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File No. 333-_______
811-4320
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM S-6
FOR REGISTRATION UNDER THE SECURITIES ACT OF 1933
OF SECURITIES OF UNIT INVESTMENT TRUSTS
REGISTERED ON FORM N-8B-2
Exact name of trust: OHIO NATIONAL VARIABLE ACCOUNT R
Name of depositor: OHIO NATIONAL LIFE ASSURANCE CORPORATION
Complete address of depositor's principal executive offices:
One Financial Way
Cincinnati, Ohio 45242
Name and complete address of agent for service:
Ronald L. Benedict, Esq.
Ohio National Life Assurance Corporation
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
It is proposed that this filing will become effective (check appropriate box):
__ immediately upon filing pursuant to paragraph (b)
__ on (date) pursuant to paragraph (b)
__ 60 days after filing pursuant to paragraph (a)(i) on (date) pursuant to
paragraph (a)(i)
__ 75 days after filing pursuant to paragraph (a)(ii)
__ on (date) pursuant to paragraph (a)(ii) 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.
Title and amount of securities being registered: FLEXIBLE PREMIUM VARIABLE LIFE
INSURANCE CONTRACTS ("VARI-VEST V"). Registrant is registering an indefinite
amount of such flexible premium variable life insurance contracts under the
Securities Act of l933 pursuant to Rule 24f-2. The filing fee of $500.00 is
being submitted herewith.
The registrant hereby amends this registration statement on such date as may be
necessary to delay its effective date until the registrant shall file a further
amendment which specifically states that this registration statement shall
thereafter become effective in accordance with Section 8(a) of the Securities
Act of 1933 or until the registration statement shall become effective on such
date as the Commission, acting pursuant to said Section 8(a), may determine.
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PART I
PROSPECTUS
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PROSPECTUS
VARI-VEST V
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE CONTRACT
OHIO NATIONAL LIFE ASSURANCE CORPORATION
OHIO NATIONAL LIFE VARIABLE ACCOUNT R
ONE FINANCIAL WAY
CINCINNATI, OHIO 45242
TELEPHONE (513) 794-6100
This prospectus describes a flexible premium variable life insurance contract
(the "contract") offered through Ohio National Variable Account R (the "variable
account"), a separate account of Ohio National Life Assurance Corporation (the
"Company"). The Company is a subsidiary of The Ohio National Life Insurance
Company ("Ohio National Life").
The contract described herein has a minimum stated amount of $50,000 and a sales
charge which is deducted from accumulation value upon surrender, lapse, partial
surrender or a decrease in stated amount during the first twenty contract years.
Because of the substantial nature of the surrender charge, the contract is not
suitable for short term investment purposes. The contract generally will not be
issued to a person over age 80.
The contract is "flexible" because, subject to certain restrictions, it permits
you to adjust the timing and amount of your premium payments, to direct net
premiums to one or more of the subaccounts of the variable account or to the
general account, to choose from two death benefit plans, and to increase or
decrease the level of death benefits under such plans. The contract is
"variable" because the value of the contract will change with the performance of
the investment media selected. The flexible and variable features of the
contract give you the opportunity throughout your lifetime to meet your changing
life insurance needs and to accommodate to changing economic conditions within
the framework of a single insurance policy. For this reason, it may not be to
your advantage to purchase a contract as a means of obtaining additional
insurance if you already own another flexible premium variable life insurance
policy.
The contract provides life insurance coverage to age 100. You may choose either
a level or variable death benefit plan. The level plan provides a fixed benefit
(the "stated amount") to be paid on the death of the insured. The level plan
contract operates in a manner similar to a whole life insurance policy, except
that its accumulation value varies with investment performance. The variable
plan contract provides a death benefit equal to the sum of the stated amount and
the contract's accumulation value. Accordingly, the variable plan death benefit
generally varies dollar for dollar with the contract's accumulation value. Under
either plan, the Company offers to insure the death benefit against adverse
investment performance by guaranteeing that the death benefit will never be less
than the contract's stated amount, provided you satisfy a minimum premium
requirement.
When you purchase a contract, you will be required to pay an initial premium.
You must satisfy the minimum premium requirement if you wish to keep the death
benefit guarantee in effect. In addition, there is a guideline annual premium
which is used to determine the amount of sales charge we may deduct from your
premium payments.
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 RETAINED FOR FUTURE REFERENCE. IT SHOULD BE
ACCOMPANIED BY THE CURRENT PROSPECTUS OF THE FUND.
____________ , 1997
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As a planning device, you will be asked to adopt a planned premium schedule that
indicates the level of your intended payments under the contract. The planned
premium will generally fall somewhere between the minimum and guideline annual
premium amounts. The exact amount of such premium will depend upon your
objectives and your estimate of long-term investment performance. The minimum,
guideline and planned premiums will be set forth on the specification page of
your contract. While such premiums affect the amount and timing of your premium
payments in limited ways, the contract is designed to afford you substantial
flexibility with respect to such premium payments. In the absence of premium
payments, including the minimum premium required to keep the death benefit
guarantee in effect, the contract will remain in force as long as the cash
surrender value (less any contract indebtedness) is sufficient to pay the next
monthly deduction for contract charges.
Net premiums will be allocated at your direction among the investment accounts
offered by the Company. Currently, the Company offers 15 such investment
accounts: the 14 subaccounts of the variable account and the Company's general
account. Each of the variable subaccounts invests in a corresponding portfolio
of Ohio National Fund, Inc. or, in the case of the Emerging Markets subaccount,
in the Emerging markets Fund, a series of the Montgomery Funds III (collectively
referred to herein as the "Fund"). Ohio National Fund, Inc. is a series mutual
fund which includes equity, money market, bond, flexible, international, capital
appreciation, small cap, global contrarian, aggressive growth, core growth,
growth & income, S&P 500 index and social awareness portfolios as well as other
portfolios not available for the contract. Montgomery Fund III is a series
mutual fund having other portfolios not available for the contract. The
investment portfolios are described in the accompanying prospectuses of the Fund
and the Emerging Markets Fund. Your contract's accumulation value will reflect
the investment performance of the subaccounts you select and is not guaranteed.
Should the need arise, you may obtain access to the cash surrender value of your
contract after the first contract year through loans or, after the second
contract year, partial surrenders, without terminating your insurance coverage.
In addition, you may surrender your contract at any time and receive its cash
surrender value.
The Company offers other flexible premium variable life policies (the
"policies") which are substantially similar to the contract except that they
have a different charge structure. Consult your agent concerning whether the
contract or one of the policies would better suit your needs.
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TABLE OF CONTENTS
Definitions......................................................... 5
Introduction........................................................ 8
Assumptions And Scope Of Prospectus................................. 8
Summary............................................................. 8
Ohio National Financial Services Group.............................. 12
Ohio National Life Assurance Corporation (the "Company")....... 12
The Ohio National Life Insurance Company ("Ohio National Life") 12
Ohio National Variable Account R (the "variable account")...... 13
Ohio National Fund, Inc. (the "Fund")........................ 13
Emerging Markets Fund......................................... 15
Mixed and Shared Funding...................................... 15
Death Benefits..................................................... 15
Plan A - Level Benefit........................................ 16
Plan B - Variable Benefit..................................... 16
Change in Death Benefit Plan.................................. 17
Death Benefit Guarantee....................................... 18
Changes in Stated Amount...................................... 18
Accumulation Value................................................. 19
Determination of Variable Account Accumulation Values......... 19
Accumulation Unit Values...................................... 20
Loans......................................................... 20
Surrender Privileges.......................................... 21
Maturity...................................................... 22
Premiums........................................................... 22
Purchasing a Contract......................................... 22
Payment of Premiums........................................... 23
Initial Premiums.............................................. 23
Minimum Premiums.............................................. 23
Planned Premiums.............................................. 23
Allocation of Premiums........................................ 24
Transfers..................................................... 24
Dollar Cost Averaging......................................... 25
Telephone Transfers........................................... 25
Lapse......................................................... 25
Reinstatement................................................. 26
Conversion.................................................... 26
Free Look..................................................... 26
Charges And Deductions............................................. 26
Premium Expense Charge........................................ 26
Ohio National Life Employee Discount.......................... 26
Monthly Deduction............................................. 27
Risk Charge................................................... 27
Surrender Charge.............................................. 27
Service Charges............................................... 29
Other Charges................................................. 29
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General Provisions................................................. 30
Voting Rights................................................. 30
Additions, Deletions or Substitutions of Investments.......... 31
Annual Report................................................. 31
Limitation on Right to Contest................................ 31
Misstatements................................................. 31
Suicide....................................................... 32
Beneficiaries................................................. 32
Postponement of Payments...................................... 32
Assignment.................................................... 32
Non-Participating Contract.................................... 32
The General Account................................................ 32
General Description........................................... 32
Accumulation Value............................................ 33
Optional Insurance Benefits................................... 33
Settlement Options............................................ 33
Distribution Of The Contract....................................... 34
Management Of The Company.......................................... 34
Custodian.......................................................... 35
State Regulation Of The Company.................................... 35
Federal Tax Matters................................................ 35
Contract Proceeds............................................. 35
Correction of Modified Endowment Contract..................... 36
Right to Charge for Company Taxes............................. 36
Employee Benefit Plans............................................. 36
Legal Proceedings.................................................. 36
Legal Matters...................................................... 36
Experts............................................................ 37
Registration Statement............................................. 37
Financial Statements............................................... 37
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING IN ANY JURISDICTION IN WHICH
SUCH OFFERING MAY NOT LAWFULLY BE MADE. THE COMPANY DOES NOT AUTHORIZE ANY
INFORMATION OR REPRESENTATIONS REGARDING THE VARIABLE ASPECTS OF THE CONTRACT
DESCRIBED IN THIS PROSPECTUS OTHER THAN AS CONTAINED IN THIS PROSPECTUS, THE
PROSPECTUS OF THE FUND OR THE STATEMENT OF ADDITIONAL INFORMATION OF THE FUND.
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DEFINITIONS
Accumulation Value - the sum of the contract accumulation values in the
subaccounts of the variable account, the general account and the loan
collateral account.
Age - the insured's age at his or her nearest birthday.
Attained Age - the insured's age at the end of the most recent contract year.
Beneficiary - the beneficiary designated by the contractowner in the application
or in the latest notification of change of beneficiary filed with us. If the
contractowner is the insured and if no beneficiary survives the insured, the
insured's estate will be the beneficiary. If the contractowner is not the
insured and no beneficiary survives the insured, the contractowner or his
estate will be the beneficiary.
Cash Surrender Value - the accumulation value less any applicable surrender
charges.
Code - the Internal Revenue Code of 1954, as amended, and all regulations
promulgated thereunder.
Commission - the Securities and Exchange Commission.
Contract - the flexible premium variable life insurance contract offered by this
prospectus.
Contract Date - the date as of which insurance coverage and contract charges
begin. The contract date is used to determine contract months and years.
Contract Month - each contract month starts on the same date in each calendar
month as the contract date.
Contract Year - each contract year starts on the same date in each calendar year
as the contract date.
Contract Indebtedness - the total of any unpaid contract loans.
Contractowner - the person so designated on the specification page of the
contract.
Corridor Percentage Test - a method of determining the death benefit as required
by the Code to qualify the contract as a "life insurance contract"
thereunder. The death benefit so determined equals the cash value plus the
cash value multiplied by a percentage which varies with age as specified by
the Code.
Death Benefit - the amount payable upon the death of the insured, before
deductions for contract indebtedness and unpaid monthly deductions.
Death Benefit Guarantee - our guarantee that the contract will never lapse if
you have met the minimum premium requirement.
Free Look - your right to cancel the contract or any increase for a specified
period and to obtain a full refund of premiums paid with respect to such
contract or increase.
Fund - Ohio National Fund, Inc.
General Account - our assets other than those allocated to the variable account
or any other separate account we may establish.
GuidelineAnnual Premium - the level annual premium that would be payable through
the contract maturity date for a specified stated amount of coverage if we
scheduled premiums as to both timing and amount and such premiums were based
on the 1980 Commissioners Standard Ordinary Mortality Table, net investment
earnings at an annual effective rate of 5%, and fees and charges as set
forth in the contract.
Home Office - our principal executive offices located at One Financial Way,
Cincinnati, Ohio 45242.
Initial Premium - an amount required to commence contract coverage at least
equal to one monthly minimum premium.
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Insured - the person upon whose life the contract is issued.
Issue Date - the date we approve your application and issue your contract. The
issue date will be the same as the contract date except for backdated
contracts, for which the contract date will be prior to the issue date.
Loan Collateral Account - an account to which accumulation value in an amount
equal to a contract loan is transferred pro rata from the subaccounts of the
variable account and the general account.
Loan Value - the maximum amount that may be borrowed under the contract. The
loan value equals the cash surrender value less the cost of insurance
charges for the balance of the contract year. The loan value less contract
indebtedness equals the amount you borrow at any time.
Maturity Date - unless otherwise specified in the contract, the maturity date is
the end of the contract year nearest the insured's 100th birthday.
Minimum Premium - the monthly premium set forth on the contract specification
page necessary to maintain the death benefit guarantee. Although the minimum
premium is expressed as a monthly amount, you need not pay it each month.
Rather, you must pay, cumulatively, premiums which equal or exceed the sum
of the minimum premiums required during the applicable time period.
Monthly Deduction - the monthly charge against cash value which includes the
cost of insurance, an administration charge, a risk charge for the death
benefit guarantee and the cost of any optional insurance benefits added by
rider.
Net Premiums - the premiums you pay less the premium expense charge.
Planned Premium - a schedule indicating the contractowner's planned premium
payments under the contract. The schedule is a planning device only and need
not be adhered to.
Portfolio- a portion of the Fund's assets represented by a separate class or
series of stock and having a specified investment objective.
Premium Expense Charge - an amount deducted from gross premiums consisting of a
federal tax charge and any state premium tax and other state and local taxes
applicable to your contract.
Proceeds - the amount payable on surrender, maturity or death.
Process Day - the first day of each contract month. Monthly deductions and any
credits are made on this day.
Pronouns - "our", "us" or "we" means Ohio National Life Assurance Corporation.
"You", "your" or "yours" means the insured. If the insured is not the
contractowner, "you", "your" or "yours" means the contractowner when
referring to contract rights, payments and notices.
Receipt - with respect to transactions requiring valuation of variable account
assets, a notice or request is deemed received by us on the date actually
received if received on a valuation date prior to 4:00 p.m. Eastern time. If
received on a day that is not a valuation date or after 4:00 p.m. Eastern
time on a valuation date, it is deemed received on the next valuation date.
Risk Charge - the charge imposed by the Company against variable account assets
for assuming the expense and mortality risks under the contract.
Settlement Options - methods of paying the proceeds other than in a lump sum.
Stated Amount - the minimum death benefit payable under the contract as long as
the contract remains in force and which is set forth on the contract
specification page.
Subaccount - a subdivision of the variable account which invests exclusively in
the shares of a corresponding portfolio of the Fund or of another mutual
fund.
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Surrender Charge - a two part charge assessed in connection with contract
surrenders, lapses and decreases in stated amount, consisting of a
contingent deferred sales charge applicable for 20 years, and a contingent
deferred insurance underwriting charge applicable for 8 years, from the
contract date with respect to your initial stated amount and from the date
of any increase in stated amount with respect to such increase.
Valuation Date - each day on which the net asset value of Fund shares is
determined. See page 22 of the accompanying Fund prospectus.
Valuation Period - the period between two successive valuation dates which
begins at 4:00 p.m. Eastern time on one valuation date and ends at 4:00 p.m.
Eastern time on the next valuation date.
Variable Account - Ohio National Variable Account R.
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INTRODUCTION
As described on the cover page of this prospectus, the contract offered hereby
is a flexible premium variable life insurance contract which enables you
throughout your lifetime to accommodate to your changing insurance needs and to
changing economic conditions within the framework of a single insurance policy.
The contract provides for death benefits, cash values, loans, a variety of
settlement options and other features traditionally associated with life
insurance.
The contract is similar to traditional life insurance in a number of respects.
You receive insurance coverage to age 100 at least equal to the stated amount as
long as the contract has a positive cash surrender value or the death benefit
guarantee is in effect. You may surrender the contract at any time and receive
its cash surrender value. After the first contract year, you may borrow up to
the loan value of the contract. To the extent that you elect to allocate net
premiums to the general account, the investment return on the contract is
guaranteed.
The contract also has several significant features which differentiate it from
traditional life insurance. There is no schedule of required premiums to keep
the contract in force. Instead, within certain limits, you may adjust the timing
and amount of your premium payments to suit your individual circumstances. In
addition, you direct the investment of your net premiums and resulting cash
values, which will vary with the investment performance of the subaccounts of
the variable subaccount you select. However, unlike traditional insurance, such
values are neither guaranteed nor limited to an assumed rate of interest. The
contract also permits you to elect a variable death benefit plan as an
alternative to a level plan, the latter being similar in many respects to a
traditional whole life policy. Finally, the contract under either plan permits
you to increase the stated amount of insurance coverage any time after the first
contract year and to decrease the stated amount two years after the issue date.
ASSUMPTIONS AND SCOPE OF PROSPECTUS
This prospectus relates principally to the variable account and contains only
selected information regarding the general account. (See "The General Account"
at page 32.) For details regarding elements of the contract involving the
general account, see your contract.
Unless otherwise indicated or required by the context, the discussion throughout
this prospectus assumes: that (1) "you", the "contractowner" and the "insured"
are the same person (such terms generally being used interchangeably), (2) the
death benefit guarantee is in effect, (3) the cash surrender value of your
contract is sufficient to pay the next monthly deduction, (4) there is no
outstanding contract indebtedness, (5) the death benefit is not determined by
the corridor percentage test, (6) the contract is not backdated, and (7)
payments under the contract have not been made in a way that would cause the
contract to be treated as a modified endowment contract under federal law.
SUMMARY
The following summary is intended to provide you with a general description of
the most important features of the contract. To understand this summary,
reference should be made to the preceding "Definitions" section for the meaning
of various terms. This summary is not comprehensive and is qualified in its
entirety by the more specific information contained in this prospectus, the
attached Fund prospectuses and the statements of additional information referred
to therein. This summary presents selected information in the same sequence and
employs the same headings as the body of the prospectus. Consult the table of
contents to locate the fuller discussion of each item included herein.
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OHIO NATIONAL FINANCIAL SERVICES GROUP
OHIO NATIONAL LIFE ASSURANCE CORPORATION (the "Company") - a stock life
insurance company established under the laws of Ohio on June 26, 1979.
THE OHIO NATIONAL LIFE INSURANCE COMPANY ("Ohio National Life") - a mutual life
insurance company organized in 1909 under the laws of Ohio which currently has
assets in excess of $5.9 billion. Ohio National Life controls the Company and
the Fund. While Ohio National Life's experienced personnel and facilities are
available to assist in administering the Company and its flexible product
program, its assets do not back the contract.
OHIO NATIONAL VARIABLE ACCOUNT R (the "variable account") - established by the
Company on May 6, 1985 as a means of offering the types of contract described in
this prospectus. Net premiums allocated to the variable account are segregated
from the Company's other assets and are protected from claims and liabilities
arising from the Company's other lines of business. The Company's general
account assets, however, are available to support benefits under the contract.
There are currently 14 separate subaccounts within the variable account. The
assets of each are invested exclusively in shares of a corresponding investment
portfolio of the Fund or, in the case of the Emerging Markets subaccount, in the
Emerging Markets Fund.
OHIO NATIONAL FUND, INC. (the "Fund") is an open-end diversified management
investment company, commonly referred to as a mutual fund. It currently has 16
investment portfolios, in 13 of which the contracts' assets may be invested: 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 and Social Awareness Portfolio (the "portfolios"). The operations of
this Fund, its investment adviser and the investment objectives and policies of
each portfolio are described in its attached prospectus. Net premiums under the
contract may be allocated to the subaccounts of the variable account which
invest exclusively in Fund shares. Accordingly, to the extent you allocate net
premiums to the subaccounts, the accumulation value of your contract will vary
with the investment performance of Fund shares.
EMERGING MARKETS FUND
The Emerging Markets Fund is a series of The Montgomery Funds III, a registered,
open-end, investment company the shares of which are sold only to insurance
company separate accounts to fund variable annuity contracts and variable life
insurance policies. The Emerging Markets Fund is managed, for a fee, by
Montgomery Asset Management, L.P. The value of Emerging Markets Fund 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 those investments to meet changes in economic conditions. For
additional information concerning the Emerging Markets Fund, including its
investment objectives, see its accompanying prospectus. Read the prospectus
carefully before investing. (It contains information about other funds that are
not available for the contract.)
DEATH BENEFITS
You may select one of two death benefit plans -- the level plan (Plan A) or the
variable plan (Plan B). With certain limitations, you may also change death
benefit plans during the life of the contract. The death benefit under the level
plan is the stated amount. The death benefit under the variable plan is the
stated amount plus the accumulation value on the date of death. Under either
plan, we may be required to increase the death benefit to satisfy the corridor
percentage test included in the Code's definition of a "life insurance
contract." Generally, favorable investment performance is reflected in increased
accumulation value under the level plan and in increased insurance coverage
under the variable plan. The death benefit will never be less than the stated
amount as long as the contract has a positive cash surrender value or the death
benefit guarantee is in force. The death benefit will be paid into an
interest-bearing checking account established in your beneficiary's name or, at
your option, applied in whole or in part under one or more settlement options.
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After the first contract year you may increase your stated amount, and two years
after the issue date you may decrease your stated amount. You cannot decrease
the stated amount below the minimum stated amount shown on the contract
specification page. Any increase or decrease in the stated amount must equal at
least $5,000 and an increase will require additional evidence of insurability.
The contract includes a death benefit guarantee. Under this provision, we
guarantee that the death benefit during the death benefit guarantee period will
not be less than the stated amount, provided you satisfy the minimum premium
requirement. Accordingly, a cash surrender value insufficient to meet the
current monthly deduction as a result of adverse subaccount investment
performance will not cause the contract to lapse as long as the death benefit
guarantee is in effect.
ACCUMULATION VALUE
The accumulation value of your contract equals the sum of the accumulation
values in the general account, the subaccounts of the variable account and the
loan collateral account. The general account accumulation value will reflect the
amount and timing of net premiums allocated to the general account and interest
thereon. The accumulation value in the variable subaccounts will reflect
deductions for a risk charge, the amount and timing of net premiums allocated to
such subaccounts and the investment experience associated therewith. Such
investment experience is not guaranteed. In addition, the subaccount and the
general account accumulation values will be charged pro rata in connection with
contract loans, partial surrenders and monthly deductions. The loan collateral
account will reflect amounts borrowed against the loan value of the contract.
Loans - after the first contract year, you may borrow against the loan value of
your contract. The loan value will never be less than 75% of your cash surrender
value. Loan interest is payable in advance at a rate of 7.4% (an effective
compound annual rate of 8%). Any outstanding contract indebtedness will be
deducted from proceeds payable at the insured's death or upon maturity or
surrender.
Loan amounts and any unpaid interest thereon will be withdrawn pro rata from the
variable subaccounts and the general account. Accumulation value in each
subaccount equal to the contract indebtedness so withdrawn will be transferred
to the loan collateral account. If loan interest is not paid when due, it
becomes loan principal. Accumulation value held in the loan collateral account
earns interest daily at an annual rate guaranteed to be at least 4%. Currently,
we credit interest at an annual rate of 6.75%.
A loan may be repaid in whole or in part at any time while the contract is in
force. When a loan repayment is made, accumulation value securing contract
indebtedness in the loan collateral account equal to the loan repayment will be
allocated first to the general account until the amount borrowed has been
replaced. The balance of the repayment will then be allocated to the general
account and the variable subaccounts using the same percentages as then in
effect to allocate net premiums.
Surrender Privileges - at any time you may surrender your contract in full and
receive the proceeds. Your contract also gives you a partial surrender right. At
any time after two years from the issue date, you may withdraw part of your cash
surrender value. Such withdrawals will reduce your contract's death benefit and
may be subject to a surrender charge.
Withholding Payment After Premium Payment - The Company may withhold payment of
any increased accumulation value or loan value resulting from a recent premium
payment until your premium check has cleared. This could take up to 15 days
after we receive your check.
PREMIUMS
An initial premium is required to purchase a contract. In addition, you must
satisfy a minimum premium requirement to keep the death benefit guarantee in
effect. To satisfy the minimum premium requirement at any time, you must have
paid, cumulatively, total premiums that equal or exceed the monthly minimum
premium indicated on the contract specification page multiplied by the number of
complete contract months the contract has been in effect. If, at any time, you
fail to meet this requirement the death benefit guarantee is no longer in effect
and
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may generally not be reinstated. The monthly minimum premium indicated on the
contract specification page will remain a level amount until you reach the end
of the death benefit guarantee period shown on the contract specimen page. You
choose this period from among the available periods. Currently there are 3
different periods available: 5 years; to age 70 (or 10 years, if later); or to
maturity. Not all options are available in all states.
We may, at our discretion, refuse to accept a premium payment of less than $25
or one that would cause the contract, without an increase in death benefit, to
be disqualified as life insurance or to be treated as a modified endowment
contract under federal law. Otherwise, the amount and timing or premium payments
is left to your discretion.
To aid you in formulating your insurance plan under the contract, you will adopt
a planned premium schedule at the time of purchase indicating your intended
level of payments. Such premium will generally be an amount greater than your
minimum premium and less than your guideline annual premium. The planned premium
schedule need not be adhered to, as it is only a planning device.
Allocation of Premiums - you may allocate your net premiums to any of the
variable subaccounts and to the general account in any combination of whole
percentages. You indicate your initial allocation in the contract application.
Thereafter, you may transfer accumulation values and reallocate future premiums.
Transfers - we allow transfers of accumulation values among the subaccounts of
the variable account and to the general account at any time. Transfers from the
general account to the subaccounts are subject to certain restrictions.
Lapse - provided you pay the minimum premiums required to maintain the death
benefit guarantee, your contract will not lapse during the death benefit
guarantee period. If your contract lapses during the first two years, you may be
entitled to a refund of a portion of the surrender charge otherwise applicable
to your contract.
If you fail to satisfy the minimum premium requirement and, as a result, the
death benefit guarantee is not in effect, the duration of your contract depends
on its cash surrender value. The contract will remain in force as long as the
cash surrender value less any outstanding contract indebtedness is sufficient to
pay the next monthly deduction. If such is not the case, you will have a 61 day
grace period in which to increase your cash surrender value through the payment
of additional premiums. If you do not pay sufficient additional premiums during
the grace period, the contract will lapse and terminate without value.
Reinstatement - once a contract has lapsed, you may request reinstatement of the
contract any time within five years of the lapse. Satisfactory proof of
insurability and payment of a reinstatement premium are required for
reinstatement.
Free Look - following the initial purchase of your contract or any subsequent
increase in the stated amount, you are entitled to a free look period. During
the free look period, you may cancel the contract or increase, as applicable,
and we will refund all the money you have paid therefor. In some states,
applicable law requires that your refund be adjusted by any investment gains or
losses. The free look period expires on the latest of 45 days from the date of
your application for the contract or increase, 20 days from your receipt of the
contract or increase and 10 days after we mail or deliver a written notice of
your right to cancel.
CHARGES AND DEDUCTIONS
We make charges against or deductions from premium payments, accumulation values
and contract surrenders as follows:
(a) from premiums we deduct a premium expense charge. The premium expense
charge includes a 1.25% deduction from premium payments for 10 years. Such
charge is intended to compensate us for federal tax charges. The premium
expense charge also includes a deduction for the state premium tax and any
other state and local taxes applicable to your contract. Currently, state
premium taxes vary from 2% to 4%.
11
<PAGE> 14
(b) against the accumulation value we make a monthly deduction covering the
cost of insurance, administrative expenses ($7), the risk of providing the
death benefit guarantee ($0.00, $0.01, or $0.03 per thousand of stated
amount, depending on the death benefit guarantee period you choose), and
the cost of any optional insurance benefit added by rider;
(c) against the assets of the variable subaccounts we assess a daily charge
equal to an annualized rate of 0.75% of such assets to compensate us for
assuming certain mortality and expense risks; and
(d) from accumulation value we deduct surrender charges in the event of full
surrender, certain partial surrenders and decreases in stated amount. Such
surrender charges only apply during the first 20 contract years following
the contract date and the date of any increase in stated amount. The
surrender charges consist of a contingent deferred sales charge and a
contingent deferred insurance underwriting charge. The contingent deferred
sales charge is 50% of premiums paid, up to a maximum shown on the contract
specification page. The contingent deferred insurance underwriting charge
varies with age at issue or increase from $3 to $6 per thousand dollars of
your first $500,000 of stated amount.
In addition to the foregoing charges and deductions, we assess the following
three service charges: (i) for partial surrenders the lesser of $25 or 2% of the
amount surrendered, (ii) up to $15 (currently the charge is $3 and is waived on
the first four transfers during any contract year) for transfers of accumulation
value among the subaccounts and the general account and (iii) up to $100
(currently no charge is being made) for any special illustration of contract
benefits that you may request. Currently we impose lesser charges for transfers
and illustrations, but we only guarantee that such charges will never exceed the
amounts stated above. We also reserve the right to assess the assets of each
subaccount to provide for any taxes payable by us on account of such assets.
Certain expenses and an investment advisory fee will be assessed against Fund
assets, as described in the attached Fund prospectuses.
FEDERAL TAX MATTERS
All death benefits paid under the contract will generally be excludable from the
beneficiary's gross income for federal income tax purposes. Under current
federal tax law, as long as the contract qualifies as a "life insurance
contract" as defined therein, any increases in accumulation value attributable
to favorable investment performance should accumulate on a tax deferred basis in
the same manner as with traditional whole life insurance. Partial withdrawals
and surrenders, however, may result in the taxation of the portion of such
withdrawals or surrenders attributable to the increase in accumulation value
resulting from favorable investment performance. If payments are made in excess
of a rate that would pay up a contract after 7 level annual payments, there may
be taxation of, including a penalty tax on, portions of the proceeds of loans,
withdrawals or surrenders.
OHIO NATIONAL FINANCIAL SERVICES GROUP
OHIO NATIONAL LIFE ASSURANCE CORPORATION (THE "COMPANY")
The Company was established on June 26, 1979 under the laws of Ohio to
facilitate the issuance of certain nonparticipating insurance policies. It is a
wholly-owned stock subsidiary of The Ohio National Life Insurance Company. The
Company is currently licensed to sell life insurance in 47 states, the District
of Columbia and Puerto Rico. (See page 37 for the Company's financial
statements.)
THE OHIO NATIONAL LIFE INSURANCE COMPANY ("OHIO NATIONAL LIFE")
Ohio National Life was organized under the laws of Ohio on September 9, 1909 as
a stock life insurance company and became a mutual life insurance company on
August 7, 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. Ohio National Life
provided the Company with the initial capital to finance its operations. From
time to time, Ohio National Life may make additional capital contributions to
the Company, although it is under no legal obligation to do so and its assets do
not support the benefits provided under the contract.
