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Exhibit 11
Memorandum Regarding Ohio National Life Assurance Corporation's
Purchase, Transfer, Redemption and Conversation Procedures for
Flexible Premium Variable Life Insurance Contracts
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This document sets forth the information called for under Rule 6e-3(T) (B) (12)
(ii) under the Investment Company Act of 1940 ("1940 Act"). Such Rule provides
exemptions from Sections 22(d), 22(e) and 27(c)(1) of the 1940 Act, and Rule
22c-1 thereunder, for issuance, transfer and redemption procedures under the
Flexible Premium Variable Life Insurance Contracts ("contracts") described in
this registration statement to the extent necessary to comply with other
provisions of Rule 6e-3(T), state insurance law or established administrative
procedures of Ohio National Life Assurance Corporation (the "Company"). To
qualify for the exemptions, procedures must be reasonable, fair and not
discriminatory and must be disclosed in the registration statement. This
document also sets forth a description of the Company's conversion procedures
pursuant to Rule 6e-3(T) (b) (13) (v) (B).
1. PURCHASES AND RELATED TRANSACTIONS
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Set out below is a summary of the principal contract provisions and
administrative procedures relating to "purchase" transactions. Because of the
insurance nature of the contract, the procedures involved necessarily differ in
certain significant respects from the purchase procedures for mutual funds and
contractual plans.
(a) Applications and Contract Issue
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To purchase a contract, an applicant must complete an application and
submit it to the Company at its home office through the agent selling the
contract. Generally, the Company will not issue a contract to a person older
than age 70, but may do so at its sole discretion. Nonsmoker rates are not
available unless the applicant is age 18 or over. The Company will only
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issue contracts with stated amounts as specified in each contract. All
applications require evidence of insurability. Acceptance of any application is
subject to insurance underwriting rules and the Company may reject an
application for any reason. 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.
The contractowner must pay an initial premium in order for his contract
to take effect. The contract takes effect as of the contract effective date.
However, if the contractowner pays the initial premium at the time he submits
his application, the Company will, pursuant to the temporary insurance agreement
contained in such application, provide the contractowner with insurance coverage
as described in the application, starting on the later of the date of the
application and the date the contractowner completes any required medical
examination and ending on the date the Company approves or rejects the
application. The Company does 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 effective date will be earlier
than the issue date. At a contractowner's request, the Company will backdate a
contract as much as six months. This procedure may be advantageous where
backdating will lower the contractowner's age at issue and thereby lower his
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
effective date. Consequently, the initial premium required for a backdated
contract will be larger than for a contract which is not backdated inasmuch as
the contractowner must satisfy the minimum premium requirement, pay monthly
deductions and pay all other charges associated with the contract for the period
between the contract date and the issue date as a deduction from the initial
deposit before allocation.
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If the Company rejects an application during the review period or a
contractowner chooses to cancel his contract during the free look period, the
Company will refund all amounts paid under the contract. Consequently, during
the application review and free look periods, the Company bears the investment
risk with respect to any amounts paid under the contract. However, if the
contractowner does not exercise his free look privilege, his cash value will
reflect investment performance during the free look period.
(b) Payment of Premiums
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Premiums must be paid to the Company at its home office. Unlike a
traditional insurance policy, the contract does not require a fixed schedule of
premium payments. Within certain limits, the contractowner may determine the
amount and timing of his premium payments. As described below, such limits
include an initial premium requirement and a minimum premium requirement. The
contract specification page will also include a schedule of planned premiums.
(i) Initial Premiums
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The contractowner must pay an initial premium before the
Company will make the contract effective. Such premium may be submitted with the
contract application or sent directly to the Company at its home office. The
amount of the initial premium will be at least one monthly minimum premium. The
initial premium for a backdated contract or a contract issued as "cash on
delivery" may be greater.
(ii) Minimum Premiums
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During the first two contract years, the contractowner must
satisfy the minimum premium requirement to keep the contract in force. Failure
to satisfy the minimum premium requirement during the first two contract years
will result in the termination of the contract after expiration of a 61-day
grace period. After the second contract year, the contractowner must satisfy the
minimum premium requirement to keep the death benefit guarantee in effect.
Failure to make premium payments sufficient to maintain the death benefit
guarantee will not
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necessarily cause a contract to lapse. The component of the monthly deduction
which is the charge for the death benefit guarantee will not be imposed on
contracts for which the death benefit guarantee is no longer is effect.
To satisfy the minimum premium requirement, a contractowner
must have paid at any time cumulative premiums, less any partial surrenders and
contract indebtedness, equal to the monthly minimum premium multiplied by the
number of complete contract months the contract has been in effect. The monthly
minimum premium indicated on the contract specification page will remain a level
amount until the insured reaches age 70, or ten years from the contract date, if
later. At such time, the monthly minimum premium will be substantially
increased.
