<PAGE> 1
File No. 33-62284
811-1979
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 / X /
Pre-Effective Amendment No. / /
Post-Effective Amendment No. 9 / X /
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 / /
Amendment No. / /
(Exact Name of Registrant)
OHIO NATIONAL VARIABLE ACCOUNT B
(Name of Depositor)
THE OHIO NATIONAL LIFE INSURANCE COMPANY
(Address of Depositor's Principal Executive Offices)
One Financial Way
Cincinnati, Ohio 45242
(Depositor's Telephone Number)
(513) 794-6100
(Name and Address of Agent for Service)
Ronald L. Benedict, Second Vice President and Counsel
The Ohio National Life Insurance Company
P.O. Box 237
Cincinnati, Ohio 45201
Notice to:
W. Randolph Thompson, Esq.
Of Counsel
Jones & Blouch L.L.P.
Suite 405 West
1025 Thomas Jefferson Street, N.W.
Washington, D.C. 20007
Approximate Date of Proposed Public Offering: As soon after the effective date
of this amendment as is practicable.
Registrant has heretofore registered an indefinite amount of securities under
the Securities Act of 1933 pursuant to Rule 24f-2 and on February 27, 1997 filed
its Rule 24f-2 Notice for its most recent fiscal year.
It is proposed that this filing will become effective (check appropriate space):
immediately upon filing pursuant to paragraph (b)
---
X on May 1, 1997 pursuant to paragraph (b)
---
60 days after filing pursuant to paragraph (a)(i)
---
on (date) pursuant to paragraph (a)(i) of Rule 485.
---
If appropriate, check the following box:
--- this post-effective amendment designates a new effective date for
a previously filed post-effective amendment.
<PAGE> 2
OHIO NATIONAL VARIABLE ACCOUNT B
<TABLE>
<CAPTION>
N-4 Item Caption in Prospectus
- -------- ---------------------
<S> <C>
1 Cover Page
2 Glossary of Special Terms
3 Not applicable
4 Not applicable
5 The Ohio National Companies
6 Deductions and Expenses
7 Description of Variable Annuity Contracts
8 Annuity Period
9 Death Benefit
10 Accumulation Period
11 Surrender and Partial Withdrawal
12 Federal Tax Status
13 Not applicable
14 Table of Contents
Caption in Statement of Additional
Information
15 Cover Page
16 Table of Contents
17 Not applicable
18 Custodian
Independent Certified Public Accountants
19 See Prospectus (Distribution of Variable Annuity Contracts)
20 Underwriter
21 Calculation of Money Market Subaccount Yield
Total Return
22 See Prospectus (Annuity Period)
23 Financial Statements
</TABLE>
<PAGE> 3
<TABLE>
<CAPTION>
Caption in Part C
-----------------
<S> <C>
24 Financial Statements and Exhibits
25 Directors and Officers of the Depositor
26 Persons Controlled by or Under Common Control with the
Depositor or Registrant
27 Number of Contractowners
28 Indemnification
29 Principal Underwriter
30 Location of Accounts and Records
31 Not applicable
32 Not applicable
</TABLE>
<PAGE> 4
PART A
PROSPECTUS
<PAGE> 5
PROSPECTUS
SINGLE PURCHASE PAYMENT
INDIVIDUAL VARIABLE ANNUITY CONTRACTS
OHIO NATIONAL VARIABLE ACCOUNTS A AND B
THE OHIO NATIONAL LIFE INSURANCE COMPANY
ONE FINANCIAL WAY
CINCINNATI, OHIO 45242
TELEPHONE (513) 794-6452
This prospectus offers multiple funded, single purchase payment, individual
variable annuity contracts that provide for the accumulation of values and the
payment of annuity benefits on a variable and/or fixed basis. Unless
specifically stated otherwise, only provisions relating to the variable portion
of the contracts are described in this prospectus. The fixed portion
("Guaranteed Accumulation Account") is briefly described in an appendix to the
Statement of Additional Information.
Variable annuities are designed to provide lifetime annuity payments which will
vary with the investment results of the investment vehicle chosen. The
accumulation value of a contract will vary with the investment performance of
Ohio National Fund, Inc. (the "Fund"), prior to the annuity payout date, and the
amount of each annuity payment will vary with the Fund's investment performance
subsequent to the commencement of annuity payments. There can be no assurance
that the value of a contract during the years prior to the annuity payout date
or the aggregate amount of annuity payments received after such date will equal
or exceed the purchase payments made therefor.
The variable annuity contracts offered by this prospectus are designed for (1)
annuity purchase plans adopted by public school systems and certain tax-exempt
organizations described in Section 501(c)(3) of the Internal Revenue Code (the
"Code"), qualifying for tax-deferred treatment pursuant to Section 403(b) of the
Code, (2) other employee pension or profit-sharing trusts or plans qualifying
for tax-deferred treatment under Section 401(a), 401(k) or 403(a) of the Code,
(3) individual retirement annuities qualifying for tax-deferred treatment under
Section 408 of the Code, (4) state and municipal deferred compensation plans and
(5) non-tax-qualified plans.
The minimum purchase payment is $10,000. Generally the maximum purchase payment
is $500,000. The net purchase payment (after the deduction of any applicable
state premium tax) is allocated to one or more subaccounts of Ohio National
Variable Account A ("VAA") for tax qualified contracts or Ohio National Variable
Account B ("VAB") for non-tax-qualified contracts in such portion as the
contract owner may choose. VAA and VAB are separate accounts established by The
Ohio National Life Insurance Company ("Ohio National Life"). The assets of VAA
and VAB are invested in shares of the Fund, a mutual fund having 13 portfolios
in which the contracts' assets may be invested: 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 and Social Awareness Portfolio. (See the accompanying
prospectus of the Fund which also contains information about other portfolios
that are not available for the contracts offered herein.)
All or part of the contract's accumulation value may be withdrawn before the
annuity payout date. Amounts withdrawn may be subject to federal income tax
penalties, and a contingent deferred sales charge may be assessed up to 6% of
the amount withdrawn. Exercise of contract rights may be subject to the terms of
any qualified employee trust or annuity plan under which a contract is
purchased. This prospectus contains no information concerning such trusts or
plans. The contracts offered hereby may be revoked by the purchaser without
penalty within 20 days of their delivery.
THIS PROSPECTUS SHOULD BE RETAINED FOR FUTURE REFERENCE. IT SETS FORTH THE
INFORMATION ABOUT VAA, VAB AND THE VARIABLE ANNUITY CONTRACTS OFFERED BY THIS
PROSPECTUS THAT YOU SHOULD KNOW BEFORE INVESTING. ADDITIONAL INFORMATION ABOUT
VAA AND VAB HAS BEEN FILED WITH THE SECURITIES AND EXCHANGE COMMISSION IN
STATEMENTS OF ADDITIONAL INFORMATION DATED MAY 1, 1997. THE STATEMENTS OF
ADDITIONAL INFORMATION FOR EACH OF VAA AND VAB ARE INCORPORATED HEREIN BY
REFERENCE AND ARE AVAILABLE UPON REQUEST AND WITHOUT CHARGE BY WRITING OR
CALLING OHIO NATIONAL LIFE AT THE ABOVE ADDRESS. THE TABLE OF CONTENTS FOR THE
STATEMENTS OF ADDITIONAL INFORMATION IS ON PAGE 2.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THIS PROSPECTUS SHOULD BE ACCOMPANIED BY THE CURRENT PROSPECTUS OF OHIO NATIONAL
FUND, INC.
MAY 1, 1997
<PAGE> 6
TABLE OF CONTENTS
<TABLE>
<S> <C>
Fee Table ................................................................. 3
Accumulation Unit Values ............................................... 5
Financial Statements ................................................... 6
The Ohio National Companies ............................................... 6
Ohio National Life ..................................................... 6
Ohio National Variable Accounts A and B ................................ 6
Ohio National Fund, Inc. ............................................... 6
Distribution of Variable Annuity Contracts ................................ 7
Deductions and Expenses ................................................... 8
Contingent Deferred Sales Charge ....................................... 8
Deduction for Administrative Expenses .................................. 8
Deduction For Risk Undertakings ........................................ 8
Transfer Fee ........................................................... 9
Deduction For State Premium Tax ........................................ 9
Fund Expenses .......................................................... 9
Description of Variable Annuity Contracts ................................. 9
20-Day Free Look ....................................................... 9
Accumulation Period .................................................... 9
Annuity Period ......................................................... 12
Other Contract Provisions .............................................. 14
Performance Data ....................................................... 15
Federal Tax Status......................................................... 15
IRA Disclosure Statement................................................... 19
</TABLE>
STATEMENT OF ADDITIONAL INFORMATION
Custodian
Independent Certified Public Accountants
Underwriter
Calculation of Money Market Subaccount Yield
Transfer Limitations
Total Return
Financial Statements for Ohio National Life and VAA or VAB
Appendix: Loans Under Tax-Sheltered Annuities(VAA only) Guaranteed Accumulation
Account
GLOSSARY OF SPECIAL TERMS
ACCUMULATION PERIOD - The period prior to the annuity payout date and during the
lifetime of the annuitant.
ACCUMULATION UNIT - A unit of measure used to determine the value of contracts
during the accumulation period.
ACCUMULATION VALUE _ The cash value of an annuity contract before the annuity
payout date.
ANNUITANT - Any natural person who is to receive or is receiving annuity
payments and upon whose continuation of life annuity payments with life
contingencies depend.
ANNUITY PAYOUT DATE - The date on which annuity payments are to begin.
ANNUITY PAYMENTS - Periodic payments made to an annuitant pursuant to an annuity
contract.
ANNUITY UNIT - A unit of measure used to determine the second and subsequent
variable annuity payments and reflecting the investment performance of the Fund.
FUND SHARES - Shares of Ohio National Fund, Inc., or shares of another
registered open-end investment company substituted therefor.
OWNER - During the lifetime of the designated annuitant and prior to the
specified annuity payout date, the owner is the person in whose name the
contract is registered. On and after the annuity payout date the annuitant
becomes the owner. After the death of the annuitant, the beneficiary becomes the
owner.
PURCHASE PAYMENT - The amount of payment made by, or on behalf of, the owner
under the annuity contract.
SETTLEMENT - The application of the accumulation value of an annuity contract
under the settlement provisions contained therein.
SUBACCOUNT - The Equity subaccount, Money Market subaccount, Bond subaccount,
Omni subaccount, International subaccount, Capital Appreciation subaccount,
Small Cap subaccount, Global Contrarian subaccount, Aggressive Growth
subaccount, Core Growth subaccount, Growth & Income subaccount, S&P 500 Index
subaccount, Social Awareness subaccount or such other subaccounts as may be
established under VAA or VAB.
VALUATION PERIOD - The period of time from one determination of accumulation
unit and annuity unit values to their next determination. Such determination is
made at the same time that the net asset value of Fund Shares is determined. See
page 22 of the accompanying Fund prospectus.
1940 ACT - The Investment Company Act of 1940, as amended, or any similar
successor federal legislation.
2
<PAGE> 7
FEE TABLE
<TABLE>
<CAPTION>
CONTRACTOWNER TRANSACTION EXPENSES CONTRACT YEAR
Deferred Sales Load (as a percentage of OF SURRENDER PERCENTAGE
amount withdrawn or surrendered) OR WITHDRAWAL CHARGED
------------- ---------
<S> <C>
1 6%
2 5%
3 4%
4 3%
5 2%
6 1%
7 and later 0%
</TABLE>
Exchange (transfer) Fee $3 (currently no charge for the first 4 transfers
per year)
VAA AND VAB ANNUAL EXPENSES (as a percentage
of average account value)
<TABLE>
<S> <C>
Mortality and Expense Risk Fees*** 0.65%
Account Fees and Expenses 0.25%
----
Total VAA and VAB Annual Expenses 0.90%
</TABLE>
<TABLE>
<CAPTION>
FUND ANNUAL EXPENSES (after fee waiver*) (as a percentage
of the Fund's average net assets) MANAGEMENT OTHER TOTAL FUND
FEES EXPENSES EXPENSES
---------- -------- ----------
<S> <C> <C> <C>
Equity ...................... 0.55% 0.19% 0.74%
Money Market* ............... 0.25% 0.19% 0.44%
Bond ........................ 0.60% 0.19% 0.79%
Omni ........................ 0.58% 0.19% 0.77%
International ............... 0.90% 0.25% 1.15%
Capital Appreciation ........ 0.80% 0.17% 0.97%
Small Cap ................... 0.80% 0.16% 0.96%
Global Contrarian ........... 0.90% 0.39% 1.29%
Aggressive Growth ........... 0.80% 0.21% 1.01%
Core Growth** ............... 0.95% 0.60% 1.55%
Growth & Income** ........... 0.85% 0.55% 1.40%
S&P 500 Index** ............. 0.40% 0.20% 0.60%
Social Awareness** .......... 0.60% 0.25% 0.85%
</TABLE>
EXAMPLE - If you surrendered your contract at the end of the applicable time
period, you would pay the following aggregate expenses on a $1,000 investment in
each subaccount, assuming 5% annual return:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
Equity $73 $92 $110 $194
Money Market* 70 83 95 161
Bond 73 93 113 200
Omni 73 93 112 198
International 77 104 131 238
Capital Appreciation 75 98 122 219
Small Cap 75 98 122 218
Global Contrarian 78 108 138 252
Aggressive Growth 75 100 124 223
Core Growth** 80 115 N/A N/A
Growth & Income** 79 111 N/A N/A
S&P 500 Index** 71 87 N/A N/A
Social Awareness** 74 95 N/A N/A
</TABLE>
3
<PAGE> 8
EXAMPLE - If you do not surrender your contract at the end of the applicable
time period, you would pay the following aggregate expenses on the same
investment:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
Equity $17 $52 $89 $194
Money Market* 14 42 73 161
Bond 17 53 92 200
Omni 17 53 91 198
International 21 64 110 238
Capital Appreciation 19 59 101 219
Small Cap 19 58 101 218
Global Contrarian 22 69 117 252
Aggressive Growth 19 60 103 223
Core Growth** 25 76 N/A N/A
Growth & Income** 23 72 N/A N/A
S&P 500 Index** 15 47 N/A N/A
Social Awareness** 18 55 N/A N/A
</TABLE>
The purpose of the above table is to help you to understand the costs and
expenses that a variable annuity contractowner will bear directly or indirectly.
THE EXAMPLE INCLUDED IN THE ABOVE TABLE SHOULD NOT BE CONSIDERED A
REPRESENTATION OF PAST OR FUTURE EXPENSE, AND ACTUAL EXPENSES MAY BE GREATER OR
LESS THAN THOSE shown. Note that the expense amounts shown in the example are
aggregate amounts for the total number of years indicated. Neither the table nor
the example reflect any premium taxes that may be applicable to a contract,
which currently range from 0% to 3.5%. The above table and example reflect only
the charges for contracts currently offered by this prospectus and not other
contracts that may be offered by Ohio National Life. For further details, see
Deduction For State Premium Tax, page 9.
*For the Money Market Portfolio, management fees in excess of 0.25% are
presently being waived by the Fund's investment adviser. Without the waiver, the
Money Market Portfolio's Management Fee would be 0.30%, its Total Fund Annual
Expenses would be 0.49%, and its expenses would total $70 for a $1,000 contract
surrendered at the end of 1 year, $84 if surrendered at the end of 3 years, $98
if surrendered at the end of 5 years or $167 if surrendered at the end of 10
years. For a $1,000 contract not surrendered, the expenses without the waiver
would be $14 for 1 year, $44 for 3 years, $76 for 5 years or $167 for 10 years.
**The "Other Expenses" (and, accordingly, the Total Fund Expenses) for the Core
Growth, Growth & Income, S&P 500 Index and Social Awareness Portfolios are based
on estimates.
***The Mortality and Expense risk fees may be changed at any time, but may not
be increased to more than 1.55%.
4
<PAGE> 9
ACCUMULATION UNIT VALUES
<TABLE>
<CAPTION>
EQUITY SUBACCOUNT
YEAR ENDED UNIT VALUE AT UNIT VALUE AT VAA UNITS VAB UNITS
DECEMBER 31 BEGINNING OF YEAR END OF YEAR END OF YEAR END OF YEAR
----------- ----------------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
1993* $10.000000 $10.239365 25,900 20,283
1994 10.239365 10.173015 120,867 115,993
1995 10.173015 12.824740 301,147 239,825
1996 12.824740 15.042658 534,028 405,466
---- ---------- ---------- ------ ------
</TABLE>
<TABLE>
<CAPTION>
MONEY MARKET SUBACCOUNT**
YEAR ENDED UNIT VALUE AT UNIT VALUE AT VAA UNITS VAB UNITS
DECEMBER 31 BEGINNING OF YEAR END OF YEAR END OF YEAR END OF YEAR
----------- ----------------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
1993 $10.000000 $10.045964 5,554 1,204
1994 10.045964 10.354108 95,638 56,892
1995 10.354108 10.837896 136,205 34,285
1996 10.837896 11.296489 149,846 74,056
---- ---------- ---------- ------ ------
</TABLE>
<TABLE>
<CAPTION>
BOND SUBACCOUNT
YEAR ENDED UNIT VALUE AT UNIT VALUE AT VAA UNITS VAB UNITS
DECEMBER 31 BEGINNING OF YEAR END OF YEAR END OF YEAR END OF YEAR
----------- ----------------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
1993 $10.000000 $9.910842 378 19,364
1994 9.910842 9.445623 10,472 75,521
1995 9.445623 11.130129 64,973 97,129
1996 11.130129 11.439849 82,917 101,403
---- ---------- ---------- ------ ------
</TABLE>
<TABLE>
<CAPTION>
OMNI SUBACCOUNT
YEAR ENDED UNIT VALUE AT UNIT VALUE AT VAA UNITS VAB UNITS
DECEMBER 31 BEGINNING OF YEAR END OF YEAR END OF YEAR END OF YEAR
----------- ----------------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
1993 $10.000000 $10.143037 42,348 44,348
1994 10.143037 9.999661 150,263 109,853
1995 9.999661 12.165280 244,025 194,243
1996 12.165280 13.930650 511,033 342,379
---- ---------- ---------- ------ ------
</TABLE>
<TABLE>
<CAPTION>
INTERNATIONAL SUBACCOUNT
YEAR ENDED UNIT VALUE AT UNIT VALUE AT VAA UNITS VAB UNITS
DECEMBER 31 BEGINNING OF YEAR END OF YEAR END OF YEAR END OF YEAR
----------- ----------------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
1993* $10.000000 $10.834626 34,538 15,210
1994 10.834626 11.604279 204,939 234,799
1995 11.604279 12.892796 384,682 330,279
1996 12.892796 14.628252 678,397 674,403
---- ---------- ---------- ------ ------
</TABLE>
<TABLE>
<CAPTION>
CAPITAL APPRECIATION SUBACCOUNT
YEAR ENDED UNIT VALUE AT UNIT VALUE AT VAA UNITS VAB UNITS
DECEMBER 31 BEGINNING OF YEAR END OF YEAR END OF YEAR END OF YEAR
----------- ----------------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
1994* $10.000000 $10.390128 52,732 34,382
1995 10.390128 12.626458 211,756 136,612
1996 12.626458 14.484990 383,878 243,883
---- ---------- ---------- ------ ------
</TABLE>
<TABLE>
<CAPTION>
SMALL CAP SUBACCOUNT
YEAR ENDED UNIT VALUE AT UNIT VALUE AT VAA UNITS VAB UNITS
DECEMBER 31 BEGINNING OF YEAR END OF YEAR END OF YEAR END OF YEAR
----------- ----------------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
1994* $10.000000 $12.053440 76,033 39,627
1995 12.053440 15.889068 198,048 123,612
1996 15.889068 18.535631 337,460 204,017
---- ---------- ---------- ------ ------
</TABLE>
5
<PAGE> 10
<TABLE>
<CAPTION>
GLOBAL CONTRARIAN SUBACCOUNT
YEAR ENDED UNIT VALUE AT UNIT VALUE AT VAA UNITS VAB UNITS
DECEMBER 31 BEGINNING OF YEAR END OF YEAR END OF YEAR END OF YEAR
----------- ----------------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
1995* $10.000000 $10.816003 47,134 21,621
1996 10.816003 12.015818 132,292 178,856
---- ---------- ---------- ------ ------
</TABLE>
<TABLE>
<CAPTION>
AGGRESSIVE GROWTH SUBACCOUNT
YEAR ENDED UNIT VALUE AT UNIT VALUE AT VAA UNITS VAB UNITS
DECEMBER 31 BEGINNING OF YEAR END OF YEAR END OF YEAR END OF YEAR
----------- ----------------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
1995* $10.000000 $12.610012 41,681 39,115
1996 12.610012 12.592390 118,818 80,875
---- ---------- ---------- ------ ------
</TABLE>
* Series of variable annuity contracts commenced on October 7, 1993. Capital
Appreciation and Small Cap subaccounts commenced on May 1, 1994. Global
Contrarian and Aggressive Growth subaccounts commenced on March 31, 1995.
** The current annualized yield of the Money Market subaccount for the seven
days ended December 31, 1996, was 4.72%.
FINANCIAL STATEMENTS
The complete financial statements of VAA or VAB, and of Ohio National Life, and
the Independent Auditors' Reports thereon, may be found in the Statements of
Additional Information for VAA and VAB.
THE OHIO NATIONAL COMPANIES
OHIO NATIONAL LIFE
Ohio National Life was organized under the laws of Ohio in 1909 as a stock life
insurance company and became a mutual life insurance company in 1959. It writes
life, accident and health insurance and annuities in 47 states, the District of
Columbia and Puerto Rico. Currently it has assets in excess of $5.9 billion and
equity in excess of $500 million. Its home office is located at One Financial
Way, Cincinnati, Ohio 45242.
OHIO NATIONAL VARIABLE ACCOUNTS A AND B
VAA and VAB were established in 1969 by Ohio National Life as separate accounts
under Ohio law for the purpose of funding variable annuity contracts. Purchase
payments for the variable annuity contracts are allocated to one or more
subaccounts of VAA or VAB. Income, gains and losses, whether or not realized,
from assets allocated to VAA and VAB are, as provided in the contracts, credited
to or charged against VAA or VAB without regard to other income, gains or losses
of Ohio National Life. The assets maintained in VAA and VAB will not be charged
with any liabilities arising out of any other business conducted by Ohio
National Life. Nevertheless, all obligations arising under the contracts,
including the commitment to make annuity payments, are general corporate
obligations of Ohio National Life. Accordingly, all of Ohio National Life's
assets are available to meet its obligations under the contracts. VAA and VAB
are registered as unit investment trusts under the 1940 Act.
The assets of each subaccount of VAA and VAB are invested at net asset value
(without an initial sales charge) in shares of a corresponding portfolio of the
Fund: the Equity Portfolio, Money Market Portfolio, Bond Portfolio, Omni
Portfolio (a flexible portfolio fund), 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 or Social Awareness Portfolio.
6
<PAGE> 11
OHIO NATIONAL FUND, INC.
The Fund is a diversified, open-end, management investment company registered
under the 1940 Act. The value of the Fund's investments fluctuates daily and is
subject to the risk of changing economic conditions as well as the risk inherent
in the ability of management to anticipate changes necessary in such investments
to meet changes in economic conditions. The Fund receives investment advice, for
a fee, from its investment adviser, Ohio National Investments, Inc., and from
Societe Generale Asset Management Corp. (sub-adviser to the International and
Global Contrarian Portfolios), T. Rowe Price Associates, Inc. (sub-adviser to
the Capital Appreciation Portfolio), Founders Asset Management, Inc.
