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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH , 1999
REGISTRATION NO. 333-57681
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
POST-EFFECTIVE AMENDMENT NO. 1 TO
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)
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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>
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APPROXIMATE DATE OF PROPOSED PUBLIC OFFERING: As soon as practicable after
the effective date of this Registration Statement
It is proposed that this filing will become effective:
[ ] Immediately upon filing pursuant to paragraph (b)
[ ] On (date) pursuant to paragraph (b)
[X] 60 days after filing pursuant to paragraph (a)(1).
[ ] On (date) pursuant to paragraph (a)(1) of Rule 485.
SECURITIES BEING OFFERED: Variable Adjustable Life Insurance Policies
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PART I
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VARIABLE ADJUSTABLE LIFE INSURANCE POLICY
ISSUED BY
WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO
AND
WRL SERIES LIFE CORPORATE ACCOUNT
Western Reserve Life Assurance Co. of Ohio ("Western Reserve") is offering
the variable adjustable life insurance policy (the "Policy") described in this
prospectus. Certain Policy provisions may vary based on the state where Western
Reserve issues the Policy. Western Reserve designed the Policy to provide:
(1) insurance protection on the life of the insured person named in
the Policy, and
(2) flexibility regarding premium payments and the amount of life
insurance benefits payable under the Policy.
A purchaser of a Policy ("Owner," "you," or "your") may allocate amounts
under the Policy to one or more of the subaccounts of the WRL Series Life
Corporate Account (the "Separate Account"). Each subaccount invests its assets
in one of the following corresponding mutual fund portfolios (each, a
"Portfolio"):
<TABLE>
<CAPTION>
BT INSURANCE FUNDS TRUST: RUSSELL INSURANCE FUNDS: FEDERATED INSURANCE SERIES:
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<S> <C> <C>
Small Cap Index Fund Multi-Style Equity Fund Prime Money Fund II
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 amounts allocated to
a subaccount. The Policy has no guaranteed minimum value.
The Policy provides a life insurance benefit payable after the insured
person's death, and a Cash Value (total of amounts in the subaccounts and
amounts securing Policy loans) that you may obtain 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 you are not required to make additional premium payments 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 you 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.
CURRENT PROSPECTUSES FOR THE PORTFOLIOS MUST ACCOMPANY OR PRECEDE THIS
PROSPECTUS. 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.
INTERESTS IN THE POLICY AND SHARES OF THE PORTFOLIOS ARE NOT DEPOSITS OR
OBLIGATIONS OF, OR GUARANTEED OR ENDORSED BY, ANY BANK OR DEPOSITORY
INSTITUTION, AND THE POLICY IS NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE
CORPORATION OR ANY OTHER GOVERNMENT AGENCY. THE POLICY INVOLVES INVESTMENT RISK,
INCLUDING POSSIBLE LOSS OF PREMIUMS INVESTED.
THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED OR DISAPPROVED THE
POLICY OR DETERMINED THAT THIS PROSPECTUS IS ACCURATE OR COMPLETE. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
Prospectus dated May 3, 1999
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TABLE OF CONTENTS
<TABLE>
<S> <C>
DEFINITIONS................................................. 4
SUMMARY..................................................... 6
INVESTMENT EXPERIENCE INFORMATION........................... 10
Rates of Return........................................... 11
ILLUSTRATIONS OF CASH VALUE, NET CASH VALUE AND LIFE
INSURANCE BENEFITS........................................ 11
WESTERN RESERVE AND THE SEPARATE ACCOUNT.................... 15
Western Reserve........................................... 15
The Separate Account...................................... 15
FACTS ABOUT THE POLICY...................................... 17
Availability of the Policy................................ 17
Applying for a Policy..................................... 17
Free-Look Period.......................................... 17
Premiums.................................................. 17
Policy Lapse and Reinstatement............................ 18
Allocation of Net Premiums and Cash Value................. 19
Policy Values............................................. 19
Transfer Privileges....................................... 20
Surrenders and Partial Withdrawals........................ 22
Loans..................................................... 22
Life Insurance Benefits................................... 24
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........................................ 31
OTHER POLICY PROVISIONS AND BENEFITS........................ 31
Ownership................................................. 31
Assignment................................................ 31
Western Reserve's Right to Contest the Policy............. 31
Suicide Exclusion......................................... 32
Misstatement of Age or Sex................................ 32
Modification of the Policy................................ 32
Payments by Western Reserve............................... 32
Reports to Owners......................................... 33
Claims of Creditors....................................... 33
Dividends................................................. 33
Supplemental Benefits and/or Riders....................... 33
FEDERAL TAX CONSIDERATIONS.................................. 34
Tax Status of the Policies................................ 34
Tax Treatment of Policy Benefits.......................... 35
</TABLE>
2
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<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
Executive Officers and Directors of Western Reserve....... 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.
