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File No. 333-16133
811-4320
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
PRE-EFFECTIVE
AMENDMENT NO. 1 TO
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 was
submitted with the Registrant's Form S-6EL24 on November 14, 1996.
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.
March 25, 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 never lapse. If you fail to satisfy the
minimum premium requirement in the first two contract years, your contract will
lapse after a 61 day grace period.
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 20 days from your receipt of the
contract or increase.
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 are 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 are 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 expenses at the Fund level are an investment advisory
fee and Fund operating expenses. The investment advisory fee 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.
Presently, its invesment advisor is waiving any of the Emerging Markets Fund's
fee in excess of 0.23%. The Fund operating expenses are 0.19% for the Equity,
Money Market, Bond and Omni Portfolios, 0.25% for the International Portfolio,
0.17% for the Capital Appreciation Portfolio, 0.16% for the Small Cap Portfolio,
0.39% for the Global Contrarion Portfolio, 0.21% for the Aggressive Growth
Portfolio and 1.22% for the Emerging Markets Fund. The Fund operating expenses
are estimated to be 0.60% for the Core Growth Portfolio, 0.55% for the Growth
& Income Portfolio, 0.20% for the S & P 500 Index Portfolio and 0.25% for the
Social Awareness Portfolio. (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>
Howard C. Becker Senior Vice President, Individual The Ohio National Life
Insurance and Corporate Services Insurance Company*
Ronald L. Benedict Secretary The Ohio National Life
Insurance Company*
Roylene M. Broadwell Vice President and Treasurer The Ohio National Life
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*
John A. Houser III Vice-President, Claims The Ohio National Life
Insurance Company*
David B. O'Maley Director and Chairman, The Ohio National Life
President & Chief Executive Officer Insurance Company*
John J. Palmer Director and Senior Vice President, The Ohio National Life
Strategic Initiatives 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*
</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, 1996 and for
each of the periods indicated herein and the financial statements of the
Company as of December 31, 1996 and for the year then ended included in this
prospectus have been included herein in reliance upon the reports of KMPG
Peat Marwick LLP, independent certified public accountants, appearing
elsewhere herein, and upon the authority of said firm as experts in accounting
and auditing.
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, 1996, 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, 1996, by examination of the
underlying mutual fund. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Ohio National Variable Account
R at December 31, 1996, 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 28, 1997
37
<PAGE> 40
<TABLE>
<CAPTION>
MONEY INTER- CAPITAL SMALL GLOBAL
EQUITY MARKET BOND OMNI NATIONAL APPREC. CAP CONTR.
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Assets - Investments
at market value
(note 2) $21,667,118 $1,077,211 $730,468 $7,161,453 $12,783,538 $2,807,236 $4,165,072 $1,040,267
=========== ========== ======== ========== =========== ========== ========== ==========
Contract owners'
equity:
Contracts in
accumulation
period (note 3) $21,667,118 $1,077,211 $730,468 $7,161,453 $12,783,538 $2,807,236 $4,165,072 $1,040,267
=========== ========== ======== ========== =========== ========== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
AGGRESS.
GROWTH
SUBACCOUNT
----------
<S> <C>
Assets - Investments
at market value
(note 2) $1,726,877
==========
Contract owners'
equity:
Contracts in
accumulation
period (note 3) $1,726,877
==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE> 41
OHIO NATIONAL VARIABLE ACCOUNT R FOR THE THREE YEARS ENDED DECEMBER 31
STATEMENTS OF OPERATIONS AND CHANGES IN CONTRACT OWNERS' EQUITY
<TABLE>
<CAPTION>
EQUITY MONEY MARKET
SUBACCOUNT SUBACCOUNT
1996 1995 1994 1996 1995 1994
---------------------------------------- -------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Investment activity:
Reinvested capital gains
and dividends ................. $ 766,090 $ 377,916 $ 312,185 $ 39,652 $ 24,454 $ 14,204
Risk and administrative
expense (note 4) .............. (143,826) (99,621) (74,431) (7,545) (3,384) (2,923)
----------- ----------- ----------- ---------- ---------- ----------
Net investment activity ..... 622,264 278,295 237,754 32,107 21,070 11,281
----------- ----------- ----------- ---------- ---------- ----------
Realized and unrealized gain
(loss) on investments:
Realized gain (loss) ........ 160,116 137,099 76,820 (6,138) 140 0
Unrealized gain (loss) ...... 2,231,504 2,656,620 (358,845) 0 0 0
----------- ----------- ----------- ---------- ---------- ----------
Net gain (loss) on
investments ............. 2,391,620 2,793,719 (282,025) (6,138) 140 0
----------- ----------- ----------- ---------- ---------- ----------
Net increase (decrease) in
contract owners' equity
from operations ........ 3,013,884 3,072,014 (44,271) 25,969 21,210 11,281
----------- ----------- ----------- ---------- ---------- ----------
Equity transactions:
Sales:
Contract purchase payments .... 4,490,453 3,786,276 3,311,520 4,328,290 2,749,849 3,427,468
Transfers from fixed and
other subaccounts ........... 1,268,910 1,036,068 1,199,000 544,044 478,053 588,864
----------- ----------- ----------- ---------- ---------- ----------
5,759,363 4,822,344 4,510,520 4,872,334 3,227,902 4,016,332
----------- ----------- ----------- ---------- ---------- ----------
Redemptions:
Withdrawals and surrenders .... 328,631 325,573 246,089 5,529 24,538 2,746
Transfers to fixed and
other subaccounts ........... 1,294,677 1,127,609 1,309,525 4,313,747 2,921,107 3,962,531
Cost of insurance and
administrative fee (note 5).. 1,519,968 1,261,061 1,039,221 173,031 119,220 124,019
----------- ----------- ----------- ---------- ---------- ----------
3,143,276 2,714,243 2,594,835 4,492,307 3,064,865 4,089,296
----------- ----------- ----------- ---------- ---------- ----------
Net equity transactions ... 2,616,087 2,108,101 1,915,685 380,027 163,037 (72,964)
----------- ----------- ----------- ---------- ---------- ----------
Net change in contract
owners' equity ......... 5,629,971 5,180,115 1,871,414 405,996 184,247 (61,683)
Contract owners' equity:
Beginning of period ............. 16,037,147 10,857,032 8,985,618 671,215 486,968 548,651
----------- ----------- ----------- ---------- ---------- ----------
End of period ................... $21,667,118 $16,037,147 $10,857,032 $1,077,211 $ 671,215 $ 486,968
=========== =========== =========== ========== ========== ==========
<CAPTION>
BOND OMNI
SUBACCOUNT SUBACCOUNT
1996 1995 1994 1996 1995 1994
-------------------------------- -------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Investment activity:
Reinvested capital gains
and dividends ................. $ 38,549 $ 19,903 $ 18,388 $ 261,058 $ 122,957 $ 118,097
Risk and administrative
expense (note 4) .............. (4,242) (2,892) (1,792) (45,484) (33,258) (21,835)
-------- -------- -------- ---------- ---------- ----------
Net investment activity ..... 34,307 17,011 16,596 215,574 89,699 96,262
-------- -------- -------- ---------- ---------- ----------
Realized and unrealized gain
(loss) on investments:
Realized gain (loss) ........ 743 (78) (1,030) 48,077 31,864 22,179
Unrealized gain (loss) ...... (13,745) 44,832 (26,390) 578,417 725,434 (155,096)
-------- -------- -------- ---------- ---------- ----------
Net gain (loss) on
investments ............. (13,002) 44,754 (27,420) 626,494 757,298 (132,917)
-------- -------- -------- ---------- ---------- ----------
Net increase (decrease) in
contract owners' equity
from operations ........ 21,305 61,765 (10,824) 842,068 846,997 (36,655)