(sub-adviser to the Small Cap Portfolio), Strong Capital Management, Inc.
(sub-adviser to the Aggressive Growth Portfolio), Pilgrim Baxter & Associates,
Ltd. (sub-adviser to the Core Growth Portfolio), and Robertson Stephens
Investment Management, L.P. (sub-adviser to the Growth & Income Portfolio). For
additional information concerning the Fund, including the investment objectives
of each of its portfolios, see the attached Fund prospectus. Read the Fund
prospectus carefully before investing. The Fund prospectus contains information
about other portfolios that are not available for the contracts offered herein.
In addition to being offered to VAA and VAB, Fund shares are currently offered
to other separate accounts of Ohio National Life in connection with variable
annuity contracts and a separate account of Ohio National Life Assurance
Corporation in connection with variable life insurance contracts. In the future,
Fund shares may be offered to other insurance company separate accounts. It is
conceivable that in the future it may become disadvantageous for both variable
life and variable annuity separate accounts to invest in the Fund. Although
neither Ohio National Life nor the Fund currently foresees any such
disadvantage, the Board of Directors of the Fund will monitor events in order to
identify any material conflict between variable life and variable annuity
contractowners and to determine what action, if any, should be taken in response
thereto, including the possible withdrawal of VAA`s and/or VAB's participation
in the Fund. Material conflicts could result from such things as (1) changes in
state insurance law; (2) changes in federal income tax law; (3) changes in the
investment management of any portfolio of the Fund; or (4) differences between
voting instructions given by variable life and variable annuity contractowners.
VOTING RIGHTS
Ohio National Life shall vote Fund shares held in VAA and VAB at meetings of
Fund shareholders in accordance with voting instructions received from contract
owners. The number of Fund shares for which an owner is entitled to give
instructions will be determined by Ohio National Life in the manner described
below, not more than 90 days prior to the meeting of shareholders. Fund proxy
material will be distributed to each owner together with appropriate forms for
giving voting instructions. Fund shares held in VAA and VAB, for which no timely
instructions are received, will be voted by Ohio National Life in proportion to
the instructions which are received with respect to all contracts participating
in VAA and VAB, respectively.
During the accumulation period, the number of Fund shares for which instructions
may be given to Ohio National Life is determined by dividing the variable
accumulation value of a subaccount of the contract by the net asset value of a
share of the corresponding Fund portfolio as of the same date. During the
annuity payment period, the number of Fund portfolio shares for which such
instructions may be given is determined by dividing the actuarial liability for
variable annuities in the course of payment by the net asset value of a Fund
portfolio share as of the same date. Generally, the number of votes tends to
decrease as annuity payments progress.
DISTRIBUTION OF VARIABLE ANNUITY CONTRACTS
The variable annuity contracts are sold by Ohio National Life insurance agents
who are also registered representatives (a) of The O. N. Equity Sales Company
("ONESCO"), a wholly-owned subsidiary of Ohio National Life, registered under
the Securities Exchange Act of 1934, and a member of the National Association of
Securities Dealers, Inc. or (b) of other broker-dealers that have entered into
distribution agreements with Ohio National Equities, Inc. ("ONE, Inc.," another
wholly-owned subsidiary of Ohio National Life), which is the principal
underwriter of the contracts. Ohio National Life pays ONE , Inc. 5.25% of
purchase payments.
7
<PAGE> 12
Inc. then pays a portion of that amount to ONESCO and the other
broker-dealers as compensation for their sales efforts. ONESCO and the other
broker-dealers will remunerate their registered representatives from their own
funds. Purchase payments on which no compensation is paid to registered
representatives will not be included in amounts on which the 5.25% sales
compensation will be paid to ONE, Inc. To the extent that the amount of the
contingent deferred sales charge received by Ohio National Life is not
sufficient to recover the fee paid to One, Inc., any deficiency will be made up
from Ohio National Life's general account assets which include, among other
things, any profit from the mortality and expense risk charges.
DEDUCTIONS AND EXPENSES
CONTINGENT DEFERRED SALES CHARGE
No deduction for sales expense is made from purchase payments. A contingent
deferred sales charge may be assessed by Ohio National Life when a contract is
surrendered or a partial withdrawal is made to defray expenses relating to the
sale of the contract, including compensation to sales personnel, cost of sales
literature and prospectuses, and other expenses related to sales activity. Such
charge equals a percentage of the amount withdrawn. This percentage will vary
with the contract year in which the surrender or withdrawal occurs as follows:
<TABLE>
<CAPTION>
CONTRACT
YEARS PERCENTAGE
----- ----------
<S> <C>
1 6%
2 5%
3 4%
4 3%
5 2%
6 1%
7 and later 0%
</TABLE>
Once each contract year, a partial withdrawal of not more than 10% of the
accumulation value (as of the first day of the contract year) may be made
without the imposition of the contingent deferred sales charge.
DEDUCTION FOR ADMINISTRATIVE EXPENSES
A deduction is made at the end of each valuation period equal to 0.25% on an
annual basis of the contract value for administrative expenses. This deduction
is not designed to produce a profit but to reimburse Ohio National Life for
expenses incurred for accounting, auditing, legal, contract owner services,
reports to regulatory authorities and contract owners, contract issue, etc.
DEDUCTION FOR RISK UNDERTAKINGS
Prior to the annuity payout date, Ohio National Life guarantees that the
accumulation value of all contracts will not be affected by any excess of sales
and administrative expenses over the deductions provided therefor. Ohio National
Life also guarantees to pay a death benefit in the event of the annuitant's
death prior to the annuity payout date (see Death Benefit, page 12). After the
annuity payout date, Ohio National Life guarantees that variable annuity
payments will not be affected by adverse mortality experience or expenses.
For assuming these risks, Ohio National Life, in determining the accumulation
unit values and the annuity unit values for each subaccount, makes a deduction
from the applicable investment results equal to 0.65% of the contract value on
an annual basis. Such deduction may be decreased by Ohio National Life at any
time and may be increased not more frequently than annually to not more than
1.55% on an annual basis. Although Ohio National Life views the risk charge as
an indivisible whole, of the amount currently being deducted, it has estimated
that a reasonable allocation would be 0.25% for mortality risk, and 0.4% for
expense risk. Although Ohio National Life hopes to realize a profit from this
charge, if the deduction is insufficient to cover the actual risk involved, the
loss will fall on Ohio National Life; conversely, if the deduction proves more
than sufficient, the excess will be a gain to Ohio National Life.
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<PAGE> 13
TRANSFER FEE
A transfer fee of $3 (which may be increased to $10) is made for transferring
contract values from one or more subaccounts to one or more other subaccounts.
The fee is charged against the subaccount(s) from which the transfer is
effected. Currently, no fee is charged for the first four transfers each year.
DEDUCTION FOR STATE PREMIUM TAX
Most states do not presently charge a premium tax for these contracts. Where a
tax applies, the rates for tax-qualified contracts are presently 0.5% in
California, 1.0% in Puerto Rico and West Virginia, 2.0% in Kentucky and 2.25% in
the District of Columbia. For non-tax-qualified contracts, the rates are 1.0% in
Puerto Rico, West Virginia and Wyoming, 1.25% in South Dakota, 2.0% in Kansas,
Kentucky and Maine, 2.25% in the District of Columbia, 2.35% in California and
3.0% in Nevada. Normally, any such applicable taxes will not be deducted until
annuity payments begin rather than being deducted from the purchase payment.
FUND EXPENSES
There are deductions from, and expenses paid out of, the assets of the Fund.
These are described in the attached Fund prospectus.
DESCRIPTION OF VARIABLE ANNUITY CONTRACTS
20-DAY FREE LOOK
The contract owner may revoke the contract at any time until the end of 20 days
after receipt of the contract and receive a refund of the entire purchase price.
To revoke, the owner must return the contract to Ohio National Life within the
20 day period. In those states where required by state law, the value of the
contract as of the date of cancellation will be returned in lieu of the entire
purchase price in case of revocation during the 20 day free look period.
ACCUMULATION PERIOD
PURCHASE PAYMENT PROVISIONS
The contracts provide for a single minimum purchase payment of $10,000 and a
maximum payment of $500,000. A larger payment, or more than one payment, may be
made with Ohio National Life's consent.
ACCUMULATION UNITS
Prior to the annuity payout date, the contract value is measured by accumulation
units. The purchase payment results in the crediting of accumulation units to
the contract (see Crediting Accumulation Units, below). The number of
accumulation units so credited remains constant but the dollar value of
accumulation units will vary depending upon the investment results of the
particular subaccount to which contract values are allocated.
CREDITING ACCUMULATION UNITS
Completed application forms, together with a check for the purchase payment, are
forwarded to the home office of Ohio National Life for acceptance. Upon
acceptance, a contract is issued to the contract owner, and the purchase payment
is then credited to the contract in the form of accumulation units. The purchase
payment is credited not later than two business days after receipt if the
application and all information necessary for processing the purchase payment
are complete. If an application is not accepted within five business days, the
purchase payment will be returned immediately to the applicant unless the
applicant specifically consents to having Ohio National Life retain the purchase
payment until the application is completed. After that, the purchase payment
will be credited within two business days.
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<PAGE> 14
ALLOCATION OF THE PURCHASE PAYMENT
In the contract application, you may direct the allocation of your purchase
payment among the subaccounts of VAA or VAB and the general account of Ohio
National Life. The amount allocated to any subaccount or the general account
must equal a whole percentage.
ACCUMULATION UNIT VALUE AND ACCUMULATION VALUE
The accumulation unit value of each subaccount of VAA and VAB was set at $10
when the first payment for these contracts was allocated to each subaccount. The
accumulation unit value for any subsequent valuation period is determined by
multiplying the accumulation unit value for the immediately preceding valuation
period by the net investment factor (described below) for such subsequent
valuation period. The accumulation value is determined by multiplying the total
number of accumulation units (for each subaccount) credited to the contract by
the accumulation unit value (for such subaccount) for the valuation period for
which the accumulation value is being determined.
NET INVESTMENT FACTOR
The net investment factor is a quantitative measure of the investment results of
each subaccount of VAA and VAB. The net investment factor for each subaccount
for any valuation period is determined by dividing (a) by (b), then subtracting
(c) from the result, where:
(a) is -
(1)the net asset value of a share in the appropriate portfolio of the
Fund determined as of the end of a valuation period, plus
(2)The per share amount of any dividends or other distributions declared
for that portfolio by the Fund if the "ex-dividend" date occurs during
the valuation period, plus or minus
(3)per share charge or credit for any taxes paid or reserved for which is
determined by Ohio National Life to result from the maintenance or
operation of that subaccount of VAA or VAB; (No federal income taxes
are applicable under present law.)
(b)is the net asset value of a share in the appropriate portfolio of the Fund
determined as the end of the preceding valuation period; and
(c)is the deduction for administrative and sales expenses and risk
undertakings. (See Deduction for Administrative Expenses, page 8, and
Deduction for Risk Undertakings, page 8.)
SURRENDER AND PARTIAL WITHDRAWAL
Prior to the annuity payout date, or thereafter in the case of annuity Option
1(e) described below, the owner of a contract may surrender (totally withdraw
the value of) his or her contract for its accumulation value or elect a partial
(at least $500) withdrawal therefrom. These transactions may be subject to the
contingent deferred sales charge described on page 8. Such charge is a
percentage of the total amount withdrawn. For example, if a partial withdrawal
of $500 is requested during the first contract year, Ohio National Life would
pay you $500, but the total amount deducted from the accumulation value would
be $531.91 (i.e., $531.91 x 6% $31.91). Unless otherwise specified, the
withdrawal will be made pro-rata from the values of each subaccount. The amount
available for withdrawal is the sum of the subaccount values less any
contingent deferred sales charge, provided, however, that no partial withdrawal
that would cause the contract value to fall below $5,000 will be allowed.
Payment by Ohio National Life shall be made within seven days from the date of
receipt of the request for such payment except as it may be deferred under the
circumstances described below. Surrenders and partial withdrawals are limited
or not permitted in connection with certain tax-qualified retirement plans.
(See Texas State Optional Retirement Program, page 12 and Tax-Deferred
Annuities, page 17. For tax consequences of a surrender or withdrawal, see
Federal Tax Status, page 15.)
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<PAGE> 15
Occasionally Ohio National Life may receive a request for a surrender or partial
withdrawal before the check for your purchase payment has cleared the banking
system. Ohio National Life may delay the surrender or partial withdrawal until
your check has cleared. Ohio National Life requires the return of the contract
in the case of a complete surrender.
The right to withdraw may be suspended or the date of payment postponed (1) for
any period during which the New York Stock Exchange is closed (other than
customary weekend and holiday closings) or during which trading on the Exchange,
as determined by the Securities and Exchange Commission, is restricted; (2) for
any period during which an emergency, as determined by the Commission, exists as
a result of which disposal of securities held in the Fund is not reasonably
practical, or it is not reasonably practical to determine the value of the
Fund's net assets; or (3) or such other periods as the Commission may by order
permit for the protection of security holders.
TRANSFERS AMONG SUBACCOUNTS
Contract values may be transferred from one subaccount to another upon the
request of the owner. Transfers may be made at any time during the accumulation
period. The amount of any such transfer must be at least $300 (or the entire
value of the contract's interest in a subaccount, if less). Ohio National Life
reserves the right to limit the number, frequency, method or amount of
transfers. Transfers from any portfolio of the Fund on any one day may be
limited to 1% of the previous day's total net assets of that portfolio if Ohio
National Life or the Fund, in its or their discretion, believes that the
portfolio might otherwise be damaged. After the annuity payout date, transfers
among subaccounts can only be made once each calendar quarter. Such transfers
may then be made without a transfer fee. (See Transfer Fee, page 9, and
Transfers After Annuity Payout Date, page 14.) Not more than 20% of a
contract's guaranteed accumulation value (or $1,000, if greater) as of the
beginning of a contract year may be transferred to variable subaccounts during
that contract year.
SCHEDULED TRANSFERS (DOLLAR COST AVERAGING)
Ohio National Life administers a scheduled transfer ("DCA") program enabling you
to preauthorize automatic monthly or quarterly transfers of a specified dollar
amount of at least $300, (a) from any variable subaccount(s) to any other
subaccount(s), including the Guaranteed Accumulation Account, or (b) from the
Guaranteed Accumulation Account to any variable subaccount(s) if the DCA program
is established at the time the contract is issued, the DCA program is scheduled
to begin within 6 months of contract issue and the term of the DCA program does
not exceed 2 years. For transfers from variable subaccounts to at least 12
transfers must be scheduled and the term of the DCA program may not exceed 5
years. No transfer fee is charged for DCA transfers. Ohio National Life may
discontinue the DCA program at any time. You may also discontinue further DCA
transfers by giving Ohio National Life written notice at least 7 business days
before the next scheduled transfer.
DCA generally has the effect of reducing the risk of purchasing at the top, and
selling at the bottom, of market cycles. DCA transfers from the Guaranteed
Accumulation Account or from a fund with a stabilized net asset value, such as
the Money Market subaccount, will generally reduce the average total cost of
indirectly purchasing Fund shares because greater numbers of shares will be
purchased when the share prices are lower than when prices are higher. However,
DCA does not assure you of a profit, nor does it protect against losses in a
declining market. Moreover, for transfers from a subaccount not having a
stabilized net asset value, DCA will have the effect of reducing the average
price of the shares being redeemed. DCA might also be used to systematically
transfer accumulation values from variable subaccounts to the General
Accumulation Account, in anticipation of retirement, in order to reduce the risk
of making a single transfer during a low market.
TELEPHONE TRANSFERS
If the contract owner first submits a pre-authorization form to Ohio National
Life, transfers may be made by telephoning Ohio National Life, between 9:00 a.m.
and 3:30 p.m. (Eastern time) on days that it is open for business, at
1-800-635-3225. Ohio National Life will honor pre-authorized telephone transfer
instructions from anyone who is able to provide the personal identifying
information requested, but reserves the right to refuse to honor any such
request if that seems prudent. Telephone transfer requests will not be honored
after the annuitant's death. Ohio National Life will use reasonable procedures
to confirm that telephone instructions are genuine. (Otherwise, Ohio National
Life may be liable for any losses due to unauthorized or fraudulent
instructions.) A written confirmation will be sent following each telephone
transfer.
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<PAGE> 16
DEATH BENEFIT
In the event of the death of the annuitant and any contingent annuitant prior to
the annuity payout date, the contract provides a death benefit to be paid to a
designated beneficiary. The amount of the death benefit will be determined as of
the end of the valuation period in which written notice of death of the
annuitant is received by Ohio National Life. It will be paid in one sum into an
interest-bearing checking account established in the beneficiary's name with
Bank One, Springfield, Illinois, unless the owner or beneficiary elects
settlement under one or more of the settlement options provided in the contract.
The checking account will bear interest based upon then current money market
rates. The beneficiary will then be able to write checks against such account at
any time and in any amount up to the total in the account. Such checks must be
for a minimum of $250. The amount of death benefit is the accumulation value of
the contract or, if greater, the difference between your purchase payment and
any partial withdrawals.
OHIO NATIONAL LIFE EMPLOYEE DISCOUNT
Ohio National Life and its affiliated companies offer a credit on the purchase
of contracts by any of their employees, directors or retirees, or their spouse
or the surviving spouse of a deceased retiree, covering any of the foregoing or
any of their minor children, or any of their children ages 18 to 21 who is
either (i) living in the purchaser's household or (ii) a full-time college
student being supported by the purchaser, or any of the purchaser's minor
grandchildren under the Uniform Gifts to Minors Act. This credit is treated as
additional income under the contract. The amount of the credit equals 3.5% of
the single purchase payment. Ohio National Life credits the Guaranteed
Accumulation Account of the eligible person's contract in this amount at the
time the purchase payment is made by the eligible person.
TEXAS STATE OPTIONAL RETIREMENT PROGRAM
Under the Texas State Optional Retirement Program (the "Program"), purchase
payments may be excluded from the gross income of state employees for federal
tax purposes to the extent that such purchase payments do not exceed the
exclusion allowance provided by the Code. The Attorney General of Texas has
interpreted the Program as prohibiting any participating state employee from
receiving the surrender value of a contract funding benefits under the Program
prior to termination of employment or the state employee's retirement, death or
total disability. Therefore, no surrender or partial withdrawal by a participant
in the Program will be allowed until the first of these events occurs.
ANNUITY PERIOD
ANNUITY PAYOUT DATE
Annuity payments under a contract will begin on the annuity payout date. This
date is selected by the owner at the time the contract is issued and must be at
least 30 days after the contract date. It may be changed from time to time by
the owner so long as the annuity payout date selected is the first day of any
month at least 30 days after the date of such change. The contract restricts the
annuity payout date to not later than the first of the month following the
annuitant's 90th birthday; however, this restriction may be waived by mutual
agreement between Ohio National Life and the owner.
The contracts include Ohio National Life's assurance that annuity payments will
be paid for the lifetime of the annuitant in accordance with the annuity rates
contained in the contract, regardless of actual mortality experience.
Other than in connection with annuity Option 1(e) described below, once annuity
payments commence, the contract cannot be surrendered for cash except that,
upon the death of the annuitant, the beneficiary shall be entitled to surrender
the contract for the commuted value of any remaining period-certain payments.
Surrenders and partial withdrawals from annuity Option 1(e) are permitted at
any time.
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<PAGE> 17
ANNUITY OPTIONS
The owner may elect one or more of the following annuity options, and may change
such election anytime before the annuity payout date.
Option Life Annuity with installment payments for the lifetime of the
1(a): annuitant (under this option it is possible for the annuitant to
receive only one payment; this could happen if the annuitant
should die before receiving the second payment; there is no
residual value of the contract after annuitant's death).
Option Life Annuity with installment payments guaranteed for five years
1(b): and continuing thereafter during the remaining lifetime of the
annuitant.
Option Life Annuity with installment payments guaranteed for ten years
1(c): and continuing thereafter during the remaining lifetime of the
annuitant.
Option Installment Refund Life Annuity with payments guaranteed for a
1(d): period certain and continuing thereafter during the remaining
lifetime of the annuitant. The number of period-certain payments
is equal to the amount applied under this option divided by the
amount of the first payment.
Option Installment Refund Annuity with payments guaranteed for a fixed
1(e): number (up to thirty) of years. This option is available for
variable annuity payments only. Although the deduction for risk
undertakings is taken from annuity unit values, Ohio National
Life has no mortality risk during the annuity payout period
under this option.
Option Joint & Survivor Life Annuity with installment payments during
2(a): the lifetime of an annuitant and continuing during the lifetime
of a designated contingent annuitant (under this option it is
possible for the annuitant and contingent annuitant to receive
only one payment; this could happen if both were to die before
receiving the second payment).
Option Joint & Survivor Life Annuity with installment payments
2(b): guaranteed for ten years and continuing thereafter during the
remaining lifetime of the annuitant or a designated contingent
annuitant.
Other settlement options are available as agreed to by Ohio National Life.
Unless the contract owner directs otherwise, as of the annuity payout date the
contract values will be applied to provide annuity payments pro-rata from each
subaccount in the same proportion as the contract values immediately prior to
the annuity payout date.
If no election is in effect on the annuity payout date, the accumulation value
of the contract will be applied under Option 1(c) (except that certain contracts
might require a Joint and Survivor Annuity pursuant to the Pension Reform Act of
1974, as amended) with the beneficiary as payee for any remaining period-certain
installments payable after the death of the annuitant. Options 2(a) and 2(b) are
available only with the consent of Ohio National Life if the contingent
annuitant is not related to the annuitant.
The Internal Revenue Service has not ruled on the tax treatment of a commutable
variable annuity. If you select Option 1(e), it is possible that the IRS could
determine that the entire value of the annuity is fully taxable at the time you
elect Option 1(e) or that variable annuity payments under this option should
not be taxed under the annuity rules (see Federal Tax Status, page 15), which
could result in your payments being fully taxable to you. Should the IRS so
rule, Ohio National may be required to tax report up to the full value of the
annuity to you as taxable income.
DETERMINATION OF AMOUNT OF THE FIRST VARIABLE ANNUITY PAYMENT
The first variable annuity payment is determined by applying the accumulation
value for each subaccount in accordance with the settlement option tables
contained in the contract. The rates contained in those tables depend upon the
annuitant's (and any contingent annuitant's) age and sex and the option
selected. Contracts issued to plans sponsored by employers subject to Title VII
of the Civil Rights Act of 1964 or similar state statutes use annuity tables
which do not vary with annuitant's sex. The accumulation value to be applied is
determined at the end of a valuation period (selected by Ohio National Life and
uniformly applied) not more than 10 valuation periods before the annuity payout
date.
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<PAGE> 18
If the amount to be applied under an option is less than $5,000, the option
shall not be available and accumulation value shall be paid in a single sum to
the annuitant. If the first periodic payment under any option would be less than
$25, Ohio National Life reserves the right to change the frequency of payments
so that the first such payment is at least $25.
ANNUITY UNIT AND THE DETERMINATION OF SUBSEQUENT PAYMENTS
Subsequent variable annuity payments will vary to reflect the investment
performance of each applicable subaccount. The amount of each subsequent payment
is determined by annuity units. The number of annuity units for each subaccount
is determined by dividing the dollar amount of the first annuity payment from
each subaccount by the value of the subaccount annuity unit for the same
valuation period used to determine the accumulation value of the contract
applied to provide annuity payments. This number of annuity units remains fixed
during the annuity payment period unless changed as provided below.
