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File No. 33-53350
811-4820
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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POST-EFFECTIVE AMENDMENT NO. 12 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 287
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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X on November 1, 1999 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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on (date) 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 IV"). 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 IV
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE CONTRACT
OHIO NATIONAL LIFE ASSURANCE CORPORATION
OHIO NATIONAL LIFE VARIABLE ACCOUNT R
One Financial Way
Cincinnati, Ohio 45242
Telephone (800) 366-6654
This prospectus describes a flexible premium variable life insurance contract
(the "contract") offered through Ohio National Variable Account R ("VAR"), 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, the
Company offers contracts which provide for a reduction of sales load for certain
existing policyholders of the Company 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.
THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED OR DISAPPROVED THESE
SECURITIES OR 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 FUND PROSPECTUSES.
NOVEMBER 1, 1999
Form 5560.4
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The contract affords you substantial flexibility with your premium payments. You
may adopt a planned premium schedule that indicates the level of your intended
payments. The planned premium will generally fall somewhere between the minimum
and guideline annual premium amounts. The exact amount of your planned 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 may allocate your premiums among up to 10 of the investment accounts we
offer. Each of the variable subaccounts invests in a corresponding Fund. The
available Funds are listed below. The Fund portfolios are described in the
accompanying Fund prospectuses. 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.
Form 5560.4
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AVAILABLE FUNDS
<TABLE>
<S> <C>
ADVISER (SUBADVISER)
OHIO NATIONAL FUND, INC. (Legg Mason Fund Adviser, Inc.)
Equity Portfolio Ohio National Investments, Inc.
Money Market Portfolio Ohio National Investments, Inc.
Bond Portfolio Ohio National Investments, Inc.
Omni Portfolio (a flexible portfolio (Federated Global Investment Management
fund) Corp.)
International Portfolio (Federated Global Investment Management
International Small Company Portfolio Corp.)
Capital Appreciation Portfolio (T. Rowe Price Associates, Inc.)
Small Cap Portfolio (Founders Asset Management LLC)
Aggressive Growth Portfolio (Strong Capital Management, Inc.)
Core Growth Portfolio (Pilgrim Baxter & Associates, Ltd.)
Growth & Income Portfolio (RS Investment Management, L.P.)
Capital Growth Portfolio (RS Investment Management, L.P.)
S&P 500 Index Portfolio Ohio National Investments, Inc.
Social Awareness Portfolio Ohio National Investments, Inc.
High Income Bond Portfolio (Federated Investment Counseling)
Equity Income Portfolio (Federated Investment Counseling)
Blue Chip Portfolio (Federated Investment Counseling)
</TABLE>
<TABLE>
<S> <C>
GOLDMAN SACHS VARIABLE INSURANCE TRUST
Goldman Sachs Growth and Income Fund Goldman Sachs Asset Management
Goldman Sachs CORE U.S. Equity Fund Goldman Sachs Asset Management
Goldman Sachs Capital Growth Fund Goldman Sachs Asset Management
JANUS ASPEN SERIES
Growth Portfolio Janus Capital Corporation
Worldwide Growth Portfolio Janus Capital Corporation
Balanced Portfolio Janus Capital Corporation
LAZARD RETIREMENT SERIES, INC.
Small Cap Portfolio Lazard Asset Management
Emerging Markets Portfolio Lazard Asset Management
MORGAN STANLEY DEAN WITTER UNIVERSAL FUNDS, INC.
U.S. Real Estate Portfolio Morgan Stanley Dean Witter Investment
Management, Inc.
STRONG VARIABLE INSURANCE FUNDS, INC.
Strong Mid Cap Growth Fund II Strong Capital Management, Inc.
Strong Opportunity Fund II
(a mid cap/small cap fund) Strong Capital Management, Inc.
Strong Schafer Value Fund II Strong Capital Management, Inc.
</TABLE>
Form 5560.4
3
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TABLE OF CONTENTS
<TABLE>
<S> <C>
Definitions............................. 5
Introduction............................ 7
Assumptions And Scope Of Prospectus..... 7
Summary................................. 7
Ohio National Financial Services
Group.............................. 8
Ohio National Life Assurance
Corporation........................ 8
Ohio National Variable Account R...... 8
The Funds............................. 8
Death Benefits........................ 8
Accumulation Value.................... 8
Premiums.............................. 9
Charges and Deductions................ 10
Federal Tax Matters................... 11
Ohio National Financial Services
Group................................. 11
Ohio National Life Assurance
Corporation........................ 11
The Ohio National Life Insurance
Company ("Ohio National Life")..... 11
Ohio National Variable Account R (the
"VAR")............................. 12
The Funds............................. 12
Mixed and Shared Funding.............. 12
Death Benefits.......................... 13
Plan A -- Level Benefit............... 13
Plan B -- Variable Benefit............ 14
Change in Death Benefit Plan.......... 14
Death Benefit Guarantee............... 15
Changes in Stated Amount.............. 15
Accumulation Value...................... 16
Determination of Variable Accumulation
Values............................. 16
Accumulation Unit Values.............. 17
Net Investment Factor................. 17
Loans................................. 17
Surrender Privileges.................. 18
Maturity.............................. 19
Premiums................................ 19
Purchasing a Contract................. 19
Payment of Premiums................... 20
Initial Premiums...................... 20
Term Insurance Conversion Credit...... 20
Minimum Premiums...................... 20
Planned Premiums...................... 21
Allocation of Premium................. 21
Transfers............................. 21
Dollar Cost Averaging................. 22
TeleAccess............................ 22
Lapse................................. 23
Reinstatement......................... 23
Conversion............................ 23
Free Look............................. 23
Refund Right.......................... 23
Charges And Deductions.................. 24
Premium Expense Charge................ 25
Ohio National Life Employee
Discount........................... 25
Monthly Deduction..................... 25
Risk Charge........................... 26
Surrender Charge...................... 26
Service Charges....................... 28
Other Charges......................... 28
General Provisions...................... 30
Voting Rights......................... 30
Additions, Deletions or Substitutions
of Investments..................... 30
Annual Report......................... 31
Limitation on Right to Contest........ 31
Misstatements......................... 31
Suicide............................... 31
Beneficiaries......................... 31
Postponement of Payments.............. 32
Assignment............................ 32
Non-Participating Contract............ 32
The General Account..................... 32
General Description................... 32
Accumulation Value.................... 32
Optional Insurance Benefits........... 33
Settlement Options.................... 33
Distribution Of The Contract............ 33
Management of the Company............... 34
Custodian............................... 35
State Regulation Of The Company......... 35
Federal Tax Matters..................... 35
Contract Proceeds..................... 35
Correction of Modified Endowment
Contract........................... 36
Right to Charge for Company Taxes..... 36
Employee Benefit Plans.................. 36
Legal Proceedings....................... 36
Legal Matters........................... 36
Experts................................. 37
Registration Statement.................. 37
Financial Statements.................... 37
The Year 2000 Issue................... 37
Ohio National Life Assurance
Corporation Financial Statements... 39
Ohio National Variable Account R
Financial Statements............... 59
Appendix A............................ 69
</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
FUND PROSPECTUSES OR THE STATEMENTS OF ADDITIONAL INFORMATION OF THE FUNDS.
Form 5560.4
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DEFINITIONS
Accumulation Value -- the sum of the contract's values in the subaccounts, 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 1986, as amended, and all related
regulations.
Commission -- the Securities and Exchange Commission.
Contract -- the Vari-Vest IV 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.
General Account -- our assets other than those allocated to our 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 you must pay to begin contract coverage. It must be
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.
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 VAR 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.
Form 5560.4
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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.
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.
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 VAR which invests exclusively in the shares of a
corresponding portfolio of one of the Funds.
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.
Valuation Date -- each day on which the net asset value of Fund shares is
determined. See the accompanying Fund prospectuses.
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.
VAR -- Ohio National Variable Account R.
Form 5560.4
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INTRODUCTION
As described on the cover page of this prospectus, the Vari-Vest IV contract
offered hereby 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 VAR and contains only selected
information regarding the general account. 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,
- 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.
SUMMARY
This summary presents selected information in the same order and uses the same
headings as the body of the prospectus. See the table of contents to find fuller
discussions of each item. See the "Definitions," above, for the meaning of
various terms.
Form 5560.4
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OHIO NATIONAL FINANCIAL SERVICES GROUP
OHIO NATIONAL LIFE ASSURANCE CORPORATION -- 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 $7 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 Ohio National
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 ("VAR") -- established by us on May 6, 1985 as
a means of offering the types of contract described in this prospectus. Net
premiums allocated to VAR 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 is a separate subaccount within VAR corresponding to each of the Funds
listed on page 3. The assets of each are invested exclusively in shares of one
of the Funds.
THE FUNDS
The operations of each Fund, its investment adviser and its investment
objectives and policies are described in its prospectus. Net premiums under the
contract may be allocated to the subaccounts of the variable account which
invest exclusively in Fund shares. Accordingly, the accumulation values you
allocate to the subaccounts will vary with the investment performance of the
Funds.
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.
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 (except in Texas). 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 VAR 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
Form 5560.4
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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 cash surrender
value. Loan interest is payable in advance at a rate of 7.4% (an effective
compound annual rate of 8%). Any outstanding contract indebtedness will be
deducted from proceeds payable at the insured's death or upon maturity or
surrender.
Loan amounts and any unpaid interest thereon will be withdrawn pro rata from the
variable subaccounts and the general account. Accumulation value in each
subaccount equal to the contract indebtedness so withdrawn will be transferred
to the loan collateral account. If loan interest is not paid when due, it
becomes loan principal. Accumulation value held in the loan collateral account
earns interest daily at an annual rate guaranteed to be at least 4%. Currently,
we credit interest at an annual rate of 6.75%. If you have attained at least age
65 and the contract is at least 10 years old, we will credit interest at a
guaranteed annual rate of 8%.
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 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. The planned 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.
Form 5560.4
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Allocation of Premiums -- you may allocate your net premiums among up to 10 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 VAR 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. This
charge and the contingent deferred sales charge referred to in paragraph
(d) below 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%.
(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
Form 5560.4
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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. These
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, you 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:
- for partial surrenders the lesser of $25 or 2% of the amount surrendered,
- 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
- $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 Fund prospectuses.
FEDERAL TAX MATTERS
All death benefits paid under the contract will generally be excludable from the
beneficiary's gross income for federal income tax purposes. Under current
federal tax law, as long as the contract qualifies as a "life insurance
contract", 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.
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 $7
billion and equity in excess of $710 million. Ohio National Life provided us
with the initial capital to finance our operations. From time to time, Ohio
National Life may make additional
Form 5560.4
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capital contributions, although it is under no legal obligation to do so and its
assets do not support the benefits provided under the contract.
OHIO NATIONAL VARIABLE ACCOUNT R ("VAR")
We established VAR on May 6, 1985 under Ohio insurance laws. VAR 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, VAR's
assets are held exclusively for the benefit of contractowners and persons
entitled to payments under the contract. VAR's assets are not chargeable with
liabilities arising out of our other business.
We keep VAR's 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.
VAR has subaccounts corresponding to each of the Funds listed on page 3. VAR 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.
THE FUNDS
The Funds are mutual funds registered under the Investment Company Act of 1940.
Fund shares are sold only to insurance company separate accounts to fund
variable annuity contracts and variable life insurance policies and, in some
cases, to qualified plans. The value of each Fund's investments fluctuates daily
and is subject to the risk that Fund management may not anticipate or make
changes necessary in the investments to meet changes in economic conditions.
The Funds receive investment advice from their investment advisers. The Funds
pay each of the investment advisers a fee as described in the Fund prospectuses.
In some cases, the investment adviser pays part of its fee to a subadviser.
Affiliates of certain Funds may compensate us based upon a percentage of the
Fund's average daily net assets that are allocated to VAR. These percentages
vary by Fund. This is intended to compensate us for administrative and other
services we provide to the Funds and their affiliates.
For additional information concerning the Funds, including their investment
objectives, see the Fund prospectuses. Read them carefully before investing.
They may contain information about other funds that are not available as
investment options for these contracts. You cannot be sure that any Fund will
achieve its stated objectives and policies.
The investment policies, objectives and/or names of some of the Funds may be
similar to those of other investment companies managed by the same investment
adviser or subadviser. However, similar funds often do not have comparable
investment performance. The investment results of the Funds may be higher or
lower than those of the other funds.
MIXED AND SHARED FUNDING
In addition to being offered to VAR, certain Fund shares are offered to Ohio
National Life's separate accounts for variable annuity contracts. Fund shares
may also be offered to other insurance company separate accounts and qualified
plans. It is conceivable that in the future it may become disadvantageous for
one or more of variable life and variable annuity separate accounts, or separate
accounts of other life insurance companies, and qualified plans, to invest in
Fund shares. Although neither we nor any of the Funds currently foresee any such
disadvantage, the Board of Directors or Trustees of each Fund will monitor
events to identify any material conflict among different
Form 5560.4
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types of owners and to determine if any action should be taken. That could
possibly include the withdrawal of VAR's participation in a Fund. Material
conflicts could result from such things as:
- changes in state insurance law;
- changes in federal income tax law;
- changes in the investment management of any portfolio of one of the
Funds, or
- differences in voting instructions given by different types of contract
owners.
DEATH BENEFITS
As long as the contract remains in force 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.
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
- the contract's stated amount on the date of death or
- 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 death benefit for an insured who dies at age 40 must be at
least equal to the accumulation value plus 150% of
Form 5560.4
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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
- the stated amount plus the accumulation value on the date of death or
- 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% x $80,000). Similarly,
to the extent that accumulation value exceeds $66,667, each dollar taken out of
accumulation value reduces the death benefit by $2.50. If, for example, the
accumulation value is reduced from $80,000 to $68,000, the death benefit will be
reduced from $200,000 to $170,000.
In the foregoing example, the breakpoint of $66,667 of accumulation value for
using the corridor percentage test to calculate the death benefit was determined
by dividing the $100,000 stated amount by 150% (the corridor percentage at age
40, as shown in the table above). For your contract, you may make the
corresponding determination by dividing your stated amount by the corridor
percentage for your age (see the table above). The calculation will yield a
dollar amount which will be your breakpoint for using the corridor percentage
test. If your accumulation value is greater than such dollar figure, your death
benefit will be determined by the corridor percentage test. If it is less, your
death benefit will be your stated amount plus your accumulation value.
CHANGE IN DEATH BENEFIT PLAN
Generally, after the first contract year, you may change your death benefit plan
on any process day by sending us a written request. Changing death benefit plans
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.
Form 5560.4
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As a general rule, when you wish to have favorable investment performance
reflected in higher accumulation value, you should elect the Plan A death
benefit. Conversely, when you wish to have favorable investment performance
reflected in increased insurance coverage, 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. For a
given stated amount, the death benefit will be greater under Plan B than under
Plan A, but the monthly deduction will be greater under Plan B than under Plan
A. 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 (except in Texas) that the contract will not lapse during the death
benefit guarantee period provided you pay the minimum premiums. (See
"Premiums -- Minimum Premiums.") 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
- double your stated amount or
- 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.
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.
Form 5560.4
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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.
Only premiums allocated to an increase within two years after the increase up to
two guideline annual premiums for that increase will be subject to the
contingent deferred sales charge. Accordingly, any premiums paid either before
or after that 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.
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, we will deduct any applicable surrender
charge from your accumulation value. For purposes of calculating the surrender
charges and your cost of insurance charge on your remaining coverage 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 subaccounts of VAR. The
general account and the loan collateral account are discussed elsewhere in this
prospectus.
DETERMINATION OF VARIABLE ACCUMULATION VALUES
Your accumulation value in VAR may increase or decrease depending on the
investment performance of the subaccounts you choose. There is no guaranteed
minimum accumulation value in VAR.
The accumulation value of your contract will be calculated initially on the
later of the issue date or when we first receive a premium payment. After that,
it is calculated on each valuation date. On the initial valuation date, your
accumulation value will equal the initial premium paid minus the premium expense
charge and the first monthly deduction. 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 VAR;
Form 5560.4
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(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
(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".) In some circumstances, loans may involve tax liability. (See
"Federal Tax Matters".)
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
Form 5560.4
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<PAGE> 20
value is then held in the loan collateral account and earns interest at an
effective rate guaranteed to be at least 4% per year. Currently, we credit
interest to the loan collateral account at a rate of 6.75% per year, but we may
reduce such rate to 4% at any time. If you have attained at least age 65 and the
contract is at least 10 years old, we will credit interest at a guaranteed
annual rate of 8%. 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 loan, 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 accumulation surrender
value by exercising your surrender or partial surrender privileges. Surrenders,
however, may involve tax liability.
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. Upon surrender, the amount of any outstanding loans will be deducted
from the cash surrender value to determine the proceeds. The proceeds will be
determined on the valuation date on which the request for a surrender is
received. Proceeds will generally be paid within seven days of receipt of a
request for surrender.
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.
Form 5560.4
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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 a surrender
will result in a dollar for dollar reduction in the death proceeds except when
the death proceeds of your contract are determined by the corridor percentage
test. The stated amount remaining after a partial surrender may be no less than
the minimum stated amount of $50,000. If increases in stated amount have
occurred previously, a partial surrender will first reduce the stated amount of
the most recent increase, then the next most recent increases successively, then
the initial 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 a
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.
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.
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 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
Form 5560.4
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<PAGE> 22
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. 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. 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.
This 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.
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 the 61 day
grace period ends. 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. The monthly deduction for the
death benefit guarantee will not be imposed on contracts for which the death
benefit guarantee is no longer in effect.
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
Form 5560.4
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<PAGE> 23
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 4%.
In choosing your planned premium schedule, you will need to make a judgment as
to the long-term rate of investment return which you expect under the contract.
The higher your assumption as to the long-term rate of investment return, the
lower your planned premium needs to be for a given insurance objective, and vice
versa. There is no assurance that your 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 personalized hypothetical
illustrations of your contract values under various performance scenarios and
assumed rates of return 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 net premium
payments among up to 10 of the subaccounts of VAR and the general account. Your
initial allocation will take effect on the first process day following the issue
date or, if later, when we receive your initial premium payment. Pending such
allocation, net premiums will be held in the Money Market subaccount. If you
fail to indicate an allocation in your contract application, we will leave your
net premiums in the Money Market subaccount until we receive allocation
instructions. The amount allocated to any subaccount or the general account must
equal a whole percentage. You may change the allocation of your future net
premiums at any time upon written notice to us. Premiums allocated to an
increase will be credited to the subaccounts and the general account in
accordance with your premium allocation then in effect on the later of the date
of the increase or the date we receive such a premium.
TRANSFERS
You may transfer the accumulation value of your contract among the subaccounts
of VAR 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
Form 5560.4
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<PAGE> 24
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 pre-existing Dollar Cost Averaging program) will be made first, followed by
mailed written requests in the order postmarked and, lastly, telephone and
facsimile requests in the order received. If your transfer request is not made,
we will notify you. Current rules of the Commission preclude us 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
- from any variable subaccount to any of the other subaccounts or the
general account, or
- 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-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 contractowner 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.
Form 5560.4
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<PAGE> 25
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.
