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File No. 2-98265
811-4320
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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POST-EFFECTIVE AMENDMENT NO. 16 TO
FORM S-6
FOR REGISTRATION UNDER THE SECURITIES ACT OF 1933
OF SECURITIES OF UNIT INVESTMENT TRUSTS
REGISTERED ON FORM N-8B-2
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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) of Rule 485
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on (date) pursuant to paragraph (b) of Rule 485
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60 days after filing pursuant to paragraph (a)(1) of Rule 485
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X on May 1, 1999, pursuant to paragraph (a)(1) of Rule 485
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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 II"). Registrant has heretofore registered an
indefinite amount of such flexible premium variable life insurance contracts
under the Securities Act of 1933 pursuant to Rule 24f-2.
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PART I
PROSPECTUS
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PROSPECTUS
VARI-VEST II
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 ours. We are Ohio National Life Assurance
Corporation, a subsidiary of The Ohio National Life Insurance Company ("Ohio
National Life").
The contract has a minimum stated amount of $100,000 and a sales charge which is
deducted in part from premium payments and in part from accumulation value upon
surrender, lapse, partial surrender or a decrease in stated amount during the
first ten 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 70. In addition, we
offer contracts which provide for a reduction of sales load for certain existing
policyholders of us and Ohio National Life.
The contract is "flexible" because, subject to certain restrictions, it permits
you to:
- - adjust the timing and amount of your premium payments,
- - direct net premiums to one or more of the subaccounts of the variable account
or to the general account,
- - choose from two death benefit plans, and
- - 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 investments selected. The flexible and variable features
of the contract give you the opportunity to meet your changing life insurance
needs and to adjust 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 95. 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, we 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.
During the first two contract years you must pay minimum premiums to keep the
contract in force. Thereafter, 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, 1999
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The contract is designed to afford you substantial flexibility with your premium
payments. As a planning device, you may 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. You will find
the minimum, guideline and planned premiums on the specification page of your
contract. After the first two contract years, if you do not pay premiums, at
least as great as the minimum premium required to keep the death benefit
guarantee in effect, the contract will remain in force only as long as the cash
surrender value (less any contract indebtedness) will pay the next monthly
deduction for contract charges.
You allocate your premiums among the investment accounts we offer. Currently, we
offer 14 investment accounts: 13 subaccounts of the variable account and our
general account. Each of the variable subaccounts invests in a corresponding
portfolio of Ohio National Fund, Inc. (the "Fund"). The Fund is a series mutual
fund which includes equity, money market, bond, flexible, international, capital
appreciation, small cap, international small company, aggressive growth, core
growth, growth & income, S&P 500 index and social awareness portfolios as well
as other portfolios not available for the contract. The investment portfolios
are described in the accompanying Fund prospectus. 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.
We offer 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
We have developed a plan to make our computer systems and applications function
correctly after January 1, 2000. We completed conversion testing and
implementation of all mission-critical internal systems as of December 31, 1998.
While we have 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, 1999,
our internal auditors intend to independently test those systems (other than
systems of unaffiliated mutual funds and their suppliers) to verify their
compliance. Failure by us or one of our suppliers to achieve timely and complete
compliance could materially impair our ability to conduct our business,
including our ability to accurately and timely value interests in the contracts.
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TABLE OF CONTENTS
<TABLE>
<S> <C>
Definitions................................................. 5
Introduction................................................ 8
Assumptions And Scope Of Prospectus......................... 8
Summary..................................................... 9
Ohio National Financial Services Group...................... 12
Ohio National Life Assurance Corporation.................. 12
The Ohio National Life Insurance Company ("Ohio National
Life").................................................. 13
Ohio National Variable Account R (the "variable
account")............................................... 13
Ohio National Fund, Inc. (the "Fund")..................... 13
Death Benefits.............................................. 15
Plan A -- Level Benefit................................... 15
Plan B -- Variable Benefit................................ 16
Change in Death Benefit Plan.............................. 16
Death Benefit Guarantee................................... 17
Changes in Stated Amount.................................. 17
Accumulation Value.......................................... 18
Determination of Variable Account Accumulation Values..... 18
Accumulation Unit Values.................................. 19
Net Investment Factor..................................... 19
Loans..................................................... 20
Surrender Privileges...................................... 20
Maturity.................................................. 21
Premiums.................................................... 21
Purchasing a Contract..................................... 21
Payment of Premiums....................................... 22
Initial Premiums.......................................... 22
Term Insurance Conversion Credit.......................... 22
Minimum Premiums.......................................... 22
Planned Premiums.......................................... 23
Allocation of Premiums.................................... 23
Transfers................................................. 24
Dollar Cost Averaging..................................... 24
TeleAccess................................................ 24
Lapse..................................................... 25
Reinstatement............................................. 25
Conversion................................................ 25
Free Look................................................. 25
Refund Right.............................................. 26
</TABLE>
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<TABLE>
<S> <C>
Charges And Deductions...................................... 27
Premium Expense Charge.................................... 27
Ohio National Life Employee Discount...................... 27
Monthly Deduction......................................... 27
Risk Charge............................................... 28
Surrender Charge.......................................... 28
Service Charges........................................... 30
Other Charges............................................. 30
General Provisions.......................................... 31
Voting Rights............................................. 31
Additions, Deletions or Substitutions of Investments...... 32
Annual Report............................................. 32
Limitation on Right to Contest............................ 32
Misstatements............................................. 33
Suicide................................................... 33
Beneficiaries............................................. 33
Postponement of Payments.................................. 33
Assignment................................................ 33
Non-Participating Contract................................ 33
The General Account......................................... 34
General Description....................................... 34
Accumulation Value........................................ 34
Optional Insurance Benefits............................... 34
Settlement Options........................................ 34
Distribution Of The Contract................................ 35
Management Of The Company................................... 36
Custodian................................................... 36
State Regulation Of The Company............................. 37
Federal Tax Matters......................................... 37
Contract Proceeds......................................... 37
Correction of Modified Endowment Contract................. 38
Right to Charge for Company Taxes......................... 38
Employee Benefit Plans...................................... 38
Legal Proceedings........................................... 38
Legal Matters............................................... 38
Experts..................................................... 38
Registration Statement...................................... 39
Financial Statements........................................ 39
</TABLE>
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 Vari-Vest II flexible premium variable life insurance contract.
