As filed with the Securities and Exchange Commission on April 18, 1996
Registration File Nos. 33-69138/811-4420
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------------------
POST-EFFECTIVE AMENDMENT NO. 7
FORM S-6
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FOR REGISTRATION UNDER THE SECURITIES ACT
OF 1933 OF SECURITIES OF UNIT INVESTMENT TRUSTS
REGISTERED ON FORM N-8B-2
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WRL SERIES LIFE ACCOUNT
(Exact Name of Trust)
WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO
(Name of Depositor)
201 Highland Avenue
Largo, Florida 34640
(Complete Address of Depositor's Principal Executive Offices)
Thomas E. Pierpan, Esq.
Vice President and Counsel
Western Reserve Life Assurance Co. of Ohio
201 Highland Avenue
Largo, Florida 34640
(Name and Complete Address of Agent for Service)
Copies to:
Stephen E. Roth, Esq.
Sutherland, Asbill & Brennan
1275 Pennsylvania Avenue, N.W.
Washington, D.C. 20004-2404
---------------------------------
It is proposed that this filing will become effective (check appropriate space):
[ ] immediately upon filing pursuant to paragraph (b) of Rule 485
[X] on MAY 1, 1996, pursuant to paragraph (b) of Rule 485
[ ] 60 days after filing pursuant to paragraph (a) of Rule 485
[ ] on DATE, pursuant to paragraph (a) of Rule 485
Pursuant to Rule 24f-2, the Registrant has chosen to register an indefinite
amount of securities being offered. The Rule 24f-2 Notice for Registrant's most
recent fiscal year was filed on February 28, 1996.
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CROSS REFERENCE TO ITEMS REQUIRED
BY FORM N-8B-2
N-8B-2 ITEM CAPTION IN PROSPECTUS
- ----------- ---------------------
1 Cover Page; The Series Account
2 Cover Page; Western Reserve Life Assurance Co. of Ohio
3 Not Applicable
4 Distribution of the Policies
5 The Series Account
6 The Series Account
7 Not Applicable
8 Not Applicable
9 Legal Proceedings
10 Introduction; Policy Benefits; Payment and Allocation of
Premiums; Investments of the Series Account; Policy Rights
11 The Series Account; WRL Series Fund, Inc.
12 The Series Account; WRL Series Fund, Inc.
13 Charges and Deductions; The Series Account; Investments of
the Series Account
14 Introduction; Allocation of Premiums and Cash Value
15 Allocation of Premiums and Cash Value
16 The Series Account
17 Cash Value; The Series Account; Policy Rights
18 Payment and Allocation of Premiums; Cash Value
19 Voting Rights of the Series Account; Reports and Records
(i)
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N-8B-2 ITEM CAPTION IN PROSPECTUS
- ----------- ---------------------
20 Not Applicable
21 Loan Privileges
22 Not Applicable
23 Safekeeping of the Series Account's Assets
24 Policy Rights
25 Western Reserve Life Assurance Co. of Ohio
26 Not Applicable
27 Western Reserve Life Assurance Co. of Ohio; The Series Account;
WRL Series Fund, Inc.
28 Western Reserve Life Assurance Co. of Ohio; Executive Officers
and Directors of Western Reserve Life Assurance Co. of Ohio
29 Western Reserve Life Assurance Co. of Ohio
30 Not Applicable
31 Not Applicable
32 Not Applicable
33 Not Applicable
34 Not Applicable
35 Western Reserve Life Assurance Co. of Ohio
36 Not Applicable
37 Not Applicable
38 Distribution of the Policies
39 Distribution of the Policies
(ii)
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N-8B-2 ITEM CAPTION IN PROSPECTUS
- ----------- ---------------------
40 Not Applicable
41 Distribution of the Policies; Western Reserve Life Assurance Co.
of Ohio
42 Not Applicable
43 Not Applicable
44 Cash Value
45 Not Applicable
46 Cash Value
47 Introduction; Allocation of Premiums and Cash Value
48 Not Applicable
49 Not Applicable
50 Not Applicable
51 Introduction; Western Reserve Life Assurance Co. of Ohio; Policy
Benefits; Charges and Deductions
52 The Series Account; WRL Series Fund, Inc.
53 Federal Tax Matters
54 Not Applicable
55 Not Applicable
56 Not Applicable
57 Not Applicable
58 Not Applicable
59 Not Applicable
(iii)
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WRL FREEDOM WEALTH PROTECTOR
JOINT SURVIVORSHIP FLEXIBLE
PREMIUM VARIABLE LIFE
INSURANCE POLICY
Issued by
WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO
201 Highland Avenue
Largo, Florida 34640
(800) 851-9777
(813) 585-6565
The joint survivorship flexible premium variable life insurance policy
("Policy") issued by Western Reserve Life Assurance Co. of Ohio ("Western
Reserve") and described in this Prospectus is designed to provide lifetime
insurance protection and maximum flexibility in connection with premium
payments and death benefits. A Policyowner may, subject to certain
restrictions, vary the timing and amount of premium payments and increase or
decrease the level of life insurance benefits payable under the Policy. This
flexibility allows a Policyowner to provide for changing insurance needs
under a single life insurance policy. The minimum Specified Amount for a
Policy at issue is generally $100,000.
The Policy provides a death benefit payable upon the death of the
Surviving Insured, and a Net Surrender Value that can be obtained by
completely or partially surrendering the Policy. Net premiums are allocated
according to the Policyowner's directions among the Sub-Accounts of the WRL
Series Life Account ("Series Account"), or to a fixed interest account
("Fixed Account") or a combination of both. With respect to amounts allocated
to Sub-Accounts of the Series Account, the amount of the death benefit may,
and the Cash Value will, vary to reflect both the investment experience of
the Sub-Accounts and the timing and amount of additional premium payments.
However, as long as the Policy remains In Force, Western Reserve guarantees
that the death benefit will never be less than the Specified Amount of the
Policy. While additional premium payments are not required under the Policy,
additional premium payments may be necessary to prevent Lapse if there is
insufficient Net Surrender Value.
The Policy provides a free-look period. The Policyowner may cancel the
Policy within 10 days after the Policyowner receives it, or 10 days after
Western Reserve mails or delivers a written notice of withdrawal right to the
Policyowner, or within 45 days after signing the application, whichever is
latest. Certain states require a free-look period longer than 10 days, either
for all Policyowners or for certain classes of Policyowners.
The assets of each Sub-Account of the Series Account will be invested
solely in a corresponding Portfolio of the WRL Series Fund, Inc. (the
"Fund"). The Prospectuses for the Fund describe the investment objectives and
the risks of investing in the Portfolios of the Fund corresponding to the
Sub-Accounts currently available under the Policy. The Policyowner bears the
entire investment risk for all amounts allocated to the Series Account; there
is no guaranteed minimum Cash Value.
It may not be to your advantage to replace existing insurance or
supplement an existing flexible premium variable life insurance policy with a
policy described in this Prospectus.
Please read this Prospectus and the Prospectuses for the Fund carefully
and retain for future reference.
THE POLICY IS NOT A DEPOSIT OR OBLIGATION OF, OR GUARANTEED OR ENDORSED BY,
ANY BANK OR DEPOSITORY INSTITUTION, AND THE POLICY IS NOT FEDERALLY INSURED
BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD OR
ANY OTHER AGENCY, AND INVOLVES INVESTMENT RISK, INCLUDING POSSIBLE LOSS OF
PRINCIPAL AMOUNT INVESTED.
THIS PROSPECTUS MUST BE ACCOMPANIED OR PRECEDED BY CURRENT PROSPECTUSES FOR
THE PORTFOLIOS OF THE WRL SERIES FUND, INC. CERTAIN PORTFOLIOS MAY NOT BE
AVAILABLE IN ALL STATES.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION, NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING IN ANY JURISDICTION IN WHICH
SUCH OFFERING MAY NOT LAWFULLY BE MADE. NO DEALER, SALESPERSON OR OTHER
PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR MAKE ANY REPRESENTATIONS IN
CONNECTION WITH THIS OFFERING OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS,
AND, IF GIVEN OR MADE, SUCH OTHER INFORMATION OR REPRESENTATIONS MUST NOT BE
RELIED UPON.
THIS PROSPECTUS MUST BE ACCOMPANIED BY THE CURRENT PROSPECTUSES FOR THE
WRL SERIES FUND, INC. ALL PROSPECTUSES SHOULD BE READ AND RETAINED FOR FUTURE
REFERENCE.
Prospectus Dated May 1, 1996
<PAGE>
TABLE OF CONTENTS
PAGE
---------
DEFINITIONS ........................................ 1
INTRODUCTION ....................................... 3
INVESTMENT EXPERIENCE INFORMATION .................. 6
Rates of Return ................................... 6
Death Benefit, Cash Value and Net Surrender Value
Illustrations ................................... 7
Other Performance Data ............................ 11
WESTERN RESERVE AND THE
SERIES ACCOUNT ..................................... 11
Western Reserve Life Assurance Co.
of Ohio ......................................... 11
The Series Account ................................ 12
POLICY BENEFITS .................................... 12
Death Benefit ..................................... 12
When Insurance Coverage Takes Effect .............. 14
Terminal Illness Accelerated Death
Benefit Rider ................................... 15
Cash Value ........................................ 15
INVESTMENTS OF THE SERIES ACCOUNT .................. 16
WRL Series Fund, Inc. ............................. 16
Addition, Deletion, or Substitution
of Investments .................................. 19
PAYMENT AND ALLOCATION OF PREMIUMS ................. 19
Issuance of a Policy .............................. 19
Premiums .......................................... 19
Allocation of Premiums and Cash Value ............. 20
Dollar Cost Averaging ............................. 21
Asset Rebalancing Program ......................... 22
Policy Lapse and Reinstatement .................... 22
CHARGES AND DEDUCTIONS ............................. 23
Premium Expense Charges ........................... 23
Contingent Surrender Charges ...................... 23
Cash Value Charges ................................ 25
Optional Cash Value Charges ....................... 26
Charges Against the Series Account ................ 26
Group or Sponsored Arrangements ................... 26
POLICY RIGHTS ...................................... 27
Loan Privileges ................................... 27
Surrender Privileges .............................. 28
Examination of Policy Privilege ("Free-Look") .... 28
Conversion Rights ................................. 28
Policy Split Option ............................... 28
Benefits at Maturity .............................. 29
Payment of Policy Benefits ........................ 29
GENERAL PROVISIONS ................................. 30
Postponement of Payments .......................... 30
The Contract ...................................... 30
Suicide ........................................... 30
Incontestability .................................. 30
Change of Owner or Beneficiary .................... 30
Assignment ........................................ 30
Misstatement of Age or Sex ........................ 30
Reports and Records ............................... 30
Optional Insurance Benefits ....................... 30
THE FIXED ACCOUNT .................................. 31
Fixed Account Value ............................... 31
Minimum Guaranteed and Current
Interest Rates .................................. 31
Allocations, Transfers and Withdrawals ............ 32
DISTRIBUTION OF THE POLICIES ....................... 32
FEDERAL TAX MATTERS ................................ 32
Introduction ...................................... 32
Tax Charges ....................................... 32
Tax Status of the Policy .......................... 32
Tax Treatment of Policy Benefits .................. 33
Employment-Related Benefit Plans .................. 35
SAFEKEEPING OF THE SERIES
ACCOUNT'S ASSETS ................................... 35
VOTING RIGHTS OF THE SERIES ACCOUNT ................ 35
STATE REGULATION OF WESTERN
RESERVE ............................................ 36
REINSURANCE ........................................ 36
EXECUTIVE OFFICERS AND DIRECTORS
OF WESTERN RESERVE ................................. 36
LEGAL MATTERS ...................................... 37
LEGAL PROCEEDINGS .................................. 37
EXPERTS ............................................ 37
ADDITIONAL INFORMATION ............................. 37
INFORMATION ABOUT
WESTERN RESERVE'S
FINANCIAL STATEMENTS ............................... 37
APPENDIX A - ILLUSTRATION
OF BENEFITS ........................................ 38
APPENDIX B - LONG TERM MARKET TRENDS ............... 42
INDEX TO FINANCIAL
STATEMENTS ......................................... 44
The Policy is not available in all States.
i
<PAGE>
DEFINITIONS
ACCOUNTS -- Allocation options including the Fixed Account and
Sub-Accounts of the Series Account.
ATTAINED AGE -- For each Joint Insured, the Issue Age plus the number of
completed Policy years.
ANNIVERSARY -- The same day and month as the Policy Date for each
succeeding year the Policy remains In Force.
BENEFICIARY -- The person or persons specified by the Owner as entitled to
receive the death benefit proceeds under the Policy.
CASH VALUE -- The sum of the values in each Sub-Account plus the Policy's
value in the Fixed Account.
FIXED ACCOUNT -- An allocation option other than the Series Account. Part
of Western Reserve's General Account.
FUND -- WRL Series Fund, Inc., a registered management investment company
in which the assets of the Series Account are invested.
GENERAL ACCOUNT -- The assets of Western Reserve other than those
allocated to the Series Account or any other separate account.
GUIDELINE PREMIUM -- The level annual premium payment necessary to provide
the benefits selected by the Policyowner under the Policy through its
Maturity Date, based on the particular facts relating to the Insureds and
certain assumptions allowed by law. The dollar amount of the Guideline
Premium is shown on the Policy's Schedule Page.
IN FORCE -- Condition under which the coverage is active and both
Insureds' lives remain insured.
INITIAL PREMIUM -- The amount which must be paid before coverage begins.
ISSUE AGE -- For each Joint Insured, issue age refers to the age on the
Insured's birthday nearest the Policy Date.
JOINT INSUREDS -- The persons whose lives are insured under the Policy.
LAPSE -- Termination of the Policy at the end of the grace period.
LOAN RESERVE -- A part of the Fixed Account to which amounts are
transferred as collateral for Policy loans.
MATURITY DATE -- The date when coverage under the Policy will terminate if
either of the Insureds is living and the Policy is In Force.
MONTHLY ANNIVERSARY OR MONTHIVERSARY -- The same date in each succeeding
month as the Policy Date. For purposes of the Series Account, whenever the
Monthly Anniversary falls on a date other than a Valuation Date, the Monthly
Anniversary will be deemed to be the next Valuation Date.
NET SURRENDER VALUE -- The amount payable upon surrender of the Policy
equal to the Cash Value less indebtedness and less any surrender charge.
NET PREMIUM -- The portion of the premium available for allocation to
either the Fixed Account or the Sub-Accounts of the Series Account equal to
the premium paid by the Policyowner less any applicable premium expense
charges.
NO LAPSE DATE -- Either, (1) the later of attained target premium age 65
or five Policy years, or (2) the later of attained target premium age 75 or
ten Policy years, as selected by the Policyowner at time of application for
the Policy.
NO LAPSE PERIOD -- The period of time between the Policy Date and the No
Lapse Date, during which the Policy will not Lapse if certain conditions are
met, even though Net Surrender Value is insufficient to meet the monthly
deduction.
OFFICE -- The administrative office of Western Reserve whose mailing
address is P. O. Box 5068, Clearwater, Florida 34618-5068.
PLANNED PERIODIC PREMIUM -- A scheduled premium of a level amount at a
fixed interval over a specified period of time.
POLICY -- The joint survivorship flexible premium variable life insurance
policy offered by Western Reserve and described in this Prospectus.
POLICY DATE -- The date set forth in the Policy when insurance coverage is
effective and monthly deductions commence under the Policy. The Policy Date
is used to determine Policy years and Policy Months. Policy Anniversaries are
measured from the Policy Date.
1
<PAGE>
POLICY MONTH -- A month beginning on the Monthly Anniversary.
POLICYOWNER(S) ("OWNER(S)") -- The person(s) who owns the Policy, and who
may exercise all rights under the Policy while either or both Joint Insureds
are living. If two Owners are named, the Policy will be owned jointly and the
consent of each Owner will be required to exercise ownership rights.
PORTFOLIO -- A separate investment portfolio of the Fund.
RECORD DATE -- The date the Policy is recorded on the books of Western
Reserve as an In Force Policy.
SERIES ACCOUNT -- WRL Series Life Account, a separate investment account
established by Western Reserve to receive and invest Net Premiums allocated
under the Policy.
SPECIFIED AMOUNT -- The minimum death benefit payable under the Policy as
long as the Policy remains In Force. The death benefit proceeds will be
reduced by any outstanding indebtedness and any due and unpaid charges.
SUB-ACCOUNT -- A sub-division of the Series Account. Each Sub-Account
invests exclusively in the shares of a specified Portfolio of the Fund.
SURVIVING INSURED -- The Joint Insured who remains alive after the other
Joint Insured has died.
1
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TERMINATION -- Condition when either of the Joint Insured's lives is no
longer insured under the coverage provided.
VALUATION DATE -- Any day on which the net asset value of the Fund is
determined.
VALUATION PERIOD -- The period commencing at the end of one Valuation Date
and continuing to the end of the next succeeding Valuation Date.
2
<PAGE>
INTRODUCTION
1. WHAT IS THE DIFFERENCE BETWEEN THE POLICY AND A CONVENTIONAL
FIXED-BENEFIT POLICY PRIOR TO THE DEATH OF AN INSURED?
Like conventional fixed-benefit life insurance, as long as the Policy
remains In Force, the Policy will provide: (1) the accumulation of Cash
Value; and (2) surrender rights and Policy loan privileges.
The Policy differs from conventional fixed-benefit life insurance by
allowing Policyowners to allocate Net Premiums to one or more
Sub-Accounts of the Series Account, or to the Fixed Account, or to a
combination of both. Each Sub-Account invests in a designated Portfolio
of the Fund. The amount and/or duration of the life insurance coverage
and the Cash Value of the Policy are not guaranteed and may increase or
decrease depending upon the investment experience of the Series Account.
Accordingly, the Policyowner bears the investment risk of any
depreciation in value of the underlying assets of the Series Account but
reaps the benefits of any appreciation in value. (See Allocation of
Premiums and Cash Value - Allocation of Net Premiums, p. 20.) Unlike
conventional fixed-benefit life insurance, a Policyowner also has the
flexibility, subject to certain restrictions (see Premiums - Premium
Limitations, p. 19), to vary the frequency and amount of premium payments
and to decrease the Specified Amount. Thus, unlike conventional
fixed-benefit life insurance, the Policy does not require a Policyowner
to adhere to a fixed premium schedule. Moreover, the failure to pay a
scheduled premium ("Planned Periodic Premium") will not itself cause the
Policy to lapse, although additional premium payments may be necessary to
prevent lapse if Net Surrender Value is insufficient to pay certain
monthly charges, and a grace period expires without a sufficient payment.
(See Policy Lapse and Reinstatement - Lapse, p. 22.)
2. WHAT IS THE DIFFERENCE BETWEEN THE POLICY AND A CONVENTIONAL
FIXED-BENEFIT POLICY UPON THE DEATH OF AN INSURED?
Under a conventional fixed-benefit life insurance Policy, only one
person is insured. Upon the insured's death, the Policy terminates and
the death benefit is paid to the beneficiary. Under a joint survivorship
Policy, two people are insured. When one of the two insureds dies with
the other insured still living, no death benefit is paid, and the Policy
continues without any change in the Policy provisions, charges or cash
value accumulation. The Owner(s) may continue to pay premiums, as
necessary or desired, and exercise all rights as Owner(s) under the
Policy.
3. WHAT DEATH BENEFIT OPTIONS ARE AVAILABLE UNDER THE POLICY?
The Policy provides the payment of benefits upon the death of the
Surviving Insured. The Policy contains two death benefit options. Under
Death Benefit Option A, the death benefit is the greater of the Specified
Amount of the Policy or a specified percentage times the Cash Value of
the Policy on the date of death of the Surviving Insured. Under Death
Benefit Option B, the death benefit is the greater of the Specified
Amount of the Policy plus the Cash Value of the Policy on the date of
death of the Surviving Insured or a specified percentage times the Cash
Value of the Policy on the date of death of the Surviving Insured. As
long as the Policy remains In Force, the minimum death benefit payable
under either option will be the current Specified Amount. The amount of
death benefit will be reduced by any outstanding indebtedness and any due
and unpaid charges, and increased by any additional insurance benefits
added by rider and any unearned loan interest. Under Western Reserve's
current rules, the minimum Specified Amount for a Policy at issue is
generally $100,000. The minimum Specified Amount will be set forth in the
Policyowner's Policy. (See Policy Benefits - Death Benefit, p. 12.)
Optional insurance benefits offered under the Policy include a Joint
Insured Term Rider; an Individual Insured Rider; and a Wealth Protector
Rider. (See Optional Cash Value Charges - Optional Insurance Benefits, p.
26.) The cost of these optional insurance benefits will be deducted from
Cash Value as part of the monthly deduction. (See Charges and Deductions
- Cash Value Charges, p. 25.)
A Terminal Illness Accelerated Death Benefit Rider is automatically
included with every Policy at no additional charge. This rider makes a
"Single Sum Benefit" available prior to an Insured's death if the Insured
has incurred a condition resulting from illness which, as determined by a
Physician, has reduced the Insured's life expectancy as defined in the
rider. (See Policy Benefits - Terminal Illness Accelerated Death Benefit
Rider, p. 15.)
Benefits under the Policy may be paid in a lump sum or under one of the
settlement options set forth in the Policy. (See Payment of Policy
Benefits - Settlement Options, p. 29.)
4. HOW MAY THE AMOUNT OF THE DEATH BENEFIT AND CASH VALUE VARY?
Under either death benefit option, as long as the Policy remains In
3
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Force, the death benefit will not be less than the current Specified
Amount of the Policy.
3
<PAGE>
The amount of death benefit will be reduced by any outstanding
indebtedness and any due and unpaid charges. The death benefit may,
however, exceed the Specified Amount under certain circumstances. The
amount by which the death benefit exceeds the Specified Amount depends
upon the option chosen and the Cash Value of the Policy. (See Policy
Benefits - Death Benefit, p. 12.)
The Policy's Cash Value in the Series Account will reflect the amount
and frequency of premium payments, the investment experience of the
chosen Sub-Accounts of the Series Account, any partial surrenders, and
any charges imposed in connection with the Policy. The entire investment
risk for amounts allocated to the Series Account is borne by the
Policyowner; Western Reserve does not guarantee a minimum Cash Value.
(See Policy Benefits - Cash Value, p. 15.)
5. WHAT FLEXIBILITY DOES A POLICYOWNER HAVE TO ADJUST THE AMOUNT OF THE
DEATH BENEFIT?
The Policyowner has the flexibility to adjust the death benefit payable
by changing the Death Benefit Option type, and by decreasing the
Specified Amount of the Policy or adding riders to increase the total
death benefit payable. No such change or decrease may be requested during
the first three Policy years. The Policyowner may either change the death
benefit option or decrease the Specified Amount, but not both, only once
each Policy year after the third Policy year. (See Death Benefit - Change
in Death Benefit Option, p. 13.)
6. WHAT FLEXIBILITY DOES A POLICYOWNER HAVE IN CONNECTION WITH PREMIUM
PAYMENTS?
A Policyowner has considerable flexibility concerning the amount and
frequency of premium payments. An Initial Premium at least equal to a
minimum monthly first year premium must be paid on or before the date on
which the Policy is delivered to and accepted by the Policyowner. (See
Policy Benefits - When Insurance Coverage Takes Effect, p. 14.)
Thereafter, a Policyowner may, subject to certain restrictions, make
premium payments in any amount and at any frequency. (See Payment and
Allocation of Premiums - Premiums, p. 19.) Each Policyowner will also
determine a Planned Periodic Premium schedule. The schedule will provide
Planned Periodic Premium payments of a level amount at a fixed interval
over a specified period of time. The amount and frequency of planned
premium payments will be prescribed in the Policy. The amount and
frequency of Planned Periodic Premium payments may be changed upon
written request. (See Premiums - Planned Periodic Premiums, p. 19.)
7. HOW LONG WILL THE POLICY REMAIN IN FORCE?
The Policy will Lapse only when Net Surrender Value is insufficient to
pay the monthly deduction (see Charges and Deductions - Cash Value
Charges, p. 25), providing excess indebtedness does not exceed the
Policy's Cash Value, and a grace period expires without a sufficient
payment by the Policyowner. (See Loan Privileges - Indebtedness, p. 27.)
However, until the No Lapse Date as provided in the Policy, the Policy
will remain In Force and no grace period will begin provided the total
premiums received (minus any withdrawals and minus any outstanding loans)
equal or exceed the minimum monthly guarantee premium shown in the Policy
times the number of months since the Policy Date, including the current
month. The Policy, therefore, differs in two important respects from a
conventional life insurance policy. First, the failure to pay a Planned
Periodic Premium will not automatically cause the Policy to Lapse.
Second, after the No Lapse Date, the Policy can Lapse even if Planned
Periodic Premiums or premiums in other amounts have been paid, if Net
Surrender Value is insufficient to pay certain monthly charges, and a
grace period expires without a sufficient payment. Such a Lapse could
happen if the investment experience has been sufficiently unfavorable to
have resulted in a decrease in the Net Surrender Value, or the Net
Surrender Value has decreased because not enough premiums have been paid
to offset the monthly charges. If either Insured is alive and the Policy
is In Force on the Maturity Date, which is the younger Insured's 100th
birthday, the Policy will then terminate and no longer be In Force,
unless Western Reserve is willing to extend the Maturity Date and there
are no unfavorable tax consequences. The Net Surrender Value as of the
Maturity Date will be paid to the Policyowner.
8. HOW ARE NET PREMIUMS ALLOCATED?
The portion of the premium available for allocation ("Net Premium")
equals the premium paid less the premium expense charges. (See Charges
and Deductions - Premium Expense Charges, p. 23.) The Policyowner
initially determines the allocation of the Net Premium among the
Sub-Accounts of the Series Account, each of which invests in shares of a
designated Portfolio of the Fund, or to the Fixed Account, or a
combination. Each Portfolio has a different investment objective. (See
Investments of the Series Account - WRL Series Fund, Inc., p. 16.) The
allocation of future Net Premiums may be changed without charge at any
time by providing Western Reserve with written notification from the
4
<PAGE>
Policyowner, or by calling Western Reserve's toll-free number,
1-800-851-9777.
Subject to certain restrictions, a Policyowner may transfer Cash Value
among the Sub-Accounts of the Series Account or from the Sub-Accounts to
the Fixed Account. Transfers may also be made from the Fixed Account to
the Sub-Accounts subject to certain restrictions. The transfer will be
effective on the first Valuation Date on or following the day appropriate
notice of such transfer is received at the Office of Western Reserve.
4
<PAGE>
(See Allocation of Premiums and Cash Value -Transfers, p. 20 and The
Fixed Account - Allocations, Transfers and Withdrawals, p. 32.)
9. IS THERE A "FREE-LOOK" PERIOD?
Yes, the Policy provides a free-look period. The Policyowner may cancel
the Policy within 10 days after the Policyowner receives it, or 10 days
after Western Reserve mails or delivers a written notice of withdrawal
right to the Policyowner, or within 45 days after signing the
application, whichever is latest. Certain states require a Free-Look
period longer than 10 days, either for all Policyowners or for certain
classes of Policyowners. In most states, Western Reserve will refund the
value of the amounts allocated to the Accounts plus any charges
previously deducted. (See Policy Rights - Examination of Policy
Privilege, p. 28.)
10. MAY THE POLICY BE SURRENDERED?
Yes, the Policyowner may totally surrender the Policy at any time and
receive the Net Surrender Value of the Policy. Subject to certain
limitations, the Policyowner may also make cash withdrawals from the
Policy at any time after the first Policy year and prior to the Maturity
Date. (See Policy Rights - Surrender Privileges, p. 28.) If Death Benefit
Option A is in effect, cash withdrawals will reduce the Policy's
Specified Amount by the amount of the cash withdrawal.
11. WHAT IS THE LOAN PRIVILEGE?
After the first Policy Anniversary, a Policyowner may obtain a Policy
loan in any amount which is not greater than 90% of the Cash Value less
any surrender charge and any already outstanding loan. Western Reserve
reserves the right to permit a Policy Loan prior to the first Policy
Anniversary for Policies issued pursuant to a transfer of cash values
from another life insurance policy, or an annuity contract, under Section
1035(a) of the Internal Revenue Code of 1986, as amended. It should be
noted, however, that a loan taken from, or secured by, a Policy may be
treated as a taxable distribution, and also may be subject to a penalty
tax. (See Federal Tax Matters, p. 32.)
The interest rate on a loan is 5.2% payable annually in advance. The
requested loan amount, plus interest in advance, will be transferred from
the Accounts to the Loan Reserve and credited at the end of each Policy
year with guaranteed interest at a rate of 4% per year. Western Reserve
may from time to time, and in its sole discretion, credit the Loan
Reserve with additional interest at a rate higher than 4% per year. The
Loan Reserve is currently being credited with a rate higher than 4% per
year. The minimum loan amount is generally $500. (See Policy Rights -
Loan Privileges, p. 27.) Upon repayment of a loan, amounts in the Loan
Reserve in excess of the outstanding value of the loan are currently
transferred to the Accounts in the same manner as Net Premium
allocations; however, Western Reserve may in the future require these
amounts to be transferred to the Fixed Account. (See The Fixed Account,
p. 31.)
There are risks involved in taking a Policy loan, a few of which
include the potential for a Policy to lapse if projected earnings, taking
into account any outstanding loans, are not achieved, as well as adverse
tax consequences which occur if a Policy lapses with loans outstanding.
(See Federal Tax Matters - Tax Treatment of Policy Benefits, p. 33.)
12. WHAT CHARGES ARE ASSESSED IN CONNECTION WITH THE POLICY?
Certain charges are deducted from each premium. A sales charge equal to
3.5% of the premiums paid through the end of the tenth Policy year is
deducted to compensate Western Reserve for distribution expenses incurred
in connection with the Policy. A charge of 2.5% of each premium is
deducted to compensate Western Reserve for premium taxes imposed by
various states. (See Charges and Deductions - Premium Expense Charges, p.
23.)
A "surrender charge" (part of which is a contingent deferred sales
charge) is deducted if the Policy is surrendered during the first 15
Policy years. The surrender charge consists of a deferred issue charge of
$5.00 per $1,000 of Specified Amount; the surrender charge also consists
of a deferred sales charge equal to 26.5% of one Guideline Premium and
not more than 4.2% of premiums above that amount. A declining percentage
of the surrender charge is assessed after the tenth year. (See Charges
and Deductions - Contingent Surrender Charges, p. 23.)
Western Reserve charges the Sub-Accounts of the Series Account for the
mortality and expense risks Western Reserve assumes. The charge is made
daily at an effective annual rate of 0.90% of the average daily net
assets of each Sub-Account of the Series Account. (See Charges and
Deductions - Charges Against the Series Account, p. 26.)
An investment advisory charge is imposed on each applicable Portfolio
5
<PAGE>
of the Fund at a current annual rate stated as a percentage of the
aggregate average daily net assets of the Portfolio. In addition, the
Portfolios incur certain operating expenses. (See Investments of the
Series Account - WRL Series Fund, Inc., p. 16.)
A cost of insurance charge and a $5.00 monthly administration charge
are deducted monthly from the Cash Value of each Policy to compensate
Western Reserve for the cost of insurance and the cost of administering
the Policy. A Death Benefit Guarantee Charge is deducted up until the No
Lapse Date selected by the Policyowner on the application. The amount of
this charge is set forth on the Policy Schedule Page and will
5
<PAGE>
be $0.04 per $1,000 of Specified Amount for all classes of Policies. On
and after the No Lapse Date selected, this charge will be zero. (See
Charges and Deductions - Cash Value Charges, p. 25.)
Optional Cash Value charges are deducted from the Policy as a result of
Policyowner changes or elections made to the Policy. Optional Cash Value
charges include charges for: optional insurance benefits, certain Cash
Value transfers and cash withdrawals. (See Charges and Deductions -
Optional Cash Value Charges, p. 26.)
No charges are currently made from the Series Account for Federal or
state income taxes. Should Western Reserve determine that such taxes may
be imposed by Federal or state agencies, Western Reserve may make
deductions from the Series Account to pay these taxes. (See Federal Tax
Matters, p. 32.)
13. ARE TRANSFERS PERMITTED AMONG THE ACCOUNTS?
Yes. Twelve Cash Value transfers are permitted among the Sub-Accounts
of the Series Account or from the Sub-Accounts to the Fixed Account
without charge in a Policy year. Western Reserve will impose a $10 charge
for each subsequent transfer. (See Payment and Allocation of Premiums -
Allocation of Premiums and Cash Value, p. 20.) Transfers may also be made
from the Fixed Account to the Sub-Accounts subject to certain
restrictions. (See The Fixed Account - Allocations, Transfers and
Withdrawals, p. 32.)
14. WHAT ARE THE FEDERAL INCOME TAX CONSEQUENCES OF PURCHASING A POLICY?
Under current Federal tax law, life insurance policies receive
tax-favored treatment. The death benefit is generally excludable from the
beneficiary's gross income for Federal income tax purposes, according to
Section 101(a)(1) of the Internal Revenue Code. Owners of a life
insurance policy are not taxed on any increase in the cash value while
the policy remains In Force.
If a second-to-die life insurance policy is a modified endowment
contract under Federal tax law, certain distributions made during either
insured's lifetime, such as loans and partial withdrawals from, and
collateral assignments of, the policy are includable in gross income on
an income-first basis. A 10% penalty tax may also be imposed on
distributions made before the policyowner attains age 59 1/2 . Life
insurance policies that are not modified endowment contracts under
Federal tax law receive preferential tax treatment with respect to
certain distributions.
For a discussion of tax issues associated with this Policy, see
"Federal Tax Matters" on p. 32.
INVESTMENT EXPERIENCE INFORMATION
The information provided in this section shows the historical investment
experience of the Fund and hypothetical illustrations of the Policy based on
the historical investment experience of the Fund. It does not represent or
project future investment performance.
The Policies became available for sale in January of 1994. The Series
Account and the Fund commenced operations on October 2, 1986. The rates of
return shown below depict the actual investment experience of each Portfolio
of the Fund for the periods shown. The illustrations of death benefits, Cash
Values and Net Surrender Values shown below depict these Policy features for
a hypothetical Policy as if it had been purchased on January 1, 1987 by an
Insured in the age and risk classes indicated, based on the historical
investment experience of the Portfolio indicated since January 1, 1987. The
actual rate of return in each calendar year was assumed to be uniformly
earned throughout that year.
RATES OF RETURN
The rates of return shown below are based on the investment performance,
after the deduction of investment management fees and direct Fund expenses,
of the Portfolios of the Fund. The rates are average annual compounded rates
of return for the periods ending on December 31, 1995. (See Investments of
the Series Account - WRL Series Fund, Inc., p. 16.)
These rates of return do not reflect the annual charge against the assets
of the Series Account of 0.90% for mortality and expense risks. These rates
of return also do not reflect the charges deducted from premiums, monthly
deductions from Cash Value, or surrender charges. (See Charges and Deductions
- - Premium Expense Charges, p. 23; Contingent Surrender Charges, p. 23; and
Cash Value Charges, p. 25.) Accordingly, these rates of return do not
illustrate how actual investment performance will affect benefits under the
Policies. (See, however, Death Benefit, Cash Value and Net Surrender Value
Illustrations, p. 7.) Moreover, these rates of return are not an estimate,
projection or guarantee of future performance.
6
<PAGE>
Also shown are comparable figures for the unmanaged Standard & Poor's
Index of 500 Common Stocks, a widely used measure of stock market
performance.
AVERAGE ANNUAL COMPOUNDED RATES OF RETURN
FOR THE PERIODS ENDED ON DECEMBER 31, 1995
<TABLE>
<CAPTION>
FUND PORTFOLIO INCEPTION* 5 YEARS 3 YEARS 1 YEAR
- ------------------ ------------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
Growth 17.63% 18.06% 11.94% 47.12%
Global 18.67% N/A 18.55% 23.06%
Bond 8.48% 10.50% 9.08% 22.99%
Short-to-
Intermediate
Government 5.75% N/A 5.74% 13.54%
Money Market 4.98% 3.91% 3.76% 5.40%
Emerging Growth 20.48% N/A N/A 46.79%
Equity-Income 12.79% N/A N/A 24.66%
Aggressive Growth 18.37% N/A N/A 38.02%
Balanced 6.85% N/A N/A 19.80%
Utility 10.20% N/A N/A 25.25%
Tactical Asset
Allocation 20.09% N/A N/A N/A
C.A.S.E. Growth 20.65% N/A N/A N/A
Standard & Poor's
Index of 500
Common Stocks 14.68% 16.59% 15.34% 37.58%
</TABLE>
* The Growth, Bond and Money Market Portfolios of the Fund commenced operations
on October 2, 1986. The Global and Short-to-Intermediate Government Portfolios
commenced operations on December 3, 1992. The Emerging Growth and
Equity-Income Portfolios commenced operations on March 1, 1993. The Aggressive
Growth, Balanced and Utility Portfolios commenced operations on March 1, 1993.
The Tactical Asset Allocation Portfolio commenced operations on January 3,
1995. The C.A.S.E. Growth Portfolio commenced operations on May 1, 1995. The
Standard & Poor's Index of 500 Common Stocks returns are based on an inception
date of October 2, 1986.
Because the Value Equity Portfolio had not yet commenced operations as of
December 31, 1995, the above chart does not reflect rates of return for this
Portfolio.
Additional information regarding the investment performance of the
Portfolios of the Fund appears in the attached Prospectuses for the
Portfolios of the Fund.
DEATH BENEFIT, CASH VALUE AND NET SURRENDER VALUE
ILLUSTRATIONS
In order to demonstrate how the actual investment experience of the
Portfolios would have affected the Option A death benefits, the Policy Cash
Value and Net Surrender Value, the following hypothetical illustrations are
based on the actual investment experience of each Portfolio as if the Policy
had been available for sale and issued on January 1, 1987. The actual rate of
return in each calendar year was assumed to be uniformly earned throughout
that year. These illustrations do not represent what may happen in the
future.
The illustrations show Option A based on the payment of annual premiums of
$4,000 at the beginning of each Policy year, and a Specified Amount of
$250,000 for a male age 55 and a female age 55. The illustrations also assume
that the Joint Insureds are placed in Western Reserve's Select underwriting
rate class. (See Cash Value Charges - Cost of Insurance, p. 25.) The
illustrations also assume that the Policy's entire Cash Value is allocated to
the Sub-Account corresponding to the Portfolio shown.
The amounts shown for death benefits, Cash Values and Net Surrender Values
take into account all charges and deductions from the Policy, the Series
Account and the Fund (see Charges and Deductions - Premium Expense Charges,
p. 23, Charges Against the Series Account, p. 26, and Investments of the
Series Account - WRL Series Fund, Inc., p. 16).
For each Portfolio of the Fund, one illustration is based on the
guaranteed cost of insurance rates, while the other illustration is based on
the current cost of insurance rates. These examples of Policy performance are
for the specific ages, sexes, rate class, premium payment pattern and Policy
set forth above. The amount and timing of premium payments would affect
individual Policy benefits as would any withdrawals or loans.
This Prospectus also contains illustrations based on assumed rates of
return. See Appendix A, pp. 38-41.
The following example shows how the hypothetical net return of the Growth
Portfolio of the Fund would have affected benefits for a Policy dated January
1, 1987. This example assumes that the Net Premiums and related Cash Values
were in the Sub-Account for the entire period and that the values were
determined on the first Valuation Date following January 1st of each year.
7
<PAGE>
GROWTH PORTFOLIO
Male, Issue Age 55, Female, Issue Age 55, $4,000 Annual Premium
($250,000 Specified Amount, Select Risk)
Death Benefit Option A
Both Current and Guaranteed Cost of Insurance Rates
<TABLE>
<CAPTION>
POLICY ANNIVERSARY ON JANUARY 1 OF CASH VALUE NET SURRENDER VALUE
- ------------------------------------------------------------------------------------------
CURRENT GUARANTEED CURRENT GUARANTEED
<S> <C> <C> <C> <C>
1988.............................. $3,969 $3,969 $1,659 $1,659
1989* ............................ 8,692 8,692 6,040 6,040
1990* ............................ 18,144 18,144 15,325 15,325
1991* ............................ 20,979 20,979 17,992 17,992
1992* ............................ 39,022 39,022 35,866 35,866
1993* ............................ 43,012 43,006 39,689 39,683
1994* ............................ 47,467 47,447 43,975 43,956
1995* ............................ 46,065 46,024 42,406 42,364
1996* ............................ 72,000 71,892 68,173 68,064
</TABLE>
* For the years shown, benefits and values reflect only premiums paid during
previous Policy years.
