-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, MGqzxxzJiZnQvR4TO8gI3/qsTfBXKjkUULPcN/gj/7hWCnLVr027AYsltiBFll1b 9qpS0UmC/hGUa4SmyO8srA== 0000950144-02-001868.txt : 20020414 0000950144-02-001868.hdr.sgml : 20020414 ACCESSION NUMBER: 0000950144-02-001868 CONFORMED SUBMISSION TYPE: 485APOS PUBLIC DOCUMENT COUNT: 3 FILED AS OF DATE: 20020228 FILER: COMPANY DATA: COMPANY CONFORMED NAME: WRL SERIES LIFE ACCOUNT CENTRAL INDEX KEY: 0000778209 STATE OF INCORPORATION: OH FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 485APOS SEC ACT: 1933 Act SEC FILE NUMBER: 333-58322 FILM NUMBER: 02560938 BUSINESS ADDRESS: STREET 1: 570 CARILLON PARKWAY CITY: ST PETERSBURG STATE: FL ZIP: 33716 BUSINESS PHONE: 2722991800 MAIL ADDRESS: STREET 1: 201 HIGHLAND AVENUE CITY: LARGO STATE: FL ZIP: 33770 FILER: COMPANY DATA: COMPANY CONFORMED NAME: WRL SERIES LIFE ACCOUNT CENTRAL INDEX KEY: 0000778209 STATE OF INCORPORATION: OH FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 485APOS SEC ACT: 1940 Act SEC FILE NUMBER: 811-04420 FILM NUMBER: 02560939 BUSINESS ADDRESS: STREET 1: 570 CARILLON PARKWAY CITY: ST PETERSBURG STATE: FL ZIP: 33716 BUSINESS PHONE: 2722991800 MAIL ADDRESS: STREET 1: 201 HIGHLAND AVENUE CITY: LARGO STATE: FL ZIP: 33770 485APOS 1 g73574e485apos.txt WRL SERIES LIFE ACCOUNT As filed with the Securities and Exchange Commission on February 28, 2002 Registration File Nos. 333-58322/811-4420 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 --------------------------------- POST-EFFECTIVE AMENDMENT NO. 3 FORM S-6 --------------------------------- FOR REGISTRATION UNDER THE SECURITIES ACT OF 1933 OF SECURITIES OF UNIT INVESTMENT TRUSTS REGISTERED ON FORM N-8B-2 --------------------------------- WRL SERIES LIFE ACCOUNT (Exact Name of Trust) WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO (Name of Depositor) 570 Carillon Parkway St. Petersburg, Florida 33716 (Complete Address of Depositor's Principal Executive Offices) John K. Carter, Esq. Vice President and Senior Counsel Western Reserve Life Assurance Co. of Ohio 570 Carillon Parkway St. Petersburg, Florida 33716 (Name and Complete Address of Agent for Service) Copies to: Stephen E. Roth, Esq. Sutherland Asbill & Brennan LLP 1275 Pennsylvania Avenue, N.W. Washington, D.C. 20004-2415 --------------------------------- Title of Securities being registered: Units of interest in the separate account under flexible payment deferred variable life policies. It is proposed that this filing will become effective (check appropriate space): immediately upon filing pursuant to paragraph (b) of Rule 485 - --------- on (Date) , pursuant to paragraph (b) of Rule 485 - --------- ---------------- 60 days after filing pursuant to paragraph (a) of Rule 485 - --------- X on May 1, 2002 , pursuant to paragraph (a) of Rule 485 - --------- ----------------- PROSPECTUS - -------------------------------- MAY 1, 2002 WRL FREEDOM ELITE BUILDER(SM) issued through WRL Series Life Account by Western Reserve Life Assurance Co. of Ohio 570 Carillon Parkway St. Petersburg, Florida 33716 1-800-851-9777 (727) 299-1800 AN INDIVIDUAL FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED OR DISAPPROVED THESE SECURITIES OR PASSED UPON THE ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. CONSIDER CAREFULLY THE RISK FACTORS BEGINNING ON PAGE 15 OF THIS PROSPECTUS. An investment in this Policy is not a bank deposit. The Policy is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. If you already own a life insurance policy, it may not be to your advantage to buy additional insurance or to replace your policy with the Policy described in this prospectus. Prospectuses for the portfolios of: AEGON/Transamerica Series Fund, Inc.; Variable Insurance Products Fund (VIP); Variable Insurance Products Fund II (VIP II); and Variable Insurance Products Fund III (VIP III) must accompany this prospectus. Certain portfolios may not be available in all states. Please read these documents before investing and save them for future reference. TABLE OF CONTENTS - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Glossary.................................................... 1 Policy Summary.............................................. 5 The Policy in General............................. 5 Premiums.......................................... 5 Deductions from premium before we place it in a subaccount and/or the fixed account............. 6 Investment Options................................ 6 Cash Value........................................ 7 Transfers......................................... 7 Charges and Deductions............................ 8 Portfolio Annual Expense Table.................... 10 Loans............................................. 12 Death Benefit..................................... 12 Cash Withdrawals and Surrenders................... 13 Illustrations..................................... 14 Compensation...................................... 14 Inquiries......................................... 14 Risk Summary................................................ 15 Western Reserve and the Fixed Account....................... 18 Western Reserve................................... 18 The Fixed Account................................. 18 The Separate Account and the Portfolios..................... 19 The Separate Account.............................. 19 The Funds......................................... 19 Addition, Deletion, or Substitution of Investments..................................... 25 Your Right to Vote Portfolio Shares............... 26 The Policy.................................................. 26 Purchasing a Policy............................... 26 Tax-Free "Section 1035" Exchanges................. 27 Underwriting Standards............................ 27 When Insurance Coverage Takes Effect.............. 28 Backdating a Policy............................... 29 Ownership Rights.................................. 30 Canceling a Policy................................ 31 Premiums.................................................... 31 Premium Flexibility............................... 31 Planned Periodic Payments......................... 32 Minimum Monthly Guarantee Premium................. 32 No Lapse Period................................... 33 Premium Limitations............................... 33 Making Premium Payments........................... 33 Allocating Premiums............................... 34 Policy Values............................................... 35 Cash Value........................................ 35 Net Surrender Value............................... 35 Subaccount Value.................................. 35 Subaccount Unit Value............................. 36 Fixed Account Value............................... 36
This Policy is not available in the State of New York. i Transfers................................................... 37 General........................................... 37 Fixed Account Transfers........................... 39 Conversion Rights................................. 39 Dollar Cost Averaging............................. 40 Asset Rebalancing Program......................... 40 Third Party Asset Allocation Services............. 41 Charges and Deductions...................................... 42 Premium Charges................................... 43 Monthly Deduction................................. 43 Mortality and Expense Risk Charge................. 45 Surrender Charge.................................. 46 Decrease Charge................................... 48 Transfer Charge................................... 48 Change in Net Premium Allocation Charge........... 48 Cash Withdrawal Charge............................ 49 Taxes............................................. 49 Portfolio Expenses................................ 49 Death Benefit............................................... 49 Death Benefit Proceeds............................ 49 Death Benefit..................................... 50 Effects of Cash Withdrawals on the Death Benefit......................................... 51 Effects of AccelPay Rider on the Death Benefit.... 52 Choosing Death Benefit Options.................... 52 Changing the Death Benefit Option................. 52 Increasing/Decreasing the Specified Amount........ 52 Payment Options................................... 53 Surrenders and Cash Withdrawals............................. 54 Surrenders........................................ 54 Cash Withdrawals.................................. 54 Loans....................................................... 55 General........................................... 55 Interest Rate Charged............................. 56 Loan Reserve Interest Rate Credited............... 56 Effect of Policy Loans............................ 56 Policy Lapse and Reinstatement.............................. 57 Lapse............................................. 57 No Lapse Period................................... 57 Reinstatement..................................... 58 Federal Income Tax Considerations........................... 58 Tax Status of the Policy.......................... 59 Tax Treatment of Policy Benefits.................. 59 Special Rules for 403(b) Arrangements............. 62 Other Policy Information.................................... 62 Our Right to Contest the Policy................... 62 Suicide Exclusion................................. 63 Misstatement of Age or Gender..................... 63 Modifying the Policy.............................. 63 Benefits at Maturity.............................. 63 Payments We Make.................................. 64 Settlement Options................................ 64
ii Reports to Owners.......................................................................................... 65 Records.................................................................................................... 65 Policy Termination......................................................................................... 66 Supplemental Benefits (Riders)....................................................................................... 66 Children's Insurance Rider................................................................................. 66 Accidental Death Benefit Rider............................................................................. 66 Other Insured Rider........................................................................................ 66 Disability Waiver Rider.................................................................................... 67 Disability Waiver and Income Rider......................................................................... 67 Primary Insured Rider ("PIR") and Primary Insured Rider Plus ("PIR Plus").................................. 68 Living Benefit Rider (an Accelerated Death Benefit)........................................................ 68 AccelPay Rider............................................................................................. 69 IMSA................................................................................................................. 71 Performance Data..................................................................................................... 72 Rates of Return............................................................................................ 72 Other Performance Data in Advertising Sales Literature..................................................... 75 Western Reserve's Published Ratings........................................................................ 75 Additional Information............................................................................................... 76 Sale of the Policies....................................................................................... 76 Legal Matters.............................................................................................. 76 Legal Proceedings.......................................................................................... 77 Variations in Policy Provisions............................................................................ 77 Personalized Illustrations of Policy Benefits.............................................................. 77 Experts.................................................................................................... 77 Financial Statements....................................................................................... 78 Additional Information about Western Reserve............................................................... 78 Western Reserve's Directors and Officers................................................................... 79 Additional Information about the Separate Account.......................................................... 83 Appendix A -- Wealth Indices of Investments in the U.S. Capital Market............................................... 84 Appendix B -- Surrender Charge Per Thousand (Based on the gender and rate class of the insured)...................... 86 Index to Financial Statements........................................................................................ 88 WRL Series Life Account.................................................................................... Western Reserve Life Assurance Co. of Ohio.................................................................
iii GLOSSARY - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- accounts The options to which you can allocate your money. The accounts include the fixed account and the subaccounts in the separate account. ------------------------------------------------------------ attained age The issue age of the person insured, plus the number of completed years since the Policy date (for the initial specified amount) or the date of each increase in specified amount. ------------------------------------------------------------ Base Policy The WRL Freedom Elite Builder variable life insurance policy without any supplemental riders. ------------------------------------------------------------ beneficiary(ies) The person or persons you select to receive the death benefit from this Policy. You name the primary beneficiary and contingent beneficiaries. ------------------------------------------------------------ cash value The sum of your Policy's value in the subaccounts and the fixed account. If there is a Policy loan outstanding, the cash value includes any amounts held in our fixed account to secure the Policy loan. ------------------------------------------------------------ death benefit proceeds The amount we will pay to the beneficiary(ies) on the insured's death. We will reduce the death benefit proceeds by the amount of any outstanding loan amount, and any due and unpaid monthly deductions. ------------------------------------------------------------ decrease charge Surrender charge that may be imposed upon a decrease in specified amount during the first 15 Policy years (or during the 15 years subsequent to an increase in specified amount). ------------------------------------------------------------ fixed account An option to which you may allocate net premiums and cash value. We guarantee that any amounts you allocate to the fixed account will earn interest at a declared rate. New Jersey residents: the fixed account is NOT available to you. ------------------------------------------------------------ free-look period The period during which you may return the Policy and receive a refund as described in this prospectus. The length of the free-look period varies by state. The free-look period is listed in the Policy. ------------------------------------------------------------ funds Investment companies which are registered with the U.S. Securities and Exchange Commission. The Policy allows you to invest in the portfolios of the funds through our subaccounts. We reserve the right to add other registered investment companies to the Policy in the future. ------------------------------------------------------------ in force While coverage under the Policy is active and the insured's life remains insured. ------------------------------------------------------------ initial premium The amount you must pay before insurance coverage begins under this Policy. The initial premium is shown on the schedule page of your Policy. ------------------------------------------------------------ insured The person whose life is insured by this Policy. ------------------------------------------------------------ issue age The insured's age on his or her birthday nearest to the Policy date. When you increase the Base Policy's specified amount of insurance coverage, the issue age for the new segment of specified amount coverage is the insured's age on his or her birthday nearest the date that the increase in specified amount takes effect. This age may be different from the attained age on other segments of specified amount coverage. ------------------------------------------------------------
1 lapse When life insurance coverage ends because you do not have enough cash value in the Policy to pay the monthly deduction, the surrender charge and any outstanding loan amount, and you have not made a sufficient payment by the end of a grace period. ------------------------------------------------------------ loan amount The total amount of all outstanding Policy loans, including both principal and interest due. ------------------------------------------------------------ loan reserve A part of the fixed account to which amounts are transferred as collateral for Policy loans. ------------------------------------------------------------ maturity date The Policy anniversary nearest the insured's 100th birthday if the insured is living and the Policy is still in force. It is the date when life insurance coverage under this Policy ends. You may continue coverage, at your option, under the Policy's extended maturity date benefit provision. ------------------------------------------------------------ minimum monthly The amount shown on your Policy schedule page that we use guarantee premium during the no lapse period to determine whether a grace period will begin. We will adjust the minimum monthly guarantee premium if you change death benefit options, increase or decrease the specified amount, or add, increase or decrease a rider. A grace period will begin whenever your net surrender value is not enough to meet monthly deductions. ------------------------------------------------------------ Monthiversary This is the day of each month when we determine Policy charges and deduct them from cash value. It is the same date each month as the Policy date. If there is no valuation date in the calendar month that coincides with the Policy date, the Monthiversary is the next valuation date. ------------------------------------------------------------ monthly deduction The monthly Policy charge, plus the monthly cost of insurance, plus the monthly charge for any riders added to your Policy, plus, if any, the decrease charge incurred as a result of a decrease in your specified amount. ------------------------------------------------------------ net premium The part of your premium that we allocate to the fixed account or the subaccounts. The net premium is equal to the premium you paid minus the premium expense charges and the premium collection charge. ------------------------------------------------------------ net surrender value The amount we will pay you if you surrender the Policy while it is in force. The net surrender value on the date you surrender is equal to: the cash value, minus any surrender charge, and minus any outstanding loan amount. ------------------------------------------------------------ no lapse date For a Policy issued to any insured ages 0-60, the no lapse date is either the anniversary on which the insured's attained age is 65 or the twentieth Policy anniversary, whichever is earlier. For a Policy issued to an insured ages 61-85, the no lapse date is the fifth Policy anniversary. The no lapse date is specified in your Policy. ------------------------------------------------------------ no lapse period The period of time between the Policy date and the no lapse date during which the Policy will not lapse if certain conditions are met. ------------------------------------------------------------ office Our administrative office and mailing address is P.O. Box 5068, Clearwater, Florida 33758-5068. Our street address is 570 Carillon Parkway, St. Petersburg, Florida 33716. Our phone number is 1-800-851-9777, extension 6539. Our hours are Monday-Friday from 8:00 a.m.-7:00 p.m. Eastern time. ------------------------------------------------------------ planned periodic A premium payment you make in a level amount at a fixed premium interval over a specified period of time. ------------------------------------------------------------
2 Policy date The date when our underwriting process is complete, full life insurance coverage goes into effect, the initial premium payment has been received, and we begin to make the monthly deductions. The Policy date is shown on the schedule page of your Policy. If you request, we may backdate a Policy by assigning a Policy date earlier than the date the Policy is issued. We measure Policy months, years, and anniversaries from the Policy date. ------------------------------------------------------------ portfolio One of the separate investment portfolios of a fund. ------------------------------------------------------------ premiums All payments you make under the Policy other than loan repayments. ------------------------------------------------------------ reallocation account That portion of the fixed account where we hold the net premium(s) from the record date until the reallocation date. ------------------------------------------------------------ reallocation date The date we reallocate all cash value held in the reallocation account to the fixed account and subaccounts you selected on your application. We place your net premium in the reallocation account only if your state requires us to return the full premium in the event you exercise your free-look right. In those states the reallocation date is the record date, plus the number of days in your state's free-look period, plus five days. In all other states, the reallocation date is the record date. ------------------------------------------------------------ record date The date we record your Policy on our books as an in force Policy. The record date is generally the Policy date, unless the Policy is backdated. The record date is the date when, depending on the laws of the state governing your Policy (usually the state where you live), we allocate your net premium either to the reallocation account or to the fixed account and the subaccounts you selected on your application. ------------------------------------------------------------ separate account The WRL Series Life Account. It is a separate investment account that is divided into subaccounts. We established the separate account to receive and invest net premiums under the Policy and other variable life insurance policies we issue. ------------------------------------------------------------ specified amount The minimum death benefit we will pay under the Policy provided the Policy is in force. The initial specified amount is the amount shown on the Base Policy's schedule page that you receive when the Policy is issued. The specified amount in force is the initial specified amount, adjusted for any increases or decreases in the Base Policy's specified amount. Events such as a request to increase or decrease the specified amount, a change in death benefit option, or a cash withdrawal (if you choose Option A death benefit) may affect the specified amount in force. ------------------------------------------------------------ subaccount A subdivision of the separate account that invests exclusively in shares of one investment portfolio of a fund. ------------------------------------------------------------ surrender charge If, during the first 15 Policy years (or during the 15 year period subsequent to an increase in specified amount), you fully surrender the Policy, we will deduct a surrender charge from the cash value. ------------------------------------------------------------ termination When the insured's life is no longer insured under the Policy. ------------------------------------------------------------ Each day the New York Stock Exchange is open for trading. valuation date Western Reserve is open for business whenever the New York Stock Exchange is open. ------------------------------------------------------------
3 valuation period The period of time over which we determine the change in the value of the subaccounts. Each valuation period begins at the close of normal trading on the New York Stock Exchange (currently 4:00 p.m. Eastern time on each valuation date) and ends at the close of normal trading of the New York Stock Exchange on the next valuation date. ------------------------------------------------------------ we, us, our (Western Reserve) Western Reserve Life Assurance Co. of Ohio. ------------------------------------------------------------ written notice The written notice you must sign and send us to request or exercise your rights as owner under the Policy. To be complete, it must: (1) be in a form we accept, (2) contain the information and documentation that we determine we need to take the action you request, and (3) be received at our office. ------------------------------------------------------------ you, your (owner or policyowner) The person entitled to exercise all rights as owner under the Policy.
4 POLICY SUMMARY WRL FREEDOM ELITE BUILDER(SM) - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- This summary provides only a brief overview of the more important features of the Policy. More detailed information about the Policy appears later in this prospectus. PLEASE READ THE REMAINDER OF THIS PROSPECTUS CAREFULLY. THE POLICY IN GENERAL The WRL Freedom Elite Builder(SM) is an individual flexible premium variable life insurance policy. The Policy is designed to be long-term in nature in order to provide significant life insurance benefits for you. However, purchasing this Policy involves certain risks. (See Risk Summary p. 15.) You should consider the Policy in conjunction with other insurance you own. THE POLICY IS NOT SUITABLE AS A SHORT-TERM SAVINGS VEHICLE. A few of the Policy features listed below are not available in all states, may vary depending upon when your Policy was issued and may not be suitable for your particular situation. Certain states place restrictions on access to the fixed account and on other Policy features. Please consult your agent and refer to your Policy for details. PREMIUMS -- You select a payment plan but are not required to pay premiums according to the plan. You can vary the frequency and amount, within limits, and can skip premium payments. -- Unplanned premiums may be made, within limits. -- Premium payments must be at least $50 if paid monthly and $600 if paid annually. -- You increase your risk of lapse if you do not regularly pay premiums at least as large as the current minimum monthly guarantee premium. -- Until the no lapse date shown on your Policy schedule page, we guarantee that your Policy will not lapse, so long as on any Monthiversary you have paid total premiums (MINUS any cash withdrawals, MINUS any outstanding loan amount, and MINUS any decrease charge) that equal or exceed the sum of the minimum monthly guarantee premiums in effect for each month since the Policy date up to and including the current month. If you take a cash withdrawal, a loan, or if you increase or decrease your specified amount, you may need to pay additional premiums in order to keep the no lapse guarantee in place. -- The minimum monthly guarantee premium on the Policy date is shown on your Policy schedule page. We will adjust the minimum monthly guarantee premium if you change death benefit options, increase or decrease the specified amount, or add, increase or decrease a rider. -- Under certain circumstances, extra premiums may be required to prevent lapse. -- Once we deliver your Policy, the FREE-LOOK PERIOD begins. You may return the Policy during this period and receive a refund. Depending on the laws of the state governing your Policy (usually the state where you live), we will either allocate your net premium to the accounts you indicated on your application, or we will place your net premium in the reallocation account until the reallocation date as shown on your Policy schedule page. See Reallocation Account p. 34. 5 DEDUCTIONS FROM PREMIUM BEFORE WE PLACE IT IN A SUBACCOUNT AND/OR THE FIXED ACCOUNT -- For the first ten Policy years: 6.0% premium expense charge for Policies with a specified amount in force of less than $250,000; 4.0% for Policies with a specified amount in force of $250,000 - $499,999. -- After the tenth Policy year: 2.5% premium expense charge for Policies with a specified amount in force of less than $500,000. -- There is no premium expense charge for Policies with a specified amount in force of $500,000 or higher. -- A premium collection charge of $3.00 from each premium payment for Policies on direct pay notice. We currently do not impose this charge but reserve the right to do so in the future. This charge does not apply to Policies under an electronic funds transfer program. INVESTMENT OPTIONS Subaccounts. You may direct the money in your Policy to any of the subaccounts of the WRL Series Life Account, a separate account. For administrative reasons, we currently limit the number of subaccounts that you can invest in at any one time to 16 active subaccounts. Each subaccount invests exclusively in one investment portfolio of a fund. THE MONEY YOU PLACE IN THE SUBACCOUNTS IS NOT GUARANTEED. THE VALUE OF EACH SUBACCOUNT WILL INCREASE OR DECREASE, DEPENDING ON INVESTMENT PERFORMANCE OF THE CORRESPONDING PORTFOLIO. DURING EXTENDED PERIODS OF LOW INTEREST RATES, THE YIELDS OF MONEY MARKET SUBACCOUNTS MAY BECOME EXTREMELY LOW AND POSSIBLY NEGATIVE. YOU COULD LOSE SOME OR ALL OF YOUR MONEY. The portfolios available to you are: AEGON/TRANSAMERICA SERIES FUND, INC. [ ] Munder Net50 [ ] Van Kampen Emerging Growth [ ] T. Rowe Price Small Cap [ ] Pilgrim Baxter Mid Cap Growth [ ] Alger Aggressive Growth [ ] Third Avenue Value [ ] Value Line Aggressive Growth [ ] American Century International (formerly GE International Equity) [ ] Gabelli Global Growth [ ] Great Companies -- Global(2) [ ] Great Companies -- Technology(SM) [ ] Janus Growth [ ] LKCM Capital Growth [ ] Goldman Sachs Growth [ ] GE U.S. Equity [ ] Great Companies -- America(SM) [ ] Salomon All Cap [ ] Dreyfus Mid Cap [ ] PBGH /NWQ Large Cap Value Select (formerly NWQ Value Equity) [ ] Transamerica U.S. Government Securities [ ] T. Rowe Price Dividend Growth [ ] Transamerica Value Balanced (formerly Dean Asset Allocation) [ ] LKCM Strategic Total Return [ ] Clarion Real Estate Securities (formerly J.P. Morgan Real Estate Securities) [ ] Federated Growth & Income [ ] Janus Balanced [ ] AEGON Bond [ ] Transamerica Money Market (formerly J.P. Morgan Money Market) [ ] Conservative Asset Allocation [ ] Moderate Asset Allocation [ ] Moderately Aggressive Asset Allocation [ ] Aggressive Asset Allocation [ ] Transamerica Convertible Securities [ ] PIMCO Total Return [ ] Transamerica Growth [ ] Transamerica Small Company [ ] J.P. Morgan Enhanced Index [ ] Capital Guardian Value [ ] Capital Guardian U.S. Equity
6 VARIABLE INSURANCE PRODUCTS FUND (VIP) [ ] Fidelity VIP Equity-Income Portfolio -- Service Class 2 VARIABLE INSURANCE PRODUCTS FUND II (VIP II) [ ] Fidelity VIP II Contrafund(R) Portfolio -- Service Class 2 VARIABLE INSURANCE PRODUCTS FUND III (VIP III) [ ] Fidelity VIP III Growth Opportunities Portfolio -- Service Class 2 Fixed Account. You may also direct the money in your Policy to the fixed account. Unless otherwise required by state law, we may restrict your allocations or transfers to the fixed account if the fixed account value following the allocation or transfer would exceed $500,000. Money you place in the fixed account is guaranteed, and will earn interest at a current interest rate declared from time to time. The annual interest rate will equal at least 3.0%. The fixed account is NOT available to residents of New Jersey. CASH VALUE -- Cash value equals the sum of your Policy's value in the subaccounts and the fixed account. If there is a loan outstanding, the cash value includes any amounts held in our fixed account to secure the Policy loan. -- Cash value varies from day to day, depending on the investment experience of the subaccounts you choose, the interest credited to the fixed account, the charges deducted and any other Policy transactions (such as additional premium payments, transfers, withdrawals, and Policy loans). -- Cash value is the starting point for calculating important values under the Policy, such as net surrender value and the death benefit. -- There is no guaranteed minimum cash value. The Policy may lapse if you do not have sufficient cash value in the Policy to pay the monthly deductions, the surrender charge and/or any outstanding loan amount(s). -- The Policy will not lapse during the no lapse period so long as you have paid sufficient premiums. See Minimum Monthly Guarantee Premium p. 32. TRANSFERS -- You can transfer cash value among the subaccounts and the fixed account. We charge a $25 transfer processing fee for each transfer after the first 12 transfers in a Policy year. -- You may make transfers in writing, by telephone or by fax. -- Policy loans reduce the amount of cash value available for transfers. -- Dollar cost averaging and asset rebalancing programs are available. -- You may make one transfer per Policy year from the fixed account, and we must receive at our office your request to transfer from the fixed account within 30 days after a Policy anniversary unless you select dollar cost averaging from the fixed account. The amount of your transfer is limited to the greater of: + 25% of your value in the fixed account (currently we allow up to 50% of your value but the 50% limit is not guaranteed); OR + the amount you transferred from the fixed account in the preceding Policy year. 7 CHARGES AND DEDUCTIONS -- PREMIUM EXPENSE CHARGE: During the first ten Policy years, we deduct 6.0% from each premium payment on Policies with a specified amount in force of less than $250,000 (4.0% on Policies with a specified amount in force of $250,000 - $499,999). After the tenth Policy year we reduce the charge to 2.5%. There is no premium expense charge for Policies with a specified amount in force of $500,000 or higher. -- PREMIUM COLLECTION CHARGE: We deduct $3.00 from each premium payment for Policies on direct pay notice. We currently do not impose this charge but reserve the right to do so in the future. This charge does not apply to Policies under an electronic funds transfer program. -- MONTHLY POLICY CHARGE: We currently deduct $5.00 from your cash value each month. This charge is guaranteed not to exceed $7.50. This charge is used to cover aggregate Policy expenses. -- COST OF INSURANCE CHARGES: Deducted monthly from your cash value. Your charges vary each month with the insured's issue age on the Policy date, issue age at the time of any increase in specified amount, length of time from the Policy date or from the date of any increase in specified amount, specified amount band, gender, rate class, the specified amount in force, the death benefit option you choose, and the investment experience of the portfolios in which you invest. We currently charge lower cost of insurance rates for Policies in higher specified amount bands. -- MORTALITY AND EXPENSE RISK CHARGE: Deducted daily from each subaccount at an annual rate of 0.90% of your average daily net assets of each subaccount. We guarantee to reduce this amount to 0.60% after the first 15 Policy years. We intend to reduce this amount to 0.30% in the 16th Policy year, but we do not guarantee that we will do so. -- SURRENDER CHARGE: Deducted when a full surrender occurs during the first 15 Policy years (or during the first 15 years following each increase in specified amount). The initial specified amount has a 15 year surrender charge period starting on the Policy date and surrender charges that are based upon the insured's issue age, gender and rate class on the Policy date. Each increase in specified amount will have its own 15 year surrender charge period starting on the date of the increase and surrender charges that are based upon the insured's issue age, gender and rate class at the time of the increase. The surrender charge that will apply on a full surrender of the Policy is the total of the surrender charges calculated for the Base Policy's initial specified amount and the surrender charges calculated for each increase in specified amount. SURRENDER CHARGES MAY BE SIGNIFICANT. You may have no net surrender value if you surrender your Policy in the initial Policy years. The surrender charges that apply for 15 years after any increase in specified amount will likely significantly reduce your net surrender value. -- DECREASE CHARGE: If you request a decrease in the specified amount during the first 15 Policy years or during the 15 years following any increase in specified amount, we will deduct a decrease charge. -- TRANSFER CHARGE: We deduct $25 for each transfer in excess of 12 per Policy year. -- CHANGE IN NET PREMIUM ALLOCATION CHARGE: We currently do not charge if you change your net premium allocation. However, we reserve the right to charge you $25 if you make more than one change every three months in your allocation schedule. We will notify you if we decide to impose this charge. 8 -- RIDER CHARGES: We deduct charges each month for the optional insurance benefits (riders) you select. Each rider will have its own charge. -- CASH WITHDRAWAL FEE: We deduct a processing fee for cash withdrawals equal to the lesser of $25 or 2% of the withdrawal. -- PORTFOLIO EXPENSES: The portfolios deduct management fees and expenses from the amounts you have invested in the portfolios. These fees and expenses reduce the value of your portfolio shares. Some portfolios also deduct 12b-1 fees from portfolio assets. These fees and expenses currently range from % to % annually, depending on the portfolio. See Portfolio Annual Expense Table below. See also the fund prospectuses. 9 PORTFOLIO ANNUAL EXPENSE TABLE This table shows the fees and expenses charged by each portfolio. More detail concerning each portfolio's fees and expenses is contained in the fund prospectuses. ANNUAL PORTFOLIO OPERATING EXPENSES(1) (As a percentage of average portfolio assets after fee waivers and expense reimbursements)
NET GROSS TOTAL FEES AND EXPENSES TOTAL PORTFOLIO MANAGEMENT OTHER RULE 12B-1 PORTFOLIO WAIVED OR ANNUAL PORTFOLIO FEES EXPENSES FEES EXPENSES REIMBURSED EXPENSES AEGON/TRANSAMERICA SERIES FUND, INC.(2)(6) Munder Net50 0.90% 0.10% N/A % % 1.00% Van Kampen Emerging Growth 0.80% 0.05% N/A % % 0.85% T. Rowe Price Small Cap 0.75% 0.25% N/A % % 1.00% Pilgrim Baxter Mid Cap Growth 0.85% 0.07% N/A % % 0.92% Alger Aggressive Growth 0.80% 0.06% N/A % % 0.86% Third Avenue Value 0.80% 0.12% N/A % % 0.92% Value Line Aggressive Growth 0.80% 0.20% N/A % % 1.00% American Century International 1.00% 0.20% N/A % % 1.20% Gabelli Global Growth 1.00% 0.20% N/A % % 1.20% Great Companies -- Global(2) 0.80% 0.20% N/A % % 1.00% Great Companies -- Technology(SM) 0.80% 0.20% N/A % % 1.00% Janus Growth 0.80% 0.02% N/A % % 0.82% LKCM Capital Growth 0.80% 0.20% N/A % % 1.00% Goldman Sachs Growth 0.90% 0.10% N/A % % 1.00% GE U.S. Equity 0.80% 0.08% N/A % % 0.88% Great Companies -- America(SM) 0.80% 0.11% N/A % % 0.91% Salomon All Cap 0.90% 0.10% N/A % % 1.00% Dreyfus Mid Cap 0.85% 0.15% N/A % % 1.00% PBGH/NWQ Large Cap Value Select 0.80% 0.08% N/A % % 0.88% T. Rowe Price Dividend Growth 0.90% 0.10% N/A % % 1.00% Transamerica Value Balanced 0.80% 0.07% N/A % % 0.87% LKCM Strategic Total Return 0.80% 0.05% N/A % % 0.85% Clarion Real Estate Securities 0.80% 0.20% N/A % % 1.00% Federated Growth & Income 0.75% 0.11% N/A % % 0.86% Janus Balanced 0.80% 0.08% N/A % % 0.88% AEGON Bond 0.45% 0.08% N/A % % 0.53% Transamerica Money Market 0.40% 0.04% N/A % % 0.44% Conservative Asset Allocation(3)(7) % % N/A % % % Moderate Asset Allocation(3)(7) % % N/A % % % Moderately Aggressive Asset Allocation(3)(7) % % N/A % % % Aggressive Asset Allocation(3)(7) % % N/A % % % Transamerica Convertible Securities(3) % % N/A % % % PIMCO Total Return(3) % % N/A % % % Transamerica Growth(3) % % N/A % % % Transamerica Small Company(3) % % N/A % % % Transamerica U.S. Government Securities(3) % % N/A % % % J.P. Morgan Enhanced Index(3) % % N/A % % % Capital Guardian Value(3) % % N/A % % % Capital Guardian U.S. Equity(3) % % N/A % % % VARIABLE INSURANCE PRODUCTS FUND (VIP) Fidelity VIP Equity-Income Portfolio -- Service Class 2(5) 0.48% 0.10% 0.25%(4) % % 0.83% VARIABLE INSURANCE PRODUCTS FUND II (VIP II) Fidelity VIP II Contrafund(R) Portfolio -- Service Class 2(5) 0.57% 0.10% 0.25%(4) % % 0.92% VARIABLE INSURANCE PRODUCTS FUND III (VIP III) Fidelity VIP III Growth Opportunities Portfolio -- Service Class 2(5) 0.58% 0.12% 0.25%(4) % % 0.95%
10 (1) The fee table information relating to the portfolios was provided to Western Reserve by the funds. Western Reserve has not independently verified such information. (2) Effective January 1, 1997, the Board of the AEGON/Transamerica Series Fund, Inc. ("Series Fund") authorized the Series Fund to charge each portfolio of the Series Fund an annual Rule 12b-1 fee of up to 0.15% of each portfolio's average daily net assets. However, the Series Fund will not deduct the fee from any portfolio before April 30, 2003. You will receive advance written notice if a Rule 12b-1 fee is to be deducted. See the Series Fund prospectus for more details. (3) Because this portfolio did not commence operations until May 1, 2002, the percentages set forth as "Other Expenses" and "Total Annual Expenses" are annualized. (4) The 12b-1 fee deducted for the Variable Insurance Products Fund (VIP), Variable Insurance Products Fund II (VIP II), and Variable Insurance Products Fund III (VIP III) (the "Fidelity VIP Funds") covers certain shareholder support services provided by companies selling variable contracts investing in the Fidelity VIP Funds. The 12b-1 fees assessed against the Fidelity VIP Funds shares held for the Policies will be remitted to AFSG, the principal underwriter for the Policies. (5) Total Portfolio Annual Expenses for Service Class 2 shares were lower than those shown in the Fee Table because a portion of the brokerage commissions that the Fidelity VIP Funds paid was used to reduce each Fund's expenses, and/or because through arrangements with each Fund's custodian, credits realized as a result of uninvested cash balances were used to reduce a portion of each Fund's custodian expenses. See the accompanying Fidelity VIP Funds prospectuses. Actual expenses were: Fidelity VIP Equity-Income Portfolio -- Service Class 2 -- %; Fidelity VIP II Contrafund(R) Portfolio -- Service Class 2 -- %; and Fidelity VIP III Growth Opportunities Portfolio -- Service Class 2 -- %. (6) AEGON/Transamerica Fund Advisers, Inc. ("AEGON/Transamerica Advisers"), the Series Fund's investment adviser, has undertaken, until at least April 30, 2003, to pay expenses on behalf of the portfolios of the Series Fund to the extent normal operating expenses of a portfolio exceed a stated percentage of each portfolio's average daily net assets. The expense limit, the amount reimbursed by AEGON/Transamerica Advisers during 2001 and the expense ratio without the reimbursement are listed below for each portfolio: EXPENSE RATIO EXPENSE REIMBURSEMENT WITHOUT LIMIT AMOUNT REIMBURSEMENT Munder Net50 1.00% $ N/A N/A Van Kampen Emerging Growth 1.00% N/A N/A T. Rowe Price Small Cap 1.00% 30,189 1.14% Pilgrim Baxter Mid Cap Growth 1.00% N/A N/A Alger Aggressive Growth 1.00% N/A N/A Third Avenue Value 1.00% N/A N/A Value Line Aggressive Growth 1.00% 22,530 1.86% American Century International 1.20% 125,321 1.66% Gabelli Global Growth 1.20% 14,606 1.99% Great Companies -- Global(2) 1.00% 20,105 3.93% Great Companies -- Technology(SM) 1.00% 5,276 1.05% Janus Growth 1.00% N/A N/A LKCM Capital Growth 1.00% N/A N/A Goldman Sachs Growth 1.00% 51,711 1.37% GE U.S. Equity 1.00% N/A N/A Great Companies -- America(SM) 1.00% N/A N/A Salomon All Cap 1.00% 85,511 1.25% Dreyfus Mid Cap 1.00% 68,550 1.90% PBGH/NWQ Large Cap Value Select 1.00% N/A N/A T. Rowe Price Dividend Growth 1.00% 55,887 1.45% Transamerica Value Balanced 1.00% N/A N/A LKCM Strategic Total Return 1.00% N/A N/A Clarion Real Estate Securities 1.00% 58,192 1.71% Federated Growth & Income 1.00% N/A N/A Janus Balanced 1.00% N/A N/A AEGON Bond 0.70% N/A N/A Transamerica Money Market 0.70% N/A N/A Conservative Asset Allocation 0.60% N/A N/A Moderate Asset Allocation 0.60% N/A N/A Moderately Aggressive Asset Allocation 0.60% N/A N/A Aggressive Asset Allocation 0.60% N/A N/A Transamerica Convertible Securities 1.30% N/A N/A PIMCO Total Return 1.20% N/A N/A Transamerica Growth % N/A N/A Transamerica Small Company % N/A N/A Transamerica U.S. Government Securities % N/A N/A J.P. Morgan Enhanced Index % N/A N/A Capital Guardian Value % N/A N/A Capital Guardian U.S. Equity % N/A N/A