The annuity unit value for each subaccount was set at $10 for the valuation
period as of which the first variable annuity payable from each subaccount of
VAA and VAB was calculated. The annuity unit value for each subsequent valuation
period equals the annuity unit value for the immediately preceding valuation
period multiplied by the net investment factor (see page 10) for such subsequent
valuation period and by a factor (0.9998925 for a one-day valuation period) to
neutralize the assumed interest rate discussed below.
The dollar amount of each subsequent variable annuity payment is equal to the
fixed number of annuity units for each subaccount multiplied by the value of the
annuity unit for the valuation period.
The annuity rate tables contained in the contracts are based on the Progressive
Annuity Mortality Table with compound interest at the effective rate of 4% per
year. A higher interest assumption would mean a higher initial annuity payment
but a more slowly rising series of subsequent annuity payments if annuity unit
values were increasing (or a more rapidly falling series of subsequent annuity
payments if annuity unit values were decreasing). A lower interest assumption
would have the opposite effect. If the actual net investment rate were equal to
the assumed interest rate, annuity payments would be level.
TRANSFERS AFTER ANNUITY PAYOUT DATE
After annuity payments have been made for at least 12 months, the annuitant can,
once each 12 months, change the subaccount(s) on which variable annuity payments
are based. On at least 30 days written notice to Ohio National Life at its home
office, that portion of the periodic variable annuity payment directed by the
annuitant will be changed to reflect the investment results of a different
subaccount. The annuity payment immediately after such change will be the amount
that would have been paid without such change. Subsequent payments will reflect
the new mix of subaccount allocation.
OTHER CONTRACT PROVISIONS
ASSIGNMENT
Any amount payable in settlement of the contracts may not be commuted,
anticipated, assigned or otherwise encumbered, or pledged as loan collateral to
any person other than Ohio National Life. To the extent permitted by law, no
such amounts shall be subject in any way to any legal process to subject them to
payment of any claims against an annuitant before the annuity payout date. A
tax-qualified contract may not, but a non-tax-qualified contract may be
collaterally assigned before the annuity payout date. Ownership of a contract
may not be transferred except to (1) the annuitant, (2) a trustee or successor
trustee of a pension or profit-sharing trust which is qualified under Section
401 of the Code, or (3) the employer of the annuitant provided that the contract
after transfer is maintained under the terms of a retirement plan qualified
under Section 403(a) of the Code for the benefit of the annuitant, or (4) as
otherwise permitted by laws and regulations governing plans for which the
contract may be issued. Ownership of a non-tax-qualified contract may be
transferred.
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<PAGE> 19
PERIODIC REPORTS
Ohio National Life will furnish each owner, once each calendar quarter prior to
the annuity payout date, a statement showing the number of accumulation units
credited to the contract by subaccount and the accumulation unit value of each
unit as of the end of the preceding quarter. In addition, as long as the
contract remains in effect, Ohio National Life will forward such periodic
reports as may be furnished it by the Fund.
SUBSTITUTION FOR FUND SHARES
If investment in the Fund is no longer possible or in Ohio National Life's
judgment becomes inappropriate to the purposes of the contract, Ohio National
Life may substitute one or more other mutual funds. Substitution may be made
with respect to both existing investments and the investment of future purchase
payments. However, no such substitution will be made without any necessary
approval of the Securities and Exchange Commission. We may also add other
investment portfolios of the Fund or of additional mutual funds as eligible
investments of VAA or VAB.
CONTRACT OWNER INQUIRIES
Any questions from contract owners should be directed to Ohio National Life,
Variable Annuity Administration, P.O. Box 2669, Cincinnati, Ohio 45201;
telephone (513) 794-6452.
PERFORMANCE DATA
Ohio National Life may advertise performance data for the various Fund
portfolios showing the percentage change in the value of an accumulation unit
based on the performance of the applicable portfolio over a period of time
(usually a calendar year). Such percentage change is determined by dividing the
increase (or decrease) in value for the unit by the accumulation unit value at
the beginning of the period. This percentage figure will reflect the deduction
of any asset-based charges under the contract but will not reflect the deduction
of any applicable contingent deferred sales charge which would reduce any
percentage increase or make greater any percentage decrease.
Any such advertising will also include average annual total return figures
calculated as shown in the Statement of Additional Information. The average
annual total return figures will reflect the deduction of applicable contingent
deferred sales charges as well as applicable asset-based charges.
Ohio National Life may also distribute sales literature comparing separate
account performance to the Consumer Price Index or to such established market
indexes as the Dow Jones Industrial Average, the Standard & Poor's 500 Stock
Index, IBC's Money Fund Reports, Lehman Brothers Bond Indices, Morgan Stanley
Europe Australia Far East Index, Morgan Stanley World Index, Russell 2000 Index,
or other variable annuity separate accounts.
FEDERAL TAX STATUS
The following discussion of federal income tax treatment of amounts received
under a variable annuity contract is not exhaustive, does not purport to cover
all situations, and is not intended as tax advice. A qualified tax adviser
should always be consulted with regard to the application of law to individual
circumstances. Tax laws can change, even with respect to contracts that have
already been issued. Tax law revisions, with unfavorable consequences to
contracts offered by this prospectus, could have retroactive effect on
previously issued contracts or on subsequent voluntary transactions in
previously issued contracts.
Ohio National Life is taxed as a life insurance company under Subchapter L of
the Internal Revenue Code (the "Code"). Since the operations of VAA and VAB are
a part of, and are taxed with, the operations of Ohio National Life, VAA and VAB
are not separately taxed as "regulated investment companies" under Subchapter M
of the Code.
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<PAGE> 20
As to tax-qualified contracts, no federal income tax is payable under present
law on dividend income or capital gains distributions from Fund Shares held in
VAA or upon capital gains realized by VAA on redemption of Fund Shares. When a
non-tax-qualified contract is issued in connection with a deferred compensation
plan or arrangement, all rights, discretions and powers relative to the contract
are vested in the employer and you must look only to your employer for the
payment of deferred compensation benefits. Generally, in that case, an annuitant
will have no "investment in the contract" and amounts received by you from your
employer under a deferred compensation arrangement will be taxable in full as
ordinary income in the year of receipt.
The contracts described in this prospectus are considered annuity contracts
under Section 72 of the Code, which generally provides for taxation of
annuities. Under existing provisions of the Code, any increase in the
accumulation value of the contract is not taxable to you as the owner or
annuitant until you receive it, either in the form of annuity payments, as
contemplated by the contract, or in some other form of distribution (provided
that the owner of a non-tax qualified contract must be a natural person for this
purpose). With certain exceptions, where the owner of a non-tax qualified
contract is a non-natural person (corporation, partnership or trust) any
increase in the accumulation value of the contract attributable to purchase
payments made after February 28, 1986 will be treated as ordinary income
received or accrued by the owner during the current tax year.
When annuity payments commence under the contract each payment is taxable under
Section 72 of the Code as ordinary income in the year of receipt if the
annuitant has neither paid any portion of the purchase payment for the contract
nor has previously been taxed on any portion of the purchase payment. If any
portion of the purchase payment has been paid from or included in your taxable
income, this aggregate amount will be considered your "investment in the
contract" You will be entitled to exclude from your taxable income a portion of
each annuity payment equal to your "investment in the contract" divided by the
period of expected annuity payments, determined by your life expectancy and the
form of annuity benefit. Once your "investment in the contract" is recovered,
the entire portion of each annuity payment will be included in your taxable
income.
If an election is made to receive the accumulated value in a single sum in lieu
of annuity payments, any amount received or withdrawn in excess of the
"investment in the contract" will normally be taxed as ordinary income in the
year received. A partial withdrawal of contract values is taxable as income to
the extent that the accumulated value of the contract immediately before the
payment exceeds the "investment in the contract." Such a withdrawal is treated
as a distribution of earnings first and only second as a recovery of your
"investment in the contract." Any part of the value of the contract that is
assigned or pledged to secure a loan will be taxed as if it had been a partial
withdrawal and may be subject to a penalty tax.
There is a penalty tax equal to 10% of any amount that must be included in gross
income for tax purposes. The penalty will not apply to a redemption that is (1)
received on or after the taxpayer reaches age 59-1/2; (2) made to a beneficiary
on or after the death of the annuitant; (3) attributable to the taxpayer's
becoming disabled; (4) made as a series of substantially equal periodic payments
for the life of the annuitant (or joint lives of the annuitant and beneficiary);
(5) from a contract that is a qualified funding asset for purposes of a
structured settlement; (6) made under an annuity contract that is purchased with
a single premium and with an annuity payout date not later than a year from the
purchase of the annuity, or (7) incident to divorce. If an election is made not
to have withholding apply to the early withdrawal or if an insufficient amount
is withheld, the contract owner may be responsible for payment of estimated tax.
You may also incur penalties under the estimated tax rules if the withholding
and estimated tax payments are not sufficient. Failure to provide your taxpayer
identification number will automatically subject any payments under the contract
to withholding.
16
<PAGE> 21
TAX-DEFERRED ANNUITIES
Under the provisions of Section 403(b) of the Code, a purchase payment made for
an annuity contract purchased for an employee by a public educational
institution or certain other tax-exempt organizations which are described in
Section 501(c)(3) of the Code are excludable from the gross income of such
employees to the extent that the purchase payment plus any other amounts
contributed to the purchase of a contract and toward benefits under qualified
retirement plans does not exceed the exclusion allowance determined for the
employee as set forth in Sections 403(b) and 415 of the Code. Employee
contributions are, however, subject to social security (FICA) tax withholding.
All amounts received by an employee under a contract, either in the form of
annuity payments or cash withdrawal, will be taxed under Section 72 of the Code
as ordinary income for the year received, except for exclusion of any amounts
representing "investment in the contract." Under certain circumstances, amounts
received may be used to make a "tax-free rollover" into one of the types of
individual retirement arrangements permitted under the Code. Amounts received
that are eligible for "tax-free rollover" will be subject to an automatic 20%
withholding unless such amounts are directly rolled over from the tax-deferred
annuity to the individual retirement arrangement.
With respect to earnings accrued and any purchase payment made after December
31, 1988, pursuant to a salary reduction agreement under Section 403(b) of the
Code, distributions may be paid only when the employee (a) attains age 59-1/2,
(b) separates from the employer's service, (c) dies, (d) becomes disabled as
defined in the Code, or (e) incurs a financial hardship as defined in the Code.
In the case of hardship, cash distributions may not exceed the amount of such
purchase payments. These restrictions do not affect rights to transfer
investments among the subaccounts and do not limit the availability of transfers
between tax-deferred annuities.
QUALIFIED PENSION OR PROFIT-SHARING PLANS
Under present law, a purchase payment made by an employer or trustee, pursuant
to a plan or trust qualified under Section 401(a) or 403(a) of the Code, is
generally excludable from gross income of the employee. The portion, if any, of
the purchase payment made by the employee, or which is considered taxable income
to the employee in the year the payment is made, constitutes an "investment in
the contract" under Section 72 of the Code for the employee's annuity benefits.
Salary reduction payments to a profit sharing plan qualifying under Section
401(k) of the Code are generally excludable from gross income of the employee.
The Code requires that plans must prohibit any distribution to a plan
participant prior to age 59-1/2, except in the event of death, total disability
or separation from service. Distributions must commence no later than April 1 of
the calendar year following the year in which the participant reaches age
70-1/2. Premature distribution of benefits or contributions in excess of those
permitted by the Code may result in certain penalties under the Code.
If an employee, or one or more of the beneficiaries, receives the total amounts
payable with respect to an employee within one taxable year after age 59-1/2 on
account of the employee's death or separation from service of the employer, any
amount received in excess of the employee's "investment in the contract" may be
taxed under special 5-year forward averaging rules. The taxpayer can elect to
have that portion of a lump-sum distribution attributable to years of
participation prior to January 1, 1974 given capital gains treatment. The
percentage of pre-1974 distribution subject to capital gains treatment decreases
as follows: 100%, 1987; 95%, 1988; 75%, 1989; 50%, 1990; and 25%, 1991. For tax
years 1992 and thereafter no capital gains treatment is available (except that
taxpayers who were age 50 before 1986 may still elect capital gains treatment.)
The employee receiving such a distribution may be able to make a "tax-free
rollover" of the distribution less the employee's "investment in the contract"
into another qualified plan in which the employee is a participant or into one
of the types of individual retirement arrangements permitted under the Code. An
employee's surviving spouse receiving such a distribution may be able to make a
tax-free rollover to one of the types of individual retirement arrangements
permitted under the Code. Amounts received that are eligible for "tax-free
rollover" will be subject to an automatic 20% withholding unless such amounts
are directly rolled over to another qualified plan or individual retirement
arrangement.
17
<PAGE> 22
INDIVIDUAL RETIREMENT ANNUITIES (IRA)
Section 408(b) of the Code provides that an individual may invest an amount up
to $2,000 per year of earned income in an IRA and claim it as a personal tax
deduction if such person or the person's spouse is not an "active participant"
in an employer maintained qualified retirement plan or such person has adjusted
gross income which does not exceed the "applicable dollar limit." For a single
taxpayer, the applicable dollar limitation is $25,000, with the amount of IRA
contribution which may be deducted reduced proportionately for Adjusted Gross
Income between $25,000-$35,000. For married couples filing jointly, the
applicable dollar limitation is $40,000, with the amount of IRA contribution
which may be deducted reduced proportionately for Adjusted Gross Income between
$40,000-$50,000. There is no deduction allowed for IRA contributions when
Adjusted Gross Income reaches $35,000 for individuals and $50,000 for married
couples filing jointly. In the alternative, an individual otherwise qualified
for an IRA may elect to contribute to an IRA for the individual and for the
individual's non-working spouse, with the total deduction limited to $4,000.
Individuals are permitted to make non-deductible IRA contributions to the extent
they are ineligible to make deductible IRA contributions. Any amount received
from another qualified plan (including another individual retirement
arrangement) which is eligible as a "tax-free rollover" may be invested in an
IRA, and is not counted toward the overall contribution limit. Earnings on
nondeductible IRA contributions are not subject to tax until they are withdrawn.
The combined limit on designated nondeductible and deductible contributions for
a tax year is the lesser of 100% of compensation or $2,000 ($4,000 in the case
of an additional contribution to a spousal IRA).
Generally, distributions (all or part) made prior to age 59-1/2 (except in the
case of death or disability) will result in a penalty tax of 10% plus ordinary
income tax treatment of the amount received. Additionally, there is an excise
tax of 6% of the amount contributed in excess of either the deductible limit or
nondeductible limit, as indicated above, if such amount is not withdrawn prior
to the filing of the income tax return for the year of contribution or applied
as an allowable contribution for a subsequent year. The excise tax will continue
to apply each year until the excess contribution is corrected. Distributions
after age 59-1/2 are treated as ordinary income at the time received.
Distributions must commence before April 1 following the year in which the
individual reaches age 70-1/2. A 50% nondeductible excise tax is imposed on the
excess in any tax year of the amount that should have been distributed over the
amount actually distributed.
SIMPLIFIED EMPLOYEE PENSION PLANS (SEPPs)
Under Section 408 of the Code, employers may establish SEPPs for their
employees. Under these plans the employer may contribute on behalf of an
employee to an individual retirement account or annuity. The amount of the
contribution is excludable from the employee's income.
Certain employees who participate in a SEPP will be entitled to elect to have
the employer make contributions to a SEPP on their behalf or to receive the
contributions in cash. If the employee elects to have contributions made on the
employee's behalf to a SEPP, it is not treated as current taxable income to the
employee. Elective deferrals under a SEPP are subject to an inflation-indexed
limit which is $9,500 for 1997. Salary-reduction SEPPs are available only if at
least 50% of the employees elect to have amounts contributed to the SEPP and if
the employer has 25 or fewer employees at all times during the preceding year.
An employee may also take a deduction for individual contributions to the IRA,
subject to the limits applicable to IRAs in general. Withdrawals from the IRAs
to which the employer contributes must be permitted. These withdrawals, however,
are subject to the general rules with respect to withdrawals from IRAs.
WITHHOLDING ON DISTRIBUTION
Distributions from tax-deferred annuities or qualified pension or profit sharing
plans that are eligible for "tax-free rollover" will be subject to an automatic
20% withholding unless such amounts are directly rolled over to an individual
retirement arrangement or another qualified plan. Federal income tax withholding
on annuity payments is required. However, recipients of annuity payments are
allowed to elect not to have the tax withheld. Such an election may be revoked
at any time with respect to annuity payments and thereafter withholding would
commence. Failure to provide your taxpayer identification number will
automatically subject any payments under the contract to withholding.
18
<PAGE> 23
APPENDIX A
IRA DISCLOSURE STATEMENT
This statement is designed to help you understand the requirements of federal
tax law which apply to your individual retirement annuity (IRA), your simplified
employee pension IRA (SEPP-IRA) for employer contributions, or to one you
purchase for your spouse (see "IRA for Non-working Spouse", on page 19). You can
obtain more information regarding your IRA either from your sales representative
or from any district office of the Internal Revenue Service.
FREE LOOK PERIOD
The annuity contract offered by this prospectus gives you the opportunity to
return the contract for a full refund within 20 days after it is delivered (see
page 9). This is a more liberal provision than is required in connection with
IRA's. To exercise this "free-look" provision write or call the address shown
below:
The Ohio National Life Insurance Company
P. O. Box 2669
Cincinnati, Ohio 45201
Telephone: (513) 794-6452 - 8:30 a.m. - 4:30 p.m. (Eastern Time Zone)
ELIGIBILITY REQUIREMENTS
IRAs are intended for all persons with earned compensation whether or not they
are covered under other retirement programs. Additionally if you have a
non-working spouse (and you file a joint tax return), you may establish an IRA
on behalf of your non-working spouse. A working spouse may establish his or her
own IRA. A divorced spouse receiving taxable alimony (and no other income) may
also establish an IRA.
CONTRIBUTIONS AND DEDUCTIONS
Contributions to your IRA will be deductible if you or your spouse is not an
"active participant" in an employer maintained qualified retirement plan or you
have Adjusted Gross Income which does not exceed the "applicable dollar limit".
IRA (or SEPP-IRA) contributions must be made by no later than the time you file
your income tax return for that year. For a single taxpayer, the applicable
dollar limitation is $25,000, with the amount of IRA contribution which may be
deducted reduced proportionately for Adjusted Gross Income between
$25,000-$35,000. For married couples filing jointly, the applicable dollar
limitation is $40,000, with the amount of IRA contribution which may be deducted
reduced proportionately for Adjusted Gross Income between $40,000-$50,000. There
is no deduction allowed for IRA contributions when Adjusted Gross Income reaches
$35,000 for individuals and $50,000 for married couples filing jointly.
Contributions made by your employer to your SEPP-IRA are excludable from your
gross income for tax purposes in the calendar year for which the amount is
contributed. Certain employees who participate in a SEPP-IRA will be entitled to
elect to have their employer make contributions to their SEPP-IRA on their
behalf or to receive the contributions in cash. If the employee elects to have
contributions made on the employee's behalf to the SEPP, those funds are not
treated as current taxable income to the employee. Elective deferrals under a
SEPP-IRA are subject to an inflation-adjusted limit which is $9,500 for 1997.
Salary-reduction SEPP-IRAs (also called "SARSEPs") are available only if at
least 50% of the employees elect to have amounts contributed to the SEPP-IRA and
if the employer has 25 or fewer employees at all times during the preceding
year.
The IRA maximum annual contribution and your tax deduction is limited to the
lesser of: (1) $2,000 or (2) 100% of your earned compensation. Contributions in
excess of the deduction limits may be subject to penalty. See below.
Under a SEPP-IRA agreement, the maximum annual contribution which your employer
may make on your behalf to a SEPP-IRA contract which is excludable from your
income is the lesser of 15% of your salary or $22,500. An employee who is a
participant in a SEPP-IRA agreement may make after-tax contributions to the
SEPP-IRA contract, subject to the contribution limits applicable to IRAs in
general. Those employee contributions will be deductible subject to the
deductibility rules described above.
19
<PAGE> 24
The maximum tax deductible annual contribution that a divorced spouse with no
other income may make to an IRA is the lesser of (1) $2,000 or (2) 100% of
taxable alimony.
If you or your employer should contribute more than the maximum contribution
amount to your IRA or SEPP-IRA, the excess amount will be considered an "excess
contribution". You are permitted to withdraw an excess contribution from your
IRA or SEPP-IRA before your tax filing date without adverse tax consequences.
If, however, you fail to withdraw any such excess contribution before your tax
filing date, a 6% excise tax will be imposed on the excess for the tax year of
contribution.
Once the 6% excise tax has been imposed, an additional 6% penalty for the
following tax year can be avoided if the excess is (1) withdrawn before the end
of the following year, or (2) treated as a current contribution for the
following year. (See the Pre-mature Distributions, page 20, for penalties
imposed on withdrawal when the contribution exceeds $2,000).
IRA FOR NON-WORKING SPOUSE
If you establish an IRA for yourself, you may also be eligible to establish an
IRA for your "non-working" spouse. In order to be eligible to establish such a
spousal IRA, you must file a joint tax return with your spouse and if your
non-working spouse has compensation, his/her compensation must be less than your
compensation for the year. Contributions of up to $2,000 each may be made to
your IRA and the spousal IRA if the combined compensation of you and your spouse
is at least equal to the amount contributed. If requirements for deductibility
(including income levels) are met, you will be able to deduct an amount equal to
the least of (i) the amount contributed to the IRA's; (ii) $4,000; or (iii) 100%
of your combined gross income.
Contributions in excess of the contribution limits may be subject to penalty.
See above under "Contributions and Deductions". If you contribute more than the
allowable amount, the excess portion will be considered an excess contribution.
The rules for correcting it are the same as discussed above for regular IRAs.
Other than the items mentioned in this section, all of the requirements
generally applicable to IRAs are also applicable to IRAs established for
non-working spouses.
ROLLOVER CONTRIBUTION
Once every year, you are permitted to withdraw any portion of the value of your
IRA or SEPP-IRA and reinvest it in another IRA or bond. Withdrawals may also be
made from other IRAs and contributed to this contract. This transfer of funds
from one IRA to another is called a "rollover" IRA. To qualify as a rollover
contribution, the entire portion of the withdrawal must be reinvested in another
IRA within 60 days after the date it is received. You will not be allowed a
tax-deduction for the amount of any rollover contribution.
A similar type of rollover to an IRA can be made with the proceeds of a
qualified distribution from a qualified retirement plan or tax-sheltered
annuity. Properly made, such a distribution will not be taxable until you
receive payments from the IRA created with it. Unless you were a self-employed
participant in the distributing plan, you may later rollover such a contribution
to another qualified retirement plan as long as you have not mixed it with IRA
(or SEPP-IRA) contributions you have deducted from your income. (You may roll
less than all of a qualified distribution into an IRA, but any part of it not
rolled over will be currently includable in your income without any capital
gains treatment.)
PREMATURE DISTRIBUTIONS
At no time can your interest in your IRA or SEPP-IRA be forfeited. To insure
that your contributions will be used for your retirement, the federal tax law
does not permit you to use your IRA or SEPP-IRA as security for a loan.
Furthermore, as a general rule, you may not sell or assign your interest in your
IRA or SEPP-IRA to anyone. Use of an IRA (or SEPP-IRA) as security or assignment
of it to another will invalidate the entire annuity. It then will be includable
in your income in the year it is invalidated and will be subject to a 10%
penalty tax if you are not at least age 59-1/2 or totally disabled unless you
comply with special rules requiring distributions to be made at least annually
over your life expectancy.
