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As filed with the Securities and Exchange Commission on June 20, 1997
Registration No. 33-_____
Registration No. 811-8420
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-4
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REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [X]
Pre-Effective Amendment No. [ ]
Post-Effective Amendment No. [ ]
and
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
Amendment No. 7 [ ]
(Check appropriate box or boxes)
---------------------------
WESTERN-SOUTHERN LIFE ASSURANCE COMPANY SEPARATE ACCOUNT 1
(Exact Name of Registrant)
WESTERN-SOUTHERN LIFE ASSURANCE COMPANY
(Name of Depositor)
400 Broadway
Cincinnati, Ohio 45202
(Address of Depositor's Principal Executive Offices)
Depositor's Telephone Number (513) 629-1800
---------------------------
Copy to:
DONALD J. WUEBBLING, ESQ. J. LELAND BREWSTER II, ESQ.
400 Broadway Frost & Jacobs LLP
Cincinnati, Ohio 45202 2500 PNC Center
(Name and Address of Agent for Service) 201 East Fifth Street
Cincinnati, Ohio 45202
Approximate Date of Proposed Public Offering:
As soon as practical after the effective date of this Registration Statement.
---------------------------
Select Variable Annuity Contracts -- Pursuant to Rule 24f-2(a)(1) under the
Investment Company Act of 1940, the Registrant hereby declares that an
indefinite amount of securities is being registered by this Registration
Statement.
Select Advisors Portfolios has also executed this Registration Statement.
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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 Section 8(a), may determine.
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WESTERN-SOUTHERN LIFE ASSURANCE COMPANY
SEPARATE ACCOUNT 1
(SELECT VARIABLE ANNUITY)
CROSS-REFERENCE SHEET
REQUIRED BY RULE 495(A)
PART I - DISCUSSION OF THE VARIABLE ANNUITY CONTRACT
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PART A - PROSPECTUS
FORM N-4 ITEM NO. HEADING IN PROSPECTUS
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1. Cover Page Cover Page
2. Definitions Glossary
3. Synopsis Fee and Expense Tables; Summary of the
Contract
4. Condensed Financial Information
(a) Accumulation Unit Values Not Applicable
(b) Performance Information Performance Information
(c) Financial Statements Financial Statements
5. General Description of Registrant,
Depositor and Portfolio Companies
(a) Depositor The Company
(b) Registrant The Variable Account; The Fixed Account
(c) Portfolio Company The VI Trust and the SA Trust
(d) Prospectus The VI Trust and the SA Trust
(e) Voting Voting Rights
(f) Administrator The VI Trust and the SA Trust; Charges
6. Deductions and Expenses
(a) Deductions Charges
(b) Sales load Surrender Charge
(c) Special purchase plans Surrender Charge; Dollar Cost Averaging;
Purchase of a Contract
(d) Commissions Distribution of the Contracts
(e) Portfolio company deductions Expenses of the VIT Portfolios and SAT
Portfolios; Expense Caps
(f) Registrant's expenses Charges
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FORM N-4 ITEM NO. HEADING IN PROSPECTUS
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(g) Organizational expenses Administrative Charges
7. General description of variable
annuity contracts
(a) Rights Summary of the Contract; Allocation of
Purchase Payments; Surrenders and Partial
Withdrawals; Death Benefit; Death
Provisions; Selection of Income Payment
Option; Statements to Contract Owners;
Voting Rights; Other Contract Provisions
(b) Provisions and limitations Allocation of Purchase Payments; Transfers
(c) Changes in contracts or The Variable Account
operations
(d) Contract owner inquiries Cover Page; Summary of the Contract
8. Annuity Period
(a) Level of benefits Selection of Income Payment Option
(b) Annuity commencement date Income Date Selection
(c) Annuity payments Income Payment Options
(d) Assumed investment return Selection of Income Payment Option
(e) Minimums Income Payment Options
(f) Rights to change options or Selection of Income Payment Options
transfer contract value
9. Death Benefit
(a) Death benefit calculation Death Benefit; Death Provisions
(b) Forms of benefits Income Payment Option, Death Benefit;
Death Provisions
10. Purchases and Contract Values
(a) Procedures for purchases Purchase of a Contract
(b) Accumulation unit values Accumulation Unit Value
(c) Calculation of accumulation Allocation of Purchase Payments;
unit values Accumulation Unit Value
(d) Principal underwriter Distribution of the Contracts
11. Redemptions
(a) Redemption procedures Surrenders and Partial Withdrawals
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FORM N-4 ITEM NO. HEADING IN PROSPECTUS
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(b) Texas Optional Retirement Not Applicable
Program
(c) Delay Surrenders and Partial Withdrawals
(d) Lapse Surrenders and Partial Withdrawals
(e) Revocation rights Free Look Privilege
12. Taxes
(a) Tax consequences Federal Income Tax Information
(b) Qualified plans Federal Income Tax Information
(c) Impact of taxes Federal Income Tax Information
13. Legal Proceedings Legal Proceedings
14. Table of Contents for Statement of Table of Contents of Statement of Additional
Additional Information Information
PART B - SAI
FORM N-4 ITEM NO. HEADING IN SAI
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15. Cover Page Cover Page
16. Table of Contents Table of Contents
17. General Information and History
(a) Name change Not Applicable
(b) Attribution of assets Not Applicable
(c) Control of depositor The Company (Prospectus)
18. Services
(a) Fees, expenses and costs Administrative Services; Charges
(Prospectus); Expenses of the VIT Portfolios
and the SAT Portfolios (Prospectus); Expense
Caps (Prospectus)
(b) Management-related services
(c) Custodian and independent Independent Accountants
public accountant
(d) Other custodianship Safekeeping of Assets
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FORM N-4 ITEM NO. HEADING IN SAI
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(e) Administrative servicing The Company (Prospectus); The Variable
Account (Prospectus)
(f) Depositor as principal Not Applicable
underwriter
19. Purchase of securities offered
(a) Manner of offering Distribution of the Contracts (Prospectus)
(b) Sales Load Surrender Charge (Prospectus)
20. Underwriters
(a) Depositor or affiliate as Distribution of Contracts (Prospectus)
principal underwriter
(b) Continuous offering Distribution of the Contracts (Prospectus)
(c) Underwriting commissions Distribution of the Contracts (Prospectus)
(d) Payments to underwriter Distribution of the Contracts (Prospectus)
20. Calculation of performance data Sub-Account Performance
22. Annuity payments Fixed Annuity Income Payments
23. Financial Statements
(a) Registrant Financial Statements
(b) Depositor Financial Statements
PART II - DISCUSSION OF SELECT ADVISORS PORTFOLIOS
PART A
FORM N-1A ITEM NO. HEADING IN PROSPECTUS
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1. Cover Page Cover Page
2. Synopsis Summary; Fee and Expense Tables
(Prospectus Part I)
3. Condensed Financial Information
(a) Financial Highlights Financial Highlights
(b) Debt Not Applicable
(c) Performance Information Performance Information (Prospectus Part I)
4. General Description of the Registrant
(a)(i) Organization The Variable Account (Prospectus Part I)
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FORM N-1A ITEM NO. HEADING IN PROSPECTUS
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(a)(ii) Investment Objectives Investment Objectives, Policies and
Restrictions; Risk Factors, Restrictions and
Investment Techniques
5. Management of the Portfolios Management of the Portfolios
5A. Management's Discussion of Fund Not Applicable
Performance
6. Capital Stock and Other Additional Information; Taxation (SAI)
7. Purchase of Securities Being Offered Purchase and Valuation; Special Information
Concerning Hub and Spoke-Registered Trademark- Structure;
Management of the Portfolios
8. Redemption or Purchase Special Information Concerning Hub and
Spoke-Registered Trademark- Structure; Description of Beneficial
Interests, Voting Rights and Liabilities
9. Pending Legal Proceedings Not Applicable
PART B
FORM N-1A ITEM NO. HEADING IN SAI
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10. Cover Page Cover Page
11. Table of Contents Table of Contents
12. General Information and History Facts about the Company, The Variable
Account and the Fixed Account (Prospectus
Part I)
13. Investment Objectives and Policies Investment Objectives, Techniques, Policies
and Restrictions
14. Management of the Fund Management of the SA Trust
15. Control Persons and Principal Holders Management of the SA Trust; The Variable
of Securities Account (Prospectus Part I)
16. Investment Advisory and Other Management of the Portfolios (Prospectus
Persons Part II); Advisors; Portfolio Advisors;
Administrator, Fund Accounting Agent,
Custodian and Transfer Agent; Sponsor
17. Brokerage Allocation and Other Portfolio Transactions and Brokerage
Practices Commissions
18. Capital Stock and Other Securities Organization of the SA Trust
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FORM N-1A ITEM NO. HEADING IN SAI
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19. Purchase, Redemption and Pricing of Valuation of Securities; Redemption in Kind
Securities Being Offered
20. Tax Status Taxation
20. Underwriters Distribution of the Contracts (Prospectus Part
I)
21. Calculations of Performance Data Performance Information (Prospectus Part I)
22. Financial Statements Financial Statements
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PART C
Information required to be included in Part C is set forth under the
appropriate item, so numbered, in Part C of the Registration Statement.
vi
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T O U C H S T O N E
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[LOGO]
TOUCHSTONE SELECT VARIABLE ANNUITY
( EMERGING GROWTH
( INTERNATIONAL EQUITY
( GROWTH & INCOME
( BALANCED
( INCOME OPPORTUNITY
( BOND
( STANDBY INCOME
( FIXED ACCOUNT
- --------------------------------------------------------------------------------
PROSPECTUS
, 1997
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THIS BOOKLET CONTAINS THE PROSPECTUS FOR TOUCHSTONE SELECT VARIABLE ANNUITY, A
FLEXIBLE PREMIUM VARIABLE ANNUITY CONTRACT, ISSUED BY WESTERN-SOUTHERN LIFE
ASSURANCE COMPANY. THIS BOOKLET ALSO INCLUDES THE PROSPECTUS FOR INVESTMENT
PORTFOLIOS UNDERLYING THE TOUCHSTONE SELECT VARIABLE ANNUITY. THESE PROSPECTUSES
ARE BOUND TOGETHER FOR YOUR CONVENIENCE.
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PROSPECTUS
, 1997
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WESTERN-SOUTHERN LIFE
UNITS OF INTEREST UNDER ASSURANCE COMPANY SEPARATE ACCOUNT
FLEXIBLE PREMIUM VARIABLE 1
ANNUITY CONTRACTS 400 BROADWAY
(SELECT VARIABLE ANNUITY) CINCINNATI, OHIO 45202
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This Prospectus describes individual variable annuity contracts (each a
"CONTRACT" and collectively the "CONTRACTS") offered by Western-Southern Life
Assurance Company (the "COMPANY"), a life insurance company which is a wholly
owned subsidiary of The Western and Southern Life Insurance Company ("WESTERN &
SOUTHERN"). The Contracts are designed for individual investors and group plans
that desire to accumulate capital on a tax-deferred basis for retirement or
other long term objectives. The owner of a Contract may select any one of three
death benefit options. Contracts may be purchased on either a non-qualified
basis or on a qualified basis in connection with qualified retirement and
pension plans. Generally, non-qualified Contracts may be purchased by making a
payment of at least $10,000, and qualified Contracts may be purchased by making
a payment of at least $1,000. Subsequent payments to a Contract must be at least
$100. Payments will be invested as the Contract Owner directs in one or more
sub-accounts (each a "SUB-ACCOUNT" and together called the "VARIABLE ACCOUNT"
(see further definitions in the Glossary)) of Western-Southern Life Assurance
Company Separate Account 1 ("SEPARATE ACCOUNT 1"). Each Sub-Account invests in a
corresponding portfolio of Select Advisors Variable Insurance Trust or of Select
Advisors Portfolios, each of which is an open-end diversified management
investment company, or in a fixed-rate option (the "FIXED ACCOUNT" (see further
definition in the Glossary)) funded through the Company's general account.
The Sub-Accounts in which Contract Owners may invest are: Emerging Growth,
International Equity, Growth & Income, Balanced, Income Opportunity, Bond and
Standby Income. Information regarding these investment options is set forth
under the caption THE VARIABLE ACCOUNT herein. Five of the seven Sub-Accounts,
Emerging Growth, International Equity, Balanced, Income Opportunity and Standby
Income, invest in corresponding Portfolios of Select Advisors Variable Insurance
Trust, a Massachusetts business trust (the "VI TRUST"). THIS PROSPECTUS IS VALID
ONLY WHEN ACCOMPANIED BY THE CURRENT PROSPECTUS FOR THE VI TRUST (THE "VI TRUST
PROSPECTUS"), a copy of which is bound with this Prospectus. The remaining two
Sub-Accounts, Growth & Income and Bond, invest in the Growth & Income Portfolio
II and Bond Portfolio II of Select Advisors Portfolios (the "SA TRUST" (see
further definition in the Glossary)) under a Hub and Spoke-Registered Trademark-
arrangement. Unlike the Portfolios of the VI Trust, which receive investments
only from Separate Account 1 and other separate accounts of the Company, the SA
Trust may also receive investments for its Growth & Income Portfolio II and Bond
Portfolio II from other insurance company separate accounts registered as
investment companies under the Investment Company Act of 1940. See "Special
Information Concerning Hub and Spoke-Registered Trademark- Structure" in this
Prospectus. Hub and Spoke-Registered Trademark- is a registered service mark of
Signature Financial Group, Inc.
THE CONTRACTS ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR ENDORSED
BY, ANY BANK, AND THE CONTRACTS ARE NOT FEDERALLY INSURED BY THE FEDERAL DEPOSIT
INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD, THE NATIONAL CREDIT UNION
SHARE INSURANCE FUND OR ANY OTHER AGENCY. MUTUAL FUNDS AND VARIABLE ANNUITIES
INVOLVE INVESTMENT RISK, INCLUDING POSSIBLE LOSS OF PRINCIPAL.
The Income Opportunity Portfolio of the VI Trust may invest up to 100% of
its total assets in non-investment grade bonds (commonly known as "junk bonds")
issued by both U.S. and foreign issuers, which entail greater risk of untimely
interest and principal payments, default and price volatility than higher rated
securities, and may present problems of liquidity and valuation. See "Income
Opportunity Portfolio" in the VI Trust Prospectus.
This Prospectus tells investors briefly the information they should know
before investing in the Contracts. Investors should read and retain this
Prospectus for future reference. Additional information about the Contract and
the Variable Account has been filed with the Securities and Exchange Commission
in a Statement of Additional Information dated , 1997. The Statement of
Additional Information is incorporated by reference in this Prospectus and is
available without charge by calling the Special Markets Service Center at
800-669-2796 (press 2). The table of contents of the Statement of Additional
Information appears on page 50 of this Prospectus.
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS IN CONNECTION WITH
THE OFFER CONTAINED HEREIN, AND IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY.
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER OF ANY INTEREST OR PARTICIPATION IN
THE CONTRACTS OFFERED HEREBY IN ANY JURISDICTION OR TO ANY PERSON TO WHOM SUCH
OFFER WOULD BE UNLAWFUL THEREIN.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
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PROSPECTUS CONTENTS
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GLOSSARY............................................................................... 1
PART I -- DISCUSSION OF THE VARIABLE ANNUITY CONTRACT.................................. 3
FEE AND EXPENSE TABLES................................................................. 3
SUMMARY OF THE CONTRACT................................................................ 5
PERFORMANCE INFORMATION................................................................ 8
FACTS ABOUT THE COMPANY, THE VARIABLE ACCOUNT AND THE FIXED ACCOUNT.................... 9
The Company.......................................................................... 9
The Variable Account................................................................. 9
The VI Trust and the SA Trust........................................................ 9
Advisors and Service Providers....................................................... 10
Additions, Deletions and Substitutions of Investments................................ 10
The Fixed Account.................................................................... 11
THE CONTRACT........................................................................... 11
Purchase of a Contract............................................................... 11
General............................................................................ 11
Minimum/Maximum Investments........................................................ 11
Purchase Procedure................................................................. 12
Issue Age Limits................................................................... 12
Free Look Privilege.................................................................. 12
Allocation of Purchase Payments...................................................... 12
Accumulation Unit Value.............................................................. 12
Accumulation Unit Value of VIT Sub-Accounts........................................ 13
Accumulation Unit Value of Growth & Income and Bond Sub-Accounts................... 13
Fixed Account Value.................................................................. 14
Dollar Cost Averaging................................................................ 14
Transfers............................................................................ 14
Surrenders and Partial Withdrawals................................................... 15
Systematic Withdrawals............................................................. 15
Selection of Income Payment Option................................................... 16
Income Date Selection.............................................................. 16
Income Payment Options............................................................. 16
Death Benefit........................................................................ 17
Death Benefit Options.............................................................. 17
Death Provisions..................................................................... 18
Death of Owner..................................................................... 18
Death of Annuitant................................................................. 18
CHARGES................................................................................ 18
Premium Taxes........................................................................ 18
Other Taxes.......................................................................... 19
Administrative Charges............................................................... 19
Contract Maintenance Charge........................................................ 19
Contract Administration Charge..................................................... 19
Mortality and Expense Risk Charge.................................................... 19
Surrender Charge..................................................................... 19
Expenses of VIT Portfolios and SAT Portfolios; Expense Caps.......................... 20
OTHER INFORMATION...................................................................... 21
Distribution of the Contracts........................................................ 21
Reports to Contract Owners........................................................... 21
Adjustment of Units and Values....................................................... 21
Voting Rights........................................................................ 22
Substituted Securities............................................................... 22
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OTHER CONTRACT PROVISIONS.............................................................. 22
Misstatement of Age or Sex........................................................... 22
Assignment........................................................................... 23
Loans................................................................................ 23
No Dividends......................................................................... 23
FEDERAL INCOME TAX INFORMATION......................................................... 23
Qualification as an "Annuity Contract"............................................... 23
Diversification.................................................................... 23
Excessive Control.................................................................. 24
Required Distributions............................................................. 24
Multiple Contracts................................................................. 25
Federal Income Taxation.............................................................. 25
General............................................................................ 25
Tax Treatment of Assignments....................................................... 26
Tax Treatment of Withdrawals -- Non-Qualified Contracts............................ 26
Qualified Contracts and Qualified Plans............................................ 26
Section 401 Qualified Pension or Profit-Sharing Plans.............................. 27
Section 403(b) Plans............................................................... 27
Loans from Section 403(b) Plans.................................................... 27
Individual Retirement Annuities.................................................... 27
Simplified Employee Pension Plans.................................................. 28
Savings Incentive Match Plans for Employees (SIMPLE)............................... 28
Section 457 -- Deferred Compensation Plans......................................... 29
Tax Treatment of Withdrawals -- Qualified Contracts................................ 29
Tax-Sheltered Annuities -- Withdrawal Limitations.................................. 31
LEGAL PROCEEDINGS...................................................................... 31
FINANCIAL STATEMENTS................................................................... 31
PART II -- DISCUSSION OF SELECT ADVISORS PORTFOLIOS.................................... 32
SUMMARY................................................................................ 32
General.............................................................................. 32
Risks................................................................................ 32
Advisors............................................................................. 32
Sub-Accounts......................................................................... 32
Other Investors...................................................................... 33
FINANCIAL HIGHLIGHTS................................................................... 33
INVESTMENT OBJECTIVES, POLICIES AND RESTRICTIONS....................................... 34
Growth & Income Portfolio............................................................ 34
Bond Portfolio....................................................................... 34
SPECIAL INFORMATION CONCERNING HUB AND SPOKE-Registered Trademark- STRUCTURE........... 35
MANAGEMENT OF THE PORTFOLIOS........................................................... 35
General.............................................................................. 35
Consultant to the Advisor............................................................ 36
Portfolio Advisors................................................................... 36
Expenses............................................................................. 37
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RISK FACTORS, RESTRICTIONS AND INVESTMENT TECHNIQUES................................... 37
Techniques and Risk Factors.......................................................... 37
Derivatives........................................................................ 37
Foreign Securities................................................................. 37
Risks Associated with "Emerging Markets" Securities................................ 38
Currency Exchange Rates............................................................ 38
Medium and Lower Rated and Unrated Securities...................................... 38
ADRs, EDRs and CDRs................................................................ 39
Fixed-Income and Other Debt Instrument Securities.................................. 39
U.S. Government Securities......................................................... 40
Mortgage Related Securities........................................................ 40
Stripped Mortgage Related Securities............................................... 41
Zero Coupon Securities............................................................. 41
Custodial Receipts................................................................. 42
When-Issued and Delayed-Delivery Securities........................................ 42
Repurchase Agreements.............................................................. 42
Reverse Repurchase Agreements and Forward Roll Transactions........................ 43
Lending Portfolio Securities....................................................... 43
Illiquid Securities................................................................ 43
Non-Publicly Traded ("Restricted") Securities and Rule 144A Securities............. 43
Temporary Investments.............................................................. 43
Futures Contracts and Related Options.............................................. 44
Options on Stock................................................................... 44
Options on Securities Indexes...................................................... 45
Forward Currency Contracts......................................................... 45
Asset Coverage....................................................................... 45
Certain Investment Restrictions...................................................... 46
Portfolio Turnover................................................................... 46
MANAGEMENT OF THE SA TRUST............................................................. 46
Board of Trustees.................................................................... 46
Administrator, Fund Accounting Agent, Custodian and Transfer Agent................... 46
Sponsor.............................................................................. 47
Allocation of Expenses of the Portfolios............................................. 47
PURCHASE AND VALUATION................................................................. 47
Purchase............................................................................. 47
Valuation............................................................................ 47
ADDITIONAL INFORMATION................................................................. 48
Description of Beneficial Interests, Voting Rights and Liabilities................... 48
TABLE OF CONTENTS OF STATEMENT OF ADDITIONAL INFORMATION............................... 50
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GLOSSARY
ACCUMULATION UNIT -- An accounting unit of measure used to calculate an
Owner's share of the Variable Account Value prior to the Income Date.
ACCUMULATION UNIT VALUE -- The dollar value of an Accumulation Unit in a
Sub-Account of the Variable Account.
ANNUITANT -- The natural person whose life is used to determine the duration
and amount of any annuity payments.
BENEFICIARY -- The person(s) to whom the Death Benefit will be paid if the
Owner dies before the Income Date.
CODE -- The Internal Revenue Code of 1986, as amended.
COMPANY -- Western-Southern Life Assurance Company.
CONTINGENT ANNUITANT -- The person named by the Owner who becomes the
Annuitant if the named Annuitant dies before the Income Date.
CONTRACT -- An individual flexible premium variable annuity contract,
including the Application Form and any amendments, riders or endorsements,
offered by the Company as set forth in this Prospectus.
CONTRACT ANNIVERSARY -- The same day and month as the Contract Date in each
subsequent year.
CONTRACT DATE -- The date, as set forth on page 3 of the Contract, on which
the Contract becomes effective, which generally will be within one business day
after receipt of the initial Purchase Payment and Application Form in good order
at the Special Markets Service Center.
CONTRACT VALUE -- The total value of the Contract at any time prior to or on
the Income Date, representing the sum of the Variable Account Value and the
Fixed Account Value.
CONTRACT YEAR -- A year which starts with the Contract Date or with a
Contract Anniversary.
FIXED ACCOUNT -- A Contract option under which some or all of the Purchase
Payments are allocated to the Company's general account. The Company credits
interest to the amounts allocated to the Fixed Account at rates declared by the
Company from time to time and guaranteed for one year periods.
FIXED ACCOUNT VALUE -- At any given time, (1) the sum of all Purchase
Payments allocated to the Fixed Account, plus (2) any Variable Account Value
transferred to the Fixed Account, plus (3) interest credited by the Company to
the Fixed Account, less (4) any amounts transferred from the Fixed Account to
the Variable Account, less (5) any amounts withdrawn for charges, deductions or
surrenders (which includes Surrender Charges, if any).
INCOME DATE -- The date on which annuity payments are scheduled to begin,
changeable by written notice to the Company.
OWNER OR JOINT OWNER -- The person(s) owning all rights under the Contract.
PORTFOLIO -- An investment portfolio of the VI Trust or of the SA Trust,
each of which is a registered open-end management investment company. Each
Portfolio corresponds to a Sub-Account of the Variable Account.
PURCHASE PAYMENT -- An amount paid to the Company under the Contract prior
to deduction of any applicable premium tax.
QUALIFIED AND NON-QUALIFIED CONTRACTS -- A Qualified Contract is a Contract
purchased in connection with a plan which qualifies under Sections 401, 403(b),
408 or 457 of the Code. A Non-Qualified Contract is any other Contract.
SAT PORTFOLIO -- Either the Growth & Income Portfolio II ("Growth & Income
Portfolio") or the Bond Portfolio II ("Bond Portfolio") of the SA Trust.
SA TRUST -- Select Advisors Portfolios, a trust formed under New York law
that includes portfolios in which certain of the Sub-Accounts invest. Part II of
this Prospectus, beginning at page 32, contains information regarding the SA
Trust and such Portfolios.
SUB-ACCOUNT -- A division of the Variable Account which invests in a
Portfolio of the VI Trust or the SA Trust. Purchase Payments allocated to the
Variable Account are further allocated among Sub-Accounts as designated by the
Owner.
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SURRENDER CHARGE -- A declining contingent deferred sales charge, ranging
from 8% during the first year to 0% after seven years from receipt of each
Purchase Payment.
SURRENDER VALUE -- The Contract Value less any applicable Surrender Charge
and Contract Maintenance Charge. This amount, less any applicable premium tax,
is payable to an Owner upon surrender of the Contract prior to the Income Date
during the Annuitant's lifetime.
VALUATION DATE -- Each day on which valuation of the Sub-Accounts is
required by applicable law, including every day that the New York Stock Exchange
is open.
VALUATION PERIOD -- The period of time beginning at the close of trading on
the New York Stock Exchange on one Valuation Date and ending at the close of
trading on the New York Stock Exchange on the next succeeding Valuation Date.
VARIABLE ACCOUNT -- A contract option under which some or all of the
Purchase Payments are allocated to the Western-Southern Life Assurance Company
Separate Account 1, a separate investment account of the Company.
VARIABLE ACCOUNT VALUE -- At any given time, the value of all Accumulation
Units credited to the Sub-Accounts pursuant to the Contract.
VIT PORTFOLIO -- A Portfolio of the VI Trust.
TERMS DEFINED ELSEWHERE IN THE PROSPECTUS
The following terms have the meanings given such terms at the pages
indicated in this table:
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TERM PAGE
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Administrative Services and Fund Accounting
Agreement....................................
Adjusted Contract Value.......................
Administrator.................................
Advisor.......................................
Advisors Act..................................
Advisory Agreement............................
Benefit Determination Date....................
Board of Trustees/Trustee.....................
Contract Administration Charge................
Contract Maintenance Charge...................
Custodian.....................................
Death Benefit.................................
Death Benefit Accumulation Rate...............
Death Benefit Options.........................
Designated beneficiary........................
Dollar Cost Averaging.........................
Distributor...................................
Expense Cap...................................
Expense Risk Charge...........................
Fort Washington...............................
Free amount...................................
Free look.....................................
Free look period..............................
IFS...........................................
Individual retirement arrangement.............
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TERM PAGE
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Investors Bank................................
IRA...........................................
Maximum Accumulated Death Benefit.............
Mortality and Expense Risk Charge.............
Mortality Risk Charge.........................
PIN...........................................
Portfolio Advisors............................
Qualified Plans...............................
RogersCasey...................................
SAT Net Investment Factor.....................
SEC...........................................
SEP...........................................
Separate Account 1............................ cover
SIMPLE........................................
Special Markets Service Center Sponsor........
Sponsor Agreements............................
Surrender.....................................
Treasury Department...........................
Trustees/Board of Trustees....................
VIT Net Investment Factor.....................
VIT Sub-Account...............................
VI Trust...................................... cover
VI Trust Prospectus........................... cover
Western & Southern............................ cover
1933 Act......................................
1940 Act......................................
</TABLE>
2
<PAGE>
PART I -- DISCUSSION OF THE VARIABLE ANNUITY CONTRACT
FEE AND EXPENSE TABLES
The following tables provide information concerning Contract Owner
transaction expenses and annual operating expenses of the Variable Account and
each Sub-Account. For these purposes, expenses of the Portfolio in which each
Sub-Account invests are treated as if they were expenses of that Sub-Account,
since that is their practical effect. It is expected that the combined expenses
per Accumulation Unit of each Sub-Account and its corresponding Portfolio will,
at a minimum, be approximately equal to and may be less than the expenses that
would be incurred by each Sub-Account alone if, instead of investing in such
Portfolio, the Sub-Account retained an investment advisor and portfolio advisors
and invested directly in the types of securities held by the Portfolio. For
additional information regarding these expenses, see "Charges."
CONTRACT OWNER TRANSACTION EXPENSES
<TABLE>
<S> <C>
Maximum Contingent Deferred Sales Charge*.............. 8%
</TABLE>
RANGE OF CONTINGENT DEFERRED SALES CHARGE* OVER TIME
<TABLE>
<CAPTION>
CONTINGENT DEFERRED SALES
COMPLETED YEARS CHARGE AS PERCENTAGE OF
FROM DATE OF AMOUNT OF PURCHASE
PURCHASE PAYMENT PAYMENT WITHDRAWN
- ---------------- ---------------------------
<S> <C>
Less than 1 8%
1 7%
2 6%
3 5%
4 4%
5 3%
6 1%
7 and later 0%
</TABLE>
<TABLE>
<S> <C>
Annual Contract Maintenance Charge**................................................. $ 40
</TABLE>
<TABLE>
<CAPTION>
Variable Account Annual Expenses (as a percentage of average account value)
<S> <C> <C> <C>
SIX
ANNUAL PERCENT
STANDARD STEP-UP ACCUMULATING
DEATH DEATH DEATH
BENEFIT BENEFIT BENEFIT
----- ----- -----
Mortality and Expense Risk Charges............................................... 1.20% 1.30% 1.40%
Contract Administration Charge................................................... 0.15% 0.15% 0.15%
----- ----- -----
Total Variable Account Annual Expenses........................................... 1.35% 1.45% 1.55%
----- ----- -----
----- ----- -----
</TABLE>
*Also referred to as a "Surrender Charge." See "Surrender Charge."
**In certain states in which it has received the necessary regulatory
approvals, the Company may waive, reduce or eliminate the annual Contract
Maintenance Charge. This charge is not assessed against Contracts having a
Contract Value of more than $50,000. After the tenth Contract Anniversary the
charge for any Contract having a Contract Value of less than $50,000 is the
lesser of (a) $40 and (b) 0.14% of the Contract Value.
PORTFOLIO EXPENSES
The expenses of each of the VIT Portfolios and each of the SAT Portfolios
shown below are assessed at the underlying Portfolio level and are not direct
charges against the assets of the Sub-Accounts or reductions from Contract
Value, although such charges are borne indirectly by Contract Owners. Portfolio
expenses are taken into consideration in computing the net asset value of each
Portfolio, which is the price used to calculate the Variable Account Value.
However, under agreements (the "SPONSOR AGREEMENTS") with the VI Trust and the
SA Trust, Touchstone Advisors, Inc., as sponsor of the two trusts (the
"SPONSOR"), has agreed to reimburse each Portfolio for those annual operating
expenses of the Portfolio exceeding a specified percentage (the "EXPENSE CAP")
of the Portfolio's average daily net assets. For additional information
regarding the Sponsor Agreements, see "Sponsor."
3
<PAGE>
Operating expenses for this purpose include fees of the Advisor, fees of the
Administrator, amortization of organizational expenses, legal and accounting
fees and Sponsor fees, but do not include interest, taxes, brokerage commissions
and other portfolio transaction expenses, capital expenditures and extraordinary
expenses. Fees and expenses in the table are expressed as a percentage of
average daily net assets.
<TABLE>
<CAPTION>
TOTAL EXPENSES
ADVISOR FEE OTHER EXPENSES (AFTER EXPENSE
(AFTER EXPENSE (AFTER EXPENSE REIMBURSEMENT)
VIT PORTFOLIOS REIMBURSEMENT) REIMBURSEMENT) (1)
- ---------------------------------------------------- -------------- -------------- -----------------
<S> <C> <C> <C>
Emerging Growth..................................... 0.80% 0.35% 1.15%
International Equity................................ 0.95% 0.30% 1.25%
Balanced............................................ 0.80% 0.10% 0.90%
Income Opportunity.................................. 0.65% 0.20% 0.85%
Standby Income...................................... 0.25% 0.25% 0.50%
SAT PORTFOLIOS
- ----------------------------------------------------
Growth & Income..................................... 0.75% 0.10% 0.85%
Bond................................................ 0.55% 0.20% 0.75%
</TABLE>
- ------------------------
(1) A Sponsor Agreement may be terminated by the Sponsor as to any Portfolio, as
of the end of any calendar quarter after December 31, 1998, by giving at
least 30 days prior written notice, and will be terminated if the Sponsor
ceases to be the investment advisor for the Portfolio. If a Sponsor
Agreement is terminated, actual Portfolio expenses may exceed those shown in
the table. For more information regarding each Portfolio's expenses, see
"Expenses of the VIT Portfolios and SAT Portfolios; Expense Caps" herein,
the VI Trust Prospectus, and the Statement of Additional Information
(available on request from the Special Markets Service Center).
EXAMPLE
The following charts depict the expenses that would be incurred under the
Contract assuming a $1,000 investment in each Sub-Account and a 5% annual return
on that investment. Portfolio expenses have been estimated at the Expense Cap
for each Portfolio. THE DOLLAR FIGURES IN EACH CHART ARE ILLUSTRATIVE ONLY AND
SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES. ACTUAL
EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN. The effect of the Contract
Maintenance Charge is calculated by expressing it as a percentage of the average
Contract Value, which is assumed, for this purpose only, to be $25,000. Premium
taxes currently are imposed by certain states and municipalities on Purchase
Payments made under the Contracts. Premium taxes are not reflected in the
examples below; where applicable, such taxes may decrease the amount of each
Purchase Payment available for allocation.
An Owner surrendering a Contract at the end of the applicable time period
would pay the following aggregate Contract and Portfolio expenses on a $1,000
investment in each Sub-Account, assuming a 5% annual return:
<TABLE>
<CAPTION>
SIX PERCENT
STANDARD DEATH ANNUAL STEP-UP ACCUMULATING
BENEFIT DEATH BENEFIT DEATH BENEFIT
-------------- -------------- --------------
1 3 1 3 1 3
YEAR YEARS YEAR YEARS YEAR YEARS
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Emerging Growth............................................. $107 $138 $108 $141 $109 $144
International Equity........................................ $108 $141 $109 $144 $110 $147
Balanced.................................................... $105 $130 $106 $133 $107 $136
Income Opportunity.......................................... $104 $128 $105 $132 $106 $135
Standby Income.............................................. $101 $117 $102 $121 $103 $124
Growth & Income............................................. $104 $128 $105 $132 $106 $135
Bond........................................................ $103 $125 $104 $128 $105 $132
</TABLE>
4
<PAGE>
An Owner annuitizing a Contract (with a minimum 5 year payout) at the end of
the applicable time period would pay the following aggregate Contract and
Portfolio expenses on the same investment:
<TABLE>
<CAPTION>
ANNUAL SIX PERCENT
STANDARD STEP-UP DEATH ACCUMULATING
DEATH BENEFIT BENEFIT DEATH BENEFIT
------------- ------------- -------------
1 3 1 3 1 3
YEAR YEARS YEAR YEARS YEAR YEARS
---- --- ---- --- ---- ---
<S> <C> <C> <C> <C> <C> <C>
Emerging Growth............................................. $107 $84 $108 $87 $109 $90
International Equity........................................ $108 $87 $109 $90 $110 $93
Balanced.................................................... $105 $76 $106 $79 $107 $82
Income Opportunity.......................................... $104 $74 $105 $78 $106 $81
Standby Income.............................................. $101 $63 $102 $67 $103 $70
Growth & Income............................................. $104 $74 $105 $78 $106 $81
Bond........................................................ $103 $71 $104 $74 $105 $78
</TABLE>
An Owner who does not surrender a Contract at the end of the applicable time
period would pay the following aggregate Contract and Portfolio expenses on the
same investment:
<TABLE>
<CAPTION>
ANNUAL SIX PERCENT
STANDARD STEP-UP ACCUMULATING
DEATH DEATH DEATH
BENEFIT BENEFIT BENEFIT
------------ ------------ ------------
1 3 1 3 1 3
YEAR YEARS YEAR YEARS YEAR YEARS
--- --- --- --- --- ---
<S> <C> <C> <C> <C> <C> <C>
Emerging Growth............................................. $27 $84 $28 $87 $29 $90
International Equity........................................ $28 $87 $29 $90 $30 $93
Balanced.................................................... $25 $76 $26 $79 $27 $82
Income Opportunity.......................................... $24 $74 $25 $78 $26 $81
Standby Income.............................................. $21 $63 $22 $67 $23 $70
Growth & Income............................................. $24 $74 $25 $78 $26 $81
Bond........................................................ $23 $71 $24 $74 $25 $78
</TABLE>
The purpose of the above tables is to assist an Owner in understanding the
various costs and expenses that an Owner will bear directly or indirectly.
OTHER PORTFOLIO FINANCIAL INFORMATION
Additional financial information regarding the Growth & Income and Bond
Portfolios may be found on page 32 of this Prospectus and similar information
regarding the Emerging Growth, International Equity, Balanced, Income
Opportunity and Standby Income Portfolios may be found in the VI Prospectus,
which follows and is bound with this Prospectus.
SUMMARY OF THE CONTRACT
GENERAL
The purpose of the Contract is to permit an Owner to accumulate funds on a
tax-deferred basis by investing in one or more alternatives, and to permit the
Owner or the Owner's designee to receive annuity income payments starting on the
Income Date. An Owner may invest in one or more of seven Sub-Accounts of the
Variable Account and in the Company's Fixed Account. Each Sub-Account will, in
turn, invest solely in one of seven Portfolios, five of which are Portfolios of
the VI Trust and two of which are Portfolios of the SA Trust. Each Trust is an
open-end diversified management investment company. The VI Trust is organized as
a Massachusetts business trust and the SA Trust is organized as a New York
trust. For further information regarding these two trusts, see "The VI Trust and
the SA Trust." An investment in the Fixed Account will be held and managed by
the Company through its general account. See "The Fixed Account."
Assets allocated by Contract Owners to the Variable Account are held by
Separate Account 1. Such assets are segregated from other assets of the Company
but not from assets attributable to other variable annuity contracts issued
through Separate Account 1. Owners bear the investment risk with respect to the
Sub-Accounts which they select, and there is no guarantee that amounts invested
by the Owner in the Sub-Accounts will increase or retain
5
<PAGE>
their value. See "The Variable Account." The Company guarantees that amounts
allocated by an Owner to the Fixed Account will earn interest at a rate
determined periodically by the Company and in effect at the time of each
investment. See "The Fixed Account."
MINIMUM AND MAXIMUM INVESTMENTS
A Contract may be purchased on a Non-Qualified basis or on a Qualified basis
as part of a plan which qualifies under Sections 401, 403(b), 408 or 457 of the
Code. The initial Purchase Payment must be at least $10,000 for Non-Qualified
Contracts and $1,000 for Qualified Contracts (or $50 for Qualified Contracts if
payments will be made under an automatic or scheduled installments plan). Each
subsequent payment must be at least $100 for either Contract. However, monthly
Purchase Payments of not less than $50 will be permitted for either Contract
under an automatic or scheduled installment plan. If no purchase payments have
been received for two full years and both (a) the total Purchase Payments less
any partial withdrawals and (b) the Contract Value, are less than $2,000, the
Company will, after 14 days prior written notice to the Owner, terminate the
Contract and pay the Surrender Value to the Owner. The cumulative total of all
Purchase Payments under a Contract may not exceed $500,000 without the prior
consent of the Company. See "Purchase of a Contract -- Minimum/Maximum
Investments."
VARIABLE ANNUITY SERVICE CENTER
Investments in or withdrawals from a Contract, transfers of amounts to or
from the Variable Account and other directions with respect to the investment of
Purchase Payments should be directed to the Company at the Touchstone Special
Markets Service Center, P.O. Box 2850, Cincinnati, Ohio 45201-2850 (the "SPECIAL
MARKETS SERVICE CENTER").
TEN-DAY FREE LOOK
To be sure that the Owner is satisfied with the Contract, the Owner has a
ten-day "free look." Within ten days of the date the Contract is received by the
Owner, it may be returned to the Company at the Special Markets Service Center.
If the Contract is received by the Company within such time, the Company will
void the Contract, and the Contract Value, plus any amount deducted from the
initial Purchase Payment prior to allocation to the Sub-Accounts or the Fixed
Account, will then be refunded in full unless otherwise required by state or
federal law. See "Free Look Privilege."
INVESTMENT OPTIONS
Purchase Payments will be invested by the Company, in the proportions that
the Owner directs, in the Fixed Account and the Sub-Accounts. See "Allocation of
Purchase Payments." The Variable Account currently has seven Sub-Accounts, each
of which invests exclusively in one of the VIT Portfolios or one of the SAT
Portfolios. The VIT Portfolios are Emerging Growth, International Equity,
Balanced, Income Opportunity and Standby Income. The SAT Portfolios are Growth &
Income and Bond. Information regarding the investment options presented by the
VIT Portfolios and the SAT Portfolios is set forth under the caption "The VI
Trust and the SA Trust" herein. More detailed information regarding the SAT
Portfolios will be found under the caption "Investment Objectives, Policies and
Restrictions" in this Prospectus. Detailed information regarding the VIT
Portfolios will be found in the VI Trust Prospectus. Owners may transfer funds
among Sub-Accounts once every thirty days. Transfers from the Variable Account
to the Fixed Account may be made once during any Contract Year. Transfers from
the Fixed Account to the Variable Account also may be made once during any
Contract Year; such transfers are permitted up to a maximum of 25% of the Fixed
Account Value. See "Transfers."
PURCHASE PAYMENTS
The Owner may elect to allocate Purchase Payments to the Sub-Accounts or the
Fixed Account or any combination of these alternatives. Purchase Payments will
be processed by the Company on the day received at the Special Markets Service
Center, if received in good order no later than 4:00 p.m. Eastern Time on any
Valuation Date. Payments received in good order later in the day, or on any day
not a Valuation Date, will be processed on the next Valuation Date. Purchases by
the Sub-Accounts of shares of the corresponding VIT Portfolios or of interests
in the corresponding SAT Portfolio will be made on the next Valuation Date
following processing, at the value of the corresponding Portfolio on the date of
processing. As the value of the investments in the Sub-Accounts increases or
decreases, the Variable Account Value increases or decreases. See "Allocation of
Purchase Payments."
6
<PAGE>
WITHDRAWAL; SURRENDER
Prior to the Income Date, the Owner may withdraw all or part of the Contract
Value. A withdrawal of all of the Contract Value is a "SURRENDER." During the
first seven years following the receipt of a Purchase Payment, such withdrawals
(to the extent they exceed any available "free" amounts, as described under the
caption "Surrender Charge -- 'Free' Amounts") generally will be subject to a
Surrender Charge. This charge is 8% of the amount of any Purchase Payment
withdrawn less than one year following receipt of such payment and decreases
over time, reducing to zero after the seventh year from the receipt of a
Purchase Payment. The minimum partial withdrawal is $250, and the Contract Value
following any partial withdrawal must be at least $2,000. Where permitted by
applicable law, the Company will waive the Surrender Charge if the Owner or the
Annuitant is confined to a long term care facility or hospital (as defined in
the Contract) for at least 30 days prior to surrender, and reserves the right to
waive the Surrender Charge in certain other circumstances. See "Surrenders and
Partial Withdrawals" and "Surrender Charge." Certain withdrawals may be subject
to an additional tax on premature distributions as well as to federal income
tax. See "Federal Income Taxation."
INCOME PAYMENT OPTIONS
The Contract offers five fixed income payment options, unless otherwise
limited by applicable state insurance laws. Income may be paid in installments,
either for a fixed period of one to 30 years or in a fixed amount. Income also
may be paid under a life income alternative, either with or without a guaranteed
payment period. In addition, life income may be paid over the lifetimes of the
Annuitant and another designated person. Other income payment options may be
selected with prior approval of the Company. If no income option is selected by
the Owner, the Contract provides for a monthly annuity payment, beginning on the
Income Date if the Annuitant is then living, payable for life with ten years
certain. See "Selection of Income Payment Option." If the Annuitant dies after
the Income Date, the amount and manner of any continuing payments will depend
upon the income option selected. See "Income Payment Options."
DEATH BENEFIT
If the Owner dies before the Income Date, the Company will pay a Death
Benefit to the Beneficiary selected by the Owner. See "Death Benefit." The Death
Benefit paid will be the greatest of three alternative values calculated as of
the Valuation Date by which satisfactory proof of death, death benefit payment
instructions and election of settlement option have been received in good order
by the Company (the "BENEFIT DETERMINATION DATE"). One such value, the Contract
Value, applies in all cases, regardless of the age of the Owner or any option
selected by the Owner. A second value, the return of Purchase Payments (less
prior withdrawals), also applies in all cases. The third value will be
determined pursuant to one of three available Death Benefit Options, which must
be selected by the Owner when the Contract is first issued. See "Death Benefit
- -- Death Benefit Options."
CHARGES
SURRENDER CHARGE. The Company does not deduct a sales charge from Purchase
Payments made for Contracts. However, if any part of the Contract Value is
withdrawn, the Company will, with certain exceptions, deduct from the Owner's
Contract Value a Surrender Charge not to exceed 8% of the lesser of (i) the
total of all purchase payments made within 84 months prior to the date of the
request to surrender, and (ii) the amount surrendered. This charge, when
applicable, is imposed to permit the Company to recover sales expenses that have
been incurred by the Company. See "Surrenders and Partial Withdrawals" and
"Surrender Charge."
CONTRACT MAINTENANCE AND CONTRACT ADMINISTRATION CHARGES. In addition, on
each Contract Anniversary (and upon surrender) the Company will deduct an annual
maintenance charge (the "CONTRACT MAINTENANCE CHARGE") of not more than $40 from
the Contract Value. In certain states, the Company may waive, reduce or
eliminate such charge. No Contract Maintenance Charge will be incurred if the
Contract Value is $50,000 or more on the date when the Contract Maintenance
Charge is deducted. The Company also will deduct on a daily basis an
administration charge (the "CONTRACT ADMINISTRATION CHARGE") equal to an annual
rate of 0.15% of the Variable Account Value. These charges are to reimburse the
Company for administrative expenses related to the issue and maintenance of the
Contract. The Company does not expect to recover from these charges an amount in
excess of accumulated administrative expenses. See "Administrative Charges."
7
<PAGE>
MORTALITY AND EXPENSE RISK CHARGE. The Company deducts on a daily basis a
charge to compensate for the mortality risk assumed by the Company (the
"MORTALITY RISK CHARGE"). The charge ranges from 0.85% to 1.05%, depending upon
the Death Benefit Option selected by the Owner. The charge is 0.85% if the Owner
selects the Standard Death Benefit Option, 0.95% for the Annual Step-Up Death
Benefit Option and 1.05% for the Six Percent Accumulating Death Benefit Option.
In addition, the Company deducts on a daily basis a charge equal to an annual
rate of 0.35% of the Variable Account Value as compensation for the Company's
risk in agreeing not to increase administrative charges on the Contracts
regardless of actual administrative costs (the "EXPENSE RISK CHARGE"). The
Mortality Risk Charge and Expense Risk Charge are together referred to as the
"MORTALITY AND EXPENSE RISK CHARGE." For additional information, see "Mortality
and Expense Risk Charge" and "Death Benefit."
OTHER. Premium taxes payable to any governmental entity will be charged
against the Contracts. See "Premium Taxes" and "Other Taxes."
The Company may include as a component of the Net Investment Factor (see
"Accumulation Unit Value") a charge or credit for any taxes reserved, which are
determined by the Company to have resulted from the investment operations of any
Sub-Account. See "Allocation of Purchase Payments" and "Other Taxes."
The Portfolios of the VI Trust and of the SA Trust accrue management fees
and other expenses daily and pay them monthly. See "Expenses of VIT Portfolios
and SAT Portfolios; Expense Caps."
THE FOREGOING SUMMARY IS INTENDED TO PROVIDE ONLY AN OVERVIEW OF THE MORE
SIGNIFICANT ASPECTS OF THE CONTRACT. DETAILED INFORMATION IS PROVIDED IN
SUBSEQUENT SECTIONS OF THIS PROSPECTUS AND IN THE CONTRACT. THE CONTRACT
(INCLUDING ANY AMENDMENTS, RIDERS AND ENDORSEMENTS) TOGETHER WITH THE
APPLICATION FORM CONSTITUTES THE ENTIRE AGREEMENT BETWEEN THE OWNER AND THE
COMPANY AND SHOULD BE RETAINED BY THE OWNER.
PERFORMANCE INFORMATION
GENERAL
The Variable Account may advertise certain performance information regarding
the Sub-Accounts from time to time. Such performance information will be based
upon historical performance and is not intended to predict future performance
under an actual Contract.
Average annual total return quotations represent the average compounded rate
of return on a hypothetical initial investment of $1,000. Average annual total
return reflects all historical investment results, less all charges and
deductions applied against a Sub-Account (including any Surrender Charge that
might apply if an Owner terminated the Contract at the end of the indicated
period, but excluding any deductions for premium taxes). The rate for each
Sub-Account is computed by comparing a hypothetical initial investment of $1,000
in the Sub-Account to the hypothetical Surrender Value of that investment at the
end of specifically defined 1, 5 and 10 year periods or for the life of the
Contract.
It is important to note that total return figures are based on historical
earnings and are not intended to indicate future performance. The Statement of
Additional Information describes in more detail the methods used to determine
total return.
RATINGS; INDEXES
In reports or other communications to shareholders or in advertising
material, a Sub-Account may also quote non-standardized total return figures,
such as non-annualized figures (provided that these figures are accompanied by
standardized total return figures calculated as described above), as well as
compare its performance with that of other separate accounts as listed in the
rankings prepared by Lipper Analytical Services, Inc. or similar independent
services that monitor the performance of separate accounts. The performance
information also may include evaluations of the separate accounts published by
nationally recognized ranking services and by financial publications that are
nationally recognized.
Additional information regarding the calculation of performance information
appears in the Statement of Additional Information.
8
<PAGE>
FACTS ABOUT THE COMPANY, THE VARIABLE ACCOUNT AND THE FIXED ACCOUNT
THE COMPANY
The Company is a stock life insurance company organized under the laws of
the State of Ohio on December 1, 1980. The Company is a wholly-owned subsidiary
of The Western and Southern Life Insurance Company, a mutual life insurance
company originally organized under the laws of the State of Ohio on February 23,
1888 ("WESTERN & SOUTHERN"). Both companies are in the business of issuing
insurance and annuity contracts. The executive offices of both companies are
located at 400 Broadway, Cincinnati, Ohio 45202 and their telephone number is
(513) 629-1800.
THE VARIABLE ACCOUNT
The Variable Account is held by the Company's Separate Account 1, a separate
investment account of the Company established pursuant to Ohio law on July 27,
1992. Separate Account 1 is used to support the Contracts described in this
Prospectus and other variable annuity contracts of the Company and for other
purposes permitted by law. Separate Account 1 is registered with the Securities
and Exchange Commission (the "SEC") as a unit investment trust under the
Investment Company Act of 1940 (the "1940 ACT"). Separate Account 1 consists of
Variable Account assets held for the benefit of Contract Owners and assets held,
through similar accounts, for the benefit of owners of other variable annuity
contracts issued by Separate Account 1.
The Company owns the assets of Separate Account 1. As required by law,
however, the assets of Separate Account 1 are kept separate from the Company's
general account assets and any other separate account assets and are held
exclusively for the benefit of Owners and Beneficiaries of the Contracts and of
other variable annuity contracts issued by Separate Account 1. These assets may
not be charged with liabilities from any other business which the Company may
conduct. The Company is obligated to pay all benefits provided under the
Contracts and all benefits provided under other variable annuity contracts
issued by Separate Account 1.
Each Sub-Account of the Variable Account is administered and accounted for
as part of the general business of the Company; however, the income, capital
gains or capital losses of each Sub-Account are credited to or charged against
the assets held in that Sub-Account in accordance with the terms of each
Contract without regard to the income, capital gains or capital losses of any
other Sub-Account or arising out of any other business of the Company.
Each Sub-Account invests either in a Portfolio of the VI Trust or in a
Portfolio of the SA Trust. The VI Trust is a Massachusetts business trust and
the SA Trust is a New York trust. Each Trust is registered as an open-end
management investment company under the 1940 Act. The Portfolios are described
generally below. Owners periodically may transfer funds between Sub-Accounts or
change allocations among Sub-Accounts. See "Transfers."
THE VI TRUST AND THE SA TRUST
The Variable Account consists of seven Sub-Accounts, each of which invests
exclusively in one of the VIT Portfolios or in one of the SAT Portfolios. The
investment objective of each Sub-Account is the same as the corresponding
Portfolio, each of which is described briefly below. There is no assurance that
any Contract or Portfolio will meet its investment objective.
VIT PORTFOLIOS
EMERGING GROWTH PORTFOLIO has a primary investment objective of capital
appreciation with income as a secondary investment objective. The Portfolio
attempts to achieve its investment objective through investment primarily in the
common stock of smaller, rapidly growing companies.
INTERNATIONAL EQUITY PORTFOLIO has an investment objective of long term
capital appreciation through investment primarily in equity securities of
companies based outside the United States.
BALANCED PORTFOLIO has an investment objective of growth of capital and
income through investment in common stocks and fixed-income securities.
9
<PAGE>
INCOME OPPORTUNITY PORTFOLIO has an investment objective of high current
income through investment in high yield, non-investment grade debt securities
(commonly known as "junk bonds") of both U.S. and non U.S. issuers and in
mortgage-related securities. To the extent consistent with its primary
objective, the Portfolio will also seek capital appreciation.
STANDBY INCOME PORTFOLIO has an investment objective of high current income
to the extent consistent with relative stability of principal, which it attempts
to achieve through investment in short-term, investment grade debt securities.
SAT PORTFOLIOS
GROWTH & INCOME PORTFOLIO has an investment objective of long term capital
appreciation and dividend income through investment primarily in common stocks
of high quality companies.
BOND PORTFOLIO has an investment objective of providing a high level of
current income primarily through investment in investment grade bonds.
