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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. 11 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 May 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 (513) 794-6100
This prospectus describes a flexible premium variable life insurance contract
(the "contract") offered through Ohio National Variable Account R (the "variable
account"), a separate account of ours. We are Ohio National Life Assurance
Corporation, a subsidiary of The Ohio National Life Insurance Company ("Ohio
National Life").
The contract has a minimum stated amount of $100,000 and a sales charge which is
deducted in part from premium payments and in part from accumulation value upon
surrender, lapse, partial surrender or a decrease in stated amount during the
first ten contract years. Because of the substantial nature of the surrender
charge, the contract is not suitable for short term investment purposes. The
contract generally will not be issued to a person over age 70. In addition, 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.
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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 such premium will
depend upon your objectives and your estimate of long-term investment
performance. You will find the minimum, guideline and planned premiums on the
specification page of your contract. After the first two contract years, if you
do not pay premiums, at least as great as the minimum premium required to keep
the death benefit guarantee in effect, the contract will remain in force only as
long as the cash surrender value (less any contract indebtedness) will pay the
next monthly deduction for contract charges.
You may allocate your premiums among 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.
AVAILABLE FUNDS
<TABLE>
<CAPTION>
ADVISER/SUBADVISER
OHIO NATIONAL FUND, INC.
<S> <C>
Equity Portfolio Ohio National Investments, Inc.
Money Market Portfolio Ohio National Investments, Inc.
Bond Portfolio Ohio National Investments, Inc.
Omni Portfolio (a flexible portfolio fund) Ohio National Investments, Inc.
International Portfolio Federated Global Investment Management Corp.
International Small Company Portfolio Federated Global Investment Management 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 Robertson Stephens Investment Management, L.P.
S&P 500 Index Portfolio Ohio National Investments, Inc.
Social Awareness Portfolio Ohio National Investments, Inc.
JANUS ASPEN SERIES
Growth Portfolio Janus Capital Corporation
Worldwide Growth Portfolio Janus Capital Corporation
GOLDMAN SACHS VARIABLE INSURANCE TRUST
Goldman Sachs Growth and Income Fund Goldman Sachs Asset Management
</TABLE>
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TABLE OF CONTENTS
<TABLE>
<S> <C>
Definitions................................................. 5
Introduction................................................ 7
Assumptions And Scope Of Prospectus......................... 7
Summary..................................................... 8
Ohio National Financial Services Group...................... 12
Ohio National Life Assurance Corporation.................. 12
The Ohio National Life Insurance Company ("Ohio National
Life")................................................. 12
Ohio National Variable Account R (the "variable
account").............................................. 12
The Funds................................................. 12
Death Benefits.............................................. 15
Plan A -- Level Benefit................................... 15
Plan B -- Variable Benefit................................ 16
Change in Death Benefit Plan.............................. 16
Death Benefit Guarantee................................... 17
Changes in Stated Amount.................................. 17
Accumulation Value.......................................... 18
Determination of Variable Account Accumulation Values..... 18
Accumulation Unit Values.................................. 19
Net Investment Factor..................................... 19
Surrender Privileges...................................... 20
Maturity.................................................. 21
Premiums.................................................... 21
Purchasing a Contract..................................... 21
Payment of Premiums....................................... 22
Initial Premiums.......................................... 22
Term Insurance Conversion Credit.......................... 22
Minimum Premiums.......................................... 23
Planned Premiums.......................................... 23
Allocation of Premiums.................................... 23
Transfers................................................. 24
Dollar Cost Averaging..................................... 24
TeleAccess................................................ 25
Lapse..................................................... 25
Reinstatement............................................. 25
Conversion................................................ 25
Free Look................................................. 26
Refund Right.............................................. 26
Charges And Deductions...................................... 27
Premium Expense Charge.................................... 27
Ohio National Life Employee Discount...................... 27
Monthly Deduction......................................... 28
</TABLE>
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<TABLE>
<S> <C>
Risk Charge............................................... 28
Surrender Charge.......................................... 29
Service Charges........................................... 30
Other Charges............................................. 31
General Provisions.......................................... 31
Voting Rights............................................. 31
Additions, Deletions or Substitutions of Investments...... 32
Annual Report............................................. 32
Limitation on Right to Contest............................ 32
Misstatements............................................. 33
Suicide................................................... 33
Beneficiaries............................................. 33
Postponement of Payments.................................. 33
Assignment................................................ 33
Non-Participating Contract................................ 34
The General Account......................................... 34
General Description....................................... 34
Accumulation Value........................................ 34
Optional Insurance Benefits............................... 34
Settlement Options........................................ 35
Distribution Of The Contract................................ 35
Management of the Company................................... 36
Custodian................................................... 36
State Regulation Of The Company............................. 37
Federal Tax Matters......................................... 37
Contract Proceeds......................................... 37
Correction of Modified Endowment Contract................. 38
Right to Charge for Company Taxes......................... 38
Employee Benefit Plans...................................... 38
Legal Proceedings........................................... 38
Legal Matters............................................... 38
Experts..................................................... 39
Registration Statement...................................... 39
Financial Statements........................................ 39
The Year 2000 Issue......................................... 39
</TABLE>
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING IN ANY JURISDICTION IN WHICH
SUCH OFFERING MAY NOT LAWFULLY BE MADE. THE COMPANY DOES NOT AUTHORIZE ANY
INFORMATION OR REPRESENTATIONS REGARDING THE VARIABLE ASPECTS OF THE CONTRACT
DESCRIBED IN THIS PROSPECTUS OTHER THAN AS CONTAINED IN THIS PROSPECTUS, THE
FUND PROSPECTUSES OR THE STATEMENTS OF ADDITIONAL INFORMATION OF THE FUNDS.
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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 the
variable account and the general account.
Loan Value -- the maximum amount that may be borrowed under the contract. The
loan value equals the cash surrender value less the cost of insurance charges
for the balance of the contract year. The loan value less contract indebtedness
equals the amount you may borrow at any time.
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Maturity Date -- unless otherwise specified in the contract, the maturity date
is the end of the contract year nearest the insured's 95th birthday.
Minimum Premium -- the monthly premium set forth on the contract specification
page necessary to keep the contract in force during the first two contract years
and to maintain the death benefit guarantee thereafter. Although the minimum
premium is expressed as a monthly amount, you need not pay it each month.
Rather, you must pay, cumulatively, premiums which equal or exceed the sum of
the minimum premiums required during the applicable time period.
Monthly Deduction -- the monthly charge against cash value which includes the
cost of insurance, an administration charge, a risk charge for the death benefit
guarantee and the cost of any optional insurance benefits added by rider.
Net Premiums -- the premiums you pay less the premium expense charge.
Planned Premium -- a schedule indicating the contractowner's planned premium
payments under the contract. The schedule is a planning device only and need not
be adhered to.
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 the variable account 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.
Variable Account -- Ohio National Variable Account R.
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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 the variable account and contains only
selected information regarding the general account. (See "The General Account"
at page 32.) For details regarding elements of the contract involving the
general account, see your contract.
Unless otherwise indicated or required by the context, the discussion throughout
this prospectus assumes that:
- "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.
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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.
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 (the "variable account") -- established by us
on May 6, 1985 as a means of offering the types of contract described in this
prospectus. Net premiums allocated to the variable account are segregated from
our other assets and are protected from claims and liabilities arising from our
other lines of business. Our general account assets, however, are available to
support benefits under the contract.
There are currently 16 separate subaccounts within the variable account. 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 attached 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
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pay the minimum premium. Accordingly, adverse subaccount investment performance
will not cause the contract to lapse as long as the death benefit guarantee is
in effect.
ACCUMULATION VALUE
The accumulation value of your contract equals the sum of the accumulation
values in the general account, the subaccounts of the variable account and the
loan collateral account. The general account accumulation value will reflect the
amount and timing of net premiums allocated to the general account and interest
thereon. The accumulation value in the variable subaccounts will reflect
deductions for a risk charge, the amount and timing of net premiums allocated to
such subaccounts and their investment experience. Such investment experience is
not guaranteed. In addition, the subaccount and the general account accumulation
values will be charged pro rata in connection with contract loans, partial
surrenders and monthly deductions. The loan collateral account will reflect
amounts borrowed against the loan value of the contract.
Loans -- after the first contract year, you may borrow against the loan value of
your contract. The loan value will never be less than 90% of your 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.
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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.
Allocation of Premiums -- you may allocate your net premiums to any of the
variable subaccounts and to the general account in any combination of whole
percentages. You indicate your initial allocation in the contract application.
Thereafter, you may transfer cash values and reallocate future premiums.