-------- -------- -------- ---------- ---------- ----------
Equity transactions:
Sales:
Contract purchase payments .... 328,071 146,154 103,680 1,544,190 1,092,988 1,072,401
Transfers from fixed and
other subaccounts ........... 87,756 108,837 40,481 583,740 370,752 841,401
-------- -------- -------- ---------- ---------- ----------
415,827 254,991 144,161 2,127,930 1,463,740 1,913,802
-------- -------- -------- ---------- ---------- ----------
Redemptions:
Withdrawals and surrenders .... 8,438 5,704 15,725 167,671 67,498 58,256
Transfers to fixed and
other subaccounts ........... 162,147 32,704 19,557 299,190 314,014 497,884
Cost of insurance and
administrative fee (note 5).. 62,462 41,769 28,012 501,412 381,402 308,606
-------- -------- -------- ---------- ---------- ----------
233,047 80,177 63,294 968,273 762,914 864,746
-------- -------- -------- ---------- ---------- ----------
Net equity transactions ... 182,780 174,814 80,867 1,159,657 700,826 1,049,056
-------- -------- -------- ---------- ---------- ----------
Net change in contract
owners' equity ......... 204,085 236,579 70,043 2,001,725 1,547,823 1,012,401
Contract owners' equity:
Beginning of period ............. 526,383 289,804 219,761 5,159,728 3,611,905 2,599,504
-------- -------- -------- ---------- ---------- ----------
End of period ................... $730,468 $526,383 $289,804 $7,161,453 $5,159,728 $3,611,905
======== ======== ======== ========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
(continued)
<PAGE> 42
OHIO NATIONAL VARIABLE ACCOUNT R FOR THE THREE YEARS ENDED DECEMBER 31
STATEMENTS OF OPERATIONS AND CHANGES IN CONTRACT OWNERS' EQUITY
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INTERNATIONAL CAPITAL APPRECIATION
SUBACCOUNT SUBACCOUNT
1996 1995 1994 1996 1995 1994(a)
-------------------------------------- ----------------------------------
<S> <C> <C> <C> <C> <C> <C>
Investment activity:
Reinvested capital gains
and dividends ............... $ 573,537 $ 214,290 $ 33,042 $ 106,463 $ 18,585 $ 992
Risk and administrative
expense (note 4) ............ (78,825) (49,434) (19,907) (13,716) (4,732) 231
----------- ---------- ---------- ---------- ---------- --------
Net investment activity .... 494,712 164,856 13,135 92,747 13,853 1,223
----------- ---------- ---------- ---------- ---------- --------
Realized and unrealized gain
(loss) on investments:
Realized gain (loss) ....... 23,917 26,863 4,970 19,381 2,645 (42)
Unrealized gain (loss) ..... 752,956 540,676 65,383 172,281 94,813 (1,734)
----------- ---------- ---------- ---------- ---------- --------
Net gain (loss) on
investments ............. 776,873 567,539 70,353 191,662 97,458 (1,776)
----------- ---------- ---------- ---------- ---------- --------
Net increase (decrease) in
contract owners' equity
from operations ......... 1,271,585 732,395 83,488 284,409 111,311 (553)
----------- ---------- ---------- ---------- ---------- --------
Equity transactions:
Sales:
Contract purchase payments .. 3,766,785 2,976,009 2,195,400 1,176,050 422,829 42,626
Transfers from fixed and
other subaccounts .......... 1,410,908 1,049,632 2,581,376 709,737 696,659 150,290
----------- ---------- ---------- ---------- ---------- --------
5,177,693 4,025,641 4,776,776 1,885,787 1,119,488 192,916
----------- ---------- ---------- ---------- ---------- --------
Redemptions:
Withdrawals and surrenders .. 160,367 135,907 22,335 55,870 4,024 2,847
Transfers to fixed and
other subaccounts .......... 622,081 770,875 388,971 301,791 84,065 0
Cost of insurance and
administrative fee (note 5). 1,009,169 796,919 448,228 244,293 87,472 5,760
----------- ---------- ---------- ---------- ---------- --------
1,791,617 1,703,701 859,534 601,954 175,561 8,607
----------- ---------- ---------- ---------- ---------- --------
Net equity transactions ... 3,386,076 2,321,940 3,917,242 1,283,833 943,927 184,309
----------- ---------- ---------- ---------- ---------- --------
Net change in contract
owners' equity .......... 4,657,661 3,054,335 4,000,730 1,568,242 1,055,238 183,756
Contract owners' equity:
Beginning of period .......... 8,125,877 5,071,542 1,070,812 1,238,994 183,756 0
----------- ---------- ---------- ---------- ---------- --------
End of period ................ $12,783,538 $8,125,877 $5,071,542 $2,807,236 $1,238,994 $183,756
=========== ========== ========== ========== ========== ========
<CAPTION>
SMALL CAP GLOBAL CONTRARIAN AGGRESSIVE GROWTH
SUBACCOUNT SUBACCOUNT SUBACCOUNT
1996 1995 1994(a) 1996 1995(b) 1996 1995(b)
------------------------------------ ---------------------- ----------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Investment activity:
Reinvested capital gains
and dividends ............... $ 56,631 $ 2,690 $ 1,872 $ 20,219 $ 523 $ 158,688 $ 12,789
Risk and administrative
expense (note 4) ............ (20,200) (6,411) 77 (5,154) (540) (6,733) (897)
---------- ---------- -------- ---------- -------- ---------- --------
Net investment activity .... 36,431 (3,721) 1,949 15,065 (17) 151,955 11,892
---------- ---------- -------- ---------- -------- ---------- --------
Realized and unrealized gain
(loss) on investments:
Realized gain (loss) ....... 9,714 13,224 3 1,474 1,419 (294) 5,130
Unrealized gain (loss) ..... 414,502 208,534 2,560 43,850 5,122 (114,233) 15,468
---------- ---------- -------- ---------- -------- ---------- --------
Net gain (loss) on
investments ............. 424,216 221,758 2,563 45,324 6,541 (114,527) 20,598
---------- ---------- -------- ---------- -------- ---------- --------
Net increase (decrease) in
contract owners' equity
from operations ......... 460,647 218,037 4,512 60,389 6,524 37,428 32,490
---------- ---------- -------- ---------- -------- ---------- --------
Equity transactions:
Sales:
Contract purchase payments .. 1,584,784 632,636 57,962 459,332 106,879 915,114 140,955
Transfers from fixed and
other subaccounts .......... 1,168,570 786,952 235,806 403,280 182,691 640,496 336,663
---------- ---------- -------- ---------- -------- ---------- --------
2,753,354 1,419,588 293,768 862,612 289,570 1,555,610 477,618
---------- ---------- -------- ---------- -------- ---------- --------
Redemptions:
Withdrawals and surrenders .. 80,764 5,965 4,056 3,696 10,420 6,572 307
Transfers to fixed and
other subaccounts .......... 258,675 127,447 0 35,452 42,262 120,708 46,146
Cost of insurance and
administrative fee (note 5). 383,497 121,558 2,872 75,598 11,400 180,962 21,574
---------- ---------- -------- ---------- -------- ---------- --------
722,936 254,970 6,928 114,746 64,082 308,242 68,027
---------- ---------- -------- ---------- -------- ---------- --------
Net equity transactions ... 2,030,418 1,164,618 286,840 747,866 225,488 1,247,368 409,591
---------- ---------- -------- ---------- -------- ---------- --------
Net change in contract
owners' equity .......... 2,491,065 1,382,655 291,352 808,255 232,012 1,284,796 442,081
Contract owners' equity:
Beginning of period .......... 1,674,007 291,352 0 232,012 0 442,081 0
---------- ---------- -------- ---------- -------- ---------- --------
End of period ................ $4,165,072 $1,674,007 $291,352 $1,040,267 $232,012 $1,726,877 $442,081
========== ========== ======== ========== ======== ========== ========
</TABLE>
(a) Period from May 1, 1994, date of commencement of operations.
(b) Period from March 31, 1995, date of commencement of operations.
The accompanying notes are an integral part of these financial statements.
<PAGE> 43
OHIO NATIONAL VARIABLE ACCOUNT R
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996
(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
risks; 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 at
December 31, 1996. Share transactions are recorded on the trade date. Income
and capital gain distributions are recorded on the ex-dividend date. Net
realized capital gain or loss is determined on the basis of average cost.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
(2) INVESTMENTS
At December 31,1996 the aggregate cost and number of shares of Ohio National
Fund, Inc. owned by the respective subaccounts were:
<TABLE>
<CAPTION>
MONEY INTER- CAPITAL SMALL AGGRESS. GLOBAL
EQUITY MARKET BOND OMNI NATIONAL APPREC. CAP GROWTH CONTR.