Several of the Portfolios invest in non-investment grade (or "junk") bonds,
which entail greater risk of untimely interest and principal payments, default
and price volatility than higher rated securities and may present problems of
liquidity and valuation. The Income Opportunity Portfolio and the International
Equity Portfolio of the VI Trust, which are described in more detail in the VI
Trust Prospectus, may invest up to 100% and 35%, respectively, of their total
assets in non-investment grade bonds. See "Income Opportunity Portfolio,"
"International Equity Portfolio" and "Medium and Lower Rated ("Junk Bonds") and
Unrated Securities" in the VI Trust Prospectus. The Growth & Income Portfolio
and Bond Portfolio of the SA Trust, which are described more fully in Part II of
this Prospectus, may invest up to 5% and 35%, respectively, of their total
assets in non-investment grade bonds. See "Growth & Income Portfolio," "Bond
Portfolio" and "Medium and Lower Rated ("Junk Bonds") and Unrated Securities."
Such investments may not be appropriate for all investors.
MORE COMPLETE INFORMATION ABOUT THE FIVE PORTFOLIOS OF THE VI TRUST,
INCLUDING THE ASSOCIATED RISKS, IS SET FORTH IN THE VI TRUST PROSPECTUS. SIMILAR
INFORMATION WITH RESPECT TO THE GROWTH & INCOME AND THE BOND PORTFOLIOS OF THE
SA TRUST IS CONTAINED IN PART II OF THIS PROSPECTUS. PROSPECTIVE PURCHASERS OF
CONTRACTS SHOULD READ THE VI TRUST PROSPECTUS AND PART II OF THIS PROSPECTUS IN
CONJUNCTION WITH THE INFORMATION REGARDING THE VARIABLE ACCOUNT CONTAINED
HEREIN.
ADVISORS AND SERVICE PROVIDERS
Both the VI Trust and the SA Trust have entered into investment advisory
agreements with Touchstone Advisors, Inc. (the "ADVISOR"). The Advisor, in turn,
has entered into investment advisory agreements with separate investment
advisors selected for each Portfolio (the "PORTFOLIO ADVISORS"). It is the
responsibility of the Advisor to select the Portfolio Advisors, subject to the
review and approval of the trustees of the VI Trust or the SA Trust, as the case
may be, and to review the ongoing investment strategy of each Portfolio Advisor
and the performance of the Portfolios. Each Trust has entered into agreements
with Investors Bank and Trust Company ("INVESTORS BANK" or the "ADMINISTRATOR")
pursuant to which Investors Bank provides administrative and fund accounting
services for each Trust. The Advisor employs, at its expense, the services of
RogersCasey Sponsor Services, Inc. ("ROGERSCASEY"), a research firm specializing
in appraisal and comparison of investment managers, as a consultant to assist in
evaluating portfolio advisors. See "Consultant to the Advisor."
ADDITIONS, DELETIONS AND SUBSTITUTIONS OF INVESTMENTS
The Company may from time to time make additional Sub-Accounts available.
These Sub-Accounts will invest in investment portfolios that the Company deems
suitable for the Contracts. The Company also has the right, upon approval of
affected Contract Owners or approval of the SEC, to substitute a new investment
portfolio or similar investment option for the Portfolio in which a Sub-Account
invests. A substitution may become necessary if, in the Company's judgment, the
Portfolio or other investment option no longer suits the purposes of the
Contracts. This may happen due to unsatisfactory investment performance, a
change in laws or regulations, a change in a Portfolio's investment objectives
or restrictions, because the Portfolio is no longer available for investment, or
for some other reason. The Company would obtain prior approval from the SEC to
the extent required and any other required approvals before making such a
substitution. The Company also reserves the right
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to eliminate Sub-Accounts from the Variable Account or to combine two or more
Sub-Accounts, and the right to operate the Variable Account as a management
investment company under the 1940 Act or any other form permitted by law or to
deregister the Variable Account under the 1940 Act in the event such
registration no longer is required.
THE FIXED ACCOUNT
Due to exemptive and exclusionary provisions, interests in the Fixed Account
have not been registered under the Securities Act of 1933 (the "1933 ACT") and
the Company's general account has not been registered as an investment company
under the 1940 Act. Accordingly, interests in the Fixed Account are not subject
to the provisions of those acts, and the Company has been advised that the staff
of the SEC has not reviewed the disclosures in this Prospectus relating to the
Fixed Account.
As noted earlier, a Contract Owner may allocate purchase payments or
transfer all or part of the Owner's Contract Value to the Fixed Account. Funds
allocated or transferred to the Fixed Account will not fluctuate with the
investment experience of the Company's general account. The Company guarantees
that the portion of an Owner's Contract Value that is held in the Fixed Account
will accrue interest at an effective annual rate of at least 3%. When any part
of a Purchase Payment is allocated to the Fixed Account or an amount is
transferred into the Fixed Account, an interest rate will be assigned to that
amount. That rate will be guaranteed by the Company for one year from the
receipt of the Purchase Payment or transferred amount. At the end of that year,
a new interest rate, which will be guaranteed by the Company for at least one
year, will be assigned to that Purchase Payment or transferred amount and
related earnings. Thereafter, interest rates assigned to that amount and to
subsequent Purchase Payments or to subsequent transferred amounts allocated to
the Fixed Account will be similarly guaranteed for successive periods of at
least one year. Therefore, different interest rates may apply to different
amounts in the Fixed Account depending upon when the amount was initially
allocated by the Owner, and the interest rate applicable to any particular
amount may vary over time. The interest rate credited to a Purchase Payment or
transferred amount by the Company may differ from the rate being earned by the
Company's general account and may differ from the interest rates being credited
to other funds in the general account, whether such funds were received at the
same time as the Purchase Payment or transferred amount or at a different time.
In no event will any interest rate credited be less than an effective annual
rate of 3%. The amount of an Owner's Fixed Account Value and the amount of
interest credited will be included in statements sent to Contract Owners.
THE CONTRACT
PURCHASE OF A CONTRACT
GENERAL
The Company offers Contracts only in states in which it has received the
necessary regulatory approvals to do so. Contracts may be Qualified or
Non-Qualified. Qualified Contracts are accorded special federal income tax
treatment under the Code. Generally, Qualified Contracts may be purchased only
in connection with plans which qualify under Sections 401, 403(b), 408 or 457 of
the Code. Qualified Contracts contain provisions restricting the timing and
amount of payments to and distributions from such Contracts. See "Federal Income
Taxation."
MINIMUM/MAXIMUM INVESTMENTS
The purchase of a Non-Qualified Contract requires a minimum initial Purchase
Payment of $10,000. The minimum initial Purchase Payment for a Qualified
Contract is $1,000 or $50 if payments will be made under an automatic or
scheduled installment plan. Subsequent Purchase Payments under both types of
Contracts must be at least $100 (at least $50 if made under an automatic or
scheduled installment plan), and may be made at any time. The maximum cumulative
total of all Purchase Payments under any Contract may not exceed $500,000
without prior approval by the Company. If no Purchase Payments have been
received for two full years and both (a) the total Purchase Payments less any
partial withdrawals and (b) the Contract Value are less than $2,000, the Company
requires that the deficiency be paid within 14 days of notice to the Owner. If
it is not paid, the Company will terminate the Contract and pay the Surrender
Value to the Owner.
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PURCHASE PROCEDURE
To purchase a Contract, the purchaser must submit the initial Purchase
Payment and the completed Application Form in good order to the Company at the
Special Markets Service Center. The Contract becomes effective on the Contract
Date, which is stated on page 3 of the Contract, and generally is within one
business date after the Valuation Date on which the initial Purchase Payment and
the Application Form are received in good order at the Special Markets Service
Center. Any such receipt must be effected by 4:00 p.m. Eastern Time on a
Valuation Date; if later, the effective date of the Contract will be the
following Valuation Date. Purchase Payments will be allocated among the
Sub-Accounts (and, if applicable, the Fixed Account) according to the
instructions of the Owner. See "Allocation of Purchase Payments." If an
incomplete Application Form is received, the Company will request additional
information to complete the application. If the Application Form remains
incomplete for five business days after its receipt, the Company will return the
initial Purchase Payment unless the purchaser consents to a delay.
ISSUE AGE LIMITS
The maximum age at issue of the proposed Owner depends on the Death Benefit
Option selected. See "Death Benefit." Owners electing the Standard Death Benefit
may not be older than 85. Owners electing the Annual Step-up Death Benefit or
the 6% Accumulating Death Benefit may not be older than 75. The proposed
Annuitant, whether the Owner or another, must be no older than 85.
FREE LOOK PRIVILEGE
A Contract may be returned for a refund within 10 days after the Owner
receives it (the "FREE LOOK PERIOD"). If the Owner chooses not to retain the
Contract, it must be returned to the Company at the Special Markets Service
Center within the free look period. In such circumstances, the Company will
cancel the Contract and refund promptly an amount that in most cases will be
equal to the Owner's Contract Value, plus any amount deducted from the initial
Purchase Payment prior to allocation to the Sub-Accounts or the Fixed Account.
The laws of certain states require the Company to return other amounts to Owners
pursuant to the free look privilege; in such states, such amounts will be
returned. Similarly, the laws of certain states require a free look period
longer than 10 days; Owners living in such states will have a free look period
conforming to applicable state law.
ALLOCATION OF PURCHASE PAYMENTS
Allocation of the initial Purchase Payment will be made according to the
instructions given by the Owner on the Application Form. Each allocation must be
in whole percentages of at least 5%, and the sum of the allocation percentages
must equal 100%. Absent written instructions from the Owner, subsequent Purchase
Payments will be allocated in the same manner as the most recent written
allocation, or the initial allocation, if unchanged. Contract Owners should
periodically review their allocations under the Contract in light of market
conditions and their own financial objectives.
For all Purchase Payments allocated to Sub-Accounts (other than the initial
such payment, which is allocated as of the Contract Date), Accumulation Units
will be credited at the Accumulation Unit Value calculated as of the close of
business on the Valuation Date such Purchase Payment is received in good order
by the Company at the Special Markets Service Center if received before 4:00
p.m. Eastern Time on such Valuation Date. For payments received after such time,
Accumulation Units will be credited at the Accumulation Unit Value calculated as
of the next following Valuation Date. The number of Accumulation Units for each
Sub-Account of the Variable Account is determined by dividing the amount of the
Purchase Payment allocated to the Sub-Account by the Accumulation Unit Value for
the Sub-Account as of the close of business on the Valuation Date on which the
Company is deemed to have received the Purchase Payment. The Accumulation Unit
Value for each Sub-Account was set arbitrarily at $10 when the first Portfolio
interest was purchased by the Sub-Account. Thereafter, Accumulation Unit Value
fluctuates from day to day depending upon the investment performance of the
Portfolio in which the Sub-Account is invested.
ACCUMULATION UNIT VALUE
The following material describes the procedures used to calculate
Accumulation Unit Value for, respectively, the five Sub-Accounts (Emerging
Growth, International Equity, Balanced, Income Opportunity and Standby Income)
that invest in Portfolios of the VI Trust and the two Sub-Accounts (Growth &
Income and Bond) that
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invest in Portfolios of the SA Trust. The procedures do not produce different
results. Rather, they reflect different accounting treatment at the Portfolio
level, with interests in the VI Trust being calculated on a per share basis and
interests in the SA Trust being calculated on a percentage basis.
ACCUMULATION UNIT VALUE OF VIT SUB-ACCOUNTS
The value of an Accumulation Unit at the close of any Valuation Period is
determined for each Sub-Account that invests in a VIT Portfolio (a "VIT
SUB-ACCOUNT") by multiplying the Accumulation Unit Value of the Sub-Account at
the close of the immediately preceding Valuation Period by the "VIT NET
INVESTMENT FACTOR" (described below). Depending upon investment performance of
the VIT Portfolio in which the Sub-Account is invested, the Accumulation Unit
Value may increase or decrease.
The VIT Net Investment Factor for each VIT Sub-Account, for any Valuation
Period, is determined by dividing (a) by (b) and subtracting (c) from the
result, where:
(a) is:
(1) the net asset value per share of the corresponding VIT Portfolio at
the end of the current Valuation Period, plus
(2) the per share amount of any dividend or capital gain distribution
made by the VIT Portfolio on shares held in the Sub-Account if the
"ex-dividend" date occurs during the current Valuation Period, plus
or minus
(3) a per share charge or credit for any taxes reserved, which are
determined by the Company to have resulted from the investment
operations of the Sub-Account during the current Valuation Period;
(b) is the net asset value per share of the corresponding VIT Portfolio
determined at the end of the immediately preceding Valuation Period;
and
(c) is a factor representing the charges deducted from the Sub-Account on a
daily basis for the daily portion of the annual Mortality and Expense
Risk Charge (1.20% to 1.40%, depending on the Death Benefit Option
selected) and the annual Contract Administration Charge (0.15%).
ACCUMULATION UNIT VALUE OF GROWTH & INCOME AND BOND SUB-ACCOUNTS
The value of an Accumulation Unit at the close of any Valuation Period is
determined for the Growth & Income and Bond Sub-Accounts by multiplying the
Accumulation Unit Value at the close of the immediately preceding Valuation
Period by the "SAT NET INVESTMENT FACTOR" (described below). Depending upon
investment performance of the SAT Portfolio in which the Sub-Account is
invested, the Accumulation Unit Value may increase or decrease.
The SAT Net Investment Factor for each of the Growth & Income and Bond
Sub-Accounts for any Valuation Period is equal to one plus the net result of (a)
divided by (b) where:
(a) is the accrued gain or loss in the Sub-Account for the Valuation Period,
including investment income, capital gains and losses, adjusted by:
(1) charging the Sub-Account a dollar amount representing the portion of
the annual Mortality and Expense Risk Charge (1.20% to 1.40%,
depending on the Death Benefit Option selected) and the annual
Contract Administration Charge (0.15%) that is allocable to the
Sub-Account for the Valuation Period, and
(2) charging or crediting the Sub-Account for any tax charge or tax
credit determined by the Company to have resulted from the investment
operations of the Sub-Account during the Valuation Period;
and
(b) is the value of the Sub-Account as of the close of the immediately
preceding Valuation Period.
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FIXED ACCOUNT VALUE
Fixed Account Value is calculated on a daily basis, and consists of (i) the
sum of all Purchase Payments allocated to the Fixed Account, plus (ii) any
Variable Account Value transferred to the Fixed Account, plus (iii) interest
credited by the Company to the Fixed Account, less (iv) any amounts transferred
from the Fixed Account to the Variable Account, less (v) any amounts withdrawn
for charges or deductions, or in connection with any surrenders or partial
withdrawals (which include Surrender Charges, if any, and any share of the
Contract Maintenance Charge taken from the Fixed Account). See "The Fixed
Account."
DOLLAR COST AVERAGING
A Contract Owner may direct the Company, at any time prior to the Income
Date, automatically to transfer specified dollar or percentage amounts (or
earnings amounts) from the Fixed Account or from the Standby Income Sub-Account
to other Sub-Accounts on a monthly or quarterly basis. This automatic transfer,
known as "Dollar Cost Averaging", may be selected by a Contract Owner for a
period of at least 12 months. The minimum Dollar Cost Averaging transfer is
$200, with a minimum allocation per Sub-Account of 5% of the total amount
transferred. Dollar Cost Averaging is available only if the Contract Value is at
least $10,000. All Dollar Cost Averaging transfers for all Contracts will be
made effective on the monthly or quarterly anniversary of the Contract Date, at
the election of the Owner. Contract Owners may elect to participate in Dollar
Cost Averaging by notifying the Company in writing. Forms for this purpose are
available from the Special Markets Service Center. Dollar Cost Averaging will
terminate when any of the following occurs: (1) the number of designated
transfers has been completed; (2) the portion of the Contract Value in the Fixed
Account or in the Standby Income Sub-Account is insufficient to complete the
next scheduled transfer; (3) the Contract Owner requests termination in writing;
or (4) the Contract is terminated. There is no charge at this time for Dollar
Cost Averaging, but the Company reserves the right to charge a fee for this
service. The Company also reserves the right to terminate Dollar Cost Averaging,
on a prospective basis, upon 30 days' written notice to Contract Owners.
TRANSFERS
Subject to the conditions described below, an Owner may transfer all or part
of the Contract Value among the Sub-Accounts and the Fixed Account.
The minimum transfer amount is $250. Transfers among Sub-Accounts other than
by Dollar Cost Averaging may be made once every thirty days, and not less than
5% of the total amount transferred can be directed to any other Sub-Account. An
Owner may only transfer from one or more Sub-Accounts to the Fixed Account once
each Contract Year, and from the Fixed Account to one or more Sub-Accounts once
each Contract Year (except in the case of Dollar Cost Averaging). When
transferring from the Fixed Account, the amount of the transfer (excluding
Dollar Cost Averaging transfers) is limited to a maximum of 25% of the Fixed
Account Value. The Company currently imposes no charges for any such transfer,
but reserves the right to modify availability of and conditions for transfers at
any time, including the right to charge transfer fees.
The Company will effect transfers pursuant to proper written or telephone
instructions received at the Special Markets Service Center which clearly
specify the requested changes. Requests received in good order by the Company at
the Special Markets Service Center by 4:00 p.m. Eastern Time on any Valuation
Date will be effected that day; requests received after that time will be
effected on the next Valuation Date.
The Company will not honor telephone transfer instructions unless proper
authorization has been provided either (i) in the completed Application Form, or
(ii) in a properly completed telephone transfer authorization form. If the
proper authorization is on file at the Special Markets Service Center, requests
for transfers may be made by calling 1-800-669-2796 (press 2) between 8:00 a.m.
and 4:00 p.m. Eastern Time on any Valuation Date. Such telephone transfer
request must include a precise identification of the Owner's Contract and social
security number. A personal identification number ("PIN") also may be required.
The Company will accept telephone requests for transfers from any person
presenting the required information and claiming to be the Owner. All or part of
any telephone conversation relating to transfer instructions may be recorded by
the Company.
Telephone transfer instructions apply only to previously invested Purchase
Payments and may not be employed to change the investment allocation of future
Purchase Payments under the Contract. Allocation of future Purchase Payments can
be changed only by proper written request. See "Allocation of Purchase
Payments."
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The Company will not be liable for following instructions received by
telephone that it reasonably believes to be genuine. The Company has established
certain procedures, some of which are described above, to confirm that telephone
instructions are genuine. If it does not follow reasonable procedures, it may be
liable for any losses due to unauthorized or fraudulent instructions.
The Company reserves the right to modify, suspend or discontinue the
telephone transfer privilege at any time and without prior notice.
SURRENDERS AND PARTIAL WITHDRAWALS
While the Contract is in force and prior to the Income Date or the death of
the Owner, the Company will, upon proper written notification by the Owner,
allow the Owner to surrender all, or withdraw part, of the Contract Value, less
any Surrender Charge and any applicable Contract Maintenance Charge and premium
taxes. See "Surrender Charge." A withdrawal may not be less than $250, and it
may not reduce the Contract Value to less than $2,000. For information regarding
amounts that may be withdrawn without any Surrender Charge (so called "free"
amounts), see "Surrender Charge -- 'FREE AMOUNTS'."
Any amount withdrawn will result in the liquidation of Accumulation Units
from each applicable Sub-Account and liquidation of value from the Fixed Account
in the ratio that the value of each Sub-Account and the Fixed Account bears to
the total Contract Value. The Owner must specify in writing in advance which
Accumulation Units or value are to be liquidated if some other ratio is desired.
All surrenders and partial withdrawals from the Variable Account will be
paid within seven days of receipt of written notification, subject to
postponement of either calculation or payment, or both, for any of the following
reasons:
(1) The New York Stock Exchange is closed other than for customary weekend
and holiday closings;
(2) Trading on the New York Stock Exchange is restricted;
(3) An emergency exists as a result of which disposal of securities is not
reasonably practicable or it is not reasonably practicable to fairly
determine the value of the net assets of the Variable Account;
(4) The SEC, by order, permits postponement of payments for the protection
of security holders; or
(5) The request for surrender or withdrawal is not made in writing or is not
received in good form (i.e., accurate, complete and understandable).
Applicable regulations of the SEC shall determine whether the conditions
prescribed in (2) and (3) exist.
Payments resulting from surrenders or withdrawals from the Fixed Account may
be deferred for up to six months.
Since the Owner assumes the investment risk with respect to amounts held in
the Sub-Accounts and because certain surrenders and partial withdrawals are
subject to a Surrender Charge, the total amount paid upon surrenders and partial
withdrawals under the Contracts may be more or less than the Purchase Payments
made.
TAX MATTERS. The Internal Revenue Code imposes a penalty tax equal to 10%
of the amount treated as taxable income on most surrenders and partial
withdrawals made from Contracts prior to the Contract Owner or the Annuitant (in
the case of a Qualified Contract) reaching age 59 1/2. See "Tax Treatment of
Withdrawals -- Non-Qualified Contracts" and "-- Qualified Contracts."
SYSTEMATIC WITHDRAWALS
A Contract Owner may elect in writing to withdraw from the Contract a
specified dollar amount of at least $100 on a monthly, quarterly, semiannual or
annual basis. If such systematic withdrawals exceed 10% of Contract Value in any
year, a Surrender Charge may apply. The systematic withdrawals will be
accomplished by liquidating, on a pro rata basis, Accumulation Units from all
Sub-Accounts to which Contract Value is allocated and value from the Fixed
Account.
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Alternatively, the Owner may elect to withdraw future earnings only, with no
specified dollar amount, on a monthly, quarterly, semiannual or annual schedule.
Under this election, Accumulation Units and value from the Fixed Account
representing only such income earned on the Contract will be liquidated to
satisfy the systematic withdrawals, and no Surrender Charges will apply to such
liquidations.
An Owner may discontinue systematic withdrawals at any time by notifying the
Company in writing. The Company reserves the right to discontinue offering
systematic withdrawals, on a prospective basis, upon 30 days' written notice to
Contract Owners. Any such discontinuation would not affect systematic withdrawal
plans already in operation. The Company also reserves the right to assess a
processing fee for this service. Based upon the Company's present costs, the
Company does not expect that such fee would exceed $5.00 per transaction.
TAX MATTERS. The Internal Revenue Code imposes a penalty tax equal to 10%
of the amount treated as taxable income on most surrenders and partial
withdrawals made from Contracts prior to the Contract Owner or the Annuitant (in
the case of a Qualified contract) reaching age 59 1/2. See "Tax Treatment of
Withdrawals -- Non-Qualified Contracts" and "-- Qualified Contracts."
SELECTION OF INCOME PAYMENT OPTION
INCOME DATE SELECTION
Unless otherwise required by plan documents or current tax law, or unless
otherwise indicated by the Owner, the Income Date is the later of the Contract
Anniversary on or following the Annuitant's 80th birthday and the 10th Contract
Anniversary (see Page 3 of the Contract). The Income Date can be changed to any
date by written request to the Company, if such written request is received on
or prior to the scheduled Income Date. See "Tax Treatment of Withdrawals --
Non-Qualified Contracts" and "-- Qualified Contracts."
INCOME PAYMENT OPTIONS
Annuity payments will be made to the payee(s) designated by the Owner. If no
payee is designated, the Owner will be the payee. The Owner may change payee(s)
at any time by written notice to the Company.
The Owner may apply the Surrender Value less any applicable premium tax
under any one of the income payment options specified in the Contract and
described below. A change of income payment option is permitted on or prior to
the Income Date upon written notice to the Company. In the absence of an
election, annuity payments will be made in accordance with Option 2, described
below, with monthly payments guaranteed for ten years and payable for life.
Annuity payments will be made monthly (or, if requested, quarterly, semiannually
or annually) except that: (i) proceeds of less than $1,000 shall be paid in a
single sum and (ii) the Company may change the frequency of payment to avoid
periodic payments of less than $50.
The income payment options currently available under the Contract are
described below. Unless limited in any jurisdiction by applicable state
insurance laws, each of the plans is available under Non-Qualified Contracts.
Option 1. Fixed Period -- Paid in equal monthly payments for the number of
years selected, but not more than 30 years.
Option 2. Life with Guaranteed Period -- Paid in equal monthly payments
during the lifetime of the Annuitant. The Company guarantees
payments for either 10 years or 20 years, and for as long as the
Annuitant lives. The amount of the monthly payment is based on the
Annuitant's sex and age on the date of the first payment and on
the number of years for which payments are guaranteed.
Option 3. Fixed Amount -- Paid in equal monthly installments of $5 or more
for each $1,000 applied until the full amount, with compound
interest at not less than 3% a year, is used up.
Option 4. Life Only -- Paid in equal monthly installments during the
lifetime of the Annuitant. The amount depends on the age and sex
of the Annuitant on the date of first payment. Payments will cease
upon the death of the Annuitant.
Option 5. Joint and Survivor -- Paid in equal monthly payments during the
lifetimes of the Annuitant and another designated person. Upon the
death of either, payments will continue to the survivor at a
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preselected percentage (100%, 75%, 66 2/3% or 50%) of the original
payment. The amount of each monthly payment depends the sexes and
ages of both persons on the date of the first payment, and the
pre-selected percentage for continuing payments.
All options are also available under Qualified Contracts, but Options 1, 2
and 3 are available only if any period certain does not extend beyond the life
expectancy of the Annuitant.
Under Options 1 and 3 payments may be commuted (i.e., paid in a lump sum);
under Options 2, 4 and 5 they may not.
DEATH BENEFIT
If the Owner dies before the Income Date, the Company will pay to the
Beneficiary an amount equal to the greatest of (i) the Death Benefit Option
(defined below) previously selected by the Owner, (ii) the sum of all Purchase
Payments less any amounts withdrawn (including any surrender charges) and (iii)
the Contract Value determined as of the Benefit Determination Date. The amount
so determined is the "DEATH BENEFIT". No Surrender Charge is made if payment of
the Death Benefit results from the death of the Owner prior to the Income Date.
DEATH BENEFIT OPTIONS
Prior to the issuance of the Contract, the Owner may select from among three
death benefit options (the "DEATH BENEFIT OPTIONS"). The option selected may not
be changed after the Contract is issued. The three options are the Standard
Death Benefit, the Annual Step-Up Death Benefit and the 6% Accumulating Death
Benefit. The characteristics of the three Death Benefit Options are as follows:
The "STANDARD DEATH BENEFIT" will apply if the Owner does not select one
of the other two options. This option provides no special benefit.
Accordingly, the benefit paid will be limited to the greater of the other
two values that are considered in all cases, that is, the Contract Value and
an amount equal to the sum of all Purchase Payments less any amounts
withdrawn.
The "ANNUAL STEP-UP DEATH BENEFIT" equals the greatest Adjusted Contract
Value (defined below) for each Contract Anniversary up to and including the
Contract Anniversary immediately following the Owner's 80th birthday,
calculated as of the Benefit Determination Date. For this purpose, "ADJUSTED
CONTRACT VALUE" means an amount equal to the Contract Value on the relevant
Contract Anniversary increased by all Purchase Payments and less a reduction
for all partial withdrawals made between such Contract Anniversary and the
Benefit Determination Date. The reduction for partial withdrawals is made in
the same proportion that the Contract Value was reduced on the date of
withdrawal.
The "6% ACCUMULATING DEATH BENEFIT" is based upon the initial Purchase
Payment, which is increased by (i) interest earned at the Death Benefit
Accumulation Rate (as defined below) and (ii) additional Purchase Payments,
and is decreased by any partial withdrawals made during the life of the
Contract. The benefit continues to accumulate until it equals the Maximum
Accumulated Death Benefit (defined below). The "DEATH BENEFIT ACCUMULATION
RATE" is a weighted average rate based on the allocation of Contract Value.
For amounts allocated to the Fixed Account, the Standby Income Sub-Account
and the Bond Sub-Account, the rate is the lesser of six percent per annum or
the actual rate at which the account has accumulated (or decreased) over the
relevant period. The rate for amounts allocated to all other Sub-Accounts is
a fixed six percent per annum. The "MAXIMUM ACCUMULATED DEATH BENEFIT" is
initially equal to two times the initial Purchase Payment made on the
Contract Date. It is increased by two times any additional Purchase Payments
and reduced, in accordance with a formula, for amounts that are later
withdrawn. The amount of reduction will be made (i) dollar-for-dollar to the
extent that the withdrawal is taken from earnings (earnings being the excess
of Contract Value over aggregate Purchase Payments less partial withdrawals)
and (ii) in proportion to the reduction in Contract Value to the extent that
the withdrawal is taken from Purchase Payments. For further information
concerning the Maximum Accumulated Death Benefit, see the Statement of
Additional Information.
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The Death Benefit Options are subject to certain limitations and to
different mortality and risk expense charges, as follows:
<TABLE>
<CAPTION>
MAXIMUM AGE MORTALITY AND
DEATH BENEFIT OPTION AT ISSUE EXPENSE RISK CHARGE
- --------------------------------------------------------------- ------------------- ---------------------
<S> <C> <C>
Standard 85 1.20%
Annual Step-Up 75 1.30%
6% Accumulating 75 1.40%
</TABLE>
DEATH PROVISIONS
DEATH OF OWNER
If the Contract is owned by a sole Owner who dies prior to the Income Date,
the Beneficiary will be paid the Death Benefit. The sole Owner's estate will be
the Beneficiary if no Beneficiary designation is in effect, or if the designated
Beneficiary has predeceased the Owner. Any Death Benefit will be paid to the
Beneficiary either in one sum or under one of the payment options of the
Contract. If the Company does not receive Death Benefit payment instructions
within sixty (60) days of receipt of satisfactory proof of death, it reserves
the right to make payment of the Death Benefit in a lump sum.
Payments must be completed by December 31 of the fifth calendar year
following the year of the Owner's death, except that, if the Beneficiary is an
individual and so elects, the payments may be made (i) over the life of the
Beneficiary or (ii) according to a fixed schedule which does not extend beyond
the life expectancy of the Beneficiary.
If an Owner dies on or after the Income Date, any payments that remain to be
made must be made at least as rapidly as under the Income Payment Option in
effect on the date of the Owner's death.
DEATH OF ANNUITANT
If the Annuitant dies prior to the Income Date, and a Contingent Annuitant
has been named, the Contingent Annuitant becomes the Annuitant (unless the Owner
is not an individual, in which case the Death Benefit becomes payable). If there
is no Contingent Annuitant when the Annuitant dies prior to the Income Date, the
Owner will become the Annuitant. The Owner may designate a new Annuitant within
60 days of the death of the Annuitant.
If there is no Contingent Annuitant when the Annuitant dies prior to the
Income Date and the Owner is not a natural person, the Beneficiary will be paid
the Death Benefit then due. The Beneficiary will be as provided in the
Beneficiary designation then in effect. If no Beneficiary designation is in
effect, or if there is no designated Beneficiary living, the Owner will be the
Beneficiary. If the Annuitant was the sole Owner and there is no Beneficiary
designation, the Annuitant's estate will be the Beneficiary.
Regardless of whether a Death Benefit is payable, if the Annuitant dies and
any Owner is not a natural person, such death will be subject to distribution
rules imposed by Federal tax law
If the Annuitant dies after the Income Date, the benefits, if any, remaining
to be paid will depend upon the income payment option in effect. See "Income
Payment Options."
CHARGES
All charges under the Contract are described below.
PREMIUM TAXES
Certain states or other governmental entities impose premium taxes, with
rates that range up to as much as 3.5% of the Purchase Payment. Some states
assess the tax at the time Purchase Payments are made, and others assess at the
time annuity payments begin. The Company will pay the premium tax at the time
imposed by applicable law. The Company reserves the right to deduct for the tax,
however, at the time the tax is paid, at the time the Contract is surrendered or
amounts are withdrawn, when the Death Benefit is paid or when the annuity
payments begin.
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<PAGE>
OTHER TAXES
The Company reserves the right to deduct the amount of certain taxes (other
than premium taxes) that it may have to pay. See "Federal Income Tax
Information."
ADMINISTRATIVE CHARGES
The Company incurs costs in establishing and maintaining the Contracts, and
in maintaining records and systems and issuing reports to Owners. The
administrative charges discussed below have been established at the levels
indicated to reimburse the Company for its expected actual costs of
administering the Contracts over time.
CONTRACT MAINTENANCE CHARGE
On each Contract Anniversary before the Income Date, an annual Contract
Maintenance Charge is deducted from the Contract Value of any Contract having a
Contract Value of less than $50,000. The Contract Maintenance Charge is also
deducted on any date not a Contract Anniversary on which the Owner fully
surrenders the Contract, or on the Income Date. The Contract Maintenance Charge
for the first ten Contract Years is $40. After the tenth Contract Anniversary
the charge for any Contract having a Contract Value of less than $50,000 is the
lesser of (a) $40 and (b) 0.14% of the Contract Value. This charge will be
deducted by liquidating on a pro-rata basis Accumulation Units from all
Sub-Accounts to which Contract Value is allocated and value from the Fixed
Account. In states in which it has received regulatory approval, the Company may
waive, reduce or eliminate the Contract Maintenance Charge for certain Qualified
Contracts.
CONTRACT ADMINISTRATION CHARGE
On each Valuation Date, the Company deducts from the Accumulation Unit Value
a Contract Administration Charge equal to a percentage of such value that is the
daily equivalent of an effective annual rate of 0.15%. This charge is assessed
only against the Sub-Accounts of the Variable Account and is not imposed against
the portion, if any, of the Contract Value allocated to the Fixed Account.
MORTALITY AND EXPENSE RISK CHARGE
As compensation for its assumption of mortality and expense risks, the
Company deducts from the Accumulation Unit Value a Mortality and Expense Risk
Charge equal to a percentage of such value that is determined by the Death
Benefit Option selected by the Owner. If the Owner selects the Standard Death
Benefit, the charge is 1.20% of the assets in the respective Sub-Accounts. If
the Owner selects one of the other Death Benefit Options, the charge will be
1.30% for the Annual Step-Up Death Benefit and 1.40% for the 6% Accumulating
Death Benefit. This charge is not imposed against any portion of the Contract
Value allocated to the Fixed Account. The Company bears a "MORTALITY RISK"
because the Company is taking the risk that its actuarial estimate of mortality
rates may prove inaccurate. This would result if the Owner lives longer than
expected, or if the Owner dies prior to the Income Date at a time when the Death
Benefit guaranteed by the Company is higher than the Contract Value. The Company
bears an "EXPENSE RISK" because the costs of issuing and administering Contracts
may be greater than expected when setting the administrative charges. Of the
total charge, 0.35% is for assuming the expense risk and the balance, ranging
from 0.85% to 1.05%, is for assuming the mortality risk. The Company may realize
a gain from the charge for these risks to the extent that the charge is not
needed to provide for benefits and expenses under the Contracts.
If the Surrender Charge is insufficient to cover the distribution expenses
of the Contracts, the deficiency will be met from the Company's general account,
including amounts derived from the Mortality and Expense Risk Charge.
SURRENDER CHARGE
SURRENDERS AND WITHDRAWALS. Since no deduction for a sales charge is made
from the Purchase Payments, a Surrender Charge is imposed on certain surrenders
and partial withdrawals to cover expenses relating to the promotion, sale and
distribution of the Contracts. The Surrender Charge is assessed on each Purchase
Payment (except for certain "free" amounts described below) from which amounts
are being withdrawn and is based upon the number of years since the Purchase
Payment was received. For purposes of computing the Surrender Charge (except for
systematic withdrawals of future earnings only), amounts will be deemed to be
withdrawn from Purchase Payments first, and in the order they were received,
before any amounts in excess of Purchase Payments are
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<PAGE>
withdrawn from the Contract Value. To the extent permitted by applicable law, no
Surrender Charge shall be assessed (i) at the death of the Owner, or (ii) if, at
the time of withdrawal, the Owner or the Annuitant has been confined to a
long-term care facility or hospital (as defined in the Contract) for at least 30
days or (iii) with respect to Contracts in 403(b) plans, in the event of a
disability (as defined by the Social Security Administration) of the
Owner/Annuitant, hardship (as defined in the plan) of the Owner/Annuitant or any
required minimum distributions.
The Surrender Charge applies to Purchase Payments (except for certain "free"
amounts described below) as follows:
<TABLE>
<CAPTION>
SURRENDER CHARGE AS
COMPLETED YEARS PERCENTAGE OF
FROM DATE OF AMOUNT OF PURCHASE
PURCHASE PAYMENT PAYMENT WITHDRAWN
- ---------------- ---------------------------
<S> <C>
less than 1 8%
1 7%
2 6%
3 5%
4 4%
5 2%
6 1%
7 and later 0%
</TABLE>
The Company reserves the right to reduce or eliminate the Surrender Charge
when Contracts are sold to a trustee, employer or similar entity pursuant to a
retirement plan or when Contracts are otherwise sold to a group such that the
Company saves sales expenses (except in states where such reduction or
elimination is prohibited). Whether the Surrender Charge will be reduced or
eliminated depends upon a number of factors, including the size of the group,
the total amount of Purchase Payments received from the group and the manner in
which they are made, the type of plan involved, the costs to the Company of
distribution and other circumstances, all as evaluated at the sole discretion of
the Company. In no event will reduction or elimination of the Surrender Charge
be permitted where such reduction or elimination will unfairly discriminate
against any person or where prohibited by state law.
ANNUITIZATION (COMMENCEMENT OF ANNUITY PAYMENTS). A Surrender Charge is
also imposed if annuity payments begin during the first seven Contract Years.
However, if the Contract Owner elects an Income Date that is at least two years
after the Contract Date and selects a payout plan with at least five years of
level payments, the Surrender Charge will be waived. If the Owner later (but
within seven years after the last Purchase Payment) elects, where permitted, to
take the commuted value of the remaining payments, a Surrender Charge will be
imposed at the rates shown in the above table, calculated as of the date of
commutation.
"FREE" AMOUNTS. Any Purchase Payments received more than seven years prior
to the withdrawal (less any amounts previously withdrawn) may be withdrawn free
of any Surrender Charge. In addition, for Purchase Payments that have been in
the Contract for less than eight years, the Owner may withdraw, without a
Surrender Charge, up to 10% of the Contract Value. This free withdrawal
privilege is non-cumulative and is available each Contract Year. Free withdrawal
amounts are deemed withdrawn on a first-in, first-out basis; that is,
withdrawals are deemed to come from the oldest Purchase Payments first. With
respect to Contracts owned by charitable remainder trusts, the Contract Owner
may, in states where regulatory approval has been received, withdraw without
Surrender Charge the amount by which the Contract Value at any given time
exceeds the aggregate Purchase Payments.
EXPENSES OF VIT PORTFOLIOS AND SAT PORTFOLIOS; EXPENSE CAPS
Each VIT Portfolio and each SAT Portfolio incurs various operating expenses.
For the VIT Portfolios these expenses are more fully described in the prospectus
for the VIT Portfolios. For the Growth & Income and Bond Portfolios, they are
described in Part II of this Prospectus. All such expenses are borne indirectly
by Owners in that they reduce the net asset value of the Portfolios.
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<PAGE>
Under Sponsor Agreements with the VI Trust and the SA Trust, the Sponsor has
agreed to reimburse each Portfolio for the amounts by which total operating
expenses, on an annual basis, exceed the following percentages of the average
daily net assets of the various Portfolios:
<TABLE>
<CAPTION>
VI TRUST
- ---------------------------------------------------------------------------------------
<S> <C>
Emerging Growth Portfolio.............................................................. 1.15%
International Equity Portfolio......................................................... 1.25%
Balanced Portfolio..................................................................... 0.90%
Income Opportunity Portfolio........................................................... 0.85%
Standby Income Portfolio............................................................... 0.50%
<CAPTION>
SA TRUST
- ---------------------------------------------------------------------------------------
<S> <C>
Growth & Income Portfolio.............................................................. 0.85%
Bond Portfolio......................................................................... 0.75%
</TABLE>
Operating expenses, for purposes of expense reimbursement, include fees of
the Advisor, fees of the Administrator, amortization of organizational expenses,
legal and accounting fees and Sponsor fees, but do not include interest, taxes,
brokerage commissions and other portfolio transaction expenses, capital
expenditures and extraordinary expenses. The Sponsor Agreements may be
terminated by the Sponsor as of the end of any calendar quarter after December
31, 1998 upon not less than 30 days prior written notice. The Sponsor's
agreement to reimburse a Portfolio also terminates as to a Portfolio if the
Sponsor ceases to be the investment advisor to that Portfolio. See "Sponsor."
Under the Sponsor Agreements, the Sponsor is entitled to an annual fee of 0.20%
of average daily net assets, but the Sponsor has waived such fees through April
30, 1999.
OTHER INFORMATION
DISTRIBUTION OF THE CONTRACTS
Contracts are distributed through Touchstone Securities, Inc. (the
"DISTRIBUTOR"), which is a wholly-owned subsidiary of IFS Financial Services,
Inc. ("IFS"), in turn a wholly-owned subsidiary of the Company. The principal
business address of the Distributor is 311 Pike Street, Cincinnati, Ohio 45202.
The Distributor will pay sales commissions to those individuals or entities who
sell the Contracts. Commissions may be calculated as a percentage of the
Purchase Payments received or as a trail commission that is determined as a
percentage of the Contract Value. In addition, under certain circumstances the
Distributor may pay production bonuses which take into account, among other
things, the total Purchase Payments that have been made under Contracts
associated with the broker-dealer. Additional payments may be made for other
services not directly related to the sale of the Contracts. These expenses are
not passed on to the Owner of the Contract except to the extent absorbed by any
Mortality and Expense Risk Charges or by Surrender Charges on Purchase Payments
withdrawn during the first seven years following their receipt. See "Surrender
Charge" and "Mortality and Expense Risk Charge."
STATEMENTS TO CONTRACT OWNERS
Prior to the Income Date, a confirmation of each Purchase Payment and
certain other transactions, such as transfers and partial withdrawals, will be
sent to the Owner.
At least once in each Contract Year prior to the Income Date, each Owner
will be sent a statement that includes the Variable Account Value and the Fixed
Account Value as of a date not more than four months prior to the mailing date
of such statement. Each Owner whose Contract Value is measured in any part by
Accumulation Units in the Variable Account also will receive semiannual reports
containing financial statements for the Separate Account 1. At least one such
report in each year will be accompanied by a list of portfolio securities of
each of the Portfolios underlying the Sub-Accounts and any other information
required by applicable law or regulation.
ADJUSTMENT OF UNITS AND VALUES
The Company reserves the right to change the number and value of the
Accumulation Units credited to any Contract, without the consent of the Owner or
any other person, provided strict equity is preserved and the change does not
otherwise affect the benefits, provisions or investment return of the Contract.
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<PAGE>
VOTING RIGHTS
Prior to the Income Date the Company will vote shares of each VIT Portfolio
and the interest in each SAT Portfolio owned by the Variable Account according
to instructions received from Owners whose Contract Value includes Accumulation
Units in the Variable Account. However, if the 1940 Act or any related
regulations or interpretations should change and the Company decides it may be
permitted to vote shares (or interests) of the Portfolios in its own right, it
may do so.
Persons entitled to give voting instructions will be determined as of the
record date for meetings of shareholders of any or all of the Portfolios. Prior
to the Income Date, the Owner has the right to direct the vote by the Company at
such meetings of that portion of the shares of any VIT Portfolio (or interest in
any SAT Portfolio) held in the Sub-Account that is attributable to the Owner's
Contract.
The Company calculates that portion of the shares (interest, in the case of
the SA Trust) in the Portfolio that the Owner may direct the Company to vote by
applying the Owner's percentage interest, if any, in a particular Sub-Account to
the total number of shares (interest, in the case of the SA Trust) attributable
to such Sub-Account as of the record date. Fractional votes will be counted. The
Company reserves the right to modify the manner in which it calculates the
weight given to voting instructions where such change is necessary to comply
with then-current federal regulations or interpretations of those regulations.
The Company will determine 90 days or less before the applicable meeting the
number of shares in each VIT Portfolio (or, in the case of the SA Trust, the
portion of the interest in each SAT Portfolio) that each Contract Owner can
instruct the Company to vote. At least 14 days before such meeting, the Company
will mail such person materials enabling him or her to instruct the Company how
to vote.
If voting instructions are not received from an Owner, the Company will vote
the shares of the VI Trust (or interest in the SAT Portfolio) attributable to
such Owner in the same proportion as the voting instructions which are received
from other Contract Owners. The Company also will vote shares or interest it
holds in the Sub-Accounts that are not attributable to Contract Owners in the
same manner. Under certain circumstances, the Company may be required by state
regulatory authorities to disregard voting instructions. This could happen if
such instructions would change the sub-classification or investment objectives
of the Portfolios, or result in approval or disapproval of an investment
advisory contract.
Under federal regulations, the Company also may disregard instructions to
vote for Owner-initiated changes in investment policies or the investment
advisor if the Company disapproves of the proposed changes. The Company would
disapprove of a proposed change only if it were contrary to state law,
prohibited by state regulatory authorities or if the Company concluded that the
change would result in overspeculative or unsound investment practices. If the
Company disregards voting instructions, it will include a summary of its actions
in the next report to Contract Owners.
SUBSTITUTED SECURITIES
Shares of the VIT Portfolios or interests in the SAT Portfolios may not
always be available for purchase by the Sub-Accounts of the Variable Account, or
the Company may decide that further investment in any such shares or interest or
in any such Portfolios is no longer appropriate in view of the purposes of the
Variable Account. In either event, shares of or an interest in another open-end
investment company or unit investment trust may be substituted both for the
Portfolio shares or interest already purchased by the corresponding Sub-Accounts
and/or as the security to be purchased in the future, provided that these
substitutions have been approved by the Securities and Exchange Commission. In
the event of any substitution pursuant to this provision, the Company may make
an appropriate endorsement to the Contract to reflect the substitution.
OTHER CONTRACT PROVISIONS
MISSTATEMENT OF AGE OR SEX
If the age or sex of the Annuitant is misstated to the Company, the Company
will change any benefits under the Contract to those which the proceeds would
have purchased had the correct age and sex been stated. If the
22
<PAGE>
misstatement is not discovered until after annuity payments have started, any
overpayments will be charged, with compound interest, against subsequent
payments. Any amount the Company owes as the result of underpayments will be
paid, with compound interest, in a lump sum.
ASSIGNMENT
An Owner may assign a Non-Qualified Contract in writing, but may not assign
a Qualified Contract except as may be allowed under applicable law and the
documents governing the plan. The Company will not be bound by any assignment
until written notice of the assignment is received and recorded at the Special
Markets Service Center. The rights of the Owner and any Beneficiary will be
affected by an assignment, and the Company disclaims any responsibility for the
validity or tax consequences of any assignment.
LOANS
Loans may be permitted under Qualified Contracts purchased by the Company in
connection with a plan established under Section 403(b). Plan documents also
must permit such loans. Loans are not permitted under any other type of
Contract.
NO DIVIDENDS
The Contracts are "non-participating." That means that they do not provide
for dividends. Investment results under the Contracts are reflected in benefits.
FEDERAL INCOME TAX INFORMATION
PROSPECTIVE OWNERS SHOULD CONSULT THEIR OWN TAX ADVISORS PRIOR TO PURCHASING
A CONTRACT.
THE FOLLOWING DISCUSSION IS NOT INTENDED AND SHOULD NOT BE RELIED UPON AS
TAX ADVICE, BUT MERELY AS A SYNOPSIS OF CERTAIN FEDERAL INCOME TAX LAWS.
ALTHOUGH THE FOLLOWING DISCUSSION IS BASED UPON THE COMPANY'S UNDERSTANDING OF
FEDERAL INCOME TAX LAWS AS CURRENTLY INTERPRETED, THERE IS NO GUARANTEE THAT
THOSE LAWS AND INTERPRETATIONS WILL NOT CHANGE. THE DISCUSSION DOES NOT TAKE
INTO ACCOUNT STATE OR LOCAL TAX LAWS WHICH MAY AFFECT THE PURCHASE OF A CONTRACT
OR THE BENEFITS PAID OUT UNDER A CONTRACT, AND DOES NOT CONSIDER FEDERAL ESTATE
AND GIFT TAXES AND STATE AND LOCAL ESTATE, INHERITANCE AND OTHER SIMILAR TAXES
WHICH WILL DEPEND UPON THE INDIVIDUAL SITUATION OF EACH OWNER OR BENEFICIARY.
QUALIFICATION AS AN "ANNUITY CONTRACT"
The following discussion is based upon the Company's assumption that the
Contract will be treated as an "annuity contract" under the Code. The Company
does not guarantee the tax status of any Contract. A purchaser bears the
complete risk that the Contract may not be treated as an "annuity contract"
under federal income tax laws. Disqualification of the Contract as an annuity
contract generally would result in imposition of federal income tax to the Owner
with respect to yearly earnings allocable to the Contract prior to the receipt
of payments under the Contract.
DIVERSIFICATION
Section 817(h) of the Code imposes certain diversification standards on the
underlying assets of all variable annuity contracts. The Code generally provides
that a variable contract will not be treated as an annuity contract for any
period (and any subsequent period) for which the investments are not, in
accordance with regulations prescribed by the United States Treasury Department
("TREASURY DEPARTMENT"), adequately diversified. The Code contains a safe harbor
provision which provides that variable contracts such as the Contracts meet the
diversification requirements if, as of the end of each quarter, the underlying
assets meet the diversification standards prescribed elsewhere in the Code for
an entity to be classified as a regulated investment company and no more than
fifty-five percent (55%) of the total assets consist of cash, cash items, U.S.
government securities and securities of other regulated investment companies.
In March 1989, the Treasury Department issued regulations (Treas. Reg.
Section 1.817-5), which established diversification requirements for the
investment portfolios such as the Portfolios underlying variable contracts such
as the Contracts. The regulations amplify the diversification requirements for
variable contracts set forth in the Code and provide an alternative to the safe
harbor provision described in Section 817(h) of the Code. Under the Regulations,
an investment portfolio will be deemed adequately diversified if: (1) no more
than 55% of the value of
23
<PAGE>
the total assets of the investment portfolio is represented by any one
investment; (2) no more than 70% of the value of the total assets of the
investment portfolio is represented by any two investments; (3) no more than 80%
of the value of the total assets of the investment portfolio is represented by
any three investments; and (4) no more than 90% of the value of the total assets
of the investment portfolio is represented by any four investments.
The Code provides that for purposes of determining whether or not the
diversification standards imposed on the underlying assets of variable contracts
by Section 817(h) of the Code have been met, "each United States Government
agency or instrumentality shall be treated as a separate issuer."
The Variable Account, through each of the VIT Portfolios and each of the SAT
Portfolios, intends to comply with the diversification requirements of the Code
and the regulations. The Advisor has agreed to manage the Portfolios so as to
comply with such requirements.
EXCESSIVE CONTROL
The Treasury Department has from time to time suggested that guidelines may
be forthcoming under which a variable annuity contract will not be treated as an
annuity contract for tax purposes if the owner of the contract has excessive
control over the investments underlying the contract (i.e., by being able to
transfer values among Sub-Accounts with only limited restrictions). If a
variable contract is not treated as an annuity contract, the owner of such
contract would be considered the owner of the assets of a separate account, and
income and gains from that account would be included each year in the owner's
gross income. No such guidelines have been issued to date.
The issuance of such guidelines, or regulations or rulings dealing with
excessive control issues, might require the Company to impose limitations on an
Owner's right to transfer all or part of the Contract Value among the Sub-
Accounts and the Fixed Account or to make other changes in the Contract as
necessary to attempt to prevent an Owner from being considered the owner of any
assets of the Variable Account. The Company therefore reserves the right to make
such changes. It is not known whether any such guidelines, regulations or
rulings, if adopted, would have retroactive effect.
REQUIRED DISTRIBUTIONS
Additionally, in order to qualify as an annuity contract under the Code, a
Non-Qualified Contract must meet certain requirements regarding distributions in
the event of the death of the Owner. In general, if the Owner dies before the
entire value of the Contract is distributed, the remaining value of the Contract
must be distributed according to provisions of the Code. Upon the death of an
Owner prior to commencement of annuity payments, the amounts accumulated under a
Contract must be distributed within five years, or, if distributions to a
designated beneficiary within the meaning of Section 72 of the Code (a
"DESIGNATED BENEFICIARY") begin within one year of the Owner's death,
distributions are permitted over a period not extending beyond the life (or life
expectancy) of the designated beneficiary. The above rules are modified if the
designated beneficiary is the surviving spouse. The surviving spouse is not
required to take distributions from the Contract under the above rules as a
beneficiary and may continue the Contract and take distributions under the above
rules as if the surviving spouse was the original Owner. If distributions have
begun prior to the death of the Owner, such distributions must continue at least
as rapidly as under the method in effect at the date of the Owner's death
(unless the method in effect provides that payments cease at the death of the
Owner).
For Qualified Contracts issued in connection with tax-qualified plans and
individual retirement annuities, the plan documents and rules will determine
mandatory distribution rules. However, under the Code, distributions from
Contracts issued under Qualified Plans (other than individual retirement
annuities and certain governmental or church-sponsored Qualified Plans) for
employees who are not 5% owners of the sponsoring employer generally must
commence no later than April 1 of the calendar year following the calendar year
in which the employee terminates employment or reaches age 70 1/2, whichever is
later, and such distributions must be made over a period that does not exceed
the life expectancy of the employee or the joint and last survivor life
expectancy of the employee and a designated beneficiary. Distributions from
Contracts issued under individual retirement annuities or to 5% owners of the
sponsoring employer from Contracts issued under Qualified Plans (other than
certain governmental or church-sponsored Qualified Plans) must commence by April
1 of the calendar year after the calendar year in which the individuals reach
age 70 1/2 even if they have not terminated employment. A penalty tax of 50% is
imposed on any amount by which the required minimum distribution in any year
exceeds the amount actually distributed.
24
<PAGE>
If the Contract is a Qualified Contract issued in connection with an
individual retirement annuity, a SIMPLE account, or a plan which qualifies under
Sections 403(b), 408 or 457 of the Code, the Company will send a notice to the
Owner when the Annuitant reaches age 70 1/2. The notice will summarize the
required minimum distribution rules and advise the Owner of the date that such
distributions must begin from the Qualified Contract or other individual
retirement annuities of the Owner. The Owner has sole responsibility for
requesting distributions under the Qualified Contract or other individual
retirement annuities that will satisfy the minimum distribution rules. In the
case of a distribution from a Contract issued under a Qualified Plan which
qualifies under Section 401 of the Code, the Company will not send a notice when
the Annuitant reaches age 70 1/2, and the Owner (or the employer sponsoring the
Qualified Plan) has sole responsibility for requesting distributions under the
Qualified Contract that will satisfy the minimum distribution rules.