Transfers -- we allow transfers of cash values among the subaccounts of the
variable account and to the general account at any time. Transfers from the
general account to the subaccounts are subject to certain restrictions.
Lapse -- provided you pay the minimum premiums required to maintain the death
benefit guarantee, your contract will not lapse during the death benefit
guarantee period. If you fail to pay the minimum premiums in the first two
contract years, your contract will lapse after a 61 day grace period. In such
case, you may be entitled to a refund of a portion of the surrender charge
otherwise applicable to your contract.
If you fail to pay the minimum premiums after the second contract year, the
death benefit guarantee expires. Without the death benefit guarantee, the
contract will remain in force as long as the cash surrender value less any
outstanding contract indebtedness is sufficient to pay the next monthly
deduction. When the cash surrender value will not pay the next monthly
deduction, you will have a 61 day grace period in which to increase your cash
surrender value by paying additional premiums. If you do not pay sufficient
additional premiums during the grace period, the contract will lapse and
terminate without value.
Reinstatement -- once a contract has lapsed, you may request reinstatement of
the contract any time within five years of the lapse. Satisfactory proof of
insurability and payment of a reinstatement premium are required for
reinstatement.
Free Look -- following the initial purchase of your contract or any subsequent
increase in the stated amount, you are entitled to a free look period. During
the free look period, you may cancel the contract or increase, as applicable,
and we will refund all the money you have paid. The free look period expires 20
days from your receipt of the contract or evidence of increase.
Refund Right -- if your contract lapses or you surrender it during the first two
years following the issue date or the date of any increase, you may be entitled
to a refund of a portion of the surrender charge otherwise applicable to your
contract.
CHARGES AND DEDUCTIONS
We make charges against or deductions from premium payments, accumulation values
and contract surrenders as follows:
(a) from premiums we deduct a premium expense charge. The premium expense charge
includes:
- a 4% deduction from premium payments for the life of the contract. 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%.
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(b) against the accumulation value we make a monthly deduction covering:
- the cost of insurance,
- administrative expenses ($5),
- the risk of providing the death benefit guarantee ($.01 per thousand of
stated amount), and
- the cost of any optional insurance benefit added by rider;
(c) against the assets of the variable subaccounts we assess a daily charge
equal to an annualized rate of 0.75% of such assets to compensate us for
assuming certain mortality and expense risks; and
(d) from accumulation value we deduct surrender charges in the event of lapse,
full surrender, certain partial surrenders and decreases in stated amount.
The surrender charges consist of a contingent deferred sales charge and a
contingent deferred insurance underwriting charge. The contingent deferred
sales charge is 46% of premiums paid during the first two contract years up
to two guideline annual premiums. For issue ages above age 55, this
percentage scales down and reaches 13% by age 74. The contingent deferred
insurance underwriting charge varies with age at issue or increase from $3
to $6 per thousand dollars of your first $500,000 of stated amount. 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, a contractowner may incur the smallest
amount of such charge by paying only the required minimum premium during such
period. Similarly, only premiums allocated to an increase within two years after
the date of such increase are subject to the contingent deferred sales charge.
Accordingly, premiums paid either before or after such two year period will not
be subject to the contingent deferred sales charge.
In addition to the foregoing charges and deductions, we assess the following
three service charges:
- 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 attached Fund
prospectus.
FEDERAL TAX MATTERS
All death benefits paid under the contract will generally be excludable from the
beneficiary's gross income for federal income tax purposes. Under current
federal tax law, as long as the contract qualifies as a "life insurance
contract", any increases in cash value attributable to favorable investment
performance should accumulate on a tax deferred basis in the same manner as with
traditional whole life insurance. Partial withdrawals and surrenders, however,
may result in the taxation of the portion of such withdrawals or surrenders
drawn from the increase in accumulation value resulting from favorable
investment performance. If payments are made in excess of a rate that would pay
up a contract after seven level annual payments, there may be taxation of,
including a penalty tax on, portions of the proceeds of loans, withdrawals or
surrenders.
11
<PAGE> 14
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 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 (THE "VARIABLE ACCOUNT")
We established the variable account on May 6, 1985 under Ohio insurance laws.
The variable account is registered with the Securities and Exchange Commission
(the "Commission") under the Investment Company Act of 1940 ("1940 Act") as a
unit investment trust. Such registration does not involve supervision by the
Commission of the management or investment policies of the variable account or
of us. Under Ohio law, the variable account assets are held exclusively for the
benefit of contractowners and persons entitled to payments under the contract.
Variable account assets are not chargeable with liabilities arising out of our
other business.
We keep the variable account assets physically segregated from assets of our
general account. We maintain records of all purchases and redemptions of Fund
shares by each of the subaccounts of the variable account.
The variable account currently has 13 investment subaccounts, but may in the
future add or delete investment subaccounts. Each investment subaccount will
invest exclusively in shares representing interests in a portfolio of the Fund.
The income and realized and unrealized gains or losses on the assets of each
subaccount are credited to or charged against that subaccount without regard to
income or gains or losses from any other subaccount.
OHIO NATIONAL FUND, INC. ("O.N. FUND")
This Fund is organized as a Maryland corporation and is registered as an
open-end diversified management investment company under the 1940 Act. O.N. Fund
currently has 20 portfolios. You may invest your contract's assets in 13 of
them. Each portfolio has different investment objectives. Each portfolio
operates as a separate investment fund, and the income or loss of one portfolio
generally has no effect on the investment performance of any other portfolio.
The investment objectives of each available O.N. Fund portfolio are set forth
below. There can be no assurance that any portfolio will achieve its stated
objectives.
Equity Portfolio -- long-term capital growth by investing principally in common
stocks or other equity securities. Current income is a secondary objective.
Money Market Portfolio -- maximum current income consistent with preservation of
capital and liquidity by investing in high quality money market instruments.
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<PAGE> 15
Bond Portfolio -- high level of return consistent with preservation of capital
by investing primarily in high quality intermediate and long-term debt
securities.
Omni Portfolio -- high level of long-term total return consistent with
preservation of capital by investing in stocks, bonds and money market
instruments.
International Portfolio -- long-term capital growth by investing primarily in
securities of foreign companies.
Capital Appreciation Portfolio -- maximum capital growth by investing primarily
in common stocks that are (1) considered to be undervalued or temporarily out of
favor with investors, or (2) expected to increase in price over the short term.
Small Cap Portfolio -- maximum capital growth by investing primarily in common
stocks of small and medium size companies.
International Small Company Portfolio -- long-term growth of capital by
investing primarily in equity securities of foreign companies having a market
capitalization of $1.5 billion or less.
Aggressive Growth Portfolio -- capital growth.
Core Growth Portfolio -- long term capital appreciation.
Growth & Income Portfolio -- long-term total return by investing in equity
securities and debt securities, focusing on small and mid-cap companies that
offer potential for capital appreciation, current income or both.
S&P 500 Index Portfolio -- total return that corresponds to that of the Standard
& Poor's 500 Index.
Social Awareness Portfolio -- total return by investing primarily in common
stocks and other securities of companies that satisfy social concern criteria
established for the portfolio.
The investment and reinvestment of O.N. Fund assets are directed by Ohio
National Investments, Inc. (the "Adviser"), a wholly-owned subsidiary of Ohio
National Life. The Adviser makes use of the investment personnel and
administrative systems of Ohio National Life. The investment and reinvestment of
the assets of the following portfolios are managed by the firms indicated as
subadvisers.
<TABLE>
<CAPTION>
PORTFOLIO SUBADVISER
- --------- ----------
<S> <C>
International and International Small Company Federated Global Investment Management Corp.
("FGIM")
Capital Appreciation T. Rowe Price Associates, Inc. ("TRPA")
Small Cap Founders Asset Management LCC ("FAM")
Aggressive Growth Strong Capital Management, Inc. ("SCM")
Core Growth Pilgrim Baxter & Associates, Ltd. ("PBA")
Growth & Income Robertson Stephens Investment Management, L.P.
("RSIM")
</TABLE>
FGIM is a wholly-owned subsidiary of Federated Investors, Inc.. FGIM and its
affiliates manage the Federated group of mutual funds. TRPA manages assets for
various individual and institutional investors, particularly the T. Rowe Price
group of mutual funds. FAM, a subsidiary of Mellon Bank, NA, manages the assets
of the Founders group of mutual funds as well as private accounts. SCM manages
the assets of the Strong group of mutual funds as well as pension funds and
private accounts. PBA, an affiliate of United Asset Management Corp., manages
the PBHG mutual funds and other private and institutional accounts RSIM manages
the Robertson Stephens mutual funds and other public and private investment
funds. Each of the Adviser, FGIM, TRPA, FAM, SCM, PBA and RSIM is registered
under the Investment Advisers Act of 1940. For more detailed information
concerning each portfolio, including a description of investment risks,
reference is made to the prospectus of O.N. Fund which accompanies this
prospectus.