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Aggregate Cost $15,884,188 $1,077,211 $718,909 $5,713,489 $11,314,374 $2,541,876 $3,539,477 $991,294 $1,825,642
Number of shares 670,829 107,721 68,756 369,185 825,117 217,127 231,046 89,224 172,137
</TABLE>
(3) CONTRACTS IN ACCUMULATION PERIOD
At December 31, 1996 the accumulation units and value per unit of the
respective subaccounts and products were:
<TABLE>
<CAPTION>
ACCUMULATION UNITS VALUE PER UNIT
------------------ --------------
<S> <C> <C>
Equity Subaccount..................... 870,345.996 $24.894833
Money Market Subaccount............... 67,856.926 15.874741
Bond Subaccount....................... 39,674.270 18.411624
Omni Subaccount....................... 310,569.918 23.059070
International Subaccount.............. 758,122.320 16.862105
Capital Appreciation Subaccount....... 201,769.083 13.913113
Small Cap Subaccount.................. 262,417.315 15.871942
Aggressive Growth Subaccount.......... 86,348.703 12.047276
Global Contrarian Subaccount.......... 136,778.509 12.625353
</TABLE>
<PAGE> 44
OHIO NATIONAL VARIABLE ACCOUNT R
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996
(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 charge 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 cash 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, a $5.00 record keeping and processing charge, a risk charge of
$.01 per $1,000 of the stated amount for the risk associated with the death
benefit guarantee, 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) NOTE TO SCHEDULE 1
Schedule 1 presents the components of the change in the unit values, which
are the basis for determining contract owners' equity. This schedule is
presented for each series, as applicable in the following format:
- Beginning unit value
- Reinvested capital gains and dividends
(This amount reflects the increase in the unit value due to capital gain
and dividend distributions from the underlying mutual fund.)
- Unrealized gain (loss)
(This amount reflects the increase (decrease) in the unit value
resulting from the market appreciation (depreciation) of the fund.)
- Expenses
(This amount reflects the decrease in the unit value due to Risk and
Administrative Expenses discussed in note 4 to the financial
statements.)
- Ending unit value
- Percentage increase (decrease) in unit value.
<PAGE> 45
OHIO NATIONAL VARIABLE ACCOUNT R FOR THE YEARS ENDED DECEMBER 31, 1996,
SCHEDULES OF CHANGES IN UNIT VALUES 1995 AND 1994
SCHEDULE 1
<TABLE>
<CAPTION>
MONEY
EQUITY MARKET BOND OMNI INTERNATIONAL
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
<S> <C> <C> <C> <C> <C>
1996
Beginning unit value............................ 21.192465 15.207452 17.886274 20.106689 14.839342
Reinvested capital gains and dividends.......... 0.944670 0.678964 1.097636 0.922004 0.881300
Realized and unrealized gain (loss)............. 2.774986 0.000000 -0.558912 2.046506 1.153558
Expenses........................................ -0.017288 -0.011675 -0.013374 -0.016129 -0.012095
Ending unit value............................... 24.894833 15.874741 18.411624 23.059070 16.862105
Percentage increase in unit value*.............. 17.5% 4.4% 2.9% 14.7% 13.6%
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 unrealized gain.................... 3.885373 0.000000 1.891702 3.099521 1.060350
Expenses........................................ -0.014482 -0.011159 -0.012539 -0.013884 -0.010540
Ending unit value............................... 21.192465 15.207452 17.886274 20.106689 14.839342
Percentage increase 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 unrealized gain (loss)............. -0.602749 0.000000 -1.865057 -0.810420 0.774140
Expenses........................................ -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 (decrease) in unit value*... -0.5% 3.2% -4.6% -1.3% 7.3%
</TABLE>
<TABLE>
<CAPTION>
CAPITAL SMALL GLOBAL AGGRESSIVE
APPRECIATION CAP CONTRARIAN GROWTH
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
<S> <C> <C> <C> <C>
1996
Beginning unit value............................ 12.109778 13.585277 10.828053 12.624042
Reinvested capital gains and dividends.......... 0.706680 0.290873 0.333203 1.871400
Realized and unrealized gain (loss)............. 1.106415 2.006965 0.894801 -1.860850
Expenses........................................ -0.009760 -0.011173 -0.008781 -0.009239
Ending unit value............................... 13.913113 15.871942 12.047276 12.625353
Percentage increase in unit value*.............. 14.9% 16.8% 11.3% 0.0%
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 unrealized gain.................... 1.839934 3.266534 0.763238 1.504407
Expenses........................................ -0.008586 -0.009445 -0.007987 -0.009095
Ending unit value............................... 12.109778 13.585277 10.828053 12.624042
Percentage increase 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 unrealized gain (loss)............. -0.142056 0.166824
Expenses........................................ -0.007494 -0.007713
Ending unit value............................... 9.950187 10.290499
Percentage increase (decrease) in unit value*... -0.5% 2.9%
</TABLE>
* An annualized rate or return cannot be determined as expenses do not
include the contract charges discussed in note (5).
** Period from September 23, 1994, date of commencement of operations.
*** Period from March 31, 1995, date of commencement of operations.
See accompanying notes to the financial statements.
<PAGE> 46
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, 1996, and the related statements of
income, stockholder's equity and 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, 1996, and the results of its operations and its
cash flows for the year then ended in conformity with generally accepted
accounting principles.
Cincinnati, Ohio
January 31, 1997
<PAGE> 47
OHIO NATIONAL LIFE ASSURANCE CORPORATION
(a wholly-owned subsidiary of
The Ohio National Life Insurance Company)
Balance Sheet
December 31, 1996
(000's omitted)
<TABLE>
<CAPTION>
Assets
------
<S> <C>
Investments (notes 4, 7 and 8):
Fixed maturities available-for-sale, at fair value $436,958
Fixed maturities held-to-maturity, at amortized cost 43,248
Mortgage loans on real estate, net 176,703
Policy loans 34,935
Short-term investments 16,500
--------
Total investments 708,344
Cash 19,902
Accrued investment income 8,665
Deferred policy acquisition costs 113,293
Reinsurance recoverables 76,441
Other assets 1,575
Assets held in Separate Accounts 53,159
--------
Total assets $981,379
========
Liabilities and Stockholder's Equity
------------------------------------
Future policy benefits and claims (note 5) $748,925
Other policyholder funds 2,287
Accrued Federal income tax (note 6):
Current 690
Deferred 6,999
Other liabilities 17,516
Liabilities related to Separate Accounts 53,159
--------
Total liabilities 829,576
--------
Stockholder's equity (notes 3 and 9):
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 4) 1,293
Retained earnings 113,885
--------
Total stockholder's equity 151,803
--------
Commitments and contingencies (notes 11 and 12)
Total liabilities and stockholder's equity $981,379
========
<FN>
See accompanying notes to financial statements.
</TABLE>
<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, 1996
(000's omitted)
<TABLE>
<CAPTION>
Revenues (note 11):
<S> <C>
Traditional life and accident and health insurance premiums $ 10,589
Annuity premium and charges 3,026
Universal life and investment product policy charges 42,304
Net investment income (note 4) 56,032
Other income 1,861
Net realized gains on investments (note 4) 168
---------
113,980
---------
Benefits and expenses (note 11):
Benefits and claims 64,181
Amortization of deferred policy acquisition costs 7,595
Other operating costs and expenses 14,432
---------
86,208
---------
Income before Federal income tax 27,772
---------
Federal income tax (note 6):
Current expense 12,986
Deferred tax benefit (2,383)
---------
10,603
---------
Net income $ 17,169
=========
<FN>
See accompanying notes to financial statements.
</TABLE>
<PAGE> 49
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, 1996
(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 9,558 96,716 142,899
Net income - - - 17,169 17,169
Unrealized gains on securities
available-for-sale, net of
adjustment to deferred
policy acquisition costs
and deferred Federal
income tax - - (8,265) - (8,265)
------ ------ ------ ------ ------
Balance, end of year $9,600 27,025 1,293 113,885 151,803
====== ====== ====== ======= ========
<FN>
See accompanying notes to financial statements.
</TABLE>
<PAGE> 50
OHIO NATIONAL LIFE ASSURANCE CORPORATION
Statement of Cash Flows
Year ended December 31, 1996
(000's omitted)
<TABLE>
<CAPTION>
Cash flows from operating activities:
<S> <C>
Net Income $ 17,169
Adjustments to reconcile net income to net cash provided by operating activities:
Capitalization of deferred policy acquisition costs (21,075)
Amortization of deferred policy acquisition costs 8,295
Amortization and depreciation 853
Realized gains on invested assets, net (196)
Decrease in accrued investment income 9
Increase in other assets (2,078)
Increase in policyholder account balances 5,664
Increase in other policyholder funds 95
Decrease in current Federal income tax payable (9,942)
Increase in other liabilities 7,223
Other, net (3,049)
---------
Net cash provided by operating activities 2,968
---------
Cash flows from investing activities:
Proceeds from maturity of securities available-for-sale 25,680
Proceeds from maturity of fixed maturities held-to-maturity 4,866
Proceeds from repayment of mortgage loans on real estate 23,694
Proceeds from repayment of policy loans 5,521
Cost of securities available-for-sale acquired (40,814)
Cost of fixed maturities held-to-maturity acquired (2,632)
Cost of mortgage loans on real estate acquired (39,122)
Policy loans issued and other invested assets acquired (8,506)
---------
Net cash used in investing activities (31,313)
---------
Cash flows from financing activities:
Increase in universal life and investment product
account balances 135,352
Decrease in universal life and investment product
account balances (87,496)
---------
Net cash provided by financing activities 47,856
---------
Net increase in cash and cash equivalents 19,511
Cash and cash equivalents, beginning of year 16,891
---------
Cash and cash equivalents, end of year $ 36,402
=========
<FN>
See accompanying notes to financial statements.