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<PAGE> 15
OHIO NATIONAL VARIABLE ACCOUNT R (THE "VARIABLE ACCOUNT")
The Company established the variable account on May 6, 1985 pursuant to the
insurance laws of the State of Ohio. The variable account is registered with the
Securities and Exchange Commission (the "Commission") under the Investment
Company Act of 1940 ("1940 Act") as a unit investment trust. Such registration
does not involve supervision by the Commission of the management or investment
policies of the variable account or the Company. Under Ohio law, the variable
account assets are held exclusively for the benefit of contractowners and
persons entitled to payments under the contract. Variable account assets are not
chargeable with liabilities arising out of any other business of the Company.
The Company keeps the variable account assets physically segregated from assets
of the Company's general account. The Company maintains records of all purchases
and redemptions of Fund shares by each of the subaccounts of the variable
account.
The variable account currently has 14 investment subaccounts, but may in the
future add or delete investment subaccounts. Each investment subaccount will
invest exclusively in shares representing interests in a portfolio of the Fund
or in the case of the Emerging Markets subaccount, in the Emerging Markets Fund.
The income and realized and unrealized gains or losses on the assets of each
subaccount are credited to or charged against that subaccount without regard to
income or gains or losses from any other subaccount.
OHIO NATIONAL FUND, INC. (THE "FUND")
This Fund is organized as a Maryland corporation and is registered as an
open-end diversified management investment company under the 1940 Act. It
currently has 16 portfolios, in 13 of which the contracts' assets may be
invested. Each portfolio has different investment objectives. Each portfolio
operates as a separate investment fund, and the income or loss of one portfolio
generally has no effect on the investment performance of any other portfolio.
The investment objectives of each portfolio are set forth below. There can be no
assurance that any portfolio will achieve its stated objectives.
Equity Portfolio - long-term capital growth by investing principally in common
stocks or other equity securities. Current income is a secondary objective.
Money Market Portfolio - maximum current income consistent with preservation of
capital and liquidity by investing in high quality money market instruments.
Bond Portfolio - high level of return consistent with preservation of capital by
investing primarily in high quality intermediate and long-term debt securities.
Omni Portfolio - high level of long-term total return consistent with
preservation of capital by investing in stocks, bonds and money market
instruments.
International Portfolio - long-term capital growth by investing primarily in
common stocks of foreign companies.
Capital Appreciation Portfolio - maximum capital growth by investing primarily
in common stocks that are (1) considered to be undervalued or temporarily out of
favor with investors, or (2) expected to increase in price over the short term.
Small Cap Portfolio - maximum capital growth by investing primarily in common
stocks of small and medium size companies.
Global Contrarian Portfolio - long-term growth of capital by investing in
foreign and domestic securities believed to be undervalued or presently out of
favor.
Aggressive Growth Portfolio - capital growth.
Core Growth Portfolio - long-term capital appreciation.
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<PAGE> 16
Growth & Income - long-term total return by investing in equity securities and
debt securities, focusing on small and mid-cap companies that offer potential
for capital appreciation, current income, or both.
S&P 500 Index Portfolio - total return that corresponds to that of the Standard
& Poor's 500 Index.
Social Awareness Portfolio - total return by investing primarily in common
stocks and other securities of companies that satisfy social concern criteria
established for the portfolio.
The investment and reinvestment of Fund assets is directed by Ohio National
Investments, Inc. (the "Adviser"), a wholly-owned subsidiary of Ohio National
Life which makes use of the investment personnel and administrative systems of
Ohio National Life. The investment and reinvestment of the assets of the
following portfolios is managed by the firms indicated as subadvisers.
<TABLE>
<CAPTION>
PORTFOLIO SUBADVISER
--------- ----------
<S> <C>
International and Global Contrarian Societe Generale Asset Management Corp. ("SGAM")
Capital Appreciation T. Rowe Price Associates, Inc. ("TRPA")
Small Cap Founders Asset Management, Inc. ("FAM")
Aggressive Growth Strong Capital Management, Inc. ("SCM")
Core Growth Pilgrim Baxter & Associates, Ltd. ("PBA")
Growth & Income Robertson Stephens Investment Management, L.P. ("RSIM")
</TABLE>
SGAM is a wholly-owned subsidiary of Societe Generale, one of the largest banks
in Europe. TRPA manages assets for various individual and institutional
investors, particularly the T. Rowe Price group of mutual funds. FAM manages the
assets of the Founders group of mutual funds as well as private accounts. SCM
manages the assets of the Strong group of mutual funds as well as pension funds
and private accounts. PBA, an affiliate of United Asset Management Corp.,
manages the PBHG mutual funds and other private and institutional accounts.
RSIM, an affiliate of Robertson Stephens & Company, L.L.C., manages the
Robertson Stephens mutual funds and other public and private investment funds.
Each of the Adviser, SGAM, TRPA, FAM, SCM, PBA and RSIM is registered under the
Investment Advisers Act of 1940. For more detailed information concerning each
portfolio, including a description of investment risks, reference is made to the
prospectus of the Fund which accompanies this prospectus.
The Company will purchase and redeem Fund shares for the variable account at net
asset value without the imposition of any sales or redemption charge. Such
shares represent an interest in one of the portfolios of the Fund. Each
portfolio corresponds to a subaccount of the variable account. Any dividend or
capital gain distributions received from the Fund will be reinvested in Fund
shares at net asset value as of the dates paid.
On each valuation date, shares of each portfolio are purchased or redeemed by
the Company for the variable account based on, among other things, the amount of
net premiums allocated to the variable account, dividends and distributions
reinvested, transfers to and among the subaccounts, loans, loan repayments and
benefit payments to be made pursuant to the terms of the contract as of that
date. Purchases and redemptions for the variable account are effected at the net
asset value per share for each portfolio determined in the manner and at the
time set forth in the accompanying Fund prospectus.
A full description of the Fund, its investment policies and restrictions, fees
and expenses paid by it and other aspects of its operations are contained in the
attached prospectus for the Fund and in the statement of additional information
referred to therein.
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<PAGE> 17
EMERGING MARKETS FUND
The Emerging Markets Fund is a series of The Montgomery Funds III, a registered,
open-end, investment company the shares of which are sold only to insurance
company separate accounts to fund variable annuity contracts and variable life
insurance policies. The Emerging Markets Fund is managed, for a fee, by
Montgomery Asset Management, L.P. The value of Emerging Markets Fund 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 those investments to meet changes in economic conditions. For
additional information concerning the Emerging Markets Fund, including its
investment objectives, see its accompanying prospectus. Read the prospectus
carefully before investing. (It contains information about other funds that are
not available for the contract.)
MIXED AND SHARED FUNDING
In addition to being offered to the variable account, shares of the Fund are
currently offered to other separate accounts of Ohio National Life in connection
with variable annuity contracts. In the future, Fund shares may be offered to
other insurance company separate accounts. Shares of the Emerging Markets Fund
are also presently offered to variable annuity and variable life insurance
separate accounts of other unaffiliated life insurance companies. It is
conceivable that in the future it may become disadvantageous for both variable
life and variable annuity separate accounts or for separate accounts of other
life insurance companies to invest in Fund shares. Although neither the Company,
Ohio National Life nor the Fund currently foresees any such disadvantage, the
Board of Directors of the Fund and of any other fund will monitor events in
order to identify any material conflict between different types of
contractowners and to determine what action, if any, should be taken in response
thereto, including the possible withdrawal of the variable account's
participation in the Fund or the Emerging Markets 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 of the Emerging Markets Fund; or (4) differences
between voting instructions given by different types of contractowners.
DEATH BENEFITS
As long as the contract remains in force (see "Premiums - Lapse" at page 25), we
will, upon receipt of due proof of the insured's death, pay the contract
proceeds to the beneficiary. The amount of the death benefit payable will be
determined as of the date of death, or on the next following valuation date if
the date of death is not a valuation date. Unless a settlement option is
elected, the proceeds will be paid in one lump sum with interest from the date
of the insured's death to the date of payment at a rate we determine which will
not be less than an annual rate of 4%. Such proceeds will be paid into an
interest-bearing checking account established in your beneficiary's name with
Bank One, Springfield, Illinois. The 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 amount of $250. We also offer
beneficiaries and contractowners a wide variety of settlement options. (See "The
General Account - Settlement Options" at page 33.)
The contract provides for two death benefit plans: a level plan ("Plan A") and a
variable plan ("Plan B"). Generally, you designate the death benefit plan in
your contract application. Subject to certain restrictions, you may change the
death benefit plan from time to time. As long as the contract remains in force,
the death benefit under either plan will never be less than the stated amount of
the contract.
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<PAGE> 18
PLAN A - LEVEL BENEFIT
The death benefit is the greater of (a) the contract's stated amount on the date
of death or (b) the death benefit determined by the corridor percentage test.
The death benefit determined by the corridor percentage test equals the
accumulation value of the contract on the date of death plus such accumulation
value multiplied by the corridor percentage. The corridor percentage varies with
attained age, as indicated in the following table:
<TABLE>
<CAPTION>
CORRIDOR CORRIDOR CORRIDOR CORRIDOR
ATTAINED PERCEN- ATTAINED PERCEN- ATTAINED PERCEN ATTAINED PERCEN
AGE TAGE AGE TAGE AGE TAGE AGE TAGE
---------- ---------- --------- ---------- ----------- ----------- --- ----
<S> <C> <C> <C> <C> <C> <C>
40 & below 150% 52 71% 64 22% 91 4%
41 143 53 64 65 20 92 3%
42 136 54 57 66 19 93 2%
43 129 55 50 67 18 94 1%
44 122 56 46 68 17 95 & above 0%
45 115 57 42 69 16
46 109 58 38 70 15
47 103 59 34 71 13
48 97 60 30 72 11
49 91 61 28 73 9
50 85 62 26 74 7
51 78 63 24 75-90 5
</TABLE>
Illustration of Plan A. Assume that the insured's attained age at time of death
is 40 and that the stated amount of the contract is $100,000.
Under these circumstances, any time the accumulation value of the contract is
less than $40,000, the death benefit will be the stated amount. However, any
time the accumulation value exceeds $40,000, the death benefit will be greater
than the contract's $100,000 stated amount due to the corridor percentage test.
This is because the death benefit for an insured who dies at age 40 must be at
least equal to the accumulation value plus 150% of the accumulation value.
Consequently, each additional dollar added to accumulation value above $40,000
will increase the death benefit by $2.50. Similarly, to the extent accumulation
value exceeds $40,000, each dollar taken out of accumulation value will reduce
the death benefit by $2.50. If, for example, the accumulation value is reduced
from $48,000 to $40,000, the death benefit will be reduced from $120,000 to
$100,000. However, further reductions in the accumulation value below the
$40,000 level will not affect the death benefit.
In the foregoing example, the breakpoint of $40,000 of accumulation value for
using the corridor percentage test to calculate the death benefit was determined
by dividing the $100,000 stated amount by 100% plus 150% (the corridor
percentage at age 40, as shown in the table above). For your contract, you may
make the corresponding determination by dividing your stated amount by 100% plus
the corridor percentage for your age (see the table above). The calculation will
yield a dollar amount which will be your breakpoint for using the corridor
percentage test. If your accumulation value is greater than such dollar figure,
your death benefit will be determined by the corridor percentage test. If it is
less, your death benefit will be your stated amount.
PLAN B - VARIABLE BENEFIT
The death benefit is equal to the greater of (a) the stated amount plus the
accumulation value on the date of death or (b) the death benefit determined by
the corridor percentage as described above and using the foregoing table of
corridor percentages.
Illustration of Plan B. Again assume that the insured's attained age at the time
of death is 40 and that the stated amount of the contract is $100,000.
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<PAGE> 19
Under these circumstances, a contract with accumulation value of $20,000 will
have a death benefit of $120,000 ($100,000 + $20,000). An accumulation value of
$60,000 will yield a death benefit of $160,000 ($100,000 + $60,000). The death
benefit under this illustration, however, must be at least equal to the
accumulation value plus 150% of the contract's accumulation value. As a result,
if the accumulation value of the contract exceeds $66,667, the death benefit
will be greater than the stated amount plus accumulation value. Each additional
dollar of accumulation value above $66,667 will increase the death benefit by
$2.50. Under this illustration, a contract with an accumulation value of $80,000
will provide a death benefit of $200,000 ($80,000 + 150% x $80,000). Similarly,
to the extent that accumulation value exceeds $66,667, each dollar taken out of
accumulation value reduces the death benefit by $2.50. If, for example, the
accumulation value is reduced from $80,000 to $68,000, the death benefit will be
reduced from $200,000 to $170,000.
In the foregoing example, the breakpoint of $66,667 of accumulation value for
using the corridor percentage test to calculate the death benefit was determined
by dividing the $100,000 stated amount by 150% (the corridor percentage at age
40, as shown in the table above). For your contract, you may make the
corresponding determination by dividing your stated amount by the corridor
percentage for your age (see the table above). The calculation will yield a
dollar amount which will be your breakpoint for using the corridor percentage
test. If your accumulation value is greater than such dollar figure, your death
benefit will be determined by the corridor percentage test. If it is less, your
death benefit will be your stated amount plus your accumulation value.
CHANGE IN DEATH BENEFIT PLAN
Generally, after the first contract year, you may change your death benefit plan
on any process day by sending us a written request. Changing death benefit plans
will not require evidence of insurability. The effective date of any such change
will be the process day on or following the date of receipt of your request.
As a general rule, at times when you wish to have favorable investment
performance reflected in higher accumulation value, rather than increased
insurance coverage, you should elect the Plan A death benefit. Conversely, at
times when you wish to have favorable investment performance reflected in
increased insurance coverage, rather than higher accumulation value, you should
generally elect the Plan B death benefit.
If you change your death benefit plan from Plan B to Plan A, your stated amount
will be increased by the amount of your accumulation value to equal the death
benefit which would have been payable under Plan B on the effective date of the
change. For example, a Plan B contract with a $100,000 stated amount and $20,000
accumulation value ($120,000 death benefit) would be converted to a Plan A
contract with $120,000 stated amount. Again, the death benefit would remain the
same on the effective date of the change.
A change in the death benefit option will not alter the amount of the
accumulation value or the death benefit payable under the contract on the
effective date of the change. However, switching between the variable and the
level plans will alter your insurance program with consequent effects on the
level of your future death benefits, accumulation values and premiums. While the
death benefit under Plan B will be greater than under Plan A for a given stated
amount, since the accumulation value is added to stated amount under Plan B but
not under Plan A, the cost of insurance included in the monthly deduction will
be greater under Plan B than under Plan A assuming the same stated amount. (See
"Charges and Deductions - Monthly Deduction" at page 27.) Furthermore, assuming
your accumulation value continues to increase, your future cost of insurance
charges will be higher after a change from Plan A to Plan B and lower after a
change from Plan B to Plan A. If your accumulation value decreases in the
future, the opposite will be true. Changes in the cost of insurance charges have
no effect on your death benefit under Plan A. Under Plan B, however, increased
cost of insurance charges will reduce the future accumulation value and death
benefit to less than they otherwise would be, and vice versa.
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<PAGE> 20
DEATH BENEFIT GUARANTEE
We guarantee that the contract will not lapse during the death benefit guarantee
period provided you meet the minimum premium requirement. (See "Premiums -
Minimum Premiums" at Page 23.) Accordingly, as long as the death benefit
guarantee is in effect, the contract will not lapse even if, because of adverse
investment performance, the cash surrender value falls below the amount needed
to pay the next monthly deduction. A charge per $1,000 of stated amount will be
made for each month the death benefit guarantee is in effect. The charge is
$0.00 if you choose a 5 year guarantee; $0.01 if you choose the guarantee to the
later of age 70 or 10 years, or $0.03 if you choose the guarantee to maturity.
If on any process day the minimum premium requirement is not met, we will send
you a notice of the required payment. If we do not receive the required payment
within 61 days of the date of the mailing of such notice, the death benefit
guarantee will no longer be in effect. Generally, the death benefit guaranteed
may not be reinstated once it has been lost. However, we may at our discretion
permit you to reinstate the death benefit guarantee if you (a) double your
stated amount or (b) increase your stated amount by $100,000 or more. A new
minimum premium will be required to maintain the reinstated death benefit
guarantee.
CHANGES IN STATED AMOUNT
Subject to certain limitations, you may at any time after the first contract
year increase your contract's stated amount and after two years from the issue
date decrease your stated amount by sending us a written request. We may limit
you to two such changes in each contract year. Any change must be of at least
$5,000. The effective date of the increase or decrease will be the process day
on or following approval of the request. A change in stated amount will affect
the monthly insurance charges and surrender charges. (See "Charges and
Deductions - Monthly Deduction" at page 27 and "Surrender Charge" at page 27.)
Increases. An increase is treated in a similar manner to the purchase to a new
contract. To obtain an increase, you must submit a supplemental application to
us with evidence demonstrating insurability. Depending on your accumulation
value, you may or may not have to pay additional premiums to obtain an increase.
If you must pay an additional premium, we must receive it by the effective date
of the increase.
After an increase, a portion of premium payments will be allocated to such
increase. The amount so allocated will bear the same relationship to total
premium payments as the guideline annual premium for such increase bears to the
guideline annual premium for your initial stated amount plus the guideline
annual premiums for all increases.
The pattern of surrender charges with respect to premiums allocated to an
increase will be the same as with a new contract. (See "Charges and Deductions -
Surrender Charge" at page 27.) This means that only premiums allocated to an
increase will be subject to the contingent deferred sales charge for the
increase.
With respect to premiums allocated to an increase, you will have the same free
look and conversion rights with respect to an increase as with the initial
purchase of your contract. (See "Premiums - Free Look; Conversion" at page 26.)
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<PAGE> 21
Decreases. You may decrease your stated amount after two years from the issue
date or the date of any increase, subject to the following limitations. The
stated amount after any requested decrease may not be less than the minimum
stated amount of $50,000. Moreover, we will not permit a decrease in stated
amount if the contract's accumulation value is such that reducing the stated
amount would cause the death benefit after the decrease to be determined by the
corridor percentage test. If you decrease your stated amount and there are
applicable surrender charges (see "Charges and Deductions - Surrender Charge" at
page 27), we will assess the portion of such surrender charge attributable to
the stated amount cancelled by the decrease against the accumulation value of
your contract. For purposes of determining the surrender charges on the amount
decreased and your cost of insurance charge on your remaining coverage (see
"Charges and Deductions - Surrender Charge at page 27; Monthly Deduction" at
page 27), a decrease in stated amount will reduce your existing stated amount in
the following order: (a) the stated amount provided by your most recent
increase, (b) your next most recent increases successively, and (c) your initial
stated amount.
ACCUMULATION VALUE
Your contract provides certain accumulation value benefits. Subject to certain
limitations, you may obtain access to the accumulation value of your contract.
You may borrow against your contract's loan value and you may surrender your
contract in whole or in part.
The accumulation value of your contract is the sum of the accumulation values in
the subaccounts, the general account and the loan collateral account. The
following discussion relates only to the variable account. The general account
and the loan collateral account are discussed elsewhere in this prospectus. (See
"The General Account - Accumulation Value" at page 33 and "Accumulation Value -
Loans" at page 20.)
DETERMINATION OF VARIABLE ACCOUNT ACCUMULATION VALUES
The contract's accumulation value in the variable account may increase or
decrease depending on the investment performance of the subaccounts you choose.
There is no guaranteed minimum accumulation value in the variable account.
The accumulation value of the contract will be calculated initially on the later
of the issue date or when we first receive a premium payment, and thereafter on
each valuation date. On such initial valuation date, your accumulation value
will equal the initial premium paid less the premium expense charge and the
first monthly deduction. (See "Charges and Deductions - Premium Expense Charge"
at page 26 and "Monthly Deduction" at page 27.) On each subsequent valuation
date, your accumulation value will be (1) plus any transactions referred to in
(2), (3) and (4) and minus any transactions referred to in (5), (6) and (7)
which occur during the current valuation period, where:
(1) is the sum of each subaccount's accumulation value as of the previous
valuation date multiplied by each subaccount's net investment factor
for the current valuation period;
(2) is net premiums allocated to the variable account;
(3) is transfers from the loan collateral account as a result of loan
repayments and reallocations of accumulation value from the general
account;
(4) is interest on contract indebtedness credited to the variable
subaccounts;
(5) is transfers to the loan collateral account in connection with contract
loans and reallocations of accumulation value to the general account;
(6) is any partial surrender made (and any surrender charge imposed); and
(7) is the monthly deduction.
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<PAGE> 22
ACCUMULATION UNIT VALUES
We use accumulation units as a measure of value for bookkeeping purposes. When
you allocate net premiums to a subaccount, we credit your contract with
accumulation units. In addition, other transactions, including loans, partial
and full surrenders, transfers, surrender and service charges, and monthly
deductions, affect the number of accumulation units credited to your contract.
The number of units credited or debited in connection with any such transaction
is determined by dividing the dollar amount of such transaction by the unit
value of the affected subaccount. We determine the unit value of each subaccount
on each valuation date. The number of units so credited or debited will be based
on the unit value on the valuation date on which the premium payment or
transaction request is received by us at our home office. The number of units
credited will not change because of subsequent changes in unit value. The dollar
value of each subaccount's units will reflect asset charges and the investment
performance of the corresponding portfolio of the Fund or the Emerging Markets
Fund.
The accumulation unit value of each subaccount's unit initially was $10. The
unit value of a subaccount on any valuation date is calculated by multiplying
the subaccount unit value on the previous valuation date by its net investment
factor for the current valuation period.
NET INVESTMENT FACTOR
We use a net investment factor to measure investment performance of each
subaccount and to determine changes in unit value from one valuation period to
the next. The net investment factor for a valuation period is (a) divided by (b)
minus (c) where:
(a) is (i) the value of the assets of the subaccount at the end of the
preceding valuation period, plus (ii) the investment income and capital
gains, realized or unrealized, credited to the assets of the subaccount
during the valuation period for which the net investment factor is being
determined, minus, (iii) any amount charged against the subaccount for
taxes or any amount set aside during the valuation period by us to provide
for taxes we determine are attributable to the operation or maintenance of
that subaccount (currently there are no such taxes);
(b) is the value of the assets of the subaccount at the end of the preceding
valuation period; and
(c) is a charge no greater than 0.0020471% on a daily basis. This corresponds
to 0.75% on an annual basis for mortality and expense risks.
LOANS
After the first contract year, you may borrow up to the loan value of your
contract. The loan value is the cash surrender value less the cost of insurance
charges on your contract to the end of the current contract year. The loan value
will never be less than 75% of the cash surrender value. We will generally
distribute the loan proceeds to you within seven days from receipt of your
request for the loan at our home office, although payment of the proceeds may be
postponed under certain circumstances. (See "General Provisions - Postponement
of Payments" at page 32.) In some circumstances, loans may involve tax
liability. (See "Federal Tax Matters" at page 35.)
When a loan is made, accumulation value in an amount equal to the loan will be
taken from the general account and each subaccount in proportion to your
accumulation value in the general account and each subaccount. This value is
then held in the loan collateral account and earns interest at an effective rate
guaranteed to be at least 4% per year. Currently, we credit interest to the loan
collateral account at a rate of 6.75% per year, but we may reduce such rate to
4% at any time. Such interest is credited to the subaccounts and the general
account in accordance with the premium allocation then in effect.
We charge interest on loans in advance each year at a rate of 7.4% per year,
equivalent to an effective annual rate of 8%. When we make a loan, we add to the
amount of the loan the interest covering the period until the end of the
contract year. At the beginning of each subsequent contract year, if you fail to
pay the interest in accumulation, we will transfer sufficient accumulation value
from the general account and each subaccount to pay the interest for the
following contract year. The allocation will be in proportion to your
accumulation value in each subaccount.
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<PAGE> 23
You may repay a loan at any time, in whole or in part, before we pay the
contract proceeds. When you repay a loan, interest already charged covering any
period after the repayment will reduce the amount necessary to repay the loan.
Premiums paid in excess of any planned premiums when there is a loan outstanding
will be first applied to reduce or repay such loan. Upon repayment of a loan,
the loan collateral account will be reduced by the amount of the repayment and
the repayment will be allocated first to the general account, until the amount
borrowed from the general account has been repaid. Unless we are instructed
otherwise, the balance of the repayment will then be applied to the subaccounts
and the general account according to the premium allocation then in effect.
Any outstanding contract indebtedness will be subtracted from the proceeds
payable at the insured's death and from cash surrender value upon complete
surrender or maturity.
A loan, whether or not repaid, will have a permanent effect on a contract's cash
surrender value (and the death benefit under Plan B contracts) because the
investment results of the subaccounts will apply only to the amount remaining in
the subaccounts. The longer the loan is outstanding, the greater the effect is
likely to be. The effect could be favorable or unfavorable. If investment
results are greater than the rate being credited upon the amount of the loan
while the loan is outstanding, contract values will not increase as rapidly as
they would have if no loan had been made. If investment results are below that
rate, contract values will be higher than they would have been had no loan been
made. A loan that is repaid will not have any effect upon the guaranteed minimum
death benefit.
SURRENDER PRIVILEGES
As an alternative to obtaining access to your accumulation value by using the
loan provisions described above, you may obtain your cash surrender value by
exercising your surrender or partial surrender privileges. Surrenders, however,
may involve tax liability. (See "Federal Tax Matters - Contract Proceeds" at
page 35.)
You may surrender your contract in full at any time by sending us a written
request together with the contract to our home office. The cash surrender value
of the contract equals the accumulation value less any applicable surrender
charges. (See "Charges and Deductions - Surrender Charge" at page 27.) Upon
surrender, the amount of any outstanding loans will be deducted from the cash
surrender value to determine the proceeds. The proceeds will be determined on
the valuation date on which the request for a surrender is received. Proceeds
will generally be paid within seven days of receipt of a request for surrender.
(See "General Provisions - Postponement of Payments" at page 32.)
After two years from the issue date, you may obtain a portion of your
accumulation value upon partial surrender of the contract. Partial surrenders
cannot be made more than twice during any contract year. The amount of any
partial surrender may not exceed the cash surrender value, less (a) any
outstanding contract indebtedness, (b) an amount sufficient to cover the next
two monthly deductions and (c) the service charge of $25 or 2% of the amount
surrendered, if less.
We will reduce the accumulation value of your contract by the amount of any
partial surrender. In doing so, we will deduct the accumulation value taken by a
partial surrender from each increase and your initial stated amount in
proportion to the amount such increases and initial stated amount bear to the
total stated amount.
Under Plan A, a partial surrender reduces your stated amount. Such surrender
will result in a dollar for dollar reduction in the death proceeds except when
the death proceeds of your contract are determined by the corridor percentage
test. The stated amount remaining after a partial surrender may be no less than
the minimum stated amount of $50,000. If increases in stated amount have
occurred previously, a partial surrender will first reduce the stated amount of
the most recent increase, then the most recent increases successively, then the
initial stated amount.
Under Plan B, a partial surrender reduces your accumulation value. Such
reduction will result in a dollar for dollar reduction in the death proceeds
except when the death proceeds are determined by the corridor percentage test.
Because the Plan B death benefit is the sum of the accumulation value and stated
amount, a partial surrender under Plan B does not reduce your stated amount but
instead reduces accumulation value.
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<PAGE> 24
If the proceeds payable under either death benefit option both before and after
the partial surrender are determined by the corridor percentage test, a partial
surrender generally will result in a reduction in proceeds equal to the amount
paid upon such surrender plus such amount multiplied by the applicable corridor
percentage. (See "Death Benefits - Plan A - Level Benefit" at page 16.)
During the first 20 contract years and for 20 years after the effective date of
an increase, a partial surrender charge in addition to the service charge of the
lesser of $25 or 2% of the amount surrendered will be made on the amount of
partial surrenders in any contract year that exceeds 10% of the cash surrender
value as of the end of the previous contract year. (For an illustration of the
surrender charges applied to partial surrenders of accumulation value, see
"Charges and Deductions - Surrender Charge" at page 27.)
MATURITY
We will pay you your accumulation value on the maturity date, reduced by any
outstanding contract indebtedness. The maturity date is listed on the
specification page and is the end of the contract year nearest your 100th
birthday. If we consent, you may continue your contract as an extended endowment
after the maturity date. In such case, the death benefit after the maturity date
will equal your contract's cash surrender value.
PREMIUMS
PURCHASING A CONTRACT
To purchase a contract, you must complete an application and submit it to us at
our home office through the agent selling the contract. Generally, we will not
issue a contract to a person older than age 80, but we may do so at our sole
discretion. Non-smoker rates are available if you are age 18 or over. We will
only issue contracts with stated amounts of $50,000 or more. All applications
require evidence of insurability. Acceptance of any application is subject to
our insurance underwriting rules. The review period for routine applications
will generally last one week. Approval of applications that require supplemental
medical information, however, may be delayed six weeks or more while such
information is obtained and reviewed.
You must pay an initial premium in order for your contract to take effect. The
contract takes effect as of the contract date. However, if you pay the initial
premium at the time you submit your application, we will, pursuant to the
premium receipt agreement contained in such application, provide you with
insurance coverage equal to your stated amount (up to $500,000) for a period of
up to 60 days, starting on the later of the date of your application and the
date you complete any required medical examination and ending on the date we
approve or reject your application. We do not pay interest on initial premiums
during the review period.
The contract date will be the same as the issue date, except in the case of a
backdated contract where the contract date will be earlier than the issue date.
At your request, we will backdate a contract as much as six months. This
procedure may be to your advantage where backdating will lower your age at issue
and thereby lower your cost of insurance and surrender charges which are scaled
by age. (See "Charges and Deductions - Monthly Deduction" at page 27 and
"Surrender Charge" at page 27.) A backdated contract will be treated as though
it had been in force since the contract date. Consequently, the initial premium
required for a backdated contract will be larger than for a contract which is
not backdated inasmuch as you must satisfy the minimum premium requirement, pay
monthly deductions and pay all other charges associated with the contract for
the period between the contract date and the issue date.
On the later of the issue date and the date we receive your initial premium, net
premiums are allocated to the Money Market subaccount in connection with the
free look right. (See "Premiums - Free Look" at page 26.) On the first process
day following the issue date or, if later, when we receive your initial premium,
such net premiums will be allocated among the subaccounts and the general
account in accordance with your instructions as indicated in your application.
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<PAGE> 25
If we reject your application during the review period or you choose to cancel
your contract during the free look period, we will refund to you all amounts you
have paid under the contract. Consequently, during the application review and
free look periods, we bear the investment risk with respect to any amounts you
pay under the contract. However, if you do not exercise your free look
privilege, your accumulation value will reflect investment performance during
the free look period.
PAYMENT OF PREMIUMS
Premiums must be paid to us at our home office. Unlike a traditional insurance
policy, the contract does not require a fixed schedule of premium payments.