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 minimum death benefit as
required by the Code to qualify the contract as a "life insurance contract". The
minimum death benefit equals the cash value plus the cash value multiplied by a
percentage which varies with age as specified by the Code.
Death Benefit -- the amount payable upon the death of the insured, before
deductions for contract indebtedness and unpaid monthly deductions.
Death Benefit Guarantee -- our guarantee that the contract will never lapse if
you have met the minimum premium requirement.
Free Look -- your right to cancel the contract or any increase for a specified
period and to obtain a full refund of premiums paid with respect to such
contract or increase.
Fund -- Ohio National Fund, Inc.
General Account -- our assets other than those allocated to separate accounts.
Guideline Annual 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.
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.
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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 may 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 95th birthday.
Minimum Premium -- the monthly premium set forth on the contract specification
page necessary to keep the contract in force during the first two contract years
and to maintain the death benefit guarantee thereafter. 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
sales load and the 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.
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 ten years, and a contingent deferred
insurance underwriting charge applicable for seven 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.
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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 Vari-Vest II contract is
a flexible premium variable universal 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 95 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.
- Within certain limits, you may adjust the timing and amount of your
premium payments to suit your individual circumstances.
- You direct the investment of your net premiums and resulting cash values,
which will vary with the investment performance of the variable
subaccounts you select. Values are neither guaranteed nor limited to an
assumed rate of interest.
- You may 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.
Under either death benefit plan you may increase the stated amount of insurance
coverage any time after the first contract year and 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 33.) 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:
- "you", the "contractowner" and the "insured" are the same person (such
terms generally being used interchangeably), (2) the death benefit
guarantee is in effect,
- the cash surrender value of your contract is sufficient to pay the next
monthly deduction,
- there is no outstanding contract indebtedness,
- the death benefit is not determined by the corridor percentage test,
- the contract is not backdated, and
- 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.
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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 prospectus and the statement 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.
OHIO NATIONAL FINANCIAL SERVICES GROUP
OHIO NATIONAL LIFE ASSURANCE CORPORATION -- We are a stock life insurance
company established under the laws of Ohio on June 26, 1979. We are owned by
Ohio National Life.
THE OHIO NATIONAL LIFE INSURANCE COMPANY ("Ohio National Life") -- a stock life
insurance company organized in 1909 under the laws of Ohio. It currently has
assets in excess of $6.5 billion. Ohio National Life is now a subsidiary of Ohio
National Financial Services, Inc., which is a subsidiary of Ohio National Mutual
Holdings, Inc. Ohio National Life continues to control us and the Fund. While
Ohio National Life's experienced personnel and facilities are available to
assist in administering our flexible product program, its assets do not back
your contract.
OHIO NATIONAL VARIABLE ACCOUNT R (the "variable account") -- established by us
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
our other assets and are protected from claims and liabilities arising from our
other lines of business. Our general account assets, however, are available to
support benefits under the contract.
There are currently 17 separate subaccounts within the variable account. The
assets of each are invested exclusively in shares of a corresponding investment
portfolio of the Fund.
OHIO NATIONAL FUND, INC. (the "Fund") -- is an open-end diversified management
investment company, commonly referred to as a mutual fund. The Fund currently
has 20 investment portfolios. You may invest your contract's assets in 13 of
them. They are: the Equity Portfolio, Money Market Portfolio, Bond Portfolio,
Omni Portfolio (a flexible portfolio fund), International Portfolio, Capital
Appreciation Portfolio, Small Cap Portfolio, International Small Company
Portfolio, Aggressive Growth Portfolio, Core Growth Portfolio, Growth & Income
Portfolio, S&P 500 Index Portfolio and Social Awareness Portfolio (the
"portfolios"). The operations of the 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.
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 according to your
beneficiary's instructions 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 will never be less than the stated amount
during the death benefit guarantee period, provided you pay the minimum premium.
Accordingly, 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 their investment experience. 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 90% of your accumulation
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 5%. 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 -- We 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 pay
a minimum premium during the first two contract years to keep the contract in
force, and thereafter to keep the death benefit guarantee in effect. 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
contract months the contract has been in effect. The monthly minimum premium
indicated on the contract specification page will remain a level amount until
you reach age 70, or ten years from the contract date, if later. At such time,
the monthly minimum
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premium to maintain the death benefit guarantee will be substantially increased.
Such increase may affect your ability to keep the death benefit guarantee or the
contract in force.
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 of 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. You do not have to
follow the planned premium schedule, 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 cash values and reallocate future premiums.
Transfers -- we allow transfers of cash values among the subaccounts of the
variable account and to the general account at any time. Transfers from the
general account to the subaccounts are subject to certain restrictions.