The following example shows how the hypothetical net return of the Bond
Portfolio of the Fund would have affected benefits for a Policy dated January
1, 1987. This example assumes that Net Premiums and related Cash Values were
in the Sub-Account for the entire period and that the values were determined
on the first Valuation Date following January 1st of each year.
BOND PORTFOLIO
Male, Issue Age 55, Female, Issue Age 55, $4,000 Annual Premium
($250,000 Specified Amount, Select Risk)
Death Benefit Option A
Both Current and Guaranteed Cost of Insurance Rates
<TABLE>
<CAPTION>
POLICY ANNIVERSARY ON JANUARY 1 OF CASH VALUE NET SURRENDER VALUE
- ------------------------------------------------------------------------------------------
CURRENT GUARANTEED CURRENT GUARANTEED
<S> <C> <C> <C> <C>
1988.............................. $3,385 $3,385 $1,075 $1,075
1989* ............................ 7,345 7,345 4,694 4,694
1990* ............................ 12,459 12,459 9,640 9,640
1991* ............................ 16,903 16,903 13,916 13,916
1992* ............................ 23,617 23,617 20,461 20,461
1993* ............................ 28,961 28,955 25,638 25,632
1994* ............................ 35,881 35,858 32,390 32,367
1995* ............................ 36,275 36,229 32,615 32,569
1996* ............................ 48,181 48,078 44,353 44,250
</TABLE>
* For the years shown, benefits and values reflect only premiums paid during
previous Policy years.
8
<PAGE>
The following example shows how the hypothetical net return of the Money
Market Portfolio of the Fund would have affected benefits for a Policy dated
January 1, 1987. This example assumes that Net Premiums and related Cash
Values were in the Sub-Account for the entire period and that the values were
determined on the first Valuation Date following January 1st of each year.
MONEY MARKET PORTFOLIO
Male, Issue Age 55, Female, Issue Age 55, $4,000 Annual Premium
($250,000 Specified Amount, Select Risk)
Death Benefit Option A
Both Current and Guaranteed Cost of Insurance Rates
<TABLE>
<CAPTION>
POLICY ANNIVERSARY ON JANUARY 1 OF CASH VALUE NET SURRENDER VALUE
- ------------------------------------------------------------------------------------------
CURRENT GUARANTEED CURRENT GUARANTEED
<S> <C> <C> <C> <C>
1988.............................. $3,759 $3,759 $1,449 $1,449
1989* ............................ 7,694 7,694 5,042 5,042
1990* ............................ 12,013 12,013 9,194 9,194
1991* ............................ 16,492 16,492 13,504 13,504
1992* ............................ 20,787 20,787 17,631 17,631
1993* ............................ 24,715 24,709 21,392 21,385
1994* ............................ 28,473 28,451 24,982 24,960
1995* ............................ 32,577 32,528 28,918 28,868
1996* ............................ 37,389 37,293 33,561 33,466
</TABLE>
* For the years shown, benefits and values reflect only premiums paid during
previous Policy years.
The following example shows how the hypothetical net return of the Global
Portfolio of the Fund would have affected benefits for a Policy dated January
1, 1993, and if the Global Portfolio had been offered through the Policy as
of January 1, 1993. This example assumes that net premiums and related Cash
Values were in the Sub-Account for the entire period and that the values were
determined on the first Valuation Date following January 1st of each year.
GLOBAL PORTFOLIO
Male, Issue Age 55, Female, Issue Age 55, $4,000 Annual Premium
($250,000 Specified Amount, Select Risk)
Death Benefit Option A
Both Current and Guaranteed Cost of Insurance Rates
<TABLE>
<CAPTION>
POLICY ANNIVERSARY ON JANUARY 1 OF CASH VALUE NET SURRENDER VALUE
- ------------------------------------------------------------------------------------------
CURRENT GUARANTEED CURRENT GUARANTEED
<S> <C> <C> <C> <C>
1994.............................. $4,800 $4,800 $2,490 $2,490
1995* ............................ 8,312 8,310 5,660 5,660
1996* ............................ 14,443 14,443 11,624 11,624
</TABLE>
* For the years shown, benefits and values reflect only premiums paid during
previous Policy years.
The following example shows how the hypothetical net return of the
Short-to-Intermediate Government Portfolio of the Fund would have affected
benefits for a Policy dated January 1, 1993, and if the Short-to-Intermediate
Government Portfolio had been offered through the Policy as of January 1,
1993. This example assumes that net premiums and related Cash Values were in
the Sub-Account for the entire period and that the values were determined on
the first Valuation Date following January 1st of each year.
SHORT-TO-INTERMEDIATE GOVERNMENT PORTFOLIO
Male, Issue Age 55, Female, Issue Age 55, $4,000 Annual Premium
($250,000 Specified Amount, Select Risk)
Death Benefit Option A
Both Current and Guaranteed Cost of Insurance Rates
9
<PAGE>
<TABLE>
<CAPTION>
POLICY ANNIVERSARY ON JANUARY 1 OF CASH VALUE NET SURRENDER VALUE
- ------------------------------------------------------------------------------------------
CURRENT GUARANTEED CURRENT GUARANTEED
<S> <C> <C> <C> <C>
1994.............................. $3,690 $3,690 $1,380 $1,380
1995* ............................ 7,139 7,139 4,487 4,487
1996* ............................ 11,997 11,997 9,177 9,177
</TABLE>
* For the years shown, benefits and values reflect only premiums paid during
previous Policy years.
9
<PAGE>
The following example shows how the hypothetical net return of the
Emerging Growth Portfolio of the Fund would have affected benefits for a
Policy dated January 1, 1994, if the Emerging Growth Portfolio had been
offered by the Policy as of January 1, 1994. This example assumes that net
premiums and related Cash Values were in the Sub-Account for the entire
period and that the values were determined on the first Valuation Date
following January 1st of each year.
EMERGING GROWTH PORTFOLIO
Male, Issue Age 55, $4,000 Annual Premium
($250,000 Specified Amount, Non-Smoker Ultimate Select Risk)
Death Benefit Option A
Both Current and Guaranteed Cost of Insurance Rates
<TABLE>
<CAPTION>
POLICY ANNIVERSARY ON JANUARY 1 OF CASH VALUE NET SURRENDER VALUE
- ------------------------------------------------------------------------------------------
CURRENT GUARANTEED CURRENT GUARANTEED
<S> <C> <C> <C> <C>
1995.............................. $3,283 $3,283 $973 $973
1996* ............................ 9,978 9,978 7,326 7,326
</TABLE>
* For the years shown, benefits and values reflect only premiums paid during
previous Policy years.
The following example shows how the hypothetical net return of the
Equity-Income Portfolio of the Fund would have affected benefits for a Policy
dated January 1, 1994, if the Equity-Income Portfolio had been offered by the
Policy as of January 1, 1994. This example assumes that net premiums and
related Cash Values were in the Sub-Account for the entire period and that
the values were determined on the first Valuation Date following January 1st
of each year.
EQUITY-INCOME PORTFOLIO
Male, Issue Age 55, $4,000 Annual Premium
($250,000 Specified Amount, Non-Smoker Ultimate Select Risk)
Death Benefit Option A
Both Current and Guaranteed Cost of Insurance Rates
<TABLE>
<CAPTION>
POLICY ANNIVERSARY ON JANUARY 1 OF CASH VALUE NET SURRENDER VALUE
- ------------------------------------------------------------------------------------------
CURRENT GUARANTEED CURRENT GUARANTEED
<S> <C> <C> <C> <C>
1995.............................. $3,537 $3,537 $1,227 $1,227
1996* ............................ 8,769 8,769 6,118 6,118
</TABLE>
* For the years shown, benefits and values reflect only premiums paid during
previous Policy years.
The following example shows how the hypothetical net return of the
Aggressive Growth Portfolio of the Fund would have affected benefits for a
Policy dated January 1, 1995. This example assumes that net premiums and
related Cash Values were in the Sub-Account for the entire period and that
the values were determined on the first Valuation Date following January 1st
of each year.
AGGRESSIVE GROWTH PORTFOLIO
Male, Issue Age 35, $2,000 Annual Premium
($165,000 Specified Amount, Non-Smoker Ultimate Select Risk)
Death Benefit Option A
Both Current and Guaranteed Cost of Insurance Rates
<TABLE>
<CAPTION>
POLICY ANNIVERSARY ON JANUARY 1 OF CASH VALUE NET SURRENDER VALUE
- ------------------------------------------------------------------------------------------
CURRENT GUARANTEED CURRENT GUARANTEED
<S> <C> <C> <C> <C>
1996.............................. $4,915 $4,915 $2,605 $2,605
</TABLE>
10
<PAGE>
The following example shows how the hypothetical net return of the
Balanced Portfolio of the Fund would have affected benefits for a Policy
dated January 1, 1995. This example assumes that net premiums and related
Cash Values were in the Sub-Account for the entire period and that the values
were determined on the first Valuation Date following January 1st of each
year.
BALANCED PORTFOLIO
Male, Issue Age 35, $2,000 Annual Premium
($165,000 Specified Amount, Non-Smoker Ultimate Select Risk)
Death Benefit Option A
Both Current and Guaranteed Cost of Insurance Rates
<TABLE>
<CAPTION>
POLICY ANNIVERSARY ON JANUARY 1 OF CASH VALUE NET SURRENDER VALUE
- ------------------------------------------------------------------------------------------
CURRENT GUARANTEED CURRENT GUARANTEED
<S> <C> <C> <C> <C>
1996.............................. $4,254 $4,254 $1,944 $1,944
</TABLE>
The following example shows how the hypothetical net return of the Utility
Portfolio of the Fund would have affected benefits for a Policy dated January
1, 1995. This example assumes that net premiums and related Cash Values were
in the Sub-Account for the entire period and that the values were determined
on the first Valuation Date following January 1st of each year.
UTILITY PORTFOLIO
Male, Issue Age 35, $2,000 Annual Premium
($165,000 Specified Amount, Non-Smoker Ultimate Select Risk)
Death Benefit Option A
Both Current and Guaranteed Cost of Insurance Rates
<TABLE>
<CAPTION>
POLICY ANNIVERSARY ON JANUARY 1 OF CASH VALUE NET SURRENDER VALUE
- ------------------------------------------------------------------------------------------
CURRENT GUARANTEED CURRENT GUARANTEED
<S> <C> <C> <C> <C>
1996.............................. $4,452 $4,452 $2,142 $2,142
</TABLE>
Because the C.A.S.E. Growth Portfolio commenced operations on May 1, 1995,
and the Value Equity Portfolio had not commenced operations as of December
31, 1995, there are no hypothetical illustrations for these Portfolios.
OTHER PERFORMANCE DATA
Western Reserve may compare the performance of each Sub-Account in
advertising and sales literature to the performance of other variable life
issuers in general, or to the performance of particular types of variable
life insurance policies investing in mutual funds, or investment series of
mutual funds, with investment objectives similar to each of the Sub-Accounts
whose performance is reported by Lipper Analytical Services, Inc. ("Lipper")
and Morningstar, Inc. ("Morningstar") or reported by other services,
companies, individuals or other industry or financial publications of general
interest, such as Forbes, Money, The Wall Street Journal, Business Week,
Barron's, Kiplinger's Personal Finance and Fortune. Lipper and Morningstar
are widely used independent research services which monitor and rank the
performance of variable life insurance policies in each of the major
categories of investment objectives on an industry-wide basis.
Lipper's and Morningstar's rankings include variable annuity contracts as
well as variable life insurance policies. The performance analyses prepared
by Lipper and Morningstar rank such policies and contracts on the basis of
total return, assuming reinvestment of distributions, but do not take sales
charges, redemption fees or certain expense deductions at the separate
account level into consideration.
Western Reserve may also compare the performance of each Sub-Account in
advertising and sales literature to the Standard & Poor's Index of 500 Common
Stocks, a widely used measure of stock market performance, or other widely
recognized indices. Unmanaged indices may assume the reinvestment of
dividends, but usually do not reflect any "deduction" for the expense of
operating or managing an investment portfolio.
In addition, Western Reserve may, as appropriate, compare each
Sub-Account's performance to that of other types of investments such as
certificates of deposit, savings accounts and U.S. Treasuries, or to certain
interest rate and inflation indices, such as the Consumer Price Index, which
is published by the U.S. Department of Labor and measures the average change
in prices over time of a fixed "market basket" of certain specified goods and
services. Similar comparisons of Sub-Account performance may also be made
with appropriate indices measuring the performance of a defined group of
securities widely recognized by investors as representing a particular
11
<PAGE>
segment of the securities markets. For example, Sub-Account performance may
be compared with Donoghue Money Market Institutional Average (money market
rates), Lehman Brothers Corporate Bond Index (corporate bond interest rates)
or Lehman Brothers Government Bond Index (long-term U.S. Government
obligation interest rates).
WESTERN RESERVE AND THE SERIES ACCOUNT
WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO
Western Reserve was originally incorporated under the laws of Ohio on
October 1, 1957. Western Reserve is engaged
11
<PAGE>
in the business of writing life insurance policies and annuity contracts.
Western Reserve is admitted to do business in 49 states and the District of
Columbia. The Office of Western Reserve is located in Largo, Florida;
however, the mailing address is P.O. Box 5068, Clearwater, FL 34618-5068.
Western Reserve is a wholly-owned subsidiary of First AUSA Life Insurance
Company ("First AUSA"), a stock life insurance company which is wholly-owned
by AEGON USA, Inc. ("AEGON"). AEGON is a financial services holding company
whose primary emphasis is on life and health insurance and annuity and
investment products. AEGON is a wholly-owned indirect subsidiary of AEGON
nv, a Netherlands corporation, which is a publicly traded international
insurance group.
PUBLISHED RATINGS OF WESTERN RESERVE. Western Reserve may from time to
time publish in advertisements, sales literature and reports to Policyowners,
the ratings and other information assigned to it by one or more independent
rating organizations such as A.M. Best Company ("A.M. Best"), Moody's
Investors Service, Inc. ("Moody's"), Standard & Poor's Insurance Rating
Services ("Standard & Poor's"), and Duff & Phelps Credit Rating Co. ("Duff &
Phelps"). A.M. Best's and Moody's ratings reflect their current opinion of
the relative financial strength and operating performance of an insurance
company in comparison to the norms of the life/health insurance industry.
Standard & Poor's and Duff & Phelps provide ratings which measure the claims-
paying ability of insurance companies. These ratings are opinions of an
operating insurance company's financial capacity to meet the obligations of
its insurance policies in accordance with their terms. Claims-paying ability
ratings do not refer to an insurer's ability to meet non-policy obligations
(i.e., debt/commercial paper).
THE SERIES ACCOUNT
WRL Series Life Account ("Series Account") was established by Western
Reserve as a separate account on July 16, 1985. The Series Account meets the
definition of a "separate account" under the Federal securities laws. The
Series Account will receive and invest the Net Premiums paid under this
Policy and other flexible premium variable life insurance policies issued by
Western Reserve.
Although the assets of the Series Account are the property of Western
Reserve, the Code of Ohio, under which the Series Account was established,
provides that the assets in the Series Account attributable to the Policies
are not chargeable with liabilities arising out of any other business which
Western Reserve may conduct. The assets of the Series Account shall, however,
be available to cover the liabilities of the General Account of Western
Reserve to the extent that the Series Account's assets exceed its liabilities
arising under the Policies supported by it.
The Series Account is currently divided into thirteen Sub-Accounts. Each
Sub-Account invests exclusively in shares of a single Portfolio of the Fund.
Income and both realized and unrealized gains or losses from the assets of
each Sub-Account of the Series Account are credited to or charged against
that Sub-Account without regard to income, gains or losses from any other
Sub-Account of the Series Account or arising out of any other business
Western Reserve may conduct.
POLICY BENEFITS
DEATH BENEFIT
Policyowners designate in the initial application one of two death benefit
options offered under the Policy: Death Benefit Option A ("Option A") or
Death Benefit Option B ("Option B"). As long as the Policy remains In Force,
(see Policy Lapse and Reinstatement - Lapse, p. 22), Western Reserve will,
upon receiving due proof of the Surviving Insured's death, pay the death
benefit proceeds of a Policy to the named Beneficiary in accordance with the
designated death benefit option. The amount of the death benefit proceeds
payable will be determined at the end of the Valuation Period during which
the Surviving Insured dies. The proceeds may be paid in a lump sum or under
one or more of the settlement options set forth in the Policy. (See Payments
of Policy Benefits - Settlement Options, p. 29.) Western Reserve guarantees
that as long as the Policy remains In Force (see Policy Lapse and
Reinstatement - Lapse, p. 22), the death benefit proceeds under either option
will never be less than the Specified Amount of the Policy, but the proceeds
will be reduced by any outstanding indebtedness and any due and unpaid
charges. These proceeds will be increased by any additional insurance In
Force provided by rider and any unearned loan interest.
OPTION A. The death benefit is the greater of the Specified Amount of the
Policy or the applicable percentage (the "limitation percentage") times the
Cash Value on the date of death. The limitation percentage is a percentage
based on the Attained Age of the younger Joint Insured and is 250% for a
younger Joint Insured age 40 or below on the Policy Anniversary prior to the
date of death. For a younger Joint Insured with an Attained Age over 40 on a
Policy Anniversary, the percentage declines as shown in the following
Limitation Percentage Table. Accordingly, under Option A the death benefit
will remain level unless the limitation percentage times the Cash Value
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exceeds the Specified Amount, in which case the amount of the death benefit
will vary as the Cash Value varies.
ILLUSTRATION OF OPTION A. For purposes of this illustration, assume that
the younger Joint Insured's Attained Age is under 40 and that there is no
outstanding indebtedness. Under Option A, a Policy with a $250,000 Specified
Amount will generally pay $250,000 in death benefits. However, because the
death benefit must be equal to or be greater than 250% of Cash Value, any
time the Cash Value of the Policy exceeds $100,000, the death benefit will
exceed the $250,000 Specified Amount. Each additional dollar added to Cash
Value above $100,000 will increase the death benefit by $2.50.
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LIMITATION PERCENTAGE TABLE
<TABLE>
<CAPTION>
ATTAINED AGE
OF YOUNGER PER YEAR
JOINT INSURED LESS OVER AGE
- ---------------- ------- -----------
<S> <C> <C> <C>
under 40 ....... 250%
41 - 45 ........ 250% 7% 40
46 - 50 ........ 215% 6% 45
51 - 55 ........ 185% 7% 50
56 - 60 ........ 150% 4% 55
61 - 65 ........ 130% 2% 60
66 - 70 ........ 120% 1% 65
71 - 75 ........ 115% 2% 70
76 - 90 ........ 105% 0% 75
91 - 95 ........ 105% 1% 90
above 96 ....... 100% 0% 95
</TABLE>
Similarly, so long as Cash Value exceeds $100,000, each dollar taken out
of Cash Value will reduce the death benefit by $2.50. If at any time,
however, the Cash Value multiplied by the limitation percentage is less than
the Specified Amount, the death benefit will equal the Specified Amount of
the Policy.
OPTION B. The death benefit is equal to the greater of the Specified
Amount plus the Cash Value of the Policy or the limitation percentage times
the Cash Value on or prior to the date of death. The applicable percentage is
250% for the younger Joint Insured age 40 or below on the Policy Anniversary
prior to the date of death. For the younger Joint Insured with an Attained
Age over 40 on a Policy Anniversary, the percentage declines as shown in the
Limitation Percentage Table above. Accordingly, under Option B the amount of
the death benefit will always vary as the Cash Value varies.
ILLUSTRATION OF OPTION B. For purposes of this illustration, assume that
the younger Joint Insured is under the age of 40 and that there is no
outstanding indebtedness. Under Option B, a Policy with a Specified Amount of
$250,000 will generally pay a death benefit of $250,000 plus Cash Value.
Thus, for example, a Policy with a Cash Value of $50,000 will have a death
benefit of $300,000 ($250,000 + $50,000). The death benefit, however, must be
at least 250% of Cash Value. As a result, if the Cash Value of the Policy
exceeds $166,666, the death benefit will be greater than the Specified Amount
plus Cash Value. Each additional dollar of Cash Value above $166,666 will
increase the death benefit by $2.50.
Similarly, any time Cash Value exceeds $166,666, each dollar taken out of
Cash Value will reduce the death benefit by $2.50. If at any time, however,
Cash Value multiplied by the limitation percentage is less than the Specified
Amount plus the Cash Value, then the death benefit will be the Specified
Amount plus the Cash Value of the Policy.
CHOOSING DEATH BENEFIT OPTION A OR OPTION B. As described above and
assuming the death benefit is not determined by reference to the limitation
percentage, Option A will provide a Specified Amount of death benefit which
does not vary with changes in Cash Value. Thus, under Option A, as Cash Value
increases, Western Reserve's net amount at risk under the Policy will
decline. In contrast, Option B involves a constant net amount at risk,
assuming that the death benefit is not determined by reference to the
limitation percentage. Therefore, assuming positive investment experience,
the deduction for cost of insurance under a Policy with an Option A death
benefit will be less than under a corresponding policy with an Option B death
benefit. Because of this, if investment performance is positive, Cash Value
under Option A will increase faster than under Option B but the total death
benefit under Option B will generally be greater. Thus, Option A could be
considered more suitable for Policyowners whose goal is increasing Cash Value
based upon positive investment experience while Option B could be considered
more suitable for Policyowners whose goal is increasing total death benefit.
The Policyowner may either change the death benefit option or decrease the
Specified Amount, but not both, only once each Policy year after the third
Policy year.
CHANGE IN DEATH BENEFIT OPTION. Generally, the death benefit option in
effect may be changed by the Policyowner once each Policy year after the
third Policy year, provided that no decrease is made that year, by sending
Western Reserve a written request for a change. A change in death benefit
option may have Federal income tax consequences. (See Federal Tax Matters, p.
32.)
Under Western Reserve's current rules, no change may be made if it would
result in a Specified Amount less than the minimum Specified Amount set forth
in the Policy. The effective date of any change will be the Monthly
Anniversary on or following receipt of the request. No charges will be
imposed for making a change in death benefit option.
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<PAGE>
If the death benefit option is changed from Option B to Option A, the
Specified Amount will be increased by an amount equal to the Policy's Cash
Value on the effective date of change. If the death benefit option is changed
from Option A to Option B, the Specified Amount will be decreased by an
amount equal to the Cash Value on the effective date of the change.
CORRIDOR PERCENTAGE. If pursuant to requirements of the Internal Revenue
Code of 1986, as amended, the death benefit under a Policy is determined by
reference to the limitation percentages discussed above, the Policy is
described as "in the corridor," and an increase in the Cash Value of the
Policy will increase the net amount at risk assumed by Western Reserve and
consequently increase the cost of insurance deducted from the Cash Value of
the Policy. (See Cash Value Charges - Cost of Insurance, p. 25.)
INSURANCE PROTECTION. A Policyowner may increase or decrease the pure
insurance protection provided by a Policy (i.e., the difference between the
death benefit and the Cash Value) in one of several ways as insurance needs
change. These ways include decreasing the Specified Amount of insurance,
changing the level of premium payments, and, to a lesser extent, making a
cash withdrawal from the Policy.
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<PAGE>
Although the consequences of each of these methods will depend upon the
individual circumstances, they may be generally summarized as follows:
(a) A decrease in the Specified Amount will, subject to the limitation
percentage (see Policy Benefits - Death Benefit, p. 12), in general
decrease the insurance protection and the charges under the Policy
without reducing the Cash Value.
(b) If Option A is elected, an increased level of premium payments also
will reduce the pure insurance protection, until the limitation
percentage times the Cash Value exceeds the Specified Amount.
Furthermore, increased premiums should increase the amount of funds
available to keep the Policy In Force.
(c) A cash withdrawal will reduce the death benefit. (See Surrender
Privileges - Cash Withdrawals, p. 28.) However, it has no effect on
the amount of pure insurance protection and charges under the Policy,
unless the death benefit payable is governed by the limitation
percentages.
(d) A reduced level of premium payments also generally increases the
amount of pure insurance protection if Option A is elected, or
maintains the same amount of pure insurance protection if Option B is
elected, again depending on the limitation percentage. Furthermore, it
results in a reduced amount of Cash Value and increases the
possibility that the Policy will lapse.
HOW DEATH BENEFITS MAY VARY IN AMOUNT. As long as the Policy remains In
Force, Western Reserve guarantees that the death benefit will never be less
than the Specified Amount of the Policy. These proceeds will be reduced by
any outstanding indebtedness and any due and unpaid charges. The death
benefit may, however, vary with the Policy's Cash Value. Under Option A, the
death benefit will only vary when the Cash Value multiplied by the limitation
percentage exceeds the Specified Amount of the Policy. The death benefit
under Option B will always vary with the Cash Value because the death benefit
equals either the Specified Amount plus the Cash Value or the limitation
percentage times the Cash Value.
DECREASE IN SPECIFIED AMOUNT. Subject to certain limitations, a
Policyowner may decrease the Specified Amount of a Policy. A decrease in
Specified Amount may affect the net amount at risk, which may affect a
Policyowner's cost of insurance charge. (See Cash Value Charges - Cost of
Insurance, p. 25.) A decrease in Specified Amount could also have Federal
income tax consequences. (See Federal Tax Matters, p. 32.) The Policyowner
may either change the death benefit option or decrease the Specified Amount,
but not both, only once each Policy year after the third Policy year.
Any decrease in the Specified Amount will become effective on the Monthly
Anniversary date on or following receipt of a written request from the
Policyowner by Western Reserve. No requested decrease in the Specified Amount
will be permitted during the first three Policy years. The Policyowner may
either change the death benefit option or decrease the Specified Amount, but
not both, only once each Policy year after the third Policy year. The
Specified Amount remaining In Force after any requested decrease may not be
less than the minimum Specified Amount set forth in the Policy. Western
Reserve reserves the right to limit any decrease to no more than 20% of the
Specified Amount immediately prior to the decrease. If, following the
decrease in Specified Amount, the Policy would not comply with the maximum
premium limitations required by Federal tax law (see Premiums - Premium
Limitations, p. 19), the decrease may be limited to the extent necessary to
meet these requirements.
WHEN INSURANCE COVERAGE TAKES EFFECT
No life insurance coverage shall take effect unless the proposed Joint
Insureds are alive and in the same condition of health as described in the
application when the policy is delivered to the Policyowner and the full
Initial Premium is paid. However, if the full Initial Premium is paid as set
forth in the conditional receipt attached to the application, and the
conditional receipt is delivered to the Policyowner, the terms of the
conditional receipt shall apply.
CONDITIONAL INSURANCE COVERAGE. The proposed Joint Insureds must be
insurable and acceptable to Western Reserve under its underwriting rules for
the amount, plan and risk classification applied for on the later of: (a) the
date of application, or (b) the date of completion of all medical tests and
examinations required by Western Reserve. Any check given for payment must be
honored on first presentation. The conditional receipt and all coverages
applied for on the application are void if a check or draft received for
payment of the Initial Premium is not honored for payment when presented for
payment on first presentation.
AMOUNT OF CONDITIONAL LIFE INSURANCE COVERAGE. If conditional insurance
coverage becomes effective under the terms of the conditional receipt, then
the amount of conditional life insurance coverage on any person proposed for
insurance is the lesser of: (a) the amount of life insurance applied for on
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<PAGE>
such person, or (b) $300,000 reduced by the amounts payable under all other
life insurance or accidental death benefits then in force or pending with
Western Reserve.
WHEN CONDITIONAL LIFE INSURANCE COVERAGE BEGINS. If the conditions listed
above are fulfilled, then the amount of conditional insurance coverage
specified above shall take effect on the later of: (a) the date of the
application, or (b) the date of the completion of all medical tests and
examinations required by Western Reserve. All conditional coverages for the
proposed Joint Insureds will be deemed void if the application contains
material misrepresentation or is fraudulently completed. Benefits under the
conditional receipt coverage will be denied if any proposed Joint Insured
commits suicide.
WHEN CONDITIONAL LIFE INSURANCE COVERAGE ENDS. Conditional life insurance
coverage shall terminate automatically, without notice, on the earliest of
the following dates:
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<PAGE>
(a) the date Western Reserve approves the Policy as applied for, or (b) 10
days following any counteroffer by Western Reserve to offer insurance to any
person proposed for insurance under a different plan or at an increased
premium or on a different rate class or (c) at the end of the fraction of a
year which the payment bears to the premium required to provide one month of
insurance coverage in the amount as described above, or (d) at the beginning
of the 60th day following the date of the conditional receipt.
TERMINAL ILLNESS ACCELERATED DEATH BENEFIT RIDER
In states where this rider has been approved by that state's department of
insurance, upon receipt of proof satisfactory to Western Reserve that the
Surviving Insured has incurred a condition resulting from illness which, as
determined by a Physician, has reduced life expectancy to not more than 12
months from the date of the Physician's Statement (a "Terminal Condition"),
Western Reserve will pay to the Policyowner a "Single Sum Benefit", equal to:
(a) the Death Benefit in effect on the date the Single Sum Benefit is
paid; multiplied by
(b) the Election Percentage; divided by
(c) 1 + i, where i equals the greater of (A) and (B) on the date the
Single Sum Benefit is paid. (A) equals the interest rate determined
under Internal Revenue Code section 846(c)(2), as it may be amended
from time to time; and (B) equals the Policy Loan Interest Rate.
minus
(d) Indebtedness, if any, at the time the Single Sum Benefit is paid,
multiplied by the Election Percentage.
"Death Benefit" under the Rider means the amount payable at death of the
Surviving Insured under the Policy, plus the benefit payable under any In
Force Joint Insured Term Rider or Wealth Protector Rider. (See Optional
Insurance Benefits, p. 30.) "Election Percentage" means a percentage,
selected by the Policyowner, not to exceed 100% of the Policy's Death
Benefit, as defined under the Rider; however, in no event will the Election
Percentage result in a Single Sum Benefit greater than $500,000. A
"Physician" may be a Doctor of Medicine or a Doctor of Osteopathy, licensed
to practice medicine and treat injury or illness in the state in which
treatment is received and who is acting within the scope of that license, and
must be someone other than the Surviving Insured, the Policyowner, a person
who lives with the Surviving Insured or Policyowner, or a person who is part
of the Surviving Insured's or Policyowner's "Immediate Family" (spouse,
child, brother, sister, parent, grandparent or grandchild of the Surviving
Insured). The "Physician's Statement" must be a written statement signed by a
Physician which provides the Physician's diagnosis of the Surviving Insured's
non-correctable medical condition. It must state with reasonable medical
certainty that the non-correctable medical condition will result in the death
of the Surviving Insured within 12 months of the Physician's Statement,
taking into consideration the ordinary and reasonable medical care, advice
and treatment available in the same or similar communities.
The Rider will not pay benefits creating a Terminal Condition resulting
from self-inflicted bodily injuries occurring within the same period
specified in the Policy's suicide provision. The Rider terminates at the
earliest of (a) the date the Policy terminates, (b) the effective date of a
settlement option elected under the Policy, (c) the date the Single Sum
Benefit is paid, or (d) the date the Policyowner elects to terminate the
Rider.
There is no additional charge for this benefit. As stated above, this
Rider may not be available in all states, or, if available, the terms of the
Rider may vary in accordance with each state's insurance laws.
The tax consequences of adding the Rider to a Policy or receiving a
benefit under that Rider are unclear. A Policyowner should therefore consult
a qualified tax adviser about these consequences before adding this Rider to
a Policy.
CASH VALUE
At the end of any Valuation Period, the Cash Value of the Policy is equal
to the sum of the Sub-Account values of the Series Account plus the Fixed
Account Value. There is no guaranteed minimum Cash Value.
NET SURRENDER VALUE. A Policyowner may at any time surrender the Policy
and receive the Policy's Net Surrender Value. (See Policy Rights - Surrender
Privileges, p. 28.) The Net Surrender Value as of any date is equal to:
(1) the Cash Value as of such date; minus
(2) any surrender charge as of such date (as described on p. 28); minus
(3) any outstanding Policy loan; plus
(4) any unearned loan interest.
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<PAGE>
DETERMINATION OF VALUES IN THE SERIES ACCOUNT. On the Policy Date, the
Policy's value in a Sub-Account of the Series Account will equal the portion
of any Net Premium allocated to the Sub-Account, reduced by the portion of
the first monthly deduction allocated to that Sub-Account. (See Payment and
Allocation of Premiums - Allocation of Premiums and Cash Value, p. 20.)
Thereafter, on each Valuation Date, the Policy's value in a Sub-Account of
the Series Account will equal:
(1) The Policy's value in the Sub-Account on the preceding Valuation Date,
multiplied by the experience factor for the current Valuation Period;
plus
(2) Any Net Premium payments received during the current Valuation Period
which are allocated to the Sub-Account; plus
(3) All values transferred to the Sub-Account from the Loan Reserve, from
the Fixed Account or from another Sub-Account during the current
Valuation Period; minus
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<PAGE>
(4) All values transferred from the Sub-Account to the Loan Reserve, to
the Fixed Account or to another Sub-Account during the current
Valuation Period; minus
(5) All cash withdrawals from the Sub-Account during the current Valuation
Period; minus
(6) The portion of the monthly deduction allocated to the Sub-Account
during the current Valuation Period.
The Policy's total value in the Series Account equals the sum of the
Policy's value in each Sub-Account. (For a description of how the values of
the Fixed Account are calculated, see The Fixed Account - Fixed Account
Value, p. 31.) Because the Cash Value is dependent upon a number of
variables, including the investment experience of the chosen Sub-Accounts of
the Series Account, the frequency and amount of premium payments, transfers
and surrenders, and charges assessed in connection with the Policy, a
Policy's Cash Value cannot be predetermined.
THE EXPERIENCE FACTOR. The experience factor measures investment
experience during a Valuation Period. Each Sub-Account has its own distinct
experience factor. In calculating a Sub-Account's experience factor for a
Valuation Period, the net asset value for each share of the corresponding
Portfolio of the Fund at the end of the current Valuation Period is increased
by the amount per Portfolio share of any dividend or capital gain
distribution received by the Portfolio during the current Valuation Period
and decreased by a per Portfolio share charge for any applicable taxes. The
total is then divided by the net asset value per Portfolio share at the end
of the preceding Valuation Period. Western Reserve then deducts a daily
charge equal to 0.90% on an annual basis of the average daily net assets of
each Sub-Account to compensate Western Reserve for certain mortality and
expense risks. (See Charges Against the Series Account - Mortality and
Expense Risk Charge, p. 26.)
VALUATION DATE AND VALUATION PERIOD. The net asset value per share of
shares of the Fund is determined, once daily, as of the close of the regular
session of business on the New York Stock Exchange ("Exchange") (usually 4:00
p.m., Eastern time), on each day the Exchange is open.
INVESTMENTS OF THE SERIES ACCOUNT
WRL SERIES FUND, INC.
The Series Account invests in shares of the Fund, a series mutual fund
which is registered with the Securities and Exchange Commission
("Commission") as an open-end diversified management investment company. Such
registration does not involve supervision of the management or investment
practices or policies of the Fund by the Commission.
Currently, the Portfolios of the Fund corresponding to the Sub-Accounts of
the Series Account are: Aggressive Growth Portfolio, Emerging Growth
Portfolio, Growth Portfolio, Global Portfolio, Balanced Portfolio,
Equity-Income Portfolio, Bond Portfolio, Short-to-Intermediate Government
Portfolio, Utility Portfolio, Money Market Portfolio, Tactical Asset
Allocation Portfolio, C.A.S.E. Growth Portfolio and Value Equity Portfolio.
The assets of each Portfolio are held separate from the assets of the other
Portfolios, and each Portfolio has investment objectives and policies which
are different from those of the other Portfolios. Thus, each Portfolio
operates as a separate investment fund, and the income or losses of one
Portfolio generally have no effect on the investment performance of any other
Portfolio. Pending any prior approval by a state insurance regulatory
authority, certain Sub-Accounts and corresponding Portfolios may not be
available to residents of some states.
The investment objectives and policies of each Portfolio are summarized
below. There is no assurance that any of the Portfolios will achieve its
stated objective. More detailed information, including a description of
risks, can be found in the Prospectuses for the Fund which should be read
carefully.
AGGRESSIVE GROWTH PORTFOLIO: This Portfolio seeks long-term capital
appreciation by investing in a diversified, actively managed portfolio of
equity securities.
EMERGING GROWTH PORTFOLIO: This Portfolio seeks capital appreciation by
investing primarily in common stocks of small and medium sized companies.
GROWTH PORTFOLIO: This Portfolio's objective is growth of capital.
GLOBAL PORTFOLIO: This Portfolio seeks long-term growth of capital in a
manner consistent with preservation of capital, primarily through investments
in common stocks of foreign and domestic issuers.
BALANCED PORTFOLIO: This Portfolio seeks preservation of capital, reduced
volatility, and superior long-term risk adjusted returns by investing
16
<PAGE>
primarily in common stock, convertible securities and fixed-income
securities.
EQUITY-INCOME PORTFOLIO: This Portfolio seeks to provide current income,
long-term growth of income and capital appreciation by investing primarily in
common stocks, income producing securities convertible into common stocks,
and fixed-income securities.
BOND PORTFOLIO: This Portfolio seeks the highest possible current income
within the confines of the primary goal of insuring the protection of capital
by investing in debt securities issued by the U.S. Government and its
agencies and in medium to high-quality corporate debt securities.
SHORT-TO-INTERMEDIATE GOVERNMENT PORTFOLIO: This Portfolio seeks as high a
level of current income as is consistent with preservation of capital,
primarily through investments in U.S. Government securities, including
repurchase agreements with respect to U.S. Government securities.
UTILITY PORTFOLIO: This Portfolio's objective is to achieve high current
income and moderate capital appreciation by investing primarily in a
professionally managed and diversified portfolio of equity and debt
securities of utility companies.
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<PAGE>
MONEY MARKET PORTFOLIO: This Portfolio's objective is to obtain maximum
current income consistent with preservation of principal and maintenance of
liquidity.
TACTICAL ASSET ALLOCATION PORTFOLIO: This Portfolio seeks preservation of
capital and competitive investment returns by investing primarily in stocks,
United States Treasury bonds, notes and bills, and money market funds.
C.A.S.E. GROWTH PORTFOLIO: This Portfolio's objective is capital growth
through investments in small to medium-sized companies.
VALUE EQUITY PORTFOLIO: This Portfolio seeks to achieve maximum,
consistent total return with minimum risk to principal by investing primarily
in common stocks with above-average statistical value which, in the
Sub-Adviser's opinion, are in fundamentally attractive industries and are
undervalued at the time of purchase.
Western Reserve serves as investment adviser to the Fund and manages its
assets in accordance with policies, programs and guidelines established by
the Board of Directors of the Fund.
Janus Capital Corporation ("Janus") serves as sub-adviser to the Growth,
Bond and Global Portfolios of the Fund. Janus, located at 100 Fillmore
Street, Denver, Colorado 80206, has been engaged in the management of the
Janus funds since 1969. Janus also serves as investment adviser or
sub-adviser to other mutual funds, and individual, corporate, charitable, and
retirement accounts. The aggregate market value of the assets managed by
Janus was approximately $34 billion as of March 1, 1996. Western Reserve and
Janus will divide equally monthly compensation at current annual rates of
0.50% of the aggregate average daily net assets of the Bond Portfolio and
0.80% of the aggregate average daily net assets each of the Growth Portfolio
and the Global Portfolio.
AEGON USA Investment Management, Inc. ("AEGON Management") is sub-adviser
to the Short-to-Intermediate Government Portfolio and the Balanced Portfolio
of the Fund. AEGON Management, located at 4333 Edgewood Road, N.E., Cedar
Rapids, Iowa 52499, is a wholly-owned subsidiary of AEGON and thus is an
affiliate of Western Reserve. AEGON Management serves as sub-adviser to the
two bond portfolios of IDEX II Series Fund. AEGON Management also manages the
general account investment portfolios of the life insurance subsidiaries of
AEGON which had in excess of $22.6 billion under management as of ,January 1,
1996. Western Reserve and AEGON Management will divide equally monthly
compensation at the current annual rate of 0.60% of the aggregate average
daily net assets of the Short-to-Intermediate Government Portfolio and 0.80%
of the aggregate average daily net assets of the Balanced Portfolio. AEGON
Management's compensation will be reduced by 50% of the amount paid by
Western Reserve on behalf of the Short-to-Intermediate Government Portfolio
and the Balanced Portfolio pursuant to any expense limitation or other
reimbursement.
Van Kampen American Capital Asset Management, Inc. ("Van Kampen American
Capital") is sub-adviser to the Emerging Growth Portfolio of the Fund. Van
Kampen American Capital, located at 2800 Post Oak Blvd., Houston, Texas
77056, is a wholly-owned subsidiary of Van Kampen American Capital, Inc.