20
<PAGE> 25
The 10% penalty tax does not apply to the withdrawal of an excess contribution
as long as the excess is withdrawn before the due date of your tax return.
Withdrawal of excess contributions after the due date of your tax return will
generally be subject to the 10% penalty unless the excess contribution results
from erroneous information from a plan trustee making an excess rollover
contribution or unless you are over age 59-1/2 or are disabled.
DISTRIBUTION AT RETIREMENT
Once you have attained age 59-1/2 (or have become totally disabled), you may
elect to receive a distribution of your IRA (or SEPP-IRA) regardless of when you
actually retire. You may elect to receive the distribution in either one sum or
under any one of the periodic payment options available under the contract. The
distributions from your IRA under any one of the periodic payment options or in
one sum will be treated as ordinary income as you receive them.
INADEQUATE OR UNDER DISTRIBUTIONS - 50% TAX
Your IRA or SEPP-IRA is intended to provide retirement benefits over your
lifetime. Thus, federal law requires that you either (1) receive a lump-sum
distribution of your IRA by April 1 of the year following the year in which you
attain age 70-1/2 or (2) start to receive periodic payments by that date. If you
elect to receive periodic payments, those payments must be sufficient to pay out
the entire value of your IRA during your life expectancy (or over the joint life
expectancies of you and your spouse). If the payments are not sufficient to meet
these requirements, an excise tax of 50% will be imposed on the amount of any
underpayment.
DEATH BENEFITS
If you, (or your surviving spouse) die before receiving the entire value of your
IRA (or SEPP-IRA), the remaining interest must be distributed to your
beneficiary (or your surviving spouse's beneficiary) in one lump-sum or applied
to purchase an immediate annuity for the beneficiary. This annuity must be
payable over the life expectancy of the beneficiary within one year after your
or your spouse's death. If your spouse is the designated beneficiary, he or she
is treated as the owner of the IRA. If minimum required distributions have
begun, the entire amount must be distributed at least as rapidly as if the owner
had survived. A distribution of the balance of your IRA upon your death will not
be considered a gift for federal tax purposes, but will be included in your
gross estate for purposes of federal estate taxes.
<PAGE> 26
PART B
STATEMENT OF ADDITIONAL INFORMATION
<PAGE> 27
OHIO NATIONAL VARIABLE ACCOUNT B
OF
THE OHIO NATIONAL LIFE INSURANCE COMPANY
One Financial Way
Cincinnati, Ohio 45242
Telephone (513) 794-6452
STATEMENT OF ADDITIONAL INFORMATION
MAY 1, 1997
This Statement of Additional Information is not a prospectus. It should be read
in conjunction with the prospectus for Ohio National Variable Account B ("VAB")
single purchase payment individual non-tax qualified variable annuity contracts
dated May 1, 1997. To obtain a free copy of the VAB prospectus, write or call
The Ohio National Life Insurance Company ("Ohio National Life") at the above
address.
<TABLE>
<CAPTION>
Table of Contents
<S> <C>
Custodian . . . . . . . . . . . . . . . . . . . . . . . . . 2
Independent Certified Public Accountants . . . . . . . . . . 2
Underwriter. . . . . . . . . . . . . . . . . . . . . . . . . 2
Calculation of Money Market Subaccount Yield . . . . . . . . 3
Total Return . . . . . . . . . . . . . . . . . . . . . . . . 3
Transfer Limitations . . . . . . . . . . . . . . . . . . . . 4
Financial Statements . . . . . . . . . . . . . . . . . . . . 5
Appendix: Guaranteed Accumulation Account . . . . . . . . .47
</TABLE>
"TOP PLUS" NON-TAX QUALIFIED
<PAGE> 28
CUSTODIAN
Ohio National Life has executed an agreement with Star Bank, N.A. ("the Bank"),
Cincinnati, Ohio, pursuant to which the shares of Ohio National Fund, Inc.
("Fund") and other assets credited to VAB will be held in the custody of the
Bank. The agreement provides that the Bank will purchase Fund shares at their
net asset value determined as of the end of the valuation period of VAB during
which the purchase payment is received by Ohio National Life. The Bank effects
redemptions of Fund shares held by VAB upon instructions from Ohio National Life
at net asset value determined as of the end of the valuation period of VAB
during which a redemption request is received or made by Ohio National Life. In
addition, the Bank maintains appropriate records with respect to all
transactions in Fund shares relative to VAB.
The agreement requires the Bank to have at all times an aggregate capital,
surplus and undivided profit of not less than $2 million and prohibits
resignation by the Bank until (a) a successor custodian bank having the
qualifications enumerated above shall have agreed to serve as custodian, or (b)
VAB has been completely liquidated and the proceeds of such liquidation properly
distributed. Subject to these conditions the agreement of custodianship may be
terminated by either party upon sixty days written notice. For its services as
custodian, the Bank will be paid a fee to be agreed upon from time to time by
the Bank and Ohio National Life.
INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The financial statements of VAB as of December 31, 1996 and for the periods
indicated herein and Ohio National Life's consolidated financial statements
as of December 31, 1996 and 1995 and for the periods indicated herein have been
included herein in reliance upon the reports of KPMG Peat Marwick LLP,
independent certified public accountants, appearing elsewhere herein, and upon
the authority of said firm as experts in accounting and auditing.
UNDERWRITER
The offering of the contracts is continuous. Prior to May 1, 1997, The O.N.
Equity Sales Company ("ONESCO"), a wholly-owned subsidiary of Ohio National
Life, was the principal underwriter of the contracts. The aggregate amount of
underwriting commissions paid to ONESCO with respect to contracts issued by
VAB, and the amounts retained by ONESCO, for each of the last three years have
been:
<TABLE>
<CAPTION>
Aggregate Retained
Year Commissions Commissions
---- ----------- -----------
<S> <C> <C>
1996 $1,691,331 $164,905
---- ---------- --------
1995 821,577 75,503
1994 963,635 110,006
</TABLE>
Since May 1, 1997, Ohio National Equities, Inc., another wholly-owned
subsidiary of Ohio National Life, has been the principal underwriter of the
contracts.
-2-
<PAGE> 29
CALCULATION OF MONEY MARKET SUBACCOUNT YIELD
The current yield of the Money Market subaccount for the seven days ended on
December 31, 1996, was 4.72%. This was calculated by determining the net change,
exclusive of capital changes, in the value of a hypothetical pre-existing
account having a balance of one accumulation unit of the subaccount at the
beginning of the seven-day period, dividing the net change in subaccount value
by the value of the subaccount at the beginning of the base period to obtain the
base period return, and multiplying the difference by 365/7. The resulting
figure is carried to the nearest hundredth of one percent.
TOTAL RETURN
The average compounded rate of return for a contract with respect to a
particular subaccount over a given period is found by equating the initial
amount invested to the ending redeemable value using the following formula:
P(1 + T)(n) = ERV
where: P = a hypothetical initial payment of $1,000,
T = the average annual total return,
n = the number of years, and
ERV = the ending redeemable value of a
hypothetical $1,000
beginning-of-period payment at the end
of the period (or fractional portion
thereof).
For this purpose, it should be noted that the current series of contracts were
initially offered on October 7, 1993. Hypothetical results based upon the
performance of the subaccounts prior to that date assume that the same charges
and deductions applicable to the current contracts were in effect from the
inception of each corresponding portfolio of the Fund. Based on those
assumptions, the average annual total returns for contracts in each of the
subaccounts from the inception of the subaccount and for the one-, five- and
ten-year periods ending on December 31, 1996, and assuming surrender of the
contract on the latter date, are as follows:
<TABLE>
<CAPTION>
One Five Ten From Inception
Year Years Years Inception Date
---- ----- ----- --------- ----
<S> <C> <C> <C> <C> <C>
Equity 17.29% 12.09% 11.87% 9.46% 10-06-69
Money Market 4.23% 3.20% 4.68% 6.46% 03-20-80
Bond 2.78% 6.17% 6.47% 7.68% 11-02-82
Omni 14.51% 11.07% 9.52% 10.56% 09-10-84
International 13.46% N/A N/A 15.15% 04-30-93
Capital Appreciation 14.72% N/A N/A 14.86% 05-01-94
Small Cap 16.66% N/A N/A 25.96% 05-01-94
Global Contrarian 11.09% N/A N/A 11.02% 03-31-95
Aggressive Growth (0.14%) N/A N/A 14.03% 03-31-95
Core Growth N/A N/A N/A N/A 01-03-97
Growth & Income N/A N/A N/A N/A 01-03-97
S&P 500 Index N/A N/A N/A N/A 01-03-97
Social Awareness N/A N/A N/A N/A 01-03-97
</TABLE>
-3-
<PAGE> 30
TRANSFER LIMITATIONS
To the extent that transfers, surrenders, partial withdrawals and annuity
payments from a subaccount exceed net purchase payments and transfers into that
subaccount, securities of the corresponding portfolio of the Fund may have to be
sold. Excessive sales of a portfolio's securities on short notice could be
detrimental to that portfolio and to contractowners with values allocated to the
corresponding subaccount. To protect the interests of all contractowners, Ohio
National Life reserves the right to limit the number, frequency, method or
amount of transfers. Transfers from any portfolio of the Fund on any one day may
be limited to 1% of the previous day's total net assets of that portfolio if
Ohio National Life or the Fund, in its or their discretion, believes that the
portfolio might otherwise be damaged.
If and when transfers must be so limited, some transfer requests will not be
made. In determining which requests will be made, scheduled transfers (that is,
those pursuant to a pre-existing dollar cost averaging program) will be made
first, followed by mailed written requests in the order postmarked and, lastly,
telephone and facsimile requests in the order received. Contractowners whose
transfer requests are not made will be so notified. Current SEC rules preclude
Ohio National Life from processing at a later date those requests that were not
made. Accordingly, a new transfer request would have to be submitted in order to
make a transfer that was not made because of these limitations.
-4-
<PAGE> 31
OHIO NATIONAL VARIABLE ACCOUNT B
INDEPENDENT AUDITORS' REPORT
The Board of Directors
The Ohio National Life Insurance Company
The Contract Owners
Ohio National Variable Account B
We have audited the accompanying statements of assets and contract owners'
equity of Ohio National Variable Account B as of December 31, 1996, and the
related statements of operations and changes in contract owners' equity and
schedules of changes in unit values for each of the periods indicated herein.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. Our procedures included
confirmation of securities owned as of December 31, 1996, by examination of the
underlying mutual fund. 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 referred to above present fairly, in
all material respects, the financial position of Ohio National Variable Account
B at December 31, 1996, and the results of its operations, changes in contract
owners' equity and changes in unit values for each of the periods indicated
herein, in conformity with generally accepted accounting principles.
KPMG PEAT MARWICK LLP
Cincinnati, Ohio
January 28, 1997
OHIO NATIONAL VARIABLE ACCOUNT B
STATEMENTS OF ASSETS AND CONTRACT OWNERS' EQUITY
DECEMBER 31, 1996
<TABLE>
<CAPTION>
MONEY INTER- CAPITAL SMALL
EQUITY MARKET BOND OMNI NATIONAL APPREC. CAP
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
---------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Assets - Investments
at market value
(note 2) $ 41,949,830 $ 3,290,700 $3,622,964 $ 30,345,958 $ 29,922,490 $ 7,614,976 $ 5,877,652
============ =========== ========== ============ ============ =========== ===========
Contract owners'
equity:
Contracts in
accumulation
period (note 3) $ 40,802,320 $ 3,194,070 3,585,409 $ 30,014,242 $29,922,490 $ 7,614,976 $ 5,877,652
Annuity reserves
for contracts in
payment period 1,147,510 96,630 37,555 331,716 0 0 0
------------ ----------- --------- ------------ ----------- ----------- -----------
Total contract
owners' equity $ 41,949,830 $ 3,290,700 $3,622,964 $ 30,345,958 $29,922,490 $7,614,976 $ 5,877,652
============ =========== ========== ============ =========== ========== ===========
</TABLE>
<TABLE>
<CAPTION>
GLOBAL AGGRESS.
CONTR. GROWTH
SUBACCOUNT SUBACCOUNT
---------- ----------
<S> <C> <C>
Assets - Investments
at market value
(note 2) $ 2,829,370 $ 1,737,423
=========== ===========
Contract owners'
equity:
Contracts in
accumulation
period (note 3) $ 2,829,370 $1,737,423
Annuity reserves
for contracts in
payment period 0 0
----------- ----------
Total contract
owners' equity $2,829,370 $1,737,423
========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE> 32
OHIO NATIONAL VARIABLE ACCOUNT B
Statements of Operations and Changes in Contract Owners' Equity
For the Years Ended December 31, 1996 and 1995
<TABLE>
<CAPTION>
Equity Money Market Bond
Subaccount Subaccount Subaccount
1996 1995 1996 1995 1996 1995
------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Investment activity:
Reinvested capital gains
and dividends ............. $ 1,514,050 $ 765,464 $ 121,100 $ 100,339 $ 226,135 $ 143,904
Risk and administrative
expense (note 4) ......... (401,473) (293,247) (5,651) (29,381) (36,260) (29,494)
------------ ------------ ----------- ----------- ------------ ------------
Net investment activity .. 1,112,577 472,217 115,449 70,958 189,875 114,410
------------ ------------ ----------- ----------- ------------ ------------
Realized and Unrealized gain
(loss) on investments:
Realized gain (loss) ...... 552,072 334,966 (4,810) 0 2,900 4,677
Unrealized gain (loss) .... 4,088,878 5,201,091 0 0 (90,712) 328,653
------------ ------------ ----------- ----------- ------------ ------------
Net gain (loss) on
investments ............ 4,640,950 5,536,057 (4,810) 0 (87,812) 333,330
------------ ------------ ----------- ----------- ------------ ------------
Net increase in contract
owners' equity from
operations ............ 5,753,527 6,008,274 110,639 70,958 102,063 447,740
------------ ------------ ----------- ----------- ------------ ------------
Equity transactions:
Sales:
Contract purchase payments. 5,951,661 3,783,192 1,871,868 934,384 1,155,848 764,847
Transfers from fixed and
other subaccounts ........ 1,520,335 1,917,272 687,467 332,192 131,700 164,917
------------ ------------ ----------- ----------- ------------ ------------
7,471,996 5,700,464 2,559,335 1,266,576 1,287,548 929,764
------------ ------------ ----------- ----------- ------------ ------------
Redemptions:
Withdrawals and surrenders. 1,462,881 1,391,091 39,602 173,670 165,387 127,381
Annuity and death benefit
payments ................. 580,928 544,978 7,858 7,251 152,376 11,271
Transfers to fixed and
other subaccounts ........ 923,992 540,461 1,369,352 1,436,196 811,891 341,845
------------ ------------ ----------- ----------- ------------ ------------
2,967,801 2,476,530 1,416,812 1,617,117 1,129,654 480,497
------------ ------------ ----------- ----------- ------------ ------------
Net equity transactions .. 4,504,195 3,223,934 1,142,523 (350,541) 157,894 449,267
------------ ------------ ----------- ----------- ------------ ------------
Net change in contract
owners' equity ........ 10,257,722 9,232,208 1,253,162 (279,583) 259,957 897,007
Contract owners' equity:
Beginning of period ........ 31,692,108 22,459,900 2,037,538 2,317,121 3,363,007 2,466,000
------------ ------------ ----------- ----------- ------------ ------------
End of period .............. $ 41,949,830 $ 31,692,108 $3,290,700 $2,037,538 $3,622,964 $3,363,007
============ ============ ========== ========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
<TABLE>
<CAPTION>
Omni International
Subaccount Subaccount
1996 1995 1996 1995
-----------------------------------------------------------------
<S> <C> <C> <C> <C>
Investment activity:
Reinvested capital gains
and dividends ............. $ 1,159,886 $ 567,491 $ 1,315,143 $ 553,908
Risk and administrative
expense (note 4) ......... (280,432) (229,636) (257,125) (166,334)
------------ ------------ ------------ ------------
Net investment activity .. 879,454 337,855 1,058,018 387,574
------------ ------------ ------------ ------------
Realized and Unrealized gain
(loss) on investments:
Realized gain (loss) ...... 257,649 214,074 79,728 92,960
Unrealized gain (loss) .... 2,449,471 3,286,859 1,719,537 1,160,817
------------ ------------ ------------ ------------
Net gain (loss) on
investments ............ 2,707,120 3,500,933 1,799,265 1,253,777
------------ ------------ ------------ ------------
Net increase in contract
owners' equity from
operations ............ 3,586,574 3,838,788 2,857,283 1,641,351
------------ ------------ ------------ ------------
Equity transactions:
Sales:
Contract purchase payments. 4,888,382 2,322,421 8,429,938 3,503,140
Transfers from fixed and
other subaccounts ........ 758,248 630,281 1,863,354 549,988
------------ ------------ ------------ ------------
5,646,630 2,952,702 10,293,292 4,053,128
------------ ------------ ------------ ------------
Redemptions:
Withdrawals and surrenders. 1,071,876 1,190,228 548,297 395,993
Annuity and death benefit
payments ................. 513,108 141,737 61,829 65,426
Transfers to fixed and
other subaccounts ........ 422,833 821,966 495,366 2,329,089
------------ ------------ ------------ ------------
2,007,817 2,153,931 1,105,492 2,790,508
------------ ------------ ------------ ------------
Net equity transactions .. 3,638,813 798,771 9,187,800 1,262,620
------------ ------------ ------------ ------------
Net change in contract
owners' equity ........ 7,225,387 4,637,559 12,045,083 2,903,971
Contract owners' equity:
Beginning of period ........ 23,120,571 18,483,012 17,877,407 14,973,436
------------ ------------ ------------ ------------
End of period .............. $ 30,345,958 $ 23,120,571 $ 29,922,490 $ 17,877,407
============ ============ ============ ============
The accompanying notes are an integral part of these financial statements.
</TABLE>
<PAGE> 33
OHIO NATIONAL VARIABLE ACCOUNT B
Statements of Operations and Changes in Contract Owners' Equity
For the Years Ended December 31, 1996 and 1995
<TABLE>
<CAPTION>
Capital Appreciation Small Cap Global Contrarian
Subaccount Subaccount Subaccount
1996 1995 1996 1995 1996 1995 (a)
-------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Investment activity:
Reinvested capital gains
and dividends ................ $ 290,109 $ 36,886 $ 72,856 $ 3,942 $ 42,037 $ 447
Risk and administrative
expense (note 4) ............. (54,570) (13,593) (36,692) (10,182) (13,771) (679)
Net investment activity .... 235,539 23,293 36,164 (6,240) 28,266 (232)
Realized and Unrealized gain
(loss) on investments:
Realized gain (loss .......... 30,377 8,474 32,011 26,681 19,118 (105)
Unrealized gain (loss ........ 504,086 194,214 532,154 261,953 76,648 7,563
----------- ----------- ----------- ----------- ----------- -----------
Net gain (loss) on
investments ............... 534,463 202,688 564,165 288,634 95,766 7,458
----------- ----------- ----------- ----------- ----------- -----------
Net increase in contract
owners' equity from
operations ............... 770,002 225,981 600,329 282,394 124,032 7,226
----------- ----------- ----------- ----------- ----------- -----------
Equity transactions:
Sales:
Contract purchase payments ... 3,315,552 2,287,561 2,996,882 1,305,146 2,082,521 349,702
Transfers from fixed and
other subaccounts ........... 751,976 382,531 633,847 146,831 359,416 11,337
----------- ----------- ----------- ----------- ----------- -----------
4,067,528 2,670,092 3,630,729 1,451,977 2,441,937 361,039
----------- ----------- ----------- ----------- ----------- -----------
Redemptions:
Withdrawals and surrenders.... 147,548 1,651 25,917 1,373 3,208 0
Annuity and death benefit
payments .................... 70,615 0 17,894 0 653 0
Transfers to fixed and
other subaccounts ........... 223,703 32,345 463,197 57,038 76,474 24,529
----------- ----------- ----------- ----------- ----------- -----------
441,866 33,996 507,008 58,411 80,335 24,529
----------- ----------- ----------- ----------- ----------- -----------
Net equity transactions ..... 3,625,662 2,636,096 3,123,721 1,393,566 2,361,602 336,510
----------- ----------- ----------- ----------- ----------- -----------
Net change in contract
owners' equity ........... 4,395,664 2,862,077 3,724,050 1,675,960 2,485,634 343,736
Contract owners' equity:
Beginning of period ........... 3,219,312 357,235 2,153,602 477,642 343,736 0
--------- ------- --------- ------- ------- -----------
End of period ................. $7,614,976 $3,219,312 $5,877,652 $2,153,602 $2,829,370 $343,736
========== ========== ========== ========== ========== ===========
</TABLE>
<TABLE>
<CAPTION>
Aggressive Growth
Subaccount
1996 1995 (a)
------------------------
<S> <C> <C>
Investment activity:
Reinvested capital gains
and dividends ................ $ 206,544 $ 11,649
Risk and administrative
expense (note 4) ............. (12,377) (386)
Net investment activity..... 194,167 11,263
Realized and Unrealized gain
(loss) on investments:
Realized gain (loss .......... (18,436) 193
Unrealized gain (loss ........ (147,209) 19,014
----------- ---------
Net gain (loss) on
investments ............... (165,645) 19,207
----------- ---------
Net increase in contract
owners' equity from
operations ............... 28,522 30,470
----------- ---------
Equity transactions:
Sales:
Contract purchase payments ... 1,164,982 499,326
Transfers from fixed and
other subaccounts ........... 261,060 65,472
----------- ---------
1,426,042 564,798
----------- ---------
Redemptions:
Withdrawals and surrenders.... 2,702 910
Annuity and death benefit
payments .................... 5,982 0
Transfers to fixed and
other subaccounts ........... 300,897 1,918
----------- ---------
309,581 2,828
----------- ---------
Net equity transactions ..... 1,116,461 561,970
----------- ---------
Net change in contract
owners' equity ........... 1,144,983 592,440
Contract owners' equity:
Beginning of period ........... 592,440 0
------- --------
End of period ................. $1,737,423 $592,440
========== ========
</TABLE>
(a) Period from March 31, 1995, date of commencement of operations.
The accompanying notes are an integral part of these financial statements.
<PAGE> 34
OHIO NATIONAL VARIABLE ACCOUNT B
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996
(1) BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Ohio National Variable Account B (the Account) is a separate account of
The Ohio National Life Insurance Company (ONLIC) and all obligations
arising under variable annuity contracts are general corporate
obligations of ONLIC. The account has been registered as a unit
investment trust under the Investment Company Act of 1940.
Assets of the Account are invested in shares of Ohio National Fund,
Inc. (the Fund), a diversified open-end management investment company.
The Fund's investments are subject to varying degrees of market,
interest and financial risks; the issuers' abilities to meet certain
obligations may be affected by economic developments in their
respective industries.
Annuity reserves are computed for currently payable contracts according
to the Progressive Annuity Mortality Table. The assumed interest rate
is 3.5 or 4.0 percent depending on the contract selected by the
annuitant. Charges to annuity reserves for adverse mortality and
expense risk experience are reimbursed to the Account by ONLIC. Such
amounts are included in risk and administrative expense.
Investments are valued at the net asset value of fund shares
held at December 31, 1996. Share transactions are recorded on
the trade date. Income and capital gain distributions are recorded on
the ex-dividend date. Net realized capital gain or loss is determined
on the basis of average cost.
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 revenues
and expenses during the reporting period. Actual results could differ
from those estimates.
