<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 25, 1998
REGISTRATION NO. 333-
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM S-6
FOR REGISTRATION UNDER THE SECURITIES ACT OF 1933
OF SECURITIES OF UNIT INVESTMENT TRUSTS
REGISTERED ON FORM N-8B-2
WRL SERIES LIFE
CORPORATE ACCOUNT
(EXACT NAME OF TRUST)
WESTERN RESERVE LIFE ASSURANCE
CO. OF OHIO
(NAME OF DEPOSITOR)
201 HIGHLAND AVENUE
LARGO, FLORIDA 33770
(COMPLETE ADDRESS OF DEPOSITOR'S PRINCIPAL EXECUTIVE OFFICES)
------------------------
COPY TO:
<TABLE>
<S> <C>
THOMAS E. PIERPAN, ESQ. STEPHEN E. ROTH, ESQ.
WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO SUTHERLAND, ASBILL & BRENNAN LLP
201 HIGHLAND AVENUE 1275 PENNSYLVANIA AVENUE, N.W.
LARGO, FLORIDA 33770 WASHINGTON, DC 20004-2415
(NAME AND COMPLETE ADDRESS OF AGENT FOR
SERVICE)
</TABLE>
------------------------
APPROXIMATE DATE OF PROPOSED PUBLIC OFFERING: As soon as practicable after
the effective date of this Registration Statement
SECURITIES BEING OFFERED: Variable Adjustable Life Insurance Policies
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATES AS
MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE A
FURTHER AMENDMENT THAT SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF THE
SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
================================================================================
<PAGE> 2
WRL SERIES LIFE CORPORATE ACCOUNT
WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO
CROSS REFERENCE TO ITEMS REQUIRED BY FORM N-8B-2
<TABLE>
<CAPTION>
N-8B-2
ITEM CAPTION IN PROSPECTUS
- ------ ---------------------
<C> <S>
1 Cover Page
2 Western Reserve
3 Not applicable
4 Sale of the Policies
5 The Separate Account
6 The Separate Account
7 Not applicable
8 The Separate Account
9 Legal Proceedings
10 Summary; Premiums; Allocation of Net Premiums and Cash
Value; Life Insurance Benefits; Other Policy Provisions
and Benefits; Surrenders and Withdrawals; Loans; The
Separate Account; Voting Privileges
11 The Separate Account
12 The Separate Account; Sale of the Policies
13 Charges and Deductions
14 Facts About the Policy -- Applying for a Policy
15 Premiums; Allocation of Net Premiums and Cash Value
16 Allocation of Net Premiums and Cash Value
17 Free-Look Period; Surrenders and Partial Withdrawals; Loans;
Other Policy Provisions and Benefits
18 The Separate Account; Other Policy Provisions and Benefits
19 Reports to Owners
20 Not applicable
21 Loans
22 Other Policy Provisions and Benefits
23 Western Reserve's Directors and Executive Officers
24 Not applicable
25 Western Reserve
26 Not applicable
27 Western Reserve
28 Western Reserve's Directors and Executive Officers
29 Western Reserve
30 Not applicable
31 Not applicable
32 Not applicable
33 Not applicable
34 Not applicable
35 Western Reserve and the Separate Account
36 Not applicable
37 Not applicable
38 Sale of the Policies
39 Sale of the Policies
40 Not applicable
</TABLE>
<PAGE> 3
<TABLE>
<CAPTION>
N-8B-2
ITEM CAPTION IN PROSPECTUS
- ------ ---------------------
<C> <S>
41 Sale of the Policies
42 Not applicable
43 Not applicable
44 Policy Values
45 Not applicable
46 Policy Values
47 Allocation of Net Premiums and Cash Value
48 Not applicable
49 Not applicable
50 Not applicable
51 Premiums; Allocation of Net Premiums and Cash Value; Charges
and Deductions; Surrenders and Partial Withdrawals
52 The Separate Account; Western Reserve
53 Federal Tax Considerations
54 Not applicable
55 Illustrations of Cash Value, Net Cash Value and Life
Insurance Benefits
56 Not applicable
57 Not applicable
58 Not applicable
59 Financial Statements
</TABLE>
<PAGE> 4
PART I
<PAGE> 5
VARIABLE ADJUSTABLE LIFE INSURANCE POLICY
ISSUED BY
WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO
AND
WRL SERIES LIFE CORPORATE ACCOUNT
This prospectus describes a variable adjustable life insurance policy (the
"Policy") offered by Western Reserve Life Assurance Co. of Ohio ("Western
Reserve"). The Policy is designed to provide insurance protection on the life of
the Insured named in the Policy, and at the same time provide the Owner with the
flexibility to vary the amount and timing of premium payments and, within
certain limits, to change the amount of Life Insurance Benefits payable under
the Policy.
An Owner may allocate Net Premiums and Cash Value to one or more of the 8
Subaccounts of the WRL Series Life Corporate Account (the "Separate Account").
The assets of each Subaccount are invested in one of the following corresponding
mutual fund portfolios (each, a "Portfolio"):
<TABLE>
<CAPTION>
BT INSURANCE FUNDS TRUST: RUSSELL INSURANCE FUNDS: [NAME OF FUND]:
- ------------------------- ------------------------ ---------------
<S> <C> <C>
Small Cap Index Fund Multi-Style Equity Fund Money Market Fund
Equity 500 Index Fund Aggressive Equity Fund
EAFE(R) Equity Index Fund Non-U.S. Fund
Core Bond Fund
</TABLE>
The prospectuses describing the Portfolios accompany this prospectus and
provide information on the investment objectives and risks of investing in the
Portfolios. The Owner bears the entire investment risk for Cash Value allocated
to a Subaccount. The Policy has no guaranteed minimum Cash Value.
The Policy provides a Life Insurance Benefit payable after the Insured's
death, and a Cash Value that can be obtained by partially withdrawing amounts
from the Policy or by completely surrendering the Policy. The amount of the Life
Insurance Benefit may, and the Cash Value will, vary daily with the investment
results of the Subaccounts and any additional premium payments. However, as long
as the Policy remains in force, Western Reserve guarantees that the Life
Insurance Benefit will never be less than the Face Amount of the Policy. While
additional premium payments are not required under the Policy, additional
premium payments may be necessary to prevent lapse if there is insufficient Cash
Value.
The Policy provides a free-look period whereby an Owner may cancel the
Policy within 20 days after receiving it. Certain states may require a free-look
period longer than 20 days. It may not be to your advantage to replace existing
insurance with this Policy.
THIS PROSPECTUS MUST BE ACCOMPANIED OR PRECEDED BY THE CURRENT PROSPECTUSES
FOR THE PORTFOLIOS. PLEASE READ THIS PROSPECTUS AND THE PROSPECTUSES FOR THE
PORTFOLIOS CAREFULLY AND RETAIN BOTH FOR FUTURE REFERENCE. CERTAIN PORTFOLIOS
MAY NOT BE AVAILABLE IN ALL STATES.
THE POLICY IS NOT A DEPOSIT OR OBLIGATION OF, OR GUARANTEED OR ENDORSED BY,
ANY BANK OR DEPOSITORY INSTITUTION, AND THE POLICY IS NOT FEDERALLY INSURED BY
THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER GOVERNMENT AGENCY. THE
POLICY INVOLVES INVESTMENT RISK, INCLUDING POSSIBLE LOSS OF PREMIUMS INVESTED.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION, NOR HAS THE SECURITIES AND EXCHANGE COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
Prospectus dated , 1998
<PAGE> 6
TABLE OF CONTENTS
<TABLE>
<S> <C>
DEFINITIONS................................................. 4
SUMMARY..................................................... 6
INVESTMENT EXPERIENCE INFORMATION........................... 10
Rates of Return........................................... 10
Illustrations of Cash Value, Net Cash Value and Life
Insurance Benefits..................................... 11
WESTERN RESERVE AND THE SEPARATE ACCOUNT.................... 14
Western Reserve........................................... 14
The Separate Account...................................... 14
FACTS ABOUT THE POLICY...................................... 16
Availability of the Policy................................ 16
Applying for a Policy..................................... 16
Free-Look Period.......................................... 16
Premiums.................................................. 17
Policy Lapse and Reinstatement............................ 17
Allocation of Net Premiums and Cash Value................. 18
Policy Values............................................. 18
Transfer Privileges....................................... 20
Surrenders and Partial Withdrawals........................ 21
Loans..................................................... 22
Life Insurance Benefits................................... 23
Duration of the Policy.................................... 27
When Insurance Coverage Takes Effect...................... 27
Payment Options........................................... 28
CHARGES AND DEDUCTIONS...................................... 28
Percent of Premium Load................................... 28
Deferred Sales Charge..................................... 29
Monthly Deductions........................................ 29
Administrative Charges.................................... 30
Portfolio Expenses........................................ 30
OTHER POLICY PROVISIONS AND BENEFITS........................ 30
Ownership................................................. 30
Assignment................................................ 31
Western Reserve's Right to Contest the Policy............. 31
Suicide Exclusion......................................... 31
Misstatement of Age or Sex................................ 31
Modification of the Policy................................ 32
Payments by Western Reserve............................... 32
Reports to Owners......................................... 32
Claims of Creditors....................................... 33
Dividends................................................. 33
Supplemental Benefits and/or Riders....................... 33
FEDERAL TAX CONSIDERATIONS.................................. 33
Tax Status of the Policies................................ 34
Tax Treatment of Policy Benefits.......................... 35
</TABLE>
2
<PAGE> 7
<TABLE>
<S> <C>
OTHER INFORMATION ABOUT THE POLICIES AND WESTERN RESERVE.... 37
Sale of the Policies...................................... 37
Voting Privileges......................................... 37
Western Reserve's Directors and Executive Officers........ 38
Additional Information.................................... 39
Experts................................................... 39
Legal Matters............................................. 39
Legal Proceedings......................................... 39
Year 2000 Matters......................................... 39
Financial Statements...................................... 40
</TABLE>
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING IN ANY JURISDICTION IN
WHICH SUCH OFFERING MAY NOT LAWFULLY BE MADE. NO DEALER, SALESPERSON OR OTHER
PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR MAKE ANY REPRESENTATIONS IN
CONNECTION WITH THIS OFFERING OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS,
AND, IF GIVEN OR MADE, SUCH OTHER INFORMATION OR REPRESENTATIONS MUST NOT BE
RELIED UPON.
3
<PAGE> 8
DEFINITIONS
Accumulation Unit -- A unit of measurement used to calculate values under
the Policy.
Administrative Office -- The administrative office of Western Reserve
located at 4333 Edgewood Road NE, Cedar Rapids, Iowa 52499, (610) 439-5253.
Attained Age -- The Insured's age on the Effective Date, plus the number of
complete Policy Years since the Effective Date.
Beneficiary -- The person(s) to whom the Life Insurance Benefit proceeds
are paid upon the death of the Insured.
Cash Value -- After the free look period, the Cash Value is the sum of the
value of the Policy's accumulation units in each Subaccount and the Loan
Account.
Code -- The Internal Revenue Code of 1986, as amended.
Due Proof of Death -- Proof of death satisfactory to Western Reserve. Due
Proof of Death may consist of the following: (a) a certified copy of the death
record; (b) a certified copy of a court decree reciting a finding of death; or
(c) any other proof satisfactory to Western Reserve.
Effective Date -- The date shown in the Policy when insurance coverage is
effective and monthly deductions commence under the Policy. The Effective Date
is used to determine Policy Months, Policy Years, and Policy Anniversaries. If
the Effective Date would fall on the 29th, 30th or 31st day of any month, the
Effective Date will be the 28th day of the month.
Face Amount -- A dollar amount selected by the Owner and shown in the
Policy that is used to determine the Life Insurance Benefit.
General Account -- Western Reserve's assets other than those allocated to
the Separate Account or any other separate account established by Western
Reserve.
Indebtedness -- The Loan Amount plus any accrued loan interest.
Insured -- The person whose life is insured by the Policy.
Issue Age -- The Insured's age on the Effective Date.
Lapse -- Termination of the Policy at the expiration of the Late Period
while the Insured is still living.
Late Period -- A 62-day period during which an Owner may make premium
payments to cover the overdue (and other specified) monthly deductions and
thereby prevent the Policy from lapsing.
Life Insurance Benefit -- The amount payable to the Beneficiary under a
Life Insurance Benefit Option before adjustments if the Insured dies while the
Policy is in force.
Life Insurance Benefit Option -- One of three options that an Owner may
select for the computation of the Life Insurance Benefit Proceeds.
Life Insurance Benefit Proceeds -- The total amount payable to the
Beneficiary if the Insured dies while the Policy is in force. The Life Insurance
Benefit Proceeds includes reductions for any outstanding Indebtedness and any
due and unpaid charges.
Loan Account -- A portion of Western Reserve's General Account to which
Cash Value is transferred to provide collateral for any loan taken under the
Policy.
Loan Account Value -- The Cash Value in the Loan Account.
Loan Amount -- The Loan Amount on the last Policy Anniversary plus any new
loans minus any loan repayments. On each Policy Anniversary, unpaid loan
interest is added to the Loan Amount.
4
<PAGE> 9
Monthly Deduction Day -- The same date in each succeeding month as the
Effective Date. Whenever the Monthly Deduction Day falls on a date other than a
Valuation Day, the Monthly Deduction Day will be deemed to be the next Valuation
Day.
Net Cash Value -- The amount payable on surrender of the Policy. It is
equal to the Cash Value as of the date of surrender minus any outstanding Policy
loan and any loan interest due.
Net Premium -- The portion of any premium available for allocation to the
Subaccounts equal to the premium paid less the applicable percent of premium
load.
1940 Act -- The Investment Company Act of 1940, as amended.
NYSE -- New York Stock Exchange.
Owner -- The owner of the Policy, as shown in Western Reserve's records.
All of the rights and benefits of the Policy belong to the Owner, unless
otherwise stated in the Policy.
Planned Premium -- The premium selected by the Owner as a level amount that
he or she plans to pay on a quarterly, semi-annual or annual basis over the life
of the Policy.
Policy Anniversary -- The same date in each Policy Year as the Effective
Date.
Policy Month -- A one-month period beginning on the Monthly Deduction Day.
Policy Year -- A twelve-month period beginning on the Effective Date or on
a Policy Anniversary.
SEC -- U.S. Securities and Exchange Commission.
Separate Account -- WRL Series Life Corporate Account, a separate
investment account established by Western Reserve to receive and invest Net
Premiums allocated under the Policy.
Settlement Option -- The manner in which an Owner or Beneficiary elects to
receive the amount of any surrender or partial withdrawal or the Life Insurance
Benefit Proceeds.
Subaccount -- A subdivision of the Separate Account, the assets of which
are invested in a corresponding Portfolio.
Subaccount Value -- The Cash Value in a Subaccount.
Target Premium -- An amount of premium used to determine the percent of
premium load.
Valuation Day -- For each Subaccount, each day on which the New York Stock
Exchange is open for business except for certain holidays listed in this
prospectus and days that a Subaccount's corresponding Portfolio does not value
its shares.
Valuation Period -- The period that starts at the close of regular trading
on the New York Stock Exchange on any Valuation Day and ends at the close of
regular trading on the next succeeding Valuation Day.
5
<PAGE> 10
SUMMARY
The following summary of prospectus information is intended to provide a
brief overview of the more significant aspects of the Policy and should be read
in conjunction with the detailed information appearing elsewhere in this
prospectus.
Under Western Reserve's current rules, the Policy will be offered to
corporations and partnerships that meet the following conditions at issue:
- a minimum of five (5) Policies are issued, each on the life of a
different Insured; or
- the aggregate annualized first-year planned periodic premium for all
Policies is at least $100,000.
1. WHAT IS THE POLICY'S OBJECTIVE?
The Policy's objective is to provide for: (1) the payment of a minimum Life
Insurance Benefit to a Beneficiary upon the Insured's death; (2) the
accumulation of Cash Value; and (3) surrender rights and Policy loan privileges.
The Policy allows Owners to allocate Net Premiums to one or more Subaccounts of
the Separate Account. Each Subaccount invests in a designated Portfolio. The
amount and/or duration of the life insurance coverage and the Cash Value of the
Policy are not guaranteed and may increase or decrease depending upon the
investment experience of the Subaccounts. Accordingly, the Owner bears the
investment risk of any depreciation in value of the underlying assets of the
Separate Account but reaps the benefits of any appreciation in value. (See
Allocation of Net Premiums and Cash Value -- Allocation of Net Premiums, p.
.)
2. WHAT LIFE INSURANCE BENEFIT OPTIONS ARE AVAILABLE UNDER THE POLICY?
The Policy provides the payment of benefits upon the death of the Insured.
The Policy contains three Life Insurance Benefit (also known as death benefit)
options. Under Life Insurance Benefit Option 1, the Life Insurance Benefit is
the greater of the Face Amount of the Policy, or a specified percentage
multiplied by the Cash Value of the Policy on the date of death of the Insured.
Under Life Insurance Benefit Option 2, the Life Insurance Benefit is the greater
of the Face Amount of the Policy plus the Cash Value of the Policy on the date
of death of the Insured, or a specified percentage multiplied by the Cash Value
of the Policy on the date of death of the Insured. Under Life Insurance Benefit
Option 3, the Life Insurance Benefit is the greater of the Face Amount of the
Policy plus the cumulative premiums paid less cumulative partial withdrawals, or
a specified percentage multiplied by the Cash Value of the Policy on the date of
death of the Insured. Benefits under the Policy may be paid in a lump sum or
under one of the settlement options set forth in the Policy. (See Payment of
Policy Benefits -- Settlement Options, p. .)
Certain optional insurance benefits are available under the Policy. The
cost of these optional insurance benefits will be deducted from Cash Value as
part of the monthly deduction. (See Charges and Deductions -- Monthly Deductions
From Your Cash Value, p. .)
3. HOW MAY THE AMOUNT OF THE LIFE INSURANCE BENEFIT AND CASH VALUE VARY?
Under any Life Insurance Benefit Option, as long as the Policy remains in
force, the Life Insurance Benefit will not be less than the current Face Amount
of the Policy. The Life Insurance Benefit may, however, exceed the Face Amount
under certain circumstances. The amount by which the Life Insurance Benefit
exceeds the Face Amount depends upon the option chosen and the Cash Value of the
Policy. The amount of Life Insurance Benefit Proceeds will reflect reductions
for any outstanding Indebtedness and any due and unpaid charges, and additions
for any additional insurance benefits added by rider. (See Facts About the
Policy -- Life Insurance Benefits, p. .)
The Policy's Cash Value will reflect the amount and frequency of premium
payments, the investment experience of the chosen Subaccounts, any partial
withdrawals, and any charges imposed in connection with the Policy. The Owner
bears the entire investment risk for amounts allocated to the Separate Account.
6
<PAGE> 11
Western Reserve does not guarantee a minimum Cash Value. (See Facts About the
Policy -- Policy Values, p. .)
4. MAY AN OWNER ADJUST THE AMOUNT OF THE LIFE INSURANCE BENEFIT?
The Owner has significant flexibility to adjust the Life Insurance Benefit
payable by changing the Life Insurance Benefit Option type, and by increasing or
decreasing the Face Amount of the Policy or adding riders to increase the total
Life Insurance Benefit payable. The Life Insurance Benefit Option type may not
be changed during the first Policy Year. (See Life Insurance
Benefits -- Changing the Life Insurance Benefit Option, p. .) Owners also
may not change the Face Amount during the first Policy Year. Any increase in the
Face Amount will require additional evidence of insurability satisfactory to
Western Reserve, and will result in additional charges. (See Facts About the
Policy -- Life Insurance Benefits, p. ; and Monthly Deductions From Your
Cash Value -- Cost of Insurance, p. .)
5. WHAT FLEXIBILITY DOES AN OWNER HAVE REGARDING PREMIUMS?
An Owner has considerable flexibility concerning the amount and frequency
of premiums. Western Reserve will require the Owner to pay an initial premium
before insurance coverage is in force. Thereafter, an Owner may, subject to
certain restrictions, make premium payments in any amount and at any frequency.
(See Premiums, p. .) Each Owner will determine a schedule for premium
payments ("Planned Periodic Premium"). The schedule will provide a premium
payment of a level amount at a fixed interval over a specified period of time.
The amount and frequency of Planned Periodic Premiums will be prescribed in the
Policy and may be changed upon written request. (See Premiums, p. .)
Failing to pay Planned Periodic Premiums will not itself cause the Policy to
lapse, and paying Planned Periodic Premiums will not guarantee that the Policy
remains in force. Additional premiums may be necessary to prevent lapse if the
Net Cash Value is insufficient to pay certain monthly charges, and a Late Period
expires without a sufficient payment. (See Policy Lapse and
Reinstatement -- Lapse, p. .)
6. WHEN WILL THE POLICY LAPSE?
The Policy will Lapse when Net Cash Value is insufficient to pay the
monthly deduction, and a Late Period expires without a sufficient payment by the
Owner. (See Charges and Deductions -- Monthly Deductions From Your Cash Value,
p. ; and Policy Lapse and Reinstatement, p. .) Such a Lapse could
happen if the investment experience has been sufficiently unfavorable to have
resulted in a decrease in the Net Cash Value, or the Net Cash Value has
decreased because not enough premiums have been paid to offset the monthly
charges.
7. HOW ARE NET PREMIUMS ALLOCATED?
The portion of the premium available for allocation ("Net Premium") equals
the premium paid less the applicable percent of premium load. (See Charges and
Deductions -- Charges Deducted From Premiums, p. .) The Owner initially
determines the allocation of the Net Premium among the Subaccounts of the
Separate Account, each of which invests in shares of a designated Portfolio.
Each Portfolio has a different investment objective. (See Investments of the
Separate Account, p. .) Until the end of the free-look period, all premiums
will be allocated to the General Account, notwithstanding the allocation
instructions in the application. (See Free-Look Period, p. ) The allocation
of future Net Premiums may be changed without charge at any time by providing
Western Reserve with written notification from the Owner, or by calling the
Administrative Office at (610) 439-5253.
An Owner may transfer Cash Value among the Subaccounts, subject to certain
restrictions. The transfer will be effective on the first Valuation Date on or
following the day appropriate notice of such transfer is received at the
Administrative Office. (See Transfers, p. .)
7
<PAGE> 12
8. IS THERE A "FREE-LOOK" PERIOD?
The Policy provides a free-look period whereby the Owner may cancel the
Policy within 20 days after receiving it. Certain states require a free-look
period longer than 20 days, either for all Owners or for certain classes of
Owners. In most states, Western Reserve will refund the greater of the Policy's
Cash Value as of the date the Policy is returned or the amount of premiums paid,
less any partial withdrawals. (See Free-Look Period, p. .)
9. MAY THE POLICY BE SURRENDERED?
The Owner may totally surrender the Policy at any time and receive the Net
Cash Value of the Policy. Subject to certain limitations, the Owner may also
make partial withdrawals from the Policy at any time after the first Policy
Year. (See Surrenders and Partial Withdrawals, p. .) If Life Insurance
Benefit Option 1 is in effect, partial withdrawals will reduce the Policy's Face
Amount by the amount of the partial withdrawal. If Life Insurance Benefit Option
3 is in effect and total partial withdrawals are greater than the sum of the
premiums, the Face Amount is reduced by the amount of the partial withdrawals
minus the sum of the premiums; otherwise the Face Amount is not reduced.
10. WHAT IS THE LOAN PRIVILEGE?
After the first Policy Anniversary, an Owner may obtain a Policy loan in
any amount (minimum $500) which is not greater than 90% of the Cash Value less
any already outstanding loan. Western Reserve reserves the right to permit a
Policy loan prior to the first Policy Anniversary for certain Policies. A loan
taken from, or secured by, a Policy may be treated as a taxable distribution,
and also may be subject to a penalty tax. (See Federal Tax Considerations, p.
.) The interest rate on a Policy loan is 6.0% and is due in arrears on each
Policy Anniversary and on the date the loan is repaid. The requested amount of a
loan, plus interest for one year in advance, will be transferred from the
Subaccounts to the Loan Account and credited at the end of each Policy Year with
interest at a rate of 4% per year. Upon repayment of a loan, amounts in the Loan
Account in excess of the outstanding value of the loan are currently transferred
to the Subaccounts in the same manner as Net Premium allocations. There are
risks involved in taking a Policy loan, a few of which include the potential for
a Policy to lapse if projected earnings, taking into account any outstanding
loans, are not achieved, as well as adverse tax consequences which occur if a
Policy lapses with loans outstanding. (See Federal Tax Considerations -- Tax
Treatment of Policy Benefits, p. .)
11. WHAT CHARGES AND DEDUCTIONS ARE ASSESSED UNDER THE POLICY?
Certain charges and deductions are assessed under the Policy to compensate
Western Reserve for services and benefits provided, costs and expenses incurred,
and risks assumed by Western Reserve in connection with the Policies. Some
charges are assessed as percentages of Cash Value or premium payments, and
others are assessed as a flat dollar amount. The charges and deductions under
the Policy include the following:
PERCENT OF PREMIUM LOAD. During the first Policy Year, Western Reserve
deducts 11.5% of each premium received up to the Target Premium, and 4.5% of
each premium received in excess of the Target Premium. After the first Policy
Year, Western Reserve deducts 11.5% of each premium received up to the Target
Premium, and 7.5% of each premium received in excess of the Target Premium.
DEFERRED SALES CHARGE. On each Policy Anniversary during Policy Years
2 - 7, Western Reserve deducts a deferred sales charge equal to 1.5% of all
premiums paid during the first Policy Year.
MONTHLY DEDUCTION. Each month, Western Reserve makes a Monthly Deduction
from the Cash Value to cover the cost of administering the Policies (Monthly
Policy Charge), the cost of providing insurance protection under the Policy
(including any insurance benefits provided by rider), and the mortality and
expense risk charge.
8
<PAGE> 13
MONTHLY POLICY CHARGE. A monthly charge equal to $16.50 in the first
Policy Year, and $4.00 (current, $10 maximum) in subsequent Policy Years is
deducted to compensate Western Reserve for the cost of administering the
Policies.
MORTALITY AND EXPENSE RISK CHARGE. On each Monthly Deduction Day, Western
Reserve deducts a mortality and expense risk charge equal to an annual rate of
0.45% (current, 0.90% maximum) of the Cash Value in the Subaccounts.
TRANSFER CHARGE. Western Reserve reserves the right to apply a $25
transfer charge for each transfer after the first 12 transfers in any Policy
Year.
Partial Withdrawal Charge. A charge equal to the lesser of $25 or 2% of
the amount requested is deducted to cover administrative expenses associated
with each partial withdrawal.
Portfolio Expenses. The Portfolios incur investment advisory fees and
other expenses that are reflected as an annual rate of the average daily net
assets of each Portfolio. The levels of the fees and expenses for the year ended
December 31, 1997 vary among the Portfolios and are described below and in the
prospectuses for the Portfolios:
<TABLE>
<CAPTION>
MANAGEMENT FEE OTHER TOTAL
(AFTER WAIVER EXPENSES (AFTER WAIVER ANNUAL
PORTFOLIO OR REIMBURSEMENT) OR REIMBURSEMENT) EXPENSES
--------- ----------------- ---------------------- --------
<S> <C> <C> <C>
Small Cap Index*............... 0.22% 0.23% 0.45%
Equity 500 Index*.............. 0.11% 0.19% 0.30%
EAFE(R) Equity Index*.......... 0.34% 0.31% 0.65%
Multi-Style Equity**........... 0.22% 0.70% 0.92%
Aggressive Equity**............ 0.26% 0.99% 1.25%
Non-U.S.**..................... 0.0% 1.30% 1.30%
Core Bond**.................... 0.0% 0.80% 0.80%
Money Market...................
</TABLE>
- ---------------
* For the year ended December 31, 1997, the investment adviser voluntarily
agreed to waive a portion of its management fee with respect to each
Portfolio. Without such waiver, each Portfolio's management fee would have
been equal to the following: Small Cap Index -- 0.35%; Equity 500
Index -- 0.20%; and EAFE(R) Equity Index -- 0.45%. The expense table reflects
a voluntary undertaking by the investment adviser to waive or reimburse
expenses such that the total annual expenses of the Portfolio for the fiscal
year would not exceed the following percentages of the Portfolios' average
daily net assets: Small Cap Index -- 0.45%; Equity 500 Index -- 0.30%; and
EAFE(R) Equity Index -- 0.65%. Absent this undertaking, Total Annual Expenses
would be the following: Small Cap Index -- 0.73%; Equity 500 Index -- 0.54%;
and EAFE(R) Equity Index -- 0.85%.
** For the year ended December 31, 1997, the investment adviser of these
Portfolios voluntarily agreed to waive a portion of the management fee, up to
the full amount of the fee, equal to the amount by which the Portfolio's
total operating expenses exceed the amounts set forth under "Total Annual
Expenses." Additionally, the investment adviser voluntarily agreed to
reimburse each of these Portfolios for all remaining expenses after fee
waivers which exceeded the amounts set forth above for each Portfolio under
"Total Annual Expenses." Absent such waiver and reimbursement, the management
fees and total annual expenses would have been 0.78% and 1.68% for
Multi-Style Equity; 0.95% and 2.31% for Aggressive Equity; 0.95% and 5.31%
for Non-U.S.; and 0.60% and 2.36% for Core Bond.
12. ARE TRANSFERS PERMITTED AMONG THE SUBACCOUNTS?
An Owner may transfer Cash Value among the Subaccounts of the Separate
Account. Each Policy Year, you may make 12 Cash Value transfers without
incurring any charge. Each additional transfer in a Policy Year may be subject
to a transfer charge of $25. Western Reserve may at any time revoke or modify
the transfer privilege. (See Transfers, p. .)
9
<PAGE> 14
13. WHAT ARE THE FEDERAL INCOME TAX CONSEQUENCES OF PURCHASING A POLICY?
Western Reserve intends for the Policy to satisfy the definition of a life
insurance contract under Section 7702 of the Code. Under certain circumstances,
a Policy may be treated as a "modified endowment contract" depending upon the
amount of premiums paid in relation to the Life Insurance Benefit. (See Tax
Treatment of Policy Benefits -- Modified Endowment Contracts, p.
.) If the Policy is a modified endowment contract, then all
pre-death distributions, including Policy loans and loans secured by a Policy,
will be treated first as a distribution of taxable income to the extent of any
gain and then as a return of basis or investment in the contract. In addition,
any distributions of gains generally will be subject to a 10% penalty tax.
If the Policy is not a modified endowment contract, distributions generally
will be treated first as a return of basis or investment in the Policy and then
as disbursing taxable income. Moreover, loans and loans secured by a Policy will
not be treated as distributions. Finally, neither distributions nor loans from a
Policy that is not a modified endowment contract are subject to the 10% penalty
tax. For further elaboration on the tax consequences of a Policy, see Federal
Tax Considerations, p. .
In recent years, Congress has adopted new rules relating to life insurance
owned by businesses and the President's Budget Proposal for 1999 has recommended
additional restrictions on such life insurance. Any business contemplating the
purchase of a new life insurance contract or a change in an existing life
insurance contract should consult a tax adviser. The President's Budget Proposal
for 1999 also recommends legislation that would adversely modify the tax
treatment of variable life insurance and annuity contracts. These changes would
restrict the flexibility currently available to holders of these products. You
should consult a tax adviser with respect to legislative developments and their
effect on the Policy. (See Federal Tax Considerations, p. .)
INVESTMENT EXPERIENCE INFORMATION
The information provided in this section shows the historical investment
experience of the Portfolios and hypothetical illustrations of the Policy based
on the historical investment experience of the Portfolios. It does not represent
or project future investment performance.
The Policies became available for sale and the Separate Account began
operations in of 1998. The Portfolios' dates of inception are
indicated in the table below. The rates of return shown below depict the actual
investment experience of each Portfolio for the periods shown. The actual rate
of return in each calendar year was assumed to be uniformly earned throughout
that year. The actual performance of the Portfolios has and will vary throughout
the year.
Rates of Return
The rates of return shown below are based on the Portfolios' actual
investment performance, after the deduction of investment advisory fees and
other expenses of the Portfolios. The rates are average annual compounded rates
of return for the periods ended on December 31, 1997.
These rates of return do not reflect the percent of premium load, deferred
sales loads, or monthly deductions from Cash Value. Accordingly, these rates of
return do not illustrate how actual investment performance will affect benefits
under the Policies. Moreover, these rates of return are not an estimate,
projection or guarantee of future performance.
10
<PAGE> 15
AVERAGE ANNUAL COMPOUNDED RATES OF RETURN FOR THE PERIODS ENDED DECEMBER 31,
1997
<TABLE>
<CAPTION>
SINCE
PORTFOLIO (DATE OF INCEPTION) INCEPTION 5 YEARS 1 YEAR
----------------------------- --------- -------- --------
<S> <C> <C> <C>
Small Cap Index..........................
Equity 500 Index.........................
EAFE(R) Equity Index.....................
Multi-Style Equity.......................
Aggressive Equity........................
Non-U.S. ................................
Core Bond................................
Money Market.............................
</TABLE>
Additional information regarding the Portfolios' investment performance
appears in the prospectuses for the Portfolios.
ILLUSTRATIONS OF CASH VALUE, NET CASH VALUE AND LIFE INSURANCE BENEFITS
The following illustrations have been prepared to show how certain values
under a hypothetical Policy would change with varying levels of assumed
investment performance over an extended period of time. In particular, the
illustrations show how the Cash Value, Net Cash Value and Life Insurance Benefit
under a Policy with Life Insurance Benefit Option 3 covering an Insured of the
male sex, non-tobacco and Age 35 on the Effective Date, would vary over time if
premiums were paid annually and the return on the assets in the Portfolios were
a uniform gross annual rate (before any expenses) of 0%, 6% or 12%. THE
HYPOTHETICAL INVESTMENT RATES OF RETURN ARE FOR PURPOSES OF ILLUSTRATION ONLY
AND SHOULD NOT BE DEEMED A REPRESENTATION OF PAST OR FUTURE INVESTMENT RATES OF
RETURN. Actual rates of return for a particular Policy may be more or less than
the hypothetical investment rates of return and will depend on a number of
factors including the investment allocations made by an Owner, prevailing rates
and rates of inflation. Also, values would be different from those shown if the
gross annual investment returns averaged 0%, 6%, and 12% over a period of years
but fluctuated above and below those averages for individual Policy Years.
The illustrations assume that the assets in the Portfolios are subject to
an annual expense ratio of 0.862% of the average daily net assets. This annual
expense ratio is based on the average of the expense ratios of each of the
Portfolios for the last fiscal year and take into account current expense
reimbursement arrangements. For information on Portfolio expenses, see the
prospectuses for the Portfolios.
The illustrations also reflect the application of the percent of premium
load, the monthly Policy charge, the deduction of the deferred sales load, and
the monthly deduction from Cash Value for the hypothetical Insured. Western
Reserve's current cost of insurance charge, mortality and expense risk charges,
and monthly Policy charge and the higher guaranteed maximum cost of insurance,
mortality and expense risk and monthly Policy charges Western Reserve has the
contractual right to charge are reflected in separate illustrations on each of
the following pages. All the illustrations reflect the fact that no other
charges for Federal or state income taxes are currently made against the
Separate Account and assume no Loan Account Value or charges for supplemental
benefits.
After deduction of Portfolio expenses, the illustrated gross annual
investment rates of return of 0%, 6% and 12% would correspond to approximate net
annual rates for the Separate Account of -.862%, 5.138% and 11.138%,
respectively. Net annual rates of return for the Separate Account are not equal
to net annual rates of return for the Policy because the Separate Account rates
do not reflect all charges to the Policy.
The illustrations are based on Western Reserve's sex distinct rates for
non-tobacco users. Upon request, Western Reserve will furnish a comparable
illustration based upon the proposed Insured's individual circumstances. Such
illustrations may assume different hypothetical rates of return than those
illustrated in the following illustrations.