Within certain limits, you may determine the amount and timing of your premium
payments. As described below, such limits include an initial premium requirement
and a minimum premium requirement. Your contract specification page will also
include a schedule of planned premiums.
INITIAL PREMIUMS
You must pay an initial premium before we will make your contract effective.
Such premium may be submitted with your contract application or sent directly to
us at our home office. The amount of the initial premium will be at least one
monthly minimum premium. The initial premium for a backdated contract may be
substantially greater.
MINIMUM PREMIUMS
You must satisfy the minimum premium requirement to keep the death benefit
guarantee in effect. Failure to make premium payments sufficient to maintain the
death benefit guarantee will not necessarily cause your contract to lapse.
However, once the death benefit guarantee does not apply to your contract, it
may not be reinstated. (See "Death Benefits - Death Benefit Guarantee" at page
18.) The component of the monthly deduction which is the charge for the death
benefit guarantee will not be imposed on contracts for which the death benefit
guarantee is no longer in effect. (See "Charges and Deductions - Monthly
Deduction" at page 27.)
To satisfy the minimum premium requirement, you must have paid at any time
cumulative premiums, less any partial surrenders and contract indebtedness,
equal to the monthly minimum premium multiplied by the number of complete
contract months the contract has been in effect. The monthly minimum premium
indicated on the contract specification page will remain a level amount until
the end of the death benefit guarantee period.
PLANNED PREMIUMS
When you purchase a contract, you will be asked to adopt a planned premium
schedule. Such schedule is a planning device which indicates the level of
premiums you intend to pay under the contract. You are not required to adhere to
such schedule. You may adopt, in consultation with your agent, any planned
premium schedule that you wish. The amount of scheduled payments, however,
should generally be set between the minimum premium necessary to keep the death
benefit guarantee in effect and the maximum premium permitted for your contract
to qualify as life insurance under the Code. The guideline annual premium is a
level amount which should provide the benefits under the contract through age
100 and is based on guaranteed assumptions with respect to expenses and cost of
insurance charges and investment performance of 4%.
In choosing your planned premium schedule, you will need to make a judgment as
to the long-term rate of investment return which you expect under the contract.
The higher your assumption as to the long-term rate of investment return, the
lower your planned premium needs to be for a given insurance objective, and vice
versa. There is no assurance that such planned premiums will provide the death
proceeds or other benefits sought under the contract. By definition, the value
of such benefits depends on the investment performance of the subaccounts which
cannot be predicted. In any event, you may need to pay greater or lesser
premiums than are indicated in the planned premium schedule to attain your
insurance objectives.
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<PAGE> 26
We will furnish you an annual report which will show the accumulation value of
your contract one year from the date of the report based on planned premiums,
guaranteed cost of insurance and guaranteed interest with respect to the general
account. We may charge for this report.
As previously indicated, at any time you may pay more or less than the amount
indicated in the planned premium schedule. We may at our discretion, however,
refuse to accept any premium payment of less than $25 or so large that it would
cause the contract, without an increase in death benefit, to be disqualified as
life insurance or to be treated as a modified endowment contract under federal
law.
ALLOCATION OF PREMIUMS
In the contract application, you may direct the allocation of your premium
payments, net of the premium expense charge (see "Charges and Deductions -
Premium Expense Charge" at page 26) among the subaccounts of the variable
account and the general account. Your initial allocation will take effect on the
first process day following the issue date or, if later, when we receive your
initial premium payment. Pending such allocation, net premiums will be held in
the Money Market subaccount. If you fail to indicate an allocation in your
contract application, we will leave your net premiums in the Money Market
subaccount until we receive allocation instructions. The amount allocated to any
subaccount or the general account must equal a whole percentage. You may change
the allocation of your future net premiums at any time upon written notice to
us. Premiums allocated to an increase will be credited to the subaccounts and
the general account in accordance with your premium allocation then in effect on
the later of the date of the increase or the date we receive such a premium.
TRANSFERS
You may transfer the accumulation value of your contract among the subaccounts
of the variable account and to the general account at any time. Each amount
transferred must be at least $300 unless a smaller amount constitutes the entire
accumulation value of the subaccount from which the transfer is being made, in
which case you may only transfer the entire amount. There is a service charge of
$3 for each transfer, but we are presently waiving that charge for the first
four transfers during a contract year. Such fee is guaranteed not to exceed $15
in the future. Transfers from the general account to the subaccounts are subject
to additional restrictions. No more than 25% of the accumulation value in the
general account as of the end of the previous contract year, or $1,000, if
greater, may be transferred to one or more of the subaccounts in any contract
year.
To the extent that transfers, surrenders and loans 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, the Company 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 the Company 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 (pursuant
to a preexisting 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 rules of the Commission preclude the
Company 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.
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<PAGE> 27
DOLLAR COST AVERAGING
The Company administers a Dollar Cost Averaging ("DCA") program enabling you to
preauthorize automatic monthly or quarterly transfers of a specified dollar
amount (a) from any variable subaccount to any of the other subaccounts or the
general account, or (b) if established at the time the contract is issued and
limited to accumulation values attributed to your initial premium payment, from
the general account to any other subaccounts. The DCA program is only available
on contracts having a total accumulation value of at least $10,000. Each
transfer under the DCA program must be at least $500, and at least 12 transfers
must be scheduled. No transfer fee will be charged for DCA transfers. The
Company may discontinue the DCA program at any time.
DCA generally has the effect of reducing the risk of purchasing at the top of a
market cycle by reducing the average cost of indirectly purchasing Fund shares
through the subaccounts to less than the average price of the shares on the same
purchase dates. This is because greater numbers of shares are 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. In
addition, in a rising market, DCA will produce a lower rate of return than will
a single up-front investment. Moreover, for transfers from a subaccount not
having a stabilized net asset value, DCA will have the effect of reducing the
average price of shares being redeemed.
TELEPHONE TRANSFERS
If the contract owner first submits a pre-authorization form to the Company,
transfers may be made by telephoning the Company at 1-800-635-3225. The Company
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. The Company
will use reasonable procedures to confirm that telephone instructions are
genuine. (Otherwise, the Company may be liable for any losses due to
unauthorized or fraudulent instructions.) A written confirmation will be sent
following each telephone transfer.
LAPSE
Provided you satisfy the minimum premium requirement and thereby keep the death
benefit guarantee in effect, your contract will not lapse during the death
benefit guarantee period. If you fail to satisfy the minimum premium requirement
and, as a result, the death benefit guarantee is not in effect, the contract
will remain in force as long as the cash surrender value less any contract
indebtedness is sufficient to pay the next monthly deduction. If the cash
surrender value less any contract indebtedness is insufficient to pay the next
monthly deduction, you will be given a 61 day grace period within which to make
a premium payment to avoid lapse. The premium required to avoid lapse will be
equal to the amount needed to allow the cash surrender value less any contract
indebtedness to cover the monthly deduction for two contract months. This
required premium will be indicated in a written notice which we will send to you
at the beginning of the grace period. The grace period commences when we mail
such notice. The contract will continue in force throughout the grace period,
but if the required premium is not forthcoming, the contract will terminate
without value at the end of the grace period. If death occurs during the grace
period, the death benefit payable under the contract will be reduced by the
amount of any unpaid monthly deduction. However, the contract will never lapse
due to insufficient cash surrender value as long as the death benefit guarantee
is in effect.
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<PAGE> 28
REINSTATEMENT
If the contract lapses, you may apply for reinstatement anytime within five
years. Your contract will be reinstated provided you supply proof of
insurability and pay the monthly cost of insurance charges from the grace period
plus a reinstatement premium. The reinstatement premium, after deduction of the
premium expense charge, must be sufficient to cover the monthly deduction for
two contract months following the effective date of reinstatement. If a loan was
outstanding at the time of lapse, we will require reinstatement or repayment of
the loan and accrued interest at 6% per year before permitting reinstatement of
the contract.
CONVERSION
Once during the first two years following the issue date and the date of any
increase in stated amount, you may convert your contract or increase, as
applicable, to a fixed benefit flexible premium policy by transferring all of
your accumulation value to the general account. After such a transfer, values
and death benefits under your contract will be determinable and guaranteed.
Accumulation values will be determined as of the date we receive a conversion
request at our home office. There will be no change in stated amount as a result
of the conversion and no evidence of insurability is required. Outstanding loans
need not be repaid in order to convert your contract. Transfers of accumulation
value to the general account in connection with such a conversion will be made
without charge.
FREE LOOK
You have a limited right to cancel your contract or any increase in stated
amount. We will cancel the contract or increase if you notify us or our agent
before 20 days from the date you receive the contract or increase. Within seven
days after we receive your notice to cancel, we will return all of the money you
paid for the cancelled contract or increase. In some states, applicable law
requires that your refund be adjusted by any investment gains or losses.
CHARGES AND DEDUCTIONS
We make charges against or deductions from premium payments, accumulation values
and contract surrenders in the manner described below.
PREMIUM EXPENSE CHARGE
Each premium payment is subject to a premium expense charge. The premium expense
charge has two components: a federal tax charge and a charge for the state
premium tax and any other state and local taxes applicable to your contract.
Federal Tax Charge. - The contract is subject to a charge of 1.25% of premiums
paid in the first 10 years. This charge is intended to help defray the federal
tax cost attributable to this contract.
State Premium Tax. Your premium payments will be subject to the state premium
tax and any other state or local taxes applicable to your contract. Currently,
most state premium taxes range from 2% to 4%.
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 premium under the contract.
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<PAGE> 29
The amount of the credit equals 45% of the first contract year's minimum premium
and 45% of the minimum premium attributable to any increase in stated amount for
the year of such increase, plus 3% of any first year premium paid in excess of
the minimum premium, and 3% of the total premiums paid in the second through
sixth contract years. The Company credits the general account of the employee's
contract in the foregoing amounts at the times premium payments are made by the
employee.
MONTHLY DEDUCTION
As of the contract date and each subsequent process day, we will deduct from the
accumulation value of your contract a monthly deduction to cover certain charges
and expenses incurred in connection with the contract.
The monthly deduction consists of (1) the cost of insurance, (2) an
administration charge of $7 for the cost of establishing and maintaining
contract records and processing applications and notices, (3) a risk charge for
the risk associated with the death benefit guarantee, and (4) the cost of
additional insurance benefits provided by rider.
Your cost of insurance is determined on a monthly basis, and is determined
separately for your initial stated amount and each subsequent increase in the
stated amount. The monthly cost of insurance rate is based on your sex, attained
age, rate class and the length of time since issue. The cost of insurance is
calculated by multiplying (i) by the result of (ii) minus (iii), where:
(i) is the cost of insurance rate as described in the contract. Such actual
cost will be based on our expectations as to future mortality experience.
It will not, however, be greater than the guaranteed cost of insurance
rates set forth in the contract. Such rates for smokers and non-smokers
are based on the 1980 Commissioner's Standard Ordinary, Male or Female,
Smoker or Nonsmoker, mortality table, with assumed interest at the rate
of 4% per year. The cost of insurance charge is guaranteed not to exceed
such table rates for the insured's risk class;
(ii) is the death benefit at the beginning of the contract month divided by
1.0032737; and
(iii) is accumulation value at the beginning of the contract month.
In connection with certain employer-related plans, cost of insurance rates may
not be based on sex. (See "Employee Benefit Plans" at page 36.)
The charge for the death benefit guarantee is $0.00, $0.01, $0.03 per $1,000 of
your stated amount, depending upon which death benefit guarantee period you
choose.
RISK CHARGE
Your accumulation value in the variable account, but not your accumulation value
in the general account, will also be subject to a risk charge intended to
compensate us for assuming certain mortality and expense risks in connection
with the contract. Such charge will be assessed at a daily rate of 0.0020471%
against each of the variable subaccounts. This corresponds to an annual rate of
0.75%. The risks assumed by us include the risks of greater than anticipated
mortality and expenses.
SURRENDER CHARGE
After the free look period and during the early years of your contract and
following any increase in stated amount, a surrender charge is assessed in
connection with all complete surrenders, all lapses, all decreases in stated
amount and certain partial surrenders. Such surrender charge consists of two
components: (1) a contingent deferred sales charge, which applies to your
initial contract for 20 years from the contract date and to any increase for 20
years from the effective date of such increase, and (2) a contingent deferred
insurance underwriting charge, which applies for 8 years from such dates.
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<PAGE> 30
If you surrender your contract in full or it lapses when a surrender charge
applies, we will deduct the total charge from your accumulation value. If you
decrease the stated amount of your contract while a surrender charge applies,
your accumulation value will be charged with the portion of the total surrender
charge attributable to the stated amount cancelled by the decrease.
Partial surrenders in any contract year totaling 10% or less of the cash
surrender value of your contract as of the end of the previous contract year are
not subject to any surrender charge. Partial surrenders in any contract year in
excess of 10% of the cash surrender value of your contract as of the end of the
previous contract year will be subject to that percentage of the total surrender
charges that is equal to the percentage of cash surrender value withdrawn minus
10%.
For example, assume a contract which now has, and at the end of the previous
contract year had, an accumulation value of $11,100 and a surrender charge of
$1,100. The cash surrender value of the contract is therefore $10,000. If you
decide to withdraw 25% of such cash surrender value ($2,500), we will impose a
charge equal to 15% (25% minus 10%) of the total surrender charge (.15 x $1,100
= $165) and reduce your accumulation value by that amount.
Contingent Deferred Sales Charge. The contingent deferred sales charge for your
initial contract is 50% of premiums paid in the first 10 years up to the maximum
shown on the contract specification page. The contingent deferred sales charge
takes effect only if your contract lapses or you surrender your contract, in
whole or in part, or decrease your stated amount, during the first 20 contract
years following the issue date or the date of any increase.
The contingent deferred sales charge for an increase is 50% of premiums
allocated to such increase in the first 10 years. (See "Death Benefits - Changes
in Stated Amount" at page 18.)
We grade-off the contingent deferred sales charge over the 20 year period to
which it applies. The table below shows the percentage of the total of such
charge that we intend to impose on surrenders, lapses, decreases and certain
partial surrenders in each year such charge applies.
<TABLE>
<CAPTION>
YEAR PERCENTAGE OF TOTAL CHARGE
---- --------------------------
<S> <C>
1 100%
2 100%
3 100%
4 100%
5 100%
6 100%
7 100%
8 100%
9 100%
10 100%
11 90%
12 80%
13 70%
14 60%
15 50%
16 40%
17 30%
18 20%
19 10%
20 0%
</TABLE>
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<PAGE> 31
Contingent Deferred Insurance Underwriting Charge. The contingent deferred
insurance underwriting charge varies with age at issue or increase and is
expressed as an amount per thousand dollars of your stated amount and therefore
varies with the size of your contract as well. Such variation is limited,
however, in that such charge only applies to the first $500,000 of your stated
amount. The charges per thousand dollars of stated amount and the maximum
charges by virtue of the $500,000 cap are set forth in the following table:
<TABLE>
<CAPTION>
AGE AT ISSUE 61 AND
OR INCREASE 0-40 41-50 51-60 OVER
------------ ---- ----- ----- ------
<S> <C> <C> <C> <C>
Charge per $ 3.00 $ 4.00 $ 5.00 $ 6.00
$1.000 of
Stated Amount
Maximum $ 1,500 $ 2,000 $ 2,500 $ 3,000
</TABLE>
We grade-off the contingent deferred insurance underwriting charge in accordance
with the following table. The table shows the percentage to total such charge we
intend to impose on surrenders, lapses, decreases and certain partial surrenders
in each year such charge applies.
<TABLE>
<CAPTION>
YEAR PERCENTAGE OF TOTAL CHARGE
---- --------------------------
<S> <C>
1 100%
2 100%
3 100%
4 100%
5 80%
6 60%
7 40%
8 20%
</TABLE>
The contingent deferred insurance underwriting charge is intended to compensate
us for certain insurance underwriting costs, including the selection and
classification of risks and processing medical evidence of insurability.
SERVICE CHARGES
A charge that is currently $3 and is guaranteed not to exceed $15 will be
imposed on each transfer of accumulation values among the subaccounts of the
variable account and the general account. Currently, the Company is not
assessing this charge on the first four transfers made in any contract year. For
partial surrenders, a service fee will be charged equal to the lesser of $25 or
2% of the amount surrendered. A fee, not to exceed $100, is charged for any
illustration of benefits and values that you may request after the issue date.
All such fees are no greater than anticipated expenses in providing such
services.
OTHER CHARGES
We also reserve the right to charge the assets of each subaccount and the
general account to provide for any taxes that may become payable by us in
respect of such assets. Under current law, no such taxes are anticipated. In
addition, the Fund pays certain expenses that affect the value of your contract.
The principal expense at the Fund level is an investment advisory fee which, for
the Equity, Bond, Omni and Social Awareness Portfolios is at the annual rate of
0.60% of the first $100 million of average daily net assets of each of those
portfolios, 0.50% of the next $150 million, 0.45% of the next $250 million,
0.40% of the next $500 million, 0.30% of the next $1 billion, and 0.25% of all
portfolio assets in excess of $2 billion. For the Money Market Portfolio, the
fee is 0.30% of the first $100 million of average daily net assets, 0.25% of the
next $150 million, 0.23% of the next $250 million, 0.20% of the next $500
million, and 0.15% of all assets in excess of $1 billion. Presently, with
respect to the Money Market Portfolio, the Adviser is waiving any of its fee in
excess of 0.25%. For the International and Global Contrarian Portfolios, the fee
is 0.90% of each portfolio's average daily net assets, of which 0.75% is paid by
the Adviser to SGAM. For the Capital Appreciation, Small Cap, and Aggressive
Growth Portfolios, the fee is 0.80% of the average daily net assets of each of
those portfolios. The Adviser then pays TRPA a fee at an annual rate of
29
<PAGE> 32
0.70% of the first $5 million and 0.50% of average daily net assets value in
excess of $5 million for the Capital Appreciation Portfolio. The Adviser pays
FAM a fee at an annual rate of 0.65% of the first $75 million, 0.60% of the next
$75 million, and 0.55% of average daily net asset value in excess of $150
million for the Small Cap Portfolio. The Adviser pays SCM a fee at an annual
rate of 0.70% of the first $50 million and 0.50% of average daily net asset
value in excess of $50 million for the Aggressive Growth Portfolio. For the Core
Growth Portfolio, the fee is 0.95% of the first $150 million of average daily
net assets and 0.80% of all assets in excess of $150 million. The Adviser then
pays PBA a fee at an annual rate of 0.75% of the first $50 million, 0.70% of the
next $100 million and 0.50% of average daily net assets in excess of $150
million for the Core Growth Portfolio. For the Growth & Income Portfolio, the
fee is 0.85% of the first $200 million of average daily net assets and 0.80% of
all assets in excess of $200 million. The Adviser then pays RSIM a fee at an
annual rate of 0.60% of the first $100 million, 0.55% of the next $100 million
and 0.50% of average daily net assets in excess of $200 million for the Growth &
Income Portfolio. For the S&P 500 Index Portfolio, the fee is 0.40% of the first
$100 million of average daily net assets, 0.35% of the next $150 million, and
0.33% of all assets in excess of $250 million. For the Emerging Markets Fund,
its investment adviser, Montgomery Asset Management, L.P., is paid a fee at the
annual rate of 1.25% of the first $250 million of average daily net assets and
1.00% of all assets of the Emerging Markets Fund in excess of $250 million. (See
the accompanying prospectuses of the Fund and the Emerging Markets Fund for a
full description of all their expenses and fees.)
GENERAL PROVISIONS
VOTING RIGHTS
We will vote the Fund shares held in the various subaccounts of the variable
account at shareholder meetings of the Fund (or of the Emerging Markets Fund) in
accordance with your instructions. If, however, the 1940 Act or any regulation
thereunder should change and we determine that it is permissible to vote the
Fund shares in our own right, we may elect to do so. The number of votes as to
which you have the right to instruct will be determined by dividing your
contract's accumulation value in a subaccount by the net asset value per share
of the corresponding Fund portfolio. Fractional shares will be counted. The
number of votes as to which you have the right to instruct will be determined as
of the date coincident with the date established by the Fund for determining
shareholders eligible to vote at the meeting of the Fund. Voting instructions
will be solicited in writing prior to such meeting in accordance with procedures
established by the Fund. We will vote Fund shares attributable to contracts as
to which no instructions are received, and any Fund shares held by the variable
account which are not attributable to contracts, in proportion to the voting
instructions which are received with respect to contracts participating in the
variable account. Each person having a voting interest will receive proxy
material, reports and other material relating to the Fund.
Similarly, we will vote Fund shares held by variable annuity separate accounts
in accordance with instructions received from annuity owners. Fund shares owned
by Ohio National Life that are held by such variable annuity separate accounts
will be voted in proportion to the voting instructions received from
contractowners.
We may, when required by state insurance regulatory authorities, disregard
voting instructions if the instructions require that shares be voted so as to
cause a change in subclassification or investment objective of the Fund or
disapprove an investment advisory contract of the Fund. In addition, we may
disregard voting instructions in favor of changes initiated by a contractowner
in the investment policy or the investment adviser of the Fund if we reasonably
disapprove of such changes. A change would be disapproved only if the proposed
change is contrary to state law or prohibited by state regulatory authorities or
we determined that the change would be inconsistent with the investment
objectives of the variable account or would result in the purchase of securities
for the variable account which vary from the general quality and nature of
investments and investment techniques utilized by other separate accounts
created by us or any of our affiliates which have similar investment objectives.
In the event that we disregard voting instructions, a summary of that action and
the reason for such action will be included in your next semi-annual report.
30
<PAGE> 33
ADDITIONS, DELETIONS OR SUBSTITUTIONS OF INVESTMENTS
We reserve the right, subject to compliance with applicable law, to make
additions to, deletions from or substitutions for the shares held by any
subaccount or which any subaccount may purchase. If shares of the Fund or
Emerging Markets Fund should no longer be available for investment or if, in the
judgment of management, further investment in shares of the Fund or the Emerging
Markets Fund would be inappropriate in view of the purposes of the contract, we
may substitute shares of any other investment company for shares already
purchased, or to be purchased in the future. No substitution of securities will
take place without notice to and the consent of contractowners and without prior
approval of the Commission, all to the extent required by the 1940 Act. In
addition, the investment policy of the variable account will not be changed
without the approval of the Ohio Superintendent of Insurance and such approval
will be on file with the state insurance regulator of the state where your
contract was delivered.
Each class of Fund shares is subject to certain investment restrictions which
may not be changed without the approval of the majority of such shares. For
details concerning such restrictions, see the accompanying prospectus for the
Fund and the Emerging Markets Fund.
ANNUAL REPORT
Each year we will send you a report which shows the current accumulation value,
the cash surrender value, the stated amount, any contract indebtedness, any
partial withdrawals since the date of the last report, investment experience
credited since the last report, premiums paid and all charges imposed since the
last annual report. We will also send you all reports required by the 1940 Act.
We will also make available a projection report. This report will be based on
planned premiums, guaranteed cost of insurance and guaranteed interest, if any.
It will show the accumulation value of your contract one year from the date of
the report. Although there is generally no charge, we may charge a fee of not
more than $100 for this report and if you ask for more than one annual report.
LIMITATION ON RIGHT TO CONTEST
We will not contest the insurance coverage provided under the contract, except
for any subsequent increase in stated amount, after the contract has been in
force during your lifetime for a period of two years from the contract date.
This provision does not apply to any rider which grants disability or accidental
death benefits. Any increase in the stated amount will not be contested after
such increase has been in force during your lifetime for two years following the
effective date of the increase. Any increase will be contestable within the two
year period only with regard to statements concerning the increase.
MISSTATEMENTS
If the age or sex of the insured has been misstated in an application, including
a reinstatement application, the amount payable under the contract by reason of
the death of the insured will be 1.0032737 multiplied by the sum of (i) and (ii)
where:
(i) is the accumulation value on the date of death; and
(ii) is the death benefit, less the accumulation value on the date of
death, multiplied by the ratio of (a) the cost of insurance actually
deducted at the beginning of the contract month in which the death
occurs to (b) the cost of insurance that should have been deducted at
the insured's true age or sex.
31
<PAGE> 34
SUICIDE
The contract does not cover the risk of suicide or self-destruction within two
years from the contract date or two years from the date of any increase in
stated amount with respect to such increase, whether the insured is sane or
insane. In the event of suicide within two years of the contract date, we will
refund premiums paid, without interest, less any contract indebtedness and less
any partial surrender. In the event of suicide within two years of an increase
in stated amount, we will refund any premiums allocated to the increase, without
interest, less a deduction for a share of any contract indebtedness outstanding
and any partial surrenders made since the increase. The share of indebtedness
and partial surrenders so deducted will be determined by dividing the total face
amount at the time of death by the face amount of the increase.
BENEFICIARIES
The primary and contingent beneficiaries are designated by the contractowner on
the application. If changed, the primary beneficiary or contingent beneficiary
is as shown in the latest change filed with us. If more than one beneficiary
survives the insured, the proceeds of the contract will be paid in equal shares
to the survivors in the appropriate beneficiary class unless requested otherwise
by the contractowner.
POSTPONEMENT OF PAYMENTS
Payment of any amount upon a complete or partial surrender, a contract loan, or
benefits payable at death or maturity may be postponed whenever: (i) the New
York Stock Exchange is closed other than customary week-end and holiday
closings, or trading on the Exchange is restricted as determined by the
Commission; (ii) the Commission by order permits postponement for the protection
of contractowners; or (iii) an emergency exists, as determined by the
Commission, as a result of which disposal of securities is not reasonably
practicable or it is not reasonably practicable to determine the value of the
variable account's net assets. The Company may also withhold payment of any
increased accumulation value or loan value resulting from a recent premium
payment until your premium check has cleared. This could take up to 15 days
after we receive your check.
ASSIGNMENT
The contract may be assigned as collateral security. We must be notified in
writing if the contract has been assigned. Each assignment will be subject to
any payments made or action taken by us prior to our notification of such
assignment. We are not responsible for the validity of an assignment. The
contractowner's rights and the rights of the beneficiary may be affected by an
assignment.
NON-PARTICIPATING CONTRACT
The contract does not share in our surplus distributions. No dividends are
payable with respect to the contract.
THE GENERAL ACCOUNT
By virtue of exclusionary provisions, interests in the general account have not
been registered under the Securities Act of 1933 and the general account has not
been registered as an investment company under the 1940 Act. Accordingly,
neither the general account nor any interests therein are subject to the
provisions of these Acts.
GENERAL DESCRIPTION
The general account consists of all assets owned by us other than those in the
variable account and any other separate accounts we may establish. Subject to
applicable law, we have sole discretion over the investment of the assets of the
general account.
32
<PAGE> 35
You may elect to allocate net premiums to the general account or to transfer
accumulation value to the general account from the subaccounts of the variable
account. The allocation or transfer of funds to the general account does not
entitle a contractowner to share in the investment experience of the general
account. Instead, we guarantee that your accumulation value in the general
account will accrue interest daily at an effective annual rate of at least 4%,
without regard to the actual investment experience of the general account.
Consequently, if you pay the planned premiums, allocate all net premiums only to
the general account and make no transfers, partial surrenders, or contract
loans, the minimum amount and duration of your death benefit will be
determinable and guaranteed. Transfers from the general account to the variable
account are partially restricted and allocation of substantial sums to the
general account reduces the flexibility of the contract. (See "Premiums -
Transfers" at page 24.)
ACCUMULATION VALUE
The accumulation value in the general account on the later of the issue date or
the day we receive your initial premium is equal to the portion of the net
premium allocated to the general account, less a pro rata portion of the first
monthly deduction.
Thereafter, until the maturity date, we guarantee that the accumulation value in
the general account will not be less than the amount of the net premiums
allocated or accumulation value transferred to the general account, plus
interest at the rate of 4% per year, plus any excess interest which we credit,
less the sum of all charges and interest thereon allocable to the general
account and any amounts deducted from the general account in connection with
partial surrenders and interest thereon or transfers to the variable account.
We guarantee that interest credited to your accumulation value in the general
account will not be less than an effective annual rate of 4% per year. We may,
at our sole discretion, credit a higher rate of interest, although we are not
obligated to do so. The contractowner assumes the risk that interest credited
may not exceed the guaranteed minimum rate of 4% per year. The accumulation
value in the general account will be calculated on each valuation date.
OPTIONAL INSURANCE BENEFITS
Subject to certain requirements, one or more optional insurance benefits may be
added to your contract, including riders providing additional term insurance,
spouse/additional insured term insurance, family plan/children insurance, a
guaranteed purchase option, accidental death, waiver of premium, preferred loan,
continuation of coverage, and accelerated death benefit. More detailed
information concerning such riders may be obtained from your agent. The cost of
any optional insurance benefits will be deducted as part of the monthly
deduction. (See "Charges and Deductions - Monthly Deduction" at page 27.)
SETTLEMENT OPTIONS
In addition to a lump sum payment of benefits under the contract (see "Death
Benefits" at page 15), any proceeds may be paid in any of the five methods
described in your contract. For more details, contact your agent. A settlement
option may be designated by notifying us in writing at our home office. Any
amount left with us for payment under a settlement option will be transferred to
the general account. During the life of the insured, the contractowner may
select a settlement option. If a settlement option has not been chosen at the
insured's death, the beneficiary may choose one. If a beneficiary is changed,
the settlement option selection will no longer be in effect unless the
contractowner requests that it continue. A settlement option may be elected only
if the amount of the proceeds is $5,000 or more. We reserve the right to change
the interval of payments if necessary to increase the payments to at least $25
each.
33
<PAGE> 36
DISTRIBUTION OF THE CONTRACT
The contract is sold by individuals who, in addition to being licensed as life
insurance agents, are also registered representatives (a) of The O.N. Equity
Sales Company ("ONESCO"), a wholly-owned subsidiary of Ohio National Life, or
(b) of other broker-dealers that have entered into distribution agreements with
the principal underwriter of the contracts. ONESCO and the other broker-dealers
are responsible for supervising and controlling the conduct of their registered
representatives in connection with the offer and sale of the contract. ONESCO
and the other broker-dealers are registered with the Commission under the
Securities Exchange Act of 1934 and are members of the National Association of
Securities Dealers, Inc.
At the date of this prospectus, ONESCO was the principal underwriter of the
contracts. However, pending receipt of necessary regulatory approvals, Ohio
National Equities, Inc., a new wholly-owned subsidiary of Ohio National Life,
will become the principal underwriter. The Company, pursuant to a distribution
and service agreement with the principal underwriter, reimburses the principal
underwriter for any expenses incurred by it in connection with the distribution
of the contracts. At the end of each calendar quarter, the principal underwriter
pays the Company an amount equal to one-sixteenth of one percent of the average
daily amount of assets of the contract maintained in the Fund during that
quarter. This agreement may be terminated at any time by either party on 60
days' written notice.