Lapse -- provided you pay the minimum premiums required to maintain the death
benefit guarantee, your contract will not lapse during the death benefit
guarantee period. If you fail to pay the minimum premiums in the first two
contract years, your contract will lapse after a 61 day grace period. In such
case, you may be entitled to a refund of a portion of the surrender charge
otherwise applicable to your contract.
If you fail to pay the minimum premiums after the second contract year, the
death benefit guarantee expires. Without the death benefit guarantee, 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. When the cash surrender value will not pay the next monthly
deduction, you will have a 61 day grace period in which to increase your cash
surrender value by paying 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. The free look period expires 20
days from your receipt of the contract or evidence of increase.
Refund Right -- if your contract lapses or you surrender it during the first two
years following the issue date or the date of any increase, you may be entitled
to a refund of a portion of the surrender charge otherwise applicable to your
contract.
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 4% deduction from premium payments for the life of the contract. Such
charge and the contingent deferred sales charge referred to in paragraph
(d) below are intended to compensate us for sales and distribution
expenses.
- a deduction for the state premium tax and any other state and local taxes
applicable to your contract. Currently, state premium taxes vary from 0%
to 4%.
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<PAGE> 14
(b) against the accumulation value we make a monthly deduction covering:
- the cost of insurance,
- administrative expenses ($5),
- the risk of providing the death benefit guarantee ($.01 per thousand of
stated amount), 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 lapse,
full surrender, certain partial surrenders and decreases 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 46% of premiums paid during the first two contract years up
to two guideline annual premiums. For issue ages above age 55, this
percentage scales down and reaches 13% by age 74. 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. Such
surrender charges apply during the first ten contract years following the
contract date and the date of any increase in stated amount.
Because the contingent deferred sales charge only applies to premiums paid
during the first two contract years, a contractowner may incur the smallest
amount of such charge by paying only the required minimum premium during such
period. Similarly, only premiums allocated to an increase within two years after
the date of such increase are subject to the contingent deferred sales charge.
Accordingly, premiums paid either before or after such two year period will not
be subject to the contingent deferred sales charge.
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) $25 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 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 prospectus.
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" any increases in cash 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
drawn from 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 seven 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
We were established on June 26, 1979 under the laws of Ohio to facilitate the
issuance of certain nonparticipating insurance policies. We are a wholly-owned
stock subsidiary of Ohio National Life. We are currently licensed to sell life
insurance in 47 states, the District of Columbia and Puerto Rico. (See page 47
for our financial statements.)
12
<PAGE> 15
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. Ohio National Life is now a subsidiary of Ohio
National Financial Services, Inc., which is a subsidiary of Ohio National Mutual
Holdings, Inc. 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 $6.5 billion and equity in excess of $600 million. Ohio National Life
provided us with the initial capital to finance our operations. From time to
time, Ohio National Life may make additional capital contributions to us,
although it is under no legal obligation to do so and its assets do not support
the benefits provided under your contract.
OHIO NATIONAL VARIABLE ACCOUNT R (THE "VARIABLE ACCOUNT")
We established the variable account on May 6, 1985 under Ohio insurance law. 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
of us. 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 our
other business.
We keep the variable account assets physically segregated from assets of our
general account. We maintain records of all purchases and redemptions of Fund
shares by each of the subaccounts of the variable account.
The variable account currently has 13 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.
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")
The Fund is organized as a Maryland corporation and is registered as an open-end
diversified management investment company under the 1940 Act. The Fund currently
has 20 portfolios. You may invest your contract's assets in 13 of them. 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.
In addition to being offered to the variable account, Fund shares are currently
offered to separate accounts of Ohio National Life in connection with variable
annuity contracts and may in the future be offered to other insurance company
separate accounts. It is conceivable that in the future it may become
disadvantageous for both variable life and variable annuity separate accounts to
invest in the Fund. Although neither we, Ohio National Life nor the Fund
currently foresees any such disadvantage, the Board of Directors of the Fund
will monitor events in order to identify any material conflict between variable
life and variable annuity contractowners and to determine what action, if any,
should be taken in response thereto, including the possible withdrawal of the
variable account's participation in the Fund. Material conflicts could result
from such things as (1) changes in state insurance law; (2) changes in federal
income tax law; (3) changes in the investment management of any portfolio of the
Fund; or (4) differences between voting instructions given by variable life and
variable annuity contractowners.
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.
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<PAGE> 16
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
securities 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.
International Small Company Portfolio -- long-term growth of capital by
investing in equity securities of foreign companies having a market
capitalization of $1.5 billion or less.
Aggressive Growth Portfolio -- capital growth.
Core Growth Portfolio -- long term capital appreciation.
Growth & Income Portfolio -- 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. The Adviser 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 International Small Company Federated Global Investment Management Corp.
("FGIM")
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>
FGIM is a wholly-owned subsidiary of Federated Investors, Inc. FGIM and its
affiliates manage the Federated group of mutual funds. 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 manages
the Robertson Stephens mutual funds and other public and private investment
funds. Each of the Adviser, FGIM, 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.
We purchase and redeem Fund shares for the variable account at net asset value
without any sales or redemption charge. Fund shares represent an interest in the
corresponding portfolio of the Fund. Each portfolio corresponds
14
<PAGE> 17
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, we purchase or redeem shares of each portfolio 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
accompanying prospectus for the Fund and in the statement of additional
information referred to therein.