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<PAGE> 16
We will purchase and redeem O.N. Fund shares for the variable account at net
asset value without any sales or redemption charge. Fund shares represent an
interest in the corresponding portfolio of the Fund. Each portfolio corresponds
to a subaccount of the variable account. Any dividend or capital gain
distributions received from the Fund will be reinvested in Fund shares at net
asset value as of the dates paid.
On each valuation date, we purchase or redeem shares of each portfolio for the
variable account based on, among other things, the amount of net premiums
allocated to the variable account, dividends and distributions reinvested,
transfers to and among the subaccounts, loans, loan repayments and benefit
payments to be made pursuant to the terms of the contract as of that date.
Purchases and redemptions for the variable account are effected at the net asset
value per share for each portfolio determined in the manner and at the time set
forth in the accompanying O.N. Fund prospectus.
A full description of O.N. Fund, its investment policies and restrictions, fees
and expenses paid by it and other aspects of its operations are contained in the
accompanying prospectus for O.N. Fund and in the statement of additional
information referred to therein.
OTHER FUNDS
The Goldman Sachs Growth and Income Fund is a series of Goldman Sachs Variable
Insurance Trust, and the Janus Growth Fund and Worldwide Growth Fund are series
of Janus Aspen Series, all of which are registered open-end, investment
companies that sell their shares only to insurance company separate accounts to
fund variable annuity contracts and variable life insurance policies. The
Goldman Sachs Growth and Income Fund is managed by Goldman Sachs Asset
Management, Inc. The Janus Growth Fund and Janus Worldwide Growth Fund are
managed by Janus Capital Corporation. The value of each Fund's investments
fluctuates daily and is subject to the risk of changing economic conditions as
well as the risk inherent in the ability of management to anticipate changes
necessary in those investments to meet changes in economic conditions. For
additional information concerning any of the Funds, including its investment
objectives, see its accompanying prospectus. Read the prospectus carefully
before investing.
MIXED AND SHARED FUNDING
In addition to being offered to the variable account, shares of the Funds are
currently offered to other separate accounts of Ohio National Life in connection
with variable annuity contacts, and to variable annuity and variable life
insurance separate accounts of other unaffiliated life insurance companies. It
is conceivable that in the future it may become disadvantageous for both
variable life and variable annuity separate accounts or for separate accounts of
other life insurance companies to invest in Fund shares. Although neither we nor
the Funds currently forsee any disadvantage, each Fund's Board will monitor
events in order to identify any material conflict between different types of
contract owners and to determine what action, if any, should be taken in
response thereto, including the possible withdrawal of the variable account's
participation in that 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.
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<PAGE> 17
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 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
15
<PAGE> 18
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.
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.
16
<PAGE> 19
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" at page 22.) Accordingly, as long as the death
benefit guarantee is in effect, the contract will not lapse even if, because of
adverse investment performance, the cash surrender value falls below the amount
needed to pay the next monthly deduction. A charge of $.01 per $1,000 of stated
amount will be made for each month the death benefit guarantee is in effect.
If on any process day the minimum premium requirement is not met, we will send
you a notice of the required payment. If we do not receive the required payment
within 61 days of the date of the mailing of such notice, the death benefit
guarantee will no longer be in effect. Generally, the death benefit guarantee
may not be reinstated once it has been lost. However, we may at our discretion
permit you to reinstate the death benefit guarantee if you
- 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.
After an increase, a portion of premium payments will be allocated to such
increase. The amount so allocated will bear the same relationship to total
premium payments as the guideline annual premium for such increase bears to the
guideline annual premium for your initial stated amount plus the guideline
annual premiums for all increases.
17
<PAGE> 20
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 account. The general account
and the loan collateral account are discussed elsewhere in this prospectus.
DETERMINATION OF VARIABLE ACCOUNT ACCUMULATION VALUES
Your accumulation value in the variable account may increase or decrease
depending on the investment performance of the subaccounts you choose. There is
no guaranteed minimum accumulation value in the variable account.
The accumulation value of 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 the variable account;
18
<PAGE> 21
(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
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<PAGE> 22
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 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
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<PAGE> 23
- any outstanding contract indebtedness,
- an amount sufficient to cover the next two monthly deductions and
- the service charge of $25 or 2% of the amount surrendered, if less.
We will reduce the accumulation value of your contract by the amount of any
partial surrender. In doing so, we will deduct the accumulation value taken by a
partial surrender from each increase and your initial stated amount in
proportion to the amount such increases and initial stated amount bear to the
total stated amount.
Under Plan A, a partial surrender reduces your stated amount. Such 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
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with stated amounts of $100,000 or more. All applications require evidence of
insurability. Acceptance of any application is subject to our insurance
underwriting rules. The review period for routine applications will generally
last one week. Approval of applications that require supplemental medical
information, however, may be delayed six weeks or more while such information is
obtained and reviewed.
You must pay an initial premium in order for your contract to take effect. The
contract takes effect as of the contract date. However, if you pay the initial
premium at the time you submit your application, we will, pursuant to the
premium receipt agreement contained in such application, provide you with
insurance coverage equal to your stated amount (up to $1,000,000) for a period
of up to 60 days, starting on the later of the date of your application and the
date you complete any required medical examination and ending on the date we
approve or reject your application. We do not pay interest on initial premiums
during the review period.
The contract date will be the same as the issue date, except in the case of a
backdated contract where the contract date will be earlier than the issue date.
At your request, we will backdate a contract as much as six months where
permitted by state law. This procedure may be to your advantage where backdating
will lower your age at issue and thereby lower your cost of insurance and
surrender charges which are scaled by age. 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.
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MINIMUM PREMIUMS
During the first two contract years, you must pay the minimum premium to keep
the contract in force. Failure to pay the minimum premium during the first two
contract years will result in the termination of your contract after 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 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 the subaccounts of the variable account and the general account.
Your initial allocation will take effect on the first process day following the
issue date or, if later, when we receive your initial premium payment. Pending
such allocation, net premiums will be held in the Money Market subaccount. If
you fail to indicate an allocation in your contract application, we will leave
your net premiums in the Money Market subaccount until we receive allocation
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<PAGE> 26
instructions. The amount allocated to any subaccount or the general account must
equal a whole percentage. You may change the allocation of your future net
premiums at any time upon written notice to us. Premiums allocated to an
increase will be credited to the subaccounts and the general account in
accordance with your premium allocation then in effect on the later of the date
of the increase or the date we receive such a premium.
TRANSFERS
You may transfer the accumulation value of your contract among the subaccounts
of the variable account and to the general account at any time. Each amount
transferred must be at least $300 unless a smaller amount constitutes the entire
accumulation value of the subaccount from which the transfer is being made, in
which case you may only transfer the entire amount. There is a service charge of
$3 for each transfer, but we are presently waiving that charge for the first
four transfers during a contract year. Such fee is guaranteed not to exceed $15
in the future. Transfers from the general account to the subaccounts are subject
to additional restrictions. No more than 25% of the accumulation value in the
general account as of the end of the previous contract year, or $1,000, if
greater, may be transferred to one or more of the subaccounts in any contract
year.
To the extent that transfers, surrenders and loans from a subaccount exceed net
purchase payments and transfers into that subaccount, securities of the
corresponding portfolio of the Fund may have to be sold. Excessive sales of a
portfolio's securities on short notice could be detrimental to that portfolio
and to contractowners with values allocated to the corresponding subaccount. To
protect the interests of all contractowners, we may limit the number, frequency,
method or amount of transfers. Transfers from any portfolio of the Fund on any
one day may be limited to 1% of the previous day's total net assets of that
portfolio if we or the Fund, in our or their discretion, believes that the
portfolio might otherwise be damaged.
If and when transfers must be so limited, some transfer requests will not be
made. In determining which requests will be made, scheduled transfers (pursuant
to a 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.
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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.
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.
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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 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
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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.
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:
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- 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,
- 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 the variable account, but not your accumulation value
in the general account, will also be subject to a risk charge intended to
compensate us for assuming certain mortality and expense risks in connection
with the contract. Such charge will be assessed at a daily rate of 0.0020471%
against each of the variable subaccounts. This corresponds to an annual rate of
0.75%. The risks assumed by us include the risks of greater than anticipated
mortality and expenses.
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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 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
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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>
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.
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<PAGE> 33
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.
