SUPPLEMENT DATED MAY 1, 1996
TO
PROSPECTUS DATED MAY 1, 1994
WRL FREEDOM SP PLUS/Registered Trademark/
THE FOLLOWING INFORMATION SUPPLEMENTS INFORMATION PROVIDED ON PAGE 7, FIFTH
PARAGRAPH OF THE PROSPECTUS UNDER THE HEADING "11. WHAT CHARGES ARE ASSESSED IN
CONNECTION WITH THE POLICY?"
PORTFOLIO RATE
--------- ----
C.A.S.E. Growth 0.80%
Value Equity 0.80%
THE FOLLOWING INFORMATION SUPPLEMENTS INFORMATION PROVIDED ON PAGES 22-23 OF THE
PROSPECTUS UNDER THE HEADING "INVESTMENTS OF THE SERIES ACCOUNT - WRL SERIES
FUND, INC.":
Beginning May 1, 1995, the Fund will offer two additional portfolios
("Portfolios"). Also, as of May 1, 1996, the Money Market Portfolio will have a
new Sub-Adviser, J.P. Morgan Investment Management Inc. The investment
objectives and policies of the new Portfolios 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 Portfolios, which should be read carefully.
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.
MONEY MARKET PORTFOLIO: This Portfolio's objective is to obtain maximum
current income consistent with preservation of principal and maintenance of
liquidity.
Western Reserve continues to serve as investment adviser to each Portfolio
of the Fund and manages the assets of each Portfolio in accordance with
policies, programs and guidelines established by the Board of Directors of the
Fund.
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-owed
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.
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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.
THE FIFTH PARAGRAPH ON PAGE 52 AND CONTINUING ON PAGE 53 OF THE PROSPECTUS UNDER
THE HEADING "APPENDIX A - ILLUSTRATION OF BENEFITS" IS CHANGED, AS FOLLOWS:
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%), Emerging
Growth Sub-Account (0.91%), Global Sub-Account (0.99%), Aggressive Growth
Sub-Account (0.92%), Balanced Sub-Account (0.97%) and Utility Sub-Account
(1.00%). Because the Tactical Asset Allocation Sub-Account and C.A.S.E. Growth
Sub-Account were not in existence during the full year of 1995 (commencement of
operations was January 3, 1995 for the Tactical Asset Allocation Sub-Account and
May 1, 1995 for the C.A.S.E. Growth 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
exceeds 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 amounts shown for the Net Surrender Values take
into account all of the above charges and, during the first ten Policy years, a
contingent surrender charge, which consists of the sales charge under the
Policy, a charge for premium taxes charged by various states, and a first year
issue charge under the Policy.
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WRL FREEDOM SP PLUS(R)
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
This Prospectus describes WRL Freedom SP Plus/Registered Trademark/, a
Flexible Premium Variable Life Insurance Policy (the 'Policy') offered by
Western Reserve Life Assurance Co. of Ohio ('Western Reserve'). The Policy is
designed to provide lifetime insurance protection as well as flexibility in
connection with premium payments and death benefits. The minimum initial payment
is generally $10,000 with a $5,000 minimum initial payment applicable to
insureds less than age 20. Thereafter, a Policyowner may, subject to certain
restrictions, make additional 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
insurance policy.
The Policy provides for a death benefit payable at the insured's death, and
for 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 to a
combination of both. The amount of the death benefit will never be less than the
specified amount of the Policy so long as the Policy remains in force. Under
certain circumstances, a higher amount of death benefit will be paid at the
death of the insured. Western Reserve will pay to the beneficiary the death
benefit minus any indebtedness under the Policy.
The Policy provides for 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.
The assets of each sub-account of the Series Account will be invested
solely in a corresponding portfolio of WRL Series Fund, Inc. (the 'Fund'). The
Prospectuses for the Fund describes the investment objectives and the risks of
investing in the portfolios of the Fund corresponding to the Sub-Accounts
currently available under the Policy. The Policyowner bears the entire
investment risk for all amounts allocated to the Series Account; there is no
guaranteed minimum cash value.
Prior to May 1, 1991, Western Reserve offered certain variable life
insurance policies known as 'The Executive Equity Protector' and 'WRL Freedom
Plus' (the 'Old Policies'), described in earlier versions of this Prospectus.
The terms, provisions, and resulting benefits and values of the Old Policies may
vary from those of the Policy described in this Prospectus, in that they have:
no fixed account; no monthly administrative charge; different underwriting
classifications; and different cost of insurance charges. The Executive Equity
Protector also has a different contingent surrender charge and a different
premium expense charge on additional premium payments. An owner of an Old Policy
receiving this Prospectus should refer to the policy contract to determine its
exact terms. Under the Old Policies, net premiums may be allocated and cash
values may be transferred to the same sub-accounts of the Series Account as
under the Policy. 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.
Distributions from a Policy including policy loans, surrenders and cash
withdrawals may have adverse tax consequences and, prior to age 59 1/2, may
result in a penalty tax.
Please read this Prospectus and the Prospectuses for the Fund carefully and
retain for future reference.
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.
Prospectus Dated May 1, 1995
<PAGE>
TABLE OF CONTENTS
DEFINITIONS................................................................
INTRODUCTION...............................................................
INVESTMENT EXPERIENCE INFORMATION..........................................
Rates of Return..................................................
Death Benefit, Cash Value and Net Surrender Value Illustrations..
Other Performance Data...........................................
WESTERN RESERVE AND THE SERIES ACCOUNT.....................................
Western Reserve Life Assurance Co. of Ohio.......................
The Series Account...............................................
POLICY BENEFITS............................................................
Death Benefit....................................................
Cash Value.......................................................
INVESTMENTS OF THE SERIES ACCOUNT..........................................
WRL Series Fund, Inc.............................................
Addition, Deletion, or Substitution of Investments...............
PAYMENT AND ALLOCATION OF PREMIUMS.........................................
Issuance of a Policy.............................................
Partial Payment Procedure........................................
Temporary Insurance Coverage.....................................
Premiums.........................................................
Allocation of Premiums and Cash Value............................
Policy Lapse and Reinstatement...................................
CHARGES AND DEDUCTIONS.....................................................
Contingent Surrender Charge......................................
Sales Charge and Premium Tax Charge on Additional Premiums.......
Cash Value Charges...............................................
Optional Cash Value Charges......................................
Charges Against the Series Account...............................
Group or Sponsored Arrangements..................................
POLICY RIGHTS..............................................................
Loan Privileges..................................................
Surrender Privileges.............................................
Examination of Policy Privilege ('Free-Look')....................
Conversion Rights................................................
Benefits at Maturity.............................................
Payment of Policy Benefits.......................................
GENERAL PROVISIONS.........................................................
Postponement of Payments.........................................
The Contract.....................................................
Suicide..........................................................
Incontestability.................................................
Change of Owner or Beneficiary...................................
Assignment.......................................................
Misstatement of Age or Sex.......................................
Reports and Records..............................................
Optional Insurance Benefits......................................
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THE FIXED ACCOUNT..........................................................
Minimum Guaranteed and Current Interest Rates....................
Fixed Account Value..............................................
Allocations and Withdrawals......................................
DISTRIBUTION OF THE POLICIES...............................................
FEDERAL TAX MATTERS........................................................
Introduction.....................................................
Tax Charges......................................................
Tax Status of the Policy.........................................
Tax Treatment of Policy Benefits.................................
Employment-Related Benefit Plans.................................
SAFEKEEPING OF THE SERIES ACCOUNT'S ASSETS.................................
VOTING RIGHTS OF THE SERIES ACCOUNT........................................
STATE REGULATION OF WESTERN RESERVE........................................
REINSURANCE................................................................
EXECUTIVE OFFICERS AND DIRECTORS OF WESTERN RESERVE........................
LEGAL MATTERS..............................................................
LEGAL PROCEEDINGS..........................................................
EXPERTS....................................................................
ADDITIONAL INFORMATION.....................................................
INFORMATION ABOUT WESTERN RESERVE'S FINANCIAL STATEMENTS...................
APPENDIX A - ILLUSTRATION OF BENEFITS......................................
APPENDIX B - LONG TERM MARKET TRENDS.......................................
INDEX TO FINANCIAL STATEMENTS..............................................
The Policy is not available in all States.
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING IN ANY JURISDICTION IN
WHICH SUCH OFFERING MAY NOT BE LAWFULLY MADE. NO DEALER, SALESMAN, 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 BE NO
RELIED UPON.
ii
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DEFINITIONS
ACCOUNTS -- Allocation options including the Fixed Account and Sub-Accounts
of the Series Account.
ATTAINED AGE -- The Issue Age plus the number of completed Policy years.
ANNIVERSARY -- The same day and month as the Policy Date for each
succeeding year the Policy remains In Force.
BENEFICIARY -- The person or persons specified by the Owner as entitled to
receive the death benefit proceeds under the Policy.
CASH VALUE -- The sum of the values in each Sub-Account plus the Policy's
value in the Fixed Account.
CASH WITHDRAWAL -- The right of a Policyowner to receive, subject to Policy
limitations, a portion of the Net Surrender Value.
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.
IN FORCE -- Condition under which the coverage is active and the Insured's
life remains insured.
INITIAL PREMIUM -- The amount which must be paid before coverage begins.
INSURED -- The person upon whose life the Policy is issued.
ISSUE AGE -- Issue age refers to the age on the Insured's birthday nearest
the Policy Date.
LAPSE -- Termination of the Policy at the end of the grace period.
LOAN RESERVE -- A part of the Fixed Account to which amounts are
transferred from the Series Account as collateral for Policy loans.
MATURITY DATE -- The date when coverage under the Policy will terminate if
the Insured is living and the Policy is In Force.
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 the then applicable 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.
OFFICE -- The administrative office of Western Reserve whose mailing
address is P. O. Box 5068, Clearwater, Florida 34618-5068.
POLICY -- The flexible premium variable life insurance policy offered by
Western Reserve and described in this Prospectus.
1
<PAGE>
DEFINITIONS (CONTINUED)
POLICY DATE -- The date set forth in the Policy when insurance coverage is
effective and monthly deductions commence under the Policy. The Policy Date is
used to determine Policy years and Policy Months. Policy Anniversaries are
measured from the Policy Date.
POLICY MONTH -- A month beginning on the Monthly Anniversary.
POLICYOWNER ('OWNER') -- The person who owns the Policy.
PORTFOLIO -- A separate investment portfolio of the Fund.
RECORD DATE -- The date the Policy is recorded on the books of the Company
as an In Force Policy.
SERIES ACCOUNT -- WRL Series Life Account, a separate investment account
established by Western Reserve to receive and invest the 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.
SURRENDER -- The right of a Policyowner to voluntarily terminate the Policy
and receive the entire Net Surrender Value.
TERMINATION -- Condition when the Insured's life is no longer insured under
the coverage provided.
VALUATION DATE -- Each day on which the net asset value of the Fund is
determined.
VALUATION PERIOD -- The period between two successive Valuation Dates,
commencing at the close of business of a Valuation Date and ending at the close
of business of the next succeeding Valuation Date.
2
<PAGE>
INTRODUCTION
1. WHAT IS THE DIFFERENCE BETWEEN THE POLICY AND A CONVENTIONAL FIXED BENEFIT
LIFE INSURANCE POLICY?
Like conventional fixed-benefit life insurance, as long as the Policy
remains In Force, the Policy will provide for: (1) the payment of a
minimum death benefit to a Beneficiary upon the Insured's death; (2)
the accumulation of Cash Value; and (3) surrender rights and Policy
loan privileges.
The Policy differs from conventional fixed-benefit life insurance by
allowing Policyowners to allocate net premiums to one or more
Sub-Accounts of the Series Account, or to the Fixed Account, or to a
combination of both. Each Sub-Account invests in a designated Portfolio
of the Fund. The amount and/or duration of the life insurance coverage
and the Cash Value of the Policy are not guaranteed and may increase or
decrease depending upon the investment experience of the 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. .)
Unlike conventional fixed benefit life insurance, a Policyowner also
has the flexibility, subject to certain restrictions (see Premiums -
Premium Limitations, p. ), to make additional premium payments and to
adjust the death benefits payable under the Policy by increasing or
decreasing the Specified Amount. Thus, unlike conventional
fixed-benefit life insurance, the Policy does not require a Policyowner
to adhere to a fixed premium schedule. The minimum Initial Premium is
generally $10,000 ($5,000 in the case of Insureds less than age 20),
except under certain circumstances. (See Payment and Allocation of
Premiums - Partial Payment Procedure, p. .) Thereafter, the failure to
make additional payments will not itself cause the Policy to lapse.
Conversely, making additional premium payments will not guarantee that
the Policy will remain In Force. Lapse will only occur when Net
Surrender Value is insufficient to pay certain charges deducted on the
Monthly Anniversary, and a grace period expires without sufficient
additional premium payments by the Policyowner. (See Policy Lapse and
Reinstatement - Lapse, p. .)
2. WHAT DEATH BENEFIT OPTIONS ARE AVAILABLE UNDER THE POLICY?
The Policy provides for the payment of benefits upon the death of the
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 Insured. Under Death Benefit
Option B, the death benefit is the greater of the Specified Amount of
the Policy plus the Cash Value of the Policy on the date of death of
the Insured or a specified percentage of Cash Value of the Policy on
the date of death of the Insured. So long as the Policy remains In
Force, the minimum death benefit payable under either option will be
the current Specified Amount. These proceeds 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. Policyowners will be able to select from a range of
Specified Amounts based on the size of their initial payment. Under
Western Reserve's current rules, the minimum Specified Amount for a
Policy at issue is the amount of insurance which the $10,000 minimum
initial payment ($5,000 in the case of Insureds less than age 20) will
purchase based on the Insured's age, sex, and rate class and certain
guidelines set forth in the Internal Revenue Code. The maximum
Specified Amount for a particular Initial Premium payment is generally
the amount of insurance which would remain In Force for a 20-year
period based on certain assumptions.
Optional insurance benefits offered under the Policy include a
children's insurance rider; an other insured rider; an accidental death
benefit rider; an option to increase specified amount rider; a
disability waiver rider; a disability waiver and income rider; and a
primary insured rider. (See
3
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Optional Cash Value Charges - Optional Insurance Benefits, p. .) 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. .)
