<PAGE> 1
File No. 2-67464
File No. 811-3015
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 / X /
Post-Effective Amendment No. 38 / X /
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 / X /
Amendment No.
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OHIO NATIONAL FUND, INC.
(Exact Name of Registrant)
One Financial Way
Cincinnati, Ohio 45242
(Address of Principal Executive Office)
Area Code (513) 794-6316
(Registrant's Telephone Number)
Ronald L. Benedict, Secretary
Ohio National Fund, Inc.
One Financial Way
Cincinnati, Ohio 45242
(Name and Address of Agent for Service)
Notice to:
W. Randolph Thompson, Esq.
Of Counsel
Jones & Blouch L.L.P.
Suite 405 West
1025 Thomas Jefferson Street, N.W.
Washington, D.C. 20007
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Approximate Date of Proposed Public Offering: as soon after the effective date
of this amendment as is practicable.
It is proposed that this filing will become effective (check appropriate box):
immediately upon filing pursuant to paragraph (b)
___
X on May 1, 1999 pursuant to paragraph (b)
___
60 days after filing pursuant to paragraph (a)(1)
___
on (date) pursuant to paragraph (a)(1)
___
75 days after filing pursuant to paragraph (a)(2)
___
on (date), pursuant to paragraph (a)(3) of Rule 485.
___
If appropriate, check the following box:
___ this post-effective amendment designates a new effective date
for a previously filed post-effective amendment.
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PART A.
INFORMATION REQUIRED IN A PROSPECTUS
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OHIO NATIONAL FUND, INC.
One Financial Way
Montgomery, Ohio 45242
Telephone (800) 587-8078
Ohio National Fund, Inc. is a mutual fund with 20 separate investment
portfolios. The Fund's investment adviser is Ohio National Investments, Inc.
(the "Adviser"). Fund shares are offered only to separate accounts of The Ohio
National Life Insurance Company ("ONLI") and Ohio National Life Assurance
Corporation ("ONLAC"). The separate accounts use Fund shares as the underlying
investments for variable annuities issued by ONLI and variable life insurance
contracts issued by ONLAC. Some variable contracts do not permit allocations to
all the portfolios. Your variable contract prospectus identifies the portfolios
available under your contract.
THE FUND'S PORTFOLIOS ARE:
<TABLE>
<S> <C>
Equity Portfolio Growth & Income Portfolio
Money Market Portfolio Small Cap Growth Portfolio
Bond Portfolio S&P 500 Index Portfolio
Omni Portfolio High Income Bond Portfolio
International Portfolio Equity Income Portfolio
International Small Company Portfolio Blue Chip Portfolio
Capital Appreciation Portfolio Social Awareness Portfolio
Small Cap Portfolio Strategic Income Portfolio
Aggressive Growth Portfolio Firstar Growth & Income Portfolio
Core Growth Portfolio Relative Value Portfolio
</TABLE>
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This prospectus sets forth concisely the information about the Fund you need to
know before you purchase an Ohio National variable contract. Keep this
prospectus for future reference.
The Securities and Exchange Commission has not approved or disapproved these
securities or passed upon the accuracy or adequacy of this prospectus. Any
representation to the contrary is a criminal offense.
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TABLE OF CONTENTS
<TABLE>
<S> <C>
PAGE
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Investment Policies......................................... 2
Risks of Certain Investments................................ 24
Fund Management............................................. 34
Purchase and Redemption of Fund Shares...................... 40
Dividends, Distributions and Taxes.......................... 40
Financial Highlights........................................ 41
</TABLE>
MAY 1, 1999
<PAGE> 4
INVESTMENT POLICIES
Each portfolio has its own investment objective which it seeks through its
separate investment policies. The differences in objectives and policies among
the portfolios affect the risks and returns of each portfolio. We can never be
sure that any portfolio will meet its investment objectives.
The investment objectives of each portfolio discussed below and in the Statement
of Additional Information may only be changed if approved by a majority vote of
that portfolio's shareholders. Each portfolio may invest in cash, short-term
obligations and U.S. government securities for defensive purposes during times
of unusual market or economic conditions or pending selection of securities in
accordance with the portfolio's policies. The relatively high portfolio turnover
rates for the Small Cap, Aggressive Growth, Core Growth, Growth & Income, Small
Cap Growth and Strategic Income portfolios result in correspondingly higher
brokerage costs for these portfolios. The Statement of Additional Information
provides a fuller description of the types of financial instruments in which the
Money Market portfolio may invest. It also defines the debt ratings of
nationally recognized statistical rating organizations. It also gives
information about portfolio turnover rates for each portfolio.
RISKS
The primary risks of investing in each portfolio are:
Market risk refers to how much a security's price is likely to change in
response to changes in conditions in securities markets in general. Markets tend
to move in cycles with periods of rising prices and periods of falling prices.
They can decline for many reasons, including adverse political or economic
developments here or abroad, changes in investor psychology, or heavy
institutional selling. In the case of debt securities, changes in the overall
level of interest rates affect the security's price.
Financial risk refers to the ability of an issuer of a debt security, such as a
bond, to pay principal and/or interest on that security when due. It also refers
to the earnings stability and overall financial soundness of an issuer of an
equity security.
Sector risk is the possibility that a certain group or category of securities
may not perform as well as companies in other sectors or the market as a whole.
When a portfolio concentrates its investments in a limited range of securities,
it is more susceptible to any adverse economic, business or other developments
generally affecting companies in that sector.
All of the portfolios are subject to these risks. You could lose money, or have
less return than the market in general, in any of the portfolios.
Below are the most significant investment policies of each of the portfolios.
Following these are discussions of additional risks of investing in various
kinds of securities in which several or all of the portfolios may invest.
EQUITY PORTFOLIO
The 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 invests primarily in common stocks or
securities that may be converted into, or carry the right to buy, common stocks.
It may also invest in preferred stocks, debt securities and readily marketable
mortgage notes. This portfolio invests primarily in securities listed on
national securities exchanges. From time to time it may also purchase securities
traded in the over-the-counter market and foreign securities.
The Adviser performs traditional fundamental analysis to select securities
promising long-term value. The Adviser considers each issuer's business and
product strength, its financial condition, its competitive position, its
management expertise, its research and development spending, and the difficulty
of other companies duplicating its products or services. The Adviser primarily
seeks growing companies having a market stipulating over $1 billion. These
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companies are generally among the leaders in their industry or product lines.
The Adviser also considers an issuer's recent stock price performance and
earnings estimates.
Primary risks: This portfolio's primary risks are the market, financial and
sector risks described above.
The following bar chart and table indicate the risks of investing in the Equity
portfolio. They show changes in the portfolio's performance for each of the last
ten years and the portfolio's average annual returns for the last one year, five
years and ten years compared to those of a broad-based securities market index.
The portfolio's past performance does not necessarily indicate how it will
perform in the future. Variable contract charges are not reflected in the chart
or table. If they were, the returns would be less than those shown.
1989 23.21%
90 -3.86%
91 20.18%
92 7.54%
93 14.09%
94 0.25%
95 27.20%
96 18.35%
97 18.17%
98 5.72%
During the period shown in the bar chart, the portfolio's highest return for a
quarter was 15.86%. That was the quarter ending on December 31, 1998. The lowest
return for a quarter was -12.47%. That was the quarter ending on September 30,
1998
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS ONE FIVE TEN
AS OF DECEMBER 31, 1998 YEAR YEARS YEARS
---------------------------- ----- ----- -----
<S> <C> <C> <C>
Equity Portfolio 5.72% 13.52% 12.66%
S&P 500 Index 28.58% 24.05% 19.20%
</TABLE>
MONEY MARKET PORTFOLIO
The objective of the Money Market portfolio is maximum current income consistent
with preservation of principal and liquidity. This portfolio invests in high
quality money market instruments, including:
- - obligations maturing in 13 months or less and issued or guaranteed as to
principal and interest by the U.S. government, or any agency or authority
controlled or supervised by and acting as an instrumentality of the U.S.
government as authorized by Congress;
- - commercial paper, certificates of deposit and bankers' acceptances that have
received the highest rating by any two nationally recognized statistical
rating organizations ("NRSRO's"), or the highest rating by one NRSRO if that
is the only NRSRO having rated the security, or whose issuer has received such
a rating or ratings with respect to a class of short-term debt obligations
that is now comparable in priority and security to those to be purchased;
- - commercial paper, certificates of deposit, bankers' acceptances or other
corporate obligations maturing in 13 months or less and which, although not
rated by any NRSRO, the Board of Directors determines to be of a quality
comparable to that of instruments receiving either of the two highest ratings,
provided, that any security determined to be comparable in quality to the
second highest rating shall be included in the 5% limitation below;
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- - repurchase agreements with respect to any of these obligations;
- - as to no more than 5% of the portfolio's assets, in commercial paper,
certificates of deposit or bankers' acceptances receiving the second highest
rating by any two NRSRO's (or by one NRSRO if (a) that is the only NRSRO
having rated the security or (b) one other NRSRO has given the security its
highest rating), or whose issuer has received such a rating or ratings with
respect to a class of short-term debt obligations that is now comparable in
priority and security to those to be purchased, provided, that no more than $1
million (or 1% of portfolio assets, if greater) may be invested in such
securities of any one issuer; and
- - up to 50% of its assets in the securities of foreign issuers (including
private issuers and foreign governments or political subdivisions, agencies or
instrumentalities of foreign governments), provided they meet the above
quality standards and they are denominated in U.S. dollars and held in custody
in the United States.
The portfolio may only invest in instruments that the Board of Directors
determines present minimal credit risks. Generally, this portfolio holds its
money market securities until maturity. They are then redeemed. The portfolio
normally will not realize any gain or loss on these securities. There may be
times when it is necessary or appropriate to sell securities before they mature
in order to shorten the portfolio's average maturity. This might be necessary to
meet redemptions or because of a reevaluation of an issuer's credit-worthiness.
Primary risks: The portfolio's rate of return varies as short-term interest
rates vary. The rate of return will also be affected by other factors such as
the portfolio's operating expenses and any sales of portfolio securities before
they mature. Generally, investment in this portfolio involves less market and
financial risk than an investment in any other portfolio of the Fund. However,
it is possible to lose money in this portfolio.
An investment in the Money Market portfolio is not a deposit of any bank. It is
not insured or guaranteed by the Federal Deposit Insurance Corporation or any
other government agency.
The following bar chart and table indicate the risks of investing in the Money
Market portfolio. They show changes in the portfolio's performance for each of
the last ten years and the portfolio's average annual returns for the last one
year, five years and ten years. The portfolio's past performance does not
necessarily indicate how it will perform in the future. Variable contract
charges are not reflected in the chart or table. If they were, the returns would
be less than those shown.
MONEY MARKET PORTFOLIO
1989 8.89%
90 7.89%
91 5.54%
92 3.17%
93 2.74%
94 4.00%
95 5.62%
96 5.17%
97 5.37%
98 5.39%
During the period shown in the bar chart, the portfolio's highest return for a
quarter was 2.31%. That was the quarter ending on June 30, 1989. The lowest
return for a quarter was 0.64%. That was the quarter ending on June 30,1993. The
Money Market Portfolio's seven day yield ending December 31, 1998 was 5.19%.
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS ONE FIVE TEN
AS OF DECEMBER 31, 1998 YEAR YEARS YEARS
---------------------------- ---- ----- -----
<S> <C> <C> <C>
Money Market Portfolio 5.39% 5.11% 5.36%
</TABLE>
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BOND PORTFOLIO
The objective of the Bond portfolio is a high level of income and opportunity
for capital appreciation consistent with preservation of capital. Investments
are primarily in intermediate-term and long-term fixed-income securities. These
generally have a remaining maturity of 5 years or more when purchased.
At least 80% of the portfolio's assets (other than cash and U.S. government
securities) will be invested in:
- - publicly traded, investment grade, non-convertible corporate debt securities
issued by United States corporations and assigned within the four highest bond
ratings by Moody's or Standard and Poor's ("S&P"); and
- - corporate debt securities used for short-term investment and limited to the
top grade of these two rating services.
Up to 20% of the portfolio's assets may be invested in:
- - securities having high potential for capital appreciation;
- - preferred stocks, convertible securities and securities carrying warrants to
purchase equity securities; and
- - debt securities issued by U.S. banks and savings and loan associations which
at the date of investment have capital, surplus and undivided profits as of
the date of their most recent financial statements in excess of $100 million.
This portfolio does not invest in common stocks directly. It may retain for
reasonable periods of time up to 10% of its total assets in common stocks
acquired by converting debt securities or exercising warrants acquired with debt
securities.
This portfolio normally includes debt securities with varying maturities
selected from various industries, depending upon the Adviser's evaluation of
current and anticipated market conditions.
Primary risks: The market values of debt instruments vary depending upon their
respective yields. Therefore, the portfolio's net asset value per share changes
from time to time as the general level of interest rates changes. Consequently,
an investment in this portfolio involves substantial market risk, but should
involve less financial risk than an investment in any of the portfolios that
invest primarily in common stocks.
The following bar chart and table indicate the risks of investing in the Bond
portfolio. They show changes in the portfolio's performance for each of the past
ten years and the portfolio's average annual returns for the last one year, five
years and ten years compared to those of a broad based securities market index.
The portfolio's past performance does not necessarily indicate how it will
perform in the future. Variable contract charges are not reflected in the chart
or table. If they were, the returns would be less than those shown.
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BOND PORTFOLIO
1989 10.71%
90 7.82%
91 12.96%
92 7.54%
93 10.69%
94 -3.84%
95 18.90%
96 3.71%
97 9.28%
98 5.22%
During the period shown in the bar chart, the portfolio's highest return for a
quarter was 6.68%. That was the quarter ending on June 30, 1995. The lowest
return for a quarter was -3.46% That was the quarter ending on March 31, 1994.
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS ONE FIVE TEN
AS OF DECEMBER 31, 1998 YEAR YEARS YEARS
---------------------------- ---- ----- -----
<S> <C> <C> <C>
Bond Portfolio 5.22% 6.40% 8.15%
Lehman Brothers Government/Corporate 8.42% 6.59% 8.51%
Bond Index -- Intermediate
</TABLE>
OMNI PORTFOLIO
The objective of the Omni portfolio is a high level of long-term total return
consistent with preservation of capital by investing in stocks, bonds and money
market instruments. Total rate of return consists of current income including
dividends, interest and discount accruals and capital appreciation.
The Adviser adjusts the mix of investments from time to time among the various
market sectors (stocks, bonds and money market instruments) to capitalize on
perceived variations in return potential of changing market and economic
conditions. Sometimes the portfolio may not be invested in all three of the
market sectors.
The portfolio's principal investment objective is supplemented and limited by
the investment objectives, policies and restrictions established for each of the
market sectors. Within the stock sector, the Adviser seeks long-term growth of
capital. Current income is a secondary goal for the stock sector. Within the
bond sector, the Adviser seeks a high level of income. Capital appreciation,
consistent with capital preservation is a secondary goal of the bond sector.
Within the money market sector, the Adviser seeks maximum current income
consistent with the preservation of principal and liquidity.
Primary risks: Investment in this portfolio involves all of the risks associated
with investing in portfolios concentrating in each of the three sectors. There
is also the risk that at any given time this portfolio will invest too much or
too little in each sector. On the other hand, since the risk factors affecting
each sector are different, the risks of each sector often offset one another. As
a result, this portfolio is sometimes less volatile than a portfolio investing
only in stocks or bonds.
The following bar chart and table indicate the risks of investing in the Omni
portfolio. They show changes in the portfolio's performance for each of the past
ten years and the portfolio's average annual returns for the last one year, five
years and ten years compared to those of a broad-based securities market index.
The portfolio's past perform-
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ance does not necessarily indicate how it will perform in the future. Variable
contract charges are not reflected in the chart or table. If they were, the
returns would be less than those shown.
OMNI PORTFOLIO
1989 15.46%
90 1.91%
91 18.15%
92 8.60%
93 12.85%
94 -0.53%
95 22.75%
96 15.54%
97 18.15%
98 4.53%
During the period shown in the bar chart, the portfolio's highest return for a
quarter was 10.78%. That was the quarter ending on June 30, 1997. The lowest
return for a quarter was -16.16% That was the quarter ending on September 30,
1998.
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS ONE FIVE TEN
AS OF DECEMBER 31, 1998 YEAR YEARS YEARS
---------------------------- ----- ----- -----
<S> <C> <C> <C>
Omni Portfolio 4.53% 11.75% 11.50%
S&P 500 Index 28.58% 24.05% 19.20%
</TABLE>
INTERNATIONAL PORTFOLIO
The objective of the International portfolio is total return on assets by
investing primarily in securities of foreign companies. A substantial part of
the portfolio's assets are stocks of established companies in economically
developed countries. Normally, most of its investments are in stocks denominated
in foreign currencies. It may invest in depository receipts. It may invest in
investment grade fixed-income securities and foreign government securities. It
may enter into forward commitments and foreign currency transactions. It may
maintain reserves in foreign or U.S. money market instruments. This portfolio is
managed by Federated Global Investment Management Corp. ("FGIM") under a
subadvisory agreement with the Adviser.
In selecting portfolio securities, FGIM uses its own quantitative process to
rank the future performance potential of companies. FGIM evaluates each
company's earnings potential in light of its current valuation. It then
evaluates management quality. It may examine a company's suppliers, customers
and competitors. It also reviews the company's financial statements and earnings
forecasts. It evaluates the sustainability of the company's current growth
trends.
This portfolio enables you to diversify your investment by participating in
developed foreign economies and markets. If you also invest in domestic
portfolios, the International portfolio may reduce the overall volatility of
your investments because foreign countries often have business cycles, economic
policies and securities markets that do not move in harmony with those in the
United States.
Primary risks: In addition to financial risk, market risk and sector risk, this
portfolio is subject to the special risks of Foreign Investments described
following these brief summaries of each portfolio's investment policies.
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The following bar chart and table indicate the risks of investing in the
International portfolio. They show changes in the portfolio's performance for
each of the complete calendar years since the portfolio's inception and the
portfolio's average annual returns for the last one year, five years and since
inception compared to those of a broad-based market index. The portfolio's past
performance does not necessarily indicate how it will perform in the future.
Variable contract charges are not reflected in the chart or table. If they were,
the returns would be less than those shown. Note that the subadviser for this
portfolio was Societe Generale Asset Management Corp. until the end of 1998.
INTERNATIONAL PORTFOLIO
94 8.07%
95 12.10%
96 14.48%
97 2.11%
98 3.88%
During the period shown in the bar chart, the portfolio's highest return for a
quarter was 9.02%. That was the quarter ending on March 31, 1998. The lowest
return for a quarter was -11.05% That was the quarter ending on September 30,
1998.
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS ONE FIVE SINCE
AS OF DECEMBER 31, 1998 YEAR YEARS 4/30/93
---------------------------- ----- ----- -------
<S> <C> <C> <C>
International Portfolio 3.88% 8.03% 11.36%
Morgan Stanley Capital International 20.00% 6.59% 9.57%
Europe, Australia, Far East Index
</TABLE>
INTERNATIONAL SMALL COMPANY PORTFOLIO
The objective of the International Small Company portfolio is long-term growth
of capital by investing primarily in equity securities of foreign companies
having a market capitalization at time of purchase of $1.5 billion or less. Any
income received from investments is incidental. The portfolio invests in
companies located throughout the world, in both developed economies and emerging
markets. Investments will also include interests in entities such as limited
partnerships, limited liability companies and business trusts. These foreign
entities often issue securities comparable to common or preferred stock. This
portfolio is managed by FGIM under a subadvisory agreement with the Adviser.
Investments in foreign small companies enable you to further diversify the
investments you have in foreign markets. Price changes of small companies do not
always follow those of larger companies.
Primary risks: Generally, the prices of small company securities tend to be more
volatile and present more risk than those of larger companies. This is
especially true in the short term. In addition to financial risk, market risk
and sector risk, this portfolio is subject to the special risks of Foreign
Investments and Small Capitalization Companies described following these brief
summaries of each portfolio's investment policies.
In selecting portfolio securities, FGIM uses its own quantitative process to
rank the future performance potential of companies. FGIM evaluates each
company's earnings potential in light of its current valuation. It then
evaluates
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management quality. It may examine a company's suppliers, customers and
competitors. It also reviews the company's financial statements and earnings
forecasts. It evaluates the sustainability of the company's current growth
trends.
The following bar chart and table indicate the risks of investing in the
International Small Company portfolio. They show changes in the portfolio's
performance for each of the complete calendar years since the portfolio's
inception and the portfolio's average annual returns for the last year and since
inception compared to those of a broad-based market index. The portfolio's past
performance does not necessarily indicate how it will perform in the future.
Variable contract charges are not reflected in the chart or table. If they were,
the returns would be less than those shown. Note that the subadviser for this
portfolio was Societe Generale Asset Management Corp. until the end of 1998. In
1999, the portfolio's investment policies were substantially changed and its
name was changed from the "Global Contrarian" portfolio.
INTERNATIONAL SMALL COMPANY PORTFOLIO
96 10.52%
97 11.67%
98 3.53%
During the period shown in the bar chart, the portfolio's highest return for a
quarter was 10.37%. That was the quarter ending on December 31, 1998. The lowest
return for a quarter was -11.62% That was the quarter ending on September 30,
1998.
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS ONE SINCE
AS OF DECEMBER 31, 1998 YEAR 3/31/95
---------------------------- ----- -------
<S> <C> <C>
International Small Company Portfolio 3.53% 9.64%
Morgan Stanley Capital International
World Index 24.34% 18.40%
</TABLE>
CAPITAL APPRECIATION PORTFOLIO
The objective of the Capital Appreciation portfolio is to seek maximum long-term
capital appreciation through investment primarily in common stocks. This
portfolio is managed by T. Rowe Price Associates, Inc. ("TRPA") under a
subadvisory agreement with the Adviser.
This portfolio invests primarily in:
- - common stocks of established companies that TRPA believes have above-average
potential for capital growth;
- - long-term core holdings in companies whose prices, at the time purchased by
the portfolio, were considered low in terms of company assets, earnings or
other factors;
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- - opportunistic investments whose prices are expected to rise in the short term
but not necessarily over the long term; and
- - stocks that seem undervalued by various measures, such as price/book value,
and may be temporarily out of favor, but appear to have good prospects for
capital appreciation.
Since TRPA attempts to prevent losses as well as achieve gains, it typically
uses a value approach in selecting investments. It may establish relatively
large positions in companies it finds attractive.
A substantial part of this portfolio is also invested in fixed income
securities. These include corporate bonds, U.S. government securities, preferred
stock, warrants, securities convertible into common stock, and money market
instruments. The portfolio's total return consists principally of capital
appreciation (or depreciation) and, to a lesser extent, current income.
Primary risks: A sizable cash or fixed income position may keep the portfolio
from participating in a strong, rapidly rising bull market. Significant exposure
to bonds increases the risk that the portfolio's performance could be hurt by
rising interest rates or credit downgrades or defaults. A particular risk of
this portfolio's value or "contrarian" approach is that some holdings may not
recover and provide the capital growth anticipated.
The following bar chart and table indicate the risks of investing in the Capital
Appreciation portfolio. They show changes in the portfolio's performance for
each of the complete calendar years since the portfolio's inception and the
portfolio's average annual returns for the last year and since inception
compared to those of a broad-based market index. The portfolio's past
performance does not necessarily indicate how it will perform in the future.
Variable contract charges are not reflected in the chart or table. If they were,
the returns would be less than those shown.
CAPITAL APPRECIATION PORTFOLIO
95 20.90%
96 14.13%
97 15.19%
98 5.91%
During the period shown in the bar chart, the portfolio's highest return for a
quarter was 6.95%. That was the quarter ending on March 31, 1995. The lowest
return for a quarter was -2.64% That was the quarter ending on September 30,
1998.
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS ONE SINCE
AS OF DECEMBER 31, 1998 YEAR 5/1/94
---------------------------- ----- ------
<S> <C> <C>
Capital Appreciation Portfolio 5.91% 13.55%
S&P 500 Index 28.58% 26.67%
</TABLE>
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SMALL CAP PORTFOLIO
The objective of the Small Cap portfolio is maximum capital growth. The
portfolio invests primarily in the common stocks of small and medium sized
companies. Ordinarily, these companies are not listed on a national securities
exchange but will be traded over the counter. Under normal market conditions, at
least 65% of the portfolio's assets invested in common stocks of companies with
market capitalizations of less than $1.5 billion. However it may also invest in
larger companies if they appear to present better prospects for capital growth.
This portfolio may invest up to 30% of its assets in foreign securities. This
portfolio is managed by Founders Asset Management LLC ("FAM") under a
subadvisory agreement with the Adviser.
Investments in both this portfolio and one or more portfolios investing
primarily in larger companies enable you to diversify your investments. Price
changes of small companies do not always follow those of larger companies.
Primary risks: Generally, the prices of small company securities tend to be more
volatile and present more risk than those of large companies. This is especially
true in the short term. The special risks of investing in Small Capitalization
Companies are described following these brief summaries of each portfolio's
investment policies.
The following bar chart and table indicate the risks of investing in the Small
Cap portfolio. They show changes in the portfolio's performance for each of the
complete calendar years since the portfolio's inception and the portfolio's
average annual returns for the last year and since inception compared to those
of a broad-based market index. The portfolio's past performance does not
necessarily indicate how it will perform in the future. Variable contract
charges are not reflected in the chart or table. If they were, the returns would
be less than those shown.
SMALL CAP PORTFOLIO
95 31.15%
96 16.06%
97 8.47%
98 10.57%
During the period shown in the bar chart, the portfolio's highest return for a
quarter was 38.33%. That was the quarter ending on December 31, 1998. The lowest
return for a quarter was -27.98% That was the quarter ending on September 30,
1998.
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS ONE SINCE
AS OF DECEMBER 31, 1998 YEAR 5/1/94
---------------------------- ----- ------
<S> <C> <C>
Small Cap Portfolio 10.57% 19.28%
Russell 2000 Index -2.57% 13.28%
</TABLE>
AGGRESSIVE GROWTH PORTFOLIO
The objective of the Aggressive Growth portfolio is capital growth. The
portfolio invests in a variety of securities that the subadviser believes have
attractive growth opportunities. The portfolio normally emphasizes equity
securities.
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However, it may invest in any type of security that the subadviser believes has
the potential for capital appreciation. The portfolio may invest most or all of
its assets in common stocks, preferred stocks, securities that are convertible
into common or preferred stocks, and warrants. At other times, the portfolio may
invest most or all of its assets in intermediate -- to long-term corporate or
U.S. government debt securities.
Although the debt securities in which the portfolio invests are primarily
investment-grade debt securities, it may invest up to 5% of its assets in
non-investment-grade debt securities ("junk" bonds"). The portfolio may invest
up to 15% of its assets in foreign securities. These involve certain additional
risks as described following these brief summaries of each portfolio's
investment policies. This portfolio is managed by Strong Capital Management,
Inc. ("SCM") under a subsidiary agreement with the Adviser.
SCM seeks emerging investment trends and growth opportunities. SCM tries to
identify companies 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.
Primary risks: The portfolio engages in substantial short-term trading. This
involves significant risk and may be deemed speculative. Frequent trading also
results in a higher portfolio turnover rate and correspondingly higher brokerage
costs. The special risks of investing in Small Capitalization Companies are
described following these brief summaries of each portfolio's investment
policies.
The following bar chart and table indicate the risks of investing in the
Aggressive Growth portfolio. They show changes in the portfolio's performance
for each of the complete calendar years since the portfolio's inception and the
portfolio's average annual returns for the last year and since inception
compared to those of a broad-based market index. The portfolio's past
performance does not necessarily indicate how it will perform in the future.
Variable contract charges are not reflected in the chart or table. If they were,
the returns would be less than those shown.
AGGRESSIVE GROWTH PORTFOLIO
96 -0.65%
97 12.53%
98 7.84%
During the period shown in the bar chart, the portfolio's highest return for a
quarter was 20.32%. That was the quarter ending on December 31, 1998. The lowest
return for a quarter was -17.01% That was the quarter ending on September 30,
1998.
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS ONE SINCE
AS OF DECEMBER 31, 1998 YEAR 3/31/95
---------------------------- ----- -------
<S> <C> <C>
Aggressive Growth Portfolio 7.84% 12.47%
Russell 2000 Index -2.57% 15.31%
</TABLE>
12
<PAGE> 15
CORE GROWTH PORTFOLIO
The objective of the Core Growth portfolio is long-term capital appreciation.
The portfolio invests primarily in stocks of large, medium and small companies
that the subadviser believes have strong prospects for earnings growth and
long-term capital appreciation. The subadviser seeks companies poised for rapid
growth that have a history of above-average earnings growth, demonstrate the
ability to sustain that growth, and operate in industries or markets
experiencing increased demand for their products or services. This portfolio is
managed by Pilgrim Baxter & Associates, Ltd. ("PBA") under a subadvisory
agreement with the Adviser.
In managing this portfolio, PBA uses both quantitative and fundamental
processes. They focus on quality earnings growth. PBA begins by making a list of
rapidly growing companies having desired quality characteristics. PBA derives
this list of companies by using its proprietary software and research models.
These models incorporate attributes of successful growth (such as positive
earnings surprises, upward earnings estimate revisions, and accelerating sales
and earnings growth). Then, using fundamental research, PBA evaluates each
company's earnings quality and assesses the sustainability of the company's
current growth trends. Through this highly disciplined process, PBA tries to
find investments with strong growth characteristics.
Primary risks: This portfolio's investments in small and medium capitalization
companies may experience greater price volatility than portfolios investing
primarily in larger, more established companies. If you consider investing in
this portfolio, you need to maintain a long-term investment perspective because
the companies in which this portfolio invests will experience stock price
volatility.
13
<PAGE> 16
The following bar chart and table indicate the risks of investing in the Core
Growth portfolio. They show changes in the portfolio's performance for each of
the complete calendar years since the portfolio's inception and the portfolio's
average annual returns for the last year and since inception compared to those
of a broad-based market index. The portfolio's past performance does not
necessarily indicate how it will perform in the future. Variable contract
charges are not reflected in the chart or table. If they were, the returns would
be less than those shown.
CORE GROWTH PORTFOLIO
97 -3.08%
98 8.82%
During the period shown in the bar chart, the portfolio's highest return for a
quarter was 21.32%. That was the quarter ending on December 31, 1998. The lowest
return for a quarter was -21.47% That was the quarter ending on September 30,
1998.
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS ONE SINCE
AS OF DECEMBER 31, 1998 YEAR 1/3/97
---------------------------- ----- ------
<S> <C> <C>
Core Growth Portfolio 8.82% 2.74%
Russell 3000 Index 24.13% 27.89%
</TABLE>
GROWTH & INCOME PORTFOLIO
The objective of the Growth & Income portfolio is long-term total return. The
portfolio invests primarily in equity and debt securities, focusing on small-and
mid-cap companies that offer the potential for capital appreciation, current
income, or both. This portfolio is managed by Robertson Stephens Investment
Management, L.P. ("RSIM") under a subadvisory agreement with the Adviser.
The portfolio normally invests the majority of its assets in common stocks,
convertible securities, bonds, and notes. Although the portfolio focuses on
companies with market capitalizations of up to $3 billion, it may invest in
larger companies. The portfolio may engage in short sales of securities expected
to decline in price.
Primary risks: Small- and mid-cap companies may present greater opportunities
for investment return than do larger companies, but may also involve greater
risks. The special risks of investing in Small Capitalization Companies are
described following these brief summaries of each portfolio's investment
policies. To a large extent the same risk factors apply to investments in
mid-cap companies.
14
<PAGE> 17
The following bar chart and table indicate the risks of investing in the Growth
& Income portfolio. They show changes in the portfolio's performance for each of
the complete calendar years since the portfolio's inception and the portfolio's
average annual returns for the last year and since inception compared to those
of a broad-based market index. The portfolio's past performance does not
necessarily indicate how it will perform in the future. Variable contract
charges are not reflected in the chart or table. If they were, the returns would
be less than those shown.
GROWTH & INCOME PORTFOLIO
97 36.58%
98 7.09%
During the period shown in the bar chart, the portfolio's highest return for a
quarter was 21.52%. That was the quarter ending on September 30, 1997. The
lowest return for a quarter was -13.33% That was the quarter ending on September
30, 1998.
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS ONE SINCE
AS OF DECEMBER 31, 1998 YEAR 1/3/97
---------------------------- ----- ------
<S> <C> <C>
Growth & Income Portfolio 7.09% 21.05%
Russell 2000 Index -2.57% 9.19%
</TABLE>
SMALL CAP GROWTH PORTFOLIO
The objective of the Small Cap Growth portfolio is capital appreciation. It is
managed by RSIM under a subadvisory agreement with the Adviser. It invests in an
actively managed portfolio of equity securities (principally common stocks) of
small cap growth companies. These are companies that, in RSIM's opinion, have
the potential, based on superior products or services, operating
characteristics, and financing capabilities, for more rapid growth than the
over-all economy. Investments generally are held in companies in industry
segments experiencing rapid growth or in companies with proprietary advantages.
In evaluating potential investments, RSIM may consider a number of factors
including the rate of earnings growth, the quality of management, the extent of
proprietary operating advantage, the return on equity and/or the financial
condition of the company.
Primary risks: Small companies may present greater opportunities for investment
return than do larger companies. However, they also involve greater risks. Up to
30% of this portfolio's assets may be invested in foreign securities. The
special risks of Foreign Investments and Small Capitalization Companies are
described following these brief summaries of each portfolio's investment
policies.
This portfolio began its operations in May 1998.
15
<PAGE> 18
S&P 500 INDEX PORTFOLIO
The objective of the S&P 500 Index portfolio is total return approximating that
of the Standard & Poor's 500 Index ("S&P 500"(R)) including reinvestment of
dividends, at a risk level consistent with that of the S&P 500. It seeks this
objective by investing primarily in:
- - common stocks and other securities that need not be included among the 500
stocks in the S&P 500, and/or
- - S&P 500 stock index futures contracts hedged by investing in securities issued
or guaranteed by the U.S. government, its agencies or instrumentalities,
investment-grade corporate bonds and money market instruments.
This strategy is intended to replicate the performance of the S&P 500. However,
portfolio expenses reduce the portfolio's ability to exactly track the S&P 500.
There can be no assurance that the portfolio's investments will have the desired
effect.
The value of S&P 500 stock index futures contracts is tied directly to the
fluctuations of the S&P 500. The portfolio's ability to use futures contracts as
a substitute for maintaining a fully-invested market position in the 500 stocks
comprising the S&P 500 obligates the portfolio to hedge its position by
delivering a specific dollar amount equal to the difference between the value of
the S&P 500 at the time the contract was made and the closing of the contract.
The futures contracts can result in a high degree of leverage so that a
relatively small decline in the S&P 500 could result in a substantial loss to
the portfolio, including part or all of the margin deposits required on the
contracts. The portfolio seeks to offset that risk by maintaining its
investments in U.S. government obligations, investment-grade corporate bonds and
money market instruments. The income from these investments tends to offset the
costs of the futures contracts.
Primary risks: The risks involved with Hedging Techniques are described
following these brief summaries of each portfolio's investment policies. This
portfolio is subject to significant sector risk.
"Standard & Poor's(R)," "S&P(R)," "S&P 500(R)" and "Standard & Poor's 500" are
trademarks of The McGraw-Hill Companies, Inc. and have been licensed for use by
the Adviser. The S&P 500 Index portfolio is not sponsored, endorsed, sold or
promoted by Standard & Poor's ("S&P") and S&P makes no representation regarding
the advisability of investing in the S&P 500 Index portfolio. S&P makes no
representation or warranty, express or implied, to the owners of the portfolio
or any member of the public regarding the advisability of investing in
securities generally or in the portfolio particularly or the ability of the S&P
500 Index to track general stock market performance. S&P's only relationship to
the Adviser is the licensing of certain trademarks and trade names of S&P and of
the S&P 500 Index which is determined, composed and calculated by S&P without
regard to the Adviser or the S&P 500 Index portfolio. S&P has no obligation to
take the needs of the Adviser or the owners of the portfolio into consideration
in determining, composing or calculating the S&P 500 Index. S&P is not
responsible for and has not participated in the determination of the prices and
amount of the portfolio or the timing of the issuance or sale of the portfolio
or in the determination or calculation of the equation by which the portfolio is
to be converted into cash. S&P has no obligation or liability in connection with
the administration, marketing or trading of the portfolio. The Statement of
Additional Information contains more information about the S&P 500 Index.
16
<PAGE> 19
The following bar chart and table indicate the risks of investing in the S&P 500
Index portfolio. They show changes in the portfolio's performance for each of
the complete calendar years since the portfolio's inception and the portfolio's
average annual returns for the last year and since inception compared to those
of a broad-based market index. The portfolio's past performance does not
necessarily indicate how it will perform in the future. Variable contract
charges are not reflected in the chart or table. If they were, the returns would
be less than those shown.
97 31.75%
98 30.00%
During the period shown in the bar chart, the portfolio's highest return for a
quarter was 22.27%. That was the quarter ending on December 31,1998 The lowest
return for a quarter was -9.78% That was the quarter ending on September 30,
1998.
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS ONE SINCE
AS OF DECEMBER 31, 1998 YEAR 1/3/97
---------------------------- ----- -------
<S> <C> <C>
S&P 500 Index Portfolio 30.00% 31.03%
S&P 500 Index 28.58% 30.94%
</TABLE>
HIGH INCOME BOND PORTFOLIO
The objective of the High Income Bond portfolio is high current income. The
portfolio invests primarily in lower rated corporate debt obligations commonly
referred to as "junk bonds." Some of these fixed income securities may involve
equity features. Capital growth will be considered, but only when consistent
with the objective of high current income. Normally, the portfolio will not
invest more than 10% of its assets in equity securities. Lower rated debt
securities are subject to a greater risk of loss of principal and interest than
investments in higher rated bonds. You should carefully assess the risks
associated with this portfolio before investing.
This portfolio is managed by Federated Investment Counseling ("FIC") under a
subadvisory agreement with the Adviser.
Low-rated debt securities have higher yields because of their greater
uncertainty of default. FIC seeks to reduce this financial risk through careful
security selection and diversification by both company and industry. FIC looks
for bonds offering superior potential returns for the financial risk assumed.
FIC's analysis focuses on the issuer's financial condition, competitive position
and management expertise. FIC also considers current economic, market and
industry factors affecting the issuer. FIC typically does not consider interest
rate risks because the prices of high yield bonds are influenced much more by
financial risks, including potential default, than by changes in the general
level of interest rates.
Fixed income securities in which the portfolio invests include preferred stocks,
bonds, debentures, notes, equipment lease certificates and equipment trust
certificates. The portfolio's investments are generally rated Baa or lower by
17
<PAGE> 20
Moody's, or BBB or lower by S&P or Fitch, or are not rated but are determined by
FIC to be of comparable quality, and may include bonds in default. There is no
lower limit with respect to rating categories for securities in which the
portfolio may invest. These lower rated securities have speculative
characteristics. Changes in economic conditions or other circumstances are
likely to make it more difficult for the companies issuing the bonds to make
principal and interest payments than is the case with companies issuing highly
rated bonds.
The portfolio may invest in various kinds of convertible securities that can be
exchanged for or converted into common stock. Convertible securities are often
rated below investment grade or not rated because they fall below debt
obligations and just above common stock in order of preference on the issuer's
balance sheet. The portfolio may invest its assets in foreign securities,
including those not publicly traded in the United States. The portfolio may also
invest in real estate investment trusts.
Primary risks: The special risks of investing in Lower Rated Debt Securities,
Convertible Securities and Real Estate Securities are described following these
brief summaries of each portfolio's investment policies. There is a relatively
higher risk that an issuer of low rated bonds will default by failing to pay
interest or principal when due. If that happens, the portfolio loses money.
Low-grade bonds are usually uncollateralized and they are subordinate to the
issuer's other outstanding debt.
This portfolio began its operations in May 1998
EQUITY INCOME PORTFOLIO
The objective of the Equity Income portfolio is above-average income and capital
appreciation. The portfolio invests primarily in income-producing equity
securities including common stocks, preferred stocks, real estate investment
trusts and securities (including debt securities) convertible into common
stocks. The portfolio emphasizes those common stocks in each sector that have
good value, attractive yield and dividend growth potential. The portfolio is
managed by FIC under a subadvisory agreement with the Adviser.
FIC performs a technical review of potential issuers. It examines mostly
companies with market capitalization over $1 billion which it believes are
trading at low valuation in relation to their historic market prices and
projected earnings. The portfolio's equity securities generally have a history
and expectation of paying increasing dividends.
FIC performs traditional fundamental analysis to select securities promising
long-term value. It focuses on the current financial condition of the issuer. It
examines the issuer's product strength, competitive position and management
expertise. FIC also considers current economic, market and industry factors
affecting the issuer. FIC uses the "value" style of investing. It selects
securities with a comparatively low volatility in share price relative to the
overall market and which may provide relatively high dividend income. With this
style of investing, the prices of portfolio securities may not always increase
as rapidly as stocks selected for their growth characteristics because FIC's
investment approach is sector-neutral.
The portfolio invests in convertible securities without regard to their rating.
Convertible securities are used because they typically offer high yields and
good potential for capital appreciation. They are often rated below investment
grade, or not rated, because they fall below debt obligations and just above
common equity in order of preference or priority on the issuer's balance sheet.
Hence, an issuer with investment grade senior debt may issue convertible
securities with ratings below investment grade or not rated.
Primary risks: Convertible securities may be subject to some of the same risks
as those inherent in junk bonds as described for the High Income Bond portfolio.
This portfolio may invest in foreign securities, and it may also engage in short
sales from time to time. The special risks of investing in Convertible
Securities and Foreign Investments, and engaging in Short Sales, are described
following these brief summaries of each portfolio's investment policies.
This portfolio began its operations in May 1998.
18
<PAGE> 21
BLUE CHIP PORTFOLIO
The objective of the Blue Chip portfolio is growth of capital and income by
investing primarily in securities of high quality companies. The portfolio is
managed by FIC under a subadvisory agreement with the Adviser.
FIC selects investments for this portfolio principally on the basis of
fundamental research techniques and standards with emphasis on earning power,
financial condition and valuation. The companies are among the leaders in their
industries in sales, earnings, and/or market capitalization.
FIC performs traditional fundamental analysis to select securities promising
long-term value. It focuses on the current financial condition of the issuer. It
examines the issuer's product strength, competitive position and management
expertise. FIC also considers current economic, market and industry factors
affecting the issuer. FIC uses the "value" style of investing. It selects
securities that are trading at low valuation in relation to their historic
market prices and projected growth. With this style of investing, the prices of
portfolio securities may not always increase as rapidly as stocks selected for
their growth attributes.
The portfolio invests in common stocks, preferred stocks, corporate debt
obligations, convertible securities, warrants, American depository receipts and
foreign securities. Corporate debt obligations will be rated Baa or better by
Moody's, or BBB or better by S&P or Fitch, or if not rated, will be determined
by FIC to be of comparable quality. If a security loses its rating or has its
rating reduced after the portfolio has purchased it, FIC does not need to drop
the security from the portfolio, but that will be considered. Bonds rated Baa,
BBB or better are considered investment grade. Those rated below that have some
speculative characteristics.
Primary risks: This portfolio's primary risks are market risk and sector risk,
described on page 2.
This portfolio began its operations in May 1998.
SOCIAL AWARENESS PORTFOLIO
The objective of the Social Awareness portfolio is long-term growth of capital.
It invests primarily in the common stocks and other equity securities of
companies that, in the Adviser's opinion, conduct their business in a way that
enhances society's quality of life. The portfolio's social concern criteria will
necessarily limit the universe of securities that may be selected for this
portfolio. However, the Adviser believes the portfolio's objective of long-term
capital growth can be achieved despite this limitation.
In choosing investments, the Adviser considers a company's record in:
- - quality and safety of its products and services,
- - environmental protection and enhancement,
- - employee relations, opportunities and safety,
- - consumer relations and protection,
- - community involvement, and
- - expectations for the creation of new jobs and economic development due to
anticipated company growth.
Each potential investment is also subject to the Adviser's standards of
investment analysis. As a matter of operating policy, the portfolio will not
invest in any company substantially engaged in the manufacture of or
distribution of tobacco products, alcoholic beverages or weapons, or the
operation of gambling casinos, or the support of repressive regimes. This policy
may be modified by the Board of Directors.
The Adviser monitors and responds to changes in business practices of the
companies selected for investment. In case of any adverse development, the
Adviser considers whether or not the portfolio's policies require it to sell its
position in that company. Any sale under those circumstances is, however,
subject to prudent market considerations.
19
<PAGE> 22
Primary risks: This portfolio is susceptible to sector risk, described on page
2.
The following bar chart and table indicate the risks of investing in the Social
Awareness portfolio. They show changes in the portfolio's performance for each
of the complete calendar years since the portfolio's inception and the
portfolio's average annual returns for the last year and since inception
compared to those of a broad-based market index. The portfolio's past
performance does not necessarily indicate how it will perform in the future.
Variable contract charges are not reflected in the chart or table. If they were,
the returns would be less than those shown.
97 25.63%
98 -22.41%
During the period shown in the bar chart, the portfolio's highest return for a
quarter was 18.74%. That was the quarter ending on June 30, 1997. The lowest
return for a quarter was -27.95% That was the quarter ending on September 30,
1998.
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS ONE SINCE
AS OF DECEMBER 31, 1998 YEAR 1/3/97
---------------------------- ------ -------
<S> <C> <C>
Social Awareness Portfolio -22.41% -1.24%
Russell 2000 Index -2.57% 9.19%
</TABLE>
STRATEGIC INCOME PORTFOLIO
The objective of the Strategic Income portfolio is high current income by
investing at least 80% of its assets in income producing securities. At least
40% of its assets are invested in a core asset group of U.S. government and
corporate fixed income securities, and 5% to 20% of its assets are invested in
each of the following sectors:
- - foreign bonds,
- - real estate investment trusts (REITs),
- - domestic equity securities,
- - money market instruments, and
- - the following structured fixed income securities:
- mortgage backed securities
- collateralized mortgage obligations (CMOs),
- adjustable rate mortgage securities (ARMS), and
- asset-backed securities.
20
<PAGE> 23
This portfolio is managed by Firstar Bank, N.A. ("Firstar") under a subadvisory
agreement with the Adviser. Firstar selects the core assets based on the outlook
for interest rates and their yield in relation to other fixed income securities
of similar quality and maturity. They only include investment grade bonds. These
are bonds rated Baa or higher by Moody's, or BBB or higher by S&P or Fitch or
which, if unrated, are deemed by Firstar to be of comparable quality.
The foreign bonds are issued by non-U.S. companies and governments. They are
investment grade, are denominated in currencies other than U.S. dollars and may
include American Depository Receipts and International Depository Receipts. The
portfolio may also invest in shares of investment companies that invest
primarily in foreign bonds.
REITs include equity or mortgage REITs integrated to capture income diversified
by sector (e.g., shopping malls, apartment buildings and health care facilities)
and by geographic location.
The domestic equity category consists of high-dividend common and preferred
stocks of U.S. companies with a history of stable earnings and/or growing
dividends. The domestic equity category may also include warrants and securities
convertible into the common stocks of these U.S. companies.
The money market category includes:
- - commercial paper and Europaper (dollar-denominated commercial paper issued
outside the U.S.) having at least one rating in one of the two highest
categories of any NRSRO;
- - instruments of domestic and foreign banks and savings and loans (such as
certificates of deposit, demand and time deposits, savings shares and bankers
acceptances) if they have capital, surplus and individual profits of over $100
million, or if the principal amount of the instrument is insured by a fund
administered by the Federal Deposit Insurance Corporation ("FDIC insured"),
including Eurodollar Certificates of Deposit ("ECDs"), Yankee Certificates of
Deposit ("Yankee CDs") and Eurodollar Time Deposits ("ETDs");
- - obligations of the U.S. government or its agencies or instrumentalities;
- - repurchase agreements, and
- - other unrated short-term instruments deemed by Firstar to be of comparable
quality to the other obligations in which the portfolio may invest.
This portfolio may also engage in short sales from time to time.
Primary risks: The special risks of investing in Foreign Investments and Real
Estate Securities, and engaging in Short Sales, are described following these
brief summaries of each portfolio's investment policies. This portfolio is
particularly susceptible to sector risks, described on page 2.
The following bar chart and table indicate the risks of investing in the
Strategic Income portfolio. They show changes in the portfolio's performance for
each of the complete calendar years since the portfolio's inception and the
portfolio's average annual returns for the last year and since inception
compared to those of a broad-based market index. The portfolio's past
performance does not necessarily indicate how it will perform in the future.
Variable contract charges are not reflected in the chart or table. If they were,
the returns would be less than those shown.
21
<PAGE> 24
97 9.02%
98 -1.42%
During the period shown in the bar chart, the portfolio's highest return for a
quarter was 4.68%. That was the quarter ending on June 30, 1997. The lowest
return for a quarter was -1.08% That was the quarter ending on September 30,
1998.
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS ONE SINCE
AS OF DECEMBER 31, 1998 YEAR 1/3/97
---------------------------- ------ -------
<S> <C> <C>
Strategic Income Portfolio -1.42% 3.55%
Lehman Brothers Government/Corporate 5.22% 8.14%
Bond Index -- Intermediate
</TABLE>
FIRSTAR GROWTH & INCOME PORTFOLIO
The objective of the Firstar Growth & Income portfolio is both reasonable income
and long-term capital appreciation. The portfolio invests in income producing
securities including dividend-paying common and preferred stocks as well as
fixed-income securities in order to generate reasonable income. Capital
appreciation is sought through investments in common stocks, particularly those
of medium to large sized domestic companies whose stock is paying dividends. No
more than 25% of the portfolio will be invested in foreign securities. The
portfolio is managed by Firstar Investment Research Management Company, LLC
("FIRMCO") under a subadvisory agreement with the Adviser.
Primary risks: The primary risks of this portfolio are market risk, financial
risk and sector risk.
22
<PAGE> 25
The following bar chart and table indicate the risks of investing in the Firstar
Growth & Income portfolio. They show changes in the portfolio's performance for
each of the complete calendar years since the portfolio's inception and the
portfolio's average annual returns for the last year and since inception
compared to those of a broad-based market index. The portfolio's past
performance does not necessarily indicate how it will perform in the future.
Variable contract charges are not reflected in the chart or table. If they were,
the returns would be less than those shown. Note that, until May 1999, the
subadviser for this portfolio was Firstar, an affiliate of FIRMCO. The portfolio
was called the Stellar portfolio when managed by Firstar and its investment
policies were substantially different at that time.
FIRSTAR GROWTH & INCOME PORTFOLIO
<TABLE>
<S> <C>
97 9.70%
98 2.92%
</TABLE>
During the period shown in the bar chart, the portfolio's highest return for a
quarter was 7.56%. That was the quarter ending on December 31, 1998. The lowest
return for a quarter was -6.73% That was the quarter ending on September 30,
1998.
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS ONE SINCE
AS OF DECEMBER 31, 1998 YEAR 1/3/97
---------------------------- ----- ------
<S> <C> <C>
Firstar Growth & Income Portfolio 2.92% 6.28%
S&P 500 Index 28.58% 30.94%
</TABLE>
RELATIVE VALUE PORTFOLIO
The objective of the Relative Value portfolio is to obtain the highest total
return that is consistent with reasonable risk. The portfolio invests primarily
in stocks which Firstar believes will have low volatility, above-average yields,
and are undervalued relative to the stocks comprising the S&P 500. Unless it is
in a defensive position, at least 70% of the portfolio's assets will be invested
in common stocks of companies whose revenues are in the top 25% of their
industries. However, other factors, such as product position or market share,
will also be considered and may outweigh revenues.
The portfolio also invests in fixed income securities. These include:
- - convertible securities;
- - investment grade domestic corporate debt obligations that are rated or A or
higher by Moody's, S&P or Fitch; and
- - obligations of the U.S. government or its agencies or instrumentalities.
This portfolio is managed by Firstar under a subadvisory agreement with the
Adviser.
Primary risks: The primary risks of this portfolio are market risk, financial
risk and sector risk.
23
<PAGE> 26
The following bar chart and table indicate the risks of investing in the
Relative Value portfolio. They show changes in the portfolio's performance for
each of the complete calendar years since the portfolio's inception and the
portfolio's average annual returns for the last year and since inception
compared to those of a broad-based market index. The portfolio's past
performance does not necessarily indicate how it will perform in the future.
Variable contract charges are not reflected in the chart or table. If they were,
the returns would be less than those shown.
RELATIVE VALUE PORTFOLIO
<TABLE>
<S> <C>
97 28.28%
98 20.72%
</TABLE>
During the period shown in the bar chart, the portfolio's highest return for a
quarter was 21.27%. That was the quarter ending on December 31, 1998. The lowest
return for a quarter was -10.16% That was the quarter ending on September 30,
1998.
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS ONE SINCE
AS OF DECEMBER 31, 1998 YEAR 1/3/97
---------------------------- ----- ------
<S> <C> <C>
Relative Value Portfolio 20.72% 24.53%
S&P 500 Index 28.58% 30.94%
</TABLE>
RISKS OF CERTAIN INVESTMENTS
The kinds of investments described on the following pages can be made by most of
the portfolios. These risk considerations and others are further explained in
the Statement of Additional Information.
MIXED AND SHARED FUNDING
In the future, it could possibly be disadvantageous for both variable life and
variable annuity separate accounts to invest in the Fund. ONLI, ONLAC and the
Fund do not currently foresee any such disadvantage. The Board of Directors will
monitor events to identify any material conflict between variable life and
variable annuity contract owners. If that happens, the Board will determine what
action, if any, should be taken. This action could include the withdrawal of a
separate account from participation in the Fund. Material conflicts could result
from such things as:
- - changes in state insurance law;
- - changes in federal income tax law;
- - changes in the investment management of any portfolio; or
- - differences between voting instructions given by variable life and variable
annuity contract owners.
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The Fund may be used in the future to support benefits under other types of
contracts or for other purposes. Fund shares are not now, and without a change
in applicable law will never be, offered directly to the public. ONLI's and
ONLAC's separate accounts are the sole Fund shareholders. ONLI and ONLAC will
vote the Fund shares attributable to your contracts as you direct.
SMALL CAPITALIZATION COMPANIES
Small capitalization companies generally have a market capitalization of less
than $1.5 billion. (Market capitalization is the number of shares outstanding
for a company multiplied times the price per share.) These companies are often
still in their developing stage. Small companies are often selected for
investment in a portfolio because the Adviser or subadivser believes the
companies can achieve rapid growth in sales, earnings and share prices. They
often do not pay dividends.
Small companies usually present more share price volatility and risk than do
larger, more established companies. Smaller and newer companies often have
limited product lines, markets and financial resources. Their management often
depends on one or a few key people. Their securities may be subject to more
abrupt or erratic price changes than those of larger companies or the market
averages. Often, there is less publicly available information for smaller
companies than for larger ones. Small company securities are sometimes less
liquid than those of larger companies. This is because they have fewer shares
outstanding and they trade less often. That might make it harder for a portfolio
to buy or sell significant amounts of a small company's shares, or those
transactions might impact the shares' market prices unfavorably.
All of the portfolios except Money Market and Blue Chip can invest in small
companies. The International Small Company, Small Cap, Aggressive Growth, Core
Growth, Growth & Income, and Small Cap Growth portfolios may concentrate their
investments in these securities
FOREIGN INVESTMENTS
Investments in foreign securities involve risks not normally associated with
investing in domestic issuers. These include:
- - changes in currency rates
- - currency exchange control regulations
- - seizure or nationalization of companies
- - political or economic instability
- - unforeseen taxes
- - difficulty of obtaining or interpreting financial information under foreign
accounting standards
- - trading in markets that are less efficient than in the U.S.
- - lack of information regarding securities issuers
- - imposition of legal restraints affecting investments
- - reversion to closed markets or controlled economies
- - national economies based on a few industries or dependent on revenue from
certain commodities
- - local economies and/or markets vulnerable to global conditions
- - volatile inflation rates and debt burdens
- - less regulatory protection.
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Many of these factors are more likely to occur in emerging or developing
countries and may cause abrupt and severe price declines. These factors are
generally less typical of the developed counties.
In selecting foreign investments, the Adviser and subadvisers seek to minimize
these risks. They select investments in securities appearing to have
characteristics and qualities comparable to the kinds of domestic securities in
which the portfolio may invest.
All of the portfolios can invest in foreign securities, although foreign
securities purchased by the Money Market portfolio must be denominated in U.S.
dollars and held in custody in the United States. The International and
International Small Company portfolios may be invested entirely in foreign
securities.
REPURCHASE AGREEMENTS
Under a repurchase agreement, a portfolio purchases a security and obtains a
simultaneous commitment from the seller to repurchase the security at a mutually
agreed upon price and date. The seller is a member bank of the Federal Reserve
System or a government securities dealer recognized by the Federal Reserve
Board. This may also be viewed as a loan of money by the portfolio to the
seller. The resale price is normally greater than the purchase price and
reflects an agreed upon interest rate. The rate is effective for the period of
time the portfolio is invested in the agreement. It is not related to the coupon
rate on the purchased security.
Although repurchase agreements carry certain risks not associated with direct
investments in securities, the Fund enters into repurchase agreements only with
financial institutions believed by the Adviser or subadviser to present minimal
credit risks in accordance with criteria established by the Fund's Board of
Directors. The Adviser and subadvisers review and monitor the creditworthiness
of sellers under the Board's general supervision. The Fund only enters into
repurchase agreements under master repurchase agreements that require that all
transactions are fully collateralized and that the Fund have possession of the
collateral. These agreements must also provide that the Fund will always
receive, as collateral, securities whose market value, including accrued
interest, will be at least equal to 100% of the amount invested in each
agreement. The portfolio only pays for such securities upon physical delivery or
evidence of book entry transfer to the account of the Fund's custodian.
If the seller were to default, the portfolio might incur a loss if the value of
the collateral securing the repurchase agreement declines. A portfolio might
also incur disposition costs when liquidating the collateral. If the seller goes
bankrupt, the portfolio might have a delay in obtaining its collateral. The
portfolio would then have a loss if the collateral declines in value.
All of the portfolios may invest in repurchase agreements. The period of these
repurchase agreements is usually short, from overnight to one week. At no time
will a portfolio invest in repurchase agreements for more than one year. These
transactions enable a portfolio to earn a return on temporarily available cash.
The Strategic Income portfolio may invest more than 10% of its assets in
agreements maturing in more than seven days.
CONVERTIBLE SECURITIES
Convertible securities can be exchanged for or converted into common stock.
These include convertible bonds or debentures, convertible preferred stock,
units consisting of usable bonds and warrants, and securities that cap or
otherwise limit returns to the security holder. Examples of these include
dividend enhanced convertible stock or debt exchangeable for common stock
(DECS), liquid yield option notes (LYONS), preferred equity redemption
cumulative stock (PERCS), preferred redeemable increased dividend securities
(PRIDES) and zero coupon convertible securities.
As with all fixed-income securities, various market forces influence the market
value of convertible securities, including changes in the level of interest
rates. As the level of interest rates increases, the market value of convertible
securities may decline. Conversely, as interest rates decline, the market value
of convertible securities may increase. The unique investment characteristic of
convertible securities is the right to be exchanged for the issuer's common
stock. This
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causes the market value of convertible securities to increase when the
underlying common stock increases. However, since securities prices fluctuate,
there can be no assurance of capital appreciation. Most convertible securities
will not reflect quite as much capital appreciation as their underlying common
stocks. When the underlying common stock price goes down, the value of the
convertible security tends to decline to about the level of the
yield-to-maturity basis of straight nonconvertible debt of similar quality. This
is often called "investment value." The convertible security then may not
experience the same decline as the underlying common stock.
Many convertible securities sell at a premium over their conversion values. The
conversion value is the number of shares of common stock to be received upon
conversion multiplied by the current market price of the stock. This premium is
the price investors are willing to pay for the privilege of purchasing a
fixed-income security with a possibility of capital appreciation due to the
conversion privilege. The premium may not be recovered if this appreciation
potential is not realized.
All of the portfolios other than the Money Market portfolio can purchase
convertible securities.
WARRANTS
Warrants are options to purchase common stock at a specific price. They are
valid for a specific period of time. They usually sell at a premium above the
market value of the optioned common stock. Warrants may have a life ranging from
less that a year to twenty years or they may even be perpetual. However, after
they expire they are worthless. If the market price of the common stock does not
exceed the warrant's exercise price during the life of the warrant, the warrant
will expire as worthless. Warrants have no voting rights, pay no dividends, and
have no rights in the assets of the corporation issuing them. The percentage
increase or decrease in the market price of the warrant may tend to be greater
than the percentage increase or decrease in the market price of the optioned
common stock.
All of the portfolios other than the Money Market portfolio can purchase
warrants.
RESTRICTED AND ILLIQUID SECURITIES
Restricted securities are subject to restrictions on resale under federal
securities law. Each of the Equity, Money Market, Bond and Omni portfolios may
invest up to 10% of its assets in illiquid securities. Each of the other
portfolios may invest up to 15% in illiquid securities. Under criteria
established by the Board of Directors, certain restricted securities are deemed
to be liquid. The Directors consider the following criteria in determining the
liquidity of restricted securities:
- - the frequency of trades and quotes for the security;
- - the number of dealers willing to purchase or sell the security, and the number
of other potential buyers;
- - dealer undertakings to make a market in the security; and
- - the nature of the security and the nature of the marketplace trades.
HEDGING TECHNIQUES
Each portfolio (other than the Money Market portfolio) may, for hedging
purposes, buy and sell various kinds of put and call options, financial futures
contracts, index futures contracts, forward foreign currency contracts, foreign
currency options and foreign currency futures contracts. The use for hedging
purposes of options and futures contracts on securities and foreign currencies
involves certain risks. These include:
- - whether the Adviser or subadviser can predict correctly the direction of
changes in stock prices, interest rates, currency prices and other economic
factors,
- - whether there is enough market liquidity to permit a portfolio to close out
positions taken, and
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- - whether price changes in portfolio securities subject to a hedge follow price
changes in securities or currencies underlying options and futures contracts.
None of these can be assured. A more complete discussion of the risks involved
with hedging techniques is contained in the Statement of Additional Information.
OPTIONS
The purchaser of an option pays the option writer a "premium" for the option. In
the case of a covered call option written by a portfolio, if the purchaser does
not exercise the call option, the premium will generate additional capital gain
to the portfolio. If the market price of the underlying security declines, the
premium received for the call option will reduce the amount of the loss the
portfolio would otherwise incur. However, if the market price of the underlying
security rises above the exercise price and the call option is exercised, the
portfolio will lose its opportunity to profit from that portion of the rise
which is in excess of the exercise price plus the option premium. Therefore, a
portfolio may write call options when the Adviser or subadviser believes that
the option premium will yield a greater return to the portfolio than might occur
on the underlying security during the life of the option.
In the case of a put option purchased by a portfolio, if the market price of the
underlying security remains or rises above the exercise price of the option, the
portfolio will not exercise the option and the premium paid for that option will
reduce the gain the portfolio would otherwise have earned. Conversely, if the
market price of the underlying security falls below the exercise price, less the
premium paid for the option, the portfolio will exercise the option. This will
reduce the loss the portfolio would have otherwise suffered. Therefore, a
portfolio may purchase put options when the Adviser or subadviser believes that
the market price of the underlying security is more likely to decrease than
increase or as a hedge against a decrease in the price of a security held by the
portfolio.
Whenever a portfolio enters into a closing transaction, the portfolio will
realize a gain (or loss) if the premium plus commission it pays for a closing
call option is less (or greater) than the premium it received on the sale of the
original call option. Conversely, the portfolio will realize a gain (or loss) if
the premium it receives, less commission, for a closing put option is greater
(or less) than the premium it paid for the original put option. The portfolio
will realize a gain if a call option it has written lapses unexercised, and a
loss if a put option it has purchased lapses unexercised.
FUTURES, OPTIONS ON FUTURES AND OPTIONS ON INDEXES
One risk of entering into financial futures contracts, buying options on such
contracts and buying options on financial indexes is that there may not be
enough buyers and sellers in the market to permit a portfolio to close a
position when it wants to do so. Then, besides continuing to be subject to the
margin requirements, the portfolio would have a gain or loss to the extent that
the price change in the securities subject to the hedge differed from the
position. To limit this risk, a portfolio will invest only where there is an
established secondary market.
A risk applicable to both futures contracts and related options is that changes
in the value of the contracts or option may not correlate with changes in the
underlying financial index or with changes in the value of the securities
subject to hedge or both. This failure may be partly due to temporary activity
of speculators in the futures markets. To the extent there is not a perfect
correlation, changes in the value of the portfolio's assets would not be offset
by a change in the value of the contracts and options it had bought.
When a portfolio buys an option on a futures contract or an option on a
financial index, its risk of loss is limited to the amount of the premium paid.
There is no such limit when a portfolio enters into a futures contract. However,
the loss on an options contract would exceed that of a futures contract if the
change in the value of the index is not more than the premium paid for the
option.
The success of a hedge depends upon the Adviser's or subadviser's ability to
predict increases or decreases in the relevant financial index. If this
expectation proves incorrect, the portfolio could suffer a loss and it would be
better off if those futures contracts or options had not been purchased. The
skills involved in determining whether to enter into
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a futures contract or purchase or sell an option are different from those
involved in determining whether to buy or sell a security. The Adviser has had
only limited experience using financial futures contracts, options on financial
futures and options on financial indexes.
Because of the low margin deposits required, futures trading involves a high
degree of leverage. As a result, a relatively small price change in a futures
contract may result in an immediate big gain or loss. A purchase or sale of a
futures contract may result in losses in excess of the amount invested in the
futures contract. However, the portfolio would presumably have sustained
comparable losses if, instead of the futures contract, it had invested in the
underlying financial instrument.
Most futures exchanges limit the amount of fluctuation permitted in futures
contract prices during a single trading day. The daily limit establishes the
maximum amount that the price of a futures contract may vary either up or down
from the previous day's settlement price. Once the daily limit has been reached
in a particular type of contract, no more trades may be made on that day at a
price beyond that limit. The daily limit governs only price movements during a
particular trading day. It does not limit potential losses because the limit may
prevent the liquidation of unfavorable positions. Futures contract prices
sometimes move to the daily limit for several consecutive trading days with
little or no trading. When this happens, futures cannot be liquidated promptly
and some futures traders have big losses.
FOREIGN CURRENCY HEDGING TRANSACTIONS
In order to hedge against changes in the exchange rates of foreign currencies in
relation to the U.S. dollar, each portfolio, other than the Money Market
portfolio, may engage in forward foreign currency contracts, foreign currency
options and foreign currency futures contracts in connection with the purchase,
sale or ownership of a specific security. Buyers and sellers of foreign currency
options and futures contracts are subject to the same risks previously described
for options and futures generally.
A forward contract involves an obligation to purchase or sell a specific
currency at a future date. This may be any fixed number of days from the date of
the contract as agreed upon by the parties. The price is set at the time of the
contract. This way a portfolio may protect against a possible loss from an
adverse change in the relationship between the U.S. dollar and the foreign
currency during the period between the date the security is purchased or sold
and the date upon which payment is made or received. These contracts tend to
minimize the risk of loss due to the decline in the value of the hedged
currency. On the other hand, they tend to limit potential gains if the value of
that currency increases.
When a forward contract's delivery date arrives, the portfolio may either
deliver of the foreign currency or end its obligation to deliver the foreign
currency by purchasing an offsetting contract obligating it to purchase, at the
same maturity date, the same amount of the foreign currency. If the portfolio
has to deliver the foreign currency, it may have to obtain the currency by
selling securities.
It is impossible to forecast the market value of portfolio securities at the
expiration of the forward contract. Therefore, the portfolio may have to buy
more foreign currency on the spot market (and bear the expense of that purchase)
if the market value of the security is less than the amount of foreign currency
the portfolio is obligated to deliver. Conversely, the portfolio may have to
sell some currency on the spot market when its hedged security is sold if the
security's market value exceeds the amount of foreign currency the portfolio is
obligated to deliver.
Settlement of currency options and futures contracts for most currencies must
occur at a bank in the issuing nation. The ability to establish and close out
positions on such options requires a liquid market. That may not always be
available. Currency rates may fluctuate based on political considerations and
governmental actions as opposed to purely economic factors.
Predicting the movements of foreign currency in relation to the U.S. dollar is
difficult and requires different skills than those necessary to predict
movements in the securities market. The use of foreign currency hedging
transactions
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might not successfully protect a portfolio against loss resulting from the
movements of foreign currency in relation to the U.S. dollar. These methods of
protecting the value of a portfolio's securities against a decline in the value
of a currency do not eliminate fluctuations in the underlying prices of the
securities. They simply establish a rate of exchange for a future time.
ZERO-COUPON AND PAY-IN-KIND DEBT SECURITIES
Zero-coupon securities (or "step-ups") in which a portfolio may invest are debt
obligations. They are generally issued at a discount and payable in full at
maturity. They generally do not provide for current payments of interest prior
to maturity. Pay-in-kind securities make periodic interest payments in the form
of additional securities (as opposed to cash). Zero-coupon and pay-in-kind
securities usually trade at a deep discount from their face or par value. They
are subject to greater market value fluctuations from changing interest rates
than interest-paying debt obligations of comparable maturities which make
current distributions of interest. As a result, the net asset value of a
portfolio investing in zero-coupon and pay-in-kind securities may fluctuate more
than shares of other mutual funds investing in interest-paying securities with
similar maturities.
All of the portfolios other than the Money Market portfolio can invest in these
securities. The Capital Appreciation and High Income Bond portfolios may invest
more than 10% of their assets in these.
LOWER-RATED DEBT SECURITIES
Certain portfolios may purchase lower-rated debt securities, sometimes referred
to as "junk bonds." These are rated BB or lower by S&P or Fitch, or Ba or lower
by Moody's). As an example, the S&P lower bond ratings are described below.
Other ratings are in the Appendix to the Statement of Additional Information.
Only the High Income Bond portfolio now invests more than 35% of its assets in
junk bonds. The Capital Appreciation and Equity Income portfolios may invest
more than 10% of their assets in these securities.
When bonds have lower ratings it is more likely that adverse changes in the
issuer's financial condition and/or in general economic conditions, or an
unanticipated rise in interest rates, may impair the issuer's ability to pay the
bond's interest and principal. If an issuer cannot pay interest and principal on
time, it is likely to make the bond's values more volatile and it could limit
the portfolio's ability to sell its securities at prices approximating the
values that portfolio had placed on such securities. If there is no liquid
trading market for its securities, a portfolio may not be able to establish the
fair market value of such securities. The rating assigned to a security by
Moody's, S&P or Fitch does not necessarily reflect an assessment of the
volatility of the security's market value or liquidity.
Like those of other fixed-income securities, the values of lower-rated
securities fluctuate in response to changes in interest rates. Thus, a decrease
in interest rates generally will result in an increase in the value of a
portfolio's fixed-income securities. Conversely, during periods of rising
interest rates, the value of a portfolio's fixed-income securities generally
will decline. In addition, the values of such securities are also affected by
changes in general economic conditions and business conditions affecting the
specific industries of their issuers. Changes by recognized rating services in
their ratings of any fixed-income security and changes in the ability of an
issuer to pay interest and principal may also affect the value of these
investments. Changes in the value of portfolio securities generally will not
affect cash income derived from such securities, but will affect the portfolio's
net asset value. A portfolio will not necessarily dispose of a security when its
rating is reduced below its rating at the time of purchase. The Adviser or
subadviser will monitor the investment to determine if continuing to hold the
security will meet the portfolio's investment objective.
Issuers of lower-rated securities are often highly leveraged. During an economic
downturn or during sustained periods of rising interest rates, issuers may be
unable to service their debt obligations. In addition, such issuers may not have
more traditional methods of financing available to them, and may be unable to
repay debt at maturity by refinancing. The risk of loss due to default in
payment of interest or principal by such issuers is significantly greater
because such securities frequently are unsecured and subordinated to the prior
payment of senior indebtedness.
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Sometimes lower-rated securities are issued to raise funds in connection with
the acquisition of a company in a "leveraged buy-out" transaction. The highly
leveraged capital structure of those issuers may make them especially vulnerable
to adverse changes in economic conditions.
Under adverse market or economic conditions or adverse changes in the issuer's
financial condition it may be harder for a portfolio to sell lower-rated
securities or the portfolio may have to sell the securities at a loss. In many
cases, such securities may be purchased in private placements. Then they are
subject to restrictions on resale as a matter of contract or under securities
laws. Then it may also be harder to determine the fair value of the securities
or to compute a portfolio's net asset value. In order to enforce its rights in
the event of a default, a portfolio may have to take possession of and manage
assets securing the issuer's obligations on such securities. This might increase
the portfolio's operating expenses and adversely affect the portfolio's net
asset value. A portfolio may also be unable to enforce its rights and it may
incur greater costs in enforcing its rights if an issuer enters bankruptcy.
Trading opportunities are more limited for low rated securities. This may make
it more difficult for a portfolio to sell or buy these securities at a favorable
price or time. This lack of liquidity also increases the risk of price
volatility.
A portfolio may hold securities that give the issuer the option to "call," or
redeem, its securities. If an issuer redeems securities held by a portfolio
during a time of declining interest rates, the portfolio may not be able to
reinvest the proceeds in securities providing the same investment return as the
securities redeemed.
S&P LOWER BOND RATINGS
Debt rated "BB," "B," "CC," and "C," is regarded as having predominantly
speculative characteristics with respect to capacity to pay interest and repay
principal. "BB" indicates the least degree of speculation and "C" the highest.
While such debt will likely have some quality and protective characteristics,
these are outweighed by large uncertainties of major exposures to adverse
markets.
<TABLE>
<S> <C>
BB Debt rated "BB" has less near-term vulnerability to default
than other speculative issues. However, it faces major
ongoing uncertainties or exposure to adverse business,
financial, or economic conditions which could lead to
inadequate capacity to meet timely interest and principal
payments. The "BB" rating category is also used for debt
subordinated to senior debt that is assigned an actual or
implied "BBB-" rating.
B Debt rated "B" has a greater vulnerability to default but
currently has the capacity to meet interest payments and
principal repayments. Adverse business, financial, or
economic conditions will likely impair capacity or
willingness to pay interest and repay principal. The "B"
rating category is also used for debt subordinated to senior
debt that is assigned an actual or implied "BB" or "BB-"
rating.
CCC Debt rated "CCC" has a currently identifiable vulnerability
to default, and is dependent upon favorable business,
financial, and economic conditions to meet timely payment of
interest and repayment of principal. In the event of adverse
business, financial, or economic conditions, it is not
likely to have the capacity to pay interest and repay
principal. The "CCC" rating category is also used for debt
subordinated to senior debt that is assigned an actual or
implied "B" or "B-" rating.
CC The rating "CC" typically is applied to debt subordinated to
senior debt that is assigned an actual or implied "CCC"
rating.
C The rating "C" typically is applied to debt subordinated to
senior debt that is assigned an actual or implied "CCC-"
rating. The "C" rating may be used to cover a situation
where a bankruptcy petition has been filed, but debt service
payments are continued.
CI The rating "CI" is reserved for income bonds on which no
interest is being paid.
D Debt rated "D" is in payment default. The "D" rating
category is used when interest payments or principal
payments are not made on the date due even if the applicable
grace period has not expired, unless S&P believes that such
payments will be made during such grace period. The "D"
rating will also be used upon the filing of a bankruptcy
petition if debt service payments are jeopardized.
</TABLE>
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The ratings from "BB" to "CCC" may be modified by adding a plus (+) or minus (-)
to show relative standing within the major rating categories.
REVERSE REPURCHASE AGREEMENTS
Under a reverse repurchase agreement, a portfolio sells a debt security to a
bank or broker-dealer. The portfolio agrees to repurchase it at an agreed upon
time and at an agreed upon price. The portfolio retains record ownership of the
security and the right to receive its interest and principal payments on the
security. At the agreed future date, the portfolio repurchases the security by
paying back the proceeds previously received, plus interest. The difference
between the amount the portfolio receives for the security and the amount it
pays on repurchase is deemed to be payment of interest. Until the portfolio pays
back the full amount, it maintains in a segregated custodial account assets with
a value equal to the amount of the commitment to repurchase, including interest.
In some agreements, there is no agreed-upon repurchase date and interest
payments are calculated daily. These are often based on the prevailing overnight
repurchase rate. The Securities and Exchange Commission views these transactions
as collateralized borrowings by the portfolio. The portfolios must abide by
their investment restrictions for borrowing money.
All of the portfolios other than the Money Market portfolio may invest in
reverse repurchase agreements. Only the International, International Small
Company, Capital Appreciation, Aggressive Growth, High Income Bond, Equity
Income, Blue Chip and Strategic Income portfolios may invest more than 10% of
their assets in reverse repurchase agreements.
LEVERAGING (BORROWING FOR INVESTMENT PURPOSES)
The Capital Appreciation, Aggressive Growth, Growth & Income, Strategic Income,
Small Cap Growth, High Income Bond, Equity Income and Blue Chip portfolios may
borrow for investment purposes. This is generally unsecured, except to the
extent the portfolios enter into reverse repurchase agreements. The Investment
Company Act of 1940 requires these portfolios to maintain continuous asset
coverage three times the amount borrowed. Asset coverage means total assets
including borrowings less liabilities exclusive of borrowings. If the asset
coverage declines as a result of market fluctuations or other reasons, a
portfolio may have to sell some of its holdings within three days to reduce the
debt and restore the asset coverage to the required three times. From an
investment standpoint, it may hurt the portfolio to sell securities then.
Borrowing may increase a portfolio's net income. However, it also adds risk. For
example it may exaggerate the effect on net asset value of any increase or
decrease in the market value of a portfolio's securities. To the extent the
income derived from securities purchased with borrowed funds exceeds the
interest a portfolio will have to pay, that portfolio's net income will be
greater than if it had not borrowed. Conversely, if the income from the assets
retained with borrowed funds does not cover the cost of borrowing, the net
income of that portfolio will be less than if borrowing were not used.
Therefore, the amount available for distribution as dividends will be reduced.
The portfolios also may have to maintain minimum average balances in connection
with borrowing or they may have to pay a commitment or other fee to maintain a
line of credit. Either of these requirements would increase the cost of
borrowing over the stated interest rate.
SECURITIES LENDING
A portfolio (other than the Money Market portfolio) may increase its total
return by lending its securities. It may do this if:
- - the loan is secured by collateral consisting of U.S. government securities,
cash or cash equivalents adjusted daily to have market value at least equal to
the current market value of the securities loaned;
- - the portfolio may at any time call the loan and regain the securities loaned;
- - the portfolio will receive any interest or dividend paid on the loaned
securities; and
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- - the aggregate market value of any securities loaned never exceeds one-third
(or such other limit as the Board of Directors may establish) of the total
assets of the portfolio.
The risks in lending portfolio securities include the possible delay in
recovering the securities or possible loss of rights in the collateral if the
borrower fails financially. Before a portfolio enters into a loan, the Adviser
or subadviser considers all relevant facts and circumstances. These include the
creditworthiness of the borrower. Voting rights on the loaned securities pass to
the borrower. However, the portfolio retains the right to call the loans at any
time on reasonable notice. The portfolio will do so if the holders of such
securities are asked to vote upon or consent to matters materially affecting the
investment.
SHORT SALES
The Aggressive Growth, Strategic Income, High Income Bond, Equity Income and
Blue Chip portfolios may engage in short sales. In these transactions, the
portfolio sells a security it does not own because the subadviser expects the
market value of that security to decline. To complete such a transaction, the
portfolio must borrow the security to make delivery to the buyer. The portfolio
then has to replace the borrowed security by purchasing it at the current market
price. The price may then be more or less than the price at which the portfolio
sold the security. Until the security is replaced, the portfolio has to pay the
lender amounts equal to any dividends or interest that accrue during the period
of the loan. The portfolio also may have to pay a premium to borrow the
security. This increases the cost of the security sold. The broker keeps the
proceeds of the short sale to the extent necessary to meet margin requirements
until the portfolio closes its short position.
The frequency of short sales that the portfolios engage in varies under
different market conditions. No securities will be sold short if, after effect
is given to that short sale, the total market value of all securities sold short
would exceed 25% of the value of a portfolio's net assets. This is a
nonfundamental operating policy and it may be changed without shareholder
approval. Portfolios may not sell short the securities of any single issuer
listed on a national securities exchange to the extent of more than 2% of the
value of the portfolio's net assets. Portfolios may not sell short more than 2%
of the outstanding securities of any class of an issuer.
A portfolio will incur a loss as a result of a short sale if the price of the
security increases between the date of the short sale and the date on which the
portfolio replaces the borrowed security. Conversely, a portfolio will realize a
gain if the security declines in price between those dates. This result is the
opposite of what you would expect from a cash purchase of a long position in a
security. The amount of any gain will be decreased, and the amount of any loss
increased, by the amount of any premium or amounts in lieu of interest a
portfolio may have to pay in a short sale.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS
These transactions are made to secure what is considered to be an advantageous
price or yield for a portfolio. There are no fees or other expenses, other than
normal transaction costs. However, the portfolio must set aside enough of its
liquid assets to pay for the securities to be purchased. These assets are marked
to market daily and are maintained until the transaction has been settled. No
portfolio will engage in when-issued and delayed delivery transactions to an
extent that the portfolio would have to set aside more than 20% of the total
value of its assets. The Money Market portfolio does not engage in these
transactions.
REAL ESTATE SECURITIES
Real estate investments generally represent a substantial portion of the
Strategic Income portfolio. The High Income Bond portfolio may also have
significant amounts of real estate investments. The real estate investments are
limited to securities secured by real estate or interests therein and securities
issued by companies that invest in real estate or interests therein. These
investments may have risks associated with direct ownership of real estate.
These risks include declines in the value of real estate, risks related to
general and local economic conditions and increases in interest rates.
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<PAGE> 36
Real estate investment trusts (REITs) are pooled investment vehicles that invest
primarily in income producing real estate, or real estate related loans or
interests. REITs are often not diversified. They are subject to the risk of
financing projects. They may also be subject to heavy cash flow dependency,
defaults by borrowers and self-liquidation. REIT's often depend upon the skills
of property managers.
REITs are generally classified as equity REITs, mortgage REITs, or hybrid REITs.
Equity REITs invest the majority of their assets directly in real property and
derive income primarily from the collection of rents. Equity REITs can also
realize capital value. Mortgage REITs invest the majority of their assets in
real estate mortgages and derive income from the collection of interest
payments. Hybrid REITs invest their assets in both real property and mortgages.
A REIT is not taxed on income distributed to owners if the REIT complies with
Internal Revenue Code requirements.
REITs may subject a portfolio to certain risks associated with the direct
ownership of real estate. These risks include:
- - possible declines in the value of real estate;
- - possible lack of availability of mortgage funds;
- - extended vacancies of properties;
- - risks related to general and local economic conditions;
- - overbuilding;
- - increases in competition, property taxes and operating expenses;
- - changes in zoning laws;
- - costs resulting from the clean-up of, and liability to third parties for
damages resulting from, environmental problems;
- - casualty or condemnation losses;
- - uninsured damages from floods, earthquakes or other natural disasters;
- - limitations on and variations in rents; and
- - changes in interest rates.
Investing in REITs involves certain unique risks in addition to those risks
associated with investing in the real estate industry in general. Equity REITs
may be affected by changes in the value of the underlying property owned by the
REITs. Mortgage REITs may be affected by the quality of any credit extended or
changes in interest rates.
FUND MANAGEMENT
The Adviser is a wholly-owned subsidiary of ONLI. The Adviser uses ONLI's
investments personnel and administrative systems. It is located at One Financial
Way, Montgomery, Ohio 45242. It has served as the Fund's investment adviser
since May 1996. Before that, the Fund's investment adviser was O.N. Investment
Management Company, an indirect wholly-owned subsidiary of ONLI.
ONLI provides its investment personnel, systems and related services to the
Adviser at cost. This is done under a service agreement among ONLI, the Adviser
and the Fund. These services are paid for by the Adviser, not the Fund. The
Adviser provides portfolio management, investment advice and administrative
services to the Fund. This is done under an investment advisory agreement.
