trading, purchases and sales of securities will be made
whenever deemed appropriate to achieve the Portfolio's objective of
long-term capital growth. The rate of portfolio turnover will not be a
limiting factor when portfolio changes are deemed appropriate to achieve
this Portfolio's stated objective. Under normal circumstances, the
portfolio turnover rate for this portfolio is not expected to exceed 75%
annually. The turnover rate for this portfolio was 7% in 1995.
Capital Appreciation Portfolio - Although TRPA generally seeks less
volatile securities for this Portfolio, the Portfolio may be traded fairly
aggressively. Its portfolio turnover rate is normally expected to be 50%
to 150% annually. The turnover rate for this portfolio was 32% in 1995.
Small Cap Portfolio - While this Portfolio purchases and holds securities
with the goal of meeting its investment objectives, portfolio changes are
made whenever FAM believes they are advisable, usually without reference
to the length of time a security has been held. The engagement in a
substantial number of short-term transactions is expected to result in
annual portfolio turnover rates of 100% to 300%. The turnover rate for
this portfolio was 75% in 1995.
Global Contrarian Portfolio - Because of the long-term growth objective
and the purchase of under-valued and out-of-favor securities, this
Portfolio will generally tend to hold securities for a relatively longer
time
6
<PAGE> 31
with the expectation of eventual price appreciation. As a result, the
portfolio turnover rate is not expected to exceed 50% annually, However,
it could be substantially higher at times due to repositioning of the
portfolio. The turnover rate for this portfolio was 4% for the period from
March 31, 1995 to December 31, 1995 (an annualized rate of 6%).
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 1,116% for the period from March 31, 1995 to December 31, 1995 (an
annualized rate of 1,488%).
Core Growth Portfolio - Although the securities held in this Portfolio are
generally held for appreciation, PBA's disciplined response to its
analytic process will occasionally result in sales without regard to the
length of time a security has been held. The annual turnover rate is
normally expected to be in the range of 50% to 250%.
Growth & Income Portfolio - RSIM exercises "sell" disciplines. A stock
held in this Portfolio is likely to be sold if it declines substantially
in price (at least 15%), if it reaches its upside target price, if the
company's business fundamentals turn negative, or if a more attractive
opportunity appears. The prices of small- and mid-cap company securities
in which this Portfolio invests may be more volatile than those of larger
companies. As a result, the Portfolio's annual turnover rate is normally
expected to be in the 100% to 200% range.
S&P 500 Index Portfolio - Securities held in this Portfolio generally will
not be actively traded. Although it will often purchase fixed-income
securities with relatively short maturities, those transactions are not
expected to generate substantial brokerage commissions. The annual
turnover rate is not expected to exceed 100%.
Social Awareness Portfolio - This Portfolio will not normally purchase
securities with the intention of obtaining short-term returns. Under
normal market conditions, the annual turnover rate is not expected to
exceed 50%.
Strategic Income Portfolio - The securities of this Portfolio will
generally be traded more frequently than those of the other income
oriented portfolios. Its portfolio turnover rate can normally be expected
to be in the range of 50% to 250% annually.
Stellar Portfolio - Although this Portfolio does not seek short-term
profits, its securities will be sold whenever Star believes it is
appropriate to do so in light of the Portfolio's investment objective
without regard to the length of time a particular security may have been
held. Its portfolio turnover rate is normally expected to be 50% to 150%.
Relative Value Portfolio - Although this Portfolio does not seek
short-term profits, its securities will be sold whenever Star believes it
is appropriate to do so in light of the Portfolio's investment objective
without regard to the length of time a particular security may have been
held. Its portfolio turnover rate is not expected to exceed 75% during
normal economic and market conditions.
INVESTMENT OBJECTIVES AND POLICIES
The following descriptions of money market instruments supplement the Fund's
"Investment Objectives and Policies" set forth in the prospectus. The Money
Market Portfolio and the Omni, Strategic Income and Stellar Portfolios, to the
extent they invest in the money market sector, will invest extensively in these
instruments. The other Portfolios may invest in such instruments to a limited
extent (to invest otherwise idle cash) or on a temporary basis for defensive
purposes. The debt security ratings referred to in the prospectus in connection
with the investment policies of the portfolios are defined in the Appendix to
this Statement of Additional Information.
7
<PAGE> 32
MONEY MARKET INSTRUMENTS
U.S. Government Obligations - Bills, notes, bonds and other debt
securities issued or guaranteed as to principal or interest by the United
States or by agencies or authorities controlled or supervised by and
acting as instrumentalities of the U.S. Government established under
authority granted by Congress, including, but not limited to, the
Government National Mortgage Association, the Tennessee Valley Authority,
the Bank for Cooperatives, the Farmers Home Administration, and Federal
Home Loan Banks. Some obligations of U.S. Government agencies, authorities
and other instrumentalities are supported by the full faith and credit of
the U.S. Treasury; others by the right of the issuer to borrow from the
Treasury; and others only by the credit of the issuer. Certain of the
foregoing may be purchased on a "when issued" basis at which time the rate
of return will not have been set.
Certificates of Deposit - Certificates issued against funds deposited in a
bank for a definite period of time, at a specified rate of return.
Normally they are negotiable.
Bankers' Acceptances - Short-term credit instruments issued by
corporations to finance the import, export, transfer or storage of goods.
They are termed "accepted" when a bank guarantees their payment at
maturity and reflect the obligation of both the bank and drawer to pay the
face amount of the instrument at maturity.
Commercial Paper - Promissory notes issued by corporations to finance
their short-term credit needs. Commercial paper obligations may include
variable amount master demand notes. Variable amount master demand notes
are obligations that permit the investment of fluctuating amounts by the
Portfolio at varying rates of interest pursuant to direct arrangements
between the Portfolio, as lender, and the borrower. These notes permit
daily changes in the amounts borrowed. The Portfolio has the right to
increase the amount under the note at any time up to the full amount
provided by the note agreement, or to decrease the amount, and the
borrower may prepay up to the full amount of the note without penalty.
Because variable amount master demand notes are direct lending
arrangements between the lender and the borrower, it is not generally
contemplated that such instruments will be traded, and there is no
secondary market for these notes, although they are redeemable (and thus
immediately repayable by the borrower) at face value, plus accrued
interest, at any time. In connection with a master demand note
arrangement, the Adviser will monitor, on an ongoing basis, the earning
power, cash flow, and other liquidity ratios of the issuer, and the
borrower's ability to pay principal and interest on demand. While master
demand notes, as such, are not typically rated by credit rating agencies,
if not so rated the Portfolio may invest in them only if at the time of an
investment the issuer meets the criteria set forth above for all other
commercial paper issuers. Such notes will be considered to have a maturity
of the longer of the demand period or the period of the interest
guarantee.
Corporate Obligations - Bonds and notes issued by corporations in order to
finance longer-term credit needs.
Repurchase Agreements - Agreements by which the Portfolio purchases a
security and obtains a simultaneous commitment from the seller (a member
bank of the Federal Reserve System or a government securities dealer
recognized by the Federal Reserve Board) to repurchase the security at a
mutually agreed upon price and date. It may also be viewed as a loan of
money by the Portfolio to the seller. The resale price is normally in
excess of the purchase price and reflects an agreed upon market rate. The
rate is effective for the period of time the Portfolio is invested in the
agreement and unrelated to the coupon rate on the purchased security. The
period of these repurchase agreements will usually be short, from
overnight to one week, and at no time will the Portfolio invest in
repurchase agreements for more than one year. These transactions afford an
opportunity for the Portfolio to earn a return on temporarily available
cash. Although repurchase agreements carry certain risks not associated
with direct investments in securities, the Fund intends to enter into
repurchase agreements only with financial institutions believed by the
Adviser to present minimal credit risks in accordance with criteria
established by the Fund's Board of Directors. The Adviser will review and
monitor the creditworthiness of such institutions under the Board's
general supervision. The Fund will only enter into repurchase agreements
pursuant to a master repurchase agreement that provides that all
transactions be fully collateralized and that the collateral be in the
actual or constructive possession of the Fund. The agreement must also
provide that the Fund will always receive
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as collateral securities whose market value, including accrued interest,
will be at least equal to 100% of the dollar amount invested by the
Portfolio in each agreement, and the Portfolio will make payment for such
securities only upon physical delivery or evidence of book entry transfer
to the account of the Custodian. If the seller were to default, the
Portfolio might incur a loss if the value of the collateral securing the
repurchase agreement declines and may incur disposition costs in
connection with liquidating the collateral. In addition, if bankruptcy
proceedings are commenced with respect to the seller of the security,
realization upon the collateral by the Portfolio may be delayed or limited
and a loss may be incurred if the collateral securing the repurchase
agreement declines in value during the bankruptcy proceedings. Investments
in repurchase agreements will be limited to transactions with financial
institutions believed by the Adviser to present minimal credit risks. The
Portfolio will not enter into repurchase agreements with securities
dealers unless it has obtained an exemptive order from the Commission or
an opinion of counsel that such transactions will not violate a legal
prohibition which in some circumstances bars an investment company from
purchasing any securities issued by a securities dealer.
INVESTMENT RESTRICTIONS
The prospectus lists the most significant investment restrictions to which the
Fund is subject. The following is a complete list of the Fund's investment
restrictions. Except as otherwise specified, all of the investment restrictions
stated in the prospectus and this Statement of Additional Information are
fundamental policies. Restrictions number 4, 7, 8, 12, 13 and 14 are
nonfundamental policies of the Small Cap, Core Growth, Growth & Income, S&P 500
Index, Social Awareness, Strategic Income, Stellar and Relative Value
Portfolios, and restrictions number 4, 7, 12, 13 and 14 are nonfundamental
policies of the Global Contrarian Portfolio. The fundamental policies and
nonfundamental operating policies of the Capital Appreciation and Aggressive
Growth Portfolios are shown separately below. Fundamental policies may not be
changed without the affirmative vote of the majority of the outstanding voting
securities of the Fund or a particular portfolio, as appropriate. The Investment
Company Act of l940 defines a majority vote as the vote of the lesser of (i) 67%
of the shares represented at a meeting at which more than 50% of the outstanding
shares are represented or (ii) more than 50% of the outstanding voting
securities. With respect to the submission of a change in an investment policy
to the holders of outstanding voting securities of a particular portfolio, such
matter shall be deemed to have been effectively acted upon with respect to such
portfolio if a majority of the outstanding voting securities of such portfolio
vote for the approval of such matter, notwithstanding (1) that such matter has
not been approved by the holders of a majority of the outstanding voting
securities of any other portfolio affected by such matter, and (2) that such
matter has not been approved by the vote of a majority of the outstanding voting
securities of the Fund.
The Fund may not issue senior securities and each portfolio of the Fund (other
than the Capital Appreciation and Aggressive Growth Portfolios) will not:
l. invest more than 5% of the value of the total assets of such
portfolio in the securities of any one issuer (except U.S.
Government securities);
2. purchase more than l0% of the outstanding voting securities of any
one issuer, and the Money Market Portfolio will not acquire the
voting securities of any issuer except in connection with a
merger, consolidation or other reorganization;
3. invest more than 25% of the value of its total assets in any one
industry, except that each portfolio may invest more than 25% of
the value of its total assets in obligations issued or guaranteed
by the U.S. Government, its agencies or instrumentalities or in
certificates of deposit, bankers' acceptances, bank time deposits
or other obligations of banks or financial institutions. However,
it is the intention of management not to invest in time deposits
which involve any penalty or other restriction on withdrawal;
4. invest more than 10% of the value of its assets (15% in the case
of the Small Cap, Core Growth and Growth & Income 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;
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5. other than the Growth & Income and Strategic Income 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 and Strategic Income Portfolios
may borrow money directly or through reverse repurchase agreements
in amounts up to one-third of the value of each of their total net
assets, other than the amount borrowed;
6. purchase or sell commodities or commodity contracts except that
(a) each portfolio other than the Money Market Portfolio may, for
hedging purposes, purchase and sell financial futures contracts
and options thereon within the limits of investment restriction 7
below, (b) the S&P 500 Index Portfolio may purchase or sell stock
index futures contracts in accordance with its stated investment
objectives, and (c) the Stellar Portfolio may purchase or sell
precious metal securities;
7. purchase or sell put or call options, except that each portfolio
other than the Money Market Portfolio may, for hedging purposes,
(a) write call options traded on a registered national securities
exchange if such portfolio owns the underlying securities subject
to such options, and purchase call options for the purpose of
closing out positions in options it has written, (b) purchase put
options on securities owned, and sell such options in order to
close its positions in put options, (c) purchase and sell
financial futures contracts and options thereon, and (d) purchase
and sell financial index options; provided, however, that no
option or futures contract shall be purchased or sold if, as a
result, more than one-third of the total assets of the portfolio
would be hedged by options or futures contracts, and no more than
5% of any portfolio's total assets, at market value, may be used
for premiums on open options and initial margin deposits on
futures contracts;
8. other than the International and Global Contrarian Portfolios,
invest in securities of foreign issuers except that (a) each of
the Equity, Bond, Omni, Core Growth, Growth & Income, S&P 500
Index, Social Awareness and Relative Value Portfolios may (i)
invest up to l5% of their respective assets in securities of
foreign issuers (including foreign governments or political
subdivisions, agencies or instrumentalities of foreign
governments) American Depository Receipts, and securities of
United States domestic issuers denominated in foreign currency,
and (ii) invest up to an additional l0% of the assets of the
portfolio in securities issued by foreign governments or political
subdivisions, agencies or instrumentalities thereof, (b) the Small
Cap Portfolio may invest up to 30% of its assets in the securities
of foreign issuers, (c) the Money Market Portfolio may invest up
to 50% of its assets in the securities of foreign issuers,
provided the securities are denominated in U.S. dollars and held
in custody in the United States, (d) the Strategic Income
Portfolio may invest up to 20% of its assets in foreign bonds and
(e) the Stellar Portfolio may invest up to 25% of its assets in
the securities of foreign issuers. For purposes of this
restriction number 8, U.S. dollar denominated depository receipts
traded in domestic markets do not constitute foreign securities;
9. underwrite securities of other issuers except insofar as the Fund
may be considered an underwriter under the Securities Act of l933
in selling portfolio securities;
10. purchase or sell real estate, except that each portfolio may
invest in securities secured by real estate or interests therein
or securities issued by companies which invest in real estate or
interests therein. For purposes of this restriction, "real estate"
does not include investments in readily marketable notes or other
evidence of indebtedness secured by mortgages or deeds of trust
relating to real property;
11. lend money to other persons except by the purchase of obligations
in which the portfolio is authorized to invest and by entering
into repurchase agreements. Other than the Strategic Income
Portfolio, no more than 10% of a portfolio's total assets will be
invested in repurchase agreements maturing in more than seven
days;
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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. participate on a joint or joint and several basis in any trading
account in securities;
14. purchase securities for the purpose of exercising control or
management;
15. purchase securities of other investment companies, except in
connection with a merger, consolidation or reorganization, or
except the purchase by any portfolio other than the Money Market
or Bond Portfolios of the securities of closed-end investment
companies if after the purchase: (i) a portfolio does not own more
than 3% of the total outstanding voting stock of the other
investment company or (ii) the value of the securities of all
investment companies held by such portfolio does not exceed 10% of
the value of the total assets of that portfolio. Purchases of
investment company securities will be made (a) only on the open
market or through dealers or underwriters receiving the customary
sales loads, or (b) as part of a merger, consolidation or plan of
reorganization.
As nonfundamental policies of each portfolio other than the Capital Appreciation
and Aggressive Growth Portfolios, which policies may be changed at any time by
the vote of a majority of the Board of Directors, (a) no portfolio will invest
more than 20% of its assets in securities of issuers located in any one foreign
country, except that up to an additional 5% of its assets may be invested in
securities of issuers located in each of any three of Australia, Canada, France,
Germany, Japan or the United Kingdom; and (b) each portfolio other than the
Money Market Portfolio, in order to hedge against changes in the exchange rates
of foreign currencies in relation to the U.S. dollar, may engage in forward
foreign currency contracts, foreign currency options and foreign currency
futures contracts in connection with the purchase, sale or ownership of specific
securities (but, not more than 5% of a portfolio's assets may be invested in
such currency hedging contracts).
In addition to the above restrictions, in order to comply with Rule 2a-7 under
the Investment Company Act of 1940, no more than 5% of the assets of the Money
Market Portfolio will be invested in "second-tier" short-term debt instruments,
that is those receiving the second highest rating by any two nationally
recognized statistical rating organizations ("NRSRO's") and not receiving the
highest rating from more than one NRSRO (or receiving the second highest rating
from one NRSRO if (a) that is the only NRSRO having rated the security or (b)
one other NRSRO has given the security its highest rating), or whose issuer has
received such a rating or ratings with respect to a class of short-term debt
obligations that is now comparable in priority and security to those to be
purchased. In addition, not more than $1 million (or 1% of this portfolio's
assets, if greater) may be invested in the second-tier instruments of any one
issuer.
Under normal market conditions, at least 65% of the assets of the International
Portfolio and at least 25% of the assets of the Global Contrarian Portfolio will
be invested in foreign securities, including securities of issuers in at least
three different foreign countries. As of the date of this Statement of
Additional Information, the Board of Directors has approved investment by those
portfolios other than the Money Market Portfolio in 50 countries with developed
securities markets, including the following countries with developed economies:
Australia, Austria, Belgium, Canada, Denmark, Finland, France, Germany, Ireland,
Israel, Italy, Japan, Luxembourg, Netherlands, New Zealand, Norway, Spain,
Sweden, Switzerland and the United Kingdom; and the following countries with
developing economies: Argentina, Bangla Desh, Brazil, Chile, China (Shanghai and
Shenzhen Exchanges), Czech Republic, Egypt, Greece, Hong Kong, Hungary,
Indonesia, Jordan, Malaysia, Mexico, Morocco, Pakistan, Peru, Philippines,
Poland, Portugal, Singapore, South Africa, South Korea, Sri Lanka, Taiwan,
Thailand, Turkey, Uruguay, Venezuela and Zimbabwe.
CAPITAL APPRECIATION PORTFOLIO FUNDAMENTAL POLICIES
As a matter of fundamental policy, the Portfolio may not:
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<PAGE> 36
C.A.1. Borrow money except that the Portfolio may (i) borrow for
non-leveraging, temporary or emergency purposes and (ii)
engage in reverse repurchase agreements and make other
investments or engage in other transactions, which may
involve a borrowing, in a manner consistent with the
Portfolio's investment objective and program, provided that
the combination of (i) and (ii) shall not exceed 33 1/3% of
the value of the Portfolio's total assets (including the
amount borrowed) less liabilities (other than borrowings)
or such other percentage permitted by law. Any borrowings
which come to exceed this amount will be reduced in
accordance with applicable law. The Portfolio may borrow
from banks, other portfolios managed by TRPA or other
persons to the extent permitted by applicable law;
C.A.2. Purchase or sell physical commodities; except that it may
enter into futures contracts and options thereon;
C.A.3. Purchase the securities of any issuer if, as a result, more
than 25% of the value of the Portfolio's total assets would
be invested in the securities of issuers having their
principal business activities in the same industry;
C.A.4. Make loans, although the Portfolio may (i) lend portfolio
securities and participate in an interfund lending program
with other portfolios managed by TRPA provided that no such
loan may be made if, as a result, the aggregate of such
loans would exceed 33 1/3% of the value of the Portfolio's
total assets; (ii) purchase money market securities and
enter into repurchase agreements; and (iii) acquire
publicly-distributed or privately-placed debt securities
and purchase debt;
C.A.5. Purchase a security if, as a result, with respect to 75% of
the value of its total assets, more than 5% of the value of
the Portfolio's total assets would be invested in the
securities of a single issuer, except securities issued or
guaranteed by the U.S. Government or any of its agencies or
instrumentalities;
C.A.6. Purchase a security if, as a result, with respect to 75% of
the value of the Portfolio's total assets, more than 10% of
the outstanding voting securities of any issuer would be
held by the Fund (other than obligations issued or
guaranteed by the U.S. Government, its agencies or
instrumentalities);
C.A.7. Purchase or sell real estate unless acquired as a result of
ownership of securities or other instruments (but this
shall not prevent the Portfolio from investing in
securities or other instruments backed by real estate or in
securities of companies engaged in the real estate
business);
C.A.8. Issue senior securities except in compliance with the
Investment Company Act of 1940; or
C.A.9. Underwrite securities issued by other persons, except to
the extent that the Portfolio may be deemed to be an
underwriter within the meaning of the Securities Act of
1933 in connection with the purchase and sale of its
portfolio securities in the ordinary course of pursuing its
investment program.
With respect to investment restrictions C.A.1. and C.A.4,, the Portfolio
will not borrow from or lend to any other portfolios managed by TRPA
unless they apply for and receive an exemptive order from the SEC or the
SEC issues rules permitting such transactions. The Portfolio has no
current intention of engaging in any such activity and there is no
assurance the SEC would grant any order requested by the Portfolio or
promulgate any rules allowing the transactions.
With respect to investment restriction C.A.2., the Portfolio does not
consider currency contracts or hybrid investments to be commodities.
For purposes of investment restriction C.A.3., U.S., state or local
governments, or related agencies or instrumentalities, are not considered
an industry.
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For purposes of investment restriction C.A.4., the Portfolio will consider
the acquisition of a debt security to include the execution of a note or
other evidence of an extension of credit with a term of more than nine
months.
CAPITAL APPRECIATION PORTFOLIO NONFUNDAMENTAL OPERATING POLICIES
As a matter of nonfundamental operating policy, the Portfolio may not:
C.A.10. Purchase additional securities when money borrowed exceeds
5% of its total assets;
C.A.11. Invest in companies for the purpose of exercising
management or control;
C.A.12. Purchase a futures contract or an option thereon if, with
respect to positions in futures or options on futures which
do not represent bona fide hedging, the aggregate initial
margin and premiums on such options would exceed 5% of the
Portfolio's net asset value;
C.A.13. Purchase illiquid securities and securities of unseasoned
issuers if, as a result, more than 15% of its net assets
would be invested in such securities, provided that the
Portfolio will not invest more than 5% of its total assets
in restricted securities and not more than 5% in securities
of unseasoned issuers. Securities eligible for resale under
Rule 144A of the Securities Act of 1933 are not included in
the 5% limitation but are subject to the 15% limitation;
C.A.14. Purchase securities of open-end or closed-end investment
companies except in compliance with the Investment Company
Act of 1940 and applicable state law;
C.A.15. Purchase securities on margin, except (i) for use of
short-term credit necessary for clearance of purchases of
portfolio securities and (ii) to make margin deposits in
connection with futures contracts or other permissible
investments;
C.A.16. Mortgage, pledge, hypothecate or, in any manner, transfer
any security owned by the Portfolio as security for
indebtedness except as may be necessary in connection with
permissible borrowings or investments and then such
mortgaging, pledging or hypothecating may not exceed 33
1/3% of the Portfolio's total assets at the time of
borrowing or investment;
C.A.17. Purchase participations or other direct interests in or
enter into leases with respect to, oil, gas, or other
mineral exploration or development programs;
C.A.18. Invest in puts, calls, straddles, spreads, or any
combination thereof, except to the extent permitted by the
prospectus and Statement of Additional Information;
C.A.19. Purchase or retain the securities of any issuer if, to the
knowledge of the Fund's management, those officers and
directors of the Fund, and of the Portfolio's investment
manager, who each owns beneficially more than 0.5% of the
outstanding securities of such issuer, together own
beneficially more than 5% of such securities;
C.A.20. Effect short sales of securities;
C.A.21. Purchase a security (other than obligations issued or
guaranteed by the U.S., any foreign, state of local
government, their agencies or instrumentalities) if, as a
result, more than 5% of the value of the Portfolio's total
assets would be invested in the securities of issuers which
at the time of purchase had been in operation for less than
three years (for this purpose, the period of operation of
any issuer shall include the period of operation of any
predecessor or unconditional guarantor of such issuer).
This restriction does not apply to securities of pooled
investment vehicles or mortgage or asset-backed securities;
or
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<PAGE> 38
C.A.22. Invest in warrants if, as a result thereof, more than 2% of
the value of the total assets of the Portfolio would be
invested in warrants which are not listed on the New York
Stock Exchange, the American Stock Exchange, or a
recognized foreign exchange, or more than 5% of the value
of the total assets of the Portfolio would be invested in
warrants whether or not so listed. For purposes of these
percentage limitations, the warrants will be valued at the
lower of cost or market and warrants acquired by the
Portfolio in units or attached to securities may be deemed
to be without value.
AGGRESSIVE GROWTH PORTFOLIO FUNDAMENTAL POLICIES
As a matter of fundamental policy, the Portfolio:
A.G.1. May not with respect to 75% of its total assets, purchase
the securities of any issuer (except securities issued or
guaranteed by the U.S. government or its agencies or
instrumentalities) if, as a result, (i) more than 5% of the
Portfolio's total assets would be invested in the
securities of that issuer, or (ii) the Portfolio would hold
more than 10% of the outstanding voting securities of that
issuer.
A.G.2. May (i) borrow money from banks and (ii) make other
investments or engage in other transactions permissible
under the Investment Company Act of 1940 which may involve
a borrowing, provided that the combination of (i) and (ii)
shall not exceed 33 1/3% of the value of the Portfolio's
total assets (including the amount borrowed), less the
Portfolio's liabilities (other than borrowings), except
that the Portfolio may borrow up to an additional 5% of its
total assets (not including the amount borrowed) from a
bank for temporary or emergency purposes (but not for
leverage or the purchase of investments). The Portfolio may
also borrow money from the other mutual funds managed by
SCM or other persons to the extent permitted by applicable
law.
A.G.3. May not issue senior securities, except as permitted under
the Investment Company Act of 1940.