(7)This portfolio is a "fund of funds" that invests in other Series Fund portfolios. The Series Fund prospectus provides specific information on the fees and expenses of this portfolio. This portfolio has its own set of operating expenses, as does each of the underlying Series Fund portfolios in which it invests. The range of the average weighted expense ratio for this portfolio, including such indirect expenses of the underlying Series Fund portfolios, is expected to be % to %. A range is provided since the allocation of assets to various 11 underlying Series Fund portfolios will fluctuate. Over time, the cost of investment in an asset allocation "fund of funds" portfolio will increase the cost of your investment and may cost you more than investing in a Series Fund portfolio without asset allocation. The purpose of the preceding table is to help you understand the various costs and expenses that you will bear directly and indirectly. The table reflects charges and expenses of the portfolios of the funds for the fiscal year ended December 31, 2001 (except as noted in the footnotes). Expenses of the funds may be higher or lower in the future. For more information on the portfolio expenses described in this table, see the fund prospectuses which accompany this prospectus. LOANS -- After the first Policy year (as long as your Policy is in force), you may take a loan against the Policy up to 90% of the cash value, MINUS any surrender charge and MINUS any outstanding loan amount. -- We may permit a loan prior to the first anniversary for Policies issued pursuant to 1035 Exchanges. -- The minimum loan amount is generally $500. -- You may request a loan by calling us or by writing or faxing us written instructions. -- Prior to the 10th Policy year, we currently charge 3.75% interest annually, payable in arrears, on any outstanding loan amount. This charge is guaranteed not to exceed 4.0%. -- To secure the loan, we transfer a portion of your cash value to a loan reserve account. The loan reserve account is part of the fixed account. We will credit 3.0% interest annually on amounts in the loan reserve account. -- After the 10th Policy year, you may borrow at preferred loan rates an amount equal to the cash value MINUS total premiums paid (reduced by any cash withdrawals) and MINUS any outstanding loan amount. We currently charge 3.0% interest on preferred loans. THIS RATE IS NOT GUARANTEED. -- Federal income taxes and a penalty tax may apply to loans you take against the Policy. -- There are risks involved in taking a Policy loan. See Risk Summary p. 15. -- The federal tax consequences of loans with preferred rates is uncertain. -- A Policy loan reduces the death benefit as well as the AccelPay rider benefit you receive. DEATH BENEFIT -- You must choose one of three death benefit options. We offer the following: -- Option A is the greater of: + the current specified amount, or + a specified percentage, multiplied by the Policy's cash value on the date of the insured's death. -- Option B is the greater of: + the current specified amount, plus the Policy's cash value on the date of the insured's death, or + a specified percentage, multiplied by the Policy's cash value on the date of the insured's death. -- Option C is the greater of: + the amount payable under Option A, or 12 + the current specified amount, multiplied by an age-based "factor," plus the Policy's cash value on the date of the insured's death. -- So long as the Policy does not lapse, the minimum death benefit we pay under any option will be the current specified amount. -- We offer 4 bands of specified amount coverage. Each band has its own minimum specified amount and cost of insurance rates. The higher the band of specified amount you choose, the lower the cost of insurance rates. The minimum specified amount for band 1 for a Policy for all issue ages is $50,000. We will state the minimum specified amount in your Policy. You cannot decrease the specified amount below this minimum. -- We will reduce the death benefit proceeds by any outstanding loan amount, any benefit paid under the AccelPay rider, and any due and unpaid charges. -- We will increase the death benefit proceeds by any additional insurance benefits you add by rider. -- After the third Policy year and once each Policy year thereafter, you may make one of the following changes: change the death benefit option or increase or decrease the specified amount. A decrease in specified amount is limited to 20% of the specified amount prior to the decrease. The new specified amount cannot be less than the minimum specified amount as shown in your Policy. -- Under current tax law, the death benefit should be income tax free to the beneficiary. -- The death benefit is available in a lump sum or a variety of payout options. -- Your death benefit will decrease by the amount of any AccelPay rider benefit you receive. CASH WITHDRAWALS AND SURRENDERS -- You may take one withdrawal of cash value per Policy year after the first Policy year. -- The amount of the withdrawal must be: + at least $500; and + no more than 10% of the net surrender value. After the 10th Policy year, we currently intend to limit the withdrawal amount to no more than 25% of the net surrender value. + after the 10th Policy year, for Policies with a specified amount of at least $500,000 at the time of the withdrawal, we currently intend to limit the withdrawal amount to the greater of 25% of the net surrender value or the amount of premiums paid in the Policy, less any previous withdrawals. -- We will deduct a processing fee equal to $25 or 2% of the amount you withdraw (whichever is less) from the withdrawal, and we will pay you the balance. -- There is no surrender charge assessed when you take a cash withdrawal. -- A cash withdrawal will reduce the death benefit by at least the amount of the withdrawal. We will not impose a decrease charge when the specified amount is decreased as a result of taking a cash withdrawal. -- If you choose death benefit Option A, we will reduce the current specified amount by the dollar amount of the withdrawal. -- When a cash withdrawal reduces the specified amount in force, we will look to the reduced specified amount to determine the specified amount band, cost of insurance rates and the premium expense charge we deduct from subsequent premium payments. -- Federal income taxes and a penalty tax may apply to cash withdrawals and surrenders. 13 -- You may fully surrender the Policy at any time before the insured's death or the maturity date. You will receive the net surrender value (cash value, MINUS any surrender charge, and MINUS any outstanding loan amount). The surrender charge will apply during the first 15 Policy years or during the 15 years following any increase in specified amount. ILLUSTRATIONS -- Illustrations of death benefits, cash value and net surrender value used in connection with the purchase of a Policy are based on hypothetical rates of return. These rates are not guaranteed. They are illustrative only and should not be considered representative of past or future performance. -- Actual returns will fluctuate over time and likely will be both positive and negative. The actual values under the policy could be significantly different from those shown even if actual returns averaged 0%, 6% and 12%, but fluctuated over and under those averages throughout the years shown. Depending on the timing and degree of fluctuation, the actual values could be substantially less than those shown, and may, under certain circumstances, result in the lapse of the policy unless the owner pays more than the stated premium. -- We have filed an example of an illustration based on hypothetical rates of return as an exhibit to the registration statement to this prospectus. COMPENSATION -- We will pay sales commissions to our life insurance agents who are registered representatives of broker-dealers. Other payments may be made for other services related to sale of the Policies. For a discussion of these arrangements, see Sale of the Policies. INQUIRIES If you need more information, please contact our office at: Western Reserve Life P.O. Box 5068 Clearwater, Florida 33758-5068 1-800-851-9777, extension 6539 Facsimile: 1-727-299-1648 (Monday-Friday from 8:00 a.m.-7:00 p.m. Eastern time) www.westernreserve.com 14 RISK SUMMARY - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- INVESTMENT If you invest your cash value in one or more subaccounts, RISK you will be subject to the risk that investment performance could be unfavorable and that the cash value of your Policy would decrease. YOU COULD LOSE EVERYTHING YOU INVEST, AND YOUR POLICY COULD LAPSE. If you select the fixed account, your cash value in the fixed account is credited with a declared rate of interest, but you assume a risk that the rate may decrease, although it will never be lower than a guaranteed minimum annual effective rate of 3.0%. - ------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------- RISK OF LAPSE If your Policy fails to meet certain conditions, we will notify you that the Policy has entered a 61-day grace period and will lapse unless you make a sufficient payment during the grace period. Your Policy contains a no lapse period. Your Policy will not lapse before the no lapse date stated in your Policy, as long as you pay sufficient minimum monthly guarantee premiums. If you do not pay these premiums, you will automatically lose the no lapse guarantee and you will increase the risk that your Policy will lapse. In addition, if you take a cash withdrawal, or take a Policy loan, or if you increase or decrease your specified amount, or if you add, increase or decrease a rider, you will increase the risk of losing the no lapse guarantee. We deduct the total amount of your withdrawals, any outstanding loans and any decrease charge from your premiums paid when we determine whether your premiums are high enough to keep the no lapse period in effect. If you change death benefit options, increase or decrease the specified amount, or add, increase or decrease a rider, we will change the amount of the minimum monthly guarantee premium you must pay to keep the no lapse period in effect. You will lessen the risk of Policy lapse if you keep the no lapse period in effect. Before you take a cash withdrawal, loan, increase or decrease the specified amount or add, increase or decrease a rider, you should consider carefully the effect it will have on the no lapse guarantee. After the no lapse period, your Policy may lapse if loans, cash withdrawals, the monthly deductions, and insufficient investment returns reduce the net surrender value to zero. The Policy will enter a grace period if on any Monthiversary the net surrender value (that is, the cash value, minus the surrender charge, and minus any outstanding loan amount) is not enough to pay the monthly deduction due. A Policy lapse will have adverse tax consequences. See Federal Income Tax Considerations p. 58 and Policy Lapse and Reinstatement p. 57. You may reinstate this Policy within five years after it has lapsed (and prior to the maturity date), if the insured meets the insurability requirements and you pay the amount we require. - ------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------
15 TAX RISKS We expect that the Policy will generally be deemed a life (INCOME TAX insurance contract under federal tax law, so that the death AND MEC) benefit paid to the beneficiary will not be subject to federal income tax. However, due to lack of guidance, there is less certainty in this regard with respect to Policies issued on a substandard basis. Depending on the total amount of premiums you pay, the Policy may be treated as a modified endowment contract ("MEC") under federal tax laws. If a Policy is treated as a MEC, partial withdrawals, surrenders and loans will be taxable as ordinary income to the extent there are earnings in the Policy. In addition, a 10% penalty tax may be imposed on cash withdrawals, surrenders and loans taken before you reach age 59 1/2. If a Policy is not treated as a MEC, partial surrenders and withdrawals will not be subject to tax to the extent of your investment in the Policy. Amounts in excess of your investment in the Policy, while subject to tax as ordinary income, will not be subject to a 10% penalty tax. You should consult a qualified tax advisor for assistance in all tax matters involving your Policy. - ------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------- LIMITS ON CASH The Policy permits you to take only one cash withdrawal per WITHDRAWALS Policy year, after the first Policy year has been completed. The amount you may withdraw is limited to 10% of the net surrender value. We currently intend to limit the amount you can withdraw to 25% of the net surrender value after the 10th Policy year. After the 10th Policy year, for Policies with a specified amount of at least $500,000 at the time of the withdrawal, we currently intend to limit the withdrawal amount to the greater of 25% of the net surrender value or the amount of premiums paid in the Policy, less any previous withdrawals. A cash withdrawal will reduce cash value, so it will increase the risk that the Policy will lapse. A cash withdrawal may also increase the risk that the no lapse period will not remain in effect. A cash withdrawal will reduce the death benefit. If you select death benefit Option A, a cash withdrawal will permanently reduce the specified amount of the Policy by the amount of the withdrawal. A cash withdrawal also reduces the death benefit under Options B and C because the cash value is reduced. In some circumstances, a cash withdrawal may reduce the death benefit by more than the dollar amount of the withdrawal. Federal income taxes and a penalty tax may apply to cash withdrawals and surrenders. - ------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------
16 LOAN RISKS A Policy loan, whether or not repaid, will affect cash value over time because we subtract the amount of the loan from the subaccounts and the fixed account and place that amount in the loan reserve as collateral. We then credit a fixed interest rate of 3.0% to the loan collateral. As a result, the loan collateral does not participate in the investment results of the subaccounts and may not continue to receive the current interest rates credited to the unloaned portion of the fixed account. The longer the loan is outstanding, the greater the effect is likely to be. Depending on the investment results of the subaccounts and the interest rates credited to the fixed account, the effect could be favorable or unfavorable. We also currently charge interest on Policy loans at a rate of 3.75%, payable in arrears. This charge will not exceed 4.0%. Interest is added to the amount of the loan to be repaid. A Policy loan affects the death benefit as well as the AccelPay rider benefit because a loan reduces the death benefit proceeds and net surrender value by the loan amount. For this reason, taking a loan will also reduce the amount available for AccelPay rider benefits. A Policy loan could make it more likely that a Policy would lapse. A Policy loan will increase the risk that the no lapse period will not remain in effect. There is also a risk that if the loan, insurance charges and unfavorable investment experience reduce your net surrender value and the no lapse period is no longer in effect, then the Policy will lapse. Adverse tax consequences would result. If a loan from a Policy is outstanding when the Policy is canceled or lapses or becomes a MEC, or if a loan is taken out and the Policy is a MEC, then the amount of the outstanding indebtedness will be taxed as if it were a distribution from the Policy. Moreover, the tax treatment of loans with preferred rates is uncertain. See Federal Income Tax Considerations p. 58. - ------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------- EFFECTS OF THE THE SURRENDER CHARGES UNDER THIS POLICY ARE SIGNIFICANT. IT SURRENDER IS LIKELY YOU WILL RECEIVE NO NET SURRENDER VALUE IF YOU CHARGE SURRENDER YOUR POLICY IN THE FIRST FEW POLICY YEARS. In addition, the surrender charges that apply for 15 years after any increase in specified amount will significantly reduce your net surrender value. You should purchase this Policy, and increase the specified amount, only if you have the financial ability to keep it in force for a substantial period of time. Even if you do not ask to surrender your Policy, the surrender charge plays a role in determining whether your Policy will lapse. Each month we will use the cash value (reduced by the surrender charge and reduced by any outstanding loan amount) to measure whether your Policy will remain in force or will enter a grace period. - ------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------
17 COMPARISON Like fixed benefit life insurance, the Policy offers a death WITH OTHER benefit and can provide a cash value, loan privileges and a INSURANCE value on surrender. However, the Policy differs from a fixed POLICIES benefit policy because it allows you to place your premiums in investment subaccounts. The amount and duration of life insurance protection and of the Policy's cash value will vary with the investment performance of the amounts you place in the subaccounts. In addition, the cash value and net surrender value will always vary with the investment results of your selected subaccounts. As you consider purchasing this Policy, keep in mind that it may not be to your advantage to replace existing insurance with the Policy. - ------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------
WESTERN RESERVE AND THE FIXED ACCOUNT - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- WESTERN RESERVE Western Reserve Life Assurance Co. of Ohio is the insurance company issuing the Policy. Western Reserve was incorporated under Ohio law on October 1, 1957. We have established the separate account to support the investment options under this Policy and under other variable life insurance policies we issue. Our general account supports the fixed account under the Policy. Western Reserve intends to sell this Policy in the District of Columbia, and all states, except New York. THE FIXED ACCOUNT The fixed account is part of Western Reserve's general account. We use general account assets to support our insurance and annuity obligations other than those funded by separate accounts. Subject to applicable law, Western Reserve has sole discretion over the investment of the fixed account's assets. Western Reserve bears the full investment risk for all amounts contributed to the fixed account. Western Reserve guarantees that the amounts allocated to the fixed account will be credited interest daily at an annual net effective interest rate of at least 3.0%. We will determine any interest rate credited in excess of the guaranteed rate at our sole discretion. Money you place in the fixed account will earn interest compounded daily at a current interest rate in effect at the time of your allocation. Unless otherwise required by state law, we may restrict your allocations and transfers to the fixed account if the fixed account value following the allocation or transfer would exceed $500,000. We may declare current interest rates from time to time. We may declare more than one interest rate for different money based upon the date of allocation or transfer to the fixed account. When we declare a higher current interest rate on amounts allocated to the fixed account, we guarantee the higher rate on those amounts for at least one year (the "guarantee period") unless those amounts are transferred to the loan reserve. At the end of the guarantee period we may declare a new current interest rate on those amounts and any accrued interest thereon. We will guarantee this new current interest rate for another guarantee period. We credit interest greater than 3.0% during any guarantee period at our sole discretion. You bear the risk that interest we credit will not exceed 3.0%. 18 We allocate amounts from the fixed account for cash withdrawals, transfers to the subaccounts, or monthly deduction charges on a last in, first out basis ("LIFO") for the purpose of crediting interest. New Jersey residents: The fixed account is NOT available to you. You may not direct or transfer any premiums or cash value to the fixed account. The fixed account is used solely for Policy loans. THE FIXED ACCOUNT HAS NOT BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION AND THE STAFF OF THE SECURITIES AND EXCHANGE COMMISSION HAS NOT REVIEWED THE DISCLOSURE IN THIS PROSPECTUS RELATING TO THE FIXED ACCOUNT. THE SEPARATE ACCOUNT AND THE PORTFOLIOS - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- THE SEPARATE ACCOUNT The separate account is divided into subaccounts, each of which invests in shares of a specific portfolio of a fund. You may direct the money in your Policy to a maximum of 16 active subaccounts of the separate account at any one time. These subaccounts buy and sell portfolio shares at net asset value without any sales charge. Any dividends and distributions from a portfolio are reinvested at net asset value in shares of that portfolio. Income, gains, and losses credited to, or charged against, a subaccount of the separate account reflect the subaccount's own investment experience and not the investment experience of our other assets. The separate account's assets may not be used to pay any of our liabilities other than those arising from the Policies. If the separate account's assets exceed the required reserves and other liabilities, we may transfer the excess to our general account. The separate account may include other subaccounts that are not available under the Policies and are not discussed in this prospectus. We may substitute another subaccount, portfolio or insurance company separate account under the Policies if, in our judgment, investment in a subaccount or portfolio would no longer be possible or becomes inappropriate to the purposes of the Policies, or if investment in another subaccount or insurance company separate account is in the best interest of owners. No substitution shall take place without notice to owners and prior approval of the Securities and Exchange Commission ("SEC") and insurance company regulators, to the extent required by the Investment Company Act of 1940, as amended (the "1940 Act") and applicable law. THE FUNDS The separate account invests in shares of the portfolios. Each portfolio is an investment division of a fund, which is an open-end management investment company registered with the SEC. Such registration does not involve supervision of the management or investment practices or policies of the portfolios by the SEC. Each portfolio's assets are held separate from the assets of the other portfolios, and each portfolio has investment objectives and policies that are different from those of the other portfolios. 19 Thus, each portfolio operates as a separate investment fund, and the income or losses of one portfolio has no effect on the investment performance of any other portfolio. Pending any prior approval by a state insurance regulatory authority, certain subaccounts and corresponding portfolios may not be available to residents of some states. Each portfolio's investment objective(s) and policies are summarized below. THERE IS NO ASSURANCE THAT ANY OF THE PORTFOLIOS WILL ACHIEVE ITS STATED OBJECTIVE(S). Certain portfolios may have investment objectives and policies similar to other portfolios that are managed by the same investment adviser or sub-adviser. The investment results of the portfolios, however, may be higher or lower than those of such other portfolios. We do not guarantee or make any representation that the investment results of the portfolios will be comparable to any other portfolio, even those with the same investment adviser or manager. YOU CAN FIND MORE DETAILED INFORMATION ABOUT THE PORTFOLIOS, INCLUDING A DESCRIPTION OF RISKS, IN THE FUND PROSPECTUSES. YOU SHOULD READ THE FUND PROSPECTUSES CAREFULLY.
PORTFOLIO SUB-ADVISER OR ADVISER INVESTMENT OBJECTIVE - --------- ---------------------- -------------------- MUNDER NET50 + Munder Capital Management + Seeks long-term capital appreciation. VAN KAMPEN EMERGING GROWTH + Van Kampen Asset Management Inc. + Seeks capital appreciation by investing primarily in common stocks of small and medium-sized companies. T. ROWE PRICE SMALL CAP + T. Rowe Price Associates, Inc. + Seeks long-term growth of capital by investing primarily in common stocks of small growth companies. PILGRIM BAXTER MID CAP GROWTH + Pilgrim Baxter & Associates, Ltd. + Seeks capital appreciation. ALGER AGGRESSIVE GROWTH + Fred Alger Management, Inc. + Seeks long-term capital appreciation. THIRD AVENUE VALUE + EQSF Advisers, Inc. + Seeks long-term capital appreciation. VALUE LINE AGGRESSIVE GROWTH + Value Line, Inc. + Seeks to realize capital growth. AMERICAN CENTURY INTERNATIONAL + American Century Investment Management, + Seeks long-term growth of capital. Inc. GABELLI GLOBAL GROWTH + Gabelli Asset Management Company + Seeks to provide investors with appreciation of capital. Current income is secondary objective. GREAT COMPANIES -- GLOBAL(2) + Great Companies, L.L.C. + Seeks long-term growth of capital in a manner consistent with preservation of capital.
20
PORTFOLIO SUB-ADVISER OR ADVISER INVESTMENT OBJECTIVE - --------- ---------------------- -------------------- GREAT COMPANIES -- TECHNOLOGY(SM) + Great Companies, L.L.C. + Seeks long-term growth of capital. JANUS GROWTH + Janus Capital Corporation + Seeks growth of capital. LKCM CAPITAL GROWTH + Luther King Capital Management + Seeks long-term growth of capital Corporation through a disciplined investment approach focusing on companies with superior growth prospects. GOLDMAN SACHS GROWTH + Goldman Sachs Asset Management + Seeks long-term growth of capital. GE U.S. EQUITY + GE Asset Management Incorporated + Seeks long-term growth of capital. GREAT COMPANIES -- AMERICA(SM) + Great Companies, L.L.C. + Seeks long-term growth of capital. SALOMON ALL CAP + Salomon Brothers Asset Management Inc + Seeks capital appreciation. FIDELITY VIP II CONTRAFUND(R) + Fidelity Management & Research Company + Seeks long-term capital appreciation by PORTFOLIO -- SERVICE CLASS 2 ("FMR") investing primarily in a broad variety of common stocks, using both growth-oriented and contrarian disciplines. DREYFUS MID CAP + The Dreyfus Corporation + Seeks total investment returns (including capital appreciation and income), which consistently outperform the S&P 400 Mid Cap Index. PBGH/NWQ LARGE CAP VALUE SELECT + NWQ Investment Management Company, Inc. + Seeks to achieve maximum, consistent and Pilgrim Baxter & Associates, Ltd.* total return with minimum risk to principal. FIDELITY VIP EQUITY-INCOME + Fidelity Management & Research Company + Seeks reasonable income by investing PORTFOLIO -- SERVICE CLASS 2 primarily in income-producing equity securities.
- --------------- * Effective May 1, 2002, this portfolio will be co-sub-advised by Pilgrim Baxter & Associates, Ltd.
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PORTFOLIO SUB-ADVISER OR ADVISER INVESTMENT OBJECTIVE - --------- ---------------------- -------------------- FIDELITY VIP III GROWTH + Fidelity Management & Research Company + Seeks capital growth by investing in a OPPORTUNITIES PORTFOLIO -- SERVICE wide range of common domestic and CLASS 2 foreign stocks, and securities convertible into common stocks. T. ROWE PRICE DIVIDEND GROWTH + T. Rowe Price Associates, Inc. + Seeks to provide an increasing level of dividend income, long-term capital appreciation and reasonable current income through investments primarily in dividend paying stocks. TRANSAMERICA VALUE BALANCED + Transamerica Investment Management, LLC + Seeks preservation of capital and competitive investment returns. LKCM STRATEGIC TOTAL RETURN + Luther King Capital Management + Seeks to provide current income, Corporation long-term growth of income and capital appreciation. CLARION REAL ESTATE SECURITIES + Clarion CRA Securities, LP** + Seeks long-term total return from investments primarily in equity securities of real estate companies. Total return will consist of realized and unrealized capital gains and losses plus income. FEDERATED GROWTH & INCOME + Federated Investment Counseling + Seeks total return by investing in securities that have defensive characteristics. JANUS BALANCED + Janus Capital Corporation + Seeks long-term capital growth, consistent with preservation of capital and balanced by current income. AEGON BOND + AEGON USA Investment Management, Inc. + Seeks the highest possible current income within the confines of the primary goal of insuring the protection of capital. TRANSAMERICA MONEY MARKET + Transamerica Investment Management, + Seeks to maximum current income LLC** consistent with liquidity and preservation of principal.
- --------------- ** Prior to May 1, 2002, this portfolio was sub-advised by J.P. Morgan Investment Management Inc.
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PORTFOLIO SUB-ADVISER OR ADVISER INVESTMENT OBJECTIVE - --------- ---------------------- -------------------- CONSERVATIVE ASSET ALLOCATION*** +AEGON/Transamerica Fund Advisers, Inc. +Seeks current income and preservation of capital. MODERATE ASSET ALLOCATION*** +AEGON/Transamerica Fund Advisers, Inc. +Seeks capital appreciation and current income. MODERATELY AGGRESSIVE ASSET +AEGON/Transamerica Fund Advisers, Inc. +Seeks capital appreciation with current ALLOCATION*** income as secondary objective. AGGRESSIVE ASSET ALLOCATION*** +AEGON/Transamerica Fund Advisers, Inc. +Seeks long-term capital appreciation. TRANSAMERICA CONVERTIBLE +Transamerica Investment Management, LLC +Seeks maximum total return through a SECURITIES combination of current income and capital appreciation. PIMCO TOTAL RETURN +Pacific Investment Management Company, +Seeks maximum total return, consistent LLC with preservation of capital and prudent investment management. TRANSAMERICA GROWTH +Transamerica Investment Management, LLC +Seeks to maximize long-term growth. TRANSAMERICA SMALL COMPANY +Transamerica Investment Management, LLC +Seeks to maximize long-term growth. TRANSAMERICA U.S. GOVERNMENT +Transamerica Investment Management, LLC +Seeks to provide as high a level of total SECURITIES return as is consistent with prudent investment strategies by investing under normal conditions at least 80% of its assets in U.S. government debt obligations and mortgage-backed securities issued or guaranteed by the U.S. government, its agencies or government-sponsored entities. J.P. MORGAN ENHANCED INDEX +J.P. Morgan Investment Management Inc. +Seeks to earn a total return modestly in excess of the total return performance of the S&P 500 Index (including the reinvestment of dividends) while maintaining a volatility of return similar to the S&P 500 Index. ***Each asset allocation portfolio invests in a combination of underlying Series Fund portfolios.
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PORTFOLIO SUB-ADVISER OR ADVISER INVESTMENT OBJECTIVE - --------- ---------------------- -------------------- CAPITAL GUARDIAN VALUE +Capital Guardian Trust Company +Seeks long-term growth of capital and income through investments in a portfolio comprised primarily of equity securities of U.S. issuers and securities whose principal markets are in the U.S. (including American Depositary Receipts) and other U.S. registered foreign securities. CAPITAL GUARDIAN U.S. EQUITY +Capital Guardian Trust Company +Seeks to provide long-term growth of capital.
AEGON/Transamerica Advisers, located at 570 Carillon Parkway, St. Petersburg, Florida 33716, a wholly-owned subsidiary of Western Reserve, serves as investment adviser to the Series Fund and manages the Series Fund in accordance with policies and guidelines established by the Series Fund's Board of Directors. For certain portfolios, AEGON/ Transamerica Advisers has engaged investment sub-advisers to provide portfolio management services. AEGON/Transamerica Advisers and each investment sub-adviser are registered investment advisers under the Investment Advisers Act of 1940, as amended. See the Series Fund prospectus for more information regarding AEGON/Transamerica Advisers and the investment sub-advisers. FMR, located at 82 Devonshire Street, Boston, Massachusetts 02109, serves as investment adviser to the Fidelity VIP Funds and manages the Fidelity VIP Funds in accordance with policies and guidelines established by the Fidelity VIP Funds' Board of Trustees. For certain portfolios, FMR has engaged investment sub-advisers to provide portfolio management services with regard to foreign investments. FMR and each sub-adviser are registered investment advisers under the Investment Advisers Act of 1940, as amended. See the Fidelity VIP Funds prospectuses for more information regarding FMR and the investment sub-advisers. Morningstar Associates, LLC ("Morningstar"), located at 225 West Wacker Drive, Chicago, Illinois 60606, serves as a "consultant" to AEGON/Transamerica Advisers for investment model creation and maintenance to the Conservative Asset Allocation, Moderate Asset Allocation, Moderately Aggressive Asset Allocation and Aggressive Asset Allocation portfolios of the Series Fund. Morningstar will be paid an annual fee for its services. See the Series Fund prospectus for more information regarding Morningstar. In addition to the separate account, shares of the portfolios are also sold to other separate accounts that we (or our affiliates) establish to support variable annuity contracts and variable life insurance policies. It is possible that, in the future, it may become disadvantageous for variable life insurance separate accounts and variable annuity separate accounts to invest in the portfolios simultaneously. Neither we nor the funds currently foresee any such disadvantages, either to variable life insurance policyowners or to variable annuity contract owners. However, each fund's Board of Directors/Trustees will monitor events in 24 order to identify any material conflicts between the interests of such variable life insurance policyowners and variable annuity contract owners, and will determine what action, if any, it should take. Such action could include the sale of portfolio shares by one or more of the separate accounts, which could have adverse consequences. Material conflicts could result from, for example, (1) changes in state insurance laws, (2) changes in federal income tax laws, or (3) differences in voting instructions between those given by variable life insurance policyowners and those given by variable annuity contract owners. If a fund's Board of Directors/Trustees were to conclude that separate funds should be established for variable life insurance and variable annuity separate accounts, Western Reserve will bear the attendant expenses, but variable life insurance policyowners and variable annuity contract owners would no longer have the economies of scale resulting from a larger combined fund. ADDITION, DELETION, OR SUBSTITUTION OF INVESTMENTS We do not guarantee that each portfolio will always be available for investment through the Policy. We reserve the right, subject to compliance with applicable law, to add new portfolios, close existing portfolios, or substitute portfolio shares that are held by any subaccount for shares of a different portfolio. New or substitute portfolios may have different fees and expenses and their availability may be limited to certain classes of purchasers. We will only add, delete or substitute shares of another portfolio of a fund (or of another open-end, registered investment company) if the shares of a portfolio are no longer available for investment, or if in our judgement further investment in any portfolio would become inappropriate in view of the purposes of the separate account. We will not add, delete or substitute any shares attributable to your interest in a subaccount without notice to you and prior approval of the SEC, to the extent required by the 1940 Act or other applicable law. We may also decide to purchase for the separate account securities from other portfolios. We reserve the right to transfer separate account assets to another separate account that we determine to be associated with the class of contracts to which the Policy belongs. We also reserve the right to establish additional subaccounts of the separate account, each of which would invest in a new portfolio of a fund, or in shares of another investment company, with specified investment objectives. We may establish new subaccounts when, in our sole discretion, marketing, tax or investment conditions warrant. We will make any new subaccounts available to existing owners on a basis we determine. We may also eliminate one or more subaccounts for the same reasons as stated above. In the event of any such substitution or change, we may make such changes in this and other policies as may be necessary or appropriate to reflect such substitution or change. If we deem it to be in the best interests of persons having voting rights under the Policies, and when permitted by law, the separate account may be (1) operated as a management company under the 1940 Act, (2) deregistered under the 1940 Act in the event such registration is no longer required, (3) managed under the direction of a committee, or (4) combined with one or more other separate accounts, or subaccounts. 25 YOUR RIGHT TO VOTE PORTFOLIO SHARES Even though we are the legal owner of the portfolio shares held in the subaccounts, and have the right to vote on all matters submitted to shareholders of the portfolios, we will vote our shares only as policyowners instruct, so long as such action is required by law. See Tax Status of the Policy p. 59. Before a vote of a portfolio's shareholders occurs, you will receive voting materials from us. We will ask you to instruct us on how to vote and to return your proxy to us in a timely manner. You will have the right to instruct us on the number of portfolio shares that corresponds to the amount of cash value you have in that portfolio (as of a date set by the portfolio). If we do not receive voting instructions on time from some policyowners, we will vote those shares in the same proportion as the timely voting instructions we receive. Should federal securities laws, regulations and interpretations change, we may elect to vote portfolio shares in our own right. If required by state insurance officials, or if permitted under federal regulation, we may disregard certain owner voting instructions. If we ever disregard voting instructions, we will send you a summary in the next annual report to policyowners advising you of the action and the reasons we took such action. THE POLICY - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- PURCHASING A POLICY To purchase a Policy, you must submit a completed application and an initial premium to us through any licensed life insurance agent who is also a registered representative of a broker-dealer having a selling agreement with AFSG Securities Corporation, the principal underwriter for the Policy. Our address for applications submitted by World Financial Group distribution systems is: Western Reserve P.O. Box 9009 Clearwater, Florida 33758-9009 All other agents should submit applications to: Western Reserve P.O. Box 5068 Clearwater, Florida 33758-5068 You select the specified amount of insurance coverage for your Policy within the following limits. Our current minimum specified amount for a Policy is generally $50,000. We currently charge lower cost of insurance rates for Policies with specified amounts in higher bands of coverage. We offer the following specified amount bands of coverage: -- band 1: $50,000 - $249,999 -- band 2: $250,000 - $499,999 26 -- band 3: $500,000 - $999,999 -- band 4: $1,000,000 and over We will generally only issue a Policy to you if you provide sufficient evidence that the insured meets our insurability standards. Your application is subject to our underwriting rules, and we may reject any application for any reason permitted by law. We will not issue a Policy to you if the insured is over age 85. The insured must be insurable and acceptable to us under our underwriting rules on the later of: -- the date of your application; or -- the date the insured completes all of the medical tests and examinations that we require. TAX-FREE "SECTION 1035" EXCHANGES You can generally exchange one life insurance policy for another in a "tax-free exchange" under Section 1035 of the Internal Revenue Code. Before making an exchange, you should compare both life insurance policies carefully. Remember that if you exchange another life insurance policy for the one described in this prospectus, you might have to pay a surrender charge on your old policy, there will be a new surrender charge period for this Policy, other charges may be higher (or lower) and the benefits may be different. If the exchange does not qualify for Section 1035 treatment, you may also have to pay federal income tax on the exchange. You should not exchange another life insurance policy for this one unless you determine, after knowing all the facts, that the exchange is in your best interest and not just better for the person selling you the Policy (that person will generally earn a commission if you buy this Policy through an exchange or otherwise). UNDERWRITING STANDARDS This Policy uses mortality tables that distinguish between men and women. As a result, the Policy pays different benefits to men and women of the same age. Montana prohibits our use of actuarial tables that distinguish between males and females to determine premiums and policy benefits for policies issued on the lives of its residents. Therefore, we will base the premiums and benefits in Policies that we issue in Montana, to insure residents of that state, on actuarial tables that do not differentiate on the basis of gender. Your cost of insurance charge will vary by the insured's gender, issue age on the Policy date, issue age at the time of any increase in specified amount, rate band, length of time from the Policy date or from the date of any increase in specified amount, and rate class. We currently place insureds into the following rate classes: -- ultimate select (preferred) non-tobacco use; -- select (non-preferred) non-tobacco use; -- ultimate standard (preferred) tobacco use; -- standard (non-preferred) tobacco use; and -- juvenile - under 18. We also place insureds in various sub-standard rate classes, which involve a higher mortality risk and higher charges. We generally charge higher rates for insureds who use tobacco. We currently charge lower cost of insurance rates for insureds who are in an 27 "ultimate class." An ultimate class is only available if our underwriting guidelines require you to take a blood test because of the specified amount you have chosen. WHEN INSURANCE COVERAGE TAKES EFFECT Insurance coverage under the Policy will take effect only if the insured(s) is alive and in the same condition of health as described in the application when the Policy is delivered to the owner, and if the initial premium required under the Policy as issued is paid. Conditional Insurance Coverage. If you pay the full initial premium listed in the conditional receipt attached to the application, and we deliver the conditional receipt to you, the insured will have conditional insurance coverage under the terms of the conditional receipt. Because we do not accept initial premiums in advance for Policies with a specified amount of $1,000,000 or higher, we do not offer conditional insurance coverage for Policies issued with a specified amount of $1,000,000 or higher. Conditional insurance coverage is void if the check or draft you gave us to pay the initial premium is not honored when we first present it for payment. THE AMOUNT OF CONDITIONAL INSURANCE -- the specified amount applied for; or COVERAGE IS THE LESSER OF: -- $300,000 reduced by all amounts payable under all life insurance applications that the insured has pending with us. CONDITIONAL LIFE INSURANCE COVERAGE -- the date of your application; or BEGINS ON THE -- the date the insured completes all of the LATER OF: medical tests and examinations that we require; or -- the date of issue, if any, requested in the application. -- the date we determine the insured has satisfied CONDITIONAL LIFE INSURANCE COVERAGE our underwriting requirements and the insurance applied TERMINATES AUTOMATICALLY ON THE for takes effect (the Policy date); or EARLIEST OF: -- 60 days from the date the application was completed; or -- the date we determine that any person proposed for insurance in the application is not insurable according to our rules, limits and standards for the plan, amount and rate class shown in the application; or -- the date we modify the plan, amount, riders and/or the premium rate class shown in the application, or any supplemental agreements; or -- the date we mail notice of the ending of coverage and we refund the first premium to the applicant at the address shown on the application.