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. .)
3. HOW MAY THE AMOUNT OF THE DEATH BENEFIT AND CASH VALUE VARY?
Under either death benefit option, as long as the Policy remains In
Force, the death benefit will not be less than the current 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, 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. .)
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 Cash Withdrawals, 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. .)
4. WHAT FLEXIBILITY DOES A POLICYOWNER HAVE TO ADJUST THE AMOUNT OF THE DEATH
BENEFIT?
The Policyowner has significant flexibility to adjust the death benefit
payable by increasing or decreasing the Specified Amount of the Policy.
No increase in the Specified Amount may be requested during the first
Policy year and no decrease may be requested during the first two
Policy years. Any increase in the Specified Amount will require
additional evidence of insurability satisfactory to Western Reserve
(see Policy Benefits - Death Benefit, p. ), and will result in
additional charges. (See Cash Value Charges - Cost of Insurance, p. .)
Also, the Policyowner may change the death benefit option once each
Policy year after the first Policy year. (See Death Benefit - Change in
Death Benefit Option, p. .)
5. 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. ), and a grace period expires without a sufficient payment
by the Policyowner. The Policy, therefore, differs in two important
respects from a conventional life insurance policy. First, the failure
to make additional premium payments will not automatically cause the
Policy to Lapse. Second, the Policy can Lapse even if additional
premium payments have been made if Net Surrender Value is insufficient
to pay certain monthly charges, and a grace period expires without a
sufficient payment. Thus, the payment of premiums in any amount does
not guarantee that the Policy will remain In Force until the Maturity
Date. If the Insured is alive and the Policy is In Force on the
Maturity Date, which is the Insured's 95th birthday, the Policy will
then terminate and no longer be In Force. The Net Surrender Value as of
the Maturity Date will be paid to the Policyowner.
6. HOW ARE PREMIUMS ALLOCATED?
The Policyowner determines in the application how premiums are to be
allocated among the Sub-Accounts of the Series Account, each of which
invests in shares of a designated Portfolio of the Fund, to the Fixed
Account, or to a combination of both. The Policyowner may change the
allocation for future premiums at any time by providing Western Reserve
with written notification. Each Portfolio has a different investment
objective. (See Investments of the Series Account - WRL Series Fund,
Inc., p. .)
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The entire Initial Premium payment is available for allocation among
the Sub-Accounts of the Series Account. The portion of any additional
premium payments available for allocation ('net premium') equals the
premium paid less the premium expense charges. (See Charges and
Deductions - Sales Charge and Premium Tax Charge on Additional
Premiums, p. .)
7. ARE TRANSFERS PERMITTED AMONG THE ACCOUNTS?
Yes. A Policyowner may transfer amounts 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 and
Withdrawals, p. .) Western Reserve reserves the right to impose a
charge of $10 for each transfer following the first twelve transfers
made during any Policy year. However, Western Reserve does not
currently impose a charge for transfers, regardless of the number made.
(See Allocation of Premiums and Cash Value - Transfers, p. .)
8. IS THERE A 'FREE-LOOK' PERIOD?
Yes, the Policy provides for 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 the 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. .)
9. MAY THE POLICY BE SURRENDERED?
Yes, the Policyowner may totally surrender the Policy at any time and
receive the Net Surrender Value of the Policy which equals the Policy's
Cash Value less indebtedness and less the then applicable surrender
charge plus any unearned loan interest. (See Charges and Deductions -
Contingent Surrender Charge, p. .) 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. .) A charge on Cash Withdrawals will
be deducted equal to the lesser of $25.00 or 2% of the amount of each
Cash Withdrawal. (See Optional Cash Value Charges - Cash Withdrawals,
p. .) If Death Benefit Option A is in effect, Cash Withdrawals will
reduce the Policy's Specified Amount by the amount of the Cash
Withdrawal.
10. WHAT IS THE LOAN PRIVILEGE?
After the first Policy Anniversary, a Policyowner may obtain a Policy
loan in an amount which is not greater than 90% of the Cash Value, less
any surrender charge and already outstanding Policy loan.
The interest rate on a loan is 7.4% payable annually in advance. The
requested loan amount plus interest in advance will be transferred from
the Series Account to the Loan Reserve and credited 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. .) 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. .)
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
5
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is made on or after the Owner attains age 59 1/2, is attributable to
the Owner's becoming disabled, or is part of a series of substantially
equal periodic payments for the life (or life expectancy) of the Owner
or the joint lives (or joint life expectancies) of the Owner and the
Owner's Beneficiary. (See Federal Tax Matters, p. .)
There are risks involved in taking a Policy loan, a few of which
include the potential for a Policy to lapse if projected earnings,
taking into account outstanding loans, are not achieved, as well as
adverse tax consequences which occur if a Policy lapses with loans
outstanding. (See Federal Tax Matters - Tax Treatment of Policy
Benefits, p. .)
11. WHAT CHARGES ARE ASSESSED IN CONNECTION WITH THE POLICY?
The first two charges are charges on premiums. One is a charge that is
a percent of the Initial Premium and is taken out of Cash Value only
upon Surrender of a Policy during the first 10 Policy years. The other
is a percent of any subsequent premium payments and is taken from those
payments.
No amount will be deducted from the Initial Premium prior to allocation
to the Sub-Account of the Series Account investing in the Money Market
Portfolio. If a Policy is surrendered prior to the end of the tenth
Policy year, a contingent surrender charge (including a contingent
deferred sales charge) will be deducted from the Policy's Cash Value
equal to 9% of the Initial Premium in the first year and grading down
to 0% over the first ten Policy years. The contingent surrender charge
partially reimburses Western Reserve for premium taxes and other
expenses associated with the issuance and distribution of the Policy.
(See Charges and Deductions - Contingent Surrender Charge, p. .)
A charge of 8.5% will be deducted from any premium payments made after
the Initial Premium payment. 6% is a sales charge to compensate Western
Reserve for distribution expenses associated with the Policy. 2.5% is a
premium tax charge to compensate Western Reserve for premium taxes
associated with the Policy. (See Charges and Deductions - Sales Charge
and Premium Tax Charge on Additional Premiums, p. .)
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 .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. .)
An investment advisory charge is imposed on each applicable Portfolio
of the Fund at a current annual rate stated as a percentage of the
aggregate average daily net assets of the Portfolio as discussed in the
section entitled Investments of the Series Account - WRL Series Fund,
Inc., p. .
Cost of insurance charges and a $5.00 monthly administrative charge
will be 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. (See Charges and Deductions - Cash Value
Charges, p. .)
Optional Cash Value charges will be deducted from the Policy as a
result of Policyowner changes or elections made to the Policy. Optional
Cash Value charges would include charges for: optional insurance
benefits, certain Cash Value transfers, increases in the Specified
Amount of the Policy and Cash Withdrawals. (See Charges and Deductions
- Optional Cash Value Charges, p. .)
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, the Company may make deductions from the Series Account
to pay the taxes. (See Federal Tax Matters, p. .)
6
<PAGE>
12. MAY THE POLICYOWNER MAKE ADDITIONAL PREMIUM PAYMENTS?
Yes, additional premium payments may be made after the first Policy
year. Under Western Reserve's current rules, the minimum additional
payment amount is $1,000. Western Reserve reserves the right to limit
additional premium payments to once each Policy year. Certain charges
will be deducted from each additional premium payment. (See Charges and
Deductions - Sales Charge and Premium Tax Charge on Additional
Premiums, p. .)
13. WHAT ARE THE FEDERAL INCOME TAX CONSEQUENCES OF PURCHASING A POLICY?
At present, there is only limited guidance for determining whether a
Policy meets the requirements prescribed by tax legislation for tax
treatment as a life insurance contract under Section 7702 of the
Internal Revenue Code. With respect to a Policy that is issued on the
basis of a rate class using non-smoker ultimate select, non-smoker
select, smoker ultimate standard or smoker standard guaranteed rates,
while there is some uncertainty due to the limited guidance on Section
7702, Western Reserve nonetheless believes that such a Policy should
meet the Section 7702 definition of a life insurance contract. With
respect to a Policy that is issued on a substandard rate class, there
is even less guidance to determine whether such a Policy meets the
Section 7702 definition of a life insurance contract. Thus, it is not
clear whether or not such a Policy would satisfy Section 7702,
particularly if the Policyowner pays the full amount of premiums
permitted under the Policy. If it is subsequently determined that a
Policy does not qualify as a life insurance contract, Western Reserve
will take whatever steps are appropriate and reasonable to attempt to
have such a Policy comply with Section 7702. For these reasons, Western
Reserve reserves the right to modify the Policy as necessary to attempt
to qualify it as a life insurance contract under Section 7702.
Assuming that a Policy qualifies as a life insurance contract for
Federal income tax purposes, Western Reserve believes that the Death
Benefit paid under the Policy generally should be fully excludable from
the gross income of the Beneficiary for Federal income tax purposes.
Moreover, the Owner should not be deemed in constructive receipt of
Cash Values under a Policy until there is a distribution from the
Policy.
For most policies, Policy loans, and loans secured by a Policy,
surrenders, and maturity benefits will be treated first as
distributions of taxable income to the extent of any gain and then as a
return of the basis or investment in the Policy. In addition, prior to
age 59 1/2 any distributions of gains generally will be subject to a
10% penalty tax. For further elaboration on the tax consequences of a
Policy, see Federal Tax Matters, p. .
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 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.
7
<PAGE>
RATES OF RETURN
The rates of return shown below are based on the actual 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, 1994. (See Investments of
the Series Account - WRL Series Fund, Inc., p. .)
These rates of return figures do not reflect the annual charge against the
assets of the Series Account of .90% for mortality and expense risks. These
rates of return figures also do not reflect the charges deducted from premiums,
monthly deductions from Cash Value, or surrender charges. (See Charges and
Deductions - Sales Charge and Premium Tax Charge on Additional Premiums, p. ;
Contingent Surrender Charge, p. ; and Cash Value Charges, p. .) 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, on p. ). Moreover, these rates of return
are not an estimate, projection or guarantee of future performance.
Also shown are comparable figures for the unmanaged Standard and 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, 1994
<TABLE>
<CAPTION>
Fund Portfolio Inception* 5 Years 3 Years 1 Year
- -------------- ---------- ------- ------- ------
<S> <C> <C> <C> <C>
Growth % % % %
Bond % % % %
Money Market % % % %
Global % N/A N/A %
Short-to-Intermediate Government % N/A N/A %
Emerging Growth % N/A N/A %
Equity-Income % N/A N/A %
Standard & Poor's Index of 500 Common Stocks % % % %
</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.
Because the Balanced Portfolio, Utility Portfolio and Aggressive Growth
Portfolio commenced operations on March 1, 1994, and the Tactical Asset
Allocation Portfolio had not yet commenced operations as of December 31, 1994,
the above chart does not reflect rates of return for these Portfolios.
Additional information regarding the investment performance of the
Portfolios of the Fund appears in the attached Fund Prospectuses.
DEATH BENEFIT, CASH VALUE AND NET SURRENDER VALUE ILLUSTRATIONS
In order to demonstrate how the actual investment experience of the
Portfolios will affect the Option A and Option B 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 Options A and B based on the payment of an Initial
Premium of $10,000 at issue, and a Specified Amount of $31,000 for a male age
55. The illustrations also assume that the Insured is placed in Western
Reserve's non-smoker Ultimate Select underwriting rate class. (See Cash
8
<PAGE>
Value Charges - Cost of Insurance, p. .) 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 - Sales Charge and Premium Tax Charge
on Additional Premiums, p. , Charges Against the Series Account, p. , and
Investments of the Series Account - WRL Series Fund, Inc., p. ).
For each Portfolio of the Fund, one illustration is based on the guaranteed
cost of insurance rates, the other illustration is based on the current cost of
insurance rates. These examples of Policy performance are for the specific age,
sex, rate class, premium payment pattern and policy set forth above. The amount
and timing of premium payments would affect individual Policy benefits as would
any withdrawals or loans.
This Prospectus also contains illustrations based on assumed rates of
return. See Appendix A, page 52.
The following examples show how the hypothetical net return of the Growth
Portfolio of the Fund would have affected benefits for a Policy dated January 1,
1987. These examples assume 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.
GROWTH PORTFOLIO
Male, Issue Age 55, $10,000 Initial Premium
($31,000 Specified Amount, Non-Smoker Ultimate Select Risk)
Based on Current Charges
<TABLE>
<CAPTION>
Death Benefit Cash Value Net Surrender Value
Policy Anniversary on ---------------------- ---------------------- ----------------------
January 1 of Option A Option B Option A Option B Option A Option B
- ------------------------ -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
1988.................... $ 31,000 $ 41,844 $ 10,907 $ 10,844 $ 10,007 $ 9,944
1989*................... 31,000 43,252 12,403 12,252 11,603 11,452
1990*................... 31,000 48,823 18,171 17,823 17,371 17,023
1991*................... 31,000 48,010 17,481 17,010 16,781 16,310
1992*................... 37,093 57,709 27,681 26,709 26,981 26,009
1993*................... 36,305 57,728 27,927 26,728 27,427 26,228
1994*................... 36,413 57,989 28,448 26,989 28,048 26,589
1995*...................
</TABLE>
* Benefits and values include only premiums paid during previous Policy years,
and do not include premiums to be paid at the beginning of the current Policy
year.
9
<PAGE>
GROWTH PORTFOLIO
Male, Issue Age 55, $10,000 Initial Premium
($31,000 Specified Amount, Non-Smoker Ultimate Select Risk)
Based on Guaranteed Charges
<TABLE>
<CAPTION>
Death Benefit Cash Value Net Surrender Value
Policy Anniversary on ---------------------- ---------------------- ----------------------
January 1 of Option A Option B Option A Option B Option A Option B
- ------------------------ -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
1988.................... $ 31,000 $ 41,778 $ 10,864 $ 10,778 $ 9,964 $ 9,878
1989*................... 31,000 43,096 12,302 12,096 11,502 11,296
1990*................... 31,000 48,489 17,965 17,489 17,165 16,689
1991*................... 31,000 47,599 17,241 16,599 16,541 15,899
1992*................... 36,523 56,929 27,256 25,929 26,556 25,229
1993*................... 35,710 56,836 27,469 25,836 26,969 25,336
1994*................... 35,777 56,952 27,950 25,952 27,550 25,552
1995*...................