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<PAGE> 37
INVESTMENT ADVISORY FEES
As compensation for the Adviser's services, the Fund pays the Adviser annual
fees on the basis of each portfolio's average daily net assets during the month
for which the fees are paid. The fees are based on the following schedule:
- - for each of the Equity, Bond, Omni and Social Awareness portfolios, 0.60% of
the first $100 million, 0.50% of the next $150 million, 0.45% of the next $250
million, 0.40% of the next $500 million, 0.30% of the next $1 billion, and
0.25% of average daily net assets over $2 billion;
- - for the Money Market portfolio, 0.30% of the first $100 million, 0.25% of the
next $150 million, 0.23% of the next $250 million, 0.20% of the next $500
million, and 0.15% of average daily net assets over $1 billion; (The Adviser
is presently waiving any of its fees for the Money Market portfolio in excess
of 0.25%)
- - for each of the International, Relative Value, Small Cap Growth, Blue Chip and
Firstar Growth & Income portfolios, 0.90% of each portfolio's average daily
net assets; (The Adviser is presently waiving any of its fees for the
International portfolio in excess of 0.85%)
- - For each of the Capital Appreciation, Small Cap, Aggressive Growth and
Strategic Income portfolios, 0.80% of each portfolio's average daily net
assets;
- - for the Core Growth portfolio, 0.95% of the first $150 million, and 0.80% of
average daily net assets over $150 million;
- - for the Growth & Income portfolio, 0.85% of the first $200 million, and 0.80%
of average daily net assets over $200 million;
- - for the S&P 500 Index portfolio 0.40% of the first $100 million, 0.35% of the
next $150 million, and 0.33% of average daily net assets over $250 million;
- - for the International Small Company portfolio, 1.00% of that portfolio's
average daily net assets, and
- - for each of the High Income Bond and Equity Income portfolios, 0.75% of each
portfolio's average daily net assets.
- - In 1998, the Fund paid the Adviser at the following effective rates:
<TABLE>
<S> <C> <C> <C>
Equity Portfolio....................... 0.53% Growth & Income Portfolio.............. 0.85%
*Money Market Portfolio................. 0.25% Small Cap Growth Portfolio............. 0.90%
Bond Portfolio......................... 0.58% S&P 500 Index Portfolio................ 0.40%
Omni Portfolio......................... 0.54% High Income Bond Portfolio............. 0.75%
International Portfolio................ 0.90% Equity Income Portfolio................ 0.75%
International Small Company 0.90% Blue Chip Portfolio.................... 0.90%
Portfolio............................
Capital Appreciation Portfolio......... 0.80% Social Awareness Portfolio............. 0.60%
Small Cap Portfolio.................... 0.80% Strategic Income Portfolio............. 0.80%
Aggressive Growth Portfolio............ 0.80% Firstar Growth & Income Portfolio...... 0.90%
Core Growth Portfolio.................. 0.95% Relative Value Portfolio............... 0.90%
</TABLE>
* Without the voluntary fee waiver, the rate would have been 0.30%.
MANAGEMENT OF PORTFOLIOS
The Adviser's president is Joseph Brom. He is 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. Mr. Brom is a
chartered financial analyst. He has a bachelor's degree in economics and finance
and a law degree both
35
<PAGE> 38
from the University of Wisconsin. Mr. Brom has been an investment officer of
ONLI since 1975. He has been in securities management since 1960.
Michael Boedeker is a vice president of the Adviser. He has managed the Bond
portfolio since 1989. He is a chartered financial analyst with a bachelor's
degree in business and a master of business administration degree in finance,
both from Indiana University. Mr. Boedeker has been vice president of fixed
income securities for ONLI since 1989. Before that, he had over 20 years of
experience in fixed income securities and mutual fund management, most recently
as senior vice president and chief investment officer of Mutual Security Life
Insurance Co. for more than 5 years.
Stephen Williams is a vice president of the Adviser. He has managed the Equity
and Omni portfolios since 1987. He has a bachelor's degree in finance from the
University of Cincinnati. He has been vice president of equity securities for
ONLI since 1997. He was an investment analyst and director of securities for
ONLI for 20 years before that.
Douglas Hundley is a vice president of the Adviser. He has been the portfolio
manager of the S&P 500 Index portfolio since 1997. He has managed the Money
Market portfolio since 1996. He has a bachelor's degree in accounting and
economics from Northern Kentucky University, a master of business administration
degree in finance from the University of Texas, and is a certified public
accountant in Ohio. Mr. Hundley has been an investment officer of ONLI since
1995. For more than seven years before to that he was an assistant portfolio
manager for the Metropolitan Life Insurance Co. and was a financial analyst for
Firstar for a year.
Keith Hanson is a vice president of the Adviser. He has been the portfolio
manager of the Social Awareness portfolio since 1997. He is a chartered
financial analyst. He has a bachelor's degree in business administration from
Marquette University. Mr. Hanson has been an investment officer of ONLI since
1994. For a year before 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.
The Adviser uses other investment adviser firms as subadvisers to direct the
investments of certain portfolios. The subadvisers are:
FEDERATED GLOBAL INVESTMENT MANAGEMENT CORP. (FGIM) has managed the
INTERNATIONAL AND INTERNATIONAL SMALL COMPANY portfolios since January 1999.
FGIM is located at 175 Water Street, New York, New York 10038. It is affiliated
with Federated Investors, Inc. FGIM was formed in 1995 to manage mutual funds
and other pooled investment accounts consisting primarily of foreign securities.
Before 1999, Societe Generale Asset Management Corp. managed the International
and International Small Company portfolios. The International Small Company
portfolio then had different investment objectives and its name was the Global
Contrarian portfolio.
The portfolio managers of the International portfolio are Drew Collins and Henry
Frantzen. Drew Collins is a senior vice president of FGIM. He has directed
portfolio management and investment research for FGIM since its establishment in
1995. For one year before that he was vice president and international portfolio
manager of Arnhold and S. Bleichroeder, Inc., and for eight years before that he
was a portfolio manager for College Retirement Equities Fund. Mr. Collins is a
chartered financial analyst. He has a bachelor's degree from Oberlin College and
a master of business administration degree in finance from the Wharton School of
the University of Pennsylvania.
Henry Frantzen is the chef investment officer, international , of FGIM. He
joined FGIM as its executive vice president when it was established in 1995. For
four years prior to that, he served as chief investment officer of international
securities at Brown Brothers Harriman & Co., and for three years before that he
was the executive vice president and director of equities at Oppenheimer
Management Corporation. He is a financial analyst fellow.
The portfolio managers of the International Small Company portfolio are Tracy
Stouffer and Drew Collins. Tracy Stouffer is a vice president of FGIM. She has
been a portfolio manager of international mutual funds for FGIM since 1995. For
seven years before that she was vice president and portfolio manager of
international equity funds at Clariden Asset Management. Ms. Stouffer is a
chartered financial analyst. She has a bachelor's degree from Cornell University
and a master of business administration degree in marketing from the University
of Western Ontario.
36
<PAGE> 39
T. ROWE PRICE ASSOCIATES, INC. (TRPA) has managed the CAPITAL APPRECIATION
portfolio since 1994. TRPA is located at 100 East Pratt Street, Baltimore,
Maryland 21201. It manages assets for various individual and institutional
investors, particularly the T. Rowe Price group of mutual funds. TRPA is the
successor to an investment firm founded in 1937. The portfolio manager of the
Capital Appreciation portfolio is Richard Howard.
Richard Howard has been the portfolio manager of the Capital Appreciation
portfolio since 1994. He is a chartered financial analyst. He has a bachelor's
degree in engineering from Millikin University and a master of business
administration degree from Harvard University. He joined TRPA in 1982 and is
president of the T. Rowe Price Capital Appreciation Fund and a vice president of
TRPA. Before that he worked as a senior industry specialist for Fidelity
Management and Research and as a portfolio manager for CG Investment Management
Company.
FOUNDERS ASSET MANAGEMENT LLC (FAM) has managed the SMALL CAP portfolio since
1994. FAM is located at 2930 East Third Avenue, Denver, Colorado 80206. It
manages the Founders group of mutual funds and private investment accounts. FAM
was established in 1938. In 1998 it became a subsidiary of Mellon Bank.
The portfolio manager of the Small Cap portfolio is Robert Ammann. Robert Ammann
is vice president of investments of FAM. He has managed the Small Cap portfolio
since 1999. He has been a portfolio manager for FAM since 1997 and for four year
before that he was a securities research analyst for FAM. Before that he was a
financial statistician for S&P Compustat Services, Inc. Mr. Ammann is a
chartered financial analyst. He has a bachelor's degree in finance from Colorado
State University.
STRONG CAPITAL MANAGEMENT, INC. (SCM) has managed the AGGRESSIVE GROWTH
portfolio since 1995. SCM is located at 100 Heritage Reserve, Milwaukee,
Wisconsin 53051. It manages the Strong group of mutual funds plus pension plans
and private accounts. SGM was established in 1974.
The portfolio managers of the Aggressive Growth portfolio are Richard Strong and
Charles Pacquelet. Richard Strong is chairman of the board of SCM. He has been
the lead portfolio manager of the Aggressive Growth portfolio since 1995. He has
a bachelor's degree from Baldwin Wallace College and a master's degree in
finance from the University of Wisconsin. He founded SCM in 1974 after 8 years
of investment experience with several other firms.
Charles Pacquelet joined SCM in 1989 and has managed investment accounts for
individual and institutional investors. In addition to co-managing the
Aggressive Growth portfolio, he is also the portfolio co-manager of the Strong
Discovery Fund. Before joining SCM, he was a financial analyst for B.F. Goodrich
Company. Mr. Paquelet is a chartered financial analyst. He has a bachelor's
degree in finance from Case Western Reserve University and a master of business
administration degree from Indiana University.
PILGRIM BAXTER & ASSOCIATES, LTD. (PBA) has managed the Core Growth portfolio
since 1997. PBA is located at 825 Duportail Road, Wayne, Pennsylvania 19087. It
is controlled by United Asset Management Corp. located in Boston, Massachusetts.
With its predecessors, PBA has been an investment adviser since 1982. It manages
the PBHG mutual funds.
The portfolio managers of the Core Growth portfolio are James McCall and Michael
Hahn. James McCall has been a portfolio manager with PBA since 1994. He is
responsible for managing the Core Growth portfolio's large and mid-cap
investments. He has a bachelor's degree from the Philadelphia College of
Pharmacy and Science and masters degrees in pharmacy and business administration
from the University of Utah. Before 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.
Michael Hahn is responsible for the Core Growth portfolio's small and micro cap
investments. He has been a portfolio manager for PBA since 1996. For two years
before that he was an assistant portfolio manager for First National Bank of
Maryland and he also spent a year as a financial accountant for International
Business Machines.
37
<PAGE> 40
Mr. Hahn is a chartered financial analyst. He has a bachelor's degree in finance
from Pennsylvania State University and a master of business administration
degree from the University of Maryland.
ROBERTSON STEPHENS INVESTMENT MANAGEMENT, L.P. (RSIM) has managed the GROWTH &
INCOME portfolio since 1997 and the SMALL CAP GROWTH portfolio since 1998. RSIM
is located at 555 California Street, San Francisco, California 94104. It has
been an investment adviser since 1978. RSIM specializes in growth companies. It
manages the Robertson Stephens mutual funds plus private and institutional
investment pools.
The portfolio manager of the Growth & Income portfolio is John Wallace. He is a
managing director of RISM. He has managed the Growth & Income portfolio since
1997. He has a bachelor's degree in Spanish and anthropology from the University
of Idaho and a master of business administration degree from Pace University. He
joined RSIM in 1995. For nine years before that he was a mutual fund portfolio
manager for Oppenheimer Management Corp. Prior to that, he had been the
co-founder, owner and operator of an Ecuadorian export firm.
The portfolio manager of the Small Cap Growth portfolio is James Callinan. He
joined RSIM as the portfolio manager of its Small Cap Growth Fund in 1996. For
ten years before that he was employed by Putnam Investments, the last two years
of which he served as portfolio manager of the OTC Putnam Emerging Growth Fund.
Mr. Callinan is a chartered financial analyst. He has a bachelor's degree in
economics from Harvard College, a master of science in accounting from New York
University and a master of business administration degree from Harvard Business
School.
FEDERATED INVESTMENT COUNSELING (FIC) has managed the HIGH INCOME BOND, EQUITY
INCOME and BLUE CHIP portfolios since 1998. FIC is located at 1001 Liberty
Avenue, Pittsburgh, Pennsylvania 15222. FIC has been an investment adviser since
1989. It is a subsidiary of Federated Investors, Inc. Together with other
Federated affiliates, FIC manages the Federated group of mutual funds.
The portfolio managers of the High Income Bond portfolio are Mark Durbiano and
Constantine Kartsonas. Mark Durbiano has been a senior vice president of FIC
since 1996 and he was a vice president for 8 years before that. He has been with
FIC and its affiliates since 1982 and has managed the Federated High Income Bond
Fund II since 1994. He is a chartered financial analyst. He has a bachelor's
degree in economics from Dickinson College and a master of business
administration in finance from the University of Pittsburgh.
Constantine Kartsonas joined FIC in 1994 as an investment analyst. He has been
an assistant vice president of FIC since 1997. From 1990 to 1993, Mr. Kartsonas
served as an operations analyst at Lehman Brothers. He received his master's
degree in business administration with a concentration in economics from the
University of Pittsburgh.
The portfolio managers of the Equity Income portfolio are Linda Duessel and
Steven Lehman. Linda Duessel has been a vice president of FIC since 1995. She
was an assistant vice president for four years before that. Ms. Duessel is a
chartered financial analyst. She has a bachelor's degree in economics from the
University of Pittsburgh and a master of science in industrial administration
from Carnegie Mellon University. She is also a certified public accountant.
Steven Lehman has been a vice president of FIC since 1997. For twelve years
before that he served as a portfolio manager, then vice president and senior
portfolio manager, at First Chicago NBD Investment Management Company. Mr.
Lehman is a chartered financial analyst. He has a bachelor's degree in economics
from Ripon College and a master's degree from the University of Chicago.
The portfolio managers of the Blue Chip portfolio are Michael Donnelly and
Arthur Barry. Michael Donnelly has been a vice president of FIC since 1994. He
was an investment analyst and assistant vice president of FIC for five years
prior to that. He is a chartered financial analyst. He has a bachelor's degree
in economics from Georgetown University and a master of business administration
from the University of Virginia.
Arthur Barry joined an affiliate of FIC in 1994 as an investment analyst. He has
been a vice president of FIC since July 1998. He is a chartered financial
analyst. He has a master of science degree in finance and accounting from
Carnegie Mellon University.
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<PAGE> 41
FIRSTAR BANK, N.A. (Firstar) has managed the STRATEGIC INCOME AND RELATIVE VALUE
portfolios since 1997. Firstar is located at 425 Walnut Street, Cincinnati, Ohio
45202. It is a national bank founded in 1863. It has managed commingled funds
since 1957.
The portfolio manager of the Strategic Income portfolio is Kirk Mentzer. Kirk
Mentzer is senior trust officer and director of fixed income research for the
capital management division of Firstar. He manages the REIT, structured fixed
income and money market components of the Strategic Income portfolio. He is
responsible for fixed income investment policy and strategy for Firstar's
capital management division. He has a bachelor's degree in finance and insurance
from the University of Cincinnati and a master's degree in finance from Xavier
University. He has been a trust officer for Firstar since 1989.
The portfolio manager of the Relative Value portfolio is Joseph Belew. He is a
vice president and trust officer of Firstar. He has been a trust officer and
investment manager of Firstar since 1979. He has a bachelor's degree in business
management from Belmont College.
FIRSTAR INVESTMENT RESEARCH & MANAGEMENT COMPANY, LLC (FIRMCO) has managed the
FIRSTAR GROWTH & INCOME portfolio since 1999. FIRMCO is located at 777 East
Wisconsin Avenue, Milwaukee, Wisconsin 53202. FIRMCO is an affiliate of Firstar.
It is the investment adviser to the Firstar Funds family of mutual funds. Before
1999 Firstar managed this portfolio. The portfolio then had different investment
objectives and its name was the Stellar portfolio.
The portfolio managers of the Firstar Growth & Income portfolio are Marian
Zentmyer and Walter Dewey. Marian Zentmyer has been chief equity investment
officer of FIRMCO since 1998. She became an equity fund manager of FIRMCO in
1989 after having joined Firstar as a financial planning and research analyst
seven years earlier. She was a financial planner with a brokerage firm for four
years before that. Ms. Zentmyer is a chartered financial analyst. She has a
bachelor's degree from Stanford University.
Walter Dewey is senior vice president and senior portfolio manager of FIRMCO. He
has been in various investment management positions with Firstar since 1986. For
three years before that he was the senior financial analyst for a utility
company. Mr. Dewey is a chartered financial analyst. He has a bachelor's degree
from the University of Wisconsin.
SUBADVISORY FEES
As compensation for their subadvisory services the Adviser (and not the Fund)
pays:
- - FGIM fees at the annual rate of
- 0.45% of the first $200 million, and 0.40% of average daily net assets in
excess of $200 million of the International portfolio, and
- 0.75% of the first $100 million, and 0.65% of average daily net assets in
excess of $100 million of the International Small Company portfolio;
- - TRPA a fee at the annual rate of 0.50% of the average daily net assets of the
Capital Appreciation portfolio;
- - TRFA a fee at the annual rate of 0.625% of the first $75 million, 0.55% of the
next $75 million, 0.50% of the next $150 million, and 0.40% of average daily
net assets in excess of $300 million of the Small Cap portfolio;
- - SCM a fee at the annual rate of 0.55% of the first $50 million, and 0.45% of
average daily net assets in excess of $50 million of the Aggressive Growth
portfolio;
- - PBA a fee at the annual rate of 0.65% of the first $50 million, 0.60% of the
next $100 million, and 0.50% of average daily net assets in excess of $150
million of the Core Growth portfolio;
- - RSIM fees at the annual rate of
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<PAGE> 42
- 0.60% of the first $100 million, 0.55% of the next $100 million, and
0.50% of average daily net assets in excess of $200 million of the Growth
& Income portfolio, and
- 0.64% of the first $100 million, 0.60% of the next $100 million, and
0.50% of average daily net assets in excess of $200 million of the Small
Cap Growth portfolio;
- - FIC fees at the annual rate of
- 0.50% of the first $20 million, 0.40% of the next $20 million. 0.30% of
the next $25 million, 0.25% of average daily net assets in excess of $75
million of the High Income Bond portfolio, and
- 0.50% of the first $35 million, 0.35% of the next $65 million, and 0.25%
of average daily net assets in excess of $100 million of the assets of
each of the Equity Income and Blue Chip portfolios.
- - Firstar fees at the annual rate of
- 0.55% of the first $50 million and 0.50% of average daily net assets in
excess of $50 million of the Strategic Income portfolio, and 0.65% of the
first $50 million, and 0.60% of average daily net assets in excess of $50
million of the Relative Value portfolio, and
- - FIRMCO a fee at the annual rate of 0.65% of the first $50 million, and 0.60%
of average daily net assets in excess of $50 million of the Firstar Growth &
Income portfolio.
PURCHASE AND REDEMPTION OF FUND SHARES
Fund shares are offered only to separate accounts of ONLI and ONLAC in
connection with ONLI's variable annuities and ONLAC's variable life insurance.
You may select Fund portfolios as described in your variable contract
prospectus. The value of your variable benefits will vary with the investment
experience of the portfolios you select.
The net asset value of each portfolio is computed by dividing the value of the
securities in that portfolio, plus any cash or other assets less all liabilities
of the portfolio, by the number of shares outstanding for that portfolio.
The net asset value of the Fund's shares is determined on each day on which an
order for purchase or redemption of the Fund's shares is received and there is
enough trading in portfolio securities that the current net asset value of its
shares might be materially affected. The values are determined as of 4:00 p.m.
eastern time on each day the New York Stock Exchange is open for unrestricted
trading.
DIVIDENDS, DISTRIBUTIONS AND TAXES
Each portfolio seeks to qualify as a regulated investment company under
Subchapter M of the Internal Revenue Code. It is the Fund's policy to comply
with the provisions of the Code regarding distribution of investment income and
net realized capital gains so that the Fund will not be subject to federal
income tax on amounts distributed. Each year the Fund distributes to its
shareholders substantially all of its net investment income and net realized
capital gains (if any). For the Money Market portfolio, all of the undistributed
net investment income is determined and paid as a dividend immediately before
each daily computation of the portfolio's net asset value. For the other
portfolios, dividends representing net investment income are normally
distributed quarterly. Any net realized capital gains are distributed annually.
However, the Board of Directors may declare dividends at other times. Dividends
and distributions are automatically reinvested in additional portfolio shares
(at net asset value without a sales charge).
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<PAGE> 43
FINANCIAL HIGHLIGHTS OF OHIO NATIONAL FUND, INC.
FOR THE TEN YEARS ENDED DECEMBER 31, 1998
The following information has been audited by KPMG LLP, independent certified
public accountants. It is an integral part of the Fund's audited financial
statements contained in the Statement of Additional Information (which you may
obtain), incorporated by reference herein. This should be read in conjunction
with those financial statements.
<TABLE>
<CAPTION>
EQUITY PORTFOLIO
---------------------------------------------------------------------------------------
1998 1997 1996 1995 1994 1993 1992 1991 1990 1989
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of
period $35.44 $32.30 $28.58 $23.20 $23.90 $21.63 $20.61 $18.02 $20.09 $17.99
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Income from investment
operations:
Net investment income 0.45 0.51 0.47 0.50 0.45 0.41 0.50 0.60 0.86 0.71
Net realized and unrealized
gain (loss) on investments 1.56 5.24 4.58 5.65 (0.39) 2.57 1.02 2.97 (1.62) 3.42
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total income from
investment operations 2.01 5.75 5.05 6.15 .06 2.98 1.52 3.57 (0.76) 4.13
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Less distributions:
Dividends from net investment
income (0.45) (0.63) (0.46) (0.39) (0.44) (0.42) (0.50) (0.63) (0.87) (0.66)
Distributions from net
realized capital gains (0.69) (1.98) (0.87) (0.38) (0.32) (0.29) 0.00 (0.35) (0.44) (1.37)
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total distributions (1.14) (2.61) (1.33) (0.77) (0.76) (0.71) (0.50) (0.98) (1.31) (2.03)
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Net asset value, end of period $36.31 $35.44 $32.30 $28.58 $23.20 $23.90 $21.63 $20.61 $18.02 $20.09
====== ====== ====== ====== ====== ====== ====== ====== ====== ======
Total return(a) 5.72% 18.17% 18.35% 27.20% 0.25% 14.09% 7.55% 20.18% (3.85%) 23.21%
Ratios/supplemental data:
Ratio of expenses to average
net assets 0.64% 0.67% 0.73% 0.73% 0.62% 0.63% 0.65% 0.66% 0.69% 0.70%
Ratio of net investment income
to average net assets 1.25% 1.43% 1.60% 1.90% 1.90% 1.91% 2.44% 3.12% 4.75% 3.55%
Portfolio turnover rate 25% 19% 11% 14% 8% 18% 12% 23% 5% 16%
Net assets, end of period
(millions) $296.9 $288.1 $232.8 $175.7 $123.3 $109.9 $ 87.4 $ 68.2 $ 49.2 $ 42.8
</TABLE>
<TABLE>
<CAPTION>
MONEY MARKET PORTFOLIO
---------------------------------------------------------------------------------------
1998 1997 1996 1995 1994 1993 1992 1991 1990 1989
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of
period $10.00 $10.00 $10.00 $10.00 $10.00 $10.00 $10.00 $10.00 $10.00 $10.00
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Income from investment
operations:
Net investment income 0.52 0.52 0.50 0.54 0.39 0.27 0.31 0.54 0.76 0.86
Less distributions:
Dividends from net investment
income (0.52) (0.52) (0.50) (0.54) (0.39) (0.27) (0.31) (0.54) (0.76) (0.86)
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Net asset value, end of period $10.00 $10.00 $10.00 $10.00 $10.00 $10.00 $10.00 $10.00 $10.00 $10.00
====== ====== ====== ====== ====== ====== ====== ====== ====== ======
Total return(a) 5.39% 5.37% 5.17% 5.62% 4.00% 2.71% 3.12% 5.39% 7.60% 8.56%
Ratios net of fees waived by
advisor:(c)
Ratio of expenses to average net
assets(c) 0.36% 0.38% 0.44% 0.44% 0.39% 0.53% 0.66% 0.67% 0.68% 0.70%
Ratio of net investment
income to average net
assets(c) 5.26% 5.11% 4.98% 5.39% 3.69% 2.71% 3.16% 5.41% 7.57% 8.51%
Ratios assuming no fees waived
by advisor:(c)
Ratio of expenses to average
net assets(c) 0.41% 0.43% 0.49% 0.55% 0.59% 0.63% N/A N/A N/A N/A
Ratio of net investment
income to average net
assets(c) 5.21% 5.06% 4.93% 5.27% 3.51% 2.60% N/A N/A N/A N/A
Net assets, end of period
(millions) $ 44.4 $ 29.1 $ 25.6 $ 15.7 $ 13.1 $ 19.1 $ 20.6 $ 24.2 $ 26.1 $ 23.6
</TABLE>
41
<PAGE> 44
FINANCIAL HIGHLIGHTS OF OHIO NATIONAL FUND, INC. -- (CONTINUED)
<TABLE>
<CAPTION>
BOND PORTFOLIO
---------------------------------------------------------------------------------------
1998 1997 1996 1995 1994 1993 1992 1991 1990 1989
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of
period $10.68 $10.62 $10.93 $ 9.70 $10.87 $10.45 $10.37 $ 9.89 $ 9.93 $ 9.72
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Income from investment
operations:
Net investment income 0.68 0.71 0.69 0.70 0.67 0.69 0.67 0.74 0.79 0.81
Net realized and unrealized
gain (loss) on investments (0.13) 0.23 (0.32) 1.08 (1.07) 0.41 0.10 0.49 (0.05) 0.20
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total Income (loss) from
investment operations 0.55 0.94 0.37 1.78 (0.40) 1.10 0.77 1.23 0.74 1.01
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Less distributions:
Dividends from net investment
income (0.67) (0.88) (0.68) (0.55) (0.69) (0.68) (0.69) (0.75) (0.78) (0.80)
Distributions from net
realized capital gains 0.00 0.00 0.00 0.00 (0.08) 0.00 0.00 0.00 0.00 0.00
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total distributions (0.67) (0.88) (0.68) (0.55) (0.77) (0.68) (0.69) (0.75) (0.78) (0.80)
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Net asset value, end of period $10.56 $10.68 $10.62 $10.93 $ 9.70 $10.87 $10.45 $10.37 $ 9.89 $ 9.93
====== ====== ====== ====== ====== ====== ====== ====== ====== ======
Total return(a) 5.22% 9.28% 3.71% 18.90% (3.84%) 10.69% 7.55% 12.96% 7.82% 10.71%
Ratios/supplemental data:
Ratio of expenses to average
net assets 0.72% 0.78% 0.79% 0.75% 0.63% 0.62% 0.65% 0.65% 0.70% 0.70%
Ratio of net investment income
to average net assets 6.21% 6.67% 6.54% 6.76% 6.71% 6.33% 6.73% 7.42% 8.02% 8.21%
Portfolio turnover rate 12% 10% 3% 4% 5% 13% 20% 18% 4% 0%
Net assets, end of period
(millions) $ 28.4 $ 21.8 $ 20.8 $ 18.1 $ 13.1 $ 12.0 $ 8.9 $ 5.9 $ 4.7 $ 4.0
</TABLE>
<TABLE>
<CAPTION>
OMNI PORTFOLIO
---------------------------------------------------------------------------------------
1998 1997 1996 1995 1994 1993 1992 1991 1990 1989
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of
period $21.06 $19.40 $17.60 $14.76 $15.38 $14.14 $13.63 $12.16 $12.76 $11.89
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Income (loss) from investment
operations:
Net investment income 0.58 0.56 0.53 0.58 0.55 0.58 0.63 0.65 0.78 0.75
Net realized and unrealized
gain (loss) on investments 0.38 2.87 2.10 2.72 (0.63) 1.21 0.51 1.49 (0.54) 1.07
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total Income (loss) from
investment operations 0.96 3.43 2.63 3.30 (0.08) 1.79 1.14 2.14 0.24 1.82
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Less distributions:
Dividends from net investment
income (0.56) (0.69) (0.52) (0.46) (0.54) (0.55) (0.63) (0.67) (0.78) (0.73)
Distributions from net
realized capital gains 0.00 (1.08) (0.31) 0.00 0.00 0.00 0.00 0.00 (0.06) (0.22)
Total distributions (0.58) (1.77) (0.83) (0.46) (0.54) (0.55) (0.63) (0.67) (0.84) (0.95)
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Net asset value, end of period $21.44 $21.06 $19.40 $17.60 $14.76 $15.38 $14.14 $13.63 $12.16 $12.76
====== ====== ====== ====== ====== ====== ====== ====== ====== ======
Total return(a) 4.53 18.15% 15.54% 22.75% (0.53%) 12.85% 8.61% 18.14% 1.92% 15.45%
Ratios/supplemental data:
Ratio of expenses to average
net assets 0.65% 0.71% 0.76% 0.75% 0.62% 0.62% 0.65% 0.67% 0.69% 0.70%
Ratio of net investment income
to average net assets 2.71% 2.69% 2.89% 3.56% 3.67% 3.74% 4.66% 5.04% 6.32% 5.99%
Portfolio turnover rate 18% 18% 12% 10% 7% 17% 16% 15% 7% 24%
Net assets, end of period
(millions) $214.4 $ 29.1 $ 25.6 $ 15.7 $ 13.1 $ 19.1 $ 20.6 $ 24.2 $ 26.1 $ 23.6
</TABLE>
42
<PAGE> 45
FINANCIAL HIGHLIGHTS OF OHIO NATIONAL FUND, INC. -- (CONTINUED)
<TABLE>
<CAPTION>
INTERNATIONAL PORTFOLIO
----------------------------------------------------
1998 1997 1996 1995 1994 1993(e)
------ ------ ------ ------ ------ -------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period $13.39 $15.49 $14.38 $13.30 $12.48 $10.00
------ ------ ------ ------ ------ ------
Income from investment operations:
Net investment income 0.32 0.28 0.25 0.31 0.16 0.02
Net realized and unrealized gain on
investments and foreign currency
transactions 0.24 0.08 1.76 1.28 0.84 2.47
Total income from investment operations 0.55 0.36 2.01 1.59 1.00 2.49
Less distributions:
Dividends from net investment income (0.32) (0.37) (0.25) (0.28) (0.12) (0.01)
Distributions from net realized capital
gains and foreign currency related
transactions (0.76) (2.09) (0.65) (0.23) (0.06) 0.00
Total distributions (1.08) (2.46) (0.90) (0.51) (0.18) (0.01)
Net asset value, end of period $12.86 $13.39 $15.49 $14.38 $13.30 $12.48
Total return(a) 3.88% 2.11% 14.48% 12.10% 8.07% 24.96%
Ratios/supplemental data:
Ratio of expenses to average net
assets(d) 1.17% 1.22% 1.15% 1.12% 1.05% 1.13%(b)
Ratio of net investment income to average
net assets(d) 2.31% 1.82% 1.64% 2.29% 1.23% 0.41%(b)
Portfolio turnover rate 22% 24% 14% 7% 16% 8%
Net assets, end of period (millions) $140.3 $156.0 $137.3 $ 90.6 $ 62.9 $ 17.5
</TABLE>
<TABLE>
<CAPTION>
CAPITAL APPRECIATION PORTFOLIO
-------------------------------------------
1998 1997 1996 1995 1994(e)
------ ------ ------ ------ -------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $13.53 $12.93 $11.99 $10.25 $10.00
------ ------ ------ ------ ------
Income from investment operations:
Net investment income 0.35 0.39 0.48 0.39 0.22
Net realized and unrealized gain on investments
and foreign currency transactions 0.45 1.48 1.31 1.85 0.23
Total income from investment operations 0.80 1.87 1.79 2.24 0.45
Less distributions:
Dividends from net investment income (0.34) (0.46) (0.44) (0.29) (0.20)
Distributions from net realized capital gains and
foreign currency related transactions (1.07) (0.81) (0.41) (0.21) (0.00)
Total distributions (1.41) (1.27) (0.85) (0.50) (0.20)
Net asset value, end of period $12.92 $13.53 $12.93 $11.99 $10.25
Total return(a) 5.91% 15.19% 15.75% 22.6 4.53%
Ratio of expenses to average net assets(d) 0.93% 0.95% 0.97% 0.96% 0.98%(b)
Ratio of net investment income to average net
assets(d) 2.52% 2.88% 3.90% 3.47% 3.24%(b)
Portfolio turnover rate 45% 41% 37% 32% 20%
Net assets, end of period (millions) $ 76.5 $ 59.8 $ 38.3 $ 19.3 $ 6.8
</TABLE>
43
<PAGE> 46
FINANCIAL HIGHLIGHTS OF OHIO NATIONAL FUND, INC. -- (CONTINUED)
<TABLE>
<CAPTION>
SMALL CAP PORTFOLIO
-----------------------------------------------
1998 1997 1996 1995 1994(e)
------ ------ ------ ------ -------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $18.72 $18.03 $15.85 $11.99 $10.00
------ ------ ------ ------ ------
Income from investment operations:
Net investment income (0.06) (0.02) (0.08) (0.02) 0.18
Net realized and unrealized gain on
investments and foreign currency
transactions 2.04 1.54 2.80 3.95 1.94
Total income from investment operations 1.98 1.52 2.72 3.93 2.12
Less distributions:
Dividends from net investment income 0.00 0.00 0.00 (0.07) (0.13)
Distributions from net realized capital gains
and foreign currency related transactions 0.00 (0.83) (0.54) 0.00 0.00
Total distributions 0.00 (0.83) (0.54)(0.07) (0.13)
Net asset value, end of period $20.70 $18.72 $18.03 $15.85 $11.99
Total return(a) 10.57% 8.47% 17.71% 33.01 21.26%
Ratio of expenses to average net assets(d) 0.91% 0.94% 0.96% 0.96% 0.91%(b)
Ratio of net investment income to average net
assets(d) (0.30%) (0.11%) (0.48%) (0.11%) 3.27%(b)
Portfolio turnover rate 99% 80% 70% 75% 222%(b)
Net assets, end of period (millions) $ 75.6 $ 58.3 $ 38.5 $ 16.0 $ 3.3
</TABLE>
<TABLE>
<CAPTION>
GLOBAL CONTRARIAN AGGRESSIVE GROWTH
------------------------------------- -------------------------------------
1998 1997 1996 1995(e) 1998 1997 1996 1995(e)
------ ------ ------ ------- ------ ------ ------ -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period $11.73 $11.66 $10.80 $10.00 $11.09 $10.03 $11.84 $10.00
------ ------ ------ ------ ------ ------ ------ ------
Income (loss) from investment operations:
Net investment income (loss) 0.29 0.29 0.28 0.13 (0.01) (0.05) 1.64 1.56
Net realized and unrealized gain (loss)
on investments 0.12 1.03 1.00 0.75 0.88 1.29 (1.59) 1.08
------ ------ ------ ------ ------ ------ ------ ------
Total income from investment operations 0.42 1.32 1.28 0.88 0.87 1.24 0.05 2.64
------ ------ ------ ------ ------ ------ ------ ------
Less distributions:
Dividends from net investment income (0.29) (0.38) (0.24) (0.08) 0.00 (0.14) (1.86) (0.80)
Distributions from net realized capital
gains (1.10) (0.87) (0.18) 0.00 (0.81) (0.04) 0.00 0.00
------ ------ ------ ------ ------ ------ ------ ------
Total distributions (1.39) (1.25) (0.42) (0.08) (0.81) (0.18) (1.86) (0.80)
------ ------ ------ ------ ------ ------ ------ ------
Net asset value, end of period $10.76 $11.73 $11.66 $10.80 $11.15 $11.09 $10.03 $11.84
====== ====== ====== ====== ====== ====== ====== ======
Total return(a) 3.53% 11.67% 12.09% 8.89% 7.84% 12.53% 0.76% 26.95%
Ratios/supplemental data:
Ratio of expenses to average net
assets(d) 1.30% 1.32% 1.29% 1.58%(b) 0.94% 0.97% 1.01% 1.02%(b)
Ratio of net investment income to
average net assets(d) 2.48% 2.33% 2.44% 1.64%(b) (0.09%) (0.40%) 15.81% 18.18%(b)
Portfolio turnover rate 55% 29% 18% 6%(b) 203% 193% 1,987% 1,488%(b)
Net assets, end of period (millions) $ 19.8 $ 18.0 $ 11.3 $ 4.4 $ 26.4 $ 19.9 $ 12.0 $ 4.0
</TABLE>
44
<PAGE> 47
FINANCIAL HIGHLIGHTS OF OHIO NATIONAL FUND, INC. -- (CONTINUED)
<TABLE>
<CAPTION>
CORE GROWTH GROWTH & INCOME S&P 500 INDEX SOCIAL AWARENESS
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
---------------- ---------------- ---------------- ----------------
1998 1997(e) 1998 1997(e) 1998 1997(e) 1998 1997(e)
------ ------- ------ ------- ------ ------- ------ -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 9.68 $10.00 $12.85 $10.00 $11.73 $10.00 $11.40 $10.00
Loss from investment operations:
Net investment income (loss) (0.06) (0.02) 0.14 0.11 0.38 (0.45) 0.06 0.09
Net realized and unrealized gain
(loss) on investments 0.92 (0.30) 0.77 3.52 3.09 (2.70) (2.61) 2.47
Total gain (loss) from investment
operations 0.86 (0.32) 0.91 3.63 3.47 (3.15) 2.55 2.56
Less distributions:
Dividends from net investment income 0.00 (0.13) (0.11) (0.33) (0.45) 0.05 (0.07)
Distributions from net realized capital
gains 0.00 0.00 (0.67) (0.64) (0.91) 0.00 (1.09)
Distributions from excess realized
capital gains 0.00 (0.00) 0.00 (0.06) (0.05) 0.00
Total Distributions 0.00 (0.13) (0.78) (0.97) (1.42) (0.05) (0.16)
Net asset value, end of period $10.58 $ 9.68 $13.63 $12.85 $14.23 $11.73 $ 8.80 $11.40
Total return(a) 8.82% (3.08%) 7.09% 36.58% 30.00% 31.75% (22.41%) 25.63%
Ratios/supplemental data:
Ratio of expenses to average net
assets(d) 1.13% 1.11% 0.97% 0.95% 0.49% 0.52% 0.81%% 0.95%
Ratio of net investment loss to average
net assets(d) (0.62%) (0.18%) 1.09% 1.04% 2.89% 5.29% 0.55%% 0.75%
Portfolio turnover rate 134% 65% 286% 185% 115% 445% 71% 40%
Net assets, end of period (millions) $ 11.8 $ 9.5 $ 51.4 $ 18.7 $ 94.2 $ 22.1 $ 6.6 $ 4.8
</TABLE>
<TABLE>
<CAPTION>
STRATEGIC INCOME STELLAR RELATIVE VALUE
PORTFOLIO PORTFOLIO PORTFOLIO
----------------- ----------------- -----------------
1998 1997(e) 1998 1997(e) 1998 1997(e)
------ ------- ------ ------- ------ -------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period $10.16 $10.00 $10.65 $10.00 $12.68 $10.00
Loss from investment operations:
Net investment income (loss) 0.46 0.71 0.37 0.32 0.16 0.16
Net realized and unrealized gain (loss) on
investments (0.61) 0.13 (0.07) 0.64 2.47 2.66
Total gain (loss) from investment operations (0.14) 0.84 0.30 0.96 2.63 2.82
Less distributions:
Dividends from net investment income (0.68) (0.67) (0.35) (0.31) (0.15) (0.14)
Distributions from net realized capital gains 0.00 (0.01) (0.04) 0.00 (0.14) 0.00
Distributions from excess realized capital gains 0.00 0.00 0.00 0.00 0.00 0.00
Total Distributions (0.68) (0.68) (0.39) (0.31) (0.29) (0.14)
Net asset value, end of period $ 9.34 $10.16 $10.56 $10.65 $15.02 $12.68
Total return(a) 0.00 8.74% 0.00 9.70% 0.00 28.28%
Ratios/supplemental data:
Ratio of expenses to average net assets(d) 1.18% 1.30% 1.43% 1.54% 1.08% 1.18%
Ratio of net investment loss to average net
assets(d) 7.12 7.04% 3.53% 3.07% 1.19% 135%
Portfolio turnover rate 104% 102% 42% 17% 54% 7%
Net assets, end of period (millions) $ 4.0 $ 3.2 $ 3.6 $ 2.8 $ 10.0 $ 5.7
</TABLE>
45
<PAGE> 48
FINANCIAL HIGHLIGHTS OF OHIO NATIONAL FUND, INC. -- (CONTINUED)
<TABLE>
<CAPTION>
SMALL CAP GROWTH HIGH INCOME BOND EQUITY INCOME BLUE CHIP
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
1998(e) 1998(e) 1998(e) 1998(e)
---------------- ---------------- ------------- ---------
<S> <C> <C> <C> <C>
Net asset value,
beginning of period $10.00 $10.00 $10.00 $10.00
Loss from investment operations:
Net investment income (loss) (0.09) 0.38 0.07 0.23
Net realized and unrealized gain
(loss) on
investments 0.56 (0.40) 0.53 10.23
Total gain (loss) from investment
operations 0.47 (0.02) (0.60) (0.01)
Less distributions:
Dividends from net investment income 0.00 (0.37) 0.00 0.00
Distributions from net realized capital
gains 0.00 (0.02) 0.00 0.00
Distributions from excess realized
capital gains 0.00 (0.39) 0.00 0.00
Total Distributions 0.00 0.00 0.00 0.00
Net asset value, end of period $10.47 $ 9.59 $10.53 $20.22
Total return(a) 0.00 0.00 0.00 0.00
Ratios/supplemental data:
Ratio of expenses to average net
assets(d) 1.30% 0.80% 1.18% 1.22%
Ratio of net investment loss to
average net assets(d) (0.98%) 3.86 0.69% 0.17%
Portfolio turnover rate 121% 11% 38% 32%
Net assets, end of period (millions) $ 2.3 $ 10.4 $ 2.2 $ 2.9
</TABLE>
FINANCIAL HIGHLIGHTS FOOTNOTES
(a) This total return information does not reflect expenses that apply to any
separate account or the related variable annuity or variable life insurance
contracts. Including of those charges would reduce the total return figures
for all periods shown.
(b) Annualized.
(c) On and after June 17, 1993, the 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.
(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.
46
<PAGE> 49
FINANCIAL HIGHLIGHTS OF OHIO NATIONAL FUND, INC. -- (CONTINUED)
(e) Total return was calculated on an aggregate basis (not annualized) for the
International portfolio from the commencement of its operations on April 30,
1993, through December 31, 1993; for the Capital Appreciation and Small Cap
portfolios, from their commencement of operations, May 1, 1994, through
December 31, 1994; for the Global Contrarian and Aggressive Growth
portfolios from their commencement of operations, March 31, 1995, through
December 31, 1995; for the Core Growth, Growth & Income, S&P 500 Index,
Social Awareness, Strategic Income, Stellar and Relative Value portfolios,
from the commencement of their operations, January 3, 1997, through December
31, 1997, and for the Small Cap Growth, High Income Bond, Equity Income and
Blue Chip portfolios, from the commencement of their operations, May 1,
1998, through December 31, 1998.
47
<PAGE> 50
Additional information about Ohio National Fund has been filed with the
Securities and Exchange Commission in a Statement of Additional Information
(SAI), dated May 1, 1999, which is incorporated herein by reference.
In addition, information about the Fund's investments is available in the annual
and semi-annual reports to shareholders. In the Fund's annual report, you will
find a discussion of the market conditions and investment strategies that
significantly affected the Fund's performance during the last fiscal year.
The SAI, annual reports, and semi-annual reports are available upon request and
without charge by calling or writing to the Fund at 1-800-578-8078, One
Financial Way, Montgomery, Ohio 45242.
Information about the Fund can also be reviewed and copied at the Public
Reference Room of the Securities and Exchange Commission in Washington, D.C.
Information about the SEC's Public Reference Room is available at 1-
800-SEC-0330. Reports and other information are also available in the Securities
Exchange Commission's Internet Site at http://www.sec.gov. and copies of the
information may be obtained, upon payment of a duplicating fee, by writing the
Public Reference Section of the Securities and Exchange Commission, Washington,
D.C. 20549-6009.
Ohio National Fund Investment Company Act file number: 811-3015
48
<PAGE> 51
PART B.
INFORMATION REQUIRED IN A STATEMENT OF ADDITIONAL INFORMATION
<PAGE> 52
OHIO NATIONAL FUND, INC.
One Financial Way
Montgomery, Ohio 45242
Telephone (5l3) 794-6316
STATEMENT OF ADDITIONAL INFORMATION
MAY 1, 1999
This Statement of Additional Information is not a prospectus. It should be read
in conjunction with the prospectus of Ohio National Fund, Inc. (the "Fund")
dated May 1, 1999.
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 .............................................................4
Current Yield of Money Market Portfolio
Total Return
Portfolio Turnover
Investment Objectives and Policies ...........................................9
Money Market Instruments
Investment Restrictions .....................................................10
Hedging Transactions
Covered Call Options and Put Options
Futures Contracts
Options on Futures Contracts and Financial Indexes
Foreign Currency Hedging Transactions
Hybrid Instruments
Swaps
Short Sales
Borrowing Money
Zero-Coupon and Pay-in-kind Debt Securities
Management of the Fund ......................................................23
Directors and Officers
Compensation of Directors
Shareholders' Meetings
Investment Advisory and Other Services
Brokerage Allocation ........................................................28
Purchase and Redemption of Shares ...........................................30
Tax Status ..................................................................31
Experts .....................................................................31
Legal Counsel ...............................................................32
The S&P 500 .................................................................32
The Year 2000 Issue .........................................................32
</TABLE>
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<PAGE> 53
<TABLE>
<CAPTION>
Page
----
<S> <C>
Appendix ....................................................................34
Debt Security Ratings
Financial Statements ........................................................39
</TABLE>
2
<PAGE> 54
THE FUND
The Fund is an open-end diversified management investment company which
currently consists of 20 separate portfolios - the Equity Portfolio, the Money
Market Portfolio, the Bond Portfolio, the Omni Portfolio, the International
Portfolio, the Capital Appreciation Portfolio, the Small Cap Portfolio, the
International Small Company Portfolio, the Aggressive Growth Portfolio, the Core
Growth Portfolio, the Growth & Income Portfolio, the S&P 500 Index Portfolio,
the Social Awareness Portfolio, the Strategic Income Portfolio, the Firstar
Growth & Income Portfolio, the Relative Value Portfolio, the Emerging Growth
Portfolio, the High Income Bond Portfolio, the Equity Income Portfolio and the
Blue Chip Portfolio. At present, the Fund sells its shares only to separate
accounts of The Ohio National Life Insurance Company ("ONLI") and Ohio National
Life Assurance Corporation ("ONLAC") to support certain benefits under variable
contracts issued by ONLI and ONLAC. In the future, Fund shares may be used for
other purposes, but unless there is a change in applicable law, they will not be
sold directly to the public.
The Fund is a Maryland corporation. It was created on November 2, 1982 when O.N.
Fund, Inc. was merged into O.N. Market Yield Fund, Inc. The shares of O.N. Fund,
Inc. were converted to an equal number of shares of the Equity Portfolio, all
shares of O.N. Market Yield Fund, Inc. were converted into an equal number of
shares of the Money Market Portfolio, and a Bond Portfolio was created. The Omni
Portfolio was added in 1984, the International Portfolio in 1993, the Capital
Appreciation and Small Cap Portfolios in 1994, the International Small Company
and Aggressive Growth Portfolios in 1995, the Core Growth, Growth & Income, S&P
500 Index, Social Awareness, Strategic Income, Firstar Growth & Income and
Relative Value Portfolios in 1997, and the Small Cap Growth, High Income Bond,
Equity Income and Blue Chip Portfolios in 1998. The investments held by each
portfolio are maintained separately from those held by the other portfolios.
The investment and reinvestment of the assets of the Equity, Money Market, Bond,
Omni, S&P 500 Index and Social Awareness Portfolios is directed by the Fund's
investment adviser, Ohio National Investments, Inc. (the "Adviser"), a
wholly-owned subsidiary of ONLI. The principal business address of ONLI, ONLAC
and the Adviser is One Financial Way, Montgomery, Ohio 45242. The investment and
reinvestment of International and International Small Company Portfolio assets
is managed by Federated Global Investment Management Corp. ("FGIM") as
sub-adviser. The principal business address of FGIM is 175 Water Street, New
York, New York 10038. The investment and reinvestment of Capital Appreciation
Portfolio assets is managed by T. Rowe Price Associates, Inc. ("TRPA") as
sub-adviser. The principal business address of TRPA is 100 East Pratt Street,
Baltimore, Maryland 21202. The investment and reinvestment of Small Cap
Portfolio assets is managed by Founders Asset Management LLC ("FAM") as
sub-adviser. The principal business address of FAM is 2930 East Third Avenue,
Denver, Colorado 80206. The investment and reinvestment of Aggressive Growth
Portfolio assets is managed by Strong Capital Management, Inc. ("SCM") as
sub-adviser. The principal business address of SCM is 100 Heritage Reserve,
Milwaukee, Wisconsin 53051. The investment and reinvestment of Core Growth
Portfolio assets is managed by Pilgrim Baxter & Associates, Ltd. ("PBA") as
sub-adviser. The principal business address of PBA is 825 Duportail Road, Wayne,
Pennsylvania 19087. The investment and reinvestment of Growth & Income and Small
Cap Growth Portfolio assets is managed by Robertson Stephens Investment
Management, L.P. ("RSIM") as sub-adviser. The principal business address of RSIM
is 555 California Street, San Francisco, California 94104. The investment and
reinvestment of Strategic Income and Relative Value Portfolio assets is managed
by Firstar Bank, N.A. ("Firstar") as sub-adviser. The principal business address
of Firstar is 425 Walnut Street, Cincinnati, Ohio 45202. The investment and
reinvestment of Firstar Growth & Income Portfolio assets is managed by Firstar
Investment Research & Management Company, LLC ("Firmco") as sub-adviser. The
principal business address of Firmco is 615 East Michigan Street, Milwaukee,
Wisconsin 53201. The investment and reinvestment of High Income Bond, Equity
Income and Blue Chip Portfolio assets is managed by Federated Investment
Counseling ("FIC") as sub-adviser. The principal business address of FIC is
Federated Investors Tower, 1001 Liberty Avenue, Pittsburgh, Pennsylvania 15222.
Interests in each portfolio are represented by a separate class of the Fund's
capital stock, par value $1. Each class represents an undivided interest in the
assets of the portfolio corresponding to that class. All shares of each
portfolio have one vote per share and are freely transferable. When matters
arise that affect only one portfolio, shares of just that portfolio are entitled
to vote on those matters. Approval of certain matters by a vote of all Fund
shareholders may not bind a portfolio whose shareholders did not approve that
matter.
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<PAGE> 55
Each share of each portfolio may participate equally in the portfolio's
dividends, distributions and net assets. The shares of each portfolio, when
issued, will be fully paid and non-assessable, have no preemptive, conversion,
cumulative dividend or similar rights, and are freely transferable. Fund shares
do not have cumulative voting rights. This means the holders of more than half
of the Fund shares voting to elect directors can elect all the directors if they
so choose. In that event, the holders of the remaining shares could not elect
any directors.
All of the outstanding Fund shares are owned of record by ONLI and ONLAC and are
held in their various separate accounts. The shares held in connection with
those separate accounts are voted by ONLI or ONLAC in accordance with
instructions received from the owners of variable contracts issued in connection
with such separate accounts and persons receiving payments under the variable
contracts. Fund shares attributable to contracts owned by ONLI and ONLAC, and
Fund shares not attributable to variable contracts, will be voted in proportion
to instructions received from all variable contract owners.
American Data Services, Inc. is the Fund's transfer agent and fund accounting
agent. It is located at 150 Motor Parkway, Suite 109, Hauppauge, New York 11788.
Firstar is custodian for those portfolios other than the International and
International Small Company portfolios. The custodian for the International and
International Small Company portfolios is Investors Fiduciary Trust Company. It
is located at 801 Pennsylvania Street, Kansas City, Missouri. For assets held
outside the United States, the custodians enter into subcustodial agreements.
The Board of Directors approves all these relationships.
FUND PERFORMANCE
From time to time, we advertise the current yield, average annual total return
and cumulative total returns for the portfolios. We might compare the results to
other similar mutual funds or unmanaged indices. Management's discussion and
analysis of the Fund's performance is included in the Fund's most-recent annual
report and is available free upon request.
Total return for a portfolio reflects the sum of all of its earnings plus any
changes in the value of its assets, reduced by all expenses accrued during a
measurement period. For this purpose, it is assumed that all dividends and
capital gains distributions are reinvested. The average annual total return is
expressed as a percentage of an amount invested for a one-year period. Each
portfolio's average return is computed by a formula in which a hypothetical
initial investment of $1,000 is equated to an ending redeemable value from the
inception of the portfolio for one-, five- and ten-year periods. Cumulative
total return reflects a portfolio's aggregate performance, expressed as a dollar
amount change, from the beginning to the end of the period.
Percentage changes in net asset value per share and total returns quoted for a
portfolio include the effect of deducting that portfolio's expenses, but do not
include charges and expenses attributable to any particular insurance product.
The amount by which variable annuity separate account charges and expenses would
reduce the Fund's total return may be demonstrated by comparing the Fund's total
return to that of the variable annuity separate account for the same period.
Variable life insurance separate account charges vary significantly, depending
upon a variety of demographic factors (such as age, sex and health status) and
several contract-specific factors (such as stated amount of death benefit), but
in all cases would have the result of lowering the total return from the Fund.
From time to time the annualized yield and "effective" yield will be quoted for
the Money Market Portfolio. The Money Market Portfolio's yield refers to the
income generated by an investment in the Portfolio over the seven-day period
indicated. This income is then "annualized" by assuming that the same amount of
income generated by the Portfolio that week is generated over a 52-week period
and is shown as a percentage of the investment. "Effective" yield is calculated
similarly but, when annualized, the income earned by an investment in the
Portfolio is assumed to be reinvested. The effective yield will be slightly
higher than the yield because of the compounding effect of this assumed
reinvestment.
All performance quotations are based on historical investment performance and
are not intended to indicate future performance.
4
<PAGE> 56
The Fund may distribute sales literature comparing the performance of its
portfolios against the Consumer Price Index or such established market indices
as the Dow Jones Industrial Average, the Standard & Poor's 500, 400, 600 or 1500
Indices, one or more of Lehman Brothers Bond Indices, the Morgan Stanley Capital
International Europe, Australia and Far East Index, the Morgan Stanley Capital
International World Index, the Russell 2000, 2500 or 3000 Indices, the New York
Stock Exchange Composite Index, the American Stock Exchange Index, the National
Association of Securities Dealers Automated Quotations Composite Index, the
Value Line Composite Index, the Investors Business Daily 6000 Index, the
Wilshire 5000 Index, IBC's Money Fund Reports, or other management investment
companies having investment objectives similar to the portfolio being compared.
These comparisons may include graphs, charts, tables or examples. The average
annual total return and cumulative total returns for each portfolio may also be
advertised.
The Fund may also advertise the performance ratings or rankings assigned to
certain portfolios or their subadvisers by various statistical services,
including Morningstar, Inc. and Lipper Analytical Services, Inc., or as they
appear in various publications including The Wall Street Journal, Investors
Business Daily, The New York Times, Barron's, Forbes, Fortune, Business Week,
Financial Services Week, Financial World, Kiplinger's Personal Finance and Money
Magazine.
The prospectus sets forth in tabular form, under the caption "Financial
Highlights," certain information concerning the Fund and its individual
portfolios. The following discussion describes the methods of calculating the
current yield of the Money Market Portfolio and the total return of all
portfolios, and states the Fund's policy with respect to each portfolio's
turnover rate.
CURRENT YIELD OF MONEY MARKET PORTFOLIO
Current annualized yield quotations for the Money Market Portfolio are based on
the portfolio's net investment income for a seven-day period and exclude any
realized or unrealized gains or losses on portfolio securities. Current
annualized yield is computed by determining the net change (exclusive of
realized gains and losses from the sale of securities and unrealized
appreciation and depreciation) in the value of a hypothetical account having a
balance of one share at the beginning of such seven-day period, dividing such
net change in account value by the value of the account at the beginning of the
period, and annualizing this quotient on a 365-day basis. The net change in
account value reflects the value of any additional shares purchased with
dividends from the original share in the account during the seven-day period,
any dividends declared on such original share and any such additional shares
during the period, and expenses accrued 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:
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<PAGE> 57
P(1 + T)n = ERV
where: P = a hypothetical initial payment of $1,000,
T = the average annual total return,
n = the number of years, and
ERV= the ending redeemable value of a hypothetical
$1,000 beginning-of-period payment at the end
of the period (or fractional portion thereof).
The average annual total returns for each of the portfolios from the inception
of the portfolio and for the one-, five- and ten-year periods ending on December
31, 1998, are as stated below:
<TABLE>
<CAPTION>
One Five Ten From Inception
Year Years Years Inception Date
---- ----- ----- --------- ----
<S> <C> <C> <C> <C> <C>
Equity 5.72% 13.52% 12.66% 10.87% 10-06-69
Money Market 5.39% 5.11% 5.36% 7.20% 03-20-80
Bond 5.22% 6.40% 8.15% 8.48% 11-02-82
Omni 4.53% 11.75% 11.50% 11.50% 09-10-84
International 3.88% 8.03% N/A 11.36% 04-30-93
Capital Appreciation 5.91% N/A N/A 13.55% 05-01-94
Small Cap 10.57% N/A N/A 19.28% 05-01-94
International Small Company* 3.53% N/A N/A 9.64% 03-31-95
Aggressive Growth 7.84% N/A N/A 12.47% 03-31-95
Core Growth 8.82% N/A N/A 2.74% 01-03-97
Growth & Income 7.09% N/A N/A 21.05% 01-03-97
S&P 500 Index 30.00% N/A N/A 31.03% 01-03-97
Social Awareness (22.41%) N/A N/A (1.24%) 01-03-97
Strategic Income ( 1.42%) N/A N/A 3.55% 01-03-97
Firstar Growth & Income* 2.92% N/A N/A 6.28% 01-03-97
Relative Value 20.72% N/A N/A 24.53% 01-03-97
Small Cap Growth N/A N/A N/A 4.62% 05-01-98
High Income Bond N/A N/A N/A (0.20%) 05-01-98
Equity Income N/A N/A N/A 5.92% 05-01-98
Blue Chip N/A N/A N/A 2.34% 05-01-98
</TABLE>
In addition to average annual total returns, advertising may reflect cumulative
total returns that simply reflect the change in value of an investment in a
portfolio over a period. This may be expressed as either a percentage change,
from the beginning to the end of the period, or the end-of-period dollar value
of an initial hypothetical investment. The cumulative total returns for each of
the portfolios from the inception of the portfolio and for the five- and
ten-year periods ending on December 31, 1998 (assuming a hypothetical initial
investment of $1,000) were as follows:
<TABLE>
<CAPTION>
Five Years Ten Years From Inception
---------- --------- --------------
<S> <C> <C> <C>
Equity $1,885 $3,293 $ 17,926
Money Market $1,283 $1,686 $ 3,601
Bond $1,363 $2,188 $ 3,543
Omni $1,742 $2,969 $ 4,748
International $1,471 N/A $ 1,839
Capital Appreciation N/A N/A $ 1,810
Small Cap N/A N/A $ 2,277
International Small Company* N/A N/A $ 1,412
Aggressive Growth N/A N/A $ 1,553
Core Growth N/A N/A $ 1,055
Growth & Income N/A N/A $ 1,437
S&P 500 Index N/A N/A $ 1,714
Social Awareness N/A N/A $ 975
</TABLE>
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<PAGE> 58
<TABLE>
<CAPTION>
Five Years Ten Years From Inception
---------- --------- --------------
<S> <C> <C> <C>
Strategic Income N/A N/A $ 1,072
Firstar Growth & Income* N/A N/A $ 1,129
Relative Value N/A N/A $ 1,549
Small Cap Growth N/A N/A $ 1,046
High Income Bond N/A N/A $ 998
Equity Income N/A N/A $ 1,059
Blue Chip N/A N/A $ 1,023
</TABLE>
*Prior to January 1, 1999, the sub-adviser of the International and
International Small Company Portfolios was Societe Generale Asset Management
Corp. and the investment policies of the International Small Company Portfolio
were substantially different. Prior to May 1, 1999, the Firstar Growth & Income
Portfolio's investment policies were substantially different and its sub-adviser
was Firstar Bank, N.A.
PORTFOLIO TURNOVER
Each portfolio has a different expected rate of portfolio turnover. However, the
rate of portfolio turnover will not be a limiting factor when the management of
the Fund deems it appropriate to purchase or sell securities for a portfolio.
The Small Cap, Aggressive Growth and Strategic Income Portfolios may engage in
the purchase and sale of securities close to the ex-dividend date in order to
receive the anticipated dividend and then sell the securities after the
ex-dividend date. This practice could substantially increase the Portfolio's
turnover rate. Higher turnover rates are often reflected in higher portfolio
brokerage expenses. The Fund's policy with respect to each portfolio is as
follows:
Equity Portfolio - Although this Portfolio will not normally purchase
securities with the intention of obtaining short-term capital
appreciation, purchases and sales will be made whenever deemed prudent and
consistent with the investment objectives of the Portfolio. During periods
of relatively stable market and economic conditions, it is anticipated
that the annual portfolio turnover rate of the Portfolio will be 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 1998, the turnover rate for this portfolio was 25%.
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
12% in 1998.
Omni Portfolio - The rate of portfolio turnover will vary from time to
time but is not expected to exceed 50% annually. The turnover rate for
this portfolio was 18% in 1998.
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 a
total return on its assets. The rate of portfolio turnover will not be a
limiting factor when portfolio changes are deemed appropriate to achieve
this Portfolio's stated objective. Under normal circumstances, the
portfolio turnover rate for this portfolio is not expected to exceed 200%
annually. The turnover rate for this portfolio was 22% in 1998.
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 45% in 1998.
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
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<PAGE> 59
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 99% in 1998.
International Small Company Portfolio - FGIM will not attempt to set or
meet a portfolio turnover rate because turnover is incidental to
transactions made in an attempt to achieve the Portfolio's investment
objective. Securities will be sold whenever FGIM believes it is
appropriate, regardless of how long they have been held. The turnover rate
for this portfolio was 55% in 1998.
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 203% in 1998.
Core Growth Portfolio - Although the securities held in this Portfolio are
generally held for appreciation, PBA's disciplined response to its
analytic process will occasionally result in sales without regard to the
length of time a security has been held. The annual turnover rate is
normally expected to be in the range of 50% to 250%. The turnover rate for
this portfolio was 134 % in 1998.
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 300% range. The turnover rate for this
portfolio was 286% in 1998.
S&P 500 Index Portfolio - Securities held in this Portfolio generally will
not be actively traded. Although it will often purchase fixed-income
securities with relatively short maturities, those transactions are not
expected to generate substantial brokerage commissions. The annual
turnover rate is not normally expected to exceed 100%. The turnover rate
for this portfolio was 115% in 1998.
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 100%. The turnover rate for this portfolio was 71% in 1998.
Strategic Income Portfolio - The securities of this Portfolio will
generally be traded more frequently than those of the other income
oriented portfolios. Its portfolio turnover rate can normally be expected
to be in the range of 50% to 250% annually. The turnover rate for this
portfolio was 104% in 1998.
Firstar Growth & Income Portfolio - Although this Portfolio does not seek
short-term profits, its securities will be sold whenever Firmco believes
it is appropriate to do so in light of the Portfolio's investment
objective without regard to the length of time a particular security may
have been held. Its portfolio turnover rate is normally expected to be 50%
to 150%. The turnover rate for this portfolio was 81% in 1998.
Relative Value Portfolio - Although this Portfolio does not seek
short-term profits, its securities will be sold whenever Star believes it
is appropriate to do so in light of the Portfolio's investment objective
without regard to the length of time a particular security may have been
held. Its portfolio turnover rate is not expected to exceed 75% during
normal economic and market conditions. The turnover rate for this
portfolio was 54% in 1998.
Small Cap Growth Portfolio - Securities held in this Portfolio tend to be
actively traded. Its portfolio turnover rate is normally expected to
exceed 100%. The turnover rate was 121% in 1998.
High Income Bond Portfolio - The rate of portfolio turnover will vary from
time to time, but it is not normally expected to exceed 100% for this
Portfolio. The turnover rate was 11% in 1998.
Equity Income Portfolio - The portfolio turnover rate for this Portfolio
is normally expected to be in the range of 50% to 150% annually. The
turnover rate was 38% in 1998.
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<PAGE> 60
Blue Chip Portfolio - The Portfolio will not engage in short-term trading,
but it may dispose of securities held for a short period if, after
examination of their value, the sub-adviser believes such disposition to
be advisable in order to attain the Portfolio's investment objective. The
annual turnover rate is not normally expected to exceed 100%. The turnover
rate was 32% in 1998.
INVESTMENT OBJECTIVES AND POLICIES
The following descriptions of money market instruments supplement the
"Investment Objectives and Policies" set forth for each portfolio in the
prospectus. The Money Market Portfolio and the Omni and Strategic Income
Portfolios, to the extent they invest in the money market sector, will invest
extensively in these instruments. The other Portfolios may invest in such
instruments to a limited extent (to invest otherwise idle cash) or on a
temporary basis for defensive purposes. The debt security ratings referred to in
the prospectus in connection with the investment policies of the portfolios are
defined in the Appendix to this Statement of Additional Information.
MONEY MARKET INSTRUMENTS
U.S. Government Obligations - Bills, notes, bonds and other debt
securities issued or guaranteed as to principal or interest by the United
States or by agencies or authorities controlled or supervised by and
acting as instrumentalities of the U.S. Government established under
authority granted by Congress, including, but not limited to, the
Government National Mortgage Association, the Tennessee Valley Authority,
the Bank for Cooperatives, the Farmers Home Administration, and Federal
Home Loan Banks. Some obligations of U.S. Government agencies, authorities
and other instrumentalities are supported by the full faith and credit of
the U.S. Treasury; others by the right of the issuer to borrow from the
Treasury; and others only by the credit of the issuer. Certain of the
foregoing may be purchased on a "when issued" basis at which time the rate
of return will not have been set.
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.
9
<PAGE> 61
Repurchase Agreements - Agreements by which the Portfolio purchases a
security and obtains a simultaneous commitment from the seller (a member
bank of the Federal Reserve System or a government securities dealer
recognized by the Federal Reserve Board) to repurchase the security at a
mutually agreed upon price and date. It may also be viewed as a loan of
money by the Portfolio to the seller. The resale price is normally in
excess of the purchase price and reflects an agreed upon market rate. The
term of these repurchase agreements will generally be short, from
overnight to one week, and at no time more than one year.
INVESTMENT RESTRICTIONS
The prospectus lists the most significant investment restrictions to which the
Fund is subject. The following is a complete list of the Fund's investment
restrictions. Except as otherwise specified, investment restrictions stated in
the prospectus and this Statement of Additional Information are fundamental
policies. Restrictions number 4, 7, 8, 12 and 13 are fundamental policies of the
Equity, Money Market, Bond and Omni Portfolios and nonfundamental as to the
remaining portfolios. The fundamental policies and nonfundamental operating
policies of the International, International Small Company, Capital
Appreciation, Aggressive Growth, High Income Bond, Equity Income and Blue Chip
Portfolios are shown separately below. Fundamental policies may not be changed
without the affirmative vote of the majority of the outstanding voting
securities of the Fund or a particular portfolio, as appropriate. The Investment
Company Act of l940 defines a majority vote as the vote of the lesser of (i) 67%
of the shares represented at a meeting at which more than 50% of the outstanding
shares are represented or (ii) more than 50% of the outstanding voting
securities. With respect to the submission of a change in an investment policy
to the holders of outstanding voting securities of a particular portfolio, such
matter shall be deemed to have been effectively acted upon with respect to such
portfolio if a majority of the outstanding voting securities of such portfolio
vote for the approval of such matter, notwithstanding (1) that such matter has
not been approved by the holders of a majority of the outstanding voting
securities of any other portfolio affected by such matter, and (2) that such
matter has not been approved by the vote of a majority of the outstanding voting
securities of the Fund.
The Fund may not issue senior securities and each portfolio of the Fund (other
than the International, International Small Company, Capital Appreciation,
Aggressive Growth, High Income Bond, Equity Income and Blue Chip Portfolios)
will not:
l. invest more than 5% of the value of the total assets of such
portfolio in the securities of any one issuer (except U.S.
government securities);
2. purchase more than l0% of the outstanding voting securities of any
one issuer, and the Money Market Portfolio will not acquire the
voting securities of any issuer except in connection with a
merger, consolidation or other reorganization;
3. invest more than 25% of the value of its total assets in any one
industry, except that each portfolio may invest more than 25% of
the value of its total assets in obligations issued or guaranteed
by the U.S. government, its agencies or instrumentalities or in
certificates of deposit, bankers' acceptances, bank time deposits
or other obligations of banks or financial institutions. However,
it is the intention of management not to invest in time deposits
which involve any penalty or other restriction on withdrawal;
4. invest more than 15% of the value of its assets (10% in the case
of the Equity, Money Market, Bond and Omni Portfolios) in
securities or other investments, including repurchase agreements
maturing in more than seven days, that are subject to legal or
contractual restrictions upon resale or are otherwise not readily
marketable;
5. other than the Growth & Income, Strategic Income and Small Cap
Growth Portfolios, borrow money, except for temporary or emergency
purposes from banks, in which event the aggregate amount borrowed
shall not exceed 5% of the value of the assets of the portfolio;
in the case of such borrowing, each portfolio may pledge, mortgage
or hypothecate up to 5% of its assets. Reverse repurchase
agreements are not considered to be borrowed money for purposes of
this restriction. The Growth & Income, Strategic Income and Small
Cap Growth Portfolios may borrow money
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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, and (b) the S&P 500 Index Portfolio may purchase or sell
stock index futures contracts in accordance with its stated
investment objectives;
7. other than the S&P 500 Index Portfolio, purchase or sell put or
call options, except that each portfolio other than the Money
Market Portfolio may, for hedging purposes, (a) write call options
traded on a registered national securities exchange if such
portfolio owns the underlying securities subject to such options,
and purchase call options for the purpose of closing out positions
in options it has written, (b) purchase put options on securities
owned, and sell such options in order to close its positions in
put options, (c) purchase and sell financial futures contracts and
options thereon, and (d) purchase and sell financial index
options; provided, however, that no option or futures contract
shall be purchased or sold if, as a result, more than one-third of
the total assets of the portfolio would be hedged by options or
futures contracts, and no more than 5% of any portfolio's total
assets, at market value, may be used for premiums on open options
and initial margin deposits on futures contracts;
8. invest in securities of foreign issuers except that (a) each of
the Equity, Bond, Omni, Core Growth, Growth & Income, S&P 500
Index, Social Awareness and Relative Value Portfolios may (i)
invest up to l5% of their respective assets in securities of
foreign issuers (including foreign governments or political
subdivisions, agencies or instrumentalities of foreign
governments) American Depository Receipts, and securities of
United States domestic issuers denominated in foreign currency,
and (ii) invest up to an additional l0% of the assets of the
portfolio in securities issued by foreign governments or political
subdivisions, agencies or instrumentalities thereof, (b) each of
the Small Cap and Small Cap Growth Portfolios may invest up to 30%
of its assets in the securities of foreign issuers, (c) the Money
Market Portfolio may invest up to 50% of its assets in the
securities of foreign issuers, provided the securities are
denominated in U.S. dollars and held in custody in the United
States, (d) the Strategic Income Portfolio may invest up to 20% of
its assets in foreign bonds and (e) the Firstar Growth & Income
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;
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);
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13. as to the Equity, Money Market, Bond and Omni Portfolios,
participate on a joint or joint and several basis in any trading
account in securities, or purchase securities for the purpose of
exercising control or management;
14. purchase securities of other investment companies, except in
connection with a merger, consolidation or reorganization, or
except the purchase by any portfolio other than the Money Market
or Bond Portfolios of the securities of closed-end investment
companies if after the purchase: (i) a portfolio does not own more
than 3% of the total outstanding voting stock of the other
investment company or (ii) the value of the securities of all
investment companies held by such portfolio does not exceed 10% of
the value of the total assets of that portfolio. Purchases of
investment company securities will be made (a) only on the open
market or through dealers or underwriters receiving the customary
sales loads, or (b) as part of a merger, consolidation or plan of
reorganization.
As a nonfundamental policy of each portfolio other than the Money Market,
International, International Small Company, Capital Appreciation, Aggressive
Growth, High Income Bond, Equity Income and Blue Chip Portfolios, which policies
may be changed at any time by the vote of a majority of the Board of Directors,
each portfolio, in order to hedge against changes in the exchange rates of
foreign currencies in relation to the U.S. dollar, may engage in forward foreign
currency contracts, foreign currency options and foreign currency futures
contracts in connection with the purchase, sale or ownership of specific
securities (but, not more than 5% of a portfolio's assets may be invested in
such currency hedging contracts).
In addition to the above restrictions, in order to comply with Rule 2a-7 under
the Investment Company Act of 1940, no more than 5% of the assets of the Money
Market Portfolio will be invested in "second-tier" short-term debt instruments,
that is those receiving the second highest rating by any two nationally
recognized statistical rating organizations ("NRSRO's") and not receiving the
highest rating from more than one NRSRO (or receiving the second highest rating
from one NRSRO if (a) that is the only NRSRO having rated the security or (b)
one other NRSRO has given the security its highest rating), or whose issuer has
received such a rating 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.
INTERNATIONAL, INTERNATIONAL SMALL COMPANY, HIGH INCOME BOND, EQUITY INCOME AND
BLUE CHIP PORTFOLIO FUNDAMENTAL POLICIES
As a matter of fundamental policy:
F.I.1 The portfolios will not issue senior securities, except that a
portfolio may borrow money directly or through reverse repurchase
agreements in amounts not in excess of one-third of the value of its
total assets; provided that, while borrowings and reverse repurchase
agreements outstanding exceed 5% of a portfolio's total assets, any
such borrowings will be repaid before additional investments are made.
F.I.2. The portfolios will not purchase securities if, as a result of such
purchase, 25% or more of a portfolio's total assets would be invested
in any one industry. However, a portfolio may at any time invest 25% or
more of its total assets in cash or cash items and securities issued
and/or guaranteed by the U.S. government, its agencies or
instrumentalities.
F.I.3. The portfolios will not purchase or sell real estate, although they may
invest in securities of companies whose business involves the purchase
or sale of real estate or in securities secured by real estate or
interests in real estate.
F.I.4. The portfolios will not lend any of their assets, except a portfolio's
securities, up to one-third of its total assets. This shall not prevent
a portfolio from purchasing or holding corporate or U.S. government
bonds, debentures, notes, certificates of indebtedness or other debt
securities of an issuer, entering into repurchase agreements, or
engaging in other transactions which are permitted by the portfolio's
investment objectives and policies.
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<PAGE> 64
F.I.5. The portfolios will not underwrite any issue of securities, except as a
portfolio may be deemed to be an underwriter under the Securities Act
of 1933 in connection with the sale of securities in accordance with
its investment objectives, policies, and limitations.
F.I.6. With respect to 75% of its total assets, a portfolio will not purchase
the securities of any one issuer (other than cash, cash items, or
securities issued and/or guaranteed by the U.S. government, its
agencies or instrumentalities, and repurchase agreements collateralized
by such securities) if, as a result, more than 5% of its total assets
would be invested in the securities of that issuer. Also, a portfolio
will not purchase more than 10% of any class of the outstanding voting
securities of any one issuer. For these purposes, the portfolios
consider common stock and all preferred stock of an issuer each as a
single class, regardless of priorities, series, designations, or other
differences.
F.I.7. The portfolios will not purchase any securities on margin, but they may
obtain such short-term credits as are necessary for clearance of
transactions. The deposit or payment by a portfolio of initial or
variation margin in connection with financial futures contracts or
related options transactions is not considered the purchase of a
security on margin.
F.I.8. The portfolios will not purchase or sell commodities, except that a
portfolio may purchase and sell financial futures contracts and related
options.
INTERNATIONAL, INTERNATIONAL SMALL COMPANY, HIGH INCOME BOND, EQUITY INCOME AND
BLUE CHIP PORTFOLIO NONFUNDAMENTAL OPERATING POLICIES
As a matter of nonfundamental operating policy:
F.I.9. The portfolios will not pledge, mortgage or hypothecate any assets
except to secure permitted borrowings. In those cases, a portfolio may
pledge, mortgage or hypothecate assets having a market value not
exceeding the lesser of the dollar amounts borrowed or 15% of the value
of its total assets at the time of borrowing.
F.I.10. The portfolios will not sell securities short unless during the time
the short position is open, a portfolio owns an equal amount of the
securities sold or securities readily and freely convertible into or
exchangeable, without payment of additional consideration, for
securities of the same issue as, and equal in amount to, the securities
sold short; and not more than 10% of a portfolio's net assets (taken at
current value) is held as collateral for such sales at any one time.
F.I.11. Each of the portfolios will not invest more than 15% of its net assets
in illiquid securities, including, among others, repurchase agreements
providing for settlement more than seven days after notice, and certain
restricted securities not determined by the Board of Directors to be
liquid.
Under normal market conditions, at least 65% of the assets of the International
and International Small Company Portfolios will be invested in securities of
issuers in at least three different foreign countries. As of the date of this
Statement of Additional Information, the Board of Directors has approved
investment by those portfolios other than the Money Market Portfolio in 60
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, Bahamas, Bangla Desh,
Botswana, Brazil, Chile, China (Hong Kong, Shanghai and Shenzhen Exchanges),
Colombia, Czech Republic, Ecuador, Egypt, Estonia Ghana, Greece, Hungary, India,
Indonesia, Jordan, Latvia, Malaysia, Mauritius, Mexico, Morocco, Pakistan, Peru,
Philippines, Poland, Portugal, Romania, Russia, Singapore, South Africa, South
Korea, Sri Lanka, Taiwan, Thailand, Turkey, Uruguay, Venezuela and Zimbabwe.
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<PAGE> 65
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.
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.
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<PAGE> 66
For purposes of investment restriction C.A.3., U.S., state or local
governments, or related agencies or instrumentalities, are not considered
an industry.
For purposes of investment restriction C.A.4., the Portfolio will consider
the acquisition of a debt security to include the execution of a note or
other evidence of an extension of credit with a term of more than nine
months.
CAPITAL APPRECIATION PORTFOLIO NONFUNDAMENTAL OPERATING POLICIES
As a matter of nonfundamental operating policy, the Portfolio may not:
C.A.10. Purchase additional securities when money borrowed exceeds
5% of its total assets;
C.A.11. Invest in companies for the purpose of exercising
management or control;
C.A.12. Purchase a futures contract or an option thereon if, with
respect to positions in futures or options on futures which
do not represent bona fide hedging, the aggregate initial
margin and premiums on such options would exceed 5% of the
Portfolio's net asset value;
C.A.13. Purchase illiquid securities (including securities eligible
for resale under Rule 144A of the Securities Act of 1933)
and securities of unseasoned issuers if, as a result, more
than 15% of its net assets would be invested in such
securities;
C.A.14. Purchase securities of open-end or closed-end investment
companies, except for shares of the Reserve Investment
Fund, an internally managed money market fund of T. Rowe
Price, or otherwise in compliance with the Investment
Company Act of 1940;
C.A.15. Purchase securities on margin, except (i) for use of
short-term credit necessary for clearance of purchases of
portfolio securities and (ii) to make margin deposits in
connection with futures contracts or other permissible
investments;
C.A.16. Mortgage, pledge, hypothecate or, in any manner, transfer
any security owned by the Portfolio as security for
indebtedness except as may be necessary in connection with
permissible borrowings or investments and then such
mortgaging, pledging or hypothecating may not exceed
33-1/3% of the Portfolio's total assets at the time of
borrowing or investment;
C.A.17. Purchase participations or other direct interests in or
enter into leases with respect to, oil, gas, or other
mineral exploration or development programs if as a result
more than 5% of the value of the total assets of the
Portfolio would be invested in such programs;
C.A.18. Invest in puts, calls, straddles, spreads, or any
combination thereof, except to the extent permitted by the
prospectus and Statement of Additional Information;
C.A.19. Effect short sales of securities;
C.A.20. Purchase any warrants if as a result the Portfolio will
have more than 5% of its total assets invested in warrants;
provided that this restriction does not apply to warrants
acquired as a result of the purchase of another security;
or
C.A.21. Invest more than 25% of the Portfolio's total assets
(excluding reserves) in foreign securities.
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<PAGE> 67
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).
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
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<PAGE> 68
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.
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.
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INTERNATIONAL, INTERNATIONAL SMALL COMPANY, HIGH INCOME BOND, EQUITY INCOME AND
BLUE CHIP PORTFOLIO FUNDAMENTAL POLICIES
As a matter of fundamental policy:
F.I.1 The portfolios will not issue senior securities, except that a
portfolio may borrow money directly or through reverse repurchase
agreements in amounts not in excess of one-third of the value of its
total assets; provided that, while borrowings and reverse repurchase
agreements outstanding exceed 5% of a portfolio's total assets, any
such borrowings will be repaid before additional investments are made.
F.I.2. The portfolios will not purchase securities if, as a result of such
purchase, 25% or more of a portfolio's total assets would be invested
in any one industry. However, a portfolio may at any time invest 25% or
more of its total assets in cash or cash items and securities issued
and/or guaranteed by the U.S. government, its agencies or
instrumentalities.
F.I.3. The portfolios will not purchase or sell real estate, although they may
invest in securities of companies whose business involves the purchase
or sale of real estate or in securities secured by real estate or
interests in real estate.
F.I.4. The portfolios will not lend any of their assets, except a portfolio's
securities, up to one-third of its total assets. This shall not prevent
a portfolio from purchasing or holding corporate or U.S. government
bonds, debentures, notes, certificates of indebtedness or other debt
securities of an issuer, entering into repurchase agreements, or
engaging in other transactions which are permitted by the portfolio's
investment objectives and policies.
F.I.5. The portfolios will not underwrite any issue of securities, except as a
portfolio may be deemed to be an underwriter under the Securities Act
of 1933 in connection with the sale of securities in accordance with
its investment objectives, policies, and limitations.
F.I.6. With respect to 75% of its total assets, a portfolio will not purchase
the securities of any one issuer (other than cash, cash items, or
securities issued and/or guaranteed by the U.S. government, its
agencies or instrumentalities, and repurchase agreements collateralized
by such securities) if, as a result, more than 5% of its total assets
would be invested in the securities of that issuer. Also, a portfolio
will not purchase more than 10% of any class of the outstanding voting
securities of any one issuer. For these purposes, the portfolios
consider common stock and all preferred stock of an issuer each as a
single class, regardless of priorities, series, designations, or other
differences.
F.I.7. The portfolios will not purchase any securities on margin, but they may
obtain such short-term credits as are necessary for clearance of
transactions. The deposit or payment by a portfolio of initial or
variation margin in connection with financial futures contracts or
related options transactions is not considered the purchase of a
security on margin.
F.I.8. The portfolios will not purchase or sell commodities, except that a
portfolio may purchase and sell financial futures contracts and related
options.
INTERNATIONAL, INTERNATIONAL SMALL COMPANY, HIGH INCOME BOND, EQUITY INCOME AND
BLUE CHIP PORTFOLIO NONFUNDAMENTAL OPERATING POLICIES
As a matter of nonfundamental operating policy:
F.I.9. The portfolios will not pledge, mortgage or hypothecate any assets
except to secure permitted borrowings. In those cases, a portfolio may
pledge, mortgage or hypothecate assets having a
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<PAGE> 70
market value not exceeding the lesser of the dollar amounts borrowed or
15% of the value of its total assets at the time of borrowing.
F.I.10. The portfolios will not sell securities short unless during the time
the short position is open, a portfolio owns an equal amount of the
securities sold or securities readily and freely convertible into or
exchangeable, without payment of additional consideration, for
securities of the same issue as, and equal in amount to, the securities
sold short; and not more than 10% of a portfolio's net assets (taken at
current value) is held as collateral for such sales at any one time.
F.I.11. Each of the portfolios will not invest more than 15% of its net assets
in illiquid securities, including, among others, repurchase agreements
providing for settlement more than seven days after notice, and certain
restricted securities not determined by the Board of Directors to be
liquid.
HEDGING TRANSACTIONS
The purpose of hedging transactions using put and call options on individual
securities, financial futures contracts, and options on such contracts and on
financial indexes, all to the extent provided in investment restriction 7, is to
reduce the risk of fluctuation of portfolio securities values or to take
advantage of expected market fluctuations. However, while such transactions are
defensive in nature and are not speculative, some risks remain.