A.G.4. May not act as an underwriter of another issuer's
securities, except to the extent that the Portfolio may be
deemed to be an underwriter within the meaning of the
Securities Act of 1933 in connection with the purchase and
sale of portfolio securities.
A.G.5. May not purchase or sell physical commodities unless
acquired as a result of ownership of securities or other
instruments (but this shall not prevent the Portfolio from
purchasing or selling options, futures contracts, or other
derivative instruments, or from investing in securities or
other instruments backed by physical commodities).
A.G.6. May not make loans if, as a result, more than 33 1/3% of
the Portfolio's total assets would be lent to other
persons, except through (i) purchases of debt securities or
other debt instruments, or (ii) engaging in repurchase
agreements.
A.G.7. May not purchase the securities of any issuer if, as a
result, more that 25% of the Portfolio's total assets would
be invested in the securities of issuers, the principal
business activities of which are in the same industry.
A.G.8. May not purchase or sell real estate unless acquired as a
result of ownership of securities or other instruments (but
this shall not prohibit the Portfolio from purchasing or
selling securities or other instruments backed by real
estate or of issuers engaged in real estate activities).
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<PAGE> 39
AGGRESSIVE GROWTH PORTFOLIO NONFUNDAMENTAL OPERATING POLICIES
As a matter of nonfundamental operating policy, the Portfolio may not:
A.G.9. Sell securities short, unless the Portfolio owns or has
the right to obtain securities equivalent in kind and
amount to the securities sold short, or unless it covers
such short sale as required by the current rules and
positions of the SEC or its staff, and provided that
transactions in options, futures contracts, options on
futures contracts, or other derivative instruments are not
deemed to constitute selling securities short.
A.G.10. Purchase securities on margin, except that the Portfolio
may obtain such short-term credits as are necessary for the
clearance of transactions; and provided that margin
deposits in connection with futures contacts, options on
futures contracts, or other derivative instruments shall
not constitute purchasing securities on margin.
A.G.11. Invest in illiquid securities if, as a result of such
investment, more than 15% of its net assets would be
invested in illiquid securities, or such other amounts as
may be permitted under the Investment Company Act of 1940.
A.G.12. Purchase securities of other investment companies except in
compliance with the Investment Company Act of 1940 and
applicable state law.
A.G.13. Purchase the securities of any issuer (other than
securities issued or guaranteed by domestic or foreign
governments or political subdivisions thereof) if, as a
result, more than 5% of its total assets would be invested
in the securities of issuers that, including predecessor or
unconditional guarantors, have a record of less than three
years of continuous operation. This policy does not apply
to securities of pooled investment vehicles or mortgage or
asset-backed securities.
A.G.14. Invest in direct interests in oil, gas, or other mineral
exploration programs or leases; however, the Portfolio may
invest in the securities of issuers that engage in these
activities.
A.G.15. Engage in futures or options on futures transactions which
are impermissible pursuant to Rule 4.5 under the Commodity
Exchange Act and, in accordance with Rule 4.5, will use
futures or options on futures transactions solely for bona
fide hedging transactions (within the meaning of the
Commodity Exchange Act), provided, however, that the
Portfolio may, in addition to bona fide hedging
transactions, use futures and options on futures
transactions if the aggregate initial margin and premiums
required to establish such positions, less the amount by
which any such options positions are in the money (within
the meaning of the Commodity Exchange Act), do not exceed
5% of the Portfolio's net assets.
In addition, (i) the aggregate value of securities
underlying call options on securities written by the
Portfolio or obligations underlying put options on
securities written by the Portfolio determined as of the
date the options are written will not exceed 50% of the
Portfolio's net assets; (ii) the aggregate premiums paid on
all options purchased by the Portfolio and which are being
held will not exceed 20% of the Portfolio's net assets;
(iii) the Portfolio will not purchase put or call options,
other than hedging positions, if, as a result thereof, more
than 5% of its total assets would be so invested; and (iv)
the aggregate margin deposits required on all futures and
options on futures transactions being held will not exceed
5% of the Portfolio's total assets.
A.G.16. Pledge, mortgage or hypothecate any assets owned by the
Portfolio except as may be necessary in connection with
permissible borrowings or investments and then such
pledging, mortgaging, or hypothecating may not exceed 33
1/3% of the Portfolio's total assets at the time of the
borrowing or investment.
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<PAGE> 40
A.G.17. Purchase warrants, valued at the lower of cost or market
value, in excess of 5% of the Portfolio's net assets.
Included in that amount, but not to exceed 2% of the
Portfolio's net assets, may be warrants that are not listed
on the New York Stock Exchange or the American Stock
Exchange. Warrants acquired by the Portfolio in units or
attached to securities are not subject to these
restrictions.
A.G.18. Borrow money except (i) from banks or (ii) through reverse
repurchase agreements or mortgage dollar rolls, and will
not purchase securities when bank borrowings exceed 5% of
its total assets.
A.G.19. Make any loans other than loans of portfolio securities,
except through (i) purchases of debt securities or other
debt instruments, or (ii) engaging in repurchase
agreements.
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.
16
<PAGE> 41
RISK FACTORS WITH OPTIONS
The purchaser of an option pays the option writer a "premium" for the option. In
the case of a covered call option written by a portfolio, if the purchaser does
not exercise the call option, the premium will generate additional capital gain
to the portfolio. If the market price of the underlying security declines, the
premium received for the call option will reduce the amount of the loss the
portfolio would otherwise incur. However, if the market price of the underlying
security rises above the exercise price and the call option is exercised, the
portfolio will lose its opportunity to profit from that portion of the rise
which is in excess of the exercise price plus the option premium. Therefore, the
Fund will write call options only when the Adviser believes that the option
premium will yield a greater return to the portfolio than any capital
appreciation that might occur on the underlying security during the life of the
option.
In the case of a put option purchased by a portfolio, if the market price of the
underlying security remains or rises above the exercise price of the option, the
portfolio will not exercise the option and the premium paid for such option will
reduce the gain the portfolio would otherwise have earned. Conversely, if the
market price of the underlying security falls below the exercise price less the
premium paid for the option, the portfolio will exercise the option, thereby
reducing the loss the portfolio would have otherwise suffered. Accordingly, a
portfolio will purchase put options only when the Adviser believes that the
market price of the underlying security is more likely to decrease than
increase.
Whenever a portfolio enters into a closing transaction, the portfolio will
realize a gain (or loss) if the premium plus commission it pays for a closing
call option is less (or greater) than the premium it received on the sale of the
original call option. Conversely, the portfolio will realize a gain (or loss) if
the premium it receives, less commission, for a closing put option is greater
(or less) than the premium it paid for the original put option. The portfolio
will realize a gain if a call option it has written lapses unexercised, and a
loss if a put option it has purchased lapses unexercised.
FUTURES CONTRACTS
The Fund may invest in two kinds of financial futures contracts: stock index
futures contracts and interest rate futures contracts. Stock index futures
contracts are contracts developed by and traded on national commodity exchanges
whereby the buyer will, on a specified future date, pay or receive a final cash
payment equal to the difference between the actual value of the stock index on
the last day of the contract and the value of the stock index established by the
contract multiplied by the specific dollar amount set by the exchange. Futures
contracts may be based on broad-based stock indexes such as the S&P 500 or on
narrow-based stock indexes. A particular index will be selected according to the
Adviser's investment strategy for the particular portfolio. An interest rate
futures contract is an agreement whereby one party agrees to sell and another
party agrees to purchase a specified amount of a specified financial instrument
(debt security) at a specified price at a specified date, time and place.
Although interest rate futures contracts typically require actual future
delivery of and payment for financial instruments, the contracts are usually
closed out before the delivery date. A public market exists in interest rate
futures contracts covering primarily the following financial instruments: U.S.
Treasury bonds; U.S. Treasury notes; Government National Mortgage Association
(GNMA) modified pass-through mortgage-backed securities; three-month U.S.
Treasury bills; 90-day commercial paper; bank certificates of deposit; and
Eurodollar certificates of deposit. It is expected that futures contracts
trading in additional financial instruments will be authorized.
At the time the Fund enters into a contract, it sets aside a small portion of
the contract value in an account with the Fund's custodian as a good faith
deposit (initial margin) and each day during the contract period requests and
receives or pays cash equal to the daily change in the contract value (variable
margin). The Fund, its futures commission merchant and the Fund's custodian
retain control of the initial margin until the contract is liquidated.
17
<PAGE> 42
OPTIONS ON FUTURES CONTRACTS AND FINANCIAL INDEXES
Instead of entering into a financial futures contract, the Fund may buy an
option giving it the right to enter into such a contract at a future date. The
price paid for such an option is called a premium. The Fund also may buy options
on financial indexes that are traded on securities exchanges. Options on
financial indexes react to changes in the value of the underlying index in the
same way that options on financial futures contracts do. All settlements for
options on financial indexes also are for cash.
Financial futures contracts, options on such contracts and options on financial
indexes will only be used for hedging purposes and will, therefore, be
incidental to the Fund's activities in the securities market. Accordingly,
portfolio securities subject to options, or money market instruments having the
market value of any futures contracts, generally will be set aside to
collateralize the options or futures contracts.
RISK FACTORS WITH FUTURES, OPTIONS ON FUTURES AND OPTIONS ON INDEXES
One risk of entering into financial futures contracts, buying options on such
contracts and buying options on financial indexes is that there may not be
enough buyers and sellers in the market to permit the Fund to close a position
when it wants to do so. In such event, besides continuing to be subject to the
margin requirements, the Fund would experience a gain or loss to the extent that
the price movement of the securities subject to the hedge differed from the
position. To limit the risk, the Fund will invest only where there is an
established secondary market.
A risk applicable to both futures contracts and related options is that changes
in the value of the contracts or option may not correlate with changes in the
underlying financial index or with changes in the value of the securities
subject to hedge or both. This failure may be due, in part, to temporary
activity of speculators in the futures markets. To the extent there is not a
perfect correlation, changes in the value of the Fund's assets would not be
offset by change in the value of the contracts and options it had bought.
When the Fund buys an option on a futures contract or an option on a financial
index, its risk of loss is limited to the amount of the premium paid. When the
Fund enters into a futures contract, there is no such limit. However, the loss
on an options contract would exceed that of a futures contract if the change in
the value of the index does not exceed the premium paid for the option.
The success of a hedge depends upon the Adviser's ability to predict increases
or decreases in the relevant financial index. If this expectation proves
incorrect, the Fund could suffer a loss, and would be better off if those
futures contracts or options had not been purchased. The skills involved in
determining whether to enter into a futures contract or purchase or sell an
option are different from those involved in determining whether to buy or sell a
security. The Adviser has had only limited experience using financial futures
contracts, options on financial futures and options on financial indexes.
Because of the low margin deposits required, futures trading involves a high
degree of leverage. As a result, a relatively small price movement in a futures
contract may result in immediate and substantial gain or loss. A purchase or
sale of a futures contract may result in losses in excess of the amount invested
in the futures contract. However, the Fund would presumably have sustained
comparable losses if, instead of the futures contract, it had invested in the
underlying financial instrument.
Most futures exchanges limit the amount of fluctuation permitted in futures
contract prices during a single trading day. The daily limit establishes the
maximum amount that the price of a futures contract may vary either up or down
from the previous day's settlement price at the end of a trading session. Once
the daily limit has been reached in a particular type of contract, no more
trades may be made on that day at a price beyond that limit. The daily limit
governs only price movements during a particular trading day and therefore does
not limit potential losses because the limit may prevent the liquidation of
unfavorable positions. Futures contract prices have occasionally moved to the
daily limit for several consecutive trading days with little or no trading,
thereby preventing prompt liquidation of futures and subjecting some futures
traders to substantial losses.
18
<PAGE> 43
RISK FACTORS WITH FOREIGN INVESTMENTS
Investments in foreign securities involve considerations not normally associated
with investing in domestic issuers. Such factors include changes in currency
exchange rates, currency exchange control regulations, the possibility of
seizure or nationalization of companies, political or economic instability,
imposition of unforeseen taxes, the possibility of financial information being
difficult to obtain or difficult to interpret under foreign accounting
standards, the necessity of trading in markets that in relation to U.S. markets
may be less efficient and have available less information concerning issuers, or
the imposition of other restraints that might adversely affect investments.
In selecting foreign investments, the Fund seeks to minimize these factors. It
seeks to invest in securities having investment characteristics and qualities
comparable to the kinds of domestic securities in which it invests. The Fund
seeks to avoid investments in countries with volatile or unstable political or
economic conditions.
The Fund may invest in securities of foreign issuers either directly or in the
form of American Depository Receipts (ADRs). ADRs are securities typically
issued by an American bank or trust company which evidence ownership of
underlying securities issued by a foreign corporation. ADRs enable foreign
stocks to be traded and cleared on United States markets. They bear the same
investment risks as the underlying foreign stocks.
Since investments in foreign securities, other than U.S. dollar denominated
securities, involve currencies of foreign countries, the value of a portfolio's
assets, as measured in U.S. dollars may be affected favorably or unfavorably by
changes in currency exchange rates and in currency exchange control regulations.
FOREIGN CURRENCY HEDGING TRANSACTIONS
In order to hedge against changes in the exchange rates of foreign currencies in
relation to the U.S. dollar, each portfolio, other than the Money Market
Portfolio, may engage in forward foreign currency contracts, foreign currency
options and foreign currency futures contracts in connection with the purchase,
sale or ownership of a specific security.
The portfolios generally conduct their foreign currency exchange transactions on
a spot (i.e., cash) basis at the spot rate prevailing in the foreign exchange
currency market. When a portfolio purchases or sells a security denominated in a
foreign currency, it may enter into a forward foreign currency contract
("forward contract") for the purchase or sale, for a fixed amount of dollars, of
the amount of currency involved in the underlying security transaction. A
forward contract involves an obligation to purchase or sell a specific currency
at a future date, which may be any fixed number of days from the date of the
contract agreed upon by the parties, at a price set at the time of the contract.
In this manner, a portfolio may obtain protection against a possible loss
resulting from an adverse change in the relationship between the U.S. dollar and
the foreign currency during the period between the date the security is
purchased or sold and the date upon which payment is made or received. Although
such contracts tend to minimize the risk of loss due to the decline in the value
of the hedged currency, at the same time they tend to limit any potential gain
which might result should the value of such currency increase.
Forward contracts are traded in the interbank market conducted directly between
currency traders (usually large commercial banks) and their customers. Generally
a forward contract has no deposit requirement, and no commissions are charged.
Although foreign exchange dealers do not charge a fee for conversion, they do
realize a profit based on the difference between the prices at which they buy
and sell various currencies. When the portfolio manager believes that the
currency of a particular foreign country may suffer a substantial decline
against the U.S. dollar, a portfolio may enter into a forward contract to sell,
for a fixed amount of dollars, the amount of foreign currency approximating the
value of some or all of that portfolio's securities denominated in such foreign
currency. No portfolio will enter into such forward contracts or maintain a net
exposure to such contracts where the consummation of the contracts would
obligate the portfolio to deliver an amount of foreign currency in excess of the
value of its assets denominated in that currency.
At the consummation of a forward contract for delivery by a portfolio of a
foreign currency, the portfolio may either make delivery of the foreign currency
or terminate its contractual obligation to deliver the foreign
19
<PAGE> 44
currency by purchasing an offsetting contract obligating it to purchase, at the
same maturity date, the same amount of the foreign currency. If the portfolio
chooses to make delivery of the foreign currency, it may be required to obtain
such currency through the sale of its securities denominated in such currency or
through conversion of other portfolio assets into such currency. It is
impossible to forecast the market value of portfolio securities at the
expiration of the forward contract. Accordingly, it may be necessary for the
portfolio to purchase additional foreign currency on the spot market (and bear
the expense of such purchase) if the market value of the security is less than
the amount of foreign currency the portfolio is obligated to deliver, and if a
decision is made to sell the security and make delivery of the foreign currency.
Conversely, it may be necessary for the portfolio to sell on the spot market
some of the foreign currency received on the sale of its hedged security if the
security's market value exceeds the amount of foreign currency the portfolio is
obligated to deliver.
If the portfolio retains the hedged security and engages in an offsetting
transaction, it will incur a gain or loss to the extent that there has been
movement in spot or forward contract prices. If a portfolio engages in an
offsetting transaction, it may subsequently enter into a new forward contract to
sell the foreign currency. Should forward prices decline during the period
between the portfolio's entering into a forward contract for the sale of a
foreign currency and the date it enters into an offsetting contract for the
purchase of the foreign currency, the portfolio will realize a gain to the
extent the price of the currency it has agreed to sell exceeds the price of the
currency it has agreed to purchase. Should forward prices increase, the
portfolio will suffer a loss to the extent the price of the currency it has
agreed to purchase exceeds the price of the currency it has agreed to sell.
Buyers and sellers of foreign currency options and futures contracts are subject
to the same risks previously described with respect to options and futures
generally (see "Risk Factors with Options" and "Risk Factors with Futures,
Options on Futures and Options on Indexes," above). In addition, settlement of
currency options and futures contracts with respect to most currencies must
occur at a bank located in the issuing nation. The ability to establish and
close out positions on such options is subject to the maintenance of a liquid
market that may not always be available. Currency rates may fluctuate based on
political considerations and governmental actions as opposed to purely economic
factors.
Predicting the movements of foreign currency in relation to the U.S. dollar is
difficult and requires different skills than those necessary to predict
movements in the securities market. There is no assurance that the use of
foreign currency hedging transactions can successfully protect a portfolio
against loss resulting from the movements of foreign currency in relation to the
U.S. dollar. In addition, it must be remembered that these methods of protecting
the value of a portfolio's securities against a decline in the value of a
currency does not eliminate fluctuations in the underlying prices of the
securities. It simply establishes a rate of exchange which can be achieved at
some future point in time. Additionally, although such contracts tend to
minimize the risk of loss due to the decline in the value of the hedged
currency, at the same time they tend to limit any potential gain which might
result should the value of such currency increase.
SHORT SALES
Until a borrowed security borrowed in connection with a short sale (as described
in the prospectus is replaced), the 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.
The Strategic Income Portfolio may purchase call options to provide a hedge
against an increase in the price of a security sold short. When the 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 the 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, the Portfolio also may
make short sales "against the box," a transaction in which the 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. The Portfolio
receives the net proceeds from the short sale. The Portfolio at no time will
have more than 5% of the value of its net assets in deposits on short sales
against the box.
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<PAGE> 45
MANAGEMENT OF THE FUND
DIRECTORS AND OFFICERS OF THE FUND
The directors and officers of the Fund, together with information as to their
principal occupations during the past five years are listed below:
<TABLE>
<CAPTION>
Position with Principal Occupation
Name and address the Fund during past five years
- ---------------- -------- ----------------------
<S> <C> <C>
Ronald L. Benedict* Secretary and Second Vice President and Counsel and
One Financial Way Director Assistant Secretary, ONLI; Secretary of
Cincinnati, Ohio ONIMCO and of the Adviser
George E. Castrucci Director Retired; formerly President and
8355 Old Stable Rd. Chief Operating Officer of Great
Cincinnati, Ohio American Communications Co and
Chairman and Chief Executive
Officer of Great American
Broadcasting Co.; Director of Benchmark
Savings Bank; Director of Baldwin
Piano & Organ Co.
Maurice H. Kirby, Jr. Director Retired. Formerly Senior Vice
6726 Farmbrook Drive President, First National Bank
Cincinnati, Ohio of Cincinnati
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
Donald J. Zimmerman* President and Director and Senior Vice President,
One Financial Way Director Insurance Operations and
Cincinnati, Ohio Secretary, ONLI
Michael A. Boedeker Vice President Vice President, Fixed Income
One Financial Way Securities, ONLI; Vice President
Cincinnati, Ohio and Director of ONIMCO and of Adviser
Joseph P. Brom Vice President Vice President, Investments,
One Financial Way ONLI; President and Director
Cincinnati, Ohio of ONIMCO and of the Adviser
Stephen T. Williams Vice President Director of Securities, ONLI;
One Financial Way Vice President and Director of
Cincinnati, Ohio ONIMCO and of the Adviser
Dennis R. Taney Treasurer Mutual Funds Financial Operations,
One Financial Way ONLI; Treasurer of ONIMCO and of the
Cincinnati, Ohio Adviser
</TABLE>
*Indicates Directors who are "Interested Persons" as defined by the Investment
Company Act of 1940, as amended.
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<PAGE> 46
All directors and officers of the Fund hold similar positions with ONE Fund,
Inc. ("ONE Fund"), another mutual fund sponsored by ONLI and managed by the
Adviser.
COMPENSATION OF DIRECTORS
Directors who are not affiliated with the Adviser, ONLI, ONLAC or a sub-adviser
were compensated as follows in 1995:
<TABLE>
<CAPTION>
Aggregate Compensation Total Compensation
Director From the Fund From Fund Complex*
- -------- ------------- ------------------
<S> <C> <C>
James E.Baker $10,400 $15,000
George E. Castrucci 10,400 15,000
Maurice H. Kirby, Jr 10,400 15,000
<FN>
* The "Fund Complex" consists of the Fund and ONE Fund, Inc.
</TABLE>
Directors and officers of the Fund who are affiliated with the Adviser, ONLI or
ONLAC receive no compensation from the Fund Complex. The Fund has no pension,
retirement or deferred compensation plan for its directors or officers.
SHAREHOLDERS' MEETINGS
The Fund's by-laws provide that shareholders meetings need only be held every
three years unless matters requiring shareholder approval should occur more
frequently. It is anticipated that shareholder meetings will generally occur
every three years.
INVESTMENT ADVISORY AND OTHER SERVICES
The Adviser is an Ohio corporation organized on January 17, 1996 to provide
investment advice and management services to funds affiliated with ONLI. The
Adviser is a wholly-owned subsidiary of ONLI. The Adviser succeeded O.N.
Investment Management Company ("ONIMCO") as the Fund's investment adviser on May
1, 1996. Prior to that date, ONIMCO had been the investment adviser from the
Fund's inception. The Adviser, like ONIMCO before it, uses ONLI's investment
personnel and administrative systems.
The Adviser regularly furnishes to the Fund's Board of Directors recommendations
with respect to an investment program consistent with the investment policies of
each portfolio. Upon approval of an investment program by the Fund's Board of
Directors, the Adviser implements the program by placing the orders for the
purchase and sale of securities or, in the case of the International, Capital
Appreciation, Small Cap, Global Contrarian, Aggressive Growth, Core Growth,
Growth & Income, Strategic Income, Stellar and Relative Value Portfolios, by
delegating that implementation to SGAM, TRPA, FAM, SCM, PBA, RSIM or Star, as
the case may be.
The Adviser's services are provided under an Investment Advisory Agreement with
the Fund. Under the Investment Advisory Agreement, the Adviser provides
personnel, including executive officers for the Fund. The Adviser also furnishes
at its own expense or pays the expenses of the Fund for clerical and related
administrative services (other than those provided by the custodian agreements
with Star and Investors Fiduciary Trust Company and an agency agreement with
American Data Services, Inc.), office space, and other facilities. The Fund pays
corporate expenses incurred in its operations, including, among others, local
income, franchise, issuance or other taxes; certain printing costs; brokerage
commissions on portfolio transactions; custodial and transfer agent fees;
auditing and legal expenses; and expenses relating to registration of its shares
for sale and shareholders' meetings.
As compensation for its services, the Adviser receives from the Fund annual fees
on the basis of each portfolio's average daily net assets during the quarterly
period for which the fees are paid based on the following schedule: (a) for each
of the Equity, Bond, Omni and Social Awareness Portfolios, 0.60% of the first
$100 million of each Portfolio's net assets, 0.50% of the next $150 million of
net assets, 0.45% of the next $250 million of net assets,
22
<PAGE> 47
0.40% of the next $500 million of net assets, 0.30% of the next $1 billion of
net assets, and 0.25% of net assets over $2 billion; (b) for the Money Market
Portfolio, 0.30% of the first $100 million of net assets, 0.25% of the next $150
million of net assets, 0.23% of the next $250 million of net assets, 0.20% of
the next $500 million of net assets, and 0.15% of net assets over $1 billion;
(c) for the International, Global Contrarian and Relative Value Portfolios,
0.90% of each Portfolio's net assets; (d) for the Capital Appreciation, Small
Cap, Aggressive Growth and Strategic Income Portfolios, 0.80% of each
Portfolio's net assets, (e) for the Core Growth Portfolio, 0.95% of the first
$150 million of net assets, and 0.80% of net assets over $150 million; (f) for
the Growth & Income Portfolio, 0.85% of the first $200 million of net assets,
and 0.80% of net assets over $200 million, (g) for the S&P 500 Index Portfolio,
0.40% of the first $100 million of net assets, 0.35% of the next $150 million of
net assets, and 0.33% of net assets over $250 million; and (h) for the Stellar
Portfolio, 1.00% of that Portfolio's net assets. However, as to the Money Market
Portfolio, the Adviser is presently waiving any of its fee in excess of 0.25%.