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 payable under the
contract will be reduced by the amount of any unpaid monthly deduction. However,
the contract will never lapse due to insufficient cash surrender value as long
as the death benefit guarantee is in effect.
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 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. 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
Form 5560.4
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<PAGE> 26
guideline annual premiums. Such percentage varies with age at issue or increase.
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)).
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.
CHARGES AND DEDUCTIONS
We make charges against or deductions from premium payments, accumulation values
and contract surrenders in the manner described below.
Form 5560.4
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<PAGE> 27
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.
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.
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.
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:
- the cost of insurance,
- an administration charge of $5 for the cost of establishing and
maintaining contract records and processing applications and notices,
Form 5560.4
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<PAGE> 28
- a risk charge of $.01 per $1,000 of your stated amount for the risk
associated with the death benefit guarantee, and
- 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
1.0032737; and
(iii) is accumulation value at the beginning of the contract month.
In connection with certain employer-related plans, cost of insurance rates may
not be based on sex.
RISK CHARGE
Your accumulation value in VAR, 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. If you decrease the stated amount of your contract while a surrender
charge applies, your accumulation value will be charged with the portion of the
total surrender charge attributable to the stated amount cancelled by the
decrease.
Partial surrenders in any contract year totaling 10% or less of the cash
surrender value of your contract as of the end of the previous contract year are
not subject to any surrender charge. Partial surrenders in any contract year in
excess of 10% of the cash surrender value of your contract as of the end of the
previous contract year will be subject to that percentage of the total surrender
charges that is equal to the percentage of cash surrender value withdrawn minus
10%.
For example, assume a contract which now has, and at the end of the previous
contract year had, an accumulation value of $11,100 and a surrender charge of
$1,100. The cash surrender value of the contract is therefore $10,000. If you
decide to withdraw 25% of such cash surrender value ($2,500), we will impose a
charge
Form 5560.4
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<PAGE> 29
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 that increase during the two years following the effective date of
the increase. 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.
While we are not obligated to do so under the contract, we currently intend 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 the charge applies.
<TABLE>
<CAPTION>
YEAR PERCENTAGE OF TOTAL CHARGE
---- --------------------------
<S> <C>
1 to 6 100%
7 80%
8 60%
9 40%
10 20%
11 0%
</TABLE>
We may 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.
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. The 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>
Form 5560.4
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<PAGE> 30
While we are not obligated to do so under the contract, we currently intend 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 the charge applies.
<TABLE>
<CAPTION>
YEAR PERCENTAGE OF TOTAL CHARGE
---- --------------------------
<S> <C>
1 to 4 100%
5 75%
6 50%
7 25%
8 0%
</TABLE>
We may 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 compensates us for certain
insurance underwriting costs, including the selection and classification of
risks and processing medical evidence of insurability.
SERVICE CHARGES
A charge (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.
OTHER CHARGES
We may also charge the assets of each subaccount and the general account to
provide for any taxes that may become payable by us in respect of such assets.
Under current law, no such taxes are anticipated. In addition, the Fund pays
certain expenses that affect the value of your contract. The principal expenses
at the Fund level are an investment advisory fee and Fund operating expenses.
The Funds pay their Advisers 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 described in the Fund prospectuses.
Form 5560.4
28
<PAGE> 31
The total expenses of each of the Funds in 1998, as a percent of each Fund's net
assets, were:
<TABLE>
<S> <C>
OHIO NATIONAL FUND, INC.:
Money Market Portfolio*................................... 0.41%
Equity Portfolio.......................................... 0.91%
Bond Portfolio............................................ 0.72%
Omni Portfolio............................................ 0.65%
S&P 500 Index Portfolio................................... 0.49%
International Portfolio*.................................. 1.12%
International Small Company Portfolio..................... 1.40%
Capital Appreciation Portfolio............................ 0.93%
Small Cap Portfolio....................................... 0.91%
Aggressive Growth Portfolio............................... 0.94%
Core Growth Portfolio..................................... 1.13%
Growth & Income Portfolio................................. 0.97%
Capital Growth Portfolio.................................. 1.30%
Social Awareness Portfolio................................ 0.81%
High Income Bond Portfolio................................ 0.80%
Equity Income Portfolio................................... 1.18%
Blue Chip Portfolio....................................... 1.22%
GOLDMAN SACHS VARIABLE INSURANCE TRUST:
Goldman Sachs Growth and Income Fund*..................... 0.90%
Goldman Sachs CORE U.S. Equity Fund*...................... 0.80%
Goldman Sachs Capital Growth Fund*........................ 0.90%
JANUS ASPEN SERIES:
Growth Portfolio*......................................... 0.68%
Worldwide Growth Portfolio*............................... 0.72%
Balanced Portfolio........................................ 0.74%
LAZARD RETIREMENT SERIES, INC.:
Small Cap Portfolio*...................................... 1.25%
Emerging Markets Portfolio*............................... 1.60%
MORGAN STANLEY DEAN WITTER UNIVERSAL FUNDS, INC.:
U.S. Real Estate Portfolio*............................... 1.10%
STRONG VARIABLE INSURANCE FUNDS, INC.:
Strong Mid Cap Growth Fund II............................. 1.20%
Strong Opportunity Fund II................................ 1.16%
Strong Shafer Value Fund II............................... 1.20%
</TABLE>
* The investment advisers of these Funds voluntarily waived part or all of their
fee and/or reimbursed the Fund to reduce Fund expenses. Without these
voluntary fee waivers and reimbursements, the total expenses of these Funds
would have been:
Form 5560.4
29
<PAGE> 32
<TABLE>
<S> <C>
OHIO NATIONAL FUND, INC.:
Money Market Portfolio.................................... 0.46%
International Portfolio................................... 1.17%
GOLDMAN SACHS VARIABLE INSURANCE TRUST:
Goldman Sachs Growth and Income Fund...................... 2.69%
Goldman Sachs CORE U.S. Equity Fund....................... 2.83%
Goldman Sachs Capital Growth Fund......................... 1.78%
JANUS ASPEN SERIES:
Growth Portfolio.......................................... 0.75%
Worldwide Growth Portfolio................................ 0.74%
LAZARD RETIREMENT SERIES, INC.:
Small Cap Portfolio....................................... 16.95%
Emerging Markets Portfolio................................ 15.37%
MORGAN STANLEY DEAN WITTER UNIVERSAL FUNDS, INC.:
U.S. Real Estate Portfolio................................ 2.32%
</TABLE>
GENERAL PROVISIONS
VOTING RIGHTS
We will vote the Fund shares held in the various subaccounts of VAR 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
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 VAR which are not attributable to contracts, in proportion to the voting
instructions which are received with respect to contracts participating in VAR.
Each person having a voting interest will receive proxy material, reports and
other material relating to the Fund.
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 VAR or would result in the purchase of securities for VAR 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
Form 5560.4
30
<PAGE> 33
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 VAR 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.
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.
LIMITATION ON RIGHT TO CONTEST
We will not contest the insurance coverage provided under the contract, except
for any subsequent increase in stated amount, after the contract has been in
force during your lifetime for a period of two years from the contract date.
This provision does not apply to any rider which grants disability or accidental
death benefits. Any increase in the stated amount will not be contested after
such increase has been in force during your lifetime for two years following the
effective date of the increase. Any increase will be contestable within the two
year period only with regard to statements concerning the increase.
MISSTATEMENTS
If the age or sex of the insured has been misstated in an application, including
a reinstatement application, the amount payable under the contract by reason of
the death of the insured will be 1.0032737 multiplied by the sum of (i) and (ii)
where:
(i) is the accumulation value on the date of death; and
(ii) is the death benefit, less the accumulation value on the date of
death, multiplied by the ratio of (a) the cost of insurance actually
deducted at the beginning of the contract month in which the death
occurs to (b) the cost of insurance that should have been deducted at
the insured's true age or sex.
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 that 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.
Form 5560.4
31
<PAGE> 34
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:
- 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;
- the Commission by order permits postponement for the protection of
contractowners; or
- 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 VAR'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.
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 4%, without regard
to the actual investment experience of the general account. Consequently, if you
pay the planned premiums, allocate all net premiums only to the general account
and make no transfers, partial surrenders, or contract loans, the minimum amount
and duration of your death benefit will be determinable and guaranteed.
Transfers from the general account to VAR are partially restricted and
allocation of substantial sums to the general account reduces the flexibility of
the contract.
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, minus 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
Form 5560.4
32
<PAGE> 35
interest at the rate of 4% per year, plus any excess interest which we credit,
less the sum of all charges and interest thereon allocable to the general
account and any amounts deducted from the general account in connection with
partial surrenders and loans and interest thereon or transfers to VAR 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 4% per year. We may,
at our sole discretion, credit a higher rate of interest, although we are not
obligated to do so. The contractowner assumes the risk that interest credited
may not exceed the guaranteed minimum rate of 4% per year. The accumulation
value in the general account will be calculated on each valuation date.
OPTIONAL INSURANCE BENEFITS
Subject to certain requirements, one or more optional insurance benefits may be
added to your contract, including riders providing additional term insurance,
spouse/additional insured term insurance, family plan/children insurance, a
guaranteed purchase option, accidental death, waiver of 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.
SETTLEMENT OPTIONS
In addition to a lump sum payment of benefits under the contract, 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. ("ONEQ"), another wholly-owned subsidiary of Ohio
National Life, is the principal underwriter of the contracts. Under a
distribution and service agreement with ONEQ, we reimburse it for any expenses
incurred by it in connection with the distribution of the contracts. This
agreement may be terminated at any time by either party on 60 days' written
notice. During 1998, VAR received $33,940,186 in premium payments for variable
life insurance contracts. From this amount, we paid ONEQ $184,666 in sales
loads.
Form 5560.4
33
<PAGE> 36
The officers and directors of ONEQ are:
<TABLE>
<S> <C>
David B. O'Maley.......................... Director and Chairman
John J. Palmer............................ Director and President
Thomas A. Barefield....................... Senior Vice President
Trudy K. Backus........................... Director and Vice President
James I. Miller II........................ Director and Vice President
Ronald L. Benedict........................ Director and Secretary
Barbara A. Turner......................... Operations Vice President, Treasurer and
Compliance Officer
</TABLE>
MANAGEMENT OF THE COMPANY
OFFICERS AND DIRECTORS
<TABLE>
<CAPTION>
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. Twargowski 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.
Form 5560.4
34
<PAGE> 37
CUSTODIAN
Pursuant to a written agreement, Firstar Bank, N.A., 425 Walnut Street,
Cincinnati, Ohio, serves as custodian of the assets of VAR. The fee of the
custodian for services rendered to VAR is paid by us. The custodian also
provides valuation and certain recordkeeping services to VAR, 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 VAR.
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 VAR 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
- after the taxpayer's attaining age 59 1/2,
- as a result of his or her disability or
- in one of several prescribed forms of annuity payments.
Form 5560.4
35
<PAGE> 38
Loans received under the contract will be construed as indebtedness of the
contractowner in the same manner as loans under a fixed benefit life insurance
policy and no part of any loan under the contract is expected to constitute
income to the contractowner. Interest payable with respect to such loans is not
tax deductible. If the contract is surrendered or lapsed, any policy loan then
in effect is treated as taxable income to the extent that the contract's
accumulation value (including the loan amount) then exceeds your "basis" in the
contract. (Your "basis" equals the total amount of premiums that were paid into
the contract less any withdrawals from the contract.)
Federal estate and local estate, inheritance and other tax consequences of
contract ownership or receipt of contract proceeds depend upon the circumstances
of each contractowner and beneficiary.
CORRECTION OF MODIFIED ENDOWMENT CONTRACT
If you have made premium payments in excess of the amount that would be
permitted without your contract being treated as a modified endowment contract
under the Code, you may, upon timely written request, prevent that tax treatment
by receiving a refund, without deduction of any charges, of the excess premium
paid, plus interest thereon at the rate of 6% per year. Under the Code, such a
corrective action must be completed by no later than 60 days after the end of
the year following the date the contract became a modified endowment contract.
RIGHT TO CHARGE FOR COMPANY TAXES
We are 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 VAR for our federal taxes, or provision
made for such taxes, that may be attributable to VAR. However, we may in the
future charge each subaccount of VAR for its portion of any tax charged to us in
respect of that 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 VAR.
Any such charges against VAR or its subaccounts could have an adverse effect on
the investment performance of the 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 VAR 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 VAR.
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 and Secretary of Ohio National Life.
Form 5560.4
36
<PAGE> 39
EXPERTS
The financial statements of VAR 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.
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 IV 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, VAR, 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 VAR.
THE YEAR 2000 ISSUE
We believe we have succeeded in remedying the "Year 2000" problem for all
mission critical computer systems and applications. Conversion testing and
implementation for legacy systems were completed by December 31, 1998, and Year
2000 compliant variable life insurance processing system conversions were
installed and testing completed on August 21, 1999. Peripheral personal computer
systems have also been up-graded and tested for Year 2000 implementation. While
Ohio National Fund and its investment adviser have been assured by suppliers of
financial services (including the custodians, the transfer agent and the
accounting agent) that their systems either are already compliant or will be so
in sufficient time, internal auditors are independently testing those systems to
verify their compliance. We are also developing contingency plans to be prepared
for the possibility that one or more service providers might not be compliant.
If we, Ohio National Fund, its investment adviser or one of our service
suppliers fails to achieve timely and complete compliance, it could materially
impair our ability to conduct our business, including the ability to accurately
and timely value interests in the contracts.
Form 5560.4
37
<PAGE> 40
(This page intentionally left blank)
Form 5560.4
38
<PAGE> 41
OHIO NATIONAL LIFE ASSURANCE CORPORATION
(A WHOLLY-OWNED SUBSIDIARY OF
THE OHIO NATIONAL LIFE INSURANCE COMPANY)
Financial Statements
December 31, 1998 and 1997
With Independent Auditors' Report Thereon
Form 5560.4
39
<PAGE> 42
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Ohio National Life Assurance Corporation:
We have audited the accompanying balance sheets of Ohio National Life Assurance
Corporation (the Company) as of December 31, 1998 and 1997, and the related
statements of income, stockholder's equity and cash flows for each of the years
in the three-year period ended December 31, 1998. These financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Ohio National Life Assurance
Corporation as of December 31, 1998 and 1997, and the results of its operations
and its cash flows for each of the years in the three-year period ended December
31, 1998 in conformity with generally accepted accounting principles.
KPMG LOGO
Cincinnati, Ohio
January 29, 1999
Form 5560.4
40
<PAGE> 43
OHIO NATIONAL LIFE ASSURANCE CORPORATION
(A WHOLLY-OWNED SUBSIDIARY OF
THE OHIO NATIONAL LIFE INSURANCE COMPANY)
BALANCE SHEETS
YEARS ENDED DECEMBER 31, 1998 AND 1997
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
1998 1997
---------- ---------
<S> <C> <C>
ASSETS
Investments (notes 4, 7 and 8):
Fixed maturities available-for-sale, at fair value $ 606,434 510,446
Fixed maturities held-to-maturity, at amortized cost 97,576 57,354
Mortgage loans on real estate, net 229,647 215,230
Policy loans 40,597 38,126
Short-term investments 8,997 18,993
---------- ---------
Total investments 983,251 840,149
Cash 6,203 7,088
Accrued investment income 11,963 10,183
Deferred policy acquisition costs 138,582 123,661
Reinsurance recoverables 105,119 81,378
Other assets 3,791 2,863
Assets held in Separate Accounts 103,306 75,934
---------- ---------
Total assets $1,352,215 1,141,256
========== =========
LIABILITIES AND STOCKHOLDER'S EQUITY
Future policy benefits and claims (note 5) $1,001,501 850,313
Other policyholder funds 2,357 2,502
Accrued Federal income tax (note 6):
Current 1,796 875
Deferred 11,355 12,179
Other liabilities 19,705 14,874
Liabilities related to Separate Accounts 103,306 75,934
---------- ---------
Total liabilities $1,140,020 956,677
---------- ---------
Stockholder's equity (notes 3 and 9):
Class A common stock; authorized 10,000 shares of $3,000
par value; issued and outstanding 3,200 shares 9,600 9,600
Additional paid-in capital 27,025 27,025
Accumulated other comprehensive income 12,211 10,327
Retained earnings 163,359 137,627
---------- ---------
Total stockholder's equity 212,195 184,579
Commitments and contingencies (notes 11 and 12)
---------- ---------
Total liabilities and stockholder's equity $1,352,215 1,141,256
========== =========
</TABLE>
See accompanying notes to financial statements.
Form 5560.4
41
<PAGE> 44
OHIO NATIONAL LIFE ASSURANCE CORPORATION
(A WHOLLY-OWNED SUBSIDIARY OF
THE OHIO NATIONAL LIFE INSURANCE COMPANY)
STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
1998 1997 1996
------- ------- -------
<S> <C> <C> <C>
Revenues (note 11):
Universal life, annuity and investment product policy
charges $60,609 51,416 45,330
Traditional life and accident and health insurance
premiums 10,975 11,068 10,589
Net investment income (note 4) 69,547 61,348 56,032
Other income 3,146 2,265 1,861
Net realized gains on investments (note 4) 201 1,411 168
------- ------- -------
144,478 127,508 113,980
------- ------- -------
Benefits and expenses (notes 10 and 11):
Benefits and claims 76,663 67,627 64,181
Amortization of deferred policy acquisition costs 12,443 5,787 7,595
Other operating costs and expenses 15,398 15,676 14,432
------- ------- -------
104,504 89,090 86,208
------- ------- -------
Income before Federal income tax 39,974 38,418 27,772
------- ------- -------
Federal income tax (note 6):
Current expense 16,013 14,361 12,986
Deferred tax (benefit) expense (1,771) 315 (2,383)
------- ------- -------
14,242 14,676 10,603
------- ------- -------
Net income $25,732 23,742 17,169
======= ======= =======
</TABLE>
See accompanying notes to financial statements.
Form 5560.4
42
<PAGE> 45
OHIO NATIONAL LIFE ASSURANCE CORPORATION
(A WHOLLY-OWNED SUBSIDIARY OF
THE OHIO NATIONAL LIFE INSURANCE COMPANY)
STATEMENTS OF STOCKHOLDER'S EQUITY
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
ACCUMULATED
ADDITIONAL OTHER TOTAL
CAPITAL PAID-IN COMPREHENSIVE RETAINED STOCKHOLDER'S
SHARES CAPITAL INCOME EARNINGS EQUITY
------- ---------- ------------- -------- -------------
<S> <C> <C> <C> <C> <C>
1996:
Balance, beginning of year $9,600 27,025 9,558 96,716 142,899
Comprehensive income:
Net income -- -- -- 17,169 17,169
Other comprehensive loss (note
13) -- -- (8,265) -- (8,265)
-------
Total comprehensive income 8,904
------ ------ ------ ------- -------
Balance, end of year $9,600 27,025 1,293 113,885 151,803
====== ====== ====== ======= =======
1997:
Balance, beginning of year $9,600 27,025 1,293 113,885 151,803
Comprehensive income:
Net income -- -- -- 23,742 23,742
Other comprehensive income (note
13) -- -- 9,034 -- 9,034
-------
Total comprehensive income 32,776
------ ------ ------ ------- -------
Balance, end of year $9,600 27,025 10,327 137,627 184,579
====== ====== ====== ======= =======
1998:
Balance, beginning of year $9,600 27,025 10,327 137,627 184,579
Comprehensive income:
Net income -- -- -- 25,732 25,732
Other comprehensive income (note
13) -- -- 1,884 -- 1,884
-------
Total comprehensive income 27,616
------ ------ ------ ------- -------
Balance, end of year $9,600 27,025 12,211 163,359 212,195
====== ====== ====== ======= =======
</TABLE>
See accompanying notes to financial statements.