The use of options and futures contracts may help the Fund to gain exposure or
to protect itself from changes in market values. For example, the Fund may have
a substantial amount of cash at the beginning of a market rally. Conventional
procedures of purchasing a number of individual issues requires time and may
result in missing a significant market movement. By using futures contracts, the
Fund can obtain immediate exposure to the market.
The buying program will then proceed and, once it is completed (or as it
proceeds), the futures contracts will be closed. Conversely, in the early stages
of a market decline, market exposure can be promptly offset by selling futures
contracts, and individual securities can be sold over a longer period under
cover of the resulting short contract position.
COVERED CALL OPTIONS AND PUT OPTIONS
In writing (i.e., selling) "covered" call options on securities owned by a
portfolio, the portfolio gives the purchaser of the call option the right to
purchase the underlying securities owned by the portfolio at a specified
"exercise" price at any time prior to the expiration of the option, normally
within nine months. In purchasing put options on securities owned by a
portfolio, the portfolio pays the seller of the put option a premium for the
right of the portfolio to sell the underlying securities owned by the portfolio
at a specified exercise price prior to the expiration of the option.
Whenever a portfolio has a covered call option outstanding, the underlying
securities will be segregated by the Custodian and held in an escrow account to
assure that such securities will be delivered to the option holder if the option
is exercised. While the underlying securities are subject to the option, the
portfolio remains the record owner of the securities, entitling it to receive
dividends and to exercise any voting rights.
In order to terminate its position as the writer of a call option or the
purchaser of a put option, the portfolio may enter into a "closing" transaction,
which is the purchase of a call option or sale of a put option on the same
underlying securities and having the same exercise price and expiration date as
the option previously sold or purchased by the portfolio.
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<PAGE> 71
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.
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.
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
20
<PAGE> 72
the hedged currency, at the same time they tend to limit any potential gain
which might result should the value of such currency increase.
Forward contracts are traded in the interbank market conducted directly between
currency traders (usually large commercial banks) and their customers. Generally
a forward contract has no deposit requirement, and no commissions are charged.
Although foreign exchange dealers do not charge a fee for conversion, they do
realize a profit based on the difference between the prices at which they buy
and sell various currencies. When the portfolio manager believes that the
currency of a particular foreign country may suffer a substantial decline
against the U.S. dollar, a portfolio may enter into a forward contract to sell,
for a fixed amount of dollars, the amount of foreign currency approximating the
value of some or all of that portfolio's securities denominated in such foreign
currency. No portfolio will enter into such forward contracts or maintain a net
exposure to such contracts where the consummation of the contracts would
obligate the portfolio to deliver an amount of foreign currency in excess of the
value of its assets denominated in that currency.
At the consummation of a forward contract for delivery by a portfolio of a
foreign currency, the portfolio may either make delivery of the foreign currency
or terminate its contractual obligation to deliver the foreign currency by
purchasing an offsetting contract obligating it to purchase, at the same
maturity date, the same amount of the foreign currency. If the portfolio chooses
to make delivery of the foreign currency, it may be required to obtain such
currency through the sale of its securities denominated in such currency or
through conversion of other portfolio assets into such currency. It is
impossible to forecast the market value of portfolio securities at the
expiration of the forward contract. Accordingly, it may be necessary for the
portfolio to purchase additional foreign currency on the spot market (and bear
the expense of such purchase) if the market value of the security is less than
the amount of foreign currency the portfolio is obligated to deliver, and if a
decision is made to sell the security and make delivery of the foreign currency.
Conversely, it may be necessary for the portfolio to sell on the spot market
some of the foreign currency received on the sale of its hedged security if the
security's market value exceeds the amount of foreign currency the portfolio is
obligated to deliver.
If the portfolio retains the hedged security and engages in an offsetting
transaction, it will incur a gain or loss to the extent that there has been
movement in spot or forward contract prices. If a portfolio engages in an
offsetting transaction, it may subsequently enter into a new forward contract to
sell the foreign currency. Should forward prices decline during the period
between the portfolio's entering into a forward contract for the sale of a
foreign currency and the date it enters into an offsetting contract for the
purchase of the foreign currency, the portfolio will realize a gain to the
extent the price of the currency it has agreed to sell exceeds the price of the
currency it has agreed to purchase. Should forward prices increase, the
portfolio will suffer a loss to the extent the price of the currency it has
agreed to purchase exceeds the price of the currency it has agreed to sell.
Buyers and sellers of foreign currency options and futures contracts are subject
to the same risks previously described with respect to options and futures
generally (see "Risk Factors with Options" and "Risk Factors with Futures,
Options on Futures and Options on Indexes," above). In addition, settlement of
currency options and futures contracts with respect to most currencies must
occur at a bank located in the issuing nation. The ability to establish and
close out positions on such options is subject to the maintenance of a liquid
market that may not always be available. Currency rates may fluctuate based on
political considerations and governmental actions as opposed to purely economic
factors.
Predicting the movements of foreign currency in relation to the U.S. dollar is
difficult and requires different skills than those necessary to predict
movements in the securities market. There is no assurance that the use of
foreign currency hedging transactions can successfully protect a portfolio
against loss resulting from the movements of foreign currency in relation to the
U.S. dollar. In addition, it must be remembered that these methods of protecting
the value of a portfolio's securities against a decline in the value of a
currency does not eliminate fluctuations in the underlying prices of the
securities. It simply establishes a rate of exchange which can be achieved at
some future point in time. Additionally, although such contracts tend to
minimize the risk of loss due to the decline in the value of the hedged
currency, at the same time they tend to limit any potential gain which might
result should the value of such currency increase.
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<PAGE> 73
HYBRID INSTRUMENTS
Hybrid instruments are potentially high-risk derivatives. They can combine the
characteristics of securities, futures and options. For example, the principal
amount, redemption or conversion terms of a security could be related to the
market price of some commodity, currency or futures index. Hybrid instruments
may bear interest or pay dividends at or below market or even relatively
nominal rates. Under certain conditions, the redemption value of an investment
could be zero. The Capital Appreciation portfolio may invest up to 10% of its
total assets in hybrid instruments.
SWAPS
Swaps are contracts in which two parties agree to pay each other (swap) the
returns derived from underlying assets with differing characteristics. Most
swaps do not involve the delivery of the underlying assets by either party, and
the parties might not even own the assets underlying the swap. The payments are
usually made on a net basis so that, on any given day, the portfolio would
receive (or pay) only the amount by which its payment under the contract is
less than (or exceeds) the amount of the other party's payment. Swap agreements
are sophisticated derivative instruments that can take many forms. They are
known by a variety of names including caps, floors and collars.
Interest rate swaps are contracts in which one party agrees to make regular
payments equal to a fixed or floating interest rate times a stated principal
amount of fixed income securities in return for payments equal to a different
fixed or floating rate, times the same principal amount, for a specified
period. For example, a $10 million LIBOR swap would require one party to pay to
the other party the equivalent of the London Interbank Offer Rate of interest
(which fluctuates) on $10 million principal amount in exchange for the right to
receive the equivalent of a stated fixed rate of interest on a $10 million
principal amount.
Currency swaps are contracts which provide for interest payments in different
currencies. The parties might agree to exchange the notional principal amount as
well.
Caps and Floors are contracts in which one party agrees to make payments only if
an interest rate or index goes above (Cap) or below (Floor) a certain level
in return for a fee from the other party.
SHORT SALES
Until a borrowed security borrowed in connection with a short sale (as described
in the prospectus) is replaced, a portfolio will be required to maintain daily a
segregated account, containing cash or U.S. government securities, at such a
level that (i) the amount deposited in the account plus the amount deposited
with the broker as collateral will at all times be equal to at least 100% of the
current value of the security sold short and (ii) the amount deposited in the
segregated account plus the amount deposited with the broker as collateral will
not be less than the market value of the security at the time it was sold short.
A portfolio may purchase call options to provide a hedge against an increase in
the price of a security sold short. When a portfolio purchases a call option, it
has to pay a premium to the person writing the option and a commission to the
broker selling the option. If the option is exercised by a portfolio, the
premium and the commission paid may be more than the amount of the brokerage
commission charged if the security were to be purchased directly. See "Hedging
Transactions" and "Covered Call Options and Put Options." In addition to the
short sales discussed above, a portfolio also may make short sales "against the
box," a transaction in which a portfolio enters into a short sale of a security
which the portfolio owns. The proceeds of the short sale are held by a broker
until the settlement date, at which time the portfolio delivers the security to
close the short position. A portfolio receives the net proceeds from the short
sale. No portfolio will, at any time, have more than 5% of the value of its net
assets in deposits on short sales against the box.
BORROWING MONEY
The portfolios will not borrow money except as a temporary measure for
extraordinary or emergency purposes and then only in amounts not in excess of 5%
of the value of a portfolio's total assets. In addition, certain portfolios may
enter into reverse repurchase agreements and otherwise borrow up to one-third of
the value of the portfolio's total assets, including the amount borrowed, in
order to meet redemption requests without immediately selling portfolio
securities. This latter practice is not for investment leverage but solely to
facilitate management of a portfolio by enabling it to meet redemption requests
when the liquidation of portfolio instruments would be inconvenient or
disadvantageous.
Interest paid on borrowed funds will not be available for investment and will
reduce net income. A portfolio will liquidate any such borrowings as soon as
possible and may not purchase any portfolio securities while the borrowings are
outstanding. However, during the period any reverse repurchase agreements are
outstanding, but only to the extent necessary to assure completion of the
reverse repurchase agreements, the purchase of portfolio securities will be
limited to money market instruments maturing on or before the expiration date of
the reverse repurchase agreements.
ZERO-COUPON AND PAY-IN-KIND DEBT SECURITIES
Zero-coupon securities (or "step ups") in which a portfolio may invest are debt
obligations which are generally issued at a discount and payable in full at
maturity, and which do not provide for current payments of interest prior to
maturity. Pay-in-kind securities make periodic interest payments in the form of
additional securities (as opposed to cash). Zero-coupon and pay-in-kind
securities usually trade at a deep discount from their face or par value and are
subject to greater market value fluctuations from changing interest rates than
debt obligations of comparable maturities which make current distributions of
interest. As a result, the net asset value of shares of a portfolio investing in
zero-coupon and pay-in-kind securities may fluctuate over a greater range than
shares of other mutual funds investing in securities making current
distributions of interest and having similar maturities.
When debt obligations have been stripped of their unmatured interest coupons by
the holder, the stripped coupons are sold separately. The principal or corpus is
sold at a deep discount because the buyer receives only the right to receive a
future fixed payment on the security and does not receive any rights to periodic
cash interest payments. Once stripped or separated, the corpus and coupons may
be sold separately. Typically, the coupons are sold separately or grouped with
other coupons with like maturity dates and sold in such bundled form. Purchasers
of stripped obligations acquire, in effect, discount obligations that are
economically identical to the zero-coupon securities issued directly by the
obligor.
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<PAGE> 74
Zero-coupon convertible securities are debt instruments issued at a discount to
their face amount and convertible to common stock (see "Convertible Securities,"
above). These securities usually have put features giving the holder the
opportunity to sell them back to the issuer at a stated price prior to maturity.
The prices of zero-coupon convertible securities are generally more sensitive to
interest rate fluctuations than are conventional convertible securities.
Zero-coupon securities allow an issuer to avoid the need to generate cash to
meet current interest payments. Even though zero-coupon securities do not pay
current interest in cash, federal income tax law requires zero-coupon holders to
recognize accrued income prior to receipt of actual cash payment (i.e., at
maturity). In order to avoid federal income tax liability and maintain its
status as a regulated investment company, a portfolio may have to sell these
securities at disadvantageous times in order to generate cash for the
distribution of accrued income.
MANAGEMENT OF THE FUND
DIRECTORS AND OFFICERS OF THE FUND
The Fund's Board of Directors is responsible for the Fund's management. The
Board of Directors can amend the Fund's By-laws, elect its officers, declare and
pay dividends, and exercise all the Fund's powers except those reserved to the
shareholders.
The directors and officers of the Fund, together with information as to their
principal occupations during the past five years are listed below:
<TABLE>
<CAPTION>
Position with Principal Occupation
Name and address the Fund during past five years
- ---------------- -------- ----------------------
<S> <C> <C>
Ronald L. Benedict* Secretary and Corporate Vice President, Counsel and
One Financial Way Director Secretary, ONLI; Secretary of the Adviser
Cincinnati, Ohio
George E. Castrucci Director Retired; formerly President and
8355 Old Stable Rd. Chief Operating Officer of Great American
Cincinnati, Ohio Communications Co. and Chairman and Chief
Executive Officer of Great American
Broadcasting Co.; Director of Benchmark
Savings Bank; Director of Baldwin Piano &
Organ Co.
Ross Love Director President & CEO, Blue Chip Broadcasting Ltd.;
615 Windings Way Trustee, Health Alliance of Greater
Cincinnati, Ohio Cincinnati; Director, Partnership for a
Drug Free America (Chairman of
African-American Task Force); Advisory
Board, Syracuse University School of
Management; Director, Association of
National Advertisers; Until 1996 was Vice
President of Advertising, Procter & Gamble
Co.
John J. Palmer* President and Senior Vice President, Strategic Initiatives,
One Financial Way Director ONLI; Prior to March, 1997, was Senior Vice
Cincinnati, Ohio President of Life Insurance Company of Virginia
</TABLE>
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<PAGE> 75
<TABLE>
<CAPTION>
Position with Principal Occupation
Name and address the Fund during past five years
- ---------------- -------- ----------------------
<S> <C> <C>
George M. Vredeveld Director Professor of Economics, University of
University of Cincinnati of Cincinnati; Director of Center for
P.O. Box 210223 Economic Education; Private Consultant;
Cincinnati, Ohio Director of Benchmark Savings Bank
Thomas A. Barefield Vice President Senior Vice President, Institutional Sales,
One Financial Way ONLI; Prior to November, 1997, was Senior
Cincinnati, Ohio Vice President of Life Insurance Company
of Virginia
Michael A. Boedeker Vice President Vice President, Fixed Income
One Financial Way Securities, ONLI; Vice President
Cincinnati, Ohio and Director of the Adviser
Joseph P. Brom Vice President Vice President, Investments,
One Financial Way ONLI; President and Director
Cincinnati, Ohio of the Adviser
Stephen T. Williams Vice President Vice President, Equity Securities, ONLI;
One Financial Way Vice President and Director of
Cincinnati, Ohio the Adviser
Dennis R. Taney Treasurer Assistant Vice President, Mutual Fund
One Financial Way Operations, ONLI; Treasurer of the
Cincinnati, Ohio Adviser
</TABLE>
*Indicates Directors who are "Interested Persons" as defined by the Investment
Company Act of 1940, as amended.
All directors and officers of the Fund hold similar positions with ONE Fund,
Inc. ("ONE Fund") and Dow Target Variable Fund LLC ("Dow Target"), other
investment companies sponsored by ONLI and managed by the Adviser.
COMPENSATION OF DIRECTORS
Directors who are not affiliated with the Adviser, ONLI, ONLAC or a sub-adviser
were compensated as follows in 1998:
<TABLE>
<CAPTION>
Aggregate Compensation Total Compensation
Director From the Fund From Fund Complex*
- -------- ------------- ------------------
<S> <C> <C>
George E. Castrucci $11,200 $16,950
Ross Love 11,200 16,950
George M. Vredeveld 11,200 16,950
</TABLE>
* The "Fund Complex" consists of the Fund, ONE Fund and Dow Target.
Directors and officers of the Fund who are affiliated with the Adviser, ONLI or
ONLAC receive no compensation from the Fund Complex. The Fund has no pension,
retirement or deferred compensation plan for its directors or officers.
SHAREHOLDERS' MEETINGS
The Fund's by-laws 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.
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<PAGE> 76
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, International Small Company, Aggressive Growth, Core
Growth, Growth & Income, Strategic Income, Firstar Growth & Income, Relative
Value, Small Cap Growth, High Income Bond, Equity Income and Blue Chip
Portfolios, by delegating that implementation to FGIM, TRPA, FAM, SCM, PBA,
RSIM, FIC, Firstar or Firmco as the case may be.
The Adviser's services are provided under an Investment Advisory Agreement with
the Fund. Under the Investment Advisory Agreement, the Adviser provides
personnel, including executive officers for the Fund. The Adviser also furnishes
at its own expense or pays the expenses of the Fund for clerical and related
administrative services (other than those provided by the custodian agreements
with Firstar and Investors Fiduciary Trust Company and an agency agreement with
American Data Services, Inc.), office space, and other facilities. The Fund pays
corporate expenses incurred in its operations, including, among others, local
income, franchise, issuance or other taxes; certain printing costs; brokerage
commissions on portfolio transactions; custodial and transfer agent fees;
auditing and legal expenses; and expenses relating to registration of its shares
for sale and shareholders' meetings.
As compensation for its services, the Adviser receives from the Fund annual fees
on the basis of each portfolio's average daily net assets during the month for
which the fees are paid based on the following schedule:
(a) for each of the Equity, Bond, Omni and Social Awareness Portfolios, 0.60% of
the first $100 million of each Portfolio's average daily net assets, 0.50% of
the next $150 million, 0.45% of the next $250 million, 0.40% of the next $500
million, 0.30% of the next $1 billion, and 0.25% of average daily net assets
over $2 billion;
(b) for the Money Market Portfolio, 0.30% of the first $100 million of average
daily net assets, 0.25% of the next $150 million, 0.23% of the next $250
million, 0.20% of the next $500 million, and 0.15% of average daily net assets
over $1 billion;
(c) for the International, Relative Value, Small Cap Growth and Blue Chip
Portfolios, 0.90% of each Portfolio's average daily net assets;
(d) for the Capital Appreciation, Small Cap, Aggressive Growth and Strategic
Income Portfolios, 0.80% of each Portfolio's average daily net assets,
(e) for the Core Growth Portfolio, 0.95% of the first $150 million of average
daily net assets, and 0.80% of average daily net assets over $150 million;
(f) for the Growth & Income Portfolio, 0.85% of the first $200 million of
average daily net assets, and 0.80% of average daily net assets over $200
million,
(g) for the S&P 500 Index Portfolio, 0.40% of the first $100 million of average
daily net assets, 0.35% of the next $150 million, and 0.33% of average daily net
assets over $250 million;
(h) for the Firstar Growth & Income Portfolio, 0.90% of that Portfolio's average
daily net assets;
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<PAGE> 77
(i) for the High Income Bond and Equity Income Portfolios, 0.75% of each
Portfolio's average daily net assets, and
(j) for the International Small Company Portfolio, 1.00% of the first $100
million of average daily net assets, and 0.90% of average daily net assets over
$100 million.
However, as to the Money Market Portfolio, the Adviser is presently waiving any
of its fee in excess of 0.25%, and as to the International Portfolio, the
Adviser is presently waiving any of its fee in excess of 0.85%.
The Fund also incurs other miscellaneous expenses for legal and accounting
services, registration and filing fees, custodial services and shareholder
services.
Under the Investment Advisory Agreement, the Fund authorizes the Adviser to
retain sub-advisers for the International, Capital Appreciation, Small Cap,
International Small Company, Aggressive Growth, Core Growth, Growth & Income,
Strategic Income, Firstar Growth & Income, Relative Value, Small Cap Growth,
High Income Bond, Equity Income and Blue Chip Portfolios, subject to the
approval of the Fund's Board of Directors. The Adviser has entered into
Sub-Advisory Agreements with FGIM, TRPA, FAM, SCM, PBA, RSIM, Firstar, Firmco
and FIC, as the case may be, to manage the investment and reinvestment of those
Portfolios' assets, subject to the supervision of the Adviser. As compensation
for their services the Adviser pays:
(a) FGIM fees at the annual rate of
(i) 0.45% of the first $200 million and 0.40% of average daily net assets
in excess of $200 million of the International Portfolio, and
(ii) 0.75% of the first $100 million and 0.65% of average daily net assets
in excess of $100 million of the International Small Company Portfolio;
(b) TRPA a fee at an annual rate of 0.50% of the average daily net asset value
of the Capital Appreciation Portfolio;
(c) FAM a fee at an annual rate of 0.625% of the first $75 million, 0.55% of the
next $75 million, 0.50% of the next $150 million, and 0.40% of the average daily
net asset value in excess of $300 million of the Small Cap Portfolio;
(d) SCM a fee at an annual rate of 0.55% of the first $50 million, and 0.45% of
average daily net asset value in excess of $50 million of the Aggressive Growth
Portfolio;
(e) PBA a fee at an annual rate of 0.65% of the first $50 million, 0.60% of the
next $100 million, and 0.50% of average daily net assets in excess of $150
million of the Core Growth Portfolio;
(f) RSIM fees at an annual rate of
(i) 0.60% of the first $100 million, 0.55% of the next $100 million, and
0.50% of average daily net assets in excess of $200 million of the Growth
& Income Portfolio, and
(ii) 0.64% of the first $100 million, 0.60% of the next $100 million and
0.50% of average daily net assets in excess of $200 million of the Small
Cap Growth Portfolio;
(g) Firstar fees at an annual rate of
(i) 0.55% of the first $50 million and 0.50% of average daily net assets
in excess of $50 million of the Strategic Income Portfolio, and
(ii) 0.65% of the first $50 million and 0.60% of average daily net assets
in excess of $50 million of the Relative Value Portfolio;
(h) FIC fees at an annual rate of
26
<PAGE> 78
(i) 0.50% of the first $30 million, 0.40% of the next $20 million,0.30% of
the next $25 million, and 0.25% of average daily net assets in excess of
$75 million of the High Income Bond Portfolio, and
(ii) 0.50% of the first $35 million, 0.35% of the next $65 million and
0.25% of average daily net assets in excess of $100 million for directing
the investment and reinvestment of the assets of each of the Equity Income
and Blue Chip Portfolios; and
(i) Firmco a fee at an annual rate of 0.65% of the first $50 million and 0.60%
of average daily net assets in excess of $50 million of the Firstar Growth &
Income Portfolio.
The following investment advisory fees from each of the Fund's portfolios were
paid to ONIMCO and the Adviser for each of the indicated years, ending December
31*:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Equity $1,550,392 $1,431,415 $1,124,431
Money Market** 94,306 71,176 48,721
Bond 150,300 121,188 117,359
Omni 1,116,792 948,021 735,210
International** 1,346,274 1,416,777 1,045,160
Capital Appreciation 559,341 386,595 229,794
Small Cap 490,439 378,436 212,875
International Small Company 175,546 130,704 70,122
Aggressive Growth 182,408 125,073 63,707
Core Growth 96,330 62,237 N/A
Growth & Income 323,909 61,464 N/A
S&P 500 Index 212,478 43,376 N/A
Social Awareness 40,259 16,529 N/A
Strategic Income 30,384 18,318 N/A
Firstar Growth & Income 32,977 23,440 N/A
Relative Value 80,506 30,639 N/A
Small Cap Growth 10,726 N/A N/A
High Income Bond 50,117 N/A N/A
Equity Income 9,909 N/A N/A
Blue Chip 13,619 N/A N/A
---------- ---------- ----------
$6,567,012 $5,265,388 $3,647,379
</TABLE>
* The International Portfolio commenced operations on April 30, 1993. The
Capital Appreciation and Small Cap Portfolios commenced operations on May 1,
1994. The International Small Company and Aggressive Growth Portfolios commenced
operations on March 31, 1995. The Core Growth, Growth & Income, S&P 500 Index,
Social Awareness, Strategic Income, Firstar Growth & Income and Relative Value
Portfolios commenced operations on January 3, 1997. The Small Cap Growth, High
Income Bond, Equity Income and Blue Chip Portfolios commenced operations on May
1, 1998.
** For the Money Market Portfolio, an additional $15,718, $14,235 and $9,697
was earned but waived in 1998, 1997 and 1996 respectively, as described above.
(The waiver of International Portfolio fees in excess of 0.85% did not commence
until January 1999.)
The Investment Advisory Agreement also provides that if the total expenses
applicable to any portfolio during any calendar quarter (excluding taxes,
brokerage commissions, interest and the investment advisory fee) exceed l%, on
an annualized basis, of such portfolio's average daily net asset value, the
Adviser will pay such expenses. No such amounts were paid to any portfolio
during the three years ended December 31, 1998.
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.
27
<PAGE> 79
The Board of Directors and the shareholders of the respective portfolios
initially voted to approve the current Investment Advisory, Service and
Sub-Advisory Agreements on the dates indicated below:
<TABLE>
<CAPTION>
Board of
Directors Shareholders
--------- ------------
<S> <C> <C>
Equity 1-24-96 3-28-96
Money Market 1-24-96 3-28-96
Bond 1-24-96 3-28-96
Omni 1-24-96 3-28-96
International (Investment Advisory and Service) 1-24-96 3-28-96
International (Sub-Advisory) 12-9-98 4-05-99
Capital Appreciation 1-24-96 3-28-96
Small Cap (Investment Advisory and Service) 1-24-96 3-28-96
Small Cap (Sub-Advisory) 11-19-97 2-17-98
International Small Company (Investment Advisory and Service) 1-24-96 3-28-96
International Small Company (Sub-Advisory) 12-9-98 4-05-99
Aggressive Growth 1-24-96 3-28-96
Core Growth 8-22-96 1-02-97
Growth & Income (Investment Advisory and Service) 8-22-96 1-02-97
Growth & Income (Sub-Advisory) 2-24-99 4-05-99
S&P 500 Index 8-22-96 1-02-97
Social Awareness 8-22-96 1-02-97
Strategic Income 8-22-96 1-02-97
Firstar Growth & Income (Investment Advisory and Service) 8-22-96 1-02-97
Firstar Growth & Income (Sub-Advisory) 2-24-99 4-05-99
Relative Value 8-22-96 1-02-97
Small Cap Growth (Investment Advisory and Service) 2-11-98 4-30-98
Small Cap Growth (Sub-Advisory) 2-24-99 4-05-99
High Income Bond 2-11-98 4-30-98
Equity Income 2-11-98 4-30-98
Blue Chip 2-11-98 4-30-98
</TABLE>
These agreements will continue in force from year to year if continuance is
specifically approved at least annually by a majority of the Fund's directors
who are not parties to such agreements or interested persons of any such party,
with votes to be cast in person at a meeting called for the purpose of voting on
such continuance, and also by a majority of the Board of Directors or by a
majority of the outstanding voting securities of each portfolio voting
separately.
The Investment Advisory, Service, and Sub-Advisory Agreements may be terminated
at any time, without the payment of any penalty, on 60 days' written notice to
the Adviser by the Fund's Board of Directors or, as to any portfolio, by a vote
of the majority of the portfolio's outstanding voting securities. The Investment
Advisory Agreement may be terminated by the Adviser on 90 days' written notice
to the Fund. The Service Agreement may be terminated, without penalty, by the
Adviser or ONLI on 90 days' written notice to the Fund and the other party. The
Sub-Advisory Agreements may be terminated, without penalty, by the Adviser or
the sub-adviser on 90 days' written notice to the Fund and the other party. The
Agreements will automatically terminate in the event of their assignment.
BROKERAGE ALLOCATION
The Adviser buys and sells the portfolio securities for the 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.
28
<PAGE> 80
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>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Equity $ 249,512 $167,877 $ 76,647
Money Market None None None
Bond None None None
Omni 130,934 96,409 41,879
International 253,718 286,011 187,147
Capital Appreciation 63,490 40,887 33,327
Small Cap 78,359 55,034 48,973
International Small Company 101,032 45,153 17,514
Aggressive Growth 118,001 104,590 173,952
Core Growth 17,204 12,359 N/A
Growth & Income 270,046 51,188 N/A
S&P 500 Index 48,797 74,063 N/A
Social Awareness 39,951 16,522 N/A
Strategic Income 6,613 5,127 N/A
Firstar Growth & Income 16,648 4,353 N/A
Relative Value 28,388 11,110 N/A
Small Cap Growth 3,000 N/A N/A
High Income Bond None N/A N/A
Equity Income 2,017 N/A N/A
Blue Chip 4,014 N/A N/A
---------- -------- --------
$1,431,724 $970,683 $579,439
</TABLE>
In l998, substantially all of such commissions were paid to brokers who
furnished statistical data and research information to the Adviser or a
sub-adviser.
29
<PAGE> 81
PURCHASE AND REDEMPTION OF SHARES
Fund shares are sold without a sales charge and may be redeemed at their net
asset value next computed after a purchase or redemption order is received by
the Fund. (The net asset value for the Money Market Portfolio is normally $l0
per share.) Depending upon the net asset values at that time, the amount paid
upon redemption may be more or less than the cost of the shares redeemed.
Payment for shares redeemed will be made as soon as possible, but in any event
within seven days after evidence of ownership of the shares is tendered to the
Fund. However, the Fund may suspend the right of redemption or postpone the date
of payment beyond seven days during any period when (a) trading on the New York
Stock Exchange is restricted, as determined by the Securities and Exchange
Commission, or such Exchange is closed for other than weekends and holidays; (b)
an emergency exists, as determined by the Commission, as a result of which
disposal by the Fund of securities owned by it is not reasonably practicable, or
it is not reasonably practicable for the Fund fairly to determine the value of
its net assets; or (c) the Commission by order so permits for the protection of
security holders of the Fund.
Shares of one portfolio may be exchanged for shares of another portfolio of the
Fund on the basis of the relative net assets value next computed after an
exchange order is received by the Fund.
The net asset value of the Fund's shares is determined on each day on which an
order for purchase or redemption of the Fund's shares is received and there is a
sufficient degree of trading in portfolio securities that the current net asset
value of its shares might be materially affected. Such determination is made as
of 4:00 p.m. Eastern time on each day the New York Stock Exchange is open for
unrestricted trading. The net asset value of each portfolio is computed by
dividing the value of the securities in that portfolio plus any cash or other
assets less all liabilities of the portfolio, by the number of shares
outstanding for that portfolio.
Securities which are held in a portfolio and listed on a securities exchange are
valued at the last sale price or, if there has been no sale that day, at the
last bid price reported as of 4 p.m. Eastern time. Over-the-counter securities
are valued at the last bid price as of 4 p.m. Eastern time.
The Board of Directors is ultimately responsible for determining the current net
asset values of each portfolio. The Board has authorized the Adviser and its
service providers to use the following sources to determine the current daily
prices of securities owned by the portfolios: Interactive Data Corporation (and
related "Fundrun" services), Reuters, Bloomberg and any brokers making a market
in a particular security.
Short-term debt securities in all portfolios other than the Money Market and
Omni Portfolios, with remaining maturities of 60 days or less, are valued at
amortized cost. The Fund has obtained an exemptive order from the Commission
permitting it to value all short-term debt securities in the Omni Portfolio at
amortized cost. The Fund relies on Rule 2a-7 under the Investment Company Act of
1940 to value the assets of the Money Market Portfolio on the basis of amortized
cost with a view toward stabilizing the net asset value at $l0 per share and
allowing dividend payments to reflect net interest income as earned.
Accordingly, the short-term debt assets of the Omni and Money Market Portfolios
are valued at their cost on the date of acquisition with a daily adjustment
being made to accrued income to reflect amortization of premium or accretion of
discount to the maturity date. All other assets of the Omni Portfolio and of
those portfolios other than the Money Market Portfolio, including restricted
debt securities and other investments for which market quotations are not
readily available, are valued at their fair value as determined in good faith by
the Board of Directors.
As a condition of the exemptive order, the Fund has agreed, with respect to
short-term debt securities in its Omni Portfolio, to maintain a dollar-weighted
average maturity of not more than l20 days and to not purchase any such debt
security having a maturity of more than one year. In relying on Rule 2a-7 with
respect to short-term debt securities in its Money Market Portfolio, the Fund
has agreed to maintain a dollar-weighted average portfolio maturity of not more
than 90 days and to not purchase any such debt security having a maturity of
more than 397 days. The dollar-weighted average maturity of short-term debt
securities is determined by dividing the sum of the dollar value of each such
security times the remaining days to maturity of such security by the sum of the
dollar value of all short-term debt securities. Should the disposition of a
short-term debt security result in a dollar-weighted average maturity of more
than the number of days allowed under the exemptive order or Rule 2a-7, as the
case may be, the Portfolio will invest its available cash so as to reduce such
average maturity to the required number of days or less as soon as reasonably
practicable. The Fund normally holds short-term debt securities to maturity and
realizes par therefor unless an earlier sale is required to meet redemption
requirements.
In addition, the Omni and Money Market Portfolios are required to limit their
short-term debt investments, including repurchase agreements, to those United
States dollar denominated instruments which the Board of
30
<PAGE> 82
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, 1998 the Fund and each portfolio qualified as a regulated
investment company under Subchapter M of the Internal Revenue Code (the "Code").
Under such provisions, the Fund is not subject to federal income tax on such
part of its net ordinary income and net realized capital gains which it
distributes to shareholders. Each portfolio is treated as a separate entity for
federal income tax purposes, including determining whether it qualifies as a
regulated investment company and determining its net ordinary income (or loss)
and net realized capital gains (or losses). To qualify for treatment as a
regulated investment company, each portfolio must, among other things, derive in
each taxable year at least 90% of its gross income from dividends, interest and
gains from the sale or other disposition of securities. Each portfolio also
intends to comply with the diversification requirements or regulations under
Section 817(h) of the Code.
The foregoing is a general and abbreviated summary of the applicable provisions
of the Code and Treasury Regulations currently in effect. For the complete
provisions, reference should be made to the pertinent Code sections and the
Treasury Regulations promulgated thereunder. Since the only eligible
shareholders of the Fund are separate accounts of ONLI, ONLAC and other
insurance companies, no discussion is stated herein as to the federal income tax
consequences at the shareholder level.
EXPERTS
The financial statements of Ohio National Fund, Inc. as of December 31, 1998 and
for the earlier periods indicated herein included in this Statement of
Additional Information and the Financial Highlights included in the prospectus
have been included herein and in the prospectus in reliance upon the report of
KPMG LLP, independent certified public accountants, appearing in this Statement
of Additional Information, and upon the authority of said firm as experts in
accounting and auditing. KPMG LLP's business address is 201 East Fifth Street,
Cincinnati, Ohio 45202.
31
<PAGE> 83
LEGAL COUNSEL
Messrs. Jones & Blouch L.L.P., Washington, D.C., have passed on matters
pertaining to the federal securities laws and Ronald L. Benedict, Esq.,
Secretary of the Fund and Corporate Vice President, Counsel and Secretary of
ONLI, has passed on all other legal matters relating to the legality of the
shares described in the prospectus and this Statement of Additional Information.
THE S&P 500
The S&P 500 is a widely publicized index that tracks 500 companies traded on the
New York and American Stock Exchanges and in the over-the-counter market. It is
weighted by market value so that each company's stock influences the S&P 500 in
proportions to its relative market capitalization. Most of the stocks in the S&P
500 are issued by companies that are among the 500 largest in the United States
in terms of aggregate market value. However, for diversification purposes, some
stocks of smaller companies are included in the S&P 500.
"Standard & Poor's (R)," "S&P (R)," "S&P 500 (R)" and "Standard & Poor's 500"
are trademarks of The McGraw-Hill Companies, Inc. and have been licensed for use
by the Adviser. The S&P 500 Index Portfolio is not sponsored, endorsed, sold or
promoted by Standard & Poor's ("S&P") and S&P makes no representation regarding
the advisability of investing in the S&P 500 Index Portfolio. S&P makes no
representation or warranty, express or implied, to the owners of the Portfolio
or any member of the public regarding the advisability of investing in
securities generally or in the Portfolio particularly or the ability of the S&P
500 Index to track general stock market performance. S&P's only relationship to
the Adviser is the licensing of certain trademarks and trade names of S&P and of
the S&P 500 Index which is determined, composed and calculated by S&P without
regard to the Adviser or the Portfolio. S&P has no obligation to take the needs
of the Adviser or the owners of the Portfolio into consideration in determining,
composing or calculating the S&P 500 Index. S&P is not responsible for and has
not participated in the determination of the prices and amount of the Portfolio
or the timing of the issuance or sale of the Portfolio or in the determination
or calculation of the equation by which the Portfolio is to be converted into
cash. S&P has no obligation or liability in connection with the administration,
marketing or trading of the Portfolio.
S&P DOES NOT GUARANTEE THE ACCURACY AND/OR THE COMPLETENESS OF THE S&P 500 INDEX
OR ANY DATA INCLUDED THEREIN AND S&P SHALL HAVE NO LIABILITY FOR ANY ERRORS,
OMISSIONS, OR INTERRUPTIONS THEREIN. S&P MAKES NO WARRANTY, EXPRESS OR IMPLIED,
AS TO RESULTS TO BE OBTAINED BY THE ADVISER, OWNERS OF THE PORTFOLIO, OR ANY
OTHER PERSON OR ENTITY FROM THE USE OF THE S&P 500 INDEX OR ANY DATA INCLUDED
THEREIN. S&P MAKES NO EXPRESS OR IMPLIED WARRANTIES, AND EXPRESSLY DISCLAIMS ALL
WARRANTIES OR MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR USE WITH
RESPECT TO THE S&P 500 INDEX OR ANY DATA INCLUDED THEREIN. WITHOUT LIMITING ANY
OF THE FOREGOING, IN NO EVENT SHALL S&P HAVE ANY LIABILITY FOR ANY SPECIAL,
PUNITIVE, INDIRECT, OR CONSEQUENTIAL DAMAGES (INCLUDING LOST PROFITS), EVEN IF
NOTIFIED OF THE POSSIBILITY OF SUCH DAMAGES.
THE YEAR 2000 ISSUE
The Fund, the Adviser and related entities believe they have succeeded in
remedying the "Year 2000" problem for all mission critical internal computer
systems and applications. Conversion testing and implementation for those
systems were completed by December 31, 1998. During the remainder of 1999,
peripheral personal computer systems will continue to be up-graded and tested
for Year 2000 implementation. While the Fund and the Adviser have been assured
by suppliers of financial services (including the custodians, the transfer agent
and the accounting agent) that their systems either are already compliant or
will be so in sufficient time, the Fund's internal auditors intend to
independently test those systems to verify their compliance. The Fund, the
Adviser and related entities are also developing contingency plans to be
prepared for the possibility that one or more service providers might not be
compliant. The failure of the Fund, the Adviser or one of their service
suppliers to achieve timely and
32
<PAGE> 84
complete compliance could materially impair the ability to conduct their
business, including the ability to accurately and timely value portfolio
securities and could have an adverse effect on the portfolios.
33
<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"). The Adviser may use the
ratings of all six such rating organizations as factors to consider in
determining the quality of debt securities, although it will generally only
follow D&P, Fitch, Moody's and S&P. IBCA and TBW will only be consulted if fewer
than two of the other four rating organizations have given their top rating to a
security. Only the ratings of Moody's, S&P and Fitch will be considered in
determining the eligibility of bonds for acquisition by the Fund.
MOODY'S INVESTORS SERVICE, INC. ("MOODY'S")
Commercial Paper:
- -----------------
Moody's short-term debt ratings are opinions of the ability of issuers to
punctually repay senior debt obligations having an original maturity not
exceeding one year.
P-1 The Prime-1 (P-1) rating is the highest commercial paper rating assigned
by Moody's. Issuers (or supporting institutions) rated P-1 have a superior
ability for repayment of senior short-term debt obligations. P-1 repayment
ability will often be evidenced by many of the following characteristics:
leading market positions in well-established industries, high rates of
return on funds employed, conservative capitalization structure with
moderate reliance on debt and ample asset protection, broad margins in
earnings coverage of fixed financial charges and high internal cash
generation, and well-established access to a range of financial markets
and assured sources of alternate liquidity.
P-2 Issuers (or supporting institutions) rated Prime-2 (P-2) have a strong
ability for repayment of senior short-term obligations. This will normally
be evidenced by many of the characteristics cited above for P-1, but to a
lesser degree. Earnings trends and coverage ratios, while sound, may be
more subject to variation. Capitalization characteristics, while still
appropriate, may be more affected by external conditions. Ample alternate
liquidity is maintained.
Bonds:
- ------
Aaa Bonds which are rated Aaa by Moody's are judged to be of the best quality.
They carry the smallest degree of investment risk and are generally
referred to as "gilt edge." Interest payments are protected by a large or
by an exceptionally stable margin and principal is secure. While the
various protective elements are likely to change, such changes as can be
visualized are most unlikely to impair the fundamentally strong position
of such issues.
Aa Bonds which are rated as Aa by Moody's are judged to be of high quality by
all standards. Together with the Aaa group, they comprise what are
generally known as high grade bonds. They are rated lower than the best
bonds because margins of protection may not be as large as in Aaa
securities or fluctuation of protective elements may be of greater
amplitude or there may be other elements present which make the long-term
risks appear somewhat larger than in Aaa securities.
A Bonds which are rated A by Moody's possess many favorable investment
attributes and are to be considered as upper medium grade obligations.
Factors giving security to principal and interest are considered adequate
but elements may be present which suggest a susceptibility to impairment
sometime in the future.
Baa Bonds which are rated Baa by Moody's are considered as medium grade
obligations, that is, they are neither highly protected nor poorly
secured. Interest payments and principal security appear adequate for the
present but certain protective elements may be lacking or may be
characteristically unreliable
34
<PAGE> 86
over any great length of time. Such bonds lack outstanding investment
characteristics and in fact have speculative characteristics as well.
Ba Bonds which are Ba are judged to have speculative elements; their future
cannot be considered as well assured. Often the protection of interest and
principal payments may be very moderate and thereby not well safeguarded
during both good and bad times over the future. Uncertainty of position
characterizes bonds in this class.
B Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of
maintenance of other terms of the contract over any long period of time
may be small.
Caa Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to
principal or interest.
Ca Bonds which are rated Ca represent obligations which are speculative in a
high degree. Such issues are often in default or have other marked
shortcomings.
C Bonds which are rated C are the lowest rated class of bonds and issues so
rated can be regarded as having extremely poor prospects of ever attaining
any real investment standing.
Moody's applies numerical modifiers, 1, 2, and 3, in each generic rating
classification from Aa through B in its corporate bond rating system. The
modifier 1 indicates that the security ranks in the higher end of its generic
rating category; the modifier 2 indicates a mid-range ranking; and the modifier
3 indicates that the issue ranks in the lower end of its generic rating
category.
STANDARD & POOR'S CORP. ("S & P")
Commercial Paper:
- -----------------
An S&P commercial paper rating is a current assessment of the likelihood of
timely payment of debt having an original maturity of no more than one year.
A-1 This is S&P's highest category and it indicates that the degree of safety
regarding timely payment is strong. Those issues determined to possess
extremely strong safety characteristics are designated A-1+.
A-2 Capacity for timely payment on issues with this designation is
satisfactory. However, the relative degree of safety is not as high as for
issues designated as A-1.
Bonds:
- ------
AAA Bonds rated AAA by S&P are the highest grade obligations. They possess the
ultimate degree of protection as to principal and interest. Market prices
move with interest rates, and hence provide maximum safety on all counts.
AA Bonds rated AA by S&P also qualify as high grade obligations, and in the
majority of instances differ from AAA issues only in small degree. Here,
too, prices move with the long-term money market.
A Bonds rated A by S&P are regarded as upper medium grade. They have
considerable investment strength but are not entirely free from the
adverse effects of changes in economic and trade conditions. Interest and
principal are regarded as safe. They predominantly reflect money rates in
their market behavior, but to some extent, also economic conditions.
BBB The BBB or medium grade category is the borderline between definitely
sound obligations and those where the speculative element begins to
predominate. These bonds have adequate asset coverage and normally are
protected by satisfactory earnings. Their susceptibility to changing
conditions, particularly to depressions, necessitates constant watching.
Marketwise, the bonds are more responsive to business
35
<PAGE> 87
and trade conditions than to interest rates. This is the lowest group
which qualifies for commercial bank investments.
Debt rated `BB.' `B,' `CC,' and `C,' is regarded as having predominantly
speculative characteristics with respect to capacity to pay interest and repay
principal. `BB' indicates the least degree of speculation and `C' the highest.
While such debt will likely have some quality and protective characteristics,
these are outweighed by large uncertainties of major exposures to adverse
markets.
BB Debt rated `BB' has less near-term vulnerability to default than other
speculative issues. However, it faces major ongoing uncertainties or
exposure to adverse business, financial, or economic conditions which
could lead to inadequate capacity to meet timely interest and principal
payments. The `BB' rating category is also used for debt subordinated to
senior debt that is assigned an actual or implied `BBB-' rating.
B Debt rated `B' has a greater vulnerability to default but currently has
the capacity to meet interest payments and principal repayments. Adverse
business, financial, or economic conditions will likely impair capacity
or willingness to pay interest and repay principal. The `B' rating
category is also used for debt subordinated to senior debt that is
assigned an actual or implied `BB' or `BB-' rating.
CCC Debt rated `CCC' has a currently identifiable vulnerability to default,
and is dependent upon favorable business, financial, and economic
conditions to meet timely payment of interest and repayment of principal.
In the event of adverse business, financial, or economic conditions, it
is not likely to have the capacity to pay interest and repay principal.
The `CCC' rating category is also used for debt subordinated to senior
debt that is assigned an actual or implied `B' or `B-" rating.
CC The rating `CC' typically is applied to debt subordinated to senior debt
that is assigned an actual or implied `CCC' rating.
C The rating `C' typically is applied to debt subordinated to senior debt
that is assigned an actual or implied `CCC-' rating. The `C' rating may
be used to cover a situation where a bankruptcy petition has been filed,
but debt service payments are continued.
CI The rating `CI' is reserved for income bonds on which no interest is
being paid.
D Debt rated `D' is in payment default. The `D' rating category is used
when interest payments or principal payments are not made on the date due
even if the applicable grace period has not expired, unless S&P believes
that such payments will be made during such grace period. The `D' rating
will also be used upon the filing of a bankruptcy petition if debt
service payments are jeopardized.
The ratings from `AA' to `CCC' may be modified by the addition of a plus (+) or
minus (-) to show relative standing within the major rating categories.
DUFF & PHELPS, INC. ("D & P")
Commercial Paper:
- -----------------
D&P's short-term ratings have incorporated gradations of "1+" and "1-" in
recognition of quality differences within the first tier.
D-1+ Highest certainty of timely payment. Short-term liquidity, including
internal operating factors and/or access to alternative sources of
funds, is outstanding, and safety is just below risk-free U.S. Treasury
short-term obligations.
D-1 Very high certainty of timely payment. Liquidity factors are excellent
and supported by good fundamental protection factors. Risk factors are
minor.
D-1- High certainty of timely payment. Liquidity factors are strong and
supported by good fundamental protection.
36
<PAGE> 88
D-2 Good certainty of timely payment. Liquidity factors and company
fundamentals are sound. Although ongoing funding needs may enlarge total
financing requirements, access to capital markets is good. Risk factors
are small.
FITCH INVESTORS SERVICE, INC. ("FITCH")
Commercial Paper
- ----------------
Fitch's short-term ratings apply to debt obligations that are payable on demand
or have original maturities of up to three years, including commercial paper,
certificates of deposit, medium-term notes, and municipal and investment notes.
Fitch's short-term ratings emphasize the existence of liquidity necessary to
meet the issuer's obligations in a timely manner.
F-1+ Exceptionally strong credit quality. Issues assigned this rating are
regarded as having the strongest degree of assurance for timely payment.
F-1 Very strong credit quality. Issues assigned this rating reflect an
assurance of timely payment only slightly less in degree than issues
rated F-1+.
F-2 Good credit quality. Issues carrying this rating have a satisfactory
degree of assurance for timely payment, but the margin of safety is not
as great as the F-1+ and F-1 categories.
Bonds
- -----
AAA Bonds considered to be investment grade and of the highest credit
quality. The obligor has an exceptionally strong ability to pay interest
and repay principal, which is unlikely to be affected by reasonably
foreseeable events.
AA Bonds considered to be investment grade and of very high credit quality.
The obligor's ability to pay interest and repay principal is very
strong, although not quite as strong as bonds rated `AAA.' Because bonds
rated in the `AAA' and `AA' categories are not significantly vulnerable
to foreseeable future developments, short-term debt of these issuers is
generally rated `F-1+.'
A Bonds considered to be investment grade and of high credit quality. The
obligor's ability to pay interest and repay principal is considered to
be strong, but may be more vulnerable to adverse changes in economic
conditions and circumstances than bonds with higher ratings.
BBB Bonds considered to be investment grade and of satisfactory credit
quality. The obligor's ability to pay interst and repay principal is
considered to be adequate. Adverse changes in economic conditions and
circumstances, however, are more likely to have adverse impact on these
bonds, and therefore impair timely payment. The likelihood that the
rating of these bonds will fall below investment grade is higher than
for bonds with higher ratings.
BB Bonds are considered to be speculative. The obligor's ability to pay
interest and repay principal may be affected over time by adverse
economic changes. However, business and financial alternatives can be
identified which could assist the obligor in satisfying its debt service
requirements.
B Bonds are considered highly speculative. While bonds in this class are
currently meeting debt service requirements, the probability of
continued timely payment of principal and interest reflects the
obligor's limited margin of safety and the need for reasonable business
and economic activity throughout the life of the issues.
CCC Bonds have certain identifiable characteristics that, if not remedied,
may lead to default. The ability to meet obligations requires an
advantageous business and economic environment.
CC Bonds are minimally protected. Default in payment of interest and/or
principal seems probable.
37
<PAGE> 89
C Bonds are in imminent default in payment of interest or principal.
DDD, DD and D Bonds in default on interest and/or principal payments. Such
bonds are extremely speculative and should be valued on the basis of
their ultimate recovery value in liquidation or reorganization of the
obligor. `DDD' represents the highest potential for recovery on these
bonds, and `D' represents the lowest potential for recovery.
Note: Fitch ratings (other than `AAA.' `DDD,' `DD,' or `D' categories) may be
modified by the addition of a plus (+) or minus (-) sign to show relative
position of a credit within the rating category.
38
<PAGE> 90
EQUITY PORTFOLIO
OHIO NATIONAL FUND, INC.
OBJECTIVE
The principal investment objective of the Equity Portfolio is long-term capital
growth. Current income is a secondary objective.
PERFORMANCE AS OF DECEMBER 31, 1998
AVERAGE ANNUAL TOTAL RETURNS:
<TABLE>
<S> <C>
One-year 5.72%
Three-year 13.92%
Five-year 13.52%
Ten-year 12.66%
Since inception (1/14/71) 10.87%
</TABLE>
Returns represent past performance, which is no guarantee of future results.
Investment return and principal value will vary so that shares, when redeemed,
may be worth more or less than their original cost. Actual results for variable
annuity and variable universal life contracts will be lower due to contract
charges. Consult your contract for applicable charges for mortality and
expenses.
COMMENTS
The Equity Portfolio return was 5.72% for 1998. Although the large
capitalization stock portion of the portfolio provided returns consistent with
the major indices, the portfolio's exposure to small and mid-capitalization
stocks pulled the overall return down considerably. We were invested in these
areas because the valuations relative to the large capitalization stocks were
very attractive. Unfortunately, these areas corrected far more than the large
capitalization stocks and the major indices during the stock market downturn.
Even though the portfolio's returns were consistent with the major indices from
the October 8th market bottom through the end of the year, the performance
during the mid year market correction caused the portfolio to lag for the 1998
year.
We expect the stock market to continue in a volatile manner. We expect the U.S.
economy and economic activity around the world to slow somewhat during 1999. We
feel that growth will be rewarded and thus we will attempt to increase the
growth aspects of the portfolio.
CHANGE IN VALUE OF $10,000 INVESTMENT
[GRAPH]
Hypothetical illustration based on past performance. Future performance will
vary. All returns reflect reinvested dividends. The portfolio's holdings may
differ significantly from the securities in the index. The index is unmanaged
and therefore does not reflect the cost of portfolio management or trading.
Neither the portfolio nor the index is open to direct investment.
TOP 10 EQUITY HOLDINGS AS OF DECEMBER 31, 1998
<TABLE>
<CAPTION>
% of Net Assets
<C> <S> <C>
1. Cisco Systems Inc 4.2
2. General Electric Corp 2.7
3. Texas Instruments Inc. 2.3
4. Sun Microsystems 2.3
5. Intel Corp 2.1
6. American International Group 2.0
7. Microsoft Corp 1.8
8. Xerox Corp 1.5
9. Symbol Technologies Inc 1.4
10. Manpower Inc 1.4
</TABLE>
TOP 5 INDUSTRIES AS OF DECEMBER 31, 1998
<TABLE>
<CAPTION>
% of Net Assets
<S> <C>
Computer and Related 20.6
Medical and Related 6.3
Oil, Energy, and Natural Gas 6.4
Electrical Equipment 5.9
Banking 5.6
Insurance Services 4.3
</TABLE>
3
<PAGE> 91
OHIO NATIONAL FUND, INC.
EQUITY PORTFOLIO
SCHEDULE OF INVESTMENTS DECEMBER 31, 1998
<TABLE>
<CAPTION>
MARKET
SHARES COMMON STOCK VALUE
- -------------------------------------------------------------
<C> <S> <C>
AEROSPACE (3.0%)
94,000 Allied Signal Inc................. $ 4,165,375
64,000 Raytheon Co....................... 3,408,000
31,350 Rockwell International Corp....... 1,522,434
------------
9,095,809
------------
AUTOMOTIVE & RELATED (2.8%)
22,500 Arvin Industries Inc.............. 937,969
19,328 *Daimlerchrysler................... 1,856,696
29,400 Eaton Corp........................ 2,078,212
39,184 Ford Motor Co..................... 2,299,611
1 Meritor Automotive................ 21
20,000 Magna International Inc........... 1,240,000
------------
8,412,509
------------
BANKING (6.4%)
19,574 Bankamerica Corp.................. 1,176,887
142,066 Charter One Financial Inc......... 3,942,331
23,880 First Star Bancorp................ 495,510
35,320 Firstar Corp...................... 3,293,590
47,921 First Union Corp.................. 2,914,196
40,000 Flagstar Bancorp.................. 1,045,000
45,000 Mallon Bank Corp.................. 3,093,750
------------
15,961,264
------------
BUSINESS SERVICES (4.1%)
132,500 *Alternative Resources Inc......... 1,407,813
110,000 First Data Corp................... 3,485,625
61,000 *Lo Jack........................... 724,375
170,000 Manpower Inc...................... 4,281,875
101,000 Reynolds & Reynolds CL A.......... 2,316,687
------------
12,216,375
------------
CHEMICALS (4.3%)
98,000 Engelhard Corp.................... 1,872,000
50,000 Hercules Inc...................... 1,368,750
38,750 Hanson Trust PLC.................. 1,511,250
35,300 Mineral Technologies Inc.......... 1,445,094
85,000 Monsanto Co....................... 4,037,500
66,000 OM Group, Inc..................... 2,409,000
------------
12,643,594
------------
COMMUNICATIONS (1.1%)
17,000 *Infinity Broadcasting Corp........ 465,375
20,625 *Mastec Inc........................ 433,125
40,000 Motorola Inc...................... 2,442,500
------------
3,341,000
------------
COMPUTER & RELATED (20.6%)
56,500 *3Comm Corp........................ 2,531,906
135,000 *Cisca Systems, Inc................ 12,529,688
63,000 Computer Associates............... 2,685,375
28,000 *Computer Sciences Corp............ 1,804,250
60,000 Hewlett-Packard Co................ 4,098,750
53,000 Intel Corp........................ 6,283,813
52,000 *Mapics Inc........................ 858,000
40,000 *Microsoft Corp.................... 5,547,500
</TABLE>
<TABLE>
<CAPTION>
MARKET
SHARES COMMON STOCK VALUE
- -------------------------------------------------------------
<C> <S> <C>
COMPUTER & RELATED, CONTINUED
47,058 *Seagate Technology................ $ 1,423,504
45,742 *Solectron Corp.................... 4,251,147
80,000 *Sun Microsystems, Inc............. 6,850,000
67,500 Symbol Technologies............... 4,315,781
80,000 Texas Instruments Inc............. 6,845,000
40,400 *Zebra Tech Corp., CL A............ 1,161,500
------------
61,186,214
------------
CONTAINERS (1.3%)
125,000 *Owens-Illinois Inc............... 3,828,125
------------
DRUGS (2.5%)
86,000 *Applied Analytical Industries..... 1,494,250
64,000 Abbott Laboratories............... 3,136,000
85,000 Mylan Laboratories................ 2,677,500
------------
7,307,750
------------
ELECTRICAL EQUIPMENT (5.9%)
60,000 *Analog Devices Inc................ 1,882,500
100,000 *Anixter Intl. Inc................. 2,031,250
31,500 Federal Signal Corp............... 862,313
80,000 General Electric Co............... 8,165,000
40,000 Xerox Corp........................ 4,720,000
------------
17,661,063
------------
ENTERTAINMENT & LEISURE (1.7%)
75,000 Cedar Fair........................ 1,950,000
------------
FINANCIAL SERVICES (1.4%)
100,538 Associates 1st Capital Corp....... 4,260,298
------------
FOOD & RELATED (1.5%)
80,000 Food Lion Inc. CL A............... 850,000
128,700 Food Lion Inc..................... 1,295,044
25,500 H.J. Heinz Co..................... 1,443,938
45,000 Panamerican Beverages Inc......... 981,562
------------
4,570,544
------------
FORESTRY & PAPER PRODUCTS (0.7%)
66,000 Boise Cascade Corp................ 2,046,000
------------
HOTEL/LODGING (0.5%)
50,000 *Guest Supply Inc.................. 596,875
60,000 *Mirage Resorts Inc................ 896,250
------------
1,493,125
------------
HOUSING, FURNITURE & RELATED (2.7%)
297,500 Clayton Homes Inc................. 4,109,219
64,000 Newell Co......................... 2,640,000
100,000 Shelby Williams................... 1,200,000
------------
7,949,219
------------
INDUSTRIAL SERVICES (0.4%)
20,500 *Medar Inc......................... 23,063
50,000 Regal Beloit...................... 1,150,000
------------
1,123,063
------------
</TABLE>
(continued)
4
<PAGE> 92
OHIO NATIONAL FUND, INC.
EQUITY PORTFOLIO (CONTINUED)
SCHEDULE OF INVESTMENTS DECEMBER 31, 1998
<TABLE>
<CAPTION>
MARKET
SHARES COMMON STOCK VALUE
- -------------------------------------------------------------
<C> <S> <C>
INSURANCE SERVICES (4.3%)
63,280 American International Group...... $ 6,114,430
40,000 Equitable Cos. Inc................ 2,315,000
81,000 MGIC Investment Corp.............. 3,224,813
89,000 State Auto Financial Corp......... 1,101,375
------------
12,755,618
------------
MACHINERY (1.6%)
60,000 Hardinge Inc...................... 1,106,250
43,000 Modine Manufacturing Inc.......... 1,558,750
64,000 Pall Corp......................... 1,620,000
54,000 Steward & Stevenson............... 526,500
------------
4,811,500
------------
MEDIA & PUBLISHING (1.0%)
95,000 CBS Corp.......................... 3,111,250
------------
MEDICAL & RELATED (6.3%)
70,000 Allegiance Corp................... 3,263,750
37,500 Baxter International.............. 2,411,719
114,200 *Capital Senior Living Corp........ 1,591,663
69,200 *Foundation Health Sys. Inc........ 826,075
46,900 *HCR Manor Care.................... 1,377,687
140,000 *Healthsouth Corp.................. 2,161,250
30,000 *Humana Inc........................ 534,375
77,000 *Kendle International Inc.......... 1,799,875
23,800 *National Healthcare Corp.......... 368,900
97,813 *Quorum Health Group Inc........... 1,265,449
31,200 *Sola Industries................... 538,200
58,000 United Healthcare Corp............ 2,497,625
------------
18,636,568
------------
METALS & MINING (1.5%)
47,000 Amcast Industrial Corp............ 898,875
89,000 Worthington Industries............ 1,112,500
92,000 *Wyman-Gordon Co................... 943,000
73,500 *Wolverine Tube Inc................ 1,543,500
------------
4,497,875
------------
OIL, ENERGY & NATURAL GAS (8.4%)
27,000 Chevron Corp...................... 2,239,313
155,000 *Louis Dreyfus Natural Gas......... 2,208,750
100,000 *Matrix Services Co................ 475,000
104,000 *Offshore Logistics Inc............ 1,235,000
35,000 Pacific Gulf Properties........... 702,188
77,170 Schlumberger Ltd.................. 3,559,466
170,000 *Tesoro Petroleum.................. 2,061,250
95,000 Transocean Petroleum Corp......... 2,547,187
28,000 UGI Corp.......................... 665,000
102,000 Williams Cos. Inc................. 3,181,125
------------
18,874,279
------------
REAL ESTATE & LEASING (2.7%)
28,000 Camden Property Trust REIT........ 728,000
60,000 Corporate Office Properties....... 427,500
76,000 Commercial Net Lease Realty....... 1,007,000
37,500 First Industrial Realty Trust..... 1,005,499
55,000 Healthcare Realty Trust........... 1,227,188
</TABLE>
<TABLE>
<CAPTION>
MARKET
SHARES COMMON STOCK VALUE
- -------------------------------------------------------------
<C> <S> <C>
REAL ESTATE & LEASING, CONTINUED
44,000 JDN Realty Corp................... $ 948,750
67,250 Liberty Property Trust............ 1,656,031
29,500 National Health Investors Inc..... 728,281
18,500 Regency Realty Corp............... 411,625
------------
8,139,844
------------
RESTAURANTS (1.0%)
84,000 *Buffets Inc....................... 1,002,750
90,250 Consolidated Products Inc......... 1,861,406
------------
2,864,156
------------
TEXTILES & RELATED (1.3%)
45,500 Oxford Industries Inc............. 1,285,375
98,000 Warnaco Group CL A................ 2,474,500
------------
3,759,875
------------
TRANSPORTATION & EQUIPMENT (4.3%)
44,000 *Atlas Air Inc..................... 2,153,250
73,000 *Avondale Industries Inc........... 2,117,000
100,000 Burlington Northern Santa Fe...... 3,375,000
45,000 CNF Transportation Inc............ 1,690,312
56,800 Trinity Industries................ 2,186,800
70,000 *Wisconsin Central Transportation.. 1,203,125
------------
12,725,487
------------
UTILITIES (0.6%)
27,500 FPL Group Inc..................... 1,694,686
------------
TOTAL COMMON STOCK (89.9%)
(COST $152,224,511).............. $266,967,090
------------
</TABLE>
<TABLE>
<CAPTION>
MARKET
SHARES PREFERRED STOCK VALUE
- -------------------------------------------------------------
<C> <S> <C>
BANKING (0.3%)
30,000 National Australia Bank LTD
Conv............................. $ 836,250
------------
COMPUTER & RELATED (0.1%)
24,000 General Datacommunications 9% C... 252,000
------------
METALS & MINING (0.2%)
50,000 Freeport McMoran Copper & Gold,
Series B......................... 743,750
------------
OIL, ENGERGY & NATURAL GAS (0.1%)
15,000 Howell Corp. $3.50 Series A
Conv............................. 225,000
------------
REAL ESTATE (0.2%)
20,000 Camden Property Tr. 9% Series A... 473,750
------------
TOTAL PREFERRED STOCK (0.9%)
(COST $4,446,337)................ $ 2,530,750
------------
</TABLE>
<TABLE>
<CAPTION>
FACE MARKET
AMOUNT CONVERTIBLE DEBENTURES VALUE
- -------------------------------------------------------------
<C> <S> <C>
INDUSTRIAL SERVICES (0.2%)
$ 475,000 Medar Inc. 12.95% due 06/30/05.... $ 475,000
------------
METAL FABRICATING (0.3%)
900,000 INCO, Ltd. 7.75% due 03/15/16..... 810,000
------------
</TABLE>
(continued)
5
<PAGE> 93
OHIO NATIONAL FUND, INC.
EQUITY PORTFOLIO (CONTINUED)
SCHEDULE OF INVESTMENTS DECEMBER 31, 1998
<TABLE>
<CAPTION>
FACE MARKET
AMOUNT CONVERTIBLE DEBENTURES VALUE
- -------------------------------------------------------------
<C> <S> <C>
OIL, ENGERGY & NATURAL GAS (0.2%)
$ 800,000 Offshore Logistics 6.00% due
12/15/06......................... $ 692,000
------------
TOTAL CONVERTIBLE (0.7%)
(COST $2,165,025)................ $ 1,977,000
------------
</TABLE>
<TABLE>
<CAPTION>
FACE MARKET
AMOUNT SHORT-TERM NOTES VALUE
- -------------------------------------------------------------
<C> <S> <C>
AUTOMOTIVE & RELATED (3.7%)
$5,132,000 General Motors 5.660% 01/05/99.... $ 5,128,773
6,000,000 Ford Motors 5.670% 01/06/99....... 5,995,275
------------
11,124,048
------------
ELECTRICAL EQUIPMENT (1.4%)
4,173,000 G.E. Capital 5.600% 01/07/99...... 4,169,105
------------
FINANCIAL SERVICES (3.1%)
2,000,000 American Express 5.250%
01/11/98......................... 1,997,083
2,352,000 American General 4.750%
01/12/99......................... 2,348,586
4,873,000 Household Finance 5.790%
01/04/99......................... 4,870,649
------------
9,216,318
------------
</TABLE>
<TABLE>
<CAPTION>
FACE MARKET
AMOUNT SHORT-TERM NOTES VALUE
- -------------------------------------------------------------
<C> <S> <C>
RETAIL (1.5%)
$4,340,000 Sears Roebuck 6.000% 01/08/99..... $ 4,334,937
------------
TOTAL SHORT-TERM NOTES (9.7%)
(COST $28,844,408)............... $ 28,844,408
------------
TOTAL HOLDINGS (101.2%)
(COST $187,680,281)(a)........... $300,319,248
------------
CASH & RECEIVABLE, NET OF
LIABILITIES (-1.2%).............. (3,416,317)
------------
TOTAL NET ASSETS (100.0%)......... $296,902,931
============
</TABLE>
- ---------------
* Non-income producing securities.
(a) Also represents cost for Federal income tax purposes.
The accompanying notes are an integral part of these financial statements.
6
<PAGE> 94
OHIO NATIONAL FUND, INC.
EQUITY PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1998
<TABLE>
<S> <C>
Assets:
Investments in securities at market value
(note 1) (cost $187,680,281)........... $300,319,248
Cash in bank............................. 4,380
Receivable for securities sold........... 737,857
Receivable for fund shares sold.......... 8,797
Dividends and accrued interest
receivable............................. 413,521
Other.................................... 18,285
------------
Total assets........................... 301,502,088
------------
Liabilities:
Payable for securities purchased......... 3,715,836
Payable for shares redeemed.............. 684,548
Payable for investment management
services (note 3)...................... 128,870
Other accrued expenses................... 69,903
------------
Total liabilities...................... 4,599,157
------------
Net assets at market value................. $296,902,931
============
Net assets consist of:
Par value, $1 per share.................. $ 8,175,981
Paid-in capital in excess of par value... 176,087,660
Net unrealized appreciation on
investments (note 1)................... 112,638,967
Undistributed net investment income...... 323
------------
Net assets at market value................. $296,902,931
============
Shares Outstanding (note 4)................ 8,175,981
Net asset value per share.................. $ 36.31
============
</TABLE>
STATEMENT OF OPERATIONS
Year ended December 31, 1998
<TABLE>
<S> <C>
Investment income:
Interest.................................. $ 1,673,184
Dividends................................. 3,893,653
-----------
Total investment income................. 5,566,837
-----------
Expenses:
Management fees (note 3).................. 1,550,392
Custodian fees (note 3)................... 58,400
Directors' fees (note 3).................. 10,170
Professional fees......................... 42,157
Accounting and transfer agent fee......... 171,039
Other..................................... 58,199
-----------
Total expenses.......................... 1,890,357
-----------
Net investment income................... $ 3,676,480
-----------
Realized and unrealized gain on investments:
Net realized gain from investments........ $ 5,493,034
Net increase in unrealized appreciation on
investments............................. 6,996,269
-----------
Net gain on investments................. 12,489,303
-----------
Net increase in net assets from
operations............................ $16,165,783
===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
7
<PAGE> 95
OHIO NATIONAL FUND, INC.
EQUITY PORTFOLIO
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
1998 1997
------------ ------------
<S> <C> <C>
From operations:
Net investment income..................................... $ 3,676,480 $ 3,800,104
Realized gain on investments.............................. 5,493,034 13,144,695
Unrealized gain on investments............................ 6,996,269 26,148,841
------------ ------------
Net increase in net assets from operations............ 16,165,783 43,093,640
------------ ------------
Dividends and distributions to shareholders:
Dividends paid from net investment income................. (3,678,591) (4,788,921)
Capital gains distributions............................... (5,566,857) (15,187,264)
------------ ------------
Total dividends and distributions..................... (9,245,448) (19,976,185)
------------ ------------
From capital share transactions (note 4):
Received from shares sold................................. 24,773,079 38,790,184
Received from dividends reinvested........................ 9,245,448 19,976,185
Paid for shares redeemed.................................. (32,108,106) (26,588,013)
------------ ------------
Increase in net assets derived from capital share
transactions......................................... 1,910,421 32,178,366
------------ ------------
Increase in net assets............................. 8,830,756 55,295,821
------------ ------------
Net Assets:
Beginning of period....................................... 288,072,175 232,776,354
------------ ------------
End of period (a)......................................... $296,902,931 $288,072,175
============ ============
(a) Includes undistributed net investment income of......... $ 323 $ 2,434
============ ============
</TABLE>
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------------------------
1998 1997 1996 1995 1994
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Per share data:
Net asset value, beginning of period........................ $35.44 $32.30 $28.58 $23.20 $23.90
Income from investment operations:
Net investment income..................................... 0.45 0.51 0.47 0.50 0.45
Net realized and unrealized gain (loss) on investments.... 1.56 5.24 4.58 5.65 (0.39)
------ ------ ------ ------ ------
Total income from investment operations................. 2.01 5.75 5.05 6.15 0.06
------ ------ ------ ------ ------
Less distributions:
Dividends from net investment income...................... (0.45) (0.63) (0.46) (0.39) (0.44)
Distributions from net realized capital gains............. (0.69) (1.98) (0.87) (0.38) (0.32)
------ ------ ------ ------ ------
Total distributions..................................... (1.14) (2.61) (1.33) (0.77) (0.76)
------ ------ ------ ------ ------
Net asset value, end of period.............................. $36.31 $35.44 $32.30 $28.58 $23.20
====== ====== ====== ====== ======
Total return................................................ 5.72% 18.17% 18.35% 27.20% 0.25%
Ratios and supplemental data:
Ratio of expenses to average net assets................... 0.64% 0.67% 0.73% 0.73% 0.62%
Ratio of net investment income to average net assets...... 1.25% 1.43% 1.60% 1.90% 1.90%
Portfolio turnover rate..................................... 25% 19% 11% 14% 8%
Net assets at end of period (millions)...................... $296.9 $288.1 $232.8 $175.7 $123.3
</TABLE>
The accompanying notes are an integral part of these financial statements.
8
<PAGE> 96
OHIO NATIONAL FUND, INC.
MONEY MARKET PORTFOLIO
SCHEDULE OF INVESTMENTS DECEMBER 31, 1998
<TABLE>
<CAPTION>
FACE MARKET
AMOUNT SHORT-TERM NOTES VALUE
- -------------------------------------------------------------
<C> <S> <C>
AEROSPACE (3.3%)
$1,461,000 Allied Signal 5.750% 01/13/99...... $ 1,458,200
-----------
AUTOMOTIVE & RELATED (19.1%)
1,698,000 American Honda 5.550% 01/28/99..... 1,690,932
1,678,000 Ford Motor Credit Corp. 5.300%
01/08/99.......................... 1,676,271
229,000 General Motors 5.190% 01/11/99..... 228,670
1,600,000 General Motors 5.350% 01/21/99..... 1,595,244
1,611,000 Hertz Corp. 5.500% 01/07/99........ 1,609,523
1,700,000 TRW Inc. 5.220% 01/06/99........... 1,698,767
-----------
8,499,407
-----------
CABLE TV (2.3%)
1,000,000 Cox Communications 5.620
01/11/99.......................... 998,439
-----------
ELECTRICAL EQUIPMENT (2.9%)
1,284,000 Avent Inc. 5.300% 01/22/98......... 1,280,030
-----------
FINANCE (16.0%)
1,965,000 CIT Group 5.750% 01/21/99.......... 1,958,723
2,010,000 Heller Financial 5.500% 01/26/99... 2,002,323
1,650,000 Household Finance 5.360%
01/12/99.......................... 1,647,298
1,500,000 USAA Capital 5.350% 01/27/99....... 1,494,204
-----------
7,102,548
-----------
FOOD & RELATED (3.8%)
1,700,000 Winn-Dixie 5.100% 01/05/99......... 1,699,037
-----------
INDUSTRIAL (4.2%)
295,000 BAT Capital 5.800% 01/06/99........ 294,762
1,585,000 BAT Capital 5.600% 01/13/99........ 1,582,041
-----------
1,876,803
-----------
MACHINERY & EQUIPMENT (0.7%)
312,000 John Deere Capital 6.000%
01/05/99.......................... 311,792
-----------
INSURANCE (7.5%)
1,743,000 Aetna Services 5.200% 01/04/99..... 1,742,245
1,427,000 Prudential Funding 5.170%
01/08/99.......................... 1,425,565
143,000 Prudential Funding 5.300%
01/14/99.......................... 142,726
-----------
3,310,536
-----------
</TABLE>
<TABLE>
<CAPTION>
FACE MARKET
AMOUNT SHORT-TERM NOTES VALUE
- -------------------------------------------------------------
<C> <S> <C>
MEDICAL & RELATED (6.6%)
$1,081,000 Allergan Inc. 5.600% 01/06/99...... $ 1,080,159
1,119,000 Amgen Inc. 5.200% 01/12/99......... 1,117,222
755,000 Amgen Inc. 5.410% 01/19/99......... 752,958
-----------
2,950,339
-----------
OIL, ENERGY & NATURAL GAS (10.1%)
1,500,000 Dixie Pipeline 5.280% 01/29/99..... 1,493,840
1,561,000 (El) De Nemours Dupont 5.200%
01/20/99.......................... 1,556,716
1,428,000 Questar Corp. 5.380% 01/15/99...... 1,425,012
-----------
4,475,588
-----------
RETAIL (4.0%)
770,000 Sears Roebuck 5.310% 01/11/99...... 768,864
1,030,000 Sears Roebuck 5.330% 01/14/99...... 1,028,018
-----------
1,796,882
-----------
TRANSPORTATION & EQUIPMENT (1.7%)
740,000 CSX Corp. 6.120% 01/19/99.......... 737,736
-----------
UTILITIES (14.5%)
1,500,000 Carolina Power & Light 5.370%
01/25/99.......................... 1,494,630
2,001,000 Cincinnati Bell 5.200% 01/04/99.... 2,000,133
1,188,000 GTE Funding 5.000% 01/20/99........ 1,184,865
1,784,000 Michigan Consolidated Gas 5.500%
01/15/99.......................... 1,780,185
-----------
6,459,813
-----------
TOTAL HOLDINGS (96.7%)
(COST $42,957,130)(a)............. $42,957,130
-----------
CASH & RECEIVABLES, NET OF
LIABILITIES (3.3%)................ 1,444,522
-----------
TOTAL NET ASSETS (100.0%).......... $44,401,552
===========
</TABLE>
- ---------------
(a) Also represents cost for Federal income tax purposes.
The accompanying notes are an integral part of these financial statements.
9
<PAGE> 97
OHIO NATIONAL FUND, INC.
MONEY MARKET PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1998
<TABLE>
<S> <C>
Assets:
Investments in securities at market value
(note 1) (cost $42,957,130)............. $42,957,130
Cash in bank.............................. 1,457,900
Other..................................... 1,863
-----------
Total assets............................ 44,416,893
-----------
Liabilities:
Payable for investment management services
(note 3)................................ 8,419
Other accrued expenses.................... 6,822
-----------
Total liabilities....................... 15,241
-----------
Net assets at market value.................. $44,401,652
===========
Net assets consist of:
Par value, $1 per share................... $ 4,440,165
Paid-in capital in excess of par.......... 39,961,487
-----------
Net assets at market value.................. $44,401,652
===========
Shares outstanding (note 4)................. 4,440,165
Net asset value per share................... $ 10.00
===========
</TABLE>
STATEMENT OF OPERATIONS
Year ended December 31, 1998
<TABLE>
<S> <C>
Investment income:
Interest.................................. $ 1,757,475
-----------
Expenses:
Management fees (note 3).................. 94,306
Custodian fees (note 3)................... 6,050
Directors' fees (note 3).................. 908
Professional fees......................... 3,935
Accounting and transfer agent fee......... 16,587
Other..................................... 6,273
-----------
Total expenses.......................... 128,059
Less fees waived (note 3)............... (15,718)
-----------
Net expenses.......................... 112,341
-----------
Net investment income..................... $ 1,645,134
-----------
Net increase in net assets from
operations............................ $ 1,645,134
===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
10
<PAGE> 98
OHIO NATIONAL FUND, INC.
MONEY MARKET PORTFOLIO
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
1998 1997
------------ ------------
<S> <C> <C>
From operations:
Net increase in net assets from operations................ $ 1,645,134 $ 1,241,762
----------- -----------
Dividends and distributions to shareholders:
Dividends paid from net investment income................. (1,645,134) (1,241,762)
----------- -----------
From capital share transactions (note 4):
Received from shares sold................................. 61,020,166 40,064,944
Received from dividends reinvested........................ 1,645,134 1,241,762
Paid for shares redeemed.................................. (47,405,261) (37,676,423)
----------- -----------
Increase in net assets derived from capital share
transactions........................................... 15,260,039 3,630,283
----------- -----------
Increase in net assets................................ 15,260,039 3,630,283
Net Assets:
Beginning of period....................................... 29,141,613 25,511,330
----------- -----------
End of period............................................. $44,401,652 $29,141,613
=========== ===========
</TABLE>
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------------------------
1998 1997 1996 1995 1994
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Per share data:
Net asset value, beginning of period........................ $10.00 $10.00 $10.00 $10.00 $10.00
Income from investment operations:
Net investment income..................................... 0.52 0.52 0.50 0.54 0.39
------ ------ ------ ------ ------
Less distributions:
Dividends from net investment income...................... (0.52) (0.52) (0.50) (0.54) (0.39)
------ ------ ------ ------ ------
Net asset value, end of period.............................. $10.00 $10.00 $10.00 $10.00 $10.00
====== ====== ====== ====== ======
Total return............................................ 5.39% 5.37% 5.17% 5.62% 4.00%
Ratios net of fees waived by advisor (a):
Ratio of expenses to average net assets................... 0.36% 0.38% 0.44% 0.44% 0.39%
Ratio of net investment income to average net assets...... 5.26% 5.11% 4.98% 5.39% 3.69%
Ratios assuming no fees waived by advisor:
Ratio of expenses to average net assets................... 0.41% 0.43% 0.49% 0.55% 0.59%
Ratio of net investment income to average net assets...... 5.21% 5.06% 4.93% 5.27% 3.51%
Net assets at end of period (millions)...................... $ 44.4 $ 29.1 $ 25.6 $ 15.7 $ 13.1
</TABLE>
- ---------------
(a) On and after June 17, 1993, the advisor has waived part of the management
fee to the extent such fee exceeds an annual rate of 0.25% of the Money
Market Portfolios daily net asset value.
The accompanying notes are an integral part of these financial statements.
11
<PAGE> 99
THIS PAGE INTENTIONALLY LEFT BLANK
12
<PAGE> 100
BOND PORTFOLIO
OHIO NATIONAL FUND, INC.
OBJECTIVE
The Bond Portfolio seeks to obtain a high level of income and opportunity for
capital appreciation consistent with preservation of capital.
PERFORMANCE AS OF DECEMBER 31, 1998
AVERAGE ANNUAL TOTAL RETURNS:
<TABLE>
<S> <C>
One-year 5.22%
Three-year 6.04%
Five-year 6.40%
Ten-year 8.15%
Since inception (11/2/82) 8.48%
</TABLE>
Returns represent past performance, which is no guarantee of future results.
Investment return and principal value will vary so that shares, when redeemed,
may be worth more or less than their original cost. Actual results for variable
annuity and variable universal life contracts will be lower due to contract
charges. Consult your contract for applicable charges for mortality and
expenses.
COMMENTS
The bond portfolio returned 5.22% in 1998 versus 8.44% for the Lehman Brothers
Government/Corporate Intermediate Bond Index. With a lesser percentage of U.S.
Treasury bonds in the portfolio versus the index, the performance of our fund
suffered during a year in which corporate spreads of all types widened
significantly. In particular, our fund has a large number of "Baa-rated"
corporates which experienced poor performance because of liquidity and credit
concerns which overtook the bond market in the last half of the year.
So far in 1999 through January, corporate bonds in the "Baa" category are
performing better than U.S. Treasury bonds because credit spreads are tightening
and we are more optimistic on the relative performance of the fund this year.
CHANGE IN VALUE OF $10,000 INVESTMENT
[GRAPH]
Hypothetical illustration based on past performance. Future performance will
vary. All returns reflect reinvested dividends. The portfolio's holdings may
differ significantly from the securities in the index. The index is unmanaged
and therefore does not reflect the cost of portfolio management or trading.
Neither the portfolio nor the index is open to direct investment.
TOP 10 HOLDINGS AS OF DECEMBER 31, 1998
<TABLE>
<CAPTION>
% of Net Assets
<C> <S> <C>
1. Anixter 8.00% 09/15/03 3.8
2. Franchise Finance Corp of Amer.
8.25% 10/30/03 3.6
3. Dial Corp 6.5% 09/15/08 3.5
4. U.S. Industries Inc. 144A
7.125% 10/15/03 3.5
5. Dole Foods Co 6.375% 10/01/05 3.3
6. Abitibi Consolidated Inc 7.40%
04/01/18 3.2
7. Colonial 8.05% 07/15/06 3.1
8. Thermo Electron Conv. 4.25%
01/01/03 3.1
9. Texas Utilities 7.48% 01/01/17 2.8
10. Watson Pharmeceuticals 7.125%
05/15/08 2.6
</TABLE>
TOP 5 INDUSTRIES AS OF DECEMBER 31, 1998
<TABLE>
<CAPTION>
% of Net Assets
<S> <C>
Utilities 9.8
Oil, Energy, and Natural Gas 8.7
Electrical Equipment 7.0
Forestry & Paper Products 6.3
Financial Services 5.4
</TABLE>
13
<PAGE> 101
OHIO NATIONAL FUND, INC.
BOND PORTFOLIO
SCHEDULE OF INVESTMENTS DECEMBER 31, 1998
<TABLE>
<CAPTION>
FACE MARKET
AMOUNT LONG-TERM BONDS & NOTES VALUE
- -------------------------------------------------------------
<C> <S> <C>
GOVERNMENT (1.8%)
$ 500,000 U.S. Treasury Note 7.875%
11/15/99.......................... $ 513,594
-----------
AIR COURIER (1.9%)
500,000 Federal Express Inc. 7.020%
01/15/16.......................... 529,863
-----------
AUTOMOTIVE & RELATED (2.2%)
100,000 Arvin Industries 10.000%
08/01/00.......................... 105,773
500,000 General Motors Automobile Corp.