28 -- the conditional receipt will be void: SPECIAL LIMITATIONS OF THE + if not signed by an authorized agent of Western Reserve; or CONDITIONAL RECEIPT: + in the event the application contains any fraud or material misrepresentation; or + if, on the date of the conditional receipt, the proposed insured is under 15 days of age or over 85 years of age. -- the conditional receipt does not provide benefits for disability and accidental death benefits. -- the conditional receipt does not provide benefits if any proposed insured commits suicide. In this case, Western Reserve's liability will be limited to return of the first premium paid with the application.
Full Insurance Coverage and Allocation of Initial Premium. Once we determine that the insured meets our underwriting requirements and you have paid the initial premium, full insurance coverage will begin and we will begin to take the monthly deductions from your net premium. This date is the Policy date. On the Policy date (or on the record date if your Policy is backdated), we will allocate your initial net premium, minus monthly deductions, to the fixed account and the subaccounts you selected on your application, provided you live in a state that does not require a refund of full premium during the free-look period. If your state requires us to return the full premium in the event you exercise your free-look right, we will place your net premium in the reallocation account until the reallocation date. While held in the reallocation account, premium(s) will be credited with interest at the current fixed account rate. See Reallocation Account p. 34. On any day we credit net premiums or transfer cash value to a subaccount, we will convert the dollar amount of the net premium (or transfer) into subaccount units at the unit value for that subaccount, determined at the end of the day on which we receive the premium or transaction request at our office. We will credit amounts to the subaccounts only on a valuation date, that is, on a date the New York Stock Exchange ("NYSE") is open for trading. See Policy Values p. 35. BACKDATING A POLICY If you request, we may backdate a Policy by assigning a Policy date earlier than the date the Policy is issued. However, in no event will we backdate a Policy earlier than the earliest date allowed by state law or by our underwriting rules. Your request must be in writing and, if we approve the request, will amend your application. Cost of insurance charges are based in part on the age of the insured on the Policy date or on the date of any increase in specified amount. Generally, cost of insurance charges are lower at a younger age. We will deduct the monthly deduction, including cost of insurance charges, for the period that the Policy is backdated. THIS MEANS THAT WHILE THE MONTHLY DEDUCTION MAY BE LOWER THAN WHAT WOULD HAVE BEEN CHARGED HAD WE NOT BACKDATED THE POLICY, YOU WILL BE PAYING FOR INSURANCE DURING A PERIOD WHEN THE POLICY WAS NOT IN FORCE. 29 OWNERSHIP RIGHTS The Policy belongs to the owner named in the application. The owner may exercise all of the rights and options described in the Policy. The owner is the insured unless the application specifies a different person as the insured. If the owner dies before the insured and no contingent owner is named, then ownership of the Policy will pass to the owner's estate. The owner may exercise certain rights described below. CHANGING THE OWNER -- Change the owner by providing written notice to us at our office at any time while the insured is alive and the Policy is in force. -- Change is effective as of the date that the written notice is accepted by us at our office. -- Changing the owner does not automatically change the beneficiary. -- Signature of the owner's spouse is required if the owner is a resident of: California, Nevada or Washington. -- Changing the owner may have tax consequences. You should consult a tax advisor before changing the owner. -- We are not liable for payments we made before we received the written notice at our office. -- The owner designates the beneficiary (the person CHOOSING THE BENEFICIARY to receive the death benefit when the insured dies) in the application. -- If the owner designates more than one beneficiary, then each beneficiary shares equally in any death benefit proceeds unless the beneficiary designation states otherwise. -- If the beneficiary dies before the insured, then any contingent beneficiary becomes the beneficiary. -- If both the beneficiary and contingent beneficiary die before the insured, then the death benefit will be paid to the owner or the owner's estate upon the insured's death. -- The owner changes the beneficiary by providing CHANGING THE BENEFICIARY written notice to us at our office. -- Change is effective as of the date the owner signs the written notice. -- Signature of the owner's spouse is required if the owner is a resident of: California, Nevada or Washington. -- We are not liable for any payments we made before we received the written notice at our office.
30 -- The owner may assign Policy rights while the insured is alive. ASSIGNING THE POLICY -- Signature of the owner's spouse is required if the owner is a resident of: California, Nevada or Washington. -- The owner retains any ownership rights that are not assigned. -- Assignee may not change the owner or the beneficiary, and may not elect or change an optional method of payment. Any amount payable to the assignee will be paid in a lump sum. -- Claims under any assignment are subject to proof of interest and the extent of the assignment. -- We are not: + bound by any assignment unless we receive a written notice of the assignment at our office; + responsible for the validity of any assignment; + liable for any payment we made before we received written notice of the assignment at our office; or + bound by any assignment which results in adverse tax consequences to the owner, insured(s) or beneficiary(ies). -- Assigning the Policy may have tax consequences. You should consult a tax advisor before assigning the Policy.
CANCELING A POLICY You may cancel a Policy for a refund during the "free-look period" by returning it to our office, to one of our branch offices or to the agent who sold you the Policy. The free-look period expires 10 days after you receive the Policy. In some states you may have more than 10 days. If you decide to cancel the Policy during the free-look period, we will treat the Policy as if it had never been issued. We will pay the refund within seven days after we receive the returned Policy at our office. The amount of the refund will be: -- any charges and taxes we deduct from your premiums; PLUS -- any monthly deductions or other charges we deducted from amounts you allocated to the subaccounts and the fixed account; PLUS -- your cash value in the subaccounts and the fixed account on the date we (or our agent) receive the returned Policy at our office. Some states may require us to refund all of the premiums you paid for the Policy. See Reallocation Account p. 34. PREMIUMS - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- PREMIUM FLEXIBILITY You generally have flexibility to determine the frequency and the amount of the premiums you pay. Unlike conventional insurance policies, you do not have to pay your premiums according to a rigid and inflexible premium schedule. Before we issue the Policy to you, we may require you to pay a premium at least equal to a minimum monthly guarantee 31 premium set forth in your Policy. Thereafter (subject to the limitations described below), you may make unscheduled premium payments at any time and in any amount over $50. Under some circumstances, you may be required to pay extra premiums to prevent a lapse. Your minimum monthly guarantee premium may change if you request a change in your Policy. If this happens, we will notify you of the new minimum monthly guarantee premium. PLANNED PERIODIC PAYMENTS You will determine a planned periodic payment schedule which allows you to pay level premiums at fixed intervals over a specified period of time. You are not required to pay premiums according to this schedule. You may change the amount, frequency, and the time period over which you make your planned periodic payments. Please be sure to notify us or your agent/registered representative of any address changes so that we may be able to keep your current address on record. Even if you make your planned periodic payments on schedule, your Policy may still lapse. The duration of your Policy depends on the Policy's net surrender value. If the net surrender value is not high enough to pay the monthly deduction when due (and your no lapse period has expired) then your Policy will lapse (unless you make the payment we specify during the 61-day grace period). See Policy Lapse and Reinstatement p. 57. MINIMUM MONTHLY GUARANTEE PREMIUM The full initial premium is the only premium you are required to pay under the Policy. However, you greatly increase your risk of lapse if you do not regularly pay premiums at least as large as the current minimum monthly guarantee premium. Until the no lapse date shown on your Policy schedule page, we guarantee that your Policy will not lapse, so long as on any Monthiversary you have paid total premiums (MINUS any cash withdrawals, MINUS any outstanding loan amount, and MINUS any decrease charge) that equal or exceed the sum of the minimum monthly guarantee premiums in effect for each month from the Policy date up to and including the current month. If you take a cash withdrawal, a loan, or if you increase or decrease your specified amount, you may need to pay additional premiums in order to keep the no lapse guarantee in place. The initial minimum monthly guarantee premium is shown on your Policy's schedule page, and depends on a number of factors, including the age, gender, and rate class of the insured, and the specified amount requested. We will adjust the minimum monthly guarantee premium if you change death benefit options, increase or decrease the specified amount, or if any of the riders are added, increased or decreased. We will notify you of the new minimum monthly guarantee premium. AFTER THE NO LAPSE PERIOD ENDS, PAYING THE CURRENT MINIMUM MONTHLY GUARANTEE PREMIUM EACH MONTH WILL NOT NECESSARILY KEEP YOUR POLICY IN FORCE. YOU MAY NEED TO PAY ADDITIONAL PREMIUMS TO KEEP THE POLICY IN FORCE. 32 NO LAPSE PERIOD Until the no lapse date shown on your Policy schedule page, your Policy will remain in force and no grace period will begin, even if your net surrender value is too low to pay the monthly deduction, so long as: -- the total amount of the premiums you paid (MINUS any cash withdrawals, MINUS outstanding loan amount, and MINUS any decrease charge) is equal to or exceeds: + the sum of the minimum monthly guarantee premium in effect for each month from the Policy date up to and including the current month. See Policy Lapse and Reinstatement p. 57. PREMIUM LIMITATIONS Premium payments must be at least $50 ($1,000 if by wire). We may return premiums less than $50. We will not allow you to make any premium payments that would cause the total amount of the premiums you pay to exceed the current maximum premium limitations which qualify the Policy as life insurance according to federal tax laws. This maximum is set forth in your Policy. If you make a payment that would cause your total premiums to be greater than the maximum premium limitations, we will return the excess portion of the premium payment. We will not permit you to make additional premium payments until they are allowed by the maximum premium limitations. In addition, we reserve the right to refund a premium if the premium would increase the death benefit by more than the amount of the premium. MAKING PREMIUM PAYMENTS We will consider any payments you make to be premium payments, unless you clearly mark them as loan repayments. We will deduct certain charges from your premium payments (see Premium Charges -- Premium Expense Charge p. 43). We will accept premium payments by wire transfer. If you wish to make payments by wire transfer, you should instruct your bank to wire federal funds as follows: All First Bank of Baltimore ABA #052000113 For credit to: Western Reserve Life Account #: 89539639 Policyowner's Name: Policy Number: Attention: General Accounting Tax-Free Exchanges ("1035 Exchanges") (see Tax-Free "Section 1035" Exchanges p. 27). We will accept part or all of your initial premium from one or more contracts insuring the same insured that qualify for tax-free exchanges under Section 1035 of the Internal Revenue Code. If you contemplate such an exchange, you should consult a competent tax advisor to learn the potential tax effects of such a transaction. 33 Subject to our underwriting requirements, we will permit you to make one additional cash payment within three business days of receipt at our office of the proceeds from the 1035 Exchange before we finalize your Policy's specified amount. ALLOCATING PREMIUMS You must instruct us on how to allocate your net premium among the subaccounts and the fixed account. You may allocate your premium to a total of 16 active subaccounts at any one time. The fixed account may not be available in all states to direct or transfer money into. You must follow these guidelines: -- allocation percentages must be in whole numbers; -- if you select dollar cost averaging, you must have at least $5,000 in each subaccount from which we will make transfers and you must transfer at least a total of $100 monthly; -- if you select asset rebalancing, the cash value of your Policy, if an existing Policy, or your minimum initial premium, if a new Policy, must be at least $5,000; and -- unless otherwise required by state law, we may restrict your allocations to the fixed account if the fixed account value following the allocation would exceed $500,000. Currently, you may change the allocation instructions for additional premium payments without charge at any time by writing us or calling us at 1-800-851-9777, extension 6539 Monday-Friday 8:00 a.m.-7:00 p.m. Eastern time. The change will be effective at the end of the valuation date on which we receive the change. Upon instructions from you, the registered representative/agent of record for your Policy may also change your allocation instructions for you. The minimum amount you can allocate to a particular subaccount is 1.0% of a net premium payment. We reserve the right to limit the number of premium allocation changes or to charge $25 for each change in excess of one per Policy year quarter. Whenever you direct money into a subaccount, we will credit your Policy with the number of units for that subaccount that can be bought for the dollar payment. We price each subaccount unit on each valuation date using the unit value determined at the closing of the regular business session of the NYSE (usually at 4:00 p.m. Eastern time). We will credit amounts to the subaccounts only on a valuation date, that is, on a date the NYSE is open for trading. See Policy Values below. Your cash value will vary with the investment experience of the subaccounts in which you invest. YOU BEAR THE INVESTMENT RISK FOR AMOUNTS YOU ALLOCATE TO THE SUBACCOUNTS. You should periodically review how your cash value is allocated among the subaccounts and the fixed account because market conditions and your overall financial objectives may change. Reallocation Account. If your state requires us to return your initial premium in the event you exercise your free-look right, we will allocate the initial net premium on the record date to the reallocation account as shown on your Policy schedule page. While held in the reallocation account, net premium(s) will be credited with interest at the current fixed account rate and reduced by any monthly deductions due. The net premiums will remain in the reallocation account until the reallocation date. The reallocation date is the record date, plus 34 the number of days in your state's free-look period, plus five days. Please contact your agent for details concerning the free-look period for your state. On the first valuation date on or after the reallocation date, we will reallocate all cash value from the reallocation account to the fixed account and the subaccounts you selected on the application. If you requested dollar cost averaging, on the reallocation date we will reallocate the cash value either to the fixed account, the WRL Transamerica Money Market subaccount or the WRL AEGON Bond subaccount (depending on which account you selected on your application). For states which do not require a full refund of the initial premium, the reallocation date is the same as the record date. On the record date, we will allocate your initial net premium, minus monthly deductions, to the fixed account and the subaccounts in accordance with the instructions you gave us on your application. POLICY VALUES - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- CASH VALUE -- Varies from day to day, depending on the investment experience of the subaccounts you choose, the interest credited to the fixed account, the charges deducted and any other Policy transactions (such as additional premium payments, transfers, withdrawals and Policy loans). -- Serves as the starting point for calculating values under a Policy. -- Equals the sum of all values in each subaccount and the fixed account. -- Is determined on the Policy date and on each valuation date. -- Has no guaranteed minimum amount and may be more or less than premiums paid. -- Includes any amounts held in the fixed account to secure any outstanding Policy loan. NET SURRENDER VALUE The net surrender value is the amount we pay when you surrender your Policy. We determine the net surrender value at the end of the valuation period when we receive your written surrender request at our office. NET SURRENDER VALUE ON ANY VALUATION -- the cash value as of such date; MINUS DATE EQUALS: -- any surrender charge as of such date; MINUS -- any outstanding Policy loan amount.
SUBACCOUNT VALUE Each subaccount's value is the cash value in that subaccount. At the end of any valuation period, the subaccount's value is equal to the number of units that the Policy has in the subaccount, multiplied by the unit value of that subaccount. 35 THE NUMBER OF UNITS IN ANY -- the initial units purchased at unit value on the SUBACCOUNT ON ANY VALUATION DATE reallocation date; PLUS EQUALS: -- units purchased with additional net premium(s); PLUS -- units purchased via transfers from another subaccount or the fixed account; MINUS -- units redeemed to pay for monthly deductions; MINUS -- units redeemed to pay for cash withdrawals; MINUS -- units redeemed as part of a transfer to another subaccount or the fixed account; MINUS -- units redeemed to pay partial surrender charges, decrease charges and transfer charges.
Every time you allocate, transfer or withdraw money to or from a subaccount, we convert that dollar amount into units. We determine the number of units we credit to, or subtract from, your Policy by dividing the dollar amount of the allocation, transfer or cash withdrawal by the unit value for that subaccount next determined at the end of the valuation period on which the premium, transfer request or cash withdrawal request is received at our office. SUBACCOUNT UNIT VALUE The value (or price) of each subaccount unit will reflect the investment performance of the portfolio in which the subaccount invests. Unit values will vary among subaccounts. The unit value of each subaccount was originally established at $10 per unit. The unit value may increase or decrease from one valuation period to the next. THE UNIT VALUE OF ANY -- the total value of the portfolio shares held in SUBACCOUNT AT THE END OF A the subaccount, including the value of any dividends or VALUATION PERIOD IS capital gains distribution declared and CALCULATED AS: reinvested by the portfolio during the valuation period. This value is determined by multiplying the number of portfolio shares owned by the subaccount by the portfolio's net asset value per share determined at the end of the valuation period; MINUS -- a charge equal to the daily net assets of the subaccount multiplied by the daily equivalent of the daily charge; MINUS -- the accrued amount of reserve for any taxes or other economic burden resulting from applying tax laws that we determine to be properly attributable to the subaccount; AND THE RESULT DIVIDED BY -- The number of outstanding units in the subaccount before the purchase or redemption of any units on that date.
The portfolio in which any subaccount invests will determine its net asset value per share once daily, as of the close of the regular business session of the NYSE (usually 4:00 p.m. Eastern time), which coincides with the end of each valuation period. FIXED ACCOUNT VALUE On the reallocation date, the fixed account value is equal to the cash value allocated to the fixed account. 36 THE FIXED ACCOUNT VALUE AT THE END -- The sum of net premium(s) allocated to the fixed OF ANY VALUATION PERIOD IS EQUAL TO: account; PLUS -- Any amounts transferred from a subaccount to the fixed account; PLUS -- Total interest credited to the fixed account; MINUS -- Amounts charged to pay for monthly deductions; MINUS -- Amounts withdrawn or surrendered from the fixed account; MINUS -- Amounts transferred from the fixed account to a subaccount.
New Jersey residents: The fixed account value at the end of any valuation period is equal to: -- any amounts transferred from a subaccount to the fixed account to establish a loan reserve; PLUS -- total interest credited to the fixed account. TRANSFERS - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- GENERAL You or your agent/registered representative of record may make transfers among a total of 16 active subaccounts or from the subaccounts to the fixed account. We determine the amount you have available for transfers at the end of the valuation period when we receive your transfer request at our office. We may, at any time, discontinue transfer privileges, modify our procedures, or limit the number of transfers we permit. The following features apply to transfers under the Policy: X You may make one transfer from the fixed account in a Policy year (unless you choose dollar cost averaging from the fixed account). X Unless otherwise required by state law, we may restrict transfers to the fixed account, if the fixed account value following the transfer would exceed $500,000. X You may request transfers in writing (in a form we accept), by fax or by telephone. X There is no minimum amount that must be transferred. X There is no minimum amount that must remain in a subaccount after a transfer. X We deduct a $25 charge from the amount transferred for each transfer in excess of 12 transfers in a Policy year. X We consider all transfers made in any one day to be a single transfer. X Transfers resulting from loans, conversion rights, reallocation of cash value immediately after the reallocation date, and transfers from the fixed account are NOT treated as transfers for the purpose of the transfer charge. X Transfers under dollar cost averaging and asset rebalancing are treated as transfers for purposes of the transfer charge. Some investors try to profit from various strategies known as market timing; for example, switching money into mutual funds when they expect prices to rise and taking money out when they expect prices to fall, or switching from one portfolio to another and then back 37 out again after a short period of time. As money is shifted in and out, a fund incurs expenses for buying and selling securities. These costs are borne by all fund shareholders, including the long-term investors who do not generate the costs. This is why all portfolios have adopted special policies to discourage short-term trading. Specifically, each portfolio reserves the right to reject any transfer request that it regards as disruptive to efficient portfolio management. A transfer request could be rejected because of the timing of the investment or because of a history of excessive transfers by the owner. The Policy you are purchasing was not designed for professional market timing organizations or other persons that use programmed, large, or frequent transfers. The use of such transfers may be disruptive to the underlying portfolio and increase transaction costs. We reserve the right to reject any premium payment or transfer request from any person if, in our judgment, the payment or transfer or series of transfers would have a negative impact on a portfolio's operations or if a portfolio would reject our purchase order. We may impose other restrictions on transfers or even prohibit them for any owner who, in our view, has abused, or appears likely to abuse, the transfer privilege. THE PORTFOLIOS DO NOT PERMIT MARKET TIMING. DO NOT INVEST WITH US IF YOU ARE A MARKET TIMER. Your Policy, as applied for and issued, will automatically receive telephone transfer privileges unless you provide other instructions. The telephone transfer privileges allow you to give authority to the registered representative or agent of record for your Policy to make telephone transfers and to change the allocation of future payments among the subaccounts and the fixed account on your behalf according to your instructions. To make a telephone transfer, you may call us at 1-800-851-9777, extension 6539 Monday-Friday 8:00 a.m.-7:00 p.m. Eastern time, or fax your instructions to 727-299-1648. Please note the following regarding telephone or fax transfers: + We will employ reasonable procedures to confirm that telephone instructions are genuine. + If we follow these procedures, we are not liable for any loss, damage, cost or expense from complying with telephone instructions we reasonably believe to be authentic. You bear the risk of any such loss. + If we do not employ reasonable confirmation procedures, we may be liable for losses due to unauthorized or fraudulent instructions. + Such procedures may include requiring forms of personal identification prior to acting upon telephone instructions, providing written confirmation of transactions to owners, and/or tape recording telephone instructions received from owners. + We may also require written confirmation of your order. + If you do not want the ability to make telephone transfers, you should notify us in writing at our office. + Telephone or fax orders must be received at our office before 4:00 p.m. Eastern time to assure same-day pricing of the transaction. + WE WILL NOT BE RESPONSIBLE FOR SAME-DAY PROCESSING OF TRANSFERS IF FAXED TO A NUMBER OTHER THAN 727-299-1648. 38 + We will not be responsible for any transmittal problems when you fax us your order unless you report it to us within five business days and send us proof of your fax transmittal. We may discontinue this option at any time. We cannot guarantee that telephone and faxed transactions will always be available. For example, our offices may be closed during severe weather emergencies or there may be interruptions in telephone or fax service beyond our control. If the volume of calls is unusually high, we might not have someone immediately available to receive your order. Although we have taken precautions to help our systems handle heavy use, we cannot promise complete reliability under all circumstances. Online transactions may not always be possible. Telephone and computer systems, whether yours, your Internet service provider's or your agent's, can experience outages or slowdowns for a variety of reasons. These outages or slowdowns may prevent or delay our receipt of your request. If you are experiencing problems, you should make your request or inquiry in writing. You should protect your personal identification number (PIN) because self-service options will be available to your agent of record and to anyone who provides your PIN. We will not be able to verify that the person providing instructions online is you or one authorized by you. We will process any transfer order we receive at our office before the NYSE closes (usually 4:00 p.m Eastern time) using the subaccount unit value determined at the end of that session of the NYSE. If we receive the transfer order after the NYSE closes, we will process the order using the subaccount unit value determined at the close of the next regular business session of the NYSE. FIXED ACCOUNT TRANSFERS You may make one transfer per Policy year from the fixed account unless you select dollar cost averaging from the fixed account. We reserve the right to require that you make the transfer request in writing. We must receive the transfer request no later than 30 days after a Policy anniversary. We will make the transfer at the end of the valuation date on which we receive the written request. The maximum amount you may transfer is limited to the greater of: + 25% of the amount in the fixed account (currently we allow up to 50% of your value but the 50% limit is not guaranteed); or + the amount you transferred from the fixed account in the immediately prior Policy year. New Jersey residents: The fixed account is NOT available to you. You may not direct or transfer any money to the fixed account. CONVERSION RIGHTS If, within 24 months of your Policy date, you transfer all of your subaccount values to the fixed account, then we will not charge you a transfer fee, even if applicable. You must make your request in writing at our office. 39 DOLLAR COST AVERAGING Dollar cost averaging is an investment strategy designed to reduce the average purchase price per unit. The strategy spreads the allocation of your premium into the subaccounts over a period of time. This potentially allows you to reduce the risk of investing most of your premium into the subaccounts at a time when prices are high. The success of this strategy is not assured and depends on market trends. You should consider carefully your financial ability to continue the program over a long enough period of time to purchase units when their value is low as well as when it is high. We make no guarantee that dollar cost averaging will result in a profit or protect you against loss. Under dollar cost averaging, we automatically transfer a set dollar amount from the WRL Transamerica Money Market subaccount, the WRL AEGON Bond subaccount or the fixed account to a subaccount that you choose. We will make the transfers monthly as of the end of the valuation date after the first Monthiversary after the reallocation date. We will make the first transfer in the month after we receive your request at our office, provided that we receive the form by the 25th day of the month. TO START DOLLAR COST + you must submit a completed form to us at our AVERAGING: office requesting dollar cost averaging; + you must have at least $5,000 in each account from which we will make transfers; + your total transfers each month under dollar cost averaging must be at least $100; and + each month, you may not transfer more than one-tenth of the amount that was in your fixed account at the beginning of dollar cost averaging.
You may request dollar cost averaging at any time. There is no charge for dollar cost averaging. However, each transfer under dollar cost averaging counts towards your 12 free transfers each year. DOLLAR COST AVERAGING WILL TERMINATE + we receive your request to cancel your IF: participation; + the value in the accounts from which we make the transfers is depleted; + you elect to participate in the asset rebalancing program; OR + you elect to participate in any asset allocation services provided by a third party.
We may modify, suspend, or discontinue dollar cost averaging at any time. ASSET REBALANCING PROGRAM We also offer an asset rebalancing program under which you may transfer amounts periodically to maintain a particular percentage allocation among the subaccounts you have selected. You cannot have more than 16 active subaccounts at any one time. Cash value allocated to each subaccount will grow or decline in value at different rates. The asset rebalancing program automatically reallocates the cash value in the subaccounts at the end of each period to match your Policy's currently effective premium allocation schedule. Cash value 40 in the fixed account and the dollar cost averaging program is not available for this program. This program does not guarantee gains. A subaccount may still have losses. You may elect asset rebalancing to occur on each quarterly, semi-annual or annual anniversary of the Policy date. Once we receive the asset rebalancing request form at our office, we will effect the initial rebalancing of cash value on the next such anniversary, in accordance with the Policy's current premium allocation schedule. You may modify your allocations quarterly. We will credit the amounts transferred at the unit value next determined on the dates the transfers are made. If a day on which rebalancing would ordinarily occur falls on a day on which the NYSE is closed, rebalancing will occur on the next day the NYSE is open. TO START ASSET REBALANCING: + you must submit a completed asset rebalancing request form to us at our office before the maturity date; and + you must have a minimum cash value of $5,000 or make a $5,000 initial premium payment.
There is no charge for the asset rebalancing program. However, each reallocation we make under the program counts towards your 12 free transfers each year. ASSET REBALANCING WILL CEASE IF: + you elect to participate in the dollar cost averaging program; + we receive your request to discontinue participation at our office; + you make ANY transfer to or from any subaccount other than under a scheduled rebalancing; or + you elect to participate in any asset allocation services provided by a third party.
You may start and stop participation in the asset rebalancing program at any time; but we restrict your right to re-enter the program to once each Policy year. If you wish to resume the asset rebalancing program, you must complete a new request form. We may modify, suspend, or discontinue the asset rebalancing program at any time. THIRD PARTY ASSET ALLOCATION SERVICES We may provide administrative or other support services to independent third parties you authorize to conduct transfers on your behalf, or who provide recommendations as to how your subaccount values should be allocated. This includes, but is not limited to, transferring subaccount values among subaccounts in accordance with various investment allocation strategies that these third parties employ. These independent third parties may or may not be appointed Western Reserve agents for the sale of Policies. WESTERN RESERVE DOES NOT ENGAGE ANY THIRD PARTIES TO OFFER INVESTMENT ALLOCATION SERVICES OF ANY TYPE, SO THAT PERSONS OR FIRMS OFFERING SUCH SERVICES DO SO INDEPENDENT FROM ANY AGENCY RELATIONSHIP THEY MAY HAVE WITH WESTERN RESERVE FOR THE SALE OF POLICIES. WESTERN RESERVE THEREFORE TAKES NO RESPONSIBILITY FOR THE INVESTMENT ALLOCATIONS AND TRANSFERS TRANSACTED ON YOUR BEHALF BY SUCH THIRD PARTIES OR ANY INVESTMENT ALLOCATION RECOMMENDATIONS MADE BY SUCH PARTIES. Western Reserve does not currently charge you any additional fees for providing these support services. Western Reserve reserves the right to discontinue providing administrative and support services to owners 41 utilizing independent third parties who provide investment allocation and transfer recommendations. CHARGES AND DEDUCTIONS - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- This section describes the charges and deductions that we make under the Policy to compensate for: (1) the services and benefits we provide; (2) the costs and expenses we incur; and (3) the risks we assume. The fees and charges deducted under the Policy may result in a profit to us. SERVICES AND BENEFITS WE PROVIDE -- the death benefit, cash and loan benefits; UNDER THE POLICY: -- investment options, including premium allocations; -- administration of elective options; and -- the distribution of reports to owners.
COSTS AND EXPENSES WE INCUR: -- costs associated with processing and underwriting applications; -- expenses of issuing and administering the Policy (including any Policy riders); -- overhead and other expenses for providing services and benefits and sales and marketing expenses, including compensation paid in connection with the sale of the Policies; and -- other costs of doing business, such as collecting premiums, maintaining records, processing claims, effecting transactions, and paying federal, state and local premium and other taxes and fees.
RISKS WE ASSUME: -- that the charges we may deduct may be insufficient to meet our actual claims because insureds die sooner than we estimate; and -- that the costs of providing the services and benefits under the Policies may exceed the charges we are allowed to deduct.
42 PREMIUM CHARGES Before we allocate the net premium payments you make, we will deduct the following charges. PREMIUM EXPENSE CHARGE -- This charge equals: + 6.0% of premiums during the first ten Policy years on Policies with a specified amount in force of less than $250,000 and 4.0% on Policies with a specified amount in force of $250,000 - $499,999; and + 2.5% of premiums thereafter on Policies with a specified amount less than $500,000. -- There is no premium expense charge for Policies with a specified amount of $500,000 or higher. -- Because certain events (such as increases or decreases in the specified amount, a change in death benefit option, or a cash withdrawal if you choose the Option A death benefit) may affect the specified amount in force, premium expense charges will be based on the specified amount in force for the Base Policy at the time we receive the premium. -- This charge compensates us for distribution expenses and state premium taxes.
PREMIUM COLLECTION CHARGE -- For Policies on direct pay notice, this charge equals $3.00 per premium payment. We currently do not impose this charge but reserve the right to do so in the future. -- This charge only applies to Policies on direct pay notice. -- We will not increase this charge.
MONTHLY DEDUCTION We take a monthly deduction from the cash value on the Policy date and on each Monthiversary. We deduct this charge on a pro rata basis from all accounts (i.e., in the same proportion that the value in each subaccount and the fixed account bears to the total cash value on the Monthiversary). Because portions of the monthly deduction (such as cost of insurance) can vary monthly, the monthly deduction will also vary. THE MONTHLY DEDUCTION IS -- the monthly Policy charge; PLUS EQUAL TO: -- the monthly cost of insurance charge for the Policy; PLUS -- the monthly charge for any benefits provided by riders attached to the Policy; PLUS -- the decrease charge (if applicable) incurred as a result of a decrease in the specified amount.
43 MONTHLY POLICY CHARGE: -- This charge currently equals $5.00 each Policy month. -- We guarantee this charge will never be more than $7.50 per month. -- We may waive this charge at issue on additional policies (not on the original Policy) purchased naming the same owner and insured. -- This charge is used to cover aggregate Policy expenses. COST OF INSURANCE CHARGE: -- We deduct this charge each month. It varies each month and is determined as follows: 1. DIVIDE the death benefit on the Monthiversary by 1.0024663 (this factor reduces the net amount at risk, for purposes of computing the cost of insurance, by taking into account assumed monthly earnings at an annual rate of 3.0%); 2. SUBTRACT the cash value on the Monthiversary after it has been allocated among the segments of specified amount in force in the following order: first, initial specified amount, then, each increase in specified amount starting with the oldest increase, then the next oldest, successively, until all cash value has been allocated; 3. MULTIPLY each segment provided under 2. by the appropriate monthly cost of insurance rate for that segment; and ADD the results together. -- Your monthly current cost of insurance rate depends, in part, on your specified amount band. The specified amount bands available are: + Band 1: $50,000 - $249,999 + Band 2: $250,000 - $499,999 + Band 3: $500,000 - $999,999 + Band 4: $1,000,000 and over -- Generally, the higher the specified amount band you choose, the lower the current cost of insurance rates. -- We determine your specified amount band by referring to the specified amount in force for the Base Policy (that is, the initial specified amount on the Policy date, plus any increases, and minus any decreases). Riders are not included in determining the Policy's specified amount band.
OPTIONAL INSURANCE RIDERS: -- The monthly deduction will include charges for any optional insurance benefits you add to your Policy by rider (see Supplemental Benefits (Riders) p. 66).