11
<PAGE> 16
WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE
HYPOTHETICAL ILLUSTRATIONS
MALE ISSUE AGE 35
<TABLE>
<S> <C> <C>
Specified Amount: $250,000 Guaranteed Issue Class
Annual Premium: $13,615 Life Insurance Benefit Option III
</TABLE>
USING CURRENT COST OF INSURANCE RATES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
LIFE INSURANCE BENEFIT
---------------------------------------------
ASSUMING HYPOTHETICAL GROSS AND NET
ANNUAL INVESTMENT RETURN OF
END OF PREMIUMS ---------------------------------------------
POLICY ACCUMULATED 0% (GROSS) 6% (GROSS) 12% (GROSS)
YEAR AT 5% -.862% (NET) 5.138% (NET) 11.138% (NET)
------ ----------- ------------ ------------ -------------
<S> <C> <C> <C> <C>
1.................... $ 14,296 $263,615 $ 263,615 $ 263,615
2.................... 29,306 277,230 277,230 277,230
3.................... 45,067 290,845 290,845 290,845
4.................... 61,616 304,460 304,460 304,460
5.................... 78,993 318,075 318,075 318,075
6.................... 97,238 331,690 331,690 338,040
7.................... 116,396 345,305 345,305 404,028
8.................... 136,512 358,920 360,787 473,547
9.................... 157,633 372,535 402,531 545,864
10................... 179,810 386,150 444,400 623,079
15................... 308,482 454,225 641,442 1,072,945
20................... 472,703 522,300 833,154 1,687,030
30................... 949,793 658,450 1,201,251 3,697,464
40................... 1,726,923 794,600 1,603,268 7,791,980
50................... 2,992,787 930,750 2,089,195 16,467,840
60................... 5,054,744 lapse 2,735,971 35,635,523
</TABLE>
<TABLE>
<CAPTION>
CASH VALUE NET CASH VALUE
--------------------------------------------- ---------------------------------------------
ASSUMING HYPOTHETICAL GROSS AND NET ASSUMING HYPOTHETICAL GROSS AND NET
ANNUAL INVESTMENT RETURN OF ANNUAL INVESTMENT RETURN OF
END OF --------------------------------------------- ---------------------------------------------
POLICY 0% (GROSS) 6% (GROSS) 12% (GROSS) 0% (GROSS) 6% (GROSS) 12% (GROSS)
YEAR -.862% (NET) 5.138% (NET) 11.138% (NET) -.862% (NET) 5.138% (NET) 11.138% (NET)
------ ------------ ------------ ------------- ------------ ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
1.................... $11,847 $ 12,466 $ 13,187 $11,847 $ 12,466 $ 13,187
2.................... 23,468 25,331 27,583 23,468 25,331 27,583
3.................... 34,985 38,744 43,458 34,985 38,744 43,458
4.................... 46,415 52,753 60,995 46,415 52,753 60,995
5.................... 57,769 67,393 80,380 57,769 67,393 80,380
6.................... 69,049 82,701 101,819 69,049 82,701 101,819
7.................... 80,250 98,701 125,475 80,250 98,701 125,475
8.................... 91,570 115,637 151,778 91,570 115,637 151,778
9.................... 102,786 133,289 180,750 102,786 133,289 180,750
10................... 113,898 151,672 212,655 113,898 151,672 212,655
15................... 167,789 255,554 427,468 167,789 255,554 427,468
20................... 218,468 382,181 773,867 218,468 382,181 773,867
30................... 301,336 715,030 2,200,872 301,336 715,030 2,200,872
40................... 321,076 1,170,268 5,687,577 321,076 1,170,268 5,687,577
50................... 76,908 1,755,626 13,838,521 76,908 1,755,626 13,838,521
60................... lapse 2,510,066 32,693,140 lapse 2,510,066 32,693,140
</TABLE>
12
<PAGE> 17
WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE
HYPOTHETICAL ILLUSTRATIONS
MALE ISSUE AGE 35
<TABLE>
<S> <C> <C>
Specified Amount: $250,000 Guaranteed Issue Class
Annual Premium: $13,615 Life Insurance Benefit Option III
</TABLE>
USING GUARANTEED COST OF INSURANCE RATES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
LIFE INSURANCE BENEFIT
---------------------------------------------
ASSUMING HYPOTHETICAL GROSS AND
NET ANNUAL INVESTMENT RETURN OF
END OF PREMIUMS ---------------------------------------------
POLICY ACCUMULATED 0% (GROSS) 6% (GROSS) 12% (GROSS)
YEAR AT 5% -.862% (NET) 5.138% (NET) 11.138% (NET)
- ------ ----------- ------------ ------------ -------------
<S> <C> <C> <C> <C>
1.................... $ 14,296 $263,615 $ 263,615 $ 263,615
2.................... 29,306 277,230 277,230 277,230
3.................... 45,067 290,845 290,845 290,845
4.................... 61,616 304,460 304,460 304,460
5.................... 78,993 318,075 318,075 318,075
6.................... 97,238 331,690 331,690 331,690
7.................... 116,396 345,305 345,305 381,052
8.................... 136,512 358,920 358,920 444,632
9.................... 157,633 372,535 376,088 510,014
10................... 179,810 386,150 413,530 579,054
15................... 308,482 454,225 582,228 966,206
20................... 472,703 522,300 732,267 1,459,685
30................... 949,793 658,450 973,477 2,891,647
40................... 1,726,923 794,600 1,170,617 5,354,665
50................... 2,992,787 lapse 1,344,181 9,683,626
60................... 5,054,744 lapse 1,540,237 17,749,994
</TABLE>
<TABLE>
<CAPTION>
CASH VALUE NET CASH VALUE
--------------------------------------------- ---------------------------------------------
ASSUMING HYPOTHETICAL GROSS AND NET ASSUMING HYPOTHETICAL GROSS AND NET
ANNUAL INVESTMENT RETURN OF ANNUAL INVESTMENT RETURN OF
END OF --------------------------------------------- ---------------------------------------------
POLICY 0% (GROSS) 6% (GROSS) 12% (GROSS) 0% (GROSS) 6% (GROSS) 12% (GROSS)
YEAR -.862% (NET) 5.138% (NET) 11.138% (NET) -.862% (NET) 5.138% (NET) 11.138% (NET)
- ------ ------------ ------------ ------------- ------------ ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
1.................... $11,430 $ 12,036 $ 12,744 $11,430 $ 12,036 $ 12,744
2.................... 22,490 24,299 26,487 22,490 24,299 26,487
3.................... 33,401 37,030 41,581 33,401 37,030 41,581
4.................... 44,158 50,243 58,162 44,158 50,243 58,162
5.................... 54,751 63,954 76,379 54,751 63,954 76,379
6.................... 65,175 78,176 96,396 65,175 78,176 96,396
7.................... 75,422 92,927 118,339 75,422 92,927 118,339
8.................... 85,689 108,442 142,510 85,689 108,442 142,510
9.................... 95,764 124,532 168,879 95,764 124,532 168,879
10................... 105,638 141,136 197,629 105,638 141,136 197,629
15................... 151,702 231,963 384,943 151,702 231,963 384,943
20................... 190,590 335,902 669,580 190,590 335,902 669,580
30................... 227,384 579,451 1,721,218 227,384 579,451 1,721,218
40................... 101,148 854,465 3,908,515 101,148 854,465 3,908,515
50................... lapse 1,129,564 8,137,504 lapse 1,129,564 8,137,504
60................... lapse 1,413,048 16,284,398 lapse 1,413,048 16,284,398
</TABLE>
13
<PAGE> 18
WESTERN RESERVE AND THE SEPARATE ACCOUNT
WESTERN RESERVE
Western Reserve was originally incorporated under the laws of Ohio on
October 1, 1957. Western Reserve is engaged in the business of writing life
insurance policies and annuity contracts. Western Reserve is admitted to do
business in 49 states and the District of Columbia. Western Reserve's main
office is located at 201 Highland Avenue, Largo, Florida 33770; however, the
mailing address is P.O. Box 5068, Clearwater, FL 33758-5068. Western Reserve's
Administrative Office for this Policy is located at 4333 Edgewood Road NE, Cedar
Rapids, Iowa 52499. Western Reserve is a wholly owned subsidiary of First AUSA
Life Insurance Company ("First AUSA"), a stock life insurance company which is a
wholly owned subsidiary of AEGON USA, Inc. ("AEGON"). AEGON is a financial
services holding company whose primary emphasis is on life and health insurance
and annuity and investment products. AEGON is a wholly owned indirect subsidiary
of AEGON nv, a Netherlands corporation, which is a publicly traded international
insurance group.
PUBLISHED RATINGS. Western Reserve may from time to time publish in
advertisements, sales literature and reports to Owners, the ratings and other
information assigned to it by one or more independent rating organizations such
as A.M. Best Company ("A.M. Best"), Moody's Investors Service, Inc. ("Moody's"),
Standard & Poor's Insurance Rating Services ("Standard & Poor's"), and Duff &
Phelps Credit Rating Co. ("Duff & Phelps"). A.M. Best's and Moody's ratings
reflect their current opinion of the relative financial strength and operating
performance of an insurance company in comparison to the norms of the
life/health insurance industry. Standard & Poor's and Duff & Phelps provide
ratings which measure the claims-paying ability of insurance companies. These
ratings are opinions of an operating insurance company's financial capacity to
meet the obligations of its insurance policies in accordance with their terms.
Claims-paying ability ratings do not refer to an insurer's ability to meet
non-policy obligations (i.e., debt/commercial paper).
THE SEPARATE ACCOUNT
WRL Series Life Corporate Account (the "Separate Account") was established
by Western Reserve as a separate account on December 8, 1997. The Separate
Account meets the definition of a "separate account" under the Federal
securities laws and its fiscal year ends on December 31. The Separate Account
will receive and invest the Net Premiums paid under this Policy.
The assets of the Separate Account are the property of Western Reserve. The
Code of Ohio, under which the Separate Account was established, provides that
the assets in the Separate Account attributable to the Policies are not
chargeable with liabilities arising out of any other business which Western
Reserve may conduct. The assets of the Separate Account shall, however, be
available to cover the liabilities of the General Account of Western Reserve to
the extent that the Separate Account's assets exceed its liabilities arising
under the Policies supported by it.
The Separate Account is currently divided into 8 Subaccounts. Each
Subaccount invests exclusively in shares of a single Portfolio. Income and both
realized and unrealized gains or losses from the assets of each Subaccount of
the Separate Account are credited to or charged against that Subaccount without
regard to income, gains or losses from any other Subaccount of the Separate
Account or arising out of any other business Western Reserve may conduct.
Where permitted by applicable law, Western Reserve may make the following
changes to the Separate Account:
1. Any changes required by the 1940 Act or other applicable law or
regulation;
2. Combine separate accounts, including the Separate Account;
3. Add new subaccounts to or remove existing subaccounts from the
Separate Account or combine Subaccounts;
4. Make Subaccounts (including new subaccounts) available to such
classes of Policies as Western Reserve may determine;
14
<PAGE> 19
5. Add new portfolios or remove existing Portfolios;
6. Substitute new portfolios for any existing Portfolios if shares of
the Portfolio are no longer available for investment or if Western Reserve
determines that investment in a Portfolio is no longer appropriate in light
of the purposes of the Separate Account;
7. Deregister the Separate Account under the 1940 Act if such
registration is no longer required; and
8. Operate the Separate Account as a management investment company
under the 1940 Act or as any other form permitted by law.
No such changes will be made without any necessary approval of the SEC and
applicable state insurance departments. Owners will be notified of any changes.
INVESTMENTS OF THE SEPARATE ACCOUNT. The Subaccounts of the Separate
Account invest in shares of the corresponding Portfolios. Each Portfolio is part
of a series mutual fund which is registered with the SEC as an open-end
diversified management investment company. Such registration does not involve
supervision of the management or investment practices or policies of the
Portfolios by the SEC.
The assets of each Portfolio are held separate from the assets of the other
Portfolios, and each Portfolio has investment objectives and policies which are
different from those of the other Portfolios. Thus, each Portfolio operates as a
separate investment fund, and the income or losses of one Portfolio generally
have no effect on the investment performance of any other Portfolio. Certain
Subaccounts and corresponding Portfolios may not be available to residents of
some states.
The investment objectives and policies of each Portfolio are summarized
below. There is no assurance that any of the Portfolios will achieve its stated
objective. The information below also identifies the investment adviser (and,
where applicable, the investment sub-adviser) to each Portfolio. More detailed
information, including a description of risks, can be found in the prospectuses
for the Portfolios which should be read carefully.
BT INSURANCE FUNDS TRUST (each Portfolio managed by Bankers Trust Global
Investment Management):
Small Cap Index seeks to replicate as closely as possible (before expenses)
the return of the Russell 2000 Small Stock Index(R) ("Russell 2000"), an index
consisting of 2,000 small-capitalization common stocks. This Portfolio will
include the common stock of companies included in the Russell 2000, on the basis
of computer-generated statistical data, that are deemed representative of the
industry diversification of the entire Russell 2000.
Equity 500 Index seeks to replicate as closely as possible (before
deduction of expenses) the total return of the Standard & Poor's 500 Composite
Stock Price Index(R) ("S&P 500"), an index emphasizing large-capitalization
stocks. This Portfolio will include the common stock of those companies included
in the S&P 500, other than Bankers Trust New York Corporation, selected on the
basis of computer generated statistical data, that are deemed representative of
the industry diversification of the entire S&P 500.
EAFE(R) Equity Index seeks to replicate as closely as possible (before
deduction of expenses) the total return of the Europe, Australia, Far East Index
(the "EAFE Index"), a capitalization-weighted index containing approximately
1,100 equity securities of companies located outside the United States.
15
<PAGE> 20
RUSSELL INSURANCE FUNDS (each Portfolio managed by Frank Russell Investment
Management Company):
Multi-Style Equity seeks to provide income and capital growth by investing
principally in equity securities.
Aggressive Equity seeks to provide capital appreciation by assuming a
higher level of volatility than is ordinarily expected from Multi-Style Equity
by investing in equity securities.
Non-U.S. seeks to provide favorable total return and additional
diversification for U.S. investors by investing primarily in equity and
fixed-income securities of non-U.S. companies, and securities issued by non-
U.S. governments.
Core Bond seeks to maximize total return, through capital appreciation and
income by assuming a level of volatility consistent with the broad fixed-income
market, by investing in fixed-income securities.
[Money Market Portfolio to be added]
Shares of certain Portfolios are sold to separate accounts of insurance
companies which may or may not be affiliated with Western Reserve or each other.
In addition, shares of certain Portfolios are also sold to separate accounts to
serve as the underlying investment for both variable life insurance policies and
variable annuity contracts. It is possible that a material conflict may arise
between the interests of Owners of the Policies and owners of other variable
life insurance policies and variable annuity contracts whose accumulation values
are allocated to a Subaccount investing in a Portfolio. Although neither Western
Reserve nor the Portfolios currently foresee any such disadvantages, each
Portfolio's Board of Directors intends to monitor events in order to identify
any material conflicts between the interests of such variable life insurance
policy owners and variable annuity contract owners and to determine what action,
if any, it should take. Such action could include the sale of Portfolio shares
by one or more of the separate accounts, which could have adverse consequences.
Material conflicts could result from, for example, (1) changes in state
insurance laws, (2) changes in Federal income tax laws, or (3) differences in
voting instructions between those given by variable life insurance policy owners
and those given by variable annuity contract owners. If the Board of Directors
were to conclude that separate funds should be established for variable life and
variable annuity separate accounts, Western Reserve will bear the attendant
expenses, but variable life insurance policy owners and variable annuity
contract owners would no longer have the economies of scale resulting from a
larger combined fund.
FACTS ABOUT THE POLICY
AVAILABILITY OF THE POLICY
Under Western Reserve's current rules, the Policy will be offered to
corporations and partnerships that meet the following conditions at issue:
- a minimum of five (5) Policies are issued, each on the life of a
different Insured; or
- the aggregate annualized first-year planned periodic premium for all
Policies is at least $100,000.
APPLYING FOR A POLICY
To purchase a Policy, a completed application must be sent to the
Administrative Office. Under Western Reserve's current rules, the minimum Face
Amount of a Policy is generally $25,000. Policies will generally be issued to
Insureds who supply satisfactory evidence of insurability sufficient to Western
Reserve. Acceptance is subject to Western Reserve's underwriting rules and
Western Reserve reserves the right to reject an application for any reason
permitted by law.
FREE-LOOK PERIOD
An Owner may cancel a Policy for a refund during the "free-look period" by
returning it to Western Reserve or to the sales representative who sold it. The
free-look period expires 20 days after delivery of the
16
<PAGE> 21
Policy. Certain states may require a free-look period longer than 20 days. If
you decide to cancel the Policy, the Policy is treated as if it had never been
issued. Within seven calendar days after receiving the returned Policy, Western
Reserve will refund an amount equal to the greater of the Cash Value as of the
date the Policy is returned, or the premiums paid.
PREMIUMS
PREMIUM FLEXIBILITY. Owners are not required to adhere to any rigid and
inflexible premium schedule. Western Reserve may require the Owner to pay an
initial premium. Thereafter, up to age 100 and subject to the maximum premium
limitations described below, an Owner may make unscheduled premium payments at
any time in any amount. When making premium payments during the first Policy
Year, an Owner should consider the effect of the sales charge and the deferred
sales charge. See Charges and Deductions -- Percent of Premium Load; and
Deferred Sales Charge.
PLANNED PERIODIC PREMIUMS. Each Owner will determine a Planned Periodic
Premium schedule that provides for the payment of a level premium at a fixed
interval over a specified period of time. The Owner is not required to pay
premiums in accordance with this schedule. Furthermore, the Owner has
considerable flexibility to alter the amount, frequency, and the time period
over which Planned Periodic Premiums are paid.
The payment of a Planned Periodic Premium will not guarantee that the
Policy remains in force. Instead, the duration of the Policy depends upon the
Policy's Net Cash Value. Thus, even if Planned Periodic Premiums are paid by the
Owner, the Policy will nonetheless lapse any time Net Cash Value is insufficient
to pay certain monthly charges, and a Late Period expires without a sufficient
payment being made.
PREMIUM LIMITATIONS. In no event may the total of all premiums paid, both
scheduled and unscheduled, exceed the current maximum premium limitations which
qualify the Policy as life insurance according to Federal tax laws. If at any
time a premium is paid which would result in total premiums exceeding the
current maximum premium limitation, Western Reserve will only accept that
portion of the premium which will make total premiums equal the maximum. Any
part of the premium in excess of that amount will be returned and no further
premiums will be accepted until allowed by the current maximum premium
limitations allowed by Federal tax laws.
PAYMENT OF PREMIUMS. Any payment made by check or money order must be
payable to Western Reserve Life Assurance Co. of Ohio. Payments made by the
Owner will be treated as a premium payment unless clearly marked as loan
repayments. Certain charges will be deducted from each premium payment. See
Charges and Deductions. As an accommodation to Owners, Western Reserve will
accept transmittal of initial and subsequent premiums of at least $1,000 by wire
transfer. For an initial premium, the wire transfer must be accompanied by a
simultaneous telephone facsimile transmission ("fax") of a completed
application. An initial premium accepted via wire transfer with fax will be
allocated in accordance with current procedures explained in the section
entitled Allocation of Net Premiums and Cash Value -- Allocation of Net
Premiums. An initial premium made by wire transfer not accompanied by a
simultaneous fax, or accompanied by a fax of an incomplete application will be
applied at the unit value next determined not later than two business days after
receipt of an appropriate fax or a complete application. However, if Western
Reserve cannot obtain the fax or essential information within five business
days, Western Reserve shall inform the applicant of the reasons for the delay,
and will return the initial premium to the applicant unless the applicant
specifically consents to allow Western Reserve to retain the initial premium
until the required fax or essential information is received.
If the application with original signature is later received and the
allocation instructions in that application, for any reason, are inconsistent
with those previously designated on the fax, the initial premium will be
reallocated on the first Valuation Day on or following the date the Policy is
issued, in accordance with the allocation instructions in the application with
original signature.
Owners wishing to make payments via bank wire should instruct their banks
to wire Federal Funds as follows: .
[to be added]
17
<PAGE> 22
POLICY LAPSE AND REINSTATEMENT
LAPSE. The failure to make a Planned Periodic Premium payment will not
itself cause the Policy to Lapse. Lapse will only occur where Net Cash Value is
insufficient to cover the monthly deduction, and a Late Period expires without a
sufficient payment by the Owner. If the Net Cash Value is insufficient to cover
the monthly deduction, the Owner must pay during the Late Period a payment at
least sufficient to provide a Net Premium to cover the sum of the monthly
deductions due within the Late Period. Such a lapse could happen if the
investment experience has been sufficiently unfavorable to have resulted in a
decrease in the Net Cash Value, or the Net Cash Value has decreased because not
enough premiums have been paid to offset the monthly charges.
If Net Cash Value is insufficient to cover the monthly deduction, Western
Reserve will notify the Owner and any assignee of record of the minimum payment
needed to keep the Policy in force. The Owner will then have a Late Period of 62
days, measured from the date notice is sent to the Owner, for Western Reserve to
receive sufficient payments. If Western Reserve does not receive a sufficient
payment within the Late Period, the Policy will lapse. If a sufficient payment
is received during the Late Period, any resulting Net Premium will be allocated
among the Subaccounts, and any monthly deductions due will be charged to such
Subaccounts, in accordance with the Owner's then current instructions. (See
Allocation of Premiums and Cash Value -- Allocation of Net Premiums, and Charges
and Deductions -- Cash Value Charges.) If the Insured dies during the Late
Period, the Life Insurance Benefit Proceeds will equal the amount of the Life
Insurance Benefit Proceeds immediately prior to the commencement of the Late
Period, reduced by any due and unpaid charges.
REINSTATEMENT. A lapsed Policy may be reinstated any time within five
years after the date of Lapse by submitting the following items to Western
Reserve:
1. A written application for reinstatement from the Owner;
2. Evidence of insurability satisfactory to Western Reserve; and
3. A premium that, after the charges against premiums, is large enough
to cover the next two monthly deductions that will become due after the
time of reinstatement.
Western Reserve reserves the right to decline a reinstatement request. Upon
approval of the application for reinstatement, the effective date of
reinstatement will be the first Monthly Deduction Day on or next following the
date Western Reserve approves the application for reinstatement.
ALLOCATION OF NET PREMIUMS AND CASH VALUE
NET PREMIUMS. The Net Premium equals the premium paid less any applicable
percent of premium load. (See Charges and Deductions -- Percent of Premium
Load). When an initial premium accompanies the application, monthly deductions
from the Cash Value of the Policy commence on the Effective Date.
ALLOCATION OF NET PREMIUMS. In the application for a Policy, the Owner
will allocate Net Premiums to one or more of the Subaccounts of the Separate
Account. Notwithstanding the allocation in the application, the initial premium,
less charges, will be allocated during the free-look period to the General
Account and will earn interest at an annual rate (minimum 4%) declared by
Western Reserve. At the end of the free-look period, the Net Premium, including
interest earned during the free-look period, is allocated to the Subaccounts as
directed in the application. (See Facts About The Policy -- Free-Look Period.)
The minimum percentage of each premium that may be allocated to any Subaccount
is 1%; percentages must be in whole numbers. The allocation of future Net
Premiums may be changed without charge at any time by providing Western Reserve
with written notification from the Owner, or by calling the Administrative
Office. Western Reserve will employ the same procedures to confirm that such
telephone instructions are genuine as it employs regarding telephone
instructions for transfers among Subaccounts. See Transfer Privileges. Upon
instructions from the Owner, the registered representative or agent of record
may also change the allocation of future Net Premiums. Western Reserve reserves
the right to limit the number of changes to the allocation of
18
<PAGE> 23
Net Premiums. Investment returns from the amounts allocated to Subaccounts of
the Separate Account will vary with the investment experience of these
Subaccounts and the Owner bears the entire investment risk.
POLICY VALUES
CASH VALUE. The Cash Value serves as the starting point for calculating
certain values under a Policy. The Cash Value is the sum of all Subaccount
Values and the Loan Account Value and therefore varies to reflect the investment
experience of the Subaccounts to which it is allocated. The Cash Value is
determined on the date the Policy is issued and on each Valuation Day
thereafter. The Cash Value may be more or less than premiums paid. THERE IS NO
GUARANTEED MINIMUM CASH VALUE.
NET CASH VALUE. The Net Cash Value is the amount payable on surrender of
the Policy. It is equal to the Cash Value as of the date of surrender minus any
outstanding Indebtedness.
SUBACCOUNT VALUE. The Subaccount Value of any Subaccount as of the end of
the free-look period is equal to the amount of the initial Net Premium allocated
to that Subaccount (including any interest credited during the free-look
period). On subsequent Valuation Days, the Subaccount Value is equal to that
part of any Net Premium allocated to the Subaccount and any Cash Value
transferred to that Subaccount, adjusted by interest income, dividends, net
capital gains or losses, realized or unrealized, and decreased by partial
withdrawals and any Cash Value transferred out of that Subaccount.
ACCUMULATION UNITS. For each Subaccount, Net Premiums allocated to a
Subaccount or amounts of Cash Value transferred to a Subaccount are converted
into Accumulation Units. The number of Accumulation Units credited to a Policy
is determined by dividing the dollar amount of any Net Premium or transfer
directed to each Subaccount by the value of an Accumulation Unit for that
Subaccount on the transaction date. Therefore, Net Premiums allocated to or
amounts transferred to a Subaccount under a Policy increase the number of
Accumulation Units of that Subaccount credited to the Policy.
Certain events reduce the number of Accumulation Units of a Subaccount
credited to a Policy. Partial withdrawals or transfers of Subaccount Value from
a Subaccount result in the cancellation of the appropriate number of
Accumulation Units of that Subaccount as do: surrender of the Policy; payment of
the Life Insurance Benefit Proceeds; Policy loans; and the deduction of the
monthly deduction. Accumulation Units are canceled as of the end of the
Valuation Period in which Western Reserve receives written notice regarding the
event. These events are referred to as "Policy transactions."
Accumulation Units are bought and sold each time there is a Policy
transaction. The number of Accumulation Units in any Subaccount on any day is
determined as follows:
1. From the Accumulation Units as of the prior Monthly Deduction Day,
subtract the Accumulation Units sold to pay any partial withdrawals;
2. Add Accumulation Units bought with Net Premiums received since the
prior Monthly Deduction Day;
3. Subtract Accumulation Units sold to transfer amounts into the Loan
Account;
4. Add Accumulation Units bought with loan repayments;
5. Subtract Accumulation Units sold to transfer amounts to other
Subaccounts;
6. Add Accumulation Units bought from amounts transferred from other
Subaccounts.
The number of Accumulation Units on a Monthly Deduction Day is the result
of steps 1 through 6 above, minus the number of Accumulation Units sold to pay
the monthly deduction charge. If the Monthly Deduction Day is a Policy
Anniversary, the number of Accumulation Units will be increased by Accumulation
Units bought with any amounts transferred from the Loan Account.
ACCUMULATION UNIT VALUE. The value of an Accumulation Unit on any
Valuation Day is determined by multiplying the value of that Accumulation Unit
on the immediately preceding Valuation Day by the Net Investment Factor for the
Valuation Period.
19
<PAGE> 24
NET INVESTMENT FACTOR. The Net Investment Factor is an index applied to
measure the investment performance of Accumulation Units of a Subaccount from
one Valuation Period to the next. The Net Investment Factor for any Subaccount
for any Valuation Period is determined by dividing 1 by 2, where:
1. is the result of:
a. the net asset value per share of the Portfolio held in the
Subaccount, determined at the end of the current Valuation Period; plus
b. the per share amount of any dividend or capital gain
distributions made by the Portfolio held in the Subaccount, if the
"ex-dividend" date occurs during the current Valuation Period; and
2. is the net asset value per share of the Portfolio held in the
Subaccount, determined at the end of the immediately preceding Valuation
Period.
The Net Investment Factor may be greater or less than one; therefore, the
value of an Accumulation Unit may increase or decrease.
TRANSFER PRIVILEGES
GENERAL. Cash Value may be transferred among the Subaccounts. The amount
of Cash Value available for transfer from any Subaccount is determined at the
end of the Valuation Period during which the transfer request is received at the
Administrative Office. The net asset value for each share of the corresponding
Portfolio of any Subaccount is determined, once daily, as of the close of the
regular business session of the New York Stock Exchange ("NYSE") (usually 4:00
p.m. Eastern time), which coincides with the end of each Valuation Period. (See
Policy Benefits -- Cash Value -- Valuation Day and Valuation Period.) Therefore,
any transfer request received after the close of the regular business session of
the NYSE, on any day the NYSE is open, will be processed using the net asset
value for each share of the applicable Portfolio determined as of the close of
the regular business session of the NYSE, on the next day the NYSE is open for
business.
The minimum amount that may be transferred is the lesser of $500 or the
value of all remaining Accumulation Units in a Subaccount, unless Western
Reserve agrees otherwise. The Subaccount from which a transfer is made must
maintain a minimum balance of $500 after the transfer is completed. If the value
of the remaining Accumulation Units in a Subaccount would be less than $500,
Western Reserve has the right to include that amount as part of the transfer.
Owners may make up to 12 transfers of Cash Value without charge during any
one Policy Year. After these 12 transfers in a Policy Year, Western Reserve
reserves the right to impose a charge of $25 for each subsequent transfer. The
transfer charge will not be increased. All transfers made in any one day will be
considered a single transfer and any transfer charges will be deducted on a
pro-rata basis from each Subaccount from which a transfer was made. Transfers
resulting from Policy loans, the exercise of exchange privileges, and the
reallocation of Cash Value immediately after the free-look period, will not be
treated as a transfer for the purpose of this charge.
Owners may make transfer requests in writing, or by telephone. Written
requests must be in a form acceptable to Western Reserve. The registered
representative or agent of record for the Policy may, upon instructions from the
Owner for each transfer, make telephone transfers upon request without the
necessity for the Owner to have previously authorized telephone transfers in
writing. Transfer requests made by telephone must be verified by a facsimile
sent to the Administrative Office before the transfer is made. If, for any
reason, an Owner does not want the ability to make transfers by telephone, the
Owner should provide written notice to Western Reserve at the Administrative
Office. All telephone transfers should be made by calling the Administrative
Office.
Western Reserve will not be liable for complying with telephone
instructions it reasonably believes to be authentic, nor for any loss, damage,
cost or expense in acting on such telephone instructions, and Owners will bear
the risk of any such loss. Western Reserve will employ reasonable procedures to
confirm that telephone instructions are genuine. If Western Reserve does not
employ such procedures, it may be liable for losses due
20
<PAGE> 25
to unauthorized or fraudulent instructions. Such procedures may include, among
others, requiring forms of personal identification prior to acting upon such
telephone instructions, providing written confirmation of such transactions to
Owners, and/or tape recording telephone instructions received from Owners.
Western Reserve may, at any time, revoke or modify the transfer privilege.
Under Western Reserve's current procedures, it will effect transfers and
determine all values in connection with transfers at the end of the Valuation
Period during which the transfer request is received at the Administrative
Office.
ASSET REBALANCING PROGRAM. Western Reserve offers a program under which
the Owner may authorize Western Reserve to transfer Cash Value periodically to
maintain a particular percentage allocation among the Subaccounts. The Cash
Value allocated to each Subaccount will grow or decline in value at different
rates. The asset rebalancing program automatically reallocates the Cash Value in
the Subaccounts at the end of each period to match the Policy's currently
effective Net Premium allocation schedule. The asset rebalancing program is
intended to transfer Cash Value from those Subaccounts that have increased in
value to those Subaccounts that have declined in value. Over time, this method
of investing may help an Owner buy low and sell high. This investment method
does not guarantee gains, nor does it assure that any Subaccount will not have
losses.
To qualify for the asset rebalancing program, a minimum Cash Value of
$10,000 for an existing Policy, or a minimum initial premium of $10,000 for a
new Policy, is required. To participate in the asset rebalancing program, a
properly completed asset rebalancing request form, which is available upon
request, must be received by Western Reserve.
Owners may elect rebalancing to occur on each quarterly, semi-annual or
annual anniversary of the Effective Date. Following receipt of the asset
rebalancing request form, Western Reserve will effect the initial rebalancing of
Cash Value on the next such anniversary, in accordance with the Policy's current
Net Premium allocation schedule. The amounts transferred will be credited at the
unit value next determined on the dates the transfers are made. If a day on
which rebalancing would ordinarily occur falls on a day on which the NYSE is
closed, rebalancing will occur on the next day the NYSE is open.
There is no charge for the asset rebalancing program. However, any
reallocation which occurs under the asset rebalancing program will be counted
towards the 12 free transfers allowed during each Policy Year.
The Owner may terminate participation at any time in the asset rebalancing
program by oral or written request to Western Reserve. Participating in the
asset rebalancing program will terminate automatically if any transfer is made
to, or from, any Subaccount, other than on account of a scheduled rebalancing.
If the Owner wishes to resume the asset rebalancing program after it has been
canceled, a new asset rebalancing request form must be completed and sent to
Western Reserve. The Owner may start and stop participation in the asset
rebalancing program at any time; however, Western Reserve reserves the right to
restrict entry into the asset rebalancing program to once per Policy Year.
Western Reserve may discontinue, modify, or suspend, the asset rebalancing
program at any time.
SURRENDERS AND PARTIAL WITHDRAWALS
SURRENDERS. At any time while the Insured is still living and the Policy
is in force, the Owner may, by written request, surrender the Policy for its Net
Cash Value. A surrender is effective as of the date on which a written request
for surrender is received by Western Reserve. The Net Cash Value of the Policy
is the Cash Value less any Indebtedness. Once the Policy is surrendered, all
coverage and other benefits under it cease and it cannot be reinstated. A
surrender may have tax consequences. See Federal Tax Considerations.
PARTIAL WITHDRAWALS. After the first Policy Year, while the Insured is
still living and the Policy is in force, an Owner may apply for a partial
withdrawal. The request must be made in writing to the Administrative Office and
the amount requested must be at least $500. The maximum amount that may be
requested is the amount that would leave at least $500 remaining in the
Subaccount from which the partial withdrawal is made. The amount withdrawn is
deducted from each of the Subaccounts on a pro rata basis
21
<PAGE> 26
unless you specify otherwise in a written notice to the Administrative Office.
Western Reserve generally will pay a partial withdrawal request within seven
days following the Valuation Day the request is received.
There is no limit on the number of partial withdrawals that may be made
during a Policy Year. On each partial withdrawal, Western Reserve imposes a
processing charge equal to the lesser of $25 or 2% of the amount requested. This
charge is deducted on a pro-rata basis from each of the Subaccounts unless you
provide other written instructions to the Administrative Office.
If the Owner has selected Life Insurance Benefit Option 1, Western Reserve
will reduce the Face Amount by the amount of the partial withdrawal. If Life
Insurance Benefit Option 2 is in effect, the Face Amount will not be changed by
the amount of the partial withdrawal. If Life Insurance Benefit Option 3 is in
effect and the partial withdrawal is greater than the sum of the premiums paid,
the Face Amount is reduced by the amount of the partial withdrawal minus the sum
of the premiums paid; otherwise the Face Amount is not reduced. Western Reserve
may reject any partial withdrawal if it would cause the Policy to fail to
qualify as a life insurance contract under the Code or regulations or rulings
thereunder. A partial withdrawal may have tax consequences. See Federal Tax
Considerations.
LOANS
After the first Policy Year as long as the Policy remains in force, the
Owner may borrow money from Western Reserve using the Policy as the only
security for the loan. Western Reserve permits a Policy loan prior to the first
Policy Anniversary for Policies issued pursuant to a transfer of cash values
from another life insurance policy under Section 1035(a) of the Code. The
maximum amount that may be borrowed is 90% of the Cash Value, less any already
outstanding Policy loan. Western Reserve reserves the right to limit the amount
of any Policy loan to not less than $500. Outstanding loans have priority over
the claims of any assignee or other person. The loan may be repaid totally or in
part. A loan which is taken from, or secured by, a Policy may have Federal
income tax consequences. See Federal Tax Considerations.
When a loan is requested, an amount equal to the requested loan amount plus
interest in advance for one year will be withdrawn from each of the Subaccounts
on a pro-rata basis, unless you specify otherwise in a written notice to the
Administrative Office, and transferred to the Loan Account until the loan is
repaid.
The amount of the loan will normally be paid within seven days after
receipt of a proper request in a manner permitted by Western Reserve.
Postponement of loans may take place under certain conditions. Under Western
Reserve's current procedures, at each Policy Anniversary, Western Reserve will
compare the amount of the outstanding loan (including loan interest in advance
until the next Policy Anniversary, if not paid) to the amount in the Loan
Account (including interest credited to the Loan Account during the previous
Policy Year). Western Reserve will also make this comparison any time the Owner
repays all of the loan, or makes a request to borrow an additional amount. At
each such time, if the amount of the outstanding loan exceeds the amount in the
Loan Account, Western Reserve will withdraw the difference from the Subaccounts
and transfer it to the Loan Account in the same manner as when a loan is made.
If the amount in the Loan Account exceeds the amount of the outstanding loan,
Western Reserve will withdraw the difference from the Loan Account and transfer
it to the Subaccounts in the same manner as current Net Premiums are allocated.