("VKAC"), which is a wholly-owned subsidiary of Van Kampen American Capital
Holding, Inc. ("VK/AC Holding"). VK/AC Holding is controlled, through the
ownership of a substantial majority of its common stock, by The Clayton &
Dubilier Private Equity Fund IV Limited Partnership ("C&D L.P."), a
Connecticut limited partnership. C&D L.P. is managed by Clayton, Dubilier &
Rice, Inc., a New York based private investment firm. The General Partner of
C&D L.P. is Clayton & Dubilier Associates IV Limited Partnership ("C&D
Associates L.P."). The general partners of C&D Associates L.P. are Joseph L.
Rice, III, B. Charles Ames, Alberto Cribiore, Donald J. Gogel and Hubbard C.
Howe, each of whom is a principal of Clayton, Dubilier & Rice, Inc. In
addition, certain officers, directors and employees of VKAC own, in the
aggregate, not more than 6% of the common stock of VK/AC Holding and have the
right to acquire, upon the exercise of options, approximately an additional
10% of the common stock of VK/AC Holding. Western Reserve and Van Kampen
American Capital will divide equally monthly compensation at the current
annual rate of 0.80% of the aggregate average daily net assets of the
Emerging Growth Portfolio. Van Kampen American Capital's compensation will be
reduced by 50% of the amount paid by Western Reserve on behalf of the
Emerging Growth Portfolio pursuant to any expense limitation or other
reimbursement.
Luther King Capital Management Corporation ("Luther King"), located at 301
Commerce Street, Suite 1600, Fort Worth, Texas, 76102, is sub-adviser to the
Equity-Income Portfolio of the Fund. Ultimate control of Luther King is
exercised by J. Luther King, Jr. Although Luther King has no previous
experience as an investment adviser to mutual funds, it is a registered
investment adviser and provides investment management services to accounts of
individual and other institutional investors. Western Reserve and Luther King
will divide equally monthly compensation at the current annual rate of 0.80%
of the aggregate average daily net assets of the Equity-Income Portfolio.
Federated Investment Counseling ("Federated") is sub-adviser to the
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<PAGE>
Utility Portfolio of the Fund. Federated, located at Federated Investors
Tower, Pittsburgh, Pennsylvania 15222-3779, is a Delaware business trust
organized on April 11, 1989 and is a registered investment adviser under the
Investment Advisers Act of 1940. It is a subsidiary of Federated Investors.
Federated serves as investment adviser to a number of investment companies
and private accounts. Total assets under management or administered by
Federated and other subsidiaries of Federated Investors is approximately $70
billion. Western Reserve will receive monthly compensation at the current
annual rate of 0.75% of the aggregate average daily net assets of the Utility
Portfolio. From this amount,
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<PAGE>
as compensation of its services, Federated will receive payments of fees
equal to 0.50% of the first $30 million of average daily net assets, 0.35% of
the next $20 million of average daily net assets, and 0.25% of average daily
net assets in excess of $50 million of the Utility Portfolio.
Fred Alger Management, Inc. ("Fred Alger") is sub-adviser to the
Aggressive Growth Portfolio of the Fund. Fred Alger, located at 75 Maiden
Lane, New York, NY 10038, is a wholly-owned subsidiary of Fred Alger &
Company, Incorporated, which in turn is a wholly-owned subsidiary of Alger
Associates, Inc., a financial services holding company controlled by Fred M.
Alger. Fred Alger has approximately $85 billion in assets under management
for investment companies and private accounts. Western Reserve and Fred Alger
will divide equally monthly compensation at the current annual rate of 0.80%
of the aggregate average daily net assets of the Aggressive Growth Portfolio.
Dean Investment Associates, a Division of C.H. Dean and Associates, Inc.
("Dean") is sub-adviser to the Tactical Asset Allocation Portfolio of the
Fund. Dean, located at 2480 Kettering Tower, Dayton, Ohio 45423-2480, is a
registered investment adviser with the Securities and Exchange Commission.
Dean is wholly-owned by C.H. Dean and Associates, Inc. Founded in 1972, Dean
Investments manages portfolios for individuals and institutional clients
worldwide. Dean provides a full range of investment advisory services and
currently has over $ billion of assets under management. Western Reserve and
Dean will divide equally monthly compensation at the current annual rate of
0.80% of the aggregate average daily net assets of the Tactical Asset
Allocation Portfolio. Dean's compensation will be reduced by 50% of the
amount paid by Western Reserve on behalf of the Tactical Asset Allocation
Portfolio pursuant to any expense limitation or other reimbursement.
J.P. Morgan Investment Management, Inc. ("J.P. Morgan"), located at 522
Fifth Avenue, New York, New York 10036, is sub-adviser to the Money Market
Portfolio of the Fund. Keith M. Schappert is the President and Chief
Executive Officer of J.P. Morgan. J.P. Morgan is a wholly-owned subsidiary of
J.P. Morgan & Co. Incorporated. J.P. Morgan provides investment management
and related services for corporate, public and union employee benefit funds,
foundations, endowments, insurance companies and government agencies. Western
Reserve will receive monthly compensation at the current annual rate of 0.40%
of the aggregate average daily net assets of the Money Market Portfolio. From
this amount, as compensation for its services, J.P. Morgan will receive 0.15%
of the average daily net assets of the Money Market Portfolio.
C.A.S.E. Management, Inc. ("C.A.S.E."), located at 2255 Glades Road, Boca
Raton, Florida 33431, is sub-adviser to the C.A.S.E. Growth Portfolio of the
Fund. C.A.S.E. is a registered investment advisory firm and a wholly-owned
subsidiary of C.A.S.E. Inc. C.A.S.E. Inc. is indirectly controlled by William
Edward Lange, president and chief executive officer of C.A.S.E. C.A.S.E.
provides investment management services to financial institutions, high net
worth individuals, and other professional money managers. Western Reserve and
C.A.S.E. will divide equally monthly compensation at the current annual rate
of 0.80% of the aggregate average daily net assets of the C.A.S.E. Growth
Portfolio.
NWQ Investment Management Company, Inc. ("NWQ Investment"), located at 655
South Hope Street, 11th Floor, Los Angeles, California 90017, is sub-adviser
to the Value Equity Portfolio of the Fund. NWQ Investment was founded in 1982
and is a wholly-owned subsidiary of United Asset Management Corporation. NWQ
Investment provides investment management services to institutions and high
net worth individuals. As of December 31, 1995, NWQ Investment had over $5.6
billion in assets under management. Western Reserve and NWQ Investment will
divide equally monthly compensation at the current annual rate of 0.80% of
the aggregate average daily net assets of the Value Equity Portfolio. NWQ
Investment's compensation will be reduced by 50% of the amount paid by
Western Reserve on behalf of the Value Equity Portfolio pursuant to any
expense limitation or other reimbursement.
In addition to the Series Account, shares of the Fund are also sold to the
WRL Series Annuity Account, a separate account established by Western Reserve
for its variable annuity contracts, the PFL Endeavor Variable Annuity
Account, a separate account of PFL Life Insurance Company, the AUSA Endeavor
Variable Annuity Account, a separate account of AUSA Life Insurance Company,
Inc., and to the AUSA Series Life Account, a separate account of AUSA Life
Insurance Company, Inc., all affiliates of Western Reserve. Shares of the
Fund may in the future be sold to other separate accounts, including separate
accounts established for variable life insurance policies or variable annuity
contracts issued by Western Reserve or its affiliates. It is conceivable
that, in the future, it may become disadvantageous for variable life
insurance separate accounts and variable annuity separate accounts to invest
in the Fund simultaneously. Although neither Western Reserve nor the Fund
currently foresees any such disadvantages, either to variable life insurance
policyowners or to variable annuity contract owners, the Fund's Board of
Directors intends to monitor events in order to identify any material
conflicts between the interests of such variable life insurance policyowners
and variable annuity contract owners and to determine what action, if any, it
should take. Such action could include the sale of Fund shares by one or more
of the separate accounts, which could have adverse consequences. Material
conflicts could result from, for example, (1) changes in state insurance
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laws, (2) changes in Federal income tax laws, or (3) differences in voting
instructions between those given by variable life insurance policyowners and
those given by variable annuity contract owners. If the Board of Directors
were to conclude that separate funds should be established for variable life
and variable annuity separate accounts, Western Reserve will bear the
attendant expenses, but variable life insurance policyowners and variable
annuity contract owners
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would no longer have the economies of scale resulting from a larger combined
fund.
ADDITION, DELETION, OR SUBSTITUTION OF INVESTMENTS
Western Reserve reserves the right, subject to compliance with applicable
law, to make additions to, deletions from, or substitutions for the shares
that are held by the Series Account or that the Series Account may purchase.
Western Reserve reserves the right to eliminate the shares of any of the
Portfolios of the Fund and to substitute 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 its judgement
further investment in any Portfolio should become inappropriate in view of
the purposes of the Series Account. Western Reserve will not substitute any
shares attributable to a Policyowner's interest in a Sub-Account of the
Series Account without notice and prior approval of the Commission, to the
extent required by the Investment Company Act of 1940, as amended (the "1940
Act") or other applicable law. Nothing contained herein shall prevent the
Series Account from purchasing other securities for other Portfolios or
classes of policies, or from permitting a conversion between Portfolios or
classes of policies on the basis of requests made by Policyowners.
Western Reserve also reserves the right to establish additional
Sub-Accounts of the Series Account, each of which would invest in a new
Portfolio of the Fund, or in shares of another investment company, with a
specified investment objective. New Sub-Accounts may be established when, in
the sole discretion of Western Reserve, marketing, tax or investment
conditions warrant, and any new Sub-Accounts will be made available to
existing Policyowners on a basis to be determined by Western Reserve. Western
Reserve may also eliminate one or more Sub-Accounts if, in its sole
discretion, marketing, tax, or investment conditions warrant.
In the event of any such substitution or change, Western Reserve may by
appropriate endorsement make such changes in this and other policies as may
be necessary or appropriate to reflect such substitution or change. If deemed
by Western Reserve to be in the best interests of persons having voting
rights under the Policies, the Series Account may be operated as a management
company under the 1940 Act, or it may be deregistered under the 1940 Act in
the event such registration is no longer required.
PAYMENT AND ALLOCATION OF PREMIUMS
ISSUANCE OF A POLICY
Individuals wishing to purchase a Policy must send a completed application
to Western Reserve, P.O. Box 5068, Clearwater, Florida 34618-5068. Under
Western Reserve's current rules, the minimum Specified Amount of a Policy is
generally $100,000. Policies will generally be issued only to Joint Insureds
ages 1 to 85 who supply satisfactory evidence of insurability sufficient to
Western Reserve. (Because a few state insurance regulatory authorities have
not yet approved Policies for issue to Joint Insureds ages 1-19. Western
Reserve will only issue Policies for Joint Insureds ages 1-19 of these states
upon approval by those state regulatory authorities.)
The younger Joint Insured must be no older than age 80. Further, the sum
of the ages of the Joint Insureds cannot exceed the total of 160 years (see
Policy Lapse and Reinstatement - Lapse, p. 22). Western Reserve may, however,
at its sole discretion, issue a Policy with a younger Joint Insured above the
age of 80. Acceptance is subject to Western Reserve's underwriting rules and
Western Reserve reserves the right to reject an application for any reason
permitted by law.
PREMIUMS
Subject to certain limitations, a Policyowner has flexibility in
determining the frequency and amount of premiums.
PREMIUM FLEXIBILITY. Unlike conventional insurance policies, this Policy
frees the Policyowner from the requirement that premiums be paid in
accordance with a rigid and inflexible premium schedule. Western Reserve may
require the Policyowner to pay an Initial Premium at least equal to a minimum
monthly guarantee premium set forth in the Policy before issuing the Policy.
(See Charges and Deductions -Premium Expense Charges, p. 23.) Thereafter,
subject to the minimum and maximum premium limitations described below, a
Policyowner may make unscheduled premium payments at any time in any amount.
PLANNED PERIODIC PREMIUMS. Each Policyowner will determine a Planned
Periodic Premium schedule that provides for the payment of a level premium at
a fixed interval over a specified period of time. The Policyowner is not
required to pay premiums in accordance with this schedule. Furthermore, the
Policyowner has considerable flexibility to alter the amount, frequency, and
the time period over which Planned Periodic Premiums are paid.
The payment of a Planned Periodic Premium will not guarantee that the
Policy remains In Force. Instead, the duration of the Policy depends upon the
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Policy's Net Surrender Value. Thus, even if Planned Periodic Premiums are
paid by the Policyowner, the Policy will nonetheless lapse any time Net
Surrender Value is insufficient to pay certain monthly charges, and a grace
period expires without a sufficient payment. However, until the No Lapse Date
as provided in the Policy, the Policy will remain In Force and no grace
period will begin provided there has been no addition of any riders and the
total of the premiums received is equal to or exceeds the minimum monthly
guarantee premium specified in the Policy times the number of months since
the Policy Date, including the current month. (See Policy Lapse and
Reinstatement - Lapse, p. 22.)
PREMIUM LIMITATIONS. In no event may the total of all premiums paid, both
scheduled and unscheduled, exceed the current maximum premium limitations
which qualify the Policy as life insurance according to Federal tax laws. If
at any time a premium is paid which would result in total premiums exceeding
the current maximum premium limitation,
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Western Reserve will only accept that portion of the premium which will make
total premiums equal the maximum. Any part of the premium in excess of that
amount will be returned and no further premiums will be accepted until
allowed by the current maximum premium limitations set forth in the Policy.
Every premium payment, whether scheduled or unscheduled, must be at least the
minimum payment amount required. Under Western Reserve's current rules, the
minimum payment amount is $100. Premium payments less than this minimum
amount may be returned to the Policyowner.
PAYMENT OF PREMIUMS. Payments made by the Policyowner will be treated as a
premium payment unless clearly marked as loan repayments. Certain charges
will be deducted from each premium payment. (See Charges and Deductions -
Premium Expense Charges, p. 23.)
As an accommodation to Policyowners, Western Reserve will accept
transmittal of Initial and subsequent Premiums of at least $1,000 by wire
transfer. For an Initial Premium, the wire transfer must be accompanied by a
simultaneous telephone facsimile transmission ("FAX") of a completed
application. An Initial Premium of $2,000 or more accepted via wire transfer
with FAX will be allocated in accordance with current procedures explained in
the next section entitled "Allocation of Premiums and Cash Value -
Allocations of Net Premiums," below. An Initial Premium made by wire transfer
not accompanied by a simultaneous FAX, or accompanied by a FAX of an
incomplete application, will be retained for a period up to five business
days while Western Reserve attempts to obtain the FAX or complete the
essential information required to establish the Policy and allocate the
Initial Premium at the unit value next determined after receipt of the FAX or
information necessary to complete the application. If Western Reserve cannot
obtain the FAX or essential information within five business days, Western
Reserve will return the Initial Premium to the applicant, unless the
applicant consents to allow Western Reserve to retain the Initial Premium
until the required FAX or essential information is received.
In the event the application with original signature is received and the
allocation instructions in that application, for any reason, are inconsistent
with those previously designated on the FAX, the Initial Premium will be
reallocated on the first Valuation Date on or following the Record Date in
accordance with the allocation instructions in the application with original
signature.
Policyowners wishing to make payments via bank wire should instruct their
banks to wire Federal Funds as follows:
Barnett Bank of Pinellas County
ABA # 063000047
For credit to: Western Reserve Life
Account #: 1263627596
Policyowner's Name:
Policy Number:
Attention: General Accounting
Fax Number: (813) 588-1620
ALLOCATION OF PREMIUMS AND CASH VALUE
NET PREMIUMS. The Net Premium equals the premium paid less the premium
expense charges. (See Charges and Deductions - Premium Expense Charges, p.
23.) When an Initial Premium accompanies the application, monthly deductions
from the Cash Value of the Policy commence on the Policy Date.
ALLOCATION OF NET PREMIUMS. In the application for a Policy, the
Policyowner will allocate Net Premiums to one or more of the Sub-Accounts of
the Series Account, to the Fixed Account, or to a combination of both.
Notwithstanding the allocation in the application, the Initial Premium, less
charges, will first be allocated, at the time conditional life insurance
coverage begins, to the Sub-Account of the Series Account that invests
exclusively in shares of the Money Market Portfolio, and will be reallocated
in accordance with the Policyowner's directions in the application on the
first Valuation Date on or following the Record Date. The Record Date of the
Policy will be the date on which the Policy is recorded on Western Reserve's
books as an In Force Policy. (See Payment and Allocation of Premiums
beginning on p. 19, and Policy Benefits - When Conditional Life Insurance
Coverage Begins p. 14.)
Net premiums paid after the Record Date will be allocated in accordance
with the Policyowner's instructions in the application. The minimum
percentage of each premium that may be allocated to any account is 10%;
percentages must be in whole numbers. The allocation of future Net Premiums
may be changed without charge at any time by providing Western Reserve with
written notification from the Policyowner, or by telephone by calling Western
Reserve's toll-free number, 1-800-851-9777. Western Reserve will employ the
same procedures to confirm that such telephone instructions are genuine as it
employs regarding transfers among Sub-Accounts and the Fixed Account by
telephone. Upon instructions from the Policyowner, the registered
representative/agent of record may also change the allocation of future Net
Premiums. Western Reserve reserves the right to limit the number of changes
of the allocation of Net Premiums to one per year. Investment returns from
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the amounts allocated to Sub-Accounts of the Series Account will vary with
the investment experience of these Sub-Accounts and the Policyowner bears the
entire investment risk.
TRANSFERS. Cash Value may be transferred among the Sub-Accounts of the
Series Account or from the Sub-Accounts to the Fixed Account. Transfers may
also be made from the Fixed Account to the Sub-Accounts, subject to certain
restrictions. (See The Fixed Account - Allocations, Transfers and
Withdrawals, p. 32.) The amount of Cash Value available for transfer from any
Sub-Account, or the Fixed Account, is determined at the end of the Valuation
Period during which the transfer request is received at Western Reserve's
Office. As previously explained, the net asset value for each share of the
corresponding Portfolio of any Sub-Account is determined, once daily, as of
the close of the regular business session of the New York Stock Exchange
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("Exchange") (usually 4:00 p.m. Eastern time), which coincides with the end
of each Valuation Period. (See Policy Benefits - Cash Value - Valuation Date
and Valuation Period, p. 16.) Therefore, any transfer request received after
the close of the regular business session of the Exchange, on any day the
Exchange is open, will be processed utilizing the net asset value for each
share of the applicable Portfolio determined as of the close of the regular
business session of the Exchange, on the next day the Exchange is open for
business. Cash Value available for transfer from the Fixed Account will be
determined in the same manner.
Policyowners may make transfer requests in writing, or by telephone.
Written requests must be in a form acceptable to Western Reserve. The
registered representative/agent of record for the Policy may, upon
instruction from the Policyowner, make telephone transfers upon request
without the necessity for the Policyowner to have previously authorized
telephone transfers in writing. If, for any reason, a Policyowner does not
want the ability to make transfers by telephone, the Policyowner should
provide written notice to Western Reserve at its Office. All telephone
transfers should be made by calling Western Reserve at its toll-free number:
1-800-851-9777. Western Reserve will not be liable for complying with
telephone instructions it reasonably believes to be authentic, nor for any
loss, damage, cost or expense in acting on such telephone instructions, and
Policyowners will bear the risk of any such loss. Western Reserve will employ
reasonable procedures to confirm that telephone instructions are genuine. If
Western Reserve does not employ such procedures, it may be liable for losses
due to unauthorized or fraudulent instructions. Such procedures may include,
among others, requiring forms of personal identification prior to acting upon
such telephone instructions, providing written confirmation of such
transactions to Policyowners and/or tape recording of telephone transfer
request instructions received from Policyowners. Western Reserve may, at any
time, revoke or modify the transfer privilege. Under Western Reserve's
current procedures, it will effect transfers and determine all values in
connection with transfers at the end of the Valuation Period during which the
transfer request is received at Western Reserve's Office.
Twelve Cash Value transfers are permitted without charge during any one
Policy year. Western Reserve will impose a charge of $10 for each subsequent
transfer. The transfer charge will not be increased. (See Optional Cash Value
Charges - Cash Value Transfers, p. 26.) All transfers made in any one day
will be considered a single transfer and any transfer charges will be
deducted in an equal amount from each Sub-Account from which a transfer was
made. Transfers resulting from policy loans, the exercise of conversion
rights, and the reallocation of Cash Value immediately after the Record Date,
will not be treated as a transfer for the purpose of this charge. No transfer
charge will apply to transfers from the Fixed Account to a Sub-Account or to
the exercise of the conversion rights. (See Policy Rights -Conversion Rights,
p. 28.)
DOLLAR COST AVERAGING
The Policyowner may direct Western Reserve to automatically transfer
specified amounts from the Money Market Sub-Account, the Bond Sub-Account,
the Short-to-Intermediate Government Sub-Account, the Fixed Account or any
combination of these Accounts on a monthly basis to a Sub-Account. This
service is intended to allow the Owner to utilize "Dollar Cost Averaging," a
long-term investment method which provides for regular, level investments
over time. Western Reserve makes no guarantees that Dollar Cost Averaging
will result in a profit or protect against loss. To qualify for Dollar Cost
Averaging a minimum of $10,000 must be in each Account from which transfers
will be made and at least $1,000, in the aggregate, must be transferred each
month, unless Western Reserve consents to a smaller amount.
To further qualify for Dollar Cost Averaging from the Fixed Account, no
more than one-tenth ( 1/10 ) of the amount in the Fixed Account at the
commencement of Dollar Cost Averaging can be transferred each month. Other
types of transfers from the Fixed Account may also be subject to certain
other restrictions. (See "The Fixed Account -- Allocations, Transfers and
Withdrawals" on p. 32.)
A written election of this service, on a form provided by Western Reserve,
must be completed by the Policyowner in order to begin transfers. The first
transfer will occur during the month which follows receipt of the form,
providing the form is received by the 25th day of the month. Once elected,
transfers from the Money Market, Bond, Short-to-Intermediate Government
Sub-Accounts or the Fixed Account will be processed monthly until the entire
value of each Account from which transfers are made is completely depleted or
the Policyowner instructs Western Reserve in writing to cancel the monthly
transfers. For example, if $15,000 was allocated to the Money Market
Sub-Account and $10,000 was allocated to the Bond Sub-Account and transfers
of $500 are made each month from each of these Sub-Accounts to the Growth
Sub-Account, transfers of $500 per month would continue to be made from the
Money Market Sub-Account even though transfers from the Bond Sub-Account had
ceased as a result of depletion of value.
There is no charge for Dollar Cost Averaging. However, each transfer which
occurs under the Dollar Cost Averaging service will be counted towards the
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twelve free transfers allowed during each Policy year. (See "Allocation of
Premiums and Cash Value -Transfers" on p. 20.) Western Reserve reserves the
right to discontinue offering Dollar Cost Averaging upon 30 days written
notice to Policyowners. Dollar Cost Averaging is not available if the Owner
has elected the Asset Rebalancing Program.
Although Dollar Cost Averaging is not available as of the date of this
Prospectus, Western Reserve anticipates its availability by the end of 1996,
and will notify Policyowners accordingly.
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ASSET REBALANCING PROGRAM
Western Reserve will offer a program under which the Policyowner may
authorize Western Reserve to transfer automatically Cash Value periodically
to maintain a particular percentage allocation among the Sub-Accounts. The
Cash Value allocated to each Sub-Account will grow or decline in value at
different rates. The Asset Rebalancing Program automatically reallocates the
Cash Value in the Sub-Accounts at the end of each period to match the
Contract's currently effective Net Premium allocation schedule. The Asset
Rebalancing Program is intended to transfer Cash Value from those Sub-
Accounts that have increased in value to those Sub-Accounts that have
declined in value. Over time, this method of investing may help an Owner buy
low and sell high. This investment method does not guarantee gains, nor does
it assure that any Sub-Account will not have losses.
To qualify for Asset Rebalancing, a minimum Cash Value of $10,000 for an
existing Policy, or a minimum Initial Premium of $10,000 for a new Policy, is
required. To participate in the Asset Rebalancing Program, a properly
completed Asset Rebalancing Request Form must be received by Western Reserve
at its Administrative Office. An Asset Rebalancing Form is available upon
request.
Owners may elect rebalancing to occur on each quarterly, semi-annual or
annual anniversary of the Policy Date. Following receipt of the Asset
Rebalancing Request Form, Western Reserve will effect the initial rebalancing
of Cash Value on the next such anniversary, in accordance with the Policy's
current Net Premium allocation schedule. The amounts transferred will be
credited at the unit value next determined on the dates the transfers are
made. If a day on which rebalancing would ordinarily occur falls on a day on
which the New York Stock Exchange is closed, rebalancing will occur on the
next day the New York Stock Exchange is open. The Asset Rebalancing Program
is available only before the Maturity Date, and is not available if the
Policyowner has elected Dollar Cost Averaging. There is no charge for the
Asset Rebalancing Program. However, each reallocation which occurs under the
Asset Rebalancing Program will be counted towards the twelve free transfers
allowed during each Policy year. (See "Allocation of Premiums and Cash Value
- -Transfers" on p. 20.)
The Policyowner may terminate participation at any time in the Asset
Rebalancing Program by oral or written request to Western Reserve.
Participation in the Asset Rebalancing Program will terminate automatically
if any transfer is made to, or from, any Sub-Account, other than on account
of a scheduled rebalancing. If the Policyowner wishes to resume the Asset
Rebalancing Program after it has been canceled, a new Asset Rebalancing
Request Form must be completed and sent to Western Reserve. The Policyowner
may start and stop participation in the Asset Rebalancing Program at any
time; however, Western Reserve reserves the right to restrict entry into the
Asset Rebalancing Program to once per Policy year. Cash Value allocated to
the Fixed Account may not be included in the Asset Rebalancing Program.
Western Reserve may discontinue, modify, or suspend, the Asset Rebalancing
Program at any time.
Although the Asset Rebalancing Program is not available as of the date of
this Prospectus, Western Reserve anticipates its availability by the end of
1996, and will notify Policyowners accordingly.
POLICY LAPSE AND REINSTATEMENT
LAPSE. Unlike conventional life insurance policies, the failure to make a
Planned Periodic Premium payment will not itself cause the Policy to lapse.
Lapse will only occur where Net Surrender Value is insufficient on any
Monthly Anniversary to cover the monthly deductions, and a grace period
expires without a sufficient payment by the Policyowner. If the Net Surrender
Value on any Monthly Anniversary is not sufficient to cover the monthly
deductions on such day, Western Reserve will mail a notice to the last known
address of the Policyowner(s) and any assignee of record. A grace period of
61 days after the mailing date of the notice will be allowed for the payment
of premiums. The notice will specify the minimum payment and the final date
on which such payment must be received by Western Reserve to keep the Policy
In Force. (See Charges and Deductions, p. 23.)
However, until the No Lapse Date as provided in the Policy, the Policy
will not lapse and no grace period will begin, provided: (1) no riders have
been added since the Policy Date, and (2) the total of the premiums received
(minus any withdrawals and any outstanding loans) equal or exceed the minimum
monthly guarantee premium shown in the Policy times the number of months
since the Policy Date, including the current month and, (3) the excess
indebtedness (total of all Policy loans less any unearned loan interest on
Policy loans) does not exceed the Cash Value (see Policy Rights - Loan
Privileges, p. 27). Should the Policyowner(s) request the addition of any
rider after the Policy Date but prior to the No Lapse Date, the
Policyowner(s) will be notified as to the effect on grace period processing
prior to the date the rider is effective.
Essentially, the Policy will not lapse during the period from the Policy
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Date until the No Lapse Date (the "No Lapse Period"), as long as the
conditions in (1), (2) and (3) immediately above have been met, and even
though Net Surrender Value at any point during the No Lapse Period is
insufficient to cover a monthly deduction and the grace period has expired
without a payment sufficient to cover the monthly deduction. Such a Lapse
could happen if the investment experience has been sufficiently unfavorable
to have resulted in a decrease in the Net Surrender Value, or the Net
Surrender Value has decreased because not enough premiums have been paid to
offset the monthly charges.
When the conditions in (1), (2) and (3) above have not been met, or the
Policy is beyond the No Lapse Date, and Net Surrender Value is insufficient
to cover the monthly deduction, Western Reserve will notify the Policyowner
and any assignee of record of the minimum payment needed to keep the Policy
In Force. The Policyowner will then have a grace
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period of 61 days, measured from the date notice is mailed to the
Policyowner, for Western Reserve to receive sufficient payments. If Western
Reserve does not receive a sufficient payment within the grace period, Lapse
of the Policy will result. If a sufficient payment is received during the
grace period, any resulting Net Premium will be allocated among the Accounts,
and any monthly deductions due will be charged to such Accounts, in
accordance with the Policyowner's then current instructions. (See Allocation
of Premiums and Cash Value - Allocation of Net Premiums, p. 20, and Charges
and Deductions - Cash Value Charges, p. 25.) If the Surviving Insured dies
during the grace period, the death benefit proceeds will equal the amount of
the death benefit proceeds immediately prior to the commencement of the grace
period, reduced by any due and unpaid charges.
The duration of the period of time between the Policy Date and the No
Lapse Date is selected by the Policyowner at time of application for the
Policy, and may be either, (1) the later of attained target premium age 65 or
five Policy years, or (2) the later of attained target premium age 75 or ten
Policy years. The amount of the minimum monthly guarantee premium will vary
according to whether (1) or (2) is chosen. Neither (1) nor (2) may exceed
target premium age 85. The target premium age equals the average of the ages
of the Joint Insureds at time of Policy issue, rounded down to the closer
age, not to exceed the younger Joint Insured's age, plus ten years. For
example, if the ages of the Joint Insureds at time of Policy issue are 46 and
48, the target premium age is 47. If the ages at time of Policy issue are 45
and 48, the target premium age is 46. If the ages at time of Policy issue are
50 and 80, the target premium age is 60. The target premium attained age
equals the target premium age plus the number of completed Policy years.
REINSTATEMENT. A lapsed Policy may be reinstated any time within five
years after the date of lapse and before the Maturity Date by submitting the
following items to Western Reserve:
1. A written application for reinstatement from the Policyowner;
2. Evidence of insurability from each Joint Insured satisfactory to
Western Reserve; and
3. A premium that, after the deduction of premium expense charges, is
large enough to cover:
(a) one monthly deduction at the time of termination;
(b) the next two monthly deductions which will become due after the
time of reinstatement; and
(c) an amount sufficient to cover any surrender charge (as described
below) as of the date of reinstatement.
Western Reserve reserves the right to decline a reinstatement request. Any
indebtedness on the date of Lapse will not be reinstated. The Cash Value of
the Loan Reserve on the date of reinstatement will be zero. The amount of Net
Surrender Value on the date of reinstatement will be equal to the Net
Premiums paid at reinstatement, less the amounts paid in accordance with (a)
and (c) above.
Upon approval of the application for reinstatement, the effective date of
reinstatement will be the first Monthly Anniversary on or next following the
date Western Reserve approves the application for reinstatement.
CHARGES AND DEDUCTIONS
Charges will be deducted in connection with the Policy to compensate
Western Reserve for: (1) providing the insurance benefits set forth in the
Policy and any optional insurance benefits added by rider; (2) administering
the Policy; (3) assuming certain risks in connection with the Policy; and (4)
incurring expenses in distributing the Policy. The nature and amount of these
charges are described more fully below.
PREMIUM EXPENSE CHARGES
Prior to allocation of Net Premiums among the Accounts, premiums paid will
be reduced by a premium expense charge consisting of a sales charge and a
charge for premium taxes.
SALES CHARGE. A sales charge equal to 3.5% of the premiums paid through
the end of the tenth Policy year will be deducted to compensate Western
Reserve for distribution expenses incurred in connection with the Policy.
These expenses include agent sales commissions, the cost of printing
prospectuses and sales literature, and any advertising costs. The sales
charge in any Policy year is not necessarily related to actual distribution
expenses incurred in that year. Western Reserve expects to incur the majority
of distribution expenses in the first Policy year and to recover any
deficiency over the life of the Policy and from Western Reserve's General
Account, which may include profits, if any, derived from the mortality and
expense risk charge collected under the Policy.
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PREMIUM TAXES. Various states and subdivisions impose a tax on premiums
received by insurance companies. Premium tax rates vary from state to state
from a range of 0.5% to 3.5%. Regardless of the actual rate assessed by a
particular state, a deduction of an amount equal to 2.5% of the premium will
be made from each premium payment. Because of the retaliatory provisions of
state premium tax laws, Western Reserve is required to pay a minimum 2.5%
premium tax regardless of a state's actual premium tax rate.
CONTINGENT SURRENDER CHARGES
If the Policy is totally surrendered (or the Net Surrender Value is
applied under a settlement option) prior to the end of the fifteenth (15th)
Policy year, a surrender charge for the initial Specified Amount will be
deducted from the Policy's Cash Value. The surrender charge consists of: the
sum of
(a) an administrative component (DEFERRED ISSUE CHARGE), and
(b) a sales component (DEFERRED SALES CHARGE).
The sum of (a) and (b) are multiplied by (c), the applicable SURRENDER
CHARGE PERCENTAGE.
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(a) DEFERRED ISSUE CHARGE. The deferred issue charge is a level charge of
$5.00 per thousand of initial Specified Amount. This charge is to assist
Western Reserve in recovering the underwriting, processing and start-up
expenses incurred in connection with the Policy and the Series Account. These
expenses include the cost of processing applications, conducting medical
examinations, determining insurability and the Joint Insured's rate class,
and establishing Policy records. Western Reserve does not anticipate that it
will make any profit on this charge.
(b) DEFERRED SALES CHARGE. The deferred sales charge is (1) 26.5% of the
sum of all premiums paid up to the Guideline Premium shown in the Policy and,
(2) for the sum of all premiums paid in excess of the first Guideline Premium
("excess premium charge"), a percentage which varies by the Issue Age and sex
of the younger Joint Insured as follows:
<TABLE>
<CAPTION>
ISSUE AGE RANGE
EXCESS PREMIUM (YOUNGER JOINT
CHARGE INSURED)
- --------------- ----------------------
<S> <C>
4.2% 20-55
3.7% 56-63
3.1% 64-68
2.5% 69-73
2.0% 74-76
1.6% 77-78
1.2% 79-80
</TABLE>
The deferred sales charge is designed to assist Western Reserve in
recovering distribution expenses incurred in connection with the Policy,
including agent sales commissions, the cost of printing prospectuses and
sales literature, and any advertising costs. The proceeds of the charge may
not be sufficient to cover these expenses. To the extent they are not,
Western Reserve will cover the shortfall from its General Account assets,
which may include profits from the mortality and expense risk charge under
the Policy.
(c) SURRENDER CHARGE PERCENTAGE. As stated above, the percentage is
applied to the sum of the deferred issue charge and deferred sales charge due
upon any surrender of a Policy during the first fifteen Policy years. In
Policy years 1-10 this percentage is 100% for Joint Insureds when the age of
the younger of the Joint Insureds is between Ages 20-74, and then declines at
the rate of 20% per year until reaching zero at the end of the fifteenth
(15th) Policy year as shown below. For Joint Insureds when the age of the
younger of the Joint Insureds is between Issue Ages 75-80, this percentage is
100% until the end of the sixth (6th) Policy year, and declines to 0% at the
end of the fifteenth (15th) Policy year. Therefore, application of the
percentage to the deferred issue charge and deferred sales charge in the
event of any surrender during the eleventh through fifteenth Policy year will
result in reduced surrender charges. If a surrender occurs after the
fifteenth (15th) Policy year, there are no deferred issue or deferred sales
charges due. See Example (2) on p. 25.
SURRENDER CHARGE PERCENTAGES
YOUNGER AGE
------------------
LESS 75 OR
END OF POLICY YEAR* THAN 75 ABOVE
------------------- -------- -----
At Issue 100% 100%
1-6 100% 100%
7 100% 97%
8 100% 88%
9 100% 80%
10 100% 73%
11 80% 66%
12 60% 60%
13 40% 40%
14 20% 20%
15+ 0% 0%
* THE CHARGE ON ANY DATE OTHER THAN AN ANNIVERSARY WILL BE INTERPOLATED
BETWEEN THE TWO END OF YEAR CHARGES.
(d) EXAMPLE (1) Assume a male non-smoker age 35 and a female non-smoker
age 35 purchase a Policy for $100,000 of Specified Amount, paying the
Guideline Premium of $806.11, and an additional premium amount of $193.89 in
excess of the Guideline Premium, for a total premium of $1,000 per year for
four years ($4,000 total for four years), and then surrenders the Policy. The
surrender charge would be calculated as follows:
(a) Deferred Issue Charge - [100 x $5.00]
($5.00/$1,000 of Initial Specified Amount) = $500.00
(b) Deferred Sales Charge:
(1) 26.5% of Guideline Premium paid
[26.5% x $806.11], and = $213.62
(2) 4.2% of premiums paid in excess
of Guideline Premium
[4.2% x ( (4 x 1,000) - $806.11)] = $134.14
(c) Applicable Surrender Charge = 100%
[(a)$500.00 + (b)($213.62 + $134.14)]
x 100%
SURRENDER CHARGE = 847.76 x 100% = $847.76
=======
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<PAGE>
EXAMPLE (2) - Assume the same facts as in Example (1), EXCEPT the Owner
surrenders the Policy on the 14th Policy Anniversary:
(a) Deferred Issue Charge - [100 x $5.00] = $500.00
(b) Deferred Sales Charge:
(1) [26.5% x $806.11], and = $213.62
(2) [4.2% x ( (14 x 1,000) - $806.11)] = $554.14
(c) Applicable Surrender Charge = 20%
[(a)$500.00 + (b)($213.62 + $554.14)]
x 20%
SURRENDER CHARGE = $1,267.76 x 20% = $253.55
=======
If the Owner waits until the 15th Policy Anniversary or after, there will
be no surrender charge.
CASH VALUE CHARGES
Charges will be deducted monthly from the Cash Value of each Policy
("monthly deduction") to compensate Western Reserve for certain
administrative costs, the cost of insurance, the monthly death benefit
guarantee charge, and optional benefits added by rider. The monthly deduction
will be deducted on each Monthly Anniversary, and will be allocated among the
Accounts on the same basis as Net Premiums are allocated. If the value of any
Account is insufficient to pay its part of the monthly deduction, the monthly
deduction will be taken on a pro rata basis from all Accounts. Because
portions of the monthly deduction, such as the cost of insurance, can vary
from month-to-month, the monthly deduction itself will vary in amount from
month-to-month.
COST OF INSURANCE. Western Reserve will determine the monthly cost of
insurance charge by multiplying the applicable cost of insurance rates by the
net amount at risk for each Policy Month. The net amount at risk for a Policy
Month is (a) the death benefit at the beginning of the Policy Month divided
by 1.0032737 (which reduces the net amount at risk, solely for purposes of
computing the cost of insurance, by taking into account assumed monthly
earnings at an annual rate of 4%), less (b) the Cash Value at the beginning
of the Policy Month.
Cost of insurance rates will be based on the sex, Attained Age and rate
class of the Joint Insureds, and the length of time a Policy has been In
Force. The actual monthly cost of insurance rates will be based on Western
Reserve's expectations as to future experience. They will not, however, be
greater than the guaranteed cost of insurance rates set forth in the Policy.
These guaranteed rates are based on the 1980 Commissioners Standard Ordinary
("1980 C.S.O."), age nearest birthday, Mortality Tables and the sex, Attained
Age and rate class of each Joint Insured. The rate class of each Joint
Insured is either Select (non-smoker), or Standard (smoker) or a class which
reflects some substandard classification. There is no rate discount for a
preferred class. For standard rate classes, i.e., either smoker or non-smoker
classes not rated, these rates will not exceed rates contained in the 1980
C.S.O. Tables. Western Reserve also may guarantee that actual cost of
insurance rates will not be changed for a specified period of time (e.g., one
year). Any change in the cost of insurance rates will apply to all Joint
Insureds of the same age, sex, and rate class whose Policies have been In
Force for the same length of time.
The Policies offered by this Prospectus are based on mortality tables that
distinguish between men and women. As a result, the Policy pays different
benefits to Joint Insureds who are either both men or women of the same age.
The State of Montana prohibits the use of actuarial tables that distinguish
between men and women in determining premiums and policy benefits for
policies issued on the lives of its residents. The State of Massachusetts
formerly had a similar prohibition and has introduced legislation which may
reinstate such prohibition. Therefore, Policies offered by this Prospectus to
insure residents of the States of Montana and Massachusetts may have premiums
and benefits which are based on actuarial tables that do not differentiate on
the basis of sex.