(iii) Planned Premiums
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On purchase of a contract, the contractowner will be asked to
adopt a planned premium schedule. Such schedule is a planning device which
indicates the level of premiums the contractowner intends to pay under the
contract. He is not required to adhere to such schedule. The contractowner may
adopt, in consultation with his agent, any planned premium schedule that he
wishes. The amount of scheduled payments, however, should generally be set
between the minimum premium and the guideline annual premium for the contract.
The minimum premium is a level amount necessary to keep the death benefit
guarantee in effect if applicable (refer to the contract). 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% or 5% (refer to
the product portfolio). At any time a contractowner may pay more or less than
the amount indicated in the planned premium schedule. The Company may at its
discretion, however, refuse to accept any premium payment of less than $25 or so
large that it would disqualify the contract, without an increase in death
benefit, as life insurance under federal law. Any check or bank draft
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directed to pay a premium, if later found to be unhonored, will be reversed and
any market loss for the reversal will be deducted from the accumulated cash
value of the owner.
(c) Allocation of Premiums
----------------------
In the contract application, the contractowner may direct the
allocation of premium payments net of the premium expense charge among the
subaccounts of the variable account and the general account. The initial
allocation will take effect on the first process day following the issue date
or, if later, when the Company receives the initial premium payment. Pending
such allocation, net premiums will be held in the money market subaccount. If
the contractowner fails to indicate an allocation in his contract application,
the Company will leave the net premiums in the money market subaccount until it
receives allocation instructions. The amount allocated to any subaccount or the
general account must equal a whole percentage. The contractowner may change the
allocation of future net premiums at any time upon written notice to the Company
or by using the Interactive Voice Response system or the Internet website.
Premiums allocated to an increase will be credited to the subaccounts and the
general account in accordance with the premium allocation then in effect on the
later of the date of the increase or the date the Company receives such a
premium
(d) Increases in Stated Amount
--------------------------
Subject to certain limitations, a contractowner may at any time after
the first contract year increase the contract's stated amount by sending the
Company a written request. The Company may limit a contractowner to two such
changes in each contract year. Any increase must be of at least $5,000. The
effective date of the increase will be the process day on or following approval
of the request. An increase in stated amount will affect the minimum premium
necessary to maintain the death benefit guarantee, if applicable (refer to the
contract) the monthly insurance charges and surrender charges.
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An increase is treated in a similar manner to the purchase of a new
contract. To obtain an increase, a contractowner must submit a supplemental
application with evidence demonstrating insurability. Depending on the
contract's cash value, the contractowner may or may not have to pay additional
premiums to obtain an increase. If a contractowner must pay an additional
premium, the Company must receive it by the effective date of the increase. If
the contractowner pays such premium before the effective date of the increase
and earmarks such payment for the increase, the Company will hold such payment
without interest until the effective date. The contractowner will, however,
receive insurance coverage equal to the amount of the requested increase
pursuant to the terms of the premium receipt agreement until the effective date.
If the Company does not approve an application for an increase, it will return
any such earmarked premium to the contractowner.
After an increase, a portion of subsequent 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 the original stated amount,
plus the guideline annual premiums for all increases. The pattern of premium
expense charges with respect to premiums allocated to an increase will be the
same as with a new contract and the sales load will be determined by the
insured's attained age on the date of the increase.
The contractowner will also have the same free look and conversion
rights with respect to an increase as with the initial contract. For a period of
time following an increase, the contract will be subject to a new surrender
charge as a result of such increase, see policy or prospectus.
(e) Reinstatement
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If the contract lapses, a contractowner may apply for reinstatement
anytime within five years of the date of the application. The contract will be
reinstated provided the contractowner supplies proof of insurability and pays a
reinstatement premium. The reinstatement premium,
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after deduction of the premium expense charge, must be sufficient to cover the
monthly charges due from the grace period and the monthly deduction for two
contract months following the effective date of reinstatement. If a loan was
outstanding at the time of lapse, the Company will require reinstatement or
repayment of the loan and accrued interest at the rate specified in the contract
per year before permitting reinstatement of the contract.
(f) Repayment of Indebtedness
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A contractowner may repay a loan at any time, in whole or in part,
before the Company pays the contract proceeds. On repayment of 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 to repay such
loan. Upon repayment of a loan, the loan collateral account will be reduced by
the amount of the repayment and the repayment will be allocated first to the
general account, until the amount borrowed from the general account has been
repaid. Unless the company is 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.
(g) Misstatements of Age or Sex
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If the age or sex of the insured has been misstated in an application,
including a reinstatement application, the amount payable under the contract by
reason of the death of the insured will be 1.0040741 multiplied by the sum of
(i) and (ii) where
(i) is the cash value on the date of death; and
(ii) is the death benefit, less the cash value on the date
of death, multiplied by the ration 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.