MANAGEMENT OF THE COMPANY
<TABLE>
<CAPTION>
OFFICERS AND DIRECTORS
RELATIONSHIP PRINCIPAL OCCUPATION
NAME WITH COMPANY AND BUSINESS ADDRESS
- ---- ------------ --------------------
<S> <C> <C>
Paul L. Bergmann Vice President, Financial The Ohio National Life
Control Insurance Company*
Michael A. Boedeker Vice President, Fixed Income The Ohio National Life
Securities Insurance Company*
Joseph P. Brom Director and Senior Vice President The Ohio National Life
& Chief Investment Officer Insurance Company*
David W. Cook Senior Vice President and Actuary The Ohio National Life
Insurance Company*
Robert M. DiTommaso Vice President, Career Marketing The Ohio National Life
Insurance Company*
Ronald J. Dolan Director and Senior Vice President The Ohio National Life
& Chief Financial Officer Insurance Company*
David B. O'Maley Director and Chairman, The Ohio National Life
President & Chief Executive Officer Insurance Company*
George B. Pearson Vice President, PGA Marketing The Ohio National Life
Insurance Company*
Dallas L. Pennington Vice President, Information The Ohio National Life
Systems Insurance Company*
D. Gates Smith Senior Vice President, Sales The Ohio National Life
Insurance Company*
Michael D. Stohler Vice President, Mortgages & The Ohio National Life
Real Estate Insurance Company*
Stuart G. Summers Director and Senior Vice President The Ohio National Life
and General Counsel Insurance Company*
Donald J. Zimmerman Director, Senior Vice President, The Ohio National Life
Insurance Operations Insurance Company*
and Secretary
</TABLE>
*Principal Business Address is:
One Financial Way
Cincinnati, Ohio 45242
The officers, directors and employees of the Company who have access to the
assets of the variable account are covered by fidelity bonds issued by United
States Fidelity & Guaranty Company in the aggregate amount of $3,000,000.
34
<PAGE> 37
CUSTODIAN
Pursuant to a written agreement, Star Bank, NA, 425 Walnut Street, Cincinnati,
Ohio, serves as custodian of the assets of the variable account. The fee of the
custodian for services rendered to the variable account is paid by the Company.
The custodian also provides valuation and certain recordkeeping services to the
variable account, which include, without limitation, maintaining a record of all
purchases, redemptions and distributions relating to Fund shares, the amounts
thereof and the number of shares from time to time standing to the credit of the
variable account.
STATE REGULATION OF THE COMPANY
The Company is organized under the laws of the State of Ohio and is subject to
regulation by the Superintendent of Insurance of Ohio. An annual statement is
filed with the Superintendent on or before March 1 of each year covering the
operations and reporting on the financial condition of the Company as of
December 31 of the preceding year. Periodically, the Superintendent examines the
assets and liabilities of the Company and of the variable account and verifies
their adequacy. A full examination of the Company's operations is conducted by
the National Association of Insurance Commissioners at least every five years.
In addition, the Company is subject to the insurance laws and regulations of
other states in which it is licensed to operate. Generally, the insurance
department of any other state applies the laws of the state of domicile in
determining permissible investments.
FEDERAL TAX MATTERS
The following description is a brief summary of some of the Code provisions
which, in the Company's opinion, are currently in effect. This summary does not
purport to be complete or to cover all situations, including the possible tax
consequences of changes in ownership. Counsel and other competent tax advisers
should be consulted for more complete information. 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.
CONTRACT PROCEEDS
The contract contains provisions not found in traditional life insurance
contracts providing only for fixed benefits. However, under the Code, as amended
by the Tax Reform Act of 1984, the contract should qualify as a life insurance
contract for federal income tax purposes as long as certain conditions are met.
Consequently, the proceeds of the contract payable to the beneficiary on the
death of the insured will generally be excluded from the beneficiary's income
for purposes of the federal income tax.
Current tax rules and penalties on distributions from life insurance contracts
apply to any life insurance contract issued or materially changed on or after
June 21, 1988 that is funded more heavily (faster) than a traditional whole life
plan designed to be paid-up after the payment of level annual premiums over a
seven-year period. Thus, for such a contract (called a "modified endowment
contract" in the Code), any distribution, including surrenders, partial
surrenders, maturity proceeds, and loans secured by the contract, during the
insured's lifetime (but not payments received as an annuity or as a death
benefit) would be included in the contractowner's gross income to the extent
that the contract's cash surrender value exceeds the owner's investment in the
contract. In addition, a ten percent penalty tax applies to any such
distribution from such a contract, to the extent includible in gross income,
except if made (i) after the taxpayer's attaining age 59-1/2, (ii) as a result
of his or her disability or (iii) in one of several prescribed forms of annuity
payments.
35
<PAGE> 38
Loans received under the contract will be construed as indebtedness of the
contractowner in the same manner as loans under a fixed benefit life insurance
policy and no part of any loan under the contract is expected to constitute
income to the contractowner. Interest payable with respect to such loans is not
tax deductible. If the contract is surrendered or lapsed, any policy loan then
in effect is treated as taxable income to the extent that the contract's
accumulation value (including the loan amount) then exceeds your "basis" in the
contract. (Your "basis" equals the total amount of premiums that were paid into
the contract less any withdrawals from the contract.)
Federal estate and local estate, inheritance and other tax consequences of
contract ownership or receipt of contract proceeds depend upon the circumstances
of each contractowner and beneficiary.
CORRECTION OF MODIFIED ENDOWMENT CONTRACT
If you have made premium payments in excess of the amount that would be
permitted without your contract being treated as a modified endowment contract
under the Code, you may, upon timely written request, prevent that tax treatment
by receiving a refund, without deduction of any charges, of the excess premium
paid, plus interest thereon at the rate of 6% per year. Under the Code, such a
corrective action must be completed by no later than 60 days after the end of
the year following the date the contract became a modified endowment contract.
RIGHT TO CHARGE FOR COMPANY TAXES
The Company is presently taxed as a life insurance company under the provisions
of the Code. The Tax Reform Act of 1984 specifically provides for adjustments in
reserves for flexible premium policies, and we will reflect flexible premium
life insurance operations in our tax return in accordance with such Act.
Currently, no charge is assessed against the variable account for the Company's
federal taxes, or provision made for such taxes, that may be attributable to the
variable account. However, we may in the future charge each subaccount of the
variable account for its portion of any tax charged to us in respect of such
subaccount or its assets. Under present law, we may incur state and local taxes
(in addition to premium taxes) in several states. At present, these taxes are
not significant. If they increase, however, we may decide to assess charges for
such taxes, or make provision for such taxes, against the variable account. Any
such charges against the variable account or its subaccounts could have an
adverse effect on the investment performance of such subaccounts.
EMPLOYEE BENEFIT PLANS
Employers and employee organizations should consider, in consultation with
counsel, the impact of Title VII of the Civil Rights Act of 1964 on the purchase
of a contract in connection with an employment-related insurance or benefit
plan. The United States Supreme Court held, in a 1983 decision, that, under
Title VII, optional annuity benefits under a deferred compensation plan could
not vary on the basis of sex.
LEGAL PROCEEDINGS
There are no legal proceedings to which the variable account is a party or to
which the assets of any of the subaccounts thereof are subject. The Company is
not involved in any litigation that is of material importance in relation to its
total assets or that relates to the variable account.
LEGAL MATTERS
Jones & Blouch, L.L.P., Washington, D.C., has served as special counsel with
regard to legal matters relating to federal securities laws applicable to the
issuance of the flexible premium variable life insurance contract described in
this prospectus. All matters of Ohio law pertaining to the contract including
the validity of the contract and the Company's right to issue the contract under
the Insurance Law of the State of Ohio have been passed upon by Ronald L.
Benedict, Second Vice President and Counsel of Ohio National Life.
36
<PAGE> 39
EXPERTS
The financial statements of Variable Account R as of December 31, 1995 and for
each of the periods indicated herein and of the Company as of December 31, 1995
and for the year then ended included in this prospectus 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.
The audited financial statements of the Company (a wholly-owned subsidiary of
Ohio National Life) have been prepared in accordance with generally accepted
accounting principles. The report on the financial statements of the Company
refers to a change in accounting and reporting by mutual life insurance
enterprises and their wholly-owned subsidiaries and by insurance enterprises
for certain long-duration participating contracts in 1995.
Actuarial matters included in this prospectus have been examined by David W.
Cook, FSA, MAAA, as stated in the opinion filed as an exhibit to the
registration statement.
REGISTRATION STATEMENT
A registration statement has been filed with the Commission under the Securities
Act of 1933, as amended, with respect to the contract offered hereby. This
prospectus does not contain all the information set forth in the registration
statement. Reference is made to such registration statement for further
information concerning the variable account, the Company and the contract
offered hereby. Statements contained in this prospectus as to the contents of
the contract and other legal instruments are summaries. For a complete statement
of the terms thereof, reference is made to such instruments as filed.
FINANCIAL STATEMENTS
The financial statements of the Company which are included in this prospectus
should be considered only as bearing on the ability of the Company to meet its
obligations under the contract. They should not be considered as bearing on the
investment performance of the assets held in the variable account.
OHIO NATIONAL VARIABLE ACCOUNT R
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Ohio National Life Assurance Corporation
The Contract Owners
Ohio National Variable Account R
We have audited the accompanying statements of assets and contract owner's
equity of Ohio National Variable Account R as of December 31, 1995, and the
related statement of operations, 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, 1995, 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
R at December 31, 1995, and the results of its operations, changes in
contractowners' 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 26, 1996
37
<PAGE> 40
OHIO NATIONAL VARIABLE ACCOUNT R
STATEMENTS OF ASSETS AND CONTRACT OWNERS' EQUITY
December 31, 1995
<TABLE>
<CAPTION>
MONEY CAPITAL SMALL
EQUITY MARKET BOND OMNI INTERNATIONAL APPRECIATION CAP
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
----------- ---------- ---------- ---------- ---------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
Assets - Investments
at market value
(note 2) $16,037,147 $671,215 $526,383 $5,159,728 $8,125,877 $1,238,994 $1,674,007
=========== ======== ======== ========== ========== ========== ==========
Contract owners' equity:
Contracts in
accumulation
period (note 3) $16,037,147 $671,215 $526,383 $5,159,728 $8,125,877 $1,238,994 $1,674,007
=========== ======== ======== ========== ========== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
GLOBAL AGGRESS.
CONTR. GROWTH
SUBACCOUNT SUBACCOUNT
---------- ----------
<S> <C> <C>
Assets - Investments
at market value
(note 2) 232,012 442,081
======= =======
Contract owners' equity:
Contracts in
accumulation
period (note 3) 232,012 442,081
======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
38
<PAGE> 41
OHIO NATIONAL VARIABLE ACCOUNT R
STATEMENTS OF OPERATIONS AND CHANGES IN CONTRACT OWNERS' EQUITY
FOR THE THREE YEARS ENDED DECEMBER 31
<TABLE>
<CAPTION>
MONEY
EQUITY MARKET
SUBACCOUNT SUBACCOUNT
1995 1994 1993 1995 1994 1993
------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Investment activity:
Reinvested capital
gains and dividends $ 377,916 $ 312,185 $ 228,872 $ 24,454 $ 14,204 $ 6,282
------------ ------------ ------------ ------------ ------------ ------------
Realized and unrealized gain
(loss) on investments:
Realized gain (loss) 137,099 76,820 62,035 140 -- --
Unrealized gain (loss) 2,656,620 (358,845) 738,010 -- -- (218)
------------ ----------- ------------ ------------ ------------ ------------
Net gain (loss) on
investments 2,793,719 (282,025) 800,045 140 -- (218)
------------ ------------ ------------ ------------ ------------ ------------
Net investment activity 3,171,635 30,160 1,028,917 24,594 14,204 6,064
------------ ------------ ------------ ------------ ------------ ------------
Equity transactions:
Sales:
Contract purchase payments 3,786,276 3,311,520 2,490,654 2,749,849 3,427,468 1,747,695
Transfers from fixed and
other subaccounts 1,036,068 1,199,000 1,156,965 478,053 588,864 273,749
------------ ------------ ------------ ------------ ------------ ------------
4,822,344 4,510,520 3,647,619 3,227,902 4,016,332 2,021,444
------------ ------------ ------------ ------------ ------------ ------------
Redemptions:
Withdrawals and surrenders 325,573 246,089 303,031 24,538 2,746 11,533
Transfers to fixed and
other subaccounts 1,127,609 1,309,525 888,301 2,921,107 3,962,531 1,709,310
Cost of insurance and
administrative fee 1,261,061 1,039,221 810,300 119,220 124,019 66,464
------------ ------------ ------------ ------------ ------------ ------------
2,714,243 2,594,835 2,001,632 3,064,865 4,089,296 1,787,307
------------ ------------ ------------ ------------ ------------ ------------
Net equity transactions 2,108,101 1,915,685 1,645,987 163,037 (72,964) 234,137
------------ ------------ ------------ ------------ ------------ ------------
Risk and administrative
expense (note 4) 99,621 74,431 57,058 3,384 2,923 1,714
------------ ------------ ------------ ------------ ------------ ------------
Net change in contract
owners' equity 5,180,115 1,871,414 2,617,846 184,247 (61,683) 238,487
Contract owners' equity:
Beginning of period 10,857,032 8,985,618 6,367,772 486,968 548,651 310,164
------------ ------------ ------------ ------------ ------------ ------------
End of period $ 16,037,147 $ 10,857,032 $ 8,985,618 $ 671,215 $ 486,968 $ 548,651
============ ============ ============ ============ ============ ============
</TABLE>
<TABLE>
<CAPTION>
BOND OMNI
SUBACCOUNT SUBACCOUNT
1995 1994 1993 1995 1994 1993
----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Investment activity:
Reinvested capital
gains and dividends $ 19,903 $ 18,388 $ 11,491 $ 122,957 $ 118,097 $ 80,190
------------ ------------ ------------ ------------ ------------ ------------
Realized and unrealized gain
(loss) on investments:
Realized gain (loss) -- (1,030) 1,854 31,864 22,179 24,768
Unrealized gain (loss) (78) (26,390) 3,300 725,434 (155,096) 152,337
------------ ------------ ------------ ------------ ------------ ------------
Net gain (loss) on
investments (44,832) (27,420) 5,154 757,298 (132,917) 177,105
------------ ------------ ------------ ------------ ------------ ------------
Net investment activity 44,754 (9,032) 16,645 880,255 (14,820 257,295
------------ ------------ ------------ ------------ ------------ ------------
Equity transactions:
Sales:
Contract purchase payments 64,657 103,680 73,143 1,092,988 1,072,401 639,946
Transfers from fixed and
other subaccounts 108,837 40,481 48,401 370,752 841,401 420,385
------------ ------------ ------------ ------------ ------------ ------------
254,991 144,161 121,544 1,463,740 1,913,802 1,060,331
------------ ------------ ------------ ------------ ------------ ------------
Redemptions:
Withdrawals and surrenders 5,704 15,725 7,847 67,498 58,256 36,030
Transfers to fixed and
other subaccounts 32,704 19,557 31,658 314,014 497,884 240,581
Cost of insurance and
administrative fee 41,769 28,012 20,437 381,402 308,606 185,805
------------ ------------ ------------ ------------ ------------ ------------
80,177 63,294 59,942 762,914 864,746 462,416
------------ ------------ ------------ ------------ ------------ ------------
Net equity transactions 174,814 80,867 61,602 700,826 1,049,056 597,915
------------ ------------ ------------ ------------ ------------ ------------
Risk and administrative
expense (note 4) 2,892 1,792 1,362 33,258 21,835 16,214
------------ ------------ ------------ ------------ ------------ ------------
Net change in contract
owners' equity 236,579 70,043 76,885 1,547,823 1,012,401 838,996
Contract owners' equity:
Beginning of period 289,804 219,761 142,876 3,611,905 2,599,504 1,760,508
------------ ------------ ------------ ------------ ------------ ------------
End of period $ 526,383 $ 289,804 $ 219,761 $ 5,159,728 $ 3,611,905 $ 2,599,504
============ ============ ============ ============ ============ ============
</TABLE>
39
<PAGE> 42
OHIO NATIONAL VARIABLE ACCOUNT R
STATEMENTS OF OPERATIONS AND CHANGES IN CONTRACT OWNERS' EQUITY
FOR THE THREE YEARS ENDED DECEMBER 31 (CONTINUED)
<TABLE>
<CAPTION>
CAPITAL
INTERNATIONAL (a) APPRECIATION
SUBACCOUNT SUBACCOUNT
1995 1994 1993 1995 1994
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Investment activity:
Reinvested capita:
gains and dividends $ 214,290 $ 33,042 $ 426 $ 18,585 $ 992
----------- ----------- ----------- ----------- -----------
Realized and unrealized gain (loss) on investments:
Realized gain (loss) 26,863 4,970 4,044 2,645 (42)
Unrealized gain (loss) 540,676 110,549 110,549 94,813 (1,734)
----------- ----------- ----------- ----------- -----------
Net gain (loss) on
investments 567,539 70,353 114,593 97,458 (1,776)
----------- ----------- ----------- ----------- -----------
Net investment 781,829 103,395 115,019 116,043 (784)
----------- ----------- ----------- ----------- -----------
activity
Equity transactions:
Sales:
Contract purchase 2,976,009 2,195,400 277,695 422,829 42,626
payments
Transfers from fixed and
other subaccounts 1,049,632 2,581,376 898,376 696,659 150,290
----------- ----------- ----------- ----------- -----------
4,025,641 4,776,776 1,176,461 1,119,488 192,916
----------- ----------- ----------- ----------- -----------
Redemptions:
Withdrawals and surrenders 135,907 22,335 7 4,024 2,847
Transfers to fixed and
other subaccounts 770,875 388,971 179,300 84,065 0
Cost of insurance and
administrative fee 796,919 448,228 39,052 87,472 5,760
----------- ----------- ----------- ----------- -----------
1,703,701 859,534 218,359 175,561 8,607
----------- ----------- ----------- ----------- -----------
Net equity transactions 2,321,940 3,917,242 958,102 943,927 184,309
----------- ----------- ----------- ----------- -----------
Risk and administrative
expense (note 4) 49,434 19,907 2,309 4,732 (231)
----------- ----------- ----------- ----------- -----------
Net change in contract
owners' equity 3,054,335 4,000,730 1,070,812 1,055,238 183,756
Contract owners' equity:
Beginning of period 5,071,542 1,070,812 0 183,756 0
----------- ----------- ----------- ----------- -----------
End of period $ 8,125,877 $ 5,071,542 $ 1,070,812 $ 1,238,994 $ 183,756
=========== =========== =========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
GLOBAL AGGRESSIVE
SMALL CAP CONTRARIAN(C) GROWTH(C)
SUBACCOUNT SUBACCOUNT SUBACCOUNT
1995 1994 1995 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Investment activity:
Reinvested capita:
gains and dividends $ 2,690 $ 1,872 $ 523 $ 12,789
----------- ----------- ----------- -----------
Realized and unrealized gain (loss) on investments
Realized gain (loss) 13,224 3 1,419 5,130
Unrealized gain (loss) 208,534 2,560 5,122 15,468
----------- ----------- ----------- -----------
Net gain (loss) on
investments 221,758 2,563 6,541 20,598
----------- ----------- ----------- -----------
Net investment activity 224,448 4,435 7,064 33,387
----------- ----------- ----------- -----------
Equity transactions:
Sales:
Contract purchase payments 632,636 57,962 106,879 140,955
Transfers from fixed and
other subaccounts 786,952 235,806 182,691 336,663
----------- ----------- ----------- -----------
1,419,588 293,768 289,590 477,618
----------- ----------- ----------- -----------
Redemptions:
Withdrawals and surrenders 5,965 4,056 10,420 307
Transfers to fixed and
other subaccounts 127,447 0 42,262 46,146
Cost of insurance and
administrative fee 121,558 2,872 11,400 21,574
----------- ----------- ----------- -----------
254,970 6,928 64,082 68,027
----------- ----------- ----------- -----------
Net equity transactions 1,164,618 286,840 225,488 409,591
----------- ----------- ----------- -----------
Risk and administrative
expense (note 4) 6,411 (77) 540 897
----------- ----------- ----------- -----------
Net change in contract
owners' equity 1,382,655 291,352 232,012 442,081
Contract owners' equity:
Beginning of period 291,352 0 0 0
----------- ----------- ----------- -----------
End of period $ 1,674,007 $ 291,352 $ 232,012 $ 442,081
=========== =========== =========== ===========
</TABLE>
a) Commenced operations April 30, 1993
b) Commenced operations May 1. 1994
c) Commenced operations March 31, 1995
The accompanying notes are an integral part of these financial statements.
40
<PAGE> 43
OHIO NATIONAL VARIABLE ACCOUNT R
Notes to Financial Statements
December 31, 1995
(1) BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Ohio National Variable Account R (the Account) is a separate account of
Ohio National Life Assurance Corporation (ONLAC). All obligations arising
under variable life insurance contracts are general corporate obligations
of ONLAC. ONLAC is a wholly-owned subsidiary of The Ohio National Life
Insurance Company.
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 risk; the issuers' abilities to meet certain obligations may be
affected by economic developments in their respective industries.
Investments are valued at the net asset value of fund shares held. Share
transactions are recorded on the trade dates. Income and capital gains
distributions are recorded on the ex-dividend dates. 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, 1995 the aggregate cost and number of shares of Ohio
National Fund, Inc. owned by the respective subaccounts were:
<TABLE>
<CAPTION>
MONEY CAPITAL SMALL GLOBAL AGGRESS.
EQUITY MARKET BOND OMNI INTERNATIONAL APPRECIATION CAP CONTR. GROWTH
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
---------- ----------- ---------- ---------- ---------- ---------- ---------- --------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Aggregate cost $12,485,721 $671,215 $501,079 $4,290,181 $7,409,670 $1,145,915 $1,462,913 $226,889 $426,613
Number of shares 561,063 67,122 48,164 293,171 564,929 103,353 105,602 21,477 37,325
</TABLE>
(3) Contracts in Accumulation Period
At December 31, 1994 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 756,738.161 $21.192465
Money Market Subaccount 44,137.243 15.207452
Bond Subaccount 29,429.438 17.886274
Omni Subaccount 256,617.487 20.106689
International Subaccount 547,590.116 14.839342
Capital Appreciation Subaccount 102,313.519 12.109778
Small Cap Subaccount 123,222.147 13.585277
Global Contrarian Subaccount 21,426.936 10.828053
Aggressive Growth Subaccount 35,018.974 12.624042
</TABLE>
41
<PAGE> 44
OHIO NATIONAL VARIABLE ACCOUNT R
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
December 31, 1995
(4) RISK AND ADMINISTRATIVE EXPENSE
Although variable life payments differ according to the investment
performance of the Accounts, they are not affected by mortality or expense
experience because ONLAC assumes the expense risk and the mortality risk
under the contracts. ONLAC charges the Accounts' assets for assuming those
risks. Such charges will be assessed at a daily rate of 0.0020471% which
corresponds to an annual rate of 0.75% of the contract value.
(5) CONTRACT CHARGES
Each premium payment is subject to a premium expense charge. The premium
expense charge has two components:
(a) Sales Load. Each contract is subject to a level sales load of all
premiums paid of 4%.
(b) State Premium Tax. Premium payments will be subject to the state
premium tax and any other state or local taxes that currently
range from 2% to 4%.
A surrender charge is assessed in connection with all complete surrenders,
all decreases in stated amount and certain partial surrenders consisting of
two components: (1) a contingent deferred sales charge, and (2) a
contingent deferred insurance underwriting charge.
The contingent deferred sales charge is a percentage of premiums paid in
the first two contract years. The contingent deferred sales charge
percentages are scaled by age at issue or increase. The contingent deferred
insurance underwriting charge varies with age at issue or increase.
A service charge is imposed on each transfer of accumulation values among
the subaccounts. Currently, ONLAC is not assessing this charge on the first
four transfers made in any contract year. For partial surrenders, a service
fee is charged.
ONLAC charges a monthly deduction from the contract value for the cost of
insurance and the cost of additional insurance benefits provided by rider.
(6) FEDERAL INCOME TAXES
Operations of the Account form part of and are taxed with, operations of
ONLAC which is taxed as a life assurance 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.
(7) 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.)
- Contract charges
(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.
42
<PAGE> 45
OHIO NATIONAL VARIABLE ACCOUNT R
Schedules of Changes in Unit Values
For the Years Ended December 31, 1995, 1994, and 1993
<TABLE>
<CAPTION>
MONEY
EQUITY MARKET BOND OMNI INTERNATIONAL
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
---------- ---------- ---------- ---------- -------------
<S> <C> <C> <C> <C> <C>
1995
Beginning unit value 16.785643 14.507086 15.156742 16.502872 13.336474
Reinvested capital gains and dividends 0.535931 0.711525 0.850369 0.518180 0.453058
Realized and gain (loss) 3.885373 0.000000 1.891702 3.099521 1.060350
Contract charges -0.014482 -0.011159 -0.012539 -0.012884 -0.010540
Ending unit value 21.192465 15.207452 17.886274 20.106689 14.839342
Percentage increase (decrease)
in unit value* 26.3% 4.8% 18.0% 21.8% 11.3%
1994
Beginning unit value 16.870045 14.054459 15.879641 16.714665 12.433465
Reinvested capital gains and dividends 0.531001 0.463316 1.153660 0.611008 0.138938
Realized and gain -0.602749 0.000000 -1.865057 -0.810420 0.774140
Contract charges -0.012654 -0.010689 -0.011502 -0.012381 -0.010069
Ending unit value 16.785643 14.507086 15.156742 16.502872 13.336474
Percentage increase in unit value* -0.5% 3.2% -4.6% -1.3%% 7.3%
1993
Beginning unit value 14.896910 13.781750 14.453563 14.922047 10.000000**
Reinvested capital gains and dividends 0.471205 0.283155 0.977909 0.586979 0.009072
Realized and gain (loss) 1.513783 0.000000 0.459782 1.217593 2.433050
Contract charges -0.011853 -0.010446 -0.011613 -0.011954 -0.008657
Ending unit value 16.870045 14.054459 15.879641 16.714665 12.433465
Percentage increase in unit value* 13.2% 2.0% 9.9% 12.0%* 24.3%
</TABLE>
<TABLE>
<CAPTION>
CAPITAL SMALL GLOBAL AGGRESSIVE
APPRECIATION CAP CONTRARIAN GROWTH
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
------------ ---------- ----------- -----------
<S> <C> <C> <C> <C>
1995
Beginning unit value 9.950187 10.290499 10.000000*** 10.000000****
Reinvested capital gains and dividends 0.328243 0.037689 0.072802 1.128730
Realized and gain (loss) 1.839934 3.266534 0.763238 1.504407
Contract charges -0.008586 -0.009445 -0.007987 -0.009095
Ending unit value 12.109778 13.585277 10.828053 12.624042
Percentage increase (decrease)
in unit value* 21.7% 32.0% 8.3% 26.2%
1994
Beginning unit value 10.000000*** 10.000000***
Reinvested capital gains and dividends 0.099737 0.131388
Realized and gain -0.142056 0.166824
Contract charges -0.007494 -0.007713
Ending unit value 9.950187 10.290499
Percentage increase in unit value* -0.5% 2.9%
</TABLE>
* An annualized rate of return cannot be determined as contract charges
do not include the contract charges discussed in note (5).
** Commenced operations April 30, 1993.
*** Commenced operations September 23, 1994.
**** Commenced operations March 31, 1995.
See accompanying independent auditors' report.
43
<PAGE> 46
OHIO NATIONAL LIFE ASSURANCE CORPORATION
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Ohio National Life Assurance Corporation:
We have audited the accompanying balance sheet of Ohio National Life Assurance
Corporation (the Company) as of December 31, 1995, and the related statements
of income, stockholder's equity cash flows for the year then ended. 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 audit.
We conducted our audit 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 audit provides 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 Life Assurance
Corporation as of December 31, 1995, and the results of its operations and its
cash flows for the year then ended in conformity with generally accepted
accounting principles.
As discussed in Note 3, the Company adopted the provisions of the Financial
Accounting Standards Board's Statement of Financial Accounting Standards No.
120, Accounting and Reporting by Mutual Life Insurance Enterprises and by
Insurance Enterprises for Certain Long-Duration Participating Contracts, in
1995.
KPMG Peat Marwick LLP
Cincinnati, Ohio
February 9, 1996
44
<PAGE> 47
OHIO NATIONAL LIFE ASSURANCE CORPORATION
(a wholly-owned subsidiary of
The Ohio National Life Insurance Company)
BALANCE SHEET
December 31, 1995
(000's omitted)
ASSETS
<TABLE>
<S> <C>
Investments (notes 5, 8 and 9):
Fixed maturities available-for-sale, at fair value $442,819
Fixed maturities held-to-maturity, at amortized cost 45,461
Mortgage loans on real estate, net 161,095
Policy loans 31,950
Short-term investments 13,348
--------
694,673
Cash 3,543
Accrued investment income 8,674
Deferred policy acquisition costs 92,413
Reinsurance recoverables 73,317
Other assets 2,621
Assets held in Separate Accounts 34,106
--------
$909,347
========
LIABILITIES AND STOCKHOLDER'S EQUITY
Future policy benefits and claims (note 6) $695,405
Other policyholder funds 2,192
Accrued Federal income tax (note 7):
Current 10,632
Deferred 13,820
Other liabilities 10,293
Liabilities related to Separate Accounts 34,106
--------
Total liabilities 766,448
--------
Stockholder's equity (notes 3, 4, and 10):
Class A common stock; authorized 10,000 shares of $3,000 par value;
issued and outstanding 3,200 shares 9,600
Additional paid-in capital 27,025
Unrealized gains on securities available-for-sale, net (note 5) 9,558
Retained earnings 96,716
--------
Total stockholder's equity 142,899
--------
Commitments and contingencies (notes 11 and 13)
$909,347
========
</TABLE>
See accompanying notes to financial statements.
45
<PAGE> 48
OHIO NATIONAL LIFE ASSURANCE CORPORATION
(a wholly-owned subsidiary of
The Ohio National Life Insurance Company)
STATEMENT OF INCOME
Year ended December 31, 1995
(000's omitted)
<TABLE>
<S> <C>
Revenues (note 11):
Traditional life and accident and health insurance premiums $ 9,639
Annuity premium and charges 2,326
Universal life and investment product policy charges 33,788
Net investment income (note 5) 51,052
Other income 4,648
Net realized losses on investments (note 5) (1,882)
--------
99,571
Benefits and expenses:
Benefits and claims 56,549
Amortization of deferred policy acquisition costs 8,011
Other operating costs and expenses 12,642
--------
77,202
--------
Income before Federal income tax and cumulative effect of change in accounting principles 22,369
Federal income tax (note 7):
Current expense 10,632
Deferred tax benefit (3,030)
--------
7,602
Income before cumulative effect of change in accounting principles 14,767
Cumulative effect of change in accounting principles (note 3) 53,845
--------
Net income $ 68,612
========
</TABLE>
See accompanying notes to financial statements.