The current cost of insurance rates vary by the insured's issue age on the Policy date, issue age at the time of any increase in specified amount, specified amount band, gender, rate 44 class, and the length of time from the Policy date or from the date of any increase in specified amount. If you increase the specified amount, different monthly cost of insurance rates may apply to that segment of specified amount, based on the insured's attained age and rate class at the time of the increase, gender, and the length of time since the increase. Increases in specified amount may move the Policy into a higher specified amount band. Decreases in specified amount may cause the Policy to drop into a lower band of specified amount and may result in an increase in cost of insurance rates and premium expense charge rates. Decreases in specified amount will be applied on a last-in, first-out basis to the specified amount in force, and will first reduce the specified amount provided by the most recent increase in specified amount in force, then reduce the next most recent increases, successively, and then reduce the initial specified amount. The actual monthly cost of insurance rates are primarily based on our expectations as to future mortality experience and expenses. The rates will never be greater than the guaranteed amount stated in your Policy. These guaranteed rates are based on the 1980 Commissioners Standard Ordinary (C.S.O.) Mortality Tables and the insured's attained age, gender, and rate class. For standard rate classes, these guaranteed rates will never be greater than the rates in the C.S.O. tables. We may also guarantee a rate for a specific period of time (e.g., one year). For a listing of rate classes, see Underwriting Standards p. 27. We may issue certain Policies on a simplified or expedited basis. The cost of insurance rates for Policies we issue on this basis will be no higher than the guaranteed rates for select, non-tobacco use or standard, tobacco use categories. However, these rates may be higher or lower than current rates charged under otherwise identical Policies that are using standard underwriting criteria. MORTALITY AND EXPENSE RISK CHARGE We deduct a daily charge from your cash value in each subaccount to compensate us for mortality and expense costs we assume. This charge is equal to: -- your Policy's cash value in each subaccount MULTIPLIED BY -- the daily pro rata portion of the annual mortality and expense risk charge rate of 0.90%. The annual rate is equal to 0.90% of the average daily net assets of each subaccount. We guarantee to reduce this charge to 0.60% after the first 15 Policy years. We intend to reduce this amount to 0.30% in the 16th Policy year, but we do not guarantee that we will do so, and we reserve the right to maintain this charge at the 0.60% level after the 15th Policy year. The mortality risk is that the insured will live for a shorter time than we project. The expense risk is that the expenses that we incur will exceed the administrative charge limits we set in the Policy. If this charge does not cover our actual costs, we absorb the loss. Conversely, if the charge more than covers actual costs, the excess is added to our surplus. We expect to profit from this charge. We may use any profits to cover distribution costs. 45 SURRENDER CHARGE If you surrender your Policy completely during the first 15 years (or during the 15 year period following an increase in specified amount), we deduct a surrender charge from your cash value and pay the remaining cash value (less any outstanding loan amount) to you. The surrender charge is a charge for each $1,000 of specified amount of the initial specified amount of your Base Policy and of each increase in specified amount. The surrender charge that will apply on a full surrender of the Policy is the total of the surrender charge calculated for the initial specified amount and the surrender charges calculated for each increase in specified amount unless there has been a reduction in specified amount for which a decrease charge was applied. The initial specified amount has a 15 year surrender charge period starting on the Policy date and surrender charges that are based upon the insured's issue age, gender and rate class on the Policy date. Each increase in specified amount has its own 15 year surrender charge period and surrender charges that are based upon the insured's issue age, gender and rate class at the time of the increase. Decreases in specified amount will be applied to the specified amount in force on a last-in, first-out basis and will first reduce the surrender charge on the most recent increase in specified amount in force, then, if still applicable, reduce the surrender charge on the next most recent increases, successfully, and then reduce the surrender charge on the initial specified amount. EXAMPLE: January 1, 2001 Policy issued for $300,000 January 1, 2004 Policy increased by $200,000 January 1, 2005 Policy decreased by $100,000 If the surrender charge on January 1, 2005 (before the decrease) is: COVERAGE LAYER SURRENDER CHARGE $300,000 $4,656 $200,000 $3,624
The $200,000 layer is reduced to $100,000 on January 1, 2005 and a surrender charge of $1,812 is applied. 100 - --- 200 X $3,624 = $1,812
There is no surrender charge if you wait until the end of the 15th Policy anniversary to surrender your Policy and you have not increased your specified amount during the first 15 Policy years. The payment you receive is called the net surrender value. The formula we use reduces the surrender charge at older ages in compliance with state laws. THE SURRENDER CHARGE MAY BE SIGNIFICANT. YOU SHOULD EVALUATE THIS CHARGE CAREFULLY BEFORE YOU CONSIDER A SURRENDER. Under some circumstances the level of surrender charges might result in no net surrender value available if you surrender your Policy in the early Policy years. This will depend on a number of factors, but is more likely if: -- you pay premiums equal to or not much higher than the minimum monthly guarantee premium shown in your Policy; and/or -- investment performance is too low. 46 In addition, surrender charges that apply for 15 years after any increase in specified amount will likely significantly reduce your net surrender value. THE SURRENDER CHARGE FOR EACH SEGMENT -- THE SURRENDER CHARGE PER THOUSAND (varies by OF SPECIFIED AMOUNT IS CALCULATED AS: issue age, gender and rate class on the Policy date or date of specified amount increase); multiplied by -- the SURRENDER CHARGE FACTOR.
The SURRENDER CHARGE PER THOUSAND is calculated separately for initial specified amount and for each increase in specified amount, using the rates found in Appendix B. The SURRENDER CHARGE FACTOR is also calculated separately for the initial specified amount and for each increase in specified amount in force. The surrender charge factor varies by insured's issue age (on the Policy date or date of specified amount increase) and number of years since the Policy date or date of specified amount increase. For insureds issue ages 0-39, the surrender charge factor is equal to 1.00 during years 1-5. It decreases by 0.10 each year until the end of the 15th year when it is zero. If you are older than 39 on the Policy date or on the date of specified amount increase, the factor is less than 1.00 at the end of the first year and decreases to zero at the end of the 15th year. In no event are the surrender charge factors any greater than those shown on the table below. We always determine the surrender charge factor from the Policy date or date of specified amount increase to the surrender date, regardless of whether there were any prior lapses and reinstatements. SURRENDER CHARGE FACTORS ISSUE AGES 0 - 39 END OF YEAR* FACTOR At Issue 1.00 1-5 1.00 6 .90 7 .80 8 .70 9 .60 10 .50 11 .40 12 .30 13 .20 14 .10 15 0 16+ 0
* The factor on any date other than a Policy anniversary or anniversary of an increase in specified amount will be determined proportionately using the factor at the end of the year prior to surrender and the factor at the end of the year of surrender. -- SURRENDER CHARGE EXAMPLE: Assume a male tobacco user purchases the Policy at Issue Age 35 with a specified amount of $100,000. The Policy is surrendered in Policy year 5. The surrender charge per thousand is $16.48. This is multiplied by the surrender charge factor of 1.00 The surrender charge = the surrender charge per thousand ($16.48) X the number of thousands of initial specified amount (100) X the surrender charge factor (1.0) = $1,648. 47 The surrender charge helps us recover distribution expenses that we incur in connection with the Policy, including agent sales commissions and printing and advertising costs. DECREASE CHARGE If you decrease the specified amount during the first 15 Policy years (or during the 15 year period following an increase in specified amount), we will deduct a decrease charge from your cash value. Decreases in specified amount will be applied on a last-in, first-out basis to the current specified amount in force. The decrease charge will first be calculated based on the current surrender charge applicable to the most recent increase in specified amount still in force. If the amount of the decrease in specified amount is greater than the most recent increase in specified amount, then the charge will also be calculated based on the surrender charges applicable to the next most recent increases, successively, and then will also be calculated based on any remaining surrender charge on the initial specified amount, up to the amount of the requested decrease. THE DECREASE CHARGE IS EQUAL TO: -- the surrender charge as of the date of the decrease applicable to that portion of the segment(s) of the specified amount that is decreased. See Surrender Charges.
We will not deduct the decrease charge from the cash value when a specified amount decrease results from: -- a change in the death benefit option; or -- a cash withdrawal (when you select death benefit Option A). If a decrease charge is deducted because of a decrease in specified amount, any future decrease charges incurred during the surrender charge period will be based on the reduced specified amount. We will determine the decrease charge using the above formula, regardless of whether your Policy has lapsed and been reinstated, or you have previously decreased your specified amount. We will not allow a decrease in specified amount if the decrease charge will cause the Policy to go into a grace period. A decrease in specified amount will generally decrease the insurance protection of the Policy. TRANSFER CHARGE -- We currently allow you to make 12 transfers each year free from charge. -- We charge $25 for each additional transfer. -- For purposes of assessing the transfer charge, all transfers made in one day, regardless of the number of subaccounts affected by the transfer, is considered a single transfer. -- We deduct the transfer charge from the amount being transferred. -- Transfers due to loans, exercise of conversion rights, or from the fixed account do not count as transfers for the purpose of assessing this charge. -- Transfers under dollar cost averaging and asset rebalancing are transfers for purposes of this charge. -- We will not increase this charge. CHANGE IN NET PREMIUM ALLOCATION CHARGE We currently do not charge you if you change your net premium allocation. However, in the future we may decide to charge you $25 if you make more than one change every three months in your allocation schedule. We will notify you if we decide to impose this charge. 48 CASH WITHDRAWAL CHARGE -- After the first Policy year, you may take one cash withdrawal per Policy year. -- When you make a cash withdrawal, we charge a processing fee of $25 or 2% of the amount you withdraw, whichever is less. -- We deduct this amount from the withdrawal, and we pay you the balance. -- We will not increase this charge. TAXES We currently do not make any deductions for taxes from the separate account. We may do so in the future if such taxes are imposed by federal or state agencies. PORTFOLIO EXPENSES The portfolios deduct management fees and expenses from the amounts you have invested in the portfolios. These fees and expenses reduce the value of your portfolio shares. Some portfolios also deduct 12b-1 fees from portfolio assets. These fees and expenses currently range from % to %. See the Portfolio Annual Expense Table on p. 10 in this prospectus, and the fund prospectuses. Our affiliate, AFSG, the principal underwriter for the Policies, will receive the 12b-1 fees deducted from portfolio assets for providing shareholder support services to the portfolios. We and our affiliates, including the principal underwriter for the Policies, may receive compensation from the investment advisers, administrators, and/or distributors (and an affiliate thereof) of the portfolios in connection with administrative or other services and cost savings experienced by the investment advisers, administrators or distributors. It is anticipated that such compensation will be based on assets of the particular portfolios attributable to the Policy and may be significant. Some advisers, administrators, distributors or portfolios may pay us (and our affiliates) more than others. DEATH BENEFIT - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- DEATH BENEFIT PROCEEDS As long as the Policy is in force, we will pay the death benefit proceeds on an individual Policy once we receive satisfactory proof of the insured's death. We may require return of the Policy. We will pay the death benefit proceeds to the primary beneficiary(ies), if living, or to a contingent beneficiary. If each beneficiary dies before the insured and there is no contingent beneficiary, we will pay the death benefit proceeds to the owner or the owner's estate. We will pay the death benefit proceeds in a lump sum or under a payment option. See Payment Options p. 53. DEATH BENEFIT PROCEEDS -- the death benefit (described below); MINUS EQUAL: -- any monthly deductions due during the grace period (if applicable); MINUS -- any outstanding loan amount; PLUS -- any additional insurance in force provided by rider.
We may further adjust the amount of the death benefit proceeds if we contest the Policy or if you misstate the insured's age or gender. See Our Right to Contest the Policy p. 62; and Misstatement of Age or Gender p. 63. 49 DEATH BENEFIT The Policy provides a death benefit. The death benefit is determined at the end of the valuation period in which the insured dies. You must select one of the three death benefit options we offer in your application. No matter which death benefit option you choose, we guarantee that, so long as the Policy does not lapse, the death benefit will never be less than the specified amount on the date of the insured's death. DEATH BENEFIT OPTION A -- the current specified amount; OR EQUALS THE GREATER OF: -- a specified percentage called the "limitation percentage," MULTIPLIED BY -- the cash value on the insured's date of death.
Under Option A, your death benefit remains level unless the limitation percentage multiplied by the cash value is greater than the specified amount; then the death benefit will vary as the cash value varies. The limitation percentage is the minimum percentage of cash value we must pay as the death benefit under federal tax requirements. It is based on the attained age of the insured at the beginning of each Policy year. The following table indicates the limitation percentages for different ages: ATTAINED AGE LIMITATION PERCENTAGE 40 and under 250% 41 to 45 250% of cash value minus 7% for each age over age 40 46 to 50 215% of cash value minus 6% for each age over age 45 51 to 55 185% of cash value minus 7% for each age over age 50 56 to 60 150% of cash value minus 4% for each age over age 55 61 to 65 130% of cash value minus 2% for each age over age 60 66 to 70 120% of cash value minus 1% for each age over age 65 71 to 75 115% of cash value minus 2% for each age over age 70 76 to 90 105% 91 to 95 105% of cash value minus 1% for each age over age 90 96 and older 100%
If the federal tax code requires us to determine the death benefit by reference to these limitation percentages, the Policy is described as "in the corridor." An increase in the cash value will increase our risk, and we will increase the cost of insurance we deduct from the cash value. Option A Illustration. Assume that the insured's attained age is under 40, there have been no withdrawals or decreases in specified amount, and that there is no outstanding indebtedness. Under Option A, a Policy with a $100,000 specified amount will generally pay $100,000 in death benefits. However, because the death benefit must be equal to or be greater than 250% of cash value, any time the cash value of the Policy exceeds $40,000, the death benefit will exceed the $100,000 specified amount. Each additional dollar added to the cash value above $40,000 will increase the death benefit by $2.50. Similarly, so long as the cash value exceeds $40,000, each dollar taken out of the cash value will reduce the death benefit by $2.50. If at any time the cash value multiplied by the limitation percentage is less than the specified amount, the death benefit will equal the specified amount of the Policy reduced by the dollar value of any cash withdrawals. 50 DEATH BENEFIT OPTION B -- the current specified amount; PLUS EQUALS THE GREATER OF: + the cash value on the insured's date of death; OR -- the limitation percentage, MULTIPLIED BY + the cash value on the insured's date of death.
Under Option B, the death benefit always varies as the cash value varies. Option B Illustration. Assume that the insured's attained age is under 40 and that there is no outstanding indebtedness. Under Option B, a Policy with a specified amount of $100,000 will generally pay a death benefit of $100,000 plus cash value. Thus, a Policy with a cash value of $10,000 will have a death benefit of $110,000 ($100,000 + $10,000). The death benefit, however, must be at least 250% of cash value. As a result, if the cash value of the Policy exceeds $66,667, the death benefit will be greater than the specified amount plus cash value. Each additional dollar of cash value above $66,667 will increase the death benefit by $2.50. Similarly, any time cash value exceeds $66,667, each dollar taken out of cash value will reduce the death benefit by $2.50. If at any time, cash value multiplied by the limitation percentage is less than the specified amount plus the cash value, then the death benefit will be the specified amount plus the cash value of the Policy. DEATH BENEFIT OPTION C -- death benefit Option A; OR EQUALS THE GREATER OF: -- the current specified amount, MULTIPLIED BY + an age-based "factor" equal to the lesser of -- 1.0 or -- 0.04 TIMES (95 MINUS insured's attained age at death) (the "factor" will never be less than zero); PLUS + the cash value on the insured's date of death.
Under Option C, the death benefit varies with the cash value and the insured's attained age. Option C -- Three Illustrations. 1. Assume that the insured is under age 40 and that there is no outstanding indebtedness. Under Option C, a Policy with a specified amount of $100,000 and with a cash value of $10,000 will have a death benefit of $110,000 ($100,000 X the minimum of (1.0 and (0.04 X (95 - 40))) + $10,000). Until the insured attains age 71, this benefit is the same as the Option B benefit. 2. Assume that the insured is attained age 75 and that there is no outstanding indebtedness. Under Option C, a Policy with a specified amount of $100,000 and with a cash value of $22,000 will have a death benefit of $102,000 ($100,000 X the minimum of (1.0 and (0.04 X (95 - 75))) + $22,000). 3. Assume that the insured is attained age 75 and that there is no outstanding indebtedness. Under Option C, a Policy with a specified amount of $100,000 and with a cash value of $9,000 will have a death benefit equal to the specified amount of $100,000, since the calculation of $100,000 times the minimum of (1.0 and (0.04 X (95 - 75))) plus $9,000 is less than the specified amount. EFFECTS OF CASH WITHDRAWALS ON THE DEATH BENEFIT If you choose Option A, a cash withdrawal will reduce the specified amount by an amount equal to the amount of the cash withdrawal. We will not impose a decrease charge when the specified amount is decreased as a result of taking a cash withdrawal. Regardless of 51 the death benefit option you choose, a cash withdrawal will reduce the death benefit by at least the amount of the withdrawal. EFFECTS OF ACCELPAY RIDER ON THE DEATH BENEFIT Any benefit we pay under the AccelPay rider is a prepayment of a portion of the death benefit proceeds provided by the Policy. Any benefit payment will reduce the death benefit dollar for dollar. After any benefit payment, we will reduce the specified amount and the cash value in the same proportion as the reduction in the death benefit. If you increase or decrease the specified amount of the Base Policy, we will adjust the benefit payable under the AccelPay rider. You must make a written request to change the specified amount of your Base Policy. A supplemental application and proof satisfactory to us that the insured is then insurable must accompany any request for an increase in specified amount. CHOOSING DEATH BENEFIT OPTIONS You must choose one death benefit option on your application. This is an important decision. The death benefit option you choose will have an impact on the dollar value of the death benefit, on your cash value, and on the amount of cost of insurance charges you pay. If you do not select a death benefit option on your application, we will assume you selected death benefit Option A and will ask you to confirm the selection of Option A in writing or choose one of the other death benefit options. You may find Option A more suitable for you if your goal is to increase your cash value through positive investment experience. You may find Option B more suitable if your goal is to increase your total death benefit. You may find Option C more suitable if your goal is to increase your total death benefit before you reach attained age 70, and to increase your cash value through positive investment experience thereafter. CHANGING THE DEATH BENEFIT OPTION After the third Policy year, you may change your death benefit option once each Policy year if you have not increased or decreased the specified amount that year. We will notify you of the new specified amount. -- You must send your written request to our office. -- The effective date of the change will be the Monthiversary on or following the date when we receive your request for a change at our office. -- You may not make a change that would decrease the specified amount below the minimum specified amount under band 1 shown on your Policy schedule page. -- There may be adverse federal tax consequences. You should consult a tax advisor before changing your Policy's death benefit option. INCREASING/DECREASING THE SPECIFIED AMOUNT After the Policy has been in force for three years, you may increase or decrease the specified amount once each Policy year if you have not changed the death benefit option that year. An increase or decrease in the specified amount will affect your cost of insurance charge and your minimum monthly guarantee premium, and may have adverse federal tax consequences. In addition, an increase or decrease in specified amount may move the Policy into a different specified amount band, so that your overall cost of insurance rate and premium 52 expense charge rate will change. An increase in specified amount will be treated as an additional layer of coverage with its own cost of insurance rates, surrender charges and surrender charge period. If you increase your specified amount, you will receive a new Policy schedule page showing your new minimum monthly guarantee premium and surrender charge schedule. You should consult a tax advisor before increasing or decreasing your Policy's specified amount. CONDITIONS FOR DECREASING -- you must send your written request to our THE SPECIFIED AMOUNT: office; -- you may not change your death benefit option or increase your specified amount in the same Policy year that you decrease your specified amount -- you may not decrease your specified amount lower than the minimum specified amount under band 1 shown on your Policy schedule page; -- you may not decrease your specified amount if it would disqualify your Policy as life insurance under the Internal Revenue Code; -- we may limit the amount of the decrease to no more than 20% of the specified amount; -- a decrease in specified amount will take effect on the Monthiversary on or after we receive your written request; and -- we will assess a decrease charge against the cash value if you request a decrease in your specified amount within the first 15 Policy years (or during the 15 year period subsequent to an increase in specified amount).
CONDITIONS FOR INCREASING -- your request must be applied for on a THE SPECIFIED AMOUNT: supplemental application and must include evidence of insurability satisfactory to us; -- an increase in specified amount requires our approval and will take effect on the Monthiversary on or after we approve your request; -- we may require your increase in specified amount to be at least $50,000; and -- you may not change your death benefit option or decrease your specified amount in the same Policy year that you increase your specified amount.
If an increase or decrease to your Policy's specified amount causes your specified amount band to change, then we will apply the new premium expense charge and cost of insurance rates to the amounts in the new band as of the effective date of the increase or decrease in specified amount. The new minimum monthly guarantee premium is effective on the date of increase or decrease. In addition, each increase in specified amount will have its own surrender charges that apply for 15 years after any increase. This charge may significantly reduce your net surrender value. PAYMENT OPTIONS There are several ways of receiving proceeds under the death benefit and surrender provisions of the Policy, other than in a lump sum. See Settlement Options p. 64 for information concerning these settlement options. 53 SURRENDERS AND CASH WITHDRAWALS - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SURRENDERS You must make a written request containing an original signature to surrender your Policy for its net surrender value as calculated at the end of the valuation date on which we receive your request at our office. The insured must be alive, the Policy must be in force, and it must be before the maturity date when you make your written request. A surrender is effective as of the date when we receive your written request. The signature of the owner's spouse is required if the owner is a resident of: California, Nevada or Washington. You will incur a surrender charge if you surrender the Policy during the first 15 Policy years (or during the 15 year period subsequent to an increase in specified amount) (see Charges and Deductions -- Surrender Charge p. 46). Once you surrender your Policy, all coverage and other benefits under it cease and cannot be reinstated. We will normally pay you the net surrender value in a lump sum within seven days or under a settlement option. A surrender may have tax consequences. See Federal Income Tax Considerations p. 58. CASH WITHDRAWALS After the first Policy year, you may request a cash withdrawal of a portion of your cash value subject to certain conditions. CASH WITHDRAWAL -- You must send to our office your written cash CONDITIONS: withdrawal request with an original signature. -- Signature of the owner's spouse is required if the owner is a resident of: California, Nevada or Washington. -- We only allow one cash withdrawal per Policy year. -- We may limit the amount you can withdraw to at least $500, and to no more than 10% of the net surrender value. We currently intend to limit the amount you can withdraw to 25% of the net surrender value after the 10th Policy year. After the 10th Policy year for Policies with a specified amount of at least $500,000 at the time of the withdrawal, we currently intend to limit the withdrawal amount to the greater of 25% of the net surrender value or the amount of premiums paid in the Policy, less any previous withdrawals. -- The remaining net surrender value after the cash withdrawal must be at least $500. -- You may not take a cash withdrawal if it will reduce the specified amount below the minimum specified amount set forth in the Policy. -- You may specify the subaccount(s) and the fixed account from which to make the withdrawal. If you do not specify an account, we will take the withdrawal from each account in accordance with your current premium allocation instructions.
54 -- We generally will pay a cash withdrawal request within seven days following the valuation date we receive the request at our office. -- We will deduct a processing fee equal to $25 or 2% of the amount you withdraw, whichever is less. We deduct this amount from the withdrawal, and we pay you the balance. -- You may not take a cash withdrawal that would disqualify your Policy as life insurance under the Internal Revenue Code. -- A cash withdrawal may have tax consequences (see Federal Income Tax Considerations p. 58).
A cash withdrawal will reduce the cash value by the amount of the cash withdrawal, and will reduce the death benefit by at least the amount of the cash withdrawal. When death benefit Option A is in effect, a cash withdrawal will reduce the specified amount by an amount equal to the amount of the cash withdrawal. This decrease in specified amount may cause your Policy to be in a lower specified amount band, so that your cost of insurance rates would be higher. (See Monthly Deduction p. 43.) You also may have to pay higher minimum monthly guarantee premiums and premium expense charges. We will not impose a decrease charge when the specified amount is decreased as a result of taking a cash withdrawal. When we incur extraordinary expenses, such as overnight mail expenses or wire service fees, for expediting delivery of your partial withdrawal or complete surrender payment, we will deduct that charge from the payment. We charge $20 for an overnight delivery ($30 for Saturday delivery) and $25 for wire service. LOANS - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- GENERAL After the first Policy year (as long as the Policy is in force) you may borrow money from us using the Policy as the only security for the loan. We may permit a loan prior to the first anniversary for Policies issued pursuant to 1035 Exchanges. A loan that is taken from, or secured by, a Policy may have tax consequences. See Federal Income Tax Considerations p. 58. POLICY LOANS ARE SUBJECT TO -- we may require you to borrow at least $500; CERTAIN CONDITIONS: -- the maximum amount you may borrow is 90% of the cash value, MINUS any surrender charge and MINUS any outstanding loan amount; and -- signature of the owner's spouse is required if the owner is a resident of: California, Nevada or Washington.
When you take a loan, we will withdraw an amount equal to the requested loan from each of the subaccounts and the fixed account based on your current premium allocation instructions (unless you specify otherwise). We will transfer that amount to the loan reserve. The loan reserve is the portion of the fixed account used as collateral for a Policy loan. We normally pay the amount of the loan within seven days after we receive a proper loan request at our office. We may postpone payment of loans under certain conditions. See Payments We Make p. 64. 55 You may request a loan by telephone by calling us at 1-800-851-9777, extension 6539 Monday-Friday 8:00 a.m.-7:00 p.m. Eastern time. If the loan amount you request exceeds $50,000 or if the address of record has been changed within the past 10 days, we may reject your request. If you do not want the ability to request a loan by telephone, you should notify us in writing at our office. You will be required to provide certain information for identification purposes when you request a loan by telephone. We may ask you to provide us with written confirmation of your request. We will not be liable for processing a loan request if we believe the request is genuine. You may also fax your loan request to us at 727-299-1667. We will not be responsible for any transmittal problems when you fax your request unless you report it to us within five business days and send us proof of your fax transmittal. You can repay a loan at any time while the Policy is in force. Loan repayments must be sent to our office and will be credited as of the date received. WE WILL CONSIDER ANY PAYMENTS YOU MAKE ON THE POLICY TO BE PREMIUM PAYMENTS UNLESS THE PAYMENTS ARE CLEARLY SPECIFIED AS LOAN REPAYMENTS. At each Policy anniversary, we will compare the outstanding loan amount to the amount in the loan reserve. We will also make this comparison any time you repay all or part of the loan, or make a request to borrow an additional amount. At each such time, if the outstanding loan amount exceeds the amount in the loan reserve, we will withdraw the difference from the subaccounts and the fixed account and transfer it to the loan reserve, in the same manner as when a loan is made. If the amount in the loan reserve exceeds the amount of the outstanding loan, we will withdraw the difference from the loan reserve and transfer it to the subaccounts and the fixed account in the same manner as current premiums are allocated. No charge will be imposed for these transfers, and these transfers are not treated as transfers in calculating the transfer charge. WE RESERVE THE RIGHT TO REQUIRE A TRANSFER TO THE FIXED ACCOUNT IF THE LOANS WERE ORIGINALLY TRANSFERRED FROM THE FIXED ACCOUNT. INTEREST RATE CHARGED We currently charge you an annual interest rate on a Policy loan that is equal to 3.75% (4.0% maximum guaranteed) and is payable in arrears on each Policy anniversary. We may declare various lower Policy loan interest rates. We also may apply different loan interest rates to different parts of the loan. Loan interest that is unpaid when due will be added to the amount of the loan on each Policy anniversary and will bear interest at the same rate. After the 10th Policy year, on all amounts that you have borrowed, you may receive preferred loan rates on an amount equal to the cash value MINUS total premiums paid (reduced by any cash withdrawals) and MINUS any outstanding loan amount. THIS PREFERRED LOAN RATE IS CURRENTLY 3.0% AND IS NOT GUARANTEED. The tax consequences of preferred loans are uncertain. See Federal Income Tax Considerations p. 58. LOAN RESERVE INTEREST RATE CREDITED We will credit the amount in the loan reserve with interest at an effective annual rate of 3.0%. EFFECT OF POLICY LOANS A Policy loan reduces the death benefit proceeds and net surrender value by the amount of any outstanding loan amount. Repaying the loan causes the death benefit proceeds and net surrender value to increase by the amount of the repayment. As long as a loan is 56 outstanding, we hold an amount equal to the loan as of the last Policy anniversary plus any accrued interest net of any loan payments. This amount is not affected by the separate account's investment performance and may not be credited with the interest rates accruing on the unloaned portion of the fixed account. Amounts transferred from the separate account to the loan reserve will affect the value in the separate account because we credit such amounts with an interest rate declared by us rather than a rate of return reflecting the investment results of the separate account. If you elect the AccelPay rider, we will reduce both the death benefit proceeds and the amount available for AccelPay rider benefits by the amount of the Policy loan. In addition, after we pay any benefit under the rider, we will reduce the outstanding loan amount in the same proportion as we reduce the death benefit. There are risks involved in taking a Policy loan, a few of which include the potential for a Policy to lapse if projected earnings, taking into account outstanding loans, are not achieved. A Policy loan may also have possible adverse tax consequences (see Federal Income Tax Considerations p. 58). You should consult a tax advisor before taking out a Policy loan. We will notify you (and any assignee of record) if the sum of your loan amount is more than the net surrender value. If you do not submit a sufficient payment within 61 days from the date of the notice, your Policy may lapse. POLICY LAPSE AND REINSTATEMENT - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- LAPSE Your Policy may not necessarily lapse (terminate without value) if you fail to make a planned periodic payment. However, even if you make all your planned periodic payments, there is no guarantee that your Policy will not lapse. This Policy provides a no lapse period. See below. Once your no lapse period ends, your Policy may lapse (terminate without value) if the net surrender value on any Monthiversary is less than the monthly deductions due on that day. Such lapse might occur if unfavorable investment experience, loans and cash withdrawals cause a decrease in the net surrender value, or you have not paid sufficient premiums as discussed below to offset the monthly deductions. If the net surrender value is not enough to pay the monthly deductions, we will mail a notice to your last known address and any assignee of record. The notice will specify the minimum payment you must pay and the final date by which we must receive the payment to prevent a lapse. We generally require that you make the payment within 61 days after the date of the notice. This 61-day period is called the GRACE PERIOD. If we do not receive the specified minimum payment by the end of the grace period, all coverage under the Policy will terminate without value. NO LAPSE PERIOD This Policy provides a no lapse period. As long as you keep the no lapse period in effect, your Policy will not lapse and no grace period will begin. Even if your net surrender value is not enough to pay your monthly deduction, the Policy will not lapse so long as the no lapse period is in effect. The no lapse period will not extend beyond the no lapse date stated in your Policy. Each month we determine whether the no lapse period is still in effect. 57 NO LAPSE DATE -- For a Policy issued to any insured ages 0-60, the no lapse date is determined by either the number of years to attained age 65 or the twentieth Policy anniversary, whichever is earlier. -- For a Policy issued to an insured ages 61-85, the no lapse date is the fifth Policy anniversary. -- The no lapse date is specified in your Policy. -- The no lapse period coverage will end EARLY TERMINATION OF THE NO LAPSE immediately if you do not pay sufficient minimum PERIOD monthly guarantee premiums. -- You must pay total premiums (minus withdrawals, outstanding loan amounts, and any decrease charge) that equal at least: + the sum of the minimum monthly guarantee premiums in effect for each month from the Policy date up to and including the current month.