No charge will be imposed for these transfers, and these transfers are not
treated as transfers in calculating the transfer charge.
INTEREST RATE CHARGED. The annual interest rate on a Policy loan is 6.0%
and is due in arrears on each Policy Anniversary for the prior Policy Year and
on the day the loan is repaid. Loan interest that is unpaid when due will be
added to the amount of the loan and will bear interest at the same rate. On the
date of the Insured's death, the date the Policy ends, the date of a loan
repayment, or any other date Western Reserve specifies, any necessary adjustment
will be made in the loan to reflect any interest accrued since the last Policy
Anniversary. If an annual interest rate lower than 6% is set, any subsequent
increase in the interest rate shall be subject to the following conditions:
(1) The effective date of any increase in the interest rate for Policy
loans shall not be earlier than one year after the effective date of the
establishment of the previous rate.
22
<PAGE> 27
(2) The amount by which the interest rate may be increased shall not
exceed 1% per year, but the maximum annual interest rate will be 6%.
(3) Western Reserve will give notice of the interest rate in effect
when a loan is made and when sending notice of loan interest due.
(4) If a loan is outstanding 40 days or more before the effective date
of an increase in the annual interest rate, Western Reserve will notify you
of that increase at least 30 days prior to the effective date of the
increase.
(5) Western Reserve will give notice of any increase in the annual
interest rate whenever a loan is made during the 40 days before the
effective date of the increase.
LOAN ACCOUNT INTEREST RATE CREDITED. The amount in the Loan Account will
accrue interest at an effective annual rate of 4%. Western Reserve may credit a
higher rate, but it is not obligated to do so.
EFFECT OF POLICY LOANS. A Policy loan affects the Policy, because the Life
Insurance Benefit Proceeds and Net Cash Value under the Policy are reduced by
the amount of the loan. Repayment of the loan causes the Life Insurance Benefit
Proceeds and Net Cash Value to increase by the amount of the repayment. As long
as a loan is outstanding, an amount equal to the loan plus interest in advance
until the next Policy Anniversary is held in the Loan Account. This amount will
not be affected by the Separate Account's investment performance. Amounts
transferred from the Separate Account to the Loan Account will affect the
Separate Account value because such amounts will be credited with an interest
rate declared by Western Reserve rather than a rate of return reflecting the
investment performance of the Separate Account. There are risks involved in
taking a Policy loan, a few of which include the potential for a Policy to lapse
if projected earnings, taking into account outstanding loans, are not achieved,
as well as possible adverse tax consequences which could occur if a Policy
lapses with loans outstanding.
INDEBTEDNESS. Indebtedness equals the total of all Policy loans plus any
loan interest accrued on the loans. If indebtedness exceeds the Cash Value,
Western Reserve will notify the Owner and any assignee of record. If a
sufficient payment equal to excess indebtedness is not received by Western
Reserve within 31 days from the date notice is sent, the Policy will Lapse and
terminate without value. The Policy, however, may later be reinstated.
REPAYMENT OF INDEBTEDNESS. Indebtedness may be repaid any time. Payments
made by the Owner while there is indebtedness will be treated as premium
payments unless the Owner indicates that the payment should be treated as a loan
repayment. If not repaid, Western Reserve may deduct indebtedness from any
amount payable under the Policy. As indebtedness is repaid, the Policy's value
in the Loan Account securing the indebtedness repaid will be transferred from
the Loan Account to the Subaccounts in the same manner as current Net Premiums
are allocated. Western Reserve will allocate the repayment of indebtedness at
the end of the Valuation Period during which the repayment is received.
LIFE INSURANCE BENEFITS
GENERAL. Owners designate in the initial application one of three Life
Insurance Benefit Options offered under the Policy: Life Insurance Benefit
Option 1 ("Option 1"), Life Insurance Benefit Option 2 ("Option 2"), and Life
Insurance Benefit Option 3 ("Option 3"). As long as the Policy remains in force,
Western Reserve will, upon receiving due proof of the Insured's death, pay the
Life Insurance Benefit Proceeds of a Policy to the named Beneficiary in
accordance with the designated Life Insurance Benefit Option. The amount of the
Life Insurance Benefit Proceeds payable will be determined at the end of the
Valuation Period during which the Insured dies. The proceeds may be paid in a
lump sum or under one or more of the settlement options set forth in the Policy.
Western Reserve guarantees that as long as the Policy remains in force, the Life
Insurance Benefit under any option will never be less than the Face Amount of
the Policy, but the Life Insurance Benefit Proceeds will reflect reductions for
any outstanding Indebtedness and any due and unpaid charges. These proceeds will
be increased by any additional insurance provided by rider. To qualify the
Policy as life insurance under the Code, Owners may choose between two Life
Insurance Benefit Compliance
23
<PAGE> 28
Tests -- either the Guideline Premium Test or the Cash Value Accumulation Test.
The limitation percentages vary from one test to the other. (See Appendix A.)
OPTION 1. The Life Insurance Benefit is the greater of the Face Amount of
the Policy or the applicable percentage (the "limitation percentage") times the
Cash Value on the date of death. Accordingly, under Option 1 the Life Insurance
Benefit will remain level unless the limitation percentage times the Cash Value
exceeds the Face Amount, in which case the amount of the Life Insurance Benefit
will vary as the Cash Value varies.
ILLUSTRATION OF OPTION 1. For purposes of this illustration, assume that
the Insured's Attained Age is under 40, that there is no outstanding
indebtedness, and that the Guideline Premium Test is chosen. Under Option 1, a
Policy with a $50,000 Face Amount will generally pay $50,000 in Life Insurance
Benefits. However, because the Life Insurance Benefit must be equal to or be
greater than 250% of Cash Value, any time the Cash Value of the Policy exceeds
$20,000, the Life Insurance Benefit will exceed the $50,000 Face Amount. Each
additional dollar added to Cash Value above $20,000 will increase the Life
Insurance Benefit by $2.50. Similarly, so long as Cash Value exceeds $20,000,
each dollar taken out of Cash Value will reduce the Life Insurance Benefit by
$2.50.
If at any time, however, the Cash Value multiplied by the limitation
percentage is less than the Face Amount, the Life Insurance Benefit will equal
the Face Amount of the Policy.
OPTION 2. The Life Insurance Benefit is equal to the greater of the Face
Amount plus the Cash Value of the Policy or the limitation percentage times the
Cash Value on the date of death. Accordingly, under Option 2 the amount of the
Life Insurance Benefit will always vary as the Cash Value varies.
ILLUSTRATION OF OPTION 2. For purposes of this illustration, assume that
the Insured is under the age of 40, that there is no outstanding indebtedness,
and that the Guideline Premium Test is chosen. Under Option 2, a Policy with a
Face Amount of $50,000 will generally pay a Life Insurance Benefit of $50,000
plus Cash Value. Thus, for example, a Policy with a Cash Value of $10,000 will
have a Life Insurance Benefit of $60,000 ($50,000 + $10,000). The Life Insurance
Benefit under the Guideline Premium Test, however, must be at least 250% of Cash
Value. As a result, if the Cash Value of the Policy exceeds $33,333, the Life
Insurance Benefit will be greater than the Face Amount plus Cash Value. Each
additional dollar of Cash Value above $33,333 will increase the Life Insurance
Benefit by $2.50. Similarly, any time Cash Value exceeds $33,333, each dollar
taken out of Cash Value will reduce the Life Insurance Benefit by $2.50.
If at any time, however, Cash Value multiplied by the limitation percentage
is less than the Face Amount plus the Cash Value, then the Life Insurance
Benefit will be the Face Amount plus the Cash Value of the Policy.
OPTION 3. The Life Insurance Benefit is equal to the greater of the Face
Amount plus cumulative premiums paid less cumulative partial withdrawals, or the
corridor percentage times the Cash Value. Accordingly, under Option 3, the
amount of Life Insurance Benefit will always vary with the premiums paid and
partial withdrawals taken, and may vary as the Cash Value varies.
ILLUSTRATION OF OPTION 3. For purposes of this illustration, assume that
the Insured is under the age of 40, that there is no outstanding indebtedness,
and that the Guideline Premium Test is chosen. Under Option 3, a Policy with a
Face Amount of $50,000 will generally pay a Life Insurance Benefit of $50,000
plus premiums. Thus, for example, a Policy with premiums paid of $10,000 will
have a Life Insurance Benefit of $60,000 ($50,000 + $10,000). The Life Insurance
Benefit under the Guideline Premium Test, however, must be at least 250% of Cash
Value. As a result, if the Cash Value of the Policy exceeds $24,000, the Life
Insurance Benefit will be greater than the Face Amount plus Cash Value. Each
additional dollar of Cash Value above $24,000 will increase the Life Insurance
Benefit by $2.50. Similarly, any time Cash Value exceeds $24,000, each dollar
taken out of Cash Value will reduce the Life Insurance Benefit by $2.50.
24
<PAGE> 29
LIMITATION PERCENTAGES TABLE -- GUIDELINE PREMIUM TEST
<TABLE>
<CAPTION>
INSURED'S AGE
ON POLICY LIMITATION
ANNIVERSARY PERCENTAGE
------------- ----------
<S> <C>
0-40................. 250
41................. 243
42................. 236
43................. 229
44................. 222
45................. 215
46................. 209
47................. 203
48................. 197
49................. 191
50................. 185
51................. 178
52................. 171
53................. 164
54................. 157
55................. 150
56................. 146
57................. 142
58................. 138
</TABLE>
<TABLE>
<CAPTION>
INSURED'S AGE
ON POLICY LIMITATION
ANNIVERSARY PERCENTAGE
------------- ----------
<S> <C>
59................. 134
60................. 130
61................. 128
62................. 126
63................. 124
64................. 122
65................. 120
66................. 119
67................. 118
68................. 117
69................. 116
70................. 115
71................. 113
72................. 111
73................. 109
74................. 107
75................. 105
76................. 105
77................. 105
</TABLE>
<TABLE>
<CAPTION>
INSURED'S AGE
ON POLICY LIMITATION
ANNIVERSARY PERCENTAGE
------------- ----------
<S> <C>
78................. 105
79................. 105
80................. 105
81................. 105
82................. 105
83................. 105
84................. 105
85................. 105
86................. 105
87................. 105
88................. 105
89................. 105
90................. 105
91................. 104
92................. 103
93................. 102
94-99................ 101
100 and older........ 100
</TABLE>
25
<PAGE> 30
LIMITATION PERCENTAGES TABLE -- CASH VALUE ACCUMULATION TEST
<TABLE>
<CAPTION>
INSURED'S AGE
ON POLICY LIMITATION
ANNIVERSARY PERCENTAGE
- --------------------- --------------
MALE FEMALE
---- ------
<S> <C> <C>
20................... 631 751
21................... 612 727
22................... 595 704
23................... 577 681
24................... 560 659
25................... 542 638
26................... 526 617
27................... 509 597
28................... 493 578
29................... 477 559
30................... 462 541
31................... 447 523
32................... 432 506
33................... 418 489
34................... 404 473
35................... 391 458
36................... 379 443
37................... 366 428
38................... 355 414
39................... 343 401
40................... 332 388
41................... 322 376
42................... 312 364
43................... 302 353
44................... 293 342
45................... 284 332
46................... 275 322
</TABLE>
<TABLE>
<CAPTION>
INSURED'S AGE
ON POLICY LIMITATION
ANNIVERSARY PERCENTAGE
- --------------------- --------------
MALE FEMALE
---- ------
<S> <C> <C>
47................... 267 312
48................... 259 303
49................... 251 294
50................... 244 285
51................... 237 276
52................... 230 268
53................... 224 261
54................... 218 253
55................... 212 246
56................... 206 239
57................... 201 232
58................... 195 226
59................... 190 219
60................... 186 213
61................... 181 207
62................... 177 201
63................... 172 196
64................... 168 191
65................... 164 186
66................... 161 181
67................... 157 176
68................... 154 172
69................... 151 167
70................... 148 163
71................... 145 159
72................... 142 155
73................... 140 152
</TABLE>
<TABLE>
<CAPTION>
INSURED'S AGE
ON POLICY LIMITATION
ANNIVERSARY PERCENTAGE
- --------------------- --------------
MALE FEMALE
---- ------
<S> <C> <C>
74................... 137 148
75................... 135 145
76................... 133 142
77................... 131 139
78................... 129 136
79................... 127 134
80................... 125 131
81................... 124 129
82................... 122 127
83................... 121 125
84................... 119 123
85................... 118 121
86................... 117 119
87................... 116 118
88................... 115 117
89................... 114 115
90................... 113 114
91................... 112 113
92................... 111 111
93................... 110 110
94................... 109 109
95................... 107 108
96................... 106 106
97................... 105 105
98................... 103 103
99................... 102 102
100.................. 100 100
</TABLE>
CHOOSING A LIFE INSURANCE BENEFIT OPTION. As described above and assuming
the Life Insurance Benefit is not determined by reference to the limitation
percentage, Option 1 will provide a Face Amount of Life Insurance Benefit which
does not vary with changes in Cash Value. Thus, under Option 1, as Cash Value
increases, Western Reserve's net amount at risk under the Policy will decline.
In contrast, Option 2 involves a constant net amount at risk, assuming that the
Life Insurance Benefit is not determined by reference to the limitation
percentage. The net amount at risk under the Policy for Option 3 is dependent
upon the amount and timing of premiums paid. Consequently, there is no
generalized pattern as with Options 1 and 2. Therefore, assuming sufficiently
positive investment experience, the deduction for cost of insurance under a
Policy with an Option 1 Life Insurance Benefit will be less than under a
corresponding Policy with an Option 2 or 3 Life Insurance Benefit. Because of
this, if investment performance is positive, Cash Value under Option 1 will
increase faster than under Options 2 or 3 but the total Life Insurance Benefit
under Options 2 or 3 will generally be greater. Thus, Option 1 could be
considered more suitable for Owners whose goal is increasing Cash Value based
upon positive investment experience while Options 2 and 3 could be considered
more suitable for Owners whose goal is increasing total Life Insurance Benefit.
CHANGING THE LIFE INSURANCE BENEFIT OPTION. Generally, the Life Insurance
Benefit Option in effect may be changed by the Owner after the first Policy Year
by sending Western Reserve a written request for change. Western Reserve may
require proof of insurability. A change in Life Insurance Benefit Option may
have Federal income tax consequences. Under Western Reserve's current rules, no
change may be made if it would result in a Face Amount less than the minimum
Face Amount set forth in the Policy, or if the Policy would not continue to
qualify as life insurance as defined under Section 7702 of the Code. The
effective date of any
26
<PAGE> 31
change will be the Monthly Deduction Day on or after Western Reserve approves
the request. No charges will be imposed for making a change in Life Insurance
Benefit Option. If the Life Insurance Benefit Option is changed from Option 2 to
Option 1, the Face Amount will be increased by an amount equal to the Cash Value
on the effective date of change. If the Life Insurance Benefit Option is changed
from Option 1 to Option 2, the Face Amount will be decreased by an amount equal
to the Cash Value on the effective date of the change. If the Life Insurance
Benefit Option is changed from Option 3 to Option 1, the Face Amount will be
increased by the sum of the premiums paid less the sum of partial withdrawals.
If the Life Insurance Benefit Option is changed from Option 1 to Option 3, the
Face Amount will be decreased by the sum of the premiums paid less the sum of
partial withdrawals. Western Reserve will not allow changes between Options 2
and 3.
HOW LIFE INSURANCE BENEFITS MAY VARY IN AMOUNT. As long as the Policy
remains in force, Western Reserve guarantees that the Life Insurance Benefit
will never be less than the Face Amount of the Policy. These proceeds will be
reduced by any outstanding indebtedness and any due and unpaid charges. The Life
Insurance Benefit may, however, vary with the Policy's Cash Value. Under Option
1, the Life Insurance Benefit will only vary when the Cash Value multiplied by
the limitation percentage exceeds the Face Amount of the Policy. The Life
Insurance Benefit under Option 2 will always vary with the Cash Value because
the Life Insurance Benefit equals either the Face Amount plus the Cash Value or
the limitation percentage times the Cash Value. The Life Insurance Benefit under
Option 3 will always vary with the premiums paid and partial withdrawals taken
and will also vary whenever the Cash Value multiplied by the limitation
percentage exceeds the Face Amount plus cumulative premiums paid less cumulative
partial withdrawals.
CHANGING THE FACE AMOUNT. Subject to certain limitations, an Owner may
increase or decrease the Face Amount of a Policy. A change in Face Amount may
affect the net amount at risk, which may affect an Owner's cost of insurance
charge. A change in Face Amount could also have Federal income tax consequences.
DECREASES. Any decrease in the Face Amount will become effective on the
Monthly Deduction Day on or following receipt of a written request from the
Owner by Western Reserve at the Administrative Office. No requested decrease in
the Face Amount will be permitted during the first Policy Year. The Face Amount
remaining in force after any requested decrease may not be less than $25,000.
If, following the decrease in Face Amount, the Policy would not comply with the
maximum premium limitations required by Federal tax law, the decrease may be
limited to the extent necessary to meet these requirements.
INCREASES. For an increase in the Face Amount, written application must be
submitted. Western Reserve will also require that additional evidence of
insurability be submitted. Western Reserve reserves the right to decline any
increase request. Any increase will become effective on the Monthly Deduction
Day after Western Reserve approves the request for the increase. No increase in
the Face Amount will be permitted during the first Policy Year. An increase need
not be accompanied by an additional premium, but there must be sufficient Net
Cash Value to cover the next monthly deduction after the increase becomes
effective.
DURATION OF THE POLICY
The Policy's duration depends upon the Net Cash Value. The Policy will
remain in force so long as the Net Cash Value is sufficient to pay the monthly
deduction. If the Net Cash Value is insufficient to pay the monthly deduction,
and a Late Period expires without an adequate payment by the Owner, the Policy
will lapse and terminate without value.
WHEN INSURANCE COVERAGE TAKES EFFECT
No life insurance coverage shall take effect unless the proposed Insured is
alive, in the same condition of health as described in the application when the
Policy is delivered to the Owner, and the full initial premium is paid.
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<PAGE> 32
PAYMENT OPTIONS
The Policy offers a variety of optional ways of receiving proceeds under
the Policy, other than in a lump sum. Any agent authorized to sell the Policy
can explain these options upon request. None of these options vary with the
investment performance of a separate account.
CHARGES AND DEDUCTIONS
The following charges will apply to your Policy under the circumstances
described. The charges are for the services and benefits provided, costs and
expenses incurred and risks assumed by Western Reserve in connection with the
Policies.
Services and benefits provided by Western Reserve include:
- the Life Insurance Benefits, cash and loan benefits provided by the
Policy;
- investment options, including Net Premium allocations;
- administration of elective options under the Policy; and
- the distribution of reports to Owners.
Costs and expenses Western Reserve incurs include:
- those associated with underwriting applications and changes in Face
Amount and riders;
- various overhead and other expenses associated with providing the
services and benefits relating to the Policy;
- sales and marketing expenses; and
- other costs of doing business, such as federal, state and local premium
and other taxes and fees.
Risks assumed by Western Reserve include the risks that:
- Insureds may live for a shorter period of time than estimated resulting
in the payment of greater Life Insurance Benefits than expected; and
- the costs of providing the services and benefits under the Policies will
exceed the charges deducted.
PERCENT OF PREMIUM LOAD
Certain expenses are deducted at the time you make premium payments. The
remainder of each premium (the Net Premium) is then allocated to the Subaccounts
as you direct. The expenses deducted from your premium are intended to
compensate Western Reserve for sales expenses and federal and state tax charges.
Premium tax charges imposed by different states range from 0.0% to 3.5% of
premiums.
During the first Policy Year, Western Reserve deducts 11.5% of each premium
received up to the Target Premium, and 4.5% of each premium received in excess
of the Target Premium. After the first Policy Year, Western Reserve deducts
11.5% of each premium received up to the Target Premium, and 7.5% of each
premium received in excess of the Target Premium.
Since 4.5% is deducted from each premium in excess of the Target Premium
received by Western Reserve during the first Policy Year, it may be advantageous
to pay such premiums during the first Policy Year rather than after the first
Policy Year. However, higher premium amounts paid during the first Policy Year
will result in higher amounts being subject to the deferred sales charge in
Policy Years 2 through 7 (See Deferred Sales Charge, below). An Owner deciding
the appropriate amount and timing of premium payments should consider the
combined effect of the percent of premium load and the deferred sales charge.
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<PAGE> 33
DEFERRED SALES CHARGE
On each Policy Anniversary during Policy Years 2 through 7, Western Reserve
deducts from the Cash Value a deferred sales charge equal to 1.5% of premiums
paid during the first Policy Year to compensate Western Reserve for a portion of
Policy sales expenses. If the Policy is surrendered, this charge is not deducted
for Policy Anniversaries not yet reached.
MONTHLY DEDUCTIONS
The charges listed below are deducted from your Cash Value as of the
Effective Date and on each Monthly Deduction Day. The deductions are made from
the Subaccounts in the same proportion that the Subaccount Value in each
Subaccount bears to the total Cash Value as of the Monthly Deduction Day. The
monthly deduction consists of (1) a monthly Policy charge, (2) the monthly cost
of insurance charge, (3) the cost of any supplemental benefits provider by
riders, and (4) a factor representing the mortality and expense risk charge.
MONTHLY POLICY CHARGE. During the first Policy Year, the monthly Policy
charge is $16.50 per month. During subsequent Policy Years, the monthly Policy
charge currently is $4 per month and is guaranteed not to exceed $10 per month.
MONTHLY COST OF INSURANCE CHARGE. The monthly cost of insurance charge
compensates Western Reserve for the anticipated cost of paying the amount of the
Life Insurance Benefit that exceeds your Cash Value upon the death of the
Insured. The cost of insurance charge is calculated monthly, and depends on a
number of variables that cause the charge to vary from Policy to Policy and from
Monthly Deduction Day to Monthly Deduction Day. The cost of insurance charge is
calculated for the Face Amount at issue and for any increase in Face Amount. The
monthly cost of insurance charge is equal to (1) multiplied by the result of (2)
minus (3), where:
(1) is the monthly cost of insurance rate per $1,000 of insurance;
(2) is the number of thousands of Life Insurance Benefit for the
Policy (as defined in the applicable Option 1, Option 2 or Option 3)
divided by 1.0032737; and
(3) is the number of thousands of Cash Value as of the Monthly
Deduction Day (before this cost of insurance, and after the mortality and
expense risk charge, any applicable Policy charge and the cost of any
riders are subtracted).
The monthly cost of insurance rate for a Policy is based on the sex,
Attained Age, risk class, and number of years that the Policy or increment of
Face Amount has been in force. Western Reserve reviews monthly cost of insurance
rates on an ongoing basis (at least once every year) based on its expectations
as to future mortality experience, investment earnings, persistency, taxes and
other expenses. Any changes in cost of insurance rates are made on a uniform
basis for Insureds of the same class as defined by sex, Attained Age, risk
class, and Policy duration. Western Reserve guarantees that the cost of
insurance rates used to calculate the monthly cost of insurance charge will not
exceed the Guaranteed Maximum Cost of Insurance Rates set forth in the Policy.
In connection with the cost of insurance rates guaranteed in the Policy,
Western Reserve places Insureds into standard tobacco and standard non-tobacco
risk classes. The guaranteed rates for standard classes are based on the 1980
Commissioners' Standard Ordinary Mortality Tables, Male or Female, Tobacco or
Non-Tobacco Mortality Rates ("1980 CSO Tables"). The guaranteed rates for
substandard classes are based on multiples of or additions to the 1980 CSO
Tables. In connection with current cost of insurance rates, Western Reserve
places Insureds into the following risk classes: age, sex, tobacco habit and
health status, medical issue, simplified issue and guaranteed issue.
Cost of insurance rates (whether guaranteed or current) for an Insured in a
non-tobacco class are less than or equal to rates for an Insured of the same age
and sex in a tobacco class. Cost of insurance rates (whether guaranteed or
current) for an Insured in a non-tobacco or tobacco standard class are generally
lower than guaranteed rates for an Insured of the same age and sex and tobacco
status in a substandard class.
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<PAGE> 34
Western Reserve does, however, also offer Policies based on unisex
mortality tables if required by state law. Employers and employee organizations
considering purchase of a Policy should consult with their legal advisors to
determine whether purchase of a Policy based on sex-distinct actuarial tables is
consistent with Title VII of the Civil Rights Act of 1964 or other applicable
law. Upon request, Western Reserve may offer Policies with unisex mortality
tables to such prospective purchasers.
SUPPLEMENTAL BENEFIT (RIDER) CHARGES. If any additional benefits are added
to your Policy, charges for these benefits will be deducted as part of the
monthly deduction.
MORTALITY AND EXPENSE RISK CHARGE. Western Reserve deducts a monthly
charge from the Cash Value to compensate it for mortality and expense risks that
it assumes under the Policy. The monthly charge is equivalent to an effective
annual rate of 0.45%. The charge is calculated as a percentage of the average
Cash Value on each Valuation Day during the Policy Month preceding the Monthly
Deduction Day. The guaranteed rate for this charge is equivalent to an effective
annual rate of 0.90%.
The mortality risk that Western Reserve assumes is the risk that Insureds,
as a group, will live for a shorter period of time than Western Reserve
estimated when it established the guaranteed costs of insurance rates in the
Policy. Because of these guarantees, each Owner is assured that the morbidity of
a particular Insured will not have an adverse effect on the Life Insurance
Benefit Proceeds that a Beneficiary would receive. The expense risk that Western
Reserve assumes is the risk that the monthly Policy charge (and any transfer
charge imposed) may be insufficient to cover the actual expenses of
administering the Policies. Western Reserve may make a profit from the mortality
and expense risk Charge.
ADMINISTRATIVE CHARGES
PARTIAL WITHDRAWAL CHARGE. After the first Policy Year, you may apply for
a partial withdrawal. On each partial withdrawal, Western Reserve imposes a
processing charge equal to the lesser of $25 or 2% of the amount requested. This
charge is deducted on a pro-rata basis from the Subaccounts unless you provide
other instructions.
TRANSFER CHARGE. The first 12 transfers during each Policy Year are free.
Western Reserve reserves the right to assess a transfer charge of $25 for each
transfer in excess of 12 during a Policy Year. For the purposes of assessing the
transfer charge, each written request of transfer is considered to be one
transfer, regardless of the number of Subaccounts affected by the transfer. The
transfer charge is deducted from the amount being transferred. Transfers due to
automatic asset rebalancing, loans or the expiration of the free-look period do
not count as transfers for the purpose of assessing this charge.
PORTFOLIO EXPENSES
The value of the net assets of each Subaccount reflects the investment
advisory fees and other expenses incurred by the corresponding Portfolio in
which the Subaccount invests. See the prospectuses for the Portfolios and the
Summary of this prospectus for further information on these fees and expenses.
OTHER POLICY PROVISIONS AND BENEFITS
OWNERSHIP
GENERAL. The Policy belongs to the Owner named in the application. An
Owner may exercise all of the rights and options described in the Policy. The
Insured is the Owner unless the application specifies a different person as
Owner.
CHANGING THE OWNER. The Owner may change the Owner by providing written
notice to Western Reserve at any time while the Insured is alive and the Policy
is in force. A change of ownership is effective as of the date that the written
notice is signed; however, Western Reserve is not liable for payments it makes
before it receives a written notice of a change in ownership. Changing the Owner
does not automatically
30
<PAGE> 35
change the Beneficiary. A change in Owner may have significant tax consequences.
(See Federal Tax Considerations.)
SELECTING THE BENEFICIARY. The Owner designates the Beneficiary in the
application. Any Beneficiary designation is revocable unless otherwise stated in
the designation. Where more than one Beneficiary is designated, each Beneficiary
shares in any Life Insurance Benefit Proceeds equally unless the Beneficiary
designation states otherwise.
CHANGING THE BENEFICIARY. The Owner may change the Beneficiary by
providing a written notice to Western Reserve at any time while the Insured is
alive and the Policy is in force. Any change of Beneficiary is effective as of
the date the written notice is signed by the Owner but Western Reserve is not
liable for any payments it makes under the Policy prior to the time it receives
written notice of any Beneficiary change.
ASSIGNMENT
While the Insured is living, the Owner may assign his or her rights under
this Policy. Western Reserve is not bound by the assignment unless it receives a
duplicate of the original assignment at the Administrative Office. Western
Reserve is not responsible for the validity or sufficiency of any assignment and
is not liable for any payment it makes before receipt of the duplicate original
assignment. The Owner will maintain any rights of ownership that have not been
assigned. An assignee may not change the Owner or the Beneficiary, and may not
elect or change an optional method of payment. Any amount payable to the
assignee will be paid in one sum. Any claim under any assignment is subject to
proof of interest and the extent of the assignment. An assignment is subject to
any Loan Amount.
WESTERN RESERVE'S RIGHT TO CONTEST THE POLICY
Western Reserve has the right to contest the validity of the Policy or to
resist a claim under it on the basis of any material misrepresentation of a fact
stated in the application or any supplemental application. Western Reserve also
has the right to contest the validity of any increase of Face Amount or other
change to the Policy on the basis of any material misrepresentation of a fact
stated in the application (or supplemental application) for such increase in
coverage or change. In issuing this Policy, Western Reserve relies on all
statements made by or for the Insured in the application or in a supplemental
application. In the absence of fraud, Western Reserve considers statements made
in the application(s) to be representations and not warranties.
In the absence of fraud, Western Reserve cannot bring any legal action to
contest the validity of the Policy after it has been in force during the
lifetime of the Insured for two years from the Effective Date, or if reinstated,
for two years from the date of reinstatement. Likewise, Western Reserve cannot
contest any increase in coverage effective after the Effective Date, or any
reinstatement thereof, after such increase or reinstatement has been in force
during the lifetime of the Insured for two years from its effective date.
SUICIDE EXCLUSION
If the Insured commits suicide, while sane or insane, within two years of
the Effective Date, Western Reserve's liability is limited to an amount equal to
the premiums paid, less any indebtedness and less any partial withdrawals paid.
Western Reserve will pay this amount to the Beneficiary in one sum.
If the Insured commits suicide, while sane or insane, within two years from
the effective date of any increase in Face Amount or additional coverage rider,
Western Reserve's liability with respect to that increase is limited to an
amount equal to the cost of insurance attributable to the increase from the
effective date of the increase to the date of death.
MISSTATEMENT OF AGE OR SEX
If the age or sex of the Insured has been stated incorrectly in the
application or any supplemental application, Western Reserve will adjust the
Life Insurance Benefit and any benefits provided by rider or endorsement it pays
under this Policy to the amount that would have been payable at the correct age
and sex based on the most recent deduction for cost of insurance and the cost of
any benefits provided by rider or
31
<PAGE> 36
endorsement. If the age of the Insured has been overstated or understated,
Western Reserve will calculate future monthly deductions using the cost of
insurance (and the cost of benefits provided by rider or endorsement) based on
the Insured's correct age and sex.
MODIFICATION OF THE POLICY
Only the President, one of the Vice Presidents, Secretary or an officer of
Western Reserve may modify this Policy or waive any of Western Reserve's rights
or requirements under this Policy. Any modification or waiver must be in
writing. No agent may bind Western Reserve by making any promise not contained
in this Policy.
Upon notice to the Owner, Western Reserve may modify the Policy to:
1. conform the Policy, Western Reserve's operations, or the Separate
Account's operations to the requirements of any law (or regulation issued
by a government agency) to which the Policy, Western Reserve or the
Separate Account is subject);
2. assure continued qualification of the Policy as a life insurance
contract under the Code; or
3. reflect a change (permitted by the Policy) in the Separate
Account's operation.
In the event of any such modification, Western Reserve will make
appropriate endorsements to the Policy. If any provision of the Policy conflicts
with the laws of a jurisdiction that govern the Policy, the Policy provides that
such provision be deemed to be amended to conform with such laws.
PAYMENTS BY WESTERN RESERVE
Western Reserve usually pays the amounts of any surrender, partial
withdrawals, Life Insurance Benefit Proceeds, or settlement options within seven
business days after receipt of all applicable written notices and/or due proofs
of death. However, Western Reserve can postpone such payments if:
1. the NYSE is closed, other than customary weekend and holiday
closing, or trading on the NYSE is restricted as determined by the SEC; or
2. the SEC permits, by an order, the postponement for the protection
of Owners; or
3. the SEC determines that an emergency exists that would make the
disposal of securities held in the Separate Account or the determination of
their value not reasonably practicable.
If a recent check or draft has been submitted, Western Reserve has the
right to defer payment of surrenders, partial withdrawals, Life Insurance
Benefit Proceeds, or payments under a settlement option until such check or
draft has been honored.
REPORTS TO OWNERS
Within 30 days after each Policy Anniversary, or more often as required by
law, Western Reserve will mail to Owners at their last known address a report
showing the following items as of the end of the report period:
1. the period covered by the report;
2. the current Cash Value and Net Cash Value;
3. the current Subaccount Values, and Loan Account Value;
4. the current Loan Amount;
5. any premium payments, partial withdrawals, or surrenders made,
Life Insurance Benefit Proceeds paid and charges deducted since the last
report;
6. current Net Premium allocations; and
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<PAGE> 37
7. any other information required by law.
Owners may request additional copies of reports from Western Reserve, but
Western Reserve reserves the right to charge a fee for such additional copies.
In addition, Western Reserve will send written confirmations of premium payments
and other financial transactions requested by Owners. Owners will also be sent
copies of the annual and semi-annual report to shareholders for each Portfolio
in which they are indirectly invested.
CLAIMS OF CREDITORS
Except as described in the Assignment section above, payments Western
Reserve makes under the Policy are, to the extent permitted by law, exempt from
the claims, attachments, or levies of any creditors.
DIVIDENDS
The Policy is a non-participating policy on which no dividends are payable.
SUPPLEMENTAL BENEFITS AND/OR RIDERS
The following supplemental benefits and/or riders are available and may be
added to a Policy. Monthly charges for these benefits and/or riders are deducted
from Cash Value as part of the monthly deduction. The supplemental benefits
and/or riders available with the Policies provide fixed benefits that do not
vary with the investment experience of the Separate Account.
Term Insurance Rider. The Term Insurance Rider provides term insurance
coverage for the Insured on a basis different from the coverage provided under
the Policy. The Term Insurance Rider may be purchased at the time of application
for the Policy or after the Policy is issued. The Term Insurance Rider increases
the death benefit provided under the Policy by the Face Amount of the rider. The
Term Insurance Rider terminates at age 100. Owners may reduce or cancel coverage
under the Term Insurance Rider separately from reducing the Face Amount of a
Policy. Likewise, the Face Amount of a Policy may be decreased, subject to
certain minimums, without reducing the coverage under the Term Insurance Rider.
Western Reserve reserves the right to discontinue the availability of any
riders for new Policies at any time, and also reserves the right to modify the
terms of any riders for new Policies, subject to approval by the state insurance
departments.
FEDERAL TAX CONSIDERATIONS
The following summary provides a general description of the Federal income
tax considerations associated with a Policy and does not purport to be complete
or to cover all situations. This discussion is not intended as tax advice.
Please consult counsel or other qualified tax advisors for more complete
information. This discussion is based upon Western Reserve's understanding of
the present Federal income tax laws as they are currently interpreted by the
Internal Revenue Service (the "IRS"). Western Reserve makes no representation as
to the likelihood of continuation of the present federal income tax laws or of
the current interpretations by the IRS.
TAX STATUS OF THE POLICIES
Section 7702 of the Code sets forth a definition of a life insurance
contract for federal income tax purposes. However, guidance as to how Section
7702 is to be applied is limited. If a Policy were determined not to be a life
insurance contract for purposes of Section 7702, the Policy would not provide
the tax advantages normally provided by a life insurance policy.
With respect to a Policy issued on a standard basis, Western Reserve
believes that such a Policy should meet the Section 7702 definition of a life
insurance contract. With respect to a Policy that is issued on a substandard
basis (i.e., a premium class with extra rating involving higher than standard
mortality risk), there is less guidance, in particular as to how the mortality
requirements of Section 7702 are to be applied in
33
<PAGE> 38
determining whether such a Policy meets the Section 7702 definition of a life
insurance contract. Thus, it is not clear whether or not a Policy issued on a
substandard basis would satisfy Section 7702.
If it is subsequently determined that a Policy does not satisfy Section
7702, Western Reserve may take whatever steps are appropriate and reasonable to
attempt to cause such a Policy to comply with Section 7702, including refunding
any premiums that exceed the limits allowed under Section 7702 (together with
interest or other earnings on such premiums refunded as required by law). For
these reasons, Western Reserve reserves the right to modify the Policy or to
restrict Policy transactions as necessary to attempt to qualify it as a life
insurance contract under Section 7702.