</TABLE>
* Benefits and values include only premiums paid during previous Policy years,
and do not include premiums to be paid at the beginning of the current Policy
year.
The following examples show how the hypothetical net return of the Bond
Portfolio of the Fund would have affected benefits for a Policy dated January 1,
1987. These examples assume 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, $10,000 Initial Premium
($31,000 Specified Amount, Non-Smoker Ultimate Select Risk)
Based on Current Charges
<TABLE>
<CAPTION>
Death Benefit Cash Value Net Surrender Value
Policy Anniversary on ---------------------- ---------------------- ----------------------
January 1 of Option A Option B Option A Option B Option A Option B
- ------------------------ -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
1988.................... $ 31,000 $ 40,265 $ 9,320 $ 9,265 $ 8,420 $ 8,365
1989*................... 31,000 40,557 9,676 9,557 8,876 8,757
1990*................... 31,000 41,663 10,874 10,663 10,074 9,863
1991*................... 31,000 42,006 11,315 11,006 10,615 10,306
1992*................... 31,000 43,425 12,892 12,425 12,192 11,725
1993*................... 31,000 43,958 13,587 12,958 13,087 12,458
1994*................... 31,000 44,996 14,844 13,996 14,444 13,596
1995*...................
</TABLE>
* Benefits and values include only premiums paid during previous Policy years,
and do not include premiums to be paid at the beginning of the current Policy
year.
10
<PAGE>
BOND PORTFOLIO
Male, Issue Age 55, $10,000 Initial Premium
($31,000 Specified Amount, Non-Smoker Ultimate Select Risk)
Based on Guaranteed Charges
<TABLE>
<CAPTION>
Death Benefit Cash Value Net Surrender Value
Policy Anniversary on ---------------------- ---------------------- ----------------------
January 1 of Option A Option B Option A Option B Option A Option B
- ------------------------ -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
1988.................... $ 31,000 $ 40,205 $ 9,278 $ 9,205 $ 8,378 $ 8,305
1989*................... 31,000 40,417 9,578 9,417 8,778 8,617
1990*................... 31,000 41,414 10,701 10,414 9,901 9,614
1991*................... 31,000 41,650 11,071 10,650 10,371 9,950
1992*................... 31,000 42,908 12,541 11,908 11,841 11,208
1993*................... 31,000 43,298 13,145 12,298 12,645 11,798
1994*................... 31,000 44,135 14,276 13,135 13,876 12,735
1995*...................
</TABLE>
* Benefits and values include only premiums paid during previous Policy years,
and do not include premiums to be paid at the beginning of the current Policy
year.
The following examples show how the hypothetical net return of the Money
Market Portfolio of the Fund would have affected benefits for a Policy dated
January 1, 1987. These examples assume 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, $10,000 Initial Premium
($31,000 Specified Amount, Non-Smoker Ultimate Select Risk)
Based on Current Charges
<TABLE>
<CAPTION>
Death Benefit Cash Value Net Surrender Value
Policy Anniversary on ---------------------- ---------------------- ----------------------
January 1 of Option A Option B Option A Option B Option A Option B
- ------------------------ -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
1988.................... $ 31,000 $ 41,277 $ 10,337 $ 10,277 $ 9,437 $ 9,377
1989*................... 31,000 41,563 10,694 10,563 9,894 9,763
1990*................... 31,000 42,038 11,255 11,038 10,455 10,238
1991*................... 31,000 42,446 11,767 11,446 11,067 10,746
1992*................... 31,000 42,615 12,051 11,615 11,351 10,915
1993*................... 31,000 42,622 12,081 11,622 11,581 11,122
1994*................... 31,000 42,446 12,013 11,446 11,613 11,046
1995*...................
</TABLE>
* Benefits and values include only premiums paid during previous Policy years,
and do not include premiums to be paid at the beginning of the current Policy
year.
11
<PAGE>
MONEY MARKET PORTFOLIO
Male, Issue Age 55, $10,000 Initial Premium
($31,000 Specified Amount, Non-Smoker Ultimate Select Risk)
Based on Guaranteed Charges
<TABLE>
<CAPTION>
Death Benefit Cash Value Net Surrender Value
Policy Anniversary on ---------------------- ---------------------- ----------------------
January 1 of Option A Option B Option A Option B Option A Option B
- ------------------------ -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
1988.................... $ 31,000 $ 41,213 $ 10,294 $ 10,213 $ 9,394 $ 9,313
1989*................... 31,000 41,419 10,597 10,419 9,797 9,619
1990*................... 31,000 41,799 11,095 10,799 10,295 9,999
1991*................... 31,000 42,100 11,537 11,100 10,837 10,400
1992*................... 31,000 42,155 11,747 11,155 11,047 10,455
1993*................... 31,000 41,950 11,704 10,950 11,204 10,450
1994*................... 31,000 41,621 11,550 10,621 11,150 10,221
1995*...................
</TABLE>
* Benefits and values include only premiums paid during previous Policy years,
and do not include premiums to be paid at the beginning of the current Policy
year.
The following examples show how the hypothetical net return of the Global
Portfolio of the Fund would have affected benefits for a Policy dated January 1,
1993, if the Global Portfolio had been offered through the Policy as of January
1, 1993. These examples assume 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, $10,000 Initial Premium
($31,000 Specified Amount, Non-Smoker Ultimate Select Risk)
Based on Current Charges
<TABLE>
<CAPTION>
Death Benefit Cash Value Net Surrender Value
Policy Anniversary on ---------------------- ---------------------- ----------------------
January 1 of Option A Option B Option A Option B Option A Option B
- ------------------------ -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
1994.................... $ 31,000 $ 44,083 $ 13,160 $ 13,083 $ 12,260 $ 12,183
1995*...................
</TABLE>
* Benefits and values include only premiums paid during previous Policy years,
and do not include premiums to be paid at the beginning of the current Policy
year.
GLOBAL PORTFOLIO
Male, Issue Age 55, $10,000 Initial Premium
($31,000 Specified Amount, Non-Smoker Ultimate Select Risk)
Based on Guaranteed Charges
<TABLE>
<CAPTION>
Death Benefit Cash Value Net Surrender Value
Policy Anniversary on ---------------------- ---------------------- ----------------------
January 1 of Option A Option B Option A Option B Option A Option B
- ------------------------ -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
1994.................... $ 31,000 $ 44,010 $ 13,113 $ 13,010 $ 12,213 $ 12,110
1995*...................
</TABLE>
* Benefits and values include only premiums paid during previous Policy years,
and do not include premiums to be paid at the beginning of the current Policy
year.
The following examples show 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, if the Short-to-Intermediate
Government Portfolio had been offered through the Policy as of January 1, 1993.
These examples assume that net premiums and related Cash Values were in the
Sub-Account for the
12
<PAGE>
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, $10,000 Initial Premium
($31,000 Specified Amount, Non-Smoker Ultimate Select Risk)
Based on Current Charges
<TABLE>
<CAPTION>
Death Benefit Cash Value Net Surrender Value
Policy Anniversary on ---------------------- ---------------------- ----------------------
January 1 of Option A Option B Option A Option B Option A Option B
- ------------------------ -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
1994.................... $ 31,000 $ 41,088 $ 10,148 $ 10,088 $ 9,248 $ 9,188
1995*...................
</TABLE>
* Benefits and values include only premiums paid during previous Policy years,
and do not include premiums to be paid at the beginning of the current Policy
year.
SHORT-TO-INTERMEDIATE GOVERNMENT PORTFOLIO
Male, Issue Age 55, $10,000 Initial Premium
($31,000 Specified Amount, Non-Smoker Ultimate Select Risk)
Based on Guaranteed Charges
<TABLE>
<CAPTION>
Death Benefit Cash Value Net Surrender Value
Policy Anniversary on ---------------------- ---------------------- ----------------------
January 1 of Option A Option B Option A Option B Option A Option B
- ------------------------ -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
1994.................... $ 31,000 $ 41,025 $ 10,105 $ 10,025 $ 9,205 $ 9,125
1995*...................
</TABLE>
* Benefits and values include only premiums paid during previous Policy years,
and do not include premiums to be paid at the beginning of the current Policy
year.
The following examples show 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. These examples assume that net premiums and related Cash
Values were in the Sub-Account for the entire period and that the values were
determined on the first Valuation Date following January 1st of each year.
EMERGING GROWTH PORTFOLIO
Male, Issue Age 35, $_______________ Annual Premium
($_______________ Specified Amount, Non-Smoker Ultimate Select Risk)
Based on Current Charges
<TABLE>
<CAPTION>
Death Benefit Cash Value Net Surrender Value
Policy Anniversary on ---------------------- ---------------------- ----------------------
January 1 of Option A Option B Option A Option B Option A Option B
- ------------------------ -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
1995.................... $ $ $ $ $ $
</TABLE>
EMERGING GROWTH PORTFOLIO
Male, Issue Age 35, $_______________ Annual Premium
($_______________ Specified Amount, Non-Smoker Ultimate Select Risk)
Based on Guaranteed Charges
<TABLE>
<CAPTION>
Death Benefit Cash Value Net Surrender Value
Policy Anniversary on ---------------------- ---------------------- ----------------------
January 1 of Option A Option B Option A Option B Option A Option B
- ------------------------ -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
1995.................... $ $ $ $ $ $
</TABLE>
The following examples show 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. These examples assume that net premiums and
13
<PAGE>
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 35, $_______________ Annual Premium
($_______________ Specified Amount, Non-Smoker Ultimate Select Risk)
Based on Current Charges
<TABLE>
<CAPTION>
Death Benefit Cash Value Net Surrender Value
Policy Anniversary on ---------------------- ---------------------- ----------------------
January 1 of Option A Option B Option A Option B Option A Option B
- ------------------------ -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
1995.................... $ $ $ $ $ $
</TABLE>
EQUITY-INCOME PORTFOLIO
Male, Issue Age 35, $_______________ Annual Premium
($_______________ Specified Amount, Non-Smoker Ultimate Select Risk)
Based on Guaranteed Charges
<TABLE>
<CAPTION>
Death Benefit Cash Value Net Surrender Value
Policy Anniversary on ---------------------- ---------------------- ----------------------
January 1 of Option A Option B Option A Option B Option A Option B
- ------------------------ -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
1995.................... $ $ $ $ $ $
</TABLE>
Because the Aggressive Growth, Balanced and Utility Portfolios commenced
operations on March 1, 1994, and the Tactical Asset Allocation Portfolio had not
commenced operations as of December 31, 1994, 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
insurance policies 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,
Changing Times and Fortune. Lipper and Morningstar are independent services
which monitor and rank the performances 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 analysis prepared by
Lipper and Morningstar rank such contracts and policies on the basis of total
return, assuming reinvestment of distributions, but does 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
14
<PAGE>
widely recognized by investors as representing a particular segment of the
securities markets. For example, Sub-Account performance may be compared with
Donoghue Money Market Institutional Averages (money market rates), Lehman
Brothers Corporate Bond Index (corporate bond interest rates) or Lehman Brothers
Government Bond Index (long-term U.S. Government obligation interest rates).
WESTERN RESERVE AND THE SERIES ACCOUNT
WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO
Western Reserve was originally incorporated under the laws of Ohio on
October 1, 1957. Western Reserve is engaged in the business of writing life
insurance policies and annuity contracts. Western Reserve is admitted to do
business in 49 states and the District of Columbia. The Office of Western
Reserve is located in Largo, Florida; however, the mailing address is P.O. Box
5068, Clearwater, FL 34618-5068. Western Reserve is a wholly-owned subsidiary of
First AUSA Life Insurance Company ('First AUSA'), a stock life insurance company
which is wholly-owned by AEGON USA, Inc. ('AEGON'). AEGON is a financial
services holding company whose primary emphasis is on life and health insurance
and annuity and investment products. AEGON is a wholly-owned indirect subsidiary
of AEGON nv, a Netherlands corporation, which is a publicly traded international
insurance group.
PUBLISHED RATINGS OF WESTERN RESERVE. Western Reserve may from time to
time publish in advertisements, sales literature and reports to Policyowners,
the ratings and other information assigned to it by one or more independent
rating organizations such as A.M. Best Company ('A.M. Best'), Moody's Investors
Service, Inc. ('Moody's'), Standard & Poor's Insurance Rating Services, and 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 of Western Reserve 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 eleven 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.
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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') and Death
Benefit Option B ('Option B'). As long as the Policy remains In Force (see
Policy Lapse and Reinstatement - Lapse, p. ), Western Reserve will, upon
receiving due proof of the Insured's death, pay the death benefit proceeds of a
Policy to the named Beneficiary in accordance with the designated death benefit
option. The amount of the death benefit proceeds payable will be determined at
the end of the Valuation Period during which the Insured dies. The proceeds may
be paid in a lump sum or under one or more of the settlement options set forth
in the Policy. (See Payment of Policy Benefits - Settlement Options, p. .)
Western Reserve guarantees that so long as the Policy remains In Force (see
Policy Lapse and Reinstatement - Lapse, p. ), 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 250% for an Insured age
40 or below on the Policy Anniversary prior to the date of death. For an Insured
with an Attained Age over 40 on a Policy Anniversary, the percentage declines as
shown in the following Limitation Percentage Table. Accordingly, under Option A
the death benefit will remain level unless the limitation percentage times the
Cash Value exceeds the Specified Amount, in which case the amount of the death
benefit will vary as the Cash Value varies.
ILLUSTRATION OF OPTION A. For purposes of this illustration, assume that
the Insured's Attained Age is under 40 and that there is no outstanding
indebtedness. Under Option A, a Policy with a $50,000 Specified Amount will
generally pay $50,000 in death benefits. However, because the death benefit must
be equal to or be greater than 250% of Cash Value, any time the Cash Value of
the Policy exceeds $20,000, the death benefit will exceed the $50,000 Specified
Amount. Each additional dollar added to Cash Value above $20,000 will increase
the death benefit by $2.50.
Similarly, so long as Cash Value exceeds $20,000, 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.