(2) INVESTMENTS
At December 31, 1996 the aggregate cost and number of shares of Ohio
National Fund, Inc. owned by the respective subaccounts were:
<TABLE>
<CAPTION>
MONEY INTER- CAPITAL SMALL GLOBAL
EQUITY MARKET BOND OMNI NATIONAL APPREC. CAP CONTR.
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Aggregate Cost $ 30,168,411 $ 3,290,700 $ 3,558,065 $ 23,690,877 $ 26,614,406 $ 6,919,904 $ 5,071,744 $ 2,745,159
Number of shares 1,298,797 329,070 341,017 1,564,386 1,931,355 588,984 326,047 242,677
</TABLE>
<TABLE>
<CAPTION>
AGGRESS.
GROWTH
SUBACCOUNT
----------
<S> <C>
Aggregate Cost $1,865,618
Number of shares 173,188
</TABLE>
(3)
CONTRACTS IN ACCUMULATION PERIOD
At December 31, 1996 the accumulation units and value per unit
of the respective subaccounts and products were:
<TABLE>
<CAPTION>
ACCUMULATION UNITS VALUE PER UNIT
------------------ --------------
<S> <C> <C>
EQUITY SUBACCOUNT
Combination ............................. 22,848.676 $120.477605
Back Load ............................... 1,109.090 61.577580
Top I ................................... 22,720.288 53.439888
Top II .................................. 680,118.205 45.092323
Top Plus ................................ 405,466.475 15.042658
MONEY MARKET SUBACCOUNT
VIA ..................................... 28,910.361 26.200345
Top I ................................... 6,004.445 19.867953
Top II .................................. 83,493.922 17.734674
Top Plus ................................ 74,056.162 11.296489
BOND SUBACCOUNT
Top I ................................... 3,121.643 27.749128
Top II .................................. 100,641.550 23.238374
Top Plus ................................ 101,403.486 11.439849
OMNI SUBACCOUNT
Top I ................................... 53,262.846 33.556721
Top II .................................. 703,470.062 33.345205
Top Plus ................................ 342,379.008 13.930650
</TABLE>
<PAGE> 35
OHIO NATIONAL VARIABLE ACCOUNT B
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996
<TABLE>
<CAPTION>
INTERNATIONAL SUBACCOUNT ACCUMULATION UNITS VALUE PER UNIT
- ------------------------ ------------------ --------------
<S> <C> <C>
Top I 18,084.575 16.648702
Top II 1,186,643.213 16.648702
Top Plus 674,402.979 14.628252
CAPITAL APPRECIATION SUBACCOUNT
Top I 785.598 13.018249
Top II 312,799.343 13.018249
Top Plus 243,883.463 14.484990
SMALL CAP SUBACCOUNT
Top II 147,556.638 14.205207
Top Plus 204,016.779 18.535631
GLOBAL CONTRARIAN SUBACCOUNT
Top II 60,595.878 11.226306
Top Plus 178,856.151 12.015818
AGGRESSIVE GROWTH SUBACCOUNT
Top II 68,714.736 10.463801
Top Plus 80,874.706 12.592390
</TABLE>
(4) RISK AND ADMINISTRATIVE EXPENSE
ONLIC charges the Account's assets at the end of each valuation period,
equal to 0.25% on an annual basis, of the contract value for
administrative expenses, based on premiums established at the time the
contracts are issued.
Although variable annuity payments differ according to the investment
performance of the Accounts, they are not affected by mortality or
expense experience because ONLIC assumes the expense risk and the
mortality risk under the contracts. ONLIC charges the Accounts' assets
for assuming those risks, based on the contract value at a rate
presently ranging from 0.65% to 1.05% for mortality and expense risk on
an annual basis.
The expense risk assumed by ONLIC is the risk that the deductions for
sales and administrative expenses provided for in the variable annuity
contract may prove insufficient to cover the cost of those terms.
The mortality risk results from a provision in the contract in which
ONLIC agrees to make annuity payments regardless of how long a
particular annuitant or other payee lives and how long all annuitants
or other payees as a class live if payment options involving life
contingencies are chosen. Those annuity payments are determined in
accordance with annuity purchase rate provisions established at the
time the contracts are issued.
(5) CONTRACT CHARGES
No deduction for a sales charge is made from purchase payments. A
contingent deferred sales charge ranging from 0% to 6% may be assessed
by ONLIC when a contract is surrendered or a partial withdrawal of
accumulation value is made before the annuity payout date.
A transfer fee is charged for each transfer from one subaccount to
another. The fee is charged against the contract owner's equity in the
subaccount from which the transfer is effected.
State premium taxes presently range from 0% to 2 1/2% for these
contracts. In those jurisdictions permitting, such taxes will be
deducted when annuity payments begin. Elsewhere, they will be deducted
from purchase payments.
(6) FEDERAL INCOME TAXES
Operations of the Account form a part of, and are taxed with,
operations of ONLIC which is taxed as a life insurance company under
the Internal Revenue Code. Taxes are the responsibility of the contract
owner upon termination or withdrawal. No Federal income taxes are
payable under present law on dividend income or capital gains
distribution from the Fund shares held in the Account or on capital
gains realized by the Account on redemption of the Fund shares.
<PAGE> 36
OHIO NATIONAL VARIABLE ACCOUNT B
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996
(7) NOTE TO SCHEDULE 1
Schedule 1 presents the components of the change in the unit values,
which are the basis for determining contract owners' equity. This
schedule is presented for each series, as applicable, in the following
format:
- Beginning unit value
- Reinvested capital gains and dividends (This amount reflects the
increase in the unit value due to capital gain and dividend
distributions from the underlying mutual fund.)
- Unrealized gain (loss) (This amount reflects the increase
(decrease) in the unit value resulting from the market
appreciation (depreciation) of the fund.)
- Expenses (This amount reflects the decrease in the unit value due
to Risk and Administrative Expenses discussed in note 4 to the
financial statements.)
- Ending unit value
- Percentage increase (decrease) in unit value.
<PAGE> 37
For the Years Ended December 31, 1996 and 1995
Schedule 1
OHIO NATIONAL VARIABLE ACCOUNT B
Schedules of Changes In Unit Values
<TABLE>
<CAPTION>
Equity Subaccount B
1996 Combination Back Load Top I Top II Top Plus
<S> <C> <C> <C> <C> <C>
Beginning unit value...................... 102.816617 52.603280 45.651565 38.520577 12.824740
Reinvested capital gains and dividends.... 4.730442 2.472551 2.098892 1.774973 0.594240
Realized and unrealized gain.............. 14.044744 7.129052 6.332974 5.256615 1.749688
Expenses.................................. -1.114198 -0.627303 -0.643543 -0.459842 -0.126010
Ending unit value......................... 120.477605 61.577580 53.439888 45.092323 15.042658
Percentage increase in unit value*........ 17.2% 17.1% 17.1% 17.1% 17.3%
<CAPTION>
1995 Combination Back Load Top I Top II Top Plus
<S> <C> <C> <C> <C> <C>
Beginning unit value...................... 81.637986 41.809023 36.283811 30.616106 10.173015
Reinvested capital gains and dividends.... 2.742090 1.396517 1.205043 1.030439 0.348156
Realized and unrealized gain.............. 19.371159 9.915634 8.696663 7.260302 2.410290
Expenses.................................. -0.934618 -0.517894 -0.533952 -0.386270 -0.106721
Ending unit value......................... 102.816617 52.603280 45.651565 38.520577 12.824740
Percentage increase in unit value*........ 25.9% 25.8% 25.8% 25.8% 26.1%
* An annualized rate of return cannot be determined as expenses do not include
the contract charges discussed in note (5).
<CAPTION>
Money Market Subaccount B
1996 VIA Top I Top II Top Plus
<S> <C> <C> <C> <C>
Beginning unit value...................... 25.237165 19.137562 17.048698 10.837896
Reinvested dividends...................... 1.297471 1.022907 0.877627 0.558622
Expenses.................................. -0.334291 -0.292516 -0.191651 -0.100029
Ending unit value......................... 26.200345 19.867953 17.734674 11.296489
Percentage increase in unit value*........ 3.8% 3.8% 4.0% 4.2%
<CAPTION>
1995 VIA Top I Top II Top Plus
<S> <C> <C> <C> <C>
Beginning unit value...................... 24.205890 18.355539 16.319825 10.354108
Reinvested dividends...................... 1.352642 1.062689 0.912513 0.579004
Expenses.................................. -0.321367 -0.280666 -0.183640 -0.095216
Ending unit value......................... 25.237165 19.137562 17.048698 10.837896
Percentage increase in unit value*........ 4.3% 4.3% 4.5% 4.7%
* An annualized rate of return cannot be determined as expenses do not include
the contract charges discussed in note (5).
<CAPTION>
Bond Subaccount B
1996 Top I Top II Top Plus
<S> <C> <C> <C>
Beginning unit value...................... 27.051775 22.654830 11.130129
Reinvested capital gains and dividends.... 1.733738 1.569071 0.714445
Realized and unrealized loss.............. -0.686463 -0.717650 -0.304915
Expenses.................................. -0.349922 -0.267877 -0.099810
Ending unit value......................... 27.749128 23.238374 11.439849
Percentage increase in unit value*........ 2.6% 2.6% 2.8%
<CAPTION>
1995 Top I Top II Top Plus
<S> <C> <C> <C>
Beginning unit value...................... 23.002903 19.263675 9.445623
Reinvested capital gains and dividends.... 1.312460 1.100484 0.541348
Realized and unrealized gain.............. 3.063398 2.522822 1.236580
Expenses.................................. -0.326986 -0.232151 -0.093422
Ending unit value......................... 27.051775 22.654830 11.130129
Percentage increase in unit value*........ 17.6% 17.6% 17.8%
</TABLE>
* An annualized rate of return cannot be determined as expenses do not include
the contract charges discussed in note (5).
(continued)
<PAGE> 38
OHIO NATIONAL VARIABLE ACCOUNT B
Schedules of Changes In Unit Values
For the Years Ended December 31, 1996 and 1995
Schedule 1 (Continued)
<TABLE>
<CAPTION>
Omni Subaccount B
1996 Top I Top II Top Plus
<S> <C> <C> <C>
Beginning unit value...................... 29.362718 29.177631 12.165280
Reinvested capital gains and dividends.... 1.374026 1.365954 0.572930
Realized and unrealized gain.............. 3.226767 3.143948 1.309928
Expenses.................................. -0.406790 -0.342328 -0.117488
Ending unit value......................... 33.556721 33.345205 13.930650
Percentage increase in unit value*........ 14.3% 14.3% 14.5%
<CAPTION>
1995 Top I Top II Top Plus
<S> <C> <C> <C>
Beginning unit value...................... 24.183329 24.030898 9.999661
Reinvested capital gains and dividends.... 0.768417 0.762912 0.321491
Realized and unrealized gain.............. 4.761955 4.678786 1.945772
Expenses.................................. -0.350983 -0.294965 -0.101644
Ending unit value......................... 29.362718 29.177631 12.165280
Percentage increase in unit value*........ 21.4% 21.4% 21.7%
* An annualized rate of return cannot be determined as expenses do not include
the contract charges discussed in note (5).
<CAPTION>
International Subaccount B
1996 Top I Top II Top Plus
<S> <C> <C> <C>
Beginning unit value...................... 14.702847 14.702847 12.892796
Reinvested capital gains and dividends.... 0.851068 0.851804 0.751086
Realized and unrealized gain.............. 1.301686 1.269443 1.110911
Expenses.................................. -0.206899 -0.175392 -0.126541
Ending unit value......................... 16.648702 16.648702 14.628252
Percentage increase in unit value*........ 13.2% 13.2% 13.5%
<CAPTION>
1995 Top I Top II Top Plus
<S> <C> <C> <C>
Beginning unit value...................... 13.259582 13.259582 11.604279
Reinvested capital gains and dividends.... 0.486534 0.485230 0.427074
Realized and unrealized gain.............. 1.137778 1.110834 0.971406
Expenses.................................. -0.181047 -0.152799 -0.109963
Ending unit value......................... 14.702847 14.702847 12.892796
Percentage increase in unit value*........ 10.9% 10.9% 11.1%
* An annualized rate of return cannot be determined as expenses do not include
the contract charges discussed in note (5).
<CAPTION>
Capital Appreciation Subaccount B
1996 Top I Top II Top Plus
<S> <C> <C> <C>
Beginning unit value...................... 11.370573 11.370573 12.626458
Reinvested capital gains and dividends.... 0.636859 0.651286 0.721507
Realized and unrealized gain.............. 1.169741 1.130864 1.258902
Expenses.................................. -0.158924 -0.134474 -0.121877
Ending unit value......................... 13.018249 13.018249 14.484990
Percentage increase in unit value*........ 14.5% 14.5% 14.7%
1995 Top I Top II Top Plus
Beginning unit value...................... 10.000000 ** 10.000000 ** 10.390128
Reinvested capital gains and dividends.... 0.232825 0.238549 0.257166
Realized and unrealized gain.............. 1.281303 1.253494 2.086288
Expenses.................................. -0.143555 -0.121470 -0.107124
Ending unit value......................... 11.370573 11.370573 12.626458
Percentage increase in unit value*........ 13.7% 13.7% 21.5%
</TABLE>
* An annualized rate of return cannot be determined as expenses do not include
the contract charges discussed in note (5).
** Period from March 31, 1995, date of commencement of operations.
<PAGE> 39
For the Years Ended December 31, 1996 and 1995
OHIO NATIONAL VARIABLE ACCOUNT B
Schedules of Changes In Unit Values Schedule 1 (Continued)
Small Cap Subaccount B
<TABLE>
<CAPTION>
1996 Top II Top Plus
<S> <C> <C>
Beginning unit value...................... 12.201273 15.889068
Reinvested capital gains and dividends.... 0.250703 0.322062
Realized and unrealized gain.............. 1.901925 2.480816
Expenses.................................. -0.148694 -0.156315
Ending unit value......................... 14.205207 18.535631
Percentage increase in unit value*........ 16.4% 16.7%
1995 Top II Top Plus
Beginning unit value...................... 10.000000 ** 12.053440
Reinvested capital gains and dividends.... 0.038545 0.046338
Realized and unrealized gain.............. 2.296433 3.920914
Expenses.................................. -0.133705 -0.131624
Ending unit value......................... 12.201273 15.889068
Percentage increase in unit value*........ 22.0% 31.8%
* An annualized rate of return cannot be determined as expenses do
not include the contract charges discussed in note (5).
** Period from March 31, 1995, date of commencement of operations.
<CAPTION>
Global Contrarian Subaccount B
1996 Top II Top Plus
<S> <C> <C>
Beginning unit value...................... 10.125502 10.816003
Reinvested capital gains and dividends.... 0.306810 0.328881
Realized and unrealized gain.............. 0.914409 0.976558
Expenses.................................. -0.120415 -0.105624
Ending unit value......................... 11.226306 12.015818
Percentage increase in unit value*........ 10.9% 11.1%
1995 Top II Top Plus
Beginning unit value...................... 10.000000 *** 10.000000 **
Reinvested capital gains and dividends.... 0.025913 0.027475
Realized and unrealized gain.............. 0.209827 0.884367
Expenses.................................. -0.110238 -0.095839
Ending unit value......................... 10.125502 10.816003
Percentage increase in unit value*........ 1.3% 8.2%
* An annualized rate of return cannot be determined as expenses do not include
the contract charges discussed in note (5).
** Period from March 31, 1995, date of commencement of operations.
*** Period from October 2, 1995, date of commencement of operations.
<CAPTION>
Aggressive Growth Subaccount B
1996 Top II Top Plus
<S> <C> <C>
Beginning unit value...................... 10.499375 12.610012
Reinvested capital gains and dividends.... 1.647013 1.986612
Realized and unrealized loss.............. -1.570429 -1.893528
Expenses.................................. -0.112158 -0.110706
Ending unit value......................... 10.463801 12.592390
Percentage decrease in unit value*........ -0.3% -0.1%
<CAPTION>
1995 Top II Top Plus
<S> <C> <C>
Beginning unit value...................... 10.000000 *** 10.000000 **
Reinvested capital gains and dividends.... 0.490558 0.569631
Realized and unrealized gain.............. 0.124172 2.149950
Expenses.................................. -0.115355 -0.109569
Ending unit value......................... 10.499375 12.610012
Percentage increase in unit value*........ 5.0% 26.1%
</TABLE>
* An annualized rate of return cannot be determined as expenses do not include
the contract charges discussed in note (5).
** Period from March 31, 1995, date of commencement of operations.
*** Period from October 2, 1995, date of commencement of operations. See
accompanying notes to the financial statements.
<PAGE> 40
<PAGE> 1
Independent Auditors' Report
----------------------------
The Board of Directors
The Ohio National Life Insurance Company:
We have audited the accompanying consolidated balance sheets of The Ohio
National Life Insurance Company and subsidiaries (the Company) as of December
31, 1996 and 1995, and the related consolidated statements of income, equity and
cash flows for each of the years in the three-year period ended December 31,
1996. These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of The Ohio National
Life Insurance Company and subsidiaries as of December 31, 1996 and 1995, and
the results of their operations and their cash flows for each of the years in
the three-year period ended December 31, 1996, in conformity with generally
accepted accounting principles.
/s/ KPMG Peat Marwick LLP
Cincinnati, Ohio
January 31, 1997
<PAGE> 2
THE OHIO NATIONAL LIFE INSURANCE COMPANY AND SUBSIDIARIES
Consolidated Balance Sheets
December 31, 1996 and 1995
(000's omitted)
<TABLE>
<CAPTION>
Assets 1996 1995
------ ---- ----
<S> <C> <C>
Investments (notes 4, 8 and 9):
Securities available-for-sale, at fair value:
Fixed maturities $ 2,572,550 2,547,763
Equity securities 63,763 71,301
Fixed maturities held-to-maturity, at amortized cost 692,572 672,372
Mortgage loans on real estate, net 1,087,287 898,099
Real estate, net 40,759 41,429
Policy loans 151,229 148,077
Other long-term investments 42,851 40,702
Short-term investments 36,016 61,173
--------------- -------------
Total investments 4,687,027 4,480,916
Cash 33,712 8,385
Accrued investment income 62,339 63,128
Deferred policy acquisition costs 246,643 193,375
Reinsurance recoverable 52,260 67,648
Other assets 37,737 25,518
Assets held in Separate Accounts 661,871 453,405
=============== =============
Total assets $ 5,781,589 5,292,375
=============== =============
Liabilities and Equity
----------------------
Future policy benefits and claims (note 5) $ 4,288,107 4,039,611
Policyholders' dividend accumulations 63,574 64,627
Other policyholder funds 16,161 15,080
Note payable (net of unamortized discount of $809 in 1996
and $261 in 1995) (note 6) 84,191 49,739
Accrued Federal income tax (note 7):
Current 14,807 21,649
Deferred 37,252 62,920
Other liabilities 113,854 103,182
Liabilities related to Separate Accounts 648,634 441,124
--------------- -------------
Total liabilities 5,266,580 4,797,932
--------------- -------------
Equity (notes 3 and 12):
Unrealized gains on securities available-for-sale, net 46,807 85,844
Retained earnings 468,202 408,599
--------------- -------------
Total equity 515,009 494,443
--------------- -------------
Commitments and contingencies (notes 9 and 14)
Total liabilities and equity $ 5,781,589 5,292,375
=============== =============
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE> 3
THE OHIO NATIONAL LIFE INSURANCE COMPANY AND SUBSIDIARIES
Consolidated Statements of Income
Years ended December 31, 1996, 1995 and 1994
(000's omitted)
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Revenues (note 15):
Traditional life insurance premiums $ 113,176 104,514 99,423
Accident and health insurance premiums 23,478 22,455 22,475
Annuity premium and charges 28,757 31,203 22,405
Universal life and investment product policy
charges 42,304 37,064 32,507
Net investment income (note 4) 370,702 355,027 330,435
Other income 1,861 1,372 1,226
Net realized (loss) gain on investments (note 4) 8,761 (2,751) (3,509)
-------------- -------------- --------------
589,039 548,884 504,962
-------------- -------------- --------------
Benefits and expenses:
Benefits and claims 379,116 373,108 350,742
Provision for policyholders' dividends on
participating policies (note 12) 26,996 23,047 23,590
Amortization of deferred policy acquisition costs 19,341 21,471 16,622
Other operating costs and expenses 71,111 67,438 63,289
-------------- -------------- --------------
496,564 485,064 454,243
-------------- -------------- --------------
Income before Federal income tax 92,475 63,820 50,719
-------------- -------------- --------------
Federal income tax (note 7):
Current expense 37,443 31,233 21,103
Deferred benefit (4,571) (6,330) (1,445)
-------------- -------------- --------------
32,872 24,903 19,658
-------------- -------------- --------------
Net income $ 59,603 38,917 31,061
============== ============== ==============
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE> 4
THE OHIO NATIONAL LIFE INSURANCE COMPANY AND SUBSIDIARIES
Consolidated Statements of Equity
Years ended December 31, 1996, 1995 and 1994
(000's omitted)
<TABLE>
<CAPTION>
Unrealized
gains (losses)
on securities
available- Retained Total
for-sale earnings equity
------------------ --------------- ---------------
<S> <C> <C> <C>
1994:
Balance, beginning of year $ 5,899 338,621 344,520
Net income - 31,061 31,061
Adjustment for change in accounting for certain
investment in debt and equity securities, net of
adjustment to deferred policy acquisition costs
and deferred Federal income tax (note 3) 40,219 - 40,219
Unrealized loss on securities available-for- sale,
net of adjustment to deferred policy
acquisition costs and deferred Federal
income tax (75,418) - (75,418)
================== =============== ===============
Balance, end of year $ (29,300) 369,682 340,382
================== =============== ===============
1995:
Balance, beginning of year $ (29,300) 369,682 340,382
Net income - 38,917 38,917
Unrealized gain on securities available-for-sale,
net of adjustment to deferred policy acquisition
costs and deferred Federal income taxes 115,144 - 115,144
------------------ --------------- ---------------
Balance, end of year $ 85,844 408,599 494,443
================== =============== ===============
1996:
Balance, beginning of year $ 85,844 408,599 494,443
Net income 59,603 59,603
Unrealized loss on securities available-for-sale,
net of adjustment to deferred policy
acquisition costs and deferred Federal
income tax (39,037) - (39,037)
------------------ --------------- ---------------
Balance, end of year $ 46,807 468,202 515,009
================== =============== ===============
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE> 5
THE OHIO NATIONAL LIFE INSURANCE COMPANY AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Years ended December 31, 1996, 1995 and 1994
(000's omitted)
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities:
Net Income $ 59,603 38,917 31,061
Adjustments to reconcile net income to net cash
provided by operating activities:
Capitalization of deferred policy acquisition costs (43,711) (41,403) (38,172)
Amortization of deferred policy acquisition costs 19,341 21,471 16,622
Amortization and depreciation 1,095 1,342 1,329
Realized losses (gains) on invested assets, net (7,772) (3,077) 3,582
Deferred Federal income tax (benefit) (3,623) (9,521) 1,820
(Increase) decrease in accrued investment income 789 (4,977) (6,205)
(Increase) decrease in other assets 3,169 (19,051) (11,899)
Increase in policyholder account balances 20,249 52,265 44,722
(Decrease) increase in policyholders' dividend
accumulations and other funds 28 (215) (1,284)
Increase (decrease) in current Federal income tax payable (6,842) 10,088 3,575
Increase in other liabilities 11,134 9,126 17,444
Other, net (1,010) 3,567 315
------------ ----------- ------------
Net cash provided by operating activities 52,450 58,532 62,910
------------ ----------- ------------
Cash flows from investing activities:
Proceeds from maturity of securities available-for-sale 145,554 83,956 108,056
Proceeds from sale of debt securities available-for-sale 74,977 46,372 16,717
Proceeds from sale of equity securities 15,001 7,245 6,545
Proceeds from maturity of fixed maturities held-to-maturity 57,129 102,565 101,368
Proceeds from repayment of mortgage loans on real estate 140,831 93,714 128,077
Proceeds from sale of real estate 4,181 15,791 6,634
Proceeds from repayment of policy loans and sale of
other invested assets 11,812 14,003 14,649
Cost of debt securities available-for-sale acquired (331,991) (281,828) (164,757)
Cost of equity securities acquired (4,000) (12,258) (11,326)
Cost of fixed maturities held-to-maturity acquired (76,022) (226,541) (376,723)
Cost of mortgage loans on real estate acquired (332,088) (233,003) (109,163)
Cost of real estate acquired (836) (1,283) (4,996)
Policy loans issued and other invested assets acquired (18,006) (23,046) (19,455)
------------ ----------- ------------
Net cash used in investing activities (313,458) (414,313) (304,374)
------------ ----------- ------------
Cash flows from financing activities:
Increase in universal life and investment product
account balances 973,793 957,776 663,604
Decrease in universal life and investment product
account balances (745,546) (583,852) (684,522)
Proceeds from note issue 49,340 - 49,708
Repayment of note (16,477) - -
Other, net 68 69 64
------------ ----------- ------------
Net cash provided by financing activities 261,178 373,993 28,854
------------ ----------- ------------
Net increase (decrease) in cash and cash equivalents 170 18,212 (212,610)
Cash and cash equivalents, beginning of year 69,558 51,346 263,956
============ =========== ============
Cash and cash equivalents, end of year $ 69,728 69,558 51,346
============ =========== ============
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE> 6
THE OHIO NATIONAL LIFE INSURANCE COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1996, 1995 and 1994
(000's omitted)
(1) Organization, Consolidation Policy and Business Description
-----------------------------------------------------------
The Ohio National Life Insurance Company (ONLIC) is a mutual life
insurance company. Ohio National Life Assurance Corporation
(ONLAC) is a wholly-owned stock life insurance subsidiary included
in the consolidated financial statements. The Company's other
wholly-owned subsidiaries are not life insurance enterprises and
are included in the consolidated financial statements on an equity
basis. These non-insurance subsidiaries are not material to the
Company's consolidated results of operations or financial
position. ONLIC and its subsidiaries are collectively referred to
as the "Company".
