-----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, IfKfpcwO1J6xAJq7eWkOdrlQXds8b5qjtz2QMCuJIGVpRV9wzGpmHN3fR+ppv42H 4vgW2JfKTEf6uiuXVVNh/g== 0001016843-98-000640.txt : 19981207 0001016843-98-000640.hdr.sgml : 19981207 ACCESSION NUMBER: 0001016843-98-000640 CONFORMED SUBMISSION TYPE: S-6 PUBLIC DOCUMENT COUNT: 3 FILED AS OF DATE: 19981204 FILER: COMPANY DATA: COMPANY CONFORMED NAME: WRL SERIES LIFE ACCOUNT CENTRAL INDEX KEY: 0000778209 STANDARD INDUSTRIAL CLASSIFICATION: UNKNOWN SIC - 0000 [0000] STATE OF INCORPORATION: OH FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-6 SEC ACT: SEC FILE NUMBER: 333-68367 FILM NUMBER: 98763982 BUSINESS ADDRESS: STREET 1: 201 HIGHLAND AVE CITY: LARGO STATE: FL ZIP: 34640 BUSINESS PHONE: 813-587-18 MAIL ADDRESS: STREET 1: 201 HIGHLAND AVENUE CITY: LARGO STATE: FL ZIP: 33770 S-6 1 As filed with the Securities and Exchange Commission on December 4, 1998 Registration File Nos. ________/811-4420 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 --------------------------------- FORM S-6 --------------------------------- FOR REGISTRATION UNDER THE SECURITIES ACT OF 1933 OF SECURITIES OF UNIT INVESTMENT TRUSTS REGISTERED ON FORM N-8B-2 --------------------------------- WRL SERIES LIFE ACCOUNT (Exact Name of Trust) WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO (Name of Depositor) 570 Carillon Parkway St. Petersburg, Florida 33716 (Complete Address of Depositor's Principal Executive Offices) Thomas E. Pierpan, Esq. Vice President, Assistant Secretary and Associate General 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. 20004-2404 --------------------------------- Approximate Date of Proposed Public Offering: As soon as practicable after the effective date of the Registration Statement. Pursuant to Rule 24f-2 under the Investment Company Act of 1940, the Registrant hereby elects to register an indefinite amount of securities being offered. -------------------------------------------------- The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the Registration Statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine. Company LOGO P R O S P E C T U S - ---------------------------- MAY 1, 1999 ================================================ WRL FREEDOM NAVIGATOR issued by Western Reserve Life Assurance Co. of Ohio ================================================ A MODIFIED SINGLE PREMIUM VARIABLE LIFE INSURANCE POLICY ------------------------------- CONSIDER CAREFULLY THE RISK FACTORS BEGINNING ON PAGE __ OF THIS PROSPECTUS. An investment in this Policy is not a bank deposit. The Policy THE SECURITIES AND EXCHANGE is not insured or guaranteed by COMMISSION HAS NOT APPROVED the Federal Deposit Insurance OR DISAPPROVED THESE SECURITIES Corporation or any other OR PASSED UPON THE ADEQUACY government agency. OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY A prospectus for the WRL IS A CRIMINAL OFFENSE. Series Fund, Inc. must accompany this prospectus. Please read both documents before investing and save them for future reference. ------------------------------- TABLE OF CONTENTS - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Glossary ......................................................................1 Policy Summary.................................................................4 Risk Summary...................................................................9 Portfolio Annual Expense Table................................................ Western Reserve and the Fixed Account.........................................13 Western Reserve......................................................13 The Fixed Account Options............................................13 The Standard Fixed Account..................................13 The Fixed Dollar Cost Averaging ("Fixed DCA") Account.......13 The Separate Account and the Portfolios.......................................14 The Separate Account.................................................14 WRL Series Fund, Inc.................................................15 Addition, Deletion, or Substitution of Investments...................17 Your Right to Vote Portfolio Shares..................................18 The Policy....................................................................18 Purchasing a Policy..................................................18 When Insurance Coverage Takes Effect.................................19 Ownership Rights.....................................................20 Changing the Owner...................................................20 Choosing the Beneficiary.............................................20 Changing the Beneficiary.............................................20 Assigning the Policy.................................................20 Canceling a Policy...................................................21 Premiums .....................................................................21 Initial Premium......................................................21 Additional Premiums..................................................22 Allocating Premiums..................................................22 Policy Values.................................................................24 Cash Value...........................................................24 Net Surrender Value..................................................24 Subaccount Value.....................................................24 Unit Value...........................................................25 Fixed Account Value..................................................25 Transfers.....................................................................26 General ............................................................26 Standard Dollar Cost Averaging.......................................27 Asset Rebalancing Program............................................27 Standard Fixed Account Transfers.....................................28 Charges and Deductions........................................................28 Premium Deductions...................................................29 Daily Charge.........................................................29 Monthly Deduction....................................................29 Cost of Insurance Charge....................................31 Surrender Charge.....................................................31 Transfer Charge......................................................32 Portfolio Expenses...................................................32 Guaranteed Minimum Death Benefit Rider...............................32 i Death Benefit.................................................................32 Death Benefit Proceeds...............................................32 Death Benefit........................................................33 Effects of Partial Withdrawals on the Death Benefit..................34 Guaranteed Minimum Death Benefit Rider...............................34 Changing the Specified Amount........................................35 Payment Options......................................................35 Surrenders and Partial Withdrawals............................................ Surrenders...........................................................35 Partial Withdrawals..................................................35 Loans .....................................................................36 General..............................................................36 Interest Rate Charged................................................37 Loan Reserve Interest Rate Credited..................................37 Preferred Loans......................................................37 Effect of Policy Loans...............................................38 Policy Lapse..................................................................38 Lapse................................................................38 Federal Income Tax Considerations.............................................39 Tax Treatment of Policy Benefits.....................................40 Other Policy Information......................................................42 Our Right to Contest the Policy......................................42 Suicide Exclusion....................................................42 Misstatement of Age or Gender........................................42 Modifying the Policy.................................................42 Payments We Make.....................................................43 Reports to Owners....................................................43 Records..............................................................43 Policy Termination...................................................44 Supplemental Benefits (Riders).......................................44 Extended Maturity Date......................................44 Accelerated Death Benefit...................................44 Guaranteed Minimum Death Benefit............................ Performance Data..............................................................44 Hypothetical illustrations based on adjusted historic Portfolio performance..............................................45 Additional Information........................................................45 Sale of the Policies.................................................45 Legal Matters........................................................46 Legal Proceedings....................................................46 Year 2000 Matters....................................................46 Financial Statements.................................................47 Additional Information about Western Reserve.........................47 Western Reserve's Directors and Officers.............................47 Additional Information about the Separate Account....................49 Illustrations.................................................................50 Index to Financial Statements.................................................51 Western Reserve Life Assurance Co. of Ohio...........................51 ii GLOSSARY - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- age The age of the person insured on his or her last birthday before the Policy Date, plus the number of completed years since the Policy Date. -------------------------------------------------------- beneficiary(ies) The person or persons you select to receive the death benefit from this policy. You name primary beneficiary and any contingent beneficiaries. -------------------------------------------------------- Cash Value The sum of your Policy's value in the subaccounts and and the fixed account. If there is a Policy loan outstanding, the Cash Value includes any amounts held in the company's general account to secure the Policy loan. -------------------------------------------------------- company (we, Western Reserve Life Assurance Co. of Ohio us, our) ("Western Reserve"). -------------------------------------------------------- Daily Charge The amount we deduct each Valuation Date from assets in the subaccounts as part of the calculation of the unit value for each subaccount. -------------------------------------------------------- death benefit The amount we will pay to the beneficiary on the proceeds Insured's death. We will reduce the death benefit proceeds by the amount of any outstanding loan amount (including any interest you owe on the Policy loan(s)), and plus any due and unpaid monthly deduction. -------------------------------------------------------- fixed account A set of options to which you may allocate premiums and options Cash Value. We guarantee that any amounts you allocate to the fixed account options will earn interest at a declared rate. The fixed account options are the standard fixed account and the Fixed Dollar Cost Averaging Account ("Fixed DCA Account"). -------------------------------------------------------- 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. -------------------------------------------------------- Fund(s) The WRL Series Fund, Inc., an investment company registered with the U.S. Securities and Exchange Commission, and other registered investment companies that may be added to the Policy. -------------------------------------------------------- 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(s) The person or persons whose lives are insured by this Policy. Joint Insureds must be spouses. -------------------------------------------------------- Joint and Last A Policy that pays the death benefit to the beneficiary Survivor Policy on the death of the last-to-die of the two named Insureds. -------------------------------------------------------- 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 charges and any outstanding loan amount (including any interest you owe on Policy loan(s)), and you have not made a sufficient payment by the end of a grace period. The Policy will not lapse if you have purchased the Guaranteed Minimum Death Benefit rider and the rider is in effect. -------------------------------------------------------- loan amount The total amount of all outstanding Policy loans, including both principal and interest due. -------------------------------------------------------- maturity date The Policy anniversary when the younger Insured reaches age 100 and life insurance coverage under this Policy ends. You may continue coverage, at your option, under the Policy's extended maturity date benefit provision. -------------------------------------------------------- Monthiversary 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 Policy The charge deducted from the Cash Value (less the loan Charge amount) on each Monthiversary. -------------------------------------------------------- Net Surrender The amount we will pay you if you surrender the Policy Value 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 (including any interest you owe on Policy loan(s)). -------------------------------------------------------- Office Our administrative office at 4333 Edgewood Road NE, Cedar Rapids, Iowa 52499-0001. Our phone number is 1-800-525-6205. -------------------------------------------------------- Policy Date The date when our underwriting process is complete, full life insurance coverage goes into effect, we issue the Policy, and we begin to deduct the Monthly Policy Charge. The Policy Date is shown on the schedule page of your Policy. It is also the date when, depending on your state of residence,we allocate your premium (plus interest) either to the Reallocation Account or to the subaccounts and fixed account options you selected on your application. The free look period begins on the Policy Date. We measure Policy months, years, and anniversaries from the Policy Date. -------------------------------------------------------- premiums All payments you make under the Policy other than loan repayments. -------------------------------------------------------- Reallocation The standard fixed account. Account -------------------------------------------------------- Reallocation The date shown on the schedule page of your Policy when Date we reallocate any premium (plus interest) held in the Reallocation Account to the subaccounts and fixed account options you selected on your application. We place your 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 all other states, the Reallocation Date is the Policy Date. -------------------------------------------------------- separate WRL Series Life Account. It is a separate investment account account that is divided into subaccounts. We established the separate account to receive and invest premiums under the Policy and other variable life insurance policies we issue. -------------------------------------------------------- 2 Specified The death benefit we will pay under the Policy, as shown Amount on the Policy's schedule page, provided the Policy is in force and has not lapsed. The Specified Amount varies by the Insured's age, gender and risk class. Any partial withdrawal proportionately decreases the Specified Amount. -------------------------------------------------------- subaccount A subdivision of the separate account that invests exclusively in shares of one investment portfolio of the Fund. -------------------------------------------------------- Surrender If, during the first 9 Policy years, you fully surrender Charge the Policy, a Surrender Charge will be taken from the Cash Value. -------------------------------------------------------- termination When the Insured's life (or surviving Insured under the Joint Policy) is no longer insured under the Policy. -------------------------------------------------------- Valuation Each day the New York Stock Exchange is open for Date trading, except days when a subaccount's corresponding Portfolio does not value its shares. -------------------------------------------------------- Valuation The period beginning at the end of one Valuation Date Period and continuing to the end of the next Valuation Date. -------------------------------------------------------- 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 in our sole discretion is necessary for us to take the action you request or for you to exercise the right specified, and (3) be received at our Office. -------------------------------------------------------- You, your (the The person entitled to exercise all rights as owner owner) under the Policy. -------------------------------------------------------- 3 POLICY SUMMARY WRL FREEDOM NAVIGATOR - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- THE POLICY IN GENERAL The WRL Freedom Navigator is a modified single premium variable life insurance policy. You may buy it as individual or as joint and last survivor life insurance. The Policy is designed to be long-term in nature in order to provide significant life insurance benefits for the Insured(s) named in the Policy. You should consider the Policy in conjunction with other insurance you own. The Policy is not suitable as a short-term savings vehicle. [GRAPHIC OMITTED] PREMIUMS /bullet/ If the Insured qualifies for simplified underwriting, conditional life insurance coverage begins as soon as you complete an application and pay an initial premium of at least $20,000. Once we determine that the Insured meets our underwriting requirements, full insurance coverage begins and we will issue your Policy, and we will begin to deduct monthly and daily insurance charges from your premium. This date is the Policy Date. On that date, we will allocate your premium (plus interest) to either the Reallocation Account or to the subaccounts and fixed account options, depending on the state in which you live. /bullet/ If the Insured qualifies for simplified underwriting, the maximum premium you can pay at the time of your application is: - $50,000 (for Ages 35-49) - $100,000 (for Ages 50-80) Other limits apply for joint policies and policies with full underwriting. /bullet Once we issue your Policy, the FREE LOOK PERIOD begins. You may return the Policy during this period and receive a refund. Depending on your state of residence, we will place your premium (plus interest) in the Reallocation Account during the free look period. See p. ___. /bullet/ We will accept additional premiums only in certain limited circumstances. [GRAPHIC OMITTED] 4 DEDUCTIONS FROM PREMIUM BEFORE WE PLACE IT IN SUBACCOUNT AND/OR FIXED ACCOUNT OPTIONS /bullet/ From the initial premium: NONE /bullet/ From additional premiums: NONE [GRAPHIC OMITTED] - -------------------------------------------------------------------------------- INVESTMENT OPTIONS FIXED ACCOUNT OPTIONS - -------------------------------------------------------------------------------- You may direct the money in your You may also direct the money in your Policy to any of the subaccounts Policy to the two fixed account of the separate account. options. THE MONEY YOU PLACE IN THE SUBACCOUNTS IS NOT GUARANTEED. THE VALUE OF EACH Money you place in the standard fixed SUBACCOUNT WILL INCREASE OR DECREASE, account option will earn interest at DEPENDING ON INVESTMENT PERFORMANCE. a current interest rate declared from YOU COULD LOSE SOME OR ALL OF YOUR time to time. The interest rate will MONEY. equal at least 3%. Each subaccount invests exclusively in one investment portfolio of the Fund. To elect fixed dollar cost averaging, The Portfolios available to you are: you must select it on your application and put your entire initial premium in the Fixed Dollar /bullet/ Aggressive Growth Cost Averaging Account (Fixed DCA /bullet/ Bond Account). Money you place in the /bullet/ Emerging Growth Fixed DCA Account will earn interest /bullet/ Global at an annual rate of at least 3%. /bullet/ Growth & Income Money will be transferred out of the /bullet/ Growth Fixed DCA Account in equal monthly installments and placed in the /bullet/ Money Market subaccounts and standard fixed option /bullet/ Real Estate Securities of your choice. /bullet/ Strategic Total Return /bullet/ Tactical Asset Allocation /bullet/ Third Avenue Value /bullet/ U.S. Equity [GRAPHIC OMITTED] 5 CASH VALUE /bullet/ 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 the company's general account to secure Policy loans. /bullet/ Cash Value varies from day to day, depending on the investment experience of the subaccounts you choose, the interest credited to the fixed account options, the charges deducted and any other Policy transactions (such as transfers, withdrawals, and Policy loans). /bullet/ Cash Value is the starting point for calculating important values under the Policy, such as Net Surrender Value and the death benefit. /bullet/ 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 Policy Charge(s), the surrender charges and/or any outstanding loan amount (including interest you owe on any Policy loan(s)). The Policy will not lapse if you have purchased the Guaranteed Minimum Death Benefit rider and the rider is in effect. [GRAPHIC OMITTED] TRANSFERS /bullet/ You can transfer Cash Value among the subaccounts and the standard fixed account. We reserve the right to charge a $10 transfer processing fee for each transfer after the 12th transfer in a Policy year. /bullet/ Policy loans reduce the amount of Cash Value available for transfers. /bullet/ Dollar cost averaging and asset rebalancing programs are available. /bullet/ Transfers from the standard fixed account may be made no later than 30 days after each Policy anniversary and are limited to the greater of: - 25% of the value in the standard fixed account OR - the amount transferred from the fixed account in the prior Policy year. [GRAPHIC OMITTED] TRANSFERS /bullet/ You can transfer Cash Value among the subaccounts and the standard fixed account. We reserve the right to charge a $10 transfer processing fee for each transfer after the 12th transfer in a Policy year. /bullet/ Policy loans reduce the amount of Cash Value available for transfers. /bullet/ Dollar cost averaging and asset rebalancing programs are available. /bullet/ Transfers from the standard fixed account may be made no later than 30 days after each Policy anniversary and are limited to the greater of: - 25% of the value in the standard fixed account OR - the amount transferred from the fixed account in the prior Policy year. [GRAPHIC OMITTED] 6 CHARGES AND DEDUCTIONS /bullet/ On the Policy Date and on each Monthiversary, we deduct the Monthly Policy Charge from your Cash Value (reduced by the loan amount). The Monthly Policy Charge pays for policy administrative expenses and the cost of providing death benefits under the Policy. The Monthly Policy Charge will vary with the gender of the Insured, the number of Insureds, and the number of Policy years you have owned the Policy. /bullet/ On each Valuation Date, we will deduct a Daily Charge from the unit value of each subaccount, at an annual rate equal to 0.50%. /bullet/ Each Portfolio assesses management fees and operating expenses from the money you place with the Portfolio, at the rate shown in the Portfolio Annual Expenses Table. See also the Fund prospectus. /bullet/ The company reserves the right to charge a maximum monthly Cost of Insurance Charge. See page __. Currently, we do not assess a Cost of Insurance Charge. /bullet/ A declining surrender charge of up to 9.75% of each premium will apply to a full surrender or a lapse occurring during the first 9 Policy years. /bullet/ If you select the Guaranteed Minimum Death Benefit rider at application, we will deduct .02% each month from your Cash Value on each Monthiversary. [GRAPHIC OMITTED] LOANS /bullet/ You may take a loan against the Policy for amounts up to 90% of the Cash Value, less any surrender charges and any outstanding loan amount. /bullet/ We currently charge 6.0% interest annually, payable in arrears, on any outstanding loan amount; a lower rate applies to preferred loans. /bullet/ We currently permit preferred loans to be taken anytime. Under this provision, you may borrow an amount equal to the Cash Value less total premiums paid, and less any outstanding loan amount. We currently charge a 3.0% preferred loan rate. /bullet/ The amount borrowed is secured by a transfer of a portion of Cash Value to a loan reserve account that is part of our general account. You will earn 3.0% interest on amounts in the loan reserve account. /bullet/ Federal income taxes and a penalty tax may apply to loans you make against the Policy. /bullet/ If you take a loan, we will terminate any Guaranteed Minimum Death Benefit rider. [GRAPHIC OMITTED] 7 DEATH BENEFIT /bullet/ So long as the Policy does not lapse, the death benefit is the greater of: /arrow/ a variable death benefit, or /arrow/ the current Specified Amount, on the date of death of the Insured (last Insured to die, if a Joint Policy). /bullet/ We will reduce the death benefit proceeds by the amount of any outstanding loan amount (including any interest you owe on Policy loan(s)), and any due and unpaid monthly deduction. /bullet/ The variable death benefit is equal to the Cash Value multiplied by the appropriate limitation percentage. See the table on page ___. /bullet/ You may not decrease or increase the Specified Amount. /bullet/ The death benefit should be income tax free to the beneficiary. /bullet/ The death benefit is available in a lump sum or a variety of payout options. /bullet/ If you purchase the GUARANTEED MINIMUM DEATH BENEFIT RIDER and the rider is in effect, then, if the Net Surrender Value on any Monthiversary is not sufficient to cover the Monthly Policy Charge on such day, then coverage will be provided as indicated below, and no grace period will begin, provided no Policy loans have been taken under the Policy. If a death benefit is payable due to the provisions of this rider, then the following minimum death benefit is appicable: (1) During the first 15 Policy years, or before the Policy anniversary next following the Insured's (younger Joint Insured, if under a Joint Policy) 75th birthday, if sooner, the minimum death benefit will be as described directly above. (2) After the first 15 Policy years, or on or after the Policy anniversary next following the Insured's (younger Joint Insured, if a Joint Policy) 75th birthday, if sooner, the minimum death benefit payable will be the initial premium, reduced by any partial withdrawals. However, in no event will this minimum death benefit ever be less than $1,000. If you take a Policy loan, the Guaranteed Death Benefit rider will terminate and your Policy could lapse. /bullet/ A partial withdrawal will reduce the Specified Amount by the amount of the withdrawal times the ratio of the initial Specified Amount to the initial premium. 