2. REDEMPTIONS AND RELATED TRANSACTIONS
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Set out below is a summary of the principal contract provisions and
administrative procedures relating to "redemption" transactions. Because of the
insurance nature of the contracts, the procedures involved necessarily differ in
certain significant respects from the redemption procedures for mutual funds and
contractual plans.
(a) Surrenders of Cash Value
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A contractowner may surrender his contract in full at any time by
sending the Company a written request together with the contract to its home
office. The cash surrender value of the contract equals the cash value less any
applicable surrender charge. 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 the contract's specified number of years from the issue date, a
contractowner may obtain a portion of his cash value upon partial surrender of
the contract. The number of partial surrenders may be limited as described in
the contract, during any contract year. The amount of any partial surrender may
not exceed the cash surrender value, less (a) any outstanding contract
indebtedness, (b) an amount sufficient to cover the next two monthly deductions
and (c) a service charge equal to the lesser of $25 or 2% of the amount
surrendered.
The Company will reduce the cash value of a contract by the amount of
any partial surrender. In doing so, cash value will be taken from each increase
and the initial stated amount in proportion to the amount such increases and
initial stated amount bear to the total stated amount.
Under the level death benefit plan, a partial surrender reduces the
stated amount. Such surrender will result in a dollar for dollar reduction in
the death proceeds except when the death proceeds of the contract are determined
by the corridor percentage test. The stated amount
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remaining after a partial surrender may be no less than the minimum stated
amount of the contract. 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 the variable death benefit plan, a partial surrender reduces the
cash value. Such reduction will result in a dollar for dollar reduction in the
death proceeds except when the death proceeds are determined by the corridor
percentage test.
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.
(b) Decreases in Stated Amount
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Subject to certain limitations, a contractowner may, at any time after
a contractually specified time from the issue date or the date of any increase,
decrease the contract's stated amount by sending the Company a written request.
The Company may limit the number of decreases that a contractowner may request
in each contract year. Any decrease must be at least $5,000. The accumulated
cash value must be sufficient to support charges and expenses associated with
the decrease. The effective date of the decrease will be the process day on or
following approval of the request. A decrease in stated amount will affect the
minimum premium necessary to maintain the death benefit guarantee, if
applicable, the monthly insurance charges and surrender charges. Moreover, the
Company 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. For purposes of
determining the surrender charges on the amount decreased and the cost of
insurance charge on the remaining coverage, a decrease in stated amount will
reduce the existing stated amount in the
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following order: (a) the stated amount provided by the most recent increase, (b)
the next most recent increases successively, and (c) the initial stated amount.
(c) Surrender Charges
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After the free look period and during the early years of the contract
and following any increase in stated amount, a surrender charge is assessed in
connection with all complete surrenders, all decreases in stated amount and
certain partial surrenders.
If a contractowner surrenders his contract in full when a surrender
charge applies, the Company will deduct the total charge from cash value,
unless, by contract, the charge is reduced during a specified time period and
the surrender request is received within that time period. If provided by
contract a contractowner surrenders his contract in full during the two years
following the issue date and the effective date of any increase, he is entitled
to a refund of a portion of the total sales charge applicable to his initial
contract or increase.
Sales changes and refunds are described in detail, in each contract and
are reported in the prospectus. The calculations are certified by the actuarial
staff. When applicable, the amount of the refund will be the difference between
the combined front-end charge and the contingent deferred sales charge 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 a contractowner
surrenders his 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.
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Legal requirements in connection with the refund right, where it is
provided by contract, 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, the Company has 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.
If a contractowner decreases the stated amount of his contract while
such a charge applies, his cash value will be charged with a portion of the
total surrender charge. Partial surrenders in any contract year totaling 10% or
less of the cash surrender value 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 a contract as of the end of the
previous contract year are subject to that percentage of the total surrender
charge that is equal to the percentage of cash surrender value withdrawn minus
10%.
(d) Benefit Claims
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As long as the contract remains in force, the Company will, upon
receipt of due proof of the insured's death, pay the contract proceeds to the
beneficiary. The amount of the death benefit payable will be determined as of
the date of death, or on the next following valuation date if the date of death
is not a valuation date. Unless a settlement option is elected, the proceeds
will be paid in one lump sum with interest form the date of the insured's death
to the date of payment at a rate determined by the Company which will not be
less than an annual rate of 4 1/2%. The Company offers beneficiaries and
contractowners a wide variety of settlement options.
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Payment of any amount upon a complete or partial surrender, a contract
loan, or benefits payable at death or maturity may be postponed whenever: (i the
New York Stock Exchange is closed other than customary weekend and holiday
closings, or trading on the Exchange is restricted as determined by the
Commission; (ii) the Commission by order permits postponement for the protection
of contractowners; or (iii) an emergency exists, as determined by the
Commission, as a result of which disposal of securities is not reasonably
practicable or it is not reasonably practicable to determine the value of the
variable account's net assets.