Section 817(h) of the Code requires that the investments of each of the
Subaccounts must be "adequately diversified" in accordance with U.S. Department
of the Treasury ("Treasury") regulations in order for the Policy to qualify as a
life insurance contract under Section 7702 of the Code. The Subaccounts, through
the Portfolios, intend to comply with the diversification requirements
prescribed in Treas. Reg. Section 1.817-5, which affect how each Portfolio's
assets are to be invested. Western Reserve believes that the Subaccounts will be
operated in compliance with the Treasury's prescribed requirements and Western
Reserve will monitor continued compliance with these requirements.
In certain circumstances, owners of variable life insurance policies may be
considered the owners, for Federal income tax purposes, of the assets of the
separate accounts used to support their policies. In those circumstances, income
and gains from the separate account assets would be includible in the variable
policy owner's gross income. The IRS has stated in published rulings that a
variable policy owner will be considered the owner of separate account assets if
the policy owner possesses incidents of ownership in those assets, such as the
ability to exercise investment control over the assets. The Treasury has also
announced, in connection with the issuance of regulations concerning
diversification, that those regulations "do not provide guidance concerning the
circumstances in which investor control of the investments of a segregated asset
account may cause the investor (i.e., the policy owner), rather than the
insurance company, to be treated as the owner of the assets in the account."
This announcement also stated that guidance would be issued by way of
regulations or rulings on the "extent to which policyholders may direct their
investments to particular sub-accounts without being treated as owners of the
underlying assets."
The ownership rights under the Policy are similar to, but different in
certain respects from, those described by the IRS in rulings in which it was
determined that policy owners were not owners of separate account assets. For
example, an Owner has additional flexibility in allocating Net Premiums and
transferring Cash Value. These differences could result in an Owner being
treated as the owner of a pro-rata portion of the assets of the Separate
Account. In addition, Western Reserve does not know what standards will be set
forth, if any, in the regulations or rulings which the Treasury has stated it
expects to issue. Western Reserve therefore reserves the right to modify the
Policy as necessary to attempt to prevent an Owner from being considered the
Owner of a pro-rata share of the assets of the Separate Account.
The following discussion assumes that the Policy will qualify as a life
insurance contract for federal income tax purposes.
TAX TREATMENT OF POLICY BENEFITS
IN GENERAL. Western Reserve believes that the Life Insurance Benefit
Proceeds and Cash Value increases of a Policy should be treated in a manner
consistent with a fixed-benefit life insurance policy for Federal income tax
purposes. Thus, the Life Insurance Benefit Proceeds under the Policy should be
excludible from the gross income of the Beneficiary under Section 101(a)(1) of
the Code.
Depending on the circumstances, the exchange of a Policy, a change in the
Policy's Life Insurance Benefit Option, a Policy loan, a partial withdrawal, a
surrender, a change in ownership, or an assignment of the Policy may have
Federal income tax consequences. In addition, federal, state and local transfer,
and other tax consequences of ownership or receipt of distributions from a
Policy depend on the circumstances of each Owner or Beneficiary.
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<PAGE> 39
Generally, the Owner will not be deemed to be in constructive receipt of
the Cash Value, including increments thereof, until there is a distribution. The
tax consequences of distributions from, and loans taken from or secured by, a
Policy depend on whether the Policy is classified as a "Modified Endowment
Contract" (discussed below). Whether a Policy is or is not a Modified Endowment
Contract, upon a surrender or Lapse of a Policy, if the amount received plus the
Loan Amount exceeds the total investment in the Policy, the excess will
generally be treated as ordinary income subject to tax.
The Policy may also be used in various arrangements, including nonqualified
deferred compensation or salary continuance plans, split dollar insurance plans,
executive bonus plans, retiree medical benefit plans and others. The tax
consequences of such plans may vary depending on the particular facts and
circumstances of each individual arrangement. Therefore, Owners contemplating
the use of a Policy in any arrangement the value of which depends in part on its
tax consequences, should be sure to consult a qualified tax advisor regarding
the tax attributes of the particular arrangement.
In recent years, Congress has adopted new rules relating to life insurance
owned by businesses. Any business contemplating the purchase of a new life
insurance contract or a change in an existing life insurance contract should
consult a tax advisor. Moreover, the President's 1999 Budget Proposal has
recommended that legislation be enacted disallowing a portion of a taxpayer's
otherwise deductible interest expense based on all life insurance policies owned
by such taxpayer. (Current law provides for such disallowance based only on life
insurance policies owned by a taxpayer on the lives of individuals who are not
20% owners, officers, directors or employees of the taxpayer.) This proposal
would apply to all taxpayers other than natural persons. Prospective purchasers
of the Policy that are not natural persons should be aware of this proposal and
should take into account the impact it could have on their taxes in deciding
whether to purchase the Policy.
The President's Budget Proposal has also recommended legislation in 1998
that, if enacted, would adversely modify the federal taxation of certain
insurance and annuity contracts. For example, one proposal would tax transfers
among investment options and tax exchanges involving variable contracts. A
second proposal would reduce the "investment in the contract" under cash value
life insurance and certain annuity contracts, thereby increasing the amount of
income for purposes of computing gain. Although the likelihood of legislative
changes is uncertain, there is always the possibility that the tax treatment of
the Policy could change by legislation or other means. Moreover, it is also
possible that any change could be retroactive (that is, effective prior to the
date of the change). You should consult a tax advisor with respect to
legislative developments and their effect on the Policy.
MODIFIED ENDOWMENT CONTRACTS. Section 7702A establishes a class of life
insurance contracts designated as "Modified Endowment Contracts." The rules
relating to whether a Policy will be treated as a Modified Endowment Contract
are extremely complex and cannot be completely described in this summary. In
general, a Policy will be a Modified Endowment Contract if the accumulated
premiums made at any time during the first seven Policy Years exceeds the sum of
the net level premiums which would have been paid on or before such time if the
Policy provided for paid-up future benefits after the payment of seven level
annual premiums. A Policy may also become a Modified Endowment Contract after a
material change. The determination of whether a Policy will be a Modified
Endowment Contract after a material change generally depends upon the
relationship of the Life Insurance Benefit and Cash Value at the time of such
change and the additional premiums made in the seven years following the
material change.
Due to the Policy's flexibility, classification as a Modified Endowment
Contract will depend on the individual circumstances of each Policy. In view of
the foregoing, a current or prospective Owner should consult with a tax advisor
to determine whether a Policy transaction will cause the Policy to be treated as
a Modified Endowment Contract. However, at the time that a premium is credited
which, in Western Reserve's view, would cause the Policy to become a Modified
Endowment Contract, Western Reserve will notify the Owner that unless a refund
of the excess premium (with any appropriate interest) is requested by the Owner,
the Policy will become a Modified Endowment Contract.
DISTRIBUTIONS FROM POLICIES CLASSIFIED AS MODIFIED ENDOWMENT
CONTRACTS. Policies classified as Modified Endowment Contracts will be subject
to the following tax rules: First, all distributions, including distributions
upon surrender and partial withdrawal from such a Policy are treated as ordinary
income subject
35
<PAGE> 40
to tax up to the amount equal to the excess (if any) of the Cash Value
immediately before the distribution over the investment in the Policy (described
below) at such time. Second, loans taken from or secured by such a Policy, are
treated as distributions from the Policy and taxed accordingly. Past due loan
interest that is added to the loan amount will be treated as a loan. Third, a
10% additional income tax is imposed on the portion of any distribution from, or
loan taken from or secured by, such a Policy that is included in income except
where the distribution or loan is made on or after the Owner attains age 59 1/2,
is attributable to the Owner's becoming disabled, or is part of a series of
substantially equal periodic payments for the life (or life expectancy) of the
Owner or the joint lives (or joint life expectancies) of the Owner and the
Beneficiary.
DISTRIBUTIONS FROM POLICIES NOT CLASSIFIED AS MODIFIED ENDOWMENT
CONTRACTS. Distributions from a Policy that is not a Modified Endowment
Contract are generally treated as first, recovering the investment in the Policy
(described below) and then, only after the return of all such investment in the
Policy, as distributing taxable income. An exception to this general rule occurs
in the case of a decrease in the Policy's Life Insurance Benefit or any other
change that reduces benefits under the Policy in the first 15 years after the
Policy is issued and that results in a cash distribution to the Owner in order
for the Policy to continue complying with the Section 7702 definitional limits.
Such a distribution will be taxed in whole or in part as ordinary income (to the
extent of any gain in the Policy) under rules prescribed in Section 7702.
Loans from, or secured by, a Policy that is not a Modified Endowment
Contract are not treated as distributions. Instead, such loans are treated as
Loan Amounts.
Finally, neither distributions (including distributions upon surrender) nor
loans from, or secured by, a Policy that is not a Modified Endowment Contract
are subject to the 10% additional income tax rule. If a Policy which is not a
Modified Endowment Contract becomes a Modified Endowment Contract, then any
distributions made from the Policy within two years prior to the change in such
status will become taxable in accordance with the Modified Endowment Contract
rules discussed above.
POLICY LOAN INTEREST. Generally, interest paid on any loan under, or
secured by, a Policy which is owned by an individual is not deductible. Consult
a qualified tax advisor before deducting any Policy loan interest.
INVESTMENT IN THE POLICY. Investment in the Policy means: (i) the
aggregate amount of any premiums or other consideration paid for a Policy, minus
(ii) the aggregate amount received under the Policy which is excluded from gross
income of the Owner (except that the amount of any loan from, or secured by, a
Policy that is a Modified Endowment Contract, to the extent such amount is
excluded from gross income, will be disregarded), plus (iii) the amount of any
loan from, or secured by, a Policy that is a Modified Endowment Contract to the
extent that such amount is included in the gross income of the Owner.
MULTIPLE POLICIES. All Modified Endowment Contracts that are issued by
Western Reserve (or its affiliates) to the same Owner during any calendar year
are treated as one Modified Endowment Contract for purposes of determining the
amount includible in an Owner's gross income under Section 72(e) of the Code.
OTHER INFORMATION ABOUT THE POLICIES AND WESTERN RESERVE
SALE OF THE POLICIES
The Policy will be sold by individuals who, in addition to being licensed
as life insurance agents for Western Reserve, are also registered
representatives of InterSecurities, Inc., an affiliate of Western Reserve and
the principal underwriter of the Policies, or of broker-dealers who have entered
into written sales agreements with the principal underwriter. InterSecurities,
Inc., which is located at 201 Highland Avenue, Largo, Florida 33770, is
registered with the SEC under the Securities Exchange Act of 1934 as a broker-
dealer and is a member of the National Association of Securities Dealers, Inc.
No amounts will be retained by InterSecurities, Inc. for acting as principal
underwriter for the Policies. The maximum sales commission payable to Western
Reserve agents or other registered representatives will be approximately 13% of
all premiums up to the Target Premium and 5% of all premiums in excess thereof.
In addition, certain production, persistency and managerial bonuses may be paid.
36
<PAGE> 41
VOTING PRIVILEGES
Western Reserve is the legal owner of shares held by the Subaccounts and as
such has the right to vote on all matters submitted to shareholders of the
Portfolios. However, as required by law, Western Reserve votes Portfolio shares
held in the Subaccounts at regular and special shareholder meetings of the
Portfolios in accordance with instructions received from persons having voting
interests in the corresponding Subaccounts.
The number of votes that an Owner has the right to instruct is calculated
separately for each Subaccount, and may include fractional votes. While the
Insured is still living and the Policy is in force, an Owner holds a voting
interest in each Subaccount to which Net Premiums are allocated. For each Owner,
the number of votes attributable to a Subaccount is determined by dividing the
Owner's Subaccount Value by the net asset value per share of the Portfolio in
which that Subaccount invests. The net asset value per share of each Portfolio
is the value for each share of a Portfolio on any Valuation Day. The method of
computing the net asset value per share is described in the prospectuses for the
Portfolios.
The number of votes available to an Owner or person receiving payments
under the Policy is determined as of the date coinciding with the date
established by the Portfolio for determining shareholders eligible to vote at
the relevant meeting of the Portfolio's shareholders. Voting instructions will
be solicited by written communication prior to such meeting in accordance with
procedures established for the Portfolio. Each Owner or other person having a
voting interest in a Subaccount will receive proxy materials and reports
relating to any meeting of shareholders of the Portfolio in which that
Subaccount invests.
Portfolio shares as to which no timely instructions are received and shares
held by Western Reserve in a Subaccount as to which no Owner or other person has
a beneficial interest are voted in proportion to the voting instructions that
are received with respect to all Policies participating in that Subaccount.
Voting instructions to abstain on any item to be voted upon will be applied to
reduce the total number of votes eligible to be cast on a matter. Certain
actions affecting the Separate Account may require Owner approval. In that case,
an Owner will be entitled to vote in proportion to his or her Subaccount Value.
Western Reserve may, if required by state insurance regulators, disregard
voting instructions if such instructions would require Portfolio shares to be
voted so as to cause a change in sub-classification or investment objectives of
a Portfolio, or to approve or disapprove an investment management agreement or
an investment advisory agreement. In addition, Western Reserve may under certain
circumstances disregard voting instructions that would require changes in an
investment management agreement, investment manager, an investment advisory
agreement or an investment adviser of a Portfolio, provided that Western Reserve
reasonably disapproves of such changes in accordance with applicable regulations
under the 1940 Act. If Western Reserve ever disregards voting instructions, you
will be advised of that action and of the reasons for such action in the next
semi-annual report for the appropriate Portfolio.
WESTERN RESERVE'S DIRECTORS AND EXECUTIVE OFFICERS
Western Reserve is managed by a board of directors. The following table
sets forth the name, address and principal occupations during the past five
years of each of Western Reserve's directors and executive officers.
EXECUTIVE OFFICERS AND DIRECTORS OF WESTERN RESERVE
JOHN R. KENNEY(1), CHAIRMAN OF THE BOARD OF DIRECTORS, CHIEF EXECUTIVE
OFFICER AND PRESIDENT. Chairman of the Board of Directors (1987 -- present) and
Chief Executive Officer (1982 -- present), President (1978 -- 1987 and December,
1992 -- present), Director (1978 -- present), Western Reserve Life Assurance Co.
of Ohio; Chairman of the Board of Directors (1985 -- present), President (March,
1993 -- present), WRL Series Fund, Inc.; Chairman of the Board (September,
1996 -- present), WRL Investment Management, Inc.; Chairman of the Board
(September, 1996 -- present), WRL Investment Services, Inc.; Chairman of the
Board of Directors (February, 1997 -- present), AEGON Asset Management Services,
Inc., Largo, Florida; Chairman of the Board of Directors and Chief Executive
Officer (1988 -- February, 1991), President (1988 -- 1989), Director
(1976 -- February, 1991), Executive Vice President (1972 -- 1988), Pioneer
Western Corporation (financial services), Largo, Florida; Trustee
(1987 -- present), Chairman
37
<PAGE> 42
(December, 1989 to September, 1990 and November, 1990 to present) and President
and Chief Executive Officer (November, 1986 to September, 1990), IDEX Series
Fund; former Trustee of IDEX Fund, IDEX II Series Fund and IDEX Fund 3
(investment companies), all of Largo, Florida.
ALAN M. YAEGER(1), EXECUTIVE VICE PRESIDENT, ACTUARY AND CHIEF FINANCIAL
OFFICER. Executive Vice President (June, 1993 -- present), Chief Financial
Officer (December, 1995 -- present), Senior Vice President (1981 -- June, 1993)
and Actuary (1972 -- present), Western Reserve Life Assurance Co. of Ohio;
Director (September, 1996 -- present), WRL Investment Management, Inc.; Director
(September, 1996 -- present), WRL Investment Services, Inc.; Executive Vice
President (September, 1993 -- present), WRL Series Fund, Inc.
LAWRENCE G. BROWN(1), SENIOR VICE PRESIDENT, GENERAL COUNSEL AND
SECRETARY. Senior Vice President, General Counsel and Secretary (January,
1995 -- present), Western Reserve Life Assurance Co. of Ohio; Senior Vice
President, General Counsel and Secretary (January, 1989 -- December, 1994),
AEGON USA, Inc.
G. JOHN HURLEY(1), EXECUTIVE VICE PRESIDENT. Executive Vice President
(June, 1993 -- present), Western Reserve Life Assurance Co. of Ohio; Executive
Vice President (June, 1993 -- present), Director (March, 1994 -- present), WRL
Series Fund, Inc.; Director (September, 1996 -- present), WRL Investment
Management, Inc.; Director (September, 1996 -- present), WRL Investment
Services, Inc.; Director, President and Chief Executive Officer (February,
1997 -- present), AEGON Asset Management Services, Inc., Largo, Florida;
President and Chief Executive Officer (September, 1990 -- present), Trustee
(June, 1990 -- present) and Executive Vice President (June, 1988 -- September,
1990) of IDEX Series Fund, former Trustee and Executive Vice President of IDEX
Fund, IDEX II Series Fund and IDEX Fund 3 (investment companies); Assistant Vice
President of AEGON USA Managed Portfolios, Inc. (September, 1991 -- August,
1992); Vice President (May, 1988 -- February, 1991) Pioneer Western Corporation
(financial services).
ALLAN J. HAMILTON(1), VICE PRESIDENT, TREASURER AND CONTROLLER. Vice
President and Controller (1987 -- present), Treasurer (February,
1997 -- present), Assistant Vice President and Assistant Controller (1983 --
1987), Western Reserve Life Assurance Co. of Ohio; Treasurer and Principal
Financial Officer (February, 1997 -- present), WRL Series Fund, Inc.; Vice
President and Controller (1988 to February 1991), Pioneer Western Corporation
(financial services), Largo, Florida.
PATRICK S. BAIRD, DIRECTOR, 4333 Edgewood Road, NE, Cedar Rapids, Iowa
52499, Director (February, 1991 to present), Western Reserve Life Assurance Co.
of Ohio; Vice President and Chief Tax Officer (1984 -- present), Chief Financial
Officer (1992 -- present) AEGON USA, Inc., formerly known as Life Investors,
Inc., (financial services holding company), Cedar Rapids, Iowa.
JACK E. ZIMMERMAN, DIRECTOR, 507 St. Michel Circle, Kettering, Ohio 45429,
Director (1987 -- present), Western Reserve Life Assurance Co. of Ohio; Trustee,
IDEX Series Fund, former Trustee of IDEX Fund, IDEX II Series Fund and IDEX Fund
3 (investment companies); Director, Regional Marketing (1986 -- January, 1993),
Martin Marietta Corporation, Dayton, Ohio.
LYMAN H. TREADWAY, DIRECTOR, 30195 Chagrin Blvd. Ste. 210N, Cleveland,
Ohio 44124, Director (September, 1994 -- present), Western Reserve Life
Assurance Co. of Ohio; Consultant (1988 -- 1993), Cleveland, Ohio.
JAMES R. WALKER, DIRECTOR, 3320 Office Park Dr., Dayton, Ohio 45439,
Director (June, 1996 -- present) Western Reserve Life Assurance Co. of Ohio;
Self-employed, Public Accountant (1996 -- present); Partner, C.P.A.
(1990 -- 1995), Walker-Davis C.P.A.'s, Dayton, Ohio.
- ----------------
(1) The principal business address is Western Reserve Life Assurance Co. of
Ohio, P.O. Box 5068, Clearwater, Florida 33758-5068.
38
<PAGE> 43
ADDITIONAL INFORMATION
A registration statement under the Securities Act of 1933 has been filed
with the SEC relating to the offering described in this prospectus. This
prospectus does not include all the information set forth in the registration
statement. The omitted information may be obtained at the SEC's principal office
in Washington, D.C. by paying the SEC's prescribed fees.
EXPERTS
The statutory-basis balance sheets of Western Reserve as of December 31,
1997 and 1996, and the related statutory-basis statements of operations, changes
in capital and surplus, and cash flows for each of the three years in the period
ended December 31, 1997, have been audited by Ernst & Young LLP, independent
accountants, whose report thereon is set forth elsewhere herein. Such financial
statements are included in this prospectus in reliance upon such report given
upon the authority of such firm as experts in accounting and auditing. Actuarial
matters included in this prospectus have been examined by Frederick J. Garland,
Jr., FSA whose opinion is filed as an exhibit to the registration statement.
LEGAL MATTERS
Sutherland, Asbill & Brennan LLP of Washington, D.C. has provided advice on
certain matters relating to the federal securities laws.
LEGAL PROCEEDINGS
Western Reserve, like other life insurance companies, is involved in
lawsuits. Western Reserve is not aware of any class action lawsuits naming it as
a defendant or involving the Separate Account. In some lawsuits involving other
insurers, substantial damages have been sought and/or material settlement
payments have been made. Although the outcome of any litigation cannot be
predicted with certainty, Western Reserve believes that at the present time
there are no pending or threatened lawsuits that are reasonably likely to have a
material adverse impact on the Separate Account or Western Reserve.
YEAR 2000 MATTERS
In October 1996, Western Reserve adopted and presently has in place a Year
2000 Assessment and Planning Project (the "Plan") to review and analyze existing
hardware and software systems, as well as voice and data communications systems,
to determine if they are Year 2000 compatible, Western Reserve has also engaged
the services of a third-party provider that is specialized in Year 2000 issues
to work on the Plan.
As of the date of this prospectus, Western Reserve has identified and made
available what it believes are the appropriate resources of hardware, people and
dollars, including the engagement of outside third parties, to ensure that the
Plan will be completed.
The Year 2000 computer problem, and its resolution, is complex and
multifaceted, and success of a response plan cannot be conclusively known until
the Year 2000 is reached (or an earlier date to the extent that the systems or
equipment addresses Year 2000 data prior to the Year 2000). Even with the
appropriate and diligent pursuit of a well-conceived response plan, including
testing procedures, there is no certainty that any company will achieve complete
success. Further, notwithstanding its efforts or results, Western Reserve's
ability to function unaffected to and through the Year 2000 may be adversely
affected by actions (or failure to act) of third parties beyond our knowledge or
control. See the Portfolios' prospectuses for information on the Portfolios'
preparation for Year 2000.
FINANCIAL STATEMENTS
No financial statements of the Separate Account are included herein
because, as of the date of this Prospectus, the Separate Account had not yet
commenced operations, had no assets, and had incurred no liabilities. The
financial statements of Western Reserve appear on the following pages. The
financial statements of Western Reserve should be distinguished from financial
statements of the Separate Account and should be considered only as bearing upon
Western Reserve's ability to meet its obligations under the Policies.
39
<PAGE> 44
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant,
WRL Series Life Corporate Account has duly caused this Registration Statement to
be signed on its behalf by the undersigned thereunto duly authorized, and its
seal to be hereunto affixed and attested, all in the City of Largo and State of
Florida on this 17th day of June, 1998.
<TABLE>
<S> <C>
(SEAL) WRL Series Life Corporate Account
-----------------------------------------------------
Registrant
Western Reserve Life Assurance Co. of Ohio
-----------------------------------------------------
Depositor
ATTEST:
/s/ THOMAS E. PIERPAN By: /s/ JOHN R. KENNEY
- -------------------------------------------- -------------------------------------------------
Thomas E. Pierpan John R. Kenney
Vice President, Assistant Secretary Chairman of the Board,
and Associate General Counsel Chief Executive Officer and President
</TABLE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned hereby makes,
constitutes and appoints THOMAS E. PIERPAN, PRISCILLA HECHLER, ALAN M. YAEGER,
PETER H. GILMAN, and FREDERICK J. GARLAND, JR. and each of them, severally, his
true and lawful attorneys and agents in his name, place and stead and on his
behalf (a) to sign and cause to be filed registration statements of WRL Series
Life Corporate Account under the Securities Act of 1933 and the Investment
Company Act of 1940, and all amendments, consents and exhibits thereto; (b) to
withdraw such statements or any amendments or exhibits and make requests for
acceleration in connection therewith; (c) to take all other action of whatever
kind or nature in connection with such registration statements which said
attorneys may deem advisable; and (d) to make, file, execute, amend and withdraw
documents of every kind, and to take other action of whatever kind they may
elect, for the purpose of complying with the laws of any state relating to the
sale of securities of WRL Series Life Corporate Account, hereby ratifying and
confirming all actions of any of said attorneys hereunder. Said attorneys may
act jointly or severally, and the action of one shall bind the undersigned as
fully as if two or more had acted together.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE AND TITLE DATE
------------------- ----
<S> <C>
/s/ JOHN R. KENNEY June 17, 1998
- -----------------------------------------------------
John R. Kenney, Chairman of the Board, Chief
Executive Officer and President
/s/ ALLAN J. HAMILTON June 17, 1998
- -----------------------------------------------------
Allan J. Hamilton, Vice President, Treasurer and
Controller
/s/ ALAN M. YAEGER June 17, 1998
- -----------------------------------------------------
Alan M. Yaeger, Executive Vice President, Actuary and
Chief Financial Officer
</TABLE>
<PAGE> 45
<TABLE>
<CAPTION>
SIGNATURE AND TITLE DATE
------------------- ----
<S> <C>
/s/ June , 1998
- -----------------------------------------------------
Patrick S. Baird, Director
/s/ JAMES R. WALKER June 23, 1998
- -----------------------------------------------------
James R. Walker, Director
/s/ LYMAN H. TREADWAY June 24, 1998
- -----------------------------------------------------
Lyman H. Treadway, Director
/s/ JACK E. ZIMMERMAN June 24, 1998
- -----------------------------------------------------
Jack E. Zimmerman, Director
June , 1998
- -----------------------------------------------------
Signed by: Thomas E. Pierpan
as Attorney-in-fact
</TABLE>
<PAGE> 46
FINANCIAL STATEMENTS - STATUTORY BASIS
WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
WITH REPORT OF INDEPENDENT AUDITORS
<PAGE> 47
Western Reserve Life Assurance Co. of Ohio
Financial Statements - Statutory Basis
Years ended December 31, 1997, 1996 and 1995
CONTENTS
Report of Independent Auditors.................................................1
Audited Financial Statements
Balance Sheets - Statutory Basis...............................................3
Statements of Operations - Statutory Basis.....................................5
Statements of Changes in Capital and Surplus - Statutory Basis.................6
Statements of Cash Flows - Statutory Basis.....................................7
Notes to Financial Statements - Statutory Basis................................8
<PAGE> 48
REPORT OF INDEPENDENT AUDITORS
The Board of Directors
Western Reserve Life Assurance Co. of Ohio
We have audited the accompanying statutory-basis balance sheets of Western
Reserve Life Assurance Co. of Ohio as of December 31, 1997 and 1996, and the
related statutory-basis statements of operations, changes in capital and
surplus, and cash flows for each of the three years in the period ended December
31, 1997. Our audits also included the statutory-basis financial statement
schedules required by Regulation S-X, Article 7. These financial statements and
schedules are the responsibility of the Company's management. Our responsibility
is to express an opinion on these financial statements based on our audits. We
did not audit the "Separate Account Assets" and "Separate Account Liabilities"
in the balance sheets of the Company. The Separate Account financial statements
were audited by other auditors whose reports have been furnished to us, and our
opinion, insofar as it relates to the data included for the Separate Account, is
based solely upon the reports of the other auditors.
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 and the reports of other auditors provide a
reasonable basis for our opinion.
As described in Note 1 to the financial statements, the Company presents its
financial statements in conformity with accounting practices prescribed or
permitted by the Insurance Department of the State of Ohio, which practices
differ from generally accepted accounting principles. The variances between such
practices and generally accepted accounting principles are also described in
Note 1. The effects on the financial statements of these variances are not
reasonably determinable but are presumed to be material.
In our opinion, because of the effects of the matters described in the preceding
paragraph, the financial statements referred to above do not present fairly, in
conformity with generally accepted accounting principles, the financial position
of Western Reserve Life Assurance Co. of Ohio at December 31, 1997 and 1996, or
the results of its operations or its cash flows for each of the three years in
the period ended December 31, 1997.
1
<PAGE> 49
Also, in our opinion, based on our audits and the reports of other auditors, the
financial statements referred to above present fairly, in all material respects,
the financial position of Western Reserve Life Assurance Co. of Ohio at December
31, 1997 and 1996, and the results of its operations and its cash flows for each
of the three years in the period ended December 31, 1997 in conformity with
accounting practices prescribed or permitted by the Insurance Department of the
State of Ohio. Also, in our opinion, the related financial statement schedules,
when considered in relation to the basic statutory-basis financial statements
taken as a whole, present fairly in all material respects the information set
forth therein.
/s/ ERNST & YOUNG LLP
Des Moines, Iowa
February 27, 1998
2
<PAGE> 50
Western Reserve Life Assurance Co. of Ohio
Balance Sheets - Statutory Basis
(Dollars in thousands)
<TABLE>
<CAPTION>
DECEMBER 31
1997 1996
----------------------------
<S> <C> <C>
ADMITTED ASSETS
Cash and invested assets:
Cash and short-term investments $ 13,896 $ 2,480
Bonds 255,919 359,579
Common stocks:
Affiliated entities (cost: 1997 - $150) 319 -
Other (cost: 1997 and 1996 - $302) 428 597
Mortgage loans on real estate 4,824 6,049
Home office properties 19,964 7,962
Policy loans 76,741 52,604
----------------------------
Total cash and invested assets 372,091 429,271
Premiums deferred and uncollected 1,928 1,943
Accrued investment income 4,088 5,940
Receivable from affiliates - 1,165
Transfers from separate accounts 279,958 204,181
Other assets 5,221 3,962
Separate account assets 4,814,594 3,527,145
----------------------------
Total admitted assets $5,477,880 $4,173,607
============================
</TABLE>
See accompanying notes.
3
<PAGE> 51
<TABLE>
<CAPTION>
DECEMBER 31
1997 1996
----------------------------
<S> <C> <C>
LIABILITIES AND CAPITAL AND SURPLUS
Liabilities:
Aggregate reserves for policies and contracts:
Life $ 186,523 $ 155,166
Annuity 296,290 332,230
Policy and contract claim reserves 10,929 8,584
Other policyholders' funds 3,877 3,104
Remittances and items not allocated 9,184 9,107
Federal income taxes payable 2,283 1,266
Asset valuation reserve 2,436 5,710
Interest maintenance reserve 9,134 7,451
Short-term note payable to affiliate 8,200 -
Payable to affiliate 1,925 20,463
Other liabilities 19,257 13,082
Separate account liabilities 4,812,979 3,521,888
----------------------------
Total liabilities 5,363,017 4,078,051
Commitments and contingencies
Capital and surplus:
Common stock, $1.00 par value, 1,500 shares
authorized, issued and outstanding 1,500 1,500
Paid-in surplus 88,015 68,015
Unassigned surplus 25,348 26,041
----------------------------
Total capital and surplus 114,863 95,556
----------------------------
Total liabilities and capital and surplus $5,477,880 $4,173,607
============================
</TABLE>
See accompanying notes.
4
<PAGE> 52
Western Reserve Life Assurance Co. of Ohio
Statements of Operations - Statutory Basis
(Dollars in thousands)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1997 1996 1995
----------------------------------------------
<S> <C> <C> <C>
Revenues:
Premiums and other considerations, net of reinsurance:
Life $ 394,370 $ 293,590 $191,508
Annuity 822,149 740,125 378,390
Net investment income 40,013 36,067 40,891
Amortization of interest maintenance reserve 1,576 1,335 882
Commissions and expense allowances on reinsurance ceded 11 11 11
Other income 3,016 13,398 8,237
----------------------------------------------
1,261,135 1,084,526 619,919
Benefits and expenses:
Benefits paid or provided for:
Life 28,060 21,256 17,844
Surrender benefits 431,939 286,406 206,250
Other benefits 28,112 23,270 19,530
Increase (decrease) in aggregate reserves for policies
and contracts:
Life 29,485 80,139 (15,132)
Annuity (35,940) 12,877 5,229
Other 794 422 109
----------------------------------------------
482,450 424,370 233,830
Insurance expenses:
Commissions 179,106 140,261 82,903
General insurance expenses 70,546 47,406 37,246
Taxes, licenses and fees 13,101 10,848 8,919
Transfer to separate accounts 519,214 452,471 242,427
Other expenses 21 60 34
----------------------------------------------
781,988 651,046 371,529
----------------------------------------------
1,264,438 1,075,416 605,359
----------------------------------------------
Gain (loss) from operations before federal income taxes
and realized capital gains (losses) on investments (3,303) 9,110 14,560
Federal income tax expense 469 9,297 8,917
----------------------------------------------
Gain (loss) from operations before realized capital gains
(losses) on investments (3,772) (187) 5,643
Net realized capital gains (losses) on investments (net of
related federal income taxes and amounts transferred to
interest maintenance reserve) 747 (811) (1,678)
----------------------------------------------
Net income (loss) $ (3,025) $ (998) $ 3,965
==============================================
</TABLE>
See accompanying notes.
5
<PAGE> 53
Western Reserve Life Assurance Co. of Ohio
Statements of Changes in Capital and Surplus - Statutory Basis
(Dollars in thousands)
<TABLE>
<CAPTION>
TOTAL
COMMON PAID-IN UNASSIGNED CAPITAL AND
STOCK SURPLUS SURPLUS SURPLUS
-----------------------------------------------------------
<S> <C> <C> <C> <C>
Balance at January 1, 1995 $1,500 $68,015 $25,505 $ 95,020
Net income for 1995 - - 3,965 3,965
Net unrealized capital losses - - (500) (500)
Decrease in non-admitted assets - - 903 903
Decrease in asset valuation reserve - - 2,901 2,901
Increase in surplus in separate accounts - - 541 541
Change in reserve valuation - - (3,496) (3,496)
Other adjustments - - (1,395) (1,395)
-----------------------------------------------------------
Balance at December 31, 1995 1,500 68,015 28,424 97,939
Net loss for 1996 - - (998) (998)
Net unrealized capital gains - - 1,294 1,294
Decrease in non-admitted assets - - 199 199
Increase in asset valuation reserve - - (120) (120)
Increase in surplus in separate accounts - - 237 237
Change in reserve valuation - - (2,995) (2,995)
-----------------------------------------------------------
Balance at December 31, 1996 1,500 68,015 26,041 95,556
Net loss for 1997 - - (3,025) (3,025)
Increase in non-admitted assets - - (702) (702)
Decrease in asset valuation reserve - - 3,274 3,274
Decrease in surplus in separate accounts - - (2,115) (2,115)
Change in reserve valuation - - (1,872) (1,872)
Capital contribution - 20,000 - 20,000
Tax effect of capital loss carry-forward utilized by
affiliates - - 3,747 3,747
-----------------------------------------------------------
Balance at December 31, 1997 $1,500 $88,015 $25,348 $114,863
===========================================================
</TABLE>
See accompanying notes.
6
<PAGE> 54
Western Reserve Life Assurance Co. of Ohio
Statements of Cash Flows - Statutory Basis
(Dollars in thousands)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1997 1996 1995
-------------------------------------------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Premiums and other considerations, net of reinsurance $1,224,228 $1,046,548 $577,986
Net investment income 43,802 38,666 42,359
Life and accident and health claims (26,005) (20,655) (16,759)
Surrender benefits and other fund withdrawals (431,939) (286,406) (206,250)
Other benefits to policyholders (28,147) (22,129) (19,041)
Commissions, other expenses and other taxes (261,352) (196,373) (128,341)
Net transfers to separate accounts (596,347) (658,326) (242,427)
Federal income taxes paid (5,006) (9,449) (7,531)
Interest paid (731) - -
Other, net (6,768) 28,325 (4,284)
-------------------------------------------------
Net cash used in operating activities (88,265) (79,799) (4,288)
INVESTING ACTIVITIES
Proceeds from investments sold, matured or repaid:
Bonds and preferred stocks 146,963 122,820 108,554
Common stocks - - 2,108
Mortgage loans on real estate 2,116 132 1,954
Real estate - 4,304 -
Other - 175 -
-------------------------------------------------
149,079 127,431 112,616
Cost of investments acquired
Bonds and preferred stocks (40,418) (26,826) (139,402)
Common stocks (150) (4) (589)
Mortgage loans on real estate (891) - (6)
Real estate (12,002) (7,837) (449)
Policy loans (24,137) (15,479) (9,605)
Other - (5) -
-------------------------------------------------
(77,598) (50,151) (150,051)
-------------------------------------------------
Net cash provided by (used in) investing activities 71,481 77,280 (37,435)
FINANCING ACTIVITIES
Issuance of short-term note payable to affiliate 8,200 - -
Capital contribution 20,000 - -
-------------------------------------------------
Net cash provided by financing activities 28,200 - -
-------------------------------------------------
Increase (decrease) in cash and short-term investments 11,416 (2,519) (41,723)
Cash and short-term investments at beginning of year 2,480 4,999 46,722
-------------------------------------------------
Cash and short-term investments at end of year $ 13,896 $ 2,480 $ 4,999
=================================================
</TABLE>
See accompanying notes.
