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File No. 333-16133
811-4320
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
POST-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)
--
X on May 1, 1998 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 has heretofore registered an
indefinite amount of such flexible premium variable life insurance contracts
under the Securities Act of l933 pursuant to Rule 24f-2 and on March 30, 1998
filed its Form 24F-2 for its most recent fiscal year.
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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.
May 1, 1998
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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.
The Year 2000 Issue
The Company has considered the impact on its business of "Year 2000" issues. It
has developed a remedial plan for its computer systems and applications.
Conversion activities are presently in process and the Company expects
conversion testing and implementation to be completed by December 31, 1998.
While the Company has been assured by suppliers of financial services (including
underlying mutual funds, custodians, transfer agents and accounting agents) that
their systems either are already compliant or will be so by December 31, 1998,
the Company's internal auditors intend to independently test those systems
(other than systems of unaffiliated mutual funds and their suppliers) to verify
their compliance. The failure of the Company or one of its suppliers to achieve
timely and complete compliance could materially impair the Company's ability to
conduct its business, including its ability to accurately and timely value
interests in the contracts.
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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
Term Insurance Conversion Credit.............................. 23
Minimum Premiums.............................................. 23
Planned Premiums.............................................. 23
Allocation of Premiums........................................ 24
Transfers..................................................... 24
Dollar Cost Averaging......................................... 25
TeleAccess.................................................... 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. and the Emerging Markets Fund.
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 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 $6.3 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 20
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 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 $6.3 billion and equity in excess of $600 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. Ohio National Life's
policyholders have approved a plan of reorganization that, if approved by the
Ohio Superintendent of Insurance, would convert Ohio National Life to a stock
company ultimately owned by a mutual holding company (Ohio National Holdings,
Inc.) with the majority ownership of the latter being by the policyholders.
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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 20 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 LLC ("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, a
subsidiary of Mellon Bank, NA, 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, a subsidiary of Bank of America,
NA, 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. (This benefit does not apply in Massachusetts
after the contract has been in effect for 5 years.) 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 $1,000,000) 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.
TERM INSURANCE CONVERSION CREDIT
The Company will apply a term insurance conversion credit as premium paid in
the first contract year. The conversion credit is based on (but not necessarily
equal to) the amount of annual premium for the term life insurance policy being
converted to, or exchanged for, the new contract. Consult your agent for
details.
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 $300, 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.
TELEACCESS
If the contract owner first submits a pre-authorization form to Ohio National
Life, contract and unit values and interest rates can be checked and transfers
may be made by telephoning Ohio National Life between 7:00 a.m. and 7:00 p.m.
(Eastern time) on days that it is open for business, at 1-800-366-6654, #8. Ohio
National Life will honor pre-authorized telephone transfer instructions from
anyone who is able to provide the personal identifying information requested via
TeleAccess. Telephone transfer requests will not be honored after the contract
owner's death. For added security, transfers are confirmed in writing sent to
the owner on the next business day. However, if a transfer cannot be completed
as requested, a customer service representative will contact the owner in
writing sent within 48 hours of the TeleAccess request.
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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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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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.
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<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.
Ohio National Equities, Inc., another wholly-owned subsidiary of Ohio National
Life, is the principal underwriter of the contracts. 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
NAME WITH COMPANY*
- ---- -------------
<S> <C>
Trudy K. Backus Vice President, Individual Insurance Services
Thomas A. Barefield Senior Vice President, Institutional Sales
Howard C. Becker Senior Vice President, Individual Insurance and Corporate Services
Ronald L. Benedict Corporate Vice President, Counsel & Secretary
Robert A. Bowen Senior Vice President, Information Systems
Roylene M. Broadwell Vice President and Treasurer
Michael A. Boedeker Vice President, Fixed Income Securities
Joseph P. Brom Director and Senior Vice President & Chief Investment Officer
David W. Cook Senior Vice President and Actuary
Robert M. DiTommaso Vice President, Career Marketing
Ronald J. Dolan Director and Senior Vice President & Chief Financial Officer
John A. Houser III Vice-President, Claims
Thomas O. Olsan Vice President, Underwriting
David B. O'Maley Director and Chairman, President & Chief Executive Officer
John J. Palmer Director and Senior Vice President, Strategic Initiatives
George B. Pearson Vice President, PGA Marketing
D. Gates Smith Senior Vice President, Sales
Michael D. Stohler Vice President, Mortgages & Real Estate
Stuart G. Summers Director and Senior Vice President and General Counsel
</TABLE>
* The principal occupation of each of the above is an officer of Ohio National
Life, with the same title as with the Company. The principal business address
of each 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.
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<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, Corporate Vice President, Counsel and Secretary of Ohio National Life.
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<PAGE> 39
EXPERTS
The financial statements of Variable Account R as of December 31, 1997 and for
each of the periods indicated herein and the financial statements of the Company
as of December 31, 1997 and 1996 and for the periods indicated herein included
in this prospectus have been included herein in reliance upon the reports of
KPMG Peat Marwick LLP, independent certified public accountants, appearing
elsewhere herein, and upon the authority of said firm as experts in accounting
and auditing.
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 December 31, 1997
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 owners'
equity of Ohio National Variable Account R (comprising, respectively, the
Equity, Money Market, Bond, Omni, International, Capital Appreciation, Small
Cap, Global Contrarian, Aggressive Growth, S&P 500 Index, Social Awareness, Core
Growth, Growth & Income and Emerging Market Subaccounts) as of December 31,
1997, and the related statements of operations and changes in contract owners'
equity and schedules of changes in unit values for each of the periods indicated
herein. These financial statements are the responsibility of the Companys'
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 with the underlying funds of securities owned as of December 31,
1997. 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, 1997, and the results of their operations, changes in contract
owners' equity and changes in unit values for each of the periods indicated
herein, in conformity with generally accepted accounting principles.
KPMG PEAT MARWICK LLP
Cincinnati, Ohio
January 30, 1998
37
<PAGE> 40
<TABLE>
<CAPTION>
OHIO NATIONAL VARIABLE ACCOUNT R
Statements of Assets and Contract Owners' Equity December 31, 1997
Money Capital
Equity Market Bond Omni International Appreciation Small Cap
Subaccount Subaccount Subaccount Subaccount Subaccount Subaccount Subaccount
----------- ----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Assets - Investments
at market value
(note 2) ...................$28,205,784 $ 1,229,977 $ 949,860 $10,223,345 $15,465,753 $ 4,867,463 $ 6,364,899
=========== =========== =========== =========== =========== =========== ===========
Contract owners' equity
Contracts in
accumulation
period (note 3) ...........$28,205,784 $ 1,229,977 $ 949,860 $10,223,345 $15,465,753 $ 4,867,463 $ 6,364,899
=========== =========== =========== =========== =========== =========== ===========
Global Aggressive S&P 500 Social Core Growth & Emerging
Contrarian Growth Index Awareness Growth Income Market
Subaccount Subaccount Subaccount Subaccount Subaccount Subaccount Subaccount
----------- ----------- ----------- ----------- ----------- ----------- -----------
Assets - Investments
at market value
(note 2) ...................$ 1,571,975 $ 2,705,162 $ 1,267,486 $ 335,219 $ 824,433 $ 1,842,644 80,276
=========== =========== =========== =========== =========== =========== ===========
Contract owners' equity
Contracts in
accumulation
period (note 3) ...........$ 1,571,975 $ 2,705,162 $ 1,267,486 $ 335,219 $ 824,433 $ 1,842,644 80,276
=========== =========== =========== =========== =========== =========== ======
</TABLE>
The accompanying notes are an integral part of these financial statements.
109
<PAGE> 41
<TABLE>
<CAPTION>
OHIO NATIONAL VARIABLE ACCOUNT R
Statements of Operations and Changes in Contract Owners' Equity For the Three Years ended December 31
EQUITY
SUBACCOUNT
1997 1996 1995 1997
----------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
Investment activity:
Reinvested dividends ........................................... $ 453,946 $ 278,504 $ 198,768 $ 55,657
Risk and administrative
expense (note 4) .............................................. (190,776) (143,826) (99,621) (7,949)
----------- ------------ ------------ ------------
Net investment activity ...................................... 263,170 134,678 99,147 47,708
----------- ------------ ------------ ------------
Realized and unrealized gain
(loss) on investments:
Reinvested capital gains ..................................... 1,475,813 487,586 179,148 0
Realized gain (loss) ......................................... 431,237 160,116 137,099 241
Unrealized gain (loss) ....................................... 1,699,778 2,231,504 2,656,620 0
----------- ------------ ------------ ------------
Net gain (loss) on
investments ............................................... 3,606,828 2,879,206 2,972,867 241
----------- ------------ ------------ ------------
Net increase in contract
owners' equity from
operations ................................................ 3,869,998 3,013,884 3,072,014 47,949
----------- ------------ ------------ ------------
Equity transactions:
Sales:
Contract purchase payments .................................... 4,850,686 4,490,453 3,786,276 6,067,434
Transfers from fixed and
other subaccounts ............................................ 2,585,503 1,268,910 1,036,068 1,593,336
----------- ------------ ------------ ------------
7,436,189 5,759,363 4,822,344 7,660,770
----------- ------------ ------------ ------------
Redemptions:
Withdrawals and surrenders
(note 4) ..................................................... 930,275 328,631 325,573 8,519
Transfers to fixed and
other subaccounts ............................................ 2,061,907 1,294,677 1,127,609 7,321,910
Cost of insurance and
administrative fee (note 5) .................................. 1,775,339 1,519,968 1,261,061 225,524
----------- ------------ ------------ ------------
4,767,521 3,143,276 2,714,243 7,555,953
----------- ------------ ------------ ------------
Net equity transactions ..................................... 2,668,668 2,616,087 2,108,101 104,817
----------- ------------ ------------ ------------
Net change in contract
owners' equity ............................................ 6,538,666 5,629,971 5,180,115 152,766
Contract owners' equity:
Beginning of period ............................................ 21,667,118 16,037,147 10,857,032 1,077,211
----------- ------------ ------------ ------------
End of period................................................... $28,205,784 $ 21,667,118 $ 16,037,147 $ 1,229,977
=========== ============ ============ ============
<CAPTION>
MONEY MARKET BOND
SUBACCOUNT SUBACCOUNT
1996 1995 1997 1996
----------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
Investment activity:
Reinvested dividends ........................................... $ 39,652 $ 24,454 $ 68,280 $ 38,549
Risk and administrative
expense (note 4) .............................................. (7,545) (3,384) (6,130) (4,242)
------------ ------------ ------------ ------------
Net investment activity ...................................... 32,107 21,070 62,150 34,307
------------ ------------ ------------ ------------
Realized and unrealized gain
(loss) on investments:
Reinvested capital gains ..................................... 0 0 0 0
Realized gain (loss) ......................................... (6,138) 140 1,394 743
Unrealized gain (loss) ....................................... 0 0 4,309 (13,745)
------------ ------------ ------------ ------------
Net gain (loss) on
investments ............................................... (6,138) 140 5,703 (13,002)
------------ ------------ ------------ ------------
Net increase in contract
owners' equity from
operations ................................................ 25,969 21,210 67,853 21,305
------------ ------------ ------------ ------------
Equity transactions:
Sales:
Contract purchase payments .................................... 4,328,290 2,749,849 244,107 328,071
Transfers from fixed and
other subaccounts ............................................ 544,044 478,053 131,403 87,756
------------ ------------ ------------ ------------
4,872,334 3,227,902 375,510 415,827
------------ ------------ ------------ ------------
Redemptions:
Withdrawals and surrenders
(note 4) ..................................................... 5,529 24,538 21,828 8,438
Transfers to fixed and
other subaccounts ............................................ 4,313,747 2,921,107 131,854 162,147
Cost of insurance and
administrative fee (note 5) .................................. 173,031 119,220 70,289 62,462
------------ ------------ ------------ ------------
4,492,307 3,064,865 223,971 233,047
------------ ------------ ------------ ------------
Net equity transactions ..................................... 380,027 163,037 151,539 182,780
------------ ------------ ------------ ------------
Net change in contract
owners' equity ............................................ 405,996 184,247 219,392 204,085
Contract owners' equity:
Beginning of period ............................................ 671,215 486,968 730,468 526,383
------------ ------------ ------------ ------------
End of period................................................... $ 1,077,211 $ 671,215 $ 949,860 $ 730,468
============ ============ ============ ============
<CAPTION>
OMNI
SUBACCOUNT
1995 1997 1996 1995
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Investment activity:
Reinvested dividends ........................................... $ 19,864 $ 285,077 $ 168,919 $ 122,957
Risk and administrative
expense (note 4) .............................................. (2,892) (65,184) (45,484) (33,258)
------------ ------------ ------------ ------------
Net investment activity ...................................... 16,972 219,893 123,435 89,699
------------ ------------ ------------ ------------
Realized and unrealized gain
(loss) on investments:
Reinvested capital gains ..................................... 39 480,048 92,139 0
Realized gain (loss) ......................................... (78) 73,429 48,077 31,864
Unrealized gain (loss) ....................................... 44,832 562,929 578,417 725,434
------------ ------------ ------------ ------------
Net gain (loss) on
investments ............................................... 44,793 1,116,406 718,633 757,298
------------ ------------ ------------ ------------
Net increase in contract
owners' equity from
operations ................................................ 61,765 1,336,299 842,068 846,997
------------ ------------ ------------ ------------
Equity transactions:
Sales:
Contract purchase payments .................................... 146,154 1,966,189 1,544,190 1,092,988
Transfers from fixed and
other subaccounts ............................................ 108,837 907,850 583,740 370,752
------------ ------------ ------------ ------------
254,991 2,874,039 2,127,930 1,463,740
------------ ------------ ------------ ------------
Redemptions:
Withdrawals and surrenders
(note 4) ..................................................... 5,704 187,562 167,671 67,498
Transfers to fixed and
other subaccounts ............................................ 32,704 312,223 299,190 314,014
Cost of insurance and
administrative fee (note 5) .................................. 41,769 648,661 501,412 381,402
------------ ------------ ------------ ------------
80,177 1,148,446 968,273 762,914
------------ ------------ ------------ ------------
Net equity transactions ..................................... 174,814 1,725,593 1,159,657 700,826
------------ ------------ ------------ ------------
Net change in contract
owners' equity ............................................ 236,579 3,061,892 2,001,725 1,547,823
Contract owners' equity:
Beginning of period ............................................ 289,804 7,161,453 5,159,728 3,611,905
------------ ------------ ------------ ------------
End of period................................................... $ 526,383 $ 10,223,345 $ 7,161,453 $ 5,159,728
============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
110
<PAGE> 42
OHIO NATIONAL VARIABLE ACCOUNT R
Statements of Operations and Changes in Contract Owners' Equity
<TABLE>
<CAPTION>
CAPITAL
INTERNATIONAL APPRECIATION
SUBACCOUNT SUBACCOUNT
1997 1996 1995 1997 1996 1995
------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Investment activity:
Reinvested dividends ........ $ 983,741 $ 421,814 $ 126,297 $ 130,659 $ 64,452 $ 14,803
Risk and administrative
expense (note 4) ........... (112,268) (78,825) (49,434) (28,303) (13,716) (4,732)
------------ ------------ ------------ ------------ ------------ ------------
Net investment activity ... 871,473 342,989 76,863 102,356 50,736 10,071
------------ ------------ ------------ ------------ ------------ ------------
Realized and unrealized gain
(loss) on investments:
Reinvested capital gains .. 1,415,674 151,723 87,993 244,214 42,011 3,782
Realized gain (loss) ...... 186,736 23,917 26,863 34,042 19,381 2,645
Unrealized gain (loss) .... (2,391,042) 752,956 540,676 129,929 172,281 94,813
------------ ------------ ------------ ------------ ------------ ------------
Net gain (loss) on
investments ............ (788,632) 928,596 655,532 408,185 233,673 101,240
------------ ------------ ------------ ------------ ------------ ------------
Net increase in contract
owners' equity from
operations ............. 82,841 1,271,585 732,395 510,541 284,409 111,311
------------ ------------ ------------ ------------ ------------ ------------
Equity transactions:
Sales:
Contract purchase payments . 4,352,514 3,766,785 2,976,009 1,458,697 1,176,050 422,829
Transfers from fixed and
other subaccounts ......... 2,121,595 1,410,908 1,049,632 1,299,231 709,737 696,659
------------ ------------ ------------ ------------ ------------ ------------
6,474,109 5,177,693 4,025,641 2,757,928 1,885,787 1,119,488
------------ ------------ ------------ ------------ ------------ ------------
Redemptions:
Withdrawals and surrenders
(note 4) .................. 469,189 160,367 135,907 54,331 55,870 4,024
Transfers to fixed and
other subaccounts ......... 2,136,043 622,081 770,875 775,912 301,791 84,065
Cost of insurance and
administrative fee (note 5) 1,269,503 1,009,169 796,919 377,999 244,293 87,472
------------ ------------ ------------ ------------ ------------ ------------
3,874,735 1,791,617 1,703,701 1,208,242 601,954 175,561
------------ ------------ ------------ ------------ ------------ ------------
Net equity transactions .. 2,599,374 3,386,076 2,321,940 1,549,686 1,283,833 943,927
------------ ------------ ------------ ------------ ------------ ------------
Net change in contract
owners' equity ......... 2,682,215 4,657,661 3,054,335 2,060,227 1,568,242 1,055,238
Contract owners' equity:
Beginning of period ......... 12,783,538 8,125,877 5,071,542 2,807,236 1,238,994 183,756
------------ ------------ ------------ ------------ ------------ ------------
End of period ............... $ 15,465,753 $ 12,783,538 $ 8,125,877 $ 4,867,463 $ 2,807,236 $ 1,238,994
============ ============ ============ ============ ============ ============
<CAPTION>
GLOBAL
SMALL CAP CONTRARIAN
SUBACCOUNT SUBACCOUNT
1997 1996 1995 1997 1996 1995 (a)
------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Investment activity:
Reinvested dividends ........ $ 0 $ 0 $ 2,690 $ 52,943 $ 18,287 $ 523
Risk and administrative
expense (note 4) ........... (38,798) (20,200) (6,411) (9,551) (5,154) (540)
------------ ------------ ------------ ------------ ------------ ------------
Net investment activity ... (38,798) (20,200) (3,721) 43,392 13,133 (17)
------------ ------------ ------------ ------------ ------------ ------------
Realized and unrealized gain
(loss) on investments:
Reinvested capital gains .. 271,143 56,631 0 83,769 1,932 0
Realized gain (loss) ...... 84,498 9,714 13,224 32,076 1,474 1,419
Unrealized gain (loss) .... 130,287 414,502 208,534 (35,010) 43,850 5,122
------------ ------------ ------------ ------------ ------------ ------------
Net gain (loss) on
investments ............ 485,928 480,847 221,758 80,835 47,256 6,541
------------ ------------ ------------ ------------ ------------ ------------
Net increase in contract
owners' equity from
operations ............. 447,130 460,647 218,037 124,227 60,389 6,524
------------ ------------ ------------ ------------ ------------ ------------
Equity transactions:
Sales:
Contract purchase payments . 2,181,009 1,584,784 632,636 537,053 459,332 106,879
Transfers from fixed and
other subaccounts ......... 1,438,960 1,168,570 786,952 450,868 403,280 182,691
------------ ------------ ------------ ------------ ------------ ------------
3,619,969 2,753,354 1,419,588 987,921 862,612 289,570
------------ ------------ ------------ ------------ ------------ ------------
Redemptions:
Withdrawals and surrenders
(note 4) .................. 141,409 80,764 5,965 221,380 3,696 10,420
Transfers to fixed and
other subaccounts ......... 1,146,251 258,675 127,447 218,387 35,452 42,262
Cost of insurance and
administrative fee (note 5) 579,612 383,497 121,558 140,673 75,598 11,400
------------ ------------ ------------ ------------ ------------ ------------
1,867,272 722,936 254,970 580,440 114,746 64,082
------------ ------------ ------------ ------------ ------------ ------------
Net equity transactions .. 1,752,697 2,030,418 1,164,618 407,481 747,866 225,488
------------ ------------ ------------ ------------ ------------ ------------
Net change in contract
owners' equity ......... 2,199,827 2,491,065 1,382,655 531,708 808,255 232,012
Contract owners' equity:
Beginning of period ......... 4,165,072 1,674,007 291,352 1,040,267 232,012 0
------------ ------------ ------------ ------------ ------------ ------------
End of period ............... $ 6,364,899 $ 4,165,072 $ 1,674,007 $ 1,571,975 $ 1,040,267 $ 232,012
============ ============ ============ ============ ============ ============
</TABLE>
(a) Period from March 31, 1995, date of commencement of operations.
The accompanying notes are an integral part of these financial statements.
111
<PAGE> 43
<TABLE>
<CAPTION>
OHIO NATIONAL VARIABLE ACCOUNT R
STATEMENTS OF OPERATIONS AND CHANGES IN CONTRACT OWNERS' EQUITY FOR THE PERIODS ENDED DECMEBER 31
S&P 500 SOCIAL
AGGRESSIVE GROWTH INDEX AWARENESS
SUBACCOUNT SUBACCOUNT SUBACCOUNT
1997 1996 1995 (a) 1997 (b) 1997 (b)
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Investment activity:
Reinvested dividends ......... $ 24,808 $ 0 $ 12,789 $ 33,016 $ 983
Risk and administrative
expense (note 4) ............ (16,668) (6,733) (897) (2,986) (394)
----------- ----------- ----------- ----------- -----------
Net investment activity .... 8,140 (6,733) 11,892 30,030 589
----------- ----------- ----------- ----------- -----------
Realized and unrealized gain
(loss) on investments:
Reinvested capital gains ... 9,068 158,688 0 94,770 29,015
Realized gain (loss) ....... (3,358) (294) 5,130 5,779 926
Unrealized gain (loss) ..... 231,511 (114,233) 15,468 (52,996) (31,805)
----------- ----------- ----------- ----------- -----------
Net gain (loss) on
investments ............. 237,221 44,161 20,598 47,553 (1,864)
----------- ----------- ----------- ----------- -----------
Net increase (decrease) in
contract owners' equity
from operations ......... 245,361 37,428 32,490 77,583 (1,275)
----------- ----------- ----------- ----------- -----------
Equity transactions:
Sales:
Contract purchase payments .. 969,362 915,114 140,955 560,773 35,077
Transfers from fixed and
other subaccounts .......... 544,712 640,496 336,663 775,750 319,587
----------- ----------- ----------- ----------- -----------
1,514,074 1,555,610 477,618 1,336,523 354,664
----------- ----------- ----------- ----------- -----------
Redemptions:
Withdrawals and surrenders
(note 4) ................... 84,536 6,572 307 727 50
Transfers to fixed and
other subaccounts .......... 418,423 120,708 46,146 83,751 13,740
Cost of insurance and
administrative fee (note 5) 278,191 180,962 21,574 62,142 4,380
----------- ----------- ----------- ----------- -----------
781,150 308,242 68,027 146,620 18,170
----------- ----------- ----------- ----------- -----------
Net equity transactions ... 732,924 1,247,368 409,591 1,189,903 336,494
----------- ----------- ----------- ----------- -----------
Net change in contract
owners' equity .......... 978,285 1,284,796 442,081 1,267,486 335,219
Contract owners' equity:
Beginning of period .......... 1,726,877 442,081 0 0 0
----------- ----------- ----------- ----------- -----------
End of period ................ $ 2,705,162 $ 1,726,877 $ 442,081 $ 1,267,486 $ 335,219
=========== =========== =========== =========== ===========
<CAPTION>
CORE GROWTH & EMERGING
GROWTH INCOME MARKET
SUBACCOUNT SUBACCOUNT SUBACCOUNT
1997 (b) 1997 (b) 1997 (c)
----------- ----------- -----------
<S> <C> <C> <C>
Investment activity:
Reinvested dividends ......... $ 161 $ 7,733 $ 131
Risk and administrative
expense (note 4) ............ (3,844) (4,646) (188)
----------- ----------- -----------
Net investment activity .... (3,683) 3,087 (57)
----------- ----------- -----------
Realized and unrealized gain
(loss) on investments:
Reinvested capital gains ... 0 90,978 0
Realized gain (loss) ....... 3,379 7,768 (554)
Unrealized gain (loss) ..... (3,039) 94,008 (9,987)
----------- ----------- -----------
Net gain (loss) on
investments ............. 340 192,754 (10,541)
----------- ----------- -----------
Net increase (decrease) in
contract owners' equity
from operations ......... (3,343) 195,841 (10,598)
----------- ----------- -----------
Equity transactions:
Sales:
Contract purchase payments .. 377,379 536,293 44,409
Transfers from fixed and
other subaccounts .......... 631,937 1,270,995 58,741
----------- ----------- -----------
1,009,316 1,807,288 103,150
----------- ----------- -----------
Redemptions:
Withdrawals and surrenders
(note 4) ................... 1,885 436 0
Transfers to fixed and
other subaccounts .......... 116,828 95,943 6,244
Cost of insurance and
administrative fee (note 5) 62,827 54,105 6,032
----------- ----------- -----------
181,540 150,484 12,276
----------- ----------- -----------
Net equity transactions ... 827,776 1,656,804 90,874
----------- ----------- -----------
Net change in contract
owners' equity .......... 824,433 1,852,645 80,276
Contract owners' equity:
Beginning of period .......... 0 0 0
----------- ----------- -----------
End of period ................ $ 824,433 $ 1,852,645 $ 80,276
=========== =========== ===========
</TABLE>
(a) Period from March 31, 1995, date of commencement of operations.