The rate class of each Joint Insured will affect the cost of insurance
rate. For this Policy, Western Reserve currently places Joint Insureds into
the following three nonsub-standard rate classes: combination of two
non-smokers, combination of two smokers and the combination of a smoker and a
non-smoker; as well as various other sub-standard rate classes involving a
higher mortality risk. In an otherwise identical Policy, the cost of
insurance rate is generally higher for smokers than for non-smokers.
Western Reserve may also issue certain Policies on a "simplified" or
expedited basis to certain categories of individuals (for example, Policies
issued at a predetermined Specified Amount or underwritten on a group basis).
Policies issued on this basis will have guaranteed cost of insurance rates no
higher than the guaranteed rates for Select or Standard categories (as
appropriate); however, due to the special underwriting criteria established
for these issues, actual rates may be higher or lower than the current cost
of insurance rates charged under otherwise identical Policies that are
underwritten using standard underwriting criteria.
25
<PAGE>
MONTHLY DEATH BENEFIT GUARANTEE CHARGE. Western Reserve will deduct a
monthly death benefit guarantee charge from each Policy to compensate Western
Reserve for the risk of guaranteeing the death benefit for the period chosen
by the Owner on the application provided a minimum level of premiums are
received. The amount of this charge is set forth on the Policy Schedule Page
and will be $0.04 per $1,000 of initial Specified Amount for all classes of
Policies. This charge will only be levied during the period between the
Policy Date and the No Lapse Date. (See Policy Lapse and Reinstatement -
Lapse, p. 22.)
MONTHLY POLICY CHARGE. Western Reserve has primary responsibility for the
administration of the Policy and the Series Account. Annual administrative
expenses include recordkeeping, processing death benefit claims, Policy
changes, reporting and overhead costs. As reimbursement for administrative
expenses related to the maintenance of each
25
<PAGE>
Policy and the Series Account, Western Reserve assesses a monthly
administration charge from each Policy. This charge is currently $5.00 per
Policy Month. Western Reserve reserves the right to increase this charge, but
it is guaranteed not to exceed $10.00 per Policy Month. Western Reserve does
not anticipate that it will make any profit from this charge.
OPTIONAL CASH VALUE CHARGES
The following optional Cash Value charges will be deducted from the Policy
as the result of changes or elections made to the Policy and initiated by the
Policyowner.
OPTIONAL INSURANCE BENEFITS. The monthly deduction will include charges
for any optional insurance benefits added to the Policy by rider.
CASH VALUE TRANSFERS. After twelve (12) free transfers per year, Western
Reserve will impose and deduct from each amount transferred a transfer charge
of $10 to compensate Western Reserve for the costs in effectuating the
transfer. The transfer charge will not be increased in the future. Western
Reserve does not expect to make a profit on the charge.
CASH WITHDRAWALS. A processing fee equal to the lesser of $25 or 2% of the
amount withdrawn will be deducted from amounts withdrawn from the Policy and
the balance will then be paid to the Policyowner. This fee will not be
increased. Western Reserve does not anticipate that it will make any profit
from this fee.
CHARGES AGAINST THE SERIES ACCOUNT
Certain expenses will be deducted as a percentage of the value of the net
assets of the Series Account to compensate Western Reserve for certain risks
assumed in connection with the Policy.
MORTALITY AND EXPENSE RISK CHARGE. Western Reserve will deduct a daily
charge from the Series Account at an annual rate of 0.90% of the average
daily net assets of the Series Account. Under Western Reserve's current
procedures, these amounts are paid to the General Account monthly. Western
Reserve may profit from this charge.
The mortality risk assumed by Western Reserve is that the Surviving
Insured may live for a shorter time than projected. The expense risk assumed
is that expenses incurred in issuing and administering the Policies will
exceed the limits on administrative charges set in the Policies. Western
Reserve also assumes risks with respect to other contingencies including the
incidence of Policy loans, which may cause Western Reserve to incur greater
costs than anticipated when designing the Policies.
TAXES. Currently no charge is made to the Series Account for Federal
income taxes that may be attributable to the Series Account. Western Reserve
may, however, make such a charge in the future. Charges for other taxes, if
any, attributable to the Series Account may also be made. (See Federal Tax
Matters, p. 32.)
INVESTMENT ADVISORY FEE. Because the Series Account purchases shares of
the Fund, the net assets of the Series Account will reflect the investment
advisory fee and other expenses incurred by the Fund. (See pp. 17-18 for a
discussion of the investment advisory fees of each Portfolio.)
GROUP OR SPONSORED ARRANGEMENTS
Policies may be purchased under group or sponsored arrangements, as well
as on an individual basis. A "group arrangement" includes a program under
which a trustee, employer or similar entity purchases individual Policies
covering a group of individuals on a group basis. Examples of such
arrangements are employer-sponsored benefit plans and deferred compensation
plans. A "sponsored arrangement" includes a program under which an employer
permits group solicitation of its employees or an association permits group
solicitation of its members for the purchase of Policies on an individual
basis.
The premium expense charges, contingent surrender charges, minimum premium
and minimum Specified Amount described in "Charges and Deductions" and
"Payment and Allocation of Premiums", respectively, may be reduced for
Policies issued in connection with group or sponsored arrangements. Western
Reserve will reduce these charges in accordance with its rules in effect as
of the date an application for a Policy is approved. To qualify for such a
reduction, a group or sponsored arrangement must satisfy certain criteria as
to, for example, size and number of years in existence. Generally, the sales
contacts and effort, administrative costs and mortality cost per Policy vary
based on such factors as the size of the group or sponsored arrangement, its
stability as indicated by its term of existence, the purposes for which
Policies are purchased and certain characteristics of its members. The amount
of reduction and the criteria for qualification will reflect the reduced
sales effort resulting from sales to qualifying groups and sponsored
arrangements.
26
<PAGE>
Western Reserve may, in addition to waiving or reducing the premium
expense charges, contingent surrender charges, minimum premium and minimum
Specified Amount, also waive or reduce the Monthly Administration Charge and
the charge for a cash withdrawal when lower administrative costs are incurred
for: (a) current and retired directors, officers, full-time employees and
agents of Western Reserve and its affiliates; (b) current and retired
directors, officers, full-time employees and registered representatives of
InterSecurities, Inc. and any broker-dealer which has a sales agreement with
InterSecurities, Inc.; (c) any Trust, pension, profit-sharing or other
employee benefit plan of any of the foregoing persons or entities; (d)
current and retired directors, officers and full-time employees of WRL
Series Fund, Inc. and any IDEX mutual fund, and any investment adviser or
investment sub-adviser thereto; and (e) any member of a family of any of the
foregoing (i.e., spouse, child, sibling, parent or parent-in-law). Western
Reserve reserves the right to modify or terminate this arrangement at any
time.
Western Reserve may modify from time to time on a uniform basis both the
amounts of reductions and the criteria for qualification. In no event,
however, will group or sponsored arrangements established for the sole
purpose of purchasing Policies, or which have been in existence for less
26
<PAGE>
than six months, qualify for such reductions. Reductions in these charges
will not be unfairly discriminatory against any person, including the
affected Policyowners and all other Policyowners of Policies funded by the
Series Account.
In 1983 the United States Supreme Court held that certain insurance
policies, the benefits under which vary based on sex, may not be used to fund
certain employer-sponsored benefit plans and fringe benefit programs. Western
Reserve recommends that any employer proposing to offer the Policies to
employees under a group or sponsored arrangement consult his or her attorney
before doing so. (See Federal Tax Matters - Employment-Related Benefit Plans,
p. 35.)
POLICY RIGHTS
LOAN PRIVILEGES
POLICY LOAN. After the first Policy year and so long as the Policy remains
In Force, the Policyowner may borrow money from Western Reserve using the
Policy as the only security for the loan. Western Reserve reserves the right
to permit a Policy loan prior to the first Policy Anniversary for Policies
issued pursuant to a transfer of cash values from another life insurance
policy under Section 1035(a) of the Internal Revenue Code of 1986, as
amended. The maximum amount that may be borrowed is 90% of the Cash Value,
less any surrender charge and any already outstanding Policy loan. Western
Reserve reserves the right to limit the amount of any Policy loan to no less
than $500. Outstanding loans have priority over the claims of any assignee or
other person. The loan may be repaid totally or in part before the Maturity
Date of the Policy and while the Policy is In Force. A loan which is taken
from, or secured by, a Policy may have Federal income tax consequences. (See
Federal Tax Matters, p. 32.)
An amount equal to the loan plus interest in advance until the next Policy
Anniversary will be withdrawn from the Account or Accounts specified and
transferred to the Loan Reserve until the loan is repaid. The Sub-Accounts of
the Series Account may be specified. If no Account is specified, the loan
amount will be withdrawn from each Account in the same manner as the current
allocation instructions.
The amount of the loan will normally be paid within seven days after
receipt of a proper request in a manner permitted by Western Reserve.
Postponement of loans may take place under certain conditions. (See General
Provisions - Postponement of Payments, p. 30.) Under Western Reserve's
current procedures, at each Anniversary, Western Reserve will compare the
amount of the outstanding loan (including loan interest in advance until the
next Policy Anniversary, if not paid) to the amount in the Loan Reserve
(including interest credited to the Loan Reserve during the previous Policy
year). Western Reserve will also make this comparison any time the
Policyowner repays all or part of the loan or makes a request to borrow an
additional amount. At each such time, if the amount of the outstanding loan
exceeds the amount in the Loan Reserve, Western Reserve will withdraw the
difference from the Accounts and transfer it to the Loan Reserve in the same
manner as when a loan is made. If the amount in the Loan Reserve exceeds the
amount of the outstanding loan, Western Reserve will withdraw the difference
from the Loan Reserve and transfer it to the Accounts in the same manner as
Net Premiums are allocated. Western Reserve reserves the right to require the
transfer of such amounts to the Fixed Account, where such amounts will be
credited at the applicable rate and subject to the applicable transfer and
withdrawal restrictions. (See The Fixed Account, p. 31.) No charge will be
imposed for these transfers.
INTEREST RATE CHARGED. The interest rate charged on Policy loans will be
at the rate of 5.2% payable annually in advance. If unpaid when due, interest
will be added to the amount of the loan and will become part of the loan and
bear interest at the same rate.
LOAN RESERVE INTEREST RATE CREDITED. The amount transferred to the Loan
Reserve will accrue interest at a minimum effective annual rate not less than
4%. Western Reserve may credit a higher rate, but is not obligated to do so.
EFFECT OF POLICY LOANS. A Policy loan affects the Policy because the death
benefit and Net Surrender Value under the Policy are reduced by the amount of
the loan. Repayment of the loan causes the death benefit and Net Surrender
Value to increase by the amount of the repayment.
As long as a loan is outstanding, an amount equal to the loan plus
interest in advance until the next Policy Anniversary is held in the Loan
Reserve. This amount will not be affected by the Series Account's investment
performance. Amounts transferred from the Series Account to the Loan Reserve
will affect the Series Account value because such amounts will be credited
with an interest rate declared by Western Reserve rather than a rate of
return reflecting the investment performance of the Series Account. (See The
Fixed Account - Minimum Guaranteed and Current Interest Rates, p. 31.)
There are risks involved in taking a Policy loan, a few of which include
27
<PAGE>
the potential for a Policy to lapse if projected earnings, taking into
account outstanding loans, are not achieved, as well as adverse tax
consequences which occur if a Policy lapses with loans outstanding. (See
Federal Tax Matters - Tax Treatment of Policy Benefits, p. 33.)
INDEBTEDNESS. Indebtedness equals the total of all Policy loans less any
unearned loan interest on the loans. If indebtedness exceeds the Cash Value
less the then applicable surrender charge, Western Reserve will notify the
Policyowner and any assignee of record. If a sufficient payment equal to
excess indebtedness is not received by Western Reserve within 61 days from
the date notice is sent, the Policy will lapse and terminate without value.
The Policy, however, may later be reinstated. (See Policy Lapse and
Reinstatement, p. 22.)
REPAYMENT OF INDEBTEDNESS. Indebtedness may be repaid any time before the
Maturity Date of the Policy and while the Policy is In Force. Payments made
by the Policyowner while there is indebtedness will be treated as premium
payments unless the Policyowner indicates that the payment should be treated
as a loan repayment. (See Policy
27
<PAGE>
Rights - Benefits at Maturity, p. 29.) If not repaid, Western Reserve may
deduct indebtedness from any amount payable under the Policy. As indebtedness
is repaid, the Policy's value in the Loan Reserve securing the indebtedness
repaid will be transferred from the Loan Reserve to the Accounts in the same
manner as Net Premiums are allocated. However, Western Reserve reserves the
right to require the transfer to the Fixed Account. Western Reserve will
allocate the repayment of indebtedness at the end of the Valuation Period
during which the repayment is received.
SURRENDER PRIVILEGES
At any time before the earlier of the death of the Surviving Insured or
the Maturity Date, the Policyowner may totally surrender or, after the first
Policy year, make a cash withdrawal from the Policy by sending a written
request to Western Reserve. The amount available for surrender is the Net
Surrender Value at the end of the Valuation Period during which the surrender
request is received at Western Reserve's Office. The Net Surrender Value is
equal to the Cash Value less indebtedness and less any surrender charge. The
surrender charge has both an administrative (deferred issue charge) and sales
(deferred sales charge) component. (See Charges and Deductions - Contingent
Surrender Charges, p. 23.) Surrenders from the Series Account will generally
be paid within seven days of receipt of the written request. Postponement of
payments may, however, occur in certain circumstances. (See General
Provisions - Postponement of Payments, p. 30.) Additional restrictions may be
applied to surrenders from the Fixed Account. (See The Fixed Account -
Allocations, Transfers and Withdrawals, p. 32.) For the protection of
Policyowners, all requests for cash withdrawals or total surrenders of more
than $100,000, or where the withdrawal or surrender proceeds are to be sent
to an address other than the address of record will require a signature
guarantee. All required guarantees of signatures must be made by a national
or state bank, a member firm of a national stock exchange or any other
institution which is an eligible guarantor institution as defined by rules
and regulations of the Commission. If the Policyowner is a corporation,
partnership, trust or fiduciary, evidence of the authority of the person
seeking redemption is required before the request for withdrawal is accepted,
including withdrawals under $100,000. For additional information,
Policyowners may call Western Reserve at (800) 851-9777. A cash withdrawal or
total surrender may have Federal income tax consequences. (See Federal Tax
Matters, p. 32.)
TOTAL SURRENDERS. If the Policy is being totally surrendered, the Policy
itself must be returned to Western Reserve along with the request. A
Policyowner may elect to have the amount paid in a lump sum or under a
settlement option. (See Payment of Policy Benefits - Settlement Options, p.
29.)
CASH WITHDRAWALS. For a cash withdrawal, the amount available may be
limited to no less than $500 and to no more than 10% of the Net Surrender
Value. The amount paid plus a processing fee equal to the lesser of $25 or 2%
of the amount withdrawn will be deducted from the Policy's Cash Value at the
end of the Valuation Period during which the request is received. The amount
will be deducted from the Accounts in the same manner as the current
allocation instructions unless the Policyowner directs otherwise. Cash
withdrawals are allowed only once each Policy year.
Cash withdrawals will affect both the Policy's Cash Value and the death
benefit payable under the Policy. The Policy's Cash Value will be reduced by
the amount of the cash withdrawal. Moreover, the death benefit proceeds
payable under a Policy will generally be reduced by at least the amount of
the cash withdrawal.
In addition, when death benefit Option A is in effect, the Specified
Amount will be reduced by the cash withdrawal. No cash withdrawal will be
permitted which would result in a Specified Amount lower than the minimum
Specified Amount set forth in the Policy or would deny the Policy status as
life insurance under the Internal Revenue Code and applicable regulations.
(See Cash Value Charges - Cost of Insurance, p. 25; Death Benefit - Insurance
Protection, p. 13; and Federal Tax Matters - Tax Treatment of Policy
Benefits, p. 33.)
EXAMINATION OF POLICY PRIVILEGE ("FREE-LOOK")
The Policyowner may cancel the Policy within 10 days after the Policyowner
receives it, or 10 days after Western Reserve mails or delivers a written
notice of withdrawal right to the Policyowner or within 45 days after signing
the application, whichever is latest. Certain states require a free-look
period longer than 10 days, either for all Policyowners or for certain
classes of Policyowners. In such states, Western Reserve will comply with the
specific requirements of those states. The Policyowner should mail or deliver
the Policy to either Western Reserve or the agent who sold it. If the Policy
is cancelled in a timely fashion, a refund will be made to the Policyowner.
The refund will equal the sum of: (i) the difference between the premiums
paid and the amounts allocated to any Accounts under the Policy; (ii) the
total amount of monthly deductions made and any other charges imposed on
amounts allocated to the Accounts; and (iii) the value of amounts allocated
to the Accounts on the date Western Reserve or its agent receives the
28
<PAGE>
returned Policy. If state law prohibits the calculation above, the refund
will equal the total of all premiums paid for the Policy.
CONVERSION RIGHTS
At any time upon written request within 24 months of the Policy Date, the
Policyowner may elect to transfer all Sub-Account values to the Fixed
Account. No transfer charge will be assessed.
POLICY SPLIT OPTION
Subject to Western Reserve's evidence of insurability requirements, the
Policyowner may request to split the Policy, not including any riders, and
purchase two permanent individual Fixed Account life insurance policies
offered at the time of the request; one on the life of each Joint Insured.
The Owner may request this Split Option by notifying Western Reserve at its
Office in writing within 90 days following either:
28
<PAGE>
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. The initial specified amount for each new policy cannot be greater
than 50% of the Policy's Specified Amount, not including the face amount of
any riders. The new policies will be subject to Western Reserve's minimum and
maximum specified amounts and issue ages for the plan of insurance selected.
If one of the Joint Insureds is older that the new policy's maximum issue age
at the time the Policy Split Option is requested, Western Reserve's approval
must be obtained to exercise the Policy Split Option.
Cash Value and indebtedness under the Policy will be allocated equally to
each of the new policies. If one Joint Insured does not meet Western
Reserve's insurability requirements, Western Reserve will pay the Policyowner
one half of the Policy's Net Surrender Value and issue only the policy
covering that Joint Insured who meets Western Reserve's insurability
requirements; or the Policyowner may elect to keep the Policy In Force on
both Joint Insureds and no new policies will be issued.
The premiums for the new policies will be based on each Joint Insured's
Attained Age and premium rate class as determined by current evidence of
insurability. Premiums will be payable as of the policy dates for each new
policy. The policy date for each new policy will be the Monthiversary
following notification to Western Reserve to execute the Policy Split Option.
The owner and beneficiary for the new policies will be those named in this
Policy, unless otherwise specified. Any applicable surrender charge will be
deducted from the Policy's Cash Value prior to allocation of the Cash Value
to the new policies. Premium expense charges, if any, under the new policies
will not be deducted from the Cash Value allocated to the new policies. Any
new premium paid to the new policies will be subject to the normal charges,
if any, of the new policies at the time the premium is paid.
BENEFITS AT MATURITY
If either Joint Insured is living and the Policy is In Force, Western
Reserve will pay the Net Surrender Value of the Policy on the Maturity Date.
(See Cash Value - Net Surrender Value, p. 15.) The Policy will mature on the
Anniversary nearest the younger Joint Insured's 100th birthday, if either
Joint Insured is living and the Policy is In Force. Western Reserve is
willing to extend the Maturity Date provided the Policy is still In Force on
the Maturity Date and there are no unfavorable tax consequences. Extension of
the Maturity Date will be made upon mutual agreement between Western Reserve
and the Policyowner provided the Policyowner submits a written request to
Western Reserve between 90 and 180 days prior to the Maturity Date, and
provided the Policy may be extended with no unfavorable tax consequences to
the Policyowner.
PAYMENT OF POLICY BENEFITS
Death benefits under the Policy will ordinarily be paid within seven days
after Western Reserve receives due proof of death of the Surviving Insured,
and Western Reserve receives proof that both Joint Insureds died while the
Policy was In Force, and verifies the validity of the claim. Other benefits
will ordinarily be paid within seven days of receipt of proper written
request (including an election as to tax withholding). Payments may be
postponed in certain circumstances. (See General Provisions - Postponement of
Payments, p. 30 and The Fixed Account - Allocations, Transfers and
Withdrawals, p. 32.) The Policyowner may decide the form in which the
benefits will be paid. During the lifetime of either Joint Insured, the
Policyowner may arrange for the death benefits to be paid in a lump sum or
under one or more of the settlement options described below. These choices
are also available if the Policy is surrendered or matures. If no election is
made, Western Reserve will pay the benefits in a lump sum.
When death benefits are payable in a lump sum, the Beneficiary may select
one or more of the settlement options. If death benefits become payable under
a settlement option and the Beneficiary has the right to withdraw the entire
amount, the Beneficiary may name and change contingent Beneficiaries.
SETTLEMENT OPTIONS. Policyowners and Beneficiaries, subject to a prior
election of the Policyowner, may elect to have benefits paid in a lump sum or
in accordance with a variety of settlement options offered under the Policy.
Once a settlement option is in effect, there will no longer be value in the
Series Account or the Fixed Account. Western Reserve may make other
settlement options available on the Fixed Account in the future. The
effective date of a settlement provision will be either the date of surrender
or the date of death of the Surviving Insured. For additional information
concerning these options, see the Policy itself.
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OPTION A - PAYMENTS FOR A FIXED PERIOD. The proceeds plus interest will be
paid in equal monthly installments for the period chosen until the fund has
been paid in full. The period chosen may not exceed 20 years.
OPTION B - LIFE INCOME. The proceeds will be paid in equal installments
for the guaranteed payment period elected and continue for the life of the
person on whose life the option is based. Such installments will be payable:
(a) during the lifetime of the payee or (b) during a fixed period certain and
for the remaining lifetime of the payee or (c) until the sum of installments
paid equals the proceeds applied and for the remaining life of the payee.
Guaranteed payment periods may be elected for 10 years, or the period in
which the total payments will equal the amount retained.
OPTION C - JOINT AND SURVIVOR LIFE INCOME. The proceeds will be paid
during the joint lifetime of two persons
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and continue upon the death of the first payee for the remaining lifetime of
the survivor.
GENERAL PROVISIONS
POSTPONEMENT OF PAYMENTS
GENERAL. Payment of any amount from the Series Account upon complete
surrender, cash withdrawal, Policy loan, or benefits payable at death or
maturity may be postponed whenever: (i) the New York Stock Exchange is closed
other than customary weekend and holiday closing, or trading on the New York
Stock Exchange is restricted as determined by the Commission; (ii) the
Commission by order permits postponement for the protection of Policyowners;
or (iii) an emergency exists, as determined by the Commission, as a result of
which disposal of securities is not reasonably practicable or it is not
reasonably practicable to determine the value of the Series Account's net
assets. Transfers may also be postponed under these circumstances. For
restrictions applicable to payments from the Fixed Account, see The Fixed
Account - Allocations, Transfers and Withdrawals, p. 32.
PAYMENT BY CHECK. Payments under the Policy of any amounts derived from
premiums paid by check or bank draft may be delayed until such time as the
check or bank draft has cleared the Policyowner's bank.
THE CONTRACT
The Policy and attached copy of the application and any supplemental
applications are the entire contract. Only statements in the application and
any supplemental applications can be used to void the Policy or defend a
claim. The statements are considered representations and not warranties. No
Policy provision can be waived or changed except by endorsement. Only the
President or Secretary of Western Reserve can agree to change or waive any
provisions of the Policy.
SUICIDE
If either Joint Insured, while sane or insane, commits suicide within two
years from the Policy Date or two years from the effective date of any
reinstatement of a Policy, the Policy will terminate, and Western Reserve's
total liability, including all riders attached to the Policy, will be limited
to the total premiums paid within such two year period, less any loan and any
prior withdrawals during such period. In that event, such proceeds will be
payable to the Policyowner, if surviving, otherwise to the Policyowner's
estate. No other death benefit will be payable.
INCONTESTABILITY
Western Reserve cannot contest the Policy as to the initial Specified
Amount after it has been In Force while both Joint Insureds are still alive,
for two years from the Policy Date. At the end of the second Policy year,
Western Reserve will send the Policyowner a notice requesting to know whether
either Joint Insured has died. Failure to notify Western Reserve that a Joint
Insured has died will not avoid a contest, if Western Reserve has a basis to
contest, even if the Policy is still In Force. If a lapsed Policy is
reinstated, a new two year contestability period (apart from any remaining
contestability period) will apply from the date of the application for
reinstatement and will apply only to statements made in the application for
reinstatement.
CHANGE OF OWNER OR BENEFICIARY
The Beneficiary, as named in the Policy application or subsequently
changed, will receive the Policy benefits at the Surviving Insured's death.
If the named Beneficiary dies before the Surviving Insured, the contingent
Beneficiary, if named, becomes the Beneficiary. If no Beneficiary survives
the Surviving Insured, the benefits payable at the Surviving Insured's death
will be paid to the Policyowner or the Policyowner's estate. As long as the
Policy is In Force, the Policyowner or Beneficiary may be changed by written
request from the Policyowner in a form acceptable to Western Reserve. The
Policy need not be returned unless requested by Western Reserve. The change
will take effect as of the date the request is signed, regardless of whether
either or both Joint Insureds are living when the request is received by
Western Reserve. Western Reserve will not, however, be liable for any payment
made or action taken before receipt of the request.
ASSIGNMENT
The Policy may be assigned by the Policyowner. Western Reserve will not be
bound by the assignment until a written copy has been received at its Office
and will not be liable with respect to any payment made prior to receipt.
Western Reserve assumes no responsibility for determining whether an
assignment is valid or the extent of the assignee's interest.
MISSTATEMENT OF AGE OR SEX
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If the age or sex of either Joint Insured has been misstated, the death
benefit will be adjusted based on what the cost of insurance charge for the
most recent monthly deduction would have purchased based on the correct age
and sex.
REPORTS AND RECORDS
Western Reserve will maintain all records relating to the Series Account
and the Fixed Account. Western Reserve will mail to each Policyowner, at the
last known address of record, reports required by applicable laws and or
regulations.
Western Reserve will send Policyowners written confirmation within seven
days of the following transactions: unplanned and certain planned premium
payments, Cash Value transfers, change in death benefit option or Specified
Amount, total surrender or cash withdrawals, and Policy loans or repayments.
Western Reserve will also send each Policyowner an annual statement at the
end of the Policy year showing for the year, among other things, the month
and amount of each: premium payment made, monthly deduction, transfer, cash
withdrawal and Policy loan or repayment. The annual statement will also show
Policy year-end Net Surrender Value, death benefit and Policy loan value, as
well as other Policy activity during the year.
OPTIONAL INSURANCE BENEFITS
Subject to certain requirements, one or more of the following optional
insurance benefits may be added to a Policy
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by rider. The cost of any optional insurance benefits, including any
applicable charge to provide a death benefit guarantee, if any, for the
optional insurance benefit until the No Lapse Date, will be deducted as part
of the monthly deduction. (See Charges and Deductions - Optional Cash Value
Charges, p. 26.)
JOINT INSURED TERM RIDER: Provides the payment of the face amount of the
rider to the Beneficiary for the rider upon receipt of due proof that both
Joint Insureds died while the rider was In Force. The cost of insurance rates
for this rider increase each year.
INDIVIDUAL INSURED RIDER: Provides additional life insurance on the life
of either Joint Insured, and for the payment of the face amount of the rider
to the Beneficiary for the rider upon receipt by Western Reserve of written
notice that the Insured's death occurred while the rider was In Force. On any
Monthiversary while the rider is In Force, the Policyowner may exchange the
rider without evidence of insurability for a new policy on the Insured's
life. Such new policy will be issued upon written request subject to the
following: (a) the rider has not reached the Anniversary nearest the
Insured's 70th birthday; (b) the new policy is on any permanent plan of
insurance then offered by Western Reserve; (c) the amount of insurance upon
conversion will equal the face amount then In Force under the rider; and (d)
the payment of the premium based on the Insured's rate class under the rider.
WEALTH PROTECTOR RIDER: Provides the payment of the face amount of the
rider to the Beneficiary for the rider upon receipt of due proof that both
Joint Insureds died while the rider was In Force. The rider has no conversion
or exchange privilege. The rider terminates at the earlier of (a) the date
the Policy terminates, (b) the fourth Anniversary of the Policy, or (c) the
Monthiversary on which the rider is terminated by written notice from the
Policyowner to Western Reserve. The cost of insurance rates for this rider do
not increase while the rider is In Force.
THE FIXED ACCOUNT
A Policyowner may allocate Net Premiums and transfer Cash Value to the
Fixed Account, which is part of Western Reserve's General Account. Because of
exemptive and exclusionary provisions, interests in the Fixed Account have
not been registered under the Securities Act of 1933, and neither the Fixed
Account nor the General Account has been registered as an investment company
under the 1940 Act. Accordingly, neither the Fixed Account, the General
Account nor any interests therein are generally subject to the provisions of
these acts and Western Reserve has been advised that the staff of the
Commission has not reviewed the disclosures in this Prospectus relating to
the Fixed Account. Disclosures regarding the Fixed Account may, however, be
subject to certain generally applicable provisions of the Federal securities
laws relating to the accuracy and completeness of statements made in
prospectuses.
The portion of the Cash Value allocated to the Fixed Account (the "Fixed
Account Value") will be credited with rates of interest, as described below.
Because the Fixed Account Value becomes part of Western Reserve's General
Account, Western Reserve assumes the risk of investment gain or loss on this
amount. All assets in the General Account are subject to Western Reserve's
general liabilities from business operations.
FIXED ACCOUNT VALUE
At the end of any Valuation Period, the Fixed Account Value is equal to:
1. The sum of all Net Premium payments allocated to the Fixed Account;
plus
2. Any amounts transferred from a Sub-Account to the Fixed Account; plus
3. Total interest credited to the Fixed Account; minus
4. Any amounts charged to pay for monthly deductions as they are due;
minus
5. Any cash withdrawals or surrenders from the Fixed Account; minus
6. Any amounts transferred to a Sub-Account from the Fixed Account.
MINIMUM GUARANTEED AND CURRENT INTEREST RATES
The Fixed Account Value, including the Loan Reserve, is guaranteed to
accumulate at a minimum effective annual interest rate of 4%. Western Reserve
presently credits the Fixed Account Value with current rates in excess of the
minimum guarantee but it is not obligated to do so. These current interest
rates are influenced by, but do not necessarily correspond to, prevailing
general market interest rates. Because Western Reserve, at its sole
discretion, anticipates changing the current interest rate from time to time,
different allocations to and from the Fixed Account Value will be credited
different current interest rates.
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Western Reserve further guarantees that when a higher current interest
rate is declared on an allocation to the Fixed Account, that interest rate
will be guaranteed on such allocation for at least a one year period (the
"Guarantee Period"), unless the Cash Value associated with an allocation has
been transferred to the Loan Reserve. Western Reserve reserves the right to
apply a different current interest rate to that part of the Cash Value equal
to the Loan Reserve. At the end of the Guarantee Period, Western Reserve
reserves the right to declare a new current interest rate on such allocation
and accrued interest thereon (which may be a different current interest rate
than the current interest rate on new allocations to the Fixed Account on
that date). The rate declared on such allocation and accrued interest thereon
at the end of each Guarantee Period will be guaranteed again for another
Guarantee Period. At the end of any Guarantee Period, any interest credited
on the Policy's Cash Value in the Fixed Account in excess of the minimum
guaranteed rate of 4% per year will be determined in the sole discretion of
Western Reserve. The Policyowner assumes the risk that interest credited may
not exceed the guaranteed minimum rate.
Allocations from the Fixed Account Value to provide: a) cash withdrawal
amounts, b) transfers to the Series Account,
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or c) monthly deduction charges are currently, for the purpose of crediting
interest, accounted for on a last in, first out ("LIFO") method.
Western Reserve reserves the right to change the method of crediting
interest from time to time, provided that such changes will not have the
effect of reducing the guaranteed rate of interest below 4% per annum or
shorten the Guarantee Period to less than one year.
ALLOCATIONS, TRANSFERS AND WITHDRAWALS
Net premium payments and transfers to the Fixed Account will be allocated
to the Fixed Account on the first Valuation Date on or following the date
Western Reserve receives the payment or transfer request at its Office,
except that any allocation of Net Premium received prior to the Policy Date
will take place on the Policy Date (or the Record Date, if later).
For transfers from the Fixed Account to a Sub-Account, Western Reserve
reserves the right to require that transfer requests be in writing and
received at Western Reserve's Office within 30 days of a Policy Anniversary.
Under the Policy, the amount that may be transferred is limited to the
greater of (a) 25% of the amount in the Fixed Account, or (b) the amount
transferred in the prior Policy year from the Fixed Account, unless Western
Reserve consents otherwise. Currently, Western Reserve allows 100% of the
amount in the Fixed Account to be transferred within 30 days after each
Anniversary. The transfer will take place on the day Western Reserve receives
the request. No transfer charge will apply to transfers from the Fixed
Account to a Sub-Account. Amounts may be withdrawn from the Fixed Account for
Cash Withdrawals and Surrenders only upon written request of the Policyowner
and are subject to any applicable requirement for a signature guarantee. (See
Policy Rights - Surrender Privileges, p. 28.) Western Reserve further
reserves the right to defer payment of transfers, Cash Withdrawals, or
Surrenders from the Fixed Account for up to six months. In addition, Policy
provisions relating to transfers, Cash Withdrawals or Surrenders from the
Series Account will also apply to Fixed Account transactions.
DISTRIBUTION OF THE POLICIES
The Policy will be sold by individuals who, in addition to being licensed
as life insurance agents for Western Reserve, are also registered
representatives of InterSecurities, Inc., an affiliate of Western Reserve and
the principal underwriter of the Policies, or of broker-dealers who have
entered into written sales agreements with the principal underwriter.
InterSecurities, Inc. is registered with the Commission under the Securities
Exchange Act of 1934 as a broker-dealer and is a member of the National
Association of Securities Dealers, Inc. No amounts have been retained by
InterSecurities, Inc. for acting as principal underwriter for the Policies.
The maximum sales commission payable to Western Reserve agents or other
registered representatives will be approximately 65% of all premium payments
up to the "target" premium (which is less than the Guideline Premium shown on
the Policy) and 2.2% of all premium payments in excess thereof. In addition,
certain production, persistency and managerial bonuses may be paid.
FEDERAL TAX MATTERS
INTRODUCTION
The ultimate effect of Federal income taxes on the Cash Value of a Policy
and on the economic benefit to the Policyowner or Beneficiary depends on
Western Reserve's tax status and upon the tax status of the individual
concerned. The discussion contained herein is general in nature and is not
intended as tax advice. For complete information on Federal and state tax
considerations, a qualified tax adviser should be consulted. No attempt is
made to consider any applicable state or other tax laws. Because the
discussion herein is based upon Western Reserve's understanding of Federal
income tax laws as they are currently interpreted, Western Reserve cannot
guarantee the tax status of any Policy. Western Reserve makes no
representations regarding the likelihood of continuation of the current
Federal income tax laws, Treasury Regulations, or of the current
interpretations by the Internal Revenue Service ("IRS"). Western Reserve
reserves the right to make changes to the Policy in order to assure that it
will continue to qualify as life insurance for tax purposes.
TAX CHARGES
At the present time, Western Reserve makes no charge for any Federal,
state or local taxes (other than premium taxes) that the Company incurs that
may be attributable to such Account or to the Policies. Western Reserve,
however, reserves the right in the future to make a charge for any such tax
or other economic burden resulting from the application of the tax laws that
it determines to be properly attributable to the Series Account or to the
Policies.
TAX STATUS OF THE POLICY
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In order to qualify as a life insurance contract for Federal tax purposes,
a Policy must meet the definition of a life insurance contract which is set
forth in Section 7702 of the Internal Revenue Code of 1986, as amended (the
"Code"). The manner in which Section 7702 should be applied to certain
features of the Policy is not directly addressed by Section 7702.
Nevertheless, Western Reserve believes it is reasonable to conclude that the
Policy will meet the Section 7702 definition of a life insurance contract. In
the absence of final regulations or other pertinent interpretations of
Section 7702, however, there is necessarily some uncertainty as to whether a
Policy will meet the statutory life insurance contract definition,
particularly if it insures substandard risks. If a Policy were determined not
to be a life insurance contract for purposes of Section 7702, such Policy
would not provide most of the tax advantages normally provided by a life
insurance contract.
If it is subsequently determined that a Policy does not satisfy Section
7702, Western Reserve will take whatever steps are appropriate and reasonable
to attempt to cause such a Policy to comply with Section 7702, including
possibly refunding any premiums paid that exceed the limitation
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allowable under Section 7702 (together with interest or other earnings on any
such premiums refunded as required by law). For these reasons, Western
Reserve reserves the right to modify the Policy as necessary to attempt to
qualify it as a life insurance contract under Section 7702.
Section 817(h) of the Code authorizes the Treasury to set standards by
regulation or otherwise for the investments of the Series Account to be
"adequately diversified" in order for the Policy to be treated as a life
insurance contract for Federal tax purposes. The Series Account, through the
Fund, intends to comply with the diversification requirements prescribed by
the Treasury in Reg. sec. 1.817-5, which affect how the Fund's assets may be
invested. Western Reserve believes that the Fund will be operated in
compliance with the requirements prescribed by the Treasury.
In certain circumstances, owners of variable life insurance policies may
be considered the owners, for Federal income tax purposes, of the assets of
the separate account used to support their policies. In those circumstances,
income and gains from the separate account assets would be includible in the
owner's gross income. The IRS has stated in published rulings that the owner
of a variable life insurance policy will be considered the owner of separate
account assets if the owner possesses incidents of ownership in those assets,
such as the ability to exercise investment control over the assets. The
Treasury Department also announced, in connection with the issuance of
regulations concerning diversification, that those regulations "do not
provide guidance concerning the circumstances in which investor control of
the investment of a segregated asset account may cause the investor (i.e.,
the policyowner), rather than the insurance company, to be treated as the
owner of the assets in the account." This announcement also stated that
guidance would be issued by way of regulations or rulings on the "extent to
which policyholders may direct their investments to particular subaccounts
without being treated as owners of the underlying assets."
The ownership rights under the Policy are similar to, but different in
certain respects from, those described by the IRS in rulings in which it was
determined that policyowners were not owners of separate account assets. For
example, the Policyowner has additional flexibility in allocating premium
payments and Policy values. These differences could result in a Policyowner
being treated as the owner of a pro rata portion of the assets of the Series
Account. In addition, Western Reserve does not know what standards will be
set forth, if any, in the regulations or rulings which the Treasury
Department has stated it expects to issue. Western Reserve therefore reserves
the right to modify the Policy as necessary to attempt to prevent a
Policyowner from being considered the owner of a pro rata share of the asset
of the Series Account.
The following discussion assumes that the Policy will qualify as a life
insurance contract for Federal income tax purposes.
TAX TREATMENT OF POLICY BENEFITS
1. In general. Western Reserve believes that the proceeds and Cash Value
increases of a Policy should be treated in a manner consistent with a
fixed-benefit life insurance policy for Federal income tax purposes. Thus,
the death benefit under the Policy should be excludable from the gross income
of the Beneficiary under Section 101(a)(1) of the Code.
A change in a Policy's Specified Amount, the payment of an unscheduled
premium, the taking of a Policy loan, a cash withdrawal, a total surrender, a
change of insured, a Policy Lapse with an outstanding indebtedness, a change
in death benefit options, the exchange of a Policy, or the assignment of a
Policy may have tax consequences depending upon the circumstances. In
addition, Federal estate and state and local estate, inheritance, and other
tax consequences of ownership or receipt of Policy proceeds depend upon the
circumstances of each Policyowner or Beneficiary. A competent tax adviser
should be consulted for further information.
The Policy may also be used in various arrangements, including
nonqualified deferred compensation or salary continuance plans, split dollar
insurance plans, executive bonus plans, retiree medical benefit plans and
others. The tax consequences of such plans may vary depending on the
particular facts and circumstances of each individual arrangement. Therefore,
if a Policyowner is contemplating the use of a Policy in any arrangement the
value of which depends in part on its tax consequences, that Policyowner
should be sure to consult a qualified tax adviser regarding the tax
attributes of the particular arrangement.
Generally, the Policyowner will not be deemed to be in constructive
receipt of the Cash Value, including increments thereof, under the Policy
until there is a distribution. The tax consequences of distributions from,
and loans taken from, or secured by, a Policy depend on whether the Policy is
classified as a "modified endowment contract" under Section 7702A. Section
7702A generally applies to Policies entered into or materially changed after
June 20, 1988.