8 [GRAPHIC OMITTED] PARTIAL WITHDRAWALS AND SURRENDERS /bullet/ You can take one withdrawal of Cash Value every 12 months after the first Policy year. /bullet/ The amount of the withdrawal is limited to your Policy's earnings which we compute as: the Cash Value, MINUS any outstanding Policy loans, MINUS any interest you owe on Policy loans, and MINUS total premiums paid. /bullet/ There is no surrender charge on partial withdrawals. /bullet/ A partial withdrawal reduces the current Specified Amount (the minimum death benefit) by: Amount of withdrawal X initial Specified Amount ------------------------ initial premium /bullet/ A partial withdrawal does not void a Guaranteed Minimum Death Benefit rider, but it reduces the death benefit we would pay, as described above. In no event will any partial withdrawal reduce the minimum death benefit below $1,000. /bullet/ Federal income taxes and a penalty tax may apply to partial withdrawals and surrenders. /bullet/ You may fully surrender the Policy at any time. You will receive the Net Surrender Value (Cash Value, minus any surrender charges, minus any Policy loans outstanding, and minus any interest you owe on Policy loans). 9 RISK SUMMARY - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- INVESTMENT If you direct us to invest your Cash Value in one or RISK more subaccounts, you will be subject to the risk that investment performance will be unfavorable and that the Cash Value of your Policy will decrease. If you select the fixed account options, you are 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%. Because charges continue to be deducted from Cash Value, if investment results are sufficiently unfavorable, the Net Surrender Value of your Policy may fall to zero. In that case, if the Guaranteed Minimum Death Benefit rider is not in effect, the Policy will lapse without value and insurance coverage will no longer be in effect, unless you make an additional payment sufficient to prevent a lapse. On the other hand, if investment experience is sufficiently favorable and you have kept the Policy in force for a substantial time, you may be able to draw upon Cash Value, through withdrawals and Policy loans. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- RISK OF LAPSE If the Net Surrender Value of your Policy (that is, the Cash Value, minus surrender charges and minus outstanding loan amounts) is too low to pay the Monthly Policy Charge, loan charges and rider fees when due, and if a Guaranteed Minimum Death Benefit rider is not in effect, the Policy will be in default and a grace period will begin. There is a risk that if withdrawals, loans and monthly deductions reduce your Net Surrender Value to too low an amount and/or if the investment experience of your selected subaccounts is unfavorable, then the Policy could lapse. In that case, you will have a 61-day grace period to make a sufficient payment. If a sufficient payment is not paid before the grace period ends, your Policy will end without value, insurance coverage will no longer be in effect, and you will receive no benefits. You may not reinstate this Policy after it has lapsed. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- TAX RISKS We expect that the Policy will be deemed a life (INCOME TAX insurance contract under Federal tax law, so that the AND MEC) death benefit paid to the beneficiary will not be subject to Federal income tax. However, the Policy may be treated as a modified endowment contract ("MEC") under Federal tax laws. As a result, partial withdrawals, surrenders and loans under a Policy that is a MEC 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 partial withdrawals, surrenders and loans taken before you reach age 59 1/2. You should consult a qualified tax advisor for assistance in all tax matters involving your Policy. 10 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- LIMITS ON The Policy permits you to take only one partial WITHDRAWALS withdrawal in any twelve month period, after the first Policy year has been completed. The amount you may withdraw is limited to earnings. We calculate earnings as Cash Value, reduced by any outstanding loan amount (including any interest due on Policy loans) and any premiums paid. A partial withdrawal will reduce the Specified Amount (and the minimum death benefit under a Guaranteed Minimum Death Benefit rider) by: Amount of withdrawal X initial Specified Amount ------------------------ initial Premium This reduction may be significant. However, in no event will any withdrawal reduce the minimum death benefits under a Guaranteed Minimum Death Benefit rider below $1,000. Federal income taxes and a penalty tax may apply to partial withdrawals and surrenders. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- EFFECTS OF A Policy loan, whether or not repaid, will affect Cash POLICY LOANS Value over time because we subtract the amount of the loan from the subaccounts and fixed account options 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 nor does it receive the current interest rates credited to the fixed account options. 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. A Policy loan affects the death benefit because a loan terminates a Guaranteed Minimum Death Benefit rider. In addition, a Policy loan reduces the death benefit proceeds and Net Surrender Value by the amount of the outstanding loan, plus any interest you owe on Policy loans. A Policy loan could make it more likely that a Policy would terminate. There is a risk if the loan reduces your Net Surrender Value to too low an amount and investment experience is unfavorable, that the Policy will lapse, resulting in adverse tax consequences. You will have a 61-day grace period to submit a sufficient payment to avoid the Policy's termination without value and the end of insurance coverage. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 11 COMPARISON Like fixed benefit life insurance, the Policy offers a WITH OTHER death benefit and provides a Cash Value, loan INSURANCE privileges and a value on surrender. However, the POLICIES Policy differs from a fixed benefit policy because it allows you to place your premium 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 assets you place in the subaccounts. In addition, the Cash Value and Net Surrender Values will always vary with the investment experience 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. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- ILLUSTRATIONS The hypothetical illustrations in this prospectus or used in connection with the purchase of a Policy are based on hypothetical rates of return. These rates are not guaranteed, and are provided only to illustrate how the Specified Amount, Policy charges and hypothetical rates of return affect death benefit levels, Cash Value and Net Surrender Value of the Policy. We may also illustrate Policy values based on the adjusted historical performance of the Portfolios since the Portfolios' inception, reduced by Policy and subaccount charges. The hypothetical and adjusted historic Portfolio rates illustrated should not be considered to represent past or future performance. There is the risk that actual rates of return may be higher or lower than those illustrated, so that the values under your Policy will be different from those in the illustrations. 12 PORTFOLIO ANNUAL EXPENSE TABLE - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- This table shows the fees and expenses charged by the Portfolios. More detail concerning the Portfolio's fees and expenses is contained in the prospectus for the Fund. ANNUAL PORTFOLIO OPERATING EXPENSES (As a percentage of average Portfolio assets AFTER fee waivers and expense reimbursements)*
TOTAL MANAGEMENT OTHER EXPENSES ANNUAL PORTFOLIO FEES (AFTER REIMBURSEMENT) EXPENSES - --------- ---------- --------------------- -------- Aggressive Growth 0.80% 0.18% 0.98% Emerging Growth 0.80% 0.14% 0.94% Growth 0.80% 0.08% 0.88% Global 0.80% 0.19% 0.99% Bond 0.45% 0.14% 0.59% Strategic Total Return 0.80% 0.11% 0.91% Growth & Income 0.75% 0.25% 1.00% Money Market 0.40% 0.12% 0.52% Tactical Asset Allocation 0.80% 0.10% 0.90% U.S. Equity 0.80% 0.25% 1.05% Third Avenue 0.80% 0.13% 0.93% Real Estate Securities 0.80% 0.20% 1.00%
* Effective January 1, 1997, the Fund adopted a Plan of Distribution ("Distribution Plan") pursuant to Rule 12b-1 under the Investment Company Act of 1940 and pursuant to the Distribution Plan, entered into a Distribution Agreement with InterSecurities, Inc. ("ISI"), principal underwriter for the Fund. Under the Distribution Plan, the Fund, on behalf of the Portfolios, is authorized to pay to various service providers, as direct payment for expenses incurred in connection with the distribution of a Portfolio's shares, up to a maximum rate of 0.15% (fifteen one-hundredths of one percent) on an annualized basis of the average daily net assets. This fee is measured and accrued daily and paid monthly. ISI has determined that it will not seek payment by the Fund of distribution expenses incurred with respect to any Portfolio during the fiscal year ending December 31, 1999. We will notify you in advance if ISI decides to seek reimbursement. The purpose of the preceding Table is to assist the Owner in understanding the various costs and expenses that an Owner will bear directly and indirectly. The Table reflects charges and expenses of the Portfolios of the Fund for the fiscal year ended December 31, 1998. Expenses of the Fund may be higher or lower in the future. For more information on the charges described in this Table, see the Fund prospectus which accompanies this prospectus. WRL Investment Management, Inc. has undertaken, until at least April 30, 1999, to pay Fund expenses on behalf of the Portfolios to the extent normal operating expenses of a Portfolio exceed a stated percentage of each Portfolio's average daily net assets. The expense limitation for the Aggressive Growth, Emerging Growth, Growth, Global, Strategic Total Return, Growth & Income, Tactical Asset Allocation, and Third Avenue Value Portfolios is 1.00% of the average daily net assets; 0.70% of the average daily net assets for the Bond and Money Market Portfolios; and 1.30% of the average daily net assets of the U.S. Equity Portfolio. See the Fund's prospectus for a description of the expense limitation applicable to each Portfolio. 13 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 options under the Policy. THE FIXED ACCOUNT OPTIONS 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 options will be credited interest daily at a net effective interest rate of at least 3%. We will determine any interest rate credited in excess of the guaranteed rate at our sole discretion. THE STANDARD FIXED ACCOUNT. Money you place in the standard fixed account option will earn interest compounded daily at a current interest rate in effect at the time of your allocation. The interest rate is guaranteed never to be less than 3% per year. 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 standard fixed account. THE FIXED DOLLAR COST AVERAGING ("FIXED DCA") ACCOUNT. To be eligible for dollar cost averaging, you must elect the Fixed DCA Account on your application and put your entire initial premium in the Fixed DCA Account. Money you place in the Fixed DCA Account will earn interest at rates we declare from time to time. Money will be transferred out of the Fixed DCA Account in equal monthly installments with the first transfer starting on the first Monthiversary after the Reallocation Date. Interest accrued on the premiums will be transferred in the last month of the Fixed DCA Account term. Money in the Fixed DCA Account may be transferred entirely to other subaccounts or the standard fixed account after one month. There is no charge for participating in the Fixed DCA Account. 14 We reserve the right to stop offering the Fixed DCA Account at any time for any reason. We may offer a higher 30-day interest rate guaranteed for one month. If you exercise your free look right, the portion of the initial premium held in the Fixed DCA Account will be credited with interest at the rate we then credit to the standard fixed account. Fixed Dollar Cost /bullet/ we receive written notice from you Averaging will end if: instructing us to cancel the program. /bullet/ you elect to participate in the Asset Rebalancing Program, or /bullet you elect to participate in any asset allocation service provided by a third party. THE FIXED ACCOUNT OPTIONS HAVE 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 OPTIONS. 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 the WRL Series Fund, Inc. 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 and insurance company regulators, to the extent required by the 1940 Act and applicable law. WRL SERIES FUND, INC. The separate account invests in shares of the WRL Series Fund, Inc., a series mutual fund that is registered with the Commission as an open-end management investment 15 company. Such registration does not involve supervision of the management or investment practices or policies of the Fund by the Commission. Currently, the Portfolios of the Fund corresponding to the subaccounts of the separate account are: Aggressive Growth Portfolio, Emerging Growth Portfolio, Growth Portfolio, Global Portfolio, Strategic Total Return Portfolio, Bond Portfolio, Growth & Income Portfolio, Money Market Portfolio, Tactical Asset Allocation Portfolio, U.S. Equity Portfolio, Third Avenue Value Portfolio, and Real Estate Securities Portfolio. 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. Thus, each Portfolio operates as a separate investment fund, and the income or losses of one Portfolio generally have no effect on the investment performance of any other Portfolio. Pending any prior approval by a state insurance regulatory authority, certain 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). You can find more detailed information about the Portfolios, including a description of risks, in the prospectus for the Fund. You should read the Fund prospectus carefully. PORTFOLIO INVESTMENT OBJECTIVE - --------- -------------------- AGGRESSIVE /arrow/ Portfolio seeks long-term capital appreciation by GROWTH investing in a diversified, actively managed portfolio of equity securities. EMERGING /arrow/ Portfolio seeks capital appreciation by investing GROWTH primarily in common stocks of small and medium sized companies. GROWTH /arrow/ Portfolio seeks growth of capital by investing primarily in common stocks listed on a national securities exchange or traded on NASDAQ. GLOBAL /arrow/ Portfolio seeks long-term growth of capital in a manner consistent with preservation of capital, primarily through investments in common stocks of foreign and domestic issuers. STRATEGIC /arrow/ Portfolio seeks to provide current income, long-term TOTAL growth of income and capital appreciation by investing RETURN primarily in a blend of equity and fixed-income securities, including common stocks, income producing securities convertible into common stocks, and fixed-income securities. BOND /arrow/ Portfolio seeks the highest possible current income within the confines of the primary goal of insuring the protection of capital by investing at least 65%, and usually a higher percentage, of its assets in debt securities issued by the U.S. Government and its agencies and instrumentalities and in other medium to high-quality debt securities. 16 PORTFOLIO INVESTMENT OBJECTIVE - --------- -------------------- GROWTH & /arrow/ Portfolio seeks total return by investing in securities INCOME that have defensive characteristics. Portfolio will invest primarily in a diversified portfolio of equity and debt securities with an emphasis on sector investing. MONEY /arrow/ Portfolio seeks to obtain maximum current income MARKET consistent with preservation of principal and maintenance of liquidity. The Portfolio maintains a dollar-weighted average portfolio maturity of not more than 90 days by investing in U.S. dollar-denominated securities which have effective maturities of not more than 13 months and present minimal credit risks. TACTICAL /arrow/ Portfolio seeks preservation of capital and competitive ASSET investment returns by investing primarily in stocks, ALLOCATION United States Treasury bonds, notes and bills, and money market funds. U.S. EQUITY /arrow/ Portfolio seeks long-term growth of capital by investing primarily in equity securities of U.S. companies. THIRD /arrow/ Portfolio seeks long-term capital appreciation by AVENUE investing primarily in a portfolio of equity securities VALUE of well-financed companies believed to be priced below their private market values and debt securities providing strong protective covenants and high, effective yields. REAL ESTATE /arrow/ Portfolio seeks long-term total return from investments SECURITIES primarily in equity securities of real estate companies. Total return will consist of realized and unrealized capital gains and losses plus income. WRL Investment Management, Inc. ("WRL Management"), located at 570 Carillon Parkway, St. Petersburg, Florida 33716, a wholly-owned subsidiary of Western Reserve, serves as investment adviser to the Fund and manages the Fund in accordance with policies and guidelines established by the Fund's Board of Directors. For certain Portfolios, WRL Management has engaged investment sub-advisers to provide portfolio management services. WRL Management and each investment sub-adviser are registered investment advisers under the Investment Advisers Act of 1940, as amended. See the Fund prospectus for more information regarding WRL Management and the investment sub-advisers. In addition to the separate account, shares of the Fund are also sold to other separate accounts established by Western Reserve or its affiliates 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 Fund simultaneously. Although neither Western Reserve nor the Fund currently foresees any such disadvantages, either to variable life insurance policyowners or to variable annuity contract owners, the Fund's Board of Directors will monitor events in 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 Fund shares by one or more of the 17 separate accounts, which could have adverse consequences. Material conflicts could result from, for example, (1) changes in state insurance laws, (2) changes in Federal income tax laws, or (3) differences in voting instructions between those given by variable life insurance policyowners and those given by variable annuity contract owners. If the Fund's Board of Directors 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 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, subject to compliance with applicable law, to make additions to, deletions from, or substitutions for the investments that are held by any subaccount or that any subaccount may purchase. We will only make any such addition, deletion or substitution of shares of another Portfolio of the 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 and prior approval of the Commission, to the extent required by the 1940 Act or other applicable law. Nothing contained herein shall prevent the separate account from purchasing other securities for other Portfolios or classes of policies, or from permitting a conversion between Portfolios or classes of policies on the basis of requests made by Owners. Western Reserve also reserves the right to establish additional subaccounts of the separate account, each of which would invest in a new Portfolio of the Fund, or in shares of another investment company, with a specified investment objective. 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. Western Reserve may also eliminate one or more subaccounts if, in our sole discretion, marketing, tax, or investment conditions warrant. In the event of any such substitution or change, Western Reserve may make such changes in this and other policies as may be necessary or appropriate to reflect such substitution or change. If 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. PLEASE READ THE ATTACHED FUND PROSPECTUS TO OBTAIN MORE COMPLETE INFORMATION REGARDING THE PORTFOLIOS. 18 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 Policy owners instruct, so long as such action is required by law. 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) divided by $100. If we do not receive voting instructions on time from some owners, 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 Policy owners advising you of the action and the reasons we took such action. THE POLICY - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- PURCHASING A POLICY To purchase a Policy, a prospective owner must submit a completed application and an initial premium to us at our Office. You may also send the application and 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. We determine the Specified Amount for a Policy based on the initial premium paid and other characteristics of the proposed Insured(s), such as age, gender and risk class. We base the minimum initial premium for your Policy on the Guideline Single Premium established under Federal tax laws given the age, gender, and risk class of the Insured. We currently require a minimum initial premium of $20,000. We use different underwriting standards (simplified, expanded) in relation to the Policy. We can provide you with details as to these underwriting standards when you apply for a Policy. We must receive evidence of insurability that satisfies our underwriting standards before we will issue a Policy. Generally, for simplified underwriting we will issue a Policy for Insured(s) between the ages of 35 to 80 for a single life policy, and between the ages of 45 to 80 for a joint and survivor life policy. For expanded underwriting, we will issue a Policy for Insured(s) between the ages of 18 to 34 and 81 to 90 for a single life policy, and between the ages of 81 to 90 for a joint and survivor life policy. We reserve the right to reject an application for any reason permitted by law. 19 WHEN INSURANCE COVERAGE TAKES EFFECT Full insurance coverage under the Policy will take effect only if the proposed 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 is paid. CONDITIONAL INSURANCE COVERAGE. If the Insured qualifies for simplified underwriting, conditional insurance coverage begins as soon as you complete an application and pay an initial premium of at least $20,000. If the Insured does not qualify for simplified underwriting, conditional insurance coverage begins on the date all medical tests and exams are completed. 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 /bullet/ the Specified Amount applied for, or insurane coverage is the /bullet/ $300,000 lesser of: reduced by all amounts payable under all other life insurance or accidental death benefits that the Insured has in force or pending with us. Conditional life insurance coverage is void if the application contains any material misrepresentation. Benefits will also be denied if any proposed Insured commits suicide. Conditional life insurance coverage terminates automatically, and without notice, on the earliest of: /bullet/ the date we notify you that the application is declined and the initial premium is returned; or /bullet/ the date we determine the Insured has satisfied our underwriting requirements (the Policy Date); or /bullet/ 10 days following our offer of insurance, on any person proposed under a different plan or at an increased premium or different rate class; or /bullet/ at the end of the fraction of a year which the payment bears to the premium required to provide one month of insurance in the amount described above; or /bullet/ 60 days from the beginning of conditional insurance coverage. FULL INSURANCE COVERAGE. Once we determine that the Insured meets our underwriting requirements, full insurance coverage begins, we issue the Policy, and we begin to deduct monthly and daily insurance charges from your premium. This date is the Policy Date. On the Policy Date, we will allocate your premium (plus interest) to the subaccounts and fixed account options you elected 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 premium in the event you exercise your free look right, we will place your premium (plus interest) in the Reallocation Account until the Reallocation Date. See Reallocation Account, page __. 