OHIO NATIONAL LIFE ASSURANCE CORPORATION
(a wholly-owned subsidiary of
The Ohio National Life Insurance Company)
STATEMENT OF STOCKHOLDER'S EQUITY
Year ended December 31, 1995
(000's omitted)
<TABLE>
<CAPTION>
UNREALIZED
GAINS (LOSSES)
ADDITIONAL ON SECURITIES TOTAL
CAPITAL PAID-IN AVAILABLE-FOR- RETAINED STOCKHOLDER'S
SHARES CAPITAL SALE EARNINGS EQUITY
------- ------- ---- -------- ------
<S> <C> <C> <C> <C> <C>
Balance, beginning of year $ 9,600 27,025 -- 28,104 64,729
Change in accounting
principle (note 3) -- -- (10,693) -- (10,693)
Net income -- -- -- 68,612 68,612
Unrealized gains on securities
available-for-sale, net of
adjustment to deferred
policy acquisition costs
and deferred Federal
income tax -- -- 20,251 -- 20,251
-------- -------- -------- -------- --------
Balance, end of year $ 9,600 27,025 9,558 96,716 142,899
======== ======== ======== ======== ========
</TABLE>
See accompanying notes to financial statements.
46
<PAGE> 49
OHIO NATIONAL LIFE ASSURANCE CORPORATION
(a wholly-owned subsidiary of
The Ohio National Life Insurance Company)
STATEMENT OF CASH FLOWS
Year ended December 31, 1995
(000's omitted)
<TABLE>
<S> <C>
Cash flows from operating activities:
Net Income $ 68,612
Adjustments to reconcile net income to net cash
used in operating activities:
Cumulative effect of change in accounting principles (53,845)
Capitalization of deferred policy acquisition costs (18,220)
Amortization of deferred policy acquisition costs 8,011
Amortization and depreciation 243
Realized losses on invested assets, net 222
Increase in accrued investment income (1,447)
Increase in other assets (12,599)
Decrease in policyholder account balances (88,318)
Increase in other policyholder funds 346
Increase in accrued Federal income tax payable 5,753
Increase in other liabilities 3,174
Other, net (1,363)
---------
Net cash used in operating activities (89,431)
---------
Cash flows from investing activities:
Proceeds from maturity of securities available-for-sale 18,967
Proceeds from sale of securities available-for-sale 3,138
Proceeds from maturity of fixed maturities held-to-maturity 11,788
Proceeds from repayment of mortgage loans on real estate 7,426
Proceeds from repayment of policy loans 3,171
Cost of securities available-for-sale acquired (50,494)
Cost of fixed maturities held-to-maturity acquired (39,247)
Cost of mortgage loans on real estate acquired (50,365)
Policy loans issued (6,879)
---------
Net cash used in investing activities (102,495)
---------
Cash flows from financing activities:
Increase in universal life and investment product account balances 723,326
Decrease in universal life and investment product account balances (532,039)
---------
Net cash provided by financing activities 191,287
---------
Net decrease in cash and cash equivalents (639)
Cash and cash equivalents, beginning of year 17,530
---------
Cash and cash equivalents, end of year $ 16,891
=========
</TABLE>
See accompanying notes to financial statements.
47
<PAGE> 50
OHIO NATIONAL LIFE ASSURANCE CORPORATION
(a wholly-owned subsidiary of
The Ohio National Life Insurance Company)
NOTES TO FINANCIAL STATEMENTS
Year ended December 31, 1995
(000's omitted)
(1) ORGANIZATION AND BUSINESS DESCRIPTION
Ohio National Life Assurance Corporation (ONLAC or the Company) is a
stock life insurance company, wholly-owned by The Ohio National Life
Insurance Company (ONLIC), a mutual life insurance company. ONLAC is a
life and health insurer licensed in 45 states and the District of
Columbia. The Company offers term life, universal life, disability and
annuity products through independent agents and other distribution
channels and competes with 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.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The significant accounting policies followed by the Company that
materially affect financial reporting are summarized below. The
accompanying 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 Notes 3 and 4.
(a) VALUATION OF INVESTMENTS AND RELATED GAINS AND LOSSES
The Company is required to classify its fixed maturity securities
and equity securities as either held-to-maturity,
available-for-sale or trading. 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
48
<PAGE> 51
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. The adjustment to
deferred policy acquisition costs represents the change in
amortization of deferred policy acquisition costs that would have
been required as a charge or credit to operations had such
unrealized amounts been realized. The Company has no fixed
maturity securities classified as trading as of December 31, 1995.
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.
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.
In March 1995, the Financial Accounting Standards Board (FASB)
issued Statement of Financial Accounting Standards No. 121,
Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of (SFAS 121). SFAS 121 requires
impairment losses to be recorded on long-lived assets used in
operations when indications of impairment are present and the
undiscounted cash flows estimated to be generated by those
assets are less than the assets' carrying amount. SFAS 121 also
addresses the accounting for long-lived assets that are expected
to be disposed of. The statement is effective for fiscal years
beginning after December 15, 1995, and earlier application is
permitted. Previously issued financial statements shall not be
restated. The Company will adopt SFAS 121 in 1996 and the impact
on the financial statements of adopting SFAS 121 is not expected
to be material.
(b) REVENUES AND BENEFITS
TRADITIONAL LIFE INSURANCE PRODUCTS
Traditional life insurance products include those products with
fixed and guaranteed premiums and benefits and consist primarily
of graded premium life, and term life policies. Premiums for
traditional non-participating 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 AND INVESTMENT PRODUCTS
Universal life products include universal life, variable universal
life and other interest-sensitive life insurance policies.
Investment products consist primarily of individual immediate and
deferred annuities. 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.
49
<PAGE> 52
ACCIDENT AND HEALTH INSURANCE
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.
Such anticipated premium revenue was estimated using the same
assumptions as were used for computing liabilities 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 estimated future gross profits from projected interest
margins, cost of insurance, policy administration and surrender
charges. Deferred policy acquisition costs 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
statements of income and cash flows except for the fees
the Company receives for administrative services and risks
assumed.
(e) FUTURE POLICY BENEFITS
Future policy benefits for traditional life policies 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 6).
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 balances.
(f) FEDERAL INCOME TAX
ONLAC files a consolidated Federal income tax return with ONLIC.
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.
(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.
(h) ACCUMULATION EQUIVALENTs
For purposes of the statement of cash flows, the Company
considers all short-term investments with original maturities of
three months or less to be cash equivalents.
50
<PAGE> 53
(i) USE OF ESTIMATES
In preparing the 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 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, contingencies, and the
valuation allowance for mortgage loans on real estate. Although
some variability is inherent in these estimates, management
believes the amounts provided are adequate.
(3) CHANGE IN ACCOUNTING PRINCIPLES
Effective January 1, 1995, the Company adopted Statement of Financial
Accounting Standards No. 120, Accounting and Reporting by Mutual Life
Insurance Enterprises and Insurance Enterprises for Certain
Long-Duration Participating Contracts (SFAS 120), thereby adopting
Interpretation No. 40, Applicability of Generally Accepted Accounting
Principles to Mutual Life Insurance and Other Enterprises (the
Interpretation). The Interpretation clarified that enterprises,
including mutual life insurance enterprises and thereby their
wholly-owned subsidiaries, that issue financial statements described as
prepared "in conformity with generally accepted accounting principles"
are required to apply all applicable authoritative accounting
pronouncements in preparing those statements. SFAS 120 extended the
applicability of certain SFASs to mutual life insurance enterprises, as
well as extended the effective date of the Interpretation. Prior to the
adoption of SFAS 120 and the Interpretation, the Company, consistent
with industry practice, issued financial statements prepared in
accordance with accounting practices prescribed or permitted by the
Department of Insurance of the State of Ohio (statutory accounting),
which were considered generally accepted accounting principles for
wholly-owned subsidiaries of mutual life insurance enterprises. The
Company elected to early adopt SFAS 120 and the Interpretation in 1995;
such adoption resulted in a decrease at January 1, 1995 in stockholder's
equity from the recording of net unrealized losses on securities
available-for-sale of $10,693 and an increase in net income of $53,845
due to the remaining cumulative effect of adopting SFAS 120 and the
Interpretation.
The Company's significant accounting policies adopted in connection with
its implementation of SFAS 120 and the Interpretation are described in
Note 2. Those policies differ in some respects from the statutory
accounting previously followed by the Company as follows: (1) the costs
related to acquiring business, principally commissions and certain
policy issue expenses, are amortized over the period benefited rather
than charged to income in the year incurred; (2) future policy benefit
reserves are based on anticipated Company experience for lapses,
mortality and investment yield, rather than statutory mortality and
interest requirements, without consideration of withdrawals; (3)
premiums for universal life contracts and investment contracts are
recorded as deposits on the balance sheet; revenues consist of
investment income and contract charges net of interest credited, death
benefits and administrative costs; (4) statutory required balances such
as "nonadmitted assets", asset valuation reserve and interest
maintenance reserve are not recognized; (5) bonds are carried at
amortized cost or fair value depending on the Company's intent to hold
or sell such securities, rather than at amortized cost, (6) assets and
liabilities are reported gross of reinsurance balances; and (7) deferred
Federal income taxes are provided for temporary differences between
financial statement carrying amounts of assets and liabilities and their
related tax basis.
51
<PAGE> 54
The cumulative effect on stockholder's equity at January 1, 1995 of
adopting SFAS 120 and the Interpretation, other than the effect of
recording net unrealized losses on securities available-for-sale, is
recognized in the accompanying statement of income, and the significant
components are as follows:
<TABLE>
<S> <C>
Deferred policy acquisition costs $ 93,496
Asset valuation reserve 4,891
Interest maintenance reserve 3,422
Future policy benefits (35,862)
Deferred Federal income tax (9,354)
Other, net (2,748)
--------
$ 53,845
========
</TABLE>
The effect of recording the unrealized loss on securities, previously
carried at amortized cost, designated as available-for-sale at January
1, 1995, and the related deferred policy acquisition costs and deferred
Federal income tax effect is as follows:
<TABLE>
<S> <C>
Excess of amortized cost over fair value of
fixed maturity securities available-for-sale (12,027)
Deferred policy acquisition costs $ 700
Deferred Federal income tax 634
--------
$(10,693)
========
</TABLE>
(4) BASIS OF PRESENTATION
The financial statements have been prepared in accordance with GAAP.
Annual Statements on 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 the Company as
reported to regulatory authorities to the net income as shown in the
accompanying financial statements:
<TABLE>
<S> <C>
Statutory net income $ 10,161
Adjustments to restate to the basis of GAAP:
Increase in deferred policy acquisition costs, net 10,117
Future policy benefits (5,897)
Deferred Federal income tax benefit 3,030
Interest maintenance reserve (64)
Cumulative effect of change in accounting
principles, net (note 3) 53,845
Other, net (2,580)
--------
Net income per accompanying statement
of income $ 68,612
========
</TABLE>
52
<PAGE> 55
The following reconciles the statutory capital shares and surplus of the
Company as reported to regulatory authorities to the stockholder's equity
as shown in the accompanying financial statements for the year ended
December 31, 1995:
<TABLE>
<S> <C>
Statutory capital and surplus $ 72,440
Add (deduct) cumulative effect of
adjustments to reconcile to the
basis of GAAP:
Deferred policy acquisition costs 92,413
Asset valuation reserve 7,350
Interest maintenance reserve 3,358
Future policy benefits (47,394)
Deferred Federal income tax (13,820)
Difference between amortized cost and
fair value of fixed maturity
securities available-for-sale,
gross 27,367
Other, net 1,185
---------
Equity per accompanying balance sheet $ 142,899
=========
</TABLE>
(5) INVESTMENTS
An analysis of investment income by investment type follows for the year
ended December 31, 1995:
<TABLE>
<S> <C>
Gross investment income:
Fixed maturities available-for-sale $15,260
Fixed maturities held-to-maturity 19,588
Mortgage loans on real estate 13,193
Short-term 1,340
Policy loans 2,213
-------
Total investment income 51,594
Less investment expenses 542
-------
Net investment income $51,052
=======
</TABLE>
An analysis of realized gains (losses) on investments by investment type
follows for the year ended December 31, 1995:
<TABLE>
<S> <C>
Realized on disposition of investments:
Fixed maturities, available-for-sale $ (235)
Fixed maturities, held-to-maturity 13
-------
(222)
Valuation allowance for mortgage loans
on real estate (1,660)
-------
$(1,882)
=======
</TABLE>
The components of unrealized gains (losses) on securities
available-for-sale, net, were as follows as of December 31, 1995:
<TABLE>
<S> <C>
Gross unrealized gain $ 27,367
Adjustment to deferred policy acquisition costs (11,200)
Deferred Federal income tax (6,609)
--------
$ 9,558
========
</TABLE>
53
<PAGE> 56
An analysis of the change in gross unrealized gains (losses) on securities
available-for-sale and fixed maturities held-to-maturity follows for the
year ended December 31, 1995:
<TABLE>
<S> <C>
Fixed maturities, available-for-sale $ 39,394
Fixed maturities held-to-maturity $ 16,973
</TABLE>
The amortized cost and estimated fair value of securities
available-for-sale and fixed maturities held-to-maturity were as follows as
of December 31, 1995:
<TABLE>
<CAPTION>
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED ESTIMATED
COST GAINS LOSSES FAIR VALUE
--------- ---------- ---------- ----------
SECURITIES AVAILABLE-FOR-SALE
Fixed maturities
U.S. Treasury securities and
obligations of U.S. government
<S> <C> <C> <C> <C>
operations and agencies $ 53,829 5,670 (42) 59,457
Obligations of states and
political subdivisions 6,290 53 (152) 6,191
Corporate securities 264,064 20,944 (773) 284,235
Mortgage-backed securities 91,269 2,345 (678) 92,936
-------- -------- -------- --------
Total fixed maturities $415,452 29,012 (1,645) 442,819
======== ======== ======== ========
FIXED MATURITY SECURITIES
HELD-TO-MATURITY
Corporate securities $ 45,418 7,125 -- 52,543
Mortgage-backed securities 43 11 -- 54
-------- -------- -------- --------
$ 45,461 7,136 -- 52,597
======== ======== ======== ========
</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, 1995, 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>
AMORTIZED ESTIMATED
COST FAIR VALUE
------------ ------------
FIXED MATURITY SECURITIES AVAILABLE-FOR-SALE
<S> <C> <C>
Due in one year or less $ 4,271 4,298
Due after one year through five years 28,836 29,173
Due after five years through ten years 113,074 122,467
Due after ten years 178,002 193,944
Mortgaged-backed securities 91,269 92,937
------------ ------------
$ 415,452 442,819
============ ============
FIXED MATURITY SECURITIES HELD-TO-MATURITY
Due after ten years $ 45,418 52,543
Mortgage-backed securities 43 54
------------ ------------
$ 45,461 52,597
============ ============
</TABLE>
54
<PAGE> 57
Proceeds from the sale of securities available-for-sale during 1995 were
$3,138. Gross gains of $34 and gross losses of $0 were realized on those
sales. Investments with an amortized cost of $3,153 as of December 1995
were on deposit with various regulatory agencies as required by law.
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
fixed maturity securities had an amortized cost value of $201,465,
resulting in a gross unrealized gain on available-for-sale securities of
$16,675.
The Company generally initiates foreclosure proceedings on all mortgage
loans on real estate delinquent sixty days. There were no foreclosures of
mortgage loans on real estate during 1995, and no foreclosures are in
process as of December 31, 1995.
Activity in the valuation allowance account for mortgage loans on real
estate is summarized for the year ended December 31, 1995:
<TABLE>
<S> <C>
Allowance as of January 1 $ 640
Additions charged to operations 1,660
------
Allowance as of December 31 $2,300
======
</TABLE>
(6) FUTURE POLICY BENEFIT AND CLAIMS
The liability for future policy benefits for universal life policies and
investment contracts (approximately 83% of the total liability for
future policy benefits as of December 31, 1995) has been established
based on the aggregate account value without reduction for surrender
charges. The average interest rate to be credited on investment product
policies was 6.4% at December 31, 1995.
The liability for future policy benefits for traditional life products
are based on the following mortality and interest rate assumptions
without consideration for withdrawals. The mortality table and interest
assumptions used for the majority of new policies are the 1980 CSO table
with 4% to 6% interest. With respect to older policies, the mortality
table and interest assumptions used are primarily the 1958 CSO table
with 4% to 4.5% interest. Approximately 70% of the future policy benefit
liability is calculated on a net level reserve basis at December 31,
1995.
The liability for future policy benefits for individual accident and
health policies include liabilities for active lives, disabled lives and
unearned premiums. The liability for active lives are calculated on a
two-year preliminary term basis at 3% to 6% interest, using either the
1964 Commisioner's Disability Table (policies issued prior to 1990) or
the 1985 Commissioner's Individual Disability Table A (policies issued
after 1989). The liability for disabled lives are calculated using
either the 1985 Commissioner's Individual Disability Table A at 5% to
5.5% interest (claims incurred after 1989) or the 1971 modification of
the 1964 Commissioner's Disability Table, at 3.5% interest (claims
incurred prior to 1990).
(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 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, 1995.
55
<PAGE> 58
Total Federal income tax expense for the year ended December 31, 1995
differs from the amount computed by applying the U.S. Federal income tax
rate to income before Federal income tax and cumulative effect of change in
accounting principles, as follows:
<TABLE>
<CAPTION>
Amount %
------ -----
<S> <C> <C>
Computed (expected) tax expense $ 7,829 35.0
Differential earnings 1,558 7.0
Tax exempt interest and dividends received deduction (41) (.1)
Other, net (1,744) (7.9)
------- ----
Total expense and effective rate $ 7,602 34.0
======= ====
</TABLE>
Total Federal income tax paid during the year ended December 31, 1995 was
$4,879.
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,
1995 are as follows:
<TABLE>
Deferred tax assets:
<S> <C>
Future policy benefits $ 21,123
Mortgage loans on real estate 805
Other 510
--------
Total gross deferred tax assets 22,438
--------
Deferred tax liabilities:
Deferred policy acquisition costs 25,509
Fixed maturities available-for-sale 10,727
Other 22
--------
Total gross deferred tax liabilities 36,258
--------
Net deferred tax liability $(13,820)
========
</TABLE>
The valuation allowance decreased by $3,663 from the amount recorded at
January 1, 1995. The Company has determined that a valuation allowance as
of December 31, 1995 is not needed. 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 these remaining deductible differences at December 31,
1995.
(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.
In cases where quoted market prices are not available, fair value is based
on estimates using present value or other valuation techniques.
These techniques are significantly affected by the assumptions used,
including the discount rate and estimates of future cash flows. Although
fair value estimates are calculated using assumptions that management
believes are appropriate, changes in assumptions could cause these
estimates to vary materially. 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.
56
<PAGE> 59
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 sheet for these instruments
approximate their fair value.
INVESTMENT SECURITIES
Fair value for fixed maturity securities is based on quoted market prices,
where available. For fixed maturity securities not actively traded, fair
value is estimated using values obtained from independent pricing services,
or, in the case of private placements, is estimated by discounting expected
future cash flows using a current market rate applicable to the yield,
credit quality and maturity of the investments.
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 value 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. Fair value for mortgages in default is valued at the
estimated fair value of the underlying collateral.
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.
OTHER POLICYHOLDER FUNDS
The carrying amount reported in the balance sheets for these instruments
approximates their fair value. Carrying amount and estimated fair value of
financial instruments subject to SFAS 107 and policy reserves on insurance
contracts were as follows as of December 31, 1995:
<TABLE>
<CAPTION>
CARRYING ESTIMATED
AMOUNT FAIR VALUE
ASSETS
Investments:
<S> <C> <C>
Fixed maturities available-for-sale $442,819 442,819
Fixed maturities held-to-maturity 45,461 52,597
Mortgage loans on real estate 161,095 177,188
Policy loans 31,950 31,950
Short-term investments 13,348 13,348
Cash 3,543 3,543
Assets held in Separate Accounts 34,106 34,106
LIABILITIES
Deferred and immediate annuity contracts 100,197 100,896
Other policyholder funds 2,192 2,192
Liabilities related to Separate Accounts 34,106 34,106
</TABLE>
57
<PAGE> 60
(9) ADDITIONAL FINANCIAL INSTRUMENTS DISCLOSURE
SIGNIFICANT CONCENTRATIONS OF CREDIT RISK
Mortgage loans 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. The summary below
depicts loan exposure of remaining principal balances by geographic area
and by type at December 31, 1995:
<TABLE>
MORTGAGE ASSETS BY STATE
<S> <C>
Ohio $ 16,533
California 16,196
Florida 16,069
Nebraska 14,460
All others (none greater than $10 million) 100,137
--------
163,395
Less valuation allowances 2,300
--------
Total mortgage loans on real estate, net $161,095
========
MORTGAGE ASSETS BY TYPE
Office $ 43,171
Retail 33,409
Apartments 30,522
Industrial 28,280
Other 28,013
--------
163,395
Less valuation allowances 2,300
--------
Total mortgage loans on real estate, net $161,095
========
</TABLE>
(10) REGULATORY RISK-BASED CAPITAL, RETAINED EARNINGS AND DIVIDEND RESTRICTIONS
In January 1993, the NAIC adopted the life and health Risk-Based Capital
(RBC) formula. This model act requires every life and health insurer to
calculate its total adjusted capital and RBC requirement, and provides for
an insurance commissioner to intervene if the insurer experiences financial
difficulty. The model act will become law in Ohio, the Company's state of
domicile, in March 1996. The formula includes components for asset risk,
liability risk, interest rate exposure and other factors. Based upon the
December 31, 1995 financial statements, the Company exceeds all required
RBC levels.
(11) REINSURANCE
In the ordinary course of business, the Company reinsures certain risks
with its parent, ONLIC, and other insurance companies. Amounts in the
accompanying financial statements related to ceded business are as follows:
<TABLE>
<CAPTION>
NON-
AFFILIATE AFFILIATE
--------- ---------
<S> <C> <C>
Premiums $ 16,936 14,386
Benefits incurred 8,350 6,228
Commission and expense allowances 2,221 3,715
Reinsurance recoverable:
Reserves for future policy benefits 36,675 35,559
Policy and contract claims payable 689 394
</TABLE>
58
<PAGE> 61
Net traditional life and accident and health premium income in 1995 is
summarized as follows:
<TABLE>
<S> <C>
Direct premiums earned $ 38,494
Reinsurance assumed 2,467
Reinsurance ceded (31,322)
--------
Net premiums earned $ 9,639
========
</TABLE>
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.
(12) RELATED PARTY TRANSACTIONS
The Company shares common facilities and management with ONLIC. A written
agreement, which either party may terminate upon thirty days notice,
provides that ONLIC furnish personnel space and supplies, accounting, data
processing and related services to ONLAC. This agreement resulted in
charges to the Company in 1995 of approximately $10.6 million.
(13) CONTINGENCIES
The Company is a defendant 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.
59
<PAGE> 62
APPENDIX A
ILLUSTRATIONS OF CASH SURRENDER VALUES,
DEATH BENEFITS AND ACCUMULATED PREMIUMS.
The following tables have been prepared to help show how values under the
contract change with investment performance. The tables illustrate how the death
benefit of a contract of an insured of a given age and the cash surrender value
(reflecting the deduction of sales load) would vary over time if the return on
the assets held in the Fund portfolios was a constant, gross, after-tax, annual
rate of 0%, 6% or 12%. Because of compounding, the death benefits and cash
surrender values would be different from those shown in the returns averaged 0%,
6%, or 12%, but fluctuated over and under those averages throughout the years.
The amounts shown for the death benefit and cash surrender value as of each
contract year reflect the fact that the net investment return on the assets held
in the subaccounts is lower than the gross, after-tax return on Fund assets.
This is because certain fees and charges are deducted from the gross return.
They are the daily investment management fees incurred by the Fund, which is
currently equivalent to an average annual rate of 0.73% of the value of the
average daily net assets of the Fund's 13 portfolios to which contract values
may be allocated plus the Emerging Markets Fund. (See "Charges and Deductions -
"Other Charges" at page 29.) The daily charge to the variable account for
assuming mortality and expense risks is equivalent to an annual charge of 0.75%.
Certain other fees and miscellaneous expenses which are borne by the Fund are
currently equivalent to an annual rate of 0.30% of average daily net assets.
Gross annual rates of return of 0%, 6%, and 12% produce average net annual rates
of return for all nine portfolios of approximately -1.78%, 4.22%, and 10.22%.
Each page of illustrations includes two tables. The top table shows the death
benefits and cash surrender values assuming we assess current charges under the
contract ("current tables"). Current charges are not guaranteed and may be
changed. The lower table shows the death benefits and cash surrender values
assuming we assess the maximum charges allowable under the contracts.
The tables assume a premium tax deduction of 2.5% (the charge deducted from your
contract will reflect premium taxes in your jurisdiction), that no portion of
your net premiums have been allocated to the general account and that planned
premiums are paid on the first day of each contract year. The tables also assume
that no transfers, partial surrenders, loans, changes in death benefit option or
changes in stated amount have been made under the contract. Additionally, the
tables assume that there are no optional insurance benefits included under the
contract and the current tables assume that the Company's current cost of
insurance charges will not be changed. Finally, the tables reflect the fact that
no charges for federal, state or local taxes are made at present against the
variable account. If such a charge is made in the future, it will take a higher
gross rate of return to produce after-tax returns of 0%, 6% and 12% than it does
now. Below is a list of the sample illustrations presented on the following
pages of this prospectus. Upon request, the Company will furnish a comparable
illustration based on your age, sex, risk class, death benefit plan, stated
amount and planned premium.
<TABLE>
<CAPTION>
VARI-VEST V
AGE DEATH BENEFIT PLAN PLANNED PREMIUM STATED AMOUNT RISK CLASS PAGE
--- ------------------ --------------- ------------- ---------- ----
<S> <C> <C> <C> <C> <C>
25 Plan A 1,002 (Minimum) $150,000 Nonsmoker 61
25 Plan A 1,230 150,000 Nonsmoker 62
25 Plan B 1,002 (Minimum) 150,000 Nonsmoker 63
25 Plan B 3,020 150,000 Nonsmoker 64
40 Plan A 2,484 (Minimum) 250,000 Select Nonsmoker 65
40 Plan A 3,750 250,000 Select Nonsmoker 66
40 Plan B 2,484 (Minimum) 250,000 Select Nonsmoker 67
40 Plan B 9,000 250,000 Select Nonsmoker 68
</TABLE>
HYPOTHETICAL HISTORICAL ILLUSTRATIONS
The Company may produce hypothetical illustrations of the contract (such as
those listed above) based upon the actual historical investment performance
(total return) of the Fund's portfolios from the inception of the portfolio or
one-, five- and ten-year periods. Such illustrations reflect all contract and
subsequent charges, including the cost of insurance (specific to the age, sex,
stated amount, risk classification and type of death benefit), planned premium,
premium tax, risk charge, sales load, administration charge and surrender charge
for the contract being illustrated. Individualized illustrations will also be
provided upon request. Being based upon past performance, neither hypothetical
illustrations nor other performance data indicate future performance.
60
<PAGE> 63
MALE ISSUE AGE 25 INITIAL STATED AMOUNT: $150,000
CLASSIFICATION: NONSMOKER DEATH BENEFIT TYPE: A (MATURITY AGE 100)
INITIAL PREMIUM: $1,002.00 STATED AMOUNT INCLUDES CASH VALUE
SUMMARY OF VALUES AND BENEFITS
<TABLE>
<CAPTION>
ASSUMED HYPOTHETICAL GROSS ANNUAL INVESTMENT RETURN
12.00%(10.22% NET) 6.00%(4.22% NET) 0.00%(-1.78% NET)
ASSUMED COST OF INSURANCE AND EXPENSE CHARGES
PLANNED PREMIUMS CURRENT CURRENT CURRENT
ACCUM- END OF END OF END OF END OF END OF END OF
END OF TOTAL ULATED YEAR CASH YEAR YEAR CASH YEAR YEAR CASH YEAR
POLICY ANNUAL AT 5% SURRENDER DEATH SURRENDER DEATH SURRENDER DEATH
YEAR OUTLAY INTEREST VALUE BENEFIT VALUE BENEFIT VALUE BENEFIT
- ---- ------ -------- ----- ------- ----- ------- ----- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1 1,002 1,052 0 150,000 0 150,000 0 150,000
2 1,002 2,157 163 150,000 16 150,000 0 150,000
3 1,002 3,317 596 150,000 298 150,000 23 150,000
4 1,002 4,535 1,457 150,000 943 150,000 489 150,000
5 1,002 5,814 2,686 150,000 1,886 150,000 1,206 150,000
6 1,002 7,156 4,033 150,000 2,865 150,000 1,912 150,000
7 1,002 8,566 5,507 150,000 3,880 150,000 2,605 150,000
8 1,002 10,047 7,120 150,000 4,931 150,000 3,284 150,000
9 1,002 11,601 8,885 150,000 6,018 150,000 3,948 150,000
10 1,002 13,233 10,725 150,000 7,050 150,000 4,503 150,000
15 1,002 22,703 23,941 150,000 13,645 150,000 7,866 150,000
20 1,002 34,789 44,605 150,000 21,146 150,000 10,594 150,000
AGE 60 1,002 95,026 212,710 285,032 47,332 150,000 10,749 150,000
AGE 65 1,002 127,093 347,645 424,127 57,905 150,000 7,317 150,000
AGE 70 1,002 168,021 563,858 654,076 68,896 150,000 28 150,000
</TABLE>
<TABLE>
<CAPTION>
ASSUMED HYPOTHETICAL GROSS ANNUAL INVESTMENT RETURN
12.00%(10.22% NET) 6.00%(4.22% NET) 0.00%(-1.78% NET)
ASSUMED COST OF INSURANCE AND EXPENSE CHARGES
PLANNED PREMIUMS GUARANTEED GUARANTEED GUARANTEED
ACCUM- END OF END OF END OF END OF END OF END OF
END OF TOTAL ULATED YEAR CASH YEAR YEAR CASH YEAR YEAR CASH YEAR
POLICY ANNUAL AT 5% SURRENDER DEATH SURRENDER DEATH SURRENDER DEATH
YEAR OUTLAY INTEREST VALUE BENEFIT VALUE BENEFIT VALUE BENEFIT
- ---- ------ -------- ----- ------- ----- ------- ----- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1 1,002 1,052 0 150,000 0 150,000 0 150,000
2 1,002 2,157 103 150,000 0 150,000 0 150,000
3 1,002 3,317 509 150,000 218 150,000 0 150,000
4 1,002 4,535 1,342 150,000 842 150,000 401 150,000
5 1,002 5,814 2,540 150,000 1,762 150,000 1,101 150,000
6 1,002 7,156 3,854 150,000 2,718 150,000 1,792 150,000
7 1,002 8,566 5,290 150,000 3,708 150,000 2,469 150,000
8 1,002 10,047 6,861 150,000 4,733 150,000 3,131 150,000
9 1,002 11,601 8,579 150,000 5,791 150,000 3,777 150,000
10 1,002 13,233 10,367 150,000 6,793 150,000 4,316 150,000
15 1,002 22,703 23,213 150,000 13,198 150,000 7,580 150,000
20 1,002 34,789 43,200 150,000 20,384 150,000 10,138 150,000
AGE 60 1,002 95,026 203,685 272,938 42,219 150,000 7,182 150,000
AGE 65 1,002 127,093 330,847 403,634 48,044 150,000
AGE 70 1,002 168,021 532,049 617,177 49,798 150,000
</TABLE>
The hypothetical gross annual investment results shown above are illustrative
only and should not be deemed a representation of past or future investment
results. Actual investment results may be more or less than those shown and will
depend on a number of factors, including allocations made by the owner among the
investment options and the actual investment results of those options. The cash
surrender value and death benefit for a policy would be different from those
shown even if the actual rates of investment averaged 0%, 6% and 12% over a
period of years but fluctuated above or below those averages for individual
contract years. No representations can be made that these hypothetical
investment rates of return can be achieved for any one year or sustained over
any period of time. This illustration assumes current cost of insurance and
expense charges remain unchanged.