(b) Period from January 3, 1997, date of commencement of operations.
(c) Period from April 1, 1997, date of commencement of operations.
The accompanying notes are an integral part of these financial statements.
112
<PAGE> 44
OHIO NATIONAL VARIABLE ACCOUNT R
NOTES TO FINANCIAL STATEMENTS
(1) BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Ohio
National Variable Account R (the Account) is a separate account of The Ohio
National Life Assurance Corporation (ONLAC) . All obliga- tions 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.
except for the Emerging Market subaccount which is invested in shares of
the Emerging Markets Fund of the Montgomery Variable Series (collectivley
the Funds). The Funds are diversified open-end management investment
companies. The Funds' 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, 1997. Share transactions are recorded on the trade date.
Income and capital gain distributions are recorded on the ex-dividend date.
Net realized capital gains of loss is determined on the basis of average
cost.
ONLAC performs investment advisory services on behalf of the Ohio National
Fund, Inc. in which the Account invests. For these services, the Company
receives fees from the mutual funds. These fees are paid to an affiliate of
the Company.
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, 1997 the aggregate cost and number of shares of the
underlying funds owned by the respective subaccounts were:
<TABLE>
<CAPTION>
MONEY CAPITAL
EQUITY MARKET BOND OMNI INTERNATIONAL APPRECIATION SMALL CAP
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
----------- ---------- ---------- ---------- ------------ ------------ ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Aggregate Cost $28,205,784 $1,229,977 $ 949,860 $10,223,345 $15,465,753 $ 4,867,463 $ 6,364,899
Number of Shares 795,829 122,998 88,955 485,324 1,154,592 359,647 340,023
<CAPTION>
GLOBAL AGGRESSIVE S&P 500 SOCIAL CORE GROWTH & EMERGING
CONTRARIAN GROWTH INDEX AWARENESS GROWTH INCOME MARKET
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
----------- ---------- ---------- ---------- ------------ ------------ ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Aggregate Cost $ 1,571,975 $ 2,705,162 $ 1,267,486 $ 335,219 $ 824,433 $ 1,842,644 $ 80,276
Number of Shares 134,025 243,994 108,101 29,408 85,134 143,374 7,595
</TABLE>
(3) CONTRACTS IN ACCUMULATION PERIOD
At December 31, 1997 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 966,008.5594 29.198275
Money Market Subaccount 74,082.3496 16.602839
Bond Subaccount 47,562.8137 19.970643
Omni Subaccount 378,070.8547 27.040818
International Subaccount 904,932.8051 17.090499
Capital Appreciation Subaccount 305,995.3292 15.906985
</TABLE>
113
<PAGE> 45
OHIO NATIONAL VARIABLE ACCOUNT R
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
<TABLE>
<CAPTION>
ACCUMULATION UNITS VALUE PER UNIT
------------------ --------------
<S> <C> <C>
Small Cap Subaccount 372,479.4049 17.087923
Global Contrarian Subaccount 117,727.4903 13.352658
Aggressive Growth Subaccount 191,841.8759 14.100998
S&P 500 Index Subaccount 96,928.5483 13.076496
Social Awareness Subaccount 26,883.0555 12.469522
Core Growth Subaccount 85,704.7730 9.619453
Growth & Income Subaccount 135,929.2329 13.555905
Emerging Market Subaccount 8,148.9715 9.851077
</TABLE>
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 .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%.
Total premium expense charges in the Account amounted to approximately
$840,000 during 1997.
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 or $7.00 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 a part of, and are taxed with, operations of
ONLAC which is taxed as a life insurance company under the Internal Revenue
Code. Taxes are the responsibility of the contract owner upon termination
or withdrawal. No Federal income taxes are payable under the 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.
114
<PAGE> 46
OHIO NATIONAL VARIABLE ACCOUNT R
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(7) NOTE TO SCHEDULE 1
Schedule 1 presents the components of the change in the unit values, which
are based on average unit values and 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
115
<PAGE> 47
OHIO NATIONAL VARIABLE ACCOUNT R
Schedules of Changes in Unit Values
<TABLE>
<CAPTION>
MONEY
EQUITY MARKET BOND OMNI
1997 SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Beginning unit value..................................... 24.894833 15.874741 18.411624 23.059070
Reinvested capital gains and dividends................... 2.110272 0.849957 1.591839 2.242418
Realized and unrealized gain (loss)...................... 2.400305 0.000000 0.110515 1.930047
Expenses................................................. -0.207135 -0.121859 -0.143335 -0.190717
Ending unit value........................................ 29.198275 16.602839 19.970643 27.040818
Percentage increase in unit value*....................... 17.3% 4.6% 8.5% 17.3%
<CAPTION>
S&P 500 SOCIAL CORE GROWTH &
INDEX AWARENESS GROWTH INCOME
1997 SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Beginning unit value..................................... 10.000000 *** 10.000000 *** 10.000000 *** 10.000000 ***
Reinvested capital gains and dividends................... 3.333632 5.067906 0.003103 1.759478
Realized and unrealized gain (loss)...................... -0.163156 -2.512858 -0.309179 1.892103
Expenses................................................. -0.093980 -0.085526 -0.074471 -0.095676
Ending unit value........................................ 13.076496 12.469522 9.619453 13.555905
Percentage increase (decrease) in unit value*............ 30.8% 24.7% -3.8% 35.6%
<CAPTION>
MONEY
EQUITY MARKET BOND OMNI
1996 SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Beginning unit value..................................... 21.192465 15.207452 17.886274 20.106689
Reinvested capital gains and dividends................... 0.944670 0.784037 1.097636 0.922004
Realized and unrealized gain (loss)...................... 2.930576 0.000000 -0.438542 2.191665
Expenses................................................. -0.172878 -0.116748 -0.133744 -0.161288
Ending unit value........................................ 24.894833 15.874741 18.411624 23.059070
Percentage increase in unit value*....................... 17.5% 4.4% 2.9% 14.7%
<CAPTION>
MONEY
EQUITY MARKET BOND OMNI
1995 SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
---------- ---------- ---------- ----------
Beginning unit value..................................... 16.785643 14.507086 15.156742 16.502872
Reinvested capital gains and dividends................... 0.535932 0.811960 0.850369 0.518180
Realized and unrealized gain............................. 4.015714 0.000000 2.004557 3.224480
Expenses................................................. -0.144824 -0.111594 -0.125394 -0.138843
Ending unit value........................................ 21.192465 15.207452 17.886274 20.106689
Percentage increase in unit value*....................... 26.3% 4.8% 18.0% 21.8%
<CAPTION>
OHIO NATIONAL VARIABLE ACCOUNT R FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
SCHEDULES OF CHANGES IN UNIT VALUES SCHEDULE 1
CAPITAL SMALL GLOBAL AGGRESSIVE
INTERNATIONAL APPRECIATION CAP CONTRARIAN GROWTH
1997 SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Beginning unit value............................... 16.862105 13.913113 15.871942 12.047276 12.625353
Reinvested capital gains and dividends............. 2.881543 1.498957 0.856851 1.392071 0.204520
Realized and unrealized gain (loss)................ -2.520126 0.606716 0.480387 0.010711 1.372228
Expenses........................................... -0.133023 -0.111801 -0.121257 -0.097400 -0.101103
Ending unit value.................................. 17.090499 15.906985 17.087923 13.352658 14.100998
Percentage increase in unit value*................. 1.4% 14.3% 7.7% 10.8% 11.7%
<CAPTION>
EMERGING
MARKET
1997 SUBACCOUNT
----------
<S> <C>
Beginning unit value............................... 10.000000 ****
Reinvested capital gains and dividends............. 0.036358
Realized and unrealized gain (loss)................ -0.107323
Expenses........................................... -0.077958
Ending unit value.................................. 9.851077
Percentage increase (decrease) in unit value*...... -1.5%
<CAPTION>
CAPITAL SMALL GLOBAL AGGRESSIVE
INTERNATIONAL APPRECIATION CAP CONTRARIAN GROWTH
1996 SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Beginning unit value............................... 14.839342 12.109778 13.585277 10.828053 12.624042
Reinvested capital gains and dividends............. 0.881300 0.706680 0.290873 0.333203 1.871400
Realized and unrealized gain (loss)................ 1.262416 1.194253 2.107525 0.973834 -1.777704
Expenses........................................... -0.120953 -0.097598 -0.111733 -0.087814 -0.092385
Ending unit value.................................. 16.862105 13.913113 15.871942 12.047276 12.625353
Percentage increase in unit value*................. 13.6% 14.9% 16.8% 11.3% 0.0%
<CAPTION>
CAPITAL SMALL GLOBAL AGGRESSIVE
INTERNATIONAL APPRECIATION CAP CONTRARIAN GROWTH
1995 SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
---------- ---------- ---------- ---------- ----------
Beginning unit value............................... 13.336474 9.950187 10.290499 10.000000 ** 10.000000 **
Reinvested capital gains and dividends............. 0.453058 0.328243 0.037689 0.072802 1.128730
Realized and unrealized gain....................... 1.155212 1.904096 3.351539 0.835124 1.586259
Expenses........................................... -0.105402 -0.072748 -0.094450 -0.079873 -0.090947
Ending unit value.................................. 14.839342 12.109778 13.585277 10.828053 12.624042
Percentage increase in unit value*................. 11.3% 21.7% 32.0% 8.3% 26.2%
</TABLE>
* An annualized rate or return cannot be determined as expenses do not
include the contract charges discussed in note (5).
** Period from March 31, 1995, date of commencement of operations.
*** Period from January 3, 1997, date of commencement of operations.
**** Period from April 1, 1997, date of commencement of operations.
The accompanying notes are a integral part of these financial statements.
116
<PAGE> 48
<PAGE> 1
KPMG Peat Marwick LLP
1600 PNC Center
201 East Fifth Street
Cincinnate, OH 45202
Daton, OH
Independent Auditors' Report
----------------------------
The Board of Directors
Ohio National Life Assurance Corporation:
We have audited the accompanying balance sheets of Ohio National Life Assurance
Corporation (the Company) as of December 31, 1997 and 1996, and the related
statements of income, stockholder's equity and cash flows for each of the years
in the three-year period ended December 31, 1997. 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. 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 Life Assurance
Corporation as of December 31, 1997 and 1996, and the results of its operations
and its cash flows for each of the years in the three-year period ended December
31, 1997 in conformity with generally accepted accounting principles.