Form 5560.4
43
<PAGE> 46
OHIO NATIONAL LIFE ASSURANCE CORPORATION
(A WHOLLY-OWNED SUBSIDIARY OF
THE OHIO NATIONAL LIFE INSURANCE COMPANY)
STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
1998 1997 1996
--------- -------- -------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 25,732 23,742 17,169
Adjustments to reconcile net income to net cash provided
by operating activities:
Capitalization of deferred policy acquisition costs (28,516) (23,855) (21,075)
Amortization of deferred policy acquisition costs 12,443 5,787 7,595
Amortization and depreciation 213 1,297 857
Realized gains on invested assets, net (201) (1,411) (168)
(Increase) decrease in accrued investment income (1,780) (1,518) 9
Increase in reinsurance receivables and other assets (24,669) (6,225) (2,078)
Increase in policyholder account balances 19,025 6,672 5,664
(Decrease) increase in other policyholder funds (145) 215 95
Increase (decrease) in current Federal income tax
payable 921 184 (9,942)
Increase in other liabilities 4,831 2,539 7,223
Other, net (2,635) (5,081) (2,381)
--------- -------- -------
Net cash provided by operating activities 5,219 2,346 2,968
--------- -------- -------
Cash flows from investing activities:
Proceeds from maturity of fixed maturities
available-for-sale 32,256 84,974 25,680
Proceeds from maturity of fixed maturities
held-to-maturity 7,964 11,039 4,866
Proceeds from repayment of mortgage loans on real estate 38,862 46,468 23,694
Cost of fixed maturities available-for-sale acquired (123,507) (136,593) (40,814)
Cost of fixed maturities held-to-maturity acquired (48,181) (25,966) (2,632)
Cost of mortgage loans on real estate acquired (53,186) (84,114) (39,122)
Change in policy loans, net (2,471) (3,191) (2,985)
--------- -------- -------
Net cash used in investing activities (148,263) (107,383) (31,313)
--------- -------- -------
Cash flows from financing activities:
Increase in universal life and investment product account
balances 265,733 205,445 135,352
Decrease in universal life and investment product account
balances (133,570) (110,729) (87,496)
--------- -------- -------
Net cash provided by financing activities 132,163 94,716 47,856
--------- -------- -------
Net (decrease) increase in cash and cash equivalents (10,881) (10,321) 19,511
Cash and cash equivalents, beginning of year 26,081 36,402 16,891
--------- -------- -------
Cash and cash equivalents, end of year $ 15,200 26,081 36,402
========= ======== =======
</TABLE>
See accompanying notes to financial statements.
Form 5560.4
44
<PAGE> 47
OHIO NATIONAL LIFE ASSURANCE CORPORATION
(A WHOLLY-OWNED SUBSIDIARY OF
THE OHIO NATIONAL LIFE INSURANCE COMPANY)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998, 1997 AND 1996
(IN THOUSANDS)
(1) ORGANIZATION AND BUSINESS DESCRIPTION
Ohio National Life Assurance Corporation (ONLAC or the Company) is a stock life
insurance company, wholly-owned by The Ohio National Life Insurance Company
(ONLIC), a stock life insurance company. ONLAC is a life and health insurer
licensed in 47 states, the District of Columbia and Puerto Rico. The Company
offers term life, universal life, disability and annuity products through
independent agents and other distribution channels and competes with other
insurers throughout the United States. The Company is subject to regulation by
the Insurance Departments of states in which it is licensed and undergoes
periodic examinations by those departments.
The following is a description of the most significant risks facing life and
health insurers and how the Company mitigates those risks:
Legal/Regulatory Risk is the risk that changes in the legal or regulatory
environment in which an insurer operates will create additional expenses
not anticipated by the insurer in pricing its products. That is, regulatory
initiatives designed to reduce insurer profits, new legal theories or
insurance company insolvencies through guaranty fund assessments may create
costs for the insurer beyond those recorded in the financial statements.
The Company mitigates this risk by offering a wide range of products and by
operating throughout the United States, thus reducing its exposure to any
single product or jurisdiction, and also by employing underwriting
practices which identify and minimize the adverse impact of this risk.
Credit Risk is the risk that issuers of securities owned by the Company or
mortgagors on mortgage loans on real estate owned by the Company will
default or that other parties, including reinsurers, which owe the Company
money, will not pay. The Company minimizes this risk by adhering to a
conservative investment strategy, by maintaining sound reinsurance and
credit and collection policies and by providing for any amounts deemed
uncollectible.
Interest Rate Risk is the risk that interest rates will change and cause a
decrease in the value of an insurer's investments. This change in rates may
cause certain interest-sensitive products to become uncompetitive or may
cause disintermediation. The Company mitigates this risk by charging fees
for non-conformance with certain policy provisions, by offering products
that transfer this risk to the purchaser, and/or by attempting to match the
maturity schedule of its assets with the expected payouts of its
liabilities. To the extent that liabilities come due more quickly than
assets mature, an insurer would have to borrow funds or sell assets prior
to maturity and potentially recognize a gain or loss.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The significant accounting policies followed by the Company that materially
affect financial reporting are summarized below. The accompanying financial
statements have been prepared in accordance with generally accepted accounting
principles (GAAP) which differ from statutory accounting practices prescribed or
permitted by regulatory authorities (see Note 3).
(a) VALUATION OF INVESTMENTS AND RELATED GAINS AND LOSSES
The Company is required to classify its fixed maturity securities as
either held-to-maturity, available-for-sale or trading. Fixed maturity
securities are classified as held-to-maturity when the Company has the
Form 5560.4
45
<PAGE> 48
OHIO NATIONAL LIFE ASSURANCE CORPORATION
(A WHOLLY-OWNED SUBSIDIARY OF
THE OHIO NATIONAL LIFE INSURANCE COMPANY)
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
DECEMBER 31, 1998, 1997 AND 1996
(IN THOUSANDS)
positive intent and ability to hold the securities to maturity and are
stated at amortized cost. Fixed maturity securities not classified as
held-to-maturity are classified as available-for-sale and are stated at
fair value, with the unrealized gains and losses, net of adjustments to
deferred policy acquisition costs and deferred Federal income tax,
reported as a separate component of shareholder's equity. The adjustment
to deferred policy acquisition costs represents the change in
amortization of deferred policy acquisition costs that would have been
required as a charge or credit to operations had such unrealized amounts
been realized. The Company has no fixed maturity securities classified
as trading.
Mortgage loans on real estate are carried at the unpaid principal
balance less valuation allowances. The Company provides valuation
allowances for impairments of mortgage loans on real estate based on a
review by portfolio managers. The measurement of impaired loans is based
on the present value of expected future cash flows discounted at the
loan's effective interest rate or at the fair value of the collateral,
if the loan is collateral dependent. Loans in foreclosure and loans
considered to be impaired as of the balance sheet date are placed on
non-accrual status and written down to the fair value of the existing
property to derive a new cost basis. Cash receipts on non-accrual status
mortgage loans on real estate are included in interest income in the
period received.
Realized gains and losses on the sale of investments are determined on
the basis of specific security identification. Estimates for valuation
allowances and other than temporary declines are included in realized
gains and losses on investments.
(b) REVENUES AND BENEFITS
Traditional life insurance products include those products with fixed
and guaranteed premiums and benefits and consist primarily of graded
premium life and term life policies. Premiums for traditional
non-participating life insurance products are recognized as revenue when
due and collected. Benefits and expenses are associated with earned
premiums so as to result in recognition of profits over the life of the
contract. This association is accomplished by the provision for future
policy benefits and the deferral and amortization of policy acquisition
costs.
Universal life products include universal life, variable universal life
and other interest-sensitive life insurance policies. Investment
products consist primarily of individual immediate and deferred
annuities. Revenues for universal life and investment products consist
of net investment income and cost of insurance, policy administration
and surrender charges that have been earned and assessed against policy
account balances during the period. Policy benefits and claims that are
charged to expense include benefits and claims incurred in the period in
excess of related policy account balances, maintenance costs and
interest credited to policy account balances.
Accident and health insurance premiums are recognized as revenue in
accordance with the terms of the policies. Policy claims are charged to
expense in the period that the claims are incurred.
(c) DEFERRED POLICY ACQUISITION COSTS
The costs of acquiring new business, principally commissions, certain
expenses of the policy issue and underwriting department and certain
variable agency expenses have been deferred. For traditional non-
participating life insurance products, these deferred acquisition costs
are predominantly being amortized
Form 5560.4
46
<PAGE> 49
OHIO NATIONAL LIFE ASSURANCE CORPORATION
(A WHOLLY-OWNED SUBSIDIARY OF
THE OHIO NATIONAL LIFE INSURANCE COMPANY)
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
DECEMBER 31, 1998, 1997 AND 1996
(IN THOUSANDS)
with interest over the premium paying period of the related policies.
Such anticipated premium revenue was estimated using the same
assumptions as were used for computing liabilities for future policy
benefits. For universal life and investment products, deferred policy
acquisition costs are being amortized with interest over the lives of
the policies in relation to the present value of estimated future gross
profits from projected interest margins, cost of insurance, policy
administration and surrender charges. Deferred policy acquisition costs
are adjusted to reflect the impact of unrealized gains and losses on
fixed maturity securities available-for-sale (see Note 2(a)).
(d) SEPARATE ACCOUNTS
Separate Account assets and liabilities represent contractholders' funds
which have been segregated into accounts with specific investment
objectives. The investment income and gains or losses of these accounts
accrue directly to the contractholders. The activity of the Separate
Accounts is not reflected in the statements of income and cash flows
except for the fees the Company receives for administrative services and
risks assumed.
(e) FUTURE POLICY BENEFITS
Future policy benefits for traditional life policies have been
calculated using a net level premium method based on estimates of
mortality, morbidity, investment yields and withdrawals which were used
or which were being experienced at the time the policies were issued,
rather than the assumptions prescribed by state regulatory authorities
(see Note 5).
Future policy benefits for annuity policies in the accumulation phase,
universal life and variable universal life policies have been calculated
based on participants' aggregate account balances.
(f) FEDERAL INCOME TAX
ONLAC is included as part of the consolidated Federal income tax return
of its ultimate parent, Ohio National Mutual Holdings, Inc. The Company
uses the asset and liability method of accounting for income tax. Under
the asset and liability method, deferred tax assets and liabilities are
recognized for the future tax consequences attributable to differences
between the financial statement carrying amounts of existing assets and
liabilities and their respective tax bases and operating loss and tax
credit carryforwards. Deferred tax assets and liabilities are measured
using enacted tax rates expected to apply to taxable income in the years
in which those temporary differences are expected to be recovered or
settled. Under this method, the effect on deferred tax assets and
liabilities of a change in tax rates is recognized in income in the
period that includes the enactment date. Valuation allowances are
established when necessary to reduce the deferred tax assets to the
amounts expected to be realized.
(g) REINSURANCE CEDED
Reinsurance premiums ceded and reinsurance recoveries on benefits and
claims incurred are deducted from the respective income and expense
accounts. Assets and liabilities related to reinsurance ceded are
reported on a gross basis.
Form 5560.4
47
<PAGE> 50
OHIO NATIONAL LIFE ASSURANCE CORPORATION
(A WHOLLY-OWNED SUBSIDIARY OF
THE OHIO NATIONAL LIFE INSURANCE COMPANY)
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
DECEMBER 31, 1998, 1997 AND 1996
(IN THOUSANDS)
(h) CASH EQUIVALENTS
For purposes of the statement of cash flows, the Company considers all
short-term investments with original maturities of three months or less
to be cash equivalents.
(i) USE OF ESTIMATES
In preparing the financial statements, management is required to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and the disclosure of contingent assets and liabilities as
of the date of the financial statements and revenues and expenses for
the reporting period. Actual results could differ significantly from
those estimates.
The estimates susceptible to significant change are those used in
determining deferred policy acquisition costs, the liability for future
policy benefits and claims, contingencies, and the valuation allowance
for mortgage loans on real estate. Although some variability is inherent
in these estimates, management believes the amounts provided are
adequate.
(3) BASIS OF PRESENTATION
The accompanying financial statements have been prepared in accordance with GAAP
which differs from statutory accounting practices prescribed or permitted by
regulatory authorities. Annual Statements for ONLAC filed with the Department of
Insurance of the State of Ohio, are prepared on a basis of accounting practices
prescribed or permitted by such regulatory authority. Prescribed statutory
accounting practices include a variety of publications of the National
Association of Insurance Commissioners (NAIC), as well as state laws,
regulations and general administrative rules. Permitted statutory accounting
practices encompass all accounting practices not so prescribed. The Company has
no material permitted statutory accounting practices.
The statutory basis capital and surplus of ONLAC as of December 31, 1998 and
1997 was $114,373 and $98,902, respectively. The statutory basis net income of
ONLAC for the years ended December 31, 1998, 1997 and 1996 was $16,524, $15,540
and $12,018, respectively.
Form 5560.4
48
<PAGE> 51
OHIO NATIONAL LIFE ASSURANCE CORPORATION
(A WHOLLY-OWNED SUBSIDIARY OF
THE OHIO NATIONAL LIFE INSURANCE COMPANY)
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
DECEMBER 31, 1998, 1997 AND 1996
(IN THOUSANDS)
(4) INVESTMENTS
An analysis of investment income and realized gains (losses) by investment type
follows for the years ended December 31:
<TABLE>
<CAPTION>
REALIZED GAINS (LOSSES) ON
INVESTMENT INCOME INVESTMENTS
--------------------------- ---------------------------
1998 1997 1996 1998 1997 1996
------- ------ ------ ------ ------- ------
<S> <C> <C> <C> <C> <C> <C>
Fixed maturities available-for-sale $40,678 34,847 33,092 $106 346 (32)
Fixed maturities held-to-maturity 5,036 4,222 4,244 2 185 15
Mortgage loans on real estate 19,636 18,007 15,893 58 900 213
Short-term 1,824 2,121 848 -- -- --
Other 2,898 2,749 2,452 -- -- 4
------- ------ ------ ---- ----- ---
Total 70,072 61,946 56,529 166 1,431 200
Investment expenses (525) (598) (497)
Change in valuation allowance for
mortgage loans on real estate 35 (20) (32)
------- ------ ------
Net investment income $69,547 61,348 56,032
======= ====== ====== ---- ----- ---
Net realized gains on
investments $201 1,411 168
==== ===== ===
</TABLE>
The components of unrealized gains on fixed maturities available-for-sale, net,
were as follows as of December 31:
<TABLE>
<CAPTION>
1998 1997
------- -------
<S> <C> <C>
Gross unrealized gains $32,911 28,927
Adjustment to deferred policy acquisition costs (11,803) (10,650)
Deferred Federal income tax (8,897) (7,950)
------- -------
$12,211 10,327
======= =======
</TABLE>
An analysis of the change in gross unrealized gains (losses) on fixed maturities
available-for-sale and fixed maturities held-to-maturity follows for the years
ended December 31:
<TABLE>
<CAPTION>
1998 1997 1996
------ ------ -------
<S> <C> <C> <C>
Fixed maturities available-for-sale $3,984 21,814 (20,254)
Fixed maturities held-to-maturity $3,173 809 (2,641)
</TABLE>
Form 5560.4
49
<PAGE> 52
OHIO NATIONAL LIFE ASSURANCE CORPORATION
(A WHOLLY-OWNED SUBSIDIARY OF
THE OHIO NATIONAL LIFE INSURANCE COMPANY)
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
DECEMBER 31, 1998, 1997 AND 1996
(IN THOUSANDS)
The amortized cost and estimated fair value of fixed maturities
available-for-sale and fixed maturities held-to-maturity were as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1998 DECEMBER 31, 1997
----------------------------------------------- -----------------------------------------------
GROSS GROSS ESTIMATED GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED FAIR AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE COST GAINS LOSSES VALUE
--------- ---------- ---------- --------- --------- ---------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Fixed maturities
available-for-sale
U.S. Treasury securities and
obligations of U.S
government operations and
agencies $ 52,778 9,530 -- 62,308 52,838 5,277 -- 58,115
Obligations of states and
political subdivisions 5,202 265 (36) 5,431 5,358 309 (90) 5,577
Corporate securities 377,168 21,463 (6,381) 392,250 288,284 19,953 (247) 307,990
Mortgage-backed securities 138,375 8,210 (140) 146,445 135,039 3,905 (180) 138,764
-------- ------ ------ ------- ------- ------ ---- -------
$573,523 39,468 (6,557) 606,434 481,519 29,444 (517) 510,446
======== ====== ====== ======= ======= ====== ==== =======
Fixed maturities
held-to-maturity
Corporate securities $ 95,011 8,008 (14) 103,005 54,759 5,014 (36) 59,737
Other 2,565 483 -- 3,048 2,595 326 -- 2,921
-------- ------ ------ ------- ------- ------ ---- -------
$ 97,576 8,491 (14) 106,053 57,354 5,340 (36) 62,658
======== ====== ====== ======= ======= ====== ==== =======
</TABLE>
The amortized cost and estimated fair value of fixed maturities
available-for-sale and fixed maturities held-to-maturity as of December 31,
1998, by contractual maturity, are shown below. Expected maturities will differ
from contractual maturities because borrowers may have the right to call or
prepay obligations with or without call or prepayment penalties.
<TABLE>
<CAPTION>
FIXED MATURIES FIXED MATURIES
AVAILABLE-FOR-SALE HELD-TO-MATURITY
----------------------- -----------------------
AMORTIZED ESTIMATED AMORTIZED ESTIMATED
COST FAIR VALUE COST FAIR VALUE
--------- ---------- --------- ----------
<S> <C> <C> <C> <C>
Due in one year or less $ 2,663 2,773 2,341 2,519
Due after one year through five years 65,287 67,407 17,793 18,833
Due after five years through ten years 162,094 167,793 48,546 52,378
Due after ten years 343,479 368,461 28,896 32,323
-------- ------- ------ -------
$573,523 606,434 97,576 106,053
======== ======= ====== =======
</TABLE>
There were no sales of fixed maturities available-for-sale in 1998, 1997 and
1996. Investments with an amortized cost of $3,460 and $4,388 as of December 31,
1998 and 1997, respectively, were on deposit with various regulatory agencies as
required by law.
The Company generally initiates foreclosure proceedings on all mortgage loans on
real estate delinquent sixty days. There were no foreclosures of mortgage loans
on real estate during 1998, and no foreclosures are in process as of December
31, 1998.