LIMITATION PERCENTAGE TABLE
ATTAINED AGE APPLICABLE PERCENTAGE
- ------------ ---------------------
40 and under...................... 250%
41 through 45..................... 250% minus 7% for each age over age 40
46 through 50..................... 215% minus 6% for each age over age 45
51 through 55..................... 185% minus 7% for each age over age 50
56 through 60..................... 150% minus 4% for each age over age 55
61 through 65..................... 130% minus 2% for each age over age 60
66 through 70..................... 120% minus 1% for each age over age 65
71 through 75..................... 115% minus 2% for each age over age 70
76 through 90..................... 105%
91 through 95..................... 105% minus 1% for each age over age 90
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 an Insured age 40 or below on the Policy Anniversary prior to the
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date of death. For Insureds with an Attained Age over 40 on a Policy
Anniversary, the percentage declines as shown in the Limitation Percentage Table
above. Accordingly, under Option B the amount of the death benefit will always
vary as the Cash Value varies.
ILLUSTRATION OF OPTION B. For purposes of this illustration, assume that
the Insured is under the age of 40 and that there is no outstanding
indebtedness. Under Option B, a Policy with a Specified Amount of $50,000 will
generally pay a death benefit of $50,000 plus Cash Value. Thus, for example, a
Policy with a Cash Value of $10,000 will have a death benefit of $60,000
($50,000 + $10,000). The death benefit, however, must be at least 250% of Cash
Value. As a result, if the Cash Value of the Policy exceeds $33,333, the death
benefit will be greater than the Specified Amount plus Cash Value. Each
additional dollar of Cash Value above $33,333 will increase the death benefit by
$2.50.
Similarly, any time Cash Value exceeds $33,333, each dollar taken out of
Cash Value will reduce the death benefit by $2.50. If at any time, however, Cash
Value multiplied by the limitation percentage is less than the Specified Amount
plus the Cash Value, then the death benefit will be the Specified Amount plus
the Cash Value of the Policy.
CHOOSING DEATH BENEFIT OPTION A OR OPTION B. As described above and
assuming the death benefit is not being 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, again
assuming that the death benefit is not being determined by reference to the
limitation percentage. Therefore, assuming positive investment experience, the
cost of insurance deduction 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 Values based upon
positive investment experience, while Option B could be considered more suitable
for Policyowners whose goal is increasing death benefits.
CHANGE IN SPECIFIED AMOUNT. Subject to certain limitations, a Policyowner
may increase or decrease the Specified Amount of a Policy. A change 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. .) A
change in Specified Amount could also have Federal income tax consequences. (See
Federal Tax Matters, p. .)
DECREASES. 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 two Policy years. The Specified Amount
remaining In Force after any requested decrease may not be less than the minimum
Specified Amount set forth in the Policy. If, following the decrease in the
Specified Amount, the Policy would not comply with the maximum premium
limitations required by Federal tax law (see Premiums - Premium Limitations, p.
), the decrease may be limited (or, if the Policyowner so elects, Cash Value
may be returned to the Policyowner) to the extent necessary to meet these
requirements.
INCREASES. For an increase in the Specified Amount, written application
must be submitted. Western Reserve will also require that additional evidence of
insurability be submitted. Western Reserve reserves the right to decline any
increase request. Any increase will become effective on the effective date shown
on an endorsement to the Policy. The effective date of the increase will be the
Monthly Anniversary on or following written approval of the increase by Western
Reserve. No increase in the Specified Amount will be permitted during the first
Policy year. Under Western Reserve's current rules, the increase may not be less
than $10,000. An increase need not be accompanied by an additional premium, but
there must be sufficient Net Surrender Value to cover the next monthly
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deduction after the increase becomes effective, which will include an
administrative fee for processing the increase. (See Charges and Deductions -
Optional Cash Value Charges, p. .)
CORRIDOR PERCENTAGE. If, pursuant to the requirements of the Internal
Revenue Code of 1986, as amended, the death benefit under a Policy is determined
by reference to the limitation percentage 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.
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 increasing or decreasing the Specified Amount of
insurance, making additional premium payments, and, to a lesser extent, making a
Cash Withdrawal from the Policy. Although the consequences of each of these
methods will depend upon the individual circumstances, they may be generally
summarized as follows:
(a) A decrease in the Specified Amount will, subject to the limitation
percentage (see Policy Benefits - Death Benefit, p. ), 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. .) 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) An increase in the Specified Amount may increase the amount of pure
insurance protection, depending on the amount of Cash Value and the
resultant limitation percentage. If the insurance protection is
increased, the Policy charges generally will increase as well.
CHANGE IN DEATH BENEFIT OPTION. Generally, the death benefit option in
effect may be changed by the Policyowner once each Policy year after the first
Policy year by sending Western Reserve a written request for change. A change in
death benefit options may have Federal income tax consequences. (See Federal Tax
Matters, p. .) 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.
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.
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. Accordingly, under Option A, the
closer the Specified Amount of the Policy the Policyowner selects is to the
maximum Specified Amount permitted for the Policyowner's Initial Premium
payment, the more favorable investment performance would have to be in order for
the death benefit to exceed such Specified Amount. The death benefit under
Option B will always vary with the
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Cash Value because the death benefit equals either the Specified Amount plus the
Cash Value or the limitation percentage times the Cash Value.
HOW THE DURATION OF THE POLICY MAY VARY. The duration of the Policy
depends upon the Net Surrender Value. The Policy will remain In Force until
maturity so long as the Net Surrender Value is sufficient to pay the monthly
deduction. (See Charges and Deductions - Cash Value Charges, p. .) Where,
however, Net Surrender Value is insufficient to pay the monthly deduction, and a
grace period expires without an adequate payment by the Policyowner, the Policy
will lapse and terminate without value. (See Policy Lapse and Reinstatement -
Lapse, p. .)
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 to the extent that Cash
Value is allocated to the Series Account.
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. .) 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. ); minus
(3) any outstanding Policy loan; plus
(4) any unearned loan interest.
DETERMINATION OF VALUES IN THE SERIES ACCOUNT. On the Policy Date, the
Policy's Cash Value in a Sub-Account of the Series Account will equal the
portion of the Initial 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.
.) 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
(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.
.) 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
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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. A charge equal to .90% on an annual basis of the net assets for each day
in the Valuation Period is then subtracted to compensate Western Reserve for
certain mortality and expense risks. (See Charges Against the Series Account -
Mortality and Expense Risk Charge, p. .)
VALUATION DATE AND VALUATION PERIOD. The net asset value per share of the
portfolio securities of the Fund is determined, once daily, as of the close of
the regular session of business on the New York Stock Exchange (currently 4:00
p.m., Eastern time), Monday through Friday, except on customary national
business holidays on which the New York Stock Exchange is closed.
INVESTMENTS OF THE SERIES ACCOUNT
WRL SERIES FUND, INC.
The Series Account invests in shares of WRL Series Fund, Inc. (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 and Tactical Asset Allocation 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 accompanies this Prospectus and
which should be read carefully.
AGGRESSIVE GROWTH PORTFOLIO: This Portfolio seeks long-term capital
appreciation by investing in a diversified, actively managed portfolio of equity
securities.
EMERGING GROWTH PORTFOLIO: This Portfolio seeks capital appreciation by
investing primarily in common stocks of small and medium sized companies.
GROWTH PORTFOLIO: This Portfolio's objective is growth of capital.
GLOBAL PORTFOLIO: This Portfolio seeks long-term growth of capital in a
manner consistent with preservation of capital, primarily through investments in
common stocks of foreign and domestic issuers.
BALANCED PORTFOLIO: This Portfolio seeks preservation of capital, reduced
volatility, and superior long-term risk adjusted returns by investing primarily
in common stock, convertible securities and fixed-income securities.
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.
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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.
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.
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,
Money Market, Bond and Global Portfolios of the Fund. Janus, located at 100
Fillmore Street, Suite 300, 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 $22 billion as of February 1, 1994. Western
Reserve and Janus will divide equally monthly compensation at current annual
rates of 0.50% of the aggregate average daily net assets each of the Money
Market Portfolio and 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 USA, Inc. ('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 $17.5 billion under management as of January 1,
1994. 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 pursuant to any expense
limitation or other reimbursement.
American Capital Asset Management, Inc. ('American Capital') is sub-adviser
to the Emerging Growth Portfolio of the Fund. American Capital, located as 2800
Post Oak Blvd., Houston, Texas 77056, is a wholly-owned subsidiary of American
Capital Management & Research, Inc., an indirect wholly-owned subsidiary of The
Travelers, Inc. (formerly 'Primerica Corporation'). The Travelers, Inc. is a
financial services holding company engaged, through its subsidiaries,
principally in three business segments -- investment services, consumer finance
services and insurance services. American Capital has provided investment
advisory services to other mutual funds for over 68 years and currently has over
$16 billion of assets under management. Western Reserve and 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.
American Capital's compensation will be reduced by 50% of
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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') is sub-adviser
to the Equity-Income Portfolio of the Fund. Luther King is located at 301
Commerce Street, Suite 1600, Fort Worth, Texas 76102. 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 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 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 administration by Federated and other
subsidiaries of Federated Investors is approximately $79 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, as compensation for its services, Federated will receive payment of fees
equal to 0.50% of the first $30 million of average daily net assets, 0.35% of
the next $20 million of average daily net assets, and 0.25% of average daily net
assets in excess of $50 million of the 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 $2.5 billion in assets under management for investment companies
and private accounts. Western Reserve and Fred Alger will divide equally monthly
compensation at the current 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 $4
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.
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 ILI Endeavor Variable
Annuity Account, a separate account of International Life Investors Insurance
Company, 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
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conflicts between the interests of such variable life insurance Policyowners and
variable annuity contract owners and to determine what action, if any, it should
take. Such action could include the sale of Fund shares by one or more of the
separate accounts, which could have adverse consequences. Material conflicts
could result from, for example, (1) changes in state insurance laws, (2) changes
in Federal income tax laws, or (3) differences in voting instructions between
those given by variable life insurance Policyowners and those given by variable
annuity contract owners. If the Board of Directors were to conclude that
separate funds should be established for variable life and variable annuity
separate accounts, Western Reserve will bear the attendant expenses, but
variable life insurance Policyowners and variable annuity contract owners would
no longer have the economies of scale resulting from a larger combined fund.
ADDITION, DELETION, OR SUBSTITUTION OF INVESTMENTS
Western Reserve reserves the right, 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 judgment 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 that 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. The
Policyowner will be able to select from a range of specified amounts based on
the size of the initial payment. Under Western Reserve's current rules, the
minimum Specified Amount for a Policy at issue is the amount of insurance which
the $10,000 minimum Initial Premium payment ($5,000 in the case of Insureds less
than age 20) will purchase based on the Insured's age, sex and rate class and
certain guidelines set forth in the Internal Revenue Code. When the Specified
Amount for a Policy is set at the minimum Specified Amount permitted for the
Policyowner's Initial Premium payment, the Policyowner will, in the absence of
Policy loans, generally not be permitted to make additional premium payments
without requesting an increase in the Policy's Specified Amount.
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The maximum Specified Amount for a particular Initial Premium payment is
generally the amount of insurance which would remain in force for a 20-year
period based on the current cost of insurance charges for the Policy and a 12%
rate of return on the monies allocated to the Sub-Accounts of the Series
Account. When the Specified Amount is set at the maximum for a particular
Initial Premium payment, a Policyowner may be required to make additional
premium payments before the end of the 20-year period to prevent the Policy from
lapsing. (See Payment and Allocation of Premiums - Policy Lapse and
Reinstatement, p. .)
To the extent the Specified Amount selected by a Policyowner exceeds the
minimum Specified Amount permitted for the Policyowner's Initial Premium
payment, it is more likely that such Policyowner will be required to make
additional premium payments before the end of the 20-year period to prevent the
Policy from lapsing. Such additional premium payments are subject to additional
premium expense charges including a charge of 2.5% of each such premium to
compensate Western Reserve for premium taxes imposed by various states, and a
charge of 6.0% of each such premium to compensate Western Reserve for expenses
associated with the distribution of the Policy. (See Charges and Deductions -
Sales Charge and Premium Tax Charge on Additional Premiums, p. .)
A Policy will generally be issued only to Insureds 75 years of age or under
who supply satisfactory evidence of insurability sufficient to Western Reserve.
Western Reserve may, however, at its sole discretion, issue a Policy to an
individual above the age of 75. 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.
The Initial Premium payment will be allocated to the Sub-Account of the
Series Account investing in the Money Market Portfolio upon receipt by Western
Reserve. The Policy Date will ordinarily be the date of receipt of the premium
payment. Insurance coverage under the Policy and associated monthly deductions
commence on the Policy 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
and Western Reserve will allocate Net Premiums to the accounts on the first
Valuation Date on or following the Record Date in accordance with the directions
in the application. (See Payment and Allocation of Premiums - Allocation of
Premiums and Cash Value, p. .)
PARTIAL PAYMENT PROCEDURE
In certain circumstances, for example if the Policy is being purchased with
the proceeds of a tax-free exchange under Section 1035 of the Internal Revenue
Code of 1986, the Policyowner may make the Initial Premium payment in more than
one part. If cash is received with the application, an initial payment of at
least $2,000 will be required. The remainder of the Initial Premium payment may
be paid in multiple parts provided that the balance is received at Western
Reserve's Office within 60 days (or 180 days if the Policy is involved with an
exchange under Section 1035). Under this method of payment, the first payment
will be applied as of the Policy Date and the remaining payments will be applied
as of the Record Date, with each payment being credited with interest to the
Record Date as if the payment had been invested in the Money Market Portfolio as
of the date of receipt by Western Reserve. If at least $10,000, but not the
entire anticipated amount has been received during the applicable time period,
Western Reserve will issue the Policy with the Specified Amount originally
requested and an Initial Premium payment equal to the amount received during the
applicable time period. If the $10,000 minimum Initial Premium requirement has
not been met within the applicable time period, all payments previously received
by Western Reserve will be returned, without interest, and all coverage deemed
void from the beginning.