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 full 20 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 /bullet/ Change the Owner by providing written notice to us at OWNER any time while the Insured is alive and the Policy is in force. /bullet/ Change is effective as of the date that the written notice is signed. /bullet/ Changing the Owner does not automatically change the beneficiary. /bullet/ Changing the Owner may have tax consequences. /bullet/ We are not liable for payments we made before we received the written notice. CHOOSING THE /bullet/ The Owner designates the beneficiary (the person to BENEFICIARY receive the death benefit when the Insured dies) in the application. /bullet/ If you designate more than one beneficiary, then each beneficiary shares equally in any death benefit proceeds unless the beneficiary designation states otherwise. /bullet/ If the beneficiary dies before the Insured, then any contingent beneficiary becomes the beneficiary. /bullet/ 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. CHANGING THE /bullet/ Change the beneficiary by providing us with a written BENEFICIARY notice. /bullet/ Change is effective as of the date the Owner signs the written notice. /bullet/ We are not liable for any payments we made before we received the written notice. 21 ASSIGNING THE /bullet/ The Owner may assign Policy rights while the Insured POLICY is alive. /bullet/ The Owner retains any ownership rights that are not assigned. /bullet/ 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. /bullet/ Claims under any assignment are subject to proof of interest and the extent of the assignment. /bullet/ We are not: /arrow/ bound by any assignment unless we receive a written notice of the assignment /arrow/ responsible for the validity of any assignment /arrow/ liable for any payment we made before we received written notice of the assignment /arrow/ any assignment which results in adverse tax consequences to the Owner, Insured(s) or beneficiary(ies). CANCELING A POLICY You may cancel a Policy during the "free-look period" by returning it to Western Reserve at 4333 Edgewood Road NE, Cedar Rapids, Iowa 52499, or to the agent who sold it. The free-look period expires 10 days after you receive the Policy. The free-look period is longer if required by state law. If you decide to cancel the Policy during the free-look period, we will treat the Policy as if it had never been issued. Within seven calendar days after we receive the returned Policy, we will refund an amount equal to the sum of: /bullet/ the total amount of monthly deductions made and any other charges imposed on amounts allocated to the subaccounts and the fixed account options; PLUS /bullet/ the value of amounts allocated to the subaccounts and the fixed account options on the date we (or our agent) receive the returned Policy. If any state law prohibits the calculation above, we will refund the total of all premiums paid for the Policy. See Allocating Premiums, p. ___. PREMIUMS - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- INITIAL PREMIUM The initial premium for a given Specified Amount depends on a number of factors including the age, gender, and risk class of the proposed Insured(s). FOR A GIVEN INITIAL PREMIUM, WE WILL SPECIFY THE EXACT SPECIFIED AMOUNT THAT YOU MUST PURCHASE. For joint and 22 survivor life policies, we will provide the Specified Amount at the time of application based upon the specific ages, gender, and risk classes of the proposed Insureds. We currently require a minimum initial premium of $20,000. The current underwriting requirements and maximum initial premium amounts are set forth in Appendix __. We reserve the right to modify these requirements and premium amounts at any time. We will credit interest on your initial premium from the date we receive payment. Interest will be credited at the current standard fixed account rate. Interest is guaranteed to equal at least 3% annually. TAX-FREE EXCHANGES (1035 EXCHANGES). We will accept as part of your initial premium money from one contract that qualified for a tax-free exchange 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. Subject to our underwriting requirements, we will permit you to make one additional cash payment within three business days of our receipt of the proceeds from the 1035 exchange before we determine your Policy's Specified Amount. ADDITIONAL PREMIUMS You will have LIMITED FLEXIBILITY TO ADD ADDITIONAL PREMIUMS to the Policy since we require that the initial premium equal the maximum amount that can be applied to the Policy at issue. In general, you may not pay any additional premiums on the Policy for several years in order for the Policy to continue to qualify as a life insurance contract as defined in Federal tax laws and regulations. At the time the Policy allows for the payment of additional premiums, we reserve the right to limit or refund any premium if: /bullet/ the amount is below our current minimum additional premium requirement; OR /bullet/ the premium would increase the death benefit by more than the amount of the premium; OR /bullet/ accepting the premium would disqualify the Policy as a life insurance contract as defined in Federal tax laws and regulations. You may pay premiums by any method we deem acceptable. We will treat any payment you make as a loan repayment unless you clearly mark it as a premium. ALLOCATING PREMIUMS When you apply for a Policy, you must instruct us to allocate your premium to one or more subaccounts of the separate account and to the fixed account options according to the following rules: /bullet/ allocation percentages must be in whole numbers; /bullet/ you must put your entire initial premium into the Fixed DCA Account at the time of your application; /bullet/ if you select standard dollar cost averaging, you must have at least $5,000 in the standard fixed account. 23 You can change the allocation instructions for additional premiums without charge at any time by providing us with written notification (or any other notification we deem satisfactory). Any allocation change will be effective on the date we record the change. We reserve the right to limit the number of premium allocation changes. Investment returns from amounts allocated to the subaccounts will vary with the investment experience of these subaccounts and will be reduced by Policy charges. YOU BEAR THE ENTIRE INVESTMENT RISK FOR AMOUNTS YOU ALLOCATE TO THE SUBACCOUNTS. 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 premium (plus interest) on the Policy Date to the Reallocation Account. While held in the Reallocation Account, your premium (plus interest) will earn interest at the current rates for the standard fixed account. The premium will remain in the Reallocation Account for the length of your state's free look period plus five days. The following chart shows by state the number of days from the Policy Date that your premium (plus interest) will remain in the Reallocation Account. STATES REQUIRING FULL REFUND OF PREMIUM - -------------------------------------------------------------------------------- TIME PREMIUM IS IN TIME PREMIUM IS STATE REALLOCATION ACCOUNT STATE IN REALLOCATION ACCOUNT - -------------------------------------------------------------------------------- CO # 20 days NC * # 15 days - -------------------------------------------------------------------------------- CT 15 days ND 15 days - -------------------------------------------------------------------------------- DC * 15 days NY 15 days - -------------------------------------------------------------------------------- GA 15 days OK * 15 days - -------------------------------------------------------------------------------- IL 15 days PA * 15 days - -------------------------------------------------------------------------------- IN # 15 days SC * 15 days - -------------------------------------------------------------------------------- MA # 15 days TX 15 days - -------------------------------------------------------------------------------- MD # 15 days UT * 15 days - -------------------------------------------------------------------------------- MI *# 15 days VT * 15 days - -------------------------------------------------------------------------------- MN 15 days VA 15 days - -------------------------------------------------------------------------------- MO * 15 days WV 15 days - -------------------------------------------------------------------------------- * The period is 50 days from the application date or 15 days from your receipt of the Policy, whichever is later. # If the Policy is a replacement, the period is 25 days. In the states listed above, on the first Valuation Date on or after the Reallocation Date, we will reallocate all cash value from the Reallocation Account to the subaccounts and fixed account options you selected on the application. If you requested either Fixed DCA or 24 Standard Dollar Cost Averaging, we will reallocate the Cash Value to either the Fixed DCA Account or the standard fixed account, respectively, on the Reallocation Date. In all other states, the Reallocation Date is the same as the Policy Date and we will allocate your premium (plus interest) on the Policy Date to the subaccounts and the fixed account options in accordance with the instructions you gave us on your application. POLICY VALUES - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- CASH VALUE CASH VALUE: /bullet/ serves as the starting point for calculating values under a Policy /bullet/ equals the sum of all values in each subaccount and the fixed account options /bullet/ is determined on the Policy Date and on each Valuation Date /bullet/ has no guaranteed minimum amount and may be more or less than premiums paid. 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. NET SURRENDER /bullet/ the Cash Value as of such date; MINUS VALUE ON ANY VALUATION DATE /bullet/ any surrender charge as of such date; MINUS EQUALS: /bullet/ any outstanding Policy loan(s); MINUS /bullet/ any interest you owe on any Policy loan(s). 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. 25 THE NUMBER OF /bullet/ the initial units purchased on the Policy Date; UNITS IN ANY PLUS SUBACCOUNT ON ANY VALUATION /bullet/ units purchased with additional premium(s); PLUS DATE EQUALS: /bullet/ units purchased via transfers from another subaccount or the fixed account; MINUS /bullet/ units redeemed to pay for monthly deductions; MINUS /bullet/ units redeemed to pay for partial withdrawals; MINUS /bullet/ units redeemed as part of a transfer to another subacccount or the fixed account. Every time you allocate or transfer 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 by the unit value for that subaccount at the end of the Valuation Period. UNIT VALUE We determine a unit value for each subaccount to reflect how investment results affect the Policy values. 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 /bullet/ the total value of the assets held in the OF ANY subaccount, determined by multiplying the number SUBACCOUNT AT of shares of the designated Portfolio owned by THE END OF A the subaccount times the Portfolio's net asset VALUATION value per share; MINUS PERIOD IS CALCULATED AS: /bullet/ a charge equal to the daily net assets of the subaccount multiplied by the daily equivalent of the Daily Charge; MINUS /bullet/ 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 /bullet/ the number of outstanding units in the subaccount. FIXED ACCOUNT VALUE On the Policy Date, the fixed account value is equal to the premiums allocated to the fixed account, less the portion of the first monthly deduction taken from the fixed account. 26 THE FIXED ACCOUNT /bullet/ the premium(s) allocated to the fixed account; VALUE AT THE END OF PLUS ANY VALUATION PERIOD IS EQUAL TO: /bullet/ any amounts transferred to the fixed account; PLUS /bullet/ interest credited to the fixed account; MINUS /bullet/ amounts charged to pay for monthly deductions; MINUS /bullet/ amounts withdrawn from the fixed account; MINUS /bullet/ amounts transferred from the fixed account to a subaccount. TRANSFERS - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- GENERAL You may make transfers among the 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. WE MAY MODIFY OR REVOKE THE TRANSFER PRIVILEGE AT ANY TIME. The following features apply to transfers under the Policy: /check mark/ You may make an unlimited number of transfers in a Policy year. /check mark/ You may request transfers in writing (in a form we accept), or by telephone. /check mark/ There is no minimum amount that must be transferred. /check mark/ There is no minimum amount that must remain in a subaccount after a transfer. /check mark/ We reserve the right to deduct a $10 charge from the amount transferred for the 13th and each additional transfer in a Policy year. /check mark/ We consider all transfers made in any one day to be a single transfer. /check mark/ Transfers resulting from loans, Standard or Fixed Dollar Cost Averaging, the Asset Rebalancing Program, and exercising exchange privileges are NOT treated as transfers for the purpose of the transfer charge. 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 1-800-525-6205. Please note the following regarding telephone transfers: /arrow/ 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. /arrow/ We will employ reasonable procedures to confirm that telephone instructions are genuine. /arrow/ 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. /arrow/ If we do not employ reasonable confirmation procedures, we may be liable for losses due to unauthorized or fraudulent instructions. The corresponding portfolio of any subaccount determines its net asset value per each share once daily, as of the close of the regular business session of the New York Stock Exchange ("NYSE") (usually 4:00 p.m. Eastern time), which coincides with the end of each Valuation Period. Therefore, we will process any transfer request we receive after the close 27 of the regular business session of the NYSE, on any day the NYSE is open, using the net asset value for each share of the applicable Portfolio determined as of the close of the next regular business session of the NYSE. STANDARD DOLLAR COST AVERAGING Dollar cost averaging is an investment strategy designed to reduce the investment risks associated with market fluctuations. The strategy spreads the allocation of your premium into the subaccounts over a period of time. This allows you to potentially 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 carefully consider 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. Under Standard Dollar Cost Averaging, we automatically transfer a set dollar amount from the standard fixed account to one or more subaccounts that you choose. We will make the transfers monthly as of the end of the Valuation Date starting on the first Monthiversary after the Reallocation Date. TO START STANDARD /arrow/ you must request Standard Dollar Cost Averaging DOLLAR COST on your application AVERAGING: /arrow/ you must have at least $5,000 in the standard fixed account /arrow/ each transfer under dollar cost averaging must be at least $500. There is no charge for Standard Dollar Cost Averaging. STANDARD DOLLAR /arrow/ we receive your request to cancel your COST AVERAGING participation; WILL TERMINATE IF: /arrow/ the value in the standard fixed account is depleted; /arrow/ you elect to participate in Asset Rebalancing Program; OR /arrow/ you elect to participate in any asset allocation services provided by a third party. We may modify, suspend, or discontinue Standard 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. Cash Value 28 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 in the standard fixed account, the Standard Dollar Cost Averaging Program, and the Fixed DCA Account are not available for this program. To participate in the Asset Rebalancing Program, you must complete an asset rebalancing request form and submit it to us before the maturity date. You may elect asset rebalancing to occur on each quarterly, semi-annual or annual anniversary of the Policy Date. You may modify your allocations quarterly. Once we receive the asset rebalancing request form, we will effect the initial rebalancing of Cash Value on the next such anniversary, in accordance with the Policy's current premium allocation schedule. 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. There is no charge for the Asset Rebalancing Program. ASSET REBALANCING /arrow/ you elect to participate in the Fixed DCA WILL CEASE IF: Account; /arrow/ you elect to participate in the Standard Dollar Cost Averaging program; /arrow/ we receive your request to discontinue participation; /arrow/ you make a transfer to or from any subaccount other than under a scheduled rebalancing; OR /arrow/ you elect to participate in any asset allocation services provided by a third party. We may modify, suspend, or discontinue the Asset Rebalancing Program at any time. STANDARD FIXED ACCOUNT TRANSFERS You may make one transfer per Policy year from the standard fixed account. The transfer must be made no later than 30 days after your Policy anniversary. You must send us a written notice so that we receive it no later than 30 days after a Policy anniversary. We will make the transfer on the date we receive the written notice. We reserve the right to limit the maximum amount you may transfer to the greater of: /arrow/ 25% of the amount in the standard fixed account, or /arrow/ the amount transferred from the standard fixed account in the immediately prior Policy year (excluding transfers from the Fixed DCA Account). 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. 29 SERVICES AND /bullet/ the death benefit, cash and loan benefits BENEFITS WE PROVIDE: under the Policy /bullet/ investment options, including premium allocations /bullet/ administration of elective options /bullet/ the distribution of reports to Owners COSTS AND EXPENSES /bullet/ costs associated with processing and WE INCUR: underwriting applications, issuing and administering the Policy (including any Policy riders) /bullet/ overhead and other expenses for providing services and benefits, sales and marketing expenses /bullet/ 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: /bullet/ that the charges we may deduct may be insufficient to meet our actual claims because Insureds die sooner than we estimate /bullet/ that the costs of providing the services and benefits under the Policies may exceed the charges we are allowed to deduct PREMIUM DEDUCTIONS We deduct no charges from premiums before allocating the premiums to the separate account and the fixed account options according to your instructions. DAILY CHARGE Each Valuation Date, we deduct a Daily Charge at the annual rate of 0.50% from assets in the subaccounts as part of the calculation of the unit value for each subaccount. MONTHLY DEDUCTION We deduct a monthly deduction from the Cash Value on the Policy Date and on each Monthiversary (the same day of each succeeding month as the Policy Date, or, if there is no comparable Valuation Date, the next Valuation Date). We will deduct this charge from each account in accordance with the current allocation instructions. If the value of any account is insufficient to pay that account's portion of the monthly deduction, we will take the monthly deduction 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). The monthly deduction is equal to: /arrow/ The Monthly Policy Charge based on the separate account's assets; PLUS /arrow/ The Monthly Policy Charge based on the fixed account's assets; PLUS 30 /arrow/ The monthly Cost of Insurance Charge for the Policy, if any; PLUS /arrow/ The monthly charge for any benefits provided by riders attached to the Policy (currently, only the Guaranteed Minimum Death Benefit rider). MONTHLY POLICY CHARGE. The Monthly Policy Charge, based on the separate account's assets, is equal to: (1) the separate account monthly deduction charge (see table below) divided by 12; multiplied by (2) the sum of the subaccount values on the Monthiversary. The Monthly Policy Charge, based on the fixed account's assets, is equal to: (1) the fixed account monthly deduction charge (see table below) divided by 12; multiplied by (2) the fixed account value on the Monthiversary, minus any outstanding loan amount. The Monthly Policy Charge for each Policy varies based on the Policy year, gender, and whether the Policy is issued on a single life basis or a joint and last survivor basis. The Monthly Policy Charge and the Daily Charge for single life and joint and survivor life Policies are as follows:
SINGLE LIFE POLICY MALE/UNISEX FEMALE ------------------------------------------------------------------------- POLICY YEARS POLICY YEARS POLICY YEARS POLICY YEARS 1-10 11+ 1-10 11+ - ---------------------------------------------------------------------------------------------------------------------- Daily Charge (from unit value) .50% .50% .50% .50% ------------------------------------------------------------------------------------------------ Monthly Separate account Deduction Charge charges (as a % of (annualized rate) separate account assets) 2.00% 1.00% 1.85% .85% ------------------------------------------------------------------------------------------------ TOTAL 2.50% 1.50% 2.35% 1.35% - ---------------------------------------------------------------------------------------------------------------------- ------------------------------------------------------------------------------------------------ Monthly Fixed account Deduction Charge charges (as a % of fixed (annualized rate) account assets) 2.00% 1.00% 1.85% .85% ------------------------------------------------------------------------------------------------ TOTAL 2.00% 1.00% 1.85% .85% - ----------------------------------------------------------------------------------------------------------------------
31
- --------------------------------------------------------------------------------------------------------------- JOINT & SURVIVOR LIFE POLICY POLICY YEARS 1- 10 POLICY YEARS 11+ - --------------------------------------------------------------------------------------------------------------- Daily Charge (from unit value) .50% .50% ------------------------------------------------------------------------------- Separate account charges Monthly Deduction Charge (as (annualized rate) a % of separate account assets) 1.50% .50% --------------------------------------------------------------------------------- TOTAL 2.00% 1.00% - --------------------------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------------------------- Fixed account charges Monthly Deduction Charge (annualized rate) (as a % of fixed account assets) 1.50% .50% ------------------------------------------------------------------------------- TOTAL 1.50% .50% - ---------------------------------------------------------------------------------------------------------------