MULTIPLE CONTRACTS
The Code provides that multiple non-qualified annuity contracts which are
issued within a calendar year period to the same contract owner by one company
or its affiliates are treated as one annuity contract for purposes of
determining the tax consequences of any distribution. Such treatment may result
in adverse tax consequences, including accelerated taxation of the gain deemed
distributed from such combination of contracts. Owners should consult a tax
advisor prior to purchasing more than one non-qualified annuity contract in any
calendar year period.
FEDERAL INCOME TAXATION
GENERAL
The Company is taxed as a life insurance company under the Code. For federal
income tax purposes, neither Separate Account 1 nor the Variable Account is a
separate entity from the Company and their operations form a part of the
Company.
Section 72 of the Code governs taxation of annuities in general. Except as
described below for Owners who are not natural persons, an Owner is not taxed on
increases in the value of the Contract when those increases occur. Instead, an
Owner is taxed only when distribution occurs, either in the form of a lump sum
payment or as annuity payments under the payout plan selected. For a lump sum
payment received as a total surrender (total redemption), the recipient is taxed
on the portion of the payment that exceeds the cost basis of the Contract. For
Non-Qualified Contracts, this cost basis is generally the sum of the Purchase
Payments, while for a Qualified Contract there may be no cost basis in the
Contract within the meaning of Section 72 of the Code. The taxable portion of
the lump sum payment is taxed at ordinary income tax rates.
For annuity payments from Non-Qualified Contracts, a fixed portion of each
payment is excludable from gross income as a tax-free recovery of the Owner's
Purchase Payments (if any), and the balance is taxed at ordinary income tax
rates. The excludable portion can be determined by dividing (i) the Owner's
Purchase Payments (in the case of Non-Qualified Contracts only, as adjusted for
any period-certain or refund guarantee), less any withdrawals from those
Purchase Payments, by (ii) the number of years over which it is anticipated that
the annuity will be paid. The method of determining the number of years over
which payments are anticipated is different for Qualified and Non-Qualified
Contracts. If annuity payments continue beyond the anticipated number of years,
such payments will be fully taxable.
Owners who are not natural persons generally must include in income any
increase in the excess of the Contract's Value over the "investment in the
contract" during the taxable year. As a result, Contracts used in connection
with unfunded deferred compensation plans of private employers (sometimes called
"top hat" plans) generally are currently subject to income tax on such increase
in value. There are some exceptions to this rule, including an exception for
Contracts owned by certain tax-qualified plans. A prospective Owner that is not
a natural person may wish to discuss availability of these exceptions with its
own tax advisor.
Annuity payments or other amounts received under all Contracts are subject
to income tax withholding under the Code unless the recipient elects not to have
taxes withheld. However, annuity payments to former employees under deferred
compensation plans pursuant to Section 457 of the Code are subject to income tax
withholding as if such payments are wages. Amounts so withheld will vary among
recipients depending upon the tax status of the recipient and the type of
payment.
25
<PAGE>
Owners, Annuitants and Beneficiaries under the Contracts should seek
financial advice about the tax consequences of any withdrawals or other
distributions.
TAX TREATMENT OF ASSIGNMENTS
An assignment or pledge of a Contract may be a taxable event. Owners should
therefore consult their tax advisors should they wish to assign their Contracts.
TAX TREATMENT OF WITHDRAWALS -- NON-QUALIFIED CONTRACTS
Section 72 of the Code governs treatment of all payments (including
withdrawals of Contract Value) from annuity contracts. Applied to a Contract, it
provides that if the Contract Value exceeds the aggregate Purchase Payments
made, any payment that is not received as an annuity payment will be treated as
coming first from earnings and then, only after the earnings portion is
exhausted, as coming from the principal. If the Contract contains investments in
the Contract made prior to August 14, 1982, special taxation rules apply to such
withdrawals and related earnings. These special rules provide that any amount
withdrawn that is not received as an annuity payment will be treated as coming
first from principal and then, only after the principal portion is exhausted, as
coming from earnings. Withdrawn earnings are includable in gross income.
Section 72 further provides that a ten percent (10%) penalty will apply to
the income portion of amounts received other than: (a) on or after the date the
taxpayer reaches age 59 1/2; (b) on or after the death of the Contract Owner;
(c) if the taxpayer is totally disabled (as defined in Section 72(m)(7) of the
Code); (d) in a series of substantially equal periodic payments made not less
frequently than annually for the life (or life expectancy) of the taxpayer or
for the joint lives (or joint life expectancies) of the taxpayer and the joint
annuitant; (e) from a Contract issued under a plan that qualifies for favorable
federal income tax treatment under Sections 401(a), 403(a), or 403(b) of the
Code or that is an individual retirement account or individual retirement
annuity; (f) amounts attributable to investment in the Contract prior to August
14, 1982; (g) from a Contract that is issued under a Qualified Plan; (h) under
an immediate annuity within the meaning of Code Section 72(u)(4); or (i) which
is purchased by an employer upon termination of a plan described in Section
401(a) or 403(a) of the Code and is held by the employer until the employee
separates from service (some of the above exceptions may not apply to Contracts
issued as Non-Qualified Contracts).
The above paragraph does not apply to Qualified Contracts. However, separate
withdrawal restrictions and tax penalties and restrictions may apply to such
Qualified Contracts. See "Tax Treatment of Withdrawals -- Qualified Contracts."
QUALIFIED CONTRACTS AND QUALIFIED PLANS
The Qualified Contracts offered by this Prospectus are designed to be
suitable for use under various types of plans which qualify under Sections 401,
403(b) or 408 of the Code ("QUALIFIED PLANS") and under plans which qualify
under Section 457 of the Code. Because of the minimum purchase payment
requirements, such Contracts may not be appropriate for some retirement plans.
Taxation of participants in each Qualified Plan varies with the type of plan and
terms and conditions of each specific plan.
Owners, Annuitants and Beneficiaries are cautioned that benefits under a
Qualified Plan usually are subject to the terms and conditions of such plan
regardless of the terms and conditions of Qualified Contracts issued pursuant to
such plan. Although the Company provides administration for Qualified Contracts,
it does not provide administrative support for Qualified Plans. Qualified
Contracts may include special provisions restricting Contract provisions that
may otherwise be available and described in this Prospectus. Generally,
Qualified Contracts issued pursuant to Qualified Plans are not transferable
except upon surrender or annuitization. Various penalty and excise taxes may
apply to contributions or distributions made in violation of applicable
limitations. Furthermore, certain withdrawal penalties and restrictions may
apply to surrenders from Qualified Contracts. See "Tax Treatment of Withdrawals
- -- Qualified Contracts."
On July 8, 1983, the Supreme Court decided 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,
vary between men and women. Accordingly, Contracts sold by the Company in
connection with Qualified Plans (excluding individual retirement annuities) will
utilize annuity tables which do not differentiate on the basis of sex.
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The following are general descriptions of the types of Qualified Plans with
which the Qualified Contracts may be used. Such descriptions are not exhaustive
and are for general informational purposes only. The tax rules regarding
Qualified Plans are complex, change frequently and will have differing
applications depending on individual facts and circumstances. Each purchaser
should obtain tax advice prior to purchasing a Contract issued under a Qualified
Plan.
SECTION 401 QUALIFIED PENSION OR PROFIT-SHARING PLANS
Section 401 of the Code permits self-employed individuals (which includes
persons conducting a trade or business through a partnership) to establish
various types of Qualified Plans for themselves and their employees, commonly
referred to as "H.R. 10" or "Keogh" plans. Section 401 of the Code also permits
corporate employers and certain non-profit organizations to establish various
types of Qualified Plans for employees. These retirement plans may permit the
purchase of the Contracts to provide benefits under the plans. Permissible
contributions to such plans for the benefit of such persons will not be
includable in the gross income of such persons for federal income tax purposes
until distributed from the plans.
The tax consequences to participants may vary depending upon the particular
plan design. However, the Code places limitations and restrictions on all such
plans including on such items as: amounts of allowable contributions; form,
manner and timing of distributions; vesting and nonforfeitability of interests;
nondiscrimination in eligibility and participation; and the tax treatment of
distributions, withdrawals and surrenders. See "Tax Treatment of Withdrawals --
Qualified Contracts" and "Tax Sheltered Annuities -- Withdrawal Limitations."
SECTION 403(B) PLANS
Section 403(b) of the Code permits the purchase of "tax-sheltered annuities"
by public schools and certain charitable, educational and scientific
organizations described in Section 501(c)(3) of the Code. These qualifying
employers may make contributions to the Contracts for the benefit of their
employees. Such contributions are not includable in the gross income of
employees for federal income tax purposes until the employees receive
distributions from the Contracts. The amount of contributions to a tax-sheltered
annuity is limited to certain maximums imposed by the Code. Contributions also
may need to comply with nondiscrimination rules, which may further limit
contributions for highly compensated employees. Furthermore, the Code sets forth
additional restrictions governing such items as transferability, distributions
and withdrawals. See "Tax Treatment of Withdrawals -- Qualified Contracts."
Section 403(b) Plans are qualified employer plans covered under Section
72(p) of the Code concerning loans from plans. Under the Contract, an Owner may,
subject to certain requirements, receive loans from a Contract that is issued as
a 403(b) tax sheltered annuity beginning 30 days after date of issue.
LOANS FROM SECTION 403(B) PLANS
With respect to Section 403(b) Plans, the Contract provides for loans that
conform to the specific terms set forth in the Contract and Code Section 72(p).
In general, the maximum amount and other terms and conditions of loans from a
Contract are determined as though the Contract was a qualified plan covered
under Title I of ERISA. Among other things, the Contract specifically requires
that each such loan must be a minimum of $1,000 and that the maximum term for
repayment of loans (other than residential purchase loans) is 5 years, at an
interest rate comparable to that charged by commercial lenders for similar
loans. Residential purchase loans may be repaid over a 15-year period.
A Contract cannot be surrendered or annuitized while a Contract loan is
outstanding, unless the Contract Value can be reduced by the outstanding loan
balance plus interest and such reduction satisfies Section 403(b)(11) of the
Code if applicable.
INDIVIDUAL RETIREMENT ANNUITIES
Section 408(b) of the Code permits eligible individuals to contribute to an
individual retirement program known as an "Individual Retirement Annuity"
("IRA"). Under applicable limitations, certain amounts may be contributed to an
IRA which may be deductible from the individual's gross income for federal
income tax purposes. Tax-deductible contributions to individual retirement
annuities under Section 408(b) of the Code are limited to the lesser of $2,000
or 100% of compensation includable in federal taxable gross income for
individuals who (i) are not
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(and whose spouses are not) active participants in another tax-qualified
retirement plan, (ii) are active participants in another such plan but are
unmarried and have adjusted gross incomes of $25,000 or less, (iii) are active
participants (or have spouses who are active participants) in another
tax-qualified retirement plan but are married, file a joint tax return and have
adjusted gross incomes of $40,000 or less, or (iv) are not active participants
(even if they have spouses who are active participants) in another tax-qualified
retirement plan but are married and file a separate federal income tax return.
Individuals who are active participants in other retirement plans and whose
adjusted gross income exceeds the above $25,000 or $40,000 limits, as
applicable, by less than $10,000 are entitled to make deductible contributions
in proportionately reduced amounts. Persons who are active participants in
another qualified retirement plan, are married, file a separate federal income
tax return, and have adjusted gross incomes of $10,000 or less are entitled to
make deductible contributions in reduced amounts.
Subject to the rules in the prior paragraph about persons who are active
participants in other tax-qualified retirement plans, a deductible contribution
also may be made to an IRA for a spouse who receives little or no compensation
during the tax year such as a spouse who does not work outside the home (a
"nonworking spouse"). The nonworking spouse must file a joint federal income tax
return with his or her working spouse for the year to be eligible to contribute
to an IRA. The maximum deductible contribution for the nonworking spouse is the
lesser of $2,000 or the total of the compensation includable in the nonworking
spouse's own federal taxable gross income (if any) plus the compensation
includable in the federal taxable gross income of his or her working spouse
minus the working spouse's IRA contribution for the year.
An individual may make nondeductible contributions to an IRA equal to $2,000
minus the limit on deductible contributions to an IRA with respect to that
individual for the year.
Under certain conditions, distributions from other individual retirement
accounts, individual retirement annuities or Qualified Plans may be rolled over
or transferred to an IRA on a tax-deferred basis. IRAs are subject to
limitations on eligibility, contributions, transferability and distributions.
See "Tax Treatment of Withdrawals -- Qualified Contracts." Sales of Contracts
for use with IRAs are subject to special requirements imposed by the Code,
including the requirement that certain informational disclosure be given to
persons desiring to establish an IRA. Purchasers of Contracts to be qualified as
Individual Retirement Annuities should obtain tax advice as to the tax treatment
and suitability of such an investment.
SIMPLIFIED EMPLOYEE PENSION PLANS
Employers may establish what is known as a simplified employee pension plan
("SEP") under Section 408(k) of the Code. Employer contributions to a SEP can be
invested in an individual retirement annuity selected by a participant in the
SEP. Contributions generally must be made as a uniform percentage of employee
compensation and are excluded from gross income of the employee for federal
income tax purposes. Employer contributions to a SEP cannot exceed the lesser of
$30,000 or 15% of an employee's eligible compensation (which may not exceed
$160,000 for the year 1997, indexed to reflect certain cost-of-living changes
for 1998 and later years). The Code also permits employees of certain small
employers to have SEP contributions made on the basis of salary reduction if the
SEP was established as a salary reduction SEP no later than December 31, 1996.
Such salary reduction contributions may not exceed $9,500, indexed annually for
inflation.
The tax consequences to participants may vary depending upon the particular
plan design. However, the Code places limitations and restrictions on all such
plans including on such items as: amounts of allowable contributions; form,
manner and timing of distributions; vesting and nonforfeitability of interests;
nondiscrimination in eligibility and participation, and the tax treatment of
distributions, withdrawals and surrenders. See "Tax Treatment of Withdrawals --
Qualified Contracts."
SAVINGS INCENTIVE MATCH PLANS FOR EMPLOYEES (SIMPLE)
Employers which establish Savings Incentive Match Plans for Employees
("SIMPLE" IRAs) under Section 408(p) of the Code may make employee salary
deferral contributions and employer contributions to individual retirement
annuities established for the eligible employees. Employees who have earned or
expect to earn $5,000 or more annually may defer the lesser of $6,000 or 100% of
earned income through a salary deferral arrangement. Employee salary deferrals
are not includable in the employee's federal taxable gross income. The employer
must make a company contribution based on one of two schedules. The schedules
are either a dollar for dollar matching
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contribution for all employees who make salary deferral contributions based on
the employee's salary deferral up to a maximum of 3% of the employee's
compensation, or a 2% nonelective contribution for all eligible employees based
on compensation (which may not exceed $160,000 for 1997). Employers sponsoring
SIMPLE IRAs may not maintain other qualified retirement plans.
The Code places certain limitations and restrictions on these plans
including: manner and timing of contributions; vesting and nonforfeitability of
interests; nondiscrimination in eligibility and participation; tax treatment of
distributions, withdrawals and surrenders; frequency of notification and
eligibility to participate; and annual employee reporting. See "Tax Treatment of
Withdrawals -- Qualified Contracts."
SECTION 457 -- DEFERRED COMPENSATION PLANS
Under Section 457 of the Code, governmental and certain other tax exempt
employers may establish deferred compensation plans for the benefit of their
employees and may purchase annuity contracts in connection with those plans.
Under such plans, contributions made for the benefit of the employees will not
be includable in the employees' gross income for federal income tax purposes
until distributed from the Plan. If the program is considered an "eligible
deferred compensation plan" under the Code, an individual generally may
contribute, on a tax-deferred basis, the lesser of $7,500 or 33 1/3% of gross
income from the employer, reduced by amounts excluded from income under Sections
403(b) (tax sheltered annuities), 402(e)(3) (elective salary deferrals under
Sections 401(k) or 403(b) plans), 402(h)(1)(B) (elective salary deferrals under
Simplified Employee Pensions) or 402(k) (SIMPLE IRAs) of the Code or for which a
deduction is allowed under Section 501(c)(18) (for certain "employee pay-all"
plans created before June 25, 1959) for the taxable year. Amounts so deferred
may be used by the employer to purchase Contracts pursuant to this Prospectus.
Under a Section 457 plan that is not a governmental plan, all the plan
assets, including any Contract, must remain solely the property of the employer
subject only to the claims of the employer's general creditors until such time
as made available to the participant or beneficiary. The employee has no present
rights or vested interest in the Contract and is entitled to payment only under
the terms of the plan.
Under a governmental Section 457 plan that is maintained by a state, a
political subdivision of a state, or any agency or instrumentality of a state or
political subdivision, all assets of a Section 457 plan must be held in a trust,
a custodial account or an annuity contract for the exclusive benefit of
participants and their beneficiaries.
Distributions from such plans generally are not permitted prior to
termination of employment except in cases of unforeseeable emergencies (as
defined in Treas. Reg. Section 1.457-2(b)(4)).
TAX TREATMENT OF WITHDRAWALS -- QUALIFIED CONTRACTS
The discussion in the following paragraph applies to Qualified Plans other
than IRAs. It does not apply to Section 457 plans.
Distributions from Qualified Contracts purchased under Qualified Plans (but
not from IRAs) that are "eligible rollover distributions" are subject to certain
"direct rollover" and federal income tax withholding rules. The Qualified Plan
is required to give the Contract Owner, Annuitant or Beneficiary (as applicable)
the choice of having payments that are eligible rollover distributions paid
either as (a) a "direct rollover" to an individual retirement account or an
individual retirement annuity (an "INDIVIDUAL RETIREMENT ARRANGEMENT") or to
certain other types of Qualified Plans, or (b) a payment to the Contract Owner,
Annuitant or Beneficiary. Nonspouse Beneficiaries cannot elect direct rollovers.
If a direct rollover is chosen, the payment will be made directly to the
individual retirement arrangement or other Qualified Plan, and will not be
subject to federal income tax in the year the direct rollover is made, but will
be taxed later when it is taken out of the individual retirement arrangement or
other Qualified Plan. If a payment to the Contract Owner, Annuitant or
Beneficiary is chosen, he or she will receive only 80% of the payment because
the Qualified Plan administrator is required to withhold 20% of the payment and
send it to the Internal Revenue Service to be credited against federal income
taxes. Also, the Contract Owner, Annuitant or Beneficiary will be taxed on the
payment for the year it is made unless he or she rolls it over to an individual
retirement arrangement or certain other types of Qualified Plans within 60 days
of receiving the payment. Nonspouse Beneficiaries cannot make such rollovers. If
the Contract Owner, Annuitant or Beneficiary wants to roll over 100% of a
payment, he or she must find other funds to replace the 20% that was withheld.
Distributions are not "eligible rollover distributions" and cannot be paid as a
direct rollover if they represent the
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return of "after-tax" employee contributions, are part of a series of payments
made for a period of ten years or more, to the extent the distributions are
"required minimum distributions" that are made after age 70 1/2 and are required
by law, or are made for certain other reasons. The administrator of the
Qualified Plan will provide additional information about these tax rules when a
distribution is made.
Distributions from Qualified Contracts purchased under Qualified Plans that
are not rolled over to an individual retirement arrangement or another Qualified
Plan (or are not eligible to be rolled over) are taxable as ordinary income,
except to the extent allocable to an employee's after-tax contributions. If an
employee or the Beneficiary receives from a Qualified Plan (not including
distributions from an individual retirement account, individual retirement
annuity or tax-sheltered annuity) a "lump sum distribution" as defined in
Section 402(d)(4) of the Code, the taxable portion of the distribution may be
subject to special tax treatment. For most individuals receiving lump sum
distributions after age 59 1/2 and on or before December 31, 1999, the tax rate
may be determined under five-year income averaging provisions of the Code. Those
who reached age 50 on or before January 1, 1986 instead may elect to use a
ten-year income averaging. In addition, such individuals may elect capital gains
treatment for the taxable portion of a lump sum distribution attributable to
years of service before 1974.
Section 72(t) of the Code imposes a 10% penalty tax on the taxable portion
of any distribution from Qualified Plans and IRAs, including Contracts issued in
connection with plans that are qualified under Code Sections 401, 403(b), 408(a)
and 408(b). To the extent amounts are not includable in gross income because
they have been properly rolled over (as direct rollovers or as rollovers of
other payments) to an individual retirement arrangement or to another eligible
Qualified Plan, no tax penalty will be imposed. The tax penalty will not apply
to the following distributions: (a) distributions made on or after the date on
which the Contract Owner or Annuitant (as applicable) reaches age 59 1/2; (b)
distributions following the death or disability of the Contract Owner or
Annuitant (as applicable) (disability is defined in Section 72(m)(7) of the
Code); (c) distributions that are part of substantially equal periodic payments
made not less frequently than annually for the life (or life expectancy) of the
Contract Owner or Annuitant (as applicable) or the joint lives (or joint life
expectancies) of such Contract Owner or Annuitant (as applicable) and the
designated beneficiary (provided that if the Qualified Plan is other than an
IRA, distributions do not begin before the Contract Owner or Annuitant separates
from service); (d) for Qualified Plans other than IRAs, distributions to a
Contract Owner or Annuitant (as applicable) who has separated from service after
attaining age 55; (e) distributions made to the Contract Owner or Annuitant (as
applicable) to the extent such distributions do not exceed the amount allowable
as a deduction under Code Section 213 to the Contract Owner or Annuitant (as
applicable) for amounts paid during the taxable year for medical care; (f) for
Qualified Plans other than IRAs, distributions made to an alternate payee
pursuant to a qualified domestic relations order; and (g) distributions to
unemployed individuals for health insurance premiums under certain conditions.
Distributions from a Qualified Contract issued in connection with a
Qualified Plan or an IRA generally must commence by April 1 of the calendar year
after the calendar year in which the Contract Owner or Annuitant reaches age
70 1/2 (or, if later, by April 1 of the calendar year after the calendar year in
which he or she terminates employment in the case of a Qualified Plan but not in
the case of an IRA), and must be made in minimum annual amounts determined under
rules issued pursuant to the Internal Revenue Code. See "Required
Distributions." Distributions from a Qualified Contract issued in connection
with an IRA and distributions to 5% owners of the sponsoring employer from
Contracts issued under Qualified Plans (other than certain governmental or
church-sponsored Qualified Plans) must commence by April 1 of the calendar year
after the calendar year in which the Contract Owner or Annuitant reaches age
70 1/2, even if he or she has not terminated employment.
Other rules apply to a Qualified Contract issued in connection with a
Qualified Plan or an IRA to determine when and how required minimum
distributions must be made in the event of the death of the Contract Owner or
Annuitant. The plan or IRA documents will contain such rules. In addition, if
the Contract Owner's or Annuitant's surviving spouse is the beneficiary of the
interest in the Qualified Plan or the IRA, the surviving spouse may be able to
elect to defer the commencement of distributions past the commencement date that
otherwise would apply, to roll over a distribution to the surviving spouse's own
individual retirement arrangement or to treat an IRA as his or her own.
Distributions from a Contract issued in connection with a Section 457 Plan
generally must meet the same rules as distributions from Qualified Plans. See
"Required Distributions." However, in the case of a distribution from
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such a Contract which does not begin before the death of the Contract Owner or
Annuitant, distributions must be made over a period not exceeding fifteen years
(or the life expectancy of the surviving spouse if that spouse is the
beneficiary).
Under certain conditions, distributions from other IRAs and other Qualified
Plans may be rolled over or transferred on a tax-deferred basis into an IRA or
another Qualified Plan. Persons seeking to roll over distributions in such a
manner should obtain tax advice as to the limitations imposed by the Code on
such rollovers.
Because contributions to a SIMPLE IRA are placed in individual retirement
annuities, many of the IRA rules apply to SIMPLE IRAs. In addition, during the
first two years after the individual first participates in any salary reduction
arrangement that is part of a SIMPLE IRA, any amounts distributed from the
SIMPLE IRA are subject to a 25% early withdrawal penalty imposed by the IRS
unless the distributions are rolled over to another SIMPLE retirement account or
unless one of the exceptions to the Section 72(t) tax, as discussed above,
applies. During this first two year period, employees may transfer SIMPLE IRAs
to other SIMPLE IRAs without a 25% early withdrawal penalty. Employees who have
not reached age 59 1/2 and do not qualify for one of the exceptions to the
Section 72(t) tax must wait two years after first participating in the SIMPLE
IRA before transferring employee and/or employer contributions to other IRAs or
IRA rollover annuities under Section 408(d)(3). After the two-year period, the
normal IRA rules regarding withdrawals apply to SIMPLE IRAs.
TAX-SHELTERED ANNUITIES -- WITHDRAWAL LIMITATIONS
Effective January 1, 1989, the Code limits the withdrawal of amounts
attributable to contributions made pursuant to a salary reduction agreement (as
defined in Section 403(b)(11) of the Code) to circumstances only: (1) when the
Owner attains age 59 1/2; (2) separates from service; (3) dies; (4) becomes
disabled (within the meaning of Section 72(m)(7) of the Code); or (5) in the
case of hardship. However, withdrawals for hardship are restricted to the
portion of the Owner's Contract Value which represents contributions by the
Owner and does not include any investment results. The limitations on
withdrawals apply only to salary reduction contributions made after December 31,
1988 and to income attributable to such contributions and to income attributable
to amounts held as of December 31, 1988. The limitations on withdrawals do not
affect rollovers between certain Qualified Plans. Owners should consult their
own tax counsel or other tax advisor regarding any distributions.
LEGAL PROCEEDINGS
There are no material legal proceedings, other than ordinary routine
litigation incidental to the businesses of the Company, the Variable Account,
the Distributor, the Advisor or IFS, to which any of these entities is a party
or to which any of their respective property is subject.
FINANCIAL STATEMENTS
Financial Statements of the Company may be found in the Statement of
Additional Information, which may be obtained without charge by calling the
Special Markets Service Center at 1-800-669-2796 (press 2).
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PART II -- DISCUSSION OF SELECT ADVISORS PORTFOLIOS
SUMMARY
GENERAL
Select Advisors Portfolios (the "SA TRUST") is a diversified, open-end
management investment company which was organized as a trust under the laws of
the State of New York on February 7, 1994. The SA Trust includes eight separate
portfolios, two of which, the Growth & Income Portfolio and the Bond Portfolio
(sometimes herein called the "SAT PORTFOLIOS"), are discussed in this Part II.
Each of the SAT Portfolios has a different investment objective and different
policies and practices:
GROWTH & INCOME PORTFOLIO has an investment objective of long term capital
appreciation and dividend income through investment primarily in common
stocks of high quality companies.
BOND PORTFOLIO has an investment objective of providing a high level of
current income primarily through investment in investment grade bonds.
The Growth & Income Portfolio and Bond Portfolio of the SA Trust, which are
described in this Part II, may invest up to 5% and 35%, respectively, of their
total assets in non-investment grade bonds. See "Growth & Income Portfolio,"
"Bond Portfolio" and "Medium and Lower Rated ("Junk Bonds") and Unrated
Securities." For further information regarding the investment objectives,
policies and restrictions of each of the SAT Portfolios, see "Investment
Objectives, Policies and Restrictions."
RISKS
There are certain risks associated with the investment policies of each SAT
Portfolio. The value of a Sub-Account will fluctuate with the value of the
underlying securities in the corresponding SAT Portfolio in which all of the
Sub-Account's assets are invested. To the extent that a Portfolio invests in
income securities, the market value of those securities will be affected by
general changes in interest rates, which may result in either increases or
decreases in the value of those securities. To the extent that a Portfolio
invests in securities of non-U.S. issuers and foreign currencies, the Portfolio
may face risks that are different from those associated with investment in
domestic securities, including the effect of different economies, change in
relative currency exchange rates, future political and economic developments,
the possible imposition of exchange controls or other governmental confiscation
or restrictions, and less availability of data on companies and the securities
industry as well as less regulation of stock exchanges, brokers and issuers. For
additional information, see "Investment Objectives, Policies and Restrictions"
and "Risk Factors, Restrictions and Investment Techniques."
ADVISORS
Each SAT Portfolio is managed by one or more Portfolio Advisors selected by
the Board of Trustees of the SA Trust based on the recommendations of the
Advisor. The Advisor is paid advisory fees for the general management of the SAT
Portfolios. The Portfolio Advisors are paid fees by the Advisor to manage the
assets of each of the SAT Portfolios. See "Management of the Portfolios."
There can, of course, be no assurance that the investment objectives of the
SAT Portfolios can be achieved. Except for certain investment restrictions
designated as fundamental in this Prospectus or the Statement of Additional
Information, the investment objectives and policies of any SAT Portfolio may be
changed by the Trustees of the SA Trust without the approval of the investors in
the respective Portfolio.
SUB-ACCOUNTS
Each SAT Portfolio corresponds to a Sub-Account of the Variable Account. The
investment objectives of each Sub-Account are the same as the investment
objectives of its corresponding SAT Portfolio, and each Sub-Account invests the
funds it receives from Contract Owners only in an interest in the corresponding
SAT Portfolio.
Contract Owners electing to allocate a portion of their Purchase Payments to
the Variable Account acquire interests in the Sub-Account(s) which they select,
and do not invest directly in the corresponding SAT Portfolios. Instead,
Purchase Payments of Owners are allocated to the Sub-Accounts. Each Sub-Account,
in turn, holds an
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interest in the corresponding SAT Portfolio. See "Purchase Payments." Similarly,
Owners that surrender or make withdrawals from their Contracts do not directly
redeem interests in the Portfolios. See "Surrenders and Partial Withdrawals."
Although Owners who allocate all or any portion of their Purchase Payments
to the various Sub-Accounts do not directly own interests in the SAT Portfolios
or the SA Trust, they do have voting rights in certain circumstances. If at any
time any Sub-Account is requested to vote on a matter regarding the
corresponding SAT Portfolio, the Company will solicit the directions of each
Owner who has allocated Contract Value to such Sub-Account and will cast the
votes of the Sub-Account in accordance with the directions received from such
Owners. See "Voting Rights."
OTHER INVESTORS
Owners should be aware that each SAT Portfolio also receives investments
from certain sub-accounts of other variable annuity contracts issued by Separate
Account 1, and may also receive investments from other insurance company
separate accounts of the Company or of other insurance companies. Owners should
be aware that other investors in an SAT Portfolio could control the results of
voting on any matter submitted to investors in that Portfolio. In certain
instances, such as a change in an SAT Portfolio's fundamental policies, it might
be advisable for the affected Sub-Account (subject to receipt of required
approvals) to redeem its investment in the Portfolio. Substantial redemptions
could result in that Portfolio effecting any such redemption by means of a
distribution in kind of Portfolio securities. Any such distribution in kind
could adversely affect the diversification and liquidity of the Sub-Accounts'
investments. In addition, the Sub-Account could incur brokerage and other
transaction costs in order to convert the resulting securities to cash.
As is true with many investments generally, investors in the SAT Portfolios
(including the Sub-Accounts) may be affected by the actions of other large or
controlling investors. For example, the decision of a large investor to redeem
its shares could result in higher operating expenses and a corresponding
reduction in return. Large redemptions could, as well, cause a Sub-Account's
holdings to become less diverse, resulting in increased risk.
FINANCIAL HIGHLIGHTS
The following table shows ratios to average net assets and other financial
data for each SAT Portfolio for the period indicated and was derived from
financial statements audited by Coopers & Lybrand L.L.P., the SA Trust's
independent accountants, whose report thereon appears in the SA Trust's Annual
Report which is included in the SA Trust's Statement of Additional Information.
<TABLE>
<CAPTION>
GROWTH & INCOME PORTFOLIO II BOND PORTFOLIO II
----------------------------- ------------------------------
FOR THE PERIOD ENDED DECEMBER 31, 1996 1995 1994(a) 1996 1995 1994(a)
- ------------------------------------------------------------ -------- -------- ------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Ratios and supplemental data (b):
Net assets at end of period (000's)....................... $21,971 $13,894 $9,923 $14,979 $12,304 $10,104
Ratios to average net assets:
Expenses.................................................. 0.85% 0.85% 0.85% 0.75% 0.75% 0.75%
Net investment income..................................... 1.07% 1.27% 2.06% 6.16% 6.91% 6.76%
Expenses, without waiver and reimbursement................ 1.71% 1.77% 2.94% 1.72% 1.58% 2.67%
Portfolio Turnover.......................................... 69% 96% 0% 79% 80% 0%
Average commission rate(c).................................. $0.0571 --
</TABLE>
- ------------------------
(a) The Portfolios commenced operations on November 21, 1994.
(b) Ratios are annualized. Portfolio turnover is not annualized.
(c) For fiscal years beginning on or after September 1, 1995, a fund is required
to disclose its average commission rate per share for security trades on
which commissions are charged. This amount may vary between periods and
funds depending on the volume and character of trades executed in various
markets whose trading practices and commission rate structures may differ.
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INVESTMENT OBJECTIVES, POLICIES AND RESTRICTIONS
GROWTH & INCOME PORTFOLIO
The investment objective of the Portfolio is long term capital appreciation
and dividend income through investment primarily in a diversified portfolio of
common stocks of high quality companies that, in the Portfolio Advisor's
opinion, have above average growth potential at the time of purchase. In
general, these securities are characterized as having above average dividend
yields and below average price earnings ratios relative to the stock market in
general, as measured by the S&P 500. Other factors, such as earnings and
dividend growth prospects as well as industry outlook and market share, also are
considered. Under normal conditions, at least 80% of the Portfolio's assets will
be invested in common stocks and at least 65% of the Portfolio's assets will be
invested in common stocks that, at the time of investment, will be expected to
pay regular dividends.
The Portfolio will generally invest a majority of its assets in common
stocks of issuers with total market capitalization of $1 billion or greater at
the time of purchase, but may invest in securities of companies having various
levels of market capitalization, including smaller companies whose securities
may be more volatile and less liquid than securities issued by larger companies
with higher levels of net worth. Investments will be in companies in various
industries.
The Portfolio may also invest up to 20% of its total assets in foreign
securities, including securities of foreign issuers in the form of ADRs. The
Portfolio may not invest more than 5% of its total assets in the securities of
companies based in an emerging market. See "Foreign Securities."
The Portfolio may invest under normal circumstances up to 20% of its total
assets in preferred stock, convertible bonds and other fixed income instruments
rated at least Baa by Moody's or BBB by S&P. The Portfolio may invest up to 5%
of its total assets in bonds rated below Baa by Moody's or BBB by S&P (commonly
known as "junk bonds"). See "Medium and Lower-Rated ("Junk Bonds") and Unrated
Securities."
BOND PORTFOLIO
The investment objective of the Portfolio is to provide high current income
primarily through investments in investment grade bonds. Investment grade bonds
are those rated at least Baa by Moody's or BBB by S&P or unrated bonds
considered by the Portfolio Advisor to be of comparable quality. Under normal
circumstances, at least 65% of the value of the Portfolio's total assets will be
invested in bonds or debentures (as described in the first sentence of the next
paragraph). The average maturity of the Portfolio will be between five and
fifteen years. The average maturity of the Portfolio's holdings may be shortened
in order to preserve capital if the Portfolio Advisor anticipates a rise in
interest rates. Conversely, the maturity may be lengthened to maximize returns
if interest rates are expected to decline.
This Portfolio invests in U.S. Treasury obligations, corporate bonds,
debentures, mortgage related securities issued by various governmental agencies,
such as GNMA and government related organizations, such as FNMA and FHLMC,
including collateralized mortgage obligations ("CMOs"), privately issued
mortgage related securities (including CMOs), stripped U.S. Government and
mortgage related securities, non-publicly registered securities, asset backed
securities and Eurodollar certificates of deposit and Eurodollar bonds. It will
also invest in preferred stock. No more than 60% of the Portfolio's total assets
will be invested in mortgage related securities. The Portfolio will not invest
in any bond rated lower than B by S&P or by Moody's. The Portfolio will invest
less than 35% of its assets in U.S. or foreign non-investment grade (or "junk")
bonds and preferred stock. High risk, lower quality debt securities are regarded
as predominantly speculative with respect to the issuer's ability to pay
interest and repay principal in accordance with the terms of the obligation. See
"Medium and Lower-Rated ("Junk Bonds") and Unrated Securities." Up to 20% of the
Portfolio's assets may be invested in fixed-income securities denominated in
foreign currencies. These foreign securities must meet the same rating and
quality standards as the Portfolio's U.S. dollar-denominated investments. See
"Foreign Securities."
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SPECIAL INFORMATION CONCERNING HUB AND SPOKE-REGISTERED TRADEMARK- STRUCTURE
The SA Trust is utilizing certain proprietary rights, know-how and financial
services referred to as Hub and Spoke-Registered Trademark- from Signature
Financial Group, Inc.
The Growth & Income and Bond Sub-Accounts seek to achieve their investment
objectives by investing all of their respective assets in the corresponding SAT
Portfolio, each of which is a series of a separate registered investment company
with the same investment objectives as the Sub-Account. In addition to selling
an interest to the corresponding Sub-Account, each SAT Portfolio may sell
interests to certain sub-accounts of other variable annuity contracts issued by
Separate Account 1, and to other separate accounts of the Company or of other
insurance companies. Such investors will invest in an SAT Portfolio on the same
terms and conditions and will pay a proportionate share of that Portfolio's
expenses. However, the other investors investing in the SAT Portfolio are not
required to sell their shares at the same public offering price as the
Sub-Account due to variations in sales commissions and other operating expenses.
Therefore, Owners investing in either the Bond or Growth & Income Sub-Account
should be aware that these differences may result in differences in returns
experienced by investors in the different investment vehicles that invest in a
Portfolio. Such differences in returns are also present in other mutual fund
structures. Information concerning other holders of interests in an SAT
Portfolio is available from the Distributor at (800) 669-2796 (press 3).
The investment objective of an SAT Portfolio may also be changed without the
approval of the investors in the Portfolio, but not without written notice
thereof to the investors in the Portfolio (and notice by the corresponding
Sub-Account to its Owners) thirty days prior to implementing the change. If
there were a change in a Sub-Account's investment objective, Owners should
consider whether the Sub-Account remains an appropriate investment in light of
their then-current financial positions and needs. There can, of course, be no
assurance that the investment objective of any SAT Portfolio will be achieved.
Smaller investors in an SAT Portfolio may be materially affected by the
actions of larger investors in the Portfolio. For example, if a larger investor
withdraws from a Portfolio, the remaining investors may experience higher pro
rata operating expenses, thereby producing lower returns. Additionally, a
Portfolio may become less diverse, resulting in increased portfolio risk.
(However, this possibility exists as well for traditionally structured
investment vehicles which have large or institutional investors.) Also,
investors with a greater pro rata ownership in an SAT Portfolio could have
effective voting control of the operations of the Portfolio. Whenever a
Sub-Account is requested to vote on matters pertaining to the corresponding
Portfolio (other than a vote by the Sub-Account to continue the operation of the
Portfolio upon the withdrawal of another investor in the Portfolio), the Company
will hold a meeting of Owners investing in the Sub-Account and will cast all of
its votes in the same proportion as the votes of these Owners. Owners who do not
vote will not affect the Sub-Account's vote at the Portfolio meeting. The
percentage of a Sub-Account's votes representing Owners not voting will be voted
by the Company in the same proportion as the Sub-Account Owners who do, in fact,
vote. Certain changes in a Portfolio's investment objective, policies or
restrictions might cause a Sub-Account to withdraw its interest in an SAT
Portfolio. Any such withdrawal could result in a distribution "in kind" of
portfolio securities (as opposed to a cash distribution from the Portfolio). If
securities are distributed, a Sub-Account could incur brokerage, tax or other
charges in converting the securities to cash. In addition, the distribution in
kind may result in a less diversified portfolio of investments or adversely
affect the liquidity of a Sub-Account. Notwithstanding the above, there are
other means for meeting shareholder redemption requests, such as borrowing.
For more information about each Portfolio's policies, management and
expenses, see "Investment Objectives, Policies and Restrictions," "Management of
the Portfolios" and "Risk Factors, Restrictions and Investment Techniques." For
more information about each Portfolio's investment restrictions, see the
Statement of Additional Information.
MANAGEMENT OF THE PORTFOLIOS
GENERAL
The business of the SA Trust is governed by a board of trustees (the
"TRUSTEES" or "BOARD OF TRUSTEES") who are elected by a vote of the investors in
the Portfolios. The Trustees exercise broad supervision over the affairs of the
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SA Trust. They have retained the services of the Advisor, a subsidiary of IFS
(in turn a subsidiary of the Company), under terms of an investment advisory
agreement (the "ADVISORY AGREEMENT"), pursuant to which the Advisor has been
engaged as investment advisor to each of the SAT Portfolios. Under terms of the
Advisory Agreement it is the Advisor's responsibility to select, subject to
review and approval by the Trustees, one or more Portfolio Advisors. The Advisor
is responsible for the continuing evaluation, selection and monitoring of the
Portfolio Advisors. In this regard, the Advisor employs the services of
RogersCasey, a research firm specializing in appraisal and comparison of
investment advisers, to assist it in evaluating the Portfolio Advisors and
candidates for those positions. See "Consultant to the Advisor."
Each Portfolio Advisor has discretion, subject to oversight by the Trustees,
to purchase and sell portfolio assets, except as limited by each Portfolio's
investment objectives, policies and restrictions and by specific investment
strategies developed by the Advisor. See "Investment Objectives, Policies and
Restrictions" and "Risk Factors, Restrictions and Investment Techniques."
For its services, the Advisor receives an advisory fee from each SAT
Portfolio. See "Expenses." A part of the fee paid to the Advisor is used by the
Advisor to pay the advisory fees of the Portfolio Advisors. Such fees are paid
by the Advisor and not by the SAT Portfolio. Any Portfolio Advisor may waive any
or all of such fees. The allocation of the fees paid to the Advisor, showing the
amount received by the Advisor and the amounts paid by it to the two Portfolio
Advisors is set forth below. Such fees are computed daily and paid monthly at
the annual rate specified below of the value of the average daily net assets of
the SAT Portfolio:
<TABLE>
<CAPTION>
GROWTH & INCOME
PORTFOLIO BOND PORTFOLIO
------------------- -----------------
<S> <C> <C>
Advisor............................................................... 0.75% 0.55%
Portfolio Advisor..................................................... 0.45% 0.30%
</TABLE>
The Portfolio Advisor for the Growth & Income and Bond Portfolios is Fort
Washington Investment Advisors, Inc. ("FORT WASHINGTON"). See "Portfolio
Advisors," below. Because Fort Washington is a subsidiary of Western & Southern
and, hence, an affiliate of the Advisor, the Advisor is subject to a conflict of
interest when making decisions regarding the retention and compensation of that
particular Portfolio Advisor. However, the Advisor's decisions, including the
identity of a Portfolio Advisor and the specific amount of the Advisor's
compensation to be paid to the Portfolio Advisor, are subject to review and
approval by a majority of the Board of Trustees and separately by a majority of
such Trustees who are not affiliated with the Advisor or any of its affiliates.
CONSULTANT TO THE ADVISOR
RogersCasey, located at One Parklands Drive, Darien, Connecticut 06820, has
been engaged in the business of rendering portfolio advisor evaluations since
1976. The staff at RogersCasey is experienced in acting as investment
consultants and in developing, implementing and managing multiple portfolio
advisor programs. RogersCasey provides asset management consulting services to
various institutional and individual clients and provides the Advisor with
investment consulting services with respect to development, implementation and
management of the SA Trust's multiple portfolio manager program. RogersCasey is
employed by, and its fees and expenses are paid by, the Advisor (not the SA
Trust). As consultant, RogersCasey provides research concerning registered
investment advisors to be retained by the Advisor as Portfolio Advisors,
monitors and assists the Advisor with the periodic reevaluation of existing
Portfolio Advisors and makes periodic reports to the Advisor and the Board of
Trustees of the SA Trust.
PORTFOLIO ADVISORS
The following sets forth certain information about each of the Portfolio
Advisors. The individuals employed by the Portfolio Advisor who are primarily
responsible for the day-to-day investment management of the Portfolio are named
below. The annual total return information shown below includes the effect of
deducting each Portfolio's expenses, but does not include charges attributable
to the Contract. See "Fee and Expense Tables."
FORT WASHINGTON serves as the Portfolio Advisor to the Growth & Income
Portfolio. Fort Washington is a wholly-owned subsidiary of Western & Southern.
Fort Washington has been registered as an investment advisor under the
Investment Advisers Act of 1940, as amended, (the "ADVISORS ACT") since
September 14, 1990. Fort Washington provides investment advisory services to
individual and institutional clients. As of June 30, 1997, Fort
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Washington had assets under management of $ billion. John J.
O'Connor is primarily responsible for the day-to-day investment management of
the Growth & Income Portfolio. Mr. O'Connor (CFA and CPA) joined Western &
Southern/Fort Washington in 1988 and is the Senior Portfolio Manager and
Director of Investment Research. Fort Washington's principal executive offices
are located at 420 East Fourth Street, Cincinnati, Ohio 45202.
Fort Washington also serves as Portfolio Advisor to the Bond Portfolio.
Roger M. Lanham and Brendan White are the individuals primarily responsible for
the day-to-day investment management of the Bond Portfolio. Mr. Lanham is a CFA
and has been with Western & Southern/Fort Washington since 1981. Mr. White is a
CFA and has been with Western & Southern/Fort Washington since 1993. Prior to
1993, Mr. White was with Ohio Casualty Insurance Co. for six years, managing
high yield and mortgage backed assets.
EXPENSES
The SA Trust pays all of its expenses of operations, other than those borne
by the Advisor. In particular, the SA Trust pays: the compensation of its
Trustees who are not affiliated with the Advisor and its affiliates;
governmental fees; interest charges; taxes; membership dues in trade
associations; fees and expenses of independent auditors and legal counsel of the
SA Trust; insurance premiums; amortization of organizational expenses; and
expenses of calculating the net asset value and net income of each of the
Portfolios; expenses related to the execution, recording and settlement of
security transactions; fees and expenses of the custodian; expenses of preparing
and mailing reports to investors and to governmental officers and commissions;
expenses of meetings of investors; and the advisory fees payable to the Advisor
under the Advisory Agreement.
RISK FACTORS, RESTRICTIONS AND INVESTMENT TECHNIQUES
TECHNIQUES AND RISK FACTORS
The following are descriptions of certain types of securities invested in by
the SAT Portfolios, certain investment techniques employed by those Portfolios
and risks associated with utilizing either the securities or the investment
techniques.
DERIVATIVES
The Portfolios may invest in various instruments that are commonly known as
derivatives. Generally, a derivative is a financial arrangement, the value of
which is based on, or "derived" from, a traditional security, asset, or market
index. Some "derivatives" such as certain mortgage-related and other
asset-backed securities are in many respects like any other investment, although
they may be more volatile or less liquid than more traditional debt securities.
There are, in fact, many different types of derivatives and many different ways
to use them. There is a range of risks associated with those uses. Futures and
options are commonly used for traditional hedging purposes to attempt to protect
a fund from exposure to changing interest rates, securities prices, or currency
exchange rates and as a low cost method of gaining exposure to a particular
securities market without investing directly in those securities. However, some
derivatives are used for leverage, which tends to magnify the effects of an
instrument's price changes as market conditions change. Leverage involves the
use of a small amount of money to control a large amount of financial assets,
and can in some circumstances, lead to significant losses. A Portfolio Advisor
will use derivatives only in circumstances where the Portfolio Advisor believes
they offer the most economic means of improving the risk/reward profile of the
Portfolio. Derivatives will not be used to increase portfolio risk above the
level that could be achieved using only traditional investment securities or to
acquire exposure to changes in the value of assets or indexes that by themselves
would not be purchased for the Portfolio. The use of derivatives for non-hedging
purposes may be considered speculative. A description of the derivatives that
the Portfolios may use and some of their associated risks is found below.
FOREIGN SECURITIES
Investing in securities issued by foreign companies and governments involves
considerations and potential risks not typically associated with investing in
obligations issued by the U.S. government and domestic corporations. Less
information may be available about foreign companies than about domestic
companies and foreign companies generally are not subject to uniform accounting,
auditing and financial reporting standards or to other regulatory
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practices and requirements comparable to those applicable to domestic companies.
The values of foreign investments are affected by changes in currency rates or
exchange control regulations, restrictions or prohibitions on the repatriation
of foreign currencies, application of foreign tax laws, including withholding
taxes, changes in governmental administration or economic or monetary policy (in
the United States or abroad) or changed circumstances in dealings between
nations. Costs are also incurred in connection with conversions between various
currencies. In addition, foreign brokerage commissions and custody fees are
generally higher than those charged in the United States, and foreign securities
markets may be less liquid, more volatile and less subject to governmental
supervision than in the United States. Investments in foreign countries could be
affected by other factors not present in the United States, including
expropriation, confiscatory taxation, lack of uniform accounting and auditing
standards and potential difficulties in enforcing contractual obligations and
could be subject to extended clearance and settlement periods.
RISKS ASSOCIATED WITH "EMERGING MARKETS" SECURITIES
"Emerging Markets" securities include the securities of issuers based in
some of the world's underdeveloped markets, including Eastern Europe. These
typically include countries where per capita GNP is less than $8,355.
Investments in securities of issuers based in such countries entail all of the
risks of investing in foreign issuers outlined in this section but to a
heightened degree. These heightened risks include: (i) expropriation,
confiscatory taxation, nationalization, and less social, political and economic
stability; (ii) the smaller size of the market for such securities and a low or
nonexistent volume of trading, resulting in a lack of liquidity and in price
volatility; (iii) certain national policies that may restrict a Portfolio's
investment opportunities including restrictions on investing in issuers in
industries deemed sensitive to relevant national interests; and (iv) in the case
of Eastern Europe, the absence of developed capital markets and legal structures
governing private or foreign investment and private property and the possibility
that recent favorable economic and political developments could be slowed or
reversed by unanticipated events.
So long as the Communist Party continues to exercise a significant or, in
some cases, a dominant role in Eastern European countries, investments in such
countries will involve risk of nationalization, expropriation and confiscatory
taxation. The former communist governments of a number of Eastern European
countries expropriated large amounts of private property in the past, and in
many cases without adequate compensation. There is no assurance that such
expropriation will not occur in the future at the hands of either an existing
non-communist regime or upon the return to power of the Communist Party. In the
event of any such expropriation, a Portfolio could lose a substantial portion of
any investments it has made in the affected countries. Finally, even though the
currencies of less developed countries may be convertible into U.S. dollars, the
conversion rates may be artificial in relation to the actual market values and
may be adverse to Portfolio shareholders.
CURRENCY EXCHANGE RATES
A Portfolio's share value may change significantly when the currencies,
other than the U.S. dollar, in which the Portfolio's investments are denominated
strengthen or weaken against the U.S. dollar. Currency exchange rates generally
are determined by the forces of supply and demand in the foreign exchange
markets and the relative merits of investments in different countries as seen
from an international perspective. Currency exchange rates can also be affected
unpredictably by intervention by U.S. or foreign governments or central banks or
by currency controls or political developments in the United States or abroad.
MEDIUM AND LOWER RATED AND UNRATED SECURITIES
Securities rated in the fourth highest category by S&P or Moody's, BBB and
Baa, respectively, although considered investment grade, possess speculative
characteristics, and changes in economic or other conditions are more likely to
impair the ability of issuers of these securities to make interest and principal
payments than is the case with respect to issuers of higher grade bonds.
Generally, medium or lower rated securities and unrated securities of
comparable quality, sometimes referred to as "junk bonds," offer a higher
current yield than is offered by higher rated securities, but also (i) will
likely have some quality and protective characteristics that, in the judgment of
the rating organizations, are outweighed by large uncertainties or major risk
exposures to adverse conditions and (ii) are predominantly speculative with
respect to the issuer's capacity to pay interest and repay principal in
accordance with the terms of the obligation. The yield of junk bonds will
fluctuate over time.
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The market values of certain of these securities also tend to be more
sensitive to individual corporate developments and changes in economic
conditions than higher quality bonds. In addition, medium and lower rated
securities and comparable unrated securities generally present a higher degree
of credit risk. The risk of loss due to default by these issuers is
significantly greater because medium and lower rated securities and unrated
securities of comparable quality generally are unsecured and frequently are
subordinated to the prior payment of senior indebtedness. Since the risk of
default is higher for lower-rated securities, the Portfolio Advisor's research
and credit analysis are an especially important part of managing securities of
the type held by a Portfolio. In light of these risks, the Board of Trustees has
instructed the Portfolio Advisor, in evaluating the creditworthiness of an
issue, whether rated or unrated, to take various factors into consideration,
which may include, as applicable, the issuer's financial resources, its
sensitivity to economic conditions and trends, the operating history of and the
community support for the facility financed by the issue, the ability of the
issuer's management and regulatory matters.
In addition, the market value of securities in lower rated categories is
more volatile than that of higher quality securities, and the markets in which
medium and lower rated or unrated securities are traded are more limited than
those in which higher rated securities are traded. The existence of limited
markets may make it more difficult for the Portfolios to obtain accurate market
quotations for purposes of valuing their respective portfolios and calculating
their respective net asset values. Moreover, the lack of a liquid trading market
may restrict the availability of securities for the Portfolios to purchase and
may also have the effect of limiting the ability of a Portfolio to sell
securities at their fair value either to meet redemption requests or to respond
to changes in the economy or the financial markets.
Lower rated debt obligations also present risks based on payment
expectations. If an issuer calls the obligation for redemption, a Portfolio may
have to replace the security with a lower yielding security, resulting in a
decreased return for shareholders. Also, as the principal value of bonds moves
conversely with movements in interest rates, in the event of rising interest
rates the value of the securities held by a Portfolio may decline relatively
proportionately more than a portfolio consisting of higher rated securities. If
a Portfolio experiences unexpected net redemptions, it may be forced to sell its
higher rated bonds, resulting in a decline in the overall credit quality of the
securities held by the Portfolio and increasing the exposure of the Portfolio to
the risks of lower rated securities. Investments in zero coupon bonds may be
more speculative and subject to greater fluctuations in value due to changes in
interest rates than bonds that pay interest currently.
Subsequent to its purchase by a Portfolio, an issue of securities may cease
to be rated or its rating may be reduced below the minimum required for purchase
by the Portfolio. Neither event will require sale of these securities by the
Portfolio, but the Portfolio Advisor will consider this event in its
determination of whether the Portfolio should continue to hold the securities.