8.400% 10/15/99................... 511,241
-----------
617,014
-----------
BUSINESS SERVICES (1.8%)
500,000 Cendent Corp. 7.750% 12/01/03...... 511,508
-----------
BUILDING & CONSTRUCTION (1.8%)
500,000 Owens Corning 7.500% 05/01/05...... 514,717
-----------
CHEMICALS (2.4%)
700,000 Mississippi Chemical Corp. 7.250%
11/15/17.......................... 688,283
-----------
COMMUNICATIONS (1.8%)
200,000 Comcast Cable Communications 8.375%
05/01/07.......................... 231,841
250,000 Tele-Communications, Inc. 8.250%
01/15/03.......................... 274,638
-----------
506,479
-----------
COMPUTER & RELATED (1.7%)
300,000 Apple Computer Inc. 6.500%
02/15/04.......................... 277,500
200,000 Comdisco, Inc. 7.750% 09/01/99..... 201,988
-----------
479,488
-----------
CONSUMER GOODS (5.3%)
1,000,000 Dial Corp. 6.500% 09/15/08......... 1,004,166
200,000 RJR Nabisco Inc. 8.750% 04/15/04... 203,505
300,000 RJR Nabisco Inc. 8.625% 12/01/02... 305,648
-----------
1,513,319
-----------
ELECTRICAL EQUIPMENT (7.0%)
1,000,000 Anixter Intl. 8.000% 09/15/03...... 1,079,316
500,000 Pioneer 8.500% 08/01/06............ 489,957
400,000 Tektronix Inc. 7.500% 08/01/03..... 428,167
-----------
1,997,440
-----------
ENTERTAINMENT & LEISURE (2.4%)
700,000 Mirage Resorts Inc. 6.750%
02/01/08.......................... 682,451
-----------
FINANCIAL SERVICES (5.4%)
1,000,000 Franchise Finance Corp of America
8.250% 10/30/03................... 1,017,076
500,000 St. Paul Bancorp Inc. 7.125%
02/15/04.......................... 522,979
-----------
1,540,055
-----------
</TABLE>
<TABLE>
<CAPTION>
FACE MARKET
AMOUNT LONG-TERM BONDS & NOTES VALUE
- -------------------------------------------------------------
<C> <S> <C>
FOOD & RELATED (5.0%)
$1,000,000 Dole Foods Co. 6.375% 10/01/05..... $ 988,106
500,000 Gruma, SA de C.V. 7.625%
10/15/07.......................... 440,000
-----------
1,428,106
-----------
FORESTRY & PAPER PRODUCTS (6.3%)
1,000,000 Abitibi Consolidated Inc. 7.400%
04/01/18.......................... 941,898
300,000 Boise Cascade Co. 9.850%
06/15/02.......................... 323,493
250,000 Champion International 7.700%
12/15/99.......................... 254,274
250,000 ITT Rayonier Inc. 7.500%
10/15/02.......................... 266,372
-----------
1,786,037
-----------
FOREIGN (1.8%)
200,000 British Columbia 7.000% 01/15/03... 212,216
250,000 Province of Quebec 8.625%
01/19/05.......................... 287,853
-----------
500,069
-----------
HOTEL/LODGING (2.3%)
700,000 ITT Destinations 6.750% 11/15/05... 646,516
-----------
HOUSING, FURNITURE & RELATED (0.6%)
140,000 Armstrong World 9.750% 04/15/08.... 175,958
-----------
INDUSTRIAL SERVICES (4.8%)
400,000 R&B Falcon Corp. Series B 6.750%
04/15/05.......................... 365,054
1,000,000 US Industries Inc. 144A 7.125%
10/15/03.......................... 1,001,222
-----------
1,366,276
-----------
INSURANCE (2.4%)
250,000 Continental Corp. 7.250%
03/01/03.......................... 256,203
400,000 Transamerica Finance Corp. 7.500%
03/15/04.......................... 422,088
-----------
678,291
-----------
MACHINERY (3.1%)
1,000,000 Thermo Electron 4.250% 01/01/03.... 876,046
-----------
MEDICAL & RELATED (4.6%)
250,000 Bergen Brunswig 7.375% 01/15/03.... 265,986
300,000 Cardinal Health Inc. 6.500%
02/15/04.......................... 312,180
700,000 Watson Pharmaceuticals 7.125%
05/15/08.......................... 726,650
-----------
1,304,816
-----------
METALS AND MINING (1.8%)
500,000 Cyprus Minerals 6.625% 10/15/05.... 513,209
-----------
OIL, ENERGY & NATURAL GAS (8.0%)
200,000 Atlantic Richfield 8.550%
03/01/12.......................... 244,971
100,000 DeKalb Energy 9.875% 07/15/00...... 106,517
400,000 Dresser Industries, Inc. 6.250%
06/01/00.......................... 405,038
500,000 Husky Oil Ltd. 8.900% 08/15/28..... 478,125
125,000 Marathon Oil 7.000% 06/01/02....... 129,522
400,000 PDV America, Inc. 7.875%
08/01/03.......................... 404,145
500,000 System Energy 7.800% 08/01/00...... 511,755
-----------
2,280,073
-----------
</TABLE>
(continued)
14
<PAGE> 102
OHIO NATIONAL FUND, INC.
BOND PORTFOLIO (CONTINUED)
SCHEDULE OF INVESTMENTS DECEMBER 31, 1998
<TABLE>
<CAPTION>
FACE MARKET
AMOUNT LONG-TERM BONDS & NOTES VALUE
- -------------------------------------------------------------
<C> <S> <C>
REAL ESTATE & LEASING (5.2%)
$ 300,000 Avalon Properties Inc. 7.375%
09/15/02.......................... $ 305,206
900,000 Colonial Realty 8.050% 07/15/06.... 916,664
250,000 Sun Communities 7.625% 05/01/03.... 251,959
-----------
1,473,829
-----------
TRANSPORTATION (3.9%)
250,000 American President Cos., Ltd.
7.125% 11/15/03................... 203,896
350,000 Illinois Central Gulf Railroad
6.750% 05/15/03................... 366,405
490,233 Northwest Airlines 8.070%
01/02/15.......................... 525,091
-----------
1,095,392
-----------
RESTAURANTS (1.8%)
500,000 Wendy's Inc. 6.350% 12/15/05....... 514,192
-----------
UTILITIES (8.7%)
200,000 Cleveland Electric Illum. 7.625%
08/01/02.......................... 208,677
500,000 Great Lakes Power Inc. 8.900%
12/01/99.......................... 514,498
250,000 Kansas Gas & Electric 8.290%
03/29/16.......................... 270,805
200,000 Old Dominion Electric Co-op 8.760%
12/01/22.......................... 244,667
200,000 Sprint Corp. 8.125% 07/15/02....... 218,083
700,000 Texas Utilities Electric Co. 7.480%
01/01/17.......................... 785,694
200,000 Toledo Edison Co. 7.875% 08/01/04 215,347
-----------
2,457,771
-----------
TOTAL LONG-TERM BONDS & NOTES
(95.8%) (COST $26,589,684)........ $27,190,792
-----------
</TABLE>
<TABLE>
<CAPTION>
MARKET
SHARES PREFERRED STOCK VALUE
- -------------------------------------------------------------
<C> <S> <C>
UTILITIES (1.1%)
12,000 GTE Delaware, 8.750%, Series B $ 312,750
-----------
TOTAL PREFERRED STOCKS (1.1%) (COST
$300,000)......................... $ 312,750
-----------
</TABLE>
<TABLE>
<CAPTION>
FACE MARKET
AMOUNT SHORT-TERM NOTES VALUE
- -------------------------------------------------------------
<C> <S> <C>
FINANCE (1.6%)
$ 447,000 American General Corp. 4.700%
01/04/99.......................... $ 446,825
-----------
TOTAL SHORT-TERM NOTES (1.6%)
(COST $446,825)................... $ 446,825
-----------
TOTAL HOLDINGS (98.5%)
(COST $27,336,509)(a)............. $27,950,367
-----------
CASH & RECEIVABLES,
NET OF LIABILITIES (1.5%)......... 430,819
-----------
TOTAL NET ASSETS (100.0%).......... $28,381,186
===========
</TABLE>
- ---------------
(a) Also represents cost for Federal income tax purposes.
The accompanying notes are an integral part of these financial statements.
15
<PAGE> 103
OHIO NATIONAL FUND, INC.
BOND PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1998
<TABLE>
<S> <C>
Assets:
Investments in securities at market value
(note 1) (cost $27,336,509)............. $27,950,367
Cash in bank.............................. 566
Receivable for fund shares sold........... 1,041
Dividends and accrued interest
receivable.............................. 543,206
Other..................................... 1,459
-----------
Total assets............................ 28,496,639
-----------
Liabilities:
Payable for shares redeemed............... 93,626
Payable for investment management services
(note 3)................................ 14,701
Other accrued expenses.................... 7,126
-----------
Total liabilities....................... 115,453
-----------
Net assets at market value.................. $28,381,186
===========
Net assets consist of:
Par value, $1 per share................... $ 2,688,614
Paid-in capital in excess of par value.... 25,350,555
Accumulated net realized loss on
investments (note 1).................... (274,501)
Net unrealized appreciation on investments
(note 1)................................ 613,858
Undistributed net investment income....... 2,660
-----------
Net assets at market value.................. $28,381,186
===========
Shares outstanding (note 4)................. 2,688,614
Net asset value per share................... $ 10.56
===========
</TABLE>
STATEMENT OF OPERATIONS
Year ended December 31, 1998
<TABLE>
<S> <C>
Investment income:
Interest................................... $1,762,368
Dividends.................................. 26,250
----------
Total investment income.................. 1,788,618
----------
Expenses:
Management fees (note 3)................... 150,300
Custodian fees (note 3).................... 5,050
Directors' fees (note 3)................... 653
Professional fees.......................... 2,828
Accounting and transfer agent fees......... 22,210
Other...................................... 4,217
----------
Total expenses........................... 185,258
----------
Net investment income.................... $1,603,360
----------
Realized and unrealized gain on investments:
Net realized loss from investments......... $ (230,373)
Net decrease in unrealized appreciation on
investments.............................. (124,666)
----------
Net loss on investments.................. (355,039)
----------
Net increase in net assets from
operations............................. $1,248,321
==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
16
<PAGE> 104
OHIO NATIONAL FUND, INC.
BOND PORTFOLIO
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, 1998 DECEMBER 31, 1997
----------------- -----------------
<S> <C> <C>
From operations:
Net investment income..................................... $ 1,603,360 $ 1,355,098
Realized gain (loss) on investments....................... (230,373) 38,573
Unrealized gain (loss) on investments..................... (124,666) 399,815
----------- -----------
Net increase in net assets from operations............ 1,248,321 1,793,486
----------- -----------
Dividends and distributions to shareholders:
Dividends paid from net investment income................. (1,604,016) (1,690,155)
----------- -----------
From capital share transactions (note 4):
Received from shares sold................................. 10,579,517 6,831,247
Received from dividends reinvested........................ 1,604,016 1,690,155
Paid for shares redeemed.................................. (5,213,682) (7,636,590)
----------- -----------
Increase in net assets derived from capital share
transactions......................................... 6,969,851 884,812
----------- -----------
Increase in net assets............................. 6,614,156 988,143
Net Assets:
Beginning of period....................................... 21,767,030 20,778,887
----------- -----------
End of period (a)......................................... $28,381,186 $21,767,030
=========== ===========
(a) Includes undistributed net investment income of......... $ 2,660 $ 3,316
=========== ===========
</TABLE>
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------------------------
1998 1997 1996 1995 1994
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Per share data:
Net asset value, beginning of period........................ $10.68 $10.62 $10.93 $ 9.70 $10.87
Income (loss) from investment operations:
Net investment income..................................... 0.67 0.71 0.69 0.70 0.67
Net realized and unrealized gain (loss) on investments.... (0.12) 0.23 (0.32) 1.08 (1.07)
------ ------ ------ ------ ------
Total income (loss) from investment operations.......... 0.55 0.94 0.37 1.78 (0.40)
------ ------ ------ ------ ------
Less distributions:
Dividends from net investment income...................... (0.67) (0.88) (0.68) (0.55) (0.69)
Distributions from net realized capital gains............. 0.00 0.00 0.00 0.00 (0.08)
------ ------ ------ ------ ------
Total distributions..................................... (0.67) (0.88) (0.68) (0.55) (0.77)
------ ------ ------ ------ ------
Net asset value, end of period.............................. $10.56 $10.68 $10.62 $10.93 $ 9.70
====== ====== ====== ====== ======
Total return................................................ 5.22% 9.28% 3.71% 18.90% (3.84%)
Ratios and supplemental data:
Ratio of expenses to average net assets................... 0.72% 0.78% 0.79% 0.75% 0.63%
Ratio of net investment income to average net assets...... 6.21% 6.67% 6.54% 6.76% 6.71%
Portfolio turnover rate..................................... 12% 10% 3% 4% 5%
Net assets at end of period (millions)...................... $ 28.4 $ 21.8 $ 20.8 $ 18.1 $ 13.1
</TABLE>
The accompanying notes are an integral part of these financial statements.
17
<PAGE> 105
THIS PAGE INTENTIONALLY LEFT BLANK
18
<PAGE> 106
OMNI PORTFOLIO
OHIO NATIONAL FUND, INC.
OBJECTIVE
The Omni Portfolio seeks a high level of long-term total rate of return
consistent with prudent investment risks. Total return consists of current
income and capital appreciation.
PERFORMANCE AS OF DECEMBER 31, 1998
AVERAGE ANNUAL TOTAL RETURNS:
<TABLE>
<S> <C>
One-year 4.53%
Three-year 12.58%
Five-year 11.75%
Ten-year 11.50%
Since inception (9/10/84) 11.50%
</TABLE>
Returns represent past performance, which is no guarantee of future results.
Investment return and principal value will vary so that shares, when redeemed,
may be worth more or less than their original cost. Actual results for variable
annuity and variable universal life contracts will be lower due to contract
charges. Consult your contract for applicable charges for mortality and
expenses.
COMMENTS
The Omni portfolio return was 4.53% for 1998. Although the large capitalization
stock portion of the portfolio provided returns consistent with the major
indices, the portfolio's exposure to small and mid-capitalization stocks pulled
the overall return down. We were invested in these areas because the valuations
relative to the large capitalization stocks were very attractive. Unfortunately,
these areas corrected far more than the large capitalization stocks and the
major indices during the stock market downturn. The fixed income portion of the
portfolio consists primarily of investment grade corporate bonds. This portion
of the fixed income market did not perform as well as the Government Security
portion of the market. This was caused by investors' concern with worldwide
economic issues and political uncertainties; the result was a flight to safety.
We expect the stock market to continue in a volatile manner. We expect the U.S.
economy and economic activity around the world to slow somewhat during 1999. We
will focus our efforts on investing more in growth issues and companies growing
their dividends at least two to three times GDP. We expect the corporate bond
sector of the fixed income market to perform more favorably. Asset allocations
will remain near current levels.
CHANGE IN VALUE OF $10,000 INVESTMENT
[GRAPH]
Hypothetical illustration based on past performance. Future performance will
vary. All returns reflect reinvested dividends. The portfolio's holdings may
differ significantly from the securities in the index. The index is unmanaged
and therefore does not reflect the cost of portfolio management or trading.
Neither the portfolio nor the index is open to direct investment.
TOP 10 HOLDINGS AS OF DECEMBER 31, 1998
<TABLE>
<CAPTION>
% of Net Assets
<C> <S> <C>
1. Cisco Systems Inc 2.9
2. American International Group 1.6
3. Ford Motor Corp 1.6
4. Sun Microsystems 1.6
5. Texas Instruments 1.4
6. General Electric Corp 1.3
7. Owens-Illinois Inc 1.3
8. Microsoft Corp 1.3
9. Abbott Laboratories 1.3
10. Xerox 1.2
</TABLE>
TOP 5 INDUSTRIES AS OF DECEMBER 31, 1998
<TABLE>
<CAPTION>
% of Net Assets
<S> <C>
Computer and Related 11.9
Oil, Energy, and Natural Gas 9.7
Medical & Related 6.3
Banking 5.6
Business Services 4.0
</TABLE>
19
<PAGE> 107
OHIO NATIONAL FUND, INC.
OMNI PORTFOLIO
SCHEDULE OF INVESTMENTS DECEMBER 31, 1998
<TABLE>
<CAPTION>
MARKET
SHARES COMMON STOCK VALUE
- -------------------------------------------------------------
<C> <S> <C>
AEROSPACE (1.9%)
49,000 Allied Signal Inc. .................. $ 2,171,313
21,600 Raytheon Co. ........................ 1,150,200
17,350 Rockwell International Corp. ........ 842,559
------------
4,164,072
------------
AUTOMOTIVE & RELATED (2.6%)
7,500 Arvin Industries Inc. ............... 312,656
7,294 *DaimlerChrysler AG................... 700,680
8,000 Eaton Corp. ......................... 565,500
58,777 Ford Motor Co. ...................... 3,449,475
10,000 Magna Intl. Inc. CL A................ 620,000
------------
5,648,311
------------
BANKING (4.2%)
13,050 Bank America Corp. .................. 784,631
67,597 Charter One Financial Inc. .......... 1,875,817
23,880 First State Bancorp.................. 495,510
25,921 First Union Corp. ................... 1,576,321
21,440 Firstar Corp. ....................... 1,999,280
25,000 Flagstar Bancorp..................... 653,125
22,500 Mellon Bank Corp. ................... 1,546,875
------------
8,931,559
------------
BUSINESS SERVICES (4.0%)
70,000 *Alternative Resources Co. ........... 743,750
55,000 First Data Corp. .................... 1,742,813
30,000 Hewlett-Packard Co. ................. 2,049,375
30,000 *Lo Jack Corp. ....................... 356,250
81,500 Manpower Inc. ....................... 2,052,781
67,000 Reynolds & Reynolds.................. 1,536,813
------------
8,481,782
------------
CHEMICALS (2.4%)
18,000 Engelhard Corp. ..................... 351,000
25,625 Hanson Trust PLC..................... 999,375
7,500 Hawkins Chemical Inc. ............... 75,000
25,000 Hercules Inc. ....................... 684,375
20,000 Minerals Technologies Inc. .......... 818,750
15,000 Monsanto Co. ........................ 712,500
39,000 OM Group Inc. ....................... 1,423,500
------------
5,064,500
------------
COMMUNICATIONS (0.1%)
11,250 *Mastec Inc. ......................... 236,250
------------
COMPUTER & RELATED (11.1%)
28,000 *3Comm Corp. ......................... 1,254,750
67,500 *Cisco Systems Inc. .................. 6,264,844
34,500 Computer Associates.................. 1,470,563
5,200 *Computer Sciences Corp. ............. 335,075
22,000 Intel Corp. ......................... 2,608,375
30,000 *Mapics Inc. ......................... 495,000
20,000 *Microsoft Corp. ..................... 2,773,750
47,058 *Seagate Technology Inc. ............. 1,423,504
40,000 *Sun Microsystems Inc. ............... 3,425,000
</TABLE>
<TABLE>
<CAPTION>
MARKET
SHARES COMMON STOCK VALUE
- -------------------------------------------------------------
<C> <S> <C>
COMPUTER & RELATED, CONTINUED
36,000 Texas Instruments Inc. .............. $ 3,080,250
21,000 *Zebra Tech Corp. CL. A............... 603,750
------------
23,734,861
------------
CONSUMER PRODUCTS (0.1%)
7,000 *Sola International................... 120,750
------------
CONTAINERS (1.3%)
90,000 *Owens-Illinois Inc. ................. 2,756,250
------------
DRUGS (2.4%)
56,000 Abbott Laboratories.................. 2,744,000
57,000 *Applied Analytical Ind. ............. 990,375
45,000 Mylan Laboratories................... 1,417,500
------------
5,151,875
------------
ELECTRICAL EQUIPMENT (3.9%)
33,333 *Analog Devices Inc. ................. 1,045,823
52,500 *Anixter International Inc. .......... 1,066,406
26,116 Federal Signal Corp. ................ 714,926
28,000 General Electric Co. ................ 2,857,750
22,500 Xerox Corp. ......................... 2,655,000
------------
8,339,905
------------
ENTERTAINMENT & LEISURE (1.0%)
66,000 Cedar Fair........................... 1,716,000
36,000 *Mirage Resorts Inc. ................. 537,750
------------
2,253,750
------------
FINANCIAL SERVICES (2.2%)
60,810 Associates First Capital............. 2,576,824
55,000 MGIC Investment Corp. ............... 2,189,687
------------
4,766,511
------------
FOOD & RELATED (1.2%)
50,000 Food Lion Inc. CL A.................. 531,250
54,600 Food Lion Inc. CL B.................. 549,413
16,500 H.J.Heinz Co. ....................... 934,312
23,000 Pan American Beverages Inc........... 501,687
------------
2,516,662
------------
FORESTRY & PAPER PRODUCTS (0.5%)
34,000 Boise Cascade........................ 1,054,000
------------
HOTEL/LODGING (0.1%)
25,000 *Guest Supply......................... 298,437
------------
HOUSING, FURNITURE & RELATED (2.1%)
139,781 Clayton Homes Inc. .................. 1,930,725
55,000 Haverty Furniture Co. ............... 1,155,000
24,000 Newell Co. .......................... 990,000
35,000 Shelby Williams...................... 420,000
------------
4,495,725
------------
INDUSTRIAL SERVICES (0.8%)
45,000 Clarcor Inc. ........................ 900,000
31,000 Pall Corp. .......................... 784,687
1,600 Regal Beloit......................... 36,800
------------
1,721,487
------------
</TABLE>
(continued)
20
<PAGE> 108
OHIO NATIONAL FUND, INC.
OMNI PORTFOLIO (CONTINUED)
SCHEDULE OF INVESTMENTS DECEMBER 31, 1998
<TABLE>
<CAPTION>
MARKET
SHARES COMMON STOCK VALUE
- -------------------------------------------------------------
<C> <S> <C>
MACHINERY (0.5%)
37,000 Hardinge Inc. ....................... $ 682,188
41,000 Stewart & Stevenson.................. 399,750
------------
1,081,938
------------
INSURANCE (2.5%)
36,280 American International Group......... 3,505,555
18 Cincinnati Financial Corp. .......... 659
20,000 Equitable Cos. Inc. ................. 1,157,500
47,000 State Auto Financial Corp. .......... 581,625
------------
5,245,339
------------
MEDIA & PUBLISHING (0.9%)
60,000 CBS Corp. ........................... 1,965,000
------------
MEDICAL & RELATED (5.1%)
40,600 Allegiance Corp. .................... 1,892,975
26,500 Baxter International................. 1,704,281
57,000 Capital Senior Living Corp. ......... 794,438
40,000 *Foundation Health Corp. ............. 477,500
30,000 *HCR Manor Care....................... 881,250
100,000 *Healthsouth Corp. ................... 1,543,750
18,000 *Humana Inc. ......................... 320,625
54,500 *Kendle International................. 1,273,937
47,000 *Quorum Health Group Inc. ............ 608,063
34,000 United Healthcare Corp. ............. 1,464,125
------------
10,960,944
------------
METALS & MINING (0.9%)
32,000 Amcast Industrial Corp. ............. 612,000
36,700 *Wolverine Tube Inc. ................. 770,700
49,000 Worthington Industries............... 612,500
------------
1,995,200
------------
OIL, ENERGY & NATURAL GAS (6.0%)
23,000 Chevron Corp. ....................... 1,907,562
74,500 *Louis Dreyfus Natural Gas............ 1,061,625
100,000 *Matrix Services Co. ................. 475,000
30,000 *Offshore Logistics Inc. ............. 356,250
30,000 Pacific Gulf Properties.............. 601,875
53,630 Schlumberger Ltd. ................... 2,473,684
86,000 *Tesoro Petroleum..................... 1,042,750
50,000 Transocean Offshore Inc. ............ 1,340,625
90,000 USEC Inc. ........................... 1,248,750
23,200 WD-4 Co. ............................ 664,100
57,000 Williams Companies Inc. ............. 1,777,688
------------
12,949,909
------------
REAL ESTATE & LEASING (3.6%)
19,000 Camden Property Trust................ 494,000
76,300 Commercial Net Lease Realty.......... 1,010,975
60,000 Corporate Office Properties.......... 427,500
30,500 First Industrial Realty Trust........ 817,781
33,000 HRPT Properties Trust................ 464,063
50,000 Healthcare Realty Trust.............. 1,115,625
50,000 JDN Realty Corp. .................... 1,078,125
56,250 Liberty Property Trust............... 1,385,156
</TABLE>
<TABLE>
<CAPTION>
MARKET
SHARES COMMON STOCK VALUE
- -------------------------------------------------------------
<C> <S> <C>
REAL ESTATE & LEASING, CONTINUED
24,000 National Health Investors Inc. ...... $ 592,500
11,500 Regency Hotel Corp. ................. 255,875
------------
7,641,600
------------
RESTAURANTS (1.0%)
50,000 *Buffets, Inc. ....................... 596,875
71,625 Consolidated Product................. 1,477,266
------------
2,074,141
------------
TEXTILES (0.7%)
58,000 Warnaco Group CL A................... 1,464,500
------------
TRANSPORTATION & EQUIPMENT (3.3%)
21,500 *Atlas Air Inc. ...................... 1,052,156
39,500 *Avondale Industries.................. 1,145,500
65,000 Burlington Northern Santa Fe......... 2,193,750
24,000 CNF Transportation Inc. ............. 901,500
21,000 Trinity Industries................... 808,500
50,000 *Wisconsin Central Transportations.... 859,375
------------
6,960,781
------------
UTILITIES (0.7%)
15,000 FPL Group Inc. ...................... 924,375
23,500 UGI Corp. ........................... 558,125
------------
1,482,500
------------
TOTAL COMMON STOCKS (67.0%)
(COST $89,496,896).................. $143,558,539
------------
</TABLE>
<TABLE>
<CAPTION>
MARKET
SHARES PREFERRED STOCK VALUE
- -------------------------------------------------------------
<C> <S> <C>
AUTOMOTIVE AND RELATED (0.1%)
8,000 Walbro Capital Trust Conv. ........ $ 106,000
-----------
BANKING (0.9%)
46,000 Flagstar Bancorp Inc. ............. 1,104,000
30,000 National Australia Bank Conv....... 836,250
-----------
1,940,250
-----------
COMPUTERS & RELATED (0.5%)
16,000 General Datacommunications 9.000%
(144A)............................ 168,000
15,500 Unisys Corp. Conv. $3.75 Series
A................................. 910,625
-----------
1,078,625
-----------
FOOD & RELATED (0.2%)
20,000 Conagra Capital 9.35% Series C..... 516,250
-----------
METALS & MINING (0.2%)
30,000 Freeport McMoran Copper & Gold
Series C.......................... 446,250
-----------
OIL, ENERGY & NATURAL GAS (0.6%)
41,000 Consumer Energy II Conv. .......... 1,050,625
10,000 Howell Corp. $3.50 Series A
Conv. ............................ 150,000
-----------
1,200,625
-----------
REAL ESTATE & LEASING (0.2%)
15,000 Camden Property Tr. Conv. ......... 355,313
-----------
</TABLE>
(continued)
21
<PAGE> 109
OHIO NATIONAL FUND, INC.
OMNI PORTFOLIO (CONTINUED)
SCHEDULE OF INVESTMENTS DECEMBER 31, 1998
<TABLE>
<CAPTION>
MARKET
SHARES PREFERRED STOCK VALUE
- -------------------------------------------------------------
<C> <S> <C>
RETAIL (0.4%)
14,000 Kmart Conv. 7.75%.................. $ 811,125
-----------
UTILITIES (0.2%)
20,000 GTE Delaware 8.75% Series B........ 521,250
-----------
TOTAL PREFERRED STOCKS (3.3%)
(COST $8,136,934)................. $ 6,975,688
-----------
</TABLE>
<TABLE>
<CAPTION>
FACE MARKET
AMOUNT LONG-TERM BONDS & NOTES VALUE
- -------------------------------------------------------------
<C> <S> <C>
GOVERNMENT (1.6%)
$ 775,000 U.S. Treasury Note 6.375%
07/15/99.......................... $ 782,508
500,000 U.S. Treasury Note 7.875%
11/15/99.......................... 513,594
2,005,000 U.S. Treasury Note 7.750%
02/15/01.......................... 2,129,059
-----------
3,425,161
-----------
AEROSPACE (0.2%)
500,000 AAR Corp. 7.250% 10/15/03.......... 521,168
-----------
BANKING (0.5%)
1,000,000 Green Tree Financial CL A 8.700%
06/15/25.......................... 1,095,179
-----------
CHEMICALS (0.8%)
1,750,000 GEON Company 7.500% 12/15/98....... 1,679,673
-----------
COMMUNICATIONS (1.0%)
1,600,000 Comcast Cable Communications 8.375%
05/01/07.......................... 1,854,725
300,000 Sprint 8.125% 07/15/02............. 327,125
-----------
2,181,850
-----------
COMPUTERS & RELATED (0.3%)
700,000 Apple Computer, Inc. 6.500%
02/15/04.......................... 647,500
-----------
CONSUMER GOODS (0.9%)
1,400,000 Owens Corning 7.500% 05/01/05...... 1,441,208
400,000 RJR Nabisco, Inc. 8.750%
04/15/04.......................... 407,009
-----------
1,848,217
-----------
FINANCIAL SERVICES (0.4%)
1,000,000 Fertinitro Finance Inc. 8.290%
04/01/20.......................... 876,525
-----------
FOOD & RELATED (0.4%)
740,000 Marsh Supermarkets Inc. 8.875%
04/01/07.......................... 777,000
-----------
FORESTRY & PAPER PRODUCTS (0.7%)
700,000 Boise Cascade Co. 9.850%
06/15/02.......................... 754,817
500,000 Champion International 9.875%
06/01/00.......................... 526,801
250,000 ITT Rayonier, Inc. 7.500%
10/15/02.......................... 266,371
-----------
1,547,989
-----------
HOUSING, FURNITURE & RELATED (0.2%)
250,000 Armstrong World 9.750% 04/15/08.... 314,211
-----------
INDUSTRIAL SERVICES (0.2%)
400,000 Medar Sr. Sub. notes 12.950%
06/30/05.......................... 400,000
-----------
</TABLE>
<TABLE>
<CAPTION>
FACE MARKET
AMOUNT LONG-TERM BONDS & NOTES VALUE
- -------------------------------------------------------------
<C> <S> <C>
INSURANCE (0.5%)
$ 500,000 Continental Corp. 7.250%
03/01/03.......................... $ 512,405
600,000 Transamerica Finance Corp. 7.500%
03/15/04.......................... 633,132
-----------
1,145,537
-----------
MACHINERY (0.2%)
500,000 ABC Rail Products Corp. 9.125%
01/15/04.......................... 477,500
-----------
MEDICAL & RELATED (1.2%)
500,000 Bergen Brunswig 7.375% 01/15/03.... 531,972
1,000,000 Centocor Inc. 4.750% 02-15-05...... 1,058,750
1,000,000 Tenet Healthcare Corp. 8.625%
01/15/07.......................... 1,050,000
-----------
2,640,722
-----------
METALS & MINING (0.2%)
500,000 Cyprus Minerals 6.625% 10/15/05.... 513,210
-----------
OIL, ENERGY & NATURAL GAS (2.8%)
400,000 Dekalb Energy 9.875% 07/15/00...... 426,066
350,000 Dresser Industries, Inc. 6.250%
06/01/00.......................... 354,408
375,000 Marathon Oil 7.00% 06/01/02........ 388,569
600,000 PVD America, Inc. 7.875%
08/01/03.......................... 606,218
500,000 Petroleos Mexicanos Global 8.850%
09/15/04.......................... 441,250
1,500,000 R & B Falcon Corp. Series B 6.750%
04/15/05.......................... 1,368,951
500,000 Union Texas Petroleum 8.250%
11/15/99.......................... 511,794
500,000 United Refining Company 10.750%
06/15/07.......................... 337,500
2,000,000 Windsor Petroleum Transport Corp.
7.840% 01/15/21................... 1,500,000
-----------
5,934,756
-----------
TRANSPORTATION (0.4%)
500,000 American President Cos., Ltd.
7.125% 11/15/03................... 407,793
400,000 Illinois Central Gulf Railroad
6.750% 05/15/03................... 418,748
-----------
826,541
-----------
RESTAURANTS (0.9%)
1,900,000 Tricon Global Restaurants 7.450%
05/15/05.......................... 1,960,808
-----------
UTILITIES (1.9%)
400,000 Cleveland Electric Illum. 7.625%
08/01/02.......................... 417,355
700,000 ESI Tractebel 7.990% 12/30/11...... 691,118
1,000,000 Great Lakes Power 9.000%
08/01/04.......................... 1,138,072
700,000 Niagara Mohawk Power Corp. 7.750%
10/01/08.......................... 769,187
400,000 Old Dominion Elec. Co. 8.760%
12/01/22.......................... 489,335
500,000 Texas New Mexico Power Co. 9.250%
09/15/00.......................... 528,166
-----------
4,033,233
-----------
TOTAL LONG-TERM BONDS & NOTES
(15.3%) (COST $32,562,295)........ $32,846,780
-----------
</TABLE>
(continued)
22
<PAGE> 110
OHIO NATIONAL FUND, INC.
OMNI PORTFOLIO (CONTINUED)
SCHEDULE OF INVESTMENTS DECEMBER 31, 1998
<TABLE>
<CAPTION>
FACE MARKET
AMOUNT CONVERTIBLE DEBENTURES VALUE
- --------------------------------------------------------------
<C> <S> <C>
METALS & MINING (0.3%)
$ 600,000 INCO, Ltd. 7.750% due 03/15/16.... $ 540,000
------------
OIL, ENERGY & NATURAL GAS (0.3%)
750,000 Offshore Logistics, Inc. 6.000%
due 12/15/06..................... 648,750
------------
TOTAL CONVERTIBLE DEBENTURES
(0.6%) (COST $1,383,000)......... $ 1,188,750
------------
AUTOMOTIVE & RELATED (4.5%)
$ 5,125,000 General Motors Acceptance Corp.
5.660% 01/05/99.................. $ 5,121,777
4,468,000 Ford Motor 5.110% 01/11/99........ 4,461,658
------------
9,583,435
------------
FINANCE (7.2%)
4,000,000 American Express Credit Corp.
5.400% 01/07/99.................. 3,996,400
3,425,000 American General Finance 4.770%
01/13/99......................... 3,419,554
3,567,000 G.E. Capital 5.950% 01/04/99...... 3,565,231
4,685,000 Household Finance 6.100%
01/08/99......................... 4,679,443
------------
15,660,628
------------
</TABLE>
<TABLE>
<CAPTION>
FACE MARKET
AMOUNT CONVERTIBLE DEBENTURES VALUE
- --------------------------------------------------------------
<C> <S> <C>
RETAIL (2.4%)
$ 5,090,000 Sears Roebuck Acceptance Corp.
5.800% 01/06/99.................. $ 5,085,900
------------
TOTAL SHORT-TERM NOTES (14.1%)
(COST $30,329,963)............... $ 30,329,963
------------
TOTAL HOLDINGS (100.3%)
(COST $161,909,088)(a)........... $214,899,720
------------
CASH & RECEIVABLES, NET OF
LIABILITIES (-0.3%).............. (479,703)
------------
TOTAL NET ASSETS (100.0%)......... $214,420,017
============
</TABLE>
- ---------------
* Non-income producing securities.
(a) Also represents cost for Federal income tax purposes.
(144A) Security exempt from registration under Rule 144A of the Securities Act
of 1933. These Securities may be resold in transactions exempt from
registration, normally to qualified buyers. At the period end, the value of
these securities amounted to $168,000 or 0.1% of net assets. These securities
were deemed liquid pursuant to procedures approved by the Board of Directors.
The accompanying notes are an integral part of these financial statements.
23
<PAGE> 111
OHIO NATIONAL FUND, INC.
OMNI PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1998
<TABLE>
<S> <C>
Assets:
Investments in securities at market value
(note 1) (cost $161,909,088)........... $214,899,720
Cash in bank............................. 6,739
Receivable for securities sold........... 525,619
Receivable for fund shares sold.......... 53,516
Dividends and accrued interest........... 915,313
Other.................................... 12,491
------------
Total assets........................... 216,413,398
------------
Liabilities:
Payable for securities purchase.......... 1,744,590
Payable for shares redeemed.............. 107,459
Payable for investment management
services (note 3)...................... 94,833
Other accrued expenses................... 46,499
------------
Total liabilities...................... 1,993,381
------------
Net assets at market value................. $214,420,017
============
Net assets consist of:
Par value, $1 per share.................. $ 10,002,822
Paid-in capital in excess of par value... 152,102,721
Accumulated net realized loss on
investments (note 1)................... (681,856)
Net unrealized appreciation on
investments
(note 1)............................... 52,990,632
Undistributed net investment income...... 5,698
------------
Net assets at market value................. $214,420,017
============
Shares outstanding (note 4)................ 10,002,822
Net asset value per share.................. $ 21.44
============
</TABLE>
STATEMENT OF OPERATIONS
Year ended December 31, 1998
<TABLE>
<S> <C>
Investment income:
Interest.................................. $ 4,196,276
Dividends................................. 2,806,568
-----------
Total investment income................. 7,002,844
-----------
Expenses:
Management fees (note 3).................. 1,116,792
Custodian fees (note 3)................... 41,300
Directors' fees (note 3).................. 6,952
Professional fees......................... 30,124
Accounting and transfer agent fees........ 127,077
Other..................................... 40,188
-----------
Total expenses.......................... 1,362,433
-----------
Net investment income................... $ 5,640,411
-----------
Realized and unrealized gain (loss)on
investments:
Net realized loss from investments........ $ (681,856)
Net increase in unrealized appreciation on
investments............................. 3,546,023
-----------
Net gain on investments................. 2,864,167
-----------
Net increase in net assets from
operations............................ $ 8,504,578
===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
24
<PAGE> 112
OHIO NATIONAL FUND, INC.
OMNI PORTFOLIO
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
1998 1997
------------ ------------
<S> <C> <C>
From operations:
Net investment income..................................... $ 5,640,411 $ 4,595,611
Realized gain (loss) on investments....................... (681,856) 7,723,290
Unrealized gain on investments............................ 3,546,023 15,465,006
------------ ------------
Net increase in net assets from operations............ 8,504,578 27,783,907
------------ ------------
Dividends and distributions to shareholders:
Dividends paid from net investment income................. (5,642,402) (5,602,347)
Capital gains distributions............................... (33,599) (9,150,428)
------------ ------------
Total dividends and distributions.................. (5,676,001) (14,752,775)
------------ ------------
From capital share transactions (note 4):
Received from shares sold................................. 30,642,850 35,259,039
Received from dividends reinvested........................ 5,676,001 14,752,775
Paid for shares redeemed.................................. (18,442,457) (14,795,590)
------------ ------------
Increase in net assets derived from capital share
transactions....................................... 17,876,394 35,216,224
------------ ------------
Increase in net assets............................. 20,704,971 48,247,356
Net Assets:
Beginning of period....................................... 193,715,046 145,467,690
------------ ------------
End of period (a)......................................... $214,420,017 $193,715,046
============ ============
(a) Includes undistributed net investment income of......... $ 5,698 $ 7,689
============ ============
</TABLE>
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------------------------
1998 1997 1996 1995 1994
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Per share data:
Net asset value, beginning of period........................ $21.06 $19.40 $17.60 $14.76 $15.38
Income (loss) from investment operations:
Net investment income..................................... 0.58 0.56 0.53 0.58 0.55
Net realized and unrealized gain (loss) on investments.... 0.38 2.87 2.10 2.72 (0.63)
------ ------ ------ ------ ------
Total income (loss) from investment operations..... 0.96 3.43 2.63 3.30 (0.08)
------ ------ ------ ------ ------
Less distributions:
Dividends from net investment income...................... (0.58) (0.69) (0.52) (0.46) (0.54)
Distributions from net realized capital gains............. 0.00 (1.08) (0.31) 0.00 0.00
------ ------ ------ ------ ------
Total distributions................................ (0.58) (1.77) (0.83) (0.46) (0.54)
------ ------ ------ ------ ------
Net asset value, end of period.............................. $21.44 $21.06 $19.40 $17.60 $14.76
====== ====== ====== ====== ======
Total return................................................ 4.53% 18.15% 15.54% 22.75% 0.53%
Ratios and supplemental data:
Ratio of expenses to average net assets................... 0.65% 0.71% 0.76% 0.75% 0.62%
Ratio of net investment income to average net assets...... 2.71% 2.69% 2.89% 3.56% 3.67%
Portfolio turnover rate..................................... 18% 18% 12% 10% 7%
Net assets at end of period (millions)...................... $214.4 $193.7 $145.5 $109.6 $ 85.0
</TABLE>
The accompanying notes are an integral part of these financial statements.
25
<PAGE> 113
THIS PAGE INTENTIONALLY LEFT BLANK
26
<PAGE> 114
INTERNATIONAL PORTFOLIO
OHIO NATIONAL FUND, INC.
OBJECTIVE
The International Portfolio seeks long-term capital growth by investing
primarily in securities of foreign Companies.
PERFORMANCE AS OF DECEMBER 31, 1998
<TABLE>
<S> <C>
AVERAGE ANNUAL TOTAL RETURNS:
One-year 3.88%
Three-year 6.69%
Five-year 8.03%
Since inception (5/3/93) 11.36%
</TABLE>
Returns represent past performance, which is no guarantee of future results.
Investment return and principal value will vary so that shares, when redeemed,
may be worth more or less than their original cost. Actual results for variable
annuity and variable universal life contracts will be lower due to contract
charges. Consult your contract for applicable charges for mortality and
expenses.
COMMENTS
Despite continued concerns over the impact of the Asian crisis on global
economies, European indices surged ahead until mid-July. At that time, Russia
devalued its currency and defaulted on its Ruble denominated obligations, the
outlook in Latin American markets worsened as Brazil became an area of increased
worries, and a large U.S. hedge fund collapsed in September. Within a few weeks,
mature markets lost 20 to 30% while emerging markets were once again decimated.
In Asia, Japanese equities weakened farther as additional evidence of
deteriorating economic conditions and slow progress made toward the
implementation of long-awaited banking reforms. Global market developments
placed other Asian markets under pressure. Meanwhile, in Latin America, the
possibility of additional currency devaluations continued to weigh on local
stock markets.
In such an environment, small capitalization stocks fared even worse than large
capitalization stocks and suffered steep losses. Smaller stocks account for the
large majority of the Fund's holdings: while world markets stabilized later in
the year. Blue chips gained and reversed most of their losses, many of the small
issues did not recover. The performance of the Funds was therefore negatively
impacted by those developments.
CHANGE IN VALUE OF $10,000 INVESTMENT
[GRAPH]
Hypothetical illustration based on past performance. Future performance will
vary. All returns reflect reinvested dividends. The portfolio's holdings may
differ significantly from the securities in the index. The index is unmanaged
and therefore does not reflect the cost of portfolio management or trading.
Neither the portfolio nor the index is open to direct investment.
TOP 10 INTERNATIONAL HOLDINGS AS OF DECEMBER 31, 1998
<TABLE>
<CAPTION>
% of Net Assets
<C> <S> <C>
1. Secom Co., LTD 2.6
2. Bank for International
Settlements 2.2
3. Queensland Treasury 8.00%
09/14/07 2.2
4. Sagem ADP 2.0
5. Fuji Photo Film-ORD 1.9
6. Buderus AGLegrand ADP 1.9
7. Shimano Inc 1.8
8. Kuehne & Nagel Intl AG 1.8
9. Ito Yakado Co 1.7
10. Toho Co 1.6
</TABLE>
TOP 5 COUNTRIES/REGIONS AS OF DECEMBER 31, 1998
<TABLE>
<CAPTION>
% of Net Assets
<S> <C>
Japan 21.4
France 11.5
Switzerland 9.4
Germany 6.5
New Zealand 4.7
</TABLE>
The risk associated with investing on a worldwide basis includes differences in
regulation of financial data and reporting and currency exchanges as well as
economic and political systems which may be different from those in the United
States. The prices of small company stocks are generally more volatile than the
prices of large company stocks.
27
<PAGE> 115
OHIO NATIONAL FUND, INC.
INTERNATIONAL PORTFOLIO
SCHEDULE OF INVESTMENTS DECEMBER 31, 1998
<TABLE>
<CAPTION>
MARKET
SHARES COMMON STOCK VALUE
- -------------------------------------------------------------
<C> <S> <C>
JAPAN (21.4%)
325,000 Aida Engineering Ltd (19)......... $ 1,162,811
25,000 Benesse Corp (29)................. 1,346,111
85,000 Chofu Seisakusho (9).............. 943,820
500,000 Dai-Tokyo Fire Marine Ins Co Ltd
(18)............................. 1,762,503
350,000 Dowa Fire & Marine Ins Co Ltd
(18)............................. 1,295,439
75,000 Fuji Photo Film Co Ltd (9)........ 2,775,942
15,000 Hitachi Ltd ADR (11).............. 906,562
425,000 Iino Kaiun Kaisha (32)............ 711,610
35,000 Ito-Yokado Co Ltd (28)............ 2,436,660
300,000 Koa Fire & Marine Ins Co Ltd
(18)............................. 927,958
375,000 Nichido Fire & Marine Ins Co Ltd
(18)............................. 1,834,104
425,000 Nisshinbo Industries Inc (31)..... 1,475,655
150,000 Nittetsu Mining Co Ltd (22)....... 387,310
50,000 Nitto Kohki Co Ltd (5)............ 409,782
45,000 Secom Co Ltd (29)................. 3,711,831
100,000 Shimano Inc (9)................... 2,568,848
35,000 Shiseido Company (9).............. 447,852
175,000 Shoei Co (31)..................... 852,831
175,570 Sotoh Co (31)..................... 928,328
166,000 Tachi-S Co Ltd (2)................ 626,111
16,500 Toho Co. (20)..................... 2,250,892
35,000 Yomeishu Seizo Co Ltd (13)........ 222,383
------------
29,985,343
------------
FRANCE (11.5%)
12,000 CGDE Michelin 'B' (34)............ 479,807
3,000 Carbone Lorraine (10)............. 142,225
8,130 Crometal (5)...................... 510,511
4,450 Didot-Bottin (25)................. 644,841
8,500 Elf Aquitaine (12)................ 982,334
20,000 Emin Leydier (24)................. 865,870
2,500 Eurafrance (35)................... 1,737,556
10,000 Gaumont SA (20)................... 679,816
10,000 Legrand ADP (10).................. 1,592,200
6,500 NSC Groupe (19)................... 802,361
2,000 Promodes C.I. (28)................ 894,494
7,000 Sagem (11)........................ 2,880,272
2,000 Sucriere de Pithiviers-le-Vieil
(1).............................. 966,054
3,500 *Taittinger (13)................... 2,078,805
3,500 Vivendi (33)...................... 907,912
------------
16,165,058
------------
SWITZERLAND (9.4%)
485 Bank of Intl. Settlements (3)..... 3,088,610
6,500 Edipresse SA Bearer (25).......... 1,868,632
3,000 Kuehne & Nagel Intl AG (32)....... 2,510,917
250 Lindt & Sprungli AG PC (13)....... 655,022
500 *Nestle SA (9)..................... 1,088,064
6,500 Sika Finanz AG Bearer (7)......... 1,949,054
5,500 Societe Generale d'Affichage
(20)............................. 2,025,473
------------
13,185,772
------------
</TABLE>
<TABLE>
<CAPTION>
MARKET
SHARES COMMON STOCK VALUE
- -------------------------------------------------------------
<C> <S> <C>
GERMANY (6.5%)
2,000 Axel Springer Verlag AG (25)...... $ 1,681,732
18,000 Bayer AG (7)...................... 756,239
12,000 *Bertelsmann AG D.R.C. (25)........ 1,618,067
7,500 Buderus AG (5).................... 2,770,353
65,000 Gerresheimer Glas AG (9).......... 956,485
3,000 Suedzucker AG (13)................ 1,360,401
------------
9,143,277
------------
NEW ZEALAND (4.7%)
2,000,549 Carter Holt Harvey Ltd (14)....... 1,789,571
1,000,000 Evergreen Forests Ltd (14)........ 236,790
150,000 Independent Newpaper Ltd (25)..... 592,764
500,000 *Independent Press Comm. (25)...... 1,973,250
2,750,000 Shortland Properties Ltd (27)..... 969,523
2,550,000 Tasman Agriculture Ltd (1)........ 1,073,448
------------
6,635,346
------------
SINGAPORE (2.9%)
1,000,000 Clipsal Industries Ltd. (10)...... 1,000,000
1,000,000 Del Gro Corp. (34)................ 1,296,184
500,000 Intraco Ltd. (34)................. 172,623
1,000,000 Thakral Corp (34)................. 511,811
700,000 Times Publishing Ltd. (25)........ 1,093,882
------------
4,074,500
------------
HONG KONG (2.6%)
7,666,107 CDL Hotels Intl Ltd (16).......... 1,969,094
2,650,000 Shaw Brothers Ltd (20)............ 1,145,853
1,000,000 South China Morning Post Hdgs
Corp. (25)....................... 513,069
------------
3,628,016
------------
LATIN AMERICA (2.3%)
500,000 *Antofagasta Holdings plc (34)..... 1,471,697
70,000 Banco Latinoamericano 'Bladex'
(3).............................. 1,163,750
681,944 Ledesma SA (1).................... 430,027
99,999 Siderca SAIC (12)................. 114,104
------------
3,179,578
------------
UNITED KINGDOM (2.2%)
650,000 Lonrho Africa plc (34)............ 598,214
225,000 Lonrho plc (34)................... 1,193,940
367,500 McBride plc (9)................... 609,407
525,000 Royal Doulton plc (9)............. 687,759
------------
3,089,320
------------
CANADA (2.0%)
10,000 Canadian Hunter Explr. (12)....... 65,317
50,000 Canadian Pacific Ltd (32)......... 943,750
40,000 Franco-Nevada Mining Corp (21).... 766,819
125,000 Legacy Hotels Real Estate (27).... 522,534
17,440 Nexfor Inc (24)................... 68,917
40,000 Noranda Inc (21).................. 398,432
------------
2,765,769
------------
</TABLE>
(continued)
28
<PAGE> 116
OHIO NATIONAL FUND, INC.
INTERNATIONAL PORTFOLIO (CONTINUED)
SCHEDULE OF INVESTMENTS DECEMBER 31, 1998
<TABLE>
<CAPTION>
MARKET
SHARES COMMON STOCK VALUE
- -------------------------------------------------------------
<C> <S> <C>
SOUTH KOREA (1.8%)
10,000 Dong AH Tires (34)................ $ 399,834
7,000 Daeduck (11)...................... 407,315
55,000 *Fursys Inc (9).................... 1,316,708
5,000 Nam Yang Dairy Product (13)....... 332,502
------------
2,456,359
------------
NETHERLANDS (1.7%)
37,500 Apothekers Cooperatie OPG (17).... 1,075,247
55,000 European City Estates NV (27)..... 684,647
8,500 Philips Electronics NV ADR (11)... 575,344
------------
2,335,238
------------
MEXICO (1.1%)
1,000,000 Grupo Fernandez Editores de (25).. 79,253
500,000 Industrias Penoles de (21)........ 1,514,387
------------
1,593,640
------------
SWEDEN (1.1%)
45,000 Bylock & Nordsjofrakt AB 'B'
(32)............................. 90,833
55,000 Gorthon Lines 'B' (32)............ 230,161
10,000 Investor AB Class B (35).......... 450,475
81,300 IRO AB (34)....................... 820,530
------------
1,591,999
------------
DENMARK (1.1%)
20,000 Carlsberg Intl A/S CL B (13)...... 1,156,460
3,000 Kobenhavns Lufthavne (32)......... 372,393
------------
1,528,853
------------
BELGIUM (1.0%)
4,500 Deceuninck Plastics Ind. SA (4)... 1,461,400
------------
NORWAY (0.8%)
75,000 Schibsted AS (25)................. 947,562
25,000 Smedvig ASA-A (12)................ 210,569
------------
1,158,131
------------
SPAIN (0.8%)
2,500 Corporacion Financiera Alba SA
(34)............................. 417,445
100,000 Energia e Ind. Aragonesas SA
(34)............................. 679,889
------------
1,097,334
------------
THAILAND (0.5%)
100,000 Oriental Hotel (16)............... 510,316
350,000 *United Broadcasting Corp (20).... 166,093
------------
676,409
------------
PORTUGAL (0.4%)
15,000 Espirito Santo Finance (3)........ 293,437
20,000 Companhia de Celulose do Cairna
(1).............................. 242,779
------------
536,216
------------
ITALY (0.3%)
500,000 Montedison Savings Spa (34)....... 499,490
------------
FINLAND (0.3%)
6,000 Vaisala Oy A (11)................. 494,219
------------
</TABLE>
<TABLE>
<CAPTION>
MARKET
SHARES COMMON STOCK VALUE
- -------------------------------------------------------------
<C> <S> <C>
TURKEY (0.2%)
20,000 USAS UCAK Servisi (29)............ $ 285,352
------------
AUSTRALIA (0.1%)
200,000 Spotless Services Ltd (29)........ 136,976
------------
MISCELLANEOUS (1.1%)
55,000 North European Oil Royalty Tr.
(12)............................. 752,813
50,000 Minorco ADR (34).................. 759,375
------------
1,512,188
------------
TOTAL COMMON STOCK (77.8%)
(COST $115,864,140).............. $109,215,783
------------
</TABLE>
<TABLE>
<CAPTION>
MARKET
SHARES PREFERRED STOCK VALUE
- -------------------------------------------------------------
<C> <S> <C>
INDONESIA (1.1%)
30,500 Freeport McMoRan Pfd. 'B' (22)..... $ 453,687
40,000 Freeport McMoRan Pfd. 'C' (22)..... 490,000
50,000 Freeport McMoRan Pfd. 'D' (22)..... 587,500
-----------
1,531,187
-----------
GERMANY (0.9%)
20,500 Hornbach Holdings AG (28).......... 1,225,112
-----------
TOTAL PREFERRED STOCK (2.0%)
(COST $4,443,618)................. $ 2,756,299
-----------
</TABLE>
<TABLE>
<CAPTION>
MARKET
AMOUNT CONVERTIBLE DEBENTURES VALUE
- -------------------------------------------------------------
<C> <S> <C>
U.S. DOLLAR (1.7%)
$1,000,000 PT Inti Indorayon Utama 7.00% due
05/02/06 (24)..................... $ 190,000
500,000 Danka Business 6.75% due 04/01/02
(5)............................... 170,000
350,000 Medya International Ltd. 10.00% due
06/28/01 (20)..................... 236,250
1,750,000 Scandinavian Broadcasting 7.25% due
08/01/05 (20)..................... 1,835,313
-----------
2,431,563
-----------
NON U.S. DOLLAR (2.1%)
1,527 FF Gaumont SA 3.750% due 01/01/03
(20).............................. 142,053
25,000 FF Immobiliere Hoteliere 5.000% due
01/01/01 (16)..................... 827,184
450,000 GBP Berisford plc 5.000% due
01/31/15 (9)...................... 598,835
250,000 GBP BAA plc 5.750% due 03/29/06
(32).............................. 542,047
500,000 GBP Lonmin Finance Public Co. 6.00%
due 02/27/04 (3).................. 715,120
320,000 NZ Shortland Properties Inc. 7.50%
due 12/31/98 (27)................. 112,817
-----------
2,938,056
-----------
TOTAL CONVERTIBLE SUBORDINATED
DEBENTURES (3.8%)
(COST $5,770,436)................. $ 5,369,619
-----------
</TABLE>
(continued)
29
<PAGE> 117
OHIO NATIONAL FUND, INC.
INTERNATIONAL PORTFOLIO (CONTINUED)
SCHEDULE OF INVESTMENTS DECEMBER 31, 1998
<TABLE>
<CAPTION>
FACE MARKET
AMOUNT NON-CONVERTIBLE BONDS VALUE
- -------------------------------------------------------------
<C> <S> <C>
U.S. DOLLAR (1.9%)
$1,500,000 Bangkok Public Co. 8.375% due
01/15/27 (1)...................... $ 915,000
1,250,000 Federal Republic Of Brazil 6.125%
due 04/15/24 (15)................. 746,875
500,000 United Mexican States 'A' 6.115%
due 12/31/19 (15)................. 408,125
500,000 United Mexican States 'B' 6.038%
12/31/19 (15)..................... 408,125
250,000 United Mexican States 'C' 6.200%
12/31/19 (15)..................... 204,063
-----------
$ 2,682,188
-----------
NON-U.S. DOLLAR (4.1%)
4,250,000 AU Queensland Treasury 8.00% due
09/14/07 (11)..................... $ 3,075,015
350,000 DE Carlberg Finance 7.00% due
02/26/13 (15)..................... 619,564
1,000,000 NZ Republic of New Zealand 10.00%
due 03/15/02 (15)................. 597,930
2,500,000 NZ Trans Power Finance Ltd. 8.00%
due 03/15/02 (15)................. 1,390,696
-----------
5,683,205
-----------
TOTAL NON-CONVERTIBLE BONDS (6.0%)
(COST $8,424,991)................. $ 8,365,393
-----------
</TABLE>
<TABLE>
<CAPTION>
FACE MARKET
AMOUNT SHORT-TERM NOTES VALUE
- -------------------------------------------------------------
<C> <S> <C>
ELECTRICAL EQUIPMENT (3.2%)
$4,507,000 Emerson Electric Inc. 5.320%
01/13/99......................... $ 4,499,007
------------
FINANCE (8.5%)
6,073,000 American Express 5.700%
01/04/99......................... 6,070,115
5,876,000 Prudential Fundind Corp 4.000%
01/06/99......................... 5,872,736
------------
11,942,851
------------
TOTAL SHORT-TERM NOTES (11.7%)
(COST $16,411,858)............... $ 16,441,858
------------
TOTAL HOLDINGS (101.3%)
(COST $150,945,043) (a).......... $142,148,952
------------
CASH & RECEIVABLES, NET OF
LIABILITIES (-1.3%).............. (1,834,320)
------------
TOTAL NET ASSETS (100.0%)......... $140,314,632
============
</TABLE>
- ---------------
* Non-income producing securities.
(a) Also represents cost for Federal income tax purposes.
FOREIGN CURRENCIES
NZ -- New Zealand Dollar
FF -- French Franc
GBP -- British Pound
AU -- Australian Dollar
DE -- Denmark Dollar
INDUSTRY CLASSIFICATIONS
(1) Agriculture
(2) Automotive
(3) Banking
(4) Building Products
(5) Capital Goods
(6) Cement
(7) Chemicals
(8) Computer Products
(9) Consumer Products
(10) Electrical Products
(11) Electronics
(12) Energy and Oil
(13) Food & Beverage
(14) Forest Products
(15) Governmental
(16) Hotels
(17) Health Care
(18) Insurance
(19) Machinery
(20) Media
(21) Metal (non-ferrous)
(22) Mining
(23) Packaging
(24) Paper
(25) Publishing
(26) Rail Equipment
(27) Real Estate
(28) Retailing
(29) Services
(30) Steel
(31) Textile
(32) Transportation
(33) Utilities
(34) Miscellaneous
(35) Investment Companies
The accompanying notes are an integral part of these financial statements.
30
<PAGE> 118
OHIO NATIONAL FUND, INC.
INTERNATIONAL PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1998
<TABLE>
<S> <C>
Assets:
Investments in securities at market value
(note 1) (cost $150,945,043)........... $142,148,952
Unrealized gain on forward currency
contracts (note 5)..................... 121,710
Receivable for fund shares sold.......... 27,033
Dividends and accrued interest
receivable............................. 662,350
Other.................................... 1,300
------------
Total assets........................... 142,961,345
------------
Liabilities:
Payable for securities purchased......... 461,966
Unrealized loss on forward currency
contracts (note 5)..................... 1,787,428
Payable for shares redeemed.............. 235,113
Payable for investment management
services (note 3)...................... 106,322
Other accrued expenses................... 55,884
------------
Total liabilities...................... 2,646,713
------------
Net assets at market value................. $140,314,632
============
Net assets consist of:
Par value, $1 per share.................. $ 10,908,860
Paid-in capital in excess of par value... 140,053,122
Net unrealized appreciation
(depreciation) on:
Investments (note 1)................... (8,796,091)
Foreign currency related
transactions......................... 14,770
Forward currency contracts (note 5).... (1,665,718)
Accumulated net realized loss on
investments and foreign currency
related transactions (note 1).......... (200,311)
------------
Net assets at market value................. $140,314,632
============
Shares outstanding (note 4)................ 10,908,860
Net asset value per share.................. $ 12.86
============
</TABLE>
STATEMENT OF OPERATIONS
Year ended December 31, 1998
<TABLE>
<S> <C>
Investment income:
Interest (net of $22,667 foreign taxes
withheld)............................... $ 2,423,603
Dividends (net of $262,576 foreign taxes
withheld)............................... 2,773,386
-----------
Total investment income................. 5,196,989
-----------
Expenses:
Management fees (note 3).................. 1,346,274
Accounting, custody, and transfer agent
fees (note 3)........................... 338,677
Directors' fees (note 3).................. 5,561
Professional fees......................... 21,518
Printing, proxy, and postage fees......... 24,408
Other..................................... 10,808
-----------
Total expenses.......................... 1,747,246
-----------
Net investment income................... $ 3,449,743
-----------
Realized and unrealized gain (loss) on
investments and foreign currency:
Net realized gain from:
Investments............................. $ 5,767,926
Forward currency related transactions... 2,045,021
Net increase (decrease) in unrealized
appreciation (depreciation) on:
Investments........................... (794,535)
Foreign currency related
transactions....................... (4,223,969)
-----------
Net gain on investments............... 2,794,443
-----------
Net increase in net assets from
operations......................... $ 6,244,186
===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
31
<PAGE> 119
OHIO NATIONAL FUND, INC.
INTERNATIONAL PORTFOLIO
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
1998 1997
------------ ------------
<S> <C> <C>
From operations:
Net investment income..................................... $ 3,449,743 $ 2,843,376
Realized gain on investments and foreign currency
transactions............................................ 7,812,947 17,258,280
Unrealized loss on investments and foreign currency
transactions............................................ (5,018,504) (17,805,953)
------------ ------------
Net increase in net assets from operations............ 6,244,186 2,295,703
------------ ------------
Dividends and distributions to shareholders:
Dividends paid from net investment income................. (3,450,422) (3,725,344)
Capital gains and foreign currency related transaction
distributions........................................... (8,013,258) (21,388,818)
Distributions in excess of capital gains and foreign
currency related transactions........................... (74,797) 0
------------ ------------
Total dividends and distributions..................... (11,538,477) (25,114,162)
------------ ------------
From capital share transactions (note 4):
Received from shares sold................................. 11,643,429 37,696,255
Received from dividends reinvested........................ 11,538,477 25,114,162
Paid for shares redeemed.................................. (33,603,085) (21,251,055)
------------ ------------
Increase (decrease) in net assets derived from capital
share transactions..................................... (10,421,179) 41,559,362
------------ ------------
Increase (decrease) in net assets..................... (15,715,470) 18,740,903
Net Assets:
Beginning of period....................................... 156,030,102 137,289,199
------------ ------------
End of period (a)......................................... $140,314,632 $156,030,102
============ ============
(a) Includes undistributed net investment income of......... $ 0 $ 679
============ ============
</TABLE>
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------------------------
1998 1997 1996 1995 1994
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Per share data:
Net asset value, beginning.................................. $13.39 $15.49 $14.38 $13.30 $12.48
Income from investment operations:
Net investment income..................................... 0.32 0.28 0.25 0.31 0.16
Net realized and unrealized gain on investments and
foreign currency transactions........................... 0.24 0.08 1.76 1.28 0.84
------ ------ ------ ------ ------
Total income from investment operations................. 0.55 0.36 2.01 1.59 1.00
------ ------ ------ ------ ------
Less distributions:
Dividends from net investment............................. (0.32) (0.37) (0.25) (0.28) (0.12)
Distributions from net realized capital gains and foreign
currency related transaction............................ (0.75) (2.09) (0.65) (0.23) (0.06)
Distributions in excess of net realized capital gains and
foreign currency related transaction.................... (0.01) 0.00 0.00 0.00 0.00
------ ------ ------ ------ ------
Total distributions..................................... (1.08) (2.46) (0.90) (0.51) (0.18)
------ ------ ------ ------ ------
Net asset value, end of period.............................. $12.86 $13.39 $15.49 $14.38 $13.30
====== ====== ====== ====== ======
Total return................................................ 3.88% 2.11% 14.48% 12.10% 8.07%
Ratios and supplemental data:
Ratio of expenses to average net assets................... 1.17% 1.22% 1.15% 1.12% 1.05%
Ratio of net investment income to average net assets...... 2.31% 1.82% 1.64% 2.29% 1.23%
Portfolio turnover rate..................................... 22% 24% 14% 7% 16%
Net assets at end of period (millions)...................... $140.3 $156.0 $137.3 $ 90.6 $ 62.9
</TABLE>
The accompanying notes are an integral part of these financial statements.
32
<PAGE> 120
CAPITAL APPRECIATION PORTFOLIO
OHIO NATIONAL FUND, INC.
OBJECTIVE
The Capital Appreciation Portfolio seeks maximum capital growth by investing
primarily in common stocks
PERFORMANCE AS OF DECEMBER 31, 1998
AVERAGE ANNUAL TOTAL RETURNS:
<TABLE>
<S> <C>
One-year 5.91%
Three-year 12.19%
Since inception (4/30/94) 13.55%
</TABLE>
Returns represent past performance, which is no guarantee of future results.
Investment return and principal value will vary so that shares, when redeemed,
may be worth more or less than their original cost. Actual results for variable
annuity and variable universal life contracts will be lower due to contract
charges. Consult your contract for applicable charges for mortality and
expenses.
COMMENTS
The first six months of 1998 was a period of surging stock market gains -- not
the kind of environment in which this conservative portfolio outperforms. While
the portfolio participated in the market's advance, its asset allocation and
value approach to security selection meant that it had much less exposure than
many large-cap stock funds to the classic types of stocks that were leading the
market, primarily blue chip growth companies. When the bull market turned
bearish in the summer of 1998, the portfolio's defensive stance served
shareholders well. During the quarter ended September 30, for example, the
portfolio held up significantly better than the broad market. When the S&P 500
fell almost 15% in August, the portfolio was down less than 5%.
As of this writing the stock market has roared back, recovering lost ground in
record time. As a result, stock valuations seem high to us, just as they
appeared last summer before the steep sell-off. The difference is that all signs
now seem to point to a definite slowing in the economy next year; demand for US
production is dropping, and corporate pricing power is under pressure around the
world, hurting profits. On the positive side, low interest rates could provide
some cushion for consumer spending. Nevertheless, the stock market has
traditionally followed profit trends, which suggest another correction could be
in the offing. If this occurs, the Capital Appreciation portfolio should weather
the storm better than the overall market. Our investment approach will remain
the same regardless of what unfolds. We seek to provide attractive total returns
over time for investors who prefer not to be exposed to the full blast of stock
market volatility.
CHANGE IN VALUE OF $10,000 INVESTMENT
[GRAPH]
Hypothetical illustration based on past performance. Future performance will
vary. All returns reflect reinvested dividends. The portfolio's holdings may
differ significantly from the securities in the index. The index is unmanaged
and therefore does not reflect the cost of portfolio management or trading.
Neither the portfolio nor the index is open to direct investment.
TOP 10 LONG TERM HOLDINGS AS OF DECEMBER 31, 1998
<TABLE>
<CAPTION>
% OF NET ASSETS
---------------
<C> <S> <C>
1. Loews Corp 4.4
2. Amerada Hess Corp 4.0
3. Tennessee Valley Authority
5.88% 04/01/36 3.0
4. Washington Post CL B 2.9
5. Niagra Mohawk Power Co 2.6
6. FirstEnergy Corp 2.3
7. Times Mirror CV LYON Zero
Coupon 04/14/17 2.2
8. Rouse Co Ser B Pfd CV 2.2
9. Tennessee Valley Authority
6.235% 07/15/45 2.0
10. US Treasury Notes 5.875%
02/15/00 1.9
</TABLE>
TOP 5 INDUSTRIES AS OF DECEMBER 31, 1998
<TABLE>
<CAPTION>
% of Net Assets
<S> <C>
Media and Publishing 10.5
Oil, Energy, and Natural Gas 9.4
Utilities 8.4
Municipal 6.2
Insurance 5.4
</TABLE>
33
<PAGE> 121
OHIO NATIONAL FUND, INC.
CAPITAL APPRECIATION PORTFOLIO
SCHEDULE OF INVESTMENTS DECEMBER 31, 1998
<TABLE>
<CAPTION>
MARKET
SHARES U.S. COMMON STOCK VALUE
- -------------------------------------------------------------
<C> <S> <C>
CHEMICALS (2.4%)
26,200 Great Lakes Chemical Corp. ........ $ 1,048,000
56,500 *Octel Corp. ....................... 783,937
-----------
1,831,937
-----------
CONSUMER PRODUCTS (2.7%)
1,100 *Nine West Group Inc. .............. 17,119
25,500 Philip Morris Cos., Inc. .......... 1,364,250
16,000 Polaroid Corp. .................... 299,000
24,000 *Reebok International............... 357,000
-----------
2,037,369
-----------
DRUGS (0.2%)
2,400 Schering-Plough Corp. ............. 132,600
-----------
DURABLE GOODS (0.0%)
3,000 A T Cross Co. ..................... 16,125
-----------
ELECTRICAL EQUIPMENT (2.4%)
5,000 Exide Corp. ....................... 81,250
55,000 Firstenergy Corp. ................. 1,790,937
-----------
1,872,187
-----------
ENTERTAINMENT & LEISURE (0.6%)
38,500 *Circus Circus Enterprise........... 440,343
-----------
FINANCE (1.9%)
4,800 Fund American Enterprise........... 672,300
24,000 Leucadia National Corp. ........... 756,000
-----------
1,428,300
-----------
FOOD & RELATED (0.6%)
13,000 McCormick & Co. Inc. .............. 439,563
-----------
FORESTRY & PAPER PRODUCTS (3.5%)
91,000 Domtar Inc. ....................... 534,625
6,500 Georgia-Pacific Timber............. 154,781
21,000 Johns-Manville Corp. .............. 345,188
120,500 MacMillan Bloedel.................. 1,205,000
9,000 Weyerhaeuser Co. .................. 457,312
-----------
2,696,906
-----------
INDUSTRIAL SERVICES (0.9%)
16,000 Corning Inc. ...................... 720,000
-----------
INSURANCE (5.4%)
4,000 Aetna Inc. ........................ 314,500
34,000 Loews Corp. ....................... 3,340,500
6,500 Unitrin, Inc. ..................... 466,375
-----------
4,121,375
-----------
MEDIA & PUBLISHING (7.7%)
29,000 Chris-Craft Ind., Inc. ............ 1,397,437
11,000 Meredith Corp. .................... 416,625
40,500 New York Times Co. CL A............ 1,404,844
6,500 Readers Digest CL A................ 163,719
9,300 Readers Digest CL B................ 224,362
3,900 Washington Post CL B............... 2,253,956
-----------
5,860,943
-----------
</TABLE>
<TABLE>
<CAPTION>
MARKET
SHARES U.S. COMMON STOCK VALUE
- -------------------------------------------------------------
<C> <S> <C>
METALS & MINING (2.2%)
64,800 Homestake Mining Co. .............. $ 595,350
59,000 Newmont Mining Corp. .............. 1,065,688
-----------
1,661,038
-----------
OIL, ENERGY & NATURAL GAS (9.5%)
62,000 Amerada Hess Corp. ................ 3,084,500
8,000 Atlantic Richfield Co. ............ 522,000
4,800 Kerr McGee......................... 183,600
61,000 Mitchell Energy/Development CL B... 709,125
1,500 Mitchell Energy/Development CL A... 17,156
27,500 Murphy Oil Corp. .................. 1,134,375
19,600 *Oryx Energy Co. ................... 263,375
20,250 Texaco, Inc. ...................... 1,070,719
10,500 Unocal Corp. ...................... 306,469
-----------
7,291,319
-----------
RETAIL (1.6%)
7,500 JC Penney Co. ..................... 351,563
188,000 *Petrie Stores -- Liq. Trust
Unit.............................. 387,750
27,000 *Toys R' Us......................... 455,625
-----------
1,194,938
-----------
TRANSPORTATION (0.5%)
25,500 Overseas Shipholding Inc. ......... 409,594
-----------
UTILITIES (4.8%)
32,000 Kansas City Power & Light Co. ..... 948,000
4,000 Nevada Power Co. .................. 104,000
123,000 *Niagara Mohawk Power.............. 1,983,375
17,400 Unicom Corp. ...................... 670,988
-----------
3,706,363
-----------
TOTAL U.S. COMMON STOCK (46.9%)
(COST $33,276,101)................ $35,860,900
-----------
</TABLE>
<TABLE>
<CAPTION>
MARKET
SHARES FOREIGN COMMON STOCK VALUE
- -------------------------------------------------------------
<C> <S> <C>
CANADA (0.6%)
TRANSPORTATION & EQUIPMENT
25,000 Canadian Pacific Ltd. ............. $ 471,875
-----------
UNITED KINGDOM (2.7%)
BUSINESS SERVICES (0.1%)
42,000 Lonrho Africa plc.................. 39,014
-----------
CHEMICALS (1.3%)
15,500 English China Clays Plc............ 41,907
9,500 Hanson Trust plc ADR............... 370,500
17,000 Imperial Chemical Industries....... 593,938
-----------
1,006,345
-----------
INDUSTRIAL SERVICES (0.1%)
15,438 BTR plc Ord. 30.769 Par............ 31,752
-----------
MEDICAL & RELATED (0.8%)
214,000 Smith & Nephew..................... 663,785
-----------
</TABLE>
(continued)
34
<PAGE> 122
OHIO NATIONAL FUND, INC.
CAPITAL APPRECIATION PORTFOLIO (CONTINUED)
SCHEDULE OF INVESTMENTS DECEMBER 31, 1998
<TABLE>
<CAPTION>
MARKET
SHARES FOREIGN COMMON STOCK VALUE
- -------------------------------------------------------------
<C> <S> <C>
METALS & MINING (0.4%)
60,000 Lonrho plc......................... $ 327,426
-----------
TOTAL UNITED KINGDOM............... 2,068,322
-----------
SWITZERLAND (0.2%)
BANKING
20 Bank for International
Settlements....................... $ 126,942
-----------
TOTAL FOREIGN STOCK (3.5%)
(COST $2,661,994)................. $ 2,667,139
-----------
TOTAL COMMON STOCK (50.4%)
(COST $35,938,094)................ $38,528,039
===========
</TABLE>
<TABLE>
<CAPTION>
MARKET
SHARES PREFERRED STOCK VALUE
- -------------------------------------------------------------
<C> <S> <C>
BUSINESS SERVICES (0.4%)
5,600 Sealed Air $2 Conv. Series A $ 290,500
-----------
FINANCE (0.5%)
7,000 Kemper Co. 5.75% Series E (144A)... 366,625
2,800 Reckson Assoc. 7.625% Conv......... 59,150
-----------
425,775
-----------
INDUSTRIAL SERVICES (0.1%)
1,000 Unocal Corp. 6.25% Conv............ 48,625
-----------
REAL ESTATE (2.2%)
39,000 Rouse Co. $3 Series B Conv......... 1,691,625
-----------
TRANSPORTATION (1.3%)
21,500 Union Pacific Capital Trust 6.25%
Conv. (144A)...................... 997,625
-----------
UTILITIES (1.3%)
4,940 Cleveland Electric adj. rate Ser.
L................................. 495,235
265 Cleveland Electric 9.% Ser. S...... 282,225
2,632 Entergy Gulf Series B.............. 132,258
971 Niagara Mohawk Power Ser. B........ 24,457
3,200 Niagara Mohawk Power Ser. C........ 80,200
-----------
1,014,375
-----------
TOTAL PREFERRED STOCK (5.8%)
(COST $4,338,970)................. $ 4,468,525
-----------
</TABLE>
<TABLE>
<CAPTION>
FACE MARKET
AMOUNT US CONVERTIBLE DEBENTURES VALUE
- -------------------------------------------------------------
<C> <S> <C>
AUTOMOTIVE & RELATED (0.7%)
$ 375,000 The Pep Boys MM&J Lyons, zero
coupon contracts due 09/20/11..... $ 196,406
375,000 The Pep Boys MM & J 4.000% due
09/01/99.......................... 369,375
-----------
565,781
-----------
CONSUMER PRODUCTS (0.4%)
420,000 Nine West Group Inc. 5.50% due
07/15/03.......................... 331,275
-----------
</TABLE>
<TABLE>
<CAPTION>
FACE MARKET
AMOUNT US CONVERTIBLE DEBENTURES VALUE
- -------------------------------------------------------------
<C> <S> <C>
DRUGS (0.2%)
$ 200,000 McKesson Corp. 4.500% due
03/01/04.......................... $ 187,145
-----------
ELECTRICAL EQUIPMENT (1.1%)
180,000 Exide Corp. (144A) 2.900% due
12/15/05.......................... 106,425
300,000 Motorola Inc. zero coupon contract
due 09/27/13...................... 225,000
565,000 National Semiconductor 6.500% due
10/01/02.......................... 498,613
-----------
830,038
-----------
ENTERTAINMENT & LEISURE (0.1%)
50,000 Ogden Corp. Euro 5.750% due
10/20/02.......................... 48,981
-----------
HOTEL/LODGING (1.4%)
610,000 Hilton Hotels 5.000% due
05/15/06.......................... 552,812
740,000 Marriott Intl., zero coupon
contracts due 03/25/11............ 481,000
-----------
1,033,812
-----------
INDUSTRIAL SERVICES (0.6%)
890,000 Roche Holdings (144A) zero coupon
contracts due 05/06/12............ 475,598
-----------
INSURANCE SERVICES (1.2%)
1,100,000 Loews Corp. 3.125% 09/15/07........ 880,000
-----------
MEDIA & PUBLISHING (2.9%)
125,000 Clear Channel Communications 2.625%
due 04/01/03...................... 133,906
355,000 News America Hldgs, zero coupons
contracts due 03/11/13............ 205,456
150,000 Thomas Nelson CL B (144A) 5.750%
due 11/30/99...................... 151,500
3,775,000 Times Mirror, zero coupon contracts
due 04/15/17...................... 1,722,344
-----------
2,213,206
-----------
MEDICAL & RELATED (2.0%)
165,000 Centocor Inc. 4.750% due
02/15/05.......................... 174,694
1,075,000 Chiron Corp. 1.900% due 11/17/00... 1,097,844
475,000 Phycor Inc. 4.500% due 02/15/03.... 287,375
-----------
1,559,913
-----------
OIL, ENERGY & NATURAL GAS (0.1%)
50,000 Oryx Energy Co. 7.500% due
05/15/14.......................... 49,250
-----------
REAL ESTATE & LEASING (0.8%)
620,000 Rouse Co. 5.750% due 07/23/02...... 631,682
-----------
METALS & MINING (3.5%)
1,260,000 Homestake Mining (144A) 5.500% due
06/23/00.......................... 1,209,750
300,000 Inco Ltd. 7.750% due 03/15/16...... 270,000
1,350,000 Inco Ltd. 5.750% due 07/01/04...... 1,171,125
-----------
2,650,875
-----------
</TABLE>
(continued)
35
<PAGE> 123
OHIO NATIONAL FUND, INC.
CAPITAL APPRECIATION PORTFOLIO (CONTINUED)
SCHEDULE OF INVESTMENTS DECEMBER 31, 1998
<TABLE>
<CAPTION>
FACE MARKET
AMOUNT US CONVERTIBLE DEBENTURES VALUE
- -------------------------------------------------------------
<C> <S> <C>
UTILITIES (2.3%)
$ 500,000 Potomac Electricity & Power Co.
5.000% due 09/01/02............... $ 485,625
3,160,000 US Cellular Lyons, zero coupon
contracts due 06/15/15............ 1,299,550
-----------
1,785,175
-----------
TOTAL US CONVERTIBLE DEBENTURES
(17.3%) (COST $12,982,917)........ $13,242,731
-----------
</TABLE>
<TABLE>
<CAPTION>
FACE MARKET
AMOUNT FOREIGN CONVERTIBLE DEBENTURES VALUE
- -------------------------------------------------------------
<C> <S> <C>
CANADA (0.7%)
FORESTRY & PAPER PRODUCTS
$ 200,000 Weston Ltd. George 3.000% due
06/30/23.......................... $ 122,566
-----------
METALS & MINING
700,000 Teck Corp. 3.750% due 07/15/06..... 456,750
-----------
TOTAL CANADA....................... 579,316
-----------
FRANCE (1.2%)
COMMUNICATIONS
820,000 France Telecommunications 2.000%
due 01/01/04...................... 887,650
-----------
NETHERLANDS (0.1%)
INDUSTRIAL SERVICES
68,000 Nedlloyd 4.250% due 03/15/01....... 39,082
-----------
UNITED KINGDOM (1.3%)
FINANCIAL SERVICES
590,000 Lonmin Finance Public Ltd. 6.000%
due 02/27/04...................... 845,294
-----------
MISCELLANEOUS
80,000 Peninsula & Orient 7.250% due
05/19/03.......................... 146,629
-----------
TOTAL UNITED KINGDOM............... 991,923
-----------
TOTAL FOREIGN CONVERTIBLE
DEBENTURES (3.3%) (COST
$2,414,860)....................... $ 2,497,971
-----------
TOTAL CONVERTIBLE DEBENTURES
(20.6%)
(COST $2,414,860)................. $15,740,702
-----------
</TABLE>
<TABLE>
<CAPTION>
FACE MARKET
AMOUNT LONG-TERM BONDS & NOTES VALUE
- -------------------------------------------------------------
<C> <S> <C>
GOVERNMENT (5.3%)
$ 400,000 FNMA 6.375% 01/16/02............... $ 414,516
100,000 FNMA 5.370% 02/07/01............... 100,797
200,000 U.S. Treasury Note 6.250%
04/30/01.......................... 207,125
</TABLE>
<TABLE>
<CAPTION>
FACE MARKET
AMOUNT LONG-TERM BONDS & NOTES VALUE
- -------------------------------------------------------------
<C> <S> <C>
$1,400,000 U.S. Treasury Note 5.875%
02/15/00.......................... $ 1,418,375
400,000 U.S. Treasury Note 6.250%
10/31/01.......................... 416,750
250,000 U.S. Treasury Note 6.125%
07/31/00.......................... 255,547
1,000,000 U.S. Treasury Note 5.500%
02/28/99.......................... 1,001,563
250,000 U.S. Treasury Note 6.750%
05/31/99.......................... 252,109
-----------
4,066,782
-----------
MUNICIPAL (6.2%)
400,000 California State 5.250% 10/01/11... 434,428
450,000 Tennessee Valley Authority PR
5.980% 04/01/36................... 472,561
2,200,000 Tennessee Valley Authority Ser. C
5.880% 04/01/36................... 2,309,338
1,450,000 Tennessee Valley Authority Ser. B
6.235% 07/15/45................... 1,521,460
-----------
4,737,787
-----------
COMMUNICATIONS (0.7%)
500,000 Bellsouth Telecomm 5.850%
11-15-45.......................... 510,232
-----------
TOTAL LONG-TERM BONDS & NOTES
(12.2%)
(COST $9,154,762)................. $ 9,314,801
-----------
</TABLE>
<TABLE>
<CAPTION>
FACE MARKET
AMOUNT SHORT-TERM NOTES VALUE
- -------------------------------------------------------------
<C> <S> <C>
CHEMICALS (3.9%)
$3,025,000 Dupont (EI) De Nemours Co. 5.140%
02/05/99.......................... $ 3,009,883
-----------
COMMUNICATIONS (3.3%)
2,500,000 Motorola Inc. 5.120% 01/26/99...... 2,491,111
-----------
ELECTRICAL EQUIPMENT (2.8%)
2,140,000 GE Capital Inc. 5.200% 01/21/99.... 2,133,818
-----------
METALS & MINING (0.4%)
330,000 Aluminum Co. of America 5.250%
02/04/99.......................... 328,364
-----------
TOTAL SHORT TERM NOTES (10.4%)
(COST $7,963,176)................. $ 7,963,176
-----------
</TABLE>
(continued)
36
<PAGE> 124
OHIO NATIONAL FUND, INC.
CAPITAL APPRECIATION PORTFOLIO (CONTINUED)
SCHEDULE OF INVESTMENTS DECEMBER 31, 1998
<TABLE>
<CAPTION>
PUT OPTION PURCHASES MARKET
SHARES STOCK/EXPIRATION/EXERCISE PRICE VALUE
- -------------------------------------------------------------
<C> <S> <C>
1,400.... Clear Channel/Jan/$55.............. $ 3,587
600...... Clear Channel/Jan/$60.............. 3,675
1,500.... IBM/Jan/$130....................... 94
1,600.... MCI Worlcom Inc./Jan/$55........... 100
1,500.... Pharmacia & Upjohn/Jan/$50......... 187
2,000.... Reebok Intl/Jan/$35................ 39,750
1,500.... Schering PloughCorp./Feb/$105...... 2,438
13,000... Timer Warner Inc./Mar/$50.......... 7,313
TOTAL PUT OPTION PURCHASE (0.1%)
(COST $170,470)................... $ 57,144
------------
TOTAL HOLDINGS (99.5%).
(COST $72,963,249) (a)............ $ 76,072,387
------------
CASH & RECEIVABLES, NET OF
LIABILITIES (0.5%)................ 445,435
------------
TOTAL NET ASSETS (100.0%).......... $ 76,517,822
============
</TABLE>
- ---------------
* Non-income producing securities.