TEMPORARY INSURANCE COVERAGE
If Western Reserve determines to its satisfaction that on the date the
application is signed and submitted with the Initial Premium payment the
proposed insured and all additional insureds proposed for coverage were
insurable and acceptable under Western Reserve's underwriting rules and
standards
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for insurance in the amount, plan and risk classification applied for in the
application, then the insurance protection applied for, subject to the limits of
liability and in accordance with the terms set forth in the Policy and in the
conditional premium receipt, will by reason of such payment take effect on the
later of the date of the application or the date of completion of all medical
tests and examinations, if required. The maximum amount of temporary insurance
coverage is the lesser of the amount applied for or $100,000 minus any amounts
payable under other insurance on the life of the proposed insured in force with
Western Reserve. Temporary insurance coverage expires on the earliest of the
following dates: (1) the date Western Reserve approves the Policy as applied
for; or (2) at the end of the fraction of a year which the payment bears to the
premium required to provide one month of insurance coverage; or (3) at the
beginning of the sixtieth (60th) day following the date of the conditional
receipt.
PREMIUMS
PREMIUM FLEXIBILITY. Unlike conventional insurance policies, this Policy
frees the Owner from the requirement that premiums be paid in accordance with a
rigid and inflexible premium schedule. The minimum initial payment is generally
$10,000 ($5,000 in the case of Insureds less than age 20), except under certain
circumstances. (See Payment and Allocation of Premiums - Partial Payment
Procedure, p. .) Thereafter, subject to the minimum and maximum premium
limitations described below, a Policyowner may make certain additional premium
payments.
PREMIUM LIMITATIONS. Under Western Reserve's current rules, no additional
premium payments may be made during the first Policy year and the minimum
additional payment amount is $1,000. Premium payments less than the minimum
amount may be returned to the Policyowner. Western Reserve reserves the right to
limit additional premium payments to once each Policy year.
The total of all premiums paid may not exceed the current maximum premium
limitations which are required by Federal tax laws. If at any time a premium is
paid which would result in total premiums exceeding the current maximum premium
limitation, Western Reserve will only accept that portion of the premium which
will make total premiums equal the maximum. Any part of the premium in excess of
that amount will be returned and no further premiums will be accepted until
allowed by the current maximum premium limitations set forth in the Policy.
PAYMENT OF PREMIUMS. While there is indebtedness, additional premium
payments in excess of $1,000 will be treated as premium payments unless clearly
marked as loan repayments. Certain charges will be deducted from each additional
premium payment. (See Charges and Deductions - Sales Charge and Premium Tax
Charge on Additional Premiums, p. .)
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 invested at the unit value next determined following receipt.
An Initial Premium made by wire transfer not accompanied by a simultaneous FAX,
or accompanied by a FAX of an incomplete application, will be retained for a
period up to five business days while Western Reserve attempts to obtain the FAX
or complete the essential information required to establish the Policy and
allocate the Initial Premium at the unit value next determined after receipt of
the FAX or information necessary to complete the application. If Western Reserve
cannot obtain the FAX or essential information within five business days,
Western Reserve will return the Initial Premium to the applicant, unless the
applicant consents to allow Western Reserve to retain the Initial Premium until
the required FAX or essential information is received.
In the event the application with original signature is later received and
the allocation instructions in that application, for any reason, are
inconsistent with those previously designated on the FAX, the Initial Premium
will be reallocated in accordance with the allocation instructions in the
application with original signature at the unit value next determined after
receipt of such application.
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Policyowners wishing to make payments via bank wire should instruct their
banks to wire Federal Funds as follows:
Barnett Bank of Pinellas County
ABA Pound 063000047
For credit to: Western Reserve Life
Account Pound: 1263627596
Policyowner's Name:
Policy Number:
Attention: General Accounting
Fax Number: (813) 588-1620
ALLOCATION OF PREMIUMS AND CASH VALUE
NET PREMIUMS. With respect to the Initial Premium, the Net Premium equals
the premium paid, because no premium expense charges are deducted from the
Initial Premium. With respect to additional premium payments, the Net Premium
equals the premium paid less the applicable premium expense charges. (See
Charges and Deductions - Sales Charge and Premium Tax Charge on Additional
Premiums, p. .)
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 payment
will be allocated to the Sub-Account of the Series Account that invests
exclusively in shares of the Money Market Portfolio and will be re-allocated on
the first Valuation Date on or following the Record Date in accordance with the
directions in the application.
Net Premiums paid after the Record Date will be allocated in accordance
with the Policyowner's instructions. The minimum percentage of each premium that
may be allocated to any account is 10%; percentages must be in whole numbers.
The allocation for 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 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 and Withdrawals, p. .) 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 (currently 4:00 p.m. Eastern
time), which coincides with the end of each Valuation Period. (See Policy
Benefits - Valuation Date and Valuation Period, p. .) Therefore, any transfer
request received after 4:00 p.m., Eastern time, on any day the New York Stock
Exchange is open for business will be processed utilizing the net asset value
for each share of the applicable Portfolio determined as of 4:00 p.m., Eastern
time, on the next day the New York Stock Exchange is open for business. Cash
Value available for transfer from the Fixed Account will be determined in the
same manner.
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Policyowners may make transfer requests in writing, or by telephone.
Written requests must be in a form acceptable to Western Reserve. The registered
representative/agent of record for the Policy may, upon instructions from the
Policyowner, make telephone transfers upon request without the necessity for the
Policyowner to have previously authorized telephone transfers in writing. All
telephone transfers should be made by calling Western Reserve at our 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.
Although Western Reserve does not currently impose a charge for any
transfers, Western Reserve reserves the right to impose a $10 charge for each
transfer after the first twelve transfers during any Policy year.
POLICY LAPSE AND REINSTATEMENT
LAPSE. Unlike conventional life insurance policies, the failure to make
additional premium payments after the Initial Premium payment will not itself
cause the Policy to lapse. Lapse will only occur where Net Surrender Value is
insufficient to cover the monthly deduction, and a grace period expires without
a sufficient payment. If Net Surrender Value is insufficient to cover the
monthly deduction, the Policyowner must pay during the grace period either a
payment at least sufficient to provide a Net Premium to cover the sum of the
monthly deductions due within the grace period or $1,000, whichever is greater.
(See Charges and Deductions, p. .)
If 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 period of 61 days, measured from the date notice is sent 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. ), and any monthly deductions due will
be charged to the Sub-Accounts in accordance with the Policyowner's then current
instructions. (See Cash Value Charges - Cost of Insurance, p. .) If the
Insured dies during the grace period, the death benefit proceeds will equal the
amount of the death benefit proceeds immediately prior to the commencement of
the grace period, reduced by any due and unpaid charges.
REINSTATEMENT. A lapsed Policy may be reinstated any time within 5 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; and
2. Evidence of insurability satisfactory to Western Reserve; and
3. A premium which is at least $1,000 and which, after the deduction of
premium expense charges, is large enough to cover:
(a) one monthly deduction at the time of termination; and
(b) the next two monthly deductions which will become due after the time of
reinstatement.
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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 Cash Value on the date of reinstatement will be equal to the Net Premiums
paid at reinstatement, less the amounts paid in accordance with 3(a). All future
surrender charges will be waived.
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 of 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.
The first two charges are charges on premiums. One is a charge that is a
percent of the Initial Premium and is taken out of Cash Value only upon
surrender of a Policy during the first 10 Policy years. The other is a percent
of any subsequent premium payments and is taken from those payments.
CONTINGENT SURRENDER CHARGE
No amount will be deducted from the Initial Premium payment prior to
allocation to the Sub-Account of the Series Account investing in the Money
Market Portfolio. If the Policy is totally surrendered prior to the end of the
tenth Policy year, a surrender charge will be deducted from the Policy's Cash
Value. The surrender charge consists of a sales charge, a premium tax charge and
a first year issue charge, all of which are more fully described below. The
surrender charge during the first year equals 9.0% of the Initial Premium
payment. During Policy year 2-10, the surrender charge will also be a percentage
of the Initial Premium payment, such that a surrender on a Policy Anniversary
will decline from year to year as follows:
End of
Policy Year Charge
- ----------- ----------------------------------
1 9% of the Initial Premium payment
2 8% of the Initial Premium payment
3 8% of the Initial Premium payment
4 7% of the Initial Premium payment
5 7% of the Initial Premium payment
6 5% of the Initial Premium payment
7 4% of the Initial Premium payment
8 3% of the Initial Premium payment
9 2% of the Initial Premium payment
10+ 0% of the Initial Premium payment
The surrender charge on any date other than a Policy Anniversary will be
interpolated between the two end of year charges.
The surrender charge consists of a sales charge, a premium tax charge and a
first year issue charge. Assuming a 9% surrender charge is imposed, 6% is a
sales charge designed to assist Western Reserve in recovering 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 proceeds of this 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.
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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 Initial Premium will be part of the
surrender charge to compensate Western Reserve for paying this tax. Because of
the retaliatory provisions of state premium tax laws, Western Reserve is
required to pay a minimum 2.5% premium tax regardless of a state's actual
premium tax rate.
The first year surrender charge will also include an amount equal to 0.5%
of the Initial Premium to assist Western Reserve in recovering the first year
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
Insured's rate class, and establishing Policy records. Western Reserve does not
anticipate that it will make any profit on this charge.
SALES CHARGE AND PREMIUM TAX CHARGE ON ADDITIONAL PREMIUMS
A charge of 8.5% will be deducted from those premium payments made after
the Initial Premium payment. A charge of 6.0% of each premium will be deducted
to compensate Western Reserve for distribution expenses of the Policy. A charge
of 2.5% of each premium will be deducted to compensate Western Reserve for
premium taxes imposed by various states. (See Payment and Allocation of Premiums
- -Issuance of a Policy, p. .)
CASH VALUE CHARGES
Certain charges will be deducted monthly from the Cash Value of each Policy
('monthly deduction') to compensate Western Reserve for certain administrative
costs, and for the cost of insurance and optional benefits added by rider. The
monthly deduction will be deducted on each Monthly Anniversary. It 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. To the extent that there is an increase in the Specified Amount of a
Policy which results in a greater net amount at risk, the cost of insurance
deduction will increase.
Cost of insurance rates will be based on the sex, Attained Age and rate
class of the Insured, and the length of time a Policy has been In Force. The
actual monthly cost of insurance rates will be based on Western Reserve's
expectations as to future experience. They will not, however, be greater than
the guaranteed cost of insurance rates set forth in the Policy. These guaranteed
rates are based on the 1980 Commissioners Standard Ordinary (C.S.O.) Mortality
Table and the Insured's sex, Attained Age and rate class. For standard rate
classes, these rates will not exceed rates contained in the 1980 C.S.O. Tables.
Western Reserve also may guarantee the 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 persons of the same age, sex, and rate
class whose Policies have been In Force for the same length of time.
The policies offered by this Prospectus are based on mortality tables that
distinguish between men and women. As a result, the Policy pays different
benefits to men and women of the same age. The state of Montana prohibits the
use of actuarial tables that distinguish between men and women in
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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, if
Policies are offered by this Prospectus to insure residents of the States of
Montana and Massachusetts, such Policies may have premiums and benefits which
are based on actuarial tables that do not differentiate on the basis of sex.
The rate class of an Insured will affect the cost of insurance rates.
Western Reserve currently places Insureds into the following four standard rate
classes: non-smoker Ultimate Select, non-smoker Select, smoker Ultimate
Standard, and smoker Standard; as well as various other sub-standard rate
classes involving a higher mortality risk. In an otherwise identical Policy, the
cost of insurance rate is generally higher for smokers than for non-smokers and,
within these two categories, higher for Insureds not in the Ultimate category
than in the Ultimate category.
Western Reserve may also issue certain Policies on a 'simplified' or
expedited basis to certain categories of individuals (for example, Policies
issued at a predetermined Specified Amount or underwritten on a group basis).
Policies issued on this basis will have guaranteed cost of insurance rates no
higher than the guaranteed rates for non-smoker Select or smoker Standard
categories (as appropriate), however, due to the special underwriting criteria
established for these issues, actual rates may be higher or lower than the
current cost of insurance rates charged under otherwise identical Policies that
are underwritten using standard underwriting criteria.
MONTHLY ADMINISTRATION CHARGE. Western Reserve has primary responsibility
for the administration of the Policy and the Series Account. Annual
administrative expenses include recordkeeping, processing death benefit claims,
Policy changes, reporting and overhead costs. As reimbursement for
administrative expenses related to the maintenance of each Policy and the Series
Account, Western Reserve assesses a monthly administration charge from each
Policy. This charge is currently $5.00 per Policy Month and will not be
increased. Western Reserve does not anticipate that it will make any profit on
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. Western Reserve reserves the right to impose a
transfer charge of $10 for each transfer following the first twelve transfers
made during any Policy year. However, Western Reserve does not currently impose
a charge for transfer, regardless of the number made.
INCREASES IN THE SPECIFIED AMOUNT OF POLICY. In the month the increase
becomes effective, an administrative fee of $3.60 per $1,000 of increase will be
charged to compensate Western Reserve for the costs in effectuating the change.
This charge will not be increased. Western Reserve does not anticipate that it
will make a profit on this charge.
CASH WITHDRAWALS. A charge 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 be paid to the Policyowner. This charge will not be increased.
Western Reserve does not anticipate that it will make a profit on this charge.
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 .90% of the average daily
net assets of the Series Account. Under
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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 Insureds may live for
a shorter time than projected. The expense risk assumed is that expenses
incurred in issuing and administering the Policies will exceed the limits on
administrative charges set in the Policies. Western Reserve also assumes risks
with respect to other contingencies including the incidence of Policy loans,
which may cause Western Reserve to incur greater costs than anticipated when
designing the Policies.
TAXES. Currently no charge is made to the Series Account for Federal
income taxes that may be attributable to the Series Account. Western Reserve
may, however, make such a charge in the future. Charges for other taxes, if any,
attributable to the Series Account may also be made. (See Federal Tax Matters,
p. .)
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. - 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 which are qualified under Section 401 of the
Internal Revenue Code and deferred compensation plans. A 'sponsored arrangement'
includes a program under which an employer permits group solicitation of its
employees or an association permits group solicitation of its members for the
purchase of Policies on an individual basis.
The sales charge and surrender charges described in 'Charges and
Deductions' 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.
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 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.
.)
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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. 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 taken from, or secured by, a Policy may have Federal income tax
consequences. (See Federal Tax Matters, p. .)