ADRS, EDRS AND CDRS
American Depositary Receipts ("ADRs") are U.S. dollar-denominated receipts
typically issued by domestic banks or trust companies that represent the deposit
with those entities of securities of a foreign issuer. ADRs are publicly traded
on exchanges or over-the-counter in the United States. European Depositary
Receipts ("EDRs"), which are sometimes referred to as Continental Depositary
Receipts ("CDRs"), may also be purchased by the Portfolios. EDRs and CDRs are
generally issued by foreign banks and evidence ownership of either foreign or
domestic securities. Certain institutions issuing ADRs or EDRs may not be
sponsored by the issuer of the underlying foreign securities. A non-sponsored
depository may not provide the same shareholder information that a sponsored
depository is required to provide under its contractual arrangements with the
issuer of the underlying foreign securities.
FIXED-INCOME AND OTHER DEBT INSTRUMENT SECURITIES
Fixed-income and other debt instrument securities include all bonds, high
yield or "junk" bonds, municipal bonds, debentures, U.S. Government securities,
mortgage-related securities including government stripped mortgage-related
securities, zero coupon securities and custodial receipts. The market value of
fixed-income obligations of the Portfolios will be affected by general changes
in interest rates which will result in increases or decreases in the value of
the obligations held by the Portfolios. The market value of the obligations held
by a Portfolio can be expected to vary inversely to changes in prevailing
interest rates. Shareholders also should recognize that, in periods of declining
interest rates, a Portfolio's yield will tend to be somewhat higher than
prevailing market rates and, in
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periods of rising interest rates, a Portfolio's yield will tend to be somewhat
lower. Also, when interest rates are falling, the inflow of net new money to a
Portfolio from the continuous sale of its shares will tend to be invested in
instruments producing lower yields than the balance of its portfolio, thereby
reducing the Portfolio's current yield. In periods of rising interest rates, the
opposite can be expected to occur. In addition, securities in which a Portfolio
may invest may not yield as high a level of current income as might be achieved
by investing in securities with less liquidity, less creditworthiness or longer
maturities.
Ratings made available by S&P and Moody's are relative and subjective and
are not absolute standards of quality. Although these ratings are initial
criteria for selection of portfolio investments, a Portfolio Advisor also will
make its own evaluation of these securities. Among the factors that will be
considered are the long-term ability of the issuers to pay principal and
interest and general economic trends.
Fixed-income securities may be purchased on a when-issued or
delayed-delivery basis. See "When-Issued and Delayed-Delivery Securities."
U.S. GOVERNMENT SECURITIES
Each Portfolio may invest in U.S. Government securities, which are
obligations issued or guaranteed by the U.S. Government, its agencies,
authorities or instrumentalities. Some U.S. government securities, such as U.S.
Treasury bills, Treasury notes and Treasury bonds, which differ only in their
interest rates, maturities and times of issuance, are supported by the full
faith and credit of the United States. Others are supported by: (i) the right of
the issuer to borrow from the U.S. Treasury, such as securities of the Federal
Home Loan Banks; (ii) the discretionary authority of the U.S. government to
purchase the agency's obligations, such as securities of the FNMA; or (iii) only
the credit of the issuer, such as securities of the Student Loan Marketing
Association. No assurance can be given that the U.S. Government will provide
financial support in the future to U.S. government agencies, authorities or
instrumentalities that are not supported by the full faith and credit of the
United States.
Securities guaranteed as to principal and interest by the U.S. government,
its agencies, authorities or instrumentalities include: (i) securities for which
the payment of principal and interest is backed by an irrevocable letter of
credit issued by the U.S. Government or any of its agencies, authorities or
instrumentalities; and (ii) participation interests in loans made to foreign
governments or other entities that are so guaranteed. The secondary market for
certain of these participation interests is limited and, therefore, may be
regarded as illiquid.
MORTGAGE RELATED SECURITIES
Each Portfolio may invest in mortgage related securities. There are several
risks associated with mortgage related securities generally. One is that the
monthly cash inflow from the underlying loans may not be sufficient to meet the
monthly payment requirements of the mortgage related security.
Prepayment of principal by mortgagors or mortgage foreclosures will shorten
the term of the underlying mortgage pool for a mortgage related security. Early
returns of principal will affect the average life of the mortgage related
securities remaining in a Portfolio. The occurrence of mortgage prepayments is
affected by factors including the level of interest rates, general economic
conditions, the location and age of the mortgage and other social and
demographic conditions. In periods of rising interest rates, the rate of
prepayment tends to decrease, thereby lengthening the average life of a pool of
mortgage related securities. Conversely, in periods of falling interest rates
the rate of prepayment tends to increase, thereby shortening the average life of
a pool. Reinvestment of prepayments may occur at higher or lower interest rates
than the original investment, thus affecting the yield of a Portfolio. Because
prepayments of principal generally occur when interest rates are declining, it
is likely that a Portfolio will have to reinvest the proceeds of prepayments at
lower interest rates than those at which the assets were previously invested. If
this occurs, a Portfolio's yield will correspondingly decline. Thus, mortgage
related securities may have less potential for capital appreciation in periods
of falling interest rates than other fixed-income securities of comparable
maturity, although these securities may have a comparable risk of decline in
market value in periods of rising interest rates. To the extent that a Portfolio
purchases mortgage related securities at a premium, unscheduled prepayments,
which are made at par, will result in a loss equal to any unamortized premium.
CMOs are obligations fully collateralized by a portfolio of mortgages or
mortgage related securities. Payments of principal and interest on the mortgages
are passed through to the holders of the CMOs on the same schedule as
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they are received, although certain classes of CMOs have priority over others
with respect to the receipt of prepayments on the mortgages. Therefore,
depending on the type of CMOs in which a Portfolio invests, the investment may
be subject to a greater or lesser risk of prepayment than other types of
mortgage related securities.
Mortgage related securities may not be readily marketable. To the extent any
of these securities are not readily marketable in the judgment of the Portfolio
Advisor, the investment restriction limiting a Portfolio's investment in
illiquid instruments to not more than 15% of the value of its net assets will
apply.
STRIPPED MORTGAGE RELATED SECURITIES
These securities are either issued and guaranteed, or privately-issued but
collateralized by securities issued, by GNMA, FNMA or FHLMC. These securities
represent beneficial ownership interests in either periodic principal
distributions ("principal-only") or interest distributions ("interest-only") on
mortgage related certificates issued by GNMA, FNMA or FHLMC, as the case may be.
The certificates underlying the stripped mortgage related securities represent
all or part of the beneficial interest in pools of mortgage loans. The Portfolio
will invest in stripped mortgage related securities in order to enhance yield or
to benefit from anticipated appreciation in value of the securities at times
when its Portfolio Advisor believes that interest rates will remain stable or
increase. In periods of rising interest rates, the expected increase in the
value of stripped mortgage related securities may offset all or a portion of any
decline in value of the securities held by the Portfolio.
Investing in stripped mortgage related securities involves the risks
normally associated with investing in mortgage related securities. See "Mortgage
Related Securities" above. In addition, the yields on stripped mortgage related
securities are extremely sensitive to the prepayment experience on the mortgage
loans underlying the certificates collateralizing the securities. If a decline
in the level of prevailing interest rates results in a rate of principal
prepayments higher than anticipated, distributions of principal will be
accelerated, thereby reducing the yield to maturity on interest-only stripped
mortgage related securities and increasing the yield to maturity on
principal-only stripped mortgage related securities. Sufficiently high
prepayment rates could result in a Portfolio not fully recovering its initial
investment in an interest-only stripped mortgage related security. Under current
market conditions, the Portfolio expects that investments in stripped mortgage
related securities will consist primarily of interest-only securities. Stripped
mortgage related securities are currently traded in an over-the-counter market
maintained by several large investment banking firms. There can be no assurance
that the Portfolio will be able to effect a trade of a stripped mortgage related
security at a time when it wishes to do so. The Portfolio will acquire stripped
mortgage related securities only if a secondary market for the securities exists
at the time of acquisition. Except for stripped mortgage related securities
based on fixed rate FNMA and FHLMC mortgage certificates that meet certain
liquidity criteria established by the Board of Trustees, the Portfolios will
treat stripped mortgage related securities as illiquid and will limit its
investments in these securities, together with other illiquid investments, to
not more than 15% of net assets.
ZERO COUPON SECURITIES
Zero coupon U.S. Government securities are debt obligations that are issued
or purchased at a significant discount from face value. The discount
approximates the total amount of interest the security will accrue and compound
over the period until maturity or the particular interest payment date at a rate
of interest reflecting the market rate of the security at the time of issuance.
Zero coupon securities do not require the periodic payment of interest. These
investments benefit the issuer by mitigating its need for cash to meet debt
service, but also require a higher rate of return to attract investors who are
willing to defer receipt of cash. These investments may experience greater
volatility in market value than U.S. Government securities that make regular
payments of interest. A Portfolio accrues income on these investments for tax
and accounting purposes, which is distributable to shareholders and which,
because no cash is received at the time of accrual, may require the liquidation
of other portfolio securities to satisfy the Portfolio's distribution
obligations, in which case the Portfolio will forego the purchase of additional
income producing assets with these funds. Zero coupon securities include STRIPS,
that is, securities underwritten by securities dealers or banks that evidence
ownership of future interest payments, principal payments or both on certain
notes or bonds issued by the U.S. Government, its agencies, authorities or
instrumentalities. They also include Coupons Under Book Entry System ("CUBES"),
which are component parts of U.S. Treasury bonds and represent scheduled
interest and principal payments on the bonds.
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CUSTODIAL RECEIPTS
Custodial receipts or certificates, such as Certificates of Accrual on
Treasury Securities ("CATS"), Treasury Investors Growth Receipts ("TIGRs") and
Financial Corporation certificates ("FICO Strips"), are securities underwritten
by securities dealers or banks that evidence ownership of future interest
payments, principal payments or both on certain notes or bonds issued by the
U.S. Government, its agencies, authorities or instrumentalities. The
underwriters of these certificates or receipts purchase a U.S. Government
security and deposit the security in an irrevocable trust or custodial account
with a custodian bank, which then issues receipts or certificates that evidence
ownership of the periodic unmatured coupon payments and the final principal
payment on the U.S. Government Security. Custodial receipts evidencing specific
coupon or principal payments have the same general attributes as zero coupon
U.S. Government securities, described above. Although typically under the terms
of a custodial receipt a Portfolio is authorized to assert its rights directly
against the issuer of the underlying obligation, the Portfolio may be required
to assert through the custodian bank such rights as may exist against the
underlying issuer. Thus, if the underlying issuer fails to pay principal and/or
interest when due, a Portfolio may be subject to delays, expenses and risks that
are greater than those that would have been involved if the Portfolio had
purchased a direct obligation of the issuer. In addition, if the trust or
custodial account in which the underlying security has been deposited is
determined to be an association taxable as a corporation, instead of a
non-taxable entity, the yield on the underlying security would be reduced in
respect of any taxes paid.
WHEN-ISSUED AND DELAYED-DELIVERY SECURITIES
To secure prices deemed advantageous at a particular time, each Portfolio
may purchase securities on a when-issued or delayed-delivery basis, in which
case delivery of the securities occurs beyond the normal settlement period;
payment for or delivery of the securities would be made prior to the reciprocal
delivery or payment by the other party to the transaction. A Portfolio will
enter into when-issued or delayed-delivery transactions for the purpose of
acquiring securities and not for the purpose of leverage. When-issued securities
purchased by the Portfolio may include securities purchased on a "when, as and
if issued" basis under which the issuance of the securities depends on the
occurrence of a subsequent event, such as approval of a merger, corporate
reorganization or debt restructuring.
Securities purchased on a when-issued or delayed-delivery basis may expose a
Portfolio to risk because the securities may experience fluctuations in value
prior to their actual delivery. The Portfolio does not accrue income with
respect to a when-issued or delayed-delivery security prior to its stated
delivery date. Purchasing securities on a when-issued or delayed-delivery basis
can involve the additional risk that the yield available in the market when the
delivery takes place may be higher than that obtained in the transaction itself.
REPURCHASE AGREEMENTS
Each of the Portfolios may engage in repurchase agreement transactions.
Under the terms of a typical repurchase agreement, a Portfolio would acquire an
underlying debt obligation for a relatively short period (usually not more than
one week) subject to an obligation of the seller to repurchase, and the
Portfolio to resell, the obligation at an agreed-upon price and time, thereby
determining the yield during the Portfolio's holding period. This arrangement
results in a fixed rate of return that is not subject to market fluctuations
during the Portfolio's holding period. A Portfolio may enter into repurchase
agreements with respect to U.S. government securities with member banks of the
Federal Reserve System and certain non-bank dealers approved by the respective
Board of Trustees. Under each repurchase agreement, the selling institution is
required to maintain the value of the securities subject to the repurchase
agreement at not less than their repurchase price. The Portfolio Advisor, acting
under the supervision of the Advisor and the Board of Trustees, reviews on an
ongoing basis the value of the collateral and the creditworthiness of those
non-bank dealers with whom the Portfolio enters into repurchase agreements. In
entering into a repurchase agreement, a Portfolio bears a risk of loss in the
event that the other party to the transaction defaults on its obligations and
the Portfolio is delayed or prevented from exercising its rights to dispose of
the underlying securities, including the risk of a possible decline in the value
of the underlying securities during the period in which the Portfolio seeks to
assert its rights to them, the risk of incurring expenses associated with
asserting those rights and the risk of losing all or a part of the income from
the agreement. Repurchase agreements are considered to be collateralized loans
under the 1940 Act.
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REVERSE REPURCHASE AGREEMENTS AND FORWARD ROLL TRANSACTIONS
The Portfolios may enter into reverse repurchase agreements and forward roll
transactions. In a reverse repurchase agreement the Portfolio agrees to sell
portfolio securities to financial institutions such as banks and broker-dealers
and to repurchase them at a mutually agreed date and price. Forward roll
transactions are equivalent to reverse repurchase agreements but involve
mortgage-backed securities and involve a repurchase of a substantially similar
security. At the time the Portfolio enters into a reverse repurchase agreement
or forward roll transaction it will place in a segregated custodial account cash
or liquid securities having a value equal to the repurchase price, including
accrued interest. Reverse repurchase agreements and forward roll transactions
involve the risk that the market value of the securities sold by the Portfolio
may decline below the repurchase price of the securities. Reverse repurchase
agreements and forward roll transactions are considered to be borrowings by a
Portfolio for purposes of the limitations described in "Certain Investment
Restrictions" below and in the Statement of Additional Information.
LENDING PORTFOLIO SECURITIES
To generate income for the purpose of helping to meet its operating
expenses, each Portfolio may lend securities to brokers, dealers and other
financial organizations. These loans, if and when made, may not exceed 30% of a
Portfolio's assets taken at value. A Portfolio's loans of securities will be
collateralized by cash, letters of credit or U.S. Government securities. The
cash or instruments collateralizing a Portfolio's loans of securities will be
maintained at all times in a segregated account with the Portfolio's custodian,
or with a designated subcustodian, in an amount at least equal to the current
market value of the loaned securities. In lending securities to brokers, dealers
and other financial organizations, a Portfolio is subject to risks, which, like
those associated with other extensions of credit, include delays in recovery and
possible loss of rights in the collateral should the borrower fail financially.
For further information regarding measures to be taken to protect a lending
Portfolio, see the Statement of Additional Information.
ILLIQUID SECURITIES
No Portfolio may invest more than 15% of its net assets in securities which
are illiquid or otherwise not readily marketable. If a security becomes illiquid
after purchase by the Portfolio, the Portfolio will normally sell the security
unless to do so would not be in the best interests of shareholders.
NON-PUBLICLY TRADED ("RESTRICTED") SECURITIES AND RULE 144A SECURITIES
Each Portfolio may purchase securities in the United States that are not
registered for sale under federal securities laws but which can be resold to
institutions under SEC Rule 144A or under an exemption from such laws. If a
dealer or institutional trading market in such securities exists, these
restricted securities or Rule 144A securities are treated as exempt from the
Portfolio's 15% limit on illiquid securities. The Board of Trustees of the SA
Trust, with advice and information from the respective Portfolio Advisor, will
determine the liquidity of restricted securities or Rule 144A securities by
looking at factors such as trading activity and the availability of reliable
price information and, through reports from such Portfolio Advisor, the Board of
Trustees of the Portfolio Trust will monitor trading activity in restricted
securities. If institutional trading in restricted securities or Rule 144A
securities were to decline, a Portfolio's illiquidity could be increased and the
Portfolio could be adversely affected.
No Portfolio will invest more than 10% of its total assets in restricted
securities (excluding Rule 144A securities).
TEMPORARY INVESTMENTS
For temporary defensive purposes during periods when the Portfolio Advisor
of a Portfolio believes, in consultation with the Advisor, that pursuing the
Portfolio's basic investment strategy may be inconsistent with the best
interests of its shareholders, the Portfolio may invest its assets without limit
in the following money market instruments: U.S. Government securities (including
those purchased in the form of custodial receipts), repurchase agreements,
certificates of deposit and bankers' acceptances issued by banks or savings and
loan associations having assets of at least $500 million as of the end of their
most recent fiscal year and high quality commercial paper. In addition, for the
same purposes the Portfolio Advisor may invest without limit in obligations
issued or guaranteed by foreign governments or by any of their political
subdivisions, authorities, agencies or instrumentalities that are rated at least
AA by S&P or Aa by Moody's or, if unrated, are determined by the Portfolio
Advisor to be of equivalent
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quality. Each Portfolio also may hold a portion of its assets in money market
instruments or cash in amounts designed to pay expenses, to meet anticipated
redemptions or pending investments in accordance with its objectives and
policies. Any temporary investments may be purchased on a when-issued basis.
FUTURES CONTRACTS AND RELATED OPTIONS
Each Portfolio may enter into futures contracts and purchase and write
(sell) options on these contracts, including but not limited to interest rate,
securities index and foreign currency futures contracts and put and call options
on these futures contracts. These contracts will be entered into only upon the
concurrence of the Portfolio Advisor that such contracts are necessary or
appropriate in the management of the Portfolio's assets. These contracts will be
entered into on exchanges designated by the Commodity Futures Trading Commission
("CFTC") or, consistent with CFTC regulations, on foreign exchanges. These
transactions may be entered into for bona fide hedging and other permissible
risk management purposes including protecting against anticipated changes in the
value of securities a Portfolio intends to purchase.
No Portfolio will hedge more than 25% of its total assets by selling
futures, buying puts, and writing calls under normal conditions. In addition, no
Portfolio will buy futures or write puts whose underlying value exceeds 25% of
its total assets, and no Portfolio will buy calls with a value exceeding 5% of
its total assets.
A Portfolio will not enter into futures contracts and related options for
which the aggregate initial margin and premiums exceed 5% of the fair market
value of the Portfolio's assets after taking into account unrealized profits and
unrealized losses on any contracts it has entered into.
A Portfolio may lose the expected benefit of these futures or options
transactions and may incur losses if the prices of the underlying commodities
move in an unanticipated manner. In addition, changes in the value of the
Portfolio's futures and options positions may not prove to be perfectly or even
highly correlated with changes in the value of its portfolio securities.
Successful use of futures and related options is subject to a Portfolio
Advisor's ability to predict correctly movements in the direction of the
securities markets generally, which ability may require different skills and
techniques than predicting changes in the prices of individual securities.
Moreover, futures and options contracts may only be closed out by entering into
offsetting transactions on the exchange where the position was entered into (or
a linked exchange), and as a result of daily price fluctuation limits there can
be no assurance that an offsetting transaction could be entered into at an
advantageous price at any particular time. Consequently, a Portfolio may realize
a loss on a futures contract or option that is not offset by an increase in the
value of its portfolio securities that are being hedged or a Portfolio may not
be able to close a futures or options position without incurring a loss in the
event of adverse price movements. For additional information, see "Futures
Contracts and Options on Futures Contracts" in the Statement of Additional
Information.
OPTIONS ON STOCK
Each Portfolio may write and purchase options on stocks. A call option gives
the purchaser of the option the right to buy, and obligates the writer to sell,
the underlying stock at the exercise price at any time during the option period.
Similarly, a put option gives the purchaser of the option the right to sell, and
obligates the writer to buy the underlying stock at the exercise price at any
time during the option period. A covered call option with respect to which a
Portfolio owns the underlying stock sold by the Portfolio exposes the Portfolio
during the term of the option to possible loss of opportunity to realize
appreciation in the market price of the underlying stock or to possible
continued holding of a stock which might otherwise have been sold to protect
against depreciation in the market price of the stock. A covered put option sold
by a Portfolio exposes the Portfolio during the term of the option to a decline
in price of the underlying stock.
To close out a position when writing covered options, a Portfolio may make a
"closing purchase transaction" which involves purchasing an option on the same
stock with the same exercise price and expiration date as the option which it
has previously written on the stock. The Portfolio will realize a profit or loss
for a closing purchase transaction if the amount paid to purchase an option is
less or more, as the case may be, than the amount received from the sale
thereof. To close out a position as a purchaser of an option, a Portfolio may
make a "closing sale transaction" which involves liquidating the Portfolio's
position by selling the option previously purchased. See also "Options on
Securities" in the Statement of Additional Information.
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OPTIONS ON SECURITIES INDEXES
Each Portfolio may purchase and write put and call options on securities
indexes listed on domestic and, in the case of those Portfolios which may invest
in foreign securities, on foreign exchanges. A securities index fluctuates with
changes in the market values of the securities included in the index.
Options on securities indexes are generally similar to options on stock
except that the delivery requirements are different. Instead of giving the right
to take or make delivery of stock at a specified price, an option on a security
index gives the holders the right to receive a cash "exercise settlement amount"
equal to (a) the amount, if any, by which the fixed exercise price of the option
exceeds (in the case of a put) or is less than (in the case of a call) the
closing value of the underlying index on the date of the exercise, multiplied by
(b) a fixed "index multiplier." Receipt of this cash amount will depend upon the
closing level of the index upon which the option is based being greater than, in
the case of a call, or less than, in the case of a put, the exercise price of
the option. The amount of cash received will be equal to such difference between
the closing price of the index and the exercise price of the option expressed in
dollars or a foreign currency, as the case may be, times a specified multiple.
The writer of the option is obligated, in return for the premium received, to
make delivery of this amount. The writer may offset its position in securities
index options prior to expiration by entering into a closing transaction on an
exchange or the option may expire unexercised.
Because the value of an index option depends upon movements in the level of
the index rather than the price of a particular security, whether the Portfolio
will realize a gain or loss from the purchase or writing of options on an index
depends upon movements in the level of securities prices in the market generally
or, in the case of certain indexes, in an industry or market segment, rather
than movements in price of a particular security. Accordingly, successful use by
a Portfolio of options on security indexes will be subject to the Portfolio
Advisor's ability to predict correctly movement in the direction of that
securities market generally or of a particular industry. This requires different
skills and techniques than predicting changes in the price of individual
securities. For further information regarding index options, see "Options on
Securities Indexes" in the Statement of Additional Information.
FORWARD CURRENCY CONTRACTS
Each Portfolio may hold currencies to meet settlement requirements for
foreign securities and may engage in currency exchange transactions in order to
protect against uncertainty in the level of future exchange rates between a
particular foreign currency and the U.S. dollar or between foreign currencies in
which the Portfolio's securities are or may be denominated. Forward currency
contracts are agreements to exchange one currency for another, for example, to
exchange a certain amount of U.S. dollars for a certain amount of French francs
at a future date. The date (which may be any agreed-upon fixed number of days in
the future), the amount of currency to be exchanged and the price at which the
exchange will take place will be negotiated with a currency trader and fixed for
the term of the contract at the time that the Portfolio enters into the
contract.
In hedging specific portfolio positions, a Portfolio may enter into a
forward contract with respect to either the currency in which the positions are
denominated or another currency deemed appropriate by the Portfolio Advisor. The
amount the Portfolio may invest in forward currency contracts is limited to the
amount of the Portfolio's aggregate investments in foreign currencies. Risks
associated with entering into forward currency contracts include the possibility
that the market for forward currency contracts may be limited with respect to
certain currencies and, upon a contract's maturity, the inability of a Portfolio
to negotiate with the dealer to enter into an offsetting transaction. Forward
currency contracts may be closed out only by the parties entering into an
offsetting contract. In addition, the correlation between movements in the
prices of those contracts and movements in the price of the currency hedged or
used for cover will not be perfect. There is no assurance that an active forward
currency contract market will always exist. These factors will restrict a
Portfolio's ability to hedge against the risk of devaluation of currencies in
which a Portfolio holds a substantial quantity of securities and are unrelated
to the qualitative rating that may be assigned to any particular security. See
also "Forward Currency Contracts" in the Statement of Additional Information for
further information concerning forward currency contracts.
ASSET COVERAGE
To assure that a Portfolio's use of futures and related options, as well as
when-issued and delayed-delivery transactions, forward currency contracts and
swap transactions, are not used to achieve investment leverage, the Portfolio
will cover such transactions, as required under applicable SEC interpretations,
either by owning the
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underlying securities or by establishing a segregated account with the SA
Trust's custodian containing liquid securities in an amount at all times equal
to or exceeding the Portfolio's commitment with respect to these instruments or
contracts.
CERTAIN INVESTMENT RESTRICTIONS
The SA Trust, on behalf of each SAT Portfolio, has adopted certain
investment restrictions that are enumerated in detail in the Statement of
Additional Information. Among other restrictions, each SAT Portfolio may not,
with respect to 75% of its total assets taken at market value, invest more than
5% of its total assets in the securities of any one issuer, except U.S.
Government securities, or acquire more than 10% of any class of the outstanding
voting securities of any one issuer. In addition, no Portfolio may invest more
than 25% of its total assets in securities of issuers in any one industry. Each
Portfolio may borrow money as a temporary measure from banks in an aggregate
amount not exceeding one-third of the value of the Portfolio's total assets to
meet redemptions and for other temporary or emergency purposes not involving
leveraging. Reverse repurchase agreements and forward roll transactions
involving mortgage-related securities will be aggregated with bank borrowings
for purposes of this calculation. No Portfolio may purchase securities while
borrowings exceed 5% of the value of the Portfolio's total assets. No Portfolio
will invest more than 15% of the value of its net assets in securities that are
illiquid, including certain government stripped mortgage related securities,
repurchase agreements maturing in more than seven days and that cannot be
liquidated prior to maturity and securities that are illiquid by virtue of the
absence of a readily available market. Securities that have legal or contractual
restrictions on resale but have a readily available market, such as certain Rule
144A securities, are deemed not illiquid for this purpose. No Portfolio may
invest more than 10% of its assets in restricted securities (excluding Rule 144A
securities). See "Illiquid Securities" and "Non-Publicly Traded ("Restricted")
Securities and Rule 144A Securities."
PORTFOLIO TURNOVER
Generally, the SAT Portfolios will not trade in securities for short-term
profits but, when circumstances warrant, securities may be sold without regard
to the length of time held. The SAT Portfolios may engage in active short-term
trading to benefit from yield disparities among different issues of securities,
to seek short-term profits during periods of fluctuating interest rates or for
other reasons. Active trading will increase a Portfolio's rate of turnover,
certain transaction expenses and the incidence of short-term capital gain
taxable as ordinary income. An annual turnover rate of 100% would occur when all
the securities held by the Portfolio are replaced one time during a period of
one year. The turnover rates of the Growth & Income Portfolio and the Bond
Portfolio for 1996 and 1995 were 82% and 96% and 79% and 80%, respectively.
MANAGEMENT OF THE SA TRUST
BOARD OF TRUSTEES
Overall responsibility for management and supervision of the SA Trust rests
with its Board of Trustees. The Trustees approve all significant agreements
between the SA Trust and the persons and companies that furnish services to the
SA Trust and the Portfolios, including agreements between the SA Trust and each
of the Custodian, the Advisor and the Administrator. Due to the services
provided by the Advisor and the Administrator, the Trust currently has no
employees and its officers are not required to devote their full time to the
affairs of the SA Trust. The Statement of Additional Information contains
background information regarding each Trustee and executive officer of the SA
Trust.
ADMINISTRATOR, FUND ACCOUNTING AGENT, CUSTODIAN AND TRANSFER AGENT
Investors Bank, 89 South Street, Boston, Massachusetts 02111, serves as
administrator, fund accounting agent, custodian and transfer agent for the SA
Trust. Investors Bank was organized in 1969 as a Massachusetts-chartered trust
company and is a wholly-owned subsidiary of Investors Financial Services Corp.,
a publicly-held corporation and holding company registered under the Bank
Holding Company Act of 1956.
As administrator and fund accounting agent, Investors Bank provides, on
behalf of the SA Trust, accounting, clerical and bookkeeping services; the daily
calculation of net asset values; state securities registration services;
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corporate secretarial services; assistance in the preparation of management
reports; preparation and filing of tax returns, registration statements, and
reports to shareholders and to the SEC. Investors Bank also provides personnel
to serve as certain officers of the SA Trust.
As custodian, Investors Bank holds cash, securities and other assets of the
SA Trust as required by the 1940 Act. As transfer agent, Investors Bank is
responsible for maintaining records of shareholder interests for the SA Trust.
For its services as fund accounting agent and administrator, each SAT
Portfolio shall pay fees to Investors Bank that are computed and paid monthly.
Such fees equal, in the aggregate, 0.12% on an annual basis of the average daily
net assets of all the portfolios and funds for which Investors Bank acts as fund
accounting agent and administrator up to $1 billion in assets and 0.08% on an
annual basis of average daily net assets which exceed $1 billion, subject to
certain annual minimum fees. As compensation for its services as custodian to
the SA Trust, Investors Bank receives fees, computed and paid monthly, that
aggregate 0.03% on an annual basis of the average daily net assets of all the
portfolios and funds for which Investors Bank acts as custodian up to $500
million and 0.02% on an annual basis of such average daily net assets for the
next $500 million and 0.01% on an annual basis of such average daily net assets
which exceed $1 billion.
SPONSOR
Touchstone Advisors, Inc., as Sponsor to the SA Trust pursuant to a Sponsor
Agreement, provides oversight of the various service providers to the SA Trust,
including the Administrator, Custodian and Transfer Agent. As Sponsor to the SA
Trust, Touchstone Advisors reserves the right to receive a sponsor fee from each
Portfolio equal on an annual basis to 0.20% of the average daily net assets of
that Portfolio for its then current fiscal year. The Sponsor Agreement may be
terminated by the Sponsor as of the end of any calendar quarter after December
31, 1998 on not less than 30 days prior written notice. The SA Trust may
terminate the Sponsor Agreement at any time on not less than 30 days prior
written notice. The Sponsor has advised the SA Trust that it will waive all fees
under the Sponsor Agreement through April 30, 1999.
ALLOCATION OF EXPENSES OF THE PORTFOLIOS
Each SAT Portfolio bears its own expenses, which generally include all costs
not specifically borne by the Advisor, the SAT Portfolio Advisors and the
Administrator. Included among a Portfolio's expenses are: costs incurred in
connection with its organization; investment management and administration fees;
sponsor fees; fees for necessary professional and brokerage services; fees for
any pricing service; the costs of regulatory compliance; and costs associated
with maintaining the SA Trust's legal existence and shareholder relations. Under
separate agreements with the SA Trust, the Sponsor has agreed to reimburse each
SAT Portfolio to the extent that the aggregate operating expenses of the
Portfolio exceed agreed upon expense limitations (the "EXPENSE CAPS"). The
Sponsor's obligation to reimburse the SA Trust for such amounts may be
terminated by the Sponsor at the end of any calendar quarter after December 31,
1998. For more detailed information regarding the Expense Caps, see "Fee and
Expense Tables" and "Expenses of VIT Portfolios and SAT Portfolios; Expense
Caps."
PURCHASE AND VALUATION
PURCHASE
Interests in the Growth & Income and Bond Portfolios are not offered to the
public and are issued solely in private placement transactions that do not
involve any "public offering" within the meaning of Section 4(2) of the 1933
Act. Investments in the Growth & Income and Bond Portfolios may be made only by
a limited number of insurance company separate accounts. This Prospectus and its
accompanying Statement of Additional Information do not constitute an offer to
sell, or the solicitation of an offer to buy, any "security" (within the meaning
of the 1933 Act) of the Portfolios.
VALUATION
The net asset value of each SAT Portfolio is determined as of the close of
regular trading on the NYSE on each day on which the NYSE is open for trading,
by deducting the amount of the Portfolio's liabilities from the value of its
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assets. At the close of each such business day, the value of each Sub-Account's
interest in the Portfolio will be determined by multiplying the net asset value
of the corresponding Portfolio by the percentage, effective for that day, that
represents the Sub-Account's share of the aggregate interests in that Portfolio.
Generally, a Portfolio's investments are valued at market value or, in the
absence of a market value, at fair value as determined by or under the direction
of the SA Trust's Board of Trustees.
Securities that are primarily traded on foreign exchanges are generally
valued at the preceding closing values of the securities on their respective
exchanges, except that, when an occurrence subsequent to the time a value was so
established is likely to have changed that value, the fair market value of those
securities will be determined by consideration of other factors by or under the
direction of the Board of Trustees of the SA Trust. A security that is primarily
traded on a domestic or foreign stock exchange is valued at the last sales price
on that exchange or, if no sales occurred during the day, at the current quoted
bid price. All short-term dollar-denominated investments that mature in 60 days
or less are valued on the basis of amortized cost (which involves valuing an
investment at its cost and, thereafter, assuming a constant amortization to
maturity of any discount or premium, regardless of the effect of fluctuating
interest rates on the market value of the investment) when the Board of Trustees
of the SA Trust has determined that amortized cost represents fair value. An
option that is written by a Portfolio is generally valued at the last sale price
or, in the absence of the last sale price, the last offer price. An option that
is purchased by a Portfolio is generally valued at the last sale price or, in
the absence of the last sale price, the last bid price. The value of a futures
contract is equal to the unrealized gain or loss on the contract that is
determined by marking the contract to the current settlement price for a like
contract on the valuation date of the futures contract. A settlement price may
not be used if the market makes the maximum price change in a single trading
session permitted by an exchange (a "limit move") with respect to a particular
futures contract or if the securities underlying the futures contract experience
significant price fluctuations after the determination of the settlement price.
When a settlement price cannot be used, futures contracts will be valued at
their fair market value as determined by or under the direction of the Board of
Trustees of the SA Trust.
All assets and liabilities initially expressed in foreign currency values
will be converted into U.S. dollar values at the mean between the bid and
offered quotations of the currencies against U.S. dollars as last quoted by any
recognized dealer. If the bid and offered quotations are not available, the rate
of exchange will be determined in good faith by the Board of Trustees of the SA
Trust. In carrying out the valuation policies of the Board of Trustees of the SA
Trust, independent pricing services may be consulted. Further information
regarding the SA Trust's valuation policies is contained in the Statement of
Additional Information.
ADDITIONAL INFORMATION
DESCRIPTION OF BENEFICIAL INTERESTS, VOTING RIGHTS AND LIABILITIES
Each investor in an SAT Portfolio, including the corresponding Sub-Account,
may add to or reduce its investment in the Portfolio on each day the Portfolio
determines its net asset value. At the close of each such business day, the
value of each investor's beneficial interest in the Portfolio will be determined
by multiplying the net asset value of the Portfolio by the percentage, effective
for that day, which represents that investor's share of the aggregate beneficial
interests in the Portfolio. Any additions or withdrawals, which are to be
effected as of the close of business on that day, will then be effected. The
investor's percentage of the aggregate beneficial interests in the Portfolio
will then be re-computed as the percentage equal to the fraction (i) the
numerator of which is the value of such investor's investment in the Portfolio
as of the close of business on such day plus or minus, as the case may be, the
amount of any additions to or withdrawals from the investor's investment in the
Portfolio effected as of the close of business on such day, and (ii) the
denominator of which is the aggregate net asset value of the Portfolio as of the
close of business on such day plus or minus, as the case may be, the amount of
the net additions to or withdrawals from the aggregate investments in the
Portfolio by all investors in the Portfolio. The percentage so determined will
then be applied to determine the value of the investor's interest in the
Portfolio as of the close of business on the following business day.
The SA Trust was organized as a trust under the laws of the State of New
York pursuant to a Declaration of Trust dated February 7, 1994, at which time
the SAT Portfolios were established and designated as a separate series of this
SA Trust. The Declaration of Trust provides that the Sub-Accounts and other
entities investing in the
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Portfolios (e.g., other insurance company separate accounts) will each be liable
for all obligations of the corresponding Portfolio. However, the risk of a
Sub-Account incurring financial loss on account of such liability is limited to
circumstances in which both inadequate insurance existed and the corresponding
Portfolio itself was unable to meet its obligations. Accordingly, the Trustees
of the SA Trust believe that neither the Sub-Account nor its Owners having
Contract Value therein will for this reason be adversely affected as a result of
the Sub-Account investing in the Portfolios. The interests in SA Trust are
divided into separate series. No series of SA Trust has any preference over any
other series.
Each Sub-Account will be involved only in votes that affect the
corresponding SAT Portfolio. Owners investing in Sub-Accounts that are, in turn,
investing in the SAT Portfolios will, however, vote with other investors in all
of the SA Trust's Portfolios (of which there are seven) to elect Trustees of the
SA Trust and for certain other matters. Under certain circumstances the
investors of one or more series of the SA Trust (including the SAT Portfolios)
could control the outcome of these votes. Holders of interests in each Portfolio
will vote separately on matters affecting only that Portfolio. Under certain
circumstances, other investors in a Portfolio could control the outcome of these
votes.
Separate Account 1 sends to each shareholder a semi-annual report and an
audited annual report. At least one such report in each year will include a list
of the investment securities held by the SAT Portfolios. See "Statements to
Contract Owners."
No person has been authorized to give any information or to make any
representations other than those contained in this Prospectus, the corresponding
Statement of Additional Information, and in the Company's official sales
literature in connection with the offering of interests in the Contracts, and if
given or made, such other information or representations must not be relied upon
as having been authorized by the Company. This Prospectus does not constitute an
offer in any state in which, or to any person to whom, such offer may not
lawfully be made.
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TABLE OF CONTENTS OF
STATEMENT OF ADDITIONAL INFORMATION
<TABLE>
<CAPTION>
PAGE
---
<S> <C>
Part I - Discussion Regarding the Variable Annuity Contracts................................................
Part II - Discussion Regarding the Select Advisors Portfolios...............................................
Summary...................................................................................................
Investment Objectives, Techniques, Policies and Restriction...............................................
Investment Objectives...................................................................................
Investment Techniques...................................................................................
Investment Restrictions.................................................................................
Valuation of Securities; Redemption in Kind...............................................................
Management of the SA Trust................................................................................
Organization of the SA Trust..............................................................................
Taxation..................................................................................................
Financial Statements......................................................................................
</TABLE>
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DISTRIBUTOR
Touchstone Securities, Inc.
311 Pike Street
Cincinnati, Ohio 45202
(800) 669-2796 (press 3)
INVESTMENT ADVISOR & SPONSOR
Touchstone Advisors, Inc.
311 Pike Street
Cincinnati, Ohio 45202
VARIABLE ANNUITY SERVICE CENTER
Touchstone Special Markets Service Center
P.O. Box 2850
Cincinnati, Ohio 45201-2850
(800) 669-2796 (press 2)
ADMINISTRATOR, FUND ACCOUNTING AGENT, CUSTODIAN AND TRANSFER AGENT
Investors Bank & Trust Company
89 South Street
Boston, Massachusetts 02111
INDEPENDENT ACCOUNTANTS
Coopers & Lybrand, L.L.P.
312 Walnut Street
Cincinnati, Ohio 45202
LEGAL COUNSEL
Frost & Jacobs LLP
2500 PNC Center
201 East Fifth Street
Cincinnati, Ohio 45202
- --------------------------------------------------------------------------------
T O U C H S T O N E
-----------------------------------------
FORM THE MARK OF EXCELLENCE IN INVESTMENT MANAGEMENT-SM-
<PAGE>
WESTERN-SOUTHERN LIFE ASSURANCE COMPANY
SEPARATE ACCOUNT 1
FLEXIBLE PREMIUM
VARIABLE ANNUITY CONTRACTS
(SELECT VARIABLE ANNUITY)
---------------
STATEMENT OF ADDITIONAL INFORMATION
---------------
This Statement of Additional Information is not a prospectus, but contains
information in addition to that set forth in the current prospectus dated
__________, 1997 (the "PROSPECTUS") for certain variable annuity contracts
("CONTRACTS") offered by Western-Southern Life Assurance Company (the
"COMPANY") through its Separate Account 1 (the "VARIABLE ACCOUNT"), and
should be read in conjunction with the Prospectus. Unless otherwise noted,
the terms used in this Statement of Additional Information have the same
meanings as those set forth in the Prospectus.
A copy of the Prospectus may be obtained by calling the Special Markets
Service Center at 1-800-669-2796 (press 2) or by written request to the
Company at 400 Broadway, Cincinnati, Ohio 45202.
The date of this
Statement of Additional Information
is
_______, 1997
FORM ____________
<PAGE>
TABLE OF CONTENTS OF STATEMENT OF ADDITIONAL INFORMATION
PART I - DISCUSSION REGARDING THE VARIABLE ANNUITY CONTRACTS............... 3
General.................................................................. 3
Safekeeping of Assets.................................................... 3
Distribution of the Contracts............................................ 3
Sub-Account Performance.................................................. 3
Fixed Annuity Payments................................................... 5
Independent Accounts..................................................... 5
PART II - DISCUSSION REGARDING THE SELECT ADVISORS PORTFOLIOS.............. 6
SUMMARY.................................................................... 6
INVESTMENT OBJECTIVES, TECHNIQUES, POLICIES AND RESTRICTIONS............... 7
INVESTMENT OBJECTIVES...................................................... 7
INVESTMENT TECHNIQUES...................................................... 7
Certificates of Deposit and Bankers' Acceptances......................... 7
Commercial Paper......................................................... 7
Lower-Rated Debt Securities.............................................. 7
Illiquid Securities...................................................... 8
Foreign Securities:Special Considerations Concerning Eastern Europe...... 9
Lending Portfolio Securities.............................................10
Futures Contracts and Options on Futures Contracts.......................10
General................................................................10
Futures Contracts......................................................11
Options on Futures Contracts...........................................13
Options on Foreign Currencies..........................................14
Additional Risks of Options on Futures Contracts, Forward Contracts
and Options on Foreign Currencies...................................15
Options on Securities....................................................16
Options on Securities Indexes............................................19
Forward Currency Contracts...............................................19
Rating Services..........................................................21
INVESTMENT RESTRICTIONS....................................................21
Fundamental Policies.....................................................21
Additional Restrictions..................................................22
Portfolio Transactions and Brokerage Commissions.........................25
1
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VALUATION OF SECURITIES; REDEMPTION IN KIND................................27
MANAGEMENT OF THE SA TRUST.................................................29
Trustees of the SA Trust.................................................29
Officers of the SA Trust.................................................30
Trustee Compensation Table...............................................31
Advisor, Portfolio Advisors, Administrator and Sponsor...................32
Advisor................................................................32
Portfolio Advisors.....................................................33
Administrator, Custodian and Fund Accounting Agent.....................33
Sponsor................................................................34
Counsel and Independent Accountants......................................34
ORGANIZATION OF THE SA TRUST...............................................34
TAXATION...................................................................35
Taxation Of The Portfolios...............................................35
Sub-Account Diversification..............................................35
FINANCIAL STATEMENTS.......................................................35
2
<PAGE>
PART I - DISCUSSION REGARDING THE VARIABLE ANNUITY CONTRACTS
GENERAL
Except as otherwise indicated herein, all capitalized terms shall have
the meanings assigned to them in the Prospectus.
The Company is subject to regulation by the Ohio Department of Insurance,
which periodically examines its financial condition and operations. The
Company also is subject to the insurance laws and regulations of all
jurisdictions in which it offers Contracts. Copies of the Contract have
been filed with, and, where required, approved by insurance regulators in
those jurisdictions. The Company must submit annual statements of its
operations, including financial statements, to such state insurance
regulators so that they may determine solvency and compliance with applicable
state insurance laws and regulations.
The Company and the Separate Account have filed a Registration Statement
regarding the Contracts with the Securities and Exchange Commission under the
Investment Company Act of 1940 and the Securities Act of 1933. The
Prospectus and this Statement of Additional Information do not contain all of
the information in the Registration Statement.
SAFEKEEPING OF ASSETS
The assets of the Variable Account are held by the Company, separate from
the Company's general account assets and any other separate accounts which
the Company has or will establish. The Company maintains records of all
purchases and redemptions of the interests in the Portfolios held by the
Sub-Accounts. The Company maintains fidelity bond coverage for the acts of
its officers and employees.
DISTRIBUTION OF THE CONTRACTS
As disclosed in the Prospectus, the Contracts are distributed through
Touchstone Securities, Inc. (the "DISTRIBUTOR"), which is a wholly-owned
subsidiary of IFS Financial Services, Inc. ("IFS"). IFS is a wholly-owned
subsidiary of the Company. The Distributor is a member of the National
Association of Securities Dealers, Inc. The offering of the Contracts is
continuous, and the Company does not anticipate discontinuing offering the
Contracts, although it reserves the right to do so. Sales commissions
attributable to the Variable Account paid by the Company to the Distributor
for the period from February 23, 1995 to December 31, 1995, and for the year
ended December 31, 1996, totalled $159,807 and $1,902,186, respectively, and
$26,967 and $305,688 of those amounts, respectively, were retained by the
Distributor.
SUB-ACCOUNT PERFORMANCE
The performance of the Sub-Accounts may be quoted or advertised by the
Company in various ways. All performance information supplied by the Company
in advertising is based upon historical results of the Sub-Accounts and the
Portfolios and is not intended to indicate future performance of either one.
Total returns and other performance information may be quoted numerically or
in a table, graph or similar illustration. The value of an Accumulation Unit
and total returns fluctuate in response to market conditions, interest rates
and other factors.
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Average annual total returns are calculated by determining the average
annual compounded rates of return over one, five and ten year periods (or
since commencement of operations) that would equate an initial hypothetical
investment to the ending redeemable value according to the following formula:
P (1 + T)n = ERV
where:
P = a hypothetical initial Purchase Payment of $1,000
T = average annual total return
n = number of years and/or portion of a year
ERV = ending redeemable value of a hypothetical initial
Purchase Payment of $1,000 at the end of the
applicable period
While average annual total returns are convenient means of comparing
investment alternatives, investors should realize that any Sub-Account's
performance is not constant over time, but changes from year to year, and
that average annual total returns represent averaged figures as opposed to
the actual year-to-year performance of any Sub-Account.
Average annual total return is calculated as required by applicable
regulations. In addition to average annual total returns, a Sub-Account may
quote cumulative total returns reflecting the simple change in value of any
investment over a stated period. Average annual and cumulative total returns
may be quoted as a percentage or as a dollar amount.
"Total return" or "average annual total return" quoted in advertising
reflects all aspects of a Sub-Account's return, including the effect of
reinvestment by the Variable Account of Portfolio income and capital gain
distributions and any change in the Sub-Account's value over the applicable
period. Such quotations reflect Contract Maintenance, Contract
Administration and Mortality and Expense Risk Charges. Since the Contract is
intended as a long-term investment, total return calculations will assume
that no partial withdrawals from the hypothetical Contract occurred during
the applicable period, but that a Surrender Charge would be incurred upon the
hypothetical withdrawal at the end of the applicable period.
Any total return quotation provided for a Sub-Account should not be
considered as representative of the performance of the Sub-Account in the
future, since the net asset value will vary based not only on the type,
quality and maturities of the securities held in the corresponding Portfolio,
but also on changes in the current value of such securities and on changes in
the expenses of the Sub-Account and the corresponding Portfolio. These
factors and possible differences in the methods used to calculate total
return should be considered when comparing the total return of a Sub-Account
to total returns published for other investment companies or other investment
vehicles. Total return reflects the performance of both principal and income.
4
<PAGE>
The Company may advertise examples of the effects of dollar cost
averaging, whereby an Owner periodically invests a fixed dollar amount in a
Sub-Account, thereby purchasing fewer Accumulation Units when prices are high
and more Accumulation Units when prices are low. While such a strategy does
not assure a profit nor guard against a loss in a declining market, the
Owner's average cost per Accumulation Unit can be lower than if fixed numbers
of Accumulation Units had been purchased at the same intervals. In
evaluating dollar cost averaging, Owners should consider their ability to
continue purchasing Accumulation Units during periods of low price levels.
Performance information for any Sub-Account may be compared, in reports
to Owners and in advertising, to stock indices, other variable annuity
separate accounts or other products tracked by Lipper Analytical Services, or
other widely used independent research firms which rank variable annuities
and investment companies by overall performance, investment objectives and
assets. Unmanaged indices may assume the reinvestment of dividends but
generally do not reflect deductions for annuity charges and investment
management costs.
FIXED ANNUITY PAYMENTS
The Contracts provide only for fixed annuity payment options. The amount
of such payments is calculated by applying the Surrender Value, less any
applicable premium tax, at annuitization to the income payment rates for the
income payment option selected. Annuity payments will be the larger of:
(a) the income based on the rates shown in the Contract's Annuity Tables
for the income payment option chosen; and
(b) the income calculated by applying the proceeds as a single premium at
the Company's current rates in effect on the date of the first annuity
payment for the same option.
Annuity payments under any of the income payment options will not vary in
dollar amount and will not be affected by the future investment performance
of the Variable Account.
INDEPENDENT ACCOUNTANTS
[to be supplied by amendment]
5
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PART II - DISCUSSION REGARDING THE SELECT ADVISORS PORTFOLIOS
SUMMARY
Except as otherwise indicated herein, all capitalized terms have the
meanings assigned to them in the Prospectus.
As described in the Prospectus, the Variable Account seeks to achieve the
investment objectives of each Sub-Account by investing all the investable
assets of the Sub-Account in a diversified open-end management investment
company having the same investment objectives as such Sub-Account. These
investment companies are, respectively, Emerging Growth Portfolio,
International Equity Portfolio, Balanced Portfolio, Growth & Income
Portfolio, Income Opportunity Portfolio, Bond Portfolio and Standby Income
Portfolio (each a "PORTFOLIO" or, collectively, the "PORTFOLIOS"). Detailed
information regarding the Emerging Growth, International Equity, Balanced,
Income Opportunity and Standby Income Portfolios (the "VIT PORTFOLIOS") is
contained in the separate prospectus of the Select Advisors Variable
Insurance Trust (the "VI TRUST") that accompanies the Prospectus. Detailed
information regarding the Bond Portfolio and the Growth & Income Portfolio
(the "SAT PORTFOLIOS") is contained in Part II of the Prospectus and this
Statement of Additional Information.
As disclosed in the Prospectus, Touchstone Advisors, Inc. (the "ADVISOR")
is the investment advisor of each Portfolio, and the specific investments of
each Portfolio are managed on a day-to-day basis by their respective
investment advisors (collectively, the "PORTFOLIO ADVISORS"). Investors Bank
& Trust Company ("INVESTORS BANK" or the "ADMINISTRATOR") serves as
administrator and fund accounting agent to each Portfolio.
6
<PAGE>
INVESTMENT OBJECTIVES, TECHNIQUES, POLICIES AND RESTRICTIONS
INVESTMENT OBJECTIVES
The investment objective(s) of each Sub-Account is described in the
Prospectus. There can be no assurance that any Sub-Account will achieve its
investment objective(s). See THE VI TRUST AND THE SA TRUST in the Prospectus.
INVESTMENT TECHNIQUES
Since the investment characteristics of each Sub-Account will correspond
directly to those of the corresponding SAT Portfolio, the following is a
discussion of certain investments of and techniques employed by the SAT
Portfolios.
CERTIFICATES OF DEPOSIT AND BANKERS' ACCEPTANCES
Certificates of deposit are receipts issued by a depository institution
in exchange for the deposit of funds. The issuer agrees to pay the amount
deposited plus interest to the bearer of the receipt on the date specified on
the certificate. The certificate usually can be traded in the secondary
market prior to maturity. Bankers' acceptances typically arise from
short-term credit arrangements designed to enable businesses to obtain funds
to finance commercial transactions. Generally, an acceptance is a timedraft
drawn on a bank by an exporter or an importer to obtain a stated amount of
funds to pay for specific merchandise. The draft is then "accepted" by a
bank that, in effect, unconditionally guarantees to pay the face value of the
instrument on its maturity date. The acceptance may then be held by the
accepting bank as an earning asset or it may be sold in the secondary market
at the going rate of discount for a specific maturity. Although maturities
for acceptances can be as long as 270 days, most acceptances have maturities
of six months or less.
COMMERCIAL PAPER
Commercial paper consists of short-term (usually from 1 to 270 days)
unsecured promissory notes issued by corporations in order to finance their
current operations. A variable amount master demand note (which is a type of
commercial paper) represents a direct borrowing arrangement involving
periodically fluctuating rates of interest under a letter agreement between a
commercial paper issuer and an institutional lender pursuant to which the
lender may determine to invest varying amounts.
For a description of commercial paper ratings, see the Appendix.
LOWER-RATED DEBT SECURITIES
While the market for high yield corporate debt securities (commonly known
as "junk bonds") has been in existence for many years and has weathered
previous economic downturns, the 1980's brought a dramatic increase in the
use of such securities to fund highly leveraged
7
<PAGE>
corporate acquisitions and restructuring. Past experience may not provide an
accurate indication of future performance of the high yield, high risk bond
market, especially during periods of economic recession. In fact, from 1989
to 1991, the percentage of lower-rated debt securities that defaulted rose
significantly above prior levels.
The market for junk bonds may be thinner and less active than that for
higher rated debt securities, which can adversely affect the prices at which
the former are sold. If market quotations are not available, such
lower-rated debt securities will be valued in accordance with procedures
establish by the Board of Trustees of the SA Trust, including the use of
outside pricing services. Judgment plays a greater role in valuing high
yield, high risk corporate debt securities than is the case for securities
for which more external sources for quotations and last sale information is
available. Adverse publicity and changing investor perception may affect the
ability of outside pricing services to value lower-rated debt securities and
the ability to dispose of these securities.
In considering investments for the Portfolio, the Portfolio Advisor will
attempt to identify those issuers of high yielding debt securities ("junk
bonds") whose financial condition is adequate to meet future obligations, has
improved or is expected to improve in the future. The Portfolio Advisor's
analysis focuses on relative values based on such factors as interest on
dividend coverage, asset coverage, earnings prospects and the experience and
managerial strength of the issuer.