</TABLE>
<PAGE> 51
OHIO NATIONAL LIFE ASSURANCE CORPORATION
(a wholly-owned subsidiary of
The Ohio National Life Insurance Company)
Notes to Financial Statements
December 31, 1996
(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 47 states, the
District of Columbia and Puerto Rico. 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 financial statements.
The Company mitigates this risk by offering a wide range of
product and by operating throughout the United States, thus
reducing its exposure to any single product or jurisdiction, and
also by employing underwriting practices which identify and
minimize the adverse impact of this risk.
CREDIT RISK is that risk that issuers of securities owned by the
Company or mortgagors on mortgage loans on real estate owned by
the Company will default or that other parties, including
reinsurers, which owe the Company money, will not pay. The Company
minimizes this risk by adhering to a conservative investment
strategy, by maintaining sound reinsurance and credit and
collection policies and by providing for any amounts deemed
uncollectible.
INTEREST RATE RISK is the risk that interest rates will change and
cause a decrease in the value of an insurer's investments. This
change in rates may cause certain interest-sensitive products to
become uncompetitive or may cause disintermediation. The Company
mitigates this risk by charging fees for non-conformance with
certain policy provisions, by offering products that transfer this
risk to the purchaser, and/or by attempting to match the maturity
schedule of its assets with the expected payouts of its
liabilities. To the extent that liabilities come due more quickly
than assets mature, an insurer would have to borrow funds or sell
assets prior to maturity and potentially recognize a gain or loss.
(Continued)
<PAGE> 52
2
OHIO NATIONAL LIFE ASSURANCE CORPORATION
(a wholly-owned subsidiary of
The Ohio National Life Insurance Company)
Notes to Financial Statements, Continued
(2) Summary of Significant Accounting Policies
------------------------------------------
The significant accounting policies followed by the Company that
materially affect financial reporting are summarized below. The
accompanying financial statements have been prepared in accordance
with generally accepted accounting principles (GAAP) which differ
from statutory accounting practices prescribed or permitted by
regulatory authorities (see Note 3).
(a) Valuation of Investments and Related Gains and Losses
-----------------------------------------------------
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
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, 1996.
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.
(Continued)
<PAGE> 53
3
OHIO NATIONAL LIFE ASSURANCE CORPORATION
(a wholly-owned subsidiary of
The Ohio National Life Insurance Company)
Notes to Financial Statements, Continued
(2) Summary of Significant Accounting Policies, Continued
-----------------------------------------------------
(b) Revenues and Benefits
---------------------
Traditional life insurance products include those products
with fixed and guaranteed premiums and benefits and
consist primarily of 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 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.
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)).
(Continued)
<PAGE> 54
4
OHIO NATIONAL LIFE ASSURANCE CORPORATION
(a wholly-owned subsidiary of
The Ohio National Life Insurance Company)
Notes to Financial Statements, Continued
(2) Summary of Significant Accounting Policies, Continued
-----------------------------------------------------
(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 5).
Future policy benefits for annuity policies in the
accumulation phase, universal life and variable universal
life policies have been calculated based on participants'
aggregate account 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.
(Continued)
<PAGE> 55
5
OHIO NATIONAL LIFE ASSURANCE CORPORATION
(a wholly-owned subsidiary of
The Ohio National Life Insurance Company)
Notes to Financial Statements, Continued
(2) Summary of Significant Accounting Policies, Continued
-----------------------------------------------------
(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) Cash 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.
(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) 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.
(Continued)
<PAGE> 56
6
OHIO NATIONAL LIFE ASSURANCE CORPORATION
(a wholly-owned subsidiary of
The Ohio National Life Insurance Company)
Notes to Financial Statements, Continued
(3) Basis of Presentation, Continued
--------------------------------
<TABLE>
<CAPTION>
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:
<S> <C>
Statutory net income $ 12,018
Adjustments to restate to the basis of GAAP:
Increase in deferred policy acquisition costs, net 13,330
Future policy benefits (9,530)
Deferred Federal income tax benefit 2,383
Interest maintenance reserve (108)
Other, net (924)
--------
Net income per accompanying statement of income $ 17,169
========
</TABLE>
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, 1996:
<TABLE>
<CAPTION>
<S> <C>
Statutory capital and surplus $ 83,832
Add (deduct) cumulative effect of adjustments to reconcile
to the basis of GAAP:
Deferred policy acquisition costs 113,293
Asset valuation reserve 8,001
Interest maintenance reserve 3,249
Future policy benefits (56,924)
Deferred Federal income tax (6,999)
Difference between amortized cost and fair value of
fixed maturity securities available-for-sale, gross 7,113
Other, net 238
---------
Equity per accompanying balance sheet $ 151,803
=========
</TABLE>
(Continued)
<PAGE> 57
7
OHIO NATIONAL LIFE ASSURANCE CORPORATION
(a wholly-owned subsidiary of
The Ohio National Life Insurance Company)
Notes to Financial Statements, Continued
(4) Investments
-----------
An analysis of investment income and realized gains by investment
type follows for the year ended December 31, 1996:
<TABLE>
<CAPTION>
Realized
gains on
Investment disposition of
Income investments
------------- -----------------
<S> <C> <C>
Fixed maturities available-for-sale $ 33,092 $ (32)
Fixed maturities held-to-maturity 4,244 15
Mortgage loans on real estate 15,893 213
Short-term 848 -
Other 2,452 4
-------- -----
Total 56,529 200
Less: Investment expenses 497
Valuation allowance for mortgage
loans on real estate (32)
---------
Net investment income $ 56,032
========= ------
Net realized gains on
disposition of investments $ 168
======
</TABLE>
The components of unrealized gains on securities available-for-sale,
net, were as follows as of December 31, 1996:
<TABLE>
<CAPTION>
<S> <C>
Gross unrealized gain $ 7,113
Adjustment to deferred policy acquisition costs (2,950)
Deferred Federal income tax (2,870)
--------
$ 1,293
=======
</TABLE>
An analysis of the change in gross unrealized gains (losses) on
securities available-for-sale and fixed maturities
held-to-maturity were $(20,254) and $(2,641) for the year ended
December 31, 1996, respectively.
(Continued)
<PAGE> 58
8
OHIO NATIONAL LIFE ASSURANCE CORPORATION
(a wholly-owned subsidiary of
The Ohio National Life Insurance Company)
Notes to Financial Statements, Continued
(4) Investments, Continued
----------------------
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, 1996:
<TABLE>
<CAPTION>
Gross Gross
Amortized unrealized unrealized Estimated
cost gains losses fair value
------------- ------------- ----------- --------------
<S> <C> <C> <C> <C>
Securities available-for-sale
-----------------------------
Fixed maturities
U.S. Treasury securities and
obligations of U.S. government
operations and agencies $ 53,668 1,516 (765) 54,419
Obligations of states and
political subdivisions 6,633 253 (228) 6,658
Corporate securities 265,996 9,160 (2,718) 272,438
Mortgage-backed securities 103,548 1,008 (1,113) 103,443
------------ ------------ ------------- --------------
Total fixed maturities $ 429,845 11,937 (4,824) 436,958
============= ============= ============== ==============
Fixed maturity securities
-------------------------
Held-to-maturity
----------------
Corporate securities $ 40,628 4,418 - 45,046
Mortgage-backed securities 2,620 77 - 2,697
------------ ------------ -------------- --------------
$ 43,248 4,495 - 47,743
============= ============= ============== ==============
</TABLE>
The amortized cost and estimated fair value of fixed maturity
securities available-for-sale and fixed maturity securities
held-to-maturity as of December 31, 1996, by contractual maturity,
are shown below. Expected maturities will differ from contractual
maturities because borrowers may have the right to call or prepay
obligations with or without call or prepayment penalties.