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:
Equity Portfolio.......................................... 0.64%
* Money Market Portfolio.................................... 0.41%
Bond Portfolio............................................ 0.72%
Omni Portfolio............................................ 0.65%
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%
S&P 500 Index Portfolio................................... 0.49%
Social Awareness Portfolio................................ 0.81%
Janus Aspen Series:
* Growth Portfolio.......................................... 0.68%
* Worldwide Growth Portfolio................................ 0.72%
Goldman Sachs Variable Insurance Trust:
* Goldman Sachs Growth and Income Fund...................... 0.90%
</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:
<TABLE>
<S> <C>
Money Market Portfolio 0.46%
Growth Portfolio 0.75%
Worldwide Growth Portfolio 0.74%
Goldman Sachs Growth and Income Fund 2.69%
</TABLE>
GENERAL PROVISIONS
VOTING RIGHTS
We will vote the Fund shares held in the various subaccounts of the variable
account at Fund shareholder meetings in accordance with your instructions. If,
however, the 1940 Act or any regulation thereunder should change and we
determine that it is permissible to vote the Fund shares in our own right, we
may elect to do so. The number of votes as to which you have the right to
instruct will be determined by dividing your contract's accumulation value in a
subaccount by the net asset value per share of the corresponding Fund portfolio.
Fractional shares will be counted. The number of votes as to which you have the
right to instruct will be 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
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<PAGE> 34
with procedures established by the Fund. We will vote Fund shares attributable
to contracts as to which no instructions are received, and any Fund shares held
by the variable account which are not attributable to contracts, in proportion
to the voting instructions which are received with respect to contracts
participating in the variable account. Each person having a voting interest will
receive proxy material, reports and other material relating to the Fund.
We may, when required by state insurance regulatory authorities, disregard
voting instructions if the instructions require that shares be voted so as to
cause a change in subclassification or investment objective of the Fund or
disapprove an investment advisory contract of the Fund. In addition, we may
disregard voting instructions in favor of changes initiated by a contractowner
in the investment policy or the investment adviser of the Fund if we reasonably
disapprove of such changes. A change would be disapproved only if the proposed
change is contrary to state law or prohibited by state regulatory authorities or
we determined that the change would be inconsistent with the investment
objectives of the variable account or would result in the purchase of securities
for the variable account which vary from the general quality and nature of
investments and investment techniques utilized by other separate accounts
created by us or any of our affiliates which have similar investment objectives.
In the event that we disregard voting instructions, a summary of that action and
the reason for such action will be included in your next semi-annual report.
ADDITIONS, DELETIONS OR SUBSTITUTIONS OF INVESTMENTS
We reserve the right, subject to compliance with applicable law, to make
additions to, deletions from or substitutions for the shares held by any
subaccount or which any subaccount may purchase. If shares of the Fund should no
longer be available for investment or if, in the judgment of management, further
investment in shares of the Fund would be inappropriate in view of the purposes
of the contract, we may substitute shares of any other investment company for
shares already purchased, or to be purchased in the future. No substitution of
securities will take place without notice to and the consent of contractowners
and without prior approval of the Commission, all to the extent required by the
1940 Act. In addition, the investment policy of the variable account will not be
changed without the approval of the Ohio Superintendent of Insurance and such
approval will be on file with the state insurance regulator of the state where
your contract was delivered.
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.
32
<PAGE> 35
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.
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 the variable account's
net assets.
We may also withhold payment of any increased accumulation value or loan value
resulting from a recent premium payment until your premium check has cleared.
This could take up to 15 days after we receive your check.
ASSIGNMENT
The contract may be assigned as collateral security. We must be notified in
writing if the contract has been assigned. Each assignment will be subject to
any payments made or action taken by us prior to our notification of such
assignment. We are not responsible for the validity of an assignment. The
contractowner's rights and the rights of the beneficiary may be affected by an
assignment.
33
<PAGE> 36
NON-PARTICIPATING CONTRACT
The contract does not share in our surplus distributions. No dividends are
payable with respect to the contract.
THE GENERAL ACCOUNT
By virtue of exclusionary provisions, interests in the general account have not
been registered under the Securities Act of 1933 and the general account has not
been registered as an investment company under the 1940 Act. Accordingly,
neither the general account nor any interests therein are subject to the
provisions of these Acts.
GENERAL DESCRIPTION
The general account consists of all assets owned by us other than those in the
variable account and any other separate accounts we may establish. Subject to
applicable law, we have sole discretion over the investment of the assets of the
general account.
You may elect to allocate net premiums to the general account or to transfer
accumulation value to the general account from the subaccounts of the variable
account. The allocation or transfer of funds to the general account does not
entitle a contractowner to share in the investment experience of the general
account. Instead, we guarantee that your cash value in the general account will
accrue interest daily at an effective annual rate of at least 4%, without regard
to the actual investment experience of the general account. Consequently, if you
pay the planned premiums, allocate all net premiums only to the general account
and make no transfers, partial surrenders, or contract loans, the minimum amount
and duration of your death benefit will be determinable and guaranteed.
Transfers from the general account to the variable account are partially
restricted and allocation of substantial sums to the general account reduces the
flexibility of the contract.
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
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 the variable
account or the loan collateral account.
We guarantee that interest credited to your accumulation value in the general
account will not be less than an effective annual rate of 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.
34
<PAGE> 37
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, the variable account received $33,940,186 in premium
payments for variable life insurance contracts. From this amount, we paid ONEQ
$184,666 in sales loads.
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
Joni L. Dunn.............................. Vice President and Compliance Officer
Barbara A. Turner......................... Operations Vice President and Treasurer
</TABLE>
35
<PAGE> 38
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.
CUSTODIAN
Pursuant to a written agreement, Firstar Bank, N.A., 425 Walnut Street,
Cincinnati, Ohio, serves as custodian of the assets of the variable account. The
fee of the custodian for services rendered to the variable account is paid by
us. The custodian also provides valuation and certain recordkeeping services to
the variable account, which include, without limitation, maintaining a record of
all purchases, redemptions and distributions relating to Fund shares, the
amounts thereof and the number of shares from time to time standing to the
credit of the variable account.
36
<PAGE> 39
STATE REGULATION OF THE COMPANY
We are organized under the laws of the State of Ohio and are subject to
regulation by the Superintendent of Insurance of Ohio. An annual statement is
filed with the Superintendent on or before March 1 of each year covering the
operations and reporting on our financial condition as of December 31 of the
preceding year. Periodically, the Superintendent examines our assets and
liabilities and those of the variable account and verifies their adequacy. A
full examination of our operations is conducted by the National Association of
Insurance Commissioners at least every five years.
In addition, we are subject to the insurance laws and regulations of other
states in which we are licensed to operate. Generally, the insurance department
of any other state applies the laws of the state of domicile in determining
permissible investments.
FEDERAL TAX MATTERS
The following description is a brief summary of some of the Code provisions
which, in our opinion, are currently in effect. This summary does not purport to
be complete or to cover all situations, including the possible tax consequences
of changes in ownership. Counsel and other competent tax advisers should be
consulted for more complete information. Tax laws can change, even with respect
to contracts that have already been issued. Tax law revisions, with unfavorable
consequences to contracts offered by this prospectus, could have retroactive
effect on previously issued contracts or on subsequent voluntary transactions in
previously issued contracts.
CONTRACT PROCEEDS
The contract contains provisions not found in traditional life insurance
contracts providing only for fixed benefits. However, under the Code, as amended
by the Tax Reform Act of 1984, the contract should qualify as a life insurance
contract for federal income tax purposes as long as certain conditions are met.
Consequently, the proceeds of the contract payable to the beneficiary on the
death of the insured will generally be excluded from the beneficiary's income
for purposes of federal income tax.
Current tax rules and penalties on distributions from life insurance contracts
apply to any life insurance contract issued or materially changed on or after
June 21, 1988 that is funded more heavily (faster) than a traditional whole life
plan designed to be paid-up after the payment of level annual premiums over a
seven-year period. Thus, for such a contract (called a "modified endowment
contract" in the Code), any distribution, including surrenders, partial
surrenders, maturity proceeds, and loans secured by the contract, during the
insured's lifetime (but not payments received as an annuity or as a death
benefit) would be included in the contractowner's gross income to the extent
that the contract's cash surrender value exceeds the owner's investment in the
contract. In addition, a ten percent penalty tax applies to any such
distribution from such a contract, to the extent includible in gross income,
except if made
- 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.
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
37
<PAGE> 40
"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 the variable account for our federal
taxes, or provision made for such taxes, that may be attributable to the
variable account. However, we may in the future charge each subaccount of the
variable account for its portion of any tax charged to us in respect of 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 the variable account. Any
such charges against the variable account 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 the variable account is a party or to
which the assets of any of the subaccounts thereof are subject. We are not
involved in any litigation that is of material importance in relation to its
total assets or that relates to the variable account.