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 according to your beneficiary's selection
from the settlement options listed in the contract. We offer both beneficiaries
and contractowners a wide variety of settlement options. (See "The General
Account -- Settlement Options" at page 34.)
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.
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 ATTAINED CORRIDOR ATTAINED CORRIDOR ATTAINED CORRIDOR
ATTAINED AGE PERCENTAGE AGE PERCENTAGE AGE PERCENTAGE AGE PERCENTAGE
- ------------ ---------- -------- ---------- -------- ---------- -------- ----------
<S> <C> <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 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
15
<PAGE> 18
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 so long as the reductions are due to
performance. Reductions due to surrenders, loans and partial surrenders do
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.
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% (LOGO) $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
from Plan B to Plan A will not require evidence of insurability. Changing death
benefit plans from Plan A to Plan B may 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.
16
<PAGE> 19
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 28.) 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.
DEATH BENEFIT GUARANTEE
We guarantee that the contract will not lapse during the death benefit guarantee
period provided you pay the minimum premiums. (See "Premiums -- Minimum
Premiums" at Page 22.) Accordingly, as long as the death benefit guarantee is in
effect, the contract will not lapse even if, because of adverse investment
performance, the cash surrender value falls below the amount needed to pay the
next monthly deduction. A charge of $.01 per $1,000 of stated amount will be
made for each month the death benefit guarantee is in effect.
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 guarantee
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 28 and "Surrender Charge" at page 28.)
Increases. An increase is treated in a similar manner to the purchase of 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.
17
<PAGE> 20
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 28.) This means that only premiums
allocated to an increase within two years after such increase up to two
guideline annual premiums for such increase will be subject to the contingent
deferred sales charge. Accordingly, any premiums paid either before or after
such two year period will not be subject to the contingent deferred sales
charge.
With respect to premiums allocated to an increase, you will have the same free
look, conversion and refund rights with respect to an increase as with the
initial purchase of your contract. (See "Premiums -- Free Look; Conversion" at
page 25 and "Refund Right" at page 26.)
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 $100,000.
- We will not permit a decrease in stated amount if the contract's cash
value is such that reducing the stated amount would cause the death
benefit after the decrease to be determined by the corridor percentage
test.
- We will not permit a decrease in stated amount if the decrease would
disqualify the contract as life insurance under the Code.
If you decrease your stated amount and there are applicable surrender charges
(see "Charges and Deductions -- Surrender Charge" at page 28), 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 28); (Monthly Deduction" at page 28), a
decrease in stated amount will reduce your existing stated amount in the
following order:
- the stated amount provided by your most recent increase,
- your next most recent increases successively, and
- 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 34 and "Accumulation
Value -- Loans" at page 19.)
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.
18
<PAGE> 21
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 27 and "Monthly Deduction" at page 28.) 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.
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.
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
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<PAGE> 22
(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 90% 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 33.) In some circumstances, loans may involve tax
liability. (See "Federal Tax Matters" at page 36.)
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 5% per year. Currently, we generally credit interest
to the loan collateral account at a rate of 6.75% per year, but we may reduce
such rate to 5% 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 cash, 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.
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 loans, unless you request
otherwise. 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 36.)
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 28.) Upon
surrender, the amount
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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 33.)
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, minus
- any outstanding contract indebtedness,
- an amount sufficient to cover the next two monthly deductions and
- 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 $100,000. 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.
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 15.)
During the first ten contract years and for ten 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 28.)
MATURITY
We will pay you your accumulation value, reduced by any outstanding contract
indebtedness, on the maturity date. The maturity date is listed on the
specification page and is generally the end of the contract year nearest your
95th birthday. If we consent, you may instead 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 70, 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
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with stated amounts of $100,000 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 where
permitted by state law. 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 28 and "Surrender Charge" at page 28.)
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 because you
must pay the minimum premium, 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 25.) 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.
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.
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
We 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 Ohio National Life Assurance Corporation
term life insurance policy being converted to, or exchanged for, the new
contract. Consult your agent for details.
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MINIMUM PREMIUMS
During the first two contract years, you must pay the minimum premium to keep
the contract in force. Failure to pay the minimum premium during the first two
contract years will result in the termination of your contract after expiration
of a 61 day grace period. (See "Premiums -- Lapse" at page 25.) After the second
contract year, you must pay the minimum premium 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
17.) 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 28.)
To pay the minimum premium, 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 contract months the contract
has been in effect. The monthly minimum premium indicated on the contract
specification page will remain a level amount until you reach age 70, or ten
years from the contract date, if later. At such time, the monthly minimum
premium will be substantially increased.
PLANNED PREMIUMS
When you purchase a contract, you will be asked to adopt a planned premium
schedule. The 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
it. 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 and the guideline annual premium for your
contract. The minimum premium is a level amount necessary to keep the death
benefit guarantee in effect. The guideline annual premium is a level amount
which should provide the benefits under the contract through age 95 and is based
on guaranteed assumptions with respect to expenses and cost of insurance charges
and investment performance of 5%.
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.
We will furnish you an annual report which will show the estimated 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 27) 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
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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, we may 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 we or the Fund, in our 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. If your transfer request is not made,
we will notify you. 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.