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DEFINITIONS
Accumulation Unit -- A unit of measurement used to calculate values under
the Policy.
Administrative Office -- Western Reserve's administrative office 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 Western Reserve pays the Life
Insurance Benefit proceeds upon the Insured's death.
Cash Value -- During the free look period, the Cash Value is the amount in
the General Account. 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: (1) a certified copy of the death
record; (2) a certified copy of a court decree reciting a finding of death; or
(3) 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. Western Reserve uses
the Effective Date 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 the Owner selects that is shown in the
Policy and 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 Western Reserve establishes.
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 include reductions for any outstanding Indebtedness and any due
and unpaid charges.
Loan Account -- A portion of the General Account to which Western Reserve
transfers Cash Value 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, Western Reserve
adds unpaid loan interest to the Loan Amount.
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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, Western Reserve will deem the Monthly Deduction Day 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 the Owner selects 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 Western Reserve established 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, whose assets 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. It is equal to the seven-pay limit defined in Section 7702(A) of
the Code.
Valuation Day -- For each Subaccount, each day on which the New York Stock
Exchange is open for business except for 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.
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SUMMARY
The following summary of prospectus information provides a brief overview
of the more significant aspects of the Policy. You should read this summary in
conjunction with the detailed information appearing elsewhere in this
prospectus.
Under Western Reserve's current rules, Western Reserve will offer the
Policy 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 provides for:
- the payment of a minimum Life Insurance Benefit to a Beneficiary
upon the Insured's death;
- the accumulation of Cash Value; and
- 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. Western Reserve does not guarantee the amount and/or duration of the
life insurance coverage and the Cash Value of the Policy, both of which 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. 18.)
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.
Western Reserve may pay benefits under the Policy in a lump sum or under
one of the settlement options set forth in the Policy. (See Payment of Policy
Benefits -- Settlement Options, p. 27.)
Certain optional insurance benefits are available under the Policy. Western
Reserve will deduct the cost of these optional insurance benefits from Cash
Value as part of the monthly deduction. (See Charges and Deductions -- Monthly
Deductions From Your Cash Value, p. 28.)
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,
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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. 23.)
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.
Western Reserve does not guarantee a minimum Cash Value. (See Facts About the
Policy -- Policy Values, p. 18.)
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. You may not change the Life Insurance Benefit
Option type during the first Policy Year. (See Life Insurance
Benefits -- Changing the Life Insurance Benefit Option, p. 25.) 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. 23; and Monthly Deductions From Your Cash
Value -- Cost of Insurance, p. 28.)
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. 16.)
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. Your Policy will
prescribe the amount and frequency of Planned Periodic Premiums and you may
change them upon written request. (See Premiums, p. 16.)
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. 17.)
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 the Owner making a
sufficient payment. (See Charges and Deductions -- Monthly Deductions From Your
Cash Value, p. 28; and Policy Lapse and Reinstatement, p. 17.) Such a Lapse
could happen if the investment experience has been sufficiently unfavorable and
results in a decrease in the Net Cash Value, or the Net Cash Value has decreased
because the Owner did not pay enough premiums 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. 27.) 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. 15.)
Until the end of the free-look period, Western Reserve will allocate all
premiums to the General Account, notwithstanding the allocation instructions in
the application. (See Free-Look Period, p. 16.) You may change
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the allocation of future Net Premiums 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 the Administrative Office receives appropriate notice of such
transfer. (See Transfers, p. 19.)
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. 16.) Under ordinary
circumstances, the refunded amount will be the premiums paid less partial
withdrawals.
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. If the Owner surrenders the Policy during the first
three Policy Years, Western Reserve will refund a portion of the Percent of
Premium Load charged in that Policy Year. (See Charges and Deductions -- Percent
of Premium Load, p. 27.)