(5) FUTURE POLICY BENEFIT AND CLAIMS
The liability for future policy benefits for universal life policies and
investment contracts (approximately 86% and 85% of the total liability for
future policy benefits as of December 31, 1998 and 1997, respectively) has been
Form 5560.4
50
<PAGE> 53
OHIO NATIONAL LIFE ASSURANCE CORPORATION
(A WHOLLY-OWNED SUBSIDIARY OF
THE OHIO NATIONAL LIFE INSURANCE COMPANY)
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
DECEMBER 31, 1998, 1997 AND 1996
(IN THOUSANDS)
established based on the aggregate account value without reduction for surrender
charges. The average interest rate to be credited on investment product policies
was 5.6% and 5.5% as of December 31, 1998 and 1997, respectively.
The liability for future policy benefits for traditional life products are based
on the following mortality and interest rate assumptions without consideration
for withdrawals. The mortality table and interest assumptions used for the
majority of policies issued in 1998 and 1997 are the 1980 CSO table with 4% to
5% interest. With respect to older policies, the mortality table and interest
assumptions used are primarily the 1958 CSO table with 4% interest and the 1980
CSO table with 4%-6% interest. Approximately 65% and 66% of the future policy
benefit liability is calculated on a net level reserve basis as of December 31,
1998 and 1997, respectively.
The liability for future policy benefits for individual accident and health
policies include liabilities for active lives, disabled lives and unearned
premiums. The liability for active lives are calculated on a two-year
preliminary term basis at 3% to 6% interest, using either the 1964
Commissioner's Disability Table (policies issued prior to 1990) or the 1985
Commissioner's Individual Disability Table A (policies issued after 1989). The
liability for disabled lives are calculated using either the 1985 Commissioner's
Individual Disability Table A at 5% to 5.5% interest (claims incurred after
1989) or the 1971 modification of the 1964 Commissioner's Disability Table, at
3.5% interest (claims incurred prior to 1990).
(6) FEDERAL INCOME TAX
In prior years, under superseded tax acts, the Company deferred income and
accumulated amounts into a Policyholders' Surplus Account (PSA). Management
considers the likelihood of distributions from the PSA to be remote; therefore,
no Federal income tax has been provided for such distributions in the financial
statements. Any distributions from the PSA, however, will continue to be taxable
at the then current tax rate. The balance of the PSA is approximately $5,257 as
of December 31, 1998.
Total income taxes for the year ended December 31, 1998, 1997 and 1996 were
allocated as follows:
<TABLE>
<CAPTION>
1998 1997 1996
------- ------ ------
<S> <C> <C> <C>
Operations $14,242 14,676 10,603
Unrealized gains (losses) on securities
available-for-sale 947 5,080 (3,739)
------- ------ ------
$15,189 19,756 6,864
======= ====== ======
</TABLE>
Form 5560.4
51
<PAGE> 54
OHIO NATIONAL LIFE ASSURANCE CORPORATION
(A WHOLLY-OWNED SUBSIDIARY OF
THE OHIO NATIONAL LIFE INSURANCE COMPANY)
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
DECEMBER 31, 1998, 1997 AND 1996
(IN THOUSANDS)
Total Federal income tax expense for the years ended December 31, 1998, 1997 and
1996 differs from the amount computed by applying the U.S. Federal income tax
rate to income before Federal income tax as follows:
<TABLE>
<CAPTION>
1998 1997 1996
--------------- -------------- --------------
AMOUNT % AMOUNT % AMOUNT %
------- ---- ------ ---- ------ ----
<S> <C> <C> <C> <C> <C> <C>
Computed (expected) tax expense $13,991 35.0 13,447 35.0 9,720 35.0
Differential earnings (225) (0.6) 611 1.6 1,023 3.7
Tax exempt interest and dividends
received deduction (57) (0.1) (20) (0.1) (38) (0.1)
Other, net 533 1.3 638 1.7 (102) (0.4)
------- ---- ------ ---- ------ ----
Total expense and
effective rate $14,242 35.6 14,676 38.2 10,603 38.2
======= ==== ====== ==== ====== ====
</TABLE>
Total Federal income tax paid during the years ended December 31, 1998, 1997 and
1996 was $15,092, $14,176, and $22,928 (net of refunds of $1,773, $0 and $0),
respectively.
The tax effects of temporary differences between the financial statement
carrying amounts and tax basis of assets and liabilities that give rise to
significant components of the net deferred tax liability as of December 31, 1998
and 1997 are as follows:
<TABLE>
<CAPTION>
1998 1997
------- ------
<S> <C> <C>
Deferred tax assets:
Future policy benefits $32,780 29,095
Mortgage loans and real estate 811 823
Other 76 540
------- ------
Total gross deferred tax assets 33,667 30,458
------- ------
Deferred tax liabilities:
Deferred policy acquisition costs 33,201 32,039
Fixed maturities available-for-sale 11,821 10,582
Other -- 16
------- ------
Total gross deferred tax liabilities 45,022 42,637
------- ------
Net deferred tax liability $11,355 12,179
======= ======
</TABLE>
The Company has determined that a deferred tax asset valuation allowance was not
needed as of December 31, 1998 and 1997. In assessing the realization of
deferred tax assets, management considers whether it is more likely than not
that the deferred tax assets will be realized. The ultimate realization of
deferred tax assets is dependent upon the generation of future taxable income
during the periods in which those temporary differences become deductible.
Management considers primarily the scheduled reversal of deferred tax
liabilities and tax planning strategies in making this assessment and believes
it is more likely than not the Company will realize the benefits of the
deductible differences remaining at December 31, 1998.
(7) DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
Statement of Financial Accounting Standards No. 107, Disclosures about Fair
Value of Financial Instruments (SFAS 107) requires disclosure of fair value
information about existing on and off-balance sheet financial
Form 5560.4
52
<PAGE> 55
OHIO NATIONAL LIFE ASSURANCE CORPORATION
(A WHOLLY-OWNED SUBSIDIARY OF
THE OHIO NATIONAL LIFE INSURANCE COMPANY)
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
DECEMBER 31, 1998, 1997 AND 1996
(IN THOUSANDS)
instruments. SFAS 107 excludes certain assets and liabilities, including
insurance contracts, other than policies such as annuities that are classified
as investment contracts, from its disclosure requirements. Accordingly, the
aggregate fair value amounts presented do not represent the underlying value of
the Company. The tax ramifications of the related unrealized gains and losses
can have a significant effect on fair value estimates and have not been
considered in the estimates.
The following methods and assumptions were used by the Company in estimating its
fair value disclosures:
Cash, Short-Term Investments, Policy Loans and Other Policyholder
Funds -- The carrying amount reported in the balance sheet for these
instruments approximate their fair value.
Investment Securities -- Fair value for fixed maturity securities is based
on quoted market prices, where available. For fixed maturity securities not
actively traded, fair value is estimated using values obtained from
independent pricing services, or in the case of private placements, is
estimated by discounting expected future cash flows using a current market
rate applicable to the yield, credit quality and duration of the
investments.
Separate Account Assets and Liabilities -- The fair value of assets held in
Separate Accounts is based on quoted market prices. The fair value of
liabilities related to Separate Accounts is the accumulated contract value
in the Separate Account portfolios.
Mortgage Loans on Real Estate -- The fair value for mortgage loans on real
estate is estimated using discounted cash flow analyses, using interest
rates currently being offered for similar loans to borrowers with similar
credit ratings. Loans with similar characteristics are aggregated for
purposes of the calculations.
Investment Contracts -- Fair value for the Company's liabilities under
investment type contracts is disclosed using two methods. For investment
contracts without defined maturities, fair value is the amount payable on
demand. For investment contracts with known or determined maturities, fair
value is estimated using discounted cash flow analysis. Interest rates used
are similar to currently offered contracts with maturities consistent with
those remaining for the contracts being valued.
Form 5560.4
53
<PAGE> 56
OHIO NATIONAL LIFE ASSURANCE CORPORATION
(A WHOLLY-OWNED SUBSIDIARY OF
THE OHIO NATIONAL LIFE INSURANCE COMPANY)
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
DECEMBER 31, 1998, 1997 AND 1996
(IN THOUSANDS)
The carrying amount and estimated fair value of financial instruments subject to
SFAS 107 and policy reserves on insurance contracts were as follows as of
December 31:
<TABLE>
<CAPTION>
1998 1997
---------------------- ----------------------
CARRYING ESTIMATED CARRYING ESTIMATED
AMOUNT FAIR VALUE AMOUNT FAIR VALUE
-------- ---------- -------- ----------
<S> <C> <C> <C> <C>
ASSETS
Investments:
Fixed maturities
available-for-sale $606,434 606,434 510,446 510,446
Fixed maturities held-to-maturity 97,576 106,053 57,354 62,658
Mortgage loans on real estate 229,647 250,380 215,230 233,075
Policy loans 40,597 40,597 38,126 38,126
Short-term investments 8,997 8,997 18,993 18,993
Cash 6,203 6,203 7,088 7,088
Assets held in Separate Accounts 103,306 103,306 75,934 75,934
LIABILITIES
Deferred and immediate annuity
contracts $104,464 105,010 102,344 101,758
Other policyholder funds 2,357 2,357 2,502 2,502
Liabilities related to Separate
Accounts 103,306 103,306 75,934 75,934
</TABLE>
(8) ADDITIONAL FINANCIAL INSTRUMENTS DISCLOSURE
SIGNIFICANT CONCENTRATIONS OF CREDIT RISK
Mortgage loans are collateralized by the underlying properties. Collateral must
meet or exceed 125% of the loan at the time the loan is made. The Company grants
mainly commercial mortgage loans to customers throughout the United States. The
Company has a diversified loan portfolio with no exposure greater than 11% in
any state at December 31, 1998. The summary below depicts loan exposure of
remaining principal balances type at December 31:
<TABLE>
<CAPTION>
1998 1997
-------- -------
<S> <C> <C>
MORTGAGE ASSETS BY TYPE
Office $ 75,553 51,294
Retail 50,323 57,792
Apartments 48,017 46,490
Industrial 36,926 38,183
Other 21,145 23,823
-------- -------
231,964 217,582
Less valuation allowances 2,317 2,352
-------- -------
Total mortgage loans on real estate, net $229,647 215,230
======== =======
</TABLE>
(9) REGULATORY RISK-BASED CAPITAL AND DIVIDEND RESTRICTIONS ON RETAINED EARNINGS
Based upon the December 31, 1998 and 1997 financial statements, the Company
exceeds all required risk-based capital levels.
Form 5560.4
54
<PAGE> 57
OHIO NATIONAL LIFE ASSURANCE CORPORATION
(A WHOLLY-OWNED SUBSIDIARY OF
THE OHIO NATIONAL LIFE INSURANCE COMPANY)
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
DECEMBER 31, 1998, 1997 AND 1996
(IN THOUSANDS)
The payment of dividends by the Company to its parent, ONLIC, is limited by Ohio
law. As of December 31, 1998, $146,121 of retained earnings, as presented in the
accompanying financial statements, is restricted as to dividend payments in
1999.
(10) RELATED PARTY TRANSACTIONS
The Company shares common facilities and management with ONLIC. A written
agreement, which either party may terminate upon thirty days notice, provides
that ONLIC furnish personnel, space and supplies, accounting, data processing
and related services to ONLAC. This agreement resulted in charges to the Company
of approximately $12,800, $11,400, and $11,400 in 1998, 1997, and 1996,
respectively.
(11) REINSURANCE
In the ordinary course of business, the Company reinsures certain risks with its
parent, ONLIC, and other insurance companies. Amounts in the accompanying
financial statements related to ceded business are as follows:
<TABLE>
<CAPTION>
1998 1997 1996
---------------------- ---------------------- ----------------------
NON- NON- NON-
AFFILIATE AFFILIATE AFFILIATE AFFILIATE AFFILIATE AFFILIATE
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Premiums $25,760 24,316 20,473 18,953 18,523 17,793
Benefits incurred 12,797 9,707 12,075 7,140 11,571 13,345
Commission and expense
allowances 2,987 2,514 2,374 3,241 2,173 4,770
Reinsurance recoverable:
Reserves for future policy
benefits 44,773 48,077 36,543 40,455 38,048 36,248
Policy and contract claims
payable 2,356 3,645 1,318 987 969 1,103
</TABLE>
Net traditional life and accident and health premium income in 1998, 1997 and
1996 is summarized as follows:
<TABLE>
<CAPTION>
1998 1997 1996
------- ------- -------
<S> <C> <C> <C>
Direct premiums earned $58,686 48,313 44,586
Reinsurance assumed 2,365 2,181 2,319
Reinsurance ceded (50,076) (39,426) (36,316)
======= ======= =======
Net premiums earned $10,975 11,068 10,589
======= ======= =======
</TABLE>
Reinsurance does not discharge the Company from its primary liability to
policyholders and to the extent that a reinsurer should be unable to meet its
obligations, the Company would be liable to policyholders.
(12) CONTINGENCIES
The Company is a defendant in various legal actions arising in the normal course
of business. While the outcome of such matters cannot be predicted with
certainty, management believes such matters will be resolved without material
adverse impact on the financial condition of the Company.
(13) COMPREHENSIVE INCOME
Pursuant to Financial Accounting Standards Board (FASB) Statement No. 130,
"Reporting Comprehensive Income", the Consolidated Statements of Shareholders'
Equity include a new measure called "Comprehensive
Form 5560.4
55
<PAGE> 58
OHIO NATIONAL LIFE ASSURANCE CORPORATION
(A WHOLLY-OWNED SUBSIDIARY OF
THE OHIO NATIONAL LIFE INSURANCE COMPANY)
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
DECEMBER 31, 1998, 1997 AND 1996
(IN THOUSANDS)
Income". Comprehensive Income includes net income as well as certain items that
are reported directly within a separate component of shareholders' equity that
bypass net income. The components of other comprehensive income, including the
related Federal tax amounts, were as follows for the years ended December 31:
<TABLE>
<CAPTION>
1998 1997 1996
------ ------ -------
<S> <C> <C> <C>
Unrealized gains (losses) on securities
available-for-sale arising during the period:
Net of adjustment to deferred policy
acquisition costs $3,358 14,126 (11,669)
Related federal tax (expense) benefit (1,131) (4,944) 4,084
------ ------ -------
Net 2,227 9,182 (7,585)
------ ------ -------
Reclassification adjustment for net losses on
securities available-for-sale realized during
the period:
Gross 527 227 1,046
Related federal tax benefit (184) (79) (366)
------ ------ -------
Net 343 148 680
------ ------ -------
Total other comprehensive income
(loss) $1,884 9,034 (8,265)
====== ====== =======
</TABLE>
Form 5560.4
56
<PAGE> 59
OHIO NATIONAL VARIABLE ACCOUNT R
INDEPENDENT AUDITORS' REPORT
The Board of Directors of
The Ohio National Life Insurance Company
and Contract Owners of
Ohio National Variable Account R:
We have audited the accompanying statements of assets and contract owners'
equity of Ohio National Variable Account R (comprised of the Equity, Money
Market, Bond, Omni, International, Capital Appreciation, Small Cap, Global
Contrarian, Aggressive Growth, S&P 500 Index, Social Awareness, Core Growth,
Growth & Income and Montgomery Asset Emerging Market subaccounts) as of December
31, 1998, and the related statements of operations and changes in contract
owners' equity for each of the periods indicated herein. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. Our procedures included
confirmation of securities owned as of December 31, 1998, by correspondence with
the transfer agents of the underlying mutual funds. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Ohio National Variable Account
R as of December 31, 1998, and the results of its operations and its changes in
contract owners' equity for each of the years indicated herein in conformity
with generally accepted accounting principles.
/s/ KPMG Peat Marwick LLP
KPMG LLP
Cincinnati, Ohio
February 5, 1999
Form 5560.4
59
<PAGE> 60
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
OHIO NATIONAL VARIABLE ACCOUNT R December 31, 1998
STATEMENTS OF ASSETS AND CONTRACT OWNERS' EQUITY
<TABLE>
<CAPTION>
MONEY
EQUITY MARKET BOND OMNI INTERNATIONAL
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
----------- ---------- ---------- ----------- -------------
<S> <C> <C> <C> <C> <C>
Assets -- Investments at market value (note
2).......................................... $31,166,072 $4,068,382 $1,674,308 $11,931,894 $16,865,296
=========== ========== ========== =========== ===========
Contract owners' equity
Contracts in accumulation period (note 3)... $31,166,072 $4,068,382 $1,674,308 $11,931,894 $16,865,296
=========== ========== ========== =========== ===========
<CAPTION>
CAPITAL
APPRECIATION SMALL CAP
SUBACCOUNT SUBACCOUNT
------------ -------------
<S> <C> <C>
Assets -- Investments at market value (note
2).......................................... $7,079,821 $9,250,038
========== ==========
Contract owners' equity
Contracts in accumulation period (note 3)... $7,079,821 $9,250,038
========== ==========
</TABLE>
<TABLE>
<CAPTION>
GLOBAL AGGRESSIVE CORE GROWTH & S&P 500
CONTRARIAN GROWTH GROWTH INCOME INDEX
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
----------- ---------- ---------- ----------- -------------
<S> <C> <C> <C> <C> <C>
Assets -- Investments at market value (note
2).......................................... $ 2,044,553 $3,834,209 $1,296,450 $ 5,622,122 $ 7,713,053
=========== ========== ========== =========== ===========
Contract owners' equity
Contracts in accumulation period (note 3)... $ 2,044,553 $3,834,209 $1,296,450 $ 5,622,122 $ 7,713,053
=========== ========== ========== =========== ===========
<CAPTION>
MONTGOMERY
SOCIAL ASSET
AWARENESS EMERGING MKT.