7
<PAGE> 55
Western Reserve Life Assurance Co. of Ohio
Notes to Financial Statements - Statutory-Basis
(Dollars in thousands)
December 31, 1997
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION
Western Reserve Life Assurance Co. of Ohio ("the Company") is a stock life
insurance company and is a wholly-owned subsidiary of First AUSA Life Insurance
Company which, in turn, is a wholly-owned subsidiary of AEGON USA, Inc.
("AEGON"). AEGON is a wholly-owned subsidiary of AEGON nv, a holding company
organized under the laws of the Netherlands.
NATURE OF BUSINESS
The Company operates predominantly in the variable universal life and variable
annuity areas of the life insurance business. The Company is licensed in 49
states and the District of Columbia. Sales of the Company's products are through
financial planners, independent representatives, financial institutions and
stockbrokers. The majority of the Company's new life insurance written and a
substantial portion of new annuities written is done through one marketing
organization; the Company expects to maintain this relationship for the
foreseeable future.
BASIS OF PRESENTATION
The preparation of financial statements of insurance companies requires
management to make estimates and assumptions that affect amounts reported in the
financial statements and accompanying notes. Such estimates and assumptions
could change in the future as more information becomes known, which could impact
the amounts reported and disclosed herein.
The accompanying financial statements have been prepared in conformity with
accounting practices prescribed or permitted by the Insurance Department of the
State of Ohio, which practices differ from generally accepted accounting
principles. The more significant of these differences are as follows: (a) bonds
are generally carried at amortized cost rather than segregating the portfolio
into held-to-maturity (reported at amortized cost), available-for-sale (reported
at fair value), and trading (reported at fair value) classifications; (b)
acquisition costs of acquiring new business are expensed as incurred rather than
deferred and amortized over the life of the policies; (c) policy reserves on
traditional life products are based on statutory mortality rates and interest
which may differ from reserves based on reasonable assumptions of expected
mortality, interest, and withdrawals which include a provision for possible
unfavorable deviation from such assumptions; (d) policy reserves on certain
investment products use discounting methodologies utilizing statutory interest
rates rather than full account values; (e) reinsurance amounts are netted
against the corresponding asset or liability rather than
8
<PAGE> 56
Western Reserve Life Assurance Co. of Ohio
Notes to Financial Statements - Statutory-Basis (continued)
(Dollars in thousands)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
shown as gross amounts on the balance sheet; (f) deferred income taxes are not
provided for the difference between the financial statement amounts and income
tax bases of assets and liabilities; (g) net realized gains or losses attributed
to changes in the level of interest rates in the market are deferred and
amortized over the remaining life of the bond or mortgage loan, rather than
recognized as gains or losses in the statement of operations when the sale is
completed; (h) declines in the estimated realizable value of investments are
provided for through the establishment of a formula-determined statutory
investment reserve (reported as a liability) changes to which are charged
directly to surplus, rather than through recognition in the statement of
operations for declines in value, when such declines are judged to be other than
temporary; (i) certain assets designated as "non-admitted assets" have been
charged to surplus rather than being reported as assets; (j) revenues for
universal life and investment products consist of the entire premiums received
rather than policy charges for the cost of insurance, policy administration
charges, amortization of policy initiation fees and surrender charges assessed;
(k) pension expense is recorded as amounts are paid rather than accrued and
expensed during the periods in which the employers provide service; and (l) the
financial statements of wholly-owned affiliates are not consolidated with those
of the Company. The effects of these variances have not been determined by the
Company.
The National Association of Insurance Commissioners (NAIC) currently is in the
process of recodifying statutory accounting practices, the result of which is
expected to constitute the only source of "prescribed" statutory accounting
practices. Accordingly, that project, which is expected to be completed in 1998,
will likely change, to some extent, prescribed statutory accounting practices
and may result in changes to the accounting practices that the Company uses to
prepare its statutory-basis financial statements. The impact of any such changes
on the Company's statutory surplus cannot be determined at this time and could
be material.
Other significant statutory accounting practices are as follows:
CASH AND CASH EQUIVALENTS
For purposes of the statements of cash flows, the Company considers all highly
liquid investments with remaining maturities of one year or less when purchased
to be cash equivalents.
INVESTMENTS
Investments in bonds (except those to which the Securities Valuation Office of
the NAIC has ascribed a value), mortgage loans on real estate and short-term
investments are reported at cost adjusted for amortization of premiums and
accrual of discounts. Amortization is computed using methods which result in a
level yield over the expected
9
<PAGE> 57
Western Reserve Life Assurance Co. of Ohio
Notes to Financial Statements - Statutory-Basis (continued)
(Dollars in thousands)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
life of the security. The Company reviews its prepayment assumptions on mortgage
and other asset backed securities at regular intervals and adjusts amortization
rates retrospectively when such assumptions are changed due to experience and/or
expected future patterns. Common stocks of unaffiliated companies are carried at
market and include shares of mutual funds (money market and other), and the
related unrealized capital gains/(losses) are reported in unassigned surplus
without any adjustment for federal income taxes. Common stocks of the Company's
wholly-owned affiliates are recorded at the equity in net assets. Home office
property is reported at cost less allowances for depreciation. Depreciation is
computed principally by the straight-line method. Policy loans are reported at
unpaid principal. Other "admitted assets" are valued, principally at cost, as
required or permitted by Ohio Insurance Laws.
Realized capital gains and losses are determined on the basis of specific
identification and are recorded net of related federal income taxes. The Asset
Valuation Reserve (AVR) is established by the Company to provide for anticipated
losses in the event of default by issuers of certain invested assets. These
amounts are determined using a formula prescribed by the NAIC and are reported
as a liability. The formula for the AVR provides for a corresponding adjustment
for realized gains and losses. Under a formula prescribed by the NAIC, the
Company defers, in the Interest Maintenance Reserve (IMR), the portion of
realized gains and losses on sales of fixed income investments, principally
bonds and mortgage loans, attributable to changes in the general level of
interest rates and amortizes those deferrals over the remaining period to
maturity of the security.
During 1997, 1996 and 1995, net realized capital gains of $3,259, $2,394 and
$554, respectively, were credited to the IMR rather than being immediately
recognized in the statements of operations. Amortization of these net gains
aggregated $1,576, $1,335 and $882 for the years ended December 31, 1997, 1996
and 1995, respectively.
Interest income is recognized on an accrual basis. The Company does not accrue
income on bonds in default, mortgage loans on real estate in default and/or
foreclosure or which are delinquent more than twelve months, or real estate
where rent is in arrears for more than three months. Further, income is not
accrued when collection is uncertain. No investment income due and accrued has
been excluded for the years ended December 31, 1997, 1996 and 1995, with respect
to such practices.
10
<PAGE> 58
Western Reserve Life Assurance Co. of Ohio
Notes to Financial Statements - Statutory-Basis (continued)
(Dollars in thousands)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
AGGREGATE RESERVES FOR POLICIES
Life and annuity reserves are developed by actuarial methods and are determined
based on published tables using statutorily specified interest rates and
valuation methods that will provide, in the aggregate, reserves that are greater
than or equal to the minimum required by law.
The aggregate policy reserves for life insurance policies are based principally
upon the 1941, 1958 and 1980 Commissioners' Standard Ordinary Mortality and
American Experience Mortality Tables. The reserves are calculated using interest
rates ranging from 2.25 to 5.50 percent and are computed principally on the Net
Level Premium Valuation and the Commissioners' Reserve Valuation Methods.
Reserves for universal life policies are based on account balances adjusted for
the Commissioners' Reserve Valuation Method.
Deferred annuity reserves are calculated according to the Commissioners' Annuity
Reserve Valuation Method including excess interest reserves to cover situations
where the future interest guarantees plus the decrease in surrender charges are
in excess of the maximum valuation rates of interest. Reserves for immediate
annuities and supplementary contracts with life contingencies are equal to the
present value of future payments assuming interest rates ranging from 5.75 to
8.75 percent and mortality rates, where appropriate, from a variety of tables.
POLICY AND CONTRACT CLAIM RESERVES
Claim reserves represent the estimated accrued liability for claims reported to
the Company and claims incurred but not yet reported through the statement date.
These reserves are estimated using either individual case-basis valuations or
statistical analysis techniques. These estimates are subject to the effects of
trends in claim severity and frequency. The estimates are continually reviewed
and adjusted as necessary as experience develops or new information becomes
available.
SEPARATE ACCOUNTS
Assets held in trust for purchases of variable universal life and variable
annuity contracts and the Company's corresponding obligation to the contract
owners are shown separately in the balance sheets. The assets in the separate
accounts are valued at market. Income and gains and losses with respect to the
assets in the separate accounts accrue to the benefit of the policyholders and,
accordingly, the operations of the separate accounts are not included in the
accompanying financial statements. The separate accounts do not have any minimum
guarantees and the investment risks associated with market value changes are
borne entirely by the policyholders. The Company received variable contract
premiums of $1,164,013, $997,513 and $466,822 in 1997, 1996 and 1995,
respectively. All variable account contracts are subject to discretionary
withdrawal by the policyholder at the market value of the underlying assets less
the current surrender charge. Separate account contractholders have no claim
against the assets of the general account.
11
<PAGE> 59
Western Reserve Life Assurance Co. of Ohio
Notes to Financial Statements - Statutory-Basis (continued)
(Dollars in thousands)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
RECLASSIFICATIONS
Certain reclassifications have been made to the 1996 and 1995 financial
statements to conform to the 1997 presentation.
2. FAIR VALUES OF FINANCIAL INSTRUMENTS
Statement of Financial Accounting Standards No. 107, Disclosures about Fair
Value of Financial Instruments, requires disclosure of fair value information
about financial instruments, whether or not recognized in the statutory-basis
balance sheet, for which it is practicable to estimate that value. In cases
where quoted market prices are not available, fair values are based on estimates
using present value or other valuation techniques. Those techniques are
significantly affected by the assumptions used, including the discount rate and
estimates of future cash flows. In that regard, the derived fair value estimates
cannot be substantiated by comparisons to independent markets and, in many
cases, could not be realized in immediate settlement of the instrument.
Statement of Financial Accounting Standards No. 107 excludes certain financial
instruments and all nonfinancial instruments from its disclosure requirements
and allows companies to forego the disclosures when those estimates can only be
made at excessive cost. Accordingly, the aggregate fair value amounts presented
do not represent the underlying value of the Company.
The following methods and assumptions were used by the Company in estimating its
fair value disclosures for financial instruments:
Cash and Short-Term Investments: The carrying amounts reported in the
statutory-basis balance sheet for these instruments approximate their fair
values.
Investment Securities: Fair values for fixed maturity securities (including
redeemable preferred stocks) are based on quoted market prices, where
available. For fixed maturity securities not actively traded, fair values are
estimated using values obtained from independent pricing services or (in the
case of private placements) are estimated by discounting expected future cash
flows using a current market rate applicable to the yield, credit quality,
and maturity of the investments. The fair values for equity securities are
based on quoted market prices.
Mortgage Loans and Policy Loans: The fair values for mortgage loans are
estimated utilizing discounted cash flow analyses, using interest rates
reflective of current market conditions and the risk characteristics of the
loans. The fair value of policy loans are assumed to equal their carrying
value.
Investment Contracts: Fair values for the Company's liabilities under
investment-type insurance contracts are estimated using discounted cash flow
calculations, based on interest rates currently being offered for similar
contracts with maturities consistent with those remaining for the contracts
being valued.
12
<PAGE> 60
Western Reserve Life Assurance Co. of Ohio
Notes to Financial Statements - Statutory-Basis (continued)
(Dollars in thousands)
2. FAIR VALUES OF FINANCIAL INSTRUMENTS (CONTINUED)
Fair values for the Company's insurance contracts other than investment
contracts are not required to be disclosed. However, the fair values of
liabilities under all insurance contracts are taken into consideration in the
Company's overall management of interest rate risk, which minimizes exposure to
changing interest rates through the matching of investment maturities with
amounts due under insurance contracts.
The following sets forth a comparison of the fair values and carrying values of
the Company's financial instruments subject to the provisions of Statement of
Financial Accounting Standards No. 107:
<TABLE>
<CAPTION>
DECEMBER 31
1997 1996
------------------------------ ------------------------------
CARRYING VALUE FAIR VALUE CARRYING VALUE FAIR VALUE
------------------------------ ------------------------------
<S> <C> <C> <C> <C>
ADMITTED ASSETS
Bonds $ 255,919 $ 267,763 $ 359,579 $ 372,319
Common stocks 747 747 597 597
Mortgage loans on real estate 4,824 5,143 6,049 6,134
Policy loans 76,741 76,741 52,604 52,604
Cash and short-term investments 13,896 13,896 2,480 2,480
Separate account assets 4,814,594 4,814,594 3,527,145 3,527,145
LIABILITIES
Investment contract liabilities 280,121 276,113 321,293 314,748
Separate account annuities 3,615,255 3,565,557 2,692,614 2,647,266
</TABLE>
3. INVESTMENTS
The carrying value and estimated fair value of investments in debt securities
are as follows:
<TABLE>
<CAPTION>
GROSS GROSS ESTIMATED
CARRYING UNREALIZED UNREALIZED FAIR
VALUE GAINS LOSSES VALUE
------------------------------------------------------
<S> <C> <C> <C> <C>
DECEMBER 31, 1997
Bonds:
United States Government and agencies $ 3,675 $ 9 $ 30 $ 3,654
State, municipal and other government 3,855 360 - 4,215
Public utilities 15,794 904 403 16,295
Industrial and miscellaneous 121,513 7,700 710 128,503
Mortgage-backed securities 111,082 4,198 184 115,096
------------------------------------------------------
Total bonds $255,919 $13,171 $1,327 $267,763
======================================================
</TABLE>
13
<PAGE> 61
Western Reserve Life Assurance Co. of Ohio
Notes to Financial Statements - Statutory-Basis (continued)
(Dollars in thousands)
3. INVESTMENTS (CONTINUED)
<TABLE>
<CAPTION>
GROSS GROSS ESTIMATED
CARRYING UNREALIZED UNREALIZED FAIR
VALUE GAINS LOSSES VALUE
------------------------------------------------------------------
<S> <C> <C> <C> <C>
DECEMBER 31, 1996
Bonds:
United States Government and agencies $ 11,422 $ 13 $ 292 $ 11,143
State, municipal and other government 5,504 274 - 5,778
Public utilities 14,808 848 80 15,576
Industrial and miscellaneous 173,097 8,889 910 181,076
Mortgage-backed securities 154,748 4,617 619 158,746
------------------------------------------------------------------
Total bonds $359,579 $14,641 $1,901 $372,319
==================================================================
</TABLE>
The carrying value and fair value of bonds at December 31, 1997 by contractual
maturity are shown below. Expected maturities may differ from contractual
maturities because borrowers may have the right to call or prepay obligations
with or without penalties.
<TABLE>
<CAPTION>
ESTIMATED
CARRYING FAIR
VALUE VALUE
----------------------------
<S> <C> <C>
Due in one year or less $ 18,310 $ 18,467
Due one through five years 67,005 70,952
Due five through ten years 29,508 30,621
Due after ten years 30,014 32,627
----------------------------
144,837 152,667
Mortgage and other asset backed securities 111,082 115,096
----------------------------
$255,919 $267,763
============================
</TABLE>
A detail of net investment income is presented below:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1997 1996 1995
--------------------------------------------
<S> <C> <C> <C>
Interest on bonds $25,723 $33,969 $38,624
Dividends on equity investments 10,855 - 30
Interest on mortgage loans 478 559 573
Rental income on real estate 1,371 919 1,014
Interest on policy loans 4,656 3,339 2,353
Other investment income 26 9 328
--------------------------------------------
Gross investment income 43,109 38,795 42,922
Investment expenses (3,096) (2,728) (2,031)
--------------------------------------------
Net investment income $40,013 $36,067 $40,891
============================================
</TABLE>
14
<PAGE> 62
Western Reserve Life Assurance Co. of Ohio
Notes to Financial Statements - Statutory-Basis (continued)
(Dollars in thousands)
3. INVESTMENTS (CONTINUED)
Proceeds from sales and maturities of debt securities and related gross realized
gains and losses were as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1997 1996 1995
--------------------------------------
<S> <C> <C> <C>
Proceeds $146,963 $122,820 $108,554
======================================
Gross realized gains $ 3,921 $ 2,984 $ 1,631
Gross realized losses 626 791 1,346
--------------------------------------
Net realized gains $ 3,295 $ 2,193 $ 285
======================================
</TABLE>
At December 31, 1997, bonds with an aggregate carrying value of $5,474 were on
deposit with certain state regulatory authorities or were restrictively held in
bank custodial accounts for benefit of such state regulatory authorities, as
required by statute.
Realized investment gains (losses) and changes in unrealized gains (losses) for
investments are summarized below:
<TABLE>
<CAPTION>
REALIZED
-----------------------------------------
YEAR ENDED DECEMBER 31
1997 1996 1995
-----------------------------------------
<S> <C> <C> <C>
Debt securities $3,295 $2,193 $ 285
Mortgage loans - - (1,409)
Real estate - (606) -
Other invested assets - (4) -
-----------------------------------------
3,295 1,583 (1,124)
Tax benefit (711) - -
Transfer to interest maintenance reserve (3,259) (2,394) (554)
-----------------------------------------
Net realized gains (losses) $ 747 $ (811) $(1,678)
=========================================
</TABLE>
<TABLE>
<CAPTION>
CHANGES IN UNREALIZED
-----------------------------------------
YEAR ENDED DECEMBER 31
1997 1996 1995
-----------------------------------------
<S> <C> <C> <C>
Debt securities $(896) $(14,442) $36,399
Common stock - (66) (236)
-----------------------------------------
Change in unrealized appreciation (depreciation) $(896) $(14,508) $36,163
=========================================
</TABLE>
15
<PAGE> 63
Western Reserve Life Assurance Co. of Ohio
Notes to Financial Statements - Statutory-Basis (continued)
(Dollars in thousands)
3. INVESTMENTS (CONTINUED)
Gross unrealized gains (losses) on common stocks were as follows:
<TABLE>
<CAPTION>
UNREALIZED
-------------------------------------------------
YEAR ENDED DECEMBER 31
1997 1996 1995
-------------------------------------------------
<S> <C> <C> <C>
Unrealized gains $295 $295 $361
Unrealized losses - - -
-------------------------------------------------
Net unrealized gains $295 $295 $361
=================================================
</TABLE>
During 1997, the Company issued one mortgage loan with an interest rate of
8.07%. The maximum percentage of any one mortgage loan to the value of the
underlying real estate at origination was 69%. The Company requires all
mortgagees to carry fire insurance equal to the value of the underlying
property.
During 1997, 1996 and 1995, no mortgage loans were foreclosed and transferred to
real estate. During 1997 and 1996, the Company held a mortgage loan loss reserve
in the asset valuation reserve of $54 and $138, respectively.
At December 31, 1997, the Company had no investments (excluding U. S. Government
guaranteed or insured issues) which individually represented more than ten
percent of capital and surplus and the asset valuation reserve.
4. REINSURANCE
The Company reinsures portions of certain insurance policies which exceed its
established limits, thereby providing a greater diversification of risk and
minimizing exposure on larger risks. The Company remains contingently liable
with respect to any insurance ceded, and this would become an actual liability
in the event that the assuming insurance company became unable to meet its
obligations under the reinsurance treaty.
<TABLE>
<CAPTION>
1997 1996 1995
----------------------------------------------------------------
<S> <C> <C> <C>
Direct premiums $1,219,271 $1,034,757 $570,413
Reinsurance assumed 2,389 2,063 1,569
Reinsurance ceded (5,141) (3,105) (2,084)
----------------------------------------------------------------
Net premiums earned $1,216,519 $1,033,715 $569,898
================================================================
</TABLE>
16
<PAGE> 64
Western Reserve Life Assurance Co. of Ohio
Notes to Financial Statements - Statutory-Basis (continued)
(Dollars in thousands)
4. REINSURANCE (CONTINUED)
The Company received reinsurance recoveries in the amount of $2,288, $2,156 and
$512 during 1997, 1996 and 1995, respectively. At December 31, 1997 and 1996,
estimated amounts recoverable from reinsurers that have been deducted from
policy and contract claim reserves totaled $2,721 and $974, respectively. The
aggregate reserves for policies and contracts were reduced for reserve credits
for reinsurance ceded at December 31, 1997 and 1996 of $1,369 and $1,140,
respectively.
5. INCOME TAXES
For federal income tax purposes, the Company joins in a consolidated tax return
filing with certain affiliated companies. Under the terms of a tax-sharing
agreement between the Company and its affiliates, the Company computes federal
income tax expense as if it were filing a separate income tax return, except
that tax credits and net operating loss carryforwards are determined on the
basis of the consolidated group. Additionally, the alternative minimum tax is
computed for the consolidated group and the resulting tax, if any, is allocated
back to the separate companies on the basis of the separate companies'
alternative minimum taxable income.
Federal income tax expense differs from the amount computed by applying the
statutory federal income tax rate to gain from operations before taxes and
realized capital gains (losses) for the following reasons:
<TABLE>
<CAPTION>
1997 1996 1995
-----------------------------------------------------
<S> <C> <C> <C>
Computed tax at federal statutory rate (35%) $(1,156) $3,189 $5,096
Deferred acquisition costs - tax basis 9,164 7,172 4,241
Tax reserve valuation (194) (696) (34)
Excess tax depreciation (127) (65) (49)
Amortization of IMR (552) (467) (309)
Dividend received deduction (5,326) - -
Other, net (1,340) 164 (28)
-----------------------------------------------------
Federal income tax expense $ 469 $9,297 $8,917
=====================================================
</TABLE>
For the year ended December 31, 1997, federal income tax benefit differs from
the amount computed by applying the statutory federal income tax rate to
realized gains due to the recognition for tax purposes of a deferred loss
previously incurred on a transfer of bonds from the Company to an affiliate.
17
<PAGE> 65
Western Reserve Life Assurance Co. of Ohio
Notes to Financial Statements - Statutory-Basis (continued)
(Dollars in thousands)
5. INCOME TAXES (CONTINUED)
Prior to 1984, as provided for under the Life Insurance Company Tax Act of 1959,
a portion of statutory income was not subject to current taxation, but was
accumulated for income tax purposes in a memorandum account referred to as the
policyholders' surplus account. No federal income taxes have been provided for
in the financial statements on income deferred in the policyholders' surplus
account ($293 at December 31, 1997). To the extent dividends are paid from the
amount accumulated in the policyholders' surplus account, net earnings would be
reduced by the amount of tax required to be paid. Should the entire amount in
the policyholders' surplus account become taxable, the tax thereon computed at
current rates would amount to approximately $103.
In 1995, the Company reached a final settlement with the Internal Revenue
Service for 1987 through 1993 resulting in taxes of $1,275 and interest of $120
(net of $65 tax effect). The assessment was charged to surplus as a prior period
adjustment. An examination is currently underway for years 1994 through 1995.
At December 31, 1996, the Company had capital loss carryforwards of
approximately $10,705, which were utilized by the Company's affiliates in the
consolidated tax return filing in 1997. This transaction resulted in a receipt
from the Company's affiliate of $3,747, which was credited directly to
unassigned surplus.
6. POLICY AND CONTRACT ATTRIBUTES
Participating life insurance policies are issued by the Company which entitle
policyholders to a share in the earnings of the participating policies, provided
that a dividend distribution, which is determined annually based on mortality
and persistency experience of the participating policies, is authorized by the
Company. Participating insurance constituted approximately .03% and .04% of life
insurance in force at December 31, 1997 and 1996, respectively.
A portion of the Company's policy reserves and other policyholders' funds relate
to liabilities established on a variety of the Company's products, primarily
separate accounts, that are not subject to significant mortality or morbidity
risk; however, there may be certain restrictions placed upon the amount of funds
that can be withdrawn without penalty. The amount of reserves on these products,
by withdrawal characteristics are summarized as follows:
18
<PAGE> 66
Western Reserve Life Assurance Co. of Ohio
Notes to Financial Statements - Statutory-Basis (continued)
(Dollars in thousands)
6. POLICY AND CONTRACT ATTRIBUTES (CONTINUED)
<TABLE>
<CAPTION>
DECEMBER 31
1997 1996
------------------------- --------------------------
PERCENT PERCENT
AMOUNT OF TOTAL AMOUNT OF TOTAL
------------------------- --------------------------
<S> <C> <C> <C> <C>
Subject to discretionary withdrawal with
market value adjustment $ 13,812 1% $ 14,881 1%
Subject to discretionary withdrawal at
book value less surrender charge 68,376 2 63,619 2
Subject to discretionary withdrawal at
market value 3,615,255 91 2,692,614 89
Subject to discretionary withdrawal at
book value (minimal or no charges or
adjustments) 201,457 5 239,204 7
Not subject to discretionary withdrawal
provision 16,572 1 17,603 1
------------------------- -------------------------
3,915,472 100% 3,027,921 100%
======= ========
Less reinsurance ceded - -
----------- -----------
Total policy reserves on annuities and
deposit fund liabilities $3,915,472 $3,027,921
=========== ===========
</TABLE>
A reconciliation of the amounts transferred to and from the separate accounts is
presented below:
<TABLE>
<CAPTION>
1997 1996 1995
----------------------------------------------
<S> <C> <C> <C>
Transfers as reported in the summary of
operations of the separate accounts
statement:
Transfers to separate accounts $1,164,013 $997,513 $466,882
Transfers from separate accounts 646,477 339,523 224,416
----------------------------------------------
Net transfers to separate accounts 517,536 657,990 242,466
Reconciling adjustments - change in accruals
for investment management, administration
fees and contract guarantees, and separate
account surplus 1,678 (205,519) (39)
----------------------------------------------
Transfers as reported in the summary of
operations of the life, accident and health
annual statement $ 519,214 $452,471 $242,427
==============================================
</TABLE>
19
<PAGE> 67
Western Reserve Life Assurance Co. of Ohio
Notes to Financial Statements - Statutory-Basis (continued)
(Dollars in thousands)
6. POLICY AND CONTRACT ATTRIBUTES (CONTINUED)
Reserves on the Company's traditional life products are computed using mean
reserving methodologies. These methodologies result in the establishment of
assets for the amount of the net valuation premiums that are anticipated to be
received between the policy's paid-through date to the policy's next anniversary
date. At December 31, 1997 and 1996, these assets (which are reported as
premiums deferred and uncollected) and the amounts of the related gross premiums
and loadings, are as follows:
<TABLE>
<CAPTION>
GROSS LOADING NET
--------------------------------------------
<S> <C> <C> <C>
DECEMBER 31, 1997
Ordinary direct first year business $ 2 $ 1 $ 1
Ordinary direct renewal business 1,350 140 1,210
Group life direct business 717 - 717
--------------------------------------------
$2,069 $141 $1,928
============================================
DECEMBER 31, 1996
Ordinary direct first year business $ 40 $ 9 $ 31
Ordinary direct renewal business 1,431 225 1,206
Group life direct business 622 - 622
Annuity renewal business 94 10 84
--------------------------------------------
$2,187 $244 $1,943
============================================
</TABLE>
At December 31, 1997 and 1996, the Company had insurance in force aggregating
$1,710 and $1,904, respectively, in which the gross premiums are less than the
net premiums required by the standard valuation standards established by the
Insurance Department of the State of Ohio. The Company established policy
reserves of $26 and $27 to cover these deficiencies at December 31, 1997 and
1996, respectively.
In 1994, the NAIC enacted a guideline to clarify reserving methodologies for
contracts that require immediate payment of claims upon proof of death of the
insured. Companies were allowed to grade the effects of the change in reserving
methodologies over five years. A direct charge to surplus of $1,872, $2,995 and
$3,496 was made for the years ended December 31, 1997, 1996 and 1995,
respectively, related to the change in reserve methodology.
7. DIVIDEND RESTRICTIONS
Generally, an insurance company's ability to pay dividends is limited to the
amount that their net assets, as determined in accordance with statutory
accounting practices, exceed minimum statutory capital requirements. However,
payment of such amounts as dividends may be subject to approval by regulatory
authorities.
20
<PAGE> 68
Western Reserve Life Assurance Co. of Ohio
Notes to Financial Statements - Statutory-Basis (continued)
(Dollars in thousands)
8. RETIREMENT AND COMPENSATION PLANS
The Company's employees participate in a qualified benefit plan sponsored by
AEGON. The Company has no legal obligation for the plan. The Company recognizes
pension expense equal to its allocation from AEGON. The pension expense is
allocated among the participating companies based on the FASB Statement No. 87
expense as a percent of salaries. The benefits are based on years of service and
the employee's compensation during the highest five consecutive years of
employment. Pension expense aggregated $659, $581 and $505 for the years ended
December 31, 1997, 1996 and 1995, respectively. The plan is subject to the
reporting and disclosure requirements of the Employee Retirement and Income
Security Act of 1974.
The Company's employees also participate in a contributory defined contribution
plan sponsored by AEGON which is qualified under Section 401(k) of the Internal
Revenue Service Code. Employees of the Company who customarily work at least
1,000 hours during each calendar year and meet the other eligibility
requirements are participants of the plan. Participants may elect to contribute
up to fifteen percent of their salary to the plan. The Company will match an
amount up to three percent of the participant's salary. Participants may direct
all of their contributions and plan balances to be invested in a variety of
investment options. The plan is subject to the reporting and disclosure
requirements of the Employee Retirement and Income Security Act of 1974. Pension
expense related to this plan was $448, $184 and $305 for the years ended
December 31, 1997, 1996 and 1995, respectively.
AEGON sponsors supplemental retirement plans to provide the Company's senior
management with benefits in excess of normal pension benefits. The plans are
noncontributory and benefits are based on years of service and the employee's
compensation level. The plans are unfunded and nonqualified under the Internal
Revenue Code. In addition, AEGON has established incentive deferred compensation
plans for certain key employees of the Company. AEGON also sponsors an employee
stock option plan for individuals employed at least three years and a stock
purchase plan for its producers, with the participating affiliated companies
establishing their own eligibility criteria, producer contribution limits and
company matching formula. These plans have been accrued or funded as deemed
appropriate by management of AEGON and the Company.
In addition to pension benefits, the Company participates in plans sponsored by
AEGON that provide postretirement medical, dental and life insurance benefits to
employees meeting certain eligibility requirements. Portions of the medical and
dental plans are contributory. The expenses of the postretirement plans
calculated on the pay-as-you-go basis are charged to affiliates in accordance
with an intercompany cost sharing arrangement. The Company expensed $99, $98 and
$86 for the years ended December 31, 1997, 1996 and 1995, respectively.
21
<PAGE> 69
Western Reserve Life Assurance Co. of Ohio
Notes to Financial Statements - Statutory-Basis (continued)
(Dollars in thousands)
9. RELATED PARTY TRANSACTIONS
The Company shares certain officers, employees and general expenses with
affiliated companies.
The Company receives data processing, investment advisory and management,
marketing and administration services from certain affiliates. During 1997, 1996
and 1995, the Company paid $10,040, $10,038 and $8,825, respectively, for such
services, which approximates their costs to the affiliates. The Company provides
office space, marketing and administrative services to certain affiliates.
During 1997, 1996 and 1995, the Company received $4,395, $3,271 and $4,545,
respectively, for such services, which approximates their cost. The Company had
a net payable with affiliates of $1,925 and $19,298 at December 31, 1997 and
1996, respectively.
Payable to affiliates and intercompany borrowings bear interest at the
thirty-day commercial paper rate of 5.33% at December 31, 1997. During 1997,
1996 and 1995, the Company paid (received) net interest of $364, $138 and
$(294), respectively, to (from) affiliates.
The Company received capital contributions of $20,000 from its parent in 1997.
At December 31, 1997, the Company has a $8,200 short-term note payable to an
affiliate. Interest on this note accrues at 5.60 %.
10. COMMITMENTS AND CONTINGENCIES
The Company is a party to legal proceedings incidental to its business. Although
such litigation sometimes includes substantial demands for compensatory and
punitive damages in addition to contract liability, it is management's opinion,
after consultation with counsel and a review of available facts, that damages
arising from such demands will not be material to the Company's financial
position.
The Company is subject to insurance guaranty laws in the states in which it
writes business. These laws provide for assessments against insurance companies
for the benefit of policyholders and claimants in the event of insolvency of
other insurance companies. Assessments are charged to operations when received
by the Company except where right of offset against other taxes paid is allowed
by law; amounts available for future offsets are recorded as an asset on the
Company's balance sheet. The future obligation has been based on the most recent
information available from the National Organization of Life and Health
Insurance Guaranty Association. Potential future obligations for unknown
22
<PAGE> 70
Western Reserve Life Assurance Co. of Ohio
Notes to Financial Statements - Statutory-Basis (continued)
(Dollars in thousands)
10. COMMITMENTS AND CONTINGENCIES (CONTINUED)
insolvencies are not determinable by the Company. The Company has established a
reserve of $4,007 and $4,344 and an offsetting premium tax benefit of $1,070 and
$1,218 at December 31, 1997 and 1996, respectively, for its estimated share of
future guaranty fund assessments related to several major insurer insolvencies.
The guaranty fund expense was $0, $212 and $1,950 at December 31, 1997, 1996 and
1995, respectively.
11. YEAR 2000 (UNAUDITED)
AEGON has adopted and has in place a Year 2000 Assessment and Planning Project
(the "Project") to review and analyze its information technology and systems to
determine if they are Year 2000 compatible. The Company has begun to convert or
modify, where necessary, critical data processing systems. It is contemplated
that the plan will be substantially completed by early 1999. The Company does
not expect this project to have a significant effect on operations. However, to
mitigate the effect of outside influences upon the success of the project, the
Company has undertaken communications with its significant customers, suppliers
and other third parties to determine their Year 2000 compatibility and
readiness. Management believes that the issues associated with the Year 2000
will be resolved with no material financial impact on the Company.
Since the Year 2000 computer problem, and its resolution is complex and
multifaceted, the success of a response plan cannot be conclusively known until
the Year 2000 is reached (or an earlier date to the extent that systems or
equipment addresses Year 2000 date data prior to the Year 2000). Even with
appropriate and diligent pursuit of a well-conceived Project, including testing
procedures, there is no certainty that any company will achieve complete
success. Notwithstanding the efforts or results of the Company, its ability to
function unaffected to and through the Year 2000 may be adversely affected by
actions (or failure to act) of third parties beyond its knowledge or control.
23
<PAGE> 71
Western Reserve Life Assurance Co. of Ohio
Summary of Investments Other Than
Investments in Related Parties
(Dollars in thousands)
December 31, 1997
SCHEDULE I
<TABLE>
<CAPTION>
AMOUNT AT WHICH
SHOWN IN THE
TYPE OF INVESTMENT COST (1) VALUE BALANCE SHEET
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C>
FIXED MATURITIES
Bonds:
United States Government and government
agencies and authorities $ 65,611 $ 68,452 $ 65,611
States, municipalities and political
subdivisions 1,840 1,974 1,840
Foreign governments 2,015 2,241 2,015
Public utilities 15,794 16,295 15,794
All other corporate bonds 170,659 178,801 170,659
---------------------------------------------
Total fixed maturities 255,919 267,763 255,919
EQUITY SECURITIES
Common stocks:
Industrial, miscellaneous and all other 452 747 747
---------------------------------------------
Total equity securities 452 747 747
Mortgage loans on real estate 4,824 4,824
Real estate 19,964 19,964
Policy loans 76,741 76,741
Cash and short-term investments 13,896 13,896
-------------- ---------------
Total investments $371,796 $372,091
============== ===============
</TABLE>
(1) Original cost of equity securities and, as to fixed maturities, original
cost reduced by repayments and adjusted for amortization of premiums or
accruals of discounts.