Under the Investment Advisory Agreement, the Fund authorizes the Adviser to
retain sub-advisers for the International, Capital Appreciation, Small Cap,
Global Contrarian, Aggressive Growth, Core Growth, Growth & Income, Strategic
Income, Stellar and Relative Value Portfolios, subject to the approval of the
Fund's Board of Directors. The Adviser has entered into Sub-Advisory Agreements
with SGAM, TRPA, FAM, SCM, PBA, RSIM and Star, respectively, to manage the
investment and reinvestment of those Portfolios' assets, subject to the
supervision of the Adviser. As compensation for their services, (a) SGAM
receives from the Adviser fees at the annual rate of 0.75% of the International
and Global Contrarian Portfolios' average daily net assets during the quarter
for which the fee is paid; (b) TRPA receives from the Adviser a fee at an annual
rate of 0.70% of the first $5 million, and 0.50% of average daily net asset
value in excess of $5 million, of the Capital Appreciation Portfolio; (c) FAM
receives from the Adviser a fee at an annual rate of 0.65% of the first $75
million, 0.60% of the next $75 million, and 0.55% of the average daily net asset
value in excess of $150 million of the Small Cap Portfolio; (d) SCM receives
from the Adviser a fee at an annual rate of 0.70% of the first $50 million, and
0.50% of average daily net asset value in excess of $50 million of the
Aggressive Growth Portfolio; (e) PBA receives from the Adviser a fee at an
annual rate of 0.75% of the first $50 million, 0.70% of the next $100 million,
and 0.50% of average daily net assets in excess of $150 million of the Core
Growth Portfolio; (f) RSIM receives from the Adviser a fee at an annual rate of
0.60% of the first $100 million, 0.55% of the next $100 million, and 0.50% of
average daily net assets in excess of $200 million of the Growth & Income
Portfolio; and (g) Star receives from the Adviser fees at an annual rate of (i)
0.55% of the first $50 million and 0.50% of average daily net assets in excess
of $50 million of the Strategic Income Portfolio, (ii) 0.75% of the first $50
million and 0.70% of average daily net assets in excess of $50 million of the
Stellar Portfolio and (iii) 0.65% of the first $50 million and 0.60% of average
daily net assets in excess of $50 million of the Relative Value Portfolio.
For each of the indicated years, ending December 31*, the following investment
advisory fees from each of the Fund's portfolios were paid to ONIMCO (the
Adviser's predecessor) as follows:
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Equity $ 812,156 $ 522,678 $445,082
Money Market** 31,228 33,012 70,380
Bond 87,798 55,332 45,516
Omni 542,756 367,235 262,444
International 678,133 380,483 40,886
Capital Appreciation 96,082 30,172 N/A
Small Cap 69,124 9,398 N/A
Global Contrarian 21,955 N/A N/A
Aggressive Growth 11,898 N/A N/A
Core Growth N/A N/A N/A
Growth & Income N/A N/A N/A
S&P 500 Index N/A N/A N/A
Social Awareness N/A N/A N/A
Strategic Income N/A N/A N/A
Stellar N/A N/A N/A
Relative Value N/A N/A N/A
---------- ---------- --------
$2,351,130 $1,398,310 $864,308
</TABLE>
23
<PAGE> 48
* The International Portfolio commenced operations on April 30, 1993. The
Capital Appreciation and Small Cap Portfolios commenced operations on May 1,
1994. The Global Contrarian and Aggressive Growth Portfolios commenced
operations on March 31, 1995. The Core Growth, Growth & Income, S&P 500 Index,
Social Awareness, Strategic Income, Stellar and Relative Value Portfolios
commenced operations on the date of this Statement of Additional Information.
** An additional $14,932, $25,824 and $21,776 was earned but waived in 1995,
1994 and 1993, respectively, as described above.
The Investment Advisory Agreement also provides that if the total expenses
applicable to any portfolio during any calendar quarter (excluding taxes,
brokerage commissions, interest and the investment advisory fee) exceed l%, on
an annualized basis, of such portfolio's average daily net asset value, the
Adviser will pay such expenses. Under the same terms, ONIMCO paid the Global
Contrarian Portfolio $8,127 in 1995, ONIMCO paid the Capital Appreciation and
Small Cap Portfolios $2,669 and $458, respectively, during 1994, and ONIMCO paid
the International Portfolio $11,917 in 1993. No other such amounts were paid to
any portfolio during the three years ended December 31, 1995.
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 Investment Advisory Agreement and the Service Agreement were approved as to
all then-existing portfolios, and the Sub-Advisory Agreements were approved for
the International, Global Contrarian, Capital Appreciation, Small Cap and
Aggressive Growth Portfolios, by the votes of the Board of Directors on January
24, 1996, and the shareholders on March 28, 1996. The foregoing agreements were
approved by the Board of Directors for continuance on August 22, 1996. The Board
of Directors approved the extension of the Investment Advisory Agreement
(including the fees applicable to each portfolio) and the Service Agreement and,
as applicable, the Sub-Advisory Agreements, for the Core Growth, Growth &
Income, S&P 500 Index, Social Awareness, Strategic Income, Stellar and Relative
Value Portfolios on August 22, 1996. The shareholders of these portfolios
approved the agreements on January 2, 1997. These agreements will continue in
force from year to year hereafter, if such continuance is specifically approved
at least annually by a majority of the Fund's directors who are not parties to
such agreements or interested persons of any such party, with votes to be cast
in person at a meeting called for the purpose of voting on such continuance, and
also by a majority of the Board of Directors or by a majority of the outstanding
voting securities of each portfolio voting separately.
The Investment Advisory, Service, and Sub-Advisory Agreements may be terminated
at any time, without the payment of any penalty, on 60 days' written notice to
the Adviser by the Fund's Board of Directors or, as to any portfolio, by a vote
of the majority of the portfolio's outstanding voting securities. The Investment
Advisory Agreement may be terminated by the Adviser on 90 days' written notice
to the Fund. The Service Agreement may be terminated, without penalty, by the
Adviser or ONLI on 90 days' written notice to the Fund and the other party. The
Sub-Advisory Agreements may be terminated, without penalty, by the Adviser or
the sub-adviser on 90 days' written notice to the Fund and the other party. The
Agreements will automatically terminate in the event of their assignment.
BROKERAGE ALLOCATION
The Adviser buys and sells the portfolio securities for the Equity, Money
Market, Bond, Omni, S&P 500 Index and Social Awareness Portfolios and selects
the brokers and dealers to handle such transactions. Each of the sub-advisers
selects the brokers and dealers that execute the transactions for the portfolios
managed by the respective sub-adviser. It is the intention of the Adviser and of
each sub-adviser to place orders for the purchase and sale of securities with
the objective of obtaining the most favorable price consistent with good
brokerage service. The cost of securities transactions for each portfolio will
consist primarily of brokerage commissions or dealer or underwriter spreads.
Bonds and money market securities are generally traded on a net basis and do not
normally involve either brokerage commissions or transfer taxes.
24
<PAGE> 49
Occasionally, securities may be purchased directly from the issuer. For
securities traded primarily in the over-the-counter market, the Adviser and
sub-advisers will, where possible, deal directly with dealers who make a market
in the securities unless better prices and execution are available elsewhere.
Such dealers usually act as principals for their own account.
In selecting brokers or dealers through whom to effect transactions, the Adviser
and sub-advisers consider a number of factors including the quality, difficulty
and efficiency of execution, and value of research, statistical, quotation and
valuation services provided. Research services by brokers include advice, either
directly or through publications or writings, as to the value of securities, the
advisability of purchasing or selling securities, the availability of securities
or purchasers or sellers of securities, and analyses and reports concerning
issuers, industries, securities, economic factors and trends, and portfolio
strategy. In making such determination, the Adviser or sub-adviser may use a
broker whose commission in effecting a securities transaction is in excess of
that of some other broker if the Adviser or sub-adviser determines in good faith
that the amount of such commission is reasonable in relation to the value of the
research and related services provided by such broker. In effecting a
transaction for one portfolio, a broker may also offer services of benefit to
other portfolios managed by the Adviser or sub-adviser, or of benefit to its
affiliates.
Generally, it is not possible to place a dollar value on research and related
services provided by brokers to the Adviser or a sub-adviser. However, receipt
of such services may tend to reduce the expenses of the Adviser or the
sub-advisers. Research, statistical and similar information furnished by brokers
may be of incidental assistance to other clients of the Adviser or the
sub-advisers and conversely, transaction costs paid by other clients of the
Adviser or the sub-advisers may generate information which is beneficial to the
Fund.
Consistent with these policies, the sub-advisers may, with the Board of
Directors' approval and subject to its review, direct portfolio transactions to
be executed by a broker affiliated with the sub-adviser so long as the
commission paid to the affiliated broker is reasonable and fair compared to the
commission that would be charged by an unaffiliated broker in a comparable
transaction.
For each of the indicated years, ending on December 3l, the following brokerage
commission amounts were paid by each portfolio:
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Equity $ 81,091 $ 52,713 $ 90,597
Money Market None None None
Bond 630 None None
Omni 39,073 25,413 34,582
International 153,524 131,000 34,625
Capital Appreciation 16,786 10,219 N/A
Small Cap 16,688 8,265 N/A
Global Contrarian 12,257 N/A N/A
Aggressive Growth 42,839 N/A N/A
Core Growth N/A N/A N/A
Growth & Income N/A N/A N/A
S&P 500 Index N/A N/A N/A
Social Awareness N/A N/A N/A
Strategic Income N/A N/A N/A
Stellar N/A N/A N/A
Relative Value N/A N/A N/A
-------- -------- --------
$362,888 $227,610 $159,804
</TABLE>
In l995, substantially all of such commissions were paid to brokers who
furnished statistical data and research information to ONIMCO (the predecessor
to the Adviser), SGAM, TRPA, FAM, or SCM.
25
<PAGE> 50
PURCHASE AND REDEMPTION OF SHARES
Fund shares are sold without a sales charge and may be redeemed at their net
asset value next computed after a purchase or redemption order is received by
the Fund. (The net asset value for the Money Market Portfolio is normally $l0
per share.) Depending upon the net asset values at that time, the amount paid
upon redemption may be more or less than the cost of the shares redeemed.
Payment for shares redeemed will be made as soon as possible, but in any event
within seven days after evidence of ownership of the shares is tendered to the
Fund. However, the Fund may suspend the right of redemption or postpone the date
of payment beyond seven days during any period when (a) trading on the New York
Stock Exchange is restricted, as determined by the Securities and Exchange
Commission, or such Exchange is closed for other than weekends and holidays; (b)
an emergency exists, as determined by the Commission, as a result of which
disposal by the Fund of securities owned by it is not reasonably practicable, or
it is not reasonably practicable for the Fund fairly to determine the value of
its net assets; or (c) the Commission by order so permits for the protection of
security holders of the Fund.
Shares of one portfolio may be exchanged for shares of another portfolio of the
Fund on the basis of the relative net assets value next computed after an
exchange order is received by the Fund.
The net asset value of the Fund's shares is determined on each day on which an
order for purchase or redemption of the Fund's shares is received and there is a
sufficient degree of trading in portfolio securities that the current net asset
value of its shares might be materially affected. Such determination is made as
of 4:00 p.m. Eastern time on each business day. "Business day" means each
weekday (Monday through Friday) except for the following holidays: New Years
Day, Presidents Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day and Christmas. The net asset value of each portfolio is
computed by dividing the value of the securities in that portfolio plus any cash
or other assets less all liabilities of the portfolio, by the number of shares
outstanding for that portfolio.
Securities which are held in a portfolio and listed on a securities exchange are
valued at the last sale price or, if there has been no sale that day, at the
last bid price reported as of 4 p.m. Eastern time. Over-the-counter securities
are valued at the last bid price as of 4 p.m. Eastern time.
Short-term debt securities in all portfolios other than the Money Market and
Omni Portfolios, with remaining maturities of 60 days or less, are valued at
amortized cost. The Fund has obtained an exemptive order from the Commission
permitting it to value all short-term debt securities in the Omni Portfolio at
amortized cost. The Fund relies on Rule 2a-7 under the Investment Company Act of
1940 to value the assets of the Money Market Portfolio on the basis of amortized
cost with a view toward stabilizing the net asset value at $l0 per share and
allowing dividend payments to reflect net interest income as earned.
Accordingly, the short-term debt assets of the Omni and Money Market Portfolios
are valued at their cost on the date of acquisition with a daily adjustment
being made to accrued income to reflect amortization of premium or accretion of
discount to the maturity date. All other assets of the Omni Portfolio and of
those portfolios other than the Money Market Portfolio, including restricted
debt securities and other investments for which market quotations are not
readily available, are valued at their fair value as determined in good faith by
the Board of Directors.
As a condition of the exemptive order, the Fund has agreed, with respect to
short-term debt securities in its Omni Portfolio, to maintain a dollar-weighted
average maturity of not more than l20 days and to not purchase any such debt
security having a maturity of more than one year. In relying on Rule 2a-7 with
respect to short-term debt securities in its Money Market Portfolio, the Fund
has agreed to maintain a dollar-weighted average portfolio maturity of not more
than 90 days and to not purchase any such debt security having a maturity of
more than 397 days. The dollar-weighted average maturity of short-term debt
securities is determined by dividing the sum of the dollar value of each such
security times the remaining days to maturity of such security by the sum of the
dollar value of all short-term debt securities. Should the disposition of a
short-term debt security result in a dollar-weighted average maturity of more
than the number of days allowed under the exemptive order or Rule 2a-7, as the
case may be, the Portfolio will invest its available cash so as to reduce such
average maturity to the required number of days or less as soon as reasonably
practicable. The Fund normally holds short-term debt
26
<PAGE> 51
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, 1995 the Fund qualified as a regulated investment company under
Subchapter M of the Internal Revenue Code (the "Code"). Under such provisions,
the Fund is not subject to federal income tax on such part of its net ordinary
income and net realized capital gains which it distributes to shareholders. Each
portfolio is treated as a separate entity for federal income tax purposes,
including determining whether it qualifies as a regulated investment company and
determining its net ordinary income (or loss) and net realized capital gains (or
losses). To qualify for treatment as a regulated investment company, each
portfolio must, among other things, derive in each taxable year at least 90% of
its gross income from dividends, interest and gains from the sale or other
disposition of securities and derive less than 30% of its gross income in each
taxable year from the gains (without deduction for losses) from the sale or
other disposition of securities held for less than three months. Each portfolio
also intends to comply with the diversification requirements or regulations
under Section 817(h) of the Code.
The foregoing is a general and abbreviated summary of the applicable provisions
of the Code and Treasury Regulations currently in effect. For the complete
provisions, reference should be made to the pertinent Code sections and the
Treasury Regulations promulgated thereunder. Since the only eligible
shareholders of the Fund are separate accounts of ONLI, ONLAC and other
insurance companies, no discussion is stated herein as to the federal income tax
consequences at the shareholder level.
EXPERTS
The financial statements of Ohio National Fund, Inc. as of December 3l, l995 and
for the periods indicated herein included in this Statement of Additional
Information and the Financial Highlights included in the prospectus have been
included herein and in the prospectus in reliance upon the report of KPMG Peat
Marwick LLP,
27
<PAGE> 52
independent certified public accountants, appearing in this Statement of
Additional Information, and upon the authority of said firm as experts in
accounting and auditing. KPMG Peat Marwick LLP's business address is 201 East
Fifth Street, Cincinnati, Ohio 45202.
LEGAL COUNSEL
Messrs. Jones & Blouch L.L.P., Washington, D.C., have passed on matters
pertaining to the federal securities laws and Ronald L. Benedict, Esq.,
Secretary of the Fund and Second Vice President and Counsel of ONLI, has passed
on all other legal matters relating to the legality of the shares described in
the prospectus and this Statement of Additional Information.
THE S&P 500
"Standard & Poor's (R)," "S&P (R)," "S&P 500 (R)" and "Standard & Poor's 500"
are trademarks of The McGraw-Hill Companies, Inc. and have been licensed for use
by the Adviser. The S&P 500 Index Portfolio is not sponsored, endorsed, sold or
promoted by Standard & Poor's ("S&P") and S&P makes no representation regarding
the advisability of investing in the S&P 500 Index Portfolio. S&P makes no
representation or warranty, express or implied, to the owners of the Portfolio
or any member of the public regarding the advisability of investing in
securities generally or in the Portfolio particularly or the ability of the S&P
500 Index to track general stock market performance. S&P's only relationship to
the Adviser is the licensing of certain trademarks and trade names of S&P and of
the S&P 500 Index which is determined, composed and calculated by S&P without
regard to the Adviser or the Portfolio. S&P has no obligation to take the needs
of the Adviser or the owners of the Portfolio into consideration in determining,
composing or calculating the S&P 500 Index. S&P is not responsible for and has
not participated in the determination of the prices and amount of the Portfolio
or the timing of the issuance or sale of the Portfolio or in the determination
or calculation of the equation by which the Portfolio is to be converted into
cash. S&P has no obligation or liability in connection with the administration,
marketing or trading of the Portfolio.
S&P DOES NOT GUARANTEE THE ACCURACY AND/OR THE COMPLETENESS OF THE S&P 500 INDEX
OR ANY DATA INCLUDED THEREIN AND S&P SHALL HAVE NO LIABILITY FOR ANY ERRORS,
OMISSIONS, OR INTERRUPTIONS THEREIN. S&P MAKES NO WARRANTY, EXPRESS OR IMPLIED,
AS TO RESULTS TO BE OBTAINED BY THE ADVISER, OWNERS OF THE PORTFOLIO, OR ANY
OTHER PERSON OR ENTITY FROM THE USE OF THE S&P 500 INDEX OR ANY DATA INCLUDED
THEREIN. S&P MAKES NO EXPRESS OR IMPLIED WARRANTIES, AND EXPRESSLY DISCLAIMS ALL
WARRANTIES OR MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR USE WITH
RESPECT TO THE S&P 500 INDEX OR ANY DATA INCLUDED THEREIN. WITHOUT LIMITING ANY
OF THE FOREGOING, IN NO EVENT SHALL S&P HAVE ANY LIABILITY FOR ANY SPECIAL,
PUNITIVE, INDIRECT, OR CONSEQUENTIAL DAMAGES (INCLUDING LOST PROFITS), EVEN IF
NOTIFIED OF THE POSSIBILITY OF SUCH DAMAGES.
28
<PAGE> 53
OHIO NATIONAL FUNDS, INC.
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders
Ohio National Fund, Inc.:
We have audited the accompanying statements of assets and liabilities and the
schedules of investments of Ohio National Fund, Inc. (comprising, respectively,
the Equity, Money Market, Bond, Omni, International, Capital Appreciation, Small
Cap, Global Contrarian and Aggressive Growth Portfolios) as of December 31,
1995, and the related statements of operations, statements of changes in net
assets and the financial highlights for each of the periods indicated herein.
These financial statements and financial highlights are the responsibility of
the fund's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. Our procedures included
confirmation of securities owned as of December 31, 1995, by correspondence with
the custodian and brokers, and where replies are not received, we carried out
other appropriate auditing procedures. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of each
of the portfolios comprising Ohio National Fund, Inc. as of December 31, 1995,
and the results of their operations, the changes in their net assets and their
financial highlights for each of the periods indicated herein, in conformity
with generally accepted accounting principles.
KPMG PEAT MARWICK LLP
Cincinnati, Ohio
January 26, 1996
<PAGE> 54
<TABLE>
OHIO NATIONAL FUND, INC.
STATEMENTS OF ASSETS AND LIABILITIES
DECEMBER 31, 1995
<CAPTION>
Portfolio
----------------------------------------------------------------------
Money
Equity Market Bond Omni
----------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
Assets:
Investments in securities at market
value (note 1) ............................... $175,602,520 $14,867,269 $17,736,453 $109,938,908
Cash denominated in foreign currencies
(cost $39,368) (note 1) ...................... 0 0 0 0
Cash in bank ................................... 80,517 20,415 5,796 157,526
Unrealized gain on foreign currency
exchange contracts (note 6) .................. 0 0 0 0
Receivable for securities sold ................. 531,857 0 0 148,420
Receivable for shares sold ..................... 787,863 845,291 56,558 427,102
Dividends and interest receivable .............. 258,678 0 295,198 516,629
Other .......................................... 5,684 834 632 5,425
----------- ---------- ---------- -----------
Total assets ................................. 177,267,119 15,733,809 18,094,637 111,194,010
----------- ---------- ---------- -----------
Liabilities:
Unrealized loss on foreign currency
exchange contracts (note 6) .................. 0 0 0 0
Payable for securities purchased ............... 1,309,215 0 0 1,070,375
Dividends payable .............................. 0 6,620 0 0
Payable for shares redeemed .................... 0 0 1,742 374,667
Payable for investment management
services (note 3) ............................ 239,177 8,318 25,910 158,287
Accrued expenses ............................... 23,529 3,085 2,592 13,465
----------- ---------- ---------- -----------
Total liabilities ............................ 1,571,921 18,023 30,244 1,616,794
----------- ---------- ---------- -----------
NET ASSETS AT MARKET VALUE ........................ $175,695,198 $15,715,786 $18,064,393 $109,577,216
=========== ========== ========== ===========
Net assets consist of:
Par value, $1 per share ........................ $ 6,146,729 $ 1,571,579 $ 1,652,878 $ 6,226,075
Paid-in capital in excess of par value ......... 113,036,283 14,144,207 15,348,472 79,912,413
Accumulated undistributed net realized
gain (loss) on investments ................... 5,341,756 0 (85,093) 1,956,755
Net unrealized appreciation on:
Investments .................................. 50,383,257 0 857,278 20,591,636
Forward currency contracts (note 6) .......... 0 0 0 0
Foreign currency related transactions ........ 0 0 0 0
Undistributed (overdistributed ) net
investment income ............................ 787,173 0 290,858 890,337
----------- ---------- ---------- -----------
NET ASSETS AT MARKET VALUE ........................ $175,695,198 $15,715,786 $18,064,393 $109,577,216
=========== ========== ========== ===========
SHARES OUTSTANDING (note 5) ....................... 6,146,729 1,571,579 1,652,878 6,226,075
----------- ---------- ---------- -----------
NET ASSET VALUE PER SHARE ......................... $ 28.58 $ 10.00 $ 10.93 $ 17.60
=========== ========== ========== ===========
</TABLE>
<TABLE>
<CAPTION>
Portfolio
----------------------------------------------------------------------
Capital Small Global Aggressive
International Appreciation Cap Contrarian Growth
------------- ------------ --------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Assets:
Investments in securities at market
value (note 1) ............................... $87,447,951 $19,136,355 $13,496,712 $3,808,824 $5,261,827
Cash denominated in foreign currencies
(cost $39,368) (note 1) ...................... 0 0 0 0 39,234
Cash in bank ................................... 1,990,848 9,525 2,721,747 541,075 775
Unrealized gain on foreign currency
exchange contracts (note 6) .................. 670,868 0 0 5,067 12,008
Receivable for securities sold ................. 0 18,643 0 0 169,763
Receivable for shares sold ..................... 796,153 250,026 230,434 57,952 96,039
Dividends and interest receivable .............. 301,865 39,658 21,471 24,881 77,746
Other .......................................... 25,976 1,077 249 93 39
---------- ---------- ---------- --------- ---------
Total assets ................................. 91,233,661 19,455,284 16,470,613 4,437,892 5,657,431
---------- ---------- ---------- --------- ---------
Liabilities:
Unrealized loss on foreign currency
exchange contracts (note 6)................... 132,484 0 0 2,445 0
Payable for securities purchased ............... 298,086 93,525 401,436 0 1,644,793
Dividends payable .............................. 0 0 0 0 0
Payable for shares redeemed .................... 0 0 0 0 0
Payable for investment management
services (note 3) ............................ 192,492 34,242 27,255 8,804 5,882
Accrued expenses ............................... 16,872 7,234 3,891 6,048 1,295
---------- ---------- ---------- --------- ---------
Total liabilities ............................ 639,934 135,001 432,582 17,297 1,651,970
---------- ---------- ---------- --------- ---------
NET ASSETS AT MARKET VALUE ..................... $90,593,727 $19,320,283 $16,038,031 $4,420,595 $4,005,461
========== ========== ========== ========= =========
Net assets consist of:
Par value, $1 per share ........................ $ 6,298,294 $ 1,611,642 $ 1,011,742 $ 409,218 $ 338,205
Paid-in capital in excess of par value ......... 75,407,025 15,764,214 12,600,728 3,769,059 3,380,489
Accumulated undistributed net realized
gain (loss) on investments ................... 1,691,528 347,729 542,566 36,817 (47,306)
Net unrealized appreciation on:
Investments .................................. 5,858,066 1,453,071 1,906,139 158,445 156,233
Forward currency contracts (note 6) .......... 538,384 0 0 2,622 12,008
Foreign currency related transactions ....... 1,097 0 (34) 18 (134)
Undistributed (overdistributed ) net
investment income ............................ 799,333 143,627 (23,110) 44,416 165,966
---------- ---------- ---------- --------- ---------
NET ASSETS AT MARKET VALUE ..................... $90,593,727 $19,320,283 $16,038,031 $4,420,595 $4,005,461
========== ========== ========== ========= =========
SHARES OUTSTANDING (note 5) ....................... 6,298,294 1,611,642 1,011,742 409,218 338,205
---------- ---------- ---------- --------- ---------
NET ASSET VALUE PER SHARE ......................... $ 14.38 $ 11.99 $ 15.85 $ 10.80 $ 11.84
========== ========== ========== ========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE> 55
<TABLE>
OHIO NATIONAL FUND, INC.
STATEMENTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 1995
<CAPTION>
PORTFOLIO
------------------------------------------------------------------
Money
Equity Market Bond Omni International
--------- ---------- ---------- --------- -------------
<S> <C> <C> <C> <C> <C>
Investment income:
Interest ................................ $ 1,500,766 $ 739,126 $1,108,699 $ 2,766,140 $ 653,088
Dividends ............................... 2,444,879 0 55,287 1,367,428 1,915,401 (b)
---------- ---------- ---------- ---------- ----------
Total investment income ............... 3,945,645 739,126 1,163,986 4,133,568 2,568,489
---------- ---------- ---------- ---------- ----------
Expenses:
Management fees (note 3) ................ 812,156 46,160 87,798 542,756 678,133
Custodian fees (note 3) ................. 203,485 16,862 20,900 129,716 130,597
Directors' fees (note 3) ................ 13,205 998 1,310 8,656 6,302
Professional fees ....................... 28,599 1,888 2,768 15,038 11,919
Other ................................... 35,289 4,434 3,525 22,291 13,707
---------- ---------- ---------- ---------- ----------
Total expenses ........................ 1,092,734 70,342 116,301 718,457 840,658
Less fees waived (note 3) ............. 0 (14,932) 0 0 0
---------- ---------- ---------- ---------- ----------
Net expenses .......................... 1,092,734 55,410 116,301 718,457 840,658
---------- ---------- ---------- ---------- ----------
Net investment income (loss) ........ 2,852,911 683,716 1,047,685 3,415,111 1,727,831
---------- ---------- ---------- ---------- ----------
Realized and unrealized gain (loss)
on investments and foreign currency
Net realized gain (loss) from:
Investments ........................... 5,341,756 0 (85,093) 1,972,001 1,691,528
Forward currency related transactions . 0 0 0 0 457,674
Net increase (decrease) in unrealized
appreciation (depreciation) on:
Investments ......................... 26,897,831 0 1,682,695 13,934,522 4,383,871
Foreign currency related transactions 0 0 0 0 523,701
---------- ---------- ---------- ---------- ----------
Net gain on investments ............. 32,239,587 0 1,597,602 15,906,523 7,056,774
---------- ---------- ---------- ---------- ----------
Net increase in net assets
from operations .................. $35,092,498 $ 683,716 $2,645,287 $19,321,634 $8,784,605
========== ========== ========== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
PORTFOLIO
-------------------------------------------------------
Capital Small Global Aggressive
Appreciation Cap Contrarian (a) Growth (a)
------------ ---------- ------------- ----------
<S> <C> <C> <C> <C>
Investment income:
Interest ................................ $ 343,156 $ 50,660 $ 18,114 $ 8,633
Dividends ............................... 191,184 23,684 63,446 (c) 303,789
---------- ---------- ---------- ----------
Total investment income ............... 534,340 74,344 81,560 312,422
---------- ---------- ---------- ----------
Expenses:
Management fees (note 3) ................ 96,082 69,124 21,955 11,898
Custodian fees (note 3) ................. 16,214 11,665 25,000 2,008
Directors' fees (note 3) ................ 967 686 250 227
Professional fees ....................... 1,671 1,298 472 342
Other ................................... 1,048 1,355 493 2,099
---------- ---------- ---------- ----------
Total expenses ........................ 115,982 84,128 48,170 16,574
Less fees waived (note 3) ............. 0 0 (8,127) 0
---------- ---------- ---------- ----------
Net expenses .......................... 115,982 84,128 40,043 16,574
---------- ---------- ---------- ----------
Net investment income (loss) ........ 418,358 (9,784) 41,517 295,848
---------- ---------- ---------- ----------
Realized and unrealized gain (loss)
on investments and foreign currency
Net realized gain (loss) from:
Investments ........................... 347,729 561,971 36,817 (47,306)
Forward currency related transactions . 0 2,911 26,795 7,406
Net increase (decrease) in unrealized
appreciation (depreciation) on:
Investments ......................... 1,486,874 1,631,857 158,445 156,233
Foreign currency related transactions 0 (46) 2,639 11,874
---------- ---------- ---------- ----------
Net gain on investments ............. 1,834,603 2,196,693 224,696 128,207
---------- ---------- ---------- ----------
Net increase in net assets
from operations .................. $2,252,961 $2,186,909 $ 266,213 $ 424,055
========== ========== ========== ==========
<FN>
(a) Commenced operations March 31, 1995.
(b) Net of $131,617 foreign taxes withheld.
(c) Net of $2,654 foreign taxes withheld.
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE> 56
OHIO NATIONAL FUND, INC.
STATEMENTS OF CHANGES IN NET ASSETS
YEARS ENDED DECEMBER 31, 1995 AND 1994
<TABLE>
<CAPTION>
PORTFOLIO
----------------------------------------------------
EQUITY MONEY MARKET
1995 1994 1995 1994
------------------------ ------------------------
<C> <C> <C> <C>
From operations:
Net investment
income .................. $ 2,852,911 $ 2,234,955 $ 683,716 $ 497,759
Realized gain (loss)
on investments
and foreign
currency related
transactions ............ 5,341,756 2,034,408 0 0
Unrealized gain (loss)
on investments
and foreign
currency related
transactions ............ 26,897,831 (3,945,856) 0 0
------------ ----------- ---------- ----------
Net increase (decrease)
in assets from
operations .......... 35,092,498 323,507 683,716 497,759
------------ ----------- ---------- ----------
Dividends and
distributions to
shareholders:
Dividends declared ...... (2,203,910) (2,223,380) (683,716) (497,759)
Capital gains
distribution .......... (2,034,408) (1,498,522) 0 0
------------ ----------- ---------- ----------
Total dividends and
distributions ...... (4,238,318) (3,721,902) (683,716) (497,759)
------------ ----------- ---------- ----------
From Capital Share
Transactions (note 5):
Received from
shares sold ............. 27,001,671 22,670,224 14,165,258 12,731,281
Received from dividends
reinvested .............. 4,238,318 3,721,902 683,716 497,759
Paid for shares
redeemed ................ (9,726,105) (9,524,993) (12,191,289) (19,293,770)
------------ ----------- ---------- ----------
Increase (decrease) in
net assets derived
from capital share
transactions ........ 21,513,884 16,867,133 2,657,685 (6,064,730)
------------ ----------- ---------- ----------
Increase (decrease)
in net assets .... 52,368,064 13,468,738 2,657,685 (6,064,730)
Net Assets:
Beginning of period ....... 123,327,134 109,858,396 13,058,101 19,122,831
------------ ----------- ---------- ----------
End of period (a) ......... $175,695,198 $123,327,134 $15,715,786 $13,058,101
============ =========== ========== ==========
(a) Includes undistributed
net investment
income of ............... $ 787,173 $ 138,172 $ 0 $ 0
============ =========== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
PORTFOLIO
------------------------------------------------------
BOND OMNI
1995 1994 1995 1994
------------------------ -------------------------
<C> <C> <C> <C>
From operations:
Net investment
income .................. $1,047,685 $ 834,629 $ 3,415,111 $ 3,012,739
Realized gain (loss)
on investments
and foreign
currency related
transactions ............ (85,093) 1,741 1,972,001 966,328
Unrealized gain (loss)
on investments
and foreign
currency related
transactions ............ 1,682,695 (1,308,762) 13,934,522 (4,325,399)
---------- ---------- ----------- -----------
Net increase (decrease)
in assets from
operations .......... 2,645,287 (472,392) 19,321,634 (346,332)
---------- ---------- ----------- -----------
Dividends and
distributions to
shareholders:
Dividends declared ...... (802,639) (837,535) (2,700,506) (2,991,171)
Capital gains
distribution .......... (1,741) (86,626) 0 0
---------- ---------- ----------- -----------
Total dividends and
distributions ...... (804,380) (924,161) (2,700,506) (2,991,171)
---------- ---------- ----------- -----------
From Capital Share
Transactions (note 5):
Received from
shares sold ............. 4,015,347 3,529,446 15,409,257 21,588,654
Received from dividends
reinvested .............. 804,380 924,161 2,700,506 2,991,171
Paid for shares
redeemed ................ (1,744,440) (1,887,483) (10,120,050) (10,483,526)
---------- ---------- ----------- -----------
Increase (decrease) in
net assets derived
from capital share
transactions ........ 3,075,287 2,566,124 7,989,713 14,096,299
---------- ---------- ----------- -----------
Increase (decrease)
in net assets .... 4,916,194 1,169,571 24,610,841 10,758,796
Net Assets:
Beginning of period ....... 13,148,199 11,978,628 84,966,375 74,207,579
---------- ---------- ----------- -----------
End of period (a) ......... $18,064,393 $13,148,199 $109,577,216 $84,966,375
========== ========== =========== ===========
(a) Includes undistributed
net investment
income of ............... $ 290,858 $ 45,811 $ 890,337 $ 175,732
========== ========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE> 57
OHIO NATIONAL FUND, INC.
STATEMENTS OF CHANGES IN NET ASSETS
YEARS ENDED DECEMBER 31, 1995 AND 1994 (CONTINUED)
<TABLE>
<CAPTION>
PORTFOLIO
-------------------------------------------------------
International Capital Appreciation (b)
1995 1994 1995 1994
------------------------ ------------------------
<S> <C> <C> <C> <C>
From operations:
Net investment
income (loss) ........... $ 1,727,831 $ 517,253 $ 418,358 $ 125,344
Realized gain (loss)
on investments
and foreign
currency related
transactions ............ 2,149,202 979,701 347,729 139,011
Unrealized gain (loss)
on investments
and foreign
currency related
transactions ............ 4,907,572 (53,567) 1,486,874 (33,803)
---------- ---------- ---------- ---------
Net increase (decrease)
in assets from
operations .......... 8,784,605 1,443,387 2,252,961 230,552
---------- ---------- ---------- ---------
Dividends and
distributions to
shareholders:
Dividends declared ...... (1,426,199) (376,185) (284,670) (115,406)
Capital gains
distribution .......... (1,090,908) (87,191) (139,011) 0
---------- ---------- ---------- ---------
Total dividends and
distributions ...... (2,517,107) (463,376) (423,681) (115,406)
---------- ---------- ---------- ---------
From Capital Share
Transactions (note 5):
Received from
shares sold ............. 26,592,168 49,137,629 10,945,010 6,851,101
Received from dividends
reinvested .............. 2,517,107 463,376 423,681 115,406
Paid for shares
redeemed ................ (7,658,197) (5,182,893) (632,303) (327,038)
---------- ---------- ---------- ---------
Increase in net
assets derived
from capital share
transactions ........ 21,451,078 44,418,112 10,736,388 6,639,469
---------- ---------- ---------- ---------
Increase in net
assets ........... 27,718,576 45,398,123 12,565,668 6,754,615
Net Assets:
Beginning of period ....... 62,875,151 17,477,028 6,754,615 0
---------- ---------- ---------- ---------
End of period (a) ......... $90,593,727 $62,875,151 $19,320,283 $6,754,615
========== ========== ========== =========
(a) Includes undistributed
net investment
income of ............... $ 799,333 $ 40,027 $ 143,627 $ 9,939
========== ========== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
PORTFOLIO
--------------------------------------------------------
GLOBAL AGGRESSIVE
Small Cap(b) Contrarian(c) Growth
1995 1994 1995 1995
------------------------ ------------ ------------
<S> <C> <C> <C> <C>
From operations:
Net investment
income (loss) ........... $ (9,784) $ 42,276 $ 41,517 $ 295,848
Realized gain (loss)
on investments
and foreign
currency related
transactions ............ 564,882 (19,405) 63,612 (39,900)
Unrealized gain (loss)
on investments
and foreign
currency related
transactions ............ 1,631,811 274,294 161,084 168,107
---------- --------- --------- ---------
Net increase (decrease)
in assets from
operations .......... 2,186,909 297,165 266,213 424,055
---------- --------- --------- ---------
Dividends and
distributions to
shareholders:
Dividends declared ...... (28,120) (30,393) (23,897) (137,288)
Capital gains
distribution .......... 0 0 0 0
---------- --------- --------- ---------
Total dividends and
distributions ...... (28,120) (30,393) (23,897) (137,288)
---------- --------- --------- ---------
From Capital Share
Transactions (note 5):
Received from
shares sold ............. 11,178,786 3,272,162 4,311,648 3,709,801
Received from dividends
reinvested .............. 28,120 30,393 23,897 137,288
Paid for shares
redeemed ................ (584,139) (312,852) (157,266) (128,395)
---------- --------- --------- ---------
Increase in net
assets derived
from capital share
transactions ........ 10,622,767 2,989,703 4,178,279 3,718,694
---------- --------- --------- ---------
Increase in net
assets ........... 12,781,556 3,256,475 4,420,595 4,005,461
Net Assets:
Beginning of period ....... 3,256,475 0 0 0
---------- --------- --------- ---------
End of period (a) ......... $16,038,031 $3,256,475 $4,420,595 $4,005,461
========== ========= ========= =========
<FN>
(a) Includes undistributed
net investment
income of ............... $ (23,110) $ 11,883 $ 44,416 $ 165,966
========== ========= ========= =========
(b) Commenced operations May 1, 1994.
(c) Commenced operations March 31, 1995.
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE> 58
OHIO NATIONAL FUND, INC.
SCHEDULE OF INVESTMENTS
DECEMBER 31, 1995
EQUITY PORTFOLIO
<TABLE>
<CAPTION>
MARKET
SHARES COMMON STOCK VALUE
- --------------------------------------------------------------------
<S> <C> <C>
AEROSPACE (3.9%)
44,500 Allied Signal, Inc. $ 2,113,750
64,000 Raytheon Co. 3,024,000
31,350 Rockwell International Corp. 1,657,631
-----------
6,795,381
-----------
AUTOMOTIVE AND RELATED (3.3%)
22,500 Arvin Industries, Inc. 371,250
15,500 Chrysler Corp. 858,312
43,000 * Custom Chrome, Inc. 994,375
29,400 Eaton Corp. 1,576,575
20,000 Magna International, Inc. 865,000
43,000 Modine Manufacturing Co. 1,032,000
-----------
5,697,512
-----------
BANKING (3.0%)
15,000 Boatmen's Bancshares, Inc. 613,125
24,000 Charter One Financial Inc. 735,000
21,000 First Union Corp. 1,168,125
70,000 Hanson Trust, PLC 1,067,500
22,500 Mellon Bank Corp. 1,209,375
20,500 Susquehanna Bancshares Inc. 543,250
-----------
5,336,375
-----------
BUSINESS SERVICES (6.5%)
26,500 * Andros, Inc. 404,125
34,500 * Banctec, Inc. 638,250
44,500 First Data Corp. 2,975,938
12,500 Fisher Scientific International 417,187
50,000 Manpower Inc. 1,406,250
50,000 * Mastec Inc. 662,500
38,000 Reynolds & Reynolds CL A 1,477,250
35,000 Standard Register Co. 704,375
30,000 * Symbol Technologies, Inc. 1,185,000
50,000 * Verifone, Inc. 1,431,250
-----------
11,302,125
-----------
CHEMICALS (3.8%)
25,000 Betz Laboratories, Inc. 1,025,000
17,500 E I DuPont De Nemours & Co. 1,222,813
28,000 Lubrizol Corp. 780,500
17,000 Monsanto Co. 2,082,500
46,000 OM Group, Inc. 1,523,750
-----------
6,634,563
-----------
COMPUTER AND RELATED (11.3%)
30,000 * Cisco Systems, Inc. 2,238,750
30,000 Computer Sciences Corp. 2,107,500
53,000 * Continental Circuits Corp. 861,250
20,000 * Exabyte Corp. 292,500
35,500 Hewlett-Packard Co. 2,973,125
32,000 Intel Corp. 1,816,000
20,500 * Medar Inc. 161,437
10,000 * Microsoft Corp. 877,500
40,000 Motorola, Inc. 2,280,000
35,000 * Netframe Systems 185,937
52,500 * Novell, Inc. 748,125
50,000 * Pyxis Corp. 731,250
40,000 * Sun Microsystems, Inc. 1,825,000
28,500 * Teradyne Inc. 712,500
40,000 Texas Instruments, Inc. 2,070,000
-----------
19,880,874
-----------
COMMUNICATIONS (1.9%)
55,000 Andrew Corp. $ 2,103,750
66,000 * General Cable 990,000
25,000 * Granite Broadcasting, Corp. 265,625
-----------
3,359,375
-----------
CONSUMER PRODUCTS (0.8%)
22,500 Panamerican Beverages, Inc. 720,000
23,000 Stanhome, Inc. 669,875
-----------
1,389,875
-----------
CONTAINERS (0.8%)
90,000 * Owens-Illinois, Inc. 1,305,000
-----------
DIVERSIFIED (0.1%)
32,500 Quixote Corp. 251,875
-----------
ELECTRICAL EQUIPMENT (4.1%)
90,000 BMC Industries Inc. - Minn. 2,092,500
31,500 Federal Signal Corp. 815,063
40,000 General Electric Co. 2,880,000
30,000 Varian Associates, Inc. 1,432,500
-----------
7,220,063
-----------
ENTERTAINMENT AND LEISURE (0.5%)
25,000 Cedar Fair 925,000
-----------
FINANCE (1.7%)
37,500 * Medaphis Corp. 1,387,500
15,000 PHH Corp. 701,250
40,000 SEI Corp. 870,000
-----------
2,958,750
-----------
FOOD AND RELATED (0.9%)
33,000 Smart & Final, Inc. 701,250
25,500 H.J. Heinz Co. 844,687
-----------
1,545,937
-----------
HOUSING, FURNITURE & RELATED (2.7%)
108,800 Clayton Homes, Inc. 2,325,600
64,000 Newell Co. 1,656,000
50,000 Shaw Industries, Inc. 737,500
-----------
4,719,100
-----------
INDUSTRIAL SERVICES (3.9%)
30,000 Deere & Company 1,057,500
22,500 Fluor Corp. 1,485,000
38,000 * Nuclear Support Services, Inc. 47,500
50,000 Regal Beloit 1,087,500
32,000 Stewart & Stevenson Services 808,000
50,000 WMX Technologies, Inc. 1,493,750
20,000 York International, Corp. 940,000
-----------
6,919,250
-----------
INSURANCE SERVICES (5.1%)
28,125 American International Group 2,601,563
18,000 Chubb Corp. 1,741,500
34,125 Cincinnati Financial Corp. 2,226,656
40,000 Equitable Cos., Inc. 960,000
34,500 Providian Corp. 1,405,875
-----------
8,935,594
-----------
</TABLE>
(continued)
<PAGE> 59
OHIO NATIONAL FUND, INC.
SCHEDULE OF INVESTMENTS
DECEMBER 31, 1995
EQUITY PORTFOLIO (CONTINUED)
<TABLE>
<CAPTION>
Market
Shares Common Stock Value
- --------------------------------------------------------------------
<S> <C> <C>
MACHINERY (3.2%)
28,000 * Bridgeport Machines Inc. $ 588,000
24,000 Caterpillar, Inc. 1,410,000
40,000 Kysor Industrial Corp. 970,000
56,800 Trinity Industries 1,789,200
47,000 Walbro Corp. 846,000
-----------
5,603,200
-----------
MEDICAL AND RELATED (6.0%)
32,000 Abbott Laboratories 1,336,000
36,000 Allergan, Inc. 1,170,000
44,000 Columbia HCA Healthcare Corp. 2,233,000
24,000 * Foundation Health Corp. 1,032,000
34,500 Healthcare Realty Trust 793,500
30,000 * Humana Inc. 821,250
29,500 National Health Investors, Inc. 977,188
13,500 National Healthcare-LP 526,500
23,500 * Quorum Health Group Inc. 517,000
24,000 U.S. Healthcare, Inc. 1,116,000
-----------
10,522,438
-----------
METALS AND MINING (1.8%)
52,500 Easco Inc. 452,812
40,000 Greenbrier Companies, Inc. 485,000
35,300 Minerals Technologies, Inc. 1,288,450
16,000 Phelps Dodge Corp. 996,000
-----------
3,222,262
-----------
METAL FABRICATING (1.2%)
96,000 Engelhard Corp. 2,088,000
-----------
OIL, ENERGY AND NATURAL GAS (6.2%)
40,000 Ashland, Inc. 1,405,000
65,500 Camco International, Inc. 1,834,000
27,000 Chevron Corp. 1,417,500
13,000 Coastal Corp. 484,250
17,500 Diamond Shamrock, Inc. 452,813
57,500 * Enserch Exploration Inc. 668,437
75,000 * Louis Dreyfus Natural Gas 1,134,375
20,000 Schlumberger, Ltd. 1,385,000
45,000 Union Texas Petroleum 871,875
90,000 Westcoast Energy, Inc. 1,316,250
-----------
10,969,500
-----------
PAPER PRODUCTS (0.1%)
15,000 * Specialty Paperboard, Inc. 183,750
-----------
RETAIL (0.4%)
35,000 Family Dollar Stores 481,250
12,500 * Regis Corp. 300,000
-----------
781,250
-----------
REAL ESTATE AND LEASING (0.4%)
51,000 Commercial Net Lease Realty 650,250
5,000 Kennedy-Wilson, Inc. 25,000
-----------
675,250
-----------
TEXTILES AND RELATED (0.6%)
25,000 Oxford Industries, Inc. 418,750
25,000 Singer Co. NV 696,875
-----------
1,115,625
-----------
TRANSPORTATION AND EQUIPMENT (4.5%)
41,382 Burlington Northern, Inc. $ 3,227,796
15,000 Conrail, Inc. 1,050,000
30,000 Consolidated Freightways Inc. 795,000
22,500 Illinois Central Corp. 863,438
25,000 Norfolk Southern Corp. 1,984,375
-----------
7,920,609
-----------
UTILITIES (1.4%)
21,500 Entergy Corp. 628,875
27,500 FPL Group, Inc. 1,275,313
20,500 Montana Power Co. 463,812
-----------
2,368,000
-----------
TOTAL COMMON STOCKS (80.1%)
(COST $91,580,755) $140,626,533
-----------
</TABLE>
<TABLE>
<CAPTION>
MARKET
SHARES PREFERRED STOCK VALUE
- -------------------------------------------------------------------
<S> <C> <C>
AUTOMOTIVE AND RELATED (0.7%)
12,000 Ford Motor Depository Shares,
Series A, cum., conv. $ 1,137,000
-----------
BANKING (0.9%)
14,000 Washington Mutual Series D 1,603,000
-----------
ELECTRICAL EQUIPMENT (0.5%)
55,000 Westinghouse Equity, red.,
cum., conv. 907,500
-----------
OIL AND GAS (0.4%)
13,000 Ashland Oil, cum., conv. 765,375
-----------
METALS AND MINING (0.9%)
50,000 Freeport McMoRan Copper & Gold,
Series B 1,625,000
-----------
REAL ESTATE (0.3%)
20,000 Oasis Residential Inc. Series A
cum., conv. 515,000
-----------
TOTAL PREFERRED STOCK (3.7%)
(COST $6,078,590) 6,552,875
-----------
</TABLE>
<TABLE>
<CAPTION>
FACE MARKET
AMOUNT CONVERTIBLE DEBENTURES VALUE
- --------------------------------------------------------------------
<S> <C> <C>
AUTOMOTIVE AND RELATED (0.3%)
$300,000 Arvin Industries, Inc., 7.500%
conv. subordinated debentures,
due 09-03-14 $ 296,625
200,000 Magna Intl. Inc. conv. subordinated
debentures due 10-15-02 204,000
-----------
500,625
-----------
COMPUTER AND RELATED (1.2%)
1,000,000 Seagate Technology, Inc., 6.750%
conv. subordinated debentures,
due 05-01-12 1,177,500
1,100,000 * Solectron Corp. liquid yield option, zero
coupon contracts, due 05-05-12 976,250
-----------
2,153,750
-----------
</TABLE>
(continued)
<PAGE> 60
OHIO NATIONAL FUND, INC.
SCHEDULE OF INVESTMENTS
DECEMBER 31, 1995
EQUITY PORTFOLIO (CONTINUED)
<TABLE>
<CAPTION>
FACE MARKET
AMOUNT CONVERTIBLE DEBENTURES VALUE
- -------------------------------------------------------------------
<S> <C> <C>
METAL FABRICATING (0.6%)
$ 900,000 INCO, Ltd., 7.750% conv.
subordinated debentures,
due 03-15-16 $ 963,000
-----------
TOTAL CONVERTIBLE DEBENTURES (2.1%)
(COST $2,754,181)
$3,617,375
-----------
</TABLE>
<TABLE>
<CAPTION>
FACE MARKET
AMOUNT SHORT-TERM NOTES VALUE
- -------------------------------------------------------------------
<S> <C> <C>
AUTOMOTIVE AND RELATED (1.8%)
$3,200,000 General Motors Acceptance Corp.
5.600% 01-11-96 $ 3,195,022
-----------
</TABLE>
<TABLE>
<CAPTION>
FACE MARKET
AMOUNT SHORT-TERM NOTES VALUE
- -------------------------------------------------------------------
<S> <C> <C>
FINANCE (12.3%)
$4,700,000 American Express Credit Corp.
5.600% 01-08-96 $4,694,882
4,700,000 American General Capital Services
5.830% 01-10-96 4,693,150
3,300,000 Associates Corp. of N. America
5.620% 01-04-96 3,298,455
2,670,000 Household Finance
5.650% 01-05-96 2,668,324
4,160,000 Prudential Funding Corp.
5.810% 01-03-96 4,158,657
2,100,000 Sears, Roebuck Acceptance Corp.
5.900% 01-09-96 2,097,247
------------
21,610,715
------------
TOTAL SHORT-TERM NOTES (14.1%)
(Cost $24,805,737) 24,805,737
------------
TOTAL HOLDINGS
(Cost $125,219,263)(a) 175,602,520
============
<FN>
*Non-income producing securities.
(a) Also represents cost for Federal income tax purposes.
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE> 61
OHIO NATIONAL FUND, INC.
SCHEDULE OF INVESTMENTS
DECEMBER 31, 1995
MONEY MARKET PORTFOLIO
<TABLE>
<CAPTION>
FACE MARKET
AMOUNT SHORT-TERM NOTES VALUE
- --------------------------------------------------------------------------
<S> <C> <C>
AUTOMOTIVE AND RELATED (8.4%)
$ 560,000 General Motors Acceptance Corp.
5.550% 03-04-96 $ 554,561
350,000 Echlin Inc.
5.680% 02-09-96 347,846
350,000 Ford Motor Credit Corp.
5.790% 01-10-96 349,493
----------
1,251,900
----------
CHEMICALS (3.8%)
570,000 Dupont (EI) deNemours
5.630% 01-24-96 567,950
----------
COMPUTER AND RELATED (7.8%)
600,000 Hewlett-Packard
5.630% 01-18-96 598,405
560,000 IBM Credit Corp.
5.750% 01-06-96 559,374
----------
1,157,779
----------
COMMUNICATIONS (5.9%)
530,000 Gannett Co.
5.600% 01-26-96 527,939
350,000 Ameritech
5.620% 02-02-96 348,251
----------
876,190
----------
COMMODITIES (1.1%)
165,000 Cargill, Inc.