KPMG Peat Marwick LLP
Cincinnati, Ohio
February 12, 1998
<PAGE> 2
OHIO NATIONAL LIFE ASSURANCE CORPORATION
(a wholly-owned subsidiary of
The Ohio National Life Insurance Company)
Balance Sheets
December 31, 1997 and 1996
(in thousands except per share amounts)
<TABLE>
<CAPTION>
1997 1996
---- ----
Assets
------
<S> <C> <C>
Investments (notes 4, 7 and 8):
Fixed maturities available-for-sale, at fair value $ 510,446 436,958
Fixed maturities held-to-maturity, at amortized cost 57,354 43,248
Mortgage loans on real estate, net 215,230 176,703
Policy loans 38,126 34,935
Short-term investments 18,993 16,500
--------- ---------
Total investments 840,149 708,344
Cash 7,088 19,902
Accrued investment income 10,183 8,665
Deferred policy acquisition costs 123,661 113,293
Reinsurance recoverables 81,378 76,441
Other assets 2,863 1,575
Assets held in Separate Accounts 75,934 53,159
--------- ---------
Total assets $1,141,256 981,379
========= =========
Liabilities and Stockholder's Equity
Future policy benefits and claims (note 5) $ 850,313 748,925
Other policyholder funds 2,502 2,287
Accrued Federal income tax (note 6):
Current 875 690
Deferred 12,179 6,999
Other liabilities 14,874 17,516
Liabilities related to Separate Accounts 75,934 53,159
--------- ---------
Total liabilities 956,677 829,576
--------- ---------
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 9,600
Additional paid-in capital 27,025 27,025
Unrealized gains on securities available -for-sale, net (note 4) 10,327 1,293
Retained earnings 137,627 113,885
--------- ---------
Total stockholder's equity 184,579 151,803
--------- ---------
Commitments and contingencies (notes 11 and 12)
Total liabilities and stockholder's equity $1,141,256 981,379
========= =========
</TABLE>
See accompanying notes to financial statements.
<PAGE> 3
OHIO NATIONAL LIFE ASSURANCE CORPORATION
(a wholly-owned subsidiary of
The Ohio National Life Insurance Company)
Statements of Income
Years ended December 31, 1997, 1996 and 1995
(in thousands)
<TABLE>
<CAPTION>
1997 1996 1995
-------- -------- -------
<S> <C> <C> <C>
Revenues (note 11):
Universal life, annuity and investment product policy charges $ 51,416 45,330 39,390
Traditional life and accident and health insurance premiums 11,068 10,589 9,639
Net investment income (note 4) 61,348 56,032 51,052
Other income 2,265 1,861 1,372
Net realized gains (losses) on investments (note 4) 1,411 168 (1,882)
-------- -------- -------
127,508 113,980 99,571
-------- -------- -------
Benefits and expenses (notes 10 and 11):
Benefits and claims 67,627 64,181 56,549
Amortization of deferred policy acquisition costs 5,787 7,595 8,011
Other operating costs and expenses 15,676 14,432 12,642
-------- -------- -------
89,090 86,208 77,202
-------- -------- -------
Income before Federal income tax 38,418 27,772 22,369
-------- -------- -------
Federal income tax (note 6):
Current expense 14,361 12,986 10,632
Deferred tax expense (benefit) 315 (2,383) (3,030)
-------- -------- -------
14,676 10,603 7,602
-------- -------- -------
Net income $ 23,742 17,169 14,767
======== ======== =======
</TABLE>
See accompanying notes to financial statements.
<PAGE> 4
OHIO NATIONAL LIFE ASSURANCE CORPORATION
(a wholly-owned subsidiary of
The Ohio National Life Insurance Company)
Statements of Stockholder's Equity
Years ended December 31, 1997, 1996 and 1995
(in thousands)
<TABLE>
<CAPTION>
Unrealized
gains (losses)
Additional on securities Total
Capital paid-in available-for- Retained stockholder's
shares capital sale, net earnings equity
------ ------- --------- -------- ------
<S> <C> <C> <C> <C> <C>
1995:
Balance, beginning of year $9,600 27,025 (10,693) 81,949 107,881
Net income -- -- -- 14,767 14,767
Unrealized gains on securities
available-for-sale, net of
adjustment to deferred policy
acquisition costs and deferred
Federal income tax -- -- 20,251 -- 20,251
------ ------ ------- ------- --------
Balance, end of year $9,600 27,025 9,558 96,716 142,899
====== ====== ======= ======= ========
1996:
Balance, beginning of year $9,600 27,025 9,558 96,716 142,899
Net income -- -- -- 17,169 17,169
Unrealized losses 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
====== ====== ======= ======= ========
1997:
Balance, beginning of year $9,600 27,025 1,293 113,885 151,803
Net income -- -- -- 23,742 23,742
Unrealized gains on securities
available-for-sale, net of
adjustment to deferred policy
acquisition costs and deferred
Federal income tax -- -- 9,034 -- 9,034
------ ------ ------- ------- --------
Balance, end of year $9,600 27,025 10,327 137,627 184,579
====== ====== ======= ======= ========
</TABLE>
See accompanying notes to financial statements.
<PAGE> 5
OHIO NATIONAL LIFE ASSURANCE CORPORATION
Statements of Cash Flows
Years ended December 31, 1997, 1996 and 1995
(in thousands)
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 23,742 17,169 14,767
Adjustments to reconcile net income to net cash (used in)
provided by operating activities:
Capitalization of deferred policy acquisition costs (23,855) (21,075) (18,220)
Amortization of deferred policy acquisition costs 5,787 7,595 8,011
Amortization and depreciation 1,297 857 243
Realized (gains) losses on invested assets, net (1,431) (200) 222
(Increase) decrease in accrued investment income (1,518) 9 (1,447)
(Increase) in other assets (6,225) (2,078) (12,599)
Increase (decrease) in policyholder account balances 6,672 5,664 (88,318)
Increase in other policyholder funds 215 95 346
Increase (decrease) in current Federal income tax payable 184 (9,942) 5,753
Increase in other liabilities 2,539 7,223 3,174
Other, net (5,061) (2,349) (1,363)
--------- -------- --------
Net cash provided by (used in) operating activities 2,346 2,968 (89,431)
--------- -------- --------
Cash flows from investing activities:
Proceeds from maturity of securities available-for-sale 84,974 25,680 18,967
Proceeds from sale of securities available-for-sale -- -- 3,138
Proceeds from maturity of fixed maturities held-to-maturity 11,039 4,866 11,788
Proceeds from repayment of mortgage loans on real estate 46,468 23,694 7,426
Proceeds from repayment of policy loans 4,966 5,521 3,171
Cost of securities available-for-sale acquired (136,593) (40,814) (50,494)
Cost of fixed maturities held-to-maturity acquired (25,966) (2,632) (39,247)
Cost of mortgage loans on real estate acquired (84,114) (39,122) (50,365)
Policy loans issued and other invested assets acquired (8,157) (8,506) (6,879)
--------- -------- --------
Net cash used in investing activities (107,383) (31,313) (102,495)
--------- -------- --------
Cash flows from financing activities:
Increase in universal life and investment product
account balances 205,445 135,352 723,326
Decrease in universal life and investment product
account balances (110,729) (87,496) (532,039)
--------- -------- --------
Net cash provided by financing activities 94,716 47,856 191,287
--------- -------- --------
Net (decrease) increase in cash and cash equivalents (10,321) 19,511 (639)
Cash and cash equivalents, beginning of year 36,402 16,891 17,530
--------- -------- --------
Cash and cash equivalents, end of year $ 26,081 36,402 16,891
========= ======== ========
</TABLE>
See accompanying notes to financial statements.
<PAGE> 6
OHIO NATIONAL LIFE ASSURANCE CORPORATION
(a wholly-owned subsidiary of
The Ohio National Life Insurance Company)
Notes to Financial Statements
December 31, 1997, 1996 and 1995
(in thousands)
(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.
<PAGE> 7
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,
1997.
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 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> 8
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 guaranteedpremiums 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> 9
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.
(g) Reinsurance Ceded
-----------------
Reinsurance premiums ceded and reinsurance recoveries on benefits
and claims incurred are deducted from the respective income
and expense accounts. Assets and liabilities related to
reinsurance ceded are reported on a gross basis.
(Continued)
<PAGE> 10
5
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
-----------------------------------------------------
(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> 11
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
--------------------------------
The following reconciles the statutory net income of the Company as
reported to regulatory authorities to the net income as shown in the
accompanying financial statements:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Statutory net income $15,540 12,018 10,161
Adjustments to restate to the basis of GAAP:
Increase in deferred policy acquisition
costs, net 18,068 13,330 10,117
Future policy benefits (8,935) (9,530) (5,897)
Deferred Federal income tax (expense) benefit (315) 2,383 3,030
Interest maintenance reserve 362 (108) (64)
Other, net (978) (924) (2,580)
------- ------- -------
Net income per accompanying
statements of income $23,742 17,169 14,767
======= ======= =======
</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:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Statutory capital and surplus $ 98,902 83,832
Add (deduct) cumulative effect of adjustments
to reconcile to the basis of GAAP:
Deferred policy acquisition costs 123,661 113,293
Asset valuation reserve 8,450 8,001
Interest maintenance reserve 3,611 3,249
Future policy benefits (65,859) (56,924)
Deferred Federal income tax (12,179) (6,999)
Difference between amortized cost and
fair value of fixed maturity securities
available-for-sale, gross 28,927 7,113
Other, net (934) 238
-------- -------
Equity per accompanying
balance sheets $184,579 151,803
======== =======
</TABLE>
(Continued)
<PAGE> 12
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 (losses) by
investment type follows for the years ended December 31:
<TABLE>
<CAPTION>
Realized gains (losses) on
Investment Income disposition of investments
------------------------------------ -----------------------------------
1997 1996 1995 1997 1996 1995
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Fixed maturities available-for-sale $34,847 33,092 15,260 $ 346 (32) (235)
Fixed maturities held-to-maturity 4,222 4,244 19,588 185 15 13
Mortgage loans on real estate 18,007 15,893 13,193 900 213 -
Short-term 2,121 848 1,340 - - -
Other 2,749 2,452 2,213 - 4 -
------ ------ ------ ------ --- ------
Total 61,946 56,529 51,594 1,431 200 (222)
Deduct: Investment expenses (598) (497) (542)
Valuation allowance for
mortgage loans on real estate (20) (32) (1,660)
------ ------ ------
Net investment income $61,348 56,032 51,052
====== ====== ======
Net realized gains (losses)
on disposition of
------ --- ------
investments $ 1,411 168 (1,882)
====== === ======
</TABLE>
The components of unrealized gains on securities available-for-sale,
net, were as follows as of December 31:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Gross unrealized gains $ 28,927 7,113
Adjustment to deferred policy acquisition costs (10,650) (2,950)
Deferred Federal income tax (7,950) (2,870)
------- ------
$ 10,327 1,293
======= ======
</TABLE>
An analysis of the change in gross unrealized gains (losses) on
securities available-for-sale and fixed maturities
held-to-maturity follows for the years ended December 31:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Fixed maturities, available-for-sale $21,814 (20,254) 39,394
Fixed maturities held to maturity $ 809 (2,641) 16,973
</TABLE>
(Continued)
<PAGE> 13
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:
<TABLE>
<CAPTION>
December 31, 1997 December 31, 1996
------------------------------------------------- ------------------------------------------------
Gross Gross Estimated Gross Gross Estimated
Amortized unrealized unrealized fair Amortized unrealized unrealized fair
cost gains losses value cost gains losses value
------------ ------------ ----------- ----------- ------------ ----------- ------------ ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Securities available-for-sale
Fixed maturities:
U.S. Treasury securities and
obligations of U.S.
government
operations and agencies $ 52,838 5,277 - 58,115 53,668 1,516 (765) 54,419
Obligations of states and
political subdivisions 5,358 309 (90) 5,577 6,633 253 (228) 6,658
Corporate securities 288,284 19,953 (247) 307,990 265,996 9,160 (2,718) 272,438
Mortgage-backed securities 135,039 3,905 (180) 138,764 103,548 1,008 (1,113) 103,443
------- ------ ---- ------- ------- ----- ------ -------
Total fixed maturities $481,519 29,444 (517) 510,446 429,845 11,937 (4,824) 436,958
======= ====== ==== ======= ======= ====== ====== =======
Fixed maturity securities
held-to-maturity
Corporate securities $ 54,759 5,014 (36) 59,737 40,628 4,418 - 45,046
Other 2,595 326 - 2,921 2,620 77 - 2,697
------- ------ ---- ------- ------- ------ ------ -------
$ 57,354 5,340 (36) 62,658 43,248 4,495 - 47,743
======= ====== ==== ======= ======= ====== ====== =======
</TABLE>
(Continued)
<PAGE> 14
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
----------------------
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, 1997, 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 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 $ 10,136 11,809 3,217 3,515
Due after one year through five years 42,763 45,216 10,869 11,874
Due after five years through ten years 129,096 136,499 21,375 23,352
Due after ten years 299,524 316,922 21,893 23,917
-------- ------- ------ ------
$ 481,519 510,446 57,354 62,658
======== ======= ====== ======
</TABLE>
There were no sales of securities available-for-sale during 1997 and
1996. In 1995, proceeds from such sales were $3,138, which
resulted in gross gains of $34 and no gross losses Investments
with an amortized cost of $4,388 and $3,554 as of December 31,
1997 and 1996, respectively, 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 1997, and
no foreclosures are in process as of December 31, 1997.