24
<PAGE> 72
Western Reserve Life Assurance Co. of Ohio
Supplementary Insurance Information
(Dollars in thousands)
SCHEDULE III
<TABLE>
<CAPTION>
BENEFITS,
CLAIMS,
FUTURE POLICY POLICY AND NET LOSSES AND OTHER
BENEFITS AND CONTRACT PREMIUM INVESTMENT SETTLEMENT OPERATING
EXPENSES LIABILITIES REVENUE INCOME* EXPENSES EXPENSES*
---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31,
1997
Individual life $177,088 $ 9,533 $ 390,452 $13,742 $ 88,738 $176,303
Group life 9,435 805 3,918 810 3,986 3,292
Annuity 296,290 591 822,149 25,461 389,726 83,179
---------------------------------------------------------------------------------------------------
$482,813 $10,929 $1,216,519 $40,013 $482,450 $262,774
===================================================================================================
YEAR ENDED DECEMBER 31,
1996
Individual life $145,964 $ 7,017 $ 289,375 $ 8,228 $125,861 $124,181
Group life and health 9,202 713 4,215 3,940 3,828 2,818
Annuity 332,230 854 740,125 23,899 294,681 71,576
---------------------------------------------------------------------------------------------------
$487,396 $ 8,584 $1,033,715 $36,067 $424,370 $198,575
===================================================================================================
YEAR ENDED DECEMBER 31,
1995
Individual life $ 64,128 $ 5,811 $ 188,143 $ 9,470 $ 20,048 $ 83,709
Group life 7,904 701 3,365 1,054 2,774 946
Annuity 319,353 100 378,390 30,367 211,008 44,447
---------------------------------------------------------------------------------------------------
$391,385 $ 6,612 $ 569,898 $40,891 $233,830 $129,102
===================================================================================================
</TABLE>
* Allocations of net investment income and other operating expenses are based
on a number of assumptions and estimates, and the results would change if
different methods were applied.
25
<PAGE> 73
Western Reserve Life Assurance Co. of Ohio
Reinsurance
(Dollars in thousands)
SCHEDULE IV
<TABLE>
<CAPTION>
ASSUMED PERCENTAGE
CEDED TO FROM OF AMOUNT
GROSS OTHER OTHER NET ASSUMED
AMOUNT COMPANIES COMPANIES AMOUNT TO NET
--------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31,
1997
Life insurance in force $40,221,361 $6,776,447 $2,692,822 $36,137,736 7.5%
============================================================================================
Premiums:
Individual life $ 395,361 $ 4,910 $ - $ $390,452 0.0%
Group life and health 1,761 231 2,389 3,918 61.0
Annuity 822,149 - - 822,149 0.0
--------------------------------------------------------------------------------------------
$ 1,219,271 $ 5,141 $ 2,389 $ 1,216,519 0.2%
============================================================================================
YEAR ENDED DECEMBER 31,
1996
Life insurance in force $28,168,880 $4,463,986 $2,210,601 $25,915,495 8.5%
============================================================================================
Premiums:
Individual life $ 292,239 $ 2,863 $ - $ 289,376 0.0%
Group life and health 2,393 242 2,063 4,214 49.0
Annuity 740,125 - - 740,125 0.0
--------------------------------------------------------------------------------------------
$ 1,034,757 $ 3,105 $ 2,063 $ 1,033,715 0.2%
============================================================================================
YEAR ENDED DECEMBER 31,
1995
Life insurance in force $19,438,203 $1,365,119 $1,619,378 $19,692,462 8.2%
============================================================================================
Premiums:
Individual life $ 189,870 $ 1,727 $ - $ 188,143 0.0%
Group life 2,153 357 1,569 3,365 46.6
Annuity 378,390 - - 378,390 0.0
--------------------------------------------------------------------------------------------
$ 570,413 $ 2,084 $ 1,569 $ 569,898 0.2%
============================================================================================
</TABLE>
26
<PAGE> 74
PART II.
OTHER INFORMATION
UNDERTAKING TO FILE REPORTS
Subject to the terms and conditions of Section 15(d) of the Securities
Exchange Act of 1934, the undersigned registrant hereby undertakes to file with
the Securities and Exchange Commission such supplementary and periodic
information, documents, and reports as may be prescribed by any rule or
regulation of the Commission heretofore or hereafter duly adopted pursuant to
authority conferred in that Section.
REPRESENTATION PURSUANT TO SECTION 26(e) (2) (A)
Western Reserve Life Assurance Co. of Ohio ("Western Reserve") hereby
represents that the fees and charges deducted under the Policies, in the
aggregate, are reasonable in relation to the services rendered, the expenses
expected to be incurred, and the risks assumed by Western Reserve.
STATEMENT WITH RESPECT TO INDEMNIFICATION
Provisions exist under the Ohio General Corporation Law, the Second
Amended Articles of Incorporation of Western Reserve and the Amended Code of
Regulations of Western Reserve whereby Western Reserve may indemnify certain
persons against certain payments incurred by such persons. The following
excerpts contain the substance of these provisions.
Ohio General Corporation Law
SECTION 1701.13 AUTHORITY OF CORPORATION.
(E)(1) A corporation may indemnify or agree to indemnify any person
who was or is a party or is threatened to be made a party, to any threatened,
pending, or completed action, suit, or proceeding, whether civil, criminal,
administrative, or investigative, other than an action by or in the right of
the corporation, by reason of the fact that he is or was a director, officer,
employee, or agent of the corporation, or is or was serving at the request of
the corporation as a director, trustee, officer, employee, or agent of another
corporation (including a subsidiary of this corporation), domestic or foreign,
nonprofit or for profit, partnership, joint venture, trust, or other
enterprise, against expenses, including attorneys' fees, judgments, fines, and
amounts paid in settlement actually and reasonably incurred by him in
connection with such action, suit, or proceeding if he acted in good faith and
in a manner he reasonably believed to be in or not opposed to the best
interests of the corporation, and with respect to any criminal action or
proceeding, had no reasonable cause to believe his conduct was unlawful. The
termination of any action, suit, or proceeding by judgment, order, settlement,
conviction, or upon a plea of nolo contendere or its equivalent, shall not, of
itself create a presumption that the person did not act in good faith and in a
manner which he reasonably believed to be in or not opposed to the best
interests of the corporation, and with respect to any criminal action or
proceeding, he had reasonable cause to believe that his conduct was unlawful.
(2) A corporation may indemnify or agree to indemnify any person
who was or is a party, or is threatened to be made a party to any threatened,
pending, or completed action or suit by or in the right of the corporation to
procure a judgment in its favor by reason of the fact that he is or was a
director, officer, employee, or agent of the corporation, or is or was serving
at the request of the corporation as a director, trustee, officer, employee, or
agent of another corporation, domestic or foreign, nonprofit or for profit,
partnership, joint venture, trust, or other enterprise, against expenses,
including attorneys' fees, actually and reasonably incurred by him in
connection with the defense or settlement of such action or suit if he acted in
good faith and in a manner he reasonably believed to be in or not opposed to
the best interests of the corporation, except that no indemnification shall be
made in respect of any of the following:
1
<PAGE> 75
(a) Any claim, issue, or matter as to which such person
shall have been adjudged to be liable for negligence or misconduct in the
performance of his duty to the corporation unless, and only to the extent that
the court of common pleas, or the court in which such action or suit was
brought determines upon application that, despite the adjudication of
liability, but in view of all the circumstances of the case, such person is
fairly and reasonably entitled to indemnity for such expenses as the court of
common pleas or such other court shall deem proper;
(b) Any action or suit in which the only liability
asserted against a director is pursuant to section 1701.95 of the Revised Code.
(3) To the extent that a director, trustee, officer, employee, or
agent has been successful on the merits or otherwise in defense of any action,
suit, or proceeding referred to in divisions (E)(1) and (2) of this section, or
in defense of any claim, issue, or matter therein, he shall be indemnified
against expenses, including attorneys' fees, actually and reasonably incurred
by him in connection therewith.
(4) Any indemnification under divisions (E)(1) and (2) of this
section, unless ordered by a court, shall be made by the corporation only as
authorized in the specific case upon a determination that indemnification of
the director, trustee, officer, employee, or agent is proper in the
circumstances because he has met the applicable standard of conduct set forth
in divisions (E)(1 ) and (2) of this section. Such determination shall be made
as follows:
(a) By a majority vote of a quorum consisting of
directors of the indemnifying corporation who were not and are not parties to
or threatened with any such action, suit, or proceeding;
(b) If the quorum described in division (E)(4)(a) of this
section is not obtainable or if a majority vote of a quorum of disinterested
directors so directs, in a written opinion by independent legal counsel other
than an attorney, or a firm having associated with it an attorney, who has been
retained by or who has performed services for the corporation, or any person to
be indemnified within the past five years;
(c) By the shareholders;
(d) By the court of common pleas or the court in which
such action, suit, or proceeding was brought.
Any determination made by the disinterested directors under division
(E)(4)(a) or by independent legal counsel under division (E)(4)(b) of this
section shall be promptly communicated to the person who threatened or brought
the action or suit by or in the right of the corporation under division (E)(2)
of this section, and within ten days after receipt of such notification, such
person shall have the right to petition the court of common pleas or the court
in which such action or suit was brought to review the reasonableness of such
determination.
(5)(a) Unless at the time of a director's act or omission that is the
subject of an action, suit or proceeding referred to in divisions (E)(1) and
(2) of this section, the articles or the regulations of a corporation state by
specific reference to this division that the provisions of this division do not
apply to the corporation and unless the only liability asserted against a
director in an action, suit, or proceeding referred to in divisions (E)(1) and
(2) of this section is pursuant to section 1701.95 of the Revised Code,
expenses, including attorney's fees, incurred by a director in defending the
action, suit, or proceeding shall be paid by the corporation as they are
incurred, in advance of the final disposition of the action, suit, or
proceeding upon receipt of an undertaking by or on behalf of the director in
which he agrees to do both of the following:
(i) Repay such amount if it is proved by
clear and convincing evidence in a court of competent jurisdiction that his
action or failure to act involved an act or omission
2
<PAGE> 76
undertaken with deliberate intent to cause injury to the corporation or
undertaken with reckless disregard for the best interests of the corporation;
(ii) Reasonably cooperate with the
corporation concerning the action, suit, or proceeding.
(b) Expenses, including attorneys' fees incurred by a
director, trustee, officer, employee, or agent in defending any action, suit,
or proceeding referred to in divisions (E)(1) and (2) of this section, may be
paid by the corporation as they are incurred, in advance of the final
disposition of the action, suit, or proceeding as authorized by the directors
in the specific case upon receipt of an undertaking by or on behalf of the
director, trustee, officer, employee, or agent to repay such amount, if it
ultimately is determined that he is entitled to be indemnified by the
corporation.
(6) The indemnification authorized by this section shall not be
exclusive of, and shall be in addition to, any other rights granted to those
seeking indemnification under the articles or the regulations or any agreement,
vote of shareholders or disinterested directors, or otherwise, both as to
action in his official capacity and as to action in another capacity while
holding such office, and shall continue as to a person who has ceased to be a
director, trustee, officer, employee, or agent and shall inure to the benefit
of the heirs, executors, and administrators of such a person.
(7) A corporation may purchase and maintain insurance or furnish
similar protection, including but not limited to trust funds, letters of
credit, or self-insurance on behalf of or for any person who is or was a
director, officer, employee, or agent of the corporation, or is or was serving
at the request of the corporation as a director, trustee, officer, employee, or
agent of another corporation, domestic or foreign, nonprofit or for profit,
partnership, joint venture, trust, or other enterprise against any liability
asserted against him and incurred by him in any such capacity, or arising out
of his status as such, whether or not the corporation would have the power to
indemnify him against such liability under this section. Insurance may be
purchased from or maintained with a person in which the corporation has a
financial interest.
(8) The authority of a corporation to indemnify persons pursuant
to divisions (E)(1 ) and (2) of this section does not limit the payment of
expenses as they are incurred, indemnification, insurance, or other protection
that may be provided pursuant to divisions (E)(5), (6), and (7) of this
section. Divisions (E)(1) and (2) of this section do not create any obligation
to repay or return payments made by the corporation pursuant to divisions
(E)(5), (6), or (7).
(9) As used in this division, references to "corporation" include
all constituent corporations in a consolidation or merger and the new or
surviving corporation, so that any person who is or was a director, officer,
employee, or agent of such a constituent corporation, or is or was serving at
the request of such constituent corporation as a director, trustee, officer,
employee or agent of another corporation, domestic or foreign, nonprofit or for
profit, partnership, joint venture, trust, or other enterprise, shall stand in
the same position under this section with respect to the new or surviving
corporation as he would if he had served the new or surviving corporation in
the same capacity.
Second Amended Articles of Incorporation of Western Reserve
ARTICLE EIGHTH
EIGHTH: (1) The corporation may indemnify or agree to indemnify any
person who was or is a party or is threatened to be made a party, to any
threatened, pending, or completed action, suit, or proceeding, whether civil,
criminal, administrative, or investigative, other than an action by or in the
right of the corporation, by reason of the fact that he is or was a director,
officer, employee, or agent of the corporation, or is or was serving at the
request of the corporation as a director, trustee, officer, employee, or agent
of another corporation (including a subsidiary of this corporation), domestic
or foreign, nonprofit
3
<PAGE> 77
or for profit, partnership, joint venture, trust, or other enterprise, against
expenses, including attorneys' fees, judgments, fines, and amounts paid in
settlement actually and reasonably incurred by him in connection with such
action, suit, or proceeding if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
corporation, and with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful. The termination of any
action, suit, or proceeding by judgment, order, settlement, conviction, or upon
a plea of nolo contendere or its equivalent, shall not, of itself create a
presumption that the person did not act in good faith and in a manner which he
reasonably believed to be in or not opposed to the best interests of the
corporation, and with respect to any criminal action or proceeding, he had
reasonable cause to believe that his conduct was unlawful.
(2) The corporation may indemnify or agree to indemnify any person
who was or is a party, or is threatened to be made a party to any threatened,
pending, or completed action or suit by or in the right of the corporation to
procure a judgment in its favor by reason of the fact that he is or was a
director, officer, employee, or agent of the corporation, or is or was serving
at the request of the corporation as a director, trustee, officer, employee, or
agent of another corporation (including a subsidiary of this corporation),
domestic or foreign, nonprofit or for profit, partnership, joint venture,
trust, or other enterprise against expenses, including attorneys' fees,
actually and reasonably incurred by him in connection with the defense or
settlement of such action or suit if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
corporation, except that no indemnification shall be made in respect of any
claim, issue, or matter as to which such person shall have been adjudged to be
liable for negligence or misconduct in the performance of his duty to the
corporation unless, and only to the extent that the court of common pleas, or
the court in which such action or suit was brought shall determine upon
application that, despite the adjudication of liability, but in view of all the
circumstances of the case, such person is fairly and reasonably entitled to
indemnity for such expenses as the court of common pleas or such other court
shall deem proper.
(3) To the extent that a director, trustee, officer, employee, or
agent has been successful on the merits or otherwise in defense of any action,
suit, or proceeding referred to in sections (1) and (2) of this article, or in
defense of any claim, issue, or matter therein, he shall be indemnified against
expenses, including attorneys' fees, actually and reasonably incurred by him in
connection therewith.
(4) Any indemnification under sections (1) and (2) of this
article, unless ordered by a court, shall be made by the corporation only as
authorized in the specific case upon a determination that indemnification of
the director, trustee, officer, employee, or agent is proper in the
circumstances because he has met the applicable standard of conduct set forth
in sections (1) and (2) of this article. Such determination shall be made (a)
by a majority vote of a quorum consisting of directors of the indemnifying
corporation who were not and are not parties to or threatened with any such
action, suit, or proceeding, or (b) if such a quorum is not obtainable or if a
majority vote of a quorum of disinterested directors so directs, in a written
opinion by independent legal counsel other than an attorney, or a firm having
associated with it an attorney, who has been retained by or who has performed
services for the corporation, or any person to be indemnified within the past
five years, or (c) by the shareholders, or (d) by the court of common pleas or
the court in which such action, suit, or proceeding was brought. Any
determination made by the disinterested directors under section (4)(a) or by
independent legal counsel under section (4)(b) of this article shall be
promptly communicated to the person who threatened or brought the action or
suit by or in the right of the corporation under section (2) of this article,
and within ten days after receipt of such notification, such person shall have
the right to petition the court of common pleas or the court in which such
action or suit was brought to review the reasonableness of such determination.
(5) Expenses, including attorneys' fees incurred in defending any
action, suit, or proceeding referred to in sections (1) and (2) of this
article, may be paid by the corporation in advance of the final disposition of
such action, suit, or proceeding as authorized by the directors in the specific
case upon receipt of a written undertaking by or on behalf of the director,
trustee, officer, employee, or agent to repay such amount, unless it shall
ultimately be determined that he is entitled to be indemnified by the
4
<PAGE> 78
corporation as authorized in this article. If a majority vote of a quorum of
disinterested directors so directs by resolution, said written undertaking need
not be submitted to the corporation. Such a determination that a written
undertaking need not be submitted to the corporation shall in no way affect the
entitlement of indemnification as authorized by this article.
(6) The indemnification provided by this article shall not be
deemed exclusive of any other rights to which those seeking indemnification may
be entitled under the articles or the regulations or any agreement, vote of
shareholders or disinterested directors, or otherwise, both as to action in his
official capacity and as to action in another capacity while holding such
office, and shall continue as to a person who has ceased to be a director,
trustee, officer, employee, or agent and shall inure to the benefit of the
heirs, executors, and administrators of such a person.
(7) The Corporation may purchase and maintain insurance on behalf
of any person who is or was a director, officer, employee, or agent of the
corporation, or is or was serving at the request of the corporation as a
director, trustee, officer, employee, or agent of another corporation
(including a subsidiary of this corporation), domestic or foreign, nonprofit or
for profit, partnership, joint venture, trust, or other enterprise against any
liability asserted against him and incurred by him in any such capacity or
arising out of his status as such, whether or not the corporation would have
the power to indemnify him against such liability under this section.
(8) As used in this section, references to "the corporation"
include all constituent corporations in a consolidation or merger and the new
or surviving corporation, so that any person who is or was a director, officer,
employee, or agent of such a constituent corporation, or is or was serving at
the request of such constituent corporation as a director, trustee, officer,
employee or agent of another corporation (including a subsidiary of this
corporation), domestic or foreign, nonprofit or for profit, partnership, joint
venture, trust, or other enterprise shall stand in the same position under this
article with respect to the new or surviving corporation as he would if he had
served the new or surviving corporation in the same capacity.
(9) The foregoing provisions of this article do not apply to any
proceeding against any trustee, investment manager or other fiduciary of an
employee benefit plan in such person's capacity as such, even though such
person may also be an agent of this corporation. The corporation may indemnify
such named fiduciaries of its employee benefit plans against all costs and
expenses, judgments, fines, settlements or other amounts actually and
reasonably incurred by or imposed upon said named fiduciary in connection with
or arising out of any claim, demand, action, suit or proceeding in which the
named fiduciary may be made a party by reason of being or having been a named
fiduciary, to the same extent it indemnifies an agent of the corporation. To
the extent that the corporation does not have the direct legal power to
indemnify, the corporation may contract with the named fiduciaries of its
employee benefit plans to indemnify them to the same extent as noted above. The
corporation may purchase and maintain insurance on behalf of such named
fiduciary covering any liability to the same extent that it contracts to
indemnify.
Amended Code of Regulations of Western Reserve
ARTICLE V
Indemnification of Directors and Officers
Each Director, officer and member of a committee of this Corporation,
and any person who may have served at the request of this Corporation as a
Director, officer or member of a committee of any other corporation in which
this Corporation owns shares of capital stock or of which this Corporation is a
creditor (and his heirs, executors and administrators) shall be indemnified by
the Corporation against all expenses, costs, judgments, decrees, fines or
penalties as provided by, and to the extent allowed by, Article Eighth of the
Corporation's Articles of Incorporation, as amended.
5
<PAGE> 79
RULE 484 UNDERTAKING
Insofar as indemnification for liability arising under the Securities
Act of 1933 (the "Act") may be permitted to directors, officers and controlling
persons of the registrant pursuant to the foregoing provisions, or otherwise,
the registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of its counsel, the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
CONTENTS OF REGISTRATION STATEMENT
This registration statement comprises the following papers and documents:
The facing sheet
The Prospectus, consisting of __ pages
The undertaking to file reports
Representation Pursuant to Section 26(e) (2) (A)
The statement with respect to indemnification
The Rule 484 undertaking
The signatures
Written consent of the following persons:
(a) Frederick J. Garland, Jr.
(b) Ernst & Young LLP
The following exhibits:
1. The following exhibits correspond to those required by paragraph A to
the instructions as to exhibits in Form N-8B-2:
A. (1) Resolution of the Board of Directors of Western
Reserve establishing the Separate Account
(2) Not Applicable
(3) Distribution of Policies *
(4) Not Applicable
(5) Specimen Variable Adjustable Life Insurance Policy
(6) (a) Second Amended Articles of Incorporation of
Western Reserve **
(b) Amended Code of Regulations (By-Laws) of
Western Reserve **
(7) Not Applicable
(8) (a) Form of Participation Agreement regarding BT
Insurance Funds Trust *
(b) Form of Participation Agreement regarding
Russell Insurance Funds *
(c) Form of Participation Agreement *
(9) Not Applicable
(10) Application for Variable Adjustable Life Insurance
Policy
(11) Memorandum describing issuance, transfer and
redemption procedures *
2. Opinion of Counsel as to the legality of the securities being
registered
6
<PAGE> 80
3. Not Applicable
4. Not Applicable
5. Opinion and consent as to actuarial matters pertaining to the
securities being registered
6. Consent of Sutherland, Asbill & Brennan LLP *
7. Consent of Ernst & Young LLP
8. Powers of Attorney
- ----------------------------------
* To be filed by amendment.
** Incorporated herein by reference to Post-Effective Amendment No. 11 to
Form N-4 Registration Statement dated April 20, 1998 (File No.
33-49556).
7
<PAGE> 81
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant, WRL
Series Life Corporate Account has duly caused this Registration Statement to be
signed on its behalf by the undersigned thereunto duly authorized, and its seal
to be hereunto affixed and attested, all in the City of ________________ and
State of _____________________ on this _____ day of __________, 1998.
(SEAL) WRL SERIES LIFE CORPORATE ACCOUNT
---------------------------------
Registrant
WESTERN RESERVE LIFE ASSURANCE
CO. OF OHIO
---------------------------------
Depositor
ATTEST:
By:
- --------------------------------- -----------------------------
Thomas E. Pierpan John R. Kenney
Vice President, Assistant Secretary Chairman of the Board,
and Associate General Counsel Chief Executive Officer and President
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned hereby makes, constitutes
and appoints THOMAS E. PIERPAN, PRISCILLA HECHLER, ALAN M. YAEGER, and
________________ and each of them, severally, his true and lawful attorneys and
agents in his name, place and stead and on his behalf (a) to sign and cause to
be filed registration statements of WRL Series Life Corporate Account under the
Securities Act of 1933 and the Investment Company Act of 1940, and all
amendments, consents and exhibits thereto; (b) to withdraw such statements or
any amendments or exhibits and make requests for acceleration in connection
therewith; (c) to take all other action of whatever kind or nature in
connection with such registration statements which said attorneys may deem
advisable; and (d) to make, file, execute, amend and withdraw documents of
every kind, and to take other action of whatever kind they may elect, for the
purpose of complying with the laws of any state relating to the sale of
securities of WRL Series Life Corporate Account, hereby ratifying and
confirming all actions of any of said attorneys hereunder. Said attorneys may
act jointly or severally, and the action of one shall bind the undersigned as
fully as if two or more had acted together.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature and Title DATE
------------------- ----
<S> <C>
, 1998
- -------------------------------- ---------------------------------------------
John R. Kenney, Chairman of the
Board, Chief Executive Officer and President
, 1998
- -------------------------------- ---------------------------------------------
Allan J. Hamilton, Vice President,
Treasurer and Controller
, 1998
- -------------------------------- ---------------------------------------------
Alan M. Yaeger, Executive Vice
President, Actuary and Chief Financial Officer
, 1998
- -------------------------------- ---------------------------------------------
Patrick S. Baird, Director
, 1998
- -------------------------------- ---------------------------------------------
James R. Walker, Director
</TABLE>
<PAGE> 82
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned hereby makes,
constitutes and appoints THOMAS E. PIERPAN, PRISCILLA HECHLER, ALAN M. YAEGER,
and ________________ and each of them, severally, his true and lawful attorneys
and agents in his name, place and stead and on his behalf (a) to sign and cause
to be filed registration statements of WRL Series Life Corporate Account under
the Securities Act of 1933 and the Investment Company Act of 1940, and all
amendments, consents and exhibits thereto; (b) to withdraw such statements or
any amendments or exhibits and make requests for acceleration in connection
therewith; (c) to take all other action of whatever kind or nature in connection
with such registration statements which said attorneys may deem advisable; and
(d) to make, file, execute, amend and withdraw documents of every kind, and to
take other action of whatever kind they may elect, for the purpose of complying
with the laws of any state relating to the sale of securities of WRL Series Life
Corporate Account, hereby ratifying and confirming all actions of any of said
attorneys hereunder. Said attorneys may act jointly or severally, and the action
of one shall bind the undersigned as fully as if two or more had acted together.
<PAGE> 83
<TABLE>
<S> <C>
, 1998
- -------------------------------- ----------------------------------------------------
Lyman H. Treadway, Director
, 1998
- -------------------------------- ----------------------------------------------------
Jack E. Zimmerman, Director
, 1998
- -------------------------------- ----------------------------------------------------
Signed by: Thomas E. Pierpan
as Attorney-in-fact
</TABLE>
<PAGE> 84
Exhibit Index
<TABLE>
<CAPTION>
Exhibit Description
No. of Exhibit
- ------- ----------
<S> <C>
1.A.(1) Resolution establishing the Separate Account
1.A.(5) Specimen Variable Adjustable Life Insurance Policy
1.A.(10) Application for Variable Adjustable Life Insurance Policy
2. Opinion regarding legality of securities
5. Opinion and consent as to actuarial matters
7. Consent of Ernst & Young LLP
8. Power of Attorney
</TABLE>
<PAGE> 1
RESOLUTIONS ADOPTED
AT A MEETING OF THE BOARD OF DIRECTORS
OF
WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO
ON DECEMBER 8, 1997
"RESOLVED, that the Company, pursuant to the applicable provisions of the Ohio
Insurance Code, hereby establishes a separate account designated "WRL Series
Life Corporate Account" (hereinafter "the Account") for the following use and
purposes, and subject to such conditions as hereafter set forth, said use,
purposes and conditions to be in full compliance with the Ohio Insurance Code
and all rules and regulations of the Ohio Insurance Department;
FURTHER RESOLVED, that the Account shall be established for the purpose of
providing for the issuance by the Company of such variable life policies
("Policies") as the President may designate for such purpose and shall
constitute a separate account into which are allocated amounts paid to the
Company which are to be applied under the terms of such Policies; and
FURTHER RESOLVED, that the income, gains and losses, whether or not realized,
from assets allocated to the Account shall, in accordance with the Policies, be
credited to or charged against such Account without regard to either income,
gains or losses of another separate account or of the Company; and
FURTHER RESOLVED, that the portion of the assets of the Account equal to the
reserves and other policy liabilities with respect to the Account shall not be
chargeable with liabilities arising out of any other business the Company may
conduct; and
FURTHER RESOLVED, that the fundamental investment policy of the Account shall be
to invest or reinvest the assets of the Account in securities issued by
investment companies registered under the Investment Company Act of 1940, as
amended, as may be specified in the respective Policies; and
FURTHER RESOLVED, that separate investment divisions be, and hereby are,
established within the Account to which payments under the Policies will be
allocated in accordance with instructions received from policyowners, and that
the President be, and hereby is, authorized to add, combine or remove any
investment division of the Account as he deems necessary or appropriate; and
FURTHER RESOLVED, that each such investment division shall invest only in the
shares of a single mutual fund or a single mutual fund portfolio of an
investment company organized as a series fund pursuant to the Investment Company
Act of 1940, as amended; and
FURTHER RESOLVED, that the income, gains and losses, whether or not realized,
from assets allocated to each investment division of the Account shall, in
accordance with the Policies, be credited to or charged against such investment
division of the Account without regard to other income, gains or losses of any
other investment division of the Account; and
1
<PAGE> 2
FURTHER RESOLVED, that the President or Vice President each be, and hereby is,
authorized to deposit such amount in the Account or in each investment division
thereof as may be necessary or appropriate to facilitate the commencement of the
Account's operations; and
FURTHER RESOLVED, that the President or Vice President each be, and hereby is,
authorized to transfer funds from time to time between the Company's general
account and the Account in order to establish the Account or to support the
operation of the Policies with respect to the Account as deemed necessary or
appropriate and consistent with the terms of the Policies; and
FURTHER RESOLVED, that the President of the Company be, and hereby is authorized
to change the designation of the Account to such other designation as he may
deem necessary or appropriate; and
FURTHER RESOLVED, that the appropriate officers of the Company, with such
assistance from the Company's auditors, legal counsel and independent consultant
or others as they may require, be, and they hereby are, authorized and directed
to take all action necessary to: (a) register the Account as a unit investment
trust under the Investment Company Act of 1940, as amended, and to change the
classification under which the Account is registered or to de-register the
Account as they deem necessary or appropriate; (b) register the Policies in such
amounts, which may be an indefinite amount, as the officers of the Company shall
from time to time deem appropriate under the Securities Act of 1933; and (c)
take all other actions which are necessary in connection with the offering of
said Policies for sale and the operation of the Account in order to comply with
the Investment Company Act of 1940, as amended, the Securities Exchange Act of
1934, the Securities Act of 1933, and other applicable Federal laws, including
the filing of any registration statements, any amendments to registration
statements, any undertakings, and any applications, and any amendments to such
applications, for exemptions from the Investment Company Act of 1940, as
amended, or other applicable Federal laws as the officers of the Company shall
deem necessary or appropriate; and
FURTHER RESOLVED, that the President, the Vice President and Secretary, and each
of them with full power to act without the others, hereby are severally
authorized and empowered to prepare, execute and cause to be filed with the
Securities and Exchange Commission on behalf of the Account, and by the Company
as sponsor and depositor, a Form of Notification of Registration on Form N-8A, a
Registration Statement registering the Account as an investment company under
the Investment Company Act of 1940, as amended, a Registration Statement under
the Securities Act of 1933 registering the Policies, any applications for
exemptions from the Investment Company Act of 1940, as amended, or other
applicable Federal laws, and any and all amendments to the foregoing on behalf
of the Account and the Company and on behalf of and as attorneys for the
principal executive officer and/or the principal financial officer and/or the
principal accounting officer and/or any other officer of the Company; and
FURTHER RESOLVED, that Thomas E. Pierpan, 201 Highland Avenue, Largo, Florida
33770, is hereby appointed as agent for service under such registration
statements and is duly authorized to receive communications and notices from the
Securities and Exchange Commission with respect thereto; and
FURTHER RESOLVED, that the Company be authorized and directed to obtain any
required approvals with respect to the establishment of the Account and
marketing of the Policies, from the
2
<PAGE> 3
Commissioner of Insurance of Ohio, and any other statutory or regulatory
approvals required by the Company as an Ohio Corporation; and
FURTHER RESOLVED, that the appropriate officers of the Company be, and they
hereby are, authorized on behalf of the Account and on behalf of the Company to
take any and all action they may deem necessary or advisable in order to sell
the Policies, including any registrations, filings, and qualifications of the
Company, its officers, agents and employees, and the Policies under the
insurance and securities laws of any of the states of the United States of
America or other jurisdictions, and in connection therewith to prepare, execute,
deliver, and file all such applications, reports, covenants, resolutions,
applications for exemptions, consents to service of process, and other papers
and instruments as may be required under such laws, and to take any and all
further action which said officers or counsel of the Company may deem necessary
or desirable (including entering into whatever agreements may be necessary) in
order to maintain such registrations or qualifications for as long as the said
officers or counsel deem it to be in the best interests of the Account and the
Company; and
FURTHER RESOLVED, that the President, the Vice Presidents and the Secretary of
the Company be, and they hereby are, each authorized in the name and on behalf
of the Account and the Company to execute and file irrevocable written consent
on the part of the Account and of the Company to be used in such states wherein
such consents to service of process may be required under the insurance or
securities laws therein in connection with said registration or qualification of
Policies and to appoint the appropriate state official or such other person as
may be allowed by said insurance or securities laws, agent of the Account and of
the Company for the purpose of receiving and accepting process; and
FURTHER RESOLVED, that the President of the Company be, and hereby is,
authorized to cause the Company to institute procedures for providing voting
rights for owners of such Policies with respect to securities owned by the
Account; and
FURTHER RESOLVED, that the President of the Company is hereby authorized to
execute such agreement or agreements as deemed necessary and appropriate with
underwriters and distributors for the Policies to provide distribution services,
with one or more registered investment advisers to provide investment advisory
services, and with one or more qualified banks or other qualified entities to
provide administrative and/or custodial services, all in connection with the
establishment, operation and maintenance of the Account and the design,
issuance, and administration of the Policies; and
FURTHER RESOLVED, that the Company be authorized as deemed necessary and
appropriate either to enter into an agreement with a qualified custodial bank
for the purpose of the safekeeping of the assets of the Account, or to undertake
this safekeeping and custody of assets after seeking and obtaining the required
exemptive relief from the Securities and Exchange Commission; and
FURTHER RESOLVED, that appropriate officers of the Company are hereby authorized
to execute whatever agreement or agreements may be necessary or appropriate to
enable the Account to invest in securities issued by one or more investment
companies registered under the Investment Company Act of 1940, as amended, as
may be specified in the respective Policies; and
FURTHER RESOLVED, that the appropriate officers of the Company, and each of them
are, hereby authorized to execute and deliver all such documents and papers and
to do or cause to
3
<PAGE> 4
be done all such acts and things as they may deem necessary or desirable to
carry out the foregoing resolutions and the intent and purposes thereof; and
FURTHER RESOLVED, that the term "appropriate officers", as used herein, shall
include all of the elected and appointed officers of the Company, either
severally or individually, subject to any applicable resolutions of the Board of
Directors dealing with signing authority for the Company."
4
<PAGE> 1
WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO
A STOCK COMPANY
Home Office: Columbus, Ohio / Administrative Office: 4333 Edgewood Road N.E.,
Cedar Rapids, Iowa 52499 (Hereafter called the Company, we, our or us) - (610)
439-5253
<TABLE>
<S> <C>
INSURED: JOHN DOE
OWNER: JOHN DOE
POLICY NUMBER: 110 IA SAMPLE
EFFECTIVE DATE: APRIL 01, 1996
</TABLE>
The Company will pay the benefits of this policy in accordance with its
provisions. The pages that follow are also a part of this policy.
RIGHT TO EXAMINE POLICY. Please examine your policy. Within 20 days after
delivery, you can return the policy to the Company or to the Registered
Representative through whom it was purchased. This is the Free Look Period. If
this policy is returned, the policy will be void from the start and a refund
will be made. The amount we refund will equal the greater of the policy's cash
value as of the date the policy is returned or the premiums paid, less
withdrawals.
VARIABLE LIFE INSURANCE BENEFIT. THE LIFE INSURANCE BENEFIT OF THIS POLICY MAY
INCREASE OR DECREASE, DEPENDING ON THE INVESTMENT EXPERIENCE OF THE SEPARATE
ACCOUNT AND THE LIFE INSURANCE BENEFIT OPTION SELECTED. FURTHER INFORMATION
REGARDING THIS BENEFIT IS GIVEN IN THE LIFE INSURANCE BENEFITS SECTION.
CASH VALUE. TO THE EXTENT THE POLICY'S CASH VALUE IS ALLOCATED TO THE SEPARATE
ACCOUNT, THE CASH VALUE OF THIS POLICY WILL VARY FROM DAY TO DAY REFLECTING THE
INVESTMENT EXPERIENCE OF THE SEPARATE ACCOUNT. THE METHOD OF DETERMINING THE
CASH VALUE IS DESCRIBED IN THE CASH VALUE SECTION. THERE IS NO GUARANTEED
MINIMUM CASH VALUE.
PAYMENT OF PREMIUMS. While this policy is in force, premiums can be paid at any
time before the Policy Anniversary on which the Insured is age 100, and while
the Insured is living. They can be paid at any interval or by any method we make
available, subject to the Premiums section. The amount and interval of planned
premiums, as stated in the application for this policy, are shown on Page 5 and
are subject to any limits we set.
ANNUAL REPORT TO OWNER. An annual report in connection with this policy will be
provided to you without charge. This report will tell you how much Cash Value
and Net Cash Value there is as of the most recent Policy Anniversary, together
with the amount of any unpaid loan. The report will also give you any other
facts required by state law or regulation.
Signed for us at our home office.