61
<PAGE> 64
MALE ISSUE AGE 25 INITIAL STATED AMOUNT: $150,000
CLASSIFICATION: NONSMOKER DEATH BENEFIT TYPE: A (MATURITY AGE 100)
INITIAL PREMIUM: $1,230.00 STATED AMOUNT INCLUDES CASH VALUE
SUMMARY OF VALUES AND BENEFITS
<TABLE>
<CAPTION>
ASSUMED HYPOTHETICAL GROSS ANNUAL INVESTMENT RETURN
12.00%(10.22% NET) 6.00%(4.22% NET) 0.00%(-1.78% NET)
ASSUMED COST OF INSURANCE AND EXPENSE CHARGES
PLANNED PREMIUMS CURRENT CURRENT CURRENT
ACCUM- END OF END OF END OF END OF END OF END OF
END OF TOTAL ULATED YEAR CASH YEAR YEAR CASH YEAR YEAR CASH YEAR
POLICY ANNUAL AT 5% SURRENDER DEATH SURRENDER DEATH SURRENDER DEATH
YEAR OUTLAY INTEREST VALUE BENEFIT VALUE BENEFIT VALUE BENEFIT
- ---- ------ -------- ----- ------- ----- ------- ----- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1 1,230 1,292 0 150,000 0 150,000 0 150,000
2 1,230 2,648 444 150,000 256 150,000 76 150,000
3 1,230 4,071 1,230 150,000 844 150,000 489 150,000
4 1,230 5,567 2,587 150,000 1,921 150,000 1,331 150,000
5 1,230 7,136 4,175 150,000 3,135 150,000 2,250 150,000
6 1,230 8,785 5,919 150,000 4,398 150,000 3,155 150,000
7 1,230 10,515 7,830 150,000 5,709 150,000 4,043 150,000
8 1,230 12,333 9,927 150,000 7,069 150,000 4,914 150,000
9 1,230 14,241 12,225 150,000 8,478 150,000 5,767 150,000
10 1,230 16,244 14,654 150,000 9,847 150,000 6,509 150,000
15 1,230 27,869 31,899 150,000 18,381 150,000 10,775 150,000
20 1,230 42,705 59,221 150,000 28,309 150,000 14,346 150,000
AGE 60 1,230 116,649 281,916 377,768 66,604 150,000 16,858 150,000
AGE 65 1,230 156,013 460,287 561,550 84,125 150,000 14,276 150,000
AGE 70 1,230 206,253 746,100 865,476 105,083 150,000 8,014 150,000
</TABLE>
<TABLE>
<CAPTION>
ASSUMED HYPOTHETICAL GROSS ANNUAL INVESTMENT RETURN
12.00%(10.22% NET) 6.00%(4.22% NET) 0.00%(-1.78% NET)
ASSUMED COST OF INSURANCE AND EXPENSE CHARGES
PLANNED PREMIUMS GUARANTEED GUARANTEED GUARANTEED
ACCUM- END OF END OF END OF END OF END OF END OF
END OF TOTAL ULATED YEAR CASH YEAR YEAR CASH YEAR YEAR CASH YEAR
POLICY ANNUAL AT 5% SURRENDER DEATH SURRENDER DEATH SURRENDER DEATH
YEAR OUTLAY INTEREST VALUE BENEFIT VALUE BENEFIT VALUE BENEFIT
- ---- ------ -------- ----- ------- ----- ------- ----- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1 1,230 1,292 0 150,000 0 150,000 0 150,000
2 1,230 2,648 385 150,000 200 150,000 24 150,000
3 1,230 4,071 1,143 150,000 765 150,000 417 150,000
4 1,230 5,567 2,473 150,000 1,820 150,000 1,243 150,000
5 1,230 7,136 4,031 150,000 3,012 150,000 2,146 150,000
6 1,230 8,785 5,741 150,000 4,252 150,000 3,035 150,000
7 1,230 10,515 7,615 150,000 5,538 150,000 3,907 150,000
8 1,230 12,333 9,670 150,000 6,871 150,000 4,762 150,000
9 1,230 14,241 11,922 150,000 8,252 150,000 5,598 150,000
10 1,230 16,244 14,299 150,000 9,591 150,000 6,323 150,000
15 1,230 27,869 31,183 150,000 17,940 150,000 10,492 150,000
20 1,230 42,705 57,855 150,000 27,564 150,000 13,898 150,000
AGE 60 1,230 116,649 272,603 365,288 61,970 150,000 13,424 150,000
AGE 65 1,230 156,013 442,251 539,546 75,630 150,000 7,169 150,000
AGE 70 1,230 206,253 710,672 824,379 89,817 150,000
</TABLE>
The hypothetical gross annual investment results shown above are illustrative
only and should not be deemed a representation of past or future investment
results. Actual investment results may be more or less than those shown and will
depend on a number of factors, including allocations made by the owner among the
investment options and the actual investment results of those options. The cash
surrender value and death benefit for a policy would be different from those
shown even if the actual rates of investment averaged 0%, 6% and 12% over a
period of years but fluctuated above or below those averages for individual
contract years. No representations can be made that these hypothetical
investment rates of return can be achieved for any one year or sustained over
any period of time. This illustration assumes current cost of insurance and
expense charges remain unchanged.
62
<PAGE> 65
MALE ISSUE AGE 25 INITIAL STATED AMOUNT: $150,000
CLASSIFICATION: NONSMOKER DEATH BENEFIT TYPE: B (MATURITY AGE 100)
INITIAL PREMIUM: $1,002.00 STATED AMOUNT PLUS CASH VALUE
SUMMARY OF VALUES AND BENEFITS
<TABLE>
<CAPTION>
ASSUMED HYPOTHETICAL GROSS ANNUAL INVESTMENT RETURN
12.00%(10.22% NET) 6.00%(4.22% NET) 0.00%(-1.78% NET)
ASSUMED COST OF INSURANCE AND EXPENSE CHARGES
PLANNED PREMIUMS CURRENT CURRENT CURRENT
ACCUM- END OF END OF END OF END OF END OF END OF
END OF TOTAL ULATED YEAR CASH YEAR YEAR CASH YEAR YEAR CASH YEAR
POLICY ANNUAL AT 5% SURRENDER DEATH SURRENDER DEATH SURRENDER DEATH
YEAR OUTLAY INTEREST VALUE BENEFIT VALUE BENEFIT VALUE BENEFIT
- ---- ------ -------- ----- ------- ----- ------- ----- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1 1,002 1,052 0 150,766 0 150,717 0 150,669
2 1,002 2,157 159 151,611 13 151,465 0 151,325
3 1,002 3,317 589 152,542 291 152,244 17 151,970
4 1,002 4,535 1,444 153,568 932 153,056 480 152,604
5 1,002 5,814 2,665 154,699 1,869 153,903 1,192 153,226
6 1,002 7,156 4,001 155,945 2,841 154,785 1,893 153,837
7 1,002 8,566 5,462 157,316 3,847 155,701 2,581 154,435
8 1,002 10,047 7,058 158,822 4,887 156,651 3,253 155,017
9 1,002 11,601 8,802 160,476 5,962 157,636 3,909 155,583
10 1,002 13,233 10,615 162,289 6,978 158,652 4,456 156,130
15 1,002 22,703 23,560 174,397 13,441 164,278 7,757 158,594
20 1,002 34,789 43,470 193,470 20,655 170,655 10,377 160,377
AGE 60 1,002 95,026 197,349 347,349 43,093 193,093 9,796 159,796
AGE 65 1,002 127,093 317,542 467,542 49,747 199,747 5,982 155,982
AGE 70 1,002 168,021 507,894 657,894 53,347 203,347
</TABLE>
<TABLE>
<CAPTION>
ASSUMED HYPOTHETICAL GROSS ANNUAL INVESTMENT RETURN
12.00%(10.22% NET) 6.00%(4.22% NET) 0.00%(-1.78% NET)
ASSUMED COST OF INSURANCE AND EXPENSE CHARGES
PLANNED PREMIUMS CURRENT CURRENT CURRENT
ACCUM- END OF END OF END OF END OF END OF END OF
END OF TOTAL ULATED YEAR CASH YEAR YEAR CASH YEAR YEAR CASH YEAR
POLICY ANNUAL AT 5% SURRENDER DEATH SURRENDER DEATH SURRENDER DEATH
YEAR OUTLAY INTEREST VALUE BENEFIT VALUE BENEFIT VALUE BENEFIT
- ---- ------ -------- ----- ------- ----- ------- ----- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1 1,002 1,052 0 150,735 0 150,687 0 150,639
2 1,002 2,157 99 151,551 0 151,409 0 151,273
3 1,002 3,317 501 152,454 211 152,164 0 151,898
4 1,002 4,535 1,328 153,452 830 152,954 391 152,515
5 1,002 5,814 2,518 154,552 1,744 153,778 1,087 153,121
6 1,002 7,156 3,820 155,764 2,693 154,637 1,772 153,716
7 1,002 8,566 5,242 157,096 3,673 155,527 2,442 154,296
8 1,002 10,047 6,795 158,559 4,686 156,450 3,098 154,862
9 1,002 11,601 8,490 160,164 5,730 157,404 3,736 155,410
10 1,002 13,233 10,250 161,924 6,716 158,390 4,265 155,939
15 1,002 22,703 22,807 173,644 12,981 163,818 7,463 158,300
20 1,002 34,789 41,979 191,979 19,857 169,857 9,905 159,905
AGE 60 1,002 95,026 184,615 334,615 37,099 187,099 6,109 156,109
AGE 65 1,002 127,093 291,616 441,616 37,792 187,792
AGE 70 1,002 168,021 455,860 605,860 30,012 180,012
</TABLE>
The hypothetical gross annual investment results shown above are illustrative
only and should not be deemed a representation of past or future investment
results. Actual investment results may be more or less than those shown and will
depend on a number of factors, including allocations made by the owner among the
investment options and the actual investment results of those options. The cash
surrender value and death benefit for a policy would be different from those
shown even if the actual rates of investment averaged 0%, 6% and 12% over a
period of years but fluctuated above or below those averages for individual
contract years. No representations can be made that these hypothetical
investment rates of return can be achieved for any one year or sustained over
any period of time. This illustration assumes current cost of insurance and
expense charges remain unchanged.
63
<PAGE> 66
MALE ISSUE AGE 25 INITIAL STATED AMOUNT: $150,000
CLASSIFICATION: NONSMOKER DEATH BENEFIT TYPE: B (MATURITY AGE 100)
INITIAL PREMIUM: $3,020.00 STATED AMOUNT PLUS CASH VALUE
SUMMARY OF VALUES AND BENEFITS
<TABLE>
<CAPTION>
ASSUMED HYPOTHETICAL GROSS ANNUAL INVESTMENT RETURN
12.00%(10.22% NET) 6.00%(4.22% NET) 0.00%(-1.78% NET)
ASSUMED COST OF INSURANCE AND EXPENSE CHARGES
PLANNED PREMIUMS CURRENT CURRENT CURRENT
ACCUM- END OF END OF END OF END OF END OF END OF
END OF TOTAL ULATED YEAR CASH YEAR YEAR CASH YEAR YEAR CASH YEAR
POLICY ANNUAL AT 5% SURRENDER DEATH SURRENDER DEATH SURRENDER DEATH
YEAR OUTLAY INTEREST VALUE BENEFIT VALUE BENEFIT VALUE BENEFIT
- ---- ------ -------- ----- ------- ----- ------- ----- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1 3,020 3,171 947 152,907 782 152,742 616 152,576
2 3,020 6,501 3,987 156,111 3,475 155,599 2,983 155,107
3 3,020 9,997 7,519 159,643 6,453 158,577 5,468 157,592
4 3,020 13,667 11,412 163,536 9,557 161,681 7,910 160,034
5 3,020 17,522 15,792 167,826 12,881 164,915 10,397 162,431
6 3,020 21,569 20,611 172,555 16,342 168,286 12,843 164,787
7 3,020 25,818 25,911 177,765 19,943 171,797 15,243 167,097
8 3,020 30,280 31,738 183,502 23,687 175,451 17,598 169,362
9 3,020 34,965 38,144 189,818 27,579 179,253 19,906 171,580
10 3,020 39,884 45,098 196,772 31,532 183,206 22,076 173,750
15 3,020 68,426 92,951 243,788 54,789 205,626 33,189 184,026
20 3,020 104,852 169,294 375,833 82,653 232,653 42,951 192,951
AGE 60 3,020 286,406 794,926 1,065,201 200,113 350,113 60,326 210,326
AGE 65 3,020 383,056 1,295,934 1,581,039 254,004 404,004 61,506 211,506
AGE 70 3,020 506,409 2,098,725 2,434,521 315,717 465,717 58,575 208,575
</TABLE>
<TABLE>
<CAPTION>
ASSUMED HYPOTHETICAL GROSS ANNUAL INVESTMENT RETURN
12.00%(10.22% NET) 6.00%(4.22% NET) 0.00%(-1.78% NET)
ASSUMED COST OF INSURANCE AND EXPENSE CHARGES
PLANNED PREMIUMS CURRENT CURRENT CURRENT
ACCUM- END OF END OF END OF END OF END OF END OF
END OF TOTAL ULATED YEAR CASH YEAR YEAR CASH YEAR YEAR CASH YEAR
POLICY ANNUAL AT 5% SURRENDER DEATH SURRENDER DEATH SURRENDER DEATH
YEAR OUTLAY INTEREST VALUE BENEFIT VALUE BENEFIT VALUE BENEFIT
- ---- ------ -------- ----- ------- ----- ------- ----- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1 3,020 3,171 916 152,876 751 152,711 587 152,547
2 3,020 6,501 3,927 156,051 3,419 155,543 2,930 155,054
3 3,020 9,997 7,431 159,555 6,373 158,497 5,396 157,520
4 3,020 13,667 11,296 163,420 9,455 161,579 7,821 159,945
5 3,020 17,522 15,645 167,679 12,757 164,791 10,292 162,326
6 3,020 21,569 20,431 172,375 16,194 168,138 12,721 164,665
7 3,020 25,818 25,691 177,545 19,769 171,623 15,105 166,959
8 3,020 30,280 31,475 183,239 23,485 175,249 17,443 169,207
9 3,020 34,965 37,833 189,507 27,347 179,021 19,733 171,407
10 3,020 39,884 44,732 196,406 31,270 182,944 21,886 173,560
15 3,020 68,426 92,199 243,036 54,329 205,166 32,896 183,733
20 3,020 104,852 167,781 372,474 81,854 231,854 42,479 192,479
AGE 60 3,020 286,406 778,418 1,043,080 194,132 344,132 56,643 206,643
AGE 65 3,020 383,056 1,260,643 1,537,985 242,082 392,082 54,125 204,125
AGE 70 3,020 506,409 2,023,617 2,347,396 292,468 442,468 44,330 194,330
</TABLE>
The hypothetical gross annual investment results shown above are illustrative
only and should not be deemed a representation of past or future investment
results. Actual investment results may be more or less than those shown and will
depend on a number of factors, including allocations made by the owner among the
investment options and the actual investment results of those options. The cash
surrender value and death benefit for a policy would be different from those
shown even if the actual rates of investment averaged 0%, 6% and 12% over a
period of years but fluctuated above or below those averages for individual
contract years. No representations can be made that these hypothetical
investment rates of return can be achieved for any one year or sustained over
any period of time. This illustration assumes current cost of insurance and
expense charges remain unchanged.
64
<PAGE> 67
MALE ISSUE AGE 40 INITIAL STATED AMOUNT: $250,000
CLASSIFICATION: SELECT NONSMOKER DEATH BENEFIT TYPE: A (MATURITY AGE 100)
INITIAL PREMIUM: $2,484.00 STATED AMOUNT INCLUDES CASH VALUE
SUMMARY OF VALUES AND BENEFITS
<TABLE>
<CAPTION>
ASSUMED HYPOTHETICAL GROSS ANNUAL INVESTMENT RETURN
12.00%(10.22% NET) 6.00%(4.22% NET) 0.00%(-1.78% NET)
ASSUMED COST OF INSURANCE AND EXPENSE CHARGES
PLANNED PREMIUMS CURRENT CURRENT CURRENT
ACCUM- END OF END OF END OF END OF END OF END OF
END OF TOTAL ULATED YEAR CASH YEAR YEAR CASH YEAR YEAR CASH YEAR
POLICY ANNUAL AT 5% SURRENDER DEATH SURRENDER DEATH SURRENDER DEATH
YEAR OUTLAY INTEREST VALUE BENEFIT VALUE BENEFIT VALUE BENEFIT
- ---- ------ -------- ----- ------- ----- ------- ----- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1 2,484 2,608 193 250,000 63 250,000 0 250,000
2 2,484 5,347 1,336 250,000 940 250,000 560 250,000
3 2,484 8,222 2,702 250,000 1,885 250,000 1,133 250,000
4 2,484 11,242 4,311 250,000 2,899 250,000 1,649 250,000
5 2,484 14,412 6,859 250,000 4,656 250,000 2,781 250,000
6 2,484 17,741 10,408 250,000 7,191 250,000 4,563 250,000
7 2,484 21,236 14,274 250,000 9,794 250,000 6,282 250,000
8 2,484 24,906 18,478 250,000 12,457 250,000 7,927 250,000
9 2,484 28,759 23,097 250,000 15,222 250,000 9,539 250,000
10 2,484 32,806 27,985 250,000 17,903 250,000 10,929 250,000
15 2,484 56,281 63,710 250,000 35,612 250,000 19,951 250,000
20 2,484 86,243 118,739 250,000 54,627 250,000 26,218 250,000
AGE 60 2,484 86,243 118,739 250,000 54,627 250,000 26,218 250,000
AGE 65 2,484 124,482 204,198 250,000 72,014 250,000 26,274 250,000
AGE 70 2,484 173,286 344,011 399,053 89,472 250,000 20,695 250,000
</TABLE>
<TABLE>
<CAPTION>
ASSUMED HYPOTHETICAL GROSS ANNUAL INVESTMENT RETURN
12.00%(10.22% NET) 6.00%(4.22% NET) 0.00%(-1.78% NET)
ASSUMED COST OF INSURANCE AND EXPENSE CHARGES
PLANNED PREMIUMS CURRENT CURRENT CURRENT
ACCUM- END OF END OF END OF END OF END OF END OF
END OF TOTAL ULATED YEAR CASH YEAR YEAR CASH YEAR YEAR CASH YEAR
POLICY ANNUAL AT 5% SURRENDER DEATH SURRENDER DEATH SURRENDER DEATH
YEAR OUTLAY INTEREST VALUE BENEFIT VALUE BENEFIT VALUE BENEFIT
- ---- ------ -------- ----- ------- ----- ------- ----- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1 2,484 2,608 0 250,000 0 250,000 0 250,000
2 2,484 5,347 824 250,000 457 250,000 105 250,000
3 2,484 8,222 1,864 250,000 1,117 250,000 428 250,000
4 2,484 11,242 3,092 250,000 1,810 250,000 678 250,000
5 2,484 14,412 5,189 250,000 3,202 250,000 1,517 250,000
6 2,484 17,741 8,236 250,000 5,352 250,000 3,006 250,000
7 2,484 21,236 11,524 250,000 7,529 250,000 4,411 250,000
8 2,484 24,906 15,075 250,000 9,729 250,000 5,730 250,000
9 2,484 28,759 18,914 250,000 11,950 250,000 6,960 250,000
10 2,484 32,806 22,915 250,000 14,036 250,000 7,944 250,000
15 2,484 56,281 51,704 250,000 27,384 250,000 14,094 250,000
20 2,484 86,243 93,906 250,000 39,191 250,000 15,959 250,000
AGE 60 2,484 86,243 93,906 250,000 39,191 250,000 15,959 250,000
AGE 65 2,484 124,482 156,099 250,000 43,689 250,000 7,995 250,000
AGE 70 2,484 173,286 260,664 302,370 37,267 250,000
</TABLE>
The hypothetical gross annual investment results shown above are illustrative
only and should not be deemed a representation of past or future investment
results. Actual investment results may be more or less than those shown and will
depend on a number of factors, including allocations made by the owner among the
investment options and the actual investment results of those options. The cash
surrender value and death benefit for a policy would be different from those
shown even if the actual rates of investment averaged 0%, 6% and 12% over a
period of years but fluctuated above or below those averages for individual
contract years. No representations can be made that these hypothetical
investment rates of return can be achieved for any one year or sustained over
any period of time. This illustration assumes current cost of insurance and
expense charges remain unchanged.
65
<PAGE> 68
MALE ISSUE AGE 40 INITIAL STATED AMOUNT: $250,000
CLASSIFICATION: SELECT NONSMOKER DEATH BENEFIT TYPE: A (MATURITY AGE 100)
INITIAL PREMIUM: $3,750.00 STATED AMOUNT INCLUDES CASH VALUE
SUMMARY OF VALUES AND BENEFITS
<TABLE>
<CAPTION>
ASSUMED HYPOTHETICAL GROSS ANNUAL INVESTMENT RETURN
12.00%(10.22% NET) 6.00%(4.22% NET) 0.00%(-1.78% NET)
ASSUMED COST OF INSURANCE AND EXPENSE CHARGES
PLANNED PREMIUMS CURRENT CURRENT CURRENT
ACCUM- END OF END OF END OF END OF END OF END OF
END OF TOTAL ULATED YEAR CASH YEAR YEAR CASH YEAR YEAR CASH YEAR
POLICY ANNUAL AT 5% SURRENDER DEATH SURRENDER DEATH SURRENDER DEATH
YEAR OUTLAY INTEREST VALUE BENEFIT VALUE BENEFIT VALUE BENEFIT
- ---- ------ -------- ----- ------- ----- ------- ----- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1 3,750 3,938 905 250,000 701 250,000 499 250,000
2 3,750 8,072 2,900 250,000 2,273 250,000 1,672 250,000
3 3,750 12,413 5,272 250,000 3,972 250,000 2,771 250,000
4 3,750 16,971 9,861 250,000 7,602 250,000 5,599 250,000
5 3,750 21,757 15,138 250,000 11,600 250,000 8,584 250,000
6 3,750 26,783 20,897 250,000 15,715 250,000 11,474 250,000
7 3,750 32,059 27,206 250,000 19,970 250,000 14,283 250,000
8 3,750 37,600 34,111 250,000 24,360 250,000 17,004 250,000
9 3,750 43,417 41,717 250,000 28,930 250,000 19,677 250,000
10 3,750 49,525 49,908 250,000 33,501 250,000 22,112 250,000
15 3,750 84,966 108,375 250,000 62,169 250,000 36,245 250,000
20 3,750 130,197 201,803 270,416 95,283 250,000 47,464 250,000
AGE 60 3,750 130,197 201,803 270,416 95,283 250,000 47,464 250,000
AGE 65 3,750 187,925 348,870 425,621 131,304 250,000 52,519 250,000
AGE 70 3,750 261,603 584,896 678,480 174,736 250,000 52,451 250,000
</TABLE>
<TABLE>
<CAPTION>
ASSUMED HYPOTHETICAL GROSS ANNUAL INVESTMENT RETURN
12.00%(10.22% NET) 6.00%(4.22% NET) 0.00%(-1.78% NET)
ASSUMED COST OF INSURANCE AND EXPENSE CHARGES
PLANNED PREMIUMS CURRENT CURRENT CURRENT
ACCUM- END OF END OF END OF END OF END OF END OF
END OF TOTAL ULATED YEAR CASH YEAR YEAR CASH YEAR YEAR CASH YEAR
POLICY ANNUAL AT 5% SURRENDER DEATH SURRENDER DEATH SURRENDER DEATH
YEAR OUTLAY INTEREST VALUE BENEFIT VALUE BENEFIT VALUE BENEFIT
- ---- ------ -------- ----- ------- ----- ------- ----- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1 3,750 3,938 671 250,000 475 250,000 279 250,000
2 3,750 8,072 2,392 250,000 1,793 250,000 1,220 250,000
3 3,750 12,413 4,444 250,000 3,211 250,000 2,074 250,000
4 3,750 16,971 8,659 250,000 6,528 250,000 4,640 250,000
5 3,750 21,757 13,498 250,000 10,171 250,000 7,340 250,000
6 3,750 26,783 18,773 250,000 13,913 250,000 9,945 250,000
7 3,750 32,059 24,527 250,000 17,757 250,000 12,452 250,000
8 3,750 37,600 30,810 250,000 21,705 250,000 14,860 250,000
9 3,750 43,417 37,679 250,000 25,760 250,000 17,167 250,000
10 3,750 49,525 45,042 250,000 29,769 250,000 19,217 250,000
15 3,750 84,966 97,291 250,000 54,447 250,000 30,670 250,000
20 3,750 130,197 180,312 250,000 81,320 250,000 37,884 250,000
AGE 60 3,750 130,197 180,312 250,000 81,320 250,000 37,884 250,000
AGE 65 3,750 187,925 311,387 379,892 107,070 250,000 35,815 250,000
AGE 70 3,750 261,603 518,946 601,977 133,683 250,000 22,440 250,000
</TABLE>
The hypothetical gross annual investment results shown above are illustrative
only and should not be deemed a representation of past or future investment
results. Actual investment results may be more or less than those shown and will
depend on a number of factors, including allocations made by the owner among the
investment options and the actual investment results of those options. The cash
surrender value and death benefit for a policy would be different from those
shown even if the actual rates of investment averaged 0%, 6% and 12% over a
period of years but fluctuated above or below those averages for individual
contract years. No representations can be made that these hypothetical
investment rates of return can be achieved for any one year or sustained over
any period of time. This illustration assumes current cost of insurance and
expense charges remain unchanged.
66
<PAGE> 69
MALE ISSUE AGE 40 INITIAL STATED AMOUNT: $250,000
CLASSIFICATION: SELECT NONSMOKER DEATH BENEFIT TYPE: B (MATURITY AGE 100)
INITIAL PREMIUM: $2,484.00 STATED AMOUNT PLUS CASH VALUE
SUMMARY OF VALUES AND BENEFITS
<TABLE>
<CAPTION>
ASSUMED HYPOTHETICAL GROSS ANNUAL INVESTMENT RETURN
12.00%(10.22% NET) 6.00%(4.22% NET) 0.00%(-1.78% NET)
ASSUMED COST OF INSURANCE AND EXPENSE CHARGES
PLANNED PREMIUMS CURRENT CURRENT CURRENT
ACCUM- END OF END OF END OF END OF END OF END OF
END OF TOTAL ULATED YEAR CASH YEAR YEAR CASH YEAR YEAR CASH YEAR
POLICY ANNUAL AT 5% SURRENDER DEATH SURRENDER DEATH SURRENDER DEATH
YEAR OUTLAY INTEREST VALUE BENEFIT VALUE BENEFIT VALUE BENEFIT
- ---- ------ -------- ----- ------- ----- ------- ----- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1 2,484 2,608 189 252,181 60 252,052 0 251,922
2 2,484 5,347 1,325 254,559 930 254,164 551 253,785
3 2,484 8,222 2,678 257,154 1,865 256,341 1,115 255,591
4 2,484 11,242 4,267 259,985 2,863 258,581 1,619 257,337
5 2,484 14,412 6,787 263,084 4,598 260,895 2,734 259,032
6 2,484 17,741 10,295 266,443 7,103 263,251 4,495 260,643
7 2,484 21,236 14,105 270,102 9,668 265,666 6,188 262,185
8 2,484 24,906 18,233 274,081 12,281 268,128 7,801 263,649
9 2,484 28,759 22,758 278,455 14,988 270,685 9,379 265,076
10 2,484 32,806 27,521 283,219 17,596 273,294 10,726 266,424
15 2,484 56,281 61,954 314,804 34,670 287,520 19,442 272,292
20 2,484 86,243 112,802 362,802 52,061 302,061 25,087 275,087
AGE 60 2,484 86,243 112,802 362,802 52,061 302,061 25,087 275,087
AGE 65 2,484 124,482 186,260 436,260 65,913 315,913 24,138 274,138
AGE 70 2,484 173,286 297,691 547,691 75,896 325,896 17,130 267,130
</TABLE>
<TABLE>
<CAPTION>
ASSUMED HYPOTHETICAL GROSS ANNUAL INVESTMENT RETURN
12.00%(10.22% NET) 6.00%(4.22% NET) 0.00%(-1.78% NET)
ASSUMED COST OF INSURANCE AND EXPENSE CHARGES
PLANNED PREMIUMS CURRENT CURRENT CURRENT
ACCUM- END OF END OF END OF END OF END OF END OF
END OF TOTAL ULATED YEAR CASH YEAR YEAR CASH YEAR YEAR CASH YEAR
POLICY ANNUAL AT 5% SURRENDER DEATH SURRENDER DEATH SURRENDER DEATH
YEAR OUTLAY INTEREST VALUE BENEFIT VALUE BENEFIT VALUE BENEFIT
- ---- ------ -------- ----- ------- ----- ------- ----- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1 2,484 2,608 0 251,945 0 251,822 0 251,700
2 2,484 5,347 807 254,041 441 253,675 91 253,325
3 2,484 8,222 1,828 256,304 1,085 255,561 401 254,877
4 2,484 11,242 3,025 258,743 1,754 257,472 631 256,349
5 2,484 14,412 5,079 261,377 3,114 259,411 1,446 257,744
6 2,484 17,741 8,066 264,214 5,220 261,368 2,904 259,052
7 2,484 21,236 11,272 267,269 7,341 263,338 4,272 260,270
8 2,484 24,906 14,714 270,561 9,471 265,318 5,547 261,394
9 2,484 28,759 18,411 274,108 11,605 267,302 6,725 262,422
10 2,484 32,806 22,228 277,926 13,584 269,281 7,648 263,346
15 2,484 56,281 49,019 301,869 25,964 278,814 13,342 266,192
20 2,484 86,243 85,071 335,071 35,531 285,531 14,442 264,442
AGE 60 2,484 86,243 85,071 335,071 35,531 285,531 14,442 264,442
AGE 65 2,484 124,482 129,529 379,529 35,452 285,452 5,582 255,582
AGE 70 2,484 173,286 185,340 435,340 20,963 270,963
</TABLE>
The hypothetical gross annual investment results shown above are illustrative
only and should not be deemed a representation of past or future investment
results. Actual investment results may be more or less than those shown and will
depend on a number of factors, including allocations made by the owner among the
investment options and the actual investment results of those options. The cash
surrender value and death benefit for a policy would be different from those
shown even if the actual rates of investment averaged 0%, 6% and 12% over a
period of years but fluctuated above or below those averages for individual
contract years. No representations can be made that these hypothetical
investment rates of return can be achieved for any one year or sustained over
any period of time. This illustration assumes current cost of insurance and
expense charges remain unchanged.