You will lessen the risk of Policy lapse if you keep the no lapse period in effect. Before you take a cash withdrawal or a loan or decrease the specified amount you should consider carefully the effect it will have on the no lapse period guarantee. See Minimum Monthly Guarantee Premium p. 32. In addition, if you change death benefit options, increase or decrease the specified amount, or add, increase or decrease a rider, we will adjust the minimum monthly guarantee premium. See Minimum Monthly Guarantee Premium p. 32 for a discussion of how the minimum monthly guarantee premium is calculated and can change. REINSTATEMENT We will reinstate a lapsed Policy within five years after the lapse (and prior to the maturity date). To reinstate the Policy you must: -- submit a written application for reinstatement to our office; -- provide evidence of insurability satisfactory to us; -- make a minimum premium payment sufficient to provide a net premium that is large enough to cover: + three monthly deductions; and + any surrender charge calculated from the Policy date to the date of reinstatement. We will not reinstate any indebtedness. The cash value of the loan reserve on the reinstatement date will be zero. Your net surrender value on the reinstatement date will equal the cash value at the time your Policy lapsed, PLUS any net premiums you pay at reinstatement, MINUS one monthly deduction and any surrender charge. The reinstatement date for your Policy will be the Monthiversary on or following the day we approve your application for reinstatement. We may decline a request for reinstatement. FEDERAL INCOME TAX CONSIDERATIONS - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- The following summarizes some of the basic federal income tax considerations associated with a Policy and does not purport to be complete or to cover all situations. This 58 discussion is not intended as tax advice. Please consult counsel or other qualified tax advisors for more complete information. We base this discussion on our understanding of the present federal income tax laws as they are currently interpreted by the Internal Revenue Service (the "IRS"). Federal income tax laws and the current interpretations by the IRS may change. TAX STATUS OF THE POLICY A Policy must satisfy certain requirements set forth in the Internal Revenue Code (the "Code") in order to qualify as a life insurance policy for federal income tax purposes and to receive the tax treatment normally accorded life insurance policies under federal tax law. Guidance as to how these requirements are to be applied is limited. Nevertheless, we believe that a Policy issued on the basis of a standard rate class should generally satisfy the applicable Code requirements. Because of the absence of pertinent interpretations of the Code requirements, there is, however, less certainty about the application of such requirements to a Policy issued on a substandard basis. If it is subsequently determined that a Policy does not satisfy the applicable requirements, we may take appropriate steps to bring the Policy into compliance with such requirements and we reserve the right to restrict Policy transactions in order to do so. In certain circumstances, owners of variable life insurance policies have been considered for federal income tax purposes to be the owners of the assets of the separate account supporting their policies due to their ability to exercise investment control over those assets. Where this is the case, the policyowners have been currently taxed on income and gains attributable to the separate account assets. There is little guidance in this area, and some features of the Policies, such as your flexibility to allocate premiums and cash values, have not been explicitly addressed in published rulings. While we believe that the Policy does not give you investment control over separate account assets, we reserve the right to modify the Policy as necessary to prevent you from being treated as the owner of the separate account assets supporting the Policy. In addition, the Code requires that the investments of the separate account be "adequately diversified" in order to treat the Policy as a life insurance policy for federal income tax purposes. We intend that the separate account, through the portfolios, will satisfy these diversification requirements. The following discussion assumes that the Policy will qualify as a life insurance policy for federal income tax purposes. TAX TREATMENT OF POLICY BENEFITS In General. We believe that the death benefit under a Policy should be excludible from the beneficiary's gross income. Federal, state and local transfer, and other tax consequences of ownership or receipt of Policy proceeds depend on your circumstances and the beneficiary's circumstances. A tax advisor should be consulted on these consequences. Generally, you will not be deemed to be in constructive receipt of the cash value until there is a distribution. When distributions from a Policy occur, or when loans are taken out from or secured by a Policy (e.g., by assignment), the tax consequences depend on whether the Policy is classified as a "Modified Endowment Contract" ("MEC"). Modified Endowment Contracts. Under the Code, certain life insurance policies are classified as MECs and receive less favorable tax treatment than other life insurance policies. The rules are too complex to summarize here, but generally depend on the amount of 59 premiums paid during the first seven Policy years. Certain changes in the Policy after it is issued could also cause the Policy to be classified as a MEC. Due to the Policy's flexibility, each Policy's circumstances will determine whether the Policy is classified as a MEC. Among other things, a reduction in benefits could in certain circumstances cause a Policy to become a MEC. If you do not want your Policy to be classified as a MEC, you should consult a tax advisor to determine the circumstances, if any, under which your Policy would or would not be classified as a MEC. Upon issue of your Policy, we will notify you as to whether or not your Policy is classified as a MEC based on the initial premium we receive. If your Policy is not a MEC at issue, then you will also be notified of the maximum amount of additional premiums you can pay without causing your Policy to be classified as a MEC. If a payment would cause your Policy to become a MEC, you and your agent will be notified immediately. At that time, you will need to notify us if you want to continue your Policy as a MEC. Unless you notify us that you do want to continue your Policy as a MEC, we will refund the dollar amount of the excess premium that caused the Policy to become a MEC. Distributions (other than Death Benefits) from MECs. Policies classified as MECs are subject to the following tax rules: -- All distributions other than death benefits from a MEC, including distributions upon surrender and cash withdrawals, will be treated first as distributions of gain taxable as ordinary income. They will be treated as tax-free recovery of the owner's investment in the Policy only after all gain has been distributed. Your investment in the Policy is generally your total premium payments. When a distribution is taken from the Policy, your investment in the Policy is reduced by the amount of the distribution that is tax-free. -- Loans taken from or secured by (e.g., by assignment) such a Policy are treated as distributions and taxed accordingly. -- A 10% additional federal income tax is imposed on the amount included in income except where the distribution or loan is made when you have attained age 59 1/2 or are disabled, or where the distribution is part of a series of substantially equal periodic payments for your life (or life expectancy) or the joint lives (or joint life expectancies) of you and the beneficiary. -- If a Policy becomes a MEC, distributions that occur during the Policy year will be taxed as distributions from a MEC. In addition, distributions from a Policy within two years before it becomes a MEC will be taxed in this manner. This means that a distribution from a Policy that is not a MEC at the time when the distribution is made could later become taxable as a distribution from a MEC. Distributions (other than Death Benefits) from Policies that are not MECs. Distributions from a Policy that is not a MEC are generally treated first as a recovery of your investment in the Policy, and as taxable income after the recovery of all investment in the Policy. However, certain distributions which must be made in order to enable the Policy to continue to qualify as a life insurance policy for federal income tax purposes if Policy benefits are reduced during the first 15 Policy years may be treated in whole or in part as ordinary income subject to tax. Loans from or secured by a Policy that is not a MEC are generally not treated as distributions. Instead, such loans are treated as indebtedness. However, the tax consequences 60 associated with Policy loans outstanding after the first 10 Policy years are less clear and a tax advisor should be consulted about such loans. Finally, neither distributions from nor loans from or secured by a Policy that is not a MEC are subject to the 10% additional tax. Multiple Policies. All MECs that we issue (or that our affiliates issue) to the same owner during any calendar year are treated as one MEC for purposes of determining the amount includible in the owner's income when a taxable distribution occurs. Investment in the Policy. Your investment in the Policy is generally the sum of the premium payments you made. When a distribution from the Policy occurs, your investment in the Policy is reduced by the amount of the distribution that is tax-free. Policy Loans. If a loan from a Policy is outstanding when the Policy is canceled or lapses or becomes a MEC, or if a loan is taken out and the Policy is a MEC, then the amount of the outstanding indebtedness will be taxed as if it were a distribution. Deductibility of Policy Loan Interest. In general, interest you pay on a loan from a Policy will not be deductible. Before taking out a Policy loan, you should consult a tax advisor as to the tax consequences. Business Uses of the Policy. The Policy may be used in various arrangements, including nonqualified deferred compensation or salary continuance plans, split dollar insurance plans, executive bonus plans, retiree medical benefit plans and others. The tax consequences of such plans and business uses of the Policy may vary depending on the particular facts and circumstances of each individual arrangement and business uses of the Policy. Therefore, if you are contemplating using the Policy in any arrangement the value of which depends in part on its tax consequences, you should be sure to consult a tax advisor as to tax attributes of the arrangement. In recent years, moreover, Congress has adopted new rules relating to life insurance owned by businesses and the IRS has recently issued new guidelines on split-dollar arrangements. Any business contemplating the purchase of a new Policy or a change in an existing Policy should consult a tax advisor. Alternative Minimum Tax. There also may be an indirect tax upon the income in the Policy or the proceeds of a Policy under the federal corporate alternative minimum tax, if the policyowner is subject to that tax. Living Benefit Rider (an Accelerated Death Benefit). We believe that the single-sum payment we make under this rider should be fully excludible from the gross income of the beneficiary, as long as the beneficiary is an insured under the Policy. You should consult a tax advisor about the consequences of adding this rider to your Policy, or requesting a single-sum payment. AccelPay Rider (an Accelerated Death Benefit). The benefit payment under this rider may be taxable. You should consult your personal tax advisor before adding this rider to your Policy. Other Tax Considerations. The transfer of the Policy or designation of a beneficiary may have federal, state, and/or local transfer and inheritance tax consequences, including the imposition of gift, estate, and generation-skipping transfer taxes. The individual situation of each owner or beneficiary will determine the extent, if any, to which federal, state, and local transfer and inheritance taxes may be imposed and how ownership or receipt of Policy 61 proceeds will be treated for purposes of federal, state and local estate, inheritance, generation-skipping and other taxes. Possible Tax Law Changes. Although the likelihood of legislative changes is uncertain, there is always a possibility that the tax treatment of the Policies could change by legislation or otherwise. You should consult a tax advisor with respect to legal developments and their effect on the Policy. SPECIAL RULES FOR 403(b) ARRANGEMENTS If this Policy is purchased by public school systems and certain tax-exempt organizations for their employees, then the federal, state and estate tax consequences could differ from those stated in the prospectus. A competent tax advisor should be consulted in connection with such purchase. Certain restrictions apply. The Policy must be purchased in connection with a tax-sheltered annuity described in section 403(b) of the Code. Premiums, distributions, and other transactions in connection with the Policy must be administered in coordination with the section 403(b) annuity. The amount of life insurance that may be purchased on behalf of a participant in a 403(b) plan is limited. The current cost of insurance for the net amount at risk is treated under the Code as a "current fringe benefit" and must be included annually in the plan participant's gross income. This cost (generally referred to as the "P.S. 58" cost) is reported to the participant annually. If the plan participant dies while covered by the 403(b) plan and the Policy proceeds are paid to the participant's beneficiary, then the excess of the death benefit over the cash value will generally not be taxable. However, the cash value will generally be taxable to the extent it exceeds the participant's cost basis in the Policy. Policies owned under these types of plans may be subject to the Employee Retirement Income Security Act of 1974 ("ERISA"), which may impose additional requirements of Policy loans and other Policy provisions. Plan loans must also satisfy tax requirements in order to be treated as non-taxable. Plan loan requirements and provisions may differ from the Policy loan provisions stated in the prospectus. You should consult a qualified advisor regarding ERISA. OTHER POLICY INFORMATION - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- OUR RIGHT TO CONTEST THE POLICY In issuing this Policy, we rely on all statements made by or for the insured in the application or in a supplemental application. Therefore, if you make any material misrepresentation of a fact in the application (or any supplemental application), then we may contest the Policy's validity or may resist a claim under the Policy. A new two year contestability period shall apply to each increase in specified amount beginning on the effective date of each increase and will apply only to statements made in the application for the increase. In the absence of fraud, we cannot bring any legal action to contest the validity of the Policy after the Policy has been in force during the insured's lifetime for two years from the Policy date, or if reinstated, for two years from the date of reinstatement. 62 SUICIDE EXCLUSION If the insured commits suicide, while sane or insane, within two years of the Policy date (or two years from the reinstatement date, if the Policy lapses and is reinstated), the Policy will terminate and our liability is limited to an amount equal to the premiums paid, less any outstanding loan amount, and less any cash withdrawals. We will pay this amount to the beneficiary in one sum. If the insured commits suicide, while sane or insane, within two years from the effective date of any increase in specified amount, our liability with respect to such increase will be its cost of insurance. MISSTATEMENT OF AGE OR GENDER If the age or gender of the insured was stated incorrectly in the application or any supplemental application, then the death benefit will be adjusted based on what the cost of insurance charge for the most recent monthly deduction would have purchased based on the insured's correct age and gender. MODIFYING THE POLICY Only our President or Secretary may modify this Policy or waive any of our rights or requirements under this Policy. Any modification or waiver must be in writing. No agent may bind us by making any promise not contained in this Policy. If we modify the Policy, we will provide you notice and we will make appropriate endorsements to the Policy. BENEFITS AT MATURITY If the insured is living and the Policy is in force, the Policy will mature on the Policy anniversary nearest the insured's 100th birthday. This is the maturity date. On the maturity date we will pay you the net surrender value of your Policy. If requested in writing at our office, we will extend the maturity date if your Policy is still in force on the maturity date. Any riders in force on the scheduled maturity date will terminate on that date and will not be extended. Policy loans, partial withdrawals, and subaccount transfers may continue during the extension. Interest on any outstanding Policy loans will continue to accrue during the period for which the maturity date is extended. You must submit a written request for the extension to our office between 90 and 180 days prior to the maturity date and elect one of the following: 1. If you had previously selected death benefit Option B or C, we will change the death benefit to Option A. On each valuation date, we will adjust the specified amount to equal the cash value, and the limitation percentage will be 100%. We will not permit you to make additional premium payments unless it is required to prevent the Policy from lapsing. We will waive all future monthly deductions; or 2. We will automatically extend the maturity date until the next Policy anniversary. You must submit a written request, between 90 and 180 days before each subsequent Policy anniversary, stating that you wish to extend the maturity date for another Policy year. All benefits and charges will continue as set forth in your Policy. We will charge the then current cost of insurance rates. If you choose 2 above, you may change your election to 1 above at any time. However, if you choose 1 above, then you may not change your election to 2 above. 63 The tax consequences of extending the maturity date beyond the 100th birthday of the insured are uncertain. You should consult a tax advisor as to those consequences. PAYMENTS WE MAKE We usually pay the amounts of any surrender, cash withdrawal, death benefit proceeds, or settlement options within seven business days after we receive all applicable written notices and/or due proofs of death at our office. However, we can postpone such payments if: -- the NYSE is closed, other than customary weekend and holiday closing, or trading on the NYSE is restricted as determined by the SEC; OR -- the SEC permits, by an order, the postponement for the protection of policyowners; OR -- the SEC determines that an emergency exists that would make the disposal of securities held in the separate account or the determination of their value not reasonably practicable. If you have submitted a recent check or draft, we have the right to defer payment of surrenders, cash withdrawals, death benefit proceeds, or payments under a settlement option until such check or draft has been honored. We also reserve the right to defer payment of transfers, cash withdrawals, death benefit proceeds, or surrenders from the fixed account for up to six months. SETTLEMENT OPTIONS If you surrender the Policy, you may elect to receive the net surrender value in either a lump sum or as a series of regular income payments under one of the three settlement options described below. In either event, life insurance coverage ends. Also, when the insured dies, the beneficiary may apply the lump sum death benefit proceeds to one of the same settlement options. If the regular payment under a settlement option would be less than $100, we will instead pay the proceeds in one lump sum. We may make other settlement options available in the future. Once we begin making payments under a settlement option, you or the beneficiary will no longer have any value in the subaccounts or the fixed account. Instead, the only entitlement will be the amount of the regular payment for the period selected under the terms of the settlement option chosen. Depending upon the circumstances, the effective date of a settlement option is the surrender date or the insured's date of death. Under any settlement option, the dollar amount of each payment will depend on four things: -- the amount of the surrender on the surrender date or death benefit proceeds or insured's date of death; -- the interest rate we credit on those amounts (we guarantee a minimum annual interest rate of 3.0%); -- the mortality tables we use; and -- the specific payment option(s) you choose. 64 OPTION 1 -- EQUAL MONTHLY -- We will pay the proceeds, plus interest, in INSTALLMENTS FOR A FIXED PERIOD equal monthly installments for a fixed period of your choice, but not longer than 240 months. -- We will stop making payments once we have made all the payments for the period selected. OPTION 2 -- EQUAL MONTHLY At your or the beneficiary's direction, we will make INSTALLMENTS FOR LIFE (LIFE INCOME) equal monthly installments: -- only for the life of the payee, at the end of which payments will end; or -- for the longer of the payee's life, or for 10 years if the payee dies before the end of the first 10 years of payments; or -- for the longer of the payee's life, or until the total amount of all payments we have made equals the proceeds that were applied to the settlement option. OPTION 3 -- EQUAL MONTHLY -- We will make equal monthly payments during the INSTALLMENTS FOR THE LIFE OF THE joint lifetime of two persons, first to a chosen payee, PAYEE AND THEN TO A DESIGNATED and then to a co-payee, if living, upon the SURVIVOR (JOINT AND SURVIVOR) death of the payee. -- Payments to the co-payee, if living, upon the payee's death will equal either: -- the full amount made to the payee before the payee's death; or -- two-thirds of the amount paid to the payee before the payee's death. -- All payments will cease upon the death of the co-payee.
REPORTS TO OWNERS At least once each year, or more often as required by law, we will mail to policyowners at their last known address a report showing the following information as of the end of the report period: X the current cash value X the current net surrender value X the current death benefit X any outstanding loans X any activity since the last report X projected values X investment experience of each subaccount X any other information required by law
You may request additional copies of reports, but we may charge a fee for such additional copies. In addition, we will send written confirmations of any premium payments and other financial transactions you request including: premium payments, changes in specified amount, changes in death benefit option, transfers, partial withdrawals, increases in loan amount, loan interest payments, loan repayments, lapses and reinstatements. We also will send copies of the annual and semi-annual report to shareholders for each portfolio in which you are indirectly invested. RECORDS We will maintain all records relating to the separate account and the fixed account. 65 POLICY TERMINATION Your Policy will terminate on the earliest of: -- the maturity date; -- the end of the grace period; or -- the date the insured dies; -- the date the Policy is surrendered.
SUPPLEMENTAL BENEFITS (RIDERS) - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- The following supplemental benefits (riders) are available and may be added to a Policy. Monthly charges for these riders are deducted from cash value as part of the monthly deduction. The riders available with the Policies provide benefits that do not vary with the investment experience of the separate account. For purposes of the riders, the primary insured is the person insured under the Policy. These riders may not be available in all states. Adding these supplemental benefits to an existing Policy or canceling them may have tax consequences and you should consult a tax advisor before doing so. CHILDREN'S INSURANCE RIDER This rider provides a face amount on the primary insured's children. Our current minimum face amount for this rider for issue ages 15 days - 18 years of age is $5,000. The maximum face amount is $20,000. At the age of 25 or upon the death of the primary insured, whichever happens first, this rider may be converted to a new policy with a maximum face amount of up to five times the face amount of the rider. We will pay a death benefit once we receive proof that the insured child died while both the rider and coverage were in force for that child. If the primary insured dies while the rider is in force, we will terminate the rider 31 days after the death, and we will offer a separate life insurance policy to each insured child. ACCIDENTAL DEATH BENEFIT RIDER Our current minimum face amount for this rider for issue ages 15-59 is $10,000. The maximum face amount available for this rider is $150,000 (up to 150% of specified amount). Subject to certain limitations, we will pay a face amount if the primary insured's death results solely from accidental bodily injury where: -- the death is caused by external, violent, and accidental means; -- the death occurs within 90 days of the accident; and -- the death occurs while the rider is in force. The rider will terminate on the earliest of: -- the Policy anniversary nearest the primary insured's 70th birthday; -- the date the Policy terminates; or -- the Monthiversary when the rider terminates at the owner's request. OTHER INSURED RIDER This rider insures the spouse or life partner and/or dependent children of the primary insured. Our current minimum face amount for this rider for issue ages 0-85 is $10,000. The maximum face amount is the lesser of $500,000 or the amount of coverage on the primary insured. We will pay the rider's face amount when we receive proof of the other insured's 66 death. On any Monthiversary while the rider is in force, you may convert it with a new policy on the other insured's life (without evidence of insurability). CONDITIONS TO CONVERT THE RIDER: -- your request must be in writing and sent to our office; -- the rider has not reached the anniversary nearest to the other insured's 85th birthday; -- the new policy is any permanent insurance policy that we currently offer; -- subject to the minimum specified amount required for the new policy, the amount of the insurance under the new policy will equal the face amount in force under the rider as long as it meets the minimum face amount requirements of the original Policy; and -- we will base your premium on the other insured's rate class under the rider. TERMINATION OF THE RIDER: The rider will terminate on the earliest of: -- the maturity date of the Policy; -- the anniversary nearest to the other insured's 100th birthday; -- the date the Policy terminates for any reason except for death of the primary insured; -- 31 days after the death of the primary insured; -- the date of conversion of this rider; or -- the Monthiversary on which the rider is terminated on written request by the owner.
DISABILITY WAIVER RIDER Subject to certain conditions, we will waive the Policy's monthly deductions while you are disabled. This rider may be purchased if your issue age is 15-55 years of age. We must receive proof that: -- you are totally disabled; -- the rider was in force when you became disabled; -- you became disabled before the anniversary nearest your 60th birthday; and -- you are continuously disabled for at least six months. We will not waive any deduction which becomes due more than one year before we receive written notice of your claim. DISABILITY WAIVER AND INCOME RIDER This rider has the same benefits as the Disability Waiver Rider, but adds a monthly income benefit for up to 120 months. This rider may be purchased if your issue age is 15-55 years of age. The minimum income amount for this rider is $10. The maximum income amount is the lesser of 0.2% of your specified amount or $300 per month. 67 PRIMARY INSURED RIDER ("PIR") AND PRIMARY INSURED RIDER PLUS ("PIR PLUS") Under the PIR and the PIR Plus, we provide term insurance coverage on a different basis from the coverage in your Policy. FEATURES OF PIR AND PIR PLUS: -- the rider increases the Policy's death benefit by the rider's face amount; -- the PIR may be purchased from issue ages 0-85; -- the PIR Plus may be purchased from issue ages 18-85; -- the PIR terminates when the insured turns 95, and the PIR Plus terminates when the insured turns 90; -- the minimum purchase amount for the PIR and PIR Plus is $25,000. There is no maximum purchase amount; -- we do not assess any additional surrender charge for PIR and PIR Plus; -- generally PIR and PIR Plus coverage costs less than the insurance coverage under the Policy, but has no cash value; -- you may cancel or reduce your rider coverage without decreasing your Policy's specified amount; and -- you may generally decrease your specified amount without reducing your rider coverage. CONDITIONS TO CONVERT THE RIDER: -- your request must be in writing and sent to our office; -- the rider has not reached the anniversary nearest to the primary insured's 70th birthday; -- the new policy is any permanent insurance policy that we currently offer; -- subject to the minimum specified amount required for the new policy, the amount of the insurance under the new policy will equal the face amount in force under the rider as long as it meets the minimum face amount requirements of a Base Policy; -- we will base your premium on the primary insured's rate class under the rider; and -- if you own an AccelPay Rider, you may not convert your PIR or PIR Plus rider to a Base Policy.
It may cost you less to reduce your PIR or PIR Plus coverage than to decrease your Policy's specified amount, because we do not deduct a surrender charge in connection with your PIR or PIR Plus. It may cost you more to keep a higher specified amount, because the specified amount may have a cost of insurance that is higher than the cost of the same amount of coverage under your PIR or PIR Plus. You should consult your registered representative to determine if you would benefit from PIR or PIR Plus. We may discontinue offering PIR or PIR Plus at any time. We may also modify the terms of these riders for new policies. LIVING BENEFIT RIDER (AN ACCELERATED DEATH BENEFIT) This rider allows us to pay all or a portion of the death benefit once we receive satisfactory proof that the insured is ill and has a life expectancy of one year or less. A doctor must certify the insured's life expectancy. 68 We will pay a "single-sum benefit" equal to: -- the death benefit on the date we pay the single-sum benefit; MULTIPLIED BY -- the election percentage of the death benefit you elect to receive; DIVIDED BY -- 1 + i ("i" equals the current yield on 90-day Treasury bills or the Policy loan interest rate, whichever is greater); MINUS -- any indebtedness at the time we pay the single-sum benefit, multiplied by the election percentage. The maximum terminal illness death benefit used to determine the single-sum benefit as defined above is equal to: -- the death benefit available under the Policy once we receive satisfactory proof that the insured is ill; PLUS -- the benefit available under any PIR or PIR Plus in force. -- a single-sum benefit may not be greater than $500,000. The election percentage is a percentage that you select. It may not be greater than 100%. We will not pay a benefit under the rider if the insured's terminal condition results from self-inflicted injuries which occur during the period specified in your Policy's suicide provision. The rider terminates at the earliest of: -- the date the Policy terminates; -- the date a settlement option takes effect; -- the date we pay a single-sum benefit; or -- the date you terminate the rider. We do not charge for this rider. This rider may not be available in all states, or its terms may vary depending on a state's insurance law requirements. The tax consequences of adding this rider to an existing Policy or requesting payment under the rider are uncertain and you should consult a tax advisor before doing so. ACCELPAY RIDER Subject to the terms and conditions of the rider, you may elect to receive a portion of the death benefit proceeds under the Policy when the primary insured becomes eligible for benefits by being: certified by a physician, registered professional nurse or a licensed social worker ("Licensed Health Care Practitioner") as a chronically ill individual; and confined to a nursing or assisted living facility while the rider is in force and the Policy to which the rider is attached is in force and has not been assigned. If your issue age is between 18 and 85, you may purchase this rider at the time of issue of your Base Policy. The minimum specified amount on a Base Policy for this rider is $50,000 and the maximum specified amount on a Base Policy for this rider is $2,000,000. You may purchase this rider on multiple policies covering the same primary insured as long as the combined specified amount does not exceed $2,000,000. We will not pay AccelPay rider benefits for the same eligible expenses under more than one Policy, even if you elect the rider on more than one Policy. 69 YOU MAY ELECT ONE OF TWO BENEFIT -- SINGLE SUM: a one time payment of 10% of the PAYMENT OPTIONS: death benefit proceeds, not to exceed $15,000; -- MAXIMUM MONTHLY BENEFIT: the maximum amount that we will pay in any one Policy month while the insured is confined in a nursing or assisted living facility and otherwise satisfies the terms set forth in the benefits section of the rider.
Election of a single sum benefit will terminate this rider. We will pay any AccelPay rider benefits after we receive satisfactory proof at our office that the insured has met the requirements to file a claim under the rider. If you elect to be paid monthly, we will pay up to the maximum monthly benefit for each Policy month during which the insured continues to meet such eligibility requirements. The actual amount of any benefit we pay is based upon the expenses incurred that qualify for reimbursement under the rider. The maximum monthly benefit that we will pay, as shown on your Policy schedule page, will start as of the monthly Policy date immediately following the date the elimination period has been satisfied. The elimination period starts on the first date that an insured meets the requirements in the benefits provision of the rider and lasts through the 90 days, within a 180 day period, that an insured is chronically ill and resides in a nursing or assisted living facility. We will not pay AccelPay rider benefits during the elimination period. After the first month, we will add the unused portion of the maximum monthly benefit to any subsequent maximum monthly benefit. Any decreases to the death benefit resulting from a decrease in specified amount, a Policy loan or a cash withdrawal of the Base Policy will reduce the insured's maximum monthly benefit. The reduction in the maximum monthly benefit will be proportional to the reduction in the death benefit. Similarly, if you increase the specified amount, we will adjust the benefit payable under the AccelPay rider. You must make a written request to change the specified amount of your Policy. A supplemental application and proof satisfactory to us that the insured is then insurable must accompany any request for an increase in specified amount. TO CLAIM BENEFITS UNDER THIS RIDER WRITTEN NOTICE OF CLAIM: YOU MUST SEND US: -- that is signed by the Policyowner -- that identifies the primary insured, the Policy and the benefit option selected; -- that includes a certification by a Licensed Health Care Practitioner that the insured is chronically ill, as defined in the rider; and -- that includes a copy of the plan of care established for the insured; AND PROOF OF LOSS: -- that documents in writing the expenses incurred by the insured for eligible services; and -- that is received at our office within 60 days of the date expenses were first incurred for eligible services, or as soon as reasonably practicable.
For continuing loss, we must receive written proof of loss no more than [90] days after the end of each month for which benefits may be paid. 70 RIDER CHARGE: We determine the monthly deductions for this rider at each Monthiversary by: -- dividing the death benefit on the Monthiversary by the factor stated in step one of the Policy's monthly cost of insurance provision; -- reducing the result by the cash value on the Monthiversary; and -- multiplying by the appropriate rider monthly cost of insurance rate.
The rider monthly cost of insurance rates may vary by your sex, issue age, attained age at the time of any change in specified amount, rate band, plan of insurance, rate class, and how long the rider has applied to your Policy or how long the most recent change in specified amount has been in effect. Different monthly cost of insurance rates may apply if the specified amount has changed following the rider date. We may change monthly cost of insurance rates from time to time. THE RIDER TERMINATES AT THE EARLIEST -- the date the Policy terminates; or OF: -- the monthly Policy date following receipt of the owner's written request to us to terminate the rider; or -- the date the death benefit, excluding riders, on the primary insured is reduced to zero; or -- the date a single sum benefit is elected.
Any benefit paid under the terms of this rider is a prepayment of a portion of the death benefit proceeds provided by the Policy. Any benefit payment will reduce the death benefit dollar for dollar. After any benefit payment, the specified amount will be reduced in the same proportion as the reduction in the death benefit. After we pay any benefit under the rider, we will reduce the cash value, any outstanding loan amount and any surrender charge in effect in the same proportion as the reduction in the insured's death benefit. We will waive the Policy's monthly deduction while we are paying benefits under this rider. This rider may not be available in all states. There are certain instances when we would not pay any benefit for this rider. Please see your rider for a detailed list of those instances. THE BENEFIT PAYMENT UNDER THIS RIDER MAY BE TAXABLE. YOU SHOULD CONSULT YOUR PERSONAL TAX ADVISOR BEFORE ADDING THIS RIDER TO YOUR POLICY. RECEIPT OF THIS BENEFIT ALSO MAY AFFECT YOUR ELIGIBILITY FOR MEDICAID AND OTHER GOVERNMENT PROGRAMS. IMSA - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- We are a member of the Insurance Marketplace Standards Association ("IMSA"). IMSA is an independent, voluntary organization of life insurance companies. It promotes high ethical standards in the sales and advertising of individual life insurance, long-term care insurance and annuity products. Through its Principles and Code of Ethical Market Conduct, IMSA encourages its member companies to develop and implement policies and procedures to promote sound market practices. Companies must undergo a rigorous self and independent assessment of their practices to become a member of IMSA. The IMSA logo in our sales literature shows our ongoing commitment to these standards. You may find more information 71 about IMSA and its ethical standards at www.imsaethics.org in the "Consumer" section or by contacting IMSA at 202-624-2121. PERFORMANCE DATA - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- RATES OF RETURN The rates of return in Table 1 reflect each subaccount's actual investment performance. The Table shows the historical investment experience of the subaccounts based on the subaccounts' historical investment experience. We do not show performance for subaccounts in operation for less than six months. This information does not represent or project future investment performance. Some portfolios began operation before their corresponding subaccount. For these portfolios, we have included in Table 2 below adjusted portfolio performance from the portfolio's inception date. The adjusted portfolio performance is designed to show the performance that would have resulted if the subaccount had been in operation during the time the portfolio was in operation. The numbers reflect the annual mortality and expense risk charge, investment management fees and direct fund expenses. These rates of return do not reflect other charges that are deducted under the Policy or from the separate account (such as the premium expense charge, monthly deduction or the surrender charge). IF THESE CHARGES WERE DEDUCTED, PERFORMANCE WOULD BE SIGNIFICANTLY LOWER. These rates of return are not estimates, projections or guarantees of future performance. We also show below comparable figures for the unmanaged Standard & Poor's Index of 500 Common Stocks ("S&P 500"), a widely used measure of stock market performance. The S&P 500 does not reflect any deduction for the expenses of operating and managing an investment portfolio. 72 TABLE 1 AVERAGE ANNUAL SUBACCOUNT TOTAL RETURN FOR THE PERIODS ENDED ON DECEMBER 31, 2001
10 YEARS SUBACCOUNT OR INCEPTION SUBACCOUNT 1 YEAR 3 YEARS 5 YEARS INCEPTION DATE - ---------- ------ ------- ------- --------- ---------- WRL Van Kampen Emerging Growth............. % % % % 03/01/93 WRL T. Rowe Price Small Cap................ % N/A N/A % 07/01/99 WRL Pilgrim Baxter Mid Cap Growth.......... % N/A N/A % 07/01/99 WRL Alger Aggressive Growth................ % % % % 03/01/94 WRL Third Avenue Value..................... % % N/A % 01/02/98 WRL Value Line Aggressive Growth(1)........ % N/A N/A % 05/01/00 WRL American Century International......... % % N/A % 01/02/97 WRL Great Companies -- Technology(SM(1).... % N/A N/A % 05/01/00 WRL Janus Growth+.......................... % % % % 10/02/86 WRL Goldman Sachs Growth................... % N/A N/A % 07/01/99 WRL GE U.S. Equity......................... % % N/A % 01/02/97 WRL Great Companies -- America(SM(1)....... % N/A N/A % 05/01/00 WRL Salomon All Cap........................ % N/A N/A % 07/01/99 WRL Dreyfus Mid Cap........................ % N/A N/A % 07/01/99 WRL PBGH/NWQ Large Cap Value Select........ % % % % 05/01/96 WRL T. Rowe Price Dividend Growth.......... % N/A N/A % 07/01/99 WRL Transamerica Value Balanced............ % % % % 01/03/95 WRL LKCM Strategic Total Return............ % % % % 03/01/93 WRL Clarion Real Estate Securities......... % % N/A % 05/01/98 WRL Federated Growth & Income.............. % % % % 03/01/94 WRL AEGON Bond+............................ % % % % 10/02/86 WRL Transamerica Money Market(2)+.......... % % % % 10/02/86 WRL Gabelli Global Growth.................. % N/A N/A % 09/01/00 WRL Great Companies -- Global(2)........... % N/A N/A % 09/01/00 WRL LKCM Capital Growth.................... N/A N/A N/A % 02/05/01 WRL Munder Net50........................... N/A N/A N/A % 05/29/01 Fidelity VIP Equity-Income Portfolio -- Service Class 2(1)....................... % N/A N/A % 05/01/00 Fidelity VIP II Contrafund(R) Portfolio -- Service Class 2(1)....................... % N/A N/A % 05/01/00 Fidelity VIP III Growth Opportunities Portfolio -- Service Class 2(1).......... % N/A N/A % 05/01/00 S&P 500+................................... % % % % 12/31/90
+ Shows ten year performance. (1)Not annualized. (2)Yield more closely reflects the current earnings than its total return. An investment in this subaccount is not insured or guaranteed by the FDIC. While this subaccount seeks to preserve its value at $1.00 per share, it is possible to lose money by investing in this subaccount. 73 TABLE 2 ADJUSTED HISTORICAL PORTFOLIO AVERAGE ANNUAL TOTAL RETURN FOR THE PERIODS ENDED ON DECEMBER 31, 2001
10 YEARS PORTFOLIO OR INCEPTION PORTFOLIO 1 YEAR 3 YEARS 5 YEARS INCEPTION DATE --------- ------ ------- ------- --------- --------- Van Kampen Emerging Growth................... % % % % 03/01/93 T. Rowe Price Small Cap...................... % N/A N/A % 05/03/99 Pilgrim Baxter Mid Cap Growth................ % N/A N/A % 05/03/99 Alger Aggressive Growth...................... % % % % 03/01/94 Third Avenue Value........................... % % N/A % 01/02/98 Value Line Aggressive Growth................. % N/A N/A % 05/01/00 American Century International............... % % N/A % 01/02/97 Great Companies -- Technology(SM)............ % N/A N/A % 05/01/00 Janus Growth+................................ % % % % 10/02/86 Goldman Sachs Growth......................... % N/A N/A % 05/03/99 GE U.S. Equity............................... % % N/A % 01/02/97 Great Companies -- America(SM)............... % N/A N/A % 05/01/00 Salomon All Cap.............................. % N/A N/A % 05/03/99 Dreyfus Mid Cap.............................. % N/A N/A % 05/03/99 PBGH/NWQ Large Cap Value Select.............. % % % % 05/01/96 T. Rowe Price Dividend Growth................ % N/A N/A % 05/03/99 Transamerica Value Balanced.................. % % % % 01/03/95 LKCM Strategic Total Return.................. % % % % 03/01/93 Clarion Real Estate Securities............... % % N/A % 05/01/98 Federated Growth & Income.................... % % % % 03/01/94 AEGON Bond+.................................. % % % % 10/02/86 Transamerica Money Market(1)+................ % % % % 10/02/86 Gabelli Global Growth(2)..................... N/A N/A N/A % 09/01/00 Great Companies -- Global(2(2)............... N/A N/A N/A % 09/01/00 LKCM Capital Growth.......................... N/A N/A N/A % 02/05/01 Munder Net50(2).............................. N/A N/A N/A % Fidelity VIP Equity-Income Portfolio -- Service Class 2+........................... % % % % 10/09/86 Fidelity VIP II Contrafund(R) Portfolio -- Service Class 2............................ % % % % 01/03/95 Fidelity VIP III Growth Opportunities Portfolio -- Service Class 2............... % % % % 01/03/95 S&P 500+..................................... % % % % 12/31/90
+ Shows ten year performance. (1)Yield more closely reflects the current earnings than its total return. An investment in this subaccount is not insured or guaranteed by the FDIC. While this subaccount seeks to preserve its value at $1.00 per share, it is possible to lose money by investing in this subaccount. (2)Not annualized. Because WRL Janus Balanced, WRL Conservative Asset Allocation, WRL Moderate Asset Allocation, WRL Moderately Aggressive Asset Allocation, WRL Aggressive Asset Allocation, WRL Transamerica Convertible Securities, WRL PIMCO Total Return, WRL Transamerica Growth, WRL Transamerica Small Company, WRL Transamerica U.S. Government Securities, WRL J.P. Morgan Enhanced Index, WRL Capital Guardian Value and WRL Capital Guardian U.S. Equity subaccounts and the corresponding portfolios commenced operations on May 1, 2002, the above Tables do not reflect rates of return for these subaccounts or portfolios. 74 The annualized yield for the WRL Transamerica Money Market subaccount for the seven days ended December 31, 2001 was %. Additional information regarding the investment performance of the portfolios appears in the fund prospectuses, which accompany this prospectus. OTHER PERFORMANCE DATA IN ADVERTISING SALES LITERATURE We may compare each subaccount's performance to the performance of: -- other variable life issuers in general; -- variable life insurance policies which invest in mutual funds with similar investment objectives and policies, as reported by Lipper Analytical Services, Inc. ("Lipper") and Morningstar, Inc. ("Morningstar"); and other services, companies, individuals, or industry or financial publications (e.g., Forbes, Money, The Wall Street Journal, Business Week, Barron's, Kiplinger's Personal Finance, and Fortune); + Lipper and Morningstar rank variable annuity contracts and variable life policies. Their performance analysis ranks such policies and contracts on the basis of total return, and assumes reinvestment of distributions; but it does not show sales charges, redemption fees or certain expense deductions at the separate account level. -- the Standard & Poor's Index of 500 Common Stocks, or other widely recognized indices; + unmanaged indices may assume the reinvestment of dividends, but usually do not reflect deductions for the expenses of operating or managing an investment portfolio; or -- other types of investments, such as: + certificates of deposit; + savings accounts and U.S. Treasuries; + certain interest rate and inflation indices (e.g., the Consumer Price Index); or + indices measuring the performance of a defined group of securities recognized by investors as representing a particular segment of the securities markets (e.g., Donoghue Money Market Institutional Average, Lehman Brothers Corporate Bond Index, or Lehman Brothers Government Bond Index). WESTERN RESERVE'S PUBLISHED RATINGS We may publish in advertisements, sales literature, or reports we send to you the ratings and other information that an independent ratings organization assigns to us. These organizations include: A.M. Best Company, Moody's Investors Service, Inc., Standard & Poor's Insurance Rating Services, and Fitch Ratings. These ratings are opinions regarding an operating insurance company's financial capacity to meet the obligations of its insurance policies in accordance with their terms. These ratings do not apply to the separate account, the subaccounts, the funds or their portfolios, or to their performance. 75 ADDITIONAL INFORMATION - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SALE OF THE POLICIES The Policy will be sold by individuals who are licensed as our life insurance agents and who are also registered representatives of broker-dealers having written sales agreements for the Policy with AFSG Securities Corporation ("AFSG"), the principal underwriter of the Policy. AFSG is located at 4333 Edgewood Road, N.E., Cedar Rapids, Iowa 52499. AFSG is registered with the SEC under the Securities Exchange Act of 1934 as a broker-dealer, and is a member of the National Association of Securities Dealers, Inc. ("NASD"). AFSG was organized on March 12, 1986 under the laws of the State of Pennsylvania. The Principal Underwriting Agreement between AFSG and Western Reserve on behalf of its separate account went into effect May 1, 1999. More information about AFSG is available at http://www.nasdr.com or by calling 1-800-289-9999. The sales commission payable to Western Reserve agents or other registered representatives may vary with the sales agreement, but it is not expected to be greater than: -- 65% of all premiums you make during the first Policy year, PLUS -- 2.50% of all premiums you make during Policy years 2 through 10. We will pay an additional sales commission of up to 0.15% of the Policy's cash value on the fifth Policy anniversary and each anniversary thereafter where the cash value (minus amounts attributable to loans) equals at least $5,000. Sales commissions may also be payable on premiums paid as a result of an increase in specified amount. The sales commission payable to Western Reserve agents or other registered representatives may vary with the sales agreement, but it is not expected to be greater than 65% of all premiums you make during the year subsequent to an increase. In addition, certain production, persistency and managerial bonuses may be paid. To the extent permitted by NASD rules, promotional incentives or payments may also be provided to broker-dealers based on sales volumes, the assumption of wholesaling functions or other sales-related criteria. Payments may also be made for other services that do not directly involve the sale of the Policies. These services may include the recruitment and training of personnel, production of promotional literatures, and similar services. We intend to recoup commissions and other sales expenses through: the premium expense charge, the surrender charge, the cost of insurance charge, the mortality and expense risk charge, and earnings on amounts allocated under the Policies to the fixed account and the loan account. Commissions paid on sales of the Policies, including other sales incentives, are not directly charged to Policyowners. AFSG will receive the 12b-1 fees assessed against the Fidelity VIP Funds shares held for the Policies as compensation for providing certain shareholder support services. AFSG will also receive an additional fee based on the value of shares of the Fidelity VIP Funds held for the Policies as compensation for providing certain recordkeeping services. LEGAL MATTERS Sutherland Asbill & Brennan LLP of Washington, D.C. has provided advice on certain matters relating to the federal securities laws. All matters of Ohio law pertaining to the Policy have been passed upon by John K. Carter, Vice President and Counsel of Western Reserve. 76 LEGAL PROCEEDINGS Western Reserve, like other life insurance companies, is involved in lawsuits, including class action lawsuits. In some lawsuits involving insurers, substantial damages have been sought and/or material settlement payments have been made. Although the outcome of any litigation cannot be predicted with certainty, at the present time, it appears that there are no pending or threatened lawsuits that are likely to have a material adverse impact on the separate account, on AFSG's ability to perform under its principal underwriting agreement, or on Western Reserve's ability to meet its obligations under the Policy. VARIATIONS IN POLICY PROVISIONS Certain provisions of the Policy may vary from the descriptions in this prospectus, depending on when and where the Policy was issued, in order to comply with different state laws. These variations may include restrictions on use of the fixed account and different interest rates charged and credited on Policy loans. Please refer to your Policy, since any variations will be included in your Policy or in riders or endorsements attached to your Policy. PERSONALIZED ILLUSTRATIONS OF POLICY BENEFITS In order to help you understand how your Policy values would vary over time under different sets of assumptions, we will provide you with certain personalized illustrations upon request. These will be based on the age and insurance risk characteristics of the insured persons under your Policy and such factors as the face amount, death benefit option, premium payment amounts, and rates of return (within limits) that you request. We have filed an example of such an illustration as an exhibit to the registration statement filed with the SEC. The illustrations also will reflect the average portfolio expenses for 2001. You may request illustrations that reflect the expenses of the portfolios in which you intend to invest. EXPERTS The financial statements and financial highlights of WRL Series Life Account as of December 31, 2001 and for the year then ended, appearing in this prospectus and registration statement have been audited by Ernst & Young LLP, independent auditors, as set forth in their report thereon appearing elsewhere herein and are included in reliance upon such report given on the authority of such firm as experts in accounting and auditing. The statutory-basis financial statements and schedules of Western Reserve at December 31, 2001 and 2000 and for each of the three years in the period ended December 31, 2001, appearing in this prospectus and registration statement have been audited by Ernst & Young LLP, independent auditors, as set forth in their report thereon appearing elsewhere herein. The financial statements and schedules referred to above are included in reliance upon such report given on the authority of such firm as experts in accounting and auditing. Actuarial matters included in this prospectus have been examined by Alan Yaeger, Executive Vice President, Actuary and Chief Financial Officer of Western Reserve, as stated in the opinion filed as an exhibit to the registration statement. 77 FINANCIAL STATEMENTS Western Reserve's financial statements and schedules appear on the following pages. These financial statements and schedules should be distinguished from the separate account's financial statements and you should consider these financial statements and schedules only as bearing upon Western Reserve's ability to meet our obligations under the Policies. You should not consider our financial statements and schedules as bearing upon the investment performance of the assets held in the separate account. Western Reserve's financial statements and schedules at December 31, 2001 and 2000 and for each of the three years in the period ended December 31, 2001, have been prepared on the basis of statutory accounting principles rather than accounting principles generally accepted in the United States. ADDITIONAL INFORMATION ABOUT WESTERN RESERVE Western Reserve is a stock life insurance company that is wholly-owned by First AUSA Life Insurance Company, which, in turn, is wholly-owned indirectly by AEGON USA, Inc. Western Reserve's office is located at 570 Carillon Parkway, St. Petersburg, Florida 33716-1202 and the mailing address is P.O. Box 5068, Clearwater, Florida 33758-5068. Western Reserve was incorporated in 1957 under the laws of Ohio and is subject to regulation by the Insurance Department of the State of Ohio, as well as by the insurance departments of all other states and jurisdictions in which it does business. Western Reserve is licensed to sell insurance in all states (except New York), Puerto Rico, Guam, and in the District of Columbia. Western Reserve submits annual statements on its operations and finances to insurance officials in all states and jurisdictions in which it does business. The Policy described in this prospectus has been filed with, and where required, approved by, insurance officials in those jurisdictions in which it is sold. 78 WESTERN RESERVE'S DIRECTORS AND OFFICERS We are governed by a board of directors. The following table sets forth the name, address and principal occupation during the past five years of each of our directors. BOARD OF DIRECTORS**
- ------------------------------------------------------------------------------------------------- PRINCIPAL OCCUPATION NAME AND ADDRESS POSITION WITH WESTERN RESERVE DURING PAST 5 YEARS - ------------------------------------------------------------------------------------------------- John R. Kenney Chairman of the Board CEO (7/93 - 12/01), President 570 Carillon Parkway (12/92 - 12/99), Director 7/93 St. Petersburg, Florida 33716 -present) of WRL; Chairman of the Board (3/93 - present), President (3/93 - 6/00) of Series Fund; Chairman of the Board (1990 - present) of IDEX Funds; Chairman of the Board (9/96 - present), President (9/97 - 1/02) of ATFA; Chairman of the Board (9/96 - 1/02), President (9/97 - 1/02) of ATSI; Chairman of the Board, Director and Co-CEO (3/00 - present) of Great Cos. - ------------------------------------------------------------------------------------------------- Jerome C. Vahl Director and President Director and President (12/99 - 570 Carillon Parkway present), Executive VP (6/98 - St. Petersburg, Florida 33716 12/99), VP (12/95 - 6/98), Assistant VP (1994 - 1995) of WRL; Executive VP (9/00 - present) of Series Fund and IDEX Funds; Director (3/00 - present) of Great Cos., Director (11/99 - 1/02) of ATSI and ATFA; VP (12/01 - present) of AEGON USA, Inc. - ------------------------------------------------------------------------------------------------- Jack E. Zimmerman Director Trustee, (1987 - present) of 507 St. Michel Circle IDEX Funds; retired from Martin Kettering, Ohio 45429 Marietta (1993). - ------------------------------------------------------------------------------------------------- James R. Walker Director Self-employed public accountant 3320 Office Park Dr. (1996 - present); Partner (1990 Dayton, Ohio 45439 -1995) of Walker-Davis C.P.A.'s, Dayton, Ohio.