(e) Loans
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After a contractually specified period of time, a contractowner may
borrow up to the loan value of the contract. The loan value is the cash
surrender value less the cost of insurance charges on the contract to the end of
the current contract year. The loan value will never be less than the percentage
of the cash surrender value specified in the contract. The Company will
generally distribute loan proceeds within seven days from receipt of a request
for a loan at its home office.
When a loan is made, cash value in an amount equal to the loan will be
taken from the general account and each subaccount in proportion to the cash
value in the general account and each subaccount. This value is then held in the
loan collateral account and earns interest at an effective rate guaranteed to be
at least 5% per year. Currently, the Company credits interest to the loan
collateral accounts at a rate declared periodically by the Company per year.
Such interest is credited to the subaccounts and the general account in
accordance with the premium allocation then in effect.
The Company charges interest on loans in advance each year at a rate
described in the contract. When the Company makes a loan, it adds 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 the contractowner fails to
pay the interest in cash, the Company will transfer
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sufficient cash value from the general account and each subaccount to pay the
interest for the following contract year. The allocation will be in proportion
to the contractowner's cash value in each subaccount.
There is no grace period for loan interest. If the interest amount is
not paid when due, it will be paid from the contract value and added to the
existing loan. If an interest payment is received after the due date, the
payment will be applied to reduce the last loan
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.
(f) Lapse
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Provided a contractowner satisfies the minimum premium requirement and
thereby keeps the death benefit guarantee in effect, the contract will never
lapse during the death benefit guarantee period. If a contractowner fails to
satisfy the minimum premium requirement during the first two contract years, the
contract will lapse after a 61-day grace period. If the contract lapses at any
time within two years from the issue date or the date of any increase, the
contractowner may be entitled to a refund of a portion of the total sales charge
otherwise applicable to the contract.
If 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, the contractowner 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 the
Company will send to the contractowner at the beginning of the 61-day grace
period. The grace period commences when the Company mails such notice. The
contract
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will continue in force throughout the grace period, but if the required
premium is not forthcoming, the contract will terminate without value at the end
of the grace period. If death occurs during the grace period, the death benefit
payable under the contract will be reduced by the amount of any unpaid monthly
deduction.
(g) Suicide
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The contract does not cover the risk of suicide within two years from
the contract date or two years from the date of any increase in stated amount
with respect to such increase, whether the insured is sane or insane. In the
event of suicide within two years of the contract date, the Company 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, the Company 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.
(h) Maturity
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The Company will pay the contractowner his cash surrender value on the
maturity date, reduced by any outstanding contract indebtedness. The maturity
date is listed on the specification page and is the end of the contract year
nearest the insured's 95th birthday. If the Company consents, the contractowner
may continue his contract for up to ten years after the maturity date. In such
case, the death benefit after the maturity date will equal the contract's cash
surrender value.
3. TRANSFERS
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A contractowner may transfer the cash value of his contract among the
subaccounts of the variable account and to the general account at any time.
Transfers may be submitted in writing via the IVR or by Internet website. Each
amount transferred must be at least $300 unless a smaller amount constitutes the
entire cash value of the subaccount from which the transfer is being made, in
which case a contractowner may only transfer the entire amount. The Company
currently imposes a service charge as described in prospectus. Transfers from
the general account to the subaccounts are subject to additional restrictions.
No more than 25% of the cash value in the general account as of the end of the
last contract year, or $1,000, if greater, may be transferred to one or more of
the subaccounts in any contract year.
4. CONVERSION
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Once during the first two years following the issue date and the date
of any increase in stated amount, the contractowner may convert his contract or
increase, as applicable, to a fixed benefit flexible premium policy by
transferring all of the cash value to the general account. After such a
transfer, values and death benefits under the contract will be determinable and
guaranteed. Cash values will be determined as of the date the Company receives a
conversion request at its 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 needs not be repaid in order to convert a contract. Transfers
of cash value to the general account in connection with the such a conversion
will be made without charge. Once a contractowner has converted a contract,
however, he may not thereafter exchange back to the variable account.
Payments and cash values under the general account operate in the same
manner as under the variable account except that cash values no longer reflect
the variable account investment performance. Consequently, there is no equitable
adjustments to be made pursuant to Rule 6e-3(T) (b) (13) (v) (B).
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5. ANNUAL REPORT
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Each year the Company will send contractowners a report which shows the
current cash 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. The Company will also send
contractowners all reports required by the 1940 Act.
The Company will also make available a projection report. This report
will be based on planned premiums, guaranteed cost of insurance and guaranteed
interest, if any. It will show the cash value of a contract one year from the
date of the report.