COST OF INSURANCE CHARGE. We reserve the right to assess a monthly Cost of Insurance Charge. The charge would depend on a number of variables (age, gender, risk class) that would cause it to vary from Policy to Policy and from Monthiversary to Monthiversary. If applicable, we would calculate the Cost of Insurance Charge each month for the Specified Amount at issue. We do not currently assess this charge, and we do not intend to assess this charge. However, if we begin to assess this charge in the future, we will waive surrender charges upon any surrender of the Policy. See Surrender Charge, p.___. The guaranteed maximum monthly Cost of Insurance Rates are based on the gender, age, plan of insurance, and risk class of the Insured(s). Any change in the current rates will not exceed those shown in your Policy's Table of Guaranteed Maximum Life Insurance Rates. We currently place Insureds into standard (tobacco) and select (non-tobacco) risk classes. The guaranteed rates are based on the 1980 Commissioners' Standard Ordinary Mortality Tables, Male or Female, Tobacco or Non-Tobacco Mortality Rates ("1980 CSO Tables"). Cost of Insurance rates for an Insured in a non-tobacco class are less than or equal to rates for an Insured of the same age and gender in a tobacco class. The Policies are based on mortality tables that distinguish between men and women. As a result, the Policy may pay different benefits to men and women of the same age and risk class. We also offer Policies based on unisex mortality tables if required by state law. SURRENDER CHARGE If you surrender your Policy during the first 9 years, we deduct a surrender charge from your Cash Value and pay the remaining Cash Value to you. The payment you receive is called the Net Surrender Value. We reduce the surrender charge at older ages in compliance with state laws. We calculate the surrender charge as a percentage of premium(s) paid based on the following schedule: 32 CONTINGENT CONTINGENT DURING SURRENDER CHARGE DURING SURRENDER CHARGE POLICY (AS A PERCENTAGE OF POLICY (AS A PERCENTAGE OF YEAR PREMIUM(S) PAID) YEAR PREMIUM(S) PAID) ------ ------------------- ------ ------------------ 1 9.75% 6 7% 2 9.50% 7 6% 3 9.25% 8 4% 4 9% 9 2% 5 8% 10 0% ------ ------------------- ------ ------------------ If we begin to assess a Cost of Insurance Charge on Policies as noted above, we will waive all future surrender charges. TRANSFER CHARGE The first 12 transfers during each Policy year are free. We currently assess a transfer charge of $10 for the 13th and each additional transfer during a Policy year. For the purposes of assessing the transfer charge, each written request for transfers is considered to be one transfer, regardless of the number of subaccounts affected by the transfer. We deduct the transfer charge from the amount being transferred. Transfers due to loans, any dollar cost averaging, or asset rebalancing do not count as transfers for the purpose of assessing this charge. PORTFOLIO EXPENSES The value of the net assets of each subaccount reflects the investment advisory fees and other expenses incurred by the corresponding Portfolio in which the subaccount invests. See the Portfolio Annual Expenses Table in this prospectus, and the Fund prospectus for further information on these fees and expenses. GUARANTEED MINIMUM DEATH BENEFIT RIDER If you select the Guaranteed Minimum Death Benefit rider at application, we will deduct .02% each month from your Cash Value on each Monthiversary. 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. For Policies issued on a joint and survivor basis, we will pay death benefit proceeds on the death of the last Insured. We may require return of the Policy. We will pay the death benefit proceeds to the primary beneficiary(ies) or 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. 33 DEATH BENEFIT /bullet/ the death benefit (described below); MINUS PROCEEDS EQUAL: /bullet/ any past due monthly deductions if the Insured dies during the grace period (See Policy Lapse); MINUS /bullet/ any outstanding Policy loan on the date of death; MINUS /bullet/ any interest you owe on Policy loan(s). If all or part of the death benefit proceeds are paid in one sum, we will pay interest on this sum as required by applicable state law from the date we receive due proof of the Insured's death to the date we make payment. We may further adjust the amount of the death benefit proceeds under certain circumstances. See Our Right to Contest the Policy; and Misstatement of Age or Gender. DEATH BENEFIT The Policy provides a death benefit. The death benefit is determined as of the date of death of the Insured (the last of Insureds to die, if a Joint Policy). THE DEATH BENEFIT /bullet/ a variable death benefit; OR IS THE GREATER OF: /bullet/ the current Specified Amount. The variable death benefit is equal to the Cash Value on the date of death multiplied by the applicable limitation percentage. The limitation percentage is a percentage based on the age of the Insured at the beginning of each Policy year. The following table indicates the applicable limitation percentages for different ages: AGE OF INSURED (YOUNGER INSURED, IF JOINT POLICY) LIMITATION PERCENTAGE -------------------- -------------------------------------- 40 and under 250% 41 to 45 250% minus 7% for each age over age 40 46 to 50 215% minus 6% for each age over age 45 51 to 55 185% minus 7% for each age over age 50 56 to 60 150% minus 4% for each age over age 55 61 to 65 130% minus 2% for each age over age 60 66 to 70 120% minus 1% for each age over age 65 71 to 75 115% minus 2% for each age over age 70 76 to 90 105% 91 to 94 105% minus 1% for each age over age 90 95 and above 100% -------------------- -------------------------------------- EFFECTS OF PARTIAL WITHDRAWALS ON THE DEATH BENEFIT A partial withdrawal will reduce the Specified Amount by an amount equal to the amount of the partial withdrawal multiplied by the ratio of the initial Specified Amount to the initial premium. For an example, see "Partial Withdrawals," page ___. 34 GUARANTEED MINIMUM DEATH BENEFIT RIDER If you purchase the Guaranteed Minimum Death Benefit rider at the time you apply for the Policy, and if the rider is in effect upon the Insured's (younder Insured, if a Joint Policy) date of death, we guarantee to provide a death benefit as follows: /arrow/ If the Net Surrender Value on any Monthiversary is not sufficient to cover the Monthly Policy Charge on such day, then coverage will be provided as indicated below, and no grace period will begin, provided no Policy loans have been taken under the Policy; /arrow/ If a death benefit is payable due to the provisions of this rider, then the following minimum death benefit is applicable; /arrow/ During the first fifteen Policy years, or before the Policy anniversary next following the Insured's (younger Joint Insured, if under a Joint Policy) 75th birthday, if sooner, the minimum death benefit payable will be described as under Death Benefit, page __; /arrow/ After the first fifteen Policy years, or on or after the Policy anniversary next following the Insured's (younger Joint Insured, if under a Joint Policy) 75th birthday, if sooner, the minimum death benefit payable will be the initial premium, reduced by any partial withdrawals. However, in no event will this minimum death benefit ever be less than $1,000. CHANGING THE SPECIFIED AMOUNT You may not increase or decrease the Specified Amount on your Policy. However, a partial withdrawal will reduce the Specified Amount and the amount payable under the Guaranteed Minimum Death Benefit rider. If you need a higher Specified Amount, you must apply for a second policy. 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. Information concerning these settlement options is available on request. None of these options vary with the investment performance of a separate account. SURRENDERS AND PARTIAL WITHDRAWALS - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SURRENDERS You may make a written request to surrender your Policy for its Net Surrender Value as calculated at the end of the Valuation Date on which we receive your request. The 35 Insured must be alive and the Policy must be in force when you make your written request. A surrender is effective as of the date when we receive your written request. You will incur a surrender charge if you surrender the Policy during the first 9 Policy years. See Charges and Deductions. Once you surrender your Policy, all coverage and other benefits under it cease and cannot be reinstated. We will pay you the Net Surrender Value in a lump sum within seven days unless you request other arrangements. A surrender may have tax consequences. See Federal Tax Considerations. PARTIAL WITHDRAWALS After the first Policy year, you may request a partial withdrawal of a portion of your Cash Value subject to certain conditions. PARTIAL /arrow/ You must make your partial withdrawal request to us WITHDRAWAL in writing. CONDITIONS: /arrow/ Only one partial withdrawal is allowed during a 12-month period. /arrow/ The most you can request is the excess of the Cash Value MINUS total outstanding loans, MINUS any interest you owe on Policy loans, and MINUS total premiums paid. /arrow/ You can specify the subaccount(s) and the standard fixed account from which to make the withdrawal, otherwise we will deduct the amount from the separate account and the fixed account in accordance with the current allocation instructions. /arrow/ We generally will pay a partial withdrawal request within seven days following the Valuation Date we receive the request. There is no charge for a partial withdrawal. A partial withdrawal will reduce the Cash Value by the amount of the partial withdrawal. A partial withdrawal will reduce the Specified Amount by an amount equal to the amount of the partial withdrawal multiplied by the ratio of the initial Specified Amount to the initial premium. An example of a partial withdrawal's effect on the Specified Amount is shown below. A partial withdrawal will also reduce the Guaranteed Minimum Death Benefit by an amount equal to amount of the partial withdrawal multiplied by the ratio of the initial Specified Amount to the initial premium. In no event will any withdrawal reduce the Specified Amount below $1,000. Example: A Policy with a Specified Amount of $200,000 on a male standard (age 35) has a Guideline Single Premium of $48,920. The ratio of the initial Specified Amount to the initial premium is 4.09 (I.E., 200,000 divided by 48,920). If a $19,000 partial withdrawal is taken after the first Policy year, the Specified Amount will be reduced by $77,710 (I.E., 4.09 multiplied by $19,000). 36 LOANS - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- GENERAL After the Policy Date as long as the Policy remains in force, you may borrow money from us using the Policy as the only security for the loan. Taking a loan will terminate the Guaranteed Minimum Death Benefit rider, if any. See Guaranteed Minimum Death Benefit rider, page ___. A loan that is taken from, or secured by, a Policy may have tax consequences. See Federal Tax Considerations. POLICY LOANS ARE /bullet/ you must borrow at least $500; SUBJECT TO CERTAIN CONDITIONS: /bullet/ the maximum amount you may borrow is 90% of the Cash Value, less any surrender charge and any outstanding loan amount. 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. We may postpone payment of loans under certain conditions. See Payments We Make. You can repay a loan at any time while the Policy is in force. WE WILL CONSIDER ANY PAYMENTS YOU MAKE ON THE POLICY AS LOAN REPAYMENTS UNLESS THE PAYMENTS ARE CLEARLY SPECIFIED AS PREMIUMS. At each Policy anniversary, we will compare the amount of the outstanding loan 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 amount of the outstanding loan exceeds the amount in the loan reserve, we will withdraw the difference from the subaccounts and the standard 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 standard 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 The annual interest rate you will pay on a standard Policy loan is 6.0% and is payable in arrears on each Policy anniversary. 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. 37 LOAN RESERVE INTEREST RATE CREDITED We will credit the amount in the loan reserve with interest at an effective annual rate of 3.0%. We may credit a higher rate, but we are not obligated to do so. PREFERRED LOANS At any time after the Policy Date, you may borrow against the Policy up to an amount that is equal to the Cash Value, MINUS total premiums paid, LESS any outstanding loan amount. Such a loan is called a preferred loan. We currently charge interest on a preferred loan at an annual rate of 3.0%, payable in arrears. Any existing loan, other than a preferred loan, is not eligible for a preferred loan rate. Amounts in the loan reserve securing preferred loans accrue interest at the same 3.0% annual rate as other loans. Consult a tax advisor before taking a preferred loan because such a loan may have adverse tax consequences. We reserve the right to modify or discontinue the preferred loan feature. EFFECT OF POLICY LOANS A Policy loan affects the Policy, because we reduce the death benefit proceeds and Net Surrender Value under the Policy by the amount of any outstanding loan plus interest you owe on the loans. 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 outstanding, we hold an amount equal to the loan in the loan reserve. This amount is not affected by the separate account's investment performance and may not be credited with the interest rates accruing on the fixed account options. 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 performance of the separate account. A Policy loan will cause a Guaranteed Minimum Death Benefit rider to terminate. 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 that could occur if a Policy lapses with loans outstanding. See Risks, page ___. We will notify you (and any assignee of record) if the sum of your loans plus any interest you owe on the loans 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. We will accept policy exchanges under Section 1035 of the Internal Revenue Code where the policy from another company has an outstanding Policy loan of no more than 40% of the policy's cash value transferred to our Policy. We intend to treat these as preferred loan amounts. 38 POLICY LAPSE - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- LAPSE 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. The monthly deductions may exceed the Net Surrender Value if: /bullet/ we begin to impose monthly Cost of Insurance Charges, OR /bullet/ the sum of all outstanding Policy loans plus accrued loan interest exceeds the Net Surrender Value. 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 required and the final date by which we must receive the payment to keep the Policy from lapsing. 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. You may not reinstate this Policy after it has lapsed. If you purchase the Guaranteed Minimum Death Benefit rider, then no grace period will begin (and the Policy will not lapse) if there have been no Policy loans. See Guaranteed Minimum Death Benefit rider, page ___. FEDERAL INCOME TAX CONSIDERATIONS - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- The following summary provides a general description of the Federal income tax considerations associated with a Policy and does not purport to be complete or to cover all situations. THIS DISCUSSION IS NOT INTENDED AS TAX ADVICE. Please consult counsel or other qualified tax advisors for more complete information. 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 (Code) in order to qualify as a life insurance contract for Federal income tax purposes and to receive the tax treatment normally accorded life insurance contracts under Federal tax law. The manner in which these requirements are to be applied to certain innovative features of the Policy are not directly addressed by the Code or the limited guidance as to how these requirements are to be applied. Nevertheless, we believe that a Policy should satisfy the applicable Code requirements. Because of the absence of pertinent interpretations of the Code requirements, there is, however, some uncertainty about the application of such requirements to the Policy, particularly in the case of Policies 39 insuring more than one person. 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 contracts have been considered for Federal income tax purposes to be the owners of the assets of the separate account supporting their contracts due to their ability to exercise investment control over those assets. Where this is the case, the contract owners 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 contract 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 contract 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 (E.G., by assignment), a Policy, the tax consequences depend on whether the Policy is classified as a "Modified Endowment Contract". MODIFIED ENDOWMENT CONTRACTS. Under the Code, certain life insurance contracts are classified as "Modified Endowment Contracts" ("MECs") and receive less favorable tax treatment than other life insurance contracts. IN MOST SITUATIONS, THE POLICIES WILL BE CLASSIFIED AS MECS. There are, however, certain limited situations where a Policy may not be classified as a MEC. If you do not want your Policy to be classified as a MEC, a tax advisor should be consulted to determine the circumstances, if any, under which your Policy would not be classified as a MEC. 40 DISTRIBUTIONS FROM MODIFIED ENDOWMENT CONTRACTS. Policies classified as MECs are subject to the following tax rules: /bullet/ All distributions (that is, payout from the Policy), including distributions upon surrender and partial withdrawals, will be treated as ordinary income subject to tax up to an amount equal to the excess (if any) of the unloaned Cash Value (net surrender value for surrenders) immediately before the distribution plus prior distributions over the Owner's total investment in the Policy at that time. "Total investment in the Policy" means the aggregate amount of any premiums or other considerations paid for a Policy, plus any previously taxed distributions, minus any credited dividends. /bullet/ Loans taken from or secured by (E.G., by assignment) such a Policy are treated as distributions and taxed accordingly. /bullet/ A 10 percent additional 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 the beneficiary. DISTRIBUTIONS FROM POLICIES THAT ARE NOT MODIFIED ENDOWMENT CONTRACTS. 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 contract 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 not treated as distributions. Finally, neither distributions from nor loans from or secured by a Policy that is not a MEC are subject to the 10 percent additional tax. 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. 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. 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 41 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. POSSIBLE TAX LAW CHANGES. While the likelihood of legislative changes is uncertain, there is always a possibility that the tax treatment of the Policy could change by legislation or otherwise. It is even possible that any legislative change could be retroactive (effective prior to the date of the change). Consult a tax advisor with respect to legislative developments and their effect on the Policy. 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. 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. SUICIDE EXCLUSION If the Insured (either Insured if a Joint Policy) commits suicide, while sane or insane, within two years of the Policy Date, the Policy will terminate and our liability is limited to an amount equal to the premiums paid, less any loans and less any partial withdrawals paid. We will pay this amount to the beneficiary in one sum. MISSTATEMENT OF AGE OR GENDER If the age or gender of the Insured (either Insured if a Joint Policy) was stated incorrectly in the application or any supplemental application, the death benefit will be adjusted based on what the initial premium 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. Upon notice to the Owner, we may modify the Policy to: /arrow/ conform the Policy, our operations, or the separate account's operations to the requirements of any law (or regulation issued by a government agency) to which the Policy, our company or the separate account is subject; 42 /arrow/ assure continued qualification of the Policy as a life insurance contract under the Federal tax laws; or /arrow/ reflect a change in the separate account's operation. If we modify the Policy, we will make appropriate endorsements to the Policy. If any provision of the Policy conflicts with the laws of a jurisdiction that govern the Policy, we will amend the provision to conform with such laws. PAYMENTS WE MAKE We usually pay the amounts of any surrender, partial withdrawal, death benefit proceeds, or settlement options within seven business days after we receive all applicable written notices and/or due proofs of death. However, we can postpone such payments if: /bullet/ the NYSE is closed, other than customary weekend and holiday closing, or trading on the NYSE is restricted as determined by the Securities and Exchange Commission (Commission); OR /bullet/ the Commission permits, by an order, the postponement for the protection of Owners; OR /bullet/ the Commission 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, partial withdrawals, death benefit proceeds, or payments under a settlement option until such check or draft has been honored. REPORTS TO OWNERS At least once each year, or more often as required by law, we will mail to Owners at their last known address a report showing the following information as of the end of the report period: /check mark/ the current Cash Value /check mark/ the current Net Surrender Value /check mark/ the current death benefit /check mark/ any outstanding loans /check mark/ any activity since the last report /check mark/ projected values /check mark/ investment experience of each subaccount /check mark/ 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. We also will send copies of the annual and semi-annual report to shareholders for each Portfolio in which you are indirectly invested. 43 RECORDS We will maintain all records relating to the separate account and the fixed account. POLICY TERMINATION Your Policy will terminate on the earliest of: /bullet/ the maturity date /bullet/ the end of the grace period /bullet/ the date the Insured dies (or /bullet/ the date the Policy is the last of the joint Insureds surrendered dies) SUPPLEMENTAL BENEFITS (RIDERS) The following supplemental benefits (riders) are available and may be added to a Policy. Monthly charges for these are deducted from Cash Value as part of the Monthly Policy Charge. The riders available with the Policies provide fixed benefits that do not vary with the investment experience of the separate account. EXTENDED MATURITY DATE. You may request that we extend the Policy's maturity date (when the Insured (younger Insured, if a Joint Policy) is 100 years old) to the next Policy anniversary. Your request must be in writing and we must receive it at least 90 days before the scheduled maturity date. If you want to extend the maturity date beyond the next Policy anniversary, you must submit an additional written request within 90 days before that Policy anniversary. Interest on any outstanding loan will continue to accrue during the period for which the maturity date is extended. All benefits and charges will continue as set forth in the Policy. Charges and cost of insurance rates for ages 99 and above will be those in effect at age 99. The tax consequences of extending the Policy's maturity date beyond age 100 are unclear. A tax advisor should be consulted before extending the Policy's maturity date. ACCELERATED DEATH BENEFIT. This rider allows us to pay the death benefit once we receive satisfactory proof that the Insured has incurred a condition resulting from illness which a medical doctor has determined will reduce life expectancy to one year or less. GUARANTEED MINIMUM DEATH BENEFIT. This rider is described in the Death Benefit Section. See page ___. PERFORMANCE DATA - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- We are a member of the Insurance Marketplace Standards Association ("IMSA"), and so we may include the IMSA logo and information about IMSA membership in our advertisements. Companies that belong to IMSA subscribe to a set of ethical standards covering the various aspects of sales and service for individually sold life insurance and annuities. HYPOTHETICAL ILLUSTRATIONS BASED ON ADJUSTED HISTORIC PORTFOLIO PERFORMANCE In order to demonstrate how the actual investment experience of the Portfolios could have affected the death benefit, Cash Value and Net Surrender Value of the Policy, we will 44 provide hypothetical illustrations using the actual investment experience of each Portfolio since its inception. THESE HYPOTHETICAL ILLUSTRATIONS ARE DESIGNED TO SHOW THE PERFORMANCE THAT COULD HAVE RESULTED IF THE POLICY HAD BEEN IN EXISTENCE DURING THE PERIOD ILLUSTRATED. The values we illustrate for death benefit, Cash Value and Net Surrender Value take into account all charges and deductions from the Policy, the separate account and the Portfolios. In preparing the illustrations, we have deducted the Monthly Policy Charge and the Daily Charge as if the Policy had been in existence. We have assumed for purposes of deducting the Monthly Policy Charge that the actual historic rate of return in each calendar year was uniformly earned throughout that year. The actual performance of the Portfolios, however, varied each day and that could have affected the charges deducted and the performance illustrated. For each Portfolio, the illustrations below show an initial premium of $100,000 and a Specified Amount of $174,000 for a male age 65, non-smoker, select risk class. The following example shows how the hypothetical net return of the Growth Portfolio would have affected benefits for a Policy dated January 1, 1988. This example assumes that the Net Premiums and related Cash Values were in the subaccount for the entire period and that the values were determined on the first Valuation Date following January 1st of each year. GROWTH PORTFOLIO Male Issue Age 65 $100,000 Single Premium ($174,000 Specified Amount, Non-Tobacco Select Risk) Death Benefit Option A Both Current and Guaranteed Cost of Insurance Rates
CASH VALUE NET SURRENDER VALUE -------------------- -------------------- POLICY ANNIVERSARY ON JANUARY 1 OF CURRENT GUARANTEED CURRENT GUARANTEED - ---------------------------------- ------- ---------- ------- ---------- 1988 .................... $108,292 $106,728 $ 98,542 $ 96,978 1989*.................... 121,348 118,047 111,848 108,547 1990*.................... 164,546 158,840 155,296 149,590 1991*.................... 154,230 148,163 145,230 139,163 1992*.................... 227,470 217,423 219,470 209,423 1993*.................... 218,142 207,431 211,142 200,431 1994*.................... 214,810 203,235 208,810 197,235 1995*.................... 189,855 178,789 185,855 174,789 1996*.................... 248,282 232,819 246,282 230,819 1997*.................... 266,059 248,569 266,059 248,569 1998*.................... 279,984 260,815 279,984 260,815
45 The following example shows how the hypothetical net return of the Bond Portfolio would have affected benefits for a Policy dated January 1, 1988. This example assumes that the Net Premiums and related Cash Values were in the subaccount for the entire period and that the values were determined on the first Valuation Date following January 1st of each year. BOND PORTFOLIO Male Issue Age 65 $100,000 Single Premium ($174,000 Specified Amount, Non-Tobacco Select Risk) Death Benefit Option A Both Current and Guaranteed Cost of Insurance Rates
CASH VALUE NET SURRENDER VALUE -------------------- -------------------- POLICY ANNIVERSARY ON JANUARY 1 OF CURRENT GUARANTEED CURRENT GUARANTEED - ---------------------------------- ------- ---------- ------- ---------- 1988 .................... $ 93,097 $ 91,515 $ 83,347 $ 81,765 1989*.................... 96,692 93,098 87,192 83,598 1990*.................... 108,638 102,487 99,388 93,237 1991*.................... 112,928 104,483 103,928 95,483 1992*.................... 128,432 116,671 120,432 108,671 1993*.................... 134,958 120,627 127,958 113,627 1994*.................... 146,868 129,258 140,868 123,258 1995*.................... 133,420 115,356 129,420 111,356 1996*.................... 159,674 135,438 157,674 133,438 1997*.................... 154,370 128,784 154,370 128,784 1998*.................... 167,215 136,962 167,215 136,962