<TABLE>
<S> <C>
/s/ William H. Geiger /s/ John R. Kenney
SECRETARY PRESIDENT
</TABLE>
This policy is a legal contract between the Policyowner and the Company.
READ YOUR POLICY CAREFULLY
VARIABLE ADJUSTABLE LIFE INSURANCE POLICY
AMOUNT OF VARIABLE LIFE INSURANCE OR CASH VALUE PROCEEDS MAY VARY, REFLECTING
INVESTMENT EXPERIENCE OF SEPARATE ACCOUNT
VARIABLE LIFE INSURANCE BENEFIT - FLEXIBLE PREMIUM PAYMENTS
PROCEEDS PAYABLE AT INSURED'S DEATH
NO PREMIUMS PAYABLE ON OR AFTER AGE 100
NON-PARTICIPATING
<PAGE> 2
<TABLE>
<CAPTION>
TABLE OF CONTENTS
Section Provisions Contents Pages
<S> <C> <C> <C>
DEFINITIONS 03-04
POLICY SPECIFICATION Policy Identification and 05
Specification
ONE LIFE INSURANCE BENEFITS Life Insurance Benefit; Life 06-07
Insurance Benefit Options
TWO OWNER AND BENEFICIARY Rights of Ownership; Successor Owner 08
Change of Ownership; How to Name or
Change Beneficiaries; Death of Beneficiary
THREE POLICY CHANGES Right to Change Your Policy; Increase 09
or Decrease in Face Amount; Change in
Life Insurance Benefit Option; Rider
FOUR PREMIUMS Premium Limitations; Payment of 10
Premiums; Planned Premium and
Unplanned Premiums; Allocation;
Late Period; Reinstatement
FIVE SEPARATE ACCOUNT Establishment of Separate Account; 11-12
(Separate Account Charges) Investment; Ownership and Value of
Assets; Transfer of Assets; Other Rights;
Change in Investment Strategy; Purchase
of Funds; Accumulation Units; Fund
Transfer
SIX CASH VALUE AND PARTIAL Cash Value; Surrender and Partial 13
WITHDRAWALS Withdrawal; Monthly Deduction Charge;
Cost of Insurance; Cost of Riders
SEVEN LOANS Loan Account; Loan Value; Loan 14
Request; Loan Interest Rate; Loan
Repayment
EIGHT PAYMENT OF POLICY Alternative ways in which proceeds of 15-16
PROCEEDS the policy may be paid
NINE GENERAL PROVISIONS Entire Contract; Application; 17-19
Incontestability; Suicide Exclusion;
Dates; Age and Sex; Assignment;
Protection Against Creditors; Payment to
Corporation; Basis of Computation;
Conformity with Law; Non-Participating
Policy; Guaranteed Monthly Cost of
Insurance Rates Table
APPLICATION Attached to the Policy
RIDERS OR Attached to the Policy
ENDORSEMENTS (if any)
</TABLE>
NOTE: THIS POLICY IS A LEGAL CONTRACT BETWEEN THE POLICYOWNER AND THE COMPANY.
PLEASE READ THIS POLICY CAREFULLY FOR FULL DETAILS
PAGE 02
<PAGE> 3
DEFINITIONS
When we use the following words, this is what we mean:
ACCUMULATION UNIT These are the accounting units used to calculate the values
under this policy.
ADMINISTRATIVE OFFICE The regional office of Western Reserve Life Assurance Co.
of Ohio, whose mailing address is 4333 Edgewood Road NE, Cedar Rapids, Iowa
52499.
ANNUAL DEFERRED SALES LOAD In years 2-7; 1.5% of the first year premium is
deducted from the Cash Value on the Policy Anniversary.
ATTAINED AGE The Issue Age plus the number of completed Policy years since the
Effective Date.
BENEFICIARY The person(s) to whom the Life Insurance Benefit proceeds are paid
upon the death of the Insured.
CASH VALUE After the Free Look Period, the Cash Value is the value of the
policy's Accumulation Units in each Subaccount plus the amount in the Loan
Account, less any mortality and expense charges which have accrued since the
last Monthly Deduction Date.
COMPANY Western Reserve Life Assurance Co. of Ohio.
EFFECTIVE DATE The date coverage under this policy becomes effective and the
date from which Policy Anniversaries, Policy Years and Policy Months are
determined. This date is shown on page 5.
FACE AMOUNT The Face Amount is the Face Amount shown on Page 5 plus or minus any
changes made as described in the Policy Changes section of the Policy.
FREE LOOK PERIOD The 20 day period following delivery in which the policy can be
returned to the Company.
GENERAL ACCOUNT The assets of the Company other than those allocated to the
Separate Account or any other separate account established by the Company.
GUIDELINE PREMIUM The premium necessary to provide the benefits selected by the
Owner under the policy based on the particular facts relating to the Insured and
certain assumptions defined by law.
INSURED The person upon whose life the policy is issued.
ISSUE AGE The age of the Insured on the Effective Date. This age is shown on
page 5 of the policy.
LATE PERIOD The period of time that coverage is continued after the Net Cash
Value less any unpaid policy loan is less than the Monthly Deduction Charge for
the next Policy Month.
LIFE INSURANCE BENEFIT The Life Insurance Benefit proceeds payable under this
policy will be based on the Life Insurance Benefit Option and the Face Amount in
effect on the date of death. See Section 1.2 for details.
LOAN ACCOUNT A portion of the Company's General Account to which Cash Value is
transferred to provide collateral for any loan taken under the policy.
LOAN AMOUNT The Loan Amount on the last Policy Anniversary plus any new loans
minus any loan repayments. On each Policy Anniversary, unpaid loan interest is
added to the Loan Amount.
LOAN VALUE After the first Policy Year, the loan value on any given date is
equal to 90% of the Net Cash Value on that date.
MONTHLY DEDUCTION DAY The same date in each succeeding month as the Effective
Date. For purposes of the Separate Account, whenever the Monthly Deduction Day
falls on a date other than a Valuation Date, the Monthly Deduction Day will be
deemed to be the next Valuation Date.
PAGE 03
<PAGE> 4
DEFINITIONS CONTINUED
MONTHLY DEDUCTION CHARGES Includes monthly contract charge (shown on page 5,
monthly cost of insurance, monthly cost for riders attached to the policy, a
factor representing the mortality and expense risk charge (shown on page 5 and
any temporary flat extra rating (shown on page 5).
NET CASH VALUE The amount payable upon surrender of the policy equal to the Cash
Value as of the date of surrender, less any outstanding policy loan, and any
accrued loan interest due.
NET PREMIUM The portion of the premium available for allocation to the
Subaccounts of the Separate Account equal to the premium paid by the Policyowner
less the applicable Percent of Premium Loads.
PERCENT OF PREMIUM LOAD The percent (shown on page 5) deducted from each premium
paid.
PARTIAL WITHDRAWAL An amount withdrawn from the Net Cash Value which results in
a reduction in the Net Cash Value by the amount withdrawn. See Section 6.3 for
details.
POLICY ANNIVERSARY The same day and month as your Effective Date for each
succeeding year your policy remains inforce.
POLICY MONTH A one-month period beginning on the Monthly Deduction Day.
POLICY YEAR A twelve-month period beginning on the Effective Date or on a Policy
Anniversary.
POLICYOWNER (OWNER, YOU, YOUR) The person who owns the policy and who may
exercise all rights under the policy while living.
SEPARATE ACCOUNT WRL Series Life Corporate Account, a separate investment
account established by Company to receive and invest Net Premiums allocated
under the policy.
SUBACCOUNT a sub-division of the Separate Account. Each Subaccount invests
exclusively in the shares of a specified portfolio of the fund.
TARGET PREMIUM Amount of premium used to determine Percent of Premium Loads.
TRANSFER A Transfer of amounts between Subaccounts of the Separate Account. See
Sections 5.12 - 5.14.
TRANSFER CHARGE The Company reserves the right to apply a charge, not to exceed
$25, for each Transfer after the first twelve (12) Transfers in a given Policy
Year.
VALUATION DAY Each day on which the New York Stock Exchange is open for
business.
VALUATION PERIOD The period from the close of the immediately preceding
Valuation Day to the close of the current Valuation Day.
WE, US Western Reserve Life Assurance Co. of Ohio.
PAGE 04
<PAGE> 5
POLICY SPECIFICATION PAGE
POLICY NUMBER: 10 01 1000000 INSURED: JOHN DOE
INITIAL TARGET AMOUNT: N/A
FACE AMOUNT: $500,000 AGE/SEX: 35/MALE
LIFE INSURANCE EFFECTIVE DATE: JANUARY 1, 1998
BENEFIT OPTION: 1
PLANNED PREMIUM: $20,640
TARGET PREMIUM: $20,640 OWNER: AMERICAN TRUST AND SAVINGS BANK
POLICY VALUE PROVISIONS:
LIFE INSURANCE COMPLIANCE TEST: GUIDELINE PREMIUM
MORTALITY AND EXPENSE RISK CHARGE: Annual:
GUARANTEED 0.90%
CURRENT 0.45%
PERCENT OF PREMIUM LOADS:
TARGET PREMIUM IN ALL YEARS: 11.5%
ADDITIONAL PREMIUMS: 4.5% IN POLICY YEAR 1
7.5% IN POLICY YEARS 2+
MONTHLY POLICY CHARGE:
YEAR 1: $16.50
YEAR 2+: GUARANTEED: $10.00
CURRENT: $4.00
ANNUAL DEFERRED SALES LOAD:
YEARS 2-7 1.50% OF FIRST YEAR PREMIUM
THE TAX STATUS OF THIS POLICY MAY CHANGE AND SHOULD BE REVIEWED EACH YEAR.
<TABLE>
<CAPTION>
TYPE PLANNED
OF EFFECTIVE RISK FACE PREMIUM
COVERAGE DATE CLASS AMOUNT PAYMENTS
(ANNUAL)
<S> <C> <C> <C> <C>
BASIC POLICY 1/1/98 TOBACCO $500,000 $20,640
</TABLE>
Basic Policy Initial Premium...............................................$0.00
Total Planned Premium Payments...........................................$20,640
PAGE 05
<PAGE> 6
SECTION ONE - LIFE INSURANCE BENEFITS
1.1 IS A LIFE INSURANCE BENEFIT PAYABLE UNDER THIS POLICY? We will pay the
Life Insurance Benefit to the Beneficiary promptly, when we have proof that the
Insured died while the life insurance coverage under this policy was in effect,
subject to the General Provisions Section. A claim for the Life Insurance
Benefit must be made in writing to our Administrative Office.
1.2 WHAT IS THE AMOUNT OF LIFE INSURANCE BENEFIT PROCEEDS THAT ARE PAYABLE
UNDER THIS POLICY? The amount of Life Insurance Benefit proceeds payable under
this policy will be based on the Life Insurance Benefit Option and the Face
Amount in effect on the date of death. We will deduct mortality and expense risk
charges which have accrued since the last Monthly Deduction Day and any unpaid
loan, including interest due, from this amount. Payment of proceeds will be made
according to Payment of Policy Proceeds Section.
1.3 WHAT ARE THE LIFE INSURANCE BENEFIT OPTIONS THAT ARE AVAILABLE UNDER THIS
POLICY? The Life Insurance Benefit payable under this policy will be determined
in accordance with one of the following options:
OPTION 1 - This option provides a Life Insurance Benefit equal to the greater of
(a) or (b), where:
(a) is the Face Amount; and
(b) is the limitation percentage times the cash value.
OPTION 2 - Under this option, the Life Insurance Benefit is the greater of (a)
or (b), where:
(a) is the Face Amount plus the cash value; and
(b) is the limitation percentage times the cash value.
Option 3 - Under this option, the Life Insurance Benefit is the greater of (a)
or (b), where:
(a) is the Face Amount plus the sum of premiums paid less the sum of Partial
Withdrawals and
(b) is the limitation percentage times the cash value.
1.4 HOW DOES THIS POLICY COMPLY WITH THE FEDERAL TAX CODE? This policy
qualifies as life insurance under Internal Revenue Code Section 7702. You may
choose either of two methods to do this. Your choice is shown on page 5 as Life
Insurance Compliance Test. If you choose GUIDELINE PREMIUM, the limitation
percentages are as follows.
<TABLE>
<CAPTION>
Insured's Age Insured's Age
on Policy Limitation on Policy Limitation
Anniversary Percentage Anniversary Percentage
- ----------- ---------- ----------- ----------
<S> <C> <C> <C>
0-40 250 68 117
41 243 69 116
42 236 70 115
43 229 71 113
44 222 72 111
45 215 73 109
46 209 74 107
47 203 75 105
48 197 76 105
49 191 77 105
50 185 78 105
51 178 79 105
52 171 80 105
53 164 81 105
54 157 82 105
55 150 83 105
56 146 84 105
57 142 85 105
58 138 86 105
59 134 87 105
60 130 88 105
61 128 89 105
62 126 90 105
63 124 91 104
64 122 92 103
65 120 93 102
66 119 94 - 99 101
67 118 100 & Over 100
</TABLE>
PAGE 06
<PAGE> 7
If you chose CASH VALUE ACCUMULATION, your limitation percentages are as
follows:
<TABLE>
<CAPTION>
Insured's Age Limitation
On Policy Percentage
Anniversary Male Female
- ----------- ---- ------
<S> <C> <C>
20 631 751
21 612 727
22 595 704
23 577 681
24 560 659
25 542 638
26 526 617
27 509 597
28 493 578
29 477 559
30 462 541
31 447 523
32 432 506
33 418 489
34 404 473
35 391 458
36 379 443
37 366 428
38 355 414
39 343 401
40 332 388
41 322 376
42 312 364
43 302 353
44 293 342
45 284 332
46 275 322
47 267 312
48 259 303
49 251 294
50 244 285
51 237 276
52 230 268
53 224 261
54 218 253
55 212 246
56 206 239
57 201 232
58 195 226
59 190 219
60 186 213
61 181 207
62 177 201
63 172 196
64 168 191
65 164 186
66 161 181
67 157 176
68 154 172
69 151 167
70 148 163
71 145 159
72 142 155
73 140 152
74 137 148
75 135 145
76 133 142
77 131 139
78 129 136
79 127 134
80 125 131
81 124 129
82 122 127
83 121 125
84 119 123
85 118 121
86 117 119
87 116 118
88 115 117
89 114 115
90 113 114
91 112 113
92 111 111
93 110 110
94 109 109
95 107 108
96 106 106
97 105 105
98 103 103
99 102 102
100+ 100 100
</TABLE>
1.5 MAY YOU CHANGE THE LIFE INSURANCE COMPLIANCE TEST? No. The tax code
specifies that the election may not be changed.
PAGE 07
<PAGE> 8
SECTION TWO - OWNER AND BENEFICIARY
2.1 WHO IS THE OWNER OF THIS POLICY? In this policy, the words "you" and "your"
refer to the owner of this policy. As the owner, you will have all rights of
ownership in this policy while the Insured is living. To exercise these rights,
you do not need the consent of any successor owner or Beneficiary.
2.2 MAY A SUCCESSOR TO THE OWNER BE NAMED? A successor owner may be named in the
application, or in a notice you sign that gives us the facts that we need. The
successor owner will become the new owner when you die, if you die before the
Insured. If no successor owner survives you and you die before the Insured, your
estate becomes the new owner.
2.3 HOW DO YOU CHANGE THE OWNER OF THIS POLICY? You can change the owner of this
policy, from yourself to a new owner, in a notice you sign that gives us the
facts we need. When this change takes effect, all rights of ownership in this
policy will pass to the new owner.
When we record a change of owner or successor owner, these changes will take
effect as of the date you signed the notice, subject to any payments we made or
action we took before recording these changes. We may require that these changes
be endorsed in the policy. Changing the owner or naming a new successor owner
cancels any prior choice of owner or successor owner, respectively, but does not
change the Beneficiary.
2.4 MAY MORE THAN ONE BENEFICIARY BE NAMED FOR THIS POLICY? One or more
Beneficiaries for any Life Insurance Benefit proceeds may be named in the
application, or in a notice you sign that gives us the facts that we need. If
more than one Beneficiary is named, they can be classed as first, second, and so
on. If two or more are named in a class, their shares in the proceeds are equal
unless the shares are stated otherwise.
The stated shares of the proceeds will be paid to any first Beneficiaries who
survive the Insured. If no first Beneficiaries survive, payment will be made to
any Beneficiary surviving in the second class, and so on.
2.5 MAY YOU CHANGE A BENEFICIARY? While the Insured is living, you may change a
Beneficiary in a notice you sign that gives us the facts we need.
When we record a change of Beneficiary, it will take effect as of the date you
signed the notice, subject to any payment we made or action we took before
recording the change.
2.6 WHAT HAPPENS IF NO BENEFICIARIES ARE LIVING WHEN THE PROCEEDS BECOME
PAYABLE? If no Beneficiary for the Life Insurance Benefit proceeds, or for a
stated share, survives the Insured, the right to these proceeds or this share
will pass to you. If you are the Insured, this right will pass to your estate.
Unless stated otherwise in the policy or in your signed notice, which is in
effect at the Insured's death, if any Beneficiary dies at the same time as the
Insured, or within 15 days after the Insured but before we receive proof of the
Insured's death, we will pay the proceeds as though that Beneficiary died first.
PAGE 08
<PAGE> 9
SECTION THREE - POLICY CHANGES
3.1 WHAT CHANGES MAY YOU MAKE TO THIS POLICY? On or after the first Policy
Anniversary, you may apply in writing to have the Face Amount increased or
decreased (without having the Life Insurance Benefit Option changed), or have
the Life Insurance Benefit Option changed. You may also have riders added to
your policy if we agree. To make these changes, we must receive your signed
request at our Administrative Office.
To increase the Face Amount or to change the Life Insurance Benefit Option, we
may also require a written application, signed by you and the Insured, and proof
of insurability. Any increase in Face Amount will be subject to limits we set.
You can decrease your Face Amount, provided at least $25,000 of Face Amount
remains in effect.
Changes may only be made while the Insured is living, and only if this policy
would continue to qualify as life insurance, as defined under Section 7702 of
the Internal Revenue Code of 1986, as amended.
3.2 WHAT HAPPENS WHEN YOU APPLY TO INCREASE THE POLICY FACE AMOUNT? An increase
will take effect on the Monthly Deduction Day on or after the day we approve
your request for the increase.
The cost of insurance for each increase will be based on the attained age, sex,
and class of risk of the original policy.
For the amount of each increase, the two year period in the Incontestability and
Suicide Exclusion provision will each start on the date when such increase takes
effect.
3.3 WHAT HAPPENS WHEN YOU DECREASE THE POLICY FACE AMOUNT? A decrease will take
effect on the Monthly Deduction Day on or after the day we receive your signed
request at our Administrative Office.
Decreases will be applied against base and riders in the reverse order in which
they were issued.
3.4 WHAT HAPPENS WHEN YOU CHANGE THE LIFE INSURANCE BENEFIT OPTION? If you
change from Option 2 to Option 1, the Face Amount will be increased by the Cash
Value. If you change from Option 3 to Option 1, the Face Amount will be
increased by the sum of the premiums paid less the sum of Partial Withdrawals.
If you change from Option 1 to Option 2, the Face Amount will be decreased by
the Cash Value. If you changed from Option 1 to Option 3, the Face Amount will
be decreased by the sum of the premiums paid less the sum of Partial
Withdrawals. We do not allow changes between Option 2 and Option 3. Any Option
change will take effect on the Monthly Deduction Day on or following the date we
approve your signed request.
3.5. WHAT HAPPENS WHEN YOU ADD A RIDER TO YOUR POLICY? The rider will take
effect on the Monthly Deduction Day on or after the day we approve your request.
PAGE 09
<PAGE> 10
SECTION FOUR - PREMIUMS
4.1 ARE THERE PREMIUM LIMITATIONS? Premium payments may not be made if you chose
the Guideline Premium method of compliance, and if such payments would
disqualify the policy as life insurance, as defined under Section 7702 of the
Internal Revenue Code of 1986, as amended. If the premium paid during any Policy
Year exceeds the maximum permitted under the Internal Revenue Code, we will
return any such excess within 60 days after the end of the Policy Year with
interest at a rate of not less than 4%.
4.2 HOW DO YOU PAY PREMIUMS? At any time before the Policy Anniversary on which
the Insured is age 100, and while the Insured is living, premiums can be paid at
any frequency or by any method we make available. Premiums are payable at our
Administrative Office. The Cash Value is based on the amount and frequency of
premiums that have been paid. Please refer to the Cash Value and Partial
Withdrawal Section for full details.
4.3 WHAT ARE PLANNED PREMIUMS? The amount of the initial premium, and the amount
and frequency of planned premiums, as stated in the application, are shown on
page 5. The amount of any planned premium may be increased or decreased subject
to the limits we set. Planned premiums end on the policy anniversary on which
the Insured is age 100.
You may elect not to make a planned premium payment at any time. You may also
make other premium payments that are not scheduled.
4.4 HOW ARE YOUR PREMIUM PAYMENTS ALLOCATED TO THE SUBACCOUNTS? When we receive
a premium payment, we will deduct the Percent of Premium Loads shown on page 5
to determine the Net Premium, which is the amount that will be applied to the
Separate Account.
The Net Premium will be applied to the Separate Account Subaccounts in
accordance with your allocation election in effect at that time, and before any
other deductions that may be due are made. Any premiums received prior to the
end of the Free Look Period will be held in our General Account and earn
interest at a rate declared by us. This rate will be at least 4.0% per annum.
The entire balance will be applied as above at the end of the Free Look Period.
4.5 MAY YOUR ALLOCATION ELECTION BE CHANGED? You may change your allocation
election, stated in the application, by a written request. Your allocation
percentages must total 100%. Each percentage must be either zero, or a whole
number that is at least 1%. The change will become effective on the date we
receive the request at our Administrative Office. We reserve the right to limit
the number of changes of the allocation of Net Premiums to one per year.
4.6 WHAT HAPPENS IF YOU STOP MAKING PREMIUM PAYMENTS? This policy and its riders
will continue in effect as long as the Net Cash Value is sufficient to pay
Monthly Deduction Charges.
4.7 WHAT IS THE LATE PERIOD? If, on a Monthly Deduction Day, the Net Cash Value
is less than the Monthly Deduction Charges for the next Policy Month, the policy
will continue for a late period of 62 days after the date we mail the notice
described below. If we do not receive a premium payment before the end of the
Late Period, the policy will end and there will be no more benefits under the
policy. To inform you of this event, we will mail a notice to you at your last
known address. We will also mail a copy of the notice to the last known address
of any assignee on our records.
4.8 WHAT IF THE INSURED DIES DURING THE LATE PERIOD? It may happen that the
Insured dies during a Late Period. In that case, we will pay the Life Insurance
Benefit. However, the proceeds will be reduced by the amount of any unpaid loan
and Monthly Deduction Charges for the full Policy Month or months that run from
the beginning of the Late Period, through the Policy Month in which the Insured
died.
4.9 MAY YOU REINSTATE THE POLICY IF IT ENDS? Within 5 years after the policy has
ended, you may apply in writing to reinstate the policy (and any other benefits
provided by riders), if you did not surrender it for its full Net Cash Value.
When you apply, you must provide proof of insurability that is acceptable to us,
unless the required payment is made within 31 days after the end of the Late
Period.
4.10 WHAT PAYMENT IS REQUIRED TO REINSTATE THE POLICY? The required payment will
be an amount sufficient to keep this policy in force for at least 2 months. This
payment will be in lieu of the payment of all premiums in arrears. Any unpaid
loan must either be reinstated, or it must be repaid. Loan interest will be
applied at the rate of 6% compounded once each year from the end of the Late
Period to the date of reinstatement.
If a policy loan interest rate of less than 6% is in effect when the policy is
reinstated, the interest rate for any unpaid loan at the time of reinstatement
will be the same as the policy loan rate. The effective date of reinstatement
will be the Monthly Deduction Day on or following the date we approve the
request for reinstatement signed by you.
PAGE 10
<PAGE> 11
SECTION FIVE - SEPARATE ACCOUNT
5.1 HOW IS THE SEPARATE ACCOUNT ESTABLISHED AND MAINTAINED? We have established
and maintained the Separate Account under the laws of the State of Ohio. Any
realized or unrealized income, net gains and losses from the assets of the
Separate Account are credited or charged to it without regard to our other
income, gains or losses, including income, gain or losses from our other
separate accounts. We put assets in the Separate Account for this policy, and we
may also do the same for any other corporate variable life insurance policies we
may issue.
5.2 HOW ARE THE SEPARATE ACCOUNT ASSETS INVESTED? The Separate Account invests
its assets in shares of one or more mutual funds. Fund shares are purchased,
redeemed and valued on behalf of the Separate Account. The Separate Account is
divided into Subaccounts. We reserve the right to add or remove any Subaccount
of the Separate Account. We will notify you prior to any such change in the
Subaccounts.
5.3 TO WHOM DO THE ASSETS IN THE SEPARATE ACCOUNT BELONG? The assets of the
Separate Account are our property. Assets equal to the reserve and other
contractual liabilities under all policies issued in connection with the
Separate Account assets will not be charged with liabilities arising out of any
other business we may conduct. We reserve the right to transfer assets of a
Subaccount, in excess of the reserves and other contract liabilities with
respect to that Subaccount, to another Subaccount or to our General Account.
5.4 HOW WILL THE ASSETS OF THE SEPARATE ACCOUNT BE VALUED? On each Valuation
Day, the assets of the Separate Account will be valued at fair market value, as
determined in accordance with a method of valuation that we established in good
faith.
5.5 MAY WE TRANSFER ASSETS OF THE SEPARATE ACCOUNT TO ANOTHER SEPARATE ACCOUNT?
We reserve the right to transfer assets of the Separate Account, which we
determine to be associated with the class of policies to which this policy
belongs, to another separate account. If this type of transfer is made, the term
"Separate Account," as used in this policy, shall then mean the separate account
to which the assets were transferred. We also reserve the right to add, delete
or substitute investments held by any Subacccount.
5.6 WHAT OTHER RIGHTS DO WE HAVE? We also reserve the right, when
permitted by law, to:
(a) de-register the Separate Account under the Investment Company Act of 1940;
(b) manage the Separate Account under the direction of a committee or
discharge such committee at any time;
(c) restrict or eliminate any voting rights of Policyowners or other persons
who have voting rights as to the Separate Account; and
(d) combine the Separate Account with one or more other separate accounts.
5.7 MAY A CHANGE IN THE INVESTMENT OBJECTIVE OR STRATEGY OF THE SEPARATE ACCOUNT
BE REQUIRED? When required by law or regulation, an investment objective of the
Separate Account may be changed. It will only be changed if approved by the
appropriate insurance official of the State of Ohio or deemed approved in
accordance with such law or regulation. If so required, the request to obtain
such approval will be filed with the insurance official of the state or district
in which this policy is delivered.
5.8 WHAT IS THE INTEREST OF THIS POLICY IN THE SEPARATE ACCOUNT? The interest of
this policy in the Separate Account prior to the date on which the Life
Insurance Benefit becomes payable is represented by Accumulation Units.
5.9 WHAT ARE ACCUMULATION UNITS? Accumulation Units are the accounting units
used to calculate the values under this policy. The number of Accumulation Units
purchased in a Subaccount will be determined by dividing the part of any premium
payment or the part of any Transfer applied to that Subaccount, by the value of
an Accumulation Unit for that Subaccount on the transaction date. Premium
payments allocated, Transferred or otherwise added to the Subaccounts will be
applied to provide Accumulation Units in those Subaccounts. Accumulation Units
are redeemed when amounts are loaned, Transferred, surrendered or otherwise
deducted. These transactions are called policy transactions.
PAGE 11
<PAGE> 12
5.10 HOW IS THE NUMBER OF ACCUMULATION UNITS DETERMINED? Accumulation Units
are bought and sold each time there is a policy transaction. The number of
Accumulation Units in a Subaccount on any day is determined as follows:
Step 1: From the units as of the prior Monthly Deduction Day, subtract the
units sold to pay any Partial Withdrawals per section 6.3.
Step 2: Add units bought with any premiums received since the prior Monthly
Deduction Day per section 4.4.
Step 3: Subtract any units sold to transfer amounts into the Loan Account per
section 7.2.
Step 4: Add any units bought with loan repayments per section 7.6.
Step 5: Subtract any units sold to Transfer amounts into other Subaccounts
per section 5.12.
Step 6: Add any units bought from amounts Transferred from other Subaccounts
per section 5.12.
The number of units on a Monthly Deduction Day is the result of steps 1 to 6,
minus the number of units sold to pay the Monthly Deduction Charge per
section 6.4. If the Monthly Deduction Day is a Policy Anniversary, the
number of units will be increased or decreased by units bought or sold for
any amounts transferred to or from the Loan Account per section 7.6.
5.11 HOW IS THE VALUE OF AN ACCUMULATION UNIT DETERMINED? The value of an
Accumulation Unit on any Valuation Day is determined by multiplying the value
of that unit on the immediately preceding Valuation Day by the net investment
factor for the Valuation Period. The net investment factor for this policy,
used to calculate the value of an Accumulation Unit in any Subaccount of the
Separate Account for the Valuation Period is determined by dividing (a) by
(b), where:
(a) is the sum of:
(1) the net asset value of the fund shares held in the Separate Account for
that Subaccount determined at the end of the current Valuation Period, plus
(2) the per share amount of any dividends or capital gain distributions
made by the fund for shares held in the Separate Account for that
Subaccount if the ex-dividend date occurs during the Valuation Period.
(b) is the net asset value of the fund shares held in the Separate Account for
that Subaccount determined as of the end of the immediately preceding
Valuation Period.
The net investment factor may be greater or less than one; therefore, the value
of an Accumulation Unit may increase or decrease.
5.12 MAY YOU TRANSFER AMOUNTS BETWEEN SUBACCOUNTS? Transfers may be made between
Subaccounts of the Separate Account.
We reserve the right to apply a charge, not to exceed $25, for each Transfer
after the first twelve in a given Policy Year. This charge is applied to the
appropriate Subaccounts on the basis of the amount of the total Transfer that is
allocated from each Subaccount
5.13 WHEN WILL THESE TRANSFERS TAKE EFFECT? Transfers will take effect as of the
next Valuation Day after we receive your signed written request at our
Administrative Office.
5.14 ARE THERE LIMITS ON WHAT YOU MAY TRANSFER? The minimum amount that can be
Transferred is the lesser of $500 or the value of all remaining Accumulation
Units in the Subaccount, unless we agree otherwise. The Subaccount from which
the Transfer is being made must maintain a minimum balance of $500 after the
Transfer is completed. If, after a Transfer, the value of the remaining
Accumulation Units in a Subaccount would be less than $500, we have the right to
include that amount as part of the Transfer.
PAGE 12
<PAGE> 13
SECTION SIX - CASH VALUE AND PARTIAL WITHDRAWALS
6.1 WHAT IS THE CASH VALUE OF THIS POLICY? The Cash Value on any date during the
Free Look Period is the amount in the General Account. The Cash Value on any
date after the Free Look Period is the value of your policy's Accumulation Units
in the Separate Account plus the amount in the Loan Account less any mortality
and expense risk charges which have accrued since the last Monthly Deduction
Day.
6.2 MAY YOU SURRENDER THIS POLICY? You may apply to receive the full Net Cash
Value, while the Insured is alive and this policy is in effect. The Net Cash
Value will be calculated as of the date on which we receive your signed request
at our Administrative Office. All insurance will end on the date we receive your
request for a full Net Cash Value benefit.
The Net Cash Value at any time equals the Cash Value less any unpaid loan and
accrued loan interest due.
6.3 MAY YOU MAKE A PARTIAL WITHDRAWAL FROM THIS POLICY? After the first Policy
Year, you may apply for a Partial Withdrawal of at least $500 and up to an
amount equal to the full Net Cash Value, provided at least $500 of Net Cash
Value would remain with us after we pay this benefit. The amount withdrawn plus
a processing charge equal to the lesser of $25 or 2% of the amount requested are
made on a pro-rata basis from each of the Subaccounts, unless we have received a
prior signed written notice from you at our Administrative Office telling us
otherwise.
To withdraw funds from the policy, we must receive your signed request at our
Administrative Office.
The Cash Value and the Net Cash Value will be reduced, as of the date of
payment, by the amount of Partial Withdrawal that you make.
If Life Insurance Benefit Option 1 is in effect, the Face Amount will also be
reduced by the amount of Partial Withdrawal. If Life Insurance Benefit Option 2
is in effect, the Face Amount will not be changed by the amount of Partial
Withdrawal. If Life Insurance Benefit Option 3 is in effect, and the sum of all
Partial Withdrawals is greater than the sum of the premiums, the Face Amount is
reduced by the sum of the Partial Withdrawals minus the sum of the premiums,
otherwise the Face Amount is not reduced. In no event will the Face Amount be
reduced below $25,000.
6.4 WHAT DEDUCTIONS ARE MADE AGAINST THE CASH VALUE? On each Policy Anniversary
during Policy Years 2-7, a Deferred Sales Charge not to exceed the amount shown
on page 5 is deducted.
On each Monthly Deduction Day the following deductions are made from the
policy's Cash Value:
(a) a monthly contract charge not to exceed the amount shown on page 5;
(b) the monthly cost of insurance for the amount of the Life Insurance
Benefit in effect at that time;
(c) the monthly cost for any riders attached to this policy;
(d) a monthly factor representing the annual mortality and expense risk
charge. The total monthly charges, in any year, will not exceed the
amount shown on page 5.
A deduction may also be made for any temporary flat extras that may apply. The
amount and duration of these flat extras, if any, are shown on page 5.
The Monthly Deduction Day for this policy is shown on page 5. All deductions are
made on a pro-rata basis from each of the Subaccounts.
6.5 HOW IS THE COST OF INSURANCE FOR THIS POLICY CALCULATED? The cost of
insurance is calculated on each Monthly Deduction Day. The monthly cost of
insurance is equal to (1) multiplied by the result of (2) minus (3), where:
(1) is the monthly cost of insurance rate per $1,000 of insurance;
(2) is the number of thousands of Life Insurance Benefit (as defined in the
application Option 1, Option 2 or Option 3 in the Life Insurance
Benefit section) divided by 1.0032737; and
(3) is the number of thousands of Cash Value as of the Monthly Deduction Day
(before this cost of insurance, and after the mortality and expense risk
charge, any applicable administrative fee and the cost of any other
riders are subtracted).
6.6 HOW ARE COST OF INSURANCE RATES AND CASH VALUES ALLOCATED TO FACE AMOUNT
INCREASES? The same rate is used to obtain the cost of insurance for the initial
Face Amount, and for each increase in the Face Amount.
6.7 WHAT ARE THE COST OF INSURANCE RATES? The monthly rates that apply to the
cost of insurance for the initial Face Amount at all ages will not be greater
than the maximum rates shown in the Table of Guaranteed Maximum Monthly Cost of
Insurance Rates attached to this policy. The actual rate applicable will be set
by us, in advance, at least once a year. Any change in the cost of insurance
rate will be on a uniform basis for all Insureds of the same classification,
such as, attained age, sex and risk classification.
6.8 WHAT IS THE COST OF RIDERS? For any rider made a part of this policy, its
monthly cost is as described in the rider or on page 5.
PAGE 13
<PAGE> 14
SECTION SEVEN - LOANS
7.1 WHAT IS THE LOAN VALUE OF THIS POLICY? After the first policy year, using
this policy as sole security, you can borrow a minimum of $500 and up to the
Loan Value of this policy. The Loan Value on any given date is equal to 90% of
Net Cash Value on that date. We permit a policy loan prior to the first Policy
Anniversary for policies issued pursuant to a transfer of Cash Values from
another life insurance policy under Section 1035(a) of the Code.
7.2 WHAT HAPPENS WHEN YOU REQUEST A LOAN? When a loan is requested, an amount is
Transferred from the Subaccounts to the Loan Account equal to:
(a) the requested loan amount; plus
(b) any outstanding policy loan; plus
(c) the loan interest to the end of the Policy Year on (a) and (b); minus
(d) the amount in the Loan Account
This Transfer will be made on a pro-rata basis from the various Subaccounts
unless you request otherwise.
7.3 WHAT IS THE LOAN ACCOUNT? The Loan Account secures policy debt and is a part
of our General Account. The amount in the Loan Account on any date will not be
less than:
(a) the amount in the Loan Account on the prior Policy Anniversary, increased
with interest; plus
(b) any loan taken since the prior Policy Anniversary, increased with
interest; less
(c) any loan amount repaid since the prior Policy Anniversary, increased
with interest.
Amounts in the Loan Account are credited at the end of each Policy Year, with
interest at a rate of 4% per year.
