As filed with the Securities and Exchange Commission on March 14, 1997
Registration File Nos. ________/811-4420
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------------------
FORM S-6
---------------------------------
FOR REGISTRATION UNDER THE SECURITIES ACT
OF 1933 OF SECURITIES OF UNIT INVESTMENT TRUSTS
REGISTERED ON FORM N-8B-2
---------------------------------
WRL SERIES LIFE ACCOUNT
(Exact Name of Trust)
WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO
(Name of Depositor)
201 Highland Avenue
Largo, Florida 34640
(Complete Address of Depositor's Principal Executive Offices)
Thomas E. Pierpan, Esq.
Vice President and Associate General Counsel
Western Reserve Life Assurance Co. of Ohio
201 Highland Avenue
Largo, Florida 33770
(Name and Complete Address of Agent for Service)
Copies to:
Stephen E. Roth, Esq.
Sutherland, Asbill & Brennan, L.L.P.
1275 Pennsylvania Avenue, N.W.
Washington, D.C. 20004-2404
---------------------------------
Approximate Date of Proposed Public Offering: As soon as practicable after the
effective date of the Registration Statement.
Pursuant to Rule 24f-2 under the Investment Company Act of 1940, the Registrant
hereby elects to register an indefinite amount of securities being offered.
--------------------------------------------------
The Registrant hereby amends this Registration Statement on such date or dates
as may be necessary to delay its effective date until the Registrant shall file
a further amendment which specifically states that this Registration Statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
<PAGE>
CROSS REFERENCE TO ITEMS REQUIRED
BY FORM N-8B-2
N-8B-2 ITEM CAPTION IN PROSPECTUS
- ----------- ---------------------------------------
1 Cover Page; The Series Account
2 Cover Page; Western Reserve Life Assurance Co. of Ohio
3 Not Applicable
4 Distribution of the Policies
5 The Series Account
6 The Series Account
7 Not Applicable
8 Not Applicable
9 Legal Proceedings
10 Introduction; Policy Benefits; Payment and Allocation of
Premiums; Investments of the Series Account; Policy Rights
11 The Series Account; WRL Series Fund, Inc.
12 The Series Account; WRL Series Fund, Inc.
13 Charges and Deductions; The Series Account; Investments of
the Series Account
14 Introduction; Allocation of Premiums and Cash Value
15 Allocation of Premiums and Cash Value
16 The Series Account
17 Cash Value; The Series Account; Policy Rights
18 Payment and Allocation of Premiums; Cash Value
19 Voting Rights of the Series Account; Reports and Records
20 Not Applicable
21 Loan Privileges
22 Not Applicable
2
<PAGE>
N-8B-2 ITEM CAPTION IN PROSPECTUS
- ----------- ---------------------------------------
23 Safekeeping of the Series Account's Assets
24 Policy Rights
25 Western Reserve Life Assurance Co. of Ohio
26 Not Applicable
27 Western Reserve Life Assurance Co. of Ohio; The Series
Account; WRL Series Fund, Inc.
28 Western Reserve Life Assurance Co. of Ohio; Executive Officers
and Directors of Western Reserve
29 Western Reserve Life Assurance Co. of Ohio
30 Not Applicable
31 Not Applicable
32 Not Applicable
33 Not Applicable
34 Not Applicable
35 Western Reserve Life Assurance Co. of Ohio
36 Not Applicable
37 Not Applicable
38 Distribution of the Policies
39 Distribution of the Policies
40 Not Applicable
41 Distribution of the Policies; Western Reserve Life Assurance
Co. of Ohio
42 Not Applicable
43 Not Applicable
44 Cash Value
45 Not Applicable
46 Cash Value
3
<PAGE>
N-8B-2 ITEM CAPTION IN PROSPECTUS
- ----------- ---------------------------------------
47 Introduction; Allocation of Premiums and Cash Value
48 Not Applicable
49 Not Applicable
50 Not Applicable
51 Introduction; Western Reserve Life Assurance Co. of Ohio;
Policy Benefits; Charges and Deductions
52 The Series Account; WRL Series Fund, Inc.
53 Federal Tax Matters
54 Not Applicable
55 Not Applicable
56 Not Applicable
57 Not Applicable
58 Not Applicable
59 Not Applicable
4
<PAGE>
WRL FREEDOM FINANCIAL BUILDER
INDIVIDUAL FLEXIBLE
PREMIUM VARIABLE LIFE
INSURANCE POLICY
Issued by
WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO
201 Highland Avenue
Largo, Florida 33770
(800) 851-9777
(813) 585-6565
The individual flexible premium variable life insurance policy
("Policy") issued by Western Reserve Life Assurance Co. of Ohio
("Western Reserve") and described in this Prospectus is designed to
provide lifetime insurance protection and maximum flexibility in connection with
premium payments and death benefits. A Policyowner may, subject to certain
restrictions, vary the timing and amount of premium payments and increase or
decrease the level of life insurance benefits payable under the Policy. This
flexibility allows a Policyowner to provide for changing insurance needs under a
single life insurance policy. The minimum Specified Amount for Issue Ages 0-45
is $50,000, declining to $25,000 for Issue Ages 46 to 80.
The Policy provides a death benefit payable at the Insured's death, and a
Net Surrender Value that can be obtained by completely or partially surrendering
the Policy. Net premiums are allocated according to the Policyowner's
directions among the Sub-Accounts of the WRL Series Life Account ("Series
Account"), or to a fixed interest account ("Fixed Account"), or a
combination of both. With respect to amounts allocated to Sub-Accounts of the
Series Account, the amount of the death benefit may, and the Cash Value will,
vary to reflect both the investment experience of the Sub-Accounts and the
timing and amount of additional premium payments. However, as long as the Policy
remains In Force, Western Reserve guarantees that the death benefit will never
be less than the Specified Amount of the Policy. While additional premium
payments are not required under the Policy, additional premium payments may be
necessary to prevent Lapse if there is insufficient Net Surrender Value.
The Policy provides a free-look period allowing the Policyowner to cancel
the Policy within 10 days after receipt. Certain states require a free-look
period longer than 10 days, either for all Policyowners or for certain classes
of Policyowners.
The assets of each Sub-Account of the Series Account will be invested
solely in a corresponding Portfolio of the WRL Series Fund, Inc. (the
"Fund"). The Prospectus for the Fund describes the investment objectives
and the risks of investing in the Portfolios of the Fund corresponding to the
Sub-Accounts currently available under the Policy. The Policyowner bears the
entire investment risk for all amounts allocated to the Series Account; there is
no guaranteed minimum Cash Value.
It may not be to your advantage to replace existing insurance or supplement
an existing flexible premium variable life insurance policy with a Policy
described in this Prospectus.
Please read this Prospectus and the Prospectus for the Fund carefully and
retain for future reference.
THE POLICY IS NOT A DEPOSIT OR OBLIGATION OF, OR GUARANTEED OR ENDORSED BY, ANY
BANK OR DEPOSITORY INSTITUTION, AND THE POLICY IS NOT FEDERALLY INSURED BY THE
FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD OR ANY OTHER
AGENCY, AND INVOLVES INVESTMENT RISK, INCLUDING POSSIBLE LOSS OF PRINCIPAL
AMOUNT INVESTED.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION, NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
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.
THIS PROSPECTUS MUST BE ACCOMPANIED OR PRECEDED BY THE CURRENT PROSPECTUS FOR
THE WRL SERIES FUND, INC. CERTAIN PORTFOLIOS MAY NOT BE AVAILABLE IN ALL STATES.
ALL PROSPECTUSES SHOULD BE READ AND RETAINED FOR FUTURE REFERENCE.
Prospectus Dated , 1997
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
DEFINITIONS ................................................ 1
INTRODUCTION ............................................. 3
INVESTMENT EXPERIENCE INFORMATION ........................ 7
Rates of Return .......................................... 7
Death Benefit, Cash Value and Net Surrender
Value Illustrations ....................................... 8
Other Performance Data .................................... 13
WESTERN RESERVE AND THE
SERIES ACCOUNT ............................................. 13
Western Reserve Life Assurance Co.
of Ohio ................................................... 13
The Series Account ....................................... 14
POLICY BENEFITS .......................................... 14
Death Benefit ............................................. 14
When Insurance Coverage Takes Effect ..................... 16
Terminal Illness Accelerated Death
Benefit Rider ............................................. 17
Cash Value ................................................ 17
INVESTMENTS OF THE SERIES ACCOUNT ........................ 18
WRL Series Fund, Inc. .................................... 18
Addition, Deletion, or Substitution
of Investments .......................................... 21
PAYMENT AND ALLOCATION OF PREMIUMS ........................ 21
Issuance of a Policy .................................... 21
Premiums ................................................ 21
Allocation of Premiums and Cash Value ..................... 22
Dollar Cost Averaging .................................... 23
Asset Rebalancing Program ................................. 24
Policy Lapse and Reinstatement ........................... 24
CHARGES AND DEDUCTIONS .................................... 25
Premium Expense Charges ................................. 25
Surrender Charge ....................................... 25
Pro Rata Decrease Charge ................................. 26
Cash Value Charges ....................................... 26
Optional Cash Value Charges .............................. 27
Charges Against the Series Account ........................ 27
Expenses of the Fund .................................... 28
Group or Sponsored Policies .............................. 28
Employee Associate Policies .............................. 28
Builder Plus Programsm .................................... 29
POLICY RIGHTS ............................................. 30
Loan Privileges .......................................... 30
Surrender Privileges .................................... 31
Examination of Policy Privilege ("Free-Look") ...... 31
Benefits at Maturity .................................... 32
Payment of Policy Benefits .............................. 32
PAGE
------
GENERAL PROVISIONS ....................................... 32
Postponement of Payments ................................. 32
The Contract ............................................. 32
Suicide ................................................... 32
Incontestability ....................................... 33
Change of Owner or Beneficiary ........................... 33
Assignment ................................................ 33
Misstatement of Age or Sex .............................. 33
Reports and Records ....................................... 33
Optional Insurance Benefits .............................. 33
THE FIXED ACCOUNT .......................................... 34
Fixed Account Value ....................................... 34
Minimum Guaranteed and Current
Interest Rates .......................................... 34
Allocations, Transfers and Withdrawals .................. 35
DISTRIBUTION OF THE POLICIES .............................. 35
FEDERAL TAX MATTERS ....................................... 35
Introduction ............................................. 35
Tax Charges ............................................. 35
Tax Status of the Policy ................................. 35
Tax Treatment of Policy Benefits ........................ 36
Employment-Related Benefit Plans ........................ 38
SAFEKEEPING OF THE SERIES
ACCOUNT'S ASSETS .......................................... 38
VOTING RIGHTS OF THE SERIES ACCOUNT ........................ 38
STATE REGULATION OF WESTERN
RESERVE ................................................... 38
REINSURANCE ................................................ 38
EXECUTIVE OFFICERS AND DIRECTORS
OF WESTERN RESERVE ....................................... 38
LEGAL MATTERS ............................................. 39
LEGAL PROCEEDINGS .......................................... 39
EXPERTS ................................................... 39
ADDITIONAL INFORMATION .................................... 40
INFORMATION ABOUT
WESTERN RESERVE'S
FINANCIAL STATEMENTS ....................................... 40
APPENDIX A - ILLUSTRATION
OF BENEFITS ................................................ 41
APPENDIX B - LONG TERM
MARKET TRENDS ............................................. 45
INDEX TO FINANCIAL
STATEMENTS ................................................ 47
APPENDIX C - SURRENDER CHARGE .............................. 48
</TABLE>
The Policy is not available in the State of New York
i
<PAGE>
DEFINITIONS
ACCOUNTS - Allocation options including the Fixed Account and Sub-Accounts
of the Series Account.
ATTAINED AGE - The Issue Age plus the number of completed Policy years.
ANNIVERSARY - The same day and month as the Policy Date for each
succeeding year the Policy remains In Force.
BENEFICIARY - The person or persons specified by the Owner as entitled to
receive the death benefit proceeds under the Policy.
CASH VALUE - The sum of the values in each Sub-
Account plus the Policy's value in the Fixed Account.
FIXED ACCOUNT - An allocation option other than the Series Account. The
Fixed Account is part of Western Reserve's General Account. For Policies issued
in New Jersey, the Fixed Account is used solely for Policy loans, and is not
available for allocation of Net Premiums or transfers of Cash Value from the
Sub-Accounts.
FUND - WRL Series Fund, Inc., a registered management investment company
in which the assets of the Series Account are invested.
GENERAL ACCOUNT - The assets of Western Reserve other than those allocated
to the Series Account or any other separate account.
IN FORCE - Condition under which the coverage is active and the Insured's
life remains insured.
INITIAL PREMIUM - The amount which must be paid before coverage begins.
INSURED - The person upon whose life the Policy is issued.
ISSUE AGE - Issue Age refers to the age on the Insured's birthday nearest
the Policy Date.
LAPSE - Termination of the Policy at the end of the grace period.
LOAN RESERVE - A part of the Fixed Account to which amounts are
transferred as collateral for Policy loans.
MATURITY DATE - The date when coverage under the Policy will terminate if
the Insured is living and the Policy is In Force.
MINIMUM MONTHLY GUARANTEE PREMIUM - During the No Lapse Period, an amount
as shown on the Policy Schedule Page, used to determine whether a grace period
will begin whenever Net Surrender Value is insufficient to meet monthly
deductions for cost of insurance, the Policy charge and any optional insurance
benefits.
MONTHLY ANNIVERSARY OR MONTHIVERSARY - The same date in each succeeding
month as the Policy Date. For purposes of the Series Account, whenever the
Monthly Anniversary falls on a date other than a Valuation Date, the Monthly
Anniversary will be deemed to be the next Valuation Date.
NET SURRENDER VALUE - The amount payable upon surrender of the Policy
equal to the Cash Value as of the date of surrender, less any surrender charge,
and less any outstanding Policy loan, plus any unearned loan interest.
NET PREMIUM - The portion of the premium available for allocation to
either the Fixed Account or the Sub-
Accounts of the Series Account equal to the premium paid by the Policyowner less
the applicable premium expense charges.
NO LAPSE DATE - The No Lapse Date as specified in the Policy, which, for a
Policy issued to an Insured at Issue Ages 0-60, is the lesser of the number of
years to Attained Age 65, or the twentieth Anniversary, and, for a Policy issued
to an Insured at Issue Ages 61-80, is the fifth Anniversary.
NO LAPSE PERIOD - The period of time between the Policy Date and the No
Lapse Date, during which the Policy will not Lapse if certain conditions are
met, even though Net Surrender Value is insufficient to meet the monthly
deductions.
OFFICE - The administrative office of Western Reserve whose mailing
address is P. O. Box 5068, Clearwater, Florida 34618-5068.
PLANNED PERIODIC PREMIUM - A scheduled premium of a level amount at a
fixed interval over a specified period of time.
POLICY - The flexible premium variable life insurance policy offered by
Western Reserve and described in this Prospectus.
POLICY DATE - The date set forth in the Policy when insurance coverage is
effective and monthly deductions commence under the Policy. The Policy Date is
used to determine Policy years and Policy Months. Policy Anniversaries are
measured from the Policy Date.
POLICY MONTH - A month beginning on the Monthly Anniversary.
POLICYOWNER ("OWNER") - The person who owns the Policy and who may
exercise all rights under the Policy while living.
PORTFOLIO - A separate investment portfolio of the Fund.
RECORD DATE - The date the Policy is recorded on the books of Western
Reserve as an In Force Policy.
SERIES ACCOUNT - WRL Series Life Account, a separate investment account
established by Western Reserve to receive and invest Net Premiums allocated
under the Policy.
SPECIFIED AMOUNT - The minimum death benefit payable under the Policy as
long as the Policy remains In Force. The death benefit proceeds will be reduced
by any outstanding indebtedness and any due and unpaid charges.
1
<PAGE>
SUB-ACCOUNT - A sub-division of the Series Account. Each Sub-Account
invests exclusively in the shares of a specified Portfolio of the Fund.
TERMINATION - Condition when the Insured's life is no longer insured
under the coverage provided.
VALUATION DATE - Each day on which the New York Stock Exchange is open for
business.
VALUATION PERIOD - The period commencing at the end of one Valuation Date
and continuing to the end of the next succeeding Valuation Date.
2
<PAGE>
INTRODUCTION
1. WHAT IS THE DIFFERENCE BETWEEN THE POLICY AND A CONVENTIONAL FIXED-BENEFIT
LIFE INSURANCE POLICY?
Like conventional fixed-benefit life insurance, as long as the Policy
remains In Force, the Policy will provide: (1) the payment of a
minimum death benefit to a Beneficiary upon the Insured's death; (2)
the accumulation of Cash Value; and (3) surrender rights and Policy
loan privileges.
The Policy differs from conventional fixed-benefit life insurance by
allowing Policyowners to allocate Net Premiums to one or more
Sub-Accounts of the Series Account, or to the Fixed Account, or to a
combination of both. Each Sub-Account invests in a designated
Portfolio of the Fund. The amount and/or duration of the life
insurance coverage and the Cash Value of the Policy are not guaranteed
and may increase or decrease depending upon the investment experience
of the Sub-
Accounts. Accordingly, the Policyowner bears the investment risk of any
depreciation in value of the underlying assets of the Series Account but
reaps the benefits of any appreciation in value. (See Allocation of
Premiums and Cash Value - Allocation of Net Premiums, p. 22.) Unlike
conventional fixed-benefit life insurance, a Policyowner also has the
flexibility, subject to certain restrictions (see Premiums - Premium
Limitations, p. 22), to vary the frequency and amount of premium payments
and to adjust the death benefits payable under the Policy by increasing
or decreasing the Specified Amount. Thus, unlike conventional fixed-
benefit life insurance, the Policy does not require a Policyowner to
adhere to a fixed premium schedule. Moreover, the failure to pay a
scheduled premium ("Planned Periodic Premium") will not itself
cause the Policy to Lapse, although additional premium payments may be
necessary to prevent Lapse if Net Surrender Value is insufficient to pay
certain monthly charges, and a grace period expires without a sufficient
payment. (See Policy Lapse and Reinstatement - Lapse, p. 24.)
2. WHAT DEATH BENEFIT OPTIONS ARE AVAILABLE UNDER THE POLICY?
The Policy provides the payment of benefits upon the death of the Insured.
The Policy contains three death benefit options. Under Death Benefit
Option A, the death benefit is the greater of the Specified Amount of
the Policy, or a specified percentage times the Cash Value of the
Policy on the date of death of the Insured. Under Death Benefit Option
B, the death benefit is the greater of the Specified Amount of the
Policy plus the Cash Value of the Policy on the date of death of the
Insured, or a specified percentage times the Cash Value of the Policy
on the date of death of the Insured. Under Death Benefit Option C, the
death benefit is equal to the greater of the amount payable under
Death Benefit Option A, or the Specified Amount times a factor equal
to the lesser of 1.0, and four one-hundredths (.04) times the result
of 95 minus the Insured's Attained Age at death, plus the Cash Value
of the Policy as of the date of death of the Insured.
As long as the Policy remains In Force, the minimum death benefit payable
under any option will be the current Specified Amount. The amount of
death benefit will be reduced by any outstanding indebtedness and any
due and unpaid charges, and increased by any additional insurance
benefits added by rider and any unearned loan interest. Under Western
Reserve's current rules, the minimum Specified Amount for a Policy at
issue for Issue Ages 0-45 is $50,000, declining to $25,000 for Issue
Ages 46 to 80. The minimum Specified Amount will be set forth in the
Policyowner's Policy. (See Policy Benefits - Death Benefit, p. 14.)
Optional insurance benefits offered under the Policy include a Children's
Insurance Rider; an Other Insured Rider; an Accidental Death Benefit
Rider; a Disability Waiver Rider; a Disability Waiver and Monthly
Income Rider; and a Primary Insured Rider. (See Optional Cash Value
Charges - Optional Insurance Benefits, p. 27.) The cost of these
optional insurance benefits will be deducted from Cash Value as part
of the monthly deduction. (See Charges and Deductions - Cash Value
Charges, p. 27.)
A Terminal Illness Accelerated Death Benefit Rider is automatically
included with every Policy at no additional charge (this Rider may not
be available in certain states). This rider makes a "Single Sum
Benefit" available prior to the Insured's death if the Insured has
incurred a condition resulting from illness which, as determined by a
Physician, has reduced the Insured's life expectancy as defined in
the rider. (See Policy Benefits - Terminal Illness Accelerated Death
Benefit Rider, p. 17.)
Benefits under the Policy may be paid in a lump sum or under one of the
settlement options set forth in the Policy. (See Payment of Policy
Benefits - Settlement Options, p. 32.)
3. HOW MAY THE AMOUNT OF THE DEATH BENEFIT AND CASH VALUE VARY?
Under any of the death benefit options, as long as the Policy remains In
Force, the death benefit will not be less than the current Specified
Amount of the Policy. The amount of death benefit will be reduced by
any outstanding policy loan, plus any unearned loan interest, and any
due and unpaid charges. The death benefit may, however, exceed the
Specified Amount under certain circumstances. The amount by which the
death benefit exceeds the Specified Amount depends upon the option
chosen and the Cash Value of the Policy. (See Policy Benefits - Death
Benefit, p. 14.)
The Policy's Cash Value in the Series Account will reflect the amount and
frequency of premium payments, the investment experience of the chosen
Sub-Accounts
3
<PAGE>
of the Series Account, any cash withdrawals, and any charges imposed in
connection with the Policy. The entire investment risk for amounts
allocated to Sub-
Accounts of the Series Account is borne by the Policyowner; Western
Reserve does not guarantee a minimum Cash Value. (See Policy Benefits -
Cash Value, p. 17.)
4. WHAT FLEXIBILITY DOES A POLICYOWNER HAVE TO ADJUST THE AMOUNT OF THE DEATH
BENEFIT?
The Policyowner has significant flexibility to adjust the death benefit
payable by changing the Death Benefit Option, by decreasing the
Specified Amount of the Policy or by adding riders to increase the
total death benefit payable. No such change or decrease may be made
during the first three Policy years. The Policyowner may either change
the Death Benefit Option or decrease the Specified Amount, but not
both, only once each Policy year after the third Policy year. (See
Policy Benefits - Change in Death Benefit Option, p. 15, and Death
Benefit - Decrease in Specified Amount, p. 16.)
5. WHAT FLEXIBILITY DOES A POLICYOWNER HAVE IN CONNECTION WITH PREMIUM
PAYMENTS?
A Policyowner has considerable flexibility concerning the amount and
frequency of premium payments. Western Reserve will require the
Policyowner to pay an Initial Premium, at least equal to a minimum
monthly guarantee premium set forth in the Policy, before insurance
coverage is In Force. Thereafter, a Policyowner may, subject to
certain restrictions, make premium payments in any amount and at any
frequency. (See Payment and Allocation of Premiums - Premiums, p. 21.)
Each Policyowner will also determine a Planned Periodic Premium
schedule. The schedule will provide a premium payment of a level
amount at a fixed interval over a specified period of time. The amount
and frequency of Planned Periodic Premium payments will be set forth
in the Policy. The amount and frequency of Planned Periodic Premium
payments may be changed upon written request. (See Premiums - Planned
Periodic Premiums, p. 21.)
6. HOW LONG WILL THE POLICY REMAIN IN FORCE?
The Policy will lapse only when Net Surrender Value is insufficient to pay
the monthly deduction (see Charges and Deductions - Cash Value
Charges, p. 26), and a grace period expires without a sufficient
payment by the Policyowner. (See Loan Privileges - Indebtedness, p.
31.) However, until the No Lapse Date as provided in the Policy, the
Policy will remain In Force and no grace period will begin provided
there has been no addition of any riders, the total premiums received
(minus any withdrawals, any outstanding loans, and any pro rata
Decrease Charge deducted from the Cash Value) equals or exceeds the
Minimum Monthly Guarantee Premium shown in the Policy times the number
of months since the Policy Date, including the current month. The
Minimum Monthly Guarantee Premium is set forth in the Policy, unless
changed due to a requested change under the Policy by the Policyowner,
at which time the Policyowner will be notified of the new Minimum
Monthly Guarantee Premium and its effective date. The Policy,
therefore, differs in two important respects from a conventional life
insurance policy. First, the failure to pay a Planned Periodic Premium
will not automatically cause the Policy to lapse. Second, after the No
Lapse Date, the Policy can lapse even if Planned Periodic Premiums or
premiums in other amounts have been paid, if Net Surrender Value is
insufficient to pay the monthly deduction, and a grace period expires
without a sufficient payment. Such a Lapse could happen if the
investment experience has been sufficiently unfavorable to have
resulted in a decrease in the Net Surrender Value, or the Net
Surrender Value has decreased because not enough premiums have been
paid to offset the monthly deductions. If the Insured is alive and the
Policy is In Force on the Maturity Date, which is the Insured's 95th
birthday, the Policy will then terminate and no longer be In Force.
Upon request, Western Reserve will extend the Maturity Date, as long
as there appears to be no unfavorable tax consequences. The Net
Surrender Value as of the Maturity Date will be paid to the
Policyowner. (See Policy Rights - Benefits at Maturity, p. 32.)
7. HOW ARE NET PREMIUMS ALLOCATED?
The portion of the premium available for allocation ("Net Premium")
equals the premium paid less the premium expense charges. (See Charges
and Deductions - Premium Expense Charges, p. 25.) The Policyowner
initially determines the allocation of the Net Premium among the
Sub-Accounts of the Series Account, each of which invests in shares of
a designated Portfolio of the Fund, or to the Fixed Account, or a
combination. Each Portfolio has a different investment objective. (See
Investments of the Series Account - WRL Series Fund, Inc., p. 18.) The
allocation of future Net Premiums may be changed without charge at any
time by providing Western Reserve with written notification from the
Policyowner, or by calling Western Reserve's toll-free number,
1-800-851-9777. Western Reserve reserves the right to impose a charge
of $25 for each change in allocation instructions in excess of one per
Policy quarter.
8. IS THERE A "FREE-LOOK" PERIOD?
Yes, the Policy provides a free-look period. The Policyowner may cancel the
Policy within 10 days after the Policyowner receives it. Certain
states require a Free-Look period longer than 10 days, either for all
Policyowners or for certain classes of Policyowners. In most states,
Western Reserve will refund the value of the amounts allocated to the
Accounts plus any charges previously deducted. In certain states, the
refund will be the total of all premiums paid. (See Policy Rights -
Examination of Policy Privilege, p. 31.)
4
<PAGE>
9. MAY THE POLICY BE SURRENDERED?
Yes, the Policyowner may totally surrender the Policy at any time and
receive the Net Surrender Value of the Policy. Subject to certain
limitations, the Policyowner may also make cash withdrawals from the
Policy at any time after the first Policy year and prior to the
Maturity Date. (See Policy Rights - Surrender Privileges, p. 31.) If
Death Benefit Option A is in effect, cash withdrawals will reduce the
Policy's Specified Amount by the amount of the cash withdrawal.
10. WHAT IS THE LOAN PRIVILEGE?
After the first Policy Anniversary, a Policyowner may obtain a Policy loan
in any amount which is not greater than 90% of the Cash Value, less
any surrender charge and any already outstanding loan. Western Reserve
reserves the right to permit a Policy Loan prior to the first Policy
Anniversary for Policies issued pursuant to a transfer of cash values
from another life insurance policy, under Section 1035(a) of the
Internal Revenue Code of 1986, as amended. It should be noted,
however, that 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 Matters, p. 35.)
The interest rate on a Policy loan is 5.2% payable annually in advance. The
requested loan amount, plus interest in advance, will be transferred
from the Accounts to the Loan Reserve and credited at the end of each
Policy year with guaranteed interest at a rate of 4% per year. Western
Reserve may from time to time, and in its sole discretion, credit the
Loan Reserve with additional interest at a rate higher than 4% per
year. The Loan Reserve is currently credited with a rate higher than
4% per year. The minimum loan amount is generally $500. (See Policy
Rights - Loan Privileges, p. 30.) Upon repayment of a loan, amounts in
the Loan Reserve in excess of the outstanding value of the loan are
currently transferred to the Accounts in the same manner as Net
Premium allocations; however, Western Reserve may in the future
require these amounts to be transferred to the Fixed Account. (See The
Fixed Account, p. 34.)
There are risks involved in taking a Policy loan, including 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 Matters - Tax Treatment of Policy Benefits, p. 36.)
11. WHAT CHARGES ARE ASSESSED IN CONNECTION WITH THE POLICY?
Certain charges are deducted from each premium. A sales charge equal to
3.5% of the premiums paid through the end of the tenth Policy year is
deducted to compensate Western Reserve for distribution expenses
incurred in connection with the Policy. A charge of 2.5% of each
premium payment is deducted to compensate Western Reserve for premium
taxes imposed by various states. In addition, $3.00 per premium
payment is deducted to compensate Western Reserve for costs associated
with premium collections. (See Charges and Deductions - Premium
Expense Charges, p. 25.)
A "surrender charge" is deducted if the Policy is surrendered during
the first fifteen Policy years. The Surrender Charge imposed upon
early surrender or a decrease in Specified Amount will be significant.
As a result, you should purchase a Policy only if you have the
financial capability to keep it In Force for a substantial period of
time. The surrender charge is calculated by multiplying the Specified
Amount as of the Policy Date by the Surrender Charge per $1,000 of
Specified Amount as shown in the Policy for the Policy year during
which surrender occurs. In addition, a pro rata Decrease Charge equal
to a pro rata portion of the Surrender Charge will be calculated and
charged to the Cash Value for any decreases in the Policy's Specified
Amount which occur during the first fifteen Policy years. Any future
Surrender Charges will be reduced proportionately according to the
amount of any previous pro rata Decrease Charge. (See Charges and
Deductions - Surrender Charge, p. 25 and Pro Rata Decrease Charge, p.
26.)
Cost of insurance charges and a current $5.00 monthly administration
charge, guaranteed never to exceed $7.50, are deducted monthly from
the Cash Value of each Policy to compensate Western Reserve for the
cost of insurance and the cost of administering the Policy. Cost of
insurance charges will vary with the Policy's Specified Amount, the
death benefit Option chosen and the investment experience of the
Portfolios in which the Policy is invested. (See Charges and
Deductions - Cash Value Charges, p. 26.)
Optional Cash Value charges are deducted from the Policy as a result of
Policyowner changes or elections made to the Policy. Optional Cash
Value charges include charges for: optional insurance benefits,
certain Cash Value transfers and cash withdrawals. (See Charges and
Deductions - Optional Cash Value Charges, p. 27.)
Western Reserve charges the Sub-Accounts of the Series Account for the
mortality and expense risks Western Reserve assumes. The charge is
made daily at an effective annual rate of 0.90% of the average daily
net assets of each Sub-Account of the Series Account. Western Reserve
currently intends to reduce this charge to 0.75% after the first
fifteen Policy years. However, such reduction is not guaranteed, and
Western Reserve reserves the right to maintain this charge at the
0.90%
5
<PAGE>
level after the first fifteen Policy years. (See Charges and Deductions -
Charges Against the Series Account, p. 27.)
Each Sub-Account invests in a corresponding Portfolio of the Fund. Each
Portfolio pays investment management fees based on a percentage of the
Portfolio's average daily net assets. The annual management fees and
other Fund expenses for the Portfolios are provided on p. 7, under the
heading Fund Annual Expenses. Effective January 1, 1997, the Fund
adopted a Plan of Distribution pursuant to Rule 12b-1 under the 1940
Act ("Distribution Plan") and, pursuant to the Plan, has entered
into a Distribution Agreement with InterSecurities, Inc.
("ISI"), principal underwriter for the Fund.
Under the Distribution Plan, the Fund, on behalf of the Portfolios, is
authorized to pay to various service providers, as direct payment for
expenses incurred in connection with the distribution of a
Portfolio's shares, amounts equal to actual expenses associated with
distributing a Portfolio's shares, up to a maximum rate of 0.15%
(fifteen one-hundreths of one percent) on an annualized basis of the
average daily net assets. This fee is measured and accrued daily and
paid monthly. ISI has determined that it will not seek payment by the
Fund of distribution expenses with respect to any Portfolio during the
fiscal year ending December 31, 1997. Prior to ISI's seeking
reimbursement, Policyowners will be notified in advance. In addition,
the Portfolios incur certain operating expenses. (See Investments of
the Series Account - WRL Series Fund, Inc., p. 18.)
No charges are currently made from the Series Account for Federal or state
income taxes. Should Western Reserve determine that such taxes may be
imposed by Federal or state agencies, Western Reserve may make
deductions from the Series Account to pay these taxes. (See Federal
Tax Matters, p. 35.)
12. ARE TRANSFERS PERMITTED AMONG THE ACCOUNTS?
Yes. A Policyowner may transfer Cash Value among the Sub-Accounts of the
Series Account or from the Sub-
Accounts to the Fixed Account. Transfers may also be made from the Fixed
Account to the Sub-Accounts subject to certain restrictions. (See The
Fixed Account - Allocations, Transfers and Withdrawals, p. 35.) Western
Reserve reserves the right to charge a $25 fee for each transfer in
excess of one per Policy month or twelve per Policy year. This charge
will not be increased. (See Payment and Allocation of Premiums -
Allocation of Premiums and Cash Value - Transfers, p. 23.)
13. WHAT ARE THE FEDERAL INCOME TAX CONSEQUENCES OF PURCHASING A POLICY?
At present, there is only limited guidance for determining whether a Policy
meets the requirements prescribed by tax legislation for tax treatment
as a life insurance contract under Section 7702 of the Internal
Revenue Code. With respect to a Policy that is issued on the basis of
a rate class using non-tobacco use Ultimate Select, non-tobacco use
Select, tobacco use Ultimate Standard or tobacco use Standard, while
there is some uncertainty due to the limited guidance on Section 7702,
Western Reserve nonetheless 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 rate class, there is even
less guidance to determine whether such a Policy meets the Section
7702 definition of a life insurance contract. Thus, it is not clear
whether such a Policy would satisfy Section 7702, particularly if the
Policyowner pays the full amount of premiums permitted under the
Policy. If it is subsequently determined that a Policy does not
qualify as a life insurance contract, Western Reserve will take
whatever steps are appropriate and reasonable to attempt to have such
a Policy comply with Section 7702. For these reasons, Western Reserve
reserves the right to modify the Policy as necessary to attempt to
qualify it as a life insurance contract under Section 7702. Assuming
that a Policy qualifies as a life insurance contract for Federal
income tax purposes, Western Reserve believes that the death benefit
paid under the Policy generally should be fully excludable from the
gross income of the Beneficiary for Federal income tax purposes.
Moreover, the Owner should not be deemed in constructive receipt of
Cash Values under a Policy until there is a distribution from the
Policy.
A Policy may be treated as a "modified endowment contract" depending
upon the amount of premiums paid in relation to the death benefit.
(See Tax Treatment of Policy Benefits - Modified Endowment Contracts,
p. 36.) 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, prior to age 591|M/2 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
contract 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 Matters, p. 35.
6
<PAGE>
FUND ANNUAL EXPENSES* (AS A % OF FUND AVERAGE NET ASSETS)
<TABLE>
<CAPTION>
Aggressive Emerging
Growth Growth Growth
Portfolio Portfolio Portfolio
------------- ------------ ------------
<S> <C> <C> <C>
Management Fees ........................ 0.80% 0.80% 0.80%
Other Expenses (after reimbursement) ... 0.18% 0.14% 0.08%
Total Fund Annual Expenses ............ 0.98% 0.94% 0.88%
<CAPTION>
C.A.S.E.
Global Balanced Value Equity Growth
Portfolio Portfolio Portfolio** Portfolio
------------ ------------ --------------- -----------
<S> <C> <C> <C> <C>
Management Fees ........................ 0.80% 0.80% 0.80% 0.80%
Other Expenses (after reimbursement) ... 0.19% 0.17% 0.20% 0.20%
Total Fund Annual Expenses ............ 0.99% 0.97% 1.00% 1.00%
</TABLE>
<TABLE>
<CAPTION>
Strategic Growth &
Bond Total Return Income
Portfolio Portfolio*** Portfolio****
------------ --------------- ----------------
<S> <C> <C> <C>
Management Fees ..................... 0.50% 0.80% 0.75%
Other Expenses (after reimbursement) 0.14% 0.11% 0.25%
Total Fund Annual Expenses ............ 0.64% 0.91% 1.00%
<CAPTION>
Tactical
Money Asset International
Market Allocation Equity U.S. Equity
Portfolio Portfolio Portfolio** Portfolio**
------------ ------------- --------------- -------------
<S> <C> <C> <C> <C>
Management Fees ..................... 0.40% 0.80% 1.00% 0.80%
Other Expenses (after reimbursement) 0.12% 0.10% 0.30% 0.25%
Total Fund Annual Expenses ............ 0.52% 0.90% 1.30% 1.05%
</TABLE>
* Effective January 1, 1997, the Fund adopted a Plan of Distribution pursuant
to Rule 12b-1 under the 1940 Act ("Distribution Plan") and pursuant to
the Plan, has entered into a Distribution Agreement with InterSecurities,
Inc. ("ISI"), principal underwriter for the Fund. Under the
Distribution Plan, the Fund, on behalf of the Portfolios, is authorized to
pay to various service providers, as direct payment for expenses incurred in
connection with the distribution of a Portfolio's shares, amounts equal to
actual expenses associated with distributing a Portfolio's shares, up to a
maximum rate of 0.15% (fifteen one-
hundreths of one percent) on an annualized basis of the average daily net
assets. This fee is measured and accrued daily and paid monthly. ISI has
determined that it will not seek payment by the Fund of distribution expenses
with respect to any Portfolio during the fiscal year ending December 31,
1997. Prior to ISI's seeking reimbursement, Policyowners will be notified in
advance.
** Because the Value Equity Portfolio commenced operations on May 1, 1996 the
"Other Expenses" and "Total Fund Annual Expenses" are
annualized. Because the International Equity and U.S. Equity Portfolios
commenced operations on January 2, 1997, the percentages set forth as
"Other Expenses" and "Total Fund Annual Expenses" are estimates.
*** Prior to May 1, 1997, this Portfolio was known as Equity-Income.
**** Prior to May 1, 1997, this Portfolio was known as Utility.
The purpose of the preceding Table is to assist the Policyowner in
understanding the various costs and expenses that a Policyowner will bear
directly and indirectly. The Table reflects charges and expenses of the Separate
Account as well as the Portfolios of the Fund for the fiscal year ended December
31, 1996, except that the "Other Expenses" and "Total Fund Annual
Expenses" for the Value Equity Portfolio are annualized and the "Other
Expenses" and "Total Fund Annual Expenses" for the International Equity
and U.S. Equity Portfolios are estimates. Expenses of the Fund may be higher or
lower in the future. Certain states and other governmental entities may impose a
premium tax, which the Table does not include. For more information on the
charges described in this Table, see "CHARGES AND DEDUCTIONS" on page 25
and the Fund Prospectus which accompanies this Prospectus.
WRL Investment Management, Inc. has undertaken, until at least April 30,
1998, to pay Fund expenses on behalf of the Portfolios to the extent normal
operating expenses of a Portfolio exceed a stated percentage of each
Portfolio's average daily net assets. In 1996, Western Reserve, the Fund's
Investment Adviser prior to January 1, 1997, reimbursed the Value Equity
Portfolio in the amount of $13,672, and the C.A.S.E. Growth Portfolio in the
amount of $73,269. Without such reimbursement, the total annual Fund expenses
during 1996 for the Value Equity Portfolio and the C.A.S.E. Growth Portfolio
would have been 1.03% and 1.64%, respectively. See the Fund's Prospectus for a
description of the expense limitation applicable to each Portfolio.
INVESTMENT EXPERIENCE INFORMATION
The information provided in this section shows the historical investment
experience of the Fund and hypothetical illustrations of the Policy based on the
historical investment experience of the Fund. It does not represent or project
future investment performance.
The Policies became available for sale in 1997. The Series Account and the
Fund commenced operations on October 2, 1986. The rates of return shown below
depict the actual investment experience of each Portfolio of the Fund for the
periods shown. The illustrations of death benefits, Cash Values and Net
Surrender Values shown below depict these Policy features for a hypothetical
Policy as if it had been purchased on January 1, 1987 by an Insured in the age
and risk classes indicated, based on the historical investment experience of the
Portfolio indicated since January 1, 1987. The actual rate of return for each
Portfolio in each calendar year was assumed to be uniformly earned throughout
that year. The actual performance of the Portfolios, however, has and will vary
throughout the year, resulting in variable monthly deductions from Cash Value
that could affect performance.
RATES OF RETURN
The rates of return shown below are based on the actual investment
performance, as described above, after the deduction of investment management
fees and direct Fund expenses, of the Portfolios of the Fund. The rates are
average annual compounded rates of return for the periods ended on December 31,
1996. (See Investments of the Series Account - WRL Series Fund, Inc., p. 18.)
7
<PAGE>
These rates of return do not reflect the annual charge against the assets
of the Series Account of 0.90% for mortality and expense risks. These rates of
return also do not reflect the charges deducted from premiums, monthly
deductions from Cash Value, or surrender charges. (See Charges and Deductions -
Premium Expense Charges, p. 25; Surrender Charge, p. 25; and Cash Value Charges,
p. 26.) Accordingly, these rates of return do not illustrate how actual
investment performance will affect benefits under the Policies. (See, however,
Death Benefit, Cash Value and Net Surrender Value Illustrations, below.)
Moreover, these rates of return are not an estimate, projection or guarantee of
future performance.
Also shown are comparable figures for the unmanaged Standard & Poor's
Index of 500 Common Stocks (S&P 500), a widely used measure of stock market
performance. As an unmanaged index, the S&P 500 does not reflect any deduction
for the expenses of operating and managing an investment portfolio.
AVERAGE ANNUAL COMPOUNDED RATES OF RETURN
FOR THE PERIODS ENDED ON DECEMBER 31, 1996
<TABLE>
<CAPTION>
Fund Portfolio Inception* 5 Years 3 Years 1 Year
- ------------------------ ------------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
Growth % % % %
Global % N/A % %
Bond % % % %
Money Market % % % %
Emerging Growth % N/A % %
Strategic Total Return % N/A % %
Aggressive Growth % N/A N/A %
Balanced % N/A N/A %
Growth & Income % N/A N/A %
Tactical Asset
Allocation % N/A N/A %
C.A.S.E Growth % N/A N/A %
Value Equity % N/A N/A N/A
S&P 500 % % % %
</TABLE>
* The Growth, Bond and Money Market Portfolios of the Fund commenced operations
on October 2, 1986. The Global Portfolio commenced operations on December 3,
1992. The Emerging Growth and Strategic Total Return Portfolios commenced
operations on March 1, 1993. The Aggressive Growth, Balanced and Growth &
Income Portfolios commenced operations on March 1, 1994. The Tactical Asset
Allocation Portfolio commenced operations on January 3, 1995. The C.A.S.E.
Growth Portfolio commenced operations on May 1, 1995. The Value Equity
Portfolio commenced operations on May 1, 1996. The S&P 500 returns are based
on an inception date of October 2, 1986.
Because the U.S. Equity and International Equity Portfolios had not yet
commenced operations as of December 31, 1996, the above chart does not reflect
rates of return for these Portfolios.
Additional information regarding the investment performance of the
Portfolios of the Fund appears in the attached Prospectus for the Portfolios of
the Fund.
DEATH BENEFIT, CASH VALUE AND NET SURRENDER VALUE ILLUSTRATIONS
In order to demonstrate how the actual investment experience of the
Portfolios will affect the Option B death benefits, the Policy Cash Value and
the Net Surrender Value, the following hypothetical illustrations are based on
the actual investment experience of each Portfolio as if the Policy had been
available for sale and issued on January 1, 1987. The actual rate of return in
each calendar year was assumed to be uniformly earned throughout that year. The
actual performance of the Portfolios, however, has and will vary throughout the
year, resulting in variable monthly deductions from Cash Value that could affect
performance. These illustrations do not represent what may happen in the future.