The following example shows how the hypothetical net return of the Money Market Portfolio would have affected benefits for a Policy dated January 1, 1988. This example assumes that the Net Premiums and related Cash Values were in the subaccount for the entire period and that the values were determined on the first Valuation date following January 1st of each year. MONEY MARKET PORTFOLIO Male Issue Age 65 $100,000 Single Premium ($174,000 Specified Amount, Non-Tobacco Select Risk) Death Benefit Option A Both Current and Guaranteed Cost of Insurance Rates
CASH VALUE NET SURRENDER VALUE -------------------- -------------------- POLICY ANNIVERSARY ON JANUARY 1 OF CURRENT GUARANTEED CURRENT GUARANTEED - ---------------------------------- ------- ---------- ------- ---------- 1988 .................... $103,142 $101,570 $ 93,392 $ 91,820 1989*.................... 106,466 103,139 96,966 93,639 1990*.................... 111,825 106,493 102,575 97,243 1991*.................... 116,671 109,177 107,671 100,177 1992*.................... 119,296 109,585 111,296 101,585 1993*.................... 119,550 107,558 112,550 100,558 1994*.................... 118,954 104,393 112,954 98,393 1995*.................... 119,647 101,989 115,647 97,989 1996*.................... 122,547 100,985 120,547 98,985 1997*.................... 125,095 99,140 125,095 99,140 1998*.................... 129,261 97,946 129,261 97,946
46 The following example shows how the hypothetical net return of the Global Portfolio would have affected benefits for a Policy dated January 1, 1994. This example assumes that the Net Premiums and related Cash Values were in the subaccount for the entire period and that the values were determined on the first Valuation Date following January 1st of each year. GLOBAL PORTFOLIO Male Issue Age 65 $100,000 Single Premium ($174,000 Specified Amount, Non-Tobacco Select Risk) Death Benefit Option A Both Current and Guaranteed Cost of Insurance Rates
CASH VALUE NET SURRENDER VALUE -------------------- -------------------- POLICY ANNIVERSARY ON JANUARY 1 OF CURRENT GUARANTEED CURRENT GUARANTEED - ---------------------------------- ------- ---------- ------- ---------- 1994 .................... $130,990 $129,476 $121,240 $119,726 1995*.................... 127,946 125,398 118,446 115,898 1996*.................... 153,485 149,335 144,235 140,085 1997*.................... 187,474 181,526 178,474 172,526 1998*.................... 219,542 211,516 211,542 203,516
The following example shows how the hypothetical net return of the Emerging Growth Portfolio would have affected benefits for a Policy dated January 1, 1995. This example assumes that the Net Premiums and related Cash Values were in the subaccount for the entire period and that the values were determined on the first Valuation Date following January 1st of each year. EMERGING GROWTH PORTFOLIO Male Issue Age 65 $100,000 Single Premium ($174,000 Specified Amount, Non-Tobacco Select Risk) Death Benefit Option A Both Current and Guaranteed Cost of Insurance Rates
CASH VALUE NET SURRENDER VALUE -------------------- -------------------- POLICY ANNIVERSARY ON JANUARY 1 OF CURRENT GUARANTEED CURRENT GUARANTEED - ---------------------------------- ------- ---------- ------- ---------- 1995 .................... $ 90,369 $ 88,785 $ 80,619 $ 79,035 1996*.................... 130,027 125,730 120,527 116,230 1997*.................... 148,469 142,426 139,219 133,176 1998*.................... 176,471 168,430 167,471 159,430
47 The following example shows how the hypothetical net return of the Stategic Total Return Portfolio would have affected benefits for a Policy dated January 1, 1995. This example assumes that the Net Premiums and related Cash Values were in the subaccount for the entire period and that the values were determined on the first Valuation Date following January 1st of each year. STRATEGIC TOTAL RETURN PORTFOLIO Male Issue Age 65 $100,000 Single Premium ($174,000 Specified Amount, Non-Tobacco Select Risk) Death Benefit Option A Both Current and Guaranteed Cost of Insurance Rates
CASH VALUE NET SURRENDER VALUE -------------------- -------------------- POLICY ANNIVERSARY ON JANUARY 1 OF CURRENT GUARANTEED CURRENT GUARANTEED - ---------------------------------- ------- ---------- ------- ---------- 1995 .................... $ 97,169 $ 95,590 $ 87,419 $ 85,840 1996*.................... 118,326 114,572 108,826 105,072 1997*.................... 130,607 124,970 121,357 115,720 1998*.................... 155,953 147,995 146,953 138,995
The following example shows how the hypothetical net return of the Aggressive Growth Portfolio would have affected benefits for a Policy dated January 1, 1996. This example assumes that the Net Premiums and related Cash Values were in the subaccount for the entire period and that the values were determined on the first Valuation Date following January 1st of each year. AGGRESSIVE GROWTH PORTFOLIO Male Issue Age 65 $100,000 Single Premium ($174,000 Specified Amount, Non-Tobacco Select Risk) Death Benefit Option A Both Current and Guaranteed Cost of Insurance Rates
CASH VALUE NET SURRENDER VALUE -------------------- -------------------- POLICY ANNIVERSARY ON JANUARY 1 OF CURRENT GUARANTEED CURRENT GUARANTEED - ---------------------------------- ------- ---------- ------- ---------- 1996 ................... $136,435 $134,936 $126,685 $125,186 1997*.................... 144,932 142,480 135,432 132,980 1998*.................... 176,334 172,525 167,084 163,275
48 The following example shows how the hypothetical net return of the Balanced Portfolio would have affected benefits for a Policy dated January 1, 1996. This example assumes that the Net Premiums and related Cash Values were in the subaccount for the entire period and that the values were determined on the first Valuation Date following January 1st of each year. BALANCED PORTFOLIO Male Issue Age 65 $100,000 Single Premium ($174,000 Specified Amount, Non-Tobacco Select Risk) Death Benefit Option A Both Current and Guaranteed Cost of Insurance Rates
CASH VALUE NET SURRENDER VALUE -------------------- -------------------- POLICY ANNIVERSARY ON JANUARY 1 OF CURRENT GUARANTEED CURRENT GUARANTEED - ---------------------------------- ------- ---------- ------- ---------- 1996 .................... $116,950 $115,402 $107,200 $105,652 1997*.................... 124,538 121,540 115,038 112,040 1998*.................... 143,759 139,048 134,509 129,798
The following example shows how the hypothetical net return of the Growth & Income Portfolio would have affected benefits for a Policy dated January 1, 1996. This example assumes that the Net Premiums and related Cash Values were in the subaccount for the entire period and that the values were determined on the first Valuation Date following January 1st of each year. GROWTH & INCOME PORTFOLIO Male Issue Age 65 $100,000 Single Premium ($174,000 Specified Amount, Non-Tobacco Select Risk) Death Benefit Option A Both Current and Guaranteed Cost of Insurance Rates
CASH VALUE NET SURRENDER VALUE -------------------- -------------------- POLICY ANNIVERSARY ON JANUARY 1 OF CURRENT GUARANTEED CURRENT GUARANTEED - ---------------------------------- ------- ---------- ------- ---------- 1996 .................... $122,662 $121,127 $112,912 $111,377 1997*.................... 130,813 127,972 121,313 118,472 1998*.................... 159,379 154,904 150,129 145,654
49 The following example shows how the hypothetical net return of the Tactical Asset Allocation Portfolio would have affected benefits for a Policy dated January 1, 1996. This example assumes that the Net Premiums and related Cash Values were in the subaccount for the entire period and that the values were determined on the first Valuation Date following January 1st of each year. TACTICAL ASSET ALLOCATION PORTFOLIO Male Issue Age 65 $100,000 Single Premium ($174,000 Specified Amount, Non-Tobacco Select Risk) Death Benefit Option A Both Current and Guaranteed Cost of Insurance Rates
CASH VALUE NET SURRENDER VALUE -------------------- -------------------- POLICY ANNIVERSARY ON JANUARY 1 OF CURRENT GUARANTEED CURRENT GUARANTEED - ---------------------------------- ------- ---------- ------- ---------- 1996 .................... $117,889 $116,343 $108,139 $106,593 1997*.................... 129,560 126,555 120,060 117,055 1998*.................... 147,210 142,679 137,960 133,429
The following example shows how the hypothetical net return of the U.S. Equity Portfolio would have affected benefits for a Policy dated January 1, 1998. This example assumes that the Net Premiums and related Cash Values were in the subaccount for the entire period and that the values were determined on the first Valuation Date following January 1st of each year. U.S. EQUITY PORTFOLIO Male Issue Age 65 $100,000 Single Premium ($174,000 Specified Amount, Non-Tobacco Select Risk) Death Benefit Option A Both Current and Guaranteed Cost of Insurance Rates
CASH VALUE NET SURRENDER VALUE -------------------- -------------------- POLICY ANNIVERSARY ON JANUARY 1 OF CURRENT GUARANTEED CURRENT GUARANTEED - ---------------------------------- ------- ---------- ------- ---------- 1998 .................... $123,738 $122,206 $113,988 $112,456
The following example shows how the hypothetical net return of the Real Estate Securities Portfolio would have affected benefits for a Policy dated January 1, 1998. This example assumes that the Net Premiums and related Cash Values were in the subaccount for the entire period and that the values were determined on the first Valuation Date following January 1st of each year. REAL ESTATE SECURITIES Male Issue Age 65 $100,000 Single Premium ($174,000 Specified Amount, Non-Tobacco Select Risk) Death Benefit Option A Both Current and Guaranteed Cost of Insurance Rates
CASH VALUE NET SURRENDER VALUE -------------------- -------------------- POLICY ANNIVERSARY ON JANUARY 1 OF CURRENT GUARANTEED CURRENT GUARANTEED - ---------------------------------- ------- ---------- ------- ---------- 1998 .................... $ $ $ $
50 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 4425 North River Blvd., NE, Cedar Rapids, Iowa 52402 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. The maximum sales commission payable to Western Reserve agents or other registered representatives will be approximately 7% of the initial premium. In addition, certain production, persistency and managerial bonuses may be paid. 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 Thomas E. Pierpan, Vice President, Assistant Secretary and Associate General Counsel of Western Reserve. LEGAL PROCEEDINGS Like other life insurance companies, we are involved in lawsuits. We are not aware of any class action lawsuits naming us as a defendant or involving the separate account. In some lawsuits involving other insurers, substantial damages have been sought and/or material settlement payments have been made. We believe that there are no pending or threatened lawsuits that will adversely impact us or the separate account. YEAR 2000 MATTERS We have in place a Year 2000 Assessment and Planning Project (the "Plan") to review and analyze existing hardware and software systems, and voice and data communications systems, to determine if they are Year 2000 compatible. The Plan provides for a management process which ensures that when a particular system, or software application, is determined to be "non-compliant," the proper steps are in place to either remedy the ""non-compliance" or cease using the particular system or software. The Plan also requires the Chief Information Officer to report to the Board of Directors on a regular and routine basis the status of efforts under the Plan. We also have engaged the services of a third-party provider that specializes in Year 2000 issues. The Plan has four specific objectives: /bullet/ develop an inventory of all applications; /bullet/ evaluate those applications to determine the most prudent manner to move them to Year 2000 compliance, if necessary; /bullet/ estimate budgets, resources and schedules for moving the applications to Year 2000 compliance; and 51 /bullet/ define testing and deployment requirements to successfully manage the changes of any codes. As of the date of this prospectus, we have identified and made available what we believe are the appropriate resources of hardware, people and dollars, including engaging outside third parties, to ensure that the Plan will be completed. Resolving the Year 2000 computer problem is complex and multifaceted. We cannot know conclusively whether a response plan is successful until the Year 2000 arrives (or an earlier date if the systems or equipment address Year 2000 data prior to the Year 2000). Even with the appropriate and diligent pursuit of a well-conceived response plan, including testing procedures, there is no certainty that any company will achieve complete success. Also, the actions (or failure to act) of third parties beyond our knowledge or control may affect our ability to function unaffected to and through the Year 2000. See the Portfolios' prospectus for information on their preparation for Year 2000. FINANCIAL STATEMENTS This prospectus does not include financial statements of the separate account because, as of the date of this prospectus, the relevant subaccounts of the separate account had not yet commenced operations, had no assets, and had incurred no liabilities. Our financial statements appear on the following pages. Our financial statements should be distinguished from the separate account's financial statements and you should consider our financial statements only as bearing upon our ability to meet our obligations under the Policies. 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 by AEGON USA, Inc. Western Reserve's home office is located at 570 Carillon Parkway, St. Petersburg, Florida 33716-1202. 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 49 states 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. WESTERN RESERVE'S DIRECTORS AND OFFICERS Western Reserve is 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 Western Reserve's directors. 52
BOARD OF DIRECTORS POSITION WITH WESTERN PRINCIPAL OCCUPATION NAME AND ADDRESS RESERVE DURING PAST 5 YEARS - -------------------------------------------------------------------------------------------- John R. Kenney Chairman of the Board, Chairman of the Board and 570 Carillon Parkway Chief Executive Officer and President of WRL Series St. Petersburg, Florida 33716 President Fund, Inc. (1993-present); Chairman of the Board of IDEX Series Fund (1990- present) and Chairman of the Board, WRL Investment Services, Inc. (1996-present); Chairman of the Board of WRL Investment Management, Inc. (1996-present). - -------------------------------------------------------------------------------------------- Patrick S. Baird Director Executive Vice President 4333 Edgewood Road, NE, (1995-present), Chief Cedar Rapids, Iowa 52499 Operating Officer (1996- present), Chief Financial Officer (1992-1995), Vice President and Chief Tax Officer (1984-1995) of AEGON USA. - -------------------------------------------------------------------------------------------- Jack E. Zimmerman Director Trustee, IDEX Series Fund 507 St. Michel Circle, (1987-present); Retired from Kettering, Ohio 45429 Martin Marietta (1993). - -------------------------------------------------------------------------------------------- Lyman H. Treadway Director Retired Consultant. 30195 Chagrin Blvd. Ste. 210N, Cleveland, Ohio 44124 - -------------------------------------------------------------------------------------------- James R. Walker Director Self-employed, Public 3320 Office Park Dr., Accountant (1996 -- Dayton, Ohio 45439 present); Partner, Walker- Davis C.P.A.'s,Dayton, Ohio (1990 -- 1995). - --------------------------------------------------------------------------------------------
53 The following table gives the name, address and principal occupation during the past five years of the senior officers of Western Reserve (other than officers listed above as directors). SENIOR OFFICERS
NAME AND ADDRESS POSITION WITH WESTERN PRINCIPAL OCCUPATION RESERVE DURING PAST 5 YEARS - ---------------------------------------------------------------------------------------------- Alan M. Yaeger* Executive Vice President, Executive Vice President, Actuary and Chief Financial WRL Series Fund, Inc. (1993 Officer - present); Director, WRL Investment Management, Inc. (1996 - present); Director, WRL Investment Services, Inc. (1996 - present). - ----------------------------------------------------------------------------------------------- William H. Geiger* Senior Vice President, Vice President and Assistant Secretary and General Secretary, IDEX Series Fund Counsel (1990-present). - ----------------------------------------------------------------------------------------------- G. John Hurley* Executive Vice President Director, WRL Series Fund, Inc. (1994 - present); Director, WRL Investment Services, Inc. (1996 - present); Director, WRL Management Services, Inc. (1996 - present); President, Chief Executive Officer and Trustee, IDEX Series Fund (1990 - present). - ----------------------------------------------------------------------------------------------- Allan J. Hamilton* Vice President, Treasurer and Treasurer and Chief Financial Controller Officer, WRL Series Fund, Inc. (1997 - present). - ----------------------------------------------------------------------------------------------- * Located at 570 Carillon Parkway, St. Petersburg, Florida 33716-1202.
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 sale of Portfolio shares by each of the subaccounts. A blanket bond issued to AEGON U.S. Holding Corporation ("AEGON U.S.") in the amount of $5 million (subject to a $1 million deductible), covering all of the employees of AEGON U.S. and its affiliates, including Western Reserve. A Stockbrokers Blanket Bond, issued to AEGON U.S.A. Securities, Inc. providing fidelity coverage, covers the activities of registered representatives of AFSG to a limit of $12 million. ADDITIONAL INFORMATION ABOUT THE SEPARATE ACCOUNT Western Reserve established the separate account as a separate investment account under Ohio law in 1985. Western Reserve owns the assets in the separate account and is obligated to pay all benefits under the Policies. The separate account is used to support other life insurance policies of Western Reserve and its affiliates, AUSA and PFL, as well as for other purposes permitted by law. The separate account is registered with the SEC as an unit investment trust under the Investment Company Act of 1940 and qualifies as a "separate account" within the meaning of the Federal securities laws. 54 ILLUSTRATIONS - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- The following illustrations show how certain values under a sample Policy would change with different rates of fictional investment performance over an extended period of time. In particular, the illustrations show how the Death Benefit, Cash Value, and Net Surrender Value under a Policy covering a male Insured of age 65 on the Policy Date, would change over time if the single premium was paid and the return on the assets in the subaccounts were a uniform gross annual rate (before any expenses) of 0%, 6% or 12%. The tables also show how the Policy would operate if the premium accumulated at 5% interest. The values under the Policy will be different from those shown even if the returns averaged 0%, 6% or 12%, but fluctuated over and under those averages throughout the years shown. THE HYPOTHETICAL INVESTMENT RETURNS ARE PROVIDED ONLY TO ILLUSTRATE THE MECHANICS OF A HYPOTHETICAL POLICY AND DO NOT REPRESENT PAST OR FUTURE INVESTMENT RATES OF RETURN. Actual rates of return for a particular Policy may be more or less than the hypothetical investment rates of return. The actual return on your Cash Value will depend on factors such as the amounts you allocate to particular Portfolios, the amounts deducted for the Policy's monthly and daily charges, the Portfolios' expense ratios, your Policy loan and withdrawal history, and rates of inflation. The illustrations assume that the assets in the Portfolios are subject to an annual expense ratio of 0.___% of the average daily net assets. This annual expense ratio is based on the average of the expense ratios of each of the Portfolios for the last fiscal year and take into account current expense reimbursement arrangements. For information on Portfolio expenses, see the Fund prospectus. The illustrations also reflect the Monthly Policy Charge and the Daily Charge for the hypothetical Insured. Separate illustrations on each of the following pages reflect our current Cost of Insurance Charges and the higher guaranteed maximum Cost of Insurance that we may have the contractual right to charge. The illustrations assume that no Policy loans have been taken and assume no charges for federal or state taxes or charges for supplemental benefits. After deducting Portfolio expenses, the illustrated gross annual investment rates of return of 0%, 6% and 12% would correspond to approximate net annual rates for the separate account of -1.45%, 4.55% and 10.55%, respectively. [THE ILLUSTRATIONS ARE BASED ON WESTERN RESERVE'S GENDER DISTINCT RATES FOR NON-TOBACCO USERS. UPON REQUEST, WESTERN RESERVE WILL FURNISH A COMPARABLE ILLUSTRATION BASED UPON THE PROPOSED INSURED'S INDIVIDUAL CIRCUMSTANCES. SUCH ILLUSTRATIONS MAY ASSUME DIFFERENT HYPOTHETICAL RATES OF RETURN THAN THOSE ILLUSTRATED IN THE FOLLOWING ILLUSTRATIONS.] 55 INDEX TO FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO Report of Independent Auditors dated February __, 1999. Statutory-Basis Balance sheets at December 31, 1998 and 1997. Statutory-Basis Statements of Operations for the years ended December 31, 1998, 1997 and 1996. Statutory-Basis Statements of Changes in Capital and Surplus for the years ended December 31, 1998, 1997, and 1996. Statutory-Basis Statements of Cash Flows for the years ended December 31, 1998, 1997, and 1996. Notes to Statutory-Basis Financial Statements Statutory-Basis Financial Statement Schedules 56 PART II. OTHER INFORMATION UNDERTAKING TO FILE REPORTS Subject to the terms and conditions of Section 15(d) of the Securities Exchange Act of 1934, the undersigned registrant hereby undertakes to file with the Securities and Exchange Commission such supplementary and periodic information, documents, and reports as may be prescribed by any rule or regulation of the Commission heretofore or hereafter duly adopted pursuant to authority conferred in that Section. REPRESENTATION PURSUANT TO SECTION 26(E) (2) (A) Western Reserve Life Assurance Co. of Ohio ("Western Reserve") hereby represents that the fees and charges deducted under the Contracts, in the aggregate, are reasonable in relation to the services rendered, the expenses expected to be incurred, and the risks assumed by Western Reserve. STATEMENT WITH RESPECT TO INDEMNIFICATION Provisions exist under the Ohio General Corporation Law, the Second Amended Articles of Incorporation of Western Reserve and the Amended Code of Regulations of Western Reserve whereby Western Reserve may indemnify certain persons against certain payments incurred by such persons. The following excerpts contain the substance of these provisions. OHIO GENERAL CORPORATION LAW SECTION 1701.13 AUTHORITY OF CORPORATION. (E)(1) A corporation may indemnify or agree to indemnify any person who was or is a party or is threatened to be made a party, to any threatened, pending, or completed action, suit, or proceeding, whether civil, criminal, administrative, or investigative, other than an action by or in the right of the corporation, by reason of the fact that he is or was a director, officer, employee, or agent of the corporation, or is or was serving at the request of the corporation as a director, trustee, officer, employee, or agent of another corporation (including a subsidiary of this corporation), domestic or foreign, nonprofit or for profit, partnership, joint venture, trust, or other enterprise, against expenses, including attorneys' fees, judgments, fines, and amounts paid in settlement actually and reasonably incurred by him in connection with such action, suit, or proceeding if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the corporation, and with respect to any criminal action or proceeding, had no reasonable cause to believe his conduct was unlawful. The termination of any action, suit, or proceeding by judgment, order, settlement, conviction, or upon a plea of nolo contendre or its equivalent, shall not, of itself create a presumption that the person did not act in good faith and in a manner which he reasonably believed to be in or not opposed to the best interests of the corporation, and with respect to any criminal action or proceeding, he had reasonable cause to believe that his conduct was unlawful. (2) A corporation may indemnify or agree to indemnify any person who was or is a party, or is threatened to be made a party to any threatened, pending, or completed action or suit by or in the right of the corporation to procure a judgment in its favor by reason of the fact that he is or was a director, officer, employee, or agent of the corporation, or is or was serving at the request of the corporation as a director, trustee, officer, employee, or agent of another corporation, domestic or foreign, nonprofit or for profit, partnership, joint venture, trust, or other enterprise, against expenses, including attorneys' fees, actually and reasonably incurred by him in connection with the defense or settlement of such action or suit if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the corporation, except that no indemnification shall be made in respect of any of the following: II-1 (a) Any claim, issue, or matter as to which such person shall have been adjudged to be liable for negligence or misconduct in the performance of his duty to