** Western Reserve = WRL AEGON/Transamerica Series Fund, Inc. = Series Fund IDEX Mutual Funds = IDEX Funds AEGON/Transamerica Fund Advisers, Inc. = ATFA AEGON/Transamerica Services, Inc. = ATSI Great Companies, L.L.C. = Great Cos. 79 The following table gives the name, address and principal occupation during the past five years of the principal officers of Western Reserve (other than officers listed above as directors). PRINCIPAL OFFICERS**
- ------------------------------------------------------------------------------------------------- PRINCIPAL OCCUPATION NAME AND ADDRESS POSITION WITH WESTERN RESERVE DURING PAST 5 YEARS - ------------------------------------------------------------------------------------------------- Michael W. Kirby Chief Executive Officer CEO (12/01 - present) of WRL; 4333 Edgewood Rd., NE President (2001 - present) of Cedar Rapids, Iowa 52499 Life Investors Insurance Company of America and Individual Division of AEGON; Executive VP (1999 - 2001), National VP (1996 - 1999), VP (1995 - 1996), Regional Director (1990 - 1995), and Twin Career Agent (1988 - 1989) of Life Investors. - ------------------------------------------------------------------------------------------------- Alan M. Yaeger* Executive Vice President, Executive VP (1993 - present) Actuary and Chief of Series Fund; Director (9/96 Financial Officer -1/02) of ATFA; Director (9/96 -1/02) of ATSI. - ------------------------------------------------------------------------------------------------- Herb T. Collins* Executive Vice President Executive VP (1996 - present), Chief Administrative Officer (1996 - 7/00) of WRL; VP, Administration (1986 - 1996) of Monumental Life Insurance Company. - ------------------------------------------------------------------------------------------------- William H. Geiger* Senior Vice President, Senior VP, Secretary, Corporate Secretary, Corporate Counsel Counsel, and Group VP -- and Group Vice Compliance (1998 - present); President -- Compliance Senior VP, Secretary, General Counsel and Group VP -- Compliance (1996 - 1998), Senior VP, Secretary, and General Counsel (1990 - 1996) of WRL; Group VP -- Compliance and Corporate Counsel (1996 - present) of AUSA Life Insurance Company, Inc., Bankers United Life Assurance Company, Life Investors Insurance Company of America, Monumental Life Insurance Company and Transamerica Life Insurance Company.***
80
- ------------------------------------------------------------------------------------------------- PRINCIPAL OCCUPATION NAME AND ADDRESS POSITION WITH WESTERN RESERVE DURING PAST 5 YEARS - ------------------------------------------------------------------------------------------------- Allan J. Hamilton* Vice President, Treasurer VP and Controller (8/87 - And Controller present) Treasurer (2/97 - present) of WRL; Treasurer and Chief Financial Officer (2/97 - 12/01) of Series Fund; VP and Controller (3/99 - 12/01), Treasurer (12/01 - present) of ATFA; VP and Treasurer (1/02 - present) of ATFS. - ------------------------------------------------------------------------------------------------- Terry L. Garvin* Senior Vice President and Chief Senior VP and Chief Marketing Marketing Officer Officer (9/00 - present), VP and Chief Marketing Officer (12/95 - 9/00) of WRL. - ------------------------------------------------------------------------------------------------- Carolyn M. Johnson* Senior Vice President and Senior VP and Chief Operations Chief Operations Officer Officer (9/00 - present), VP (3/98 - 9/00) of WRL; VP (8/98 -present) of Life Investors Insurance Company of America; VP (6/98 - present) of Peoples Benefit Life Insurance Company; VP (11/97 - present) of Transamerica Life Insurance Company (formerly, PFL Life Insurance Company); VP (2/00 - present) of Transamerica Occidental Life Insurance Company; (2/00 - present) of Transamerica Life Insurance and Annuity Company; VP (12/97 - present), Responsible Officer for Illustration Regulation, Illustration Actuary (9/99 - 11/00) of Monumental Life Insurance Company.
81
- ------------------------------------------------------------------------------------------------- PRINCIPAL OCCUPATION NAME AND ADDRESS POSITION WITH WESTERN RESERVE DURING PAST 5 YEARS - ------------------------------------------------------------------------------------------------- Thomas R. Moriarty* Senior Vice President VP (6/93 - 12/99) of WRL; Director, President and CEO (11/99 - present) of AEGON Asset Management Services, Inc.; Executive VP, Treasurer and Principal Financial Officer (9/00 - present) of IDEX Funds; Executive VP, Treasurer and Principal Financial Officer (12/01 - present) of ATSF; VP (6/99 - present) of AFSG Securities Corporation; Chairman of the Board, CEO and President (7/99 - present), Senior VP (6/91 - 7/99) of InterSecurities, Inc.; Executive VP (1/02 - present) of ATFA and ATFS. - ------------------------------------------------------------------------------------------------- Thomas E. Pierpan* Senior Vice President, General Senior VP and General Counsel Counsel and Assistant Secretary (12/99 - present), VP (12/93 - 12/99), Counsel (4/95 - 1/97), Associate General Counsel (1/97 -12/99), Assistant VP (11/92 - 12/93) of WRL; VP (3/95 - present), Assistant Secretary (3/95 - 12/97 and 12/99 - present), Associate General Counsel and Secretary (12/97 - 12/99) of Series Fund. - ------------------------------------------------------------------------------------------------- Tim Stonehocker* Senior Vice President Senior VP, WMA Business Unit (2000 - present); President (1997 - 2000) of Academy Life Insurance Company; VP (1997 - present) of Life Investors Insurance Company of America; VP (1997 - present) of Bankers United Life Assurance Company; VP (1997 - present) of Transamerica Life Insurance Company (formerly, PFL Life Insurance Company, Inc.)
* Located at 570 Carillon Parkway, St. Petersburg, Florida 33716-1202. ** Western Reserve = WRL AEGON/Transamerica Series Fund, Inc. = Series Fund IDEX Mutual Funds = IDEX Funds AEGON/Transamerica Fund Advisers, Inc. = ATFA AEGON/Transamerica Services, Inc. = ATSI Great Companies, L.L.C. = Great Cos. *** Transamerica Life Insurance Company previously was known as PFL Life Insurance Company. Each of the companies listed for the position held by Mr. Geiger from 1996 to the present is a subsidiary of AEGON USA, Inc. Western Reserve holds the assets of the separate account physically segregated and apart from the general account. Western Reserve maintains records of all purchases and sales of portfolio shares by each of the subaccounts. A blanket bond was issued to AEGON USA, 82 Inc. ("AEGON USA") in the aggregate amount of $12 million, covering all of the employees of AEGON USA and its affiliates, including Western Reserve. A Stockbrokers Blanket Bond, issued to AEGON U.S.A. Securities, Inc. providing fidelity coverage, covers the activities of registered representatives of AFSG to a limit of $10 million. ADDITIONAL INFORMATION ABOUT THE SEPARATE ACCOUNT Western Reserve established the separate account as a separate investment account under Ohio law in 1985. We own the assets in the separate account and are obligated to pay all benefits under the Policies. The separate account is used to support other life insurance policies of Western Reserve, as well as for other purposes permitted by law. The separate account is registered with the SEC as a unit investment trust under the 1940 Act and qualifies as a "separate account" within the meaning of the federal securities laws. 83 APPENDIX A WEALTH INDICES OF INVESTMENTS IN THE U.S. CAPITAL MARKET - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- The information below graphically depicts the growth of $1.00 invested in large company stocks, small company stocks, long-term government bonds, Treasury bills, and hypothetical asset returning the inflation rate over the period from the end of 1925 to the end of 2001. All results assume reinvestment of dividends on stocks or coupons on bonds and no taxes. Transaction costs are not included, except in the small stock index starting in 1982. Each of the cumulative index values is initialized at $1.00 at year-end 1925. The graph illustrates that large company stocks and small company stocks have the best performance over the entire 76-year period: investments of $1.00 in these assets would have grown to $ and $ , respectively, by year-end 2001. This higher growth was achieved by investments involving substantial risk. In contrast, long-term government bonds (with an approximate 20-year maturity), which exposed the holder to much less risk, grew to only $ . The lowest-risk strategy over the past 76 years (for those with short-term time horizons) was to buy U.S. Treasury bills. Since U.S. Treasury bills tended to track inflation, the resulting real (inflation-adjusted) returns were near zero for the entire 1925 - 2001 period. 84 ANNUAL RETURN GRAPH COMPOUND ANNUAL RATES OF RETURN BY DECADE
1920S* 1930S 1940S 1950S 1960S 1970S 1980S 1990S 2000 2001** ------ ----- ----- ----- ----- ----- ----- ----- ---- ------ Large Company........ 19.2% -0.1% 9.2% 19.4% 7.8% 5.9% 17.5% 18.2% -9.1% Small Company........ -4.5 1.4 20.7 16.9 15.5 11.5 15.8 15.1 -3.6 Long-Term Corp....... 5.2 6.9 2.7 1.0 1.7 6.2 13.0 8.3 12.9 Long-Term Govt....... 5.0 4.9 3.2 -0.1 1.4 5.5 12.6 9.0 21.5 Inter-Term Govt...... 4.2 4.6 1.8 1.3 3.5 7.0 11.9 7.2 12.6 Treasury Bills....... 3.7 0.6 0.4 1.9 3.9 6.3 8.9 4.9 5.9 Inflation............ -1.1 -2.0 5.4 2.2 2.5 7.4 5.1 2.9 3.4
* Based on the period 1926-1929. ** Based on calendar year 2001 only. Used with permission. (C)2002 Ibbotson Associates, Inc. All rights reserved. [Certain portions of this work were derived from copyrighted works of Roger G. Ibbotson and Rex Sinquefield.] 85 APPENDIX B SURRENDER CHARGE PER THOUSAND (BASED ON THE GENDER AND RATE CLASS OF THE INSURED) - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - --------------------------------------------------------------------------------
MALE MALE FEMALE FEMALE ISSUE ULTIMATE SELECT/ ULTIMATE STANDARD/ ULTIMATE SELECT/ ULTIMATE STANDARD/ AGE SELECT STANDARD SELECT STANDARD - ----- ---------------- ------------------ ---------------- ------------------ 0 N/A 11.76 N/A 11.76 1 N/A 8.16 N/A 8.16 2 N/A 8.16 N/A 8.16 3 N/A 7.92 N/A 7.92 4 N/A 7.68 N/A 7.68 5 N/A 7.68 N/A 7.68 6 N/A 7.68 N/A 7.68 7 N/A 7.68 N/A 7.68 8 N/A 7.68 N/A 7.68 9 N/A 7.68 N/A 7.68 10 N/A 7.68 N/A 7.68 11 N/A 7.68 N/A 7.68 12 N/A 7.68 N/A 7.68 13 N/A 7.92 N/A 7.92 14 N/A 8.16 N/A 8.16 15 N/A 8.40 N/A 8.40 16 N/A 8.52 N/A 8.52 17 N/A 8.88 N/A 8.88 18 8.72 9.20 8.72 9.20 19 8.84 9.32 8.84 9.32 20 8.96 9.44 8.96 9.44 21 9.16 9.88 9.16 9.64 22 9.32 10.04 9.32 9.80 23 9.52 10.24 9.52 10.00 24 9.68 10.40 9.68 10.40 25 9.88 10.84 9.88 10.60 26 10.56 11.28 10.32 11.04 27 11.00 11.72 10.76 11.48 28 11.40 12.12 11.16 12.12 29 12.08 12.80 11.84 12.56 30 12.52 13.24 12.28 13.00 31 13.04 14.00 12.80 13.52 32 13.76 14.48 13.52 14.24 33 14.28 15.24 14.04 14.76 34 14.76 15.96 14.52 15.48 35 15.52 16.48 15.28 16.00 36 16.20 17.40 15.96 16.92 37 17.20 18.40 16.72 17.92 38 18.12 19.56 17.64 18.60 39 19.08 20.76 18.36 19.56
86 APPENDIX B -- (CONTINUED) SURRENDER CHARGE PER THOUSAND (BASED ON THE GENDER AND RATE CLASS OF THE INSURED) - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - --------------------------------------------------------------------------------
MALE MALE FEMALE FEMALE ISSUE ULTIMATE SELECT/ ULTIMATE STANDARD/ ULTIMATE SELECT/ ULTIMATE STANDARD/ AGE SELECT STANDARD SELECT STANDARD - ----- ---------------- ------------------ ---------------- ------------------ 40 20.28 21.96 19.32 20.52 41 21.64 23.56 20.68 22.12 42 23.08 25.24 22.12 23.80 43 24.44 27.08 23.15 25.40 44 26.04 29.16 23.86 26.96 45 27.44 31.04 24.59 27.83 46 28.72 32.80 25.38 28.76 47 29.84 34.56 26.22 29.73 48 31.00 36.32 27.11 30.75 49 32.24 38.32 28.04 31.84 50 33.56 40.56 29.05 32.99 51 34.98 42.56 30.11 34.20 52 36.49 45.24 31.24 35.48 53 38.10 47.68 32.45 36.84 54 39.83 50.84 33.72 38.28 55 41.68 53.28 35.09 39.79 56 43.63 55.79 36.54 41.39 57 45.74 57.00 38.08 43.06 58 47.98 57.00 39.74 44.88 59 50.38 57.00 41.54 46.85 60 52.97 57.00 43.47 48.97 61 55.74 57.00 45.57 51.26 62 57.00 57.00 47.82 53.73 63 57.00 57.00 50.26 56.41 64 57.00 57.00 52.88 57.00 65 57.00 57.00 55.68 57.00 66 and over 57.00 57.00 57.00 57.00
87 INDEX TO FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- WRL SERIES LIFE ACCOUNT: Report of Independent Auditors dated January , 2002 Statements of Assets and Liabilities at December 31, 2001 Statements of Operations for the period ended December 31, 2001 Statements of Changes in Net Assets for the periods ended December 31, 2001 and 2000 Financial Highlights for the periods ended December 31, 2001, 2000, 1999, 1998 and 1997 Notes to the Financial Statements WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO Report of Independent Auditors dated February , 2002 Statutory-Basis Balance Sheets at December 31, 2001 and 2000 Statutory-Basis Statements of Operations for the years ended December 31, 2001, 2000 and 1999 Statutory-Basis Statements of Changes in Capital and Surplus for the years ended December 31, 2001, 2000 and 1999 Statutory-Basis Statements of Cash Flow for the years ended December 31, 2001, 2000 and 1999 Notes to Statutory-Basis Financial Statements Statutory-Basis Financial Statement Schedules AG08205-5/2002 88 PART II. OTHER INFORMATION UNDERTAKING TO FILE REPORTS Subject to the terms and conditions of Section 15(d) of the Securities Exchange Act of 1934, the undersigned registrant hereby undertakes to file with the Securities and Exchange Commission such supplementary and periodic information, documents, and reports as may be prescribed by any rule or regulation of the Commission heretofore or hereafter duly adopted pursuant to authority conferred in that Section. REPRESENTATION PURSUANT TO SECTION 26(f) (2) (A) Western Reserve Life Assurance Co. of Ohio ("Western Reserve") hereby represents that the fees and charges deducted under the WRL Freedom Elite Builder Policies, in the aggregate, are reasonable in relation to the services rendered, the expenses expected to be incurred, and the risks assumed by Western Reserve. STATEMENT WITH RESPECT TO INDEMNIFICATION Provisions exist under the Ohio General Corporation Law, the Second Amended Articles of Incorporation of Western Reserve and the Amended Code of Regulations of Western Reserve whereby Western Reserve may indemnify certain persons against certain payments incurred by such persons. The following excerpts contain the substance of these provisions. Ohio General Corporation Law SECTION 1701.13 AUTHORITY OF CORPORATION. (E)(1) A corporation may indemnify or agree to indemnify any person who was or is a party or is threatened to be made a party, to any threatened, pending, or completed action, suit, or proceeding, whether civil, criminal, administrative, or investigative, other than an action by or in the right of the corporation, by reason of the fact that he is or was a director, officer, employee, or agent of the corporation, or is or was serving at the request of the corporation as a director, trustee, officer, employee, or agent of another corporation (including a subsidiary of this corporation), domestic or foreign, nonprofit or for profit, partnership, joint venture, trust, or other enterprise, against expenses, including attorneys' fees, judgments, fines, and amounts paid in settlement actually and reasonably incurred by him in connection with such action, suit, or proceeding if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the corporation, and with respect to any criminal action or proceeding, had no reasonable cause to believe his conduct was unlawful. The termination of any action, suit, or proceeding by judgment, order, settlement, conviction, or upon a plea of nolo contendere or its equivalent, shall not, of itself create a presumption that the person did not act in good faith and in a manner which he reasonably believed to be in or not opposed to the best interests of the corporation, and with respect to any criminal action or proceeding, he had reasonable cause to believe that his conduct was unlawful. (2) A corporation may indemnify or agree to indemnify any person who was or is a party, or is threatened to be made a party to any threatened, pending, or completed action or suit by or in the right of the corporation to procure a judgment in its favor by reason of the fact that he is or was a director, officer, employee, or agent of the corporation, or is or was serving at the request of the corporation as a director, trustee, officer, employee, or agent of another corporation, domestic or foreign, nonprofit or for profit, partnership, joint venture, trust, or other enterprise, against expenses, including attorneys' fees, actually and reasonably incurred by him in connection with the defense or settlement of such action or I-1 suit if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the corporation, except that no indemnification shall be made in respect of any of the following: (a) Any claim, issue, or matter as to which such person shall have been adjudged to be liable for negligence or misconduct in the performance of his duty to the corporation unless, and only to the extent that the court of common pleas, or the court in which such action or suit was brought determines upon application that, despite the adjudication of liability, but in view of all the circumstances of the case, such person is fairly and reasonably entitled to indemnity for such expenses as the court of common pleas or such other court shall deem proper; (b) Any action or suit in which the only liability asserted against a director is pursuant to section 1701.95 of the Revised Code. (3) To the extent that a director, trustee, officer, employee, or agent has been successful on the merits or otherwise in defense of any action, suit, or proceeding referred to in divisions (E)(1) and (2) of this section, or in defense of any claim, issue, or matter therein, he shall be indemnified against expenses, including attorneys' fees, actually and reasonably incurred by him in connection therewith. (4) Any indemnification under divisions (E)(1) and (2) of this section, unless ordered by a court, shall be made by the corporation only as authorized in the specific case upon a determination that indemnification of the director, trustee, officer, employee, or agent is proper in the circumstances because he has met the applicable standard of conduct set forth in divisions (E)(1) and (2) of this section. Such determination shall be made as follows: (a) By a majority vote of a quorum consisting of directors of the indemnifying corporation who were not and are not parties to or threatened with any such action, suit, or proceeding; (b) If the quorum described in division (E)(4)(a) of this section is not obtainable or if a majority vote of a quorum of disinterested directors so directs, in a written opinion by independent legal counsel other than an attorney, or a firm having associated with it an attorney, who has been retained by or who has performed services for the corporation, or any person to be indemnified within the past five years; (c) By the shareholders; (d) By the court of common pleas or the court in which such action, suit, or proceeding was brought. Any determination made by the disinterested directors under division (E)(4)(a) or by independent legal counsel under division (E)(4)(b) of this section shall be promptly communicated to the person who threatened or brought the action or suit by or in the right of the corporation under division (E)(2) of this section, and within ten days after receipt of such notification, such person shall have the right to petition the court of common pleas or the court in which such action or suit was brought to review the reasonableness of such determination. (5) (a) Unless at the time of a director's act or omission that is the subject of an action, suit or proceeding referred to in divisions (E)(1) and (2) of this section, the articles or the regulations of a corporation state by specific reference to this division that the provisions of this division do not apply to the corporation and unless the only liability asserted against a director in an action, suit, or proceeding referred to in divisions (E)(1) and (2) of this section is pursuant to section 1701.95 of the Revised Code, expenses, including attorney's fees, incurred by a director in defending the action, suit, II-2 or proceeding shall be paid by the corporation as they are incurred, in advance of the final disposition of the action, suit, or proceeding upon receipt of an undertaking by or on behalf of the director in which he agrees to do both of the following: (i) Repay such amount if it is proved by clear and convincing evidence in a court of competent jurisdiction that his action or failure to act involved an act or omission undertaken with deliberate intent to cause injury to the corporation or undertaken with reckless disregard for the best interests of the corporation; (ii) Reasonably cooperate with the corporation concerning the action, suit, or proceeding. (b) Expenses, including attorneys' fees incurred by a director, trustee, officer, employee, or agent in defending any action, suit, or proceeding referred to in divisions (E)(1) and (2) of this section, may be paid by the corporation as they are incurred, in advance of the final disposition of the action, suit, or proceeding as authorized by the directors in the specific case upon receipt of an undertaking by or on behalf of the director, trustee, officer, employee, or agent to repay such amount, if it ultimately is determined that he is entitled to be indemnified by the corporation. (6) The indemnification authorized by this section shall not be exclusive of, and shall be in addition to, any other rights granted to those seeking indemnification under the articles or the regulations or any agreement, vote of shareholders or disinterested directors, or otherwise, both as to action in his official capacity and as to action in another capacity while holding such office, and shall continue as to a person who has ceased to be a director, trustee, officer, employee, or agent and shall inure to the benefit of the heirs, executors, and administrators of such a person. (7) A corporation may purchase and maintain insurance or furnish similar protection, including but not limited to trust funds, letters of credit, or self-insurance on behalf of or for any person who is or was a director, officer, employee, or agent of the corporation, or is or was serving at the request of the corporation as a director, trustee, officer, employee, or agent of another corporation, domestic or foreign, nonprofit or for profit, partnership, joint venture, trust, or other enterprise against any liability asserted against him and incurred by him in any such capacity, or arising out of his status as such, whether or not the corporation would have the power to indemnify him against such liability under this section. Insurance may be purchased from or maintained with a person in which the corporation has a financial interest. (8) The authority of a corporation to indemnify persons pursuant to divisions (E)(1) and (2) of this section does not limit the payment of expenses as they are incurred, indemnification, insurance, or other protection that may be provided pursuant to divisions (E)(5), (6), and (7) of this section. Divisions (E)(1) and (2) of this section do not create any obligation to repay or return payments made by the corporation pursuant to divisions (E)(5), (6), or (7). (9) As used in this division, references to "corporation" include all constituent corporations in a consolidation or merger and the new or surviving corporation, so that any person who is or was a director, officer, employee, or agent of such a constituent corporation, or is or was serving at the request of such constituent corporation as a director, trustee, officer, employee or agent of another corporation, domestic or foreign, nonprofit or for profit, partnership, joint venture, trust, or other enterprise, shall stand in the same position under this section with respect to the new or surviving corporation as he would if he had served the new or surviving corporation in the same capacity. II-3 Second Amended Articles of Incorporation of Western Reserve ARTICLE EIGHTH EIGHTH: (1) The corporation may indemnify or agree to indemnify any person who was or is a party or is threatened to be made a party, to any threatened, pending, or completed action, suit, or proceeding, whether civil, criminal, administrative, or investigative, other than an action by or in the right of the corporation, by reason of the fact that he is or was a director, officer, employee, or agent of the corporation, or is or was serving at the request of the corporation as a director, trustee, officer, employee, or agent of another corporation (including a subsidiary of this corporation), domestic or foreign, nonprofit or for profit, partnership, joint venture, trust, or other enterprise, against expenses, including attorneys' fees, judgments, fines, and amounts paid in settlement actually and reasonably incurred by him in connection with such action, suit, or proceeding if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the corporation, and with respect to any criminal action or proceeding, had no reasonable cause to believe his conduct was unlawful. The termination of any action, suit, or proceeding by judgment, order, settlement, conviction, or upon a plea of nolo contendere or its equivalent, shall not, of itself create a presumption that the person did not act in good faith and in a manner which he reasonably believed to be in or not opposed to the best interests of the corporation, and with respect to any criminal action or proceeding, he had reasonable cause to believe that his conduct was unlawful. (2) The corporation may indemnify or agree to indemnify any person who was or is a party, or is threatened to be made a party to any threatened, pending, or completed action or suit by or in the right of the corporation to procure a judgment in its favor by reason of the fact that he is or was a director, officer, employee, or agent of the corporation, or is or was serving at the request of the corporation as a director, trustee, officer, employee, or agent of another corporation (including a subsidiary of this corporation), domestic or foreign, nonprofit or for profit, partnership, joint venture, trust, or other enterprise against expenses, including attorneys' fees, actually and reasonably incurred by him in connection with the defense or settlement of such action or suit if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the corporation, except that no indemnification shall be made in respect of any claim, issue, or matter as to which such person shall have been adjudged to be liable for negligence or misconduct in the performance of his duty to the corporation unless, and only to the extent that the court of common pleas, or the court in which such action or suit was brought shall determine upon application that, despite the adjudication of liability, but in view of all the circumstances of the case, such person is fairly and reasonably entitled to indemnity for such expenses as the court of common pleas or such other court shall deem proper. (3) To the extent that a director, trustee, officer, employee, or agent has been successful on the merits or otherwise in defense of any action, suit, or proceeding referred to in sections (1) and (2) of this article, or in defense of any claim, issue, or matter therein, he shall be indemnified against expenses, including attorneys' fees, actually and reasonably incurred by him in connection therewith. (4) Any indemnification under sections (1) and (2) of this article, unless ordered by a court, shall be made by the corporation only as authorized in the specific case upon a determination that indemnification of the director, trustee, officer, employee, or agent is proper in the circumstances because he has met the applicable standard of conduct set forth in sections (1) and (2) of this article. Such determination shall be made (a) by a majority vote of a quorum consisting of directors of the indemnifying corporation who were not and are not parties to or threatened with any such action, suit, or proceeding, or (b) if such a quorum is not obtainable or if a majority vote of a quorum of disinterested directors so directs, in a written opinion by independent legal counsel other than an attorney, or a firm having associated with it an attorney, who has been retained by or who has performed services for the corporation, or any person to be indemnified within the past five years, or (c) by the shareholders, or (d) by the court of common pleas or the court in which such action, suit, or proceeding was brought. Any II-4 determination made by the disinterested directors under section (4)(a) or by independent legal counsel under section (4)(b) of this article shall be promptly communicated to the person who threatened or brought the action or suit by or in the right of the corporation under section (2) of this article, and within ten days after receipt of such notification, such person shall have the right to petition the court of common pleas or the court in which such action or suit was brought to review the reasonableness of such determination. (5) Expenses, including attorneys' fees incurred in defending any action, suit, or proceeding referred to in sections (1) and (2) of this article, may be paid by the corporation in advance of the final disposition of such action, suit, or proceeding as authorized by the directors in the specific case upon receipt of a written undertaking by or on behalf of the director, trustee, officer, employee, or agent to repay such amount, unless it shall ultimately be determined that he is entitled to be indemnified by the corporation as authorized in this article. If a majority vote of a quorum of disinterested directors so directs by resolution, said written undertaking need not be submitted to the corporation. Such a determination that a written undertaking need not be submitted to the corporation shall in no way affect the entitlement of indemnification as authorized by this article. (6) The indemnification provided by this article shall not be deemed exclusive of any other rights to which those seeking indemnification may be entitled under the articles or the regulations or any agreement, vote of shareholders or disinterested directors, or otherwise, both as to action in his official capacity and as to action in another capacity while holding such office, and shall continue as to a person who has ceased to be a director, trustee, officer, employee, or agent and shall inure to the benefit of the heirs, executors, and administrators of such a person. (7) The Corporation may purchase and maintain insurance on behalf of any person who is or was a director, officer, employee, or agent of the corporation, or is or was serving at the request of the corporation as a director, trustee, officer, employee, or agent of another corporation (including a subsidiary of this corporation), domestic or foreign, nonprofit or for profit, partnership, joint venture, trust, or other enterprise against any liability asserted against him and incurred by him in any such capacity or arising out of his status as such, whether or not the corporation would have the power to indemnify him against such liability under this section. (8) As used in this section, references to "the corporation" include all constituent corporations in a consolidation or merger and the new or surviving corporation, so that any person who is or was a director, officer, employee, or agent of such a constituent corporation, or is or was serving at the request of such constituent corporation as a director, trustee, officer, employee or agent of another corporation (including a subsidiary of this corporation), domestic or foreign, nonprofit or for profit, partnership, joint venture, trust, or other enterprise shall