SUBACCOUNT SUBACCOUNT
------------ -------------
<S> <C> <C>
Assets -- Investments at market value (note
2).......................................... $ 529,362 $ 230,780
========== ==========
Contract owners' equity
Contracts in accumulation period (note 3)... $ 529,362 $ 230,780
========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
Form 5560.4
60
<PAGE> 61
OHIO NATIONAL VARIABLE ACCOUNT R
STATEMENTS OF OPERATIONS AND CHANGES IN CONTRACT OWNERS' EQUITY
FOR THE THREE YEARS ENDED DECEMBER 31
<TABLE>
<CAPTION>
EQUITY MONEY MARKET
SUBACCOUNT SUBACCOUNT
------------------------------------------- -----------------------------------------
1998 1997 1996 1998 1997 1996
----------- ----------- ----------- ----------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Investment activity:
Reinvested dividends................ $ 374,943 $ 453,946 $ 278,504 $ 92,380 $ 55,657 $ 39,652
Risk & administrative expense (note
4)............................... (222,953) (190,776) (143,826) (13,276) (7,949) (7,545)
----------- ----------- ----------- ----------- ---------- ----------
Net investment activity........ 151,990 263,170 134,678 79,104 47,708 32,107
----------- ----------- ----------- ----------- ---------- ----------
Realized & Unrealized gain (loss) on
investments:
Reinvested capital gains......... 582,686 1,475,813 487,586 0 0 0
Realized gain (loss)............. 433,578 431,237 160,116 (1,729) 241 (6,138)
Unrealized gain (loss)........... 276,272 1,699,778 2,231,504 0 0 0
----------- ----------- ----------- ----------- ---------- ----------
Net gain (loss) on
investments................. 1,292,536 3,606,828 2,879,206 (1,729) 241 (6,138)
----------- ----------- ----------- ----------- ---------- ----------
Net increase in contract
owners' equity from
operations................ 1,444,526 3,869,998 3,013,884 77,375 47,949 25,969
----------- ----------- ----------- ----------- ---------- ----------
Equity transactions:
Sales:
Contract purchase payments....... 5,167,419 4,850,686 4,490,453 9,924,762 6,067,434 4,328,290
Transfers from fixed & other
subaccounts.................... 1,599,312 2,585,503 1,268,910 2,863,761 1,593,336 544,044
----------- ----------- ----------- ----------- ---------- ----------
6,766,731 7,436,189 5,759,363 12,788,523 7,660,770 4,872,334
----------- ----------- ----------- ----------- ---------- ----------
Redemptions:
Withdrawals & surrenders (note
5)............................. 975,495 930,275 328,631 48,825 8,519 5,529
Transfers to fixed & other
subaccounts.................... 2,231,174 2,061,907 1,294,677 9,721,391 7,321,910 4,313,747
Cost of insurance &
administrative fee (note 5).... 2,044,300 1,775,339 1,519,968 257,277 225,524 173,031
----------- ----------- ----------- ----------- ---------- ----------
5,250,969 4,767,521 3,143,276 10,027,493 7,555,953 4,492,307
----------- ----------- ----------- ----------- ---------- ----------
Net equity transactions........ 1,515,762 2,668,668 2,616,087 2,761,030 104,817 380,027
----------- ----------- ----------- ----------- ---------- ----------
Net change in contract
owners' equity............ 2,960,288 6,538,666 5,629,971 2,838,405 152,766 405,996
Contract owners' equity:
Beginning of period................. 28,205,784 21,667,118 16,037,147 1,229,977 1,077,211 671,215
----------- ----------- ----------- ----------- ---------- ----------
End of period....................... $31,166,072 $28,205,784 $21,667,118 $ 4,068,382 $1,229,977 $1,077,211
=========== =========== =========== =========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
Form 5560.4
61
<PAGE> 62
OHIO NATIONAL VARIABLE ACCOUNT R
STATEMENTS OF OPERATIONS AND CHANGES IN CONTRACT OWNERS' EQUITY
FOR THE THREE YEARS ENDED DECEMBER 31
<TABLE>
<CAPTION>
BOND OMNI
SUBACCOUNT SUBACCOUNT
------------------------------------ ------------------------------------------
1998 1997 1996 1998 1997 1996
---------- -------- -------- ----------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
Investment activity:
Reinvested dividends...................... $ 83,140 $ 68,280 $ 38,549 $ 301,587 $ 285,077 $ 168,919
Risk & administrative expense (note 4).... (9,252) (6,130) (4,242) (83,337) (65,184) (45,484)
---------- -------- -------- ----------- ----------- ----------
Net investment activity.............. 73,888 62,150 34,307 218,250 219,893 123,435
---------- -------- -------- ----------- ----------- ----------
Realized & Unrealized gain (loss) on
investments:
Reinvested capital gains............... 0 0 0 1,760 480,048 92,139
Realized gain (loss)................... 2,811 1,394 743 332,951 73,429 48,077
Unrealized gain (loss)................. (21,734) 4,309 (13,745) (101,784) 562,929 578,417
---------- -------- -------- ----------- ----------- ----------
Net gain (loss) on investments....... (18,923) 5,703 (13,002) 232,927 1,116,406 718,633
---------- -------- -------- ----------- ----------- ----------
Net increase in contract owners'
equity from operations.......... 54,965 67,853 21,305 451,177 1,336,299 842,068
---------- -------- -------- ----------- ----------- ----------
Equity transactions:
Sales:
Contract purchase payments............. 345,106 244,107 328,071 2,470,020 1,966,189 1,544,190
Transfers from fixed & other
subaccounts.......................... 567,357 131,403 87,756 2,614,095 907,850 583,740
---------- -------- -------- ----------- ----------- ----------
912,463 375,510 415,827 5,084,115 2,874,039 2,127,930
---------- -------- -------- ----------- ----------- ----------
Redemptions:
Withdrawals & surrenders (note 5)...... 13,218 21,828 8,438 705,842 187,562 167,671
Transfers to fixed & other
subaccounts.......................... 129,183 131,854 162,147 2,318,267 312,223 299,190
Cost of insurance & administrative fee
(note 5)............................. 100,579 70,289 62,462 802,634 648,661 501,412
---------- -------- -------- ----------- ----------- ----------
242,980 223,971 233,047 3,826,743 1,148,446 968,273
---------- -------- -------- ----------- ----------- ----------
Net equity transactions.............. 669,483 151,539 182,780 1,257,372 1,725,593 1,159,657
---------- -------- -------- ----------- ----------- ----------
Net change in contract owners'
equity.......................... 724,448 219,392 204,085 1,708,549 3,061,892 2,001,725
Contract owners' equity:
Beginning of period....................... 949,860 730,468 526,383 10,223,345 7,161,453 5,159,728
---------- -------- -------- ----------- ----------- ----------
End of period............................. $1,674,308 $949,860 $730,468 $11,931,894 $10,223,345 $7,161,453
========== ======== ======== =========== =========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
Form 5560.4
62
<PAGE> 63
OHIO NATIONAL VARIABLE ACCOUNT R
STATEMENTS OF OPERATIONS AND CHANGES IN CONTRACT OWNERS' EQUITY
FOR THE THREE YEARS ENDED DECEMBER 31
<TABLE>
<CAPTION>
INTERNATIONAL CAPITAL APPRECIATION
SUBACCOUNT SUBACCOUNT
------------------------------------------- ----------------------------------------
1998 1997 1996 1998 1997 1996
----------- ----------- ----------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Investment activity:
Reinvested dividends................. $ 630,410 $ 983,741 $ 421,814 $ 155,395 $ 130,659 $ 64,452
Risk & administrative expense (note
4)................................ (124,053) (112,268) (78,825) (45,565) (28,303) (13,716)
----------- ----------- ----------- ---------- ---------- ----------
Net investment activity......... 506,357 871,473 342,989 109,830 102,356 50,736
----------- ----------- ----------- ---------- ---------- ----------
Realized & unrealized gain (loss) on
Investments:
Reinvested capital gains.......... 695,117 1,415,674 151,723 539,044 244,214 42,011
Realized gain (loss).............. (45,820) 186,736 23,917 33,861 34,042 19,381
Unrealized gain (loss)............ (670,437) (2,391,042) 752,956 (390,779) 129,929 172,281
----------- ----------- ----------- ---------- ---------- ----------
Net gain (loss) on
investments.................. (21,140) (788,632) 928,596 182,126 408,185 233,673
----------- ----------- ----------- ---------- ---------- ----------
Net increase in contract
owners' equity from
operations................. 485,217 82,841 1,271,585 291,956 510,541 284,409
----------- ----------- ----------- ---------- ---------- ----------
Equity transactions:
Sales:
Contract purchase payments........ 4,027,966 4,352,514 3,766,785 2,206,184 1,458,697 1,176,050
Transfers from fixed & other
subaccounts..................... 965,930 2,121,595 1,410,908 951,520 1,299,231 709,737
----------- ----------- ----------- ---------- ---------- ----------
4,993,896 6,474,109 5,177,693 3,157,704 2,757,928 1,885,787
----------- ----------- ----------- ---------- ---------- ----------
Redemptions:
Withdrawals & surrenders (note
5).............................. 618,889 469,189 160,367 170,616 54,331 55,870
Transfers to fixed & other
subaccounts..................... 2,112,568 2,136,043 622,081 518,403 775,912 301,791
Cost of insurance & administrative
fee (note 5).................... 1,348,113 1,269,503 1,009,169 548,283 377,999 244,293
----------- ----------- ----------- ---------- ---------- ----------
4,079,570 3,874,735 1,791,617 1,237,302 1,208,242 601,954
----------- ----------- ----------- ---------- ---------- ----------
Net equity transactions......... 914,326 2,599,374 3,386,076 1,920,402 1,549,686 1,283,833
----------- ----------- ----------- ---------- ---------- ----------
Net change in contract
owners' equity............. 1,399,543 2,682,215 4,657,661 2,212,358 2,060,227 1,568,242
Contract owners' equity:
Beginning of period.................. 15,465,753 12,783,538 8,125,877 4,867,483 2,807,236 1,238,994
----------- ----------- ----------- ---------- ---------- ----------
End of period........................ $16,865,296 $15,465,753 $12,783,538 $7,079,821 $4,867,463 $2,807,236
=========== =========== =========== ========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
Form 5560.4
63
<PAGE> 64
OHIO NATIONAL VARIABLE ACCOUNT R
STATEMENTS OF OPERATIONS AND CHANGES IN CONTRACT OWNERS' EQUITY
FOR THE THREE YEARS ENDED DECEMBER 31
<TABLE>
<CAPTION>
SMALL CAP GLOBAL CONTRARIAN
SUBACCOUNT SUBACCOUNT
---------------------------------------- ----------------------------------------
1998 1997 1996 1998 1997 1996
---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Investment activity:
Reinvested dividends........ $ 0 $ 0 $ 0 $ 54,153 $ 52,943 $ 18,287
Risk & administrative
expense (note 4)......... (54,057) (38,798) (20,200) (13,819) (9,551) (5,154)
---------- ---------- ---------- ---------- ---------- ----------
Net investment
activity............ (54,057) (38,798) (20,200) 40,334 43,392 13,133
---------- ---------- ---------- ---------- ---------- ----------
Realized & unrealized gain
(loss) on Investments:
Reinvested capital
gains.................. 107 271,143 56,631 180,539 83,769 1,932
Realized gain (loss)..... 57,223 84,498 9,714 8,238 32,076 1,474
Unrealized gain (loss)... 930,451 130,287 414,502 (187,295) (35,010) 43,850
---------- ---------- ---------- ---------- ---------- ----------
Net gain (loss) on
investments......... 987,781 485,928 480,847 1,482 80,835 47,256
---------- ---------- ---------- ---------- ---------- ----------
Net increase in
contract owners'
equity from
operations........ 933,724 447,130 460,647 41,816 124,227 60,389
---------- ---------- ---------- ---------- ---------- ----------
Equity transactions:
Sales:
Contract purchase
payments............... 2,614,149 2,181,009 1,584,784 666,312 537,053 459,332
Transfers from fixed &
other subaccounts...... 1,096,254 1,438,960 1,168,570 218,614 450,868 403,280
---------- ---------- ---------- ---------- ---------- ----------
3,710,403 3,619,969 2,753,354 884,926 987,921 862,612
---------- ---------- ---------- ---------- ---------- ----------
Redemptions:
Withdrawals & surrenders
(note 5)............... 258,338 141,409 80,764 56,018 221,380 3,696
Transfers to fixed &
other subaccounts...... 795,000 1,146,251 258,675 219,547 218,387 35,452
Cost of insurance &
administrative fee
(note 5)............... 705,650 579,612 383,497 178,599 140,673 75,598
---------- ---------- ---------- ---------- ---------- ----------
1,758,988 1,867,272 722,936 454,164 580,440 114,746
---------- ---------- ---------- ---------- ---------- ----------
Net equity
transactions........ 1,951,415 1,752,697 2,030,418 430,762 407,481 747,866
---------- ---------- ---------- ---------- ---------- ----------
Net change in
contract owners'
equity............ 2,885,139 2,199,827 2,491,065 472,578 531,708 808,255
Contract owners' equity:
Beginning of period......... 6,364,899 4,165,072 1,674,007 1,571,975 1,040,267 232,012
---------- ---------- ---------- ---------- ---------- ----------
End of period............... $9,250,038 $6,364,899 $4,165,072 $2,044,553 $1,571,975 $1,040,267
========== ========== ========== ========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
Form 5560.4
64
<PAGE> 65
OHIO NATIONAL VARIABLE ACCOUNT R
STATEMENTS OF OPERATIONS AND CHANGES IN CONTRACT OWNERS' EQUITY
FOR THE THREE YEARS ENDED DECEMBER 31
<TABLE>
<CAPTION>
AGGRESSIVE GROWTH CORE GROWTH GROWTH & INCOME
SUBACCOUNT SUBACCOUNT SUBACCOUNT
-------------------------------------- ------------------------ ------------------------
1998 1997 1996 1998 1997(A) 1998 1997(A)
---------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Investment activity:
Reinvested dividends........... $ 0 $ 24,808 $ 0 $ 0 $ 161 $ 40,476 $ 7,733
Risk & administrative expense
(note 4).................... (23,847) (16,668) (6,733) (7,627) (3,844) (27,216) (4,646)
---------- ---------- ---------- ---------- ---------- ---------- ----------
Net investment activity... (23,847) 8,140 (6,733) (7,627) (3,683) 13,260 3,087
---------- ---------- ---------- ---------- ---------- ---------- ----------
Realized & unrealized gain
(loss) on Investments:
Reinvested capital gains.... 258,472 9,068 158,688 0 0 0 90,978
Realized gain (loss)........ 22,270 (3,358) (294) 1,725 3,379 10,734 7,768
Unrealized gain (loss)...... (6,276) 231,511 (114,233) 101,913 (3,039) 252,938 94,008
---------- ---------- ---------- ---------- ---------- ---------- ----------
Net gain (loss) on
investments............ 274,466 237,221 44,161 103,638 340 263,672 192,754
---------- ---------- ---------- ---------- ---------- ---------- ----------
Net increase in
contract owners'
equity from
operations........... 250,619 245,361 37,428 96,011 (3,343) 276,932 195,841
---------- ---------- ---------- ---------- ---------- ---------- ----------
Equity transactions:
Sales:
Contract purchase
payments.................. 1,348,654 969,362 915,114 459,093 377,379 2,034,257 536,293
Transfers from fixed & other
subaccounts............... 423,659 544,712 640,496 378,819 631,937 2,464,502 1,270,995
---------- ---------- ---------- ---------- ---------- ---------- ----------
1,772,313 1,514,074 1,555,610 837,912 1,009,316 4,498,759 1,807,288
---------- ---------- ---------- ---------- ---------- ---------- ----------
Redemptions:
Withdrawals & surrenders
(note 5).................. 86,262 84,536 6,572 16,609 1,885 37,971 436
Transfers to fixed & other
subaccounts............... 460,387 418,423 120,708 327,440 116,828 582,153 95,943
Cost of insurance &
administrative fee (note
5)........................ 347,236 278,191 180,962 117,857 62,827 376,090 64,105
---------- ---------- ---------- ---------- ---------- ---------- ----------
893,885 781,150 308,242 461,906 181,540 996,214 160,484
---------- ---------- ---------- ---------- ---------- ---------- ----------
Net equity transactions... 878,428 732,924 1,247,368 376,006 827,776 3,502,545 1,646,804
---------- ---------- ---------- ---------- ---------- ---------- ----------
Net change in contract
owners' equity....... 1,129,047 978,285 1,284,796 472,017 824,433 3,779,477 1,842,645
Contract owners' equity:
Beginning of period............ 2,705,162 1,726,877 442,081 824,433 0 1,842,645 0
---------- ---------- ---------- ---------- ---------- ---------- ----------
End of period.................. $3,834,209 $2,705,162 $1,726,877 $1,296,450 $ 824,433 $5,622,122 $1,842,645
========== ========== ========== ========== ========== ========== ==========
</TABLE>
- ---------------
(a) Period from January 3, 1997, date of commencement of operations.
The accompanying notes are an integral part of these financial statements.
Form 5560.4
65
<PAGE> 66
OHIO NATIONAL VARIABLE ACCOUNT R
STATEMENTS OF OPERATIONS AND CHANGES IN CONTRACT OWNERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
MONTGOMERY ASSET
S&P INDEX SOCIAL AWARENESS EMERGING MARKET
SUBACCOUNT SUBACCOUNT SUBACCOUNT
------------------------- --------------------- ---------------------
1998 1997(A) 1998 1997(A) 1998 1997(B)
---------- ---------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Investment activity:
Reinvested dividends............................ $ 108,830 $ 33,016 $ 2,652 $ 983 $ 438 $ 131
Risk & administrative expense (note 4).......... (26,947) (2,986) (3,609) (394) (1,165) (188)
---------- ---------- -------- -------- -------- --------
Net investment activity...................... 81,883 30,030 (957) 589 (727) (57)
---------- ---------- -------- -------- -------- --------
Realized & unrealized gain (loss) on
Investments:
Reinvested capital gains..................... 328,825 94,770 0 29,015 0 0
Realized gain (loss)......................... 20,356 5,779 (31,042) 926 (3,512) (554)
Unrealized gain (loss)....................... 619,923 (52,996) (102,278) (31,805) (58,655) (9,987)
---------- ---------- -------- -------- -------- --------
Net gain (loss) on investments............. 969,104 47,553 (133,320) (1,864) (62,167) (10,541)
---------- ---------- -------- -------- -------- --------
Net increase in contract owners' equity
from operations....................... 1,050,987 77,583 (134,277) (1,275) (62,894) (10,598)
---------- ---------- -------- -------- -------- --------
Equity transactions:
Sales:
Contract purchase payments................... 2,194,159 560,773 292,044 35,077 190,059 44,409
Transfers from fixed & other subaccounts..... 4,432,311 775,750 229,481 319,587 69,940 58,741
---------- ---------- -------- -------- -------- --------
6,626,470 1,336,523 521,525 354,664 259,999 103,150
---------- ---------- -------- -------- -------- --------
Redemptions:
Withdrawals & surrenders (note 5)............ 110,446 727 7,059 50 1,469 0
Transfers to fixed & other subaccounts....... 714,255 83,751 148,460 13,740 18,913 6,244
Cost of insurance & administrative fee (note
5).......................................... 407,189 62,142 37,586 4,380 26,219 6,032
---------- ---------- -------- -------- -------- --------
1,231,890 146,620 193,105 18,170 46,601 12,276
---------- ---------- -------- -------- -------- --------
Net equity transactions.................... 5,394,580 1,189,903 328,420 336,494 213,398 90,874
---------- ---------- -------- -------- -------- --------
Net change in contract owners' equity... 6,445,567 1,267,486 194,143 335,219 150,504 80,276
Contract owners' equity:
Beginning of period............................. 1,267,486 0 335,219 0 80,276 0
---------- ---------- -------- -------- -------- --------
End of period................................... $7,713,053 $1,267,486 $529,362 $335,219 $230,780 $ 80,276
========== ========== ======== ======== ======== ========
</TABLE>
- ---------------
(a) Period from January 3, 1997, date of commencement of operations.
(b) Period from April 1, 1997, date of commencement of operations.
The accompanying notes are an integral part of these financial statements.
Form 5560.4
66
<PAGE> 67
OHIO NATIONAL VARIABLE ACCOUNT R
NOTES TO FINANCIAL STATEMENTS
(1) BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Ohio National Variable Account R (the Account) is a separate account of The
Ohio National Life Assurance Corporation (ONLAC). All obligations arising
under variable life insurance contracts are general corporate obligations of
ONLAC. ONLAC is a wholly-owned subsidiary of The Ohio National Life Insurance
Company. The account has been registered as a unit investment trust under the
Investment Company Act of 1940.