ONLIC and ONLAC are life and health insurers licensed in 47 states, the
District of Columbia and Puerto Rico. The Company offers a full
range of life, health and annuity products through exclusive
agents and other distribution channels and is subject to
competition from other insurers throughout the United States. The
Company is subject to regulation by the Insurance Departments of
states in which it is licensed and undergoes periodic examinations
by those departments.
The following is a description of the most significant risks facing life
and health insurers and how the Company mitigates those risks:
LEGAL/REGULATORY RISK is the risk that changes in the legal or
regulatory environment in which an insurer operates will create
additional expenses not anticipated by the insurer in pricing its
products. That is, regulatory initiatives designed to reduce
insurer profits, new legal theories or insurance company
insolvencies through guaranty fund assessments may create costs
for the insurer beyond those recorded in the consolidated
financial statements. The Company mitigates this risk by offering
a wide range of product and by operating throughout the United
States, thus reducing its exposure to any single product or
jurisdiction, and also by employing underwriting practices which
identify and minimize the adverse impact of this risk.
CREDIT RISK is that risk that issuers of securities owned by the
Company or mortgagors on mortgage loans on real estate owned by
the Company will default or that other parties, including
reinsurers, which owe the Company money, will not pay. The Company
minimizes this risk by adhering to a conservative investment
strategy, by maintaining sound reinsurance and credit and
collection policies and by providing for any amounts deemed
uncollectible.
INTEREST RATE RISK is the risk that interest rates will change and
cause a decrease in the value of an insurer's investments. This
change in rates may cause certain interest-sensitive products to
become uncompetitive or may cause disintermediation. The Company
mitigates this risk by charging fees for non-conformance with
certain policy provisions, by offering products that transfer this
risk to the purchaser, and/or by attempting to match the maturity
schedule of its assets with the expected payouts of its
liabilities. To the extent that liabilities come due more quickly
than assets mature, an insurer would have to borrow funds or sell
assets prior to maturity and potentially recognize a gain or loss.
(Continued)
<PAGE> 7
2
THE OHIO NATIONAL LIFE INSURANCE COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(2) Summary of Significant Accounting Policies
------------------------------------------
The significant accounting policies followed by the Company that
materially affect financial reporting are summarized below. The
accompanying consolidated financial statements have been prepared
in accordance with generally accepted accounting principles (GAAP)
which differ from statutory accounting practices prescribed or
permitted by regulatory authorities (see Note 3).
(a) Valuation of Investments and Related Gains and Losses
-----------------------------------------------------
Fixed maturity securities are classified as held-to-maturity when
the Company has the positive intent and ability to hold the
securities to maturity and are stated at amortized cost. Fixed
maturity securities not classified as held-to-maturity and all
equity securities are classified as available-for-sale and are
stated at fair value, with the unrealized gains and losses,
net of adjustments to deferred policy acquisition costs and
deferred Federal income tax, reported as a separate component
of shareholder's equity that would have been required as a
charge or credit to operations had such unrealized amounts
been realized. The Company has no trading securities. The
Company records valuation allowances equal to deferred tax
benefits resulting from unrealized losses of investments.
Mortgage loans on real estate are carried at the unpaid principal
balance less valuation allowances. The Company provides
valuation allowances for impairments of mortgage loans on real
estate based on a review by portfolio managers. The
measurement of impaired loans is based on the present value of
expected future cash flows discounted at the loan's effective
interest rate or, as a practical expedient, at the fair value
of the collateral, if the loan is collateral dependent. Loans
in foreclosure and loans considered to be impaired as of the
balance sheet date are placed on non-accrual status and
written down to the fair value of the existing property to
derive a new cost basis. Cash receipts on non-accrual status
mortgage loans on real estate are included in interest income
in the period received.
Real estate is carried at cost less accumulated depreciation
and valuation allowances. Other long-term investments are
carried on the equity basis, adjusted for valuation
allowances.
Realized gains and losses on the sale of investments are
determined on the basis of specific security identification.
Estimates for valuation allowances and other than temporary
declines are included in realized gains and losses on
investments.
(Continued)
<PAGE> 8
3
THE OHIO NATIONAL LIFE INSURANCE COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(2) Summary of Significant Accounting Policies, Continued
-----------------------------------------------------
(b) Revenues and Benefits
---------------------
Traditional life insurance products include those products with
fixed and guaranteed premiums and benefits and consist
primarily of whole life, limited-payment life, term life and
certain annuities with life contingencies. Premiums for
traditional life insurance products are recognized as revenue
when due and collected. Benefits and expenses are associated
with earned premiums so as to result in recognition of profits
over the life of the contract. This association is
accomplished by the provision for future policy benefits and
the deferral and amortization of policy acquisition costs.
Universal life products include universal life, variable universal
life and other interest-sensitive life insurance policies.
Investment products consist primarily of individual and group
deferred annuities, annuities without life contingencies and
guaranteed investment contracts. Revenues for universal life
and investment products consist of net investment income and
cost of insurance, policy administration and surrender charges
that have been earned and assessed against policy account
balances during the period. Policy benefits and claims that
are charged to expense include benefits and claims incurred in
the period in excess of related policy account balances,
maintenance costs and interest credited to policy account
balances.
Accident and health insurance premiums are recognized as revenue
in accordance with the terms of the policies. Policy claims
are charged to expense in the period that the claims are
incurred.
(c) Deferred Policy Acquisition Costs
---------------------------------
The costs of acquiring new business, principally commissions,
certain expenses of the policy issue and underwriting
department and certain variable agency expenses have been
deferred. For traditional non-participating life insurance
products, these deferred acquisition costs are predominantly
being amortized with interest over the premium paying period
of the related policies in proportion to premium revenue. Such
anticipated premium revenue was estimated using the same
assumptions as were used for computing liabilities for future
policy benefits. For participating life insurance products,
deferred policy acquisition costs are being amortized in
proportion to gross margins of the related policies. Gross
margins are determined for each issue year and are equal to
premiums plus investment income less death claims, surrender
benefits, administrative costs, expected policyholder
dividends, and the increase in reserve for future policy
benefits. For universal life and investment products, deferred
policy acquisition costs are being amortized with interest
over the lives of the policies in relation to the present
value of the estimated future gross profits from projected
interest margins, cost of insurance,
(Continued)
<PAGE> 9
4
THE OHIO NATIONAL LIFE INSURANCE COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(2) Summary of Significant Accounting Policies, Continued
-----------------------------------------------------
(c) Deferred Policy Acquisition Costs, Continued
--------------------------------------------
policy administration and surrender charges. Beginning January
1, 1994, deferred policy acquisition costs for participating
life and universal life business are adjusted to reflect the
impact of unrealized gains and losses on fixed maturity
securities available-for-sale (see Note 2(a)).
(d) Separate Accounts
-----------------
Separate Account assets and liabilities represent contractholders'
funds which have been segregated into accounts with specific
investment objectives. The investment income and gains or
losses of these accounts accrue directly to the
contractholders. The activity of the Separate Accounts is not
reflected in the consolidated statements of income and cash
flows except for the fees the Company receives for
administrative services and risks assumed. Amounts provided by
the Company to establish Separate Account investment
portfolios, seed money, are not included in Separate Account
liabilities.
(e) Future Policy Benefits
----------------------
Future policy benefits for traditional life have been calculated
using a net level premium method based on estimates of
mortality, morbidity, investment yields and withdrawals which
were used or which were being experienced at the time the
policies were issued, rather than the assumptions prescribed
by state regulatory authorities (see Note 5).
Future policy benefits for annuity policies in the accumulation
phase, universal life and variable universal life policies
have been calculated based on participants' aggregate account
values.
(f) Participating Business
----------------------
Participating business represents approximately 43% of the
Company's ordinary life insurance in force in 1996. In 1996
and 1995, participating business represented approximately 43%
and 45%, respectively, of the Company's ordinary life
insurance in force. The provision for policyholder dividends
is based on current dividend scales. Future dividends are
provided for in future policy benefits based on dividend
scales in effect as of December 31, 1996.
(g) Reinsurance Ceded
-----------------
Reinsurance premiums ceded and reinsurance recoveries on benefits
and claims incurred are deducted from the respective income
and expense accounts. Assets and liabilities related to
reinsurance ceded are reported on a gross basis.
(Continued)
<PAGE> 10
5
THE OHIO NATIONAL LIFE INSURANCE COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(2) Summary of Significant Accounting Policies, Continued
-----------------------------------------------------
(h) Federal Income Tax
------------------
The Company files a consolidated Federal income tax return. The
Company uses the asset and liability method of accounting for
income tax. Under the asset and liability method, deferred tax
assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities
and their respective tax bases and operating loss and tax
credit carryforwards. Deferred tax assets and liabilities are
measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are
expected to be recovered or settled. Under this method, the
effect on deferred tax assets and liabilities of a change in
tax rates is recognized in income in the period that includes
the enactment date. Valuation allowances are established when
necessary to reduce the deferred tax assets to the amounts
expected to be realized.
(i) Cash Equivalents
----------------
For purposes of the consolidated statements of cash flows, the
Company considers all short-term investments with original
maturities of three months or less to be cash equivalents.
(j) Use of Estimates
----------------
In preparing the consolidated financial statements, management is
required to make estimates and assumptions that affect the
reported amounts of assets and liabilities and the disclosure
of contingent assets and liabilities as of the date of the
consolidated financial statements and revenues and expenses
for the reporting period. Actual results could differ
significantly from those estimates.
The estimates susceptible to significant change are those used in
determining deferred policy acquisition costs, the liability
for future policy benefits and claims and contingencies, and
those used in determining valuation allowances for mortgage
loans on real estate and real estate. Although some
variability is inherent in these estimates, management
believes the amounts provided are adequate.
(k) Reclassifications
-----------------
Certain amounts in the 1995 and 1994 financial statements have
been reclassified to conform with 1996 presentation.
(Continued)
<PAGE> 11
6
THE OHIO NATIONAL LIFE INSURANCE COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(3) Basis of Presentation
---------------------
The consolidated financial statements have been prepared in accordance
with GAAP. Annual Statements on ONLIC and ONLAC, filed with the
Department of Insurance of the State of Ohio, are prepared on the
basis of accounting practices prescribed or permitted by such
regulatory authorities. Prescribed statutory accounting practices
include a variety of publications of the National Association of
Insurance Commissioners (NAIC), as well as state laws, regulations
and general administrative rules. Permitted statutory accounting
practices encompass all accounting practices not so prescribed.
The Company has no material permitted statutory accounting
practices.
The following reconciles the statutory net income of ONLIC as reported
to regulatory authorities to the net income as shown in the
accompanying consolidated financial statements:
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Statutory net income $ 44,503 24,468 23,972
Adjustments to restate to the basis of GAAP:
Consolidating statutory net income of subsidiaries 12,018 10,160 2,528
Increase in deferred policy acquisition costs, net 24,018 19,485 21,606
Future policy benefits (14,050) (10,723) (7,739)
Deferred Federal income tax (expense) benefit 4,571 6,330 1,445
Valuation allowances and other than temporary
declines accounted for directly in surplus 990 (5,829) 74
Interest maintenance reserve 383 (208) (119)
Other, net (12,830) (4,766) (10,706)
------------ ------------ -----------
Net income per accompanying consolidated
statements of income $ 59,603 38,917 31,061
============ ============ ===========
</TABLE>
The following reconciles the statutory capital and surplus of ONLIC as
reported to regulatory authorities to the equity as shown in the
accompanying consolidated financial statements:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Statutory capital and surplus $ 313,746 243,248
Add (deduct) cumulative effect of adjustments:
Deferred policy acquisition costs 246,643 193,375
Asset valuation reserve 77,604 68,756
Interest maintenance reserve 22,372 21,989
Future policy benefits (71,318) (69,918)
Deferred Federal income tax (37,252) (62,920)
Difference between amortized cost and fair value of fixed
maturity securities available-for-sale, gross 70,985 166,086
Surplus note (84,191) (49,739)
Other, net (23,580) (16,434)
------------ -----------
Equity per accompanying consolidated balance sheets $ 515,009 494,443
============ ===========
</TABLE>
(Continued)
<PAGE> 12
7
THE OHIO NATIONAL LIFE INSURANCE COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(4) Investments
-----------
An analysis of investment income and realized gains/(losses) by
investment type follows for the years ended December 31:
<TABLE>
<CAPTION>
Realized gains (losses)
Investment income on disposition of investments
------------------------------------- -------------------------------------
1996 1995 1994 1996 1995 1994
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Securities available-for-sale:
Fixed maturities $ 203,271 105,928 97,542 $ 3,168 (1,062) (5,475)
Equity securities 4,021 3,710 3,211 4,077 459 2,041
Fixed maturities held-to-maturity 61,509 149,465 131,420 1,304 2,319 1,613
Mortgage loans on real estate 89,391 76,608 75,763 1,262 548 (391)
Real estate 8,693 7,771 6,998 (605) 813 (1,370)
Policy loans 9,420 9,096 9,061 - - -
Short-term 3,419 3,779 3,312 - - -
Other 5,042 6,808 8,035 (1,434) - -
---------- --------- --------- --------- --------- ----------
Total 384,766 363,165 335,342 7,772 3,077 (3,582)
Less:
Investment expenses 14,064 8,138 4,907
Valuation allowances:
Mortgage loans on real estate 926 (6,462) 89
Real estate and other 63 634 (16)
--------- --------- ----------
989 (5,828) 73
---------- --------- --------- --------- --------- ----------
Net investment income $ 370,702 355,027 330,435
========== ========= =========
Net realized gains (losses) on
disposition of investments --------- --------- ----------
$ 8,761 (2,751) (3,509)
========= ========= ==========
</TABLE>
The amortized cost and estimated fair value of securities
available-for-sale and fixed maturities held-to-maturity were as
follows:
<TABLE>
<CAPTION>
December 31, 1996
-----------------------------------------------------------
Gross Gross
Amortized unrealized unrealized Estimated
cost gains losses fair value
------------- -------------- ----------- ---------------
<S> <C> <C> <C> <C>
Securities available-for-sale
-----------------------------
Fixed maturities:
U.S. Treasury securities and obligations of
U.S. government operations and agencies $ 176,364 3,703 (4,321) 175,746
Obligations of states and political 29,119 1,538 (229) 30,428
subdivisions
Debt securities issued by foreign 8,078 1,920 - 9,998
governments
Corporate securities 1,675,596 75,859 (14,097) 1,737,358
Mortgage-backed securities 612,408 12,528 (5,916) 619,020
============= ============== ============= ===============
Total fixed maturities $ 2,501,565 95,548 (24,563) 2,572,550
============= ============== ============= ===============
Equity securities $ 39,175 24,588 - 63,763
============= ============== ============= ===============
Fixed maturity securities held-to-maturity
------------------------------------------
Obligations of states and political $ 8,659 218 - 8,877
subdivisions
Corporate securities 677,161 58,366 (4,785) 730,742
Mortgage-backed securities 6,752 177 (102) 6,827
============= ============== ============= ===============
$ 692,572 58,761 (4,887) 746,446
============= ============== ============= ===============
</TABLE>
(Continued)
<PAGE> 13
8
THE OHIO NATIONAL LIFE INSURANCE COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(4) Investments, Continued
----------------------
<TABLE>
<CAPTION>
December 31, 1995
-----------------------------------------------------------
Gross Gross
Amortized unrealized unrealized Estimated
cost gains losses fair value
------------- -------------- ---------- ---------------
<S> <C> <C> <C> <C>
Securities available-for-sale
-----------------------------
Fixed maturities:
U.S. Treasury securities and obligations of
U.S. government operations and agencies $ 223,959 12,083 (193) 235,849
Obligations of states and political 28,938 1,612 (166) 30,384
subdivisions
Debt securities issued by foreign governments 8,078 2,657 - 10,735
Corporate securities 1,631,389 139,750 (6,902) 1,764,237
Mortgage-backed securities 489,313 19,402 (2,157) 506,558
============= ============== ============= ===============
Total fixed maturities $ 2,381,677 175,504 (9,418) 2,547,763
============= ============== ============= ===============
Equity securities $ 51,482 19,819 - 71,301
============= ============== ============= ===============
Fixed maturity securities held-to-maturity
------------------------------------------
Obligations of states and political subdivisions $ 6,043 137 - 6,180
Corporate securities 660,466 93,508 (431) 753,543
Mortgage-backed securities 5,863 471 - 6,334
------------- -------------- ------------- ---------------
Total fixed maturities $ 672,372 94,116 (431) 766,057
============= ============== ============= ===============
</TABLE>
As permitted by the FASB's Special Report, A Guide to Implementation
of Statement 115 on Accounting for Certain Investments in Debt and
Equity Securities, issued in November, 1995, the Company
transferred a part of its fixed maturity securities previously
classified as held-to-maturity to available-for-sale. As of
December 29, 1995, the date of transfer, the reclassified fixed
maturity securities had an amortized cost value of $1,112,685,
resulting in a gross unrealized gain on available-for-sale
securities of $83,011.
The components of unrealized gains on securities available-for-sale,
net, were as follows for the years ended December 31:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Gross unrealized gain $ 95,573 185,905
Adjustment to deferred policy acquisition costs (20,250) (49,500)
Deferred federal income tax (28,516) (50,561)
============ ============
$ 46,807 85,844
============ ============
</TABLE>
The net unrealized gain on securities available for sale includes a
net unrealized gain on equity securities of $14,256 in 1996
($10,539 in 1995) and a net unrealized gain on fixed maturities
(net SFAS 115 and related transactions) of $32,551 in 1996
($75,305 in 1995).
(Continued)
<PAGE> 14
9
THE OHIO NATIONAL LIFE INSURANCE COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(4) Investments, Continued
----------------------
An analysis of the change in gross unrealized gains (losses) on
securities available-for-sale and fixed maturities
held-to-maturity follows for the years ended December 31:
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Securities available-for-sale:
Fixed maturities $ (95,101) 209,108 (43,022)
Equity securities 4,769 13,046 (11,873)
Fixed maturities held-to-maturity (39,811) 148,026 (268,693)
</TABLE>
The amortized cost and estimated fair value of fixed maturity
securities available-for-sale and fixed maturity securities
held-to-maturity as of December 31, 1996, by contractual maturity,
are shown below. Expected maturities will differ from contractual
maturities because borrowers may have the right to call or prepay
obligations with or without call or prepayment penalties.
<TABLE>
<CAPTION>
Fixed Maturity Securities
----------------------------------------------------------------
Available-for-Sale Held-to-Maturity
------------------------------ ------------------------------
Amortized Estimated Amortized Estimated
cost fair value cost fair value
------------- ------------ ------------- -------------
<S> <C> <C> <C> <C>
Due in one year or less $ 51,201 52,292 848 863
Due after one year through five years 229,190 239,487 105,620 112,359
Due after five years through ten years 685,944 704,643 289,644 303,253
Due after ten years 1,535,230 1,576,128 296,460 329,971
============= ============ ============= =============
$ 2,501,565 2,572,550 692,572 746,446
============= ============ ============= =============
</TABLE>
Proceeds from the sale of securities available-for-sale during 1996 and
1995 were $74,977 and $46,372, respectively, while proceeds from
sales of investments in fixed maturity securities during 1994 were
$16,717. Gross gains of $1,667 ($510 in 1995 and $52 in 1994) and
gross losses of $534 ($2,293 in 1995 and $34 in 1994) were
realized on those sales.
Investments with an amortized cost of $6,857 and $6,064 as of December
1996 and 1995, respectively, were on deposit with various
regulatory agencies as required by law.
Real estate is presented at cost less accumulated depreciation of
$20,405 in 1996 ($19,518 in 1995) and valuation allowances of
$2,100 in 1996 and 1995.
The Company generally initiates foreclosure proceedings on all mortgage
loans on real estate delinquent sixty days. Foreclosures of
mortgage loans on real estate were $4,099 in 1996 and $713 in
1995. There were no other mortgage loans on real estate in process
of foreclosure or in-substance foreclosed as of December 31, 1996.
(Continued)
<PAGE> 15
10
THE OHIO NATIONAL LIFE INSURANCE COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(5) Future Policy Benefits and Claims
---------------------------------
The liability for future policy benefits for universal life insurance
policies and investment contracts (approximately 68% of the total
liability for future policy benefits as of December 31, 1996 and
1995) has been established based on accumulated contract values
without reduction for surrender penalty provisions. The average
interest rate credited on investment product policies was 6.8%,
7.0% and 7.4% for the years ended December 31, 1996, 1995 and
1994, respectively.
The liability for future policy benefits for traditional life policies
has been established based upon the net level premium method using
the following assumptions:
Interest rates: Interest rates vary as follows:
Year of issue Interest Rate
------------- -------------
1996 and 1995 4 - 5.5%
1994 4 - 6.0%
1993 and prior 2.25% - 5.5%
Withdrawals: Rates, which vary by issue age, type of
coverage and policy duration, are based on Company
experience
Mortality: Mortality and morbidity rates are based on
published tables, guaranteed in insurance
contracts.