A Portfolio may choose, at its expense or in conjunction with others, to
pursue litigation or otherwise exercise its rights as a security holder to
seek to protect the interest of security holders if it determines this to be
in the best interest of the Portfolio.
For a description of bond ratings, see the Appendix to the Prospectus.
ILLIQUID SECURITIES
Historically, illiquid securities have included securities subject to
contractual or legal restrictions on resale because they have not been
registered under the Securities Act of 1933, as amended (the "1933 ACT"),
securities which are otherwise not readily marketable and repurchase
agreements having a maturity of longer than seven days. Securities which
have not been registered under the 1933 Act are referred to as "private
placements" or "restricted securities" and are purchased directly from the
issuer or in the secondary market. Investment companies do not typically
hold a significant amount of these restricted or other illiquid securities
because of the potential for delays on resale and uncertainty in valuation.
Limitations on resale may have an adverse effect on the marketability of
portfolio securities and a Portfolio might not be able to dispose of
restricted or other illiquid securities promptly or at reasonable prices and
might thereby experience difficulty satisfying redemptions within seven days.
A Portfolio might also have to register such restricted securities in order
to dispose of them, resulting in additional expense and delay. Adverse
market conditions could impede such a public offering of securities.
8
<PAGE>
In recent years, however, a large institutional market has developed for
certain securities that are not registered under the 1933 Act, including
repurchase agreements, commercial paper, foreign securities, municipal
securities and corporate bonds and notes. Institutional investors depend on
an efficient institutional market in which the unregistered security can be
readily resold or on an issuer's ability to honor a demand for repayment.
The fact that there are contractual or legal restrictions on resale of such
investments to the general public or to certain institutions may not be
indicative of their liquidity.
The Securities and Exchange Commission (the "SEC") has adopted Rule 144A,
which allows a broader institutional trading market for securities otherwise
subject to restriction on their resale to the general public. Rule 144A
establishes a "safe harbor" from the registration requirements of the 1933
Act of resales of certain securities to qualified institutional buyers. The
Advisor and each Portfolio Advisor anticipate that the market for certain
restricted securities such as institutional commercial paper will expand
further as a result of this regulation and the development of automated
systems for the trading, clearance and settlement of unregistered securities
of domestic and foreign issuers, such as the PORTAL System sponsored by the
National Association of Securities Dealers, Inc.
Each Portfolio Advisor will monitor the liquidity of Rule 144A securities
in the respective Portfolio's portfolio under the supervision of the SA
Trust's Board of Trustees. In reaching liquidity decisions, each Portfolio
Advisor will consider, among other things, the following factors: (1) the
frequency of trades and quotes for the security; (2) the number of dealers
and other potential purchasers wishing to purchase or sell the security; (3)
dealer undertakings to make a market in the security and (4) the nature of
the security and of the marketplace trades (e.g., the time needed to dispose
of the security, the method of soliciting offers and the mechanics of the
transfer).
FOREIGN SECURITIES: SPECIAL CONSIDERATIONS CONCERNING EASTERN EUROPE
Investments in companies domiciled in Eastern European countries may be
subject to potentially greater risks than those of other foreign issuers.
These risks include: (i) potentially less social, political and economic
stability; (ii) the small current size of the markets for such securities and
the low volume of trading, which result in less liquidity and in greater
price volatility; (iii) certain national policies which may restrict the
Portfolios' investment opportunities, including restrictions on investment in
issuers or industries deemed sensitive to national interests; (iv) foreign
taxation; (v) the absence of developed legal structures governing private or
foreign investment or allowing for judicial redress for injury to private
property; (vi) the absence, until recently in certain Eastern European
countries, of a capital market structure or market-oriented economy; and
(vii) the possibility that recent favorable economic developments in Eastern
Europe may be slowed or reversed by unanticipated political or social events
in such countries, or in the Commonwealth of Independent States.
So long as the Communist Party continues to exercise a significant or, in
some cases, a dominant role in Eastern European countries, investments in
such countries will involve risks of nationalization, expropriation and
confiscatory taxation. The former communist governments of
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a number of Eastern European countries expropriated large amounts of private
property in the past, in many cases without adequate compensation, and there
may be no assurance that such expropriation will not occur in the future at
the hands of either an existing non-communist regime or upon the return to
power of the Communist Party. In the event of such expropriation, a
Portfolio could lose a substantial portion of any investments it has made in
the affected countries. Further, no accounting standards exist in Eastern
European countries. Finally, even though certain Eastern European currencies
may be convertible into U.S. dollars, the conversion rates may be artificial
to the actual market values and may be adverse to the Portfolio's
shareholders.
LENDING PORTFOLIO SECURITIES
By lending its securities, a Portfolio can increase its income by
continuing to receive interest on the loaned securities as well as by either
investing the cash collateral in short-term securities or obtaining yield in
the form of interest paid by the borrower when U.S. Government obligations
are used as collateral. There may be risks of delay in receiving additional
collateral or risks of delay in recovery of the securities or even loss of
rights in the collateral should the borrower of the securities fail
financially. Each Portfolio will adhere to the following conditions whenever
its securities are loaned: (i) the Portfolio must receive at least 100
percent cash collateral or equivalent securities from the borrower; (ii) the
borrower must increase this collateral whenever the market value of the
securities loaned, including accrued interest, rises above the value of the
collateral; (iii) the Portfolio must be able to terminate the loan at any
time; (iv) the Portfolio must receive reasonable interest on the loan, as
well as any dividends, interest or other distributions on the loaned
securities, and any in crease in market value; (v) the Portfolio may pay only
reasonable custodian fees in connection with the loan; and (vi) voting rights
on the loaned securities may pass to the borrower; provided, however, that if
a material event adversely affecting the investment occurs, the Board of
Trustees must terminate the loan and regain the right to vote the securities.
FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS
GENERAL
The successful use of futures contracts and options on futures contracts
draws upon the Portfolio Advisor's skill and experience with respect to such
instruments and usually depends on the Portfolio Advisor's ability to
forecast interest rate and currency exchange rate movements correctly.
Should interest or exchange rates move in an unexpected manner, an SAT
Portfolio may not achieve the anticipated benefits of futures contracts or
options on futures contracts or may realize losses and thus will be in a
worse position than if such strategies had not been used. In addition, the
correlation between movements in the price of futures contracts or options on
futures contracts and movements in the price of the securities and currencies
hedged or used for cover will not be perfect and could produce unanticipated
losses.
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FUTURES CONTRACTS
An SAT Portfolio may enter into contracts for the purchase or sale for
future delivery of fixed-income securities or foreign currencies, or
contracts based on financial indices including any index of U.S. Government
securities, foreign government securities or corporate debt securities. U.S.
futures contracts have been designed by exchanges which have been designated
"contracts markets" by the Commodity Futures Trading Commission ("CFTC"), and
must be executed through a futures commission merchant, or brokerage firm,
which is a member of the relevant contract market. Futures contracts trade
on a number of exchange markets, and, through their clearing corporations,
the exchanges guarantee performance of the contracts as between the clearing
members of the exchange. An SAT Portfolio may enter into futures contracts
which are based on debt securities that are backed by the full faith and
credit of the U.S. Government, such as long-term U.S. Treasury bonds,
Treasury Notes, Government National Mortgage Association ("GNMA") modified
pass-through mortgage-backed securities and three-month U.S. Treasury bills.
An SAT Portfolio may also enter into futures contracts which are based on
bonds issued by entities other than the U.S. Government.
At the same time a futures contract is purchased or sold, the SAT
Portfolio must allocate cash or securities as a deposit payment ("INITIAL
DEPOSIT"). It is expected that the initial deposit would be approximately
1-1/2% to 5% of a contract's face value. Daily thereafter, the futures
contract is valued and the payment of "variation margin" may be required,
since each day the Portfolio would provide or receive cash that reflects any
decline or increase in the contract's value.
At the time of delivery of securities pursuant to such a contract,
adjustments are made to recognize differences in value arising from the
delivery of securities with a different interest rate from that specified in
the contract. In some (but not many) cases, securities called for by a
futures contract may not have been issued when the contract was written.
Although futures contracts by their terms call for the actual delivery or
acquisition of securities, in most cases the contractual obligation is
fulfilled before the date of the contract without having to make or take
delivery of the securities. The offsetting of a contractual obligation is
accomplished by buying (or selling, as the case may be) on a commodities
exchange an identical futures contract calling for delivery in the same
month. Such a transaction, which is effected through a member of an
exchange, cancels the obligation to make or take delivery of the securities.
Since all transactions in the futures market are made, offset or fulfilled
through a clearinghouse associated with the exchange on which the contracts
are traded, the SAT Portfolio will incur brokerage fees when it purchases or
sells futures contracts.
The purpose of the acquisition or sale of a futures contract, in the case
of an SAT Portfolio which holds or intends to acquire fixed-income
securities, is to attempt to protect the Portfolio from fluctuations in
interest or foreign exchange rates without actually buying or selling
fixed-income securities or foreign currencies. For example, if interest
rates were expected to increase, the Portfolio might enter into futures
contracts for the sale of debt securities. Such a sale would have much the
same effect as selling an equivalent value of the debt securities owned by
the
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Portfolio. If interest rates did increase, the value of the debt security in
the Portfolio would decline, but the value of the futures contracts to the
Portfolio would increase at approximately the same rate, thereby keeping the
net asset value of the Portfolio from declining as much as it otherwise would
have. The Portfolio could accomplish similar results by selling debt
securities and investing in bonds with short maturities when interest rates
are expected to increase. However, since the futures market is more liquid
than the cash market, the use of futures contracts as an investment technique
allows the Portfolio to maintain a defensive position without having to sell
its portfolio securities.
Similarly, when it is expected that interest rates may decline, futures
contracts may be purchased to attempt to hedge against anticipated purchases
of debt securities at higher prices. Since the fluctuations in the value of
futures contracts should be similar to those of debt securities, an SAT
Portfolio could take advantage of the anticipated rise in the value of debt
securities without actually buying them until the market had stabilized. At
that time, the futures contracts could be liquidated and the Portfolio could
then buy debt securities on the cash market. When a Portfolio enters into a
futures contract for any purpose, the Portfolio will establish a segregated
account with the Portfolio's custodian to collateralize or "cover" the
Portfolio's obligation consisting of cash or liquid securities from its
portfolio in an amount equal to the difference between the fluctuating market
value of such futures contracts and the aggregate value of the initial and
variation margin payments made by the Portfolio with respect to such futures
contracts.
The ordinary spreads between prices in the cash and futures market, due
to differences in the nature of those markets, are subject to distortions.
First, all participants in the futures market are subject to initial deposit
and variation margin requirements. Rather than meeting additional variation
margin requirements, investors may close futures contracts through offsetting
transactions which could distort the normal relationship between the cash and
futures markets. Second, the liquidity of the futures market depends on
participants entering into offsetting transactions rather than making or
taking delivery. To the extent participants decide to make or take delivery,
liquidity in the futures market could be reduced, thus producing distortion.
Third, from the point of view of speculators, the margin deposit requirements
in the futures market are less onerous than margin requirements in the
securities market. Therefore, increased participation by speculators in the
futures market may cause temporary price distortions. Due to the possibility
of distortion, a correct forecast of general interest rate trends by the
Portfolio Advisor may still not result in a successful transaction.
In addition, futures contracts entail risks. Although each applicable
Portfolio Advisor believes that use of such contracts will benefit the
respective Portfolio, if the Portfolio Advisor's investment judgment about
the general direction of interest rates is incorrect, a Portfolio's overall
performance would be poorer than if it had not entered into any such
contract. For example, if an SAT Portfolio has hedged against the
possibility of an increase in interest rates which would adversely affect the
price of debt securities held in its portfolio and interest rates decrease
instead, the Portfolio will lose part or all of the benefit of the increased
value of its debt securities which it has hedged because it will have
offsetting losses in its futures positions. In addition, in such situations,
if a Portfolio has insufficient cash, it may have to sell debt securities
from its portfolio
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to meet daily variation margin requirements. Such sales of bonds may be, but
will not necessarily be, at increased prices which reflect the rising market.
An SAT Portfolio may have to sell securities at a time when it may be
disadvantageous to do so.
OPTIONS ON FUTURES CONTRACTS
Each SAT Portfolio may purchase and write options on futures contracts
for hedging purposes. The purchase of a call option on a futures contract is
similar in some respects to the purchase of a call option on an individual
security. Depending on the pricing of the option compared to either the
price of the futures contract upon which it is based or the price of the
underlying debt securities, it may or may not be less risky than ownership of
the futures contract or underlying debt securities. As with the purchase of
futures contracts, when an SAT Portfolio is not fully invested it may
purchase a call option on a futures contract to hedge against a market
advance due to declining interest rates.
The writing of a call option on a futures contract constitutes a partial
hedge against declining prices of the security or foreign currency which is
deliverable upon exercise of the futures contract. If the futures price at
expiration of the option is below the exercise price, an SAT Portfolio will
retain the full amount of the option premium which provides a partial hedge
against any decline that may have occurred in the Portfolio's holdings. The
writing of a put option on a futures contract constitutes a partial hedge
against increasing prices of the security or foreign currency which is
deliverable upon exercise of the futures contract. If the futures price at
expiration of the option is higher than the exercise price, the Portfolio
will retain the full amount of the option premium which provides a partial
hedge against any increase in the price of securities which the Portfolio
intends to purchase. If a put or call option the Portfolio has written is
exercised, the Portfolio will incur a loss which will be reduced by the
amount of the premium it receives. Depending on the degree of correlation
between changes in the value of its portfolio securities and changes in the
value of its futures positions, the Portfolio's losses from existing options
on futures may to some extent be reduced or increased by changes in the value
of portfolio securities.
The purchase of a put option on a futures contract is similar in some
respects to the purchase of protective put options on portfolio securities.
For example, a Portfolio may purchase a put option on a futures contract to
hedge its portfolio against the risk of rising interest rates.
The amount of risk an SAT Portfolio assumes when it purchases an option
on a futures contract is the premium paid for the option plus related
transaction costs. In addition to the correlation risks discussed above, the
purchase of an option also entails the risk that changes in the value of the
underlying futures contract will not be fully reflected in the value of the
option purchased.
An SAT Portfolio will not enter into any futures contracts or options on
futures contracts if immediately thereafter the amount of margin deposits on
all the futures contracts of the Portfolio and premiums paid on outstanding
options on futures contracts owned by the Portfolio would exceed 5% of the
market value of the total assets of the Portfolio.
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OPTIONS ON FOREIGN CURRENCIES
Options on foreign currencies are used for hedging purposes in a manner
similar to that in which futures contracts on foreign currencies, or forward
contracts, are utilized. For example, a decline in the dollar value of a
foreign currency in which portfolio securities are denominated will reduce
the dollar value of such securities, even if their value in the foreign
currency remains constant. In order to protect against such diminutions in
the value of portfolio securities, the Portfolio may purchase put options on
the foreign currency. If the value of the currency does decline, a Portfolio
will have the right to sell such currency for a fixed amount in dollars and
will thereby offset, in whole or in part, the adverse effect on its portfolio
which otherwise would have resulted.
Conversely, where a rise in the dollar value of a currency in which
securities to be acquired are denominated is projected, thereby increasing
the cost of such securities, an SAT Portfolio may purchase call options
thereon. The purchase of such options could offset, at least partially, the
effects of the adverse movements in exchange rates. As in the case of other
types of options, however, the benefit to the Portfolio deriving from
purchases of foreign currency options will be reduced by the amount of the
premium and related transaction costs. In addition, where currency exchange
rates do not move in the direction or to the extent anticipated, the
Portfolio could sustain losses on transactions in foreign currency options
which would require it to forego a portion or all of the benefits of
advantageous changes in such rates.
Options on foreign currencies may be written for the same types of
hedging purposes. For example, where an SAT Portfolio anticipates a decline
in the dollar value of foreign currency denominated securities due to adverse
fluctuations in exchange rates it could, instead of purchasing a put option,
write a call option on the relevant currency. If the expected decline
occurs, the options will most likely not be exercised, and the diminution in
value of portfolio securities will be offset by the amount of the premium
received.
Similarly, instead of purchasing a call option to hedge against an
anticipated increase in the dollar cost of securities to be acquired, the SAT
Portfolio could write a put option on the relevant currency which, if rates
move in the manner projected, will expire unexercised and allow the Portfolio
to hedge such increased cost up to the amount of the premium. As in the case
of other types of options, however, the writing of a foreign currency option
will constitute only a partial hedge up to the amount of the premium, and
only if rates move in the expected direction. If this does not occur, the
option may be exercised and the Portfolio would be required to purchase or
sell the underlying currency at a loss which may not be offset by the amount
of the premium. Through the writing of options on foreign currencies, the
Portfolio also may be required to forego all or a portion of the benefits
which might otherwise have been obtained from favorable movements in exchange
rates.
Each SAT Portfolio may write covered call options on foreign currencies.
A call option written on a foreign currency by a Portfolio is "covered" if
the Portfolio owns the underlying foreign currency covered by the call or has
an absolute and immediate right to acquire that
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foreign currency without additional cash consideration (or for additional
cash consideration held in a segregated account by its custodian) upon
conversion or exchange of other foreign currency held in its portfolio. A
call option is also covered if the Portfolio has a call on the same foreign
currency and in the same principal amount as the call written where the
exercise price of the call held (a) is equal to or less than the exercise
price of the call written or (b) is greater than the exercise price of the
call written if the difference is maintained by the Portfolio in cash and
liquid securities in a segregated account with its custodian.
Each SAT Portfolio also may write call options on foreign currencies that
are not covered for cross-hedging purposes. A call option on a foreign
currency is for cross-hedging purposes if it is not covered, but is designed
to provide a hedge against a decline in the U.S. dollar value of a security
which the Portfolio owns or has the right to acquire and which is denominated
in the currency underlying the option due to an adverse change in the
exchange rate. In such circumstances, the Portfolio collateralizes the
option by maintaining in a segregated account with its custodian, cash or
liquid securities in an amount not less than the value of the underlying
foreign currency in U.S. dollars marked to market daily.
ADDITIONAL RISKS OF OPTIONS ON FUTURES CONTRACTS, FORWARD CONTRACTS AND
OPTIONS ON FOREIGN CURRENCIES
Unlike transactions entered into by a Portfolio in futures contracts,
options on foreign currencies and forward contracts are not traded on
contract markets regulated by the CFTC or (with the exception of certain
foreign currency options) by the SEC. To the contrary, such instruments are
traded through financial institutions acting as market-makers, although
foreign currency options are also traded on certain national securities
exchanges, such as the Philadelphia Stock Exchange and the Chicago Board
Options Exchange, subject to SEC regulation. Similarly, options on
currencies may be traded over-the-counter. In an over-the counter trading
environment, many of the protections afforded to exchange participants will
not be available. For example, there are no daily price fluctuation limits,
and adverse market movements could therefore continue to an unlimited extent
over a period of time. Although the purchaser of an option cannot lose more
than the amount of the premium plus related transaction costs, this entire
amount could be lost. Moreover, the option writer and a trader of forward
contracts could lose amounts substantially in excess of their initial
investments, due to the margin and collateral requirements associated with
such positions.
Options on foreign currencies traded on national securities exchanges are
within the jurisdiction of the SEC, as are other securities traded on such
exchanges. As a result, many of the protections provided to traders on
organized exchanges will be available with respect to such transaction. In
particular, all foreign currency option positions entered into on a national
securities exchange are cleared and guaranteed by the Options Clearing
Corporation ("OCC"), thereby reducing the risk of counterparty default.
Further, a liquid secondary market in options traded on a national securities
exchange may be more readily available than in the over-the-counter market,
potentially permitting an SAT Portfolio to liquidate open positions at a
profit prior to exercise or expiration, or to limit losses in the event of
adverse market movements.
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The purchase and sale of exchange-traded foreign currency options,
however, is subject to the risks of the availability of a liquid secondary
market described above, as well as the risks regarding adverse market
movements, margining of options written, the nature of the foreign currency
market, possible intervention by governmental authorities and the effects of
other political and economic events. In addition, exchange-traded options on
foreign currencies involve certain risks not presented by the
over-the-counter market. For example, exercise and settlement of such
options must be made exclusively through the OCC, which has established
banking relationships in applicable foreign countries for this purpose. As a
result, the OCC may, if it determines that foreign governmental restrictions
or taxes would prevent the orderly settlement of foreign currency option
exercises, or would result in undue burdens on the OCC or its clearing
member, impose special procedures on exercise and settlement, such as
technical changes in the mechanics of delivery or currency, the fixing of
dollar settlement prices or prohibitions on exercise.
As in the case of forward contracts, certain options on foreign
currencies are traded over-the-counter and involve liquidity and credit risks
which may not be present in the case of exchange-traded currency options. An
SAT Portfolio's ability to terminate over-the-counter options will be more
limited than with exchange-traded options. It is also possible that
broker-dealers participating in over-the-counter options transactions will
not fulfill their obligations. Until such time as the staff of the SEC
changes its position, each Portfolio will treat purchased over-the-counter
options and assets used to cover written over-the-counter options as illiquid
securities. With respect to options written with primary dealers in U.S.
Government securities pursuant to an agreement requiring a closing purchase
transaction at a formula price, the amount of illiquid securities may be
calculated with reference to the repurchase formula.
In addition, futures contracts, options on futures contracts, forward
contracts and options on foreign currencies may be traded on foreign
exchanges. Such transactions are subject to the risk of governmental actions
affecting trading in or the prices of foreign currencies or securities. The
value of such positions also could be adversely affected by: (i) other
complex foreign political and economic factors; (ii) lesser availability than
in the United States of data on which to make trading decisions; (iii) delays
in the Portfolio's ability to act upon economic events occurring in foreign
markets during nonbusiness hours in the United States; (iv) the imposition of
different exercise and settlement terms and procedures and margin
requirements than in the United States; and (v) lesser trading volume.
OPTIONS ON SECURITIES
The SAT Portfolios may write (sell), to a limited extent, only covered
call and put options ("COVERED OPTIONS") in an attempt to increase income.
However, the Portfolio may forgo the benefits of appreciation on securities
sold or may pay more than the market price on securities acquired pursuant to
call and put options written by the Portfolio.
When an SAT Portfolio writes a covered call option, it gives the
purchaser of the option the right to buy the underlying security at the price
specified in the option (the "EXERCISE PRICE") by exercising the option at
any time during the option period. If the option expires unexercised,
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the Portfolio will realize income in an amount equal to the premium received
for writing the option. If the option is exercised, a decision over which
the SAT Portfolio has no control, the Portfolio must sell the underlying
security to the option holder at the exercise price. By writing a covered
call option, the Portfolio forgoes, in exchange for the premium less the
commission ("NET PREMIUM"), the opportunity to profit during the option
period from an increase in the market value of the underlying security above
the exercise price.
When an SAT Portfolio writes a covered put option, it gives the purchaser
of the option the right to sell the underlying security to the Portfolio at
the specified exercise price at any time during the option period. If the
option expires unexercised, the Portfolio will realize income in the amount
of the premium received for writing the option. If the put option is
exercised, a decision over which the SAT Portfolio has no control, the
Portfolio must purchase the underlying security from the option holder at the
exercise price. By writing a covered put option, the Portfolio, in exchange
for the net premium received, accepts the risk of a decline in the market
value of the underlying security below the exercise price.
An SAT Portfolio may terminate its obligation as the writer of a call or
put option by purchasing an option with the same exercise price and
expiration date as the option previously written. This transaction is called
a "closing purchase transaction." Where the Portfolio cannot effect a
closing purchase transaction, it may be forced to incur brokerage commissions
or dealer spreads in selling securities it receives or it may be forced to
hold underlying securities until an option is exercised or expires.
When an SAT Portfolio writes an option, an amount equal to the net
premium received by the Portfolio is included in the liability section of the
Portfolio's Statement of Assets and Liabilities as a deferred credit. The
amount of the deferred credit will be subsequently marked to market to
reflect the current market value of the option written. The current market
value of a traded option is the last sale price or, in the absence of a sale,
the mean between the closing bid and asked price. If an option expires on
its stipulated expiration date or if the Portfolio enters into a closing
purchase transaction, the Portfolio will realize a gain (or loss if the cost
of a closing purchase transaction exceeds the premium received when the
option was sold), and the deferred credit related to such option will be
eliminated. If a call option is exercised, the SAT Portfolio will realize a
gain or loss from the sale of the underlying security and the proceeds of the
sale will be increased by the premium originally received. The writing of
covered call options may be deemed to involve the pledge of the securities
against which the option is being written.
When an SAT Portfolio writes a call option, it will "cover" its
obligation by segregating the underlying security on the books of the
Portfolio's custodian or by placing liquid securities in a segregated account
at the Portfolio's custodian. When an SAT Portfolio writes a put option, it
will "cover" its obligation by placing liquid securities in a segregated
account at the Portfolio's custodian.
An SAT Portfolio may purchase call and put options on any securities in
which it may invest. The Portfolio would normally purchase a call option in
anticipation of an increase in the market value of such securities. The
purchase of a call option would entitle the Portfolio, in
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exchange for the premium paid, to purchase a security at a specified price
during the option period. The Portfolio would ordinarily have a gain if the
value of the securities increased above the exercise price sufficiently to
cover the premium and would have a loss if the value of the securities
remained at or below the exercise price during the option period.
An SAT Portfolio would normally purchase put options in anticipation of a
decline in the market value of securities in its portfolio ("PROTECTIVE
PUTS") or securities of the type in which it is permitted to invest. The
purchase of a put option would entitle the Portfolio, in exchange for the
premium paid, to sell a security, which may or may not be held in the
Portfolio's portfolio, at a specified price during the option period. The
purchase of protective puts is designed merely to offset or hedge against a
decline in the market value of the SAT Portfolio's portfolio securities. Put
options also may be purchased by the Portfolio for the purpose of
affirmatively benefiting from a decline in the price of securities which the
Portfolio does not own. The Portfolio would ordinarily recognize a gain if
the value of the securities decreased below the exercise price sufficiently
to cover the premium and would recognize a loss if the value of the
securities remained at or above the exercise price. Gains and losses on the
purchase of protective put options would tend to be offset by countervailing
changes in the value of underlying portfolio securities.
Each SAT Portfolio has adopted certain other nonfundamental policies
concerning option transactions which are discussed below. The Portfolio's
activities in options may also be restricted by the requirements of the
Internal Revenue Code of 1986, as amended (the "Code"), for qualification as
a regulated investment company.
The hours of trading for options on securities may not conform to the
hours during which the underlying securities are traded. To the extent that
the option markets close before the markets for the underlying securities,
significant price and rate movements can take place in the underlying
securities markets that cannot be reflected in the option markets. It is
impossible to predict the volume of trading that may exist in such options,
and there can be no assurance that viable exchange markets will develop or
continue.
An SAT Portfolio may engage in over-the-counter options transactions with
broker-dealers who make markets in these options. At present, approximately
ten broker-dealers, including several of the largest primary dealers in U.S.
Government securities, make these markets. The ability to terminate
over-the-counter option positions is more limited than with exchange-traded
option positions because the predominant market is the issuing broker rather
than an exchange, and may involve the risk that broker-dealers participating
in such transactions will not fulfill their obligations. To reduce this
risk, the Portfolio will purchase such options only from broker-dealers who
are primary government securities dealers recognized by the Federal Reserve
Bank of New York and who agree to (and are expected to be capable of)
entering into closing transactions, although there can be no guarantee that
any such option will be liquidated at a favorable price prior to expiration.
The Portfolio Advisor will monitor the creditworthiness of dealers with whom
a Portfolio enters into such options transactions under the general
supervision of the Board of Trustees.
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OPTIONS ON SECURITIES INDEXES
Options on securities indexes give the holder the right to receive a cash
settlement during the term of the option based upon the difference between
the exercise price and the value of the index. Such options will be used for
the purposes described above under "Options on Securities" or, to the extent
allowed by law, as a substitute for investment in individual securities.
Options on securities indexes entail risks in addition to the risks of
options on securities. The absence of a liquid secondary market to close out
options positions on securities indexes is more likely to occur, although the
SAT Portfolio generally will only purchase or write such an option if the
Portfolio Advisor believes the option can be closed out.
Use of options on securities indexes also entails the risk that trading
in such options may be interrupted if trading in certain securities included
in the index is interrupted. An SAT Portfolio will not purchase such options
unless the Advisor and the respective Portfolio Advisor each believes the
market is sufficiently developed such that the risk of trading in such
options is no greater than the risk of trading in options on securities.
Price movements in an SAT Portfolio's portfolio may not correlate
precisely with movements in the level of an index and, therefore, the use of
options on indexes cannot serve as a complete hedge. Because options on
securities indexes require settlement in cash, the Portfolio Advisor may be
forced to liquidate portfolio securities to meet settlement obligations.
When a Portfolio writes a put or call option on a securities index it
will cover the position by placing liquid securities in a segregated asset
account with the Portfolio's custodian.
FORWARD CURRENCY CONTRACTS
Because, when investing in foreign securities, a Portfolio buys and sells
securities denominated in currencies other than the U.S. dollar and receives
interest, dividends and sale proceeds in currencies other than the U.S.
dollar, such Portfolios from time to time may enter into forward currency
transactions to convert to and from different foreign currencies and to
convert foreign currencies to and from the U.S. dollar. A Portfolio either
enters into these transactions on a spot (i.e., cash) basis at the spot rate
prevailing in the foreign currency exchange market or uses forward currency
contracts to purchase or sell foreign currencies.
A forward currency contract is an obligation by a Portfolio to purchase
or sell a specific currency at a future date, which may be any fixed number
of days from the date of the contract. Forward currency contracts establish
an exchange rate at a future date. These contracts are transferable in the
interbank market conducted directly between currency traders (usually large
commercial banks) and their customers. A forward currency contract generally
has no deposit requirement and is traded at a net price without commission.
Each SAT Portfolio maintains with its custodian a segregated account of
liquid securities in an amount at least equal to its obligations under each
forward currency contract. Neither spot transactions nor forward currency
contracts
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eliminate fluctuations in the prices of the Portfolio's securities or in
foreign exchange rates, or prevent loss if the prices of these securities
should decline.
An SAT Portfolio may enter into foreign currency hedging transactions in
an attempt to protect against changes in foreign currency exchange rates
between the trade and settlement dates of specific securities transactions or
changes in foreign currency exchange rates that would adversely affect a
portfolio position or an anticipated investment position. Since
consideration of the prospect for currency parities will be incorporated into
a Portfolio Advisor's long-term investment decisions, an SAT Portfolio will
not routinely enter into foreign currency hedging transactions with respect
to security transactions. However, the Portfolio Advisors believe that it is
important to have the flexibility to enter into foreign currency hedging
transactions when it determines that the transactions would be in a
Portfolio's best interest. Although these transactions tend to minimize the
risk of loss due to a decline in the value of the hedged currency, at the
same time they tend to limit any potential gain that might be realized should
the value of the hedged currency increase. The precise matching of the
forward currency contract amounts and the value of the securities involved
will not generally be possible because the future value of such securities in
foreign currencies will change as a consequence of market movements in the
value of such securities between the date the forward currency contract is
entered into and the date it matures. The projection of currency market
movements is extremely difficult, and the successful execution of a hedging
strategy is highly uncertain.
While these contracts are not presently regulated by the CFTC, the CFTC
may in the future assert authority to regulate forward currency contracts.
In such event the SAT Portfolio's ability to utilize forward currency
contracts in the manner set forth in the Prospectus may be restricted.
Forward currency contracts may reduce the potential gain from a positive
change in the relationship between the U.S. dollar and foreign currencies.
Unanticipated changes in currency prices may result in poorer overall
performance for the Portfolio than if it had not entered into such contracts.
The use of forward currency contracts may not eliminate fluctuations in the
underlying U.S. dollar equivalent value of the prices of or rates of return
on a Portfolio's foreign currency denominated portfolio securities and the
use of such techniques will subject a Portfolio to certain risks.
The matching of the increase in value of a forward currency contract and
the decline in the U.S. dollar equivalent value of the foreign currency
denominated asset that is the subject of the hedge generally will not be
precise. In addition, a Portfolio may not always be able to enter into
forward currency contracts at attractive prices and this will limit the SAT
Portfolio's ability to use such contract to hedge or cross-hedge its assets.
Also, with regard to a Portfolio's use of cross-hedges, there can be no
assurance that historical correlations between the movement of certain
foreign currencies relative to the U.S. dollar will continue. Thus, at any
time poor correlation may exist between movements in the exchange rates of
the foreign currencies underlying a Portfolio's cross-hedges and the
movements in the exchange rates of the foreign currencies in which the
Portfolio's assets that are the subject of such cross-hedges are denominated.
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RATING SERVICES
The ratings of rating services represent their opinions as to the quality
of the securities that they undertake to rate. It should be emphasized,
however, that ratings are relative and subjective and are not absolute
standards of quality. Although these ratings are an initial criterion for
selection of portfolio investments, the Portfolio Advisors also make their
own evaluation of these securities, subject to review by the Board of
Trustees of the SA Trust. After purchase by a Portfolio, an obligation may
cease to be rated or its rating may be reduced below the minimum required for
purchase by the Portfolio. Neither event would require a Portfolio to
eliminate the obligation from its portfolio, but a Portfolio Advisor will
consider such an event in its determination of whether a Portfolio should
continue to hold the obligation. A description of the ratings used herein
and in the Funds' Prospectuses is set forth in the Appendix to this Statement
of Additional Information.
INVESTMENT RESTRICTIONS
The investment restrictions described below as "fundamental policies" of
each SAT Portfolio may not be changed with respect to any Portfolio without
the approval of a "majority of the outstanding voting securities" of the SAT
Portfolio. "MAJORITY OF THE OUTSTANDING VOTING SECURITIES" under the
Investment Company Act of 1940, as amended (the "1940 ACT"), and as used in
this Statement of Additional Information and the Prospectus, means, with
respect to the Portfolio, the lesser of (i) 67% or more of the outstanding
voting securities of the Portfolio present at a meeting, if the holders of
more than 50% of the outstanding voting securities of the Portfolio are
present or represented by proxy or (ii) more than 50% of the outstanding
voting securities of the Portfolio.
FUNDAMENTAL POLICIES
As a matter of fundamental policy, no SAT Portfolio may (except that no
investment restriction of the Portfolio shall prevent a Portfolio from
investing all of its assets in an open-end investment company with
substantially the same investment objectives):
(1) borrow money or mortgage or hypothecate assets of the Portfolio,
except that, in an amount not to exceed 1/3 of the current value of the
Portfolio's net assets, it may borrow money (including through reverse
repurchase agreements, forward roll transactions involving mortgage-backed
securities or other investment techniques entered into for the purpose of
leverage), and except that it may pledge, mortgage or hypothecate not more
than 1/3 of such assets to secure such borrowings, provided that collateral
arrangements with respect to options and futures, including deposits of
initial deposit and variation margin, are not considered a pledge of assets
for purposes of this restriction and except that assets may be pledged to
secure letters of credit solely for the purpose of participating in a captive
insurance company sponsored by the Investment Company Institute; for
additional related restrictions, see clause (i) under the caption "Additional
Restrictions" below;
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(2) underwrite securities issued by other persons except insofar as the
Portfolio may technically be deemed an underwriter under the 1933 Act in
selling a portfolio security;
(3) make loans to other persons except: (a) through the lending of the
Portfolio's portfolio securities and provided that any such loans not exceed
30% of the Portfolio's total assets (taken at market value); (b) through the
use of repurchase agreements or the purchase of short-term obligations; or
(c) by purchasing a portion of an issue of debt securities of types
distributed publicly or privately;
(4) purchase or sell real estate (including limited partnership interests
but excluding securities secured by real estate or interests therein),
interests in oil, gas or mineral leases, commodities or commodity contracts
(except futures and option contracts) in the ordinary course of business
(except that the Portfolio may hold and sell, for its portfolio, real estate
acquired as a result of the Portfolio's ownership of securities);
(5) concentrate its investments in any particular industry (excluding
U.S. Government securities), but if it is deemed appropriate for the
achievement of a Portfolio's investment objective(s), up to 25% of its total
assets may be invested in any one industry;
(6) issue any senior security (as that term is defined in the 1940 Act)
if such issuance is specifically prohibited by the 1940 Act or the rules and
regulations promulgated thereunder, provided that collateral arrangements
with respect to options and futures, including deposits of initial deposit
and variation margin, are not considered to be the issuance of a senior
security for purposes of this restriction; and
(7) with respect to 75% of its total assets taken at market value, invest
in assets other than cash and cash items (including receivables), U.S.
Government securities, securities of other investment companies, and other
securities for purposes of this calculation limited in respect of any one
issuer to an amount not greater in value than 5% of the value of the total
assets of the Portfolio and to not more than 10% of the outstanding voting
securities of such issuer.
ADDITIONAL RESTRICTIONS
Neither SAT Portfolio will, as a matter of operating policy (changeable
by the respective Board of Trustees without a shareholder vote) (except that
no operating policy shall prevent a Portfolio from investing all of its
assets in an open-end investment company with substantially the same
investment objectives), do any of the following:
(i) borrow money (including through reverse repurchase agreements or
forward roll transactions involving mortgage-backed securities or
similar investment techniques entered into for leveraging purposes),
except that the Portfolio may borrow for temporary or emergency
purposes up to 10% of its total assets; provided, however, that no
Portfolio may purchase any security while outstanding borrowings
exceed 5%;
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<PAGE>
(ii) pledge, mortgage or hypothecate for any purpose in excess of 10% of
the Portfolio's total assets (taken at market value), provided that
collateral arrangements with respect to options and futures,
including deposits of initial deposit and variation margin, and
reverse repurchase agreements are not considered a pledge of assets
for purposes of this restriction;
(iii) purchase any security or evidence of interest therein on margin,
except that such short-term credit as may be necessary for the
clearance of purchases and sales of securities may be obtained and
except that deposits of initial deposit and variation margin may be
made in connection with the purchase, ownership, holding or sale of
futures;
(iv) sell any security which it does not own unless by virtue of its
ownership of other securities it has at the time of sale a right to
obtain securities, without payment of further consideration,
equivalent in kind and amount to the securities sold and provided
that if such right is conditional the sale is made upon the same
conditions;
(v) invest for the purpose of exercising control or management;
(vi) purchase securities issued by any investment company except by
purchase in the open market where no commission or profit to a
sponsor or dealer results from such purchase other than the customary
broker's commission, or except when such purchase, though not made in
the open market, is part of a plan of merger or consolidation;
provided, however, that securities of any investment company will
not be purchased for the Portfolio if such purchase at the time
thereof would cause: (a) more than 10% of the Portfolio's total
assets (taken at the greater of cost or market value) to be invested
in the securities of such issuers; (b) more than 5% of the
Portfolio's total assets (taken at the greater of cost or market
value) to be invested in any one investment company; or (c) more than
3% of the outstanding voting securities of any such issuer to be held
for the Portfolio; provided further that, except in the case of a
merger or consolidation, the Portfolio shall not purchase any
securities of any open-end investment company unless the Portfolio
(1) waives the investment advisory fee, with respect to assets
invested in other open-end investment companies and (2) incurs no
sales charge in connection with the investment;
(vii) invest more than 15% of the Portfolio's net assets (taken at the
greater of cost or market value) in securities that are illiquid or
not readily marketable (defined as a security that cannot be sold in
the ordinary course of business within seven days at approximately
the value at which the Portfolio has valued the security) excluding
(a) Rule 144A securities determined to be liquid by the Board of
Trustees of the SA Trust; and (b) commercial paper that is sold
under Section 4(2) of the Securities Act of 1933 which is not traded
flat or in default as to interest or principal and either (i) is
rated in one of the two highest categories by at least two nationally
recognized statistical rating organizations and the Board of Trustees
of the SA Trust have determined the commercial paper to be liquid;
or (ii) is rated in one of the two highest categories by one
nationally recognized
23
<PAGE>
statistical rating agency and the Board of Trustees of the SA Trust
have determined that the commercial paper is equivalent quality and
is liquid);
(viii) invest more than 5% of the Portfolio's total assets in securities
issued by issuers that (including the period of operation of any
predecessor or unconditional guarantor of such issuer) have been in
operation less than three years;
(ix) invest more than 10% of the Portfolio's total assets in securities
that are restricted from being sold to the public without
registration under the Securities Act of 1933 (other than Rule 144A
securities deemed to be liquid by the Trustees of the SA Trust);
(x) purchase securities of any issuer if such purchase at the time
thereof would cause the Portfolio to hold more than 10% of any class
of securities of such issuer, for which purposes all indebtedness of
an issuer shall be deemed a single class and all preferred stock of
an issuer shall be deemed a single class, except that futures or
option contracts shall not be subject to this restriction;
(xi) purchase or retain in the Portfolio's portfolio any securities
issued by an issuer any of whose officers, directors, trustees or
security holders is an officer or Trustee of the SA Trust, or is an
officer or partner of the Advisor, if after the purchase of the
securities of such issuer for the Portfolio one or more of such
persons owns beneficially more than 1/2 of 1% of the shares or
securities, or both, all taken at market value, of such issuer, and
such persons owning more than 1/2 of 1% of such shares or securities
together own beneficially more than 5% of such shares or securities,
or both, all taken at market value;
(xii) invest more than 5% of the Portfolio's net assets in warrants
(valued at the lower of cost or market) (other than warrants acquired
by the Portfolio as part of a unit or attached to securities at the
time of purchase), but not more than 2% of the Portfolio's net assets
may be invested in warrants not listed on the New York Stock Exchange
Inc. ("NYSE") or the American Stock Exchange;
(xiii) make short sales of securities or maintain a short position, unless
at all times when a short position is open it owns an equal amount of
such securities or securities convertible into or exchangeable,
without payment of any further consideration, for securities of the
same issue and equal in amount to, the securities sold short, and
unless not more than 10% of the Portfolio's net assets (taken at
market value) is represented by such securities, or securities
convertible into or exchangeable for such securities, at any one
time (the Portfolios have no current intention to engage in short
selling);
(xiv) purchase puts, calls, straddles, spreads and any combination thereof
if by reason thereof the value of the Portfolio's aggregate
investment in such classes of securities will exceed 5% of its total
assets;
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<PAGE>
(xv) write puts and calls on securities unless each of the following
conditions are met: (a) the security underlying the put or call
is within the investment policies of the Portfolio and the option
is issued by the OCC, except for put and call options issued by
non-U.S. entities or listed on non-U.S. securities or commodities
exchanges; (b) the aggregate value of the obligations underlying
the puts determined as of the date the options are sold shall not
exceed 50% of the Portfolio's net assets; (c) the securities
subject to the exercise of the call written by the Portfolio must
be owned by the Portfolio at the time the call is sold and must
continue to be owned by the Portfolio until the call has been
exercised, has lapsed, or the Portfolio has purchased a closing
call, and such purchase has been confirmed, thereby extinguishing
the Portfolio's obligation to deliver securities pursuant to the
call it has sold; and (d) at the time a put is written, the
Portfolio establishes a segregated account with its custodian
consisting of cash or liquid securities equal in value to the
amount the Portfolio will be obligated to pay upon exercise of the
put (this account must be maintained until the put is exercised,
has expired, or the Portfolio has purchased a closing put, which
is a put of the same series as the one previously written); and
(xvi) buy and sell puts and calls on securities, stock index futures or
options on stock index futures, or financial futures or options on
financial futures unless such options are written by other persons
and: (a) the options or futures are offered through the
facilities of a national securities association or are listed on a
national securities or commodities exchange, except for put and
call options issued by non-U.S. entities or listed on non-U.S.
securities or commodities exchanges; (b) the aggregate premiums
paid on all such options which are held at any time do not exceed
20% of the Portfolio's total net assets; and (c) the aggregate
margin deposits required on all such futures or options thereon
held at any time do not exceed 5% of the Portfolio's total assets.
Each Portfolio also will comply with the applicable investment
limitations found in the laws and regulations of any state in which the
corresponding Sub-Account investing in the Portfolio is registered.
PORTFOLIO TRANSACTIONS AND BROKERAGE COMMISSIONS
The Portfolio Advisors for the SAT Portfolios are responsible for
decisions to buy and sell securities, futures contracts and options on such
securities and futures for each SAT Portfolio, the selection of brokers,
dealers and futures commission merchants to effect transactions and the
negotiation of brokerage commissions, if any. Broker-dealers may receive
brokerage commissions on portfolio transactions, including options, futures
and options on futures transactions and the purchase and sale of underlying
securities upon the exercise of options. Orders may be directed to any
broker-dealer or futures commission merchant, including to the extent and in
the manner permitted by applicable law, the Advisor, the Portfolio Advisors
or their subsidiaries or affiliates. Purchases and sales of certain
portfolio securities on behalf of a Portfolio are frequently placed by the
Portfolio Advisor with the issuer or a primary or secondary market-maker for
these securities on a net basis, without any brokerage commission being paid
25
<PAGE>
by the Portfolio. Trading does, however, involve transaction costs.
Transactions with dealers serving as market-makers reflect the spread between
the bid and asked prices. Purchases of underwritten issues may be made which
will include an underwriting fee paid to the underwriter.
The Portfolio Advisors seek to evaluate the overall reasonableness of any
brokerage commissions paid through familiarity with commissions charged on
comparable transactions, as well as by comparing commissions paid by the
Portfolio to reported commissions. In placing orders for the purchase and
sale of securities for a Portfolio, the Portfolio Advisors take into account
such factors as price, commission (if any, negotiable in case of national
securities exchange transactions), size of order, difficulty of execution and
skill required of the executing broker-dealer. The Portfolio Advisors review
on a routine basis commission rates, execution and settlement services
performed, making internal and external comparisons.
The Portfolio Advisors are authorized, consistent with Section 28(e) of
the Securities Exchange Act of 1934, as amended, when placing portfolio
transactions for a Portfolio with a broker to pay a brokerage commission (to
the extent applicable) in excess of that which another broker might have
charged for effecting the same transaction on account of the receipt of
research, market or statistical information. The term "research, market or
statistical information" includes advice as to the value of securities; the
advisability of investing in, purchasing or selling securities; the
availability of securities or purchasers or sellers of securities; and
furnishing analyses and reports concerning issuers, industries, securities,
economic factors and trends, portfolio strategy and the performance of
accounts. A Portfolio Advisor may use this research information in managing
an SAT Portfolio's assets, as well as the assets of other clients.
Consistent with the policy stated above, the Rules of Fair Practice of
the National Association of Securities Dealers, Inc. and such other policies
as the Board of Trustees may determine, the Portfolio Advisors may consider
sales of shares of the SA Trust and of other investment company clients of
the Advisor or the Portfolio Advisor as a factor in the selection of
broker-dealers to execute portfolio transactions. The Portfolio Advisor will
make such allocations if commissions are comparable to those charged by
nonaffiliated, qualified broker-dealers for similar services.
Except for implementing the policies stated above, there is no intention
to place portfolio transactions with particular brokers or dealers or groups
thereof. In effecting transactions in over-the-counter securities, orders
are placed with the principal market-makers for the security being traded
unless, after exercising care, it appears that more favorable results are
available otherwise.
Although certain research, market and statistical information from
brokers and dealers can be useful to a Portfolio and to the corresponding
Portfolio Advisor, it is the opinion of the management of the Portfolios that
such information is only supplementary to the Portfolio Advisor's own
research effort, since the information must still be analyzed, weighed and
reviewed by the Portfolio Advisor's staff. Such information may be useful to
the Portfolio Advisor in providing services to clients other than the SAT
Portfolios, and not all such information is used by the Portfolio Advisor in
connection with such Portfolios. Conversely,
26
<PAGE>
such information provided to the Portfolio Advisor by brokers and dealers
through whom other clients of the Portfolio Advisor effect securities
transactions may be useful to the Portfolio Advisor in providing services to
the Portfolios.
In certain instances there may be securities which are suitable for an
SAT Portfolio as well as for one or more of the Advisor's other clients,
including Portfolios of the SA Trust that are not available to the
Sub-Accounts. Investment decisions for a Portfolio and for the Portfolio
Advisor's other clients are made with a view to achieving their respective
investment objectives. It may develop that a particular security is bought
or sold for only one client even though it might be held by, or bought or
sold for, other clients. Likewise, a particular security may be bought for
one or more clients when one or more clients are selling that same security.
Some simultaneous transactions are inevitable when several clients receive
investment advice from the same investment advisor, particularly when the
same security is suitable for the investment objectives of more than one
client. When two or more clients are simultaneously engaged in the purchase
or sale of the same security, the securities are allocated among clients in a
manner believed to be equitable to each. It is recognized that in some cases
this system could have a detrimental effect on the price or volume of the
security as far as a Portfolio is concerned. However, it is believed that
the ability of a Portfolio to participate in volume transactions will produce
better executions for the Portfolio.
For the period November 21, 1994 (commencement of operations) to December
31, 1994, and for the fiscal years ended December 31, 1995 and 1996, the
aggregate brokerage commissions paid by each Portfolio is as follows:
GROWTH & INCOME BOND
AGGREGATE COMMISSIONS PORTFOLIO PORTFOLIO
- --------------------- --------- ---------
Period Ended December 31,
1996 $40,690 None
1995 $30,788 None
1994 $4,982 None
VALUATION OF SECURITIES; REDEMPTION IN KIND
The value of each security for which readily available market quotations
exists is based on a decision as to the broadest and most representative
market for such security. The value of such security is based either on the
last sale price on a national securities exchange, or, in the absence of
recorded sales, at the readily available closing bid price on such exchanges,
or at the quoted bid price in the over-the-counter market. Securities listed
on a foreign exchange are valued at the last quoted sale price available
before the time net assets are valued. Unlisted securities are valued at the
average of the quoted bid and asked prices in the over-the-counter market.
Debt securities are valued by a pricing service which determines valuations
based upon market transactions for normal, institutional-size trading units
of similar securities. Securities or other
27
<PAGE>
assets for which market quotations are not readily available are valued at
fair value in accordance with procedures established by the SA Trust. Such
procedures include the use of independent pricing services, which use prices
based upon yields or prices of securities of comparable quality, coupon,
maturity and type; indications as to values from dealers; and general market
conditions. All portfolio securities with a remaining maturity of less than
60 days are valued at amortized cost, which approximates market.
The accounting records of the Portfolios are maintained in U.S. dollars.
The market value of investment securities, other assets and liabilities and
forward contracts denominated in foreign currencies are translated into U.S.
dollars at the prevailing exchange rates at the end of the period. Purchases
and sales of securities, income receipts, and expense payments are translated
at the exchange rate prevailing on the respective dates of such transactions.
Reported net realized gains and losses on foreign currency transactions
represent net gains and losses from sales and maturities of forward currency
contracts, disposition of foreign currencies, currency gains and losses
realized between the trade and settlement dates on securities transactions
and the difference between the amount of net investment income accrued and
the U.S. dollar amount actually received.
The problems inherent in making a good faith determination of value are
recognized in the codification effected by SEC Financial Reporting Release
No. 1 ("FRR 1" (formerly Accounting Series Release No. 113)) which concludes
that there is "no automatic formula" for calculating the value of restricted
securities. It recommends that the best method simply is to consider all
relevant factors before making any calculation. According to FRR 1 such
factors would include consideration of the:
type of security involved, financial statements, cost at
date of purchase, size of holding, discount from market
value of unrestricted securities of the same class at the
time of purchase, special reports prepared by analysts,
information as to any transactions or offers with respect
to the security, existence of merger proposals or tender
offers affecting the security, price and extent of public
trading in similar securities of the issuer or comparable
companies, and other relevant matters.
To the extent that an SAT Portfolio purchases securities which are
restricted as to resale or for which current market quotations are not
available, the Portfolio Advisor will value such securities based upon all
relevant factors as outlined in FRR 1.
Each SAT Portfolio reserves the right, if conditions exist which make
cash payments undesirable, to honor any request for redemption or repurchase
order by making payment in whole or in part in readily marketable securities
chosen by the SA Trust or the Portfolio, as the case may be, and valued as
they are for purposes of computing the Portfolio's net asset value (a
redemption in kind). If payment is made in securities, an investor,
including the corresponding Sub-Account, may incur transactions expenses in
converting these securities into cash. The SA
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<PAGE>
Trust, on behalf of each Portfolio, has elected, however, to be governed by
Rule 18f-1 under the 1940 Act as a result of which each Portfolio is
obligated to redeem shares or beneficial interests, as the case may be, with
respect to any one investor during any 90-day period, solely in cash up to
the lesser of $250,000 or 1% of the net asset value of the Portfolio, as the
case may be, at the beginning of the period.
Each investor in an SAT Portfolio, including the corresponding
Sub-Account, may add to or reduce its investment in the Portfolio on each day
that the NYSE is open for business. As of 4:00 p.m., New York time, on each
such day, the value of each investor's interest in a Portfolio will be
determined by multiplying the net asset value of the Portfolio by the
percentage representing that investor's share of the aggregate beneficial
interests in the Portfolio. Any additions or reductions which are to be
effected on that day will then be effected. The investor's percentage of the
aggregate beneficial interests in a Portfolio will then be recomputed as the
percentage equal to the fraction (i) the numerator of which is the value of
such investor's investment in the Portfolio as of 4:00 p.m. on such day plus
or minus, as the case may be, the amount of net additions to or reductions in
the investor's investment in the Portfolio effected on such day and (ii) the
denominator of which is the aggregate net asset value of the Portfolio as of
4:00 p.m. on such day plus or minus, as the case may be, the amount of net
additions to or reductions in the aggregate investments in the Portfolio by
all investors in the Portfolio. The percentage so determined will then be
applied to determine the value of the investor's interest in the Portfolio as
of 4:00 p.m. on the following day the NYSE is open for trading.
MANAGEMENT OF THE SA TRUST
The Trustees and officers of the SA Trust and their principal occupations
during the past five years are set forth below. Their titles may have varied
during that period. Asterisks indicate those Trustees who are "interested
persons" (as defined in the 1940 Act) of the SA Trust. Unless otherwise
indicated, the address of each Trustee and officer is 311 Pike Street,
Cincinnati, Ohio 45202. The Trustees and officers of the SA Trust also serve
in the same positions with the VI Trust and with two affiliated trusts of the
SA Trust, the Select Advisors Trust A and Select Advisors Trust C
(collectively, the "Fund Complex").