DOLLAR COST AVERAGING
We administer 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 cash 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. We 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 you first give us a pre-authorization form, contract and unit values and
interest rates can be checked and transfers may be made by telephoning us
between 7:00 a.m. and 7:00 p.m. (Eastern time) on days we are open for business,
at 1-800-366-6654, #8. You may only make one telephone transfer per day. We will
honor pre-
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authorized telephone transfer instructions from anyone who provides the personal
identifying information requested via TeleAccess. We will not honor telephone
transfer requests after the contractowner's death. For added security, we send
the contract owner a written confirmation of all telephone transfers on the next
business day. However, if we cannot complete a transfer as requested, our
customer service representative will contact the contractowner in writing sent
within 48 hours of the TeleAccess request. YOU MAY THINK THAT YOU HAVE LIMITED
THIS ACCESS TO YOURSELF, OR TO YOURSELF AND YOUR REPRESENTATIVE. HOWEVER, ANYONE
GIVING US THE NECESSARY IDENTIFYING INFORMATION CAN USE TELEACCESS ONCE YOU
AUTHORIZE ITS USE.
LAPSE
Provided you pay the minimum premium and thereby keep the death benefit
guarantee in effect, your contract will not lapse during the death benefit
guarantee period. If you fail to pay the minimum premium during the first two
contract years, your contract will lapse after a 61 day grace period. If your
contract lapses at any time within two years from the issue date or the date of
any increase, you may be entitled to a refund of a portion of the total sales
charge otherwise applicable to your contract. (See "Premiums -- Refund Right" at
page 26.)
If you fail to pay the minimum premium after the second contract year 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 begins when we mail the notice. The contract will
continue in force throughout the grace period, but if the required premium is
not received, the contract will terminate without value at the end of the grace
period. If you die during the grace period, the death benefit 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.
REINSTATEMENT
If the contract lapses, you may apply for reinstatement anytime within five
years. Your contract will be reinstated if 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
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seven days after we receive your notice to cancel, we will return all of the
money you paid for the cancelled contract or increase.
REFUND RIGHT
Generally, we assess a contingent deferred sales charge if you surrender your
contract within the first ten contract years following the contract date or the
date of any increase. This is in addition to the 4% of premiums deducted for
sales load as a component of the premium expense charge. (See "Charges and
Deductions -- Premium Expense Charge" at page 27.) The contingent deferred sales
charge is a percentage of your premium payments made during the first two
contract years up to a maximum of two guideline annual premiums. Such percentage
varies with age at issue or increase. (See "Charges and Deductions -- Surrender
Charge" at page 28.) If the surrender takes place during the first two years
following the issue date or the date of any increase, however, you will be
entitled to a refund of a portion of the total sales charge that otherwise would
be assessed: the 4% front-end load plus the contingent deferred sales charge
imposed as part of the surrender charge.
The amount of your refund will be the difference between the combined 4%
front-end charge and the contingent deferred sales charge described above and
the maximum sales charge deductions for the first two contract years described
below. The maximum sales charge during the first contract year is the lesser of
30% of premiums paid or 30% of one guideline annual premium plus 9% of any
premium payment in excess of such guideline annual premium. During the second
contract year, the maximum sales charge is 10% of premium payments up to the
guideline annual premium and 9% of any excess. Consequently, if you surrender
your contract in full during the second contract year, the contingent deferred
sales charge will be limited to 30% of premiums paid in the first contract year
up to a guideline annual premium, 10% of premiums paid during the second
contract year up to a guideline annual premium and 9% of any premiums paid in
excess of a guideline annual premium in either or both years.
Legal requirements in connection with the refund right give rise to a timing
disparity for backdated contracts. The contract date is prior to the issue date
for a backdated contract. As a result, the refund right will extend beyond the
end of the second contract year for such contracts. To avoid any difference in
treatment between backdated and non-backdated contracts, we have structured the
contingent deferred sales charge to apply only to certain premium payments made
during the first two contract years. As a result, the refund right applies to
the same premium payments for both backdated and non-backdated contracts, even
though the right lasts longer in terms of contract months and years for the
latter type of contract.
Illustration of Refund. Assume that you are 45 years old, have paid $1,500 in
premiums in each of the first two contract years; your guideline annual premium
is $1,000; and still in the second contract year you decide to surrender your
contract.
In the absence of a refund right, we would assess a contingent deferred sales
charge of $920 (46% of $2,000, which is actual premiums paid up to two guideline
annual premiums in the first two contract years, there being no contingent
deferred sales charge on the $1,000 of premium payments in excess of two
guideline annual premiums). The $920 contingent deferred sales charge is in
addition to the $120 (4% of $3,000) charged as front-end sales load. Thus, in
the absence of a refund right, a total of $1,040 would be charged.
Based on the formula described above, however, the maximum allowable sales
charge in the second contract year is $490, which is the sum of $300 (30% of
$1,000, which is actual payments in the first contract year up to a guideline
annual premium) plus $100 (10% of $1,000, which is actual payments in the second
contract year up to a guideline annual premium) plus $90 (9% of $1,000, which is
actual payments in excess of a guideline annual premium in both contract years).
Consequently, upon surrender, you would receive your cash surrender value plus
$550 ($1,040 less $490, which is the difference between the combined 4%
front-end sales load ($120) plus the contingent deferred sales charge generally
applicable ($920) (totaling $1,040) and the maximum allowable sales charge in
the second contract year ($490)).
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In addition, if your contract lapses within two years of the issue date or the
date of any increase, you will be entitled to a refund of a portion of the
combined 4% front-end sales load and the contingent deferred sales charge
allocated to your initial contract or increase during the first two contract
years. The amount of such refund will be calculated in the same manner as
described above with respect to surrenders, except that any amounts applied to
keep your contract in force during the grace period will be offset against such
refund. (See "Premiums -- Lapse" at page 25).