(5) Future Policy Benefit and Claims
--------------------------------
The liability for future policy benefits for universal life policies
and investment contracts (approximately 85% and 83% of the total
liability for future policy benefits as of December 31, 1997 and
1996, respectively) 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 5.5% and 6.1% as of December 31, 1997 and 1996,
respectively.
(Continued)
<PAGE> 15
10
OHIO NATIONAL LIFE ASSURANCE CORPORATION
(a wholly-owned subsidiary of
The Ohio National Life Insurance Company)
Notes to Financial Statements, Continued
(5) Future Policy Benefit and Claims, Continued
-------------------------------------------
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 policies issued in
1997 and 1996 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 66% and
68% of the future policy benefit liability is calculated on a net
level reserve basis as of December 31, 1997 and 1996,
respectively.
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).
(6) Federal Income Tax
In prior years, under superseded 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, 1997.
Total income taxes for the year ended December 31, 1997, 1996 and 1995
were allocated as follows:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Income from continuing operations $14,676 10,603 7,602
Equity for unrealized gains (losses) on
securities available for sale 5,080 (3,739) 7,243
------ ------ ------
$19,756 6,864 14,845
====== ====== ======
</TABLE>
(Continued)
<PAGE> 16
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
-----------------------------
Total Federal income tax expense for the years ended December 31, 1997,
1996 and 1995 differs from the amount computed by applying the
U.S. Federal income tax rate to income before Federal income tax
as follows:
<TABLE>
<CAPTION>
1997 1996 1995
--------------------- -------------------- ------------------
Amount % Amount % Amount %
----------- --------- ---------- -------- -------- ------
<S> <C> <C> <C> <C> <C> <C>
Computed (expected) tax expense $13,447 35.0 9,720 35.0 7,829 35.0
Differential earnings 611 1.6 1,023 3.7 1,558 7.0
Tax exempt interest and dividends
received deduction (20) (0.1) (38) (0.1) (41) (0.1)
Other, net 638 1.7 (102) (0.4) (1,744) (7.9)
------ ---- ------ ---- ------ ----
Total expense and effective rate $14,676 38.2 10,603 38.2 7,602 34.0%
====== ==== ====== ==== ====== ====
</TABLE>
Total Federal income tax paid during the years ended December 31, 1997,
1996 and 1995 was $14,176, $22,928, and $4,879, respectively.
The tax effects of temporary differences between the financial statement
carrying amounts and tax basis of assets and liabilities that give
rise to significant components of the net deferred tax liability as of
December 31, 1997 and 1996 are as follows:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Deferred tax assets:
Future policy benefits $29,095 25,067
Mortgage loans and real estate 823 816
Other 540 550
------ ------
Total gross deferred tax assets 30,458 26,433
------ ------
Deferred tax liabilities:
Deferred policy acquisition costs 32,039 30,084
Fixed maturities available-for-sale 10,582 3,329
Other 16 19
------ ------
Total gross deferred tax liabilities 42,637 33,432
------ ------
Net deferred tax liability $12,179 6,999
====== ======
</TABLE>
The Company has determined that a deferred tax asset valuation allowance
was not needed as of December 31, 1997 and 1996. In assessing the
realization of deferred tax assets, management considers whether it is
more likely than not that the deferred tax assets will be
(Continued)
<PAGE> 17
12
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
-----------------------------
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, 1997.
(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, Policy Loans and Other Policyholder
Funds - 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> 18
13
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.
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.
The 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:
<TABLE>
<CAPTION>
1997 1996
--------------------------- ---------------------------
Carrying Estimated Carrying Estimated
amount fair value amount fair value
------------ ------------- ------------ -------------
<S> <C> <C> <C> <C>
Assets
Investments:
Fixed maturities available-for-sale $510,446 510,446 436,958 436,958
Fixed maturities held-to-maturity 57,354 62,658 43,248 47,743
Mortgage loans on real estate 215,230 233,075 176,703 186,090
Policy loans 38,126 38,126 34,935 34,935
Short-term investments 18,993 18,993 16,500 16,500
Cash 7,088 7,088 19,902 19,902
Assets held in Separate Accounts 75,934 75,934 53,159 53,159
Liabilities
Deferred and immediate annuity
contracts $102,344 101,758 100,094 98,504
Other policyholder funds 2,502 2,502 2,287 2,287
Liabilities related to Separate
Accounts 75,934 75,934 53,159 53,159
</TABLE>
(Continued)
<PAGE> 19
14
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 11% in
any state at December 31, 1997. The summary below depicts loan
exposure of remaining principal balances type at December 31:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Mortgage assets by type
Retail $ 57,792 50,115
Office 51,294 40,167
Apartments 46,490 33,997
Industrial 38,183 29,876
Other 23,823 24,880
------- -------
217,582 179,035
Less valuation allowances 2,352 2,332
------- -------
Total mortgage loans on real estate, net $215,230 176,703
======= =======
</TABLE>
(9) Regulatory Risk-Based Capital and Dividend Restrictions on Retained
Earnings
Based upon the December 31, 1997 and 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, 1997, $122,000 of retained
earnings, as presented in the accompanying financial statements,
is restricted as to dividend payments in 1998.
(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 of
approximately $11,400, $11,400, and $10,600 in 1997, 1996, and
1995, respectively.
(Continued)
<PAGE> 20
15
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>
1997 1996 1995
------------------------ ------------------------ ------------------------
Non- Non- Non-
Affiliate affiliate Affiliate affiliate Affiliate affiliate
----------- ------------ ----------- ------------ ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
Premiums $20,473 18,953 18,523 17,793 16,936 14,386
Benefits incurred 12,075 7,140 11,571 13,345 8,350 6,228
Commission and expense
allowances 2,374 3,241 2,173 4,770 2,221 3,715
Reinsurance recoverable:
Reserves for future
policy benefits 36,543 40,455 38,048 36,248 36,675 35,559
Policy and contract
claims payable 1,318 987 969 1,103 689 394
</TABLE>
Net traditional life and accident and health premium income in 1997 and
1996 is summarized as follows:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Direct premiums earned $ 48,313 44,586 38,494
Reinsurance assumed 2,181 2,319 2,467
Reinsurance ceded (39,426) (36,316) (31,322)
------- ------- -------
Net premiums earned $ 11,068 10,589 9,639
======= ======= =======
</TABLE>
Reinsurance does not discharge the Company from its primary liability to
policyholders and to the extent that a reinsurer should be unable to
meet its obligations, the Company would be liable to policyholders.
(12) 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> 49
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 0.72% 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 0.22% 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 -1.69%, 4.31%, and 10.31%.
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> 50
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%(10.31 NET) 6.00%(4.31% NET) 0.00%(-1.69% 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 2,157 165 150,000 18 150,000 0 150,000
3 1,002 3,317 601 150,000 302 150,000 27 150,000
4 1,002 4,535 1,465 150,000 951 150,000 496 150,000
5 1,002 5,814 2,699 150,000 1,897 150,000 1,215 150,000
6 1,002 7,156 4,052 150,000 2,881 150,000 1,925 150,000
7 1,002 8,566 5,534 150,000 3,902 150,000 2,622 150,000
8 1,002 10,047 7,157 150,000 4,960 150,000 3,305 150,000
9 1,002 11,601 8,935 150,000 6,055 150,000 3,974 150,000
10 1,002 13,233 10,791 150,000 7,096 150,000 4,535 150,000
15 1,002 22,703 24,145 150,000 13,760 150,000 7,931 150,000
20 1,002 34,789 45,121 150,000 21,377 150,000 10,699 150,000
AGE 60 1,002 95,026 217,442 291,373 48,413 150,000 10,989 150,000
AGE 65 1,002 127,093 356,689 435,161 59,569 150,000 7,592 150,000
AGE 70 1,002 168,021 580,729 673,646 71,437 150,000 321 150,000
ASSUMED HYPOTHETICAL GROSS ANNUAL INVESTMENT RETURN
12.00%(10.31% NET) 6.00%(4.31% NET) 0.00%(-1.69% 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 2,157 105 150,000 0 150,000 0 150,000
3 1,002 3,317 513 150,000 222 150,000 0 150,000
4 1,002 4,535 1,350 150,000 849 150,000 407 150,000
5 1,002 5,814 2,553 150,000 1,773 150,000 1,111 150,000
6 1,002 7,156 3,873 150,000 2,734 150,000 1,805 150,000
7 1,002 8,566 5,317 150,000 3,729 150,000 2,485 150,000
8 1,002 10,047 6,898 150,000 4,760 150,000 3,152 150,000
9 1,002 11,601 8,628 150,000 5,826 150,000 3,803 150,000
10 1,002 13,233 10,431 150,000 6,837 150,000 4,347 150,000
15 1,002 22,703 23,412 150,000 13,310 150,000 7,643 150,000
20 1,002 34,789 43,702 150,000 20,608 150,000 10,240 150,000
AGE 60 1,002 95,026 208,249 279,053 43,269 150,000 7,403 150,000
AGE 65 1,002 127,093 339,501 414,192 49,675 150,000 132 150,000
AGE 70 1,002 168,021 548,034 635,719 52,350 150,000
</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.
1
<PAGE> 51
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%(10.31% NET) 6.00%(4.31% NET) 0.00%(-1.69% 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 2,648 447 150,000 259 150,000 79 150,000
3 1,230 4,071 1,236 150,000 850 150,000 494 150,000
4 1,230 5,567 2,598 150,000 1,931 150,000 1,340 150,000
5 1,230 7,136 4,192 150,000 3,149 150,000 2,262 150,000
6 1,230 8,785 5,944 150,000 4,418 150,000 3,171 150,000
7 1,230 10,515 7,866 150,000 5,737 150,000 4,065 150,000
8 1,230 12,333 9,976 150,000 7,106 150,000 4,942 150,000
9 1,230 14,241 12,291 150,000 8,526 150,000 5,801 150,000
10 1,230 16,244 14,741 150,000 9,907 150,000 6,550 150,000
15 1,230 27,869 32,167 150,000 18,531 150,000 10,860 150,000
20 1,230 42,705 59,900 150,000 28,614 150,000 14,485 150,000
AGE 60 1,230 116,649 288,078 386,025 68,059 150,000 17,190 150,000
AGE 65 1,230 156,013 472,097 575,958 86,386 150,000 14,670 150,000
AGE 70 1,230 206,253 768,170 891,077 108,576 150,000 8,460 150,000
ASSUMED HYPOTHETICAL GROSS ANNUAL INVESTMENT RETURN
12.00%(10.31% NET) 6.00%(4.31% NET) 0.00%(-1.69% 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 2,648 387 150,000 203 150,000 27 150,000
3 1,230 4,071 1,149 150,000 770 150,000 422 150,000
4 1,230 5,567 2,483 150,000 1,830 150,000 1,251 150,000
5 1,230 7,136 4,047 150,000 3,026 150,000 2,158 150,000
6 1,230 8,785 5,766 150,000 4,272 150,000 3,052 150,000
7 1,230 10,515 7,650 150,000 5,565 150,000 3,929 150,000
8 1,230 12,333 9,718 150,000 6,908 150,000 4,790 150,000
9 1,230 14,241 11,986 150,000 8,299 150,000 5,632 150,000
10 1,230 16,244 14,384 150,000 9,650 150,000 6,363 150,000
15 1,230 27,869 31,446 150,000 18,088 150,000 10,575 150,000
20 1,230 42,705 58,520 150,000 27,862 150,000 14,034 150,000
AGE 60 1,230 116,649 278,569 373,282 63,404 150,000 13,741 150,000
AGE 65 1,230 156,013 453,604 553,397 77,892 150,000 7,535 150,000
AGE 70 1,230 206,253 731,695 848,766 93,426 150,000
</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.