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 loan will normally be paid within seven days after receipt of a request
in a manner permitted by Western Reserve. Postponement of loans may take place
under certain conditions. (See General Provisions - Postponement of Payments, p.
.) Under Western Reserve's current procedures, at each Anniversary, Western
Reserve will compare the amount of the outstanding loan (including interest in
advance until the next Policy Anniversary, if not paid) to the amount in the
Loan Reserve. Western Reserve will also make this comparison any time the
Policyowner repays all or part of the loan. At each such time, if the amount of
the outstanding loan exceeds the amount in the Loan Reserve, Western Reserve
will withdraw the difference from the Accounts of 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. .) No charge
will be imposed for these transfers.
A 10% additional income tax is imposed on the portion of any distribution
from, or loan taken from, or secured by, such a Policy that is included in
income except where the distribution or loan is made on or after the Owner
attains age 59 1/2, is attributable to the Owner's becoming disabled, or is part
of a series of substantially equal periodic payments for the life (or life
expectancy) of the Owner or the joint lives (or joint life expectancies) of the
Owner and the Owner's Beneficiary. (See Federal Tax Matters, p. .)
INTEREST. The interest rate charged on Policy loans will be at the rate of
7.4% 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.
EFFECT OF POLICY LOANS. A Policy loan affects the Policy since 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. .)
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There are risks involved in taking a Policy loan, a few of which include
the potential for a Policy to lapse if projected earnings, taking into account
outstanding loans, are not achieved, as well as adverse tax consequences which
occur if a Policy lapses with loans outstanding. (See Federal Tax Matters - Tax
Treatment of Policy Benefits, p. .)
INDEBTEDNESS. Indebtedness equals the total of all Policy loans less any
unearned loan interest on the loans. If indebtedness exceeds 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
or $1,000, whichever is greater, 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 Payment and Allocation
of Premiums - Policy Lapse and Reinstatement, p. .)
REPAYMENT OF INDEBTEDNESS. Indebtedness may be repaid any time before the
Maturity Date of the Policy and while the Policy is In Force. (See Policy Rights
- -Benefits at Maturity, p. .) While there is indebtedness, additional premium
payments in excess of $1,000 will be treated as premium payments unless the
Policyowner indicates that the payment should be treated as loan repayments. If
not repaid, Western Reserve may deduct indebtedness from any amount payable
under the Policy. As indebtedness is repaid, the Policy's value in the Loan
Reserve securing the indebtedness repaid will be transferred from the Loan
Reserve to the accounts in the same manner as net premiums are allocated.
However, Western Reserve reserves the right to require the transfer to the Fixed
Account. Western Reserve will allocate the repayment of indebtedness at the end
of the Valuation Period during which the repayment is received.
SURRENDER PRIVILEGES
At any time before the earlier of the death of the Insured or the Maturity
Date, the Policyowner may totally Surrender or, after the first Policy year,
make a Cash Withdrawal from the Policy by sending a written request to Western
Reserve. The amount available for surrender is the Net Surrender Value at the
end of the Valuation Period during which the surrender request is received at
Western Reserve's Office. 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. .) For the protection of Policyowners, all
requests for Cash Withdrawals or total surrenders of more than $50,000, 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 $50,000. For additional
information, Policyowners may call Western Reserve at (800) 581-9777.
A Cash Withdrawal or total surrender may have Federal income tax
consequences. (See Federal Tax Matters, p. .)
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. .)
CASH WITHDRAWALS. Under Western Reserve's current rules, there is no
minimum Cash Withdrawal amount. Western Reserve reserves the right to limit Cash
Withdrawals to once each Policy year and to an amount no more than 10% of the
net surrender value. The amount paid plus a charge 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.
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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 (1) result in a Specified Amount lower than the minimum Specified
Amount set forth in the Policy, (2) reduce the Net Surrender Value to less than
$5,000 or (3) deny the Policy status as life insurance under the Internal
Revenue Code and applicable regulations. (See Cash Value Charges - Cost of
Insurance, p. ; Death Benefit - Insurance Protection, p. ; and Federal Tax
Matters - Tax Treatment of Policy Benefits, p. .)
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 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.
BENEFITS AT MATURITY
If the Insured is living and the Policy is In Force, Western Reserve will
pay the Net Surrender Value of the Policy on the Maturity Date. (See Cash Value
- -Net Surrender Value, p. .) The Policy will mature on the Anniversary nearest
the Insured's 95th birthday, if the Insured is living and the Policy is In
Force. Western Reserve is willing to extend the Maturity Date provided the
Policy is still In Force on the Maturity Date and there are no unfavorable tax
consequences. Extension of the Maturity Date will be made upon mutual agreement
between Western Reserve and the Policyowner, provided the Policyowner submits a
written request to Western Reserve between 90 and 180 days prior to the Maturity
Date, and provided the Policy may be extended with no unfavorable tax
consequences to the Policyowner.
PAYMENT OF POLICY BENEFITS
Death benefits under the Policy will ordinarily be paid within seven days
after Western Reserve receives due proof of death, and verifies the validity of
the claim. Other benefits will ordinarily be paid within seven days of receipt
of proper written request (including an election as to tax withholding).
Payments may be postponed in certain circumstances. (See General Provisions -
Postponement of Payments, p. and The Fixed Account - Allocations and
Withdrawals, p. .) The Policyowner may decide the form in which the benefits
will be paid. During the Insured's lifetime, the Policyowner may arrange for the
death benefits to be paid in a lump sum or under one or more of the settlement
options described below. These choices are also available if the Policy is
surrendered or matures. If no election is made, Western Reserve will pay the
benefits in a lump sum.
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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 in the future. The effective date of a settlement provision will be
either the date of Surrender or the date of death of the Insured. For additional
information concerning these options, see the Policy itself.
OPTION A - PAYMENTS FOR A FIXED PERIOD. The proceeds plus interest will be
paid in equal monthly installments for the period chosen until the Fund has been
paid in full. The period chosen may not exceed 30 years.
OPTION B - LIFE INCOME. The proceeds will be paid in equal installments
for the guaranteed payment period elected and continue for the life of the
person on whose life the option is based. Such installments will be payable: (a)
during the lifetime of the payee; or (b) during a fixed period certain and for
the remaining lifetime of the payee; or (c) until the sum of installments paid
equals the proceeds applied and for the remaining life of the payee. Guaranteed
payment periods may be elected for 5 and 10 years, or the period in which the
total payments will equal the amount retained.
OPTION C - JOINT AND SURVIVOR LIFE INCOME. The proceeds will be paid
during the joint lifetime of two persons and (a) continue upon the death of the
first payee for the remaining lifetime of the survivor or (b) be reduced by
one-third upon the death of the first payee and continue for the remaining
lifetime of the survivor.
GENERAL PROVISIONS
POSTPONEMENT OF PAYMENTS
GENERAL. Payment of any amount from the Series Account upon complete
Surrender, Cash Withdrawal, Policy loan, or benefits payable at death or
maturity may be postponed whenever: (i) the New York Stock Exchange is closed
other than customary weekend and holiday closing, or trading on the New York
Stock Exchange is restricted as determined by the Commission; (ii) the
Commission by order permits postponement for the protection of Policyowners; or
(iii) an emergency exists, as determined by the Commission, as a result of which
disposal of securities is not reasonably practicable or it is not reasonably
practicable to determine the value of the Series Account's net assets. Transfers
may also be postponed under these circumstances. For restrictions applicable to
payments from the Fixed Account, see The Fixed Account - Allocations and
Withdrawals, p. .
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.
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SUICIDE
If the Insured, while sane or insane, commits suicide within two years
after the Policy Date, Western Reserve will pay only the premiums received, less
any Cash Withdrawals and outstanding indebtedness. In the event of Lapse of the
Policy, the suicide period will be measured from the effective date of
reinstatement. If the Insured, while sane or insane, commits suicide within two
years after the effective date of any increase in insurance or any
reinstatement, Western Reserve's total liability with respect to such increase
or reinstatement will be the cost of insurance charges deducted for such
increase or reinstatement.
INCONTESTABILITY
Western Reserve cannot contest the Policy as to the initial Specified
Amount after it has been in force during the lifetime of the Insured for two
years from the Policy Date. A new two year contestability period will apply to
each increase in Specified Amount beginning on the effective date of each such
increase and will apply to statements made in the application for the increase.
If the Policy is reinstated, a new two year contestability period (apart from
any remaining contestability period) will apply from the date of the application
for reinstatement and will apply only to statements made in the application for
reinstatement.
CHANGE OF OWNER OR BENEFICIARY
The Beneficiary, as named in the Policy application or subsequently
changed, will receive the Policy benefits at the Insured's death. If the named
Beneficiary dies before the Insured, the contingent beneficiary, if named,
becomes the Beneficiary. If no Beneficiary survives the Insured, the benefits
payable at the Insured's death will be paid to the Policyowner or the
Policyowner's estate. As long as the Policy is In Force, the Policyowner or
Beneficiary may be changed by written request from the Policyowner in a form
acceptable to Western Reserve. The Policy need not be returned unless requested
by Western Reserve. The change will take effect as of the date the request is
signed, whether or not the Insured is living when the request is received by
Western Reserve. Western Reserve will not, however, be liable for any payment
made or action taken before receipt of the request.
ASSIGNMENT
The Policy may be assigned by the Policyowner. Western Reserve will not be
bound by the assignment until a written copy has been received at its Office and
will not be liable with respect to any payment made prior to that time. Western
Reserve assumes no responsibility for determining whether an assignment is valid
or the extent of the assignee's interest.
MISSTATEMENT OF AGE OR SEX
If the age or sex of the Insured has been misstated, the death benefit will
be adjusted based on what the cost of insurance charge for the most recent
monthly deduction would have purchased based on the correct age and sex.
REPORTS AND RECORDS
Western Reserve will maintain all records relating to the Series Account
and the Fixed Account. Western Reserve will mail to Policyowners, at their last
known address of record, any reports required by any applicable law or
regulation.
OPTIONAL INSURANCE BENEFITS
Subject to certain requirements, one or more of the following optional
insurance benefits may be added to a Policy by rider. The cost of any optional
insurance benefits will be deducted as part of the monthly deduction. (See
Charges and Deductions - Cash Value Charges, p. .)
CHILDREN'S INSURANCE RIDER: Provides level term insurance on the Insured's
children, as defined in the rider. Under the terms of the rider, the death
benefit will be payable to the Beneficiary stated in the
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rider upon the death of any insured child. Upon receipt of proof of the primary
Insured's death, each child's protection may be converted to any permanent
premium paying plan of insurance on an Attained Age basis.
ACCIDENTAL DEATH BENEFIT RIDER: Provides additional insurance if the
Insured's death results from accidental bodily injury, as defined in the rider.
Under the terms of the rider, the additional benefits provided in the rider will
be paid upon receipt of proof by Western Reserve that death resulted directly
and independently of all other causes through external, violent and accidental
means; occurred within 90 days from the date of accident causing such injuries;
and occurred while the rider was In Force. The rider will terminate on the
earliest of the Policy Anniversary nearest the Insured's 70th birthday, the date
the Policy terminates, and the Monthiversary on which the rider is terminated on
request by the Policyowner.
INCREASE IN SPECIFIED AMOUNT RIDER: Provides increases in the Specified
Amount of the Policy on specified option dates without additional proof of
insurability. Under the terms of the rider, an increase in the Specified Amount
will automatically occur on an option date upon written request submitted to
Western Reserve within 60 days prior to such option date. An option date is each
anniversary nearest the Policyowner's 25th, 28th, 31st, 34th, 37th and 40th
birthdays. The amount of the increase will be the option amount specified in the
Policy.
OTHER INSURED RIDER: Provides that Western Reserve will pay the face
amount of the rider to the Beneficiary stated in the rider upon receipt of due
proof of the other Insured's death. On any Monthiversary while the rider is In
Force, the Policyowner may exchange the rider without evidence of insurability
for a new policy on the other Insured's life upon written request subject to the
following: (a) the rider has not reached the Anniversary nearest the other
Insured's 70th birthday; (b) the new policy is 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 other Insured's rate class under the rider.
DISABILITY WAIVER RIDER: Provides a waiver of the monthly deductions for
the Policy while the Insured is disabled. Under the terms of the rider, the
total monthly deductions will be waived upon receipt of proof adequate to
Western Reserve that: the Insured is totally disabled, as defined in the rider,
the disability commenced while the rider was In Force, the disability began
before the anniversary nearest the Insured's 60th birthday, and total disability
continued without interruption for six months. No monthly deduction will be
waived which falls due more than one year prior to receipt by Western Reserve of
written notice of a claim.
DISABILITY WAIVER AND INCOME RIDER: Provides the identical benefit as the
Disability Waiver Rider and, in addition, a monthly income benefit up to a
maximum 120 monthly payments.
PRIMARY INSURED RIDER: Provides the payment of the face amount of the
rider upon receipt by Western Reserve of written notice that the primary
Insured's death occurred while the rider was In Force. On any Monthiversary
while the rider is In Force, the Policyowner may exchange the rider without
evidence of insurability for a new policy on the primary Insured's life. Such
new policy will be issued upon written request subject to the following: (a) the
rider has not reached the Anniversary nearest the primary Insured's 70th
birthday; (b) the new policy is 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 primary Insured's rate class under the rider.
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
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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.
MINIMUM GUARANTEED AND CURRENT INTEREST RATES
The Fixed Account Value, including the Loan Reserve, is guaranteed to
accumulate at a minimum effective annual interest rate of 4%. Western Reserve
presently credits the Fixed Account Value with current rates in excess of the
minimum guarantee but it is not obligated to do so. These current interest rates
are influenced by, but do not necessarily correspond to, prevailing general
market interest rates. Because Western Reserve, at its sole discretion,
anticipates changing the current interest rate from time to time, different
allocations to and from the Fixed Account Value will be credited different
current interest rates.
Western Reserve further guarantees that when a higher current interest rate
is declared on an allocation to the Fixed Account Value, that higher 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 Value on that
date). The rate declared on such allocation and accrued interest thereon at the
end of each Guarantee Period will be guaranteed again for another Guarantee
Period. At the end of any Guarantee Period, any interest credited on the
Policy's Cash Value in the Fixed Account in excess of the minimum guaranteed
rate of 4% per year will be determined in the sole discretion of Western
Reserve. The Policyowner assumes the risk that interest credited may not exceed
the guaranteed minimum rate.