<TABLE>
<CAPTION>
Fixed Maturity Securities
---------------------------------------------------------------
Available-for-Sale Held-to-Maturity
----------------------------- -----------------------------
Amortized Estimated Amortized Estimated
cost fair value cost fair value
------------ ------------ ------------- ------------
<S> <C> <C> <C> <C>
Due in one year or less $ 5,469 5,467 - -
Due after one year through five years 28,847 28,313 9,999 10,447
Due after five years through ten years 84,524 86,981 11,286 12,156
Due after ten years 311,005 316,197 21,963 25,140
------------ ------------ ------------ ------------
$ 429,845 436,958 43,248 47,743
============ ============ ============= ============
</TABLE>
(Continued)
<PAGE> 59
9
OHIO NATIONAL LIFE ASSURANCE CORPORATION
(a wholly-owned subsidiary of
The Ohio National Life Insurance Company)
Notes to Financial Statements, Continued
(4) Investments, Continued
----------------------
There were no sales of securities available-for-sale during 1996.
Investments with an amortized cost of $3,554 as of December 31,
1996 were on deposit with various regulatory agencies as required
by law.
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 1996, and no
foreclosures are in process as of December 31, 1996.
(5) 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, 1996) 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 6.1% at December 31, 1996.
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 5% interest. With respect to older
policies, the mortality table and interest assumptions used are
primarily the 1958 CSO table with 4% interest and the 1980 CSO
table with 4%-6% interest. Approximately 68% of the future policy
benefit liability is calculated on a net level reserve basis at
December 31, 1996.
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 Commissioner'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).
(Continued)
<PAGE> 60
10
OHIO NATIONAL LIFE ASSURANCE CORPORATION
(a wholly-owned subsidiary of
The Ohio National Life Insurance Company)
Notes to Financial Statements, Continued
(6) Federal Income Tax
------------------
In prior years, under superseded tax acts, the Company deferred
income and accumulated amounts into a 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. Any distributions from the PSA, however,
will continue to be taxable at the then current tax rate. The
balance of the PSA is approximately $5,257 as of December 31,
1996.
Total Federal income tax expense for the year ended December 31, 1996
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 $ 9,720 35.0%
Differential earnings 1,023 3.7
Tax exempt interest and dividends received deduction (38) (0.1)
Other, net (102) (0.4)
-------- ----
Total expense and effective rate $ 10,603 38.2%
======== ====
</TABLE>
Total Federal income tax paid during the year ended December 31, 1996 was
$22,928.
The tax effects of temporary differences between the financial
statement carrying amounts and tax basis of assets and liabilities
that give rise to significant components of the net deferred tax
liability as of December 31, 1996 are as follows:
<TABLE>
<CAPTION>
<S> <C>
Deferred tax assets:
Future policy benefits $ 25,067
Mortgage loans and real estate 816
Other 550
----------
Total gross deferred tax assets 26,433
----------
Deferred tax liabilities:
Deferred policy acquisition costs 30,084
Fixed maturities available-for-sale 3,329
Other 19
----------
Total gross deferred tax liabilities 33,432
----------
Net deferred tax liability $ 6,999
==========
</TABLE>
(Continued)
<PAGE> 61
11
OHIO NATIONAL LIFE ASSURANCE CORPORATION
(a wholly-owned subsidiary of
The Ohio National Life Insurance Company)
Notes to Financial Statements, Continued
(6) Federal Income Tax, Continued
-----------------------------
The Company has determined that a deferred tax asset valuation
allowance as of December 31, 1996 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 the deductible differences remaining
at December 31, 1996.
(7) Disclosures about Fair Value of Financial Instruments
-----------------------------------------------------
Statement of Financial Accounting Standards No. 107, Disclosures about
Fair Value of Financial Instruments (SFAS 107) requires disclosure
of fair value information about existing on and off-balance sheet
financial instruments. SFAS 107 excludes certain assets and
liabilities, including insurance contracts, other than policies
such as annuities that are classified as investment contracts from
its disclosure requirements. Accordingly, the aggregate fair value
amounts presented do not represent the underlying value of the
Company. The tax ramifications of the related unrealized gains and
losses can have a significant effect on fair value estimates and
have not been considered in the estimates.
The following methods and assumptions were used by the Company in
estimating its fair value disclosures:
CASH, SHORT-TERM INVESTMENTS AND POLICY LOANS - The carrying
amount reported in the balance 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.
(Continued)
<PAGE> 62
12
OHIO NATIONAL LIFE ASSURANCE CORPORATION
(a wholly-owned subsidiary of
The Ohio National Life Insurance Company)
Notes to Financial Statements, Continued
(7) Disclosures about Fair Value of Financial Instruments, Continued
----------------------------------------------------------------
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, 1996:
<TABLE>
<CAPTION>
Carrying Estimated
amount fair value
-------------- --------------
<S> <C> <C>
Assets
------
Investments:
Fixed maturities available-for-sale $ 436,958 436,958
Fixed maturities held-to-maturity 43,248 47,743
Mortgage loans on real estate 176,703 186,090
Policy loans 34,935 34,935
Short-term investments 16,500 16,500
Cash 19,902 19,902
Assets held in Separate Accounts 53,159 53,159
Liabilities
-----------
Deferred and immediate annuity contracts $ 100,094 98,504
Other policyholder funds 2,287 2,287
Liabilities related to Separate Accounts 53,159 53,159
</TABLE>
(Continued)
<PAGE> 63
13
OHIO NATIONAL LIFE ASSURANCE CORPORATION
(a wholly-owned subsidiary of
The Ohio National Life Insurance Company)
Notes to Financial Statements, Continued
(8) Additional Financial Instruments Disclosure
-------------------------------------------
Significant Concentrations of Credit Risk
-----------------------------------------
Mortgage loans are collateralized by the underlying properties.
Collateral must meet or exceed 125% of the loan at the time the
loan is made. The Company grants mainly commercial mortgage loans
to customers throughout the United States. The Company has a
diversified loan portfolio with no exposure greater than 10% in
any state at December 31, 1996. The summary below depicts loan
exposure of remaining principal balances by type at December 31,
1996:
<TABLE>
<CAPTION>
Mortgage assets by type
-----------------------
<S> <C>
Office $ 40,167
Retail 50,115
Apartments 33,997
Industrial 29,876
Other 24,880
----------
179,035
Less valuation allowances 2,332
----------
Total mortgage loans on real estate, net $ 176,703
==========
</TABLE>
(9) Regulatory Risk-Based Capital and Dividend Restrictions on Retained
Earnings
-------------------------------------------------------------------
Based upon the December 31, 1996 financial statements, the Company
exceeds all required risk-based capital levels.
The payment of dividends by the Company to its parent, ONLIC, is
limited by Ohio law. As of December 31, 1996, $103,700 of retained
earnings, as presented in the accompanying financial statements,
is restricted as to dividend payments in 1997.
(10) 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 1996
of approximately $11,400.
(Continued)
<PAGE> 64
14
OHIO NATIONAL LIFE ASSURANCE CORPORATION
(a wholly-owned subsidiary of
The Ohio National Life Insurance Company)
Notes to Financial Statements, Continued
(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>
Affiliate Non-Affiliate
----------- ----------------
<S> <C> <C>
Premiums $ 18,523 17,793
Benefits incurred 11,571 13,345
Commission and expense allowances 2,173 4,770
Reinsurance recoverable:
Reserves for future policy benefits 38,048 36,248
Policy and contract claims payable 969 1,103
</TABLE>
<TABLE>
<CAPTION>
Net traditional life and accident and health premium income in 1996 is
summarized as follows:
<S> <C>
Direct premiums earned $ 44,586
Reinsurance assumed 2,319
Reinsurance ceded (36,316)
------------
Net premiums earned $ 10,589
============
</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) 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.
<PAGE> 65
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 0.66% 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 0.34% 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 -1.75%, 4.25%, and 10.25%.