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. 21.) 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 retains 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.
32.)
The interest rate on a Policy loan is 6.0% and is due on each Policy
Anniversary for the prior Policy Year and on the date the loan is repaid.
Western Reserve will transfer the requested amount of a loan, plus interest for
one year in advance, from the Subaccounts to the Loan Account and credit this
amount at the end of each Policy Year with interest at a rate of 4% per year.
Upon repayment of a loan, Western Reserve will transfer amounts in the Loan
Account in excess of the outstanding value of the loan 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. 33.)
11. WHAT CHARGES AND DEDUCTIONS ARE ASSESSED UNDER THE POLICY?
Western Reserve assesses certain charges and deductions under the Policy to
compensate for services and benefits provided, costs and expenses incurred, and
risks assumed by Western Reserve in connection with the
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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 3.0% 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.
Under most circumstances, the Target Premium is the maximum premium an Owner can
pay in a Policy Year without the Policy becoming a Modified Endowment Contract.
Premiums paid in excess of the Target Premium may have adverse tax consequences.
See "Federal Tax Considerations -- Tax Treatment of Policy Benefits." If the
Owner surrenders the Policy during the first three Policy Years, Western Reserve
will refund a portion of the Percent of Premium Load charged in that Policy
Year. (See Charges and Deductions -- Percent of Premium Load, p. 27.)
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.
MONTHLY POLICY CHARGE. Western Reserve deducts a monthly charge equal to
$16.50 in the first Policy Year, and $4.00 (current, $10 maximum) in subsequent
Policy Years to compensate Western Reserve for the cost of administering the
Policies.
MORTALITY AND EXPENSE RISK CHARGE. On each Monthly Deduction Day, Western
Reserve currently deducts a mortality and expense risk charge equal to an annual
rate of 0.75% of the Cash Value in the Subaccounts in the first Policy Year, and
0.25% of the Cash Value in the Subaccounts in subsequent Policy Years. The
maximum annual rate of this charge in any Policy Year is 0.90% 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. Western Reserve deducts a charge equal to the
lesser of $25 or 2% of the amount requested 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, 1998 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*............... % % %
Equity 500 Index*.............. % % %
EAFE(R) Equity Index*.......... % % %
Multi-Style Equity**........... % % %
Aggressive Equity**............ % % %
Non-U.S.**..................... % % %
Core Bond**.................... % % %
Prime Money II***.............. % % %
</TABLE>
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* For the year ended December 31, 1998, 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 -- %; Equity 500
Index -- %; and EAFE(R) Equity Index -- %. The expense table reflects a
voluntary undertaking by the investment adviser to
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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 -- %; Equity 500
Index -- %; and EAFE(R) Equity Index -- %. Absent this undertaking,
Total Annual Expenses would be the following: Small Cap Index -- %; Equity
500 Index -- %; and EAFE(R) Equity Index -- %.
** For the year ended December 31, 1998, 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 % and % for
Multi-Style Equity; % and % for Aggressive Equity; % and % for
Non-U.S.; and % and % for Core Bond.
*** For the year ended December 31, 1998, the investment adviser voluntarily
agreed to waive a portion of its management fee. Without this waiver, the
Portfolio's management fee would have been equal to %, and total annual
expenses would have been %.
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. 19.)
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. 34.) 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. 32.
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 adviser. You should consult a tax adviser with respect to
legislative developments and their effect on the Policy. (See Federal Tax
Considerations, p. 32.)
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 December 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
10
<PAGE> 13
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, 1998.
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.
AVERAGE ANNUAL COMPOUNDED RATES OF RETURN FOR THE PERIODS ENDED DECEMBER 31,
1998
<TABLE>
<CAPTION>
SINCE
PORTFOLIO (DATE OF INCEPTION) INCEPTION 1 YEAR
----------------------------- --------- ------
<S> <C> <C>
Small Cap Index (8/25/97)................................. % %
Equity 500 Index (10/1/97)................................ % %
EAFE(R) Equity Index (10/1/97)............................ % %
Multi-Style Equity (1/2/97)............................... % N/A
Aggressive Equity (1/2/97)................................ % N/A
Non-U.S. (1/2/97) ........................................ % N/A
Core Bond (1/2/97)........................................ % N/A
Prime Money II (11/21/94)................................. % %
</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 % 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
11
<PAGE> 14
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 %, % and %,
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.