(a) Also represents cost for Federal income tax purposes.
(144A) Security exempt from registration under Rule 144A of the Securities Act
of 1933. These Securities may be resold in transactions exempt from
registration, normally to qualified buyers. At the period end, the value
of these securities amounted to $3,307,523 or 4.3% of net assets. These
securities were deemed liquid pursuant to procedures approved by the
Board of Directors
The accompanying notes are an integral part of these financial statements.
37
<PAGE> 125
OHIO NATIONAL FUND, INC.
CAPITAL APPRECIATION PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1998
<TABLE>
<S> <C>
Assets:
Investments in securities at market value
(note 1) (cost $72,963,249)............. $76,072,387
Cash in bank.............................. 135,399
Receivable for securities sold............ 255,843
Receivable for fund shares sold........... 27,845
Dividends and accrued interest
receivable.............................. 421,152
Other..................................... 3,026
-----------
Total assets............................ 76,915,652
-----------
Liabilities:
Payable for securities purchased.......... 312,720
Payable for shares redeemed............... 14,659
Payable for investment management services
(note 3)................................ 51,379
Other accrued expenses.................... 19,072
-----------
Total liabilities....................... 397,830
-----------
Net assets at market value.................. $76,517,822
===========
Net assets consist of:
Par value, $1 per share................... $ 5,924,074
Paid-in capital in excess of par value.... 67,498,215
Accumulated net realized loss on
investments (note 1).................... (14,210)
Net unrealized appreciation on investments
(note 1)................................ 3,109,138
Undistributed net investment income....... 605
-----------
Net assets at market value.................. $76,517,822
===========
Shares outstanding (note 4)................. 5,924,074
Net asset value per share................... $ 12.92
===========
</TABLE>
STATEMENT OF OPERATIONS
Year ended December 31, 1998
<TABLE>
<S> <C>
Investment income:
Interest.................................. $ 1,590,305
Dividends................................. 813,657
-----------
Total investment income................. 2,403,962
-----------
Expenses:
Management fees (note 3).................. 559,341
Custodian fees (note 3)................... 16,510
Directors' fees (note 3).................. 2,320
Professional fees......................... 9,836
Accounting and transfer agent fees........ 47,000
Other..................................... 13,246
-----------
Total expenses.......................... 648,253
-----------
Net investment income................... $ 1,755,709
-----------
Realized and unrealized gain on investments:
Net realized gain from investments........ $ 5,789,990
Net decrease in unrealized appreciation on
investments............................. (3,695,595)
-----------
Net gain on investments................. 2,094,395
-----------
Net increase in net assets from
operations............................ $ 3,850,104
===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
38
<PAGE> 126
OHIO NATIONAL FUND, INC.
CAPITAL APPRECIATION PORTFOLIO
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, 1998 DECEMBER 31, 1997
----------------- -----------------
<S> <C> <C>
From operations:
Net investment income..................................... $ 1,755,709 $ 1,390,500
Realized gain on investments.............................. 5,789,990 2,209,729
Unrealized gain (loss) on investments..................... (3,695,595) 3,325,188
----------- -----------
Net increase in net assets from operations.............. 3,850,104 6,925,417
----------- -----------
Dividends and distributions to shareholders:
Dividends paid from net investment income................. (1,758,879) (1,682,334)
Capital gains distributions............................... (5,804,200) (3,070,931)
Distributions in excess of capital gains.................. (30,044) 0
----------- -----------
Total dividends and distributions....................... (7,593,123) (4,753,265)
----------- -----------
From capital share transactions (note 4):
Received from shares sold................................. 18,944,729 17,953,371
Received from dividends reinvested........................ 7,593,123 4,753,265
Paid for shares redeemed.................................. (6,108,105) (3,328,937)
----------- -----------
Increase in net assets derived from capital share
transactions........................................... 20,429,747 19,377,699
----------- -----------
Increase in net assets................................ 16,686,728 21,549,851
Net Assets:
Beginning of period....................................... 59,831,094 38,281,243
----------- -----------
End of period (a)......................................... $76,517,822 $59,831,094
=========== ===========
(a) Includes undistributed net investment income of......... $ 605 $ 3,775
=========== ===========
</TABLE>
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------------- MAY 1, 1994 TO
1998 1997 1996 1995 DECEMBER 31, 1994
------ ------ ------ ------ -----------------
<S> <C> <C> <C> <C> <C>
Per share data:
Net asset value, beginning of period........................ $13.53 $12.93 $11.99 $10.25 $10.00
Income from investment operations:
Net investment income..................................... 0.34 0.39 0.48 0.39 0.22
Net realized and unrealized gain on investments........... 0.46 1.48 1.31 1.85 0.23
------ ------ ------ ------ ------
Total income from investment operations................. 0.80 1.87 1.79 2.24 0.45
------ ------ ------ ------ ------
Less distributions:
Dividends from net investment income...................... (0.34) (0.46) (0.44) (0.29) (0.20)
Distributions from net realized capital gains............. (1.06) (0.81) (0.41) (0.21) 0.00
Distributions in excess of capital gains.................. (0.01) 0.00 0.00 0.00 0.00
------ ------ ------ ------ ------
Total distributions..................................... (1.41) (1.27) (0.85) (0.50) (0.20)
------ ------ ------ ------ ------
Net asset value, end of period.............................. $12.92 $13.53 $12.93 $11.99 $10.25
====== ====== ====== ====== ======
Total return................................................ 5.91% 15.19% 15.75% 22.62% 4.53%(b)
Ratios and supplemental data:
Ratio of expenses to average net assets................... 0.93% 0.95% 0.97% 0.96% 0.98%(a,c)
Ratio of net investment income to average net assets...... 2.52% 2.88% 3.90% 3.47% 3.24%(a,c)
Portfolio turnover rate..................................... 45% 41% 37% 32% 20%
Net assets at end of period (millions)...................... $ 76.5 $ 59.8 $ 38.3 $ 19.3 $ 6.8
</TABLE>
(a) Annualized.
(b) Calculated on an aggregate basis (not annualized).
(c) The advisor has reimbursed certain operating expenses of the Capital
Appreciation Portfolio for the period ending December 31, 1994. Had the
advisor not reimbursed such expenses, the annualized ratio of expenses to
average net assets would have been 1.05% and the annualized ratio of net
investment income to average net assets would have been 3.18%.
39
<PAGE> 127
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40
<PAGE> 128
SMALL CAP PORTFOLIO
OHIO NATIONAL FUND, INC.
OBJECTIVE
The Small Cap Portfolio seeks maximum capital growth by investing primarily in
common stocks of small- and medium-size companies.
PERFORMANCE AS OF DECEMBER 31, 1998
AVERAGE ANNUAL TOTAL RETURNS:
<TABLE>
<S> <C>
One-year 10.57%
Three-year 12.18%
Since inception (4/30/94) 19.28%
</TABLE>
Returns represent past performance, which is no guarantee of future results.
Investment return and principal value will vary so that shares, when redeemed,
may be worth more or less than their original cost. Actual results for variable
annuity and variable universal life contracts will be lower due to contract
charges. Consult your contract for applicable charges for mortality and
expenses.
COMMENTS
While 1998 has been a volatile year with many cross-currents, there remains a
generally positive environment for most investors: low inflation, low
unemployment, and steady but moderate economic growth.
International financial crises, particularly in Asia, stalled many economies
around the world and affected corporate growth globally. This backdrop favored
large companies for most of the year, but from the bottom of the October
correction, small-cap performance has improved significantly. From October 8
through December 4, the benchmark Russell 2000 outperformed both the S&P 500 and
the DJIA by more than 6% and 9%, respectively.
The Ohio National Small-Cap Fund has benefited from this upswing in
small-company stocks. It has dramatically outperformed the Russell 2000, gaining
more than 46.0% from its low, versus 30% for the index since October. Using our
disciplined, bottom-up process, we continue to find companies with strong
fundamentals and innovative products. The valuation differential, which favors
small companies, is encouraging, and we are optimistic that as the economic
environment remains subdued, the superior growth characteristics of small-caps
stocks will be realized.
We enter 1999 with a generally positive economic setting. It is expected that
interest rates around the world will continue to fall, with expectations that
inflation will remain low. Economic growth in the United States continues at a
slow, but positive pace, and Europe should benefit from the cross-border
business brought by the new euro. Although the worst of the crisis in Asia may
be behind us, we believe the weakness in Asia will be measured in years, not
months.
These factors should provide a favorable environment overall for financial
assets, particularly stocks of smaller companies. We believe the growth in
communications and global commerce should continue to provide opportunities for
many companies. We are excited about the opportunities being created in the
small-cap market, and we are confident that on a long-term basis, small
companies will provide superior returns.
CHANGE IN VALUE OF $10,000 INVESTMENT
LOGO
Hypothetical illustration based on past performance. Future performance will
vary. All returns reflect reinvested dividends. The portfolio's holdings may
differ significantly from the securities in the index. The index is unmanaged
and therefore does not reflect the cost of portfolio management or trading.
Neither the portfolio nor the index is open to direct investment.
TOP 10 HOLDINGS AS OF DECEMBER 31, 1998
<TABLE>
<CAPTION>
% of Net Assets
<C> <S> <C>
1. King Pharmaceuticals 2.5
2. Medics Pharmaceutical CI A 2.3
3. Gemstar International 1.9
4. Insight Enterprises 1.9
5. USWeb Corp 1.9
6. HNC Software 1.9
7. Global Imaging Systems Inc 1.7
8. Concord EFS Inc 1.7
9. Viatel Inc 1.7
10. Watson Pharmaceutical 1.6
</TABLE>
TOP 5 INDUSTRIES AS OF DECEMBER 31, 1998
<TABLE>
<CAPTION>
% of Net Assets
<S> <C>
Computer and Related 15.7
Medical and Related 12.3
Electronics 8.8
Retail 7.7
Drugs 7.6
</TABLE>
The prices of small company stocks are generally more volatile than the price of
large company stocks.
41
<PAGE> 129
OHIO NATIONAL FUND, INC.
SMALL CAP PORTFOLIO
SCHEDULE OF INVESTMENTS DECEMBER 31, 1998
<TABLE>
<CAPTION>
MARKET
SHARES U.S. COMMON STOCK VALUE
- -------------------------------------------------------------
<C> <S> <C>
BUSINESS SERVICES (7.0%)
30,175 *Concord EFS Inc...................... $ 1,278,666
21,900 *IT Group Inc......................... 243,638
6,825 *Lason Inc............................ 397,130
12,825 *Metzler Group........................ 624,417
28,200 *Personal Group of America Inc........ 493,500
6,650 *Probusiness Services Inc............. 302,575
14,000 *Pre Paid Legal Services Inc.......... 462,000
55,088 *US Web Corp.......................... 1,452,933
-----------
5,254,859
-----------
COMMUNICATIONS (6.6%)
40,000 *Allegiance Telecom Inc............... 485,000
31,525 *Com21 Inc............................ 662,025
97,175 *Digital Microwave Corp............... 665,041
9,875 *Pegasus Communications Corp.......... 247,492
12,000 *RF Micro Devices Inc................. 556,500
*Terayon Communications Systems
13,550 Inc.................................. 501,350
8,175 *Uniphase Corp........................ 567,141
55,600 *Viatel Inc........................... 1,271,850
-----------
4,956,399
-----------
COMPUTER & RELATED (15.7%)
13,100 *Avant! Corp.......................... 209,600
12,675 *Bindview Development................. 348,562
51,225 *Brio Technology Inc.................. 906,042
19,200 *Brooktrout Technology Inc............ 328,800
11,850 *Check Point Software Tech Ltd........ 542,878
13,050 *Documentum Inc....................... 697,359
5,750 *Electronic Arts...................... 322,719
30,425 *Exchange Application Inc............. 597,091
35,525 *HNC Software......................... 1,436,542
36,050 *IMRglobal Corp....................... 1,061,222
19,800 *MMC Networks Inc..................... 262,350
26,950 *Macromedia Inc....................... 907,878
9,800 *Microchip Technology Inc............. 362,600
21,025 *Pinnacle Systems Inc................. 751,644
11,175 *Sapient Systems Inc.................. 625,800
45,650 *Software AG Systems Inc.............. 827,406
10,900 *Transaction System Architects........ 545,000
12,675 *Veritas Software..................... 759,708
8,600 *Wind River Systems................... 404,200
-----------
11,897,401
-----------
COMPUTER SERVICES (5.2%)
39,300 *Checkfree Holdings Corp.............. 918,637
11,250 *Complete Business Solutions.......... 381,094
30,000 *Computer Horizons Corp............... 798,750
28,025 *Mastech Corporation.................. 802,216
34,250 *Sykes Enterprises Inc................ 1,044,625
-----------
3,945,322
-----------
CONSUMER PRODUCTS (4.3%)
34,750 *Action Performance Co. Inc........... 1,229,281
69,200 *American Bank Note Holographics...... 1,211,000
52,550 *Helen of Troy........................ 771,828
-----------
3,212,109
-----------
</TABLE>
<TABLE>
<CAPTION>
MARKET
SHARES U.S. COMMON STOCK VALUE
- -------------------------------------------------------------
<C> <S> <C>
DRUGS (7.6%)
23,575 Jones Pharmaceuticals Inc............. $ 860,487
73,700 *King Pharmaceuticals Inc............. 1,925,413
29,125 *Medicis Pharmaceutical CL A.......... 1,736,578
19,675 *Watson Pharmaceuticals Inc........... 1,237,066
-----------
5,759,544
-----------
EDUCATIONAL SERVICES (0.3%)
7,025 *Sylvan Learning Systems Inc.......... 214,263
-----------
ELECTRONICS (8.8%)
17,000 *Applied Micro Circuits Corp.......... 577,469
39,400 *Brooks Automation Inc................ 576,225
9,625 *Dycom Industries..................... 549,828
55,387 *Remec Inc............................ 996,966
22,800 *SDL Inc.............................. 903,450
12,350 *Sanmina Corp......................... 771,875
40,850 *Sawtek Inc........................... 714,875
22,075 *Sipex Corporation.................... 775,384
6,500 *Veeco Instruments Inc................ 345,313
9,900 *Vitesse Semiconductor Corp........... 451,687
-----------
6,663,072
-----------
ENTERTAINMENT & LEISURE (1.5%)
23,625 *Family Golf Centers Inc.............. 466,594
66,000 *Loews Cineplex Entertainment......... 668,250
-----------
1,134,844
-----------
FINANCIAL SERVICES (0.4%)
21,700 Cash America Investments Inc.......... 329,569
-----------
FOOD & RELATED (0.9%)
13,600 *U.S. Foodservice Inc................. 666,400
-----------
HOTEL/LODGING (0.4%)
29,025 *Silverleaf Resorts Inc............... 270,295
-----------
INDUSTRIAL SERVICES (2.1%)
0 *Allied Waste Industries Inc.......... 6
8,050 *Eastern Environmental Services....... 238,481
35,106 *Safety-Kleen Corp.................... 495,872
43,825 *Superior Services Inc................ 879,239
-----------
1,613,598
-----------
INSURANCE (2.6%)
31,450 *Annuity & Life....................... 849,150
19,350 HCC Insurance Holdings Inc............ 341,044
55,400 Scottish Annuity & Life Hldgs. Ltd.... 761,750
-----------
1,951,944
-----------
MACHINERY (0.6%)
19,525 *Advanced Energy Industries........... 488,125
-----------
MEDIA & PUBLISHING (3.6%)
26,200 *Gemstar Intl. Group Ltd.............. 1,499,950
74,175 *Zomax Optical Media Inc.............. 1,205,344
-----------
2,705,294
-----------
</TABLE>
(continued)
42
<PAGE> 130
OHIO NATIONAL FUND, INC.
SMALL CAP PORTFOLIO (CONTINUED)
SCHEDULE OF INVESTMENTS DECEMBER 31, 1998
<TABLE>
<CAPTION>
MARKET
SHARES U.S. COMMON STOCK VALUE
- -------------------------------------------------------------
<C> <S> <C>
MEDICAL & RELATED (12.3%)
22,100 *Andrx Corp. ......................... $ 1,132,625
78,625 *Capital Senior Living................ 1,095,836
3,454 Cardinal Health Inc. ................. 262,072
21,300 *Cerner Corp. ........................ 569,775
43,000 *Concentra Managed Care Inc. ......... 459,563
4,650 *Envoy Corp. ......................... 270,863
30,978 HBO & Company......................... 888,667
8,075 *Idexx Laboratories Inc. ............. 217,268
25,000 *Kendle Intl. Inc. ................... 584,375
37,800 *Laser Vision Centers Inc. ........... 837,506
16,175 *Medical Manager Corp. ............... 507,491
9,800 *NCS Healthcare Inc. ................. 232,750
45,050 *Orthodontic Centers of America....... 875,659
15,350 *Parexel Intl. Corp. ................. 383,750
8,450 *Perclose Inc. ....................... 279,906
13,925 *Sunrise Assisted Living Inc. ........ 722,359
-----------
9,320,465
-----------
OIL, ENERGY & NATURAL GAS (0.7%)
23,225 *KTI Inc.............................. 502,241
-----------
REAL ESTATE & LEASING (0.7%)
46,175 *Fairfield Communities Inc............ 510,811
-----------
RENTAL AUTO/EQUIPMENT (1.4%)
41,200 *National Equipment Services.......... 473,800
17,800 *Rental Service Corp.................. 279,237
9,750 *United Rentals Inc................... 322,969
-----------
1,076,006
-----------
RESTAURANTS (1.6%)
41,745 CKE Restaurants....................... 1,228,868
-----------
RETAIL (7.7%)
15,600 *American Eagle Outfitters............ 1,039,350
23,725 Burlington Coat Factory Warehouse..... 387,014
17,250 *Elder-Beerman Stores................. 199,453
54,200 *Global Imaging Systems Inc........... 1,314,350
14,300 *Linens N Things...................... 566,638
7,650 *Saks Inc............................. 241,453
9,925 *Select Comfort Corp.................. 262,392
10,625 *The Men's Wearhouse Inc.............. 337,344
21,975 *The Wet Seal, Inc.................... 663,370
42,725 *Transworld Entertainment Corp........ 814,445
-----------
5,825,809
-----------
TRAVEL & VACATION SERVICES (1.1%)
11,625 *Pegasus Systems...................... 418,500
14,200 *Travel Services Itnl. ............... 433,100
-----------
851,600
-----------
</TABLE>
<TABLE>
<CAPTION>
MARKET
SHARES U.S. COMMON STOCK VALUE
- -------------------------------------------------------------
<C> <S> <C>
WHOLESALE (3.5%)
12,250 *CDW Computer Centers Inc............. $ 1,175,234
28,480 *Insight Enterprises Inc.............. 1,448,920
-----------
2,624,154
-----------
TOTAL U.S. COMMON STOCK (96.6%)
(COST $53,021,698)................... $73,002,992
-----------
</TABLE>
<TABLE>
<CAPTION>
MARKET
SHARES FOREIGN COMMON STOCK VALUE
- -------------------------------------------------------------
<S> <C> <C>
BRITAIN (0.7%)
MEDIA
33,600 *Flextech Plc......................... $ 339,968
-----------
MISCELLANEOUS
49,670 Wetherspoon (J.D.).................... 147,475
-----------
TOTAL BRITAIN......................... 487,443
-----------
NETHERLANDS (0.5%)
MISCELLANEOUS
3,085 *Hunter Douglas NV.................... 101,644
TRANSPORTATION
7,100 *IHC Caland........................... 293,353
-----------
TOTAL NETHERLANDS..................... 394,997
-----------
TOTAL FOREIGN COMMON STOCK (1.2%)
(COST $733,441)....................... $ 882,440
-----------
TOTAL COMMON STOCK (97.8%)
(COST $53,755,139).................... $73,885,432
-----------
</TABLE>
<TABLE>
<CAPTION>
FACE MARKET
AMOUNT REPURCHASE AGREEMENTS VALUE
- -------------------------------------------------------------
<C> <S> <C>
FINANCIAL (3.3%)
$2,523,000 Star Bank 3.500% 01/04/99
repurchase price $2,523,968
collateralized by GNMA
certificates pool #8375 due
02/20/24 (Cost $2,523,000)........ $ 2,523,000
-----------
TOTAL REPURCHASE AGREEMENTS (3.3%)
(COST $2,523,000)................. $ 2,523,000
-----------
TOTAL HOLDINGS (101.1%)
(COST $56,278,139) (a)............ $76,408,432
-----------
CASH & RECEIVABLES, NET OF
LIABILITIES
(-1.1%)........................... (832,452)
-----------
TOTAL NET ASSETS (100.0%).......... $75,575,980
===========
</TABLE>
- ---------------
* Non-income producing securities.
(a) Also represents cost for Federal income tax purposes.
The accompanying notes are an integral part of these financial statements.
43
<PAGE> 131
OHIO NATIONAL FUND, INC.
SMALL CAP PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1998
<TABLE>
<S> <C>
Assets:
Investments in securities at market value
(note 1) (cost $56,278,139)............. $ 76,408,432
Cash in bank.............................. 275
Receivable for fund shares sold........... 3,903
Dividends and accrued interest
receivable.............................. 4,207
Other..................................... 2,962
------------
Total assets............................ 76,419,779
------------
Liabilities:
Payable for securities purchased.......... 696,825
Payable for shares redeemed............... 83,846
Payable for investment management services
(note 3)................................ 45,389
Other accrued expenses.................... 17,739
------------
Total liabilities....................... 843,799
------------
Net assets at market value.................. $ 75,575,980
============
Net assets consist of:
Par value, $1 per share................... $ 3,651,357
Paid-in capital in excess of par value.... 55,992,752
Accumulated net realized loss on
investments (note 1).................... (4,198,422)
Net unrealized appreciation on investments
(note 1)................................ 20,130,293
------------
Net assets at market value.................. $ 75,575,980
------------
Shares outstanding (note 4)................. 3,651,357
Net asset value per share................... $ 20.70
============
</TABLE>
STATEMENT OF OPERATIONS
Year ended December 31, 1998
<TABLE>
<S> <C>
Investment income:
Interest................................... $ 334,356
Dividends.................................. 46,390
-----------
Total investment income.................. 380,746
-----------
Expenses:
Management fees (note 3)................... 490,439
Custodian fees (note 3).................... 14,100
Directors' fees (note 3)................... 2,270
Professional fees.......................... 9,836
Fund accounting fees....................... 37,286
Other...................................... 13,886
-----------
Total expenses........................... 567,817
-----------
Net investment loss...................... $ (187,071)
-----------
Realized and unrealized gain on investments:
Net realized loss from investments......... $(4,198,422)
Net increase in unrealized appreciation on
investments.............................. 11,754,403
-----------
Net gain on investments................ 7,555,981
-----------
Net increase in net assets from
operations.......................... $ 7,368,910
===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
44
<PAGE> 132
OHIO NATIONAL FUND, INC.
SMALL CAP PORTFOLIO
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, 1998 DECEMBER 31, 1997
----------------- -----------------
<S> <C> <C>
From operations:
Net investment loss....................................... $ (187,071) $ (47,515)
Realized gain (loss) on investments....................... (4,198,422) 2,695,780
Unrealized gain on investments............................ 11,754,403 1,661,151
----------- -----------
Net increase in net assets from operations............ 7,368,910 4,309,416
----------- -----------
Dividends and distributions to shareholders:
Capital gains distributions............................... (961) (2,462,490)
----------- -----------
From capital share transactions (note 4):
Received from shares sold................................. 16,824,812 21,480,666
Received from dividends reinvested........................ 961 2,462,490
Paid for shares redeemed.................................. (6,922,311) (5,950,001)
----------- -----------
Increase in net assets derived from capital share
transactions......................................... 9,903,462 17,993,155
----------- -----------
Increase in net assets............................. 17,271,411 19,840,081
Net Assets:
Beginning of period....................................... 58,304,569 38,463,709
----------- -----------
End of period............................................. $75,575,980 $58,303,790
=========== ===========
</TABLE>
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------------- MAY 1, 1994 TO
1998 1997 1996 1995 DECEMBER 31, 1994
------ ------ ------ ------ -----------------
<S> <C> <C> <C> <C> <C>
Per share data:
Net asset value, beginning of period........................ $18.72 $18.03 $15.85 $11.99 $10.00
Income (loss) from investment operations:
Net investment income (loss).............................. (0.06) (0.02) (0.08) (0.02) 0.18
Net realized & unrealized gain on investments............. 2.04 1.54 2.80 3.95 1.94
------ ------ ------ ------ ------
Total income from investment operations................. 1.98 1.52 2.72 3.93 2.12
------ ------ ------ ------ ------
Less distributions:
Dividends from net investment income...................... 0.00 0.00 0.00 (0.07) (0.13)
Distributions from net realized capital gains............. 0.00 (0.83) (0.54) 0.00 0.00
------ ------ ------ ------ ------
Total distributions..................................... 0.00 (0.83) (0.54) (0.07) (0.13)
------ ------ ------ ------ ------
Net asset value, end of period.............................. $20.70 $18.72 $18.03 $15.85 $11.99
====== ====== ====== ====== ======
Total return................................................ 10.57% 8.47% 17.71% 33.01% 21.26%(b)
Ratios and supplemental data:
Ratio of expenses to average net assets................... 0.91% 0.94% 0.96% 0.96% 0.91%(a,c)
Ratio of net investment income to average net assets...... (0.30%) (0.11%) (0.48%) (0.11%) 3.27%(a,c)
Portfolio turnover rate..................................... 99% 80% 70% 75% 22%
Net assets at end of period (millions)...................... $ 75.6 $ 58.3 $ 38.5 $ 16.0 $ 3.3
</TABLE>
- ---------------
(a) Annualized.
(b) Calculated on an aggregate basis (not annualized).
(c) The advisor has reimbursed certain operating expenses of the Small Cap
Portfolio for the period ending December 31, 1994. Had the advisor not
reimbursed such expenses, the annualized ratio of expenses to average net
assets would have been 0.95% and the annualized ratio of net investment
income to average net assets would have been 3.24%.
The accompanying notes are an integral part of these financial statements.
45
<PAGE> 133
THIS PAGE INTENTIONALLY LEFT BLANK
46
<PAGE> 134
GLOBAL CONTRARIAN PORTFOLIO
OHIO NATIONAL FUND, INC.
OBJECTIVE
The Global Contrarian Portfolio seeks to provide long-term growth of capital by
investing in foreign and domestic securities that are undervalued or presently
out of favor with other investors but have positive prospects for eventual
appreciation.
PERFORMANCE AS OF DECEMBER 31, 1998
AVERAGE ANNUAL TOTAL RETURNS:
<TABLE>
<S> <C>
One-year 3.53%
Three-year 9.02%
Since inception (3/31/95) 9.64%
</TABLE>
Returns represent past performance, which is no guarantee of future results.
Investment return and principal value will vary so that shares, when redeemed,
may be worth more or less than their original cost. Actual results for variable
annuity and variable universal life contracts will be lower due to contract
charges. Consult your contract for applicable charges for mortality and
expenses.
COMMENTS
The Global Contrarian Portfolio contains mostly small and obscure stocks which
we believe are neglected. They also have exposure to commodity and/or "hard
asset" related stocks in U.S. as well as foreign markets. Finally, they hold
emerging market debt instruments, both corporate and sovereign. Stock markets
fell sharply around the world during the third quarter and then rebounded
sharply during the fourth quarter. Small stocks and commodity related stocks
continued to fare poorly, especially compared to the big growth stocks.
The portfolio has been reducing its exposure to commodities-related securities
over the last eighteen months as weaker global economic growth is anticipated in
the medium-term following the Asian crisis. Exposure to certain Latin American
debt instruments has also been reduced. Simultaneously, the portfolio recently
started buying selected stocks and bonds that appear depresses significantly in
a few Asian countries, as well as in Australia, the U.S., and Europe.
CHANGE IN VALUE OF $10,000 INVESTMENT
[GRAPH]
Hypothetical illustration based on past performance. Future performance will
vary. All returns reflect reinvested dividends. The portfolio's holdings may
differ significantly from the securities in the index. The index is unmanaged
and therefore does not reflect the cost of portfolio management or trading.
Neither the portfolio nor the index is open to direct investment.
TOP 10 HOLDINGS AS OF DECEMBER 31, 1998
<TABLE>
<CAPTION>
% of Net Assets
<C> <S> <C>
1. Edipresse Sa Br New 2.9
2. Manpower Inc 2.5
3. Shaw Brothers (Hong Kong)
Limited 2.2
4. Kuhne & Nagel International AG 2.1
5. Sagem ADP 2.1
6. Chemed Corp 2.0
7. Independent Press Comm 2.0
8. CDL Hotels 2.0
9. San Juan Basin Royalty 1.9
10. Kaneb Services, Inc 1.5
</TABLE>
TOP 5 INDUSTRIES AS OF DECEMBER 31, 1998
<TABLE>
<CAPTION>
% of Net Assets
<S> <C>
United States 32.6
Switzerland 8.5
France 7.6
New Zealand 4.8
Hong Kong 4.2
</TABLE>
The risk associated with investing on a worldwide basis includes differences in
regulation of financial data and reporting and currency exchanges as well as
economic and political systems which may be different from those in the United
States. The prices of small company stocks are generally more volatile than the
prices of large company stocks.
47
<PAGE> 135
OHIO NATIONAL FUND, INC.
GLOBAL CONTRARIAN PORTFOLIO
SCHEDULE OF INVESTMENTS DECEMBER 31, 1998
<TABLE>
<CAPTION>
MARKET
SHARES U.S. COMMON STOCK VALUE
- -------------------------------------------------------------
<C> <S> <C>
CAPITAL GOODS (1.7%)
4,000 Bandag Inc. CL A..................... $ 139,500
3,000 Franklin Electric Co. Inc. .......... 202,500
-----------
342,000
-----------
CHEMICALS (1.2%)
20,000 Lawter International Inc. ........... 232,500
-----------
CONSUMER PRODUCTS (0.9%)
1,000 Allen Organ Co. CL B................. 38,000
5,000 Jostens Inc. ........................ 130,938
-----------
168,938
-----------
ELECTRICAL EQUIPMENT (0.5%)
5,000 *UCAR International Inc. ............ 89,062
-----------
ENERGY, OIL & NATURAL GAS (4.8%)
75,000 *Kaneb Services Inc. ................ 304,688
30,000 Matrix Service Co. .................. 142,500
70,000 *San Juan Basin Royalty Trust........ 380,625
6,000 *Weatherford Intl. .................. 116,250
-----------
944,063
-----------
FINANCE (1.4%)
7,500 East Texas Financial Services........ 60,938
8,000 *First Federal Financial Services.... 100,000
8,500 *Redwood Financial Inc. ............. 121,125
-----------
282,063
-----------
FOOD & RELATED (1.2%)
20,000 *Seneca Food Corp. CL A.............. 245,000
-----------
FORESTRY PRODUCTS (1.2%)
1,000 Georgia Pacific Corp. ............... 58,563
1,000 Georgia Pacific Corp. Timber Group... 23,812
3,000 *Greif Brothers CL A................. 87,562
1,500 Rayonier Inc. ....................... 68,906
-----------
238,843
-----------
METALS & MINING (1.1%)
150 Case Pomeroy Inc. Class A............ 168,750
1,000 Reynolds Metals Co. ................. 52,688
-----------
221,438
-----------
REAL ESTATE (0.2%)
2,000 Alico Inc. .......................... 36,000
-----------
RETAIL (0.4%)
10,000 Hancock Fabrics...................... 83,750
-----------
SERVICES (5.0%)
12,000 Chemed Corp. ........................ 402,000
20,000 Manpower Inc. ....................... 503,750
4,000 UniFirst Corp. ...................... 91,250
-----------
997,000
-----------
</TABLE>
<TABLE>
<CAPTION>
MARKET
SHARES U.S. COMMON STOCK VALUE
- -------------------------------------------------------------
<C> <S> <C>
TECHNOLOGY (1.8%)
20,000 *BEI Medical Systems Inc. ........... $ 38,750
10,000 BEI Technologies Inc. ............... 93,750
8,000 *Evans & Sutherland Corp. ........... 141,000
4,575 *Teltrend Inc. ...................... 87,497
-----------
360,997
-----------
TOTAL U.S. COMMON STOCK (21.4%) (COST
$4,422,331)......................... $ 4,241,654
-----------
</TABLE>
<TABLE>
<CAPTION>
MARKET
SHARES FOREIGN COMMON STOCK VALUE
- -------------------------------------------------------------
<C> <S> <C>
SWITZERLAND (8.5%)
40 *Bank of Intl. Settlements (3)..... $ 254,731
2,000 Edipresse SA Bearer (25)........... 574,964
500 Kuehne & Nagel Intl. AG (32)....... 418,486
500 Sika Finanz AG Bearer (7).......... 149,927
700 *Socit Generale d'Affichage (2).... 257,787
-----------
1,655,895
-----------
FRANCE (7.6%)
1,000 Didot-Bottin (25).................. 144,908
5,000 Emin-Leydier (24).................. 216,468
300 Eurafrance (35).................... 208,507
800 *Groupe NSC (19)................... 98,752
900 Rougier SA (14).................... 44,632
1,490 Sabeton (35)....................... 202,585
1,000 Sagem (8).......................... 411,467
400 Sucriere Pithiviers (1)............ 193,211
-----------
1,520,530
-----------
HONG KONG (4.2%)
1,524,287 CDL Hotels Intl. Ltd (16).......... 391,524
1,000,000 Shaw Brothers Ltd (20)............. 432,397
-----------
823,921
-----------
JAPAN (3.7%)
30,000 *Dai Tokyo Fire & Marine Ins Co
(18).............................. 105,750
25,000 Dowa Fire & Marine Ins Co (18)..... 92,531
2,500 Fuji Photo Film Co. Ltd (9)........ 92,531
2,500 Fuji Photo Film Co. Ltd ADR (9).... 91,562
20,000 Nittetsu Mining Co. Ltd (22)....... 51,641
1,000 Toho Co. (20)...................... 136,418
25,000 Yomeishu Seizo Co. Ltd (13)........ 158,846
-----------
729,279
-----------
SINGAPORE (3.5%)
200,000 Clipsal Ind. Inc. (10)............. 200,000
200,000 DelGro Corp. Ltd (34).............. 259,237
85,000 Intraco Ltd (34)................... 29,346
400,000 Thakral Corp. Ltd (34)............. 204,724
-----------
693,307
-----------
</TABLE>
(continued)
48
<PAGE> 136
OHIO NATIONAL FUND, INC.
GLOBAL CONTRARIAN PORTFOLIO (CONTINUED)
SCHEDULE OF INVESTMENTS DECEMBER 31, 1998
<TABLE>
<CAPTION>
MARKET
SHARES FOREIGN COMMON STOCK VALUE
- -------------------------------------------------------------
<C> <S> <C>
NEW ZEALAND (2.8%)
200,000 Carter Holt Harvey Ltd (14)........ $ 178,908
200,000 Mainfreight Ltd (29)............... 162,070
600,000 Shortland Properties (27).......... 211,532
-----------
552,510
-----------
SOUTH AFRICA (1.8%)
7,000 Anglogold Ltd ADR (22)............. 136,938
22,500 *Driefontein ADR (22).............. 90,000
25,000 *Gold Fields Ltd (22).............. 137,940
-----------
364,878
-----------
GERMANY (1.7%)
100 *Axel Springer Verlag AG (20)...... 84,087
700 Buderus AG (5)..................... 258,566
-----------
342,653
-----------
AUSTRALIA (1.2%)
100,000 Amalgamated Holdings (35).......... 246,435
-----------
NETHERLANDS (1.2%)
3,000 Bosch & Keuning NV (20)............ 90,967
12,080 European City Estates NV (27)...... 150,373
-----------
241,340
-----------
MEXICO (1.2%)
515,000 Grupo Fernandez Editors (25)....... 40,815
62,500 *Industrias Penoles SA de CV
(21).............................. 189,298
-----------
230,113
-----------
THAILAND (0.5%)
20,000 Oriental Hotel (16)................ 102,063
-----------
BELGIUM (0.4%)
700 Engrais Rosier SA (34)............. 79,336
-----------
LATIN AMERICA (0.4%)
10,000 *Antofagasta Holdings plc (35)..... 29,434
75,000 *Ledesma SA (1).................... 47,294
-----------
76,728
-----------
CANADA (0.3%)
1,250 *Canadian Hunter Exploration
(12).............................. 8,164
2,180 Nexfor Inc. (24)................... 8,615
5,000 Noranda Inc. (21).................. 49,804
-----------
66,583
-----------
TOTAL FOREIGN COMMON STOCK (39.0%)
(COST $8,237,812)................. $ 7,725,571
-----------
TOTAL COMMON STOCKS (60.4%) (COST
$12,660,143)...................... $11,967,225
-----------
</TABLE>
<TABLE>
<CAPTION>
MARKET
SHARES FOREIGN PREFERRED STOCK VALUE
- -------------------------------------------------------------
<C> <S> <C>
INDONESIA (1.5%)
10,000 Freeport McMoRan Pfd. 'C' (22)..... $ 122,500
15,000 Freeport McMoRan Pfd. 'D' (22)..... 176,250
-----------
298,750
-----------
</TABLE>
<TABLE>
<CAPTION>
MARKET
SHARES FOREIGN PREFERRED STOCK VALUE
- -------------------------------------------------------------
<C> <S> <C>
NEW ZEALAND (2.0%)
100,000 Independent Press Comm. (25)....... $ 394,650
-----------
TOTAL FOREIGN PREFERRED STOCK
(3.5%) (COST $986,422)............ $ 693,400
-----------
</TABLE>
<TABLE>
<CAPTION>
MARKE
SHARES U.S. PREFERRED STOCK VALUE
- -------------------------------------------------------------
<C> <S> <C>
CONTAINERS (1.0%)
4,000 Sealed Air Corp. Conv. ............ $ 207,500
-----------
REAL ESTATE (0.5%)
7,000 Price Enterprises Inc. ............ $ 96,688
-----------
TOTAL US PREFERRED STOCK (1.5%)
(COST $231,527)................... $ 304,188
-----------
TOTAL PREFERRED STOCK (5.0%) (COST
$1,217,949)....................... $ 997,588
-----------
</TABLE>
<TABLE>
<CAPTION>
FACE MARKET
AMOUNT NON-CONVERTIBLE BONDS VALUE
- -------------------------------------------------------------
<C> <S> <C>
U.S. DOLLAR (2.1%)
$ 300,000 *Bangkok Public Co. 8.375% due
01/15/27.......................... $ 183,000
50,000 Cemex SA 9.500% due 09/20/01 (6)... 50,250
200,000 *Grupo Televisa 13.250% due
05/15/08 (20)..................... 149,500
50,000 PT Pabrik Kertas Tjiwi Kimia
13.250% due 08/01/01 (14)......... 33,250
-----------
416,000
-----------
TOTAL NON-CONVERTIBLE BONDS (2.1%)
(COST $339,584)................... $ 416,000
-----------
</TABLE>
<TABLE>
<CAPTION>
FACE MARKET
AMOUNT CONVERTIBLE DEBENTURES VALUE
- -------------------------------------------------------------
<C> <S> <C>
U.S. DOLLAR (4.1%)
$ 124,000 Air & Water Technology Corp. 8.000%
due 05/15/15 (29)................. $ 81,840
200,000 Lukinter Finance 1.000% due
11/03/03 (12)..................... 56,000
155,000 IRSA 4.500% due 08/02/03 (4)....... 157,713
250,000 Tipco Asphalt Co. 2.750% due
09/19/06 (6)...................... 201,250
100,000 Samsung Electronics Co. Ltd due
12/31/07 (11)..................... 90,000
300,000 ICTSI 1.750% due 03/13/04 (6)...... 229,500
-----------
816,303
-----------
NON U.S. DOLLAR (0.3%)
2,000 FF Immobilier Hotelier 5.000%
01/01/01 (25)..................... 66,175
-----------
TOTAL CONVERTIBLE DEBENTURES (4.4%)
(COST $1,036,413)................. $ 882,478
-----------
</TABLE>
<TABLE>
<CAPTION>
FACE MARKET
AMOUNT SHORT-TERM NOTES VALUE
- -------------------------------------------------------------
<C> <S> <C>
AUTOMOTIVE & RELATED (4.3%)
$ 849,000 Ford Motor Credit Co. 5.970%
01/06/99.......................... $ 848,296
-----------
</TABLE>
(continued)
49
<PAGE> 137
OHIO NATIONAL FUND, INC.
GLOBAL CONTRARIAN PORTFOLIO (CONTINUED)
SCHEDULE OF INVESTMENTS DECEMBER 31, 1998
<TABLE>
<CAPTION>
FACE MARKET
AMOUNT SHORT-TERM NOTES VALUE
- -------------------------------------------------------------
<C> <S> <C>
ELECTRICAL EQUIPMENT (9.6%)
970,000 Emerson Electric Inc. 5.320%
01/13/99.......................... $ 968,280
937,000 Hitachi America Ltd 4.850%
01/19/99.......................... 934,728
-----------
1,903,008
-----------
FINANCIAL (4.9%)
975,000 American Express 5.250% 01/08/99... 974,004
-----------
INSURANCE SERVICES (4.8%)
960,000 Prudential Funding Corp. 5.950
01/07/99.......................... 959,048
-----------
</TABLE>
<TABLE>
<CAPTION>
FACE MARKET
AMOUNT SHORT-TERM NOTES VALUE
- -------------------------------------------------------------
<C> <S> <C>
RESTAURANTS (4.2%)
825,000 McDonalds Corp. 5.880% 01/04/99.... $ 824,596
-----------
TOTAL SHORT-TERM NOTES (27.8%)
(COST $5,508,952)................. $ 5,508,952
-----------
TOTAL HOLDINGS (97.7%)
(COST $20,763,041) (a)............ $19,772,243
-----------
CASH & RECEIVABLES, NET OF
LIABILITIES (0.3%)................ 45,971
-----------
TOTAL NET ASSETS (100.0%).......... $19,818,214
===========
</TABLE>
- ---------------
* Non-income producing securities.
(a) Also represents cost for Federal Income tax purposes.
FOREIGN CURRENCIES
FF -- French Franc
Industry Classifications
<TABLE>
<C> <S>
(1) Agriculture
(2) Automotive
(3) Banking
(4) Building Products
(5) Capital Goods
(6) Cement
(7) Chemicals
(8) Computer Products
(9) Consumer Products
(10) Electrical Products
(11) Electronics
(12) Energy and Oil
(13) Food & Beverage
(14) Forest Products
(15) Governmental
(16) Hotels
(17) Health Care
(18) Insurance
(19) Machinery
(20) Media
(21) Metal (non-ferrous)
(22) Mining
(23) Packaging
(24) Paper
(25) Publishing
(26) Rail Equipment
(27) Real Estate
(28) Retailing
(29) Services
(30) Steel
(31) Textile
(32) Transportation
(33) Utilities
(34) Miscellaneous
(35) Holding Companies
</TABLE>
The accompanying notes are an integral part of these financial statements.
50
<PAGE> 138
OHIO NATIONAL FUND, INC.
GLOBAL CONTRARIAN PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1998
<TABLE>
<S> <C>
Assets:
Investments in securities at market value
(note 1) (cost $20,763,041)............. $19,772,243
Cash in bank.............................. 49,433
Unrealized gain on forward currency
contracts (note 5)...................... 556
Receivable for fund shares sold........... 2,269
Dividends and accrued interest
receivable.............................. 56,441
Other..................................... 81
-----------
Total assets............................ 19,881,023
-----------
Liabilities:
Unrealized loss on forward currency
contracts (note 5)...................... 20,532
Payable for shares redeemed............... 7,737
Payable for investment management services
(note 3)................................ 15,122
Other accrued expenses.................... 19,418
-----------
Total liabilities....................... 62,809
-----------
Net assets at market value.................. $19,818,214
===========
Net assets consist of:
Par value, $1 per share................... $ 1,842,278
Paid-in capital in excess of par value.... 19,017,026
Accumulated net realized gain on
investments and foreign currency
transactions (note 1)................... (31,657)
Net unrealized appreciation (depreciation)
on:
Investments (note 1).................... (990,798)
Foreign currency related transactions... 1,341
Forward currency contracts (note 5)..... (19,976)
-----------
Net assets at market value.................. $19,818,214
===========
Shares outstanding (note 4)................. 1,842,278
Net asset value per share................... $ 10.76
===========
</TABLE>
STATEMENT OF OPERATIONS
Year ended December 31, 1998
<TABLE>
<S> <C>
Investment income:
Interest................................... $ 340,309
Dividends (net of $22,495 foreign taxes
withheld)................................ 390,389
----------
Total investment income.................. 730,698
----------
Expenses:
Management fees (note 3)................... 175,546
Accounting, custody, and transfer agent
fees (note 3)............................ 66,350
Directors' fees (note 3)................... 766
Professional fees.......................... 3,320
Printing, postage, and proxy fees.......... 3,686
Other...................................... 1,377
----------
Total expenses........................... 251,045
----------
Net investment income.................... $ 479,653
----------
Realized and unrealized gain (loss) on
investments and foreign currency:
Net realized gain from:
Investments.............................. $1,750,418
Forward currency related transactions.... 49,555
Net increase in unrealized depreciation on:
Investments............................ (1,627,039)
Foreign currency related
transactions........................ (84,425)
----------
Net gain on investments................ 88,509
----------
Net increase in net assets from
operations.......................... $ 568,162
==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
51
<PAGE> 139
OHIO NATIONAL FUND, INC.
GLOBAL CONTRARIAN PORTFOLIO
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
1998 1997
------------ ------------
<S> <C> <C>
From operations:
Net investment income..................................... $ 479,653 $ 338,300
Realized gain on investments and foreign currency
transactions............................................ 1,799,973 923,298
Unrealized gain (loss) on investments and foreign currency
transactions............................................ (1,711,464) 212,957
----------- -----------
Net increase in net assets from operations............ 568,162 1,474,555
----------- -----------
Dividends and distributions to shareholders:
Dividends paid from net investment income................. (479,631) (430,394)
Capital gains and foreign currency related transaction
distributions........................................... (1,831,630) (1,126,860)
----------- -----------
Total dividends and distributions..................... (2,311,261) (1,557,254)
----------- -----------
From capital share transactions (note 4):
Received from shares sold................................. 4,215,794 7,002,064
Received from dividends reinvested........................ 2,311,261 1,557,254
Paid for shares redeemed.................................. (2,989,242) (1,742,872)
----------- -----------
Increase in net assets derived from capital share
transactions......................................... 3,537,813 6,816,446
----------- -----------
Increase in net assets............................. 1,794,714 6,733,747
Net Assets:
Beginning of period....................................... 18,023,500 11,289,753
----------- -----------
End of period (a)......................................... $19,818,214 $18,023,500
=========== ===========
(a) Includes overdistributed net investment income of....... $ 0 $ (22)
=========== ===========
</TABLE>
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31, APRIL 1,
---------------------------------------------- 1995 TO
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1998 1997 1996 1995
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Per share data:
Net asset value, beginning of period................... $11.73 $11.66 $10.80 $10.00
Income from investment operations:
Net investment income................................ 0.29 0.29 0.28 0.13
Net realized and unrealized gain on investments and
foreign currency transactions...................... 0.12 1.03 1.00 0.75
------ ------ ------ ------
Total income from investment operations.......... 0.42 1.32 1.28 0.88
------ ------ ------ ------
Less distributions:
Dividends from net investment income................. (0.29) (0.38) (0.24) (0.08)
Distributions from net realized capital gains and
foreign currency related transactions.............. (1.10) (0.87) (0.18) 0.00
------ ------ ------ ------
Total distributions.............................. (1.39) (1.25) (0.42) (0.08)
------ ------ ------ ------
Net asset value, end of period......................... $10.76 $11.73 $11.66 $10.80
====== ====== ====== ======
Total return........................................... 3.53% 11.67% 12.09% 8.89%(b)
Ratios and supplemental data:
Ratio of expenses to average net assets.............. 1.30% 1.32% 1.29% 1.58%(a,c)
Ratio of net investment income to average net
assets............................................. 2.48% 2.33% 2.44% 1.64%(a)
Portfolio turnover rate................................ 55% 29% 18% 6%
Net assets at end of period (millions)................. $ 19.8 $ 18.0 $ 11.3 $ 4.4
</TABLE>
- ---------------
(a) Annualized
(b) Calculated on an aggregate basis (not annualized)
(c) The advisor has reimbursed certain operating expenses of the Global
Contrarian Portfolio for the period ended December 31, 1995. Had the advisor
not reimbursed such expenses, 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%.
The accompanying notes are an integral part of these financial statements.
52
<PAGE> 140
AGGRESSIVE GROWTH PORTFOLIO
OHIO NATIONAL FUND, INC.
OBJECTIVE
The principal investment objective of the Aggressive Growth Portfolio is to seek
capital growth. The portfolio invests in a diversified collection of securities
believed to represent attractive growth opportunities.
PERFORMANCE AS OF DECEMBER 31, 1998
<TABLE>
<S> <C>
TOTAL RETURNS:
One-year 7.84%
Three-year 6.93%
Since inception (3/31/95) 12.47%
</TABLE>
Returns represent past performance, which is no guarantee of future results.
Investment return and principal value will vary so that shares, when redeemed,
may be worth more or less than their original cost. Actual results for variable
annuity and variable universal life contracts will be lower due to contract
charges. Consult your contract for applicable charges for mortality and
expenses.
COMMENTS
The portfolio has outperformed the small-cap Russell 2000 for the year, but
lagged the Russell Mid-Cap Growth and S&P 500 Indexes in spite of appropriate
strategic moves. Performance was especially hurt by our heavy positions in
small-cap stocks, which were devastated by the flight to quality, even though
the majority of our investments have hit their profit targets. Stock selection
emphasized dependable growth companies, whose profits should hold up even in the
face of an economic downturn.
We began positioning the portfolio's investments for a deteriorating economic
climate and difficult stock market during the third quarter. We decreased
exposure to cyclicals and retail stocks, and increased cash to reinforce the
portfolio's defensive posture. Heavy cash positions hurt relative performance
after the market began to rebound in October. Financial Stocks were also trimmed
due to their lower earnings trend.
Most macroeconomic indicators point to a decline in U.S. economic activity and
corporate profits in the next few quarters. The Fed appears willing to counter
the slowdown with the use of monetary stimulus. Although we remain cautious,
valuations for all but the few largest stocks have become extremely attractive.
We will continue to exploit the best growth opportunities in companies with
capable management and dependable earnings.
CHANGE IN VALUE OF $10,000 INVESTMENT
[GRAPH]
Hypothetical illustration based on past performance. Future performance will
vary. All returns reflect reinvested dividends. The portfolio's holdings may
differ significantly from the securities in the index. The index is unmanaged
and therefore does not reflect the cost of portfolio management or trading.
Neither the portfolio nor the index is open to direct investment.
TOP 10 HOLDINGS AS OF DECEMBER 31, 1998
<TABLE>
<CAPTION>
% of Net Assets
<C> <S> <C>
1. Central Garden and Pet 4.8
2. Sybron International Corp-Wis 2.7
3. Equity Corporation
International 2.3
4. Corrections Corp of America 2.1
5. Coinmatch Laundry Corp 2.0
6. Henry Schein Inc 2.0
7. Chancellor Media Corp Class A 2.0
8. United Stationers Inc 1.9
9. Household International Inc 1.9
10. Rayovac Corporation 1.7
</TABLE>
TOP 5 INDUSTRIES AS OF DECEMBER 31, 1998
<TABLE>
<CAPTION>
% of Net Assets
<S> <C>
Retail 11.5
Business Services 8.9
Medical and Related 8.7
Computer and Related 7.0
Industrial Services 6.1
</TABLE>
The prices of small company stocks are generally more volatile than the prices
of large company stocks.
53
<PAGE> 141
OHIO NATIONAL FUND, INC.
AGGRESSIVE GROWTH PORTFOLIO
SCHEDULE OF INVESTMENTS DECEMBER 31, 1998
<TABLE>
<CAPTION>
MARKET
SHARES COMMON STOCK VALUE
- -------------------------------------------------------------
<C> <S> <C>
ADVERTISING (1.7%)
2,375 *Lamar Advertising Co. CL A......... $ 88,469
12,253 *Outdoor Systems Inc. .............. 367,590
-----------
456,059
-----------
AUTOMOTIVE & RELATED (0.5%)
3,050 Harley-Davidson Inc. .............. 144,494
-----------
BANKING (2.7%)
12,660 Household Intl. Inc. .............. 501,653
8,925 TCF Financial Corp. ............... 215,873
-----------
717,526
-----------
BROADCAST RADIO & TV (0.5%)
4,500 *Infinity Broadcasting Corp. ....... 123,188
-----------
BUSINESS SERVICES (8.9%)
5,525 *Consolidated Graphics Inc. ........ 373,283
24,873 *Modis Professional Services........ 360,659
15,125 *Pierce Leahy Corp. ................ 385,687
6,400 Pittston Brink's Group............. 204,000
8,625 Service Master Corp. .............. 190,289
19,800 *United Stationers Inc. ............ 514,800
2,675 Xerox Corp. ....................... 315,650
-----------
2,344,368
-----------
COMPUTER & RELATED (7.0%)
7,625 *Black Box Corp. ................... 288,797
13,775 *Global Imaging Systems Inc. ....... 334,044
5,200 HBO & Co. ......................... 149,175
2,100 IBM................................ 387,975
3,625 *Lexmark Intl. Group CL A........... 364,312
3,100 *Security Dynamics Tech Inc. ....... 71,300
4,400 *Storage Technology Corp. .......... 156,475
3,200 *Sykes Enterprises.................. 97,600
-----------
1,849,678
-----------
COMMUNICATIONS (4.4%)
7,800 *American Tower Corp. CL A.......... 230,587
2,400 *Aware Inc. ........................ 65,250
20,054 *Davel Communications Group
Inc. ............................. 365,986
2,700 *MCI Worldcom Inc. ................. 193,725
5,500 *Tele-Communications TCI Group...... 304,219
-----------
1,159,767
-----------
CONSUMER PRODUCTS & SERVICES (5.4%)
8,550 *Action Performance Co. ............ 302,456
22,550 *Equity Corporation
International..................... 598,984
5,400 Newell Co. ........................ 222,750
5,500 Philip Morris Cos. Inc. ........... 294,250
-----------
1,418,440
-----------
DRUGS (0.7%)
26,900 *Halsey Drug Co. Inc. .............. 36,987
4,200 Jones Pharma Inc. ................. 153,300
-----------
190,287
-----------
</TABLE>
<TABLE>
<CAPTION>
MARKET
SHARES COMMON STOCK VALUE
- -------------------------------------------------------------
<C> <S> <C>
DURABLE GOODS (1.1%)
7,675 Applied Power Inc. CL. A........... $ 289,731
-----------
EDUCATIONAL PRODUCTS & SERVICES (1.5%)
11,575 *ITT Educational Services Inc. ..... 393,550
-----------
ELECTRICAL EQUIPMENT (2.7%)
5,000 *Micron Technology Inc. ............ 252,813
17,550 Rayovac Corp. ..................... 468,366
-----------
721,179
-----------
ENTERTAINMENT & LEISURE (4.5%)
11,975 *Bally Total Fitness Holding
Corp. ............................ 297,878
9,500 International Game Technology...... 230,969
17,593 *SCP Pool Corp. .................... 266,094
5,425 *Viacom Inc. CL B................... 401,450
-----------
1,196,391
-----------
FINANCE (3.8%)
6,050 Associates First Capital Corp. .... 256,369
3,275 Block, H&R Inc. ................... 147,375
6,450 Citigroup.......................... 319,275
2,400 Dime Bancorp Inc. ................. 63,450
9,200 Waddell & Reed Financial........... 217,925
-----------
1,004,394
-----------
FOOD & RELATED (1.1%)
2,600 Lancaster Colony Corp. ............ 83,525
8,100 *Merkert American Corp. ............ 122,513
1,900 *US Foodservice..................... 93,100
-----------
299,138
-----------
INDUSTRIAL SERVICES (6.1%)
41,425 *Coinmatch Laundry Corp. .......... 538,525
8,950 *Republic Services Inc. CL A........ 165,016
20,950 *Superior Services Inc. ............ 420,309
1,500 *Valassis Communications Inc. ...... 77,438
8,801 Waste Management Inc. ............. 410,323
-----------
1,611,611
-----------
INSURANCE (2.8%)
9,500 American Bankers Ins. Group........ 459,563
15,950 *Compdent Corp. .................... 165,481
2,000 *Mony Group Inc. .................. 62,625
1,345 Protective Life.................... 53,556
-----------
741,225
-----------
MEDIA & PUBLISHING (3.3%)
11,075 *Chancellor Media Corp. CL A........ 530,216
6,200 *Clear Channel Communications....... 337,900
-----------
868,116
-----------
</TABLE>
(continued)
54
<PAGE> 142
OHIO NATIONAL FUND, INC.
AGGRESSIVE GROWTH PORTFOLIO(CONTINUED)
SCHEDULE OF INVESTMENTS DECEMBER 31, 1998
<TABLE>
<CAPTION>
MARKET
SHARES COMMON STOCK VALUE
- -------------------------------------------------------------
<C> <S> <C>
MEDICAL & RELATED (8.7%)
7,350 *Cytyc Corp. ....................... $ 189,263
4,200 *Datascope.......................... 96,600
3,150 McKesson Corp. .................... 249,047
11,833 *Henry Schein Inc. ................. 529,527
2,200 *Medtronic Inc. .................... 163,350
6,650 *PSS World Medical Inc. ............ 152,950
5,850 *Steris Corp. ...................... 166,359
23,800 *Sybron Intl. Corp.-Wis. ........... 647,063
1,250 Warner-Lambert Co. ................ 93,984
-----------
2,288,143
-----------
OIL, ENERGY & NATURAL GAS (0.5%)
9,225 *Noble Drilling Corp. .............. 119,348
-----------
PRIVATE CORRECTIONS (2.1%)
32,250 *Corrections Corp. of America....... 568,406
-----------
REAL ESTATE INVESTMENT TRUSTS (1.6%)
4,250 CCA Prison Realty Trust............ 87,125
34,800 Sunstone Hotel Inves tors Inc. .... 328,425
-----------
415,550
-----------
RESTAURANTS (2.2%)
8,900 *PJ America Inc. ................... 161,312
5,300 *Papa Johns Intl. Inc. ............. 233,863
30,300 *Rainforest Cafe Inc. .............. 183,694
-----------
578,869
-----------
RETAIL (11.5%)
89,000 *Central Garden and Pet Co. ........ 1,279,375
2,150 Loews Companies Inc. .............. 110,053
9,575 *MSC Industrial Direct Co. CL A..... 216,634
37,500 *Movie Gallery Inc. ................ 267,188
11,600 *Office Depot Inc. ................. 428,475
11,925 Pier 1 Imports Inc. ............... 115,523
5,400 Regis Corp. Minn RJQ............... 216,000
1,400 Rite Aid Corp. .................... 69,388
7,200 *School Specialty Inc. ............. 153,900
9,425 *Wilmar Industries Inc. ............ 191,445
-----------
3,047,981
-----------
RENTAL AUTO/EQUIPMENT (1.3%)
11,100 *Renters Choice Inc. ............... 352,425
-----------
TRANSPORTATION & EQUIPMENT (2.9%)
8,450 Burlington Northern Sante Fe....... 285,188
8,250 *Hub Group Inc. CL A................ 159,844
6,275 Kansas City Southern Ind. Inc. .... 308,651
-----------
753,683
-----------
</TABLE>
<TABLE>
<CAPTION>
MARKET
SHARES COMMON STOCK VALUE
- -------------------------------------------------------------
<C> <S> <C>
UTILITIES (0.2%)
1,000 Montana Power Co. ................. $ 56,560
-----------
TOTAL COMMON STOCKS (89.7%)
(COST $22,504,624)................ 23,710,107
-----------
</TABLE>
<TABLE>
<CAPTION>
MARKET
SHARES PREFERRED STOCK VALUE
- -------------------------------------------------------------
<C> <S> <C>
MEDIA & PUBLISHING (0.6%)
6,600 News Corp. Ltd..................... $ 162,938
-----------
TOTAL PREFERRED STOCK (0.6%)
(COST $162,199)................... $ 162,938
-----------
</TABLE>
<TABLE>
<CAPTION>
FACE MARKET
AMOUNT SHORT-TERM OBLIGATIONS VALUE
- -------------------------------------------------------------
<C> <S> <C>
GOVERNMENT (0.4%)
$ 75,000 US Treasury Bills 4.370%
04/01/99.......................... $ 74,217
25,000 US Treasury Bills 4.450%
03/25/99.......................... 24,761
-----------
TOTAL SHORT-TERM OBLIGATIONS (0.4%)
(COST $98,924).................... $ 98,978
-----------
</TABLE>
<TABLE>
<CAPTION>
FACE MARKET
AMOUNT REPURCHASE AGREEMENTS VALUE
- -------------------------------------------------------------
<C> <S> <C>
FINANCIAL (2.7%)
$ 707,000 Star Bank 3.50% due 01/04/99
repurchase price $707,275
collateralized by GNMA
certificates pool# 8375 due
02/20/24 (Cost $707,000).......... $ 707,000
-----------
TOTAL REPURCHASE AGREEMENTS (2.7%)
(COST $707,000)................... $ 707,000
-----------
TOTAL HOLDINGS (93.4%)
(COST $23,472,747) (a)............ $24,679,023
-----------
CASH & RECEIVABLES, NET OF
LIABILITIES (6.6%)................ 1,768,126
-----------
TOTAL NET ASSETS (100.0%).......... $26,447,149
===========
</TABLE>
- ---------------
* Non-income producing securities.
(a) Also represents cost for Federal income tax purposes.
The accompanying notes are an integral part of these financial statements.
55
<PAGE> 143
OHIO NATIONAL FUND, INC.
AGGRESSIVE GROWTH PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1998
<TABLE>
<S> <C>
Assets:
Investments in securities at market value
(note 1) (cost $23,472,747)............ $ 24,679,023
Cash in bank............................. 993
Receivable for securities sold........... 1,888,483
Receivable for fund shares sold.......... 22,575
Dividends and accrued interest
receivable............................. 8,282
Other.................................... 12,150
------------
Total assets........................... 26,611,506
------------
Liabilities:
Payable for securities purchased......... 137,120
Payable for securities redeemed.......... 1,707
Payable for investment management
services (note 3)...................... 16,811
Other accrued expenses................... 8,719
------------
Total liabilities...................... 164,357
------------
Net assets at market value................. $ 26,447,149
============
Net assets consist of:
Par value, $1 per share.................. $ 2,372,412
Paid-in capital in excess of par value... 23,142,547
Accumulated net realized gain on
investments (note 1)................... (307,236)
Net unrealized appreciation on:
Investments (note 1)................... 1,206,276
Futures contracts (note 1)............. 33,150
------------
Net assets at market value................. $ 26,447,149
============
Shares outstanding (note 4)................ 2,372,412
Net asset value per share.................. $ 11.15
============
</TABLE>
STATEMENT OF OPERATIONS
Year ended December 31, 1998
<TABLE>
<S> <C>
Investment income:
Interest................................... $ 91,865
Dividends.................................. 101,471
----------
Total investment income.................. 193,336
----------
Expenses:
Management fees (note 3)................... 182,408
Custodian fees (note 3).................... 4,850
Directors' fees (note 3)................... 851
Professional fees.......................... 3,770
Accounting and transfer agent fees......... 17,760
Other...................................... 5,337
----------
Total expenses........................... 214,976
----------
Net investment loss...................... $ (21,640)
----------
Realized and unrealized gain (loss) on
investments:
Net realized gain (loss) from:
Investments.............................. $1,799,308
Futures contracts........................ (357,846)
Net increase in unrealized appreciation on:
Investments.............................. 341,658
Futures contracts........................ 33,150
----------
Net gain on investments................ 1,816,270
----------
Net increase in net assets from
operations.......................... $1,794,630
==========
</TABLE>
56
<PAGE> 144
OHIO NATIONAL FUND, INC.
AGGRESSIVE GROWTH PORTFOLIO
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER DECEMBER
31, 31,
1998 1997
------------ ------------
<S> <C> <C>
From operations:
Net investment (loss)..................................... $ (21,640) $ (61,720)
Realized gain on investments and futures contracts........ 1,441,462 1,523,817
Unrealized gain on investments and futures contracts...... 374,808 318,599
------------ ------------
Net increase in net assets from operations............ 1,794,630 1,780,696
------------ ------------
Dividends and distributions to shareholders:
Dividends paid from net investment income................. 0 (172,523)
Capital gains distributions............................... (1,782,997) (65,296)
------------ ------------
Total dividends and distributions..................... (1,782,997) (237,819)
------------ ------------
From capital share transactions (note 4):
Received from shares sold................................. 7,546,285 8,136,995
Received from dividends reinvested........................ 1,782,997 237,819
Paid for shares redeemed.................................. (2,786,473) (2,034,563)
------------ ------------
Increase in net assets derived from capital share
transactions......................................... 6,542,809 6,340,251
------------ ------------
Increase in net assets............................. 6,554,442 7,883,128
Net Assets:
Beginning of period....................................... 19,892,707 12,009,579
------------ ------------
End of period............................................. $ 26,447,149 $ 19,892,707
============ ============
</TABLE>
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
APRIL 1,
YEARS ENDED DECEMBER 31, 1995 TO
------------------------------ DECEMBER 31,
1998 1997 1996 1995
------ ------ ------ ------------
<S> <C> <C> <C> <C>
Per share data:
Net asset value, beginning of period........................ $11.09 $10.03 $11.84 $10.00
Income from investment operations:
Net investment income (loss).............................. (0.01) (0.05) 1.64 1.56
Net realized and unrealized gain (loss) on investments.... 0.88 1.29 (1.59) 1.08
------ ------ ------ ------
Total income from investment operations................. 0.87 1.24 0.05 2.64
------ ------ ------ ------
Less distributions:
Dividends from net investment income (loss)............... 0.00 (0.14) (1.86) (0.80)
Distributions from net realized capital gains............. (0.81) (0.04) 0.00 0.00
------ ------ ------ ------
Total distributions..................................... (0.81) (0.18) (1.86) (0.80)
------ ------ ------ ------
Net asset value, end of period.............................. $11.15 $11.09 $10.03 $11.84
====== ====== ====== ======
Total return................................................ 7.84% 12.53% 0.76% 26.95%(b)
Ratios and supplemental data:
Ratio of expenses to average net assets................... 0.94% 0.97% 1.01% 1.02%(a)
Ratio of net investment income to average net assets...... (0.09%) (0.40%) 15.81% 18.18%(a)
Portfolio turnover rate..................................... 203% 193% 1987% 1488%
Net assets at end of period (millions)...................... $ 26.4 $ 19.9 $ 12.0 $ 4.0
</TABLE>
- ---------------
(a) Annualized
(b) Calculated on an aggregate basis (not annualized)
57
<PAGE> 145
THIS PAGE INTENTIONALLY LEFT BLANK
58
<PAGE> 146
CORE GROWTH PORTFOLIO
OHIO NATIONAL FUND, INC.
OBJECTIVE
The objective of the Core Growth Portfolio is to provide long-term capital
appreciation.
PERFORMANCE AS OF DECEMBER 31, 1998
TOTAL RETURN:
<TABLE>
<S> <C>
One-year 8.82%
Since inception (1/3/97) 2.74%
</TABLE>
Returns represent past performance, which is no guarantee of future results.
Investment return and principal value will vary so that shares, when redeemed,
may be worth more or less than their original cost. Actual results for variable
annuity and variable universal life contracts will be lower due to contract
charges. Consult your contract for applicable charges for mortality and
expenses.
COMMENTS
We can sum up the second half of 1998 in one word -- volatile. The large-cap
indexes hit their summer peak in mid-July, then lost ground through the rest of
July and hit a low for the third quarter on the last day of August. In
September, stocks staged a healthy rebound, but did not recover to their levels
at the end of the second quarter. The market declined significantly in early
October, only to rebound even more dramatically through the end of the year.
Throughout the year, small-cap and mid-cap stocks did not participate fully when
the market was going up, but they certainly participated when the market went
down. We entered the fourth quarter with the S&P 500 Index up 6% and the Russell
2000 Index down 16% for the year -- a remarkable divergence of returns.
We think that smaller stocks will participate more fully in any market increases
this year for several reasons. Earnings growth has slowed drastically for the
larger companies that make up the S&P 500 Index. At the same time earnings
growth in the small and mid-cap universe remains strong and valuations are at or
near all time lows. Finally, while emerging market economies continue to be a
concern, we believe any improvement in these countries should make investors
more willing to hold less liquid stocks.
CHANGE IN VALUE OF $10,000 INVESTMENT
[GRAPH]
Hypothetical illustration based on past performance. Future performance will
vary. All returns reflect reinvested dividends. The portfolio's holdings may
differ significantly from the securities in the index. The index is unmanaged
and therefore does not reflect the cost of portfolio management or trading.
Neither the portfolio nor the index is open to direct investment.
TOP 10 HOLDINGS AS OF DECEMBER 31, 1998
<TABLE>
<CAPTION>
% of Net Assets
<C> <S> <C>
1. Citrix Systems Inc. 3.0
2. Guidant Corp. 2.5
3. EMC Corp. 2.4
4. Cisco Systems 2.2
5. Premier Parks 2.1
6. MCI Worldcom 2.1
7. Macromedia 1.8
8. Compuware Corp. 1.8
9. United Rentals Inc. 1.8
10. Carnival Corp. 1.7
</TABLE>
TOP 5 INDUSTRIES AS OF DECEMBER 31, 1998
<TABLE>
<CAPTION>
% of Net Assets
<S> <C>
Computer and Related 13.9
Medical & Related 12.7
Electrical Equipment 10.0
Communications 8.5
Network Products & Services 7.9
</TABLE>
59
<PAGE> 147
OHIO NATIONAL FUND, INC.
CORE GROWTH PORTFOLIO
SCHEDULE OF INVESTMENTS DECEMBER 31, 1998
<TABLE>
<CAPTION>
MARKET
SHARES COMMON STOCK VALUE
- ------------------------------------------------------------
<C> <S> <C>
ADVERTISING (1.7%)
800... *Getty Images Inc. ................... $ 13,750
6,200.. *Outdoor Systems Inc. ................ 186,000
-----------
199,750
-----------
AEROSPACE (0.6%)
2,300.. *Kellstrom Industries................. 66,125
-----------
AUTOMOTIVE & RELATED (1.6%)
4,000.. *Harley Davidson, Inc. ............... 189,500
-----------
BROADCAST RADIO & TV (3.5%)
1,800.. *Citadel Communications............... 46,575
6,700.. *Fox Entertainment Group.............. 168,756
3,100.. *Jacor Communications................. 199,563
-----------
414,894
-----------
BUSINESS SERVICES (3.9%)
2,800.. *Abacus Direct Corp. ................. 127,400
2,900.. *Acxiom Corp. ........................ 89,900
2,600.. *Documentum Inc. ..................... 138,938
4,700.. *RWD Technologies, Inc. .............. 101,637
-----------
457,875
-----------
COMMUNICATIONS (8.5%)
10,600.. *Amdocs Ltd. ......................... 181,525
3,800.. *American Tower Corp. ................ 112,338
2,200.. *Aware Inc. .......................... 59,813
1,700.. *DSET Corp. .......................... 17,637
4,000.. *Geotel Communication Corp. .......... 149,000
2,500.. *Global Crossing...................... 112,812
3,400.. *MCI Worldcom Inc. ................... 243,950
3,600.. *Univision Communications............. 130,275
-----------
1,007,350
-----------
COMPUTER & RELATED (13.9%)
3,700.. *BMC Software Inc. ................... 164,881
3,600.. *Citrix Systems....................... 349,425
2,700.. *Compuware Corp. ..................... 210,938
2,800.. *Dell Computer Corp. ................. 204,925
3,300.. *EMC Corp. ........................... 280,500
6,400.. *Macromedia Inc. ..................... 215,600
1,900.. *Mercury Interactive Corp. ........... 120,175
700... *Microsoft Corp. ..................... 97,081
-----------
1,643,525
-----------
DRUGS (1.9%)
600... *Medimmune Inc. ...................... 59,662
2,600.. *Watson Pharmaceuticals............... 163,475
-----------
223,137
-----------
</TABLE>
<TABLE>
<CAPTION>
MARKET
SHARES COMMON STOCK VALUE
- ------------------------------------------------------------
<C> <S> <C>
ELECTRICAL EQUIPMENT (10.0%)
5,000.. *Advanced Micro Devices Inc. ......... $ 144,688
2,300.. *Altera Corp. ........................ 140,012
4,400.. *Applied Micro Circuits Corp. ........ 149,463
6,400.. *Celestica Inc. ...................... 158,000
1,800.. Linear Technology..................... 161,213
2,200.. *Transwitch Corp. .................... 85,662
2,900.. *Uniphase Corp. ...................... 201,187
3,000.. *Vitesse Semiconductor Corp. ......... 136,875
-----------
1,177,100
-----------
ENTERTAINMENT & LEISURE (4.8%)
2,400 *Cinar Films Inc...................... 60,900
4,300 Carnival Corp......................... 206,400
8,200.. *Premier Parks........................ 248,050
3,600 *Sunterra Corp........................ 54,000
-----------
569,350
-----------
FINANCIAL SERVICES (1.1%)
3,600 Newcourt Credit Group Inc............. 125,775
-----------
FOOD & RELATED (1.9%)
3,500 *Suiza Foods Corp..................... 178,281
1,000 *Whole Food Market Inc................ 48,375
-----------
226,656
-----------
HOUSING, FURNITURE & RELATED (1.2%)
5,100.. *Restoration Hardware 137,063
-----------
INDUSTRIAL SERVICES (1.2%)
3,000 Waste Management Inc.................. 139,875
-----------
INTERNET SERVICE PROVIDER (3.9%)
2,300 America On Line Inc................... 332,925
400... *Mindspring Enterprises 24,425
4,700 *PSINet Inc........................... 98,113
-----------
455,463
-----------
MACHINERY (2.3%)
1,200 Danaher Corp.......................... 65,175
6,300 *United Rentals Inc................... 208,687
-----------
273,862
-----------
MEDICAL & RELATED (12.7%)
2,400 Cardinal Health Inc................... 182,100
2,700 Guidant Corp.......................... 297,675
7,950 *Health Management Assoc. Inc......... 171,919
3,400.. *Healthcare Financial Partners........ 135,575
1,200 *Immunex Corp......................... 150,975
3,000 *Medical Manager Corp................. 94,125
4,900 *Medquist Inc......................... 193,550
1,200 Pfizer Inc............................ 150,525
1,400 *Province Healthcare Co............... 50,225
4,400 *Theragenics Corp..................... 73,975
-----------
1,500,644
-----------
</TABLE>
(continued)
60
<PAGE> 148
OHIO NATIONAL FUND, INC.
CORE GROWTH PORTFOLIO (CONTINUED)
SCHEDULE OF INVESTMENTS DECEMBER 31, 1998
<TABLE>
<CAPTION>
MARKET
SHARES COMMON STOCK VALUE
- ------------------------------------------------------------
<C> <S> <C>
NETWORK PRODUCTS & SERVICES (7.9%)
3,100 *Ascend Communications Inc............. $ 203,825
900 *Axent Technologies Inc................ 27,506
1,900 *Check Point Software.................. 87,044
2,750 *Cisco Systems......................... 255,234
2,250 *Network Assoc. Inc.................... 149,063
4,600 *New Era of Networks Inc............... 202,400
-----------
925,072
-----------
TRANSPORTATION (1.3%)
4,700 *Motivepower Industries Inc............ 151,281
-----------
OIL, ENERGY & NATURAL GAS (1.7%)
5,900 *BJ Services Co. ...................... 92,188
1,700 *Friede Goldman Intl. Inc. ............ 19,338
1,300 *Hanover Compress...................... 33,394
2,300 *Tuboscope Inc. ....................... 18,687
5,200 *Varco International Inc. ............. 40,300
-----------
203,907
-----------
RETAIL (6.0%)
600 *CDW Computer Centers Inc.............. 57,562
3,000 *Duane Reade Inc....................... 115,500
3,200 Home Depot Inc........................ 195,800
3,900 *Linens N Things Inc................... 154,537
4,100 *Staples Inc........................... 179,119
-----------
702,518
-----------
TOTAL COMMON STOCK
(91.6%) (COST $8,162,680)............ $10,790,722
-----------
</TABLE>
<TABLE>
<CAPTION>
FACE MARKET
AMOUNT REPURCHASE AGREEMENTS VALUE
- -------------------------------------------------------------
<C> <S> <C>
FINANCIAL (7.3%)
$865,000 Star Bank 3.5% due 01/04/99
repurchase price $865,336
collateralized by GNMA certificates
pool # 837 due 02-20-24
(cost $865,000)..................... $ 865,000
-----------
TOTAL REPURCHASE AGREEMENTS (7.3%)
(COST $865,000)..................... $ 865,000
-----------
TOTAL HOLDINGS (98.9%)
(COST $9,017,680) (a)............... $11,655,722
-----------
CASH & RECEIVABLES,
NET OF LIABILITIES (1.1%)........... 125,865
-----------
TOTAL NET ASSETS (100.0%)............ $11,781,587
===========
</TABLE>
- ---------------
* Non income producing security.
(a) Also represents cost for Federal income tax purposes.
The accompanying notes are an integral part of these financial statements.
61
<PAGE> 149
OHIO NATIONAL FUND, INC.
CORE GROWTH PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1998
<TABLE>
<S> <C>
Assets:
Investments in securities at market value
(note 1) (cost $9,017,680).............. $11,655,722
Cash in bank.............................. 441
Receivable for securities sold............ 264,936
Receivable for fund shares sold........... 2,554
Dividends and accrued interest
receivable.............................. 192
Other..................................... 43
-----------
Total assets............................ 11,923,888
-----------
Liabilities:
Payable for securities purchased.......... 51,006
Payable for shares redeemed............... 77,477
Payable for investment management services
(note 3)................................ 8,569
Other accrued expenses.................... 5,249
-----------
Total liabilities....................... 142,301
-----------
Net assets at market value.................. $11,781,587
===========
Net assets consist of:
Par value, $1 per share................... $ 1,118,017
Paid-in capital in excess of par value.... 9,658,337
Accumulated net realized loss on
investments (note 1).................... (1,632,809)
Net unrealized appreciation on investments
(note 1)................................ 2,638,042
-----------
Net assets at market value.................. $11,781,587
===========
Shares outstanding (note 4)................. 1,118,017
Net asset value per share................... $ 10.54
===========
</TABLE>
STATEMENT OF OPERATIONS
Year ended December 31, 1998
<TABLE>
<S> <C>
Investment income:
Interest.................................. $ 47,437
Dividends................................. 4,679
-----------
Total investment income................. 52,116
-----------
Expenses:
Management fees (note 3).................. 96,330
Custodian fees (note 3)................... 4,825
Directors' fees (note 3).................. 432
Professional fees......................... 1,844
Accounting and transfer agent fees........ 8,440
Other..................................... 2,883
-----------
Total expenses.......................... 114,754
-----------
Net investment loss..................... $ (62,638)
-----------
Realized and unrealized gain (loss) on
investments:
Net realized loss from investments........ $(1,185,242)
Net increase in unrealized appreciation on
investments............................. 2,239,047
-----------
Net gain on investments............... 1,053,805
-----------
Net increase in net assets from
operations......................... $ 991,167
===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
62
<PAGE> 150
OHIO NATIONAL FUND, INC.
CORE GROWTH PORTFOLIO
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
1998 1997
------------ ------------
<S> <C> <C>
From operations:
Net investment loss....................................... $ (62,638) $ (11,892)
Realized loss on investments.............................. (1,185,242) (447,567)
Unrealized gain on investments............................ 2,239,047 398,995
----------- ----------
Net increase (decrease) in net assets from
operations.......................................... 991,167 (60,464)
----------- ----------
Dividends and distributions to shareholders:
Dividends paid from net investment income................. 0 (3,539)
----------- ----------
From capital share transactions (note 4):
Received from shares sold................................. 4,380,111 12,368,097
Received from dividends reinvested........................ 0 3,539
Paid for shares redeemed.................................. (3,133,724) (2,763,600)
----------- ----------
Increase in net assets derived from capital share
transactions........................................ 1,246,387 9,608,036
----------- ----------
Increase in net assets............................ 2,237,554 9,544,033
Net Assets:
Beginning of period....................................... 9,544,033 0
----------- ----------
End of period............................................. $11,781,587 $9,544,033
=========== ==========
</TABLE>
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31,
------------------
1998 1997
-------- ------
<S> <C> <C>
Per share data:
Net asset value, beginning of period........................ $ 9.68 $10.00
Loss from investment operations:
Net investment loss....................................... (0.06) (0.02)
Net realized and unrealized gain (loss) on investments.... 0.92 (0.30)
Total income (loss) from investment operations......... 0.86 (0.32)
-------- ------
Net asset value, end of period.............................. $ 10.54 $ 9.68
======== ======
Total return................................................ 8.82% (3.08%)
Ratios and supplemental data:
Ratio of expenses to average net assets..................... 1.13% 1.11%
Ratio of net investment loss to average net assets........ (0.62)% (0.18)%
Portfolio turnover rate..................................... 134% 65%
Net assets at end of period (millions)...................... $ 11.8 $ 9.5
</TABLE>
The accompanying notes are an integral part of these financial statements.
63
<PAGE> 151
THIS PAGE INTENTIONALLY LEFT BLANK
64
<PAGE> 152
GROWTH & INCOME PORTFOLIO
OHIO NATIONAL FUND, INC.
OBJECTIVE
The Growth & Income Portfolio's investment objective is long-term total return.
PERFORMANCE AS OF DECEMBER 31, 1998
TOTAL RETURN:
<TABLE>
<S> <C>
One-year 7.09%
Since inception (1/3/97) 21.05%
</TABLE>
Returns represent past performance, which is no guarantee of future results.
Investment return and principal value will vary so that shares, when redeemed,
may be worth more or less than their original cost. Actual results for variable
annuity and variable universal life contracts will be lower due to contract
charges. Consult your contract for applicable charges for mortality and
expenses.
COMMENTS
Fueled by a strong, snap back rally in the market, the Ohio National Growth &
Income Portfolio rose 16.5% in the fourth quarter. The strong rebound helped to
mitigate the severe underperformance investors in small and mid-cap stocks
endured throughout most of the second and third quarter in 1998.
Having endured a strong market decline in the spring and summer, we positioned
the portfolio in a defensive posture entering the fourth quarter. We expanded
our weighting to convertible, preferred, and utility shares. That conservative
strategy hindered our fourth quarter results, as many stocks rallied strongly
from their summer lows.
Looking forward, we maintain some optimism that the small and mid-cap stocks may
catch up to the large cap stocks in 1999 after four years of general
underperformance. The deflationary forces of excess global capacity coupled with
slowing demand from most energy markets have already had a negative effect on
the profits of some large-cap multinational companies.
CHANGE IN VALUE OF $10,000 INVESTMENT
LOGO
Hypothetical illustration based on past performance. Future performance will
vary. All returns reflect reinvested dividends. The portfolio's holdings may
differ significantly from the securities in the index. The index is unmanaged
and therefore does not reflect the cost of portfolio management or trading.
Neither the portfolio nor the index is open to direct investment.
TOP 10 HOLDINGS AS OF DECEMBER 31, 1998
<TABLE>
<CAPTION>
% of Net Assets
<C> <S> <C>
1. American Bank Note Holographics
Inc 2.5
2. Mediaone Group Inc 2.1
3. Bergen Brunswig Corp 1.8
4. Novell Inc 1.8
5. Millennium Pharmaceuticals 1.7
6. System Software Assoc CV 1.7
7. Discreet Logic Inc 1.7
8. Fore Systems Inc 1.6
9. Adelphia Communications-CL A 1.6
10. Dset Corp 1.6
</TABLE>
TOP 5 INDUSTRIES AS OF DECEMBER 31, 1998
<TABLE>
<CAPTION>
% of Net Assets
<S> <C>
Communications 15.1
Computer and Related 11.4
Medical and Related 8.7
Networking Products 8.2
Cable TV 7.9
</TABLE>
65
<PAGE> 153
OHIO NATIONAL FUND, INC.