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> 66
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
<TABLE>
<CAPTION>
SUMMARY OF VALUES AND BENEFITS
ASSUMED HYPOTHETICAL GROSS ANNUAL INVESTMENT RETURN
12.00%(10.25 NET) 6.00%(4.25% NET) 0.00%(-1.75% 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 17 150,000 0 150,000
3 1,002 3,317 598 150,000 299 150,000 24 150,000
4 1,002 4,535 1,460 150,000 946 150,000 491 150,000
5 1,002 5,814 2,690 150,000 1,889 150,000 1,209 150,000
6 1,002 7,156 4,039 150,000 2,870 150,000 1,916 150,000
7 1,002 8,566 5,516 150,000 3,887 150,000 2,611 150,000
8 1,002 10,047 7,132 150,000 4,941 150,000 3,291 150,000
9 1,002 11,601 8,901 150,000 6,030 150,000 3,956 150,000
10 1,002 13,233 10,747 150,000 7,066 150,000 4,514 150,000
15 1,002 22,703 24,008 150,000 13,683 150,000 7,888 150,000
20 1,002 34,789 44,776 150,000 21,223 150,000 10,629 150,000
AGE 60 1,002 95,026 214,271 287,123 47,690 150,000 10,829 150,000
AGE 65 1,002 127,093 350,624 427,761 58,455 150,000 7,408 150,000
AGE 70 1,002 168,021 569,408 660,513 69,735 150,000 125 150,000
ASSUMED HYPOTHETICAL GROSS ANNUAL INVESTMENT RETURN
12.00%(10.25 NET) 6.00%(4.25% NET) 0.00%(-1.75% 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
- ---- ------ -------- ----- ------- ----- ------- ----- -------
1 1,002 1,052 0 150,000 0 150,000 0 150,000
2 1,002 2,157 104 150,000 0 150,000 0 150,000
3 1,002 3,317 510 150,000 220 150,000 0 150,000
4 1,002 4,535 1,345 150,000 845 150,000 403 150,000
5 1,002 5,814 2,545 150,000 1,766 150,000 1,105 150,000
6 1,002 7,156 3,860 150,000 2,724 150,000 1,796 150,000
7 1,002 8,566 5,299 150,000 3,715 150,000 2,474 150,000
8 1,002 10,047 6,873 150,000 4,742 150,000 3,138 150,000
9 1,002 11,601 8,595 150,000 5,803 150,000 3,786 150,000
10 1,002 13,233 10,388 150,000 6,808 150,000 4,326 150,000
15 1,002 22,703 23,279 150,000 13,235 150,000 7,601 150,000
20 1,002 34,789 43,366 150,000 20,459 150,000 10,172 150,000
AGE 60 1,002 95,026 205,191 274,956 42,567 150,000 7,255 150,000
AGE 65 1,002 127,093 333,699 407,113 48,583 150,000
AGE 70 1,002 168,021 537,309 623,278 50,640 150,000
</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> 67
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
<TABLE>
<CAPTION>
SUMMARY OF VALUES AND BENEFITS
ASSUMED HYPOTHETICAL GROSS ANNUAL INVESTMENT RETURN
12.00%(10.25 NET) 6.00%(4.25% NET) 0.00%(-1.75% 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 2,648 445 150,000 257 150,000 77 150,000
3 1,230 4,071 1,232 150,000 846 150,000 491 150,000
4 1,230 5,567 2,591 150,000 1,924 150,000 1,334 150,000
5 1,230 7,136 4,181 150,000 3,140 150,000 2,254 150,000
6 1,230 8,785 5,927 150,000 4,405 150,000 3,160 150,000
7 1,230 10,515 7,842 150,000 5,718 150,000 4,051 150,000
8 1,230 12,333 9,943 150,000 7,081 150,000 4,924 150,000
9 1,230 14,241 12,247 150,000 8,494 150,000 5,778 150,000
10 1,230 16,244 14,683 150,000 9,867 150,000 6,523 150,000
15 1,230 27,869 31,988 150,000 18,431 150,000 10,803 150,000
20 1,230 42,705 59,445 150,000 28,410 150,000 14,392 150,000
AGE 60 1,230 116,649 283,948 380,491 67,086 150,000 16,968 150,000
AGE 65 1,230 156,013 464,176 566,295 84,872 150,000 14,407 150,000
AGE 70 1,230 206,253 753,360 873,897 106,236 150,000 8,161 150,000
ASSUMED HYPOTHETICAL GROSS ANNUAL INVESTMENT RETURN
12.00%(10.25 NET) 6.00%(4.25% NET) 0.00%(-1.75% 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
- ---- ------ -------- ----- ------- ----- ------- ----- -------
1 1,230 1,292 0 150,000 0 150,000 0 150,000
2 1,230 2,648 386 150,000 201 150,000 25 150,000
3 1,230 4,071 1,145 150,000 767 150,000 419 150,000
4 1,230 5,567 2,476 150,000 1,824 150,000 1,246 150,000
5 1,230 7,136 4,036 150,000 3,017 150,000 2,150 150,000
6 1,230 8,785 5,749 150,000 4,259 150,000 3,041 150,000
7 1,230 10,515 7,627 150,000 5,547 150,000 3,915 150,000
8 1,230 12,333 9,686 150,000 6,883 150,000 4,771 150,000
9 1,230 14,241 11,943 150,000 8,268 150,000 5,609 150,000
10 1,230 16,244 14,327 150,000 9,611 150,000 6,336 150,000
15 1,230 27,869 31,270 150,000 17,989 150,000 10,520 150,000
20 1,230 42,705 58,075 150,000 27,663 150,000 13,943 150,000
AGE 60 1,230 116,649 274,571 367,925 62,445 150,000 13,529 150,000
AGE 65 1,230 156,013 445,991 544,109 76,378 150,000 7,290 150,000
AGE 70 1,230 206,253 717,588 832,402 91,008 150,000
</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> 68
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
<TABLE>
<CAPTION>
SUMMARY OF VALUES AND BENEFITS
ASSUMED HYPOTHETICAL GROSS ANNUAL INVESTMENT RETURN
12.00%(10.25 NET) 6.00%(4.25% NET) 0.00%(-1.75% 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 0 150,767 0 150,718 0 150,669
2 1,002 2,157 160 151,612 14 151,466 0 151,326
3 1,002 3,317 590 152,543 293 152,246 19 151,972
4 1,002 4,535 1,447 153,571 935 153,059 482 152,606
5 1,002 5,814 2,669 154,703 1,872 153,906 1,195 153,229
6 1,002 7,156 4,008 155,952 2,846 154,790 1,898 153,842
7 1,002 8,566 5,471 157,325 3,854 155,708 2,586 154,440
8 1,002 10,047 7,071 158,835 4,897 156,661 3,260 155,024
9 1,002 11,601 8,819 160,493 5,974 157,648 3,918 155,592
10 1,002 13,233 10,637 162,311 6,993 158,667 4,466 156,140
15 1,002 22,703 23,627 174,464 13,479 164,316 7,778 158,615
20 1,002 34,789 43,636 193,636 20,730 170,730 10,411 160,411
AGE 60 1,002 95,026 198,868 348,868 43,418 193,418 9,868 159,868
AGE 65 1,002 127,093 320,451 470,451 50,223 200,223 6,060 156,060
AGE 70 1,002 168,021 513,330 663,330 54,016 204,016
ASSUMED HYPOTHETICAL GROSS ANNUAL INVESTMENT RETURN
12.00%(10.25 NET) 6.00%(4.25% NET) 0.00%(-1.75% 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
- ---- ------ -------- ----- ------- ----- ------- ----- -------
1 1,002 1,052 0 150,735 0 150,687 0 150,639
2 1,002 2,157 100 151,552 0 151,409 0 151,273
3 1,002 3,317 502 152,455 212 152,165 0 151,899
4 1,002 4,535 1,330 153,454 833 152,957 393 152,517
5 1,002 5,814 2,522 154,556 1,748 153,782 1,090 153,124
6 1,002 7,156 3,827 155,771 2,698 154,642 1,776 153,720
7 1,002 8,566 5,251 157,105 3,680 155,534 2,448 154,302
8 1,002 10,047 6,807 158,571 4,695 156,459 3,105 154,869
9 1,002 11,601 8,506 160,180 5,742 157,416 3,744 155,418
10 1,002 13,233 10,271 161,945 6,730 158,404 4,276 155,950
15 1,002 22,703 22,872 173,709 13,018 163,855 7,484 158,321
20 1,002 34,789 42,140 192,140 19,929 169,929 9,938 159,938
AGE 60 1,002 95,026 186,075 336,075 37,406 187,406 6,174 156,174
AGE 65 1,002 127,093 294,398 444,398 38,232 188,232
AGE 70 1,002 168,021 461,026 611,026 30,610 180,610
</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> 69
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
<TABLE>
<CAPTION>
SUMMARY OF VALUES AND BENEFITS
ASSUMED HYPOTHETICAL GROSS ANNUAL INVESTMENT RETURN
12.00%(10.25 NET) 6.00%(4.25% NET) 0.00%(-1.75% 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 3,171 948 152,908 782 152,742 617 152,577
2 3,020 6,501 3,990 156,114 3,478 155,602 2,985 155,109
3 3,020 9,997 7,525 159,649 6,458 158,582 5,473 157,597
4 3,020 13,667 11,422 163,546 9,565 161,689 7,917 160,041
5 3,020 17,522 15,808 167,842 12,895 164,929 10,409 162,443
6 3,020 21,569 20,635 172,579 16,362 168,306 12,858 164,802