2. Modified Endowment Contracts. A Policy may be treated as a modified
endowment contract depending upon the amount of premiums paid in relation to
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the death benefit provided under such Policy. The premium limitation rules
for determining whether such a Policy is a modified endowment contract are
extremely complex. In general, however, a Policy will be a modified endowment
contract if the accumulated premiums paid at any time during the first seven
Policy years exceed the sum of the net level premiums which would have been
paid on or before such time if the Policy provided for paid-up future
benefits after the payment of seven level annual premiums. In addition, if a
Policy is "materially changed," it may cause such Policy to be treated as a
modified endowment contract. The material change rules for determining
whether a Policy is a modified endowment contract are also extremely complex.
In general, however, the determination whether a Policy will be a modified
endowment contract after a material change depends upon the relationship of
the death benefit at the time of change to the Cash Value at the time of such
change and the additional premiums paid in the seven Policy years starting
with the date on which the material change occurs.
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The manner in which the premium limitation and material change rules
should be applied to certain features of the Policy and its riders is
unclear. Nonetheless, under Western Reserve's current procedures, the
Policyowner will be notified at the time a Policy is issued whether,
according to Western Reserve's calculations, the Policy is or is not
classified as a modified endowment contract based on the premium then
received. The Policyowner will also be notified of the amount of the maximum
annual premium which, according to, Western Reserve's calculations, can be
paid without causing a Policy to be classified as a modified endowment
contract.
Due to the Policy's flexibility, classification of a Policy as a modified
endowment contract will depend upon the circumstances of each Policy.
Accordingly, a prospective Policyowner should contact a competent tax adviser
before purchasing a Policy to determine the circumstances under which the
Policy would be a modified endowment contract. In addition, a Policyowner
should contact a competent tax adviser before making any change to, including
an exchange of, a Policy to determine whether such change would cause the
Policy (or the new policy in the case of an exchange) to be treated as a
modified endowment contract.
If a Policy becomes a modified endowment contract, distributions that
occur during the Policy year it becomes a modified endowment contract and any
subsequent Policy year will be taxed as distributions from a modified
endowment contract. In addition, distributions from a Policy within two years
before it becomes a modified endowment contract will be taxed in this manner.
This means that a distribution made from a Policy that is not a modified
endowment contract could later become taxable as a distribution from a
modified endowment contract.
3. Distributions from Policies Classified as Modified Endowment
Contracts. Policies classified as modified endowment contracts are subject to
the following tax rules: First, all pre-death distributions from such a
Policy (including distributions upon surrender, distributions made in
anticipation of the Policy becoming a modified endowment contract, and
benefits paid at maturity) are treated as ordinary income subject to tax up
to the amount equal to the excess (if any) of the Cash Value immediately
before the distribution over the investment in the Policy (described below)
at such time. Second, loans taken from, or secured by, such a Policy are
treated as distributions from such a Policy and taxed accordingly. (Unpaid
Policy loan interest will be treated as a loan for these purposes.) Third, a
10% additional income tax is imposed on the portion of any distribution from,
or loan taken from, or secured by, such a Policy that is included in income
except where the distribution or loan is made on or after the Policyowner
attains age 59 1/2 , is attributable to the Policyowner's becoming disabled,
or is part of a series of substantially equal periodic payments for the life
(or life expectancy) of the Policyowner or the joint lives (or joint life
expectancies) of the Policyowner and the Policyowner's Beneficiary.
4. Distribution from Policies not Classified as Modified Endowment
Contracts. Distributions from a Policy that is not classified as a modified
endowment contract are generally treated as first recovering the investment
in the Policy (described below) and then, only after the return of all such
investment in the Policy, as distributing taxable income. An exception to
this general rule occurs in the case of a cash withdrawal, a decrease in the
Policy's death benefit, or any other change that reduces benefits under the
Policy in the first 15 years after the Policy is issued and results in a cash
distribution to the Policyowner in order for the Policy to continue complying
with the Section 7702 definitional limits. In that case, such distribution
will be taxed in whole or in part as ordinary income (to the extent of any
gain in the Policy) under rules prescribed in Section 7702.
Loans from, or secured by, a Policy that is not a modified endowment
contract are not treated as distributions. Instead, such loans are treated as
indebtedness of the Policyowner.
Finally, distributions (including distributions upon surrender or lapse)
or loans from, or secured by, a Policy that is not a modified endowment
contract are not subject to the 10% additional income tax.
5. Policy loan interest. The deductibility of Policy loan interest may be
limited by the Code. For example, interest paid on any loan under a Policy
which is owned by an individual is not deductible. Therefore, a Policyowner
should consult a competent tax adviser as to whether Policy loan interest
will be deductible.
6. Investment in the Policy. Investment in the Policy means (i) the
aggregate amount of any premiums or other consideration paid for a Policy,
minus (ii) the aggregate amount received under the Policy which is excluded
from the gross income of the Policyowner (except that the amount of any loan
from, or secured by, a Policy that is a modified endowment contract, to the
extent such amount is excluded from gross income, will be disregarded), plus
(iii) the amount of any loan from, or secured by, a Policy that is a modified
endowment contract to the extent that such amount is included in the gross
income of the Policyowner.
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7. Multiple Policies. All modified endowment contracts that are issued by
Western Reserve (or its affiliates) to the same Policyowner during any
calendar year are treated as one modified endowment contract for purposes of
determining the amount includable in gross income under Section 72(e) of the
Code.
8. Tax Treatment of Policy Split. The Policy Split Option permits a Policy
to be split into two other individual life insurance contracts upon the
occurrence of a divorce of the Joint Insureds, certain changes in Federal
estate tax law, or a dissolution of a business partnership of which the
partners are Joint Insureds. (See Policy Rights - Policy Split Option, p.
28.) A policy split could have adverse tax consequences. For example, it is
not clear whether a policy split will be treated as a nontaxable exchange
under Sections 1031 through 1043 of the Code. If a policy split is not
treated as a
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nontaxable exchange, a spilt could result in the recognition of taxable
income in an amount up to any gain in the Policy at the time of the split. In
addition, it is not clear whether the individual policies that result from a
policy split would in all circumstances be treated as life insurance
contracts for Federal income tax purposes and, if so treated, whether the
individual policies would be classified as modified endowment contracts.
Before a Policyowner exercises rights provided by the Policy Split Option, it
is important that he or she consult with a competent tax adviser regarding
the possible consequences of a policy split.
9. Other Tax Considerations. The transfer of the Policy or the definition
of a beneficiary may have Federal, state and/or local transfer and
inheritance tax consequences, including the imposition of gift, estate and
generation-skipping transfer taxes. For example, the transfer of the Policy
to, the designation as beneficiary of, or the payment of proceeds to, a
person who is assigned to a generation which is two or more generations below
the generation assignment of the Policyowner, may have generation skipping
transfer tax considerations under Section 2601 of the Code.
The individual situation of each Policyowner of beneficiary will determine
the extent, if any, to which Federal, state and local transfer taxes may be
imposed. Consult with your tax adviser for specific information in connection
with these taxes.
EMPLOYMENT-RELATED BENEFIT PLANS
On July 6, 1983, the Supreme Court held in Arizona Governing Committee v.
Norris that optional annuity benefits provided under an employer's deferred
compensation plan could not, under Title VII of the Civil Rights Act of 1964,
vary between men and women on the basis of sex. The Policy described in this
Prospectus contains guaranteed cost of insurance rates and guaranteed
purchase rates for certain payment options that distinguish between men and
women. Accordingly, employers and employee organizations should consider, in
consultation with legal counsel, the impact of Norris, and Title VII
generally, on any employment-related insurance or benefit program for which a
Policy may be purchased.
SAFEKEEPING OF THE
SERIES ACCOUNT'S ASSETS
Western Reserve holds the assets of the Series Account. The assets are
kept physically segregated and held separate and apart from the General
Account. Western Reserve maintains records of all purchases and redemptions
of Fund shares by each of the Sub-Accounts. Additional protection for the
assets of the Series Account is provided by a blanket bond issued to AEGON
U.S. Holding Corporation ("AEGON U.S.") in the amount of $5 million (subject
to a $1 million deductible), covering all of the employees of AEGON U.S. and
its affiliates, including Western Reserve. A Stockbrokers Blanket Bond,
issued to AEGON U.S.A. Securities, Inc. provides additional fidelity coverage
to a limit of $11 million, subject to a $50,000 deductible.
VOTING RIGHTS OF THE SERIES ACCOUNT
To the extent required by law, Western Reserve will vote the Fund shares
held in the Series Account at shareholder meetings of the Fund in accordance
with instructions received from persons having voting interests in the
corresponding Sub-Accounts of the Series Account. Except as required by the
1940 Act, the Fund does not hold regular or special shareholder meetings. If
the 1940 Act or any regulation thereunder should be amended or if the present
interpretation thereof should change, and as a result Western Reserve
determines that it is permitted to vote the Fund shares in its own right, it
may elect to do so.
The number of votes which a Policyowner has the right to instruct will be
calculated separately for each Sub-Account. The number of votes which each
Policyowner has the right to instruct will be determined by dividing a
Policy's Cash Value in that Sub-Account by $100. Fractional shares will be
counted. The number of votes of the Portfolio which the Policyowner has the
right to instruct will be determined as of the date coincident with the date
established by that Portfolio for determining shareholders eligible to vote
at the meeting of the Fund. Voting instructions will be solicited by written
communications prior to such meeting in accordance with procedures
established by the Fund.
Western Reserve will vote Fund shares as to which no timely instructions
are received and Fund shares which are not attributable to Policyowners in
proportion to the voting instructions which are received with respect to all
Policies participating in that Portfolio. Voting instructions to abstain on
any item to be voted upon will reduce the votes eligible to be cast by
Western Reserve.
Each person having a voting interest in a Sub-Account will receive proxy
materials, reports and other materials relating to the appropriate Portfolio.
35
<PAGE>
DISREGARD OF VOTING INSTRUCTIONS. Western Reserve may, when required by
state insurance regulatory authorities, disregard voting instructions if the
instructions require that the shares be voted so as to cause a change in the
sub-classification or investment objective of the Fund or one or more of its
Portfolios or to approve or disapprove an investment advisory contract for a
Portfolio of the Fund. In addition, Western Reserve itself may disregard
voting instructions in favor of changes initiated by a Policyowner in the
investment policy or the investment adviser of a Portfolio of the Fund if
Western Reserve reasonably disapproves of such changes. A change would be
disapproved only if the proposed change is contrary to state law or
prohibited by state regulatory authorities or Western Reserve determined that
the change would have an adverse effect on its General Account in that the
proposed investment policy for a Portfolio may result in overly speculative
or unsound investments. In the event Western Reserve does disregard voting
instructions, a summary of that action and the reasons for such action will
be included in the next annual report to Policyowners.
35
<PAGE>
STATE REGULATION OF WESTERN RESERVE
As a life insurance company organized and operated under Ohio law, Western
Reserve is subject to provisions governing such companies and to regulation
by the Ohio Commissioner of Insurance.
Western Reserve's books and Accounts are subject to review and examination
by the Ohio Insurance Department at all times and a full examination of its
operations is conducted by the National Association of Insurance
Commissioners at least once every three years.
REINSURANCE
Western Reserve intends to reinsure a portion of the risks assumed under
the Policies.
EXECUTIVE OFFICERS AND DIRECTORS
OF WESTERN RESERVE
JOHN R. KENNEY(1), CHAIRMAN OF THE BOARD OF DIRECTORS, CHIEF EXECUTIVE
OFFICER AND PRESIDENT, Chairman of the Board of Directors (1987 - present)
and Chief Executive Officer (1982 - present), President, (1978 - 1987 and
December, 1992 - present), Director (1987 - present), Western Reserve Life
Assurance Co. of Ohio; Chairman of the Board of Directors (1985 -
present), President (March, 1993 - present), WRL Series Fund, Inc.;
Chairman of the Board of Directors and Chief Executive Officer (1988 -
February, 1991), President (1988 - 1989), Director (1976 - February,
1991), Executive Vice President (1972 - 1988), Pioneer Western Corporation
(financial services), Largo, Florida; President and Director (1985 -
September, 1990) and Director (December, 1990 - present) Idex Management,
Inc. (investment adviser), Largo, Florida; Trustee (1987 - present),
Chairman (December, 1989 - September, 1990 and November, 1990 - present)
and President and Chief Executive Officer (November, 1986 - September,
1990), IDEX Fund, IDEX II Series Fund and IDEX Fund 3 (investment
companies), all of Largo, Florida.
RICHARD B. FRANZ, II(1), SENIOR VICE PRESIDENT AND TREASURER, Senior Vice
President (1987 - present), Chief Financial Officer (1987 - December,
1995) and Treasurer (1988 - present), Western Reserve Life Assurance Co.
of Ohio; Senior Vice President and Treasurer (1988 - February, 1991),
Pioneer Western Corporation, Largo, Florida (financial services);
Treasurer (1988 - September, 1990 and November, 1990 - present), IDEX
Fund, IDEX II Series Fund and IDEX Fund 3 (investment companies), all of
Largo, Florida; Treasurer (1988 - present), WRL Series Fund, Inc.
ALAN M. YAEGER(1), EXECUTIVE VICE PRESIDENT, ACTUARY AND CHIEF FINANCIAL
OFFICER, Executive Vice President (June, 1993 - present), Chief Financial
Officer (December, 1995 - present), Senior Vice President (1981 -June,
1993) and Actuary (1972 - present), Western Reserve Life Assurance Co. of
Ohio; Executive Vice President (September, 1993 - present), WRL Series
Fund, Inc.
WILLIAM H. GEIGER(1), SENIOR VICE PRESIDENT, SECRETARY AND GENERAL COUNSEL,
Senior Vice President, Secretary and General Counsel (July, 1990 -
present), Western Reserve Life Assurance Co. of Ohio; Vice President,
Secretary and General Counsel of Pioneer Western Corporation (financial
services) and Secretary of its subsidiaries (May, 1990 - February, 1991);
Vice President and Assistant Secretary (November, 1990 - present) and
Secretary (June, 1990 - September, 1990) of IDEX Fund, IDEX II Series Fund
and IDEX Fund 3 (investment companies), all of Largo, Florida; Secretary
and General Counsel of Orange State Life and Health Insurance Company, and
its affiliates, Largo, Florida (March, 1980 - April, 1990).
G. JOHN HURLEY(1), EXECUTIVE VICE PRESIDENT, Executive Vice President (June,
1993 - present), Western Reserve Life Assurance Co. of Ohio; Executive
Vice President (June, 1993 - present), Director (March, 1994 - present)
WRL Series Fund, Inc.; President and Chief Executive Officer (September,
1990 - present), Trustee (June, 1990 - present) and Executive Vice
President (June, 1988 - September, 1990) of IDEX Fund, IDEX II Series Fund
and IDEX Fund 3 (investment companies); Assistant Vice President of AEGON
USA Managed Portfolios, Inc. (September, 1991 - August, 1992); Vice
President of Pioneer Western Corporation (May, 1988 - February, 1991).
ALLAN J. HAMILTON(1), VICE PRESIDENT AND CONTROLLER, Vice President and
Controller (1987 - present), Assistant Vice President and Assistant
Controller (1983 - 1987), Western Reserve Life Assurance Co. of Ohio; Vice
President and Controller (1988 - February, 1991), Pioneer Western
Corporation (financial services), Largo, Florida.
PATRICK S. BAIRD, DIRECTOR, 4333 Edgewood Road, NE, Cedar Rapids, Iowa 52499,
Director (February, 1991 - present), Western Reserve Life Assurance Co. of
Ohio; Vice President and Chief Tax Officer (1984 - present), Chief
Financial Officer (1992 - present), AEGON USA, Inc., formerly known as
Life Investors, Inc., (financial services holding company), Cedar Rapids,
36
<PAGE>
Iowa.
JACK E. ZIMMERMAN, DIRECTOR, 507 St. Michel Circle, Kettering, Ohio 45429,
Director (1987 - present), Western Reserve Life Assurance Co. of Ohio;
Trustee, IDEX Fund, IDEX II Series Fund and IDEX Fund 3 (investment
companies); Director, Regional Marketing, (1986 - January, 1993), Martin
Marietta Corporation, Dayton, Ohio.
LYMAN H. TREADWAY, DIRECTOR, 30195 Chagrin Blvd. Ste. 210N, Cleveland, Ohio
44124, Director (September, 1994 - present), Western Reserve Life
Assurance Co. of Ohio; Consultant (1988 - 1993), Cleveland, Ohio.
--------------------------------------------------------------------------
(1) The principal business address is Western Reserve Life Assurance Co.
of Ohio, P.O. Box 5068, Clearwater, Florida 34618-5068.
36
<PAGE>
LEGAL MATTERS
Sutherland, Asbill & Brennan, Washington, D.C., has provided advice on
certain legal matters concerning Federal securities laws in connection with
the Policies. All matters of Ohio law pertaining to the Policy, including the
validity of the Policy and Western Reserve's right to issue the Policy under
Ohio Insurance Law, have been passed upon by Thomas E. Pierpan, Vice
President and Counsel of Western Reserve.
LEGAL PROCEEDINGS
There are no legal proceedings to which the Series Account is a party or
to which the assets of the Series Account are subject. Western Reserve is not
involved in any litigation that is of material importance in relation to its
total assets or that relates to the Series Account.
EXPERTS
The financial statements of WRL Series Life Account as of December 31,
1995 and for the year then ended have been included herein in reliance upon
the report of Price Waterhouse LLP, independent accountants, and upon the
authority of that firm as experts in accounting and auditing.
The financial statements of Western Reserve Life Assurance Co. of Ohio at
December 31, 1995 and 1994 and for each of the three years in the period
ended December 31, 1995, appearing in this Prospectus and Registration
Statement have been audited by Ernst & Young LLP, independent auditors, as
set forth in their reports thereon appearing elsewhere herein which are based
in part on the reports of Price Waterhouse LLP, independent accountants. The
financial statements referred to above are included in reliance upon such
reports given upon the authority of such firms as experts in accounting and
auditing.
Actuarial matters included in this Prospectus have been examined by Alan
Yaeger as stated in the opinion filed as an exhibit to the registration
statement.
ADDITIONAL INFORMATION
A registration statement has been filed with the Securities and Exchange
Commission, under the Securities Act of 1933, as amended, with respect to the
Policy offered hereby. This Prospectus does not contain all the information
set forth in the registration statement and the amendments and exhibits to
the registration statement, to all of which reference is made for further
information concerning the Series Account, Western Reserve and the Policy
offered hereby. Statements contained in this Prospectus as to the contents of
the Policy and other legal instruments are summaries. For a complete
statement of the terms thereof reference is made to such instruments as
filed.
INFORMATION ABOUT WESTERN RESERVE'S FINANCIAL STATEMENTS
The financial statements of Western Reserve which are included in this
Prospectus (see p. 70) should be considered only as bearing on the ability of
Western Reserve to meet its obligations under the Policies. They should not
be considered as bearing on the investment performance of the assets held in
the Series Account.
Financial statements for Western Reserve for the years ended December 31,
1995, 1994 and 1993, have been prepared on the basis of statutory accounting
principles, rather than generally accepted accounting principles ("GAAP").
37
<PAGE>
APPENDIX A
ILLUSTRATION OF BENEFITS
The tables in Appendix A illustrate the way in which a Policy operates.
They show how the death benefit, Cash Value and Net Surrender Value of a
Policy issued to Joint Insureds of given ages and a given premium could vary
over an extended period of time assuming hypothetical gross rates of return
equivalent to constant after tax annual rates of 0%, 6% and 12%. The tables
illustrate the Policy values that would result based on the assumptions that
the premium is paid as indicated, that the Policyowner has not requested a
decrease in the Specified Amount of the Policy, that no cash withdrawals or
Policy loans have been made, and that less than twelve transfers per year
have been made.
The death benefits, Cash Values and Net Surrender Values under a Policy
would be different from those shown if the actual rate of return averages 0%,
6% or 12% over a period of years, but fluctuated above and below those
averages for individual Policy years. They would also differ if any Policy
loans were made during the period of time illustrated.
The illustration on p. 39 is based on a Policy for Joint Insureds who are
a 55 year old male and a 55 year old female, both in the Select rate class,
annual premiums of $4,000, a $250,000 Specified Amount and death benefit
Option A. The illustrations on that page also assume cost of insurance
charges based on Western Reserve's current cost of insurance rates.
The illustration on p. 40 is based on the same factors as those on p. 39,
except that cost of insurance charges are based on the guaranteed cost of
insurance rates (based on the 1980 Commissioners Standard Ordinary Mortality
Table). The illustration on page 41 depicts, in graphic format, the same
levels of cumulative net premiums, Net Surrender Values, and death benefits
payable during any Policy year, as are shown on page 40, and assumes a
hypothetical gross annual rate of return of 12%.
The amounts shown for the death benefits, Cash Values and Net Surrender
Values take into account (1) the daily charge for assuming mortality and
expense risks assessed against each Sub-Account which is equivalent to an
annual charge of 0.90% of the average net assets of the Sub-Accounts; (2)
estimated daily expenses equivalent to an effective average annual expense
level of 0.87% of the average daily net assets of the Portfolios of the Fund;
and (3) all applicable premium expense charges and Cash Value charges. The
0.87% expense level assumes an equal allocation of amounts among the thirteen
Sub-Accounts and is based on an average 0.71% investment advisory fee and
1995 average normal operating expenses of 0.16%. Calculation of the average
annual expense level utilized actual annual expenses incurred during 1995 as
adjusted for anticipated expense modifications incurring in 1996 for the
Money Market Sub-Account (0.46%), Bond Sub-Account (0.61%), Growth Sub-
Account (0.86%), Short-to-Intermediate Government Sub-Account (0.78%),
Equity-Income Sub-Account (0.87%), Global Sub-Account (0.99%), Emerging
Growth Sub-Account (0.91%), Aggressive Growth Sub-Account (0.92%), Balanced
Sub-Account (0.97%) and Utility Sub-Account (1.00%). Because C.A.S.E. Growth
Sub-Account and Tactical Asset Allocation Sub-Account were not in existence
during the full year of 1995 (commencement of operations was May 1, 1995 for
C.A.S.E. Growth Sub-Account and January 3, 1995 for Tactical Asset Allocation
Sub-Account); and the Value Equity Sub-Account had not commenced operations
as of December 31, 1995, the annual expense level utilized in the calculation
for each of these three Sub-Accounts is estimated to be 1.00% during 1996.
During 1995, Western Reserve had undertaken to pay Fund expenses for each
Portfolio to the extent normal operating expenses of a Portfolio exceeded a
stated percentage of the Portfolio's average daily net assets. Western
Reserve has undertaken until April 30, 1997 to pay expenses to the extent
normal operating expenses of a Portfolio exceed a stated percentage of the
Portfolio's average daily net assets. Taking into account the assumed charges
of 1.77%, the gross annual investment return rates of 0%, 6% and 12% are
equivalent to net annual investment return rates of -1.77%, 4.23%, and
10.23%.
The hypothetical returns shown in the tables are without any tax charges
that may be attributable to the Series Account because Western Reserve is not
currently making such charges. In order to produce after tax returns of 0%,
6% or 12% if such charges are made in the future, the Series Account would
have to earn a sufficient amount in excess of 0%, 6% or 12% to cover any tax
charges. (See Charges Against the Series Account - Taxes, p. 26.)
The "Premium Accumulated at 5%" column of each table shows the amount
which would accumulate if an amount equal to the premium were invested to
earn interest at 5% per year, compounded annually.
Western Reserve will furnish, upon request, a comparable illustration
reflecting each proposed Joint Insured's age, sex, risk classification and
desired plan features.
38
<PAGE>
WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO
MALE AND FEMALE BOTH ISSUE AGE 55
$4,000 ANNUAL PREMIUM FOR NON-SMOKER SELECT RATE CLASS
$250,000 SPECIFIED AMOUNT
OPTION A - FIXED DEATH BENEFIT
THIS ILLUSTRATION IS BASED ON CURRENT COST OF INSURANCE RATES.
<TABLE>
<CAPTION>
PREMIUMS NET
ACCUMULATED DEATH BENEFIT SURRENDER VALUE CASH VALUE
END OF AT 5% ASSUMING HYPOTHETICAL ASSUMING HYPOTHETICAL ASSUMING HYPOTHETICAL
POLICY INTEREST GROSS ANNUAL GROSS ANNUAL GROSS ANNUAL
YEAR PER YEAR RATE OF RETURN OF RATE OF RETURN OF RATE OF RETURN OF
- ---- -------- ------------------------------- ------------------------------ -----------------------------
0% 6% 12% 0% 6% 12% 0% 6% 12%
-------- -------- ---------- ------- -------- ---------- ------- -------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 4,200 250,000 250,000 250,000 1,194 1,413 1,632 3,504 3,723 3,942
2 8,610 250,000 250,000 250,000 4,267 4,925 5,609 6,918 7,576 8,260
3 13,241 250,000 250,000 250,000 7,422 8,740 10,167 10,241 11,559 12,985
4 18,103 250,000 250,000 250,000 10,480 12,685 15,169 13,467 15,672 18,155
5 23,208 250,000 250,000 250,000 13,436 16,760 20,655 16,591 19,915 23,809
6 28,568 250,000 250,000 250,000 16,291 20,967 26,673 19,614 24,290 29,996
7 34,196 250,000 250,000 250,000 19,038 25,306 33,273 22,528 28,797 36,764
8 40,106 250,000 250,000 250,000 21,668 29,773 40,507 25,327 33,432 44,166
9 46,312 250,000 250,000 250,000 24,169 34,360 48,429 27,996 38,187 52,256
10 52,827 250,000 250,000 250,000 26,528 39,060 57,102 30,523 43,055 61,097
15 90,630 250,000 250,000 250,000 42,665 71,156 121,968 42,665 71,156 121,968
20 138,877 250,000 250,000 250,000 52,375 104,825 221,812 52,375 104,825 221,812
25 200,454 250,000 250,000 405,382 57,923 144,786 386,078 57,923 144,786 386,078
30 279,043 250,000 250,000 684,086 55,458 192,473 651,510 55,458 192,473 651,510
35 379,345 250,000 266,607 1,131,742 38,916 253,912 1,077,850 38,916 253,912 1,077,850
40 507,359 * 335,100 1,784,891 * 331,782 1,767,218 * 331,782 1,767,218
45 670,741 * 429,932 2,901,981 * 429,932 2,901,981 * 429,932 2,901,981
</TABLE>
<TABLE>
<CAPTION>
INTERNAL RATE OF
INTERNAL RATE OF RETURN ON NET INTERNAL RATE OF
RETURN ON CASH SURRENDER VALUE RETURN ON
VALUE ASSUMING ASSUMING DEATH BENEFIT
HYPOTHETICAL HYPOTHETICAL ASSUMING HYPOTHETICAL
GROSS ANNUAL GROSS ANNUAL GROSS ANNUAL
END OF RATE OF RETURN OF RATE OF RETURN OF RATE OF RETURN OF
POLICY ----------------------- ----------------------- -------------------------------
YEAR 0% 6% 12% 0% 6% 12% 0% 6% 12%
- ---- ----- ---- ---- ----- ----- ----- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 -12.40 -6.92 -1.45 -70.15 -64.68 -59.20 6,150.00 6,150.00 6,150.00
2 -9.31 -3.58 2.15 -35.25 -28.29 -21.46 642.15 642.15 642.15
3 -7.72 -1.86 4.00 -22.17 -15.03 -8.06 258.47 258.47 258.47
4 -6.78 -0.83 5.12 -16.23 -9.07 -2.12 148.92 148.92 148.92
5 -6.17 -0.14 5.87 -12.98 -5.83 1.08 100.39 100.39 100.39
6 -5.74 0.34 6.41 -10.98 -3.85 3.02 73.77 73.77 73.77
7 -5.44 0.70 6.81 -9.66 -2.53 4.31 57.22 57.22 57.22
8 -5.22 0.97 7.13 -8.74 -1.61 5.22 46.06 46.06 46.06
9 -5.08 1.18 7.38 -8.10 -0.93 5.88 38.07 38.07 38.07
10 -4.98 1.33 7.58 -7.63 -0.43 6.38 32.11 32.11 32.11
15 -4.40 2.10 8.45 -4.40 2.10 8.45 16.46 16.46 16.46
20 -4.24 2.51 8.95 -4.24 2.51 8.95 9.93 9.93 9.93
25 -15.36 2.74 9.28 -15.36 2.74 9.28 6.48 6.48 9.59
30 * 2.89 9.47 * 2.89 9.47 * 4.39 9.72
35 * -21.45 9.58 * -21.45 9.58 * 3.33 9.78
40 * * 9.65 * * 9.65 * * 9.69
45 * * 9.73 * * 9.73 * * 9.73
</TABLE>
* IN THE ABSENCE OF AN ADDITIONAL PAYMENT, THE POLICY WOULD LAPSE.
THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE AND ELSEWHERE IN THIS
PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF
PAST OR FUTURE INVESTMENT RATES OF RETURN.
ACTUAL INVESTMENT RATES OF RETURN MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL
DEPEND ON A NUMBER OF FACTORS, INCLUDING THE INVESTMENT ALLOCATIONS BY AN OWNER
AND DIFFERENT INVESTMENT RATES OF RETURN FOR THE FUND. THE DEATH BENEFIT, CASH
VALUE AND NET SURRENDER VALUE FOR A POLICY WOULD BE DIFFERENT FROM THOSE SHOWN
IF THE ACTUAL INVESTMENT RATES OF RETURN AVERAGED 0%, 6%, AND 12% OVER A PERIOD
OF YEARS, BUT FLUCTUATED ABOVE OR BELOW THAT AVERAGE FOR INDIVIDUAL POLICY
YEARS. NO REPRESENTATION CAN BE MADE BY WESTERN RESERVE OR THE FUND THAT THESE
HYPOTHETICAL INVESTMENT RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR
SUSTAINED OVER ANY PERIOD OF TIME. THIS ILLUSTRATION MUST BE PRECEDED OR
ACCOMPANIED BY A CURRENT PROSPECTUS.
39
<PAGE>
WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO
MALE AND FEMALE BOTH ISSUE AGE 55
$4,000 ANNUAL PREMIUM FOR NON-SMOKER SELECT RATE CLASS
$250,000 SPECIFIED AMOUNT
OPTION A - FIXED DEATH BENEFIT
THIS ILLUSTRATION IS BASED ON GUARANTEED COST OF INSURANCE RATES.
<TABLE>
<CAPTION>
PREMIUMS NET
ACCUMULATED DEATH BENEFIT SURRENDER VALUE CASH VALUE
END OF AT 5% ASSUMING HYPOTHETICAL ASSUMING HYPOTHETICAL ASSUMING HYPOTHETICAL
POLICY INTEREST GROSS ANNUAL GROSS ANNUAL GROSS ANNUAL
YEAR PER YEAR RATE OF RETURN OF RATE OF RETURN OF RATE OF RETURN OF
- ---- -------- ------------------------------- ------------------------------ -----------------------------
0% 6% 12% 0% 6% 12% 0% 6% 12%
-------- -------- ---------- ------- -------- ---------- ------- -------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 4,200 250,000 250,000 250,000 1,194 1,413 1,632 3,504 3,723 3,942
2 8,610 250,000 250,000 250,000 4,267 4,925 5,609 6,918 7,576 8,260
3 13,241 250,000 250,000 250,000 7,422 8,740 10,167 10,241 11,559 12,985
4 18,103 250,000 250,000 250,000 10,480 12,685 15,169 13,467 15,672 18,155
5 23,208 250,000 250,000 250,000 13,436 16,760 20,655 16,591 19,915 23,809
6 28,568 250,000 250,000 250,000 16,285 20,961 26,667 19,607 24,283 29,990
7 34,196 250,000 250,000 250,000 19,016 25,284 33,251 22,507 28,775 36,742
8 40,106 250,000 250,000 250,000 21,619 29,722 40,455 25,278 33,381 44,114
9 46,312 250,000 250,000 250,000 24,077 34,264 48,329 27,904 38,091 52,156
10 52,827 250,000 250,000 250,000 26,370 38,893 56,929 30,365 42,888 60,924
15 90,630 250,000 250,000 250,000 40,671 69,106 120,021 40,671 69,106 120,021
20 138,877 250,000 250,000 250,000 41,881 94,483 214,350 41,881 94,483 214,350
25 200,454 250,000 250,000 389,948 21,777 111,657 371,379 21,777 111,657 371,379
30 279,043 * 250,000 650,256 * 105,248 619,292 * 105,248 619,292
35 379,345 * 250,000 1,049,048 * 15,972 999,093 * 15,972 999,093
40 507,359 * * 1,616,277 * * 1,600,275 * * 1,600,275
45 670,741 * * 2,630,293 * * 2,630,293 * * 2,630,293
</TABLE>
<TABLE>
<CAPTION>
INTERNAL RATE OF
INTERNAL RATE OF RETURN ON NET INTERNAL RATE OF
RETURN ON CASH SURRENDER VALUE RETURN ON
VALUE ASSUMING ASSUMING DEATH BENEFIT
HYPOTHETICAL HYPOTHETICAL ASSUMING HYPOTHETICAL
GROSS ANNUAL GROSS ANNUAL GROSS ANNUAL
END OF RATE OF RETURN OF RATE OF RETURN OF RATE OF RETURN OF
POLICY ----------------------- ----------------------- -------------------------------
YEAR 0% 6% 12% 0% 6% 12% 0% 6% 12%
- ---- ----- ---- ---- ----- ----- ----- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 -12.40 -6.92 -1.45 -70.15 -64.68 -59.20 6,150.00 6,150.00 6,150.00
2 -9.31 -3.58 2.15 -35.25 -28.29 -21.46 642.15 642.15 642.15
3 -7.72 -1.86 4.00 -22.17 -15.03 -8.06 258.47 258.47 258.47
4 -6.78 -0.83 5.12 -16.23 -9.07 -2.12 148.92 148.92 148.92
5 -6.17 -0.14 5.87 -12.98 -5.83 1.08 100.39 100.39 100.39
6 -5.75 0.34 6.40 -10.99 -3.86 3.02 73.77 73.77 73.77
7 -5.46 0.68 6.80 -9.69 -2.55 4.30 57.22 57.22 57.22
8 -5.27 0.94 7.10 -8.80 -1.64 5.19 46.06 46.06 46.06
9 -5.14 1.13 7.34 -8.17 -0.99 5.84 38.07 38.07 38.07
10 -5.08 1.26 7.53 -7.74 -0.51 6.33 32.11 32.11 32.11
15 -5.04 1.75 8.26 -5.04 1.75 8.26 16.46 16.46 16.46
20 -6.67 1.56 8.67 -6.67 1.56 8.67 9.93 9.93 9.93
25 -15.36 0.84 9.04 -15.36 0.84 9.04 6.48 6.48 9.34
30 * -0.86 9.21 * -0.86 9.21 * 4.39 9.46
35 * -21.45 9.26 * -21.45 9.26 * 3.02 9.46
40 * * 9.30 * * 9.30 * * 9.33
45 * * 9.43 * * 9.43 * * 9.43
</TABLE>
* IN THE ABSENCE OF AN ADDITIONAL PAYMENT, THE POLICY WOULD LAPSE.
THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE AND ELSEWHERE IN THIS
PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF
PAST OR FUTURE INVESTMENT RATES OF RETURN.
ACTUAL INVESTMENT RATES OF RETURN MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL
DEPEND ON A NUMBER OF FACTORS, INCLUDING THE INVESTMENT ALLOCATIONS BY AN OWNER
AND DIFFERENT INVESTMENT RATES OF RETURN FOR THE FUND. THE DEATH BENEFIT, CASH
VALUE AND NET SURRENDER VALUE FOR A POLICY WOULD BE DIFFERENT FROM THOSE SHOWN
IF THE ACTUAL INVESTMENT RATES OF RETURN AVERAGED 0%, 6%, AND 12% OVER A PERIOD
OF YEARS, BUT FLUCTUATED ABOVE OR BELOW THAT AVERAGE FOR INDIVIDUAL POLICY
YEARS. NO REPRESENTATION CAN BE MADE BY WESTERN RESERVE OR THE FUND THAT THESE
HYPOTHETICAL INVESTMENT RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR
SUSTAINED OVER ANY PERIOD OF TIME. THIS ILLUSTRATION MUST BE PRECEDED OR
ACCOMPANIED BY A CURRENT PROSPECTUS.
40
<PAGE>
WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO
MALE AND FEMALE BOTH ISSUE AGE 55
$4,000 ANNUAL PREMIUM FOR NON-SMOKER SELECT
$250,000 SPECIFIED AMOUNT
OPTION A - FIXED DEATH BENEFIT
CURRENT COST OF INSURANCE RATES
[CHART]
41
<PAGE>
APPENDIX B
LONG TERM MARKET TRENDS
The information below is a record of the average annual returns of common
stock, high grade corporate bonds and 30-day U.S. Treasury bills over 20 year
holding periods.* The average annual returns assume the reinvestment of
dividends, capital gains and interest. This is a historical record and is not
intended as a projection of future performance. Charges associated with a
variable life insurance policy are not reflected.
The data indicates that, historically, the investment performance of
common stocks over long periods of time has been positive and has generally
been superior to that of long-term, high grade debt securities. Common
stocks have, however, been subject to more dramatic market adjustments over
short periods of time. These trends indicate the potential advantages of
holding a variable life insurance policy for a long period of time.
The following chart illustrates the average annual returns of the Standard
& Poor's Index of 500 Common Stocks ("S&P 500 Stock Index") for each of the
20 year periods shown. These returns are compared to the average annual
returns of high grade corporate bonds and U.S. Treasury bills for the same
periods. (The 20-year periods selected for the chart begin in 1935 and have
ending periods at five year intervals.)
AVERAGE ANNUAL RETURNS
TWENTY YEAR HOLDING PERIODS
[CHART]
* Source: (c) Stocks, Bonds, Bills and Inflation 1996 Yearbook, Ibbotson
Associates, Chicago (annually updates work by Roger G. Ibbotson and Rex A.
Sinquefield). Used with permission. All rights reserved.
42
<PAGE>
Over the 51 20-year time periods beginning in 1926 and ending in 1995
(i.e. 1926-1945, 1927-1946, and so on through 1976-1995):
-- The average annual return of common stocks was superior to that of high
grade, long-term corporate bonds in 47 of the 51 periods.
-- The average annual return of common stocks surpassed that of U.S.
Treasury bills in each of the 50 periods.
-- Common stock average annual returns exceeded the average annual rate of
inflation in each of the 50 periods.
From 1926 through 1995 the average annual return for common stocks was
10.2%, compared to 5.4% for high grade, long-term corporate bonds, 3.7% for
U.S. Treasury bills and 3.1% for the Consumer Price Index.
SUMMARY: HISTORIC S&P STOCK INDEX RESULTS FOR SPECIFIC HOLDING PERIODS
The following chart categorizes the historical results of the Standard &
Poor's 500 Stock Index, with dividends reinvested, over one-year, five-year,
ten-year and twenty-year periods beginning in 1926 and ending 1995.
The chart shows that, historically, the longer that a portfolio matching
the S&P 500 Stock Index was held, the less likely was the chance of a loss.
Conversely, the shorter the holding period of such a portfolio, the more
likely was the chance of a loss. The chart also shows that shorter term
results tend to be more extreme than longer term results.
The chart is not a projection or representation of future stock market
results. It cannot be taken as representative of the performance of any one
fund. Rather it shows the historic performance of a broad index of stocks.
<TABLE>
<CAPTION>
PERCENT OF HOLDINGS PERIOD WITH THE FOLLOWING RESULTS:
GREATER
THAN
HOLDING NEGATIVE 0-5.00% 5.01-10.00% 10.01-15.00% 15.01-20.00% 20.00%
PERIOD RETURN RETURN RETURN RETURN RETURN RETURN
- ----------- ----------- ---------- -------------- --------------- --------------- ----------
<S> <C> <C> <C> <C> <C>
1 year 29.0% 4.3% 11.6% 7.2% 11.6% 36.2%
5 years 10.8% 15.4% 20.2% 27.7% 16.9% 9.2%
10 years 3.3% 11.7% 36.7% 21.7% 25.0% 1.7%
20 years 0.0% 6.0% 34.0% 54.0% 6.0% 0.0%
</TABLE>
- -----------------------------------------------------------------------------
Source: (c) Stocks, Bonds, Bills and Inflation 1996 Yearbook(TM), Ibbotson
Associates, Inc., Chicago (annually updates work by Roger G. Ibbotson and Rex
A. Sinquefield). Used with permission. All rights reserved.
THE WRL FREEDOM WEALTH PROTECTOR(R)
AND THE "DOLLAR COST AVERAGING" INVESTMENT METHOD
As the Long Term Market Trends graph indicates, the investment performance
of many common stocks has generally been positive over certain relatively
long periods. Common stocks have, however, also been subject to market
declines, often dramatic ones, and general volatility of prices over shorter
time periods. The price fluctuations of common stocks has historically been
greater than that of high grade debt securities.