5.680% 01-08-96 164,693
----------
CONSUMER PRODUCTS (11.0%)
600,000 Pepsi Co.
5.650% 01-19-96 598,305
485,000 Sears, Roebuck Acceptance Corp.
5.720% 01-29-96 482,842
100,000 Sears Roebuck Acceptance Corp.
5.710% 01-29-96 99,556
440,000 Stanley Works
5.540% 03-11-96 435,260
----------
1,615,963
----------
DRUGS (3.4%)
500,000 Glaxo Holdings
5.680% 01-22-96 498,343
----------
FOOD & RELATED (3.7%)
550,000 H.J. Heinz Company
5.680% 01-16-96 548,698
----------
FORESTRY AND PAPER PRODUCTS (4.0%)
600,000 Temple-Inland
5.620% 01-30-96 597,284
----------
FINANCE (21.9%)
$ 590,000 American Express Credit Corp.
5.700% 01-03-96 $ 589,813
500,000 American General Finance Corp.
5.660% 01-16-96 498,821
550,000 Associates Corp.
5.500% 01-25-96 547,983
410,000 G.E. Capital Corp.
5.690% 01-08-96 409,547
620,000 Heller Financial Inc.
5.770% 01-11-96 619,006
600,000 Household Finance Corp.
5.680% 02-02-96 596,971
----------
3,262,141
----------
INSURANCE (2.4%)
360,000 Prudential Funding Inc.
5.780% 01-11-96 359,422
----------
MACHINERY (2.7%)
100,000 Deere and Company
5.690% 01-02-96 99,984
100,000 Deere and Company
5.470% 01-02-96 99,985
200,000 Deere and Company
5.800% 01-02-96 199,968
----------
399,937
----------
OIL, ENERGY AND NATURAL GAS (5.2%)
400,000 Chervon Oil Co.
5.800% 01-09-96 399,485
380,000 KN Energy
5.750% 01-17-96 379,029
----------
778,514
----------
TRANSPORTATION (4.0%)
600,000 Consolidated Rail Corp.
5.680% 01-12-96 598,959
----------
UTILITIES (14.7%)
500,000 AT&T Corp.
5.680% 01-16-96 498,817
550,000 Central and Southwest Corp.
5.700% 02-14-96 546,168
650,000 Illinois Power Co.
5.930% 02-08-96 645,931
500,000 Southern California Edison Co.
5.680% 01-19-96 498,580
----------
2,189,496
----------
TOTAL HOLDINGS
(COST $14,867,269)(a) 14,867,269
==========
<FN>
(a) Also represents cost for Federal income tax purposes.
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE> 62
OHIO NATIONAL FUND, INC.
SCHEDULE OF INVESTMENTS
DECEMBER 31, 1995
BOND PORTFOLIO
<TABLE>
<CAPTION>
FACE MARKET
AMOUNT LONG-TERM NOTES VALUE
- -------------------------------------------------------------------------------
<S> <C> <C>
GOVERNMENT (13.8%)
$ 300,000 U.S. Treasury Note
7.625% 04-30-96 $ 302,376
250,000 U.S. Treasury Note
6.375% 08-15-02 262,385
500,000 U.S. Treasury Note
7.375% 11-15-97 518,730
500,000 U.S. Treasury Note
7.875% 11-15-99 543,545
745,000 U.S. Treasury Note
7.750% 02-15-01 822,569
---------
2,449,605
---------
AUTOMOTIVE AND RELATED (4.3%)
100,000 Arvin Industries
10.000% 08-01-00 112,250
500,000 GMAC
8.400% 10-15-99 541,875
100,000 Pep Boys
8.875% 04-15-96 100,875
---------
755,000
---------
COMMUNICATIONS (1.5%)
250,000 Tele-communications, Inc.
8.250% 01-15-03 267,500
---------
COMPUTER AND RELATED (2.9%)
300,000 Apple Computer Inc.
6.500% 02-15-04 297,750
200,000 Comdisco, Inc.
7.750% 09-01-99 209,750
---------
507,500
---------
CONSUMER GOODS (2.9%)
200,000 RJR Nabisco Inc.
8.750% 04-15-04 208,500
300,000 RJR Nabisco Inc.
8.625% 12-01-02 310,875
---------
519,375
---------
ELECTRICAL EQUIPMENT (2.4%)
400,000 Tektronix Inc.
7.500% 08-01-03 417,000
---------
FINANCE (1.4%)
250,000 Aristar Inc.
5.750% 07-15-98 250,312
---------
FOOD AND RELATED (2.8%)
500,000 Wendy's Inc.
6.350% 12-15-05 503,750
---------
FORESTRY AND PAPER PRODUCTS (5.0%)
300,000 Boise Cascade Co.
9.850% 06-15-02 352,125
250,000 Champion International
7.700% 12-15-99 265,312
250,000 ITT Rayonier Inc.
7.500% 10-15-02 266,563
---------
884,000
---------
GOVERNMENT (FOREIGN) (2.8%)
$ 200,000 British Columbia
7.000% 01-15-03 $ 212,500
250,000 Province of Quebec
8.625% 01-19-05 288,438
---------
500,938
---------
HOTEL/LODGING (1.9%)
300,000 Marriott International
7.780% 04-15-05 329,625
---------
HOUSING, FURNITURE AND RELATED (1.0%)
140,000 Armstrong World
9.750% 04-15-08 177,800
---------
INSURANCE (3.9%)
250,000 Continental Corp.
7.250% 03-01-03 260,000
400,000 Transamerica Finance Corp.
7.500% 03-15-04 428,000
---------
688,000
---------
MEDICAL AND RELATED (3.2%)
250,000 Bergen Brunswig
7.375% 01-15-03 265,312
300,000 Cardinal Health Inc.
6.500% 02-15-04 303,375
---------
568,687
---------
METALS AND MINING (2.8%)
500,000 Cyprus Minerals
6.625% 10-15-05 504,375
---------
OIL, ENERGY AND NATURAL GAS (10.9%)
200,000 Atlantic Richfield
8.550% 03-01-12 238,250
100,000 DeKalb Energy
9.875% 07-15-00 101,500
400,000 Dresser Industries, Inc.
6.250% 06-01-00 406,000
125,000 Marathon Oil
7.000% 06-01-02 128,750
500,000 Mobile Energy Services Co.
8.665% 01-01-17 552,613
400,000 PDV America, Inc.
7.875% 08-01-03 369,000
140,000 Shell Oil Co.
6.950% 12-15-98 145,250
---------
1,941,363
---------
REAL ESTATE (1.7%)
300,000 Avalon Properties Inc.
7.375% 09-15-02 308,625
---------
TRANSPORTATION (3.4%)
250,000 American President Cos., Ltd.
7.125% 11-15-03 252,187
350,000 Illinois Central Gulf Railroad
6.750% 05-15-03 355,688
---------
607,875
=========
</TABLE>
(continued)
<PAGE> 63
OHIO NATIONAL FUND, INC.
SCHEDULE OF INVESTMENTS
DECEMBER 31, 1995
BOND PORTFOLIO (CONTINUED)
<TABLE>
<CAPTION>
FACE MARKET
AMOUNT LONG-TERM NOTES VALUE
- --------------------------------------------------------------------------------
<S> <C> <C>
UTILITIES (17.6%)
$ 200,000 Cleveland Electric Illum.
7.625% 08-01-02 $ 192,250
500,000 Great Lakes Power Inc.
8.900% 12-01-99 538,125
250,000 Kansas Gas & Electric
8.290% 03-29-16 282,813
150,000 Long Island Lighting
8.750% 05-01-96 151,875
550,000 Mississippi Power & Light
8.800% 04-01-05 579,563
200,000 Old Dominion Electric Co-op
8.760% 12-01-22 243,750
200,000 Sprint Corp.
8.125% 07-15-02 221,000
700,000 Texas Utilities Electric Co.
7.480% 01-01-17 728,000
200,000 Toledo Edison Co.
7.875% 08-01-04 183,000
-----------
3,120,376
----------
MISCELLANEOUS (6.4%)
375,000 New Orleans Public Service Co.
8.670% 04-01-05 413,438
700,000 ITT Destinations Inc.
6.750% 11-15-05 716,407
-----------
1,129,845
----------
TOTAL LONG-TERM NOTES (92.6%)
(COST $15,607,023) 16,431,551
----------
AUTOMOTIVE AND RELATED (2.5%)
$ 200,000 Ford Motor Co.
5.920% 01-02-96 $ 199,967
240,000 General Motors Accepttance Corp.
5.600% 01-05-96 239,851
----------
439,818
----------
FINANCE (1.5%)
270,000 American General Capital Services
5.950% 01-04-96 269,866
----------
OIL, ENERGY AND NATURAL GAS (0.6%)
100,000 Chevron Oil Finance Co.
5.630% 01-03-96 99,968
----------
TOTAL SHORT-TERM NOTES (4.6%)
(COST $809,652) 809,652
----------
</TABLE>
<TABLE>
<CAPTION>
MARKET
SHARES PREFERRED STOCK VALUE
- --------------------------------------------------------------------------------
<S> <C> <C>
UTILITIES (2.8%)
12,000 GTE Delaware, 8.750%, Series B $ 322,500
6,500 Phillips Gas Co., 9.320% Series A 172,250
-----------
TOTAL PREFERRED STOCKS (2.8%)
(COST $462,500) $ 494,750
-----------
</TABLE>
<TABLE>
<CAPTION>
MARKET
SHARES WARRANTS VALUE
- --------------------------------------------------------------------------------
<S> <C> <C>
DIVERSIFIED
500 * Plastic Specialties & Tech Inc. $ 500
-----------
TOTAL WARRANTS (0.0%) $ 500
-----------
TOTAL HOLDINGS
(COST $16,879,175)(a) $17,736,453
===========
<FN>
*Non-income producing securities.
(a) Also represents cost for Federal income tax purposes.
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE> 64
OHIO NATIONAL FUND, INC.
SCHEDULE OF INVESTMENTS
DECEMBER 31, 1995
OMNI PORTFOLIO
<TABLE>
<CAPTION>
FACE MARKET
AMOUNT LONG-TERM NOTES VALUE
- --------------------------------------------------------------------------------
<S> <C> <C>
GOVERNMENT (4.6%)
$ 775,000 U.S. Treasury Note
6.375% 07-15-99 $ 801,257
1,500,000 U.S. Treasury Note
7.375% 05-15-96 1,511,535
500,000 U.S. Treasury Note
7.875% 11-15-99 543,545
2,005,000 U.S. Treasury Note
7.750% 02-15-01 2,213,761
----------
5,070,098
----------
AUTOMOTIVE AND RELATED (0.6%)
300,000 Arvin Industries, Inc.
7.500% 09-30-14 296,625
400,000 Pep Boys
8.875% 04-15-96 403,500
----------
700,125
----------
AVIATION (0.5%)
500,000 AAR Corp.
7.250% 10-15-03 493,750
----------
COMPUTERS AND RELATED (0.6%)
700,000 Apple Computer, Inc.
6.500% 02-15-04 694,750
----------
CONSUMER GOODS (1.1%)
700,000 Kroger Co.
9.750% 02-15-04 758,625
400,000 RJR Nabisco, Inc.
8.750% 04-15-04 417,000
----------
1,175,625
----------
FINANCE (0.9%)
1,000,000 Green Tree Financial Corp.
8.700% 06-15-25 1,000,000
----------
FORESTRY AND PAPER PRODUCTS (1.5%)
700,000 Boise Cascade Co.
9.850% 06-15-02 821,625
500,000 Champion International
9.875% 06-01-00 575,000
250,000 ITT Rayonier, Inc.
7.500% 10-15-02 266,563
----------
1,663,188
----------
HOUSING, FURNITURE AND RELATED (0.3%)
250,000 Armstrong World
9.750% 04-15-08 317,500
----------
INSURANCE (1.1%)
500,000 Continental Corp.
7.250% 03-01-03 520,000
600,000 Transamerica Finance Corp.
7.500% 03-15-04 642,000
----------
1,162,000
----------
MEDICAL AND RELATED (0.5%)
500,000 Bergen Brunswig
7.375% 01-15-03 530,625
----------
METALS AND MINING (0.5%)
$ 500,000 Cyprus Minerals
6.625% 10-15-05 $ 504,375
----------
OIL, ENERGY AND NATURAL GAS (2.0%)
400,000 Dekalb Energy
9.875% 07-15-00 406,000
350,000 Dresser Industries, Inc.
6.250% 06-01-00 355,250
375,000 Marathon Oil
7.00% 06-01-02 386,250
600,000 PDV America, Inc.
7.875% 08-01-03 553,500
500,000 Union Texas Petroleum
8.250% 11-15-99 530,000
----------
2,231,000
----------
TRANSPORTATION (0.8%)
500,000 American President Cos., Ltd.
7.125% 11-15-03 504,375
400,000 Illinois Central Gulf Railroad
6.750% 05-15-03 406,500
----------
910,875
----------
UTILITIES (3.4%)
$ 400,000 Cleveland Electric Illum.
7.625% 08-01-02 384,500
1,000,000 Great Lakes Power
9.000% 08-01-04 1,122,500
350,000 Long Island Lighting
8.750% 05-01-96 354,375
500,000 Mississippi Power & Light
8.800% 04-01-05 526,875
400,000 Old Dominion Elec. Co.
8.760% 12-01-22 487,500
300,000 Sprint Corp.
8.125% 07-15--02 331,500
500,000 Texas New Mexico Power Co.
9.250% 09-15-00 520,625
----------
3,727,875
----------
TOTAL LONG-TERM NOTES (18.4%) $20,181,786
----------
(COST $19,252,122)
</TABLE>
<TABLE>
<CAPTION>
FACE MARKET
AMOUNT SHORT-TERM NOTES VALUE
- --------------------------------------------------------------------------------
<S> <C>
FINANCE (17.1%)
$ 100,000 American Express Credit Corp.
5.600% 01-08-96 $ 99,891
3,300,000 American General Finance
5.900% 01-02-96 3,299,459
4,460,000 Associates Corp. of N. America
5.620% 01-04-96 4,457,911
4,600,000 Household Finance Corp.
5.650% 01-05-96 4,597,112
2,800,000 Prudential Funding Corp.
5.740% 01-09-96 2,796,428
3,500,000 Sears Roebuck Acceptance Corp.
5.900% 01-03-96 3,498,853
----------
TOTAL SHORT-TERM NOTES (17.1%)
(COST $18,749,654) $18,749,654
----------
</TABLE>
(continued)
<PAGE> 65
OHIO NATIONAL FUND, INC.
SCHEDULE OF INVESTMENTS
DECEMBER 31, 1995
OMNI PORTFOLIO (CONTINUED)
<TABLE>
<CAPTION>
FACE MARKET
AMOUNT CONVERTIBLE DEBENTURES VALUE
- --------------------------------------------------------------------------------
<S> <C> <C>
AUTOMOTIVE AND RELATED (0.1%)
$ 100,000 Magna Intl. Inc., 5.000% conv.
subordinated debentures,
due 10-15-02 $ 102,000
---------
COMPUTER AND RELATED (1.1%)
1,000,000 Seagate Technology Inc., 6.750%
conv. subordinated debentures,
due 05-01-12 1,177,500
----------
METAL FABRICATING (0.5%)
600,000 INCO, Ltd., 7.750% conv. subordinated
debentures, due 03-15-16 642,000
----------
TOTAL CONVERTIBLE DEBENTURES (1.7%)
(COST $1,696,875) $1,921,500
----------
</TABLE>
<TABLE>
<CAPTION>
MARKET
SHARES COMMON STOCK VALUE
- --------------------------------------------------------------------------------
<S> <C> <C>
AEROSPACE (2.7%)
22,000 Allied Signal, Inc. $1,045,000
21,600 Raytheon Co. 1,020,600
17,350 Rockwell International Corp. 917,381
---------
2,982,981
---------
AUTOMOTIVE AND RELATED (1.5%)
7,500 Arvin Industries, Inc. 123,750
5,850 Chrysler Corp. 323,944
17,000 * Custom Chrome, Inc. 393,125
8,000 Eaton Corp. 429,000
10,000 Magna International, Inc. 432,500
---------
1,702,319
---------
BANKING (3.0%)
10,000 Boatmen's Bancshares, Inc. 408,750
13,000 Charter One Financial, Inc. 398,125
10,000 First Union Corp. 556,250
13,650 Franklin National Bank 177,450
45,000 Hanson Trust, Plc 686,250
11,250 Mellon Bank Corp. 604,688
12,500 Susquehanna Bancshares, Inc. 331,250
---------
3,162,763
---------
BUSINESS SERVICES (3.2%)
12,500 * Andros, Inc. 190,625
20,000 First Data Corp. 1,337,500
30,000 Manpower, Inc. 843,750
30,000 * Mastec, Inc. 397,500
5,000 Standard Register Co. 100,625
22,000 * Verifone, Inc. 629,750
---------
3,499,750
---------
CHEMICALS (2.5%)
15,000 Betz Laboratories, Inc. 615,000
2,500 E I DuPont DeNemours & Co. 174,687
20,000 Learonal Inc. 460,000
12,000 Lubrizol Corp. 334,500
3,000 Monsanto Co. 367,500
25,000 OM Group, Inc. 828,125
---------
2,779,812
---------
COMMUNICATIONS (1.6%)
24,000 * Andrew Corp. $ 918,000
49,000 * General Cable Plc 735,000
15,000 * Granite Broadcasting Corp. 159,375
---------
1,812,375
---------
COMPUTER AND RELATED (7.1%)
15,000 * Cisco Systems, Inc. 1,119,375
6,600 Computer Sciences Corp. 463,650
10,000 * Exabyte Corp. 146,250
21,000 Hewlett-Packard Co. 1,758,750
14,000 Intel Corp. 794,500
5,000 * Microsoft Corp. 438,750
20,000 * Netframe Systems 106,250
32,500 * Novell, Inc. 463,125
20,000 * Pyxis Corp. 292,500
20,000 * Sun Microsystems, Inc. 912,500
16,000 * Teradyne Inc. 400,000
18,000 Texas Instruments, Inc. 931,500
---------
7,827,150
---------
CONSUMER PRODUCTS (0.7%)
11,500 PanAmerican Beverages, Inc. 368,000
12,000 Stanhome, Inc. 349,500
---------
717,500
---------
CONTAINERS (0.9%)
70,000 * Owens-Illinois, Inc. 1,015,000
---------
DIVERSIFIED (0.1%)
20,000 Quixote Corp. 155,000
---------
ELECTRICAL EQUIPMENT (2.9%)
40,000 BMC Industries, Inc.-Minn. 930,000
26,116 Federal Signal Corp. 675,752
14,000 General Electric Co. 1,008,000
12,000 Varian Associates, Inc. 573,000
---------
3,186,752
---------
ENTERTAINMENT AND LEISURE (0.8%)
25,000 Cedar Fair 925,000
---------
FINANCE (1.4%)
27,500 * Medaphis Corp. 1,017,500
11,500 PHH Corp. 537,625
---------
1,555,125
---------
FOOD AND RELATED (0.8%)
15,000 Smart & Final, Inc. 318,750
16,500 H.J. Heinz Co. 546,563
---------
865,313
---------
HOUSING, FURNITURE AND RELATED (1.3%)
29,620 Clayton Homes, Inc. 633,133
24,000 Newell Co. 621,000
11,200 Shaw Industries, Inc. 165,200
---------
1,419,333
---------
INDUSTRIAL SERVICES (0.7%)
20,000 * Nuclear Support Services, Inc. 25,000
1,600 Regal Beloit 34,800
28,000 Stewart & Stevenson Services 707,000
---------
766,800
---------
</TABLE>
(continued)
<PAGE> 66
OHIO NATIONAL FUND, INC.
SCHEDULE OF INVESTMENTS
DECEMBER 31, 1995
OMNI PORTFOLIO (CONTINUED)
<TABLE>
<CAPTION>
MARKET
SHARES COMMON STOCK VALUE
- --------------------------------------------------------------------------------
<S> <C> <C>
INSURANCE (5.3%)
16,125 American International Group $ 1,491,563
15,000 Chubb Corp. 1,451,250
23,625 Cincinnati Financial Corp. 1,541,531
20,000 Equitable Cos., Inc. 480,000
20,500 Providian Corporation 835,375
----------
5,799,719
----------
MACHINERY (1.8%)
15,000 * Bridgeport Machines, Inc. 315,000
6,000 Caterpillar, Inc. 352,500
21,000 Trinity Industries 661,500
34,000 Walbro Corp. 612,000
----------
1,941,000
----------
MEDICAL AND RELATED (4.6%)
28,000 Abbott Laboratories 1,169,000
14,000 Allergan, Inc. 455,000
15,000 * Foundation Health Corp. 645,000
33,500 Healthcare Realty Trust 770,500
18,000 * Humana, Inc. 492,750
24,000 National Health Investors, Inc. 795,000
15,000 U.S. Healthcare, Inc. 697,500
----------
5,024,750
----------
METAL FABRICATING (1.0%)
27,000 Amcast Industrial Corp. 492,750
18,000 Engelhard Corp. 391,500
4,000 Phelps Dodge Corp. 249,000
----------
1,133,250
----------
METALS AND MINING (1.2%)
32,500 Easco Inc. 280,312
24,000 Greenbrier Companies, Inc. 291,000
20,000 Minerals Technologies, Inc. 730,000
----------
1,301,312
----------
OIL, ENERGY AND NATURAL GAS (6.2%)
15,000 Ashland, Inc. 526,875
45,500 Camco International, Inc. 1,274,000
23,000 Chevron Corp. 1,207,500
7,000 Coastal Corp. 260,750
7,500 Diamond Shamrock, Inc. 194,062
27,000 * Enserch Exploration, Inc. 313,875
40,000 * Louis Dreyfus Natural Gas 605,000
10,000 Schlumberger, Ltd. 692,500
35,000 Union Texas Petroleum Holdings, Inc. 678,125
45,000 Westcoast Energy, Inc. 658,125
10,000 WD-40 Co. 410,000
----------
6,820,812
----------
REAL ESTATE (1.0%)
59,300 Commercial Net Lease Realty 756,075
2,000 * Kennedy-Wilson, Inc. 10,000
17,000 Liberty Property Trust 352,750
----------
1,118,825
----------
TRANSPORTATION AND EQUIPMENT (3.6%)
24,255 Burlington Northern Santa Fe $ 1,891,890
8,000 Conrail, Inc. 560,000
15,000 Consolidated Freightways, Inc. 397,500
7,500 Illinois Central Corp. 287,812
10,000 Norfolk Southern Corp. 793,750
----------
3,930,952
----------
UTILITIES (0.9%)
6,000 Entergy Corp. 175,500
15,000 FPL Group, Inc. 695,625
7,000 Montana Power Co. 158,375
----------
1,029,500
----------
TOTAL COMMON STOCKS (56.8%)
(COST $43,917,736) 62,473,093
----------
</TABLE>
<TABLE>
<CAPTION>
MARKET
SHARES PREFERRED STOCK VALUE
- --------------------------------------------------------------------------------
<S> <C> <C>
AUTOMOTIVE AND RELATED (1.5%)
18,000 Ford Motor Co., cum., conv., Ser. A $1,705,500
----------
BANKING (0.7%)
7,000 Washington Mutual 6.00% Series D 801,500
----------
ELECTRICAL EQUIPMENT (0.6%)
40,000 Westinghouse Equity, cum., conv. 660,000
----------
FOOD & RELATED (0.5%)
20,000 Conagra Capital LC, 9.350% cum.,
conv. Series C 550,000
----------
METALS AND MINING (0.9%)
30,000 Freeport McMoran Copper & Gold
cum., conv. 975,000
----------
OIL, ENERGY AND NATURAL GAS (0.4%)
7,000 Ashland, Inc., cum., conv. 412,125
----------
REAL ESTATE (0.4%)
15,000 Oasis Residential , Inc., 9.000% 386,250
----------
cum., conv. Series A
UTILITIES (1.0%)
20,000 GTE Delaware 8.750%, Series B 537,500
22,000 Phillips Gas Co. 9.320% Series A 583,000
----------
1,120,500
----------
TOTAL PREFERRED STOCKS (6.0%)
(COST $5,730,885) $6,610,875
----------
</TABLE>
<TABLE>
<CAPTION>
MARKET
SHARES WARRANTS VALUE
- --------------------------------------------------------------------------------
<S> <C> <C>
DIVERSIFIED (0.00%)
2,000 * Plastic Specialties & Tech., Inc. $ 2,000
------------
TOTAL WARRANTS (0.0%) $ 2,000
------------
TOTAL HOLDINGS
(COST $89,347,272)(a) $109,938,908
============
<FN>
*Non-income producing securities.
(a) Also represents cost for Federal income tax purposes.
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE> 67
OHIO NATIONAL FUND, INC.