TRUSTEES OF THE SA TRUST
*EDWARD G. HARNESS, JR., (Age 48) -- Chairman of the Board of Trustees,
President and Chief Executive Officer; Director, President and Chief
Executive Officer, Touchstone Advisors, Inc. (since December, 1993); Director
and Chief Executive Officer, Touchstone Securities, Inc. (since October,
1991); President, Touchstone Securities, Inc. (since March, 1996); President,
IFS Financial Services, Inc. (since November, 1990); President, IFS Systems,
Inc. (since August, 1991).
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<PAGE>
*WILLIAM J. WILLIAMS, (Age 81) -- 400 Broadway, Cincinnati, OH 45202 --
Trustee; Chairman of the Board of Directors, The Western and Southern Life
Insurance Company (since March, 1984); Chief Executive Officer, The Western
and Southern Life Insurance Company (from March, 1984 to March, 1994).
JOSEPH S. STERN, JR., (Age 79), 3 Grandin Place, Cincinnati, OH 45208 --
Trustee; Retired Professor Emeritus, College of Business, University of
Cincinnati.
PHILLIP R. COX, (Age 49), 105 East Fourth Street, Cincinnati, OH 45202 --
Trustee; President and Chief Executive Officer, Cox Financial Corp. (since
1972); Director, Federal Reserve Bank of Cleveland; Director, Cincinnati Bell
Inc.; Director, PNC Bank; Director, Cinergy Corporation; Director, BDM
International, Inc.
ROBERT E. STAUTBERG, (Age 62), 4815 Drake Road, Cincinnati, OH 45243 --
Trustee; Chairman of the Board of Trustees, Good Samaritan Hospital; Retired
Partner and Director, KPMG Peat Marwick.
DAVID POLLAK, (Age 79), 1313 Kemper Road, Suite 111, Cincinnati, OH 45246
- -- Trustee; President, The Ultimate Distributing Company (1986-1993);
Director Emeritus, Fifth Third Bank.
OFFICERS OF THE SA TRUST
EDWARD S. HEENAN, (Age 53), 400 Broadway, Cincinnati, OH 45202 --
Treasurer; Vice President and Controller, Touchstone Advisors, Inc. (since
December, 1993); Director, Controller, Touchstone Securities, Inc. (since
October, 1991); Vice President and Comptroller, The Western and Southern Life
Insurance Company (since 1987).
BRIAN J. MANLEY, (Age 33), Assistant Treasurer; Vice President and Chief
Financial Officer, Touchstone Advisors, Inc. (since December, 1993); Vice
President and Chief Financial Officer, Touchstone Securities, Inc.
SUSAN C. MOSHER (age 42) - Secretary; Director, Fund Administration -
Legal and Regulatory, Investors Bank (since August, 1995); Associate Counsel,
440 Financial Group of Worcester, Inc. (January, 1993 to August, 1995);
Partner, Gallagher, Callahan & Gartrell, P.A. (prior to September, 1992).
Her address is 89 South Street/ADF29, Boston, MA 02111.
KEVIN M. CONNERTY (age 32) - Assistant Treasurer; Director, Fund
Administration - Reporting and Compliance, Investors Bank (since October,
1992); Assistant Manager of Financial Reporting, The Boston Company (prior to
October, 1992). His address is 89 South Street/ADF29, Boston, MA 02111.
PAUL J. JASINSKI (age 50) - Assistant Treasurer; Managing Director - Fund
Administration, Investors Bank (since July, 1985). His address is 89 South
Street/ADF29, Boston, MA 02111.
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<PAGE>
Ms. Mosher and Messrs. Connerty and Jasinski also hold similar positions
for other investment companies for which Investors Bank or an affiliate
serves as administrator or principal underwriter.
No director, officer or employee of the Advisor, the Portfolio Advisors,
the Distributor, the Administrator or any of their affiliates will receive
any compensation from the SA Trust or the VI Trust for serving as an officer
or Trustee of the SA Trust. The Fund Complex pays each Trustee who is not a
director, officer or employee of the Advisor, the Portfolio Advisors, the
Distributor, the Administrator or any of their affiliates an annual fee of
$5,000 plus $1,000 per meeting attended and reimburses them for travel and
out-of-pocket expenses. The annual and meeting fees are allocated among the
four trusts in proportion to their respective net assets. For the year ended
December 31, 1996, the SA Trust incurred $ 23,825 in Trustee fees and
expenses.
TRUSTEE COMPENSATION TABLE
<TABLE>
<CAPTION>
TOTAL COMPENSATION FROM THE
NAME OF PERSON AGGREGATE COMPENSATION FROM SA TRUST FUND COMPLEX PAID TO TRUSTEES
- -------------- ------------------------------------ -----------------------------
<S> <C> <C>
Phillip R. Cox $5,916 $10,000
Trustee
David Pollak $5,354 $9,000
Trustee
Robert E. Stautberg $5,916 $10,000
Trustee
Joseph S. Stern, Jr. $5,354 $9,000
Trustee
Edward G. Harness, Jr. none none
Trustee
William J. Williams none none
Trustee
</TABLE>
As of February 1, 1997, the Trustees and officers of the SA Trust owned
in the aggregate less than 1% of the interests of any Portfolio or the SA
Trust (all series taken together, including series in which the Sub-Accounts
do not invest).
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<PAGE>
ADVISOR, PORTFOLIO ADVISORS, ADMINISTRATOR AND SPONSOR
ADVISOR
The Advisor provides service to each Portfolio of the SA Trust pursuant
to an Investment Advisory Agreement with the SA Trust (the "ADVISORY
AGREEMENT"). The services provided by the Advisor consist of directing and
supervising each Portfolio Advisor, reviewing and evaluating the performance
of each Portfolio Advisor and determining whether or not any Portfolio
Advisor should be replaced. The Advisor furnishes at its own expense all
facilities and personnel necessary in connection with providing these
services. The Advisory Agreement will continue in effect if such continuance
is specifically approved at least annually by the Board of Trustees of the SA
Trust and by a majority of the Trustees who are not parties to the Advisory
Agreement or interested persons of any such party, at a meeting called for
the purpose of voting on the Advisory Agreement.
The Advisory Agreement is terminable, with respect to a Portfolio,
without penalty on not more than 60 days' nor less than 30 days' written
notice by the SA Trust, when authorized either by majority vote of the
investors in the Portfolio (with the vote of each being in proportion to the
amount of their investment) or by a vote of a majority of the Board of
Trustees or by the Advisor, and will automatically terminate in the event of
its assignment. The Advisory Agreement provides that neither the Advisor nor
its personnel shall be liable for any error of judgment or mistake of law or
for any loss arising out of any investment or for any act or omission in its
services to the Portfolios, except for willful misfeasance, bad faith or
gross negligence or reckless disregard of its or their obligations and duties
under the Advisory Agreement.
The Prospectus contains a description of fees payable to the Advisor for
services under the Advisory Agreement.
For the period November 21, 1994 (commencement of operations) to December
31, 1994 and for the fiscal years ended December 31, 1995 and 1996, each SAT
Portfolio incurred the following investment advisory fees equal on an annual
basis to the following percentages of the average daily net assets of the
Portfolio.
PORTFOLIO YEAR RATE AMOUNT
- --------- ---- ---- ------
Growth & Income 1996 0.75% $127,974
1995 0.75% $88,934
1994 0.75% $8,015
Bond 1996 0.55% $72,116
1995 0.55% $61,568
1994 0.55% $6,064
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<PAGE>
For the period November 21, 1994 to December 31, 1994, and for the fiscal
years ended December 31, 1995 and 1996, the Advisor, under the terms of the
Sponsor Agreement, reimbursed the Growth & Income Portfolio $14,346, $85,300
and $34,126, and reimbursed the Bond Portfolio $15,160, $69,754 and $26,226,
respectively. See "Sponsor."
PORTFOLIO ADVISORS
The Advisor has, in turn, entered into a portfolio advisory agreement
(each a "PORTFOLIO AGREEMENT") with each Portfolio Advisor selected by the
Advisor for a Portfolio. Under the direction of the Advisor and, ultimately,
of the Board of Trustees of the SA Trust, each Portfolio Advisor is
responsible for making all of the day-to-day investment decisions for the
respective Portfolio.
Each Portfolio Advisor furnishes at its own expense all facilities and
personnel necessary in connection with providing these services. Each
Portfolio Agreement contains provisions similar to those described above with
respect to the Advisory Agreement.
ADMINISTRATOR, CUSTODIAN AND FUND ACCOUNTING AGENT
Pursuant to Administration and Fund Accounting Agreements, Investors Bank
supervises the overall administration of the Trust, including but not limited
to, accounting, clerical and bookkeeping services; daily calculation of net
asset values; preparation and filing of all documents required for compliance
by the Trust with applicable laws and regulations. Investors Bank also
provides persons to serve as officers of the Trust. As custodian, Investors
Bank holds cash, securities and other assets of the Trust.
The Trust's Prospectus contains a description of fees payable to
Investors Bank for its services as administrator, fund accounting agent and
custodian.
Prior to December 1, 1996, Signature Financial Services, Inc.
("Signature") served as administrator and fund accounting agent to the Trust.
Each of the Administration, Fund Accounting and Custodian Agreements
(collectively, the "Agreements") provide that neither Investors Bank nor its
personnel shall be liable for any error of judgment or mistake of law or for
any act or omission, except for wilful misfeasance, bad faith or negligence
(gross negligence in respect of the Custodian Agreement) in the performance
of its or their duties or by reason of disregard (reckless disregard in
respect of the Custodian Agreement) of its or their obligations and duties
under the Agreements.
Each Agreement may not be assigned without the consent of the
non-assigning party, and may be terminated after its Initial Term, with
respect to a Portfolio, without penalty by majority vote of the shareholders
of the Portfolio or by either party on not more than 60 days' written notice.
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<PAGE>
State Street Bank and Trust Company ("State Street") serves as transfer
agent of the Trust pursuant to a transfer agency agreement. Under its
transfer agency agreement with the Trust, State Street maintains the
shareholder account records for each Fund, handles certain communications
between shareholders and the Trust and causes to be distributed any dividends
and distributions payable by the Trust. State Street may be reimbursed by
the Trust for its out-of-pocket expenses.
For the period November 21, 1994 (commencement of operations) to December
31, 1994, and for the fiscal years ended December 31, 1995 and 1996, the
Growth & Income Portfolio incurred $4,384, $46,743 and $56,786, respectively,
in administrative and fund accounting fees, including out-of-pocket expenses.
For the same periods, the Bond Portfolio incurred $4,384, $47,124 and
$56,396, respectively, in administrative and fund accounting fees, including
out-of-pocket expenses.
SPONSOR
Touchstone Advisors, Inc. serves also (in addition to its services as
Advisor to each Portfolio of the SA Trust) as the sponsor ("SPONSOR") of each
SAT Portfolio pursuant to a sponsor agreement (the "SPONSOR AGREEMENT").
Under each Sponsor Agreement, the Sponsor provides oversight of the various
service providers to each of the SA Trust and the SAT Portfolios, including
the Administrator and the Custodian. For its services in this regard, the
Sponsor is paid a fee, on an annual basis, equal to 0.20% of the average
daily net assets of each Portfolio. The Sponsor Agreement may be terminated
by the Sponsor on not less than 30 days prior written notice and by the SA
Trust, as to any Portfolio. The Sponsor has advised the SA Trust that it
will waive all fees under the Sponsor Agreement through April 30, 1998.
COUNSEL AND INDEPENDENT ACCOUNTANTS
Frost & Jacobs LLP, 2500 PNC Center, 201 East 5th Street, Cincinnati,
Ohio 45202, serves as counsel to the SA Trust and each SAT Portfolio. Coopers
& Lybrand, L.L.P., One Post Office Square, Boston, Massachusetts 02109, acts
as independent accountants of the SA Trust and each SAT Portfolio.
ORGANIZATION OF THE SA TRUST
Interests in the SA Trust do not have cumulative voting rights, which
means that holders of more than 50% of such interests (which includes the
interests held by other investors in the SAT Portfolios (Growth & Income and
Bond) and the interests of other investors in Portfolios of the SA Trust that
are not available for investment by the Sub-Accounts) voting for the election
of Trustees can elect all Trustees. Accordingly, it is unlikely that Owners
having Contract Value in the Sub-Accounts that invest in the SAT Portfolios
will be able to control the election of any of the Trustees. Matters
affecting the SAT Portfolios are generally decided by separate vote of each
34
<PAGE>
SAT Portfolio, except with respect to the election of Trustees and the
ratification of the selection of independent accountants.
The SA Trust, in the Portfolios of which all of the assets of the
corresponding Sub-Accounts will be invested, is organized as a trust under
the laws of the State of New York. Each Sub-Account and other entity
investing in an SAT Portfolio (e.g., other investment companies, insurance
company separate accounts and common and commingled trust funds) will each be
liable for all obligations of the Portfolio. However, the risk of a
Sub-Account incurring financial loss on account of such liability is limited
to circumstances in which both inadequate insurance existed and the Portfolio
itself was unable to meet its obligations. Accordingly, the SA Trust's
Trustees believe that no Sub-Account (or any Owner having Contract Value
therein) will be adversely affected by reason of the Sub-Account's investing
in the corresponding Portfolio.
TAXATION
TAXATION OF THE PORTFOLIOS
Each of the Portfolios will be classified as a partnership for federal
income tax purposes. Furthermore, none of the Portfolios will be a "publicly
traded partnership" for purposes of Section 7704 of the Code. Consequently,
the Portfolios will not be subject to federal income taxation. Instead, each
entity that invests in a Portfolio must take into account, in computing its
federal income tax liability, its share of the Portfolio's income, gains,
losses, deductions, credits and tax preference items for the year, without
regard to the amount of cash distributions it has received during the year
from the Portfolio. Although no Portfolio will be subject to federal income
tax, each will file appropriate income tax returns as required by the Code.
SUB-ACCOUNT DIVERSIFICATION
Each Sub-Account that invests in a Portfolio will be treated as owning a
proportionate interest in the assets held by the Portfolio for purposes of
determining whether the Sub-Account is adequately diversified within the
meaning of Section 817(h) of the Code. The diversification requirement must
be satisfied in order for the Contract to be treated as an "annuity contract"
under the Code.
FINANCIAL STATEMENTS
[to be supplied by amendment]
35
<PAGE>
DISTRIBUTOR
Touchstone Securities, Inc. Sub-Accounts
311 Pike Street ------------
Cincinnati, Ohio 45202 -Emerging Growth
(800) 669-2796 (press 3) -International Equity
-Growth & Income
INVESTMENT ADVISOR; SPONSOR -Balanced
-Income Opportunity
Touchstone Advisors, Inc. -Bond
311 Pike Street -Standby Income
Cincinnati, Ohio 45202
VARIABLE ANNUITY SERVICE CENTER
Touchstone Special Markets Service Center
P.O. Box 2850
Cincinnati, Ohio 45201-2850
(800) 669-2796 (press 2)
TRANSFER AGENT
State Street Bank and Trust Company
P.O. Box 8578
Boston, Massachusetts 02266-8518
ADMINISTRATOR, CUSTODIAN
AND FUND ACCOUNTING AGENT
Investors Bank & Trust Company STATEMENT OF
89 South Street ADDITIONAL INFORMATION
Boston, Massachusetts 02111 ________, 1997
INDEPENDENT ACCOUNTANTS
Coopers & Lybrand L.L.P.
312 Walnut Street
Cincinnati, Ohio 45202
LEGAL COUNSEL
Frost & Jacobs LLP
2500 PNC Center
201 East Fifth Street
Cincinnati, Ohio 45202
<PAGE>
PART C
ITEM 24 -- FINANCIAL STATEMENTS AND EXHIBITS
(a) There are no financial statements included in Part A. The following
Financial Statements and Financial Statement Schedules of Western-Southern
Life Assurance Company are omitted from Part C and instead included in
Part B:
[to be supplied by amendment]
(b) Exhibits:
(1) Resolutions of Board of Directors of Western-Southern Life
Assurance Company (the "Company") establishing Western-Southern Life
Assurance Company Separate Account 1 incorporated herein by
reference to the Registration Statement filed with the Securities
and Exchange Commission ("SEC") on March 17, 1994 (File Nos.
33-76582 and 811-8420).
(2) Not Applicable.
(3) (a) Distributor Agreement between the Company (on behalf of
Separate Account 1) and Touchstone Securities, Inc. incorporated
herein by reference to Pre-Effective Amendment No. 2 to the
Registration Statement filed with the SEC on November 14, 1994
(File Nos. 33-76582 and 811-8420).
(b) Commission Schedule incorporated herein by reference to Pre-
Effective Amendment No. 2 to the Registration Statement filed
with the SEC on November 14, 1994 (File Nos. 33-76582 and
811-8420).
<PAGE>
(c) Specimens of agreements between Touchstone Securities, Inc.
and its dealers incorporated herein by reference to Pre-
Effective Amendment No. 2 to the Registration Statement filed
with the SEC on November 14, 1994 (File Nos. 33-76582 and
811-8420).
(4) (a) Specimen Variable Annuity Contract
(b) Specimen Endorsements and Riders
(5) Specimen Application Form for Variable Annuity Contract
(6) (a) Amended Articles of Incorporation of the Company incorporated
herein by reference to Post-Effective Amendment No. 2 to the
Registration Statement filed with the SEC on April 29, 1996
(File Nos. 33-76582 and 811-8420).
(b) Amended Code of Regulations of the Company incorporated
herein by reference to Post-Effective Amendment No. 2 to the
Registration Statement filed with the SEC on April 29, 1996
(File No. 33-76582 and 811-8420).
(7) Not Applicable.
(8) (a) Administrative Services and Fund Accounting Agreement between
Investors Bank and Trust Company and Select Advisors Portfolios
incorporated herein by reference to Post-Effective Amendment
No. 4 to the Registration Statement filed with the SEC on April
30, 1997 (File No. 33-76582 and 811-8420).
(b) (i) Investment Advisory Agreement between Touchstone Advisors,
Inc. and Select Advisors Portfolios incorporated herein by
reference to Post-Effective Amendment No. 2 to the
Registration Statement filed with the SEC on April 29, 1996
(File Nos. 33-76582 and 811-8420).
(ii) Amendment to Investment Advisory Agreement between
Touchstone Advisors, Inc. and Select Advisors Portfolios
incorporated herein by reference to Post-Effect Amendment
No. 4 to the Registration Statement filed with the SEC on
April 30, 1997 (File No. 33-76582 and 811-8420).
(c) Portfolio Advisory Agreements -- between Touchstone Advisors,
Inc. and:
<PAGE>
(i) Fort Washington Investment Advisors, Inc. (Growth &
Income) incorporated herein by reference to Post-Effective
Amendment No. 2 to the Registration Statement filed with
the SEC on April 29, 1996 (File Nos. 33-76582 and
811-8420).
(ii) Fort Washington Investment Advisors, Inc. (Bond)
incorporated herein by reference to Post-Effective
Amendment No. 2 to the Registration Statement filed with
the SEC on April 29, 1996 (File Nos. 33-76582 and
811-8420).
(d) Custodian Agreement between Select Advisors Portfolios and
Investors Bank & Trust Company incorporated herein by reference
to Pre-Effective Amendment No. 2 to the Registration Statement
filed with the SEC on November 14, 1994 (File Nos. 33-76582 and
811-8420).
(e) (i) Sponsor Agreement between Select Advisors Variable
Insurance Trust and Touchstone Advisors, Inc. incorporated
herein by reference to Pre-Effective Amendment No. 2 to the
Registration Statement filed with the SEC on November 14,
1994 (File Nos. 33-76582 and 811-8420).
(ii) Sponsor Agreement between Select Advisors Portfolios
and Touchstone Advisors, Inc. incorporated herein by
reference to Pre-Effective Amendment No. 2 to the
Registration Statement filed with the SEC on November 14,
1994 (File Nos. 33-76582 and 811-8420).
(f) Fund Participation Agreement between Select Advisors
Portfolios and Touchstone Advisors, Inc. incorporated herein by
reference to Pre-Effective Amendment No. 2 to the Registration
Statement filed with the SEC on November 14, 1994 (File Nos.
33-76582 and 811-8420).
(9) Opinion and consent of Donald B. Wuebbling, Esq.
(10) [to be supplied by amendment]
(11) Not Applicable.
(12) Not Applicable.
<PAGE>
(13) Not Applicable.
(14) Not applicable.
(15) (a) Powers of Attorney -- Directors of the Company.
(b) Powers of Attorney -- Trustees of Select Advisors Portfolios.
ITEM 25. -- DIRECTORS AND OFFICERS OF THE DEPOSITOR
The directors and officers of the Company are:
William J. Williams Chairman of the Board and Director
John F. Barrett Director, Chief Executive Officer and
President
James N. Clark Director, Executive Vice President,
Secretary and Treasurer
Dr. J. Harold Kotte Director
Dr. Lawrence C. Hawkins Director
Omni-Man, Inc.
3909 Reading Road
Cincinnati, Ohio 45229
Carl A. Kroch Director
Kroch's & Brentano's
29 South Wabash Avenue
Chicago, Illinois 60603
Eugene P. Ruehlmann Director
Vorys, Sater, Seymour and Pease
Suite 2100 Atrium Two
221 East Fourth Street
Cincinnati, Ohio 45202
Charles M. Williams Director
Thomas L. Williams Director
North American Properties
212 East Third Street
Suite 300
Cincinnati, Ohio 45202
<PAGE>
Chalmers Wylie Director
754 Stonewood Court
Columbus, Ohio 43235
Robert A. Bodeker Vice President
Herbert R. Brown Vice President
James W. Carpenter Vice President and Senior Counsel
Keith T. Clark Vice President and Medical Director
Charles W. Craig Vice President and Chief Technology
Officer
Bryan C. Dunn Senior Vice President and Chief
Marketing Officer
David G. Ennis Vice President and Auditor
Noreen J. Hayes Vice President
Edward S. Heenan Vice President and Comptroller
Dale P. Hennie Vice President
Carroll R. Hutchinson Senior Vice President and Chief
Actuary
Donald W. Kaplan Vice President and Actuary
William F. Ledwin Senior Vice President and Chief
Investment Officer
Harold V. Lyons Vice President and Actuary
Jill T. McGruder Senior Vice President
J. J. Miller Senior Vice President
Kenneth A. Palmer Senior Vice President
Mario J. San Marco Vice President
Thomas M. Stapleton Vice President
<PAGE>
Robert H. Starnes Vice President
Richard K. Taulbee Vice President
Donald J. Wuebbling Vice President and General Counsel
G. H. Schellpeper Vice President
8901 Indian Hills Drive
Omaha, Nebraska 68144
Unless otherwise noted, the principal business address of all persons
listed in Item 25 is 400 Broadway, Cincinnati, Ohio 45202.
ITEM 26. -- PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH THE DEPOSITOR OR
REGISTRANT
The Western and Southern Life Insurance Company ("WSLIC")
Western-Southern Life Assurance Company ("WSLAC"); 100% owned by WSLIC
Courtyard Nursing Care, Inc.; Ohio corporation; 100% owned by
WSLAC; ownership and operation of real estate.
IFS Financial Services, Inc. ("IFS"); Ohio corporation; 100%
owned by WSLAC; development and marketing of financial products for
distribution through financial institutions.
IFS Systems, Inc.; Delaware corporation; 100% owned by IFS;
development, marketing and support of software systems.
IFS Insurance Agency, Inc.; Ohio corporation; 99% owned by
IFS, 1% owned by William F. Ledwin; general insurance agency.
Touchstone Securities, Inc.; Nebraska corporation; 100%
owned by IFS; securities broker-dealer.
Touchstone Advisors, Inc.; Ohio corporation; 100% owned by
IFS; registered investment adviser.
IFS Agency Services, Inc.; Pennsylvania corporation; 100%
owned by IFS; general insurance agency.
<PAGE>
IFS Agency, Inc.; Texas corporation; 100% owned by an
individual; general insurance agency.
IFS General Agency, Inc.; Pennsylvania corporation; 100%
owned by William F. Ledwin; general insurance agency.
Seasons Congregate Living, Inc.; Ohio corporation; 100% owned by
WSLIC; ownership and operation of real estate.
Latitudes at the Moors, Inc.; Florida corporation; 100% owned by
WSLIC; ownership and operation of real estate.
WestAd Inc.; Ohio corporation; 100% owned by WSLIC, general
advertising, book-selling and publishing.
Fort Washington Investment Advisors, Inc.; Ohio corporation; 100%
owned by WSLIC; registered investment adviser.
Columbus Life Insurance Company; Ohio corporation; 100% owned by
WSLIC; insurance.
Colmain Properties, Inc.; Ohio corporation; 100% owned by
Columbus Life Insurance Company; acquiring, owning, managing, leasing,
selling real estate.
Colpick, Inc.; Ohio corporation; 100% owned by Colmain
Properties, Inc.; acquiring, owning, managing, leasing and selling real
estate.
CAI Holding Company, Inc.; Ohio corporation; 100% owned by
Columbus Life Insurance Company; holding company.
Capital Analysts Incorporated; Delaware corporation; 100%
owned by CAI Holding Company; securities broker-dealer.
Capital Analysts Agency, Inc.; Ohio corporation; 99% owned
by Capital Analysts Incorporated, 1% owned by William F. Ledwin;
general insurance agency.
Capital Analysts Agency, Inc.; Texas corporation; 100% owned
by an individual who is a resident of Texas, but under contractual
association with Capital Analysts Incorporated; general insurance
agency.
<PAGE>
Capital Analysts Insurance Agency, Inc.; Massachusetts
corporation; 100% owned by Capital Analysts Incorporated; general
insurance agency.
CLIC Company I; Delaware corporation; 100% owned by Columbus Life
Insurance Company; holding company.
CLIC Company II; Delaware corporation; 100% owned by Columbus
Life Insurance Company; holding company.
Eagle Properties, Inc.; Ohio corporation; 100% owned by WSLIC;
ownership, development and management of real estate.
Seasons Management Company; Ohio corporation; 100 % owned by
Eagle Properties, Inc.; management of real estate.
Continental General Corporation; Nebraska corporation; 100% owned by
WSLIC; holding company.
Continental Agency Services, Inc.; Nebraska corporation; 100%
owned by Continental General Corporation.
Continental General Insurance Company; Nebraska corporation; 100%
owned by Continental General Corporation; insurance.
Continental Print & Photo Co.; Nebraska corporation; 100% owned
by Continental General Corporation; printing.
Waslic Company II; Delaware corporation; 100% owned by WSLIC; holding
company.
WestTax, Inc.; Ohio corporation, 100% owned by WSLIC; preparation and
electronic filing of tax returns.
Florida Outlet Marts, Inc.; Florida corporation; 100% owned by WSLIC;
ownership and operation of real estate.
AM Concepts Inc.; Delaware corporation, 100% owned by WSLIC; venture
capital investment in companies engaged in alternative marketing of
financial products.
Western-Southern Agency, Inc.; Ohio corporation; 99% owned by WSLIC;
1% owned by William F. Ledwin; general insurance agency.
Western-Southern Agency Services, Inc.; Pennsylvania corporation; 100%
owned by WSLIC; general insurance agency.
<PAGE>
W-S Agency of Texas, Inc.; Texas corporation; 100% owned by an
individual; general insurance agency.
ITEM 27. -- NUMBER OF CONTRACT OWNERS
Not Applicable.
ITEM 28. -- INDEMNIFICATION
The Amended Code of Regulations of the Company provides that, to the
fullest extent not prohibited by applicable law, the Company shall
indemnify each director, officer and employee against any and all costs and
expenses (including attorney fees, judgments, fines, penalties, amounts
paid in settlement, and other disbursements) actually and reasonably
incurred by or imposed upon such director, officer or employee in
connection with any action, suit, investigation or proceedings (or any
claim or other matter therein), whether civil, criminal, administrative or
otherwise in nature, including any settlements thereof of any appeals
therein, with respect to which such director, officer or employee is named
or otherwise becomes or is threatened to be made a party by reason of being
or at any time having been a director, officer or employee of the Company,
or, at the direction or request of the Company, a director, trustee,
officer, administrator, manager, employee, adviser or other agent of or
fiduciary for any other corporation, partnership, trust, venture or other
entity or enterprise including any employee benefit plan; provided,
however, that no person shall be indemnified to the extent, if any, that
the directors of the Company, acting at a meeting at which a quorum of
directors who are not parties to or threatened with any such action, suit,
investigation or proceeding, determine that such indemnification is
contrary to applicable law.
Any director of the Company who is a party to or threatened with any such
action, suit, investigation or proceeding shall not be qualified to vote;
and if for this reason a quorum of directors, who are not disqualified from
voting by reason of being parties to or threatened with such action, suit,
investigation or proceeding, cannot be obtained, such determination shall
be made by three attorneys at law, who have not theretofore represented the
Company in any matter and who shall be selected by all of the officers and
directors of the Company who are not parties to or threatened with any such
action, suit, investigation or proceeding. If there are no officers or
directors who are qualified to make such selection, the selection shall be
made by a Judge of the Court of Common Pleas of Hamilton County, Ohio.
Such indemnification shall not be deemed exclusive of any other right to
which such director, officer or employee may be entitled under the
Company's articles of incorporation, code of regulations, any agreement,
any insurance purchased by the Company, vote of shareholders or otherwise.
The Board of Directors of the Company also may, in its discretion, secure
and maintain insurance policies against any liability asserted against and
incurred by any of the Company's directors, officers or employees.
<PAGE>
Insofar as indemnification for liability arising under the Securities Act
of 1933 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 trustee, director,
officer or controlling person of the Registrant in the successful defense
of any action, suit or proceeding) is asserted by such trustee, 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 issues.
ITEM 29. -- PRINCIPAL UNDERWRITERS
(a) Touchstone Securities, Inc. ("Touchstone") acts as distributor for
Contracts issued under Western-Southern Life Assurance Company Separate
Account 1 and as distributor for the shares of several series (Funds) of
Select Advisors Trust A and Select Advisors Trust C, each of which is
affiliated with the Depositor.
(b) Set forth below are the names, principal business addresses and
positions of each director and officer of Touchstone. Unless otherwise
noted, the principal business address of these individuals is Touchstone
Securities, Inc., 311 Pike Street, Cincinnati, Ohio 45202. Unless
otherwise specified, none of the officers and directors of Touchstone
serves as an officer or Trustee of the SA Trust.
NAME POSITION/OFFICE WITH DISTRIBUTOR
- ---- --------------------------------
James N. Clark(1) Director
Edward G. Harness, Jr. Director, Chief Executive Officer and
President; Trustee and President, SA Trust
Edward S. Heenan(1) Director and Controller; Treasurer, SA
Trust
William F. Ledwin(1) Director
Donald J. Wuebbling(1) Director
Brian Manley Vice President and Chief Financial Officer;
Assistant Treasurer, SA Trust
Richard K. Taulbee(1) Vice President
<PAGE>
Carl A. Ramsey(2) Vice President
E. Duane Clay(2) Vice President
Robert F. Morand(1) Secretary
Patricia Wilson Chief Compliance Officer
(1) 400 Broadway, Cincinnati, Ohio 45202
(2) 8901 Indian Hills Drive, Omaha, Nebraska 68114
(c) The following table sets forth information about all commissions and
compensation received by Touchstone Securities, Inc.
Name of Principal Net Underwriting Compensation on Brokerage Compensation
Underwriter Discounts and Redemptions Commissions
Commissions
- --------------------------------------------------------------------------------
Touchstone $0 $0 $0 $0
Securities, Inc.
ITEM 30. -- LOCATION OF ACCOUNTS AND RECORDS
Accounts, books and other documents required to be maintained by Section
31(a) of the Investment Company Act of 1940 and the rules promulgated
thereunder are maintained by the Company at 400 Broadway, Cincinnati, Ohio
45202.
ITEM 31. -- MANAGEMENT SERVICES
Not Applicable.
ITEM 32. -- UNDERTAKINGS
Registrant undertakes to:
(a) file a post-effective amendment to this Registration Statement as
frequently as is necessary to ensure that the audited financial statements
in the Registration Statement are never more than 16 months old for so
long as payments under the Contracts may be accepted;
(b) include either (1) as part of any application to purchase a Contract
offered by the Prospectus, a space that an applicant can check to request
a Statement of Additional Information, or (2) a postcard or similar
written communication affixed to or included in the Prospectus that the
applicant can remove to send for a Statement of Additional Information;
and
<PAGE>
(c) deliver any Statement of Additional Information and any financial
statements required to be made available under this Form promptly upon
written or oral request directed to the address or telephone number
contained in the Prospectus.
Registrant represents that it is relying upon a "no-action" letter issued
to the American Council of Life Insurance concerning that conflict between
the redeemability requirements of sections 22(e), 27(c)(1) and 27(d) of the
Investment Company Act of 1940 and the limits on the redeemability of
variable annuities imposed by Section 403(b)(11) of the Internal Revenue
Code. The Registrant has included disclosure concerning the 403(b)(11)
restrictions in its prospectus and sales literature, and established a
procedure whereby each plan participant will sign a statement acknowledging
these restrictions before a Contract is issued. Sales representatives have
been instructed to bring the restrictions to the attention of potential
plan participants.
Pursuant to Section 26(e) of the Investment Company Act of 1940, as
amended, Western-Southern Life Assurance Company represents that, with
respect to the Contracts registered with the Commission by this
Registration Statement, as it may be amended, and offered by the Prospectus
included in this Registration Statement, all fees and charges imposed for
any purpose and in any manner and 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 the
Western-Southern Life Assurance Company.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Depositor, on behalf of itself and the
Registrant has duly caused this Registration Statement under the Securities
Act of 1933 and Amendment No. 7 to its Registration Statement under the
Investment Company Act of 1940 to be signed on its behalf, in the City of
Cincinnati and State of Ohio on the 13th day of May, 1997.
WESTERN-SOUTHERN LIFE ASSURANCE
COMPANY SEPARATE ACCOUNT 1
by
WESTERN-SOUTHERN LIFE ASSURANCE
COMPANY
By /s/ EDWARD S. HEENAN
--------------------
Edward S. Heenan, Vice President and
Controller
As required by the Securities Act of 1933, this Registration Statement
has been signed below by the following persons in the capacities and on the
date indicated below.
Principal Executive Officer:
- ----------------------------
/s/ JOHN F. BARRETT May 13, 1997
- ----------------------------
John F. Barrett, President, Director
and Chief Executive Officer
Principal Financial and
Accounting Officer:
- -------------------
Edward S. Heenan, Vice
President and Controller
By /s/ EDWARD S. HEENAN
--------------------
Edward S. Heenan, as Principal
Directors: Financial and Accounting
- ---------- Officer and as attorney-in fact for
each Director
JAMES N. CLARK
LAWRENCE C. HAWKINS May 13, 1997
J. HAROLD KOTTE
CARL A. KROCH
EUGENE P. RUEHLMANN
CHARLES M. WILLIAMS
THOMAS L. WILLIAMS
WILLIAM J. WILLIAMS
CHALMERS P. WYLIE
<PAGE>
SIGNATURES
Select Advisors Portfolios (the "Portfolios") has duly caused this
Registration Statement under the Securities Act of 1933 and Amendment No. 7
to the Registration Statement under the Investment Company Act of 1940 of
Western-Southern Life Assurance Company Separate Account 1 to be signed on
its behalf, in the City of Cincinnati and State of Ohio on the 13th day of
May, 1997.
SELECT ADVISORS PORTFOLIOS
By /s/ EDWARD G. HARNESS, JR.
--------------------------
Edward G. Harness, Jr., President
This Registration Statement under the Securities Act of 1933 has also
been signed below by the following persons in the capacities indicated on the
13th day of May, 1997.
Principal Executive Officer:
- ----------------------------
/s/ EDWARD G. HARNESS, JR. May 13, 1997
- --------------------------
Edward G. Harness, Jr.
Trustee and President
Principal Financial and
Accounting Officer:
- -------------------
Edward S. Heenan
Treasurer By: /s/ EDWARD S. HEENAN
--------------------
Edward S. Heenan, as Principal
Financial and Accounting
Officer and as attorney-in fact for each
Trustee.
Trustees:
- ---------
PHILIP R. COX
DAVID POLLAK
ROBERT E. STAUTBERG May 13, 1997
JOSEPH S. STERN, JR.
<PAGE>
EXHIBIT INDEX
EXHIBIT DESCRIPTION PAGE
4(a) Specimen Variable Annuity Contract
4(b) Specimen Endorsements and Riders
5 Specimen Application for Variable Annuity Contract
9 Opinion and Consent of Donald B. Wuebbling, Esq.
15(a) Powers of Attorney -- Directors of Company
15(b) Powers of Attorney-- Trustees of Select Advisors Portfolios
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
[LOGO]
WESTERN-SOUTHERN LIFE
WESTERN-SOUTHERN LIFE ASSURANCE COMPANY
- --------------------------------------------------------------------------------
Agrees to provide the benefits and rights set out on this and the pages that
follow which are a part of the Contract. They are provided as consideration for
the application and purchase payment(s) for the Contract.
The Contract, the attached application, and any amendments, riders or
endorsements make up the entire Contract. The Contract does not take effect
until the Contract Date and until we have received the initial purchase
payment.
TEN DAY FREE LOOK. PLEASE EXAMINE THE CONTRACT. IF YOU ARE NOT SATISFIED, YOU
MAY CANCEL THE CONTRACT BY RETURNING IT TO US AT OUR SPECIAL MARKETS SERVICE
CENTER LISTED ON PAGE 3 WITHIN 10 DAYS AFTER YOU RECEIVE IT. WE WILL REFUND THE
CONTRACT VALUE COMPUTED AT THE END OF THE VALUATION PERIOD DURING WHICH THE
CONTRACT WAS RECEIVED, PLUS ANY PREMIUM TAX DEDUCTED FROM THE PURCHASE PAYMENT,
WITHIN 7 DAYS OF OUR RECEIPT OF THE CONTRACT.
This Annuity Contract is a legal contract between the Contract Owner and the
Company.
READ YOUR CONTRACT CAREFULLY
ALL VALUES PROVIDED BY THIS CONTRACT, WHEN BASED ON THE INVESTMENT EXPERIENCE OF
THE VARIABLE ACCOUNT, ARE VARIABLE AND ARE NOT GUARANTEED AS TO FIXED DOLLAR
AMOUNT. THESE VALUES MAY INCREASE OR DECREASE TO REFLECT THE INVESTMENT
EXPERIENCE OF THE VARIABLE ACCOUNT.
- --------------------------------------------------------------------------------
Issued by a Stock Company
Home Office: 400 Broadway, Cincinnati, Ohio 45202
FLEXIBLE PURCHASE PAYMENT DEFERRED VARIABLE ANNUITY
Income Payable at Income Date
Death Benefit Prior to Income Date
Non-Participating
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
CONTENTS
- --------------------------------------------------------------------------------
APPLICATION AND SPECIFICATION PAGE . . . . . . . . . . . . . . . . . . . . 3
DEFINITIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
OWNER, ANNUITANT, BENEFICIARY. . . . . . . . . . . . . . . . . . . . . . . 5
Owner . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Transfer of Ownership . . . . . . . . . . . . . . . . . . . . . . . . 5
Annuitant . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Beneficiary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
ACCUMULATION PROVISIONS. . . . . . . . . . . . . . . . . . . . . . . . . . 5
Purchase Payments . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Allocation of Purchase Payments . . . . . . . . . . . . . . . . . . . 6
Fixed Account . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Variable Account. . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Dollar Cost Averaging . . . . . . . . . . . . . . . . . . . . . . . . 8
Transfers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
SURRENDER AND WITHDRAWAL PROVISIONS. . . . . . . . . . . . . . . . . . . . 9
General Surrender Provisions. . . . . . . . . . . . . . . . . . . . . 9
Partial Withdrawals . . . . . . . . . . . . . . . . . . . . . . . . . 9
Surrender . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Free Withdrawal Amount. . . . . . . . . . . . . . . . . . . . . . . . 9
Systematic Withdrawal Plan. . . . . . . . . . . . . . . . . . . . . . 9
Reduction of Surrender Charge . . . . . . . . . . . . . . . . . . . . 10
Delay in Payment. . . . . . . . . . . . . . . . . . . . . . . . . . . 10
DEATH BENEFIT OPTIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Standard Death Benefit Option . . . . . . . . . . . . . . . . . . . . 10
Annual Step-Up Death Benefit Option . . . . . . . . . . . . . . . . . 11
6% Accumulating Death Benefit Option. . . . . . . . . . . . . . . . . 11
CONTRACT CHARGES AND DEDUCTIONS. . . . . . . . . . . . . . . . . . . . . . 11
Contract Maintenance Charge . . . . . . . . . . . . . . . . . . . . . 11
Mortality and Expense Risk Charge . . . . . . . . . . . . . . . . . . 12
Contract Administration Charge. . . . . . . . . . . . . . . . . . . . 12
Premium Tax Deductions. . . . . . . . . . . . . . . . . . . . . . . . 12
Surrender Charge. . . . . . . . . . . . . . . . . . . . . . . . . . . 12
DEATH PROVISIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Death of Owner. . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Death of Annuitant. . . . . . . . . . . . . . . . . . . . . . . . . . 13
Priority Of Beneficiaries . . . . . . . . . . . . . . . . . . . . . . 13
INCOME PROVISIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Income Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Form of Payment . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Choice of Option. . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Lump Sum Removal of Value Applied
under a Payment Option (Commutation) . . . . . . . . . . . . . . . . 14
Additional Interest . . . . . . . . . . . . . . . . . . . . . . . . . 15
General Payment Option Terms. . . . . . . . . . . . . . . . . . . . . 15
INCOME PAYMENT OPTIONS . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Option 1 - Payments for a Fixed Period. . . . . . . . . . . . . . . . 15
Option 2 - Payments for Life - Guaranteed Period. . . . . . . . . . . 15
Option 3 - Payments for a Fixed Amount. . . . . . . . . . . . . . . . 16
Option 4 - Life Annuity - No Guaranteed Period. . . . . . . . . . . . 16
Option 5 - Joint and Survivor . . . . . . . . . . . . . . . . . . . . 17
GENERAL PROVISIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Statements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Statements In Application . . . . . . . . . . . . . . . . . . . . . . 17
Modification Of Contract. . . . . . . . . . . . . . . . . . . . . . . 17
Incontestability. . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Incorrect Age Or Sex. . . . . . . . . . . . . . . . . . . . . . . . . 17
Place Of Payment. . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Submission Of Contract. . . . . . . . . . . . . . . . . . . . . . . . 17
Creditors' Claims . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Proof Of Facts. . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Non-Participating . . . . . . . . . . . . . . . . . . . . . . . . . . 18
2
<PAGE>
CONTRACT SPECIFICATIONS
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Owner(s): [JOHN DOE] Region Number: [980-001-0001]
Annuitant(s): JOHN DOE Annuitant's
Birthdate: 09-25-61
Contract Number: W 12345678 Contract Date: 10-01-97
Initial Purchase
Payment: $10,000 Income Date: [10-01-26]
Death Benefit
Option: [STANDARD]
Western-Southern Life Assurance Company
Special Markets Service Center
P.O. Box 2850
Cincinnati, Ohio 45201-2850
ALLOCATION OF INITIAL PURCHASE PAYMENT (percentages must be in whole numbers not
less than 5% and must total 100%):
VARIABLE ACCOUNT SUB-ACCOUNTS: FIXED ACCOUNT: [50%]
Emerging Growth Sub-Account
International Equity Sub-Account
Growth & Income Sub-Account
Balanced Sub-Account [30%]
Income Opportunity Sub-Account
Bond Sub-Account [20%]
Standby Income Sub-Account
FIXED ACCOUNT INITIAL INTEREST RATE: [5.5%] (Effective Annual Rate) [10-01-97]
through [09-30-98.] The interest rate credited to subsequent purchase payments
allocated to the Fixed Account will be the current rate in effect on the date
the payment is received. It will be guaranteed for one year from the date of
receipt of payment and will never be less than 3%.
3
<PAGE>
* * * DEFINITIONS
"THE COMPANY", "WE", "OUR" AND "US", is Western-Southern Life Assurance Company.
"ACCUMULATION UNIT" is an accounting unit of measure used to calculate the
Variable Account Value prior to the Income Date.
"ANNUITANT" is the person designated by the Owner to be the measuring life
in determining the amount of each payment and the period of time payments
will be paid under one of the Income Payment Options; see Annuitant provision
on page 5.
"BENEFICIARY" is the person designated by the Owner to receive the death
benefits if the Owner dies prior to the Income Date; see Beneficiary
provision of page 5.
"CONTINGENT ANNUITANT" is the person designated by the Owner to become the
Annuitant if the Annuitant dies before the Income Date; see Annuitant provision
of page 5.
"CONTRACT VALUE" is the sum of the Variable Account Value and the Fixed Account
Value.
"CONTRACT YEAR" is a year starting with the Contract Date indicated on page 3 or
with a Contract Anniversary. A "Contract Anniversary" is the same day and month
as the Contract Date in each subsequent year.
"DOLLAR COST AVERAGING" is an option under this Contract for the automatic
transfer of specified dollar amounts, earnings or specified percentages from the
Fixed Account or from the Standby Income Sub-Account to other Sub-Accounts on a
monthly or quarterly basis, as directed by the Owner; see Dollar Cost Averaging
provision on page 8.
"FIXED ACCOUNT" is an option under this Contract where purchase payments are
allocated to the general account of the Company at a guaranteed interest rate.
"INCOME DATE" is the date annuity payments begin. The Income Date is shown on
page 3 and can be changed by written notice to us.
"OWNER" is the person, persons or entity having all rights under the Contract
unless otherwise provided. If there are Joint Owners they own the Contract
equally with a right of survivorship.
"PORTFOLIO" is an investment portfolio of an open-end management investment
company registered under the Investment Company Act of 1940.
"QUALIFIED CONTRACTS" are Contracts purchased in connection with a plan that
qualifies under Sections 401, 403(b), 408 or 457 of the Internal Revenue Code.
"SUB-ACCOUNT" is a division of the Variable Account which invests in a
Portfolio. Purchase payments allocated to the Variable Account are further
allocated to one or more of these Sub-Accounts, as designated by the Owner.
"SURRENDER VALUE" is the Contract Value less any surrender charge and less any
applicable Contract Maintenance Charge.
"VALUATION DATE" is each day on which valuation of the Variable Account
Sub-Accounts is required by applicable law, including every day that the
New York Stock Exchange is open.
"VALUATION PERIOD" is the period of time beginning at the close of a Valuation
Date and ending at the close of the next succeeding Valuation Date.
"VARIABLE ACCOUNT" is an option under this Contract where purchase payments are
allocated to a separate investment account of the Company.
"YOU" AND "YOUR" refer to the Owner or Owners if there are Joint Owners; see
Owner provision on page 5.
4
<PAGE>
* * * OWNER, ANNUITANT, BENEFICIARY
OWNER
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You are the Owner of the Contract. You are also the Annuitant unless you name
another person as Annuitant as shown in the Contract Specifications on page 3.
You will receive the annuity payments under the Contract if the Annuitant is
living on the Income Date. You also have all other rights under the Contract
unless provided otherwise. The Contract may be owned by two persons as joint
Owners. In this case, both joint Owners must consent to any withdrawals,
surrenders or changes to the Contract or beneficiary.
TRANSFER OF OWNERSHIP
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During the Annuitant's lifetime you may transfer the ownership of the Contract
(unless it is a Qualified Contract) by written notice satisfactory to us. The
transfer will not take effect until our records show that we have received the
notice. A change in ownership may affect the amount of the death benefit. If
you transfer ownership to a new Owner who is more than 75 years old at the time
of the transfer, the death benefit will be limited to that provided under the
Standard Death Benefit Option (see Death Benefit Options on page 10). Such
change in ownership may be subject to state and federal income and/or gift
taxes. We are not responsible for the tax consequences resulting from a
transfer of ownership.
ANNUITANT
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The Annuitant is the person designated by the Owner to be the measuring life in
determining the amount of each payment and the period of time payments will be
paid under one of the Income Payment Options. This means that you, as Owner,
will receive annuity payments if the Annuitant is living on the Income Date and
for as long as the Annuitant remains living. You may also name a contingent
Annuitant. This person will become the Annuitant upon the Annuitant's death,
but only if the Annuitant dies before the Income Date. You may change the
Annuitant or contingent Annuitant after the Contract begins but before the
Income Date by written notice to us, and you may name a new Annuitant if the
Annuitant dies before the Income Date and there is no contingent Annuitant; see
the Death of Annuitant provision on page 13.
BENEFICIARY
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The Beneficiary is the person you name to receive the death benefits if you die
prior to the Income Date. You may change the Beneficiary at any time by written
notice satisfactory to us. However, the change will not take effect until our
records show that we have received the notice.
* * * ACCUMULATION PROVISIONS
PURCHASE PAYMENTS
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The initial purchase payment may not be less than $10,000. For Qualified
Contracts, the minimum initial purchase payment is $1,000. However, monthly
purchase payments of not less than $50 will be permitted for Qualified Contracts
if payments are made under an automatic or scheduled installment plan. If no
purchase payments have been received for 2 full years, and both (a) the total
purchase payments less any partial withdrawals, and (b) the Contract Value, are
less than $2,000, the Company will, after 14 days written notice to you,
terminate this Contract and pay you the Surrender Value.
Subsequent purchase payments must be at least $100 (at least $50 if made under
an automatic or scheduled installment plan), and may be made at any time.
The total of all purchase payments under this Contract may not exceed $500,000
without prior approval of the Company.
5
<PAGE>
ALLOCATION OF PURCHASE PAYMENTS
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You elect to have purchase payments allocated to the Fixed Account and/or one or
more Sub-Accounts of the Variable Account. Each allocation must be in whole
percentages of at least 5%. The sum of the allocation percentages must equal
100%.
The allocation of the initial purchase payment is set forth on page 3.
Additional purchase payments will be allocated in the same manner as your
initial purchase payment unless changed by written request. All purchase
payments received after a change in allocation will be invested in the same
manner as your most recent allocation unless you instruct otherwise in writing.
FIXED ACCOUNT
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The Fixed Account is an option under this Contract where purchase payments are
allocated to the general account of the Company at a guaranteed interest rate.
FIXED ACCOUNT VALUE
The Fixed Account Value is equal to:
The sum of all purchase payments allocated to the Fixed Account; plus
Any Variable Account Value transferred to the Fixed Account; plus
Interest credited to the Fixed Account; less
Any amounts transferred from the Fixed Account to the Variable Account; less
Any amounts withdrawn for charges, deductions or surrenders as provided in
this Contract.
INTEREST CREDITED
The Company will credit interest to each purchase payment allocated to the Fixed
Account at the interest rate in effect when such purchase payment was received.
That interest rate will be guaranteed for one year from the date of receipt. At
the end of that year and at the end of each successive one year period, the
Company will declare a new interest rate applicable for that purchase payment
which will be guaranteed for the following year. The effective annual interest
rate will never be less than 3%.
The Company will credit interest on amounts transferred to the Fixed Account
from the Variable Account in the manner stated above as of the date of transfer.
VARIABLE ACCOUNT
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The Variable Account is an option under this Contract where purchase payments
are allocated to a separate investment account of the Company. Assets of the
Variable Account are the property of the Company and will be used to provide
values and benefits under this Contract and similar contracts. The Variable
Account may not be charged with liabilities arising out of any other business
the Company may conduct. However, the account will be charged for charges,
deductions and surrenders as provided in this Contract.
VARIABLE ACCOUNT VALUE
The Variable Account Value is equal to the current value of all Accumulation
Units in Sub-Accounts to which Contract Value is allocated.
SUB-ACCOUNT
The Variable Account is divided into Sub-Accounts, each of which invests in a
Portfolio. Purchase payments are allocated to one or more of these Sub-Accounts
as designated by you.
6
<PAGE>
The Company may from time to time make additional Sub-Accounts available.
These Sub-Accounts will invest in investment portfolios that the Company
deems suitable for the Contracts. The Company also has the right to eliminate
Sub-Accounts from the Variable Account, to combine two or more Sub-Accounts,
or to substitute a new Portfolio or similar investment option for the
Portfolio in which a Sub-Account invests. A substitution may become necessary
if, in the Company's judgment, the Portfolio or other investment option no
longer suits the purposes of the Contracts. This may happen due to
unsatisfactory investment performance, a change in laws or regulations, a
change in a Portfolio's investment objectives or restrictions, because the
Portfolio is no longer available for investments, or for some other reason.
The Company will obtain prior approval from the SEC to the extent required
and any other required approvals before making such a change or substitution.
ACCUMULATION UNITS
The Company will use amounts allocated or transferred to a Sub-Account to buy
Accumulation Units. The number of Accumulation Units is determined by
dividing the amount allocated or transferred to the Sub-Account by the
Accumulation Unit Value for the Sub-Account for the Valuation Period during
which the purchase payment was received or the transfer was made.
The Accumulation Unit Value for each Sub-Account was arbitrarily set at $10
when the first Portfolio interest was purchased by the Sub-Account. The
Accumulation Unit Value for any subsequent Valuation Period is equal to:
The Accumulation Unit Value for the Sub-Account for the immediately
preceding Valuation Period; multiplied by
The Net Investment Factor for the Sub-Account for such subsequent
Valuation Period.
NET INVESTMENT FACTOR
The Net Investment Factor is an index applied to measure the investment
performance of a Sub-Account from one Valuation Period to the next. The Net
Investment Factor may be greater or less than one; therefore, the
Accumulation Unit Value may increase or decrease.
For all Sub-Accounts (except the Growth & Income Sub-Account and the Bond
Sub-Account), the Net Investment Factor for each Sub-Account for any
Valuation Period is determined by dividing (a) by (b) and subtracting (c)
from the result, where
(a) is:
(1) the net asset value per share of the corresponding Portfolio at
the end of the current Valuation Period, plus
(2) the per share amount of a dividend or capital gain distribution
made by the Portfolio on shares held in the Sub-Account if the
"ex-dividend" date occurs during the current Valuation Period,
plus or minus
(3) a per share charge or credit for any taxes reserved, which is
determined by the Company to have resulted from the investment
operations of the Sub-Account during the current Valuation
Period; and
(b) is:
the net asset value per share of the corresponding Portfolio at
the end of the immediately preceding Valuation Period; and
(c) is:
a factor representing the charges deducted from the Sub-Account
on a daily basis for the daily portion of the annual Mortality
and Expense Risk Charge (1.20% to 1.40%, depending on the death
benefit option chosen; see Death Benefit Options) and the
annual Contract Administration Charge (0.15%).