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 sales load and a charge for the state premium tax
and any other state and local taxes applicable to your contract.
Sales Load. The contract is subject to a level sales load of 4% of all premiums
paid. Such sales load partially compensates us for our sales and distribution
expenses, including agents' commissions, advertising and the printing of
prospectuses and sales literature. Upon full and certain partial surrenders and
decreases in your stated amount during the first ten contract years, we also
impose a contingent deferred sales charge. (See "Charges and
Deductions -- Surrender Charge" at page 28.)
The same loading pattern is applied to the portion of premiums paid subsequent
to an increase in stated amount which are allocated to such increase. (See
"Death Benefits -- Changes in Stated Amount" at page 17.)
The sales charge in any contract year is not necessarily related to actual
distribution expenses incurred in that year. Instead, we expect to incur the
majority of distribution expenses in the first contract year and to recover any
deficiency over the life of the contract and from our general assets, including
amounts derived from the mortality and expense risk charge and from mortality
gains. We have reviewed this arrangement and concluded that the distribution
financing arrangement will benefit the variable account and contractowners.
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 0% 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.
The amount of the initial credit equals 45% of the first contract year's maximum
commissionable premium or 45% of the maximum commissionable premium of an
increase, which is credited to the general account of the employee's contract
effective one day after the latest of the following three dates: the policy
approval date, the policy effective date, or the date the initial payment is
received. The subsequent credit, which is based on 3% of first year premium in
excess of the maximum commissionable premium plus 3% of premiums paid in
contract years two through six, is credited to the general account of the
employee's contract at the beginning of the seventh contract year. For any
increase that occurs during the first six contract years, the 45% initial credit
on the increase described above substitutes for the 3% subsequent credit on that
portion of the premium attributable to the increase.
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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 $5 for the cost of establishing and maintaining
contract records and processing applications and notices, (3) a risk charge of
$.01 per $1,000 of your stated amount 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, and rate class. 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 mortality table. 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
1.0040741; 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 37.)
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 ten years from the contract date and to any increase for
ten years from the effective date of such increase, and (2) a contingent
deferred insurance underwriting charge, which applies for seven years from such
dates.
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, except
during the first two years from the date of issue or increase. If you surrender
your contract in full or it lapses during the two years following the issue date
and the effective date of any increase, you are entitled to a refund of a
portion of the total sales charge applicable to your initial contract or
increase. (See "Premiums -- Refund Right" at page 26.) 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
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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%-10%) of the total surrender charge (.15 x $1,100 =
$165) and reduce your accumulation value by that amount, as well as by the
$2,500 you withdrew.
Contingent Deferred Sales Charge. The contingent deferred sales charge for your
initial contract is a percentage of premiums paid in the first two contract
years up to two guideline annual premiums. You are only required to pay a
minimum premium. If you pay higher premiums in the first two contract years,
your contract will be subject to a higher contingent deferred sales charge then
if you paid only such minimums. Similarly, only premiums allocated to an
increase within two years after such increase up to two guideline annual
premiums for such increase will be subject to the contingent deferred sales
charge. Accordingly, any premium paid either before or after such two year
period will not be subject to the contingent deferred sales charge. 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 ten contract years following the issue date or the date
of any increase.
The contingent deferred sales charge for an increase is a percentage of premiums
allocated to such increase during the two years following the effective date of
such increase. (See "Death Benefits -- Changes in Stated Amount" at page 17.)
The contingent deferred sales charge percentages are scaled by age at issue or
increase, as set forth in the following table:
<TABLE>
<CAPTION>
AGE AT ISSUE 74 AND
OR INCREASE 0-55 55-60 61-65 66-68 69-73 OVER
- ------------ ---- ----- ----- ----- ----- ------
<S> <C> <C> <C> <C> <C> <C>
Charge 46% 38% 30% 26% 20% 13%
</TABLE>
This charge is in addition to the 4% of premiums deducted for sales load as a
component of the premium expense charge. (See "Charges and Deductions -- Premium
Expense Charge" at page 27.)
While we are not obligated to do so under the contract, it is our current
intention to grade-off the contingent deferred sales charge over the ten 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 80%
8 60%
9 40%
10 20%
11 0%
</TABLE>
Pursuant to the terms of your contract, we reserve the right to impose 100% of
the contingent deferred sales charge in each of the ten years. We guarantee only
that we will not impose such a charge more than ten years after issue or an
increase in stated amount.
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<PAGE> 32
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 $1,000 of Stated Amount $ 3.00 $ 4.00 $ 5.00 $ 6.00
Maximum $1,500 $2,000 $2,500 $3,000
</TABLE>
While we are not obligated to do so under the contract, it is our current
intention to grade-off the contingent deferred insurance underwriting charge in
accordance with the following table. The table shows the percentage of the total
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 75%
6 50%
7 25%
8 0%
</TABLE>
Under the terms of your contract, we reserve the right to impose 100% of the
contingent deferred insurance underwriting charge in each of seven successive
years. We guarantee only that we will not impose such a charge more than seven
years after issue or an increase in stated amount.
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 $25, 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.