[Registrant will provide revised illustrations by amendment.]
12
<PAGE> 15
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>
- ---------------
The hypothetical rates of return shown above are illustrative only and should
not be deemed a representation of past or future investment rates of return.
Actual rates of return may be more or less than those shown and will depend on a
number of factors, including the investment allocations made by an Owner and the
actual investment experience of the Portfolios. The Cash Value, Net Cash Value
and Life Insurance Benefit for a Policy would be different from those shown if
the actual rates of return averaged 0.00%, 6.00%, and 12.00% over a period of
years, but also fluctuated above or below those averages for individual Policy
Years. No representations can be made that these hypothetical rates of return
can be achieved for any one year or sustained over any period of time.
13
<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 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>
- ---------------
The hypothetical rates of return shown above are illustrative only and should
not be deemed a representation of past or future investment rates of return.
Actual rates of return may be more or less than those shown and will depend on a
number of factors, including the investment allocations made by an Owner and the
actual investment experience of the Portfolios. The Cash Value, Net Cash Value
and Life Insurance Benefit for a Policy would be different from those shown if
the actual rates of return averaged 0.00%, 6.00%, and 12.00% over a period of
years, but also fluctuated above or below those averages for individual Policy
Years. No representations can be made that these hypothetical rates of return
can be achieved for any one year or sustained over any period of time.
14
<PAGE> 17
WESTERN RESERVE AND THE SEPARATE ACCOUNT
WESTERN RESERVE
Western Reserve was originally incorporated under the laws of Ohio on
October 1, 1957. Western Reserve engages 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
and should not be considered as bearing on the investment performance of assets
held in the Separate Account. Claims-paying ability ratings do not refer to an
insurer's ability to meet non-policy obligations (i.e., debt/commercial paper).
The ratings also do not relate to the performance of the Portfolios.
THE SEPARATE ACCOUNT
Western Reserve established WRL Series Life Corporate Account (the
"Separate Account") 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 Western Reserve established the Separate Account,
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.
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;
5. Add new portfolios or remove existing Portfolios;
15
<PAGE> 18
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.
Western Reserve will not make any such changes without any necessary
approval of the SEC and applicable state insurance departments. Western Reserve
will notify Owners 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 paragraphs below summarize each Portfolio's investment objectives and
policies. 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.
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.
FEDERATED INSURANCE SERIES (Portfolio managed by Federated Advisors):
Prime Money II seeks current income consistent with stability of principal
and liquidity by investing in high-quality money market instruments.
16
<PAGE> 19
Shares of certain Portfolios are sold to separate accounts of insurance
companies that 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 or variable annuity contracts whose accumulation values
are allocated to a Portfolio. 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.
Although neither Western Reserve nor the Portfolios currently foresee any such
disadvantages, Western Reserve and each Portfolio's Board of Directors intend to
monitor events in order to identify any material conflicts and to determine what
action to take. Such action could include the sale of Portfolio shares by one or
more of the separate accounts, which could have adverse consequences. 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, Western Reserve will offer the
Policy 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, Western Reserve must receive a completed application
at the Administrative Office. Under Western Reserve's current rules, the minimum
Face Amount of a Policy is generally $25,000. Western Reserve will generally
issue Policies 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 Policy. Certain states
may require a free-look period longer than 20 days. If you decide to cancel the
Policy, Western Reserve will treat the Policy 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 less any partial withdrawals. Under
ordinary circumstances, the refunded amount will be the premiums paid less
partial withdrawals.
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
17
<PAGE> 20
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 you pay a
premium 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. Western Reserve will return
any part of the premium in excess of that amount, and will not accept any
further premiums until allowed by the current maximum premium limitations set
forth under 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. Western Reserve will
treat payments made by the Owner as a premium payment unless clearly marked as
loan repayments. Western Reserve will deduct certain charges from each premium
payment. (See Charges and Deductions, p.27). 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 Western Reserve later receives the application with original signature
and the allocation instructions in that application, for any reason, are
inconsistent with those previously designated on the fax, Western Reserve will
reallocate the initial premium 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: .