7
<PAGE>
For the Growth & Income Sub-Account and the Bond Sub-Account, the Net
Investment Factor for any Valuation Period is equal to one plus the net
result of (a) divided by (b) where:
(a) is the accrued gain or loss in the Sub-Account for the Valuation
Period, including investment income, capital gains and losses, adjusted
by:
(1) a charge to the Sub-Account on a daily basis representing the
portion of the annual Mortality and Expense Risk Charge (1.20%
to 1.40%, depending on the death benefit option chosen; see
Death Benefit Options) and the annual Contract Administration
Charge (0.15%) that is allocable to the Sub-Account for the
Valuation Period, and
(2) a charge or credit to the Sub-Account for any tax charge or tax
credit determined by the Company to have resulted from the
investment operations of the Sub-Account during the Valuation
Period; and
(b) is the value of the Sub-Account as of the close of the immediately
preceding Valuation Period.
DOLLAR COST AVERAGING
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You may request in writing, at any time prior to the Income Date, that the
Company automatically transfer specified dollar amounts, earnings or
specified percentages from the Fixed Account or from the Standby Income
Sub-Account to other Sub-Accounts on the monthly or quarterly anniversary of
the Contract Date. You must select this automatic transfer, known as "Dollar
Cost Averaging", for a period of at least 12 months. The minimum Dollar Cost
Averaging transfer is $200, with a minimum allocation per Sub-Account of 5%
of the total amount transferred. Dollar Cost Averaging is available only if
the Contract Value is at least $10,000. Dollar Cost Averaging will terminate
when any of the following occurs: (1) the number of designated transfers has
been completed; (2) the portion of the Contract Value in the Fixed Account
or in the Standby Income Sub-Account is insufficient to complete the next
scheduled transfer; (3) the Contract Owner requests termination in writing;
or (4) the Contract is terminated. There is no charge at this time for Dollar
Cost Averaging, but the Company reserves the right to charge a fee for this
service. The Company also reserves the right to terminate Dollar Cost
Averaging, on a prospective basis, upon 30 days' written notice to you.
TRANSFERS
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You may transfer all or a portion of the Contract Value among the
Sub-Accounts and the Fixed Account. A transfer request must be in writing
unless telephone transfer authorization has been received and approved by the
Company. Transfers must be in amounts not less than $250 and may be made:
among Sub-Accounts once every thirty days;
from one or more Sub-Accounts to the Fixed Account once per Contract
Year; and
from the Fixed Account to one or more Sub-Accounts once per Contract
Year, restricted to a maximum of 25% of the Fixed Account Value.
When transferring Contract Value to more than one Sub-Account, not less than
5% of the total amount being transferred can be directed to each such
Sub-Account.
We may at any time revoke or modify the transfer provisions. Any change will
be confirmed in writing to you.
8
<PAGE>
*** SURRENDER AND WITHDRAWAL PROVISIONS
GENERAL SURRENDER PROVISIONS
- -------------------------------------------------------------------------------
The Owner may withdraw part or surrender all of the Contract Value at any
time this Contract is in force and prior to the Income Date, subject to the
conditions set forth below. The withdrawal or surrender will be effective on
the Valuation Date on or next following the date we receive your request at
our Special Markets Service Center. The Company is not responsible for the
tax consequences of any withdrawals or surrender.
PARTIAL WITHDRAWALS
- -------------------------------------------------------------------------------
You may request in writing to withdraw part of the Contract Value in amounts
not less than $250. Your request must be received before the Income Date. The
Contract Value may not be reduced to below $2,000 by a partial withdrawal. If
you request a partial withdrawal which would reduce the Contract Value to
below $2,000, the Company will notify you that you may either: (1) Surrender
the Contract in its entirety; or (2) withdraw a lesser amount such that the
remaining Contract Value is at least $2,000. If we do not receive further
instructions from you within 7 days, we will terminate the Contract and pay
the total Surrender Value to you in a lump sum. The amount withdrawn from the
Contract Value will include any applicable surrender charge.
The Company will process the withdrawals, unless instructed otherwise, by
liquidating, on a pro rata basis, Accumulation Units from all Sub-Accounts in
which Contract Value is allocated and value from the Fixed Account.
SURRENDER
- -------------------------------------------------------------------------------
The Surrender Value is the Contract Value less: (1) any applicable surrender
charge; and (2) any applicable Contract Maintenance Charge.
When you send us a written request for surrender of the full Contract Value,
along with the Contract, the Company will pay you the Surrender Value, less
any applicable premium tax (see Premium Tax Deductions provision on page 12).
FREE WITHDRAWAL AMOUNT
- -------------------------------------------------------------------------------
You may withdraw each Contract Year, without a surrender charge, an amount
equal to 10% of the Contract Value as of the date of withdrawal. This free
withdrawal privilege is non-cumulative and available each Contract Year. For
the purpose of calculating surrender charges, free withdrawal amounts are
deemed to be withdrawn on a first-in, first-out basis from purchase payments
not already withdrawn which were made less than eight years prior to the date
of surrender or withdrawal.
SYSTEMATIC WITHDRAWAL PLAN
- -------------------------------------------------------------------------------
You may elect in writing on a form provided by the Company to take systematic
withdrawals by withdrawing a specified dollar amount of at least $100 on a
monthly, quarterly, semi-annual, or annual basis. The Company will process
the withdrawals by liquidating, on a pro rata basis, Accumulation Units from
all Sub-Accounts in which Contract Value is allocated and value from the
Fixed Account. If systematic withdrawals of a specified dollar amount exceed
10% of the Contract Value in any year, a surrender charge may apply in
accordance with the Surrender Charge section.
Systematic withdrawals of future earnings only may be elected, with no
specified dollar amount, in which cash no surrender charges will apply. If
earnings during the period are less than $25, however, no withdrawal will be
processed.
You may discontinue systematic withdrawals at any time by notifying the
Company in writing. The Company reserves the right to discontinue offering
systematic withdrawals upon 30 days' written notice to you; however, any such
discontinuation would not affect a systematic withdrawal plan already
commenced. The Company also reserves the right to assess a processing fee for
this plan.
9
<PAGE>
REDUCTION OF SURRENDER CHARGE
- -------------------------------------------------------------------------------
The surrender charge may be reduced or eliminated for annuity contracts sold
to a trustee, employer or similar entity pursuant to a retirement plan or
otherwise when contracts are sold to a group of individuals such that the
Company saves sales expenses. The decision to reduce or eliminate the
surrender charge will be made exclusively by the Company.
DELAY IN PAYMENT
- -------------------------------------------------------------------------------
Payment of a surrender or withdrawal from the Variable Account will be made
within seven days. The Company has the right to suspend or delay calculation
or payment of any surrender or withdrawal from the Variable Account for any of
the following reasons:
1. The New York Stock Exchange is closed other than for
customary weekend and holiday closings; or
2. Trading on the New York Stock Exchange is restricted; or
3. An emergency exists as a result of which disposal of the
securities is not reasonably practicable or it is not
reasonably practicable to fairly determined the value
of the net assets of the Variable Account; or
4. The Securities and Exchange Commission, by order, permits
postponement of payments for the protection of
security holders; or
5. The request for surrender or withdrawal is not made in writing
or is not in good order.
Rules and regulations of the Securities and Exchange Commission will govern
as to whether the conditions set forth in numbers 2 and 3 above exist.
The Company further reserves the right to delay withdrawal of the Fixed
Account Value for up to six months in those states where applicable law
requires the Company to reserve such right, or when the request is not in
good order.
*** DEATH BENEFIT OPTIONS
There are three death benefit options from which you may select prior to
issue of the Contract. The death benefit option may not be changed after the
contract is issued, except in certain cases of a transfer of ownership to a new
Owner who is more than 75 years old at the time of such transfer (see
Transfer of Ownership on page 5). The death benefit options available are: the
Standard Death Benefit, the Annual Step-Up Death Benefit, and the 6%
Accumulating Death Benefit.
Except as provided below with regard to the Standard Death Benefit Option,
regardless of the option selected, the death benefit will equal the greatest
of (1) the Contract Value on the date both due proof of death and death
benefit payment instructions are received by us, (2) the sum of all purchase
payments less any amounts previously withdrawn, and (3) the amount provided by
the selected death benefit option. Except for the Standard Death Benefit
option, an additional mortality risk charge will be assessed as described in
the Contract Charges and Deductions section of the Contract. The death
benefit options are as follows:
STANDARD DEATH BENEFIT OPTION
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If you do not select one of the other two death benefit options, or if you
select one of the other options and subsequently transfer ownership of the
Contract to a new Owner who is more than 75 years old at the time of such
transfer, the Standard Death Benefit Option will be the death benefit option
that is in effect. The Standard Death Benefit is equal to the greater of
(1) the Contract Value and (2) total purchase payments less any of amounts
previously withdrawn; provided that if the Owner is age 86 or older when this
Contract is issued, the death benefit will equal the Contract Value.
10
<PAGE>
ANNUAL STEP-UP DEATH BENEFIT OPTION
- -------------------------------------------------------------------------------
The Annual Step-Up Death Benefit equals the greatest Adjusted Contract Value
for each Contract Anniversary prior to or immediately after the Owner's 80th
birthday, calculated as of the benefit determination date. The Adjusted
Contract Value for a Contract Anniversary as of the benefit determination
date is the Contract Value as of such Contract Anniversary plus any additional
purchase payments less an amount for partial withdrawals between such Contract
Anniversary and the benefit determination date, including any activity on the
benefit determination date. The reduction for partial withdrawals is in the
same proportion that the Contract Value was reduced on the date of the
withdrawal. At issue of the Contract, the Contract Value is considered to be
the initial purchase payment received. The benefit determination date is the
date we receive proof of death and an election of payment option or lump sum
payment satisfactory to us.
6% ACCUMULATING DEATH BENEFIT OPTION
- -------------------------------------------------------------------------------
This death benefit equals the Accumulated Death Benefit, defined as follows:
The Accumulated Death Benefit is initially set to equal the initial purchase
payment on the Contract Date. On any subsequent Valuation Date, the
Accumulated Death Benefit is increased by (1) interest on the Accumulated
Death Benefit for the current Valuation Period calculated at the Death
Benefit Accumulation Rate and (2) any additional purchase payments made
during the current Valuation Period and decreased by (3) any partial
withdrawals made during the current Valuation Period. The Accumulated Death
Benefit will continue to accumulate as described until reaching the Maximum
Accumulated Death Benefit.
The Death Benefit Accumulation Rate is defined as a weighted average rate
based upon the allocation of Contract Value to the Fixed Account and the
various Sub-Accounts as of the preceding Valuation Date. It is equal to the
equivalent over the Valuation Period of a 6% annual rate except for any
amounts allocated to the Fixed Account, the Standby Income Sub-Account, or
the Bond Sub-Account; for amounts allocated to the Fixed Account or these
Sub-Accounts the rate used in averaging is the lesser of the rate at which
such account accumulated over the Valuation Period and the equivalent over
the Valuation Period of a 6% annual rate.
The Maximum Accumulated Death Benefit (MADB) is initially equal to two times
the initial purchase payment on the Contract Date. MADB is increased by two
times any additional purchase payments as of the date such payment is
received. MADB is reduced as of the effective date of any partial withdrawal
(1) by the amount of such partial withdrawal representing earnings (where
earnings are defined as the excess of Contract Value over total aggregate
purchase payments less partial withdrawals) and then (2) in proportion to the
reduction in Contract Value for any partial withdrawals taken from purchase
payments. The proportional reduction in MADB is measured against the
Contract Value after all earnings have been withdrawn.
*** CONTRACT CHARGES AND DEDUCTIONS
The following Contract charges may be imposed and are designed to reimburse
the Company for expenses incurred that relate to the Contract. The Company
guarantees that these charges will not increase, with the exception of the
premium tax deduction.
CONTRACT MAINTENANCE CHARGE
- -------------------------------------------------------------------------------
On each Contract Anniversary prior to the Income Date we will deduct a
Contract Maintenance Charge. The charge will also be deducted on any date that
is not a Contract Anniversary on which you fully surrender the Contract or on
the Income Date. The Contract Maintenance Charge for the first 10 Contract
Years is $40. After the 10th Contract Anniversary, the Contract Maintenance
Charge is the lesser of (a) $40, and (b) .14% of the Contract Value. The
Contract Maintenance Charge will be waived if the Contract Value is equal to
or greater than $50,000.
11
<PAGE>
MORTALITY AND EXPENSE RISK CHARGE
- -------------------------------------------------------------------------------
On each Valuation Date we will deduct from the Accumulation Unit Value a
Mortality and Expense Risk Charge equal to a percentage of such value that is
the daily equivalent of an effective annual rate. The effective annual rate
depends on the death benefit option in effect. If the Standard Death Benefit
Option is in effect, the charge is equal to an effective annual rate of 1.20%
of the assets in the respective Sub-Accounts. The mortality risk portion
equals .85% and .35% represents the expense risk portion. If one of the other
death benefit options is in effect, the charge is equal to an effective annual
rate of 1.30% for the Annual Step-Up Option (the mortality risk portion
being .95%) or 1.40% for the 6% Accumulating Option (the mortality risk
portion being 1.05%).
We deduct the mortality risk charge because of our promise to pay a death
benefit prior to the Income Date and our obligation to make annuity payments
regardless of how long the Annuitant lives. We assess the expense risk charge
to defray amounts deducted for administrative expenses which may be
insufficient to cover the actual costs.
CONTRACT ADMINISTRATION CHARGE
- -------------------------------------------------------------------------------
On each Valuation Date we will deduct from the Accumulation Unit Value a
Contract Administration Charge equal to a percentage of such value that is the
daily equivalent of an effective annual rate of .15%.
PREMIUM TAX DEDUCTIONS
- -------------------------------------------------------------------------------
Certain states or other governmental entities impose premium taxes. Some
states assess the tax at the time purchase payments are made, and others assess
at the time annuity payments begin. We will pay the premium tax at the time
imposed by applicable law. We reserve the right to deduct the applicable tax
from the Contract Value, however, at the time the tax is paid, upon surrender
or partial withdrawals, when the death benefit is paid or on the Income Date.
SURRENDER CHARGE
- -------------------------------------------------------------------------------
If part or all of the Contract Value is withdrawn or surrendered at any time,
or if annuity payments begin within the first seven Contract Years, a
surrender charge will be deducted except as described below. The surrender
charge is assessed on each purchase payment and is based upon the number of
Contract Years since the purchase payment was received. For the purpose of
calculating any surrender charge (except if in connection with a systematic
withdrawal of future earnings only), purchase payments will be deemed to be
withdrawn first and in the order they were received before any amounts in
excess of purchase payments are withdrawn from the Contract Value. (Note - for
tax purposes, withdrawals may be treated differently.)
The applicable surrender charge percentages are: 8% in the first year
following receipt of each purchase payment, 7% in year 2, 6% in year 3, 5%
in year 4, 4% in year 5, 2% in year 6, 1% in year 7 and 0% thereafter. The
surrender charge will be waived if at least two years after the Contract
Date, payments begin under one of the Income Payment Options. Such a plan
must have payments which will be made for at least five years.
In any event, the surrender charge will be no more than 8% of the lesser of:
(1) the total of all purchase payments made within 84 months prior to the date
of the request for surrender or withdrawal; or (2) the amount surrendered,
withdrawn or annuitized.
12
<PAGE>
*** DEATH PROVISIONS
DEATH OF OWNER
- -------------------------------------------------------------------------------
If the Contract is owned by a sole Owner who dies prior to the Income Date,
the Beneficiary will be paid the death benefit. The sole Owner's estate will
be the Beneficiary if no Beneficiary designation is in effect, or if the
designated Beneficiary has predeceased the Owner. If the Contract is owned by
joint Owners and one of them dies prior to the Income Date, the surviving
Owner will be considered the designated Beneficiary. This supersedes any
previous Beneficiary designation. If there are joint Owners, the age of the
Owner that died will determine the amount payable under the applicable death
benefit. If joint Owners die simultaneously or under circumstances such that
it cannot be determined which Owner died first, the age of the younger Owner
will determine the amount payable under the applicable death benefit. Any
death benefit will be paid to the Beneficiary either in one sum or under one
of the Income Payment Options of this Contract.
If the Owner is a trust and a beneficial owner of the trust has been
designated Beneficiary, the beneficial owner will be treated as the Owner of
the Contract solely for the purpose of determining how the death benefit
provisions of the Contract apply. If a beneficial owner is changed or added
after the Contract Date, this will be treated as a change of Owner for
purposes of determining the death benefit. If no beneficial owner has been
designated, the amount payable under the applicable death benefit will be
determined by the age of the Annuitant at issue and the Annuitant will be
treated as the Owner for the purpose of the death benefit provisions.
Payments must be completed by December 31st of the fifth calendar year
immediately following the year of the Owner's death, except that, if the
Beneficiary is a natural person and so elects, the payments may be made 1)
over the life of the Beneficiary; or 2) according to a fixed schedule which
does not extend beyond the life expectancy of the Beneficiary; provided that
payments begin within one year from the date of the Owner's death.
If the Beneficiary is the legal spouse of the deceased Owner, the Beneficiary
may elect to succeed to such rights in this Contract as the Owner held upon
his or her death. If the Beneficiary succeeds to these rights, the death
benefit will not be paid upon the death of the Owner, and the Contract will
remain in force and the Beneficiary will be the Owner.
If an Owner dies on or after the Income Date, any payments that remain to be
made must be made at least as rapidly as under the Income Payment Option in
effect on the date of the Owner's death.
DEATH OF ANNUITANT
- -------------------------------------------------------------------------------
If the Annuitant dies prior to the Income Date, and a contingent Annuitant
has been named, the contingent Annuitant becomes the Annuitant (unless the
Annuitant is deemed to be the Owner as provided above, in which case the
death benefit becomes payable). If there is no contingent Annuitant when the
Annuitant dies prior to the Income Date, the Owner will become the Annuitant.
The Owner may designate a new Annuitant within 60 days of the death of the
Annuitant.
If there is no contingent Annuitant when the Annuitant dies prior to the
Income Date and the Annuitant is deemed to be the Owner as provided above,
the Beneficiary will be paid the death benefit then due. The Beneficiary will
be as provided in the Beneficiary designation then in effect. If no Beneficiary
designation is in effect, or if there is no designated Beneficiary living, the
Owner will be the Beneficiary.
PRIORITY OF BENEFICIARIES
- -------------------------------------------------------------------------------
You may designate the Beneficiaries as primary or contingent to indicate the
order in which they will receive any death benefit payable. If you name two or
more Beneficiaries of the same class, they will share equally unless you
state how they are to share. If you identify a Beneficiary as a relative, we
will interpret that to mean a relative of the Owner unless you state that the
relationship is to another person.
13
<PAGE>
Any death benefit will be paid to the primary Beneficiaries who are living
when payment is due. If there are no living primary Beneficiaries, payment
will be made to the contingent Beneficiaries who are living when payment is
due. If all Beneficiaries have predeceased the Owner, the death benefit will
be paid to the Owner's estate.
Any beneficiary who dies within 10 days after the Owner's death will not be
entitled to any benefits payable on such a death unless that beneficiary is
living when we receive due proof of the Owner's death.
*** INCOME PROVISIONS
INCOME DATE
- -------------------------------------------------------------------------------
On the Income Date, we will start annuity payments under an Income Payment
Option or we will pay the Surrender Value, less any premium tax, in a single
sum. The Income Date is the Contract Anniversary on or following the
Annuitant's 80th birthday or the 10th Contract Anniversary, if later, unless
otherwise indicated on page 3. The Income Date can be changed by sending a
written request to us. The new date will go into effect when we receive the
request. Your written request must be received by us at least 31 days prior
to the existing Income Date.
Annuity payments will be paid to the Owner unless you designate another payee.
You may change the payee at any time by written notice to us. Such notice
must be received at our Home Office at least 31 days prior to a payment due
date for the change to be effective on such date. An executor, administrator,
trustee, corporation, partnership or association other than the Owner may not
be a payee without our approval. A payee designation is automatically revoked
by the death of the designated payee.
FORM OF PAYMENT
- -------------------------------------------------------------------------------
The minimum Surrender Value that may be applied under an Income Payment
Option is $1,000. The amount of income shall be determined by applying the
Surrender Value, less any premium tax, as of the Income Date to that Income
Payment Option.
If prior to the Income Date no Income Payment Option has been chosen, the
Owner will be deemed to have chosen Option 2 - Payments for Life, with
monthly payments for 10 years, continuing thereafter during the life of:
1. the Annuitant; or
2. if the Annuitant is no longer living on the Income Date, the
contingent Annuitant, if a valid contingent Annuitant has
been named; or
3. if neither the Annuitant nor a valid contingent Annuitant is
living on the Income Date, the Owner.
CHOICE OF OPTION
- -------------------------------------------------------------------------------
Choice of an option may be made by the Owner by written notice to us on or
prior to the Income Date while the Annuitant is living. See Income Payment
Options on page 15.
Equivalent payments for monthly, quarterly, semi-annual or annual intervals
may be chosen. The options are described in terms of monthly payments. We
will quote the amount of the other payments upon request.
We may issue a document stating the terms of the option.
LUMP SUM REMOVAL OF VALUE APPLIED UNDER A PAYMENT OPTION (COMMUTATION)
- -------------------------------------------------------------------------------
The Owner, or the Beneficiary if the Owner is no longer living, may take lump
sum payments from the remaining proceeds placed under Income Payment Options
1 or 3, though no more than four transactions may be made during any calendar
year. No lump sum removal of value may be made under Options 2, 4 or 5.
14
<PAGE>
ADDITIONAL INTEREST
- -------------------------------------------------------------------------------
We guarantee interest under all Income Payment Options at a minimum rate of
3% a year. We may increase the interest rate above the minimum on these
options. Payments under these options will be based on the interest rate in
effect on the due date of the first payment.
GENERAL PAYMENT OPTION TERMS
- -------------------------------------------------------------------------------
If the Surrender Value, less any premium taxes, to be placed under an Income
Payment Option is less than $1,000, we will pay that amount in one sum. If
any payments would be less than $50, we will change the frequency to provide
payments of at least $50.
If the Surrender Value, less any premium taxes, is assigned on the Income
Date, we will pay the assignee's share in one sum and place only the balance
under the option. After the Income Date neither the payments nor the
remaining value may be assigned or encumbered.
The schedule of payments under any operational Income Payment Option may not
be extended upon the death of the Owner.
*** INCOME PAYMENT OPTIONS
In lieu of a lump sum settlement, all or part of the Surrender Value, less
any premium taxes, may be applied under an Income Payment Option. When value
is applied under an Income Payment Option, all other rights and benefits
under this Contract shall cease.
In addition to the following options, other payment options may be available.
OPTION 1 - PAYMENTS FOR A FIXED PERIOD
- -------------------------------------------------------------------------------
Equal monthly payments shall be made for a stated number of years, which you
select from the table below. The monthly payment will not be less than those
shown in the Fixed Period Table.
- ----------------------------------------------------------------------
FIXED PERIOD MINIMUM INCOME TABLE*
MONTHLY PAYMENTS FOR EACH $1,000 APPLIED
- ----------------------------------------------------------------------
NUMBER MONTHLY NUMBER MONTHLY NUMBER MONTHLY
OF INSTALL- OF INSTALL- OF INSTALL-
YEARS MENTS YEARS MENTS YEARS MENTS
- ----------------------------------------------------------------------
1 $84.47 11 $8.86 21 $5.32
2 42.86 12 8.24 22 5.15
3 28.99 13 7.71 23 4.99
4 22.06 14 7.26 24 4.84
5 17.91 15 6.87 25 4.71
6 15.14 16 6.53 26 4.59
7 13.16 17 6.23 27 4.47
8 11.68 18 5.96 28 4.37
9 10.53 19 5.73 29 4.27
10 9.61 20 5.51 30 4.18
- ----------------------------------------------------------------------
*VALUES ARE BASED ON COMPOUND INTEREST AT 3% A YEAR.
OPTION 2 - PAYMENTS FOR LIFE - GUARANTEED PERIOD
- -------------------------------------------------------------------------------
Equal monthly payments shall be made for any guaranteed period chosen and
thereafter during the life of the Annuitant. The amount of each monthly
payment depends on the Annuitants age and sex on the date of first payment
and on any guaranteed period chosen. We may require proof to our satisfaction
of such age. We may require like proof that such person is alive on the date
any payment is due. The guaranteed period may be 10 or 20 years.
15
<PAGE>
OPTIONS 2 AND 4
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
ONE LIFE MINIMUM INCOME TABLE*
MONTHLY PAYMENTS FOR EACH $1,000 APPLIED
- ----------------------------------------------------------------------------------------------------------
AGE AGE
OF LIFE LIFE LIFE OF LIFE LIFE LIFE
PAYEE NO YEARS 10 YEARS 20 YEARS PAYEE NO YEARS 10 YEARS 20 YEARS
LAST CERTAIN CERTAIN CERTAIN LAST CERTAIN CERTAIN CERTAIN
BIRTH ------------- ------------- ------------- BIRTH ------------- ------------- -------------
DAY MALE FEMALE MALE FEMALE MALE FEMALE DAY MALE FEMALE MALE FEMALE MALE FEMALE
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
15 and under $2.85 $2.77 $2.84 $2.77 $2.84 $2.76 50 $4.08 $3.72 $4.04 $3.71 $3.92 $3.66
16 2.86 2.78 2.86 2.78 2.85 2.78 51 4.15 3.78 4.11 3.77 3.98 3.71
17 2.87 2.79 2.87 2.79 2.87 2.79 52 4.23 3.85 4.18 3.83 4.04 3.76
18 2.89 2.80 2.89 2.80 2.88 2.80 53 4.32 3.91 4.26 3.89 4.10 3.82
19 2.91 2.82 2.90 2.82 2.90 2.81 54 4.41 3.98 4.35 3.96 4.16 3.87
20 2.92 2.83 2.92 2.83 2.91 2.83 55 4.50 4.06 4.43 4.03 4.23 3.93
21 2.94 2.84 2.94 2.84 2.93 2.84 56 4.60 4.14 4.53 4.10 4.29 4.00
22 2.96 2.86 2.96 2.86 2.95 2.85 57 4.71 4.22 4.62 4.18 4.36 4.06
23 2.98 2.87 2.97 2.87 2.97 2.87 58 4.82 4.31 4.73 4.27 4.43 4.13
24 3.00 2.89 2.99 2.89 2.99 2.88 59 4.95 4.41 4.83 4.36 4.50 4.20
25 3.02 2.91 3.02 2.90 3.01 2.90 60 5.08 4.51 4.95 4.45 4.57 4.27
26 3.04 2.92 3.04 2.92 3.03 2.92 61 5.22 4.62 5.07 4.55 4.64 4.34
27 3.06 2.94 3.06 2.94 3.05 2.94 62 5.37 4.73 5.20 4.66 4.71 4.42
28 3.09 2.96 3.08 2.96 3.07 2.95 63 5.53 4.86 5.33 4.77 4.78 4.49
29 3.11 2.98 3.11 2.98 3.10 2.97 64 5.70 4.99 5.47 4.89 4.84 4.57
30 3.14 3.00 3.14 3.00 3.12 2.99 65 5.89 5.13 5.62 5.01 4.91 4.64
31 3.17 3.02 3.16 3.02 3.15 3.01 66 6.08 5.28 5.77 5.15 4.97 4.72
32 3.20 3.05 3.19 3.04 3.18 3.04 67 6.29 5.45 5.93 5.29 5.04 4.80
33 3.23 3.07 3.22 3.07 3.21 3.06 68 6.52 5.62 6.09 5.44 5.09 4.87
34 3.26 3.09 3.26 3.09 3.24 3.08 69 6.76 5.82 6.26 5.59 5.15 4.94
35 3.29 3.12 3.29 3.12 3.27 3.11 70 7.02 6.02 6.43 5.76 5.20 5.01
36 3.33 3.15 3.32 3.15 3.30 3.13 71 7.30 6.25 6.61 5.93 5.24 5.08
37 3.37 3.18 3.36 3.17 3.33 3.16 72 7.59 6.49 6.79 6.11 5.29 5.14
38 3.41 3.21 3.40 3.20 3.37 3.19 73 7.91 6.75 6.97 6.30 5.32 5.20
39 3.45 3.24 3.44 3.24 3.41 3.22 74 8.25 7.04 7.16 6.50 5.36 5.25
40 3.50 3.27 3.48 3.27 3.45 3.25 75 8.62 7.35 7.34 6.70 5.39 5.30
41 3.54 3.31 3.53 3.30 3.49 3.29 76 9.02 7.68 7.53 6.91 5.41 5.34
42 3.59 3.35 3.58 3.34 3.53 3.32 77 9.44 8.05 7.71 7.12 5.43 5.37
43 3.64 3.39 3.63 3.38 3.57 3.36 78 9.90 8.44 7.89 7.33 5.45 5.40
44 3.70 3.43 3.68 3.42 3.62 3.39 79 10.38 8.88 8.06 7.54 5.47 5.43
45 3.75 3.47 3.73 3.46 3.66 3.43 80 10.91 9.35 8.23 7.75 5.48 5.54
46 3.81 3.52 3.79 3.51 3.71 3.47 81 11.47 9.86 8.39 7.95 5.49 5.47
47 3.87 3.56 3.85 3.55 3.76 3.52 82 12.06 10.41 8.53 8.15 5.50 5.48
48 3.94 3.61 3.91 3.60 3.81 3.56 83 12.69 11.01 8.67 8.33 5.50 5.49
49 4.01 3.67 3.97 3.65 3.87 3.61 84 13.37 11.66 8.80 8.50 5.51 5.50
85 and 14.08 12.37 8.92 8.66 5.51 5.50
over
- ----------------------------------------------------------------------------------------------------------
*Values are based on the "1983 Table a" adjusted for age
last birthday, with compound interest at 3% a year.
</TABLE>
OPTION 3 -- PAYMENTS OF A FIXED AMOUNT
- -------------------------------------------------------------------------------
Equal monthly payments of a fixed amount shall be made until the value
applied under this option, with interest credited on the unused balance, is
exhausted. The amount chosen must be at least $5 per month for each $1,000 of
proceeds placed under this option. The last payment will be for the balance
only. Payments may not be for more than 30 years.
OPTION 4 -- LIFE ANNUITY -- NO GUARANTEED PERIOD
- -------------------------------------------------------------------------------
Equal monthly payments will be made during the life of the Annuitant. The
amount of each monthly payment depends on the Annuitant's sex and age on the
date of first payment. We may require proof to our satisfaction of such age
and we may require proof that such person is alive on the date any payment is
due. THERE IS NO GUARANTEED PERIOD. THIS MEANS THAT WHEN THE ANNUITANT DIES
NO FURTHER PAYMENTS WILL BE MADE, EVEN IF ONLY ONE PAYMENT HAS BEEN MADE.
16
<PAGE>
OPTION 5 -- JOINT AND SURVIVOR
- -------------------------------------------------------------------------------
Equal monthly payments shall be made during the lifetimes of two designated
persons. Upon the death of either, payments will continue to the survivor or
may be reduced to a preselected percentage (75%, 66 2/3%, or 50%) of the
original payment. Payments will cease upon the death of the survivor. The
amount of each monthly payment depends on the ages and sexes of both persons
on the date of first payment, and the preselected percentage for continuing
payments. We may require proof to our satisfaction of their ages. We may
require like proof that any designated person is alive on the date any
payment based upon the life of such person is due.
* * * GENERAL PROVISIONS
STATEMENTS
- -------------------------------------------------------------------------------
At least once each Contract Year prior to the Income Date, we will mail a
statement to you at your last address known to us. This statement shall
include the Fixed Account Value and the Variable Account Value. The
information in this statement shall be as of the date not more than 4 months
prior to the date it is mailed. We will also send you confirmations of
transactions under the Contract, such as purchase payments, transfers and
withdrawals and, at least semi-annually, a report of the investments held in
the Sub-Accounts and any other information required by applicable law or
regulations.
STATEMENTS IN APPLICATION
- -------------------------------------------------------------------------------
All statements made in the application are considered to be representations
and not warranties. No statement will be used in defense of a claim unless it
is in the application.
MODIFICATION OF CONTRACT
- -------------------------------------------------------------------------------
Any change in the Contract or waiver of its provisions must be in writing and
signed by our Chairman, President or Secretary. No other person can change or
waive any of its provisions.
INCONTESTABILITY
- -------------------------------------------------------------------------------
The Contract will be incontestable after it has been in force during the
Owner's lifetime for two years from the Contract Date.
INCORRECT AGE OR SEX
- -------------------------------------------------------------------------------
If the age or sex of the Owner and/or Annuitant has been misstated, we will
adjust all benefits to those that the purchase payment(s) for the Contract
would have purchased for the correct age and sex. Any overpayments we make
will be charged with compound interest against subsequent payments. Any
amounts we owe as a result of underpayments will be paid with compound
interest upon receipt of notice of the underpayment. The rate will be the
rate we use to determine the number or amount of the payments.
PLACE OF PAYMENT
- -------------------------------------------------------------------------------
We will make all payments due under the Contract at our Home Office.
SUBMISSION OF CONTRACT
- -------------------------------------------------------------------------------
We may ask you to relinquish the Contract or send it to us for endorsement
before we make any payment. Failure to have you relinquish the Contract or to
note payment on it does not indicate that we have not made payment.
17
<PAGE>
CREDITORS' CLAIMS
- -------------------------------------------------------------------------------
All payments under the Contract will be exempt from the claims of creditors
and legal process to the extent permitted by law. No payment will be
transferred, assigned or withdrawn before it becomes payable unless we agree.
PROOF OF FACTS
- -------------------------------------------------------------------------------
We may ask any person claiming the right to payments for proof satisfactory
to us of such person's right to payment. Any payment we make relying on that
proof discharges us from any obligation to make that payment to another
person. We will require proof of date of birth of the person(s) on whose life
(or lives) payments are based.
NON-PARTICIPATING
- -------------------------------------------------------------------------------
This Contract does not participate in surplus earnings of the Company.
18
<PAGE>
Western-Southern life Assurance Company
Cincinnati, Ohio
Issued by a Stock Company
Home Office: 400 Broadway, Cincinnati, Ohio 45202
FLEXIBLE PURCHASE PAYMENT DEFERRED VARIABLE ANNUITY
Income Payable at Income Date
Death Benefit Prior to Income Date
Non-Participating
<PAGE>
WESTERN-SOUTHERN LIFE ASSURANCE COMPANY
ENDORSEMENT FOR INDIVIDUAL RETIREMENT ANNUITY
This contract is issued as an Individual Retirement Annuity under Section 408(b)
of the Internal Revenue Code (Code). To qualify, your contract must meet the
following requirements:
1. You may not change ownership of this contract at any time.
2. Your entire interest in the contract is nonforfeitable. It is
established for the exclusive benefit of you or your beneficiaries.
3. Your contract is not transferable and may not be used as security for
a loan.
4. You must be the Annuitant and no joint owner or contingent owner is
permitted.
5. You must begin taking distributions no later than April 1 of the
calendar year following the calendar year in which you attain age
70 1/2 over (a) your life or the lives of you and your designated
beneficiary or (b) a period certain not extending beyond your life
expectancy, or the joint and last survivor expectancy of you and your
designated beneficiary. You must receive additional minimum
distributions by December 31 for each year after the calendar year you
attain age 70 1/2. Payments must be made in periodic payments at
intervals of no longer than one year. In addition, payments must be
either nonincreasing or they may increase only as provided in Q&A F-3
of Section 1.401(a)(9)-1 of the Proposed Income Tax Regulations.
All distributions made under the contract shall be in accordance with
the requirements of Section 401(a)(9) of the Code, including the
incidental death benefit requirements of Section 401(a)(9)(G) of the
Code, and the regulations thereunder, including the minimum
distribution incidental benefit requirement of Section 1.401(a)(9)-2
of the Proposed Income Tax Regulations.
In addition to meeting the distribution requirements referenced above,
payments under a partial withdrawal option or an annuity option must
also comply with the minimum distribution incidental benefit (MDIB)
requirements applicable to IRAs. The amount to be distributed each
year beginning with the first calendar year for which distributions
are required and then for each succeeding calendar year shall not be
less than the quotient obtained by dividing the owner's benefit by the
lesser of (1) the applicable life expectancy, or (2) if your spouse is
not the designated beneficiary, the applicable divisor determined from
the table set forth in Q&A-4 of Section 1.401(a)(9)-2 of the Proposed
Income Tax Regulations. Distributions after your death shall be
calculated using the applicable life expectancy as the relevant
divisor without regard to Section 1.401(a)(9)-2 of the Proposed Income
Tax Regulations. This MDIB rule may increase the amount of your
payments. If you are required to take a distribution at year end
because payments made to you during the calendar year are insufficient
to meet MDIB requirements for this contract, we will waive any
surrender charge that might otherwise be applicable.
You may satisfy the minimum distribution requirements applicable to
two or more IRAs by receiving a distribution from one IRA equal to the
amounts required to satisfy the minimum distribution requirement for
all your IRAs, as described in more detail in IRS Notice 88-38, 1988
1-C.B. 524.
<PAGE>
Life expectancy is computed by use of the expected return multiples in Tables V
and VI of Section 1.72-9 of the Income Tax Regulations. Unless otherwise
elected by you by the time distributions are required to begin, life expectancy
shall be recalculated annually. Such election shall be irrevocable and shall
apply to all subsequent years. The life expectancy of a non-spouse beneficiary
may not be recalculated. Instead, life expectancy will be calculated using the
attained age of such beneficiary during the calendar year in which you attain
age 70 1/2 and payments for subsequent years shall be calculated on such life
expectancy reduced by one for each calendar year which has elapsed since the
calendar year life expectancy was first calculated.
6. In the event of your death, your entire interest in this contract must be
distributed in conformity with the regulations described below and the
contract's provisions relating to the death of the Annuitant/Owner are
changed to the extent necessary to conform with those regulations.
If you die before the entire interest is distributed, the following
distribution provision shall apply:
a. If you die after distribution of your interest has commenced, the
remaining portion of such interest must be distributed at least as
rapidly as under the method of distribution being used prior to your
death.
b. If you die before distribution of interest commences, your entire
interest must be distributed by December 31 of the calendar year
containing the fifth anniversary of your death, unless an election is
made to receive distribution in accordance with (1), (2) or (3) below.
(1) Your entire interest may be distributed over the life or over a
period certain not greater than the life expectancy of the
designated beneficiary commencing on or before December 31 of the
calendar year immediately following the calendar year of your
death. A designated beneficiary may elect at any time to receive
greater payments, or
(2) If your designated beneficiary is your surviving spouse, your
spouse may elect to receive equal or substantially equal payments
over the life or life expectancy of the surviving spouse
commencing at any date prior to the later of (i) December 31 of
the calendar year immediately following the calendar year of your
death, and (ii) December 31 of the calendar year in which you
would have attained age 70 1/2. Such election must be made no
later than the earlier of December 31 of the calendar year
containing the fifth anniversary of your death or the date
distributions are required to begin pursuant to the preceding
sentence. The surviving spouse may accelerate these payments at
any time, i.e.,increase the frequency or amount of such payments,
or
(3) If your designated beneficiary is your surviving spouse, your
spouse may treat the annuity as his or her own individual
retirement arrangement. This election will be deemed to have
been made if your surviving spouse makes a regular IRA
contribution to the annuity, makes a rollover to or from such
annuity, or fails to elect any of the above three provisions.
Life expectancy is computed by use of the expected return
multiples and Tables V and VI of Section 1.72-9 of the income tax
regulations. For purposes of distributions beginning after your
death unless otherwise elected by your surviving spouse by the
time distributions are required to begin, life expectancy shall
be recalculated annually. Such election shall be irrevocable by
the surviving spouse and shall apply to all subsequent years. In
the case of any other beneficiary, life expectancy shall be
calculated using the attained age of such beneficiary during the
calendar year in which distributions are required to begin
pursuant to this section, and payments for any subsequent
calendar year shall be calculated based on such life expectancy
reduced by one for each calendar year which has elapsed since the
calendar year life expectancy was first calculated.
Distributions under paragraph 6 are considered to have begun if distributions
are made on account of your attaining your required beginning date or, if prior
to the required beginning date, distributions irrevocably commence over a period
permitted and in an annuity form acceptable under Section 1.401(a)(9) of the
Regulations.
2
<PAGE>
7. Except in the case of a rollover contribution (as permitted by Sections
402(c), 403(a)(4), 403(b)(8) OR 408(d)(3), or a contribution made in
accordance with either the terms of a Simplified Employee Pension (SEP) as
described in Section 408(k) or the terms of a Savings Incentive Match Plan
for Employees (SIMPLE) as described in Section 408(p) no contributions will
be accepted unless they are in cash and the total contributions under
Sections 219(b) and 408(o) shall not exceed $2,000 for any taxable year.
The $2,000 annual contribution limit does not apply to the following:
(1) funds you receive as a result of the payment to you from a qualified
pension or profit sharing plan (corporate or Keogh) which has
terminated, excluding any funds you receive that represent a return of
your contributions to the plan;
(2) funds you receive as a lump sum distribution from a qualified
corporate or Keogh plan, excluding any funds you receive that
represent a return of your contributions to the plan. A lump sum
distribution is a distribution that occurs on account of your
attainment of age 59 1/2, your separation from service (if you are a
common law employee), your becoming disabled (if you are
self-employed) or your death;
(3) funds (other than the plan termination and lump sum distributions
described above) that qualify as eligible rollover distributions under
Section 402(c);
(4) funds you receive from another individual retirement annuity or
account, however, rollover contributions from one individual
retirement annuity or account to another may occur only once per year;
(5) contributions to a SEP permitted under Section 408(k);
(6) contributions to a SIMPLE permitted under Section 408(p).
Funds you receive in one of the ways described above, except for
contribution type 5 or type 6, must be contributed toward your contract
within 60 days of the date they are received by you, unless you elected to
make a direct rollover of such funds before distribution. For direct
rollovers, a reasonable period of time is allowed.
8. If your premium payments are being made pursuant to a program of automatic
withdrawals, your contract may be terminated due to an interruption in
premium payments if no premiums have been received for two full consecutive
contract years and your annuity benefit at maturity would be less than $20
per month by paying you the Surrender Value computed as provided in your
contract.
3
<PAGE>
9. If this contract is issued in accordance with the terms of a SEP, the
One Life Minimum Income Table in the contract is deleted and the following
Table is substituted in lieu thereof:
ONE LIFE MINIMUM INCOME TABLE*
MONTHLY PAYMENTS FOR EACH $1,000 APPLIED
- -------------------------------------------------------------------------------
Age of Age of
Payee Life Life Payee Life Life
Last 10 Years 20 Years Last 10 Years 20 Years
Birth- Certain Certain Birth- Certain Certain
day day
- -------------------------------------------------------------------------------
15 and
under $2.80 $2.80 50 $3.87 $3.79
16 2.82 2.81 51 3.94 3.85
17 2.83 2.83 52 4.00 3.90
18 2.84 2.84 53 4.08 3.96
19 2.86 2.85 54 4.15 4.02
20 2.87 2.87 55 4.23 4.08
21 2.89 2.88 56 4.31 4.15
22 2.90 2.90 57 4.40 4.21
23 2.92 2.92 58 4.50 4.28
24 2.94 2.93 59 4.59 4.35
25 2.96 2.95 60 4.70 4.42
26 2.98 2.97 61 4.81 4.50
27 3.00 2.99 62 4.93 4.57
28 3.02 3.01 63 5.05 4.64
29 3.04 3.03 64 5.18 4.71
30 3.07 3.06 65 5.32 4.79
31 3.09 3.08 66 5.46 4.86
32 3.12 3.11 67 5.81 4.92
33 3.14 3.13 68 5.77 4.99
34 3.17 3.16 69 5.93 5.05
35 3.20 3.19 70 6.10 5.11
36 3.23 3.22 71 6.28 5.17
37 3.27 3.25 72 6.46 5.22
38 3.30 3.28 73 6.65 5.27
39 3.34 3.31 74 6.84 5.31
40 3.38 3.35 75 7.03 5.35
41 3.42 3.39 76 7.23 5.38
42 3.46 3.42 77 7.43 5.41
43 3.50 3.46 78 7.62 5.43
44 3.55 3.50 79 7.81 5.45
45 3.59 3.55 80 8.00 5.47
46 3.64 3.59 81 8.18 5.48
47 3.70 3.64 82 8.35 5.49
48 3.75 3.69 83 8.51 5.50
49 3.81 3.74 84 8.66 5.50
85 and
over 8.80 5.51
- -------------------------------------------------------------------------------
*Values are based on the "1983 Table a" adjusted for age last birthday, with
compound interest at 3% a year.
In the event of any conflict between the terms of this contract and any
sections of the Internal Revenue Code applicable to contracts described in
Section 408(b) of the Internal Revenue Code, those sections will govern.
/s/ Margaret A. Parks /s/ John F. Barrett
Secretary President and
Chief Executive Officer
4
<PAGE>
WESTERN-SOUTHERN LIFE ASSURANCE COMPANY
TAX SHELTERED ANNUITY ENDORSEMENT TO INDIVIDUAL
FLEXIBLE PURCHASE PAYMENT DEFERRED VARIABLE ANNUITY
THIS ENDORSEMENT APPLIES ONLY IF THE APPLICATION STATES THAT THIS CONTRACT IS
A 403(b) TAX SHELTERED ANNUITY.
1. This Contract is not transferable and may not be sold, assigned,
discounted, or pledged as collateral for a loan (except for loans as
hereunder) or as security for the performance of any obligation to any
person other than to the Company.
2. You must be the Contract Owner and the Annuitant. You must be an employee
("Employee") of an employer described in Internal Revenue Code ("Code")
Section 403(b)(1)(A) ("Employer"). If your employment with the Employer is
terminated, you may continue to participate hereunder to the extent of the
Contract Value. No further purchase payments (other than rollover
contributions) will be accepted by us under the Contract on your behalf
when you are no longer employed by the Employer. However, if you are
employed by another Employer described in Code Section 403(b)(1)(A)
("Successor Employer"), you may continue to participate hereunder and
future purchase payments may continue to be made. Any reference to
Employer in this Endorsement shall include a Successor Employer. Any
election or change must be made by written notice satisfactory to the
Company and consistent with applicable state and federal law.
3. Except as otherwise provided in the Code, purchase payments must be made
by the Employer. Purchase payments made for your taxable year, other than
rollover contributions, as provided in Code Section 403(b)(8) and
regulations thereunder may not exceed the least of:
A. the exclusion allowance for a taxable year determined pursuant to Code
Section 403(b)(2);
B. the maximum amount permitted to be contributed for a taxable year
under Code Section 415; and
C. the annual limit on elective deferrals specified in Code Section
402(g) for salary reduction contributions made under a Code approved
salary reduction agreement. Unless otherwise permitted in the Code,
the limitation specified in Code Section 403(b)(1)(E) shall not be
exceeded.
4. Prior to the Income Date, you may receive a loan from the Contract Value
subject to the terms of the Contract and the Code which impose restrictions
on loans.
Loans are available beginning 30 days from the date of issue. You will be
required to complete a Company Loan Agreement and will be subject to the
terms of this Endorsement and such Loan Agreement. If your contract is
subject to the Employee Retirement Income Security Act of 1974 ("ERISA"),
you must also provide your spouse's written consent to the loan, or
verification that you are not married or your spouse cannot be located.
Loans hereunder shall be administered in a manner which satisfies the
conditions of this Section 4 and Code Section 72(p). You may borrow a
minimum of $1,000. The maximum balance of loans from the Contract Value
and from all other qualified employer plans which may be outstanding at
any time is 50% of the Contract Value of all such plans, but not more than
$50,000 in the aggregate. The $50,000 limit will be reduced by the highest
balance of loans from the Contract Value and from all other qualified
employer plans during the prior one-year period. Additional loans are
subject to the $1,000 minimum amount. Upon ninety (90) days prior written
notice, the Company may limit the number of outstanding loans or eliminate
loans as an option under this Endorsement.
Loans must be adequately secured. Loans may be secured by the Contract
Value, but not in excess of 50% of the Contract Value. You may be required
to provide a security interest in such other property as would be
appropriate in a normal commercial setting between unrelated parties on
arm's length terms.
<PAGE>
All loans are made from the Fixed Account. No loans may be made of amounts
that are not 100% vested. A loan account will be established in the Fixed
Account equal to the loan balance. Unless you instruct otherwise, the
Company will first transfer to the Fixed Account from the Variable Account
on a prorata basis Contract Value from all sub-accounts where Contract
Value is allocated until the required balance is reached or all such
Variable Account Contract Value is exhausted. The remaining required
amounts, if any, will be allocated from the Fixed Account. No surrender
charges will be deducted on the transfer of amounts from the Variable
Account to the Fixed Account at the time of the loan.
The current interest rate to be paid by the borrower for loans from
Contract Value will be determined by the Company substantially in
accordance with prevailing commercial rates, and may vary in accordance with
such rates. Until a loan from Contract Value has been repaid in full, the
portion of the loan account equal to the outstanding loan balance shall be
credited with interest at an effective annual rate of 2.25% less than the
current effective annual interest rate credited to the Fixed Account for
the term of the loan. However, the effective annual interest rate credited
to your loan account balance will never be greater than the current
interest rate being paid by the borrower less 2.25%, or less than the Fixed
Account guaranteed rate (3%). The Company reserves the right to change the
interest rate to be credited to the loaned portion of Contract Value at the
Company's sole discretion. In no event, however, will such interest be less
than the contract guaranteed rate.
Loans must be repaid in substantially level payments, not less frequently
than quarterly, within five years. Loans used to purchase the principal
residence of the borrower must be repaid under the same conditions, but
within 15 years. However, in no event may a loan term extend beyond your
required beginning date described in paragraph 5. During the loan term, the
loan will continue to earn interest at the annual rate specified in the
Loan Agreement. Loan repayments will consist of principal and interest in
amounts which satisfy the terms set forth herein. Loan repayments will be
allocated to the Fixed and Variable Accounts in the same proportion as
current allocations, unless you specify otherwise. If a loan payment is
not made when due, interest will continue to accrue on the late payment.
A loan payment not made when due, plus interest, may be treated as a
taxable distribution to the borrower, and may be subject to a penalty tax.
The Company may use commercially reasonable procedures to ensure loan
repayment in the event of loan defaults, including acceleration of the
entire loan balance plus accrued interest and applicable surrender
charges. The loan will be considered to be in default if a loan payment
is not received within ninety (90) days after the due date.
If Contract Value is reduced by the amount of the loan outstanding plus
accrued interest and such reduction does not satisfy the distribution
limitations of Section 403(b)(11) with respect to loan amounts attributable
to salary reduction contributions, this contract may lose its tax qualified
status. If you die while a loan is outstanding, your death benefit will be
reduced by the amount of the loan outstanding plus accrued interest.
5. Your entire interest under the Contract accruing after December 31, 1986,
will, notwithstanding anything else contained herein, be distributed as
follows:
In general, you must begin taking distributions no later than April 1 of
the calendar year following the calendar year in which you attain age
70 1/2, or April 1 of the calendar year following the calendar year in
which you retire. Your entire interest will be distributed over (a) your
life or the lives of you and your designated beneficiary or (b) a period
certain not extending beyond your life expectancy, or the joint and last
survivor expectancy of you and your designated beneficiary.
2
<PAGE>
Payments must be made in periodic payments at intervals of no longer
than one year. In addition, payments must be either nonincreasing or
they may increase only as provided in Q & A F-3 of Section 1.401(a)(9)-1
of the Proposed Income Tax Regulations.
All distributions made hereunder shall be in accordance with the
requirements of Section 401(a)(9) of the Code, including the incidental
death benefit requirements of Code Section 401(a)(9)(G) of the Code, and
the regulations thereunder, including the minimum distribution
incidental benefit requirement of Section 1.401(a)(9)-2 of the Proposed
Income Tax Regulations.
In addition to meeting the distribution requirements of the regulations
mentioned in the prior paragraph, payments under a partial withdrawal
option or an annuity option must also comply with the minimum
distribution incidental benefit (MDIB) requirements under Code Section
401(a)(9) of the Internal Revenue Code. The amount to be distributed
each year beginning with the first calendar year for which distributions
are required and then for each succeeding calendar year shall not be
less than the quotient obtained by dividing your benefit by the lesser
of (1) the applicable life expectancy, or (2) if your spouse is not the
designated beneficiary, the applicable divisor determined from the table
set forth in Q & A-4 of Section 1.401(a)(9)-2 of the Proposed Income Tax
Regulations. Distributions after your death shall be calculated using
the applicable life expectancy as the relevant divisor without regard to
Section 1.401(a)(9)-2 of the Proposed Income Tax Regulations. This MDIB
rule may increase the amount of your payments. If we are required to
make a distribution to you at year end because payments made to you
during the calendar year are insufficient to meet MDIB requirements for
this Contract, we will waive any surrender charge that might otherwise
be applicable.
You may satisfy the minimum distribution requirements applicable to two
or more 403(b) Tax Sheltered Annuities by receiving a distribution from
one such annuity equal to the amount required to satisfy the minimum
distribution requirement for all such 403(b) Tax Sheltered Annuities, as
described in more detail in IRS Notice 88-38, 1988 1 C.B. 524.
Life expectancy is computed by use of the expected return multiples in
Tables V and VI of Section 1.72-9 of the Income Tax Regulations. Unless
otherwise elected by you by the time distributions are required to
begin, life expectancy shall be recalculated annually. Such election
shall be irrevocable and shall apply to all subsequent years. The life
expectancy of a non-spouse beneficiary may not be recalculated. Instead,
life expectancy will be calculated using the attained age of such
beneficiary during the calendar year in which the individual attains age
70 1/2 and payments for subsequent years shall be calculated on such
life expectancy reduced by one for each calendar year which has elapsed
since the calendar year life expectancy was first calculated.
6. If you die before your entire interest which accrued after December
31, 1986, has been distributed, the following distribution rules shall
apply:
A. If you die after the distribution of your interest has commenced,
the remaining portion of your interest will continue to be
distributed at least as rapidly as under the methods of distribution
being used prior to your death.
B. If you die before distribution of your interest commences, your
entire post-1986 interest will be distributed in accordance with
one of the following three provisions:
(1) Your entire interest will be paid by December 31 of the
calendar year containing the fifth anniversary of your death, or
(2) If your interest is payable to a designated beneficiary and you
have not elected (1) above, then the entire interest will be
distributed over the life or over a period certain not greater
than the life expectancy of your designated beneficiary
commencing on or before December 31 of the calendar year
immediately following the calendar year of your death. Your
designated beneficiary may elect at any time to receive greater
payments.