Allocations from the Fixed Account Value to provide: a) Cash Withdrawal
amounts, b) transfers to the Series Account, or c) monthly deduction charges are
currently, for the purpose of crediting interest, accounted for on a last in,
first out ('LIFO') method.
Western Reserve reserves the right to change the method of crediting
interest from time to time, provided that such changes will not have the effect
of reducing the guaranteed rate of interest below 4% per annum or shorten the
Guarantee Period to less than one year.
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.
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ALLOCATIONS 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 any 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
Western Reserve's current procedures, the transfer will take effect on the later
of the Policy Anniversary date or the first Valuation Date on or following the
date written request is received at Western Reserve's Office. 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. .)
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 3.5% of all premium payments. In addition, certain production,
persistency and managerial bonuses may be paid.
FEDERAL TAX MATTERS
INTRODUCTION
The ultimate effect of Federal income taxes on the Cash Value and on the
economic benefit to the Policyowner or Beneficiary depends on Western Reserve's
tax status and upon the tax status of the individual concerned. The discussion
contained herein is general in nature and is not intended as tax advice. For
complete information on Federal and state tax considerations, a qualified tax
adviser should be consulted. No attempt is made to consider any applicable state
or other tax laws. Because the discussion herein is based upon Western Reserve's
understanding of Federal income tax laws as they are currently interpreted,
Western Reserve cannot guarantee the tax status of any Policy. No representation
is made 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.
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TAX STATUS OF THE POLICY
Section 7702 of the Code sets forth a definition of a life insurance
contract for Federal tax purposes. The Secretary of the Treasury (the
'Treasury') has recently issued proposed regulations that would specify what
will be considered reasonable mortality charges under Section 7702. Guidance as
to how Section 7702 is to be applied is, however, limited. If a policy were
determined not to be a life insurance contract for purposes of Section 7702,
such policy would not provide most of the tax advantages normally provided by a
life insurance policy.
With respect to a Policy that is issued on the basis of a rate class using
non-smoker ultimate select, non-smoker select, smoker ultimate standard, or
smoker standard guaranteed rates, while there is some uncertainty due to the
limited guidance on Section 7702, Western Reserve nonetheless believes that such
a Policy should meet the Section 7702 definition of a life insurance contract.
With respect to a Policy entered into after October 20, 1988, that is issued on
a substandard rate class, there is even less guidance to determine whether such
a Policy meets the Section 7702 definition of a life insurance contract. Thus,
it is not clear whether or not such a Policy would satisfy Section 7702,
particularly if the Policyowner pays the full amount of premiums permitted under
the Policy. If it is subsequently determined that a Policy does not satisfy
Section 7702, Western Reserve will take whatever steps are appropriate and
reasonable to attempt to cause such a Policy to comply with Section 7702,
including possibly refunding any premiums paid that exceed the limitation
allowable under Section 7702 (together with interest or other earnings on any
such premiums refunded as required by law). For these reasons, Western Reserve
reserves the right to modify the Policy as necessary to attempt to qualify it as
a life insurance contract under Section 7702.
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 sub-accounts without being treated as owners of the
underlying assets.' As of the date of this Prospectus, no such guidance has been
issued.
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
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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.
The exchange of the Policy, a change of the Policy's Specified Amount, a
change in death benefit options, the taking of a Policy loan, an unscheduled
premium payment, a Policy Lapse with an outstanding loan, an exchange or
assignment of the Policy, a partial surrender or a total surrender may have tax
consequences depending on 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 Owner or
Beneficiary. A competent tax adviser should be consulted for further
information.
Generally, the Owner 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.
2. Modified Endowment Contracts. A Policy entered into after June 20, 1988
may be treated as a modified endowment contract depending upon the amount of
premiums paid in relation to the death benefit provided under such Policy. The
premium limitation rules for determining whether such a Policy is a modified
endowment contract are extremely complex. In general, however, a Policy will be
a modified endowment contract if the accumulated premiums paid at any time
during the first seven Policy years exceeds the sum of the net level premiums
which would have been paid on or before such time if the Policy provided for
paid-up future benefits after the payment of seven level annual premiums. In
addition, if a Policy (regardless of when it was entered into) 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.
Due to the Policy's premium structure, Western Reserve believes that most
Policies will be treated as modified endowment contracts. 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 current 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.
3. Distributions from Policies Classified as Modified Endowment
Contracts. Policies classified as modified endowment contracts will be subject
to the following tax rules: First, all pre-death distributions from such a
Policy (including distributions upon surrender and benefits paid at maturity, as
well as distributions made in anticipation of the Policy becoming a modified
endowment contract) 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
41
<PAGE>
and taxed accordingly. (Unpaid Policy loan interest will be treated as a loan
for these purposes.) Third, a 10% additional income tax is imposed on the
portion of any distribution from, or loan taken from, or secured by, such a
Policy that is included in income except where the distribution or loan is made
on or after the Owner attains age 59 1/2, is attributable to the Owner's
becoming disabled, or is part of a series of substantially equal periodic
payments for the life (or life expectancy) of the Owner or the joint lives (or
joint life expectancies) of the Owner and the Owner's Beneficiary.
4. Distributions 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 partial withdrawal, 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 that results in a
cash distribution to the Owner in order for the Policy to continue complying
with the Section 7702 definitional limits. Such a cash 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 Owner.
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. Generally, interest paid on any loan under a
Policy which is owned by an individual is not deductible. In addition, interest
on any loan under a Policy owned by a taxpayer and covering the life of any
individual who is an officer of or is financially interested in the business
carried on by that taxpayer will not be tax deductible to the extent the
aggregate amount of such loans with respect to Policies covering such
individuals exceeds $50,000. No amount of Policy loan interest is, however,
deductible if the Policy were deemed for Federal tax purposes to be a single
premium life insurance contract. The deductibility of Policy loan interest may
be further limited by other provisions of the Code. The 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
Owner.
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.
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 Policies described in this
Prospectus contain guaranteed purchase rates for certain payment options that
generally distinguish between men and women. Accordingly, employers and employee
organizations should consider, in consultation with their 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.
42
<PAGE>
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 fidelity bond issued to AEGON U.S.
Holding Corporation ('AEGON U.S.') and its affiliates, including Western
Reserve, in the amount of $10 million (subject to a $1 million deductible),
covering all of the employees of AEGON U.S. and its affiliates, to include
Western Reserve. A Stockbrokers Blanket Bond, issued to AEGON U.S., providing
fidelity coverage, covers the activities of registered representatives of
InterSecurities, Inc. to a limit of $10,000,000, subject to a $100,000
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 in each Sub-Account will be determined by
dividing a Policy's Cash Value in that Sub-Account by $100. Fractional shares
will be counted. The number of votes of the portfolio which the Policyowner has
the right to instruct will be determined as of the date coincident with the date
established by that portfolio for determining shareholders eligible to vote at
the meeting of the Fund. Voting instructions will be solicited by written
communications prior to such meeting in accordance with procedures established
by the Fund.
Western Reserve will vote Fund shares as to which no timely instructions
are received and Fund shares which are not attributable to Policyowners in
proportion to the voting instructions which are received with respect to all
Policies participating in that Portfolio. Voting instructions to abstain on any
item to be voted upon will reduce the votes eligible to be cast by Western
Reserve.
Each person having a voting interest in a Sub-Account will receive proxy
materials, reports and other materials relating to the appropriate Portfolio.
DISREGARD OF VOTING INSTRUCTIONS. Western Reserve may, when required by
state insurance regulatory authorities, disregard voting instructions if the
instructions require that the shares be voted so as to cause a change in the
sub-classification or investment objective of the Fund or one or more of its
Portfolios or to approve or disapprove an investment advisory contract for a
Portfolio of the Fund. In addition, Western Reserve itself may disregard voting
instructions in favor of changes initiated by a Policyowner in the investment
policy or the investment adviser of a Portfolio of the Fund if Western Reserve
reasonably disapproves of such changes. A change would be disapproved only if
the proposed change is contrary to state law or prohibited by state regulatory
authorities or Western Reserve determined that the change would have an adverse
effect on its General Account in that the proposed investment policy for a
Portfolio may result in overly speculative or unsound investments. In the event
Western Reserve does disregard voting instructions, a summary of that action and
the reasons for such action will be included in the next annual report to
Policyowners.
43
<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
<TABLE>
<CAPTION>
NAME AND POSITION(S) PRINCIPAL OCCUPATION(S)
WITH WESTERN RESERVE(1) LAST FIVE YEARS
- ---------------------------- ---------------------------------------------------------------------
<S> <C>
JOHN R. KENNEY Chairman of the Board of Directors (1987 - present) and Chief
Chairman of the Board Executive Officer (1982 - present), President (1978 - 1987 and
of Directors, President December, 1992 - present), Director (1978 - present), Western Reserve
and Chief Executive Officer 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
to February, 1991), President (1988 - 1989), Director (1976 to
February, 1991), Executive Vice President (1972 - 1988), Pioneer
Western Corporation (financial services), Largo, Florida; President
and Director (1985 to September, 1990) and Director (December, 1990
to present) Idex Management, Inc. (investment adviser), Largo,
Florida; Trustee (1987 - present), Chairman (December, 1989 to
September, 1990 and November, 1990 to present) and President and
Chief Executive Officer (November, 1986 to September, 1990), IDEX
Fund, IDEX II Series Fund and IDEX Fund 3 (investment companies), all
of Largo, Florida.
RICHARD B. FRANZ, II Senior Vice President, Chief Financial Officer (1987 - present) and
Senior Vice President, Treasurer (1988 - present), Western Reserve Life Assurance Co. of
Chief Financial Officer Ohio; Senior Vice President and Treasurer (1988 to February, 1991),
and Treasurer Pioneer Western Corporation (financial services), Largo, Florida;
Treasurer (1988 to September, 1990 and November, 1990 to 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 Executive Vice President (June, 1993 - present), Senior Vice
Executive Vice President President (1981 - June, 1993) and Actuary (1972 - present), Western
and Actuary Reserve Life Assurance Co. of Ohio; Executive Vice President
(September, 1993 - present), WRL Series Fund, Inc.
</TABLE>
44
<PAGE>
<TABLE>
<CAPTION>
NAME AND POSITION(S) PRINCIPAL OCCUPATION(S)
WITH WESTERN RESERVE(1) LAST FIVE YEARS
- ---------------------------- ---------------------------------------------------------------------
<S> <C>
WILLIAM H. GEIGER Senior Vice President, Secretary and General Counsel (July, 1990 to
Senior Vice President, present), Western Reserve Life Assurance Co. of Ohio; Vice President,
Secretary and General Secretary and General Counsel of Pioneer Western Corporation and
Counsel Secretary of its subsidiaries (May, 1990 to February, 1991); Vice
President and Assistant Secretary (November, 1990 to present) and
Secretary (June, 1990 to September, 1990) of IDEX Fund, IDEX II
Series Fund and IDEX Fund 3 (financial services), all of Largo,
Florida; Secretary and General Counsel of Orange State Life and
Health Insurance Company, and its affiliates, Largo, Florida (March,
1980 to April, 1990).
G. JOHN HURLEY Executive Vice President (June, 1993 - present) Western Reserve Life
Executive Vice President 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; 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 Vice President and Controller (1987 - present), Assistant Vice
Vice President President and Assistant Controller (1983 - 1987), Western Reserve
and Controller Life Assurance Co. of Ohio; Vice President and Controller (1988 to
February, 1991), Pioneer Western Corporation (financial services),
Largo, Florida.
PATRICK S. BAIRD Director (February, 1991 to present), Western Reserve Life Assurance
Director Co. of Ohio; Vice President (1984 - present), Chief Financial Officer
4333 Edgewood Road, NE (1992 - present) AEGON USA, Inc., formerly known as Life Investors,
Cedar Rapids, Iowa 52499 Inc., (financial services holding company), Cedar Rapids, Iowa.
DWIGHT I. HURD Director (1989 - present), Western Reserve Life Assurance Co. of
Director Ohio; Attorney at Law (admitted in Ohio, 1959); Of Counsel (1992 -
366 East Broad Street present) Carlile Patchen & Murphy, Columbus, Ohio; Partner (1964 -
Columbus, Ohio 43215 1992), Co-Managing Director (1987 - 1992), Emens, Hurd Kegler &
Ritter Co., L.P.A., Columbus, Ohio; Director (1983 - present), Ohio
State Life Insurance Company, Columbus, Ohio.
JACK E. ZIMMERMAN Director (1987 - present), Western Reserve Life Assurance Co. of
Director Ohio; Trustee, IDEX Fund, IDEX II Series Fund and IDEX Fund 3
507 St. Michel Circle (investment companies); Director, Regional Marketing, (1986 -
Kettering, Ohio 45429 January, 1993), Martin Marietta Corporation, Dayton, Ohio.
</TABLE>
45
<PAGE>
<TABLE>
<CAPTION>
NAME AND POSITION(S) PRINCIPAL OCCUPATION(S)
WITH WESTERN RESERVE(1) LAST FIVE YEARS
- ---------------------------- ---------------------------------------------------------------------
<S> <C>
LYMAN H. TREADWAY Director (September, 1994 - present), Western Reserve Life Assurance
Director Co. of Ohio; Consultant (1988 - 1993), Cleveland, Ohio.
30195 Chagrin Boulevard
Suite 210N
Cleveland, OH 44124
</TABLE>
- ---------------------------
(1) The principal business address of each person listed, unless otherwise
indicated is Western Reserve Life Assurance Co. of Ohio, P.O. Box 5068,
Clearwater, Florida 34618-5068.
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 William H. Geiger, Senior Vice
President, Secretary and General 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, 1994
and 1993 and for the years then ended have been included herein in reliance upon
the report of Price Waterhouse LLP, independent certified public 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, 1994 and 1993 and for the three years in the period ended 1993,
appearing in this Prospectus and registration statement have been audited by
Ernst & Young LLP, independent auditors, as set forth in their report thereon
appearing elsewhere herein which is based in part on the report of Price
Waterhouse LLP, independent auditors. 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 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.