SCHEDULE OF INVESTMENTS
DECEMBER 31, 1995
INTERNATIONAL PORTFOLIO
<TABLE>
<CAPTION>
MARKET
SHARES COMMON AND PREFERRED STOCK VALUE
- --------------------------------------------------------------------------------
<S> <C> <C>
JAPAN (19.8%)
85,000 Aida Engineering Limited (19) $ 650,435
18,000 Asatsu Inc. (20) 754,783
20,000 Chofu Seisakusho (9) 535,266
225,000 Dai-Tokyo Fire Marine Ins. Co. Ltd. (18) 1,713,043
75,000 Fuji Photo Film Co., Ltd. (9) 2,159,420
12,000 Hitachi Ltd. ADR (11) 1,206,000
115,000 * Iino Kaiun Kaisha (5) 653,333
35,000 Ito-Yokado Co. Ltd. (28) 2,150,725
35,000 Japan Airport Terminal Co. (32) 422,705
125,000 Nisshinbo Industries Inc. (8) 1,207,730
85,000 Nittetsu Mining Co., Ltd. (22) 845,894
65,000 Shimano Inc. (9) 1,142,995
10,000 Sotoh Co. (31) 98,551
45,000 Shoei Co. (27) 391,304
8,500 Toho Co. (20) 1,355,073
100,000 Tokyo Marine & Fire Ins. Co. Ltd. (18) 1,304,348
15,000 Tsutsumi Jewelry Co. (9) 749,275
----------
17,340,880
----------
SWITZERLAND (7.9%)
1,000 Affichage (20) 441,941
275 Bank of Intl. Settlements (3) 2,311,525
1,650 Kuehne & Nagel Intl. AG (32) 979,419
400 Lindt & Sprungli AG PC (9) 582,322
5,500 Safra Republic Holdings SA (3) 491,563
1,350 Schindler Holding AG PC (5) 1,397,964
2,000 Sika Finanz AG Bearer (7) 485,269
1 Vetropack Holding AG Bearer (23) 2,990
650 Vetropack Holding AG PC (23) 174,610
----------
6,867,603
----------
FRANCE (7.8%)
2,500 C.E.E. (Continentale d'Equipments
Electriques) (10) 124,325
4,110 Crometal (5) 261,351
15,000 Elf Aquitaine (12) 1,103,027
5,528 Emin Leydier (24) 449,541
5,000 Eramet (22) 326,098
13,750 Gaumont SA (20) 882,759
3,500 La Brosse et DuPont (9) 220,921
16,500 Legrand ADP (10) 1,647,814
4,000 Nicolas Schlumberger et Cie (19) 671,762
1,500 Promodes C.I. (28) 256,802
2,500 SAGA (Societe Anontme de Gerance et
d'Armement) (32) 85,091
1,000 Sucriere de Pithiviers-le-Vieil (1) 492,204
1,000 Taittinger (13) 262,917
----------
6,784,612
----------
GERMANY (7.2%)
5,000 Bayer AG (7) 1,325,444
7,500 Bertelsmann AG D.R.C. (25) 984,163
4,750 Buderus AG (5) 1,851,723
10,000 Hornbach Holdings AG Pfd. (28) 870,171
1,000 SAP AG Pfd. (8) 151,619
1,250 Spar Handells AG Pfd. (28) 268,013
1,000 Axel Springer Verlag AG (20) 671,772
450 Sudzucker AG Pfd. (1) 181,535
----------
6,304,440
----------
NEW ZEALAND (5.6%)
765,549 Carter Holt Harvey Limited (14) $ 1,650,313
50,000 Colonial Motor Co. Ltd. (2) 91,455
650,000 * Evergreen Forests Ltd. (14) 275,998
1,601,500 Shortland Properties, Ltd. (27) 899,715
889,900 Tasman Agriculture Limited (1) 906,870
125,000 Wilson Limited (20) 747,155
450,000 Wrightson Ltd. (1) 340,997
----------
4,912,503
----------
CANADA(4.7%)
50,000 Canadian Pacific Ltd. (34) 906,250
50,000 Dofasco, Inc. (30) 631,984
85,000 Noranda, Inc. (21) 1,751,694
200,000 Redstone Resources, Inc. (22) 578,860
35,000 Le Groupe Videotron, Ltd. (20) 256,457
----------
4,125,245
----------
HONG KONG (4.8%)
3,750,000 CDL Hotels Intl. Ltd. (16) 1,891,368
1,500,000 Shaw Brothers (Hong Kong) Ltd.(20) 1,648,885
1,000,000 South China Morning Post Holdings
Corp. (25) 611,057
----------
4,151,310
----------
NETHERLANDS (4.1%)
16,500 Apothekers Cooperatie OPG (17) 405,317
24,500 German City Estates NV (27) 370,242
1,500 Holdingmaatschappij de Telegraaf (25) 210,821
15,000 Philips Electronics NV ADR (11) 538,125
45,000 Randstad Holdings NV (29) 2,037,313
----------
3,561,818
----------
LATIN AMERICA (3.9%)
165,000 Antofagasta Holdings plc (21) 750,242
20,000 Bladex (3) 930,000
595,000 Ledesma SA (1) 761,486
1,000,000 Siderca S.A.I.C. (12) 969,854
----------
3,411,582
----------
UNITED KINGDOM (2.8%)
225,000 Blenheim Group plc (20) 872,915
100,000 Royal Doulton plc (9) 383,307
275,000 * McBride plc (10) 832,179
50,000 Scottish Television plc (20) 367,400
----------
2,455,801
----------
SWEDEN (2.2%)
40,000 AssiDoman AB (14) 867,633
65,000 Bylock & Nordsjofrakt AB 'B' (32) 567,878
35,000 Orrefors Kosta Boda AB (9) 521,936
----------
1,957,447
----------
SINGAPORE (2.1%)
250,000 Clipsal Industries Ltd. (10) 565,000
45,000 Rothmans Industries Limited (9) 170,226
85,000 Singapore Bus Service Ltd. (32) 607,014
225,000 Times Publishing Ltd. (25) 521,813
----------
1,864,053
----------
DENMARK (1.8%)
3,500 Aarhus Oliefabrik A/S Class 'B' (1) 195,074
20,000 Carlsberg International A/S Class'B'(9) 1,114,707
3,500 Copenhagen Airport (32) 266,810
----------
1,576,591
----------
</TABLE>
(continued)
<PAGE> 68
OHIO NATIONAL FUND, INC.
SCHEDULE OF INVESTMENTS
DECEMBER 31, 1995
INTERNATIONAL PORTFOLIO (CONTINUED)
<TABLE>
<CAPTION>
MARKET
SHARES COMMON AND PREFERRED STOCK VALUE
- --------------------------------------------------------------------------------
<S> <C> <C>
SOUTH AFRICA (1.8%)
10,332 Anglo American Platinum Corp.ADR(22) $ 58,809
35,000 Anglo American Platinum Corp.(22) 199,218
10,000 JCI Ltd. ADR (22) 78,864
25,000 JCI Ltd. (22) 197,161
10,103 Johnnies Industrial Corp. ADR (22) 152,422
15,000 Johnnies Industrial Corp. (22) 226,307
45,000 Omni Media Corporation (20) 715,951
----------
1,628,732
----------
INDONESIA (1.8%)
10,000 Freeport McMoRan Pfd. 'B' (22) 325,000
20,000 Freeport McMoRan Pfd. 'C' (22) 607,500
28,500 Freeport McMoRan Pfd. 'D' (22) 602,062
----------
1,534,562
----------
AUSTRIA (1.4%)
6,500 Flughafen Wien AG (32) 430,868
9,500 VAE AG (26) 798,912
----------
1,229,780
----------
ITALY (1.2%)
50,000 Arnoldo Mondadori Editore SpA (25) 433,249
1,000,000 * Montedison non-conv. Savings SpA(34) 591,939
----------
1,025,188
----------
NORWAY (1.2%)
75,000 Schibsted AS (25) 1,017,366
----------
MEXICO (0.9%)
250,000 * Grupo Fernandez Editores SA de CV(25) 69,760
175,000 Industrias Penoles SA de CV (21) 722,258
----------
792,018
----------
FINLAND (0.8%)
250,000 * Tampella Oy AB (5) 315,544
10,000 Vaisala Oy A (5) 364,884
----------
680,428
----------
AUSTRALIA (0.6%)
185,000 Eltin Ltd. (22) 405,356
100,000 Motors Holdings Ltd. (2) 72,047
----------
477,403
----------
ISRAEL (0.5%)
150,000 Israel Land Development Co. Ltd. (34) 433,294
----------
BELGIUM (0.4%)
2,500 Deceuninck Plastics Ind. SA (4) 279,828
200 Societe Belge de Betons, SA (34) 108,375
----------
388,203
----------
SPAIN (0.3%)
75,000 Energia e Ind. Aragonesas SA (33) 285,321
----------
GREECE (0.3%)
48,200 H. Benrubi & Fils SA (9) 272,041
----------
MISCELLANEOUS (3.0%)
50,000 North European Oil Royalty Tr. (12) 637,500
25,000 Minorco ADR (34) 715,625
450,000 Lonrho plc (34) 1,229,065
----------
2,582,190
----------
TOTAL COMMON & PREFERRED STOCK
(88.9%) (COST $72,650,619) $77,660,411
----------
</TABLE>
<TABLE>
<CAPTION>
FACE MARKET
AMOUNT NON-CONVERTIBLE BONDS VALUE
- --------------------------------------------------------------------------------
<S> <C> <C>
U.S. DOLLAR (1.5%)
$1,250,000 Federal Republic Of Brazil 7.250%
due 04-15-24 (15) $ 767,969
850,000 Republic of Poland PDI 3.250%
due 10-24-14 (15) 553,563
----------
1,321,532
----------
NON-U.S. DOLLAR (0.4%)
500,000 NZ Republic of New Zealand 10.000%
due 03-15-02 (15) 369,882
----------
TOTAL NON-CONVERTIBLE BONDS(1.9%)
(COST $1,614,599) $1,691,414
----------
</TABLE>
<TABLE>
<CAPTION>
FACE MARKET
AMOUNT CONVERTIBLE DEBENTURES VALUE
- --------------------------------------------------------------------------------
<S> <C> <C>
U.S. DOLLAR (4.3%)
$ 100,000 Acer Inc. 4.000%
due 06-10-01 (8) $ 301,500
250,000 PT Inti Indorayon Utama 5.500%
due 10-01-02 (24) 280,313
850,000 Cheil Foods & Chemicals Co 3.000%
due 12-31-06 (9) 1,117,750
150,000 Sincere Navigation 3.750%
due 05-26-03 (32) 159,000
500,000 Ssangyong Cement Co. 3.000%
due 12-31-05 (6) 607,500
250,000 PT Pabrik Kertas Tjiwi Kimia
7.250% due 04-21-01 (24) 235,000
500,000 Tubos de Acero de Mexico SA
7.500% due 06-12-97 (12) 450,000
500,000 Tung Ho Steel Corp. 4.000%
due 07-26-01 (30) 607,500
---------
TOTAL U.S. DOLLAR (4.3%) $3,758,563
---------
NON U.S. DOLLAR (2.3%)
1,000,000 FF Alcatel Alstholm 2.500%
due 01-01-04 (11) 159,992
2,000,000 FF Michelin 6.000%
due 01-02-98 (2) 414,247
2,050,000 FF Promodes 5.500%
due 01-01-00 (27) 488,423
425,000 FF Compagnie Generale des Eaux
6.000% due 01-01-98 (33) 286,322
200,000 GBP Lonrho International Finance
6.000% due 02-27-04 (34) 306,684
18,000,000 JPY Nippon Yusen 2.000%
due 09-29-00 (32) 205,217
320,000 NZ Shortland Properties Inc. 7.500%
due 12-31-98 (27) 186,046
---------
TOTAL NON-U.S. DOLLAR (2.3%) $2,046,931
---------
TOTAL CONVERTIBLE SUBORDINATED
DEBENTURES (6.6%)
(COST $5,034,035) $5,805,494
---------
</TABLE>
(continued)
<PAGE> 69
OHIO NATIONAL FUND, INC.
SCHEDULE OF INVESTMENTS
DECEMBER 31, 1995
INTERNATIONAL PORTFOLIO
<TABLE>
<CAPTION>
FACE MARKET
AMOUNT SHORT-TERM NOTES VALUE
- --------------------------------------------------------------------
<S> <C> <C>
UTILITIES (2.6%)
$2,291,000 AT&T Capital Corp.
5.780% 01-02-96 $ 2,290,632
-----------
Total Short-term Notes (2.6%)
(Cost $2,290,632) $ 2,290,632
-----------
Total Holdings $87,447,951
(Cost $81,589,885) (a) ===========
<FN>
(a) Also represents cost for Federal income tax purposes.
* Non-income producing securities.
</TABLE>
FOREIGN CURRENCIES
NZ - New Zealand Dollar
FF - French Franc
GBP - British Pound
JPY - Japanese Yen
Industry Classifications
(1) Agriculture (18) Insurance
(2) Automotive (19) Machinery
(3) Banking (20) Media
(4) Building Products (21) Metal (non-ferrous)
(5) Capital Goods (22) Mining
(6) Cement (23) Packaging
(7) Chemicals (24) Paper
(8) Computer Products (25) Publishing
(9) Consumer Products (26) Rail Equipment
(10) Electrical Products (27) Real Estate
(11) Electronics (28) Retailing
(12) Energy and Oil (29) Services
(13) Food & Beverage (30) Steel
(14) Forest Products (31) Textile
(15) Governmental (32) Transportation
(16) Hotels (33) Utilities
(17) Health Care (34) Miscellaneous
The accompanying notes are an integral part of these financial statements.
<PAGE> 70
OHIO NATIONAL FUND, INC.
SCHEDULE OF INVESTMENTS
DECEMBER 31, 1995
CAPITAL APPRECIATION PORTFOLIO
<TABLE>
<CAPTION>
FACE MARKET
AMOUNT LONG-TERM NOTES VALUE
- ---------------------------------------------------------------
<S> <C> <C>
GOVERNMENT (1.1%)
$ 100,000 U.S. Treasury Note
5.750% 10-31-97 $ 100,939
100,000 U.S. Treasury Note
7.375% 11-15-97 103,746
-----------
204,685
-----------
BANKING (0.3%)
50,000 Fifth Third Bank
4.250% 01-15-98 57,062
-----------
BUILDING MATERIALS (0.7%)
138,000 Manville Corp.
9.000% 12-31-03 136,793
-----------
ELECTRICAL EQUIPMENT (0.2%)
45,000 Cooper Industries
7.050% 01-01-15 46,350
-----------
ENTERTAINMENT AND LEISURE (0.5%)
100,000 Comcast Cable
3.375% 09-09-05 94,500
-----------
FINANCE (0.3%)
50,000 UBS Finance
2.000% 12-15-00 50,000
-----------
FOREIGN (0.5%)
100,000 Homestake Mining
5.500% 06-23-00 102,000
-----------
INDUSTRIAL SERVICES (0.9%)
200,000 WMX Technologies
2.000% 01-24-05 173,000
-----------
INSURANCE (0.9%)
150,000 Chubb Capital Corp.
6.000% 05-15-98 168,375
-----------
OIL, ENERGY AND NATURAL GAS (1.0%)
100,000 Cross Timbers Oil Co.
5.250% 11-01-03 94,500
100,000 Price Co.
5.500% 02-28-12 97,000
-----------
191,500
-----------
TOTAL LONG-TERM NOTES (6.4%)
(COST $1,144,039) $ 1,224,265
-----------
<CAPTION>
FACE MARKET
AMOUNT SHORT-TERM NOTES VALUE
- ---------------------------------------------------------------
<S> <C> <C>
GOVERNMENT (4.8%)
$ 163,000 U.S. Treasury Bill
5.350 01-25-96 $ 162,480
760,000 FNMA Discount Note
5.450 02-13-96 755,115
-----------
917,595
-----------
EDUCATION (1.9%)
360,000 Yale University
5.660% 02-20-96 357,170
-----------
FINANCE (8.5%)
450,000 Ciesco L.P.
5.730% 01-05-96 449,714
750,000 Preferred Receivables Funding
5.800% 01-10-96 748,913
425,000 PHH
5.850% 01-19-96 423,757
-----------
1,622,384
-----------
FOOD AND RELATED (2.5%)
486,000 H.J. Heinz
5.780% 01-26-96 484,049
-----------
HOUSING AND RELATED (3.1%)
590,000 Home Depot
5.900% 01-05-96 589,613
-----------
MEDICAL AND RELATED (1.0%)
200,000 Abbott Laboratories
5.800% 01-11-96 199,678
-----------
UTILITIES (2.4%)
470,000 Tampa Electric
5.770% 01-08-96 469,472
-----------
MISCELLANEOUS (5.2%)
795,000 Corporate Asset Funding
5.670% 02-12-96 789,741
200,000 Siemens Co.
5.800% 01-29-96 199,098
-----------
988,839
-----------
TOTAL SHORT-TERM NOTES (29.4%)
(COST $5,628,800) $ 5,628,800
-----------
<CAPTION>
FACE MARKET
AMOUNT CONVERTIBLE DEBENTURES VALUE
- --------------------------------------------------------------
<S> <C> <C>
COMPUTER AND RELATED (5.2%)
$2,000,000 Automatic Data Process, zero
coupon contracts due 02-20-12 $ 987,500
-----------
DRUGS (0.9%)
300,000 Alza Corp., zero coupon contracts,
due 07-14-14 123,000
50,000 Mckesson Co., 4.500% conv.
subordinated debentures,
due 03-01-04 46,625
-----------
169,625
-----------
DURABLE GOODS (0.3%)
50,000 Outboard Marine, 7.000% conv.
subordinated debentures,
due 07-01-02 51,812
-----------
</TABLE>
(continued)
<PAGE> 71
OHIO NATIONAL FUND, INC.
SCHEDULE OF INVESTMENTS
DECEMBER 31, 1995
CAPITAL APPRECIATION PORTFOLIO (CONTINUED)
<TABLE>
<CAPTION>
MARKET
AMOUNT CONVERTIBLE DEBENTURES VALUE
- ----------------------------------------------------------------------------
<S> <C> <C>
FOOD AND RELATED (0.5%)
$ 100,000 Food Lion Inc.,5.000% conv. subordinated
debentures, due 06-01-03 $ 100,375
-----------
MEDIA (1.7%)
300,000 TBS, zero coupon contracts
due 02-13-07 135,000
550,000 US West, zero coupon contracts
due 06-25-11 198,688
-----------
333,688
-----------
OIL, ENERGY AND NATURAL GAS (0.2%)
50,000 Pennzoil Co.,4.750% conv. subordinated
debenture, due 10-01-03 50,750
-----------
REAL ESTATE (1.4%)
75,000 Price Co., 6.750% conv. subordinated
debenture, due 03-01-01 76,125
190,000 Rouse Co., 5.750% conv. subordinated
debentures, due 07-23-02 189,762
-----------
265,887
-----------
UTILITIES (1.0%)
200,000 Potomac Electricity & Power Co.,
5.000% conv. subordinated
debentures, due 09-01-02 190,000
-----------
TOTAL CONVERTIBLE DEBENTURES
(11.2%) (COST $2,022,926) $ 2,149,637
-----------
<CAPTION>
MARKET
SHARES COMMON STOCK VALUE
- ----------------------------------------------------------------------------
<S> <C> <C>
AEROSPACE (0.7%)
5,000 Teledyne Inc. $ 128,125
-----------
BUILDING MATERIALS (4.2%)
6,600 Lowes Corp. 517,275
22,000 * Manville Corp. 288,750
-----------
806,025
-----------
CHEMICALS (4.5%)
200 CIBA Geigy 175,843
10,500 * Genetech Inc. 556,500
1,500 Great Lakes Chemical Corp. 108,000
1,000 Petrolite Corp. 28,500
-----------
868,843
-----------
COMPUTER AND RELATED (0.2%)
400 IBM Corp. 36,700
-----------
CONSUMER PRODUCTS (4.1%)
3,000 Corning Inc. 96,000
2,000 John Harland Co. 41,750
50,000 Petrie Stores 137,500
2,600 Phillip Morris Cos., Inc. 235,300
5,000 Polaroid Corp. 236,875
2,000 * Toys R Us 43,500
-----------
790,925
-----------
DRUGS (0.9%)
2,000 Schering - Plough Corp. 109,500
1,450 Upjohn Co. 56,188
-----------
165,688
-----------
DURABLE GOODS (0.1%)
2,000 A T Cross Co. 30,250
-----------
FINANCE (4.6%)
3,500 American Express 144,813
800 Federal Nat'l Mortgage Assn. 99,300
2,000 Fund American Enterprise 149,000
1,000 Greenpoint Financial Corp. 26,750
4,000 PHH Corp. 187,000
4,200 Student Loan Marketing 276,675
-----------
883,538
-----------
FORESTRY AND PAPER PRODUCTS (1.6%)
1,500 Int'l Paper Co. 56,812
6,000 Weyerhaeuser Co. 259,500
-----------
316,312
-----------
INSURANCE (2.7%)
2,000 Home Beneficial Corp.Class 'B' 48,000
6,500 Kemper Corp. 322,563
1,800 Unitrin Inc. 86,400
2,000 * Zurich Reinsurance 60,750
-----------
517,713
-----------
MEDIA AND PUBLISHING (5.9%)
5,000 Chris-Craft Ind., Inc. 216,250
500 Meredith Corp. 20,937
17,000 New York Times Co. 503,625
1,200 Times Mirror Co. 40,650
1,200 Washington Post 338,400
-----------
1,119,862
-----------
METALS AND MINING (2.7%)
6,000 * Helcla Mining Co. 41,250
6,000 Homestake Mining Co. 93,750
7,747 Newmont Mining Corp. 350,552
2,000 Santa Fe Pacific Gold 24,250
-----------
509,802
-----------
OIL, ENERGY AND NATURAL GAS (7.9%)
2,500 Atlantic Richfield Co. 276,875
500 Cross Timbers Oil Co. 8,813
5,000 Helmerich & Payne Co. 148,750
6,000 Murphy Oil Corp. 249,000
3,500 * Oryx Energy Co. 46,812
1,600 Pennzoil Co. 63,375
12,000 Petro-Canada Inc. 138,516
2,500 Sun Company Inc. 68,438
4,000 Texaco, Inc. 314,000
10,000 Union Texas Petroleum 193,750
-----------
1,508,329
-----------
REAL ESTATE (0.1%)
1,000 DeBartolo Realty 13,000
-----------
RECREATION (0.2%)
2,000 Skyline Corp. 41,500
-----------
RETAIL (0.2%)
4,000 * Hill Stores Co. 39,500
-----------
</TABLE>
(continued)
<PAGE> 72
OHIO NATIONAL FUND, INC.
SCHEDULE OF INVESTMENTS
DECEMBER 31, 1995
CAPITAL APPRECIATION PORTFOLIO (CONTINUED)
<TABLE>
<CAPTION>
MARKET
SHARES COMMON STOCK VALUE
- ----------------------------------------------------------------------------
<S> <C> <C>
TRANSPORTATION (0.9%)
4,000 Overseas Shipholding Inc. $ 76,000
4,000 Ryder System Inc. 99,000
-----------
175,000
-----------
UTILITIES (4.9%)
25,000 Centerior Energy Corp. 221,875
16,000 Entergy Corp. 468,000
4,000 Niagara Mohawk Power Corp. 38,500
8,000 * Public Service Co. New Mexico 141,000
3,400 SCE Corp. 60,350
-----------
929,725
-----------
MISCELLANEOUS (0.4%)
25,161 Lonrho Plc 68,689
-----------
TOTAL COMMON STOCK (46.8%)
(COST $7,726,185) $ 8,949,526
-----------
<CAPTION>
MARKET
SHARES PREFERRED STOCK VALUE
- ----------------------------------------------------------------------------
<S> <C> <C>
160 AEROSPACE (0.0%)
Teledyne Inc., $15 cum. conv. $ 2,300
-----------
8,000 BUILDING MATERIALS (1.1%)
Manville Corp., $2.70 Series B 201,000
-----------
FINANCE (1.9%)
7,000 Kemper Co., 5.750% Series E 364,875
-----------
REAL ESTATE (0.5%)
2,000 Rouse Co. 6.500% cum. conv. 103,250
-----------
UTILITIES (2.7%)
140 Cleveland Electric 9.000% 124,477
50 Cleveland Electric 8.800% 44,444
3,000 Cleveland Electric 211,500
1,500 Gulf State Utilities, Series B 72,000
1,000 Niagara Mohawk Power Series A 16,125
2,000 Niagara Mohawk Power Series C 37,750
-----------
506,296
-----------
TOTAL PREFERRED STOCK (6.2%)
(COST $1,155,361) $ 1,177,721
-----------
<CAPTION>
PUT OPTION PURCHASES MARKET
SHARES STOCK/EXPIRATION/EXERCISE PRICE VALUE
- ------------------------------------------------------------------------------
<S> <C> <C>
5 AUD"B"/May '96'/$85 $ 5,188
5 Times Mirror/June '96'/$35 1,218
-----------
TOTAL PUT OPTION PURCHASE (0.0%)
(COST $5,973) $ 6,406
-----------
TOTAL HOLDINGS
(COST $17,683,284) (a) $19,136,355
===========
<FN>
*Non-income producing securities.
(a) Also represents cost for Federal income tax purposes.
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE> 73
OHIO NATIONAL FUND, INC.