2
<PAGE> 52
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%(10.31% NET) 6.00%(4.31% NET) 0.00%(-1.69% 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 2,157 161 151,613 15 151,467 0 151,327
3 1,002 3,317 593 152,546 295 152,248 21 151,974
4 1,002 4,535 1,452 153,576 940 153,064 486 152,610
5 1,002 5,814 2,678 154,712 1,880 153,914 1,202 153,236
6 1,002 7,156 4,021 155,965 2,856 154,800 1,906 153,850
7 1,002 8,566 5,489 157,343 3,868 155,722 2,597 154,451
8 1,002 10,047 7,096 158,860 4,915 156,679 3,274 155,038
9 1,002 11,601 8,852 160,526 5,998 157,672 3,935 155,609
10 1,002 13,233 10,681 162,355 7,024 158,698 4,487 156,161
15 1,002 22,703 23,761 174,598 13,554 164,391 7,820 158,657
20 1,002 34,789 43,972 193,972 20,880 170,880 10,479 160,479
AGE 60 1,002 95,026 201,956 351,956 44,075 194,075 10,014 160,014
AGE 65 1,002 127,093 326,376 476,376 51,185 201,185 6,220 156,220
AGE 70 1,002 168,021 524,425 674,425 55,374 205,374
ASSUMED HYPOTHETICAL GROSS ANNUAL INVESTMENT RETURN
12.00%(10.31% NET) 6.00%(4.31% NET) 0.00%(-1.69% 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 0 150,640
2 1,002 2,157 101 151,553 0 151,411 0 151,275
3 1,002 3,317 505 152,458 215 152,168 0 151,902
4 1,002 4,535 1,336 153,460 837 152,961 397 152,521
5 1,002 5,814 2,530 154,564 1,755 153,789 1,096 153,130
6 1,002 7,156 3,839 155,783 2,708 154,652 1,785 153,729
7 1,002 8,566 5,269 157,123 3,694 155,548 2,459 154,313
8 1,002 10,047 6,832 158,596 4,713 156,477 3,119 154,883
9 1,002 11,601 8,539 160,213 5,765 157,439 3,761 155,435
10 1,002 13,233 10,313 161,987 6,760 158,434 4,296 155,970
15 1,002 22,703 23,002 173,839 13,090 163,927 7,525 158,362
20 1,002 34,789 42,466 192,466 20,074 170,074 10,004 160,004
AGE 60 1,002 95,026 189,043 339,043 38,026 188,026 6,305 156,305
AGE 65 1,002 127,093 300,065 450,065 39,122 189,122
AGE 70 1,002 168,021 471,572 621,572 31,824 181,824
</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.
3
<PAGE> 53
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%(10.31% NET) 6.00%(4.31% NET) 0.00%(-1.69% 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 3,171 950 152,910 784 152,744 619 152,579
2 3,020 6,501 3,995 156,119 3,483 155,607 2,990 155,114
3 3,020 9,997 7,536 159,660 6,468 158,592 5,483 157,607
4 3,020 13,667 11,441 163,565 9,583 161,707 7,933 160,057
5 3,020 17,522 15,840 167,874 12,922 164,956 10,432 162,466
6 3,020 21,569 20,682 172,626 16,400 168,344 12,890 164,834
7 3,020 25,818 26,011 177,865 20,022 171,876 15,305 167,159
8 3,020 30,280 31,876 183,640 23,792 175,556 17,677 169,441
9 3,020 34,965 38,330 190,004 27,714 179,388 20,004 171,678
10 3,020 39,884 45,341 197,015 31,702 183,376 22,194 173,868
15 3,020 68,426 93,707 244,544 55,215 206,052 33,431 184,268
20 3,020 104,852 171,174 380,006 83,514 233,514 43,349 193,349
AGE 60 3,020 286,406 812,111 1,088,229 204,115 354,115 61,299 211,299
AGE 65 3,020 383,056 1,328,921 1,621,284 260,038 410,038 62,674 212,674
AGE 70 3,020 506,409 2,160,432 2,506,102 324,537 474,537 59,919 209,919
ASSUMED HYPOTHETICAL GROSS ANNUAL INVESTMENT RETURN
12.00%(10.31% NET) 6.00%(4.31% NET) 0.00%(-1.69% 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 3,171 918 152,878 754 152,714 589 152,549
2 3,020 6,501 3,935 156,059 3,426 155,550 2,937 155,061
3 3,020 9,997 7,447 159,571 6,388 158,512 5,410 157,534
4 3,020 13,667 11,325 163,449 9,481 161,605 7,844 159,968
5 3,020 17,522 15,692 167,726 12,797 164,831 10,326 162,360
6 3,020 21,569 20,501 172,445 16,252 168,196 12,769 164,713
7 3,020 25,818 25,791 177,645 19,847 171,701 15,167 167,021
8 3,020 30,280 31,612 183,376 23,589 175,353 17,521 169,285
9 3,020 34,965 38,017 189,691 27,481 179,155 19,830 171,504
10 3,020 39,884 44,973 196,647 31,438 183,112 22,003 173,677
15 3,020 68,426 92,948 243,785 54,752 205,589 33,136 183,973
20 3,020 104,852 169,643 376,608 82,709 232,709 42,874 192,874
AGE 60 3,020 286,406 795,226 1,065,603 198,080 348,080 57,594 207,594
AGE 65 3,020 383,056 1,292,690 1,577,082 248,009 398,009 55,250 205,250
AGE 70 3,020 506,409 2,083,034 2,416,319 301,076 451,076 45,587 195,587
</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.
4
<PAGE> 54
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%(10.31% NET) 6.00%(4.31% NET) 0.00%(-1.69% 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 2,608 195 250,000 65 250,000 0 250,000
2 2,484 5,347 1,342 250,000 946 250,000 566 250,000
3 2,484 8,222 2,715 250,000 1,897 250,000 1,143 250,000
4 2,484 11,242 4,333 250,000 2,919 250,000 1,667 250,000
5 2,484 14,412 6,895 250,000 4,686 250,000 2,807 250,000
6 2,484 17,741 10,462 250,000 7,235 250,000 4,599 250,000
7 2,484 21,236 14,349 250,000 9,854 250,000 6,328 250,000
8 2,484 24,906 18,581 250,000 12,535 250,000 7,985 250,000
9 2,484 28,759 23,236 250,000 15,322 250,000 9,611 250,000
10 2,484 32,806 28,166 250,000 18,029 250,000 11,015 250,000
15 2,484 56,281 64,270 250,000 35,924 250,000 20,125 250,000
20 2,484 86,243 120,157 250,000 55,252 250,000 26,498 250,000
AGE 60 2,484 86,243 120,157 250,000 55,252 250,000 26,498 250,000
AGE 65 2,484 124,482 207,449 253,088 73,134 250,000 26,665 250,000
AGE 70 2,484 173,286 350,646 406,750 91,357 250,000 21,194 250,000
ASSUMED HYPOTHETICAL GROSS ANNUAL INVESTMENT RETURN
12.00%(10.31% NET) 6.00%(4.31% NET) 0.00%(-1.69% NET)
ASSUMED COST OF INSURANCE AND EXPENSE CHARGES
PLANNED PREMIUMS CURRENT CURRENT CURRENT
ACCUM- END OF END OF END OF END OF END OF END OF
END OF TOTAL ULATED YEAR CASH YEAR YEAR CASH YEAR YEAR CASH YEAR
POLICY ANNUAL AT 5% SURRENDER DEATH SURRENDER DEATH SURRENDER DEATH
YEAR OUTLAY INTEREST VALUE BENEFIT VALUE BENEFIT VALUE BENEFIT
- ---- ------ -------- ----- ------- ----- ------- ----- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1 2,484 2,608 0 250,000 0 250,000 0 250,000
2 2,484 5,347 829 250,000 462 250,000 110 250,000
3 2,484 8,222 1,876 250,000 1,127 250,000 438 250,000
4 2,484 11,242 3,112 250,000 1,828 250,000 694 250,000
5 2,484 14,412 5,221 250,000 3,230 250,000 1,540 250,000
6 2,484 17,741 8,284 250,000 5,391 250,000 3,037 250,000
7 2,484 21,236 11,592 250,000 7,582 250,000 4,452 250,000
8 2,484 24,906 15,167 250,000 9,798 250,000 5,782 250,000
9 2,484 28,759 19,037 250,000 12,038 250,000 7,023 250,000
10 2,484 32,806 23,075 250,000 14,146 250,000 8,019 250,000
15 2,484 56,281 52,192 250,000 27,651 250,000 14,240 250,000
20 2,484 86,243 95,133 250,000 39,714 250,000 16,181 250,000
AGE 60 2,484 86,243 95,133 250,000 39,714 250,000 16,181 250,000
AGE 65 2,484 124,482 158,933 250,000 44,602 250,000 8,278 250,000
AGE 70 2,484 173,286 266,640 309,302 38,774 250,000
</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.
5
<PAGE> 55
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%(10.31% NET) 6.00%(4.31% NET) 0.00%(-1.69% 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 3,938 908 250,000 704 250,000 502 250,000
2 3,750 8,072 2,909 250,000 2,283 250,000 1,681 250,000
3 3,750 12,413 5,292 250,000 3,990 250,000 2,789 250,000
4 3,750 16,971 9,897 250,000 7,634 250,000 5,628 250,000
5 3,750 21,757 15,195 250,000 11,649 250,000 8,626 250,000
6 3,750 26,783 20,983 250,000 15,786 250,000 11,531 250,000
7 3,750 32,059 27,328 250,000 20,066 250,000 14,359 250,000
8 3,750 37,600 34,279 250,000 24,487 250,000 17,100 250,000
9 3,750 43,417 41,941 250,000 29,093 250,000 19,794 250,000
10 3,750 49,525 50,202 250,000 33,706 250,000 22,254 250,000
15 3,750 84,966 109,293 250,000 62,683 250,000 36,534 250,000
20 3,750 130,197 204,133 273,538 96,330 250,000 47,939 250,000
AGE 60 3,750 130,197 204,133 273,538 96,330 250,000 47,939 250,000
AGE 65 3,750 187,925 354,028 431,914 133,210 250,000 53,206 250,000
AGE 70 3,750 261,603 595,581 690,873 178,016 250,000 53,375 250,000
ASSUMED HYPOTHETICAL GROSS ANNUAL INVESTMENT RETURN
12.00%(10.31% NET) 6.00%(4.31% NET) 0.00%(-1.69% 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 3,938 674 250,000 478 250,000 282 250,000
2 3,750 8,072 2,401 250,000 1,802 250,000 1,228 250,000
3 3,750 12,413 4,463 250,000 3,229 250,000 2,091 250,000
4 3,750 16,971 8,693 250,000 6,558 250,000 4,667 250,000
5 3,750 21,757 13,552 250,000 10,217 250,000 7,379 250,000
6 3,750 26,783 18,853 250,000 13,979 250,000 9,999 250,000
7 3,750 32,059 24,641 250,000 17,847 250,000 12,522 250,000
8 3,750 37,600 30,968 250,000 21,824 250,000 14,949 250,000
9 3,750 43,417 37,889 250,000 25,912 250,000 17,276 250,000
10 3,750 49,525 45,316 250,000 29,960 250,000 19,348 250,000
15 3,750 84,966 98,145 250,000 54,921 250,000 30,933 250,000
20 3,750 130,197 182,509 250,000 82,282 250,000 38,308 250,000
AGE 60 3,750 130,197 182,509 250,000 82,282 250,000 38,308 250,000
AGE 65 3,750 187,925 316,170 385,727 108,832 250,000 36,415 250,000
AGE 70 3,750 261,603 528,670 613,257 136,787 250,000 23,218 250,000
</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.