(6) Notes Payable
-------------
On July 11, 1994, the Company issued $50,000, 8.875% surplus notes,
due July 15, 2004. On May 21, 1996, the Company issued $50,000,
8.5% surplus notes, due May 15, 2026. Concurrent with the issue of
the new notes, $15,000 of the notes issued on July 11, 1994 were
retired.
The notes have been issued in accordance with Section 3941.13 of the
Ohio Revised Code. Interest payments, scheduled semi-annually,
must be approved for payment by the Director of the Department of
Insurance of the State of Ohio. All issuance costs have been
capitalized and are being amortized over the terms of the notes.
(7) Federal Income Tax
------------------
Prior to 1984, the Life Insurance Company Income Tax Act of 1959, as
amended by the Deficit Reduction Act of 1984 (DRA), permitted the
deferral from taxation of a portion of statutory income under
certain circumstances. In these situations, the deferred income
was accumulated in the Policyholders' Surplus Account (PSA).
Management considers the likelihood of distributions from the PSA
to be remote; therefore, no Federal income tax has
(Continued)
<PAGE> 16
11
THE OHIO NATIONAL LIFE INSURANCE COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(7) Federal Income Tax, Continued
-----------------------------
been provided for such distributions in the financial statements.
The DRA eliminated any additional deferrals to the PSA. Any
distributions from the PSA, however, will continue to be taxable
at the then current tax rate. The balance of the PSA is
approximately $5,257 as of December 31, 1996.
Total Federal income tax expense for the years ended December 31, 1996,
1995 and 1994 differs from the amount computed by applying the
U.S. Federal income tax rate to income before tax as follows:
<TABLE>
<CAPTION>
1996 1995 1994
----------------------- ----------------------- -----------------------
Amount % Amount % Amount %
------------ --------- ------------ --------- ------------ ---------
<S> <C> <C> <C> <C> <C> <C>
Computed (expected)
tax expense $ 32,366 35.0 22,337 35.0 17,752 35.0
Differential earnings 3,616 3.9 5,676 8.9 5,456 10.8
Dividends received
deduction and tax
exempt interest (1,440) (1.6) (1,585) (2.5) (1,680) (3.3)
Other, net (1,670) (1.8) (1,525) (2.4) (1,870) (3.7)
------------ --------- ------------ --------- ------------ ---------
$ 32,872 35.5 24,903 39.0 19,658 38.8
============ ========= ============ ========= ============ =========
</TABLE>
Total Federal income tax paid was $44,823, $21,145 and $17,527 during
the years ended December 31, 1996, 1995 and 1994, respectively.
The tax effects of temporary differences between the financial statement
carrying amounts and tax basis of assets and liabilities that give
rise to significant components of the net deferred tax liability
as of December 31, 1996 and 1995 relate to the following:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Deferred tax assets:
Future policy benefits $ 51,461 44,263
Mortgage loans on real estate 1,950 2,070
Other assets and liabilities 11,650 12,633
----------- -----------
Total gross deferred tax assets 65,061 58,966
----------- -----------
Deferred tax liabilities:
Fixed maturity securities available-for-sale 25,604 59,300
Deferred policy acquisition costs 67,603 52,683
Fixed maturities, equity securities and other long-term 8,343 7,770
investments
Other 763 2,133
----------- -----------
Total gross deferred tax liabilities 102,313 121,886
=========== ===========
Net deferred tax liability $ 37,252 62,920
=========== ===========
</TABLE>
(Continued)
<PAGE> 17
12
THE OHIO NATIONAL LIFE INSURANCE COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(7) Federal Income Tax, Continued
-----------------------------
The Company has determined that a deferred tax asset valuation allowance
was not needed as of December 31, 1996 and 1995. In assessing the
realization of deferred tax assets, management considers whether
it is more likely than not that the deferred tax assets will be
realized. The ultimate realization of deferred tax assets is
dependent upon the generation of future taxable income during the
periods in which those temporary differences become deductible.
Management considers primarily the scheduled reversal of deferred
tax liabilities and tax planning strategies in making this
assessment and believes it is more likely than not the Company
will realize the benefits of the deductible differences remaining
as of December 31, 1996.
(8) Disclosures about Fair Value of Financial Instruments
-----------------------------------------------------
Statement of Financial Accounting Standards No. 107, Disclosures about
Fair Value of Financial Instruments (SFAS 107) requires disclosure
of fair value information about existing on and off-balance sheet
financial instruments. SFAS 107 excludes certain assets and
liabilities, including insurance contracts, other than policies
such as annuities that are classified as investment contracts from
its disclosure requirements. Accordingly, the aggregate fair value
amounts presented do not represent the underlying value of the
Company. The tax ramifications of the related unrealized gains and
losses can have a significant effect on fair value estimates and
have not been considered in the estimates.
The following methods and assumptions were used by the Company in
estimating its fair value disclosures:
CASH, SHORT-TERM INVESTMENTS AND POLICY LOANS - The carrying
amount reported in the balance sheets for these instruments
approximate their fair value.
INVESTMENT SECURITIES - Fair value for equity securities and fixed
maturity securities are the same as market value. Market value
generally represents quoted market prices for securities traded in
the public market place or as analytically determined for
securities not publicly traded.
SEPARATE ACCOUNT ASSETS AND LIABILITIES - The fair value of assets
held in Separate Accounts is based on quoted market prices. The
fair value of liabilities related to Separate Accounts is the
accumulated contract values in the Separate Account portfolios.
MORTGAGE LOANS ON REAL ESTATE - The fair value for mortgage loans
on real estate is estimated using discounted cash flow analyses,
using interest rates currently being offered for similar loans to
borrowers with similar credit ratings. Loans with similar
characteristics are aggregated for purposes of the calculations.
(Continued)
<PAGE> 18
13
THE OHIO NATIONAL LIFE INSURANCE COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(8) Disclosures about Fair Value of Financial Instruments, Continued
----------------------------------------------------------------
INVESTMENT CONTRACTS - Fair value for the Company's liabilities
under investment type contracts is disclosed using two methods.
For investment contracts without defined maturities, fair value
is the amount payable on demand. For investment contracts with
known or determined maturities, fair value is estimated using
discounted cash flow analysis. Interest rates used are similar to
currently offered contracts with maturities consistent with those
remaining for the contracts being valued.
NOTE PAYABLE - The fair value for the note payable was determined
by discounting the scheduled cash flows of the note using a
market rate applicable to the yield, credit quality and maturity
of a similar debt instrument.
POLICYHOLDERS' DIVIDEND ACCUMULATION AND OTHER POLICYHOLDER FUNDS
- The carrying amount reported in the consolidated balance sheets
for these instruments approximates their fair value.
The carrying amount and estimated fair value of financial instruments
subject to SFAS 107 were as follows as of December 31:
<TABLE>
<CAPTION>
1996 1995
----------------------------- -----------------------------
Carrying Estimated Carrying Estimated
Assets amount fair value amount fair value
------ -------------- -------------- ------------- -------------
<S> <C> <C> <C> <C>
Investments:
Securities available-for-sale:
Fixed maturities $ 2,572,550 2,572,550 2,547,763 2,547,763
Equity securities 63,763 63,763 71,301 71,301
Fixed maturities held-to-
maturity 692,572 746,446 672,372 766,057
Mortgage loans on real estate 1,087,287 1,130,717 898,099 976,066
Policy loans 151,229 151,229 148,077 148,077
Short-term investments 36,016 36,016 61,173 61,173
Cash 33,712 33,712 8,385 8,385
Assets held in Separate Accounts 661,871 661,871 453,405 453,405
Liabilities
-----------
Guaranteed investment contracts $ 1,028,129 1,025,298 964,999 982,652
Individual deferred annuity contracts 1,081,048 1,056,372 1,031,636 1,018,527
Other annuity contracts 910,941 911,897 838,691 874,450
Note payable 84,191 90,037 49,739 56,359
Dividend accumulations and
other policyholder funds 79,735 79,735 79,707 79,707
Liabilities related to separate
accounts 648,634 648,634 441,124 441,124
</TABLE>
(Continued)
<PAGE> 19
14
THE OHIO NATIONAL LIFE INSURANCE COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(9) Additional Financial Instruments Disclosure
-------------------------------------------
(a) Financial Instruments with Off-Balance-Sheet Risk
-------------------------------------------------
The Company is a party to financial instruments with
off-balance-sheet risk in a normal course of business through
management of its investment portfolio. The Company had
outstanding commitments to fund mortgage loans, bonds and
venture capital partnerships of approximately $182,600 and
$195,000 as of December 31, 1996 and 1995, respectively. These
commitments involve, in varying degrees, elements of credit
and market risk in excess of amounts recognized in the
financial statements. The credit risk of all financial
instruments, whether on- or off-balance sheet, is controlled
through credit approvals, limits, and monitoring procedures.
(b) Significant Concentrations of Credit Risk
-----------------------------------------
Mortgage loans are collateralized by the underlying properties.
Collateral must meet or exceed 125% of the loan at the time
the loan is made. The Company grants mainly commercial
mortgage loans to customers throughout the United States. The
Company has a diversified loan portfolio, and total loans in
any state do not exceed 12% of the total loan portfolio as of
December 31, 1996. The summary below depicts loan exposure of
remaining principal balances by type as of December 31, 1996
and 1995:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Mortgage assets by type
-----------------------
Office $ 300,158 259,354
Retail 291,341 229,226
Apartment 251,720 168,370
Industrial 152,175 150,376
Other 101,467 101,273
------------- -------------
1,096,861 908,599
Less valuation allowances 9,574 10,500
------------- -------------
Total mortgage loans on real estate, net $ 1,087,287 898,099
============= =============
</TABLE>
(10) Pension Plans
-------------
The Company sponsors pension plans covering all eligible employees and
certain general agents. Retirement benefits are based on years of
service and either the highest average earnings in five of the
last ten years or specific elements of compensation earned in the
last five and ten years of service. Other pension plans covering
employees whose benefits exceed Code 401(a)(17) and Code 415
limits are also in effect.
(Continued)
<PAGE> 20
15
THE OHIO NATIONAL LIFE INSURANCE COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(10) Pension Plans, Continued
------------------------
The net periodic pension cost for the plans for the years ended December
31, 1996, 1995 and 1994 follows:
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Service cost (benefits earned
during the period) $ 2,169 1,725 1,542
Interest cost on projected
benefit obligations 2,896 2,720 2,493
Actual return on plan assets (2,447) (2,811) (601)
Net amortization and deferral 904 1,639 (144)
============ =========== ============
Net periodic pension cost $ 3,522 3,273 3,290
============ =========== ============
</TABLE>
Basis for measurements, net periodic pension cost:
<TABLE>
<S> <C> <C> <C>
Weighted average discount rate 6.25% 6.90% 6.80%
Rate of increase in future compensation levels 5.50% 4.75% 4.90%
Expected long-term rate of return on plan assets 8.50% 7.25% 7.25%
</TABLE>
The following table sets forth the funded status and amounts recognized
in the accompanying consolidated financial statements as of
December 31, 1996 and 1995 for the Company's pension plans.
<TABLE>
<CAPTION>
Assets Exceed Accumulated Benefits
Accumulated Benefits Exceed Assets
-------------------------- -------------------------
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Accumulated benefit obligation:
Vested $ 15,585 16,037 10,747 9,952
Nonvested 247 247 661 275
============ ============= ============ ===========
$ 15,832 16,284 11,408 10,227
============ ============= ============ ===========
Projected benefit obligation for services rendered
to date $ 24,434 27,389 14,614 14,460
Plan assets at fair value 23,807 22,625 243 -
------------ ------------- ------------ -----------
Plan assets less projected benefit
obligation (627) (4,764) (14,371) (14,460)
Unrecognized prior service cost (1,741) - 35 -
Unrecognized net losses 3,783 6,471 375 1,508
Unrecognized net transitional assets (2,375) (2,612) 3,202 3,493
Amount to recognize additional liability - - (1,537) (2,023)
============ ============= ============ ===========
Net pension liability $ (960) (905) (12,296) (11,482)
============ ============= ============ ===========
Measurement basis:
Weighted average discount rate 6.50% 6.10% 7.00% 6.60%
Rate of increase in future compensation levels 6.00% 6.00% 4.60% 4.60%
</TABLE>
(Continued)
<PAGE> 21
16
THE OHIO NATIONAL LIFE INSURANCE COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(10) Pension Plans, Continued
------------------------
General Agent and Other Plans
The Company also maintains a qualified contributory defined contribution
profit sharing plan covering substantially all of its employees
and a qualified non-contributory defined contribution pension plan
covering career agents. These plans are funded through insurance
contracts issued by the Company.
Company contributions to the Profit Sharing Plan are in part based on the
net earnings of the Company and are payable at the sole discretion
of management. The expense reported for contributions to the plan
for 1996 and 1995 were $1,614 and $1,609, respectively.
Contributions to the Career Agent's Pension Plan are subject to the
minimum funding required under Internal Revenue Code Section 412.
The expense reported for contributions to the plan for 1996 and
1995 were $590 and $497, respectively.
(11) Postretirement Benefits Other Than Pensions
-------------------------------------------
The Company currently offers eligible retirees the opportunity to
participate in a health plan. The Company has two health plans,
one is offered to home office employees, the other is offered to
career agents.
Home Office Employee Health Plan
--------------------------------
The Company provides a declining service schedule. Substantially
all home office employees may become eligible for these benefits
provided that the employee meets the age and years of service
requirements. The plan states that an employee becomes eligible
as follows: age 55 with 20 years of credited service at
retirement, age 56 with 18 years of service, age 57 with 16 years
of service grading to age 64 with two years of service. The
health plan is contributory with retirees contributing
approximately 15% of premium for coverage.
Career Agents Health Plan
-------------------------
Substantially all career agents may become eligible for these
benefits provided that the agent is at least age 55 and has 15
years of credited service at retirement. The health plan is
contributory, with retirees contributing approximately 47% of
medical costs.
Actuarial assumptions for the measurement of the December 31, 1996
accumulated postretirement benefit obligation include a discount
rate of 7.5% (7.5% in 1995 and 1994) and an assumed health care
cost trend rate of 11% (12% in 1995 and 13% in 1994), declining 1%
each year to an ultimate rate of 5%.
(Continued)
<PAGE> 22
17
THE OHIO NATIONAL LIFE INSURANCE COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(11) Postretirement Benefits Other Than Pensions, Continued
------------------------------------------------------
Information regarding the funded status of the plan as a whole as of
December 31, 1996 and 1995 follows:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Accumulated postretirement benefit obligations:
Retirees $ 2,926 6,036
Fully eligible, active plan participants 1,051 2,515
Other active plan participants 2,256 3,976
--------- ---------
Accumulated postretirement benefit obligation 6,233 12,527
Unrecognized net gains 2,066 256
Unrecognized plan amendments 6,285 1,140
========= =========
Accrued postretirement benefit obligation $ 14,584 13,923
========= =========
</TABLE>
The amount of net periodic postretirement benefit cost for the plan as a
whole for the years ended December 31, 1996 and 1995 is as
follows:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Net periodic postretirement benefit cost:
Service cost - benefits attributed to
employee service during the year $ 467 497
Interest cost on accumulated postretirement
benefit obligation 768 869
Actual return on plan assets - -
Net amortization and deferral (199) (82)
========== ===========
Net periodic postretirement benefit cost $ 1,036 1,284
========== ===========
</TABLE>
The health care cost trend rate assumption has a significant effect on
the amounts reported. A one percentage point increase in the
assumed health care cost trend rate would increase the accumulated
postretirement benefit obligation as of December 31, 1996 and 1995
by $943 and $1,261, respectively, and the net periodic
postretirement benefit cost for the years ended December 31, 1996
and 1995 by $111 and $149, respectively.
(12) Regulatory Risk-Based Capital, Retained Earnings and Dividend
-------------------------------------------------------------
Restrictions
------------
ONLIC and ONLAC exceed the minimum risk-based capital requirements as of
December 31, 1996.
(Continued)
<PAGE> 23
18
THE OHIO NATIONAL LIFE INSURANCE COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(12) Regulatory Risk-Based Capital, Retained Earnings and Dividend
-------------------------------------------------------------
Restrictions, Continued
-----------------------
The Company has designated a portion of retained earnings for separate
account contingencies and investment guarantees totaling $1,688
and $1,637 as of December 31, 1996 and 1995, respectively.
The payment of dividends by the Company to its participating
policyholders is based on the dividend scale declared at least
annually by the Company's Board of Directors.
(13) Bank Lines of Credit
--------------------
As of December 31, 1996 and 1995, ONLIC had a $10,000 unsecured line of
credit which was utilized and repaid during 1995.
(14) Contingencies
-------------
The Company and its subsidiaries are defendants in various legal actions
arising in the normal course of business. While the outcome of
such matters cannot be predicted with certainty, management
believes such matters will be resolved without material adverse
impact on the financial condition of the Company.
The Company routinely enters into reinsurance transactions with other
insurance companies which are not material to the consolidated
financial statements. This reinsurance involves either ceding
certain risks to or assuming risks from other insurance companies.
The primary purpose of ceded reinsurance is to protect the Company
from potential losses in excess of levels that it is prepared to
accept. Reinsurance does not discharge the Company from its
primary liability to policyholders and to the extent that a
reinsurer should be unable to meet its obligations, the Company
would be liable to policyholders.
(15) Major Lines of Business
-----------------------
The Company operates in the life and annuity lines of business in the
life insurance industry. Life insurance operations include whole
life, universal life, variable universal life, and endowments, as
well as term life, health insurance, and other miscellaneous
insurance products provided to individuals and groups. Annuity
operations include guaranteed investment and accumulated deposit
contracts issued to groups and deferred and immediate annuities
issued to individuals.
(Continued)
<PAGE> 24
19
THE OHIO NATIONAL LIFE INSURANCE COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(15) Major Lines of Business, Continued
----------------------------------
The following table summarizes the revenues and income before Federal
income tax for the years ended December 31, 1996, 1995 and 1994
and assets as of December 31, 1996, 1995 and 1994, by line of
business.
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Revenues:
Premiums, policy charges and net investment income:
Life and other insurance $ 295,860 270,782 259,146
Annuities 284,418 280,853 249,325
------------- ------------- -------------
580,278 551,635 508,471
------------- ------------- -------------
Realized capital gains (losses):
Life and other insurance 3,330 (771) (1,088)
Annuities 5,431 (1,980) (2,421)
------------- ------------- -------------
8,761 (2,751) (3,509)
------------- ------------- -------------
Total revenues:
Life and other insurance 299,190 270,011 258,058
Annuities 289,849 278,873 246,904
------------- ------------- -------------
$ 589,039 548,884 504,962
============= ============= =============
Total income before Federal income tax:
Life and other insurance $ 45,057 33,475 26,586
Annuities 47,418 30,345 24,133
============= ============= =============
$ 92,475 63,820 50,719
============= ============= =============
Assets:
Life and other insurance $ 2,522,004 2,213,391 1,873,808
Annuities 3,259,585 3,078,984 2,640,159
-------------
============= =============
$ 5,781,589 5,292,375 4,513,967
============= ============= =============
</TABLE>
<PAGE> 41
APPENDIX
GUARANTEED ACCUMULATION ACCOUNT
The Guaranteed Accumulation Account guarantees a fixed return for a specified
period of time and guarantees the principal against loss. Any portion of a
contract relating to the Guaranteed Accumulation Account is not registered under
the Securities Act of 1933. The Guaranteed Accumulation Account is not
registered as an investment company under the 1940 Act. Accordingly, neither the
Guaranteed Accumulation Account nor any interests in it are subject to the
provisions or restrictions of either such Act, and the disclosures in this
appendix have not been reviewed by the staff of the Securities and Exchange
Commission.
The Guaranteed Accumulation Account consists of all of Ohio National Life's
general assets other than those allocated to a separate account. Accumulation
values under a contract will be allocated between the Guaranteed Accumulation
Account and VAB. The allocation will be as elected by the owner at the time of
purchase or as subsequently changed.
Ohio National Life will invest its general assets in its discretion as allowed
by applicable state law. Investment income from Ohio National Life's general
assets will be allocated to those contracts having guaranteed accumulation
values in accordance with the terms of such contracts.
The amount of investment income allocated to the contracts will vary from year
to year in Ohio National Life's sole discretion. However, Ohio National Life
guarantees that it will credit interest at a rate of not less than 3% per year,
compounded annually, to contract values allocated to the Guaranteed Accumulation
Account. Ohio National Life may credit interest at a rate in excess of 3%, but
any such excess interest credit will be in Ohio National Life's sole discretion.
Ohio National Life guarantees that the guaranteed accumulation value of a
contract will never be less that (a) the amount of purchase payments allocated
to, and transfers into, the Guaranteed Accumulation Account, plus (b) interest
credited at the rate of 3% per year compounded annually, plus (c) any additional
excess interest Ohio National Life may credit to guaranteed accumulation values,
and less (d) any partial withdrawals and transfers from the guaranteed
accumulation values, and less (e) any contingent deferred sales charges on
partial withdrawals, state premium taxes and transfer fees. No deductions are
made from the Guaranteed Accumulation Account for administrative expenses or
risk undertakings. (See "Deductions and Expenses" in the prospectus.)
Not more than 20% of the guaranteed accumulation value of a contract (or $1,000,
if greater), as of the beginning of any contract year, may be transferred to one
or more variable subaccounts during that contract year. As provided by
applicable state law, Ohio National Life reserves the right to defer the payment
of amounts withdrawn from the Guaranteed Accumulation Account for a period not
to exceed six months from the date written request for such withdrawal is
received by Ohio National Life.
-47-
<PAGE> 42
OHIO NATIONAL VARIABLE ACCOUNT B
Form N-4
PART C
OTHER INFORMATION
<PAGE> 43
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS
The following financial statements of the Registrant are included in Part B of
this Registration Statement:
Independent Auditors' Report of KPMG Peat Marwick LLP dated January 28,
1997
Statements of Assets and Contract Owners' Equity dated December 31,
1996
Statement of Operations and Changes in Contract Owners' Equity for the
Years Ended December 31, 1996 and 1995
Notes to Financial Statements dated December 31, 1996
Schedules of Changes in Unit Values for the Years Ended December 31,
1996 and 1995
The following consolidated financial statements of the Depositor and its
subsidiaries are also included in Part B of this Registration Statement:
Independent Auditors' Report of KPMG Peat Marwick LLP dated January 31,
1997
Consolidated Balance Sheets dated December 31, 1996 and 1995
Consolidated Statements of Income for the Years Ended December 31,
1996, 1995 and 1994
Consolidated Statements of Equity for the Years Ended December 31,
1996, 1995 and 1994
Consolidated Statements of Cash Flows for the Years Ended December 31,
1996, 1995 and 1994
Notes to Consolidated Financial Statements dated December 31, 1996,
1995 and 1994
The following financial information is included in Part A of this Registration
Statement:
Accumulation Unit Values
Consents of the Following Persons:
KPMG Peat Marwick LLP
Exhibits:
All relevant exhibits, which have previously been filed with the Commission
and are incorporated herein by reference, are as follows:
(1) Resolution of Board of Directors of the Depositor authorizing
establishment of the Registrant was filed as Exhibit A(1) of
the Registrant's registration statement on Form S-6 on August
3, 1982 (File no. 2-78653).
(2) Agreement of Custodianship between the Depositor and The
Provident Bank was filed as Exhibit 3 of the Registrant's Form
N-4, Post-effective Amendment no. 5 on April 27, 1988 (File
no. 2-91214).