The illustrations show Option B based on the payment of annual premiums of
$2,000 at the beginning of each Policy year, and a Specified Amount of $165,000
for a male age 35. The illustrations assume that the Insured is placed in
Western Reserve's non-smoker Ultimate Select underwriting rate class. (See Cash
Value Charges - Cost of Insurance, p. 27.) The illustrations also assume that
the Policy's entire Cash Value is allocated to the Sub-Account corresponding to
the Portfolio shown. These illustrated values would be different if the
Policyowner had chosen Option A death benefits.
The amounts shown for death benefits, Cash Values and Net Surrender Values
take into account all charges and deductions from the Policy, the Series Account
and the Fund (see Charges and Deductions - Premium Expense Charges, p. 25,
Charges Against the Series Account, p. 27, and Investments of the Series Account
- - WRL Series Fund, Inc., p. 18).
For each Portfolio of the Fund, one illustration is based on the
guaranteed cost of insurance rates, while the other illustration is based on the
current cost of insurance rates. These examples of Policy performance are for
the specific age, sex, rate class, premium payment pattern and Policy set forth
above. The amount and timing of premium payments would affect individual Policy
benefits as would any withdrawals or loans.
This Prospectus also contains illustrations based on assumed rates of
return. See Appendix A, pages 41-44.
The following example shows how the hypothetical net return of the Growth
Portfolio of the Fund would have affected benefits for a Policy dated January 1,
1987. This example assumes that the Net Premiums and related Cash Values were in
the Sub-Account for the entire period and that the values were determined on the
first Valuation Date following January 1st of each year.
8
<PAGE>
GROWTH PORTFOLIO
Male, Issue Age 35, $2,000 Annual Premium
($165,000 Specified Amount, Non-Smoker Ultimate Select Risk)
Death Benefit Option B
Both Current and Guaranteed Cost of Insurance Rates
<TABLE>
<CAPTION>
Cash Value Net Surrender Value
---------------------------- ----------------------------
Policy Anniversary on January 1 of Current Guaranteed Current Guaranteed
- ------------------------------------ ---------- ------------- ---------- ------------
<S> <C> <C> <C> <C>
1988 .............................. $1,750 $1,725 $ 0 $ 0
1989* .............................. 3,841 3,781 1,280 1,220
1990* .............................. 8,062 7,926 5,502 5,365
1991* .............................. 9,313 9,132 6,752 6,571
1992* .............................. 17,375 17,018 14,814 14,457
1993* .............................. 19,136 18,718 16,831 16,413
1994* .............................. 21,100 20,611 19,052 18,562
1995* .............................. 20,453 19,946 18,661 18,154
1996* .............................. 32,237 31,428 30,700 29,892
1997* .............................. 39,076 38,086 37,795 36,806
</TABLE>
* For each year shown, benefits and values reflect only premiums paid during
previous Policy years.
The following example shows how the hypothetical net return of the Bond
Portfolio of the Fund would have affected benefits for a Policy dated January 1,
1987. This example assumes that Net Premiums and related Cash Values were in the
Sub-Account for the entire period and that the values were determined on the
first Valuation Date following January 1st of each year.
BOND PORTFOLIO
Male, Issue Age 35, $2,000 Annual Premium
($165,000 Specified Amount, Non-Smoker Ultimate Select Risk)
Death Benefit Option B
Both Current and Guaranteed Cost of Insurance Rates
<TABLE>
<CAPTION>
Cash Value Net Surrender Value
---------------------------- ----------------------------
Policy Anniversary on January 1 of Current Guaranteed Current Guaranteed
- ------------------------------------ ---------- ------------- ---------- ------------
<S> <C> <C> <C> <C>
1988 .............................. $1,477 $1,454 $ 0 $ 0
1989* ........................... 3,222 3,167 661 607
1990* ........................... 5,487 5,384 2,927 2,824
1991* ........................... 7,459 7,299 4,899 4,738
1992* ........................... 10,443 10,200 7,882 7,639
1993* ........................... 12,812 12,494 10,508 10,189
1994* ........................... 15,880 15,462 13,831 13,413
1995* ........................... 16,044 15,594 14,252 13,801
1996* .............................. 21,347 20,740 19,810 19,204
1997* .............................. 22,392 21,747 21,111 20,467
</TABLE>
* For each year shown, benefits and values reflect only premiums paid during
previous Policy years.
9
<PAGE>
The following example shows how the hypothetical net return of the Money
Market Portfolio of the Fund would have affected benefits for a Policy dated
January 1, 1987. This example assumes that Net Premiums and related Cash Values
were in the Sub-Account for the entire period and that the values were
determined on the first Valuation Date following January 1st of each year.
MONEY MARKET PORTFOLIO
Male, Issue Age 35, $2,000 Annual Premium
($165,000 Specified Amount, Non-Smoker Ultimate Select Risk)
Death Benefit Option B
Both Current and Guaranteed Cost of Insurance Rates
<TABLE>
<CAPTION>
Cash Value Net Surrender Value
---------------------------- ----------------------------
Policy Anniversary on January 1 of Current Guaranteed Current Guaranteed
- ------------------------------------ ---------- ------------- ---------- ------------
<S> <C> <C> <C> <C>
1988 .............................. $1,651 $1,628 $ 0 $ 0
1989* ........................... 3,385 3,330 824 769
1990* ........................... 5,295 5,196 2,734 2,635
1991* ........................... 7,282 7,126 4,722 4,566
1992* ........................... 9,187 8,971 6,626 6,410
1993* ........................... 10,927 10,649 8,622 8,344
1994* ........................... 12,589 12,245 10,540 10,197
1995* ........................... 14,408 13,989 12,616 12,197
1996* .............................. 16,526 16,036 14,990 14,500
1997* .............................. 18,636 18,078 17,355 16,798
</TABLE>
* For each year shown, benefits and values reflect only premiums paid during
previous Policy years.
The following example shows how the hypothetical net return of the Global
Portfolio of the Fund would have affected benefits for a Policy dated January 1,
1993, if the Global Portfolio had been offered by the Policy as of January 1,
1993. This example assumes that Net Premiums and related Cash Values were in the
Sub-Account for the entire period and that the values were determined on the
first Valuation Date following January 1st of each year.
GLOBAL PORTFOLIO
Male, Issue Age 35, $2,000 Annual Premium
($165,000 Specified Amount, Non-Smoker Ultimate Select Risk)
Death Benefit Option B
Both Current and Guaranteed Cost of Insurance Rates
<TABLE>
<CAPTION>
Cash Value Net Surrender Value
---------------------------- ----------------------------
Policy Anniversary on January 1 of Current Guaranteed Current Guaranteed
- ------------------------------------ ---------- ------------- ---------- ------------
<S> <C> <C> <C> <C>
1994 .............................. $2,139 $2,112 $ 0 $ 0
1995* ........................... 3,681 3,624 1,120 1,063
1996* .............................. 6,432 6,320 3,871 3,759
1997* .............................. 9,971 9,776 7,410 7,215
</TABLE>
* For each year shown, benefits and values reflect only premiums paid during
previous Policy years.
10
<PAGE>
The following example shows how the hypothetical net return of the Emerging
Growth Portfolio of the Fund would have affected benefits for a Policy dated
January 1, 1994. This example assumes that Net Premiums and related Cash Values
were in the Sub-Account for the entire period and that the values were
determined on the first Valuation Date following January 1st of each year.
EMERGING GROWTH PORTFOLIO
Male, Issue Age 35, $2,000 Annual Premium
($165,000 Specified Amount, Non-Smoker Ultimate Select Risk)
Death Benefit Option B
Both Current and Guaranteed Cost of Insurance Rates
<TABLE>
<CAPTION>
Cash Value Net Surrender Value
---------------------------- ----------------------------
Policy Anniversary on January 1 of Current Guaranteed Current Guaranteed
- ------------------------------------ ---------- ------------- ---------- ------------
<S> <C> <C> <C> <C>
1995 .............................. $1,429 $1,407 $ 0 $ 0
1996* .............................. 4,455 4,386 1,894 1,825
1997* .............................. 7,016 6,894 4,455 4,334
</TABLE>
* For each year shown, benefits and values reflect only premiums paid during
previous Policy years.
The following example shows how the hypothetical net return of the
Strategic Total Return Portfolio of the Fund would have affected benefits for a
Policy dated January 1, 1994. This example assumes that Net Premiums and related
Cash Values were in the Sub-Account for the entire period and that the values
were determined on the first Valuation Date following January 1st of each year.
STRATEGIC TOTAL RETURN PORTFOLIO
Male, Issue Age 35, $2,000 Annual Premium
($165,000 Specified Amount, Non-Smoker Ultimate Select Risk)
Death Benefit Option B
Both Current and Guaranteed Cost of Insurance Rates
<TABLE>
<CAPTION>
Cash Value Net Surrender Value
---------------------------- ----------------------------
Policy Anniversary on January 1 of Current Guaranteed Current Guaranteed
- ------------------------------------ ---------- ------------- ---------- ------------
<S> <C> <C> <C> <C>
1995 .............................. $1,547 $1,524 $ 0 $ 0
1996* .............................. 3,892 3,830 1,331 1,269
1997* .............................. 6,143 6,033 3,582 3,472
</TABLE>
* For each year shown, benefits and values reflect only premiums paid during
previous Policy years.
The following example shows how the hypothetical net return of the
Aggressive Growth Portfolio of the Fund would have affected benefits for a
Policy dated January 1, 1995. This example assumes that Net Premiums and related
Cash Values were in the Sub-Account for the entire period and that the values
were determined on the first Valuation Date following January 1st of each year.
AGGRESSIVE GROWTH PORTFOLIO
Male, Issue Age 35, $2,000 Annual Premium
($165,000 Specified Amount, Non-Smoker Ultimate Select Risk)
Death Benefit Option B
Both Current and Guaranteed Cost of Insurance Rates
<TABLE>
<CAPTION>
Cash Value Net Surrender Value
---------------------------- ----------------------------
Policy Anniversary on January 1 of Current Guaranteed Current Guaranteed
- ------------------------------------ ---------- ------------- ---------- ------------
<S> <C> <C> <C> <C>
1996 .............................. $2,234 $2,207 $ 0 $ 0
1997* .............................. 4,120 4,059 1,559 1,498
</TABLE>
* For each year shown, benefits and values reflect only premiums paid during
previous Policy years.
11
<PAGE>
The following example shows how the hypothetical net return of the Balanced
Portfolio of the Fund would have affected benefits for a Policy dated January 1,
1995. This example assumes that Net Premiums and related Cash Values were in the
Sub-Account for the entire period and that the values were determined on the
first Valuation Date following January 1st of each year.
BALANCED PORTFOLIO
Male, Issue Age 35, $2,000 Annual Premium
($165,000 Specified Amount, Non-Smoker Ultimate Select Risk)
Death Benefit Option B
Both Current and Guaranteed Cost of Insurance Rates
<TABLE>
<CAPTION>
Cash Value Net Surrender Value
---------------------------- ----------------------------
Policy Anniversary on January 1 of Current Guaranteed Current Guaranteed
- ------------------------------------ ---------- ------------- ---------- ------------
<S> <C> <C> <C> <C>
1996 .............................. $1,893 $1,867 $ 0 $ 0
1997* .............................. 3,759 3,700 1,198 1,140
</TABLE>
* For each year shown, benefits and values reflect only premiums paid during
previous Policy years.
The following example shows how the hypothetical net return of the Utility
Portfolio of the Fund would have affected benefits for a Policy dated January 1,
1995. This example assumes that Net Premiums and related Cash Values were in the
Sub-Account for the entire period and that the values were determined on the
first Valuation Date following January 1st of each year.
GROWTH & INCOME PORTFOLIO
Male, Issue Age 35, $2,000 Annual Premium
($165,000 Specified Amount, Non-Smoker Ultimate Select Risk)
Death Benefit Option B
Both Current and Guaranteed Cost of Insurance Rates
<TABLE>
<CAPTION>
Cash Value Net Surrender Value
---------------------------- ----------------------------
Policy Anniversary on January 1 of Current Guaranteed Current Guaranteed
- ------------------------------------ ---------- ------------- ---------- ------------
<S> <C> <C> <C> <C>
1996 .............................. $1,993 $1,967 $ 0 $ 0
1997* .............................. 3,874 3,814 1,313 1,253
</TABLE>
* For each year shown, benefits and values reflect only premiums paid during
previous Policy years.
The following example shows how the hypothetical net return of the Tactical
Asset Allocation Portfolio of the Fund would have affected benefits for a Policy
dated January 1, 1995. This example assumes that Net Premiums and related Cash
Values were in the Sub-Account for the entire period and that the values were
determined on the first Valuation Date following January 1st of each year.
TACTICAL ASSET ALLOCATION PORTFOLIO
Male, Issue Age 35, $2,000 Annual Premium
($165,000 Specified Amount, Non-Smoker Ultimate Select Risk)
Death Benefit Option B
Both Current and Guaranteed Cost of Insurance Rates
<TABLE>
<CAPTION>
Cash Value Net Surrender Value
---------------------------- ----------------------------
Policy Anniversary on January 1 of Current Guaranteed Current Guaranteed
- ------------------------------------ ---------- ------------- ---------- ------------
<S> <C> <C> <C> <C>
1996 .............................. $1,909 $1,884 $ 0 $ 0
1997* .............................. 3,903 3,843 1,342 1,282
</TABLE>
* For each year shown, benefits and values reflect only premiums paid during
previous Policy years.
12
<PAGE>
The following example shows how the hypothetical net return of the C.A.S.E.
Growth Portfolio of the Fund would have affected benefits for a Policy dated
January 1, 1996, if the C.A.S.E. Growth Portfolio had been offered by the Policy
as of January 1, 1996. This example assumes that Net Premiums and related Cash
Values were in the Sub-Account for the entire period and that the values were
determined on the first Valuation Date following January 1st of each year.
C.A.S.E. GROWTH PORTFOLIO
Male, Issue Age 35, $2,000 Annual Premium
($165,000 Specified Amount, Non-Smoker Ultimate Select Risk)
Death Benefit Option B
Both Current and Guaranteed Cost of Insurance Rates
<TABLE>
<CAPTION>
Cash Value Net Surrender Value
---------------------------- ----------------------------
Policy Anniversary on January 1 of Current Guaranteed Current Guaranteed
- ------------------------------------ ---------- ------------- ---------- ------------
<S> <C> <C> <C> <C>
1997 .............................. $1,823 $1,798 $0 $0
</TABLE>
Because the Value Equity Portfolio commenced operations on May 1, 1996 and
the U.S. Equity Portfolio and International Equity Portfolio had not yet
commenced operations as of December 31, 1996, there are no hypothetical
illustrations for these Portfolios.
OTHER PERFORMANCE DATA
Western Reserve may compare the performance of each Sub-Account in
advertising and sales literature to the performance of other variable life
issuers in general, or to the performance of particular types of variable life
insurance policies investing in mutual funds, or investment series of mutual
funds, with investment objectives similar to each of the Sub-
Accounts whose performance is reported by Lipper Analytical Services, Inc.
("Lipper") and Morningstar, Inc. ("Morningstar") or reported by
other services, companies, individuals or other industry or financial
publications of general interest, such as Forbes, Money, The Wall Street
Journal, Business Week, Barron's, Kiplinger's Personal Finance and Fortune.
Lipper and Morningstar are widely used independent research services which
monitor and rank the performance of variable life insurance policies in each of
the major categories of investment objectives on an industry-wide basis.
Lipper's and Morningstar's rankings include variable annuity contracts
as well as variable life insurance policies. The performance analyses prepared
by Lipper and Morningstar rank such policies and contracts on the basis of total
return, assuming reinvestment of distributions, but do not take sales charges,
redemption fees or certain expense deductions at the separate account level into
consideration.
Western Reserve may also compare the performance of each Sub-Account in
advertising and sales literature to the Standard & Poor's Index of 500 Common
Stocks, a widely used measure of stock market performance, or other widely
recognized indices. Unmanaged indices may assume the reinvestment of dividends,
but usually do not reflect any "deduction" for the expense of operating or
managing an investment portfolio.
In addition, Western Reserve may, as appropriate, compare each
Sub-Account's performance to that of other types of investments such as
certificates of deposit, savings accounts and U.S. Treasuries, or to certain
interest rate and inflation indices, such as the Consumer Price Index, which is
published by the U.S. Department of Labor and measures the average change in
prices over time of a fixed "market basket" of certain specified goods and
services. Similar comparisons of Sub-Account performance may also be made with
appropriate indices measuring the performance of a defined group of securities
widely recognized by investors as representing a particular segment of the
securities markets. For example, Sub-Account performance may be compared with
Donoghue Money Market Institutional Average (money market rates), Lehman
Brothers Corporate Bond Index (corporate bond interest rates) or Lehman Brothers
Government Bond Index (long-term U.S. Government obligation interest rates).
WESTERN RESERVE AND THE SERIES ACCOUNT
WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO
Western Reserve was originally incorporated under the laws of Ohio on
October 1, 1957. Western Reserve is engaged in the business of writing life
insurance policies and annuity contracts. Western Reserve is admitted to do
business in 49 states and the District of Columbia. The Office of Western
Reserve is located in Largo, Florida; however, the mailing address is P.O. Box
5068, Clearwater, FL 34618-5068. Western Reserve is a wholly-owned subsidiary of
First AUSA Life Insurance Company ("First AUSA"), a stock life insurance
company which is wholly-owned by 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 OF WESTERN RESERVE. Western Reserve may from time to
time publish in advertisements, sales literature and reports to Policyowners,
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 &
13
<PAGE>
Phelps"). A.M. Best's and Moody's ratings reflect their current opinion of
the relative financial strength and operating performance of an insurance
company in comparison to the norms of the life/health insurance industry.
Standard & Poor's and Duff & Phelps provide ratings which measure the claims-
paying ability of insurance companies. These ratings are opinions of an
operating insurance company's financial capacity to meet the obligations of its
insurance policies in accordance with their terms. Claims-paying ability ratings
do not refer to an insurer's ability to meet non-policy obligations (i.e.,
debt/
commercial paper).
THE SERIES ACCOUNT
WRL Series Life Account ("Series Account") was established by
Western Reserve as a separate account on July 16, 1985. The Series Account meets
the definition of a "separate account" under the Federal securities laws.
The Series Account will receive and invest the Net Premiums paid under this
Policy and other flexible premium variable life insurance policies issued by
Western Reserve.
Although the assets of the Series Account are the property of Western
Reserve, the Code of Ohio, under which the Series Account was established,
provides that the assets in the Series 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 Series Account shall, however, be
available to cover the liabilities of the General Account of Western Reserve to
the extent that the Series Account's assets exceed its liabilities arising
under the Policies supported by it.
The Series Account is currently divided into fourteen Sub-Accounts. Each
Sub-Account invests exclusively in shares of a single Portfolio of the Fund.
Income and both realized and unrealized gains or losses from the assets of each
Sub-Account of the Series Account are credited to or charged against that
Sub-Account without regard to income, gains or losses from any other Sub-Account
of the Series Account or arising out of any other business Western Reserve may
conduct.
POLICY BENEFITS
DEATH BENEFIT
Policyowners designate in the initial application one of three death
benefit options offered under the Policy: Death Benefit Option A ("Option
A"), Death Benefit Option B ("Option B") and Death Benefit Option C
("Option C"). As long as the Policy remains In Force, (see Policy Lapse
and Reinstatement - Lapse, p. 24), Western Reserve will, upon receiving due
proof of the Insured's death, pay the death benefit proceeds of a Policy to the
named Beneficiary in accordance with the designated death benefit option. The
amount of the death benefit proceeds payable will be determined at the end of
the Valuation Period during which the Insured dies. The proceeds may be paid in
a lump sum or under one or more of the settlement options set forth in the
Policy. (See Payment of Policy Benefits - Settlement Options, p. 32.) Western
Reserve guarantees that as long as the Policy remains In Force (see Policy Lapse
and Reinstatement - Lapse, p. 24), the death benefit proceeds under any option
will never be less than the Specified Amount of the Policy, but the proceeds
will be reduced by any outstanding indebtedness and any due and unpaid charges.
These proceeds will be increased by any additional insurance In Force provided
by rider and any unearned loan interest.
OPTION A. The death benefit is the greater of (i) the Specified Amount of
the Policy, or (ii) a specified percentage (the "limitation percentage")
times the Cash Value of the Policy on the date of death of the Insured. The
limitation percentage is 250% for an Insured age 40 or below on the Policy
Anniversary prior to the date of death. For an Insured with an Attained Age over
40 on a Policy Anniversary, the percentage declines as shown in the following
Limitation Percentage Table. Accordingly, under Option A the death benefit will
remain level unless the limitation percentage times the Cash Value exceeds the
Specified Amount, in which case the amount of the death benefit will vary as the
Cash Value varies.
ILLUSTRATION OF OPTION A. For purposes of this illustration, assume that
the Insured's Attained Age is under 40 and that there is no outstanding
indebtedness. Under Option A, a Policy with a $50,000 Specified Amount will
generally pay $50,000 in death benefits. However, because the death 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 death benefit will exceed the $50,000 Specified
Amount. Each additional dollar added to the Cash Value above $20,000 will
increase the death benefit by $2.50.
Similarly, so long as the Cash Value exceeds $20,000, each dollar taken
out of the Cash Value will reduce the death benefit by $2.50. If at any time,
however, the Cash Value multiplied by the limitation percentage is less than the
Specified Amount, the death benefit will equal the Specified Amount of the
Policy.
LIMITATION PERCENTAGE TABLE
ATTAINED AGE PER YEAR
OF INSURED LESS OVER AGE
--------------- ------ ----------
under 40 ...... 250%
41 - 45 ......... 250% 7% 40
46 - 50 ...... 215% 6% 45
51 - 55 ...... 185% 7% 50
56 - 60 ...... 150% 4% 55
61 - 65 ...... 130% 2% 60
66 - 70 ...... 120% 1% 65
71 - 75 ...... 115% 2% 70
76 - 90 ...... 105% 0% 75
91 - 95 ...... 105% 1% 90
OPTION B. The death benefit is equal to the greater of (i) the Specified
Amount plus the Cash Value of the Policy on the date of death of the Insured or
(ii) the limitation percentage times the Cash Value of the Policy on the date of
death of the Insured. The applicable percentage is 250% for an Insured age 40 or
below on the Policy Anniversary prior to the date of
14
<PAGE>
death. For Insureds with an Attained Age over 40 on a Policy Anniversary, the
percentage declines as shown in the Limitation Percentage Table above.
Accordingly, under Option B the amount of the death benefit will always vary as
the Cash Value varies.
ILLUSTRATION OF OPTION B. For purposes of this illustration, assume that
the Insured is under the age of 40 and that there is no outstanding
indebtedness. Under Option B, a Policy with a Specified Amount of $50,000 will
generally pay a death benefit of $50,000 plus Cash Value. Thus, for example, a
Policy with a Cash Value of $10,000 will have a death benefit of $60,000
($50,000 + $10,000). The death benefit, however, must be at least 250% of Cash
Value. As a result, if the Cash Value of the Policy exceeds $33,333, the death
benefit will be greater than the Specified Amount plus Cash Value. Each
additional dollar of Cash Value above $33,333 will increase the death benefit by
$2.50.
Similarly, any time Cash Value exceeds $33,333, each dollar taken out of
Cash Value will reduce the death benefit by $2.50. If at any time, however, Cash
Value multiplied by the limitation percentage is less than the Specified Amount
plus the Cash Value, then the death benefit will be the Specified Amount plus
the Cash Value of the Policy.
OPTION C. The death benefit is equal to the greater of (i) the Option A
death benefit; or (ii) the Specified Amount times a "Factor", plus the
Cash Value of the Policy on the Insured's date of death. The "Factor" is
equal to the lesser of 1.0, and, four one-hundreths (0.04) times the difference
of 95 minus the Insured's Attained Age on the date of death.
Accordingly, under Option C the amount of the death benefit will vary as
the Cash Value and the Insured's Attained Age varies.
THREE ILLUSTRATIONS OF OPTION C.
First illustration: assume that the Insured is under the age of 40 and
that there is no outstanding indebtedness. Under Option C, a Policy with a
Specified Amount of $50,000 and with a Cash Value of $10,000 will have a death
benefit of $60,000 ($50,000 x the minimum of (1.0 and (0.04 x (95-40))) +
$10,000). So long as the Insured is under age , this benefit is the same as
the Option B benefit.
Second illustration: assume that the Insured is Attained Age 75 and that
there is no outstanding indebtedness. Under Option C, a Policy with a Specified
Amount of $50,000 and with a Cash Value of $12,000 will have a death benefit of
$52,000 ($50,000 x the minimum of (1.0 and (0.04 x (95 - 75))) - $12,000). The
death benefit, however, must be at least 105% of Cash Value as shown in the
Limitation Percentage Table above.
Third illustration: assume that the Insured is Attained Age 75 and that
there is no outstanding indebtedness. Under Option C, a Policy with a Specified
Amount of $50,000 and with a Cash Value of $9,000 will have a death benefit
equal to the Specified Amount of $50,000 since the calculation of $50,000 times
the minimum of (1.0 and (0.04 x (95 - 75))) plus $9,000 is less than the
Specified Amount.
CHOOSING DEATH BENEFIT OPTION A, OPTION B OR OPTION C. Assuming the death
benefit is not determined by reference to the limitation percentage, Option A
will provide a Specified Amount of death benefit which does not vary with
changes in Cash Value. Thus, under Option A, as Cash Value increases, Western
Reserve's net amount at risk and therefore the pure insurance protection under
the Policy will decline. In contrast, Option B involves a constant net amount at
risk, assuming that the death benefit is not determined by reference to the
limitation percentage. Therefore, assuming positive investment experience, the
deduction for cost of insurance under a Policy with an Option A death benefit
will be less than under a corresponding Policy with an Option B death benefit.
Option C involves a constant net amount at risk at Attained Ages 70 or less,
assuming that the death benefit is not determined by reference to the limitation
percentage. At Attained Ages greater than 70, the net amount at risk under
Option C will decline, assuming that the death benefit is not determined by
reference to the limitation percentage.
Assuming positive investment experience, the deduction for cost of
insurance under a Policy with an Option C death benefit will ultimately be less
than under a Policy with an Option B death benefit. Because of this, if
investment performance is positive, Cash Value under Option A will increase
faster than under Option B or Option C, but the total death benefit under Option
B and Option C will generally be greater. Thus, Option A could be considered
more suitable for Policyowners whose goal is increasing Cash Value based upon
positive investment experience while Option B could be considered more suitable
for Policyowners whose goal is increasing total death benefit, and Option C
could be considered more suitable for Policyowners whose goal is increasing
total death benefit prior to Attained Age 70 and increasing Cash Value based
upon positive investment experience after Attained Age 70.
CHANGE IN DEATH BENEFIT OPTION. Generally, the death benefit Option in
effect may be changed by the Policyowner once each Policy year after the third
Policy year, provided that no decrease in Specified Amount is made that year. A
change in the Option may be made by sending Western Reserve a written request
for change. A change in death benefit Option may have Federal income tax
consequences. (See Federal Tax Matters, p. 35.)
Under Western Reserve's current rules, no change may be made if it would
result in a Specified Amount less than the minimum Specified Amount set forth in
the Policy. The effective date of any change will be the Monthly Anniversary on
or following receipt of the request. No charges will be imposed for making a
change in death benefit option.
On the effective date of change to a new Option the Specified Amount will
be adjusted so that the Monthly Cost of Insurance on the effective date of
change under the new Option will be equal to the Monthly Cost of Insurance that
would have been deducted on that date under the prior Option. Upon such change,
the Policyowner will be notified by Western Reserve of the new Specified Amount.
15
<PAGE>
CORRIDOR PERCENTAGE. If, pursuant to requirements of the Internal Revenue
Code of 1986, as amended, the death benefit under a Policy is determined by
reference to the limitation percentages discussed above, the Policy is described
as "in the corridor," and an increase in the Cash Value of the Policy will
increase the net amount at risk assumed by Western Reserve and consequently
increase the cost of insurance deducted from the Cash Value of the Policy. (See
"Cash Value Charges" - Cost of Insurance, p. 27.)
INSURANCE PROTECTION. A Policyowner may decrease the pure insurance
protection provided by a Policy (i.e., the difference between the death benefit
and the Cash Value) in one of several ways as insurance needs change. These ways
include decreasing the Specified Amount of insurance, changing the level of
premium payments, and, to a lesser extent, making a cash withdrawal from the
Policy. Although the consequences of each of these methods will depend upon the
individual circumstances, they may be generally summarized as follows:
(a) A decrease in the Specified Amount will, subject to the limitation
percentage (see Policy Benefits - Death Benefit, p. 14), in general
decrease the insurance protection and the charges under the Policy. A
pro rata Decrease Charge will be assessed against Cash Value at the
time of decrease during the first fifteen Policy years. (See Charges
and Deductions - Pro Rata Decrease Charge, p. 26.)
(b) If Option A is elected, an increased level of premium payments will
reduce the pure insurance protection, until the limitation percentage
times the Cash Value exceeds the Specified Amount. Increased premiums
should increase the amount of funds available to keep the Policy In
Force.
(c) A cash withdrawal will reduce the death benefit. (See Surrender
Privileges - Cash Withdrawals, p. 31.) It has no effect on the amount
of pure insurance protection and charges under the Policy, unless the
death benefit payable is governed by the limitation percentages. It
results in a reduced amount of Cash Value and increases the
possibility that the Policy will Lapse.
(d) A reduced level of premium payments also generally increases the
amount of pure insurance protection if Option A is elected, or
maintains the same amount of pure insurance protection if Option B or
Option C is elected, again depending on the limitation percentage. It
results in a reduced amount of Cash Value and increases the
possibility that the Policy will Lapse.
HOW DEATH BENEFITS MAY VARY IN AMOUNT. As long as the Policy remains In
Force, Western Reserve guarantees that the death benefit will never be less than
the Specified Amount of the Policy. These proceeds will be reduced by any policy
loan, plus any unearned loan interest, and any due and unpaid charges.
The death benefit may, however, vary with the Policy's Cash Value. Under
Option A, the death benefit will only vary when the Cash Value multiplied by the
limitation percentage exceeds the Specified Amount of the Policy. The death
benefit under Option B will always vary with the Cash Value because the death
benefit equals either the Specified Amount plus the Cash Value or the limitation
percentage times the Cash Value. The death benefit under Option C will vary with
the Cash Value and the Insured's Attained Age because the death benefit equals
either the Factor times the Specified Amount plus the Cash Value, or the
Specified Amount, or the limitation percentage times the Cash Value.
DECREASE IN SPECIFIED AMOUNT. Subject to certain limitations, a
Policyowner may decrease the Specified Amount of a Policy. A decrease in
Specified Amount may affect the net amount at risk, which may affect a
Policyowner's cost of insurance charge. (See Cash Value Charges - Cost of
Insurance, p. 27.) A decrease in Specified Amount may also have Federal income
tax consequences. (See Federal Tax Matters, p. 35.) The Policyowner may either
change the death benefit Option or decrease the Specified Amount, but not both,
only once each Policy year after the third Policy year. A pro rata Decrease
Charge will be assessed against Cash Value at the time of decrease during the
first fifteen Policy years. (See Charges and Deductions - Pro Rata Decrease
Charge, p. 26.)
No requested decrease in the Specified Amount will be permitted during the
first three Policy years. Thereafter, any decrease in the Specified Amount will
become effective on the Monthly Anniversary on or following receipt of a written
request from the Policyowner by Western Reserve. The Specified Amount remaining
In Force after any requested decrease may not be less than the minimum Specified
Amount set forth in the Policy. Western Reserve reserves the right to limit any
decrease to no more than 20% of the Specified Amount immediately prior to the
decrease. If, following the decrease in Specified Amount, the Policy would not
comply with the maximum premium limitations required by Federal tax law (see
Premiums - Premium Limitations, p. 22), the decrease may be limited to the
extent necessary to meet these requirements.
WHEN INSURANCE COVERAGE TAKES EFFECT
No life insurance coverage shall take effect unless the proposed Insured
and all additional Insureds proposed for coverage are alive and in the same
condition of health as described in the application when the policy is delivered
to the Policyowner and the full Initial Premium is paid. However, if the full
Initial Premium is paid as set forth in the conditional receipt attached to the
application, and the conditional receipt is delivered to the Policyowner, the
terms of the conditional receipt shall apply.
CONDITIONAL INSURANCE COVERAGE. Each and every person proposed for
insurance must be insurable and acceptable to Western Reserve under its
underwriting rules for the amount, plan and risk classification applied for on
the later of: (a) the date of application, or (b) the date of completion of all
16
<PAGE>
medical tests and examinations required by Western Reserve. Any check given for
payment must be honored on first presentation. The conditional receipt and all
coverages applied for on the application are void if a check or draft received
for payment of the Initial Premium is not honored when first presented for
payment.
AMOUNT OF CONDITIONAL LIFE INSURANCE COVERAGE. If conditional insurance
coverage becomes effective under the terms of the conditional receipt, then the
amount of conditional life insurance coverage on any person proposed for
insurance is the lesser of: (a) the amount of life insurance applied for on such
person, or (b) $300,000 reduced by the amounts payable under all other life
insurance or accidental death benefits then in force or pending with Western
Reserve.
WHEN CONDITIONAL LIFE INSURANCE COVERAGE BEGINS. If the conditions listed
above are fulfilled, then the amount of conditional insurance coverage specified
above shall take effect on the later of: (a) the date of the application, or (b)
the date of the completion of all medical tests and examinations required by
Western Reserve. All conditional coverages for each and every person proposed
for insurance will be deemed void if the application contains material
misrepresentation or is fraudulently completed. Benefits under the conditional
receipt coverage will be denied if any person proposed for insurance commits
suicide.
WHEN CONDITIONAL LIFE INSURANCE COVERAGE ENDS. Conditional life insurance
coverage shall terminate automatically, without notice, on the earliest of the
following dates: (a) the date Western Reserve approves the Policy as applied
for, or (b) 10 days following any counteroffer by Western Reserve to offer
insurance to any person proposed for insurance under a different plan or at an
increased premium or on a different rate class or (c) at the end of the fraction
of a year which the payment bears to the premium required to provide one month
of insurance coverage in the amount as described above, or (d) at the beginning
of the 60th day following the date of the conditional receipt.
TERMINAL ILLNESS ACCELERATED DEATH BENEFIT RIDER
In states where this rider has been approved by that state's department
of insurance, upon receipt of proof satisfactory to Western Reserve that the
Insured has incurred a condition resulting from illness which, as determined by
a Physician, has reduced life expectancy to not more than 12 months from the
date of the Physician's Statement (a "Terminal Condition"), Western
Reserve will pay to the Policyowner a "Single Sum Benefit", equal to:
(a) the Death Benefit in effect on the date the Single Sum Benefit is
paid; multiplied by
(b) the Election Percentage; divided by
(c) 1 + i, where i equals the greater of (A) and (B) on the date the
Single Sum Benefit is paid. (A) equals the interest rate determined
under Internal Revenue Code section 846(c)(2), as it may be amended
from time to time; and (B) equals the Policy Loan Interest Rate;
minus
(d) Indebtedness, if any, at the time the Single Sum Benefit is paid,
multiplied by the Election Percentage.
"Death Benefit" under the Rider means the amount payable at death of
the Insured under the Policy, plus the benefit payable under any In Force
Primary Insured Rider. (See Optional Insurance Benefits - Primary Insured Rider
and Primary Insured Rider Plus, p. 34.) "Election Percentage" means a
percentage, selected by the Policyowner, not to exceed 100% of the Policy's
Death Benefit, as defined under the Rider; however, in no event will the
Election Percentage result in a Single Sum Benefit greater than $500,000. A
"Physician" may be a Doctor of Medicine or a Doctor of Osteopathy,
licensed to practice medicine and treat injury or illness in the state in which
treatment is received and who is acting within the scope of that license, and
must be someone other than the Insured, the Policyowner, a person who lives with
the Insured or Policyowner, or a person who is part of the Insured's or
Policyowner's "Immediate Family" (spouse, child, brother, sister, parent,
grandparent or grandchild of the Insured). The "Physician's Statement"
must be a written statement signed by a Physician which provides the
Physician's diagnosis of the Insured's non-correctable medical condition. It
must state with reasonable medical certainty that the non-correctable medical
condition will result in the death of the Insured within 12 months of the
Physician's Statement, taking into consideration the ordinary and reasonable
medical care, advice and treatment available in the same or similar communities.
The Rider will not pay benefits for a Terminal Condition resulting from
self-inflicted bodily injuries occurring within the same period specified in the
Policy's suicide provision. The Rider terminates at the earliest of (a) the
date the Policy terminates, (b) the effective date of a settlement option
elected under the Policy, (c) the date the Single Sum Benefit is paid, or (d)
the date the Policyowner elects to terminate the Rider.
Pursuant to the recently enacted Health Insurance Portability and
Accountability Act of 1996, Western Reserve believes that for federal income tax
purposes a Single Sum Benefit payment made under the Terminal Illness
Accelerated Death Benefit Rider should be fully excludable from the gross income
of the beneficiary, as long as the beneficiary is the Insured under the Policy.
However, a Policyowner should consult a qualified tax adviser about the
consequences of adding this Rider to a Policy or requesting a Single Sum Benefit
payment under this Rider.
There is no additional charge for this rider. This rider may not be
available in all states or, if available, the terms of the rider may vary, in
accordance with the requirements of each state's insurance laws.
CASH VALUE
At the end of any Valuation Period, the Cash Value of the Policy is equal
to the sum of the Policy's value in each Sub-Account of the Series Account plus
the Fixed Account Value. There is no guaranteed minimum Cash Value.
17
<PAGE>
NET SURRENDER VALUE. A Policyowner may at any time surrender the Policy
and receive the Policy's Net Surrender Value. (See Policy Rights - Surrender
Privileges, p. 31.) The Net Surrender Value as of any date is equal to:
(1) the Cash Value as of such date; minus
(2) any surrender charge as of such date (as described on p. 31); minus
(3) any outstanding Policy loan; plus
(4) any unearned loan interest.
DETERMINATION OF VALUES IN THE SERIES ACCOUNT. On the Policy Date, the
Policy's value in a Sub-Account of the Series Account will equal the portion of
any Net Premium allocated to the Sub-Account, reduced by the portion of the
first monthly deduction allocated to that Sub-Account. (See Payment and
Allocation of Premiums - Allocation of Premiums and Cash Value, p. 22.)
Thereafter, on each Valuation Date, the Policy's value in a Sub-Account of the
Series Account will equal the number of units in the Sub-Account, multiplied by
the unit value of that Sub-Account.
The number of units that a Policy has in each Sub-
Account is equal to:
(1) The initial units purchased on the Policy Date; plus
(2) Units purchased at the time additional Net Premiums are allocated to
the Sub-Account; plus
(3) Units purchased through transfers from another Sub-
Account or the Fixed Account; minus
(4) Units that are redeemed to pay for monthly deductions as they are due;
minus
(5) Units that are redeemed to pay for any cash withdrawals; minus
(6) Units that are redeemed as part of any transfer to another Sub-Account
or the Fixed Account; minus
(7) Units that are redeemed to pay any pro rata Decrease Charge incurred
as a result of a decrease in the Specified Amount.
The Policy's total value in the Series Account equals the sum of the
Policy's value in each Sub-Account. (For a description of how the values of the
Fixed Account are calculated, see The Fixed Account - Fixed Account Value, p.
34.) Because the Cash Value is dependent upon a number of variables, including
the investment experience of the chosen Sub-
Accounts of the Series Account, the frequency and amount of premium payments,
transfers and surrenders, and charges assessed in connection with the Policy, a
Policy's Cash Value cannot be predetermined.
UNIT VALUE. The unit value of each Sub-Account was originally established
at $10 per unit. The unit value may increase or decrease from one Valuation
Period to the next. Unit values also will vary between Sub-Accounts. The unit
value of any Sub-Account at the end of a Valuation Period is the result of:
(1) The total value of the assets held in the Sub-
Account, determined by multiplying the number of shares of the
designated Portfolio owned by the Sub-
Account times the Portfolio's net asset value per share; minus
(2) A deduction for the charge for mortality and expense risks. The daily
amount of this charge is equal to an annual amount of ninety
one-hundredths of one per cent (0.90%) (Western Reserve currently
intends to reduce this charge to 0.75% after the first fifteen Policy
years. However, such reduction is not quaranteed, and Western Reserve
reserves the right to maintain this charge at the 0.90% level after
the first fifteen Policy years, reducing to 0.75% after the first
fifteen Policy years), and is used to compensate Western Reserve for
its assumption of certain mortality and expense risks, and is
multiplied times the net assets of the Sub-Account; minus
(3) The accrued amount of reserve for any taxes or other economic burden
resulting from the application of tax laws that are determined by
Western Reserve to be properly attributable to the Sub-Account; and
the result divided by
(4) The number of outstanding units in the Sub-
Account.
VALUATION DATE AND VALUATION PERIOD. The net asset value per share of
shares of the Fund is determined, once daily, as of the close of the regular
session of business on the New York Stock Exchange ("Exchange") (usually
4:00 p.m., Eastern time), on each day the Exchange is open.
INVESTMENTS OF THE SERIES ACCOUNT
WRL SERIES FUND, INC.
The Series Account invests in shares of the Fund, a series mutual fund
which is registered with the Securities and Exchange Commission
("Commission") as an open-end diversified management investment company.
Such registration does not involve supervision of the management or investment
practices or policies of the Fund by the Commission.
Currently, the Portfolios of the Fund corresponding to the Sub-Accounts of
the Series Account are: Aggressive Growth Portfolio, Emerging Growth Portfolio,
Growth Portfolio, Global Portfolio, Balanced Portfolio, Strategic Total Return
Portfolio, Bond Portfolio, Equity & Income Portfolio, Money Market Portfolio,
Tactical Asset Allocation Portfolio, C.A.S.E. Growth Portfolio, Value Equity
Portfolio, U.S. Equity Portfolio and International Equity Portfolio. 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. Pending any prior
approval by a state insurance regulatory authority, certain Sub-Accounts and
corresponding Portfolios may not be available to residents of some states.
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<PAGE>
The investment objectives and policies of each Portfolio are summarized
below. THERE IS NO ASSURANCE THAT ANY OF THE PORTFOLIOS WILL ACHIEVE ITS STATED
OBJECTIVE. More detailed information, including a description of risks, can be
found in the Prospectus for the Fund which should be read carefully.
AGGRESSIVE GROWTH PORTFOLIO: This Portfolio seeks long-term capital
appreciation by investing in a diversified, actively managed portfolio of equity
securities.
EMERGING GROWTH PORTFOLIO: This Portfolio seeks capital appreciation by
investing primarily in common stocks of small and medium sized companies.
GROWTH PORTFOLIO: This Portfolio's objective is growth of capital.
GLOBAL PORTFOLIO: This Portfolio seeks long-term growth of capital in a
manner consistent with preservation of capital, primarily through investments in
common stocks of foreign and domestic issuers.
BALANCED PORTFOLIO: This Portfolio seeks preservation of capital, reduced
volatility, and superior long-term risk adjusted returns by investing primarily
in common stock, convertible securities and fixed-income securities.
STRATEGIC TOTAL RETURN PORTFOLIO: This Portfolio seeks to provide
long-term growth of income and capital appreciation by investing primarily in
common stocks, income producing securities convertible into common stocks, and
fixed-
income securities.
BOND PORTFOLIO: This Portfolio seeks the highest possible current income
within the confines of the primary goal of insuring the protection of capital by
investing in debt securities issued by the U.S. Government and its agencies and
in medium to high-quality corporate debt securities.
GROWTH & INCOME PORTFOLIO: This Portfolio's objective is to seek total
return by investing in securities that have defensive characteristics. The
Portfolio will invest primarily in a diversified portfolio of equity and debt
securities with an emphasis on sector investing.
MONEY MARKET PORTFOLIO: This Portfolio's objective is to obtain maximum
current income consistent with preservation of principal and maintenance of
liquidity.
TACTICAL ASSET ALLOCATION PORTFOLIO: This Portfolio seeks preservation of
capital and competitive investment returns by investing primarily in stocks,
United States Treasury bonds, notes and bills, and money market funds.
C.A.S.E. GROWTH PORTFOLIO: This Portfolio's objective is capital growth
through investments in small to medium-
sized companies.