SCHEDULE OF INVESTMENTS
DECEMBER 31, 1995
SMALL CAP PORTFOLIO
<TABLE>
<CAPTION>
MARKET
SHARES U.S. COMMON STOCK VALUE
- -----------------------------------------------------------------
<S> <C> <C>
AEROSPACE (1.0%)
9,000 * Tracor Inc. $ 130,500
-----------
AUTOMOBILE AND RELATED (0.8%)
3,550 * Credit Acceptance Corp. 73,662
4,000 * Top Source Technologies Inc. 28,000
-----------
101,662
-----------
BANKS (0.9%)
2,500 Banco Latinoamericao De Exp 116,250
-----------
BUSINESS SERVICES (3.7%)
1,500 * Desktop Data Inc. 36,750
10,250 * Dendrite International 184,500
3,900 Meta Group Inc. 119,438
2,700 Norrell Corp. 79,313
3,500 * US Office Products Co. 79,625
-----------
499,626
-----------
COMMUNICATIONS (1.4%)
7,500 * Comcast UK Cable Partners 93,750
3,100 SFX Broadcasting, Inc. 93,775
-----------
187,525
-----------
COMPUTER AND RELATED (23.2%)
1,500 Adobe Systems Inc. 93,000
5,000 * Astea Int'l Inc. 114,375
6,575 * Avant l Corp. 126,569
3,025 Broadway & Seymour 49,156
9,500 Computervision Corp. 146,063
7,000 * Computron Software Inc. 126,000
11,500 * Creative Computers Inc. 209,875
5,000 * Dialogic Corp. 192,500
4,900 * Eagle Point Software Corp. 105,350
5,725 * Gandalf Technologies Inc. 97,325
8,225 Geoworks 156,275
8,375 GT Interactive Software Corp. 117,250
3,500 * Informix Corp. 105,000
4,300 * Madge Networks NV 192,425
1,750 Manugistics Group Inc. 25,812
7,000 * Mylex Corp. 133,875
4,000 * Network General Corp. 133,500
1,000 * Parametric Technology Corp. 66,500
4,125 * Platinum Tech Inc. 75,797
3,650 * Printronix Inc. 51,100
8,375 * Radisys Corp. 98,406
2,300 Sync Research Inc. 104,075
3,975 Scopus Technology Inc. 100,369
3,000 * 7th Level Inc. 42,000
5,565 * Stormedia Inc. 203,123
4,000 * Symantec Corp. 93,000
8,550 * Triple P N.V. 85,500
5,200 * Woderware Corp. 89,050
-----------
3,133,270
-----------
CONSUMER PRODUCTS (1.7%)
2,000 * Alantec Corp. 116,500
6,025 * Catalina Lighting 29,372
2,000 Loewen Group Inc. 50,625
2,000 * WMS Industries Inc. 32,750
-----------
229,247
-----------
DRUGS (2.4%)
6,050 Pharmaceutical Resources Inc. 45,375
10,000 * SEQUUS Pharmaceuticals 142,500
3,000 Teva Pharmaceuticals 139,125
-----------
327,000
-----------
ELECTRICAL EQUIPMENT (2.2%)
4,000 * Anadigics Inc. 85,000
9,750 * DSP Group 112,125
2,800 * Microchip Technology Inc. 102,200
-----------
299,325
-----------
ELECTRONICS (11.6%)
750 * Altera Corp. 37,312
3,000 * LSI Logic Corp. 98,250
1,500 * Lam Research Corp. 68,625
6,000 * Maxim Integrated Products Inc. 231,000
7,700 Orbit Semiconductor Inc. 75,075
5,300 * PRI Automation Inc. 186,163
3,650 * Sanmina Corp. 189,344
11,150 * Speedfam International Inc. 125,438
14,400 * Tegal Corp. 147,600
3,250 * Tencor Instruments 79,219
5,000 Teradyne Inc. 125,000
11,000 Tylan General Inc. 134,750
5,225 Vitesse Semiconductor Corp. 66,619
-----------
1,564,395
-----------
ENTERTAINMENT AND LEISURE (0.7%)
2,700 * Anchor Gaming 61,425
4,500 * Golf Enterprises Inc. 32,625
-----------
94,050
-----------
HOTEL AND MOTEL (2.6%)
5,000 * Doubletree Corp. 131,250
10,400 * Trump Hotels & Casino Resort 223,600
-----------
354,850
-----------
INSURANCE (3.7%)
4,000 * HCC Insurance Holdings Inc. 148,000
4,000 * Healthsource Inc. 144,000
2,250 Mercury Finance Co. 29,812
4,000 Reliastar Financial Corp. 177,500
-----------
499,312
-----------
MACHINERY (2.0%)
7,900 * Asyst Technologies Inc. 278,475
-----------
MANUFACTURING (0.3%)
1,000 * Plantronics Inc. 36,125
-----------
MEDICAL AND RELATED (8.8%)
7,000 * Gulf South Medical Supply 211,750
5,000 * HCIA Inc. 233,750
5,450 * Horizon Healthcare Corp. 137,612
5,000 * Medaphis Corp. 185,000
6,000 * Multicare Companies Inc. 144,000
2,450 * Orthodontic Centers of America 118,212
6,000 * Sola International Inc. 151,500
-----------
1,181,824
-----------
METALS AND MINING (1.9%)
4,500 Harsco Corp. 261,563
-----------
</TABLE>
(continued)
<PAGE> 74
OHIO NATIONAL FUND, INC.
SCHEDULE OF INVESTMENTS
DECEMBER 31, 1995
SMALL CAP PORTFOLIO (CONTINUED)
<TABLE>
<CAPTION>
MARKET
SHARES U.S. COMMON STOCK VALUE
- -----------------------------------------------------------------
<S> <C> <C>
OIL, ENERGY AND NATURAL GAS (2.6%)
9,000 * Falcon Drilling Co. Inc. $ 135,000
6,000 * Seitel Inc. 212,250
-----------
347,250
-----------
RETAIL (9.3%)
8,000 Authentic Fitness Corp. 166,000
7,400 Insight Enterprises Inc. 92,500
4,500 Maxim Group Inc. 60,750
1,600 * Movie Gallery Inc. 48,800
3,775 * Officemax Inc. 84,465
5,300 Henry Shein Inc. 156,350
4,900 * Proffitt's Inc. 128,625
3,850 * The Sports Authority Inc. 78,444
1,500 Tiffany & Co. 75,563
9,000 * Trend-Lines Inc. 90,000
6,000 Warnaco Group 150,000
3,750 Wolverine World Wide 118,125
-----------
1,249,622
-----------
TELECOMMUNICATIONS (6.5%)
4,000 * Arch Communications Group 96,000
6,000 Frontier Corp. 180,000
7,000 * Intermedia Comm. of Florida 122,500
9,925 Inter-Tel Inc. 153,217
8,000 * LCI International Inc. 164,000
6,000 * Periphonics Corp. 166,500
-----------
882,217
-----------
TEXTILES (3.3%)
6,000 * Nautica Enterprises Inc. 262,500
2,300 * Quicksilver Inc. 78,631
6,900 * Supreme Int'l Corp. 110,400
-----------
451,531
-----------
TRANSPORTATION (2.5%)
4,625 * Celadon Group Inc. 41,625
4,000 * Mark VII Inc. 62,000
3,975 * Western Pacific Airlines Inc. 66,581
2,625 * Wisconsin Central Transport 172,594
-----------
342,800
-----------
UTILITIES (1.1%)
4,000 United Waste Systems Inc. 149,000
-----------
TOTAL U.S. COMMON STOCK (94.2%)
(COST $10,910,542) $12,717,419
-----------
<CAPTION> MARKET
SHARES FOREIGN COMMON STOCK VALUE
- --------------------------------------------------------------
<S> <C> <C>
BRITISH STERLING POUND:
MEDIA
17,000 * Flextech Plc $ 125,108
RETAIL
21,500 * Next Plc 152,217
MISCELLANEOUS
11,000 Wetherspoon (J.D.) 110,157
-----------
TOTAL BRITISH STERLING POUND (2.9%) 387,482
-----------
JAPANESE YEN:
MISCELLANEOUS
4,000 Hoya Corp. 137,661
-----------
TOTAL JAPANESE YEN (1.0%) 137,661
-----------
NETHERLANDS GUILDER:
MISCELLANEOUS
2,500 * Hunter Douglas NV 116,033
TRANSPORTATION
4,100 * IHC Caland 138,117
-----------
TOTAL NETHERLANDS GUILDER (1.9%) 254,150
-----------
TOTAL FOREIGN COMMON STOCK
(5.8%) (COST $680,031) $ 779,293
-----------
TOTAL HOLDINGS
(COST $11,590,573) (a) $13,496,712
===========
<FN>
*Non-income producing securities.
(a) Also represents cost for Federal income tax purposes.
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE> 75
OHIO NATIONAL FUND, INC.
SCHEDULE OF INVESTMENTS
DECEMBER 31, 1995
GLOBAL CONTRARIAN PORTFOLIO
<TABLE>
<CAPTION>
MARKET
SHARES COMMON AND PREFERRED STOCK VALUE
- -------------------------------------------------------------
<S> <C> <C>
U.S. STOCKS
CHEMICALS (0.9%)
3,000 Lawter International Inc. $ 34,875
-----------
CAPITAL GOODS (1.4%)
1,000 Bandag Inc. Class 'A' 53,000
-----------
CONSUMER PRODUCTS (6.4%)
1,000 Allen Organ Co. Class 'B' 41,500
333 * Castle & Cook Inc. 5,583
1,000 Dole Foods Company, Inc. 35,000
10,000 * Interco Incorporated 90,000
4,000 Unifirst Corp. 72,000
-----------
244,083
-----------
ELECTRONICS (1.4%)
3,000 Zero Corp. 53,250
-----------
ENERGY AND OIL (5.0%)
2,535 * Enterra Corp. 73,198
4,000 North European Oil Royalty Trust 51,000
1,700 Rochester & Pittsburgh Coal Co. 47,600
3,000 * Sithe Energies, Inc. 18,000
-----------
189,798
-----------
FINANCE (5.9%)
5,000 * East Texas Financial Services 80,000
3,000 Pioneer Group, Inc. 81,750
5,000 Southern Banc Co., Inc. 64,375
-----------
226,125
-----------
FORESTRY PRODUCTS (3.4%)
600 Georgia Pacific Corp. 41,175
1,400 Greif Brothers Corp. Class 'A' 37,625
1,500 Rayonier Inc. 50,063
-----------
128,863
-----------
MEDIA (1.6%)
5,000 * Integrity Music, Inc. Class 'A' 10,625
2,000 Cowles Media Co. Pfd. 52,000
-----------
62,625
-----------
METALS AND MINING (1.5%)
1,000 Reynolds Metals Co. 56,625
-----------
REAL ESTATE (3.0%)
2,500 Alico, Inc. 52,500
1,500 Catellus Development Pfd. 60,750
-----------
113,250
-----------
UTILITIES (1.2%)
2,000 Montana Power Co. 45,250
-----------
TOTAL U.S. (31.7%) $ 1,207,744
-----------
FOREIGN
LATIN AMERICA (7.8%)
10,000 Antofagasta Holdings plc (21) $ 45,469
50,000 * Cresud SA (1) 67,990
25,000 IRSA Inversiones y Rep. SA (34) 62,991
60,000 Ledesma SA (1) 76,788
165,000 * Grupo Fernandez Editors (25) 46,042
-----------
299,280
-----------
FRANCE (7.1%)
2 Bank for Intl. Settlements (3) 14,678
300 * Comptoir Lyon-Alemand-Louyot (34) 23,540
1,100 Gaumont SA (20) 70,621
500 Legrand ADP (10) 49,934
300 Nicolas Schlumberger et Cie (19) 50,382
600 Rougier SA (14) 61,266
-----------
270,421
-----------
JAPAN (7.1%)
2,500 Fuji Photo Film Co. Ltd. (9) 71,981
7,000 Nittetsu Mining Co., Ltd. (22) 69,662
400 Toho Co. (20) 63,768
5,000 Yoshimoto Kogyo Co. (20) 65,217
-----------
270,628
-----------
SWITZERLAND (6.0%)
7 Bank of Intl. Settlements (3) 58,839
100 Kuehne & Nagel Intl. AG (32) 59,359
65 Schindler Holding AG PC (5) 67,309
175 Sika Finanz AG Bearer (7) 42,461
-----------
227,968
-----------
GERMANY (4.8%)
100 Axel Springer Verlag AG (20) 67,177
250 Bayer AG (7) 66,272
125 Buderus AG (5) 48,730
-----------
182,179
-----------
CANADA (3.4%)
2,000 Noranda, Inc. (21) 41,216
30,000 Redstone Resources, Inc. (22) 86,829
-----------
128,045
-----------
THAILAND (2.6%)
40,000 Oriental Hotel (16) 98,452
-----------
NEW ZEALAND (2.4%)
30,000 Carter Holt Harvey Limted (14) 64,672
5,500 Shortland Properties, Ltd. (27) 3,090
30,000 Wrightson Ltd. (1) 22,733
-----------
90,495
-----------
NETHERLANDS (2.2%)
1,300 Bosch & Keuning NV (20) 53,762
2,000 German City Estates NV (27) 30,224
-----------
83,986
-----------
SINGAPORE (1.9%)
10,000 Singapore Bus Service Ltd. (32) 71,413
-----------
SWEDEN (1.8%)
5,000 Bylock & Nordsjofrakt AB 'B'(32) 43,683
2,000 Terra Mining AB (22) 24,553
-----------
68,236
-----------
HONG KONG (1.8%)
100,000 CDL Hotels Intl. Ltd. (16) 50,436
16,000 Shaw Brothers (Hong Kong) Ltd.(20) 17,588
-----------
68,024
-----------
INDONESIA (1.6%)
2,000 Freeport McMoRan Pfd. 'C' (22) 60,750
-----------
AUSTRALIA (1.3%)
30,000 * Barlile Corp. Ltd. (1) 51,250
-----------
</TABLE>
(continued)
<PAGE> 76
OHIO NATIONAL FUND, INC.
SCHEDULE OF INVESTMENTS
DECEMBER 31, 1995
GLOBAL CONTRARIAN PORTFOLIO (CONTINUED)
<TABLE>
<CAPTION>
MARKET
SHARES COMMON AND PREFERRED STOCK VALUE
- --------------------------------------------------------------------
<S> <C> <C>
SOUTH AFRICA (1.1%)
6,000 Free State Consolidated Gold (22) $ 43,500
-----------
BELGIUM (1.1%)
30 Socfinasia (34) 41,606
-----------
UNITED KINGDOM (0.8%)
15,000 ED & F Man (34) 32,589
-----------
TOTAL FOREIGN (54.8%) $ 2,088,822
-----------
TOTAL COMMON & PREFERRED STOCKS
(86.5%) (COST $3,205,227) $ 3,296,566
-----------
<CAPTION>
FACE MARKET
AMOUNT NON-CONVERTIBLE BONDS VALUE
- -----------------------------------------------------------------------
<S> <C> <C>
U.S. DOLLAR (9.1%)
$ 50,000 Cemex SA 9.500%
due 09-20-01 (6) $ 46,188
150,000 Federal Republic Of Brazil 6.812%
due 04-15-06 (15) 103,125
200,000 Republic of Argentina FRB 6.812%
due 03-31-05 (15) 141,625
50,000 PT Pabrik Kertas Tjiwi Kimia
13.250% due 08-01-01 (14) 55,000
TOTAL NON-CONVERTIBLE BONDS -----------
(9.1%) (COST $294,213) $ 345,938
-----------
<CAPTION>
FACE MARKET
AMOUNT CONVERTIBLE DEBENTURES VALUE
- ----------------------------------------------------------------------
<S> <C> <C>
U.S. DOLLAR (3.3%)
$ 50,000 Cheil Foods & Chemicals Co.
3.000% due 12-31-06 (9) $ 65,750
50,000 Tung Ho Steel Corp. 4.000%
due 07-26-01 (30) 60,750
-----------
126,500
-----------
NON-U.S. DOLLAR (1.1%)
260,000 FF Immobiliere Hoteliere 5.000%
due 01-01-01 (16) 33,425
11,000 NZ Shortland Properties Inc. 7.500%
due 12-31-98 (27) 6,395
-----------
39,820
-----------
TOTAL CONVERTIBLE DEBENTURES
(4.4%) (COST $150,939) $ 166,320
-----------
TOTAL HOLDINGS
(COST $3,650,379)(a) $ 3,808,824
===========
<FN>
(a) Also represents cost for Federal Income tax purposes.
* Non-income producing securities.
</TABLE>
FOREIGN CURRENCIES
NZ - New Zealand Dollar
FF - French Franc
Industry Classifications
(1) Agriculture (18) Insurance
(2) Automotive (19) Machinery
(3) Banking (20) Media
(4) Building Products (21) Metal (non-ferrous)
(5) Capital Goods (22) Mining
(6) Cement (23) Packaging
(7) Chemicals (24) Paper
(8) Computer Products (25) Publishing
(9) Consumer Products (26) Rail Equipment
(10) Electrical Products (27) Real Estate
(11) Electronics (28) Retailing
(12) Energy and Oil (29) Services
(13) Food & Beverage (30) Steel
(14) Forest Products (31) Textile
(15) Governmental (32) Transportation
(16) Hotels (33) Utilities
(17) Health Care (34) Miscellaneous
The accompanying notes are an integral part of these financial statements.
<PAGE> 77
OHIO NATIONAL FUND, INC.
SCHEDULE OF INVESTMENTS
DECEMBER 31, 1995
AGGRESSIVE GROWTH PORTFOLIO
<TABLE>
<CAPTION>
MARKET
SHARES COMMON AND PREFERRED STOCK VALUE
- ---------------------------------------------------------------
<S> <C> <C>
U.S. COMMON STOCKS:
AUTOMOTIVE AND RELATED (4.7%)
1,875 Chrysler Corp. $103,828
425 * Custom Chrome Inc. 9,828
500 Exide Corp. 22,937
3,800 Harley-Davidson Inc. 109,218
--------
245,811
--------
BANKING (0.4%)
100 HSBC Holdings 15,133
140 Mitsubishi Bank Ltd. 3,412
30 Sakura Bank Ltd. 3,830
--------
22,375
--------
BUILDING AND CONSTRUCTION (0.0%)
62 Transpro Inc. 659
--------
BUSINESS SERVICES (3.8%)
300 * Access Health Inc. 13,275
1,575 * Accustaff, Inc. 69,300
575 America Online Inc. 21,562
225 * Career Horizons Inc. 7,594
550 * Consolidated Graphics Inc. 14,300
100 Corestaff Inc. 3,650
375 CUC International, Inc. 12,797
275 * Education Alternatives 1,237
25 * Equity Corp. Intl. 594
1,525 * Nu-Kote Holding 25,925
150 Paychex Inc. 7,481
150 Xerox Corp. 20,550
--------
198,265
--------
CHEMICALS (0.1%)
50 Monsanto Co. 6,125
--------
COMPUTER AND RELATED (13.9%)
50 Adobe Systems Inc. 3,100
550 * Avant! Corp. 10,587
169 * Bay Networks, Inc. 6,940
150 * CBT Group 7,950
650 * Cheyenne Software, Inc. 16,981
100 * Compaq Computer Corp. 4,800
1,200 Computer Assoc. Intl., Inc. 68,222
3,025 Danka Business Systems 111,925
575 * Dialogic Corp. 22,137
225 * Diamond Multimedia Systems 8,072
250 * Informix Corp. 7,500
903 Mcafee Assoc. 39,619
5,500 Metatools Inc. 143,000
50 * Netscape Communications Corp. 6,950
250 * Network General Corp. 8,344
300 Ross Technology Inc. 2,925
25 * Seagate Technology, Inc. 1,187
5,400 SQA Inc. 103,950
200 * Sun Mirosystems, Inc. 9,125
400 Sync Research Inc. 18,100
5,850 System Software Assoc., Inc. 127,238
100 * 3 Com Corp. 4,662
--------
733,314
--------
CONSUMER PRODUCTS (2.7%)
2,400 Central Garden & Pet Co. 22,800
2,725 Loewen Group Inc. 68,977
1,125 Physician Sales and Service Inc. 32,063
1,400 * Thompson PBE Inc. 19,600
--------
143,440
--------
DRUGS (1.2%)
75 * Amerisource Health Corp. 2,475
1,495 Pharmacia & Upjohn, Inc. 57,931
--------
60,406
--------
DURABLE GOODS (0.1%)
50 Bandag Inc. 2,650
100 Uniphase Corp. 3,575
--------
6,225
--------
ELECTRICAL EQUIPMENT (0.6%)
375 * Fore Systems 22,312
125 * Kent Electronics Corp. 7,297
--------
29,609
--------
ELECTRONICS (1.7%)
1,325 Marshall Industries 42,578
2,200 Sensormatic Electronics Corp. 38,225
250 * Xilinx Inc. 7,625
--------
88,428
--------
ENTERTAINMENT AND LEISURE (0.1%)
125 The Walt Disney Co. 7,375
--------
FINANCE (2.9%)
225 American Express Co. 9,309
375 Citicorp 25,219
1,025 CWM Mortgage Holdings 17,425
25 Daiwa Securities 3,849
500 * Medaphis Corp. 18,500
950 Mercury Finance Co. 12,587
700 National Auto Credit Inc. 11,375
60 New Japan Securities 3,583
30 Nikko Securities Co. 3,889
50 North American Mortgage 1,062
100 Nomura Securities 21,928
600 Quick and Reilly Group, Inc. 12,300
75 Sunamerica Inc. 3,562
50 Yamaichi Securities 3,253
70 Yasuda Trust & Banking Ltd. 4,168
--------
152,009
--------
FOOD AND RELATED (0.1%)
100 * Quality Dining Inc. 2,425
150 Rainforest Cafe Inc. 4,519
--------
6,944
--------
HOUSING AND RELATED (0.3%)
3,400 Fedders Corp. 14,450
200 Scholodge Inc. 1,900
--------
16,350
--------
HOTEL/LODGING (0.7%)
1,300 Harrah's Entertainment 31,525
100 * Promus Hotel Corp. 2,225
--------
33,750
--------
</TABLE>
(continued)
<PAGE> 78
OHIO NATIONAL FUND, INC.
SCHEDULE OF INVESTMENTS
DECEMBER 31, 1995
AGGRESSIVE GROWTH PORTFOLIO (CONTINUED)
<TABLE>
<CAPTION>
MARKET
SHARES COMMON AND PREFERRED STOCK VALUE
- -------------------------------------------------------------------------
<S> <C> <C>
INSURANCE (2.0%)
100 * Compdent Corp. $ 4,150
650 * Oxford Health Plans 48,019
600 * Risk Capital Holdings Inc. 14,025
750 * United Dental Care Inc. 30,938
150 U.S. Healthcare Inc. 6,975
-----------
104,107
-----------
MACHINERY (0.5%)
800 Applied Power Inc. 23,972
100 Deere and Co. 3,525
-----------
27,497
-----------
MANUFACTURING (0.1%)
200 Oakley Inc. 6,800
-----------
MEDIA AND PUBLISHING (0.5%)
292 * Evergreen Media Corp. 9,344
400 Ha-Lo Industries Inc. 12,300
225 * Heartland Wireless Comm. Inc. 6,694
-----------
28,338
-----------
MEDICAL AND RELATED (3.0%)
250 * American Oncology Resources 12,156
200 * Coram Healthcare Corp. 875
475 Dentsply International Inc. 19,000
250 * Enterprise Systems Inc. 7,625
400 Gulf South Medical Supply 12,100
800 Home Health Corp of America 8,800
600 * Humana Inc. 16,425
400 Omnicare, Inc. 17,900
50 * Phycor Inc. 2,528
225 * Physicians Health Services Inc. 8,325
2,200 Sheridan Healthcare Inc. 26,675
350 * Sybron Intl. Corp.-Wisconsin 8,313
310 * Vencor Inc. 10,091
150 * Wellpoint Health Networks Inc. 4,819
-----------
155,632
-----------
METALS AND MINING (0.3%)
600 Buckeye Cellulose Corp. 13,200
-----------
OIL, ENERGY AND NATURAL GAS (0.4%)
1,400 * Flores & Rucks Inc. 20,300
-----------
RETAIL (1.9%)
300 * Autozone, Inc. 8,662
700 * Corporate Express Inc. 21,088
325 * Federated Department Stores 8,938
1,200 * Holloywood Entertainment Corp. 10,050
525 * Movie Gallery Inc. 16,013
300 MSC Industrial Direct Co. 8,250
1,200 * Office Depot Inc. 23,700
25 * Officemax, Inc. 559
-----------
97,260
-----------
TRANSPORTATION (0.6%)
75 Burlington Northern Santa Fe 5,850
600 Kansas City Southern Ind., Inc. 27,450
-----------
33,300
-----------
TELECOMMUNICATIONS (3.1%)
50 * Andrew Corp. 1,912
475 * Ascend Communications Inc. 38,534
50 * CAI Wireless Systems Inc. 481
125 * Cascade Communications Corp. 10,656
8 DDI Corp. 62,045
375 * Equalnet Holding Corp. 2,719
375 Network Equipment Tech Inc. 10,266
250 * Newbridge Networks Corp. 10,344
325 * Videoserver Inc. 10,238
825 Vtel Corp. 15,263
-----------
162,458
-----------
MISCELLANEOUS (1.0%)
6,600 Morgan St. Nikkei 50,325
-----------
TOTAL U.S. (46.7%)
(COST $2,305,050) $ 2,450,302
-----------
FOREIGN:
DEUTSCHE MARK (0.9%)
320 SAP Preferred (2) $ 48,695
-----------
JAPANESE YEN (2.7%)
1,000 Daiwa Securities (4) 15,317
1 East Japan Railway Co. (6) 4,867
1,000 Kankaku Securities Co. (4) 4,265
1,000 Long-Term Credit Bank of Japan (1) 8,531
2,000 Marubeni Corp. (3) 10,838
1,000 Mitsui Trust & Banking (1) 10,955
1,000 Mitsui Fudosan Co. (5) 12,312
1,000 Nomura Securities Co. (4) 21,813
1 NTT Data Comm. Systems Corp. (2) 33,640
1,000 Sumitomo Trust & Banking (1) 14,154
1,000 Yasuda Trust & Banking (1) 5,923
-----------
Total Japanese Yen 142,615
-----------
TOTAL FOREIGN (3.6%)
(COST $185,110) $ 191,310
-----------
<CAPTION>
MARKET
SHARES WARRANTS VALUE
- ------------------------------------------------------------------------
<S> <C> <C>
81 Laboratory Corp of America $ 56
TOTAL WARRANTS (0.0%) -----------
(COST $190) $ 56
-----------
<CAPTION>
MARKET
SHARES FUTURES VALUE
- ------------------------------------------------------------------------
<S> <C> <C>
2 March S&P 500 Futures $ 1,238,200
TOTAL FUTURES (23.5%) -----------
(COST $1,238,200) $ 1,238,200
-----------
</TABLE>
(continued)
<PAGE> 79
OHIO NATIONAL FUND, INC.