The relative volatility of common stock prices as compared with prices of
high grade debt instruments offers both advantages and disadvantages to
investors. Unfortunately, many investors who otherwise might be interested in
common stocks see only the disadvantages and not the advantages of stock
price fluctuation. The primary disadvantage, of course, is that price
declines can be prolonged and substantial, and when this occurs, investors
cannot liquidate their investments without realizing losses. Price declines,
however, also offer investors important opportunities.
Opportunity arises from the fact that investors can purchase more common
stock for the same amount of money than they would before prices declined.
Investors may take advantage of this if they remain willing to continue
investing in both rising and falling markets. The dollar cost averaging
method of investing demonstrates this.
In this method of investing:
Relatively constant dollar amounts are invested at regular intervals
(monthly, quarterly, or annually),
Stock Market fluctuations, especially the savings on purchases from price
declines, are exploited for the investor's benefit.
HOW DOLLAR COST AVERAGING WORKS
43
<PAGE>
INVESTMENTS AT COMMON STOCK SHARES
REGULAR INTERVALS MARKET PRICE PURCHASED
- ------------------ --------------- ------------
$150 $20 7.5
150 15 10.0
150 10 15.0
150 5 30.0
150 10 15.0
150 15 10.0
- ------------------ ------------
$900 87.5
43
<PAGE>
Total Value of 87.5 shares @ $15/share $1,312.50
Less Investment made (900.00)
---------
Gain/Profit $ 412.50
Though the market price has not returned to the initial high of $20 per
share, dollar cost averaging has permitted the investor to purchase more
shares at a savings and thus realize a significant gain. Obviously, the
dollar cost averaging method only works if the investor continues to invest
relatively constant amounts over a long period of time.
This plan of investing does not assure a profit or protect against a loss
in declining markets; it does allow investors to take advantage of market
fluctuations. Since the success of this strategy is dependent on systematic
investing, purchasers should consider their ability to sustain their payments
through all periods of market fluctuations.
How does the dollar cost averaging method relate to the WRL Freedom Wealth
Protector(R). A Policyowner may invest his or her Net Premium in a Sub-Account,
and although a Policy's value in a Sub-Account or Sub-Accounts is affected by
several factors other than investment experience (e.g., Cash Value charges
and charges against the Series Account), the dollar cost averaging method can
be generally applied to the Policy to the extent that the Policyowner pays a
Planned Periodic Premium on a regular basis and he or she allocates Net
Premium resulting from those Planned Periodic Premiums to the Sub-Accounts in
relatively constant amounts.
INDEX TO FINANCIAL STATEMENTS
WRL Series Life Account:
Report of Independent Accountants dated January 31, 1996
Statements of assets, liabilities and equity accounts at December 31, 1995
Statements of operations for the year ended December 31, 1995 and
statements of changes in equity accounts for the years ended December 31,
1995 and 1994
Notes to Financial Statements
Western Reserve Life Assurance Co. of Ohio:
Report of Independent Auditors dated , 1996
Statutory-basis Balance sheet at December 31, 1995 and 1994
Statutory-basis Statements of operations for the years ended December 31,
1995, 1994 and 1993
Statutory-basis Statements of capital and surplus for the years ended
December 31, 1995, 1994 and 1993
Statutory-basis Statements of cash flows for the years ended December 31,
1995, 1994 and 1993
Notes to Statutory-basis Financial Statements
Statutory-basis Financial Statement Schedules
WRL00053-05/96
44
<PAGE>
<PAGE> 1
WRL SERIES LIFE ACCOUNT
- --------------------------------------------------------------------------------
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors of Western Reserve Life Assurance Co. of Ohio
and Policyholders of the WRL Series Life Account
In our opinion, the accompanying statements of assets, liabilities and
equity accounts and the related statements of operations and of changes in
equity accounts and the selected per unit data and ratios present fairly, in all
material respects, the financial position of the Money Market, Bond, Growth,
Short-to-Intermediate Government, Global, Equity-Income, Emerging Growth,
Aggressive Growth, Balanced, Utility and Tactical Asset Allocation Sub-Accounts
of the WRL Series Life Account (a separate account of Western Reserve Life
Assurance Co. of Ohio, hereafter referred to as the "Life Account") at December
31, 1995, the results of each of their operations, the changes in each of their
equity accounts and the selected per unit data and ratios for each of the
periods indicated, in conformity with generally accepted accounting principles.
These financial statements and selected per unit data and ratios (hereafter
referred to as "financial statements") are the responsibility of the Life
Account's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
financial statements in accordance with generally accepted auditing standards
which require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for the opinion expressed above.
PRICE WATERHOUSE LLP
Kansas City, Missouri
January 31, 1996
- --------------------------------------------------------------------------------
1
<PAGE> 2
WRL SERIES LIFE ACCOUNT
MONEY MARKET SUB-ACCOUNT
- --------------------------------------------------------------------------------
STATEMENT OF ASSETS, LIABILITIES AND EQUITY ACCOUNTS
<TABLE>
<CAPTION>
ASSETS: DECEMBER 31, 1995
<S> <C>
Investments, at net asset value:
WRL Series Fund, Inc.:
Money Market Portfolio
(10,819,939.810 shares;
cost $ 10,819,940)..................... $ 10,819,940
Accrued transfers from (to)
depositor - net.......................... (61,316)
-----------------
Total assets........................... 10,758,624
-----------------
LIABILITIES:................................. 0
-----------------
Total net assets....................... $ 10,758,624
===================
EQUITY ACCOUNTS:
Policy Owners' equity:
Money Market sub-account
(725,394.862557 units;
$ 14.831403 unit value)................ $ 10,758,624
-----------------
Total equity........................... $ 10,758,624
===================
</TABLE>
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED
INVESTMENT INCOME: DECEMBER 31, 1995
<S> <C>
Dividend income.......................... $ 478,782
Capital gain distributions............... 0
-----------------
478,782
EXPENSES:
Mortality and expense risk charges....... 81,372
-----------------
Net investment income (loss)........... 397,410
-----------------
Net realized and unrealized gain (loss) on
investments:
Net realized gain (loss) from securities
transactions........................... 0
Change in unrealized appreciation
(depreciation)......................... 0
-----------------
Net gain (loss) on investments......... 0
-----------------
Net increase (decrease) in equity
accounts resulting from
operations......................... $ 397,410
===================
</TABLE>
STATEMENT OF CHANGES IN EQUITY ACCOUNTS
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, 1995 DECEMBER 31, 1994
<S> <C> <C>
OPERATIONS:
Net investment income (loss)........................................................... $ 397,410 $ 185,968
Net gain (loss) on investments......................................................... 0 0
---------------- -----------------
Net increase (decrease) in equity accounts
resulting from operations............................................................ 397,410 185,968
---------------- -----------------
EQUITY TRANSACTIONS:
Proceeds from units sold (redeemed).................................................... 3,139,280 6,263,945
---------------- -----------------
Less cost of units redeemed:
Administrative charges............................................................... 1,356,484 1,261,165
Policy loans......................................................................... 219,767 57,873
Surrender benefits................................................................... 899,893 409,880
Death benefits....................................................................... 7,670 562
---------------- -----------------
2,483,814 1,729,480
---------------- -----------------
Increase (decrease) in equity accounts from
capital unit transactions.......................................................... 655,466 4,534,465
---------------- -----------------
Net increase (decrease) in equity accounts........................................... 1,052,876 4,720,433
EQUITY ACCOUNTS:
Beginning of period.................................................................... 9,705,748 4,985,315
---------------- -----------------
End of period.......................................................................... $ 10,758,624 $ 9,705,748
================== ===================
</TABLE>
The notes to the financial statements are an integral part of this report.
- --------------------------------------------------------------------------------
2
<PAGE> 3
WRL SERIES LIFE ACCOUNT
MONEY MARKET SUB-ACCOUNT
- --------------------------------------------------------------------------------
SELECTED PER UNIT DATA AND RATIOS*
FOR THE PERIOD ENDED
<TABLE>
<CAPTION>
DECEMBER 31
------------------------------------------------------------------------
1995 1994 1993 1992 1991
-------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Accumulation unit value, beginning of period.... $ 14.19 $ 13.84 $ 13.63 $ 13.33 $ 12.78
Income from operations:
Net investment income (loss)................ .64 .35 .21 .30 .55
Net realized and unrealized
gain (loss) on investments................ .00 .00 .00 .00 .00
-------- ------- ------- ------- -------
Total income (loss) from operations....... .64 .35 .21 .30 .55
-------- ------- ------- ------- -------
Accumulation unit value, end of period.......... $ 14.83 $ 14.19 $ 13.84 $ 13.63 $ 13.33
======== ======== ======== ======== ========
Total return.................................... 4.49% 2.58% 1.52% 2.24% 4.34%
Ratios and supplemental data:
Net assets at end of period (in thousands).... $ 10,759 $ 9,706 $ 4,985 $ 4,619 $ 4,042
Ratio of net investment income (loss)
to average net assets....................... 4.37% 2.66% 1.51% 2.12% 4.28%
</TABLE>
* The above table illustrates the change for a unit outstanding computed using
average units outstanding throughout each period.
The notes to the financial statements are an integral part of this report.
- --------------------------------------------------------------------------------
3
<PAGE> 4
WRL SERIES LIFE ACCOUNT
BOND SUB-ACCOUNT
- --------------------------------------------------------------------------------
STATEMENT OF ASSETS, LIABILITIES AND EQUITY ACCOUNTS
<TABLE>
<CAPTION>
ASSETS: DECEMBER 31, 1995
<S> <C>
Investments, at net asset value:
WRL Series Fund, Inc.:
Bond Portfolio
(886,633.291 shares;
cost $ 9,906,273)...................... $ 10,059,038
Accrued transfers from (to)
depositor - net.......................... 7,094
-----------------
Total assets........................... 10,066,132
-----------------
LIABILITIES:................................. 0
-----------------
Total net assets....................... $ 10,066,132
===================
EQUITY ACCOUNTS:
Policy Owners' equity:
Bond sub-account
(511,648.226174 units;
$ 19.673931 unit value)................ $ 10,066,132
-----------------
Total equity........................... $ 10,066,132
===================
</TABLE>
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED
INVESTMENT INCOME: DECEMBER 31, 1995
<S> <C>
Dividend income.......................... $ 531,010
Capital gain distributions............... 0
-----------------
531,010
EXPENSES:
Mortality and expense risk charges....... 71,033
-----------------
Net investment income (loss)........... 459,977
-----------------
Net realized and unrealized gain (loss) on
investments:
Net realized gain (loss) from securities
transactions........................... (127,916)
Change in unrealized appreciation
(depreciation)......................... 1,208,073
-----------------
Net gain (loss) on investments......... 1,080,157
-----------------
Net increase (decrease) in equity
accounts resulting from
operations......................... $ 1,540,134
===================
</TABLE>
STATEMENT OF CHANGES IN EQUITY ACCOUNTS
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, 1995 DECEMBER 31, 1994
<S> <C> <C>
OPERATIONS:
Net investment income (loss).......................................................... $ 459,977 $ 346,531
Net gain (loss) on investments........................................................ 1,080,157 (901,953)
----------------- -----------------
Net increase (decrease) in equity accounts
resulting from operations........................................................... 1,540,134 (555,422)
----------------- -----------------
EQUITY TRANSACTIONS:
Proceeds from units sold (redeemed)................................................... 3,749,029 678,317
----------------- -----------------
Less cost of units redeemed:
Administrative charges.............................................................. 916,494 595,277
Policy loans........................................................................ 197,829 57,084
Surrender benefits.................................................................. 357,384 194,018
Death benefits...................................................................... 10,202 2,326
----------------- -----------------
1,481,909 848,705
----------------- -----------------
Increase (decrease) in equity accounts from
capital unit transactions......................................................... 2,267,120 (170,388)
----------------- -----------------
Net increase (decrease) in equity accounts.......................................... 3,807,254 (725,810)
EQUITY ACCOUNTS:
Beginning of period................................................................... 6,258,878 6,984,688
----------------- -----------------
End of period......................................................................... $ 10,066,132 $ 6,258,878
=================== ===================
</TABLE>
The notes to the financial statements are an integral part of this report.
- --------------------------------------------------------------------------------
4
<PAGE> 5
WRL SERIES LIFE ACCOUNT
BOND SUB-ACCOUNT
- --------------------------------------------------------------------------------
SELECTED PER UNIT DATA AND RATIOS*
FOR THE PERIOD ENDED
<TABLE>
<CAPTION>
DECEMBER 31
------------------------------------------------------------------------
1995 1994 1993 1992 1991
-------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Accumulation unit value, beginning of period.... $ 16.14 $ 17.50 $ 15.57 $ 14.68 $ 12.48
Income from operations:
Net investment income (loss)................ 1.05 .89 2.11 1.00 .48
Net realized and unrealized
gain (loss) on investments................ 2.48 (2.25) (.18) (.11) 1.72
-------- ------- ------- ------- -------
Total income (loss) from operations....... 3.53 (1.36) 1.93 .89 2.20
-------- ------- ------- ------- -------
Accumulation unit value, end of period.......... $ 19.67 $ 16.14 $ 17.50 $ 15.57 $ 14.68
========= ======== ======== ======== ========
Total return.................................... 21.89% (7.77)% 12.40% 6.08% 17.63%
Ratios and supplemental data:
Net assets at end of period (in thousands).... $ 10,066 $ 6,259 $ 6,985 $ 4,558 $ 3,055
Ratio of net investment income (loss)
to average net assets....................... 5.80% 5.57% 12.92% 6.69% 3.59%
</TABLE>
* The above table illustrates the change for a unit outstanding computed using
average units outstanding throughout each period.
The notes to the financial statements are an integral part of this report.
- --------------------------------------------------------------------------------
5
<PAGE> 6
WRL SERIES LIFE ACCOUNT
GROWTH SUB-ACCOUNT
- --------------------------------------------------------------------------------
STATEMENT OF ASSETS, LIABILITIES AND EQUITY ACCOUNTS
<TABLE>
<CAPTION>
ASSETS: DECEMBER 31, 1995
<S> <C>
Investments, at net asset value:
WRL Series Fund, Inc.:
Growth Portfolio
(8,285,195.096 shares;
cost $ 202,613,364).................. $ 262,315,405
Accrued transfers from (to)
depositor - net........................ 151,700
-----------------
Total assets......................... 262,467,105
-----------------
LIABILITIES:............................... 0
-----------------
Total net assets..................... $ 262,467,105
=====================
EQUITY ACCOUNTS:
Policy Owners' equity:
Growth sub-account
(6,329,021.828348 units;
$ 41.470406 unit value).............. $ 262,467,105
-----------------
Total equity......................... $ 262,467,105
=====================
</TABLE>
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
INVESTMENT INCOME: 1995
<S> <C>
Dividend income......................... $ 1,182,462
Capital gain distributions.............. 23,952,283
----------------
25,134,745
EXPENSES:
Mortality and expense risk charges...... 1,884,365
----------------
Net investment income (loss).......... 23,250,380
----------------
Net realized and unrealized gain (loss) on
investments:
Net realized gain (loss) from securities
transactions.......................... 5,296,297
Change in unrealized appreciation
(depreciation)........................ 49,505,485
----------------
Net gain (loss) on investments........ 54,801,782
----------------
Net increase (decrease) in equity
accounts resulting from
operations........................ $ 78,052,162
====================
</TABLE>
STATEMENT OF CHANGES IN EQUITY ACCOUNTS
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, YEAR ENDED
1995 DECEMBER 31, 1994
<S> <C> <C>
OPERATIONS:
Net investment income (loss)........................................................... $ 23,250,380 $ 242,685
Net gain (loss) on investments......................................................... 54,801,782 (16,096,859)
---------------- -----------------
Net increase (decrease) in equity accounts
resulting from operations............................................................ 78,052,162 (15,854,174)
---------------- -----------------
EQUITY TRANSACTIONS:
Proceeds from units sold (redeemed).................................................... 61,850,933 37,295,869
---------------- -----------------
Less cost of units redeemed:
Administrative charges............................................................... 23,714,204 20,971,223
Policy loans......................................................................... 5,518,596 2,955,838
Surrender benefits................................................................... 8,982,170 5,498,322
Death benefits....................................................................... 711,078 282,972
---------------- -----------------
38,926,048 29,708,355
---------------- -----------------
Increase (decrease) in equity accounts from
capital unit transactions.......................................................... 22,924,885 7,587,514
---------------- -----------------
Net increase (decrease) in equity accounts........................................... 100,977,047 (8,266,660)
EQUITY ACCOUNTS:
Beginning of period.................................................................... 161,490,058 169,756,718
---------------- -----------------
End of period.......................................................................... $ 262,467,105 $ 161,490,058
================== ===================
</TABLE>
The notes to the financial statements are an integral part of this report.
- --------------------------------------------------------------------------------
6
<PAGE> 7
WRL SERIES LIFE ACCOUNT
GROWTH SUB-ACCOUNT
- --------------------------------------------------------------------------------
SELECTED PER UNIT DATA AND RATIOS*
FOR THE PERIOD ENDED
<TABLE>
<CAPTION>
DECEMBER 31
---------------------------------------------------------------
1995 1994 1993 1992
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Accumulation unit value, beginning of period.... $ 28.44 $ 31.30 $ 30.37 $ 29.95
Income from operations:
Net investment income (loss)................ 3.89 .04 .46 1.09
Net realized and unrealized
gain (loss) on investments................ 9.14 (2.90) .47 (.67)
--------- --------- --------- ---------
Total income (loss) from operations....... 13.03 (2.86) .93 .42
--------- --------- --------- ---------
Accumulation unit value, end of period.......... $ 41.47 $ 28.44 $ 31.30 $ 30.37
========== ========== ========== ==========
Total return.................................... 45.81% (9.13)% 3.06% 1.41%
Ratios and supplemental data:
Net assets at end of period (in thousands).... $ 262,467 $ 161,490 $ 169,757 $ 146,053
Ratio of net investment income (loss)
to average net assets....................... 11.05% .16% 1.56% 3.84%
<CAPTION>
1991
---------
<S> <C>
Accumulation unit value, beginning of period.... $ 18.91
Income from operations:
Net investment income (loss)................ 1.72
Net realized and unrealized
gain (loss) on investments................ 9.32
---------
Total income (loss) from operations....... 11.04
---------
Accumulation unit value, end of period.......... $ 29.95
==========
Total return.................................... 58.37%
Ratios and supplemental data:
Net assets at end of period (in thousands).... $ 111,375
Ratio of net investment income (loss)
to average net assets....................... 7.14%
</TABLE>
* The above table illustrates the change for a unit outstanding computed using
average units outstanding throughout each period.
The notes to the financial statements are an integral part of this report.
- --------------------------------------------------------------------------------
7
<PAGE> 8
WRL SERIES LIFE ACCOUNT
SHORT-TO-INTERMEDIATE GOVERNMENT SUB-ACCOUNT
- --------------------------------------------------------------------------------
STATEMENT OF ASSETS, LIABILITIES AND EQUITY ACCOUNTS
<TABLE>
<CAPTION>
ASSETS: DECEMBER 31, 1995
<S> <C>
Investments, at net asset value:
WRL Series Fund, Inc.:
Short-to-Intermediate Government
Portfolio
(142,006.075 shares;
cost $ 1,440,621)...................... $ 1,479,151
Accrued transfers from (to)
depositor - net.......................... 38,834
-----------------
Total assets........................... 1,517,985
-----------------
LIABILITIES:................................. 0
-----------------
Total net assets....................... $ 1,517,985
===================
EQUITY ACCOUNTS:
Policy Owners' equity:
Short-to-Intermediate Government
sub-account
(131,385.750734 units;
$ 11.553647 unit value)................ $ 1,517,985
-----------------
Total equity........................... $ 1,517,985
===================
</TABLE>
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED
INVESTMENT INCOME: DECEMBER 31, 1995
<S> <C>
Dividend income.......................... $ 72,133
Capital gain distributions............... 0
-----------------
72,133
EXPENSES:
Mortality and expense risk charges....... 10,047
-----------------
Net investment income (loss)........... 62,086
-----------------
Net realized and unrealized gain (loss) on
investments:
Net realized gain (loss) from securities
transactions........................... 2,109
Change in unrealized appreciation
(depreciation)......................... 66,278
-----------------
Net gain (loss) on investments......... 68,387
-----------------
Net increase (decrease) in equity
accounts resulting from
operations......................... $ 130,473
===================
</TABLE>
STATEMENT OF CHANGES IN EQUITY ACCOUNTS
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, 1995 DECEMBER 31, 1994
<S> <C> <C>
OPERATIONS:
Net investment income (loss).......................................................... $ 62,086 $ 37,124
Net gain (loss) on investments........................................................ 68,387 (49,327)
----------------- -----------------
Net increase (decrease) in equity accounts
resulting from operations........................................................... 130,473 (12,203)
----------------- -----------------
EQUITY TRANSACTIONS:
Proceeds from units sold (redeemed)................................................... 679,242 515,009
----------------- -----------------
Less cost of units redeemed:
Administrative charges.............................................................. 141,954 108,685
Policy loans........................................................................ 52,521 3,307
Surrender benefits.................................................................. 41,967 11,985
Death benefits...................................................................... 144 15,256
----------------- -----------------
236,586 139,233
----------------- -----------------
Increase (decrease) in equity accounts from
capital unit transactions......................................................... 442,656 375,776
----------------- -----------------
Net increase (decrease) in equity accounts.......................................... 573,129 363,573
Depositor's equity contribution (redemption).......................................... 0 (826,666)
EQUITY ACCOUNTS:
Beginning of period................................................................... 944,856 1,407,949
----------------- -----------------
End of period......................................................................... $ 1,517,985 $ 944,856
=================== ===================
</TABLE>
The notes to the financial statements are an integral part of this report.
- --------------------------------------------------------------------------------
8
<PAGE> 9
WRL SERIES LIFE ACCOUNT
SHORT-TO-INTERMEDIATE GOVERNMENT SUB-ACCOUNT
- --------------------------------------------------------------------------------
SELECTED PER UNIT DATA AND RATIOS*
FOR THE PERIOD ENDED
<TABLE>
<CAPTION>
DECEMBER 31
-------------------------------------------------------
1995 1994 1993 1992+
------- ------- ------- -------
<S> <C> <C> <C> <C>
Accumulation unit value, beginning of period.... $ 10.27 $ 10.40 $ 10.04 $ 10.00
Income from operations:
Net investment income (loss)................ .61 .40 .14 .01
Net realized and unrealized
gain (loss) on investments................ .67 (.53) .22 .03
------- ------- ------- -------
Total income (loss) from operations....... 1.28 (.13) .36 .04
------- ------- ------- -------
Accumulation unit value, end of period.......... $ 11.55 $ 10.27 $ 10.40 $ 10.04
======== ======== ======== ========
Total return.................................... 12.53% (1.32)% 3.64% .38%
Ratios and supplemental data:
Net assets at end of period (in thousands).... $ 1,518 $ 945 $ 1,408 $ 803
Ratio of net investment income (loss)
to average net assets....................... 5.53% 4.06% 1.39% .16%
</TABLE>
* The above table illustrates the change for a unit outstanding computed using
average units outstanding throughout each period.
+ The inception date of this sub-account was December 3, 1992. The total return
and ratio of net investment income to average net assets are not annualized.
The notes to the financial statements are an integral part of this report.
- --------------------------------------------------------------------------------
9
<PAGE> 10
WRL SERIES LIFE ACCOUNT
GLOBAL SUB-ACCOUNT
- --------------------------------------------------------------------------------
STATEMENT OF ASSETS, LIABILITIES AND EQUITY ACCOUNTS
<TABLE>
<CAPTION>
ASSETS: DECEMBER 31, 1995
<S> <C>
Investments, at net asset value:
WRL Series Fund, Inc.:
Global Portfolio
(2,386,494.041 shares;
cost $ 33,426,846)..................... $ 37,028,035
Accrued transfers from (to)
depositor - net.......................... 20,662
-----------------
Total assets........................... 37,048,697
-----------------
LIABILITIES:................................. 0
-----------------
Total net assets....................... $ 37,048,697
===================
EQUITY ACCOUNTS:
Policy Owners' equity:
Global sub-account
(3,080,374.719544 units;
$ 11.949748 unit value)................ $ 36,809,702
Depositors' equity:
Global sub-account
(20,000.000000 units;
$ 11.949748 unit value)................ 238,995
-----------------
Total equity........................... $ 37,048,697
===================
</TABLE>
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED
INVESTMENT INCOME: DECEMBER 31, 1995
<S> <C>
Dividend income.......................... $ 37,966
Capital gain distributions............... 1,399,851
-----------------
1,437,817
EXPENSES:
Mortality and expense risk charges....... 250,072
-----------------
Net investment income (loss)........... 1,187,745
-----------------
Net realized and unrealized gain (loss) on
investments:
Net realized gain (loss) from securities
transactions........................... 153,618
Change in unrealized appreciation
(depreciation)......................... 4,472,385
-----------------
Net gain (loss) on investments......... 4,626,003
-----------------
Net increase (decrease) in equity
accounts resulting from
operations......................... $ 5,813,748
===================
</TABLE>
STATEMENT OF CHANGES IN EQUITY ACCOUNTS
<TABLE>
<CAPTION>
YEAR ENDED PERIOD ENDED
DECEMBER 31, 1995 DECEMBER 31, 1994*
<S> <C> <C>
OPERATIONS:
Net investment income (loss).......................................................... $ 1,187,745 $ 763,643
Net gain (loss) on investments........................................................ 4,626,003 (875,349)
----------------- -----------------
Net increase (decrease) in equity accounts
resulting from operations........................................................... 5,813,748 (111,706)
----------------- -----------------
EQUITY TRANSACTIONS:
Proceeds from units sold (redeemed)................................................... 15,012,786 23,149,750
----------------- -----------------
Less cost of units redeemed:
Administrative charges.............................................................. 4,017,781 1,181,608
Policy loans........................................................................ 666,264 142,084
Surrender benefits.................................................................. 721,584 234,323
Death benefits...................................................................... 44,234 8,003
----------------- -----------------
5,449,863 1,566,018
----------------- -----------------
Increase (decrease) in equity accounts from
capital unit transactions......................................................... 9,562,923 21,583,732
----------------- -----------------
Net increase (decrease) in equity accounts.......................................... 15,376,671 21,472,026
Depositor's equity contribution (redemption).......................................... 0 200,000
EQUITY ACCOUNTS:
Beginning of period................................................................... 21,672,026 0
----------------- -----------------
End of period......................................................................... $ 37,048,697 $ 21,672,026
=================== ===================
</TABLE>
* The inception date of this sub-account was March 1, 1994.
The notes to the financial statements are an integral part of this report.
- --------------------------------------------------------------------------------
10
<PAGE> 11
WRL SERIES LIFE ACCOUNT
GLOBAL SUB-ACCOUNT
- --------------------------------------------------------------------------------
SELECTED PER UNIT DATA AND RATIOS*
FOR THE PERIOD ENDED
<TABLE>
<CAPTION>
DECEMBER 31
----------------------------
1995 1994+
-------- -----------
<S> <C> <C>
Accumulation unit value, beginning of period.... $ 9.80 $ 10.00
Income from operations:
Net investment income (loss)................ .45 .71
Net realized and unrealized
gain (loss) on investments................ 1.70 (.91)
-------- -----------
Total income (loss) from operations....... 2.15 (.20)
-------- -----------
Accumulation unit value, end of period.......... $ 11.95 $ 9.80
========= =============
Total return.................................... 21.96% (2.02)%
Ratios and supplemental data:
Net assets at end of period (in thousands).... $ 37,049 $ 21,672
Ratio of net investment income (loss)
to average net assets....................... 4.25% 7.39%
</TABLE>
* The above table illustrates the change for a unit outstanding computed using
average units outstanding throughout each period.
+ The inception date of this sub-account was March 1, 1994. The total return
and ratio of net investment income to average net assets are not annualized.
The notes to the financial statements are an integral part of this report.
- --------------------------------------------------------------------------------
11
<PAGE> 12
WRL SERIES LIFE ACCOUNT
EQUITY-INCOME SUB-ACCOUNT
- --------------------------------------------------------------------------------
STATEMENT OF ASSETS, LIABILITIES AND EQUITY ACCOUNTS
<TABLE>
<CAPTION>
ASSETS: DECEMBER 31, 1995
<S> <C>
Investments, at net asset value:
WRL Series Fund, Inc.:
Equity-Income Portfolio
(3,079,777.685 shares;
cost $ 35,168,616)..................... $ 39,619,606
Accrued transfers from (to)
depositor - net.......................... 28,669
-----------------
Total assets........................... 39,648,275
-----------------
LIABILITIES:................................. 0
-----------------
Total net assets....................... $ 39,648,275
===================
EQUITY ACCOUNTS:
Policy Owners' equity:
Equity-Income sub-account
(2,885,803.576534 units;
$ 13.739076 unit value)................ $ 39,648,275
-----------------
Total equity........................... $ 39,648,275
===================
</TABLE>
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED
INVESTMENT INCOME: DECEMBER 31, 1995
<S> <C>
Dividend income.......................... $ 1,009,870
Capital gain distributions............... 1,034,053
-----------------
2,043,923
EXPENSES:
Mortality and expense risk charges....... 287,834
-----------------
Net investment income (loss)........... 1,756,089
-----------------
Net realized and unrealized gain (loss) on
investments:
Net realized gain (loss) from securities
transactions........................... 220,725
Change in unrealized appreciation
(depreciation)......................... 4,771,750
-----------------
Net gain (loss) on investments......... 4,992,475
-----------------
Net increase (decrease) in equity
accounts resulting from
operations......................... $ 6,748,564
===================
</TABLE>
STATEMENT OF CHANGES IN EQUITY ACCOUNTS
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, 1995 DECEMBER 31, 1994
<S> <C> <C>
OPERATIONS:
Net investment income (loss).......................................................... $ 1,756,089 $ 347,798
Net gain (loss) on investments........................................................ 4,992,475 (596,517)
----------------- -----------------
Net increase (decrease) in equity accounts
resulting from operations........................................................... 6,748,564 (248,719)
----------------- -----------------
EQUITY TRANSACTIONS:
Proceeds from units sold (redeemed)................................................... 14,236,727 13,516,053
----------------- -----------------
Less cost of units redeemed:
Administrative charges.............................................................. 3,380,854 1,893,532
Policy loans........................................................................ 657,750 296,848
Surrender benefits.................................................................. 918,863 406,848
Death benefits...................................................................... 28,153 19,871
----------------- -----------------
4,985,620 2,617,099
----------------- -----------------
Increase (decrease) in equity accounts from
capital unit transactions......................................................... 9,251,107 10,898,954
----------------- -----------------
Net increase (decrease) in equity accounts.......................................... 15,999,671 10,650,235
Depositor's equity contribution (redemption).......................................... 0 (344,138)
EQUITY ACCOUNTS:
Beginning of period................................................................... 23,648,604 13,342,507
----------------- -----------------
End of period......................................................................... $ 39,648,275 $ 23,648,604
=================== ===================
</TABLE>
The notes to the financial statements are an integral part of this report.
- --------------------------------------------------------------------------------
12
<PAGE> 13
WRL SERIES LIFE ACCOUNT
EQUITY-INCOME SUB-ACCOUNT
- --------------------------------------------------------------------------------
SELECTED PER UNIT DATA AND RATIOS*
FOR THE PERIOD ENDED
<TABLE>
<CAPTION>
DECEMBER 31
------------------------------------------
1995 1994 1993+
-------- -------- --------
<S> <C> <C> <C>
Accumulation unit value, beginning of period.... $ 11.12 $ 11.28 $ 10.00
Income from operations:
Net investment income (loss)................ .68 .18 .19
Net realized and unrealized
gain (loss) on investments................ 1.94 (.34) 1.09
-------- -------- --------
Total income (loss) from operations....... 2.62 (.16) 1.28
-------- -------- --------
Accumulation unit value, end of period.......... $ 13.74 $ 11.12 $ 11.28
========= ========= =========
Total return.................................... 23.55% (1.42)% 12.81%
Ratios and supplemental data:
Net assets at end of period (in thousands).... $ 39,648 $ 23,649 $ 13,343
Ratio of net investment income (loss)
to average net assets....................... 5.47% 1.93% 1.89%
</TABLE>
* The above table illustrates the change for a unit outstanding computed using
average units outstanding throughout each period.
+ The inception date of this sub-account was March 1, 1993. The total return
and ratio of net investment income to average net assets are not annualized.
The notes to the financial statements are an integral part of this report.
- --------------------------------------------------------------------------------
13
<PAGE> 14
WRL SERIES LIFE ACCOUNT
EMERGING GROWTH SUB-ACCOUNT
- --------------------------------------------------------------------------------
STATEMENT OF ASSETS, LIABILITIES AND EQUITY ACCOUNTS
<TABLE>
<CAPTION>
ASSETS: DECEMBER 31, 1995
<S> <C>
Investments, at net asset value:
WRL Series Fund, Inc.:
Emerging Growth Portfolio
(4,177,036.054 shares;
cost $ 53,301,177)..................... $ 67,854,423
Accrued transfers from (to)
depositor - net.......................... 50,530
-----------------
Total assets........................... 67,904,953
-----------------
LIABILITIES:................................. 0
-----------------
Total net assets....................... $ 67,904,953
===================
EQUITY ACCOUNTS:
Policy Owners' equity:
Emerging Growth sub-account
(4,100,892.510689 units;
$ 16.558579 unit value)................ $ 67,904,953
-----------------
Total equity........................... $ 67,904,953
===================
</TABLE>
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED
INVESTMENT INCOME: DECEMBER 31, 1995
<S> <C>
Dividend income.......................... $ 10,599
Capital gain distributions............... 2,799,377
-----------------
2,809,976
EXPENSES:
Mortality and expense risk charges....... 453,072
-----------------
Net investment income (loss)........... 2,356,904
-----------------
Net realized and unrealized gain (loss) on
investments:
Net realized gain (loss) from securities
transactions........................... 276,206
Change in unrealized appreciation
(depreciation)......................... 15,904,664
-----------------
Net gain (loss) on investments......... 16,180,870
-----------------
Net increase (decrease) in equity
accounts resulting from
operations......................... $ 18,537,774
===================
</TABLE>
STATEMENT OF CHANGES IN EQUITY ACCOUNTS
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, 1995 DECEMBER 31, 1994
<S> <C> <C>
OPERATIONS:
Net investment income (loss).......................................................... $ 2,356,904 $ (242,847)
Net gain (loss) on investments........................................................ 16,180,870 (2,055,599)
----------------- -----------------
Net increase (decrease) in equity accounts
resulting from operations........................................................... 18,537,774 (2,298,446)
----------------- -----------------
EQUITY TRANSACTIONS:
Proceeds from units sold (redeemed)................................................... 21,556,186 25,803,270
----------------- -----------------
Less cost of units redeemed:
Administrative charges.............................................................. 5,846,452 3,746,668
Policy loans........................................................................ 1,387,434 725,423
Surrender benefits.................................................................. 1,602,690 533,353
Death benefits...................................................................... 38,971 42,065
----------------- -----------------
8,875,547 5,047,509
----------------- -----------------
Increase (decrease) in equity accounts from
capital unit transactions......................................................... 12,680,639 20,755,761
----------------- -----------------
Net increase (decrease) in equity accounts.......................................... 31,218,413 18,457,315
Depositor's equity contribution (redemption).......................................... 0 (390,327)
EQUITY ACCOUNTS:
Beginning of period................................................................... 36,686,540 18,619,552
----------------- -----------------
End of period......................................................................... $ 67,904,953 $ 36,686,540
=================== ===================
</TABLE>
The notes to the financial statements are an integral part of this report.
- --------------------------------------------------------------------------------
14
<PAGE> 15
WRL SERIES LIFE ACCOUNT
EMERGING GROWTH SUB-ACCOUNT
- --------------------------------------------------------------------------------
SELECTED PER UNIT DATA AND RATIOS*
FOR THE PERIOD ENDED
<TABLE>
<CAPTION>
DECEMBER 31
------------------------------------------
1995 1994 1993+
-------- -------- --------
<S> <C> <C> <C>
Accumulation unit value, beginning of period.... $ 11.38 $ 12.40 $ 10.00
Income from operations:
Net investment income (loss)................ .65 (.09) (.09)
Net realized and unrealized
gain (loss) on investments................ 4.53 (.93) 2.49
-------- -------- --------
Total income (loss) from operations....... 5.18 (1.02) 2.40
-------- -------- --------
Accumulation unit value, end of period.......... $ 16.56 $ 11.38 $ 12.40
========= ========= =========
Total return.................................... 45.49% (8.18)% 23.96%
Ratios and supplemental data:
Net assets at end of period (in thousands).... $ 67,905 $ 36,687 $ 18,620
Ratio of net investment income (loss)
to average net assets....................... 4.66% (.86)% (.77)%
</TABLE>
* The above table illustrates the change for a unit outstanding computed using
average units outstanding throughout each period.
+ The inception date of this sub-account was March 1, 1993. The total return
and ratio of net investment income to average net assets are not annualized.
The notes to the financial statements are an integral part of this report.
- --------------------------------------------------------------------------------
15
<PAGE> 16
WRL SERIES LIFE ACCOUNT
AGGRESSIVE GROWTH SUB-ACCOUNT
- --------------------------------------------------------------------------------
STATEMENT OF ASSETS, LIABILITIES AND EQUITY ACCOUNTS
<TABLE>
<CAPTION>
ASSETS: DECEMBER 31, 1995
<S> <C>
Investments, at net asset value:
WRL Series Fund, Inc.:
Aggressive Growth Portfolio
(2,477,941.266 shares;
cost $ 29,816,384)................... $ 32,833,608
Accrued transfers from (to)
depositor - net........................ 70,361
-----------------
Total assets......................... 32,903,969
-----------------
LIABILITIES:............................... 0
-----------------
Total net assets..................... $ 32,903,969
=====================
EQUITY ACCOUNTS:
Policy Owners' equity:
Aggressive Growth sub-account
(2,450,804.260823 units;
$ 13.425784 unit value).............. $ 32,903,969
-----------------
Total equity......................... $ 32,903,969
=====================
</TABLE>
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
INVESTMENT INCOME: 1995
<S> <C>
Dividend income......................... $ 103
Capital gain distributions.............. 866,971
----------------
867,074
EXPENSES:
Mortality and expense risk charges...... 203,080
----------------
Net investment income (loss).......... 663,994
----------------
Net realized and unrealized gain (loss) on
investments:
Net realized gain (loss) from securities
transactions.......................... 1,785,515
Change in unrealized appreciation
(depreciation)........................ 2,638,835
----------------
Net gain (loss) on investments........ 4,424,350
----------------
Net increase (decrease) in equity
accounts resulting from
operations........................ $ 5,088,344
====================
</TABLE>
STATEMENT OF CHANGES IN EQUITY ACCOUNTS
<TABLE>
<CAPTION>
YEAR ENDED PERIOD ENDED
DECEMBER 31, DECEMBER 31,
1995 1994*
<S> <C> <C>
OPERATIONS:
Net investment income (loss)........................................................... $ 663,994 $ (27,542)
Net gain (loss) on investments......................................................... 4,424,350 384,517
---------------- -----------------
Net increase (decrease) in equity accounts
resulting from operations............................................................ 5,088,344 356,975
---------------- -----------------
EQUITY TRANSACTIONS:
Proceeds from units sold (redeemed).................................................... 23,169,917 8,797,727
---------------- -----------------
Less cost of units redeemed:
Administrative charges............................................................... 2,568,298 379,087
Policy loans......................................................................... 627,821 72,785
Surrender benefits................................................................... 712,307 48,513
Death benefits....................................................................... 80,922 4,971
---------------- -----------------
3,989,348 505,356
---------------- -----------------
Increase (decrease) in equity accounts from
capital unit transactions.......................................................... 19,180,569 8,292,371
---------------- -----------------
Net increase (decrease) in equity accounts........................................... 24,268,913 8,649,346
Depositor's equity contribution (redemption)........................................... (274,290) 260,000
EQUITY ACCOUNTS:
Beginning of period.................................................................... 8,909,346 0
---------------- -----------------
End of period.......................................................................... $ 32,903,969 $ 8,909,346
================== ===================
</TABLE>
* The inception date of this sub-account was March 1, 1994.
The notes to the financial statements are an integral part of this report.