VALUE EQUITY PORTFOLIO: This Portfolio seeks to achieve maximum,
consistent total return with minimum risk to principal by investing primarily in
common stocks with above-average statistical value which, in the Sub-Adviser's
opinion, are in fundamentally attractive industries and are undervalued at the
time of purchase.
INTERNATIONAL EQUITY PORTFOLIO: This Portfolio seeks long-term growth of
capital by investing primarily in the common stock of foreign issuers traded on
overseas exchanges and in foreign over-the-counter markets.
U.S. EQUITY PORTFOLIO: This Portfolio seeks long-term growth of capital
by investing primarily in equity securities of U.S. companies.
WRL Investment Management, Inc. ("WRL Management"), located at 201
Highland Avenue, Largo, FL 33770, a wholly-owned subsidiary of Western Reserve,
serves as investment adviser to the Fund and manages its assets in accordance
with policies, programs and guidelines established by the Board of Directors of
the Fund.
Each Sub-Adviser is a registered investment adviser under the Investment
Advisers Act of 1940, as amended. The Sub-Advisers for the Portfolios of the
Fund are:
Janus Capital Corporation ("Janus") serves as sub-
adviser to the Growth, Bond and Global Portfolios of the Fund. WRL Management
and Janus will divide equally monthly compensation at current annual rates of
0.50% of the aggregate average daily net assets of the Bond Portfolio and 0.80%
of the aggregate average daily net assets each of the Growth Portfolio and
Global Portfolio.
AEGON USA Investment Management, Inc. ("AIMI") is sub-adviser to the
Balanced Portfolio of the Fund. AIMI is a wholly-owned subsidiary of AEGON and
thus is an affiliate of Western Reserve. WRL Management and AIMI will divide
equally monthly compensation at the current annual rate of 0.80% of the
aggregate average daily net assets of the Balanced Portfolio. AEGON
Management's compensation will be reduced by 50% of the amount paid by WRL
Management on behalf of the Balanced Portfolio pursuant to any expense
limitation or other reimbursement.
Van Kampen American Capital Asset Management, Inc. ("Van Kampen
American Capital") is sub-adviser to the Emerging Growth Portfolio of the
Fund. Van Kampen American Capital is an indirect wholly-owned subsidiary of
VK/AC Holding, Inc. ("VK/AC Holding"). VK/AC Holding is a wholly-owned
subsidiary of MSAM Holdings II, Inc., which, in turn, is a wholly-owned
subsidiary of Morgan Stanley Group, Inc. WRL Management and Van Kampen American
Capital will divide equally monthly compensation at the current annual rate of
0.80% of the aggregate average daily net assets of the Emerging Growth
Portfolio. Van Kampen American Capital's compensation will be reduced by 50% of
the amount paid by WRL Management on behalf of the Emerging Growth Portfolio
pursuant to any expense limitation or other reimbursement.
Luther King Capital Management Corporation ("Luther King") is
sub-adviser to the Strategic Total Return Portfolio of the Fund. Ultimate
control of Luther King is exercised by J. Luther King, Jr. WRL Management and
Luther King will divide equally monthly compensation at the current annual rate
of 0.80% of the aggregate average daily net assets of the Strategic Total Return
Portfolio.
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<PAGE>
Federated Investment Counseling ("Federated") is sub- adviser to the
Growth & Income Portfolio of the Fund. Federated is a wholly-owned subsidiary of
Federated Investors. WRL Management will receive monthly compensation at the
current annual rate of 0.75% of the aggregate average daily net assets of the
Growth & Income Portfolio. From this amount, as compensation for its services,
Federated will receive payment of fees equal to 0.50% of the first $30 million
of average daily net assets, 0.35% of the next $20 million of average daily net
assets, and 0.25% of average daily net assets in excess of $50 million of the
Growth & Income Portfolio.
Fred Alger Management, Inc. ("Fred Alger") is sub-
adviser to the Aggressive Growth Portfolio of the Fund. Fred Alger is a
wholly-owned subsidiary of Fred Alger & Company, Incorporated, which, in turn,
is a wholly-owned subsidiary of Alger Associates, Inc., a financial services
holding company controlled by Fred M. Alger. WRL Management and Fred Alger will
divide equally monthly compensation at the current annual rate of 0.80% of the
aggregate average daily net assets of the Aggressive Growth Portfolio.
Dean Investment Associates, a Division of C.H. Dean and Associates, Inc.
("Dean") is sub-adviser to the Tactical Asset Allocation Portfolio of the
Fund. Dean is wholly-owned by C.H. Dean and Associates, Inc. WRL Management and
Dean will divide equally monthly compensation at the current annual rate of
0.80% of the aggregate average daily net assets of the Tactical Asset Allocation
Portfolio. Dean's compensation will be reduced by 50% of the amount paid by WRL
Management on behalf of the Tactical Asset Allocation Portfolio pursuant to any
expense limitation or other reimbursement.
J.P. Morgan Investment Management, Inc. ("J.P. Morgan") is
sub-adviser to the Money Market Portfolio of the Fund. J.P. Morgan is a
wholly-owned subsidiary of J.P. Morgan & Co. Incorporated. WRL Management will
receive monthly compensation at the current annual rate of 0.40% of the
aggregate average daily net assets of the Money Market Portfolio. From this
amount, as compensation for its services, J.P. Morgan will receive 0.15% of the
average daily net assets of the Money Market Portfolio.
C.A.S.E. Management, Inc. ("C.A.S.E.") is sub-adviser to the
C.A.S.E. Growth Portfolio of the Fund. C.A.S.E. is a wholly-owned subsidiary of
C.A.S.E. Inc. C.A.S.E. Inc. is indirectly controlled by William Edward Lange,
president and chief executive officer of C.A.S.E. WRL Management and C.A.S.E.
will divide equally monthly compensation at the current annual rate of 0.80% of
the aggregate average daily net assets of the C.A.S.E. Growth Portfolio.
NWQ Investment Management Company, Inc. ("NWQ Investment") is
sub-adviser to the Value Equity Portfolio of the Fund. NWQ Investment is a
wholly-owned subsidiary of United Asset Management Corporation. WRL Management
and NWQ Investment will divide equally monthly compensation at the current
annual rate of 0.80% of the aggregate average daily net assets of the Value
Equity Portfolio. NWQ Investment's compensation will be reduced by 50% of the
amount paid by WRL Management on behalf of the Value Equity Portfolio pursuant
to any expense limitation or other reimbursement.
Scottish Equitable Investment Management Limited ("Scottish
Equitable") serves as a co-sub-adviser to the International Equity Portfolio.
Scottish Equitable is a wholly-
owned subsidiary of Scottish Equitable plc, successor to Scottish Equitable Life
Assurance Society, which was founded in Edinburgh in 1831. Scottish Equitable is
also an indirect wholly-owned subsidiary of AEGON nv. WRL Management receives
monthly compensation at the annual rate of 1.00% of the aggregate average daily
net assets of the International Equity Portfolio. From this amount, Scottish
Equitable receives 0.50% of average daily net assets of the Portfolio managed by
Scottish Equitable, less 50% of the amount of excess expenses attributable to
such assets.
GE Investment Management Incorporated ("GEIM") also serves as a
co-sub-adviser to the International Equity Portfolio and as sub-adviser to the
U.S. Equity Portfolio. GEIM is a wholly-owned subsidiary of General Electric
Company ("GE"). GEIM's principal officers and directors serve in similar
capacities with respect to General Electric Investment Corporation
("GEIC," and, together with GEIM, collectively referred to as "GE
Investments"), which like GEIM is a wholly-owned subsidiary of GE. WRL
Management receives monthly compensation at the annual rate of 1.00% of the
aggregate average daily net assets of the International Equity Portfolio. From
this amount, GEIM, receives 0.50% of average daily net assets managed by GEIM,
less 50% of amount of excess expenses attributable to such assets.
With respect to the U.S. Equity Portfolio, WRL Management and GEIM will
divide equally monthly compensation at the current annual rate of 0.80% of the
aggregate average daily net assets of the U.S. Equity Portfolio. GEIM's
compensation will be reduced by 50% of the amount paid by WRL Management on
behalf of the U.S. Equity Portfolio pursuant to any expense limitation or other
reimbursement. Any amount borne by GEIM pursuant to any expense limitation
constitutes an agreement between the Investment Adviser and GEIM only for the
first twelve months following each Portfolio's commencement of operations.
Thereafter, any such arrangements will be as mutually agreed upon by GEIM and
the Investment Adviser.
In addition to the Series Account, shares of the Fund are also sold to the
WRL Series Annuity Account, a separate account established by Western Reserve
for its variable annuity contracts, and shares of the Growth Portfolio are sold
to the PFL Endeavor Variable Annuity Account and PFL Endeavor Platinum Variable
Annuity Account, separate accounts of PFL Life Insurance Company, the AUSA
Endeavor Variable Annuity Account, a separate account of AUSA Life Insurance
Company, Inc., and to the AUSA Series Life Account, a separate account of AUSA
Life Insurance Company, Inc., all affiliates of Western Reserve. Shares of the
Fund may in the future be sold to other separate accounts,
20
<PAGE>
including separate accounts established for variable life insurance policies or
variable annuity contracts issued by Western Reserve or its affiliates. It is
conceivable that, in the future, it may become disadvantageous for variable life
insurance separate accounts and variable annuity separate accounts to invest in
the Fund simultaneously. Although neither Western Reserve nor the Fund currently
foresees any such disadvantages, either to variable life insurance policyowners
or to variable annuity contract owners, the Fund's Board of Directors intends
to monitor events in order to identify any material conflicts between the
interests of such variable life insurance policyowners and variable annuity
contract owners and to determine what action, if any, it should take. Such
action could include the sale of Fund shares by one or more of the separate
accounts, which could have adverse consequences. Material conflicts could result
from, for example, (1) changes in state insurance laws, (2) changes in Federal
income tax laws, or (3) differences in voting instructions between those given
by variable life insurance policyowners and those given by variable annuity
contract owners. If the Board of Directors were to conclude that separate funds
should be established for variable life and variable annuity separate accounts,
Western Reserve will bear the attendant expenses, but variable life insurance
policyowners and variable annuity contract owners would no longer have the
economies of scale resulting from a larger combined fund.
ADDITION, DELETION, OR SUBSTITUTION OF INVESTMENTS
Western Reserve reserves the right to transfer assets of the Series
Account to another Series Account which Western Reserve determines to be
associated with the class of contracts to which the Policy belongs. Western
Reserve also reserves the right, subject to compliance with applicable law, to
make additions to, deletions from, or substitutions for the investments that are
held by any Sub-Account or that any Sub-Account may purchase. Any such addition,
deletion, or substitution by Western Reserve of shares of another Portfolio of
the Fund or of another open-end, registered investment company, will only be
taken if the shares of a Portfolio are no longer available for investment, or if
in Western Reserve's judgement further investment in any Portfolio should
become inappropriate in view of the purposes of the Series Account. Western
Reserve will not add, delete or substitute any shares attributable to a
Policyowner's interest in a Sub-Account of the Series Account without notice to
and prior approval of the Commission, to the extent required by the Investment
Company Act of 1940, as amended (the "1940 Act") or other applicable law.
Nothing contained herein shall prevent the Series Account from purchasing other
securities for other Portfolios or classes of policies, or from permitting a
conversion between Portfolios or classes of policies on the basis of requests
made by Policyowners.
Western Reserve also reserves the right to establish additional
Sub-Accounts of the Series Account, each of which would invest in a new
Portfolio of the Fund, or in shares of another investment company, with a
specified investment objective. New Sub-Accounts may be established when, in the
sole discretion of Western Reserve, marketing, tax or investment conditions
warrant, and any new Sub-Accounts will be made available to existing
Policyowners on a basis to be determined by Western Reserve. Western Reserve may
also eliminate one or more Sub-Accounts if, in its sole discretion, marketing,
tax, or investment conditions warrant.
In the event of any such substitution or change, Western Reserve may make
such changes in this and other policies as may be necessary or appropriate to
reflect such substitution or change. If deemed by Western Reserve to be in the
best interests of persons having voting rights under the Policies, and when
permitted by law, the Series Account may be (1) operated as a management company
under the 1940 Act, (2) deregistered under the 1940 Act in the event such
registration is no longer required, (3) managed under the direction of a
committee, or (4) combined with one or more other separate accounts, or
sub-accounts.
PAYMENT AND ALLOCATION OF PREMIUMS
ISSUANCE OF A POLICY
Individuals wishing to purchase a Policy must send a completed application
to Western Reserve, P.O. Box 5068, Clearwater, Florida 34618-5068. Under Western
Reserve's current rules, the minimum Specified Amount of a Policy at issue for
Issue Ages 0-45 is generally $50,000, declining to $25,000 for Issue Ages 46 to
80. Policies will generally be issued only to Insureds who supply evidence of
insurability satisfactory to Western Reserve. Western Reserve may, however, at
its sole discretion, issue a Policy to an individual above the age of 80.
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.
PREMIUMS
Subject to certain limitations, a Policyowner has flexibility in
determining the frequency and amount of premiums.
PREMIUM FLEXIBILITY. Unlike conventional insurance policies, this Policy
frees the Policyowner from the requirement that premiums be paid in accordance
with a rigid and inflexible premium schedule. Western Reserve may require the
Policyowner to pay an Initial Premium at least equal to a minimum monthly
guarantee premium set forth in the Policy before issuing the Policy. (See
Charges and Deductions - Premium Expense Charges, p. 25.) Thereafter, subject to
the minimum and maximum premium limitations described below, a Policyowner may
make unscheduled premium payments at any time in any amount.
PLANNED PERIODIC PREMIUMS. Each Policyowner 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 Policyowner is not required
to pay premiums in accordance with this schedule. Furthermore, the Policyowner
has considerable flexibility to alter the amount, frequency, and the time period
over which Planned Periodic Premiums are paid.
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<PAGE>
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 Surrender Value. Thus, even if Planned Periodic Premiums are paid
by the Policyowner, the Policy will nonetheless lapse any time Net Surrender
Value is insufficient to pay certain monthly charges, and a grace period expires
without a sufficient payment. However, until the No Lapse Date as provided in
the Policy, the Policy will remain In Force and no grace period will begin
provided there has been no addition of any riders and the total of the premiums
received (minus any withdrawals, any outstanding loans, and any pro rata
Decrease Charge deducted from the Cash Value) is equal to or exceeds the minimum
monthly guarantee premium set forth in the Policy times the number of months
since the Policy Date, including the current month. (See Policy Lapse and
Reinstatement - Lapse, p.24.) The minimum monthly guarantee premium is set forth
in the Policy unless changed due to a requested change under the Policy by the
Policyowner, at which time the Policyowner will be notified of the new minimum
monthly guarantee premium.
PREMIUM LIMITATIONS. In no event may the total of all premiums paid, both
scheduled and unscheduled, exceed the current maximum premium limitations which
qualify the Policy as life insurance according to Federal tax laws. If at any
time a premium is paid which would result in total premiums exceeding the
current maximum premium limitation, Western Reserve will only accept that
portion of the premium which will make total premiums equal the maximum. Any
part of the premium in excess of that amount will be returned and no further
premiums will be accepted until allowed by the current maximum premium
limitations set forth in the Policy. Every premium payment, whether scheduled or
unscheduled, must be at least the minimum payment amount required. Under Western
Reserve's current rules, the minimum payment amount is $50. Premium payments
less than this minimum amount may be returned to the Policyowner.
PAYMENT OF PREMIUMS. Payments made by the Policyowner will be treated as
a premium payment unless clearly marked as loan repayments. Certain charges will
be deducted from each premium payment. (See Charges and Deductions - Premium
Expense Charges, p. 25.)
As an accommodation to Policyowners, 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 next section
entitled, "Allocation of Premiums and Cash Value - Allocation of Net
Premiums," p. 22. An Initial Premium made by wire transfer not accompanied by
a simultaneous FAX, or accompanied by a FAX of an incomplete application, will
be retained for a period up to five business days while Western Reserve attempts
to obtain the FAX or complete the essential information required to establish
the Policy and allocate the Initial Premium at the unit value next determined
after receipt of the FAX or information necessary to complete the application.
If Western Reserve cannot obtain the FAX or essential information within five
business days, Western Reserve will return the Initial Premium to the applicant,
unless the applicant consents to allow Western Reserve to retain the Initial
Premium until the required FAX or essential information is received.
In the event the application with original signature is later received and
the allocation instructions in that application, for any reason, are
inconsistent with those previously designated on the FAX, the Initial Premium
will be reallocated on the first Valuation Date on or following the Record Date
in accordance with the allocation instructions in the application with original
signature.
Policyowners wishing to make payments via bank wire should instruct their
banks to wire Federal Funds as follows:
Barnett Bank of Pinellas County
ABA # 063000047
For credit to: Western Reserve Life
Account #: 1263627596
Policyowner's Name:
Policy Number:
Attention: General Accounting
Fax Number: (813) 588-1620
ALLOCATION OF PREMIUMS AND CASH VALUE
NET PREMIUMS. The Net Premium equals the premium paid less the premium
expense charges. (See Charges and Deductions - Premium Expense Charges, p. 25.)
When an Initial Premium accompanies the application, monthly deductions from the
Cash Value of the Policy commence on the Policy Date.
ALLOCATION OF NET PREMIUMS. In the application for a Policy, the
Policyowner will allocate Net Premiums to one or more of the Sub-Accounts of the
Series Account, to the Fixed Account, or to a combination of both.
Notwithstanding the allocation in the application, the Initial Premium, less
charges, will first be allocated, on the first Valuation Date on or following
the Policy Date, to the Sub-Account of the Series Account that invests
exclusively in shares of the Money Market Portfolio, and will be reallocated in
accordance with the Policyowner's directions in the application on the first
Valuation Date on or following the Record Date. The Record Date of the Policy
will be the date on which the Policy is recorded on Western Reserve's books as
an In Force Policy. (See Payment and Allocation of Premiums beginning on page
21, and Policy Benefits - When Conditional Life Insurance Coverage Begins, p.
17.)
Net premiums paid after the Record Date will be allocated in accordance
with the Policyowner's instructions. The minimum percentage of each premium
that may be allocated to any account is 10%; percentages must be in whole
numbers. The allocation of future Net Premiums may be changed currently without
charge at any time by providing Western Reserve with written notification from
the Policyowner, or by
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<PAGE>
calling Western Reserve's toll-free number, 1-800-851-9777. Western Reserve
will employ the same procedures to confirm that such telephone instructions are
genuine as it employs regarding transfers among Sub-Accounts and the Fixed
Account by telephone. Upon instructions from the Policyowner, the registered
representative/agent of record may also change the allocation of future Net
Premiums. Western Reserve reserves the right to limit the number of changes of
the allocation of Net Premiums to one per year. Western Reserve also reserves
the right to impose a charge of $25 for each change of allocation in excess of
one per quarter. Investment returns from the amounts allocated to Sub-Accounts
of the Series Account will vary with the investment experience of these
Sub-Accounts and the Policyowner bears the entire investment risk.
TRANSFERS. Cash Value may be transferred among the Sub-Accounts of the
Series Account or from the Sub-
Accounts to the Fixed Account. Transfers may also be made from the Fixed Account
to the Sub-Accounts, subject to certain restrictions. (See The Fixed Account -
Allocations, Transfers and Withdrawals, p. 35.) The amount of Cash Value
available for transfer from any Sub-Account, or the Fixed Account, is determined
at the end of the Valuation Period during which the transfer request is received
at Western Reserve's Office. The net asset value for each share of the
corresponding Portfolio of any Sub-Account is determined, once daily, as of the
close of the regular business session of the New York Stock Exchange
("Exchange") (usually 4:00 p.m. Eastern time), which coincides with the
end of each Valuation Period. (See Policy Benefits - Cash Value - Valuation Date
and Valuation Period, p. 18.) Therefore, any transfer request received after the
close of the regular business session of the Exchange, on any day the Exchange
is open, will be processed on the next day the Exchange is open for business
utilizing the net asset value for each share of the applicable Portfolio
determined as of the close of the regular business session of the Exchange. Cash
Value available for transfer from the Fixed Account will be determined in the
same manner.
Policyowners may make transfer requests in writing, or by telephone.
Written requests must be in a form acceptable to Western Reserve. The registered
representative/agent of record for the Policy may, upon instructions from the
Policyowner for each transfer, make telephone transfers upon request without the
necessity for the Policyowner to have previously authorized telephone transfers
in writing. If, for any reason, a Policyowner does not want the ability to make
transfers by telephone, the Policyowner should provide written notice to Western
Reserve at its Office. All telephone transfers should be made by calling Western
Reserve at its toll-free number 1-800-851-9777. 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 Policyowners 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 Policyowners, and/or tape recording of telephone
instructions received from Policyowners. 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 Western Reserve's Office.
Western Reserve reserves the right to charge a $25 fee for each transfer
in excess of one per Policy month or twelve per Policy year. The transfer charge
will not be increased. (See Optional Cash Value Charges - Cash Value Transfers,
p. 27.) All transfers made in any one day will be considered a single transfer
and any transfer charges will be deducted in an equal amount from each
Sub-Account from which a transfer was made. Transfers resulting from policy
loans, the exercise of conversion rights, and the reallocation of Cash Value
immediately after the Record Date, will not be treated as a transfer for the
purpose of this charge. No transfer charge will apply to transfers from the
Fixed Account to a Sub-Account.
Western Reserve or an affiliate may provide administrative or other
support services to independent third parties authorized by Policyowners to
conduct transfers on a Policyowner's behalf, or who provide recommendations as
to how Sub-Account values should be allocated. This includes, but is not limited
to, transferring Sub-Account values among Sub-Accounts in accordance with
various investment allocation strategies such third party may employ. Such
independent third parties may or may not be appointed Western Reserve agents for
the sale of Policies. However, WESTERN RESERVE DOES NOT ENGAGE ANY THIRD PARTIES
TO OFFER INVESTMENT ALLOCATION SERVICES OF ANY TYPE, SO THAT PERSONS OR FIRMS
OFFERING SUCH SERVICES DO SO INDEPENDENT FROM ANY AGENCY RELATIONSHIP THEY MAY
HAVE WITH WESTERN RESERVE FOR THE SALE OF POLICIES. WESTERN RESERVE THEREFORE
TAKES NO RESPONSIBILITY FOR THE INVESTMENT ALLOCATIONS AND TRANSFERS TRANSACTED
ON A POLICYOWNER'S BEHALF BY SUCH THIRD PARTIES OR ANY INVESTMENT ALLOCATION
RECOMMENDATIONS MADE BY SUCH PARTIES. Western Reserve does not currently charge
a Policyowner extra for providing these support services.
DOLLAR COST AVERAGING
The Policyowner may direct Western Reserve to automatically transfer
specified amounts from the Money Market Sub-Account, the Bond Sub-Account, the
Fixed Account or any combination of these Accounts on a monthly basis to a
Sub-Account. This service is intended to allow the Owner to utilize "Dollar
Cost Averaging," a long-term investment method which provides for regular,
level investments over time. Western Reserve makes no guarantees that Dollar
Cost Averaging will result in a profit or protect against loss. To qualify for
Dollar Cost Averaging a minimum of $10,000
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<PAGE>
must be in each Account from which transfers will be made and at least $1,000,
in the aggregate, must be transferred each month, unless Western Reserve
consents to a smaller amount.
To further qualify for Dollar Cost Averaging from the Fixed Account, no
more than one-tenth (1|M/10) of the amount in the Fixed Account at the
commencement of Dollar Cost Averaging can be transferred each month. Other types
of transfers from the Fixed Account may also be subject to certain other
restrictions. (See The Fixed Account - Allocations, Transfers and Withdrawals on
p. 35.)
A written election of this service, on a form provided by Western Reserve,
must be completed by the Policyowner in order to begin transfers. The first
transfer will occur during the month which follows receipt of the form,
providing the form is received by the 25th day of the month. Once elected,
transfers from the Money Market or Bond Sub-Accounts, or the Fixed Account, will
be processed monthly until the entire value of each Account from which transfers
are made is completely depleted or the Policyowner instructs Western Reserve in
writing to cancel the monthly transfers. For example, if $15,000 was allocated
to the Money Market Sub-Account and $10,000 was allocated to the Bond
Sub-Account and transfers of $500 are made each month from each of these Sub-
Accounts to the Growth Sub-Account, transfers of $500 per month would continue
to be made from the Money Market Sub-Account even though transfers from the Bond
Sub-
Account had ceased as a result of depletion of value. There is no charge for
Dollar Cost Averaging. However, each transfer which occurs under the Dollar Cost
Averaging service will be counted towards the twelve free transfers allowed
during each Policy year. (See Payment and Allocation of Premiums - Allocation of
Premiums and Cash Value - Transfers on p. 23.) Western Reserve may discontinue,
modify, or suspend Dollar Cost Averaging at any time, following prior written
notice to Policyowners. Dollar Cost Averaging is not available if the Owner has
elected the Asset Rebalancing Program, or has elected an asset allocation
service provided by a third party.
ASSET REBALANCING PROGRAM
Western Reserve will offer a program under which the Policyowner may
authorize Western Reserve to transfer automatically Cash Value periodically to
maintain a particular percentage allocation among the Sub-Accounts. The Cash
Value allocated to each Sub-Account will grow or decline in value at different
rates. The Asset Rebalancing Program automatically reallocates the Cash Value in
the Sub-Accounts at the end of each period to match the Contract's currently
effective Net Premium allocation schedule. The Asset Rebalancing Program is
intended to transfer Cash Value from those Sub-
Accounts that have increased in value to those Sub-Accounts 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 Sub-Account will not have losses.
To qualify for Asset Rebalancing, 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 must be received by Western Reserve at its
Administrative Office. An Asset Rebalancing Request Form is available upon
request.
Owners may elect rebalancing to occur on each quarterly, semi-annual or
annual anniversary of the Policy Date. Following receipt of the Asset
Rebalancing Request Form, Western Reserve will effect the initial rebalancing of
Cash Value on the next such anniversary, in accordance with the Policy's
current Net Premium allocation schedule. The amounts transferred will be
credited at the unit value next determined on the dates the transfers are made.
If a day on which rebalancing would ordinarily occur falls on a day on which the
New York Stock Exchange is closed, rebalancing will occur on the next day the
New York Stock Exchange is open. The Asset Rebalancing Program is available only
before the Maturity Date, and is not available if the Policyowner has elected
Dollar Cost Averaging, or has elected an asset allocation service provided by a
third party. There is no charge for the Asset Rebalancing Program. However, each
reallocation which occurs under the Asset Rebalancing Program will be counted
towards the twelve free transfers allowed during each Policy year. (See Payment
and Allocation of Premiums - Allocation of Premiums and Cash Value - Transfers
on p. 23.)
The Policyowner 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 Sub-Account, other than on account of a scheduled
rebalancing. If the Policyowner 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 Policyowner 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. Cash Value allocated to the Fixed Account may not be
included in the Asset Rebalancing Program.
Western Reserve may discontinue, modify, or suspend, the Asset Rebalancing
Program at any time, following prior written notice to Policyowners.
POLICY LAPSE AND REINSTATEMENT
LAPSE. Unlike conventional life insurance policies, the failure to make a
Planned Periodic Premium payment will not itself cause the Policy to lapse.
Lapse will only occur where Net Surrender Value is insufficient to cover the
monthly deduction, and a grace period expires without a sufficient payment by
the Policyowner. If the Net Surrender Value on any Monthly Anniversary is
insufficient to cover the monthly deduction on such day, Western Reserve will
mail a notice to the last known address of the Policyowner and any assignee of
record. A grace period of 61 days after the mailing date of the notice will be
allowed for the payment of premiums. The notice will specify the minimum payment
and the final date on which such payment must be received by Western Reserve
24
<PAGE>
to keep the Policy In Force. (See Charges and Deductions, p. 25.) If Western
Reserve does not receive a sufficient payment within the grace period, Lapse of
the Policy will result. If a sufficient payment is received during the grace
period, any resulting Net Premium will be allocated among the Accounts, and any
monthly deductions due will be charged to such Accounts, in accordance with the
Policyowner's then current instructions. (See Allocation of Premiums and Cash
Value - Allocation of Net Premiums, p. 22, and Charges and Deductions - Cash
Value Charges, p. 26.) If the Insured dies during the grace period, the death
benefit proceeds will equal the amount of the death benefit proceeds immediately
prior to the commencement of the grace period, reduced by any due and unpaid
charges.
However, until the No Lapse Date as provided in the Policy, the Policy
will not lapse and no grace period will begin provided (1) no riders have been
added since the Policy Date, including the current month, and (2) the total of
the premiums received (minus any withdrawals, any outstanding loans and any pro
rata Decrease Charge deducted from the Cash Value) equals or exceeds the minimum
monthly guarantee premium shown in the Policy times the number of months since
the Policy Date, including the current month. Should the Policyowner request the
addition of any rider after the Policy Date but prior to the No Lapse Date, the
Policyowner will be notified as to the effect on grace period processing prior
to the date the rider is effective.
Essentially, the Policy will not lapse during the No Lapse Period Date, as
long as the conditions in (1) and (2) above have been met, and even though Net
Surrender Value at any point during the No Lapse Period is insufficient to cover
the monthly deduction and a grace period has expired without a payment
sufficient to cover the monthly deduction. Such a Lapse could happen if the
investment experience has been sufficiently unfavorable to have resulted in a
decrease in the Net Surrender Value, or the Net Surrender Value has decreased
because not enough premiums have been paid to offset the monthly charges.
REINSTATEMENT. A lapsed Policy may be reinstated any time within five
years after the date of Lapse and before the Maturity Date by submitting the
following items to Western Reserve:
1. A written application for reinstatement from the Policyowner;
2. Evidence of insurability satisfactory to Western Reserve; and
3. A premium that, after the deduction of premium expense charges, is
large enough to cover:
(a) one monthly deduction at the time of termination;
(b) the next two monthly deductions which will become due after the time
of reinstatement; and
(c) an amount sufficient to cover any surrender charge (as described on
p. 25) as of the date of reinstatement.
Western Reserve reserves the right to decline a reinstatement request. Any
indebtedness on the date of Lapse will not be reinstated. The Cash Value of the
Loan Reserve on the date of reinstatement will be zero. The amount of Net
Surrender Value on the date of reinstatement will be equal to the Net Premiums
paid at reinstatement, less the amounts paid in accordance with (a) and (c)
above.
Upon approval of the application for reinstatement, the effective date of
reinstatement will be the first Monthly Anniversary on or next following the
date Western Reserve approves the application for reinstatement.
CHARGES AND DEDUCTIONS
Charges will be deducted in connection with the Policy to compensate
Western Reserve for: (1) providing the insurance benefits set forth in the
Policy and any optional insurance benefits added by rider; (2) administering the
Policy; (3) assuming certain risks in connection with the Policy; and (4)
incurring expenses in distributing the Policy. The nature and amount of these
charges are described more fully below.
PREMIUM EXPENSE CHARGES
Prior to allocation of Net Premiums among the Accounts, premiums paid will
be reduced by premium expense charges consisting of a sales charge, a charge for
premium taxes and a premium collection charge.
SALES CHARGE. A sales charge equal to 3.5% of the premiums paid through
the end of the tenth Policy year will be deducted to compensate Western Reserve
for certain distribution expenses incurred in connection with the Policy.
PREMIUM TAXES. Various states and subdivisions impose a tax on premiums
received by insurance companies. Premium tax rates vary from state to state from
a range of 0.5% to 3.5%. Regardless of the actual rate assessed by a particular
state, a deduction of an amount equal to 2.5% of each premium payment will be
made to compensate Western Reserve for paying this tax. Because of the
retaliatory provisions of state premium tax laws, Western Reserve is required to
pay a minimum 2.5% premium tax regardless of a state's actual premium tax rate.
PREMIUM COLLECTION CHARGE. Each premium payment will be reduced by a
$3.00 per premium payment charge that will compensate Western Reserve for costs
associated with premium billing and collection. The premium collection charge
will not be increased in the future.
SURRENDER CHARGE
During the first fifteen Policy years, a Surrender Charge will be incurred
upon surrender of the Policy. The Surrender Charge consists of the SURRENDER
CHARGE PER THOUSAND multiplied by the applicable SURRENDER CHARGE FACTOR.
(a) SURRENDER CHARGE PER THOUSAND. The Surrender Charge Per Thousand
Dollars of initial Specified Amount varies with the Insured's Issue Age, gender
and classification. See Appendix C for a table of the charges per thousand
dollars of initial Specified Amount.
25
<PAGE>
(b) SURRENDER CHARGE FACTOR. As stated above, the factor is applied to
the charge per thousand dollars of initial Specified Amount due upon any
Surrender of a Policy during the first fifteen Policy years. In Policy years 1
- -5 this factor is 1.00 for Insureds at Issue Ages 0 - 39 and then declines at a
rate of 0.10 per year until reaching zero at the end of the fifteenth (15th)
Policy year as shown below. For Insureds with Issue Ages older than 39, this
factor is less than 1.00 at the end of the first (1st) Policy year and declines
to zero at the end of the fifteenth (15th) Policy year. Therefore, application
of the factor to the Surrender Charge Per Thousand in the event of any surrender
during the second through fifteenth Policy years will result in the same or
reduced surrender charges. If a surrender occurs after the fifteenth (15th)
Policy year, there is no Surrender Charge Per Thousand due. See the example
below. Factors for the Builder Plus Program are different than those shown
below. (See Charges And Deductions - Builder Plus Program, p. 29.)
SURRENDER CHARGE FACTORS
ISSUE AGES 0 - 39
<TABLE>
<CAPTION>
Surrender Charge Factor
End of Policy Year* Factor
- ------------------------- --------
<S> <C>
At Issue ............... 1.00
1-5 ..................... 1.00
6 ..................... .90
7 ..................... .80
8 ..................... .70
9 ..................... .60
10 ..................... .50
11 ..................... .40
12 ..................... .30
13 ..................... .20
14 ..................... .10
15 ..................... 0
16+ ..................... 0
</TABLE>
* THE FACTOR ON ANY DATE OTHER THAN ANNIVERSARY WILL BE INTERPOLATED BETWEEN THE
TWO END OF YEAR FACTORS.
(c) EXAMPLE: Assume a male smoker purchases the Policy at Issue Age 35.
The Surrender Charge Per Thousand is $16.48 (see Appendix C). This is multiplied
by the Surrender Charge Factor resulting in the following Table of Surrender
Charges:
<TABLE>
<CAPTION>
TABLE OF SURRENDER CHARGES PER $1,000 OF
SPECIFIED AMOUNT AS OF THE POLICY DATE
SURRENDER SURRENDER
CHARGE CHARGE
PER $1,000 PER $1,000
OF SPECIFIED OF SPECIFIED
END OF AMOUNT ON AMOUNT ON
POLICY POLICY END OF POLICY
YEAR* PAGE 3A POLICY YEAR* PAGE 3A
- ---------- --------------- --------------- --------------
<S> <C> <C> <C>
At Issue $16.48 9 $9.89
1 16.48 10 8.24
2 16.48 11 6.59
3 16.48 12 4.94
4 16.48 13 3.30
5 16.48 14 1.65
6 14.83 15 0.00
7 13.18 16- 0.00
8 11.54
</TABLE>
* THE SURRENDER CHARGE ON ANY DATE OTHER THAN AN ANNIVERSARY WILL BE
INTERPOLATED BETWEEN THE TWO END OF YEAR CHARGES.
PRO RATA DECREASE CHARGE
If, during the first 15 Policy years, the Specified Amount is decreased, a
pro rata Decrease Charge will be deducted from the Cash Value. The pro rata
Decrease Charge is equal to:
(1) the amount of the Specified Amount decrease; multiplied by
(2) the Surrender Charge Per Thousand of Specified Amount as of the date
of the decrease applicable to the Specified Amount as of the Policy
Date. See Appendix C for a table of Surrender Charges.
This pro rata Decrease Charge will not be deducted from the Cash Value
when a Specified Amount decrease results from (a) a change in the death benefit
Option, or (b) a withdrawal when the death benefit is Option A, as described in
the Cash Withdrawals section below. If a pro rata Decrease Charge is deducted
due to a decrease in Specified Amount, any future Surrender Charges incurred
during the first fifteen Policy years will be reduced proportionately.
26
<PAGE>
CASH VALUE CHARGES
Charges will be deducted monthly from the Cash Value of each Policy
("monthly deduction") to compensate Western Reserve for certain
administrative costs, the cost of insurance and optional benefits added by
rider. The monthly deduction will be deducted on each Monthly Anniversary and
will be allocated among the Accounts on the same basis as Net Premiums are
allocated. If the value of any Account is insufficient to pay its part of the
monthly deduction, the monthly deduction will be taken on a pro rata basis from
all Accounts. Because portions of the monthly deduction, such as the cost of
insurance, can vary from month-to-month, the monthly deduction itself will vary
in amount from month-to-month.
COST OF INSURANCE. Western Reserve will determine the monthly cost of
insurance charge by multiplying the applicable cost of insurance rates by the
net amount at risk for each Policy Month. The net amount at risk for a Policy
Month is (a) the death benefit at the beginning of the Policy Month divided by
1.0032737 (which reduces the net amount at risk, solely for purposes of
computing the cost of insurance, by taking into account assumed monthly earnings
at an annual rate of 4%), less (b) the Cash Value at the beginning of the Policy
Month.
Cost of insurance rates will be based on the sex, Attained Age and rate
class of the Insured, and the length of time a Policy has been In Force. The
actual monthly cost of insurance rates will be based on Western Reserve's
expectations as to future experience. They will not, however, be greater than
the guaranteed cost of insurance rates set forth in the Policy. These guaranteed
rates are based on the 1980 Commissioners Standard Ordinary (C.S.O.) Mortality
Tables and the Insured's sex, Attained Age and rate class. For standard rate
classes, these rates will not exceed rates contained in the 1980 C.S.O. Tables.
Western Reserve also may guarantee that actual cost of insurance rates will not
be changed for a specified period of time (e.g., one year). Any change in the
cost of insurance rates will apply to all Insureds of the same age, sex, and
rate class whose Policies have been In Force for the same length of time.
The Policies offered by this Prospectus are based on mortality tables that
distinguish between men and women. As a result, the Policy pays different
benefits to men and women of the same age. The State of Montana prohibits the
use of actuarial tables that distinguish between men and women in determining
premiums and policy benefits for policies issued on the lives of its residents.
The State of Massachusetts formerly had a similar prohibition and has introduced
legislation which would reinstate such prohibition. Therefore, Policies offered
by this Prospectus to insure residents of the states of Montana and
Massachusetts will have premiums and benefits which are based on actuarial
tables that do not differentiate on the basis of sex.
The rate class of an Insured will affect the cost of insurance rate.
Western Reserve currently places Insureds into the following four standard rate
classes: Ultimate Select, non-
tobacco use Select, non-tobacco use Ultimate Standard and tobacco use Standard;
as well as various other sub-standard rate classes involving a higher mortality
risk. In an otherwise identical Policy, the cost of insurance rate is generally
higher for tobacco use than for non-tobacco use and, within these two
categories, higher for Insureds not in the Ultimate category than for Insureds
in the Ultimate category.
Western Reserve may also issue certain Policies on a "simplified" or
expedited basis to certain categories of individuals (for example, Policies
issued at a predetermined Specified Amount or underwritten on a group basis).
Policies issued on this basis will have guaranteed cost of insurance rates no
higher than the guaranteed rates for non-smoker Select or smoker Standard
categories (as appropriate); however, due to the special underwriting criteria
established for these issues, actual rates may be higher or lower than the
current cost of insurance rates charged under otherwise identical Policies that
are underwritten using standard underwriting criteria.
MONTHLY POLICY CHARGE. Western Reserve has primary responsibility for the
administration of the Policy and the Series Account. Annual administrative
expenses include recordkeeping, processing death benefit claims, Policy changes,
reporting and overhead costs. As reimbursement for administrative expenses
related to the maintenance of each Policy and the Series Account, Western
Reserve assesses a monthly administration charge from each Policy. This charge
is currently $5.00 per Policy Month and is guaranteed never to exceed $7.50 per
Policy Month.
OPTIONAL CASH VALUE CHARGES
The following optional Cash Value charges will be deducted from the Policy
as the result of changes or elections made to the Policy and initiated by the
Policyowner.
OPTIONAL INSURANCE BENEFITS. The monthly deduction will include charges
for any optional insurance benefits added to the Policy by rider.
CHANGE IN NET PREMIUM ALLOCATION. Western Reserve does not currently levy
or charge when changes are made to allocation of Net Premium. However, Western
Reserve reserves the right to impose a $25 charge for each change of Net Premium
allocation in excess of one change per Policy year quarter. If Western Reserve
decides to impose this charge, Policyowners will be notified in writing in
advance.
CASH VALUE TRANSFERS. Western Reserve reserves the right to charge a $25
fee for each transfer in excess of one per month or twelve transfers per Policy
year. If charged, this fee will be imposed and deducted from each amount
transferred to compensate Western Reserve for the costs in effectuating the
transfer. The transfer charge will not be increased in the future.
CASH WITHDRAWALS. A processing fee equal to the lesser of $25 or 2% of
the amount withdrawn will be deducted from amounts withdrawn from the Policy and
the balance will then be paid to the Policyowner. This fee will not be
increased.
27
<PAGE>
CHARGES AGAINST THE SERIES ACCOUNT
Certain expenses will be deducted as a percentage of the value of the net
assets of the Series Account to compensate Western Reserve for certain risks
assumed in connection with the Policy.
MORTALITY AND EXPENSE RISK CHARGE. Western Reserve will deduct a daily
charge from the Series Account at an annual rate of 0.90% of the average daily
net assets of the Series Account. Western Reserve currently intends to reduce
this charge to 0.75% after the first fifteen Policy years. However, such
reduction is not guaranteed, and Western Reserve reserves the right to maintain
this charge at the 0.90% level after the first fifteen Policy years. Under
Western Reserve's current procedures, these amounts are paid to the General
Account monthly.
The mortality risk assumed by Western Reserve is that Insureds may live
for a shorter time than projected. The expense risk assumed is that expenses
incurred in issuing and administering the Policies will exceed the limits on
administrative charges set in the Policies. Western Reserve also assumes risks
with respect to other contingencies including the incidence of Policy loans,
which may cause Western Reserve to incur greater costs than anticipated when
designing the Policies.
TAXES. Currently no charge is made to the Series Account for Federal
income taxes that may be attributable to the Series Account. Western Reserve
may, however, make such a charge in the future. Charges for other taxes, if any,
attributable to the Series Account may also be made. (See Federal Tax Matters,
p. 35.)
EXPENSES OF THE FUND
Because the Series Account purchases shares of the Portfolios of the Fund,
the net assets of the Series Account will reflect the investment management fee
and other expenses incurred by the Portfolios of the Fund. (See p. 7 for a table
of the Fund Annual Expenses.) (See pp. 19-20 for a discussion of the investment
management fees of each Portfolio.)
Effective January 1, 1997, the Fund adopted a Plan of Distribution
pursuant to Rule 12b-1 under the 1940 Act ("Distribution Plan") and
pursuant to the Plan, has entered into a Distribution Agreement with ISI,
principal underwriter for the Fund.
Under the Distribution Plan, the Fund, on behalf of the Portfolios, is
authorized to pay to various service providers, as direct payment for expenses
incurred in connection with the distribution of a Portfolio's shares, amounts
equal to actual expenses associated with distributing a Portfolio's shares, up
to a maximum rate of 0.15% (fifteen one-hundreths of one percent) on an
annualized basis of the average daily net assets. This fee is measured and
accrued daily and paid monthly. ISI has determined that it will not seek payment
by the Fund of distribution expenses with respect to any Portfolio during the
fiscal year ending December 31, 1997. Prior to ISI's seeking reimbursement,
Policyowners will be notified in writing in advance.
GROUP OR SPONSORED POLICIES
A different form of the Policy may be purchased under group or sponsored
arrangements ("Group/Sponsored Policies"). Under Group/Sponsored Policies,
a trustee, employer or similar entity purchases individual policies covering a
group of individuals on a group basis. Examples of such arrangements are
employer-sponsored benefit plans which are qualified under Section 401 of the
Internal Revenue Code and deferred compensation plans. A "sponsored
arrangement" includes a program under which an employer permits group
solicitation of its employees or an association permits group solicitation of
its members for the purchase of Policies on an individual basis.