6
<PAGE> 56
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%(10.31% NET) 6.00%(4.31% NET) 0.00%(-1.69% 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 2,608 191 252,183 62 252,054 0 251,924
2 2,484 5,347 1,331 254,565 936 254,170 557 253,791
3 2,484 8,222 2,691 257,167 1,876 256,352 1,125 255,601
4 2,484 11,242 4,289 260,007 2,883 258,601 1,636 257,354
5 2,484 14,412 6,822 263,120 4,628 260,925 2,760 259,058
6 2,484 17,741 10,348 266,496 7,147 263,294 4,530 260,678
7 2,484 21,236 14,180 270,177 9,727 265,724 6,234 262,231
8 2,484 24,906 18,336 274,183 12,358 268,206 7,859 263,707
9 2,484 28,759 22,894 278,592 15,087 270,784 9,450 265,147
10 2,484 32,806 27,700 283,397 17,720 273,417 10,812 266,509
15 2,484 56,281 62,498 315,348 34,972 287,822 19,611 272,461
20 2,484 86,243 114,144 364,144 52,655 302,655 25,352 275,352
AGE 60 2,484 86,243 114,144 364,144 52,655 302,655 25,352 275,352
AGE 65 2,484 124,482 189,217 439,217 66,935 316,935 24,496 274,496
AGE 70 2,484 173,286 303,759 553,759 77,505 327,505 17,557 267,557
ASSUMED HYPOTHETICAL GROSS ANNUAL INVESTMENT RETURN
12.00%(10.31% NET) 6.00%(4.31% NET) 0.00%(-1.69% 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 0 251,947 0 251,824 0 251,702
2 2,484 5,347 813 254,047 447 253,681 96 253,330
3 2,484 8,222 1,840 256,316 1,096 255,572 411 254,887
4 2,484 11,242 3,046 258,764 1,772 257,490 647 256,365
5 2,484 14,412 5,111 261,409 3,141 259,438 1,469 257,767
6 2,484 17,741 8,113 264,261 5,259 261,406 2,935 259,083
7 2,484 21,236 11,339 267,336 7,393 263,390 4,313 260,310
8 2,484 24,906 14,805 270,652 9,539 265,386 5,597 261,445
9 2,484 28,759 18,531 274,228 11,691 267,389 6,787 262,484
10 2,484 32,806 22,384 278,082 13,691 269,389 7,722 263,419
15 2,484 56,281 49,482 302,332 26,218 279,068 13,481 266,331
20 2,484 86,243 86,182 336,182 36,005 286,005 14,643 264,643
AGE 60 2,484 86,243 86,182 336,182 36,005 286,005 14,643 264,643
AGE 65 2,484 124,482 131,900 381,900 36,217 286,217 5,818 255,818
AGE 70 2,484 173,286 190,031 440,031 22,056 272,056
</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.
7
<PAGE> 57
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%(10.31% NET) 6.00%(4.31% NET) 0.00%(-1.69% 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 3,852 259,102 3,345 258,595 2,840 258,090
2 9,000 19,373 12,668 269,115 11,089 267,536 9,570 266,018
3 9,000 29,791 23,688 280,135 20,389 276,836 17,340 273,788
4 9,000 40,731 35,815 292,262 30,062 286,510 24,951 281,399
5 9,000 52,217 49,321 305,619 40,282 296,579 32,564 288,862
6 9,000 64,278 64,147 320,295 50,880 307,027 39,997 296,144
7 9,000 76,942 80,444 336,442 61,887 317,885 47,267 303,264
8 9,000 90,239 98,351 354,199 73,309 329,157 54,365 310,212
9 9,000 104,201 118,078 373,776 85,207 340,904 61,335 317,033
10 9,000 118,861 139,617 395,314 97,405 353,102 67,986 323,684
15 9,000 203,917 288,356 541,206 169,498 422,348 102,309 355,159
20 9,000 312,473 526,132 776,132 254,912 504,912 131,494 381,494
AGE 60 9,000 312,473 526,132 776,132 254,912 504,912 131,494 381,494
AGE 65 9,000 451,021 905,277 1,155,277 352,855 602,855 152,173 402,173
AGE 70 9,000 627,847 1,516,638 1,766,638 466,784 716,784 165,024 415,024
ASSUMED HYPOTHETICAL GROSS ANNUAL INVESTMENT RETURN
12.00%(10.31% NET) 6.00%(4.31% NET) 0.00%(-1.69% 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 3,615 258,865 3,116 258,366 2,617 257,867
2 9,000 19,373 12,149 268,597 10,599 267,047 9,110 265,557
3 9,000 29,791 22,837 279,284 19,608 276,056 16,626 273,073
4 9,000 40,731 34,571 291,019 28,952 285,400 23,963 280,410
5 9,000 52,217 47,611 303,908 38,795 295,093 31,274 287,571
6 9,000 64,278 61,913 318,061 48,993 305,140 38,402 294,550
7 9,000 76,942 77,604 333,602 59,554 315,552 45,346 301,344
8 9,000 90,239 94,822 350,669 70,491 326,338 52,104 307,951
9 9,000 104,201 113,717 369,415 81,813 337,511 58,673 314,371
10 9,000 118,861 134,304 390,002 93,378 349,076 64,898 320,595
15 9,000 203,917 275,356 528,206 160,751 413,601 96,184 349,034
20 9,000 312,473 498,222 748,222 238,286 488,286 120,796 370,796
AGE 60 9,000 312,473 498,222 748,222 238,286 488,286 120,796 370,796
AGE 65 9,000 451,021 848,129 1,098,129 322,199 572,199 133,519 383,519
AGE 70 9,000 627,847 1,403,436 1,653,436 411,491 661,491 132,698 382,698
</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.
8
<PAGE> 58
PART II
OTHER INFORMATION
<PAGE> 59
CONTENTS OF REGISTRATION STATEMENT
This registration statement comprises the following papers and documents:
The facing sheet
The prospectus consisting of 69 pages
Representations pursuant to Section 26(e)(2)(A) of the Investment Company
Act of 1940, previously furnished in Pre-effective Amendment no. 1 to the
Registrant's Form S-6.
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:
(3)(a) Principal Underwriting Agreement for Variable Life Insurance, with
compensation schedule, between the Depositor and Ohio National Equities, Inc.
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).
<PAGE> 60
(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).
(3)(d) Variable Contract Distribution Agreements (with compensation
schedules) between the Depositor and Ohio National Equities,
Inc. were filed as Exhibit (3)(d) of Post-effective Amendment
no. 23 of Ohio National Variable Account A registration
statement on Form N-4 (File no. 2-91213).
(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> 61
SIGNATURES
As required by the Securities Act of 1933 and the Investment Company Act of
1940, the registrant, Ohio National Variable Account R certifies that it meets
the requirements of Securities Act Rule 485(b) for effectiveness of this
registration statement and has caused this post-effective amendment to the
registration statement to be signed on its behalf in the City of Cincinnati and
State of Ohio on the 23rd day of April, 1998.
OHIO NATIONAL VARIABLE ACCOUNT R
(Registrant)
By OHIO NATIONAL LIFE ASSURANCE CORPORATION
(Depositor)
By /s/ John J. Palmer
------------------------------------
John J. Palmer
Senior Vice President, Strategic Initiatives
Attest:
/s/ Ronald L. Benedict
----------------------
Ronald L. Benedict
Corporate Vice President,
Counsel and Secretary
<PAGE> 62
Pursuant to the requirements of the Securities Act of 1933, the depositor has
duly caused this post-effective amendment to its 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 23rd day of April, 1998.
OHIO NATIONAL LIFE ASSURANCE CORPORATION
(Depositor)
By /s/ John J. Palmer
------------------------------------
John J. Palmer
Senior Vice President, Strategic Initiatives
Attest:
/s/ Ronald L. Benedict
----------------------
Ronald L. Benedict
Corporate Vice President,
Counsel and Secretary
Pursuant to the requirements of the Securities Act of 1933, this post-effective
amendment to the registration statement has been signed below by the following
persons in the capacities with the depositor and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
- --------- ----- ----
<S> <C> <C>
/s/ David B. O'Maley Chairman, President
- ----------------------------- and Chief Executive
David B. O'Maley Officer and Director April 23, 1998
/s/ Joseph P. Brom Senior Vice President
- ----------------------------- and Chief Investment
Joseph P. Brom Officer and Director April 23, 1998
/s/ Ronald J. Dolan Senior Vice President
- ---------------------------- and Chief Financial Officer
Ronald J. Dolan and Director April 23, 1998
/s/ John J. Palmer Senior Vice President,
- ----------------------------- Strategic Initiatives
John J. Palmer and Director April 23, 1998
/s/ Stuart G. Summers Senior Vice President and
- ----------------------------- General Counsel and
Stuart G. Summers Director April 23, 1998
/s/ Roylene M. Broadwell Vice President & Treasurer
- -----------------------------
Roylene M. Broadwell April 23, 1998
</TABLE>
<PAGE> 63
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
(3)(a) Principal Underwriting Agreement for Variable
Life Insurance, with compensation schedule,
between the Depositor and Ohio National Equities,
Inc.
<PAGE> 64
CONSENTS
<PAGE> 65
Jones & Blouch L.L.P.
Suite 405-West
1025 Thomas Jefferson St., N.W.
Washington, DC 20007
(202) 223-3500
April 23, 1998
VIA EDGAR TRANSMISSION
Board of Directors
Ohio National Life Assurance Corporation
One Financial Way
Cincinnati, OH 45201
Re: Ohio National Variable Account R
Registration Statement on Form S-6
File No. 333-16133
----------------------------------
Dear Sirs:
We hereby consent to the reference to this firm under the caption
"Legal Matters" in the prospectus contained in post-effective Amendment No. 1
to the above-referenced registration statement to be filed with the Securities
and Exchange Commission pursuant to the Securities Act of 1933.
Very truly yours,
/s/ JONES & BLOUCH L.L.P.
-------------------------
Jones & Blouch L.L.P.
<PAGE> 66
[OHIO NATIONAL FINANCIAL SERVICES LETTERHEAD]
April 23, 1998
The Board of Directors
Ohio National Life Assurance Corporation
One Financial Way
Cincinnati, OH 43242
Re: Ohio National Variable Account R (1940 Act File No. 811-4320)
Post-Effective Amendment No. 15 to File No. 2-98265
Post-Effective Amendment No. 9 to File No. 33-53350
Post-Effective Amendment No. 1 to File No. 333-16133
Ladies and Gentlemen:
The undersigned hereby consents to the use of my name under the caption of
"Legal Opinions" in the registration statements on Form S-6 of the above
captioned registrant.
As required by paragraph (b)(4) of Rule 485 under the Securities Act of 1933,
the registrant has certified that the above-captioned post-effective amendments
to the registrant's Form S-6 meet all the requirements for effectiveness
pursuant to paragraph (b) of that Rule. Having reviewed this amendment, the
undersigned confirms that the amendment does not contain any material that
would render any of it ineligible to become effective pursuant to paragraph
(b).
Sincerely,
/s/Ronald L. Benedict
------------------------------------
Ronald L. Benedict
Corporate Vice President, Counsel
and Secretary
RLB/nh
VARS6II
<PAGE> 67
[OHIO NATIONAL FINANCIAL SERVICES LETTERHEAD]
April 23, 1998
Ohio National Life Assurance Corporation
One Financial Way
Cincinnati, Ohio 45242
Re: Ohio National Variable Account R (1940 Act File No. 811-4320)
Post-Effective Amendment No. 15 to File No. 2-98265
Post-Effective Amendment No. 9 to File No. 33-53350
Post-Effective Amendment No. 1 to File No. 333-16133
Gentlemen:
I hereby consent to the use of my name under the heading "Experts" in the
prospectuses included in the post-effective amendments to the above-captioned
registration statements on Form S-6.
Sincerely,
/s/ David W. Cook
------------------------------
David W. Cook, FSA, MAAA
Senior Vice President and
Actuary
DWC/nh
VARS6II
<PAGE> 1
Exhibit (3)(a)
PRINCIPAL UNDERWRITING AGREEMENT
FOR
VARIABLE LIFE INSURANCE
AGREEMENT made and effective as of this thirtieth day of May, 1997 by and
between OHIO NATIONAL LIFE ASSURANCE CORPORATION ("ONLAC") and OHIO NATIONAL
EQUITIES, INC. ("ONEQ"), both Ohio corporations.