GROWTH AND INCOME PORTFOLIO
SCHEDULE OF INVESTMENTS DECEMBER 31, 1998
<TABLE>
<CAPTION>
MARKET
SHARES COMMON STOCK VALUE
- -------------------------------------------------------------
<C> <S> <C>
AEROSPACE (1.1%)
6,500 *Alliant Techsystems Inc........... $ 535,844
-----------
BANKING (0.9%)
15,000 Keycorp............................ 480,000
-----------
BUSINESS SERVICES (5.5%)
15,500 *Acnielsen Corp.................... 437,875
5,000 *CSG Systems Intl. Inc............. 395,000
50,000 *Condor Technology Solutions....... 500,000
15,000 National Data Corp................. 730,313
10,000 *Tele-Comm Liberty Media GR-A...... 440,133
12,500 *Usweb Corp........................ 329,688
-----------
2,833,009
-----------
CABLE TV (7.9%)
18,000 *Adelphia Communications CL A...... 823,500
25,000 *Century Communications CL A....... 792,969
12,000 Comcast Corp. Special CL A......... 704,250
22,500 *Mediaone Group Inc................ 1,057,500
12,500 Tele Communications TCI Group
Ser............................... 691,406
-----------
4,069,625
-----------
COMMUNICATIONS (12.5%)
45,500 *Caprock Communications Corp....... 304,281
16,000 Comsat Corp. Series 1.............. 576,000
40,000 *DIGI International Inc............ 445,000
79,000 *DSET Corp......................... 819,625
130,000 *Metrocall Inc..................... 568,750
9,000 *Netscape Communications Corp...... 546,750
20,500 *Pagemart Wireless Inc............. 114,031
85,000 *Paging Network Inc................ 398,438
10,500 SBC Communications Inc............. 563,062
17,500 *Skytel Communications Corp........ 387,187
6,000 Sprint Corp........................ 504,750
30,000 Sprint Corp. (PCS GRP)............. 693,750
50,000 *Startec Global Communications
Corp.............................. 481,250
-----------
6,402,874
-----------
COMPUTER & RELATED (8.3%)
45,000 *Discreet Logic Inc................ 849,375
15,000 *Electronics For Imaging........... 602,813
4,500 *EMC Corp. Mass.................... 382,500
20,000 *Hyperion Solutions Corp........... 360,000
15,000 *Imrglobal Corp.................... 441,562
20,000 *Micron Electronics Inc............ 346,250
14,000 *Seagate Technology Inc............ 423,500
40,000 *Splash Technology Hdgs. Inc....... 297,500
6,500 *Sun Microsystems Inc.............. 556,562
-----------
4,260,062
-----------
</TABLE>
<TABLE>
<CAPTION>
MARKET
SHARES COMMON STOCK VALUE
- -------------------------------------------------------------
<C> <S> <C>
CONSUMER PRODUCTS (6.0%)
75,000 *American Bank Note Holographics
Inc............................... $ 1,312,500
11,500 Philip Morris Cos. Inc............. 615,250
7,000 Rite Aid Corp...................... 346,938
10,000 Sotheby's Holdings Inc............. 320,000
20,000 The Warnaco Group Inc.............. 505,000
-----------
3,099,688
-----------
DRUGS (2.5%)
15,000 *King pharmaceuticals Inc.......... 391,875
35,000 *Millennium Pharmaceuticals........ 905,625
-----------
1,297,500
-----------
ELECTRICAL EQUIPMENT (0.4%)
10,000 *Conexant Systems Inc.............. 177,914
-----------
ENTERTAINMENT & LEISURE (1.4%)
40,000 *Acclaim Entertainment Inc......... 490,000
7,500 Walt Disney Co..................... 225,000
-----------
715,000
-----------
FINANCIAL SERVICES (4.7%)
75,000 *Amresco Inc....................... 656,250
11,500 Countrywide Credit Ind. Inc........ 577,156
7,500 Fannie Mae......................... 555,000
25,000 *Golden State Bancorp.............. 114,062
22,500 *Hambrecht & Quist Group........... 510,469
-----------
2,412,937
-----------
INSURANCE SERVICES (2.1%)
12,000 Berkley (W.R.) Corp................ 408,750
50,000 *Scottish Life Holdings Ltd........ 687,500
-----------
1,096,250
-----------
MEDIA & PUBLISHING (0.6%)
20,000 *Ziff-Davis Inc.................... 316,250
-----------
MEDICAL & RELATED (7.5%)
20,000 *Alkermes Inc...................... 443,750
17,500 *Alternative Living Services....... 599,375
3,000 *Amgen Inc......................... 313,688
27,000 Bergen Brunswig Corp............... 941,625
40,000 *Brookdale Living Communities...... 780,000
40,000 *Endocardial Solutions Inc......... 400,000
7,500 *Sunrise Assisted Living Inc....... 389,062
-----------
3,867,500
-----------
NETWORKING PRODUCTS (8.2%)
13,000 *3Com Corp......................... 582,563
46,000 *Adaptec Inc....................... 807,875
12,000 *Checkpoint Software Tech.......... 549,750
45,000 *Fore Systems Inc.................. 824,062
17,500 *Newbridge Networks Corp........... 531,563
50,000 *Novell Inc........................ 906,250
-----------
4,202,063
-----------
</TABLE>
(continued)
66
<PAGE> 154
OHIO NATIONAL FUND, INC.
GROWTH AND INCOME PORTFOLIO (CONTINUED)
SCHEDULE OF INVESTMENTS DECEMBER 31, 1998
<TABLE>
<CAPTION>
MARKET
SHARES COMMON STOCK VALUE
- -------------------------------------------------------------
<C> <S> <C>
OIL, ENERGY & NATURAL GAS (2.6%)
25,000 AGL Resources Inc.................. $ 576,563
400,000 *Bonus Resource Service............ 384,000
15,750 *Southern Union Co................. 383,906
-----------
1,344,469
-----------
TRANSPORTATION (0.7%)
18,000 Knightsbridge Tanker Ltd........... 374,625
-----------
UTILITIES (1.1%)
10,000 Montana Power Co................... 565,625
RETAIL (6.3%)
12,500 *BJ's Wholesale Club Inc........... 578,906
20,000 Claires Stores Inc................. 410,000
19,000 *Creative Computers Inc............ 603,250
25,000 *Hollywood Entertainment Corp...... 681,250
8,000 *Kroger Co. Inc.................... 484,000
50,000 Pier 1 Imports Inc................. 484,375
-----------
3,241,781
-----------
TOTAL COMMON STOCK (80.4%)
(COST $34,175,108)................ $41,293,016
</TABLE>
<TABLE>
<CAPTION>
MARKET
SHARES CLOSED-END INVESTMENTS VALUE
- -------------------------------------------------------------
<C> <S> <C>
FOREIGN (1.2%)
25,500 Webs-Hong Kong Index Series........ $ 239,063
35,000 Webs-Japan Index Series............ 358,750
-----------
TOTAL CLOSED-END INVESTMENTS (1.2%)
(COST $611,042)................... $ 597,813
</TABLE>
<TABLE>
<CAPTION>
MARKET
SHARES REAL ESTATE INVESTMENT TRUSTS VALUE
- -------------------------------------------------------------
<C> <S> <C>
50,000 Equity One Inc..................... $ 453,125
80,000 Canadian Hotel Inc................. 409,600
-----------
TOTAL REAL ESTATE INV. TRUSTS
(1.7%)
(COST $1,160,929)................. $ 862,725
-----------
</TABLE>
<TABLE>
<CAPTION>
MARKET
SHARES PREFERRED STOCK VALUE
- -------------------------------------------------------------
<C> <S> <C>
COMMUNICATIONS (1.8%)
24,400 Cellnet Data Systems 7% Conv....... $ 317,200
15,000 Nextlink Communications Conv....... 592,500
-----------
909,700
-----------
ELECTRICAL EQUIPMENT (0.8%)
10,000 Pioneer Standard Electric Conv..... 425,000
-----------
HOTEL/LODGING (0.3%)
7,500..... Servico Inc. 7% Conv. (144A)....... 168,750
-----------
</TABLE>
<TABLE>
<CAPTION>
MARKET
SHARES PREFERRED STOCK VALUE
- -------------------------------------------------------------
<C> <S> <C>
INDUSTRIAL SERVICES (1.0%)
16,000 Cendant Corp. 7.5% Conv............ $ 534,000
-----------
METALS & MINING (0.5%)
15,000 Freeport McMoran Cooper Gold....... 223,125
-----------
TRANSPORTATION & EQUIPMENT (1.1%)
1,500 Trans World Airlines 8% Conv.
(144A)............................ 33,750
11,000 Trans World Airlines $4.625 Conv... 451,000
3,500 TWA Series A 8.000% Conv........... 78,750
-----------
563,500
-----------
TOTAL PREFERRED STOCK (5.5%)
(COST $3,380,844)................. $ 2,824,075
-----------
</TABLE>
<TABLE>
<CAPTION>
FACE MARKET
AMOUNT CONVERTIBLE DEBENTURE VALUE
- -------------------------------------------------------------
<C> <S> <C>
INDUSTRIAL SERVICES (0.5%)
$ 200,000 Alternative Living Services 5.250%
12/15/02.......................... $ 247,250
-----------
COMMUNICATIONS (0.8%)
400,000 Premiere Technology Inc. 5.750%
07/01/04.......................... 208,000
200,000 Tele-Communications Intl. 4.500%
02/15/06.......................... 213,000
-----------
421,000
-----------
COMPUTER & RELATED (3.1%)
250,000 Adaptec Inc. 4.750% 02/01/04....... 194,375
400,000 Hutchinson Tech 6.000% 03/15/05.... 557,000
1,200,000 System Software Associates 7.000%
09/15/02.......................... 864,000
-----------
1,615,375
-----------
MEDICAL & RELATED (1.2%)
100,000 American Retirement Corp. 5.750%
10/01/02.......................... 86,125
125,000 Assisted Living Concepts 6.000%
11/01/02.......................... 103,125
600,000 Sabratek Corp. 6.000% 04/15/05..... 405,000
-----------
594,250
-----------
OIL, ENERGY & NATURAL GAS (0.4%)
250,000 Offshore Logistics Inc. 6.000%
12/15/03.......................... 216,250
-----------
RETAIL (0.4%)
250,000 Nine West Group 5.500% 07/15/03.... 197,187
TRANSPORTATION & EQUIPMENT (0.6%)
500,000 Halter Marine Inc. 4.500%
09/15/04.......................... 282,500
TOTAL CONVERTIBLE DEBENTURES (7.0%)
(COST $3,575,658)................. $ 3,573,812
-----------
</TABLE>
(continued)
67
<PAGE> 155
OHIO NATIONAL FUND, INC.
GROWTH AND INCOME PORTFOLIO (CONTINUED)
SCHEDULE OF INVESTMENTS DECEMBER 31, 1998
<TABLE>
<CAPTION>
FACE MARKET
AMOUNT REPURCHASE AGREEMENTS VALUE
- -------------------------------------------------------------
<C> <S> <C>
FINANCIAL (7.6%)
$3,909,000 Star Bank 3.5%, Due 01/04/99
repurchase price $3,910,520
collateralized by GNMA
certificates pool # 8375 due
02/20/24 (cost $3,909,000)........ $ 3,909,000
-----------
TOTAL REPURCHASE AGREEMENTS (7.6%)
(COST $3,909,000)................. $ 3,909,000
-----------
TOTAL HOLDINGS (103.4%)
(COST $46,812,581) (a)............ $53,060,441
-----------
CASH & RECEIVABLES, NET OF
LIABILITIES (-3.4%)............... (1,686,935)
-----------
TOTAL NET ASSETS (100.0%).......... $51,373,506
===========
</TABLE>
- ---------------
* Non-income producing securities.
(a) Also represents cost for Federal income tax purposes.
(144A) Security exempt from registration under Rule 144A of the Securities Act
of 1933. These securities may be resold in transactions exempt from
registration, normally to qualified buyers. At the period end, the value
of these securities amounted to $202,500 or 0.4% net assets. These
securities were deemed liquid pursuant to procedures approved by the
Board of Directors.
The accompanying notes are an integral part of these financial statements.
68
<PAGE> 156
OHIO NATIONAL FUND, INC.
GROWTH & INCOME PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1998
<TABLE>
<S> <C>
Assets:
Investments in securities at market
value (note 1) (cost
$46,812,581)...................... $53,060,441
Cash in bank......................... 966
Receivable for securities sold....... 1,144,260
Receivable for fund shares sold...... 10,055
Dividends and accrued interest
receivable........................ 95,030
Other................................ 144
-----------
Total assets...................... 54,310,896
-----------
Liabilities:
Payable for securities purchased..... 2,170,331
Payable for shares redeemed.......... 725,090
Payable for investment management
services (note 3)................. 35,560
Other accrued expenses............... 6,409
Total liabilities................. 2,937,390
-----------
Net assets at market value............. $51,373,506
===========
Net assets consist of:
Par value, $1 per share.............. $ 3,768,803
Paid-in capital in excess of par
value............................. 44,361,937
Accumulated net realized loss on
investments (note 1).............. (3,005,094)
Net unrealized appreciation on
investments (note 1).............. 6,247,860
-----------
Net assets at market value............. $51,373,506
===========
Shares outstanding (note 4)............ 3,768,803
Net asset value per share.............. $ 13.63
===========
</TABLE>
STATEMENT OF OPERATIONS
Year ended December 31, 1998
<TABLE>
<S> <C>
Investment income:
Interest........................... $ 308,157
Dividends.......................... 468,381
------------
Total investment income......... 776,538
------------
Expenses:
Management fees (note 3)........... 323,909
Custodian fees (note 3)............ 7,550
Directors' fees (note 3)........... 1,059
Professional fees.................. 4,005
Accounting and transfer agent
fees............................ 23,604
Other.............................. 5,758
------------
Total expenses.................. 365,885
------------
Net investment income........... $ 410,653
Realized and unrealized gain on
investments:
Net realized loss from
investments..................... ($ 3,005,094)
Net increase in unrealized
appreciation on investments..... 5,132,366
------------
Net gain on investments......... 2,127,272
------------
Net increase in net assets from
operations.................... $ 2,537,925
============
</TABLE>
The accompanying notes are an integral part of these financial statements.
69
<PAGE> 157
OHIO NATIONAL FUND, INC.
GROWTH & INCOME PORTFOLIO
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
1998 1997
------------ ------------
<S> <C> <C>
From operations:
Net investment income..................................... $ 410,653 $ 83,786
Realized gain (loss) on investments....................... (3,005,094) 879,953
Unrealized gain on investments............................ 5,132,366 1,115,494
----------- -----------
Net increase in net assets from operations............ 2,537,925 2,079,233
----------- -----------
Dividends and distributions to shareholders:
Dividends paid from net investment income................. (411,458) (83,966)
Capital gains distributions............................... 0 (881,389)
----------- -----------
Total dividends and distributions..................... (411,458) (965,355)
----------- -----------
From capital share transactions (note 4):
Received from shares sold................................. 35,505,173 17,263,935
Received from dividends reinvested........................ 411,458 965,355
Paid for shares redeemed.................................. (5,375,872) (636,888)
----------- -----------
Increase in net assets derived from capital share
transactions......................................... 30,540,759 17,592,402
----------- -----------
Increase in net assets............................. 32,667,226 18,706,280
----------- -----------
Net Assets:
Beginning of period....................................... 18,706,280 0
----------- -----------
End of period............................................. $51,373,506 $18,706,280
=========== ===========
</TABLE>
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------
1998 1997
------------ ------------
<S> <C> <C>
Per share data:
Net asset value, beginning of period........................ $ 12.85 $ 10.00
Income from investment operations:
Net investment income..................................... 0.14 0.11
Net realized and unrealized gain on investments........... 0.77 3.52
----------- -----------
Total income from investment operations................. 0.91 3.63
----------- -----------
Less distributions:
Dividends from net investment income...................... (0.13) (0.11)
Distributions from net realized capital gains............. 0.00 (0.67)
----------- -----------
Total distributions..................................... (0.13) (0.78)
----------- -----------
Net asset value, end of period.............................. $ 13.63 $ 12.85
=========== ===========
Total return................................................ 7.09% 36.58%
Ratios and supplemental data:
Ratio of expenses to average net assets................... 0.97% 0.95%
Ratio of net investment income to average net assets...... 1.09% 1.04%
Portfolio turnover rate..................................... 286% 185%
Net assets at end of period (millions)...................... $ 51.4 $ 18.7
</TABLE>
The accompanying notes are an integral part of these financial statements.
70
<PAGE> 158
S&P 500 INDEX PORTFOLIO
OHIO NATIONAL FUND, INC.
OBJECTIVE
The S&P 500 Index Portfolio seeks total return approximating that of the S&P 500
Index, including reinvestment of dividends, at a risk level consistent with that
of the S&P 500 Index.
PERFORMANCE AS OF DECEMBER 31, 1998
<TABLE>
<S> <C>
TOTAL RETURN:
One-year 30.00%
Since inception (1/3/97) 31.03%
</TABLE>
Returns represent past performance, which is no guarantee of future results.
Investment return and principal value will vary so that shares, when redeemed,
may be worth more or less than their original cost. Actual results for variable
annuity and variable universal life contracts will be lower due to contract
charges. Consult your contract for applicable charges for mortality and
expenses.
COMMENTS
1998 turned out to be a very volatile, but yet another good year for the S&P 500
Index and for your S&P 500 Index Fund. After the 1st seven months of 1998, we
had seen two months of negative returns, but good overall gains of nearly 16.50%
for the S&P Index. In August, however, with negative sentiment leading the way,
the market dropped 14.6%, wiping out most of the gains for the year. Next we had
strong months in September through December, bringing the index all the way back
for a total return of 28.58% for all of 1998, including dividends reinvested
back into the index.
Your Ohio National Index Fund mirrored these volatile ups and downs, leading all
index funds in return most of the year. It finished the year as the number one
index fund in the country, with a total return after expenses of 30.00%, or
1.42% higher than the actual index. The next highest return for "Insurance
Products Underlying Funds -- S&P 500 Index Funds," was 28.72% for the year. The
highest return for S&P 500 Index Funds -- non-insurance product related -- was
29.34% for the year. Returns are reported by Lipper's analytical review
services, ranking over 130 S&P 500 index funds.
1999 is a promising year. Economic growth fundamentals are good, with wage
inflation pressures lessening, low interest rates and forecast low inflation. We
expect GDP growth to remain strong, though lower than the 3.9% rate for 1998.
Year 2000 hiccups will probably occur during 1999, plus some damage from weak
Asian and South American economies. As the economy slows from its 3.9% growth
rate, expect questions of stock market overvaluation to recur. Ultimately, it
will be another volatile year in the stock market, but we expect to be
discussing stock market gains with you 12 months from now.
CHANGE IN VALUE OF $10,000 INVESTMENT
[GRAPH]
Hypothetical illustration based on past performance. Future performance will
vary. All returns reflect reinvested dividends. The portfolio's holdings may
differ significantly from the securities in the index. The index is unmanaged
and therefore does not reflect the cost of portfolio management or trading.
Neither the portfolio nor the index is open to direct investment.
TOP 10 HOLDINGS AS OF DECEMBER 31, 1998
<TABLE>
<CAPTION>
% of Net Assets
<C> <S> <C>
1. S&P 500 Depository Shares 3.3
2. Johnson & Johnson 2.5
3. Cisco Systems Inc 2.2
4. Merck & Co Inc 2.1
5. Microsoft Corp 1.8
6. AT&T Corp 1.7
7. Chase Manhattan Corp 1.6
8. SBC Communications 1.5
9. Oracle Corp 1.4
10. Exxon Corp 1.4
</TABLE>
TOP 5 INDUSTRIES AS OF DECEMBER 31, 1998
<TABLE>
<CAPTION>
% of Net Assets
<S> <C>
Computer & Related 9.6
Communications 5.8
Banking 4.4
Consumer Products 3.9
Drugs 3.5
</TABLE>
71
<PAGE> 159
OHIO NATIONAL FUND, INC.
S&P 500 INDEX PORTFOLIO
SCHEDULE OF INVESTMENTS DECEMBER 31, 1998
<TABLE>
<CAPTION>
MARKET
SHARES COMMON STOCK VALUE
- -------------------------------------------------------------
<C> <S> <C>
AEROSPACE (1.0%)
8,700 Allied Signal Inc. ................ $ 385,519
18,000 Boeing Co. ........................ 587,250
-----------
972,769
-----------
AUTOMOTIVE & RELATED (0.4%)
6,200 Ford Motor Co. .................... 363,863
-----------
BANKING (3.9%)
12,900 Bank One Corp. .................... 658,706
15,900 BankBoston Corp. .................. 619,106
22,800 Chase Manhattan.................... 1,551,825
12,100 Fifth Third Bancorp................ 862,881
-----------
3,692,518
-----------
CABLE TV (0.7%)
13,400 MediaOne Group Inc. ............... 629,800
-----------
CHEMICALS (1.0%)
20,000 Monsanto Corp. .................... 950,000
-----------
COMMUNICATIONS (5.8%)
21,500 AT&T Corp. ........................ 1,617,875
11,500 *Airtouch Communications........... 829,438
19,200 Ameritech Corp. ................... 1,216,800
6,900 Motorola Corp. .................... 421,331
25,600 SBC Communications Inc. ........... 1,372,800
-----------
5,458,244
-----------
COMPUTER & RELATED (9.6%)
22,300 *Cisco Systems..................... 2,069,719
18,000 Compaq Computer Corp. ............. 754,875
13,500 Hewlett-Packared Co. .............. 922,219
10,400 Intel Corp. ....................... 1,233,050
6,000 Intl. Business Machines............ 1,108,500
12,000 *Microsoft Corp. .................. 1,664,250
31,000 *Oracle Corp. ..................... 1,336,875
-----------
9,089,488
-----------
CONSUMER PRODUCTS (4.4%)
28,000 Johnson & Johnson.................. 2,348,500
14,600 Philip Morris Co. Inc. ............ 781,100
11,000 Procter & Gamble Co. .............. 1,004,438
-----------
4,134,038
-----------
DRUGS (3.5%)
4,000 *Amgen Inc. ....................... 418,250
13,300 Merck & Co. Inc. .................. 1,964,244
16,600 Schering-Plough.................... 917,150
-----------
3,299,644
-----------
DURABLE GOODS (0.2%)
4,600 Gillette Co. ...................... 222,237
-----------
ELECTRICAL EQUIPMENT (2.9%)
22,000 Edison International............... 613,250
11,500 General Electric Co. .............. 1,173,719
11,900 Honeywell Inc. .................... 896,219
-----------
2,683,188
-----------
</TABLE>
<TABLE>
<CAPTION>
MARKET
SHARES COMMON STOCK VALUE
- -------------------------------------------------------------
<C> <S> <C>
ENTERTAINMENT & LEISURE (0.9%)
28,000 Disney Walt Co. ................... $ 840,000
-----------
FINANCIAL SERVICES (2.8%)
11,000 American Express Co. .............. 1,124,750
29,000 Associates First Capital Corp. CL
A................................. 1,228,875
7,000 Lehman Brothers Hldg. Inc. ........ 308,437
-----------
2,662,062
-----------
FOOD & RELATED (2.5%)
9,300 Campbell Soup Co. ................. 511,500
18,500 Coca-Cola Co. ..................... 1,237,188
22,000 Sara Lee Corp. .................... 620,125
-----------
2,368,813
-----------
FORESTRY & PAPER PRODUCTS (0.3%)
4,800 Weyerhaeuser Co. .................. 243,900
-----------
INSURANCE SERVICES (0.9%)
9,000 American Intl. Group Inc. ......... 869,625
-----------
MACHINERY (0.6%)
5,400 Caterpillar Inc. .................. 248,400
3,800 Tyco International Ltd. ........... 286,662
-----------
535,062
-----------
MEDICAL & RELATED (0.6%)
22,000 *Boston Scientific Corp. .......... 589,875
-----------
OIL, ENERGY & NATURAL GAS (3.4%)
17,700 Exxon Corp. ....................... 1,294,313
26,800 Royal Dutch Petroleum Co. ......... 1,283,050
5,200 Schlumberger Ltd. ................. 239,850
13,000 USX-Marathon Group................. 391,625
-----------
3,208,838
-----------
RESTAURANTS (0.4%)
4,500 McDonald's Corp. .................. 344,812
-----------
RETAIL (2.4%)
11,500 Dayton Hudson Corp. ............... 623,875
17,000 Home Depot Inc. ................... 1,040,188
7,500 Wal-Mart Stores Inc. .............. 610,781
-----------
2,274,844
-----------
SERVICES (0.8%)
7,900 *Kroger Co. ....................... 477,950
2,500 Xerox Corp. ....................... 295,000
-----------
772,950
-----------
TRANSPORTATION & EQUIPMENT (0.3%)
7,000 Norfolk Southern Corp. ............ 221,812
-----------
UTILITIES (0.6%)
8,500 Duke Energy Corp. ................. 544,531
-----------
TOTAL COMMON STOCKS (49.9%) (COST
$39,221,561)...................... $46,972,913
-----------
</TABLE>
(continued)
72
<PAGE> 160
OHIO NATIONAL FUND, INC.
S&P 500 INDEX PORTFOLIO (CONTINUED)
SCHEDULE OF INVESTMENTS DECEMBER 31, 1998
<TABLE>
<CAPTION>
MARKET
SHARES DEPOSITORY SHARES VALUE
- -------------------------------------------------------------
<C> <S> <C>
FINANCIAL (3.3%)
25,400 S&P 500 Depository Shares.......... $ 3,124,200
-----------
TOTAL DEPOSITORY SHARES (3.3%)
(COST $3,057,904)................. $ 3,124,200
-----------
</TABLE>
<TABLE>
<CAPTION>
FACE MARKET
AMOUNT SHORT-TERM NOTES VALUE
- -------------------------------------------------------------
<C> <S> <C>
AEROSPACE (2.7%)
$2,514,000 Allied Signal 5.750% 01/06/99...... $ 2,511,992
-----------
AUTOMOTIVE & RELATED (5.8%)
1,954,000 Ford Motor 5.280% 01/14/99......... 1,950,274
1,330,000 GM Acceptance Corp. 5.390%
01/08/99.......................... 1,328,606
2,217,000 Hertz Corp. 5.400% 01/11/99........ 2,213,675
-----------
5,492,555
-----------
COMMUNICATIONS (0.8%)
781,000 Cincinnati Bell 5.200% 01/04/99.... 780,662
-----------
FINANCIAL SERVICES (21.7%)
908,000 American Express Credit Corp.
5.180% 01/20/99................... 905,518
1,900,000 American Express Credit Corp.
5.250% 01/06/99................... 1,898,615
2,131,000 American General Financial Corp.
5.410% 01/25/99................... 2,123,314
1,490,000 Associates Corp. of N. America
5.020% 01/04/99................... 1,489,377
2,477,000 BAT Capital Corp. 5.600%
01/22/99.......................... 2,468,908
740,000 BAT Capital Corp. 5.700%
01/05/99.......................... 739,531
1,833,000 CIT Group Holding 5.330%
01/27/99.......................... 1,825,944
2,066,000 Deere & Co. 6.000% 01/04/99........ 2,064,967
</TABLE>
<TABLE>
<CAPTION>
FACE MARKET
AMOUNT SHORT-TERM NOTES VALUE
- -------------------------------------------------------------
<C> <S> <C>
FINANCIAL SERVICES, CONTINUED
$3,162,000 Heller Financial 5.500% 01/19/99... $ 3,153,304
2,038,000 Household Finance Corp. 5.330%
01/13/99.......................... 2,034,379
1,723,000 IBM Credit 5.320% 01/08/99......... 1,721,218
-----------
20,425,075
-----------
INSURANCE (8.4%)
2,757,000 AETNA Services 5.550% 01/07/99..... 2,754,450
1,558,000 Cigna Corp. 5.020% 01/05/99........ 1,557,131
1,700,000 Cigna Corp. 5.250% 01/28/99........ 1,693,306
1,926,000 Prudential Funding 5.330%
01/21/99.......................... 1,920,297
-----------
7,925,184
-----------
INDUSTRIAL SERVICES (1.6%)
1,459,000 Fluor Corp. 5.330% 01/12/99........ 1,456,624
-----------
RETAIL (2.1%)
535,000 Sears Roebuck 5.380% 01/20/99...... 533,480
1,460,000 Sears Roebuck 5.400% 01/21/99...... 1,455,620
-----------
1,989,100
-----------
UTILITIES (1.6%)
1,542,000 Dixie Pipeline 5.320% 01/15/99..... 1,538,810
-----------
TOTAL SHORT-TERM NOTES (44.7%)
(COST $42,120,002)................ $42,120,002
-----------
TOTAL HOLDINGS (97.9%)
(COST $84,399,467) (a)............ $92,217,115
-----------
CASH & RECEIVABLES, NET OF
LIABILITIES (2.1%)................ 1,940,296
-----------
TOTAL NET ASSETS (100.0%).......... $94,157,411
-----------
</TABLE>
- ---------------
* Non-income producing securities.
(a) Also represents cost for Federal income tax purposes.
The accompanying notes are an integral part of these financial statements.
73
<PAGE> 161
OHIO NATIONAL FUND, INC.
S&P 500 PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1998
<TABLE>
<S> <C>
Assets:
Investments in securities at market value
(note 1) (cost $84,399,467)............. $92,217,115
Cash in bank.............................. 960
Receivable for fund shares sold........... 1,155,976
Receivable for securities sold............ 972,913
Receivable from brokers (note 1).......... 1,989,869
Dividends and accrued interest
receivable.............................. 56,048
Other..................................... 662
-----------
Total assets............................ 96,393,543
-----------
Liabilities:
Payable for securities purchased.......... 2,199,061
Payable for investment management services
(note 3)................................ 29,274
Other accrued expenses.................... 7,797
-----------
Total liabilities....................... 2,236,132
-----------
Net assets at market value.................. $94,157,411
===========
Net assets consist of:
Par value, $1 per share................... $ 6,615,166
Paid-in capital in excess of par value.... 77,660,427
Accumulated net realized loss on
investments (note 1).................... (47,118)
Net unrealized appreciation on:
Investments (note 1).................... 7,817,648
Futures contracts (note 1).............. 2,090,500
Undistributed net investment income....... 20,788
-----------
Net assets at market value.................. $94,157,411
===========
Shares outstanding (note 4)................. 6,615,166
Net asset value per share................... $ 14.23
===========
</TABLE>
STATEMENT OF OPERATIONS
Year ended December 31, 1998
<TABLE>
<S> <C>
Investment income:
Interest.................................. $ 1,411,926
Dividends................................. 383,336
-----------
Total investment income................. 1,795,262
-----------
Expenses:
Management fees (note 3).................. 212,478
Custodian fees (note 3)................... 9,550
Directors' fees (note 3).................. 936
Professional fees......................... 4,058
Accounting and transfer agent fees........ 26,500
Other..................................... 6,401
-----------
Total expenses.......................... 259,923
-----------
Net investment income................... $ 1,535,339
-----------
Realized and unrealized gain on investments
and futures contracts:
Net realized gain from:
Investments............................. $ 292,938
Futures contracts....................... 3,661,222
Net increase in unrealized appreciation
on:
Investments............................. 7,587,930
Futures contracts....................... 1,981,175
-----------
Net gain on investments............... 13,523,265
-----------
Net increase in net assets from
operations......................... $15,058,604
===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
74
<PAGE> 162
OHIO NATIONAL FUND, INC.
S&P 500 PORTFOLIO
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
1998 1997
------------ ------------
<S> <C> <C>
From operations:
Net investment income..................................... $ 1,535,339 $ 617,994
Realized gain on investments and futures contracts........ 3,954,160 1,486,912
Unrealized gain on investments and futures contracts...... 9,569,105 339,043
------------ ------------
Net increase in net assets from operations............ 15,058,604 2,443,949
------------ ------------
Dividends and distributions to shareholders:
Dividends paid from net investment income................. (1,519,364) (613,181)
Capital gains distributions............................... (4,001,278) (1,486,912)
Capital gains distributions in excess of realized gains... 0 (108,075)
------------ ------------
Total dividends and distributions..................... (5,520,642) (2,208,168)
------------ ------------
From capital share transactions (note 4):
Received from shares sold................................. 61,751,546 20,644,767
Received from dividends reinvested........................ 5,520,642 2,208,168
Paid for shares redeemed.................................. (4,725,079) (1,016,376)
------------ ------------
Increase in net assets derived from capital share
transactions......................................... 62,547,109 21,836,559
------------ ------------
Increase in net assets............................. 72,085,071 22,072,340
------------ ------------
Net Assets:
Beginning of period....................................... 22,072,340 0
------------ ------------
End of period (a)......................................... $94,157,411 $ 22,072,340
============ ============
(a) Includes undistributed net investment income of......... $ 20,788 $ 4,813
============ ============
</TABLE>
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31,
---------------
1998 1997
------ ------
<S> <C> <C>
Per share data:
Net asset value, beginning of period........................ $11.73 $10.00
Income from investment operations:
Net investment income (loss).............................. 0.38 (0.45)
Net realized and unrealized gain (loss) on investments.... 3.09 (2.70)
------ ------
Total income (loss) from investment operations.......... 3.47 (3.15)
------ ------
Less distributions:
Dividends from net investment income...................... (0.33) (0.45)
Distributions from net realized capital gains............. (0.64) (0.91)
Distributions in excess realized capital gains............ 0.00 (0.06)
------ ------
Total distributions..................................... (0.97) (1.42)
------ ------
Net asset value, end of period.............................. $14.23 $11.73
====== ======
Total return................................................ 30.00% 31.75%
Ratios and supplemental data:
Ratio of expenses to average net assets................... 0.49% 0.52%
Ratio of net investment income to average net assets...... 2.89% 5.29%
Portfolio turnover rate..................................... 115% 445%
Net assets at end of period (millions)...................... $ 94.2 $ 22.1
</TABLE>
The accompanying notes are an integral part of these financial statements.
75
<PAGE> 163
THIS PAGE INTENTIONALLY LEFT BLANK
76
<PAGE> 164
SOCIAL AWARENESS PORTFOLIO
OHIO NATIONAL FUND, INC.
OBJECTIVE
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.
PERFORMANCE AS OF DECEMBER 31, 1998
TOTAL RETURN:
<TABLE>
<S> <C>
One-year (22.41%)
Since inception (1/3/97) (1.24%)
</TABLE>
Returns represent past performance, which is no guarantee of future results.
Investment return and principal value will vary so that shares, when redeemed,
may be worth more or less than their original cost. Actual results for variable
annuity and variable universal life contracts will be lower due to contract
charges. Consult your contract for applicable charges for mortality and
expenses.
COMMENTS
As expected, 1998 has turned out to be a volatile period for equity markets. The
magnitude of the swings, however, has been surprising. The general market peaked
in late April. In response to economic turmoil worldwide, investors sought out
highly liquid, blue chip issues and Treasury securities in a flight to quality.
As a result, small capitalization issues suffered the eighth 30%+ decline over
the past 72 years. Although markets have rebounded since early October, many
securities have yet to fully recover. As of year end, the average NASDAQ issue
remains 38% off its 52 week high and the average S&P 500 issue remains 19% off
its 52 week high.
The Social Awareness Portfolio has been hurt by the market turmoil. The fund
normally invests in a range of large, medium and small capitalization issues.
Cash positions were slightly over 10% at the end of April. The cash was invested
gradually over the next several months, only to feel the brunt of the selloff in
August and early October. Issues that normally sell between 15 to 17 times
earnings, or in line with estimated future growth rates, sold for 10 times
earnings at the end of the third quarter. For the year, positive results from
technology and transportation issues were offset by weakness in other areas,
most notably capital goods and energy holdings.
In conclusion, markets in 1999 will still experience volatility. Economic
conditions world wide are uncertain, but look to be mending. Expectations for
corporate profitability could also be too high. We are hopeful smaller and
medium capitalization issues will recover to reasonable valuation levels.
Clearly, short term results for the Social Awareness Portfolio have been
unacceptable. However, prospects remain solid and we are taking some measures
which would mitigate some of the fluctuations experienced during the past year.
CHANGE IN VALUE OF $10,000 INVESTMENT
[GRAPH]
Hypothetical illustration based on past performance. Future performance will
vary. All returns reflect reinvested dividends. The portfolio's holdings may
differ significantly from the securities in the index. The index is unmanaged
and therefore does not reflect the cost of portfolio management or trading.
Neither the portfolio nor the index is open to direct investment.
TOP 10 HOLDINGS AS OF DECEMBER 31, 1998
<TABLE>
<CAPTION>
% of Net Assets
<C> <S> <C>
1. LoJack Corp 5.2
2. Boise Cascade 4.8
3. Louis Dreyfus Natural Gas 4.4
4. Weyerhaeuser 3.7
5. Reynolds & Reynolds 3.5
6. Alternative Resource 3.4
7. Foundation Health 3.0
8. Source Information Mgmt. Co 2.9
9. Manpower 2.7
10. Recycling Industries Inc 2.7
</TABLE>
TOP 5 INDUSTRIES AS OF DECEMBER 31, 1998
<TABLE>
<CAPTION>
% of Net Assets
<S> <C>
Oil, Energy, and Natural Gas 17.9
Business Services 17.7
Forestry and Paper Products 8.2
Medical & Related 6.9
Industrial Services 6.6
</TABLE>
77
<PAGE> 165
OHIO NATIONAL FUND, INC.
SOCIAL AWARENESS PORTFOLIO
SCHEDULE OF INVESTMENTS DECEMBER 31, 1998
<TABLE>
<CAPTION>
MARKET
SHARES COMMON STOCK VALUE
- -------------------------------------------------------------
<C> <S> <C>
BANKING (1.6%)
12,000 Investors Bancorp..................... $ 106,500
----------
BUSINESS SERVICES (17.7%)
21,000 *Alternative Resource................. 223,125
29,000 *LoJack Corp.......................... 344,375
7,000 Manpower.............................. 176,312
16,500 *Source Information Mgmt. Co.......... 191,813
10,000 Reynolds & Reynolds................... 229,375
----------
1,165,000
----------
CHEMICALS (2.3%)
5,600 Hercules Inc.......................... 153,300
----------
COMPUTER & RELATED (5.9%)
12,300 *Electronic Processing Inc............ 123,000
9,400 *Mapinfo.............................. 145,700
9,500 *Rand A Tech. Canada Mutual Fund...... 120,694
----------
389,394
----------
CONSUMER PRODUCTS (5.5%)
6,900 Polaroid.............................. 128,944
6,800 *Sola International................... 117,300
7,100 Tupperware............................ 116,706
----------
362,950
----------
ELECTRICAL EQUIPMENT (4.8%)
7,400 *Anixter International................ 150,313
3,800 CTS Corporation....................... 165,300
----------
315,613
----------
FINANCIAL SERVICES (2.3%)
20,000 Thronburg Mortgage Asset.............. 152,500
----------
FOOD & RELATED (1.8%)
4,300 *Specialty Equipment.................. 116,369
----------
FORESTRY & PAPER PRODUCTS (8.2%)
9,500 Boise Cascade......................... 294,500
4,800 Weyerhaeuser Co....................... 243,900
----------
538,400
----------
HOTEL/LODGING (1.6%)
8,700 *Guest Supply......................... 103,856
----------
HOUSING, FURNITURE & RELATED (2.6%)
12,500 Clayton Homes Inc..................... 172,656
----------
INDUSTRIAL SERVICES (6.6%)
6,300 IMCO Recycling........................ 97,256
34,700 *Medar Inc............................ 39,038
4,400 Millipore Corp........................ 125,125
175,000 *Recycling Industries Inc............. 175,000
----------
436,419
----------
</TABLE>
<TABLE>
<CAPTION>
MARKET
SHARES COMMON STOCK VALUE
- -------------------------------------------------------------
<C> <S> <C>
METALS & MINING (4.1%)
5,600 *Wolverine Tube Inc................... $ 117,600
12,400 Worthington Industries................ 155,000
----------
272,600
----------
MEDICAL & RELATED (6.9%)
10,000 *Capital Senior Living Corp. ......... 139,375
16,710 *Foundation Health.................... 199,476
5,000 *Quorum Health........................ 64,687
3,000 *Stericycle Inc....................... 48,375
----------
451,913
----------
OIL, ENERGY & NATURAL GAS (17.9%)
4,000 Kerr Mc Gee........................... 153,000
20,500 *Louis Dreyfus Natural Gas............ 292,125
18,500 *Matrix Service Co.................... 87,875
25,000 *Meridian Resource Corp............... 79,688
225,000 *Newstar Resources.................... 77,344
7,000 *Offshore Logistics................... 83,125
21,900 *Santa Fe Energy Resources............ 161,512
13,500 *Seim Industries Inc. (Norex)......... 106,669
5,100 Transocean Offshore................... 136,743
----------
1,178,081
----------
REAL ESTATE & LEASING (2.0%)
14,000 Bando McGlocklin Capital Corp......... 134,750
----------
RESTAURANTS (2.1%)
11,700 *Buffets.............................. 139,669
----------
TRANSPORTATION & EQUIPMENT (2.2%)
3,000 *Atlas Air Inc........................ 146,812
----------
TOTAL COMMON STOCK (96.1%) (COST
$7,633,764).......................... $6,336,782
----------
</TABLE>
<TABLE>
<CAPTION>
MARKET
SHARES PREFERRED STOCK VALUE
- -------------------------------------------------------------
<C> <S> <C>
METALS & MINING (2.2%)
9,800 Freeport McMoran Copper & Gold........ $ 145,775
----------
TOTAL PREFERRED STOCK (2.2%) (COST
$243,389)............................ $ 145,775
----------
</TABLE>
<TABLE>
<CAPTION>
FACE MARKET
AMOUNT LONG-TERM BONDS & NOTES VALUE
- -------------------------------------------------------------
<C> <S> <C>
INDUSTRIAL SERVICES (0.4%)
$ 25,000 Medar Inc. Sr. Sub. Notes 12.950%
06/30/05............................. $ 25,000
----------
TOTAL LONG-TERM BONDS & NOTES (0.4%)
(COST $22,850)....................... $ 25,000
----------
</TABLE>
(continued)
78
<PAGE> 166
OHIO NATIONAL FUND, INC.
SOCIAL AWARENESS PORTFOLIO (CONTINUED)
SCHEDULE OF INVESTMENTS DECEMBER 31, 1998
<TABLE>
<CAPTION>
FACE MARKET
AMOUNT SHORT-TERM NOTES VALUE
- -------------------------------------------------------------
<C> <S> <C>
FINANCIAL SERVICES (1.6%)
$107,000 GE Capital 4.700% 01/04/99............ $ 106,958
----------
TOTAL SHORT-TERM NOTES (1.6%) (COST
$106,958)............................ $ 106,958
----------
TOTAL HOLDINGS (100.3%) (COST
$8,006,961) (A)...................... $6,614,515
----------
CASH & RECEIVABLES, NET OF LIABILITIES
(-0.3%).............................. (23,248)
----------
TOTAL NET ASSETS (100.0%)............. $6,591,267
----------
</TABLE>
- ---------------
* Non-income producing securities.
(a) Also represents cost for Federal income tax purposes.
The accompanying notes are an integral part of these financial statements.
79
<PAGE> 167
OHIO NATIONAL FUND, INC.
SOCIAL AWARENESS PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES
December 31,1998
<TABLE>
<S> <C>
Assets:
Investments in securities at market value
(note 1) (cost $8,006,961)............... $ 6,614,515
Cash in bank............................... 348
Receivable for securities sold............. 23,749
Receivable for fund shares sold............ 681
Dividends and accrued interest
receivable............................... 7,530
-----------
Total assets............................. 6,646,823
-----------
Liabilities:
Payable for shares purchased............... 10,672
Payable for shares redeemed................ 37,049
Payable for investment management services
(note 3)................................. 3,234
Other accrued expenses..................... 4,601
-----------
Total liabilities........................ 55,556
-----------
Net assets at market value................... $ 6,591,267
===========
Net assets consist of:
Par value, $1 per share.................... $ 749,078
Paid-in capital in excess of par value..... 7,856,655
Accumulated net realized loss on
investments (note 1)..................... (622,020)
Net unrealized depreciation on investments
(note 1)................................. (1,392,446)
-----------
Net assets at market value................... $ 6,591,267
===========
Shares outstanding (note 4).................. 749,078
Net asset value per share.................... $ 8.80
===========
</TABLE>
STATEMENT OF OPERATIONS
Year ended December 31, 1998
<TABLE>
<S> <C>
Investment income:
Interest.................................. $ 20,757
Dividends................................. 69,258
-----------
Total investment income................. 90,015
-----------
Expenses:
Management fees (note 3).................. 40,259
Custodian fees (note 3)................... 5,065
Directors' fees (note 3).................. 199
Professional fees......................... 861
Accounting and transfer agent fees........ 5,622
Other..................................... 1,371
-----------
Total expenses.......................... 53,377
-----------
Net investment income................... $ 36,638
-----------
Realized and unrealized gain on investments:
Net realized loss from investments........ $ (622,020)
Net increase in unrealized depreciation on
investments............................. (1,498,903)
-----------
Net loss on investments................. (2,120,923)
-----------
Net decrease in net assets from
operations............................ $(2,084,285)
===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
80
<PAGE> 168
OHIO NATIONAL FUND, INC.
SOCIAL AWARENESS PORTFOLIO
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
1998 1997
------------ ------------
<S> <C> <C>
From operations:
Net investment income..................................... $ 36,638 $ 21,619
Realized gain (loss) on investments....................... (622,020) 406,600
Unrealized gain (loss) on investments..................... (1,498,903) 106,457
----------- ----------
Net increase (decrease) in net assets from
operations........................................... (2,084,285) 534,676
----------- ----------
Dividends and distributions to shareholders:
Dividends paid from net investment income................. (36,718) (21,672)
Capital gains distributions............................... 0 (406,600)
----------- ----------
Total dividends and distributions..................... (36,718) (428,272)
----------- ----------
From capital share transactions (note 4):
Received from shares sold................................. 5,521,237 4,461,187
Received from dividends reinvested........................ 36,718 428,272
Paid for shares redeemed.................................. (1,687,515) (154,033)
----------- ----------
Increase in net assets derived from capital share
transactions......................................... 3,870,440 4,735,426
----------- ----------
Increase in net assets............................. 1,749,437 4,841,830
Net Assets:
Beginning of period....................................... 4,841,830 0
----------- ----------
End of period............................................. $ 6,591,267 $4,841,830
=========== ==========
</TABLE>
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31,
------------------
1998 1997
------- ------
<S> <C> <C>
Per share data:
Net asset value, beginning of period........................ $ 11.40 $10.00
Income from investment operations:
Net investment income..................................... 0.05 0.09
Net realized and unrealized gain (loss) on investments.... (2.60) 2.47
------- ------
Total income (loss) from investment operations.......... (2.55) 2.56
------- ------
Less distributions:
Dividends from net investment income...................... (0.05) (0.07)
Distributions from net realized capital gains............. 0.00 (1.09)
------- ------
Total distributions..................................... (0.05) (1.16)
------- ------
Net asset value, end of period.............................. $ 8.80 $11.40
======= ======
Total return................................................ (22.41)% 25.63%
Ratios and supplemental data:
Ratio of expenses to average net assets................... 0.81% 0.95%
Ratio of net investment income to average net assets...... 0.55% 0.75%
Portfolio turnover rate..................................... 71% 40%
Net assets at end of period (millions)...................... $ 6.6 $ 4.8
</TABLE>
The accompanying notes are an integral part of these financial statements.
81
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THIS PAGE INTENTIONALLY LEFT BLANK
82
<PAGE> 170
STRATEGIC INCOME PORTFOLIO
OHIO NATIONAL FUND, INC.
OBJECTIVE
The Strategic Income Portfolio seeks to generate high current income by
investing at least 80% of its assets in income-producing securities, including
at least 40% of assets in a core group of U.S. government and corporate
fixed-income securities, and the remainder in other income-producing securities.
PERFORMANCE AS OF DECEMBER 31, 1998
TOTAL RETURN:
<TABLE>
<S> <C>
One-year (1.42%)
Since inception (1/3/97) 3.55%
</TABLE>
Returns represent past performance, which is no guarantee of future results.
Investment return and principal value will vary so that shares, when redeemed,
may be worth more or less than their original cost. Actual results for variable
annuity and variable universal life contracts will be lower due to contract
charges. Consult your contract for applicable charges for mortality and
expenses.
COMMENTS
The Strategic Income Fund has always been an interesting product. Its concept is
unique and our approach conservative in pursuing a high level of income. Last
year was successful in terms of maintaining a high-income stream and low NAV
volatility. Unfortunately, market dislocations resulted in a negative total
return in a calendar year. What happened and how are we reacting? Simply stated,
international turmoil resulted in a "crisis of confidence" that drove investors
away from risky assets into the safety of U.S. Treasury securities. Yields
declined dramatically for Treasury notes, but only slightly for corporates and
mbs's. At the peak of despair, corporate bond valuations were priced as if a
recession was raging and defaults imminent.
Our fixed income outlook for 1999 includes the following key points: Positive
economic growth (2% to 3% for the year) and mild inflation pressures (2%); Bond
yields remaining within a 4.5% to 5.5% range; Federal Reserve to lower key
short-term rates 25-75 basis points; and improving market liquidity. We also
believe REIT's offer tremendous value as evidenced by P/E's close to 10X and
revenue growth for most operations are expected to top 8% in 1999.
CHANGE IN VALUE OF $10,000 INVESTMENT
[STRATEGIC INCOME PORTFOLIO CHART]
Hypothetical illustration based on past performance. Future performance will
vary. All returns reflect reinvested dividends. The portfolio's holdings may
differ significantly from the securities in the index. The index is unmanaged
and therefore does not reflect the cost of portfolio management or trading.
Neither the portfolio nor the index is open to direct investment.
TOP 10 HOLDINGS AS OF DECEMBER 31, 1998
<TABLE>
<CAPTION>
% of Net Assets
<C> <S> <C>
1. GNMA 7.00% 02/15/28 4.5
2. Occidental Petroleum 10.125%
09/15/09 3.1
3. NB Cap Trust 8.25% 04/15/27 2.8
4. Norfolk Southern Corp 7.70%
05/15/17 2.8
5. Zurich Cap Trust 8.376% 06/01/37 2.8
6. ABM-AMRO Bank N.V. 7.75%
05/15/23 2.7
7. Lockheed Corp 7.875% 03/15/23 2.7
8. Sears Roebuck Accep. Global
7.00% 06/15/07 2.7
9. Noble Affiliates 8.00% 04/01/27 2.6
10. Phillip Morris 7.125% 08/15/02 2.6
</TABLE>
TOP 5 INDUSTRIES AS OF DECEMBER 31, 1998
<TABLE>
<CAPTION>
% of Net Assets
<S> <C>
US Government 19.6
Financial Services 14.0
REIT's 13.2
Oil, Energy, and Natural Gas 10.5
Banking 7.8
</TABLE>
83
<PAGE> 171
OHIO NATIONAL FUND, INC.
STRATEGIC INCOME PORTFOLIO
SCHEDULE OF INVESTMENTS DECEMBER 31, 1998
<TABLE>
<CAPTION>
FACE MARKET
AMOUNT LONG-TERM BONDS & NOTES VALUE
- -------------------------------------------------------------
<C> <S> <C>
GOVERNMENT (19.6%)
$ 89,864 FNMA 7.500% 09/01/28.................. $ 92,364
100,000 FNMA 6.500% 04/18/25.................. 101,515
88,887 FNMA 9.000% 04/01/16.................. 94,053
79,100 FNMA 7.000% 09/01/27.................. 80,732
55,066 FNMA 7.500% 07/15/21.................. 55,744
101,447 FNMA 7.500% 10/01/24.................. 104,268
75,052 GNMA 7.500% 06/15/27.................. 77,468
175,955 GNMA 7.000% 02/15/28.................. 180,189
----------
786,333
----------
BANKING (7.8%)
100,000 ABM-AMRO Bank N.V. 7.750% 05/15/23.... 110,544
75,000 Banc One Corp. 8.000% 04/29/27........ 90,067
100,000 Nations Bank Capital Trust 8.250%
04/15/27............................. 113,927
----------
314,538
----------
COMPUTER & RELATED (2.1%)
80,000 IBM Corp. 6.500% 01/15/28............. 84,694
----------
CONSUMER PRODUCTS (2.6%)
100,000 Phillip Morris Co. 7.125% 08/15/02.... 104,932
----------
FINANCIAL SERVICES (8.0%)
100,000 Lehman Brothers Holdings 7.125%
09/15/03............................. 102,611
100,000 Merrill Lynch & Co. NT 7.000%
04/27/08............................. 106,744
100,000 Zurich Capital Trust (144A) 8.376%
06/01/37............................. 111,391
----------
320,746
----------
FORESTRY & PAPER PRODUCTS (0.8%)
30,000 International Paper Co. 7.625%
01/15/07............................. 32,657
----------
INDUSTRIAL SERVICES (3.3%)
25,000 Fort James Corp. NT 6.625% 09/15/04... 25,673
100,000 Lockheed Corp. NT 7.875% 03/15/23..... 107,256
----------
132,929
----------
OIL, ENERGY & NATURAL GAS (8.1%)
100,000 Noble Affiliates, Inc. 8.000%
04/01/27............................. 105,723
100,000 Occidental Petroleum 10.125%
09/15/09............................. 125,103
75,000 Transcanada Pipeline 9.875%
01/01/21............................. 96,193
----------
327,019
----------
REAL ESTATE & LEASING (4.8%)
95,000 Meditrust NT 7.600% 07/15/01.......... 91,130
100,000 Spieker Properties Inc. 7.125
12/01/06............................. 100,622
----------
191,752
----------
RETAIL (4.6%)
75,000 JC Penney Inc. 9.450% 07/15/02........ 78,748
100,000 Sears Roebuck Acceptance Global 7.000%
06/15/07............................. 107,143
----------
185,891
----------
TRANSPORTATION & EQUIPMENT (2.8%)
100,000 Norfolk Southern Corp. 7.700%
05/15/17............................. 113,825
----------
</TABLE>
<TABLE>
<CAPTION>
FACE MARKET
AMOUNT LONG-TERM BONDS & NOTES VALUE
- -------------------------------------------------------------
<C> <S> <C>
UTILITIES (4.0%)
$100,000 Duke Power Co. 7.875% 05/01/24........ $ 104,276
50,000 GTE Corp. 7.830% 05/01/23............. 54,732
----------
159,008
----------
TOTAL LONG-TERM BONDS & NOTES (68.5%)
(COST $2,709,523).................... $2,754,324
----------
</TABLE>
<TABLE>
<CAPTION>
MARKET
SHARES REAL ESTATE INVESTMENT TRUSTS VALUE
- -------------------------------------------------------------
<C> <S> <C>
1,000 American Health Properties Inc........ $ 20,625
1,375 Glimcher Realty Trust SBI............. 21,570
603 Healthcare Realty Trust Inc........... 13,454
1,000 Highwoods Properties Inc.............. 25,750
190 Hospitality Properties Trust.......... 4,584
2,700 IMPAC Mortgage Holdings............... 12,319
358 LTC Healthcare Inc.................... 940
3,581 LTC Properties Inc.................... 59,534
1,750 Meditrust............................. 26,469
2,500 National Health Investors Inc......... 61,719
3,300 Omega Healthcare Investments Inc...... 99,619
644 Pennsylvania Real Estate Invs......... 12,518
3,400 Summit Properties Inc................. 58,650
4,994 Thornburg Mtg. Asset Corp............. 38,079
3,000 Town & Country Trust.................. 48,187
6,600 Winston Hotels Inc.................... 54,037
----------
558,054
----------
TOTAL REAL ESTATE INVEST. TRUSTS
(13.9%) (COST $763,852).............. $ 558,054
----------
</TABLE>
<TABLE>
<CAPTION>
MARKET
SHARES CLOSED-END INVESTMENT COMPANIES VALUE
- -------------------------------------------------------------
<C> <S> <C>
6,900 First Commonwealth Fund Inc........... $ 73,744
11,000 Kleinworth Benson Australian Fund..... 72,187
----------
145,931
----------
TOTAL INVESTMENT COMPANIES (3.6%)
(COST $184,077)...................... $ 145,931
----------
</TABLE>
<TABLE>
<CAPTION>
MARKET
SHARES COMMON STOCK VALUE
- -------------------------------------------------------------
<C> <S> <C>
HOTEL/LODGING (1.2%)
4,000 RFS Hotels Invs. Inc.................. $ 49,000
----------
OIL, ENERGY & NATURAL GAS (0.4%)
1,000 Occidental Pete. Corp................. 16,876
----------
TOTAL COMMON STOCK (1.6%) (COST
$66,997)............................. $ 65,876
----------
</TABLE>
(continued)
84
<PAGE> 172
OHIO NATIONAL FUND, INC.
STRATEGIC INCOME PORTFOLIO (CONTINUED)
SCHEDULE OF INVESTMENTS DECEMBER 31, 1998
<TABLE>
<CAPTION>
MARKET
SHARES PREFERRED STOCK VALUE
- -------------------------------------------------------------
<C> <S> <C>
FINANCIAL SERVICES (3.6%)
2,500 Citigroup Cap I...................... $ 64,219
3,000 PLC Capital Trust I 8.25%............ 78,562
-----------
142,781
-----------
OIL, ENERGY & NATURAL GAS (1.9%)
3,000 Enron Capital Trust I 8.3%........... 76,688
-----------
REAL ESTATE & LEASING (1.6%)
2,500 Kimco Realty Corp. 8.5%.............. 63,437
-----------
UTILITIES (1.6%)
2,500 Detroit Edison Co. 7.375%............ 62,656
-----------
TOTAL PREFERRED STOCK (8.6%)
(COST $343,149)..................... $ 345,562
-----------
</TABLE>
<TABLE>
<CAPTION>
FACE MARKET
AMOUNT REPURCHASE AGREEMENTS VALUE
- -------------------------------------------------------------
<C> <S> <C>
FINANCIAL (2.7%)
$107,000 Star Bank 3.50% due 01/04/99
repurchase price 107,042
collateralized by GNMA certificates
pool #8375 due 02/20/24 (Cost
$107,000)........................... $ 107,000
-----------
TOTAL REPURCHASE AGREEMENTS (2.7%)
(COST $107,000)..................... $ 107,000
-----------
TOTAL HOLDINGS (98.9%)
(COST $4,174,598) (a)............... $ 3,976,747
-----------
CASH & RECEIVABLES, NET OF
LIABILITIES (1.1%).................. 42,766
-----------
TOTAL NET ASSETS (100.0%)............ $ 4,019,513
===========
</TABLE>
- ---------------
(a) Also represents cost for Federal income tax purposes.
(144A) Security exempt from registration under Rule 144A of the Securities Act
of 1933. These Securities may be resold in transactions exempt from
registration, normally to qualified buyers. At the period end, the value
of these securities amounted to $111,391 or 2.8% of net assets. These
securities were deemed liquid pursuant to procedures approved by the
Board of Directors.
The accompanying notes are an integral part of these financial statements.
85
<PAGE> 173
OHIO NATIONAL FUND, INC.
STRATEGIC INCOME PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1998
<TABLE>
<S> <C>
Assets:
Investments in securities at market value
(note 1) (cost $4,174,598)............... $ 3,976,747
Cash in bank............................... 303
Dividends and accrued interest
receivable............................... 52,700
-----------
Total assets............................. 4,029,750
-----------
Liabilities:
Payable for shares redeemed................ 75
Payable for investment management services
(note 3)................................. 2,736
Other accrued expenses..................... 7,426
-----------
Total liabilities........................ 10,237
-----------
Net assets at market value................... $ 4,019,513
===========
Net assets consist of:
Par value, $1 per share.................... $ 430,177
Paid-in capital in excess of par value..... 3,884,217
Accumulated net realized loss on
investments (note 1)..................... (97,030)
Net unrealized depreciation on investments
(note 1)................................. (197,851)
-----------
Net assets at market value................... $ 4,019,513
===========
Shares outstanding (note 4).................. 430,177
Net asset value per share.................... $ 9.34
===========
</TABLE>
STATEMENT OF OPERATIONS
Year ended December 31, 1998
<TABLE>
<S> <C>
Investment income:
Interest.................................... $ 179,398
Dividends................................... 134,171
---------
Total investment income................... 313,569
---------
Expenses:
Management fees (note 3).................... 30,384
Custodian fees (note 3)..................... 4,825
Directors' fees (note 3).................... 269
Professional fees........................... 737
Accounting and transfer agent fees.......... 7,256
Other....................................... 1,231
---------
Total expenses............................ 44,702
---------
Net investment income..................... $ 268,867
---------
Realized and unrealized loss on investments:
Net realized loss from investments.......... $ (97,030)
Net increase in unrealized depreciation on
investments............................... (230,070)
---------
Net loss on investments................... (327,100)
---------
Net decrease in net assets from
operations.............................. $ (58,233)
=========
</TABLE>
The accompanying notes are an integral part of these financial statements.
86
<PAGE> 174
OHIO NATIONAL FUND, INC.
STRATEGIC INCOME PORTFOLIO
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
1998 1997
------------ ------------
<S> <C> <C>
From operations:
Net investment income..................................... $ 268,867 $ 166,446
Realized gain (loss) on investments....................... (97,030) 3,690
Unrealized gain (loss) on investments..................... (230,070) 32,219
----------- ----------
Net increase in net assets from operations............ (58,233) 202,355
----------- ----------
Dividends and distributions to shareholders:
Dividends paid from net investment income................. (269,685) (165,770)
Capital gains distributions............................... (1,157) (2,533)
----------- ----------
Total dividends and distributions..................... (270,842) (168,303)
----------- ----------
From capital share transactions (note 4):
Received from shares sold................................. 1,160,301 3,110,382
Received from dividends reinvested........................ 270,842 168,303
Paid for shares redeemed.................................. (333,046) (62,246)
----------- ----------
Increase in net assets derived from capital share
transactions......................................... 1,098,097 3,216,439
----------- ----------
Increase in net assets............................. 769,022 3,205,491
Net Assets:
Beginning of period....................................... 3,250,491 0
----------- ----------
End of period (a)......................................... $ 4,019,513 $3,205,491
=========== ==========
(a) Includes undistributed net investment income of......... $ 0 $ 676
=========== ==========
</TABLE>
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31,
------------------
1998 1997
------ ------
<S> <C> <C>
Per share data:
Net asset value, beginning of period........................ $10.16 $10.00
Income from investment operations:
Net investment income..................................... 0.68 0.71
Net realized and unrealized gain (loss) on investments.... (0.82) 0.13
------ ------
Total income (loss) from investment operations.......... (0.14) 0.84
------ ------
Less distributions:
Dividends from net investment income...................... (0.68) (0.67)
Distributions from net realized capital gains............. 0.00 (0.01)
------ ------
Total distributions..................................... (0.68) (0.68)
------ ------
Net asset value, end of period.............................. $ 9.34 $10.16
====== ======
Total return................................................ (1.42)% 8.74%
Ratios and supplemental data:
Ratio of expenses to average net assets................... 1.18% 1.30%
Ratio of net investment income to average net assets...... 7.12% 7.04%
Portfolio turnover rate..................................... 104% 102%
Net assets at end of period (millions)...................... $ 4.0 $ 3.2
</TABLE>
The accompanying notes are an integral part of these financial statements.
87
<PAGE> 175
THIS PAGE INTENTIONALLY LEFT BLANK
88
<PAGE> 176
STELLAR PORTFOLIO
OHIO NATIONAL FUND, INC.
OBJECTIVE
The Stellar Portfolio seeks to maximize total return by investing approximately
15% to 25% of its assets in each of the following categories: domestic equities,
domestic bonds, foreign securities, real estate securities, and precious metal
and/or money market securities.
PERFORMANCE AS OF DECEMBER 31, 1998
TOTAL RETURN:
<TABLE>
<S> <C>
One-year 2.92%
Since inception (1/3/97) 6.28%
</TABLE>
Returns represent past performance, which is no guarantee of future results.
Investment return and principal value will vary so that shares, when redeemed,
may be worth more or less than their original cost. Actual results for variable
annuity and variable universal life contracts will be lower due to contract
charges. Consult your contract for applicable charges for mortality and
expenses.
COMMENTS
The prevailing market conditions were ideal for investors in the Stellar
portfolio. The Fund insulated shareholders from much of the volatility in equity
prices, while benefiting in performance terms from the rally in bond prices. The
REIT portfolio suffered the most severe damage during the second and third
quarters, due principally to a change in the tax code and slowing growth for the
group. The domestic equity portfolio was the most volatile and rewarding. The
key to success in the U.S. was the decision to focus on large capitalization
growth companies. This subset of the market moved to higher valuation levels
throughout the year, as investors became more and more concerned about a decline
in revenue growth.
Investor expectations for 1999 are still out of line with reality. As we have
seen thus far in 1998, the market reacts violently to disappointments and tends
to overreact in both the positive and negative. We believe that the market must
adjust expectations for earnings growth in 1999 to reflect the slowing
manufacturing activity and the rising costs in the services sector, but still
positive year over year growth.
CHANGE IN VALUE OF $10,000 INVESTMENT
[GRAPH]
Hypothetical illustration based on past performance. Future performance will
vary. All returns reflect reinvested dividends. The portfolio's holdings may
differ significantly from the securities in the index. The index is unmanaged
and therefore does not reflect the cost of portfolio management or trading.
Neither the portfolio nor the index is open to direct investment.
TOP 10 HOLDINGS AS OF DECEMBER 31, 1998
<TABLE>
<CAPTION>
% of Net Assets
<C> <S> <C>
1. FNMA Med Term NT 6.03% 05/07/01 4.7
2. Mack Cali Realty Corp 3.8
3. Kimco Realty Corp 3.7
4. FJLMC 7.92% 06/29/11 3.7
5. FNMA 6.21% 11/07/07 3.0
6. Catellus Development 2.2
7. GNMA Pool 447728 7.50% 06/15/27 2.1
8. BRE Properties CL A 2.1
9. Vornado Realty Trust 2.1
10. New Plan Excel Realty Trust 2.0
</TABLE>
TOP 5 INDUSTRIES AS OF DECEMBER 31, 1998
<TABLE>
<CAPTION>
% of Net Assets
<S> <C>
REIT's 20.9
CMO's 13.5
Closed-End Investment Companies 9.3
Computer and Related 3.5
Oil, Energy, and Natural Gas 3.5
</TABLE>
89
<PAGE> 177
OHIO NATIONAL FUND, INC.
STELLAR PORTFOLIO
SCHEDULE OF INVESTMENTS DECEMBER 31, 1998
<TABLE>
<CAPTION>
MARKET
SHARES U.S. COMMON STOCK VALUE
- -------------------------------------------------------------
<C> <S> <C>
AEROSPACE (0.3%)
200 Comair Holdings Inc. .............. $ 6,750
100 *Continental Airlines CL B......... 3,350
-----------
10,100
-----------
AUTOMOTIVE & RELATED (0.2%)
200 Paccar Inc. ....................... 8,225
-----------
BANKING (1.1%)
127 Bank One Corp. .................... 6,485
200 Bankboston Corp. .................. 7,787
220 Charter One Financial Inc. ........ 6,105
200 Fleet Financial.................... 8,938
80 Texas Regl Bancshare Inc. CL A..... 2,005
200 Wells Fargo Co. ................... 7,987
-----------
39,307
-----------
BUSINESS SERVICES (0.6%)
200 *American Mgmt. Systems Inc. ...... 8,000
150 Deluxe Corp. ...................... 5,484
200 *Fiserv Inc. ...................... 10,288
-----------
23,772
-----------
CHEMICALS (0.1%)
125 Lyondell Petro Chemical Co. ....... 2,250
-----------
COMMUNICATIONS (0.4%)
187 *MCI Worldcom Inc. ................ 13,387
-----------
COMPUTER & RELATED (3.5%)
200 *Cisco Systems Inc. ............... 18,563
200 Computer Sciences Corp. ........... 12,887
200 *EMC Corp. ........................ 17,000
100 Honeywell Inc. .................... 7,531
150 Intel Corp. ....................... 17,784
100 *Lexmark Intl. Group Inc. CL A..... 10,050
100 *Microsoft Corp. .................. 13,869
200 *Network Associates Inc. .......... 13,250
200 *Sun Microsystems Inc. ............ 17,125
-----------
128,059
-----------
CONSUMER PRODUCTS (0.1%)
100 Gillette Co. ...................... 4,831
-----------
DRUGS (0.8%)
125 Warner Lambert Co. ................ 9,398
300 *Waston Pharmaceuticals Inc........ 18,863
-----------
28,261
-----------
ELECTRICAL EQUIPMENT (0.4%)
225 *Benchmark Electronics Inc......... 8,241
100 Johnson Controls Inc. ............. 5,900
-----------
14,141
-----------
ENTERTAINMENT & LEISURE (0.2%)
200 The Walt Disney Co. ............... 6,000
-----------
</TABLE>
<TABLE>
<CAPTION>
MARKET
SHARES U.S. COMMON STOCK VALUE
- ---------------------------------------------------------------
<C> <S> <C>
FINANCIAL SERVICES (1.2 %)
100 American Express Co. ................ $ 10,225
200 Associates First Capital CL A........ 8,475
200 Fannie Mae-Federal National Mgmt. ... 14,800
150 Morgan Stanley Dean Witter & Co. .... 10,650
-----------
44,150
-----------
FOOD & RELATED (0.4%)
300 Flemming Cos......................... 3,112
150 Pepsico Inc. ........................ 6,141
200 Sara Lee Corp. ...................... 5,638
-----------
14,891
-----------
HOUSING, FURNITURE & RELATED (0.7%)
275 *American Homestar Corp. ............ 4,125
650 *International Comfort Products...... 5,200
300 Parker Hannifin Corp. ............... 9,825
219 *Palm HBR Homes Inc.................. 5,516
-----------
24,666
-----------
INDUSTRIAL SERVICES (0.3%)
260 Ecolab Inc........................... 9,409
-----------
INSURANCE SERVICES (0.8%)
100 Allmerica Financial Corp. ........... 5,788
100 American Intl. Group................. 9,663
112 AON Corp. ........................... 6,202
150 ITT Hartford......................... 8,231
-----------
29,884
-----------
MEDICAL & RELATED (1.0%)
200 Allegiance Corp. .................... 9,325
150 Guidant Corp. ....................... 16,538
300 *Quorum Health Group................. 3,881
225 *Tenet Healthcare Corp. ............. 5,906
-----------
35,650
-----------
METAL & MINING (0.2%)
100 Aluminum Co. America................. 7,456
-----------
OIL, ENERGY & NATURAL GAS (1.6%)
500 *BJ Services Co. .................... 7,813
200 Coastal Corp. ....................... 6,988
100 Diamond Offshore Drilling............ 2,369
200 Ensco International Inc. ............ 2,137
300 *Global Marine Inc. ................. 2,756
100 Mobil Corp. ......................... 8,712
200 Schlumberger Ltd..................... 9,225
250 Tosco Corp. ......................... 6,469
200 Texaco Inc. ......................... 10,575
-----------
57,044
-----------
REAL ESTATE & LEASING (2.4%)
5,500 *Catellus Development Corp. ......... 78,719
275 D R Horton Inc. ..................... 6,325
110 *Vornado Operating Inc. ............. 887
-----------
85,931
-----------
</TABLE>
(continued)
90
<PAGE> 178
OHIO NATIONAL FUND, INC.
STELLAR PORTFOLIO (CONTINUED)
SCHEDULE OF INVESTMENTS DECEMBER 31, 1998
<TABLE>
<CAPTION>
MARKET
SHARES U.S. COMMON STOCK VALUE
- ---------------------------------------------------------------
<C> <S> <C>
RETAIL (1.5%)
200 American Stores Co. ................. $ 7,388
250 Dayton Hudson Corp. ................. 13,563
150 Gap Inc.............................. 8,437
200 *Kohls Corp. ........................ 12,287
250 Lowe's Cos........................... 12,797
-----------
54,472
-----------
UTILITIES (0.2%)
75 General Electric Co. ................ 7,653
-----------
TOTAL COMMON STOCK (18.0%)
(COST $521,946)..................... $ 649,539
-----------
</TABLE>
<TABLE>
<CAPTION>
MARKET
SHARES REAL ESTATE INVESTMENT TRUSTS VALUE
- -------------------------------------------------------------
<C> <S> <C>
1,800 Apartment Inv.. & Mgmt. Co. CL
A................................ $ 66,938
3,000 BRE Properties CL A............... 74,250
3,250 Brandywine Realty Trust........... 58,094
2,500 Glenborough Realty Trust Inc...... 50,937
3,400 Kimco Realty Corp. ............... 134,938
3,400 Kroger Equity Inc. ............... 58,437
4,425 Mack Cali Realty Corp. ........... 136,622
400 Manufactured Home Communities..... 10,025
3,200 New Plan Excel Realty Trust....... 71,000
800 Reckson Assoc. Realty Corp. ...... 17,750
2,400 US Restaurants Properties......... 58,350
2,200 Vornado Realty Trust.............. 74,250
------------
TOTAL REAL ESTATE INVESTMENT
TRUSTS (22.4%) (COST $878,705)... $ 811,591
------------
</TABLE>
<TABLE>
<CAPTION>
MARKET
SHARES CLOSED-END INVESTMENT COMPANIES VALUE
- -------------------------------------------------------------
<C> <S> <C>
500 Argentina Fund Inc................ $ 4,500
300 Brazil Fund Inc................... 3,262
3,000 Central European Value Fund....... 31,125
800 Chile Fund Inc.................... 7,250
875 First Commonwealth Fund Inc....... 9,352
2,200 France Growth Fund................ 29,975
5,000 Hancock Patriot Prem. Div. Fund
II............................... 59,688
1,500 Irish Investment Fund Inc......... 30,563
2,200 *Japan Webs Index Series.......... 22,550
5,000 Kleinworth Benson Austral. Inc.
Fund............................. 32,812
650 Mexico Fund Inc................... 7,272
2,000 Swiss Helvetia Fund............... 32,000
300 Templeton Emerging Mkts. Fund..... 2,887
5,000 Templeton Global Govt. Fund....... 33,125
2,000 United Kingdom Fund............... 28,875
------------
TOTAL CLOSED END INVESTMENT CO.
(9.3%) (COST $391,526)........... $ 335,236
------------
</TABLE>
<TABLE>
<CAPTION>
MARKET
SHARES DEPOSITORY SHARES VALUE
- -------------------------------------------------------------
<C> <S> <C>
FINANCIAL (1.9%)
550 S&P 500 Depository Shares......... $ 67,650
------------
TOTAL DEPOSITORY SHARES (1.9%)
(COST $61,326)................... $ 67,650
------------
</TABLE>
<TABLE>
<CAPTION>
MARKET
SHARES FOREIGN COMMON STOCK VALUE
- -------------------------------------------------------------
<C> <S> <C>
ARGENTINA (0.2%)
OIL, ENERGY & NATURAL GAS
200 YPF Sociedad Anonima Spon ADR..... $ 5,588
------------
AUSTRALIA (0.7%)
BANKING
350 Nat'l. Australia Bank LTD ADR..... 26,053
------------
CANADA (0.8%)
METALS & MINING
500 Alcan Aluminum Ltd................ 13,531
TRANSPORTATION
775 Canadian Pacific Ltd.............. 14,628
------------
TOTAL CANADA...................... 28,159
------------
DENMARK (0.9%)
CHEMICALS
500 Novo-Nordisk AS ADR............... 33,250
------------
FINLAND (0.7%)
COMMUNICATIONS
200 *Nokia Corp. Sponsored ADR........ 24,088
------------
GERMANY (0.7%)
AUTOMOTIVE & RELATED
251 *DaimlerChrysler AG Spon ADR...... 24,112
------------
ITALY (0.3%)
CONSUMER PRODUCTS
875 Luxottica Group ADR............... 10,500
------------
JAPAN (0.4%)
ELECTRICAL EQUIPMENT
100 Hitachi Ltd. ADR.................. 6,044
125 Sony Corp. ....................... 8,969
------------
15,013
------------
NETHERLANDS (1.1%)
ELECTRICAL EQUIPMENT
350 Phillips NV....................... 23,691
------------
OIL, ENERGY & NATURAL GAS
350 Royal Dutch Petroleum Co. ........ 16,756
------------
TOTAL NETHERLANDS................. 40,447
------------
NORWAY (0.3%)
CHEMICALS
350 Norsk Hydro AS Spon ADR........... 11,966
------------
SWEDEN (0.5%)
AUTOMOTIVE & RELATED
737 Volvo Aktiebolaget Ser B ADR...... 17,181
------------
</TABLE>
(continued)
91
<PAGE> 179
OHIO NATIONAL FUND, INC.
STELLAR PORTFOLIO (CONTINUED)
SCHEDULE OF INVESTMENTS DECEMBER 31, 1998
<TABLE>
<CAPTION>
MARKET
SHARES FOREIGN COMMON STOCK VALUE
- -------------------------------------------------------------
<C> <S> <C>
SPAIN (1.6%)
BANKING
510 Banco de Santander ADR............ $ 10,073
OIL, ENERGY & NATURAL GAS
850 Repsol SA Spon. ADR............... 46,431
------------
TOTAL SPAIN....................... 56,504
------------
UNITED KINGDOM (1.6%)
COMMUNICATIONS
850 Cable & Wireless Pub. Ltd......... 31,236
175 Vodafone Group Spon. ADR.......... 28,197
------------
59,433
------------
TOTAL FOREIGN COMMON STOCK (9.8%)
(COST $275,585).................. $ 352,294
------------
</TABLE>
<TABLE>
<CAPTION>
MARKET
SHARES PREFERRED STOCK VALUE
- -------------------------------------------------------------
<C> <S> <C>
BANKING (1.4%)
1,000 Banco Bilbao Vizcaya (Spain) 8%... $ 26,375
1,000 BankUnited Cap II 9.6%............ 25,250
------------
51,625
------------
FINANCIAL SERVICES (1.0%)
1,500 MSDW Capital Trust I 7.1%......... 37,969
------------
REAL ESTATE & LEASING (0.4%)
540 Kimco Realty Corp. CL D Conv...... 13,972
------------
UTILITIES (0.9%)
1,200 HL&P Cap Trust I 8.125%........... 31,275
------------
TOTAL PREFERRED STOCK (3.7%)
(COST $130,927).................. $ 134,841
------------
</TABLE>
<TABLE>
<CAPTION>
FACE MARKET
AMOUNT LONG-TERM BONDS & NOTES VALUE
- -------------------------------------------------------------
<C> <S> <C>
GOVERNMENT (15.1%)
$ 100,000 FNMA 6.210% 11/07/07.............. $ 106,568
125,000 Federal Home Loan Mortgage 7.920%
06/29/11......................... 132,316
170,000 FNMA 6.030% 05/07/01.............. 170,626
75,052 GNMA 7.500% 06/15/27.............. 77,468
50,000 US Treasury Note 7.250%
05/15/04......................... 56,047
------------
TOTAL LONG-TERM BONDS & NOTES
(15.1%) (COST $530,436).......... $ 543,025
------------
</TABLE>
<TABLE>
<CAPTION>
FACE MARKET
AMOUNT REPURCHASE AGREEMENTS VALUE
- -------------------------------------------------------------
<C> <S> <C>
FINANCIAL (19.3%)
$ 696,000 Star Bank 3.5% 01/04/99 repurchase
price $696,271 collateralized by
GNMA certificates pool #8375 due
02/20/24 (Cost $696,000)......... $ 696,000
------------
TOTAL REPURCHASE AGREEMENTS
(19.3%) (COST $696,000).......... $ 696,000
------------
TOTAL HOLDINGS (99.5%)
(COST $3,486,451)................ $ 3,590,176
------------
CASH & RECEIVABLES,
NET OF LIABILITIES (0.5%)........ 14,800
------------
TOTAL NET ASSETS (100.0%)......... $ 3,604,976
============
</TABLE>
- ---------------
* Non-income producing securities.
(a) Also represents cost for Federal income tax purposes.
The accompanying notes are an integral part of these financial statements.
92
<PAGE> 180
OHIO NATIONAL FUND, INC.
STELLAR PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1998
<TABLE>
<S> <C>
Assets:
Investments in securities at market value
(note 1) (cost $2,790,451)............... $2,894,176
Repurchase agreements (note 1) (cost
$696,000)................................ 696,000
Cash in bank............................... 275
Dividends and accrued interest
receivable............................... 23,010
----------
Total assets............................. 3,613,461
----------
Liabilities:
Payable for shares redeemed................ 51
Payable for investment management services
(note 3)................................. 3,027
Other accrued expenses..................... 5,407
----------
Total liabilities........................ 8,485
----------
Net assets at market value................... $3,604,976
==========
Net assets consist of:
Par value, $1 per share.................... $ 341,443
Paid-in capital in excess of par value..... 3,164,357
Accumulated net realized gain on
investments (note 1)..................... (6,321)
Net unrealized appreciation on investments
(note 1)................................. 103,725
Undistributed net investment income........ 1,772
----------
Net assets at market value................... $3,604,976
==========
Shares outstanding (note 4).................. 341,443
Net asset value per share.................... $ 10.56
==========
</TABLE>
STATEMENT OF OPERATIONS
Year ended December 31, 1998
<TABLE>
<S> <C>
Investment income:
Interest................................... $ 64,711
Dividends.................................. 98,004
----------
Total investment income.................. 162,715
----------
Expenses:
Management fees (note 3)................... 32,977
Custodian fees (note 3).................... 4,825
Directors' fees (note 3)................... 269
Professional fees.......................... 737
Accounting and transfer agent fees......... 6,982
Other...................................... 1,244
----------
Total expenses........................... 47,034
----------
Net investment income.................... $ 115,681
Realized and unrealized gain (loss) on
investments:
Net realized gain from investments......... $ 20,231
Net decrease in unrealized appreciation on
investments.............................. (54,343)
----------
Net loss on investments................ (34,112)
----------
Net increase in net assets from
operations.......................... $ 81,569
==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
93
<PAGE> 181
OHIO NATIONAL FUND, INC.
STELLAR PORTFOLIO
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
1998 1997
------------ ------------
<S> <C> <C>
From operations:
Net investment income..................................... $ 115,681 $ 73,156
Realized gain (loss) on investments....................... 20,231 (11,917)
Unrealized gain (loss) on investments..................... (54,343) 158,068
---------- ----------
Net increase in net assets from operations............ 81,569 219,307
---------- ----------
Dividends and distributions to shareholders:
Dividends paid from net investment income................. (114,147) (72,918)
Capital gains distributions............................... (14,635) 0
---------- ----------
Total Distributions................................... (128,782) (72,918)
---------- ----------
From capital share transactions (note 4):
Received from shares sold................................. 1,063,702 2,644,507
Received from dividends reinvested........................ 128,782 72,918
Paid for shares redeemed.................................. (346,843) (57,267)
---------- ----------
Increase in net assets derived from capital share
transactions......................................... 845,641 2,660,158
---------- ----------
Increase in net assets............................. 798,428 2,806,548
Net Assets:
Beginning of period....................................... 2,806,548 0
---------- ----------
End of period (a)......................................... $3,604,976 $2,806,548
========== ==========
(a) Includes undistributed net investment income of......... $ 1,772 $ 238
========== ==========
</TABLE>
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
----------------
1998 1997
------ ------
<S> <C> <C>
Per share data:
Net asset value, beginning of period........................ $10.65 $10.00
Income from investment operations:
Net investment income..................................... 0.37 0.32
Net realized and unrealized gain (loss) on investments.... (0.07) 0.64
Total income from investment operations................. 0.30 0.96
------ ------
Less distributions:
Dividends declared........................................ (0.35) (0.31)
Distributions from net realized capital gains............. (0.04) 0.00
Total distributions..................................... (0.39) (0.31)
------ ------
Net asset value, end of period.............................. $10.56 $10.65
====== ======
Total return................................................ 2.92% 9.70%
Ratios and supplemental data:
Ratio of expenses to average net assets................... 1.43% 1.54%
Ratio of net investment income to average net assets...... 3.53% 3.07%
Portfolio turnover rate..................................... 81% 17%
Net assets at end of period (millions)...................... $ 3.6 $ 2.8
</TABLE>
The accompanying notes are an integral part of these financial statements.
94
<PAGE> 182
RELATIVE VALUE PORTFOLIO
OHIO NATIONAL FUND, INC.
OBJECTIVE
The Relative Value Portfolio seeks the highest total return as is consistent
with reasonable risk by investing in stocks deemed to represent characteristics
with low volatility, above-average yields and are undervalued relative to the
stocks comprising the S&P Composite Stock Index.
PERFORMANCE AS OF DECEMBER 31, 1998
<TABLE>
<S> <C>
TOTAL RETURN:
One-year 20.72%
Since inception (1/3/97) 24.53%
</TABLE>
Returns represent past performance, which is no guarantee of future results.
Investment return and principal value will vary so that shares, when redeemed,
may be worth more or less than their original cost. Actual results for variable
annuity and variable universal life contracts will be lower due to contract
charges. Consult your contract for applicable charges for mortality and
expenses.