7.4 WHAT IS THE LOAN INTEREST RATE FOR THE POLICY? Unless we set a lower rate
for any period, the effective annual loan interest rate is 6%. Loan interest is
due in arrears on each Policy Anniversary and on the date the loan is repaid.
Loan interest not paid when due becomes part of the loan and will bear interest
at the same rate.
On the date of death, the date the policy ends, the date of a loan repayment, or
any other date we specify, we will make any adjustment in the loan that is
required to reflect any interest accrued since the last Policy Anniversary.
7.5 IF THE LOAN INTEREST RATE IS REDUCED, CAN IT SUBSEQUENTLY INCREASE? If we
have set a rate lower than 6% per year, any subsequent increase in the interest
rate shall be subject to the following conditions:
(1) The effective date of any increase in the interest rate for policy loans
shall not be earlier than one year after the effective date of the
establishment of the previous rate.
(2) The amount by which the interest rate may be increased shall not exceed 1%
per year, but the rate of interest shall in no event exceed 6% per year.
(3) We will give notice of the interest rate in effect when a loan is made and
when sending notice of loan interest due.
(4) If a loan is outstanding 40 days or more before the effective date of an
increase in the interest rate, we will notify you of that increase at
least 30 days prior to the effective date of the increase.
(5) We will give notice of any increase in the interest rate when a loan is
made during the 40 days before the effective date of the increase.
7.6 HOW ARE LOAN REPAYMENTS CREDITED? All or part of an unpaid loan can be
repaid before the Insured's death or before the policy is surrendered. An amount
equal to the portion of any loan repaid, but not more than the amount in the
Loan Account will be Transferred from the Loan Account to the Subaccounts using
the allocation election in effect at the time of repayment.
On each Policy Anniversary, if the amount in the Loan Account exceeds the amount
of any outstanding policy loans plus loan interest for one year, the excess will
be Transferred from the Loan Account to the Subaccounts using the allocation
election in effect at the time of repayment, otherwise an amount will be
Transferred from the Subaccounts to the Loan Account as calculated in section
7.2.
7.7 WHAT HAPPENS IF A LOAN IS NOT REPAID? In a given Policy Year, it may
happen that, based on the loan interest rate in effect when that year began
(ignoring any subsequent increase in that rate during that year), an unpaid
loan will exceed the Cash Value. In that case, we will mail a notice to you
at your last known address, and a copy of the last known address of any
assignee on our records. All insurance will end 31 days after the date on
which we mail that notice to you if the excess of the unpaid loan over the
Cash Value is not paid within that 31 days.
PAGE 15
<PAGE> 15
SECTION EIGHT - PAYMENT OF POLICY PROCEEDS
8.1 HOW WILL POLICY PROCEEDS BE PAID? We will pay the policy proceeds in one sum
or, if elected, all or part of these proceeds may be placed under one or more of
the options described in this section. If we agree, the proceeds may be placed
under some other method of payment instead.
Any life insurance proceeds paid in one sum will bear interest compounded each
year from the Insured's death to the date of payment. We set the interest rate
each year. This rate will be at least 3% per year, and will not be less than
required by law.
8.2 HOW DO YOU ELECT AN OPTIONAL METHOD OF PAYMENT? While the Insured is living,
you can elect or change an option. You can also name or change one or more
Beneficiaries who will be the payee or payees under that option.
After the Insured dies, any person who is to receive proceeds in one sum (other
than an assignee) can elect an option and name payees. The person who elects an
option can also name one or more successor payees to receive any unpaid amount
we have at the death of the payee. Naming these payees cancels any prior choice
of successor payee.
A payee who did not elect the option does not have the right to advance or
assign payment, take payments in one sum, or make any other change. However, the
payee may be given the right to do one or more of these things if the person who
elects the option tells us in writing and we agree.
8.3 HOW MAY AN OPTION BE CHANGED? If we agree, a payee who elects a fixed period
option may later elect to have any unpaid amount we still have, or the present
value of any elected payments, placed under some other option described in this
section.
8.4 WHO MAY BE NAMED PAYEES? Only individuals who are to receive payments in
their own behalf may be named as payees or successors payees, unless we agree to
some other payee. We may require proof of the age or the survival of a payee.
8.5 WHAT HAPPENS IF THE PAYEE DIES BEFORE ALL PROCEEDS HAVE BEEN PAID? It may
happen that when the last surviving payee dies, we still have an unpaid amount,
or there are some payments that remain to be made. If so, we will pay the unpaid
amount with interest to the date of payment, or pay the present value of the
remaining payments, to that payee's estate in one sum. The present value of any
remaining payments is based on the interest rate used to compute them, and is
always less than their sum.
8.6 IS THERE A MINIMUM PAYMENT THE COMPANY WILL MAKE? When any payment under an
option would be less than $100, we may pay any unpaid amount or present value in
one sum.
8.7 HOW ARE SETTLEMENT OPTION RATES DETERMINED? All Settlement option rates are
based on the 1983 Individual Annuity Mortality Table, if applicable, and a
guaranteed annual interest rate of 4%. The payee will receive the greater of:
1. The income rate guaranteed in the policy; or
2. The income rates in effect for us at the time income payments are made.
8.8 WHAT IS THE FIXED PERIOD OPTION? The proceeds will be paid in equal
installments. The installments will be paid over a fixed period determined from
the following table per $1,000 of proceeds:
<TABLE>
<CAPTION>
Fixed Period
(in Months) Factor
<S> <C>
60 18.32
120 10.05
180 7.33
240 6.00
300 5.22
360 4.71
</TABLE>
PAGE 15
<PAGE> 16
8.9 WHAT IS THE LIFE INCOME OPTION? The proceeds will be paid in equal
installments determined from the following table per $1,000 of proceeds:
1. during the payees's lifetime only (Life Annuity); or
2. during a fixed period certain and for the payee's remaining lifetime
(Certain Period); or
3. until the sum of installments paid equals the annuity proceeds applied
and for the payee's remaining lifetime (Installment Refund).
<TABLE>
<CAPTION>
MALE FEMALE
------ ------
Certain Period Certain Period
-------------- --------------
Payee's Life Installment Life Installment
Age Annuity 5 yrs 10 yrs Refund Annuity 5 yrs 10 yrs Refund
-------- ------ ------ ------ ------- ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
65 6.68 6.60 6.35 6.09 5.92 5.89 5.77 5.59
66 6.68 6.78 6.50 6.23 6.08 6.03 5.90 5.71
67 7.09 6.98 6.65 6.38 6.24 6.19 6.04 5.83
68 7.31 7.18 6.81 6.53 6.42 6.36 6.19 5.97
69 7.56 7.40 6.97 6.69 6.61 6.54 6.34 6.11
70 7.82 7.64 7.14 6.86 6.81 6.74 6.50 6.26
71 8.09 7.88 7.31 7.04 7.04 6.95 6.67 6.42
72 8.39 8.14 7.48 7.23 7.28 7.17 6.84 6.59
73 8.71 8.41 7.65 7.43 7.54 7.41 7.02 6.77
74 9.05 8.70 7.83 7.64 7.83 7.67 7.21 6.97
75 9.41 9.00 8.00 7.86 8.14 7.95 7.40 7.17
76 9.81 9.32 8.17 8.10 8.47 8.24 7.60 7.39
77 10.23 9.65 8.34 8.34 8.83 8.56 7.80 7.62
78 10.68 9.99 8.60 8.60 9.23 8.89 7.99 7.86
79 11.16 10.35 8.87 8.87 9.65 9.24 8.19 8.13
80 11.68 10.72 9.16 9.16 10.12 9.61 8.38 8.40
81 12.23 11.09 9.45 9.45 10.62 10.01 8.57 8.69
82 12.81 11.47 9.76 9.76 11.16 10.41 8.74 9.01
83 13.44 11.86 10.09 10.09 11.76 10.84 8.91 9.34
84 14.09 12.25 10.44 10.44 12.39 11.28 9.06 9.68
</TABLE>
8.10 WHAT IS THE JOINT AND SURVIVOR LIFE INCOME OPTION? The proceeds will be
paid in equal installments during the joint lifetime of two payees per $1,000 of
proceeds:
<TABLE>
<S> <C>
1. continuing upon the death of the 2. reduced by one-third upon the
first payee for the remaining lifetime death of the first payee and
of the survivor; or continuing for the remaining life
time of the survivor.
Joint Life Income with Joint Life Income with
Full Amount to Survivor Two-third's to Survivor
Age Nearest Birthday Age Nearest Birthday
Male Male
</TABLE>
<TABLE>
<CAPTION>
Female 55 60 65 70 75 Female 55 60 65 70 75
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
55 4.45 4.55 4.64 4.71 4.76 55 4.83 5.03 5.24 5.48 5.73
60 4.62 4.79 4.94 5.06 5.14 60 5.05 5.28 5.54 5.83 6.13
65 4.79 5.03 5.27 5.47 5.63 65 5.29 5.58 5.90 6.26 6.63
70 4.94 5.27 5.61 5.94 6.22 70 5.57 5.91 6.32 6.77 7.25
75 5.06 5.46 5.93 6.43 6.90 75 5.89 6.30 6.80 7.38 8.02
</TABLE>
PAGE 16
<PAGE> 17
SECTION NINE - GENERAL PROVISIONS
9.1 WHAT CONSTITUTES THE ENTIRE CONTRACT? The entire contract consists of this
policy, any attached riders or endorsements, and the attached copy of the
application and any supplemental applications. Also, any application used to
apply for increases in the policy Face Amount or to add riders will be attached
to and made a part of this policy. Only our President, Secretary, or one of our
Vice Presidents or one of our officers is authorized to change the contract, and
then, only in writing. No change will be made to this contract without your
consent. No agent is authorized to change this contract.
Any extra benefit rider attached to the policy will become a part of this policy
and will be subject to all the terms and conditions of this policy unless we
state otherwise in the rider.
9.2 HOW IMPORTANT IS THE INFORMATION YOU PROVIDE IN THE APPLICATION FOR THIS
POLICY? In issuing this policy, we have relied on the statements made in the
application. All such statements are deemed to be representations and not
warranties. We assume these statements are true and complete to the best of the
knowledge and belief of those who made them.
No statement made in connection with the application will be used by us to void
this policy or to deny a claim unless that statement is a material
misrepresentation and is part of the application.
9.3 WILL WE BE ABLE TO CONTEST THIS POLICY? We will not contest the payment of
the life insurance proceeds based on the initial Face Amount, after this policy
has been in force during the lifetime of the Insured for two years from the
Effective Date.
If the Face Amount of this policy is increased or if a rider is added as
described in the Policy Changes section, the two year contestable period for
such coverage shall begin on the effective date of such coverage. We may contest
the payment of that amount only on the basis of those statements made in the
application in connection with such increase in Face Amount or rider.
However, if the increase in Face Amount is the result of a corresponding
decrease in the amount of insurance under any attached term rider, the two year
contestable period will be measured from the date this corresponding portion of
term insurance become effective.
Please refer to the provision or provisions that may be in any rider or riders
attached to this policy regarding the contestability of the rider or riders.
9.4 DOES THIS POLICY COVER SUICIDE OF THE INSURED? Suicide of the Insured, while
sane or insane within two years of the Effective Date, is not covered by this
policy. In that event, this policy will end and the only amount payable will be
the premiums paid to us, less any loan and less any Partial Withdrawals paid.
If the Face Amount is increased or if a rider is added as described in the
Policy Changes section, then the two year suicide exclusion period for such
increase will begin on the date on which this increase or addition takes effect.
If the suicide exclusion applies to an increase in the Face Amount or rider, the
only amount payable with respect to that coverage will be the total cost of
insurance we deducted for that coverage.
However, if the increase in Face Amount is the result of a corresponding
decrease in the amount of insurance under any attached term rider, the two year
suicide exclusion period will be measured from the date that the corresponding
portion of term insurance became effective.
9.5 HOW ARE THE DATES REFERRED TO IN THIS POLICY MEASURED? Policy Years, Months,
and Anniversaries are measured from the Effective Date.
9.6 HOW IS A PERSON'S AGE CALCULATED FOR THE PURPOSES OF THIS POLICY? In this
policy, when we refer to a person's age on any date, we mean his or her age on
the last birthday. However, the cost of insurance will be based on the Insured's
age on the prior Policy Anniversary.
9.7 WHAT HAPPENS IF A PERSON'S AGE OR SEX HAS BEEN STATED INCORRECTLY? If we
would pay too little or too much because the age or sex of the Insured is not
correct as stated, we will adjust the proceeds, up or down, to reflect the
PAGE 17
<PAGE> 18
correct age or sex. The amount of the Life Insurance Benefit shall be that which
would be purchased by the most recent mortality charge at the correct age and
sex.
9.8 CAN PAYMENT OF A LOAN OR SURRENDER PROCEEDS BE DEFERRED? Generally, we will
grant any loan, or pay any surrender proceeds or life insurance proceeds within
7 days after we receive all the requirements that we need. However, we may defer
making any of these payments for any period during which the New York Stock
Exchange is closed for trading (other than the usual weekend or holiday
closings), or if the Securities and Exchange Commission restricts trading or has
determined that a state of emergency exists. If so, it may not be practical for
us to determine the investment experience of the Separate Account.
9.9 MAY YOU ASSIGN OR TRANSFER THE POLICY? While the Insured is living, you may
assign this policy, or any interest in it. If you do this, your interest, and
anyone else's is subject to that of the assignee. As owner, you still have the
rights of ownership that have not been assigned.
9.10 MAY THE ASSIGNEE CHANGE THE OWNER OR BENEFICIARY? An assignee may not
change the owner or the Beneficiary, and may not elect or change an optional
method of payment. Any amount payable to the assignee will be paid in one sum.
9.11 HOW DO YOU ASSIGN THE POLICY? We must have a copy of any assignment. We
will not be responsible for the validity of any assignment. Any assignment will
be subject to any payment we make or other action we take before we record the
assignment.
9.12 ARE THE PAYMENTS MADE UNDER THIS POLICY PROTECTED AGAINST CREDITORS? Except
as stated in the assignment provision, payments we make under this policy are,
to the extent the law permits, exempt from the claims, attachments, or levies of
any creditors.
9.13 TO WHOM SHOULD PAYMENTS FOR THIS POLICY BE MADE? Any payment made to us by
check or money order must be payable to Western Reserve Life Assurance Co. of
Ohio. Upon request, we will provide a countersigned receipt, signed by our
President or Secretary, for any payment paid to us.
9.14 ARE ANY DIVIDENDS PAYABLE ON THIS POLICY? This is a non-participating
policy, on which no dividends are payable.
9.15 WILL YOU BE UPDATED REGARDING THE STATUS OF YOUR POLICY? Each Policy Year
after the first, while this policy is in force and the Insured is living, we
will send a written report to you within 30 days after the Policy Anniversary.
It will show, as of that anniversary, the Cash Value, and the amount of unpaid
loan. This report will also give you any other facts required by state law or
regulation.
9.16 WHAT IS THE BASIS USED FOR COMPUTATION OF POLICY VALUES? All Cash Values
and maximum cost of insurance rates referred to in this policy are based on the
1980 CSO Tables of Mortality if the Insured is in a standard class of risk.
Separate scales of maximum cost of insurance rates apply to other risk classes.
Semi continuous functions are used, with 4% interest. We have filed a statement
with the insurance official in the state or district in which this policy is
delivered. It describes, in detail, how we compute policy benefits and Cash
Values.
PAGE 18
<PAGE> 19
GUARANTEED MONTHLY COST OF INSURANCE RATES
<TABLE>
<CAPTION>
ATTAINED ATTAINED
AGE MALE FEMALE AGE MALE FEMALE
<S> <C> <C> <C> <C> <C>
20 $0.1583 $0.0883 60 $1.4000 $0.8167
21 0.1583 0.0900 61 1.5300 0.8783
22 0.1567 0.0917 62 1.6767 0.9575
23 0.1533 0.0933 63 1.8408 1.0525
24 0.1500 0.0958 64 2.0225 1.1600
25 0.1458 0.0975 65 2.2183 1.2742
26 0.1433 0.1000 66 2.4275 1.3925
27 0.1425 0.1033 67 2.6492 1.5108
28 0.1417 0.1067 68 2.8875 1.6325
29 0.1433 0.1100 69 3.1508 1.7692
30 0.1458 0.1142 70 3.4475 1.9300
31 0.1500 0.1183 71 3.7858 2.1275
32 0.1558 0.1225 72 4.1733 2.3725
33 0.1625 0.1283 73 4.6117 2.6658
34 0.1708 0.1342 74 5.0917 3.0042
35 0.1808 0.1417 75 5.6042 3.3800
36 0.1933 0.1517 76 6.1417 3.7875
37 0.2075 0.1633 77 6.6975 4.2233
38 0.2233 0.1775 78 7.2767 4.6933
39 0.2417 0.1933 79 7.8967 5.2142
40 0.2625 0.2108 80 8.5783 5.8058
41 0.2850 0.2292 81 9.3408 6.4858
42 0.3092 0.2483 82 10.2008 7.2708
43 0.3358 0.2667 83 11.1533 8.1583
44 0.3642 0.2867 84 12.1767 9.1350
45 0.3942 0.3067 85 13.2483 10.1908
46 0.4267 0.3267 86 14.3508 11.3183
47 0.4608 0.3492 87 15.4775 12.5150
48 0.4975 0.3733 88 16.6275 13.7817
49 0.5383 0.3992 89 17.8075 15.1283
50 0.5833 0.4275 90 19.0358 16.5708
51 0.6358 0.4583 91 20.3425 18.1400
52 0.6942 0.4933 92 21.7858 19.8908
53 0.7608 0.5317 93 23.5108 21.9508
54 0.8342 0.5708 94 25.8308 24.6025
55 0.9133 0.6108 95 29.3217 28.4183
56 0.9975 0.6500 96 35.0825 34.4900
57 1.0867 0.6875 97 45.0833 44.7700
58 1.1817 0.7250 98 62.0958 61.9967
59 1.2850 0.7667 99 83.3333 83.3333
</TABLE>
WHEN INSURANCE IS SOLD ON A SUBSTANDARD BASIS, THE GUARANTEED COST OF INSURANCE
RATES SHOWN ABOVE ARE INCREASED 25% FOR EACH ADDITIONAL RATING CLASS ABOVE
STANDARD.
PAGE 19
<PAGE> 20
WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO
Home Office: Columbus, Ohio
Administrative Office: 4333 Edgewood Road N.E., Cedar Rapids, Iowa 52499
A Stock Company
(Hereafter called: we, our or us)
TERM INSURANCE RIDER
This extra benefit rider, attached to and made part of the policy, provides
term insurance as described below.
We agree to pay to the Beneficiary the Term Face Amount when we receive due
proof at our Administrative Office of the following:
1. That the insured's death occurred while this rider was in force.
2. That the insured's death occurred before the expiry date of this rider.
WHO IS THE INSURED? The insured is the person shown as the insured on Page 5 of
the policy.
WHAT IS THE EXPIRY DATE? The expiry date means the rider anniversary that occurs
in the year the insured attains age 100.
WHAT IS THE TERM FACE AMOUNT? The Term Face Amount for this rider is the rider
face amount shown on page 5.
WHAT IS THE TARGET AMOUNT? The initial Target Amount is the amount shown on page
5 of the policy. Under Life Insurance Benefit Option 1, the Target Amount is
equal to the initial Target amount. Under Life Insurance Benefit Option 2, the
Target Amount is equal to the initial Target Amount plus the Cash Value. Under
Life Insurance Benefit Option 3, the Target Amount is equal to the initial
Target amount plus the sum of the premiums paid less the sum of the Partial
Withdrawals. The initial Target Amount may be modified in accordance with the
following:
A. We will increase the Target Amount if you so request in writing and
provide us with evidence of insurability.
B. We will decrease the Target Amount if you so request in writing.
C. If the Face Amount of the policy or any of the riders is reduced by
request, or because of a Partial Withdrawal, the Target Amount will be
reduced by the amount of the request or Partial Withdrawal.
WRLTM
WHAT IS THE TERM INSURANCE AMOUNT? The Term Insurance Amount is the total Life
Insurance Benefit for all term riders. It equals the Target Amount less the Life
Insurance Benefit provided by the policy. If the Term Insurance Amount is less
than the sum of all riders, then the rider Face Amounts will be temporarily
reduced in the reverse order in which they were issued. The Term Face Amount for
any rider cannot be less than zero, nor more than the initial Face Amount for
that rider.
Such rates will be based on our expectation of future experience for such
factors as investment earnings, mortality, persistency, taxes and expenses. We
will not recover prior losses nor distribute prior gains through adjustments of
such Premium Rates. The declared Premium Rates will not exceed the Guaranteed
Premiums Rates as shown in the Table of One Year Term Premium Rates.
<PAGE> 21
HOW DOES THIS RIDER TERMINATE? This rider will terminate if the policy to which
it is attached:
1. Terminates without value.
2. Lapses for failure to pay a premium.
3. Terminates due to death of the Insured.
This rider will also terminate on the expiry date of this rider or you may
terminate this rider by written request.
WHAT IS THE POLICY? In this rider "policy" means the policy in which you have
requested that this rider be included. "Page 5" means page 5 of the policy.
This rider is issued in consideration of the application. This rider is a part
of the policy. All provisions of the policy which are not inconsistent with the
provisions of this rider apply to this rider.
WHAT IS THE RIDER DATE? Rider months, years and anniversaries are measured from
the rider date. The rider date is the Effective Date unless a different rider
date is shown in an endorsement attached to the policy. When used in the rider,
"effective date" means the rider date.
WILL WE BE ABLE TO CONTEST THIS RIDER? We cannot contest this rider after it has
been in force during the lifetime of the insured for two years from rider date
or the effective date of reinstatement of the policy. Only statements material
to such reinstatement shall be contestable for two years from the date of
reinstatement.
WHAT IS THE MONTHLY INSURANCE CHARGE FOR THIS RIDER? While this rider is in
force, a monthly cost of insurance charge for this coverage will be included in
the Monthly Deduction to the Cash Value. The monthly guaranteed cost of
insurance rates are shown in the policy. The Monthly Deduction for this rider
equals the cost of insurance rate times the Term Insurance Amount divided by
1.0032737. The rates will vary by the Issue Age, duration, sex and premium class
of the Insured. We may use cost of insurance rates lower than the guaranteed
rates but will never charge rates in excess of the guaranteed rates. Any change
to the cost of insurance rates will be applied uniformly to all members of the
same premium class. The monthly guaranteed cost of insurance rate is based on
the Insured's:
-Attained age,
-Sex, and
-Premium class shown on page 5 of the policy
Signed for us at our home office.
/s/ William H. Geiger /s/ John R. Kenney
SECRETARY PRESIDENT
<PAGE> 1
[LOGO] WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO
Home Office: Columbus, Ohio
Regional Office: 4333 Edgewood Road N.E.
Cedar Rapids, Iowa 52499
APPLICATION FOR LIFE INSURANCE - PART I
<TABLE>
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OWNER INFORMATION
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NAME RELATIONSHIP TO INSURED
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ADDRESS (Street, City, State, Zip) TAX ID # (*see below)
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PRIMARY BENEFICIARY RELATIONSHIP TO INSURED
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POLICY INFORMATION:
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PLAN OF INSURANCE
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SPECIFIED AMOUNT INFORMATION DEATH BENEFIT OPTION:
[ ] See attached Census
[ ] Face Amount $ [ ] Option 1 [ ] Option 2 [ ] Option 3
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[ ] Face Amount equals Salary Multiple [ ] 1x [ ] 2x [ ] 3x [ ] 4x [ ] 5x
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[ ] Other
------------ LIFE INSURANCE COMPLIANCE TEST:
Is this an increase to an existing policy? [ ] Yes [ ] No Guideline Premium [ ] Cash Value Accumulation [ ]
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FUND ELECTION: Percentage RIDERS
EAFE Equity Index Fund
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Small Cap Index Fund
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Equity 500 Index Fund
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Multi-Style Equity Fund
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Aggressive Equity Fund
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Non-US Fund PREMIUM
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Core Bond Fund BILLING DATE
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Money Market Fund
BILLING FREQUENCY
[ ]Annual [ ]Quarterly [ ]Semi-Annual
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Will life insurance or annuity with any company be replaced or changed if insurance applied for is issued? [ ] Yes [ ] No
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TAXPAYER IDENTIFICATION NUMBER STATEMENT
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Taxpayer Identification Number of Policyholder:
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Social Security Number or Employer Identification Number
Check the box if you ARE NOT subject to backup withholding under the
provisions of section 3406(a)(1)(C) of the Internal Revenue Code.......[ ]
Check the box if you ARE subject to backup withholding under the
provisions of section 3406(a)(1)(C) of the Internal Revenue Code.......[ ]
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The Internal Revenue Service does not require your consent to any provision of this document other than the following certification
required to avoid backup withholding.
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Under penalties of perjury, I hereby certify (1) that the Social Security or Taxpayer I.D. number listed above is correct and (2)
that my current status regarding backup withholding is correct.
Signature Date
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Owner's Signature
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3200 R598
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AGREEMENT
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I certify that all employees being insured under this application (see census) have consented to be insured, are actively at work
for not less than 30 hours per week and have not been absent from work due to accident, illness or other condition for more than
four consecutive days within the last 90 days prior to first becoming eligible to participate in the life insurance program being
applied for.
I agree that I have read and understand all statements and answers in this application; that they are complete and true to the best
of my knowledge and belief, and are correctly recorded whether written in my own hand or not.
I also agree that:
1. There will be no liability under this application until the policy is delivered to and accepted by the Owner and the full first
premium due is paid while the Proposed Insured is alive and his/her state of health is as favorable as described in this
application.
2. No modification may be made to the policy and no right of Western Reserve Life Assurance Co. of Ohio may be waived unless
agreed to in writing and signed by: A. The President; B. The Vice President; or C. The Secretary of the Company.
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WARNING: Any person who knowingly and with intent to defraud any insurance company or other person files an application for
insurance containing any materially false information or conceals for the purpose of misleading, information concerning any fact
material thereto commits a fraudulent insurance act, which is a crime.
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Signature of Owner Date
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Signed at (City and State)
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AGENT INFORMATION AND SIGNATURE
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For Agent. . .Will the insurance being applied for replace or change any existing insurance or annuity?
[ ] YES [ ] NO If yes, what company and policy no.?
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LICENSED AGENT SIGNATURE (Print Last Name) AGENT # LICENSE # TELEPHONE NO.
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3200 R598
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[LOGO] WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO
Home Office: Columbus, Ohio
Regional Office: 4333 Edgewood Road N.E., Cedar Rapids, Iowa 52499
APPLICATION FOR LIFE INSURANCE - PART II
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INSURED INFORMATION
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PROPOSED INSURED (First, Middle, Last) SEX AGE BIRTHDAY (Mo-Day-Yr)
[ ] Female
[ ] Male
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RESIDENCE ADDRESS (Street, City, State, Zip) PLACE OF BIRTH (State) SOCIAL SECURITY NUMBER
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PLEASE READ CAREFULLY AND COMPLETE ALL APPLICABLE INFORMATION
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1. Have you been ACTIVELY-AT-WORK*? YES NO
*ACTIVELY-AT-WORK is defined as: Performing all normal duties of the
position on a full-time basis for not less than 30 hours per week and not
absent from work due to accident, illness or other condition for more than
four consecutive days within the last 90 days prior to first becoming
eligible to participate in the life insurance program being applied for.
Life Investors Insurance Company of America reserves the right to request
recertification of the above information for deaths occurring within two
years of the application date or any increase thereafter and to contest
any claim during that period. [ ] [ ]
2. Do you understand and agree that, if you are not working a minimum of 30
hours per week at the time your coverage would otherwise become effective,
you will not have coverage until the date you return to work for a minimum
of 30 hours per week? [ ] [ ]
3. Have you used tobacco in the last 12 months? [ ] [ ]
If yes, what type(s)?
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4. Will the insurance being applied for replace or change any existing insurance
or annuity? If yes, please give company [ ] [ ]
name and policy number.
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PLEASE COMPLETE ONLY IF EVIDENCE OF INSURABILITY IS REQUIRED
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1. a. Name of Insured's Personal Physician:
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b. Date and Reason Last Consulted:
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2. HEIGHT: Feet Inches WEIGHT: pounds
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3. EVIDENCE OF INSURABILITY YES NO
a. Have you been hospitalized for a total of 7 or more days due to sickness in the past 12 months? [ ] [ ]
b. Do you have or have you had in the last ten years, Heart Murmur,
Coronary Artery Disease, Congestive heart failure, Heart or
circulatory surgery, Stroke; Emphysema, or other lung disease;
Diabetes, Kidney disease, Cirrhosis or other liver disease; Mental or
psychiatric disease or other disorders of the nervous system; Cancer; or sought treatment for
Alcoholism or Drug Abuse? [ ] [ ]
c. Do you have or have you ever had AIDS or AIDS Related Complex (ARC), or tested positive for HIV? [ ] [ ]
Please give appropriate details to any "yes" answers below:
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3201 R598 PLEASE COMPLETE REVERSE SIDE
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FAIR CREDIT REPORTING PRE-NOTICE
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A routine investigative consumer report may possibly be made regarding your general reputation, character, mode of living and
personal characteristics. This information may be obtained through personal interviews with your friends, neighbors and associates.
Should you desire additional information on the nature and scope of such a report, you may write the Underwriting Department,
Western Reserve Life Assurance Co. of Ohio, 4333 Edgewood Road N.E., Cedar Rapids, Iowa 52499, (319) 398-8511.]
You have the right to request additional information concerning the nature and scope of the investigation to be performed. A
summary of your rights is set forth on the attached "Notice to Consumer." To make this request, you must write the Underwriting
Department, Western Reserve Life Assurance Co. of Ohio, 4333 Edgewood Road N.E., Cedar Rapids, Iowa 52499.
Information regarding your insurability will be treated as confidential. Western Reserve Life Assurance Co. of Ohio or its
reinsurers may, however, make a brief report thereon to the Medical Information Bureau, a non-profit membership organization of life
insurance companies, which operates an information exchange on behalf of its members. If you apply to another Bureau member for life
or health insurance coverage, or a claim for benefits is submitted to such a company, the Bureau, upon request, will supply such
company with the information in its file.
Upon receipt of a request from you, the Bureau will arrange disclosure of any information it may have in your file. If you
question the accuracy of information in the Bureau's file, you may contact the Bureau and seek a correction in accordance with the
procedures set forth in the Federal Fair Credit Reporting Act. The address of the Bureau's information office is Post Office Box
105, Essex Station, Boston, Massachusetts 02122, telephone number (617) 426-3660.
Western Reserve Life Assurance Co. of Ohio or its reinsurers may also release information in this file to other life insurance
companies to whom you may apply for life or health insurance or to whom a claim for benefits may be submitted.
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TAXPAYER IDENTIFICATION NUMBER STATEMENT
Taxpayer Identification Number of Policyholder:
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Social Security Number or Employer Identification Number
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Check the box if you ARE NOT subject to backup withholding under the
provisions of section 3406(a)(1)(C) of the Internal Revenue Code........[ ]
Check the box if you ARE subject to backup withholding under the
provisions of section 3406(a)(1)(C) of the Internal Revenue Code........[ ]
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The Internal Revenue Service does not require your consent to any provision of this document other than the following certification
required to avoid backup withholding.
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Under penalties of perjury, I hereby certify (1) that the Social Security or Taxpayer I.D. number listed above is correct and (2)
that my current status regarding backup withholding is correct.
Signature Date
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Owner's Signature
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AGREEMENT
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I agree that I have read and understand all statements and answers in this application; that they are complete and true to the best
of my knowledge and belief, and are correctly recorded whether written in my own hand or not.
I also agree that:
1. There will be no liability under this application until the policy is delivered to and accepted by the Owner and the full first
premium due is paid while the Proposed Insured is alive and his/her state of health is as favorable as described in this
application.
2. No modification may be made to the policy and no right of Western Reserve Life Assurance Co. of Ohio may be waived unless
agreed to in writing and signed by: A. The President; B. The Vice President; or C. The Secretary of the Company.
AUTHORIZATION
I hereby authorize any licensed physician, medical practitioner, hospital, clinic or other medical or medically related facility,
insurance company, the Medical Information Bureau, any consumer reporting agency, or other organization, institution or person that
has any records or knowledge of me or my health, to give to the Western Reserve Life Assurance Co. of Ohio, or its reinsurers, any
such information. A photographic copy of this authorization shall be as valid as the original. This authorization shall be valid,
from the date signed below, for a period of two and one half years.
WARNING: Any person who knowingly and with intent to defraud any insurance company or other person files an application for
insurance containing any materially false information or conceals for the purpose of misleading, information concerning any fact
material thereto commits a fraudulent insurance act, which is a crime.
Dated at this day of
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Signed:
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Proposed Insured Signature
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AGENT INFORMATION AND SIGNATURE
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For Agent...Will the insurance being applied for replace or change any existing insurance or annuity?
[ ] YES [ ] NO If yes, what company and policy no.?
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LICENSED AGENT SIGNATURE (Print Last Name) AGENT # LICENSE # TELEPHONE NO.
3201 R598
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EXHIBIT 2
WRL LETTERHEAD
June 19, 1998
Board of Directors
Western Reserve Life Assurance
Co. of Ohio
WRL Series Life Account
201 Highland Avenue
Largo, Florida 33770
Gentlemen:
In my capacity as Vice President, Assistant Secretary and Associate General
Counsel of Western Reserve Life Assurance Co. of Ohio ("WRL"), I have
participated in the preparation and review of the Initial Registration Statement
on Form S-6 filed with the Securities and Exchange Commission under the
Securities Act of 1933 for the registration of flexible premium variable life
insurance policies (the "Policies") to be issued with respect to the WRL Series
Life Corporate Account (the "Account"). The Account was established on December
8, 1997, by the Board of Directors of WRL as a separate account for assets
applicable to the Policies, pursuant to the provisions of Section 3907.15 of the
Ohio Revised Code and Rule 3901-1-12 of the Administrative Code of Ohio.
I am of the following opinion:
1. WRL has been duly organized under the laws of Ohio and is a validly
existing corporation.
2. The Account has been duly created and is validly existing as a
separate account pursuant to the aforesaid provision of Ohio law.
3. Section 3907.15 of the Ohio Revised Code provides that the portion of
the assets of the Account equal to the reserves and other liabilities
for variable benefits under the Policies is not chargeable with
liabilities arising out of any other business WRL may conduct.
4. The Policies, when issued as contemplated by the Registration
Statement, will be legal and binding obligations of WRL in accordance
with their terms.
In arriving at the foregoing opinion, I have made such examination of law and
examined such records and other documents as I judged to be necessary or
appropriate.
I hereby consent to the filing of this opinion as an exhibit to the Registration
Statement.
Very truly yours,
/s/ Thomas E. Pierpan
Thomas E. Pierpan
Vice President, Assistant Secretary
and Associate General Counsel
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EXHIBIT 5
WRL LETTERHEAD
June 19, 1998
Western Reserve Life Assurance Co. of Ohio
201 Highland Avenue
Largo, Florida 33770
RE: REGISTRATION NO. 333-
Gentlemen:
This opinion is furnished in connection with the initial registration
by Western Reserve Life Assurance Co. of Ohio of flexible premium variable life
insurance policies ("Policies") under the Securities Act of 1933. The Prospectus
included in the Registration Statement on Form S-6 describes the Policies. The
forms of Policies were prepared under my direction, and I am familiar with the
Registration Statement and Exhibits thereof.
In my opinion, the illustrations of death benefits, cash values and
net surrender values included in the section entitled "Illustrations of Cash
Value, Net Cash Value and Life Insurance Benefits" of the Prospectus, based on
the assumptions stated in the illustrations, are consistent with the provisions
of the respective forms of the Policies.
I hereby consent to use of this opinion as an exhibit to the Initial
Registration Statement and to the reference to my name under the heading
"Experts" in the Prospectus.
Very truly yours,
/s/ Frederick J. Garland, Jr.
Frederick J. Garland, Jr., FSA
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[ERNST & YOUNG LETTERHEAD]
EXHIBIT 7
Consent of Independent Auditors
We consent to the reference to our firm under the caption "Experts" and to the
use of our report dated February 27, 1998 with respect to the statutory-basis
financial statements and schedules of Western Reserve Life Assurance Co. of Ohio
included in the Registration Statement and related Prospectus of WRL Series
Life Corporate Account for the registration of variable adjustable life
insurance policies.
/s/ ERNST & YOUNG LLP
Des Moines, Iowa
June 19, 1998