7 3,020 25,818 25,944 177,798 19,969 171,823 15,264 167,118
8 3,020 30,280 31,783 183,547 23,722 175,486 17,624 169,388
9 3,020 34,965 38,206 189,880 27,624 179,298 19,939 171,613
10 3,020 39,884 45,178 196,852 31,589 183,263 22,115 173,789
15 3,020 68,426 93,202 244,039 54,931 205,768 33,269 184,106
20 3,020 104,852 169,916 377,214 82,939 232,939 43,083 193,083
AGE 60 3,020 286,406 800,594 1,072,796 201,439 351,439 60,648 210,648
AGE 65 3,020 383,056 1,306,799 1,594,295 256,000 406,000 61,892 211,892
AGE 70 3,020 506,409 2,119,024 2,458,068 318,631 468,631 59,019 209,019
ASSUMED HYPOTHETICAL GROSS ANNUAL INVESTMENT RETURN
12.00%(10.25 NET) 6.00%(4.25% NET) 0.00%(-1.75% 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
- ---- ------ -------- ----- ------- ----- ------- ----- -------
1 3,020 3,171 916 152,876 752 152,712 588 152,548
2 3,020 6,501 3,930 156,054 3,421 155,545 2,932 155,056
3 3,020 9,997 7,436 159,560 6,378 158,502 5,400 157,524
4 3,020 13,667 11,305 163,429 9,463 161,587 7,828 159,952
5 3,020 17,522 15,661 167,695 12,770 164,804 10,304 162,338
6 3,020 21,569 20,454 172,398 16,214 168,158 12,737 164,681
7 3,020 25,818 25,724 177,578 19,795 171,649 15,125 166,979
8 3,020 30,280 31,520 183,284 23,520 175,284 17,469 169,233
9 3,020 34,965 37,894 189,568 27,392 179,066 19,765 171,439
10 3,020 39,884 44,812 196,486 31,326 183,000 21,925 173,599
15 3,020 68,426 92,447 243,284 54,469 205,306 32,975 183,812
20 3,020 104,852 168,397 373,842 82,139 232,139 42,610 192,610
AGE 60 3,020 286,406 783,961 1,050,508 195,440 345,440 56,958 206,958
AGE 65 3,020 383,056 1,271,199 1,550,862 244,043 394,043 54,497 204,497
AGE 70 3,020 506,409 2,043,163 2,370,069 295,312 445,312 44,745 194,745
</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> 70
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
<TABLE>
<CAPTION>
SUMMARY OF VALUES AND BENEFITS
ASSUMED HYPOTHETICAL GROSS ANNUAL INVESTMENT RETURN
12.00%(10.25 NET) 6.00%(4.25% NET) 0.00%(-1.75% 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 1,338 250,000 942 250,000 562 250,000
3 2,484 8,222 2,706 250,000 1,889 250,000 1,136 250,000
4 2,484 11,242 4,318 250,000 2,906 250,000 1,655 250,000
5 2,484 14,412 6,871 250,000 4,666 250,000 2,790 250,000
6 2,484 17,741 10,426 250,000 7,206 250,000 4,575 250,000
7 2,484 21,236 14,299 250,000 9,814 250,000 6,297 250,000
8 2,484 24,906 18,512 250,000 12,483 250,000 7,946 250,000
9 2,484 28,759 23,143 250,000 15,255 250,000 9,563 250,000
10 2,484 32,806 28,045 250,000 17,945 250,000 10,957 250,000
15 2,484 56,281 63,895 250,000 35,716 250,000 20,008 250,000
20 2,484 86,243 119,209 250,000 54,835 250,000 26,311 250,000
AGE 60 2,484 86,243 119,209 250,000 54,835 250,000 26,311 250,000
AGE 65 2,484 124,482 205,273 250,433 72,386 250,000 26,404 250,000
AGE 70 2,484 173,286 346,203 401,595 90,097 250,000 20,860 250,000
ASSUMED HYPOTHETICAL GROSS ANNUAL INVESTMENT RETURN
12.00%(10.25 NET) 6.00%(4.25% NET) 0.00%(-1.75% 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
- ---- ------ -------- ----- ------- ----- ------- ----- -------
1 2,484 2,608 0 250,000 0 250,000 0 250,000
2 2,484 5,347 826 250,000 458 250,000 107 250,000
3 2,484 8,222 1,868 250,000 1,120 250,000 432 250,000
4 2,484 11,242 3,099 250,000 1,816 250,000 683 250,000
5 2,484 14,412 5,200 250,000 3,211 250,000 1,525 250,000
6 2,484 17,741 8,252 250,000 5,365 250,000 3,016 250,000
7 2,484 21,236 11,547 250,000 7,546 250,000 4,424 250,000
8 2,484 24,906 15,106 250,000 9,752 250,000 5,747 250,000
9 2,484 28,759 18,955 250,000 11,979 250,000 6,981 250,000
10 2,484 32,806 22,968 250,000 14,072 250,000 7,969 250,000
15 2,484 56,281 51,866 250,000 27,473 250,000 14,142 250,000
20 2,484 86,243 94,312 250,000 39,365 250,000 16,033 250,000
AGE 60 2,484 86,243 94,312 250,000 39,365 250,000 16,033 250,000
AGE 65 2,484 124,482 157,036 250,000 43,992 250,000 8,088 250,000
AGE 70 2,484 173,286 262,640 304,662 37,766 250,000
</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> 71
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
<TABLE>
<CAPTION>
SUMMARY OF VALUES AND BENEFITS
ASSUMED HYPOTHETICAL GROSS ANNUAL INVESTMENT RETURN
12.00%(10.25 NET) 6.00%(4.25% NET) 0.00%(-1.75% 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 3,938 906 250,000 702 250,000 500 250,000
2 3,750 8,072 2,903 250,000 2,276 250,000 1,675 250,000
3 3,750 12,413 5,279 250,000 3,978 250,000 2,777 250,000
4 3,750 16,971 9,873 250,000 7,613 250,000 5,609 250,000
5 3,750 21,757 15,157 250,000 11,616 250,000 8,598 250,000
6 3,750 26,783 20,926 250,000 15,739 250,000 11,493 250,000
7 3,750 32,059 27,246 250,000 20,002 250,000 14,308 250,000
8 3,750 37,600 34,167 250,000 24,402 250,000 17,036 250,000
9 3,750 43,417 41,791 250,000 28,985 250,000 19,716 250,000
10 3,750 49,525 50,006 250,000 33,569 250,000 22,159 250,000
15 3,750 84,966 108,679 250,000 62,340 250,000 36,341 250,000
20 3,750 130,197 202,574 271,449 95,631 250,000 47,622 250,000
AGE 60 3,750 130,197 202,574 271,449 95,631 250,000 47,622 250,000
AGE 65 3,750 187,925 350,575 427,701 131,936 250,000 52,747 250,000
AGE 70 3,750 261,603 588,424 682,572 175,823 250,000 52,757 250,000
ASSUMED HYPOTHETICAL GROSS ANNUAL INVESTMENT RETURN
12.00%(10.25 NET) 6.00%(4.25% NET) 0.00%(-1.75% 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
- ---- ------ -------- ----- ------- ----- ------- ----- -------
1 3,750 3,938 672 250,000 476 250,000 280 250,000
2 3,750 8,072 2,395 250,000 1,796 250,000 1,223 250,000
3 3,750 12,413 4,450 250,000 3,217 250,000 2,080 250,000
4 3,750 16,971 8,671 250,000 6,538 250,000 4,649 250,000
5 3,750 21,757 13,516 250,000 10,186 250,000 7,353 250,000
6 3,750 26,783 18,799 250,000 13,935 250,000 9,963 250,000
7 3,750 32,059 24,565 250,000 17,787 250,000 12,476 250,000
8 3,750 37,600 30,863 250,000 21,745 250,000 14,890 250,000
9 3,750 43,417 37,749 250,000 25,810 250,000 17,204 250,000
10 3,750 49,525 45,133 250,000 29,833 250,000 19,261 250,000
15 3,750 84,966 97,574 250,000 54,605 250,000 30,757 250,000
20 3,750 130,197 181,039 250,000 81,640 250,000 38,024 250,000
AGE 60 3,750 130,197 181,039 250,000 81,640 250,000 38,024 250,000
AGE 65 3,750 187,925 312,969 381,822 107,655 250,000 36,014 250,000
AGE 70 3,750 261,603 522,157 605,702 134,712 250,000 22,697 250,000
</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> 72
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
<TABLE>
<CAPTION>
SUMMARY OF VALUES AND BENEFITS
ASSUMED HYPOTHETICAL GROSS ANNUAL INVESTMENT RETURN
12.00%(10.25 NET) 6.00%(4.25% NET) 0.00%(-1.75% 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 2,608 190 252,182 60 252,052 0 251,923
2 2,484 5,347 1,327 254,561 932 254,166 553 253,787
3 2,484 8,222 2,682 257,158 1,868 256,344 1,118 255,594
4 2,484 11,242 4,275 259,993 2,869 258,587 1,624 257,342
5 2,484 14,412 6,799 263,096 4,608 260,905 2,743 259,040
6 2,484 17,741 10,313 266,460 7,118 263,265 4,507 260,654
7 2,484 21,236 14,130 270,127 9,688 265,685 6,203 262,201
8 2,484 24,906 18,267 274,115 12,307 268,154 7,820 263,668
9 2,484 28,759 22,803 278,501 15,021 270,718 9,402 265,100
10 2,484 32,806 27,581 283,278 17,637 273,335 10,755 266,452