3
<PAGE>
(3) If your designated beneficiary is your surviving spouse, your
spouse may elect to receive equal or substantially equal
payments over the life or life expectancy of the surviving
spouse commencing at any date prior to the later of (i)
December 31 of the calendar year immediately following the
calendar year of your death; and (ii) December 31 of the
calendar year in which you would have attained age 70 1/2.
Such election must be made no later than the earlier of
December 31 of the calendar year containing the fifth
anniversary of your death or the date distributions are
required to begin pursuant to the preceding sentence. Your
surviving spouse may accelerate these payments at any time,
I.E., INCREASE the frequency or amount of such payments.
Life expectancy is computed by use of the expected return
multiples and Tables V and VI of Section 1.72-9 of the Income
Tax Regulations. For purposes of distributions beginning after
your death, unless otherwise elected by your surviving spouse
by the time distributions are required to begin, life
expectancy shall be recalculated annually. Such election shall
be irrevocable by the surviving spouse and shall apply to all
subsequent years. In the case of any other beneficiary, life
expectancy shall be recalculated using the attained age of
such beneficiary during the calendar year in which
distributions are required to begin pursuant to this section,
and payments for any subsequent calendar year shall be
calculated based on such life expectancy reduced by one for
each calendar year which has elapsed since the calendar year
life expectancy was first calculated.
Distributions under this Section are considered to have begun
if distributions are made on account of your attaining your
required beginning date or, if prior to the required beginning
date, distributions irrevocably commence over a period permitted
and in an annuity form acceptable under Section 1.401(a)(9) of
the Regulations.
7. You may withdraw part or all of the Contract Value at any time this
Contract is in force prior to the earlier of the Income Date or your
death
A. The withdrawal of Contract Value attributable to contributions made
pursuant to a salary reduction agreement (within the meaning of Code
Section 402(g)(3)(C)) may be executed only
(1) when you attain age 59 1/2, separate from service, die, or become
disabled (within the meaning of Code Section 72(m)(7));or
(2) in the case of hardship (as defined for purposes of Code Section
401(k)), provided that any withdrawal of Contract Value in the
case of hardship may not include any income attributable to
salary reduction contributions.
B. The withdrawal limitations described in A. above apply to
(1) salary reduction contributions to Code Section 403(b) contracts
made for plan years beginning after December 31, 1988, and
(2) earnings credited to such contracts after the last plan year
beginning before January 1, 1989, on amounts attributable to
salary reduction contributions.
C. Any request for a withdrawal due to hardship must be submitted with
evidence acceptable to the Company on forms provided by the Company
and consistent with applicable law.
8. A. Notwithstanding any provision of a plan to the contrary that would
otherwise limit a distributee's election under this Section, a
distributee may elect in writing and not less than 30 or more than
90 days prior to distribution, to have any portion of an eligible
rollover distribution hereunder paid directly to an eligible
retirement plan specified by the distributee in a direct rollover.
4
<PAGE>
B. Definitions:
(1) Eligible rollover distributions: An eligible rollover
distribution is any distribution of all or any portion of the
balance to the credit of the distributee, except that an
eligible rollover distribution does not include: any distribution
that is one of a series of substantially equal periodic payments
(not less frequently than annually) made for the life (or life
expectancy) of the distributee or the joint lives (or joint life
expectancy) of the distributee and the distributee's designated
beneficiary, or for a specified period of ten years or more; any
distribution to the extent such distribution is required under
Code Section 401(a)(9) of the Code; and the portion of any
distribution that is not includible in gross income (determined
without regard to the exclusion for net unrealized appreciation
with respect to employer securities).
(2) Eligible retirement plan: An eligible retirement plan is an
individual retirement account described in Code Section 408(a),
an individual retirement annuity described in Code Section 408(b),
or an annuity plan described in Code Section 403(b), that accepts
the distributee's eligible rollover distribution.
(3) Distributee: a distributee includes an Employee or former Employee.
In addition, the Employee's or former Employee's surviving spouse
and the Employee's or former Employee's spouse or former spouse
who is the alternate payee under a qualified domestic relations
order, as defined in Code Section 414(p), are distributees with
regard to the interest of the spouse or former spouse.
(4) Direct rollover: A direct rollover is a direct payment hereunder
to the eligible retirement plan specified by the distributee.
9. If your Contract is subject to the Employee Retirement Income
Security Act of 1974 ("ERISA"), your spouse will have certain rights,
such as the right to a Qualified Joint and Survivor Annuity Benefit
("QJSA") or a Qualified Preretirement Survivor Annuity Benefit ("QPSA").
Your spouse's rights under ERISA may limit your choice of payment plan,
beneficiary, cash surrenders and loans, as follows:
If you are married on the Income Date, your payment plan must be an
immediate annuity for your life with a survivor annuity for the life of
your spouse which is not less than 50 percent and not more than 100
percent of the amount of the annuity which is payable during the joint
lives of you and your spouse, and which is the amount of benefit which
can be purchased with Contract Value in excess of the outstanding loan
balance, if any.
If you die before your Income Date and your spouse survives you, the
payment of the Death Benefit to your named Beneficiary is subject to your
spouse's right to receive an immediate annuity which is the actuarial
equivalent of one-half the portion of your Contract Value in excess of
the outstanding loan balance, if any.
Your spouse must consent to your choice of a form of benefit other than
the QJSA/QPSA, beneficiaries who are not your spouse, cash surrenders
and loans.
In order for your spouse to properly waive his or her QJSA/QPSA rights,
the Company must receive, in form satisfactory to the Company, your
spouse's written consent, or verification that you do not have a spouse,
or verification that your spouse cannot be located. Waiver of a spouse's
rights to QJSA/QPSA benefits and elections of an alternative form of
benefit cannot be made more than 90 days before your Income Date. A
waiver of a spouse's rights to QJSA/QPSA benefits may become ineffective
if made before you attain age 35, or if earlier, the date you terminate
your employment with your Employer. Waivers of a spouse's rights
hereunder with respect to a cash surrender or loan must be made not more
than 90 days before the date of distribution.
You may revoke an election requiring a waiver of your spouse's QJSA/QPSA
rights at any time during your lifetime and before the Income Date. Your
spouse, however, may not revoke his or her consent once give.
5
<PAGE>
10. The following table is substituted for the One Life Minimum Table in the
Nonqualified Contract.
<TABLE>
<CAPTION>
ONE LIFE MINIMUM INCOME TABLE*
MONTHLY PAYMENTS FOR EACH $1,000 APPLIED
--------------------------------------------------------------------------
Age Of Age Of
Payee Payee
Last Life Life Last Life Life
Birth- 10 Years 20 Years Birth- 10 Years 20 Years
day Certain Certain day Certain Certain
--------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
15 and
under $2.80 $2.80 50 $3.87 $3.79
16 2.82 2.81 51 3.94 3.85
17 2.83 2.83 52 4.00 3.90
18 2.84 2.84 53 4.08 3.96
19 2.86 2.85 54 4.15 4.02
20 2.87 2.87 55 4.23 4.08
21 2.89 2.88 56 4.31 4.15
22 2.90 2.90 57 4.40 4.21
23 2.92 2.92 58 4.50 4.28
24 2.94 2.93 59 4.59 4.35
25 2.96 2.95 60 4.70 4.42
26 2.98 2.97 61 4.81 4.50
27 3.00 2.99 62 4.93 4.57
28 3.02 3.01 63 5.05 4.64
29 3.04 3.03 64 5.18 4.71
30 3.07 3.06 65 5.32 4.79
31 3.09 3.08 66 5.46 4.86
32 3.12 3.11 67 5.61 4.92
33 3.14 3.13 68 5.77 4.99
34 3.17 3.16 69 5.93 5.05
35 3.20 3.19 70 6.10 5.11
36 3.23 3.22 71 6.28 5.17
37 3.27 3.25 72 6.45 5.22
38 3.30 3.28 73 6.65 5.27
39 3.34 3.31 74 6.84 5.31
40 3.38 3.35 75 7.03 5.35
41 3.42 3.39 76 7.23 5.38
42 3.46 3.42 77 7.43 5.41
43 3.50 3.46 78 7.62 5.43
44 3.55 3.50 79 7.81 5.45
45 3.59 3.55 80 8.00 5.47
46 3.64 3.59 81 8.18 5.48
47 3.70 3.64 82 8.35 5.49
48 3.75 3.69 83 8.51 5.50
49 3.81 3.74 84 8.66 5.50
85 and
over 8.80 5.51
--------------------------------------------------------------------------
</TABLE>
*Values are based on the "1983 Table a" adjusted for age last birthday,
with compound interest at 3% a year.
In the event of any conflict between the terms of this Contract and any
sections of the Code or ERISA applicable to Section 403(b) tax sheltered
annuities, those sections will govern. The Company is not liable for any tax
or tax penalties paid by any party resulting from failure to comply with the
Code, ERISA and any rulings, regulations, and requirements thereunder
relating to the administration of this Contract.
/s/ Margaret A. Parks /s/ John F. Barrett
Secretary President and
Chief Executive Officer
6
<PAGE>
WESTERN-SOUTHERN LIFE ASSURANCE COMPANY
ADDITIONAL WAIVER OF
SURRENDER CHARGES RIDER
ADDITIONAL TIMES In addition to those situations set forth in the
WHEN SURRENDER Contract, the surrender charge will not apply if the
CHARGES WILL BE Owner or the Annuitant is confined to a Long Term Care
WAIVED Facility or Hospital and has been so confined for at
least 30 days.
DEFINITIONS "Confined" means necessarily confined as an
inpatient. To be covered, confinement must commence
while this Contract is in force and be required by
sickness or injury. Such confinement must have been
upon the recommendation of a physician.
"Injury" means accidental bodily injury which is
sustained while this Contract is in force.
"Sickness" means sickness or disease which first
manifests itself while this Contract is in force.
"Immediate Family" means an individual's spouse,
child, parent, brother or sister.
"Inpatient" means a person who is confined in a
Hospital or Long Term Care Facility as a resident
patient and for whom a charge of at least one day's
room and board is made by the Hospital or Long Term
Care Facility.
"Physician" means a duly licensed physician. It
does not include the owner or the annuitant or the
Owner's or the Annuitant's Immediate Family.
"Long Term Care Facility" means a state licensed
Skilled Nursing Facility or Intermediate Care
Facility. Long Term Care Facility DOES NOT MEAN:
A Hospital; a place that primarily treats drug addicts
or alcoholics; a home for the aged or mentally ill, a
community living center, or a place that primarily
provides domiciliary, residency or retirement care; or
a place owned or operated by the Owner or the
Annuitant or a member of the Owner's or the
Annuitant's Immediate Family.
"Skilled Nursing Facility" means a facility which:
is operated as a Skilled Nursing Facility according to
the law of the jurisdiction in which it is located;
provides skilled nursing care under the supervision of
a physician; provides continuous 24 hours a day
nursing service by or under the supervision of a
registered graduate professional nurse (R.N.); and
maintains a daily medical record of each patient.
"Intermediate Care Facility" means a facility which:
is operated as an Intermediate Care Facility according
to the law of the jurisdiction in which it is located;
provides continuous 24 hours a day nursing service by
or under the supervision of a registered graduate
professional nurse (R.N.) or a licensed practical
nurse (L.P.N.); and maintains a daily medical record
of each patient.
<PAGE>
"Hospital" means a facility which: is state licensed
and operated as a hospital according to the law of the
jurisdiction in which it is located; operates
primarily for the care and treatment of sick or
injured persons as inpatients: provides continuous 24
hours a day nursing service by or under the
supervision of a registered graduate professional
nurse (R.N.); is supervised by a staff of physicians;
and has medical, diagnostic and major surgical
facilities or has access to such facilities on a
pre-arranged basis.
Neither "registered graduate professional nurse" nor
"licensed practical nurse" includes the Owner or the
Annuitant or the Owner's or the Annuitant's Immediate
Family.
NOTICE AND PROOF Written notice and proof of confinement for 30 days
OF CLAIM in a Hospital or Long Term Care Facility must be
received at our Home Office prior to our waiver of
surrender charges because of confinement.
CONTRACT TERMS This rider is attached to and made a part of the
APPLY Contract. The terms of the Contract apply to the
rider except to the extent they are in conflict with
its terms.
WHEN RIDER ENDS This rider will end if the Contract terminates or is
surrendered for cash.
/s/ James N. Clark /s/ John F. Barrett
Secretary President and
Chief Executive Officer
<PAGE>
WESTERN-SOUTHERN LIFE ASSURANCE COMPANY
SECTION 401 PLAN ENDORSEMENT
FLEXIBLE PURCHASE PAYMENT DEFERRED VARIABLE ANNUITY
THIS ENDORSEMENT APPLIES ONLY IF THE APPLICATION STATES THAT THIS CONTRACT IS
ISSUED AS AN INVESTMENT OF A PLAN DESCRIBED IN SECTION 401 OF THE INTERNAL
REVENUE CODE.
1. The following table is substituted for the One Life Minimum Table in the
Nonqualified Contract.
ONE LIFE MINIMUM INCOME TABLE*
MONTHLY PAYMENTS FOR EACH $1,000 APPLIED
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------
AGE OF AGE OF
PAYEE LIFE LIFE PAYEE LIFE LIFE
LAST 10 YEARS 20 YEARS LAST 10 YEARS 20 YEARS
BIRTHDAY CERTAIN CERTAIN BIRTHDAY CERTAIN CERTAIN
- -------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
15 and
under $2.80 $2.80 50 $3.87 $3.79
16 2.82 2.81 51 3.94 3.85
17 2.83 2.83 52 4.00 3.90
18 2.84 2.84 53 4.08 3.96
19 2.86 2.85 54 4.15 4.02
20 2.87 2.87 55 4.23 4.08
21 2.89 2.88 56 4.31 4.15
22 2.90 2.90 57 4.40 4.21
23 2.92 2.92 58 4.50 4.28
24 2.94 2.93 59 4.59 4.35
25 2.96 2.95 60 4.70 4.42
26 2.98 2.97 61 4.81 4.50
27 3.00 2.99 62 4.93 4.57
28 3.02 3.01 63 5.05 4.64
29 3.04 3.03 64 5.18 4.71
30 3.07 3.06 65 5.32 4.79
31 3.09 3.08 66 5.46 4.86
32 3.12 3.11 67 5.61 4.92
33 3.14 3.13 68 5.77 4.99
34 3.17 3.16 69 5.93 5.05
35 3.20 3.19 70 6.10 5.11
36 3.23 3.22 71 6.28 5.17
37 3.27 3.25 72 6.46 5.22
38 3.30 3.28 73 6.65 5.27
39 3.34 3.31 74 6.84 5.31
40 3.38 3.35 75 7.03 5.35
41 3.42 3.39 76 7.23 5.38
42 3.46 3.42 77 7.43 5.41
43 3.50 3.46 78 7.62 5.43
44 3.55 3.50 79 7.81 5.45
45 3.59 3.55 80 8.00 5.47
46 3.64 3.59 81 8.18 5.48
47 3.70 3.64 82 8.35 5.49
48 3.75 3.69 83 8.51 5.50
49 3.81 3.74 84 8.66 5.50
85 and
over 8.80 5.51
- -------------------------------------------------------------------------------------
</TABLE>
"Values are based on the "1983 Table a" adjusted for
age last birthday, with compound interest at 3% a year.
2. In the event of any conflict between the terms of this Contract and any
sections of the Internal Revenue Code applicable to Section 401 plans,
those sections will govern. The Company is not liable for any tax or tax
penalties paid by any party resulting from failure to comply with the Code
and Internal Revenue Service rulings, regulations, and requirements
relating to the administration of this Contract.
/s/ Margaret A. Parks /s/ John L. Barrett
Secretary President and
Chief Executive Officer
<PAGE>
WESTERN-SOUTHERN LIFE ASSURANCE COMPANY
CHARITABLE REMAINDER UNITRUST
WAIVER OF SURRENDER CHARGES
ENDORSEMENT
ADDITIONAL TIMES In addition to those situations set forth in the
WHEN SURRENDER contract, the surrender charge will not apply to
CHARGES WILL BE withdrawals of any amounts in excess of the total net
WAIVED purchase payment(s) made to that time when the contract
is owned by a trustee of a Charitable Remainder
Unitrust. Withdrawals from such a contract are deemed
to be taken first from any such excess amounts. Only
after such excess has been exhausted are withdrawals
deemed to be taken from net purchase payments.
DEFINITIONS "Charitable Remainder Unitrust" means a trust as
defined in Section 664(d)(2) of the Internal Revenue
Code of 1986, as amended.
/s/Margaret A. Parks /s/John L Barrett
Secretary President and
Chief Executive Officer
<PAGE>
<TABLE>
<S><C>
TOUCHSTONE For assistance in completing this application, call 1-800-669-2796 (Press 2)
[LOGO] ---------------------------------- UNDERWRITTEN BY: Western-Southern Life Assurance Company
TOUCHSTONE SELECT VARIABLE ANNUITY MAIL TO: Special Markets Service Center
P.O. Box 2850
Cincinnati, OH 45201-2850
- ------------------------------------------------------------------------------------------------------------------------------------
OWNER / / INDIVIDUAL / / CORPORATION / / TRUST
- ------------------------------------------------------------------------------------------------------------------------------------
Name - First Middle Last / / Male Birth Date / /
/ / Female (m-d-y)
- ------------------------------------------------------------------------------------------------------------------------------------
Trust or Corporation Name Phone #
- ------------------------------------------------------------------------------------------------------------------------------------
Address - Street Social Security #
or T.I.N
- ------------------------------------------------------------------------------------------------------------------------------------
City State Zip Relationship
to Annuitant
- ------------------------------------------------------------------------------------------------------------------------------------
/ / JOINT OWNER
- ------------------------------------------------------------------------------------------------------------------------------------
Name - First Middle Last / / Male Birth Date / /
/ / Female (m-d-y)
- ------------------------------------------------------------------------------------------------------------------------------------
Address - Street Social Security #
or T.I.N
- ------------------------------------------------------------------------------------------------------------------------------------
City State Zip Relationship
to Annuitant
- ------------------------------------------------------------------------------------------------------------------------------------
ANNUITANT Complete if different from Owner
- ------------------------------------------------------------------------------------------------------------------------------------
Name - First Middle Last / / Male Birth Date / /
/ / Female (m-d-y)
- ------------------------------------------------------------------------------------------------------------------------------------
Address - Street Social Security #
- ------------------------------------------------------------------------------------------------------------------------------------
City State Zip
- ------------------------------------------------------------------------------------------------------------------------------------
/ / CONTINGENT ANNUITANT
- ------------------------------------------------------------------------------------------------------------------------------------
Name - First Middle Last / / Male Birth Date / /
/ / Female (m-d-y)
- ------------------------------------------------------------------------------------------------------------------------------------
Address - Street Social Security #
- ------------------------------------------------------------------------------------------------------------------------------------
City State Zip
- ------------------------------------------------------------------------------------------------------------------------------------
BENEFICIARY Full Name of Beneficiary(ies) and Relationship to Owner
- ------------------------------------------------------------------------------------------------------------------------------------
A. Primary Beneficiary(ies): (Additional Beneficiary form may be required for tax qualified plans.
- ------------------------------------------------------------------------------------------------------------------------------------
Name Relationship Social Security Number Date of Birth
/ / / /
- ------------------------------------------------------------------------------------------------------------------------------------
Name Relationship Social Security Number Date of Birth
/ / / /
- ------------------------------------------------------------------------------------------------------------------------------------
Name Relationship Social Security Number Date of Birth
/ / / /
- ------------------------------------------------------------------------------------------------------------------------------------
B. Contingent Beneficiary(ies) To receive benefits if none of the Primary Beneficiaries survive the Owner prior to the Income Date.
- ------------------------------------------------------------------------------------------------------------------------------------
Name Relationship Social Security Number Date of Birth
/ / / /
- ------------------------------------------------------------------------------------------------------------------------------------
Name Relationship Social Security Number Date of Birth
/ / / /
- ------------------------------------------------------------------------------------------------------------------------------------
INVESTMENT INFORMATION Please make check payable to Western Southern Life Assurance Company
- ------------------------------------------------------------------------------------------------------------------------------------
1035 Exchange? / / No / / Yes Income Date (m-d-y): ___/___/___
Initial Purchase Payment $_____________________ (Please submit appropriate exchange forms)
- ------------------------------------------------------------------------------------------------------------------------------------
Will this contract replace any life insurance policy or annuity contract in this or any other company? / / No / / Yes
If yes, please list company name:______________________________________________________ Policy/Contract Number: ___________________
- ------------------------------------------------------------------------------------------------------------------------------------
PLAN TYPE (Check only one): / / Non-Qualified / / 457
/ / Pension/Profit Sharing / / 401(k) / / 403(b) TSA
/ / IRA Regular* / / IRA Rollover / / IRA Transfer / / SEP-IRA* / / SIMPLE-IRA* (Indicate
/ / Other: ____________________________________________________________ contribution source):
/ / Employer Contribution
/ / Employee Salary
Deferral Contribution
*Contribution for tax year 199/ / $__________ 199/ / $__________
Note: If the plan is being funded by transfer or rollover in the year, or any year after, the owner attains age 70 1/2, any
minimum distribution requirement for the year of funding cannot be placed in this contract.
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
<S><C>
- ------------------------------------------------------------------------------------------------------------------------------------
INVESTMENT ALLOCATION Must be whole percentage Minimum of 5% Must total 100%
- ------------------------------------------------------------------------------------------------------------------------------------
/ / Allocate my purchase payment(s) among the following investment options:
__________% Emerging Growth __________% Growth & Income __________% Income Opportunity __________% Standby Income
__________% International Equity __________% Balanced __________% Bond __________% Fixed Account
/ / I prefer to use the following Touchstone Asset Allocation model: _____________
Model #
- ------------------------------------------------------------------------------------------------------------------------------------
DOLLAR COST AVERAGING $10,000 minimum Contract value required Must be whole percentage Minimum of 5% Must total 100%
- ------------------------------------------------------------------------------------------------------------------------------------
Please transfer $_________ ($200 minimum) or _________% from the (check one): / / Standby Income / / Fixed Account for the period
indicated: ________ months (12-month minimum).
Frequency: / / Monthly / / Quarterly
/ / Dollar cost average among the following investment option(s):
__________% Emerging Growth __________% Growth & Income __________% Income Opportunity __________% Standby Income
__________% International Equity __________% Balanced __________% Bond
/ / I prefer to use the following Asset Allocation model: _____________
Model #
- ------------------------------------------------------------------------------------------------------------------------------------
AUTOMATIC REBALANCING
- ------------------------------------------------------------------------------------------------------------------------------------
Do you wish to employ the automatic rebalancing feature? / / No / / Yes (If yes, pleas attach form 7062)
Frequency: / / Quarterly / / Semi-Annually / / Annually Note: If frequency is not selected, quarterly rebalancing will apply.
Model Number: _________
- ------------------------------------------------------------------------------------------------------------------------------------
DEATH BENEFIT OPTIONS
- ------------------------------------------------------------------------------------------------------------------------------------
One of the following three death benefit options MUST be selected prior to the issue of your annuity contract. Once selected, the
death benefit option cannot be changed.
/ / Standard Death Benefit / / Annual Step-Up Death Benefit / / 6% Accumulating Death Benefit
- ------------------------------------------------------------------------------------------------------------------------------------
TELEPHONE ACCESS AUTHORIZATION
- ------------------------------------------------------------------------------------------------------------------------------------
/ / No / / Yes If answered yes, I (We) authorize Western-Southern Life Assurance Company and its affiliates to honor
telephone instructions from any person who can furnish proper identification to transfer values among the different investment
options. I (We) understand that I am (we are) responsible for losses due to unauthorized or fraudulent telephone instructions to
the extent and under the circumstances described in the variable annuity contract Prospectus under the caption "TRANSFERS." I
(We) further understand that the telephone privilege may be modified, suspended, or discontinued at any time and without prior
notice. THIS WILL NOT APPLY IF NEITHER BOX IS CHECKED.
- ------------------------------------------------------------------------------------------------------------------------------------
SIGNATURES
- ------------------------------------------------------------------------------------------------------------------------------------
The statements and answers in this application are true and complete to the best of my (our) knowledge and belief. Under penalty
of perjury, I (we) certify that the social security number(s) and/or tax identification number(s) listed above is (are) correct.
Any person who, with intent to defraud or knowing that he/she is facilitating a fraud against an insurer, submits an application
or files a claim containing a false or deceptive statement may be guilty of insurance fraud.
I (WE) UNDERSTAND THAT ALL VALUES, WHEN BASED ON THE INVESTMENT EXPERIENCE OF A SEPARATE ACCOUNT, ARE VARIABLE AND ARE NOT
GUARANTEED AS TO DOLLAR AMOUNT. I ACKNOWLEDGE RECEIPT OF A CURRENT VARIABLE ANNUITY PROSPECTUS.
/ / Please send me a copy of the Statement of Additional Information to the Prospectus.
- ------------------------------------------------------------------------------------------------------------------------------------
Signed At: City State
Date (m-d-y) / /
- ------------------------------------------------------------------------------------------------------------------------------------
Owner Joint Owner:
X X
- ------------------------------------------------------------------------------------------------------------------------------------
Annuitant (Required only for tax qualified & 457 plans)
X
- ------------------------------------------------------------------------------------------------------------------------------------
REGISTERED REP/AGENT INFORMATION
- ------------------------------------------------------------------------------------------------------------------------------------
By signing below, the Registered Rep/Agent certifies that:
a) The questions contained in this application were asked of the Owner and the answers duly recorded: that this application is
complete and true to the best of my knowledge and belief; and
b) I am NASD registered and state licensed for variable annuity contracts where this application is written; and
c) To the best of my knowledge and belief, this application / / does / / does not involve replacement of existing life insurance
or annuities.
- ------------------------------------------------------------------------------------------------------------------------------------
Registered Rep/Agent
X Registered Rep/Agent # / / / / / / /
- ------------------------------------------------------------------------------------------------------------------------------------
Print name of Registered Rep/Agent Dealer/General Agent
- ------------------------------------------------------------------------------------------------------------------------------------
Branch Office Street Address Business Phone
- ------------------------------------------------------------------------------------------------------------------------------------
City State Zip C-Code
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
DO-11-IFS-VARS-9710
<PAGE>
May 12, 1997
Western-Southern Life
Assurance Company
400 Broadway
Cincinnati, Ohio 45202
To the Company:
This opinion is furnished in connection with the offering of variable annuity
contracts (the "Contracts") of Western-Southern Life Assurance Company (the
"Company") under a Registration Statement on Form N-4 to be filed herewith by
the Company and Western-Southern Life Assurance Company Separate Account 1 (the
"Separate Account") under the Securities Act of 1933, as amended, and the
Investment Company Act of 1940, as amended.
I have supervised the establishment of the Separate Account on July 27, 1992,
and February 8, 1993, by the Executive Committee of the Company, pursuant to
Section 3907.15 of the Ohio Revised Code. I have made such examination of the
law and examined such corporate records and such other as in my judgment are
necessary and appropriate to enable me to render the following opinions:
1. The Company has been duly organized under the laws of the State of
Ohio and is a validly existing stock life insurance corporation.
2. The Separate Account is duly created and validly existing as an
insurance corporation separate account under the laws of the State of
Ohio.
3. The portion of the assets to be held in Separate Account equal to the
reserves and other liabilities under the Contracts is not chargeable
with liabilities arising out of any other business the Company may
conduct.
4. The offer and sale of the Contracts have been duly authorized by the
Company and, when issued as contemplated by the Registration Statement
(as it may from time to time be amended), the Contracts will
constitute legal, validly issued and binding obligations of the
Company in accordance with their terms.
<PAGE>
Western-Southern Life Assurance Company
Page Two
May 12, 1997
I hereby consent to the filing of this opinion as an exhibit to the Registration
Statement.
Very truly yours,
/s/ Donald J. Wuebbling
Donald J. Wuebbling
Vice President and
General Counsel
DJW:cd
<PAGE>
POWER OF ATTORNEY
WHEREAS, WESTERN-SOUTHERN LIFE ASSURANCE COMPANY, an Ohio corporation (the
"Company"), proposes to file with the Securities and Exchange Commission,
pursuant to the provisions of the Securities Act of 1933, as amended, and the
rules and regulations thereunder, and the Investment Company Act of 1940, as
amended, and the rules and regulations thereunder, a Registration Statement on
Form N-4 (the "Registration Statement") and the included prospectus and
statement of additional information with respect to the Company's Separate
Account 1; and
WHEREAS, the undersigned is a Director of the Company;
NOW, THEREFORE, the undersigned hereby constitutes and appoints John F.
Barrett and Edward S. Heenan, and each of them individually, his attorney in
fact, for him and in his name, place and stead and in his office and capacity
with the Company, to execute and file such Registration Statement, including
prospectus, statement of additional information and exhibits, and thereafter to
execute and file any amended Registration Statement or statements, amended
prospectus or prospectuses and amended statement or statements of additional
information, or any supplements to any of the foregoing, hereby giving and
granting to said attorneys full power and authority to do and perform each and
every act and thing whatsoever requisite and necessary to be done in and about
the premises as fully to all intents and purposes as he might or could do if
personally present at the doing thereof, hereby ratifying and confirming all
that said attorneys may or shall lawfully do or cause to be done by virtue
hereof.
This authority hereby granted is limited to the execution and delivery of
such Registration Statement, amendments thereto and included documents and,
unless earlier revoked by me or expressly extended by me in writing, shall
remain in force and effective only until such Registration Statement shall have
been declared effective by the Securities and Exchange Commission.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand this 11th day
of March, 1997.
/s/ John F. Barrett
------------------------------
John F. Barrett
<PAGE>
POWER OF ATTORNEY
WHEREAS, WESTERN-SOUTHERN LIFE ASSURANCE COMPANY, an Ohio corporation (the
"Company"), proposes to file with the Securities and Exchange Commission,
pursuant to the provisions of the Securities Act of 1933, as amended, and the
rules and regulations thereunder, and the Investment Company Act of 1940, as
amended, and the rules and regulations thereunder, a Registration Statement on
Form N-4 (the "Registration Statement") and the included prospectus and
statement of additional information with respect to the Company's Separate
Account 1; and
WHEREAS, the undersigned is a Director of the Company;
NOW, THEREFORE, the undersigned hereby constitutes and appoints John F.
Barrett and Edward S. Heenan, and each of them individually, his attorney in
fact, for him and in his name, place and stead and in his office and capacity
with the Company, to execute and file such Registration Statement, including
prospectus, statement of additional information and exhibits, and thereafter to
execute and file any amended Registration Statement or statements, amended
prospectus or prospectuses and amended statement or statements of additional
information, or any supplements to any of the foregoing, hereby giving and
granting to said attorneys full power and authority to do and perform each and
every act and thing whatsoever requisite and necessary to be done in and about
the premises as fully to all intents and purposes as he might or could do if
personally present at the doing thereof, hereby ratifying and confirming all
that said attorneys may or shall lawfully do or cause to be done by virtue
hereof.
This authority hereby granted is limited to the execution and delivery of
such Registration Statement, amendments thereto and included documents and,
unless earlier revoked by me or expressly extended by me in writing, shall
remain in force and effective only until such Registration Statement shall have
been declared effective by the Securities and Exchange Commission.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand this 11th day
of March, 1997.
/s/ James N. Clark
------------------------------
James N. Clark
<PAGE>
POWER OF ATTORNEY
WHEREAS, WESTERN-SOUTHERN LIFE ASSURANCE COMPANY, an Ohio corporation (the
"Company"), proposes to file with the Securities and Exchange Commission,
pursuant to the provisions of the Securities Act of 1933, as amended, and the
rules and regulations thereunder, and the Investment Company Act of 1940, as
amended, and the rules and regulations thereunder, a Registration Statement on
Form N-4 (the "Registration Statement") and the included prospectus and
statement of additional information with respect to the Company's Separate
Account 1; and
WHEREAS, the undersigned is a Director of the Company;
NOW, THEREFORE, the undersigned hereby constitutes and appoints John F.
Barrett and Edward S. Heenan, and each of them individually, his attorney in
fact, for him and in his name, place and stead and in his office and capacity
with the Company, to execute and file such Registration Statement, including
prospectus, statement of additional information and exhibits, and thereafter to
execute and file any amended Registration Statement or statements, amended
prospectus or prospectuses and amended statement or statements of additional
information, or any supplements to any of the foregoing, hereby giving and
granting to said attorneys full power and authority to do and perform each and
every act and thing whatsoever requisite and necessary to be done in and about
the premises as fully to all intents and purposes as he might or could do if
personally present at the doing thereof, hereby ratifying and confirming all
that said attorneys may or shall lawfully do or cause to be done by virtue
hereof.
This authority hereby granted is limited to the execution and delivery of
such Registration Statement, amendments thereto and included documents and,
unless earlier revoked by me or expressly extended by me in writing, shall
remain in force and effective only until such Registration Statement shall have
been declared effective by the Securities and Exchange Commission.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand this 11th day
of March, 1997.
/s/ Lawrence C. Hawkins
------------------------------
Dr. Lawrence C. Hawkins
<PAGE>
POWER OF ATTORNEY
WHEREAS, WESTERN-SOUTHERN LIFE ASSURANCE COMPANY, an Ohio corporation (the
"Company"), proposes to file with the Securities and Exchange Commission,
pursuant to the provisions of the Securities Act of 1933, as amended, and the
rules and regulations thereunder, and the Investment Company Act of 1940, as
amended, and the rules and regulations thereunder, a Registration Statement on
Form N-4 (the "Registration Statement") and the included prospectus and
statement of additional information with respect to the Company's Separate
Account 1; and
WHEREAS, the undersigned is a Director of the Company;
NOW, THEREFORE, the undersigned hereby constitutes and appoints John F.
Barrett and Edward S. Heenan, and each of them individually, his attorney in
fact, for him and in his name, place and stead and in his office and capacity
with the Company, to execute and file such Registration Statement, including
prospectus, statement of additional information and exhibits, and thereafter to
execute and file any amended Registration Statement or statements, amended
prospectus or prospectuses and amended statement or statements of additional
information, or any supplements to any of the foregoing, hereby giving and
granting to said attorneys full power and authority to do and perform each and
every act and thing whatsoever requisite and necessary to be done in and about
the premises as fully to all intents and purposes as he might or could do if
personally present at the doing thereof, hereby ratifying and confirming all
that said attorneys may or shall lawfully do or cause to be done by virtue
hereof.
This authority hereby granted is limited to the execution and delivery of
such Registration Statement, amendments thereto and included documents and,
unless earlier revoked by me or expressly extended by me in writing, shall
remain in force and effective only until such Registration Statement shall have
been declared effective by the Securities and Exchange Commission.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand this 11th day
of March, 1997.
/s/ J. Harold Kotte
------------------------------
Dr. J. Harold Kotte
<PAGE>
POWER OF ATTORNEY
WHEREAS, WESTERN-SOUTHERN LIFE ASSURANCE COMPANY, an Ohio corporation (the
"Company"), proposes to file with the Securities and Exchange Commission,
pursuant to the provisions of the Securities Act of 1933, as amended, and the
rules and regulations thereunder, and the Investment Company Act of 1940, as
amended, and the rules and regulations thereunder, a Registration Statement on
Form N-4 (the "Registration Statement") and the included prospectus and
statement of additional information with respect to the Company's Separate
Account 1; and
WHEREAS, the undersigned is a Director of the Company;
NOW, THEREFORE, the undersigned hereby constitutes and appoints John F.
Barrett and Edward S. Heenan, and each of them individually, his attorney in
fact, for him and in his name, place and stead and in his office and capacity
with the Company, to execute and file such Registration Statement, including
prospectus, statement of additional information and exhibits, and thereafter to
execute and file any amended Registration Statement or statements, amended
prospectus or prospectuses and amended statement or statements of additional
information, or any supplements to any of the foregoing, hereby giving and
granting to said attorneys full power and authority to do and perform each and
every act and thing whatsoever requisite and necessary to be done in and about
the premises as fully to all intents and purposes as he might or could do if
personally present at the doing thereof, hereby ratifying and confirming all
that said attorneys may or shall lawfully do or cause to be done by virtue
hereof.
This authority hereby granted is limited to the execution and delivery of
such Registration Statement, amendments thereto and included documents and,
unless earlier revoked by me or expressly extended by me in writing, shall
remain in force and effective only until such Registration Statement shall have
been declared effective by the Securities and Exchange Commission.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand this 11th day
of March, 1997.
/s/ Carl A. Kroch
------------------------------
Carl A. Kroch
<PAGE>
POWER OF ATTORNEY
WHEREAS, WESTERN-SOUTHERN LIFE ASSURANCE COMPANY, an Ohio corporation (the
"Company"), proposes to file with the Securities and Exchange Commission,
pursuant to the provisions of the Securities Act of 1933, as amended, and the
rules and regulations thereunder, and the Investment Company Act of 1940, as
amended, and the rules and regulations thereunder, a Registration Statement on
Form N-4 (the "Registration Statement") and the included prospectus and
statement of additional information with respect to the Company's Separate
Account 1; and
WHEREAS, the undersigned is a Director of the Company;
NOW, THEREFORE, the undersigned hereby constitutes and appoints John F.
Barrett and Edward S. Heenan, and each of them individually, his attorney in
fact, for him and in his name, place and stead and in his office and capacity
with the Company, to execute and file such Registration Statement, including
prospectus, statement of additional information and exhibits, and thereafter to
execute and file any amended Registration Statement or statements, amended
prospectus or prospectuses and amended statement or statements of additional
information, or any supplements to any of the foregoing, hereby giving and
granting to said attorneys full power and authority to do and perform each and
every act and thing whatsoever requisite and necessary to be done in and about
the premises as fully to all intents and purposes as he might or could do if
personally present at the doing thereof, hereby ratifying and confirming all
that said attorneys may or shall lawfully do or cause to be done by virtue
hereof.
This authority hereby granted is limited to the execution and delivery of
such Registration Statement, amendments thereto and included documents and,
unless earlier revoked by me or expressly extended by me in writing, shall
remain in force and effective only until such Registration Statement shall have
been declared effective by the Securities and Exchange Commission.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand this 11th day
of March, 1997.
/s/ Eugene P. Ruehlmann
------------------------------
Eugene P. Ruehlmann
<PAGE>
POWER OF ATTORNEY
WHEREAS, WESTERN-SOUTHERN LIFE ASSURANCE COMPANY, an Ohio corporation (the
"Company"), proposes to file with the Securities and Exchange Commission,
pursuant to the provisions of the Securities Act of 1933, as amended, and the
rules and regulations thereunder, and the Investment Company Act of 1940, as
amended, and the rules and regulations thereunder, a Registration Statement on
Form N-4 (the "Registration Statement") and the included prospectus and
statement of additional information with respect to the Company's Separate
Account 1; and
WHEREAS, the undersigned is a Director of the Company;
NOW, THEREFORE, the undersigned hereby constitutes and appoints John F.
Barrett and Edward S. Heenan, and each of them individually, his attorney in
fact, for him and in his name, place and stead and in his office and capacity
with the Company, to execute and file such Registration Statement, including
prospectus, statement of additional information and exhibits, and thereafter to
execute and file any amended Registration Statement or statements, amended
prospectus or prospectuses and amended statement or statements of additional
information, or any supplements to any of the foregoing, hereby giving and
granting to said attorneys full power and authority to do and perform each and
every act and thing whatsoever requisite and necessary to be done in and about
the premises as fully to all intents and purposes as he might or could do if
personally present at the doing thereof, hereby ratifying and confirming all
that said attorneys may or shall lawfully do or cause to be done by virtue
hereof.
This authority hereby granted is limited to the execution and delivery of
such Registration Statement, amendments thereto and included documents and,
unless earlier revoked by me or expressly extended by me in writing, shall
remain in force and effective only until such Registration Statement shall have
been declared effective by the Securities and Exchange Commission.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand this 11th day
of March, 1997.
/s/ Charles M. Williams
------------------------------
Charles M. Williams
<PAGE>
POWER OF ATTORNEY
WHEREAS, WESTERN-SOUTHERN LIFE ASSURANCE COMPANY, an Ohio corporation (the
"Company"), proposes to file with the Securities and Exchange Commission,
pursuant to the provisions of the Securities Act of 1933, as amended, and the
rules and regulations thereunder, and the Investment Company Act of 1940, as
amended, and the rules and regulations thereunder, a Registration Statement on
Form N-4 (the "Registration Statement") and the included prospectus and
statement of additional information with respect to the Company's Separate
Account 1; and
WHEREAS, the undersigned is a Director of the Company;
NOW, THEREFORE, the undersigned hereby constitutes and appoints John F.
Barrett and Edward S. Heenan, and each of them individually, his attorney in
fact, for him and in his name, place and stead and in his office and capacity
with the Company, to execute and file such Registration Statement, including
prospectus, statement of additional information and exhibits, and thereafter to
execute and file any amended Registration Statement or statements, amended
prospectus or prospectuses and amended statement or statements of additional
information, or any supplements to any of the foregoing, hereby giving and
granting to said attorneys full power and authority to do and perform each and
every act and thing whatsoever requisite and necessary to be done in and about
the premises as fully to all intents and purposes as he might or could do if
personally present at the doing thereof, hereby ratifying and confirming all
that said attorneys may or shall lawfully do or cause to be done by virtue
hereof.
This authority hereby granted is limited to the execution and delivery of
such Registration Statement, amendments thereto and included documents and,
unless earlier revoked by me or expressly extended by me in writing, shall
remain in force and effective only until such Registration Statement shall have
been declared effective by the Securities and Exchange Commission.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand this 11th day
of March, 1997.
/s/ Thomas L. Williams
------------------------------
Thomas L. Williams
<PAGE>
POWER OF ATTORNEY
WHEREAS, WESTERN-SOUTHERN LIFE ASSURANCE COMPANY, an Ohio corporation (the
"Company"), proposes to file with the Securities and Exchange Commission,
pursuant to the provisions of the Securities Act of 1933, as amended, and the
rules and regulations thereunder, and the Investment Company Act of 1940, as
amended, and the rules and regulations thereunder, a Registration Statement on
Form N-4 (the "Registration Statement") and the included prospectus and
statement of additional information with respect to the Company's Separate
Account 1; and
WHEREAS, the undersigned is a Director of the Company;
NOW, THEREFORE, the undersigned hereby constitutes and appoints John F.
Barrett and Edward S. Heenan, and each of them individually, his attorney in
fact, for him and in his name, place and stead and in his office and capacity
with the Company, to execute and file such Registration Statement, including
prospectus, statement of additional information and exhibits, and thereafter to
execute and file any amended Registration Statement or statements, amended
prospectus or prospectuses and amended statement or statements of additional
information, or any supplements to any of the foregoing, hereby giving and
granting to said attorneys full power and authority to do and perform each and
every act and thing whatsoever requisite and necessary to be done in and about
the premises as fully to all intents and purposes as he might or could do if
personally present at the doing thereof, hereby ratifying and confirming all
that said attorneys may or shall lawfully do or cause to be done by virtue
hereof.
This authority hereby granted is limited to the execution and delivery of
such Registration Statement, amendments thereto and included documents and,
unless earlier revoked by me or expressly extended by me in writing, shall
remain in force and effective only until such Registration Statement shall have
been declared effective by the Securities and Exchange Commission.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand this 11th day
of March, 1997.
/s/ William J. Williams
------------------------------
William J. Williams
<PAGE>
POWER OF ATTORNEY
WHEREAS, WESTERN-SOUTHERN LIFE ASSURANCE COMPANY, an Ohio corporation (the
"Company"), proposes to file with the Securities and Exchange Commission,
pursuant to the provisions of the Securities Act of 1933, as amended, and the
rules and regulations thereunder, and the Investment Company Act of 1940, as
amended, and the rules and regulations thereunder, a Registration Statement on
Form N-4 (the "Registration Statement") and the included prospectus and
statement of additional information with respect to the Company's Separate
Account 1; and
WHEREAS, the undersigned is a Director of the Company;
NOW, THEREFORE, the undersigned hereby constitutes and appoints John F.
Barrett and Edward S. Heenan, and each of them individually, his attorney in
fact, for him and in his name, place and stead and in his office and capacity
with the Company, to execute and file such Registration Statement, including
prospectus, statement of additional information and exhibits, and thereafter to
execute and file any amended Registration Statement or statements, amended
prospectus or prospectuses and amended statement or statements of additional
information, or any supplements to any of the foregoing, hereby giving and
granting to said attorneys full power and authority to do and perform each and
every act and thing whatsoever requisite and necessary to be done in and about
the premises as fully to all intents and purposes as he might or could do if
personally present at the doing thereof, hereby ratifying and confirming all
that said attorneys may or shall lawfully do or cause to be done by virtue
hereof.
This authority hereby granted is limited to the execution and delivery of
such Registration Statement, amendments thereto and included documents and,
unless earlier revoked by me or expressly extended by me in writing, shall
remain in force and effective only until such Registration Statement shall have
been declared effective by the Securities and Exchange Commission.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand this 11th day
of March, 1997.
/s/ Chalmers P. Wylie
------------------------------
Chalmers P. Wylie
<PAGE>
POWER OF ATTORNEY
WHEREAS, SELECT ADVISORS PORTFOLIOS, a New York trust (the "Trust"), is
required, under rules, regulations and interpretations of the Securities and
Exchange Commission to sign the registration statements of investment companies
who invest primarily in the portfolios of the Trust, and
WHEREAS, Western-Southern Life Assurance Separate Account 1 invests,
through one or more of its respective Sub-Accounts, solely in one or more
portfolios of the Trust, thus requiring that the officers and trustees of this
Trust sign the registration statement of such entity that is to be filed (the
"Registration Statement"), and
WHEREAS, the undersigned is a Trustee of the Portfolios;
NOW, THEREFORE, the undersigned hereby constitutes and appoints John F.
Barrett, Edward S. Heenan and Edward G. Harness, Jr., and each of them
individually, his attorney in fact, for him and in his name, place and stead and
in his office and capacity with the Portfolios, to sign and participate in the
filing of the Registration Statement, including the prospectus, statement of
additional information and exhibits included therein, and thereafter to execute
and file any additional amended registration statement or statements, amended
prospectus or prospectuses, amended statement or statements of additional
information, amended exhibits or any supplements to any of the foregoing, hereby
giving and granting to said attorneys full power and authority to do and perform
each and every act and thing whatsoever requisite and necessary to be done in
and about the premises as fully to all intents and purposes as he might or could
do if personally present at the doing thereof, hereby ratifying and confirming
all that said attorneys may or shall lawfully do or cause to be done by virtue
hereof.
This authority hereby granted is limited to the execution and delivery of
the Registration Statement, amendments thereto and included documents and,
unless earlier revoked by me or expressly extended by me in writing, shall
remain in force and effect only until such Registration Statement shall have
been declared effective by the Securities and Exchange Commission.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand this 6th day
of March, 1997.
/s/ Philip R. Cox
------------------------------
Philip R. Cox
<PAGE>
POWER OF ATTORNEY
WHEREAS, SELECT ADVISORS PORTFOLIOS, a New York trust (the "Trust"), is
required, under rules, regulations and interpretations of the Securities and
Exchange Commission to sign the registration statements of investment companies
who invest primarily in the portfolios of the Trust, and
WHEREAS, Western-Southern Life Assurance Separate Account 1 invests,
through one or more of its respective Sub-Accounts, solely in one or more
portfolios of the Trust, thus requiring that the officers and trustees of this
Trust sign the registration statement of such entity that is to be filed (the
"Registration Statement"), and
WHEREAS, the undersigned is a Trustee of the Portfolios;
NOW, THEREFORE, the undersigned hereby constitutes and appoints John F.
Barrett, Edward S. Heenan and Edward G. Harness, Jr., and each of them
individually, his attorney in fact, for him and in his name, place and stead and
in his office and capacity with the Portfolios, to sign and participate in the
filing of the Registration Statement, including the prospectus, statement of
additional information and exhibits included therein, and thereafter to execute
and file any additional amended registration statement or statements, amended
prospectus or prospectuses, amended statement or statements of additional
information, amended exhibits or any supplements to any of the foregoing, hereby
giving and granting to said attorneys full power and authority to do and perform
each and every act and thing whatsoever requisite and necessary to be done in
and about the premises as fully to all intents and purposes as he might or could
do if personally present at the doing thereof, hereby ratifying and confirming
all that said attorneys may or shall lawfully do or cause to be done by virtue
hereof.
This authority hereby granted is limited to the execution and delivery of
the Registration Statement, amendments thereto and included documents and,
unless earlier revoked by me or expressly extended by me in writing, shall
remain in force and effect only until such Registration Statement shall have
been declared effective by the Securities and Exchange Commission.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand this 11th of
March, 1997.
/s/ Edward G. Harness, Jr.
------------------------------
Edward G. Harness, Jr.
<PAGE>
POWER OF ATTORNEY
WHEREAS, SELECT ADVISORS PORTFOLIOS, a New York trust (the "Trust"), is
required, under rules, regulations and interpretations of the Securities and
Exchange Commission to sign the registration statements of investment companies
who invest primarily in the portfolios of the Trust, and
WHEREAS, Western-Southern Life Assurance Separate Account 1 invests,
through one or more of its respective Sub-Accounts, solely in one or more
portfolios of the Trust, thus requiring that the officers and trustees of this
Trust sign the registration statement of such entity that is to be filed (the
"Registration Statement"), and
WHEREAS, the undersigned is a Trustee of the Portfolios;
NOW, THEREFORE, the undersigned hereby constitutes and appoints John F.
Barrett, Edward S. Heenan and Edward G. Harness, Jr., and each of them
individually, his attorney in fact, for him and in his name, place and stead and
in his office and capacity with the Portfolios, to sign and participate in the
filing of the Registration Statement, including the prospectus, statement of
additional information and exhibits included therein, and thereafter to execute
and file any additional amended registration statement or statements, amended
prospectus or prospectuses, amended statement or statements of additional
information, amended exhibits or any supplements to any of the foregoing, hereby
giving and granting to said attorneys full power and authority to do and perform
each and every act and thing whatsoever requisite and necessary to be done in
and about the premises as fully to all intents and purposes as he might or could
do if personally present at the doing thereof, hereby ratifying and confirming
all that said attorneys may or shall lawfully do or cause to be done by virtue
hereof.
This authority hereby granted is limited to the execution and delivery of
the Registration Statement, amendments thereto and included documents and,
unless earlier revoked by me or expressly extended by me in writing, shall
remain in force and effect only until such Registration Statement shall have
been declared effective by the Securities and Exchange Commission.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand this ____ day
of March, 1997.
/s/ David Pollak
------------------------------
David Pollak
<PAGE>
POWER OF ATTORNEY
WHEREAS, SELECT ADVISORS PORTFOLIOS, a New York trust (the "Trust"), is
required, under rules, regulations and interpretations of the Securities and
Exchange Commission to sign the registration statements of investment companies
who invest primarily in the portfolios of the Trust, and
WHEREAS, Western-Southern Life Assurance Separate Account 1 invests,
through one or more of its respective Sub-Accounts, solely in one or more
portfolios of the Trust, thus requiring that the officers and trustees of this
Trust sign the registration statement of such entity that is to be filed (the
"Registration Statement"), and
WHEREAS, the undersigned is a Trustee of the Portfolios;
NOW, THEREFORE, the undersigned hereby constitutes and appoints John F.
Barrett, Edward S. Heenan and Edward G. Harness, Jr., and each of them
individually, his attorney in fact, for him and in his name, place and stead and
in his office and capacity with the Portfolios, to sign and participate in the
filing of the Registration Statement, including the prospectus, statement of
additional information and exhibits included therein, and thereafter to execute
and file any additional amended registration statement or statements, amended
prospectus or prospectuses, amended statement or statements of additional
information, amended exhibits or any supplements to any of the foregoing, hereby
giving and granting to said attorneys full power and authority to do and perform
each and every act and thing whatsoever requisite and necessary to be done in
and about the premises as fully to all intents and purposes as he might or could
do if personally present at the doing thereof, hereby ratifying and confirming
all that said attorneys may or shall lawfully do or cause to be done by virtue
hereof.
This authority hereby granted is limited to the execution and delivery of
the Registration Statement, amendments thereto and included documents and,
unless earlier revoked by me or expressly extended by me in writing, shall
remain in force and effect only until such Registration Statement shall have
been declared effective by the Securities and Exchange Commission.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand this 8th day
of March, 1997.
/s/ Robert E. Stautberg
------------------------------
Robert E. Stautberg
<PAGE>
POWER OF ATTORNEY
WHEREAS, SELECT ADVISORS PORTFOLIOS, a New York trust (the "Trust"), is
required, under rules, regulations and interpretations of the Securities and
Exchange Commission to sign the registration statements of investment companies
who invest primarily in the portfolios of the Trust, and
WHEREAS, Western-Southern Life Assurance Separate Account 1 invests,
through one or more of its respective Sub-Accounts, solely in one or more
portfolios of the Trust, thus requiring that the officers and trustees of this
Trust sign the registration statement of such entity that is to be filed (the
"Registration Statement"), and
WHEREAS, the undersigned is a Trustee of the Portfolios;
NOW, THEREFORE, the undersigned hereby constitutes and appoints John F.
Barrett, Edward S. Heenan and Edward G. Harness, Jr., and each of them
individually, his attorney in fact, for him and in his name, place and stead and
in his office and capacity with the Portfolios, to sign and participate in the
filing of the Registration Statement, including the prospectus, statement of
additional information and exhibits included therein, and thereafter to execute
and file any additional amended registration statement or statements, amended
prospectus or prospectuses, amended statement or statements of additional
information, amended exhibits or any supplements to any of the foregoing, hereby
giving and granting to said attorneys full power and authority to do and perform
each and every act and thing whatsoever requisite and necessary to be done in
and about the premises as fully to all intents and purposes as he might or could
do if personally present at the doing thereof, hereby ratifying and confirming
all that said attorneys may or shall lawfully do or cause to be done by virtue
hereof.
This authority hereby granted is limited to the execution and delivery of
the Registration Statement, amendments thereto and included documents and,
unless earlier revoked by me or expressly extended by me in writing, shall
remain in force and effect only until such Registration Statement shall have
been declared effective by the Securities and Exchange Commission.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand this 31st of
March, 1997.
/s/ Joseph S. Stern, Jr.
------------------------------
Joseph S. Stern, Jr.