LEGAL MATTERS
Jones & Blouch L.L.P., Washington, D.C., has served as special counsel with
regard to legal matters relating to federal securities laws applicable to the
issuance of the flexible premium variable life insurance contract described in
this prospectus. All matters of Ohio law pertaining to the contract including
the validity of the contract and our right to issue the contract under the
Insurance Law of the State of Ohio have been passed upon by Ronald L. Benedict,
Corporate Vice President, Counsel and Secretary of Ohio National Life.
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<PAGE> 41
EXPERTS
The financial statements of Variable Account R as of December 31, 1998 and for
each of the periods indicated herein and the financial statements of the Company
as of December 31, 1998 and 1997 and for the periods indicated herein included
in this prospectus have been included herein in reliance upon the reports of
KPMG LLP, independent certified public accountants, appearing elsewhere herein,
and upon the authority of said firm as experts in accounting and auditing.
Actuarial matters included in this prospectus have been examined by David W.
Cook, FSA, MAAA, as stated in the opinion filed as an exhibit to the
registration statement.
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, the variable account, and the contract. Statements
contained in this prospectus as to the contents of the contract and other legal
instruments are summaries. For a complete statement of the terms thereof,
reference is made to such instruments as filed.
FINANCIAL STATEMENTS
Our financial statements which are included in this prospectus should be
considered only as bearing on our ability to meet our obligations under the
contract. They should not be considered as bearing on the investment performance
of the assets held in the variable account.
THE YEAR 2000 ISSUE
We have developed a plan to make our computer systems and applications function
correctly after January 1, 2000. We have completed conversion testing and
implementation of all mission-critical internal systems as of December 31, 1998.
While we have been assured by suppliers of financial services (including
underlying mutual funds, custodians, transfer agents and accounting agents) that
their systems either are already compliant or will be so by December 31, 1999,
our internal auditors intend to independently test those systems (other than
systems of unaffiliated mutual funds and their suppliers) to verify their
compliance. Failure by us or one of our suppliers to achieve timely and complete
compliance could materially impair our ability to conduct our business,
including our ability to accurately and timely value interests in the contracts.
39
<PAGE> 42
(This page intentionally left blank)
40
<PAGE> 43
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
41
<PAGE> 44
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
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<PAGE> 45
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.
43
<PAGE> 46
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.
44
<PAGE> 47
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.
45
<PAGE> 48
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.
46
<PAGE> 49
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).
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)
(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
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.
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)
(c) DEFERRED POLICY ACQUISITION COSTS
The costs of acquiring new business, principally commissions, certain
expenses of the policy issue and underwriting department and certain
variable agency expenses have been deferred. For traditional non-
participating life insurance products, these deferred acquisition costs
are predominantly being amortized with interest over the premium paying
period of the related policies. Such anticipated premium revenue was
estimated using the same assumptions as were used for computing
liabilities for future policy benefits. For universal life and
investment products, deferred policy acquisition costs are being
amortized with interest over the lives of the policies in relation to
the present value of estimated future gross profits from projected
interest margins, cost of insurance, policy administration and surrender
charges. Deferred policy acquisition costs are adjusted to reflect the
impact of unrealized gains and losses on fixed maturity securities
available-for-sale (see Note 2(a)).
(d) SEPARATE ACCOUNTS
Separate Account assets and liabilities represent contractholders' funds
which have been segregated into accounts with specific investment
objectives. The investment income and gains or losses of these accounts
accrue directly to the contractholders. The activity of the Separate
Accounts is not reflected in the statements of income and cash flows
except for the fees the Company receives for administrative services and
risks assumed.
(e) FUTURE POLICY BENEFITS
Future policy benefits for traditional life policies have been
calculated using a net level premium method based on estimates of
mortality, morbidity, investment yields and withdrawals which were used
or which were being experienced at the time the policies were issued,
rather than the assumptions prescribed by state regulatory authorities
(see Note 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.
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)
(g) REINSURANCE CEDED
Reinsurance premiums ceded and reinsurance recoveries on benefits and
claims incurred are deducted from the respective income and expense
accounts. Assets and liabilities related to reinsurance ceded are
reported on a gross basis.
(h) CASH EQUIVALENTS
For purposes of the statement of cash flows, the Company considers all
short-term investments with original maturities of three months or less
to be cash equivalents.
(i) USE OF ESTIMATES
In preparing the financial statements, management is required to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and the disclosure of contingent assets and liabilities as
of the date of the financial statements and revenues and expenses for
the reporting period. Actual results could differ significantly from
those estimates.
The estimates susceptible to significant change are those used in
determining deferred policy acquisition costs, the liability for future
policy benefits and claims, contingencies, and the valuation allowance
for mortgage loans on real estate. Although some variability is inherent
in these estimates, management believes the amounts provided are
adequate.
(3) BASIS OF PRESENTATION
The 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.
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)
(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>
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)
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.
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)
(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
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>
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)
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.
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)
(7) DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
Statement of Financial Accounting Standards No. 107, Disclosures about Fair
Value of Financial Instruments (SFAS 107) requires disclosure of fair value
information about existing on and off-balance sheet financial instruments. SFAS
107 excludes certain assets and liabilities, including insurance contracts,
other than policies such as annuities that are classified as investment
contracts, from its disclosure requirements. Accordingly, the aggregate fair
value amounts presented do not represent the underlying value of the Company.
The tax ramifications of the related unrealized gains and losses can have a
significant effect on fair value estimates and have not been considered in the
estimates.
The following methods and assumptions were used by the Company in estimating its
fair value disclosures:
Cash, Short-Term Investments, Policy Loans and Other Policyholder
Funds -- The carrying amount reported in the balance sheet for these
instruments approximate their fair value.
Investment Securities -- Fair value for fixed maturity securities is based
on quoted market prices, where available. For fixed maturity securities not
actively traded, fair value is estimated using values obtained from
independent pricing services, or in the case of private placements, is
estimated by discounting expected future cash flows using a current market
rate applicable to the yield, credit quality and 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.
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)
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>
56
<PAGE> 59
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)
(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.
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.
57
<PAGE> 60
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)
(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 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>
58
<PAGE> 61
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
59
<PAGE> 62
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
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.
60
<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>
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.
61
<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>
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.
62
<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>
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.
63
<PAGE> 66
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.
64
<PAGE> 67
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.
65
<PAGE> 68
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.
66
<PAGE> 69
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
</TABLE>
67
<PAGE> 70
OHIO NATIONAL VARIABLE ACCOUNT R
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
<TABLE>
<CAPTION>
ACCUMULATION UNITS VALUE PER UNIT VALUE
------------------ -------------- -----------
<S> <C> <C> <C>
GROWTH & INCOME SUBACCOUNT.................................. 390,193.2941 14.408556 $ 5,622,122
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.
68
<PAGE> 71
APPENDIX A
ILLUSTRATIONS OF CASH SURRENDER VALUES,
DEATH BENEFITS AND ACCUMULATED PREMIUMS.
The following tables have been prepared to help show how values under the
contract change with investment performance. The tables illustrate how the death
benefit of a contract of an insured of a given age and the cash surrender value
(reflecting the deduction of sales load) would vary over time if the return on
the assets held in the Fund portfolios was a constant, gross, after-tax, annual
rate of 0%, 6% or 12%. Because of compounding, the death benefits and cash
surrender values would be different from those shown in the returns averaged 0%,
6%, or 12%, but fluctuated over and under those averages throughout the years.
The amounts shown for the death benefit and cash surrender value as of each
contract year reflect the fact that the net investment return on the assets held
in the subaccounts is lower than the gross, after-tax return on Fund assets.
This is because certain fees and charges are deducted from the gross return.
They are the daily investment management fees incurred by the Fund, which is
currently equivalent to an average annual rate of 0.70% of the value of the
average daily net assets of the 16 Funds to which contract values may be
allocated. The daily charge to the variable account for assuming mortality and
expense risks is equivalent to an annual charge of 0.75%. Certain other fees and
miscellaneous expenses which are borne by the Fund are currently equivalent to
an annual rate of 0.14% of average daily net assets. Gross annual rates of
return of 0%, 6%, and 12% produce average net annual rates of return for all 16
portfolios of approximately -1.59%, 4.41%, and 10.41%.
Each page of illustrations includes two tables. The top table shows the death
benefits and cash surrender values assuming we assess current charges under the
contract ("current tables"). Current charges are not guaranteed and may be
changed. The lower table shows the death benefits and cash surrender values
assuming we assess the maximum charges allowable under the contracts.