stand in the same position under this article with respect to the new or surviving corporation as he would if he had served the new or surviving corporation in the same capacity. (9) The foregoing provisions of this article do not apply to any proceeding against any trustee, investment manager or other fiduciary of an employee benefit plan in such person's capacity as such, even though such person may also be an agent of this corporation. The corporation may indemnify such named fiduciaries of its employee benefit plans against all costs and expenses, judgments, fines, settlements or other amounts actually and reasonably incurred by or imposed upon said named fiduciary in connection with or arising out of any claim, demand, action, suit or proceeding in which the named fiduciary may be made a party by reason of being or having been a named fiduciary, to the same extent it indemnifies an agent of the corporation. To the extent that the corporation does not have the direct legal power to indemnify, the corporation may contract with the named fiduciaries of its employee benefit plans to indemnify them to the same extent as noted above. The corporation may purchase and maintain insurance on behalf of such named fiduciary covering any liability to the same extent that it contracts to indemnify. II-5 Amended Code of Regulations of Western Reserve ARTICLE V Indemnification of Directors and Officers Each Director, officer and member of a committee of this Corporation, and any person who may have served at the request of this Corporation as a Director, officer or member of a committee of any other corporation in which this Corporation owns shares of capital stock or of which this Corporation is a creditor (and his heirs, executors and administrators) shall be indemnified by the Corporation against all expenses, costs, judgments, decrees, fines or penalties as provided by, and to the extent allowed by, Article Eighth of the Corporation's Articles of Incorporation, as amended. RULE 484 UNDERTAKING Insofar as indemnification for liability arising under the Securities Act of 1933 (the "Act") may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel, the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue. CONTENTS OF REGISTRATION STATEMENT This registration statement comprises the following papers and documents: The facing sheet The Prospectus, consisting of 88 pages The undertaking to file reports Representation Pursuant to Section 26(f) (2) (A) The statement with respect to indemnification The Rule 484 undertaking The signatures Written consent of the following persons: (a) Sutherland Asbill & Brennan LLP (b) Ernst & Young LLP The following exhibits: 1. The following exhibits correspond to those required by paragraph A to the instructions as to exhibits in Form N-8B-2: A. (1) Resolution of the Board of Directors of Western Reserve establishing the Series Account (3) (2) Not Applicable (3) Distribution of Policies: (a) Master Service and Distribution Compliance Agreement (4) (b) Amendment to Master Service and Distribution Compliance Agreement (5) II-6 (c) Form of Broker/Dealer Supervisory and Service Agreement (5) (d) Principal Underwriting Agreement (5) (e) First Amendment to Principal Underwriting Agreement (5) (4) Not Applicable (5) (a) Specimen Flexible Premium Variable Life Insurance Policy (b) Endorsement (EL101) (5) (c) Living Benefit Rider (9) (d) Other Insured Rider (9) (e) Primary Insured Rider and Primary Insured Rider Plus (9) (f) AccelPay Rider (Form ACCP) (an Accelerated Death Benefit Rider) (6) (a) Second Amended Articles of Incorporation of Western Reserve (2) (b) Amended Code of Regulations (By-Laws) of Western Reserve (2) (c) Certificate of First Amendment to the Second Amended Articles of Incorporation of Western Reserve (8) (7) Not Applicable (8) (a) Investment Advisory Agreement with the Fund (3) (b) Sub-Advisory Agreement (3) (c) Participation Agreement Among Variable Insurance Products Fund, Fidelity Distributors Corporation and Western Reserve Life Assurance Co. of Ohio dated June 14, 1999 (6) (d) Amendment No.1 dated March 15, 2000 to Participation Agreement - Variable Insurance Products Fund (7) (e) Participation Agreement Among Variable Insurance Products Fund II, Fidelity Distributors Corporation and Western Reserve Life Assurance Co. of Ohio dated June 14, 1999 (6) (f) Amendment No.1 dated March 15, 2000 to Participation Agreement - Variable Insurance Products Fund II (7) (g) Participation Agreement Among Variable Insurance Products Fund III, Fidelity Distributors Corporation and Western Reserve Life Assurance Co. of Ohio dated June 14, 1999 (6) (h) Amendment No. 1 dated March 15, 2000 to Participation Agreement - Variable Insurance Products Fund III (7) (9) Not Applicable (10) Application for Flexible Premium Variable Life Insurance Policy (9) (11) Memorandum describing issuance, transfer and redemption procedures (10) (12) Example Hypothetical Illustrations (14) 2. See Exhibit 1.A. (1) 3. Opinion of Counsel as to the legality of the securities being registered (10) 4. No financial statement will be omitted from the Prospectus pursuant to Instruction 1(b) or (c) of Part I 5. Not Applicable 6. Opinion and consent of Alan Yaeger as to actuarial matters pertaining to the securities being registered (12) 7. Consent of Kimberly A. Scouller, Esq. (10) 8. Consent of Sutherland Asbill & Brennan LLP (14) II-7 9. Consent of Ernst & Young LLP (14) 10. Powers of Attorney (11) 11. Power of Attorney - Michael W. Kirby (13) - ---------------------------------------- (1) This exhibit was previously filed on Post-Effective Amendment No. 1 to Form S-6 Registration Statement dated December 19, 1997 (File No. 333-23359) and is incorporated herein by reference. (2) This exhibit was previously filed on Post-Effective Amendment No. 11 to Form N-4 Registration Statement dated April 20, 1998 (File No. 33-49556) and is incorporated herein by reference. (3) This exhibit was previously filed on Post-Effective Amendment No. 28 to Form N-1A Registration Statement dated April 28, 1997 (File No. 33-507) and is incorporated herein by reference. (4) This exhibit was previously filed on Post-Effective Amendment No. 11 to Form N-4 Registration Statement dated April 20, 1998 (File No. 33-49556) and is incorporated herein by reference. (5) This exhibit was previously filed on Post-Effective Amendment No. 4 to Form S-6 Registration Statement dated April 21, 1999 (File No. 333-23359) and is incorporated herein by reference. (6) This exhibit was previously filed on the Initial Registration Statement to Form S-6 dated September 23, 1999 (File No. 333-57681) and is incorporated herein by reference. (7) This exhibit was previously filed on Pre-Effective Amendment No. 1 to Form N-4 Registration Statement dated April 10, 2000 (File No. 333-93169) and is incorporated herein by reference. (8) This exhibit was previously filed on Post-Effective Amendment No. 5 to Form S-6 Registration Statement dated April 19, 2000 (File No. 333-23359) and is incorporated herein by reference. (9) This exhibit was previously filed on the Initial Registration Statement to Form S-6 dated April 5, 2001 (File No. 333-58322) and is incorporated herein by reference. (10) This exhibit was previously filed on Pre-Effective Amendment No. 1 to Form S-6 Registration Statement dated June 21, 2001 (File No. 333-58322) and is incorporated herein by reference. (11) This exhibit was previously filed on Post-Effective Amendment No. 17 to Form S-6 Registration Statement dated October 30, 2001 (File No. 33-69138) and is incorporated herein by reference. (12) This exhibit was previously filed on Post-Effective Amendment No. 1 to Form S-6 Registration Statement dated October 30, 2001 (File No. 333-58322) and is incorporated herein by reference. (13) This exhibit was previously filed on Post-Effective Amendment No. 3 to Form N-4 Registration Statement dated February 19, 2002 (File No. 333-82705) and is incorporated herein by reference. (14) To be filed by amendment. II-8 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the Registrant, WRL Series Life Account, has duly caused this Post-Effective Amendment No. 3 to the Registration Statement to be signed on its behalf by the undersigned thereunto duly authorized, and its seal to be hereunto affixed and attested, all in the City of St. Petersburg, County of Pinellas, Florida on this 26th day of February, 2002. (SEAL) WRL SERIES LIFE ACCOUNT ----------------------- Registrant WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO ---------------------------------- Depositor ATTEST: /s/ Priscilla I. Hechler By: /s/ John R. Kenney - ------------------------------- ------------------------------ Priscilla I. Hechler John R. Kenney Assistant Vice President Chairman of the Board and Assistant Secretary Pursuant to the requirements of the Securities Act of 1933, this Post-Effective Amendment No. 3 to the Registration Statement has been signed below by the following persons in the capacities and on the dates indicated. Signature and Title DATE /s/ John R. Kenney February 26, 2002 - --------------------------------- John R. Kenney, Chairman of the Board /s/ Michael W. Kirby February 26, 2002 - --------------------------------- Michael W. Kirby, Chief Executive Officer **/ -- /s/ Allan J. Hamilton February 26, 2002 - --------------------------------- Allan J. Hamilton, Vice President, Treasurer and Controller /s/ Alan M. Yaeger February 26, 2002 - --------------------------------- Alan M. Yaeger, Executive Vice President, Actuary and Chief Financial Officer* - -------- *Principal Financial Officer /s/ Jerome C. Vahl February 26, 2002 - --------------------------------------- Jerome C. Vahl, Director and President /s/ James R. Walker February 26, 2002 - --------------------------------------- James R. Walker, Director **/ -- /s/ Jack E. Zimmerman February 26, 2002 - --------------------------------------- Jack E. Zimmerman, Director **/ -- **/ /s/ Priscilla I. Hechler - -- --------------------------------- Signed by: Priscilla I. Hechler As Attorney-in-fact EXHIBIT INDEX
EXHIBIT DESCRIPTION NO. OF EXHIBIT - ------- ----------- 1.A.(5)(a) Specimen Flexible Premium Variable Life Insurance Policy 1.A.(5)(f) AccelPay Rider (Form ACCP) (an Accelerated Death Benefit)
EX-99.A7 3 g73574ex99-a7.txt SPECIMEN FLEXIBLE PREMIUM VARIBLE LIFE POLICY Exhibit 1.A.(5)(a) Specimen Flexible Premium Variable Life Insurance Policy WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO (A STOCK COMPANY) Home Office: Columbus, Ohio Administrative Office: P.O.Box 5068 Clearwater, Florida 33758-5068 727-299-1800 - ------------------------------------------------------------------------------- IN THIS POLICY the Primary Insured is named on the Policy Schedule Page. The Primary Insured will be referred to as YOU or YOUR. Western Reserve Life Assurance Co. Of Ohio will be referred to as WE, OUR or US. IF YOU DIE before the Maturity Date and while this Policy is In Force, WE WILL PAY the Death Benefit Proceeds to the Beneficiary upon receipt of due proof of Your death. THE AMOUNT OF THE DEATH BENEFIT PROCEEDS WILL INCREASE OR DECREASE DEPENDING ON THE INVESTMENT EXPERIENCE OF THE SUBACCOUNTS IN THE SEPARATE ACCOUNT AND ON THE DEATH BENEFIT OPTION SELECTED AS DESCRIBED IN THE DEATH BENEFIT PROVISIONS. IF YOU ARE ALIVE on the Maturity Date and this Policy is In Force, WE WILL PAY the Net Surrender Value as of the Maturity Date. CASH VALUES WILL INCREASE OR DECREASE IN ACCORDANCE WITH THE POLICY VALUE PROVISIONS AND THE INVESTMENT EXPERIENCE OF THE SUBACCOUNTS IN THE SEPARATE ACCOUNT. CASH VALUES ARE NOT GUARANTEED AS TO DOLLAR AMOUNT. THE PROVISIONS on the following pages are part of this Policy. This policy is a legal contract between the Owner and Us. READ YOUR CONTRACT CAREFULLY. IN WITNESS WHEREOF, We have signed this Policy at Our Office in Clearwater, Florida as of the Policy Date. /s/ William H. Geiger /s/ Jerome C. Vahl --------------------- ------------------ Secretary President RIGHT TO EXAMINE POLICY The Owner may cancel this Policy by returning it to Us at P.O. Box 5068, Clearwater, Florida 33758 or to the representative through whom it was purchased within 10 days after receipt. If the Policy is returned within this period, it will be void from the beginning and a refund will be made to the Owner. The refund will equal the sum of: 1. The difference between the premiums paid and the amounts allocated to any Accounts under the Policy; plus 2. The total amount of monthly deductions made and any other charges imposed on amounts allocated to the Accounts; plus 3. The value of amounts allocated to the Accounts on the date We or Our agent receive the returned Policy. If state law prohibits the calculation above, the refund will be the total of all premiums paid for this Policy. Flexible Premium Variable Life Insurance Policy Death Benefit Proceeds Payable at Death of Insured Prior to Maturity Date Net Surrender Value Payable at Maturity Date Flexible Premiums Payable During Lifetime of Insured Until the Maturity Date Non-Participating - No Dividends Some Benefits Reflect Investment Results =============================================================================== POLICY GUIDE =============================================================================== CONTRACT SCHEDULE .................................. 3 DEFINITIONS ........................................ 5 Accounts ........................................ 5 Age ............................................. 5 Anniversary ..................................... 5 Beneficiary ..................................... 5 Death Benefit Proceeds .......................... 5 Fixed Account ................................... 5 In Force ........................................ 5 Initial Premium ................................. 5 Internal Revenue Code ........................... 5 Maturity Date ................................... 5 Monthiversary ................................... 5 Net Premium ..................................... 5 Net Surrender Value ............................. 6 No Lapse Date ................................... 6 Office .......................................... 6 Policy Date ..................................... 6 Record Date ..................................... 6 Reallocation Date ............................... 6 Rider ........................................... 6 SEC ............................................. 6 Separate Account ................................ 6 Series Fund ..................................... 6 Subaccount ...................................... 6 Surrender ....................................... 6 Termination ..................................... 6 Valuation Date .................................. 7 Valuation Period ................................ 7 Written Notice .................................. 7 GENERAL PROVISIONS ................................. 7 The Policy ...................................... 7 Ownership ....................................... 7 Beneficiary ..................................... 7 Assignment ...................................... 8 Extended Maturity Date .......................... 8 Incontestability ................................ 8 Suicide ......................................... 9 Issue Age and Sex ............................... 9 Annual Report ................................... 9 Termination ..................................... 9 Policy Payment .................................. 9 Conversion Rights ............................... 9 Protection of Proceeds .......................... 10 DEATH BENEFIT PROVISIONS ........................... 10 Death Benefit .................................... 10 Specified Amount ................................. 10 Option Type ...................................... 10 Limitation Percentage ............................ 10 Changes .......................................... 11 Death Benefit Proceeds ........................... 12 PREMIUM PROVISIONS ................................. 12 Payment .......................................... 12 Premiums ......................................... 12 Grace Period ..................................... 13 Reinstatement .................................... 13 SEPARATE ACCOUNT PROVISIONS ........................ 13 The Separate Account ............................. 13 Subaccounts ...................................... 14 Transfers ........................................ 14 Addition, Deletion or Substitution of Investments ................................... 14 Change of Investment Objective ................... 15 Unit Value ....................................... 15 POLICY VALUE PROVISIONS ............................ 15 Net Premium ...................................... 15 Allocation of Net Premiums ....................... 16 Monthly Deductions ............................... 16 Monthly Policy Charge ............................ 16 Monthly Cost of Insurance ........................ 16 Monthly Cost of Insurance Rates .................. 17 Subaccount Value ................................. 17 Fixed Account Value .............................. 17 Cash Value ....................................... 18 Surrender ........................................ 18 Net Surrender Value .............................. 18 Surrender Charge ................................. 18 Surrender Charge Upon Decrease in Specified Amount .............................. 19 Withdrawals ...................................... 19 Continuation of Insurance ........................ 20 Insufficient Value ............................... 20 Basis of Computations ............................ 20 Policy Loans ..................................... 20 SETTLEMENT OPTIONS ................................. 21 Effective Date and First Payment Due .............. 21 Betterment of Monthly Annuity ..................... 21 Availability ...................................... 21 Age ............................................... 21 Proof of Age and Sex .............................. 21 Proof of Survival ................................. 21 Interest .......................................... 22 Table of Optional Methods of Settlement ........... 22
Page 2 WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO Clearwater, Florida POLICY SCHEDULE =============================================================================== Primary Insured: JOHN DOE Issue Age And Sex: 35 - Male Policy Number: 0112345678 Specified Amount: $ 250,000.00 Policy Date: December 01, 2000 Option Type: B Record Date: December 01, 2000 Planned Premium: $2,000.00 No Lapse Date: December 01, 2020 Payment Frequency: Annually Maturity Date: December 01, 2065 Initial Payment Notice: Direct Pay Notice Reallocation Date: December 21, 2000 Initial Premium: $2,000.00 Minimum Monthly Guarantee Premium: $ 128.75 Rate Class: Ultimate Standard Rate Band: Band 2 Minimum Specified Amount: Band 1 Issue Age 0-49: $ 50,000.00 Issue Age 50 and Over: $ 50,000.00 Band 2 $ 250,000.00 Band 3 $ 500,000.00 Band 4 $1,000,000.00 Separate Account Provisions Separate Account: [WRL Series Life Account] Mortality and Expense Risk Charge: Policy Years 1-15: .90% (Annually) Policy Years 16+: Current: .30% (Annually) Guaranteed: .60% (Annually) Reallocation Account: Fixed Account Policy Value Provisions Net Premium Factor Band 1 Policy Years 1-10 94.00% Policy Years 11+ 97.50% Band 2 Policy Years 1-10 96.00% Policy Years 11+ 97.50% Band 3 All Policy Years 100% Band 4 All Policy Years 100% Collection Fee: Direct Pay Notice: $ 3.00 Per Payment All Other Payment Notices: $ 0.00 Monthly Policy Charge Initial (Guaranteed for the First Policy Year): $5.00 Guaranteed: $7.50
Page 3 WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO Clearwater, Florida POLICY SCHEDULE (CONTINUED) POLICY NUMBER: 0112345678 TABLE OF SURRENDER CHARGES PER $1000 OF SPECIFIED AMOUNT AS OF THE POLICY DATE (APPLICABLE SPECIFIED AMOUNT EQUALS $250,000)
End of Year* Surrender Charge End of Year Surrender Charge AT ISSUE $16.48 9 $ 9.89 1 $16.48 10 $ 8.24 2 $16.48 11 $ 6.59 3 $16.48 12 $ 4.94 4 $16.48 13 $ 3.30 5 $16.48 14 $ 1.65 6 $14.83 15 $ 0.00 7 $13.18 16+ $ 0.00 8 $11.54
* The surrender charge on any date other than an end of year will be interpolated between the two end of year charges. Page 3A WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO Clearwater, Florida RIDER INFORMATION =============================================================================== Rider Monthly Deduction - ------------------------------------------------------------------------------- NONE Number: 0112345678 The monthly deductions shown above are applicable for the first policy month. For monthly deductions after the first policy month, refer to the rider form. Page 4 WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO Clearwater, Florida POLICY SCHEDULE =============================================================================== Policy Number: 0112345678 TABLE OF GUARANTEED MAXIMUM LIFE INSURANCE RATES Guaranteed Rate Basis for Initial Specified Amount on Primary Insured Commissioners 1980 Standard Ordinary Tobacco and Non-Tobacco Mortality Table Insured Name Male Lives Tobacco User Classification Monthly Cost of Insurance Rates Per $ 1,000
Attained Age Monthly Rate Attained Age Monthly Rate 35 .21916 68 3.87916 36 .23416 69 4.19333 37 .25333 70 4.54000 38 .27500 71 4.92416 39 .30000 72 5.36083 40 .32833 73 5.85250 41 .36166 74 6.38833 42 .39583 75 6.98083 43 .43500 76 7.59166 44 .47583 77 8.21000 45 .52250 78 8.82583 46 .56916 79 9.45750 47 .62000 80 10.13250 48 .67333 81 10.86750 49 .73333 82 11.68333 50 .79166 83 12.58583 51 .87000 84 13.54083 52 .95166 85 14.51666 53 1.04500 86 15.48166 54 1.15000 87 16.42166 55 1.26166 88 17.44750 56 1.38250 89 18.46000 57 1.50750 90 19.47416 58 1.64083 91 20.51000 59 1.77916 92 21.61083 60 1.93250 93 23.02500 61 2.10500 94 24.84583 62 2.29916 95 27.49666 63 2.51916 96 32.04583 64 2.76166 97 40.01666 65 3.02416 98 54.83166 66 3.29750 99 83.33333 67 3.58416
Page 4A DEFINITIONS =============================================================================== ACCOUNTS Allocation options including the Fixed Account and the Subaccounts of the Separate Account. AGE Issue Age refers to the Age on Your birthday nearest the Policy Date. Attained Age refers to the Issue Age plus the number of completed policy years. ANNIVERSARY The same day and month as the Policy Date for each succeeding year the Policy remains In Force. BENEFICIARY The person or persons specified by the Owner to receive the Death Benefit Proceeds upon Your death. DEATH BENEFIT The amount payable upon Your death in accordance with the PROCEEDS Death Benefit Provisions. FIXED ACCOUNT An allocation option(s) other than the Separate Account. IN FORCE Condition under which the coverage under this Policy or Rider, if any, is active and Your life remains insured. INITIAL The amount which must be paid before coverage begins. The PREMIUM amount is shown on the Policy Schedule Page. INTERNAL The Internal Revenue Code of 1986, as amended. REVENUE CODE MATURITY DATE The Anniversary nearest Your 100th birthday on which coverage under this Policy will terminate if You are living and this Policy is In Force. The Maturity Date may be extended as provided in the Extension of Maturity Date section of the General Provisions. MONTHIVERSARY The day of each month coinciding with the Policy Date. If there is no day in a calendar month which coincides with the Policy Date, the Monthiversary will be the first day of the next month. NET PREMIUM The portion of the premium available for allocation as set forth in the Policy Value Provisions. Page 5 NET SURRENDER The amount payable upon Surrender in accordance with the VALUE Policy Value Provisions of this Policy. NO LAPSE DATE The date, as set forth on the Policy Schedule Page, prior to which this Policy will not lapse if certain conditions are met, even though the Net Surrender Value is insufficient to meet the monthly deduction. OFFICE Refers to Our administrative Office located in Clearwater, Florida. POLICY DATE The date coverage is effective and monthly deductions commence under the Policy. Policy months, years and anniversaries are measured from the Policy Date, as shown on the Policy Schedule Page. RECORD DATE The date the Policy is recorded on Our books as an In Force Policy. The Record Date is shown on the Policy Schedule Page. REALLOCATION The date on which any premiums are reallocated from the DATE Reallocation Account to the Accounts as elected by the Owner on the application. The Reallocation Date is shown on the Policy Schedule Page. RIDER Any attachment to this Policy which provides additional coverages or benefits. SEC The United States Securities and Exchange Commission. SEPARATE A separate investment account shown on the Policy Schedule ACCOUNT Page which is composed of several Subaccounts established to receive and invest Net Premiums under the Policy. SERIES FUND A designated mutual fund from which each Subaccount of the Separate Account will buy shares. SUBACCOUNT A sub-division of the Separate Account. Each Subaccount invests exclusively in the shares of specified Series Fund portfolio. SURRENDER The Termination of this Policy at the option of the Owner. TERMINATION Condition under which coverage under the Policy or any Rider is no longer In Force and Your life is no longer insured. Page 6 VALUATION DATE Any day We are required by law to value the assets of the Separate Account. VALUATION The period commencing at the end of one Valuation Date and PERIOD continuing to the end of the next succeeding Valuation Date. WRITTEN NOTICE Written Notice means a notice by the Owner to Us requesting or exercising a right of the Owner as provided in the Policy provisions. In order for a notice to be considered a Written Notice, it must: be in writing, signed by the Owner; be in a form acceptable to Us; and contain the information and documentation, as determined in Our sole discretion, necessary for Us to take the action requested or for the Owner to exercise the right specified. A Written Notice will not be considered complete until all necessary supporting documentation required or requested by Us has been received by Us at Our administrative Office. GENERAL PROVISIONS =============================================================================== THE POLICY This Policy is issued in consideration of the attached application and payment of the Initial Premium. This Policy, the attached application and any additional applications at the time of reinstatement constitute the entire contract. All statements in these applications, in the absence of fraud, will be deemed representations and not warranties. No statement can be used to void this Policy or be used in defense of a claim unless it is contained in the written application. No Policy provision can be waived or changed except by endorsement. Such endorsement must be signed by Our President or Secretary. OWNERSHIP This Policy belongs to the Owner. The Owner, as named in the application or subsequently changed, may exercise all rights under this Policy during Your lifetime including the right to transfer ownership. If the Owner should die during Your lifetime, ownership of this Policy will pass to the Owner's estate if no contingent Owner is named. We will not be bound by any change in the ownership designation unless it is made by Written Notice. The change will be effective on the date the Written Notice is accepted by Us. If We request, this Policy must be returned to Our administrative Office for endorsement. BENEFICIARY The Beneficiary, as named in the application or subsequently changed, will receive the benefits payable at Your death. If the Beneficiary dies before You, the Contingent Beneficiary, if named, becomes the Beneficiary. If no Beneficiary or Contingent Beneficiary survives You, the benefits payable at Your death will be paid to the Owner or the Owner's estate. Page 7 We will not be bound by any change in the Beneficiary designation unless it is made by Written Notice. The change will be effective on the date the Written Notice was signed; however, no change will apply to any payment We made before the Written Notice is received. If We request, this Policy must be returned to Our Office for endorsement. ASSIGNMENT This Policy may be assigned. We will not be bound by any assignment unless made by Written Notice and received at Our Office. The assignment will be effective on the date it was signed; however, no change will apply to any payment We made before Written Notice was received. We assume no responsibility for the validity of any assignment. EXTENDED The Owner may request that the Maturity Date shown on the MATURITY DATE Policy Schedule page be extended. The request must be in writing and received by Us at least 90 days, but no more than 180 days, prior to the scheduled Maturity Date. Any Riders In Force on the scheduled Maturity Date will terminate on that date and will not be extended. Interest on any outstanding policy loan will continue to accrue during the period for which the Maturity Date is extended. The Maturity Date will be extended in accordance with either (1) or (2) below, as elected by the Owner at the time the request is made. If (2) is chosen, the Owner may elect to change to (1) at any time. Changes from (1) to (2) are not permitted. (1) If the death benefit Option Type is other than Option A, the Option Type will be changed to Option A. Subsequent changes to the Option Type will not be allowed. On each Valuation Date, the Specified Amount will be adjusted to equal the Cash Value, and the Limitation Percentage will be 100%. No additional Premium payments will be permitted. All future monthly deductions will be waived. (2) The Maturity Date will be automatically extended until the next Policy Anniversary. At least 90 days, but no more than 180 days, prior to each subsequent Policy Anniversary, the Owner must request that the Maturity Date be extended each Policy year. All benefits and charges will continue as set forth in this Policy. Monthly Cost of Insurance Rates will be the then current cost of insurance rates. INCONTESTABILITY This Policy shall be incontestable after it has been In Force, while You are still alive, for two years from the Policy Date. A new two year contestability period shall apply to each increase in insurance amount beginning on the effective date of each increase and will apply only to statements made in the application for the increase. If this Policy is reinstated, a new two year contestability period (apart from any remaining contestability period) shall apply from the date of the application for reinstatement and will apply only to statements made in the application for reinstatement. Page 8 SUICIDE If You die by suicide, while sane or insane, within two years from the Policy Date, or two years from the effective date of any reinstatement of this Policy, this Policy shall terminate and Our total liability, including all Riders attached to this Policy, will be limited to the total premiums paid, less any loans and prior withdrawals, during such period. If You die by suicide, while sane or insane, within two years from the effective date of any increase in insurance, Our total liability with respect to such increase will be its cost of insurance. ISSUE AGE If Your date of birth or sex is not correctly stated, the AND SEX death benefit will be adjusted. The death benefit will be adjusted based on what the cost of insurance charge for the most recent monthly deduction would have purchased based on Your correct date of birth and sex. ANNUAL REPORT We will send a report to the Owner at least once each year. It will show for the Policy: 1. The current cash value; 4. Any current policy loans; 2. The current Net Surrender Value; 5. Activity since the last report; 3. The current death benefit; 6. Projected values.
Additional activity within each Subaccount showing investment experience will also be provided. TERMINATION This Policy will terminate on the earliest of: 1. The Maturity Date unless extended; 3. The end of the grace period; 2. The date of Your death; 4. The date of Surrender.