Assets of the Account are invested in portfolio shares of Ohio National Fund,
Inc. and Montgomery Variable Series Funds III (collectively the Funds). The
Funds are diversified open-end management investment companies. The Funds'
investments are subject to varying degrees of market, interest and financial
risks; the issuers' abilities to meet certain obligations may be affected by
economic developments in their respective industries.
Investments are valued at the net asset value of fund shares held at December
31, 1998. Share transactions are recorded on the trade date. Income and
capital gain distributions are recorded on the ex-dividend date. Net realized
capital gains and losses are determined on the basis of average cost.
ONLAC performs investment advisory services on behalf of the Ohio National
Fund, Inc. in which the Account invests. For these services, the Company
receives fees from the mutual funds. These fees are paid to an affiliate of
the Company.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
(2) INVESTMENTS
At December 31, 1998 the aggregate cost and number of shares of the
underlying funds owned by the respective subaccounts were:
<TABLE>
<CAPTION>
MONEY CAPITAL
EQUITY MARKET BOND OMNI INTERNATIONAL APPRECIATION SMALL CAP
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
----------- ----------- ----------- ----------- ------------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Aggregate Cost............... $23,407,094 $4,068,382 $1,680,174 $10,022,785 $18,457,611 $ 7,075,311 $7,563,705
Number of Shares............. 858,238 406,838 158,612 556,629 1,312,066 548,143 446,905
</TABLE>
<TABLE>
<CAPTION>
GLOBAL AGGRESSIVE CORE GROWTH & S&P 500 SOCIAL EMERGING
CONTRARIAN GROWTH GROWTH INCOME INDEX AWARENESS MARKET
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
----------- ----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Aggregate Cost.................. $2,217,885 $3,707,739 $1,197,576 $5,275,176 $7,146,126 $ 663,445 $ 299,422
Number of Shares................ 190,156 343,906 123,026 412,451 541,875 60,162 35,020
</TABLE>
(3) CONTRACTS IN ACCUMULATION PERIOD
At December 31, 1998 the accumulation units and value per unit of the
respective subaccounts and products were:
<TABLE>
<CAPTION>
ACCUMULATION UNITS VALUE PER UNIT VALUE
------------------ -------------- -----------
<S> <C> <C> <C>
EQUITY SUBACCOUNT........................................... 1,017,188.7817 30.639418 $31,166,072
MONEY MARKET SUBACCOUNT..................................... 234,262.0684 17.366799 $ 4,068,382
BOND SUBACCOUNT............................................. 80,280.1813 20.855811 $ 1,674,308
OMNI SUBACCOUNT............................................. 425,296.1830 28.055492 $11,931,894
INTERNATIONAL SUBACCOUNT.................................... 957,062.8519 17.621931 $16,865,296
CAPITAL APPRECIATION SUBACCOUNT............................. 423,380.1421 16.722138 $ 7,079,821
SMALL CAP SUBACCOUNT........................................ 493,226.7115 18.754130 $ 9,250,038
GLOBAL CONTRARIAN SUBACCOUNT................................ 149,010.5935 13.720858 $ 2,044,553
AGGRESSIVE GROWTH SUBACCOUNT................................ 254,031.8088 15.093421 $ 3,834,209
CORE GROWTH SUBACCOUNT...................................... 124,780.6014 10.389835 $ 1,296,450
GROWTH & INCOME SUBACCOUNT.................................. 390,193.2941 14.408556 $ 5,622,122
</TABLE>
Form 5560.4
67
<PAGE> 68
OHIO NATIONAL VARIABLE ACCOUNT R
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
<TABLE>
<CAPTION>
ACCUMULATION UNITS VALUE PER UNIT VALUE
------------------ -------------- -----------
<S> <C> <C> <C>
S&P 500 INDEX SUBACCOUNT.................................... 457,113.9196 16.873371 $ 7,713,053
SOCIAL AWARENESS SUBACCOUNT................................. 55,122.1801 9.603437 $ 529,362
EMERGING MARKET SUBACCOUNT.................................. 37,782.4744 6.108135 $ 230,780
</TABLE>
(4) RISK AND ADMINISTRATIVE EXPENSE
Although variable life payments differ according to the investment
performance of the Accounts, they are not affected by mortality or expense
experience because ONLAC assumes the expense risk and the mortality risk
under the contracts. ONLAC charges the Accounts' assets for assuming those
risks. Such charge will be assessed at a daily rate of 0.0020471% which
corresponds to an annual rate of .75% of the contract value.
(5) CONTRACT CHARGES
Each premium payment is subject to a premium expense charge. The premium
expense charge has two components: (a) Sales Load. Each contract is subject
to a level sales load of all premiums paid of 4%. (b) State Premium Tax.
Premium payments will be subject to the state premium tax and any other state
or local taxes that currently range from 2% to 4%.
Total premium expense charges in the Account amounted to approximately
$900,000 during 1998.
A surrender charge is assessed in connection with all complete surrenders,
all decreases in stated amount and certain partial surrenders consisting of
two components: (1) a contingent deferred sales charge, and (2) a contingent
deferred insurance underwriting charge.
The contingent deferred sales charge is a percentage of premiums paid in the
first two contract years. The contingent deferred sales charge percentages
are scaled by age at issue or increase. The contingent deferred insurance
underwriting charge varies with age at issue or increase.
A service charge is imposed on each transfer of cash values among the
subaccounts. Currently, ONLAC is not assessing this charge on the first four
transfers made in any contract year. For partial surrenders, a service fee is
charged.
ONLAC charges a monthly deduction from the contract value for the cost of
insurance, a $5.00 or $7.00 record keeping and processing charge, a risk
charge of $.01 per $1,000 of the stated amount for the risk associated with
the death benefit guarantee, and the cost of additional insurance benefits
provided by rider.
(6) FEDERAL INCOME TAXES
Operations of the Account form a part of, and are taxed with, operations of
ONLAC which is taxed as a life insurance company under the Internal Revenue
Code. Taxes are the responsibility of the contract owner upon termination or
withdrawal. No Federal income taxes are payable under the present law on
dividend income or capital gains distribution from the Fund shares held in
the Account or on capital gains realized by the Account on redemption of the
Fund shares.
Form 5560.4
68
<PAGE> 69
APPENDIX A
ILLUSTRATIONS OF CASH SURRENDER VALUES,
DEATH BENEFITS AND ACCUMULATED PREMIUMS.
The following tables help to show how contract values change with investment
performance. The tables illustrate how the death benefit of a contract of an
insured of a given age and the cash surrender value (reflecting the deduction of
sales load) would vary over time if the return on the assets held in the Funds
was a constant, gross, after-tax, annual rate of 0%, 6% or 12%. Because of
compounding, the death benefits and cash surrender values would be different
from those shown if the returns averaged 0%, 6%, or 12%, but fluctuated over and
under those averages throughout the years.
The amounts shown for the death benefit and cash surrender value as of each
contract year show that the net investment return on the assets held in the
subaccounts is lower than the gross, after-tax returns on Fund assets. This is
because certain fees and charges are deducted from the gross return. They are
the daily investment management fees incurred by the Funds. These are currently
equivalent to an average annual rate of 0.70% of the value of the average daily
net assets of the Funds to which contract values may be allocated. The daily
charge to VAR for assuming mortality and expense risks is equivalent to an
annual charge of 0.75%. Certain other fees and miscellaneous expenses borne by
the Funds are currently equivalent to an annual rate of 0.23% of average daily
net assets. Gross annual rates of return of 0%, 6%, and 12% produce average net
annual rates of return for all Funds of approximately -1.72%, 4.28%, and 10.28%.
Each page of illustrations includes two tables. The top table shows the death
benefits and cash surrender values assuming we assess current contract charges
("current tables"). Current charges are not guaranteed and may be changed. The
lower table shows the death benefits and cash surrender values assuming we
assess the maximum contract charges allowable.
The tables assume a premium tax deduction of 2.5% (the charge deducted from your
contract will reflect premium taxes in your jurisdiction), that no portion of
your net premiums have been allocated to the general account and that planned
premiums are paid on the first day of each contract year. The tables also assume
that you have made no transfers, partial surrenders, loans, changes in death
benefit option or changes in stated amount. Additionally, the tables assume that
there are no optional insurance benefits and the current tables assume that our
current cost of insurance charges will not be changed. Finally, the tables
reflect the fact that no charges for federal, state or local taxes are made now
against VAR. If such a charge is made in the future, it will take a higher gross
rate of return to produce after-tax returns of 0%, 6% and 12% than it does now.
Below is a list of the sample illustrations presented on the following pages of
this prospectus. Upon request, we will furnish a comparable illustration based
on your age, sex, risk class, death benefit plan, stated amount and planned
premium.
VARI-VEST IV
<TABLE>
<CAPTION>
AGE DEATH BENEFIT PLAN PLANNED PREMIUM STATED AMOUNT RISK CLASS PAGE
- --- ------------------ --------------- ------------- ---------- ----
<S> <C> <C> <C> <C> <C> <C>
25 Plan A 690 (Minimum) $ 150,000 Nonsmoker 70
25 Plan A 1,289 150,000 Nonsmoker 71
25 Plan B 690 (Minimum) 150,000 Nonsmoker 72
25 Plan B 3,148 150,000 Nonsmoker 73
40 Plan A 2,190 (Minimum) 250,000 Select Nonsmoker 74
40 Plan A 3,916 250,000 Select Nonsmoker 75
40 Plan B 2,190 (Minimum) 250,000 Select Nonsmoker 76
40 Plan B 9,489 250,000 Select Nonsmoker 77
</TABLE>
HYPOTHETICAL HISTORICAL ILLUSTRATIONS
We may produce hypothetical illustrations of the contract (such as those listed
above) based upon the actual historical investment performance (total return) of
the Funds from the inception of each Fund or one-, five- and ten-year periods.
Such illustrations reflect all contract and subsequent charges, including the
cost of insurance (specific to the age, sex, stated amount, risk classification
and type of death benefit), planned premium, premium tax, risk charge, sales
load, administration charge and surrender charge for the contract being
illustrated. We will also provide individualized illustrations upon request.
Being based upon past performance, neither hypothetical illustrations nor other
performance data indicate future performance.
Form 5560.4
69
<PAGE> 70
MALE ISSUE AGE 25 INITIAL STATED AMOUNT: $150,000
CLASSIFICATION: NONSMOKER DEATH BENEFIT TYPE: A (MATURITY AGE 95)
INITIAL PREMIUM: $690.00 STATED AMOUNT INCLUDES CASH VALUE
SUMMARY OF VALUES AND BENEFITS
ASSUMED HYPOTHETICAL GROSS ANNUAL INVESTMENT RETURN
12.00%(10.28% NET) 6.00%(4.28% NET) 0.00%(-1.72% NET)
ASSUMED COST OF INSURANCE AND EXPENSE CHARGES
<TABLE>
<CAPTION>
PLANNED PREMIUMS CURRENT CURRENT CURRENT
--------------------- ---------------------------- ---------------------------- ----------------------------
TOTAL ACCUMULATED END OF YEAR END OF YEAR END OF YEAR END OF YEAR END OF YEAR END OF YEAR
END OF POLICY ANNUAL AT 5% CASH SURRENDER DEATH CASH SURRENDER CASH DEATH CASH SURRENDER DEATH
YEAR OUTLAY INTEREST VALUE BENEFIT VALUE BENEFIT VALUE BENEFIT
- ------------- ------ ----------- -------------- ----------- -------------- ----------- -------------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1 690 725 0 150,000 0 150,000 0 150,000
2 690 1,485 186 150,000 101 150,000 20 150,000
3 690 2,284 268 150,000 98 150,000 0 150,000
4 690 3,123 816 150,000 528 150,000 275 150,000
5 690 4,003 1,534 150,000 1,089 150,000 714 150,000
6 690 4,928 2,315 150,000 1,671 150,000 1,148 150,000
7 690 5,899 3,288 150,000 2,395 150,000 1,699 150,000
8 690 6,918 4,333 150,000 3,136 150,000 2,241 150,000
9 690 7,989 5,342 150,000 3,780 150,000 2,658 150,000
10 690 9,113 6,436 150,000 4,439 150,000 3,064 150,000
15 690 15,634 12,900 150,000 7,381 150,000 4,317 150,000
20 690 23,956 22,712 150,000 10,310 150,000 4,845 150,000
Age 60 690 65,437 102,274 150,000 16,241 150,000 0 150,000
Age 65 690 87,519 167,904 204,843 14,200 150,000 0 150,000
Age 70 690 115,703 273,227 316,943 6,326 150,000 0 150,000
</TABLE>
ASSUMED HYPOTHETICAL GROSS ANNUAL INVESTMENT RETURN
12.00%(10.28% NET) 6.00%(4.28% NET) 0.00%(-1.72% NET)
ASSUMED COST OF INSURANCE AND EXPENSE CHARGES
<TABLE>
<CAPTION>
PLANNED PREMIUMS GUARANTEED GUARANTEED GUARANTEED
--------------------- ---------------------------- ---------------------------- ----------------------------
TOTAL ACCUMULATED END OF YEAR END OF YEAR END OF YEAR END OF YEAR END OF YEAR END OF YEAR
END OF POLICY ANNUAL AT 5% CASH SURRENDER DEATH CASH SURRENDER CASH DEATH CASH SURRENDER DEATH
YEAR OUTLAY INTEREST VALUE BENEFIT VALUE BENEFIT VALUE BENEFIT
- ------------- ------ ----------- -------------- ----------- -------------- ----------- -------------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1 690 725 0 150,000 0 150,000 0 150,000
2 690 1,485 157 150,000 74 150,000 0 150,000
3 690 2,284 229 150,000 63 150,000 0 150,000
4 690 3,123 769 150,000 488 150,000 240 150,000
5 690 4,003 1,365 150,000 931 150,000 563 150,000
6 690 4,928 2,024 150,000 1,393 150,000 881 150,000
7 690 5,899 2,747 150,000 1,872 150,000 1,190 150,000
8 690 6,918 3,991 150,000 2,818 150,000 1,940 150,000
9 690 7,989 4,860 150,000 3,328 150,000 2,227 150,000
10 690 9,113 5,810 150,000 3,851 150,000 2,502 150,000
15 690 15,634 12,676 150,000 7,255 150,000 4,243 150,000
20 690 23,956 22,287 150,000 10,100 150,000 4,729 150,000
Age 60 690 65,437 98,606 150,000 13,929 150,000 0 150,000
Age 65 690 87,519 161,130 196,579 8,525 150,000 0 150,000
Age 70 690 115,703 260,715 302,429 0 150,000 0 150,000
</TABLE>
The hypothetical gross annual investment results shown above are illustrative
only and should not be deemed a representation of past or future investment
results. Actual investment results may be more or less than those shown and will
depend on a number of factors, including allocations made by the owner among the
investment options and the actual investment results of those options. The cash
surrender value and death benefit for a policy would be different from those
shown even if the actual rates of investment averaged 0%, 6% and 12% over a
period of years but fluctuated above or below those averages for individual
contract years. No representations can be made that these hypothetical
investment rates of return can be achieved for any one year or sustained over
any period of time. This illustration assumes current cost of insurance and
expense charges remain unchanged.
Form 5560.4
70
<PAGE> 71
MALE ISSUE AGE 25 INITIAL STATED AMOUNT: $150,000
CLASSIFICATION: NONSMOKER DEATH BENEFIT TYPE: A (MATURITY AGE 95)
INITIAL PREMIUM: $1,289.00 STATED AMOUNT INCLUDES CASH VALUE
SUMMARY OF VALUES AND BENEFITS
ASSUMED HYPOTHETICAL GROSS ANNUAL INVESTMENT RETURN
12.00%(10.28% NET) 6.00%(4.28% NET) 0.00%(-1.72% NET)
ASSUMED COST OF INSURANCE AND EXPENSE CHARGES
<TABLE>
<CAPTION>
PLANNED PREMIUMS CURRENT CURRENT CURRENT
--------------------- ---------------------------- ---------------------------- ----------------------------
TOTAL ACCUMULATED END OF YEAR END OF YEAR END OF YEAR END OF YEAR END OF YEAR END OF YEAR
END OF POLICY ANNUAL AT 5% CASH SURRENDER DEATH CASH SURRENDER CASH DEATH CASH SURRENDER DEATH
YEAR OUTLAY INTEREST VALUE BENEFIT VALUE BENEFIT VALUE BENEFIT
- ------------- ------ ----------- -------------- ----------- -------------- ----------- -------------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1 1,289 1,353 301 150,000 238 150,000 175 150,000
2 1,289 2,775 1,359 150,000 1,168 150,000 986 150,000
3 1,289 4,267 2,040 150,000 1,647 150,000 1,286 150,000
4 1,289 5,834 3,421 150,000 2,743 150,000 2,143 150,000
5 1,289 7,479 5,059 150,000 4,000 150,000 3,100 150,000
6 1,289 9,206 6,856 150,000 5,308 150,000 4,043 150,000
7 1,289 11,020 9,008 150,000 6,848 150,000 5,152 150,000
8 1,289 12,924 11,349 150,000 8,438 150,000 6,244 150,000
9 1,289 14,924 13,785 150,000 9,966 150,000 7,204 150,000
10 1,289 17,024 16,448 150,000 11,547 150,000 8,145 150,000
15 1,289 29,206 33,293 150,000 19,499 150,000 11,746 150,000
20 1,289 44,753 60,236 150,000 28,657 150,000 14,427 150,000
Age 60 1,289 122,244 286,597 384,040 66,387 150,000 15,598 150,000
Age 65 1,289 163,496 467,875 570,807 83,250 150,000 11,708 150,000
Age 70 1,289 216,146 758,289 879,616 103,257 150,000 3,323 150,000
</TABLE>
ASSUMED HYPOTHETICAL GROSS ANNUAL INVESTMENT RETURN
12.00%(10.28% NET) 6.00%(4.28% NET) 0.00%(-1.72% NET)
ASSUMED COST OF INSURANCE AND EXPENSE CHARGES
<TABLE>
<CAPTION>
PLANNED PREMIUMS GUARANTEED GUARANTEED GUARANTEED
--------------------- ---------------------------- ---------------------------- ----------------------------
TOTAL ACCUMULATED END OF YEAR END OF YEAR END OF YEAR END OF YEAR END OF YEAR END OF YEAR
END OF POLICY ANNUAL AT 5% CASH SURRENDER DEATH CASH SURRENDER CASH DEATH CASH SURRENDER DEATH
YEAR OUTLAY INTEREST VALUE BENEFIT VALUE BENEFIT VALUE BENEFIT
- ------------- ------ ----------- -------------- ----------- -------------- ----------- -------------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1 1,289 1,353 285 150,000 222 150,000 159 150,000
2 1,289 2,775 1,331 150,000 1,142 150,000 961 150,000
3 1,289 4,267 2,001 150,000 1,613 150,000 1,255 150,000
4 1,289 5,834 3,374 150,000 2,703 150,000 2,109 150,000
5 1,289 7,479 4,891 150,000 3,842 150,000 2,949 150,000
6 1,289 9,206 6,566 150,000 5,031 150,000 3,777 150,000
7 1,289 11,020 8,411 150,000 6,269 150,000 4,587 150,000
8 1,289 12,924 10,894 150,000 8,007 150,000 5,830 150,000
9 1,289 14,924 13,133 150,000 9,345 150,000 6,603 150,000
10 1,289 17,024 15,597 150,000 10,734 150,000 7,356 150,000
15 1,289 29,206 33,076 150,000 19,377 150,000 11,674 150,000
20 1,289 44,753 59,834 150,000 28,457 150,000 14,315 150,000
Age 60 1,289 122,244 283,329 379,661 64,628 150,000 14,079 150,000
Age 65 1,289 163,496 460,681 562,030 79,476 150,000 7,912 150,000
Age 70 1,289 216,146 742,063 860,793 95,578 150,000 0 150,000
</TABLE>
The hypothetical gross annual investment results shown above are illustrative
only and should not be deemed a representation of past or future investment
results. Actual investment results may be more or less than those shown and will
depend on a number of factors, including allocations made by the owner among the
investment options and the actual investment results of those options. The cash
surrender value and death benefit for a policy would be different from those
shown even if the actual rates of investment averaged 0%, 6% and 12% over a
period of years but fluctuated above or below those averages for individual
contract years. No representations can be made that these hypothetical
investment rates of return can be achieved for any one year or sustained over
any period of time. This illustration assumes current cost of insurance and
expense charges remain unchanged.