15 2,484 56,281 62,134 314,984 34,770 287,620 19,498 272,348
20 2,484 86,243 113,246 363,246 52,259 302,259 25,175 275,175
AGE 60 2,484 86,243 113,246 363,246 52,259 302,259 25,175 275,175
AGE 65 2,484 124,482 187,237 437,237 66,252 316,252 24,256 274,256
AGE 70 2,484 173,286 299,694 549,694 76,429 326,429 17,271 267,271
ASSUMED HYPOTHETICAL GROSS ANNUAL INVESTMENT RETURN
12.00%(10.25 NET) 6.00%(4.25% NET) 0.00%(-1.75% 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
- ---- ------ -------- ----- ------- ----- ------- ----- -------
1 2,484 2,608 0 251,945 0 251,823 0 251,701
2 2,484 5,347 809 254,043 443 253,677 93 253,327
3 2,484 8,222 1,832 256,308 1,088 255,564 404 254,880
4 2,484 11,242 3,032 258,750 1,760 257,478 637 256,355
5 2,484 14,412 5,090 261,387 3,123 259,420 1,454 257,751
6 2,484 17,741 8,082 264,229 5,233 261,381 2,915 259,062
7 2,484 21,236 11,294 267,292 7,358 263,356 4,286 260,283
8 2,484 24,906 14,744 270,591 9,493 265,341 5,564 261,411
9 2,484 28,759 18,451 274,148 11,634 267,331 6,745 262,443
10 2,484 32,806 22,280 277,977 13,620 269,317 7,673 263,370
15 2,484 56,281 49,173 302,023 26,049 278,899 13,388 266,238
20 2,484 86,243 85,439 335,439 35,688 285,688 14,509 264,509
AGE 60 2,484 86,243 85,439 335,439 35,688 285,688 14,509 264,509
AGE 65 2,484 124,482 130,312 380,312 35,706 285,706 5,660 255,660
AGE 70 2,484 173,286 186,888 436,888 21,325 271,325
</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> 73
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
<TABLE>
<CAPTION>
SUMMARY OF VALUES AND BENEFITS
ASSUMED HYPOTHETICAL GROSS ANNUAL INVESTMENT RETURN
12.00%(10.25 NET) 6.00%(4.25% NET) 0.00%(-1.75% 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 3,846 259,096 3,340 258,590 2,835 258,085
2 9,000 19,373 12,652 269,099 11,073 267,521 9,556 266,003
3 9,000 29,791 23,653 280,101 20,357 276,805 17,311 273,758
4 9,000 40,731 35,754 292,201 30,008 286,455 24,903 281,351
5 9,000 52,217 49,224 305,521 40,199 296,496 32,493 288,791
6 9,000 64,278 64,001 320,149 50,760 306,907 39,899 296,046
7 9,000 76,942 80,236 336,233 61,723 317,721 47,138 303,135
8 9,000 90,239 98,064 353,912 73,092 328,940 54,201 310,048
9 9,000 104,201 117,695 373,392 84,928 340,626 61,133 316,831
10 9,000 118,861 139,114 394,812 97,055 352,753 67,743 323,440
15 9,000 203,917 286,796 539,646 168,620 421,470 101,811 354,661
20 9,000 312,473 522,205 772,205 253,143 503,143 130,677 380,677
AGE 60 9,000 312,473 522,205 772,205 253,143 503,143 130,677 380,677
AGE 65 9,000 451,021 896,455 1,146,455 349,699 599,699 150,996 400,996
AGE 70 9,000 627,847 1,498,166 1,748,166 461,585 711,585 163,468 413,468
ASSUMED HYPOTHETICAL GROSS ANNUAL INVESTMENT RETURN
12.00%(10.25 NET) 6.00%(4.25% NET) 0.00%(-1.75% 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
- ---- ------ -------- ----- ------- ----- ------- ----- -------
1 9,000 9,450 3,610 258,860 3,111 258,361 2,612 257,862
2 9,000 19,373 12,133 268,581 10,584 267,032 9,095 265,543
3 9,000 29,791 22,803 279,251 19,577 276,025 16,597 273,045
4 9,000 40,731 34,512 290,959 28,899 285,347 23,916 280,363
5 9,000 52,217 47,515 303,813 38,714 295,011 31,205 287,502
6 9,000 64,278 61,771 317,918 48,876 305,023 38,307 294,454
7 9,000 76,942 77,402 333,399 59,395 315,392 45,221 301,218
8 9,000 90,239 94,543 350,390 70,280 326,128 51,945 307,792
9 9,000 104,201 113,345 369,042 81,543 337,241 58,478 314,175
10 9,000 118,861 133,817 389,514 93,039 348,737 64,662 320,360
15 9,000 203,917 273,849 526,699 159,906 412,756 95,706 348,556
20 9,000 312,473 494,449 744,449 236,595 486,595 120,022 370,022
AGE 60 9,000 312,473 494,449 744,449 236,595 486,595 120,022 370,022
AGE 65 9,000 451,021 839,698 1,089,698 319,214 569,214 132,424 382,424
AGE 70 9,000 627,847 1,385,880 1,635,880 406,633 656,633 131,290 381,290
</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> 74
PART II
OTHER INFORMATION
<PAGE> 75
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 services rendered, 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:
All 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> 76
(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).
(5) Flexible Premium Variable Life Insurance Policy, Form
96-VL-1, was filed as Exhibit (5) of the Registrant's
Form S-6 on November 14, 1996.
(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).
(10) Variable Life Insurance Application Supplement: Suitability
Information, was filed as Exhibit (10) of the Registrant's
Form S-6 on November 14, 1996.
(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> 77
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 7th day of March, 1997.
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> 78
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 7th day of March, 1997.
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 March 7, 1997
- -----------------------------
David B. O'Maley
Senior Vice President
and Chief Investment
/s/ Joseph P. Brom Officer and Director March 7, 1997
- -----------------------------
Joseph P. Brom
Senior Vice President
and Chief Financial Officer
/s/ Ronald J. Dolan and Director March 7, 1997
- ----------------------------
Ronald J. Dolan
Senior Vice President and
General Counsel and
/s/ Stuart G. Summers Director March 7, 1997
- -----------------------------
Stuart G. Summers
Senior Vice President,
Insurance Operations &
/s/ Donald J. Zimmerman Secretary and Director March 7, 1997
- -----------------------------
Donald J. Zimmerman
Vice President,
Financial Control
(Principal Accounting
/s/ Paul L. Bergmann Officer) March 7, 1997
- -----------------------------
Paul L. Bergmann
</TABLE>
<PAGE> 79
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
<PAGE> 80
CONSENTS
<PAGE> 81
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, 1996 and for
the periods indicated herein and on the financial statements of Ohio National
Life Assurance Corporation as of December 31, 1996 and for the year then ended
and to the reference to our firm under the heading "Experts" in the Prospectus.
KPMG Peat Marwick LLP
Cincinnati, Ohio
March 7, 1997
<PAGE> 82
[LETTERHEAD]
March 7, 1997
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> 83
[LETTERHEAD]
March 7, 1997
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
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000770291
<NAME> OHIO NATIONAL VARIABLE ACCOUNT R
<SERIES>
<NUMBER> 1
<NAME> EQUITY
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<INVESTMENTS-AT-COST> 15,884,188
<INVESTMENTS-AT-VALUE> 21,667,118
<RECEIVABLES> 0
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 21,667,118
<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> 870,346
<SHARES-COMMON-PRIOR> 756,738
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 21,667,118
<DIVIDEND-INCOME> 766,090
<INTEREST-INCOME> 0
<OTHER-INCOME> 0
<EXPENSES-NET> 143,826
<NET-INVESTMENT-INCOME> 622,264
<REALIZED-GAINS-CURRENT> 160,116
<APPREC-INCREASE-CURRENT> 2,231,504
<NET-CHANGE-FROM-OPS> 3,013,884
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 5,759,363
<NUMBER-OF-SHARES-REDEEMED> 3,143,276
<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
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