First National Bank of Maryland
ABA #052000113
For credit to account of Western Reserve #89487643
Include your name and Policy number on all correspondence.
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
the Owner making a sufficient payment. 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 Western Reserve
receives a sufficient payment during the Late Period, Western Reserve will
allocate any resulting Net Premium among the Subaccounts, and will charge any
monthly deductions due 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 --
18
<PAGE> 21
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. You may reinstate a lapsed Policy 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, Western Reserve allocates
the Net Premium, including interest earned during the free-look period, to the
Subaccounts as directed in the application. Western Reserve deems the Policy to
be delivered four days after it is mailed for the purpose of allocating the Net
Premium (including interest) at the end of the free-look period. (See Facts
About The Policy -- Free-Look Period.)
The minimum percentage of each premium that you may allocate to any
Subaccount is 1%; percentages must be in whole numbers. You may change the
allocation of future Net Premiums 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
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. Western Reserve determines the Cash Value 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. Western Reserve determines
19
<PAGE> 22
the number of Accumulation Units credited to a Policy 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. Western Reserve determines the number of Accumulation Units in any
Subaccount on any day 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, Western Reserve will increase the number of Accumulation Units by
Accumulation Units bought with any amounts transferred from the Loan Account.
ACCUMULATION UNIT VALUE. Western Reserve determines the value of an
Accumulation Unit on any Valuation Day by multiplying the value of that
Accumulation Unit on the immediately preceding Valuation Day by the Net
Investment Factor for the Valuation Period.
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. Western Reserve determines the Net Investment
Factor for any Subaccount for any Valuation Period 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. Owners may transfer Cash Value 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
20
<PAGE> 23
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 you may transfer 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 you make a transfer 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.
Western Reserve will not increase the transfer charge. Western Reserve will
consider all transfers made in any one day a single transfer and will deduct any
transfer charges 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 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
21
<PAGE> 24
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. Any reallocation
which occurs under the asset rebalancing program will not 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 (which is the Cash Value less any Indebtedness). A surrender is
effective as of the date on which a written request for surrender is received by
Western Reserve. If the Owner surrenders the Policy during the first three
Policy Years, Western Reserve will refund a portion of the Percent of Premium
Load charged against the premium payments made in the Policy Year of the
surrender. Western Reserve will refund 6.0% of the premium paid up to the Target
Premium and 3.0% of the premium paid in excess of the Target Premium. (See
Charges and Deductions -- Percent of Premium Load, p. 27.) 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 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.
Western Reserve deducts this charge 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.
22
<PAGE> 25
When you request a loan, Western Reserve will withdraw an amount equal to
the requested loan amount plus interest in advance for one year from each of the
Subaccounts on a pro-rata basis, unless you specify otherwise in a written
notice to the Administrative Office, and transfer this amount to the Loan
Account until the loan is repaid.
Western Reserve normally will pay the amount of the loan 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 guaranteed annual interest rate on a Policy
loan is 6.0% and is due on each Policy Anniversary for the prior Policy Year and
on the day the loan is repaid. The current annual interest rate on a Policy loan
is 4.75% the first Policy Year and 4.25% in subsequent Policy Years. 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.
(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
23
<PAGE> 26
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. Western
Reserve will treat payments made by the Owner while there is Indebtedness 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. Western Reserve
will determine the amount of the Life Insurance Benefit Proceeds payable at the
end of the Valuation Period during which the Insured dies. Western Reserve may
pay the proceeds 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 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
24
<PAGE> 27
$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.
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>
<S> <C>
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> 28
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> 29
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> 30
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, some of which are described below.
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
Western Reserve deducts certain expenses at the time you make premium
payments. Western Reserve then allocates the remainder of each premium (the Net
Premium) 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 3.0% 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. Under most circumstances, the
Target Premium is the maximum premium an Owner can pay in a Policy Year without
the Policy becoming a Modified Endowment Contract. Premiums paid in excess of
the Target Premium may have adverse tax consequences. See "Federal Tax
Considerations -- Tax Treatment of Policy Benefits."
Since 3.0% 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
28
<PAGE> 31
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.