The tables assume a premium tax deduction of 2.5% (the charge deducted from your
contract will reflect premium taxes in your jurisdiction), that no portion of
your net premiums have been allocated to the general account and that planned
premiums are paid on the first day of each contract year. The tables also assume
that no transfers, partial surrenders, loans, changes in death benefit option or
changes in stated amount have been made under the contract. Additionally, the
tables assume that there are no optional insurance benefits included under the
contract and the current tables assume that the Company's current cost of
insurance charges will not be changed. Finally, the tables reflect the fact that
no charges for federal, state or local taxes are made at present against the
variable account. If such a charge is made in the future, it will take a higher
gross rate of return to produce after-tax returns of 0%, 6% and 12% than it does
now.
Below is a list of the sample illustrations presented on the following pages of
this prospectus. Upon request, the Company will furnish a comparable
illustration based on your age, sex, risk class, death benefit plan, stated
amount and planned premium.
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 63
25 Plan A 1,289 150,000 Nonsmoker 64
25 Plan B 690 (Minimum) 150,000 Nonsmoker 65
25 Plan B 3,148 150,000 Nonsmoker 66
40 Plan A 2,190 (Minimum) 250,000 Select Nonsmoker 67
40 Plan A 3,916 250,000 Select Nonsmoker 68
40 Plan B 2,190 (Minimum) 250,000 Select Nonsmoker 69
40 Plan B 9,489 250,000 Select Nonsmoker 70
</TABLE>
HYPOTHETICAL HISTORICAL ILLUSTRATIONS
The Company may produce hypothetical illustrations of the contract (such as
those listed above) based upon the actual historical investment performance
(total return) of the Fund's portfolios from the inception of the portfolio or
one-, five- and ten-year periods. Such illustrations reflect all contract and
subsequent charges, including the cost of insurance (specific to the age, sex,
stated amount, risk classification and type of death benefit), planned premium,
premium tax, risk charge, sales load, administration charge and surrender charge
for the contract being illustrated. Individualized illustrations will also be
provided upon request. Being based upon past performance, neither hypothetical
illustrations nor other performance data indicate future performance.
69
<PAGE> 72
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%(10.41% NET) 6.00%(4.41% NET) 0.00%(-1.59% 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 1,485 187 150,000 103 150,000 21 150,000
3 690 2,284 272 150,000 102 150,000 0 150,000
4 690 3,123 823 150,000 534 150,000 280 150,000
5 690 4,003 1,544 150,000 1,098 150,000 721 150,000
6 690 4,928 2,330 150,000 1,683 150,000 1,158 150,000
7 690 5,899 3,310 150,000 2,412 150,000 1,712 150,000
8 690 6,918 4,363 150,000 3,159 150,000 2,258 150,000
9 690 7,989 5,382 150,000 3,809 150,000 2,679 150,000
10 690 9,113 6,488 150,000 4,475 150,000 3,089 150,000
15 690 15,634 13,059 150,000 7,469 150,000 4,366 150,000
20 690 23,956 23,110 150,000 10,485 150,000 4,923 150,000
Age 60 690 65,437 106,105 150,000 16,991 150,000 0 150,000
Age 65 690 87,519 175,175 213,713 15,303 150,000 0 150,000
Age 70 690 115,703 286,568 332,419 7,912 150,000 0 150,000
</TABLE>
ASSUMED HYPOTHETICAL GROSS ANNUAL INVESTMENT RETURN
12.00%(10.41% NET) 6.00%(4.41% NET) 0.00%(-1.59% 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 1,485 159 150,000 76 150,000 0 150,000
3 690 2,284 233 150,000 67 150,000 0 150,000
4 690 3,123 776 150,000 493 150,000 245 150,000
5 690 4,003 1,376 150,000 939 150,000 570 150,000
6 690 4,928 2,039 150,000 1,406 150,000 891 150,000
7 690 5,899 2,768 150,000 1,889 150,000 1,203 150,000
8 690 6,918 4,020 150,000 2,840 150,000 1,956 150,000
9 690 7,989 4,899 150,000 3,356 150,000 2,247 150,000
10 690 9,113 5,861 150,000 3,887 150,000 2,526 150,000
15 690 15,634 12,833 150,000 7,342 150,000 4,292 150,000
20 690 23,956 22,678 150,000 10,272 150,000 4,805 150,000
Age 60 690 65,437 102,391 150,000 14,660 150,000 0 150,000
Age 65 690 87,519 168,330 205,362 9,594 150,000 0 150,000
Age 70 690 115,703 273,795 317,602 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.
70
<PAGE> 73
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%(10.41% NET) 6.00%(4.41% NET) 0.00%(-1.59% 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 1,353 303 150,000 239 150,000 176 150,000
2 1,289 2,775 1,364 150,000 1,173 150,000 989 150,000
3 1,289 4,267 2,048 150,000 1,656 150,000 1,294 150,000
4 1,289 5,834 3,436 150,000 2,757 150,000 2,156 150,000
5 1,289 7,479 5,083 150,000 4,021 150,000 3,118 150,000
6 1,289 9,206 6,893 150,000 5,338 150,000 4,067 150,000
7 1,289 11,020 9,061 150,000 6,889 150,000 5,184 150,000
8 1,289 12,924 11,422 150,000 8,493 150,000 6,285 150,000
9 1,289 14,924 13,882 150,000 10,037 150,000 7,255 150,000
10 1,289 17,024 16,575 150,000 11,636 150,000 8,206 150,000
15 1,289 29,206 33,690 150,000 19,721 150,000 11,872 150,000
20 1,289 44,753 61,241 150,000 29,106 150,000 14,632 150,000
Age 60 1,289 122,244 295,712 396,255 68,556 150,000 16,083 150,000
Age 65 1,289 163,496 485,350 592,127 86,649 150,000 12,279 150,000
Age 70 1,289 216,146 790,959 917,512 108,570 150,000 3,959 150,000
</TABLE>
ASSUMED HYPOTHETICAL GROSS ANNUAL INVESTMENT RETURN
12.00%(10.41% NET) 6.00%(4.41% NET) 0.00%(-1.59% 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 1,353 286 150,000 223 150,000 161 150,000
2 1,289 2,775 1,335 150,000 1,146 150,000 964 150,000
3 1,289 4,267 2,010 150,000 1,621 150,000 1,262 150,000
4 1,289 5,834 3,390 150,000 2,717 150,000 2,121 150,000
5 1,289 7,479 4,915 150,000 3,863 150,000 2,967 150,000
6 1,289 9,206 6,602 150,000 5,061 150,000 3,801 150,000
7 1,289 11,020 8,463 150,000 6,310 150,000 4,619 150,000
8 1,289 12,924 10,966 150,000 8,061 150,000 5,870 150,000
9 1,289 14,924 13,229 150,000 9,414 150,000 6,653 150,000
10 1,289 17,024 15,724 150,000 10,821 150,000 7,417 150,000
15 1,289 29,206 33,470 150,000 19,597 150,000 11,799 150,000
20 1,289 44,753 60,833 150,000 28,904 150,000 14,519 150,000
Age 60 1,289 122,244 292,339 391,734 66,795 150,000 14,558 150,000
Age 65 1,289 163,496 477,882 583,016 82,907 150,000 8,469 150,000
Age 70 1,289 216,146 774,020 897,863 101,081 150,000 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.
71
<PAGE> 74
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%(10.41% NET) 6.00%(4.41% NET) 0.00%(-1.59% 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 0 150,407 0 150,377 0 150,348
2 690 1,485 185 150,856 100 150,771 20 150,690
3 690 2,284 267 151,352 98 151,183 0 151,027
4 690 3,123 815 151,899 527 151,612 274 151,359
5 690 4,003 1,532 152,504 1,088 152,060 713 151,685
6 690 4,928 2,312 153,171 1,669 152,529 1,147 152,007
7 690 5,899 3,283 153,904 2,392 153,013 1,698 152,318
8 690 6,918 4,326 154,707 3,133 153,514 2,239 152,620
9 690 7,989 5,333 155,587 3,775 154,029 2,656 152,910
10 690 9,113 6,422 156,549 4,432 154,559 3,061 153,188
15 690 15,634 12,836 162,836 7,351 157,351 4,303 154,303
20 690 23,956 22,447 172,447 10,203 160,203 4,802 154,802
Age 60 690 65,437 94,098 244,098 14,747 164,747 0 150,000
Age 65 690 87,519 146,599 296,599 11,379 161,379 0 150,000
Age 70 690 115,703 226,488 376,488 1,735 151,735 0 150,000
</TABLE>
ASSUMED HYPOTHETICAL GROSS ANNUAL INVESTMENT RETURN
12.00%(10.41% NET) 6.00%(4.41% NET) 0.00%(-1.59% 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 0 150,390 0 150,361 0 150,332
2 690 1,485 156 150,827 73 150,744 0 150,665
3 690 2,284 228 151,313 62 151,147 0 150,996
4 690 3,123 767 151,852 486 151,571 239 151,324
5 690 4,003 1,363 152,448 929 152,014 562 151,647
6 690 4,928 2,020 153,105 1,391 152,476 880 151,965
7 690 5,899 2,742 153,826 1,869 152,954 1,189 152,273
8 690 6,918 3,983 154,618 2,814 153,448 1,938 152,572
9 690 7,989 4,849 155,484 3,322 153,957 2,225 152,859
10 690 9,113 5,796 156,431 3,844 154,479 2,498 153,133
15 690 15,634 12,609 162,609 7,223 157,223 4,228 154,228
20 690 23,956 22,012 172,012 9,989 159,989 4,683 154,683
Age 60 690 65,437 89,471 239,471 12,315 162,315 0 150,000
Age 65 690 87,519 135,819 285,819 5,563 155,563 0 150,000
Age 70 690 115,703 201,940 351,940 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.