(3)(a) Principal Underwriting Agreement for Variable Annuities
between the Depositor and Ohio National Equities, Inc. was
filed as Exhibit (3)(a) of Form N-4, Post-effective Amendment
no. 21 of Ohio National Variable Account A (File no. 2-91213).
-1-
<PAGE> 44
(3) (b) Registered Representative's Sales Contract with Variable
Annuity Supplement was filed as Exhibit (3)(b) of the
Registrant's Form N-4, Post-effective Amendment no. 9 on
February 27, 1991 (File no. 2-91214).
(3)(c) (Variable Annuity Sales Commission Schedule was filed as
Exhibit A(3)(c) of the Registrant's registration statement on
Form S-6 on May 18, 1984 (File no. 2-91214).
(4) Combination Annuity Contract, Form 93-VB-1, was filed as
Exhibit (4) of the Registrant's Form N-4 on May 6, 1993 (File
No. 33-62284).
(5)(a) Single Purchase Payment Variable Annuity Application, Form
V-4891-B, was filed as Exhibit (5)(a) of the Registrant's Form
N-4 on April 25, 1996 (File No. 33-62284).
(6)(a) Articles of Incorporation of the Depositor were filed as
Exhibit A(6)(a) of Ohio National Variable Interest Account
registration statement on Form N-8B-2 on July 11, 1980 (File
no. 811-3060).
(6) (b) Code of Regulations (by-laws) of the Depositor were filed
as Exhibit A(6)(b) of Ohio National Variable Interest Account
registration statement on Form N-8B-2 on July 11, 1980 (File
no. 811- 3060).
(8) Powers of Attorney by certain Directors of the Depositor were
filed as Exhibit (8) of the Registrant's Form N-4,
Post-effective Amendment no. 4 on March 27, 1995.
(13) Computation of Performance Data was filed as Exhibit no. 13 of
the Registrant's Form N-4, Post-effective Amendment no. 8 on
February 28, 1997.
-2-
<PAGE> 45
ITEM 25. DIRECTORS AND OFFICERS OF THE DEPOSITOR
<TABLE>
<CAPTION>
Name and Principal Positions and Offices
Business Address with Depositor
- ---------------- --------------
<S> <C>
Trudy K. Backus* Vice President, Individual Insurance Services
Howard C. Becker* Senior Vice President, Individual Insurance & Corporate Services
Paul L. Bergmann* Vice President, Financial Control
Michael A. Boedeker* Vice President, Fixed Income Securities
Roylene M. Broadwell* Vice President and Treasurer
Joseph P. Brom* Senior Vice President & Chief Investment Officer
Dale P. Brown Director
36 East Seventh Street
Cincinnati, Ohio 45202
Jack E. Brown Director
50 E. Rivercenter Blvd.
Covington, Kentucky 41011
William R. Burleigh Director
One West Fourth Street
Suite 1100
Cincinnati, Ohio 45202
Victoria B. Buyniski Director
2343 Auburn Avenue
Cincinnati, Ohio 45219
Raymond R. Clark Director
201 East Fourth Street
Cincinnati, Ohio 45202
David W. Cook* Senior Vice President and Actuary
Dr. Alvin H. Crawford Director
Children's Hospital Medical Center
Department of Orthopedics
Elland and Bethesda Avenues
Cincinnati, Ohio 45229
Robert M. DiTommaso* Vice President, Career Marketing
Ronald J. Dolan* Senior Vice President and Chief Financial Officer
Michael J. Ferry* Information Systems Vice President
Michael F. Haverkamp* Vice President and Counsel
John A. Houser III* Vice President, Claims
</TABLE>
-3-
<PAGE> 46
<TABLE>
<CAPTION>
Name and Principal Positions and Offices
Business Address with Depositor
- ---------------- --------------
<S> <C>
Bannus B. Hudson Director
One Eastwood Drive
Cincinnati, Ohio 45227
Daniel W. LeBlond Director
7680 Innovation Way
Mason, Ohio 45040
David G. McClure* Vice President, Variable Product Sales
Hamilton F. McGregor* Senior Vice President, Group & Pension Operations
Charles S. Mechem, Jr. Director
One East Fourth Street
Cincinnati, Ohio 45202
James I. Miller II* Vice President, Marketing Support
James W. Nethercott Director
8431 Concord Hills Circle
Cincinnati, Ohio 45243
Thomas O. Olson* Vice President, Underwriting
David B. O'Maley* Director, Chairman, President and Chief Executive Officer
John J. Palmer* Senior Vice President, Strategic Initiatives
George B. Pearson, Jr.* Vice President, PGA Marketing
Dallas L. Pennington* Vice President, Information Systems
J. Donald Richardson* Senior Regional Vice President
D. Gates Smith* Senior Vice President, Sales
Michael D. Stohler* Vice President, Mortgages and Real Estate
Stuart G. Summers* Senior Vice President and General Counsel
Oliver W. Waddell Director
425 Walnut Street
Cincinnati, Ohio 45202
Bradley L. Warnemunde Director and Chairman Emeritus
250 William Howard Taft Road
Cincinnati, Ohio 45219
Dr. David S. Williams* Vice President and Medical Director
Donald J. Zimmerman* Director, Senior Vice President, Insurance Operations
and Secretary
</TABLE>
*The principal business address for these individuals is One Financial Way,
Cincinnati, Ohio 45242.
-4-
<PAGE> 47
<TABLE>
<S> <C>
- --------------------------------------------------------------------------------
THE OHIO NATIONAL LIFE INSURANCE COMPANY/CINCINNATI
A MUTUAL LIFE INSURANCE COMPANY INCORPORATED UNDER THE LAWS OF OHIO
- --------------------------------------------------------------------------------
- ------------------------------- -----------------------------
ENTERPRISE PARK, INC. OHIO NATIONAL EQUITIES INC.
A GEORGIA CORPORATION A BROKER/DEALER
REAL ESTATE DEVELOPMENT COMPANY CAPITALIZED BY ONLI @ $30,000
CAPITALIZED BY ONLI $50,000
- ------------------------------- --------------------------------
Pres. & Dir. M. Stohler Chm. & Dir. D. O'Maley
V.P. & Dir. J. Brom Pres. & Dir. J. Palmer
Secy. & Dir. J. Fischer VP & Dir. D. McClure
Treas. & Dir. D. Taney VP & Dir. T. Backus
Secretary R. Benedict
Treasurer K. Jaeger
Compliance Officer J. Dunn
- ------------------------------- --------------------------------
<CAPTION>
<S> <C>
- -------------------------------------------------------------------------------------------------------------------
THE OHIO NATIONAL LIFE INSURANCE COMPANY/CINCINNATI
A MUTUAL LIFE INSURANCE COMPANY INCORPORATED UNDER THE LAWS OF OHIO
- -------------------------------------------------------------------------------------------------------------------
S E P A R A T E A C C O U N T S
--------------------------------
A B C D E F
--------------------------------
- ------------------------------- ------------------------------ -------------------------------------
OHIO NATIONAL INVESTMENTS, INC. THE O.N. EQUITY SALES COMPANY OHIO NATIONAL LIFE
ASSURANCE CORPORATION
AN INVESTMENT ADVISER AN OHIO CORPORATION AN OHIO CORPORATION
CAPITALIZED BY ONLI @ $10,000 A BROKER/DEALER A STOCK LIFE INSURANCE COMPANY
CAPITALIZED BY ONLI @ $790,000 CAPITALIZED BY ONLI @ $32,000,000
INCORPORATED UNDER THE LAWS OF OHIO
- ------------------------------- ------------------------------ ------------------------------------
Chm. & Dir. D. O'Maley Chm./Pres/.CEO & Dir. D. O'Maley
Pres. & Dir. J. Brom Sr. VP & Dir. R. Dolan
Pres. & Dir. J. Palmer Sr. VP & Dir. J. Palmer
VP & Dir. M. Boedeker Sr. VP & Dir. S. Summers
V.P. & Dir. J. Miller Sr. VP & Dir. J. Brom
VP & Dir. M. Stohler Sr. Vice Pres. D. Cook
V.P. & Dir. D. McClure Sr. Vice Pres. G. Smith
VP & Dir. S. Williams Vice President R. Broadwell
Vice President M. Boedeker
VP K. Hanson Secy. & Dir. R. Benedict Vice President R. DiTommaso
Vice President J. Houser
VP D. Hundley VP R. DiTommaso Vice President G. Pearson
Vice President D. Pennington
VP J. Martin Treasurer K. Jaeger Vice President M. Stohler
Secy. R. Benedict
Treasurer D. Taney Compliance Director J. Dunnwell Asst. Secy. J. Fischer
Asst. Secy. M. Haverkamp
Secretary R. Benedict Asst. Actuary K. Flischel
Asst. Secy./Treas. A. Starkey
- ------------------------------- ------------------------------ ------------------------------------
SEPARATE ACCOUNT
-------------------------------------
R
---
<= Advisor to Advisor to =>
--------------------------------------------------------
- ----------------------------- -------------------------------- --------------------------------
ONE FUND, INC. O.N. INVESTMENT MANAGEMENT CO. OHIO NATIONAL FUND
A MARYLAND CORPORATION AN OHIO CORPORATION A MARYLAND CORPORATION
AN OPEN END DIVERSIFIED A FINANCIAL ADVISORY SERVICE AN OPEN END DIVERSIFIED
MANAGEMENT INVESTMENT COMPANY CAPITALIZED BY ONESCO @ $145,000 MANAGEMENT INVESTMENT COMPANY
- ----------------------------- -------------------------------- --------------------------------
Pres. & Dir. D. Zimmerman Pres. & Dir. J. Palmer Pres. & Dir. D. Zimmerman
Vice. Pres. M. Boedeker ----- Vice President M. Boedeker
Vice Pres. J. Brom VP & Dir. G. Smith Vice President J.Brom
Vice Pres. D. McClure Vice President S. Williams
Vice Pres. S. Williams VP & Dir. D. McClure Treasurer D. Taney
Treasurer D. Taney -------- Secy. & Dir. R. Benedict
Secy. & Dir. R. Benedict Asst. Secy. A. Starkey
Asst. Secy. A. Starkey Director G. Castrucci
Director G. Castrucci Treasurer K. Jaeger Director R. Love
Director R. Love Director G. Vredeveld
Director G. Vredeveld Secretary M. Haverkamp
- --------------------------------- -------------------------------- ---------------------------------
</TABLE>
<PAGE> 48
ITEM 26. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH THE DEPOSITOR OR
REGISTRANT
The Organization Chart showing the relationships among the Depositor, the
Registrant and their affiliated entities is on page 4A hereof.
ITEM 27. NUMBER OF CONTRACTOWNERS
As of April 10, 1997, the Registrant's contracts were owned by 8,069 owners.
ITEM 28. INDEMNIFICATION
The sixth article of the Depositor's Articles of Incorporation, as amended,
provides as follows:
Each former, present and future Director, Officer or Employee of the
Corporation (and his heirs, executors or administrators), or any such
person (and his heirs, executors or administrators) who serves at the
Corporation's request as a director, officer, partner, member or
employee of another corporation, partnership or business organization
or association of any type whatsoever shall be indemnified by the
Corporation against reasonable expenses, including attorneys' fees,
judgments, fine and amounts paid in settlement actually and reasonably
incurred by him in connection with the defense of any contemplated,
pending or threatened action, suit or proceeding, civil, criminal,
administrative or investigative, other than an action by or in the
right of the corporation, to which he is or may be made a party by
reason of being or having been such Director, Officer, or Employee of
the Corporation or having served at the Corporation's request as such
director, officer, partner, member or employee of any other business
organization or association, or in connection with any appeal therein,
provided a determination is made by majority vote of a disinterested
quorum of the Board of Directors (a) that such a person acted in good
faith and in a manner he reasonably believed to be in or not opposed to
the best interests of the Corporation, and (b) that, in any matter the
subject of criminal action, suit or proceeding, such person had no
reasonable cause to believe his conduct was unlawful. The termination
of any action, suit or proceeding by judgment, order, settlement,
conviction, or upon a plea of nolo contendere or its equivalent, shall
not, of itself create a presumption that the person did not act in good
faith in any manner which he reasonably believed to be in or not
opposed to the best interests of the Corporation, and with respect to
any criminal action or proceeding, he had reasonable cause to believe
that his conduct was unlawful. Such right of indemnification shall not
be deemed exclusive of any other rights to which such person may be
entitled. The manner by which the right to indemnification shall be
determined in the absence of a disinterested quorum of the Board of
Directors shall be set forth in the Code of Regulations or in such
other manner as permitted by law. Each former, present, and future
Director, Officer or Employee of the Corporation (and his heirs,
executors or administrators) who serves at the Corporation's request as
a director, officer, partner, member or employee of another
corporation, partnership or business organization or association of any
type whatsoever shall be indemnified by the Corporation against
reasonable expenses, including attorneys' fees, actually and reasonably
incurred by him in connection with the defense or settlement of any
contemplated, pending or threatened action, suit or proceeding, by or
in the right of the Corporation to procure a judgment in its favor, to
which he is or may be a party by reason of being or having been such
Director, Officer or Employee of the Corporation or having served at
the Corporation's request as such director, officer, partner, member or
employee of any other business organization or association, or in
connection with any appeal therein, provided a determination is made by
majority vote of a disinterested quorum of the Board of Directors (a)
that such person was not, and has not been adjudicated to have been
negligent or guilty of misconduct in the performance of his duty to the
Corporation or to such other business organization or association, and
(b) that such person acted in good faith and in a manner he reasonably
believed to be in or not opposed to the best interests of the
Corporation.
-5-
<PAGE> 49
Such right of indemnification shall not be deemed exclusive of any
other rights to which such person may be entitled. The manner by which
the right of indemnification shall be determined in the absence of a
disinterested quorum of the Board of Directors shall be as set forth in
the Code of Regulations or in such other manner as permitted by law. In
addition, Article XII of the Depositor's Code of Regulations states as
follows: If any director, officer or employee of the Corporation may be
entitled to indemnification by reason of Article Sixth of the Amended
Articles of Corporation, indemnification shall be made upon either (a)
a determination in writing of the majority of disinterested directors
present, at a meeting of the Board at which all disinterested directors
present constitute a quorum, that the director, officer or employee in
question was acting in good faith and in a manner he reasonably
believed to be in or not opposed to the best interests of this
Corporation or of such other business organization or association in
which he served at the Corporation's request, and that, in any matter
which is the subject of a criminal action, suit or proceeding, he had
no reasonable cause to believe that his conduct was unlawful and in an
action by or in the right of the Corporation to procure a judgment in
its favor that such person was not and has not been adjudicated to have
been negligent or guilty of misconduct in the performance of his duty
to the Corporation or to such other business organization or
association; or (b) if the number of all disinterested directors would
not be sufficient at any time to constitute a quorum, or if the number
of disinterested directors present at two consecutive meetings of the
Board has not been sufficient to constitute a quorum, a determination
to the same effect as set forth in the foregoing clause (a) shall be
made in a written opinion by independent legal counsel other than an
attorney, or a firm having association with it an attorney, who has
been retained by or who has performed services for this Corporation, or
any person to be indemnified within the past five years, or by the
majority vote of the policyholders, or by the Court of Common Pleas or
the court in which such action, suit or proceeding was brought. Prior
to making any such determination, the Board of Directors shall first
have received the written opinion of General Counsel that a number of
directors sufficient to constitute a quorum, as named therein, are
disinterested directors. Any director who is a party to or threatened
with the action, suit or proceeding in question, or any related action,
suit or proceeding, or has had or has an interest therein adverse to
that of the Corporation, or who for any other reason has been or would
be affected thereby, shall not be deemed a disinterested director and
shall not be qualified to vote on the question of indemnification.
Anything in this Article to the contrary notwithstanding, if a judicial
or administrative body determines as part of the settlement of any
action, suit or proceeding that the Corporation should indemnify a
director, officer or employee for the amount of the settlement, the
Corporation shall so indemnify such person in accordance with such
determination. Expenses incurred with respect to any action, suit or
proceeding which may qualify for indemnification may be advanced by the
Corporation prior to final disposition thereof upon receipt of an
undertaking by or on behalf of the director, officer or employee to
repay such amount if it is ultimately determined hereunder that he is
not entitled to indemnification or to the extent that the amount so
advanced exceeds the indemnification to which he is ultimately
determined to be entitled.
ITEM 29. PRINCIPAL UNDERWRITERS
The principal underwriter of the Registrant's securities is Ohio
National Equities, Inc. ("ONE, Inc."). ONE, Inc. is a wholly-owned
subsidiary of the Depositor. ONE, Inc. also serves as the principal
underwriter of securities issued by Ohio National Variable Accounts A
and D, other separate accounts of the Depositor which are registered as
unit investment trusts; and Ohio National Variable Account R, a
separate account of the Depositor's subsidiary, Ohio National Life
Assurance Corporation, which separate account is also registered as a
unit investment trust; and ONE Fund, Inc., an open-end investment
company of the management type.
-6-
<PAGE> 50
The directors and officers of ONE, Inc. are:
<TABLE>
<CAPTION>
Name Position with ONE, Inc.
<S> <C>
David B. O'Maley Chairman and Director
John J. Palmer President & Chief Executive Officer and Director
David G. McClure Vice President of Marketing and Director
Trudy K. Backus Vice President and Director
Joni L. Dunn Vice President and Compliance Officer
Timothy S. Halevan Vice President
Ronald L. Benedict Secretary
Kenneth M. Jaeger Treasurer
</TABLE>
The principal business address of each of the foregoing is One Financial Way,
Cincinnati, Ohio 45242.
During the last fiscal year, ONESCO received the following commissions and other
compensation, directly or indirectly, from the Registrant:
<TABLE>
<CAPTION>
Net Underwriting Compensation
Discounts and on Redemption Brokerage
Commissions or Annuitization Commissions Compensation
- ----------- ---------------- ----------- ------------
<S> <C> <C> <C>
$1,691,331 None None None
</TABLE>
ITEM 30. LOCATION OF ACCOUNTS AND RECORDS
The books and records of the Registrant which are required under Section 31(a)
of the 1940 Act and Rules thereunder are maintained in the possession of the
following persons:
(1) Journals and other records of original entry:
The Ohio National Life Insurance Company ("Depositor")
One Financial Way
Cincinnati, Ohio 45242
-7-
<PAGE> 51
Star Bank, N.A. ("Custodian")
425 Walnut Street
Cincinnati, Ohio 45202
(2) General and auxiliary ledgers:
Depositor and Custodian
(3) Securities records for portfolio securities:
Custodian
(4) Corporate charter, by-laws and minute books:
Registrant has no such documents.
(5) Records of brokerage orders:
Not applicable.
(6) Records of other portfolio transactions:
Custodian
(7) Records of options:
Not applicable
(8) Records of trial balances:
Custodian
(9) Quarterly records of allocation of brokerage orders and commissions:
Not applicable
(10) Records identifying persons or group authorizing portfolio transactions:
Depositor
(11) Files of advisory materials:
Not applicable
(12) Other records
Custodian and Depositor
ITEM 3L. MANAGEMENT SERVICES
Not applicable.
ITEM 32. UNDERTAKINGS AND REPRESENTATIONS
Pursuant to Section 26(e)(2)(A) of the Investment Company Act of 1940, as
amended, The Ohio National
-8-
<PAGE> 52
Life Insurance Company represents that the fees and charges deducted under the
contract, in the aggregate, are reasonable, in relation to the services
rendered, the expenses expected to be incurred and the risks assumed by The Ohio
National Life Insurance Company.
-9-
<PAGE> 53
SIGNATURES
As required by the Securities Act of 1933 and the Investment Company Act of
1940, the registrant, Ohio National Variable Account B certifies that it meets
the requirements of Securities Act Rule 485(b) for effectiveness of this
registration statement and has caused this post-effective amendment to the
registration statement to be signed on its behalf in the City of Cincinnati
and the State of Ohio on this 25th day of April, 1997.
OHIO NATIONAL VARIABLE ACCOUNT B
(Registrant)
By THE OHIO NATIONAL LIFE INSURANCE COMPANY
(Depositor)
By /s/ Donald J. Zimmerman
-------------------------------------------
Donald J. Zimmerman, Senior Vice President,
Insurance Operations
Attest:
/s/ Ronald L. Benedict
_________________________________
Ronald L. Benedict
Second Vice President and Counsel
and Assistant Secretary
As required by the Securities Act of 1933 and the Investment Company Act of
1940, the depositor, The Ohio National Life Insurance Company, has caused this
post-effective amendment to the registration statement to be signed on its
behalf in the City of Cincinnati and the State of Ohio on the 25th day of
April, 1997.
THE OHIO NATIONAL LIFE INSURANCE COMPANY
(Depositor)
By /s/ Donald J. Zimmerman
_______________________________________________
Donald J. Zimmerman, Senior Vice President,
Insurance Operations
Attest:
/s/ Ronald L. Benedict
- ----------------------
Ronald L. Benedict
Second Vice President and Counsel
and Assistant Secretary
<PAGE> 54
As required by 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/David B. O'Maley Chairman, President, April 25, 1997
--------------------- Chief Executive Officer
David B. O'Maley and Director
*/s/Dale P. Brown Director April 25, 1997
---------------------
Dale P. Brown
*/s/Jack E. Brown Director April 25, 1997
---------------------
Jack E. Brown
*/s/William R. Burleigh Director April 25, 1997
---------------------
William R. Burleigh
*/s/Victoria B. Buyniski Director April 25, 1997
----------------------
Victoria B. Buyniski
*/s/Raymond R. Clark Director April 25, 1997
----------------------
Raymond R. Clark
*/s/Alvin H. Crawford Director April 25, 1997
----------------------
Alvin H. Crawford
*/s/Bannus B. Hudson Director April 25, 1997
----------------------
Bannus B. Hudson
*/s/Daniel W. LeBlond Director April 25, 1997
----------------------
Daniel W. LeBlond
*/s/Charles S. Mechem, Jr. Director April 25, 1997
----------------------
Charles S. Mechem, Jr.
*/s/James W. Nethercott Director April 25, 1997
----------------------
James W. Nethercott
*/s/Oliver W. Waddell Director April 25, 1997
----------------------
Oliver W. Waddell
</TABLE>
<PAGE> 55
<TABLE>
<S> <C> <C>
*/s/Bradley L. Warnemunde Chairman Emeritus and April 25, 1997
- ------------------------
Bradley L. Warnemunde Director
/s/Donald J. Zimmerman Senior Vice President, April 25, 1997
- -------------------------
Donald J. Zimmerman Insurance Operations &
Secretary and Director
</TABLE>
*By /s/Donald J. Zimmerman
- -------------------------
Donald J. Zimmerman, Attorney in Fact pursuant to Powers of Attorney, copies
of which have previously been filed as exhibits to the Registrant's
registration statement.
<PAGE> 56
INDEX OF CONSENTS AND EXHIBITS
<TABLE>
<CAPTION>
Page Number in
Exhibit Sequential
Number Description Numbering System
- ------ ----------- ----------------
<C> <C>
Consent of KPMG Peat Marwick LLP
</TABLE>
<PAGE> 57
CONSENTS
<PAGE> 58
INDEPENDENT AUDITORS' CONSENT
The Board of Directors
The Ohio National Life Insurance Company:
We consent to the inclusion of our reports included herein and to the reference
to our firm under the heading "Independent Certified Public Accountants" in the
Statement of Additional Information.
KPMG Peat Marwick LLP
Cincinnati, Ohio
April 25, 1997
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
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WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
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<NAME> OHIO NATIONAL LIFE INSURANCE CO.
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0
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207,715
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