67
<PAGE> 70
MALE ISSUE AGE 40 INITIAL STATED AMOUNT: $250,000
CLASSIFICATION: SELECT NONSMOKER DEATH BENEFIT TYPE: B (MATURITY AGE 100)
INITIAL PREMIUM: $9,000.00 STATED AMOUNT PLUS CASH VALUE
SUMMARY OF VALUES AND BENEFITS
<TABLE>
<CAPTION>
ASSUMED HYPOTHETICAL GROSS ANNUAL INVESTMENT RETURN
12.00%(10.22% NET) 6.00%(4.22% NET) 0.00%(-1.78% NET)
ASSUMED COST OF INSURANCE AND EXPENSE CHARGES
PLANNED PREMIUMS CURRENT CURRENT CURRENT
ACCUM- END OF END OF END OF END OF END OF END OF
END OF TOTAL ULATED YEAR CASH YEAR YEAR CASH YEAR YEAR CASH YEAR
POLICY ANNUAL AT 5% SURRENDER DEATH SURRENDER DEATH SURRENDER DEATH
YEAR OUTLAY INTEREST VALUE BENEFIT VALUE BENEFIT VALUE BENEFIT
- ---- ------ -------- ----- ------- ----- ------- ----- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1 9,000 9,450 3,844 259,094 3,338 258,588 2,832 258,082
2 9,000 19,373 12,644 269,091 11,065 267,513 9,548 265,996
3 9,000 29,791 23,636 280,084 20,341 276,789 17,296 273,744
4 9,000 40,731 35,723 292,171 29,981 286,428 24,879 281,327
5 9,000 52,217 49,175 305,473 40,157 296,454 32,458 288,755
6 9,000 64,278 63,928 320,076 50,700 306,847 39,850 295,997
7 9,000 76,942 80,132 336,130 61,641 317,638 47,073 303,071
8 9,000 90,239 97,922 353,770 72,984 328,831 54,119 309,967
9 9,000 104,201 117,504 373,202 84,789 340,487 61,033 316,730
10 9,000 118,861 138,865 394,562 96,880 352,578 67,621 323,319
15 9,000 203,917 286,023 538,873 168,182 421,032 101,563 354,413
20 9,000 312,473 520,262 770,262 252,262 502,262 130,272 380,272
AGE 60 9,000 312,473 520,262 770,262 252,262 502,262 130,272 380,272
AGE 65 9,000 451,021 892,099 1,142,099 348,131 598,131 150,413 400,413
AGE 70 9,000 627,847 1,489,062 1,739,062 459,005 709,005 162,697 412,697
</TABLE>
<TABLE>
<CAPTION>
ASSUMED HYPOTHETICAL GROSS ANNUAL INVESTMENT RETURN
12.00%(10.22% NET) 6.00%(4.22% NET) 0.00%(-1.78% NET)
ASSUMED COST OF INSURANCE AND EXPENSE CHARGES
PLANNED PREMIUMS CURRENT CURRENT CURRENT
ACCUM- END OF END OF END OF END OF END OF END OF
END OF TOTAL ULATED YEAR CASH YEAR YEAR CASH YEAR YEAR CASH YEAR
POLICY ANNUAL AT 5% SURRENDER DEATH SURRENDER DEATH SURRENDER DEATH
YEAR OUTLAY INTEREST VALUE BENEFIT VALUE BENEFIT VALUE BENEFIT
- ---- ------ -------- ----- ------- ----- ------- ----- -------
<C> <C> <C> <C> <C> <C> <C> <C> <C>
1 9,000 9,450 3,607 258,857 3,109 258,359 2,610 257,860
2 9,000 19,373 12,125 268,573 10,576 267,024 9,088 265,536
3 9,000 29,791 22,786 279,234 19,562 276,009 16,583 273,030
4 9,000 40,731 34,482 290,930 28,873 285,320 23,892 280,340
5 9,000 52,217 47,468 303,765 38,673 294,971 31,170 287,467
6 9,000 64,278 61,700 317,848 48,817 304,965 38,259 294,407
7 9,000 76,942 77,301 333,298 59,315 315,312 45,158 301,156
8 9,000 90,239 94,404 350,252 70,175 326,022 51,866 307,713
9 9,000 104,201 113,160 368,857 81,408 337,106 58,380 314,077
10 9,000 118,861 133,575 389,272 92,870 348,568 64,545 320,242
15 9,000 203,917 273,103 525,953 159,485 412,335 95,468 348,318
20 9,000 312,473 492,583 742,583 235,754 485,754 119,637 369,637
AGE 60 9,000 312,473 492,583 742,583 235,754 485,754 119,637 369,637
AGE 65 9,000 451,021 835,536 1,085,536 317,731 567,731 131,880 381,880
AGE 70 9,000 627,847 1,377,227 1,627,227 404,224 654,224 130,593 380,593
</TABLE>
The hypothetical gross annual investment results shown above are illustrative
only and should not be deemed a representation of past or future investment
results. Actual investment results may be more or less than those shown and will
depend on a number of factors, including allocations made by the owner among the
investment options and the actual investment results of those options. The cash
surrender value and death benefit for a policy would be different from those
shown even if the actual rates of investment averaged 0%, 6% and 12% over a
period of years but fluctuated above or below those averages for individual
contract years. No representations can be made that these hypothetical
investment rates of return can be achieved for any one year or sustained over
any period of time. This illustration assumes current cost of insurance and
expense charges remain unchanged.
68
<PAGE> 71
PART II
OTHER INFORMATION
<PAGE> 72
CONTENTS OF REGISTRATION STATEMENT
This registration statement comprises the following papers and documents:
The facing sheet
The prospectus consisting of 68 pages
Representations:
Pursuant to Section 26(e)(2)(A) of the Investment Company Act of 1940,
as amended, Ohio National Life Assurance Corporation represents that
the fees and charges deducted under the contract, in the aggregate, are
reasonable in relation to the expenses expected to be incurred and the
risks assumed by Ohio National Life Assurance Corporation.
The signatures
Written consents of the following persons:
KPMG Peat Marwick LLP
Jones & Blouch L.L.P.
Ronald L. Benedict, Esq.
David W. Cook, FSA, MAAA
Exhibits:
(5) Flexible Premium Variable Life Insurance Policy, Form 96-VL-1.
(10) Variable Life Insurance Application Supplement: Suitability
Information.
All other relevant exhibits, which have previously been filed with the
Commission and are incorporated herein by reference, are as follows:
(1) Resolution of the Board of Directors of the Depositor
authorizing establishment of Ohio National Variable Account R
was filed as Exhibit 1.(1) of the Registrant's registration
statement on Form S-6 on June 7, 1985 (File no. 2-98265).
(2)(a) Agreement of Custodianship between the Depositor and The
Provident Bank was filed as Exhibit 5 of the Registrant's
registration statement on Form S-6, Post-effective Amendment
no. 2, on March 22, 1988 (File no. 2-98265).
(2)(b) Amendment to Agreement of Custodianship was filed as Exhibit 4
of the Registrant's Form S-6, Post-effective Amendment no. 3,
on April 20, 1989 (File no. 2-98265).
(3)(a) Distribution and Service Agreement between the Depositor and
The O.N. Equity Sales Company was filed as Exhibit 6 of the
Registrant's Form S-6, Post-effective Amendment no. 3 on April
20, 1989 (File no. 2-98265).
<PAGE> 73
(3)(b) Registered Representative's Sales Contract with Variable Life
Supplement was filed as Exhibit (3)(b) of the Registrant's
Form S-6, Post-effective Amendment no. 5, on April 18, 1991
(File no. 2-98265).
(3)(c) Schedule of Sales Commissions was filed as Exhibit 1.(3)(c) of
the Registrant's Form S-6 on October 15, 1986 (File no.
2-98265).
(6)(a) Articles of Incorporation of the Depositor were filed as
Exhibit 1.(6)(a) of the Registrant's Form S-6 on June 7, 1985
(File no. 2-98265).
(6)(b) Code of Regulations (by-laws) of the Depositor were filed as
Exhibit 1.(6)(b) of the Registrant's Form S-6 on June 7, 1985
(File no. 2-98265).
(8) Service Agreement between the Depositor and The Ohio National
Life Insurance Company was filed as Exhibit 1.(8) of the
Registrant's Form S-6 on June 7, 1985 (File no. 2-98265).
(11) Memorandum describing the Depositor's purchase, transfer,
redemption and conversion procedures for the contracts was
filed as Exhibit 1.(11) of the Registrant's Form S-6 on
October 15, 1986 (File no. 2-98265).
<PAGE> 74
SIGNATURES
As required by the Securities Act of 1933 and the Investment Company Act of
l940, the registrant, Ohio National Variable Account R has caused this
registration statement to be signed on its behalf in the City of Cincinnati and
State of Ohio on the 11th day of November, 1996.
OHIO NATIONAL VARIABLE ACCOUNT R
(Registrant)
By OHIO NATIONAL LIFE ASSURANCE CORPORATION
(Depositor)
By /s/ Donald J. Zimmerman
------------------------------------
Donald J. Zimmerman
Senior Vice President, Insurance Operations
Attest:
/s/ Ronald L. Benedict
----------------------
Ronald L. Benedict
Assistant Secretary
<PAGE> 75
Pursuant to the requirements of the Securities Act of l933, the depositor has
duly caused this registration statement to be signed on its behalf by the
undersigned thereunto duly authorized in the City of Cincinnati and the State of
Ohio on the 11th day of November, 1996.
OHIO NATIONAL LIFE ASSURANCE CORPORATION
(Depositor)
By /s/ Donald J. Zimmerman
------------------------------------
Donald J. Zimmerman
Senior Vice President, Insurance Operations
Attest:
/s/ Ronald L. Benedict
----------------------
Ronald L. Benedict
Assistant Secretary
Pursuant to the requirements of the Securities Act of l933, this post-effective
amendment to the registration statement has been signed below by the following
persons in the capacities with the depositor and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
- --------- ----- ----
<S> <C> <C>
Chairman, President
and Chief Executive
/s/ David B. O'Maley Officer and Director November 11, 1996
- -----------------------------
David B. O'Maley
Senior Vice President
and Chief Investment
/s/ Joseph P. Brom Officer and Director November 11, 1996
- -----------------------------
Joseph P. Brom
Senior Vice President
and Chief Financial Officer
/s/ Ronald J. Dolan and Director November 11, 1996
- ----------------------------
Ronald J. Dolan
Senior Vice President and
General Counsel and
/s/ Stuart G. Summers Director November 11, 1996
- -----------------------------
Stuart G. Summers
Senior Vice President,
Insurance Operations &
/s/ Donald J. Zimmerman Secretary and Director November 11, 1996
- -----------------------------
Donald J. Zimmerman
Vice President,
Financial Control
(Principal Accounting
/s/ Paul L. Bergmann Officer) November 11, 1996
- -----------------------------
Paul L. Bergmann
</TABLE>
<PAGE> 76
INDEX OF CONSENTS AND EXHIBITS
Page Number
Exhibit in Sequential
Number Description Numbering System
Consent of KPMG Peat Marwick LLP
Consent of Jones & Blouch L.L.P.
Consent of Ronald L. Benedict, Esq.
Consent of David W. Cook, FSA, MAAA
(5) Flexible Premium Life Insurance Policy,
Form 96-VL-1
(10) Variable Life Insurance Application
Supplement: Suitability Information
<PAGE> 77
CONSENTS
<PAGE> 78
INDEPENDENT AUDITORS' CONSENT
The Board of Directors
Ohio National Life Assurance Corporation:
We consent to the inclusion of our reports included herein on the financial
statements of Ohio National Variable Account R as of December 31, 1995 and for
the periods indicated herein and of Ohio National Life Assurance Corporation as
of December 31, 1995 and for the year then ended and to the reference to our
firm under the heading "Experts" in the Prospectus.
Our report on the financial statements of Ohio National Life Assurance
Corporation refers to a change in accounting and reporting by mutual life
insurance enterprises and by insurance enterprises for certain long-duration
participating contracts in 1995.
KPMG Peat Marwick LLP
Cincinnati, Ohio
November 11, 1996
<PAGE> 79
[LETTERHEAD]
November 11, 1996
The Board of Directors
Ohio National Life Assurance Corporation
237 William Howard Taft Road
Cincinnati, Ohio 452l9
Re: Ohio National Variable Account R
Registration of Flexible Premium Variable Life
Insurance Contracts ("Vari-Vest V")
Gentlemen:
The undersigned hereby consents to the use of my name under the caption of
"Legal Opinions" in the registration statement on Form S-6 of the above
captioned registrant.
Sincerely,
s/Ronald L. Benedict
-----------------------
Ronald L. Benedict
Assistant Secretary and
Legal Counsel
RLB/nh
VARreg
The Ohio National Life Insurance Company
Ohio National Life Assurance Corporation
<PAGE> 80
[LETTERHEAD]
November 11, 1996
Ohio National Life Assurance Corporation
237 William Howard Taft Road
Cincinnati, Ohio 45219
Re: Ohio National Variable Account R
Registration of Flexible Premium Variable Life
Insurance Contracts ("Vari-Vest V")
Gentlemen:
I hereby consent to the use of my name under the heading "Experts" in the
prospectus included in the post-effective amendment to the above-captioned
registration statement on form S-6.
Sincerely,
s/David W. Cook
---------------------------------
David W. Cook, FSA, MAAA
Senior Vice President and Actuary
DWC/nh
VARreg
The Ohio National Life Insurance Company
Ohio National Life Assurance Corporation
<PAGE> 81
EXHIBITS
<PAGE> 1
EXHIBIT (5)
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY,
FORM 96-VL-1
<PAGE> 2
We will pay the proceeds to the beneficiary after we receive due proof that
the insured died while this contract was in force. If the insured is living
on the maturity date, we will then pay to the owner the accumulation value
less any loans in effect.
Our home office is at One Financial Way, Cincinnati, Ohio 45242.
/s/ Donald J. Zimmerman /s/ David B. Vandsner
----------------------- ---------------------
Secretary President
20 DAY RIGHT TO EXAMINE THE POLICY: YOU HAVE A RIGHT TO CANCEL THIS
CONTRACT WITHIN 20 DAYS AFTER YOU RECEIVE IT. YOU MAY RETURN IT TO US OR TO
OUR AGENT FOR ANY REASON WITHIN THOSE 20 DAYS. THE CONTRACT WILL THEN BE
TREATED AS THOUGH IT WERE NEVER ISSUED. WE WILL THEN REFUND THE PREMIUMS
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY
Nonparticipating
Adjustable Death Benefit Payable Before Maturity Date
Cash Surrender Value Payable on Maturity Date if Insured is Then Living
Flexible Premiums Until Maturity Date
Stated Amount: Page 3
Maturity Date: Page 3
DEATH BENEFITS AND ACCUMULATION VALUES MAY INCREASE OR DECREASE ACCORDING TO
THE INVESTMENT EXPERIENCE OF OHIO NATIONAL VARIABLE ACCOUNT R.
FOR DETAILS SEE NONFORFEITURE PROVISIONS, PAGES 13-17.
INSURED POLICY NUMBER
AGE FACE AMOUNT
CONTRACT DATE ISSUE DATE
<PAGE> 3
POLICY CONTENTS
PAGE
POLICY SPECIFICATIONS 2
OPTION TABLES 5
TABLE OF RENEWAL PREMIUMS 6
GENERAL TERMS AND DEFINITIONS 7
Contract Months and Years 7
Fund 7
Guideline Premium 7
Issue Date 7
Maturity Date 7
Minimum Premium 7
Notice 7
Option 7
Payee 7
Proceeds 7
Process Days 7
Pronouns 8
Proof You Can Be Insured 8
Subaccount 8
VAR 8
Valuation Period 8
GENERAL PROVISIONS 8
Ownership 8
Assignment 8
Beneficiary 8
Contract 9
General Account and VAR 9
Investments of VAR 9
Voting Rights 9
Reports 9
Nonparticipating 10
Exchange Right 10
PREMIUMS 10
Payment 10
Net Premium 10
Allocation of Net Premiums 10
Planned Premium 10
Extra Premium 10
Minimum Premium Requirement 11
Policy Changes Affecting the Minimum
Premium Requirement 11
Death Benefit Guarantee 11
Grace Period 11
Reinstatement 11
BENEFITS 12
Death Proceeds Choices 12
Changes in Coverage 12
Change of Proceeds Plans 13
Coverage Extended Endowment 13
NONFORFEITURE 13
Accumulation Value 13
Fixed Accumulation Value 13
Interest for the Fixed Accumulation Value 13
Determination of Values for the General
Account 13
Variable Accumulation Value 13
Variable Accumulation Units 14
Unit Value 14
Net Investment Factor 14
Splitting Units 14
Transfers Among Subaccounts and General
Account 14
Taxes 15
Monthly Charges 15
Cost of Insurance 15
Cost of Insurance Rate 15
Net Amount at Risk 15
Surrender and Cash Surrender Value 15
Surrender Charge 15
Contingent Deferred Sales Charge 16
Deferred Underwriting Charge 16
Sales Charge Refund 16
Surrender Charge On Decreases 16
Partial Surrender 16
Deferral of Payment on Surrender, Partial
Surrenders and Loans 16
Paid-up Term Insurance 17
Paid-up Life Insurance 17
LOANS 17
Availability 17
Loan Value 17
Loan Collateral 17
Interest 17
Repayment 17
CLAIMS 18
Payment of Proceeds 18
Misstatement of Age or Sex 18
Proceeds Protection 18
Incontestability 18
Suicide 18
PROCEEDS PAYMENT OPTIONS 18
Choice of Options 18
Minimum Amounts 19
Description of Options 19
Proceeds at Interest 19
Payments for a Certain Period 19
Life Income 20
Payments of a Certain Amount 20
Joint and Survivor Life Income 20
Alternate Life Income 20
Death of Payee 20
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POLICY SPECIFICATIONS
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This Page Left Blank
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OPTION TABLES
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TABLE OF RENEWAL PREMIUMS
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GENERAL TERMS AND DEFINITIONS
CONTRACT MONTHS AND YEARS
This contract takes effect on the contract date shown on page 3. Contract
months and years are marked from the contract date. The first day of the
contract year is the contract date and its anniversaries.
FUND
(a) Ohio National Fund, Inc. or (b) in the case of the Emerging Markets
Subaccount, the Emerging Markets Fund (a series of the Montgomery Funds
III), or (c) another open-end management investment company registered
under the Investment Company Act of 1940, as amended (the "Act"). Shares of
these investment companies are referred to as "Fund Shares."
GUIDELINE PREMIUM
The guideline premium is shown on page 3.
ISSUE DATE
The issue date is shown on page 3.
MATURITY DATE
Unless we otherwise specify, the maturity date is the end of the contract
year nearest your 100th birthday. We will pay you the accumulation value on
the maturity date less any loans in effect.
MINIMUM PREMIUM
The minimum premium is shown on page 3. The minimum premium requirement
must be met to keep the death benefit guarantee.
NOTICE
A notice required by you under this contract must be in written form
acceptable to us. A notice of any action that requires us to determine your
accumulation value takes effect when we receive it. Otherwise, a notice
takes effect when signed; but it is subject to any payment made or action
taken by us before we receive it.
OPTION
Payment of the proceeds other than in one sum.
PAYEE
The person to whom payments are made under an option. If the option is a
life annuity, the payee is the person on whose life the option is based.
PROCEEDS
The amount payable on the first of: (1) surrender of the contract; (2)
death of the insured; or (3) the maturity date.
PROCESS DAYS
The first day of each contract month. Monthly charges and credits are made
as of each process day.
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OHIO NATIONAL LIFE ASSURANCE CORPORATION PAGE 7
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PRONOUNS
"Our", "us" or "we" means Ohio National Life Assurance Corporation. "You",
"your" or "yours" means the insured. If the insured is not the owner,
"you", "your" or "yours" means the owner when referring to contract rights,
payments and notices.
PROOF YOU CAN BE INSURED
When this contract requires you to send us proof that you can be insured,
the proof must be acceptable to us. We will supply forms or instructions
for you to us that proof. No new stated amount or reinstatement for which
you apply will take effect until we approve your application. We must find
that you are in an acceptable risk class. Unless we adopt other rules, your
risk class must be at least as good as it was when we last approved you for
insurance.
SUBACCOUNT
The Equity Subaccount, Money Market Subaccount, Bond Subaccount, Omni
Subaccount, International Subaccount, Capital Appreciation Subaccount,
Small Cap Subaccount, Global Contarian Subaccount, Aggressive Growth
Subaccount, Core Growth Subaccount, Growth & Income Subaccount, S & P 500
Index Subaccount, Social Awareness Subaccount, Emerging Markets Subaccount,
or any other subaccounts that may be established within VAR.
VAR
Ohio National Variable Account R. This is an account that consists of
assets we have set aside so that their investment results are kept separate
from those of our general assets. The assets of VAR will be available to
cover the liabilities of the general account only to the extent that the
assets of VAR exceed the liabilities of VAR arising under the variable life
policies in VAR.
VALUATION PERIOD
That period of time from one determination of accumulation unit values to
their next determination. Such values will be determined each day that the
New York Stock Exchange is open for business and any other day on which
there is sufficient trading to materially affect the value of VAR's assets.
GENERAL PROVISIONS
OWNERSHIP
The owner has all contract rights while the insured is living. After the
insured's death, the owner only has those rights set forth in the
beneficiary and proceeds payment options sections. The owner may act
without the consent of a revocable beneficiary or contingent owner. The
owner may name a contingent owner or new owner by notice to us.
ASSIGNMENT
You may assign your rights under this contract as security for a loan or
debt. We are not bound by an assignment unless we receive notice of it. The
person to whom you assign your rights has a first claim on proceeds in
place of you and your beneficiaries.
BENEFICIARY
You may name beneficiaries in the application or by notice to us or you may
later name or change beneficiaries by notice to us. If the owner is not the
insured, the owner may name or change beneficiaries by notice to us at any
time up to 60 days after your death.
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OHIO NATIONAL LIFE ASSURANCE CORPORATION PAGE 8
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Beneficiaries have rights in the order named. Contingent beneficiaries will
only receive proceeds if no prior beneficiary survives you. The rights of a
beneficiary who dies before you will pass to living beneficiaries of the
same class. If no beneficiary survives you, death proceeds will be paid to
the owner.
CONTRACT
Your application and payment of premiums are your consideration for this
contract. The entire contract is in your application and this policy. A
copy of your application is attached. Read it with care. You represent that
the statements made in your application are true as far as you know and
believe. We cannot base denial of a claim on any statement you make unless
it is contained in an attached application.
As stated in the application, the contract cannot be changed nor our rights
waived except in writing signed by one of our officers. No agent is
authorized to make or change a contract on our behalf nor waive any of our
rights or requirements.
GENERAL ACCOUNT AND VAR
The general account consists of all our assets other than those we allocate
to a separate account.
The separate account to which the variable part of contract values under
this contract relate is VAR which we have established under Ohio law to
provide variable benefits. We shall have sole and complete ownership and
control of all assets in VAR.
INVESTMENTS OF VAR
All amounts credited to VAR will be used to purchase Fund at net asset
value. Any and all distributions made by the Fund in respect of Fund shares
held by VAR will be reinvested in Fund shares in the same subaccount at net
asset value. Deductions and redemptions from VAR may be made by redeeming a
number of Fund shares, at net asset value, equal in total value to the
amount to be deducted or redeemed. If deemed by us to be in the best
interest of all contract owners, VAR may be operated as a management
company under the Act or it may be deregistered under the Act if
registration is no longer required.
If there is a substitution of Fund shares or change in operation of VAR, we
may issue an endorsement for the contract and take any other action as may
be necessary and appropriate to make the substitution or change. The
investment policy of any subaccount of VAR will not be changed without the
approval of the Ohio director of insurance and that approval will be on
file with the state insurance regulator of the state where this contract
was delivered.
VOTING RIGHTS
We will seek instructions for the voting of Fund shares held on account of
the variable part of your contract. From time to time, we will send you
reports on the Fund, proxy material and a form for instructing us how to
vote Fund shares.
REPORTS
We will send you an annual account report at least once each year showing
as of the date of the report: (1) the accumulation value; (2) the cash
surrender value; (3) the stated amount; (4) any policy loan; (5) any
partial withdrawal made since the last report; (6) any interest charge and
any premium paid since the last report; (7) charges made since the last
report; and (8) investment experience since the last report.
We will also make available a projection report. This report will be based
on planned premiums, guaranteed cost of insurance and guaranteed interest
if any. It will show the accumulation value one year from the date of the
report. We may charge a fee, not to exceed $100, for this report and if you
ask for more than one annual account report.
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OHIO NATIONAL LIFE ASSURANCE CORPORATION PAGE 9
<PAGE> 11
NONPARTICIPATING
This contract is nonparticipating. It will not share in our divisible
surplus.
EXCHANGE RIGHT
For 2 years after the issue date, or for 2 years after any increase in
stated amount, you may exchange this contract for a flexible premium life
insurance policy. The accumulation value of the new policy will not vary
with the investment results of VAR. We will do this by moving, without
charge, the entire variable accumulation value to the general account. All
future premium payments will be allocated only to the general account. The
issue age, premium class and net amount at risk will be the same as those
of the contract being exchanged.
PREMIUMS
PAYMENT
Your first premium is due on the contract date. One minimum premium must be
paid to put this contract in effect. It may be paid to our agent or sent to
our home office. After the first premium has been paid, subsequent premiums
can be paid at any time. All later premiums must be sent to our home
office.
NET PREMIUM
a) your premium payments; less b) any premium tax that we determine to be
allocable to the contract; less (c) 1.25% of all premiums paid in the first
10 years following issue.
ALLOCATION OF NET PREMIUMS
All net premiums paid in the first contract month after the issue date will
be allocated to the Money Market subaccount. On the first process day after
the issue date all such net premiums held in the Money Market subaccount
and each future net premium will be allocated to one or more subaccounts
and/or the general account based on the allocation percentage specified in
the application or as later changed by you.
Any change shall take effect with the first premium we receive after you
ask for the change to take effect or, if later, as of the end of the
valuation period during which we receive notice of a change at our home
office.
PLANNED PREMIUM
You may pay planned premiums each year, or every 6 months or 3 months. We
will send you a notice of each planned premium. We may also allow other
premium payment plans. You may change your planned premium amount, or how
often it is to be paid, by sending us notice of the change. We may limit
the amount of increase in your planned premium. Each planned premium must
be at least $25.
EXTRA PREMIUM
You may pay extra premiums (more than planned) at any time prior to the
maturity date. If you have a loan, extra premiums will first be applied to
reduce or pay off the loan. We may limit the amount and number of extra
premiums which may be paid.
Premiums that can be paid under this contract, without an increase in death
benefit, can be no more than allowed by the federal law that defines life
insurance. If a premium payment would exceed this limit, you can increase
your stated amount to allow that premium. To do this, you must apply in
writing and send us proof you can be insured. If you do not increase your
stated amount, we will refund premium in excess of the limit.
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MINIMUM PREMIUM REQUIREMENT
The minimum premium requirement is met if, on each process day (a) is equal
to or greater than (b) where:
(a) is the sum of all premiums paid less any partial surrenders and
less any loan amount, and
(b) is the sum of the minimum premium since the policy date, including
the minimum premium for the current process day.
Although we will determine each month whether or not you have met the
minimum premium requirement, you do not have to pay premiums monthly.
POLICY CHANGES AFFECTING THE MINIMUM PREMIUM REQUIREMENT
The minimum monthly premiums will be affected by any change in stated
amount or change of proceeds plan. The minimum premium may also be changed
when a rider is added to or removed from this contract. We will send you
notice of the change in minimum premium.
DEATH BENEFIT GUARANTEE
If you meet the minimum premium requirement, we guarantee that this
contract will not lapse during the death benefit guarantee period shown on
Page 3 even if the investment performance of VAR has caused the cash
surrender value to fall below the amount needed to pay the monthly charges
due.
If the minimum premium requirement is not met on any process day, we will
send you notice of the required payment. If we do not receive the required
payment within 61 days of the date it is due, the death benefit guarantee
is no longer in effect and the guarantee cannot be reinstated.
We will assess a charge per $1,000 of stated amount for each month the
death benefit guarantee is in effect. The amount of this charge is shown on
Page 3.
GRACE PERIOD
A premium is due on any process day on which the cash surrender value, less
loans in effect, is not enough to cover the charges then due. The required
premium will equal the amount needed to allow the cash surrender value less
loans in effect to cover 2 monthly charges. We will mail you, and any
assignee of record, notice of the amount due. The contract will stay in
force for 61 days after the due date of the required premium, but not past
the maturity date. If you do not pay the required premium by the end of
this grace period, the contract will end with no value. We will send you a
notice, at your last known address, 30 days before the contract ends. If
death occurs during a grace period, any required premium then due will be
subtracted from the death proceeds.
REINSTATEMENT
If this contract ends for failure to pay a required premium, you may
reinstate it within 5 years if:
(1) you apply to reinstate this contract and send us proof you can be
insured;
(2) we approve your application;
(3) you pay enough premium to keep the contract in force for at least
2 months;
(4) you pay the monthly charges due from the grace period; and
(5) you pay or reinstate any loans then in effect with interest at 6%
per year.
You may not reinstate this contract after the maturity date.
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BENEFITS
DEATH PROCEEDS CHOICES
PLAN A. If you choose Plan A, the death proceeds equal the larger of: (1)
the stated amount on the date of your death; or (2) the accumulation value
plus a percentage of the accumulation value which varies with your attained
age according to the table below. Death proceeds will be reduced by any
loans in effect.
PLAN B. If you choose Plan B, the death proceeds equal the larger of: (1)
the stated amount plus the accumulation value on the date of your death; or
(2) the accumulation value plus a percentage of the accumulation value
which varies with your attained age according to the table below. Death
proceeds will be reduced by any loans in effect.
The stated amount is shown on page 3.