For Group/Sponsored Policies the premium expense charges, contingent
surrender charges, minimum premium and minimum Specified Amount described in
"Charges and Deductions" may be reduced. Western Reserve will issue
Group/Sponsored Policies in accordance with its rules in effect as of the date
an application for a Policy is approved. To qualify for Group/Sponsored
Policies, a group or sponsored arrangement must satisfy certain criteria as to,
for example, size and number of years in existence. Generally, the sales
contacts and effort, administrative costs and mortality cost for Group/Sponsored
Policies take into account such factors as the size of the group or sponsored
arrangement, its stability as indicated by its term of existence, the purposes
for which Group/Sponsored Policies are purchased and certain characteristics of
its members. The Group/Sponsored Policy's amount of reduction and the criteria
for qualification will reflect the reduced sales effort resulting from sales to
qualifying groups and sponsored arrangements. Group/Sponsored Policies may not
be available in certain states.
Western Reserve may modify from time to time on a uniform basis the
criteria for qualification for Group/
Sponsored Policies. In no event, however, will group or sponsored arrangements
established for the sole purpose of purchasing Group/Sponsored Policies, or
which have been in existence for less than six months, qualify for such
Policies. Group/Sponsored Policies will not be unfairly discriminatory against
any person, including the affected Policyowners and all other Policyowners of
other forms of Policies funded by the Series Account.
In 1983 the United States Supreme Court held that certain insurance
policies, the benefits under which vary based on sex, may not be used to fund
certain employer-sponsored benefit plans and fringe benefit programs. Western
Reserve recommends that any employer proposing to offer the Group/
Sponsored Policies to employees under a group or sponsored arrangement consult
his or her attorney before doing so. (See Federal Tax Matters -
Employment-Related Benefit Plans, p. 38.)
EMPLOYEE ASSOCIATE POLICIES
Certain employees, field associates, directors and their relatives may
purchase a different form of the Policy ("Employee Policy") under which
Western Reserve, in addition to waiving or reducing the premium expense charges,
28
<PAGE>
contingent surrender charges, minimum premium and minimum Specified Amount, may
waive or reduce the Monthly Policy Charge and the Surrender Charge. The Employee
Policy is available to: (a) current and retired directors, officers, full-time
employees and agents of Western Reserve and its affiliates; (b) current and
retired directors, officers, full-
time employees and registered representatives of ISI and any broker-dealer which
has a sales agreement with ISI; (c) any Trust, pension, profit-sharing or other
employee benefit plan of any of the foregoing persons or entities; (d) current
and retired directors, officers and full-time employees of WRL Series Fund, Inc.
and any IDEX mutual fund, and any investment adviser or investment sub-adviser
thereto; and (e) any member of a family of any of the foregoing (e.g., spouse,
child, sibling, parent-in-law). Western Reserve reserves the right to modify or
terminate this arrangement at any time. The Employee Policy may not be available
in certain states.
BUILDER PLUS PROGRAMSM
Western Reserve also offers a different form of the Policy to Policyowners
who make an Initial Premium payment of at least $10,000 or more, and which is at
least 90% of the maximum allowable single premium ("Builder Plus Program
Policies"). Under a Builder Plus Program Policy, the underwriting process is
both expedited and shortened in length by reducing the number and extent of the
items required to determine the risk assumed by Western Reserve. The Builder
Plus Program Policy entails fewer administrative costs for Western Reserve and
also reduces distribution costs by relieving sales representatives from some of
the burden of assisting in the underwriting.
A Builder Plus Program Policy sold under this simplified underwriting
arrangement differs from a standard Policy in six principal respects: (1) a
minimum Initial Premium payment which is at least $10,000 and which is at least
90% of the maximum allowable premium, (2) no premium expense charges are
assessed, (3) the underwriting process is shorter and simpler, (4) the cost of
insurance charges may be different for certain policyowners, (5) premium payment
provisions may be more restricted than for Policies issued on a standard basis,
and (6) most policies will be "modified endowment contracts" for Federal
income tax purposes. (See Tax Treatment of Policy Benefits - Modified Endowment
Contracts, p. 36.)
Due to the lower administrative and distribution expenses associated with
the Builder Plus Program Policies, no premium expense charges (i.e., sales
charge, premium tax charge and premium collection charge) are made. (See Charges
and Deductions - Premium Expense Charges, p. 25.) Depending on age of issue and
Specified Amount, certain medical underwriting requirements will be waived.
Additionally, the length of time the Surrender Charge Factor applies is
reduced, as follows:
SURRENDER CHARGE FACTORS
ISSUE AGES 0 - 39
<TABLE>
<CAPTION>
Surrender Charge Factor
End of Policy Year* Factor
- ------------------------- --------
<S> <C>
At Issue ............... 1.00
1-5 ..................... 1.00
6 ..................... .80
7 ..................... .60
8 ..................... .40
9 ..................... 0
10+ ..................... 0
</TABLE>
* THE SURRENDER CHARGE ON ANY DATE OTHER THAN AN ANNIVERSARY WILL BE
INTERPOLATED BETWEEN THE TWO END OF YEAR SURRENDER CHARGES.
For Insureds Issue Ages older than 39, this factor is less than 1.00 at the end
of the first (1st) Policy year and declines to zero at the end of the ninth
(9th) Policy year. Therefore, application of the factor to the Surrender Charge
Per Thousand in the event of any surrender during the second through ninth
Policy years will result in the same or reduced surrender charges. If a
surrender occurs after the ninth (9th) Policy year, there is no Surrender Charge
Per Thousand due.
For a full explanation of the Surrender Charge, see Charges and Deductions -
Surrender Charge, p. 25.
Although for non sub-standard rate classes the guaranteed cost of
insurance rates for policies will not be greater than those for standard
Policies, current rates for policies during the first ten policy years may be
higher for certain policyowners (i.e., those who are assigned to non-tobacco use
Ultimate Select or tobacco use Ultimate Standard rate classes) than would be the
case for standard Policies. (See Cash Value Charges - Cost of Insurance, p. 27.)
Under Western Reserve's current rules, the minimum possible Specified
Amount for a Builder Plus Program Policy at issue is the amount of insurance
that the $10,000 Initial Premium payment will purchase based on the Insured's
age, sex, and rate class and certain Federal tax law guidelines. Likewise, for
any larger Initial Premium payment there will be a correspondingly larger
minimum Specified Amount at issue.
The maximum Specified Amount for a Builder Plus Program Policy is a
function of the size of the Initial Premium payment and is approximately 111% of
the lowest possible minimum Specified Amount available for the same amount of
Initial Premium payment.
Depending on the Specified Amount selected by the policyowner, a large
Initial Premium payment, such as that required for a Builder Plus Program
Policy, will generally limit the ability to make additional premium payments.
This limit exists because the total of all premiums paid under a Builder Plus
Program Policy may not exceed the maximum
29
<PAGE>
premium limitation imposed by Federal tax laws. (See Premiums - Premium
Limitations, p. 22.) Of course, under a policy, there are no Planned Periodic
Premiums.
Most Builder Plus Program Policies will be modified endowment contracts.
Distributions from modified endowment contracts are generally treated as
ordinary income subject to tax up to the amount equal to the excess of the Cash
Value before the distribution over the investment in the policy. In addition,
the portion of any such distribution that is included in income is subject to a
10% penalty tax, except where the distribution is made on or after the
policyowner attains age 591|M/2, is attributable to the policyowner becoming
disabled or is part of a series of substantially equal periodic payments for the
life (or the life expectancy) of the policyowner. Such distributions include
surrenders, cash withdrawals and policy loans. (See Tax Treatment of Policy
Benefits - Distributions From Policies Classified as Modified Endowment
Contracts, p. 37.)
POLICY RIGHTS
LOAN PRIVILEGES
POLICY LOAN. After the first Policy year and so long as the Policy
remains In Force, the Policyowner may borrow money from Western Reserve using
the Policy as the only security for the loan. Western Reserve reserves the right
to permit a Policy loan prior to the first Policy Anniversary for Policies
issued pursuant to a transfer of cash values from another life insurance policy
under Section 1035(a) of the Internal Revenue Code of 1986, as amended. The
maximum amount that may be borrowed is 90% of the Cash Value, less any surrender
charge and 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 before the Maturity Date of the Policy and
while the Policy is In Force. A loan which is taken from, or secured by, a
Policy may have Federal income tax consequences. (See Federal Tax Matters, p.
35.)
An amount equal to the loan plus interest in advance until the next Policy
Anniversary will be withdrawn from the Account or Accounts specified and
transferred to the Loan Reserve until the loan is repaid. The Loan Reserve is a
portion of the Fixed Account used as collateral for any Policy loan. The
Sub-Accounts of the Series Account may be specified. If no Account is specified,
the loan amount will be withdrawn from each Account in the same manner as the
current allocation instructions.
The amount of the loan will normally be paid within seven days after
receipt of a proper request in a manner permitted by Western Reserve.
Postponement of loans may take place under certain conditions. (See General
Provisions - Postponement of Payments, p. 32.) Under Western Reserve's current
procedures, at each 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 Reserve (including interest
credited to the Loan Reserve during the previous Policy year). Western Reserve
will also make this comparison any time the Policyowner repays all or part 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 Reserve,
Western Reserve will withdraw the difference from the Accounts and transfer it
to the Loan Reserve in the same manner as when a loan is made. If the amount in
the Loan Reserve exceeds the amount of the outstanding loan, Western Reserve
will withdraw the difference from the Loan Reserve and transfer it to the
Accounts in accordance with the Policyowner's current allocation instructions.
Western Reserve reserves the right to require the transfer of such amounts to
the Fixed Account, if such loans were originally transferred from the Fixed
Account. (See The Fixed Account, p. 34.) No charge will be imposed for these
transfers.
INTEREST RATE CHARGED. The interest rate charged on Policy loans is 5.2%
payable annually in advance. If unpaid when due, interest will be added to the
amount of the loan and will become part of the loan and bear interest at the
same rate.
LOAN RESERVE INTEREST RATE CREDITED. The amount transferred to the Loan
Reserve will accrue interest at a minimum effective annual rate not less than
4%. Western Reserve may credit a higher rate, but it is not obligated to do so.
Currently, Western Reserve is crediting an effective annual interest rate of
4.75% on all amounts borrowed during the first ten Policy years. On amounts
borrowed, after the tenth Policy year, that are part of the Cash Value in excess
of the cost basis (premiums less withdrawals) of the Policy the interest rate
credited is currently equal to the interest rate being charged on the total loan
while the remaining portion, if any, of the loan is credited the current rate of
4.75%.
EFFECT OF POLICY LOANS. A Policy loan affects the Policy, because the
death benefit and Net Surrender Value under the Policy are reduced by the amount
of the loan. Repayment of the loan causes the death benefit and Net Surrender
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
Reserve. This amount will not be affected by the Series Account's investment
performance. Amounts transferred from the Series Account to the Loan Reserve
will affect the Series 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 Series Account. (See The Fixed
Account - Minimum Guaranteed and Current Interest Rates, p. 34.)
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 adverse tax consequences which
occur if a Policy lapses with loans outstanding. (See Federal Tax Matters - Tax
Treatment of Policy Benefits, p. 36.)
INDEBTEDNESS. Indebtedness equals the total of all Policy loans less any
unearned loan interest on the loans. If
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indebtedness exceeds the Cash Value less the then applicable surrender charge,
Western Reserve will notify the Policyowner and any assignee of record. If a
sufficient payment equal to excess indebtedness is not received by Western
Reserve within 61 days from the date notice is sent, the Policy will Lapse and
terminate without value. The Policy, however, may later be reinstated. (See
Policy Lapse and Reinstatement, p. 24.)
REPAYMENT OF INDEBTEDNESS. Indebtedness may be repaid any time before the
Maturity Date of the Policy and while the Policy is In Force. Payments made by
the Policyowner while there is indebtedness will be treated as premium payments
unless the Policyowner indicates that the payment should be treated as a loan
repayment. (See Policy Rights - Benefits at Maturity, p. 32.) 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 Reserve
securing the indebtedness repaid will be transferred from the Loan Reserve to
the Accounts in the same manner as Net Premiums are allocated. However, Western
Reserve reserves the right to require the transfer to the Fixed Account. Western
Reserve will allocate the repayment of indebtedness at the end of the Valuation
Period during which the repayment is received.
SURRENDER PRIVILEGES
At any time before the earlier of the death of the Insured or the Maturity
Date, the Policyowner may totally surrender or, after the first Policy year,
make a cash withdrawal from the Policy by sending a written request to Western
Reserve. The amount available for surrender is the Net Surrender Value at the
end of the Valuation Period during which the surrender request is received at
Western Reserve's Office. The Net Surrender Value is equal to the Cash Value as
of the date of Surrender, less any surrender charge, and less any outstanding
Policy loan, plus any unearned loan interest. A Surrender Charge may apply. (See
Charges and Deductions - Surrender Charge, p. 25.) Surrenders from the Series
Account will generally be paid within seven days of receipt of the written
request. Postponement of payments may, however, occur in certain circumstances.
(See General Provisions - Postponement of Payments, p. 32.) Additional
restrictions may be applied to surrenders from the Fixed Account. (See The Fixed
Account - Allocations, Transfers and Withdrawals, p. 35.) For the protection of
Policyowners, all requests for cash withdrawals or total surrenders of more than
$100,000, or where the withdrawal or surrender proceeds are to be sent to an
address other than the address of record will require a signature guarantee. All
required guarantees of signatures must be made by a national or state bank, a
member firm of a national stock exchange or any other institution which is an
eligible guarantor institution as defined by rules and regulations of the
Commission. If the Policyowner is a corporation, partnership, trust or
fiduciary, evidence of the authority of the person seeking redemption is
required before the request for withdrawal is accepted, including withdrawals
under $100,000. For additional information, Policyowners may call Western
Reserve at (800) 851-9777. A cash withdrawal or total surrender may have Federal
income tax consequences. (See Federal Tax Matters, p. 35.)
TOTAL SURRENDERS. When the Policy is totally surrendered, the Policy
itself must be returned to Western Reserve along with the request. A Policyowner
may elect to have the amount paid in a lump sum or under a settlement option.
(See Payment of Policy Benefits - Settlement Options, p. 32.)
CASH WITHDRAWALS. For a cash withdrawal, the amount available may be
limited to no less than $500 and to no more than 10% of the Net Surrender Value.
The amount paid plus a processing fee equal to the lesser of $25 or 2% of the
amount withdrawn will be deducted from the Policy's Cash Value at the end of
the Valuation Period during which the request is received. The amount will be
deducted from the Accounts in the same manner as the current allocation
instructions unless the Policyowner directs otherwise. Cash withdrawals are
allowed only once each Policy year.
Cash withdrawals will affect both the Policy's Cash Value and the death
benefit payable under the Policy. The Policy's Cash Value will be reduced by
the amount of the cash withdrawal. Moreover, the death benefit proceeds payable
under a Policy will generally be reduced by at least the amount of the cash
withdrawal.
In addition, when death benefit Option A is in effect, the Specified
Amount will be reduced by the cash withdrawal. No cash withdrawal will be
permitted which would result in a Specified Amount lower than the minimum
Specified Amount set forth in the Policy or would deny the Policy status as life
insurance under the Internal Revenue Code and applicable regulations. (See Cash
Value Charges - Cost of Insurance, p. 27; Death Benefit - Insurance Protection,
p. 16; and Federal Tax Matters - Tax Treatment of Policy Benefits, p. 36.)
EXAMINATION OF POLICY PRIVILEGE ("FREE-LOOK")
The Policyowner may cancel the Policy within 10 days after the Policyowner
receives it. Certain states require a Free-Look period longer than 10 days,
either for all Policyowners or for certain classes of Policyowners. In such
states, Western Reserve will comply with the specific requirements of those
states. The Policyowner should mail or deliver the Policy to either Western
Reserve or the agent who sold it. If the Policy is cancelled in a timely
fashion, a refund will be made to the Policyowner. The refund will equal the sum
of: (i) the difference between the premiums paid and the amounts allocated to
any Accounts under the Policy; (ii) the total amount of monthly deductions made
and any other charges imposed on amounts allocated to the Accounts; and (iii)
the value of amounts allocated to the Accounts on the date Western Reserve or
its agent receives the returned Policy. If state law prohibits the calculation
above, the refund will equal the total of all premiums paid for the Policy.
BENEFITS AT MATURITY
If the Insured is living and the Policy is In Force, Western Reserve will
pay the Net Surrender Value of the Policy on the Maturity Date. (See Cash Value
- - Net Surrender Value,
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p. 14.) The Policy will mature on the Anniversary nearest the Insured's 95th
birthday, if the Insured is living and the Policy is In Force. Western Reserve
is willing to extend the Maturity Date provided the Policy is still In Force on
the Maturity Date and there are no unfavorable tax consequences. A tax advisor
should thus be consulted about the tax consequences associated with any Maturity
Date extension. Extension of the Maturity Date will be made upon mutual
agreement between Western Reserve and the Policyowner, provided the Policyowner
submits a written request to Western Reserve between 90 and 180 days prior to
the Maturity Date, and provided the Policy may be extended with no unfavorable
tax consequences to the Policyowner.
PAYMENT OF POLICY BENEFITS
Death benefits under the Policy will ordinarily be paid within seven days
after Western Reserve receives due proof of death, and verifies the validity of
the claim. Other benefits will ordinarily be paid within seven days of receipt
of proper written request (including an election as to tax withholding).
Payments may be postponed in certain circumstances. (See General Provisions -
Postponement of Payments, p. 32 and The Fixed Account - Allocations, Transfers
and Withdrawals, p. 35.) The Policyowner may decide the form in which the
benefits will be paid. During the Insured's lifetime, the Policyowner may
arrange for the death benefits to be paid in a lump sum or under one or more of
the settlement options described below. These choices are also available if the
Policy is surrendered or matures. If no election is made, Western Reserve will
pay the benefits in a lump sum.
When death benefits are payable in a lump sum, the Beneficiary may select
one or more of the settlement options. If death benefits become payable under a
settlement option and the Beneficiary has the right to withdraw the entire
amount, the Beneficiary may name and change contingent Beneficiaries.
SETTLEMENT OPTIONS. Policyowners and Beneficiaries, subject to a prior
election of the Policyowner, may elect to have benefits paid in a lump sum or in
accordance with a variety of settlement options offered under the Policy. Once a
settlement option is in effect, there will no longer be value in the Series
Account or the Fixed Account. Western Reserve may make other settlement options
available on the Fixed Account in the future. The effective date of a settlement
provision will be either the date of surrender or the date of death of the
Insured. For additional information concerning these options, see the Policy
itself.
OPTION A - PAYMENTS FOR A FIXED PERIOD. The proceeds plus interest will
be paid in equal monthly installments for the period chosen until the fund has
been paid in full. The period chosen may not exceed 30 years.
OPTION B - LIFE INCOME. The proceeds will be paid in equal installments
for the guaranteed payment period elected and continue for the life of the
person on whose life the option is based. Such installments will be payable: (a)
during the lifetime of the payee or (b) during a fixed period certain and for
the remaining lifetime of the payee or (c) until the sum of installments paid
equals the proceeds applied and for the remaining life of the payee. Guaranteed
payment periods may be elected for 5 and 10 years, or the period in which the
total payments will equal the amount retained.
OPTION C - JOINT AND SURVIVOR LIFE INCOME. The proceeds will be paid
during the joint lifetime of two persons and (a) continue upon the death of the
first payee for the remaining lifetime of the survivor or (b) be reduced by one-
third upon the death of the first payee and continue for the remaining lifetime
of the survivor.
GENERAL PROVISIONS
POSTPONEMENT OF PAYMENTS
GENERAL. Payment of any amount from the Series Account upon complete
surrender, cash withdrawal, Policy loan, or benefits payable at death or
maturity may be postponed whenever: (i) the New York Stock Exchange is closed
other than customary weekend and holiday closing, or trading on the New York
Stock Exchange is restricted as determined by the Commission; (ii) the
Commission by order permits postponement for the protection of Policyowners; or
(iii) an emergency exists, as determined by the Commission, as a result of which
disposal of securities is not reasonably practicable or it is not reasonably
practicable to determine the value of the Series Account's net assets.
Transfers may also be postponed under these circumstances. For restrictions
applicable to payments from the Fixed Account, see The Fixed Account -
Allocations, Transfers and Withdrawals, p. 35.
PAYMENT BY CHECK. Payments under the Policy of any amounts derived from
premiums paid by check or bank draft may be delayed until such time as the check
or bank draft has cleared the Policyowner's bank.
THE CONTRACT
The Policy and attached copy of the application and any supplemental
applications are the entire contract. Only statements in the application and any
supplemental applications can be used to void the Policy or defend a claim. The
statements are considered representations and not warranties. No Policy
provision can be waived or changed except by endorsement. Only the President or
Secretary of Western Reserve can agree to change or waive any provisions of the
Policy.
SUICIDE
If the Insured, while sane or insane, commits suicide within two years
after the Policy Date, Western Reserve will pay only the premiums received, less
any cash withdrawals and outstanding indebtedness. In the event of Lapse of the
Policy, the suicide period will be measured from the effective date of
reinstatement. If the Insured, while sane or insane, commits suicide within two
years after the effective date of any increase in insurance or any
reinstatement, Western Reserve's total liability with respect to such increase
or reinstatement will be the cost of insurance charges deducted for such
increase or reinstatement.
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INCONTESTABILITY
Western Reserve cannot contest the Policy as to the initial Specified
Amount after it has been In Force during the lifetime of the Insured for two
years from the Policy Date. If the Policy is reinstated, a new two year
contestability period (apart from any remaining contestability period) will
apply from the date of the application for reinstatement and will apply only to
statements made in the application for reinstatement.
CHANGE OF OWNER OR BENEFICIARY
The Beneficiary, as named in the Policy application or subsequently
changed, will receive the Policy benefits at the Insured's death. If the named
Beneficiary dies before the Insured, the contingent Beneficiary, if named,
becomes the Beneficiary. If no Beneficiary survives the Insured, the benefits
payable at the Insured's death will be paid to the Policyowner or the
Policyowner's estate. As long as the Policy is In Force, the Policyowner or
Beneficiary may be changed by written request from the Policyowner in a form
acceptable to Western Reserve. The Policy need not be returned unless requested
by Western Reserve. The change will take effect as of the date the request is
signed, regardless of whether the Insured is living when the request is received
by Western Reserve. Western Reserve will not, however, be liable for any payment
made or action taken before receipt of the request.
ASSIGNMENT
The Policy may be assigned by the Policyowner. Western Reserve will not be
bound by the assignment until a written copy has been received at its Office and
will not be liable with respect to any payment made prior to receipt. Western
Reserve assumes no responsibility for determining whether an assignment is valid
or the extent of the assignee's interest.
MISSTATEMENT OF AGE OR SEX
If the age or sex of the Insured has been misstated, the death benefit
will be adjusted based on what the cost of insurance charge for the most recent
monthly deduction would have purchased based on the correct age and sex.
REPORTS AND RECORDS
Western Reserve will maintain all records relating to the Series Account
and the Fixed Account. Western Reserve will mail to each Policyowner, at the
last known address of record, reports required by applicable laws and or
regulations.
Western Reserve will send Policyowners written confirmation within seven
days of the following transactions: unplanned and certain planned premium
payments, Cash Value transfers, change in death benefit option or Specified
Amount, total surrender or cash withdrawals, and Policy loans or repayments.
Western Reserve will also send each Policyowner an annual statement at the end
of the Policy year showing for the year, among other things, the month and
amount of each: premium payment made, monthly deduction, transfer, cash
withdrawal and Policy loan or repayment. The annual statement will also show
Policy year-end Net Surrender Value, death benefit and Policy loan value, as
well as other Policy activity during the year.
OPTIONAL INSURANCE BENEFITS
Subject to certain requirements, one or more of the following optional
insurance benefits may be added to a Policy by rider. The cost of any optional
insurance benefits will be deducted as part of the monthly deduction. (See
Charges and Deductions - Optional Cash Value Charges, p. 27.) For purposes of
the riders, the person insured under the Policy is referred to as the Primary
Insured, and the term "Face Amount" refers to the level term insurance
amount payable at death.
CHILDREN'S INSURANCE RIDER: Provides a Face Amount on each of the
Primary Insured's children, as defined in the rider. Under the terms of the
rider, the death benefit will be payable to the Insured upon receipt of proof
that the death of an insured child occurred while the rider and coverage on such
child was In Force. Upon the Primary Insured's death, while the rider is in
force, the rider will terminate 31 days after such death and a separate life
insurance policy will be offered to each insured child for an amount equal to
the level death benefit amount of the rider at a premium based upon the attained
age of each insured child.
ACCIDENTAL DEATH BENEFIT RIDER: Provides a Face Amount if the Primary
Insured's death results from accidental bodily injury, as defined in the rider.
Certain risks, as defined in the rider, are not covered. Under the terms of the
rider, the additional benefits provided in the rider will be paid upon receipt
of proof by Western Reserve that death resulted from bodily injuries effected
directly and independently of all other causes through external, violent and
accidental means; occurred within 90 days from the date of accident causing such
injuries; and occurred while the rider was In Force. The rider will terminate on
the earliest of the Policy Anniversary nearest the Primary Insured's 70th
birthday, the date the Policy terminates, or the Monthiversary on which the
rider is terminated on request by the Policyowner.
OTHER INSURED RIDER: Provides that Western Reserve will pay the Face
Amount of the rider to the Primary Insured upon receipt of due proof of the
other Insured's death. On any Monthiversary while the rider is In Force, the
Policyowner may exchange the rider without evidence of insurability for a new
Policy on the other Insured's life upon written request subject to the
following: (a) the rider has not reached the Anniversary nearest the other
Insured's 70th birthday; (b) the new policy is any permanent plan of insurance
then offered by Western Reserve; (c) the amount of insurance upon conversion
will equal the Face Amount then In Force under the rider; and (d) the payment of
the premium will be based on the other Insured's rate class under the rider.
DISABILITY WAIVER RIDER: Provides a waiver of the monthly deductions for
the Policy while the Insured is disabled. Under the terms of the rider, the
monthly deductions will be waived upon receipt of proof adequate to Western
Reserve that: the Insured is totally disabled, as defined in the rider; the
disability commenced while the rider was In Force; the disability began before
the Anniversary nearest the
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Insured's 60th birthday; and total disability has existed continuously for at
least six months. No monthly deduction will be waived which falls due more than
one year prior to receipt by Western Reserve of written notice of a claim.
Certain risks, as defined in the rider, are not covered.
DISABILITY WAIVER AND MONTHLY INCOME RIDER: Provides the identical
benefit as the Disability Waiver Rider and, in addition, a monthly income
benefit up to a maximum 120 monthly payments.
PRIMARY INSURED RIDER AND PRIMARY INSURED RIDER PLUS provide the payment
of the Face Amount of the rider upon receipt by Western Reserve of due proof
that the Primary Insured's death occurred while the rider was In Force. On any
Monthiversary while the rider is In Force, the Policyowner may exchange the
rider without evidence of insurability for a new policy on the Primary
Insured's life. Such new policy will be issued upon written request subject to
the following: (a) the rider has not reached the Anniversary nearest the Primary
Insured's 70th birthday; (b) the new policy is any permanent plan of insurance
then offered by Western Reserve; (c) the amount of insurance upon conversion
will equal the Face Amount then In Force under the rider; and (d) the payment of
the premium based on the Primary Insured's rate class under the rider. The
Primary Insured Rider terminates at age 90 and the Primary Insured Rider Plus
terminates at age 85.
THE FIXED ACCOUNT
A Policyowner may allocate Net Premiums and transfer Cash Value to the
Fixed Account, which is part of Western Reserve's General Account. Because of
exemptive and exclusionary provisions, interests in the Fixed Account have not
been registered under the Securities Act of 1933 and neither the Fixed Account
nor the General Account has been registered as an investment company under the
1940 Act. Accordingly, neither the Fixed Account, the General Account nor any
interests therein are generally subject to the provisions of these acts and
Western Reserve has been advised that the staff of the Commission has not
reviewed the disclosures in this Prospectus relating to the Fixed Account.
Disclosures regarding the Fixed Account may, however, be subject to certain
generally applicable provisions of the Federal securities laws relating to the
accuracy and completeness of statements made in prospectuses.
The portion of the Cash Value allocated to the Fixed Account (the
"Fixed Account Value") will be credited with rates of interest, as
described below. Because the Fixed Account Value becomes part of Western
Reserve's General Account, Western Reserve assumes the risk of investment gain
or loss on this amount. All assets in the General Account are subject to Western
Reserve's general liabilities from business operations.
FIXED ACCOUNT VALUE
At the end of any Valuation Period, the Fixed Account Value is equal to:
1. The sum of all Net Premium payments allocated to the Fixed Account;
plus
2. Any amounts transferred from a Sub-Account to the Fixed Account; plus
3. Total interest credited to the Fixed Account; minus
4. Any amounts charged to pay for monthly deductions as they are due;
minus
5. Any cash withdrawals or surrenders from the Fixed Account; minus
6. Any amounts transferred to a Sub-Account from the Fixed Account; minus
7. Any amounts withdrawn from the Fixed Account to pay the pro rata
Decrease Charge incurred as a result of a decrease in the Specified
Amount.
MINIMUM GUARANTEED AND CURRENT INTEREST RATES
The Fixed Account Value, including the Loan Reserve, is guaranteed to
accumulate at a minimum effective annual interest rate of 4%. Western Reserve
presently credits the Fixed Account Value with current rates in excess of the
minimum guarantee but it is not obligated to do so. These current interest rates
are influenced by, but do not necessarily correspond to, prevailing general
market interest rates. Because Western Reserve, at its sole discretion,
anticipates changing the current interest rate from time to time, different
allocations to and from the Fixed Account Value will be credited different
current interest rates.
Western Reserve further guarantees that when a higher current interest
rate is declared on an allocation to the Fixed Account, that interest rate will
be guaranteed on such allocation for at least a one year period (the
"Guarantee Period"), unless the Cash Value associated with an allocation
has been transferred to the Loan Reserve. Western Reserve reserves the right to
apply a different current interest rate to that part of the Cash Value equal to
the Loan Reserve. At the end of the Guarantee Period, Western Reserve reserves
the right to declare a new current interest rate on such allocation and accrued
interest thereon (which may be a different current interest rate than the
current interest rate on new allocations to the Fixed Account on that date). The
rate declared on such allocation and accrued interest thereon at the end of each
Guarantee Period will be guaranteed again for another Guarantee Period. At the
end of any Guarantee Period, any interest credited on the Policy's Cash Value
in the Fixed Account in excess of the minimum guaranteed rate of 4% per year
will be determined in the sole discretion of Western Reserve. The Policyowner
assumes the risk that interest credited may not exceed the guaranteed minimum
rate.
Allocations from the Fixed Account Value to provide: a) cash withdrawal
amounts, b) transfers to the Series Account, or c) monthly deduction charges are
currently, for the purpose of crediting interest, accounted for on a last in,
first out ("LIFO") method.
Western Reserve reserves the right to change the method of crediting
interest from time to time, provided that such changes will not have the effect
of reducing the guaranteed
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rate of interest below 4% per annum or shorten the Guarantee Period to less than
one year.
ALLOCATIONS, TRANSFERS AND WITHDRAWALS
Net premium payments and transfers to the Fixed Account will be allocated
to the Fixed Account on the first Valuation Date on or following the date
Western Reserve receives the payment or transfer request at its Office, except
Net Premium received prior to the Policy Date will take place on the Policy Date
(or the Record Date, if later).
For transfers from the Fixed Account to a Sub-Account, Western Reserve
reserves the right to require that transfer requests be in writing and received
at Western Reserve's Office within 30 days after a Policy Anniversary. The
maximum amount that may be transferred is limited to the greater of (a) 25% of
the amount in the Fixed Account, or (b) the amount transferred in the prior
Policy year from the Fixed Account, unless Western Reserve consents otherwise.
Please consult your Policy for details. No transfer charge will apply to
transfers from the Fixed Account to a Sub-Account. Amounts may be withdrawn from
the Fixed Account for cash withdrawals and surrenders only upon written request
of the Policyowner, and are subject to any applicable requirement for a
signature guarantee. (See Policy Rights -Surrender Privileges, p. 31.) Western
Reserve further reserves the right to defer payment of transfers, cash
withdrawals, or surrenders from the Fixed Account for up to six months. In
addition, Policy provisions relating to transfers, cash withdrawals or
surrenders from the Series Account will also apply to Fixed Account
transactions.
DISTRIBUTION 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 ISI, an affiliate of Western Reserve and the principal
underwriter of the Policies, or of broker-dealers who have entered into written
sales agreements ("Sales Agreements") with the principal underwriter for
promotion and sale of the Policies. ISI is registered with the Commission 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 have been retained
by ISI for acting as principal underwriter for the Policies. The compensation
payable to registered representatives who are appointed agents of Western
Reserve for sales of the Policies may vary with the Sales Agreement, but is not
expected to exceed 65% of all premiums paid during the first Policy year, plus
3.0% on all premiums paid thereafter. In addition, certain production,
persistency and managerial bonuses may be paid.
FEDERAL TAX MATTERS
INTRODUCTION
The ultimate effect of Federal income taxes on the Cash Value and on the
economic benefit to the Policyowner or Beneficiary depends on Western Reserve's
tax status and upon the tax status of the individual concerned. The discussion
contained herein is general in nature and is not intended as tax advice. For
complete information on Federal and state tax considerations, a qualified tax
adviser should be consulted. No attempt is made to consider any applicable state
or other tax laws. Because the discussion herein is based upon Western
Reserve's understanding of Federal income tax laws as they are currently
interpreted, Western Reserve cannot guarantee the tax status of any Policy.
Western Reserve makes no representations regarding the likelihood of
continuation of the current Federal income tax laws, Treasury Regulations, or of
the current interpretations by the Internal Revenue Service ("IRS").
Western Reserve reserves the right to make changes to the Policy in order to
assure that it will continue to qualify as life insurance for tax purposes.
TAX CHARGES
At the present time, Western Reserve makes no charge for any Federal,
state or local taxes (other than premium taxes) that the Company incurs that may
be attributable to such Account or to the Policies. Western Reserve, however,
reserves the right in the future to make a charge for any such tax or other
economic burden resulting from the application of the tax laws that it
determines to be properly attributable to the Series Account or to the Policies.
TAX STATUS OF THE POLICY
Section 7702 of the Code sets forth a definition of a life insurance
contract for Federal tax purposes. The Secretary of the Treasury (the
"Treasury") has recently issued proposed regulations that would specify
what will be considered reasonable mortality charges under Section 7702.
Guidance as to how Section 7702 is to be applied is, however, limited. If a
Policy were determined not to be a life insurance contract for purposes of
Section 7702, such Policy would not provide most of the tax advantages normally
provided by a life insurance policy.
With respect to a Policy that is issued on the basis of a rate class using
non-tobacco use Ultimate Select, non-tobacco use Select, tobacco use Ultimate
Standard or tobacco use Standard guaranteed rates, while there is some
uncertainty due to the limited guidance on Section 7702, Western Reserve
nonetheless 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 rate class, there is even less guidance to determine whether such a
Policy meets the Section 7702 definition of a life insurance contract. Thus, it
is not clear whether such a Policy would satisfy Section 7702, particularly if
the Policyowner pays the full amount of premiums permitted under the Policy. If
it is subsequently determined that a Policy does not satisfy Section 7702,
Western Reserve will take whatever steps are appropriate and reasonable to
attempt to cause such a Policy to comply with Section 7702, including possibly
refunding any premiums paid that exceed the limitation allowable under Section
7702 (together with interest or other earnings on any such premiums refunded as
required by law). For these reasons, Western Reserve reserves the right to
modify the Policy as necessary to attempt to qualify it as a life insurance
contract under Section 7702.
35
<PAGE>
Section 817(h) of the Code authorizes the Treasury to set standards by
regulation or otherwise for the investments of the Series Account to be
"adequately diversified" in order for the Policy to be treated as a life
insurance contract for Federal tax purposes. The Series Account, through the
Fund, intends to comply with the diversification requirements prescribed by the
Treasury in Reg. sec. 1.817-5, which affect how the Fund's assets may be
invested. Western Reserve believes that the Fund will be operated in compliance
with the requirements prescribed by the Treasury.
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 account used to support their policies. In those circumstances, income
and gains from the separate account assets would be includable in the owner's
gross income. The IRS has stated in published rulings that the owner of a
variable life insurance policy will be considered the owner of separate account
assets if the owner possesses incidents of ownership in those assets, such as
the ability to exercise investment control over the assets. The Treasury
Department 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 policyowner), 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-account 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 policyowners were not owners of separate account assets. For
example, the Policyowner has additional flexibility in allocating premium
payments and Policy values. These differences could result in a Policyowner
being treated as the owner of a pro rata portion of the assets of the Series
Account. In addition, Western Reserve does not know what standards will be set
forth, if any, in the regulations or rulings which the Treasury Department has
stated it expects to issue. Western Reserve therefore reserves the right to
modify the Policy as necessary to attempt to prevent a Policyowner from being
considered the owner of a pro rata share of the assets of the Series 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
1. In general. Western Reserve believes that the 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
death benefit under the Policy should be excludable from the gross income of the
Beneficiary under section 101(a)(1) of the Code.
A change in a Policy's Specified Amount, the payment of an unscheduled
premium, the taking of a Policy loan, a cash withdrawal, a total surrender, a
Policy Lapse with an outstanding indebtedness, a change in death benefit
options, the exchange of a Policy, or the assignment of a Policy may have tax
consequences depending upon the circumstances. In addition, Federal estate and
state and local estate, inheritance, and other tax consequences of ownership or
receipt of Policy proceeds depend upon the circumstances of each Policyowner or
Beneficiary. A competent tax adviser should be consulted for further
information.
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, if a
Policyowner is contemplating the use of a Policy in any arrangement the value of
which depends in part on its tax consequences, that Policyowner should be sure
to consult a qualified tax adviser regarding the tax attributes of the
particular arrangement.
Generally, the Policyowner will not be deemed to be in constructive
receipt of the Cash Value, including increments thereof, under the Policy 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" under Section 7702A. Section 7702A
generally applies to Policies entered into or materially changed after June 20,
1988.
2. Modified Endowment Contracts. A Policy may be treated as a modified
endowment contract depending upon the amount of premiums paid in relation to the
death benefit provided under such Policy. The premium limitation rules for
determining whether such a Policy is a modified endowment contract are extremely
complex. In general, however, a Policy will be a modified endowment contract if
the accumulated premiums paid 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. In addition, if a Policy is
"materially changed," it may cause such Policy to be treated as a modified
endowment contract. The material change rules for determining whether a Policy
is a modified endowment contract are also extremely complex. In general,
however, the determination whether a Policy will be a modified endowment
contract after a material change depends upon the relationship of the death
benefit at the time of change to the Cash Value at the time of such change and
the additional premiums paid in the seven Policy years starting with the date on
which the material change occurs.
Under Western Reserve's current procedures, the Policyowner will be
notified at the time a Policy is issued whether, according to Western Reserve's
calculations, the Policy is or is not classified as a modified endowment
contract
36
<PAGE>
based on the premium then received. The Policyowner will also be notified of the
amount of the maximum annual premium which can be paid without causing a Policy
to be classified as a modified endowment contract.
Due to the Policy's flexibility, classification of a Policy as a modified
endowment contract will depend upon the circumstances of each Policy.
Accordingly, a prospective Policyowner should contact a competent tax adviser
before purchasing a Policy to determine the circumstances under which the Policy
would be a modified endowment contract. In addition, a Policyowner should
contact a competent tax adviser before making any change to, including an
exchange of, a Policy to determine whether such change would cause the Policy
(or the new policy in the case of an exchange) to be treated as a modified
endowment contract.
If a Policy becomes a modified endowment contract, distributions that
occur during the Policy year it becomes a modified endowment contract and any
subsequent Policy year will be taxed as distributions from a modified endowment
contract. In addition, distributions from a Policy within two years before it
becomes a modified endowment contract will be taxed in this manner. This means
that a distribution made from a Policy that is not a modified endowment contract
could later become taxable as a distribution from a modified endowment contract.
A Builder Plus Program Policy, however, will in most instances be treated as a
Modified Endowment Contract. (See Charges and Deductions - Builder Plus
Program,sm p. 29.)
3. Distributions from Policies Classified as Modified Endowment
Contracts. Policies classified as modified endowment contracts are subject to
the following tax rules: First, all pre-death distributions from such a Policy
(including distributions upon surrender, distributions made in anticipation of
the Policy becoming a modified endowment contract, and benefits paid at
maturity) 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 such
a Policy and taxed accordingly. (Unpaid Policy loan interest will be treated as
a loan for these purposes.) 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 591|M/2, is attributable to the Policyowner's
becoming disabled, or is part of a series of substantially equal periodic
payments for the life (or life expectancy) of the Policyowner or the joint lives
(or joint life expectancies) of the Policyowner and the Policyowner's
Beneficiary.
4. Distribution from Policies not Classified as Modified Endowment
Contracts. Distributions from a Policy that is not classified as 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 cash withdrawal, a decrease in the
Policy's death benefit, or any other change that reduces benefits under the
Policy in the first 15 years after the Policy is issued and results in a cash
distribution to the Policyowner in order for the Policy to continue complying
with the Section 7702 definitional limits. In that case, such 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
indebtedness of the Policyowner.
Finally, distributions (including distributions upon surrender or lapse)
or loans from, or secured by, a Policy that is not a modified endowment contract
are not subject to the 10% additional income tax.
5. Policy loan interest. The deductibility of Policy loan interest may be
limited by the Code. For example, interest paid on any loan under a Policy which
is owned by an individual generally is not deductible. Therefore, a Policyowner
should consult a competent tax adviser as to whether Policy loan interest will
be deductible.
6. Investment in the Policy. Investment in the Policy means (i) the
aggregate amount of any premiums or other consideration paid for a Policy, minus
(ii) the aggregate amount received under the Policy which is excluded from the
gross income of the Policyowner (except that the amount of any loan from, or
secured by, a Policy that is a modified endowment contract, to the extent such
amount is excluded from gross income, will be disregarded), plus (iii) the
amount of any loan from, or secured by, a Policy that is a modified endowment
contract to the extent that such amount is included in the gross income of the
Policyowner.
7. Multiple Policies. All modified endowment contracts that are issued by
Western Reserve (or its affiliates) to the same Policyowner during any calendar
year are treated as one modified endowment contract for purposes of determining
the amount includable in gross income under Section 72(e) of the Code.
8. Terminal Illness Accelerated Death Benefit Rider. Pursuant to the
recently enacted Health Insurance Portability and Accountability Act of 1996,
Western Reserve believes that for federal income tax purposes a Single Sum
Benefit payment made under the Terminal Illness Accelerated Death Rider should
be fully excludable from the gross income of the beneficiary, as long as the
beneficiary is the Insured under the Policy. However, a Policyowner should
consult a qualified tax adviser about the consequences of adding this Rider to a
Policy or requesting a Single Benefit payment under this Rider.
EMPLOYMENT-RELATED BENEFIT PLANS
On July 6, 1983, the Supreme Court held in Arizona Governing Committee v.
Norris that optional annuity benefits provided under an employer's deferred
compensation plan could not, under Title VII of the Civil Rights Act of 1964,
37
<PAGE>
vary between men and women on the basis of sex. The Policy described in this
Prospectus contains guaranteed cost of insurance rates and guaranteed purchase
rates for certain payment options that distinguish between men and women.
Accordingly, employers and employee organizations should consider, in
consultation with legal counsel, the impact of Norris, and Title VII generally,
on any employment-related insurance or benefit program for which a Policy may be
purchased.
SAFEKEEPING OF THE
SERIES ACCOUNT'S ASSETS
Western Reserve holds the assets of the Series Account. The assets are
kept physically segregated and held separate and apart from the General Account.