As compensation for the Adviser's services, the Fund pays the Adviser annual
fees on the basis of each portfolio's average daily net assets during the month
for which the fees are paid. The fees are based on the following schedule:
30
<PAGE> 33
- - for each of the Equity, Bond, Omni and Social Awareness portfolios, 0.60% of
the first $100 million, 0.50% of the next $150 million, 0.45% of the next $250
million, 0.40% of the next $500 million, 0.30% of the next $1 billion, and
0.25% of average daily net assets over $2 billion;
- - for the Money Market portfolio, 0.30% of the first $100 million, 0.25% of the
next $150 million, 0.23% of the next $250 million, 0.20% of the next $500
million, and 0.15% of average daily net assets over $1 billion.
- - for the International portfolio, 0.90% of average daily net assets.
- - for each of the Capital Appreciation, Small Cap, Aggressive Growth and
Strategic Income portfolios, 0.80% of each portfolio's average daily net
assets;
- - for the Core Growth portfolio, 0.95% of the first $150 million, and 0.80% of
average daily net assets over $150 million;
- - for the Growth & Income portfolio, 0.85% of the first $200 million, and 0.80%
of average daily net assets over $200 million;
- - for the S&P 500 Index portfolio 0.40% of the first $100 million, 0.35% of the
next $150 million, and 0.33% of average daily net assets over $250 million;
and
- - for the International Small Company portfolio, 1.00% of that portfolio's
average daily net assets.
However, the Adviser is presently waiving any of its fee for the Money Market
portfolio in excess of 0.25%. The Adviser is presently waiving any of its fee
for the International portfolio in excess of 0.85%.
As compensation for their subadvisory services the Adviser pays:
- - FGIM fees at the annual rate of
- 0.45% of the first $200 million, and 0.40% of average daily net assets in
excess of $200 million of the International portfolio, and
- 0.75% of the first $100 million, and 0.65% of average daily net assets in
excess of $100 million of the International Small Company portfolio;
- - TRPA a fee at the annual rate of 0.50% of the average daily net assets of the
Capital Appreciation portfolio;
- - FAM a fee at the annual rate of 0.625% of the first $75 million, 0.55% of the
next $75 million, 0.50% of the next $150 million, and 0.40% of average daily
net assets in excess of $300 million of the Small Cap portfolio;
- - SCM a fee at the annual rate of 0.55% of the first $50 million, and 0.45% of
average daily net assets in excess of $50 million of the Aggressive Growth
portfolio;
- - PBA a fee at the annual rate of 0.65% of the first $50 million, 0.60% of the
next $100 million, and 0.50% of average daily net assets in excess of $150
million of the Core Growth portfolio; and
- - RSIM fees at the 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 of the Growth & Income portfolio.
(See the accompanying Fund prospectus for a full description of all expenses and
fees payable by the Fund.)
GENERAL PROVISIONS
VOTING RIGHTS
We will vote the Fund shares held in the various subaccounts of the variable
account at Fund shareholder meetings 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
31
<PAGE> 34
determined as of the date coincident with the date established by the Fund for
determining shareholders eligible to vote at the Fund meeting. 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.
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 should no
longer be available for investment or if, in the judgment of management, further
investment in shares of the 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.
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 an illustration report. This report will be based on
planned premiums, guaranteed cost of insurance and guaranteed interest, if any.
It will show the estimated accumulation value of your contract one year from the
date of the report. We may charge a fee of not more than $25 for this report and
if you ask for more than one annual report.
32
<PAGE> 35
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 1.0040741 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.
SUICIDE
The contract does not cover the risk of suicide 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. We 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.
33
<PAGE> 36
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.
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 cash value in the general account will
accrue interest daily at an effective annual rate of at least 5%, 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 5% 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 loans and interest thereon or transfers to the variable
account or the loan collateral account.
We guarantee that interest credited to your accumulation value in the general
account will not be less than an effective annual rate of 5% 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 5% 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 cost of insurance,
waiver of premium, 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 28.)
34
<PAGE> 37
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 can change the interval of
payments if necessary to increase the payments to at least $25 each.
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. Under a distribution and
service agreement with the principal underwriter, we reimburse 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 us 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.
35
<PAGE> 38
MANAGEMENT OF THE COMPANY
<TABLE>
<CAPTION>
OFFICERS AND DIRECTORS
NAME RELATIONSHIP 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 &
Corporate Services
Ronald L. Benedict Corporate Vice President, Counsel & Secretary
Robert A. Bowen Senior Vice President, Information Systems
Roylene M. Broadwell Vice President & 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 & Actuary
Dennis C. Twarogowski Vice President, Career Marketing
Ronald J. Dolan Director and Senior Vice President & Chief
Financial Officer
John Houser III Vice President, Claims
Thomas O. Olson Vice President, Underwriting
David B. O'Maley Director and Chairman, President & Chief
Executive Officer
John J. Palmer Director & 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 & General
Counsel
Stephen T. Williams Vice President, Equity Securities
</TABLE>
- ---------------
* The principal occupation of each of the above is an officer of Ohio National
Life, with the same title as with us.
The principal business address of each is:
One Financial Way
Cincinnati, Ohio 45242
Our officers, directors and employees 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.
CUSTODIAN
Pursuant to a written agreement, Firstar Bank, N.A., 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
us. 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.
36
<PAGE> 39
STATE REGULATION OF THE COMPANY
We are organized under the laws of the State of Ohio and are 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 our financial condition as of December 31 of the
preceding year. Periodically, the Superintendent examines our assets and
liabilities and those of the variable account and verifies their adequacy. A
full examination of our operations is conducted by the National Association of
Insurance Commissioners at least every five years.
In addition, we are subject to the insurance laws and regulations of other
states in which we are 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 our 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 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.
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.