POLICY PAYMENT All proceeds to be paid upon Termination will be paid in one sum unless otherwise elected under the Settlement Options of this Policy. All payments and transfers from the Subaccounts will be processed as provided in this Policy unless one of the following situations exists: 1. The New York Stock Exchange is closed; or 2. The SEC requires that trading be restricted or declares an emergency; or 3. The SEC allows Us to defer payments to protect Our policyowners. We reserve the right to defer the payment of any Fixed Account values for the period permitted by law, but not for more than six months. CONVERSION RIGHTS At any time upon written request within the first two policy years, the Owner may elect to transfer all Subaccount Values to the Fixed Account without a transfer charge. Page 9 PROTECTION OF Unless the Owner directs by filing Written Notice, no PROCEEDS Beneficiary may assign any payments under this Policy before the same are due. To the extent permitted by law, no payments under this Policy will be subject to the claims of creditors of any Beneficiary. DEATH BENEFIT PROVISIONS ================================================================================ DEATH BENEFIT The death benefit is based upon the Specified Amount, Option Type and the Limitation Percentage applicable at time of death. SPECIFIED AMOUNT The Specified Amount is as shown on the Policy Schedule Page, unless changed in accordance with the Changes section or reduced by a cash withdrawal. OPTION TYPE The Option Type is as shown on the Policy Schedule Page, unless changed in accordance with the Changes section of this provision. If Option Type A is in effect, the death benefit is the greater of: 1. the Specified Amount; or 2. the Limitation Percentage multiplied by the cash value of this Policy on the date of Your death. If Option Type B is in effect, the death benefit is the greater of: 1. the Specified Amount plus the cash value of this Policy on the date of Your death; or 2. the Limitation Percentage multiplied by the cash value of this Policy on the date of Your death. If Option Type C is in effect, the death benefit is the greater of: 1. the Option Type A benefit; or 2. the Specified Amount multiplied by the factor K plus the cash value of this Policy on the date of Your death, where the factor K is equal to the lesser of: a. 1; or b. .04 multiplied by (95 minus Your Attained Age at death). The factor K will never be less than zero. LIMITATION The Limitation Percentage is a percentage based on Your PERCENTAGE Attained Age at the beginning of the policy year equal to: Page 10
Attained Age Limitation Percentage ------------- -------------------------------------- 40 and under 250% 41 through 45 250% minus 7% for each Age over Age 40 46 through 50 215% minus 6% for each Age over Age 45 51 through 55 185% minus 7% for each Age over Age 50 56 through 60 150% minus 4% for each Age over Age 55 61 through 65 130% minus 2% for each Age over Age 60 66 through 70 120% minus 1% for each Age over Age 65 71 through 75 115% minus 2% for each Age over Age 70 76 through 90 105% 91 through 95 105% minus 1% for each Age over Age 90 96 through 99 100%
CHANGES After the third policy year, the Owner may change the Option Type by Written Notice. Changes will be effective on the first Monthiversary on or next following the day We receive Written Notice. No change in the Option Type will be allowed if the resulting Specified Amount would be less than the Band 1 Minimum Specified Amount shown on the Policy Schedule Page. On the effective date of change to a new Option Type, the Specified Amount will be adjusted so that the amount determined under 1 and 2 of the Monthly Cost of Insurance provision will be equal to that determined under the prior Option Type. The Specified Amount may be increased or decreased at any time after the third Policy year by Written Notice. We reserve the right to limit any decrease to no more than 20% of the then current Specified Amount. All changes to the Specified Amount are subject to the following: 1. Any decrease will become effective on the first Monthiversary on or next following the date We receive Written Notice. Any such decrease will reduce the Specified Amount in the following order: a) against insurance provided by the most recent increase; b) against the next most recent increases successively; and c) against insurance provided under the original application. No decrease will be allowed if: a) the Specified Amount after any requested decrease would be less than the Band 1 Minimum Specified Amount shown on the Policy Schedule Page; b) the requested decrease would force a cash withdrawal in order to maintain compliance with the definition of a life insurance contract as defined by the United States Internal Revenue Code and applicable regulations; or c) the decrease would cause the Policy to enter the grace period. Page 11 2. Any request for an increase in Specified Amount must be applied for on a supplemental application and must include evidence of insurability satisfactory to Us. Such increase, if approved by Us, will be effective on the first Monthiversary on or next following Our Written Approval. We reserve the right to require any requested increase to be at least $50,000. Only one change in the Option Type or to the Specified Amount will be allowed within each policy year. If the Specified Amount is changed and the resulting Specified Amount causes a change in the Rate Band, the Net Premium Factor for the new band will be applied to all subsequent premiums received following the effective date of change. DEATH BENEFIT The Death Benefit Proceeds is the amount payable by Us under PROCEEDS this Policy provided this Policy has not terminated prior to Your death. Except as provided in the Suicide section of the General Provisions, the Death Benefit Proceeds will be equal to: 1. The death benefit; minus 2. Any monthly deductions due during the grace period; minus 3. Any outstanding policy loan; minus 4. Any accrued loan interest. PREMIUM PROVISIONS ================================================================================ PAYMENT The Initial Premium shown on the Policy Schedule Page must be paid on or before the Policy Date. All premiums after the Initial Premium are payable at Our Office. PREMIUMS The amount and frequency of Planned Premiums are shown on the Policy Schedule Page. The amount and frequency may be changed upon request, subject to Our approval. While this Policy is In Force, additional premiums may be paid at any time prior to the Maturity Date. We reserve the right to limit or refund any premium if: 1. The amount is below Our current minimum payment requirement; or 2. The premium would increase the death benefit by more than the amount of the premium; or 3. The premium would disqualify this Policy as a life insurance contract as defined by the United States Internal Revenue Code and applicable regulations. Page 12 GRACE PERIOD If the Net Surrender Value on any Monthiversary is not sufficient to cover the monthly deductions on such day, We will mail a notice to the last known address of the Owner and any assignee of record. A grace period of 61 days after the mailing date of the notice will be allowed for the payment of premiums. The notice will specify the minimum payment and the final date on which such payment must be received by Us to keep the Policy In Force. The Policy will remain In Force during the grace period. If the amount due is not received by Us within the grace period, all coverage under the Policy and any Riders will terminate without value at the end of the grace period. Until the No Lapse Date shown on the Policy Schedule Page, no grace period will begin provided the total premiums received (minus any withdrawals, minus any outstanding loans, minus any accrued loan interest, and minus any Surrender Charge assessed upon a decrease in the Specified Amount that has been deducted from the cash value) equals or exceeds the Minimum Monthly Guarantee Premium times the number of months since the Policy Date, including the current month. The Minimum Monthly Guarantee Premium is as shown on the Policy Schedule Page unless changed due to a requested change under the Policy. Upon such change, the Owner will be notified of the new Minimum Monthly Guarantee Premium and the effective date for the new premium. REINSTATEMENT If this Policy terminates, as provided in the Grace Period section, it may be reinstated. The reinstatement is subject to: 1. Receipt at Our Office of a Written Notice. Such notice must be within 5 years after the date of Termination and prior to the Maturity Date; and 2. Receipt of evidence of insurability satisfactory to Us; and 3. Payment of a minimum premium sufficient to provide a Net Premium to cover (a) one monthly deduction at the time of Termination, plus (b) the next two monthly deductions which will become due after the time of reinstatement; and 4. Payment of an additional amount sufficient to cover any Surrender Charge as of the date of reinstatement. The effective date of a reinstatement shall be the first Monthiversary on or next following the day We approve the application for reinstatement. Any policy loan as of the date of Termination will not be reinstated. Any cash value equal to the policy loan on the date of reinstatement will also not be reinstated. SEPARATE ACCOUNT PROVISIONS ================================================================================ THE SEPARATE The variable benefits under this Policy are provided through ACCOUNT the Separate Account as shown on the Policy Schedule Page. The assets of the Separate Account are Our property. Assets equal to the reserve and other contractual liabilities under all policies issued in connection with the Separate Account will not be charged with liabilities arising out of any other business We may conduct. If the assets of the Separate Account exceed the liabilities arising under the policies supported by the Separate Account, then the excess may be used to cover the liabilities of Our general account. The assets of the Separate Account shall be valued as often as any policy benefits vary, but at least monthly. Page 13 SUBACCOUNTS The Separate Account has various Subaccounts with different investment objectives. We reserve the right to add or remove any Subaccount of the Separate Account. Income, if any, and any gains or losses, realized or unrealized, from assets in each Subaccount are credited to, or charged against, the amount allocated to that Subaccount without regard to income, gains, or losses in other Subaccounts. Any amount charged against the investment base for federal or state income taxes will be deducted from that Subaccount. The assets of each Subaccount are invested in shares of a corresponding Series Fund portfolio. The value of a portfolio share is based on the value of the assets of the portfolio determined at the end of each Valuation Period in accordance with applicable law. TRANSFERS The Owner may transfer all or a portion of this Policy's value in each Subaccount to other Subaccounts or the Fixed Account. We reserve the right to charge a $25 fee for each transfer in excess of one per policy month or twelve per policy year. This charge will be deducted from the funds transferred. A request for a transfer must be made in a form satisfactory to Us. The transfer will ordinarily take effect on the first Valuation Date on or following the date the request is received at Our Office. ADDITION, We reserve the right to transfer assets of the Separate DELETION Account, which We determine to be associated with the class of OR SUBSTITUTION contracts to which this Policy belongs, to another Separate OF INVESTMENTS Account. If this type of transfer is made, the term "Separate Account", as used in this Policy, shall then mean the Separate Account to which the assets were transferred. We also reserve the right to add, delete, or substitute investments held by any Subaccount. We reserve the right, when permitted by law, to: 1. Deregister the Separate Account under the Investment Company Act of 1940; 2. Manage the Separate Account under the direction of a committee at any time; 3. Restrict or eliminate any voting privileges of owners or other persons who have voting privileges as to the Separate Account; 4. Combine the Separate Account or any Subaccount(s) with one or more other Separate Accounts or Subaccounts; 5. Operate the Separate Account as a management investment company; 6. Establish additional Subaccounts to invest in either a new series of the Series Fund, or in shares of another diversified, open-end registered investment company; and 7. Fund additional classes of variable life insurance contracts through the Separate Account. Page 14 CHANGE OF We reserve the right to change the investment objective of a INVESTMENT Subaccount. If required by law or regulation, an investment OBJECTIVE objective of the Separate Account, or of a Series Fund portfolio designated for a Subaccount, will not be materially changed unless a statement of the change is filed with and approved by the appropriate insurance official of the state of Our domicile or deemed approved in accordance with such law or regulation. If required, approval of or change of any investment objective will be filed with the Insurance Department of the state where this Policy is delivered. UNIT VALUE Some of the policy values fluctuate with the investment results of the Subaccounts. In order to determine how investment results affect the policy values, a unit value is determined for each Subaccount. The unit value of each Subaccount was originally established at $10 per unit. The unit value may increase or decrease from one Valuation Period to the next. Unit values also will vary between Subaccounts. The unit value of any Subaccount at the end of a Valuation Period is the result of: 1. The total value of the assets held in the Subaccount. This value is determined by multiplying the number of shares of the designated Series Fund portfolio owned by the Subaccount times the net asset value per share; minus 2. The accrued risk charge for adverse mortality and expense experience. The daily amount of this charge is equal to the daily net assets of the Subaccount multiplied by the daily equivalent of the Mortality and Expense Risk Charge. The maximum annual factor for the Mortality and Expense Risk Charge is shown on the Policy Schedule Page; minus 3. The accrued amount of reserve for any taxes or other economic burden resulting from the application of tax laws that are determined by Us to be properly attributable to the Subaccount; and the result divided by 4. The number of outstanding units in the Subaccount. The use of the unit value in determining contract values is described in the Policy Value Provisions. POLICY VALUE PROVISIONS ================================================================================ NET PREMIUM The applicable Net Premium equals the premium paid multiplied by the Net Premium Factor shown on the Policy Schedule Page minus the Collection Fee, if any, shown on the Policy Schedule Page. Page 15 ALLOCATION OF Net Premiums will be allocated to the Subaccounts of the NET PREMIUMS Separate Account and the Fixed Account on the first Valuation Date on or following the date the premium is received at Our Office; except any Net Premium received prior to the Policy Date will be allocated on the first Valuation Date on or following the Policy Date. All Net Premiums allocated prior to the Reallocation Date will be allocated to the Reallocation Account. On the first Valuation Date on or following the Reallocation Date, the values in the Reallocation Account will be transferred in accordance with the Owner's allocation as shown in the application. We reserve the right to limit any allocation to any Account to no less than 1%. No fractional percentages may be permitted. The allocation may be changed by the Owner. We reserve the right to impose a charge of $25 for each change of allocation in excess of one per policy year quarter. The request for change of allocations must be in a form satisfactory to Us. The allocation change will be effective on the date the request for change is recorded by Us. MONTHLY On each Monthiversary, a monthly deduction for this Policy DEDUCTIONS will be made equal to the sum of the following: 1. The Monthly Policy Charge as shown on the Policy Schedule Page; 2. The Monthly Cost of Insurance for this Policy; 3. The charge for benefits provided by Riders attached to this Policy; 4. The Surrender Charge upon a decrease in the Specified Amount, on the effective date of the decrease. Deductions will be withdrawn from each account in proportion to the value each bears to the Cash Value. MONTHLY POLICY Both the Initial and Guaranteed Monthly Policy Charge are CHARGE shown on the Policy Schedule Page. It is Our intention to charge the Initial Monthly Policy Charge each month; however, We reserve the right to increase the Monthly Policy Charge up to the Guaranteed Monthly Policy Charge after the first policy year. Any change in this charge will be applied uniformly to all policies in effect for the same length of time. MONTHLY COST The Monthly Cost of Insurance on each Monthiversary is OF INSURANCE determined as follows: 1. divide the death benefit on the Monthiversary by 1.0024663; and 2. reduce the result by the cash value on the Monthiversary in the following order until all cash value has been applied: Page 16 a) against the insurance provided under the original application; b) against the insurance provided by the oldest increase; c) against the insurance provided by the next oldest increase and each successive increase; d) against the insurance provided by the most recent increase; 3. multiply the appropriate Monthly Cost of Insurance rate(s) by each amount of insurance provided under 2 above and sum. MONTHLY COST OF The Monthly Cost of Insurance rates will vary by Your sex, Age INSURANCE at issue, Age at the time RATES of any increase in Specified Amount, Rate Band, plan of insurance, Rate Class, and the duration from the Policy Date or the date of any increase in Specified Amount. Different Monthly Cost of Insurance rates may apply to increases in the Specified Amount following the Policy Date. Monthly Cost of Insurance rates may be changed by Us from time to time. A change in the cost of insurance rates will apply to all persons of the same Attained Age, sex, plan of insurance, Rate Band, Rate Class, and whose policies or increases have been in effect for the same length of time. The rates will not exceed those shown in the Table of Guaranteed Maximum Life Insurance Rates. SUBACCOUNT VALUE At the end of any Valuation Period, the Subaccount Value is equal to the number of units that the Policy has in the Subaccount, multiplied by the unit value of that Subaccount. The number of units that the Policy has in each Subaccount is equal to: 1. The initial units purchased on the Policy Date; plus 2. Units purchased at the time additional Net Premiums are allocated to the Subaccount; plus 3. Units purchased through transfers from another Subaccount or the Fixed Account; minus 4. Those units that are redeemed to pay for monthly deductions as they are due; minus 5. Any units that are redeemed to pay for cash withdrawals; minus 6. Any units that are redeemed as part of a transfer to another Account. FIXED ACCOUNT At the end of any Valuation Period, the Fixed Account value is VALUE equal to: 1. The sum of all Net Premiums allocated to the Fixed Account; plus 2. Any amounts transferred from a Subaccount to the Fixed Account; plus 3. Total interest credited to the Fixed Account; minus 4. Any amounts charged to pay for monthly deductions as they are due; minus 5. Any amounts withdrawn from the Fixed Account to pay for cash withdrawals; minus 6. Any amounts transferred from the Fixed Account to a Subaccount. Page 17 Interest on the Fixed Account will be compounded daily at a minimum guaranteed effective annual interest rate of 3% per year. We may declare from time to time various higher current interest rates on the unloaned portion of the Fixed Account. On transfers from the Fixed Account to a Subaccount, We reserve the right to impose the following limitations: 1. Written Notice be received by Us within 30 days after an Anniversary. 2. The transfer will take place on the date We receive such Written Notice. 3. The maximum amount that may be transferred is the greater of (a) 25% of the amount in the Fixed Account; or (b) the amount transferred in the prior policy year from the Fixed Account. We further reserve the right to defer payment of any amounts from the Fixed Account for no longer than six months after We receive such Written Notice. CASH VALUE At the end of any Valuation Period, the cash value of the Policy is equal to the sum of the Subaccount Values plus the Fixed Account value. SURRENDER While this Policy is In Force, the Owner may Surrender this Policy for the Net Surrender Value. Payment will usually be made within seven days of Written Notice, subject to the Policy Payment section of the General Provisions. NET SURRENDER The Net Surrender Value is the amount payable upon Surrender VALUE of this Policy. The Net Surrender Value as of any date is equal to: 1. the cash value as of such date; minus 2. any Surrender Charge as of such date; minus 3. any outstanding policy loan; minus 4. any accrued loan interest. SURRENDER CHARGE During the first 15 policy years, a Surrender Charge will be incurred upon Surrender of this Policy. This charge will be based upon the Table of Surrender Charges shown on the Policy Schedule Page. During the first 15 years following each increase in the Specified Amount, an additional Surrender Charge will be based upon the Table of Surrender Charges shown on the supplemental Policy Schedule Page provided at the time We approve the requested increase. Page 18 SURRENDER CHARGE During the first 15 policy years, or during the 15 year period UPON DECREASE IN subsequent to each increase in Specified Amount, Surrender SPECIFIED AMOUNT Charges will be assessed against the cash value upon a requested decrease in coverage. For decreases which reduce any increase in its entirety, the full Surrender Charge as determined under the Surrender Charge provisions above will be assessed against that portion of the decrease equal to the increase. For decreases which partially reduce any previous increase in Specified Amount or the amount in (d) below, a partial Surrender Charge will be assessed. This partial Surrender Charge will be equal to: 1. the amount of the Specified Amount decrease; multiplied by 2. the Surrender Charge shown on the Table of Surrender Charges applicable to that portion of the reduction in Specified Amount. Surrender Charges upon a decrease in Specified Amount will be charged in the following order: (a) the Surrender Charges for the insurance provided by the most recent increase; (b) the Surrender Charges for insurance provided by the next most recent increase and each next most recent increase; (c) the Surrender Charges for insurance provided by the oldest increase; (d) the Surrender Charges for the insurance provided under the original application. A Surrender Charge will not be deducted from the cash value when a Specified Amount decrease results from (a) a change in Option Type, or (b) a withdrawal when the death benefit is Option Type A, as described in the Withdrawals Provision below. If a Surrender Charge is deducted due to a decrease in Specified Amount, any future Surrender Charges incurred during the Surrender Charge period will be based on the reduced Specified Amount. WITHDRAWALS Cash withdrawals may be made any time after the first policy year and while this Policy is In Force. Only one withdrawal is allowed during a policy year. The amount of a withdrawal may be limited to no less than $500 and to no more than 10% of the Net Surrender Value. The remaining Net Surrender Value following a withdrawal may not be less than $500. The request for a withdrawal must be by Written Notice. A processing fee of the lesser of 2% of the amount withdrawn or $25 will be deducted from each withdrawal amount and the balance paid to the Owner. When a withdrawal is made, the cash value shall be reduced by the amount of the withdrawal. If the death benefit is Option Type A, the Specified Amount shall also be reduced by the amount of the withdrawal. These reductions will result in a reduction in the death benefit, which may be determined from the Death Benefit section. If the Specified Amount following the withdrawal results in a change in the Rate Band, the Net Premium factors for the new band will be applied to all subsequent premiums received following the date of the withdrawal. No withdrawal will be allowed if the resulting Specified Amount would be less than the Band 1 minimum Specified Amount shown on the Policy Schedule Page. Page 19 The Accounts from which the withdrawal will be made may be specified in the Written Notice. If no Account is specified, the withdrawal amount will be withdrawn from each Account in accordance with the Owner's current premium allocation instructions. Payment will usually be made within seven days of Written Notice, subject to the Policy Payment section of the General Provisions of this Policy. CONTINUATION OF Subject to the Grace Period section of the Premium Provisions, INSURANCE insurance coverage under this Policy and any benefits provided by Rider will be continued In Force until the Net Surrender Value is insufficient to cover the monthly deductions. This provision shall not continue this Policy beyond the Maturity Date nor continue any Rider beyond the date for its Termination, as provided in the Rider. INSUFFICIENT If the Net Surrender Value on any Monthiversary is not VALUE sufficient to cover the monthly deductions then due, this Policy shall terminate subject to the Grace Period section of the Premium Provisions. BASIS OF COMPUTATIONS Policy values and reserves are at least equal to those required by law. A detailed statement of the method of computation of values and reserves has been filed with the insurance department of the state in which this Policy was delivered. POLICY LOANS After the first policy year and during the continuance of this Policy, the Owner can borrow against this Policy an amount which is not greater than 90% of the cash value, less any Surrender Charges and any outstanding policy loan, including accrued interest. The amount of any policy loan may be limited to no less than $500, except as noted below. When a loan is made, an amount equal to the loan will be withdrawn from the Accounts and transferred to the loan reserve. The loan reserve is a portion of the Fixed Account used as collateral for any policy loan. The Owner may specify the Account or Accounts from which the withdrawal will be made. If no Account is specified, the withdrawal will be made from each Account in accordance with the Owner's current premium allocation instructions. The loan date is the date We process a loan request. Payment will usually be made within seven days of the date We receive proper loan request, subject to the Policy Payment section of the General Provisions of this Policy. This Policy will be the sole security for the loan. While this Policy is In Force, any loan may be repaid. Any amounts received on this Policy will be considered premiums unless clearly marked as loan repayments. Page 20 Interest on any loan will be at the maximum policy loan rate of 4%, payable in arrears. We may declare from time to time various lower policy loan interest rates. We may also apply different loan interest rates to different parts of the loan. Interest is due at each Anniversary. Interest not paid when due will be added to the loan and will bear interest up to the maximum policy loan rate. At each Anniversary, We will compare the amount of the outstanding loan to the amount in the loan reserve. At each such time, if this amount plus any accrued loan interest exceeds the amount in the loan reserve, We will withdraw the difference from the Accounts and transfer it to the loan reserve, in the same fashion as when a loan is made. If the amount in the loan reserve exceeds the amount of the outstanding loan, plus any accrued loan interest, We will withdraw the difference from the loan reserve and transfer it to the Accounts in accordance with the Owner's current allocation instructions. However, We reserve the right to require that the transfer be directed to the Fixed Account if such loans were originally transferred from the Fixed Account. SETTLEMENT OPTIONS ================================================================================ EFFECTIVE DATE The effective date of a settlement provision will be either AND FIRST the date of Surrender or the date of death. The first payment PAYMENT DUE due will be on the effective date of the settlement provision. BETTERMENT OF MONTHLY ANNUITY The payee will receive the greater of: 1. The income rate guaranteed in this Policy; or 2. The income rates in effect for Us at the time income payments are made. AVAILABILITY If the payee is not a natural person, an optional method of settlement is only available with Our permission. No optional method of settlement is available if: 1. The payee is an assignee; or 2. The periodic payment is less than $100. AGE Age, when required, means age nearest birthday on the effective date of the option. We will furnish rates for other ages and for two males or two females upon request. PROOF OF AGE Prior to making the first payment under this Policy, AND SEX We reserve the right to require satisfactory evidence of the birthdate and sex of any payee. If required by law to ignore the differences in sex of any payee, annuity payments will be determined using unisex rates. PROOF OF Prior to making any payment under this Policy, We reserve the SURVIVAL right to require satisfactory evidence that any payee is alive on the due date of such payment. Page 21 INTEREST All settlement options are based on the Annuity 2000 Mortality Table, if applicable, and a guaranteed annual interest rate of 3%. TABLE OF OPTIONAL METHODS OF SETTLEMENT DESCRIPTION AND TABLES OF MONTHLY INSTALLMENT PER $1,000 OF PROCEEDS. Option A - Fixed Period The proceeds will be paid in equal installments. The installments will be paid over a fixed period determined from the following table:
Fixed Period (in months) Factor ------------ ------ 60 17.91 120 9.61 180 6.87 240 5.51
Option B - The proceeds will be paid in equal installments determined Life Income from the following table. Such installments are payable: 1. during the payee's lifetime only (Life Annuity); or 2. during a 10-year fixed period certain and for the payee's remaining lifetime (Certain Period); or 3. until the sum of installments paid equals the annuity proceeds applied and for the payee's remaining lifetime (Installment Refund).
Payee's Life Annuity Certain Period Installment Refund Age Male Female Unisex Male Female Unisex Male Female Unisex ------- ----- ------ ------ ---- ------ ------ ----- ------ ------ 55 4.18 4.01 4.06 4.13 3.99 4.03 3.99 3.89 3.92 60 4.64 4.42 4.49 4.57 4.38 4.44 4.36 4.23 4.27 65 5.30 4.98 5.08 5.14 4.89 4.97 4.83 4.67 4.72 70 6.21 5.78 5.90 5.86 5.58 5.66 5.43 5.26 5.31 75 7.46 6.94 7.09 6.70 6.45 6.53 6.22 6.04 6.09 80 9.23 8.66 8.83 7.61 7.46 7.51 7.24 7.08 7.13 85 11.72 11.24 11.38 8.44 8.40 8.41 8.55 8.45 8.48 90 15.16 14.94 15.00 9.06 9.05 9.05 10.22 10.19 10.20
Page 22 Option C - Joint The proceeds will be paid in equal installments during the and Survivor joint lifetime of two payees: Life Income 1. continuing upon the death of the first payee 2. reduced by one-third upon the death of the for the remaining lifetime of the survivor; first payee and continuing for the or remaining lifetime of the survivor. Joint Life Income with Full Joint Life Income with 2/3 Amount to Survivor to Survivor
Female Female ------ ------ Male 55 60 65 70 75 Male 55 60 65 70 75 ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- 55 3.61 3.74 3.86 3.96 4.04 55 3.91 4.09 4.29 4.51 4.75 60 3.72 3.91 4.09 4.26 4.39 60 4.08 4.30 4.54 4.81 5.11 65 3.81 4.06 4.32 4.57 4.80 65 4.28 4.53 4.83 5.17 5.54 70 3.88 4.18 4.52 4.89 5.25 70 4.49 4.79 5.15 5.57 6.05 75 3.93 4.27 4.69 5.17 5.70 75 4.70 5.05 5.47 5.99 6.61
23 WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO Flexible Premium Variable Life Insurance Policy Death Benefit Proceeds Payable at Death of Insured Prior to Maturity Date Net Surrender Value Payable at Maturity Date Flexible Premiums Payable During Lifetime of Insured Until the Maturity Date Non-Participating - No Dividends Some Benefits Reflect Investment Results EX-99.A7.A 4 g73574ex99-a7_a.txt ACCELPAY RIDER (FORM ACCP) Exhibit 1.A.(5)(f) AccelPay Rider (Form ACCP) (an Accelerated Death Benefit) WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO (A STOCK COMPANY) Home Office: Columbus Ohio Administrative Office: P.O. Box 5068 Clearwater, Florida 33758 AN ACCELERATED BENEFIT RIDER BENEFITS SPECIFIED UNDER YOUR POLICY WILL BE REDUCED IF YOU RECEIVE AN ACCELERATED DEATH BENEFIT. AN ACCELERATED DEATH BENEFIT IS A BENEFIT PAID WHILE THE INSURED IS LIVING THAT IS CONSIDERED TO BE A PREPAYMENT OF ALL OR A PORTION OF SUCH INSURED'S DEATH BENEFIT UNDER THE POLICY. THE BENEFIT PAYMENT UNDER THIS RIDER MAY BE TAXABLE. YOU SHOULD CONTACT YOUR PERSONAL TAX ADVISOR FOR SPECIFIC ADVICE. RECEIPT OF THIS BENEFIT MAY ALSO AFFECT YOUR ELIGIBILITY FOR MEDICAID OR OTHER GOVERNMENTAL PROGRAMS. The Owner may elect to receive a portion of this Policy's Death Benefit Proceeds, in a single sum or monthly benefit payments, when the Primary Insured has incurred a Chronic Illness, subject to the terms and conditions of this Rider. The Death Benefit Proceeds do not include amounts payable under any Riders. This Rider provides that the Owner may elect to receive a portion of the Policy's Death Benefit Proceeds when the Insured becomes eligible for benefits by being certified as a Chronically Ill Individual and is confined to a Nursing or Assisted Living Facility, subject to terms and conditions defined in this Rider. This Rider is attached to and made part of Your Policy as of the Rider Effective Date. This Rider is subject to all of the policy's provisions that do not conflict with the Rider's provisions. In case of conflict between the Policy and this Rider, the Rider provisions will control. DEFINITIONS ================================================================================ IMMEDIATE FAMILY A spouse, child, brother, sister, parent, grandparent or grandchild of the Insured or Owner. PHYSICIAN A Doctor of Medicine or a Doctor of Osteopathy licensed to practice medicine and treat injury or illness in the state in which treatment is received and who is acting within the scope of that license. A Physician must be someone other than: the Primary Insured; the Owner; a person who lives with the Primary Insured or Owner; or a person who is part of the Primary Insured's or Owner's Immediate Family. Page 1 BENEFITS ================================================================================ SINGLE SUM The one time payment of 10% of the Death Benefit Proceeds, not BENEFIT to exceed $15,000, that We will pay, after We receive proof satisfactory to Us that the Insured has met the requirements described below, if the Owner selects the Single Sum Benefit option instead of the Maximum Monthly Benefit option. The acceleration of a Single Sum Benefit will terminate this Rider. MAXIMUM MONTHLY The maximum amount that We will pay in any one policy month BENEFIT while the Insured is confined in a Nursing or Assisted Living Facility and otherwise satisfies the terms set forth in the Benefits provision. After We receive proof satisfactory to Us that the Insured has met the requirements described below, we will pay the Owner up to the Maximum Monthly Benefit for each policy month during which the Insured continues to meet such eligibility requirements. The Maximum Monthly Benefit that We will pay, as shown on the Policy Schedule Page, will start as of the monthly policy date immediately following the date the Elimination Period has been satisfied. After the first month the unused benefit is cumulative, that is any unused portion of the Maximum Monthly Benefit may be added to any subsequent Maximum Monthly Benefit. CHANGES TO THE Any decreases to an Insured's Death Benefit resulting from the MAXIMUM MONTHLY Owner's exercise of rights under the Policy will cause a BENEFIT reduction in the Insured's Maximum Monthly Benefit. The reduction in the Maximum Monthly Benefit will be proportional to the reduction in the Death Benefit. Any increase to an Insured's Death Benefit resulting from the exercise of any rights under the Policy to increase such Insured's Specified Amount will result in an adjustment to such Insured's Maximum Monthly Benefit. The Owner must send us an application for such increase and provide proof to Our satisfaction that such Insured is then insurable. A change to the Maximum Monthly Benefit resulting from a change in an Insured's Death Benefit will be applied on or following the date of the change. MULTIPLE POLICY The Owner may purchase this Rider on multiple policies BENEFITS covering the same Primary Insured as long as the combined Specified Amount does not exceed two million dollars. The same expense will not be covered under more than one policy. PAYMENT OF We will pay the Owner the applicable Rider benefit, subject to BENEFIT all of the following conditions: (1) The Insured is Chronically Ill; and (2) The Insured is Confined in a Nursing or Assisted Living Facility in which Confinement begins while this Rider is In Force; and Page 2 (3) The Insured satisfies the Elimination Period; and (4) The Policy to which this Rider is attached is In Force; and (5) The Policy has not been assigned. Assisted Living Facility means a facility engaged primarily in providing on-going care and related services that meets all of the following criteria: (1) It is appropriately licensed or certified to provide these services, if such licensing or certification is required by the state in which it operates; and (2) It provides twenty-four hour a day, seven days a week, care and services sufficient to support needs resulting from inability to perform Activities of Daily Living or from Severe Cognitive Impairment; and (3) It has an awake, trained and ready-to-respond employee on duty in the facility at all times to provide care; and (4) It provides three meals a day and accommodates special dietary needs; and (5) It has written contractual arrangements or otherwise ensures that residents receive the medical care services of a Physician or Registered Professional Nurse in case of emergency; and (6) It has appropriate methods and procedures to assist residents in the self-administration of prescribed medications. Examples of an Assisted Living Facility include, but are not limited to, residential care facilities, board and care facilities, adult foster homes, and hospice care facilities. Determination of whether Confinement to an Assisted Living Facility is eligible for benefits is based on whether the facility meets the requirements set forth above. Nursing Facility means a health care facility or a distinct part of a hospital or other institution that meets all of the following standards: (1) It operates under a license issued by the appropriate licensing agency to provide nursing care and related services; and (2) It provides, in addition to room and board, 24 hour a day, 7 days a week, nursing care and related services on a continuing inpatient basis, to 6 or more individuals; and (3) It provides on a formal prearranged basis, that a duly licensed physician will be available in case of emergency; and (4) It has a planned program of policies and procedures developed with the advice of and periodically reviewed by, at least one physician; and (5) It maintains a clinical record of each patient. NOTE: Assisted Living Facility and Nursing Facility do not mean a hospital. Nor do they mean a facility or part of a facility that is operated mainly for the treatment and care of mental, nervous, psychotic or psychoneurotic deficiencies or disorders; or tuberculosis; or drug addiction; or rehabilitation; or occupational therapy. Page 3 To be eligible for benefit payments for an Insured under this Rider, the following conditions must be met: (1) Such Insured must be Chronically Ill, as determined, and certified at least once every 12 months, by a Licensed Health Care Practitioner (a Physician, registered professional nurse or licensed social worker), and must incur expense for care, covered by this Rider, which begins while the Policy and this Rider are In Force; and (2) The care provided must constitute eligible services, as described in this Rider, and must be provided as part of a Plan of Care (a written individualized plan of services developed by a Licensed Health Care Practitioner. It does not include a member of the Owner's or the Insured's Immediate Family, or anyone who normally resides in the Owner's or the Insured's home or residence), approved and reconfirmed in writing, at least once every 90 days by a Licensed Health Care Practitioner. Chronically Ill means that a person has been certified by a Licensed Health Care Practitioner during the preceding 12 month period as: (1) Unable and expected to continue to be unable to perform (without Substantial Assistance, actual physical hands-on assistance by another individual without which the individual would not be able to perform the Activity of Daily Living) at least two of six Activities of Daily Living for a period of at least 90 days, within a 365 day period, due to a loss of functional capacity; or (2) Requiring Substantial Supervision (such as may result from wandering) for a period of at least 90 days, within a 365 day period, by another person to protect oneself and/or others from threats to health and safety due to Severe Cognitive Impairment. Substantial Supervision means continual supervision, which may include cueing by verbal prompting, gestures, or other demonstrations, by another person that is necessary to protect the severely cognitively impaired individual from threats to his or her health or safety. Activities of Daily Living mean certain basic daily tasks necessary to maintain a person's health and safety. These activities are described below: (1) Bathing means the ability to wash oneself on a routine basis by sponge bath; or in either a tub or shower, including the task of getting into or out of the tub or shower; (2) Continence means the ability to maintain control of bowel and bladder function; or, when unable to maintain control of bowel or bladder function, the ability to perform associated personal hygiene (including caring for catheter or colostomy bag). (3) Dressing means putting on and taking off all items of clothing and any necessary braces, fasteners or artificial limbs. (4) Eating means feeding oneself by getting food into the body from a receptacle (such as a plate, cup or table) or by a feeding tube or intravenously. (5) Toileting means getting to and from the toilet; getting on and off the toilet; and performing associated personal hygiene. (6) Transferring means moving into or out of a bed, chair or wheelchair. Page 4 Severe Cognitive Impairment means deterioration or loss in intellectual capacity that is measured by clinical evidence and standardized tests which reliably measure impairment in: (1) short term or long term memory; and (2) orientation to people, places or time; and (3) deductive or abstract reasoning. Such deterioration or loss must place the person in jeopardy of harming oneself, therefore requiring Substantial Supervision by another person. ELIMINATION The Elimination Period starts on the first date that an PERIOD Insured meets the requirements in the Benefits provision of this Rider and lasts through the 90 days, within a 180 day period, that an Insured is Chronically Ill and resides in a facility as defined in this Rider. During an Elimination Period, no benefits are payable. WAIVER BENEFIT For each Policy Month that benefits are received under this Rider, We will waive the Monthly Deductions for the Policy. EXCLUSIONS ================================================================================ We will not pay any benefit for any of the following: (1) Services for illness or medical condition resulting from (a) bodily injuries of which there is no visible contusion or wound on the exterior of the body; or (b) attempted suicide or self-destruction while sane or insane; or (c) alcoholism or drug addiction; or (d) bodily injury sustained as the result of war, whether declared or not, riot or insurrection; or; (e) bodily injury sustained while operating, riding in, or descending from any kind of aircraft if You are: 1. a pilot, officer, or member of a crew; or 2. being flown for the purpose of descent from such aircraft while in flight; or 3. giving or receiving any kind of training or instruction; or 4. having any duties aboard such aircraft. (f) mental or nervous disorders; or (g) bodily injuries sustained while participating in or attempting to commit an assault or felony; or (h) any poison, gas or fumes voluntarily administered, absorbed or inhaled. (2) Services provided in a government facility unless the Insured is charged for the confinement or services or unless otherwise required by law; (3) Services for which benefits are available under any of the following: Medicare (including that which would have been payable but for the application of a deductible or coinsurance amount), other governmental programs (except Medicaid), state or federal worker's compensation laws, employer's liability or occupational disease law, or any motor vehicle no-fault law; Page 5 (4) Services provided to the Insured by a member of the Insured's Immediate Family, or anyone who normally resides in the Owner's or the Insured's home or residence; (5) Services for which no charge is normally made in the absence of insurance; or (6) Confinement or care received outside the United States. This Rider will cover eligible services, as described in this Rider, resulting from a clinical diagnosis of Alzheimer's Disease or similar forms of irreversible loss of mental capacity. Any exclusion contained in this Rider for mental disorders does not apply to this condition. EFFECT OF RIDER BENEFITS ON THE POLICY ================================================================================ Any benefit paid under the terms of this Rider is considered a prepayment of a portion of such Insured's Death Benefit Proceeds provided by the Policy. Any benefit payment will reduce such Insured's Death Benefit by a like amount. After any benefit payment, the Specified Amount will be reduced in the same proportion as the reduction in such Insured's Death Benefit. If the Policy provides Cash Surrender Values, then after any benefit payment, the Cash Value, any outstanding policy loan and any Surrender Charge in effect will be reduced in the same proportion as the reduction in the Insured's Death Benefit. We will waive the policy's monthly deduction while benefits under this Rider are being paid. CLAIMS ================================================================================ NOTICE OF CLAIM To claim benefits under this Rider, the Owner must send Us a written notice of claim and Proof of Loss satisfactory to Us. The notice must be signed by the Owner, identify the Primary Insured, the Policy, and the benefit selected. It must also include the written consent of any irrevocable beneficiaries, the required certification from a Licensed Health Care Practitioner that the Insured is Chronically Ill, and a copy of the Plan of Care established for such Insured. Proof of Loss is a written documentation of the expenses incurred by an Insured for eligible services. The notice of claim and initial Proof of Loss must be given to us within 60 days after the date that expenses are first incurred for eligible services or, as soon as reasonably possible. This notice must be sent to Us at Our Office. We will send the Owner claim forms when We receive Written Notice of claim. CLAIM FOR CONTINUING LOSS We must receive written Proof of Loss within [90] days after the end of each month for which benefits may be paid. If it was not reasonably possible to give Us written Proof of Loss in the time required, We will not reduce or deny a claim for being late if Proof of Loss is filed as soon as reasonably possible. Unless the claimant is not legally capable, the required Proof of Loss must always be given to Us no later than 1 year from the time specified. Page 6 TIME OF PAYMENT After We receive the proper written Proof of Loss, We will pay OF CLAIM any benefits then due: 1. Monthly, when the loss is expected to result in on-going benefits; or 2. Immediately, or upon termination of our liability, when the loss is not expected to continue. If loss is expected to result in on-going benefits, We reserve the right to set a minimum for the benefit that will be paid in a given month. This minimum amount will not exceed $500. If the total incurred expenses reimbursable under this Rider in a given month is less than this minimum amount, we may postpone making a payment until we receive Proof of Loss for incurred expenses totaling at least this minimum amount. PAYMENT OF All benefits will be paid to the Owner. Any accrued benefits BENEFITS unpaid at the Insured's death will be paid to the Owner. If the Insured is the Owner, then any accrued benefits unpaid at the Insured's death will be paid to the Insured's estate. CLAIM REVIEW, We will have the right to examine an Insured and/or perform an RECERTIFICATION onsite assessment of an Insured when and as often as We may AND PHYSICAL reasonably require while a claim is pending. Any such EXAMINATION examination will be performed at Our expense by a Licensed Health Care Practitioner of Our choice. In addition, once every 12 months while benefits are being paid for an Insured under this Rider, We will require a written recertification from a Licensed Health Care Practitioner that the Insured remains Chronically Ill. GENERAL PROVISIONS ================================================================================ RIDER CHARGE The initial monthly deduction for this Rider, as shown on page 4 of the Policy. The monthly deductions for this Rider at each Monthiversary will be determined as follows: 1. Divide the death benefit on the Monthiversary by the factor stated in step one of the Policy's Monthly Cost of Insurance provision . 2. Reduce the result by the Cash Value on the Monthiversary; and 3. Multiply (2) by the appropriate Rider Monthly Cost of Insurance Rate. Monthly Cost of Insurance Rates after the first Month will not exceed the Maximum Cost of Insurance Rates for this Rider stated in the Policy Page 7 RIDER MONTHLY The Rider Monthly Cost of Insurance rates may vary by Your COST OF sex, Age at issue, Age at the time of any change in Specified INSURANCE RATES Amount, Rate Band, plan of insurance, Rate Class, and the duration from the Rider Date or the date of any change in Specified Amount. Different Monthly Cost of Insurance rates may apply if the Specified Amount has changed following the Rider Date. Monthly Cost of Insurance rates may be changed by Us from time to time. A change in the cost of insurance rates will apply to all persons of the same Attained Age, sex, plan of insurance, Rate Band, Rate Class, and whose riders or changes have been in effect for the same length of time. The rates will not exceed those shown in Table of Guaranteed Maximum Life Insurance Rates for this Rider, as shown in the Policy. INCONTESTABILITY This Rider will be contestable, on the same basis as the Policy, during the lifetime of the Primary Insured, for 2 years from the effective date of this Rider. TERMINATION This Rider will terminate on the earliest of: 1. The date the Policy terminates; or 2. The Monthly Policy Date following our receipt of the Owner's written request to terminate this Rider; or 3. The date the Death Benefit, excluding riders, on the Primary Insured is reduced to zero, or 4. The date a Single Sum Benefit is elected. WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO [SIGNATURE] Page 8 -----END PRIVACY-ENHANCED MESSAGE-----