Western Reserve maintains records of all purchases and redemptions of Fund
shares by each of the Sub-Accounts. Additional protection for the assets of the
Series Account is provided by a blanket bond issued to AEGON U.S. Holding
Corporation ("AEGON U.S.") in the amount of $5 million (subject to a $1
million deductible), covering all of the employees of AEGON U.S. and its
affiliates, including Western Reserve. A Stockbrokers Blanket Bond, issued to
AEGON U.S.A. Securities, Inc. provides additional fidelity coverage, to a limit
of $12 million, subject to a $50,000 deductible.
VOTING RIGHTS OF THE SERIES ACCOUNT
To the extent required by law, Western Reserve will vote the Fund shares
held in the Series Account at shareholder meetings of the Fund in accordance
with instructions received from persons having voting interests in the
corresponding Sub-Accounts of the Series Account. Except as required by the 1940
Act, the Fund does not hold regular or special shareholder meetings. If the 1940
Act or any regulation thereunder should be amended or if the present
interpretation thereof should change, and as a result Western Reserve determines
that it is permitted to vote the Fund shares in its own right, it may elect to
do so.
The number of votes which a Policyowner has the right to instruct will be
calculated separately for each Sub-Account. The number of votes which each
Policyowner has the right to instruct will be determined by dividing a Policy's
Cash Value in that Sub-Account by $100. Fractional shares will be counted. The
number of votes of the Portfolio which the Policyowner has the right to instruct
will be determined as of the date coincident with the date established by that
Portfolio for determining shareholders eligible to vote at the meeting of the
Fund. Voting instructions will be solicited by written communications prior to
such meeting in accordance with procedures established by the Fund.
Western Reserve will vote Fund shares as to which no timely instructions
are received and Fund shares which are not attributable to Policyowners in
proportion to the voting instructions which are received with respect to all
Policies participating in that Portfolio. Voting instructions to abstain on any
item to be voted upon will reduce the votes eligible to be cast by Western
Reserve.
Each person having a voting interest in a Sub-Account will receive proxy
materials, reports and other materials relating to the appropriate Portfolio.
DISREGARD OF VOTING INSTRUCTIONS. Western Reserve may, when required by
state insurance regulatory authorities, disregard voting instructions if the
instructions require that the shares be voted so as to cause a change in the
sub-
classification or investment objective of the Fund or one or more of its
Portfolios or to approve or disapprove an investment advisory contract for a
Portfolio of the Fund. In addition, Western Reserve itself may disregard voting
instructions in favor of changes initiated by a Policyowner in the investment
policy or the investment adviser of a Portfolio of the Fund if Western Reserve
reasonably disapproves of such changes. A change would be disapproved only if
the proposed change is contrary to state law or prohibited by state regulatory
authorities or Western Reserve determined that the change would have an adverse
effect on its General Account in that the proposed investment policy for a
Portfolio may result in overly speculative or unsound investments. In the event
Western Reserve does disregard voting instructions, a summary of that action and
the reasons for such action will be included in the next annual report to
Policyowners.
STATE REGULATION OF WESTERN RESERVE
As a life insurance company organized and operated under Ohio law, Western
Reserve is subject to provisions governing such companies and to regulation by
the Ohio Commissioner of Insurance.
Western Reserve's books and Accounts are subject to review and
examination by the Ohio Insurance Department at all times and a full examination
of its operations is conducted by the National Association of Insurance
Commissioners at least once every three years.
REINSURANCE
Western Reserve intends to reinsure a portion of the risks assumed under
the Policies.
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 (October, 1996 - present), WRL Investment Management, Inc.; Chairman
of the Board (October, 1996 - present), WRL Investment Services, Inc.;
Chairman of the Board of Directors and Chief Executive Officer (1988 to
February, 1991), President
- ----------------
(1) The principal business address is Western Reserve Life Assurance Co. of
Ohio, P.O. Box 5068, Clearwater, Florida 34618-5068.
38
<PAGE>
(1988 - 1989), Director (1976 to 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), Director (October, 1996 - present), WRL
Investment Management, Inc.; Director (October, 1996 - present), WRL
Investment Services, Inc.; Senior Vice President (1981 - June, 1993) and
Actuary (1972 - present), Western Reserve Life Assurance Co. of Ohio;
Executive Vice President (September, 1993 - present), WRL Series Fund, Inc.
WILLIAM H. GEIGER(1), SENIOR VICE PRESIDENT, SECRETARY AND GENERAL COUNSEL,
Senior Vice President, Secretary and General Counsel (July, 1990 - present)
of Western Reserve Life Assurance Co. of Ohio; Vice President, Secretary
and General Counsel of Pioneer Western Corporation (financial services) and
Secretary of its subsidiaries (May, 1990 to February, 1991); Vice President
and Assistant Secretary (November, 1990 to present) and Secretary (June,
1990 to September, 1990) IDEX Series Fund, former Vice President and
Assistant Secretary of IDEX Fund, IDEX II Series Fund and IDEX Fund 3
(investment companies), all of Largo, Florida.
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 (October, 1996 - present), WRL Investment
Management, Inc.; Director (October, 1996 - present), WRL Investment
Services, Inc.; President and Chief Executive Officer (September, 1990 -
present), Trustee (June, 1990 - present) and Executive Vice President
(June, 1988 - September, 1990) of IDEX Series Fund, former Trustee and
Executive Vice President of IDEX Fund, IDEX II Series Fund and IDEX Fund 3
(investment companies); Assistant Vice President of AEGON USA Managed
Portfolios, Inc. (September, 1991 - August, 1992); Vice President (May,
1988 - February, 1991) Pioneer Western Corporation (financial services).
ALLAN J. HAMILTON(1), VICE PRESIDENT, TREASURER AND CONTROLLER, Vice President
and Controller (1987 - present), Treasurer (February, 1997 - present),
Assistant Vice President and Assistant Controller (1983 - 1987), Western
Reserve Life Assurance Co. of Ohio; Treasurer and Principal Financial
Officer (February, 1997 - present), WRL Series Fund, Inc.; Vice President
and Controller (1988 to February 1991), Pioneer Western Corporation
(financial services), Largo, Florida.
PATRICK S. BAIRD, DIRECTOR, 4333 Edgewood Road, NE, Cedar Rapids, Iowa 52499,
Director (February, 1991 to present), Western Reserve Life Assurance Co. of
Ohio; Vice President and Chief Tax Officer (1984 - present), Chief
Financial Officer (1992 - present) AEGON USA, Inc., formerly known as Life
Investors, Inc., (financial services holding company), Cedar Rapids, Iowa.
JACK E. ZIMMERMAN, DIRECTOR, 507 St. Michel Circle, Kettering, Ohio 45429,
Director (1987 - present), Western Reserve Life Assurance Co. of Ohio;
Trustee, IDEX Series Fund, former Trustee of IDEX Fund, IDEX II Series Fund
and IDEX Fund 3 (investment companies); Director, Regional Marketing, (1986
- January, 1993), Martin Marietta Corporation, Dayton, Ohio.
LYMAN H. TREADWAY, DIRECTOR, 30195 Chagrin Blvd. Ste. 210N, Cleveland, Ohio
44124, Director (September, 1994 - present), Western Reserve Life Assurance
Co. of Ohio; Consultant (1988 - 1993), Cleveland, Ohio.
JAMES R. WALKER, DIRECTOR, 3320 Office Park Dr., Dayton, Ohio 45439, Director
(June, 1996 - present) Western Reserve Life Assurance Co. of Ohio;
Self-employed, Public Accountant (1996 - present); Partner, C.P.A. (1990 -
1995), Walker-Davis C.P.A.'s, Dayton, Ohio.
- ----------------
(1) The principal business address is Western Reserve Life Assurance Co. of
Ohio, P.O. Box 5068, Clearwater, Florida 34618-5068.
LEGAL MATTERS
Sutherland, Asbill & Brennan, L.L.P., Washington, D.C., has provided
advice on certain legal matters concerning Federal securities laws in connection
with the Policies. All matters of Ohio law pertaining to the Policy, including
the validity of the Policy and Western Reserve's right to issue the Policy
under Ohio Insurance Law, have been passed upon by Thomas E. Pierpan, Vice
President, Associate General Counsel and Assistant Secretary of Western Reserve.
LEGAL PROCEEDINGS
There are no legal proceedings to which the Series Account is a party or
to which the assets of the Series Account are subject. Western Reserve is not
involved in any litigation that is of material importance in relation to its
total assets or that relates to the Series Account.
EXPERTS
The financial statements of WRL Series Life Account as of December 31,
1996 and for the year then ended have been included herein in reliance upon the
report of Price Waterhouse LLP, independent accountants, and upon the authority
of that firm as experts in accounting and auditing.
The financial statements of Western Reserve Life Assurance Co. of Ohio at
December 31, 1996 and 1995 and for each of the three years in the period ended
December 31, 1996, appearing in this Prospectus have been audited by Ernst &
Young LLP, independent auditors, as set forth in their reports thereon appearing
elsewhere herein which are based in part on the reports of Price Waterhouse LLP,
independent
39
<PAGE>
accountants. The financial statements referred to above are included in reliance
upon such reports given upon the authority of such firms as experts in
accounting and auditing.
Actuarial matters included in this Prospectus have been examined by Alan
Yaeger as stated in the opinion filed as an exhibit to the registration
statement.
ADDITIONAL INFORMATION
A registration statement has been filed with the Securities and Exchange
Commission, under the Securities Act of 1933, as amended, with respect to the
Policy offered hereby. This Prospectus does not contain all the information set
forth in the registration statement and the amendments and exhibits to the
registration statement, to all of which reference is made for further
information concerning the Series Account, Western Reserve and the Policy
offered hereby. Statements contained in this Prospectus as to the contents of
the Policy and other legal instruments are summaries. For a complete statement
of the terms thereof reference is made to such instruments as filed.
INFORMATION ABOUT WESTERN RESERVE'S FINANCIAL STATEMENTS
The financial statements of Western Reserve which are included in this
Prospectus (see p. 69) should be considered only as bearing on the ability of
Western Reserve to meet its obligations under the Policies. They should not be
considered as bearing on the investment performance of the assets held in the
Series Account.
Financial statements for Western Reserve for the years ended December 31,
1996, 1995 and 1994, have been prepared on the basis of statutory accounting
principles, rather than generally accepted accounting principles ("GAAP").
40
<PAGE>
APPENDIX A
ILLUSTRATION OF BENEFITS
The tables in Appendix A illustrate the way in which a Policy operates.
They show how the death benefit, Cash Value and Net Surrender Value of a Policy
issued to an Insured of a given age and a given premium could vary over an
extended period of time assuming hypothetical gross rates of return equivalent
to constant after tax annual rates of 0%, 6% and 12%. The tables illustrate the
Policy values that would result based on the assumptions that the premium is
paid as indicated, that the Owner has not requested an increase or decrease in
the Specified Amount of the Policy, and that no cash withdrawals or Policy loans
have been made.
The death benefits, Cash Values and Net Surrender Values under a Policy
would be different from those shown if the actual rate of return averages 0%, 6%
or 12% over a period of years, but fluctuates above and below those averages for
individual Policy years. They would also differ if any Policy loans were made
during the period of time illustrated.
The illustration on page 42 is based on a Policy for an Insured who is a
35 year old male in the Ultimate Select (non-tobacco use) rate class, annual
premiums of $2,000, a $165,000 Specified Amount and death benefit Option B. The
illustrations on that page also assume cost of insurance charges based on
Western Reserve's CURRENT cost of insurance rates.
The illustration on page 43 is based on the same factors as those on page
42, except that cost of insurance rates are based on the GUARANTEED cost of
insurance rates (based on the 1980 Commissioners Standard Ordinary Mortality
Table). The illustration on page 44 depicts, in graphic format, the same levels
of cumulative net premiums, Net Surrender Values, and death benefits payable
during any Policy year, as are shown on page 42, and assumes a hypothetical
gross annual rate of return of 12%.
The amounts shown for the death benefits, Cash Values and Net Surrender
Values take into account (1) the daily charge for assuming mortality and expense
risks assessed against each Sub-Account which is equivalent to an annual charge
of 0.90% of the average net assets of the Sub-
Accounts during the first 15 Policy years (Western Reserve currently intends to
reduce this charge to 0.75% after the first fifteen Policy years. However, such
reduction is not guaranteed, and Western Reserve reserves the right to maintain
this charge at the 0.90% level after the first fifteen Policy years); (2)
estimated daily expenses equivalent to an effective average annual expense level
of 0.93% of the average daily net assets of the Portfolios of the Fund; and (3)
all applicable premium expense charges and Cash Value charges using the current
monthly Policy charge. The 0.93% average Portfolio expense level assumes an
equal allocation of amounts among the fourteen Sub-Accounts and is based on an
average 0.76% investment advisory fee and 1996 average normal operating expenses
of 0.17% for each of the Portfolios in operation during 1996. Calculation of the
average annual expense level utilized annualized actual audited expenses
incurred during 1996 as adjusted for anticipated expense modifications incurring
in 1997 for the Money Market (0.52%), Bond (0.64%), Growth (0.88%), Strategic
Total Return (0.91%), Emerging Growth (0.94%), Global (0.99%), Aggressive Growth
(0.98%), Balanced (0.97%), Growth & Income (1.00%), C.A.S.E. Growth (1.00%), and
Tactical Asset Allocation (0.90%). In addition, because the Value Equity
Portfolio was not in existence during the full year of 1996 (commencement of
operations was May 1, 1996), and the U.S. Equity Portfolio and International
Equity Portfolio had not commenced operations as of December 31, 1996, the
estimated average annual Portfolio expense level reflects estimated expenses for
these three Portfolios at 1.00%, 1.05% and 1.30%, respectively, for 1997. During
1996, Western Reserve had undertaken to pay Fund expenses for each Portfolio to
the extent normal operating expenses of a Portfolio exceeded a stated percentage
of the Portfolio's average daily net assets. WRL Management has undertaken
until April 30, 1998 to pay expenses to the extent normal operating expenses of
a Portfolio exceed a stated percentage of the Portfolio's average daily net
assets. Taking into account the assumed charges of 1.83%, the gross annual
investment return rates of 0%, 6% and 12% are equivalent to net annual
investment return rates of -1.83%, 4.17%, and 10.17%.
The hypothetical returns shown in the tables are without any tax charges
that may be attributable to the Series Account, because Western Reserve is not
currently making such charges. In order to produce after tax returns of 0%, 6%
or 12% if such charges are made in the future, the Series Account would have to
earn a sufficient amount in excess of 0%, 6% or 12% to cover any tax charges.
(See Charges Against the Series Account - Taxes, p. 28.)
The "Premium Accumulated at 5%" column of each table shows the
amount which would accumulate if an amount equal to the premium were invested to
earn interest at 5% per year, compounded annually.
Western Reserve will furnish, upon request, a comparable illustration
reflecting the proposed Insured's age, sex, risk classification and desired
plan features.
41
<PAGE>
WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE
HYPOTHETICAL ILLUSTRATIONS
MALE ISSUE AGE 35
<TABLE>
<S> <C>
Specified Amount $165,000 Ultimate Select Class
Annual Premium $2,000 Option Type B
Using Current Cost of Insurance Rates
</TABLE>
<TABLE>
<CAPTION>
DEATH BENEFIT
END OF PREMIUMS ASSUMING HYPOTHETICAL GROSS AND NET
POLICY ACCUMULATED ANNUAL INVESTMENT RETURN OF
YEAR AT 5%
0.00% (Gross) 6.00% (Gross) 12.00% (Gross)
-1.83% (Net) Years 1-15 4.17% (Net) Years 1-15 10.17% (Net) Years 1-15
-1.68 (Net) Years 16+ 4.32% (Net) Years 16+ 10.32% (Net) Years 16+
<S> <C> <C> <C> <C>
1 2,100 166,531 166,633 166,736
2 4,305 168,027 168,328 168,641
3 6,620 169,486 170,083 170,730
4 9,051 170,911 171,903 173,023
5 11,604 172,290 173,779 175,528
6 14,284 173,622 175,711 178,265
7 17,098 174,906 177,699 181,255
8 20,053 176,141 179,744 184,523
9 23,156 177,306 181,824 188,071
10 26,414 178,409 183,951 191,938
15 45,315 183,284 195,622 217,656
20 69,439 186,648 208,814 258,367
30(AGE 65) 139,522 190,387 242,658 430,551
40(AGE 75) 253,680 183,730 281,411 873,300
50(AGE 85) 439,631 * 316,748 2,024,611
60(AGE 95) 742,526 * 367,358 5,056,554
</TABLE>
<TABLE>
<CAPTION>
END OF CASH VALUE
POLICY ASSUMING HYPOTHETICAL GROSS AND NET
YEAR ANNUAL INVESTMENT RETURN OF
0.00% (Gross) 6.00% (Gross) 12.00% (Gross)
-1.83% (Net) Years 1-15 4.17% (Net) Years 1-15 10.17% (Net) Years 1-15
-1.68% (Net) Years 16+ 4.32% (Net) Years 16+ 10.32% (Net) Years 16+
<S> <C> <C> <C>
1 1,531 1,633 1,736
2 3,027 3,328 3,641
3 4,486 5,083 5,730
4 5,911 6,903 8,023
5 7,290 8,779 10,528
6 8,622 10,711 13,265
7 9,906 12,699 16,255
8 11,141 14,744 19,523
9 12,306 16,824 23,071
10 13,409 18,951 26,938
15 18,284 30,622 52,656
20 21,648 43,814 93,367
30(AGE 65) 25,387 77,658 265,551
40(AGE 75) 18,730 116,411 708,300
50(AGE 85) * 151,748 1,859,611
60(AGE 95) * 202,358 4,891,554
<CAPTION>
END OF NET SURRENDER VALUE
POLICY ASSUMING HYPOTHETICAL GROSS AND NET
YEAR ANNUAL INVESTMENT RETURN OF
0.00% (Gross) 6.00% (Gross) 12.00% (Gross)
-1.83% (Net) Years 1-15 4.17% (Net) Years 1-15 10.17% (Net) Years 1-15
-1.68% (Net) Years 16+ 4.32% (Net) Years 16+ 10.32% (Net) Years 16+
<S> <C> <C> <C>
1 0 0 0
2 466 767 1,081
3 1,926 2,523 3,170
4 3,350 4,343 5,462
5 4,729 6,218 7,967
6 6,317 8,407 10,961
7 7,857 10,650 14,206
8 9,349 12,952 17,730
9 10,769 15,288 21,535
10 12,129 17,670 25,658
15 18,284 30,622 52,656
20 21,648 43,814 93,367
30(AGE 65) 25,387 77,658 265,551
40(AGE 75) 18,730 116,411 708,300
50(AGE 85) * 151,748 1,859,611
60(AGE 95) * 202,358 4,891,554
</TABLE>
* In the absence of an additional payment, the Policy would lapse.
THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE AND ELSEWHERE IN THIS
PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF
PAST OR FUTURE INVESTMENT RATES OF RETURN.
ACTUAL INVESTMENT RATES OF RETURN MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL
DEPEND ON A NUMBER OF FACTORS, INCLUDING THE INVESTMENT ALLOCATIONS BY AN OWNER
AND THE DIFFERENT INVESTMENT RATES OF RETURN FOR THE FUND. THE DEATH BENEFIT,
CASH VALUE AND NET SURRENDER VALUE FOR A POLICY WOULD BE DIFFERENT FROM THOSE
SHOWN IF THE ACTUAL INVESTMENT RATES OF RETURN AVERAGED 0%, 6% AND 12% OVER A
PERIOD OF YEARS, BUT FLUCTUATED ABOVE OR BELOW THAT AVERAGE FOR INDIVIDUAL
POLICY YEARS. NO REPRESENTATION CAN BE MADE BY WESTERN RESERVE OR THE FUND THAT
THESE HYPOTHETICAL INVESTMENT RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR
OR SUSTAINED OVER ANY PERIOD OF TIME. THIS ILLUSTRATION MUST BE PRECEDED OR
ACCOMPANIED BY A CURRENT PROSPECTUS.
42
<PAGE>
WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE
HYPOTHETICAL ILLUSTRATIONS
MALE ISSUE AGE 35
<TABLE>
<S> <C>
Specified Amount $165,000 Ultimate Select Class
Annual Premium $2,000 Option Type B
Using Guaranteed Cost of Insurance Rates
</TABLE>
<TABLE>
<CAPTION>
END OF PREMIUMS DEATH BENEFIT
POLICY ACCUMULATED ASSUMING HYPOTHETICAL GROSS AND NET
YEAR AT 5% ANNUAL INVESTMENT RETURN OF
0.00% (Gross) 6.00% (Gross) 12.00% (Gross)
-1.83% (Net) Years 1-15 4.17% (Net) Years 1-15 10.17% (Net) Years 1-15
-1.68% (Net) Years 16+ 4.32% (Net) Years 16+ 10.32% (Net) Years 16+
<S> <C> <C> <C> <C>
1 2,100 166,508 166,610 166,712
2 4,305 167,976 168,273 168,583
3 6,620 169,398 169,988 170,627
4 9,051 170,775 171,753 172,857
5 11,604 172,105 173,569 175,289
6 14,284 173,385 175,435 177,944
7 17,098 174,613 177,349 180,836
8 20,053 175,789 179,312 183,992
9 23,156 176,909 181,322 187,433
10 26,414 177,975 183,381 191,187
15 45,315 182,685 194,693 216,172
20 69,439 185,533 207,030 255,229
30(AGE 65) 139,522 180,247 228,220 407,082
40(AGE 75) 253,680 * 216,942 756,108
50(AGE 85) 439,631 * * 1,557,290
60(AGE 95) 742,526 * * 3,606,843
</TABLE>
<TABLE>
<CAPTION>
END OF CASH VALUE
POLICY ASSUMING HYPOTHETICAL GROSS AND NET
YEAR ANNUAL INVESTMENT RETURN OF
0.00% (Gross) 6.00% (Gross) 12.00% (Gross)
-1.83% (Net) Years 1-15 4.17% (Net) Years 1-15 10.17% (Net) Years 1-15
-1.68% (Net) Years 16+ 4.32% (Net) Years 16+ 10.32% (Net) Years 16+
<S> <C> <C> <C>
1 1,508 1,610 1,712
2 2,976 3,273 3,583
3 4,398 4,988 5,627
4 5,775 6,753 7,857
5 7,105 8,569 10,289
6 8,385 10,435 12,943
7 9,613 12,349 15,836
8 10,789 14,312 18,992
9 11,909 16,322 22,433
10 12,975 18,381 26,187
15 17,685 29,693 51,172
20 20,533 42,030 90,229
30(AGE 65) 15,247 63,220 242,082
40(AGE 75) * 51,942 591,108
50(AGE 85) * * 1,392,290
60(AGE 95) * * 3,441,843
<CAPTION>
END OF NET SURRENDER VALUE
POLICY ASSUMING HYPOTHETICAL GROSS AND NET
YEAR ANNUAL INVESTMENT RETURN OF
0.00% (Gross) 6.00% (Gross) 12.00% (Gross)
-1.83% (Net) Years 1-15 4.17% (Net) Years 1-15 10.17% (Net) Years 1-15
-1.68% (Net) Years 16+ 4.32% (Net) Years 16+ 10.32% (Net) Years 16+
<S> <C> <C> <C>
1 0 0 0
2 415 712 1,023
3 1,837 2,427 3,066
4 3,215 4,192 5,296
5 4,544 6,008 7,729
6 6,080 8,130 10,639
7 7,564 10,300 13,788
8 8,996 12,520 17,200
9 10,372 14,786 20,896
10 11,694 17,101 24,906
15 17,685 29,693 51,172
20 20,533 42,030 90,229
30(AGE 65) 15,247 63,220 242,082
40(AGE 75) * 51,942 591,108
50(AGE 85) * * 1,392,290
60(AGE 95) * * 3,441,843
</TABLE>
* In the absence of an additional payment, the Policy would lapse.
THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE AND ELSEWHERE IN THIS
PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF
PAST OR FUTURE INVESTMENT RATES OF RETURN.
ACTUAL INVESTMENT RATES OF RETURN MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL
DEPEND ON A NUMBER OF FACTORS, INCLUDING THE INVESTMENT ALLOCATIONS BY AN OWNER
AND THE DIFFERENT INVESTMENT RATES OF RETURN FOR THE FUND. THE DEATH BENEFIT,
CASH VALUE AND NET SURRENDER VALUE FOR A POLICY WOULD BE DIFFERENT FROM THOSE
SHOWN IF THE ACTUAL INVESTMENT RATES OF RETURN AVERAGED 0%, 6% AND 12% OVER A
PERIOD OF YEARS, BUT FLUCTUATED ABOVE OR BELOW THAT AVERAGE FOR INDIVIDUAL
POLICY YEARS. NO REPRESENTATION CAN BE MADE BY WESTERN RESERVE OR THE FUND THAT
THESE HYPOTHETICAL INVESTMENT RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR
OR SUSTAINED OVER ANY PERIOD OF TIME. THIS ILLUSTRATION MUST BE PRECEDED OR
ACCOMPANIED BY A CURRENT PROSPECTUS.
43
<PAGE>
WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO
MALE ISSUE AGE 35
$2,000 ANNUAL PREMIUM FOR ULTIMATE SELECT (NON-TOBACCO USE)
$165,000 SPECIFIED AMOUNT
OPTION B - FIXED DEATH BENEFIT
CURRENT COST OF INSURANCE RATES
[INSERT CHART]
44
<PAGE>
APPENDIX B
LONG TERM MARKET TRENDS
The information below is a record of the average annual returns of common
stock, high grade corporate bonds and 30-day U.S. Treasury bills over 20 year
holding periods.* The average annual returns assume the reinvestment of
dividends, capital gains and interest. This is a historical record and is not
intended as a projection of future performance. Charges associated with a
variable life insurance policy are not reflected.
The data indicates that, historically, the investment performance of
common stocks over long periods of time has been positive and has generally been
superior to that of long-
term, high grade debt securities. Common stocks have, however, been subject to
more dramatic market adjustments over short periods of time. These trends
indicate the potential advantages of holding a variable life insurance policy
for a long period of time.
The following chart illustrates the average annual returns of the Standard
& Poor's Index of 500 Common Stocks ("S&P 500 Stock Index") for each of
the 20 year periods shown. These returns are compared to the average annual
returns of high grade corporate bonds and U.S. Treasury bills for the same
periods. (The 20-year periods selected for the chart begin in 1936 and have
ending periods at five year intervals.)
AVERAGE ANNUAL RETURNS
TWENTY YEAR HOLDING PERIODS
[PU GRAPH]
* Source: (c) Stocks, Bonds, Bills and Inflation 1997 Yearbook\T, Ibbotson
Associates, Chicago (annually updates work by Roger G. Ibbotson and Rex A.
Sinquefield). Used with permission. All rights reserved.
45
<PAGE>
Over the 52 20-year time periods beginning in 1927 and ending in 1996
(i.e. 1927-1946, 1928-1947, and so on through 1977-1996):
- The average annual return of common stocks was superior to that of high
grade, long-term corporate bonds in 48 of the 52 periods.
- The average annual return of common stocks surpassed that of U.S.
Treasury bills in each of the 52 periods.
- Common stock average annual returns exceeded the average annual rate of
inflation in each of the 52 periods.
From 1927 through 1996 the average annual return for common stocks was
10.2%, compared to 5.4% for high grade, long-term corporate bonds, 3.7% for U.S.
Treasury bills and 3.1% for the Consumer Price Index.
SUMMARY: HISTORIC S&P STOCK INDEX RESULTS FOR SPECIFIC HOLDING PERIODS
The following chart categorizes the historical results of the Standard &
Poor's 500 Stock Index, with dividends reinvested, over one-year, five-year,
ten-year and twenty-year periods beginning in 1927 and ending 1996.
The chart shows that, historically, the longer that a portfolio matching
the S&P 500 Stock Index was held, the less likely was the chance of a loss.
Conversely, the shorter the holding period of such a portfolio, the more likely
was the chance of a loss. The chart also shows that shorter term results tend to
be more extreme than longer term results.
The chart is not a projection or representation of future stock market
results. It cannot be taken as representative of the performance of any one
fund. Rather it shows the historic performance of a broad index of stocks.
---------------------
PERCENT OF HOLDINGS PERIOD WITH THE FOLLOWING RESULTS:
<TABLE>
<CAPTION>
Greater
Than
Holding Negative 0-5.00% 5.01-10.00% 10.01-15.00% 15.01-20.00% 20.00%
Period Return Return Return Return Return Return
- ---------- ----------- ---------- -------------- --------------- --------------- ---------
<S> <C> <C> <C> <C> <C> <C>
1 year 29.0% 4.3% 11.6% 7.2% 11.6% 36.2%
5 years 10.8% 15.4% 20.2% 27.7% 16.9% 9.2%
10 years 3.3% 11.7% 36.7% 21.7% 25.0% 1.7%
20 years 0.0% 6.0% 34.0% 54.0% 6.0% 0.0%
</TABLE>
- ----------------
Source: (c) Stocks, Bonds, Bills and Inflation 1997 Yearbook\T, Ibbotson
Associates, Inc., Chicago (annually updates work by Roger G. Ibbotson and Rex A.
Sinquefield). Used with permission. All rights reserved.
---------------------
THE WRL FREEDOM FINANCIAL BUILDER
AND THE "DOLLAR COST AVERAGING" INVESTMENT METHOD
As the Long Term Market Trends graph indicates, the investment performance
of many common stocks has generally been positive over certain relatively long
periods. Common stocks have, however, also been subject to market declines,
often dramatic ones, and general volatility of prices over shorter time periods.
The price fluctuations of common stocks has historically been greater than that
of high grade debt securities.
The relative volatility of common stock prices as compared with prices of
high grade debt instruments offers both advantages and disadvantages to
investors. Unfortunately, many investors who otherwise might be interested in
common stocks see only the disadvantages and not the advantages of stock price
fluctuation. The primary disadvantage, of course, is that price declines can be
prolonged and substantial, and when this occurs, investors cannot liquidate
their investments without realizing losses. Price declines, however, also offer
investors important opportunities.
Opportunity arises from the fact that investors can purchase more common
stock for the same amount of money than they would before prices declined.
Investors may take advantage of this if they remain willing to continue
investing in both rising and falling markets. The dollar cost averaging method
of investing demonstrates this.
In this method of investing:
- Relatively constant dollar amounts are invested at regular intervals
(monthly, quarterly, or annually),
- Stock Market fluctuations, especially the savings on purchases from
price declines, are exploited for the investor's benefit.
HOW DOLLAR COST AVERAGING WORKS
<TABLE>
<CAPTION>
Investments at Common Stock Shares
Regular Intervals Market Price Purchased
- ------------------- --------------- -----------
<S> <C> <C>
$150 $20 7.5
150 15 10.0
150 10 15.0
150 5 30.0
150 10 15.0
150 15 10.0
------ -----
$900 87.5
</TABLE>
46
<PAGE>
<TABLE>
<S> <C>
Total Value of 87.5 shares @ $15/share $1,312.50
Less Investment made (900.00)
----
Gain/Profit $ 412.50
</TABLE>
Though the market price has not returned to the initial high of $20 per
share, dollar cost averaging has permitted the investor to purchase more shares
at a savings and thus realize a significant gain. Obviously, the dollar cost
averaging method only works if the investor continues to invest relatively
constant amounts over a long period of time.
This plan of investing does not assure a profit or protect against a loss
in declining markets; it does allow investors to take advantage of market
fluctuations. Since the success of this strategy is dependent on systematic
investing, purchasers should consider their ability to sustain their payments
through all periods of market fluctuations.
How does the dollar cost averaging method relate to the WRL Freedom
Financial Builder? A Policyowner may invest his or her Net Premium in a
Sub-Account, and although a Policy's value in a Sub-Account or Sub-Accounts is
affected by several factors other than investment experience (e.g., Cash Value
charges and charges against the Series Account), the dollar cost averaging
method can be generally applied to the Policy to the extent that the Policyowner
pays a Planned Periodic Premium on a regular basis and he or she allocates Net
Premium resulting from those Planned Periodic Premiums to Sub-Accounts in
relatively constant amounts.
INDEX TO FINANCIAL STATEMENTS
WRL SERIES LIFE ACCOUNT:
Report of Independent Accountants dated January 31, 1997
Statements of assets, liabilities and equity accounts at December 31, 1996
Statements of operations for the year ended December 31, 1996 and
statements of changes in equity accounts for the years ended December 31,
1996 and 1995
Notes to Financial Statements
WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO:
Report of Independent Auditors dated , 1997
Statutory-Basis Balance Sheets at December 31, 1996 and 1995
Statutory-Basis Statements of Operations for the years ended December 31,
1996, 1995 and 1994
Statutory-Basis Statements of Capital and Surplus for the years ended
December 31, 1996, 1995 and 1994
Statutory-Basis Statements of Cash Fows for the years ended December 31,
1996, 1995, and 1994
Notes to Statutory-Basis Financial Statements
Statutory-Basis Financial Statement Schedules
47
<PAGE>
APPENDIX C
(BASED ON THE SEX AND RATE CLASS OF THE INSURED)
SURRENDER CHARGE PER THOUSAND
<TABLE>
<CAPTION>
MALE MALE FEMALE FEMALE
ISSUE ULTIMATE SELECT/ ULTIMATE STANDARD/ ULTIMATE SELECT/ ULTIMATE STANDARD/
AGE SELECT STANDARD SELECT STANDARD
<S> <C> <C> <C> <C>
0 N/A 11.76 N/A 11.76
1 N/A 8.16 N/A 8.16
2 N/A 8.16 N/A 8.16
3 N/A 7.92 N/A 7.92
4 N/A 7.68 N/A 7.68
5 N/A 7.68 N/A 7.68
6 N/A 7.68 N/A 7.68
7 N/A 7.68 N/A 7.68
8 N/A 7.68 N/A 7.68
9 N/A 7.68 N/A 7.68
10 N/A 7.68 N/A 7.68
11 N/A 7.68 N/A 7.68
12 N/A 7.68 N/A 7.68
13 N/A 7.92 N/A 7.92
14 N/A 8.16 N/A 8.16
15 N/A 8.40 N/A 8.40
16 N/A 8.52 N/A 8.52
17 0.00 8.88 0.00 8.88
18 8.72 9.20 8.72 9.20
19 8.84 9.32 8.84 9.32
20 8.96 9.44 8.96 9.44
21 9.16 9.88 9.16 9.64
22 9.32 10.04 9.32 9.80
23 9.52 10.24 9.52 10.00
24 9.68 10.40 9.68 10.40
25 9.88 10.84 9.88 10.60
26 10.56 11.28 10.32 11.04
27 11.00 11.72 10.76 11.48
28 11.40 12.12 11.16 12.12
29 12.08 12.80 11.84 12.56
30 12.52 13.24 12.28 13.00
31 13.04 14.00 12.80 13.52
32 13.76 14.48 13.52 14.24
33 14.28 15.24 14.04 14.76
</TABLE>
<TABLE>
<CAPTION>
ISSUE ULTIMATE SELECT/ ULTIMATE STANDARD/ ULTIMATE SELECT/ ULTIMATE STANDARD/
AGE SELECT STANDARD SELECT STANDARD
<S> <C> <C> <C> <C>
34 14.76 15.96 14.52 15.48
35 15.52 16.48 15.28 16.00
36 16.20 17.40 15.96 16.92
37 17.20 18.40 16.72 17.92
38 18.12 19.56 17.64 18.60
39 19.08 20.76 18.36 19.56
40 20.28 21.96 19.32 20.52
41 21.64 23.56 20.68 22.12
42 23.08 25.24 22.12 23.80
43 24.44 27.08 23.15 25.40
44 26.04 29.16 23.86 26.96
45 27.44 31.04 24.59 27.83
46 28.72 32.80 25.38 28.76
47 29.84 34.56 26.22 29.73
48 31.00 36.32 27.11 30.75
49 32.24 38.32 28.04 31.84
50 33.56 40.56 29.05 32.99
51 34.98 42.56 30.11 34.20
52 36.49 45.24 31.24 35.48
53 38.10 47.68 32.45 36.84
54 39.83 50.84 33.72 38.28
55 41.68 53.28 35.09 39.79
56 43.63 55.79 36.54 41.39
57 45.74 57.00 38.08 43.06
58 47.98 57.00 39.74 44.88
59 50.38 57.00 41.54 46.85
60 52.97 57.00 43.47 48.97
61 55.74 57.00 45.57 51.26
62 57.00 57.00 47.82 53.73
63 57.00 57.00 50.26 56.41
64 57.00 57.00 52.88 57.00
65 57.00 57.00 55.68 57.00
66 and over 57.00 57.00 57.00 57.00
</TABLE>
WRL00159-05/97
48
<PAGE>
PART II.
OTHER INFORMATION
UNDERTAKING TO FILE REPORTS
---------------------------
Subject to the terms and conditions of Section 15(d) of the Securities
Exchange Act of 1934, the undersigned registrant hereby undertakes to file with
the Securities and Exchange Commission such supplementary and periodic
information, documents, and reports as may be prescribed by any rule or
regulation of the Commission heretofore or hereafter duly adopted pursuant to
authority conferred in that Section.
REPRESENTATION PURSUANT TO SECTION 26(E) (2) (A)
------------------------------------------------
Western Reserve Life Assurance Co. of Ohio ("Western Reserve") hereby
represents that the fees and charges deducted under the Contracts, in the
aggregate, are reasonable in relation to the services rendered, the expenses
expected to be incurred, and the risks assumed by Western Reserve.
STATEMENT WITH RESPECT TO INDEMNIFICATION
-----------------------------------------
Provisions exist under the Ohio General Corporation Law, the Second
Amended Articles of Incorporation of Western Reserve and the Amended Code of
Regulations of Western Reserve whereby Western Reserve may indemnify certain
persons against certain payments incurred by such persons. The following
excerpts contain the substance of these provisions.
OHIO GENERAL CORPORATION LAW
----------------------------
SECTION 1701.13 AUTHORITY OF CORPORATION.
(E)(1) A corporation may indemnify or agree to indemnify any person who
was or is a party or is threatened to be made a party, to any threatened,
pending, or completed action, suit, or proceeding, whether civil, criminal,
administrative, or investigative, other than an action by or in the right of the
corporation, by reason of the fact that he is or was a director, officer,
employee, or agent of the corporation, or is or was serving at the request of
the corporation as a director, trustee, officer, employee, or agent of another
corporation (including a subsidiary of this corporation), domestic or foreign,
nonprofit or for profit, partnership, joint venture, trust, or other enterprise,
against expenses, including attorneys' fees, judgments, fines, and amounts paid
in settlement actually and reasonably incurred by him in connection with such
action, suit, or proceeding if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
corporation, and with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful. The termination of any
action, suit, or proceeding by judgment, order, settlement, conviction, or upon
a plea of nolo contendre or its equivalent, shall not, of itself create a
presumption that the person did not act in good faith and in a manner which he
reasonably believed to be in or not opposed to the best interests of the
corporation, and with respect to any criminal action or proceeding, he had
reasonable cause to believe that his conduct was unlawful.
(2) A corporation may indemnify or agree to indemnify any person who was
or is a party, or is threatened to be made a party to any threatened, pending,
or completed action or suit by or in the right of the corporation to procure a
judgment in its favor by reason of the fact that he is or was a director,
officer, employee, or agent of the corporation, or is or was serving at the
request of the corporation as a director, trustee, officer, employee, or agent
of another corporation, domestic or foreign, nonprofit or for profit,
partnership, joint venture, trust, or other enterprise, against expenses,
including attorneys' fees, actually and reasonably incurred by him in connection
with the defense or settlement of such action or suit if he acted in good faith
and in a manner he reasonably believed to be in or not opposed to the best
II-1
<PAGE>
interests of the corporation, except that no indemnification shall be made in
respect of any of the following:
(a) Any claim, issue, or matter as to which such person shall have
been adjudged to be liable for negligence or misconduct in the performance of
his duty to the corporation unless, and only to the extent that the court of
common pleas, or the court in which such action or suit was brought determines
upon application that, despite the adjudication of liability, but in view of all
the circumstances of the case, such person is fairly and reasonably entitled to
indemnity for such expenses as the court of common pleas or such other court
shall deem proper;
(b) Any action or suit in which the only liability asserted against
a director is pursuant to section 1701.95 of the Revised Code.
(3) To the extent that a director, trustee, officer, employee, or agent
has been successful on the merits or otherwise in defense of any action, suit,
or proceeding referred to in divisions (E)(1) and (2) of this section, or in
defense of any claim, issue, or matter therein, he shall be indemnified against
expenses, including attorneys' fees, actually and reasonably incurred by him in
connection therewith.
(4) Any indemnification under divisions (E)(1) and (2) of this section,
unless ordered by a court, shall be made by the corporation only as authorized
in the specific case upon a determination that indemnification of the director,
trustee, officer, employee, or agent is proper in the circumstances because he
has met the applicable standard of conduct set forth in divisions (E)(1) and (2)
of this section. Such determination shall be made as follows:
(a) By a majority vote of a quorum consisting of directors of the
indemnifying corporation who were not and are not parties to or threatened with
any such action, suit, or proceeding;
(b) If the quorum described in division (E)(4)(a) of this section is
not obtainable or if a majority vote of a quorum of disinterested directors so
directs, in a written opinion by independent legal counsel other than an
attorney, or a firm having associated with it an attorney, who has been retained
by or who has performed services for the corporation, or any person to be
indemnified within the past five years;
(c) By the shareholders;
(d) By the court of common pleas or the court in which such action,
suit, or proceeding was brought.
Any determination made by the disinterested directors under division
(E)(4)(a) or by independent legal counsel under division (E)(4)(b) of this
section shall be promptly communicated to the person who threatened or brought
the action or suit by or in the right of the corporation under division (E)(2)
of this section, and within ten days after receipt of such notification, such
person shall have the right to petition the court of common pleas or the court
in which such action or suit was brought to review the reasonableness of such
determination.
(5)(a) Unless at the time of a director's act or omission that is the
subject of an action, suit or proceeding referred to in divisions (E)(1) and (2)
of this section, the articles or the regulations of a corporation state by
specific reference to this division that the provisions of this division do not
apply to the corporation and unless the only liability asserted against a
director in an action, suit, or proceeding referred to in divisions (E)(1) and
(2) of this section is pursuant to section 1701.95 of the Revised Code,
expenses, including attorney's fees, incurred by a director in defending the
action, suit, or proceeding shall be paid by the corporation as they are
incurred, in advance of the final disposition of the action, suit, or proceeding
upon receipt of an undertaking by or on behalf of the director in which he
agrees to do both of the following:
II-2
<PAGE>
(i) Repay such amount if it is proved by clear and convincing
evidence in a court of competent jurisdiction that his action or failure to act
involved an act or omission undertaken with deliberate intent to cause injury to
the corporation or undertaken with reckless disregard for the best interests of
the corporation;
(ii) Reasonably cooperate with the corporation concerning
the action, suit, or proceeding.
(b) Expenses, including attorneys' fees incurred by a director,
trustee, officer, employee, or agent in defending any action, suit, or
proceeding referred to in divisions (E)(1) and (2) of this section, may be paid
by the corporation as they are incurred, in advance of the final disposition of
the action, suit, or proceeding as authorized by the directors in the specific
case upon receipt of an undertaking by or on behalf of the director, trustee,
officer, employee, or agent to repay such amount, if it ultimately is determined
that he is entitled to be indemnified by the corporation.
(6) The indemnification authorized by this section shall not be exclusive
of, and shall be in addition to, any other rights granted to those seeking
indemnification under the articles or the regulations or any agreement, vote of
shareholders or disinterested directors, or otherwise, both as to action in his
official capacity and as to action in another capacity while holding such
office, and shall continue as to a person who has ceased to be a director,
trustee, officer, employee, or agent and shall inure to the benefit of the
heirs, executors, and administrators of such a person.
(7) A corporation may purchase and maintain insurance or furnish similar
protection, including but not limited to trust funds, letters of credit, or
self-insurance on behalf of or for any person who is or was a director, officer,
employee, or agent of the corporation, or is or was serving at the request of
the corporation as a director, trustee, officer, employee, or agent of another
corporation, domestic or foreign, nonprofit or for profit, partnership, joint
venture, trust, or other enterprise against any liability asserted against him
and incurred by him in any such capacity, or arising out of his status as such,
whether or not the corporation would have the power to indemnify him against
such liability under this section. Insurance may be purchased from or maintained
with a person in which the corporation has a financial interest.