COMMENTS
During the past twelve months, the equity market saw significant volatility due
to concerns over Asia, corporate earnings, and the turmoil in the White House.
How did the portfolio perform versus the average growth and income fund? By
adhering to the tenets of the valuation process employed by the fund, the
securities selected are typically those which exhibit a higher degree of
operating and financial stability. During volatile periods in the market, stocks
possessing these attributes command a premium in valuation as a "flight to
quality" intensifies demand for these stocks. For the twelve months ending
November 30, 1998 the Relative Value Fund generated a total rate in excess of
16% on a net asset value basis. This compares to an 11.61% return for the
average growth and income fund as reported by Lipper Analytical Services, Inc.
As we look to 1999, we forecast a slow growth economic environment where
inflation continues to remain benign and corporate earnings growth slows to
single digit increases. Technology and healthcare will continue to provide
market leadership in the fund and we will continue to pursue opportunities in
the consumer cyclicals, communication, financial services, and energy companies.
CHANGE IN VALUE OF $10,000 INVESTMENT
[GRAPH]
Hypothetical illustration based on past performance. Future performance will
vary. All returns reflect reinvested dividends. The portfolio's holdings may
differ significantly from the securities in the index. The index is unmanaged
and therefore does not reflect the cost of portfolio management or trading.
Neither the portfolio nor the index is open to direct investment.
TOP 10 HOLDINGS AS OF DECEMBER 31, 1998
<TABLE>
<CAPTION>
% of Net Assets
<C> <S> <C>
1. Cincinnati Bell Inc 6.4
2. IBM Corp 5.9
3. Intel Corp 5.3
4. Proctor & Gamble Co 5.0
5. Lucent Technologies 3.8
6. Smithkline Beecham 3.5
7. General Electric 3.4
8. Bristol Myers Squibb 3.4
9. Texaco Inc 3.2
10. Merck & Co. Inc 2.9
</TABLE>
TOP 5 INDUSTRIES AS OF DECEMBER 31, 1998
<TABLE>
<CAPTION>
% of Net Assets
<S> <C>
Communications 13.3
Computer and Related 12.4
Drugs 12.0
Consumer Products 11.0
Banking 10.4
</TABLE>
95
<PAGE> 183
OHIO NATIONAL FUND, INC.
RELATIVE VALUE PORTFOLIO
SCHEDULE OF INVESTMENTS DECEMBER 31, 1998
<TABLE>
<CAPTION>
MARKET
SHARES U.S. COMMON STOCK VALUE
- -------------------------------------------------------------
<C> <S> <C>
AEROSPACE (3.2%)
2,000 Allied Signal Inc................. $ 88,625
2,000 Lockheed Martin Corp.............. 169,500
1,100 Raytheon Co. Class B.............. 58,575
------------
316,700
------------
AUTOMOTIVE & RELATED (3.5%)
2,500 Ford Motor Co..................... 146,719
1,500 General Motors Corp............... 107,344
1,900 Goodyear Tire & Rubber Co......... 95,83
------------
349,894
------------
BANKING (10.4%)
2,000 Bank America Corp................. 120,250
6,000 Bank New York Inc................. 241,500
5,000 Bank One Corp..................... 255,313
4,400 First Financial Bancorp........... 127,325
2,000 Mellon Bank Corp.................. 137,500
2,000 PNC Bank Corp..................... 108,250
2,000 TCF Financial Corp................ 48,375
------------
1,038,513
------------
COMMUNICATIONS (11.8%)
2,000 AT&T Corp......................... 150,500
17,000 Cincinnati Bell Inc............... 642,813
3,500 Lucent Technologies Inc........... 385,000
------------
1,178,313
------------
COMPUTER & RELATED (12.4%)
1,500 Honeywell Inc..................... 112,969
4,500 Intel Corp........................ 533,531
3,200 IBM Corp.......................... 591,200
------------
1,237,700
------------
CONSUMER PRODUCTS (11.0%)
4,000 Gillette Co....................... 193,250
5,500 Philip Morris Cos. Inc............ 294,250
5,500 Procter & Gamble Co............... 502,219
2,000 Whirlpool Corp.................... 110,750
------------
1,100,469
------------
DRUGS (8.5%)
4,000 American Home Products Corp....... 225,250
2,500 Bristol Myers Squibb Co........... 334,531
2,000 Merck & Co. Inc................... 295,375
------------
855,156
------------
ELECTRICAL EQUIPMENT (3.9%)
3,300 General Electric Co............... 336,806
1,000 Johnson Controls Inc.............. 59,000
------------
395,806
------------
FINANCIAL SERVICES (4.1%)
1,500 American Express Co............... 153,375
5,250 Citigroup Inc..................... 259,875
------------
413,250
------------
</TABLE>
<TABLE>
<CAPTION>
MARKET
SHARES U.S. COMMON STOCK VALUE
- -------------------------------------------------------------
<C> <S> <C>
INSURANCE SERVICES (4.5%)
5,000 Cincinnati Financial Corp......... $ 183,125
6,500 Ohio Casualty Corp................ 267,312
------------
450,437
------------
OIL, ENERGY & NATURAL GAS (5.8%)
3,000 Mobil Corp........................ 261,375
6,000 Texaco Inc........................ 317,250
------------
578,625
------------
RETAIL (4.1%)
4,000 Federated Department Stores....... 174,250
5,500 Sears Roebuck & Co. .............. 233,750
------------
408,000
------------
UTILITIES (3.3%)
3,000 GPU Inc........................... 132,562
3,000 GTE Corp. ........................ 202,312
------------
334,874
------------
TOTAL U.S. COMMON STOCK (86.5%)
(COST $7,071,037)................ $ 8,657,737
------------
</TABLE>
<TABLE>
<CAPTION>
MARKET
SHARES FOREIGN COMMON STOCK VALUE
- -------------------------------------------------------------
<C> <S> <C>
UNITED KINGDOM (5.0%)
COMMUNICATIONS (1.5%)
1,000 Cable & Wireless Pub Co. Ltd
ADR.............................. $ 36,750
700 Vodafone Group PLC ADR............ 112,788
------------
149,538
------------
DRUGS (3.5%)
5,000 Smithkline Beecham PLC ADR CL A... 347,500
------------
TOTAL UNITED KINGDOM.............. 497,038
------------
NETHERLANDS (1.4%)
OIL, ENERGY AND NATURAL GAS
3,000 Royal Dutch Pete Co NY Reg 1.25... 143,625
------------
TOTAL FOREIGN COMMON STOCK (6.4%)
(COST $483,594).................. $ 640,663
------------
</TABLE>
<TABLE>
<CAPTION>
FACE MARKET
AMOUNT REPURCHASE AGREEMENTS VALUE
- -------------------------------------------------------------
<C> <S> <C>
FINANCIAL (7.1%)
$709,000 Star Bank 3.50% due 01/04/99
repurchase price $709,276
collateralized by GNMA certificates
pool # 8375 due 02/20/24 (cost
$709,000)........................... $ 709,000
-----------
TOTAL REPURCHASE AGREEMENTS (7.1%)
(COST $709,000)..................... $ 709,000
-----------
TOTAL HOLDINGS (100.%)
(COST $8,263,631)(a)................ $10,007,400
-----------
CASH & RECEIVABLES, NET OF
LIABILITIES (0.0%).................. 1,573
-----------
TOTAL NET ASSETS (100.0%)............ $10,008,973
===========
</TABLE>
- ---------------
(a) Also represents cost for Federal income tax purposes.
The accompanying notes are an integral part of these financial statements.
96
<PAGE> 184
OHIO NATIONAL FUND, INC.
RELATIVE VALUE PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1998
<TABLE>
<S> <C>
Assets:
Investments in securities at market value
(note 1) (cost $8,263,631)............. $ 10,007,400
Cash in bank............................. 639
Dividends and accrued interest
receivable............................. 13,385
------------
Total assets........................... 10,021,424
============
Liabilities:
Payable for shares redeemed.............. 399
Payable for investment management
services (note 3)...................... 7,388
Other accrued expenses................... 4,664
------------
Total liabilities...................... 12,451
------------
Net assets at market value................. $ 10,008,973
============
Net assets consist of:
Par value, $1 per share.................. $ 666,479
Paid-in capital in excess of par value... 7,609,086
Accumulated net realized gain on
investments (note 1)................... (10,361)
Net unrealized appreciation on
investments (note 1)................... 1,743,769
------------
Net assets at market value................. $ 10,008,973
============
Shares outstanding (note 4)................ 666,479
Net asset value per share.................. $ 15.02
============
</TABLE>
STATEMENT OF OPERATIONS
Year ended December 31, 1998
<TABLE>
<S> <C>
Investment income:
Interest.................................. $ 52,822
Dividends................................. 147,746
-----------
Total investment income................. 200,568
-----------
Expenses:
Management fees (note 3).................. 80,506
Custodian fees (note 3)................... 4,968
Directors' fees (note 3).................. 255
Professional fees......................... 1,107
Accounting and transfer agent fees........ 6,572
Other..................................... 1,772
-----------
Total expenses.......................... 95,180
-----------
Net investment income................... $ 105,388
Realized and unrealized gain on investments:
Net realized gain from investments........ $ 83,624
Net increase in unrealized appreciation on
investments............................. 979,715
-----------
Net gain on investments................. 1,063,339
-----------
Net increase in net assets from
operations............................ $ 1,168,727
===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
97
<PAGE> 185
OHIO NATIONAL FUND, INC.
RELATIVE VALUE PORTFOLIO
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
1998 1997
------------ ------------
<S> <C> <C>
From operations:
Net investment income..................................... $ 105,388 $ 47,841
Realized gain (loss) on investments....................... 83,624 (2,446)
Unrealized gain on investments............................ 979,715 764,054
------------ ------------
Net increase in assets from operations................ 1,168,727 809,449
------------ ------------
Dividends and distributions to shareholders:
Dividends declared from net investment income............. (105,730) (47,665)
Capital gains distributions............................... (91,539) 0
------------ ------------
Total dividends and distributions..................... (197,269) (47,665)
------------ ------------
From capital share transactions (note 4):
Received from shares sold................................. 6,696,273 5,066,632
Received from dividends reinvested........................ 197,269 47,665
Paid for shares redeemed.................................. (3,589,324) (142,784)
------------ ------------
Increase in net assets derived from capital share
transactions......................................... 3,304,218 4,971,513
------------ ------------
Increase in net assets............................. 4,275,676 5,733,297
------------ ------------
Net Assets:
Beginning of period....................................... 5,733,297 0
------------ ------------
End of period (a)......................................... $10,008,973 $ 5,733,297
============ ============
(a) Includes undistributed net investment income of......... $ (166) $ 0
============ ============
</TABLE>
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------
1998 1997
------------ ------------
<S> <C> <C>
Per share data:
Net asset value, beginning of period........................ $ 12.68 $ 10.00
Income from investment operations:
Net investment income..................................... 0.15 0.16
Net realized and unrealized gain on investments........... 2.48 2.66
------------ ------------
Total income from investment operations................. 2.63 2.82
------------ ------------
Less distributions:
Dividends declared........................................ (0.15) (0.14)
Distributions from net realized capital gains............. (0.14) 0.00
------------ ------------
Total distributions..................................... (0.29) (0.14)
------------ ------------
Net asset value, end of period.............................. $ 15.02 $ 12.68
============ ============
Total return................................................ 20.72% 28.28%
Ratios and supplemental data:
Ratio of expenses to average net assets................... 1.08% 1.18%
Ratio of net investment income to average net assets...... 1.19% 1.35%
Portfolio turnover rate..................................... 54% 7%
Net assets at end of period (millions)...................... $ 10.0 $ 5.7
</TABLE>
The accompanying notes are an integral part of these financial statements.
98
<PAGE> 186
BLUE CHIP PORTFOLIO
OHIO NATIONAL FUND, INC.
OBJECTIVE
The Blue Chip Portfolio seeks growth of capital and income by investing in
securities of high quality companies.
PERFORMANCE AS OF DECEMBER 31, 1998
<TABLE>
<S> <C>
TOTAL RETURN:
Since inception (5/1/98) 2.34%
</TABLE>
Returns represent past performance, which is no guarantee of future results.
Investment return and principal value will vary so that shares, when redeemed,
may be worth more or less than their original cost. Actual results for variable
annuity and variable universal life contracts will be lower due to contract
charges. Consult your contract for applicable charges for mortality and
expenses.
COMMENTS
1998 was an extremely difficult year for active value managers. The S&P 500's
28.7% return was dominated by a handful of ultra-large growth oriented
Technology, Pharmaceutical, and Telephone companies. The return for the average
stock in the S&P 500, as measured by the equal-weighted S&P 500, was only 12.8%.
This nearly 16% disparity between the average stock and the market itself is
something the market has not experienced in the last 25 years. In this difficult
environment the portfolio, from its inception on May 1, 1998, returned 2.34%.
This return was in line with our value oriented benchmarks: The average Lipper
Growth & Income fund returned 2.59% and the S&P Value Index returned 1.41%. We
are obviously not pleased with our relative performance versus the S&P 500, but
given our investment style and market conditions, the returns are not
unreasonable. It is worth noting that historically, after periods of extremely
narrow market leadership dominated by a handful of growth stocks, active value
management can provide superior returns.
As we enter 1999, the markets are faced with numerous challenges. At a P/E ratio
nearing 30 times, and price-to-book ration north of 8 times and a dividend yield
of 1.3%, the S&P 500 is in uncharted valuation territory for this point in any
business cycle. In this type of environment, we believe that our value
disciplines -- identifying leading companies which are temporarily out of favor
and appear inexpensive relative to their history relative to the market as well
as to their expected growth -- will provide a more reasonable ride as
rationality works its way back into the market.
CHANGE IN VALUE OF $10,000 INVESTMENT
[GRAPH]
Hypothetical illustration based on past performance. Future performance will
vary. All returns reflect reinvested dividends. The portfolio's holdings may
differ significantly from the securities in the index. The index is unmanaged
and therefore does not reflect the cost of portfolio management or trading.
Neither the portfolio nor the index is open to direct investment.
TOP 10 HOLDINGS AS OF DECEMBER 31, 1998
<TABLE>
<CAPTION>
% of Net Assets
<C> <S> <C>
1. Kimberly-Clark Corp 2.8
2. UST Inc 2.1
3. GTE Corp 2.1
4. Corn Products International 2.0
5. Conseco Inc 1.9
6. Electronic Data Systems Corp 1.9
7. Philip Morris Cos Inc 1.9
8. Ashland Inc 1.8
9. Sun Microsystems 1.8
10. Pharmacia & Upjohn Inc 1.8
</TABLE>
TOP 5 INDUSTRIES AS OF DECEMBER 31, 1998
<TABLE>
<CAPTION>
% of Net Assets
<S> <C>
Consumer Products 10.2
Oil, Energy, and Natural Gas 9.1
Utilities 8.8
Computer & Related 7.5
Retail 6.8
</TABLE>
99
<PAGE> 187
OHIO NATIONAL FUND, INC.
BLUE CHIP PORTFOLIO
SCHEDULE OF INVESTMENTS DECEMBER 31, 1998
<TABLE>
<CAPTION>
MARKET
SHARES U.S. COMMON STOCK VALUE
- -------------------------------------------------------------
<C> <S> <C>
AEROSPACE (1.7%)
1,500 Boeing Company.................... $ 48,938
------------
AUTOMOTIVE & RELATED (3.9%)
500 General Motors Corp. ............. 35,781
800 Cooper Tire & Rubber.............. 16,350
400 Johnson Controls Inc. ............ 23,600
1,100 Tenneco Inc. ..................... 37,469
------------
113,200
------------
BANKING (1.6%)
400 Republic New York Corp. .......... 18,225
700 Washington Mutual Inc. ........... 26,731
------------
44,956
------------
BUSINESS SERVICES (2.7%)
1,500 First Data Corp. ................. 47,531
1,000 King World Prod Inc. ............. 29,438
------------
76,969
------------
CHEMICALS (0.6%)
200 Dow Chemical Co. ................. 18,188
------------
COMMUNICATIONS (3.0%)
400 AT & T Corp. ..................... 30,100
500 Motorola Inc. .................... 30,531
500 SBC Communications Inc. .......... 26,813
------------
87,444
------------
COMPUTER & RELATED (7.5%)
1,100 Electronic Data Systems Corp. .... 55,275
200 IBM CO............................ 36,950
1,000 *Seagate Technology Inc. .......... 30,250
1,200 *Storage Technology Corp. ......... 42,675
600 *Sun Microsystems Inc. ............ 51,375
------------
216,525
------------
CONSUMER PRODUCTS (10.2%)
400 Eastman Kodak Co. ................ 28,800
1,200 Kimberly-Clark Corp. ............. 65,400
1,100 Liz Claiborne Inc. ............... 34,719
1,000 Phillip Morris Co. Inc. .......... 53,500
1,600 RJR Nabisco Corp. ................ 47,500
1,800 UST Inc. ......................... 62,775
------------
292,694
------------
CONTAINERS (1.1%)
1,000 Crown Cork & Seal Co. Inc. ....... 30,813
------------
DRUGS (3.8%)
600 Abbott Laboratories............... 29,400
200 Merck & Co. Inc. ................. 29,537
900 Pharmacia & Upjohn Inc. .......... 50,963
------------
109,900
------------
ENTERTAINMENT & LEISURE (2.7%)
800 Brunswick Corp. .................. 19,800
500 *Viacom Inc. CL A.................. 36,781
300 *Viacom Inc. CL B.................. 22,200
------------
78,781
------------
</TABLE>
<TABLE>
<CAPTION>
MARKET
SHARES U.S. COMMON STOCK VALUE
- -------------------------------------------------------------
<C> <S> <C>
ELECTRICAL EQUIPMENT (2.2%)
711 AMP Inc. ......................... $ 37,016
800 Houston Industries Inc. .......... 25,700
------------
62,716
------------
FINANCIAL SERVICES (3.0%)
700 Bear Stearns Co. Inc. ............ 26,163
1,300 CIT Group Inc. CL A............... 41,356
300 MBIA Inc. ........................ 19,669
------------
87,188
------------
FOOD & RELATED (5.3%)
700 Anheuser Busch Co. Inc. .......... 45,937
2,810 Archer-Daniels Midland Co. ....... 48,297
1,900 Corn Products Intl. Inc. ......... 57,713
------------
151,947
------------
INDUSTRIAL SERVICES (2.9%)
700 Browning-Ferris Ind. Inc. ........ 19,906
900 Nucor Corp. ...................... 38,925
552 Waste Management Inc. ............ 25,737
------------
84,568
------------
INSURANCE SERVICES (6.3%)
500 Allstate Corp. ................... 19,312
600 CIGNA Corp. ...................... 46,387
1,824 Conseco Inc. ..................... 55,746
300 Lincoln National Corp. ........... 24,544
600 Marsh & McLennan Co. Inc. ........ 35,063
------------
181,052
------------
MACHINERY (1.7%)
800 Deere & Co. ...................... 26,500
500 Ingersoll-Rand Co. ............... 23,469
------------
49,969
------------
MEDICAL & RELATED (3.0%)
200 Bristol-Myers Squibb Co. ......... 26,763
2,000 Oxford Health Plans Inc. ......... 29,750
700 United Healthcare Corp. .......... 30,143
------------
86,656
------------
METALS & MINING (0.8%)
1,200 Barrick Gold Corp. ............... 23,400
------------
OIL, ENERGY & NATURAL GAS (8.6%)
1,100 Ashland Inc. ..................... 53,212
1,000 Diamond Offshore Drilling......... 23,688
300 Exxon Corp. ...................... 21,937
300 Mobil Corp. ...................... 26,137
1,000 Occidental Petroleum Corp. ....... 16,875
900 Schlumberger Ltd. ................ 41,513
700 Sunoco Inc. ...................... 25,244
300 Texaco Inc. ...................... 15,863
800 USX-Marathon Group................ 24,100
------------
248,569
------------
REAL ESTATE & LEASING (0.6%)
600 Boston Properties Inc. ........... 18,300
------------
</TABLE>
(continued)
100
<PAGE> 188
OHIO NATIONAL FUND, INC.
BLUE CHIP PORTFOLIO (CONTINUED)
SCHEDULE OF INVESTMENTS DECEMBER 31, 1998
<TABLE>
<CAPTION>
MARKET
SHARES U.S. COMMON STOCK VALUE
- -------------------------------------------------------------
<C> <S> <C>
RESTAURANTS (1.1%)
600 *Tricon Global Restaurants
Inc. ............................ $ 30,075
RETAIL (6.8%)
900 American Stores Co. .............. 33,244
900 Dillards Inc. CL A................ 25,537
1,800 *K Mart Corp. ..................... 27,562
1,100 Sherwin-Williams Co. ............. 32,313
2,600 *Toys "R" Us Inc. ................. 43,875
400 Wal-Mart Stores Inc. ............. 32,575
------------
195,106
------------
TRANSPORTATION & EQUIPMENT (1.8%)
700 CNF Transportation Inc............ 26,294
1,000 Ryder Systems Inc. ............... 26,000
------------
52,294
------------
UTILITIES (8.8%)
600 Coastal Corp. .................... 20,962
600 Consolidated Natural Gas Co. ..... 32,400
1,200 Entergy Corp. .................... 37,350
900 GTE Corp. ........................ 60,694
1,000 PG&E Corp. ....................... 31,500
1,000 Peco Energy Co. .................. 41,623
700 Public Service Enterprises
Group............................ 28,000
------------
252,529
------------
TOTAL U.S. COMMON STOCK (91.7%)
(COST $2,519,373)............... $ 2,642,777
------------
</TABLE>
<TABLE>
<CAPTION>
MARKET
SHARES FOREIGN COMMON STOCK VALUE
- -------------------------------------------------------------
<C> <S> <C>
CANADA (0.7%)
TRANSPORTATION & EQUIPMENT
400 Canadian National Railway......... $ 20,750
------------
NETHERLANDS (1.5%)
ELECTRICAL EQUIPMENT (1.0%)
400 Philips Electronics............... 27,075
------------
OIL, ENERGY & NATURAL GAS (0.5%)
300 Royal Dutch Petroleum Co. ADR..... 14,363
------------
TOTAL NETHERLANDS................. 41,438
------------
</TABLE>
<TABLE>
<CAPTION>
MARKET
SHARES FOREIGN COMMON STOCK VALUE
- -------------------------------------------------------------
<C> <S> <C>
SWEDEN (1.1%)
ELECTRICAL EQUIPMENT
3,000 ABB AB Sponsored ADR.............. $ 33,000
------------
TOTAL FOREIGN COMMON STOCK (3.3%)
(COST $109,634).................. $ 95,188
------------
TOTAL COMMON STOCK (95.0%)
(COST $2,629,007)................ $ 2,737,965
------------
</TABLE>
<TABLE>
<CAPTION>
MARKET
SHARES FOREIGN PREFERRED STOCK VALUE
- -------------------------------------------------------------
<C> <S> <C>
AUSTRALIA (1.4%)
MEDIA & PUBLISHING
1,600 News Corp. Ltd. ADR............... $ 39,500
------------
TOTAL FOREIGN PREFERRED STOCK
(1.4%) (COST $38,357)............ $ 39,500
------------
</TABLE>
<TABLE>
<CAPTION>
FACE MARKET
AMOUNT REPURCHASE AGREEMENTS VALUE
- -------------------------------------------------------------
<C> <S> <C>
FINANCIAL (5.2%)
$ 149,000 Star Bank 3.50% due 01/04/99
repurchase price $149,058
collateralized by GNMA
certificates pool # 8375 due
02/20/24 (cost $149,000).......... $ 149,000
------------
TOTAL REPURCHASE AGREEMENTS (5.2%)
(COST $149,000)................... $ 149,000
------------
TOTAL HOLDINGS (101.6%)
(COST $2,816,364) (a)............. $ 2,926,465
------------
CASH & RECEIVABLES,
NET OF LIABILITIES (-1.6%)........ (47,352)
------------
TOTAL NET ASSETS (100.0%)......... $ 2,879,113
============
</TABLE>
- ---------------
* Non-income producing
(a) Also represents cost for Federal income tax purposes.
The accompanying notes are an integral part of these financial statements.
101
<PAGE> 189
OHIO NATIONAL FUND, INC.
BLUE CHIP PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1998
<TABLE>
<S> <C>
Assets:
Investments in securities at market value
(note 1) (cost $2,816,364)............... $2,926,465
Cash in bank............................... 397
Receivable for fund shares sold............ 3,128
Dividends and accrued interest
receivable............................... 4,895
Other...................................... 7,279
----------
Total assets............................. 2,942,164
----------
Liabilities:
Payable for securities purchased........... 56,023
Payable for investment management services
(note 3)................................. 4,031
Other accrued expenses..................... 2,997
----------
Total liabilities........................ 63,051
----------
Net assets at market value................... $2,879,113
==========
Net assets consist of:
Par value, $1 per share.................... $ 281,663
Paid-in capital in excess of par value..... 2,505,620
Accumulated net realized loss on
investments (note 1)..................... (18,271)
Net unrealized appreciation on investments
(note 1)................................. 110,101
----------
Net assets at market value................... $2,879,113
==========
Shares outstanding (note 4).................. 281,663
Net asset value per share.................... $ 10.22
==========
</TABLE>
STATEMENT OF OPERATIONS
May 1, 1998 to December 31, 1998
<TABLE>
<S> <C>
Investment income:
Interest..................................... $ 2,940
Dividends.................................... 29,240
--------
Total investment income.................... 32,180
--------
Expenses:
Management fees (note 3)..................... 13,619
Custodian fees (note 3)...................... 3,210
Directors' fees (note 3)..................... 132
Professional fees............................ 420
Accounting and transfer agent fees........... 16,754
Other........................................ 702
--------
Total expenses............................. 34,837
--------
Less expenses voluntarily reduced or
reimbursed (note 3)...................... (6,571)
--------
Net expenses............................. 28,266
--------
Net investment income........................ $ 3,914
--------
Realized and unrealized gain (loss) on
investments:
Net realized loss from investments........... $(18,271)
Net increase in unrealized appreciation on
investments................................ 110,101
--------
Net gain on investments.................... 91,830
--------
Net increase in net assets from
operations............................... $ 95,744
========
</TABLE>
The accompanying notes are an integral part of these financial statements.
102
<PAGE> 190
OHIO NATIONAL FUND, INC.
BLUE CHIP PORTFOLIO
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
FOR THE PERIOD
FROM MAY 1, 1998
TO DECEMBER 31, 1998
--------------------
<S> <C>
From operations:
Net investment income..................................... $ 3,914
Realized loss on investments.............................. (18,271)
Unrealized gain on investments............................ 110,101
----------
Net increase in net assets from operations............ 95,744
----------
Dividends and distributions to shareholders:
Dividends paid from net investment income................. (4,115)
----------
From capital share transactions (note 4):
Received from shares sold................................. 2,842,759
Received from dividends reinvested........................ 4,115
Paid for shares redeemed.................................. (59,390)
----------
Increase in net assets derived from capital share
transactions......................................... 2,787,484
----------
Increase in net assets............................. 2,879,113
----------
Net Assets:
Beginning of period....................................... 0
----------
End of period............................................. $2,879,113
==========
</TABLE>
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
FOR THE PERIOD
FROM MAY 1, 1998
TO DECEMBER 31, 1998
--------------------
<S> <C>
Per share data:
Net asset value, beginning of period........................ $10.00
Income from investment operations:
Net realized and unrealized gain on investments........... 0.23
Total income from investment operations................. 0.23
------
Less distributions:
Dividends declared........................................ (0.01)
------
Net asset value, end of period.............................. $10.22
======
Total return (b)............................................ 2.34%
Ratios and supplemental data (a & c):
Ratios net of fees reimbursed by advisor:
Expenses................................................ 1.84%
Net investment income................................... 0.25%
Ratios assuming no fees reimbursed by advisor:
Expenses................................................ 2.26%
Net investment income................................... 0.17%
Portfolio turnover rate..................................... 32%
Net assets at end of period (millions)...................... $ 2.9
</TABLE>
- ---------------
(a) Annualized
(b) Calculated since inception, May 1, 1998. Not annualized.
(c) The advisor has elected to reimburse certain operating expenses of the Blue
Chip portfolio.
The accompanying notes are an integral part of these financial statements.
103
<PAGE> 191
THIS PAGE INTENTIONALLY LEFT BLANK
104
<PAGE> 192
EQUITY INCOME PORTFOLIO
OHIO NATIONAL FUND, INC.
OBJECTIVE
The Equity Income Portfolio seeks above-average income and capital appreciation
by investing primarily in income-producing equity securities
PERFORMANCE AS OF DECEMBER 31, 1998
<TABLE>
<S> <C>
TOTAL RETURN:
Since inception (5/1/98) 5.92%
</TABLE>
Returns represent past performance, which is no guarantee of future results.
Investment return and principal value will vary so that shares, when redeemed,
may be worth more or less than their original cost. Actual results for variable
annuity and variable universal life contracts will be lower due to contract
charges. Consult your contract for applicable charges for mortality and
expenses.
COMMENTS
The S&P 500 has just completed its fourth consecutive year of 20%+ gains. After
falling nearly 20% from its July 17 market peak, the S&P began a dramatic
recovery in early October, to finish the year with a total return of 28.58%.
While this is an extremely impressive showing, it was accompanied by volatility
which had been absent for a number of years. Additionally, the advance was
concentrated in a handful of companies. Specifically, 20 stocks accounted for
59% of the market's rise, while 100 stocks accounted for 85% of its gain.
Unfortunately, the median gain for a stock in the S&P 500 was only 2% with over
70% of the stocks lagging the index return. Since inception on May 1, 1998
through December 31, 1998, the Blue Chip portfolio's total return of 5.92% was
ahead of the 2.00% return of the average equity income fund.
The economic outlook for 1999 appears weak, particularly on a global basis. Only
limited signs point to a bottoming of Asians economies, while Latin American
economies continue to decelerate. The U.S. economic picture is mixed. Industrial
production is weakening even as consumer spending and confidence remains strong,
aided by declines in energy prices and interest rates. In fact, inflation is
close to zero and deflation has become a real fear.
CHANGE IN VALUE OF $10,000 INVESTMENT
[GRAPH]
Hypothetical illustration based on past performance. Future performance will
vary. All returns reflect reinvested dividends. The portfolio's holdings may
differ significantly from the securities in the index. The index is unmanaged
and therefore does not reflect the cost of portfolio management or trading.
Neither the portfolio nor the index is open to direct investment.
TOP 10 HOLDINGS AS OF DECEMBER 31, 1998
<TABLE>
<CAPTION>
% of Net Assets
<C> <S> <C>
1. Bristol-Myers Squibb Co 2.4
2. General Mills Inc 2.1
3. Electronic Data Systems 2.0
4. Baxter International Inc 2.0
5. American Home Products Corp 2.0
6. Merck & Co Inc 2.0
7. GTE Corp 1.8
8. Home Depot Inc Sub Notes 3.25%
10/01/01 1.8
9. Texas Utilities Co PRIDES
$4.625 1.8
10. Abbot Laboratories 1.8
</TABLE>
TOP 5 INDUSTRIES AS OF DECEMBER 31, 1998
<TABLE>
<CAPTION>
% of Net Assets
<S> <C>
Computer & Related 13.8
Utilities 9.6
Banking 6.8
Drugs 6.7
Medical & Related 5.9
</TABLE>
105
<PAGE> 193
OHIO NATIONAL FUND, INC.
EQUITY INCOME PORTFOLIO
SCHEDULE OF INVESTMENTS DECEMBER 31, 1998
<TABLE>
<CAPTION>
MARKET
SHARES COMMON STOCK VALUE
- ------------------------------------------------------------
<C> <S> <C>
AEROSPACE (1.8%)
400 General Dynamics Corp. ............... $ 23,450
200 Lockheed Martin Corp. ................ 16,950
----------
40,400
----------
AUTOMOTIVE & RELATED (2.1%)
800 Cooper Tire and Rubber Co............. 16,350
400 Ford Motor Co......................... 23,475
100 Magna International Inc............... 6,200
----------
46,025
----------
BANKING (6.8%)
700 Bank One Corp......................... 35,744
400 Bankamerica Corp...................... 24,050
400 Chase Manhattan Corp.................. 27,225
600 First Union Corp...................... 36,487
400 Mellon Bank Corp...................... 27,500
----------
151,006
----------
BUSINESS SERVICES (0.5%)
100 Xerox Corp............................ 11,800
----------
CHEMICALS (0.7%)
300 Duponte (EI) De Nemours & Co. ........ 15,919
----------
COMMUNICATIONS (7.0%)
400 Ameritech Corp........................ 25,350
600 GTE Corp.............................. 40,463
497 MCI Worldcomm Inc..................... 35,660
400 Motorola Inc.......................... 24,425
300 Sprint Corp........................... 25,237
150 Sprint Corp. (PCS Group).............. 3,469
----------
154,604
----------
COMPUTER & RELATED (7.8%)
100 Cisco Systems Inc..................... 9,281
900 Electronic Data Systems............... 45,225
300 Hewlett Packard Co.................... 20,494
200 IBM CO................................ 36,950
700 Storage Technology.................... 24,894
200 Sun Microsystems Inc.................. 17,125
1,300 Western Digital Corp.................. 19,581
----------
173,550
----------
CONSUMER PRODUCTS (5.5%)
300 Johnson & Johnson..................... 25,163
400 Kimberly Clark Corp................... 21,800
600 Phillip Morris Co. Inc................ 32,100
600 Pepsico Inc........................... 24,563
400 RJR Nabisco........................... 11,875
200 UST Inc............................... 6,975
----------
122,476
----------
DRUGS (6.7%)
800 Abbott Laboratories................... 39,200
800 American Home Products Corp. ......... 45,050
300 Merck & Co. Inc....................... 44,306
300 Tellabs Inc........................... 20,569
----------
149,125
----------
</TABLE>
<TABLE>
<CAPTION>
MARKET
SHARES COMMON STOCK VALUE
- ------------------------------------------------------------
<C> <S> <C>
CONTAINERS (1.4%)
1,000 Crown Cork & Seal..................... $ 30,812
----------
ELECTRICAL EQUIPMENT (0.5%)
100 Intel Corp............................ 11,856
----------
FINANCIAL SERVICES (3.3%)
200 Associated First Capital Corp. CL A... 8,475
500 Citigroup Inc. ....................... 24,750
400 H&R Block Inc. ....................... 18,000
300 Morgan Stanley, Dean Witter........... 21,300
----------
72,525
----------
FOOD & RELATED (3.4%)
600 General Mills Inc. ................... 46,650
500 HJ Heinz Co. ......................... 28,313
----------
74,963
----------
FOREIGN (1.2%)
300 British Petro ADR..................... 26,888
----------
INDUSTRIAL SERVICES (3.9%)
600 Browning Ferris Ind. ................. 17,062
700 Halliburton Co. ...................... 20,738
300 Textron Inc. ......................... 22,781
1,900 Usec Inc. ............................ 26,363
----------
86,944
----------
INSURANCE SERVICES (1.7%)
200 Chubb Corp. .......................... 12,975
100 Lincoln National...................... 8,181
300 Marsh & McLennan Co. Inc. ............ 17,531
----------
38,687
----------
MEDIA & PUBLISHING (1.1%)
1,680 Hollinger Intl. Publishing Inc. ...... 23,415
----------
MEDICAL & RELATED (4.4%)
700 Baxter International Inc. ............ 45,019
400 Bristol-Myers Squibb.................. 53,525
----------
98,544
----------
METALS & MINING (0.9%)
1,000 Barrick Gold Corp. ................... 19,500
----------
OIL, ENERGY & NATURAL GAS (4.3%)
400 Burlington Resources Inc. ............ 14,325
400 Exxon Corp. .......................... 29,250
400 Mobil Corp. .......................... 34,850
700 Ultramar Diamond Shamrock............. 16,975
----------
95,400
----------
RETAIL (2.3%)
1,300 Food Lion Inc. CL A................... 13,813
900 Food Lion Inc. CL B................... 9,056
300 Intimate Brands Inc. ................. 8,962
400 JC Penney Inc. ....................... 18,750
----------
50,581
----------
RESTAURANTS (0.2%)
200 Wendy's Intl. Inc. ................... 4,362
----------
</TABLE>
(continued)
106
<PAGE> 194
OHIO NATIONAL FUND, INC.
EQUITY INCOME PORTFOLIO (CONTINUED)
SCHEDULE OF INVESTMENTS DECEMBER 31, 1998
<TABLE>
<CAPTION>
MARKET
SHARES COMMON STOCK VALUE
- ------------------------------------------------------------
<C> <S> <C>
TRANSPORTATION & EQUIPMENT (1.2%)
700 CNF Transportation Inc. .............. $ 26,294
----------
UTILITIES (7.2%)
400 CMS Energy Corp....................... 19,375
300 Elpaso Natural Gas.................... 10,444
600 Enron Corp............................ 34,238
300 General Electric Co................... 30,619
1,000 Pacificorp............................ 21,062
600 Sonat Inc............................. 16,237
400 Teco Energy Inc....................... 11,275
500 Williams Co. Inc...................... 15,593
----------
158,843
----------
TOTAL COMMON STOCK (75.9%)
(COST $1,588,682).................... $1,684,519
----------
</TABLE>
<TABLE>
<CAPTION>
REAL ESTATE MARKET
SHARES INVESTMENT TRUSTS VALUE
- ------------------------------------------------------------
<C> <S> <C>
300 Colonial Properties Trust............. $ 7,988
300 Duke Realty Investments Inc. ......... 6,975
300 Equity Residential Properties Trust... 12,131
300 Liberty Property Trust................ 7,387
300 New Plan Excel Realty Trust........... 6,656
300 Post Properties Inc. ................. 11,531
----------
TOTAL REAL ESTATE INVESTMENT TRUSTS
(2.4%) (COST $57,707)................ $ 52,668
----------
</TABLE>
<TABLE>
<CAPTION>
MARKET
SHARES PREFERRED STOCKS VALUE
- ------------------------------------------------------------
<C> <S> <C>
COMPUTER & RELATED (1.8%)
400 Microsoft Corp. $2.196 Conv. ......... $ 39,100
----------
CONSUMER PRODUCTS (1.2%)
500 Ralston Purina Co. 7% Conv............ 26,125
----------
FINANCIAL SERVICES (2.9%)
900 Conseco Inc. 7% Series F Co. ......... 34,706
200 Jefferson Pilot 7.25% Conv............ 20,900
400 Merril Lynch & Co. 6.25% Co. ......... 9,500
----------
65,106
----------
FOOD & RELATED (0.8%)
400 Suiza Foods Corp. 5.5% Conv. ......... 17,350
----------
INSURANCE SERVICES (0.6%)
600 Lincoln Natl. Corp. $1.938 Conv. ..... 14,138
----------
MACHINERY (1.2%)
1,100 Ingersoll Rand Co. 6.75% Co. ......... 26,125
----------
MEDICAL & RELATED (1.5%)
300 McKesson Corp. 5% Conv. .............. 32,137
----------
</TABLE>
<TABLE>
<CAPTION>
MARKET
SHARES PREFERRED STOCKS VALUE
- ------------------------------------------------------------
<C> <S> <C>
RESTAURANTS (0.7%)
300 Wendys Intl. Ser A $2.50 Conv. ....... $ 15,600
----------
UTILITIES (2.4%)
700 Texas Utilities $4.625 Conv. ......... 39,463
100 Williams Co. $3.50 Conv. ............. 14,475
----------
53,938
----------
TOTAL PREFERRED STOCKS (13.1%)
(COST $310,344)...................... $ 289,619
----------
</TABLE>
<TABLE>
<CAPTION>
FACE MARKET
AMOUNT CONVERTIBLE DEBENTURES VALUE
- ------------------------------------------------------------
<C> <S> <C>
AUTOMOTIVE & RELATED (0.8%)
$15,000 Magna Intl. Inc. 5.000%
due 10/15/02......................... $ 17,306
----------
COMPUTER & RELATED (4.2%)
5,000 America Online 4.000%
due 11/15/02......................... 28,013
20,000 Apple Computer Inc. 6.000%
due 06/01/01......................... 28,825
10,000 EMC Corp. 3.250%
due 03/15/02......................... 37,425
----------
94,263
----------
RETAIL (1.8%)
15,000 Home Depot Inc. 3.250%
due 10/01/01......................... 39,600
----------
TOTAL CONVERTIBLE DEBENTURES (6.8%)
(COST $103,221)...................... $ 151,169
----------
</TABLE>
<TABLE>
<CAPTION>
FACE MARKET
AMOUNT REPURCHASE AGREEMENTS VALUE
- ------------------------------------------------------------
<C> <S> <C>
FINANCIAL (1.4%)
$31,000 Star Bank 3.50% due 01/04/99
repurchase price $31,012
collateralized by GNMA certificates
pool #8375 due 02/20/24 (cost
$31,000)............................. $ 31,000
----------
TOTAL REPURCHASE AGREEMENTS (1.4%)
(COST $31,000)....................... $ 31,000
----------
TOTAL HOLDINGS (99.6%)
(COST $2,090,954) (a)................ $2,208,975
----------
CASH & RECEIVABLES,
NET OF LIABILITIES (0.4%)............ 10,839
----------
TOTAL NET ASSETS (100.0%)............. $2,219,814
==========
</TABLE>
- ---------------
(a) Also represents cost for Federal income tax purposes.
The accompanying notes are an integral part of these financial statements.
107
<PAGE> 195
OHIO NATIONAL FUND, INC.
EQUITY INCOME PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1998
<TABLE>
<S> <C>
Assets:
Investments in securities at market value
(note 1) (cost $2,090,954)............... $2,208,975
Cash in bank............................... 176
Receivable for securities sold............. 6,476
Receivable for fund shares sold............ 864
Dividends and accrued interest
receivable............................... 4,016
Other...................................... 8,405
----------
Total assets............................. 2,228,912
----------
Liabilities:
Payable for securities purchased........... 3,886
Payable for investment management services
(note 3)................................. 2,654
Other accrued expenses..................... 2,558
----------
Total liabilities........................ 9,098
----------
Net assets at market value................... $2,219,814
==========
Net assets consist of:
Par value, $1 per share.................... $ 210,819
Paid-in capital in excess of par value..... 1,896,688
Accumulated net realized loss on
investments (note 1)..................... (5,714)
Net unrealized appreciation on investments
(note 1)................................. 118,021
----------
Net assets at market value................... $2,219,814
==========
Shares outstanding (note 4).................. 210,819
Net asset value per share.................... $ 10.53
==========
</TABLE>
STATEMENT OF OPERATIONS
May 1, 1998 to December 31, 1998
<TABLE>
<S> <C>
Investment income:
Interest.................................... $ 3,686
Dividends................................... 33,414
--------
Total investment income................... 37,100
--------
Expenses:
Management fees (note 3).................... 9,909
Custodian fees (note 3)..................... 3,210
Directors' fees (note 3).................... 132
Professional fees........................... 420
Accounting and transfer agent fees.......... 17,453
Other....................................... 703
--------
Total expenses............................ 31,827
--------
Less expenses voluntarily reduced or
reimbursed (note 3)..................... (8,405)
--------
Net expenses............................ 23,422
--------
Net investment income..................... $ 13,678
--------
Realized and unrealized gain (loss) on
investments:
Net realized loss from investments.......... $ (5,714)
Net increase in unrealized appreciation on
investments............................... 118,021
--------
Net gain on investments................. 112,307
--------
Net increase in net assets from
operations........................... $125,985
========
</TABLE>
The accompanying notes are an integral part of these financial statements.
108
<PAGE> 196
OHIO NATIONAL FUND, INC.
EQUITY INCOME PORTFOLIO
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
FOR THE PERIOD
FROM MAY 1, 1998
TO DECEMBER 31, 1998
--------------------
<S> <C>
From operations:
Net investment income..................................... $ 13,678
Realized loss on investments.............................. (5,714)
Unrealized gain on investments............................ 118,021
----------
Net increase in net assets from operations............ 125,985
----------
Dividends and distributions to shareholders:
Dividends paid from net investment income................. (13,781)
----------
From capital share transactions (note 4):
Received from shares sold................................. 2,160,574
Received from dividends reinvested........................ 13,781
Paid for shares redeemed.................................. (66,745)
Increase in net assets derived from capital share
transactions......................................... 2,107,610
----------
Increase in net assets............................. 2,219,814
----------
Net Assets:
Beginning of period....................................... 0
----------
End of period............................................. $2,219,814
==========
</TABLE>
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
FOR THE PERIOD
FROM MAY 1, 1998
TO DECEMBER 31, 1998
--------------------
<S> <C>
Per share data:
Net asset value, beginning of period........................ $10.00
Income from investment operations:
Net investment income..................................... 0.07
Net realized and unrealized gain on investments........... 0.53
------
Total income from investment operations................. 0.60
------
Less distributions:
Dividends declared........................................ (0.07)
------
Net asset value, end of period.............................. $10.53
======
Total return (b)............................................ 5.92%
Ratios and supplemental data (a)(c):
Ratios net of fees reimbursed by advisor:
Expenses................................................ 1.77%
Net investment income................................... 1.04%
Ratios assuming no fees reimbursed by advisor:
Expenses................................................ 2.41%
Net investment income................................... 0.40%
Portfolio turnover rate..................................... 38%
Net assets at end of period (millions)...................... $ 2.2
</TABLE>
- ---------------
(a) Annualized
(b) Calculated since inception, May 1, 1998. Not annualized.
(c) The advisor has elected to reimburse certain operating expenses of the
Equity Income portfolio.
The accompanying notes are an integral part of these financial statements.
109
<PAGE> 197
THIS PAGE INTENTIONALLY LEFT BLANK
110
<PAGE> 198
HIGH INCOME PORTFOLIO
OHIO NATIONAL FUND, INC.
OBJECTIVE
The High Income Bond Portfolio seeks high current income by investing primarily
in lower rated corporate debt obligations.
PERFORMANCE AS OF DECEMBER 31, 1998
TOTAL RETURNS:
<TABLE>
<S> <C>
Since inception (5/1/98) (0.20%)
</TABLE>
Returns represent past performance, which is no guarantee of future results.
Investment return and principal value will vary so that shares, when redeemed,
may be worth more or less than their original cost. Actual results for variable
annuity and variable universal life contracts will be lower due to contract
charges. Consult your contract for applicable charges for mortality and
expenses.
COMMENTS
The 12 months ending December 31, 1998 was marked by volatility and generally
disappointing returns from a high yield bond perspective. There were several
reasons for the volatility and disappointing returns including problems in the
international arena, a mid summer stock market swoon, hedge fund problems,
falling commodity prices, and a growing consensus in the latter part of 1998
pointing to a slowing of the domestic economy in 1999. These factors caused high
yield bonds to underperform high quality bonds. For example, the Lehman Brothers
High Yield Bond Index returned 1.87% substantially underperforming the Lehman
Brothers Aggregate Bond Index, a measure of high quality bond performance, which
returned 8.70%
As we look out into 1999, many contradicting factors are present. On the
negative side, concerns continue regarding our international trading partners
such as Japan and Latin America on the domestic economy, falling commodity
prices, and the uncertainty of Y2K and the volatility of the stock market. On
the plus side, the consensus economic forecast sees the domestic economy
continuing its remarkable growth for another year although at a slower pace,
inflation is almost non-existent, and most importantly, the yield spread between
high yield bonds and Treasury securities remains very wide especially in light
of the amazing resilience of the domestic economy. Overall, wide spreads and
positive economic growth should make 1999 a good year for high yield securities
CHANGE IN VALUE OF $10,000 INVESTMENT
[GRAPH]
Hypothetical illustration based on past performance. Future performance will
vary. All returns reflect reinvested dividends. The portfolio's holdings may
differ significantly from the securities in the index. The index is unmanaged
and therefore does not reflect the cost of portfolio management or trading.
Neither the portfolio nor the index is open to direct investment.
TOP 10 HOLDINGS AS OF DECEMBER 31, 1998
<TABLE>
<CAPTION>
% of Net Assets
<C> <S> <C>
1. Tenet Health Corp Sr Sub Ser
144A 8.125% 12/01/08 2.5
2. Premier Parks Inc Cpn 0% till
04/01/03 then 10% 04/01/08 2.1
3. Allied Waste N.A., Inc. Sr.
Note 7.625% 01/01/06 1.9
4. Sonclair Broadcast Group 8.75%
12/15/07 1.9
5. NTL, Inc Sr Defd 0% til
04/01/03 then 9.75% 04/1/08 1.9
6. Chancellor Media Corp 8.125%
12/15/07 1.9
7. Level 3 Communication, Inc Sr.
Note 9.175% 05/01/08 1.9
8. Polymer Group Inc Ser 144A
8.75% 03/01/08 1.9
9. Intermedia Communication, Sr
Note 8.60% 06/01/08 1.8
10. CSC Holdings, Inc. Sr. Sub
9.25% 11/01/05 1.8
</TABLE>
TOP 5 INDUSTRIES AS OF DECEMBER 31, 1998
<TABLE>
<CAPTION>
% of Net Assets
<S> <C>
Telecommunications & Cellular 18.2
Cable Television 11.0
Broadcast Radio & TV 9.1
Consumer Products 7.1
Food & Related 6.8
</TABLE>
111
<PAGE> 199
OHIO NATIONAL FUND, INC.
HIGH INCOME BOND PORTFOLIO
SCHEDULE OF INVESTMENTS DECEMBER 31, 1998
<TABLE>
<CAPTION>
FACE MARKET
AMOUNT LONG-TERM BONDS & NOTES VALUE
- -------------------------------------------------------------
<C> <S> <C>
ADVERTISING (1.8%)
$ 50,000 Lamar Advertising Co.
8.625% 09/15/07..................... $ 52,750
125,000 Outdoor Systems Inc.
8.875% 06/15/07..................... 134,375
-----------
187,125
-----------
AUTOMOTIVE & RELATED (1.0%)
100,000 Collins & Aikman Products
11.500% 04/15/06 (144A)............. 104,000
-----------
BANKING (0.5%)
50,000 GS Escrow Corp.
7.125% 08/01/05..................... 49,566
-----------
BROADCAST RADIO/TV (7.3%)
100,000 ACME Television
10.875% 09/30/04.................... 80,250
100,000 Big City Radio Inc.
due 03/15/05 0% till 3/15/01 then
11.250% (144A)...................... 66,500
200,000 Chancellor Media Corp.
8.125% 12/15/07..................... 199,500
50,000 Chancellor Media Corp.
9.000% 10/01/08 (144A).............. 52,750
50,000 Cummulus Media Inc.
10.375% 07/01/08.................... 53,250
150,000 Fox/Liberty Networks LLC
due 08/15/07 0% till 08/01/02 then
9.750%.............................. 104,250
200,000 Sinclair Broadcast Group
8.750% 12/15/07..................... 203,500
-----------
760,000
-----------
BUSINESS SERVICES (4.1%)
75,000 Dialog Corp. PLC 11.000% 11/15/07.... 75,000
100,000 Fisher Scientific Intl
9.000% 02/01/08..................... 100,000
100,000 Sitel Corp. NT
9.250% 03/15/06 (144A).............. 90,500
100,000 United Stationers Supplies
8.375% 04/15/08..................... 100,250
100,000 US Office Products Co.
9.750% 06/15/08 (144A).............. 65,500
-----------
431,250
-----------
CABLE TV (9.2%)
125,000 Diamond Cable Comm. PLC
due 02/15/07 0% till 02/15/02 then
10.750%............................. 90,625
100,000 Echostar Satellite Broadcasting Corp.
due 03/15/04 0% till 03/15/00 then
13.125%............................. 100,250
100,000 Lenfest Communication
8.375% 11/01/05..................... 108,750
325,000 NTL Inc. due 04/01/08
0% till 04/01/03 then 9.750%
(144A).............................. 201,906
100,000 Pegasus Communications Ser.
B 9.625% 10/15/05................... 100,500
125,000 Rogers Cablesystems Ltd.
10.000% 03-15-05.................... 140,625
</TABLE>
<TABLE>
<CAPTION>
FACE MARKET
AMOUNT LONG-TERM BONDS & NOTES VALUE
- -------------------------------------------------------------
<C> <S> <C>
CABLE TV, CONTINUED
$175,000 Telewest Communications PLC
due 10/01/07 0% till 10-01-00 then
11.000%............................. $ 147,000
125,000 United Intl. Holdings Series B
due 02/15/08 0% till 02/15/03 then
10.750%............................. 68,125
-----------
957,781
-----------
CHEMICALS (3.4%)
150,000 ISP Holdings Inc.
9.000% 10/15/03..................... 159,375
200,000 Polymer Group Inc.
8.750% 03/01/08..................... 197,500
-----------
356,875
-----------
COMMUNICATIONS (20.1%)
50,000 American Cellular Corp.
10.500% 05/15/08 (144A)............. 49,750
50,000 Arch Communications Group
12.750% 07/01/07.................... 50,250
150,000 Call-Net Enterprises Inc.
due 08/15/07 0% till 8/15/02 then
9.270%.............................. 96,750
50,000 Centennial Cellular Corp.
10.750% 12/15/08.................... 50,500
50,000 Hermes Europe Railtel B.V.
11.50% 08/15/07..................... 53,250
50,000 Hermes Europe Railtel B.V.
10.375% 01/15/09.................... 51,000
150,000 ICG Services Inc.
due 05/01/08 0% till 05/03/03 then
9.875%.............................. 77,884
200,000 Intermedia Communications
8.600% 06/01/08..................... 191,000
100,000 IXC Communications Inc.
9.000% 04/15/08..................... 100,625
200,000 Level 3 Communication Inc.
9.125% 05/01/08..................... 199,500
225,000 Mcleod USA Inc.
due 03/01/07 0% till 03/01/02 then
10.500%............................. 171,000
200,000 Metronet Communications
due 06/15/08 0% till 06/15/03 then
9.950%.............................. 123,500
300,000 Nextel Communications
due 02/15/08 0% till 02/15/03 then
9.950% (144A)....................... 181,500
150,000 Nextlink Communications
due 04/15/08 0% 04/15/03 then
9.450%.............................. 87,000
100,000 Paging Network 10.125%
08/01/07............................ 98,000
100,000 Psinet Inc.
10.000% 02/15/05 (144A)............. 99,500
175,000 Qwest Communications Intl
due 10/15/07 0% 10/15/02 then
9.470%.............................. 137,375
100,000 Telecomm Techniques
9.750% 05/15/08 (144A).............. 97,500
150,000 Telesystem Intl. Wireless Ser. B
due 06/30/07 0% till 06/30/02 then
13.250%............................. 64,500
</TABLE>
(continued)
112
<PAGE> 200
OHIO NATIONAL FUND, INC.
HIGH INCOME BOND PORTFOLIO (CONTINUED)
SCHEDULE OF INVESTMENTS DECEMBER 31, 1998
<TABLE>
<CAPTION>
FACE MARKET
AMOUNT LONG-TERM BONDS & NOTES VALUE
- -------------------------------------------------------------
<C> <S> <C>
COMMUNICATIONS, CONTINUED
$ 75,000 Teligent Inc.
11.500% 12/01/07.................... $ 69,375
100,000 Triton Pcs. Inc.
due 05/01/08 0% till 05/01/03 then
11.000% (144A)...................... 47,250
-----------
2,097,009
-----------
CONSUMER PRODUCTS (7.1%)
75,000 Albecca Inc.
10.750% 08/15/08 (144A)............. 75,563
100,000 Amscan Holdings Inc.
9.875% 12/15/07..................... 93,750
100,000 Chattem Inc. Series B
8.875% 04/01/08..................... 103,000
100,000 NBTY Inc.
8.625% 09/15/07..................... 98,000
100,000 Playtex Family Products Corp.
9.000% 12/15/03..................... 105,000
200,000 Revlon Consumer Products Corp.
8.625% 02/01/08 (144A).............. 185,000
125,000 Sealy Mattress Co. Series B
due 12/05/07 0% till 12/15/02 then
10.875%............................. 75,625
-----------
735,938
-----------
CONTAINERS (2.0%)
100,000 Ball Corp.
8.250% 08/01/08 (144A).............. 105,125
100,000 Tenki-Plex Inc.
9.250% 03/01/08 (144A).............. 105,000
-----------
210,125
-----------
ENTERTAINMENT & LEISURE (6.0%)
100,000 Amf Bowling WW Inc.
due 03/15/06 0% till 03/15/01 then
12.250%............................. 57,750
175,000 CSC Holdings Inc.
9.250% 11/01/05..................... 187,250
50,000 Loews Cineplex Entertainment
8.875% 08/01/08 (144A).............. 51,875
325,000 Premeir Parks Inc.
due 04/01/08 0% till 04/01/03 then
10.000%............................. 221,813
100,000 Regal Cinemas Inc.
9.500% 06/01/08 (144A).............. 103,500
-----------
622,188
-----------
FOOD & RELATED (6.8%)
50,000 Agrilink Foods Inc.
11.875% 11/01/08.................... 51,000
150,000 Ameriserve Food Distribution Inc.
10.125% 07/15/07.................... 131,250
100,000 Aurora Foods Inc.
9.875% 02/15/07..................... 109,500
75,000 Digiorgio Corp. Series B
10.000% 06/15/07.................... 70,125
50,000 Dominos Inc.
10.375% 01/15/09.................... 50,000
100,000 Eagle Family Foods
8.750% 01/15/08..................... 94,750
</TABLE>
<TABLE>
<CAPTION>
FACE MARKET
AMOUNT LONG-TERM BONDS & NOTES VALUE
- -------------------------------------------------------------
<C> <S> <C>
FOOD & RELATED, CONTINUED
$100,000 International Home Foods
10.375% 11/01/06.................... $ 108,750
100,000 Stater Brothers Holdings
9.000% 07/01/04 (144A).............. 98,000
-----------
713,375
-----------
HOTEL/LODGING (1.2%)
125,000 HMH Properties Inc. Series B
.875% 08/01/08...................... 121,875
-----------
INDUSTRIAL SERVICES (6.5%)
200,000 Allied Waste N.A
7.625% 01/01/06..................... 203,000
100,000 Amphenol Corp.
9.875% 05/15/07..................... 104,000
75,000 Grove Worldwide LLC
9.250% 05/01/08..................... 68,625
50,000 Huntsman Corp.
9.500% 07/01/07..................... 50,000
100,000 ISG Resources Inc.
10.000% 04/15/08.................... 99,500
50,000 Metromedia Fiber Network
10.000% 11/15/08.................... 51,625
100,000 Wesco Distributions Inc.
9.125% 06/01/08..................... 100,500
-----------
677,250
-----------
MACHINERY (1.2%)
75,000 National Equipment Services
10.000% 11/30/04.................... 74,625
50,000 Untied Rentals Inc.
9.250% 01/15/09..................... 49,955
-----------
124,580
-----------
MEDIA & PUBLISHING (1.9%)
100,000 Hollinger Intl. Publishing
9.250% 02/01/06..................... 105,500
100,000 Ziff Davis Inc.
8.500% 05/01/08..................... 97,000
-----------
202,500
-----------
MEDICAL & RELATED (4.2%)
100,000 Conmed Corp.
9.000% 03/15/08..................... 100,750
100,000 Hudson Respiratory Care Inc.
9.125% 04/15/08 (144A).............. 81,500
250,000 Tenet Health Corp.
8.125% 12/01/08 (144A).............. 259,375
-----------
441,625
-----------
METAL & MINING (0.7%)
75,000 AEI Resources Inc.
11.500% 12/15/06.................... 74,625
-----------
OIL, ENERGY & NATURAL GAS (5.0%)
100,000 Chiles Offshore LLC
10.000% 05/01/08 (144A)............. 80,500
100,000 Dailey International
9.500% 02/15/08 (144A).............. 47,000
</TABLE>
(continued)
113
<PAGE> 201
OHIO NATIONAL FUND, INC.
HIGH INCOME BOND PORTFOLIO (CONTINUED)
SCHEDULE OF INVESTMENTS DECEMBER 31, 1998
<TABLE>
<CAPTION>
FACE MARKET
AMOUNT LONG-TERM BONDS & NOTES VALUE
- -------------------------------------------------------------
<C> <S> <C>
OIL, ENERGY & NATURAL GAS, CONTINUED
$200,000 KCS Energy
8.875% 01/15/08..................... $ 115,000
100,000 Nuevo Energy Co.
8.875% 06/01/08..................... 97,500
100,000 Pride Petroleum Services
9.375% 05/01/07..................... 93,500
150,000 Universal Compression Inc.
due 02/15/08 0% till 02/15/03 then
9.875%.............................. 86,250
-----------
519,750
-----------
TEXTILES & RELATED (1.7%)
75,000 Glenoit Corp.
11.000% 04/15/07.................... 70,125
100,000 Pillowtex Corp.
10.000% 11/15/06.................... 107,500
-----------
177,625
-----------
TRANSPORTATION & EQUIPMENT (1.1%)
125,000 Stena Line AB
10.625% 06/01/08.................... 113,125
-----------
UTILITIES (0.4%)
50,000 Niagara Mohawk Power
due 07/01/10 0% till 07/01/03 then
8.500%.............................. 38,882
-----------
TOTAL LONG-TERM BONDS & NOTES (93.2%)
(COST $10,130,010).................. $ 9,717,069
-----------
</TABLE>
<TABLE>
<CAPTION>
MARKET
SHARES PREFERRED STOCK VALUE
- -------------------------------------------------------------
<C> <S> <C>
COMMUNICATIONS (0.5%)
50 Benedek Communications
11.500% 05/18/08 (144A)............. $ 50,250
-----------
MEDIA & PUBLISHING (1.2%)
1,300 Primedia Inc. Series H
8.625% 04/01/10..................... 125,450
-----------
TOTAL PREFERRED STOCKS (1.7%)
(COST $179,025)..................... $ 175,700
-----------
</TABLE>
<TABLE>
<CAPTION>
FACE MARKET
AMOUNT REPURCHASE AGREEMENTS VALUE
- -------------------------------------------------------------
<C> <S> <C>
FINANCIAL (4.2%)
$443,000 Star Bank 3.50%
due 01/04/99 repurchase price
$443,170 collateralized by GNMA
certificates, pool #8375 due
02/20/24 (cost $443,000)............ $ 443,000
-----------
TOTAL REPURCHASE AGREEMENTS (4.2%)
(COST $443,000)..................... $ 443,000
-----------
TOTAL HOLDINGS (99.1%) (COST
$10,752,035)(A)..................... $10,335,769
-----------
CASH & RECEIVABLES, NET OF
LIABILITIES (0.9%).................. 94,978
-----------
TOTAL NET ASSETS (100.0%)............ $10,430,747
===========
</TABLE>
- ---------------
(a) Also represents cost for Federal Income tax purposes.
(144A) Security exempt from registration under Rule 144A of the Securities Act
of 1933. These Securities may be resold in transactions exempt from
registration, normally to qualified buyers. At the period end, the value
of these securities amounted to $2,299,344 or 22.1% of net assets. These
securities were deemed liquid pursuant to procedures approved by the
Board of Directors
The accompanying notes are an integral part of these financial statements.
114
<PAGE> 202
OHIO NATIONAL FUND, INC.
HIGH INCOME BOND PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1998
<TABLE>
<S> <C>
Assets:
Investments in securities at market value
(note 1) (cost $10,752,035)............. $10,335,769
Cash in bank.............................. 712
Receivable for fund shares sold........... 196
Dividends and accrued interest............ 154,699
Other..................................... 79
-----------
Total assets............................ 10,491,455
-----------
Liabilities:
Payable for securities purchased.......... 50,000
Payable for investment management services
(note 3)................................ 6,607
Other accrued expenses.................... 4,101
-----------
Total liabilities....................... 60,708
-----------
Net assets at market value.................. $10,430,747
===========
Net assets consist of:
Par value, $1 per share................... $ 1,088,236
Paid-in capital in excess of par value.... 9,758,777
Net unrealized depreciation on investments
(note 1)................................ (416,266)
-----------
Net assets at market value.................. $10,430,747
===========
Shares outstanding (note 4)................. 1,088,236
Net asset value per share................... $ 9.59
===========
</TABLE>
STATEMENT OF OPERATIONS
May 1, 1998 to December 31, 1998
<TABLE>
<S> <C>
Investment income:
Interest................................... $ 458,677
Dividends.................................. 6,913
----------
Total investment income.................. 465,590
----------
Expenses:
Management fees (note 3)................... 50,117
Custodian fees (note 3).................... 3,210
Directors' fees (note 3)................... 227
Professional fees.......................... 984
Accounting and transfer agent fees......... 23,981
Other...................................... 1,422
----------
Total expenses........................... 79,941
----------
Net investment income.................... $ 385,649
Realized and unrealized gain (loss) on
investments:
Net realized gain from investments......... $ 18,061
Net increase in unrealized depreciation on
investments.............................. (416,266)
----------
Net loss on investments................ (398,205)
----------
Net decrease in net assets from
operations.......................... $ (12,556)
==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
115
<PAGE> 203
OHIO NATIONAL FUND, INC.
HIGH INCOME BOND PORTFOLIO
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
FOR THE PERIOD
FROM MAY 1, 1998
TO DECEMBER 31, 1998
--------------------
<S> <C>
From operations:
Net investment income..................................... $ 385,649
Realized gain on investments.............................. 18,061
Unrealized loss on investments............................ (416,266)
-----------
Net decrease in net assets from operations............ (12,556)
-----------
Dividends and distributions to shareholders:
Dividends paid from net investment income................. (386,035)
Capital gains distributions............................... (18,061)
-----------
Total dividends and distributions..................... (404,096)
-----------
From capital share transactions (note 4):
Received from shares sold................................. 10,451,643
Received from dividends reinvested........................ 404,096
Paid for shares redeemed.................................. (8,340)
-----------
Increase in net assets derived from capital share
transactions......................................... 10,847,399
-----------
Increase in net assets............................. 10,430,747
Net Assets:
Beginning of period....................................... 0
-----------
End of period............................................. $10,430,747
===========
</TABLE>
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
FOR THE PERIOD
FROM MAY 1, 1998
TO DECEMBER 31, 1998
--------------------
<S> <C>
Per share data:
Net asset value, beginning of period........................ $10.00
Loss from investment operations:
Net investment income..................................... 0.38
Net realized and unrealized loss on investments........... (0.40)
Total loss from investment operations................... (0.02)
------
Less distributions:
Dividends declared........................................ (0.37)
Distributions from net realized capital gains............. (0.02)
Total distributions..................................... (0.39)
------
Net asset value, end of period.............................. $ 9.59
Total return (b)............................................ (0.20%)
Ratios and supplemental data:
Ratio of expenses to average net assets................... 1.20%
Ratio of net investment income to average net assets...... 5.79%
Portfolio turnover rate..................................... 11%
Net assets at end of period (millions)...................... $ 10.4
</TABLE>
- ---------------
(a) Annualized
(b) Calculated since inception, May 1, 1998. Not annualized.
The accompanying notes are an integral part of these financial statements.
116
<PAGE> 204
SMALL CAP GROWTH PORTFOLIO
OHIO NATIONAL FUND, INC.
OBJECTIVE
The Small Cap Growth Portfolio seeks capital appreciation by investing primarily
in common stocks of emerging growth companies.
PERFORMANCE AS OF DECEMBER 31, 1998
<TABLE>
<S> <C>
TOTAL RETURN:
Since inception (5/1/98) 4.62%
</TABLE>
Returns represent past performance, which is no guarantee of future results.
Investment return and principal value will vary so that shares, when redeemed,
may be worth more or less than their original cost. Actual results for variable
annuity and variable universal life contracts will be lower due to contract
charges. Consult your contract for applicable charges for mortality and
expenses.
COMMENTS
The small-cap sector was volatile, depressing, inspiring, and when all was done,
reasonably flat in performance for the year. Fortunately, we managed to provide
significantly better returns.
The portfolio rose 36.33% in the fourth quarter 1998. This compares to the
benchmark Russell 2000 Growth that rallied up 23.64% in the fourth quarter to
close the year with a modest 1.23% return. On the strength of a strong fourth
quarter, we produced a since inception return of 4.62% versus a decline of
10.07% in the benchmark Russell 2000 Growth.
The small-cap market provided investors a great challenge last year. Our
diligent research effort paid off significantly, enabling us to understand,
analyze, and finally purchase a broad number of truly exciting emerging growth
companies and navigate the volatility that characterized the year. We go into
1999 cautiously optimistic about the small-cap investment environment.
CHANGE IN VALUE OF $10,000 INVESTMENT
[GRAPH]
Hypothetical illustration based on past performance. Future performance will
vary. All returns reflect reinvested dividends. The portfolio's holdings may
differ significantly from the securities in the index. The index is unmanaged
and therefore does not reflect the cost of portfolio management or trading.
Neither the portfolio nor the index is open to direct investment.
TOP 10 HOLDINGS AS OF DECEMBER 31, 1998
<TABLE>
<CAPTION>
% of Net Assets
<C> <S> <C>
1. Lamar Advertising Co 3.3
2. TSI International Software Ltd 3.2
3. Gemstar Intl Group LTD 3.0
4. Network Solutions 2.9
5. Ecsoft Group PLC 2.3
6. American Eagle Outfitters Inc 2.0
7. Xoom.com Inc 2.0
8. Beyond.com Corp 1.9
9. Knight/Trimark Group Inc-A 1.8
10. Macromedia Inc 1.8
</TABLE>
TOP 5 INDUSTRIES AS OF DECEMBER 31, 1998
<TABLE>
<CAPTION>
% of Net Assets
<S> <C>
Computer & Related 17.0
Financial Services 7.6
Retail 7.0
Electrical Equipment 6.2
Communications 5.7
</TABLE>
117
<PAGE> 205
OHIO NATIONAL FUND, INC.
SMALL CAP GROWTH PORTFOLIO
SCHEDULE OF INVESTMENTS DECEMBER 31, 1998
<TABLE>
<CAPTION>
MARKET
SHARES U.S. COMMON STOCK VALUE
- ------------------------------------------------------------
<C> <S> <C>
ADVERTISING (5.7%)
400 *Doulbeclick Inc...................... $ 18,225
2,000 *Lamar Advertising Co................. 74,500
900 *TMP Worldwide Inc.................... 37,800
----------
130,525
----------
BROADCAST RADIO & TV (3.8%)
200 *CD Radio Inc......................... 6,850
400 *Emmis Broadcasting Corp. CL A........ 17,350
1,000 *Infinity Broadcasting Corp. A........ 27,375
300 *Jacor Communications Inc. CL A....... 19,312
400 *Univision Communications Inc......... 14,475
----------
85,362
----------
BUSINESS SERVICES (3.8%)
500 *Compass Int. Services Corp........... 5,312
1,600 *DM Management Co..................... 30,400
200 *International Telecom Data........... 2,950
200 *Professional Detailing............... 5,650
600 *Ritchie Bros. Auctionees Inc......... 16,162
800 *Steiner Leisure Ltd.................. 25,600
----------
86,074
COMMUNICATIONS (5.9%)
2,300 *Allegiance Telecom Inc............... 27,888
1,100 *Com Twenty-One Inc................... 23,100
500 *DSET Corp............................ 5,187
700 *Echostar Communication A............. 33,862
2,900 *Electric Lightwave Inc. CL A......... 23,744
900 *ICG Communications Inc............... 19,350
----------
133,131
----------
COMPUTER SERVICES (7.1%)
500 *Brightstar Inform. Tech. Group
Inc.................................. 3,937
600 *Cognizant Tech Solution Corp......... 18,225
600 *Mastech Corp......................... 17,175
1,200 *SPR Inc.............................. 20,700
500 *Verisign Inc......................... 29,563
1,500 *TSI Intl. Software Corp.............. 71,813
----------
161,413
----------
COMPUTER SOFTWARE (7.6%)
500 *Electronic Processing Inc............ 5,000
200 *Keane Inc............................ 7,987
200 *IMR Global Corp...................... 5,887
700 *Inso Corp............................ 17,500
1,200 *Macromedia Inc....................... 40,425
800 *Mapics Inc........................... 13,200
600 *New Era of Networks Inc.............. 26,400
1,900 *Pervasive Software Inc............... 36,575
133 Timberline Software Corp.............. 1,829
400 *Wind River Systems................... 18,800
----------
173,603
----------
CONSUMER PRODUCTS (1.0%)
100 *American Bank Note Holograph......... 1,750
600 *Tropical Sportswear Intl............. 21,525
----------
23,275
----------
</TABLE>
<TABLE>
<CAPTION>
MARKET
SHARES U.S. COMMON STOCK VALUE
- ------------------------------------------------------------
<C> <S> <C>
DRUGS (0.9%)
800 *Geltex Pharmaceuticals Inc........... $ 18,100
100 *King Pharmaceuticals Inc............. 2,612
----------
20,712
----------
EDUCATION/SCHOOLS (2.0%)
200 *Bright Horizons Family Solutions..... 5,400
1,000 *Education Management Corp............ 23,625
500 *ITT Educational Services Inc......... 17,000
----------
46,025
----------
ELECTRICAL EQUIPMENT (6.2%)
400 *Applied Micro Circuits............... 13,588
1,200 *Artisan Components Inc............... 6,375
100 *Carrier Access Corp.................. 3,444
700 *E-Tek Dynamics Inc................... 18,725
300 *Jabil Circuit Inc.................... 22,387
400 *RF Micro Devices Inc................. 18,550
300 *Sanmina Corp......................... 18,750
1,000 *Transwitch Corp...................... 38,938
----------
140,757
----------
INSURANCE SERVICES (2.0%)
1,400 *Xoom.com Inc......................... 46,200
----------
FINANCIAL SERVICES (7.6%)
1,100 *Ameritrade Holding Corp. CL A........ 34,650
700 Arm Financial Group Inc. CL A......... 15,531
1,100 *Financial Federal Corp............... 27,225
1,700 *Knight/Trimark Group................. 40,694
700 *NCO Group Inc........................ 31,500
100 *Telebanc Financial Corp.............. 3,400
800 Waddell & Reed........................ 18,950
----------
171,950
----------
HOUSING, FURNITURE & RELATED (2.2%)
600 *Knoll Inc............................ 17,775
1,200 *Select Comfort Corp.................. 31,725
----------
49,500
----------
HOTEL/LODGING (1.7%)
1,000 Four Seasons Hotels Inc............... 29,250
500 Intrawest Resorts..................... 8,438
----------
37,688
----------
HUMAN SERVICES (2.2%)
600 *Data Processing Resources Corp....... 17,550
900 *Labor Ready Inc...................... 17,719
200 *On Assignment Inc.................... 6,900
400 *Vincam Group Inc..................... 7,025
----------
49,194
----------
INTERNET SOFTWARE & SERVICES (10.2%)
1,300 *24/7 Media Inc....................... 36,400
900 *Abovenet Communications.............. 18,900
300 *CMG Information Services Inc......... 31,950
300 *Earthlink Network Inc................ 17,100
600 *Lycos Inc............................ 33,338
100 *Mindspring Enterprises Inc........... 6,106
</TABLE>
(continued)
118
<PAGE> 206
OHIO NATIONAL FUND, INC.
SMALL CAP GROWTH PORTFOLIO (CONTINUED)
SCHEDULE OF INVESTMENTS DECEMBER 31, 1998
<TABLE>
<CAPTION>
MARKET
SHARES U.S. COMMON STOCK VALUE
- ------------------------------------------------------------
<C> <S> <C>
INTERNET SOFTWARE & SERVICES, CONTINUED
500 *Network Solutions..................... $ 65,438
1,100 *Psinet Inc............................ 22,962
----------
232,194
----------
INDUSTRIAL SERVICES (0.8%)
100 *Rental Service Corp................... 1,569
700 *U.S. Liquids Inc...................... 15,750
----------
17,319
----------
MEDIA & PUBLISHING (3.9%)
500 *Macrovision Corp...................... 21,125
1,200 *Gemstar Intl. Group Ltd............... 68,700
----------
89,825
----------
MEDICAL & RELATED (4.3%)
800 *Cytyc Corp............................ 20,600
600 *Incyte Pharmaceuticals................ 22,425
1,100 *Ocular Sciences Inc................... 29,425
300 *Province Healthcare Co................ 10,763
700 *Sabratek Corp......................... 11,463
100 *Xomed Surgical Products Inc........... 3,200
----------
97,876
----------
NETWORK PRODUCTS (5.1%)
400 *Concur Technologies Inc............... 12,200
700 *Concord Communications................ 39,725
200 *International Network Services........ 13,300
500 *ISS Group Inc......................... 27,500
600 *Visual Networks Inc................... 22,500
----------
115,225
----------
PRINTING & PUBLISHING (0.6%)
200 *Consolidation Graphics Inc............ 13,513
----------
REAL ESTATE AND LEASING (0.5%)
600 *CB Richard Ellis Services............. 10,875
----------
RESTAURANTS (0.1%)
100 *P.J. America Inc...................... 1,812
----------
RETAIL (7.0%)
500 *Abercrombie & Fitch Co. CL A.......... 35,375
700 *American Eagle Outfitters Inc......... 46,638
2,100 *Beyond.Com Corp....................... 43,575
1,100 *Comp USA Inc.......................... 14,369
500 *Onsale Inc............................ 20,031
----------
159,988
----------
TRAVEL SERVICES (0.5%)
400 *Global Vacation Group Inc............. 3,450
500 *Resortquest International............. 7,312
----------
10,762
----------
</TABLE>
<TABLE>
<CAPTION>
MARKET
SHARES U.S. COMMON STOCK VALUE
- ------------------------------------------------------------
<C> <S> <C>
TRANSPORTATION (0.8%)
600 Skywest Inc........................... $ 19,613
----------
VITAMINS/NUTRITION PRODUCTS (0.5%)
100 *Twinlab Corp.......................... 1,312
1,000 *Usana Inc............................. 10,125
----------
11,437
----------
TOTAL U.S. COMMON STOCK
(94.0%) (COST $1,585,404)............ $2,135,848
----------
</TABLE>
<TABLE>
<CAPTION>
MARKET
SHARES FOREIGN COMMON STOCK VALUE
- ------------------------------------------------------------
<C> <S> <C>
UNITED KINGDOM (2.6%)
COMPUTER SERVICES (2.3%)
1,500 *Ecsoft Group PLC...................... $ 52,875
----------
HUMAN SERVICES (0.3%)
300 Select Appointments Hldg PLC ADR...... 6,450
----------
TOTAL UNITED KINGDOM.................. 59,325
----------
TOTAL FOREIGN COMMON STOCK
(2.6%) (COST $53,142)................ $ 59,325
----------
TOTAL COMMON STOCK
(96.7%) (COST $1,638,546)............ $2,195,173
----------
</TABLE>
<TABLE>
<CAPTION>
FACE MARKET
AMOUNT REPURCHASE AGREEMENTS VALUE
- ------------------------------------------------------------
<C> <S> <C>
FINANCIAL (3.2%)
$74,000 Star Bank 3.50% due 01/04/99
repurchase price $74,029
collateralized by GNMA certificate
pool #8375 due 02/20/24 (cost
$74,000)............................. $ 74,000
----------
TOTAL REPURCHASE AGREEMENTS
(3.2%) (COST $74,000)................ $ 74,000
----------
TOTAL HOLDINGS (99.9%)
(COST $1,712,546) (a)................ $2,269,173
----------
CASH & RECEIVABLES, NET OF
LIABILITIES (0.1%)................... 1,900
----------
TOTAL NET ASSETS (100.0%)............. $2,271,073
==========
</TABLE>
- ---------------
* Non-income producing securities
(a) Also represents cost for Federal Income tax purposes.
The accompanying notes are an integral part of these financial statements.
119
<PAGE> 207
OHIO NATIONAL FUND, INC.
SMALL CAP GROWTH PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1998
<TABLE>
<S> <C>
Assets:
Investments in securities at market value
(note 1) (cost $1,712,546).............. $ 2,269,173
Cash in bank.............................. 725
Dividends and accrued interest
receivable.............................. 55
Other..................................... 9,583
-----------
Total assets............................ 2,279,536
-----------
Liabilities:
Payable for securities purchased.......... 2,625
Payable for investment management services
(note 3)................................ 2,836
Other accrued expenses.................... 3,002
-----------
Total liabilities....................... 8,463
-----------
Net assets at market value.................. $ 2,271,073
===========
Net assets consist of:
Par value, $1 per share................... $ 217,009
Paid-in capital in excess of par value.... 1,912,360
Accumulated net realized loss on
investments (note 1).................... (414,923)
Net unrealized appreciation on investments
(note 1)................................ 556,627
-----------
Net assets at market value.................. $ 2,271,073
===========
Shares outstanding (note 4)................. 217,009
Net asset value per share................... $ 10.47
===========
</TABLE>
STATEMENT OF OPERATIONS
May 1, 1998 to December 31, 1998
<TABLE>
<S> <C>
Investment income:
Interest................................... $ 5,361
Dividends.................................. 534
----------
Total investment income.................. 5,895
----------
Expenses:
Management fees (note 3)................... 10,726
Custodian fees (note 3).................... 3,210
Directors' fees (note 3)................... 132
Professional fees.......................... 420
Accounting and transfer agent fees......... 17,454
Other...................................... 702
----------
Total expenses........................... 32,644
Less expenses voluntarily reduced or
reimbursed (note 3).................... (9,157)
----------
Net expenses............................. 23,487
----------
Net investment loss...................... $ (17,592)
----------
Realized and unrealized gain (loss) on
investments:
Net realized loss from investments......... $ (414,923)
Net increase in unrealized appreciation on
on investments........................... 556,627
----------
Net gain on investments................ 141,704
----------
Net increase in net assets from
operations.......................... $ 124,112
==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
120
<PAGE> 208
OHIO NATIONAL FUND, INC.
SMALL CAP GROWTH PORTFOLIO
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
FOR THE PERIOD
FROM MAY 1, 1998
TO DECEMBER 31,
1998
-----------------
<S> <C>
From operations:
Net investment loss....................................... $ (17,592)
Realized loss on investments.............................. (414,923)
Unrealized gain on investments............................ 556,627
----------
Net increase in net assets from operations............ 124,112
----------
From capital share transactions (note 4):
Received from shares sold................................. 2,148,414
Paid for shares redeemed.................................. (1,453)
----------
Increase in net assets derived from capital share
transactions......................................... 2,146,961
----------
Increase in net assets............................. 2,271,073
----------
Net Assets:
Beginning of period....................................... 0
----------
End of period............................................. $2,271,073
==========
</TABLE>
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
FOR THE PERIOD
FROM MAY 1, 1998
TO DECEMBER 31,
1998
-----------------
<S> <C>
Per share data:
Net asset value, beginning of period........................ $10.00
Income from investment operations:
Net investment loss....................................... (0.09)
Net realized and unrealized gain on investments........... 0.56
------
Total income from investment operations................. 0.47
------
Net asset value, end of period.............................. $10.47
======
Total return (b)............................................ 4.62%
Ratios and supplemental data (a)(c):
Ratios net of fees reimbursed by advisor:
Expenses................................................ 1.96%
Net investment income................................... (1.47)%
Ratios assuming no fees reimbursed by advisor:
Expenses................................................ 2.72%
Net investment income................................... (2.23)%
Portfolio turnover rate..................................... 121%
Net assets at end of period (millions)...................... $ 2.3
</TABLE>
- ---------------
(a) Annualized
(b) Calculated since inception, May 1, 1998. Not annualized.
(c) The advisor has elected to reimburse certain operating expenses of the Small
Cap Growth portfolio.
The accompanying notes are an integral part of these financial statements.
121
<PAGE> 209
OHIO NATIONAL FUND, INC. December 31, 1998
NOTES TO FINANCIAL STATEMENTS
(1) BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES
Ohio National Fund, Inc. (Fund) is registered under the Investment Company
Act of 1940 as amended (the "1940 Act"), as a diversified, open-end
management investment company. The Fund is a series investment company which
consists of twenty separate investment portfolios that seek the following
investment objectives:
o Equity Portfolio -- long-term growth of capital by investing principally
in common stocks or other equity securities. Current income is a secondary
objective.
o Money Market Portfolio -- maximum current income consistent with
preservation of capital and liquidity by investing in high quality money
market instruments.
o Bond Portfolio -- high level of return consistent with preservation of
capital by investing primarily in high quality intermediate and long-term
debt securities.
o Omni Portfolio -- high level of long-term total return consistent with
preservation of capital by investing in stocks, bonds, and money market
instruments.
o International Portfolio -- long-term capital growth by investing primarily
in common stocks of foreign companies.
o 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.
o Small Cap Portfolio -- maximum capital growth by investing primarily in
common stocks of small- and medium-sized companies.
o Global Contrarian Portfolio -- long-term growth of capital by investing in
foreign and domestic securities believed to be undervalued or presently
out of favor.
o Aggressive Growth Portfolio -- capital growth.
o Core Growth Portfolio -- long-term capital appreciation.
o 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.
o S&P 500 Index Portfolio -- total return that approximates that of the
Standard & Poor's 500 Index ("S&P 500") by investing in common stocks and
in stock index futures contracts hedged by U.S. Government obligations,
investment grade corporate bonds and cash equivalents.
o Social Awareness Portfolio -- long-term capital growth by investing
primarily in common stocks and other equity securities of companies that,
in the Advisor's opinion, conduct their business in a way that enhances
society's quality of life.
o 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.
o Stellar Portfolio -- maximum total return by investing in domestic and
foreign securities (equity and fixed income), real estate, precious metal
securities, and money market securities.
o Relative Value Portfolio -- maximum total return consistent with
reasonable risk by investing primarily in equity securities.