PREMIUM LOAD REFUND AT SURRENDER. If the Owner surrenders the Policy during
the first three Policy Years, Western Reserve will refund a portion of the
Percent of Premium Load charged against the premium payments made in the Policy
Year of surrender. Western Reserve will refund 6.0% of the premium paid up to
the Target Premium and 3.0% of the premium paid in excess of the Target Premium.
The refund only applies to premiums paid in the Policy Year of the surrender,
not to all premiums paid since issue. The refund is available only for
surrenders occurring in the first three Policy Years, and is not available for
partial withdrawals or Policy loans.
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
Western Reserve deducts the charges listed below 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.
The monthly Policy charge is paid to Western Reserve for performing
administrative services relating to the Policy.
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
29
<PAGE> 32
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.
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, Western Reserve will deduct charges for these benefits 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. In the first Policy Year, the monthly charge is
equivalent to an effective annual rate of 0.75%. In subsequent Policy Years, the
monthly charge is equivalent to an effective annual rate of 0.25%. 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, and may use such profit for any lawful purpose
including paying distribution expenses.
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.
Western Reserve deducts this charge 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.
Western Reserve deducts the transfer charge 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.
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<PAGE> 33
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 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
31
<PAGE> 34
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 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.
32
<PAGE> 35
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
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.
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<PAGE> 36
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 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
34
<PAGE> 37
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.
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, and the President has proposed legislation affecting
deductible interest expense based on all life insurance policies owned by
taxpayers other than natural persons. Any business or non-natural persons
contemplating the purchase of a new life insurance contract or a change in an
existing life insurance contract should consult a tax advisor.
The President has also recommended legislation that, if enacted, would
adversely modify the federal taxation of certain insurance and annuity
contracts. 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
35
<PAGE> 38
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 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: (1) the
aggregate amount of any premiums or other consideration paid for a Policy, minus
(2) 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 (3) 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.
36
<PAGE> 39
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 AFSG Securities Corporation ("AFSG"), the principal
underwriter of the Policies, or of broker-dealers who have entered into written
sales agreements with the principal underwriter. AFSG, which is located at 4425
North River Blvd., NE, Cedar Rapids, Iowa 52402, was incorporated in
Pennsylvania on March 12, 1986, 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 AFSG 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.
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
37
<PAGE> 40
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 (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
38
<PAGE> 41
(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.
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,
1998 and 1997, 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, 1998, 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. [To
be added by amendment.]
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.
39
<PAGE> 42
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 only
commenced operations for four months. 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.
40
<PAGE> 43
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 St. Petersburg and
State of Florida on this 26th day of February, 1999.
<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>
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 February 26, 1999
- -----------------------------------------------------
John R. Kenney, Chairman of the Board, Chief
Executive Officer and President
/s/ ALLAN J. HAMILTON February 26, 1999
- -----------------------------------------------------
Allan J. Hamilton, Vice President, Treasurer and
Controller
/s/ ALAN M. YAEGER February 26, 1999
- -----------------------------------------------------
Alan M. Yaeger, Executive Vice President, Actuary and
Chief Financial Officer
*
- -----------------------------------------------------
Patrick S. Baird, Director
*
- -----------------------------------------------------
James R. Walker, Director
*
- -----------------------------------------------------
Lyman H. Treadway, Director
*
- -----------------------------------------------------
Jack E. Zimmerman, Director
/s/ THOMAS E. PIERPAN February 26, 1999
- -----------------------------------------------------
*Signed by: Thomas E. Pierpan
as Attorney-in-fact
</TABLE>
<PAGE> 44
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) Sutherland, Asbill & Brennan LLP
(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) (a) Principal Underwriting Agreement *
(b) Selected Broker Agreement *
(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 regarding
Federated Insurance Series ***
(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> 45
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 (to be added by amendment)
7. Consent of Ernst & Young LLP (to be added by amendment)
8. Powers of Attorney ***
- ----------------------------------
* Incorporated herein by reference to the initial filing of this Form
S-6 registration statement on June 25, 1998 (File No. 333-57681).
** Incorporated herein by reference to Post-Effective Amendment No. 11 to
Form N-4 Registration Statement dated April 20, 1998 (File No.
33-49556).
*** Incorporated herein by reference to Pre-Effective Amendment No. 1 to
Form S-6 Registration Statement filed November 2, 1998 (File No.
333-57681)
7