(8) The authority of a corporation to indemnify persons pursuant to
divisions (E)(1) and (2) of this section does not limit the payment of expenses
as they are incurred, indemnification, insurance, or other protection that may
be provided pursuant to divisions (E)(5), (6), and (7) of this section.
Divisions (E)(1) and (2) of this section do not create any obligation to repay
or return payments made by the corporation pursuant to divisions (E)(5), (6), or
(7).
(9) As used in this division, references to "corporation" include all
constituent corporations in a consolidation or merger and the new or surviving
corporation, so that any person who is or was a director, officer, employee, or
agent of such a constituent corporation, or is or was serving at the request of
such constituent corporation as a director, trustee, officer, employee or agent
of another corporation, domestic or foreign, nonprofit or for profit,
partnership, joint venture, trust, or other enterprise, shall stand in the same
position under this section with respect to the new or surviving corporation as
he would if he had served the new or surviving corporation in the same capacity.
SECOND AMENDED ARTICLES OF INCORPORATION OF WESTERN RESERVE
-----------------------------------------------------------
ARTICLE EIGHTH
--------------
EIGHTH: (1) The corporation may indemnify or agree to indemnify any person
who was or is a party or is threatened to be made a party, to any threatened,
pending, or completed action, suit, or proceeding, whether civil, criminal,
administrative, or investigative, other than an action by or in the right of the
corporation, by reason of the fact that he is or was a director, officer,
employee, or agent of the corporation, or is or was serving at the request of
the corporation as a director, trustee, officer, employee,
II-3
<PAGE>
or agent of another corporation (including a subsidiary of this corporation),
domestic or foreign, nonprofit or for profit, partnership, joint venture, trust,
or other enterprise, against expenses, including attorneys' fees, judgments,
fines, and amounts paid in settlement actually and reasonably incurred by him in
connection with such action, suit, or proceeding if he acted in good faith and
in a manner he reasonably believed to be in or not opposed to the best interests
of the corporation, and with respect to any criminal action or proceeding, had
no reasonable cause to believe his conduct was unlawful. The termination of any
action, suit, or proceeding by judgment, order, settlement, conviction, or upon
a plea of nolo contendre or its equivalent, shall not, of itself create a
presumption that the person did not act in good faith and in a manner which he
reasonably believed to be in or not opposed to the best interests of the
corporation, and with respect to any criminal action or proceeding, he had
reasonable cause to believe that his conduct was unlawful.
(2) The corporation may indemnify or agree to indemnify any person who was
or is a party, or is threatened to be made a party to any threatened, pending,
or completed action or suit by or in the right of the corporation to procure a
judgment in its favor by reason of the fact that he is or was a director,
officer, employee, or agent of the corporation, or is or was serving at the
request of the corporation as a director, trustee, officer, employee, or agent
of another corporation (including a subsidiary of this corporation), domestic or
foreign, nonprofit or for profit, partnership, joint venture, trust, or other
enterprise against expenses, including attorneys' fees, actually and reasonably
incurred by him in connection with the defense or settlement of such action or
suit if he acted in good faith and in a manner he reasonably believed to be in
or not opposed to the best interests of the corporation, except that no
indemnification shall be made in respect of any claim, issue, or matter as to
which such person shall have been adjudged to be liable for negligence or
misconduct in the performance of his duty to the corporation unless, and only to
the extent that the court of common pleas, or the court in which such action or
suit was brought shall determine upon application that, despite the adjudication
of liability, but in view of all the circumstances of the case, such person is
fairly and reasonably entitled to indemnity for such expenses as the court of
common pleas or such other court shall deem proper.
(3) To the extent that a director, trustee, officer, employee, or agent has
been successful on the merits or otherwise in defense of any action, suit, or
proceeding referred to in sections (1) and (2) of this article, or in defense of
any claim, issue, or matter therein, he shall be indemnified against expenses,
including attorneys' fees, actually and reasonably incurred by him in connection
therewith.
(4) Any indemnification under sections (1) and (2) of this article, unless
ordered by a court, shall be made by the corporation only as authorized in the
specific case upon a determination that indemnification of the director,
trustee, officer, employee, or agent is proper in the circumstances because he
has met the applicable standard of conduct set forth in sections (1) and (2) of
this article. Such determination shall be made (a) by a majority vote of a
quorum consisting of directors of the indemnifying corporation who were not and
are not parties to or threatened with any such action, suit, or proceeding, or
(b) if such a quorum is not obtainable or if a majority vote of a quorum of
disinterested directors so directs, in a written opinion by independent legal
counsel other than an attorney, or a firm having associated with it an attorney,
who has been retained by or who has performed services for the corporation, or
any person to be indemnified within the past five years, or (c) by the
shareholders, or (d) by the court of common pleas or the court in which such
action, suit, or proceeding was brought. Any determination made by the
disinterested directors under section (4)(a) or by independent legal counsel
under section (4)(b) of this article shall be promptly communicated to the
person who threatened or brought the action or suit by or in the right of the
corporation under section (2) of this article, and within ten days after receipt
of such notification, such person shall have the right to petition the court of
common pleas or the court in which such action or suit was brought to review the
reasonableness of such determination.
(5) Expenses, including attorneys' fees incurred in defending any action,
suit, or proceeding referred to in sections (1) and (2) of this article, may be
paid by the corporation in advance of the final disposition of such action,
suit, or proceeding as authorized by the directors in the specific case upon
receipt of a written undertaking by or on behalf of the director, trustee,
officer, employee, or agent
II-4
<PAGE>
to repay such amount, unless it shall ultimately be determined that he is
entitled to be indemnified by the corporation as authorized in this article. If
a majority vote of a quorum of disinterested directors so directs by resolution,
said written undertaking need not be submitted to the corporation. Such a
determination that a written undertaking need not be submitted to the
corporation shall in no way affect the entitlement of indemnification as
authorized by this article.
(6) The indemnification provided by this article shall not be deemed
exclusive of any other rights to which those seeking indemnification may be
entitled under the articles or the regulations or any agreement, vote of
shareholders or disinterested directors, or otherwise, both as to action in his
official capacity and as to action in another capacity while holding such
office, and shall continue as to a person who has ceased to be a director,
trustee, officer, employee, or agent and shall inure to the benefit of the
heirs, executors, and administrators of such a person.
(7) The Corporation may purchase and maintain insurance on behalf of any
person who is or was a director, officer, employee, or agent of the corporation,
or is or was serving at the request of the corporation as a director, trustee,
officer, employee, or agent of another corporation (including a subsidiary of
this corporation), domestic or foreign, nonprofit or for profit, partnership,
joint venture, trust, or other enterprise against any liability asserted against
him and incurred by him in any such capacity or arising out of his status as
such, whether or not the corporation would have the power to indemnify him
against such liability under this section.
(8) As used in this section, references to "the corporation" include all
constituent corporations in a consolidation or merger and the new or surviving
corporation, so that any person who is or was a director, officer, employee, or
agent of such a constituent corporation, or is or was serving at the request of
such constituent corporation as a director, trustee, officer, employee or agent
of another corporation (including a subsidiary of this corporation), domestic or
foreign, nonprofit or for profit, partnership, joint venture, trust, or other
enterprise shall stand in the same position under this article with respect to
the new or surviving corporation as he would if he had served the new or
surviving corporation in the same capacity.
(9) The foregoing provisions of this article do not apply to any proceeding
against any trustee, investment manager or other fiduciary of an employee
benefit plan in such person's capacity as such, even though such person may also
be an agent of this corporation. The corporation may indemnify such named
fiduciaries of its employee benefit plans against all costs and expenses,
judgments, fines, settlements or other amounts actually and reasonably incurred
by or imposed upon said named fiduciary in connection with or arising out of any
claim, demand, action, suit or proceeding in which the named fiduciary may be
made a party by reason of being or having been a named fiduciary, to the same
extent it indemnifies an agent of the corporation. To the extent that the
corporation does not have the direct legal power to indemnify, the corporation
may contract with the named fiduciaries of its employee benefit plans to
indemnify them to the same extent as noted above. The corporation may purchase
and maintain insurance on behalf of such named fiduciary covering any liability
to the same extent that it contracts to indemnify.
AMENDED CODE OF REGULATIONS OF WESTERN RESERVE
----------------------------------------------
ARTICLE V
---------
INDEMNIFICATION OF DIRECTORS AND OFFICERS
-----------------------------------------
Each Director, officer and member of a committee of this Corporation, and
any person who may have served at the request of this Corporation as a Director,
officer or member of a committee of any other corporation in which this
Corporation owns shares of capital stock or of which this Corporation is a
creditor (and his heirs, executors and administrators) shall be indemnified by
the Corporation against all expenses, costs, judgments, decrees, fines or
penalties as provided by, and to the extent allowed by, Article Eighth of the
Corporation's Articles of Incorporation, as amended.
II-5
<PAGE>
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 47 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) Alan Yaeger
(b) Thomas E. Pierpan, Esq.
(c) Sutherland, Asbill & Brennan, L.L.P.
(d) Ernst & Young LLP
(e) Price Waterhouse 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 Series Account (1)
(2) Not Applicable
(3) Distribution of Policies:
(a) Master Service and Distribution Compliance Agreement (4)
(b) (i) Broker/Dealer Supervisory and Service Agreement (3)
(ii) Broker/Dealer Supervisory and Service Agreement (3)
(c) See Exhibit 1.A.(3)(b)(ii)
(4) Not Applicable
(5) Specimen Flexible Premium Variable Life Insurance Policy
(6) (a) Second Amended Articles of Incorporation of Western
Reserve (2)
(b) Amended Code of Regulations (By-Laws) of Western Reserve
(4)
(7) Not Applicable
(8) (a) Investment Advisory Agreement with the Fund (5)
(b) Sub-Advisory Agreement (5)
(9) Not Applicable
(10) Application for Flexible Premium Variable Life Insurance
Policy
(11) Memorandum describing issuance, transfer and redemption
procedures (8)
II-6
<PAGE>
2. See Exhibit 1.A.(4)
3. Opinion of Counsel as to the legality of the securities being registered
(8)
4. No financial statement will be omitted from the Prospectus pursuant to
Instruction 1(b) or (c) of Part I
5. Not Applicable
6. Opinion and consent of Alan Yaeger as to actuarial matters pertaining to
the securities being registered (8)
7. Thomas E. Pierpan, Esq. (8)
8. Consent of Sutherland, Asbill & Brennan, L.L.P. (8)
9. Consent of Ernst & Young LLP (8)
10. Consent of Price Waterhouse LLP (8)
11. (a) Powers of Attorney (6)
(b) Power of Attorney - James R. Walker (7)
- ----------------------------------------
(1) This exhibit was previously filed on Form S-6 Registration Statement
dated September 27, 1985 (File No. 33-506) and is incorporated herein by
reference.
(2) This exhibit was previously filed on Post-Effective Amendment No. 1 to
Form S-6 Registration Statement dated May 1, 1989 (File No. 33-24856)
and is incorporated herein by reference.
(3) This exhibit was previously filed on Pre-Effective Amendment No. 1 to
Form S-6 Registration Statement dated December 19, 1989 (File No.
33-31140) and is incorporated herein by reference.
(4) This exhibit was previously filed on Post-Effective Amendment No. 3 to
Form N-4 Registration Statement dated March 1, 1991 (File No. 33-24856)
and is incorporated herein by reference.
(5) This exhibit was previously filed on Post-Effective Amendment No. 6 to
Form N-1A Registration Statement dated March 1, 1991 (File No. 33-507)
and is incorporated herein by reference.
(6) This exhibit was previously filed on Post-Effective Amendment No. 10 to
Form S-6 Registration Statement dated April 26, 1995 (File No. 33-31140)
and is incorporated herein by reference.
(7) This exhibit was previously filed on Post-Effective Amendment No. 13 to
Form S-6 Registration Statement dated December 24, 1996 (File No.
33-31140) and is incorporated herein by reference.
(8) To be filed by amendment.
II-7
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
registrant, WRL Series Life Account has duly caused this Initial Registration
Statement to be signed on its behalf by the undersigned thereunto duly
authorized, and its seal to be hereunto affixed and attested, all in the City of
Largo, County of Pinellas, Florida on this 12th day of March, 1997.
(SEAL) WRL SERIES LIFE 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 Chairman of the Board,
Chief Executive Officer
and President
Pursuant to the requirements of the Securities Act of 1933, this Initial
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated.
SIGNATURE AND TITLE DATE
------------------- ----
/s/ JOHN R. KENNEY March 12, 1997
- -----------------------------
John R. Kenney, Chairman of the
Board, Chief Executive Officer
and President
/s/ ALLAN J. HAMILTON March 12, 1997
- -----------------------------
Allan J. Hamilton, Vice President,
Treasurer and Controller
/s/ ALAN M. YAEGER March 12, 1997
- -----------------------------
Alan M. Yaeger, Executive Vice
President, Actuary and Chief
Financial Officer*
<PAGE>
/s/ KENNETH P. BEIL March 12, 1997
- -----------------------------
Kenneth P. Beil
Vice President and Principal
Accounting Officer**
/s/ PATRICK S. BAIRD March 12, 1997
- -----------------------------
Patrick S. Baird, Director ***/
/s/ JAMES R. WALKER March 12, 1997
- -----------------------------
James R. Walker, Director ***/
/s/ LYMAN H. TREADWAY March 12, 1997
- -----------------------------
Lyman H. Treadway, Director ***/
/s/ JACK E. ZIMMERMAN March 12, 1997
- -----------------------------
Jack E. Zimmerman, Director ***/
- -----------------------------
*Principal Financial Officer
**Principal Accounting Officer
***/ /s/ THOMAS E. PIERPAN
------------------------
Signed by: Thomas E. Pierpan
as Attorney-in-fact
<PAGE>
Exhibit Index
EXHIBIT DESCRIPTION
NO. OF EXHIBIT
- ------- -----------
1.A.(5) Speciman Flexible Variable Life Insurance Policy
1.A.(10) Application for Flexible Premium Variable Life Insurance
Policy
<PAGE>
Exhibit 1.A.(5)(a)
Specimen Flexible Premium Variable Life Insurance Policy
<PAGE>
WESTERN RESERVE LIFE
ASSURANCE CO. OF OHIO
(A STOCK COMPANY)
Home Office: Columbus, Ohio
Administrative Office: P.O.Box 5068
Clearwater, Florida 34618-5068
813-585-6565
- --------------------------------------------------------------------------------
IN THIS POLICY the Primary Insured is named on the Policy Schedule Page. The
Primary Insured will be referred to as YOU or YOUR. Western Reserve Life
Assurance Co. Of Ohio will be referred to as WE, OUR or US.
IF YOU DIE before the Maturity Date and while this Policy is In Force, WE WILL
PAY the Death Benefit Proceeds to the Beneficiary upon receipt of due proof of
Your death. THE AMOUNT OF THE DEATH BENEFIT PROCEEDS WILL INCREASE OR DECREASE
DEPENDING ON THE INVESTMENT EXPERIENCE OF THE SUBACCOUNTS IN THE SEPARATE
ACCOUNT AND ON THE DEATH BENEFIT OPTION SELECTED AS DESCRIBED IN THE DEATH
BENEFIT PROVISIONS.
IF YOU ARE ALIVE on the Maturity Date and this Policy is In Force, WE WILL PAY
the Net Surrender Value as of the Maturity Date. CASH VALUES WILL INCREASE OR
DECREASE IN ACCORDANCE WITH THE POLICY VALUE PROVISIONS AND THE INVESTMENT
EXPERIENCE OF THE SUBACCOUNTS IN THE SEPARATE ACCOUNT. CASH VALUES ARE NOT
GUARANTEED AS TO DOLLAR AMOUNT.
THE PROVISIONS on the following pages are part of this Policy.
IN WITNESS WHEREOF, We have signed this Policy at Our Office in Clearwater,
Florida as of the Policy Date.
/s/ WILLIAM H. GEIGER /s/ JOHN R. KENNEY
--------------------- ------------------
Secretary President
- --------------------------------------------------------------------------------
RIGHT TO EXAMINE POLICY
The Owner may cancel this Policy by returning it to Us at P.O. Box 5068,
Clearwater, Florida 34618 or to the representative through whom it was
purchased within 10 days after receipt. If the Policy is returned within this
period, it will be void from the beginning and a refund will be made to the
Owner. The refund will equal the sum of:
1. The difference between the premiums paid and the amounts allocated to any
Accounts under the Policy; plus
2. The total amount of monthly deductions made and any other charges imposed
on amounts allocated to the Accounts; plus
3. The value of amounts allocated to the Accounts on the date We or Our agent
receive the returned Policy.
If state law prohibits the calculation above, the refund will be the total of
all premiums paid for this Policy.
- --------------------------------------------------------------------------------
Flexible Premium Variable Life Insurance Policy
Death Benefit Proceeds Payable at Death of Insured Prior to Maturity Date
NetSurrender Value Payable at Maturity Date
Flexible Premiums Payable During Lifetime of Insured Until the Maturity Date
Non-Participating - No Dividends
Some Benefits Reflect Investment Results
<PAGE>
POLICY GUIDE
POLICY SCHEDULE.......................................................... 3
TABLE OF SURRENDER CHARGES............................................... 3A
RIDER INFORMATION........................................................ 4
TABLE OF GUARANTEED RATES................................................ 4A
DEFINITIONS.............................................................. 5
GENERAL PROVISIONS....................................................... 6
DEATH BENEFIT PROVISIONS................................................. 8
PREMIUM PROVISIONS....................................................... 9
SEPARATE ACCOUNT PROVISIONS.............................................. 10
POLICY VALUE PROVISIONS.................................................. 11
SETTLEMENT OPTIONS....................................................... 15
ENDORSEMENTS
Page 2
<PAGE>
<TABLE>
<CAPTION>
WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO
CLEARWATER, FLORIDA
POLICY SCHEDULE
<S> <C> <C> <C>
PRIMARY INSURED: JOHN DOE POLICY NUMBER: 01-12345678
ISSUE AGE AND SEX: 35 - MALE POLICY DATE: DEC 01, 1996
SPECIFIED AMOUNT: $ 200,000 RECORD DATE: DEC 01, 1996
OPTION TYPE: B NO LAPSE DATE: DEC 01, 2016
PLANNED PREMIUM: $2,400.00 MATURITY DATE: DEC 01, 2056
PAYMENT FREQUENCY: ANNUALLY MINIMUM MONTHLY
GUARANTEE PREMIUM: $ 93.29
INITIAL PREMIUM: $ 2,400.00
</TABLE>
RATE CLASS: ULTIMATE STANDARD
MINIMUM SPECIFIED AMOUNT: $ 50,000.00
SEPARATE ACCOUNT PROVISIONS
SEPARATE ACCOUNT: WRL SERIES LIFE ACCOUNT
MORTALITY AND EXPENSE RISK CHARGE: .00002455
POLICY VALUE PROVISIONS
NET PREMIUM FACTOR
POLICY YEARS 1-10 94.00%
POLICY YEARS 11 + 97.50%
COLLECTION FEE: $3.00 PER PAYMENT
MONTHLY POLICY CHARGE
INITIAL (GUARANTEED FOR THE FIRST
POLICY YEAR): $ 5.00
GUARANTEED: $ 7.50
Page 3
<PAGE>
WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO
CLEARWATER, FLORIDA
POLICY SCHEDULE (Continued)
POLICY NUMBER: 01-12345678
TABLE OF SURRENDER CHARGES
PER $ 1,000 OF SPECIFIED AMOUNT AS OF THE POLICY DATE
(APPLICABLE SPECIFIED AMOUNT EQUALS $200,000)
END OF YEAR* SURRENDER CHARGE END OF YEAR SURRENDER CHARGE
AT ISSUE 16.48 9 9.89
1 16.48 10 8.24
2 16.48 11 6.59
3 16.48 12 4.94
4 16.48 13 3.30
5 16.48 14 1.65
6 14.83 15 0.00
7 13.18 16+ 0.00
8 11.54
* THE SURRENDER CHARGE ON ANY DATE OTHER THAN AN ANNIVERSARY WILL BE
INTERPOLATED BETWEEN THE TWO END OF YEAR CHARGES.
Page 3A
<PAGE>
WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO
CLEARWATER, FLORIDA
POLICY NUMBER: 01-12345678
RIDER INFORMATION
NONE
Page 4
<PAGE>
WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO
CLEARWATER, FLORIDA
POLICY NUMBER: 01-12345678
TABLE OF GUARANTEED
MAXIMUM LIFE INSURANCE RATES
GUARANTEED RATE BASIS FOR INITIAL SPECIFIED AMOUNT ON PRIMARY INSURED
COMMISSIONERS 1980 STANDARD ORDINARY SMOKER AND NONSMOKER MORTALITY TABLE
MALE LIVES
SMOKERS CLASSIFICATION
ANNUAL COST OF INSURANCE RATES PER $1,000
MONTHLY COST OF INSURANCE CALCULATIONS WILL USE ONE-TWELFTH OF THESE RATES
ATTAINED AGE ANNUAL RATE ATTAINED AGE ANNUAL RATE
35 2.63 36 2.81
37 3.04 38 3.30
39 3.60 40 3.94
41 4.34 42 4.75
43 5.22 44 5.71
45 6.27 46 6.83
47 7.44 48 8.08
49 8.80 50 9.56
51 10.44 52 11.42
53 12.54 54 13.80
55 15.14 56 16.59
57 18.09 58 19.69
59 21.35 60 23.19
61 25.26 62 27.59
63 30.23 64 33.14
65 36.29 66 39.57
67 43.01 68 46.55
69 50.32 70 54.48
71 59.09 72 64.33
73 70.23 74 76.66
75 83.77 76 91.10
77 98.52 78 105.91
79 113.49 80 121.59
81 130.41 82 140.20
83 151.03 84 162.49
85 174.20 86 185.78
87 197.06 88 209.37
89 221.52 90 233.69
91 246.12 92 259.33
93 276.30 94 298.15
Page 4A
<PAGE>
DEFINITIONS
ACCOUNTS. Allocation options including the Fixed Account and the Subaccounts of
the Separate Account.
AGE. Issue Age refers to the age on the Insured's birthday nearest the Policy
Date. Attained Age refers to the Issue Age plus the number of completed policy
years.
ANNIVERSARY. The same day and month as the Policy Date for each succeeding year
the Policy remains In Force.
BENEFICIARY. The person or persons specified by the Owner to receive the Death
Benefit Proceeds upon Your death.
DEATH BENEFIT PROCEEDS. The amount payable upon Your death in accordance with
the Death Benefit Provisions.
FIXED ACCOUNT. Allocation option(s) other than the Separate Account.
IN FORCE. Condition under which the coverage is active and the Insured's life
remains insured.
INITIAL PREMIUM. The amount which must be paid before coverage begins. The
amount is shown on the Policy Schedule Page.
MATURITY DATE. The date when coverage under the Policy will terminate if the
Primary Insured is living and the Policy is In Force.
MONTHIVERSARY. The day of each month coinciding with the Policy Date. If there
is no day in a calendar month which coincides with the Policy Date, the
Monthiversary will be the first day of the next month.
NET PREMIUM. The portion of the premium available for allocation as set forth in
the Policy Value Provisions.
NET SURRENDER VALUE. The amount payable upon surrender in accordance with the
Policy Value Provisions of this Policy.
NO LAPSE DATE. The date, as set forth on the Policy Schedule Page, prior to
which this Policy will not lapse if certain conditions are met, even though the
Net Surrender Value is insufficient to meet the monthly deduction.
OFFICE. Refers to Our administrative office located in Clearwater, Florida.
POLICY DATE. The date coverage is effective and monthly deductions commence
under the Policy. Policy months, years and anniversaries are measured from the
Policy Date, as shown on the Policy Schedule Page.
RECORD DATE. The date the Policy is recorded on Our books as an In Force Policy.
The Record Date is shown on the Policy Schedule Page.
RIDER. Any attachment to this Policy which provides additional coverages or
benefits.
SEC. The United States Securities and Exchange Commission.
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SEPARATE ACCOUNT. A separate investment account shown on the Policy Schedule
Page which is composed of several subaccounts established to receive and invest
Net Premiums under the Policy.
SERIES FUND. A designated mutual fund from which each Subaccount of the Separate
Account will buy shares.
SUBACCOUNT. A sub-division of the Separate Account. Each Subaccount invests
exclusively in the shares of a specified Series Fund portfolio.
TERMINATION. Condition when the Insured's life is no longer insured under the
coverage provided.
VALUATION DATE. Any day We are required by law to value the assets of the
Separate Account.
VALUATION PERIOD. The period commencing at the end of one Valuation Date and
continuing to the end of the next succeeding Valuation Date.
WRITTEN NOTICE. Written Notice means a notice by the Owner to Us requesting or
exercising a right of the Owner as provided in the Policy provisions. In order
for a notice to be considered a Written Notice, it must: be in writing, signed
by the Owner; be in a form acceptable to Us; and contain the information and
documentation, as determined in Our sole discretion, necessary for Us to take
the action requested or for the Owner to exercise the right specified. A Written
Notice will not be considered complete until all necessary supporting
documentation required or requested by Us has been received by Us at Our
administrative office.
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GENERAL PROVISIONS
THE POLICY. This Policy is issued in consideration of the attached application
and payment of the Initial Premium. This Policy, the attached application and
any additional applications at the time of reinstatement constitute the entire
contract. All statements in these applications, in the absence of fraud, will be
deemed representations and not warranties. No statement can be used to void this
Policy or be used in defense of a claim unless it is contained in the written
application. No policy provision can be waived or changed except by endorsement.
Such endorsement must be signed by Our President or Secretary.
OWNERSHIP. This Policy belongs to the Owner. The Owner, as named in the
application or subsequently changed, may exercise all rights under this Policy
during Your lifetime including the right to transfer ownership. If the Owner
should die during Your lifetime, ownership of this Policy will pass to the
Owner's estate if no contingent owner is named.
We will not be bound by any change in the ownership designation unless it is
made by Written Notice. The change will be effective on the date the Written
Notice is accepted by Us. If We request, this Policy must be returned to Our
administrative office for endorsement.
BENEFICIARY. The Beneficiary, as named in the application or subsequently
changed, will receive the benefits payable at Your death. If the Beneficiary
dies before You, the Contingent Beneficiary, if named, becomes the Beneficiary.
If no Beneficiary or Contingent Beneficiary survives You, the benefits payable
at Your death will be paid to the Owner or the Owner's estate.
We will not be bound by any change in the Beneficiary designation unless it is
made by Written Notice. The change will be effective on the date the Written
Notice was signed; however, no change will apply to any payment We made before
the Written Notice is received. If We request, this Policy must be returned to
Our Office for endorsement.
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ASSIGNMENT. This Policy may be assigned. We will not be bound by any assignment
unless made by Written Notice. The assignment will be effective on the date the
Written Notice is received at Our Office and accepted by Us. We assume no
responsibility for the validity of any assignment.
INCONTESTABILITY. This Policy shall be incontestable after it has been In Force,
while You are still alive, for two years from the Policy Date.
If this Policy is reinstated, a new two year contestability period (apart from
any remaining contestability period) shall apply from the date of the
application for reinstatement and will apply only to statements made in the
application for reinstatement.
SUICIDE. If You die by suicide, while sane or insane, within two years from the
Policy Date, or two years from the effective date of any reinstatement of this
Policy, this Policy shall terminate and Our total liability, including all
Riders attached to this Policy, will be limited to the total premiums paid, less
any loans and prior withdrawals, during such period.
ISSUE AGE AND SEX. If Your date of birth or sex is not correctly stated, the
death benefit will be adjusted. The death benefit will be adjusted based on what
the cost of insurance charge for the most recent monthly deduction would have
purchased based on Your correct date of birth and sex.
ANNUAL REPORT. We will send a report to the Owner at least once each year. It
will show for the Policy:
1. The current cash value; 4. Any current policy loans;
2. The current net surrender value; 5. Activity since the last report;
3. The current death benefit; 6. Projected values.
Additional activity within each Subaccount showing investment experience will
also be provided.
TERMINATION. This Policy will terminate on the earliest of:
1. The Maturity Date; 3. The end of the grace period;
2. The date of Your death; 4. The date of surrender.
POLICY PAYMENT. All proceeds to be paid upon Termination will be paid in one sum
unless otherwise elected under the Settlement Options of this Policy.
All payments and transfers from the Subaccounts will be processed as provided in
this Policy unless one of the following situations exists:
1. The New York Stock Exchange is closed; or
2. The SEC requires that trading be restricted or declares an emergency; or
3. The SEC allows Us to defer payments to protect Our policyowners.
We reserve the right to defer the payment of any Fixed Account values for the
period permitted by law, but not for more than six months.
CONVERSION RIGHTS. At any time upon written request within the first two policy
years, the Owner may elect to transfer all Subaccount values to the Fixed
Account without a transfer charge.
PROTECTION OF PROCEEDS. Unless the Owner directs by filing Written Notice, no
Beneficiary may assign any payments under this Policy before the same are due.
To the extent permitted by law, no payments under this Policy will be subject to
the claims of creditors of any Beneficiary.
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DEATH BENEFIT PROVISIONS
DEATH BENEFIT. The death benefit is based upon the Specified Amount, Option Type
and the Limitation Percentage applicable at time of death.
SPECIFIED AMOUNT. The Specified Amount is as shown on the Policy Schedule Page,
unless changed in accordance with the Changes section or reduced by a cash
withdrawal.
OPTION TYPE. The Option Type is as shown on the Policy Schedule Page, unless
changed in accordance with the Changes section of this provision.
If Option Type A is in effect, the death benefit is the greater of:
1. the Specified Amount; or
2. the Limitation Percentage times the cash value of this Policy on the date
of Your death.
If Option Type B is in effect, the death benefit is the greater of:
1. the Specified Amount plus the cash value of this Policy on the date of
Your death; or
2. the Limitation Percentage times the cash value of this Policy on the date
of Your death.
If Option Type C is in effect, the death benefit is the greater of:
1. the Option Type A benefit; or
2. the Specified Amount times the factor K plus the cash value of this Policy
on the date of Your death, where the factor K is equal to the lesser of:
a. 1; or
b. .04 times (95 minus Your Attained Age at death).
LIMITATION PERCENTAGE. The Limitation Percentage is a percentage based on Your
Attained Age at the beginning of the policy year equal to:
ATTAINED AGE LIMITATION PERCENTAGE
------------- --------------------------------------
40 and under 250%
41 through 45 250% minus 7% for each age over age 40
46 through 50 215% minus 6% for each age over age 45
51 through 55 185% minus 7% for each age over age 50
56 through 60 150% minus 4% for each age over age 55
61 through 65 130% minus 2% for each age over age 60
66 through 70 120% minus 1% for each age over age 65
71 through 75 115% minus 2% for each age over age 70
76 through 90 105%
91 through 95 105% minus 1% for each age over age 90
CHANGES. The Owner may change the Option Type or decrease the Specified Amount
after the third policy year by Written Notice. Either one change or one decrease
may be allowed within each policy year. Increases in Specified Amount are not
permitted. The change will be effective on the first Monthiversary on or next
following the day We receive the request. No change in the type of death benefit
will be allowed if the resulting Specified Amount would be less than the minimum
Specified Amount shown on the Policy Schedule Page.
On the effective date of change to a new Option Type, the Specified Amount will
be adjusted so that the Monthly Cost of Insurance on the effective date of
change under the new Option Type will be equal to the Monthly Cost of Insurance
under the prior Option Type. Upon such change, the Owner will be notified by Us
of the new Specified Amount.
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We reserve the right to limit any decrease in the Specified Amount to no more
than 20% of the then current Specified Amount. Any decrease will become
effective on the first Monthiversary on or next following the day We receive the
request. A decrease may not be allowed if: (a) the Specified Amount after any
requested decrease would be less than the minimum Specified Amount shown on the
Policy Schedule Page; or (b) the requested decrease would force a cash
withdrawal in order to maintain compliance with the definition of a life
insurance contract as defined by the United States Internal Revenue Code and
applicable regulations; or (c) the decrease will cause the Policy to enter the
grace period.
DEATH BENEFIT PROCEEDS. The Death Benefit Proceeds is the amount payable by Us
under this Policy provided this Policy has not terminated prior to Your death.
Except as provided in the Suicide section of the General Provisions, the Death
Benefit Proceeds will be equal to:
1. The death benefit; minus
2. Any monthly deductions due during the grace period; minus
3. Any outstanding policy loan; plus
4. Any unearned loan interest.
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PREMIUM PROVISIONS
PAYMENT. The Initial Premium shown on the Policy Schedule Page must be paid on
or before the Policy Date. All premiums after the Initial Premium are payable at
Our Office.
PREMIUMS. The amount and frequency of Planned Premiums are shown on the Policy
Schedule Page. The amount and frequency may be changed upon request, subject to
Our approval.
While this Policy is In Force, additional premiums may be paid at any time prior
to the Maturity Date. We reserve the right to limit or refund any premium if:
1. The amount is below Our current minimum payment requirement; or
2. The premium would increase the death benefit by more than the amount of
the premium; or
3. The premium would disqualify this Policy as a life insurance contract as
defined by the United States Internal Revenue Code and applicable
regulations.
GRACE PERIOD. If the Net Surrender Value on any Monthiversary is not sufficient
to cover the monthly deductions on such day, We will mail a notice to the last
known address of the Owner and any assignee of record. A grace period of 61 days
after the mailing date of the notice will be allowed for the payment of
premiums. The notice will specify the minimum payment and the final date on
which such payment must be received by Us to keep the Policy In Force. The
Policy will remain In Force during the grace period. If the amount due is not
received by Us within the grace period, all coverage under the Policy and any
riders will terminate without value at the end of the grace period.
Until the No Lapse Date shown on the Policy Schedule Page, no grace period will
begin provided the total premiums received (minus any withdrawals, minus any
outstanding loans, and minus any pro rata decrease charge deducted from the cash
value) equals or exceeds the Minimum Monthly Guarantee Premium times the number
of months since the Policy Date, including the current month. The Minimum
Monthly Guarantee Premium is as shown on the Policy Schedule Page unless changed
due to a requested change under the Policy. Upon such change, the Owner will be
notified of the new Minimum Monthly Guarantee Premium and the effective date for
the new premium.
REINSTATEMENT. If this Policy terminates, as provided in the Grace Period
section, it may be reinstated. The reinstatement is subject to:
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1. Receipt at Our Office of a Written Notice. Such notice must be within 5
years after the date of Termination and prior to the Maturity Date; and
2. Receipt of evidence of insurability satisfactory to Us; and
3. Payment of a minimum premium sufficient to provide a Net Premium to cover
(a) one monthly deduction at the time of Termination, plus (b) the next
two monthly deductions which will become due after the time of
reinstatement; and
4. Payment of an additional amount sufficient to cover any surrender charge
as of the date of reinstatement.
The effective date of a reinstatement shall be the first Monthiversary on or
next following the day We approve the application for reinstatement. Any policy
loan as of the date of Termination will not be reinstated. Any cash value equal
to the policy loan on the date of reinstatement will also not be reinstated.
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SEPARATE ACCOUNT PROVISIONS
THE SEPARATE ACCOUNT. The variable benefits under this Policy are provided
through the Separate Account as shown on the Policy Schedule Page. The assets of
the Separate Account are Our property. Assets equal to the reserve and other
contractual liabilities under all policies issued in connection with the
Separate Account will not be charged with liabilities arising out of any other
business We may conduct. If the assets of the Separate Account exceed the
liabilities arising under the policies supported by the Separate Account, then
the excess may be used to cover the liabilities of Our general account. The
assets of the Separate Account shall be valued as often as any policy benefits
vary, but at least monthly.
SUBACCOUNTS. The Separate Account has various Subaccounts with different
investment objectives. We reserve the right to add or remove any Subaccount of
the Separate Account. Income, if any, and any gains or losses, realized or
unrealized, from assets in each Subaccount are credited to, or charged against,
the amount allocated to that Subaccount without regard to income, gains, or
losses in other Subaccounts. Any amount charged against the investment base for
federal or state income taxes will be deducted from that Subaccount. The assets
of each Subaccount are invested in shares of a corresponding Series Fund
portfolio. The value of a portfolio share is based on the value of the assets of
the portfolio determined at the end of each Valuation Period in accordance with
applicable law.
TRANSFERS. The Owner may transfer all or a portion of this Policy's value in
each Subaccount to other Subaccounts or the Fixed Account. We reserve the right
to charge a $25 fee for each transfer in excess of one per policy month or
twelve per policy year. This charge will be deducted from the funds transferred.
A request for a transfer must be made in a form satisfactory to Us. The transfer
will ordinarily take effect on the first Valuation Date on or following the date
the request is received at Our Office.
ADDITION, DELETION OR SUBSTITUTION OF INVESTMENTS. We reserve the right to
transfer assets of the Separate Account, which We determine to be associated
with the class of contracts to which this Policy belongs, to another Separate
Account. If this type of transfer is made, the term "Separate Account", as used
in this Policy, shall then mean the Separate Account to which the assets were
transferred. We also reserve the right to add, delete, or substitute investments
held by any Subaccount.
We reserve the right, when permitted by law, to:
1. Deregister the Separate Account under the Investment Company Act of 1940;
2. Manage the Separate Account under the direction of a committee at any
time;
3. Restrict or eliminate any voting privileges of owners or other persons who
have voting privileges as to the Separate Account;
4. Combine the Separate Account or any Subaccount(s) with one or more other
Separate Accounts or Subaccounts;
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5. Operate the Separate Account as a management investment company;
6. Establish additional Subaccounts to invest in either a new series of the
Series Fund, or in shares of another diversified, open-end registered
investment company; and
7. Fund additional classes of variable life insurance contracts through the
Separate Account.
CHANGE OF INVESTMENT OBJECTIVE. We reserve the right to change the investment
objective of a Subaccount. If required by law or regulation, an investment
objective of the Separate Account, or of a Series Fund portfolio designated for
a Subaccount, will not be materially changed unless a statement of the change is
filed with and approved by the appropriate insurance official of the state of
Our domicile or deemed approved in accordance with such law or regulation. If
required, approval of or change of any investment objective will be filed with
the Insurance Department of the state where this Policy is delivered.
UNIT VALUE. Some of the policy values fluctuate with the investment results of
the Subaccounts. In order to determine how investment results affect the policy
values, a unit value is determined for each Subaccount. The unit value of each
Subaccount was originally established at $10 per unit. The unit value may
increase or decrease from one Valuation Period to the next. Unit values also
will vary between Subaccounts. The unit value of any Subaccount at the end of a
Valuation Period is the result of:
1. The total value of the assets held in the Subaccount. This value is
determined by multiplying the number of shares of the designated Series
Fund portfolio owned by the Subaccount times the net asset value per
share; minus
2. The accrued charge for mortality and expense experience. The daily amount
of this charge is no greater than the net assets of the Subaccount
multiplied by the Mortality and Expense Risk Charge shown on the Policy
Schedule Page; minus
3. The accrued amount of reserve for any taxes or other economic burden
resulting from the application of tax laws that are determined by Us to be
properly attributable to the Subaccount; and the result divided by
4. The number of outstanding units in the Subaccount.
The use of the unit value in determining contract values is described in the
Policy Value Provisions.
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POLICY VALUE PROVISIONS
NET PREMIUM. The Net Premium equals the premium paid multiplied by the Net
Premium Factor shown on the Policy Schedule Page minus the Collection Fee shown
on the Policy Schedule Page.
ALLOCATION OF NET PREMIUMS. Net premiums will be allocated to the Subaccounts of
the Separate Account and the Fixed Account on the first Valuation Date on or
following the date the premium is received at Our Office; except any Net Premium
received prior to the Policy Date will be allocated on the first Valuation Date
on or following the Policy Date. All net premiums allocated prior to the Record
Date will be allocated to the Money Market Subaccount. On the first Valuation
Date on or following the Record Date, the values in the Money Market Subaccount
will be transferred in accordance with the Owner's allocation as shown in the
application.
We reserve the right to limit any allocation to any Account to no less than 10%.
No fractional percentages may be permitted. The allocation may be changed by the
Owner. We reserve the right to impose a charge of $25 for each change of
allocation in excess of one per policy year quarter. The request for change of
allocations must be in a form satisfactory to Us. The allocation change will be
effective on the date the request for change is recorded by Us.
MONTHLY DEDUCTIONS. On each Monthiversary, a monthly deduction for this Policy
will be made equal to the sum of the following:
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1. The Monthly Policy Charge;
2. The Monthly Cost of Insurance for this Policy;
3. The charge for benefits provided by riders attached to this Policy;
4. The pro rata decrease charge incurred as a result of a decrease in the
Specified Amount.
Deductions will be withdrawn from each Subaccount and the Fixed Account in
accordance with the Owner's current allocation. If the value of any Account is
insufficient to pay its part of the monthly deduction, the monthly deduction
will be taken on a pro rata basis from all Accounts.
MONTHLY POLICY CHARGE. Both the Initial and Guaranteed Policy Charge are shown
on the Policy Schedule Page. It is Our intention to charge the Initial Monthly
Policy Charge each month; however, We reserve the right to increase the Monthly
Policy Charge up to the Guaranteed Monthly Policy Charge after the first policy
year. Any change in this charge will be applied uniformly to all policies in
effect for the same length of time.
MONTHLY COST OF INSURANCE. The Monthly Cost of Insurance on each Monthiversary
is determined as follows:
1. Divide the death benefit on the Monthiversary by 1.0032737; and
2. Reduce the result by the cash value on the Monthiversary; and
3. Multiply (2) by the appropriate monthly cost of insurance rates.
MONTHLY COST OF INSURANCE RATES. The monthly cost of insurance rates are based
on the sex, Attained Age, plan of insurance and rating class of the person(s)
insured. Monthly cost of insurance rates may be changed by Us from time to time.
A change in the cost of insurance rates will apply to all persons of the same
Attained Age, sex, plan of insurance and rating class and whose policies have
been in effect for the same length of time. Any change in the rates will not
exceed those shown in the Table of Guaranteed Maximum Life Insurance Rates.
SUBACCOUNT VALUE. At the end of any Valuation Period, the Subaccount value is
equal to the number of units that the Policy has in the Subaccount, multiplied
by the unit value of that Subaccount.
The number of units that the Policy has in each Subaccount is equal to:
1. The initial units purchased on the Policy Date; plus
2. Units purchased at the time additional Net Premiums are allocated to the
Subaccount; plus
3. Units purchased through transfers from another Subaccount or the Fixed
Account; minus
4. Those units that are redeemed to pay for monthly deductions as they are
due; minus
5. Any units that are redeemed to pay for cash withdrawals; minus
6. Any units that are redeemed as part of a transfer to another Account;
minus
7. Any units that are redeemed to pay the pro rata decrease charge incurred
as a result of a decrease in the Specified Amount.
FIXED ACCOUNT VALUE. At the end of any Valuation Period, the Fixed Account value
is equal to:
1. The sum of all Net Premiums allocated to the Fixed Account; plus
2. Any amounts transferred from a Subaccount to the Fixed Account; plus
3. Total interest credited to the Fixed Account; minus
4. Any amounts charged to pay for monthly deductions as they are due; minus
5. Any amounts withdrawn from the Fixed Account to pay for cash withdrawals;
minus
6. Any amounts transferred from the Fixed Account to a Subaccount; minus
7. Any amounts withdrawn from the Fixed Account to pay the pro rata decrease
charge incurred as a result of a decrease in the Specified Amount.
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Interest on the Fixed Account will be compounded daily at a minimum guaranteed
effective annual interest rate of 4% per year. We may declare from time to time
various higher current interest rates. We may also apply different current
interest rates to that part of the cash value that equals the loan reserve.
On transfers from the Fixed Account to a Subaccount, We reserve the right to
impose the following limitations:
1. Written Notice be received by Us within 30 days after an Anniversary.
2. The transfer will take place on the date We receive such Written Notice.
3. The maximum amount that may be transferred is the greater of (a) 25% of
the amount in the Fixed Account; or (b) the amount transferred in the
prior policy year from the Fixed Account.