- --------------------------------------------------------------------------------
16
<PAGE> 17
WRL SERIES LIFE ACCOUNT
AGGRESSIVE GROWTH SUB-ACCOUNT
- --------------------------------------------------------------------------------
SELECTED PER UNIT DATA AND RATIOS*
FOR THE PERIOD ENDED
<TABLE>
<CAPTION>
DECEMBER 31
----------------------------
1995 1994+
-------- -----------
<S> <C> <C>
Accumulation unit value, beginning of period.... $ 9.82 $ 10.00
Income from operations:
Net investment income (loss)................ .37 (.06)
Net realized and unrealized
gain (loss) on investments................ 3.24 (.12)
-------- -----------
Total income (loss) from operations....... 3.61 (.18)
-------- -----------
Accumulation unit value, end of period.......... $ 13.43 $ 9.82
========= =============
Total return.................................... 36.79% (1.85)%
Ratios and supplemental data:
Net assets at end of period (in thousands).... $ 32,904 $ 8,909
Ratio of net investment income (loss)
to average net assets....................... 2.93% (.60)%
</TABLE>
* The above table illustrates the change for a unit outstanding computed using
average units outstanding throughout each period.
+ The inception date of this sub-account was March 1, 1994. The total return and
ratio of net investment income to average net assets are not annualized.
The notes to the financial statements are an integral part of this report.
- --------------------------------------------------------------------------------
17
<PAGE> 18
WRL SERIES LIFE ACCOUNT
BALANCED SUB-ACCOUNT
- --------------------------------------------------------------------------------
STATEMENT OF ASSETS, LIABILITIES AND EQUITY ACCOUNTS
<TABLE>
<CAPTION>
ASSETS: DECEMBER 31, 1995
<S> <C>
Investments, at net asset value:
WRL Series Fund, Inc.:
Balanced Portfolio
(356,742.991 shares;
cost $ 3,481,188)...................... $ 3,793,788
Accrued transfers from (to)
depositor - net.......................... 1,606
-----------------
Total assets........................... 3,795,394
-----------------
LIABILITIES:................................. 0
-----------------
Total net assets....................... $ 3,795,394
===================
EQUITY ACCOUNTS:
Policy Owners' equity:
Balanced sub-account
(321,143.504151 units;
$ 11.125506 unit value)................ $ 3,572,884
Depositors' equity:
Balanced sub-account
(20,000.000000 units;
$ 11.125506 unit value)................ 222,510
-----------------
Total equity........................... $ 3,795,394
===================
</TABLE>
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED
INVESTMENT INCOME: DECEMBER 31, 1995
<S> <C>
Dividend income.......................... $ 128,272
Capital gain distributions............... 0
-----------------
128,272
EXPENSES:
Mortality and expense risk charges....... 25,637
-----------------
Net investment income (loss)........... 102,635
-----------------
Net realized and unrealized gain (loss) on
investments:
Net realized gain (loss) from securities
transactions........................... (6,199)
Change in unrealized appreciation
(depreciation)......................... 407,748
-----------------
Net gain (loss) on investments......... 401,549
-----------------
Net increase (decrease) in equity
accounts resulting from
operations......................... $ 504,184
===================
</TABLE>
STATEMENT OF CHANGES IN EQUITY ACCOUNTS
<TABLE>
<CAPTION>
YEAR ENDED PERIOD ENDED
DECEMBER 31, 1995 DECEMBER 31, 1994*
<S> <C> <C>
OPERATIONS:
Net investment income (loss).......................................................... $ 102,635 $ 30,401
Net gain (loss) on investments........................................................ 401,549 (115,505)
----------------- -----------------
Net increase (decrease) in equity accounts
resulting from operations........................................................... 504,184 (85,104)
----------------- -----------------
EQUITY TRANSACTIONS:
Proceeds from units sold (redeemed)................................................... 1,545,514 2,131,962
----------------- -----------------
Less cost of units redeemed:
Administrative charges.............................................................. 327,290 84,481
Policy loans........................................................................ 29,025 0
Surrender benefits.................................................................. 27,726 15,378
Death benefits...................................................................... 14,811 2,451
----------------- -----------------
398,852 102,310
----------------- -----------------
Increase (decrease) in equity accounts from
capital unit transactions......................................................... 1,146,662 2,029,652
----------------- -----------------
Net increase (decrease) in equity accounts.......................................... 1,650,846 1,944,548
Depositor's equity contribution (redemption).......................................... 0 200,000
EQUITY ACCOUNTS:
Beginning of period................................................................. 2,144,548 0
----------------- -----------------
End of period....................................................................... $ 3,795,394 $ 2,144,548
=================== ===================
</TABLE>
* The inception date of this sub-account was March 1, 1994.
The notes to the financial statements are an integral part of this report.
- --------------------------------------------------------------------------------
18
<PAGE> 19
WRL SERIES LIFE ACCOUNT
BALANCED SUB-ACCOUNT
- --------------------------------------------------------------------------------
SELECTED PER UNIT DATA AND RATIOS*
FOR THE PERIOD ENDED
<TABLE>
<CAPTION>
DECEMBER 31
-----------------------
1995 1994+
------- -------
<S> <C> <C>
Accumulation unit value, beginning of period.... $ 9.37 $ 10.00
Income from operations:
Net investment income (loss)................ .37 .22
Net realized and unrealized
gain (loss) on investments................ 1.39 (.85)
------- -------
Total income (loss) from operations....... 1.76 (.63)
------- -------
Accumulation unit value, end of period.......... $ 11.13 $ 9.37
======== ========
Total return.................................... 18.73% (6.29)%
Ratios and supplemental data:
Net assets at end of period (in thousands).... $ 3,795 $ 2,145
Ratio of net investment income (loss)
to average net assets....................... 3.59% 2.55%
</TABLE>
* The above table illustrates the change for a unit outstanding computed using
average units outstanding throughout each period.
+ The inception date of this sub-account was March 1, 1994. The total return
and ratio of net investment income to average net assets are not annualized.
The notes to the financial statements are an integral part of this report.
- --------------------------------------------------------------------------------
19
<PAGE> 20
WRL SERIES LIFE ACCOUNT
UTILITY SUB-ACCOUNT
- --------------------------------------------------------------------------------
STATEMENT OF ASSETS, LIABILITIES AND EQUITY ACCOUNTS
<TABLE>
<CAPTION>
ASSETS: DECEMBER 31, 1995
<S> <C>
Investments, at net asset value:
WRL Series Fund, Inc.:
Utility Portfolio
(236,391.086 shares;
cost $ 2,384,572)...................... $ 2,629,535
Accrued transfers from (to)
depositor - net.......................... 1,547
-----------------
Total assets........................... 2,631,082
-----------------
LIABILITIES:................................. 0
-----------------
Total net assets....................... $ 2,631,082
===================
EQUITY ACCOUNTS:
Policy Owners' equity:
Utility sub-account
(203,453.934332 units;
$ 11.774605 unit value)................ $ 2,395,590
Depositors' equity:
Utility sub-account
(20,000.000000 units;
$ 11.774605 unit value)................ 235,492
-----------------
Total equity........................... $ 2,631,082
===================
</TABLE>
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
INVESTMENT INCOME: 1995
<S> <C>
Dividend income......................... $ 86,266
Capital gain distributions.............. 19,740
----------------
106,006
EXPENSES:
Mortality and expense risk charges...... 17,372
----------------
Net investment income (loss).......... 88,634
----------------
Net realized and unrealized gain (loss) on
investments:
Net realized gain (loss) from securities
transactions.......................... 44,646
Change in unrealized appreciation
(depreciation)........................ 291,882
----------------
Net gain (loss) on investments........ 336,528
----------------
Net increase (decrease) in equity
accounts resulting from
operations........................ $ 425,162
====================
</TABLE>
STATEMENT OF CHANGES IN EQUITY ACCOUNTS
<TABLE>
<CAPTION>
YEAR ENDED PERIOD ENDED
DECEMBER 31, DECEMBER 31,
1995 1994*
<S> <C> <C>
OPERATIONS:
Net investment income (loss)........................................................... $ 88,634 $ 23,434
Net gain (loss) on investments......................................................... 336,528 (58,002)
---------------- -----------------
Net increase (decrease) in equity accounts
resulting from operations............................................................ 425,162 (34,568)
---------------- -----------------
EQUITY TRANSACTIONS:
Proceeds from units sold (redeemed).................................................... 1,368,262 1,102,522
---------------- -----------------
Less cost of units redeemed:
Administrative charges............................................................... 221,419 42,870
Policy loans......................................................................... 26,862 0
Surrender benefits................................................................... 126,576 6,295
Death benefits....................................................................... 2,896 3,378
---------------- -----------------
377,753 52,543
---------------- -----------------
Increase (decrease) in equity accounts from
capital unit transactions.......................................................... 990,509 1,049,979
---------------- -----------------
Net increase (decrease) in equity accounts........................................... 1,415,671 1,015,411
Depositor's equity contribution (redemption)........................................... 0 200,000
EQUITY ACCOUNTS:
Beginning of period.................................................................... 1,215,411 0
---------------- -----------------
End of period.......................................................................... $ 2,631,082 $ 1,215,411
================== ===================
</TABLE>
* The inception date of this sub-account was March 1, 1994.
The notes to the financial statements are an integral part of this report.
- --------------------------------------------------------------------------------
20
<PAGE> 21
WRL SERIES LIFE ACCOUNT
UTILITY SUB-ACCOUNT
- --------------------------------------------------------------------------------
SELECTED PER UNIT DATA AND RATIOS*
FOR THE PERIOD ENDED
<TABLE>
<CAPTION>
DECEMBER 31
---------------------------
1995 1994+
------- -----------
<S> <C> <C>
Accumulation unit value, beginning of period.... $ 9.49 $ 10.00
Income from operations:
Net investment income (loss)................ .49 .29
Net realized and unrealized
gain (loss) on investment................. 1.79 (.80)
------- -----------
Total income (loss) from operations....... 2.28 (.51)
------- -----------
Accumulation unit value, end of period.......... $11.77 $ 9.49
======== =============
Total return.................................... 24.14 % (5.15)%
Ratios and supplemental data:
Net assets at end of period (in thousands).... $2,631 $ 1,215
Ratio of net investment income (loss)
to average net assets....................... 4.57 % 3.09%
</TABLE>
* The above table illustrates the change for a unit outstanding computed using
average units outstanding throughout each period.
+ The inception date for this sub-account was March 1, 1994. The total return
and ratio of net investment income to average net assets are not annualized.
The notes to the financial statements are an integral part of this report.
- --------------------------------------------------------------------------------
21
<PAGE> 22
WRL SERIES LIFE ACCOUNT
TACTICAL ASSET ALLOCATION SUB-ACCOUNT
- --------------------------------------------------------------------------------
STATEMENT OF ASSETS, LIABILITIES AND EQUITY ACCOUNTS
<TABLE>
<CAPTION>
ASSETS: DECEMBER 31, 1995
<S> <C>
Investments, at net asset value:
WRL Series Fund, Inc.:
Tactical Asset Allocation Portfolio
(822,390.362 shares;
cost $ 8,835,438)...................... $ 9,451,157
Accrued transfers from (to)
depositor - net.......................... (5,300)
-----------------
Total assets........................... 9,445,857
-----------------
LIABILITIES:................................. 0
-----------------
Total net assets....................... $ 9,445,857
===================
EQUITY ACCOUNTS:
Policy Owners' equity:
Tactical Asset Allocation sub-account
(793,585.197167 units;
$ 11.902763 unit value)................ $ 9,445,857
-----------------
Total equity........................... $ 9,445,857
===================
</TABLE>
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
PERIOD ENDED
INVESTMENT INCOME: DECEMBER 31, 1995*
<S> <C>
Dividend income......................... $ 193,985
Capital gain distributions.............. 171,580
------------------
365,565
EXPENSES:
Mortality and expense risk charges...... 51,394
------------------
Net investment income (loss).......... 314,171
------------------
Net realized and unrealized gain (loss) on
investments:
Net realized gain (loss) from securities
transactions.......................... 118,155
Change in unrealized appreciation
(depreciation)........................ 615,719
------------------
Net gain (loss) on investments........ 733,874
------------------
Net increase (decrease) in equity
accounts resulting from
operations........................ $ 1,048,045
====================
</TABLE>
STATEMENT OF CHANGES IN EQUITY ACCOUNTS
<TABLE>
<CAPTION>
PERIOD ENDED
DECEMBER 31, 1995*
<S> <C>
OPERATIONS:
Net investment income (loss)................................................................................. $ 314,171
Net gain (loss) on investments............................................................................... 733,874
------------------
Net increase (decrease) in equity accounts
resulting from operations.................................................................................. 1,048,045
------------------
EQUITY TRANSACTIONS:
Proceeds from units sold (redeemed).......................................................................... 9,081,189
------------------
Less cost of units redeemed:
Administrative charges..................................................................................... 434,848
Policy loans............................................................................................... 145,685
Surrender benefits......................................................................................... 70,630
Death benefits............................................................................................. 22,440
------------------
673,603
------------------
Increase (decrease) in equity accounts from
capital unit transactions................................................................................ 8,407,586
------------------
Net increase (decrease) in equity accounts................................................................. 9,455,631
Depositor's equity contribution (redemption)................................................................. (9,774)
EQUITY ACCOUNTS:
Beginning of period.......................................................................................... 0
------------------
End of period................................................................................................ $ 9,445,857
====================
</TABLE>
* The inception of this sub-account was January 3, 1995.
The notes to the financial statements, are an integral part of this report.
- --------------------------------------------------------------------------------
22
<PAGE> 23
WRL SERIES LIFE ACCOUNT
TACTICAL ASSET ALLOCATION SUB-ACCOUNT
- --------------------------------------------------------------------------------
SELECTED PER UNIT DATA AND RATIOS*
FOR THE PERIOD ENDED
<TABLE>
<CAPTION>
DECEMBER 31
-----------
1995+
-----------
<S> <C>
Accumulation unit value, beginning of period................. $ 10.00
Income from operations:
Net investment income (loss)............................. .61
Net realized and unrealized
gain (loss) on investments............................. 1.29
-----------
Total income (loss) from operations.................... 1.90
-----------
Accumulation unit value, end of period....................... $ 11.90
=============
Total return................................................. 19.03%
Ratios and supplemental data:
Net assets at end of period (in thousands)................. $ 9,446
Ratio of net investment income (loss)
to average net assets.................................... 5.47%
</TABLE>
* The above table illustrates the change for a unit outstanding computed using
average units outstanding throughout each period.
+ The inception date of this sub-account was January 3, 1995. The total return
and ratio of net investment income to average net assets are not annualized.
The notes to the financial statements, are an integral part of this report.
- --------------------------------------------------------------------------------
23
<PAGE> 24
WRL SERIES LIFE ACCOUNT
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
DECEMBER 31, 1995
NOTE 1 - ORGANIZATION AND SUMMARY OF
SIGNIFICANT ACCOUNTING POLICIES
The WRL Series Life Account (the "Life Account") was established as a
variable life insurance separate account of Western Reserve Life Assurance Co.
of Ohio ("WRL") and is registered as a unit investment trust ("Trust") under the
Investment Company Act of 1940, as amended. The Life Account contains eleven
investment options referred to as sub-accounts. Each sub-account invests in the
corresponding portfolio of the WRL Series Fund, Inc. (the "Fund"), a registered
management investment company under the Investment Company Act of 1940, as
amended. These portfolios and their respective investment management
organizations are as follows:
<TABLE>
<CAPTION>
PORTFOLIO INVESTMENT MANAGER
--------- ------------------------
<S> <C>
Money Market Janus Capital Corporation
("JCC")
Bond JCC
Growth JCC
Short-to-Intermediate AEGON USA Investment
Government Management, Inc. ("AEGON
Management")
Global JCC
Equity-Income Luther King Capital
Management Corporation
Emerging Growth Van Kampen American Capital
Asset Management, Inc.
Aggressive Growth Fred Alger Management, Inc.
Balanced AEGON Management
Utility Federated Investment
Counseling
Tactical Asset Dean Investment Associates
Allocation
</TABLE>
WRL and AEGON Management are indirectly wholly-owned subsidiaries of AEGON
USA, Inc., which is an indirect wholly-owned subsidiary of AEGON nv, a
Netherlands corporation.
On January 3, 1995, WRL made an initial contribution of $200,000 to the
Life Account, Tactical Asset Allocation sub-account, for which WRL received
20,000.000000 units. On April 20, 1995, WRL redeemed the initial contribution in
the Life Account, Tactical Asset Allocation sub-account, for $209,775.
The Life Account holds assets to support the benefits under flexible
premium variable universal life insurance policies (the "Policies") issued by
WRL, which issued the first of such Policies on October 3, 1986. The Life
Account's equity transactions are accounted for using the appropriate effective
date at the corresponding accumulation unit value.
The preparation of financial statements in accordance with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts and disclosures in the financial
statements. Actual results could differ from those estimates.
The following significant accounting policies, which are in conformity with
generally accepted accounting principles for unit investment trusts, have been
consistently used in preparation of the Trust's financial statements.
A. VALUATION OF INVESTMENTS
The investments in the Fund's shares are stated at the closing net asset
value ("NAV") per share as determined by the Fund on December 31, 1995.
Investment transactions are accounted for on the trade date, using the Fund
NAV next determined after receipt of sale or redemption order without sales
charges. Dividend income and capital gain distributions are recorded on the
ex-dividend date. The cost of investments sold is determined on a first-in,
first-out basis.
B. FEDERAL INCOME TAXES
The operations of the Life Account are a part of and are taxed with the
total operations of WRL, which is taxed as a life insurance company under
the Internal Revenue Code. Under current law, the investment income of the
Life Account, including realized and unrealized capital gains, is not
taxable to WRL. Accordingly, no provision for Federal income taxes has been
made.
NOTE 2 - CHARGES AND DEDUCTIONS
Charges are assessed by WRL in connection with issuance and administration
of the Policies.
A. POLICY CHARGES
Under some forms of the Policies, sales and other administrative charges are
deducted by WRL prior to allocation of policyowner payments to the
sub-accounts. Thereafter, monthly administrative charges are deducted from
the sub-accounts, some of which continue only during the first policy year.
Contingent surrender charges may also apply.
- --------------------------------------------------------------------------------
24
<PAGE> 25
WRL SERIES LIFE ACCOUNT
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
NOTE 2 - CHARGES AND DEDUCTIONS (CONTINUED)
Under the other forms of the Policies, such "front-end" and other
administrative charges are not deducted prior to allocation of the initial
premium payment but may reside as contingent surrender charges.
Under all forms of the Policy, monthly charges against policy cash values
are made to compensate WRL for costs of insurance provided.
B. LIFE ACCOUNT CHARGES
A daily charge equal to an annual rate of 0.90% of average daily net assets
of the Life Account is assessed to compensate WRL for assumption of
mortality and expense risks in connection with issuance and administration
of the Policies. This charge (not assessed at the individual policy level)
effectively reduces the value of a unit outstanding during the year.
NOTE 3 - DIVIDENDS AND DISTRIBUTIONS
Dividends of the Fund's Money Market Portfolio are declared daily and
reinvested monthly. Dividends of the remaining portfolios are declared and
reinvested semiannually, while capital gain distributions are declared and
reinvested annually. Dividends and distributions of the Fund are generally paid
to and reinvested by the Life Account the next business day after declaration.
NOTE 4 - OTHER MATTERS
As of December 31, 1995 the equity accounts include net unrealized
appreciation (depreciation) on investments as follows:
<TABLE>
<S> <C>
SUB-ACCOUNT
- ---------------
Money Market.......................... $ n/a
Bond.................................. 152,765
Growth................................ 59,702,041
Short-to-Intermediate Government...... 38,530
Global................................ 3,601,189
Equity-Income......................... 4,450,990
Emerging Growth....................... 14,553,246
Aggressive Growth..................... 3,017,224
Balanced.............................. 312,600
Utility............................... 244,963
Tactical Asset Allocation............. 615,719
</TABLE>
- --------------------------------------------------------------------------------
25
<PAGE>
Report of Independent Auditors
The Board of Directors
Western Reserve Life Assurance Co. of Ohio
We have audited the accompanying statutory-basis balance sheets of Western
Reserve Life Assurance Co. of Ohio as of December 31, 1995 and 1994, and the
related statutory-basis statements of operations, changes in capital and
surplus, and cash flows for each of the three years in the period ended December
31, 1995. Our audits also included the statutory-basis financial statement
schedules required by Regulation S-X, Article 7. These financial statements and
schedules are the responsibility of the Company's management. Our responsibility
is to express an opinion on these financial statements based on our audits. We
did not audit the "Separate Account Assets" and "Separate Account Liabilities"
in the balance sheet of the Company. The Separate Account financial statements
were audited by other auditors whose reports have been furnished to us, and our
opinion, insofar as it relates to the data included for the Separate Account, is
based solely upon the reports of the other auditors.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits and the reports of other auditors provide a
reasonable basis for our opinion.
The Company presents its financial statements in conformity with the accounting
practices prescribed or permitted by the Insurance Department of the State of
Ohio. The variances between such practices and generally accepted accounting
principles are described in Note 1. The effects of these variances are not
reasonably determinable but we believe they are material.
In our opinion, because of the materiality of the effects of the variances
between generally accepted accounting principles and the accounting practices
referred to in the preceding paragraph, the financial statements referred to
above are not intended to and do not present fairly, in conformity with
generally accepted accounting principles, the financial position of Western
Reserve Life Assurance Co. of Ohio at December 31, 1995 and 1994, or the results
of its operations or its cash flows for each of the three years in the period
ended December 31, 1995.
<PAGE>
In addition, in our opinion, based on our audits and the reports of other
auditors, the financial statements referred to above present fairly, in all
material respects, the financial position of Western Reserve Life Assurance Co.
of Ohio at December 31, 1995 and 1994, and the results of its operations and its
cash flows for each of the three years in the period ended December 31, 1995 in
conformity with accounting practices prescribed or permitted by the Insurance
Department of the State of Ohio. Also, in our opinion, the related financial
statement schedules, when considered in relation to the basic statutory-basis
financial statements taken as a whole, present fairly in all material respects
the information set forth therein.
ERNST & YOUNG LLP
Des Moines, Iowa
February 23, 1996
<PAGE>
<TABLE>
<CAPTION>
Western Reserve Life Assurance Co. of Ohio
Balance Sheets - Statutory Basis
(Dollars in thousands, except per share data)
DECEMBER 31
1995 1994
-----------------------------------
<S> <C> <C>
ADMITTED ASSETS
Cash and invested assets:
Cash and short-term investments $ 4,999 $ 46,722
Bonds 452,474 423,758
Stocks:
Preferred, at market (cost: $78 in 1994) - 14
Common, at market (cost: $473 in 1995 and
$1,944 in 1994) 834 2,541
Mortgage loans on real estate 6,181 9,539
Home office properties, at cost less accumulated
depreciation ($1,505 in 1995 and $1,358 in 1994) 5,121 4,818
Policy loans 37,125 27,520
-----------------------------------
Total cash and invested assets 506,734 514,912
Premiums deferred and uncollected 1,787 1,763
Accrued investment income 7,565 7,505
Receivable from affiliates 4,337 481
Other assets 4,264 3,504
Separate account assets 2,419,205 1,596,736
-----------------------------------
Total admitted assets $2,943,892 $2,124,901
===================================
</TABLE>
SEE ACCOMPANYING NOTES.
<PAGE>
<TABLE>
<CAPTION>
DECEMBER 31
1995 1994
-----------------------------------
<S> <C> <C>
LIABILITIES AND CAPITAL AND SURPLUS
Liabilities:
Aggregate reserves for policies and contracts:
Life $ 73,163 $ 84,689
Annuity 319,353 314,124
Policy and contract claim reserves 6,612 5,119
Other policyholders' funds 2,384 2,495
Remittances and items not allocated 5,136 4,613
Federal income taxes payable 1,417 96
Asset valuation reserve 5,590 8,491
Interest maintenance reserve 6,392 6,720
Payable to affiliate - 674
Other liabilities 10,102 8,239
Separate account liabilities 2,415,804 1,594,621
-----------------------------------
Total liabilities 2,845,953 2,029,881
Commitments and contingencies
Capital and surplus:
Common stock, $1.00 par value, 1,500 shares
authorized, issued and outstanding 1,500 1,500
Paid-in surplus 68,015 68,015
Unassigned surplus 28,424 25,505
-----------------------------------
Total capital and surplus 97,939 95,020
-----------------------------------
Total liabilities and capital and surplus $2,943,892 $2,124,901
===================================
</TABLE>
SEE ACCOMPANYING NOTES.
<PAGE>
<TABLE>
<CAPTION>
Western Reserve Life Assurance Co. of Ohio
Statements of Operations - Statutory Basis
(Dollars in thousands)
YEAR ENDED DECEMBER 31
1995 1994 1993
----------------------------------------------
<S> <C> <C> <C>
Revenues:
Premiums and other considerations, net of
reinsurance:
Life $191,508 $150,991 $107,008
Annuity 378,390 449,141 449,361
Net investment income 40,891 40,139 46,197
Amortization of interest maintenance reserve 882 726 618
Commissions and expense allowances on
reinsurance ceded 11 12 14
Other income 8,237 6,354 4,322
----------------------------------------------
619,919 647,363 607,520
Benefits and expenses:
Benefits paid or provided for:
Death, surrender and other life insurance and
annuity benefits 243,658 230,511 111,785
Increase (decrease) in aggregate reserves for
policies and contracts:
Life (15,023) (11,332) (4,259)
Annuity 5,229 (78,590) (12,486)
----------------------------------------------
233,864 140,589 95,040
Insurance expenses:
Net transfers to separate accounts 242,427 386,174 414,357
Commissions 82,903 78,168 60,975
General insurance expenses 37,246 33,100 24,701
Taxes, licenses and fees 8,919 5,931 5,682
----------------------------------------------
371,495 503,373 505,715
----------------------------------------------
605,359 643,962 600,755
----------------------------------------------
Gain from operations before federal income
taxes and realized capital gains (losses) on
investments 14,560 3,401 6,765
Federal income tax expense 8,917 3,406 4,206
----------------------------------------------
Gain (loss) from operations before realized capital
gains (losses) on investments 5,643 (5) 2,559
Netrealized capital gains (losses) on investments
(net of related federal income taxes and
amounts transferred to interest maintenance
reserve) (1,678) (1,133) 2,348
----------------------------------------------
Net income (loss) $ 3,965 $ (1,138) $ 4,907
==============================================
</TABLE>
SEE ACCOMPANYING NOTES.
<PAGE>
<TABLE>
<CAPTION>
Western Reserve Life Assurance Co. of Ohio
Statements of Changes in Capital and Surplus - Statutory Basis
(Dollars in thousands)
Additional Total
Common Paid-In Unassigned Capital and
Stock Capital Surplus Surplus
------------- --------------- --------------- ----------------
<S> <C> <C> <C> <C>
Balance at January 1, 1993 $1,500 $23,015 $19,109 $43,624
Net income for 1993 - - 4,907 4,907
Net unrealized capital gains - - 1,503 1,503
Decrease in non-admitted assets - - 5,535 5,535
Increase in asset valuation reserves - - (1,706) (1,706)
Increase in surplus in separate
accounts - - 633 633
Dividend to stockholder - - (5,600) (5,600)
Other adjustments - - 513 513
------------- --------------- --------------- ----------------
Balance at December 31, 1993 1,500 23,015 24,894 49,409
Capital contribution - 45,000 - 45,000
Net loss for 1994 - - (1,138) (1,138)
Net unrealized capital losses - - (9) (9)
Decrease in non-admitted assets - - 368 368
Decrease in asset valuation
reserves - - 4,321 4,321
Decrease in surplus in separate
accounts - - (748) (748)
Other adjustments - - (2,183) (2,183)
------------- --------------- --------------- ----------------
Balance at December 31, 1994 1,500 68,015 25,505 95,020
Net income for 1995 - - 3,965 3,965
Net unrealized capital losses - - (500) (500)
Decrease in non-admitted assets - - 903 903
Decrease in asset valuation reserve - - 2,901 2,901
Decrease in surplus in separate
accounts - - 541 541
Change in reserve valuation - - (3,496) (3,496)
Other adjustments - - (1,395) (1,395)
------------- --------------- --------------- ----------------
Balance at December 31, 1995 $1,500 $68,015 $28,424 $97,939
============= =============== =============== ================
</TABLE>
SEE ACCOMPANYING NOTES.
<PAGE>
<TABLE>
<CAPTION>
Western Reserve Life Assurance Co. of Ohio
Statements of Cash Flows - Statutory Basis
(Dollars in thousands)
YEAR ENDED DECEMBER 31
1995 1994 1993
----------------------------------------------
<S> <C> <C> <C>
SOURCES OF CASH
Premiums and other considerations, net of reinsurance $569,934 $600,405 $556,353
Net investment income 42,359 41,977 47,424
Other income 8,052 6,311 4,245
----------------------------------------------
620,345 648,693 608,022
Life claims (16,759) (14,660) (12,820)
Surrender benefits and other fund withdrawals (206,250) (196,169) (81,902)
Other benefits to policyholders (19,041) (18,251) (17,385)
Commissions, other expenses and taxes (128,314) (119,755) (92,572)
Dividends to policyholders (26) (22) (44)
Federal income taxes (7,531) (3,378) (3,573)
Net increase in policy loans (9,605) (4,496) (4,686)
Net transfers to separate accounts (242,427) (386,174) (414,357)
----------------------------------------------
Net cash used by operations (9,608) (94,212) (19,317)
Proceeds from investments sold, matured or repaid:
Bonds and redeemable preferred stock 108,554 99,241 203,547
Common stocks 2,108 80,066 81,391
Mortgage loans on real estate 1,954 132 764
Real estate - - 109
Miscellaneous - (28) -
----------------------------------------------
Total cash from investments 112,616 179,411 285,811
Capital contribution - 45,000 -
Other sources 2,830 6,135 5,899
----------------------------------------------
Total sources of cash 105,838 136,334 272,393
APPLICATIONS OF CASH
Cost of investments acquired:
Bonds and redeemable preferred stock 139,402 47,214 165,967
Common stocks 589 65,911 82,767
Mortgage loans on real estate 6 1,004 290
Real estate 449 37 478
----------------------------------------------
Total investments acquired 140,446 114,166 249,502
Dividend to stockholder - - 5,600
Other applications, net 7,115 6,086 1,959
----------------------------------------------
Total applications of cash 147,561 120,252 257,061
----------------------------------------------
Net change in cash and short-term investments (41,723) 16,082 15,332
Cash and short-term investments at beginning of year 46,722 30,640 15,308
----------------------------------------------
Cash and short-term investments at end of year $ 4,999 $ 46,722 $ 30,640
==============================================
</TABLE>
SEE ACCOMPANYING NOTES.
<PAGE>
Western Reserve Life Assurance Co. of Ohio
Notes to Financial Statements - Statutory-Basis
(Dollars in thousands)
December 31, 1995
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION
Western Reserve Life Assurance Co. of Ohio ("the Company") is a stock life
insurance company and is a wholly-owned subsidiary of First AUSA Life Insurance
Company which, in turn, is a wholly-owned subsidiary of AEGON USA, Inc.
("AEGON"). AEGON is a wholly-owned subsidiary of AEGON nv, a holding company
organized under the laws of the Netherlands.
NATURE OF BUSINESS
The Company operates predominantly in the variable universal life and variable
annuity areas of the life insurance business. The Company is licensed in 49
states and the District of Columbia. Sales of the Company's products are through
financial planners, independent representatives, financial institutions and
stockbrokers. The majority of the Company's new life insurance written and a
substantial portion of new annuities written is done through one marketing
organization; the Company expects to maintain this relationship for the
foreseeable future.
BASIS OF PRESENTATION
The preparation of financial statements of insurance companies requires
management to make estimates and assumptions that affect amounts reported in the
financial statements and accompanying notes. Such estimates and assumptions
could change in the future as more information becomes known, which could impact
the amounts reported and disclosed herein.
The accompanying financial statements have been prepared on the basis of
accounting practices prescribed or permitted by the Insurance Department of the
State of Ohio, which practices differ in some respects from generally accepted
accounting principles. The more significant of these differences are as follows:
(a) bonds are generally carried at amortized cost rather than segregating the
portfolio into held-to-maturity (carried at amortized cost), available-for-sale
(carried at fair value), and trading (carried at fair value) classifications;
(b) acquisition costs of acquiring new business are charged to current
operations as incurred rather than deferred and amortized over the life of the
policies; (c) policy reserves on traditional life products are based on
statutory mortality rates and interest which may differ from reserves based on
reasonable assumptions of expected mortality, interest, and withdrawals which
include a provision for possible unfavorable deviation from such assumptions;
(d) policy reserves on certain investment products use discounting methodologies
utilizing statutory interest rates rather than full account values; (e)
reinsurance amounts are netted against the corresponding receivable or payable
rather than shown as gross amounts on the balance sheet; (f) deferred income
taxes are not provided for the difference between the financial statement and
income tax bases of assets and liabilities; (g) net realized gains or losses
attributed to changes in the
<PAGE>
Western Reserve Life Assurance Co. of Ohio
Notes to Financial Statements - Statutory-Basis (continued)
(Dollars in thousands)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
level of interest rates in the market are deferred and amortized over the
remaining life of the bond or mortgage loan, rather than recognized as gains or
losses in the statement of operations when the sale is completed; (h) declines
in the estimated realizable value of investments are provided for through the
establishment of a formula-determined statutory investment reserve (carried as a
liability) changes to which are charged directly to surplus, rather than through
recognition in the statement of operations for declines in value, when such
declines are judged to be other than temporary; (i) certain assets designated as
"non-admitted assets" have been charged to surplus rather than being reported as
assets; (j) revenues for universal life and investment products consist of
premiums received rather than policy charges for the cost of insurance, policy
administration charges, amortization of policy initiation fees and surrender
charges assessed; and (k) pension expense is recorded as amounts are paid. The
effects of these variances have not been determined by the Company.
The National Association of Insurance Commissioners (NAIC) currently is in the
process of recodifying statutory accounting practices, the result of which is
expected to constitute the only source of "prescribed" statutory accounting
practices. Accordingly, that project, which is expected to be completed in 1996,
will likely change, to some extent, prescribed statutory accounting practices
and may result in changes to the accounting practices that the Company uses to
prepare its statutory-basis financial statements.
CASH AND CASH EQUIVALENTS
For purposes of the statements of cash flows, the Company considers all highly
liquid investments with remaining maturities of one year or less when purchased
to be cash equivalents. This amount includes $6,500 of short-term intercompany
notes receivable at December 31, 1995.
INVESTMENTS
Investments in bonds (except those to which the Securities Valuation Office of
the NAIC has ascribed a value), mortgage loans on real estate and short-term
investments are reported at cost adjusted for amortization of premiums and
accrual of discounts. Amortization is computed using methods which result in a
level yield over the expected life of the security. The Company reviews its
prepayment assumptions on mortgage and other asset backed securities at regular
intervals and adjusts amortization rates prospectively when such assumptions are
changed due to experience and/or expected future patterns. Investments in
preferred stocks in good standing are reported at cost. Investments in preferred
stocks not in good standing are reported at the lower of cost or market. Common
stocks are carried at market and include shares of mutual funds (money market
and other). Real estate is reported at cost less allowances for depreciation.
Depreciation is computed principally by the straight-line method. Policy loans
are reported at unpaid principal. Other "admitted assets" are valued,
principally at cost, as required or permitted by Ohio Insurance Laws.
<PAGE>
Western Reserve Life Assurance Co. of Ohio
Notes to Financial Statements - Statutory-Basis (continued)
(Dollars in thousands)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Realized capital gains and losses are determined on the basis of specific
identification and are recorded net of related federal income taxes. The Asset
Valuation Reserve (AVR) is established by the Company to provide for anticipated
losses in the event of default by issuers of certain invested assets. These
amounts are determined using a formula prescribed by the NAIC and are reported
as a liability. The formula for the AVR provides for a corresponding adjustment
for realized gains and losses, net of amounts attributed to changes in the
general level of interest rates. Under a formula prescribed by the NAIC, the
Company defers, in the Interest Maintenance Reserve (IMR), the portion of
realized gains and losses on sales of fixed income investments, principally
bonds and mortgage loans, attributable to changes in the general level of
interest rates and amortizes those deferrals over the remaining period to
maturity of the security.
During 1995, 1994 and 1993, net realized capital gains of $554, $436 and $4,270,
respectively, were credited to the IMR rather than being immediately recognized
in the statements of operations. Amortization of these net gains aggregated
$882, $726 and $618 for the years ended December 31, 1995, 1994 and 1993,
respectively.
Interest income is recognized on an accrual basis. The Company does not accrue
income on bonds in default, mortgage loans on real estate in default and/or
foreclosure or which are delinquent more than twelve months, or real estate
where rent is in arrears for more than three months. Further, income is not
accrued when collection is uncertain. At December 31, 1995, 1994 and 1993, the
Company excluded investment income due and accrued of $1, $237 and $0,
respectively, with respect to such practices.
AGGREGATE RESERVES FOR POLICIES
Life and annuity reserves are developed by actuarial methods and are determined
based on published tables using statutorily specified interest rates and
valuation methods that will provide, in the aggregate, reserves that are greater
than or equal to the minimum required by law.
The aggregate policy reserves for traditional life insurance policies are based
principally upon the 1941, 1958, and 1980 Commissioners' Standard Ordinary
Mortality Tables. The reserves are calculated using interest rates ranging from
2.25% to 5.50% and are computed principally on the Net Level Valuation and the
Commissioner's Reserve Valuation Method (CRVM). Reserves for universal life
policies are based on account balances adjusted for the CRVM.
<PAGE>
Western Reserve Life Assurance Co. of Ohio
Notes to Financial Statements - Statutory-Basis (continued)
(Dollars in thousands)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Deferred annuity reserves are calculated according to the Commissioners' Annuity
Reserve Valuation Method plus excess interest reserves to cover situations where
the future interest guarantees plus the decrease in surrender charges are in
excess of the maximum valuation rates of interest. Reserves for immediate
annuities and supplementary contracts with and without life contingencies are
equal to the present value of future payments assuming interest rates ranging
from 7.00% to 9.25% and mortality rates, where appropriate, from a variety of
tables.
POLICY AND CONTRACT CLAIM RESERVES
Claim reserves represent the estimated accrued liability for claims reported to
the Company and claims incurred but not yet reported through the statement date.
These reserves are estimated using either individual case-basis valuations or
statistical analysis techniques. Because estimates are subject to the effects of
trends in claim severity and frequency, the estimates are continually reviewed
and adjusted as necessary as experience develops or new information becomes
available.
SEPARATE ACCOUNT
Assets held in trust for purchases of variable universal life and variable
annuity contracts and the Company's corresponding obligation to the contract
owners are shown separately in the balance sheets. The assets in the separate
accounts are valued at market. Income and gains and losses with respect to the
assets in the separate accounts accrue to the benefit of the policyholders. The
Company received variable contract premiums of $467,142, $533,536 and $489,243
in 1995, 1994 and 1993, respectively. All variable account contracts are subject
to discretionary withdrawal by the policyholder at the market value of the
underlying assets less the current surrender charge.
RECLASSIFICATIONS
Certain reclassifications have been made to the 1994 and 1993 financial
statements to conform to the 1995 presentation.
2. FAIR VALUES OF FINANCIAL INSTRUMENTS
Statement of Financial Accounting Standards No. 107, "Disclosures about Fair
Value of Financial Instruments", requires disclosure of fair value information
about financial instruments, whether or not recognized in the statutory-basis
balance sheet, for which it is practicable to estimate that value. In cases
where quoted market prices are not available, fair values are based on estimates
using present value or other valuation techniques. Those techniques are
significantly affected by the assumptions used, including the
<PAGE>
Western Reserve Life Assurance Co. of Ohio
Notes to Financial Statements - Statutory-Basis (continued)
(Dollars in thousands)
2. FAIR VALUES OF FINANCIAL INSTRUMENTS (CONTINUED)
discount rate and estimates of future cash flows. In that regard, the derived
fair value estimates cannot be substantiated by comparisons to independent
markets and, in many cases, could not be realized in immediate settlement of the
instrument. Statement of Financial Accounting Standards No. 107 excludes certain
financial instruments and all nonfinancial instruments from its disclosure
requirements and allows companies to forego the disclosures when those estimates
can only be made at excessive cost. Accordingly, the aggregate fair value
amounts presented do not represent the underlying value of the Company.
The following methods and assumptions were used by the Company in estimating its
fair value disclosures for financial instruments:
CASH, CASH EQUIVALENTS, AND SHORT-TERM INVESTMENTS: The carrying amounts
reported in the statutory-basis balance sheet for these instruments
approximate their fair values.