46
<PAGE>
INFORMATION ABOUT WESTERN RESERVE'S FINANCIAL STATEMENTS
The financial statements of Western Reserve which are included in this
Prospectus (see p. ) 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,
1994, 1993 and 1992 have been prepared on the basis of statutory accounting
principles, rather than generally accepted accounting principles ('GAAP').
47
<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 with an Insured of a given age and a given Initial Premium could vary
over an extended period of time assuming hypothetical gross rates of return
equivalent to constant after tax annual rates of 0%, 6% and 12%. The tables
illustrate the Policy values that would result based on the assumptions that the
premium is paid as indicated, that the Owner has not requested an increase or
decrease in the Specified Amount of the Policy, 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 illustrations on page are based on a Policy for an Insured who is a
55 year old male in the non-smoker Ultimate Select rate class, an Initial
Premium of $10,000, a $31,000 Specified Amount (the minimum amount permitted
under the Internal Revenue Code rounded to the next highest thousand dollars),
and death benefit Option A. The illustrations on that page also assume cost of
insurance charges based on Western Reserve's current rates.
The illustrations on page are based on the same factors as those on page
, 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 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.__% 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.__% expense level assumes
an equal allocation of amounts among the eleven Sub-Accounts and is based on an
average 0.__% investment advisory fee and 1994 average normal operating expenses
of 0.__%. Calculation of the average annual expense level utilize actual
expenses incurred during 1994 for the Money Market Sub-Account (0.__%), Bond
Sub-Account (0.__%), Growth Sub-Account (0.__%), and Short-to-Intermediate
Government Sub-Account (_____%), Emerging Growth Sub-Account (__%),
Equity-Income Sub-Account (__%) and Global Sub-Account (__%). Because the
Balanced Sub-Account, Utility Sub-Account and Aggressive Growth Sub-Account were
not in existence during the full year of 1994 (commencement of operations was
March 1, 1994); and the Tactical Asset Allocation Sub-Account had not commenced
operations as of December 31, 1994, the annual expense level utilized in the
calculation for each of these four Sub-Accounts is estimated to be 1.00% during
1995. During 1994, 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, 1996 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 1.82%, the
gross annual investment return rates of 0%, 6% and 12% are equivalent to net
annual investment return rates of -1.82%, 4.18%, and 10.18%. The amounts shown
for the Net Surrender Values take into account all of the above charges and,
during the first ten Policy years, a contingent surrender charge, which consists
of the sales charge under the Policy, a charge for premium taxes charged by
various states, and a first year issue charge under the Policy.
48
<PAGE>
The hypothetical returns shown in the tables are without any tax charges
that may be attributable to the Series Account since 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. .)
The 'Premium Accumulated at 5%' column of each table shows the amount which
would accumulate if an amount equal to the Initial Premium were invested to earn
interest at 5% per year, compounded annually. Western Reserve will furnish, upon
request, a comparable illustration reflecting the proposed Insured's age, sex,
risk classification and desired plan features.
49
<PAGE>
WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE
HYPOTHETICAL ILLUSTRATIONS
MALE ISSUE AGE 55
Specified Amount $31,000 Ultimate Select Class
Annual Premium $10,000 Option Type A
Using Guaranteed Cost of Insurance Rates
<TABLE>
<CAPTION>
DEATH BENEFIT
END OF PREMIUMS ASSUMING HYPOTHETICAL GROSS AND NET
POLICY ACCUMULATED ANNUAL INVESTMENT RETURN OF
YEAR AT 5% 0% (GROSS) 6% (GROSS) 12% (GROSS)
-1.82% (NET) 4.18% (NET) 10.18% (NET)
<S> <C> <C> <C> <C>
1 10,500 31,000 31,000 31,000
2 11,025 31,000 31,000 31,000
3 11,576 31,000 31,000 31,000
4 12,155 31,000 31,000 31,000
5 12,763 31,000 31,000 31,000
6 13,401 31,000 31,000 31,000
7 14,071 31,000 31,000 31,000
8 14,775 31,000 31,000 31,000
9 15,513 31,000 31,000 31,000
10 16,289 31,000 31,000 31,000
15 20,789 31,000 31,000 40,321
20(AGE 75) 26,533 * 31,000 58,618
30(AGE 85) 43,219 * * 143,800
40(AGE 95) 70,400 * * 335,915
</TABLE>
<TABLE>
<CAPTION>
CASH VALUE NET SURRENDER VALUE
END OF ASSUMING HYPOTHETICAL GROSS AND NET ASSUSMING HYPOTHETICAL GROSS AND NET
POLICY YEAR ANNUAL INVESTMENT RETURN OF ANNUAL INVESTMENT RETURN OF
0% (GROSS) 6% (GROSS) 12% (GROSS) 0% (GROSS) 6% (GROSS) 12% (GROSS)
-1.82% (NET) 4.18% (NET) 10.18% (NET) -1.78% (NET) 4.22% (NET) 10.22% (NET)
<S> <C> <C> <C> <C> <C> <C>
1 9,595 10,190 10,785 8,695 9,920 9,885
2 9,178 10,373 11,640 8,378 9,573 10,840
3 8,745 10,547 12,573 7,945 9,747 11,773
4 8,296 10,710 13,594 7,596 10,010 12,894
5 7,826 10,860 14,711 7,126 10,160 14,011
6 7,333 10,995 15,937 6,833 10,495 15,437
7 6,811 11,110 17,284 6,411 10,710 16,884
8 6,256 11,201 18,770 5,956 10,901 18,470
9 5,661 11,264 20,412 5,461 11,064 20,212
10 5,017 11,292 22,232 5,017 11,292 22,232
15 795 10,678 34,759 795 10,678 34,759
20(AGE 75) * 7,644 54,783 * 7,644 54,783
30(AGE 85) * * 136,953 * * 136,953
40(AGE 95) * * 332,589 * * 332,589
</TABLE>
* In the absence of an additional payment, the Policy would lapse.
THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE AND ELSEWHERE IN THIS
PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF
PAST OR FUTURE INVESTMENT RATES OF RETURN.
ACTUAL INVESTMENT RATES OF RETURN MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL
DEPEND ON A NUMBER OF FACTORS, INCLUDING THE INVESTMENT ALLOCATIONS BY AN OWNER
AND THE DIFFERENT INVESTMENT RATES OF RETURN FOR THE FUND. THE DEATH BENEFIT,
CASH VALUE AND NET SURRENDER VALUE FOR A POLICY WOULD BE DIFFERENT FROM THOSE
SHOWN IF THE ACTUAL INVESTMENT RATES OF RETURN AVERAGED 0%, 6% AND 12% OVER A
PERIOD OF YEARS, BUT FLUCTUATED ABOVE OR BELOW THAT AVERAGE FOR INDIVIDUAL
POLICY YEARS. NO REPRESENTATION CAN BE MADE BY WESTERN RESERVE OR THE FUND THAT
THESE HYPOTHETICAL INVESTMENT RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR
OR SUSTAINED OVER ANY PERIOD OF TIME. THIS ILLUSTRATION MUST BE PRECEDED OR
ACCOMPANIED BY A CURRENT PROSPECTUS.
50
<PAGE>
WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE
HYPOTHETICAL ILLUSTRATIONS
MALE ISSUE AGE 55
Specified Amount $31,000 Ultimate Select Class
Annual Premium $10,000 Option Type A
Using Current Cost of Insurance Rates
<TABLE>
<CAPTION>
DEATH BENEFIT
END OF PREMIUMS ASSUMING HYPOTHETICAL GROSS AND NET
POLICY ACCUMULATED ANNUAL INVESTMENT RETURN OF
YEAR AT 5% 0% (GROSS) 6% (GROSS) 12% (GROSS)
-1.82% (NET) 4.18% (NET) 10.18% (NET)
<S> <C> <C> <C> <C>
1 10,500 31,000 31,000 31,000
2 11,025 31,000 31,000 31,000
3 11,576 31,000 31,000 31,000
4 12,155 31,000 31,000 31,000
5 12,763 31,000 31,000 31,000
6 13,401 31,000 31,000 31,000
7 14,071 31,000 31,000 31,000
8 14,775 31,000 31,000 31,000
9 15,513 31,000 31,000 31,000
10 16,289 31,000 31,000 31,000
15 20,789 31,000 31,000 42,695
20(AGE 75) 26,533 31,000 31,000 62,965
30(AGE 85) 43,219 * 31,000 159,258
40(AGE 95) 70,400 * 31,000 392,755
</TABLE>
<TABLE>
<CAPTION>
CASH VALUE NET SURRENDER VALUE
END OF ASSUMING HYPOTHETICAL GROSS AND NET ASSUMING HYPOTHETICAL GROSS AND NET
POLICY YEAR ANNUAL INVESTMENT RETURN OF ANNUAL INVESTMENT RETURN OF
0% (GROSS) 6% (GROSS) 12% (GROSS) 0% (GROSS) 6% (GROSS) 12% (GROSS)
-1.82% (NET) 4.18% (NET) 10.18% (NET) -1.82% (NET) 4.18% (NET) 10.18% (NET)
<S> <C> <C> <C> <C> <C>
1 9,637 10,233 10,829 8,737 9,333 9,929
2 9,271 10,469 11,739 8,471 9,669 10,939
3 8,895 10,703 12,736 8,095 9,903 11,936
4 8,508 10,934 13,828 7,808 10,234 13,128
5 8,107 11,160 15,027 7,407 10,460 14,327
6 7,686 11,376 16,342 7,186 10,876 15,842
7 7,255 11,592 17,796 6,855 11,192 17,396
8 6,811 11,805 19,404 6,511 11,505 19,104
9 6,350 12,013 21,186 6,150 11,813 20,986
10 5,870 12,214 23,164 5,870 12,214 23,164
15 3,606 13,494 36,806 3,606 13,494 36,806
20(AGE 75) 703 14,676 58,846 703 14,676 58,846
30(AGE 85) * 15,331 151,674 * 15,331 151,674
40(AGE 95) * 7,434 388,867 * 7,434 388,867
</TABLE>
* In the absence of an additional payment, the Policy would lapse.
THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE AND ELSEWHERE IN THIS
PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF
PAST OR FUTURE INVESTMENT RATES OF RETURN.
ACTUAL INVESTMENT RATES OF RETURN MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL
DEPEND ON A NUMBER OF FACTORS, INCLUDING THE INVESTMENT ALLOCATIONS BY AN OWNER
AND THE DIFFERENT INVESTMENT RATES OF RETURN FOR THE FUND. THE DEATH BENEFIT,
CASH VALUE AND NET SURRENDER VALUE FOR A POLICY WOULD BE DIFFERENT FROM THOSE
SHOWN IF THE ACTUAL INVESTMENT RATES OF RETURN AVERAGED 0%, 6% AND 12% OVER A
PERIOD OF YEARS, BUT FLUCTUATED ABOVE OR BELOW THAT AVERAGE FOR INDIVIDUAL
POLICY YEARS. NO REPRESENTATION CAN BE MADE BY WESTERN RESERVE OR THE FUND THAT
THESE HYPOTHETICAL INVESTMENT RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR
OR SUSTAINED OVER ANY PERIOD OF TIME. THIS ILLUSTRATION MUST BE PRECEDED OR
ACCOMPANIED BY A CURRENT PROSPECTUS.
51
<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 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 1933 and have ending periods at
five year intervals.)
[INSERT CHART]
* Source: (c) Stocks, Bonds, Bills and Inflation 1995 Yearbook(TM), Ibbotson
Associates, Chicago (annually updates work by Roger G. Ibbotson and Rex A.
Sinquefield). Used with permission. All rights reserved.
52
<PAGE>
Over the 50 20-year time periods beginning in 1926 and ending in 1994 (i.e.
1926-1945, 1927-1946, and so on through 1975-1994):
-- The average annual return of common stocks was superior to that of high
grade, long-term corporate bonds in 47 of the 50 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 1994 the average annual return for common stocks was
_____%, compared to % for high grade, long-term corporate bonds, ____% for U.S.
Treasury bills and _____% for the Consumer Price Index.
------------------------------
The following table indicates what the death benefits and Cash Values of
the following Policies would be on December 31, 1994 if they had been issued on
January 1, 1973 and if a single net premium under each of the Policies had been
invested in an underlying fund which had a gross annual investment performance
based on the year-end S&P 500 Stock Index, adjusted to reflect the reinvestment
of dividends, for each year in the period. The average annual rate of return for
the S&P 500 Stock Index for the 20 year period ending December 31, 1994 was
_____% (based on a single payment on January 1, 1973). The values shown reflect
all applicable deductions from the Policies, including a deduction from invested
assets of 0.87%, which is the current total of the investment advisory fee and
operating expenses for 1994 of the WRL Series Fund's Growth Portfolio. This
information is not necessarily indicative of future performance.
Insured: Male Ultimate Select Class, Age 45
Initial Premiums: $10,000
Specified Amount: $48,000
Death Benefit Option A
Death Benefit on 12/31/94 Cash Value on 12/31/94
$ $
Insured: Male Ultimate Select Class, Age 55
Initial Premium: $10,000
Specified Amount: $31,000
Death Benefit Option A
Death Benefit on 12/31/94 Cash Value on 12/31/94
$ $
Insured: Male Ultimate Select Class, Age 65
Initial Premium: $10,000
Specified Amount: $22,000
Death Benefit Option A
Death Benefit on 12/31/94 Cash Value on 12/31/94
$ $
53
<PAGE>
INDEX TO FINANCIAL STATEMENTS
WRL SERIES LIFE ACCOUNT:
Report of Independent Accountants dated ______________________
Statement of assets, liabilities and equity accounts at December 31, 1994
Statement of operations for the year ended December 31, 1994 and statement
of changes in equity accounts for the years ended December 31, 1994 and
1993.
Notes to Financial Statements
WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO:
Report of Independent Auditors dated ______________________
Statutory-Basis Balance sheet at December 31, 1994 and 1993
Statutory-Basis Statement of operations for the years ended December 31,
1994, 1993 and 1992
Statutory-Basis Statement of capital and surplus for the years ended
December 31, 1994, 1993 and 1992
Statutory-Basis Statement of cash flows for the years ended December 31,
1994, 1993 and 1992
Notes to Statutory-Basis Financial Statements
All other schedules are either not applicable or the information is included in
the related footnotes.
54