the corporation unless, and only to the extent that the court of common pleas, or the court in which such action or suit was brought determines upon application that, despite the adjudication of liability, but in view of all the circumstances of the case, such person is fairly and reasonably entitled to indemnity for such expenses as the court of common pleas or such other court shall deem proper; (b) Any action or suit in which the only liability asserted against a director is pursuant to section 1701.95 of the Revised Code. (3) To the extent that a director, trustee, officer, employee, or agent has been successful on the merits or otherwise in defense of any action, suit, or proceeding referred to in divisions (E)(1) and (2) of this section, or in defense of any claim, issue, or matter therein, he shall be indemnified against expenses, including attorneys' fees, actually and reasonably incurred by him in connection therewith. (4) Any indemnification under divisions (E)(1) and (2) of this section, unless ordered by a court, shall be made by the corporation only as authorized in the specific case upon a determination that indemnification of the director, trustee, officer, employee, or agent is proper in the circumstances because he has met the applicable standard of conduct set forth in divisions (E)(1) and (2) of this section. Such determination shall be made as follows: (a) By a majority vote of a quorum consisting of directors of the indemnifying corporation who were not and are not parties to or threatened with any such action, suit, or proceeding; (b) If the quorum described in division (E)(4)(a) of this section is not obtainable or if a majority vote of a quorum of disinterested directors so directs, in a written opinion by independent legal counsel other than an attorney, or a firm having associated with it an attorney, who has been retained by or who has performed services for the corporation, or any person to be indemnified within the past five years; (c) By the shareholders; (d) By the court of common pleas or the court in which such action, suit, or proceeding was brought. Any determination made by the disinterested directors under division (E)(4)(a) or by independent legal counsel under division (E)(4)(b) of this section shall be promptly communicated to the person who threatened or brought the action or suit by or in the right of the corporation under division (E)(2) of this section, and within ten days after receipt of such notification, such person shall have the right to petition the court of common pleas or the court in which such action or suit was brought to review the reasonableness of such determination. (5)(a) Unless at the time of a director's act or omission that is the subject of an action, suit or proceeding referred to in divisions (E)(1) and (2) of this section, the articles or the regulations of a corporation state by specific reference to this division that the provisions of this division do not apply to the corporation and unless the only liability asserted against a director in an action, suit, or proceeding referred to in divisions (E)(1) and (2) of this section is pursuant to section 1701.95 of the Revised Code, expenses, including attorney's fees, incurred by a director in defending the action, suit, or proceeding shall be paid by the corporation as they are incurred, in advance of the final disposition of the action, suit, or proceeding upon receipt of an undertaking by or on behalf of the director in which he agrees to do both of the following: (i) Repay such amount if it is proved by clear and convincing evidence in a court of competent jurisdiction that his action or failure to act involved an act or omission undertaken with II-2 deliberate intent to cause injury to the corporation or undertaken with reckless disregard for the best interests of the corporation; (ii) Reasonably cooperate with the corporation concerning the action, suit, or proceeding. (b) Expenses, including attorneys' fees incurred by a director, trustee, officer, employee, or agent in defending any action, suit, or proceeding referred to in divisions (E)(1) and (2) of this section, may be paid by the corporation as they are incurred, in advance of the final disposition of the action, suit, or proceeding as authorized by the directors in the specific case upon receipt of an undertaking by or on behalf of the director, trustee, officer, employee, or agent to repay such amount, if it ultimately is determined that he is entitled to be indemnified by the corporation. (6) The indemnification authorized by this section shall not be exclusive of, and shall be in addition to, any other rights granted to those seeking indemnification under the articles or the regulations or any agreement, vote of shareholders or disinterested directors, or otherwise, both as to action in his official capacity and as to action in another capacity while holding such office, and shall continue as to a person who has ceased to be a director, trustee, officer, employee, or agent and shall inure to the benefit of the heirs, executors, and administrators of such a person. (7) A corporation may purchase and maintain insurance or furnish similar protection, including but not limited to trust funds, letters of credit, or self-insurance on behalf of or for any person who is or was a director, officer, employee, or agent of the corporation, or is or was serving at the request of the corporation as a director, trustee, officer, employee, or agent of another corporation, domestic or foreign, nonprofit or for profit, partnership, joint venture, trust, or other enterprise against any liability asserted against him and incurred by him in any such capacity, or arising out of his status as such, whether or not the corporation would have the power to indemnify him against such liability under this section. Insurance may be purchased from or maintained with a person in which the corporation has a financial interest. (8) The authority of a corporation to indemnify persons pursuant to divisions (E)(1) and (2) of this section does not limit the payment of expenses as they are incurred, indemnification, insurance, or other protection that may be provided pursuant to divisions (E)(5), (6), and (7) of this section. Divisions (E)(1) and (2) of this section do not create any obligation to repay or return payments made by the corporation pursuant to divisions (E)(5), (6), or (7). (9) As used in this division, references to "corporation" include all constituent corporations in a consolidation or merger and the new or surviving corporation, so that any person who is or was a director, officer, employee, or agent of such a constituent corporation, or is or was serving at the request of such constituent corporation as a director, trustee, officer, employee or agent of another corporation, domestic or foreign, nonprofit or for profit, partnership, joint venture, trust, or other enterprise, shall stand in the same position under this section with respect to the new or surviving corporation as he would if he had served the new or surviving corporation in the same capacity. SECOND AMENDED ARTICLES OF INCORPORATION OF WESTERN RESERVE ARTICLE EIGHTH EIGHTH: (1) The corporation may indemnify or agree to indemnify any person who was or is a party or is threatened to be made a party, to any threatened, pending, or completed action, suit, or proceeding, whether civil, criminal, administrative, or investigative, other than an action by or in the right of the corporation, by reason of the fact that he is or was a director, officer, employee, or agent of the corporation, or is or was serving at the request of the corporation as a director, trustee, officer, employee, or agent of another corporation (including a subsidiary of this corporation), domestic or foreign, nonprofit or for profit, partnership, joint venture, trust, or other enterprise, against expenses, including attorneys' II-3 fees, judgments, fines, and amounts paid in settlement actually and reasonably incurred by him in connection with such action, suit, or proceeding if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the corporation, and with respect to any criminal action or proceeding, had no reasonable cause to believe his conduct was unlawful. The termination of any action, suit, or proceeding by judgment, order, settlement, conviction, or upon a plea of nolo contendre or its equivalent, shall not, of itself create a presumption that the person did not act in good faith and in a manner which he reasonably believed to be in or not opposed to the best interests of the corporation, and with respect to any criminal action or proceeding, he had reasonable cause to believe that his conduct was unlawful. (2) The corporation may indemnify or agree to indemnify any person who was or is a party, or is threatened to be made a party to any threatened, pending, or completed action or suit by or in the right of the corporation to procure a judgment in its favor by reason of the fact that he is or was a director, officer, employee, or agent of the corporation, or is or was serving at the request of the corporation as a director, trustee, officer, employee, or agent of another corporation (including a subsidiary of this corporation), domestic or foreign, nonprofit or for profit, partnership, joint venture, trust, or other enterprise against expenses, including attorneys' fees, actually and reasonably incurred by him in connection with the defense or settlement of such action or suit if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the corporation, except that no indemnification shall be made in respect of any claim, issue, or matter as to which such person shall have been adjudged to be liable for negligence or misconduct in the performance of his duty to the corporation unless, and only to the extent that the court of common pleas, or the court in which such action or suit was brought shall determine upon application that, despite the adjudication of liability, but in view of all the circumstances of the case, such person is fairly and reasonably entitled to indemnity for such expenses as the court of common pleas or such other court shall deem proper. (3) To the extent that a director, trustee, officer, employee, or agent has been successful on the merits or otherwise in defense of any action, suit, or proceeding referred to in sections (1) and (2) of this article, or in defense of any claim, issue, or matter therein, he shall be indemnified against expenses, including attorneys' fees, actually and reasonably incurred by him in connection therewith. (4) Any indemnification under sections (1) and (2) of this article, unless ordered by a court, shall be made by the corporation only as authorized in the specific case upon a determination that indemnification of the director, trustee, officer, employee, or agent is proper in the circumstances because he has met the applicable standard of conduct set forth in sections (1) and (2) of this article. Such determination shall be made (a) by a majority vote of a quorum consisting of directors of the indemnifying corporation who were not and are not parties to or threatened with any such action, suit, or proceeding, or (b) if such a quorum is not obtainable or if a majority vote of a quorum of disinterested directors so directs, in a written opinion by independent legal counsel other than an attorney, or a firm having associated with it an attorney, who has been retained by or who has performed services for the corporation, or any person to be indemnified within the past five years, or (c) by the shareholders, or (d) by the court of common pleas or the court in which such action, suit, or proceeding was brought. Any determination made by the disinterested directors under section (4)(a) or by independent legal counsel under section (4)(b) of this article shall be promptly communicated to the person who threatened or brought the action or suit by or in the right of the corporation under section (2) of this article, and within ten days after receipt of such notification, such person shall have the right to petition the court of common pleas or the court in which such action or suit was brought to review the reasonableness of such determination. (5) Expenses, including attorneys' fees incurred in defending any action, suit, or proceeding referred to in sections (1) and (2) of this article, may be paid by the corporation in advance of the final disposition of such action, suit, or proceeding as authorized by the directors in the specific case upon receipt of a written undertaking by or on behalf of the director, trustee, officer, employee, or agent 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 II-4 that a written undertaking need not be submitted to the corporation shall in no way affect the entitlement of indemnification as authorized by this article. (6) The indemnification provided by this article shall not be deemed exclusive of any other rights to which those seeking indemnification may be entitled under the articles or the regulations or any agreement, vote of shareholders or disinterested directors, or otherwise, both as to action in his official capacity and as to action in another capacity while holding such office, and shall continue as to a person who has ceased to be a director, trustee, officer, employee, or agent and shall inure to the benefit of the heirs, executors, and administrators of such a person. (7) The Corporation may purchase and maintain insurance on behalf of any person who is or was a director, officer, employee, or agent of the corporation, or is or was serving at the request of the corporation as a director, trustee, officer, employee, or agent of another corporation (including a subsidiary of this corporation), domestic or foreign, nonprofit or for profit, partnership, joint venture, trust, or other enterprise against any liability asserted against him and incurred by him in any such capacity or arising out of his status as such, whether or not the corporation would have the power to indemnify him against such liability under this section. (8) As used in this section, references to "the corporation" include all constituent corporations in a consolidation or merger and the new or surviving corporation, so that any person who is or was a director, officer, employee, or agent of such a constituent corporation, or is or was serving at the request of such constituent corporation as a director, trustee, officer, employee or agent of another corporation (including a subsidiary of this corporation), domestic or foreign, nonprofit or for profit, partnership, joint venture, trust, or other enterprise shall stand in the same position under this article with respect to the new or surviving corporation as he would if he had served the new or surviving corporation in the same capacity. (9) The foregoing provisions of this article do not apply to any proceeding against any trustee, investment manager or other fiduciary of an employee benefit plan in such person's capacity as such, even though such person may also be an agent of this corporation. The corporation may indemnify such named fiduciaries of its employee benefit plans against all costs and expenses, judgments, fines, settlements or other amounts actually and reasonably incurred by or imposed upon said named fiduciary in connection with or arising out of any claim, demand, action, suit or proceeding in which the named fiduciary may be made a party by reason of being or having been a named fiduciary, to the same extent it indemnifies an agent of the corporation. To the extent that the corporation does not have the direct legal power to indemnify, the corporation may contract with the named fiduciaries of its employee benefit plans to indemnify them to the same extent as noted above. The corporation may purchase and maintain insurance on behalf of such named fiduciary covering any liability to the same extent that it contracts to indemnify. AMENDED CODE OF REGULATIONS OF WESTERN RESERVE ARTICLE V INDEMNIFICATION OF DIRECTORS AND OFFICERS Each Director, officer and member of a committee of this Corporation, and tany person who may have served at the request of this Corporation as a Director, officer or member of a committee of any other corporation in which this Corporation owns shares of capital stock or of which this Corporation is a creditor (and his heirs, executors and administrators) shall be indemnified by the Corporation against all expenses, costs, judgments, decrees, fines or penalties as provided by, and to the extent allowed by, Article Eighth of the Corporation's Articles of Incorporation, as amended. II-5 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 56 pages The undertaking to file reports Representation Pursuant to Section 26(e)(2)(A) The statement with respect to indemnification The Rule 484 undertaking The signatures Written consent of the following persons: (a) Alan Yaeger (b) Thomas E. Pierpan, Esq. (c) Sutherland Asbill & Brennan LLP (d) Ernst & Young LLP (e) PricewaterhouseCoopers LLP The following exhibits: 1. The following exhibits correspond to those required by paragraph A to the instructions as to exhibits in Form N-8B-2: A. (1) Resolution of the Board of Directors of Western Reserve establishing the Series Account (1) (2) Not Applicable (3) Distribution of Policies: (a) Master Service and Distribution Compliance Agreement (2) (b) (i) Broker/Dealer Supervisory and Service Agreement (2) (ii)Broker/Dealer Supervisory and Service Agreement (2) (4) Not Applicable (5) Specimen Flexible Premium Variable Life Insurance Policy (a) Individual Policy Form (VL10) (b) Joint Policy Form (JL10) (6) (a) Second Amended Articles of Incorporation of Western Reserve(2) (b) Amended Code of Regulations (By-Laws) of Western Reserve(2) (7) Not Applicable (8) (a) Investment Advisory Agreement with the Fund(1)(b) (b) Sub-Advisory Agreement(1) (9) Not Applicable (10) Application for Flexible Premium Variable Life Insurance Policy (6) II-6 (11) Memorandum describing issuance, transfer and redemption procedures (6) 2. See Exhibit 1.A.(4) 3. Opinion of Counsel as to the legality of the securities being registered(6) 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(6) 7. Thomas E. Pierpan, Esq.(6) 8. Consent of Sutherland Asbill & Brennan LLP(6) 9. Consent of Ernst & Young LLP(6) 10. Consent of PricewaterhouseCoopers LLP(6) 11. (a) Powers of Attorney(4) (b) Power of Attorney - James R. Walker(5) - ---------------------------------------- (1) This exhibit was previously filed on Post-Effective Amendment No. 28 to Form S-6 Registration Statement dated April 28, 1997 (File No. 33-507) 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. 1 to Form S-6 Registration Statement dated December 19, 1997 (File No. 333-23359) and is incorporated herein by reference. (4) This exhibit was previously filed on Post-Effective Amendment No. 16 to Form S-6 Registration Statement dated April 21, 1998 (File No. 33-31140) and is incorporated herein by reference. (5) This exhibit was previously filed on Post-Effective Amendment No. 13 to Form S-6 Registration Statement dated December 24, 1996 (File No. 33-31140) and is incorporated herein by reference. (6) To be filed by amendment. II-7 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the registrant, WRL Series Life Account has duly caused this Initial Registration Statement to be signed on its behalf by the undersigned thereunto duly authorized, and its seal to be hereunto affixed and attested, all in the City of Largo, County of Pinellas, Florida on this 30th day of November 1998 (SEAL) WRL SERIES LIFE ACCOUNT Registrant WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO Depositor ATTEST: /s/ THOMAS E. PIERPAN By: /s/ JOHN R. KENNEY - --------------------- ------------------- Thomas E. Pierpan John R. Kenney Vice President Chairman of the Board, Chief Executive Officer and President Pursuant to the requirements of the Securities Act of 1933, this Initial Registration Statement has been signed below by the following persons in the capacities and on the dates indicated. SIGNATURE AND TITLE DATE ------------------- ---- /s/ JOHN R. KENNEY November 30, 1998 - ----------------------------- John R. Kenney, Chairman of the Board, Chief Executive Officer and President /s/ ALLAN J. HAMILTON November 30, 1998 - ----------------------------- Allan J. Hamilton, Vice President, Treasurer and Controller /s/ ALAN M. YAEGER November 30, 1998 - ----------------------------- Alan M. Yaeger, Executive Vice President, Actuary and Chief Financial Officer /s/ PATRICK S. BAIRD November 30, 1998 - ----------------------------- Patrick S. Baird, Director */ II-8 /s/ JAMES R. WALKER November 30, 1998 - ----------------------------- James R. Walker, Director */ /s/ LYMAN H. TREADWAY November 30, 1998 - ------------------------------ Lyman H. Treadway, Director */ /s/ JACK E. ZIMMERMAN November 30, 1998 - ------------------------------ Jack E. Zimmerman, Director */ */ /s/ THOMAS E. PIERPAN - ------------------------------ Signed by: Thomas E. Pierpan as Attorney-in-fact II-9 Exhibit Index EXHIBIT DESCRIPTION NO. OF EXHIBIT - ------- ----------- 1.A.(5)(a) Individual Specimen Flexible Variable Life Insurance Policy 1.A.(5)(b) Joint Specimen Flexible Variable Life Insurance Policy EX-99.A7.1 2 Exhibit 1.A.(5)(a) Individual Specimen Flexible Premium Variable Life Insurance Policy =============================================================================== WESTERN RESERVE LIFE Home Office: Columbus, Ohio ASSURANCE CO. OF OHIO Administrative Office: (A STOCK COMPANY) 4333 Edgewood Road, N.E.-Cedar Rapids, Iowa 52499 (319) 398-8511 =============================================================================== 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, satisfactory to Us, 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. IF YOU ARE ALIVE on the Maturity Date and this Policy is In Force, WE WILL PAY the Net Surrender Value as of the Maturity Date. CASH VALUES WILL INCREASE OR DECREASE IN ACCORDANCE WITH THE POLICY VALUE PROVISIONS AND THE INVESTMENT EXPERIENCE OF THE SUBACCOUNTS IN THE SEPARATE ACCOUNT. CASH VALUES ARE NOT GUARANTEED AS TO DOLLAR AMOUNT. THE PROVISIONS on the following pages are part of this Policy. IN WITNESS WHEREOF, We have signed this Policy at Our Office in Cedar Rapids, Iowa as of the Policy Date. /s/ WILLIAM H. GEIGER /s/ JOHN R. KENNEY Secretary President =============================================================================== RIGHT TO EXAMINE POLICY The Owner may cancel this Policy by returning it to Us at 4333 Edgewood Road, N.W., Cedar Rapids, Iowa 52499 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 Initial Premium paid and the amount 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. =============================================================================== Modified Single Premium Variable Life Insurance Policy Death Benefit Proceeds Payable at Death of Insured Prior to Maturity Date Net Surrender Value Payable at Maturity Date Non-Participating - No Dividends Some Benefits Reflect Investment Results =============================================================================== POLICY GUIDE ===============================================================================
POLICY SCHEDULE.............................. 3 DEATH BENEFIT PROVISIONS.................... 9 Death Benefit............................. 9 TABLE OF SURRENDER CHARGES................... 3 Specified Amount.......................... 9 Limitation Percentage..................... 10 TABLE OF GUARANTEED RATES.................... 4 Death Benefit Proceeds.................... 10 DEFINITIONS.................................. 5 PREMIUM PROVISIONS.......................... 10 Accounts................................... 5 Payment................................... 10 Age........................................ 5 Premiums.................................. 10 Anniversary................................ 5 Grace Period.............................. 11 Beneficiary................................ 5 Death Benefit Proceeds..................... 5 SEPARATE ACCOUNT PROVISIONS................. 11 Fixed Account.............................. 5 The Separate Account...................... 11 In Force................................... 5 Subaccounts............................... 11 Initial Premium............................ 5 Transfers................................. 12 Loan Reserve............................... 5 Addition, Deletion or Substitution of Maturity Date.............................. 5 Investments............................. 12 Monthiversary.............................. 5 Change of Investment Objective............ 12 Net Surrender Value........................ 5 Unit Value................................ 13 Office..................................... 6 Policy Date................................ 6 POLICY VALUE PROVISIONS..................... 13 Reallocation Date.......................... 6 Allocation of Premiums.................... 13 SEC........................................ 6 Monthly Deductions........................ 14 Separate Account........................... 6 Monthly Policy Charge..................... 14 Series Fund(s)............................. 6 Monthly Cost of Insurance................. 14 Subaccount................................. 6 Monthly Cost of Insurance Rates........... 14 Termination................................ 6 Subaccount Value.......................... 15 Valuation Date............................. 6 Fixed Account Value....................... 15 Valuation Period........................... 6 Cash Value................................ 15 Written Notice............................. 6 Surrender................................. 16 Net Surrender Value....................... 16 GENERAL PROVISIONS........................... 7 Surrender Charge.......................... 16 The Policy................................. 7 Withdrawals............................... 16 Ownership.................................. 7 Continuation of Insurance................. 17 Beneficiary................................ 7 Insufficient Value........................ 17 Assignment................................. 7 Basis of Computations..................... 17 Incontestability........................... 7 Policy Loans.............................. 17 Suicide.................................... 8 Issue Age and Sex.......................... 8 Periodic Report............................ 8 Termination................................ 8 Policy Payment............................. 8 Optional Methods of Settlement............. 8 Payments and Transfers..................... 8 Extended Maturity Date..................... 9 Conversion Rights.......................... 9 Protection of Proceeds..................... 9