The following portfolios commenced operations on May 1, 1998:
o Blue Chip Portfolio -- growth of capital and income by concentrating
investment decisions in securities of high quality companies.
o Equity Income Portfolio -- above average income and capital appreciation
by investing primarily in high quality income producing equity securities
including common stock, preferred stock, REIT's, and securities
convertible into common stock.
122
<PAGE> 210
OHIO NATIONAL FUND, INC. December 31, 1998
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
o High Income Bond Portfolio -- seek high current income by investing
primarily in lower rated corporate debt obligations commonly referred to
as "junk bonds". The portfolio's investments are generally rated Baa or
lower by Moody's, or BBB or lower by S&P or Fitch.
o Small Cap Growth -- capital appreciation by investing in and actively
managing equity securities in emerging growth companies.
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 but the Money Market Portfolio, securities which are traded on U.S.
and foreign stock exchanges or in the over-the-counter markets are valued at
the last sale price or, if there has been no sale that day, at the last bid
reported as of 4:00 p.m. Eastern time on each day the New York Stock
Exchange is open for unrestricted trading. Over-the-counter securities are
valued at the last bid price 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 value obtained from yield
data relating to instruments or securities with similar characteristics. All
investments and cash quoted in foreign currencies are valued daily in U.S.
dollars on the basis of the foreign currency exchange rates prevailing at
the time of such valuation.
Foreign currency exchange rates are generally determined prior to 4:00 p.m.
Eastern time. Occasionally, events affecting the value of foreign
investments and such exchange rates occur between the time at which they are
determined and the time of valuation, which in the case of the
International, Small Cap, Global Contrarian, Aggressive Growth, Stellar,
Blue Chip, and Small Cap 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 contracts). A forward contract is a commitment to
purchase or sell a foreign currency at a future date, at a negotiated rate.
Additionally, the Fund may enter into such contracts to hedge certain other
foreign currency denominated investments. These contracts are recorded at
market value, and the related realized and unrealized foreign exchange gains
and losses are included in the statement of operations. In the event that
counterparties fail to settle these currency contracts or the related
foreign security trades, the Fund could be exposed to foreign currency
fluctuations.
Each portfolio other than the Money Market Portfolio may (a) write call
options traded on a registered national securities exchange if such
portfolio owns the underlying securities subject to such options, and
purchase call options for the purpose of closing out positions it has
written, (b) purchase put options on securities owned, and sell such options
in order to close its positions in put options, (c) purchase and sell
financial futures and options thereon, and (d) purchase and sell financial
index options; provided, however, that no option or futures contract shall
be purchased or sold if, as a result, more than one-third of the total
assets of the portfolio would be hedged by options or futures contracts, and
no more than 5% of any portfolio's total assets, at market value, may be
used for premiums on open options and initial margin deposits on futures
contracts. Options are recorded at market value, and the related realized
and unrealized gains and losses are included in the statement of operations.
The portfolios making use of options bear the market risk of an unfavorable
change in the price of any security underlying the options.
The Fund may invest in two kinds of financial futures contracts: stock index
futures contracts and interest rate futures contracts. Stock index futures
contracts are contracts developed by and traded on national commodity
exchanges whereby the buyer will, on a specified future date, pay or receive
a final cash payment equal to the difference between the actual value
123
<PAGE> 211
OHIO NATIONAL FUND, INC. December 31, 1998
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
of the stock index on the last day of the contract and the value of the stock
index established by the contract multiplied by the specific dollar amount
set by the exchange.
Futures contracts may be based on broad-based stock indexes such as the
Standard & Poor's 500 Index or on narrow-based stock indexes. A particular
index will be selected according to Ohio National Investments, Inc.'s
("ONI's"), the investment advisor to the Fund, investment strategy for the
particular portfolio. The Fund may enter into such contracts to reduce the
risk of fluctuation of portfolio securities values or to take advantage of
expected market fluctuations.
The S&P 500 Index Portfolio currently holds investments in S&P 500 Index
Futures Contracts. The contracts in the S&P 500 Index Portfolio are fully
hedged with commercial paper and/or US Treasuries. The Aggressive Growth
Portfolio currently holds investments in Russell 2000 Index Futures Contracts
and S&P 500 Index Future Contracts. The futures contracts in the S&P 500
Index Portfolio and the Aggressive Growth Portfolio at December 31, 1998 are
as follows:
<TABLE>
<CAPTION>
EXPIRATION UNDERLYING FACE UNREALIZED CASH DEPOSITED
PORTFOLIO PURCHASED DATE AMOUNT AT VALUE GAIN AS MARGIN REQUIREMENT
--------- --------- ---------- --------------- ----------- ---------------------
<S> <C> <C> <C> <C> <C>
S&P 500 138 S&P 500 Index Contracts March '99 $ 41,071,750 $ 2,090,500 $ 1,863,000
Aggressive Growth 3 Russell 2000 Index Contracts March '99 621,700 15,800 27,200
Aggressive Growth 6 S&P 500 Index Contracts March '99 1,851,275 16,975 80,800
</TABLE>
Securities transactions are recorded on a trade date basis. Dividend income
is recognized on the ex-dividend date (except in the case of foreign
securities in the International, Small Cap, Global Contrarian, Aggressive
Growth, Stellar, Blue Chip, and Small Cap 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 using the first-in, first-out method except in the case of the
Aggressive Growth and Growth and Income Portfolios in which the identified
cost basis is used.
The books and records of all the portfolios are maintained in U.S. dollars.
Foreign currency amounts in the International, Small Cap, Global Contrarian,
Aggressive Growth, Stellar, Blue Chip and Small Cap Growth Portfolios are
translated into U.S. dollars on the following basis:
(1) market value of investments, other assets and liabilities -- at exchange
rates prevailing at the end of the period.
(2) purchases and sales of investments, income and expenses -- at the rates
of exchange prevailing on the respective dates of such transaction.
Although the net assets and the market value of the portfolios are presented
at the foreign exchange rates at the end of the period, the portfolios do not
generally isolate the effect of fluctuations in foreign exchange rates from
the effect of changes in the market price of the investments. However, for
tax purposes, the portfolios do isolate the effect of fluctuations in foreign
exchange rates when determining the gain or loss upon sale or maturity of
foreign-currency denominated debt obligations pursuant to Federal income tax
regulations.
Foreign investment and currency transactions may involve certain
considerations and risks not typically associated with investing in U.S.
companies and the U.S. Government. These risks, including re-evaluation of
currency and future adverse political and economic developments, could cause
investments and their markets to be less liquid and prices more volatile than
those of comparable U.S. companies and the U.S. Government.
Each portfolio may acquire repurchase agreements from member banks of the
Federal Reserve System which ONI deems creditworthy under guidelines approved
by the Board of Directors, subject to the seller's agreement to repurchase
such securities at a mutually agreed upon date and price. The repurchase
price generally equals the price paid by the portfolio plus interest
negotiated on the basis of current short-term rates, which may be more or
less than the rate on the underlying portfolio securities. The seller, under
a repurchase agreement, is required to maintain as collateral for the
repurchase transaction securities in which the portfolio has a perfected
security interest with a value not less than 100% of the repurchase price
(including accrued interest). Securities subject to repurchase agreements are
held by the Fund's custodian or another qualified custodian or in the Federal
Reserve/Treasury book-entry system. Repurchase agreements are considered to
be loans by the portfolio under the 1940 Act.
124
<PAGE> 212
OHIO NATIONAL FUND, INC. December 31, 1998
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
Net investment income (loss) and net realized gains (losses) may differ for
financial statement and tax purposes primarily due to wash sales and net
operating losses. The character of distributions made during the period from
net investment income or net realized gains, if any, may differ from their
ultimate characterization for federal income tax purposes. On the statement
of assets and liabilities, as a result of permanent book-to-tax differences,
the following reclassifications were made in the Small Cap, Aggressive
Growth, Core Growth and Small Cap Growth Portfolios: accumulated net
investment loss has been decreased by $187,071, $21,640, $62,638 and $17,952,
respectively, resulting in a reclassification adjustment to decrease Paid-in
capital in excess of par value by $187,071, $21,640, $62,638 and $17,952
respectively. This reclassification has no effect on net assets or net asset
value per share.
For Federal income tax purposes, the Bond, Omni, Small Cap, Core Growth,
Growth and Income, Social Awareness, Strategic Income, Blue Chip, Equity
Income and Small Cap Growth Portfolios had capital loss carryovers of
$274,501, $681,856, $4,198,422, $1,632,809, $3,005,094, $622,020, $97,030,
$18,271, $5,714 and $414,923 respectively, at December 31, 1998. If not
offset by capital gains, $41,235 will expire in 2003 in the Bond Portfolio,
$2,893 and $447,567 will expire in 2005 in the Bond and Core Growth
Portfolios, respectively and $230,373, $681,856, $4,198,422, $1,185,242,
$3,005,094, $622,022, $97,030, $18,271, $5,714 and $414,923 will expire in
2006 in the Bond, Omni, Small Cap, Core Growth, Growth and Income, Social
Awareness, Strategic Income, Blue Chip, Equity Income and Small Cap Growth
Portfolios, respectively. 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.
It is the policy of the Fund to distribute to its shareholders substantially
all of its taxable income, thus gaining relief from Federal income taxes
under provisions of current tax regulations applicable to investment
companies of this type. Accordingly, no provision for Federal income taxes
has been made.
Expenses directly attributable to a portfolio are charged to that portfolio.
Expenses not directly attributed to a portfolio are allocated on the basis of
relative net assets.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of increases and decreases in net assets from operations
during the reporting period. Actual results could differ from those
estimates.
The gross unrealized appreciation and depreciation on investments in each
portfolio as of December 31, 1998 were as follows:
<TABLE>
<CAPTION>
CAPITAL
EQUITY BOND OMNI INTERNATIONAL APPRECIATION
------------ ----------- ------------ ------------- -------------
<S> <C> <C> <C> <C> <C>
Gross unrealized:
Appreciation............................ $127,628,808 $ 1,004,138 $ 63,012,142 $ 16,944,183 $ 6,887,251
Depreciation............................ (14,989,841) (390,280) (10,021,510) (25,740,274) (3,778,113)
Net unrealized:
Appreciation (Depreciation)............. 112,638,967 613,858 52,990,632 (8,796,091) 3,109,138
</TABLE>
<TABLE>
<CAPTION>
SMALL GLOBAL AGGRESSIVE CORE GROWTH &
CAP CONTRARIAN GROWTH GROWTH INCOME
------------ ----------- ------------ ------------- -------------
<S> <C> <C> <C> <C> <C>
Gross unrealized:
Appreciation............................ $ 21,939,495 $ 1,274,336 $ 2,940,298 $ 2,824,800 $ 9,485,474
Depreciation............................ (1,809,202) (2,265,134) (1,700,872) (186,758) (3,237,614)
Net unrealized:
Appreciation............................ 20,130,293 (990,798) 1,239,426 2,638,042 6,247,860
</TABLE>
125
<PAGE> 213
OHIO NATIONAL FUND, INC. December 31, 1998
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
<TABLE>
<CAPTION>
SOCIAL STRATEGIC RELATIVE
S&P 500 AWARENESS INCOME STELLAR VALUE
------------ ----------- ------------ ------------- -------------
<S> <C> <C> <C> <C> <C>
Gross unrealized:
Appreciation............................ $ 8,688,208 $ 476,450 $ 63,288 $ 296,100 $ 1,872,191
Depreciation............................ (870,560) (1,868,896) (261,139) (192,375) (128,422)
Net unrealized:
Appreciation (Depreciation)............. 7,817,648 (1,392,446) (197,851) 103,725 1,743,769
</TABLE>
<TABLE>
<CAPTION>
EQUITY HIGH INCOME SMALL CAP
BLUE CHIP INCOME BOND GROWTH
------------ ----------- ------------ -------------
<S> <C> <C> <C> <C>
Gross unrealized:
Appreciation............................ $ 289,890 $ 246,997 $ 135,268 $ 632,194
Depreciation............................ (179,789) (128,976) (551,534) (75,567)
Net unrealized:
Appreciation (Depreciation)............. 110,101 118,021 (416,266) 556,627
</TABLE>
(2) INVESTMENT TRANSACTIONS
Purchases and sales of investment securities (excluding short-term
securities) for the year ended December 31, 1998 were as follows:
<TABLE>
<CAPTION>
CAPITAL
EQUITY BOND OMNI INTERNATIONAL APPRECIATION
------------ ------------ ------------ ------------- -------------
<S> <C> <C> <C> <C> <C>
Stocks & Bonds:
Purchases............................... $ 68,906,018 $ 11,874,909 $ 53,692,318 $ 29,867,283 $ 39,591,352
Sales................................... 68,240,377 2,777,343 32,345,296 27,036,107 26,909,965
U.S. Government Obligations:
Purchases............................... -- -- -- -- 1,822,469
Sales................................... -- -- -- -- 125,000
</TABLE>
<TABLE>
<CAPTION>
SMALL GLOBAL AGGRESSIVE CORE GROWTH &
CAP CONTRARIAN GROWTH GROWTH INCOME
------------ ------------ ------------ ------------- -------------
<S> <C> <C> <C> <C> <C>
Stocks & Bonds:
Purchases............................... $ 71,027,299 $ 10,541,770 $ 46,159,901 $ 13,551,395 $ 131,057,532
Sales................................... 54,940,257 8,513,040 42,007,664 12,345,416 99,509,813
U.S. Government Obligations:
Purchases............................... -- -- 222,284 -- --
Sales................................... -- -- 285,000 -- --
</TABLE>
<TABLE>
<CAPTION>
SOCIAL STRATEGIC RELATIVE
S&P 500 AWARENESS INCOME STELLAR VALUE
------------ ----------- ------------ ------------- -------------
<S> <C> <C> <C> <C> <C>
Stocks & Bonds:
Purchases............................... $ 63,131,513 $ 8,635,349 $ 4,542,831 $ 2,245,625 $ 7,029,754
Sales................................... 31,602,547 4,471,383 3,378,459 1,770,962 4,220,889
U.S. Government Obligations:
Purchases............................... -- -- 485,788 518,326 --
Sales................................... -- -- 376,351 309,376 --
</TABLE>
126
<PAGE> 214
OHIO NATIONAL FUND, INC. December 31, 1998
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
<TABLE>
<CAPTION>
HIGH INCOME EQUITY SMALL CAP
BLUE CHIP BOND INCOME GROWTH
------------ ----------- ------------ -------------
<S> <C> <C> <C> <C>
Stocks & Bonds:
Purchases............................... $ 3,409,614 $ 2,776,741 $ 11,285,174 $ 4,075,959
Sales................................... 723,978 731,928 1,016,067 2,022,491
U.S. Government Obligations:
Purchases............................... -- -- -- --
Sales................................... -- -- -- --
</TABLE>
(3) INVESTMENT ADVISORY AGREEMENT, SUB-ADVISORY AGREEMENTS AND TRANSACTIONS WITH
AFFILIATED PERSONS
The Fund has an investment advisory agreement with Ohio National
Investments, Inc. ("ONI") a wholly owned subsidiary of Ohio National Life
Insurance Company (ONLIC), under the terms of which ONI provides portfolio
management and investment advice to the Fund and administers its other
affairs, subject to the supervision of the Fund's Board of Directors. As
compensation for its services, ONI receives from the Fund annual fees on the
basis of each portfolio's average daily net assets 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, 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 net $250
million of net assets, 0.20% of the next $500 million of net assets, and
0.15% of net assets over $1 billion; (c) for the International, Global
Contrarian, Relative Value, Small Cap Growth, and Blue Chip Portfolios,
0.90% of each Portfolio's net assets; (d) for the Capital Appreciation,
Small Cap, Aggressive Growth and Strategic Income Portfolios, 0.80% of each
Portfolio's net assets, (e) for the Core Growth Portfolio, 0.95% of the
first $150 million of net assets, and 0.80% of net assets over $150 million;
(f) for the Growth & Income Portfolio, 0.85% of the first $200 million of
net assets and 0.80% of net assets over $200 million, (g) for the S&P 500
Index Portfolio, 0.40% of the first $100 million of net assets, 0.35% of the
next $150 million of net assets, and 0.33% of net assets over $250 million;
(h) for the Stellar Portfolio, 1.00% of that Portfolio's net assets; and (I)
for the High Income Bond and Equity Income, 0.75% of each Portfolio's net
assets. However, as to the Money Market Portfolio, the Advisor is presently
waiving any of its fee in excess of 0.25%. In addition, after January 1,
1999, the advisor began waiving any fees in excess of 0.85% in the
International Portfolio.
Under the Investment Advisory Agreement, the Fund authorizes ONI to retain
sub-advisors for the International, Capital Appreciation, Small Cap, Global
Contrarian, Aggressive Growth, Core Growth, Growth & Income, Small Cap
Growth, Strategic Income, Stellar, Relative Value, High Income Bond, Equity
Income, and Blue Chip Portfolios, subject to the approval of the Fund's
Board of Directors. ONI has entered into Sub-Advisory Agreements with
Societe Generale Asset Management Corp. ("SGAM"), T. Rowe Price Associates,
Inc. ("TRPA"), Founders Asset Management, Inc. ("FAM"), Strong Capital
Management, Inc. ("SCM"), Pilgrim Baxter & Associates, Ltd. ("PBA"),
Robertson Stephens Investment Management, L.P. ("RSIM"), Star Bank, N.A.
("Star"), and Federated Investment Counseling ("FIC") respectively, to
manage the investment and reinvestment of those Portfolios' assets, subject
to the supervision of ONI. As compensation for their services, (a) SGAM
receives from ONI fees at the annual rate of 0.65% of the International and
Global Contrarian Portfolios' average daily net assets during the quarter
for which the fee is paid, (b) TRPA receives from ONI a fee at an annual
rate of 0.50% of average daily net assets of the Capital Appreciation
Portfolio, (c) FAM receives from ONI a fee at an annual rate of 0.625% of
the first $75 million, 0.55% of the next $75 million, 0.50% between $150 and
$300 million, and 0.40% of the average daily net asset value in excess of
$300 million of the Small Cap Portfolio; (d) SCM receives from ONI a fee at
an annual rate of 0.55% of the first $50 million, and 0.45% of average daily
net asset value in excess of $50 million of the Aggressive Growth Portfolio;
(e) PBA receives from ONI a fee at an annual rate of 0.65% of the first $50
million, 0.60% of the next $100 million, and 0.50% of average daily net
assets in excess of $150 million of the Core Growth Portfolio: (f) RSIM
receives from ONI a fee at an annual rate of (i) 0.60% of the first $100
million, 0.55% of the next $100 million, and 0.50% of average daily net
assets in excess of $200 million of the Growth & Income Portfolio, and (ii)
0.64% of the first $100 million, 0.60% of the next $100 million, and 0.55%
of the average daily net assets in excess of $200 million of the Small Cap
Growth Portfolio; (g) Star receives from ONI 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
$50 million and 0.70% of average daily net assets in excess of $50 million
of the Stellar Portfolio and (iii) 0.65% of the first $50 million and 0.60%
of average daily net assets in excess of $50 million of the Relative Value
Portfolio; and (h) FIC receives from ONI fees at an annual rate of (i) 0.50%
of the first $35 million, 0.35% of the next $65 million, and 0.25% of the
average daily 127
<PAGE> 215
OHIO NATIONAL FUND, INC. December 31, 1998
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
net assets in excess of $100 million of each of the Equity Income and Blue
Chip Portfolios and (ii) 0.50% of the first $30 million, 0.40% of the next
$20 million, 0.30% of the next $25 million, and 0.25% of the average daily
net assets in excess of $75 million of the High Income Bond Portfolio.
Effective January 1, 1999 FIC replaced SGAM as the sub-advisor for the
International and Global Contrarian Portfolios. As compensation for their
services FIC will receive from ONI fees at an annual rate of (i) 0.40% of the
first $200 million and 0.35% of average net assets in excess of $200 million
of the International Portfolio and (ii) 0.75% of the first $100 million and
0.65% of the average daily net assets in excess of $100 million of the Global
Contrarian Portfolio.
Each director who is not an officer of the Fund or an employee of ONI or its
corporate affiliates is paid a quarterly retainer fee of $2,000 plus $400 for
each meeting attended.
The Fund's transfer agent and dividend paying agent is American Data
Services, Inc., The Hauppauge Corporate Center, 150 Motor Parkway, Suite 109,
Hauppauge, New York. The Fund's custodian for those portfolios other than the
International and Global Contrarian Portfolios is Star Bank, N.A., 425 Walnut
Street, Cincinnati, Ohio. The custodian for the International and Global
Contrarian Portfolios is Investors Fiduciary Trust Company, 801 Pennsylvania,
Kansas City, Missouri. For assets held outside the United States, Star Bank
and Investors Fiduciary Trust Company enter into subcustodial agreements,
subject to approval by the Board of Directors.
(4) CAPITAL SHARE
Transactions Capital share transactions for the years ended December 31, 1998
and 1997 were as follows:
<TABLE>
<CAPTION>
EQUITY MONEY MARKET BOND
---------------------- ---------------------- ----------------------
1998 1997 1998 1997 1998 1997
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Capital shares issued on sales............ 675,941 1,099,809 6,102,024 4,006,494 986,062 644,662
Capital shares issued on reinvested
dividends............................... 254,451 574,786 164,506 124,176 150,778 161,245
Capital shares redeemed................... 883,690 752,158 4,740,526 3,767,642 486,752 723,200
</TABLE>
<TABLE>
<CAPTION>
OMNI INTERNATIONAL CAPITAL APPRECIATION
---------------------- ---------------------- ----------------------
1998 1997 1998 1997 1998 1997
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Capital shares issued on sales............ 1,413,338 1,691,998 848,791 2,422,039 1,366,055 1,350,471
Capital shares issued on reinvested
dividends............................... 264,859 715,507 855,911 1,742,189 580,235 359,011
Capital shares redeemed................... 872,309 709,824 2,444,300 1,377,360 443,155 249,388
</TABLE>
<TABLE>
<CAPTION>
SMALL CAP GLOBAL CONTRARIAN AGGRESSIVE GROWTH
---------------------- ---------------------- ----------------------
1998 1997 1998 1997 1998 1997
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Capital shares issued on sales............ 918,465 1,170,240 346,731 579,754 667,591 767,314
Capital shares issued on reinvested
dividends............................... 47 131,550 211,017 132,202 159,625 23,559
Capital shares redeemed................... 381,989 320,642 252,173 143,586 249,214 193,560
</TABLE>
<TABLE>
<CAPTION>
CORE GROWTH GROWTH & INCOME S&P 500
---------------------- ---------------------- ----------------------
1998 1997 1998 1997 1998 1997
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Capital shares issued on sales............ 447,717 1,272,254 2,697,893 1,436,044 4,704,361 1,782,577
Capital shares issued on reinvested
dividends............................... 0 419 31,748 75,471 394,979 187,990
Capital shares redeemed................... 315,206 287,167 416,202 56,151 366,640 88,101
</TABLE>
128
<PAGE> 216
OHIO NATIONAL FUND, INC. December 31, 1998
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
<TABLE>
<CAPTION>
SOCIAL AWARENESS STRATEGIC INCOME STELLAR
---------------------- ---------------------- ----------------------
1998 1997 1998 1997 1998 1997
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Capital shares issued on sales............ 491,246 399,740 116,213 309,296 98,689 262,250
Capital shares issued on reinvested
dividends............................... 3,763 37,565 27,950 16,810 12,199 6,971
Capital shares redeemed................... 170,620 12,616 33,901 6,191 32,973 5,693
</TABLE>
<TABLE>
<CAPTION>
EQUITY HIGH
RELATIVE VALUE BLUE CHIP INCOME INCOME S. CAP G.
---------------------- --------- --------- --------- ---------
1998 1997 1998 1998 1998 1998
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Capital shares issued on sales............ 486,057 460,646 287,536 216,229 1,046,722 217,195
Capital shares issued on reinvested
dividends............................... 13,803 3,973 403 1,309 42,369 0
Capital shares redeemed................... 285,649 12.351 6,276 6,719 855 186
</TABLE>
The Fund is authorized to issue 250,000,000 of its capital shares.
20,000,000 shares each have been allocated to the Equity, Omni, and
International Portfolios, and 10,000,000 are allocated to each of the other
portfolios. The remaining 20,000,000 are unallocated at this time.
(5) COMMITMENTS
As of December 31, 1998, the International and Global Contrarian Portfolios
had entered into forward currency contracts, as set forth below, summarized
by currency:
INTERNATIONAL PORTFOLIO
<TABLE>
<CAPTION>
CURRENCY TO BE DELIVERED CURRENCY TO BE RECEIVED UNREALIZED
SETTLE --------------------------------- U.S. $ VAL. --------------------------- U.S. $ VAL. -----------------------
DATES AMOUNT TYPE AT 12/31/98 AMOUNT TYPE AT 12/31/98 GAIN LOSS
------ ------------- ----------------- ----------- ---------- -------------- ----------- -------- ------------
<C> <C> <S> <C> <C> <C> <C> <C> <C>
07/15/99 4,422,000 Australian Dollar 2,699,631 2,769,587 U.S. Dollar 2,769,587 $ 69,956 --
04/07/99 7,031,000 Swiss Franc 5,164,157 5,099,760 U.S. Dollar 5,099,760 -- $ (64,397)
04/14/99 11,825,000 Deutsche Mark 7,138,761 7,092,714 U.S. Dollar 7,092,714 -- (46,047)
11/14/99 885,445 U.S. Dollar 885,445 1,472,000 Deutsche Mark 888,647 3,202 --
07/08/99 804,000 Deutsche Mark 486,727 490,274 U.S. Dollar 490,274 3,547 --
04/21/99 3,019,000 French Franc 543,059 551,265 U.S. Dollar 551,265 8,206 --
04/21/99 276,742 U.S. Dollar 276,742 1,529,000 French Franc 275,037 -- (1,705)
07/01/99 28,932,000 French Franc 5,215,087 5,243,204 U.S. Dollar 5,243,204 28,117 --
05/05/99 332,000 British Pound 552,066 560,748 U.S. Dollar 560,748 8,682 --
05/05/99 253,198 U.S. Dollar 254,197 151,000 British Pound 251,090 -- (3,107)
04/28/99 1,044,480,000 Japanese Yen 9,342,815 8,248,491 U.S. Dollar 8,248,491 -- (1,094,324)
07/29/99 1,215,749,000 Japanese Yen 11,002,751 10,702,016 U.S. Dollar 10,702,016 -- (300,735)
05/14/99 5,361,000 New Zld Dollar 2,819,350 2,750,537 U.S. Dollar 2,750,537 -- (68,813)
05/15/99 12,871 U.S. Dollar 12,872 24,000 New Zld Dollar 12,622 -- (250)
10/05/01 3,650,000 New Zld Dollar 1,958,225 1,750,175 U.S. Dollar 1,750,175 -- (208,050)
---------- ---------- -------- ------------
48,351,885 46,686,167 $121,710 $ (1,787,428)
========== ========== ======== ============
</TABLE>
GLOBAL CONTRARIAN PORTFOLIO
<TABLE>
<CAPTION>
CURRENCY TO BE DELIVERED CURRENCY TO BE RECEIVED UNREALIZED
SETTLE --------------------------------- U.S. $ VAL. --------------------------- U.S. $ VAL. -----------------------
DATES AMOUNT TYPE AT 12/31/98 AMOUNT TYPE AT 12/31/98 GAIN LOSS
------ ------------- ----------------- ----------- ---------- -------------- ----------- -------- ------------
<C> <C> <S> <C> <C> <C> <C> <C> <C>
04/28/99 39,902,000 Japanese Yen 356,921 344,714 U.S. Dollar 344,714 -- $ (12,207)
07/29/99 11,356,000 Japanese Yen 102,774 99,965 U.S. Dollar 99,965 -- (2,809)
11/13/00 18,480,000 Japanese Yen 176,715 173,147 U.S. Dollar 173,147 -- (3,568)
04/07/99 125,000 Dutch Guilder 66,816 64,868 U.S. Dollar 64,868 -- (1,948)
04/07/99 66,260 U.S. Dollar 66,260 64,868 Dutch Guilder 66,816 $ 556 --
---------- ---------- -------- ------------
769,486 749,510 $ 556 $ (20,532)
========== ========== ======== ============
</TABLE>
129
<PAGE> 217
OHIO NATIONAL FUND, INC. December 31, 1998
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(6) SPECIAL MEETING OF SHAREHOLDERS (UNAUDITED)
There was a special meeting of the shareholders of the Small Cap portfolio
on February 17, 1998. The Small Cap portfolio shareholders approved a new
Sub-Advisory Agreement between Founders Asset Management LLC and Ohio
National Investments, Inc. by a vote of 2,552,459 in favor, 29,932 opposed,
and 296,552 abstaining.
The accompanying notes are an integral part of these financial statements.
130
<PAGE> 218
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders of
Ohio National Fund, Inc.:
We have audited the accompanying statements of assets and liabilities of Ohio
National Fund, Inc. -- Equity Portfolio, Money Market Portfolio, Bond Portfolio,
Omni Portfolio, International Portfolio, Capital Appreciation Portfolio, Small
Cap Portfolio, Global Contrarian Portfolio, Aggressive Growth Portfolio, Core
Growth Portfolio, Growth & Income Portfolio, S&P 500 Index Portfolio, Social
Awareness Portfolio, Strategic Income Portfolio, Stellar Portfolio, Relative
Value Portfolio, Blue Chip Portfolio, Equity Income Portfolio, High Income Bond
Portfolio, Small Cap Growth Portfolio (collectively, the Funds), including the
schedules of investments, as of December 31, 1998 and the related statements of
operations, statements of changes in net assets and the financial highlights for
the periods indicated in the financial statements and financial highlights
herein. These financial statements and financial highlights are the
responsibility of the Funds' 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
verification of securities owned as of December 31, 1998, by confirmation with
the custodians and brokers and other appropriate audit procedures. An audit also
includes assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement
presentation. We believe 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 the
Funds at December 31, 1998, the results of their operations, the changes in
their net assets and the financial highlights for the periods indicated herein,
in conformity with generally accepted accounting principles.
KPMG Peat Marwick LLP
KPMG LLP
Cincinnati, Ohio
February 5, 1999
131
<PAGE> 219
OHIO NATIONAL FUND, INC.
Form N-1A
PART C.
OTHER INFORMATION
<PAGE> 220
FINANCIAL STATEMENTS AND EXHIBITS
The following audited financial statements are included in Part B of this
registration statement:
Statements of Assets and Liabilities as of December 31, 1998
Statements of Operations for the Year or Periods Ended December
31, 1998
Statements of Changes in Net Assets for the Years Ended December
31, 1998 and 1997
Schedule of Investments at December 31, 1998 -- Equity Portfolio
Schedule of Investments at December 31, 1998 -- Money Market
Portfolio
Schedule of Investments at December 31, 1998 -- Bond Portfolio
Schedule of Investments at December 31, 1998 -- Omni Portfolio
Schedule of Investments at December 31, 1998 -- International
Portfolio
Schedule of Investments at December 31, 1998 -- Capital
Appreciation Portfolio
Schedule of Investments at December 31, 1998 -- Small Cap
Portfolio
Schedule of Investments at December 31, 1998 -- Global Contrarian
Portfolio
Schedule of Investments at December 31, 1998 -- Aggressive Growth
Portfolio
Schedule of Investments at December 31, 1998 -- Core Growth
Portfolio
Schedule of Investments at December 31, 1998 -- Growth & Income
Portfolio
Schedule of Investments at December 31, 1998 -- S&P 500 Index
Portfolio
Schedule of Investments at December 31, 1998 -- Social Awareness
Portfolio
Schedule of Investments at December 31, 1998 -- Strategic Income
Portfolio
Schedule of Investments at December 31, 1998 -- Stellar Portfolio
Schedule of Investments at December 31, 1998 -- Relative Value
Portfolio
Schedule of Investments at December 31, 1998 -- High Income Bond
Portfolio
Schedule of Investments at December 31, 1998 -- Equity Income
Portfolio
Schedule of Investments at December 31, 1998 -- Blue Chip
Portfolio
Schedule of Investments at December 31, 1998 -- Small Cap Growth
Portfolio
Notes to Financial Statements for December 31, 1998
Independent Auditors' Report of KPMG LLP dated February 5, 1999
The following audited financial information is included in Part A of this
registration statement:
Financial Highlights (Ten years ended December 31, 1998)
Written Consents of the Following Persons:
KPMG LLP
Ronald L. Benedict, Esq. as Legal Counsel to the Registrant
Jones & Blouch L.L.P. as Legal Counsel to the Registrant
Exhibits:
(n) Financial Data Schedules as of December 31, 1998 for each of
the Registrant's portfolios
<PAGE> 221
All other relevant exhibits, which have previously been filed with the
Commission and are incorporated herein by reference, are as follows:
(a) Articles of Incorporation of the Registrant (amended as
of November 2, 1982) were filed as Exhibit (1) of the
Registrant's Form N-1, Post-effective Amendment No. 6,
on August 3, 1982.
(a)(1) Articles Supplementary of the Registrant, effective
December 30, 1992, were filed as Exhibit (1)(a) of the
Registrant's Form N-1A, Post-effective amendment No. 21,
on February 26, 1993.
(a)(2) Articles Supplementary of the Registrant, effective
March 1, 1994, were filed as Exhibit (1)(b) of the
Registrant's Form N-1A, Post-effective Amendment No. 24,
on March 2, 1994.
(a)(3) Articles Supplementary of the Registrant, effective
December 15, 1994 were filed as Exhibit (1)(c) of the
Registrant's Form N-1A, Post-effective Amendment No. 27,
on December 30, 1994.
(a)(4) Articles Supplementary of the Registrant, effective
September 16, 1996 were filed as Exhibit (1)(d) of
the Registrant's Form N-1A, Post-effective Amendment
no. 32, on October 21, 1996.
(a)(5) Articles Supplementary of the Registrant, effective
March 17, 1998, were filed as Exhibit (1)(e) of the
Registrant's Form N-1A, Post-effective Amendment no. 36,
on April 24, 1998.
(b) By-laws of the Registrant (as amended March 16, 1989)
were filed as Exhibit (2) of the Registrant's Form N-1A,
Post-effective Amendment No. 17, on March 27, 1989.
(c)(1) Specimen of certificated securities of the Registrant's
International Portfolio was filed as Exhibit (4) of the
Registrant's Form N-1A, Post-effective Amendment No. 21,
on February 26, 1993.
(c)(2) Specimen of certificated securities of the Registrant's
Capital Appreciation Portfolio was filed as Exhibit
(4)(a) of the Registrant's Form N-1A, Post-effective
Amendment No. 25, on March 25, 1994.
(c)(3) Specimen of certificated securities of the Registrant's
Small Cap Portfolio was filed as Exhibit (4)(b) of the
Registrant's Form N-1A, Post-effective Amendment No. 25,
on March 25, 1994.
(c)(4) Specimens of certificated securities of the Registrant's
Global Contrarian and Aggressive Growth Portfolios were
filed as Exhibit (4)(c) of the Registrant's Form N-1A,
Post-effective Amendment No. 27, on December 30, 1994.
(c)(5) Specimens of certificated securities of the Registrant's
Core Growth, Growth & Income, S&P 500 Index, Social
Awareness, Strategic Income, Stellar and Relative Value
Portfolios were filed as Exhibit no. (4)(d) of the
Registrant's Form N-1A, Post-effective Amendment no.
32, on October 21, 1996.
(d) Investment Advisory Agreement between the Registrant and
Ohio National Investments, Inc., dated May 1, 1996, was
filed as Exhibit (5)(a) of the Registrant's Form N-1A,
Post-effective Amendment No. 31, on March 1, 1996, and
Schedule A, thereto effective May 1, 1998, was filed as
Exhibit (5)(a)(1) of the Registrant's Form N-1A,
Post-effective Amendment no. 35 on February 13, 1998.
<PAGE> 222
(d)(1) Sub-Advisory Agreement (for the Capital Appreciation
Portfolio) between Ohio National Investments, Inc. and
T. Rowe Price Associates, Inc. dated May 1, 1996, was
filed as Exhibit 5(c) of the Registrant's Form N-1A,
Post-effective Amendment No. 31, on March 1, 1996, and
an Amendment, thereto effective January 1, 1998, was
filed as Exhibit (5)(c)(1) of the Registrant's Form
N-1A, Post-effective Amendment no. 35 on February 13,
1998.
(d)(2) Sub-Advisory Agreement dated April 1, 1998 (for the
Small Cap Portfolio) between Ohio National Investments,
Inc. and Founders Asset Management LLC was filed as
Exhibit (5)(d) of the Registrant's Form N-1A,
Post-effective Amendment no. 35 on February 13, 1998
with an amendment filed as Exhibit (d)(2)(i) under Post-
effective Amendment no. 37 on February 25, 1999.
(d)(3) Sub-Advisory Agreement (for the Aggressive Growth
Portfolio) between Ohio National Investments, Inc. and
Strong Capital Management, Inc., dated May 1, 1996, was
filed as Exhibit (5)(e) of the Registrant's Form N-1A,
Post-effective Amendment No. 31, on March 1, 1996 with
an amendment filed as Exhibit (d)(3)(i) under Post-
effective Amendment no. 37 on February 25, 1999.
(d)(4) Sub-Advisory Agreement (for the Core Growth Portfolio)
between Ohio National Investments, Inc. and Pilgrim
Baxter & Associates, Ltd., dated January 3, 1997
was filed as Exhibit no. (5)(f) of the Registrant's
Form N-1A, Post-effective Amendment no. 32, on
October 21, 1996 with an amendment filed as Exhibit
(d)(4)(i) under Post-effective Amendment no. 37 on
February 25, 1999.
(d)(5) Sub-Advisory Agreement (for the Strategic Income and
Relative Value Portfolios) between Ohio National
Investments, Inc. and Star Bank, N.A., dated January 3,
1997 was filed as Exhibit no. (5)(h) of the Registrant's
Form N-1A, Post-effective Amendment no. 32, on October
21, 1996.
(d)(6) Sub-Advisory Agreement dated May 1, 1998 (for the High
Income Bond, Equity Income and Blue Chip Portfolios)
between Ohio National Investments, Inc. and Federated
Investment Counseling was filed as Exhibit (5)(j) of the
Registrant's Form N-1A Post-effective Amendment no. 35
on February 13, 1998.
(d)(7) Subadvisory Agreement (for the International and
International Small Company Portfolios) between Ohio
National Investments, Inc. and Federated Global Research
Corp. was filed as Exhibit (d)(7) of the Registrant's
Form N-1A, Post-effective Amendment no. 37 on February
25, 1999.
(d)(8) Subadvisory Agreement (for the Growth & Income and Small
Cap Growth Portfolios) between Ohio National
Investments, Inc. and Robertson Stephens Investment
Management, L.P. was filed as Exhibit no. (d)(8) of the
Registrant's Form N-1A, Post-effective Amendment no. 37
on February 25, 1999.
(d)(9) Subadvisory Agreement (for the Firstar Growth & Income
Portfolio) between Ohio National Investments, Inc. and
Firstar Investment Research & Management Company, LLC
was filed as Exhibit (d)(9) of the Registrant's Form
N-1A, Post-effective Amendment no. 37 on February 25,
1999.
(g) Custody Agreement between the Registrant and Star Bank,
N.A. was filed as Exhibit (8) of the Registrant's Form
N-1A, Post-effective Amendment no. 33, on April 25,
1997.
(g)(1) Custody Agreement (for the International Portfolio)
between the Registrant and Investors Fiduciary Trust
Company was filed as Exhibit (8)(a) of the Registrant's
Form N-1A, Post-effective Amendment No. 22, on April 22,
1993, and the First Amendment thereto (adding the Global
Contrarian Portfolio) between the Registrant and
Investors Fiduciary Trust Company was filed as Exhibit
(8)(a)(i) of the Registrant's Form N-1A, Post-effective
Amendment No. 27, on December 30, 1994.
(h)(1) Fund Accounting Services Agreement between the
Registrant and American Data Services, Inc. was filed as
Exhibit (9) of the Registrant's Form N-1A,
Post-effective Amendment no. 33, on April 25, 1997.
(h)(2) Transfer Agency and Service Agreement between the
Registrant and American Data Services, Inc. was filed
as Exhibit (9)(a) of the Registrant's Form N-1A,
Post-effective Amendment no. 33, on April 25, 1997.
(h)(3) Service Agreement among the Registrant, Ohio National
Investments, Inc. and The Ohio National Life Insurance
Company, dated May 1, 1996, was filed as Exhibit (9)(b)
of the Registrant's Form N-1A, Post-effective Amendment
No. 31, on March 31, 1996.
(h)(4) Master Repurchase Agreement between the Registrant and
Star Bank, N.A. was filed as Exhibit (9)(c) of the
Registrant's Form N-1A, Post-effective Amendment
no. 33, on April 25, 1997.
(h)(5) Services Agreement (for the International Portfolio)
between the Registrant and Interactive Data Corporation
was filed as Exhibit (9)(e) of the Registrant's Form
N-1A, Post-effective Amendment No. 23, on October 29,
1993.
(h)(6) Joint Insured Agreement among the Registrant, ONE Fund,
Inc., Dow Target Variable Fund LLC and Ohio National
Investments, Inc. was filed as Exhibit no. (h)(6) of the
Registrant's Form N-1A, Post-effective Amendment no. 37
on February 25, 1999.
<PAGE> 223
(i)(1) Opinion and consent of Ronald L. Benedict, Esq., as to
the shares of the Registrant's International Portfolio
was filed as Exhibit (10) of the Registrant's Form N-1A,
Post-effective Amendment No. 21, on February 26, 1993.
(i)(2) Opinion and consent of Ronald L. Benedict, Esq., as to
the shares of the Registrant's Capital Appreciation,
Small Cap, Global Contrarian and Aggressive Growth
Portfolios was filed as Exhibit (10)(a) of the
Registrant's Form N-1A, Post-effective Amendment No. 27,
on December 30, 1994.
(i)(3) Opinion and consent of Ronald L. Benedict, Esq., as to
the shares of the Registrant's Core Growth, Growth &
Income, S&P 500 Index, Social Awareness, Strategic
Income, Stellar and Relative Value Portfolios was filed
as Exhibit no. (10)(b) of the Registrant's Form N-1A,
Post-effective Amendment no. 32, on October 21, 1996.
(i)(4) Opinion and consent of Ronald L. Benedict, Esq., as to
the shares of the Registrant's Small Cap Growth, High
Income Bond, Equity Income and Blue Chip Portfolios was
filed as Exhibit (10)(c) of the Registrant's Form N-1A,
Post-Effective Amendment no. 36 on April 24, 1998.
(j)(1) Investment letter for the initial subscription of
capital stock of the Registrant's International
Portfolio was filed as Exhibit (13) of the Registrant's
Form N-1A, Post-effective Amendment No. 22, on April 22,
1993.
(j)(2) Investment letters for the initial subscriptions of
capital stock of the Registrant's Capital Appreciation,
Small Cap, Global Contrarian and Aggressive Growth
Portfolios were filed as Exhibit (13)(a) of the
Registrant's Form N-1A, Post-effective Amendment No. 27,
on December 30, 1994.
(j)(3) Investment letter for the initial subscription of stock
of the Registrant's Core Growth, Growth & Income, S&P
500 Index, Social Awareness, Strategic Income, Stellar
and Relative Value Portfolios was filed as Exhibit
(13)(b) of the Registrant's Form N-1A Post-effective
Amendment no. 33, on April 25, 1997.
(j)(4) Investment letter for the initial subscription of stock
of the Registrant's Small Cap Growth, High Income Bond,
Equity Income and Blue Chip Portfolios was filed as
Exhibit (13)(c) of the Registrant's Form N-1A
Post-Effective Amendment no. 36 on April 24, 1998.
PERSONS UNDER COMMON CONTROL WITH REGISTRANT
The Registrant is an affiliate of The Ohio National Life Insurance Company
("ONLI"). The diagram on page 4A shows all persons under common control with the
Registrant. ONLI is a mutual life insurer and it owns 100% of the voting
securities of each of its subsidiaries. As of February 1, 1998, it also owned
91.7% of the voting securities of the Registrant, which are held of record in
the separate accounts of ONLI. The remaining 8.3% of the Registrant's voting
securities were owned by Ohio National Life Assurance Corporation ("ONLAC") and
held of record in ONLAC's separate account. ONLI owns 100% of the voting
securities of Ohio National Investments, Inc. (the "Adviser"). ONLI also owned
42.0% of the voting shares of ONE Fund, Inc. ("ONE Fund") as of that date.
NUMBER OF HOLDERS OF SECURITIES
As of April 10, 1999, the securities of the Registrant were held as follows:
<TABLE>
<CAPTION>
Title of Class Number of Record Holders
-------------- ------------------------
<S> <C>
Equity 5
Money Market 5
Bond 5
Omni 5
International 5
Capital Appreciation 5
Small Cap 5
Global Contrarian 5
Aggressive Growth 5
Core Growth 5
Growth & Income 5
S&P 500 Index 5
Social Awareness 5
Strategic Income 1
Stellar 1
Relative Value 1
Small Cap Growth 1
High Income Bond 1
Equity Income 1
Blue Chip 1
</TABLE>
<PAGE> 224
INDEMNIFICATION
Under Section 2-418 of the Maryland General Corporation Law, with respect to any
proceedings against a present or former director, officer, agent or employee (a
"corporate representative") of the Registrant (a Maryland corporation), except a
proceeding brought by or on behalf of the Registrant, the Registrant may
indemnify the corporate representative against expenses, including attorneys'
fees, and judgments, fines, penalties, and amounts paid in settlement, if such
expenses were actually and reasonably incurred by the corporate representative
in connection with the proceeding, if: (i) he or she acted in good faith; (ii)
in the case of conduct in his or her official capacity he or she reasonably
believed that his or her conduct was in the best interests of the Registrant,
and in all other cases he or she reasonably believed that his or her conduct was
not opposed to the best interests of the Registrant; and (iii) with respect to
any criminal proceeding, he or she had no reasonable cause to believe his or her
conduct was unlawful. The Registrant is also authorized under Section 2-418 of
the Maryland General Corporation Law to indemnify a corporate representative
under certain circumstances against reasonable expenses incurred in connection
with the defense of a suit or action by or in the right of the Registrant except
where the corporate representative has been adjudged liable to the Registrant.
Under Article 11 of the Registrant's By-laws, directors and officers of
Registrant are entitled to indemnification by the Registrant to the fullest
extent permitted under Maryland law and the Investment Company Act of 1940.
Reference is made to Article 11 of Registrant's By-laws and Section 2-418 of the
Maryland General Corporation Law.
BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER
Ohio National Investments, Inc. (the "Adviser") is engaged in providing
investment management services to the Registrant and to ONE Fund. The Adviser is
also authorized to provide such services to others. The Adviser has not engaged
in any other business of a substantial nature during the past two fiscal years.
The names of each director and officer of the Adviser and the business of a
substantial nature of each during the past two fiscal years are as follows:
<TABLE>
<CAPTION>
Position with Business of a Substantial
Name the Adviser Nature During Past Two Years
- ---- ----------- ----------------------------
<S> <C> <C>
Joseph P. Brom Director and Senior Vice President and Chief
President Investment Officer of ONLI; Vice President of
Registrant; Senior Vice President of ONLAC; Vice
President of ONE Fund; Until 1997 was Director and
President of ONIMCO
Michael A. Boedeker Director and Vice President, Fixed Income Securities
Vice President of ONLI; Vice President of ONLAC; Vice President of
Registrant; Vice President of ONE Fund; Until 1997
was Director and Vice President of ONIMCO
Stephen T. Williams Director and Vice President, Equity Investments of ONLI; Vice
Vice President President of Registrant; Vice President of ONE
Fund; Until 1997 was Director and Vice President of ONIMCO
Michael D. Stohler Director and Vice President, Mortgages & Real Estate ONLI;
Vice President Director and President Enterprise Park, Inc.
Keith O. Hanson Vice President Investment Officer and Portfolio Manager of ONLI.
R. Douglas Hundley Vice President Investment Officer and Portfolio Manager of ONLI.
Jed R. Martin Vice President Investment Officer and portfolio Manager of ONLI.
</TABLE>
-5-
<PAGE> 225
<TABLE>
<CAPTION>
Position with Business of a Substantial
Name the Adviser Nature During Past Two Years
- ---- ----------- ----------------------------
<S> <C> <C>
Ronald L. Benedict Secretary Corporate Vice President, Counsel and Secretary of ONLI;
Director and Secretary of Registrant; Director and Secretary
of ONE Fund; Secretary of ONLAC; Secretary of ONE, Inc.;
Until 1997 was Secretary of ONIMCO and ONESCO
Dennis R. Taney Treasurer Mutual Fund Financial Operations Director of ONLI;
Treasurer of Registrant; Treasurer of ONE Fund;
Until 1997 was Treasurer of ONIMCO
</TABLE>
BUSINESS AND OTHER CONNECTIONS OF TRPA
T. Rowe Price Associates, Inc. ("TRPA") provides investment management services
to the Capital Appreciation Portfolio of the Registrant. TRPA's primary business
is the management of assets for individual and institutional investors,
particularly the T. Rowe Price group of mutual funds. The officers and directors
of TRPA and their business of a substantial nature during the past two fiscal
years are as follows:
-6-
<PAGE> 226
<TABLE>
<CAPTION>
Position Business of a Substantial
Name with TRPA Nature during Past Two Years
- ---- --------- ----------------------------
<S> <C> <C>
George J. Collins Director Director of Rowe Price-
Fleming International, Inc.
("Price-Fleming"); Director of
T. Rowe Price Retirement Plan
Services, Inc. ("RPS");
Director of T. Rowe Price
Trust Company ("Trust Co.");
Chairman of the Board of T.
Rowe Price mutual funds
("Price Funds")
James S. Riepe Vice Chairman, Director Chairman of the Board of T.
and Managing Director Rowe Price Services, Inc.
("Price Services"); Chairman
of the Board of RPS; Chairman
of the Board of Trust Co.;
President and Director of
T. Rowe Price Investment
Services, Inc. ("Investment
Services"); Vice President and
Trustee of Price Funds
Henry H. Hopkins Director and Vice President and Director of
Managing Director Investment Services; Vice
President and Director of
Price Services; Vice President
and Director of Trust Co.;
Vice President of Price-
Fleming; Vice President of
RPS; Director of ICI Mutual
Insurance Company; Vice
President of Price Funds
James W. Halbkat, Jr. Director President of U.S. Monitor
Corp.
John W. Rosenblum Director Taylor Murphy Professor of Darden Graduate
School of Business Administration,
University of Virginia; Director of Chesapeake
Corporation; Director of Cadmus
Communications Corp.; Director of Comdial
Corp.; Director of Cone Mills Corp.
Robert L. Strickland Director Chairman of Lowe's Companies, Inc.
Philip C. Walsh Director Consultant to and Director of Cyprus
Minerals Corp.; Director of Piedmont Mining
Co., Inc.
George A. Roche Chairman of the Vice President and Director of Price-Fleming
Board, President and
Director
</TABLE>
-7-
<PAGE> 227
<TABLE>
<CAPTION>
Position Business of a Substantial
Name with TRPA Nature during Past Two Years
- ---- --------- ----------------------------
<S> <C> <C>
M. David Testa Vice Chairman of the Board,
Chief Investment Officer,
Director and Managing
Director
Charles P. Smith Managing Director Vice President of Price-Fleming
Peter Van Dyke Managing Director Vice President of Price-Fleming
Richard L. Menschel Director Limited Partner of Goldman Sachs
Group L.P.
Anne Marie Whittemore Director Partner of McGuire, Woods, Battle &
Booth; Director of Owens & Minor,
Inc.; Director of USF&G Corp.; Director
of Albemarle Corp.; Director of James
River Corp.
James A.C. Kennedy III Director and President and Director of T. Rowe
Managing Director Price Strategic Partners Inc.;
Vice President and Director of T. Rowe
Price Threshold Fund Associates, Inc.
John H. LaPort, Jr. Director and
Managing Director
William T. Reynolds Director and Chairman of T. Rowe Price
Managing Director Stable Asset Management, and
Director of TRP Finance, Inc.
Brian C. Rogers Director and Vice President of Trust Co.
Managing Director
</TABLE>
-8-
<PAGE> 228
Wholly-owned subsidiaries of TRPA include the following:
Investment Services, a Maryland corporation, is the principal
underwriter and distributor of the Price Funds;
Price Services, a Maryland corporation, provides transfer agent,
dividend disbursing and shareholder services to the Price Funds;
RPS, a Maryland corporation, provides administrative,
recordkeeping and subaccounting services to administrators of
employee benefit plans;
Trust Co., a Maryland limited purpose trust company, provides
fiduciary and custodial services to employee benefit plans and
common trust funds;
T. Rowe Price Real Estate Group, Inc., a Maryland corporation,
provides real estate services and is the investment manager of
several real estate investment trusts, funds and limited
partnerships;
T. Rowe Price Stable Asset Management, Inc., a Maryland
corporation, is an investment adviser specializing in management
of portfolios seeking stable and consistent returns;
T. Rowe Price Recovery Fund Associates, Inc., a Maryland
corporation, is the general partner of T. Rowe Price Recovery
Fund, LP, a Delaware limited partnership that invests in
financially distressed companies;
T. Rowe Price (Canada), Inc., a Maryland corporation, is an
investment adviser which may register as such under the Securities
Act of Ontario.
Tower Venture, Inc., a Maryland corporation, serves as a general
partner of 100 East Pratt Street, LP, a Maryland limited
partnership (whose limited partners include TRPA) formed to
improve TRPA's headquarters property;
TRP Suburban, Inc., a Maryland corporation, is involved in the
construction of an office building to house certain administrative
functions of TRPA in Owings Mills, MD;
TRP Finance, Inc. and TRP Finance MRT, Inc., are Delaware
corporations managing passive corporate investments and other
intangible assets.
TRP Distribution, Inc., a Maryland corporation, is a wholly-owned subsidiary of
Investment Services and engages in the sale of investment products prepared by
Investment Services.
Price-Fleming, a Maryland corporation, is a joint venture 50% owned by TRP
Finance, Inc., and provides investment counsel service with respect to foreign
securities for U.S. institutional investors.
BUSINESS AND OTHER CONNECTIONS OF FAM
Founders Asset Management LLC ("FAM"), a 90%-owned subsidiary of Mellon Bank,
provides investment management services to the Small Cap Portfolio of the
Registrant. FAM's primary business is the management of the Founders group of
mutual funds. It also serves as investment adviser to other mutual funds and
private accounts. The officers and directors of FAM and their business of a
substantial nature during the past two fiscal years are as follows:
<TABLE>
<CAPTION>
Position Business of a Substantial
Name with FAM Nature During Past Two Years
- ---- -------- ----------------------------
<S> <C> <C>
Jonathan F. Zeschin President and Chief N/A
Executive Officer; Member,
Board of Managers
</TABLE>
-9-
<PAGE> 229
<TABLE>
<CAPTION>
Position Business of a Substantial
Name with FAM Nature During Past Two Years
- ---- -------- ----------------------------
<S> <C> <C>
Kenneth R. Christoffersen Vice President, General N/A
Counsel and Secretary
Gregory P. Contillo Senior Vice President; N/A
Member, Board of Managers
Frank Gaffney Vice President N/A
Roberto Galindo, Jr. Assistant Vice President N/A
Laurine Garrity Vice President N/A
Michael W. Gerding Vice President; Member, Portfolio manager for Founders
Board of Managers Passport and Worldwide Growth Funds
Edward F. Keely Vice President Portfolio manager for Founders Growth
Fund.
Brian F. Kelly Vice President Portfolio manager for Founders Blue Chip and
Balanced Funds.
Paul LaRocco Vice President Portfolio manager for Founders Special Fund
since March 1998; previously, Vice President
and portfolio manager of Oppenheimer Funds, Inc.
James P. Rankin Vice President N/A
David L. Ray Vice President, Treasurer N/A
and Assistant Secretary
Linda M. Ripley Vice President N/A
Steven Shapiro Vice President N/A
Christopher M. Condron Chairman, Board of Managers Vice Chairman, Mellon Bank Corp.; Vice
Chairman, Boston Co.; Deputy Director, Mellon
Trust; Chief Executive Officer, Boston Co.
Asset Management, Inc.; Chief Executive
Officer, Dreyfus Corp.; President, Boston Safe
Deposit and Trust Co.; President, Dreyfus
Corp.; Chief Operating Officer, Mellon Bank
Corp.; Chief Operating Officer, Dreyfus Corp.;
Director, Dreyfus Corp.
Stephen E. Canter Member, Board of Director, Dreyfus Corp.; Corp.;
Managers Director, Dreyfus Trust Co.; Formerly, Chairman
and Chief Executive Officer, Kleinwort
Benson Investment Management Americas,
Inc.; Vice Chairman and Chief Investment
Officer, Dreyfus Co.
Lawrence S. Kash Member, Board of Chairman, President and Chief Executive
Managers Officer, Boston Co. Advisors, Inc.;
Executive Vice President and Director,
Dreyfus Service Organization, Inc.;
Director, Dreyfus America Fund; Director,
The Dreyfus Consumer Credit Corp.;
Director, Dreyfus Trust Co.; Director,
Dreyfus Service Corp.; President, Boston
Co.; President, Laurel Capital Advisors;
President, Boston Group Holdings, Inc.;
Executive Vice President, Mellon Bank,
N.A.; Executive Vice President, Boston
Safe Deposit and Trust Co.; Vice Chairman-
Distribution, Dreyfus Corp.
W. Keith Smith Member, Board of Managers Senior Vice Chairman, Mellon Bank Corp.;
Senior Vice Chairman, Mellon Bank, NA;
Chairman, Dreyfus Corp.; Chairman, Boston
Co.
</TABLE>
BUSINESS AND OTHER CONNECTIONS OF SCM
Strong Capital Management, Inc. ("SCM") provides investment management services
to the Aggressive Growth Portfolio of the Registrant. SCM's primary business is
the management of the Strong group of mutual funds ("Strong Funds"). It also
serves as investment adviser to individual and institutional accounts. The
officers and directors of SCM and their business of a substantial nature during
the past two fiscal years are as follows:
<TABLE>
<CAPTION>
Position Business of a Substantial
Name with SCM Nature During Past Two Years
- ---- -------- ----------------------------
<S> <C> <C>
Richard S. Strong Director; Chairman; Chairman and Director of Strong Funds
Chief Investment Officer; Distributors, Inc.; Chairman and Director
Portfolio Manager of Strong Holdings, Inc.; Chairman and
Director of Fussville Development LLC;
Chairman and Director of Fussville Real
Estate Holding LLC; President, Treasurer
and Director of Heritage Reserve Holding
LLC; Chairman and Director of Heritage
Reserve Development Corporation; Chairman
and Director of Sherwood Development LLC,
Chairman and Director of Strong Service
Corporation.
Richard T. Weiss Director; Director of Strong Funds Distributors,
Portfolio Manager Inc.; Director of Strong Holdings, Inc.;
Director of Heritage Reserve Development
Corporation; Director of Strong Service
Corporation.
Thomas P. Lemke Senior Vice President; Chief Operating Officer, Vice President
Chief Operating Officer; and Chief Compliance Officer of Strong
Secretary; General Counsel; Funds Distributors, Inc.; Vice President
Chief Compliance Officer of Strong Holdings, Inc.; Vice President
of Fussville Development LLC; Vice
President of Fussville Real Estate Holding
LLC; Vice President of Heritage Reserve
Development Corporation; Vice President of
Sherwood Development LLC; and Vice
President of Strong Service Corporation.
Stephen J. Shenkenberg Vice President; Vice President, Deputy Chief Compliance
Assistant Secretary; Officer and Secretary of Strong Funds
Acting General Counsel; Distributors, Inc.; Secretary of Strong
Deputy Chief Compliance Holdings, Inc.; Secretary of Fussville
Officer Development LLC; Secretary of Fussville
Real Estate Holding LLC; Vice President
and Assistant Secretary of Heritage
Reserve Holding LLC; Secretary of Heritage
Reserve Development Corporation; Secretary
of Sherwood Development LLC; and Secretary
of Strong Service Corporation.
</TABLE>
-10-
<PAGE> 230
<TABLE>
<CAPTION>
Position Business of a Substantial
Name with SCM Nature During Past Two Years
- ---- -------- ----------------------------
<S> <C> <C>
Joseph R. DeMartine Senior Vice President; Vice President of Strong
Chief Marketing Officer; Funds Distributors, Inc.
Managing Director -
Strong Retail Services
Michael E. Fisher Senior Vice President; N/A
Managing Director -
Institutional Business Group
Kenneth M. Landis Senior Vice President; Until December 1996, was
Chief Information Officer Partner at Coopers &
Lybrand, Boston, MA.
John A. Flanagan Senior Vice President Until May 1997, was Partner
at Coopers & Lybrand, LLP,
New York, NY.
Jeffrey L. Kubik Senior Vice President Until June 1997, was
Director of Human Resources
at Allen-Bradley, Milwaukee,
WI.
Thomas M. Zoeller Senior Vice President; Treasurer and Chief Financial Officer of
Chief Financial Officer; Strong Funds Distributors, Inc.; Treasurer
Treasurer; Controller of Strong Holdings, Inc.; Treasurer of
Fussville Development LLC; Treasurer of
Fussville Real Estate Holding LLC;
Treasurer of Heritage Reserve Development
Corporation; Treasurer of Sherwood
Development LLC; and Treasurer of Strong
Service Corporation.
</TABLE>
Strong Holdings, Inc., a Wisconsin corporation, is a subsidiary of SCM, Strong
Funds Distributors, Inc., a Wisconsin corporation, is a subsidiary of Strong
Holdings, Inc. Heritage Reserve Development Corporation, a Wisconsin
corporation, is a subsidiary of Strong Holdings, Inc. Heritage Reserve Holding
LLC, a Wisconsin limited liability company, is a subsidiary of SCM. Fussville
Real Estate Holdings LLC, Fussville Development LLC and Sherwood Development
LLC, Wisconsin limited liability companies, are subsidiaries of Heritage Reserve
Holdings LLC. Strong Service Corporation is a subsidiary of Strong Holdings,
Inc.
BUSINESS AND OTHER CONNECTIONS OF PBA
Pilgrim Baxter & Associates, Ltd. ("PBA") provides investment management
services to the Core Growth Portfolios of the Registrant and of ONE Fund. PBA
also serves as investment adviser to the PBHG Funds, Inc., investment companies
registered under the 1940 Act. PBA also provides investment advisory services to
pension and profit-sharing plans, charitable institutions, corporations and
other investment companies. PBA is wholly owned by United Asset Management Corp.
The officers and directors of PBA and their business of a substantial nature
during the past two fiscal years are as follows:
<TABLE>
<CAPTION>
Position Business of a Substantial
Name with PBA Nature During Past Two Years
- ---- -------- ----------------------------
<S> <C> <C>
Harold J. Baxter Director, Chairman Director and Chairman of PBHG
and Chief Executive Funds, Inc.
Officer
Paul J. Hondros President and Chief Until September, 1997 was
Operating Officer President and Chief Executive
Officer of Fidelity Investment
Retail Group
Gary L. Pilgrim Director and Chief President of PBHG Funds, Inc.
Investment Officer
Eric C. Schneider Chief Financial Officer
and Treasurer
Amy S. Yuter Chief Compliance Officer N/A
John M. Zerr General Counsel and Formerly Vice President of
Secretary Delaware Management Group
</TABLE>
-11-
<PAGE> 231
BUSINESS AND OTHER CONNECTIONS OF RSIM
Robertson Stephens Investment Management, L.P. ("RSIM"), a wholly-owned
subsidiary of BankAmerica Corporation, provides investment management services
to the Growth & Income Portfolio of the Registrant. RSIM, a California limited
partnership, also serves as investment adviser to the Robertson Stephens group
of mutual funds as well as private and institutional asset pools. The principal
officers of RSIM and their business of a substantial nature during the past two
fiscal years are as follows:
<TABLE>
<CAPTION>
Position Business of a Substantial
Name with RSIM Nature During Past Two Years
- ---- --------- ----------------------------
<S> <C> <C>
G. Randy Hecht President Chief Operating Officer
and Executive Vice President
of Robertson Stephens Funds
Andrew P. Pilara, Jr. Chief Investment Portfolio Manager of Robertson
Officer Stephens Partners, Global Value
and Global Natural Resources
Funds
John L. Wallace Portfolio Manager N/A
James L. Callinan Portfolio Manager N/A
</TABLE>
BUSINESS AND OTHER CONNECTIONS OF FIRSTAR
Firstar Bank, N.A. ("Firstar") provides investment management services to the
Strategic Income Stellar and Relative Value Portfolios of the Registrant. Star
is a national bank and trust organization which has a substantial business in
managing commingled funds including registered investment companies. Star also
serves as the custodian of the Registrant's assets other than those in the
Registrant's International and International Small Company Portfolios. The
directors and principal officers of Firstar and their business of a substantial
nature during the last two fiscal years are as follows:
<TABLE>
<CAPTION>
Position Business of a Substantial
Name with Firstar Nature During Past Two Years
- ---- ------------ ----------------------------
<S> <C> <C>
Jerry A. Grundhofer Chairman, President, Chairman, President, Chief
Chief Executive Officer Executive Officer and Director of
and Director Star Banc Corp.
James R. Bridgeland, Jr. Director Partner of Taft, Stettinius &
Hollister
Laurance L. Browning, Jr. Director Formerly Vice Chairman, Emerson
Electric Co.
Victoria B. Buyniski Director President & Chief Executive
Officer, United Medical Resouces, Inc.
</TABLE>
<TABLE>
<CAPTION>
Position Business of a Substantial
Name with Star Nature During Past Two Years
- ---- --------- ----------------------------
<S> <C> <C>
Samuel M. Cassidy Director Formerly President & Chief
Executive Office of Star
V. Anderson Coombe Director Chairman of Wm. Powell Co.
John C. Dannemiller Director Chairman & Chief Executive
Officer of Bearings, Inc.
J.P. Hayden, Jr. Director Chairman & Chief Executive
Officer of The Midland Co.
Roger L. Howe Director Chairman of U.S. Precision Lens, Inc.
Thomas J. Klinedinst, Jr. Director Chairman, President, Chief Executive
Officer & Chief Operating Officer of
Thomas E. Wood, Inc.
Charles S. Mechem, Jr. Director Chairman, Cincinnati Bell
Daniel J. Meyer Director Chairman & Chief Executive
Officer of Cincinnati Milacron, Inc.
David B. O'Maley Director Chairman, President & Chief
Executive Officer of ONLI
O'dell M. Owens Director Senior VP, Franciscan Hospital System
Thomas E. Petry Director Chairman & Chief Executive Officer
of Eagle-Picher Industries, Inc.
Oliver W. Waddell Director Formerly Chairman of Star Banc
Corp. and Vice Chairman of Star
Daniel B. Benhase Executive Vice President N/A
Joseph A. Campanella Executive Vice President N/A
Richard K. Davis Executive Vice President N/A
S. Kay Geiger Executive Vice President N/A
Timothy J. Fogarty Executive Vice President N/A
Jerome C. Kohlhepp Executive Vice President N/A
Thomas J. Lakin Executive Vice President N/A
David M. Moffett Executive Vice President N/A
& Chief Financial Officer
David R. Noe Executive Vice President N/A
Andrew E. Randall Executive Vice President N/A
Wayne J. Shircliff Executive Vice President N/A
Stephen E. Smith Executive Vice President N/A
</TABLE>
BUSINESS AND OTHER CONNECTIONS OF FIC AND FGIM
Federated Investment Counseling, Federated Global Investment Management Corp.
and other subsidiaries of Federated Investors serve as investment advisers to a
number of investment companies and private accounts. Certain other subsidiaries
also provide administrative services to a number of investment companies. With
over $120 billion invested across more than 300 funds under management and/or
administration by its subsidiaries, as of December 31, 1997, Federated Investors
is one of the largest mutual fund investment managers in the United States. The
Trustees of the Sub-Adviser, their position with the Sub-Adviser, and in
parentheses, their principal occupations are as follows: John F. Donahue,
Trustee (Trustee, Chairman and Chief Executive Officer, Federated Investors;
Director and Chairman, Federated Research Corp.; Trustee and Chairman, Federated
Advisers, Federated Management, Federated Research, and Federated Global
Research Corp.; Director, Federated Investors, Inc. and Federated Investors
Building Corp.; Trustee, Federated Investment Counseling and Federated Investors
Management Company; Chairman, Passport Research, Ltd.); J. Christopher Donahue,
Trustee, (Trustee, President, chief Executive Officer and Chief Operating
Officer, Federated Advisers, Federated Global Research corp., Federated
Management and Federated Research; Director, President, Chief Executive Officer
and Chief Operating Officer, Federated Research Corp.; Trustee, President and
Chief Operating Officer, Federated Investors; Director, chairman and Chief
Executive Officer, Federated Investors, Inc.; President, Passport Research Ltd.;
Trustee, Federated Investment Counseling, Federated Investors Management
Company, Federated Shareholder Services Company, Federated Administrative
Services, Federated International Management, Ltd., Federated Shareholder
Services, Retirement Plan Service Company of America, Advanced Information
Systems, Federated Services Company and Federated Bank and Trust; Director,
Federated Administrative Services, Inc., Federated Financial Services, Inc.
Federated Investors Building Corp., FFSI Insurance Agency, Inc. and FS Holdings,
Inc.); John W. McGonigle, Trustee, (Director and president, Federated Financial
Services, Inc., FII Holdings, Inc., FFSI Insurance Agency, Inc.; Directors,
President and Chief Executive Officer, Federated Investors Building Corp.;
Director, President, Chief Operating Officer and Secretary, Federated Investors,
Inc.; Trustee, Chairman, President and Chief Executive Officer, Federated
Shareholder Services; Director, Executive Vice President and Secretary,
Federated Investors, Inc. Trustee, Executive Vice President and Secretary,
Federated Investors; Trustee and President, Federated Investors Management
Company, Trustee, Federated Advisers, Federated Global Research Corp., Federated
Management, Federated Research, Federated International Management, Ltd.,
Federated Investment Counseling; Director, Federated Research Corp.); Mark D.
Olson, Trustee (Trustee, Federated Advisers, Federated Management, Federated
Research, Federated Administrative Services, Federated Investment Counseling,
Advanced Information Systems, Federated Investors, Federated Shareholder
Services, Federated Shareholder Services Company, Retirement Plan Service
Company of America; Partner, Wilson, Halbrook & Baynard, 107 W. Market Street,
Georgetown, Delaware 19947). The business address of the Trustees, with the
exception of Mark D. Olson, is Federated Investors Tower, Pittsburgh,
Pennsylvania 15222-3779.
-12-
<PAGE> 232
The remaining Officers of FIC are:
John B. Fisher President
Executive Vice Presidents: William D. Dawson, III
Henry A. Frantzen
J. Thomas Madden
Senior Vice Presidents: Drew J. Collins
Johnathan C. Conley
Deborah A. Cunningham
Mark E. Durbiano
J. Alan Minteer
Susan M. Nason
Mary Jo Ochson
Robert J. Ostrowski
Charles A. Ritter
Vice Presidents: J. Scott Albrecht
Joseph M. Balestrino
Randall S. Bauer
David A. Briggs
Kenneth J. Cody
Alexandre de Bethmann
Michael P. Donnelly
Linda A. Duessel
Donald T. Ellenberger
Kathleen M. Foody-Malus
Thomas M. Franks
Edward C. Gonzales
James E. Grefenstette
Susan R. Hill
Stephen A. Keen
Robert K. Kinsey
Robert M. Kowit
Jeff A. Kozemchak
Steven Lehman
Marian R. Marinack
Sandra L. McInerney
Scott B. Schermerhorn
Frank Semack
Aash M. Shah
Christopher Smith
William F. Stotz
Tracy P. Stouffer
Edward J. Tiedge
Paige M. Wilhelm
Jolanta M. Wysocka
Assistant Vice Presidents: Todd A. Abraham
Stefanie L. Bachhuber
Arthur J. Barry
Micheal W. Casey
Robert E. Cauley
Salvatore A. Esposito
Donna M. Fabiano
John T. Gentry
William R. Jamison
Constantine Kartsonsas
Joseph M. Natoli
Keith J. Sabol
Michael W. Sirianni
Gregg S. Tenser
<PAGE> 233
Secretary: Stephen A. Keen
Treasurer: Thomas R. Donahue
Assistant Secretaries: Thomas R. Donahue
Christine I. McGonigle
Assistant Treasurer: Richard B. Fisher
The business address of each of the Officers of the investment adviser is
Federated Investors Tower, Pittsburgh, Pennsylvania 15222-3779. These
individuals are also officers of a majority of the investment advisers to the
funds listed in Part B of this Registration Statement.
<PAGE> 234
PRINCIPAL UNDERWRITERS
Not Applicable
LOCATION OF ACCOUNTS AND RECORDS
The books and records required under Section 31(a) and Rules thereunder are
maintained and in the possession of the following persons:
(a) Journals and other records of original entry:
For those portfolios other than the International and
International Small Company Portfolios:
Firstar
425 Walnut Street
Cincinnati, Ohio 45202
and
American Data Services, Inc. ("ADS")
150 Motor Parkway, Suite 109
Hauppauge, NY 11788
For the International and International Small Company
Portfolios:
Investors Fiduciary Trust Co. ("IFTC")
801 Pennsylvania Street
Kansas City, Missouri 64105
(b) General and auxiliary ledgers:
ADS and IFTC
(c) Securities records for portfolio securities:
ADS and IFTC
(d) Corporate charter (Articles of Incorporation), By-Laws and Minute
Books:
Ronald L. Benedict, Secretary
Ohio National Fund, Inc.
One Financial Way
Montgomery, Ohio 45242
-14-
<PAGE> 235
(e) Records of brokerage orders:
The Adviser
(f) Records of other portfolio transactions:
The Adviser
(g) Records of options:
The Adviser
(h) Records of trial balances:
ADS and The Adviser
(i) Quarterly records of allocation of brokerage orders and
commissions:
The Adviser
(j) Records identifying persons or group authorizing portfolio
transactions:
The Adviser
(k) Files of advisory materials
The Adviser
MANAGEMENT SERVICES
Not Applicable
UNDERTAKINGS
Not Applicable
-15-
<PAGE> 236
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the Investment
Company Act of 1940, Ohio National Fund, Inc. certifies that it meets the
requirements of Securities Act Rule 485(b) for effectiveness of this
registration statement and has duly caused this post-effective amendment to the
registration statement to be signed on its behalf by the undersigned thereunto
duly authorized in the City of Montgomery and the State of Ohio on the 26th day
of April, 1999.
OHIO NATIONAL FUND, INC.
By /s/John J. Palmer
------------------------------
John J. Palmer, President
Attest /s/Ronald L. Benedict
--------------------------------
Ronald L. Benedict, Secretary
Pursuant to the requirements of the Securities Act of 1933, this post-effective
amendment to the registration statement has been signed below by the following
persons in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
- --------- ----- ----
<S> <C> <C>
/s/John J. Palmer
- ------------------------- President and Director April 26, 1999
John J. Palmer (Principal Executive Officer)
/s/Dennis R. Taney
- ------------------------- Treasurer (Principal Financial April 26, 1999
Dennis R. Taney and Accounting Officer)
/s/Ronald L. Benedict
- ------------------------- Director April 26, 1999
Ronald L. Benedict
/s/George E. Castrucci
- ------------------------- Director April 26, 1999
George E. Castrucci
/s/Ross Love
- ------------------------- Director April 26, 1999
Ross Love
/s/George M. Vredeveld
- ------------------------- Director April 26, 1999
George M. Vredeveld
</TABLE>
<PAGE> 237
INDEX OF CONSENTS AND EXHIBITS
<TABLE>
<CAPTION>
Page Number in
Exhibit Sequential Numbering
Number Description System Where Located
- ------ ----------- --------------------
<S> <C> <C>
Consent of Ronald L. Benedict, Esq.
Consent of Jones & Blouch L.L.P.
Consent of KPMG LLP
</TABLE>
(n) Financial Data Schedules as of December 31, 1998 for each of
the Registrant's portfolios
<PAGE> 238
CONSENTS
<PAGE> 239
[Letterhead]
April 26, 1999
The Board of Directors
Ohio National Fund, Inc.
237 William Howard Taft Road
Cincinnati, Ohio 452l9
Re: Ohio National Fund, Inc. Registration Statement
File Nos. 2-67464 and 811-3015
Gentlemen:
The undersigned hereby consents to the use of my name under the caption of
"Legal Counsel" in the registration statement on Form N-lA of the above
captioned registrant.
As required by paragraph (b)(4) of Rule 485 under the Securities Act of 1933,
the registrant has certified that this post-effective Amendment no. 38 to its
Form N-1A meets all the requirements for effectiveness pursuant to paragraph
(b) of that Rule. Having reviewed this amendment, the undersigned legal counsel
to the registrant hereby confirms that the amendment does not contain any
material that would render it ineligible to become effective pursuant to
paragraph (b).
Sincerely,
/s/ Ronald L. Benedict
----------------------
Ronald L. Benedict
Secretary and Legal Counsel
RLB/nh
<PAGE> 240
Jones & Blouch L.L.P.
Suite 405-West
1025 Thomas Jefferson St., N.W.
Washington, DC 20007
(202) 223-3500
April 26, 1999
Board of Directors
Ohio National Fund, Inc.
One Financial Way
Cincinnati, OH 45242
Re: Ohio National Fund, Inc.
Registration Statement on Form N-1A
File No. 2-67464
-----------------------------------
Dear Sirs:
We hereby consent to the reference to this firm under the caption "Legal
Counsel" in the Statement of Additional Information included in Post-Effective
Amendment No. 38 under the Securities Act of 1933 to the Registration Statement
for Ohio National Fund, Inc. (File No. 2-67464).
Very truly yours,
/s/ JONES & BLOUCH L.L.P.
--------------------
Jones & Blouch L.L.P.
<PAGE> 241
Independent Auditors' Consent
The Board of Directors
Ohio National Fund, Inc.:
We consent to the inclusion of our report dated February 5, 1999, included
herein and to the reference to our firm under the headings "Financial
Highlights" in the prospectus and "Experts" in the Statement of Additional
Information.
KPMG LLP
Cincinnati, Ohio
April 26, 1999
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000315754
<NAME> OHIO NATIONAL FUND, INC.
<SERIES>
<NUMBER> 01
<NAME> EQUITY
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<INVESTMENTS-AT-COST> 0
<INVESTMENTS-AT-VALUE> 0
<RECEIVABLES> 0
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 0
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 0
<TOTAL-LIABILITIES> 0
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 0
<SHARES-COMMON-STOCK> 0
<SHARES-COMMON-PRIOR> 0
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<OVERDISTRIBUTION-GAINS> 0
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<INTEREST-INCOME> 0
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<PER-SHARE-NAV-BEGIN> 35.44
<PER-SHARE-NII> .45
<PER-SHARE-GAIN-APPREC> 1.56
<PER-SHARE-DIVIDEND> (.45)
<PER-SHARE-DISTRIBUTIONS> (.69)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 36.31
<EXPENSE-RATIO> .64
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000315754
<NAME> OHIO NATIONAL FUND, INC.
<SERIES>
<NUMBER> 02
<NAME> MONEY MARKET
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<INVESTMENTS-AT-COST> 0
<INVESTMENTS-AT-VALUE> 0
<RECEIVABLES> 0
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 0
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 0
<TOTAL-LIABILITIES> 0
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 0
<SHARES-COMMON-STOCK> 0
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
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<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 0
<OTHER-INCOME> 0
<EXPENSES-NET> 0
<NET-INVESTMENT-INCOME> 0
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 0
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 0
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 0
<AVERAGE-NET-ASSETS> 0
<PER-SHARE-NAV-BEGIN> 10.00
<PER-SHARE-NII> .52
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> (.52)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.00
<EXPENSE-RATIO> .41
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000315754
<NAME> OHIO NATIONAL FUND, INC.
<SERIES>
<NUMBER> 03
<NAME> BOND
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<INVESTMENTS-AT-COST> 0
<INVESTMENTS-AT-VALUE> 0
<RECEIVABLES> 0
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 0
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 0
<TOTAL-LIABILITIES> 0
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 0
<SHARES-COMMON-STOCK> 0
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 0
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 0
<OTHER-INCOME> 0
<EXPENSES-NET> 0
<NET-INVESTMENT-INCOME> 0
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 0
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 0
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 0
<AVERAGE-NET-ASSETS> 0
<PER-SHARE-NAV-BEGIN> 10.68
<PER-SHARE-NII> .68
<PER-SHARE-GAIN-APPREC> (.13)
<PER-SHARE-DIVIDEND> (.67)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.56
<EXPENSE-RATIO> .72
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000315754
<NAME> OHIO NATIONAL FUND, INC.
<SERIES>
<NUMBER> 04
<NAME> OMNI
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<INVESTMENTS-AT-COST> 0
<INVESTMENTS-AT-VALUE> 0
<RECEIVABLES> 0
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 0
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 0
<TOTAL-LIABILITIES> 0
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 0
<SHARES-COMMON-STOCK> 0
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 0
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 0
<OTHER-INCOME> 0
<EXPENSES-NET> 0
<NET-INVESTMENT-INCOME> 0
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 0
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 0
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 0
<AVERAGE-NET-ASSETS> 0
<PER-SHARE-NAV-BEGIN> 21.06
<PER-SHARE-NII> .58
<PER-SHARE-GAIN-APPREC> .38
<PER-SHARE-DIVIDEND> (.58)
<PER-SHARE-DISTRIBUTIONS> (.58)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 21.44
<EXPENSE-RATIO> .65
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000315754
<NAME> OHIO NATIONAL FUND, INC.
<SERIES>
<NUMBER> 05
<NAME> INTERNATIONAL
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<INVESTMENTS-AT-COST> 0
<INVESTMENTS-AT-VALUE> 0
<RECEIVABLES> 0
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 0
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 0
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<NAME> OHIO NATIONAL FUND, INC.
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<NAME> OHIO NATIONAL FUND, INC.
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<NAME> SMALL CAP
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<NAME> OHIO NATIONAL FUND, INC.
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<NAME> GLOBAL CONTRARIAN
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<TABLE> <S> <C>
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<CIK> 0000315754
<NAME> OHIO NATIONAL FUND, INC.
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<NUMBER> 09
<NAME> AGGRESSIVE GROWTH
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<TABLE> <S> <C>
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<CIK> 0000315754
<NAME> OHIO NATIONAL FUND, INC.
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<NAME> CORE GROWTH
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<CIK> 0000315754
<NAME> OHIO NATIONAL FUND, INC.
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<NAME> GROWTH & INCOME
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<CIK> 0000315754
<NAME> OHIO NATIONAL FUND, INC.
<SERIES>
<NUMBER> 12
<NAME> S&P 500 INDEX
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<CIK> 0000315754
<NAME> OHIO NATIONAL FUND, INC.
<SERIES>
<NUMBER> 13
<NAME> SOCIAL AWARENESS
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<CIK> 0000315754
<NAME> OHIO NATIONAL FUND, INC.
<SERIES>
<NUMBER> 14
<NAME> STRATEGIC INCOME
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<NAME> OHIO NATIONAL FUND, INC.
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<NAME> OHIO NATIONAL FUND, INC.
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<NAME> BLUE CHIP
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<CIK> 0000315754
<NAME> OHIO NATIONAL FUND, INC.
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<NAME> EQUITY INCOME
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<CIK> 0000315754
<NAME> OHIO NATIONAL FUND, INC.
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<NAME> HIGH INCOME BOND
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<NAME> OHIO NATIONAL FUND, INC.
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<NAME> SMALL CAP GROWTH
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