Form 5560.4
71
<PAGE> 72
MALE ISSUE AGE 25 INITIAL STATED AMOUNT: $150,000
CLASSIFICATION: NONSMOKER DEATH BENEFIT TYPE: B (MATURITY AGE 95)
INITIAL PREMIUM: $690.00 STATED AMOUNT INCLUDES CASH VALUE
SUMMARY OF VALUES AND BENEFITS
ASSUMED HYPOTHETICAL GROSS ANNUAL INVESTMENT RETURN
12.00%(10.28% NET) 6.00%(4.28% NET) 0.00%(-1.72% NET)
ASSUMED COST OF INSURANCE AND EXPENSE CHARGES
<TABLE>
<CAPTION>
PLANNED PREMIUMS CURRENT CURRENT CURRENT
--------------------- ---------------------------- ---------------------------- ----------------------------
TOTAL ACCUMULATED END OF YEAR END OF YEAR END OF YEAR END OF YEAR END OF YEAR END OF YEAR
END OF POLICY ANNUAL AT 5% CASH SURRENDER DEATH CASH SURRENDER CASH DEATH CASH SURRENDER DEATH
YEAR OUTLAY INTEREST VALUE BENEFIT VALUE BENEFIT VALUE BENEFIT
- ------------- ------ ----------- -------------- ----------- -------------- ----------- -------------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1 690 725 0 150,406 0 150,377 0 150,347
2 690 1,485 183 150,854 99 150,769 18 150,689
3 690 2,284 263 151,348 94 151,179 0 151,024
4 690 3,123 808 151,893 521 151,606 269 151,354
5 690 4,003 1,521 152,494 1,079 152,052 706 151,678
6 690 4,928 2,296 153,156 1,656 152,516 1,137 151,996
7 690 5,899 3,262 153,882 2,375 152,996 1,685 152,305
8 690 6,918 4,297 154,678 3,111 153,491 2,223 152,604
9 690 7,989 5,293 155,547 3,747 154,001 2,636 152,890
10 690 9,113 6,371 156,498 4,397 154,524 3,036 153,163
15 690 15,634 12,680 162,680 7,264 157,264 4,255 154,255
20 690 23,956 22,061 172,061 10,034 160,034 4,726 154,726
Age 60 690 65,437 90,688 240,688 14,080 164,080 0 150,000
Age 65 690 87,519 140,149 290,149 10,461 160,461 0 150,000
Age 70 690 115,703 214,589 364,589 550 150,550 0 150,000
</TABLE>
ASSUMED HYPOTHETICAL GROSS ANNUAL INVESTMENT RETURN
12.00%(10.28% NET) 6.00%(4.28% NET) 0.00%(-1.72% NET)
ASSUMED COST OF INSURANCE AND EXPENSE CHARGES
<TABLE>
<CAPTION>
PLANNED PREMIUMS GUARANTEED GUARANTEED GUARANTEED
--------------------- ---------------------------- ---------------------------- ----------------------------
TOTAL ACCUMULATED END OF YEAR END OF YEAR END OF YEAR END OF YEAR END OF YEAR END OF YEAR
END OF POLICY ANNUAL AT 5% CASH SURRENDER DEATH CASH SURRENDER CASH DEATH CASH SURRENDER DEATH
YEAR OUTLAY INTEREST VALUE BENEFIT VALUE BENEFIT VALUE BENEFIT
- ------------- ------ ----------- -------------- ----------- -------------- ----------- -------------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1 690 725 0 150,389 0 150,360 0 150,332
2 690 1,485 154 150,825 72 150,742 0 150,663
3 690 2,284 224 151,309 59 151,144 0 150,993
4 690 3,123 761 151,846 481 151,566 234 151,319
5 690 4,003 1,353 152,437 920 152,005 555 151,640
6 690 4,928 2,005 153,090 1,379 152,464 870 151,955
7 690 5,899 2,720 153,805 1,853 152,937 1,176 152,260
8 690 6,918 3,954 154,589 2,792 153,427 1,921 152,556
9 690 7,989 4,811 155,445 3,294 153,929 2,205 152,839
10 690 9,113 5,746 156,380 3,809 154,444 2,474 153,109
15 690 15,634 12,455 162,455 7,138 157,138 4,181 154,181
20 690 23,956 21,633 171,633 9,822 159,822 4,609 154,609
Age 60 690 65,437 86,142 236,142 11,673 161,673 0 150,000
Age 65 690 87,519 129,555 279,555 4,702 154,702 0 150,000
Age 70 690 115,703 190,469 340,469 0 150,000 0 150,000
</TABLE>
The hypothetical gross annual investment results shown above are illustrative
only and should not be deemed a representation of past or future investment
results. Actual investment results may be more or less than those shown and will
depend on a number of factors, including allocations made by the owner among the
investment options and the actual investment results of those options. The cash
surrender value and death benefit for a policy would be different from those
shown even if the actual rates of investment averaged 0%, 6% and 12% over a
period of years but fluctuated above or below those averages for individual
contract years. No representations can be made that these hypothetical
investment rates of return can be achieved for any one year or sustained over
any period of time. This illustration assumes current cost of insurance and
expense charges remain unchanged.
Form 5560.4
72
<PAGE> 73
MALE ISSUE AGE 25 INITIAL STATED AMOUNT: $150,000
CLASSIFICATION: NONSMOKER DEATH BENEFIT TYPE: B (MATURITY AGE 95)
INITIAL PREMIUM: $3,148.00 STATED AMOUNT INCLUDES CASH VALUE
SUMMARY OF VALUES AND BENEFITS
ASSUMED HYPOTHETICAL GROSS ANNUAL INVESTMENT RETURN
12.00%(10.28% NET) 6.00%(4.28% NET) 0.00%(-1.72% NET)
ASSUMED COST OF INSURANCE AND EXPENSE CHARGES
<TABLE>
<CAPTION>
PLANNED PREMIUMS CURRENT CURRENT CURRENT
--------------------- ---------------------------- ---------------------------- ----------------------------
TOTAL ACCUMULATED END OF YEAR END OF YEAR END OF YEAR END OF YEAR END OF YEAR END OF YEAR
END OF POLICY ANNUAL AT 5% CASH SURRENDER DEATH CASH SURRENDER CASH DEATH CASH SURRENDER DEATH
YEAR OUTLAY INTEREST VALUE BENEFIT VALUE BENEFIT VALUE BENEFIT
- ------------- ------ ----------- -------------- ----------- -------------- ----------- -------------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1 3,148 3,305 2,123 152,941 1,956 152,773 1,789 152,606
2 3,148 6,776 5,199 156,184 4,681 155,665 4,183 155,167
3 3,148 10,420 8,391 159,760 7,312 158,681 6,315 157,684
4 3,148 14,247 12,335 163,704 10,457 161,826 8,789 160,158
5 3,148 18,264 16,797 168,054 13,849 165,105 11,333 162,590
6 3,148 22,483 21,706 172,850 17,381 168,525 13,835 164,979
7 3,148 26,913 27,287 178,135 21,239 172,087 16,475 167,323
8 3,148 31,564 33,407 183,959 25,245 175,796 19,071 169,622
9 3,148 36,447 40,005 190,373 29,289 179,657 21,507 171,875
10 3,148 41,575 47,255 197,439 33,491 183,675 23,897 174,080
15 3,148 71,326 95,021 245,021 56,266 206,266 34,346 184,346
20 3,148 109,296 171,509 380,750 83,516 233,516 43,230 193,230
Age 60 3,148 298,545 804,410 1,077,909 200,911 350,911 59,264 209,264
Age 65 3,148 399,292 1,311,173 1,599,631 253,948 403,948 59,160 209,160
Age 70 3,148 527,873 2,123,026 2,462,710 313,948 463,948 54,347 204,347
</TABLE>
ASSUMED HYPOTHETICAL GROSS ANNUAL INVESTMENT RETURN
12.00%(10.28% NET) 6.00%(4.28% NET) 0.00%(-1.72% NET)
ASSUMED COST OF INSURANCE AND EXPENSE CHARGES
<TABLE>
<CAPTION>
PLANNED PREMIUMS GUARANTEED GUARANTEED GUARANTEED
--------------------- ---------------------------- ---------------------------- ----------------------------
TOTAL ACCUMULATED END OF YEAR END OF YEAR END OF YEAR END OF YEAR END OF YEAR END OF YEAR
END OF POLICY ANNUAL AT 5% CASH SURRENDER DEATH CASH SURRENDER CASH DEATH CASH SURRENDER DEATH
YEAR OUTLAY INTEREST VALUE BENEFIT VALUE BENEFIT VALUE BENEFIT
- ------------- ------ ----------- -------------- ----------- -------------- ----------- -------------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1 3,148 3,305 2,107 152,924 1,940 152,757 1,773 152,590
2 3,148 6,776 5,170 156,155 4,654 155,638 4,157 155,142
3 3,148 10,420 8,352 159,721 7,277 158,646 6,284 157,653
4 3,148 14,247 12,288 163,657 10,416 161,785 8,754 160,123
5 3,148 18,264 16,628 167,997 13,690 165,059 11,182 162,552
6 3,148 22,483 21,415 172,784 17,104 168,473 13,569 164,938
7 3,148 26,913 26,689 178,058 20,659 172,028 15,910 167,279
8 3,148 31,564 32,951 183,870 24,812 175,731 18,656 169,575
9 3,148 36,447 39,352 190,271 28,666 179,585 20,905 171,824
10 3,148 41,575 46,402 197,321 32,676 183,595 23,107 174,026
15 3,148 71,326 94,797 244,797 56,140 206,140 34,272 184,272
20 3,148 109,296 171,075 379,787 83,304 233,304 43,113 193,113
Age 60 3,148 298,545 798,135 1,069,501 198,511 348,511 57,625 207,625
Age 65 3,148 399,292 1,295,623 1,580,660 248,211 398,211 55,217 205,217
Age 70 3,148 527,873 2,084,913 2,418,499 300,913 450,913 45,504 195,504
</TABLE>
The hypothetical gross annual investment results shown above are illustrative
only and should not be deemed a representation of past or future investment
results. Actual investment results may be more or less than those shown and will
depend on a number of factors, including allocations made by the owner among the
investment options and the actual investment results of those options. The cash
surrender value and death benefit for a policy would be different from those
shown even if the actual rates of investment averaged 0%, 6% and 12% over a
period of years but fluctuated above or below those averages for individual
contract years. No representations can be made that these hypothetical
investment rates of return can be achieved for any one year or sustained over
any period of time. This illustration assumes current cost of insurance and
expense charges remain unchanged.
Form 5560.4
73
<PAGE> 74
MALE ISSUE AGE 40 INITIAL STATED AMOUNT: $250,000
CLASSIFICATION: SELECT NONSMOKER DEATH BENEFIT TYPE: A (MATURITY AGE 95)
INITIAL PREMIUM: $2,190.00 STATED AMOUNT INCLUDES CASH VALUE
SUMMARY OF VALUES AND BENEFITS
ASSUMED HYPOTHETICAL GROSS ANNUAL INVESTMENT RETURN
12.00%(10.28% NET) 6.00%(4.28% NET) 0.00%(-1.72% NET)
ASSUMED COST OF INSURANCE AND EXPENSE CHARGES
<TABLE>
<CAPTION>
PLANNED PREMIUMS CURRENT CURRENT CURRENT
-------------------- ---------------------------- ---------------------------- ----------------------------
TOTAL ACCUMULATED END OF YEAR END OF YEAR END OF YEAR END OF YEAR END OF YEAR END OF YEAR
END OF ANNUAL AT 5% CASH SURRENDER DEATH CASH SURRENDER CASH DEATH CASH SURRENDER DEATH
POLICY YEAR OUTLAY INTEREST VALUE BENEFIT VALUE BENEFIT VALUE BENEFIT
- ----------- ------ ----------- -------------- ----------- -------------- ----------- -------------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1 2,190 2,300 354 250,000 248 250,000 143 250,000
2 2,190 4,714 2,032 250,000 1,717 250,000 1,415 250,000
3 2,190 7,249 2,683 250,000 2,042 250,000 1,451 250,000
4 2,190 9,911 4,814 250,000 3,714 250,000 2,742 250,000
5 2,190 12,706 7,319 250,000 5,612 250,000 4,165 250,000
6 2,190 15,641 10,020 250,000 7,541 250,000 5,524 250,000
7 2,190 18,723 13,337 250,000 9,901 250,000 7,218 250,000
8 2,190 21,958 16,887 250,000 12,286 250,000 8,841 250,000
9 2,190 25,356 20,512 250,000 14,515 250,000 10,212 250,000
10 2,190 28,923 24,423 250,000 16,770 250,000 11,512 250,000
15 2,190 49,620 47,645 250,000 26,660 250,000 15,146 250,000
20 2,190 76,035 83,037 250,000 35,894 250,000 15,635 250,000
Age 60 2,190 76,035 83,037 250,000 35,894 250,000 15,635 250,000
Age 65 2,190 109,748 139,590 250,000 43,588 250,000 12,114 250,000
Age 70 2,190 152,776 234,094 271,549 47,247 250,000 2,197 250,000
</TABLE>
ASSUMED HYPOTHETICAL GROSS ANNUAL INVESTMENT RETURN
12.00%(10.28% NET) 6.00%(4.28% NET) 0.00%(-1.72% NET)
ASSUMED COST OF INSURANCE AND EXPENSE CHARGES
<TABLE>
<CAPTION>
PLANNED PREMIUMS GUARANTEED GUARANTEED GUARANTEED
-------------------- ---------------------------- ---------------------------- ----------------------------
TOTAL ACCUMULATED END OF YEAR END OF YEAR END OF YEAR END OF YEAR END OF YEAR END OF YEAR
END OF ANNUAL AT 5% CASH SURRENDER DEATH CASH SURRENDER CASH DEATH CASH SURRENDER DEATH
POLICY YEAR OUTLAY INTEREST VALUE BENEFIT VALUE BENEFIT VALUE BENEFIT
- ----------- ------ ----------- -------------- ----------- -------------- ----------- -------------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1 2,190 2,300 246 250,000 144 250,000 42 250,000
2 2,190 4,714 1,799 250,000 1,497 250,000 1,208 250,000
3 2,190 7,249 2,300 250,000 1,690 250,000 1,129 250,000
4 2,190 9,911 4,253 250,000 3,213 250,000 2,295 250,000
5 2,190 12,706 6,360 250,000 4,753 250,000 3,393 250,000
6 2,190 15,641 8,628 250,000 6,303 250,000 4,416 250,000
7 2,190 18,723 11,070 250,000 7,859 250,000 5,361 250,000
8 2,190 21,958 14,451 250,000 10,167 250,000 6,973 250,000
9 2,190 25,356 17,288 250,000 11,723 250,000 7,750 250,000
10 2,190 28,923 20,347 250,000 13,269 250,000 8,435 250,000
15 2,190 49,620 41,572 250,000 22,466 250,000 12,139 250,000
20 2,190 76,035 69,296 250,000 27,033 250,000 9,531 250,000
Age 60 2,190 76,035 69,296 250,000 27,033 250,000 9,531 250,000
Age 65 2,190 109,748 110,424 250,000 25,348 250,000 0 250,000
Age 70 2,190 152,776 175,393 250,000 9,295 250,000 0 250,000
</TABLE>
The hypothetical gross annual investment results shown above are illustrative
only and should not be deemed a representation of past or future investment
results. Actual investment results may be more or less than those shown and will
depend on a number of factors, including allocations made by the owner among the
investment options and the actual investment results of those options. The cash
surrender value and death benefit for a policy would be different from those
shown even if the actual rates of investment averaged 0%, 6% and 12% over a
period of years but fluctuated above or below those averages for individual
contract years. No representations can be made that these hypothetical
investment rates of return can be achieved for any one year or sustained over
any period of time. This illustration assumes current cost of insurance and
expense charges remain unchanged.