Page 2 WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO CEDAR RAPIDS, IOWA POLICY SCHEDULE - -------------------------------------------------------------------------------- PRIMARY INSURED: John Doe ISSUE AGE AND SEX: 35 - MALE POLICY NUMBER: 01-12345678 SPECIFIED AMOUNT: $204,416 POLICY DATE: December 01, 1998 INITIAL PREMIUM: $50,000 REALLOCATION DATE: December 16, 1998 MATURITY DATE: December 01, 2063 REALLOCATION ACCOUNT: Fixed Account RATE CLASS: Standard SEPARATE ACCOUNT PROVISIONS SEPARATE ACCOUNT: WRL SERIES LIFE ACCOUNT ASSET BASED CHARGES POLICY YEARS - ------------------- (Expressed as an Annual Percentage) 1-10 11 + ------ ------ SEPARATE ACCOUNT CHARGES Daily Charge: .50% .50% Monthly Deduction Charge: 2.00% 1.00% FIXED ACCOUNT CHARGES Monthly Deduction Charge: 2.00% 1.00% DEFERRED SURRENDER CHARGES: Surrender Charges are the percentage shown below times the Initial Premium. ------------------------------------------------ Surrender Surrender Policy Year Charge Policy Year Charge ------------------------------------------------ At Issue 9.75% 1 9.75% 6 7.00% 2 9.50% 7 6.00% 3 9.25% 8 4.00% 4 9.00% 9 2.00% 5 8.00% 10+ 0.00% ------------------------------------------------ Page 3 WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO CEDAR RAPIDS, IOWA TABLE OF GUARANTEED MAXIMUM COST OF INSURANCE RATES - ------------------------------------------------------------------------------- POLICY NUMBER: 01-12345678 Guaranteed Rate Basis for the Initial Specified Amount on Primary Insured Commissioners 1980 Standard Ordinary Tobacco User and Non Tobacco User Mortality Table Male Lives Tobacco User Classification Annual Cost of Insurance Rates Per $1,000 (The monthly cost of insurance calculations will use one-twelfth of these rates.) - ------------------------------------------------------------------------------- Attained Age Annual Rate Attained Age Annual Rate - ------------------------------------------------------------------------------- 35 2.63 36 2.81 37 3.04 38 3.30 39 3.60 40 3.94 41 4.34 42 4.75 43 5.22 44 5.71 45 6.27 46 6.83 47 7.44 48 8.08 49 8.80 50 9.56 51 10.44 52 11.42 53 12.54 54 13.80 55 15.14 56 16.59 57 18.09 58 19.69 59 21.35 60 23.19 61 25.26 62 27.59 63 30.23 64 33.14 65 36.29 66 39.57 67 43.01 68 46.55 69 50.32 70 54.48 71 59.09 72 64.33 73 70.32 74 76.66 75 83.77 76 91.10 77 98.52 78 105.91 79 113.49 80 121.59 81 130.41 82 140.20 83 151.03 84 162.49 85 174.20 86 185.78 87 197.06 88 209.37 89 221.52 90 233.69 91 246.12 92 259.33 93 276.30 94 298.15 95 329.96 96 384.55 97 480.20 98 657.98 99 1000.00 - ------------------------------------------------------------------------------- Page 4 DEFINITIONS =============================================================================== ACCOUNTS Allocation options including the Fixed Account and the Subaccounts of the Separate Account. AGE Issue Age refers to the Age on the Insured's last birthday prior to 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. DEATH The amount payable upon Your death in accordance with the BENEFIT Death Benefit Provisions. PROCEEDS FIXED ACCOUNT Allocation option(s) other than the Separate Account. IN Condition under which the coverage is active and the Insured's FORCE life remains insured. INITIAL The amount which must be paid before coverage begins. The PREMIUM amount is shown on the Policy Schedule page. LOAN RESERVE A portion of the Fixed Account used as collateral for any policy loan. MATURITY The date when coverage under the Policy will terminate if the DATE Primary Insured is living and the Policy is In Force, unless extended in accordance with the Extended Maturity Date provision. 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 SURRENDER The amount payable upon surrender in accordance with the Policy VALUE Value Provisions of this Policy. Page 5 OFFICE Refers to Our administrative office located in Cedar Rapids, Iowa. POLICY The date coverage is effective and monthly deductions commence DATE under the Policy. Policy months, years and anniversaries are measured from the Policy Date, as shown on the Policy Schedule page. REALLOCATION The date on which any premiums are reallocated from the DATE Reallocation Account to the Accounts elected by the Owner on the application. The Reallocation Date is shown on the Policy Schedule page. SEC The United States Securities and Exchange Commission. SEPARATE A separate investment account shown on the Policy Schedule page ACCOUNT which is composed of several subaccounts established to receive and invest premiums under the Policy. SERIES FUND(S) Designated mutual fund(s) from which each Subaccount of the Separate Account will buy shares. SUBACCOUNT A sub-division of the Separate Account. Each Subaccount invests exclusively in the shares of a specified Series Fund portfolio. TERMINATION Condition when the Insured's life is no longer insured under the coverage provided. VALUATION DATE Any day We are required by law to value the assets of the Separate Account. VALUATION 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 provision of the General 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. Page 6 GENERAL PROVISIONS =============================================================================== THE POLICY This Policy is issued in consideration of the attached application and payment of the Initial Premium. This Policy and the attached application 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 as 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 upon Your death will be paid to the Owner or the Owner's estate. We will not be bound by any change in the Beneficiary designation unless it is made by Written Notice. The change will be effective on the date the Written Notice was signed; however, no change will apply to any payment We made before the Written Notice is received. If We request, this Policy must be returned to Our Office for endorsement. ASSIGNMENT This Policy may be assigned. We will not be bound by any assignment unless made by Written Notice. The assignment will be effective on the date the Written Notice is received at Our Office and accepted by Us. We assume no responsibility for the validity of any assignment. INCONTESTABILITY This Policy shall be incontestable after it has been In Force, while You are still alive, for two years from the Policy Date. Page 7 SUICIDE If You die by suicide, while sane or insane, within two years from the Policy Date, this Policy shall terminate and Our total liability, including all Riders attached to this Policy, will be limited to the total premiums paid, less any loans and prior withdrawals, during such period. ISSUE AGE If Your date of birth or sex is not correctly stated, the death AND SEX benefit will be adjusted based on what the Initial Premium would have purchased based on Your correct date of birth and sex. PERIODIC We will send a periodic report to the Owner at least once each REPORT policy year. The periodic report will show: 1. The current Cash Value; 4. Any current policy 2. The current Net Surrender Value; loans; 3. The current death benefit; 5. Activity since the last report. Additional activity within each Subaccount showing investment experience will also be provided. The periodic report provided nearest the end of the calendar year will show projected values for the following year. TERMINATION This Policy will terminate on the earliest of: 1. The Maturity Date; 3. The end of the grace period; 2. The date of Your death; 4. The date of surrender. POLICY All proceeds to be paid upon Termination will be paid PAYMENT in one sum unless an optional method of settlement is elected. Instead of a single amount, the payee may elect to receive the proceeds under the terms of the next provision. OPTIONAL METHODS At the time that any proceeds are due in a single payment, if OF SETTLEMENT requested in writing, We will inform the payee of all other forms of settlement including annuities, with or without life contingencies. Interest will be at an annual rate that We decide, but not less than the rate required by law. PAYMENTS AND All payments and transfers from the Subaccounts will be TRANSFERS 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. Page 8 EXTENDED The Owner may request that the Maturity Date shown on the MATURITY Policy Schedule page be extended. The request must be in DATE writing and received by Us at least 90 days, but no more than 180 days, prior to the scheduled Maturity Date. The Owner must request that the Maturity Date be extended each Policy Anniversary following the Maturity Date as shown on the Policy Schedule page. 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. If the Maturity Date is extended, 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 except if required to prevent lapse of this Policy. Future monthly deductions will be waived. CONVERSION At any time upon written request within the first two policy RIGHTS years, the Owner may elect to transfer all Subaccount values to the Fixed Account without a transfer charge. 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 the greater of: 1. the Specified Amount; or 2. the Limitation Percentage times the Cash Value of this Policy on the date of Your death. SPECIFIED AMOUNT The Specified Amount is as shown on the Policy Schedule page, adjusted for any withdrawals as provided in the Withdrawal Provision of the Policy Value Provisions. Page 9 LIMITATION The Limitation Percentage is a percentage based on Your PERCENTAGE Attained Age at the beginning of the policy year equal to: ------------------------------------------------------------- Attained Age Limitation Percentage -------------------------------------------------------------- 40 and under 250% 41 through 45 250% minus 7% for each Age over Age 40 46 through 50 215% minus 6% for each Age over Age 45 51 through 55 185% minus 7% for each Age over Age 50 56 through 60 150% minus 4% for each Age over Age 55 61 through 65 130% minus 2% for each Age over Age 60 66 through 70 120% minus 1% for each Age over Age 65 71 through 75 115% minus 2% for each Age over Age 70 76 through 90 105% 91 through 94 105% minus 1% for each Age over Age 90 95 and over 100% DEATH The Death Benefit Proceeds is the amount payable by Us under BENEFIT this Policy upon Your death, provided this Policy has not PROCEEDS 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 policy loan interest. PREMIUM PROVISIONS =============================================================================== PAYMENT The Initial Premium shown on the Policy Schedule page must be paid on or before the Policy Date. PREMIUMS While this Policy is In Force, additional premiums may be paid at any time prior to the Maturity Date shown on the Policy Schedule page. 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 10 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. 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 will terminate without value at the end of the grace period. 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. 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. Page 11 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 $10 fee for each transfer in excess of 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 OR Account, which We determine to be associated with the class of 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. 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. Page 12 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. A charge equal to the daily net assets of the Sub-Account multiplied by the daily equivalent of the Daily Charge. The maximum annual factor for the Daily 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 ================================================================================ ALLOCATION OF The premium will be allocated to the Accounts on the first PREMIUM Valuation Date on or following the date the premium is received at Our Office; except any premium or portion of premium received prior to the Policy Date will be allocated on the first Valuation Date on or following the Policy Date. Any premium received 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 current premium allocation instructions. 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. 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. Page 13 MONTHLY On the Policy Date and on each Monthiversary thereafter, a DEDUCTIONS monthly deduction for this Policy will be made from the Policy's Cash Value in an amount equal to the sum of the following: 1. The Monthly Policy Charge based on the assets of the Separate Account; plus 2. The Monthly Policy Charge based upon the assets of the Fixed Account; plus 3. The Monthly Cost of Insurance Charge for this Policy, if any; plus 4. The Monthly Charge for benefits provided by Riders attached to this Policy, if any. Deductions will be withdrawn from each Account in accordance with the Owner's current premium allocation. If the value of any Account is insufficient to pay its part of the monthly deduction, the monthly deduction will be taken on a pro rata basis from all Accounts. MONTHLY POLICY The Monthly Policy Charge applicable to the Separate Account is CHARGE equal to: 1. The Separate Account Monthly Deduction Charge divided by 12; multiplied by 2. The sum of the Subaccount Values on the Valuation Date of each monthly deduction. The Monthly Policy Charge applicable to the Fixed Account is equal to: 1. The Fixed Account Monthly Deduction Charge divided by 12; multiplied by 2. The Fixed Account value on the Valuation Date of each monthly deduction, minus any outstanding loans. The Separate Account and Fixed Account Monthly Deduction Charges are shown on the Policy Schedule page. MONTHLY COST OF We reserve the right to impose a maximum Monthly Cost of INSURANCE Insurance Charge. This charge may not exceed the death benefit minus the Cash Value, and the difference multiplied by the appropriate monthly cost of insurance rate. Currently we do not impose this charge. Should this charge be imposed in the future, all future Deferred Surrender Charges will be waived. MONTHLY COST The Guaranteed Maximum Monthly cost of insurance rates are OF INSURANCE based on the sex, Attained Age, plan of insurance and RATES rating class of the person(s) insured. Any change in the current cost of insurance rates will not exceed those shown in the Table of Guaranteed Maximum Life Insurance Rates. Page 14 SUBACCOUNT At the end of any Valuation Period, the Subaccount value is VALUE 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 as a result of any additional premiums; plus 3. Units purchased through transfers from another 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 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. 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. Each payment or transfer to the Fixed Account will be credited with the current interest rate at the time of payment or transfer. In declaring any higher rates to be applied to any Fixed Account values, We may include an expense charge of up to 1% per year, however, in no event will any net effective annual interest rate be less than 3%. 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. Page 15 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 of VALUE 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 During the first 9 policy years, a Surrender Charge will be CHARGE incurred upon surrender of this Policy. This charge will be based upon the Deferred Surrender Charges shown on the Policy Schedule page. 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 any 12 month period. The maximum amount of withdrawal is: 1. the Cash Value as of the date of withdrawal; minus 2. the total premium paid; minus 3. any outstanding policy loans plus accrued loan interest. When a withdrawal is made, the Cash Value will be reduced by the amount of the withdrawal. The Specified Amount will also be reduced by an amount equal to: 1. the initial Specified Amount; divided by 2. the Initial Premium; times 3. the amount of the withdrawal. In no event will any withdrawal reduce the Specified Amount below $1,000. The Accounts from which the withdrawal will be made may be specified in the Written Notice. If no Account is specified, the withdrawal amount will be withdrawn from each Account in accordance with the Owner's current allocation instructions. Payment will usually be made within seven days of Written Notice, subject to the Policy Payment section of the General Provisions of this Policy. Page 16 CONTINUATION OF Subject to the Grace Period section of the Premium Provisions, INSURANCE insurance coverage under this Policy 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 shown on the Policy Schedule page. 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 Policy values and reserves are at least equal to those required COMPUTATIONS 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 During the continuance of this Policy, the Owner can borrow LOANS against this Policy an amount which is not greater than 90% of the Cash Value, minus: 1. any Surrender Charge as of such date; minus 2. any outstanding policy loans; minus 3. any accrued policy loan 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. Interest on any loan will be at the maximum policy loan rate of 6% payable in arrears. We reserve the right to charge a lower loan rate on all or a portion of any loan. Interest is due at each Anniversary. Interest not paid when due will be added to the loan on each Anniversary. Page 17 At each Anniversary, We will compare the amount of the outstanding loan to the amount in the loan reserve. We will also make this comparison anytime the Owner repays all or part of the loan. At each such time, if the amount of the outstanding loan exceeds the amount in the loan reserve, We will withdraw the difference from the Accounts and transfer it to the loan reserve, in the same fashion as when a loan is made. If the amount in the loan reserve exceeds the amount of the outstanding loan, We will withdraw the difference from the loan reserve and transfer it to the Accounts in accordance with the Owner's current allocation instructions. However, We reserve the right to require the transfer to the Fixed Account if such loans were originally transferred from the Fixed Account. Page 18 THIS PAGE INTENTIONALLY LEFT BLANK WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO Home Office: Columbus, Ohio 4333 Edgewood Road, N.E. Cedar Rapids, Iowa 52499 ----------------------------------------------------------- Modified Premium Variable Life Insurance Policy Death Benefit Proceeds Payable at Death of Insured Prior to Maturity Date Net Surrender Value Payable at Maturity Date Non-Participating - No Dividends Some Benefits Reflect Investment Results EX-99.A7.2 3 Exhibit 1.A.(5)(b) Joint Specimen Flexible Variable Life Insurance Policy =============================================================================== WESTERN RESERVE LIFE Home Office: Columbus, Ohio ASSURANCE CO. OF OHIO Administrative Office: (A STOCK COMPANY) 4333 Edgewood Road, N.E.-Cedar Rapids, Iowa 52499 (319) 398-8511 =============================================================================== IN THIS POLICY, Western Reserve Life Assurance Co. of Ohio will be referred to as WE, OUR or US. WE WILL pay the Death Benefit Proceeds to the Beneficiary upon the death of the Surviving Insured when We receive proof that both Joint Insureds died while this Policy is In Force. THE AMOUNT OF THE DEATH BENEFIT PROCEEDS WILL INCREASE OR DECREASE DEPENDING ON THE INVESTMENT EXPERIENCE OF THE SUBACCOUNTS IN THE SEPARATE ACCOUNT. WE WILL pay the Net Surrender Value to the Owner if at least one of the Joint Insureds is alive on the Maturity Date and while this Policy is In Force. CASH VALUES WILL INCREASE OR DECREASE IN ACCORDANCE WITH THE POLICY VALUE PROVISIONS AND THE INVESTMENT EXPERIENCE OF THE SUBACCOUNTS IN THE SEPARATE ACCOUNT. CASH VALUES ARE NOT GUARANTEED AS TO DOLLAR AMOUNT. THE PROVISIONS on the following pages are part of this Policy. IN WITNESS WHEREOF, We have signed this Policy at Our Office in Cedar Rapids, Iowa as of the Policy Date. /s/ WILLIAM H. GEIGER /s/ JOHN R. KENNEY --------------------- ------------------ Secretary President =============================================================================== RIGHT TO EXAMINE POLICY The Owners may cancel this Policy by returning it to Us at 4333 Edgewood Road, N.E., Cedar Rapids, Iowa 52499 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 Owners. The refund will equal the sum of: 1. The difference between the Single Premium paid and the amount 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. =============================================================================== Joint Survivorship Modified Single Premium Variable Life Insurance Policy Death Benefit Proceeds Payable at Death of Surviving Insured Prior to Maturity Date Net Surrender Value Payable at Maturity Date Non-Participating - No Dividends Some Benefits Reflect Investment Results =============================================================================== POLICY GUIDE ===============================================================================
POLICY SCHEDULE.............................. 3 PREMIUM PROVISIONS.......................... 11 TABLE OF SURRENDER CHARGES................... 3 Payment................................... 11 TABLE OF GUARANTEED RATES.................... 4 Premiums.................................. 11 DEFINITIONS.................................. 5 Grace Period.............................. 11 Accounts................................... 5 SEPARATE ACCOUNT PROVISIONS................. 11 Age........................................ 5 The Separate Account...................... 11 Anniversary................................ 5 Subaccounts............................... 12 Beneficiary................................ 5 Transfers................................. 12 Death Benefit Proceeds..................... 5 Addition, Deletion or Substitution of Fixed Account.............................. 5 Investments............................. 12 In Force................................... 5 Change of Investment Objective............ 13 Initial Premium............................ 5 Unit Value................................ 13 Joint Insureds............................. 5 POLICY VALUE PROVISIONS..................... 13 Loan Reserve............................... 5 Allocation of Premium..................... 13 Maturity Date.............................. 5 Monthly Deductions........................ 14 Monthiversary.............................. 6 Monthly Policy Charge..................... 14 Net Surrender Value........................ 6 Monthly Cost of Insurance................. 14 Office..................................... 6 Monthly Cost of Insurance Rates........... 15 Policy Date................................ 6 Subaccount Value.......................... 15 Reallocation Date.......................... 6 Fixed Account Value....................... 15 SEC........................................ 6 Cash Value................................ 16 Separate Account........................... 6 Surrender................................. 16 Series Fund(s)............................. 6 Net Surrender Value....................... 16 Subaccount................................. 6 Surrender Charge.......................... 16 Surviving Insured.......................... 6 Withdrawals............................... 16 Termination................................ 6 Continuation of Insurance................. 17 Valuation Date............................. 6 Insufficient Value........................ 17 Valuation Period........................... 7 Basis of Computations..................... 17 Written Notice............................. 7 Policy Loans.............................. 17 GENERAL PROVISIONS........................... 7 POLICY SPLIT OPTION....................... 18 The Policy................................. 7 Split Option.............................. 18 Ownership.................................. 7 Specified Amount.......................... 19 Beneficiary................................ 7 Cash Value................................ 19 Assignment................................. 8 Issue Limits andPremium Rate Incontestability........................... 8 Classification.......................... 19 Suicide.................................... 8 Premiums.................................. 19 Issue Age and Sex.......................... 8 Policy Date............................... 19 Periodic Report............................ 8 Owner/Beneficiary......................... 19 Termination................................ 8 Policy Payment............................. 9 Optional Methods of Settlement............. 9 Payments and Transfers..................... 9 Extended Maturity Date..................... 9 Conversion Rights.......................... 9 Protection of Proceeds..................... 9 DEATH BENEFIT PROVISIONS..................... 10 Death Benefit.............................. 10 Specified Amount........................... 10 Limitation Percentage...................... 10 Death Benefit Proceeds..................... 10