We further reserve the right to defer payment of any amounts from the Fixed
Account for no longer than six months after We receive such Written Notice.
CASH VALUE. At the end of any Valuation Period, the cash value of the Policy is
equal to the sum of the Subaccount values plus the Fixed Account value.
SURRENDER. While this Policy is In Force, the Owner may surrender this Policy
for the Net Surrender Value. Payment will usually be made within seven days of
Written Notice, subject to the Policy Payment section of the General Provisions.
NET SURRENDER VALUE. The Net Surrender Value is the amount payable upon
surrender of this Policy. The Net Surrender Value as of any date is equal to:
1. the cash value as of such date; minus
2. any Surrender Charge as of such date; minus
3. any outstanding policy loan; plus
4. any unearned loan interest
SURRENDER CHARGE. During the first 15 policy years, a Surrender Charge will be
incurred upon surrender of this Policy. This charge will be based upon the Table
of Surrender Charges shown on the Policy Schedule Page.
PRO RATA DECREASE CHARGE. If during the first 15 policy years the Specified
Amount is decreased, a pro rata portion of the Surrender Charge will be deducted
from the cash value. The pro rata decrease charge is equal to:
1. the amount of the Specified Amount decrease; multiplied b
2. the then current Surrender Charge as of the date of the decrease
applicable to the Specified Amount shown on the Table of Surrender
Charges.
A pro rata decrease charge will not be deducted from the cash value when a
Specified Amount decrease results from (a) a change in Option Type, or (b) a
withdrawal when the death benefit is Option Type A, as described in the
Withdrawals Provision below. If a pro rata decrease charge is deducted due to a
decrease in Specified Amount, any future surrender charges incurred during the
Surrender Charge period will be reduced proportionately.
WITHDRAWALS. Cash withdrawals may be made any time after the first policy year
and while this Policy is In Force. Only one withdrawal is allowed during a
policy year. The amount of a withdrawal may be limited to no less than $500 and
to no more than 10% of the Net Surrender Value. The remaining Net Surrender
Value following a withdrawal may not be less than $500. The request for a
withdrawal must be by Written Notice. A processing fee of the lesser of 2% of
the amount withdrawn or $25 will be deducted from each withdrawal amount and the
balance paid to the Owner.
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When a withdrawal is made, the cash value shall be reduced by the amount of the
withdrawal. If the death benefit is Option Type A, the Specified Amount shall
also be reduced by the amount of the withdrawal. These reductions will result in
a reduction in the death benefit, which may be determined from the Death Benefit
section. No withdrawal will be allowed if the resulting Specified Amount would
be less than the minimum Specified Amount shown on the Policy Schedule Page.
The Accounts from which the withdrawal will be made may be specified in the
Written Notice. If no Account is specified, the withdrawal amount will be
withdrawn from each Account in accordance with the Owner's current allocation
instructions. Payment will usually be made within seven days of Written Notice,
subject to the Policy Payment section of the General Provisions of this Policy.
CONTINUATION OF INSURANCE. Subject to the Grace Period section of the Premium
Provisions, insurance coverage under this Policy and any benefits provided by
Rider will be continued In Force until the Net Surrender Value is insufficient
to cover the monthly deductions. This provision shall not continue this Policy
beyond the Maturity Date nor continue any Rider beyond the date for its
Termination, as provided in the Rider.
INSUFFICIENT VALUE. If the Net Surrender Value on any Monthiversary is not
sufficient to cover the monthly deductions then due, this Policy shall terminate
subject to the Grace Period section of the Premium Provisions.
BASIS OF COMPUTATIONS. Policy values and reserves are at least equal to those
required by law. A detailed statement of the method of computation of values and
reserves has been filed with the insurance department of the state in which this
Policy was delivered.
POLICY LOANS. After the first policy year and during the continuance of this
Policy, the Owner can borrow against this Policy an amount which is not greater
than 90% of the cash value, less any surrender charge and any outstanding policy
loan. The amount of any policy loan may be limited to no less than $500, except
as noted below.
When a loan is made, an amount equal to the loan plus interest in advance until
the next Anniversary will be withdrawn from the Accounts and transferred to the
loan reserve. The loan reserve is a portion of the Fixed Account used as
collateral for any policy loan. The Owner may specify the Account or Accounts
from which the withdrawal will be made. If no Account is specified, the
withdrawal will be made from each Account in accordance with the Owner's current
premium allocation instructions.
The loan date is the date We process a loan request. Payment will usually be
made within seven days of the date We receive proper loan request, subject to
the Policy Payment section of the General Provisions of this Policy. This Policy
will be the sole security for the loan.
While this Policy is In Force, any loan may be repaid. Any amounts received on
this Policy will be considered premiums unless clearly marked as loan
repayments.
Interest on any loan will be at the policy loan rate of 5.2%, payable annually
in advance. Interest is due at each Anniversary. Interest not paid when due will
be added to the loan and will bear interest at the same rate.
At each Anniversary, We will compare the amount of the outstanding loan
(including interest in advance until the next Anniversary, if not paid) to the
amount in the loan reserve. We will also make this comparison anytime the Owner
repays all or part of the loan. At each such time, if the amount of the
outstanding loan exceeds the amount in the loan reserve, We will withdraw the
difference from the Accounts and transfer it to the loan reserve, in the same
fashion as when a loan is made. If the amount in the loan reserve exceeds the
amount of the outstanding loan, We will withdraw the difference from the loan
reserve and transfer it to the Accounts in accordance with the Owner's current
allocation instructions. However, We reserve the right to require the transfer
to the Fixed Account if such loans were originally transferred from the Fixed
Account.
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SETTLEMENT OPTIONS
EFFECTIVE DATE AND FIRST PAYMENT DUE. The effective date of a settlement
provision will be either the date of surrender or the date of death. The first
payment due will be on the effective date of the settlement provision.
BETTERMENT OF MONTHLY ANNUITY. The payee will receive the greater of:
1. The income rate guaranteed in this Policy; or
2. The income rates in effect for Us at the time income payments are made.
AVAILABILITY. If the payee is not a natural person, an optional method of
settlement is only available with Our permission. No optional method of
settlement is available if:
1. The payee is an assignee; or
2. The periodic payment is less than $100.
AGE. Age, when required, means age nearest birthday on the effective date of the
option. We will furnish rates for other ages and for two males or two females
upon request.
PROOF OF AGE AND SEX. Prior to making the first payment under this Policy, We
reserve the right to require satisfactory evidence of the birthdate and sex of
any payee. If required by law to ignore the differences in sex of any payee,
annuity payments will be determined using unisex rates.
PROOF OF SURVIVAL. Prior to making any payment under this Policy, We reserve the
right to require satisfactory evidence that any payee is alive on the due date
of such payment.
INTEREST. All settlement options are based on the 1983 Individual Annuity
Mortality Table, if applicable, and a guaranteed annual interest rate of 3%.
TABLE OF OPTIONAL METHODS OF SETTLEMENT
DESCRIPTION AND TABLES OF MONTHLY INSTALLMENT
PER $1,000 OF PROCEEDS.
Option A - Fixed Period. The proceeds will be paid in equal installments. The
installments will be paid over a fixed period determined from the following
table:
FIXED PERIOD
(IN MONTHS) FACTOR
------------ ------
60 17.91
120 9.61
180 6.87
240 5.51
Page 15
<PAGE>
Option B - Life Income. The proceeds will be paid in equal installments
determined from the following table.
Such installments are payable:
1. during the payee's lifetime only (Life Annuity); or
2. during a 10-year fixed period certain and for the payee's remaining
lifetime (Certain Period); or
3. until the sum of installments paid equals the annuity proceeds applied and
for the payee's remaining lifetime (Installment Refund).
PAYEE'S LIFE ANNUITY CERTAIN PERIOD INSTALLMENT REFUND
AGE MALE FEMALE UNISEX MALE FEMALE UNISEX MALE FEMALE UNISEX
- ------- -------------------- -------------------- ---------------------
55 4.20 3.81 4.01 4.15 3.79 3.98 4.00 3.71 3.85
60 4.67 4.17 4.43 4.59 4.14 4.37 4.37 4.02 4.19
65 5.33 4.68 5.01 5.17 4.61 4.90 4.84 4.42 4.62
70 6.26 5.39 5.82 5.89 5.24 5.58 5.45 4.94 5.18
75 7.53 6.42 6.97 6.75 6.06 6.42 6.24 5.64 5.91
80 9.33 7.95 8.63 7.66 7.04 7.37 7.25 6.57 6.88
85 11.84 10.21 11.02 8.48 8.04 8.27 8.55 7.78 8.14
90 15.31 13.49 14.40 9.08 8.81 8.96 10.21 9.30 9.74
Option C - Joint and Survivor Life Income. The proceeds will be paid in equal
installments during the joint lifetime of two payees:
1. continuing upon the death of the 2. reduced by one-third upon the death
first payee for the remaining of the first payee and continuing
lifetime of the survivor; or for the remaining lifetime of the
survivor.
Joint Life Income with Full Joint Life Income with 2/3
Amount to Survivor to Survivor
55 60 65 70 75 55 60 65 70 75
- --------------------------------------------------------------------------------
55 3.97 4.13 4.26 4.38 4.46 55 4.37 4.59 4.83 5.09 5.36
60 4.13 4.35 4.56 4.75 4.89 60 4.59 4.86 5.15 5.48 5.81
65 4.26 4.56 4.87 5.16 5.41 65 4.83 5.25 5.53 5.93 6.36
70 4.38 4.75 5.26 5.60 6.00 70 5.09 5.48 5.93 6.45 7.02
75 4.46 4.89 5.41 6.00 6.61 75 5.36 5.81 6.36 7.02 7.76
Page 16
<PAGE>
THIS PAGE INTENTIONALLY LEFT BLANK
<PAGE>
WESTERN RESERVE LIFE
ASSURANCE CO. OF OHIO
- --------------------------------------------------------------------------------
Flexible Premium Variable Life Insurance Policy
Death Benefit Proceeds Payable at Death of Insured Prior to Maturity Date
Net Surrender Value Payable at Maturity Date
Flexible Premiums Payable During Lifetime of Insured Until the Maturity Date
Non-Participating - No Dividends
Some Benefits Reflect Investment Results
Exhibit 1.A (5)(a
Specimen Flexible Premium Variable Life Insurance Policy
<PAGE>
WESTERN RESERVE LIFE
ASSURANCE CO. OF OHIO
(A STOCK COMPANY)
Home Office: Columbus, Ohio
Administrative Office: P.O.Box 5068
Clearwater, Florida 34618-5068
813-585-6565
- --------------------------------------------------------------------------------
IN THIS POLICY the Primary Insured is named on the Policy Schedule Page. The
Primary Insured will be referred to as YOU or YOUR. Western Reserve Life
Assurance Co. Of Ohio will be referred to as WE, OUR or US.
IF YOU DIE before the Maturity Date and while this Policy is In Force, WE WILL
PAY the Death Benefit Proceeds to the Beneficiary upon receipt of due proof of
Your death. THE AMOUNT OF THE DEATH BENEFIT PROCEEDS WILL INCREASE OR DECREASE
DEPENDING ON THE INVESTMENT EXPERIENCE OF THE SUBACCOUNTS IN THE SEPARATE
ACCOUNT AND ON THE DEATH BENEFIT OPTION SELECTED AS DESCRIBED IN THE DEATH
BENEFIT PROVISIONS.
IF YOU ARE ALIVE on the Maturity Date and this Policy is In Force, WE WILL PAY
the Net Surrender Value as of the Maturity Date. CASH VALUES WILL INCREASE OR
DECREASE IN ACCORDANCE WITH THE POLICY VALUE PROVISIONS AND THE INVESTMENT
EXPERIENCE OF THE SUBACCOUNTS IN THE SEPARATE ACCOUNT. CASH VALUES ARE NOT
GUARANTEED AS TO DOLLAR AMOUNT.
THE PROVISIONS on the following pages are part of this Policy.
IN WITNESS WHEREOF, We have signed this Policy at Our Office in Clearwater,
Florida as of the Policy Date.
/s/ WILLIAM H. GEIGER /s/ JOHN R. KENNEY
--------------------- ------------------
Secretary President
- --------------------------------------------------------------------------------
RIGHT TO EXAMINE POLICY
The Owner may cancel this Policy by returning it to Us at P.O. Box 5068,
Clearwater, Florida 34618 or to the representative through whom it was
purchased within 10 days after receipt. If the Policy is returned within this
period, it will be void from the beginning and a refund will be made to the
Owner. The refund will equal the sum of:
1. The difference between the premiums paid and the amounts allocated to any
Accounts under the Policy; plus
2. The total amount of monthly deductions made and any other charges imposed
on amounts allocated to the Accounts; plus
3. The value of amounts allocated to the Accounts on the date We or Our agent
receive the returned Policy.
If state law prohibits the calculation above, the refund will be the total of
all premiums paid for this Policy.
- --------------------------------------------------------------------------------
Flexible Premium Variable Life Insurance Policy
Death Benefit Proceeds Payable at Death of Insured Prior to Maturity Date
NetSurrender Value Payable at Maturity Date
Flexible Premiums Payable During Lifetime of Insured Until the Maturity Date
Non-Participating - No Dividends
Some Benefits Reflect Investment Results
<PAGE>
POLICY GUIDE
POLICY SCHEDULE.......................................................... 3
TABLE OF SURRENDER CHARGES............................................... 3A
RIDER INFORMATION........................................................ 4
TABLE OF GUARANTEED RATES................................................ 4A
DEFINITIONS.............................................................. 5
GENERAL PROVISIONS....................................................... 6
DEATH BENEFIT PROVISIONS................................................. 8
PREMIUM PROVISIONS....................................................... 9
SEPARATE ACCOUNT PROVISIONS.............................................. 10
POLICY VALUE PROVISIONS.................................................. 11
SETTLEMENT OPTIONS....................................................... 15
ENDORSEMENTS
Page 2
<PAGE>
<TABLE>
<CAPTION>
WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO
CLEARWATER, FLORIDA
POLICY SCHEDULE
<S> <C> <C> <C>
PRIMARY INSURED: JOHN DOE POLICY NUMBER: 01-12345678
ISSUE AGE AND SEX: 35 - MALE POLICY DATE: DEC 01, 1996
SPECIFIED AMOUNT: $ 200,000 RECORD DATE: DEC 01, 1996
OPTION TYPE: B NO LAPSE DATE: DEC 01, 2016
PLANNED PREMIUM: $2,400.00 MATURITY DATE: DEC 01, 2056
PAYMENT FREQUENCY: ANNUALLY MINIMUM MONTHLY
GUARANTEE PREMIUM: $ 93.29
INITIAL PREMIUM: $ 2,400.00
</TABLE>
RATE CLASS: ULTIMATE STANDARD
MINIMUM SPECIFIED AMOUNT: $ 50,000.00
SEPARATE ACCOUNT PROVISIONS
SEPARATE ACCOUNT: WRL SERIES LIFE ACCOUNT
MORTALITY AND EXPENSE RISK CHARGE: .00002455
POLICY VALUE PROVISIONS
NET PREMIUM FACTOR
POLICY YEARS 1-10 94.00%
POLICY YEARS 11 + 97.50%
COLLECTION FEE: $3.00 PER PAYMENT
MONTHLY POLICY CHARGE
INITIAL (GUARANTEED FOR THE FIRST
POLICY YEAR): $ 5.00
GUARANTEED: $ 7.50
Page 3
<PAGE>
WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO
CLEARWATER, FLORIDA
POLICY SCHEDULE (Continued)
POLICY NUMBER: 01-12345678
TABLE OF SURRENDER CHARGES
PER $ 1,000 OF SPECIFIED AMOUNT AS OF THE POLICY DATE
(APPLICABLE SPECIFIED AMOUNT EQUALS $200,000)
END OF YEAR* SURRENDER CHARGE END OF YEAR SURRENDER CHARGE
AT ISSUE 16.48 9 9.89
1 16.48 10 8.24
2 16.48 11 6.59
3 16.48 12 4.94
4 16.48 13 3.30
5 16.48 14 1.65
6 14.83 15 0.00
7 13.18 16+ 0.00
8 11.54
* THE SURRENDER CHARGE ON ANY DATE OTHER THAN AN ANNIVERSARY WILL BE
INTERPOLATED BETWEEN THE TWO END OF YEAR CHARGES.
Page 3A
<PAGE>
WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO
CLEARWATER, FLORIDA
POLICY NUMBER: 01-12345678
RIDER INFORMATION
NONE
Page 4
<PAGE>
WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO
CLEARWATER, FLORIDA
POLICY NUMBER: 01-12345678
TABLE OF GUARANTEED
MAXIMUM LIFE INSURANCE RATES
GUARANTEED RATE BASIS FOR INITIAL SPECIFIED AMOUNT ON PRIMARY INSURED
COMMISSIONERS 1980 STANDARD ORDINARY SMOKER AND NONSMOKER MORTALITY TABLE
MALE LIVES
SMOKERS CLASSIFICATION
ANNUAL COST OF INSURANCE RATES PER $1,000
MONTHLY COST OF INSURANCE CALCULATIONS WILL USE ONE-TWELFTH OF THESE RATES
ATTAINED AGE ANNUAL RATE ATTAINED AGE ANNUAL RATE
35 2.63 36 2.81
37 3.04 38 3.30
39 3.60 40 3.94
41 4.34 42 4.75
43 5.22 44 5.71
45 6.27 46 6.83
47 7.44 48 8.08
49 8.80 50 9.56
51 10.44 52 11.42
53 12.54 54 13.80
55 15.14 56 16.59
57 18.09 58 19.69
59 21.35 60 23.19
61 25.26 62 27.59
63 30.23 64 33.14
65 36.29 66 39.57
67 43.01 68 46.55
69 50.32 70 54.48
71 59.09 72 64.33
73 70.23 74 76.66
75 83.77 76 91.10
77 98.52 78 105.91
79 113.49 80 121.59
81 130.41 82 140.20
83 151.03 84 162.49
85 174.20 86 185.78
87 197.06 88 209.37
89 221.52 90 233.69
91 246.12 92 259.33
93 276.30 94 298.15
Page 4A
<PAGE>
DEFINITIONS
ACCOUNTS. Allocation options including the Fixed Account and the Subaccounts of
the Separate Account.
AGE. Issue Age refers to the age on the Insured's birthday nearest the Policy
Date. Attained Age refers to the Issue Age plus the number of completed policy
years.
ANNIVERSARY. The same day and month as the Policy Date for each succeeding year
the Policy remains In Force.
BENEFICIARY. The person or persons specified by the Owner to receive the Death
Benefit Proceeds upon Your death.
DEATH BENEFIT PROCEEDS. The amount payable upon Your death in accordance with
the Death Benefit Provisions.
FIXED ACCOUNT. Allocation option(s) other than the Separate Account.
IN FORCE. Condition under which the coverage is active and the Insured's life
remains insured.
INITIAL PREMIUM. The amount which must be paid before coverage begins. The
amount is shown on the Policy Schedule Page.
MATURITY DATE. The date when coverage under the Policy will terminate if the
Primary Insured is living and the Policy is In Force.
MONTHIVERSARY. The day of each month coinciding with the Policy Date. If there
is no day in a calendar month which coincides with the Policy Date, the
Monthiversary will be the first day of the next month.
NET PREMIUM. The portion of the premium available for allocation as set forth in
the Policy Value Provisions.
NET SURRENDER VALUE. The amount payable upon surrender in accordance with the
Policy Value Provisions of this Policy.
NO LAPSE DATE. The date, as set forth on the Policy Schedule Page, prior to
which this Policy will not lapse if certain conditions are met, even though the
Net Surrender Value is insufficient to meet the monthly deduction.
OFFICE. Refers to Our administrative office located in Clearwater, Florida.
POLICY DATE. The date coverage is effective and monthly deductions commence
under the Policy. Policy months, years and anniversaries are measured from the
Policy Date, as shown on the Policy Schedule Page.
RECORD DATE. The date the Policy is recorded on Our books as an In Force Policy.
The Record Date is shown on the Policy Schedule Page.
RIDER. Any attachment to this Policy which provides additional coverages or
benefits.
SEC. The United States Securities and Exchange Commission.
Page 5
<PAGE>
SEPARATE ACCOUNT. A separate investment account shown on the Policy Schedule
Page which is composed of several subaccounts established to receive and invest
Net Premiums under the Policy.
SERIES FUND. A designated mutual fund from which each Subaccount of the Separate
Account will buy shares.
SUBACCOUNT. A sub-division of the Separate Account. Each Subaccount invests
exclusively in the shares of a specified Series Fund portfolio.
TERMINATION. Condition when the Insured's life is no longer insured under the
coverage provided.
VALUATION DATE. Any day We are required by law to value the assets of the
Separate Account.
VALUATION PERIOD. The period commencing at the end of one Valuation Date and
continuing to the end of the next succeeding Valuation Date.
WRITTEN NOTICE. Written Notice means a notice by the Owner to Us requesting or
exercising a right of the Owner as provided in the Policy provisions. In order
for a notice to be considered a Written Notice, it must: be in writing, signed
by the Owner; be in a form acceptable to Us; and contain the information and
documentation, as determined in Our sole discretion, necessary for Us to take
the action requested or for the Owner to exercise the right specified. A Written
Notice will not be considered complete until all necessary supporting
documentation required or requested by Us has been received by Us at Our
administrative office.
- --------------------------------------------------------------------------------
GENERAL PROVISIONS
THE POLICY. This Policy is issued in consideration of the attached application
and payment of the Initial Premium. This Policy, the attached application and
any additional applications at the time of reinstatement constitute the entire
contract. All statements in these applications, in the absence of fraud, will be
deemed representations and not warranties. No statement can be used to void this
Policy or be used in defense of a claim unless it is contained in the written
application. No policy provision can be waived or changed except by endorsement.
Such endorsement must be signed by Our President or Secretary.
OWNERSHIP. This Policy belongs to the Owner. The Owner, as named in the
application or subsequently changed, may exercise all rights under this Policy
during Your lifetime including the right to transfer ownership. If the Owner
should die during Your lifetime, ownership of this Policy will pass to the
Owner's estate if no contingent owner is named.
We will not be bound by any change in the ownership designation unless it is
made by Written Notice. The change will be effective on the date the Written
Notice is accepted by Us. If We request, this Policy must be returned to Our
administrative office for endorsement.
BENEFICIARY. The Beneficiary, as named in the application or subsequently
changed, will receive the benefits payable at Your death. If the Beneficiary
dies before You, the Contingent Beneficiary, if named, becomes the Beneficiary.
If no Beneficiary or Contingent Beneficiary survives You, the benefits payable
at Your death will be paid to the Owner or the Owner's estate.
We will not be bound by any change in the Beneficiary designation unless it is
made by Written Notice. The change will be effective on the date the Written
Notice was signed; however, no change will apply to any payment We made before
the Written Notice is received. If We request, this Policy must be returned to
Our Office for endorsement.
Page 6
<PAGE>
ASSIGNMENT. This Policy may be assigned. We will not be bound by any assignment
unless made by Written Notice. The assignment will be effective on the date the
Written Notice is received at Our Office and accepted by Us. We assume no
responsibility for the validity of any assignment.
INCONTESTABILITY. This Policy shall be incontestable after it has been In Force,
while You are still alive, for two years from the Policy Date.
If this Policy is reinstated, a new two year contestability period (apart from
any remaining contestability period) shall apply from the date of the
application for reinstatement and will apply only to statements made in the
application for reinstatement.
SUICIDE. If You die by suicide, while sane or insane, within two years from the
Policy Date, or two years from the effective date of any reinstatement of this
Policy, this Policy shall terminate and Our total liability, including all
Riders attached to this Policy, will be limited to the total premiums paid, less
any loans and prior withdrawals, during such period.
ISSUE AGE AND SEX. If Your date of birth or sex is not correctly stated, the
death benefit will be adjusted. The death benefit will be adjusted based on what
the cost of insurance charge for the most recent monthly deduction would have
purchased based on Your correct date of birth and sex.
ANNUAL REPORT. We will send a report to the Owner at least once each year. It
will show for the Policy:
1. The current cash value; 4. Any current policy loans;
2. The current net surrender value; 5. Activity since the last report;
3. The current death benefit; 6. Projected values.
Additional activity within each Subaccount showing investment experience will
also be provided.
TERMINATION. This Policy will terminate on the earliest of:
1. The Maturity Date; 3. The end of the grace period;
2. The date of Your death; 4. The date of surrender.
POLICY PAYMENT. All proceeds to be paid upon Termination will be paid in one sum
unless otherwise elected under the Settlement Options of this Policy.
All payments and transfers from the Subaccounts will be processed as provided in
this Policy unless one of the following situations exists:
1. The New York Stock Exchange is closed; or
2. The SEC requires that trading be restricted or declares an emergency; or
3. The SEC allows Us to defer payments to protect Our policyowners.
We reserve the right to defer the payment of any Fixed Account values for the
period permitted by law, but not for more than six months.
CONVERSION RIGHTS. At any time upon written request within the first two policy
years, the Owner may elect to transfer all Subaccount values to the Fixed
Account without a transfer charge.
PROTECTION OF PROCEEDS. Unless the Owner directs by filing Written Notice, no
Beneficiary may assign any payments under this Policy before the same are due.
To the extent permitted by law, no payments under this Policy will be subject to
the claims of creditors of any Beneficiary.
Page 7
<PAGE>
DEATH BENEFIT PROVISIONS
DEATH BENEFIT. The death benefit is based upon the Specified Amount, Option Type
and the Limitation Percentage applicable at time of death.
SPECIFIED AMOUNT. The Specified Amount is as shown on the Policy Schedule Page,
unless changed in accordance with the Changes section or reduced by a cash
withdrawal.
OPTION TYPE. The Option Type is as shown on the Policy Schedule Page, unless
changed in accordance with the Changes section of this provision.
If Option Type A is in effect, the death benefit is the greater of:
1. the Specified Amount; or
2. the Limitation Percentage times the cash value of this Policy on the date
of Your death.
If Option Type B is in effect, the death benefit is the greater of:
1. the Specified Amount plus the cash value of this Policy on the date of
Your death; or
2. the Limitation Percentage times the cash value of this Policy on the date
of Your death.
If Option Type C is in effect, the death benefit is the greater of:
1. the Option Type A benefit; or
2. the Specified Amount times the factor K plus the cash value of this Policy
on the date of Your death, where the factor K is equal to the lesser of:
a. 1; or
b. .04 times (95 minus Your Attained Age at death).
LIMITATION PERCENTAGE. The Limitation Percentage is a percentage based on Your
Attained Age at the beginning of the policy year equal to:
ATTAINED AGE LIMITATION PERCENTAGE
------------- --------------------------------------
40 and under 250%
41 through 45 250% minus 7% for each age over age 40
46 through 50 215% minus 6% for each age over age 45
51 through 55 185% minus 7% for each age over age 50
56 through 60 150% minus 4% for each age over age 55
61 through 65 130% minus 2% for each age over age 60
66 through 70 120% minus 1% for each age over age 65
71 through 75 115% minus 2% for each age over age 70
76 through 90 105%
91 through 95 105% minus 1% for each age over age 90
CHANGES. The Owner may change the Option Type or decrease the Specified Amount
after the third policy year by Written Notice. Either one change or one decrease
may be allowed within each policy year. Increases in Specified Amount are not
permitted. The change will be effective on the first Monthiversary on or next
following the day We receive the request. No change in the type of death benefit
will be allowed if the resulting Specified Amount would be less than the minimum
Specified Amount shown on the Policy Schedule Page.
On the effective date of change to a new Option Type, the Specified Amount will
be adjusted so that the Monthly Cost of Insurance on the effective date of
change under the new Option Type will be equal to the Monthly Cost of Insurance
under the prior Option Type. Upon such change, the Owner will be notified by Us
of the new Specified Amount.
Page 8
<PAGE>
We reserve the right to limit any decrease in the Specified Amount to no more
than 20% of the then current Specified Amount. Any decrease will become
effective on the first Monthiversary on or next following the day We receive the
request. A decrease may not be allowed if: (a) the Specified Amount after any
requested decrease would be less than the minimum Specified Amount shown on the
Policy Schedule Page; or (b) the requested decrease would force a cash
withdrawal in order to maintain compliance with the definition of a life
insurance contract as defined by the United States Internal Revenue Code and
applicable regulations; or (c) the decrease will cause the Policy to enter the
grace period.
DEATH BENEFIT PROCEEDS. The Death Benefit Proceeds is the amount payable by Us
under this Policy provided this Policy has not terminated prior to Your death.
Except as provided in the Suicide section of the General Provisions, the Death
Benefit Proceeds will be equal to:
1. The death benefit; minus
2. Any monthly deductions due during the grace period; minus
3. Any outstanding policy loan; plus
4. Any unearned loan interest.
- --------------------------------------------------------------------------------
PREMIUM PROVISIONS
PAYMENT. The Initial Premium shown on the Policy Schedule Page must be paid on
or before the Policy Date. All premiums after the Initial Premium are payable at
Our Office.
PREMIUMS. The amount and frequency of Planned Premiums are shown on the Policy
Schedule Page. The amount and frequency may be changed upon request, subject to
Our approval.
While this Policy is In Force, additional premiums may be paid at any time prior
to the Maturity Date. We reserve the right to limit or refund any premium if:
1. The amount is below Our current minimum payment requirement; or
2. The premium would increase the death benefit by more than the amount of
the premium; or
3. The premium would disqualify this Policy as a life insurance contract as
defined by the United States Internal Revenue Code and applicable
regulations.
GRACE PERIOD. If the Net Surrender Value on any Monthiversary is not sufficient
to cover the monthly deductions on such day, We will mail a notice to the last
known address of the Owner and any assignee of record. A grace period of 61 days
after the mailing date of the notice will be allowed for the payment of
premiums. The notice will specify the minimum payment and the final date on
which such payment must be received by Us to keep the Policy In Force. The
Policy will remain In Force during the grace period. If the amount due is not
received by Us within the grace period, all coverage under the Policy and any
riders will terminate without value at the end of the grace period.
Until the No Lapse Date shown on the Policy Schedule Page, no grace period will
begin provided the total premiums received (minus any withdrawals, minus any
outstanding loans, and minus any pro rata decrease charge deducted from the cash
value) equals or exceeds the Minimum Monthly Guarantee Premium times the number
of months since the Policy Date, including the current month. The Minimum
Monthly Guarantee Premium is as shown on the Policy Schedule Page unless changed
due to a requested change under the Policy. Upon such change, the Owner will be
notified of the new Minimum Monthly Guarantee Premium and the effective date for
the new premium.
REINSTATEMENT. If this Policy terminates, as provided in the Grace Period
section, it may be reinstated. The reinstatement is subject to:
Page 9
<PAGE>
1. Receipt at Our Office of a Written Notice. Such notice must be within 5
years after the date of Termination and prior to the Maturity Date; and
2. Receipt of evidence of insurability satisfactory to Us; and
3. Payment of a minimum premium sufficient to provide a Net Premium to cover
(a) one monthly deduction at the time of Termination, plus (b) the next
two monthly deductions which will become due after the time of
reinstatement; and
4. Payment of an additional amount sufficient to cover any surrender charge
as of the date of reinstatement.
The effective date of a reinstatement shall be the first Monthiversary on or
next following the day We approve the application for reinstatement. Any policy
loan as of the date of Termination will not be reinstated. Any cash value equal
to the policy loan on the date of reinstatement will also not be reinstated.
- --------------------------------------------------------------------------------
SEPARATE ACCOUNT PROVISIONS
THE SEPARATE ACCOUNT. The variable benefits under this Policy are provided
through the Separate Account as shown on the Policy Schedule Page. The assets of
the Separate Account are Our property. Assets equal to the reserve and other
contractual liabilities under all policies issued in connection with the
Separate Account will not be charged with liabilities arising out of any other
business We may conduct. If the assets of the Separate Account exceed the
liabilities arising under the policies supported by the Separate Account, then
the excess may be used to cover the liabilities of Our general account. The
assets of the Separate Account shall be valued as often as any policy benefits
vary, but at least monthly.
SUBACCOUNTS. The Separate Account has various Subaccounts with different
investment objectives. We reserve the right to add or remove any Subaccount of
the Separate Account. Income, if any, and any gains or losses, realized or
unrealized, from assets in each Subaccount are credited to, or charged against,
the amount allocated to that Subaccount without regard to income, gains, or
losses in other Subaccounts. Any amount charged against the investment base for
federal or state income taxes will be deducted from that Subaccount. The assets
of each Subaccount are invested in shares of a corresponding Series Fund
portfolio. The value of a portfolio share is based on the value of the assets of
the portfolio determined at the end of each Valuation Period in accordance with
applicable law.
TRANSFERS. The Owner may transfer all or a portion of this Policy's value in
each Subaccount to other Subaccounts or the Fixed Account. We reserve the right
to charge a $25 fee for each transfer in excess of one per policy month or
twelve per policy year. This charge will be deducted from the funds transferred.
A request for a transfer must be made in a form satisfactory to Us. The transfer
will ordinarily take effect on the first Valuation Date on or following the date
the request is received at Our Office.
ADDITION, DELETION OR SUBSTITUTION OF INVESTMENTS. We reserve the right to
transfer assets of the Separate Account, which We determine to be associated
with the class of contracts to which this Policy belongs, to another Separate
Account. If this type of transfer is made, the term "Separate Account", as used
in this Policy, shall then mean the Separate Account to which the assets were
transferred. We also reserve the right to add, delete, or substitute investments
held by any Subaccount.
We reserve the right, when permitted by law, to:
1. Deregister the Separate Account under the Investment Company Act of 1940;
2. Manage the Separate Account under the direction of a committee at any
time;
3. Restrict or eliminate any voting privileges of owners or other persons who
have voting privileges as to the Separate Account;
4. Combine the Separate Account or any Subaccount(s) with one or more other
Separate Accounts or Subaccounts;
Page 10
<PAGE>
5. Operate the Separate Account as a management investment company;
6. Establish additional Subaccounts to invest in either a new series of the
Series Fund, or in shares of another diversified, open-end registered
investment company; and
7. Fund additional classes of variable life insurance contracts through the
Separate Account.
CHANGE OF INVESTMENT OBJECTIVE. We reserve the right to change the investment
objective of a Subaccount. If required by law or regulation, an investment
objective of the Separate Account, or of a Series Fund portfolio designated for
a Subaccount, will not be materially changed unless a statement of the change is
filed with and approved by the appropriate insurance official of the state of
Our domicile or deemed approved in accordance with such law or regulation. If
required, approval of or change of any investment objective will be filed with
the Insurance Department of the state where this Policy is delivered.
UNIT VALUE. Some of the policy values fluctuate with the investment results of
the Subaccounts. In order to determine how investment results affect the policy
values, a unit value is determined for each Subaccount. The unit value of each
Subaccount was originally established at $10 per unit. The unit value may
increase or decrease from one Valuation Period to the next. Unit values also
will vary between Subaccounts. The unit value of any Subaccount at the end of a
Valuation Period is the result of:
1. The total value of the assets held in the Subaccount. This value is
determined by multiplying the number of shares of the designated Series
Fund portfolio owned by the Subaccount times the net asset value per
share; minus
2. The accrued charge for mortality and expense experience. The daily amount
of this charge is no greater than the net assets of the Subaccount
multiplied by the Mortality and Expense Risk Charge shown on the Policy
Schedule Page; minus
3. The accrued amount of reserve for any taxes or other economic burden
resulting from the application of tax laws that are determined by Us to be
properly attributable to the Subaccount; and the result divided by
4. The number of outstanding units in the Subaccount.
The use of the unit value in determining contract values is described in the
Policy Value Provisions.
- --------------------------------------------------------------------------------
POLICY VALUE PROVISIONS
NET PREMIUM. The Net Premium equals the premium paid multiplied by the Net
Premium Factor shown on the Policy Schedule Page minus the Collection Fee shown
on the Policy Schedule Page.
ALLOCATION OF NET PREMIUMS. Net premiums will be allocated to the Subaccounts of
the Separate Account and the Fixed Account on the first Valuation Date on or
following the date the premium is received at Our Office; except any Net Premium
received prior to the Policy Date will be allocated on the first Valuation Date
on or following the Policy Date. All net premiums allocated prior to the Record
Date will be allocated to the Money Market Subaccount. On the first Valuation
Date on or following the Record Date, the values in the Money Market Subaccount
will be transferred in accordance with the Owner's allocation as shown in the
application.
We reserve the right to limit any allocation to any Account to no less than 10%.
No fractional percentages may be permitted. The allocation may be changed by the
Owner. We reserve the right to impose a charge of $25 for each change of
allocation in excess of one per policy year quarter. The request for change of
allocations must be in a form satisfactory to Us. The allocation change will be
effective on the date the request for change is recorded by Us.
MONTHLY DEDUCTIONS. On each Monthiversary, a monthly deduction for this Policy
will be made equal to the sum of the following:
Page 11
<PAGE>
1. The Monthly Policy Charge;
2. The Monthly Cost of Insurance for this Policy;
3. The charge for benefits provided by riders attached to this Policy;
4. The pro rata decrease charge incurred as a result of a decrease in the
Specified Amount.
Deductions will be withdrawn from each Subaccount and the Fixed Account in
accordance with the Owner's current allocation. If the value of any Account is
insufficient to pay its part of the monthly deduction, the monthly deduction
will be taken on a pro rata basis from all Accounts.
MONTHLY POLICY CHARGE. Both the Initial and Guaranteed Policy Charge are shown
on the Policy Schedule Page. It is Our intention to charge the Initial Monthly
Policy Charge each month; however, We reserve the right to increase the Monthly
Policy Charge up to the Guaranteed Monthly Policy Charge after the first policy
year. Any change in this charge will be applied uniformly to all policies in
effect for the same length of time.
MONTHLY COST OF INSURANCE. The Monthly Cost of Insurance on each Monthiversary
is determined as follows:
1. Divide the death benefit on the Monthiversary by 1.0032737; and
2. Reduce the result by the cash value on the Monthiversary; and
3. Multiply (2) by the appropriate monthly cost of insurance rates.
MONTHLY COST OF INSURANCE RATES. The monthly cost of insurance rates are based
on the sex, Attained Age, plan of insurance and rating class of the person(s)
insured. Monthly cost of insurance rates may be changed by Us from time to time.
A change in the cost of insurance rates will apply to all persons of the same
Attained Age, sex, plan of insurance and rating class and whose policies have
been in effect for the same length of time. Any change in the rates will not
exceed those shown in the Table of Guaranteed Maximum Life Insurance Rates.
SUBACCOUNT VALUE. At the end of any Valuation Period, the Subaccount value is
equal to the number of units that the Policy has in the Subaccount, multiplied
by the unit value of that Subaccount.
The number of units that the Policy has in each Subaccount is equal to:
1. The initial units purchased on the Policy Date; plus
2. Units purchased at the time additional Net Premiums are allocated to the
Subaccount; plus
3. Units purchased through transfers from another Subaccount or the Fixed
Account; minus
4. Those units that are redeemed to pay for monthly deductions as they are
due; minus
5. Any units that are redeemed to pay for cash withdrawals; minus
6. Any units that are redeemed as part of a transfer to another Account;
minus
7. Any units that are redeemed to pay the pro rata decrease charge incurred
as a result of a decrease in the Specified Amount.
FIXED ACCOUNT VALUE. At the end of any Valuation Period, the Fixed Account value
is equal to:
1. The sum of all Net Premiums allocated to the Fixed Account; plus
2. Any amounts transferred from a Subaccount to the Fixed Account; plus
3. Total interest credited to the Fixed Account; minus
4. Any amounts charged to pay for monthly deductions as they are due; minus
5. Any amounts withdrawn from the Fixed Account to pay for cash withdrawals;
minus
6. Any amounts transferred from the Fixed Account to a Subaccount; minus
7. Any amounts withdrawn from the Fixed Account to pay the pro rata decrease
charge incurred as a result of a decrease in the Specified Amount.
Page 12
<PAGE>
Interest on the Fixed Account will be compounded daily at a minimum guaranteed
effective annual interest rate of 4% per year. We may declare from time to time
various higher current interest rates. We may also apply different current
interest rates to that part of the cash value that equals the loan reserve.
On transfers from the Fixed Account to a Subaccount, We reserve the right to
impose the following limitations:
1. Written Notice be received by Us within 30 days after an Anniversary.
2. The transfer will take place on the date We receive such Written Notice.
3. The maximum amount that may be transferred is the greater of (a) 25% of
the amount in the Fixed Account; or (b) the amount transferred in the
prior policy year from the Fixed Account.
We further reserve the right to defer payment of any amounts from the Fixed
Account for no longer than six months after We receive such Written Notice.
CASH VALUE. At the end of any Valuation Period, the cash value of the Policy is
equal to the sum of the Subaccount values plus the Fixed Account value.
SURRENDER. While this Policy is In Force, the Owner may surrender this Policy
for the Net Surrender Value. Payment will usually be made within seven days of
Written Notice, subject to the Policy Payment section of the General Provisions.
NET SURRENDER VALUE. The Net Surrender Value is the amount payable upon
surrender of this Policy. The Net Surrender Value as of any date is equal to:
1. the cash value as of such date; minus
2. any Surrender Charge as of such date; minus
3. any outstanding policy loan; plus
4. any unearned loan interest
SURRENDER CHARGE. During the first 15 policy years, a Surrender Charge will be
incurred upon surrender of this Policy. This charge will be based upon the Table
of Surrender Charges shown on the Policy Schedule Page.
PRO RATA DECREASE CHARGE. If during the first 15 policy years the Specified
Amount is decreased, a pro rata portion of the Surrender Charge will be deducted
from the cash value. The pro rata decrease charge is equal to:
1. the amount of the Specified Amount decrease; multiplied b
2. the then current Surrender Charge as of the date of the decrease
applicable to the Specified Amount shown on the Table of Surrender
Charges.
A pro rata decrease charge will not be deducted from the cash value when a
Specified Amount decrease results from (a) a change in Option Type, or (b) a
withdrawal when the death benefit is Option Type A, as described in the
Withdrawals Provision below. If a pro rata decrease charge is deducted due to a
decrease in Specified Amount, any future surrender charges incurred during the
Surrender Charge period will be reduced proportionately.
WITHDRAWALS. Cash withdrawals may be made any time after the first policy year
and while this Policy is In Force. Only one withdrawal is allowed during a
policy year. The amount of a withdrawal may be limited to no less than $500 and
to no more than 10% of the Net Surrender Value. The remaining Net Surrender
Value following a withdrawal may not be less than $500. The request for a
withdrawal must be by Written Notice. A processing fee of the lesser of 2% of
the amount withdrawn or $25 will be deducted from each withdrawal amount and the
balance paid to the Owner.
Page 13
<PAGE>
When a withdrawal is made, the cash value shall be reduced by the amount of the
withdrawal. If the death benefit is Option Type A, the Specified Amount shall
also be reduced by the amount of the withdrawal. These reductions will result in
a reduction in the death benefit, which may be determined from the Death Benefit
section. No withdrawal will be allowed if the resulting Specified Amount would
be less than the minimum Specified Amount shown on the Policy Schedule Page.
The Accounts from which the withdrawal will be made may be specified in the
Written Notice. If no Account is specified, the withdrawal amount will be
withdrawn from each Account in accordance with the Owner's current allocation
instructions. Payment will usually be made within seven days of Written Notice,
subject to the Policy Payment section of the General Provisions of this Policy.
CONTINUATION OF INSURANCE. Subject to the Grace Period section of the Premium
Provisions, insurance coverage under this Policy and any benefits provided by
Rider will be continued In Force until the Net Surrender Value is insufficient
to cover the monthly deductions. This provision shall not continue this Policy
beyond the Maturity Date nor continue any Rider beyond the date for its
Termination, as provided in the Rider.
INSUFFICIENT VALUE. If the Net Surrender Value on any Monthiversary is not
sufficient to cover the monthly deductions then due, this Policy shall terminate
subject to the Grace Period section of the Premium Provisions.
BASIS OF COMPUTATIONS. Policy values and reserves are at least equal to those
required by law. A detailed statement of the method of computation of values and
reserves has been filed with the insurance department of the state in which this
Policy was delivered.