INVESTMENT SECURITIES: Fair values for fixed maturity securities (including
redeemable preferred stocks) are based on quoted market prices, where
available. For fixed maturity securities not actively traded, fair values are
estimated using values obtained from independent pricing services or (in the
case of private placements) are estimated by discounting expected future cash
flows using a current market rate applicable to the yield, credit quality,
and maturity of the investments. The fair values for equity securities are
based on quoted market prices and are recognized in the statutory-basis
balance sheet.
MORTGAGE LOANS AND POLICY LOANS: The fair values for mortgage loans are
estimated utilizing discounted cash flow analyses, using interest rates
reflective of current market conditions and the risk characteristics of the
loans. The fair value of policy loans are assumed to equal their carrying
value.
INVESTMENT CONTRACTS: Fair values for the Company's liabilities under
investment-type insurance contracts are estimated using discounted cash flow
calculations, based on interest rates currently being offered for similar
contracts with maturities consistent with those remaining for the contracts
being valued.
Fair values for the Company's insurance contracts other than investment
contracts are not required to be disclosed. However, the fair values of
liabilities under all insurance contracts are taken into consideration in the
Company's overall management of interest rate risk, which minimizes exposure to
changing interest rates through the matching of investment maturities with
amounts due under insurance contracts.
<PAGE>
Western Reserve Life Assurance Co. of Ohio
Notes to Financial Statements - Statutory-Basis (continued)
(Dollars in thousands)
2. FAIR VALUES OF FINANCIAL INSTRUMENTS (CONTINUED)
The following sets forth a comparison of the fair values and carrying values of
the Company's financial instruments subject to the provisions of Statement of
Financial Accounting Standards No. 107:
<TABLE>
<CAPTION>
DECEMBER 31
1995 1994
---------------------------- -------------------------------
CARRYING CARRYING
VALUE FAIR VALUE VALUE FAIR VALUE
---------------------------------------------------------------
<S> <C> <C> <C> <C>
ADMITTED ASSETS
Bonds $ 452,474 $ 479,656 $ 423,758 $ 414,541
Stocks 834 834 2,555 2,555
Mortgage loans on real estate 6,181 6,536 9,539 7,915
Policy loans 37,125 37,125 27,520 27,520
Cash and short-term investments 4,999 4,999 46,722 46,722
Separate account assets 2,419,205 2,419,205 1,596,736 1,596,736
LIABILITIES
Investment contract liabilities 309,556 279,347 302,890 245,161
Separate account annuities 1,930,590 1,930,590 1,316,237 1,316,237
</TABLE>
3. INVESTMENTS
The carrying value and estimated fair value of investments in debt securities
are as follows:
<TABLE>
<CAPTION>
GROSS GROSS ESTIMATED
CARRYING UNREALIZED UNREALIZED FAIR
VALUE GAINS LOSSES VALUE
---------------------------------------------------------------
<S> <C> <C> <C> <C>
DECEMBER 31, 1995
Bonds:
United States Government and
agencies $ 11,611 $ 64 $129 $ 11,546
State, municipal and other
government 15,079 940 - 16,019
Public utilities 16,143 1,425 - 17,568
Industrial and miscellaneous 219,764 17,444 550 236,658
Mortgage-backed securities 189,877 8,228 240 197,865
---------------------------------------------------------------
Total bonds $452,474 $28,101 $919 $479,656
===============================================================
</TABLE>
<PAGE>
Western Reserve Life Assurance Co. of Ohio
Notes to Financial Statements - Statutory-Basis (continued)
(Dollars in thousands)
3. INVESTMENTS (CONTINUED)
<TABLE>
<CAPTION>
GROSS GROSS ESTIMATED
CARRYING UNREALIZED UNREALIZED FAIR
VALUE GAINS LOSSES VALUE
---------------------------------------------------------------
<S> <C> <C> <C> <C>
DECEMBER 31, 1994
Bonds:
United States Government and
agencies $ 11,277 $ 17 $ 1,048 $ 10,246
State, municipal and other
government 13,117 - 423 12,694
Public utilities 13,296 75 432 12,939
Industrial and miscellaneous 238,389 3,668 7,543 234,514
Mortgage-backed securities 147,679 1,597 5,128 144,148
---------------------------------------------------------------
Total bonds 423,758 5,357 14,574 414,541
Preferred stock 14 - - 14
---------------------------------------------------------------
$423,772 $5,357 $14,574 $414,555
===============================================================
</TABLE>
Preferred stock required writedowns for the securities not in good standing to
fair values of $64 in 1994.
The carrying value and fair value of bonds at December 31, 1995 by contractual
maturity are shown below. Expected maturities may differ from contractual
maturities because borrowers may have the right to call or prepay obligations
with or without penalties.
<TABLE>
<CAPTION>
ESTIMATED
CARRYING FAIR
VALUE VALUE
-------------------------------
<S> <C> <C>
Due in one year or less $ 23,820 $ 23,842
Due one through five years 109,362 114,336
Due five through ten years 91,534 101,034
Due after ten years 37,881 42,579
-------------------------------
262,597 281,791
Mortgage and other asset backed securities 189,877 197,865
-------------------------------
$452,474 $479,656
===============================
</TABLE>
<PAGE>
Western Reserve Life Assurance Co. of Ohio
Notes to Financial Statements - Statutory-Basis (continued)
(Dollars in thousands)
3. INVESTMENTS (CONTINUED)
A detail of net investment income is presented below:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1995 1994 1993
----------------------------------------
<S> <C> <C> <C>
Interest on bonds $38,047 $37,318 $43,744
Dividends on equity investments 30 700 1,533
Interest on mortgage loans 573 616 832
Interest on policy loans 2,353 1,830 1,465
Other investment income 1,919 1,802 1,010
----------------------------------------
Gross investment income 42,922 42,266 48,584
Investment expenses (2,031) (2,127) (2,387)
----------------------------------------
Net investment income $40,891 $40,139 $46,197
========================================
</TABLE>
Proceeds from sales and maturities of debt securities and related gross realized
gains and losses were as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1995 1994 1993
--------------------------------------------
<S> <C> <C> <C>
Proceeds $108,554 $99,241 $203,547
============================================
Gross realized gains $ 1,631 $ 2,019 $ 7,584
Gross realized losses 1,346 1,362 703
--------------------------------------------
Net realized gains $ 285 $ 657 $ 6,881
============================================
</TABLE>
At December 31, 1995, bonds with an aggregate carrying value of $4,483 were on
deposit with certain state regulatory authorities or were restrictively held in
bank custodial accounts for benefit of such state regulatory authorities, as
required by statute.
<PAGE>
Western Reserve Life Assurance Co. of Ohio
Notes to Financial Statements - Statutory-Basis (continued)
(Dollars in thousands)
3. INVESTMENTS (CONTINUED)
Realized investment gains (losses) and changes in unrealized gains (losses) for
investments are summarized below:
<TABLE>
<CAPTION>
REALIZED
-----------------------------------------------------
YEAR ENDED DECEMBER 31
1995 1994 1993
-----------------------------------------------------
<S> <C> <C> <C>
Debt securities $ 285 $ 657 $6,881
Equity securities - (1,579) -
Mortgage loans (1,409) - -
Real estate - - (37)
-----------------------------------------------------
(1,124) (922) 6,844
Tax effect - 225 (226)
Transfer to interest maintenance reserve (554) (436) (4,270)
-----------------------------------------------------
Net realized gains (losses) $(1,678) $(1,133) $2,348
=====================================================
</TABLE>
<TABLE>
<CAPTION>
UNREALIZED
--------------------------------------------
YEAR ENDED DECEMBER 31
1995 1994 1993
--------------------------------------------
<S> <C> <C> <C>
Debt securities $36,399 $(43,354) $5,598
Common stock (236) 1,009 1,581
--------------------------------------------
Change in unrealized appreciation (depreciation) $36,163 $(42,345) $7,179
============================================
</TABLE>
Gross unrealized gains (losses) on common stocks were as follows:
<TABLE>
<CAPTION>
UNREALIZED
------------------------------------------
YEAR ENDED DECEMBER 31
1995 1994 1993
------------------------------------------
<S> <C> <C> <C>
Unrealized gains $361 $597 $1,045
Unrealized losses - - 1,457
------------------------------------------
Net unrealized gains (losses) $361 $597 $ (412)
==========================================
</TABLE>
The Company issued no mortgage loans during 1995. The maximum percentage of any
one mortgage loan to the value of the underlying real estate at origination was
73%. The Company requires all mortgagees to carry fire insurance equal to the
value of the underlying property.
<PAGE>
Western Reserve Life Assurance Co. of Ohio
Notes to Financial Statements - Statutory-Basis (continued)
(Dollars in thousands)
3. INVESTMENTS (CONTINUED)
During 1995, 1994 and 1993, no mortgage loans were foreclosed and transferred to
real estate. During 1994, a mortgage loan loss reserve of $1,033 was
established. This reserve was released in 1995 coincident with the loss
recognition of $1,409 on a loan payoff.
At December 31, 1995, the Company had no investments (excluding U. S. Government
guaranteed or insured issues) which individually represented more than ten
percent of capital and surplus and the asset valuation reserve.
4. REINSURANCE
The Company reinsures portions of certain insurance policies which exceed its
established limits, thereby providing a greater diversification of risk and
minimizing exposure on larger risks. The Company remains contingently liable
with respect to any insurance ceded, and this would become an actual liability
in the event that the assuming insurance company became unable to meet its
obligations under the reinsurance treaty.
<TABLE>
<CAPTION>
1995 1994 1993
-----------------------------------------------------
<S> <C> <C> <C>
Direct premiums $570,413 $600,608 $556,641
Reinsurance assumed 1,569 1,232 1,015
Reinsurance ceded (2,084) (1,708) (1,287)
-----------------------------------------------------
Net premiums earned $569,898 $600,132 $556,369
=====================================================
</TABLE>
The Company received reinsurance recoveries in the amount of $512, $1,146 and
$1,135 during 1995, 1994 and 1993, respectively. At December 31, 1995 and 1994,
estimated amounts recoverable from reinsurers that have been deducted from
policy and contract claim reserves totaled $2 and $85, respectively. The
aggregate reserves for policies and contracts were reduced for reserve credits
for reinsurance ceded at December 31, 1995 and 1994 of $848 and $807,
respectively.
<PAGE>
Western Reserve Life Assurance Co. of Ohio
Notes to Financial Statements - Statutory-Basis (continued)
(Dollars in thousands)
5. INCOME TAXES
Federal income tax expense differs from the amount computed by applying the
statutory federal income tax rate to gain from operations before taxes and
realized capital gains (losses) for the following reasons:
<TABLE>
<CAPTION>
1995 1994 1993
------------------------------------------
<S> <C> <C> <C>
Computed tax at federal statutory rate (35%) $5,096 $1,190 $2,368
Purchase accounting tax adjustments - - (424)
Deferred acquisition costs - tax basis 4,241 4,043 3,395
Tax reserve valuation (49) (1,353) (817)
Investment income differences 85 (109) (192)
Amortization of IMR (309) (254) (216)
Other, net (147) (111) 92
------------------------------------------
Federal income tax expense $8,917 $3,406 $4,206
==========================================
</TABLE>
Prior to 1984, as provided for under the Life Insurance Company Tax Act of 1959,
a portion of statutory income was not subject to current taxation, but was
accumulated for income tax purposes in a memorandum account referred to as the
policyholders' surplus account. No federal income taxes have been provided for
in the financial statements on income deferred in the policyholders' surplus
account ($293 at December 31, 1995). To the extent dividends are paid from the
amount accumulated in the policyholders' surplus account, net earnings would be
reduced by the amount of tax required to be paid. Should the entire amount in
the policyholders' surplus account become taxable, the tax thereon computed at
current rates would amount to approximately $103.
In 1995, the Company reached a final settlement with the Internal Revenue
Service for 1987 through 1993 resulting in taxes of $1,275 and interest of $120
(net of $65 tax effect). The assessment was charged to surplus as a prior period
adjustment.
During 1994, the Company settled tax years 1980 through 1986 with the Internal
Revenue Service. The agreed upon settlement totaled $2.26 million in taxes and
interest. The Company's former parent company, Kansas City Southern Industries,
is principally liable for reimbursing this amount to the Company under the terms
of an indemnification agreement made coincident with the sale of the Company. A
charge to surplus of $1.8 million was made as a prior period adjustment related
to this assessment.
<PAGE>
Western Reserve Life Assurance Co. of Ohio
Notes to Financial Statements - Statutory-Basis (continued)
(Dollars in thousands)
6. POLICY AND CONTRACT ATTRIBUTES
Participating life insurance policies are issued by the Company which entitle
policyholders to a share in the earnings of the participating policies, provided
that a dividend distribution, which is determined annually based on mortality
and persistency experience of the participating policies, is authorized by the
Company. Participating insurance constituted approximately 7.7% and 8.2% of life
insurance in force at December 31, 1995 and 1994, respectively.
A portion of the Company's policy reserves and other policyholders' funds relate
to liabilities established on a variety of the Company's products that are not
subject to significant mortality or morbidity risk; however, there may be
certain restrictions placed upon the amount of funds that can be withdrawn
without penalty. The amount of reserves on these products, by withdrawal
characteristics are summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31
1995 1994
---------------------------- ---------------------------
PERCENT PERCENT
AMOUNT OF TOTAL AMOUNT OF TOTAL
----------------- ---------- ---------------- ----------
<S> <C> <C> <C> <C>
Subject to discretionary withdrawal with
market value adjustment $ 13,422 1% $ 12,345 1%
Subject to discretionary withdrawal at
book value less surrender charge 60,970 3 73,733 4
Subject to discretionary withdrawal at
market value 1,930,590 85 1,316,237 81
Subject to discretionary withdrawal at
book value (minimal or no charges or
adjustments) 227,549 10 207,779 13
Not subject to discretionary withdrawal
provision 20,034 1 22,788 1
---------------------------- -------------------------
2,252,565 100% 1,632,882 100%
========== ==========
Less reinsurance ceded - -
----------------- ----------------
Total policy reserves on annuities and
deposit fund liabilities $2,252,565 $1,632,882
================= ================
</TABLE>
Reserves on the Company's traditional life products are computed using mean
reserving methodologies. These methodologies result in the establishment of
assets for the amount of the net valuation premiums that are anticipated to be
received between the policy's paid-through date to the policy's next anniversary
date. At December 31, 1995 and 1994, these assets (which are reported as
premiums deferred and uncollected) and the amounts of the related gross premiums
and loadings, are as follows:
<PAGE>
Western Reserve Life Assurance Co. of Ohio
Notes to Financial Statements - Statutory-Basis (continued)
(Dollars in thousands)
6. POLICY AND CONTRACT ATTRIBUTES (CONTINUED)
<TABLE>
<CAPTION>
GROSS LOADING NET
------------- -------------- ----------
<S> <C> <C> <C>
DECEMBER 31, 1995
Ordinary direct first year business $ 47 $ 17 $ 30
Ordinary direct renewal business 1,707 229 1,478
Group life direct business 379 - 379
Reinsurance ceded (100) - (100)
------------- -------------- -----------
$2,033 $246 $1,787
============= ============== ===========
DECEMBER 31, 1994
Ordinary direct first year business $ 46 $ 17 $ 29
Ordinary direct renewal business 1,649 252 1,397
Group life direct business 362 - 362
Reinsurance ceded (25) - (25)
------------- -------------- -----------
$2,032 $269 $1,763
============= ============== ===========
</TABLE>
At December 31, 1995 and 1994, the Company had insurance in force aggregating
$2,374 and $3,403, respectively, in which the gross premiums are less than the
net premiums required by the standard valuation standards established by the
Insurance Department of the State of Ohio. The Company established policy
reserves of $32 and $40 to cover these deficiencies at December 31, 1995 and
1994, respectively.
In 1994, the NAIC enacted a guideline to clarify reserving methodologies for
contracts that require immediate payment of claims upon proof of death of the
insured. Companies were allowed to grade the effects of the change in reserving
methodologies over five years. A direct charge to surplus of $3,496 and $450 was
made for the years ended December 31, 1995 and 1994, respectively, related to
the change in reserve methodology.
7. DIVIDEND RESTRICTIONS
Generally, an insurance company's ability to pay dividends is limited to the
amount that their net assets, as determined in accordance with statutory
accounting practices, exceed minimum statutory capital requirements. However,
payment of such amounts as dividends may be subject to approval by regulatory
authorities. The maximum dividend payout which may be made without prior
approval in 1996 is approximately $9,644.
<PAGE>
Western Reserve Life Assurance Co. of Ohio
Notes to Financial Statements - Statutory-Basis (continued)
(Dollars in thousands)
8. RETIREMENT AND COMPENSATION PLANS
The Company's employees participate in a qualified benefit plan sponsored by
AEGON. The Company has no legal obligation for the plan. The Company recognizes
pension expense equal to its allocation from AEGON. The pension expense is
allocated among the participating companies based on the FASB Statement No. 87
expense as a percent of salaries. The benefits are based on years of service and
the employee's compensation during the highest five consecutive years of
employment. Pension expense aggregated $505, $397 and $249 for the years ended
December 31, 1995, 1994 and 1993, respectively. The plan is subject to the
reporting and disclosure requirements of the Employee Retirement and Income
Security Act of 1974.
The Company's employees also participate in a contributory defined contribution
plan sponsored by AEGON which is qualified under Section 401(k) of the Internal
Revenue Service Code. Employees of the Company who customarily work at least
1,000 hours during each calendar year and meet the other eligibility
requirements, are participants of the plan. Participants may elect to contribute
up to fifteen percent of their salary to the plan. The Company will match an
amount up to three percent of the participant's salary. Participants may direct
all of their contributions and plan balances to be invested in a variety of
investment options. The plan is subject to the reporting and disclosure
requirements of the Employee Retirement and Income Security Act of 1974. Pension
expense related to this plan was $305, $250 and $176 for the years ended
December 31, 1995, 1994 and 1993, respectively.
AEGON sponsors supplemental retirement plans to provide the Company's senior
management with benefits in excess of normal pension benefits. The plans are
noncontributory and benefits are based on years of service and the employee's
compensation level. The plans are unfunded and nonqualified under the Internal
Revenue Code. In addition, AEGON has established incentive deferred compensation
plans for certain key employees of the Company. AEGON also sponsors an employee
stock option plan for individuals employed at least three years and a stock
purchase plan for its producers, with the participating affiliated companies
establishing their own eligibility criteria, producer contribution limits and
company matching formula. These plans have been accrued or funded as deemed
appropriate by management of AEGON and the Company.
<PAGE>
Western Reserve Life Assurance Co. of Ohio
Notes to Financial Statements - Statutory-Basis (continued)
(Dollars in thousands)
8. RETIREMENT AND COMPENSATION PLANS (CONTINUED)
In addition to pension benefits, the Company participates in plans sponsored by
AEGON that provide postretirement medical, dental and life insurance benefits to
employees meeting certain eligibility requirements. Portions of the medical and
dental plans are contributory. The expenses of the postretirement plans
calculated on the pay-as-you-go basis are charged to affiliates in accordance
with an intercompany cost sharing arrangement. The Company expensed $86, $70 and
$0 for the years ended December 31, 1995, 1994 and 1993, respectively.
9. RELATED PARTY TRANSACTIONS
The Company shares certain officers, employees and general expenses with
affiliated companies.
The Company receives investment advisory and management services from certain
affiliates. During 1995, 1994 and 1993, the Company paid $8,825, $7,497 and
$4,583, respectively, for such services, which approximates their costs to the
affiliates. The Company provides office space, marketing and administrative
services to certain affiliates. During 1995, 1994 and 1993, the Company received
$4,545, $3,261 and $1,900, respectively, for such services, which approximates
their cost. The Company had a receivable (payable) with affiliates of $3,625 and
$(674) at December 31, 1995 and 1994, respectively.
The Company paid a cash dividend to its immediate parent, First AUSA Life
Insurance Company, of $5,600 in 1993, and during 1994 received capital
contributions of $45,000.
The Company has an agreement with an affiliate through which net agents debit
balances are sold for cash. The net non-admitted assets sold during 1995, 1994
and 1993 aggregated $5,887, $3,553 and $4,555, respectively.
At December 31, 1995, the Company has a $6,500 short-term note receivable from
an affiliate. Interest on this note accrues at 5.82%.
<PAGE>
Western Reserve Life Assurance Co. of Ohio
Notes to Financial Statements - Statutory-Basis (continued)
(Dollars in thousands)
10. COMMITMENTS AND CONTINGENCIES
The Company is a party to legal proceedings incidental to its business. Although
such litigation sometimes includes substantial demands for compensatory and
punitive damages in addition to contract liability, it is management's opinion,
after consultation with counsel and a review of available facts, that damages
arising from such demands will not be material to the Company's financial
position.
The Company is subject to insurance guaranty laws in the states in which it
writes business. These laws provide for assessments against insurance companies
for the benefit of policyholders and claimants in the event of insolvency of
other insurance companies. Assessments are charged to operations when received
by the Company except where right of offset against other taxes paid is allowed
by law; amounts available for future offsets are recorded as an asset on the
Company's balance sheet. The future obligation has been based on the most recent
information available from the National Organization of Life and Health
Insurance Guaranty Association. Potential future obligations for unknown
insolvencies are not determinable by the Company. The Company has established a
reserve of $4,445 at December 31, 1995 for its estimated share of future
guaranty fund assessments related to several post major insurer insolvencies. An
asset of $1,319 at December 31, 1995 has been recorded relating to anticipated
offsets available for certain state premium taxes to be utilized in future
periods. The guaranty fund expense was $1,950, $618 and $329 at December 31,
1995, 1994 and 1993, respectively.
<PAGE>
<TABLE>
<CAPTION>
Western Reserve Life Assurance Co. of Ohio
Summary of Investments Other Than
Investments in Related Parties
(Dollars in thousands)
December 31, 1995
SCHEDULE I
AMOUNT AT WHICH
SHOWN IN THE
TYPE OF INVESTMENT COST (1) VALUE BALANCE SHEET
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
FIXED MATURITIES
Bonds:
United States Government and government
agencies and authorities $108,398 $112,590 $108,213
Foreign governments 15,196 16,019 15,079
Public utilities 16,179 17,568 16,143
All other corporate bonds 315,676 333,479 313,039
---------------------------------------------------------------
Total fixed maturities 455,449 479,656 452,474
EQUITY SECURITIES
Common stocks:
Industrial, miscellaneous and all other 473 834 834
---------------------------------------------------------------
Total equity securities 473 834 834
Mortgage loans on real estate 6,181 6,536 6,181
Real estate 5,121 5,121 5,121
Policy loans 37,125 37,125 37,125
Cash and short-term investments 4,999 4,999 4,999
---------------------------------------------------------------
Total investments $509,348 $534,271 $506,734
===============================================================
</TABLE>
(1) Original cost of equity securities and, as to fixed maturities, original
cost reduced by repayments and adjusted for amortization of premiums or
accrual of discounts. Real estate is net of accumulated depreciation.
<PAGE>
<TABLE>
<CAPTION>
Western Reserve Life Assurance Co. of Ohio
Supplementary Insurance Information
(Dollars in thousands)
SCHEDULE III
FUTURE POLICY POLICY AND
BENEFITS AND UNEARNED CONTRACT
EXPENSES PREMIUMS LIABILITIES
----------------------------------------------------------
<S> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1995
Individual life $ 65,259 $41 $5,811
Group life and health 7,904 - 701
Annuity 319,353 - 100
----------------------------------------------------------
$392,516 $41 $6,612
==========================================================
YEAR ENDED DECEMBER 31, 1994
Individual life $ 77,366 $52 $4,501
Group life 7,323 - 481
Annuity 314,124 - 137
----------------------------------------------------------
$398,813 $52 $5,119
==========================================================
YEAR ENDED DECEMBER 31, 1993
Individual life $ 78,371 $56 $2,757
Group life 17,380 - 488
Annuity 392,714 - 763
----------------------------------------------------------
$488,465 $56 $4,008
==========================================================
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Western Reserve Life Assurance Co. of Ohio
Supplementary Insurance Information-(Continued)
(Dollars in thousands)
SCHEDULE III-(Continued)
NET BENEFITS OTHER
PREMIUM INVESTMENT AND CLAIMS OPERATING PREMIUMS
REVENUE INCOME EXPENSES EXPENSES WRITTEN
--------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1995
Individual life $188,143 $ 9,470 $ 36,066 $ 83,675 $ 99,115
Group life and health 3,365 1,054 2,217 946 780
Annuity 378,390 30,367 205,375 44,447 342,949
--------------------------------------------------------------------------------------------------
$569,898 $40,891 $243,658 $129,068 $442,844
==================================================================================================
YEAR ENDED DECEMBER 31, 1994
Individual life $147,282 $10,146 $ 29,272 $ 71,807 $ 89,467
Group life 3,709 372 1,754 1,329 1,846
Annuity 449,141 29,621 199,485 44,063 421,176
--------------------------------------------------------------------------------------------------
$600,132 $40,139 $230,511 $117,199 $512,489
==================================================================================================
YEAR ENDED DECEMBER 31, 1993
Individual life $101,621 $10,943 $ 24,086 $ 52,514 $ 62,600
Group life 5,387 201 1,293 1,104 4,063
Annuity 449,361 35,053 86,406 37,740 419,037
--------------------------------------------------------------------------------------------------
$556,369 $46,197 $111,785 $ 91,358 $485,700
==================================================================================================
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Western Reserve Life Assurance Co. of Ohio
Reinsurance
(Dollars in thousands)
SCHEDULE IV
ASSUED PERCENTAGE
CEDED TO FROM OF AMOUNT
GROSS OTHER OTHER NET ASSUMED
AMOUNT COMPANIES COMPANIES AMOUNT TO NET
-------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1995
Life insurance in force $21,057,581 $1,365,119 $ - $19,692,462 0.0%
=====================================================================================
Premiums:
Individual life $ 189,870 $ 1,727 $ - $ 188,143 0.0%
Group life and health 2,153 357 1,569 3,365 46.6
Annuity 378,390 - - 378,390 0.0
-------------------------------------------------------------------------------------
$ 570,413 $ 2,084 $ 1,569 $ 569,898 0.2%
=====================================================================================
YEAR ENDED DECEMBER 31, 1994
Life insurance in force $14,321,386 $1,090,845 $1,271,402 $14,501,943 8.8%
=====================================================================================
Premiums:
Individual life $ 148,766 $ 1,484 $ - $ 147,282 0.0%
Group life 2,701 224 1,232 3,709 33.0
Annuity 449,141 - - 449,141 0.0
-------------------------------------------------------------------------------------
$ 600,608 $ 1,708 $ 1,232 $ 600,132 0.4%
=====================================================================================
YEAR ENDED DECEMBER 31, 1993
Life insurance in force $ 9,881,904 $ 851,042 $1,009,201 $10,040,063 10.1%
=====================================================================================
Premiums:
Individual life $ 102,817 $ 1,196 $ - $ 101,621 0.0%
Group life 4,463 91 1,015 5,387 18.8
Annuity 449,361 - - 449,361 0.0
-------------------------------------------------------------------------------------
$ 556,641 $ 1,287 $ 1,015 $ 556,369 0.2%
=====================================================================================
</TABLE>
<PAGE>
PART II.
OTHER INFORMATION
UNDERTAKING TO FILE REPORTS
Subject to the terms and conditions of Section 15(d) of the Securities
Exchange Act of 1934, the undersigned registrant hereby undertakes to file with
the Securities and Exchange Commission such supplementary and periodic
information, documents, and reports as may be prescribed by any rule or
regulation of the Commission heretofore or hereafter duly adopted pursuant to
authority conferred in that Section.
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:
(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
II-1
<PAGE>
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 deliberate intent to
cause injury to the corporation or undertaken with reckless disregard for the
best interests of the corporation;
II-2
<PAGE>
(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' 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
II-3
<PAGE>
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
II-4
<PAGE>
corporation. Such a determination that a written undertaking need not be
submitted to the corporation shall in no way affect the entitlement of
indemnification as authorized by this article.
(6) The indemnification provided by this article shall not be deemed
exclusive of any other rights to which those seeking indemnification may be
entitled under the articles or the regulations or any agreement, vote of
shareholders or disinterested directors, or otherwise, both as to action in his
official capacity and as to action in another capacity while holding such
office, and shall continue as to a person who has ceased to be a director,
trustee, officer, employee, or agent and shall inure to the benefit of the
heirs, executors, and administrators of such a person.
(7) The Corporation may purchase and maintain insurance on behalf of any
person who is or was a director, officer, employee, or agent of the corporation,
or is or was serving at the request of the corporation as a director, trustee,
officer, employee, or agent of another corporation (including a subsidiary of
this corporation), domestic or foreign, nonprofit or for profit, partnership,
joint venture, trust, or other enterprise against any liability asserted against
him and incurred by him in any such capacity or arising out of his status as
such, whether or not the corporation would have the power to indemnify him
against such liability under this section.
(8) As used in this section, references to "the corporation" include all
constituent corporations in a consolidation or merger and the new or surviving
corporation, so that any person who is or was a director, officer, employee, or
agent of such a constituent corporation, or is or was serving at the request of
such constituent corporation as a director, trustee, officer, employee or agent
of another corporation (including a subsidiary of this corporation), domestic or
foreign, nonprofit or for profit, partnership, joint venture, trust, or other
enterprise shall stand in the same position under this article with respect to
the new or surviving corporation as he would if he had served the new or
surviving corporation in the same capacity.
(9) The foregoing provisions of this article do not apply to any
proceeding against any trustee, investment manager or other fiduciary of an
employee benefit plan in such person's capacity as such, even though such person
may also be an agent of this corporation. The corporation may indemnify such
named fiduciaries of its employee benefit plans against all costs and expenses,
judgments, fines, settlements or other amounts actually and reasonably incurred
by or imposed upon said named fiduciary in connection with or arising out of any
claim, demand, action, suit or proceeding in which the named fiduciary may be
made a party by reason of being or having been a named fiduciary, to the same
extent it indemnifies an agent of the corporation. To the extent that the
corporation does not have the direct legal power to indemnify, the corporation
may contract with the named fiduciaries of its employee benefit plans to
indemnify them to the same extent as noted above. The corporation may purchase
and maintain insurance on behalf of such named fiduciary covering any liability
to the same extent that it contracts to indemnify.
AMENDED CODE OF REGULATIONS OF WESTERN RESERVE
ARTICLE V
INDEMNIFICATION OF DIRECTORS AND OFFICERS
Each Director, officer and member of a committee of this Corporation,
and any person who may have served at the request of this Corporation as a
Director, officer or member of a committee of any other corporation in which
this Corporation owns shares of capital stock or of which this Corporation is a
creditor (and his heirs, executors and administrators) shall be indemnified by
the Corporation against all expenses, costs, judgments, decrees, fines or
penalties as provided by, and to the extent allowed by, Article Eighth of the
Corporation's Articles of Incorporation, as amended.
II-5
<PAGE>
RULE 484 UNDERTAKING
Insofar as indemnification for liability arising under the Securities
Act of 1933 (the "Act") may be permitted to directors, officers and controlling
persons of the registrant pursuant to the foregoing provisions, or otherwise,
the registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of its counsel, the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
REPRESENTATIONS, DESCRIPTION AND UNDERTAKINGS PURSUANT TO
PARAGRAPH (b)(13)(iii)(F) of RULE 6e-3(T) UNDER
THE INVESTMENT COMPANY ACT OF 1940
Registrant makes the following representations:
(1) Section 6e-3(T)(b)(13)(iii)(F) is being relied upon.
(2) The level of the mortality and expense risk charge and
the monthly death benefit guarantee charge is reasonable
in relation to the risks assumed under the Joint
Survivorship flexible premium variable life insurance
policies.
(3) Western Reserve Life Assurance Co. of Ohio has
concluded that there is a reasonable likelihood that
the distribution financing arrangement of WRL
Series Life Account (the "Series Account") will benefit
the Series Account and the Policyowners.
(4) The Series Account will invest only in management
companies which have undertaken to have a board of
directors, a majority of whom are not interested persons
of the company, formulate and approve any plan under the
Rule 12b-1 to finance distribution expenses.
The methodology used to support the representation made in paragraph (2)
above was to analyze the mortality and expense risk charge and the monthly death
benefit guarantee charge in relation to the anticipated risks expected in this
regard to be experienced under the Policies. Western Reserve will maintain and
make available to the Commission on request, a memorandum setting forth the
basis for the representations in paragraph (2) above and a memorandum setting
forth the basis for the representation in paragraph (3) above.
II-6
<PAGE>
CONTENTS OF REGISTRATION STATEMENT
This registration statement comprises the following papers and documents:
The facing sheet
The Prospectus, consisting of 98 pages
The undertaking to file reports
The statement with respect to indemnification
The Rule 484 undertaking
The Rule 6e-3(T) undertaking
The signatures
Written consent of the following persons:
(a) Alan Yaeger
(b) Thomas E. Pierpan, Esq.
(c) Sutherland, Asbill & Brennan
(d) Ernst & Young LLP
(e) Price Waterhouse LLP
The following exhibits:
1. The following exhibits correspond to those required by paragraph A to
the instructions as to exhibits in Form N-8B-2:
A. (1) Resolution of the Board of Directors of Western Reserve
establishing the Series Account (1)
(2) Not Applicable
(3) Distribution of Policies:
(a) Form of Master Service and Distribution Compliance
Agreement (5)
(b) (I) Form of Broker/Dealer Supervisory and Service
Agreement (4)
(ii) Form of Broker/Dealer Supervisory and
Service Agreement (4)
(c) See Exhibit 1.A.(3)(b)(ii)
(4) Not Applicable
(5) (a) Specimen Flexible Premium Variable Life
Insurance Policy (8)
(b) Joint Insured Term Rider (8)
(c) Individual Insured Rider (8)
(d) Wealth Protector Rider (8)
(e) Terminal Illness Accelerated Death Benefit Rider
(Form Nos. ACCDB-10/94, ACCDB-CT-10/94,
ACCDBIN-10/94, ACCDB-10/94MN, ACCDBMS-01/95,
ACCDBSC-02/95, ACCDBIL-10/94) (12)
(6) (a) Second Amended Articles of Incorporation of
Western Reserve (3)
(b) Amended Code of Regulations (By-Laws) of Western
Reserve (5)
(7) Not Applicable
(8) (a) Investment Advisory Agreement with the Fund (6)
(b) Sub-Advisory Agreement (6)
(9) Not Applicable
(10) Application for Flexible Premium Variable Life Insurance
Policy (8)
(11) Memorandum describing issuance, transfer and redemption
procedures (9)
2. See Exhibit 1.A.(5)
3. Opinion of Counsel as to the legality of the securities being
registered (7)
II-7
<PAGE>
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 (10)
7. Consent of Thomas E. Pierpan, Esq. (12)
8. Consent of Sutherland, Asbill & Brennan
9. Consent of Ernst & Young LLP
10. Consent of Price Waterhouse LLP
11. Powers of Attorney (12)
- ----------------------------------------
(1) This exhibit was previously filed on Form S-6 Registration Statement
dated September 27, 1985 (File No. 33-506) and is incorporated
herein by reference.
(2) This exhibit was previously filed on Form S-6 Registration Statement
dated September 25, 1989 (File No. 33-31140) 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 May 1, 1989 (File No. 33-24856)
and is incorporated herein by reference.
(4) This exhibit was previously filed on Pre-Effective Amendment No. 1 to
Form S-6 Registration Statement dated December 19, 1989 (File No.
33-31140) and is incorporated herein by reference.
(5) This exhibit was previously filed on Post-Effective Amendment No. 3 to
Form N-4 Registration Statement dated March 1, 1991 (File No. 33-24856)
and is incorporated herein by reference.
(6) This exhibit was previously filed on Post-Effective Amendment No. 6 to
Form N-1A Registration Statement dated March 1, 1991 (File No. 33-507)
and is incorporated herein by reference.
(7) This exhibit was previously filed on Post-Effective Amendment No. 2 to
Form S-6 Registration Statement dated May 1, 1991 (File No. 33-31140)
and is incorporated herein by reference.
(8) This exhibit was previously filed on Form S-6 Registration Statement
dated September 20, 1993 (File No. 33-69138) and is incorporated herein
by reference.
(9) This exhibit was previously filed on Pre-Effective Amendment No. 1 to
Form S-6 Registration Statement dated December 20, 1993 (File No.
33-69138) and is incorporated herein by reference.
(10) This exhibit was previously filed on Post-Effective Amendment No. 1 to
Form S-6 Registration Statement dated February 22, 1994 (File No.
33-69138) and is incorporated herein by reference.
II-8
<PAGE>
(11) This exhibit was previously filed on Post-Effective Amendment No. 3 to
Form S-6 Registration Statement dated December 30, 1994 (File No.
33-69138) and is incorporated herein by reference.
(12) This exhibit was previously filed on Post-Effective Amendment No. 5 to
Form S-6 Registration Statement dated April 26, 1995 (File No. 33-69138)
and is incorporated herein by reference.
II-9
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant, WRL Series Life Account, certifies that it meets all the
requirements for effectiveness of this Registration Statement pursuant to Rule
485(b) under the Securities Act of 1933 and has duly caused this Post-Effective
Amendment No. 7 to its 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 15th day
of April, 1996.
(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
Post-Effective Amendment No. 7 to the Registration Statement has been signed
below by the following persons in the capacities and on the dates indicated.
SIGNATURE AND TITLE DATE
------------------- ----
/S/ JOHN R. KENNEY April 15, 1996
- -----------------------------
John R. Kenney, Chairman of the
Board, Chief Executive Officer
and President
/S/ RICHARD B. FRANZ, II April 15, 1996
- -----------------------------
Richard B. Franz, II, Senior Vice
President and Treasurer
/S/ ALAN M. YAEGER April 15, 1996
- -----------------------------
Alan M. Yaeger, Executive Vice
President, Actuary & Chief Financial Officer*
- -------
*Principal Financial Officer
<PAGE>
/S/ KENNETH P. BEIL April 15, 1996
- --------------------------------
Kenneth P. Beil, Assistant
Vice President & Principal
Accounting Officer**
/S/ PATRICK S. BAIRD April 15, 1996
- -------------------------------
Patrick S. Baird, Director ***/
/S/ LYMAN H. TREADWAY April 15, 1996
- -----------------------------
Lyman H. Treadway
/S/ JACK E. ZIMMERMAN April 15, 1996
- --------------------------------
Jack E. Zimmerman, Director ***/
- ----------
** Principal Accounting Officer
***/ /S/ THOMAS E. PIERPAN
-----------------------------
Signed by: Thomas E. Pierpan
as Attorney-in-fact
Exhibit 8
Consent of Sutherland, Asbill & Brennan
<PAGE>
S.A.B. letterhead
April 18, 1996
Board of Directors
Western Reserve Life Assurance Co. of Ohio
WRL Series Life Account
201 Highland Avenue
Largo, Florida 34640
RE: WRL Series Life Account
FILE NO. 33-69138
Gentlemen:
We hereby consent to the use of our name under the caption "Legal
Matters" in the Prospectus contained in Post-Effective Amendment No. 7 to the
Registration Statement on Form S-6 (File No. 33-69138) of the WRL Series Life
Account filed by Western Reserve Life Assurance Co. of Ohio with the Securities
and Exchange Commission. In giving this consent, we do not admit that we are in
the category of persons whose consent is required under Section 7 of the
Securities Act of 1933.
Very truly yours,
SUTHERLAND, ASBILL & BRENNAN
By: /S/ STEPHEN E. ROTH
--------------------------
Stephen E. Roth
Exhibit 9
Consent of Ernst & Young LLP
<PAGE>
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to the
use of our report dated February 23, 1996, with respect to the statutory-basis
financial statements of Western Reserve Life Assurance Co. of Ohio included in
Amendement No. 7 to Registration Statement (Form S-6 No. 33-69138) and related
Prospectus of WRL Series Life Account.
ERNST & YOUNG LLP
Des Moines, Iowa
April 18, 1996
Exhibit 10
Consent of Price Waterhouse LLP
<PAGE>
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting part of the WRL
Freedom Wealth Protector Post-Effective Amendment No. 7 to the Registration
Statement on Form S-6 of our report dated January 31, 1996 relating to the
financial statements and selected per unit data and ratios of the sub-accounts
comprising the WRL Series Life Account, which appears in such Prospectus. We
further consent to the reference to us under the heading "Experts" in the
Prospectus constituting part of this Registration Statement.
PRICE WATERHOUSE LLP
Kansas City, Missouri
April 18, 1996