It is hereby mutually agreed as follows:
1. ONLAC hereby appoints ONEQ as the exclusive principal underwriter of those
variable universal life insurance contracts (the "contracts") issued by ONLAC
that have been registered as securities under the Securities Act of 1933 (as
amended) and with assets held in those of ONLAC's separate accounts that have
been registered under the Investment Company Act of 1940 (as amended).
2. ONEQ shall at all times during the term of this agreement be registered as a
broker-dealer under the Securities Exchange Act of 1934 (as amended) and shall
be a member of the National Association of Securities Dealers, Inc. ("NASD").
ONEQ agrees to comply with the Conduct Rules of the NASD.
3. ONEQ agrees to enter into distribution agreements with other broker-dealers
(the "distributors") which shall promise to use their best efforts to offer,
sell and distribute the contracts through their respective registered
representatives. The distributors shall be members of the NASD and the
registered representatives offering the contracts shall be life insurance agents
of ONLAC who have obtained all necessary licenses from any state in which a
registered representative shall offer the contracts. The distribution agreements
shall provide that each of the distributors shall maintain full responsibility
for the training, supervision and control of its registered representatives and
that each of the distributors shall be responsible for assuring that all sales
of the contracts made by its registered representatives are suitable for the
purchaser based on relevant financial information furnished by the purchaser to
the distributor or its registered representative.
The distribution agreements shall not permit the distributors or any registered
representative thereof to make any representations concerning the contracts
other than those contained in the then-current prospectus or statement of
additional information therefor or in supplemental literature approved by ONLAC.
All variable annuity purchase payments shall be promptly forwarded by the
distributor to ONLAC except to the extent that ONLAC might agree in writing to
permit a distributor to forward purchase payments net of dealer concessions
which latter amounts would then be subtracted from the compensation to ONEQ
under section 8, below.
<PAGE> 2
4. ONEQ shall reimburse ONLAC for the reasonable costs of printing reasonable
quantities of prospectuses and supplemental sales literature with respect to the
contracts.
5. ONLAC agrees to indemnify and hold harmless ONEQ, its directors, officers and
affiliated persons against any losses, claims, damages, liabilities and expenses
(including the cost of any legal fees incurred in connection therewith) which
ONEQ, its directors, officers or affiliated persons may incur under any statute
or regulation of the United States or any state, district or territory thereof,
or at common law or otherwise, arising out of or based upon (a) any untrue
statement or alleged untrue statement of a material fact contained in any
registration statement for the contracts or any supplemental literature
authorized by ONLAC for use in connection therewith, or (b) any omission or
alleged omission to state a material fact required to be stated in a
registration statement or supplemental literature necessary to make the
statements therein not misleading, provided, however, that insofar as losses,
claims, damages, liabilities or expenses arise out of or are based upon any such
untrue statement or omission (or alleged untrue statement or omission) made in
reliance upon and in conformity with information furnished to ONLAC by ONEQ for
use in a registration statement or supplemental literature, the indemnification
does not apply. In no case shall ONLAC indemnify ONEQ or any of its directors,
officers or affiliated persons as to any amounts incurred for any liability
arising out of or based upon any action for which ONEQ, its directors, officers
or affiliated persons would otherwise be subject by reason of willful
misfeasance, bad faith or gross negligence in the performance of its or their
duties or by reason of the reckless disregard of its or their obligations and
duties under this agreement.
6. ONEQ agrees to indemnify and hold harmless ONLAC, its directors, officers and
employees against any losses, claims, damages, liabilities and expenses
(including the cost of any legal fees incurred in connection therewith) which
ONLAC, its directors, officers or employees may incur under any statute or
regulation of the United States or any state, district or territory thereof, or
at common law or otherwise arising out of the acquisition of the contracts by
any person which (a) may be based upon any wrongful act by ONEQ or any of its
directors, officers or affiliated persons, or (b) may be based upon any untrue
statement or alleged untrue statement of a material fact contained in a
registration statement or supplemental literature, or any omission or alleged
omission to state a material fact required to be stated therein as necessary to
make the facts therein not misleading, provided, however, that insofar as
losses, claims, damages, liabilities or expenses arise out of or are based upon
any such untrue statement or omission (or alleged untrue statement or omission)
made in reliance upon information furnished or confirmed in writing by ONLAC to
ONEQ, the indemnification does not apply.
7. ONLAC agrees to take all actions and do all things necessary to secure and
maintain the registrations and approvals of the contracts and investment
companies in connection therewith by all federal and state regulatory bodies
having jurisdiction.
2
<PAGE> 3
8. ONLAC shall, at least quarterly, pay to ONEQ as consideration hereunder
amounts computed in accordance with the Compensation Schedule appended hereto
and made a part of this agreement. Any future amendments or additions to the
Compensation Schedule shall not otherwise affect the remaining terms of this
agreement.
9. All books and records required by any regulator to be maintained by ONEQ
shall remain the property of ONEQ and shall be subject to inspection by any
regulator having jurisdiction or by the NASD.
10. Upon completion of any transaction for which a confirmation is required,
ONLAC shall, as agent for ONEQ for this purpose, send to the purchaser or
contract owner a written confirmation reflecting the facts of the transaction.
11. This agreement shall be construed in accordance with the laws of Ohio. All
transactions under this agreement shall, to the extent permitted by applicable
law, be considered to have been made at the office of both parties hereto in
Montgomery, Ohio.
12. This agreement may be terminated by either party on 60 days' written notice
to the other party or sooner if mutually agreed by both parties.
IN WITNESS WHEREOF, ONLAC and ONEQ have caused this agreement to be executed at
Montgomery, Ohio on the day and year first above written.
OHIO NATIONAL LIFE ASSURANCE CORPORATION
By:
----------------------------------------------
David B. O'Maley, Chairman, President and
Chief Executive Officer
OHIO NATIONAL EQUITIES, INC.
By:
----------------------------------------------
John J. Palmer
President and Chief Executive Officer
PrnUndw2
3
<PAGE> 4
COMPENSATION SCHEDULE
TO
PRINCIPAL UNDERWRITING AGREEMENT
FOR
VARIABLE LIFE INSURANCE
Ohio National Life Assurance Corporation ("ONLAC") hereby agrees to pay Ohio
National Equities, Inc. ("ONEQ") for the sale of variable universal life
insurance policies at the following rates:
Tables showing the Maximum Commissionable Premium ("MCP") and the SEC Guideline
Premium ("SECGP"), for each $1,000 of stated amount of insurance and at varying
issue ages, are attached to and made a part of this Supplement.
(A) FIRST YEAR COMMISSIONS
VARI-VEST II
------------
For Vari-Vest II policies issued up to and including age 65, First Year
Commissions shall be paid equal to 90% of the premiums received by ONLAC during
the policy's first contract year up to the MCP. For issue ages after age 65, the
rates of First Year Commissions on such premiums up to the MCP shall be as
follows:
<TABLE>
<CAPTION>
Issue
Ages Rates
-------- -----
<S> <C> <C>
66 - 70 80%
71 - 75 55%
76 - 80 28%
</TABLE>
First Year Commissions shall also be paid for Vari-Vest II policies at the rate
of 12% of the premiums received by ONLAC during the policy's first contract year
to the extent such premiums are in excess of the MCP but not in excess of the
SECGP plus 6% of such premiums in excess of the SECGP.
VARI-VEST IV AND VARI-VEST V
----------------------------
For Vari-Vest IV policies issued up to and including age 65, and for Vari-Vest V
policies at all issue ages, First Year Commissions shall be paid equal to 92.5%
of the premiums received by ONLAC during the policy's first contract year up to
the MCP. For Vari-Vest IV policies issued after age 65, the rates of First Year
Commissions on such premiums up to the MCP shall be as follows:
<PAGE> 5
<TABLE>
<CAPTION>
VARI-VEST IV
------------
Issue Issue
Age Rate Age Rate
--------- ---- --------- ----
<S> <C> <C> <C> <C>
66 89.0% 73 55.4%
67 85.7 74 48.7
68 82.3 75 42.0
69 79.0 76 37.0
70 75.6 77 31.9
71 68.9 78 26.9
72 60.5 79 21.8
80 16.8
</TABLE>
First Year Commissions shall also be paid for Vari-Vest IV and Vari-Vest V
policies equal to 4.5% of such premiums in excess of the MCP.
(B) RENEWAL COMMISSIONS AND SERVICE FEES. For Vari-Vest II, Vari-Vest IV and
Vari-Vest V policies, Renewal Commissions and Service Fees shall be paid equal
to the percentages shown in the table below of premiums received by ONLAC during
the policy's second and later contract years:
<TABLE>
<CAPTION>
RENEWAL COMMISSIONS
-------------------
Renewal Contract
Commission Years
Policy Rate (inclusive)
------ ---------- -----------
<S> <C> <C>
Vari-Vest II 6.0% 2-10
Vari-Vest IV 4.5 2-10
Vari-Vest V 4.5 2-5
3.0 6-10
<CAPTION>
SERVICE FEES
------------
Service
Fee Contract
Policy Rate Years
------ ------- --------
<S> <C> <C>
Vari-Vest II 6.0% 11 and later
Vari-Vest IV 4.5 11 and later
Vari-Vest V 3.0 11 and later
</TABLE>
(C) TRAIL COMMISSIONS. Trail Commissions shall be paid equal to 0.225% of the
total qualified cash values (monthly average) on Vari-Vest IV policies and 0.50%
of the total qualified cash values (monthly average) on Vari-Vest V policies.
Qualified cash values (monthly average) are determined at the end of each
calendar year and are the sum of the cash values, less loans, on each policy's
monthiversary, divided
2
<PAGE> 6
by the number of monthiversaries in the calendar year. Only cash values from
monthiversaries after a policy's first anniversary are included.
Trail Commissions are paid annually in January for the preceding calendar year
but only so long as a duly appointed registered representative who is also a
licensed agent of ONLAC is servicing the policies to ONLAC's satisfaction.
(D) RIDERS. If an extra benefit rider is included in or added to the policy, the
MCP and SECGP for the policy shall be increased by twelve times the minimum
monthly premium for any such rider.
(E) INCREASES IN STATED AMOUNT. A portion of the premiums received after an
increase in stated amount is allocated to the increased portion of the policy.
The amount of premiums so allocated is based upon the ratio of SECGP for the
increased portion of the stated amount divided by the SECGP for the entire
policy (including the increased amount). A First Year Commission shall be paid
to ONEQ as provided in Subsection (A) above on the amount of premium allocated
to the increased portion of the policy and received during the first 12 months
after the increase takes effect.
(F) DECREASES IN STATED AMOUNT AND CANCELLATION OF RIDERS. If the stated amount
is decreased or if a rider is canceled within the first contract year of any
Vari-Vest II, Vari-Vest IV or Vari-Vest V policy, the policy shall be treated as
having been reissued and the MCP and SECGP shall be recalculated. Any First Year
Commission previously paid on such policy or rider based upon the higher MCP or
SECGP prior to recalculation shall be charged back against ONEQ.
(G) PLAN TYPE CHANGES. A change in plan type shall not affect compensation due
hereunder.
(H) SUBSTANDARD RISKS. For substandard insurance risks, the per $1,000 portion
of the factors shown in the MCP table for standard risks shall be multiplied by
a factor which equals one plus 90% of any extra mortality multiple up to and
including substandard table F. Any substandard rating greater than table F shall
be treated as though it were table F for MCP purposes. Flat extra mortality
charges will not increase the standard rate MCP factors.
Agreed to and accepted as of May 30, 1997.
OHIO NATIONAL LIFE ASSURANCE CORPORATION
By: ____________________________________________________
David B. O'Maley, Chairman, President and
Chief Executive Officer
3
<PAGE> 7
OHIO NATIONAL EQUITIES, INC.
By:_____________________________________________________
John J. Palmer, President and
Chief Executive Officer
CmpSch2
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<NAME> OHIO NATIONAL VARIABLE ACCOUNT R
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<NAME> GROWTH & INCOME
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<NAME> OHIO NATIONAL VARIABLE ACCOUNT R
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<NAME> S&P 500 INDEX
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<CIK> 0000770291
<NAME> OHIO NATIONAL VARIABLE ACCOUNT R
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<NAME> SOCIAL AWARENESS
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<NAME> OHIO NATIONAL VARIABLE ACCOUNT R
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