72
<PAGE> 75
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%(10.41% NET) 6.00%(4.41% NET) 0.00%(-1.59% 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 2,127 152,944 1,960 152,777 1,792 152,610
2 3,148 6,776 5,211 156,195 4,692 155,676 4,193 155,178
3 3,148 10,420 8,415 159,784 7,334 158,703 6,336 157,705
4 3,148 14,247 12,378 163,747 10,495 161,864 8,823 160,192
5 3,148 18,264 16,866 168,123 13,908 165,164 11,383 162,640
6 3,148 22,483 21,810 172,954 17,466 168,610 13,905 165,049
7 3,148 26,913 27,435 178,283 21,355 172,203 16,567 167,415
8 3,148 31,564 33,610 184,162 25,399 175,950 19,187 169,739
9 3,148 36,447 40,277 190,645 29,487 179,854 21,650 172,018
10 3,148 41,575 47,611 197,795 33,739 183,923 24,070 174,254
15 3,148 71,326 96,131 246,131 56,892 206,892 34,702 184,702
20 3,148 109,296 174,273 386,885 84,781 234,781 43,815 193,815
Age 60 3,148 298,545 829,691 1,111,786 206,810 356,810 60,685 210,685
Age 65 3,148 399,292 1,359,724 1,658,863 262,848 412,848 60,859 210,859
Age 70 3,148 527,873 2,213,890 2,568,113 326,966 476,966 56,288 206,288
</TABLE>
ASSUMED HYPOTHETICAL GROSS ANNUAL INVESTMENT RETURN
12.00%(10.41% NET) 6.00%(4.41% NET) 0.00%(-1.59% 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 2,110 152,928 1,943 152,761 1,777 152,594
2 3,148 6,776 5,182 156,166 4,665 155,649 4,168 155,153
3 3,148 10,420 8,376 159,745 7,299 158,668 6,304 157,674
4 3,148 14,247 12,331 163,700 10,454 161,823 8,788 160,157
5 3,148 18,264 16,697 168,066 13,749 165,118 11,233 162,602
6 3,148 22,483 21,518 172,887 17,188 168,558 13,638 165,007
7 3,148 26,913 26,836 178,205 20,775 172,144 16,001 167,370
8 3,148 31,564 33,153 184,073 24,966 175,885 18,772 169,691
9 3,148 36,447 39,623 190,543 28,863 179,782 21,048 171,967
10 3,148 41,575 46,758 197,677 32,924 183,843 23,280 174,199
15 3,148 71,326 95,904 245,904 56,764 206,764 34,627 184,627
20 3,148 109,296 173,831 385,904 84,567 234,567 43,697 193,697
Age 60 3,148 298,545 823,208 1,103,098 204,385 354,385 59,036 209,036
Age 65 3,148 399,292 1,343,572 1,639,158 257,054 407,054 56,890 206,890
Age 70 3,148 527,873 2,174,096 2,521,951 313,800 463,800 47,381 197,381
</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.
73
<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%(10.41% NET) 6.00%(4.41% NET) 0.00%(-1.59% 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 2,300 356 250,000 251 250,000 146 250,000
2 2,190 4,714 2,038 250,000 1,723 250,000 1,422 250,000
3 2,190 7,249 2,697 250,000 2,055 250,000 1,464 250,000
4 2,190 9,911 4,839 250,000 3,737 250,000 2,762 250,000
5 2,190 12,706 7,359 250,000 5,646 250,000 4,194 250,000
6 2,190 15,641 10,079 250,000 7,590 250,000 5,563 250,000
7 2,190 18,723 13,421 250,000 9,967 250,000 7,269 250,000
8 2,190 21,958 17,002 250,000 12,372 250,000 8,905 250,000
9 2,190 25,356 20,665 250,000 14,624 250,000 10,291 250,000
10 2,190 28,923 24,622 250,000 16,908 250,000 11,607 250,000
15 2,190 49,620 48,254 250,000 26,993 250,000 15,329 250,000
20 2,190 76,035 84,563 250,000 36,549 250,000 15,918 250,000
Age 60 2,190 76,035 84,563 250,000 36,549 250,000 15,918 250,000
Age 65 2,190 109,748 143,069 250,000 44,735 250,000 12,487 250,000
Age 70 2,190 152,776 241,544 280,191 49,125 250,000 2,627 250,000
</TABLE>
ASSUMED HYPOTHETICAL GROSS ANNUAL INVESTMENT RETURN
12.00%(10.41% NET) 6.00%(4.41% NET) 0.00%(-1.59% 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 2,300 248 250,000 146 250,000 45 250,000
2 2,190 4,714 1,805 250,000 1,503 250,000 1,215 250,000
3 2,190 7,249 2,313 250,000 1,702 250,000 1,141 250,000
4 2,190 9,911 4,277 250,000 3,234 250,000 2,314 250,000
5 2,190 12,706 6,398 250,000 4,785 250,000 3,420 250,000
6 2,190 15,641 8,683 250,000 6,349 250,000 4,453 250,000
7 2,190 18,723 11,148 250,000 7,921 250,000 5,408 250,000
8 2,190 21,958 14,558 250,000 10,247 250,000 7,033 250,000
9 2,190 25,356 17,431 250,000 11,825 250,000 7,823 250,000
10 2,190 28,923 20,531 250,000 13,396 250,000 8,521 250,000
15 2,190 49,620 42,129 250,000 22,767 250,000 12,302 250,000
20 2,190 76,035 70,680 250,000 27,610 250,000 9,768 250,000
Age 60 2,190 76,035 70,680 250,000 27,610 250,000 9,768 250,000
Age 65 2,190 109,748 113,577 250,000 26,324 250,000 44 250,000
Age 70 2,190 152,776 182,420 250,000 10,827 250,000 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.
74
<PAGE> 77
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%(10.41% NET) 6.00%(4.41% NET) 0.00%(-1.59% 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 1,812 250,000 1,610 250,000 1,408 250,000
2 3,916 8,429 5,372 250,000 4,751 250,000 4,155 250,000
3 3,916 12,962 7,581 250,000 6,296 250,000 5,110 250,000
4 3,916 17,722 12,144 250,000 9,913 250,000 7,936 250,000
5 3,916 22,720 17,343 250,000 13,850 250,000 10,876 250,000
6 3,916 27,968 23,033 250,000 17,917 250,000 13,734 250,000
7 3,916 33,478 29,878 250,000 22,733 250,000 17,125 250,000
8 3,916 39,264 37,319 250,000 27,686 250,000 20,429 250,000
9 3,916 45,339 45,241 250,000 32,600 250,000 23,467 250,000
10 3,916 51,718 53,900 250,000 37,667 250,000 26,421 250,000
15 3,916 88,727 108,878 250,000 62,946 250,000 37,317 250,000
20 3,916 135,961 198,634 266,170 92,100 250,000 44,767 250,000
Age 60 3,916 135,961 198,634 266,170 92,100 250,000 44,767 250,000
Age 65 3,916 196,244 345,813 421,892 126,802 250,000 48,459 250,000
Age 70 3,916 273,183 583,725 677,121 168,987 250,000 46,632 250,000
</TABLE>
ASSUMED HYPOTHETICAL GROSS ANNUAL INVESTMENT RETURN
12.00%(10.41% NET) 6.00%(4.41% NET) 0.00%(-1.59% 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 1,705 250,000 1,506 250,000 1,308 250,000
2 3,916 8,429 5,141 250,000 4,534 250,000 3,950 250,000
3 3,916 12,962 7,203 250,000 5,948 250,000 4,791 250,000
4 3,916 17,722 11,592 250,000 9,419 250,000 7,495 250,000
5 3,916 22,720 16,400 250,000 13,004 250,000 10,114 250,000
6 3,916 27,968 21,666 250,000 16,699 250,000 12,642 250,000
7 3,916 33,478 27,437 250,000 20,509 250,000 15,077 250,000
8 3,916 39,264 34,517 250,000 25,184 250,000 18,166 250,000
9 3,916 45,339 41,464 250,000 29,230 250,000 20,408 250,000
10 3,916 51,718 49,094 250,000 33,395 250,000 22,546 250,000
15 3,916 88,727 103,388 250,000 59,070 250,000 34,484 250,000
20 3,916 135,961 187,445 251,176 84,358 250,000 39,174 250,000
Age 60 3,916 135,961 187,445 251,176 84,358 250,000 39,174 250,000
Age 65 3,916 196,244 325,536 397,153 112,152 250,000 37,478 250,000
Age 70 3,916 273,183 546,048 633,416 142,187 250,000 24,502 250,000
</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.