POLICY LOANS. After the first policy year and during the continuance of this
Policy, the Owner can borrow against this Policy an amount which is not greater
than 90% of the cash value, less any surrender charge and any outstanding policy
loan. The amount of any policy loan may be limited to no less than $500, except
as noted below.
When a loan is made, an amount equal to the loan plus interest in advance until
the next Anniversary will be withdrawn from the Accounts and transferred to the
loan reserve. The loan reserve is a portion of the Fixed Account used as
collateral for any policy loan. The Owner may specify the Account or Accounts
from which the withdrawal will be made. If no Account is specified, the
withdrawal will be made from each Account in accordance with the Owner's current
premium allocation instructions.
The loan date is the date We process a loan request. Payment will usually be
made within seven days of the date We receive proper loan request, subject to
the Policy Payment section of the General Provisions of this Policy. This Policy
will be the sole security for the loan.
While this Policy is In Force, any loan may be repaid. Any amounts received on
this Policy will be considered premiums unless clearly marked as loan
repayments.
Interest on any loan will be at the policy loan rate of 5.2%, payable annually
in advance. Interest is due at each Anniversary. Interest not paid when due will
be added to the loan and will bear interest at the same rate.
At each Anniversary, We will compare the amount of the outstanding loan
(including interest in advance until the next Anniversary, if not paid) to the
amount in the loan reserve. We will also make this comparison anytime the Owner
repays all or part of the loan. At each such time, if the amount of the
outstanding loan exceeds the amount in the loan reserve, We will withdraw the
difference from the Accounts and transfer it to the loan reserve, in the same
fashion as when a loan is made. If the amount in the loan reserve exceeds the
amount of the outstanding loan, We will withdraw the difference from the loan
reserve and transfer it to the Accounts in accordance with the Owner's current
allocation instructions. However, We reserve the right to require the transfer
to the Fixed Account if such loans were originally transferred from the Fixed
Account.
Page 14
<PAGE>
SETTLEMENT OPTIONS
EFFECTIVE DATE AND FIRST PAYMENT DUE. The effective date of a settlement
provision will be either the date of surrender or the date of death. The first
payment due will be on the effective date of the settlement provision.
BETTERMENT OF MONTHLY ANNUITY. The payee will receive the greater of:
1. The income rate guaranteed in this Policy; or
2. The income rates in effect for Us at the time income payments are made.
AVAILABILITY. If the payee is not a natural person, an optional method of
settlement is only available with Our permission. No optional method of
settlement is available if:
1. The payee is an assignee; or
2. The periodic payment is less than $100.
AGE. Age, when required, means age nearest birthday on the effective date of the
option. We will furnish rates for other ages and for two males or two females
upon request.
PROOF OF AGE AND SEX. Prior to making the first payment under this Policy, We
reserve the right to require satisfactory evidence of the birthdate and sex of
any payee. If required by law to ignore the differences in sex of any payee,
annuity payments will be determined using unisex rates.
PROOF OF SURVIVAL. Prior to making any payment under this Policy, We reserve the
right to require satisfactory evidence that any payee is alive on the due date
of such payment.
INTEREST. All settlement options are based on the 1983 Individual Annuity
Mortality Table, if applicable, and a guaranteed annual interest rate of 3%.
TABLE OF OPTIONAL METHODS OF SETTLEMENT
DESCRIPTION AND TABLES OF MONTHLY INSTALLMENT
PER $1,000 OF PROCEEDS.
Option A - Fixed Period. The proceeds will be paid in equal installments. The
installments will be paid over a fixed period determined from the following
table:
FIXED PERIOD
(IN MONTHS) FACTOR
------------ ------
60 17.91
120 9.61
180 6.87
240 5.51
Page 15
<PAGE>
Option B - Life Income. The proceeds will be paid in equal installments
determined from the following table.
Such installments are payable:
1. during the payee's lifetime only (Life Annuity); or
2. during a 10-year fixed period certain and for the payee's remaining
lifetime (Certain Period); or
3. until the sum of installments paid equals the annuity proceeds applied and
for the payee's remaining lifetime (Installment Refund).
PAYEE'S LIFE ANNUITY CERTAIN PERIOD INSTALLMENT REFUND
AGE MALE FEMALE UNISEX MALE FEMALE UNISEX MALE FEMALE UNISEX
- ------- -------------------- -------------------- ---------------------
55 4.20 3.81 4.01 4.15 3.79 3.98 4.00 3.71 3.85
60 4.67 4.17 4.43 4.59 4.14 4.37 4.37 4.02 4.19
65 5.33 4.68 5.01 5.17 4.61 4.90 4.84 4.42 4.62
70 6.26 5.39 5.82 5.89 5.24 5.58 5.45 4.94 5.18
75 7.53 6.42 6.97 6.75 6.06 6.42 6.24 5.64 5.91
80 9.33 7.95 8.63 7.66 7.04 7.37 7.25 6.57 6.88
85 11.84 10.21 11.02 8.48 8.04 8.27 8.55 7.78 8.14
90 15.31 13.49 14.40 9.08 8.81 8.96 10.21 9.30 9.74
Option C - Joint and Survivor Life Income. The proceeds will be paid in equal
installments during the joint lifetime of two payees:
1. continuing upon the death of the 2. reduced by one-third upon the death
first payee for the remaining of the first payee and continuing
lifetime of the survivor; or for the remaining lifetime of the
survivor.
Joint Life Income with Full Joint Life Income with 2/3
Amount to Survivor to Survivor
55 60 65 70 75 55 60 65 70 75
- --------------------------------------------------------------------------------
55 3.97 4.13 4.26 4.38 4.46 55 4.37 4.59 4.83 5.09 5.36
60 4.13 4.35 4.56 4.75 4.89 60 4.59 4.86 5.15 5.48 5.81
65 4.26 4.56 4.87 5.16 5.41 65 4.83 5.25 5.53 5.93 6.36
70 4.38 4.75 5.26 5.60 6.00 70 5.09 5.48 5.93 6.45 7.02
75 4.46 4.89 5.41 6.00 6.61 75 5.36 5.81 6.36 7.02 7.76
Page 16
<PAGE>
THIS PAGE INTENTIONALLY LEFT BLANK
<PAGE>
WESTERN RESERVE LIFE
ASSURANCE CO. OF OHIO
- --------------------------------------------------------------------------------
Flexible Premium Variable Life Insurance Policy
Death Benefit Proceeds Payable at Death of Insured Prior to Maturity Date
Net Surrender Value Payable at Maturity Date
Flexible Premiums Payable During Lifetime of Insured Until the Maturity Date
Non-Participating - No Dividends
Some Benefits Reflect Investment Results
Exhibit 1.A(10)
Application for Flexible Premium Variable Life Insurance Policy
<PAGE>
[WRL LOGO]
WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO
APPLICATION
FOR
LIFE INSURANCE
Agent Name:_______________________________________
Agent Number:_____________________________________
Broker/Dealer:____________________________________
Date Faxed to Life 2000:__________________________
P.O. BOX 5068 /bullet/ CLEARWATER, FL /bullet/ 34618-5068
1-800-443-9975
LIFE 2000 FAX: 1-800-473-9161
<PAGE>
INSTRUCTIONS FOR COMPLETING THE APPLICATION & USING LIFE 2000
DO NOT USE LIFE 2000 FOR JOINT AND SURVIVOR CASES
A. APPLICATION COMPLETION INSTRUCTIONS
1. Complete all sections in their entirety. All questions must be answered
and details provided for any "YES" answers.
2. If more than 3 other insureds, use additional application for each
additional insured. Reference the primary insured and their APP numbers
so that applications can be combined.
3. If additional space for primary and contingent beneficiary designations
is required, use a separate sheet of paper signed and dated by the
applicant.
4. Obtain all required signatures of the "Proposed Insured", "Additional
Insureds" and "Applicant/Owners" on the APPLICATION and the MEDICAL
AUTHORIZATION. See Page 4.
5. If any premium is collected with the application, be certain to leave
the conditional receipt with the client.
6. ALWAYS leave the "Notice to Applicant" with the client.
B. USING LIFE 2000
1. Fax application pages 1, 2, 3, 4 & 6 and cover sheet to 1-800-473-9161.
2. There will be no need for you to order Exam and Blood Requirements,
Attending Physician Statements, Inspection Reports.
/diamond/ If you wish to order your own Medical Requirements,
please check the boxes in #5 for the requirements you
are ordering.
/diamond/ If you want Life 2000 to order the requirements, check
the box in #5 indicating Life 2000 will order
requirements.
LIFE 2000 WILL DO IT FOR YOU!
3. If you need to check the status on any underwriting requirement ordered
by LIFE 2000, call:
1-800-473-9158
4. For an update on all underwriting and issue activity, check the BIRT!
System for details.
5. Mail original application along with the initial premium to WRL.
C. IF NOT USING LIFE 2000
1. Order all necessary Medical Requirements through one of our Approved
Paramed Services.
2. Mail completed Application, Additional forms, etc. to WRL.
<PAGE>
NO. [ ]
CONDITIONAL RECEIPT
WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO ("WRL") HAS RECEIVED FROM
__________________________________ this _______________day of
____________________, 19____ a premium deposit of $ ____________________in
connection with an application for life insurance, said application bearing the
same number a set forth above. Unless the conditions stated on the back of this
receipt are fulfilled, no conditional coverage shall take effect and this
payment will be refunded. All premium checks must be made payable to Western
Reserve Life. Do not make checks payable to the agent or leave payee blank.
<TABLE>
<CAPTION>
<S> <C>
I have received and read this Conditional Receipt. It has been
explained to me by the Agent and I understand and agree to all
No Agent can waive any of the the conditions and limitations.
conditions stated on this receipt
_________________________________ _________________________________
Signature of Agent Signature of Applicant
</TABLE>
NOTE: If you do not receive a policy or refund of the amount you paid within 60
days from the date of this receipt, please notify Western Reserve Life Assurance
Co. of Ohio, P.O. Box 5068, Clearwater, FL 34618-5068
(This receipt must not detached unless payment is made at time of application)
U00256 - 3/93 (over)
- --------------------------------------------------------------------------------
NOTICE OF INFORMATION PRACTICES
Western Reserve Life Assurance Co. of Ohio
- --------------------------------------------------------------------------------
IMPORTANT: THIS NOTICE MUST BE GIVEN TO THE PROPOSED INSURED(S) WHENEVER AN
APPLICATION IS COMPLETED.
- --------------------------------------------------------------------------------
SOURCES OF We value your privacy. Your application is our main source of
INFORMATION information. As a part of this application, we may, at our
expense:
/bullet/ ask you to have an examination, which may include
special tests such as an electrocardiogram, chest x-ray,
blood studies, or urinalysis;
/bullet/ ask physicians, medical practitioners, clinics,
hospitals, or other health care providers for
information about you;
/bullet/ obtain information from the Medical Information Bureau
and/or a consumer reporting agency. Please refer to the
lower portion of this notice for further details about
this procedure;
/bullet/ obtain information from other insurance companies you
have applied to in the past. We use this information
only for evaluating your insurance application.
- --------------------------------------------------------------------------------
SAFEGUARDING We treat all information about you confidentially.
YOUR PRIVACY Ordinarily, it will be provided to third parties only if
you authorize us in writing to do so. In rare instances,
we may be required to provide some or all of the
information without your consent. We may send
information to state insurance departments at their
request as part of their regulatory duties, or to law
enforcement facilities in response to a summons or
subpoena. We may also release information in our files
to our reinsurers and to other life insurance companies
to whom you have applied for life and health insurance
or to whom a claim for benefits may be submitted.
On your written request, we will send you a summary or
copy of the relevant inforamtion obtained in connection
with your application.
Confidential or detailed medical information will only
be disclosed through the physician of your choice, with
whom you may discuss it. Also, on your request, a copy
of any consumer report we obtain on you will be provided
to you by the responsible agency.
We will not send you information we might collect in
expectation of or in connection with any claim or civil
or criminal proceeding such as information relating to
suspected fraud or material misrepresentation.
We may gather information from you which is used for
statistical purposes or marketing research, which will
not identify you individually.
- --------------------------------------------------------------------------------
CORRECTION If you feel any information in our file is incorrect or
INFORMATION incomplete, you may ask us to review it. If we agree, we
will make any necessary corrections and inform anyone
who received such information within the past two years.
If we do not agree, you may file a statement of dispute
with us. We will send that statement to anyone receiving
such information in the past two years. We will also
include it in any future disclosure of the disputed
information.
- --------------------------------------------------------------------------------
<PAGE>
CONDITIONS UNDER WHICH THIS PAYMENT SHALL CAUSE CONDITIONAL
COVERAGE TO TAKE EFFECT
(1) Each and every person proposed for insurance must be insurable and
acceptable to WRL under its underwriting rules for the amount, plan and risk
classification applied for on the later of: (A) the date of application, or (B)
the date of completion of all medical tests and examinations required by WRL.
(2) Any check given for payment must be honored on first presentation. (This
receipt and all coverages applied for on the application are void if a check or
draft received for payment of the initial premium is not honored for payment
when presented for payment on first presentation.)
AMOUNT OF CONDITIONAL LIFE INSURANCE COVERAGE
If conditional coverage becomes effective under the terms of this receipt, then
the amount of conditional life insurance coverage on any person proposed for
insurance is the lesser of: (1) the amount of life insurance applied for on such
person, or (2) $300,000 reduced by the amounts payable under all other life
insurance or accidental death benefits then in force or pending with WRL.
WHEN CONDITIONAL COVERAGE BEGINS
If the conditions listed above are fulfilled, then the amount of conditional
coverage specified above shall take effect on the later of: (1) the date of the
application, or (2) the date of the completion of all medical tests and
examinations required by WRL.
All conditional coverages for each and every person proposed for insurance will
be deemed void if the application contains material misrepresentations or is
fraudulently completed.
Benefits under this conditional receipt coverage will be denied if any person
proposed for insurance commits suicide.
WHEN CONDITIONAL COVERAGE ENDS
Conditional coverage shall terminate automatically, without notice, on the
earliest of the following dates: (1) the date WRL approves the policy as applied
for; (2) 10 days following any counteroffer by WRL to offer insurance to any
person proposed for insurance under a different plan or at an increased premium
or on a different rate class; (3) at the end of the fraction of a year which the
payment bears to the premium required to provide one month of insurance coverage
in the amount as described above; or (4) at the beginning of the 60th day
following the date of this receipt.
U00256 - 3/93
- --------------------------------------------------------------------------------
FAIR CREDIT REPORTING ACT
We may request an investigative consumer report to help us determine your
eligibility for the insurance you have requested. This report may concern your:
a) character, b) general reputation, and c) personal characteristics such as
health, occupation, and finances, except as may be related directly or
indirectly to your sexual orientation. When applicable, it will also concern
information on such matters as your driving record, health history, use of
alcohol or drugs and hazardous sports participation.
The consumer reporting agency may obtain information by interviewing you or
members of your family, business associates, financial institutions, and
acquaintances. You may ask that the agency interview you in person or by
telephone.
The agency may also check public records such as police and motor vehicle
records.
This information is for insurance purposes only. We will not reveal it to anyone
without your authorization. However, the consumer reporting agency may retain
and release information to others under certain circumstances. If you ask and
give proper identification, the agency will provide you with a copy of the
report and explain their retention and release practices.
Please contact us if you wish to know more about the nature and scope of these
reports and how we use them.
- --------------------------------------------------------------------------------
THE MEDICAL INFORMATION BUREAU PRE-NOTICE
The Medical Information Bureau ("MIB") is a non-profit organization of life
insurance companies which operates as an information exchange for its members.
We may make reports to the MIB regarding factors affecting your insurability.
Underwriting decisions, however, are not reported to the MIB. If you apply to
another Bureau member company for life or health insurance or submit a claim for
benefits, the MIB will, upon request, provide that company with information in
its file.
Upon your written request, the MIB will arrange for disclosure to you of any
information it has in your file.
If you feel the information in the MIB's file is incorrect, you may contact the
MIB and seek a correction in accordance with procedures outlined in the Federal
Fair Credit Reporting Act. The address of the MIB's office is: MIB, Inc.; P.O.
Box 105, Essex Station; Boston, MA 02112. MIB's telephone number: (617) 426-3660
If you would like to know more about how we collect, evaluate and control
information about you as one of our applicants for insurance, our sales
representatives will be happy to assist you or you may contact us at our office:
- --------------------------------------------------------------------------------
ANY OTHER WESTERN RESERVE LIFE ASSURANCE CO.
QUESTIONS? P.O. BOX 5068
CLEARWATER, FLORIDA 34618-5068
1-813-587-1800
<PAGE>
[WRL LOGO]
APP APPLICATION FOR LIFE INSURANCE TO
LIFE APPLICATION - Page One WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO
PLEASE USE A STOCK COMPANY
BLACK INK. P.O. BOX 5068 CLEARWATER, FL 34618-5068
- -------------------------------------------------------------------------------
Questions 1 through 14 relate to the
PROPOSED PRIMARY INSURED
- --------------------------------------------------------------------------------
1. NAME (First,Middle,Last)
- --------------------------------------------------------------------------------
2. SEX 3. BIRTHDAY (Mo./Day/Yr. 4. (State)
[ ]M [ ]F
- --------------------------------------------------------------------------------
5. SOCIAL SECURITY NUMBER 6. HEIGHT 7. WEIGHT
- --------------------------------------------------------------------------------
8. RESIDENCE
Street______________________________
City________________________________County______________________
State______________Zip______________Years_______________________
Address for past 3 years________________________________________
Telephone Number:_______________________________________________
- --------------------------------------------------------------------------------
9. OCCUPATION___________________________________________________
Duties_____________________________________________________
Annual Income_________________Net Worth____________________
Employer___________________________________________________
Address____________________________________________________
____________________________Zip_____________Years__________
Telephone Number:__________________________________________
- --------------------------------------------------------------------------------
10. LIFE INSURANCE IN FORCE ON PROPOSED PRIMARY
INSURED [ ] None
- --------------------------------------------------------------------------------
Issued
Year Company Amounts of Ins.
- -------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
11. NAME AND ADDRESS OF APPLICANT (OWNER)
IF OTHER THAN PRIMARY INSURED
___________________________________________________________
___________________________________________________________
Telephone Number:__________________________________________
- --------------------------------------------------------------------------------
TAX I.D. or SOCIAL SECURITY NUMBER RELATIONSHIP DOB
- --------------------------------------------------------------------------------
12. SEND PREMIUM [ ] Owner's Residence [ } Owner's Business
NOTICES TO: [ ] Other (Indicate in special instructions)
- --------------------------------------------------------------------------------
13. PREMIUMS PAYABLE Modal Premium
[ ] Annual [ ] Semi-Annual
[ ] Checkomatic [ ] Other____________ $_____________
- --------------------------------------------------------------------------------
Is this intended to be a 1035 Exchange [ ] Yes [ ] No
- --------------------------------------------------------------------------------
14. BENEFICIARY (Print Full Names)
PRIMARY- Percent % Relationship
- --------------------------------------------------------------------------------
CONTINGENT- Percent % Relationship
IF MORE THAN ONE PRIMARY OR CONTINGENT BENEFICIARY IS DESIGNATED, PROCEEDS WILL
BE DIVIDED EQUALLY AMONG THE SURVIVORS WITHIN CLASS UNLESS OTHERWISE INDICATED.
- --------------------------------------------------------------------------------
Questions 15 through 22 relate to the
JOINT OR OTHER INSURED (If Insurance Applied for)
- --------------------------------------------------------------------------------
15. NAME (First,Middle,Last)
- --------------------------------------------------------------------------------
16. BIRTHDATE 17. BIRTHPLACE
(Mo/Day/Yr.) (State)
- --------------------------------------------------------------------------------
18. SOCIAL SECURITY NUMBER 19. HEIGHT 20. WEIGHT
- --------------------------------------------------------------------------------
21. OCCUPATION 22. LIFE INSURANCE
(IN FORCE)
$
- --------------------------------------------------------------------------------
23. DEPENDENT CHILDREN PROPOSED FOR INSURANCE
- --------------------------------------------------------------------------------
Name Relationship Birth Date Height Weight
- --------------------------------------------------------------------------------
A)
- --------------------------------------------------------------------------------
B)
- --------------------------------------------------------------------------------
C)
- --------------------------------------------------------------------------------
D)
- --------------------------------------------------------------------------------
Are all children listed [ ]Yes [ ]No
Are all children living with the primary insured?
[ ]Yes [ ]No If not, explain why:_________________________________________
24. PROPOSED INSURANCE
- --------------------------------------------------------------------------------
1. BASIC PLAN____________________________________________
2. SPECIFIED AMOUNT $___________________
3. OPTION TYPE:
A [ ] Level Benefit
B [ ] Increasing Benefit
C [ ] Option B to age 70 then grading down
4. NO LAPSE GUARANTEE OPTION
[ ] 5yr.(FWP) [ ] 10yr. (FWP)
5. RIDERS
[ ] PRIMARY INSURED RIDER $____________
[ ] PRIMARY INSURED RIDER PLUS $____________
[ ] OTHER INSURED RIDER (A) $____________
PROPOSED INSURED____________________________________
[ ] OTHER INSURED RIDER (B) $____________
PROPOSED INSURED____________________________________
[ ] OTHER INSURED RIDER (C) $____________
PROPOSED INSURED____________________________________
[ ] CHILDRENS'S INSURANCE RIDER $____________
[ ] INDIVIDUAL INSURED RIDER (FWP) $____________
[ ] INDIVIDUAL INSURED RIDER (FWP) $____________
[ ] JOINT INSURED RIDER (FWP) $____________
[ ] WEALTH PROTECTION RIDER (FWP) $____________
- --------------------------------------------------------------------------------
Additional Benefits (Primary Insured only)
[ ] Disability Waiver Rider $____________
[ ] Disability Waiver and Income Rider $____________
[ ] Accidental Death Benefit $____________
- --------------------------------------------------------------------------------
0000001
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
-1-
<PAGE>
- --------------------------------------------------------------------------------
LIFE APPLICATION - Page Two
APPROPRIATE COLUMN. NOTE: QUESTIONS
Part II APPLY TO EACH PERSON PROPOSED FOR
PLEASE CHECK [X] INSURANCE
- --------------------------------------------------------------------------------
25. To the best of your knowledge, has any Proposed Insured YES NO
within the last 10 years had or been told by a member of
the medical profession that he or she had:
A. Heart Murmur, high blood pressure, chest pain, heart
attack, stroke, or other disorder of the heart or circulatory
system? [ ] [ ]
- --------------------------------------------------------------------------------
B. Asthma, Emphysema, Chronic Bronchitis or any other
Respiratory disorder; colitis, ulcer or any other
gastrointestinal disorder; hepatitis, liver or kidney
disorder? [ ] [ ]
- --------------------------------------------------------------------------------
C. Cancer, tumor, polyp, breast, prostate or any other
reproductive disorder; or any thyroid or endocrine
disorder? [ ] [ ]
- --------------------------------------------------------------------------------
D. Brain, mental, nervous or seizure disorder; or any
paralysis or suicide attempt? [ ] [ ]
- --------------------------------------------------------------------------------
E. Diabetes, sugar, albumin, blood or pus in the urine? [ ] [ ]
- --------------------------------------------------------------------------------
26. To the best of your knowledge has any Proposed Insured
within the last 10 years had or been told by a member of the
medical profession that he or she had:
A. A diagnosis of AIDS (Acquired Immune Deficiency
Syndrome), or tested positive for HIV (Human
Immunodeficiency Virus)? [ ] [ ]
- --------------------------------------------------------------------------------
B. Used amphetamines, heroin, cocaine, marijuana or any
other illegal or controlled substance except as prescribed
by a physician? [ ] [ ]
- --------------------------------------------------------------------------------
C. Been on or are now on prescribed medication or diet? [ ] [ ]
- --------------------------------------------------------------------------------
D. Had or been advised to have any hospitalization, surgery
or any diagnostic test including, but not limited to,
electrocardiograms, blood studies, scans, MRI's or other
test? [ ] [ ]
- --------------------------------------------------------------------------------
E. An examination, treatment, or consultation with a doctor
other than above? [ ] [ ]
- --------------------------------------------------------------------------------
F. Have or have had parent, bother or sister who has/had
coronary artery death or disease prior to age 60? [ ] [ ]
- --------------------------------------------------------------------------------
G. Sought or been advised to seek treatment, limit or
discontinue use of alcohol? [ ] [ ]
- --------------------------------------------------------------------------------
27. To the best of your knowledge have you or any Proposed
Insured in the last 10 years:
A. Ever piloted a plane, helicopter or glider, or have any
intentions of piloting an aircraft? [ ] [ ]
- --------------------------------------------------------------------------------
B. Ever participated in any sport, avocation or hobby such
as skin-diving, skydiving, automobile or motorcycle
racing, mountain climbing, or have you any intention
to do so? [ ] [ ]
- --------------------------------------------------------------------------------
C. Has any Proposed Insured had their driver's license
restricted, revoked, or been cited for a moving violation?
Give reason, Driver's License Number and Licensed State. [ ] [ ]
- --------------------------------------------------------------------------------
28. Has any Proposed Insured ever been convicted of a
misdemeanor or felony? [ ] [ ]
- --------------------------------------------------------------------------------
29. Ever been declined, rated, postponed for insurance or reinstatement
of life, accident or sickness insurance or has a policy
ever been cancelled or renewal refused? [ ] [ ]
- --------------------------------------------------------------------------------
30. Will the insurance applied for on any proposed insured
replace or change any existing annuity or life policy issued
by this or any other company?
If yes, complete replacement forms. [ ] [ ]
- --------------------------------------------------------------------------------
31. Is there an application for life, accident, or sickness
insurance now pending or contemplated on any proposed
insured with this or any other company? [ ] [ ]
- --------------------------------------------------------------------------------
DETAILS OF "YES" ANSWERS. Include: a. Identity of person, b. Question Number,
c. Diagnosis and treatment, d. Results, e. Dates and durations, f. Names and
addresses of all attending physicians and medical facilities.
-2-
<PAGE>
- --------------------------------------------------------------------------------
LIFE APPLICATION - Page Three
32. Have any proposed insured(s) used tobacco in the last
twelve months? [ ] Yes [ ] No Name:___________
<TABLE>
<CAPTION>
33. RATE CLASS QUOTED (MUST BE COMPLETED)
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Primary Insured [ ] Ult. Select [ ] Select [ ] Ult. Standard [ ] Standard [ ] Juvenile
Other Insured (A) [ ] Ult. Select [ ] Select [ ] Ult. Standard [ ] Standard [ ] Juvenile
Other Insured (B) [ ] Ult. Select [ ] Select [ ] Ult. Standard [ ] Standard [ ] Juvenile
Other Insured (C) [ ] Ult. Select [ ] Select [ ] Ult. Standard [ ] Standard [ ] Juvenile
</TABLE>
- --------------------------------------------------------------------------------
34. Name and address of personal physician (If none, so state)
- --------------------------------------------------------------------------------
PRIMARY INSURED JOINT OR OTHER INSURED CHILDREN
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Date and reason last Date and reason last Date and reason last
consulted a physician consulted a physician consulted a physician
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C> <C>
35. Personal Financial Statement
(a) Gross Income Current Year $_________ COMPLETE FOR CORPORATION, PARTNERSHIP, PENSION OR TRUST
(b) Marginal Tax Bracket $_________ (a) Current estimated value $_____________
(c) Assets $_________ (b) Assets Liquid $_____________
(d) Liabilities $_________ Nonliquid $_____________
(e) Net Worth $_________ (c) Liabilities $_____________
(f) Net Worth (exclusive of $_________ For over $1 million applied coverage complete a
home furnishings, automobiles) separate financial questionnaire.
</TABLE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
36. Sub-Account Allocation ALLOCATION ELECTION* (FOR VARIABLE PLANS ONLY)
<S> <C> <C> <C> <C> <C>
SUBACCOUNT ALLOCATION SUBACCOUNT ALLOCATION SUBACCOUNT ALLOCATION
---------- ---------- ---------- ---------- ---------- ----------
Growth __________ Fixed __________ Value Equity __________
Equity-Income __________ Global __________ C.A.S.E. Growth __________
Emerging Growth __________ Utility __________ U.S. Equity __________
Shorth-to-Imtermediate Gov't __________ Agressive __________ Int'l Equity __________
Money Market __________ Balanced __________ Other __________
Bond __________ Tactical Asset __________ Other __________
*Allocation must be at least 10% and a whole number %100
CUSTOMER'S MAIN INVESTMENT OBJECTIVES: [ ] SAFETY OF PRINCIPAL [ ] INCOME [ ] LONG-TERM GROWTH
[ ] TRADING PROFITS [ ] OTHER
</TABLE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
37. Suitability for Variable Life Insurance Policy
COMPLETE FOR ALL VARIABLE PLANS:
<S> <C>
(a) Have you, the Proposed Insured, and Purchaser, if other than the Proposed Insured, YES NO
received the current Prospectus for the policy? ......................................... [ ] [ ]
(b) DO YOU UNDERSTAND THAT UNDER THE POLICY APPLIED FOR (EXCLUSIVE
OF ANY OPTIONAL BENEFITS), THE AMOUNT OF DEATH BENEFIT AND THE ENTIRE
AMOUNT OF THE POLICY CASH VALUE MAY INCREASE OR DECREASE DEPENDING
UPON INVESTMENT EXPERIENCE? ............................................................. [ ] [ ]
(c) With this in mind, is the policy in accord with your insurance objectives and your
anticipated financial needs? ............................................................ [ ] [ ]
</TABLE>
- --------------------------------------------------------------------------------
TO BE COMPLETED BY APPLICANT/OWNER
TELEPHONE TRANSFER AUTHORIZATION: (See Prospectus for telephone transfer
Procedures.)
Your policy applied for, if issued, will automatically receive telephone
transfer privileges described in the applicable prospectus unless instructions
to the contrary are indicated below. These privileges allow you give the
registered representative/agent of record for this policy authority to make
telephone transfers and to change the allocation of future payments among the
Sub-Accounts and the Fixed Account on your behalf according to your
instructions.
[ ] I do NOT want telephone transfer privileges.
Western Reserve Life will not be liable for complying with telephone
instructions it reasonably believes to be authentic, nor for any loss, damage,
costs or expense in acting on such telephone instructions, and Policyowners will
bear the risk of any such loss. Western Reserve Life will employ reasonable
procedures to confirm that telephone instructions are genuine. If Western
Reserve Life 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 instruction, providing written confirmation of such transactions to
Policyowners and/or type recording of telephone transfer request instructions
received.
-3-
<PAGE>
LIFE APPLICATION - Page Four
- --------------------------------------------------------------------------------
TO BE COMPLETED BY THE REGISTERED REPRESENTATIVE
Will the policy applied for replace or change any existing life insurance policy
or annuity? [ ] Yes [ ] No
If replacement of existing insurance is involved, have you complied with all
state requirements, including any Disclosure and Comparison
Statements? [ ] Yes [ ] No
If "No", explain________________________________________________________________
AUTHORIZATION TO OBTAIN INFORMATION
I authorize any physician, medical professional, hospital, clinic, other medical
care institution, the Medical Information Bureau, Inc. insurance company,
consumer reporting agency, or employer having information available as to
employment, other insurance coverage, medical care, advice or treatment with
respect to any physical or mental condition regarding me or my children who are
to be insured, to give such information to Western Reserve Life Assurance Co. of
Ohio, its reinsurers, or any consumer reporting agency except the Medical
Information Bureau acting on Western Reserve Life's behalf.
I authorize Western Reserve Life to obtain an investigative consumer report on
me.
I understand that this information will be used by Western Reserve Life or its
reinsurers, to determine eligibility for life insurance. I agree that this
authorization is valid for two and one-half years from the date signed. I know
that I have the right to receive a copy of this authorization upon request. I
agree that a photographic copy of this authorization is as valid as the
original.
I have received a copy of the "Notice of Information Practices" attached to
this application.
I also hereby authorize Western Reserve Life to provide it's affiliated
companies any and all information provided herein and obtained hereafter on me.
This authorization shall be valid form the date signed below until affirmatively
withdrawn in writing by myself.
[ ] I elect not to have personal information disclosed to non-affiliates of
Western Reserve Life for marketing purposes.
[ ] I elect to be interviewed if an investigative consumer report is prepared in
connection with this application.
- --------------------------------------------------------------------------------
CERTIFICATION
Under penalties of perjury, I (the owner) certify (1) that the number shown in
question 5 (or the number shown in question 11, if the owner is other than the
primary insured) is my correct Taxpayer Identification Number, and (2) that I
am not subject to backup withholding because (a) I have not been notified by the
IRS that I am subject to backup withholding as a result of a failure to report
all interest or dividends, or (b) if I ever was so notified, the IRS has
notified me that I am no longer subject to backup withholding. (If the Internal
Revenue Service has notified you that you are subject to backup withholding and
you have not received notice from the Service that backup withholding has
terminated, you should strike out the language in (2) above that you are not
subject to backup withholding due to notified payee underreporting.)
- --------------------------------------------------------------------------------
REPRESENTATIONS
I represent that the statements and answers in this application are true and
complete to the best of my knowledge and belief. I understand that I should
consult my own tax advisor and/or legal counsel as to the consequences of using
this product in conjunction with my own particular tax or financial plan.
It is agreed that:
(a) the statements and answers given in this application, and any
amendments or application supplements to it or statements made to the
medical examiner, will be the basis of any insurance issued;
(b) no agent or medical examiner has the authority to make or alter any
contract for the Company;
(c) if a premium deposit is give in exchange for the Conditional Receipt,
no insurance shall take effect unless all of the conditions set out in
that receipt are satisfied;
(d) if a premium deposit is not give, no insurance shall take effect unless
all of the following conditions are satisfied;
(1) a policy issued by the Company is delivered to and accepted by the
owner during the lifetime of each person to be covered by such
policy, (2) the full first premium is paid, and (3) the health and
insurability of each person proposed for insurance has not changed
since the date of this application.
Signed at_______________________________ _____________________________________
(City and State) Signature of Joint Insured or OIR (A)
on___________________________,19________ _____________________________________
Signature or OIR (B)
________________________________________ _____________________________________
Signature of proposed insured (Child Signature or OIR (C)
over age 15 must sign)
________________________________________
Signature of Agent State License Number
________________________________________ _____________________________________
Social Security Number Print Agent Name Signature of applicant (owner) other
of Agent than proposed insured
(If business insurance, show title of
officer and name of firm.)
(If proposed insured is under age 18,
parent must sign.)
-4-
<PAGE>
WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO
P.O. BOX 5068
CLEARWATER, FLORIDA 34618
- --------------------------------------------------------------------------------
FRAUD WARNING
THE FOLLOWING STATES REQUIRE THAT INSURANCE APPLICANTS ACKNOWLEDGE A FRAUD
WARNING STATEMENT.
PLEASE REFER TO THE FRAUD WARNING STATEMENT FOR YOUR STATE AS INDICATED BELOW.
- --------------------------------------------------------------------------------
For applicants in It is unlawful to knowingly provide false, incomplete,
COLORADO or misleading facts on information to an insurance
company for the purpose of defrauding or attempting to
defraud the company. Penalties may include
imprisonment, fines, denial of insurance, and civil
damages. Any insurance company or agent of an insurance
company who knowingly provides false, incomplete, or
misleading facts or information to a policyholder or
claimant for the purpose of defrauding or attempting to
defraud the policyholder or claimant with regard to a
settlement or award payable from insurance proceeds
shall be reported to the Colorado Division of Insurance
within the Department of Regulatory Agencies.
______________________________ ________________
Applicant's Signature Date
- --------------------------------------------------------------------------------
For applicants in Any person who knowingly and with intent to injure,
FLORIDA defraud, or deceive any insurer files a statement of
claim or an application containing any false,
incomplete, or misleading information is guilty of a
felony in the third degree.
______________________________ _________________
Applicant's Signature Date
- --------------------------------------------------------------------------------
For applicants in Any person who knowingly and with intent to defraud any
KENTUCKY, OHIO, and insurance company or other person files an application
PENNSYLVANIA: for insurance or a statement of claim containing any
materially false information or conceals for the
purpose of misleading, information concerning any fact
material thereto commits a fraudulent insurance act,
which is a crime and subjects such person to criminal
and civil penalties:
_____________________________ ________________
Applicant's Signature Date
- --------------------------------------------------------------------------------
For applicants in Any person who includes any false or misleading
NEW JERSEY information on an application for an insurance policy
is subject to criminal and civil penalties.
_____________________________ ________________
Applicant's Signature Date
-5-
<PAGE>
<TABLE>
<CAPTION>
Western Reserve Life Assurance Co. of Ohio
The "Company"
P.O. Box 5068 /bullet/ Clearwater, FL 34618-5068
- ------------------------------------------------ AGENTS REPORT ----------------------------------------------------------
<S> <C>
1. How long have you known the Proposed Insured? 8. Are you aware of anything about the health, habits,
____________________________________________ avocation, environment or mode of life, except as may be
- -------------------------------------------------------- related directly or indirectly to sexual orientation, which
2. To your knowledge, has any Proposed Insured used may affect the insurability of any person proposed for
tobacco within the past 12 month? [ ]Yes [ ]No insurance? [ ]Yes [ ]No
- --------------------------------------------------------
3. Did you give the "Notice of Information Practices" _________________________________________________________
to the Proposed Insured? (If applicable) [ ]Yes [ ]No _________________________________________________________
- --------------------------------------------------------- ---------------------------------------------------------------
4. Are you submitting or do you plan to submit an 9. If Proposed Insured is a juvenile (ages 0 through 15):
application on any Proposed Insured on this application (a) Did you personally see child? [ ]Yes [ ]No
to any other company? [ ]Yes [ ]No (b) Does child live with parents? [ ]Yes [ ]No
(If "No," explain.)_______________________________
Company Name_______________________________ ______________________________________________________
Amount $___________________________________ (c) Life Insurance in force on Payor's life. $________
Total amount to be placed with all companies (d) Life Insurance applied for or in force on brothers
$______________________ and sisters:______________________________________
__________________________________________________
- --------------------------------------------------------- ---------------------------------------------------------------
5. MEDICAL EXAMINATION 10. Is Proposed Insured or Owner related to any InterSecuri-
If you are arranging for the Medical Requirements, ties, Inc. officer or employee? [ ]Yes [ ]No
please check the items ordered: ---------------------------------------------------------------
[ ] SMA-Blood Profile [ ] HOS 11. Is Proposed Insured or Owner a licensed Representative
[ ] Paramedical Exam [ ] EKG of any Broker/Dealer? [ ]Yes [ ]No
[ ] Doctor's Exam [ ] TVC If "Yes" Name and Address of Broker/Dealer
[ ] Stress EKG [ ] Request that _____________________________________________________
Paramedical Service Used: Life 2000 order Medical ---------------------------------------------------------------
_________________________ Requirements 12. TYPE OF SALE (check two)
- --------------------------------------------------------- [ ] Direct [ ] Pension or Profit Sharing
6. Was money taken with the application? [ ]Yes [ ]No [ ] Personal Needs Analysis [ ] Salary Savings (EICS)
Amount $__________________ [ ] Estate Planning [ ] Gift
If "Yes," was the Conditional Receipt completed and [ ] Business Insurance [ ] Salary Allotment
given to the applicant? [ ]Yes [ ]No
- --------------------------------------------------------- PURPOSE OF POLICY
7. Did you ask all questions in the presence of the Personal Insurance Business Insurance
Proposed Insureds? [ ]Yes [ ]No [ ] Mortgage [ ] Buy-Sell
[ ] Retirement [ ] Key Employee
Is any insured traveling or residing in a foreign [ ] Education [ ] Executive Bonus
country within the next 12 months? [ ]Yes [ ]No [ ] Estate Liquidity [ ] Deferred Compensation
[ ] Income to Family [ ] Split Dollar
[ ] Cash Accumulation [ ] Reserve Split Dollar
[ ] Wealth Replacement [ ] Other
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
13. REMARKS: (Check the address provided by the Applicant for each attending
physician against your local director. If different, state correct address.)
_______________________________________________________________________________
_______________________________________________________________________________
PLEASE PRINT
AGENT'S NAME__________________________ AGENT'S SOCIAL SECURITY NUMBER__________
AGENT NO._____________________________ STATE LICENSE NO._______________________
AGENT'S TELEPHONE_____________________ AGENT'S FAX NO._________________________
PRODUCTION TO BE SPLIT WITH AGENT AGENT NO._______________ PERCENT________
NAME_________________________________
- --------------------------------------------------------------------------------
I submit this application assuming full responsibility for delivery of any
coverage issued and for immediate transmittal to the Company of the first
premium when collected. I know of no condition affecting the insurability of any
person proposed for insurance not fully set forth herein. I certify that a
Notice of Information Practices statement was given to the Applicant when this
application was taken. (If applicable)
$_____ has been paid by the Applicant with this application.____________________
Signature of Writing
Agent
-6-
<PAGE>
CMC________ AUTHORIZATION AGREEMENT FOR PREAUTHORIZED PAYMENTS
- --------------------------------------------------------------------------------
ATTACH VOIDED SAMPLE
OF YOUR PERSONAL
CHECK HERE
- --------------------------------------------------------------------------------
So that you may comply with your depositor's authorization and direction as set
forth on the reverse side hereof, this Company agrees:
1. To indemnify you and hold you harmless from any loss you may suffer as
a consequence of your actions resulting from or in connection with the
execution and issuance of any check or draft, whether or not genuine, or
payment of any preauthorized ACH electronic fund transfer debit received
by you in the regular course of business for the purpose of payment to
this Company, including any cost or expenses reasonably incurred in
connection therewith.
2. In the event that any such check, draft or debit shall be dishonored
whether with or without cause, and whether intentionally or
inadvertently, to indemnify you for any loss even though dishonor
results in a forfeiture of the insurance.
3. To defend at our own cost and expense any action which might be brought
by any depositor or any other persons because of your actions taken
pursuant to the foregoing request, or in any manner arising by reason of
your participation in the foregoing plan of premium collections.
WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO
Authorized in a resolution /s/ WILLIAM H. GEIGER
adopted by the Executive ---------------------------
Committee of the Board of Secretary
Directors of the WESTERN
RESERVE LIFE ASSURANCE CO.
OF OHIO on October 2, 1991
TO: WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO
As a convenience to me, I hereby request and authorize you to obtain payment of
amounts becoming due you by initiating charges in the form of check, drafts or
debits via ACH electronic fund transfers on my account maintained at the
___________________________________ ____________________________________
(Name of Bank) (Address of Bank)
for the payment of each monthly premium
under Policy No._______________________ LIST ANY OTHER POLICIES TO BE
on the life of__________________ PAID BY SAME CHECK, DRAFT OR
DEBIT
This authority is to remain in effect until _____________________________
revoked by me in writing, and you actually _____________________________
receive such notice, I agree that you shall _____________________________
be fully protected in drawing any such check
or draft or initiating such debit. I understand
that if any such check, draft or debit be
dishonored by my Bank and any monthly amount due
the WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO
is not paid within the time stipulated in the
policy, said policy shall become null and void
except as otherwise provided therein.
AUTHORIZATION FOR PREAUTHORIZED
PAYMENTS TO:
WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO
P.O. BOX 5068, CLEARWATER, FL 34618-5068
To:_________________________Bank
Street Address__________________ As a convenience to me, I hereby request and
City____________ST_____Zip______ authorize you to pay and charge to my bank
checking account checks or drafts drawn by
and payable to the order of WESTERN RESERVE
LIFE ASSURANCE CO. OF OHIO or to debit my
account identified below via ACH electronic
fund transfers provided there are sufficient
collected funds in said account to pay the
same upon presentation. This authority is to
remain in effect until revoked by me in
writing, and until you actually receive such
notice I agree that you shall be fully
protected in honoring any such check, draft
or debit. I further agree that if any such
check, draft or debit be dishonored, whether
with or without cause and whether
intentionally or inadvertently, you shall be
under no liability whatsoever even though
such dishonor results in the forfeiture of
insurance.
___________ 1 (X)___________________________
___________ 2 (X)___________________________
Both Authorized Signatures Required on
Joint Accts.
PLEASE NOTE: There is an Indemnification
Agreement stated above.
-7-