<TABLE>
<CAPTION>
ATTAINED ATTAINED ATTAINED
AGE % AGE % AGE %
- ------------------ ------- ----------------- ------- ---------------- -------
<S> <C> <C> <C> <C> <C> <C>
0-40 150 54 57 68 17
41 143 55 50 69 16
42 136 56 46 70 15
43 129 57 42 71 13
44 122 58 38 72 11
45 115 59 34 73 9
46 109 60 30 74 7
47 103 61 28 75-90 5
48 97 62 26 91 4
49 91 63 24 92 3
50 85 64 22 93 2
51 78 65 20 94 1
52 71 66 19 95 and over 0
53 64 67 18
</TABLE>
CHANGES IN COVERAGE
At any time after the first contract year, you may request a change in the
stated amount to increase your coverage. After 2 years from the issue date,
you may decrease your stated amount. The change must be at least $5,000. If
we approve the change, we will send you notice of the change. The change
will take effect on the first day of the next contract month. We may limit
you to 2 changes per contract year.
INCREASE. To request an increase in the stated amount, you must apply in
writing and send us proof you can be insured.
Any premium paid contingent upon our approval of an increase in stated
amount will be held by us in our general account, without interest, until
the increase takes effect. Premium will be applied to the increase in
proportion to the guideline premium for the increase to the guideline
premium for the original stated amount plus the guideline premium for all
increases in stated amount.
You have a right to cancel any increase within 20 days after you receive
notice of the increase, or 10 days after we mail notice of your right to
cancel this increase, or if later, within 45 days after the date of your
application for increase. You must give notice to us or to our agent within
that time. We will refund the monthly charges and any other charges from
that increase.
DECREASE. To request a decrease in the stated amount, send us notice to do
so. Any decrease will be applied against prior increases in the reverse
order in which the increases were made. You may not decrease the stated
amount in the first 2 contract years. You may not decrease the stated
amount to less than the minimum stated amount shown on page 3. The
surrender charge will be taken for decreases.
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<PAGE> 14
CHANGE OF PROCEEDS PLANS
At any time after the first 2 contract years, you may change from Plan B to
Plan A by notice to us. The stated amount will then be increased by an
amount equal to the accumulation value on the date of the change. At any
time after the first 2 contract years, you may change from Plan A to Plan B
by notice to us. The stated amount will then be decreased by an amount
equal to the accumulation value on the date of change. When we change your
proceeds plan, we will send you notice of the change. You may not make a
change that will decrease the stated amount to less than the minimum stated
amount shown on page 3.
COVERAGE EXTENDED ENDOWMENT
You may choose to continue your contract after the maturity date. You must
give notice to us before the maturity date. Your death proceeds after the
maturity date will equal the accumulation value less any loans in effect on
the date of death. No additional premiums are payable and none may be made
after the maturity date. We will continue to credit interest on the
accumulation value of the contract after the maturity date at a rate that
we will then determine, but not less than 4.0% per year.
NONFORFEITURE
ACCUMULATION VALUE
The accumulation value is equal to the sum of: (1) the fixed accumulation
value, plus (2) the variable accumulation value, plus (3) the loan
collateral.
FIXED ACCUMULATION VALUE
The fixed accumulation value is: (1) the fixed accumulation value as of the
prior process day less the charges on that process day, plus interest from
that process day; plus (2) net premiums credited to the general account
since the prior process day, plus interest from the date premiums are
credited; plus (3) transfers from VAR to the general account since the last
process day, plus interest from the date of transfer; less (4) transfers to
VAR from the general account since the prior process day, plus interest
from the date of transfer; less (5) partial surrenders from the general
account since the last process day, plus interest from the date of
surrender; less (6) policy loans taken from the general account since the
last process day, plus interest from the date taken.
The fixed accumulation value excludes loan collateral held in the general
account.
INTEREST FOR THE FIXED ACCUMULATION VALUE
Each month, we will credit interest on the fixed accumulation value at an
effective rate of at least 4% per year.
DETERMINATION OF VALUES FOR THE GENERAL ACCOUNT
Minimum cash surrender values are calculated using the 1980 Commissioners'
Standard Ordinary mortality table with interest at the rate of 4%. A
detailed statement of the way we compute cash surrender or loan values has
been filed with the state insurance officials. All values comply with state
law and are at least as great as the minimum required by law.
VARIABLE ACCUMULATION VALUE
The variable accumulation value is the total of your values in each
subaccount. Each subaccount is valued by multiplying the number of
accumulation units by the current unit value.
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<PAGE> 15
VARIABLE ACCUMULATION UNITS
We will credit this contract with variable accumulation units in relation
to the amount of each net premium allocated to each subaccount. To find the
number of variable accumulation units credited to each subaccount, divide
the amount allocated to that subaccount by the variable accumulation unit
value of that subaccount for the valuation period during which we receive
the premium at our home office.
The number of variable accumulation units for a subaccount will increase
when: (1) net premiums are credited to that subaccount; (2) transfers from
the general account or other subaccounts are credited to that subaccount;
or (3) policy loans are repaid or interest is credited from amounts held as
loan collateral in the general account. The number of variable accumulation
units for a subaccount will decrease when: (1) a policy loan is taken from
that subaccount; (2) partial surrender is taken from that subaccount; (3) a
portion of the monthly charges is taken from that subaccount; or (4)
transfers are made from that subaccount to the general account or other
subaccounts.
UNIT VALUE
The value of each variable accumulation unit was set at $10 when the first
premium was allocated to each subaccount. The value of a variable
accumulation unit for each subaccount varies for each later valuation
period. This value is found by multiplying the value of a variable
accumulation unit of that subaccount for the immediately preceding
valuation period by the net investment factor for the subaccount for the
valuation period for which the variable accumulation unit value is being
determined. The value of a variable accumulation unit for any valuation
period is determined as of the end of that valuation period.
NET INVESTMENT FACTOR
The net investment factor for a subaccount is found by dividing (a) by (b),
then subtracting (c) from the result, where (a) is: (1) the net asset value
of a Fund share in that subaccount determined as of the end of a valuation
period; plus (2) the per share amount of any dividends or other
distribution declared by the Fund during the valuation period; adjusted by
(3) a per share charge or credit with respect to any taxes paid or reserved
for, which we determine to be attributable to the maintenance or operation
of the subaccount; (b) is the net asset value of a Fund share in that
subaccount, adjusted by a per share credit or charge for any taxes reserved
for or paid, determined as of the end of the prior valuation period; and
(c) is a charge not to exceed .0020471% for each day in the valuation
period. This converts to 0.75% per year for mortality and expense risks.
Although we can not identify that part of the current risk charge that
applies to each of the risks involved, we estimate that a reasonable
allocation would be 0.30% for the mortality risk, and 0.45% for the expense
risk.
SPLITTING UNITS
We reserve the right to split the value of the accumulation units. In any
such split of unit values, strict equity will be preserved. Such a split
will have no material effect on the benefits or other terms of this
contract. A split may either increase or decrease the number of units.
TRANSFERS AMONG SUBACCOUNTS AND GENERAL ACCOUNT
By notice to us, you may transfer your accumulation value from one
subaccount to another subaccount or to the general account at any time. The
sum of transfers from the general account to one or more subaccounts is
limited during any contract year. The limit is the greater of 25% of the
general account portion of the accumulation value as of the end of the last
prior contract year, or $1,000. The dollar amount of a transfer must be at
least $300, but the entire accumulation value of a subaccount or the
general account may be transferred if less than $300. No transfer of
accumulation value may be made after your death. Transfers shall be made as
of the end of the valuation period during which we receive the request at
our home office or at the end of any later valuation period as you may
request. A fee, of not more than $15, will be charged for each transfer.
Currently, this fee is $3.
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<PAGE> 16
TAXES
Any taxes that pertain to this contract or VAR will be charged against the
accumulation value when incurred or reserved for by us.
MONTHLY CHARGES
The charges for a contract month are: (1) the cost of insurance for the
month (which includes the charges for any riders); plus (2) a contract
maintenance charge of $7; plus (3) the death benefit guarantee charge per
$1,000 of stated amount as shown on Page 3.
COST OF INSURANCE
We calculate the cost of insurance for each month as of each process day.
The cost of insurance for the initial stated amount is determined
separately from the cost for each increase in stated amount.
The cost of insurance equals: (1) the cost of insurance rate; times (2) the
net amount at risk.
COST OF INSURANCE RATE
The cost of insurance rate (or any change in that rate) for each stated
amount is based on: (1) your sex; (2) your attained age on the contract
date and on the effective date of each increase in stated amount; (3) the
time elapsed since the contract date and since each increase in stated
amount; and (4) your rate class.
We may change the cost of insurance rate. Any change in the cost of
insurance rates will be uniformly applied to all contracts of this class.
We will notify you prior to any change. We may not increase the rates to
more than those shown in the table of monthly guaranteed cost of insurance
rates on page 6. The guaranteed rates are based on the 1980 Commissioner
Standard Ordinary, Male or Female, Smoker or Nonsmoker mortality table, age
nearest birthday.
NET AMOUNT AT RISK
The net amount at risk on any process day equals the death proceeds divided
by 1.0040741, less the accumulation value.
If you have Plan A and the stated amount has been increased, the
accumulation value will first be subtracted from the initial stated amount
to determine the net amount at risk. If the accumulation value is more than
the initial stated amount, the excess will be subtracted from each increase
in the stated amount in the order made.
SURRENDER AND CASH SURRENDER VALUE
While you are living and before the maturity date, you may request the
surrender of this contract by notice to us. We will then pay you the cash
surrender value, less any loans in effect. The contract will then end. The
cash surrender value is the accumulation value less our surrender charge.
If the surrender charge is greater than the accumulation value, the cash
surrender value is zero.
SURRENDER CHARGE
We will take a surrender charge on complete surrender, lapse, decrease in
stated amount and certain partial surrenders. The surrender charge is the
sum of the contingent deferred sales charge and the deferred underwriting
charge.
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<PAGE> 17
CONTINGENT DEFERRED SALES CHARGE
During the first 20 contract years or for 20 years after you increase your
stated amount, this charge will apply. The charge is shown on page 6A.
DEFERRED UNDERWRITING CHARGE
This charge applies during the first 8 contract years and for 8 contract
years after you increase your stated amount. The charge is equal to the
deferred underwriting charge per thousand for your age at the time of issue
or increase, as shown on page 6A.
This charge decreases over the 8 year period according to the percentages
on Page 6A.
SALES CHARGE REFUND
Within 2 years of the issue date or for 2 contract years following an
increase, you may receive a sales charge refund if you surrender your
contract or it lapses. The amount of the refund will equal the contingent
deferred sales charge taken from the contract less 1) 30% of premiums paid
up to the guideline premium, and 2) 10% of premiums paid in excess of one
guideline premium, but not more than 2 guideline premiums, and 3) 9% of
premiums paid in excess of that amount.
SURRENDER CHARGE ON DECREASES
If you decrease your stated amount, a portion of the surrender charge will
be deducted from your accumulation value. This deduction is equal to the
surrender charge attributable to the portion of stated amount being
decreased. The surrender charge that remains will be the surrender charge
that applies to the remaining stated amount.
PARTIAL SURRENDER
After 2 years from the issue date, you may surrender part of your contract
for cash while you are living and before the maturity date. You may not do
this more than twice in any contract year. The amount of a partial
surrender may not exceed: (1) the cash surrender value; less (2) loans in
effect; less (3) enough to cover the next 2 monthly charges; and less (4)
the partial surrender service fee which is the lesser of $25 or 2% of the
amount surrendered. We will subtract the accumulation value taken by a
partial surrender from each increase in the stated amount in the proportion
of that increase to the total stated amount. The accumulation value is
reduced by the amount of partial surrender. If you have Plan A, the stated
amount is also reduced by the amount of partial surrender.
No partial surrender will be made if it would reduce the stated amount to
less than the minimum stated amount shown on page 3. We will charge a
service fee of the lesser of $25 or 2% of the amount surrendered for each
partial surrender. For the first 20 contract years and for 20 years after
an increase takes effect, an added partial surrender charge will also be
made on the amount of partial surrenders in a contract year that is more
than 10% of the cash surrender value as of the end of the last prior
contract year. This added partial surrender charge will equal a partial
surrender ratio multiplied by the surrender charge. The partial surrender
ratio equals: (1) the amount of partial surrender in excess of 10% of the
cash surrender value as of the last prior contract year; divided by (2) the
cash surrender value. The surrender charge will be reduced by the added
partial surrender charge.
DEFERRAL OF PAYMENT ON SURRENDER, PARTIAL SURRENDERS AND LOANS
We may defer the calculation and payment of accumulation values or benefits
if: (1) the New York Stock Exchange is closed other than customary week-end
and holiday closings, or trading on the New York Stock Exchange is
restricted as determined by the Securities and Exchange Commission; (2) the
Commission by order permits postponement for the protection of contract
owners; or (3) an emergency exists, as determined by the Securities and
Exchange Commission, as a result of which disposal of securities is not
reasonably practicable or it is not reasonably practicable to determine the
value of VAR's net assets.
- --------------------------------------------------------------------------------
OHIO NATIONAL LIFE ASSURANCE CORPORATION PAGE 16
<PAGE> 18
We can defer making a surrender, partial surrender, or loan from the
general account for up to 6 months after we get your notice. If we defer
for more than a month, the cash surrender value will bear interest at the
rate of 4.5% per year. We cannot defer a loan to pay premiums on any
contract issued by us.
PAID-UP TERM INSURANCE
If you stop paying premiums, the contract can continue and operate as
paid-up term insurance. The monthly charges for calculating the cost of
paid-up term insurance will be the same as those as when premiums were
being paid. The paid-up term period will run (a) for as long as the cash
surrender value less loans will purchase term insurance protection or (b)
until the maturity date, whichever is earlier. If the death benefit
guarantee is in effect, the insurance will continue as long as this
guarantee applies.
PAID-UP LIFE INSURANCE
On any process day, you may use the cash surrender value less any loans in
effect as a net single premium to purchase a paid-up endowment at age 100.
The insurance will begin on that process day. The amount of insurance will
be that which the cash surrender value less any loans in effect will buy as
a net single premium at the insured's then attained age. This option may
not be elected if the amount of paid-up insurance purchased would be less
than $1,000. At any time after this option is elected the cash surrender
value will be the amount of paid-up life insurance times the net single
premium per dollar of paid-up life insurance at the then attained age of
the insured. The net single premiums are based on the 1980 Commissioners'
Standard Ordinary, Male or Female, Smoker or Nonsmoker mortality table age
nearest birthday and 4% interest.
LOANS
AVAILABILITY
At any time after the first contract year, you may borrow up to the loan
value of this contract by notice to us. Loans are made on the security of
this contract assigned to us.
LOAN VALUE
The loan value is the cash surrender value less the cost of insurance
charges for your contract from the current date to the next policy
anniversary. In no case will the loan value be less than 75% of the cash
surrender value.
LOAN COLLATERAL
Accumulation value equal to the amount of the policy loan will be taken
from the general account and each subaccount. The allocation will be in
proportion to the accumulation value in each subaccount and the general
account. This value will be held in the general account as loan collateral
and will earn interest at an effective rate not less than 4% per year. We
may credit a higher rate.
INTEREST
Interest is charged on loans at 7.4% per year in advance. When a loan is
made, we will include the interest then due in the amount of the loan. If
you do not pay the interest in cash, we will transfer enough value from the
general account and each subaccount to cover the interest due. The
allocation of the transfer will be in proportion to the accumulation value
in each subaccount and the general account.
REPAYMENT
You may pay back a loan at any time before we pay the contract proceeds.
When a loan repayment is made, the loan collateral in the general account
will be reduced by the amount of the repayment. The value of the repayment
will be allocated first to the general account. After the general account
is repaid, any additional repayment will be allocated to the general
account and each subaccount using the same percentages used to allocate net
premiums unless you give notice otherwise.
Loans which have not yet been paid back will be repaid from death or
maturity proceeds.
- --------------------------------------------------------------------------------
OHIO NATIONAL LIFE ASSURANCE CORPORATION PAGE 17
<PAGE> 19
CLAIMS
PAYMENT OF PROCEEDS
Death proceeds will be paid within 30 days after we receive due proof of
death of the insured. Proceeds are paid at our home office. Payment will be
made in one sum unless an option is chosen. We may require that the
contract be sent to us before proceeds are paid.
Death proceeds include interest at the rate of at least 4.5% per year from
the date of death to the date proceeds are paid or applied under an option.
MISSTATEMENT OF AGE OR SEX
If your age or sex was misstated, the death proceeds will be 1.0032737
times the sum of:
(1) the accumulation value; and
(2) the net amount at risk on the date of death multiplied by an age
adjustment ratio.
The age adjustment ratio is: (a) the cost of insurance charged on the
process day nearest the date of death, divided by (b) the cost of insurance
that should have been charged at your true age or sex. In no case will the
adjusted proceeds be less than the accumulation value plus a percentage of
the accumulation value which varies with your true attained age according
to the table on page 12.
If the misstatement is found before your death, we will charge from that
time the cost of insurance for your true age and sex based on your original
stated amount.
PROCEEDS PROTECTION
No one may commute, assign or encumber the proceeds or cash surrender value
unless this contract so provides. As far as allowed by law, no creditor may
claim the proceeds.
INCONTESTABILITY
We may not deny a claim for any amount of death proceeds due to a false
statement made in your application for such amount of insurance if: (a) you
live more than 2 years after such amount takes effect; and (b) the contract
is in force at the time of your death. We may always contest for
non-payment of premiums.
SUICIDE
If you die by suicide, while sane or insane, or self destruction while
insane we will not pay any stated amount or increase in stated amount which
has been in effect for less than 2 years. If the suicide or self
destruction is within the first 2 contract years, we will pay as death
proceeds the cash surrender value or, if greater, the premiums you paid.
After that, we will pay the death proceeds of any coverage which has been
in effect for more than 2 years plus any premium applied to an increase
which has been in effect for less than 2 years before the suicide or self
destruction.
PROCEEDS PAYMENT OPTIONS
CHOICE OF OPTIONS
BY OWNER. The choice or change of an option requires notice to us. If the
owner is not the insured, the owner may choose or change an option while
the insured is living or up to 60 days after the insured's death. If an
option is chosen for death proceeds, the payee, or one of the payees, must
be the beneficiary. A beneficiary change revokes any option chosen for the
beneficiary.
- --------------------------------------------------------------------------------
OHIO NATIONAL LIFE ASSURANCE CORPORATION PAGE 18
<PAGE> 20
BY OTHERS. If you did not choose an option, the beneficiary may do so. An
assignee may not choose or change an option. Proceeds to an assignee will
be paid in one sum.
Proceeds to be paid to a corporation may be applied under option 2 or 4
with the corporation, the insured or the insured's spouse or child as
payee. If we agree:
(1) anyone else related to the insured by blood or marriage may be
the payee; or
(2) the corporation may also choose option 3 or 5 with any of these
related persons as payee and with payments made to the
corporation or to the payee.
Proceeds to be paid to a partnership, association, trustee or estate may be
paid under an option on the same basis as for a corporation.
MINIMUM AMOUNTS
An option may not be used if proceeds are less than $5,000. Payment will
then be made in one sum.
If payments to a payee would be less than $25, we may pay less often so
that each payment will be at least $25.
DESCRIPTION OF OPTIONS
We will endorse this contract or issue a new contract or certificate to
show the terms of any option. The option date is the date proceeds come due
or a later date which you request and we approve. The life income options
are based on the payee's sex and age. We may require proof of a payee's age
and survival.
PROCEEDS AT INTEREST
OPTION 1
We will hold the proceeds at interest at the rate of at least 4.5% per
year. You may choose to receive interest each year, or every 6 months, 3
months or 1 month from the option date. Under the terms of this option, we
may limit:
(1) the payee's right to withdraw the proceeds; and
(2) the length of time proceeds are to be held.
Interest to be paid on each $1,000 held by us will be:
<TABLE>
<CAPTION>
ANNUAL SEMIANNUAL QUARTERLY MONTHLY
- ------------ --------------- ------------- ------------
<S> <C> <C> <C>
$45.00 $22.25 $11.07 $3.67
</TABLE>
PAYMENTS FOR A CERTAIN PERIOD
OPTION 2
We will make equal payments for a stated number of years. Payments will be
made, as you choose, each year, or every 6 months, 3 months or 1 month.
Payment amounts are based on the option 2 table on page 5. The first
payment is due on the option date. Under the terms of the option, we may
limit the payee's right to withdraw the proceeds.
- --------------------------------------------------------------------------------
OHIO NATIONAL LIFE ASSURANCE CORPORATION PAGE 19
<PAGE> 21
LIFE INCOME
OPTION 3
The first payment is due on the option date. Payment amounts are based on
the option 3 table on page 5.
NONREFUND. We will make payments in the same amount each month while
the payee is living. No more payments are due after the payee's death.
GUARANTEED PERIOD. We will make payments in the same amount each month
for 5, 10 or 20 years, as you choose. After that, we will still make
payments in the same amount each month for as long as the payee is
living.
INSTALLMENT REFUND. We will make payments in the same amount each month
until the sum of all payments equals the proceeds applied under this
option. After that, we will still pay each month for as long as the
payee is living.
PAYMENTS OF A CERTAIN AMOUNT
OPTION 4
We will make payments in the same amount, as you choose, each year, or
every 6 months, 3 months or 1 month until all the proceeds are paid. The
amount of each payment will be as you have chosen and we have approved.
Interest will be added to the proceeds at the rate of 4.5% per year on the
unpaid balance. We may determine and announce a higher rate from time to
time. The first payment is due on the option date. The last payment will
equal the unpaid balance of proceeds. Under the terms of this option, we
may limit the payee's right to withdraw the proceeds.
JOINT AND SURVIVOR LIFE INCOME
OPTION 5
These options are for 2 payees. The first payment is due on the option
date. Payment amounts are based on the option 5 table on page 5.
JOINT GUARANTEED PERIOD 10 YEARS. We will make payments in the same
amount each month for 10 years. After that, we will still make payments
in the same amount each month for as long as one of the payees is
living.
JOINT AND FULL. We will make payments in the same amount each month as
long as one of the payees is living.
JOINT AND 2/3. We will make full payments in the same amount each month
for as long as both of the payees are living. After one payee's death,
2/3 of that amount will still be paid each month for as long as the
other payee is living.
ALTERNATE LIFE INCOME
You may choose other income amounts for options 3 and 5 in place of those
shown on page 5. Such amounts will be based on rates at least as liberal as
the rates we charge as of the option date for a single premium immediate
annuity of the same kind.
DEATH OF PAYEE
If all payees have died, we will make one final payment to the estate of
the last surviving payee for any amount then due.
For option 1 or 4, the amount then due will be any balance held by us. For
option 2, 3 or 5, the amount then due will be the present value of unpaid
guaranteed payments commuted at the rate of 4.5% per year. We will specify
the commutation rate when you choose the alternate life income for option 3
or 5.
- --------------------------------------------------------------------------------
OHIO NATIONAL LIFE ASSURANCE CORPORATION PAGE 20
<PAGE> 1
EXHIBIT (10)
VARIABLE LIFE INSURANCE APPLICATION SUPPLEMENT:
SUITABILITY INFORMATION
<PAGE> 2
OHIO NATIONAL LIFE ASSURANCE CORPORATION
VARIABLE LIFE INSURANCE APPLICATION SUPPLEMENT: SUITABILITY INFORMATION
Registered representatives are required to make inquiries and provide
information relating to the financial condition and retirement plans of the
purchasers of variable life contracts. Applicants are urged to supply such
information which, used with the insurance application, will allow the
registered representative to make an informed judgment as to the suitability
for a particular purchaser of variable life insurance. However, applicants
are not required to divulge such item or information. If the applicant
chooses not to do so, the registered representative must complete the
following items to the best of their knowledge. IF THE APPLICANT IS NOT THE
INSURED, QUESTIONS APPLY TO THE OWNER.
1. Insured's Name ____________________________________
Date of Birth _____________________________________
(Owner's name and date of birth if not the Insured):
Owner's Name ______________________________________
Date of Birth ___________________________________
2. Family members and/or dependents or Owner.
Name Relationship Date of Birth
________________________________________________
________________________________________________
________________________________________________
________________________________________________
3. Spouse employed?
[ ] Yes [ ] No Income $ ______________
4. Insured's Occupation:
5. Name and Address of Owner's Employer:
6. Is owner or Insured employed by or associated with member
of the NASD? [ ] Yes [ ] No
7. Owner's annual income
a. From employment $________________
b. From other sources $________________
8. Source of premium payment(s): (Check one or more)
[ ] Current income [ ] Employer
[ ] Cash savings [ ] Relative
[ ] Securities presently held
[ ] Insurance or annuities cash values
[ ] Insurability or annuity value or death benefit
[ ] Sale of personal property or real estate
[ ] Other ___________________________
9. Approximate net worth of Owner?
a. Liquid ___________________________
b. Illiquid ____________________________
10. Marginal tax bracket:
[ ] 15% [ ] 28% [ ] 31% [ ] 36% [ ] 39.6%
11. [ ]Applicant chooses not to divulge suitability information;
any items shown above have been estimated by the
registered representative.
12. Telephone Transfers are authorized as described in the
prospectus:
[ ]No [ ]Yes Owner's Initials
13 Registered representative's name
_________________________________
OSJ SUITABILITY APPROVAL
________________________ Date _________________
Principal
1. I have received the current prospectus for the Vari-Vest V Variable Life
Insurance contract;
2. I have received a policy illustration demonstrating hypothetical results
based on anticipated premium payments and death benefits for Insured's age,
sex and underwriting class;
3. I UNDERSTAND THAT THE DEATH BENEFIT (EXCEPT SUPPLEMENTARY BENEFITS) MAY
INCREASE OR DECREASE DEPENDING ON THE CONTRACT'S INVESTMENT RETURN;
4. I UNDERSTAND THAT THE CASH VALUES MAY INCREASE OR DECREASE DEPENDING ON THE
CONTRACT'S INVESTMENT RETURN AND THAT THERE IS NO GUARANTEED MINIMUM CASH
VALUE;
5. I understand that any illustration of past historical investment returns is
not an indication of future investment performance.
6. I believe that this contract will meet my insurance needs and financial
objectives; and
7. Net premium payments (as described in the prospectus) should be allocated to
the General Account and/or the Subaccounts or portfolios as follows:
<TABLE>
<CAPTION>
ALLOCATION OF NET PREMIUM
Allocation Split among Subaccounts (Each must be a whole percent and total should be 100%)
<S> <C> <C>
___________ % Fixed (General Account) ___________ % International ___________ Core Growth
___________ % Equity ___________ % Capital Appreciation ___________ Growth & Income
___________ % Bond ___________ % Small Cap ___________ S&P 500 Index
___________ % Omni ___________ % Global Contrarian ___________ Social Awareness
___________ % Money Market ___________ % Aggressive Growth ___________ Emerging Markets
____________________ ______________________________________________ ________________________________________________________
Date Signature of Registered Representative Signature of Applicant (Owner if other than Insured)
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000770291
<NAME> OHIO NATIONAL VARIABLE ACCOUNT R
<SERIES>
<NUMBER> 1
<NAME> EQUITY
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<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
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<OTHER-ITEMS-LIABILITIES> 0
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<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 0
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<SHARES-COMMON-PRIOR> 646,804
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<OTHER-INCOME> 0
<EXPENSES-NET> 99,621
<NET-INVESTMENT-INCOME> 278,295
<REALIZED-GAINS-CURRENT> 137,099
<APPREC-INCREASE-CURRENT> 2,656,620
<NET-CHANGE-FROM-OPS> 3,072,014
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 4,822,344
<NUMBER-OF-SHARES-REDEEMED> 2,714,243
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<PER-SHARE-NAV-BEGIN> 0
<PER-SHARE-NII> 0
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
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<PER-SHARE-NAV-END> 0
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<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
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<NUMBER> 2
<NAME> MONEY MARKET
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
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<INVESTMENTS-AT-VALUE> 671,215
<RECEIVABLES> 0
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 671,215
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 0
<TOTAL-LIABILITIES> 0
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 0
<SHARES-COMMON-STOCK> 44,137
<SHARES-COMMON-PRIOR> 33,568
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 671,215
<DIVIDEND-INCOME> 24,454
<INTEREST-INCOME> 0
<OTHER-INCOME> 0
<EXPENSES-NET> 3,384
<NET-INVESTMENT-INCOME> 21,070
<REALIZED-GAINS-CURRENT> 140
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 21,210
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 3,227,902
<NUMBER-OF-SHARES-REDEEMED> 3,064,865
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 0
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 0
<AVERAGE-NET-ASSETS> 0
<PER-SHARE-NAV-BEGIN> 0
<PER-SHARE-NII> 0
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
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<PER-SHARE-NAV-END> 0
<EXPENSE-RATIO> 0
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
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<NAME> OHIO NATIONAL VARIABLE ACCOUNT R
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<NUMBER> 3
<NAME> BOND
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<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<INVESTMENTS-AT-COST> 501,079
<INVESTMENTS-AT-VALUE> 526,383
<RECEIVABLES> 0
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<TOTAL-ASSETS> 526,383
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<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 0
<TOTAL-LIABILITIES> 0
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 0
<SHARES-COMMON-STOCK> 29,429
<SHARES-COMMON-PRIOR> 19,120
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 526,383
<DIVIDEND-INCOME> 19,903
<INTEREST-INCOME> 0
<OTHER-INCOME> 0
<EXPENSES-NET> 2,892
<NET-INVESTMENT-INCOME> 17,011
<REALIZED-GAINS-CURRENT> (78)
<APPREC-INCREASE-CURRENT> 44,832
<NET-CHANGE-FROM-OPS> 61,765
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 254,991
<NUMBER-OF-SHARES-REDEEMED> 80,177
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 0
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 0
<AVERAGE-NET-ASSETS> 0
<PER-SHARE-NAV-BEGIN> 0
<PER-SHARE-NII> 0
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 0
<EXPENSE-RATIO> 0
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
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<CIK> 0000770291
<NAME> OHIO NATIONAL VARIABLE ACCOUNT R
<SERIES>
<NUMBER> 4
<NAME> OMNI
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<INVESTMENTS-AT-COST> 4,290,181
<INVESTMENTS-AT-VALUE> 5,159,728
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<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 5,159,728
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 0
<TOTAL-LIABILITIES> 0
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 0
<SHARES-COMMON-STOCK> 256,617
<SHARES-COMMON-PRIOR> 218,865
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 5,159,728
<DIVIDEND-INCOME> 122,957
<INTEREST-INCOME> 0
<OTHER-INCOME> 0
<EXPENSES-NET> 33,258
<NET-INVESTMENT-INCOME> 89,699
<REALIZED-GAINS-CURRENT> 31,864
<APPREC-INCREASE-CURRENT> 725,434
<NET-CHANGE-FROM-OPS> 846,997
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
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