SCHEDULE OF INVESTMENTS
DECEMBER 31, 1995
AGGRESSIVE GROWTH PORTFOLIO (CONTINUED)
<TABLE>
<CAPTION>
FACE MARKET
AMOUNT LONG-TERM NOTES VALUE
- ------------------------------------------------------------------------------------
<S> <C> <C>
$ 510,000 U.S. T-Bond
6.875% 08-15-25 $ 574,959
------------
TOTAL LONG-TERM NOTES (10.9%)
(COST $570,044) $ 574,959
------------
<CAPTION>
FACE MARKET
AMOUNT REPURCHASE AGREEMENTS VALUE
- ------------------------------------------------------------------------------------
<S> <C> <C>
$ 807,000 Provident Bank 5.350% due 01-02-96,
repurchase price $807,480,
collateralized by U.S. Treasury Bills,
due 03-07-96 (Cost $820,000) $ 807,000
------------
TOTAL REPURCHASE AGREEMENTS
(15.3%) (COST $807,000) $ 807,000
------------
TOTAL HOLDINGS
(COST $5,105,594) (a) $ 5,261,827
============
<FN>
*Non-income producing securities.
(a) Also represents cost for Federal income tax purposes.
</TABLE>
Industry Classifications
(1) Banking
(2) Computer and Related
(3) Consumer Products
(4) Finance
(5) Real Estate
(6) Transportation
The accompanying notes are an integral part of these financial statements.
<PAGE> 80
OHIO NATIONAL FUND, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995
(1) BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES
Ohio National Fund, Inc. (Fund) is registered under the Investment Company
Act of 1940 as amended, as a diversified open-end management investment
company. The Fund is a series investment company which consists of nine
separate investment portfolios that seek the following investment
objectives:
EQUITY PORTFOLIO--long-term growth of capital by investing principally in
common stocks or other equity securities. Current income is a secondary
objective.
MONEY MARKET PORTFOLIO--maximum current income consistent with
preservation of capital and liquidity by investing in high quality money
market instruments.
BOND PORTFOLIO--high level of return consistent with preservation of
capital by investing primarily in high quality intermediate and long-term
debt securities.
OMNI PORTFOLIO--high level of long-term total return consistent with
preservation of capital by investing in stocks, bonds and money market
instruments.
INTERNATIONAL PORTFOLIO--long-term capital growth by investing primarily
in common stocks of foreign companies.
The following two portfolios commenced operations on May 1, 1994:
CAPITAL APPRECIATION PORTFOLIO--maximum capital growth by investing
primarily in common stocks that are (1) considered to be undervalued or
temporarily out of favor with investors, or (2) expected to increase in
price over the short term.
SMALL CAP PORTFOLIO-maximum capital growth by investing primarily in
common stocks of small and medium size companies.
The following two portfolios commenced operations on March 31, 1995:
GLOBAL CONTRARIAN PORTFOLIO--long-term growth of capital by investing in
foreign and domestic securities believed to be undervalued or presently out
of favor.
AGGRESSIVE GROWTH PORTFOLIO--capital growth.
The following is a summary of significant accounting policies:
Investments in the Money Market Portfolio are valued at amortized cost in
accordance with Rule 2a-7 which approximates market value. All net
investment income of the Money Market Portfolio is declared and paid daily
as a dividend to shareholders immediately before the computation of the net
asset value of Money Market Portfolio shares. Dividends are automatically
reinvested in additional Money Market Portfolio shares at the net asset
value immediately following such computation. Distributions arising from
net investment income from the remaining portfolios are declared and paid
to shareholders quarterly and are recorded on the ex-dividend date.
Distributions arising from accumulated net realized capital gains are
recorded on the ex-dividend date and are distributed to shareholders at
least once a year.
For all other portfolios, securities which are traded on U.S. and foreign
stock exchanges or in the over-the-counter markets are valued at the last
sale price or, if there has been no sale that day, at the last bid price
reported as of the close of trading on the New York Stock Exchange.
Over-the-counter securities are valued at the last bid price as of the
close of trading on the Exchange. Short-term investments (investments with
remaining maturities of 60 days or less) are valued at amortized cost and
fixed income securities are valued by using market quotations, or
independent pricing services which use prices provided by market makers or
estimates of market values obtained from yield data relating to instruments
or securities with similar characteristics. All investments and cash quoted
in foreign currencies are valued daily in U.S. dollars on the basis of the
foreign currency exchange rates prevailing at the time of such valuation.
Foreign currency exchange rates are generally determined prior to the close
of the New York Stock Exchange (NYSE). Occasionally, events affecting the
value of foreign investments and such exchange rates occur between the time
at which they are determined and the close of the NYSE, which in the case
of the International, Small Cap, Global Contrarian and Aggressive Growth
Portfolios, would not be reflected in the computation of the portfolios'
net asset value. If events materially affecting the value of such
securities or currency exchange rates occurred during such time period, the
securities are valued at their fair value as determined in good faith by or
under the direction of the Fund's Board of Directors.
In connection with purchases and sales of securities denominated in foreign
currencies, the Fund may enter into forward foreign currency exchange
contracts (forward contract). A forward contract is a commitment to
purchase or sell a foreign currency at a future date, at a negotiated rate.
Additionally, the Fund may enter into such contracts to hedge certain other
foreign currency denominated investments. These contracts are recorded at
market value, and the related realized and unrealized foreign exchange
gains and losses are included in the statement of operations. In the event
that counterparties fail to settle these currency contracts or the related
foreign security trades, the Fund could be exposed to foreign currency
fluctuations.
<PAGE> 81
OHIO NATIONAL FUND, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1995
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. Future contracts may be based on
broad-based stock indexes such as the Standard & Poor's 500 Index or on
narrow-based stock indexes. A particular index will be selected according
to ONIMCO's investment strategy for the particular portfolio.
Securities transactions are recorded on a trade date basis. Dividend income
is recognized on the ex-dividend date (except in the case of securities in
the International, Small Cap, Global Contrarian and Aggressive Growth
Portfolios in which dividends are recorded as soon after the ex-dividend
date as the fund becomes aware of such dividends), and interest income is
accrued daily as earned. Net realized gain or loss on investments and
foreign exchange transactions are determined on the basis of identified
cost.
The books and records of the International, Small Cap, Global Contrarian
and Aggressive Growth Portfolios are maintained in U.S. dollars. Foreign
currency amounts are translated into U.S. dollars on the following basis:
(1) market value of investments, other assets and liabilities -- at
exchange rates prevailing at the end of the period.
(2) purchases and sales of investments, income and expenses--at the rates
of exchange prevailing on the respective dates of such transactions.
Although the net assets and the market value of the International, Small
Cap, Global Contrarian and Aggressive Growth Portfolios are presented at
the foreign exchange rates at the end of the period, the portfolios do not
generally isolate the effect of fluctuations in foreign exchange rates from
the effect of changes in the market price of the investments. However, the
portfolios do isolate the effect of fluctuations in foreign exchange rates
when determining the gain or loss upon sale or maturity of foreign-currency
denominated debt obligations pursuant to Federal income tax regulations.
Foreign investment and currency transactions may involve certain
considerations and risks not typically associated with investing in U.S.
companies and the U.S. Government. These risks, including re-evaluation of
currency and future adverse political and economic developments, could
cause investments and their markets to be less liquid and prices more
volatile than those of comparable U.S. companies and the U.S. Government.
Each portfolio may acquire repurchase agreements from member banks of the
Federal Reserve System which ONIMCO, the investment advisor to the Fund
deems creditworthy under guidelines approved by the Board of Directors,
subject to the seller's agreement to repurchase such securities at a
mutually agreed upon date and price. The repurchase price generally equals
the price paid by the portfolio plus interest negotiated on the basis of
current short-term rates, which may be more or less than the rate on the
underlying portfolio securities. The seller, under a repurchase agreement,
is required to maintain as collateral for the repurchase transaction
securities in which the portfolio has a perfected security interest with a
value not less than 100% of the repurchase price (including accrued
interest). Securities subject to repurchase agreements are held by the
Fund's custodian or another qualified custodian or in the Federal
Reserve/Treasury book-entry system. Repurchase agreements are considered to
be loans by the portfolio under the 1940 Act.
It is the policy of the Fund to distribute to its shareholders
substantially all of its taxable income, thus gaining relief from Federal
income taxes under provisions of current tax regulations applicable to
investment companies of this type. Accordingly, no provision for Federal
income taxes has been made.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of increases and decreases in
net assets from operations during the reporting period. Actual results
could differ from those estimates.
The gross unrealized appreciation and depreciation on investments in each
portfolio as of December 31, 1995 were as follows:
<TABLE>
<CAPTION>
PORTFOLIO
------------------------------------------------------------------------------------------------------------
MONEY INTER- CAPITAL SMALL GLOBAL AGGRESS.
EQUITY MARKET BOND OMNI NATIONAL APPREC. CAP CONTR. GROWTH
----------- ------ -------- ----------- ----------- ---------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Gross unrealized:
Appreciation...... $54,531,937 -- $922,782 $22,725,436 $10,305,937 $2,030,208 $2,507,070 $ 389,421 $ 269,466
Depreciation...... (4,148,680) -- (65,504) (2,133,800) (4,447,871) (577,137) (600,931) (230,976) (113,233)
----------- ------ -------- ----------- ----------- ---------- ---------- --------- ---------
Net unrealized
Appreciation...... $50,383,257 -- $857,278 $20,591,636 $ 5,858,066 $1,453,071 $1,906,139 $ 158,445 $ 156,233
=========== ====== ======== =========== =========== ========== ========== ========= =========
</TABLE>
<PAGE> 82
OHIO NATIONAL FUND, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1995
(2) INVESTMENT TRANSACTIONS
Purchases and sales of investment securities (excluding short-term
securities) for the year ended December 31, 1995 were as follows:
<TABLE>
<CAPTION>
PORTFOLIO
-----------------------------------------------------------------------------------------------------------
MONEY INTER- CAPITAL SMALL GLOBAL AGGRESS.
EQUITY MARKET BOND OMNI NATIONAL APPREC. CAP CONTR. GROWTH
----------- ------ ---------- ----------- ----------- ---------- ----------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Common & Preferred
Stocks & Bonds:
Purchases ......... $31,232,576 -- $4,832,415 $20,928,330 $39,698,610 $9,188,610 $14,801,553 $3,748,996 $23,440,589
Sales ............. $17,807,254 -- $ 532,293 $ 7,216,069 $ 4,328,607 $2,796,614 $ 5,527,261 $ 135,434 $20,902,933
U.S. Government
Obligations:
Purchases ......... -- -- -- -- -- $ 196,656 -- -- $ 570,044
Sales ............. -- -- -- $ 500,000 -- -- -- -- --
</TABLE>
(3) INVESTMENT ADVISORY AGREEMENT, SUB-ADVISORY AGREEMENTS AND TRANSACTIONS
WITH AFFILIATED PERSONS The Fund has an investment advisory agreement dated
November 2, 1982, with O.N. Investment Management Company (ONIMCO) under
the terms of which ONIMCO provides portfolio management and investment
advice to the Fund and administers its other affairs, subject to the
supervision of the Fund's Board of Directors. As compensation for its
services to the Equity, Bond and Omni Portfolios, ONIMCO is paid fees at an
annual rate of 0.60% of the first $100 million of each of those Portfolios'
net assets, 0.50% of the next $150 million, 0.45% of the next $250 million,
0.40% of the next $500 million, 0.30% of the next $1 billion and 0.25% of
net assets over $2 billion. For the Money Market Portfolio, ONIMCO is paid
a fee at an annual rate of 0.30% of the first $100 million, 0.25% of the
next $150 million, 0.23% of the next $250 million, 0.20% of the next $500
million and 0.15% of net assets over $1 billion. However, as to the Money
Market Portfolio, ONIMCO is presently waiving any of its fees in excess of
0.25%. The amount waived in 1995 was $14,932. For the International and
Global Contrarian Portfolios, ONIMCO is paid fees at an annual rate of
0.90% of each of those Portfolios' average daily net asset value. ONIMCO is
paid fees at an annual rate of 0.80% of the average daily net asset value
of each of the Capital Appreciation, Small Cap and Aggressive Growth
Portfolios.
ONIMCO pays Societe Generale Asset Management Corporation (SGAM) fees at an
annual rate of 0.75% of the International and Global Contrarian Portfolios'
average daily net asset value for directing the investment and reinvestment
of those Portfolios' assets pursuant to sub-advisory agreements between
ONIMCO and SGAM dated March 18, 1993 and December 15, 1994, respectively.
Under sub-advisory agreements dated March 17, 1994: (1) ONIMCO pays T. Rowe
Price Associates, Inc. (TRPA) a fee at an annual rate of 0.70% of the first
$5 million, and 0.50% of average daily net asset value in excess of $5
million for directing the investment and reinvestment of the Capital
Appreciation Portfolio's assets, and (2) ONIMCO pays Founders Asset
Management, Inc. (FAM) a fee at an annual rate of 0.65% of the first $75
million, 0.60% of the next $75 million, and 0.55% of average daily net
asset value in excess of $150 million for directing the investment and
reinvestment of the Small Cap Portfolio's assets. Under a sub-advisory
agreement dated March 16, 1995, ONIMCO pays Strong Capital Management, Inc.
(SCM) a fee at an annual rate of 0.70% of the first $50 million and 0.50%
of average daily net asset value in excess of $50 million for directing the
investment and reinvestment of the Aggressive Growth Portfolio's assets.
Under the agreement between the Fund and ONIMCO, ONIMCO has agreed to
reimburse the Portfolios for expenses, other than the advisory fee, taxes
and interest, in excess of 1% of their average daily net assets. The amount
reimbursed in 1995 to the Global Contrarian Portfolio was $8,127.
Each director who is not an officer of the Fund or an employee of O.N.
Investment Management Company (ONIMCO) or its corporate affiliates is paid
a quarterly retainer fee of $2,000 plus $400 for each meeting attended.
A special meeting of the shareholders of the Equity, Bond, Omni and Money
Market Portfolios was held on March 1, 1995 for the purpose of approving an
amendment to the Investment Advisory Agreement with O.N. Investment
Management Company. Prior to approving the amendment, a solicitation of
proxies of the variable contract owners of the four portfolios was
conducted and the results were as follows:
<TABLE>
<CAPTION>
TOTAL %
----- -
<S> <C> <C>
EQUITY For 4,112,960 75.7
Against 900,994 16.6
Abstain 419,955 7.7
--------- -----
TOTAL 5,433,909 100.0
--------- -----
</TABLE>
<TABLE>
<CAPTION>
TOTAL %
----- -
<S> <C> <C>
MONEY MARKET For 952,850 73.5
Against 112,430 8.7
Abstain 230,893 17.8
--------- -----
TOTAL 1,296,173 100.0
--------- -----
</TABLE>
<TABLE>
<CAPTION>
TOTAL %
----- -
<S> <C> <C>
BOND For 1,198,743 87.8
Against 87,885 6.4
Abstain 77,986 5.8
--------- -----
TOTAL 1,364,614 100.0
--------- -----
</TABLE>
<TABLE>
<CAPTION>
TOTAL %
----- -
<S> <C> <C>
OMNI For 4,116,501 71.3
Against 1,042,633 18.1
Abstain 610,848 10.6
--------- -----
TOTAL 5,769,982 100.0
--------- -----
</TABLE>
The Fund's transfer agent and dividend paying agent is The Provident Bank,
One East Fourth Street, Cincinnati, Ohio. The Provident Bank is also the
custodian for those portfolios other than the International and Global
Contrarian Portfolios. The custodian for the International and Global
Contrarian Portfolios is Investors Fiduciary Trust Company, 127 West Tenth
Street, Kansas City, Missouri. For International and Global Contrarian
Portfolio assets held outside the United States, Investors Fiduciary Trust
Company enters into subcustodial agreements, subject to approval by the
Board of Directors.
<PAGE> 83
OHIO NATIONAL FUND, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1995
(4) DISTRIBUTIONS TO SHAREHOLDERS
On January 2, 1996, the following dividends were paid from net investment
income and net realized gains on investments to shareholders of record on
December 29, 1995:
<TABLE>
<CAPTION>
NET INVESTMENT INCOME
- ----------------- ----------------- ---------------- ---------------- ---------------- ----------------- ----------------
Capital
Equity Bond Omni Appreciation International Global Contrarian Aggress. Growth
- ----------------- ----------------- ---------------- ---------------- ---------------- ----------------- ----------------
PER PER PER PER PER PER PER
SHARE AGGREGATE SHARE AGGREGATE SHARE AGGREGATE SHARE AGGREGATE SHARE AGGREGATE SHARE AGGREGATE SHARE AGGREGATE
- ----------------- ----------------- ---------------- ---------------- ---------------- ----------------- ----------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
.13 $787,173 .18 $290,858 .14 $890,337 .09 $143,627 .13 $799,333 .11 $44,416 .49 $165,966
</TABLE>
<TABLE>
<CAPTION>
NET REALIZED GAINS ON INVESTMENTS
----------------- ----------------- ---------------- ---------------- ---------------- ------------------
Capital
Equity Omni Appreciation Small Cap International Global Contrarian
----------------- ----------------- ---------------- ---------------- ---------------- ------------------
PER PER PER PER PER PER
SHARE AGGREGATE SHARE AGGREGATE SHARE AGGREGATE SHARE AGGREGATE SHARE AGGREGATE SHARE AGGREGATE
----------------- ----------------- ---------------- ---------------- ---------------- -----------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
.87 $5,341,756 .31 $1,956,755 .41 $655,102 .54 $542,566 .27 $1,691,528 .09 $36,817
</TABLE>
For Federal income tax purposes, the Bond and Aggressive Growth portfolios
had capital loss carryovers of $85,093 and $47,306 respectively, at
December 31, 1995. If not offset by capital gains, the losses will expire
in 2003. The Board of Directors does not intend to authorize a distribution
of any net realized gain for a portfolio until the capital loss carryover
has been offset or expires.
(5) CAPITAL SHARES TRANSACTIONS
Dividends, distributions and capital share transactions for the years ended
December 31, 1995 and 1994 were as follows:
<TABLE>
<CAPTION>
EQUITY MONEY MARKET BOND OMNI
1995 1994 1995 1994 1995 1994 1995 1994
---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Capital shares
issued on sales 1,027,904 965,935 1,416,527 1,273,128 386,744 347,731 934,361 1,427,590
Capital shares issued
on reinvested dividends 175,132 158,118 68,371 49,776 78,755 91,513 167,487 199,613
Capital shares redeemed 371,799 404,813 1,219,129 1,929,377 168,371 185,835 631,665 696,931
</TABLE>
<TABLE>
<CAPTION>
GLOBAL AGGRESSIVE
INTERNATIONAL CAPITAL APPRECIATION(a) SMALL CAP(a) CONTRARIAN(b) GROWTH(b)
1995 1994 1995 1994 1995 1994 1995 1995
---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Capital shares
issued on sales .......... 1,949,778 3,682,954 969,718 680,242 778,636 298,374 421,953 337,342
Capital shares issued
on reinvested dividends .. 186,973 35,329 39,565 11,233 2,166 2,610 2,275 12,046
Capital shares redeemed ...... 564,813 392,237 56,759 32,357 40,666 29,378 15,010 11,183
<FN>
(a) Commenced operations May 1, 1994
(b) Commenced operations March 31, 1995
</TABLE>
The Fund is authorized to issue 250,000,000 of its capital shares. 20,000,000
shares have been allocated to the Equity and Omni Portfolios, and 10,000,000
shares are allocated to each of the other portfolios. The remaining 140,000,000
shares are unallocated at this time.
<PAGE> 84
OHIO NATIONAL FUND, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1995
(6) COMMITMENTS
As of December 31, 1995 the International, Global Contrarian and Aggressive
Growth Portfolios had entered into forward currency contracts, as set forth
below summarized by currency:
<TABLE>
<CAPTION>
INTERNATIONAL PORTFOLIO
SETTLEMENT CURRENCY TO BE U.S. $ VALUE CURRENCY TO BE U.S. $ VALUE UNREALIZED
DATES THROUGH DELIVERED AT 12/31/95 RECEIVED AT 12/31/95 GAIN (LOSS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
06/27/96 363,000 Swiss Franc 320,162 316,299 U.S. Dollar 316,299 -- $ (3,863)
02/09/96 5,500,000 Deutsche Mark 3,835,693 3,783,369 U.S. Dollar 3,783,369 -- (52,324)
04/04/96 1,439,000 Deutsche Mark 1,006,927 1,010,175 U.S. Dollar 1,010,175 $ 3,248 --
07/03/96 1,092,000 Deutsche Mark 766,962 764,306 U.S. Dollar 764,306 -- (2,656)
02/09/96 12,500,000 French Franc 2,549,408 2,548,728 U.S. Dollar 2,548,728 -- (680)
04/05/96 6,770,000 French Franc 1,381,830 1,359,35 U.S. Dollar 1,359,335 -- (22,495)
07/11/96 20,670,000 French Franc 4,221,296 4,170,830 U.S. Dollar 4,170,830 -- (50,466)
02/09/96 555,000,000 Japanese Yen 5,389,396 5,921,412 U.S. Dollar 5,921,412 532,016 --
04/04/96 334,250,000 Japanese Yen 3,279,211 3,371,833 U.S. Dollar 3,371,833 92,622 --
07/18/96 240,950,000 Japanese Yen 2,390,140 2,433,121 U.S. Dollar 2,433,121 42,982 --
---------- ---------- -------- ---------
25,141,025 25,679,408 $670,868 $(132,484)
========== ========== ======== =========
</TABLE>
<TABLE>
<CAPTION>
GLOBAL CONTRARIAN
SETTLEMENT CURRENCY TO BE U.S. $ VALUE CURRENCY TO BE U.S. $ VALUE UNREALIZED
DATES THROUGH DELIVERED AT 12/31/95 RECEIVED AT 12/31/95 GAIN (LOSS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
07/03/96 150,000 Deutsche Mark 105,352 104,969 U.S. Dollar 104,969 -- $ (383)
07/11/96 700,000 French Franc 142,956 141,223 U.S. Dollar 141,223 -- (1,733)
02/09/96 7,000,000 Japanese Yen 67,974 69,027 U.S. Dollar 69,027 $ 1,053 --
04/04/96 5,500,000 Japanese Yen 53,959 56,341 U.S. Dollar 56,341 2,382 --
07/18/96 9,000,000 Japanese Yen 89,277 90,909 U.S. Dollar 90,909 1,632 --
06/27/96 125,000 Dutch Guilder 78,473 78,144 U.S. Dollar 78,144 -- (329)
------- ------- --------- -------
537,991 540,613 $ 5,067 $(2,445)
======= ======= ========= =======
</TABLE>
<TABLE>
<CAPTION>
AGGRESSIVE GROWTH
SETTLEMENT CURRENCY TO BE U.S. $ VALUE CURRENCY TO BE U.S. $ VALUE UNREALIZED
DATES THROUGH DELIVERED AT 12/31/95 RECEIVED AT 12/31/95 GAIN (LOSS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
01/16/96 12,320 Deutsche Mark 8,608 8,707 U.S. Dollar 8,707 $ 99 --
04/17/96 84,240 Deutsche Mark 58,857 59,904 U.S. Dollar 59,904 1,047 --
05/09/96 9,500 Deutsche Mark 6,638 6,768 U.S. Dollar 6,768 130 --
05/13/96 28,994,550 Japanese Yen 281,087 291,819 U.S. Dollar 291,819 10,732 --
------- ------- -------- -------
355,190 367,198 $ 12,008 --
======= ======= ======== =======
</TABLE>
(7) Financial Highlights
The Financial Highlights on pages 2 to 5 of the prospectus are a part of
these Financial Statements.
<PAGE> 85
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"). ONIMCO may use the
ratings of all six such rating organizations as factors to consider in
determining the quality of debt securities, although it will generally only
follow D&P, Fitch, Moody's and S&P. IBCA and TBW will only be consulted if fewer
than two of the other four rating organizations have given their top rating to a
security. Only the ratings of Moody's and S & P will be considered in
determining the eligibility of bonds for acquisition by the 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.
63
<PAGE> 86
Baa Bonds which are rated Baa by Moody's are considered as medium grade
obligations, that is, they are neither highly protected nor poorly
secured. Interest payments and principal security appear adequate for the
present but certain protective elements may be lacking or may be
characteristically unreliable over any great length of time. Such bonds
lack outstanding investment characteristics and in fact have speculative
characteristics as well.
STANDARD & POOR'S CORP. ("S & P")
Commercial Paper:
An S & P commercial paper rating is a current assessment of the likelihood of
timely payment of debt having an original maturity of no more than one year.
A-1 This is S & P's highest category and it indicates that the degree of
safety regarding timely payment is strong. Those issues determined to
possess extremely strong safety characteristics are designated A-1+.
A-2 Capacity for timely payment on issues with this designation is
satisfactory. However, the relative degree of safety is not as high as for
issues designated as A-1.
Bonds:
AAA Bonds rated AAA by S&P are the highest grade obligations. They possess the
ultimate degree of protection as to principal and interest. Market prices
move with interest rates, and hence provide maximum safety on all counts.
AA Bonds rated AA by S&P also qualify as high grade obligations, and in the
majority of instances differ from AAA issues only in small degree. Here,
too, prices move with the long-term money market.
A Bonds rated A by S&P are regarded as upper medium grade. They have
considerable investment strength but are not entirely free from the
adverse effects of changes in economic and trade conditions. Interest and
principal are regarded as safe. They predominantly reflect money rates in
their market behavior, but to some extent, also economic conditions.
BBB The BBB or medium grade category is the borderline between definitely
sound obligations and those where the speculative element begins to
predominate. These bonds have adequate asset coverage and normally are
protected by satisfactory earnings. Their susceptibility to changing
conditions, particularly to depressions, necessitates constant watching.
Marketwise, the bonds are more responsive to business and trade conditions
than to interest rates. This is the lowest group which qualifies for
commercial bank investments.
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.
64
<PAGE> 87
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.
65