37
<PAGE> 40
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
We are 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 our 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. We are 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 our 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 & Secretary of Ohio National Life.
EXPERTS
The financial statements of Variable Account R as of December 31, 1998 and for
each of the periods indicated herein and the financial statements of the Company
as of December 31, 1998 and 1997 and for the periods indicated herein included
in this prospectus have been included herein in reliance upon the reports of
KPMG 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.
38
<PAGE> 41
REGISTRATION STATEMENT
A registration statement has been filed with the Commission under the Securities
Act of 1933, as amended, with respect to the Vari-Vest II contract. 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 us, the variable account, and the contract. 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
Our financial statements which are included in this prospectus should be
considered only as bearing on our ability to meet our obligations under the
contract. They should not be considered as bearing on the investment performance
of the assets held in the variable account.
39
<PAGE> 42
CONTENTS OF REGISTRATION STATEMENT
This registration statement comprises the following papers and documents:
The facing sheet
The prospectus consisting of 39 pages
Representations pursuant to Section 26(e)(2)(A) of the Investment Company Act
of 1940 previously furnished in Post-effective Amendment No. 14 of the
Registrant's Form S-6.
The signatures
Written consents of the following persons:
Jones & Blouch L.L.P.
Ronald L. Benedict, Esq.
David W. Cook, FSA, MAAA
Exhibits:
All relevant exhibits, which have previously been filed with the
Commission and are incorporated herein by reference, are as follows:
(1) Resolution of the Board of Directors of the Depositor
authorizing establishment of Ohio National Variable Account R
was filed as Exhibit 1.(1) of the Registrant's registration
statement on Form S-6 on June 7, 1985 (File no. 2-98265).
(3)(a) Principal Underwriting Agreement for Variable Life Insurance,
with compensation schedule, between the Depositor and Ohio
National Equities, Inc. was filed as Exhibit (3)(a) of the
Registrant's Form S-6 on April 27, 1998 (File No. 333-16133).
<PAGE> 43
(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.
(3)(c) Schedule of Sales Commissions was filed as Exhibit 1.(3)(c) of the
Registrant's Form S-6 on October 15, 1986.
(5) Flexible Premium Variable Life Insurance Policy, form 86-VL-2, was
filed as Exhibit 1.(5) of the Registrant's Form S-6 on October 15, 1986.
(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.
(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.
(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.
(10) Form of Application was filed as Exhibit 1.(10) of the Registrant's
Form S-6 on June 7, 1985.
(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.
<PAGE> 44
SIGNATURES
As required by the Securities Act of 1933 and the Investment Company Act of
1940, the registrant, Ohio National Variable Account R has caused this
post-effective amendment to the registration statement to be signed on its
behalf in the City of Montgomery and State of Ohio on the 25th day of February,
1999.
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 &
Secretary
<PAGE> 45
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 Montgomery and the State of Ohio on the 25th day of February, 1999.
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 & Secretary
Pursuant to the requirements of the Securities Act of 1933, this post-effective
amendment to the registration statement has been duly signed below by the
following persons in the capacities with the depositor and on the dates
indicated.
Signature Title Date
- --------- ----- ----
Chairman, President
and Chief Executive
/s/ David B. O'Maley Officer and Director February 25, 1999
- --------------------------
David B. O'Maley
Senior Vice President
and Chief Investment
/s/ Joseph P. Brom Officer and Director February 25, 1999
- --------------------------
Joseph P. Brom
Senior Vice President
and Chief Financial Officer
/s/ Ronald J. Dolan and Director February 25, 1999
- --------------------------
Ronald J. Dolan
Senior Vice President,
Strategic Initiatives
/s/ John J. Palmer and Director February 25, 1999
- --------------------------
John J. Palmer
Senior Vice President and
General Counsel and
/s/ Stuart G. Summers Director February 25, 1999
- --------------------------
Stuart G. Summers
Vice President
& Treasurer
/s/ Roylene M. Broadwell February 25, 1999
- --------------------------
Roylene M. Broadwell
<PAGE> 46
INDEX OF CONSENTS AND EXHIBITS
<TABLE>
<CAPTION>
PAGE NUMBER
EXHIBIT IN SEQUENTIAL
NUMBER DESCRIPTION NUMBERING SYSTEM
- ------- ----------- ----------------
<S> <C> <C>
Consent of Jones & Blouch L.L.P.
Consent of Ronald L. Benedict, Esq.
Consent of David W. Cook, FSA, MAAA
</TABLE>
<PAGE> 47
CONSENTS
<PAGE> 48
Jones & Blouch L.L.P.
Suite 405-West
1025 Thomas Jefferson St., N.W.
Washington, DC 20007
(202) 223-3500
March 2, 1999
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. 2-98265
----------------------------------
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. 16
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> 49
[OHIO NATIONAL FINANCIAL SERVICES LETTERHEAD]
February 25, 1999
The Board of Directors
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. 16 to File No. 2-98265
Post-Effective Amendment No. 10 to File No. 33-53350
Post-Effective Amendment No. 2 to File No. 333-16133
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.
Sincerely,
/s/ Ronald L. Benedict
------------------------------
Ronald L. Benedict
Corporate Vice President,
Counsel and Secretary
RLB/nh
VARS6II
<PAGE> 50
[OHIO NATIONAL FINANCIAL SERVICES LETTERHEAD]
February 25, 1999
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. 16 to File No. 2-98265
Post-Effective Amendment No. 10 to File No. 33-53350
Post-Effective Amendment No. 2 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