Form 5560.4
74
<PAGE> 75
MALE ISSUE AGE 40 INITIAL STATED AMOUNT: $250,000
CLASSIFICATION: SELECT NONSMOKER DEATH BENEFIT TYPE: A (MATURITY AGE 95)
INITIAL PREMIUM: $3,916.00 STATED AMOUNT INCLUDES CASH VALUE
SUMMARY OF VALUES AND BENEFITS
ASSUMED HYPOTHETICAL GROSS ANNUAL INVESTMENT RETURN
12.00%(10.28% NET) 6.00%(4.28% NET) 0.00%(-1.72% NET)
ASSUMED COST OF INSURANCE AND EXPENSE CHARGES
<TABLE>
<CAPTION>
PLANNED PREMIUMS CURRENT CURRENT CURRENT
-------------------- ---------------------------- ---------------------------- ----------------------------
TOTAL ACCUMULATED END OF YEAR END OF YEAR END OF YEAR END OF YEAR END OF YEAR END OF YEAR
END OF ANNUAL AT 5% CASH SURRENDER DEATH CASH SURRENDER CASH DEATH CASH SURRENDER DEATH
POLICY YEAR OUTLAY INTEREST VALUE BENEFIT VALUE BENEFIT VALUE BENEFIT
- ----------- ------ ----------- -------------- ----------- -------------- ----------- -------------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1 3,916 4,112 1,808 250,000 1,606 250,000 1,404 250,000
2 3,916 8,429 5,358 250,000 4,738 250,000 4,143 250,000
3 3,916 12,962 7,552 250,000 6,269 250,000 5,085 250,000
4 3,916 17,722 12,092 250,000 9,868 250,000 7,895 250,000
5 3,916 22,720 17,261 250,000 13,780 250,000 10,816 250,000
6 3,916 27,968 22,911 250,000 17,817 250,000 13,653 250,000
7 3,916 33,478 29,704 250,000 22,597 250,000 17,018 250,000
8 3,916 39,264 37,081 250,000 27,506 250,000 20,294 250,000
9 3,916 45,339 44,922 250,000 32,369 250,000 23,301 250,000
10 3,916 51,718 53,482 250,000 37,377 250,000 26,220 250,000
15 3,916 88,727 107,572 250,000 62,219 250,000 36,910 250,000
20 3,916 135,961 195,303 261,706 90,620 250,000 44,103 250,000
Age 60 3,916 135,961 195,303 261,706 90,620 250,000 44,103 250,000
Age 65 3,916 196,244 338,469 412,932 124,098 250,000 47,501 250,000
Age 70 3,916 273,183 568,531 659,496 164,310 250,000 45,354 250,000
</TABLE>
ASSUMED HYPOTHETICAL GROSS ANNUAL INVESTMENT RETURN
12.00%(10.28% NET) 6.00%(4.28% NET) 0.00%(-1.72% NET)
ASSUMED COST OF INSURANCE AND EXPENSE CHARGES
<TABLE>
<CAPTION>
PLANNED PREMIUMS GUARANTEED GUARANTEED GUARANTEED
-------------------- ---------------------------- ---------------------------- ----------------------------
TOTAL ACCUMULATED END OF YEAR END OF YEAR END OF YEAR END OF YEAR END OF YEAR END OF YEAR
END OF ANNUAL AT 5% CASH SURRENDER DEATH CASH SURRENDER CASH DEATH CASH SURRENDER DEATH
POLICY YEAR OUTLAY INTEREST VALUE BENEFIT VALUE BENEFIT VALUE BENEFIT
- ----------- ------ ----------- -------------- ----------- -------------- ----------- -------------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1 3,916 4,112 1,701 250,000 1,502 250,000 1,303 250,000
2 3,916 8,429 5,128 250,000 4,521 250,000 3,938 250,000
3 3,916 12,962 7,175 250,000 5,922 250,000 4,767 250,000
4 3,916 17,722 11,542 250,000 9,375 250,000 7,456 250,000
5 3,916 22,720 16,321 250,000 12,936 250,000 10,057 250,000
6 3,916 27,968 21,548 250,000 16,603 250,000 12,564 250,000
7 3,916 33,478 27,269 250,000 20,376 250,000 14,974 250,000
8 3,916 39,264 34,285 250,000 25,010 250,000 18,035 250,000
9 3,916 45,339 41,155 250,000 29,006 250,000 20,247 250,000
10 3,916 51,718 48,689 250,000 33,115 250,000 22,352 250,000
15 3,916 88,727 102,125 250,000 58,370 250,000 34,095 250,000
20 3,916 135,961 184,191 250,000 82,936 250,000 38,546 250,000
Age 60 3,916 135,961 184,191 250,000 82,936 250,000 38,546 250,000
Age 65 3,916 196,244 318,453 388,513 109,539 250,000 36,587 250,000
Age 70 3,916 273,183 531,598 616,654 137,565 250,000 23,343 250,000
</TABLE>
The hypothetical gross annual investment results shown above are illustrative
only and should not be deemed a representation of past or future investment
results. Actual investment results may be more or less than those shown and will
depend on a number of factors, including allocations made by the owner among the
investment options and the actual investment results of those options. The cash
surrender value and death benefit for a policy would be different from those
shown even if the actual rates of investment averaged 0%, 6% and 12% over a
period of years but fluctuated above or below those averages for individual
contract years. No representations can be made that these hypothetical
investment rates of return can be achieved for any one year or sustained over
any period of time. This illustration assumes current cost of insurance and
expense charges remain unchanged.
Form 5560.4
75
<PAGE> 76
MALE ISSUE AGE 40 INITIAL STATED AMOUNT: $250,000
CLASSIFICATION: SELECT NONSMOKER DEATH BENEFIT TYPE: A (MATURITY AGE 95)
INITIAL PREMIUM: $2,190.00 STATED AMOUNT INCLUDES CASH VALUE
SUMMARY OF VALUES AND BENEFITS
ASSUMED HYPOTHETICAL GROSS ANNUAL INVESTMENT RETURN
12.00%(10.28% NET) 6.00%(4.28% NET) 0.00%(-1.72% NET)
ASSUMED COST OF INSURANCE AND EXPENSE CHARGES
<TABLE>
<CAPTION>
PLANNED PREMIUMS CURRENT CURRENT CURRENT
-------------------- ---------------------------- ---------------------------- ----------------------------
TOTAL ACCUMULATED END OF YEAR END OF YEAR END OF YEAR END OF YEAR END OF YEAR END OF YEAR
END OF ANNUAL AT 5% CASH SURRENDER DEATH CASH SURRENDER CASH DEATH CASH SURRENDER DEATH
POLICY YEAR OUTLAY INTEREST VALUE BENEFIT VALUE BENEFIT VALUE BENEFIT
- ----------- ------ ----------- -------------- ----------- -------------- ----------- -------------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1 2,190 2,300 350 251,669 245 251,564 140 251,459
2 2,190 4,714 2,020 253,470 1,706 253,157 1,406 252,856
3 2,190 7,249 2,657 255,422 2,019 254,784 1,432 254,197
4 2,190 9,911 4,767 257,532 3,675 256,440 2,710 255,475
5 2,190 12,706 7,242 259,819 5,551 258,128 4,115 256,693
6 2,190 15,641 9,901 262,291 7,449 259,839 5,453 257,843
7 2,190 18,723 13,162 264,961 9,770 261,570 7,121 258,920
8 2,190 21,958 16,636 267,845 12,106 263,315 8,713 259,922
9 2,190 25,356 20,163 270,969 14,275 265,081 10,048 260,854
10 2,190 28,923 23,947 274,350 16,458 266,861 11,308 261,711
15 2,190 49,620 45,834 295,834 25,700 275,700 14,637 264,637
20 2,190 76,035 77,308 327,308 33,497 283,497 14,626 264,626
Age 60 2,190 76,035 77,308 327,308 33,497 283,497 14,626 264,626
Age 65 2,190 109,748 123,127 373,127 38,306 288,306 10,439 260,439
Age 70 2,190 152,776 189,143 439,143 36,645 286,645 15 250,015
</TABLE>
ASSUMED HYPOTHETICAL GROSS ANNUAL INVESTMENT RETURN
12.00%(10.28% NET) 6.00%(4.28% NET) 0.00%(-1.72% NET)
ASSUMED COST OF INSURANCE AND EXPENSE CHARGES
<TABLE>
<CAPTION>
PLANNED PREMIUMS GUARANTEED GUARANTEED GUARANTEED
-------------------- ---------------------------- ---------------------------- ----------------------------
TOTAL ACCUMULATED END OF YEAR END OF YEAR END OF YEAR END OF YEAR END OF YEAR END OF YEAR
END OF ANNUAL AT 5% CASH SURRENDER DEATH CASH SURRENDER CASH DEATH CASH SURRENDER DEATH
POLICY YEAR OUTLAY INTEREST VALUE BENEFIT VALUE BENEFIT VALUE BENEFIT
- ----------- ------ ----------- -------------- ----------- -------------- ----------- -------------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1 2,190 2,300 242 251,561 140 251,459 38 251,358
2 2,190 4,714 1,785 253,236 1,484 252,935 1,197 252,648
3 2,190 7,249 2,270 255,035 1,664 254,428 1,107 253,871
4 2,190 9,911 4,199 256,964 3,167 255,932 2,257 255,022
5 2,190 12,706 6,271 259,036 4,682 257,446 3,336 256,101
6 2,190 15,641 8,490 261,255 6,197 258,962 4,335 257,099
7 2,190 18,723 10,867 263,631 7,708 260,473 5,249 258,014
8 2,190 21,958 14,161 266,176 9,961 261,975 6,827 258,842
9 2,190 25,356 16,886 268,900 11,448 263,463 7,564 259,578
10 2,190 28,923 19,798 271,813 12,910 264,925 8,201 260,216
15 2,190 49,620 39,464 289,464 21,363 271,363 11,564 261,564
20 2,190 76,035 62,496 312,496 24,289 274,289 8,441 258,441
Age 60 2,190 76,035 62,496 312,496 24,289 274,289 8,441 258,441
Age 65 2,190 109,748 90,495 340,495 19,547 269,547 0 250,000
Age 70 2,190 152,776 119,615 369,615 0 250,000 0 250,000
</TABLE>
The hypothetical gross annual investment results shown above are illustrative
only and should not be deemed a representation of past or future investment
results. Actual investment results may be more or less than those shown and will
depend on a number of factors, including allocations made by the owner among the
investment options and the actual investment results of those options. The cash
surrender value and death benefit for a policy would be different from those
shown even if the actual rates of investment averaged 0%, 6% and 12% over a
period of years but fluctuated above or below those averages for individual
contract years. No representations can be made that these hypothetical
investment rates of return can be achieved for any one year or sustained over
any period of time. This illustration assumes current cost of insurance and
expense charges remain unchanged.
Form 5560.4
76
<PAGE> 77
MALE ISSUE AGE 40 INITIAL STATED AMOUNT: $250,000
CLASSIFICATION: SELECT NONSMOKER DEATH BENEFIT TYPE: B (MATURITY AGE 95)
INITIAL PREMIUM: $9,489.00 STATED AMOUNT INCLUDES CASH VALUE
SUMMARY OF VALUES AND BENEFITS
ASSUMED HYPOTHETICAL GROSS ANNUAL INVESTMENT RETURN
12.00%(10.28% NET) 6.00%(4.28% NET) 0.00%(-1.72% NET)
ASSUMED COST OF INSURANCE AND EXPENSE CHARGES
<TABLE>
<CAPTION>
PLANNED PREMIUMS CURRENT CURRENT CURRENT
--------------------- ---------------------------- ---------------------------- ----------------------------
TOTAL ACCUMULATED END OF YEAR END OF YEAR END OF YEAR END OF YEAR END OF YEAR END OF YEAR
END OF POLICY ANNUAL AT 5% CASH SURRENDER DEATH CASH SURRENDER CASH DEATH CASH SURRENDER DEATH
YEAR OUTLAY INTEREST VALUE BENEFIT VALUE BENEFIT VALUE BENEFIT
- ------------- ------ ----------- -------------- ----------- -------------- ----------- -------------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1 9,489 9,963 7,269 259,196 6,754 258,681 6,240 258,167
2 9,489 20,425 16,862 269,297 15,260 267,695 13,721 266,156
3 9,489 31,410 26,574 280,402 23,234 277,061 20,147 273,975
4 9,489 42,944 38,778 292,606 32,960 286,787 27,792 281,619
5 9,489 55,054 52,385 306,025 43,251 296,891 35,455 289,095
6 9,489 67,771 67,321 320,773 53,926 307,379 42,943 296,395
7 9,489 81,122 84,333 336,982 65,612 318,261 50,868 303,518
8 9,489 95,142 102,950 354,796 77,704 329,550 58,613 310,460
9 9,489 109,863 123,155 374,386 90,037 341,268 66,000 317,231
10 9,489 125,319 145,312 395,927 102,811 353,427 73,210 323,825
15 9,489 214,997 290,360 540,360 171,219 421,219 103,997 353,997
20 9,489 329,451 522,410 772,410 251,725 501,725 128,974 378,974
Age 60 9,489 329,451 522,410 772,410 251,725 501,725 128,974 378,974
Age 65 9,489 475,527 895,469 1,145,469 346,219 596,219 147,709 397,709
Age 70 9,489 661,960 1,495,456 1,745,456 455,206 705,206 158,318 408,318
</TABLE>
ASSUMED HYPOTHETICAL GROSS ANNUAL INVESTMENT RETURN
12.00%(10.28% NET) 6.00%(4.28% NET) 0.00%(-1.72% NET)
ASSUMED COST OF INSURANCE AND EXPENSE CHARGES
<TABLE>
<CAPTION>
PLANNED PREMIUMS GUARANTEED GUARANTEED GUARANTEED
--------------------- ---------------------------- ---------------------------- ----------------------------
TOTAL ACCUMULATED END OF YEAR END OF YEAR END OF YEAR END OF YEAR END OF YEAR END OF YEAR
END OF POLICY ANNUAL AT 5% CASH SURRENDER DEATH CASH SURRENDER CASH DEATH CASH SURRENDER DEATH
YEAR OUTLAY INTEREST VALUE BENEFIT VALUE BENEFIT VALUE BENEFIT
- ------------- ------ ----------- -------------- ----------- -------------- ----------- -------------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1 9,489 9,963 7,160 259,087 6,649 258,576 6,138 258,065
2 9,489 20,425 16,627 269,062 15,039 267,473 13,512 265,947
3 9,489 31,410 26,187 280,014 22,878 276,706 19,822 273,649
4 9,489 42,944 38,210 292,037 32,452 286,280 27,340 281,167
5 9,489 55,054 51,414 305,242 42,383 296,210 34,676 288,504
6 9,489 67,771 65,910 319,738 52,674 306,502 41,825 295,653
7 9,489 81,122 81,826 335,653 63,338 317,165 48,784 302,612
8 9,489 95,142 100,051 353,129 75,134 328,211 56,303 309,380
9 9,489 109,863 119,242 372,319 86,574 339,651 62,878 315,955
10 9,489 125,319 140,314 393,392 98,415 351,492 69,254 322,331
15 9,489 214,997 283,998 533,998 166,886 416,886 100,927 350,927
20 9,489 329,451 507,632 757,632 242,531 492,531 122,797 372,797
Age 60 9,489 329,451 507,632 757,632 242,531 492,531 122,797 372,797
Age 65 9,489 475,527 862,958 1,112,958 327,504 577,504 135,594 385,594
Age 70 9,489 661,960 1,426,343 1,676,343 417,965 667,965 134,831 384,831
</TABLE>
The hypothetical gross annual investment results shown above are illustrative
only and should not be deemed a representation of past or future investment
results. Actual investment results may be more or less than those shown and will
depend on a number of factors, including allocations made by the owner among the
investment options and the actual investment results of those options. The cash
surrender value and death benefit for a policy would be different from those
shown even if the actual rates of investment averaged 0%, 6% and 12% over a
period of years but fluctuated above or below those averages for individual
contract years. No representations can be made that these hypothetical
investment rates of return can be achieved for any one year or sustained over
any period of time. This illustration assumes current cost of insurance and
expense charges remain unchanged.
Form 5560.4
77
<PAGE> 78
CONTENTS OF REGISTRATION STATEMENT
This registration statement comprises the following papers and documents:
The facing sheet
The prospectus consisting of 77 pages
Representations pursuant to Section 26(e)(2)(A) of the Investment Company Act
of 1940 were previously furnished in Post-effective Amendment no. 8 of the
Registrant's Form S-6.
The signatures
Written consents of the following persons:
KPMG LLP
Jones & Blouch L.L.P.
Ronald L. Benedict, Esq.
David W. Cook, FSA, MAAA
Exhibits:
All relevant exhibits, which have previously been filed with the Commission and
are incorporated herein by reference, are as follows:
(1) Resolution of the Board of Directors of the Depositor
authorizing establishment of Ohio National Variable Account R
was filed as Exhibit 1.(1) of the Registrant's registration
statement on Form S-6 on June 7, 1985 (File no. 2-98265).
(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).
(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.
(3)(d) Variable Contract Distribution Agreements (with compensation
schedules) between the Depositor and Ohio National Equities,
Inc. were filed as Exhibit (3)(d) of Post-effective Amendment
or 23 of Ohio National Variable Account A registration
statement on Form N-4 (File no. 2-91213).
(5) Flexible Premium Variable Life Insurance Policy, form 86-VL-2,
was filed as Exhibit 1.(5) of the Registrant's Form S-6 on
October 15, 1986 (File no. 2-98265).
<PAGE> 79
(5)(a) Endorsement, form 92-VLE-1, was filed as Exhibit (5)(a) of the
Registrant's Form S-6 on October 15, 1992 (File no. 33-53350).
(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> 80
SIGNATURES
As required by the Securities Act of 1933 and the Investment Company act of
1940, the registrant, Ohio National Variable Account R certifies that it meets
the requirements of Securities Act Rule 485 (b) for effectiveness of this
registration statement and has caused this post-effective amendment to the
registration statement to be signed on its behalf in the City of Montgomery and
State of Ohio on the 4th day of October, 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> 81
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 4th day of October, 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 signed below by the following
persons in the capacities with the depositor and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
<S> <C> <C>
/s/ David B. O'Maley Chairman, President and
- -------------------- Chief Executive Officer
David B. O'Maley and Director October 4, 1999
/s/ Joseph P. Brom Executive Vice President
- -------------------- and Director
Joseph P. Brom October 4, 1999
/s/ Ronald J. Dolan Senior Vice President
- -------------------- and Chief Financial Officer
Ronald J. Dolan and Director October 4, 1999
/s/ John J. Palmer Senior Vice President,
- -------------------- Strategic Initiatives
John J. Palmer and Director October 4, 1999
/s/ Stuart G. Summers Senior Vice President and
- --------------------- General Counsel and
Stuart G. Summers Director October 4, 1999
/s/ Roylene M. Broadwell Vice President & Treasurer
- ------------------------
Roylene M. Broadwell October 4, 1999
</TABLE>
<PAGE> 82
INDEX OF CONSENTS AND EXHIBITS
<TABLE>
<CAPTION>
PAGE NUMBER
EXHIBIT IN SEQUENTIAL
NUMBER DESCRIPTION NUMBERING SYSTEM
- ------- ----------- ----------------
<S> <C> <C>
Consent of KPMG LLP
Consent of Jones & Blouch L.L.P.
Consent of Ronald L. Benedict, Esq.
Consent of David W. Cook, FSA, MAAA
</TABLE>
<PAGE> 83
INDEPENDENT AUDITORS' CONSENT
The Board of Directors of
Ohio National Life Assurance Corporation and
Contract Owners of
Ohio National Variable Account R:
We consent to use of our reports dated February 5, 1999 for the Ohio National
Variable Account R and January 29, 1999 for Ohio National Life Assurance
Corporation as included herein and to the reference to our firm under the
heading "Experts" herein.
Cincinnati, Ohio
October 4, 1999
<PAGE> 84
CONSENTS
<PAGE> 85
[OHIO NATIONAL FINANCIAL SERVICES LETTERHEAD]
October 4, 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. 18 to File No. 2-98265
Post-Effective Amendment No. 12 to File No. 33-53350
Post-Effective Amendment No. 4 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.
As required by paragraph (b)(4) of Rule 485 under the Securities Act of 1933,
the registrant has certified that the above captioned post-effective amendments
to the registrant's Forms S-6 meet all the requirements for effectiveness
pursuant to paragraph (b) of that Rule. Having reviewed these amendments, the
undersigned legal counsel to the registrant hereby confirms that the amendments
do not contain any material that would render any of them ineligible to become
effective pursuant to paragraph (b).
Sincerely,
/s/ RONALD L. BENEDICT
---------------------------
Ronald L. Benedict
Corporate Vice President,
Counsel & Secretary
RLB/nh
<PAGE> 86
[OHIO NATIONAL FINANCIAL SERVICES LETTERHEAD]
October 4, 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. 18 to File No 2-98265
Post-Effective Amendment No. 12 to file No. 33-53350
Post-Effective Amendment No. 4 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
DMC/nh
<PAGE> 87
Jones & Blouch L.L.P.
Suite 405-West
1025 Thomas Jefferson St., N.W.
Washington, DC 20007
(202) 223-3500
October 4, 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. 33-53350
----------------------------------
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. 11
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.