Page 2 WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO CEDAR RAPIDS, IOWA POLICY SCHEDULE ================================================================================ JOINT INSUREDS: John Doe Jane Doe POLICY NUMBER: 01-23456789 POLICY DATE: December 01, 1998 SPECIFIED AMOUNT: $243,440 REALLOCATION DATE: December 16, 1998 INITIAL PREMIUM: $ 50,000 MATURITY DATE: December 01, 2053 REALLOCATION ACCOUNT: Fixed Account SEPARATE ACCOUNT PROVISIONS SEPARATE ACCOUNT: WRL SERIES LIFE ACCOUNT ASSET BASED CHARGES POLICY YEARS - ------------------- (Expressed as an Annual Percentage) 1-10 11 + ----- ---- SEPARATE ACCOUNT CHARGES Daily Charge: .50% .50% Monthly Deduction Charge: 1.50% .50% FIXED ACCOUNT CHARGES Monthly Deduction Charge: 1.50% .50% DEFERRED SURRENDER CHARGES: Surrender Charges are the percentage shown below times the Initial Premium. ---------------------------------------------------- Surrender Surrender Policy Year Charge Policy Year Charge ---------------------------------------------------- At Issue 9.75% 1 9.75% 6 7.00% 2 9.50% 7 6.00% 3 9.25% 8 4.00% 4 9.00% 9 2.00% 5 8.00% 10+ 0.00% ---------------------------------------------------- Page 3 WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO CEDAR RAPIDS, IOWA TABLE OF GUARANTEED MAXIMUM COST OF INSURANCE RATES =============================================================================== POLICY NUMBER: 01-23456789 Guaranteed Rate Basis for Initial Specified Amount on Joint Insureds Commissioners 1980 Standard Ordinary Tobacco User and Non-Tobacco User Mortality Table John Doe: Male Issue Age 45, Standard, Tobacco User Classification Jane Doe: Female Issue Age 45, Standard, Tobacco User Classification Annual Cost of Insurance Rates Per $1,000 (The monthly cost of insurance calculations will use one-twelfth of these rates.) ------------------------------------------------------------------ Policy Year Annual Rate Policy Year Annual Rate ------------------------------------------------------------------ 1 0.031 2 0.103 3 0.191 4 0.298 5 0.426 6 0.580 7 0.764 8 0.987 9 1.256 10 1.572 11 1.941 12 2.362 13 2.834 14 3.361 15 3.957 16 4.649 17 5.471 18 6.462 19 7.650 20 9.035 21 10.605 22 12.346 23 14.226 24 16.272 25 18.552 26 21.170 27 24.282 28 27.978 29 32.314 30 37.300 31 42.872 32 48.913 33 55.335 34 62.166 35 69.569 36 77.756 37 86.921 38 97.215 39 108.829 40 121.323 41 134.456 42 148.060 43 162.130 44 176.728 45 191.696 46 207.860 47 225.060 48 244.153 49 266.749 50 296.863 51 341.982 52 414.444 53 537.477 54 744.016 55 1000.00 ------------------------------------------------------------------ Page 4 DEFINITIONS =============================================================================== ACCOUNTS Allocation options including the Fixed Account and the Subaccounts of the Separate Account. AGE Issue Age refers to the Age on each Joint Insured's last birthday prior to 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. DEATH BENEFIT PROCEEDS The amount payable upon the death of the Surviving Insured in accordance with the Death Benefit Provisions. FIXED ACCOUNT Allocation option(s) other than the Separate Account. IN FORCE Condition under which the coverage is active and the Surviving Insured's life remains insured. INITIAL PREMIUM The amount which must be paid before coverage begins. The amount is shown on the Policy Schedule page. JOINT INSUREDS The persons whose lives are insured under this Policy, as shown on the Policy Schedule pages. LOAN RESERVE A portion of the Fixed Account used as collateral for any policy loan. MATURITY DATE The date when coverage under the Policy will terminate if either Joint Insured is living and the Policy is In Force, unless extended in accordance with the Extended Maturity Date provision. Page 5 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 SURRENDER The amount payable upon surrender in accordance with VALUE the Policy Value Provisions of this Policy. OFFICE Refers to Our administrative office located in Cedar Rapids, Iowa. 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. REALLOCATION The date on which any premiums are reallocated from DATE the Reallocation Account to the Accounts elected by the Owner on the application. The Reallocation Account is shown on the Policy Schedule page. SEC The United States Securities and Exchange Commission. SEPARATE A separate investment account shown on the Policy ACCOUNT Schedule page which is composed of several subaccounts established to receive and invest premiums under the Policy. SERIES FUND(S) Designated mutual fund(s) from which each Subaccount of the Separate Account will buy shares. SUBACCOUNT A sub-division of the Separate Account. Each Subaccount invests exclusively in the shares of a specified Series Fund portfolio. SURVIVING INSURED The Joint Insured who remains alive after the other Joint Insured has died. TERMINATION Condition under which the insurance coverage is no longer In Force under this Policy. VALUATION DATE Any day We are required by law to value the assets of the Separate Account. Page 6 VALUATION The period commencing at the end of one Valuation PERIOD Date and continuingto the end of the next succeeding Valuation Date. WRITTEN NOTICE Written Notice means a notice by the Owners to Us requesting or exercising a right of the Owners as provided in the Policy provision of the General Provisions. In order for a notice to be considered a Written Notice, it must: be in writing, signed by the Owners; 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 Owners 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 and the attached application 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 as subsequently changed, may exercise all rights under this Policy while either or both of the Joint Insureds is living. If two Owners are named, this Policy will be owned jointly and the consent of each Owner will be required to exercise ownership rights under this Policy. 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 upon the death of the Surviving Insured. If the Beneficiary dies before the Surviving Insured, the Contingent Beneficiary, if named, becomes the Beneficiary. If no Beneficiary or Contingent Beneficiary survives the Surviving Insured, the benefits payable at the Surviving Insured's 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. The assignment will be effective on the date the Written Notice is received at Our Office and accepted by Us. We assume no responsibility for the validity of any assignment. INCONTESTABILITY This Policy shall be incontestable after it has been In Force, while either Joint Insured is still alive, for two years from the Policy Date. SUICIDE If either Joint Insured dies by suicide, while sane or insane, within two years from the Policy Date, this Policy shall terminate and Our total liability, including all Riders attached to this Policy, will be limited to the total premiums paid, less any loans and prior withdrawals, during such period. ISSUE AGE If either Joint Insured's date of birth or sex is AND SEX not correctly stated, the death benefit will be adjusted based on what the Initial Premium would have purchased based on the correct date of birth and sex. PERIODIC REPORT We will send a periodic report to the Owner at least once each policy year. The periodic report will show: 1. The current Cash Value; 4. Any current 2. The current Net Surrender Value; policy loans; 3. The current death benefit; 5. Activity since the last report. Additional activity within each Subaccount showing investment experience will also be provided. The periodic report provided nearest to the end of the calendar year will show projected values for the following year. TERMINATION This Policy will terminate on the earliest of: 1. The Maturity Date; 3. The end of the 2. The date of the Surviving grace period; Insured's death; 4. The date of surrender. Page 8 POLICY PAYMENT All proceeds to be paid upon Termination will be paid in one sum unless an optional method of settlement is elected. Instead of a single amount, the payee may elect to receive the proceeds under the terms of the next provision. OPTIONAL METHODS OF At the time that any proceeds are due in a single SETTLEMENT payment, if requested in writing, We will inform the payee of all other forms of a settlement including annutiies, with or without life contingencies. Interest will be at an annual rate that We decide, but not less than the rate required by law. PAYMENTS AND All payments and transfers from the Subaccounts will TRANSFERS 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. EXTENDED MATURITY The Owners may request that the Maturity Date shown DATE on the 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. The Owner must request that the Maturity Date be extended each Policy Anniversary following the Maturity Date as shown on the Policy Schedule page. 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. If the Maturity Date is extended 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 except if required to prevent lapse of this Policy. Future monthly deductions will be waived. CONVERSION At any time upon written request within the first RIGHTS two policy years, the Owner may elect to transfer all Subaccount values to the Fixed Account without a transfer charge. PROTECTION OF Unless the Owner direct 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. Page 9 DEATH BENEFIT PROVISIONS =============================================================================== DEATH BENEFIT The death benefit is the greater of: 1. the Specified Amount; or 2. the Limitation Percentage times the Cash Value of this Policy on the date of the Surviving Insured's death. SPECIFIED AMOUNT The Specified Amount is as shown on the Policy Schedule page, adjusted for any withdrawals as provided in the Withdrawal Provision of the Policy Value Provisions. LIMITATION The Limitation Percentage is a percentage based on PERCENTAGE the Attained Age of the younger Joint Insured at the beginning of the policy year equal to:
--------------------- ------------------------------------------ Attained Age Limitation Percentage --------------------- ------------------------------------------ 40 and under 250% 41 through 45 250% minus 7% for each Age over Age 40 46 through 50 215% minus 6% for each Age over Age 45 51 through 55 185% minus 7% for each Age over Age 50 56 through 60 150% minus 4% for each Age over Age 55 61 through 65 130% minus 2% for each Age over Age 60 66 through 70 120% minus 1% for each Age over Age 65 71 through 75 115% minus 2% for each Age over Age 70 76 through 90 105% 91 through 94 105% minus 1% for each Age over Age 90 95 and over 100%
DEATH BENEFIT PROCEEDS The Death Benefit Proceeds is the amount payable by Us under this Policy provided this Policy has not terminated prior to the Surviving Insured's 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 policy loan interest. Page 10 PREMIUM PROVISIONS =============================================================================== PAYMENT The Initial Premium shown on the Policy Schedule page must be paid on or before the Policy Date. PREMIUMS While this Policy is In Force, additional premiums may be paid at any time prior to the Maturity Date shown on the Policy Schedule page. We reserve the right to limit or refund any premium if: 1. The amount is below Our current minimum payment requirement; or 2. The premium would increase the death benefit by more than the amount of the premium; or 3. The premium would disqualify this Policy as a life insurance contract as defined by the United States Internal Revenue Code and applicable regulations. GRACE PERIOD If the Net Surrender Value on any Monthiversary is not sufficient to cover the monthly deductions on such day, We will mail a notice to the last known address of the Owners and any assignee of record. A grace period of 61 days after the mailing date of the notice will be allowed for the payment. 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 will terminate without value at the end of the grace period. SEPARATE ACCOUNT PROVISIONS ================================================================================ THE SEPARATE The variable benefits under this Policy are provided ACCOUNT through the Separate Account as shown on the Policy Schedule page. The assets of the Separate Account are Our property. Assets equal to the reserve and other contractual liabilities under all policies issued in connection with the Separate Account will not be charged with liabilities arising out of any other business We may conduct. If the assets of the Separate Account exceed the liabilities arising under the policies supported by the Separate Account, then the excess may be used to cover the liabilities of Our general account. The assets of the Separate Account shall be valued as often as any policy benefits vary, but at least monthly. Page 11 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 $10 fee for each transfer in excess of twelve per policy year. This charge will be deducted from the funds transferred. A request for a transfer must be made in a form satisfactory to Us. The transfer will ordinarily take effect on the first Valuation Date on or following the date the request is received at Our Office. ADDITION, DELETION OR We reserve the right to transfer assets of the SUBSTITUTION OF Separate Account, which We determine to be INVESTMENTS associated with the class of contracts to which this Policy belongs, to another Separate Account. If this type of transfer is made, the term "Separate Account", as used in this Policy, shall then mean the Separate Account to which the assets were transferred. We also reserve the right to add, delete, or substitute investments held by any Subaccount. We reserve the right, when permitted by law, to: 1. Deregister the Separate Account under the Investment Company Act of 1940; 2. Manage the Separate Account under the direction of a committee at any time; 3. Restrict or eliminate any voting privileges of Owners or other persons who have voting privileges as to the Separate Account; 4. Combine the Separate Account or any Subaccount(s) with one or more other Separate Accounts or Subaccounts; 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 12 CHANGE OF We reserve the right to change the investment INVESTMENT OBJECTIVE objective of a Subaccount. If required by law or regulation, an investment objective of the Separate Account, or of a Series Fund portfolio designated for a Subaccount, will not be materially changed unless a statement of the change is filed with and approved by the appropriate insurance official of the state of Our domicile or deemed approved in accordance with such law or regulation. If required, approval of or change of any investment objective will be filed with the Insurance Department of the state where this Policy is delivered. UNIT VALUE Some of the policy values fluctuate with the investment results of the Subaccounts. In order to determine how investment results affect the policy values, a unit value is determined for each Subaccount. The unit value of each Subaccount was originally established at $10 per unit. The unit value may increase or decrease from one Valuation Period to the next. Unit values also will vary between Subaccounts. The unit value of any Subaccount at the end of a Valuation Period is the result of: 1. The total value of the assets held in the Subaccount. This value is determined by multiplying the number of shares of the designated Series Fund portfolio owned by the Subaccount times the net asset value per share; minus 2. A charge equal to the daily net assets of the Sub-Account multiplied by the daily equivalent of the Daily Charge. The maximum annual factor for the Daily 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 ================================================================================ ALLOCATION OF The premium will be allocated to the Accounts on the PREMIUM first Valuation Date on or following the date the premium is received at Our Office; except any premium or portion of premium received prior to the Policy Date will be allocated on the first Valuation Date on or following the Policy Date. Any premium received 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 Owners' current allocation premium instructions. Page 13 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 Owners. 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 the Policy Date and on each Monthiversary DEDUCTIONS thereafter, a monthly deduction for this Policy will be made from the Policy's Cash Value in an amount equal to the sum of the following: 1. The Monthly Policy Charge based on the assets of the Separate Account; plus 2. The Monthly Policy Charge based upon the assets of the Fixed Account; plus 3. The Monthly Cost of Insurance Charge for this Policy, if any; plus 4. The Monthly Charge for benefits provided by Riders attached to this Policy, if any. Deductions will be withdrawn from each Account in accordance with the Owners' current premium allocation. If the value of any Account is insufficient to pay its part of the monthly deduction, the monthly deduction will be taken on a pro rata basis from all Accounts. MONTHLY POLICY The Monthly Policy Charge applicable to the Separate CHARGE Account is equal to: 1. The Separate Account Monthly Deduction Charge divided by 12; multiplied by 2. The sum of the Subaccount Values on the Valuation Date of each monthly deduction. The Monthly Policy Charge applicable to the Fixed Account is equal to: 1. The Fixed Account Monthly Deduction Charge divided by 12; multiplied by 2. The Fixed Account value on the Valuation Date of each monthly deduction, minus any outstanding loans. The Separate Account and Fixed Account Monthly Deduction Charges are shown on the Policy Schedule page. MONTHLY COST OF We reserve the right to impose a maximum Monthly INSURANCE Cost of Insurance Charge. This charge may not exceed the death benefit minus the Cash Value, and the difference multiplied by the appropriate monthly cost of insurance rate. Currently we do not impose this charge. Should this charge be imposed in the future, all future Deferred Surrender Charges will be waived. Page 14 MONTHLY COST OF INSURANCE The Guaranteed Maximum Monthly cost of insurance RATES rates are based on the sex, Attained Age, plan of insurance and rating class of the person(s) insured. Any change in the current cost of insurance rates will not exceed those shown in the Table of Guaranteed Maximum Life Insurance Rates. SUBACCOUNT At the end of any Valuation Period, the Subaccount VALUE 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 as a result of any additional premiums; plus 3. Units purchased through transfers from another 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 VALUE Account value is equal to: 1. The 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 with-drawals; minus 6. Any amounts transferred from the Fixed Account to a Subaccount. 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. Each payment or transfer to the Fixed Account will be credited with the current interest rate at the time of payment or transfer. In declaring any higher rates to be applied to any Fixed Account values, We may include an expense charge of up to 1% per year, however, in no event will any net effective annual interest rate be less than 3%. 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. Page 15 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 Owners 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 VALUE surrender of this Policy. The Net Surrender Value as of any date is equal to: 1. the Cash Value as of such date; minus 2. any Surrender Charge as of such date; minus 3. any outstanding policy loan; minus 4. any accrued loan interest. SURRENDER During the first 9 policy years, a Surrender Charge CHARGE will be incurred upon surrender of this Policy. This charge will be based upon the Deferred Surrender Charges shown on the Policy Schedule page. 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 any 12 month period. The maximum amount of withdrawal is: 1. the Cash Value as of the date of withdrawal; minus 2. the total premium paid; minus 3. any outstanding policy loans plus accrued loan interest. When a withdrawal is made, the Cash Value will be reduced by the amount of the withdrawal. The Specified Amount will also be reduced by an amount equal to: 1. the initial Specified Amount; divided by 2. the Initial Premium; times 3. the amount of the withdrawal. In no event will any withdrawal reduce the Specified Amount below $1,000. Page 16 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 Owners' current allocation instructions. Payment will usually be made within seven days of Written Notice, subject to the Policy Payment section of the General Provisions of this Policy. CONTINUATION OF Subject to the Grace Period section of the Premium INSURANCE Provisions, insurance coverage under this Policy 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 shown on the Policy Schedule page. INSUFFICIENT If the Net Surrender Value on any Monthiversary is VALUE not sufficient to cover the monthly deductions then due, this Policy shall terminate subject to the Grace Period section of the Premium Provisions. BASIS OF Policy values and reserves are at least equal to COMPUTATIONS 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 During the continuance of this Policy, the Owners can borrow against this Policy an amount which is not greater than 90% of the Cash Value, minus: 1. any Surrender Charge as of such date; minus 2. any outstanding policy loan; minus 3. any accrued policy loan 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 Owners 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 Owners' current premium allocation instructions. While this Policy is In Force, any loan may be repaid. Interest on any loan will be at the maximum policy loan rate of 6% payable in arrears. We reserve the right to charge a lower loan rate on all or a portion of any loan. Interest is due at each Anniversary. Interest not paid when due will be added to the loan on each Anniversary. Page 17 At each Anniversary, We will compare the amount of the outstanding loan to the amount in the loan reserve. We will also make this comparison anytime the Owners repay all or part of the loan. At each such time, if the amount of the outstanding loan exceeds the amount in the loan reserve, We will withdraw the difference from the Accounts and transfer it to the loan reserve, in the same fashion as when a loan is made. If the amount in the loan reserve exceeds the amount of the outstanding loan, We will withdraw the difference from the loan reserve and transfer it to the Accounts in accordance with the Owners' current allocation instructions. However, We reserve the right to require the transfer to the Fixed Account if such loans were originally transferred from the Fixed Account. POLICY SPLIT OPTION ================================================================================ SPLIT OPTION Subject to our evidence of insurability requirements, the Owners may request to split this Policy, not including any Riders, and purchase two permanent individual fixed account life insurance policies offered by Us at the time of the request, one on the life of each Joint Insured. The Owners may request this Split Option by notifying Us at Our Office in writing within 90 days following either: 1. The later of the enactment or the effective date of a change in the federal estate tax laws that would reduce or eliminate the unlimited marital deduction; or 2. The date of entry of a final decree of divorce with respect to the Joint Insureds; or 3. Written confirmation of a dissolution of a business partnership of which the partners are the Joint Insureds. If more than one person owns this Policy, each Owner must agree to the split. SPECIFIED AMOUNT The initial Specified Amount for each new policy cannot be greater than 50% of this Policy's Specified Amount, not including the face amount of any Riders. CASH VALUE Cash value and indebtedness under this Policy will be allocated equally to each of the new policies. If one Joint Insured does not meet our insurability requirements, We will pay the Owner one half of this Policy's Net Surrender Value and issue only the policy covering that Joint Insured who meets our insurability requirements; or, the Owner may elect to keep this Policy In Force on both Joint Insureds and no new policies will be issued. Page 18 ISSUE LIMITS AND PREMIUM The new policies will be subject to our minimum and RATE CLASSIFICATION maximum specified amounts and issue ages for the plan of insurance selected. If one of the Joint Insureds is older than the new policy's maximum Issue Age at the time the Split Option is requested, Our approval must be obtained to exercise this Split Option. PREMIUMS The premiums for the new policies wil be based on each Joint Insured's Attained Age and premium rate class as determined by current evidence of insurability. Premiums are payable as of the policy dates for each new policy. POLICY DATE The policy date for each new policy will be the Monthiversary following notification to Us to execute this Split Option. OWNER/BENEFICIARY The Owner and Beneficiary for the new policies will be those named in this Policy, unless otherwise specified. Page 19 WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO Home Office: Columbus, Ohio Administrative Office: 4333 Edgewood Road, N.E. Cedar Rapids, Iowa 52499 ---------------------------------------------------------------------- Joint Survivorship Modified Single Premium Variable Life Insurance Policy Death Benefit Proceeds Payable at Death of Surviving Insured Prior to Maturity Date Net Surrender Value Payable at Maturity Date Non-Participating - No Dividends Some Benefits Reflect Investment Results -----END PRIVACY-ENHANCED MESSAGE-----