75
<PAGE> 78
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%(10.41% NET) 6.00%(4.41% NET) 0.00%(-1.59% 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 2,300 352 251,672 247 251,567 142 251,462
2 2,190 4,714 2,027 253,477 1,713 253,163 1,412 252,863
3 2,190 7,249 2,672 255,437 2,033 254,797 1,444 254,209
4 2,190 9,911 4,793 257,557 3,697 256,462 2,729 255,494
5 2,190 12,706 7,282 259,859 5,584 258,162 4,144 256,721
6 2,190 15,641 9,960 262,350 7,497 259,887 5,492 257,882
7 2,190 18,723 13,245 265,044 9,835 261,635 7,172 258,971
8 2,190 21,958 16,749 267,958 12,191 263,400 8,777 259,986
9 2,190 25,356 20,313 271,119 14,383 265,189 10,126 260,932
10 2,190 28,923 24,143 274,546 16,592 266,995 11,400 261,803
15 2,190 49,620 46,417 296,417 26,020 276,020 14,813 264,813
20 2,190 76,035 78,724 328,724 34,107 284,107 14,889 264,889
Age 60 2,190 76,035 78,724 328,724 34,107 284,107 14,889 264,889
Age 65 2,190 109,748 126,198 376,198 39,321 289,321 10,770 260,770
Age 70 2,190 152,776 195,345 445,345 38,175 288,175 362 250,362
</TABLE>
ASSUMED HYPOTHETICAL GROSS ANNUAL INVESTMENT RETURN
12.00%(10.41% NET) 6.00%(4.41% NET) 0.00%(-1.59% 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 2,300 244 251,563 142 251,462 41 251,360
2 2,190 4,714 1,791 253,242 1,491 252,942 1,203 252,654
3 2,190 7,249 2,284 255,048 1,676 254,441 1,118 253,883
4 2,190 9,911 4,223 256,987 3,188 255,953 2,276 255,040
5 2,190 12,706 6,308 259,073 4,713 257,478 3,363 256,128
6 2,190 15,641 8,545 261,310 6,242 259,007 4,371 257,136
7 2,190 18,723 10,944 263,709 7,769 260,534 5,296 258,061
8 2,190 21,958 14,266 266,281 10,039 262,054 6,885 258,900
9 2,190 25,356 17,025 269,039 11,548 263,562 7,634 259,649
10 2,190 28,923 19,978 271,993 13,033 265,048 8,285 260,300
15 2,190 49,620 39,991 289,991 21,649 271,649 11,718 261,718
20 2,190 76,035 63,747 313,747 24,811 274,811 8,656 258,656
Age 60 2,190 76,035 63,747 313,747 24,811 274,811 8,656 258,656
Age 65 2,190 109,748 93,126 343,126 20,360 270,360 0 250,000
Age 70 2,190 152,776 124,732 374,732 374 250,374 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.
76
<PAGE> 79
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%(10.41% NET) 6.00%(4.41% NET) 0.00%(-1.59% 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 7,280 259,207 6,765 258,692 6,251 258,178
2 9,489 20,425 16,897 269,332 15,294 267,729 13,753 266,188
3 9,489 31,410 26,649 280,477 23,303 277,131 20,211 274,039
4 9,489 42,944 38,912 292,740 33,079 286,906 27,897 281,725
5 9,489 55,054 52,599 306,239 43,434 297,074 35,611 289,251
6 9,489 67,771 67,641 321,093 54,189 307,642 43,158 296,611
7 9,489 81,122 84,789 337,439 65,972 318,621 51,151 303,801
8 9,489 95,142 103,578 355,425 78,179 330,025 58,973 310,819
9 9,489 109,863 123,996 375,227 90,648 341,879 66,443 317,674
10 9,489 125,319 146,412 397,028 103,578 354,194 73,744 324,359
15 9,489 214,997 293,776 543,776 173,140 423,140 105,086 355,086
20 9,489 329,451 531,005 781,005 255,591 505,591 130,751 380,751
Age 60 9,489 329,451 531,005 781,005 255,591 505,591 130,751 380,751
Age 65 9,489 475,527 914,786 1,164,786 353,104 603,104 150,259 400,259
Age 70 9,489 661,960 1,535,940 1,785,940 466,543 716,543 161,677 411,677
</TABLE>
ASSUMED HYPOTHETICAL GROSS ANNUAL INVESTMENT RETURN
12.00%(10.41% NET) 6.00%(4.41% NET) 0.00%(-1.59% 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 7,172 259,098 6,660 258,587 6,149 258,076
2 9,489 20,425 16,662 269,097 15,072 267,507 13,545 265,979
3 9,489 31,410 26,261 280,089 22,947 276,775 19,885 273,713
4 9,489 42,944 38,342 292,170 32,570 286,397 27,444 281,271
5 9,489 55,054 51,626 305,453 42,563 296,391 34,830 288,658
6 9,489 67,771 66,227 320,054 52,934 306,761 42,038 295,865
7 9,489 81,122 82,277 336,104 63,693 317,521 49,064 302,891
8 9,489 95,142 100,671 353,749 75,603 328,680 56,657 309,734
9 9,489 109,863 120,072 373,149 87,176 340,254 63,314 316,392
10 9,489 125,319 141,400 394,477 99,171 352,248 69,780 322,857
15 9,489 214,997 287,358 537,358 168,773 418,773 101,995 351,995
20 9,489 329,451 516,062 766,062 246,310 496,310 124,525 374,525
Age 60 9,489 329,451 516,062 766,062 246,310 496,310 124,525 374,525
Age 65 9,489 475,527 881,838 1,131,838 334,189 584,189 138,043 388,043
Age 70 9,489 661,960 1,465,755 1,715,755 428,868 678,868 137,986 387,986
</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.
77
<PAGE> 80
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> 81
(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> 82
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 26th day of April, 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> 83
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 26th day of April, 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 April 26, 1999
/s/ Joseph P. Brom Senior Vice President
- -------------------- and Chief Investment
Joseph P. Brom Officer and Director April 26, 1999
/s/ Ronald J. Dolan Senior Vice President
- -------------------- and Chief Financial Officer
Ronald J. Dolan and Director April 26, 1999
/s/ John J. Palmer Senior Vice President,
- -------------------- Strategic Initiatives
John J. Palmer and Director April 26, 1999
/s/ Stuart G. Summers Senior Vice President and
- --------------------- General Counsel and
Stuart G. Summers Director April 26, 1999
/s/ Roylene M. Broadwell Vice President & Treasurer
- ------------------------
Roylene M. Broadwell April 26, 1999
</TABLE>
<PAGE> 84
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> 85
CONSENTS
<PAGE> 86
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
April 26, 1999
<PAGE> 87
[OHIO NATIONAL FINANCIAL SERVICES LETTERHEAD]
April 26, 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. 17 to File No. 2-98265
Post-Effective Amendment No. 11 to File No. 33-53350
Post-Effective Amendment No. 3 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 bcome
effective pursuant to paragraph (b).
Sincerely,
/s/ RONALD L. BENEDICT
---------------------------
Ronald L. Benedict
Corporate Vice President,
Counsel & Secretary
RLB/nh
<PAGE> 88
[OHIO NATIONAL FINANCIAL SERVICES LETTERHEAD]
April 26, 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. 17 to File No 2-98265
Post-Effective Amendment No. 11 to file No. 33-53350
Post-Effective Amendment No. 3 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> 89
Jones & Blouch L.L.P.
Suite 405-West
1025 Thomas Jefferson St., N.W.
Washington, DC 20007
(202) 223-3500
April 26, 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.
